France: EDF Wins Reprieve as Hollande Cools on Greens Nuclear Pact

Electricite de France SA, Europe’s largest power producer, may get a boost from frontrunner Francois Hollande’s backing off from a nuclear pact with the Greens, who flopped in the first round of the elections.

Socialist candidate Hollande has distanced himself from an accord with the Greens to shut 24 of France’s 58 nuclear reactors by 2025 in light of union support for the industry and the perceived threat to jobs.
The Greens candidate Eva Joly -- with her trademark round green glasses -- got 2.3 percent of the vote in the first round of the French presidential election on April 22. Hollande led with 28.6 percent, while President Nicolas Sarkozy got 27.2 percent. Hollande and Sarkozy will square off on May 6.
“Eva Joly failed to seduce French voters,” said Nicolas Tenzer, the director of CERAP, a political think-tank in Paris. “There won’t be a radical change in French nuclear policy under the Socialists.”
The nuclear meltdown in Fukushima, Japan, last year had sparked a debate on “over-reliance” on atomic energy in France, which gets more than 75 percent of its electricity from nuclear power, the most in the world. With Hollande putting the pact on the back burner, the risk Paris-based EDF, the world’s biggest nuclear operator, will be forced to close many reactors in the case of a Socialist victory, has waned.
“The threat of shutdowns for EDF won’t be as immediate and severe as some had believed,” said Myriam Cohen, an analyst at Alphavalue in Paris. Brokerages Oddo & Cie and Berenberg Bank recommended buying EDF shares this week.

The Pact

EDF rose as much as 0.7 percent as of 9:02 in Paris to 15.55 euros. The shares have fallen about 17 percent this year.
Hollande’s pledge to lower France’s reliance on nuclear energy shook investor confidence in the state-controlled operator EDF. Sarkozy backs prolonging the operating lives of existing reactors past 40 years and developing new ones.
Investor concern about the effects of a Hollande victory peaked in November following the Socialists-Greens accord. The never-published manifesto sent EDF share prices plummeting about 10 percent on Nov. 16 and Nov. 17. It cast doubt on the utility’s ability to produce nuclear energy relatively cheaply after spending billions on improving safety.
The Greens want France to phase out nuclear energy altogether like Germany decided to do after Fukushima. The Sarkozy government’s unwavering support for nuclear power led Joly to call Industry Minister Eric Besson a “nucleopath.”
On the campaign trail, Sarkozy has raised the specter of massive job losses and industry exodus from France without nuclear power. EDF Chief Executive Officer Henri Proglio has said a complete exit from nuclear energy would cost 400 billion euros ($534 billion) and threaten one million jobs.

‘Gentle Transition’

The energy source keeps French electricity prices among the lowest in Europe and gives it lower carbon emissions than other large European Union countries.
Under Hollande’s near-term plan, EDF’s oldest plant at Fessenheim will be closed within five years because of safety concerns, the new model EPR at Flamanville in Normandy will be completed and the proportion of power production from nuclear will be lowered to 50 percent by around 2025.
“We need a gentle transition,” Socialist deputy Francois Brottes told an energy conference in Paris this month. “We aren’t completely undoing one type of energy production.”
The less-drastic plan prompted ratings upgrades this month on EDF shares at Kepler Capital Markets and HSBC Holdings Plc.
“The greatest tangible difference between a Socialist and a Conservative win in the upcoming presidential elections appears to be Fesseneheim, which hardly matters for the value of EDF shares,” wrote Kepler analyst Ingo Becker, who recommends buying the stock.

EDF Tariffs

EDF CEO Proglio is pushing ahead with plans to spend millions improving safety at Fessenheim. EDF has spent more than 380 million euros since 2009 on the reactors so they can pass once-a-decade safety inspections.
“Fessenheim is complicated because it provides base power for southern Germany,” said Dominique Miniere, EDF’s director of nuclear production. “Any shutdown can’t be done overnight.”
For EDF, there may be other worries, however.
With the French economy slowing and joblessness at a 12- year high, it may be difficult for EDF to push through an increase in the government-set tariff no matter who is elected.
Hollande has promised new rates for power, natural gas and water to help 8 million people struggling to pay energy bills.
It’s unlikely that there will be “clarity over tariffs in coming years,” according to Kepler’s Becker.

Proglio’s Fate

An Hollande victory might also mean changes in the executive suite at EDF. Although the Hollande team has said there won’t be a witch hunt of heads of state-controlled companies should he come to power, “the management team at EDF may be replaced,” said UBS AG analyst Per Lekander. “A politician could be named.”

EDF’s Proglio, who was then CEO of Veolia Environnement SA, was among a handful of people to celebrate Sarkozy’s election win in May 2007 at a restaurant on the Champs Elysees avenue. EDF spokeswoman Carol Trivi declined to comment on the presidential election and its implications for the company.

Hollande’s campaign this month called “scandalous” an increase since 2009 in salaries of EDF top managers.

“How can we accept this intolerable behavior?” asked a statement from Hollande’s spokesman, promising that compensation will be reined in at state-controlled companies. 

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