France urges swift deal on EU power reform to counter US subsidies

The US will be the main winner if a Franco-German divide over nuclear power prevents a long-awaited reform of Europe’s electricity market being finalised, France’s energy minister has warned. 

Agnès Pannier-Runacher said in an interview with the Financial Times that the sweeping overhaul of EU rules was needed as soon as possible to give businesses visibility on power prices, at a time when the US was luring industry with President Joe Biden’s clean energy subsidy programme under the Inflation Reduction Act.

“The aim is to have an adequate and strong answer to the [IRA] and the fact that industrial investments in the US have been multiplied by three” since the law was enacted, Pannier-Runacher said. “We have a matter of weeks to act and find a solution.”

The call comes ahead of a bilateral conference in Hamburg, starting on Monday, between French president Emmanuel Macron and German chancellor Olaf Scholz, accompanied by their cabinet ministers.

Energy issues will be high on the agenda because Paris and Berlin have been arguing for months over the EU electricity market reform, specifically over how nuclear energy will be priced and the extent to which it can be subsidised.

The overhaul was triggered by the fallout from Russia’s full-scale invasion of Ukraine last year, when energy prices jumped, and is aimed at helping stabilise long-term prices.

The negotiations have been coloured not just by divergences over technology — Germany has shut its last nuclear reactors while France, which generates 70 per cent of its electricity from nuclear, has pledged to build new ones — but also by German fears of the competitive disparities the overhaul could create. 

Behind the scenes in recent days, Paris and Berlin have been exchanging duelling policy papers and rewritten clauses for the draft law, while marshalling support from other EU member states.

On this reform and others, France has mounted a pro-nuclear campaign now joined by other countries that use the technology, including Poland and Hungary, in an effort to ensure the sector will be treated favourably.

But its drive has hit roadblocks, particularly in Germany, over concerns France will end up riding roughshod over state aid rules and benefit from lower prices for consumers and industry that other countries cannot match.

Pannier-Runacher said it was a misconception that electricity would be vastly less expensive in France than elsewhere and rejected claims that the country was wooing businesses to relocate to benefit.

France’s Le Point newspaper reported this week that some members of Scholz’s entourage harboured suspicions that French nuclear operator EDF was trying to lure German companies to France.

“This idea that we should be warring among ourselves, or the fantasy that [businesses] would relocate from one [European] country to another — I’m still waiting to know the name of any German business that has massively shifted to France,” Pannier-Runacher said.

“On the other hand, I know French and German businesses that are deciding on investments in the US, when they tell us they would have done them in France or Germany had they had visibility on the market.”

Berlin is so worried about the impact of high prices on its export-led economy that it has been weighing a proposal to subsidise electricity for energy-intensive companies, though the idea has yet to be formally adopted by the government. Such a move could pose competition issues, Brussels has warned.

Whether France and Germany will be able to square their differences in time for the next meeting of EU energy ministers on October 17 is unclear. The risk is that the reform will not be done by the end of the year and only become harder as EU parliament elections approach.

Berlin appeared to hold out an olive branch recently when Sven Giegold, state secretary at the German economy and climate ministry, told the FT he was seeking a “grand bargain” with France to resolve the stand-off.

Pannier-Runacher said she had not seen the compromise being floated by Giegold but that she hoped she would at the meetings in Hamburg.

“I hope the Germans will be ready in every sense of the word to allow us to find that compromise,” she said of the upcoming talks in Germany and at EU level.

The main thing still to be ironed out in the reform is the use of a mechanism known as “contracts for difference”, which guarantee a minimum price for energy produced, and whether they should be applied to existing nuclear plants or just new ones. The CFDs have typically been used to incentivise renewable energy projects by guaranteeing revenues for producers, and Berlin has argued they should only apply to new investments.

Pannier-Runacher said French reactors built decades ago required billions of euros in new investments for maintenance and to extend their lifespan and therefore should not be penalised with heavy restrictions around the application of CFDs.

As well as a minimum price, the CFD mechanism allows governments to recover excess revenues if prices jump past a set threshold, raising more questions about how governments then use those funds, especially if they were to be directed at providing further energy subsidies.

France had been happy with an original proposal on market reform put forward by the European Commission in March. But subsequent amendments with more restrictions on the uses of CFDs in a version presented by the European parliament have sparked the pushback.

“At a certain stage it amounts to a discrimination against nuclear. We would not be allowed to do in the French system what other countries can [with their energy assets],” Pannier-Runacher said.

Additional reporting by Guy Chazan in Berlin