Inspiration for splitting Czech utility ČEZ? France’s EDF could also be split

According to Reuters sources, the French energy company EDF is likely to face a break-up similar to that of German utilities or that planned by the Czech government for ČEZ. One option is to separate the nuclear assets, which would be owned and potentially regulated by the state. French President Macron has previously spoken in favour of splitting EDF.

It appears that another major energy company in Europe may be heading for a break-up. According to Reuters, the French government is seriously considering this scenario for EDF, with one option being to separate its nuclear assets from the rest of the company. These assets in particular will face major pressure in the coming years from additional maintenance and modernisation costs.

The company’s current situation is far from ideal. In addition to prolonged outages of nuclear units, which naturally reduce its profits, and the prospect of high expenditure, EDF has decided to build two units at the Hinkley Point C nuclear power plant. Particularly in view of the modernisation and refurbishment of older nuclear plants, EDF faces expenditure of around EUR 100bn by 2030, according to calculations, which is approximately three times the market valuation of the entire company.

Interestingly, the French government is reportedly also considering regulating electricity generation at nuclear power plants, similarly to how distribution assets are regulated. The company is already legally required to sell a quarter of its nuclear electricity at EUR 42. It can therefore be assumed that the share of electricity sold at this price could increase.

Following the announcement of a possible break-up, the company’s share price has already risen by approximately 8% and exceeded EUR 11 during Friday.

Like EDF, ČEZ also faces major investments should the units be completed. EDF therefore offers another possible source of inspiration for a potential break-up of the company. In the case of ČEZ, the option of separating nuclear assets, with minority shareholders bought out of that part of the company, is also considered likely.

“The ČEZ Group will be split into two parts, one of which will contain all existing operating nuclear assets, and in a second step the Czech Republic will buy out minority shareholders’ stakes in the part containing nuclear assets. The part of ČEZ owning the nuclear assets will also be the 100% owner of an SPV (a specially created project company, editor’s note),” states an analysis obtained by the hlidacipes.org website under freedom of information legislation.

EDF may also be an inspiration because the break-up of ČEZ is likely an issue that will have to be resolved over a longer timeframe in connection with the completion of a nuclear project in the Czech Republic. Given EDF’s market position and the scale of required expenditure, an earlier solution can be expected in its case.