FOCUS-Falling power prices threaten debt-laden EDF's revival


By Forrest Crellin and Benjamin Mallet

PARIS, Feb 15 (Reuters) - Falling electricity prices are slowing EDF's negotiations with industrial customers for long-term contracts, four sources and experts say, threatening the debt-laden energy group's long-term finances and ability to keep its aging nuclear plants running.

Financial results for 2023 on Friday will likely show progress in cutting some of EDF's 65 billion euros ($69.5 billion) of debt and a rise in profits bolstered by soaring power prices following Russia's invasion of Ukraine in 2022.

But the lack of forward deals will renew concerns about the state-owned power company's long-term commercial outlook after its nationalisation last June. EDF needs those deals to shore up its finances and reduce risks of price swings so it can invest to extend the life of its 56 nuclear reactors and build at least six more.

A power price deal EDF agreed with the government in November aims to stabilise electricity prices for retail and industrial customers at 70 euros per megawatt-hour (MWh) on average from 2026 when current contracts expire. The current breakeven level for production costs is 60 euros/MWh.

But sinking prices are undermining that strategy.

The drop in prices is "seriously disrupting both the market and EDF", said one EDF source who declined to be identified because the talks are private. He described the market as being in a "real paralysis" because both sides are in a wait-and-see mode.

An absence of deals could make it harder for EDF to secure funding or hurt its credit ratings. Top agencies Fitch, S&P and Moody's have lower-medium grade ratings for its long-term debt.

"We'll closely monitor how the amount of long-term contracts picks up over time," Antonio Totaro, Fitch's head of EMEA utilities and transport, said.

Aluminium producer ArcelorMittal signed a letter of intent for an electricity production allocation contract with EDF in mid-January. EDF declined to comment on the progress of any talks.


EDF and customers have blamed each other for the slow pace of talks.

The EDF source said it "makes no sense" for customers to book far forward contracts while prices are trending downwards.

Yet EDF could also be stalling, hoping that prices stabilise above current levels.

Industrial customers are ready to sign deals, Nicolas de Warren, president of Union of Energy Using Industries (Uniden) said.

"Things are not moving fast enough," he said. Uniden represents about 70% of France's industrial energy users, such as Renault RENA.PA and train operator SNCF.

Uncertainty over future prices is slowing investment decisions for energy-intensive industries even as the government aims to reindustrialize France while reducing carbon emissions, he said.

"These industries cannot live with increasing market price variability, so we absolutely need these contracts," de Warren said.

While the scheme is off to a bad start, there is no alternative currently on the table, the EDF source said. EDF and the government said last year they plan to review its success around May.


The French baseload contract for 2026 TRFRBYZ6 has more than halved over the past year, piercing the 70 euro/MWh level on Feb. 5 that was set as the market reform reference price. On Wednesday, it hit a fresh contract low of 63.75 euros/MWh.

Front-year contracts TRFRBYZc1 traded around 50 to 60 euros from 2018 before spiking in 2022 after Russia's invasion of Ukraine when they peaked at 1,200 euros/MWh. They have fallen rapidly over the last year and are now at around 70 euros/MWh.

EDF's other new pricing strategy, aimed at setting rates to sell to rivals such as Engie ENGIE.PA and TotalEnergies TTEF.PA, includes auctions for 2028 and 2029 contracts.

Demand has been lacklustre for those too.

Out of 54 total auctions since the start of the year, only a dozen have been successful and at prices below 70 euros, EDF data showed.

"The relatively low level of participation shows a limited interest on the part of the French market for this type of product, probably due to EDF's reserve prices, which might be considered too high," said ICIS analyst Lucca Urbanucci.

The French economy ministry said it has no plans to help the group if power prices fall below the 60 euros per megawatt-hour (MWh) breakeven level. It reiterated this month that market reform agreed in November will help EDF manage price volatility and invest in assets.

($1 = 0.9344 euros)

FACTBOX-French government's power price deal with EDF

French baseload power contracts for two and three years ahead have dropped by about half over the last six months

French baseload power contracts for next year are getting closer to historic levels below EDF's operational costs

(Reporting by Forrest Crellin and Benjamin Mallet; Editing by Josephine Mason and Elaine Hardcastle)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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