Announcement: Moody's: France's power prices to be driven by policy choices and nuclear availability

French power prices will settle between EUR35 and EUR40 per megawatt hour (MWh) in the five years to 2022, from EUR42/MWh today, as commodity prices moderate and the availability of nuclear plants gradually recovers, Moody's Investors Service said in a report today.

Moody's report, "Europe's electricity markets: In France, nuclear availability, policy choices will drive prices despite growing renewables", is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. This report does not constitute a rating action.

Growth in France's renewable capacity will maintain pressure on power prices. "We expect growth in renewable capacity to accelerate despite declining subsidies as the French government develops plans to meet its ambitious target of growing renewables generation capacity by more than 50% by 2023, and the sector reduces costs", said Paul Marty, a Moody's Senior Vice President and the report's author. The latter is in turn driven by economies of scale, equipment cost reductions, improved efficiency and technology, as well as the low interest rate environment.

Renewables expansion should provide growth opportunities for utilities and mitigate the expected loss of revenues stemming from the expiry of incentives. Electricité de France (A3 stable) and ENGIE SA (A2 stable) have limited exposure to the expiry of incentives in France because they benefit from the long remaining life of their contracts. In addition, France's move towards competitive auctions since 2017 is likely to favour the largest players and accelerate consolidation in the sector, as shown by recent M&A activity.

Moody's estimates that France's total installed generation capacity will grow modestly in the medium-term as growth in renewable capacity is partly balanced by the closure of thermal capacity. On the demand side, Moody's estimates are based on slightly declining demand from 2017 onwards, reflecting the impact of growing energy efficiency.

Moody's latest forecasts for French power prices are well above the rating agency's previous estimates published in July 2016. This reflects the rebound in commodity prices since then. Moody's forecasts are nevertheless below current prices, reflecting the agency's view that the availability of French nuclear power stations should recover over time, even while nuclear power is unlikely to return to the levels seen over the last 10 years, given the age of the fleet and the resulting maintenance requirements.

Beyond the end of the decade, policy decisions may reshape the French electricity market. The French government has acknowledged that the existing target to reduce the share of nuclear to 50% by 2025, compared to the current 75%, is not achievable. Moody's therefore expects that the multi-year plan due by the end of 2018 will set more realistic objectives for the country's future fuel mix.