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The French government has reached a complex deal with state-owned nuclear producer EDF on future power costs which includes a windfall levy if energy prices spike again.
The agreement struck on Tuesday, after many months of negotiations, comes as countries across Europe seek to avoid a repeat of the energy price explosion that followed Russia’s full-scale invasion of Ukraine last year, including through reforms at EU level over the subsidies that can be used to foster power generation.
The French agreement is aimed at protecting consumers and businesses from soaring prices but also ensuring EDF can find the funds it needs to build future nuclear reactors.
“A company has to be profitable. We’re not in the Soviet Union,” economy minister Bruno Le Maire said of the deal, which comes as France is phasing out subsidies allocated since 2021 to shield the economy from the highest price spikes. Le Maire said state aid amounted to nearly €40bn.
The new framework will include taxing some of the company’s revenues if energy prices exceed certain thresholds and redistributing the funds to consumers and companies.
The goal is to try to keep the price of nuclear power at an average of about €70 per megawatt hour over a 15-year period, above EDF’s estimated production costs. French wholesale power prices are still well above €100 per megawatt hour at present.
Under the agreement, if energy prices head north of about €78 per megawatt hour the state would recoup half of the extra revenues earned in tax, while any revenue above a threshold of €110 per megawatt hour would be taxed at 90 per cent.
“The inflationary shock of the past two years has shown us to what extent (France’s nuclear energy) was a vital asset for social cohesion, for the survival of businesses and to attract foreign investors to France,” Le Maire said.
The new framework would apply from 2026 after the expiry of an existing one known as Arenh, under which EDF sold a chunk of its energy at €42 per Megawatt hour to industrial groups and other power distributors.
EDF is France’s dominant power provider and producer, with a fleet of 56 reactors that also export power across Europe.
That means Brussels has long scrutinised the company to ensure state aid and competition rules are respected, while other countries in Europe and particularly Germany have been wary of France getting too much leeway over pricing that might be seen as overly advantageous for its companies.
Key aspects of the EDF deal would not require a green light from the European Commission, French government officials said, as taxation on a targeted sector is allowed and the redistribution of such funds is provisioned for in recent EU electricity market reforms.
That contrasts with Germany’s push to introduce tax subsidies for its industry worth up to €28bn by 2028 to help manufacturers with energy costs, which could have more trouble passing muster in Brussels.
Still, there are lingering uncertainties over some aspects of the EDF deal agreement, which was hard to reach as the group’s boss Luc Rémont and the government clashed over where to set the price thresholds, people close to the talks have said.
France might still have to engage with Brussels over some aspects of how tariffs are set, said Nicolas Goldberg, a partner at Colombus Consulting, while businesses that buy power from EDF may lack visibility on their final price if they don’t know in advance how much may be recouped from the windfall levy.
“Some of the ways it will be applied are hard to read,” Goldberg said.
The levy’s thresholds will be renegotiated over the years, opening the door to more wrangling with EDF as it comes under growing pressure to invest in new plants. Some lobby groups in France representing other power providers are unhappy they are being presented with a fait accompli on prices, with consultations with other parties only due to kick off now.
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