Will Hollande restore France's supremacy in nuclear energy?

French industrial groups are up in arms as their once-celebrated nuclear-energy edge evaporates. After decades when their factories churned out everything from steel, glass and chemicals with one of the cheapest power prices in Europe thanks to the country's 58 nuclear reactors, French companies' competitive advantage is being whittled away as the United States embrace of shale gas cuts energy prices there and as Germany gives businesses fiscal breaks against higher electricity costs.

Electricite de France's nuclear reactors, which make France the most reliant on atomic power in the world, will need billions of euros of upgrades just as more costly renewable power is being deployed. Both threaten to push electricity prices as President Francois Hollande struggles to make French industry — with more jobs losses than any other European country in the past decade — more competitive in the face of an economic slump and a trade deficit that's near its record high.

"French energy used to be competitive," said Emmanuel Rodriguez, head of energy for the French unit of ArcelorMittal, the world's biggest steelmaker, which also has operations in Germany. "This model is crumbling. Germany is now better than us whereas a decade ago they were much more expensive."

French power prices for big industrial users are projected to average as much as 25 per cent higher next year than in Germany, according to Uniden, a lobby whose members consume 70 per cent of electricity used by industry in France.

Large French factories will pay about 46 euros a megawatt hour compared with about 36 euros in Germany, the lobby estimates. The figures include rebates and exemptions such as compensation for carbon emissions, power transport and deals to shut production during peak demand periods like cold snaps.

For the first year ever, France was a net importer of power from its neighbor every month in 2012 as German solar output more than doubled and its coal-fired production was competitive thanks to lower prices of US exports freed up by a shale-gas boom, according to the French grid operator Reseau de Transport d'Electricite. A 55 per cent drop in carbon permit prices over the past year is also making it cheaper for fossil-fuel generators like Germany's coal plants to produce electricity.

Meanwhile in France, last year's presidential campaign exposed a schism between the main political parties on the future of nuclear energy. Hollande pledged to lower dependence over the next decade while boosting investment in renewable energies like wind and solar power, which produce more expensive power and rely heavily on subsidies.

Since the start of the year, France has embarked on a national debate on energy expected to culminate in a law in October to outline the country's future energy mix. Environment Minister Delphine Batho has said the outcome will reflect Hollande's promises on nuclear power.

French factory operators say the coming months are crucial to convince policy-makers they need competitive energy. A report on French competitiveness warns that the country "must not raise the cost of energy for industry."

French nuclear output is a "veritable advantage" that needs to be preserved, according to the study published in November by Louis Gallois, former CEO of Airbus's parent European Aeronautic Defence and Space Co.

Businesses advocate nuclear power — opposed by environmentalists pushing for a complete phase-out — saying it offers stable output. The country's biggest business lobby, Medef, is also asking the government to review its ban on shale exploration.

Additionally, companies want Hollande to give them tax rebates and other means to address the distortions in the European energy market. That demand is being made with an eye to advantages being given to businesses in neighboring Germany.

Forecasts that Germany's power imports would rise and new power plants would be built as a result didn't materialise, according to Hans-Joachim Ziesing, a member of the independent commission monitoring the energy transformation in Germany.

The proportion of German electricity from renewables, coal and lignite rose in 2012 while power from nuclear and natural gas dropped compared with 2010.

German industry last year got financial support valued at 10 billion euros to offset electricity costs, including 4.76 billion euros in reduced taxes, according to a presentation Ziesing gave in Paris.

"The federal government has set itself an ambitious task that by 2050 renewable energy is to become a cornerstone of energy supply," he said. "At the same time, Germany should remain a competitive business location."

German power generation from renewables rose to 22 per cent of the total last year compared with 16 per cent in 2010, his presentation showed. During the period, power from hard coal and lignite increased to 45 per cent from 42 per cent.

German shielding of energy   costs for industry is "an example of the huge distortions on European energy markets," according to Jacques Percebois, an economics professor at the University of Montpellier. "France has long taken comfort in the fact that it has relatively cheap power thanks to nuclear reactors but this is no longer true for industry."

Some German power-hungry industries such as chemicals plants don't pay subsidies for wind and solar power being rapidly deployed across the country while a fee paid by households for renewables has jumped 47 per cent.

French factory owners pay for renewables, although the contribution is capped for the biggest power users.

The European Commission has received "inquiries and complaints" on power-price rebates for German companies, Energy Commissioner Guenther Oettinger said at a conference in Berlin last month.

"There is now an urgent need for a more coherent European energy policy," according to Dominique Maillard, the head of France's energy regulator, Commission de Regulation de l'Energie. "When energy subsidised by consumers is dumped on markets at negative prices, it's not good for anyone."

This was illustrated by a collapse of European power prices at the end of last year. Prices hit a record low of negative 50 euros a megawatt hour in France on Christmas Day as electricity from renewables flooded the market.

"We try to take advantage as much as we can of these market swings when they go in the right direction, but the situation isn't tenable in the long run for anyone," said Arcelor's Rodriguez. 


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