France awaits nuclear stance while Scottish energy vexes the UKs MPs

Will new French president Franàƒ§ois Hollande carry out his pre-election pledge to cut nuclear reactors?
And will Scotland take all the energy spoils if it becomes independent from the UK?

ࢀ¢à¢€¢à¢€¢ BY KELVIN ROSS ࢀ¢à¢€¢à¢€¢

Will the election of Franàƒ§ois Hollande as Frances president mark the beginning of a major step-change in the French domestic power market ” and particularly the nuclear sector?

Hollande, Frances first Socialist president since Franàƒ§ois Mitterrand left office in 1995, has long talked about cutting the number of French nuclear reactors, while his predecessor, Nicolas Sarkozy, had pledged to extend the life span of the countrys fleet.

As the weekends election result became clear, the share price of French energy giant EDF dropped amid fears of tightly regulated power rates and government demands for greater investment from power firms.

Hollande has pledged to shut EDFs oldest reactor at Fessenheim during his five-year term. He has also vowed to implement “progressive rates” for power, water and natural gas that would make them more affordable for low-income households. He also wants to freeze gasoline and diesel prices for three months to give his new government time to revise the fuel tax system, a move that will impact global players GDF Suez and Total.

There is little doubt that a shift away from nuclear such as that seen in Germany will appeal to Hollandes Socialist roots, but in reality this is unlikely.

Firstly, France simply does not have the same renewable energy resources as Germany, and secondly, it is unclear whether the public appetite is there for such a move. While several polls say the French are opposed to nuclear power, almost all add the caveat that people are also comfortable in the risk-management procedures of EDF, and therefore are content with a ‘better-the-devil-you-know situation.

And with EDF such a force of French power in global industry ” its the second-biggest owner of infrastructure in the world after the US government ” and French engineering companies at the cutting edge of nuclear design, this is a sector that any new president needs to keep on side.

Meanwhile, across the English Channel, the subject of Scotlands possible independence from England is vexing minds in the UK parliament. If Scotland wins independence, it will have a profound effect on the UKs energy market, European countries that trade power with Britain and international energy companies that locate within its shores.

Much of the UKs offshore oil and gas reserves lie in the North Sea in what would become Scottish waters, more than half of the UKs operational nuclear power stations are ‘north of the border, and Scotland is home to the best of wind and wave power potential.

The governments Energy and Climate Change Committee has held a series of evidence sessions to quiz key players from the UK and European energy markets, as well as Fergus Ewing, Scotlands Energy Minister.

When asked if Scotland would take on the decommissioning costs for the nuclear reactors lying within its borders, Ewing gave a yes-and-no answer. He said Scotland would pay a percentage of the decommissioning costs based of the lifetime of the reactor post-independence.

“We take the view that these nuclear power plants were set up by the UK, and therefore, if we take Torness, for example (commissioned in 1988 and due for decommissioning in 2023), if there are 10 years to go and 30 years have elapsed, then we have one quarter of the decommissioning costs. That would seem to me to be reasonable.”

Committee chairman Tim Yeo asked Ewing if he agreed that the drive towards independence by the SNP “has had the unfortunate consequence of creating a degree of uncertainty [among investors], and if an industry like energy depends entirely on investors making very long-term decisions”.

Ewings response was emphatic: “No, I dont agree with that. Ever since last May, there has been very substantial investment in the Scottish energy sector. Would these decisions have been made if the world was afraid of coming to Scotland? I dont think so.”

Yet there are many who disagree with Ewing. In November 2011, global finance organisation Citigroup published a report stating that Scotlands potential independence was creating “huge uncertainty”, adding that if independence was to happen, “renewable investors risk seeing their assets stranded in a newly independent Scotland”.

The report concluded: “Utilities and other investors should exercise extreme caution in committing further capital to Scotland.”

Almost six months on, Citigroup hasnt changed its mind. Citigroup Global Markets head of European utility sector research Peter Atherton says of renewables: “We are talking about a sector here that is highly regulated and highly subsidised. The most important thing for a company to make a decision on whether to build an onshore or offshore wind farm is the subsidy regime.

“We have a UK-wide subsidy regime, so if Scotland secedes from the rest of the UK, it is questionable whether that regime continues, and therefore there is an element of risk.

“When you are talking about multi-billion projects with offshore wind and hundreds of millions with onshore wind, clearly if you dont have a 100 per cent guarantee that the support mechanism will be acceptable, legally binding and in place for at least a couple of decades, then you absolutely cannot and will not make the investment.”

He adds that “all the corporates” who are involved in investing in offshore wind in Scotland that Citigroup has spoken to in recent months have said that they will not progress with their projects “until that certainty is in place”.

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