Nuclear power at €70/MWh: five questions to understand everything

Price Capping, Nuclear Rent Capture, End of Arenh… EDF and the government have agreed to set a reference selling price for nuclear electricity at 70 euros. This is expected to be implemented in 2026 to smooth the effects of potential sharp market price increases on individuals and businesses.

Why Was an Agreement Necessary Between the State and EDF on Electricity Prices?

Currently, EDF is obligated to sell a portion of its nuclear production to competitors at a fixed rate of 42 euros per MWh under the Historical Nuclear Energy Regulated Access (Arenh) scheme. This system faces several challenges. Firstly, it expires in 2025, necessitating an early replacement. “These negotiations were essential. Leaving the market unregulated was unthinkable,” explains Bruno Le Maire, the Minister of Economy.

Nous avons conclu un accord entre l’État et EDF qui permettra à la France de rester l’un des pays les plus compétitifs en Europe pour l’électricité. Il pose les bases de la nouvelle régulation française de l’électricité nucléaire et fait entrer EDF dans le XXIe siècle. ↓

— Bruno Le Maire (@BrunoLeMaire) November 14, 2023

Additionally, current price formation mechanisms have failed to shield French consumers from price increases due to the energy crisis. “Over the past two years, electricity prices have risen by 80%, 90%, 100%. Consumers haven’t felt this because we implemented a tariff shield. However, this shield has a flaw: it has cost nearly 40 billion euros,” adds the Economy Minister. Agnès Pannier-Runacher, the Minister of Energy, further clarifies, “This new arrangement will decouple energy prices from gas prices and address certain shortcomings of Arenh, holding all system stakeholders accountable.”

What is the Agreed Reference Price Between the State and EDF for Nuclear Electricity Sales Post-2025?

The agreement between EDF and the government aims to ensure an average nuclear electricity price of around 70 euros per MWh. “The tariff shield was a temporary protection. The agreement with EDF provides permanent protection,” asserts Bruno Le Maire. In recent years, market prices have soared to several hundred euros.

“The 70 euro figure is based on our long-term forecasts over 15 years from 2026,” explains Bruno Le Maire’s office. He elaborates, “The reference price is the average production cost of nuclear power that sustainably covers all existing nuclear costs and future investments, particularly in the new EPR2 nuclear program.”

How Do We Compare Arenh’s 42 Euro Price to the 70 Euro Agreement?

The Ministers involved in the Agreement stress that it does not mean an increase in electricity prices. Bruno Le Maire explains, “Those comparing this to the previous regulation’s 42€ per MWh forget that this figure only represented a third of EDF’s nuclear production.” While Arenh covered only 100 TWh of production, the new agreement encompasses the entire French nuclear output. Additionally, Arenh accounted for about 50% of the electricity price component, including transport and currently zero-rated taxes.

Under the current regime, after the tariff shield’s application, the price per megawatt-hour is 130 euros for individual consumers and 200 to 300 euros for businesses. With the new agreement, the Ministry of Energy anticipates a 10% rise in electricity rates in 2024, aiming for price stability from 2026 onwards.

How Will Consumers be protected in case of price increases?

Consumers will benefit from the nuclear rent as market prices rise. According to the Minister of Energy Transition, a price-capping mechanism will be implemented to protect consumers. It will be activated once EDF’s prices significantly exceed the average equilibrium price of 70 euros per MWh. When the average price reaches 78.5 euros per MWh, 50% of the additional revenue generated by EDF beyond this threshold will be redistributed to the community, thus benefiting consumers. If the threshold of 110 euros is exceeded, the community will capture 90% of these excess revenues.

What Impact on EDF’s Industrial Tool?

During the recent crisis, EDF suffered the consequences of the tariff shield and the Arenh mechanism. For instance, in 2022, the company had to sell 120 TWh of its nuclear electricity (instead of 100 TWh) at 42 euros to competitors while market prices skyrocketed. With this mechanism, EDF must protect consumers while ensuring “the extension of our plants and the construction of new reactors,” explains Agnès Pannier-Runacher.

However, for the system to be efficient, EDF must achieve high production levels with its 56 operational nuclear reactors and the imminent arrival of the Flamanville EPR. Luc Rémont, CEO of EDF, states, “We need to produce more to achieve profitability.” The company aims to produce 360 TWh and even targets reaching 400 TWh through power increases in the existing fleet.■