On Thursday, the French government ordered Electricite de France SA, in which the French state is the majority shareholder, to sell to rivals a more significant amount of electricity at a fixed price, with the idea of reducing bills for final consumers. EDF, Europe's largest nuclear power producer, has warned that the move will cost the company up to 8.4 billion euros and has dropped its profit estimates for 2022.
It is no surprise that France is relying on EDF in a time of crisis, a company 80% controlled by the French government. EDF has been France's leading electricity supplier for decades. Its reactors allow it to supply French households and businesses with cheap and clean energy and export electricity to neighboring countries.
But the additional burden placed on EDF's shoulders comes when the company is going through a difficult period. EDF is facing costly maintenance problems at its old plants and, at the same time, needs to invest significantly in new reactors to help France maintain its low-carbon energy supply for decades to come.
The French government has decided that "it must protect consumers, and this will be done at the expense of EDF," says Xavier Regnard, an analyst at Bryan, Garnier & Co.
Analysts have warned that the EDF is not strong enough to deal with the financial blow caused by the new government mandate in Paris. On Friday, the minority shareholders of EDF hurried to sell their shares; as a result, the EDF shares registered a 25% drop.
EDF said it could not yet accurately estimate the financial impact of the government's decision. However, because the company sells most of the electricity produced in advance, EDF will have to buy electricity from the market in the coming months at higher prices. In addition, the deficit will be exacerbated because many of the EDF reactors will be shut down for a more extended period of time than usual for repairs.
In a press release issued on Thursday, EDF announced that "it will consider appropriate measures to consolidate the financial situation and any measures to protect its interests." In 2017, EDF sold new shares worth four billion euros to consolidate its finances after electricity prices fell sharply. At the time, most of the new funds came from the French state, which currently owns 84% of the utility's shares.
EDF will most likely have to raise new funds, says Vincent Ayral, an analyst at Vincent Ayral, who added that investors are likely to avoid EDF securities for the time being. Given that prices for natural gas and electricity will remain high in the coming period and that President Emmanuel Macron will need the vote of the voters in the presidential elections in April, the French utility company EDF will not enjoy a break in the next period.