The Magazine for Asian Investors
France’s main electricity provider, Electricite de France SA (EDF.VI), continues to face tough times ahead. The company’s revenue gap has now ballooned to $8.8 billion, scaring off many investors in the new year. The stock is already down 14.8% YTD and 29.3% in a year. This clearly indicates that investors are avoiding the company at the moment.
In the past, the company has been able to supply clean and cheap electricity to the population and also sell the excess electricity to neighboring countries like Germany. This was to the delight of ordinary people and small businesses.
The problems the company is facing at the moment are mainly due to two factors, one being an aging reactor fleet and the other being politics.
A key factor is that the French presidential elections are coming up in April, which will probably prompt the current president Emmanuel Macron to activate all possible levers to win votes. As French energy prices are shooting sky high at the moment, this will also be partly at the expense of EDF. In other words, in order to support small and medium-sized enterprises and also the population, the current government will force EDF to sell electricity at a cheaper price than the market price. But this is another danger for the company, because it will have to buy electricity back on the market later, and it will have to do so at the market price. Analysts estimate that this will cost the company almost $9 billion.
At the same time, Macron wants to build more nuclear power plants, which under current circumstances gives the company shaky legs. New orders are on the one hand positive news, but with such a large revenue gap, expensive investments in new reactors are now to be made. It will be difficult to stem this with the current funds.
If that’s not enough, EDF has other problems to deal with at the moment, and that’s the current fleet of reactors.
Maintenance work, which is protracted due to the aging reactors, is currently forcing the company to shut down individual power plants, which of course is costing the company dearly. The shutdown of some reactors is also a reason why electricity prices in France are rising again. Since some of the power plants were taken offline for maintenance, prices have risen from just under $115 per megawatt-hour to nearly $800 per megawatt-hour.
Among the problems listed above, the company will probably need new capital. The main shareholder of the company, which is already the French state with 84%, will have to support the company financially. If not, the consequences for the current government and the population will be devastating. New investor capital would certainly be beneficial, which may soon be possible with the EU Commission’s new plans to include nuclear power in the “green taxonomy”. Looking at the energy prices in Europe and France, it seems that little will happen in the near future, in other words, prices will remain high.