Flexing French nuclear

What a difference a couple of years makes. As France returns to a position of net power exporter, it appears to have moved on from the supply woes of 2022. But booming solar generation, a plethora of negative prices in France and its neighbours have weighed on wholesale electricity prices and raised doubts about the financing of new nuclear plants and renewables. Listen to a discussion on the flexible operation of nuclear plants in combination with solar and wind generation. Could France be heading for a glut of power production?

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guests:

Yves Le Thieis, Vice President, Compass Lexecon
Paolo Coghe, CEO, Acousmatics

Transcript

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

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. In today's pod, we return to France and as plans for renewables deployment and objectives for new nuclear. The key question is, can it afford to do both in the long term after being a net importer of power, the country's returned to position of Central West Europe's electricity exporting powerhouse, but as France's neighbors rollout renewable expansion, particularly solar, which sends prices tumbling, is the country and the region heading for an oversupply of power? And what does this mean for Francis renewables and nuclear ambitions? Helping me, Richard Sverrisson. To discuss these issues and much more Yves Le Thieis of Compass Lexecon and Paolo Coghe of Acousmatics. A warm welcome to you both.

Yves Le Thieis, Vice President, Compass Lexecon: 0:59

Thanks.

Paolo Coghe, CEO, Acousmatics: 0:59

Thank you. Good morning.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:00

What I'd like to start with if I can turn to you first Yves maybe talking about France's Renewables plans. It's clear, it's a bit of a laggard in the European context. Maybe it's not, it's, it didn't meet its 2020 targets. But it's about. To publish it its plans for 2030. So what, what's happening what's going on in France in terms of the targets for the short term?

Yves Le Thieis, Vice President, Compass Lexecon: 1:22

That's a really good question. I think France is trying to play a the long time or the long term decarbonization target in addition to just the 2030 target. And so as we've seen in the NECP published, the draft NECP published by the end of 2023, they try to, to develop a new decarbonized target type of objective, which is well outside of the red three detailed objective that would need to be compel complied with by the end of 2024.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:50

By red three you mean the renewables energy directive coming from the EU? Just for those listeners who may not be aware of that abbreviation.

Yves Le Thieis, Vice President, Compass Lexecon: 1:56

Yep. So basically, yeah, France is trying to play on I would say two, two different levels. One is they would have to comply with the 2030 targets. And similarly to other countries find a way of increasing and accelerating renewable development for 2030. And at the same time, they are already preparing the debate around the 2040 objective. And trying to effectively develop some new type of targets and. Including nuclear as a way of de decolonizing the electricity market. And we can already see that there are effectively changes at the European level with regard to nuclear. If we look in details, I dunno if you've seen the 2040 impact assessment, but there is a callout box in the 2040 impact assessment on the rule of Nicola and say, saying that. If the commission had taken into account the latest announcement, then the scenarios would've been different and the impact assessment would've been different. So obviously that's opening alternative for 2040.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:57

In terms of nuclear that is, yeah. In terms, yeah, exactly. And the key here was maybe including nuclear as a green production fuel Paolo?

Paolo Coghe, CEO, Acousmatics: 3:06

Yes, indeed. And that, any type of regulatory intervention that helps is much. Wanted and also needed. So that's what I was hinting at earlier in in my presentation, is the fact that there isn't just an economic solution here. The need will also be for a political solution at all levels.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:24

Yeah, absolutely. I think just for those listeners to be aware we're speaking in the break of our French Energy Day and I've taken you guys aside to, to go and delve into more detail. But if you return to the renewables targets here in France Yves what are you expectations about the plans that are gonna be published in next month? I presume.

Yves Le Thieis, Vice President, Compass Lexecon: 3:45

Well, European Commission deadline is June, 2024. Uhhuh. But we know that. Historically. And the latest example was 2023. France has always been late on publishing and releasing their n ecp, so I would not bet before the end of 2024,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:59

So the N-E-C-P, sorry to interject again, but that's the National Energy and Climate Plan

Yves Le Thieis, Vice President, Compass Lexecon: 4:03

Yes.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:03

Isn't it? Yeah. That every European member state is obliged to, to publish and sent to the to

Yves Le Thieis, Vice President, Compass Lexecon: 4:08

the commission for, and then needs to be effectively translated into national objectives and national laws. Which would then be called the PP.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:16

Yep.

