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France pushed its largest electricity producer into the path of the collision, and high energy prices are bearing down on Europe's economy like a freight train.
The government will force Electricite de France SA to sell more power at a steep discount, costing the utility almost $9 billion. The move will protect households and small businesses from rising energy prices, boosting both the economy and the political fortunes of President Emmanuel Macron at the risk of breaking the backbone of the country's energy policy.
It is not surprising that France should lean on EDF in a time of dire need - the company has been the nation's key power supplier for decades. Its fleet of reactors has delivered enough cheap and clean electricity to meet domestic needs, while also exporting to neighboring countries.
The French government decided to protect consumers, and that will be done at the expense of EDF, said Xavier Regnard, analyst at Bryan, Garnier Co.
The extra burden is being imposed when the EDF has never been weaker. One of the reasons power prices have gone up in the past few months is because of the costly maintenance problems it has kept its plants offline. It must partly bankroll the expensive new reactors and renewables that will help France maintain a reliable and low-carbon energy supply in the decades to come.
Analysts said that the company is barely strong enough to take the financial blow from the new government mandate. Minority investors rushed to the exits, sending shares down as much as 25% on Friday.
Before Thursday s announcement by Finance Minister Bruno Le Maire in an interview with Le Parisien newspaper, the government had been looking for ways to boost EDF finances. It had been trying to convince the European Union competition authorities to allow an increase in the prices at which the utility sold wholesale power to its rivals.
The additional funds would have helped the company make investments in nuclear, wind and solar, which are essential if France is to meet its commitments under the Paris climate agreement. The utility has an estimated 7.7 billion-euro $8.8 billion hole in its earnings.
Meike Becker, an analyst at Sanford C. Bernstein Co., wrote in a note that political intervention is certainly opposite to the government's medium-term goals of guiding the company to calmer waters with a balance sheet for green investments and creating a positive story about nuclear ahead of decisions to build new reactors.
EDF said Thursday it can't tell how bad the financial hit will be at this stage. Because of the fact that the company sells most of its electricity in advance, it will have to buy back power on the market in the coming months at a higher price. The shortfall will be exacerbated by the fact that several of its nuclear power plants will be offline longer than usual for repairs.
On Thursday, the company said it will consider appropriate measures to strengthen its balance sheet structure and protect its interests. In 2017 the EDF sold 4 billion euros of new shares to shore up its finances when power prices collapsed. Most of the money came from the French state, which currently owns 84% of the utility's shares, but minority investors also contributed.
The utility is likely to need to raise extra capital again, JPMorgan Chase Co. analyst Vincent Ayral wrote in a note. He said that investors should not be interested in the stock for the time being.
With Macron facing voters in April, gas and power prices are expected to remain high for a long time, and there is little respite for the French utility.
For EDF minority shareholders, there is a political risk to be squeezed, even more when elections approach, said Regnard.
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