EDF’s Power Production Costs Seen Jumping on Nuclear Safety

May 27, 2014 5:13 am ET

(Updates with profit outlook, shares in ninth paragraph.)

May 27 (Bloomberg) -- Electricite de France SA’s costs to produce atomic power are spiraling upward as investment needed to keep aging reactors safe over the next two decades could reach 90 billion euros ($123 billion), the state auditor said.

“Production costs from the existing fleet are heading higher over the medium-term,” France’s Cour des Comptes said in a report to parliament published today. They already increased 21 percent over the past three years.

The authority called for a “rapid” decision on how long EDF reactors should operate to allow the Paris-based utility to plan future spending, which it said is expected to rise “significantly” through 2017 and cost more than anticipated.

The report marks an era when the state-controlled operator of 58 nuclear reactors has reached a crossroads. The government is preparing to unveil an energy law in the coming weeks that could lower France’s future reliance on atomic power. President Francois Hollande has pledged to reduce nuclear output to 50 percent of the country’s total power by 2025 from around three- quarters, the highest proportion in the world.

Lawmakers asked the auditor to make EDF’s power production costs public so they may be compared with other energies like renewables, which France wants to increase.

The costs to produce electricity rose to 59.8 euros a megawatt-hour in 2013 from 49.6 euros a megawatt hour in 2010, a period when spending on the utility’s 58 atomic generators rose 118 percent, according to the report.

Dismantling Costs

The higher power production costs were driven by increased operating costs at EDF as well as provisions for future dismantling of atomic installations and waste treatment, the auditor said.

EDF’s investment needs are estimated at 62.5 billion euros between 2011 and 2025, with about half of spending between 2014 and 2025 on safety, the report said. Investment over a longer period through 2033 is estimated at 90 billion euros if all 58 of EDF’s reactors are allowed to function for more than 40 years.

The company is expected to earn an adjusted 2.03 euros per share this year, down 2 percent from last year, according to data compiled by Bloomberg from analyst estimates. That’s slightly better than the 2.6 percent median decline in the Euro Stoxx Utilities Index. The shares were little changed at 27.60 euros as of 11:11 a.m. in Paris today.

Spending on measures ordered by France’s atomic regulator following the Fukushima meltdown in Japan three years ago will cost about 11 billion euros between this year and 2025, the auditor said. Efforts to align safety at existing reactors with new generation models will cost another 1.6 billion euros a year over the same period.

Waste Storage

The accounting court highlighted uncertainty about the future costs of dismantling installations and deep geological storage of radioactive waste.

Increases in the costs of dismantling some installations already under way “have created worries” about costs for these types of operations in the future, the report said, citing possible increases in the current estimate of 34.4 billion euros.

Public spending on nuclear energy research and safety rose 14 percent between 2010 and 2013 to 732 million euros and is no longer covered by a budget derived from a tax on atomic installations, the report said.

EDF had estimated it will have to spend 55 billion euros on its 58 reactors through 2025 to renovate, extend the lives and improve their safety.

A report by the same audit court published in 2012 found that EDF’s generation costs would rise to 38.20 euros to 54.20 euros a megawatt-hour in 2025, depending on how they’re calculated, compared with 33.40 euros to 49.50 euros in 2010.