July 21 (Bloomberg) -- Electricite de France SA agreed to cut power prices for the country’s most energy-intensive factories, revising a long-term supply deal for the makers of products from steel to chemicals and paper.
The agreement signed today follows an “unexpected” drop in market prices for electricity that has made the cost of energy under a previous 24-year accord too expensive, according to Jean-Pierre Roncato, head of Exeltium, which represents the biggest power users in France.
“Prices will be competitive in the coming years,” he said at a press conference in Paris. The new agreement is an “important step” in closing the gap between electricity prices paid by German and French factories.
Many of France’s largest industrial companies have long complained that higher power costs make them less competitive than their counterparts in Germany and North America. Exeltium, with Air Liquide SA, ArcelorMittal and Solvay SA as members, pressed state-controlled EDF to cut rates even though the former monopoly utility faces an estimated 55 billion euros ($74 billion) in costs to improve safety and extend lives of French nuclear plants through 2025.
“The price paid for electricity supply will first be decreased, before being brought back up again to compensate, depending on the evolution of the electricity market price,” EDF and Exeltium said in a joint statement. The mechanism makes the contract more “flexible.”
“This will allow us to defend our competitiveness,” French Economy Minister Arnaud Montebourg said today at the press conference. The deal was struck thanks to “friendly” intervention from the government, which wants to lower energy prices and cut the costs of labor and capital for manufacturers.
Power prices under the deal will fluctuate within a band that is linked to market prices, Roncato said in an earlier interview. They will drop during the first phase of the agreement over the next five years.
French wholesale spot power prices for August slid as much as 4.4 percent and were at 24 euros a megawatt-hour at 1:07 p.m. in Paris, according to broker data compiled by Bloomberg. The rates were an average of 43.20 euros a megawatt-hour last year, 3.70 euros less than the previous year, according to EDF.
The Exeltium price, paid by the 27 largest power consumers at about 100 sites, varies depending on the output of France’s nuclear reactors. It’s now about 50 euros a megawatt-hour and the deal will bring it down to “market” levels, Roncato said, citing an average annual French market rate of about 42 euros a megawatt hour.
He declined to give precise details about price levels contained in the contract.
The deal is “positive” and “balanced,” EDF Chief Executive Officer Henri Proglio said today at the press conference, noting that European power markets are “disorganized.”
EDF produces about three-quarters of French power from 58 reactors. Exeltium signed a 24-year deal with EDF in 2008, with the first phase for 148 terawatt-hours starting in May 2010. Eleven banks offered 1.8 billion euros to finance the purchase of EDF’s power. Today’s deal will allow Exeltium to refinance the deal before the end of the year, Roncato said today.
Power accounts for as much as 70 percent of costs for some manufacturers and is considered a “strategic raw material,” according to Uniden, a group of 41 of France’s biggest energy users, including Peugeot SA and Total SA.
Intensive users were granted a 50 percent reduction in the cost of electricity transport, Philippe de Ladoucette, head of the Commission de Regulation de l’Energie, told a parliamentary hearing in April. That move mirrors discounts on power transport given to some German factories.
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