Nuclear renationalisation: the debate
As EDF and the French Government consider the possibility of renationalising the firm’s nuclear business to shelter its capital-intensive operations from the pressures of the market, what would be the benefits and drawbacks of renationalising nuclear power in France or elsewhere? Our editors Chris Lo and Molly Lempriere put forward the case for and against.
Molly Lempriere: Clean, predictable nuclear power is worth protecting from a fluctuating market
As the world faces the energy trilemma – how to cut carbon emissions while ensuring the security of supply and keeping costs low – nuclear power offers a unique opportunity. Nuclear is one of the few carbon-neutral energy sources that provides stable, predictable power that can be used to facilitate a baseload of electricity.
Renewable technologies are necessary to ensure that we cut our carbon emissions, but the majority are intermittent and therefore challenge power networks that are already beginning to struggle to balance supply and demand. In this changing energy world, nuclear power networks like the one in France can be invaluable.
Such importance has already begun to be recognised, with the French Government’s 2019 environmental proposal loosening earlier restrictions on nuclear in favour of aiming for net carbon neutrality by 2050.
Many Western nations have begun to turn their backs on nuclear power, predominantly due to negative perceptions born of unfair fears around its safety and economics. There has been a subsequent outcry, from those in the scientific community in particular, in favour of the carbon-free technology.
“Without an important contribution from nuclear power, the global energy transition will be that much harder,” said International Energy Agency executive director Fatih Birol following the release of a study by the organisation. “Alongside renewables, energy efficiency and other innovative technologies, nuclear can make a significant contribution to achieving sustainable energy goals and enhancing energy security. But unless the barriers it faces are overcome, its role will soon be on a steep decline worldwide, particularly in the United States, Europe and Japan.”
France is a country that has, possibly more than any other, proven the effectiveness and value of a strong nuclear power sector to a country’s energy mix. It currently produces 75% of its electricity from its 58 nuclear reactors, and is the world’s largest net exporter of nuclear power. As such, it currently earns an impressive €3bn annually from nuclear power.
The renationalisation of EDF’s nuclear business would be beneficial for both the company and the state. The 4.3% rise in EDF’s share price after news of the Project Hercules proposal broke demonstrates the confidence the wider industry and economy has that such a move would be ultimately beneficial.
Restructuring to bring the company’s nuclear business once again back under state control, after its partial privatisation in 2004, would protect the company from the fluctuations of the stock exchange. Such a move would ring-fence the risks nuclear power faces from the financial markets, ensuring that it could continue to effectively provide power to the nation.
Furthermore, by protecting EDF the French Government will also protect the 152,030 people employed by the company, increasing job security along with energy security.
Criticisms of nuclear often stem from the cost, but that is not the full picture. To ensure we are moving towards sustainable energy systems we must invest in and support carbon-neutral energy sources. Renationalising EDF’s nuclear fleet in France offers a relatively low-cost solution to protecting what is an invaluable source of power for the nation.
Chris Lo: Nuclear renationalisation could be a costly mistake, leaving taxpayers exposed
With nuclear power accounting for more than 70% of the French electricity mix, EDF’s nuclear operations clearly represent a strategically significant asset for France, so there is a reasonable argument for the government to shield this part of the business from market pressures. But it may still be a costly mistake that would leave French taxpayers and energy customers worse off.
The EDF nationalisation proposal is something of a special case, given that the French state already owns an 83.5% stake in the energy company. Even so, the public cost of buying up EDF’s remaining shares has been estimated at around €8bn. For this hefty price tag, what would the government, and by extension the French taxpayer, be getting for their money?
This major government purchase would have precious little room to make a return on the investment, at least on the nuclear side – if there were, EDF wouldn’t be having the problems it’s been having with financing the maintenance and renovation of its nuclear fleet.
It would also leave public finances more exposed than ever to EDF’s immense nuclear-related liabilities. On top of €33bn in debt across the group, EDF is facing a €45bn bill to renovate its ageing nuclear plants, and is committed to multi-billion-Euro financing for massive nuclear construction projects at Hinkley Point C in the UK and the long-delayed European Pressurised Reactor at Flamanville in Normandy, France.
Given that much of the gilets jaunes protest movement has coalesced around accusations that President Emmanuel Macron favours business interests over those of everyday people, saddling the public with these financial liabilities to free one of the world’s largest utilities from debt is unlikely to dispel that sentiment.
The French Government may decide to take the risk of fully nationalising EDF (pending a presumably lengthy examination by European antitrust regulators) to meet its strategic and political goals, but it remains a poor example for other countries to follow. In the UK, which is struggling to develop new nuclear projects outside of EDF’s Hinkley Point C and Sizewell C, the prospect of energy nationalisation has been raised both by the possibility of a Labour Party electoral victory under Jeremy Corbyn, who favours a broad swathe of renationalisation programmes, and by Hitachi chairman Hiroaki Nakanishi, who said in January that “nationalisation is the only path” to get the suspended Wylfa Newydd nuclear plant off the ground.
The UK Government had already proposed to take a £5bn stake in Wylfa Newydd, a reversal of its longstanding position not to invest directly in nuclear projects since privatising the sector in the 1990s. Clearly, that was not enough, and in short, the UK Government – or any other – would be foolish to assume financial responsibility for costly and challenging nuclear projects that the private sector hasn’t been able to make work, even with generous state support.
Of course, full nationalisation is far from the only way governments can throw their weight behind nuclear development. Using various means to support new technologies, as the UK and US is doing for next-generation small modular reactors, can pay rich dividends without exposing public finances to unnecessary risk.
Nuclear could play an important role in the global effort to decarbonise energy systems, but in countries with liberalised economies and an expectation of consumer choice and fair competition, the struggling nuclear industry needs to find a way to succeed commercially, often with some level of government support. The economics of nuclear operations may be a tough nut to crack, but that doesn’t mean governments need to use a sledgehammer to get the job done.