EDF restructuring hits complications as government suspends preparation of required legislation

The French government has temporarily suspended the restructuring of energy company EDF, under which the company was to be split into EDF Blue (nuclear power), EDF Azure (hydroelectric plants) and EDF Green (renewables). The wider reform was also to include an increase in the purchase price for electricity from nuclear power plants, which was intended to improve the financial situation of the company, which faces high costs related to the maintenance of its nuclear units.

Reuters reported this week that the French government will not continue preparing EDF's restructuring and the related energy market reform in the near term. It is therefore highly unlikely that the reform will be completed before the end of President Emmanuel Macron's term in 2022.

In this context, EDF management previously stated that the company is financially secure until 2022 and that if the completion of the reform were delayed beyond 2023, such a delay would have a negative financial impact on the company. This naturally also has a major impact on the French government: not only is the company an absolutely key player in the French energy sector, but the government is also an 84% owner of the company.

The launch of the reform is being delayed primarily by negotiations at the European Commission. One government source told Reuters that "although significant progress has been made, a comprehensive agreement has still not been reached." Without such an agreement, it is not possible to prepare the legislation. According to an EDF source, the reform has not been entirely "buried", but discussions with the European Commission will continue for some time.

That this is an absolutely crucial reform for EDF was clearly evident in the first half of this year. According to company management, not only will delays to the reform threaten the company's financial position, but there is also a risk that EDF could become merely a "second-rate" energy company. Without restructuring, it is unable to compete with other energy companies in the growing renewables market.

In addition to the restructuring, the main point of the reform is negotiations on increasing the regulated price for the sale of part of the electricity generated by nuclear power plants (the ARENH scheme). Under this scheme, EDF is obliged to sell traders up to 100 TWh of electricity from nuclear power plants each year at a price of 42 EUR/MWh, well below current electricity prices on European markets. The purchase price has not changed since 2012.

EDF is among the main contenders for the completion of Dukovany

Following the exclusion of Russia's Rosatom and China's CGN, EDF is among the favoured contenders to build a new unit at the Dukovany nuclear power plant. For the Dukovany tender, it is offering a 1200 MWe nuclear unit based on the EPR units currently under construction at Hinkley Point C, Flamanville and Olkiluoto.

The complications in negotiations at the European Commission show how complex and lengthy discussions on nuclear power with the EU can be. In relation to Dukovany, EDF therefore recently pledged that it would help the Czech Republic negotiate support for Dukovany.