Sat. Jan 22nd, 2022


Define an optimist: any minority shareholder in state-owned EDF. Announcements On Thursday, pressure on the French energy group was revealed due to tariff limits and problems with its aging nuclear reactors.

EDF expects a financial impact of € 7.7 billion from price controls alone. That figure can jump. The utility is suspending the output of at least four of its reactors. Depending on the extent of the disruptions, EDF may need assistance in supporting its finances. The market value fell by 15 percent on Friday, leaving it at a one-year low.

France has long required EDF to supply retail energy suppliers with a share of their power at a fixed price of € 42 per megawatt hour. This has not been a problem in recent years, when average prices were close to that figure. But since September, spot prices have regularly exceeded it by three times. This week’s announcement raises regulated volumes by a fifth, with a much smaller boost to the controlled rate.

Bad enough. But EDF revealed last month that there are welding errors at several reactors. This week, the utility said it would inspect the welding at all 56 operating reactors. This will reduce output by at least 10 percent. EDF will have to buy about 30 MWh of very expensive power in the market to cover this shortfall. At current prices, it could cause an additional € 9 billion hit on EDF’s accounts, Bernstein’s Meike Becker thinks.

The € 7.7 billion hit, if fully implemented, will wipe out expected operating profits for 2022. Covering the nuclear power outages without financial support from the government, EDF will be well in the red. The yield rates of the company’s bonds have climbed faster than French treasuries in recent weeks. EDF withdrew its 2022 net debt-to-ebitda target.

There is a painful paradox. Hostility to nuclear power has thawed, thanks to global warming and overheated energy prices. This should help EDF – except that its strong market position reflects long-term state support, which now requires reciprocity. Minority shareholders can expect more pain.

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