French nuclear deal with EDF under EU microscope

The deal between the French government and state-owned utility EDF to regulate nuclear power sales prices at an average of €70 per megawatt-hour (MWh) may be subject to EU state aid rules, according to experts, while the European Commission said it would reserve judgment until further details emerge.

Read the original story in French here.

As discussions on energy market reform continue in Brussels, France struck a deal with the bloc’s largest electricity producer, EDF, to regulate the prices it sells nuclear power to French customers.

The move aims to stabilise electricity prices and replace the existing ARENH scheme, which forces EDF to sell power below market prices to maintain fair competition on the French electricity market and ensure compliance with EU competition rules.

With ARENH expiring on 31 December 2025, the government and EDF have agreed to regulate the price of nuclear electricity at an average of €70/MWh and claw back part of the company’s revenues when prices on the market exceed €78/MWh.

As it stands, the agreement provides that any surplus revenue should be redistributed directly to consumers. Yet, the agreement avoids setting a price floor where the state would compensate EDF when market prices are too low – a provision that is currently being envisaged at the EU level with the introduction of two-way contracts for difference (CDs) to regulate state aid in the bloc’s electricity market.

Although CfDs could theoretically replace France’s ARENH scheme, the French competition authority warned in 2020 that these contracts could be regarded as state aid by the European Commission and be regulated as such.

However, France does not want to take that risk; otherwise, Paris could be left with no other solution than to split EDF’s nuclear activities from the rest of the company – a move that risks stoking tensions with trade unions and proving unpopular with French public opinion.

France to regulate nuclear electricity sales price at €70/MWh on average

After months of negotiations, the French government and state-owend utility EDF reached an agreement on Tuesday (14 November) to regulate the selling price of nuclear power at an average of €70 per Megawatt-hour, with a “rent capture mechanism” applying when prices rise above €78-€80/MWh.

No state aid, according to French government

With the agreement reached in Paris, the government says it is safe from EU state aid rules because, in the absence of a price floor, no money is being redistributed to EDF.

After holding talks with the EU executive, the office of Energy Transition Minister Agnès Pannier-Runacher said it was confident that the Commission would not need to intervene.

“The Commission notes that there are no points that require its agreement, as long as the collection [of the rent] falls within the fiscal sovereignty of the member states, and the redistribution is sufficiently homogeneous not to distort the internal market,” the minister’s cabinet told Euractiv France.

This assessment is echoed by Renaud Christol, a partner in the competition law firm August Debouzy in Paris.

“Essentially, the agreement consists of capping the level of sales prices charged by EDF to alternative suppliers, as provided for by ARENH. On the other hand, this agreement does not provide for the payment of any sums by the State to EDF. There is, therefore, no state aid,” Christol told Euractiv France.

Consequently, “the Commission does not have to examine this agreement before it is implemented,” the lawyer explained.

The Commission remained evasive as to whether the deal between EDF and the French government constitutes state aid.

“If a measure constitutes state aid within the meaning of EU law, it needs to be notified by the relevant member state to the Commission for assessment in advance of any granting of aid to beneficiaries,” said a spokesperson for the EU executive.

“The Commission is in contact with the French authorities on this matter. We cannot further comment on the content of the contacts, nor predict the outcome or timing,” it added in comments to Euractiv.

Selecting beneficiaries

Fuelling the Commission’s doubts, some key details of the agreement are still unknown, such as how the potential surplus revenues from the scheme will be redistributed to consumers.

At this stage, there is no information on the criteria for redistribution.

In the document put out for public consultation on 21 November, “there is not a single word about the ‘distribution key’ for the benefits between households, businesses and electricity-intensive industries,” said Andreas Rüdinger, a researcher at the French think-tank IDDRI. He said this is “THE issue that needs to be resolved” in comments posted on X.

In practice, if the revenue collected by the state is redistributed to all consumers or all companies, there is no state aid, explains Etienne Durand, lecturer in public law at the University of Essex in the UK.

However, “if the redistribution only affected, say, energy-intensive companies, it would be classed as state aid and would therefore have to be monitored by the European Commission,” he told Euractiv France.

In other words, how the beneficiaries would be determined could be a deciding factor to qualify the scheme as state aid – though it is not the only one.

The other issue raised by this agreement concerns alternative electricity suppliers competing against EDF in the French electricity market.

To maintain a competitive system, “it will be necessary to ensure the ‘contestability of tariffs’, i.e. the ability of alternative suppliers to propose offers similar to those of EDF,” explains Nicolas Goldberg, energy market expert at Colombus Consulting.

“As far as we know, nothing is certain,” he told Euractiv France.

Industry representatives will be “very reactive to ensure that competition law is respected,” says Géry Lecerf, Chairman of the French Independent Electricity and Gas Association. The association now has “strong doubts”, Lecerf told Montel.

And if alternative suppliers cannot match the prices of EDF, the French scheme will be “rejected by the European Commission,” Goldberg warns.

In short, the review of the agreement is far from over.

Experts can express their opinions during the public consultation period, which ends on 20 December. And if the consultation results in a “strongly negative” opinion from the stakeholders consulted, “the agreement could be amended,” Christol said.

Rüdinger suggests that the system devised by EDF and the government should be maintained for just three years to ensure a smoother transition and take advantage of the framework currently being negotiated at the EU level

According to him, this is the time needed to reflect on a CfD “that would allow full visibility of EDF’s revenues and prices for consumers, provided that the governance issues relating to EDF’s dominant position are resolved,” Rüdinger says.

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[Edited by Frédéric Simon/Alice Taylor]

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