Yves Le Thieis, Vice President, Compass Lexecon: 4:17

And so what we can see from the draft and ECP of 2023 that provided some qu quantifying numbers for the different technologies is effectively echoing the general. Atmosphere on onshore wind development. So it's basically maintaining a rate of development so around 1.2, 1.5 gigawatt on annual basis and not going really beyond. So it's going a bit backwards compared to the previous ppp. Which is obviously not what's pushed forward at the European level but we see a significant acceleration effect on solar PV and offshore wind. So obviously as it was mentioned during the different presentations, solar R PV seems to be effectively much faster to develop and the technology to effectively bridge the gap between the time of development of offshore wind and the current need the need for renewable energy in the next next few years.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:05

But so a slowing and effectively a slowing down of onshore wind capacity growth. But an acceleration of solar offshore,

Yves Le Thieis, Vice President, Compass Lexecon: 5:12

I would say not an acceleration Onshore wind.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:14

Okay. Yeah. Okay. Just to make that clear for sure. Yeah. That, that's, and because we see in France's neighbors Netherlands in particular Germany, the, which we'll turn to later what the consequences of this is, but there's a huge growth in this type of acceleration.

Yves Le Thieis, Vice President, Compass Lexecon: 5:29

Yeah. Exactly and interesting what we see for IPPs in France that were historically or initially mainly specialized in onshore wind development. For instance, where we can see now in their pipeline development is that they are all considering affiliate going onto the solar solar sector development and onto batteries as well. So they're really trying to expand across different sectors because obviously onshore wind is market is going to. Stay, but not really grow as expected before.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:57

And how is this being financed or what's the plan in terms of how to finance that type of expansion?

Yves Le Thieis, Vice President, Compass Lexecon: 6:05

For IPP or for,

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:06

no, not the inter independent power producers, but more in terms of, boosting that growth in terms of providing the incentives.

Yves Le Thieis, Vice President, Compass Lexecon: 6:12

So I, I think it's going in, that's the ex expectation that we can see from from solar market participants is really increasing the capacity standard. And so the expectation is effectively from the current level of of capacity being auctioned in the different tenders is going to up to four to six gigawatt on an annual basis which would be necessary to meet the the increased ambition for long capacity. And so same for offshore wind. Everyone expect the macro auction to be held at some point in 2025 or 2026, I would say before. The next president will show the election. Now whether it's 20 25, 20 26, it's yet to be seen.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:49

Absolutely. And that the offshore wind is mainly on the Atlantic coast, or is it also some in the Mediterranean?

Yves Le Thieis, Vice President, Compass Lexecon: 6:56

I would say that some capacities would would be seen, would be developed as well in, in the south, obviously, and especially for floating, because that's well. Normally Csar camera in the Mediterranean and then the Atlantic. Even though storms could be quite quite strong as well. But

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:12

and in, in terms of setting the scene, I'd also like to turn to you, Paolo, and to talk about a nuclear power. And the French nuclear fleet. It's had some problems in recent years, but this year it seems to be ample supply and it seems to be, the availability is certainly far higher than it has been in previous years. What's going on here?

Paolo Coghe, CEO, Acousmatics: 7:31

Yes, you're right Richard. There is plenty of availability now partially because the levels in 2022 were so low than 2023 and now 2024 could only be better. But it's part of this process that we've seen starting around 2014 where a lot of stations are taken down for. Ordinary and extraordinary maintenance. There are the inspections and so on and so forth. So a lot of the power stations are down, but they're not down forever. And you don't always find problems even though EDF in the recent years has that, their fair share of sort of maintenance related problems. Let's think about the corrosion issues, but also welding issues, but also forger issues as they, they've had an interesting ride. The fact remains that even though we have plenty of availability now, there has been a structural decrease over the last 10, 15 years. And so even if we do much better than in the recent past, we're still dealing with a system that is essentially not functioning at 100% and it hasn't been doing so for the last 10, 15 years. Then the rest is, do we have. Enough power. Yes. Do we have plenty of power? Yes. Do we have so much power? That's that then, prices are suffering. That seems to be the case in particular at times where other technologies, namely solar PV are peaking, right? That they're both in terms of how much technology is installed and also how much of the electricity comes in crucially in peak hours.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:08

But the days of EDF or the Francis nuclear fleet generating between 350 to 400 terawatt hours per year, those days are gone. Do you think?

Paolo Coghe, CEO, Acousmatics: 9:19

Well, in the present we can say they're gone. Are they gone forever? You look at one of the 10 year planning exercises that RTE did. And they said that essentially they expect fairly soon to for this quantity to be around 360. But that it, they see as a high scenario 400 okay, so again. A high scenario at 400 is a far cry from what was the norm, around say, 2005 or of above 400.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:51

Absolutely. What's your view here, you Yves, in terms of nuclear availability and how it's impacting renewables?

