The consolidation of the two French state-owned nuclear giants doesn’t go far enough in recapitalizing the nation’s global export engine

Electricite de France (EDF) has agreed to buy 51% of Areva’s nuclear reactor business with a 25% share being offered to outside investors. Chinese state-owned nuclear firms are said to be interested in the offer. The price of majority control, although it involves $2.9 billion, comes cheap, and leaves Areva needing another $5 billion over the next two years to get back in the business of being an internationally significant export engine capable of competing with Russia and Japan for global reactor business.

In addition to offering a fire sale price for Areva, the deal also holds EDF harmless for any liabilities stemming from current projects. Areva has two troubled new reactor builds, one in Finland and one in France, that are significantly behind schedule and way over budget. Claims and counter claims related to the EPR under construction in Finland total $6.4 billion.  Additionally, Areva suffered a record loss in 2014 of $5.3 billion.

Areva is expected to sell $2.6 billion in assets and layoff as many as 6,000 workers to cut costs. Phillippe Knoche, Areva’s CEO, says the firm, if it gets the capital infusion it needs, could be in the black by 2017.

Under the agreement, EDF will control the design, development, and construction of Areva’s reactors in global markets. Separately, Areva would continue to operate its uranium mining, nuclear fuel, and reprocessing business which has an order book with $35 billion of customer requirements on it through 2030.

EDF Chief Jean-Bernard Levy told Reuters July 30 that he expects the final deal to have three parts. EDF will control 51% of the new firm, Areva will hold a 25% share, and outside investors, are expected to sign up for the rest.  Levy said that some potential investors, which he did not name, are already in talks with EDF.

French Economy Minister Emmanuel Marcon told financial wire services the French government, which owns 85% of both EDF and Areva, is planning to work on recapitalizating Areva and expects to announce its funding decision in September. The Financial Times reported that Areva could expect at least $3-4 billion, but that the exact amount the French government is expected to put into the firm has not yet been set.

Areva CEO Knoche told Reuters on July 30 that the high needs of Areva for a capital increase are necessary for the reactor business unit, merged with EDF, to return to the market as a viable player, to complete its current projects, and to keep its commitments for new reactors such as two EPRs slated for the UK’s Hinkley Point project.

French government adopts nuclear energy transition law

The French government, which has significant budget pressures from its social welfare spending, isn’t in a check writing mood. Another contributing factor is that the widely unpopular French President Francois Hollande has made a deal with the minority Green Party to keep his government in power, and the price of the deal is to swap out nuclear reactors for renewable energy, a key priority of the Greens.

The French National Assembly gave final approval last week to a new law that has the objective of limiting France’s reliance on nuclear power to 50% of the nation’s electrical generation capacity by 2025. However, the law isn’t the line in the sand sought by some green groups aligned with French President  Hollande.

For instance, it doesn’t specify a schedule for closing reactors and it punts on a the timing of a plan to develop alternative energy sources. Greenpeace criticized the legislation because, while it likes the expected the results, it doesn’t lay out a specific timetable and roadmap of how to achieve them. In what sounds like a case of British under-statement transported to Paris, Greenpeace spokesman Yannick Rousselet told Reuters, “this is not a good sign.”

Yet, nuclear energy in France accounts for 75% of current electrical generation capacity which makes closure of some reactors inevitable and makes the case for new ones more difficult. The nation’s oldest reactor at Fessenheim would have to close to open the new EPR at Flammanville.

France will host a major conference on climate change later this year. It seems unlikely that it will meet it carbon emission reduction goals by closing its nuclear reactors. In short, French President Hollande has promised a chicken in every pot, but his implementation plan reduces the number of chickens and even more drastically takes away some of the pots.

Separately, the law amends the carbon tax which is now set at $15.40 per tonne. It would increae to $24/tonne by 2016, to $62/tonne in 2020, and $110/tonne in 20130. Whether these taxes would be retained over time isn’t clear. Legislators in both chambers of the national assembly passed the bill by a show of hands which means their specific votes were not made a part of the record. The effects of the new law will be felt at the pump with prices going up for gasoline and diesel fuel.

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