While most of Europe anticipates a challenging winter due to diminishing Russian gas supplies, nuclear giant France is bracing for problems that are mostly homemade.

France, historically Europe's largest exporter of electricity, has an aging nuclear fleet that is severely underproducing, turning the country into a net importer for most of 2022 and raising the prospect of power shortages as the weather turns colder.

A combination of planned maintenance and unexpected technical problems has shut more than half of state-controlled Electricité de France SA's 56 nuclear reactors, which typically account for about 70% of France's power mix.

Europe's gas crisis, combined with the nuclear outages and unprecedentedly low hydropower production, mean French wholesale electricity prices are forecast to surpass €1,000/MWh toward the end of this year and into next. Government measures have so far shielded consumers from surging energy bills — but at a massive cost to the public purse.

This confluence of factors places France in a precarious situation as winter approaches, with controlled blackouts a real possibility. But market observers say that, rather than being down to misfortune, warning signs have been there for a long time.

"We've known for decades that France consumes a lot of electricity in the winter," said Thomas Pellerin-Carlin, director of the Paris-based Jacques Delors Energy Centre, pointing out that the country favors electricity over gas for heating.

The looming winter threat is "not only predictable but predicted," Pellerin-Carlin said in an interview. "Currently we're fine, but we know that the winter is going to be very hard."

Unexpected nuclear outages

France is not alone among European nations in bracing for a tough winter.

Germany, for instance, is being hit hard by the impact of reduced gas supplies from Russia, while energy bills in the U.K. are rising to record highs. Even though France is much less reliant on Russian imports, it is having to burn more gas for power to compensate for its low levels of nuclear and hydro.

Such a strategy is "usually quite costly but even more so now," said Murielle Gagnebin, senior associate at Agora Energiewende, a think tank. "We can say that France wasn't prepared for this critical level of situation."

While France may not have been prepared, it has been warned repeatedly. Predictions of a tight winter this year have been spelled out multiple times since at least 2017 by Réseau de Transport d'Électricité, or RTE, the state-controlled operator of France's electric transmission grid.

In a 2019 report, RTE predicted a power capacity deficit for the 2022/2023 winter, given the timeline of EDF's nuclear maintenance program and expected closure of nuclear and coal generation across Europe. It repeated the warnings in a 2021 report, prior to the gas supply crisis and before Russia's war in Ukraine.

"We knew already ... that there will be less nuclear production," Pellerin-Carlin said. "What we did not know was the problem would be worsened by the corrosion issues."

Twelve of EDF's reactors have been taken offline for investigations into possible stress corrosion. Initial analysis suggests the problem may be most acute at just 16 reactors in total, an EDF spokesperson said Aug. 23, but the utility intends to inspect its entire fleet.

It is normal for EDF to undertake planned maintenance in the summer in preparation for the winter, with several reactors due to return into service in the coming months. The spokesperson said the current maintenance program was already "the largest since [the fleet's] construction" even before work was delayed by COVID-19 and the corrosion issues were identified. Nuclear generation in France was 22.8 GW on Aug. 23 compared to total fleet capacity of about 61 GW, according to analysis by S&P Global Commodity Insights.

The outages are expected to result in a €24 billion hit to EDF's earnings in 2022, with the government planning to nationalize the utility to shore up its balance sheet.

While the nukes have been offline, France has had to rely on its neighbors for electricity. In July, it was a net importer to the tune of 4,114 MW on average per hour, according to research firm EnAppSys Ltd. That compares to net exports of 9,706 MW per hour in the same month last year. Going into the winter, France's continued reliance on imports is not a certainty.

"The neighbors, they are as much in trouble as France because of the gas issue," said Clement Bouilloux, country manager for France at EnAppSys. "That's why it's extremely tricky for this winter."

Demand reduction to come

With a possible crunch point ahead, market observers point to missed opportunities to renovate France's old and energy-inefficient building stock and implement demand reduction measures.

In 2008, the government outlined a strategy to reduce energy consumption in existing buildings by 38% by 2020 while undertaking major energy efficiency renovations on 400,000 buildings every year. Doing so would have saved 200 TWh over a decade.

"There were active decisions to not renovate those buildings," Pellerin-Carlin said. Existing French laws that recommend not cooling buildings below 26 degrees C and call for offices and shops to turn all lights off one hour after closing are not being widely enforced, the researcher said.

In today's energy crisis, the incumbent French government has moved to subsidize rising energy prices through its so-called tariff shield policy, which has resulted in far lower retail electricity and gas prices than its neighbors, even if wholesale prices are among the highest. The cost of doing so is about €15 billion to the government by the end of 2022, according to research firm Capital Economics, on top of the estimated €10 billion financial hit to EDF.

"This money should be put into structurally changing consumption," Gagnebin said in an interview, calling for a "huge communication campaign for population and businesses, without being scary."

The tariff shield will expire at the end of 2022 but will be phased out rather than ended abruptly, spokesperson Olivier Véran said in an Aug. 24 press conference. The government will present legislation in September to speed up energy infrastructure projects and outline a short-term plan to secure energy supplies for the winter.

Pellerin-Carlin said inspiration for demand reduction measures can be taken from other countries. When Japan was faced with power outages after the Fukushima nuclear disaster in 2011, the government launched a massive campaign to save electricity. Measures included banning advertising billboards, switching off escalators, using less air-conditioning and running trains slower, which decreased peak demand by 20%.

"If [France does] something of that magnitude, then we're good," Pellerin-Carlin said. "It's not yet on the agenda, but it's becoming increasingly likely that France will do something."

Even with demand reduction, the risk of controlled blackouts still looms large. Bouilloux said power outages are a question of "when and where," adding that industrial consumers would be the first to be cut off. The scenarios also look very different in a mild winter and a cold winter.

"That's where we're going to have more problems," Gagnebin said about the prospect of a cold snap. "The poorer you are, the less insulated your home is, so the more energy you need."

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