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France Fails to Pry Power Market From EDF, Probe Says

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April 20 (Bloomberg) -- France’s attempt to open its power market may be failing as competitors to Electricite de France SA consider abandoning the country, according to a study by the French antitrust authority.

“Some suppliers are currently reducing their business and may even pull out completely from the French market,” the Autorite de la Concurrence said in a study published April 12 on its website. “This would be a sign that the opening of the French electricity market has failed.”

The report, which doesn’t specify which companies are disappointed with business in France, was written in response to a government plan to create a market for so-called capacity trading. Its conclusions provide a wider analysis of access to the power market.

EDF, Europe’s biggest power producer, is selling a proportion of its nuclear output to rivals under a law, known as Nome, that took effect July 1 and is aimed at opening up the French market to more competition. The legislation requires EDF to sell power from its 58 nuclear reactors to rivals including GDF Suez SA at a price set by the government of 42 euros ($55) a megawatt-hour.

To allow EDF rivals to gain more market share, the government should give alternative suppliers access to hydroelectric production and modify regulated rates for wholesale nuclear power, the Autorite de la Concurrence said.

Power Market

France’s power and natural-gas markets were opened completely to competition in July 2007. New entrants such as Poweo SA have made few inroads in the electricity market because EDF is able to produce relatively cheap power from its nuclear reactors. The most recent overhaul followed probes by European Union regulators into EDF’s dominance.

Last year, the utility had 94 percent of the household market and 78 percent of business demand, according to the regulator.

The utility controls 80 percent of the country’s power generating capacity including all atomic reactors, two-thirds of thermal capacity, 81 percent of hydroelectric capacity and about a third of renewable output, according to the report. European utilities including Sweden’s Vattenfall AB and EON AG have signaled an interest in winning hydroelectric concessions in France.

EDF competitors agree with the report’s findings that the wholesale nuclear rates don’t put them on a level playing field with EDF and that competition in the French market could deteriorate further, according to a statement from the Association Francaise Independante de l’Electricite et du Gaz. The group represents Alpiq Holding AG, Enel SpA, Eon and Vattenfall.

Capacity Trading

The French antitrust body raises questions about the need to put in place a market for capacity trading in France, planned as a way to encourage investment by alternative suppliers and save energy during peak demand periods.

The project would cost consumers an estimated 200 million euros to 500 million euros annually for results that haven’t been proven effective in other countries, it said. The measure would also add an onerous layer of regulation.

Capacity trading is “justified in the long term” because French peak demand is forecast to increase, the energy regulator Commission de Regulation de l’Energie said in a statement. The system may raise consumer prices, would be complicated to put in place and could affect how the power market operates, it said.

Criticism of the state of competition within the French power market and plans for capacity trading sparked a dispute between rival camps in the presidential campaign. Voting gets under way in two days with Socialist Francois Hollande leading in the polls to replace President Nicolas Sarkozy.

The Nome law must be “suspended,” said Francois Brottes, a French deputy who advises Hollande on energy issues. In a statement, Brottes said the law encourages “speculation” on the French market.

Suspension of the law would “expose France to a conflict with Europe that could explode our power system,” French Industry Minister Eric Besson said in a statement. “Under the Nome law, Europe accepted that France retains its regulated rates that guarantee a competitive nuclear price.”

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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