France Strikes an Agreement With EDF Over Nuclear Energy Prices
January 5, 2024
On November 14, 2023, France reached an agreement with EDF on the price of electricity generated by nuclear power plants.
As of 2026 and for a period of 15 years, this new mechanism will replace the “ARENH”[1] framework, which expires at the end of 2025. Along with the development of medium- and long-term power purchase agreements,[2] it aims to stabilize nuclear energy prices at around 70 €/MWh, a level which is expected to exceed production costs (which are estimated at 60,70 €/MWh for 2026 – 2030, according to the French Energy Regulation Commission).[3] This should, in turn, allow EDF to invest in power generation capacities (in particular in its nuclear fleet, to which France is planning to add 6 to 14 new reactors in the 2030’s and 2040’s) while managing its €65 billion debt.
The current ARENH mechanism forces EDF to sell a maximum of 100 TWh (approximately a quarter of its nuclear energy production) to competing suppliers at a fixed price of €42 per MWh each year. The objective of this framework is to foster competition on the retail market by allowing EDF’s rivals to buy nuclear energy at the ARENH price when the wholesale market price is higher than €42 MWh. The ARENH mechanism was initially introduced as a condition to a Commission decision clearing aid granted to French companies in the form of regulated electricity tariffs,[4] and later temporarily expanded by the French government as part of its response to the increase in energy prices following Russia’s aggression of Ukraine.[5]
By contrast, under the new contemplated framework EDF will have to pay a windfall tax based on its actual nuclear electricity revenues, which will be monitored ex post by a third-party auditor. Above certain thresholds (initially, 50% of extra profits if wholesale prices rise above 78-80 €/MWh,[6] and 90% above 110 €/MWh[7]),[8] extra profits will be collected and directly redistributed to end consumers by the State, in the form of deductions on electricity bills granted to wholesale market purchasers (i.e. rival suppliers of electricity), with an obligation to pass on the deduction to retail consumers. In parallel, medium- and long-term contracts with rival suppliers and industrial clients will be encouraged to achieve greater price stability.
According to France’s economy and finance minister Bruno Le Maire, “the agreement has been defined to comply with European rules and avoid difficulties with the European Commission”.[9]
The agreement is due to be reviewed by June 2024, after being put out for consultation[10] with EDF’s competitors, industrial clients and consumer associations. It will subsequently have to be approved by the French Parliament.
[1] Regulated access to incumbent nuclear energy.
[2] https://www.consilium.europa.eu/en/press/press-releases/2023/10/17/reform-of-electricity-market-design-council-reaches-agreement/. See also Cleary Gottlieb EU Energy Resource Center, EC Proposed Reform of the EU Electricity Market, May 9, 2023 available here and Reform of the EU Electricity Market, October 23, 2023, available here.
[4] European Commission, decision of June 12, 2012, SA.21918, Tarifs réglementés de l’électricité en France.
[6] This activation threshold corresponds to the addition of (i) the full costs of existing nuclear power production capacities and (ii) a component representative of the cost of the new nuclear reactors that France is planning to add to the current nuclear fleet.
[7] This second activation threshold is meant to protect consumers against high market prices.
[8] Activation thresholds and windfall tax rates are to be reassessed every three years so as to factor in costs, market prices, as well as technical and economic conditions.
[10] https://www.ecologie.gouv.fr/sites/default/files/Consultation_publique_NRN_vf.pdf?v=1700652491