France’s sudden interest in a common EU “energy community” signals an important policy change that has everything to do with the country’s troubled domestic energy outlook. The French government seems to be pursuing more European cooperation to make it possible to push through unpopular reforms at home and to prepare France for a less nuclear future, writes Iana Dreyer, a Paris-based energy and trade economist.
Photo: Cattenom Nuclear Power Station, Lorraine, France (Alsal Photography)
The EU still has no single market in energy, let alone a consistent energy policy. France is traditionally one of the fiercest opponents of the energy market liberalization demanded by Brussels. In particular the deep divisions that exist among member states over nuclear power have hampered the development of a coherent EU approach to energy. Yet at the May 2013 summit of the European Council, French President François Hollande called for a “European energy community”. Although the concept remains vague, this move signals rising French interest in a common European approach to energy.
President Hollande’s declarations show that he at least in principle accepts that the single market in energy needs to be achieved, a goal the May summit re-stated. At the gathering, leaders of the member states also called for a common approach to renewables support policy and more trade in renewable electricity. The need to develop “indigenous energy sources” – i.e. shale gas – was also officially stated.
The French government wants an EU-level industrial policy for the energy sector. Proponents of an energy community around former EU Commissioner Jacques Delors, who coined the term, and with whom Hollande has worked in the past, also call for some stronger EU energy diplomacy. The term “community” is thus simply another way to express the idea of a consistent EU energy policy, which would achieve a balance between the need to “keep the lights on” at competitive prices, securing supplies of primary sources including through international diplomacy, and taking into consideration environmental issues, like climate change.
These are also the stated goals of the EU’s Lisbon treaty. But that same treaty is an obstacle to achieving those goals. Its Article 194 sets in stone the principle of national sovereignty in the choice of energy mix and strategies to secure international energy supplies. However, it is difficult to disentangle decisions on the internal energy market (Brussels’ competence) and the choice of energy mix and energy supply strategy. Hence, breaches occur to the principle of national sovereignty over the energy mix: the 2009 Renewable Energy Directive that sets a 20% renewables target for the EU by 2020 is a prime example. What is more, this Directive also negatively affects the single market. The EU’s renewables policy has further fragmented the single market, through inconsistent subsidy schemes.
But the Renewable Energy Directive wasn’t politically too difficult to have EU member states agree on. The real divisive issue is nuclear power: since the late 1990s, Germany, France’s main partner in the EU, has rejected nuclear power. It is drifting towards an electricity mix based on fossil-fuels-cum renewables. France for its part has slid into a nuclear-cum-renewables model. The problem is not only national preferences for or against nuclear. The biggest obstacle to France agreeing to the single market in energy has been access by European competitors to the cheap energy produced, under state control, by its large nuclear fleet. France has a particularly high share of electricity in its energy mix (41% of final consumption), 80% of which is nuclear power, produced by Electricité de France (EDF), the country’s 85% state-owned power utility. Areva, the state-owned company that organises the country’s uranium supplies, recycles nuclear fuel and builds reactors for EDF, is also a major player.
France still regulates household gas and electricity prices, and in part also wholesale electricity prices. One of the roles of the electricity regulatory body, the Commission de Régulation de l’Energie (CRE), is to recommend sales prices. But the final decision is left to the government.
Regulated prices, which happen to be systematically undervalued, stifle competition and keep the market national. Although, formally, independent and foreign companies may compete on the French market, the discrepancy between higher European wholesale market prices and low national regulated prices makes it practically impossible to enter or stay in the business. France restricts exports of electricity by protecting EDF’s monopoly over them. In 2010, foreign competitors were allowed to sell nuclear electricity produced by EDF at regulated wholesale prices to French clients, but they were not allowed to sell it on abroad.
French reluctance to open up its market is also due to competitiveness fears. Nuclear power has proven not to be a very attractive option in liberalised energy markets. Experiences in the United States and the United Kingdom in the 1990s have shown that once liabilities for health and environmental damages in case of accidents, costs of dismantling old plants and political and other legal risks – previously covered by public monopolies – are taken into account, investors tend to shy away from nuclear. Yet liberalism is at the centre of Brussels’ energy market policy.
Until the middle of the 1990s, French nuclear industrialists, scientists, policy-makers and trade unions presented a united front against any measure that could put in question the statist model and competitiveness of the industry they served. How the nuclear industry operated or how much the energy really costs was considered unimportant, when the real issue in decision-makers’ eyes was much-prized energy independence.
But cracks have appeared in a technocratic edifice that seemed unassailable. There is today more pluralism in French politics than ten or twenty years ago, and more questioning of nuclear power. The confrontation of French energy majors with the global nuclear market since the 1990s has forced more modesty onto French nucléocrates, when bids abroad by EDF or Areva were lost to competitors. The timid privatisation of 15% of EDF almost ten years ago as the country started implementing European legislation, has forced the utility to pay more attention to its bottom line. The 2011 nuclear accident in Fukushima in Japan led to renewed public scrutiny into the country’s flagship utility and its ability to face up financially to future tasks such as dismantling plants or bearing the costs of a potential nuclear accident.
Institutional developments have helped foster healthy debate on nuclear among the predominantly pro-nuclear bureaucratic elite. François Hollande’s 2012 election campaign pledge to reduce the share of nuclear power to 50% of French electricity by 2025 must be seen against this background. The nuclear safety authority (ASN) and the public research body on radiation risks (IRSN) were made more independent in 2006 and 2007. Both have occasionally aired critical views of the ways some nuclear plants are managed, and have raised safety standards. IRSN chief Jacques Repussard recently argued that 80% nuclear power poses a systemic risk and France should reduce its share of nuclear power. Critics have argued that the industry’s closed decision-making process has led to costly but fruitless industrial choices, such as the Superphenix reactor that was ultimately dropped in the 1990s. Some say that Areva’s troubled European Pressurized Reactor (EPR) projects in Flamanville in Normandy and in Finland amidst constant cost overruns are another proof of the nuclear industry’s misguided gigantism.
Thus, big questions loom over the economic viability of France’s energy system in the future, as nuclear costs rise, renewables create new problems, oil prices remain stubbornly high and the country hasn’t been able to achieve significant energy savings in the last decade. The years of cheap energy are over. In 2012, the CRE announced that electricity prices would need to rise 30% by 2017: this came as a shock. Under such circumstances, France’s core argument against integrating fully into the single market and deregulating prices is increasingly looking shaky. This argument is that the consumer would be penalised if the cheap nuclear power of its now amortised plants were to be sold onto the rest of Europe and its prices made to converge with the higher ones in Germany and Italy, currently its main export destinations.
Reform is extremely difficult. With the “energy community” proposal, the government is probably looking for an argument to push through unpopular measures at home, which would both restore some health to the energy sector and make it more compatible with the EU framework, such as price deregulation and more partial privatisations. But there are other interests. The government is seeking to have Europe fund more infrastructure and R&D projects that benefit its energy industry. France has a vital interest in a higher CO2 price, especially if it opens up to the EU market. Currently, the real competitive threat for the largely CO2-free nuclear power produced by its 58 reactors is coal, whose prices are at record lows with the shale gas revolution raging across the Atlantic. France will want to see to it that the EU’s carbon market – in tatters since the European Parliament refused this April to reduce the number of quotas allocated for the European carbon trading scheme – gets fixed.
Expect France to remain a very difficult partner in EU energy policy. But more open to the single energy market than before.
Iana Dreyer is a Paris based energy and trade economist. She is an associate Fellow at the EU Institute for Security Studies and was rapporteur of a high level working group on energy reforms at the French think tank Institut Montaigne in 2012. She writes in her personal capacity.