The recent law on “the energy transition to green growth”, promulgated on 17 August 2015, plans for a fall in nuclear energy’s share of electricity production from 75% to 50% by 2025. It also caps the power of the country’s nuclear plants at 63.2 GW. This limit corresponds to current capacity and implies that any new reactor start-up (Flamanville, for example) must result in the closure of a reactor with equivalent power. The decision to postpone the expected closure of the Fessenheim plant comes under this and is now part of this energy equilibrium. The conditioning of the closure of Fessenheim is provoking discontent among all those who believed in the unconditional pledge of Francois Hollande during his presidential campaign.
This decision is coming in a new context for French nuclear power policy and in an international and technological situation that is leading the French state to abandon the country’s “all nuclear” approach. Areva, Flamanville and Fessenheim are key players in this shift.
Act I began with the revelation of Areva’s losses. In early 2015, the announcement of a loss of almost 5 billion euros for fiscal year 2014 relegated the company from first class status to a company in difficulty, alongside Alstom, whose energy branch is being sold to General Electric, with completion this autumn. The Areva group had a turnover of slightly more than 8 billion euros in 2014. The group’s problems are due to the simultaneous emergence of difficulties in its environment, including market and regulatory trends, technological constraints and changes in the competition (see “Areva, vaincue à la croisée des risques” [Areva: defeated at the crossroads of risk], Note de l’OFCE, no. 52, September 2015). With private and public governance having proved incapable of taking timely decisions to deal with these adverse developments, the moment for restructuring has come. Areva now needs 7 billion in financing for the 2015-2017 period (to cover losses and debt maturities, without including any provisions for the TVO site). The proposed agreement with EDF presented in late July concerns Areva NP.
Areva NP is already a joint venture of Areva and EDF that handles the construction of reactors and the assembly of fuel and services for the installed base; it accounts for half of Areva’s sales. In late July 2015, it was duly accepted that EDF would increase its share of Areva NP’s capital by injecting two billion euros, giving it between 52% and 75% of the capital, depending on the inputs of other investors, along with 400 million for the acquisition of other assets. It was also agreed that the additional costs related to the Finnish Olkiluoto OL3 reactor built by Areva would not be borne by EDF but by the State and Areva. There is still uncertainty about how to handle the risks related to the Flamanville reactor, and EDF is conditioning its commitments on lifting these risks.
Foreign capital could participate in replenishing the capital through the purchase of assets. The most likely candidates are Chinese firms, which are already partners of EDF (CNNC and CGNPC), and Mitsubishi, which has partnered with Areva (see above), alongside France’s Engie (GDF Suez). The French government is prepared to bail out the company for at most 2 billion euros.
The integrated model of Areva is therefore on the rocks. Less than 15 years after its birth, Areva’s industrial coherence is under question. The company has been forced to allow the entry of industry partners into its capital and into its vast range of expertise. Its activity is now concentrated on the fuel cycle (the extraction, enrichment and reprocessing of uranium), with nearly one-third of its workload ensured by its client EDF and by maintenance and decommissioning.
The refocusing strategy, market trends and the preferences incorporated in France’s energy policies are mutually consistent. The nuclear market will be centred on the need to maintain plants in operating condition and on decommissioning. Just under 500 reactors are listed worldwide, so there is a vast market for maintenance and decommissioning. This is in fact the area where Areva has won contracts in recent years.
In Act II, Flamanville and Fessenheim found themselves bound by the new energy transition law, illustrating both the technological difficulties involved as well as the budgetary constraints. The completion of the construction of the Flamanville plant is meeting significant technical hurdles from the Nuclear Safety Authority. Its opening is, for the moment, subject to strong conditions. At the same time, the postponement of its opening means that the expected output of electricity production will have to do without it. The closure of the Fessenheim plant, promised for 2016, must therefore be delayed so as to avoid a transition in terms of electrical power output that will have to be filled in one way or another.
Without the capacity in the short run to replace the missing nuclear KWh by KWh from renewable energy, the replacement will have to be done using coal plants – going against the current targets for reductions in CO2 emissions – or by importing electricity – which would hurt the trade balance and could push up electricity prices. Given the necessity of postponing the closure of Fessenheim, the government will not fail to seize the political opportunity of the shortfall between the announcement of the plant’s closure and its actual implementation.
Add to these factors the potential compensation – estimated at 5 billion euros – that EDF will request for the early closure of Fessenheim, and it is quite logical that the government is procrastinating as much as possible before deciding on the closing date.
Even today we still do not know the extent to which the State will recapitalize Areva. The government has clearly indicated that it would minimize the amount as much as possible, but for the most part it seems ready to allow foreign players in. So, concomitantly, the law on the energy transition is requiring a decrease in the share of nuclear power and the State is announcing that it can no longer finance the sector in the way it used to. More generally, the globalization of the industry, the rising cost of technology and safety requirements as well as the shift in the preferences of the average voter towards less nuclear power are all combining to redefine the State’s commitment to nuclear energy.
The State is thus being politically and economically compelled to withdraw from its “all-nuclear” approach and to accept the end of everything “made in France”. The final decisions that will be taken on Areva’s future and on the fate of the plants in Fessenheim (which will undoubtedly close in the short term) and Flamanville (whose opening is compromised but financially necessary) will therefore mark a change in the era of nuclear policy, even if the recent energy transition law is subsequently amended by a new party in power.