Agreement on post-ARENH nuclear electricity pricing

Wednesday, 15 November 2023

Currently, under the so-called Regulated Access to Incumbent Nuclear Electricity (Accès Régulé à l’Electricité Nucléaire Historique, ARENH) mechanism set up to foster competition, rival energy suppliers can buy electricity produced by EDF's nuclear power plants located in France that were commissioned before 8 December 2010. Under such contracts, between July 2011 and December 2025, suppliers can buy up to 100 TWh - or about 25% of EDF's annual nuclear output - at a fixed price of EUR42 per MWh. EDF operates 57 reactors in France, with a total capacity of 62.3 GWe, which together provide about 75% of the country's electricity.

In January last year, the French government - in an attempt to limit the rise in people's energy bills - decided to increase the amount of electricity that had to be sold at the below market-level prices of the ARENH mechanism. It declared an additional allocation of 20 TWh of electricity to be sold at a regulated price for 2022. It also announced a postponement of a portion of the 2022 tariff increase over a 12-month period starting from 1 February 2023.

The increased ARENH allocation meant that, in order to fulfil contracts for electricity at a fixed price of EUR42 per MWh, EDF had to buy in electricity from other suppliers "at a time when market prices were very high". In August last year, the company launched a legal claim against the French government for more than EUR8 billion in lost earnings resulting from an order to sell 25% of its nuclear electricity at below market-level prices in 2022.

After months of negotiations, the government and EDF have now agreed that, once the ARENH mechanism expires next year, the price of nuclear electricity would be regulated at an average of EUR70 per MWh. According to the agreement, which features a "rent capture mechanism", any electricity sold above EUR78-80 per MWh will be redistributed to end users at a rate of 50% of the extra revenue generated. If the price exceeds EUR110 per MWh, 90% of the revenue will be redistributed. These thresholds are to be regularly revised.

Unlike the ARENH system, the new agreement will cover all of EDF's French nuclear electricity generation, which could total between 360 TWh and 400 TWh by 2030-2035.

The agreement will be put out to public consultation with consumer groups, suppliers, and manufacturers. It also requires parliamentary approval as well as approval from the European Commission.

Last month, the European Council (EC) reached an agreement on a proposal to amend the EU's electricity market design, agreeing to include existing nuclear plants in the reform. The proposal is part of a wider reform of the EU's electricity market design which also includes a regulation focused on improving the EU's protection against market manipulation through better monitoring and transparency.

Under the terms of the EC agreement, France would be able to finance the extension of the operation of its existing fleet of reactors with two-way contracts for difference (CfDs), which the Commission agreed would be the mandatory model used when public funding is involved in long-term contracts, with some exceptions.