“EDF is entering the 21st century,” French Economy Minister Bruno Le Maire said at a press conference to announce the deal on Tuesday (14 November).
The agreement follows declarations made in September by French President Emmanuel Macron that he wanted to “regain control of electricity prices” by the end of the year.
EU countries have seen their electricity prices soar following the outbreak of war in Ukraine last year, and France was no exception.
In mid-October, EU countries reached a common position on a proposal to reform the EU electricity market to tame volatile electricity prices and promote long-term contracts between energy operators and consumers.
They are now comparing their position with that of the European Parliament to conclude negotiations by the end of the year.
For its part, France had to take a further step towards regulating its nuclear production – not only to meet Macron’s political goal but also to replace its current ARENH system, which controls the price of nuclear electricity sold by EDF to its competitors.
Launched in 2011 to comply with the EU’s energy market liberalisation directives, ARENH has been a thorn in the side of EDF because it obliges EDF to sell its historical nuclear production to competitors at €42 per MWh, well below the company’s estimated production costs of €60/MWh.
With the ARENH system expiring on 31 December 2025, the government and EDF have entered negotiations to replace the scheme and reached an agreement on Tuesday (14 November).
Under the agreement, a first level of regulation will be introduced when prices in the European electricity market exceed €78 to €80/MWh.
According to the agreement, anything sold above this price will be redistributed to end users via their suppliers at a rate of 50% of the revenue generated by the generators.
If the sales price exceeds €110/MWh, 90% of the revenue will be redistributed.
However, compared to the current ARENH system, which only covers half of France’s nuclear production or 100-120 TWh, the government says the new agreement will cover all of it, amounting way to 30 below-market or even 400 TWh by 2030-2035.
The deal provides “an incentive [for companies] to negotiate long-term contracts with EDF and other suppliers”, Energy Transition Minister Agnès Pannier-Runacher said of the reform that will take over the ARENH system from 1 January 2026.
EDF’s CEO, Luc Rémont, was initially reluctant to regulate its nuclear production, putting him at odds with France’s position in its negotiations with Brussels to reform the bloc’s electricity market rules.
Rémont and the government eventually agreed on regulating some of EDF’s production, although the level of regulation has yet to be defined.
EDF did not want to go below €110/MWh, while the government wanted it to be around €70/MWh – which, according to Pannier-Runacher’s office, is slightly higher than the total cost of nuclear power plus the cost of financing new nuclear power, including the cost of decommissioning and waste management, as calculated by the French energy regulator.
In the end, the agreement reached will “guarantee an average nuclear electricity price of around €70/MWh for all production”, said Pannier-Runacher.
This price is ultimately the result of “long-term forecasts of price formation over 15 years starting in 2026,” Le Maire entourage added.
“The pattern we are entering favours the long term, which by its very nature is much closer to our economic production conditions and much less prone to volatility,” he added.
In line with EU-level agreements
“This agreement is in line with the agreement reached at European level,” said Pannier-Runacher.
However, it is possible that France will not have to use the long-term regulatory contracts provided for in the EU reform despite having insisted that they could cover existing nuclear installations.
According to Rémont, the main point is to open up a “toolbox” without using all the regulatory instruments available.
Le Maire also pointed out that the agreement between EDF and the government had been “defined to comply with European rules,” Pannier-Runacher’s office confirmed that discussions have already begun with the EU Commission.
The average price of €70/MWh is likely to change, as are the thresholds, the government said – echoing the agreement that the parties will meet every six months to discuss the need for changes.
The current agreement will now be put out for consultation with consumer groups, suppliers, and manufacturers.