Effect of nuclear availability (Kp) on potential energy prices in France

In my last article I looked at the effect of the Energy Efficiency Factor on the price of energy produced by French nuclear reactors. In this article I will look at the subject in a little more detail particularly in the context of the latest announcements concerning the redistribution of the value of nuclear production to final customers in France.

What nuclear availability reference is pertinant ?

In France there are two measures of availability concerning nuclear production, known in the jargon as Kd and Kp :

• Kd is a measure of when nuclear plant is available to produce, i.e., not in maintenance, refuelling etc.

• Kp is a measure of the energy really produced by the plant.

The difference between the two is mainly down for the modulation of production (load following), necessary because of the large dependence on nuclear production in the energy mix in France. This is explained well in this interesting article comparing French and American nuclear production.

In the article it was estimated that the modulation of production reduced actual production compared to availability by 10%. If we compare figures for last year we see that the Kd availability was 58,1%.

We can calculate the Kp using the production data from RTE as 51,9%, not too different from this figure of 10%.

What is the new price mechanism in France ?

The ARENH tarif is to be replaced with a new mechanism announced by the French government.

As mentioned in my previous article the CRE analysed nuclear production cost as 60,7 €/MWh for a Kp of 65%. The government has recently announced that EDF will sell energy to clients with a reference to 70 €/MWh but that the “nuclear risk” would be shared with consumers. This is new since the ARENH price structure insulated consumers from risk through a fixed price of 42 €/MWh for 100 TWh/yr of energy.

The real cost for clients however depends on a more complex formula linked to the price at which EDF sells its nuclear energy on the markets. The mechanism leaves EDF free to choose their strategy but let us imagine that EDF sells at wholesale market prices and compare the new consumer price to the ARENH mechanism. The volume of ARENH energy for each client is different and depends on their load profile; let us assume for this case that the client has 60% ARENH. In this case the client will pay more for their energy with the new mechanism for forward prices below 350 €/MWh, see following graph.

How could these prices be influenced by nuclear availability ?

What are the risks associated with running a nuclear plant and how can they be shared with consumers? If we don’t consider the case of a catastrophic failure for which the real risk is already essentially shared with the entire population, the risks can fall into two categories:

• Cost risks: The levelized full cost of nuclear production is relatively stable. The cost of Uranium fuel is relatively stable and accounts for a limited percentage of operating costs, maintenance costs are essentially indexed to labour costs and steel prices, which again evolve quite gradually. The component of the levelized full cost of operation is the capital cost for the construction, which is relatively stable and known in advance of operations.

• Volume risks: This is essentially the value Kp that we have already seen in the article.

Let us try to image how Kp could influence the new prices. For the moment the elements concerning how the risk is shared have not been published or even hinted at. We could imagine that the “reference” price of 70 €/MWh is indexed to the volume of nuclear production. A lower Kp leading to a higher reference price or a higher Kp leading to a lower price. However, for the moment we don't know.

So let us look at how nuclear availability (Kp) might effect wholesale market prices. If Kp is low market prices are very likely to rise, if Kp is high they are likely to fall but the exact relationship is impossible to model. So just for the sake of argument I have assumed a market price of 50 €/MWh for a Kp of 90%, 110 €/MWh for a Kp of 65% and 300 €/MWh for a Kp of 50%. This allows us to estimate the equivalent market price with the new mechanism and compare it to EDFs average remuneration under ARENH.

We can see that with a lower nuclear availability the consumer is likely to pay a higher price but is better potentially better protected than with the ARENH. If we look at the conculsion for EDF for reasonable nuclear availability the new mechanism will probably lead to better remuneration than with ARENH.

This article is only intended as some ideas of tendancies and not as a real predictive model. There are still many unkowns in how the new market mechanism will be applied which can radically change the results for the consumer.