EDF Should Cut Factory Rates by Fifth, French Industry SaysTara Patel
Electricite de France SA should cut rates for power-hungry factories in the nation by about a fifth, said a manufacturing group that’s due to renegotiate a 24-year energy-supply deal with the utility in coming weeks.
Costs need to drop by as much as 10 euros ($14) a megawatt-hour for the biggest industrial sites to keep them competitive, according to Jean-Pierre Roncato, head of Exeltium, which groups together the largest power-consuming production sites in France.
The Exeltium price, paid by about 100 sites, varies in part on nuclear output, and is now about 48 euros a megawatt-hour and as much as 52 euros when related costs are added, Roncato said.
“We need a competitive boost,” he said in an interview. The current deal means industrial users pay higher rates than rivals in countries including Germany and Canada, Roncato said.
Exeltium, with Air Liquide SA, ArcelorMittal and Solvay SA as members, is pressing EDF to cut rates as the former monopoly utility faces an estimated 55 billion euros of costs to improve safety and extend lives of French nuclear plants through 2025. The Exeltium deal has helped to fund investment by EDF, which produces about three-quarters of French power from 58 reactors.
The agreement is “no longer serving its purpose,” Roncato said. “The price has proven to be uncompetitive compared with other French price mechanisms and what other countries have put in place to help their own industries.”
EDF fell 2.2 percent to 24.98 euros, making it the second-worst performer on France’s benchmark CAC 40 stock index. A spokeswoman for the utility declined to comment today.
The Exeltium tariff “is higher than what large industrial consumers pay now in Germany,” Roland Vetter, head of research at hedge fund CF Partners U.K. LLP, said today by e-mail. The members “have political weight and will most likely argue that they will have to move their production outside France if higher power prices make them uncompetitive.”
French factories are competing with U.S. plants benefiting from a shale-gas boom that’s pushed down energy costs. Industry Minister Arnaud Montebourg says France is focusing on lowering labor, capital and energy costs after it lost 50,000 industrial jobs in a decade. The government also says EDF’s regulated rates for consumers will increase less in 2015 than this year or last.
The current tariffs for industry compare with a rate of 42 euros a megawatt-hour for atomic power that EDF charges to rival utilities under a program to intensify power-market competition.
Commission de Regulation de l’Energie, the power industry watchdog, said in a June report the difference in the two rates “puts into question the benefits” of the Exeltium contract.
Long-term electricity deals are “essential” to maintain manufacturing in France and promote investment, Roncato said.
Prices in Germany, Europe’s biggest power market, are set to weaken for a record fourth year, according to a Bloomberg survey. Year-ahead prices fell 19 percent to 36.80 euros a megawatt-hour during 2013. The benchmark will average 36.60 euros in 2014, down from 39.06 euros, the survey showed.
Exeltium signed the 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 buy EDF’s power and Exeltium, which needs to refinance that in 2014, is seeking new terms from the utility in coming months, Roncato says.
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 PSA Peugeot Citroen and Total SA.
The lobby argues that factories need more exemptions on subsidies for renewables to compete with Germany and EDF’s wholesale rate for power shouldn’t be higher than 39 euros a megawatt-hour, compared with 42 euros a megawatt-hour now.