EDF’s problems pile up as full nationalisation looms

At the site of France’s first new nuclear reactor in more than 20 years, robots are whirring away fixing faulty welding as developer EDF races to open the plant after a decade of delays that have damaged its reputation.

Ahead of it lies a challenge of a different order of magnitude: a construction programme to build six more, just as the French government, which owns 84 per cent of the business already, plans to take full control.

The full nationalisation of EDF, which was announced earlier this month, comes as a series of crises pile pressure on the group’s finances. In theory this will provide it with some relief away from the glare of public markets.

So far, however, the state buyout has raised more questions than it has answered, including how the government thinks it might do a better job at fixing long-running industrial problems that have plagued projects at EDF, some of them as basic as a lack of experienced welders.

“It’s not because the government will now have 100 per cent that it’s going to suddenly take three years less to build a reactor,” one person close to the company said.

“Right now we’re in symbolic territory with this nationalisation. It doesn’t resolve any of the main problems we know the group is facing — will it allow EDF to bolster the skills it needs?” said Cécile Maisonneuve, a senior adviser at the centre for energy and climate at French think thank IFRI. “None of the industrial or regulatory issues were linked to its capital structure.”

Just as Europe attempts to move away from its dependence on Russian gas and grapples with soaring power prices, problems at some of EDF’s existing 56 reactors in France have caused shutdowns and sent its energy output to multi-decade lows.

Instead, it has had to turn to expensive wholesale markets for supply and this is expected to all but wipe out its core profits this year. Rating agencies have warned that this will further push up EDF’s debts, beyond last year’s €43bn, and it is likely to need a second capital injection soon — after one as recently as April.

At the same time, political battles have made EDF’s listed status increasingly untenable. It was made to pay for an annual electricity price cap announced in January to shield consumers from the spiralling market, sparking a stand-off between the state and EDF managers, and enraging minority shareholders.

The Flamanville 3 reactor on France’s northern coast has come to symbolise some of the technical problems faced by EDF and its contractors. Now due to start loading fuel next year, construction began in 2007 with a target finish date of 2012. The budget is now nearly four times the initial €3.3bn estimate.

Setbacks include regulators finding faults in the finishing standards of some of the pipe welding. To address this, EDF commissioned purpose-built robots to work inside the pipes, rather than dismounting an entire piping system already encased in thick concrete walls.

Keeping EDF on track is vital for energy security not just in France but more broadly. Other European nations have long relied on its exported nuclear energy, and its dwindling output has come at the worst possible time as the bloc braces for a potential total cut-off of Russian gas.

“France has traditionally been the source of cheap nuclear power for its neighbours but now it requires help and this will cause problems in Italy, Switzerland and Britain this winter,” said Phil Hewitt, director at energy consultancy EnAppSys.

The UK is also a major construction client. EDF is building its only new nuclear power plant — Hinkley Point C, a project that has been plagued by cost overruns and delays. All but one of Britain’s remaining nuclear power stations are due to close by the end of the decade.

But its home country is especially reliant. France lags European neighbours on wind and solar power, and is much more focused on nuclear as a source of low-carbon energy.

It accounts for more than 60 per cent of the country’s energy production and in February, the government announced plans for at least six next generation, EDF-made European Pressurised Reactors (EPRs) — a programme of some €50bn that will need to be financed with debt.

In private, French officials have criticised EDF and the way it has managed some operational problems, although the preventive checks and reactor shutdowns were demanded by the regulator.

“EDF’s production cuts are not acceptable. It can’t go on like this,” one government official said, adding that full state ownership might help speed up decision making, including for new projects.

“lt allows us to gain time, a few weeks or months here and there. It adds up,” they said.

Some of EDF’s problems are not of its own making. Over the years, successive governments have pushed it into expensive strategic decisions, including the bailout of ailing reactor designer Areva.

It also suffered from a lull in government orders when the world cooled on nuclear power after the Fukushima disaster in 2011.

The energy crisis caused by Russia’s invasion of Ukraine has revived interest in the industry, but even in France, with its long history of construction and large fleet, it has been more than 20 years since the last new reactor came online — at the eastern Civaux site in 1999. Engineers and other skilled workers have deserted the sector to build careers in finance or other industries.

“In that gap between Civaux and Flamanville, we lost our knowledge of how to carry out huge projects and our industrial capacity,” said Alain Morvan, the latest manager brought in to finish the project, during a site visit in June.

With the EPR build in mind, EDF has now begun recruiting more nuclear specialists, and Morvan said there were lessons from Flamanville that could be applied elsewhere.

The company had also been pushing for a new regulatory framework for how nuclear power is sold, and for changes to a system that forces it to sell some of its output at fixed prices to local competitors, which outgoing CEO Jean-Bernard Lévy has called “poison” for the group’s finances.

The French government has yet to say how or when regulation will change and some reforms will require approval from Brussels.

It has also said little about how it might reshape the company — which also has a big renewable energy portfolio and a distribution business — when it takes full control, which is expected via a tender offer worth roughly €7bn in October or November.

EDF declined to comment further on the nationalisation or plans for the group.

Full state control will at least eradicate one very visible problem: since its shares peaked in 2007 after what was, at the time in 2005, one of Europe’s biggest ever IPOs, EDF’s stock has fallen close to 90 per cent.

One banker who has worked with EDF before said: “The original sin was privatising a group operating in nuclear energy to start with.”

In an internal memo to staff in July seen by the Financial Times, Lévy said facing up to future projects as a listed company had become too difficult.

“If the delisting does not solve all of our regulatory, industrial and financial problems, and particularly the scale of our debt, it does allow us to start finding solutions.”

Additional reporting by Leila Abboud