In the European energy crisis, all of the attention is focused on Germany and its reliance on gas from Russia, but the struggling nuclear reactors of France are at least as important. Indeed, the first European city to suffer a blackout as temperatures drop toward the end of the year might well be Paris rather than Berlin.
As winter approaches, the outlook in France is increasingly dire. Electricite de France SA (EDF), the state-owned utility, is running only 26 of its 57 reactors, with more than half of its chain undergoing emergency maintenance after the discovery of cracked pipes. With atomic reactors generating the lowest share of the country’s power in 30 years, France faces an electricity Waterloo.
The slump in nuclear availability is forcing France to rely more than ever on imports, gas-fired plants, and intermittent wind and hydro. That is pushing up the cost of electricity in the wholesale market for the whole of Europe, with French forward prices surging to almost 1,000 percent more than their decade-long average through 2020.
In the middle of the summer, when French electricity demand hovers at about 45 gigawatts (GW) per hour, that is not an insurmountable problem. On a cold winter evening, when French households can push consumption above 80GW or 90GW, it could be catastrophically expensive.
Although the French economy is smaller than Germany’s, Gallic power demand surges well above that of its neighbor during the winter as French households rely more on electricity for heating and hot water.
While the EDF has said that at least some of its reactors should be back online in time for the colder months, the company has a nasty habit of over-promising and under-delivering. The severity of the winter could be key. Each degree Celsius the temperature drops below normal, French power demand surges by about 2.5GW an hour — equivalent to the output of two nuclear power stations.
During a late cold snap in April, the French grid was forced to issue a rare orange alert — the second highest — asking households and companies to “moderate their consumption.”
Those alerts are likely to become a staple this coming winter, and very likely to escalate to “red alerts” that indicate a risk of blackouts unless families and businesses reduce demand.
Electricity traders are taking the risk seriously. In the wholesale market, the benchmark one-year French baseload power contract has jumped to a record high of 507 euros (US$518) per megawatt-hour, well above German prices of 350 to 370 euros for the parallel contract. French retail consumers are protected thanks to a price cap, but businesses are fully exposed.
Come winter, it is likely to get much worse. For December, baseload French power is trading above 1,000 euros, almost double German prices, while peakload power — typically in the evenings when families gather for dinner and the heating is on — is changing hands at more than 2,000 euros.
In practice, that means traders expect French power demand could be so high relative to supply that so-called hourly prices would bump against the 4,000-euro limit set by the exchange many times in December. The market, aware of what is coming, is trying to kill consumption ahead of time, in an effort to avert blackouts. It is a costly way of attempting to force electricity-intensive companies, such as smelters, to plan to shut down in December.
The French problem is spilling over into the rest of Europe, including the UK. EDF, long a source of national pride and low-cost electricity exports, is having to buy power to meet daily requirements. The French grid last month made an emergency request to the British network for extra power — and that was in summer, when demand is low.
In the past, EDF only imported electricity on a net basis for a few days each year, if at all. For example, from 2014 to 2016, France did not import power on a single day.
However, as the nuclear troubles mounted, it has relied increasingly on imports. Last year, it bought electricity from overseas for 78 days. So far this year, it has been forced to do so on a record 102 days.
France’s purchases put further pressure on a European electricity and gas market that is already under stress. If French President Emmanuel Macron wants to help ease the European energy crisis, he needs to focus at home. Fixing EDF should be his top priority — well above his phone conversations with Russian President Vladimir Putin.
Paris has taken a first step, announcing the nationalization of the company at a cost of 10 billion euros, although not earlier than September. Puzzlingly, Macron has yet to bring in a new executive team. The company’s CEO is set to depart, but perhaps not until March 2023. The rest of the senior team — including the executive in charge of nuclear power who has overseen a disastrous performance of the last couple of years — appear to be safe in their jobs for now.
Macron also has not curbed the influence of the trade unions within EDF, another perennial issue that has stymied reform at the company.
Time is running out. Paris is delightful in the autumn and the winter. It will be much less attractive if the “City of Light” is forced to go dark.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities, and a former reporter for Bloomberg News and commodities editor at the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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