Yves Le Thieis, Vice President, Compass Lexecon: 9:57

Our views if it just in line with what Paolo was saying so there is a new, lower targeted level of of nuclear generation for the foreseeable future. At around 360 tower towers. A reduction compared to the historical level. And interestingly, what we can see in our models is that with the plan increase of renewable capacity in France and neighboring countries, nuclear would have to flex down from time to time. So obviously. Flexibility is not free for nuclear. And so we come at a cost, whether it's a cost of additional and availability or whether it's a cost of managing the energy as a storage for in, for instance. But we see that given the situation that we currently have, for instance, with success of solar at peak hours during the day. That would basically further increase in the coming years. And new cloud would have to reduce a generation and some capacities have, would have to reduce their generation level because the volume that can be stored in the short term is limited. So we see a nuclear generation, which would be slightly lower than that. With periods in which, if effectively nuclear a generation could reuse equate significantly. And come back for the evening peak, for instance, or the, or come back up for the morning peak as well.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:13

Because flexibility, normally when I associate flexibility I thinking, batteries or storage in a sense or aggregators, both on demand and on the production side. But with nuclear what does that mean? Flexibility And how flexible are these big centralized reactors?

Yves Le Thieis, Vice President, Compass Lexecon: 11:28

I would, go into more details, but what's fascinating with nuclear generation in French is that well, nuclear provide both the seasonal storage in France. And so you see that with the placement of the maintenance mainly in summer or in spring and a bit of in autumn as well so you've got a significant swing of. Available capacity and generation between summer and winter. And then when you look at the hourly generation level, you see that nuclear can effectively flex quite substantially. And without going into too much details, but I think what's considered as flexible potential is nearly 80% of the install capacity for one unit. Which is for more than one gigawatt unit, more than 800 megawatt. So not achieved by any other technologies.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 12:11

Paolo yeah. What would you like to add to that?

Paolo Coghe, CEO, Acousmatics: 12:12

I agree fully. The key here is that, as in, in principle though, a nuclear station was not built or conceived to provide flexibility, but it can do it, it has done it, it has done it with some profit as well. And when it does it on a scale that's not matched by other types of generation. But, nuclear was not conceived to provide flexibility. So there's also another important element that Eve mentioned, which is not only at the level of the single reactor, but you also have a decision as the operator, owner and operator, when to refuel, when more or less, you've got fewer constraints when to refuel, went to conduct maintenance, went to turn the station down. When to turn it back on and so on and so forth. Doing these over many units installed allows you also to buy a little bit of that possibility buy in, the option for yourself to have the possibility to flex.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:07

I'm also interested gentlemen and, addressing the issue of potential oversupply. I know it seems like a million miles where we were maybe 20. I dunno, 2016 to 2018 when the first issues with the steam generators, et cetera, came out and nuclear generation fell. But now with ample supply, with the inflow of solar of, and which the consequences there often negative prices. I think France had the third highest instance of negative prices in Europe so far in 2024. Is the prospect here of oversupply in terms of too much power coming into the system? And how does that affect nuclear generation Yves?

Yves Le Thieis, Vice President, Compass Lexecon: 13:47

Yeah. If we can just come back on the oversupply situation, if you remember back in 20 14 15, it was not the issue was non-negative pressure, but the issue was most bullying cts. Because you have, you had an excess of capacities and so effectively. Some sort of additional market mechanism were to be put in place, capacity market, strategic reserve, X, y, z to ensure that these capacities would remain in the market, even if not used. Now we are in the system in which you have much more, not con, non-controllable capacities that would basically feed into your electric system and effectively at time of excess of generation, you need to decide on which one to cartel. For now, the regulation is not so much designed to curtail renewable, and that's mainly because they don't have any incentives to reduce generation when there is an excess. But that can be easily controlled or easily changed with just a change of regulation. So we've seen that in new CFDs. There will be conditions on negative prices. Obviously. Takes time to to put in place, and it's only for new project. But we can see that they could change if either the regulation for the feed in tar, for instance, or for the existing fleet as well, to have an incentive to disconnect. Do not get their suspension, for instance, if the price gets negative. So that. The technologies which are dispatched on a short brand marginal cost basis, all know that if they would turn down for just a couple of hours, for instance, with the ex incur additional cost could bid in their correct opportunity cost not to close.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 15:19

