FILE PHOTO: Electricity pylons of high-voltage electrical power lines are seen in Bouchain, France, August 1, 2023. REUTERS/Pascal Rossignol/File Photo
PARIS (Reuters) - French President Emmanuel Macron said last week his government would "take back control" of electricity prices by the end of the year, without spelling out what steps he would take.
His comments come as European Union countries are negotiating a reform of how power prices are calculated across the bloc of 27 countries, all struggling to adapt to the supply shock triggered by the war in Ukraine.
Two sources with knowledge of France's position say Macron's comments raise the prospect that Paris could introduce its own price mechanism if it doesn't get its way in EU talks that could come to a head in October.
WHAT DID MACRON SAY?
Macron, whose government has fully nationalised power utility EDF, the operator of its fleet of 56 nuclear reactors, has decided to double down on atomic power, which has long provided over two thirds of French electricity.
He announced last year that France would build six new giant EPR nuclear reactors over the next decades, pitching it as a carbon-free source of energy that would help France meet climate goals, re-industrialise, and secure cheap electricity.
As he announced a multi-year environmental plan on Sept. 25, Macron also dropped a bombshell, saying his government would "take back control" of electricity prices, making waves in Brussels where EU nations are negotiating the new power reforms.
"There is a point that is key for our competitiveness, and we will announce it in October, and that is to take back control of electricity prices," Macron said.
"We'll be able to announce in October electricity prices that are in line with our competitiveness," he said, adding this would apply to households and businesses.
"By the end of the year we will regain control of the price of electricity, at the French and European level," he said.
WHAT DO THE FRENCH WANT?
Macron's comments come as France is locked in a battle with Germany over the place of nuclear energy in a whole series of legislation negotiated at the EU level with the European Commission and their 25 EU partners.
Germany, which decided to phase out nuclear energy after Japan's Fukushima disaster in 2011, closed down its last nuclear plants in April and is pushing for EU legislation to favour renewable energy over nuclear.
However, French officials say Germany is undermining a traditional French strength due to fears cheap nuclear electricity could provide French businesses with a competitive advantage over German companies.
German officials accuse France of wanting to pour billions in subsidies into a national champion - EDF - at the expense of European competitors.
French officials say French taxpayers have earned a competitive advantage by investing and paying for a fleet of nuclear plants, which are now fully amortised and bring cash to EDF, and should therefore reap the rewards for that.
WHY IS THE PROBLEM EMERGING NOW?
Under the current system, called marginal pricing, European electricity prices are linked to the most expensive power producing asset.
That means they're effectively tied to gas prices, which rocketed after Russia cut supplies in retaliation for Western sanctions over its invasion of Ukraine and are way above the cost of producing nuclear energy.
France says that's unfair, because its businesses and consumers are paying electricity prices that have little to do with French energy supplies, which do not rely much on gas.
"I have told our German friends and partners," French Finance Minister Bruno Le Maire told business leaders last week. "Nuclear is an absolute red line for the French government."
"Our country has the right to pay for electricity at the average cost of production and certainly not at the marginal cost of the latest gas-fired power plant in eastern Europe."
SO WHAT DID MACRON MEAN WHEN HE VOWED TO TAKE BACK CONTROL?
Macron's comments are effectively a threat to go it alone should EU electricity reforms not give France what it wants, namely power prices that reflect the competitive advantage of its nuclear fleet, two sources with knowledge of the French position told Reuters.
French officials believe the current system gives France the legal tools to design a system with contracts between EDF and consumers via different methods known as Contracts for Difference or Power Purchasing Agreements.
France could in theory go to the European Commission and bilaterally negotiate its own system, as the Iberian peninsula did.
But that would have drawbacks.
"Seen from the EU perspective, things like this create a lot of additional noise," Rystad analysts wrote.
"It can also send the signal to other countries that it might be fine to pursue 'single-country solutions' instead of the EU goal of market reform for the whole area."
SO WHAT IS HAPPENING NOW?
France and other countries are still trying to find a compromise on the EU reform, ahead of a meeting of EU energy ministers on Oct. 17.
France - backed by Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia - issued a proposal seen by Reuters on Tuesday that pushes back on attempts by some countries to introduce stricter controls on future state aid for power plants.
Germany, which is usually supported by anti-nuclear Luxembourg and Austria, is separately working on its own proposal that it has not yet presented to Spain, which currently holds the EU's rotating presidency.
(Reporting by Michel Rose; Elizabeth Pineau, Benjamin Mallet, Leigh Thomas and Forrest Crellin in Paris; Kate Abnett and Julia Payne in Brussels; Editing by Mark Potter)
