Corrosion problems that spread, delays in Flamanville, obligation to sell electricity at a loss to its competitors … While the government relies more than ever on its national champion, EDF saw its stock market plunge, this Friday, after having chained the bad news.
Around 11:15 am, the title lost 16.08%, to 8.69 euros, in a market down 0.70%. The reaction is “quite violent, but predictably,” commented Nicolas Bouthors, analyst at Alphavalue, listing the accumulation of bad news.
Over 7 billion losses
In order to limit the rise in electricity prices for consumers, the French government on Thursday asked EDF to increase by 20% the volume of nuclear electricity sold at a reduced price to its competitors this year, from 100 to 120 terawatt hours. (TWh), i.e. up to 40% of its planned production. This decision will cost the group billions, in which the state is the main shareholder, but it will allow the government to honor its promise to limit the rise in regulated tariffs to 4% in February. A promise that turned into a puzzle, while the mechanical increase would have been around 35% to follow market prices.
In financial terms, EDF announced Thursday evening that the impact of this measure on its gross operating surplus for 2022 would be 7.7 to 8.4 billion euros. Figures “which can scare investors”, but Nicolas Bouthors still sees two positive points: the market expected to see the volume of electricity sold off to rise to 130 TWh and the price (46.5 euros per MWh) has been increased, which makes it possible “to attenuate the total cost for EDF”.
Decrease in nuclear production in 2022
According to him, the cost of this measure is also explained by an extremely unfavorable calendar, with high prices on the wholesale market, persistent tensions on gas and the recalculation of regulated tariffs in February. “By announcing this increase now, it leaves a ridiculous margin for EDF to buy back these 20TWh on the market. “It was the” only lever available to the government which is in a political process with the approach of the elections “, notes the analyst, stressing that the promise of tariff shield (in particular by the intermediary of a reduction of tax) was announced by Prime Minister Jean Castex when wholesale prices were much lower at the end of September. Second bad news for EDF: the extension of the shutdown period of five of the 56 reactors in its French nuclear fleet.
The group has therefore revised down its nuclear production forecast for 2022, to 300/330 TWh, against 330/360 TWh previously. Today, ten of these reactors are shut down for maintenance or other purposes, which represents 20% of French nuclear production capacity. Other plant closures, in the middle of winter when electricity consumption is high, could disrupt the country’s electricity supply, or even create blackouts. On Thursday, the Institute for Radiation Protection and Nuclear Safety (IRSN) indicated that a reactor at the Penly plant (Seine-Maritime) was also concerned by a corrosion problem on a security system already detected or suspected on four others. EDF reactors currently shut down.
The fear is now that other reactors are concerned. Thursday’s news is all the “more alarming given that Penly is designed differently” from the Civeaux and Chooz reactors, and that “the corrosion problems do not appear to be attributable only to a certain type of reactor”, according to Mr Bouthors. “When we know the financial structure of the group, its already high debt and its financing needs (…) there will be a gap to be filled again in 2023 and a capital increase or an issue of hybrid securities cannot be ruled out” , he adds.
What financial impact in 2022 for the group? Oddo BHF analysts expect a gross operating surplus (Ebitda in financial jargon) of around 10 billion euros. To be compared with the 17.7 billion that EDF expected for the whole of 2021. Finally, a new delay for the new generation EPR nuclear reactor under construction in Flamanville (Manche) was announced on Wednesday. It should not start until the second half of 2023, instead of the end of 2022.