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The organization of the French electricity markets singled out by the Court of Auditors in a new report

The Court embarked on a rare and unique assessment of the complex public policy put in place over the past ten years to try to comply with the Brussels requirements to introduce competition into the electricity markets, while trying to preserve low tariffs for consumers, resulting from the long-depreciated nuclear power of the incumbent public operator EDF.

The context: the NOME law (December 2010)

In an electricity sector open to competition at European level, France has maintained or created significant tools for public intervention – on the occasion of the law “new organization of the electricity market” (NOME) of 7 December 2010.

This, in order to meet several objectives:

  • allow the exercise of competition between suppliers,
  • guarantee consumers stable prices that reflect the competitiveness of the existing nuclear fleet,
  • ensure the financing of this fleet and have sufficient capacity to guarantee the balance between electricity supply and demand.

The report recently published by the Court of Auditors underlines the main devices of the public policy for the organization of the electricity markets. However, the combined implementation of these systems over the past ten years no longer guarantees that the initial objectives will be achieved.

This verdict, illustrated to the extreme in the recent context of soaring gas and electricity prices, calls for taking advantage of the next deadlines for the revision or lapse of existing systems. The final goal: to clarify the objectives and revisit the tools for intervention in the electricity markets.

A public intervention that responds to issues specific to France

The French production system stands out within Europe by the weight and competitiveness of the historic nuclear fleet.

Consequently, in the absence of public intervention, the opening up of the electricity market to competition on a European scale would result in the supply of French customers at price conditions likely to significantly exceed the production costs of the French fleet.

Intervention tools whose implementation no longer guarantees the achievement of objectives

Three main systems called into question:

  • It’s about Regulated sales tariff (TRV), which nearly 70% of households benefit from, Regulated Access to Historic Nuclear Power (Arenh), which grants a reduced price until the end of 2025 on an annual quota of nuclear electricity sold to industrial energy consumers and alternative distributors of electricity and finally the “capacity mechanism”.
  • This “gentleman’s agreement”, very profitable between large industrial consumers, makes it possible to prioritize the needs for avoid blackouts during winter consumption peaks. The European Commission only accepted it until 2026.
  • The Court notes that the TRVs, supposed to protect consumers from sudden changes in the wholesale markets, and accepted by way of derogation by Brussels, have been since 2019 “more and more exposed to variations in market prices”. The system set up around the incumbent operator to mechanically instil a kind of competition has de facto created an inflation in electricity prices, underlines the Court.

In fact, EDF is not better able to guarantee that consumer prices will be aligned with its production costs, which was the objective, note the magistrates. Thus, without the exceptional measures of the tariff shield put in place at the start of 2022 by the government, the regulated sales prices would have jumped by 35% including tax on February 1, 2022.

The Court also underlines that the Arenh scheme “did not go as planned” but that it allowed “covering of EDF’s full costs” over the ten years, even emphasizing that the “overall income derived from the nuclear production were 1.75 billion euros higher than the accounting costs of this production between 2011 and 2021”, contrary to what EDF and its unions claim.

A public policy whose objectives must be clarified and the instruments revisited in the short term

Overall, the Court observes that the combined implementation of these different tools leads to an organization that is no longer legible or controllable, and that no longer guarantees the achievement of the initial objectives. Thus, the Court of Auditors points to the growing dysfunctions of the electricity market in France for ten years and requires rapid development of regulatory tools.

  • In the short term, the Court calls above all to look into the method of calculating the regulated sale tariffs in the event of a capping of ARENH’s requests, in order to limit the exposure of these tariffs to sudden changes in market prices.
  • In the medium term, given the still preponderant role of the nuclear fleet in the production of electricity in France, public regulation of access to this production will remain a major issue beyond the term assigned to ARENH (i.e. end of 2025).

The Court therefore calls on the public authorities to clarify, from 2022, the objectives that would be pursued within the framework of a new nuclear regulation, to determine its new modalities and guarantee its articulation with other public policy mechanisms.

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