France bets big on nuclear (again)

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 0:06

Hello listeners, and welcome to the Montel weekly podcast, bringing you energy matters in an informal setting. In today's pod, we discuss France's path to decarbonisation. The country has very ambitious targets for renewables, but currently lags far behind other European countries. Meanwhile, it plans to build six... New generation nuclear plants by 2050, perhaps even more, even though its flammable EPR reactor has been plagued by huge delays and cost overruns. And how will the country finance its plans for renewables, expansion, and new nuclear? Helping me, Richard Sverresen, discuss these issues and much, much more is Frank Baghidi of Eurasia Group. A warm welcome to you, Frank.

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 0:50

Thank you for having me, Richard.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 0:52

Um, let's start off by talking about the France's renewables objectives. Um, it missed its 2020 targets. Um, is it the worst performer in Europe? Maybe a bit harsh, right?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 1:04

I mean, you have to look at it this way. Yes, it's true that France didn't quite hit, um, the mark with its 2020 renewable energy targets. Um, I think at the time they were at like 19. 1%, um, where the target was around like 23%, um, but I want to say that they were not alone in that kind of like, you know, bad playlist. Uh, you also had like five other countries. Luxembourg was in there, Slovenia, Ireland, uh, the Netherlands and Belgium. Now, the difference between these five countries and France is that they used, um, a possibility of the EU system, which is kind of like called flexibilities where you can, when you know that you're not about to meet your target, you can basically just buy. Um, energy from, from other countries, France didn't do that. And so as a result, they ended up being the only one not officially, uh, meeting their, their target. And as a result, basically, they're now facing a very, very hefty fine. I think we're talking about like half a billion. Um, and actually in discussions with, uh, with the European commission to try to. You know, wave it some way, somehow find a way to not pay for it. I don't know that I would then call them the worst performer, but I would definitely say that it was a shock that they didn't find a way to also use those flexibilities the same way. These five other countries use those flexibilities, particularly when you know how. France has kind of always been so, um, loud and such a vocal player in the climate space, you know, with the Paris agreement, pioneering a lot of initiatives, making sure that they set very ambitious targets, um, even beyond renewable and climate kind of like on the biodiversity side on the water side, always wanted to be at the forefront and being a pioneer both within Europe and across the world. Uh, so it's really a shame that they kind of like found this themselves in such a predicament. Um, We'll see kind of like what's next because I find that there, you know, there are new targets also quite ambitious, but yes, you know, for 2020 for sure, uh, they were at the bottom of the list, but they were not by themselves.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 3:02

I mean, it's not a good look, as you say, but what about the 2030 targets? Is there, what are the chances that these will be met?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 3:09

I don't know. Cause I feel like they're aiming very, very high. I mean, we're talking about 30 percent of renewable in the energy pie, 40 percent of renewable as part of their share of electricity production. That's extremely ambitious. Um, particularly when you've already missed your previous targets. Um, so, uh, the way I look at it, it's kind of like going from zero to 100 in a few heartbeats and, I don't know that they have what it takes currently to make it happen. Now we'll see kind of like what the rest of the, of the decades shows, but you have to keep in mind that it's already 2023. Um, so I was reading a few things from the RT, which is the, the, the transmission operator in France, basically the power pros in France. And there was saying that. To get to the finish line, you know, France would basically need a strong increase, uh, in renewable across the board. Um, and they are seeing the strongest potential in offshore wind. They are seeing the strongest potential in a solar power. They were even saying that solar energy could basically become France prime renewable energy source by, um, 2030, uh, with like almost 47 gigawatt, which is really significant. Um, the issue that we have right now is that. big chunk of France's, um, renewables comes from what I like to call, um, grandpa level hydropower plants, uh, that were kind of hip when, when disco ruled. So they've got to invest in like a triple threat, energy efficiency, uh, renewables, but also, uh, nuclear power. Um, and so I think that's kind of like, um, What they are trying to do at the moment, but it will be a marathon and it will be paired with many, many obstacles.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 4:45

