French nuclear propulsion offers an opportunity to buy back EDF

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As the French government announces a future where nuclear energy will play a critical role in achieving carbon neutrality for the country by 2050, its state-controlled energy giant EDF remains cluttered by its past.

Positioned at the heart of the nuclear debate in France and in Europe, EDF is grappling with an indebted balance sheet and the reputation of not being able to manufacture new nuclear technologies on time and on budget.

But now President Emmanuel Macron has extended an olive branch and has apparently paved the way for him to expand internationally and attract much-needed investment.

Macron – whose government denounced EDF for cost overruns and delays on one of its French reactor projects, and suspended a high-profile public service restructuring – recently announced a € 1 billion investment in research into small modular reactors (SMRs), a new technology that is attracting interest around the world.

Meanwhile, government officials have also signaled that Macron could announce the green light for at least six large reactors before the end of the year – previously, the decision was not expected until well after a presidential election next April.

“It is certainly a very positive moment for nuclear power,” said Xavier Ursat, executive director and head of new nuclear projects at EDF.

“This year, everything has become concrete.

Created in 1946 by General Charles de Gaulle, EDF holds emotional power in France, the last bastion of European nuclear power, and is linked to the nation’s industrial past and future.

For years, it was not clear whether Macron, under pressure to move away from nuclear towards renewable energies, would give the green light to new reactors long claimed by EDF. Shortly after coming to power, Macron pledged to reduce the share of nuclear power in French electricity production from 75 to 50% by 2035.

However, the ambitious European climate objectives, which are based on a shift towards energies that emit less carbon than fossil fuels, give nuclear power back to the table and offer France the opportunity to assert its dominance in this area.

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For EDF, the thawing of state tensions and the confirmation of France’s desire for a nuclear future provide increased visibility to enable it to continue to train and hire the people it will need and to attract investment.

It will be no small task for a company grappling with 41 billion euros in debt and a colossal program of maintenance and investment to finance. UBS estimates a total investment need of more than 100 billion euros to ensure a 20-year life extension of 80 percent of its nuclear fleet.

If approved, all government subsidies to fund six new reactors – estimated in documents disclosed in 2019 at around € 47 billion – and the final price of nuclear power produced by them, will ultimately receive the green light from Brussels.

The cost of this funding could also be influenced by whether or not the EU includes nuclear energy in its taxonomy on “green finance”, which would make it a more attractive investment prospect. This decision has been delayed indefinitely due to infighting within the EU.

“Whether we can get financing at a low rate or at very high rates completely changes the end cost. That’s the real topic, behind the raw figure, ”said Ursat.

EDF is also confronted with other obstacles, in particular the inability to find a compromise with Brussels on the restructuring of the electricity company which would have enabled it to increase the regulated price at which it sells nuclear energy and to restrict certain of its activities.

It must also show that it is capable of implementing its next-generation European pressurized reactor (EPR) technology, which it plans to sell to India, Poland and the Czech Republic.

EPR reactors under construction in Europe – including Flamanville in France and Hinkley Point in the UK – have billions of budget overruns and years behind schedule. The company’s former CFO has resigned over concerns over the strains Hinkley Point was putting on EDF’s balance sheet.

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These setbacks have led some investors and analysts to wonder about EDF’s strategy and growth in the risky and costly nuclear sector, if it was not more than 80% owned by the French State.

“The new Flamanville reactor is not yet operational, and some will want to see this project completed before France commits to more reactors of the same design,” said Sam Arie, analyst at UBS. “From an investor point of view, is there an interest in new nuclear projects? Not really.”

However, the recent surge in energy prices coupled with demanding climate targets seem to have turned the tide in favor of EDF.

According to a report published last Monday by the French grid operator RTE, the cheapest way to achieve carbon neutrality by 2050 would involve the construction of 14 new reactors, with other options which rely more on the expansion of the solar and wind energy production involving higher costs.

In the scenarios presented by RTE, even if France reduced its current share of nuclear power in the electricity mix from 70 to 26% by 2050, it would still need to build eight new reactors. If it did not build new nuclear reactors and rely exclusively on building renewable energy and extending the life of existing nuclear, it would cost € 10 billion more per year than options including new reactors.

The recent increases in energy prices have also brought a boon for EDF. The cost of producing nuclear and renewable energy has remained constant, but about 30% of the company’s electricity is exposed at market prices.

The rest of EDF’s electricity is sold at a fixed rate – well below current world market prices – meaning that French households and businesses have been immune to the soaring prices of EDF. energy.

Xavier Ursat, on the left, executive director and head of new nuclear projects at EDF, with Laurent Thieffry, director of the Flamanville project, pictured in 2016
Xavier Ursat, on the left, executive director and head of new nuclear projects at EDF, with Laurent Thieffry, director of the Flamanville project, photographed in 2016 © Benoit Tessier / Reuters

UBS analysts predict that EDF could earn an additional € 4-5 per megawatt hour (MWh) in 2022, which could generate € 3 billion in additional revenue.

“EDF is a big winner in this energy crisis,” said Denis Florin, partner at Lavoisier Conseil, an energy-focused management consulting firm. “They absolutely wanted these RPSs, and they really want the money for RMS research. It is Macron’s reconciliation with EDF.

Meanwhile, France will serve as a showcase for exports of the new SMR technology – presented as less powerful but easier to produce and operate than conventional reactors – with EDF expected to start building its first “Nuward” reactor in nine. years.

The idea is that these mini-plants are built in pairs, capable of together producing 340 MWh – the equivalent of the old high-carbon coal, oil and gas plants in the world that will reach the end of the year. their lifespan in the next 20 years. years.

“This is the market that we are targeting, and for that market you have to be ready in 2030,” Ursat said.


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