When France decreed last month that EDF should foot the bill for the state’s latest measures to rein in energy costs as wholesale prices soar, it made no bones about the politics of the move.
Keeping the lights on for consumers and businesses was priority number one, ministers said — and it would be unseemly for a state-controlled company to profit as households suffered.
“When things are going badly for the French, EDF is there to protect the French,” economy minister Bruno Le Maire told France Info radio.
But the move to shield consumers with a 4 per cent cap on energy bill rises risks creating a crisis for Europe’s only big nuclear power group just as momentum is starting to swing back towards the divisive but low-carbon energy source.
EDF expects an €8bn hit to core earnings this year from the measure, which will force it to supply more of its atomic power to third-party providers far below market rates.
While this is not expected to affect the company’s capital expenditure plans, including its UK nuclear projects, the latest state intervention has revived bigger questions over EDF’s strategy and purpose — and whether it should be fully renationalised.
“It makes no sense to be listed,” said one senior banker in Paris, a view echoed by several others who said EDF was now subject to an “absurd” level of contradictions.
“The only real mission is to be able to build reactors, and to be in a situation where you’re not permanently repairing them, and to be able to attract a whole new generation of engineers.”
EDF shares are down 16 per cent since the move was announced on January 13. A king of France’s CAC 40 after it was floated in 2005, the company fell out of the blue-chip index 10 years later.
This adds to existing problems at the company that are set to hit both profits and power production, with prolonged outages at five French reactors forcing it to further slice this year’s output forecast.
EDF’s ability to invest in other strategic priorities such as renewable energy now look seriously hobbled, while any immediate debt reduction plans have been derailed.
The government, which has propped up the group in various ways including by renouncing cash dividends in recent years, is facing a showdown over its move with unions and employee shareholders, who accuse it of over-reach.
More than a third of EDF workers staged a walkout last week to protest against the state’s “pillage”.
“The state is abusing its majority position,” said Martine Faure, who chairs two EDF employee shareholder funds with a combined 1.3 per cent stake in the company, making them the biggest stakeholders after the government. The funds are looking into ways to contest the state’s decision.
Chair and chief executive Jean-Bernard Lévy told board members he opposed the state’s decision at a meeting on January 14, according to people familiar with the matter, who added that the company would toe the line but had tried to table other proposals.
EDF, described by one adviser as a quasi “state within a state”, has long had influence over energy policy in France, and proved a thorny institution to reform.
Beyond clarifying the state’s scope for action, some see full government ownership as more coherent with EDF’s nuclear activity, a source of risk and huge costs no purely private company could contemplate.
A French economy ministry official said there was no nationalisation plan on the table. Proponents of EDF’s listed status said it had the merit of providing transparency at the group, which has been gripped by internal quarrels in the past.
Until this month and despite its other woes, EDF was basking in France’s tentative endorsement of new reactors after more than a decade of hesitation from successive governments.
That project, yet to be detailed in full by President Emmanuel Macron ahead of an April presidential election, could cost €50bn, according to early estimates. Ministers must now work out how to finance the scheme while giving the company a clearer industrial future.
The government has said it will stand by EDF, hinting at its support for any capital increases or hybrid bond issues. Subscribing to a rights issue would not be accounted for as public debt for the state.
“It’s not a problem of being concerned about the company’s survival but about having an appropriate structure to face the mid to long term,” said Antonio Totaro of rating agency Fitch, which downgraded EDF’s long-term issuer status by one notch on its output forecasts and the hit from the government measures.
EDF has little leeway for obvious disposals or cuts to its fixed annual expenses that are needed to maintain its plants. A capital raising would probably only make sense once the full extent of its future nuclear investment needs was clear, analysts and bankers said.
The group is also grappling with a host of unresolved questions over future nuclear regulation, tariffs and antitrust run-ins with Brussels over its hydroelectric arm. It has to fund the life extension of existing reactors and has been under the gun over huge cost overruns and delays at its flagship Flamanville 3 next-generation reactor in France.
Macron shelved a plan last year to bring the nuclear arm under full state ownership while opening up other businesses, amid an impasse with Brussels and unions.
But a reorganisation of EDF and its funding structure, including through a framework setting higher regulated prices for nuclear energy, was likely to be back on the agenda once France’s presidential election had passed, bankers and people close to the group said.
“Something needs to be done,” said one person close to the company. “And quickly.”