What are those obstacles in particular, Frank?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 4:49

The main one is on the admin side. Um, so everything that is related to permits, um, and they really struggle with that. They've been trying to pass a few different laws, particularly the recent one on the renewable acceleration bill. And so the idea is to make sure that you reduce and that you shorten some of the permit time, um, to, for instance, be able to get a, a wind farm off the ground. They are struggling with that at the moment significantly. That's one thing. I think the other part of it is, has more to do with, um, I guess, having realistic targets. Uh, you know, you want to aim high, but then you fall short on what I like to call day to day energy priorities, right? You know, when we, when you have the invasion of Ukraine and you kind of all of a sudden have to rethink and reprioritize, um, uh, stuff, then, you know, renewables don't necessarily become your priority. your number one thing to do. And that is not necessarily factored in, in the way that France is, um, uh, devising it's, uh, it's targets. So that's another big kind of, um, uh, difficulty. I would say a third one is maybe a lack of clarity coming from the top. I find that if you look at the previous term from President Macron, um, Many, many times there were kind of like different U turns on different topics, whether it's onshore, whether it's nuclear, whether it's even sometimes to what extent, like, what is the direction of travel for solar? It's just very confusing. And that has a ripple effect, right? So investors, it becomes blurry for them to understand where the country is going. Um, um, and then I guess, you know, Related to that, if I may add a final point is the fact that we don't have that many big players, um, uh, in the renewable landscape in France, um, some, somewhere people would even talk about some form of monopolies here and there. And so that the fact that competition to an extent might be a bit stifled or may. PR like it, um, may also kind of like hinder, um, a timely, um, I guess, realization, uh, or materialization of some of those, uh, renewable targets.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 6:56

So the perception that there's a lack of competition in France is maybe preventing some, you know, international, uh, players in the renewable sphere from entering the market or looking closely at France, is that what you're saying?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 7:08

That's correct. That, and then also the fact that sometimes, you know, the, the, the tasks regimes, the fiscal regime is not necessarily the most attractive. The fact that, um, um, you know, there may be other, uh, players, you know, within Europe that may seem a bit more interesting. Um, So I think, I think, yeah, it's, it's just, you add all of those kind of like elements and again, the fact that those targets tend to be extremely high, like look at what we just said. They miss their 2020 targets that they're building down on having given much, much higher 2030 targets. So you kind of like, okay, where are we going with this? Um, so it just makes for a very, very challenging time for friends.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 7:49

If we can pinpoint some of these technologies that you mentioned, Frank, for example, on onshore wind, there's been a bit of a U turn there by the Macron government. Um, what, what, what, what's, what's going on?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 8:01

Yeah, I think, look, for me on the, on the onshore wind side, U turn or no U turn, what's important to kind of like focus on is the actual trajectory for projects. Um, I remember, I think it was back in, uh, I would say maybe. March or April, but earlier this year, um, uh, friends had, you know, this grand plan for an auction that would pump up, you know, the, their wind, their onshore wind energy by almost one gigawatt. Um, but then I think only four out of the 60 projects, uh, in the ring walked away with a golden ticket. Um, and so that I think the overall, they just got to like 56 megawatt in, in total capacity. That was like just 5 percent of what they were trying to achieve. So. Again, U turn or no U turns, that's the reality of what was happening on the ground. After that auction, they said, okay, we need to kind of like redo it. The big problem and the big reason why they had to like turn down so many projects at the time had to do with admin. Um, the admin instructions were about as clear as a foggy window. And so when you, when you find yourself in such a predicament, you kind of have to start again. And so that's what they did. And so they had another action just, um, I think earlier this summer. And that was much, much better. I think they, they ended up with, um, uh, 73 winning proposals. Uh, the grand total is over 1. 1 gigawatt in terms of like the combined power that would come out of that. It's a huge. It's a big, big step for France to big step forward for the country. Um, and definitely promising for, uh, onshore wind. I think it will bring some kind of like level of certainty to the industry, especially because there will be a third auction, um, in the fall. I think they're aiming for October that being said, and my stance on offshore will not change. Um, even though the potential is extremely high, the prospects are so clear and so kind of, um, You know, you see it and you basically want it. The reality of it is that when it comes to implementing it, no one wants it in their backyard. Um, and that's what we see across the board, not just in Europe, but also, and that's what we see across the board, not just in Europe, but also, uh, in the U S. And so I don't know that this kind of, um, foundational and fundamental hurdle will be overcome in a way that allows us to fully unlock the potential of onshore wind in France. So it's that nimbyism

