France's nuclear risk premium has faded, for now
The poor state of French nuclear generation was one of the most important stories in European energy markets during 2022.
In the aftermath of the Russian invasion of Ukraine, when Europe’s supplies of natural gas were curtailed and longer term supplies were under increasing threat, what the continent really needed was a secure and reliable source of low carbon nuclear energy.
Unfortunately, a combination of unexpected maintenance to repair cracks discovered during routine inspections, drought which forced the curtailment of a number of reactors, and sporadic strike action resulted in French nuclear generation dropping 23% between 2021 and 2022 to 278 TWh - the lowest level since 1989.
Although Europe’s solar expansion helped offset some of the loss of French nuclear generation, many utilities resorted to firing up their lignite and thermal coal generation units. Coupled with weak hydropower generation, the hike in coal generation during 2022 led to an increase in emissions and hence demand for EUAs (see France's nuclear winter of discontent).
Historically at least, nuclear generation has been uncorrelated with EU carbon prices. The exception is when low nuclear generation coincides with a period of high power prices, tight carbon allowance supply, and strong hedging demand by utilities. The surge in European power prices during August 2022 coincided with a sharp increase in EU carbon prices towards €100 per tonne as utilities looked to hedge their carbon intensive power generation, while the supply of allowances via auction was limited.
Up until the end of the first quarter there was little sign that this year would be any better. And then on 6th March, EDF sent the French Nuclear Safety Authority (ASN) a notice disclosing that they had detected further stress corrosion issues at the Penly 1 nuclear reactor. This was the same issue that had caused exceptionally low availability levels in the preceding summer.