EDF Nuclear Power Struggles to Compete With Falling Market Price

Electricite de France SA’s sale of atomic power to competitors for the second half of the year has sunk to a fraction of what it was in 2014, signaling nuclear energy may be losing competitiveness.

The state-controlled utility sold a quarter of the volume, or 4 terawatt-hours, to rivals, according to energy regulator Commission de Regulation de l’Energie. The 12.3 terawatt-hours sold for the first half was also less than half the 34.6 terawatt-hours for the second half of 2014.

The drop signals obstacles ahead for Chief Executive Officer Jean-Bernard Levy, who is pushing for higher power prices to help pay for tens of billions of euros of maintenance and safety upgrades on EDF’s aging fleet of French nuclear reactors, which account for three-quarters of the country’s electricity production.

The utility, the world’s biggest nuclear operator, is required to offer about a quarter of its annual French atomic output to rivals under a regulated system known as Arenh that’s aimed at increasing competition on the domestic market. They can buy it at the current price of 42 euros ($47.44) a megawatt-hour or turn to the market where prices are lower.

“There is an imbalance between nuclear generation costs and wholesale power market prices,” said Louis Boujard, a utilities analyst at Oddo Securities in Paris. “Nuclear energy is less competitive than it was in the past.”

Market Price

French electricity is bought and sold in the market on a year-ahead basis for 38.15 euros, or 9.2 percent below the Arenh price, according to broker data compiled by Bloomberg. The contract has dropped 4.6 percent since January and is trading at its lowest level for the time of year since at least 2007 when Bloomberg began tracking the data.

The government is reviewing how it calculates the rates charged for Arenh nuclear power. While EDF argues that it needs to increase the rate to better reflect the cost of generation, other power distributors such as Direct Energie and industrial consumers want a reduction. In the meantime, they are shunning the volumes in favor of cheaper power on the market.

EDF has warned selling at less than 42 euros could eat into earnings later this year. In the first quarter the impact on sales was “limited” because the realized selling price was close to the Arenh price, it said in a May 12 statement.

“This will not be the case during the second quarter and during the second half of the year,” said Chief Financial Officer Thomas Piquemal.

The energy regulator proposed in October that the Arenh rate should rise to 44 euros this year and by 4.5 percent in 2016. The government is yet to decide on a revision.

The rate should gradually increase to 55 euros to reflect costs, EDF’s Levy told senators earlier this year at a hearing in Paris.

“Nuclear is having a hard time competing in the power market where there is a lot of renewables coming online, coal prices are falling and demand is weak,” said Elchin Mammadov, European utilities analyst at Bloomberg Intelligence.

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