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 10:34

again. How about, how about offshore?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 10:36

Ah, the offshore story is a much more positive. I find, um, uh, I mean, big plans and still significant challenges, but overall to me, it's extremely positive. Um, so I was mentioning how, uh, one of the main roadblocks, um, in France is the admin part. And the permitting part. That's something that the government is really seriously trying to tackle right now. Uh, they passed a renewable energy acceleration bill. Um, in February of this year. Um, and so what that will do in essence is really kind of simplifying applications and permits. Um, also minimizing appeals. Um, and, and Thank you. Um, I think that will help, um, local municipalities identify renewable acceleration zones, um, that will allow the government to streamline the permitting process. I think they're, they're talking about like one to three months right now, which is really nothing compared to like the, sometimes, you know, close to like a decade that you needed to, to get a project off the ground. And so I find that this is kind of, um, You know, there might be a before and after that bill. Um, some would say that this bill is, you know, was long overdue, but at least it's there. Um, and right now what the country is trying to do is to speed up this, these, um, on four wind projects. Um, I think with the bill, they're aiming at making, um, the 18 gigawatt target by 2030, a bit more achievable. Um, uh, they've, they've just selected, uh, the consortium of, um, EDF, um, and, uh, Maple Power to build, um, the country's biggest offshore wind farm yet. Uh, we're talking about one gigawatt capacity. That's massive. Um, so there's definitely hope, uh, but they really got to, uh, amp up their processes even further, uh, to meet their target. They need to award, I think when I did the math, it was at least two gigawatt of new projects per year. That's huge. So I think the journey will be challenging, but there's, um, that's, that's kind of like the one area where I see a strong governmental commitment that is being translated into actual, um, um, policy changes. Final part and right now missing part is the implementation.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 12:55

But there's, there's, um, there are big plans and two gigawatts a year, um, is, is vast. But there's also a lot of opposition here, isn't there? I mean, there's a, there was the spat between Belgium and France on, off the Dunkirk, off the coast of Dunkirk. You have tourism, um, you have, the fishing industry is also opposed. Um, will these be enough to, to halt some of these projects?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 13:19

This will be dealt with on a case by case basis, um, in my opinion, I think that what you're going to see is, um, if you find yourself in a situation where, um, you know, energy prices are high, um, um, local communities are happy with and I'm sure when projects, um, um, elections are coming up and kind of like approval time for a project is, is, is close by, then you may have protests that kind of like would lead to, um, Bye. At the minimum, a delay, at worst, um, a cancellation of a project. So I kind of like, that's kind of like what I see, but overall, I do think that the trajectory is a lot more, um, optimistic, if you will, than on the, than on the, um, than on the onshore side. Um, now the, where things will get a bit tricky, I think is if you start seeing, um, Lots of, um, studies either from NGOs or from, um, academia, um, really tackling and, and, and focusing on the negative environmental impact of, um, offshore wind. Um, if you have that and you kind of like start showing some of the contradictions of the. clean ambition of that solution versus its negative impact on the environment, particularly on biodiversity, where you see now that there's a huge focus on biodiversity in France, but also across the world. I think that the question of trade off might come in, uh, and that might kind of like add a, um, you know, further complexity to those debates and give the folks who are against it, whether you talk about Belgium, whether you talk about the tourism industry, we know you talk about fishermen, uh, give them kind of like yet another munition to fight against those new projects.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 15:13

The biodiversity card, if you like. Yeah, exactly. But I've also heard that some of these, um, you know, certainly in the North Sea, that some of these offshore, um, farms, they provide a sort of safe haven for a lot of, for a lot of fish and, uh, you know, especially for, for some, some varieties of fish.

