30 July 2002 – Since the French electricity and gas markets were partially opened to competition two years ago, relatively few eligible users have left Electricité de France (EdF) and Gaz de France (GdF) for an alternative supplier. However, a new report from Datamonitor shows that half of all the customers it has surveyed would be eager to switch supplier for a price saving of as little as 1-5 per cent.

Up to 20TWh worth of electricity supply business may change hands before the
end of 2003, representing 14 per cent of the French eligible market During the last two months, Datamonitor conducted an extensive survey of French major energy users, focusing on those who are currently eligible to switch their electricity or gas supplies from the incumbent, primarily EdF or GdF. Covering over 16 per cent of the eligible electricity and 58 per cent of the eligible gas markets (by volume), the survey has identified considerable levels of interest in supplier switching.

Results from this survey reveal that one in six of the electricity users (including those who will only become eligible in the coming years) are “likely” or “very likely” to switch to an alternative supplier. More than half of all such users will have their electricity supply contract up for renewal before the end of this year, and over 80 per cent before the end of next year. This means that, of the 147TWh eligible market to emerge by the end of 2003, at least 14 per cent (equating to 20TWh per annum) is forecast to have switched from EdF to an alternative supplier. However, only 400mcm per annum of gas contracts will have been lost by GdF over the same period, reflecting the very high eligibility threshold currently applying to major gas users.

Energie du Rhône is the supplier of choice for most of the electricity customers seeking to drop EdF, whereas TotalFinaElf is in favour with the potential GdF defectors

Most of the potential switchers are undecided as to which utility they view as the preferred electricity supplier. However, with those that had a particular supplier in mind, Energie du Rhône, a joint venture between Belgium’s Electrabel and the French power generator CNR, emerged as the clear favourite. Very few potential switchers view a foreign-based utility such as RWE or Endesa as their preferred supplier. Datamonitor believes the reasons for this to be that firstly French customers doubt that companies without their own power generation assets in France can ensure the continuity and security of supply. Secondly that Powernext, the budding French electricity spot market, will take a long time to establish itself as a reliable source of wholesale volumes, and finally that the ongoing auctions for EdF generation capacity do not provide bidders with a cost-efficient source of wholesale power, due to the pricing formula used.

Analogously, with GdF enjoying a virtual monopoly on gas imports into France, no potential competitor is viewed by French gas users as a credible alternative. The only exception is TotalFinaElf, which produces its own gas and can now deliver it to clients using the right of third-party access to GdF’s pipeline network.

Competition will not properly take off unless the French government forces the powerful incumbents to divest more of their upstream assets. Over half of all the electricity and gas users surveyed would be willing to switch supplier for a price saving of between 1-5 per cent. In terms of volume, this represents two-thirds of the market that will be eligible by 2005. However, most of the respondents are sceptical that, as things stand, even such modest savings will be available.

Almost 60 per cent of the electricity non-switchers who took part in this survey had looked to switch supplier (many of them more than once), but could not secure a competitive offer, given EdF’s stranglehold on the country’s generation capacity which is not being properly addressed by the current auctions. EdF is expected to dominate the wholesale market, thus preventing other suppliers from gaining access to cheap wholesale volumes and thus from undercutting EdF on price.

Mikhail Masokin, Senior utilities analyst at Datamonitor comments; “Existing non-EdF capacity will remain largely more expensive than EdF’s due to the predominance of nuclear power in EdF’s portfolio, where future decommissioning costs are not fully reflected in the price of output. Hence, the development of proper competition in French electricity supply will require more radical moves either from the national government or from the EU, including an ownership separation between EdF’s generation and supply businesses and/or a partial divestment of power plant assets.”