The challenges of sharing the nuclear rent in the French electricity market

The very high proportion of nuclear power in French electricity production (75% in 2000) represented a "barrier to entry" for new entrants in the retail sector and competition has so far been encouraged by the existence of a regulatory mechanism allowing alternative suppliers to obtain electricity volumes at a price close to the actual cost borne by the incumbent operator EDF, lower than the wholesale price. This mechanism reffered to as ARENH in French (standing for "regulated access to historic nuclear energy") has been introduced in 2011 for a transitional period of 15 years ending in 2025. The ARENH mechanism enables suppliers to purchase a volume of 100 TWh of nuclear electricity at cost price (set at 42 prices per MWh since 2012) on the basis of their customers' foreseeable consumption. The system has worked rather well, insofar as it has enabled alternative suppliers to gain market share from the incumbent operator while allowing end-consumers to continue to benefit, at least in part, from relatively lower production costs for existing nuclear power plants (Percebois and Solier, 2023). But the mechanism has remained unchanged since its implementation and several critical flaws that have emerged over time have not been corrected. Many of EDF's competitors and consumer groups want the system to continue beyond 2025, but both EDF and the public authorities do not, and are looking for a solution that will enable French residents to continue to benefit from low-carbon, relatively inexpensive energy without overly penalizing the incumbent's revenues. Several solutions are therefore conceivable, some based on public contracts such as CfDs (Contracts for Differences), while others are based on private contracts such as PPAs (Power Purchase Agreements) and still others envisage the auctioning of nuclear production by the incumbent operator. We discuss in the various reform options being considered to replace the ARENH mechanism based on an empirical analysis of their impact on retail market players.