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 15:31

Lemme put it this way, you can take that story from any angle you want. Some folks will tell you can, will tell, will tell you about all of the benefits that it does provide for, uh, the marine ecosystems. Some folks will tell you about all of the bad things that it may do to the marine ecosystem that we may not even be aware of for right now. I think again, the question then becomes, what is the political will? What is the direction of travel? What are the trade-offs that you know? Uh, policy makers are willing to take and will the local communities be on board? Um, and, and that's most of where, where, where kind of like, um, uh, the decisions will, will end up, will end up going, you know, one way or another, I cannot stress this enough when it comes to. environmental impact of energy sources. You can always find kind of like evidence that will show you that, Oh, this will be great for a marine ecosystem. Oh, this will be great for terrestrial ecosystem. Oh, this will be great for, uh, air pollution or it will always kind of like find those studies. I think it's, it's, it's more about what is the stance that we're taking and is there a consensus among scientists on those topics?

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 16:38

As you say, there's always going to be some sort of trade off. Yeah, that's, but let's turn to nuclear. Also another quite, quite hot topic nuclear in France. Um, you know, there are a lot of short term issues at the moment with, uh, with, uh, with France's reactors, you have corrosion issues, um, except, uh, cooling problems with, with some of the rivers, especially there, which is, which seems to be recurring every year as as the impact of climate change is also felt in, in, in the river temperatures in the country and elsewhere, um, in Europe and the world. But, um, how, how reliable is the current, uh, reactor fleet in, in France, Frank?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 17:17

Uh, yeah, that one is a, is a, is a tricky one. I would say this, the reliability of France's, uh, current nuclear fleet. has definitely been facing a tough taste lately. Um, EDF, which is, you know, the operator has been grappling with some, I'd say, longstanding issues that are seriously hampering the operations. Um, last year, I think half of the country's 56 nuclear reactors were offline, either for maintenance issues, corrosion issues, cooling issues. The timing was absolutely horrible. Um, because it was exactly when Europe needed that source is more than that source more than ever. Uh, so that, that, that the fact that France is Europe's largest net power exporter and ended up having kind of like the scenario flipped where the country had to import power instead of exporting it at a time where the block needed it the most tells you about. how unreliable he was at least last year. Um, and, and so I think you have to kind of like, look at the broader context, the nuclear fleet in France, the current one is really aging. Uh, most of those reactors up until a couple of years were supposed to go offline permanently. Now we had this U turn, uh, last year, uh, in the wake of, um, the invasion of Ukraine and, and kind of like, um, the energy crisis, uh, But you have to understand that all of those decisions had implications, right? So a few reactors were already kind of like going offline. Many others were getting ready to do so. So the there was no big focus on extending their lifetime. And so, of course, when you try all of a sudden to extend their lifetime, you're faced with issues that you didn't expect, um, like the corrosion issues, like the maintenance issues. And then the calendar for those maintenance, um, kind of, uh, reboot, um, was delayed also by COVID. So it was kind of like the worst scenario where everything had happened at once, you know, corrosion issues, planned maintenance. And then you mentioned it, also the impact of climate change. So, um, you know, we need water to cool the reactors. Um, and so except that in France, when the water levels are too low, um, and there's a negative impact on biodiversity, there's a lot that basically make it so that you can't, the reactors cannot run. And all of those issues made it so that the half of the reactors were not, were not running last year. And that made the fleet extremely unreliable. What was interesting though, and particularly in the media coverage is that that was happening as the government was pushing for a brand new massive fleet. And it seemed to me that no one really kind of like put two and two together and say like, how can you struggle so much with your existing fleet and have such high ambition for what's to come on the nuclear side.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 20:21

