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Concerns over French security of supply and carbon tax application

  • 21 Oct 16

According to the press, the French government will most likely drop the current carbon tax plans. The government was planning to apply a carbon tax only to coal generation assets, but there are growing concerns over the measure being too complicated to implement given that it will be applied only to some assets. If implemented, it might be unconstitutional and not be accepted by the European Commission given that it can be considered state help for EDF in order to boost power prices and improve the profitability of lower emission assets. Moreover, EDF has been forced once again by the nuclear regulator (ASN) to close five additional nuclear reactors by the year-end to perform additional tests on the reactor vessel and steam generator of these reactors. With a third of the nuclear park already stopped in the country, there are increasing doubts over EDF’s ability to cover its supply needs over the winter and this has once again boosted wholesale prices across Europe. Driven by a spike in French wholesale electricity prices (as they are currently above the €70/MWh level) and an expected lower production from its nuclear fleet, EDF has demanded both the Minister of Economy and the Minister of the Environment and Energy to apply a temporary suspension of the ARENH mechanism (a regulated price given to competitors to buy nuclear electricity, set around €42/MWh). As a result, concerns over security of supply and a tight reserve margin for the coming winter have emerged and the output from coal and gas plants has more than doubled in recent weeks due to lower nuclear production. On the other hand, and despite the expected outages, EDF has maintained its nuclear production targets (which were already reduced twice in 2016) at 380-390TWh for 2016 and 390-400TWh for 2017. Moreover, EDF has finally provided the timeline for the five nuclear reactors outages that will be stopped for the additional testing demanded by the ASN: the period will be mainly (for four reactors) during the holiday season from 10 December 2016 to 15 January 2017, with one reactor stopped from 22 October 2016 to 19 December 2016.

Better visibility over strategy and strong cash flow performance

  • 29 Jul 16

EDF has confirmed that it had entered exclusive discussions with the French financial public entities Caisse des Depots and CNP Assurances over the divestment of 49.9% of RTE. The price at which it has been set for 100% of RTE has been valued at €8.45bn. The Hinkley Point project has been approved by the board of directors (10 to 7), giving the green light for the project. The UK government has responded after the news that it will look into all elements of the project and would make a decision in the autumn. Moreover, the group has confirmed the purchase of Areva NP for €2.5bn, in addition to a €350m earn-out, without the risks linked to OL3 or the audit on the Creusot plant. The group has signed an MoU which is a non-binding agreement and has to be presented to the CE for validation. At the half year mark, the group’s revenue decreased 5.7% yoy to €36,659bn, with EBITDA falling 2.2% yoy to €8.944m, both within estimates. However, net income decreased 17.2% yoy to €2.08bn, mainly due to a negative contribution from associates and €731m of impairment charges. Adjusted net income on the other hand increased by +1.4% yoy to €2.97bn (including the life extension on nuclear assets), which is better than expected. Prior to the ASN decision, the group has decided to increase to 50 years the accounting depreciation of its PWR 900 nuclear reactors, resulting in a positive €0.3bn decrease in depreciation. Net debt of the group decreased to €36.2bn which is also better than expected as the group had positive free cash flows (+107m), in addition to a favourable currency effect (+€1.04bn) from the depreciation of the pound.