The plan to restructure EDF was dubbed Project Hercules. Now it is more simply “Grand EDF” — perhaps, as one person involved said, because the French state didn’t like the implication of a “labour” akin to slaying the Hydra.
But whatever the name, the goal is unchanged: a deep reorganisation of the state-backed nuclear energy giant, Electricité de France.
France is seeking to restructure the group in order to win a higher regulated price for nuclear power, so that it can invest in renewables and so that EDF’s indebted balance sheet is not overwhelmed by the cost of extending the life of reactors.
But to reform EDF is no easy task. Fierce union resistance has aligned with opposition in Brussels. The clock is also ticking: French president Emmanuel Macron is unlikely to risk street protests breaking out close to the elections that start in April 2022.
The lesson of the gilets jaunes, or yellow vests, protests that kicked off in 2018 due to green fuel taxes has partly been the speed at which policy linked to the energy transition can transform into public anger.
And the reform of EDF, of which the state owns 83.6 per cent, could trigger wider anger if not handled correctly. Unions have said they will stage yet another protest against the reforms this month. One militant union leader has even threatened to provoke power cuts.
EDF is a hugely emotive subject in France. Created in the 1940s, it is for some a bastion of a hated technology; for others it is a powerful group that has too much sway on energy policy; and for still others it is a strategic asset that generates cheap, carbon-free energy from splitting atoms.
Today roughly 70 per cent of France’s electricity comes from nuclear power. In theory, Macron plans to cut that back to 50 per cent by 2035, while closing some older reactors and punting on the question of new ones.
But the critical question is what EDF and the French nuclear fleet means to regulators in Brussels, who have to take a call on a plan to reorganise the group in order to unlock a higher price for the nuclear power it produces.
The demand from Brussels is that the nuclear part of EDF should not be allowed to subsidise the rest of the group, which must also open up to competition.
France’s answer is to create a government-owned mother company, EDF Bleu, containing the nuclear assets as well as a hydroelectric subsidiary. Its other subsidiary, EDF Vert, will house renewable energy, the networks and the services businesses and will be listed with about a third of its equity sold to raise funds for investment.
EDF insiders, who talk up nuclear’s place as a reliable base power in a world of fickle renewable energy, view Brussels opposition as “ideological”, aimed at breaking up a monopoly. Brussels insiders see it as applying the rules.
One senior French official involved in negotiations says there is a risk that demands from Brussels for walls between different bits of the group — be it in terms of financial flows or human resources — will be too high. The official says, in effect, France might as well be cutting up EDF.
That is something France cannot allow without risking the wrath of unions. There are certain constraints that governments cannot easily ignore. Germany took the decision to ditch nuclear power but not coal due to its particular situation; France, in turn, is acting to support nuclear-based EDF.
With red lines on both sides, it is not clear that a deal can be done in time. French officials are stressing this might not happen before the elections and warn there is no guarantee what form the plan might take afterwards.
That would disappoint those, like Vincent Ayral, an analyst at JPMorgan Research, who think “it’s in the interest of France to re-regulate the nuclear sector” as “the energy transition will necessitate a shift in the structure of the energy market” towards regulated prices, long-term contracts and subsidies.
It could also disappoint EDF minority investors likely to be bought out at a decent level. Ayral estimates a successful deal could double the share price. As one banker in France put it: “France has little to gain trying to save a few hundred million by screwing minorities when the upside for the country is material.”
As we wait to see if a deal can be done, it seems one simple lesson is being repeated: the energy transition will take place amid a whole lot of political, messy, reality.