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France “sacrifices” EDF to fight energy crisis

At a time when the European economy is suffering from high energy prices, France has put the country’s largest electricity producer (EDF) at stake.

According to Bloomberg, the government will force Electricite de France to sell more energy at a big discount, at a cost of almost $ 9 billion to EDF. The move will protect households and small businesses from the spike in energy prices, boosting both the economy and the political fortunes of President Emanuel Macron, at the risk of breaking the backbone of the country’s energy policy.

Unsurprisingly, France will rely on EDF at a time of great need, as the company has been the country’s main energy supplier for decades. Its reactor fleet has provided enough cheap and clean electricity to meet domestic needs, while also exporting to neighboring countries.

The French government has decided that “it must protect consumers, and this will be to the detriment of EDF,” said Xavier Regnard, an analyst at Bryan, Garnier & Co.

However, the extra burden is being exerted by the EDF, which is weaker than ever due to maintenance problems that have kept its aging plants out of operation, one of the reasons electricity prices have risen so much in recent months.

It must also partially finance the expensive new reactors and renewable energy sources that will help France maintain a reliable low carbon footprint for energy supply for decades to come.

Analysts have warned that the company is “barely strong enough” to withstand the financial blow of the new government mandate. Minority investors rushed to leave, sending EDF shares down as much as 25% on Friday.

Ahead of Thursday’s announcement by Finance Minister Bruno Le Maire in an interview with Le Parisien, the government was looking for ways to boost EDF’s finances. It has tried and so far failed to persuade the European Union competition authorities to allow the regulated prices at which the company sold wholesale energy to its competitors to increase.

The additional funds would help the company make the investments in nuclear, wind and solar systems that are necessary for France to meet its commitments under the Paris climate agreement. EDF now faces an estimated € 7.7 billion profit hole.

“This political intervention is certainly diametrically opposed to the government’s medium-term goals of steering the company into calmer waters with a strong green investment balance sheet and creating a positive history around nuclear power in anticipation of decisions to build new reactors.” wrote in a note Meike Becker, analyst at Sanford C. Bernstein & Co.

The EDF said on Thursday it could not know how bad the financial blow would be at this stage. Because the company is selling most of its electricity in advance, it will have to buy energy again on the market in the coming months at a higher price. The deficit will be exacerbated by the fact that several of its nuclear power plants will be out of operation for longer than usual for repairs.

The company said on Thursday that it would “consider appropriate measures to strengthen its balance sheet structure and any measures to protect its interests”. EDF sold new shares worth 4 billion euros in 2017 to support its finances when electricity prices collapsed. Most of this money came from the French state, which now owns 84% ​​of the public utility company, but minority investors also contributed.

EDF may need to raise additional funds again, JPMorgan Chase & Co. analyst wrote in a note. Vincent Ayral. Investors should avoid the stock for now, he said.

With gas and electricity prices expected to remain high for some time and Macron facing voters in April, there are not many signs of a break for the French utility.

“For EDF minority shareholders, there is always the political risk of being squeezed, even more so as elections approach,” Regnard said.

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Source From: Capital

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