It is finally done. After months of dithering, the nuclear industry’s CEOs and government officials of the UK, France and China solemnly signed off on the nuclear plant project at Hinkley Point C at the end of September. Some maintain that these might be the first signs of a new era for nuclear power after the Fukushima catastrophe, but Hinkley can barely hide the fact that the French nuclear “champion” EDF is at the brink of collapse and urgently needs a strategic turnaround. Andreas Rüdinger explains.
Hinkley Point would be the third EPR reactor project in Europe. The first is the nuclear power plant of Olkiluoto in Finland, which proudly displays a 9-year delay, tripling investment costs (from € 3 billion to roughly € 9 billion) and the collapse of its industrial developer, Areva. The second is the EPR in Flamanville, France, totaling € 10.5 billion (€ 3.3 billion initially) and a delay of at least 7 years. Worse, due to numerous construction flaws currently under scrutiny by the French Nuclear Safety Agency (ASN), it might as well never go online.
And now Hinkley Point, with its 22 billion price tag and a guaranteed tariff of € 110/MWh over 35 years (indexed on inflation, of course), is more expensive than most renewable energies are right now. More importantly, it will be far more expensive around 2025 when the plant is supposed to start production. As Andreas Gandolfo puts it in an article for the London School of Economics’ blog, “my colleagues and I at Bloomberg New Energy Finance are still scratching our heads at how such a project was greenlighted.” It certainly wasn’t by EDF’s own unions, which even went to court to avoid the project, considered too risky. Neither was it supported by Thomas Piquemal, EDF’s financial director who resigned in March, nor Gérard Magnin, a board member who left in July.
EDF’s crisis clearly extends beyond Hinkley Point. The company’s stock value has plummeted by almost 90% since 2007, compelling it to leave the major French stock index, CAC 40. It currently faces a debt of € 37 billion and decreasing profits, and no one really sees where the company could find the money to take on any of the major investments which are piling up. EDF is responsible not only for Hinkley Point C and Flamanville, but also for the takeover of the nuclear construction and maintenance branch of Areva; and, most importantly, the lifetime extension of the aging French nuclear power fleet, estimated at up to € 1.7 billion for each of the country’s 58 reactors.
Especially the last issue might become a real challenge for EDF. It currently acts as if the whole fleet was to be extended beyond forty years and already announced an investment plan of € 4 billion per year to make the reactors fit for another ten years. However, in its desire to stick with the status quo, the company blatantly ignores several risks. Firstly, the possibility of extending the reactors’ lifetime mainly depends on the judgment of the Nuclear Safety Agency, which will publish new (and stronger) safety guidelines by 2018. As it turns out, investments undertaken in the meantime could be a losing bet, if the ASN judges that despite the upgrades the old reactors are not fit for the future.
Secondly, EDF’s strategy also seems to neglect the headline objective of the French transition énergétique: reducing the share of nuclear power to 50 % by 2025. To be fair, this is not entirely its fault, since the government constantly defers any credible commitment to this objective. Even though President Hollande seizes every opportunity to quote his electoral promises of reducing the share of nuclear to 50 % and shut down the oldest plant in Fessenheim, it is likely that nothing concrete will happen to implement these decisions before the end of his mandate.
Nonetheless, EDF has to take into account that, assuming a stable electricity demand over time, no lifetime extensions would actually be necessary, at least not until 2025. Indeed, if old reactors were closed when reaching their 4th ten-year safety inspection (visite décennale), the resulting production (including the EPR Flamanville) would be sufficient to achieve the 50% target by 2025. This strategy might also make sense from an economic perspective. France is currently the biggest net exporter in the European power market with 65 TWh (2014). This means that on a yearly average, 11 reactors of 900 MW are currently producing for exports only. Including the investment costs for the lifetime extension, the generation costs of the 40+ reactors might be somewhere between € 62 to € 80/MWh, according to the French Court of Auditors. For the time being, it seems unlikely that average prices on the wholesale market will come anywhere near that level for the next years.
What’s more, shutting down parts of the nuclear fleet might actually push up power prices and improve the economic conditions for the rest of the reactors, as has been illustrated recently. With more than 20 reactors offline due to maintenance and safety checks, the monthly nuclear production in September 2016 has been the lowest since August 1998. But simultaneously, average gross market prices in France have recovered from their record low € 26/MWh in the first half of 2016, to a level of € 50 to € 80/MWh (day-by-day data can be found here).
It clearly appears that EDF needs to embrace the energy transition if it wants to avoid becoming a “dinosaur” in the European landscape. Through its sheer size, EDF could become one of the major players of the future. But this would imply a clear strategic turnaround to market sectors that still show potential. The nuclear dismantling business will become massive over the next decades and EDF (after absorbing Areva) is well placed to succeed. The same goes for the energy efficiency and service market, and of course renewables.
Andreas Rüdinger is an independant consultant in the field of energy and climate policies and an associate research fellow at the Institute for Sustainable Development and International Relations (Iddri) in Paris. His research work is focused on national energy policies in Europe and the governance of the energy transition.