|
|
|
News CategoriesHot TopicsThis story is tagged with the following keywords |
EDF prepares for competition Henri Proglio is taking the helm at French electricity giant EDF just as real competition is about to hit the company's domestic market - but liberalisation brings with it opportunities as well as risks. Veolia Environnement's chairman and chief executive, Henri Proglio, is set to move to the same position at EDF, and he will have his work cut out for him. EDF shareholders will be asked to approve Proglio's appointment - and that of five other board nominations - at a meeting on 5 November. Assuming there are no hiccups, he will take on the task of steering the state-owned giant through what promises to be a period of great challenge and change. Like all utilities, EDF is grappling with the need to invest in new infrastructure while suffering a marked reduction in income because of declining electricity consumption. It also has a huge debt burden, and the government's decision in August for only a modest increase in electricity prices shows that the company's major shareholder is more concerned with politics than EDF's financials. A more long-term challenge for the new chief is the raft of electricity market reforms published by the government in September that could result in the erosion of EDF's market share, something that has long been protected by France's fondness for national champions. The French government has promised to implement a new electricity market framework that it said would promote competition while encouraging investment and preserve the benefit of the country's low-cost nuclear power plant fleet for consumers. The move was welcomed by the European Commission, which said that the proposed reforms "could constitute a step towards the effective opening up of [the] market to competition". The European Commission has been investigating France's electricity tariffs since June 2007 because of concerns that the regulated prices constitute state aid and are detrimental to competition. This prompted the French government in 2008 to appoint a commission led by Paul Champsaur to investigate options for market reform. Champsaur reported his findings in April 2009, and his ideas appear to have been largely accepted by the government. As of July next year, EDF will have to release a portion of its baseload generation for sale to its competitors at a price that reflects the cost of production, maintenance, life extensions to existing nuclear plants and the construction of new reactors. The price will be determined by the country's energy regulator and is likely to be set at around €40-45MWh, according to analysts. *Opening the market* EDF's competitors are thought to be happy with this arrangement, not only because it gives them access to low-cost generation, but also because it will improve market visibility. "EDF will be forced to sell energy at a very low price... it is not happy," said Gaby Goldmann of energy management consulting firm NUS Consulting. "It will have to give the real price and will have to open its books." The details of the reforms have yet to be determined, but it is expected that EDF will be told to sell up to 100TWh a year, and the amount will rise as competitors increase their market share. EDF's competitors, such as Poweo, Direct Energie and GDF Suez, will be able to buy only what they need to cover their contracts. While the government's reforms will not affect tariffs for households and small commercial consumers, the largest change to the market will come in 2015 when the system of regulated tariffs for industrial customers ends. According to London-based analyst firm Citi, this will affect 200TWh/year, almost half of EDF's generation in France. From 2015, industrial customers will no longer be offered a regulated tariff - or the "halfway house" Tartam tariff - but will have to buy electricity on the open market. This market liberalisation will mean more choice for industrial consumers and should promote switching, which has so far been lacking in France despite its apparent compliance with Europe's energy market liberalisation laws. This will erode EDF's market share by as much as 5-10 per cent in the industrial sector, said Goldmann. However, EDF will benefit from the end of regulated tariffs, which have artificially depressed electricity prices, contributing to the company's current financial state. Prices in the liberalised market will fall, said Goldmann, but only by around 5 per cent. The end of regulated tariffs in the industrial sector should lead to the creation of innovative offers for industrial customers, according to the government, with EDF and its competitors developing products ranging from off-the-shelf offers to negotiated bilateral contracts. EDF is likely to hang on to its major industrial clients, provided that it can finalise negotiations with industrial consortium Exeltium, which wants to secure 13TWh/year for 24 years, equivalent to 3 per cent of EDF's annual output. The European Commission said in July last year that it was satisfied with the principles of the EDF-Exeltium framework after the two parties agreed to include an opt-out clause in the contracts, as well as removing resale restrictions. Negotiations are slow, according to Goldmann, and there are no guarantees that the contracts will be in place by 2010. *City approval* The financial markets responded positively to the news of the proposed reforms, largely because they herald the end of regulated tariffs in at least one part of the market. In France, they are widely seen as being beneficial to all market players, as well as necessary for energy security. "The impact of this reform is expected to be important both in terms of market shares for competitors and in terms of investments in generation capacities," said Robert Durdilly, president of Union Française de l'Electricité. "The current level of regulated tariffs cannot allow the financing of all necessary investments in generation. "This point is crucial for all actors. If the price of electricity doesn't guarantee that investments will be done, we are facing risks that could threaten security of supply." Source: Utility Week © Faversham House Group Ltd 2009. News articles may be copied or forwarded
for individual use only. No other reproduction or distribution is permitted without prior written consent.
|
Highlighted Jobs |
|
|