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17 October 2019

EDF leak shows deeper reliance on nuclear, not renewables

Earlier this week Le Monde, that excellent French newspaper who’s title tells us it is about “the world” but which is always about France, has discovered a leaked letter from government to EDF, itself government owned, in essence telling it that orders for 6 new EPR nuclear power stations will be placed with it over the coming 15 years.

This pretty much tells us all we need to know about France and its confidence in renewables – on the one hand EDF has repeatedly said it wants to push out of nuclear which is unpredictable, unprofitable and leads to it taking onboard lots of debt, and into renewables, but its majority owner the French government won’t let it.

The French government used to hold just 85% of the energy firm, but after a rights issue in 2017 in which the state took up €3 billion out of €4 billion offered, it should have increased its holding. The Électricité de France website informs us this is actually down to 83.7%.

Market Capitalization of EDF is just €28.4 billion, and it has over €37.4 billion in debt, plus unspecified liabilities hidden within a pensions shortfall and built into the future cost of managing nuclear waste and clearing sites (which are supposed to be in its balance sheet, but some argue are not). Clearly this is not a company structure which investors can truly believe in and taking on more disastrous nuclear operations won’t make it any more attractive to French investors.

Slowly it is selling off the family silver in order to remain a puppet organization of the French government and the best thing in the world it could do is to split itself into two halves, one owned entirely by the French government, and the other holdings its other energy assets, which is investable.

It seems to sell off assets, and in 2019 that amounted to €10 billion of assets, and then spend that cash indebting itself in nuclear projects. It has plans to spend some €45 billion simply on nuclear extensions of the French nuclear reactor fleet, making them last beyond their closure dates, plus it has extensive financial commitments for new EPR nuclear builds at Flamanville and Hinkley Point (UK) both of which are already years behind schedule and heading for further retained debt. Another 6 such exploits would virtually kill the company as a potential investment platform. This would be especially true since a new EPR design is also due out in 2020, so any French orders are likely to be with an improved design, but one which has not been tested in the real world, making it unpredictable at best.

Most delays are directly attributable to increased safety inspection adherence post Fukushima.

In 2016 EDF described a new strategy to increase the emphasis on renewable energy, and the stress on capital and management time to continue to try to achieve this with the French government dictating its own agenda, must be tough to work under.

The truth is that nuclear has been more or less jettisoned around the world, and the near horizon for small nuclear reactors is perhaps 2032. The issues at Japan’s Fukushim plant have led to Japan, South Korea and others realizing that a tighter control on safety regulation is required in order to carry on safely with nuclear. China has continued down this path, and France has played with moving away to renewables, but President Macron is clearly of a mind to plow on regardless on nuclear. Six new reactors will give France about 18 GW of extra electric power, perhaps 115 TWh annually of electricity, upping nuclear by some 25%, by the time they are built, which could be god knows when, around 2055 at current rates.

Of course many older nuclear plants will be decommissioned during this 15 years, so although French electricity use is going down, not up, much of this capacity will be replacement capacity for old nuclear.

The leak came in the form of a letter sent the Environment department to EDF’s chairman, talking about 3 sites each having 2 EPRs.