EDF problems pile up as full nationalization looms
At the site of France’s first new nuclear reactor in more than 20 years, robots repair faulty welds as developer EDF rushes to open the plant after a decade of reputation-damaging delays.
Ahead of him is a challenge of a different order of magnitude: a construction program to build six more, just as the French government, which already owns 84% of the company, plans to take full control.
The full nationalization of EDF, which was announced earlier this month, comes as a series of crises weigh on the group’s finances. In theory, this will give him some relief away from the glare of the public markets.
So far, however, the state takeover has raised more questions than it answered, including how the government thinks it could best address long-standing industrial issues that have plagued plans to ‘EDF, some of which are as basic as a lack of experienced welders.
“It is not because the government will now have 100% that it will suddenly take three years less to build a reactor,” said someone close to the company.
“Right now, we are in symbolic territory with this nationalization. This does not solve any of the main problems we know the group is facing, will it allow EDF to strengthen the skills it needs? said Cécile Maisonneuve, senior adviser at the center for energy and climate at French think tank IFRI. “None of the industry or regulatory issues were related to its capital structure.”
As Europe tries to move away from its dependence on Russian gas and grapples with soaring electricity prices, problems at some of EDF’s 56 existing reactors in France have caused shutdowns and sent its energy production at its lowest level in several decades.
Instead, it has had to turn to expensive wholesale markets for supplies, which is expected to virtually wipe out its top profits this year. Rating agencies have warned that this will further increase EDF’s debts, beyond last year’s 43 billion euros, and that a second injection of capital is likely to be needed soon – after one as recent as in April.
At the same time, political battles have made EDF’s listed status increasingly untenable. He was forced to pay an annual electricity price cap announced in January to protect consumers from the market spiral, sparking a confrontation between the state and EDF executives and infuriating minority shareholders.
The Flamanville 3 reactor, on the northern coast of France, has become the symbol of some of the technical problems encountered by EDF and its service providers. Now with plans to start loading fuel next year, construction began in 2007 with a target finish date of 2012. The budget is now nearly four times the original estimate of $3.3 billion. euros.
Setbacks include regulators finding flaws in the finish standards of some pipe welds. To solve this problem, EDF ordered robots specially designed to work inside the pipes, rather than dismantling an entire pipe system already enclosed in thick concrete walls.
Keeping EDF on track is vital for energy security not only in France but more widely. Other European nations have long relied on its exported nuclear power, and its dwindling output has come at the worst possible time as the bloc braces for a potential total cut off of Russian gas.
“France has traditionally been the source of cheap nuclear power for its neighbours, but now it needs help and that will cause problems in Italy, Switzerland and Britain this winter,” said Phil Hewitt, director of the energy consulting firm EnAppSys.
The United Kingdom is also a major construction customer. EDF is building its only new nuclear power station – Hinkley Point C, a project that has been plagued with cost overruns and delays. All but one of Britain’s remaining nuclear power stations are due to close by the end of the decade.
But his country of origin is particularly dependent. France lags behind its European neighbors in wind and solar power, and is much more focused on nuclear as a low-carbon energy source.
It accounts for more than 60% of the country’s energy production and in February the government announced plans for at least six next-generation European pressure reactors (EPRs) made by EDF – a program worth around 50 billion euros. euros which will have to be financed with debt.
Privately, French officials criticized EDF and the way it handled some operating problems, although preventive checks and reactor shutdowns were demanded by the regulator.
“EDF’s production cuts are not acceptable. It can’t go on like this,” a government official said, adding that full state ownership could help speed up decision-making, including for new projects.
“It allows us to save time, a few weeks or a few months here and there. It adds up,” they said.
Some of EDF’s problems are not of its making. Over the years, successive governments have pushed him to make costly policy decisions, including bailing out struggling reactor designer Areva.
It also suffered from a lull in government orders when the world went cold on nuclear power after the Fukushima disaster in 2011.
The energy crisis caused by Russia’s invasion of Ukraine has revived interest in the industry, but even in France, with its long construction history and large fleet, it has been more than 20 years since the last new reactor came into service — east of Civaux site in 1999. Engineers and other skilled workers left the sector to pursue careers in finance or other industries.
“In this gap between Civaux and Flamanville, we have lost our know-how to carry out large projects and our industrial capacity,” said Alain Morvan, the last manager brought in to complete the project, during a site visit. in June.
With the construction of the EPR in mind, EDF has now started recruiting more nuclear specialists, and Morvan said there were lessons from Flamanville that could be applied elsewhere.
The company had also pushed for a new regulatory framework for how nuclear power is sold and for changes to a system that requires it to sell some of its output at fixed prices to local competitors, what outgoing CEO Jean-Bernard Lévy called “poison” for the group’s finances.
The French government has not yet specified how or when the regulations will change and some reforms will require approval from Brussels.
He also said little about how he might reshape the company – which also has a large renewable energy portfolio and distribution business – when it takes full control of it, which is expected via a public offering of purchase worth around 7 billion euros in October or November.
EDF declined to comment further on the nationalization or the group’s plans.
Full state control will eliminate at least one very visible problem: Since its shares peaked in 2007 after what was, at the time in 2005, one of the largest IPOs ever in Europe , EDF shares fell nearly 90%.
A banker who has worked with EDF in the past said: “The original sin was to privatize a nuclear group to begin with.”
In an internal memo to staff in July seen by the Financial Times, Levy said coping with future plans as a listed company had become too difficult.
“While the write-off does not solve all our regulatory, industrial and financial problems, and in particular the extent of our indebtedness, it allows us to start finding solutions.”
Additional reporting by Leila Abboud