As reported by news agencies around the world, the French government plans to completely take over EDF, which is the leading electricity utility in France and a major developer of nuclear power plants. French Prime Minister Elisabeth Borne made the announcement in a speech to the parliament on July 6. She said that the reason behind nationalization is to ensure the sufficiency and security of the domestic energy supply. Under the French government’s full control, EDF is expected to see an improvement in its operational capability, and it will be able to carry out many vital projects within a short period so as to guarantee the domestic energy supply.
French Government Will Be Facing Hard Challenges in Nationalizing EDF
EDF is not only one of the largest utilities in Europe but also one of the world’s major developers of nuclear power plants. While the company is involved with numerous energy technologies, including those belonging to the general category of renewables, the building of nuclear reactors along with the construction and operation of nuclear power plants remains its core business. Also, despite its scale, EDF is facing several intractable operational challenges.
In recent years, the company has been weighed down by problems with the maintenance of aging reactors and cost overruns with the building of new ones. Its nuclear power plant projects in France and the UK are progressing significantly behind schedule and have incurred cost overruns in billions of euros. Also, its existing nuclear power plants are operating below their generation capacity because they suffer from the stress corrosion of the piping system. In fact, EDF now has to temporarily shut down half of its reactors in France for inspection and repair.
Moreover, the recent international crisis and the ongoing global inflation have led to a spike in the cost of living for the French people. To bring some relief, EDF has been mandated by the French government, which is its largest shareholder, to sell electricity at a discount. However, EDF has already been operating at a loss, and its debt has surged by 40% this year to more than 61 billion euros. The government’s intervention in the electricity market will increase the company’s financial burden. At the same time, the company needs a capital injection of more than 50 billion euros in order to build the next generation of reactors.
The French government originally intended to reorganize EDF by spinning off its renewable energy unit, but this initiative was scrapped because of the opposition from labor groups and the scrutiny from the European Commission. The price of EDF’s shares has been falling due to the company’s poor financial performance. It actually registered a massive drop just before the speech by Borne. The nationalization announcement has led to a 15% rebound in the share price to about 9 euros. It is worth pointing out that at EDF’s IPO on the Paris Stock Exchange in 2005, the shares were traded at 33 euros. Hence, the current share price is still much lower (i.e., by 24 euros) than the initial listing share price. Also, many credit agencies warned in February that EDF could undergo further downgrades in the future.
Looking at EDF’s present shareholding structure, the French government controls 84%, the company’s workers control 1%, and the remaining shares are owned by individual and institutional investors. To acquire 100% of the shares, the French government will need to spend around 5 billion euros. Borne has yet to reveal the full details on how to achieve the nationalization of the company.
Immediate Transition to Renewables Will Be Difficult for France
Western European countries such as France, Germany, and Switzerland continue to depend on fossil fuels like oil and natural gas. For them, fossil fuels account for more than 50% of the overall domestic energy consumption. In recent years, European countries have also been investing heavily in nuclear power and hydropower, but their dependence on fossil fuels is expected to persist in the short term.
Looking specifically at France, nuclear power and fossil fuels are its main energy sources. Alternatives such as solar PV and wind power still account for a relatively small portion of the country’s energy mix. Furthermore, nuclear reactors are responsible for much of the country’s electricity generation (i.e., more than 70%). Hundreds and thousands of people are directly or indirectly employed in the French nuclear power sector as well. However, the construction and operation of nuclear power plants has always been a very contentious issue in the French society, and the overall electricity output from nuclear power plants has been on a gradual decline.
On the other hand, the recent international crises have significantly altered the landscape of the global energy market. As a result, European countries are now facing an energy shortage while holding insufficient reserves to deal with this challenge. In view of this situation, the EU and countries in other regions are again focusing on nuclear power as a viable option. In the first half of this year, French President Emmanuel Macron attempted to push forward with the reorganization of EDF. It was hoped that the reorganization effort would lead to capital infusions of tens of billions of euros. The fresh capital, in turn, would be used to support the setup of six to 14 new nuclear power plants by 2050.