ARENH Reform Could Result in EDF Break-Up

The ARENH (Regulated Access to Historic Nuclear Electricity) mechanism currently requires EDF to sell up to 100 TWh of nuclear electricity to competing suppliers each year at a fixed price of 42 euros/MWh. That volume comes out to roughly one-quarter of EDF's annual electricity production.

The ARENH (Regulated Access to Historic Nuclear Electricity) mechanism currently requires EDF to sell up to 100 TWh of nuclear electricity to competing suppliers each year at a fixed price of 42 euros/MWh. That volume comes out to roughly one-quarter of EDF's annual electricity production.

Depending on the market circumstances, two outcomes may occur in the final quarter of each calendar year.

  • Suppliers request less than 100 TWh from EDF (i.e., the available allotment is undersubscribed), and consequently, each supplier receives the ARENH amount requested.
  • Suppliers request more than 100 TWh from EDF (i.e., the available allotment is oversubscribed), and each supplier receives a proportion of the ARENH requested relative to the entire volume requested. This process is called "Ecrêtement ARENH" (or ARENH rebalancing). Reblancing has occurred in each of the last three years - for purchases in 2019, 2020, and 2021. In 2021 suppliers will receive only 68.4% of their ARENH requests.

ARENH volumes purchased for the upcoming year are not tabulated until late November. Therefore, until that date, consumers do not know with certainty if the nominal prices included in their electricity supply contract will be final.

Consumers are put in this situation because when ARENH is oversubscribed and requires rebalancing, suppliers are required to purchase:

  1. baseload calendar contracts to offset the volume EDF will not supply, and
  2. capacity at the price of the last auction of the year to offset the capacity no longer covered by ARENH - ARENH incorporates capacity obligations (at a 1-to-1 exchange rate of capacity erased to ARENH obtained, in kW).

These purchases are finalised in December when prices are generally much higher than the regulated ARENH rate. This results in an additional add-on cost on top of those originally negotiated by consumers. The capacity obligation increases the final price since it is an additional obligation, which wasn't borne in the nominal contract price.

To remedy this situation, the Energy-Climate Act amended existing energy law in November 2019 by allowing the government to authorize an increase in the annual ARENH ceiling to 150 TWh (currently 100 TWh) and a change of the regulated rate (currently 42 euros/MWh). To date, nothing has changed, as the French government chose to embark on a more profound change of the ARENH mechanism.

The change initially considered was a price "corridor" mechanism, with a new volume of 150 TWh transferred to alternative suppliers at the market price, instead of a regulated rate. The system would include an upper and lower limit to alleviate market drift. Due to its complexity, this approach seems to have been left by the wayside.

Presently, the government is considering a mechanism where 100 percent of nuclear production would be sold at a regulated price – referred to as the "Hercule" project. As part of this solution, EDF would be split into two entities - "EDF Bleu" and "EDF Vert."

"EDF Bleu" which would be 100 percent publicly owned, would include the nuclear and transport  (represented by RTE) activities and sell all nuclear production at a regulated rate to suppliers, including its sibling. "EDF Vert" would be primarily a consumer-facing entity, save for distribution network operations (currently shouldered by ENEDIS) and hydropower production (although this sector could itself be siloed in a third entity called "EDF Azur").

What can we gather from this system outline? In effect, the proposed mechanism would regulate generation pricing since nearly 80 percent of France's domestic electricity production is nuclear, and this would be outside the market.

One last note, trade unions are firmly against this proposed mechanism as they see it as a round-about way of dismantling EDF.


Hervé Espitallier