why the next two years will be decisive for EDF

After many setbacks, the horizon finally seems to be clearing up for EDF. And for good reason, the group’s 2021 results, presented this Friday, February 18, are up sharply, with a net profit multiplied by eight. Above all, compared to 2019, the net current result jumped by no less than 20%, thanks in particular to good nuclear production in France last year. Enough to restore confidence in the ability of the incumbent operator to build 6 EPR 2 reactors, and perhaps even 14 in the next thirty years, as Emmanuel Macron asked him last week in Belfort.

Especially since, to deal with this ” turning Wanted by the Head of State, EDF unveiled a capital increase project of approximately 2.5 billion euros. And the State, shareholder with almost 84%, will participate to the tune of 2.1 billion. A boost that must open a new page in EDF’s history, restore its accounts in the future and enable it to carry out its projects under the best possible financial, economic and technological conditions “, underlined Friday morning the Minister of Economy and Finance, Bruno Le Maire.

Reactor shutdowns

But despite these good intentions, the next few months promise to be very complicated for EDF, faced with serious losses of income. Evidenced by the decline in its title today on the Paris Stock Exchange, despite the announcement of recapitalization.

“Investors are not so interested in the results of 2021, but in the outlook for 2022 and 2023. However, these are not good”, explains to La Tribune Xavier Régnard, Energy Analyst at Bryan, Garnier & Co.

And for good reason, the context remains painful to say the least. Because the group is still facing several unscheduled shutdowns of nuclear reactors, following a corrosion defect identified in recent weeks in several facilities. Result: this serious anomaly “, According to the nuclear safety agency (ASN), prompted the incumbent operator to revise downwards its electricity production for 2022, which fell to 295 – 315 TWh only. A level not reached since the beginning of the 1990s, when EDF was still producing 360 TWh last year, and more than 400 TWh in 2014.

This drop represents at least 11 billion euros less revenue for EDF. In fact, it’s the same as if Airbus produced fewer A320s “, have we thus explained to Bercy.

“We draw the attention of the public and investors to the fact that 2022 is going to be a difficult year, a year of challenge for us. There will be a very significant impact on our finances,” warned EDF CEO Jean-Bernard Lévy during the presentation of the annual results.

Corrosion defect: EDF will have to check the entire nuclear fleet

Unknown causes

And it won’t be much better in 2023, since the forecasts now don’t count on more than 300 to 330 TWh. “ It’s catastrophic. This is less than the levels reached during the height of the Covid crisis, when the power plants were idling », Worries Nicolas Goldberg, senior energy manager at Colombus Consulting.

Above all, the cause of this ” totally unprecedented fault on all the world’s nuclear fleets “, according to EDF, remains unknown to date, leaving the possibility of other closures to come.

“Today, the question of financial analysts is: Are there going to be other reactor closures? […]“, we thus questioned in the office of Bruno Le Maire on Friday morning.

No margin possible

If this event was unpredictable, the government’s recent decision to increase the electricity quota that EDF will have to sell its competitors at discounted prices in 2022, via the ARENH mechanism (Regulated access to historical nuclear electricity), in order to limit rising bills for consumers, should not help matters either.

“EDF was already not selling a lot on the markets, since it had to supply a good part of its electricity via ARENH. But while it will only produce 300 TWh, and since it will have to sell more off-market at cost price, this share sold at market price will represent almost nothing. And this, even though the group could have taken advantage of the price increases,” develops Nicolas Goldberg.

“The state itself has frozen tariffs, in order to contain the rise in consumer bills. This means that EDF will not be able to obtain margins in the coming months, “says Jacques Percebois, economist and director of the Center for Research in Economics and Energy Law (CREDEN).

These margins would however have been welcome, while the company still has a debt of more than 40 billion euros. Especially since it will have to finance several expensive programs, including the Grand Carénage, which should make it possible to extend the life of existing power stations as much as possible. The announcements of Emmanuel Macron, who wishes to extend them ” the most possible “, in agreement with the Nuclear Safety Authority (ASN), also promise to increase the cost, beyond the nearly 50 billion euros planned today.

“We will have to integrate a series of new elements, once we start over 10, 15 or even 20 additional years. Like the impact of global warming, for example. A whole series of working groups have already been set up to look, point by point, at what was possible, and what could conversely prove to be complex,” said Cédric Lewandowski, executive director of EDF, on Friday. .

Is the revival of nuclear power at the tempo desired by Emmanuel Macron really possible?

A signal for private investors

Of course, the new nuclear will also have to mobilize large sums. No less than 51.7 billion to build six EPRs, according to a government audit whose conclusions were presented on Friday. ” VSwas the expected amount, but that doesn’t mean it’s not a lot. For 14, we would therefore be talking about 120 billion! This is spread over a long period, of course, but already poses a problem in the short-medium term. Because the State can hardly block the tariffs, then ask EDF to finance such a company “, argues Jacques Percebois.

In this tense context, the objective of the capital increase is to respond to the financial emergency, rather than to find a long-term solution. And, above all, to avoid scaring away private investors. ” This execution can be done very quickly. Short term, it’s necessary maintain EDF’s triple B rating by financial rating agencies “, Specifies a ministerial source. Because the stake is major: to allow EDF to borrow on the markets in order to face the wall of investment which will fall on him. At the end of January, Fitch had already lowered its credit rating by one notch, and Moody’s had placed EDF on a negative outlook.

“The 2.1 billion are simply a signal which should show that the State is well behind EDF, and that it is ready to use the weapon of its capitalization. In other words, he acts as a common law shareholder. But in fact, the government cannot increase much more, because the European Commission remains very vigilant on State aid to companies”, analyzes Jacques Percebois.

An elephant in the room

Above all, the recapitalization does not answer a central question: that of the replacement of the ARENH mechanism, which must be completed in 2025, and, thereby, of the possible reform of the EDF statute and concrete financing. of the new fleet of reactors.

“The fact that EDF hardly sells any more nuclear electricity on the market, hence its difficulties, clearly shows that the nuclear fleet is no longer considered a market asset. And if we assume it, this segment has nothing to do in a private law company subject to competition. On this subject, the next few years will be decisive”, launches Nicolas Goldberg.

The reform of the Grand EDF (formerly Hercules), planned in this respect to split the energy group into several entities, in order to isolate the atom from other activities – ” a dead weight that can drag the rest of the company to the bottom “, even confided a member of the management in 2019. Strongly rejected by the unions, the project was finally frozen, after long discussions with Brussels. It is moreover ” not at all up to date “, we insist in Bercy. However, the current difficulties show that ” we do not escape all these questions that Hercules was destined to solve », underlines Nicolas Goldberg.

Because the future of the group, today put on hold, floats like a ” sword of Damocles above EDF, adds Jacques Percebois. And remains the elephant in the room which does not encourage investors, in search of visibility, to finance the group.

What future for EDF?