I think that's an important point, isn't it? Because what we're seeing now won't necessarily be the case in two, three years time when regulating and you get these clauses in the contracts for different contracts for example, that will limit the amount of curtailment for, or will add to the curtailment, natural curtailment of renewable plants. Anything to add here? Paolo are we,

Paolo Coghe, CEO, Acousmatics: 15:37

no, but just to add, to use the cliche sentence, which I must at all times, of course, use at least one is the devil is in the details. Yeah. And so to go back again to what E was saying, yes there are, and there will be periods of oversupply and undersupply, but that's what we essentially need in markets. And when prices, when supply is too low with respect to demand, prices tend to tend to rise, which incentivizes new generation and so on and so forth, is the usual behavior, except that nobody really knows how. Compressed. The up and down cycles are, and nobody knows how regulation interacts and impacts these these cycles.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:14

And often the regulation would be reactive. It's sort of correct path after the case, so that's,

Paolo Coghe, CEO, Acousmatics: 16:20

yeah. Yeah. And you don't, again, you don't see it. At work immediately. So it not only it moves slower, but then it takes a little while to un to essentially come into place. And once regulation is there also, companies are very good at finding ways to be mindful of the regulation, but maybe, push, pushing the envelope a little bit somewhere else.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:43

Absolutely finding little loopholes or whatever, finding loopholes. Yeah.

Yves Le Thieis, Vice President, Compass Lexecon: 16:47

It interestingly, sorry. Interestingly, the negative price issue was already on the table back in 2020 before the COVID. And obviously already quite on the table with the COVID impact on electricity system. But four years after, nothing has really changed in terms of price dynamic. Yeah . So it takes time.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:03

Absolutely. And I think the negative price issue is very interesting because, if the general public knew that they would be paid to, to use their electricity, then I think demand would go up quite substantially as it did in, on an occasion in, in, in Finland when there was fat finger mistake there. But. So we are seeing this onset this massive growth in solar wind is coming as well. What does that mean in terms of the economics of. Certainly new nuclear, but also new renewables. If investors are saying, oh, wholesale prices could remain low. What, what does that mean here? Yves?

Yves Le Thieis, Vice President, Compass Lexecon: 17:37

In, in our modeling we see that, yeah. Development of market renewable capacities would remain or would be quite limited to specific countries or specific beating zones. Because. Given the scale that is at stake and considered to be developed in say, continental Europe. For instance, when you put 600 gigawatt of solar capacity, while the summer peak of demand is non, not even 400 gigawatt, you basically build another supply of 200 gigawatt just because of the objective. And so meaning that the marginal value of solar generation for the electricity system would be really low. Or negligible in any case. And so we highly prevent American development of renewable or solar capacities. And so what we see is mainly being developed through yeah. Tenders, CFDs or long-term PPAs as well for industrials, which are interested to have a specific adult contracts. But we don't see market development being really. The main route to market for renewable capacities. And so the same for nuclear. Obviously nuclear has different issues at stake, but similarly seeing American development of nuclear capacity would be quite challenging.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:51

Yeah, yeah, absolutely. What's your view here, Paolo? I think, we have seen France as clear ambitions to build new generation nuclear power stations. But at the same time it wants to roll out renewables as and as often as being forced to do so from Brussels. Can it do both?

Paolo Coghe, CEO, Acousmatics: 19:12

That is the $1 million question. Actually, 1 million is probably too little. The answer is of course, I don't know. But I am a bit concerned that they will have enough resources, both in terms of capital resources, but also in terms of brain pool resources. To be able to pull off these task, which is quite hard, right? The one of building a new, essentially a new brand new generation of nuclear units and also dedicate time and resources and money to developing renewables. At the same time, they don't have a choice, right? If we, if played by the rules, they don't have a choice. So they will find a way to do to, to at least go some of the way towards the goal.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:00

And we're talking eye watering amounts of money here.

Paolo Coghe, CEO, Acousmatics: 20:03

Yes, indeed. Yes indeed.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:05

And the, the finances are maybe a bit rocky as well.

Paolo Coghe, CEO, Acousmatics: 20:07

Yeah. As when we also say about financing the new nuclear deal, it's clear that the, the amounts of money are extremely large, but also such, so is the complexity of the whole undertaking. This is, we like to think that UAF is gonna put. Some nuclear stations, which is true on the ground, but at the same time, they need to rely on. Tens, dozens, if not hundreds of other companies. All part of the nuclear affiliate, air affiliate nuclear solve the sector that themselves need to be to finance their hiring. If they've got to increase hiring to meet the goals of EDF in the construction of a site they will need to hire, they need to have the cash to hire and so on and so forth. So there's a knock on effect. Which, public money. Helps. With this. Okay, so again we're gonna have to look at this famous role of the of the regulator of, or of institutions in helping reach some of these targets.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:09

Absolutely. What's your view? Can France do both?

