Energy prices may have jumped to unprecedented
highs, but for France's state-controlled power company EDF 2022 was a miserable
year with record annual losses of €17.9bn (£16bn).
EDF's profits were significantly
impacted not only by the enforced closure of many of its nuclear power stations
for repairs, but also by the implementation of a price cap on energy for French
consumers.
These losses rank as the third largest
in the history of French corporations, and represent the worst financial
performance in over 20 years.
EDF's debts have spiralled to €64.5bn.
EDF's underlying losses amounted to
€4.99bn, a significant contrast to the performance of its UK-based business
that reported an underlying profit of €1.26bn (£1.12bn) by providing
electricity and gas to five million households.
Following Russia's invasion of
Ukraine, President Emmanuel Macron's government in France introduced a tariff
"shield" for consumers, restricting energy companies to a maximum 4%
price increase in 2022, and 15% in 2023. This measure aims to keep inflation
lower than in other European countries.
However, this resulted in EDF having
to sell power to French consumers at a loss, while UK consumers paid
significantly more for their energy. It's worth noting that EDF holds approximately
80% of France's electricity market.
The French industry has not witnessed
such dismal results since 2002, when Vivendi Universal and France Telecom
reported losses exceeding €20bn for the previous year.
EDF has not previously reported losses
of such Losses.
According to Chief Executive Luc
Remont, the 2022 results were notably impacted by a decrease in electricity
output and exceptional regulatory measures implemented in France during
challenging market conditions. He further stated that EDF's main focus is now
to get the company back on a positive trajectory, and that core earnings are
expected to increase significantly in 2023.
EDF's financial challenges have various
underlying factors. One of the significant causes was the decline in nuclear
output in France, which dropped by 30% to its lowest level since 1988. More
than half of the 56 nuclear power stations owned by EDF went offline for
repairs, which had been postponed due to the Covid-19 pandemic. It is worth
noting that France has the most extensive fleet of nuclear plants in Europe.
Consequently, France had to import electricity, becoming a net importer for the
first time in decades.
Another factor that contributed to EDF's financial woes is the company's
obligation to sell a quarter of its production to its competitors at a fixed
price. This obligation further impacted the company's profits, making it
difficult to generate adequate returns on its electricity production.
In 2010, a system called
Arenh (Regulated Access to Historic Nuclear Electricity) was implemented to
satisfy the European Union's concerns about EDF's potential monopoly over the
electricity market due to its vast nuclear capacity. This system allowed the French
electricity market to open up to competition, but it also created a challenging
situation for EDF. Under Arenh, EDF is obligated to sell a quarter of its
nuclear output to its competitors at a fixed price, which is often below the
cost of production. As a result, EDF has been forced to subsidize its
competitors, leading to considerable financial strain on the company. EDF
argues that this system has created an absurd situation, and it is calling for
changes to the regulation to ensure fair competition in the electricity market.
According to a former CEO, 2022 was an
unprecedented and surreal year for EDF. The company faced several challenges,
including the soaring cost of electricity on the European market, technical
issues with its own generating capacity, and the government's extension of the
low price guarantee to customers. As a result, EDF was compelled to purchase
electricity at €100 per unit and sell it to its competitors at a significantly
lower price of €46 per unit. This led to a difficult financial situation for
the company and underscored the need for changes in the electricity market
regulations.
EDF argues that many of its
competitors under the Arenh system are not legitimate market players but rather
market traders. This has been a significant source of frustration for EDF, with
three former CEOs referring to the system as a "poison pill." They
have criticized the EU and Germany, stating that the Arenh system has been rigged
against France's interests. The system's regulations have resulted in a
difficult financial situation for EDF, and the company has called for changes
to the rules to ensure a more level playing field in the electricity market.
EDF is currently controlled 84% by the
French state, but the government has initiated a process to fully nationalize
the company. This move is expected to bring about significant changes,
particularly with respect to the Arenh system. The government's action suggests
a desire to increase control over EDF and to implement reforms that address the
challenges facing the company. It remains to be seen what the specific changes
will be, but the move towards full nationalization indicates that the French
government is taking a more active role in shaping the future of the country's
electricity market.
President Macron has expressed his support for the nuclear industry and has outlined plans to build six new reactors to assist France in achieving carbon neutrality by 2050, in line with the European Union's objectives. Macron's plans signal a continued focus on nuclear power as a key component of France's energy mix, despite the challenges faced by EDF and the wider industry. The move towards greater reliance on nuclear power also highlights the complex trade-offs that countries face in balancing their energy needs with environmental sustainability targets.
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