French government energy protection plan results in a fifth of the suppliers market value fall.
EDF, the state energy firm, has been forced to take an €8.4bn (£7bn) financial hit after the French government announced a new plan to help protect households from soaring energy bills.
On Friday, the energy giant saw a fifth of its market value plummet when the new plans were set out. The French government’s plans also include demanding that EDF must sell electricity that has been generated by its numerous nuclear reactors. This is in order to compete with local suppliers at prices below the record highs.
In recent months, an energy crisis has swept across Europe, hitting households hard with the cost-of-living increasing each week. This is put enormous pressure on local governments to help homes to cope with the issues.
But what is the UK doing about the rising energy prices? What actions are other nations across Europe putting into place? Will the UK do something similar to what the French government has done?
The EDF Energy Situation In France
EDF have alerted investors that for the year ahead, nuclear power generation will be lower. A 10% drop is the initial expectation is all down to some of the nuclear reactors having technical problems.
After strong public protests in France, the French government decided that drastic action was required. Back in 2018, soaring fuel prices were the reason for the public to let their concerns be known.
Since then, electricity taxes have been cut in order to support the reaction to rising household energy bills, costing the state roughly €8bn to slow the rising rates.
However, new measures issued by the French government will keep a strict hold on the regulated price of nuclear energy that EDF can charge. From the initial €42/MWh, it will rise to €46.2 per megawatt-hour.
This is all despite the record soar we have seen across Europe in electricity market prices during the past few months. There have been some concerns from EDF. Based on market prices in December and January, reports suggest the new plan may impact EDF’s earnings before interest, tax, depreciation and amortisation by up to €8.4bn.
Meanwhile, France’s environment minister, Barbara Pompili has stated there will be support for EDF.
Due to various faults at five of its nuclear plants, EDF will be needed some downtime to undertake maintenance work. Investors were told for this year, its reactors would generate less electricity than expected. Initial estimates of 330-360 TWh are now down to generating 300-330 terawatt-hours this year.
The news on Friday impacted the EDF share dramatically, falling from €10.35 at Thursday’s close to €7.92 on Friday morning, costing the energy giant billions.
For those looking to save money, there are methods of instantly calculating your electricity bill online. This is one of the quickest and easiest ways to save energy.
How Is France Protecting Customers?
A 4 per cent cap on energy bill increases has been imposed by the French government to protect households from rising energy costs. Taxes will also be cut on electricity as part of the bill cap measures.
Households in France, as well as small businesses, will see bills caped at 4pc, rather than an expected 35pc jump without any action.
However, there has been some cause for concern regarding the interests of minority investors.
With more than 200 institutions holding roughly 5 per cent of EDF shares, private investors may see reduced confidence when thinking about investing in France.
France’s EDF is the owner of British energy supplier EDF Energy. In the UK, standard variable tariff prices will be rising for customers by 54% from April 1st, all in line with the price cap system.
When it comes to nuclear power, France’s energy and environment ministry have stated that EDF will be required to increase the volume it sells to smaller competitors. To keep prices down, EDF must increase the power it sells by 20 terawatt-hours (TWh) to 120 TWH.
Competitors to EDF can buy 100 terawatt-hours of power currently. This is already at a significant discount price due to the monopoly position they hold. However, an extra 20 terawatt-hours can be bought at an additionally cheaper rate.
The price increase that has been set is still way below the actual production costs for EDF as well as being below current market prices. They have said appropriate measures will be considered to help its balance sheet structure.
Meanwhile, the French Minister, Bruno Le Marie stated the new price cap means that prices will rise by 4% on February 1st, rather than the predicted 35%. Speaking to Le Parisien, it shows how much the price cap will protect consumers after the European Commission approved the French government’s plan.
The EDF Energy Situation Across Europe
Across Europe, governments are facing increasing pressure to help households with the energy crisis. The unprecedented surge in wholesale market prices has put some families in tough positions.
With all-time highs and record rates, protecting households has become more important than ever for governments.
Countries like France, Greece, Italy and Spain have all taken the initiative of limiting the impact on households. France would like the EU to become less dependent on importing gas from abroad, such as from Russia and Norway.
Regulations are in place for EU countries, allowing for a standard rate with a minimum of 15% VAT or a reduced rate with a minimum of 5% VAT. More recently, some nations have taken steps to lower fuel prices.
However, cold European winter and spring resulted in deployed summer supplies, with Asia and other countries are emerging from Covid-19 lockdowns playing a huge part in the rising costs.
An example of an initiative taken in Spain. To keep energy bills low for households, the nation introduced a windfall tax on electricity generators and gas producers that have been profiting from the record market highs.
Elsewhere, the German government slashed a surcharge on bills that are used to support renewable energy schemes. Now, they will receive extra state subsidies drawn from higher carbon taxes instead.
The Energy Situation In The UK
So, what about the UK? Customers who are currently on EDF’s standard variable tariff, paying by direct debit will see a 54% increase to their dual-fuel bill. This sees a rise to 1,971 pounds per year.
Ofgem the UK energy regulator stated that the most widely used tariff would see a price cap raise, covering roughly 22 million households. This rise in April is estimated to be 54% due to record global gas prices.
For consumers in the UK, many have been looking for the cheapest energy deals on the market. Price cap warnings and soaring energy bulls have crept into many households.
This price rise is a combination of many factors, such as inflation and food costs rise all leading to a cost of living crisis. In just the past year, wholesale gas prices skyrocketed by 500%, having a disastrous impact on energy suppliers, seeing many go bust.
Due to the energy price surge and the cap, more than 25 UK energy suppliers ceased trading. The price cap prevented the price rises from being passed down to customers, resulting in many households being left without a supplier.
EDF was named ‘supplier of last resort’ for many of these failed companies, taking on their customers. The utility firm said that the latest price cap will heavily dent their performance for 2022.
There are plans to build the new Hinkley Point C nuclear power plant in Somerset. EDF own the UK’s nuclear fleet, as well as several other UK gas-fired power stations.
The UK is discussing plans to cut VAT on energy bills, as well as removing environmental levies from these bills. However, there is uncertainty about the financial support, with an announcement likely to come in the next few days.
State-backed loans are planned to dampen the impact of the rising energy prices across multiple years, ensuring that consumers aren’t hit all at once. This £7bn loan will cover the immediate costs that come with purchasing energy on wholesale markets at these record prices.
Meanwhile, the loan wouldn’t require a government guarantee, furthermore, officials would be responsible for ensuring repayments.
Some of the benefits of cutting VAT will be removing the necessity of passing on soaring wholesale gas prices that come with an immediate jump in the energy price cap that puts a limit on the rates suppliers can charge bill payers.
Also mentioned is a windfall tax on North Sea gas producers that have benefited from the price surge, similar to what Germany and Spain have tested.
With the majority of electricity still produced in gas-fired power plants, the global shortage of natural gas supplies remains at the centre of the crisis. Adding to the pressures, increasing outages at ageing nuclear power plants in both the UK and France puts more pressure on the situation by constraining power supplies.
Meanwhile, to combat this, energy suppliers in the UK are looking to use renewable fuel sources and try to meet their green goals. This list of energy suppliers can help to show you which ones are green efficient, as well as which ones will bring you the best deal.
Will We See Something Similar In The UK?
There is pressure on the UK government to help households that are in the midst of the energy crisis. Rishi Sunak, the UK chancellor has been accused of not helping the situation/ There are talks among companies and MPs in regards to packages that will dampen the blow of the national energy crisis, but as of yet, no decisions have been made.