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France explores windfall levy to ‘take back control’ of energy prices

France explores windfall levy to ‘take back control’ of energy prices

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France is exploring ways to cap national electricity prices without falling foul of EU subsidy rules, including a possible windfall levy to deliver President Emmanuel Macron’s pledge to “take back control” of prices.

One option under consideration is for the state to collect and redistribute some of nuclear power producer EDF’s revenues, according to people familiar with the talks. Such a move, part of a broader overhaul of the way power prices are regulated in France, would echo emergency measures authorised by Brussels during the energy crisis to collect “excess profits” when prices soared.

The mechanism would involve setting a ceiling for the price at which state-owned EDF sold its nuclear energy, including to other electricity distributors and industrial groups. Revenues above that threshold would revert to the government and be distributed back to end users.

The hope in Paris is that it might be able to operate such a framework without prompting objections from the European Commission, which polices state support to industries and households that distort the EU market.

But whether France could truly act unilaterally is still unclear. Macron’s use of Brexiters’ catchphrase this week sparked confusion in Brussels, where EU states and the commission are simultaneously trying to negotiate electricity market reforms.

“By the end of the year we’re going to take back control of electricity prices at a French and European level,” Macron said on Monday. He gave few details of how this would work beyond signalling France planned to introduce a new law to this end.

One senior EU diplomat said Macron’s pledge was worrying. “The last time someone was promising to take back control that didn’t end very well for the single market,” the person quipped, in a nod to Brexit.

Macron’s move reflects some of the frustrations France has expressed during talks at European level over a reform of the electricity market design, as Paris and Berlin clash over how the French nuclear power sector will be treated and whether it can benefit from certain subsidies.

A French official said the plan to create a national system to contain electricity prices was not incompatible with the reform in the works in Brussels. “Clearly we want a European agreement on market reform. But such an agreement wouldn’t solve everything,” the official said, adding that “if necessary”, France would act on its own.

EDF’s nuclear power plant in Flamanville, France
EDF’s nuclear power plant in Flamanville, France © Benjamin Girette/Bloomberg

Another French government official said Macron’s bid to “take back control” of the power sector had broader implications than just prices. It reflected a push for France to produce more of its energy domestically, the official said, and ensure it avoided a repeat of the reactor outages that forced it to become a net power importer for the first time in decades last year.

France has long vaunted its fleet of 56 nuclear reactors operated by EDF as a competitive advantage, underpinning its low carbon strategy and helping businesses and households, thanks to prices that had remained low until the energy crisis last year. But former monopoly EDF is state-owned and has a dominant position, and its every move involves wrangling with Brussels to ensure state aid and competition rules are respected. 

A current framework known as the Arenh — under which EDF sells a chunk of its power to rival distributors at a fixed price that has been agreed with the EU — is expiring at the end of 2025 and discussions around its replacement are partly what have led to the soul-searching on price mechanisms.

“France will in any case have to discuss its plans with its European partners,” said Nicolas Goldberg, a partner at energy specialist Colombus Consulting.

At EDF, chief executive Luc Rémont is open to a price-ceiling solution, people familiar with the matter said. But Rémont has clashed with the government over the level at which it should be set, adding another layer of complexity to the government’s plans.

A recent report by France’s energy regulator established that the cost of producing energy would be equivalent to €61 a megawatt hour for EDF for the coming years, and the state is pushing for a price as close to that as possible. 

EDF is arguing that it needs a higher one to be able to deliver on Macron’s plan to build at least six new reactors over the next decade at an estimated cost of €52bn.

The group declined to comment.

Additional reporting by Alice Hancock in Strasbourg and Leila Abboud in Paris

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