French energy minister Eric Besson recently unveiled that new regulations will see electricity giant EDF sell up to a quarter its nuclear output to competing retailers for 40 euros a megawatt-hour, rising to 42 euros in Janaury 2012.

The energy law known as the "Loi Nome" was introduced at the end of last year after pressure from the European Commission to make the French energy market more competitive. Up till now, EDF has held a near-monopoly on the market because it controls France's nuclear fleet.

"For the consumer it was actually a very good situation because, thanks to the investment in the nuclear energy, France enjoys very low electricity prices based on real lower costs," said Didier Houssin, the director of energy markets and security at the International Energy Agency (IEA).

"The problem is that there is a big gap between the cost of producing electricity in Europe and in France so why should the French consumer be deprived of the advantage of having the nuclear fleets next door?"

Competitive charge

EDF's operations are relatively economical because the cost of nuclear power tends to fall quickly once the initial investment in the reactor has been paid off, as it has been in France. As a result, consumer electricity prices in France are amongst the lowest in Europe, and France is one of the largest electricity exporting countries in the world.

France's second largest power company, GDF Suez, had been pushing for 35 euros per megawatt hour, but the 40-euro rate is in line with the IEA's recommendations and reflects EDF's costs in maintaining its fleet of 58 nuclear power stations, according to Houssin.

Loïc Capéran, the chief executive of Poweo, another rival energy retailer, says the price will allow his company to develop a sound business in France. Until now, Poweo was paying EDF several euros more per megawatt-hour and was losing 40 million euros a year.

"We had massive losses on sales of electricity to residential and professional customers," says Capéran. "Now at least it will be balanced. We will stop the losses. We will be able to develop a sound business on this section of the market knowing that the other segments are profitable enough to balance the whole activity."

With the new law, Poweo hopes to gain 2.5 million new customers (bringing its market share to 5 percent), and recover its initial 1.2 billion euro investment over the next five years. But Capéran cautions that it will not make economic sense for new players to enter the French market, without having already made significant investments.

EDF Edge

France has long been criticized for keeping its electricity market closed off to competition.

"What the government wanted to avoid is that the prices are fixed at European level," says Houssin. "That would be a much higher level than the real costs of EDF which would mean a lot of the nuclear rent would go to the producer and not to the consumer."

Competition will be centered on services rather than on price, according to Capéran. In fact, regulated prices are set to rise over the next few years. Energy prices are set out by adding the supply price to a complement that takes into account operating and distribution costs. The base cost per megawatt-hour at the moment is 35 euros.

"By selling at 40 to new entrants EDF is doing a good job for its profitability. It's better for them to sell a block of electricity to new entrants instead of retailing to single customers. The first benefit of the Loi Nome is EDF."

Author: Molly Guiness, Paris
Editor: Sam Edmonds