France has welcomed the European Commission’s proposal to overhaul the EU’s electricity market which was unveiled on Tuesday (14 March), as it offers France the chance to develop and refurbish its nuclear fleet.
Electricity prices soared last year following the war in Ukraine as Russia turned off gas supplies to Europe in a move denounced by Europeans as blackmail.
After months of hesitations, the European Commission finally its proposal to reform the EU’s electricity market on Tuesday, aiming to stabilise prices and support the development of decarbonised energy.
The Commission proposal was welcomed by French Energy Minister Agnès Pannier-Runacher who said it “provides concrete tools to allow consumers to benefit from the costs of the plants that supply them” and preserves “the benefits of integrated energy trade with our neighbours”.
Paris is particularly pleased with the introduction of contracts for difference (CfD), where governments intervene in the short-term market to cover the potential gap between a pre-agreed contractual price for electricity delivery and the actual market price.
Under this scheme, the government would compensate producers if electricity prices on the wholesale market are lower than the agreed price, while energy producers would give money back to the state when prices are higher.
In the run up to the proposal, France pushed to ensure nuclear would be included in these long-term contractual schemes, which offer stability to energy producers.
This is reflected in the Commission’s proposed text, which says contracts for difference must be applied whenever significant public money is invested into low-carbon or renewable energy projects.
“When it comes to public support to investments – be it renewable or nuclear investments – we require member states to use two-way contracts for difference,” explained a senior Commission official who was briefing the press on Tuesday.
This, the official said, will ensure consumer protection when market prices are higher than the pre-agreed price and ensure investor protection when prices are lower.
It also means that the new nuclear reactors built in France could be financed, or at least supported, by CfDs. Whether they will be in practice is “a separate issue that will be dealt with in due course”, said Pannier-Runacher’s office before the Commission presented the proposal.
What’s more, CfDs will also become compulsory in cases where governments finance the lifetime extension of existing nuclear power plants.
“If there is support going to nuclear, there will be an obligation to do it under the form of a contract for difference,” the Commission official explained, adding that the requirement applies also to “investments in new or existing nuclear plants where there is a question of repowering or lifetime extension.”
This is a timely measure for France where the Parliament is currently debating a bill to extend the operating lifetime of existing reactors from 40 to 60 years.
“CfDs with the state as guarantor are a real win-win for nuclear power,” commented Nicolas Goldberg, from the Terra Nova think tank in Paris.
If the market price is below the pre-agreed CfD floor, the state will compensate the difference to EDF, the French electricity utility which operates the country’s nuclear power plants. And if the market price is above the ceiling, “the surplus money is collected and is to be channelled back to all consumers equally according to their consumption,” the Commission official said.
As EDF is state-owned, the government could in theory reinject the money into the country’s nuclear fleet. However, the European Commission has remained silent on this and the issue is likely to come up during the upcoming negotiations in Brussels to finalise the reform.
“The obligation to give back to consumers will be rather framed towards modest households and small companies, notably because directing profits towards new capacities will not have immediate effects,” said Phuc-Vinh Nguyen, an energy policy researcher at the Jacques Delors institute.
France already has regulated price for wholesale electricity, known as ARENH. Under this scheme, alternative suppliers can buy EDF’s nuclear electricity below market price and sell it back to consumers for a profit.
So if CfDs end up covering existing nuclear capacity, then “ARENH no longer has a future,” Goldberg told EURACTIV France.
Pannier-Runacher’s office does not deny that the new CfD scheme, if applied to existing nuclear plants, would raise questions about the future of ARENH. However, it is “far too early” to definitively bury the scheme, officials said.
At the same time, “it is clear that placing an existing asset under CfDs is a way of passing on the full costs of this type of asset to end consumers,” added the office of Pannier-Runacher, suggesting this would bring electricity prices closer to production costs – as was the case with ARENH.
EU aims for swift adoption
Paris is now focusing on “bringing this reform to a successful conclusion as soon as possible”, said Pannier-Runacher.
France wants the European Parliament and EU member states to pass the reform before the end the year, a wish echoed in Brussels as well.
“On timing we would certainly hope that the co-legislators would come to an agreement rapidly, ideally before next winter” so that the reform is adopted before the next heating season, said a senior Commission official.