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Energy crisis threatens reversal of French market reforms

Staff by Staff
December 13, 2022
in Business
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Marion Hubert received an alarming message from her power provider this summer warning of a doubling in bills for her apartment near Paris. But the company also offered a solution — she could avoid the dramatic rise in costs by switching to state-controlled former monopoly EDF.

Moves by some of France’s smaller distributors to ditch clients come as soaring wholesale electricity prices across Europe raise fears of a growing wave of insolvencies among power suppliers from Britain to Germany.

Companies that roped in customers with bargain offers are now struggling to cover their wholesale purchase costs, stretching their business models to breaking point.

Some French suppliers have withdrawn their services, stopped taking on clients or been bailed out by rivals. Allowing customers to flood back to nuclear power producer EDF and its capped, regulated tariffs now risks reversing a 15-year push to open up France’s electricity market.

Originally attracted by supplier Mint Energie’s promise of supporting renewable energy producers, Hubert could no longer afford to make that green choice. “I want green energy to grow and I was paying for it as long as I could,” she said. “Right now I’d rather eat.”

As Europe weans itself off Russian gas following the invasion of Ukraine, chaos induced by rising wholesale electricity prices has sparked calls to reform power markets and soul-searching over whether liberalisation has worked.

EDF, set up to combine France’s fragmented electricity suppliers after the second world war and now on the cusp of being fully renationalised, still controls about 70 per cent of France’s retail power market, much higher than incumbents in other big European economies.

In recent years it has lost customers to cheaper new entrants, many of which benefited from access to EDF-produced power at low fixed rates, a mechanism designed to foment competition but decried by EDF as a “poison” that subsidised rivals while its own finances suffered.

Energy regulator CRE is investigating whether some distributors abused their supplies of cheap EDF nuclear power by reselling it on the market for a higher price rather than using it to meet their customers’ needs.

But as outages at EDF’s reactors add to the energy crisis, even accessing some EDF supply at prices as low as €42 per megawatt hour has not shielded suppliers from a soaring French power market, with future contracts surging at one point this summer to €900/MWh. 

Meanwhile, competing with EDF’s regulated tariffs has become an ever greater stretch after the French government limited rises in those rates to 4 per cent for 2022 to shield households from the crisis.

EDF says it has been regaining retail customers at a rate of roughly 100,000 a month since August.

In less strenuous times the new entrants have relied on a cost-light, low-margin business model. But few have their own generation capacity, exposing them to difficulties now.

“Either you’re an integrated power provider with your own production means, or you have a very diversified portfolio so you can handle these strains, or you will really struggle,” said Denis Florin of energy consultancy Lavoisier Conseil.

In the year to the end of June the number of alternative suppliers in France dropped from 51 to 43, according to the latest data from CRE. Another official site now only lists 34, although it excludes some very local suppliers.

Those to have disappeared include Barry, a Danish supplier that only entered France in January 2021 before folding in its home market, and the French arm of Britain’s Bulb, which entered administration late last year. Homegrown providers have withdrawn too, including supermarket group E. Leclerc.

Not all have overtly sent their customers to EDF. But many are raising prices when renewing customer contracts or, as is the case with the French arm of Spain’s Iberdrola, terminating some altogether.

The strains in France’s retail power market have reinforced calls for reforms, including to the system through which EDF sells its power to rivals.

“The way the liberalisation of the market has worked out is not satisfactory at all,” said Fabien Choné, an energy consultant and co-founder of supplier Direct Energie, which was bought by oil and gas group TotalEnergies in 2018.

Regulated tariffs have been eliminated in France for most business customers, a part of the market where competition is much more developed.

François Joubert, chief executive of five-year-old supplier Ohm Energy, said he thought some suppliers would still make it through and that regulated and non-regulated prices would eventually converge again.

“What’s happening this winter is something exceptional, linked to a political decision and the government accepting that EDF would lose money as a result,” he said.

The state’s move to cap price rises has cost EDF at least €8bn in core profit, as it had to buy some supply at expensive market prices. Taking on more clients this winter will add to that burden, as it will need to purchase additional supplies.

“When a client comes back to the regulated tariff . . . that creates a loss for us,” Marc Benayoun, a senior EDF executive in charge of customer services, told reporters in October.

As the market faces a squeeze, one other big beneficiary may be Total. Flush with cash from high commodities prices, the oil major has more wherewithal to withstand losses on electricity contracts if it has to. It now also has two gas power plants in France, ensuring its own production for the longer term.

Florian Peroud, an IT worker from the Vendée region in western France, ended up switching to Total after Mint warned his monthly bills were doubling to €240.

“I almost wondered if it was a fake,” Peroud said.

Read the full article here

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