Electricite de France S.A: The Hero Without a Cape

On the 13th of January 2022, the French Government ordered state-owned utility Electricite de France S.A (EDF) to sell more of its cheap nuclear power to smaller competitors to limit the increase of electricity tariffs in France. EDF, a France-based electricity producer, marketer and distributor, is expected to face a 7 billion GBP hit at a time when many of its reactors are suffering from technical problems. EDF is known globally as the largest operator of nuclear plants. In addition to being known for its nuclear technology, EDF uses many renewable sources to produce electricity with net-zero carbon emissions for industries, local authorities and residential consumers.

The cost of electricity in France has increased dramatically in recent years, and nearly one in two 18 to 34-year-olds find it hard to pay their bills according to the government information service, Médiateur national de l’énergie. EDF and Gaz de France maintained a monopoly over French electricity and gas provision until 2007, when residential customers had the option to buy energy from smaller competitors for the first time, such as Vattenfall AB and Engie SA. As the market became hectic with offers from around 50 alternative providers of energy, many would have expected that prices would come down due to a demand reduction.

However, in contrast, tariffs have increased by more than 50% since 2007. Customers with a high electricity consumption (9 kVA of power over 8,500 kWh of use) have seen average prices rise from 522 EUR to 981 EUR, this rate is climbing three times faster than that of current inflation.

As a result of these rising electricity prices in France, which has caused many households to struggle to pay their bills, the French government has forced EDF to take an extremely large financial hit to give much of their cheap energy to their smaller competitors.

Under the French government’s new measures, a tight lid has been kept on the regulated price that EDF is allowed to charge for its nuclear electricity, which will rise to 46.2 EUR per megawatt-hour (MWh), from 42 EUR/MWh, despite a record surge in electricity market prices across Europe in recent months.

The new price cap is still below EDF’s actual production costs and far below current market prices of more than 100 EUR/MWh. EDF said the plan could hit its earnings before interest, tax, depreciation and amortisation by between 7.7 billion EUR and 8.4 billion EUR based on market prices in December 2021 and January 2022. Barbara Pompili, the Environment Minister of France, stated that the government planned to help EDF withstand the blow but has offered no details on this. As a result of Ms Pompili’s plan, EDF’s share price tumbled from 10.35 EUR on Thursday the 13th of January close to 7.92 EUR on the morning of Friday the 14th of January. Ultimately, the final impact on EDF’s EBITDA will depend on the market prices over the implementation period.

To revive its stock market drop, EDF will consider measures to improve the structure of its balance sheet and any measure to protect its interests. EDF has withdrawn its 2022 Net Financial Debt / EBITDA guidance and will communicate again at its Annual Results on the 18th of February 2022.

In the coming months, it will be interesting to see exactly how much of a financial hit EDF will take and how this will affect the broader French economy both in the short term and long term. Furthermore, will rising fuel prices and the dominance of certain companies become a more common occurrence as other countries start to turn their heads to nuclear power and net-zero carbon emissions?

By: Joel Muir

Sector Head: Eric Hardy