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EXPLAINER: What is France doing to ‘regain control of electricity prices’?

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Last month, French President Emmanuel Macron made a promise. “By the end of the year we will regain control of the price of electricity, at the French and European level,” he said on 25 September. Euractiv France looks at how this could be done.

Read the original French story here.

Like other European countries, France saw electricity prices surge last year after the EU decided to sanction Moscow for its war on Ukraine and phase out gas imports from Russia.

In mid-March, the European Commission proposed overhauling the bloc’s electricity market to tame volatile prices.

But while the European Parliament has already adopted its position, EU countries are still haggling over state aid to power generators amid fears that French support for nuclear will give Paris an unfair competitive advantage.

So how can France meet its objective while keeping within the EU’s rules? Euractiv takes stock just days before a decisive Energy Council meeting on 17 October.

Two fronts – in Brussels and Paris

With the ongoing reform, France is fighting on two fronts.

First, in Brussels. To ensure affordable bills for consumers, France is pushing long-term energy pricing contracts for existing nuclear power plants as part of the EU’s electricity market reform, a move resisted by EU countries like Germany, which fear it will give France an unfair competitive edge.

Excluding those would be a red flag for Paris, which has launched a massive programme to prolong its nuclear reactors.

Second, in France. The government is at odds with Luc Remont, the newly appointed CEO of state utility EDF, which owns and operates the country’s nuclear power plants, over the form that state support will take.

While reforming its state subsidy scheme, France must also find a way to keep within the framework of EU competition rules, which aims to ensure a level playing field in the EU market for companies across the 27 member states.

Where do negotiations stand in Brussels?

As part of the EU’s electricity market, France is working hard to ensure that its existing nuclear plants can be covered by Contracts for Difference (CfDs).

CfDs set a price corridor for the sale of electricity on the block’s wholesale market. If the selling price is below the lower limit of the corridor, the state pays the producer the difference. If it is above the upper limit, the producer pays back the difference to the state.

Ahead of the negotiations between EU ambassadors scheduled for Wednesday (4 October), and before the formal negotiations in the Energy Council, France and seven other EU states insisted on the option of a CfD for existing nuclear plants, in a compromise proposal sent to the Spanish EU presidency on Tuesday morning (3 October).

However, other member states like Germany have warned of a possible infringement on free competition, as the French proposal would make EDF the only electricity producer in the EU to benefit from preferential contracts for existing power plants.

Why is France insisting?

According to France, CfDs on existing nuclear plants would make it possible to maintain competition in the French electricity market, as is the case with the so-called ARENH scheme, which regulates the sale of electricity from EDF’s historical nuclear fleet and is due to expire on 31 December 2025.

ARENH currently allows competitors of EDF’s supply arm, the so-called alternative suppliers, to access part of the French utility’s nuclear output at preferential prices. This means they can sell it on the EU market and establish themselves there.

According to France’s competition authority, maintaining this system beyond 31 December 2025 would require EDF to divide its supply and generation activities “at least in accounting and financial terms” since the ARENH has not fulfilled all its promises, particularly with regard to the parallel liberalisation of the electricity generation market.

However, the idea of breaking up EDF is out of the question for now, following the backlash triggered by the announcement of the so-called “Hercules” project, which even led opposition MPs to support a law banning its use in 2022.

In 2020, the Directorate-General for Energy and Climate of the French Ministry for Energy Transition proposed the following alternative: introducing CfDs for nuclear production, a move that was taken up by the European Commission in its March proposal to reform the EU’s electricity market.

This was backed by the French competition authority, which said it would ensure equal access for suppliers to EDF’s output. However, it points out that “the effectiveness of the new system will depend on the precise conditions (price levels, cost references, control by the regulator, etc.), which are still too imprecise or open-ended at this stage”.

This makes the ongoing negotiations in Brussels and with EDF all the more important.

What about EDF in all this?

EDF’s Remont does not want CfDs for existing nuclear plants, nor any significant regulation for the price of nuclear-generated electricity.

Macron, for his part, needs to keep the French market within EU competition rules while at the same time keeping his political promise to “regain control of the price of electricity”. To do this, French officials keep repeating that the prices paid by consumers need to be brought closer to the production costs of nuclear power.

So, whatever happens in Brussels, the government should ensure that the price of at least part of nuclear production is regulated at around EUR60-70/MWh, according to a source close to the matter.

Meanwhile, the CEO of EDF is calling for a higher level of regulation, at EUR120/MWh.

“A consensus has now been reached [with EDF] on introducing a regulated price base,” the office of French Energy Transition Minister Agnes Pannier-Runacher told Euractiv France.

What’s more, the French government is not opposed to EDF having a share in the deregulated nuclear sector, with one source saying this would “maintain an incentive [for EDF] to outperform in its nuclear production”.

Macron unlikely to drop the issue

Tasked by Macron with finding a solution to the matter, the government remains vague on the content of the measures to come.

EDF’s conclusions on the degree of regulation should be presented before the EU’s Energy Council on 17 October. France and its state-owned electricity company must speak “with one voice in Brussels. It’s an industrial imperative,” the office of French Industry Minister Roland Lescure told Euractiv.

Moreover, “it seems unthinkable that Emmanuel Macron would drop the issue now that he has committed himself to lower electricity prices,” says Phuc-Vinh Nguyen from the European think-tank Institut Jacques Delors.

However, Remont’s divergent positions have created a “messy situation” that complicates the French government’s task, a source close to the matter conceded.

[Edited by Frederic Simon/Nathalie Weatherald]

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