Energy Crunch Hammers French Nuclear Giant EDF

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EDF shares fell to a record low after France blocked the utility from fully passing rising energy prices to consumers.

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More than 80% of EDF’s shares are owned by the French government, which limits the downside for international investors.

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Economy Minister Bruno Le Maire said in an interview published by Le Parisien newspaper on Thursday that the government has struck an agreement with the EDF that will ensure electricity prices rise by more than 4% in 2022. Without the measures, he said, he would have shot up more than 35% on February 1.

EDF said the move could wipe out €7.7 billion, or $8.82 billion, from its earnings this year. The exact impact would depend on the electricity prices in the market, it said.

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Mr Le Maire said the government would also reduce the main tax on electricity, reducing tax receipts by €8 billion.

Energy prices began to rise in the early fall due to a shortage of natural gas in Europe. Governments in Spain, Italy and elsewhere have sought to ease the blow to consumers and businesses with subsidies, tax cuts and support for poor families. In the UK, lawmakers have pressured Prime Minister Boris Johnson to act ahead of an estimated 57% increase in consumer prices set by energy regulators in April.

For the French government, the political pressure for April’s presidential election is particularly intense. Polls show that Emmanuel Macron, currently, faces a tough challenge from the conservative Les Republican Party candidate Valerie Pecrese.

Energy costs have been a political minefield during Mr Macron’s presidency. Plans to raise taxes on gasoline and diesel sparked the anti-establishment yellow vest movement in 2018, threatening their agenda. Mr Macron quashed the increase, which was intended to tax the fuel’s carbon content.

Starting in December, the government sent a bonus of €100, or $115, to some 38 million French people to offset rising prices of commodities, including fuel and food.

France generates more than 80% of its electricity from nuclear power, partly protecting the country from the boom in electricity prices that hit Europe in the second half of 2021. But French electricity prices are still heavily influenced by the price of gas, which is the power of the fuel. Plants that fire or close depending on swings in demand.

Connections to the UK, Germany, Spain and elsewhere could also prompt higher electricity prices in other parts of the region to seep into the French market. The problem has been compounded by the closure of several French nuclear reactors.

The essence of the plan is for EDF to sell an additional 20 terawatt-hours of electricity to its competitors at reduced prices, on top of the 100 terawatt-hours it had already agreed to distribute to them under a mechanism called ARENH. These reduced prices will automatically be transferred to homes and businesses, Mr. Le Maire said.

The trouble for EDF, say analysts, is that it has sold most of the electricity it expects to generate this year. As a result, it would have to buy power at higher market prices to sell to rival suppliers at a lower, government-mandated price of €46.20 per MW.

The timing of the government measures was unfortunate for the company. Also on Thursday, the EDF said faults in several nuclear reactors would cut projected nuclear power generation by about 10% this year.

Meike Baker, a utility analyst at Bernstein, said outages at Sivaux, Choos and Penley stations, combined with government policies to reduce consumer electricity prices, could reduce EDF’s earnings by €15 billion this year. .

This isn’t the first time EDF has struggled during a price rally. The utility’s trading unit by Le Figaro was reported to have lost €400 million by wrongly betting on electricity prices in the fall.

Asked about the report on a call with analysts in November, EDF officials said a limited number of trading books had been damaged as a result of the market turmoil.

Write to Joe Wallace at [email protected] and Matthew Dalton at [email protected]

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