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France mulls “insufficient” EUR 42-48 nuclear price corridor

Power

04 Mar 2020 09:53

Photo: Shutterstock.com

Photo: Shutterstock.com

Paris

04 Mar 2020 09:53

(Montel) The French government could set an “insufficient” price corridor of EUR 42-48/MWh for the sale of EDF’s nuclear output, said an economist who has analysed the proposed reform of Arenh. 

"This is based on the fact that the current Arenh rate [the mechanism under which the state-run utility currently sells its nuclear output to rivals], EUR 42/MWh, is regarded as a little low and that it would therefore be a suitable floor price," Paris-based energy economist Jacques Percebois told Montel this week.

However, in a new study on the impact of the planned reform with energy researchers at the Paris Dauphine University, Percebois said the government should widen the price range of the planned corridor.

The proposed range of EUR 6 between the floor and cap was “insufficient” to accommodate swings in wholesale prices, he said.  

Under a EUR 6 range, only a quarter of nuclear production would be sold at market prices. He called for a range of “10, 12, even 15 euros”.

The proposed reform has yet to be approved by the European Commission but was due to make almost all of EDF’s annual nuclear output, about 360 TWh, available on the wholesale market from 1 January 2026. 

Currently, EDF sells 100 TWh/year, or a quarter of its nuclear output, to rivals at the Arenh rate.

Scrap Arenh

The government planned to scrap Arenh but would introduce a price floor and ceiling, or corridor, on the market sales, with the gap between the two at EUR 6.

Under the new mechanism, if wholesale prices fell below the price floor, suppliers must compensate EDF financially. If prices exceed the ceiling, the utility must compensate suppliers.
The government will set the price corridor on advice from French energy regulator CRE.

The proposal is in line with complaints by EDF CEO Jean-Bernard Levy that the Arenh rate did not allow fair remuneration for existing nuclear production, nor to finance lifetime extensions at the company’s ageing nuclear reactors.

The new scheme had to cover the full cost of nuclear power and “replenish capital which would be used to finance the renewal [of the nuclear fleet]”, said Francois Dos Santos, former secretary of EDF’s CGT union-dominated central works council and CGT energy union official. 

His preference was for a corridor of EUR 47-53/MWh, with the mid-point of EUR 50/MWh corresponding to “the full cost of nuclear.”  

“Excessive benefits”
By contrast, Percebois argued nuclear energy had largely been amortised and warned against “excessively large benefits” for EDF.

Indeed, engineering consultant Nicolas Goldberg of Colombus Consulting, warned it would be “politically explosive” if the government was to set the price corridor too high as this would have a knock-on effect on retail prices.
“[If] the government regulates at EUR 60/MWh, while the market is at EUR 45/MWh, energy bills will increase.”

The reform is currently under consultation until 17 March and the French government has signalled a desire to implement a new system as soon as possible.

However, any modification to Arenh will require new legislation as well as splitting EDF's supply services from its generation business. 

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