Decoding: what is the economic value of nuclear power plant?

While EDF has presented half-yearly results in loss and the State initiates the takeover of the company’s entire capital, some people denounce the economic weight of nuclear power. In reality, the atom is the foundation of stability that allows France to benefit from cheap electricity, finance the tariff shield, or limit the country’s energy costs linked to the gas price crisis. 

EDF announced on Thursday, 28 July, its results for the second half of the year. The company has suffered a historic loss of 5.3 billion euros in the first half of 2022 due to the drop in nuclear electricity production and its contribution by the State to contain the bill of the French. This publication comes at a time when the State presented on 19 July a public offer to purchase the EDF shares held by third parties to the State, i.e., 15.9% of the capital for an amount of 9.7 billion euros. According to the Tribune, this nationalization was expected by the electricity company. It feared a further downgrading of its rating by the rating agencies and the impact on its debt financing. The German state announced at the same time that it was taking a 30% stake in the energy company Uniper, which was being strangled by rising gas prices, for 15 billion euros.

In France, a satirical newspaper[1], following the government’s announcement, said: “EDF: the nuclear abyss is digging up the debt .”This is a false statement because nuclear power is an essential source of revenue for the electricity company and the State while benefiting companies’ competitiveness and households’ purchasing power.

Nuclear power, a major contributor to EDF’s financial results 

An analysis of EDF’s public accounts over the last few years (standard years excluding Covid and the energy crisis) shows that nuclear energy accounted for 86% of the group’s net production in France in 2019, with 379.5 TWh. Over these same years, the French ‘marketing and production activities’ had an Ebitda of more than 7 billion euros (profits before tax).

For a long time, the share of Ebitda generated by nuclear production allowed the payment of substantial dividends to the community via the Agence des Participations de l’État (APE). For example, Emmanuel Macron stated in 2016, when he was the Minister of the Economy, that the State had received “too much” in dividends from EDF over the previous ten years, with €20 billion. Since then, the government has changed its policy and favored the option of being paid in shares.

Arenh limits EDF’s revenues 

Since 2012, the Arenh mechanism (regulated access to historical nuclear electricity) has given electricity suppliers competing with EDF access to the park’s production at a regulated price. This access is set at 100 TWh per year for Arenh applications for end-customer supply. For several years, it has generated debates on the distribution between EDF, its competitors, and consumers of the economic value of the nuclear park. Especially since the law provided for the establishment by decree before 2013 of a formula for price changes with the economic costs of production, it was never published. According to the Court of Auditors, the discussions were ‘methodologically bogged down. Arenh has remained unchanged since 2012 at 42€/MWh, without considering inflation (more than 10%[2] between 2012 and 2021).

The Court of Auditors, in a recent report[3], has confirmed that Arenh has limited the revenues of the producer EDF, over the period 2011-2021, for the benefit of consumers. In a counterfactual scenario where all sales of Arenh volumes would have been made at market prices, it estimates that the operator’s revenues would probably have exceeded the accounting costs over 2011-2021 by about 7 billion euros. According to the Court of Auditors, this limitation of revenues for EDF has “reduced the company’s ability to generate investment capacity .”However, it adds that the setting of the Arenh price was not intended to “finance the renewal of the generation fleet” but to guarantee “a healthy financial situation at the time of such renewal.”

Nuclear power, a significant component of the tariff shield 

In the autumn of 2021, the government announced its intention to limit the rise in energy prices to protect consumers, both private individuals and industrialists. It provided for the possibility of introducing a tariff shield in the Finance Act for 2022, which was implemented on 1 February.

It put EDF to work to implement this protection by deciding on 13 January 2022 to increase the volumes of electricity that EDF sells to its competitors under the Arenh scheme. In concrete terms, in its decree of 11 March 2022, it asked EDF to make available to suppliers already benefiting from Arenh, who requested an additional volume of €46.2/MWh. Given its position in the energy markets, EDF was also required to purchase an equivalent volume of energy from these suppliers for €257/MWh[4]. In its press release of 14 March 2022, the EDF Group estimated the negative impact of this decision on its EBITDA for 2022 at €10.2 billion.

The wind and solar energy producers, who continued to sell their products on the sharply rising wholesale markets, had to pay back the gains made to the State. According to the remuneration supplement mechanism introduced by the 2015 law on energy transition for green growth, if market prices are low, a premium is paid to these producers to compensate for the difference between the income from sales and a reference level of remuneration[5]. When market prices are higher than the reference price, these same producers must pay the difference to the state. In this way, their income is stable and secure and corresponds to the reference price set at the end of the calls for tenders. According to CRE, the forecast charges for 2022 will be negative and represent revenue of €4.3 billion for the State’s budget. CRE points out that this amount must be compared with the total support provided to renewable energies since 2003, estimated at €43 billion.

It should be noted that this payment of €4.3 billion does not impact the forecast accounts of renewable electricity producers. On the other hand, the contribution requested from the historical nuclear power to benefit consumers heavily affects EDF accounts.

For many years, nuclear power has allowed France to have the lowest electricity prices in Western Europe

The production costs of the nuclear fleet are stable and predictable, as they are not very sensitive to the price of uranium, which represents only 5% of the total cost. The nuclear fleet has enabled France to benefit from low-carbon, controllable electricity at competitive prices.

If France had made the same energy policy choices as its German neighbor, it would be highly dependent on imported gas and have electricity that emits a lot of CO2. With the sharp rise in gas prices, the production cost over 2022 of gas-fired power plants can be estimated at around €260/MWh. For comparison, the full production costs of existing nuclear power are still limited to about €60/MWh. Based on nuclear production (between 280 and 300 TWh), it can be calculated that the reactor fleet saves the nation around €60 billion this year compared to a gas generation fleet.

A new roadmap for nuclear power

According to the Ministry of the Economy, the State’s acquisition of 100% of EDF’s capital should enable it to “regain control of the regalian activity of decarbonized electricity production, strengthen the State’s support for EDF, guarantee its financial rating and open up long-term projects with greater serenity .”For EDF, the aim is to implement the guidelines set out by the French President in his Belfort speech, i.e., to operate all current reactors over the long term (subject to authorization by the ASN) and to launch without delay a construction program for six EPRs, with studies for eight additional EPRs. ■