I mean, that's what those questions were asked at Montel, surely, but, uh, but I think, you know, perhaps the situation is, is better now you have these plants back, you know, some of these, the, the, some of these issues have been resolved. Um, but then you, you never know, maybe, and as you say, these are aging, they're not getting any younger, these plants and, and he may further problems may, may crop up, um, in, in, in the coming months and years. And probably likely to as, as, as, you know, as we, as they're not as reliable as, as they maybe were 20, 30 years ago. Um, but as you mentioned, uh, Frank, there are very ambitious plans to build new reactors. So I've heard, you know, from a minimum of six, potentially anything up to 14. Now, um, how will these be realized? I mean, you see, well, the, the, the problems with getting flammable, uh, The EPR, the European Pressurized Reactor Online, it massively delayed over 12 years, isn't it, and billions of euros over budget. Um, but yet you have this, this, this plan to build new reactors. It kind of, to some, it doesn't make sense.

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 21:31

Right. I mean, just look at the numbers, right? We're talking about, um, six new reactors and then I think an additional eight reactors that would kind of like be at the study, um, stage so that you're right. So that would be a grand total of 14, um, starting from 2028. So just in like five years, when you look at the combined capacity of these new facilities, Yeah. It's impressive because France would potentially reach up to 25 gigawatt if that comes to fruition, France would basically rival China as the world's top nuclear reactor developer in the coming years. Let's take a moment to put this into perspective. Macron's aspirations are quite bold. To give you an idea, China, which currently holds the title for the world's biggest developer of nuclear power plants, has added less than 10 gigawatt of reactor capacity over the past five years. Even their 18 gigawatt capacity of capacity under construction falls short of Macron's new ambition plan. So I think just that enough should tell us. The plants are at the very least over ambitious. That's one thing. Um, I think the other thing is most of the context, um, it's pretty much on second term. Um, he will no longer run the country when most of those plants will actually go online. So it's fairly easy to make very bold promises, um, that you won't necessarily, um, kind of. be held accountable for when they come to fruition. That's one thing. I think the other thing is what you mentioned regarding a flammable, um, the nuclear reactor that is currently under construction facing numerous delays facing cost overruns. I mean, and then in December, they also delayed it for another six months, uh, with an additional cost increase of 500 million euros. Right now, we're looking at basically a decade behind schedule and, um, have basically shot up to like 13 over 13 billion. Um, I do not know how in such a context and with additional issues such as, uh, EDF struggle on the budget side, which is why it had to be nationalized or. a much more kind of like HR issue, which is the fact that in France, you don't have a quadra of nuclear experts anymore. Uh, the vast majority of them, um, retired or about to retire. And then for the new class or the new crowd, I remember, um, kind of like growing up in France and studying energy policy. We were told at the time, don't focus on nuclear because you know, it's, it's basically the end of that journey for the country. So folks did not train. accordingly to replace. Um, and there was no kind of, um, knowledge transfer between the, the, the, the older generation and the new generation. So all of those issues make it so that I think I was reading somewhere that, uh, France was even like, um, welcoming, uh, Canadian engineers and nuclear experts to kind of like help them with the new fleet. When you find yourself in such a predicament, it makes it very hard to have a level of ambition that is higher than what the number one country in the space is currently doing. So we should all definitely take these, uh, these new plans with a grain of salt. Absolutely.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 24:55

Very clear, Frank. I mean, that's, uh, and also the question here is, is of the financing. I mean, You mentioned the nationalization of EDF, you know, where's the money going to come from? I mean, uh, EDF can't afford it. Can France afford it? Or is it just going to be the French customers and, and, and industry who foot the bill?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 25:12

