Growing pressures mean long-term energy security goals may fall prey to short-term political expediency, writes Rhys Talbot
France faces fiscal, political and social crises that could threaten its energy transition drive and leave it dependent on imported fossil fuels for longer, as high borrowing costs put politicians off the investments required to electrify.
France is an energy outlier in the G7 — its long-standing nuclear energy policy means that fossil fuels already make up the lowest share of final energy consumption in the group. But it remains significantly dependent on oil in transport, while natural gas is still widely used for heating and contributes to higher electricity prices thanks to cross-border pricing and limited domestic generation.
With six months left in President Emmanuel Macron's second term, red lights are flashing over France's fiscal solidity. All indebted western nations face the struggle of rising interest rates as they roll over debt issued at bargain rates in the 2010s, but this is worse for France because of its high indebtedness. Its deficit has remained stubbornly high for six years, and its debt-to-GDP ratio keeps creeping up. Merely stabilising government debt by 2032 would require cutting spending and increasing taxes by a net €125bn ($140bn), a government report estimated in June, and this figure is likely even higher now thanks to rate rises.
But the emergence of new social movements combining student protests, yellow vest-style cost-of-living concerns and urban riots reflects widespread public anger that makes any fiscal consolidation politically untenable. With no majority in parliament, the government can only pass budgets including unsustainably large deficits to placate different interest groups, until 2027's election passes the task of tackling the problem to a new leader with a fresh mandate.
Right-wing Marine Le Pen's National Rally (RN) party has reinforced its polling lead thanks to the disorder of recent weeks. But whoever wins the next election, the combination of social anger that can only be allayed by more spending, and market conditions that make funding that spending more difficult, means that something may have to give. Electrification plans could be a tempting target.
France had planned to cut its reliance on fossil fuels further for geopolitical, climate and economic reasons. But wider electrification through investments such as the six planned EPR2 nuclear reactors, or 10GW of offshore wind, faces costs that reach into the hundreds of billions of euros, while €200bn has already been earmarked out to 2040 for grid upgrades. And the cost of these planned investments is highly sensitive to interest rates. Hydrogen firm Hy24 investment director Pierre Jeremie calculates that the average cost of nuclear energy produced by the EPR2s would increase by €12-20/MWh for each one-point increase in rates. "The brake on electrification, which we don't talk about, is OATs [French government bond yields] at 4.8pc," he said earlier this month. Yields have since risen further, last week breaching the 5pc mark for the first time since 2002.
Power play
None of these investments would bring down electricity prices within the next president's five-year mandate, instead setting the foundations to replace ageing nuclear reactors that could start to shut down from the late 2030s. There is no pressing need for more supply tomorrow — the French power system is structurally oversized, and it exported more electricity last year than any country in history.
Cutting spending for the long term could free up funding to reduce retail prices in the short term, offering a solution for politicians facing cost-of-living concerns. The RN has "very well understood" this dynamic, Columbus Consulting partner Nicolas Goldberg says. It has trumpeted its desire to end offshore wind projects and cancel energy efficiency schemes that fund electrification. But expensive nuclear plants could also make a tempting target, Goldberg suggests.
