Franceâs sudden interest in a common EU âenergy communityâ signals an important policy change that has everything to do with the countryâs 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.Â
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 âEuropean energy communityâ. Although the concept remains vague, this move signals rising French interest in a common European approach to energy.
President Hollandeâs 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 âindigenous energy sourcesâ â 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 âcommunityâ is thus simply another way to express the idea of a consistent EU energy policy, which would achieve a balance between the need to âkeep the lights onâ 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 EUâs 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 (Brusselsâ 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 EUâs renewables policy has further fragmented the single market, through inconsistent subsidy schemes.
Nuclear power
But the Renewable Energy Directive wasnât politically too difficult to have EU member states agree on. The real divisive issue is nuclear power: since the late 1990s, Germany, Franceâs 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 ElectricitĂ© de France (EDF), the countryâs 85% state-owned power utility. Areva, the state-owned company that organises the countryâs 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 RĂ©gulation de lâEnergie (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 EDFâs 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.
Competitiveness fears
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 â previously covered by public monopolies – are taken into account, investors tend to shy away from nuclear. Yet liberalism is at the centre of Brusselsâ 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-makersâ 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 nuclĂ©ocrates, 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 countryâs 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 Hollandeâs 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 industryâs 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 Arevaâs troubled European Pressurized Reactor (EPR) projects in Flamanville in Normandy and in Finland amidst constant cost overruns are another proof of the nuclear industryâs misguided gigantism.
Unpopular measures
Thus, big questions loom over the economic viability of Franceâs energy system in the future, as nuclear costs rise, renewables create new problems, oil prices remain stubbornly high and the country hasnât 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, Franceâs 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 âenergy communityâ 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 EUâs carbon market â in tatters since the European Parliament refused this April to reduce the number of quotas allocated for the European carbon trading scheme â 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.
R. Andreas Kraemer says
Iana Dreyer does a good job of explaining what is going on in France, and why France may want a new “European Energy Community” to be established by a new European treaty. She assumes that the current French government wants an EU process and EU law to push for an expansion of renewable energies and a reduction of nuclear power. That assumption may be wrong. If France wanted to phase nuclear power down and out, it could easily agree to the abolition of the Euratom Treaty, which is it keeps regarding as sacrosanct. It may be better to assume that the French government wants a specialized European Treaty to supersede the energy chapter of the Lisbon Treaty as well as the provisions on state aid (subsidies) and internal-market disciplines. The purpose of the French government may be to shield all-but bankrupt ElectricitĂ© de France (EDF) from competition, so that it can be relieved of its responsibility to pay for the decommissioning and dismantling of its nuclear power plants, and the storage and safeguarding, monitoring and maintenance of its radioactive wastes. Cheap renewable power from other EU Member States will erode EDFâs margins, market share, and capacity to build reserves for the future or legacy cost of nuclear power. EDFâs total liability is massive even by the standard of nations, so the French government may want to avoid any more exposure to competition. Iana Dreyer should talk to a few economists and write the second installment in what promises to be a good series of articles.
Iana Dreyer says
Thank you for this comment. France is not planning in any way to phase out nuclear. However in the medium term, nuclear is likely to shrink rather than expand, given the economic and political fundamentals I have tried to describe above. To make EDF more vialble commercially, the country will need to raise prices. This unwinds the whole political bargain with the consumer and voter made in the country. Aconstitutional court ruling this spring stopped the adoption of a – mindboggling – administered system of selective price rises. So there will be blanke rises. But higher prices are likely to make the uncompetitive market less palatable to the public. There is no clear-cut policy yet – and even a great deal of confusion of the whole issue in political circles. But the realisation that it might get more interesting to import more from abroad or that, to safeguard nuclear, CO2 prices need to be higher, etc mean that France is realising that going it alone on energy is no longer a good option. It will also want to tie in Germany whose 2011 decision to phase out nuclear for good not only hurt French business but above all contributed to the recent “coal renaissance” in Europe.
Markus Steigenberger says
Dear Ms Dreyer,
although I share most of your views regarding the analysis of the French debate, I cleary disagree with your assumption that the nuclear phase out in Germany contributed to a coal renaissance. In fact, I would question if something like a ‘coal renaissance’ happens at all.
It is true that power generation from lignite (and partly hard coal) increased in 2012 in Germany (roughly 6%). This can be explained by new generation capacity coming online (construction started long before the nuclear phase out), the design of the market (merit order effect), cheap coal prices and a dysfunctional ETS. It does not mean that utilities are planning for new coal plants – and this is what I would call a renaissance of coal. On the contrary, the current market situation does not provide any incentives to plan for new coal plants. The same is true for other countries in Europe.
Very recently, DECC asked Poyry to analyse the “coal renaissance” in DE, NL and ES. Poyry concludes very cleary that there is no coal renaissance at all. You can find the report here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/194335/Poyry_Report_-_Coal_fired_power_generation_in_Germany.pdf
kind regards
Iana Dreyer says
Thanks for your contribution!