Yves Le Thieis, Vice President, Compass Lexecon: 21:11

Interestingly if you look at the full system in energy cost in different scenarios. And that's the exercise that RD has done back in when they published their long-term 2050 scenarios. And that's exercise that we can do as well. That a scenario with nuclear capacity would show a slightly lower cost than the scenario hundred percent renewable. So in any case, that's a kind of I would say a cost saving for the society to have a combination of nuclear and renewable energies. And in all decarbonization scenarios you would have a significant investment required to decarbonize not only electricity, but the fuel energy sectors. And so if you need the challenge. For decarbonization, is that you will have to switch from I would say annual OPEX based type of model. So which is mainly you've got large annual expenditures of fuel costs mainly at the moment. And so it's quite easy to finance because you don't have to finance that 10 years in advance. So switching to a, in any scenario of complying with decarbonization to a CapEx intensive. Type of energy mix. And so effectively the question of how you finance and make sure that you reduce as much as possible the financing cost of the transition would, basically a question to address in any of the scenarios. And interestingly. With assumptions that we can take now on the cost evolution of the different technologies. A scenario with some nuclear generation would lead to lower system cost. So would lead to lower financing issues.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:41

No, fascinating. I, if I can get the crystal ball out a bit now Paolo, I know you've mentioned, I think you, you both stated that any new build is gonna take at least 15 years based on past practice. It was a number that has been banded about anyway, but. In that time when you have this period of massive renewables, rollouts negative prices, surely, you know, and I think you made this, you've made this point, Paolo, that there are, there could be alternatives. We don't know that, that they are there, but they're black swan moments where, for example, for storage, for batteries, some kind of flexibility, some people using. The opportunity provided by these negative prices or that very low price scenario to develop something else? What's your view here? I know it's a tricky question to have, ask you to look into the future there, Paolo. Yeah. Something you're very good at.

Paolo Coghe, CEO, Acousmatics: 23:31

But I know, but Yves is the one with the crystal ball. But still, nevertheless yeah, it, it is possible like in all things. I think that , people in business do things for business reasons, right? And so there will be developer trying to make their case to put even more solar, even more wind, just like people in the nuclear industry believe in the Renaissance, right? And the key here is to find the balance. And there is, there's plenty of. Good economic consultancies with their own crystal balls that are helping in this because they, the value of a scenario is not just giving you the results of the scenario, but is in providing you with a framework to think about these issues and to see what, what potential path is. What a potential evolution is. I personally, without the crystal ball here, cannot see an evolution where any of these. Technologies is preponderant with respect to the others. So keeping in mind that nuclear is in the DNA of the energy industry in France I don't think we will go to an, push all for nuclear. I think there will be some balancing that will occur, but then don't ask me how or when, because it might take a strong effort, as I mentioned before, by institutions national and sovereign national to balance it all.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:50

But I mean, the. I do not know what your view is here Yves, but there are a lot, there's a lot of smart money out there looking at the possibilities and opportunities that, that the company companies such as yourselves are highlighting for these people, for these types of investors.

Yves Le Thieis, Vice President, Compass Lexecon: 25:03

So yeah, if we, if you look at the current trend in the market, so there is a lot of hype around battery development at the moment. But the market is not yet there. For battery to be large scale batteries to be economic just based on arbitrage, because obviously we talk a lot with about the fact that you will have a lot of low prices and effectively opportunities to charge your battery. But then you need to have opportunities to, to discharge. And correctly value the money at which you would discharge them. So obviously if the gas price decreases as well, then that value decreases at the same time. So what's really of interest and what's really key for for flexibility and storage providers is really the difference between the low and max. So in the crisis situation where prices were hitting like a third thousand euros or something. Opportunities were effectively there. Now in a world we in which gas prices and CO2 prices do not increase as much as what one, what would've expected then the spread and the difference between medium max reduces as well. And so the case for large scale storage is not yet fully economic and still requires a lot of additional remuneration through ancillary services or through capacity markets. And requires a, as well, quite a bit of cost reduction that we can start seeing. But the equation is not yet fully fully squared at the moment.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 26:21

I think that could be the subject for another podcast, gentlemen. But Yves and Paolo, thank you very much for being guests on the Montel Weekly podcast this week.