French Energy Giant EDF


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.