Electricité de France SA's earnings are expected to take a multibillion-euro hit in 2022 as new French government measures to shield consumers from spiraling energy prices are compounded by predicted lower output within the company's nuclear fleet.

The twin challenges, both announced Jan. 13, saw EDF's share price drop sharply to €7.80 as the market opened Jan. 14 — down almost 25% compared to its Jan. 13 closing price of €10.35. By noon in London, the price had recovered slightly to €8.65.

With gas and power prices continuing to surge in recent weeks, the French government said its measures will ensure the competitiveness of supply. State-controlled EDF, the only company owning nuclear plants in France, always has to sell a share of its output to competitors at a fixed rate. This volume has now been increased by 20 TWh, sold at €46.2/MWh, for this year.

"Suppliers will pass on this advantage to customers," the French environment ministry said, adding that the government will monitor market activity to ensure this happens.

In addition, France will reduce taxes on electricity from Feb. 1, at a cost to the state of €8 billion. "Combined with the increased [nuclear sales] ceiling, this will provide substantial support to the buying power of all consumers," the ministry said.

Financial hit

While the precise financial consequences of the government's measures are yet to be determined, EDF said it expects its 2022 EBITDA to be impacted by between €7.7 billion and €8.4 billion, depending on market prices.

The impact will be worsened by a revision of the company's nuclear power output this year. Five French reactors — Civaux 1 & 2, Chooz 1 & 2 and one reactor at Penly — continue to be offline after routine inspections found defects on their safety injection system circuits. EDF now expects nuclear output of 300-330 TWh in 2022, down from its previous estimate of 330-360 TWh.

The company did not quantify the financial impact of the lower nuclear output, but analysts at Jefferies estimated it at €5 billion to €6 billion based on prices in the first quarter of 2022.

Combined with the hit from the government's intervention, the actual impact on 2022 EBITDA would be "in the region of [€5 billion to €10 billion] depending on actual prices and any potential energy tax changes," the analysts said in a Jan. 14 note to clients.

The S&P Capital IQ consensus estimate for EDF's 2022 EBITDA is €19.3 billion. For 2021, the company was targeting EBITDA of more than €17.7 billion.

As a remedy, EDF said it "will consider appropriate measures to strengthen its balance sheet structure and any measure to protect its interests."

"[Investors] are interpreting that as the company might have to do a capital increase," said Andrew Moulder, senior European utility analyst at CreditSights. "That's clearly not positive."

Meanwhile, the nuclear announcement is "quite concerning," Moulder said in an interview, given that Chooz 1 and Penly have both undergone 10-year in-service inspections since 2019.

"What if rather than the five [plant outages] right now, there will be another five or another 10 that need similar remedial work? Does that mean we're seeing another low output year in 2023?" Moulder asked.

A political issue

In December 2021, as the energy crisis began to hit consumers in France, the government introduced €100 "energy checks" for 5.8 million vulnerable households, as well as putting in place a price limit for gas. Gas prices are frozen at their October 2021 levels until the end of winter. Additional costs incurred by suppliers to deliver this freeze despite surging commodity prices are covered by the state.

There is also an inflation allowance of €100 for 38 million French people whose net monthly income is less than €2,000, which will be paid monthly until February.

French President Emmanuel Macron will be acutely aware of people's spiraling bills given the country's general election in April. There is history of public discontent over energy prices in France, with the populist "yellow vests" protests from 2018 still etched into the collective memory.

Sparked initially by rising fuel prices, the so-called "gilets jaunes" protests broadened into other issues and often blasted Macron.

Election polling currently points to right-wing conservative candidates putting pressure on the president.