EDF's biggest problem is the cost of producing power from these ageing power stations is greater than the wholesale price, so everything they sell is at a loss. It is impossible to see how they can ever make a profit. Then they still have to decommission.
The liabilities of Électricité de France (EDF) - the biggest electricity supplier in Europe, with 39 million customers - are increasing so fast that they will soon exceed its assets, according a report by an independent equity research company,
Bankruptcy for EDF seems inevitable - and if such a vast empire in any other line of business seemed to be in such serious financial trouble, there would be near-panic in the workforce and in governments at the subsequent political fall-out.
But it seems that the nuclear-dominated EDF group is considered too big to be allowed to fail. So, to keep the lights on in western Europe, the company will have to be bailed out by the taxpayers of France and the UK.
The French government, facing elections next spring, and the British, struggling with the implications of the Brexit vote to leave the European Union, are currently turning a blind eye to the report by AlphaValue that EDF has badly under-reported its potential liabilities.
Ageing nuclear reactors
While EDF is threatening to sue people who say it is technically bankrupt, the evidence is that the cost of producing electricity from its ageing nuclear reactors is greater than the market price.
Coupled with the impossibility of EDF paying the full decommissioning costs of its reactors, it is inevitable that it is the taxpayers in France and the UK who will eventually pick up the bill. However this will not be easy due to the EU's 'state aid' rules, which limit governments' ability to support ailing companies.
There is also the ongoing thorny problem of disposing of the nuclear waste and spent fuel rods, which are building up in cooling ponds and stores on both sides of the Channel, with no disposal route yet in sight.
A looming problem for EDF, which already admits is has €37 billion of debt, is that 17 of its ageing fleet of nuclear reactors, which provide 70% of France's electricity, are being retired.
According to AlphaValue, EDF has underestimated the liabilities for decommissioning these reactors by €20 billion. Another €33.5 billion should be added to cost of handling nuclear waste, the report says. Juan Camilo Rodriguez, an equity analyst who is the author of the report, says that a correct adjustment of nuclear provisions would lead to the technical bankruptcy of the company.
In a statement, EDF said it "strongly contests the alleged accounting and financial analyses by the firm AlphaValue carried out at the request of Greenpeace and relating to the situation of EDF".
It says that its accounts are audited and certified by its statutory auditors, and that the dismantling costs of EDF's existing nuclear power fleet have also been subject to an audit mandated by the French Ministry of the Environment, Energy and the Sea.
Even with its huge debts, EDF's problems could be surmounted if the company was making big profits on its electricity sales, but the cost of producing power from its nuclear fleet is frequently greater than the wholesale price.
That creates a second problem - that unless the wholesale price of electricity rises and stays high, the company will make a loss on every kilowatt of electricity it sells. The new rightwing French presidential candidate, François Fillon, promises not to retire French reactors and to keep them going for 60 years. But this cannot be done without more cost.
This is the third problem: vast sums of capital are needed to refurbish EDF's old nuclear fleet for safety reasons following the 2011 Fukushima nuclear disaster in Japan.
New nuclear stations
Even more money is required to finish new nuclear stations EDF is already committed to building. The first, Flamanville in northern France, is five years late and billions over budget. Questions over the quality of the steel in its reactor are still not resolved, and it may never be fully operational.
Add to that the need for €12 billion (or potentially considerably more) capital to complete the two nuclear stations EDF is committed to building at Hinkley Point in southwest England, and it is hard to see where all the money will come from.
To help the cash-strapped company, its ultimate owner, the French state, has already provided €3 billion in extra capital this year, and decided to forego its shareholder dividend. But that is a drop in the ocean.
Mycle Schneider, a Paris-based independent international consultant on energy and nuclear policy, says: "The French company overvalues its nuclear assets, and underestimates how much it will cost to decommission them.
"However, EDF's biggest problem is the cost of producing power from these ageing power stations. The cost is greater than the wholesale price, so everything they sell is at a loss. It is impossible to see how they can ever make a profit."
He says that is not the company's only problem: France has not dealt with the problem of nuclear waste, and has badly underestimated the cost of doing so: "With German electricity prices going down and production increasing in order to export cheap electricity to France, it is impossible to see how EDF can ever compete. It is really staggering that no one is paying any attention to this."
Even former EDF director Gérard Magnin agrees. He resigned from the board in July as he thought the Hinkley Point project too risky for the company because of its already stretched finances. Now he says that, with the reactors closed for safety checks, the French nuclear industry faces "its worst situation ever".
The company's troubles do not stop in France, as EDF also owns the UK nuclear industry. Ironically, it took over 15 reactors in the UK after British Energy went bankrupt in 2002 because the cost of producing the electricity was greater than the wholesale price - exactly the situation being repeated now in France.
Repeated life extensions
Since the sale of UK nuclear plants to EDF in 2008 at a cost £12.5 billion, the company has continued to operate them, and has repeatedly got life extensions to keep them running.
But this cannot go on forever, and they are expected to start closing in the next ten years. Once this happens, the asset value of each station would become a liability, and EDF's mountain of debt would get bigger.
So far, the French and UK governments, and the company itself, seem to be in denial about this situation. Currently 17 French reactors are shut down for safety checks, following the discovery of faulty safety-critical compenents including large, difficult to replace steel forgings like steam generators.
The company has issued reassuring statements that they will be back to full power after Christmas, however in so doing EDF is assuming that the safety checks will give the reactors a clean bill of health. In fact, there are three other possible outcomes:
- additional potentially time-consuming tests are needed that will create further months of downtime.
- remedial engineering works are required to make the reactors safe. These would probably be costly and time-consuming.
- key components at the heart of the reactors, for example steam generators, need to be replaced altogether. However this would be so costly that, for a nuclear plant already reaching the end of its lifetime, premature closure would be the only viable option.
Perhaps the most likely outcome is that some of the 17 reactors will fall into each of these four categories, creating as yet unquantifiable unbudgeted costs for the company.
Meanwhile, to make up the shortfall from the closed reactors, electricity is being bought from neighbouring countries, including the UK, to keep the lights on in France. The power shortage is temporarily causing an increase in wholesale prices - but one that EDF is unable to fully exploit because so many of its reactors are not generating.
The future remains unpredictable - but as long as there are no actual power cuts, no action is expected from governments. Despite official denials, however, the calculations of many outside the industry suggest that it is only a matter of time before disaster strikes.
The cost of producing electricity from renewables is still falling, while nuclear gets ever more expensive, and massive liabilities loom. Ultimately, the bill will have to be passed on to the taxpayers.
Paul Brown writes for Climate News Network, where this article was originally published.
This article includes some additional reporting by The Ecologist.