LONDON, Jan 14 (Reuters Breakingviews) – Jean-Bernard Lévy’s tough winter just got worse. A month after the EDF (EDF.PA) chief executive had to shut down four of his 50-odd nuclear power stations due to technical issues, the French energy company said it was closing another and facing an 8 billion euro hit from a government scheme to protect households from soaring prices. It won’t be the last European utility to get caught in the crossfire of the 2022 energy crisis.
All things being equal, EDF should be insulated against the storm, which has seen wholesale gas prices quadruple in a year and drag up electricity costs. Passing on the increase to French citizens would have meant lifting tariffs by 35%, while the cost of running EDF’s nuclear stations should have remained stable. JPMorgan analysts reckon this would have pumped up EBITDA this year by 8 billion euros.
But French President Emmanuel Macron, who faces an election this year, is determined to protect customers. Capping the increase in retail prices at 4% means taxpayers and investors have to swallow the difference. That hurts EDF in several ways. First, it has to sell 20 terawatt hours of additional power to smaller rivals at 46 euros per megawatt hour. It then has to buy back that power at the much higher market price. EDF thinks the hit to 2022 EBITDA from this, plus a postponement of some tariff increases, could be 8 billion euros. JPMorgan analysts think the overall impact on the company from outages and the tariff support could be even more.
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Since the French state owns 80% of EDF, whose shares fell by as much as 25% on Friday morning, the raid hurts taxpayers as well as investors. EDF could try to claw back some of its support via “deferred” tariff hikes in 2023, although Finance Minister Bruno Le Maire implied on Thursday that the state and the company might absorb the entire hit rather than make consumers pay later.
The financial damage to EDF is way bigger than the 1.2 billion pound levy on North Sea oil producers proposed by Britain’s opposition Labour party. Energy consumers in the United Kingdom and Italy, which is also mulling intervention, are facing bigger price increases than in France. The European utility hurt locker has space for many more victims.
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