EDF considers next move after French government's energy sale plan
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Shares in EDF have fallen nearly 20% since President Emmanuel Macron’s government’s announcement late last week, which required EDF to sell an additional 20 TWh of nuclear-generated energy at the regulated price of EUR46.2 per MWh - well below current market levels - to its competitors to help them limit the rise in prices for household and small businesses to 4% despite the soaring cost of gas.
Because EDF has already pre-sold the energy on long-term contracts, the company is now having to buy the 20 TWh back at spot prices.
In a statement after the announcement, EDF said: "The financial consequences for EDF Group cannot be precisely determined at this stage. For illustrative purposes and based on information available to the group at this stage, the impact on EDF’s 2022 EBITDA (earnings before interest, taxes, depreciation, and amortisation) of these measures is estimated at circa EUR8.4 billion based on the market prices on 31 December 2021 and at circa EUR7.7 billion based on the market prices on 12 January 2022."
The group, which operates 56 nuclear reactors in France, also withdrew its previous guidance for this year's financial results and said it would "consider appropriate measures to strengthen its balance sheet structure and any measure to protect its interests".
According to reports in La Tribune newspaper and Reuters news agency, EDF CEO Jean-Bernard Levy said in a message to managers that the company had fought the move and the decision had come as a "real shock".
He added that he hoped to be able to make public within a month the measures required to protect EDF’s balance sheet, adding "what is at stake is our ability to preserve our strategic development".
In other developments:
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The joint trade unions’ representatives on the board described the decision as "looting" of the company for political reasons and have called for strike action on 26 January.
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French Finance Minister Bruno Le Maire told RMC radio that "there is a very strong economic recovery, there are needs all over the world and shortages, so prices are rising … no other European government has done as much as us to protect the French".
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He also said that the French state, which owns 85% of EDF, would stand by the company’s side.
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Credit rating agencies have cut or are reviewing EDF’s current credit rating as a result of the government’s decision.
S&P Global said that it had placed EDF on “creditwatch negative” as a result of a combination of the government’s actions and the company’s “revising down of French nuclear output for 2022 to 300-330 TWh from 330-360 TWh mainly because of defaults that prolonged outages for five of EDF's 56 French nuclear reactors”.
It added: "Based on our preliminary estimations, the combined impact of these recent developments could cut EDF's 2022 EBITDA, as adjusted by S&P Global Ratings, by EUR10-13 billion from our previous assumption of EUR17.9 billion because EDF will have to purchase significant additional electricity volumes in the market at elevated prices."
S&P added that "timely remedy measures will be critical to maintaining the current rating … in our view, the magnitude of the announced profit warning warrants extraordinary measures."
However, it said that "because we view the current profit warning related to the negative state intervention as a one-off, we see rating downside potential limited to one notch."