Yeah. I mean, the financing part, I always say. It's not even a France issue per se, you see the same issues in the US with the most recent plant that came online, you same issues in the UK with Hinkley point C, same issues in Finland with, um, uh, the latest place that the latest, uh, reactor that I came online as well. Um, the, the, the, the cost, the cost of Irans, uh, the, the billions and billions of, um, dollars and euros that are being spent on these projects and oftentimes that are completely unforeseen, that will never go away. That's a fixture of that, um, you know, nuclear budget at this point. The real question to me is more so. Is it worth it? Right. When you look at the cost of the new fleet, we're basically looking at around roughly from the, the current estimates, you know, 60 billion euros, six, six, zero, um, that's significant. And then you have to look at, you know, how much that electricity will cost on the other hand, right. Is it going to be competitive, uh, right now with, you know, the current inflation rate, um, the current. price of renewables, um, and the prospect for what's, what's to come. You look at the levelized cost of electricity for, for, for nuclear, which is, it's just not going to be competitive. Um, so when you look at kind of like those two elements, it just kind of makes it very hard to make, make it make sense. Right. Um, now this, the big new pushes around, um, CFTs, uh, and kind of like making sure that you, you have more, uh, private money coming into, um, coming into play. And even there, I don't know, uh, when, uh, when you, when you engage with a lot of investors, um, their appetite for nuclear has kind of like lowered by the day because of one, the safety issues, because we know that it just takes one big scandal or one big, um, accident for, uh, for the whole industry to pause for years. Um, and then two, it's kind of like the fact that, um, nuclear development developments are so. tied to, um, uh, governments. Right. And to kind of like, uh, policy directions. So if he goes one way, one day can go another way the next day. Um, we even saw it in France within, uh, like the past. Six, seven years. Our stance on nuclear has changed drastically. Um, so, you know, one day it's like, you know, let's, let's, let's, let's exit. And then the next day, let's focus on SMRs. And then the day after it's no, no, no, we want just big, massive, massive plans. So it just makes it very hard for investors to, uh, have a clear ideas to where things are headed. When you have that, I just find that the financing, uh, conundrum remains pretty much, um, unsolved, or you could put it another way and say that. Right now, uh, it doesn't really make sense, uh, to put that much effort and resources, uh, within nuclear unless, uh, you just have them in a much more, um, limited and narrow, um, role as part of your energy mix, which doesn't seem to be the case in France right now.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 28:32

You mentioned Contracts for Difference or CFDs. It appears that France is on a little bit of a collision course with the European Commission here as well. What's happening here, Frank?

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 28:44

Yeah. I mean, um, here's the thing, uh, because of that U turn on nuclear issues, um, France would automatically face some sort of backlash from the EU. And when I say the EU really here, we're talking about Germany. So that showdown, um, France versus Germany on nuclear issues, it was very easy to predict, uh, given how pro nuclear France was and has become again versus how anti nuclear Germany has remained. Uh, and so when you look at that landscape and you look at all of the conversations around the power market reform in France, um, and across Europe, um, it's very clear to see that the division is, is, is kind of like here to stay that we're having, uh, rounds and rounds of negotiations over the summer, absolutely no progress. Um, and, uh, recently the, the, The Energy Transition Minister in France, she basically hinted that if the EU's discussions on the market reform don't speed up, France might just roll out its own solutions to kind of, you know, tackle, um, soaring electricity prices and kind of like make sure that nuclear is, is, um, up there. I don't know if it's just a threat. I don't know if they are just testing the waters. Uh, I don't know if it's a way for them to make sure that they get, um, support from other European countries who also are also pro nuclear or at least supportive of nuclear. Um, but in any case, what I do know is that Germany will not budge. Uh, and And, uh, and that, um, uh, I think that, uh, we are just, I guess, at the beginning of what that showdown will look like and how it will unfold in the next few years.

Snjolfur Richard Sverrisson, Editor-in-Chief, Montel: 30:33

It'd be very interesting to, to follow that in, in the coming months and, and, and, you know, over the winter. Um, Frank, thank you very much for being a guest on the Monte Weekly podcast.

Franck Gbaguidi, Director, Energy, Climate and Resources, Eurasia Group: 30:43

Thanks for having me, Richard.