Can Europe come to an agreement on new nuclear? There has been a split in the bloc for decades between the technology’s supporters and its opponents. Now, negotiators are searching for agreement on a new market design and support for nuclear is still among the key areas of disagreement. It splits the bloc’s central and largest countries: in France, President Emanuel Macron wants the first of a new fleet of six reactors in operation by 2035 and eight more to follow. Neighbouring Germany shut down its last nuclear plant last year but the move was ill-timed. It coincided with the loss of Russian gas supplies – excluded by both sanctions and a destroyed pipeline – which meant Germany instead relied heavily on its remaining coal fleet, which would otherwise have been under more pressure to close to limit carbon dioxide emissions. Despite the nuclear shutdown, Germany’s continued use of coal means its power price is around half that of France.

FT energy correspondent Tom Wilson described the two countries as having “Radically different approaches to energy policy, with Germany following a more market-led approach and France favouring state-driven grand plans”. But the difference is not that simple: it is hard to see that Germany, which led the renewables expansion with government-mandated feed-in tariffs and closed its nuclear plants by Federal dictat, as wholly market led. But it is the French government plan that has opened fault lines in discussions over new energy market rules that would span the bloc’s so-called Internal Energy Market.

France wants to support its new reactor fleet via contracts for difference (CFDs), which would give EDF a guaranteed price for the power sold from new units. Under CFDs the price realised for its power would be ‘topped up’ by consumers when the market price was low and the company would pay back any excess if the market price was above the CFD’s so-called ‘reference price’.

The value of the CFD to a developer and to government is that it gives a predictable revenue stream. In the EU, the use of such mechanisms has to be approved by the bloc’s competition authorities. Nonetheless, previous legislation enables the mechanism to be used for renewable energy and generally contracts are awarded by a competitive process, which the competition authorities accept drives down the cost to the consumer.

France would not be the first European country to use the CFD mechanism to support nuclear either. For example, the UK has such an agreement in place for its Hinkley Point C project, still under construction. And, although the UK has now left the EU the contract was cleared under state aid rules while it was still a member.

Germany may be brought to accept the nuclear CFD but in return it is likely to seek competition authority clearance to provide support on the demand side, subsidising power prices for its industry.

However, the concern over France’s plan is broader than the unresolved question over whether the EU should support nuclear. Its opponents argue that CFDs bypass the  wholesale market. The entire industry relies on the market to provide price signals on the best times and places to invest in new generating plant of all types and to make the most efficient use of the power generated. Removing the large volume of nuclear generation – and supporting industrial customers – leaves the market dramatically weakened as a tool to efficiently manage power supply and demand, and indirectly raises prices.

What is more, where France and Germany lead other EU member states will follow. Allowing France to use nuclear CFDs will mean other countries such as Poland can follow suit, further weakening the market.

Discussions over the EU’s market rules will reach a head over the coming months. Meanwhile they continue to raise new uncertainty over France’s new nuclear programme.

Looking for certainty

The uncertainty over the future direction of France’s nuclear programme was highlighted as a major problem by Franck Gbaguidi, Director, Energy Climate and Resources at Eurasia Group – but as well as external uncertainty from the EU’s market development he blamed France’s own policy changes.

In a recent meeting organised by Montel, Gbaguidi highlighted the danger of political risk and inconsistent policies in delivering a new nuclear programme – or even further life extension for the existing fleet – that would require “massive industrial investment we haven’t seen since the 1970s in France”.

He noted that in an industry that relies so much on political support, financial risk depends on political stability. But in France that had not been the case.

“An ageing fleet requires robust and consistent policy decision-making regarding next steps to avoid reliability and efficiency issues. That was not the case in France.” He explained, “the initial push to decommission turned into a push to extend the lifetime of old reactors”.

Gbaguidi said “financial risk casts a shadow over the nuclear sector, affecting both operational sustainability and expansion efforts”. He suggested that France would have to invest €50bn on life extension – the same amount that Macron said would be invested in the first six new plants. Pointedly, Gbaguidi asked, “Where will you get the money for the existing ones, especially when you have changed your mind about whether to do it and how to go about it?”

Ageing in other parts of the nuclear cycle would also affect operation. Cooling pools used for spent fuel at La Hague may reach capacity by 2030, which he said would “likely trigger reactor shutdowns,” at least temporarily. New pools are under discussion but will not be available by 2030.

As Gbaguidi said “With this risk you need to have good planning” but asked whether EDF was focusing on decommissioning, life extension or new build – and whether it could do all three together? The question from investors always revolves around financing but staffing was equally a risk and “We talk about the aging fleet but we don’t talk about the ageing workforce”.

He said in an ageing fleet maintenance was more expensive and tricky and since those plants were built regulators had “doubled down on safety requirements” so that “The skills you need are much more sophisticated than before”. He said the earlier emphasis on decommissioning meant staff had been hired to decommission, not build and “they are very different skills”.

The French industry would need to recruit 3,000 staff a year until 2030 to deliver its programme but Gbaguidi noted there was a “significant shortage in skilled workers”.

As France grapples with these strategic decisions against a backdrop of new energy market rules across Europe, it is also facing financial issues in its home market. The fixed price at which the company sells its power to retailers is up for renegotiation. With uncertainty all around it, can EDF find the stability needed to achieve its nuclear ambitions?

At the same meeting Thibault Laconde, chief executive of Callandar, spoke about the need for a new French reactor fleet to be proof against climate changes over the coming century.

He said EDF had lost €25m from shutdowns due to weather conditions in 2020, either because cooling water was too hot
for water tempurature regulations or because river flow was too low to discharge ‘hot’ water from the reactors. But he also noted two other incidents: flooding at Cruas in 2009 that brought enough waste down the river to clog water intakes and an example in the USA in 2020, in which wind damage to cooling towers meant Duane Arnold shut down a few months earlier than planned.

He said a reactor is “pretty hard to adapt when it is already designed and built”. With a 20-year construction period and operation to the end of the century at least “New reactors must be adaptable over their entire lifespan,” he said, although it is hard to forecast what adaptation will be required.

But Laconde said this was not just an issue for the nuclear sector though. He highlighted changes that would also affect renewables: wind speeds are projected to decrease in a so-called ‘global stilling’; hydro runoff is unpredictable. These would affect the power grid, plans for hydrogen production (which needs water as well as power), and energy storage. “All components of the energy system are exposed to climate risk,” he said.