Electricité de France - Company Profile, Information, Business Description, History, Background Information on Electricité de France

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Company Perspectives:

Globalization, the fast growth of energy needs, the opening of the markets, the change in the needs of customers: the power industry has entered an era of far-reaching change. The EDF Group has taken an active part in these changes through its industrial investments in the emerging countries, by extending its range of energy and service offers via specialised subsidiaries and by means of rapid development within its new internal market, Europe.

History of Electricité de France

France's second largest company, Electricité de France (EDF), is a state-owned utility involved in all phases of electricity: generation, transmission, and distribution. The bulk of EDF's immense generating system is dependent on the world's largest nuclear power program. As the European Union opens borders to competition for electricity, EDF has increased its efforts to become a global provider of power, even as it tries to free itself from 50 years of entrenched monopolistic attitudes and political entanglements.

1946 Origins

EDF was formed in 1946 when the French government decided to nationalize the production and distribution of electricity. This was part of a general wave of nationalizations of key industries in France and elsewhere in Europe following the end of World War II.

Before 1946, the French electrical industry was in the hands of a large number of private companies, providing production, distribution, and other services connected with the industry under a variety of agreements with local authorities and regional administrations. The system had developed with no centralized planning following the appearance of the first distribution networks in 1884. By the outbreak of World War II, electricity was provided by about 200 companies engaged in production, another 100 in transport, and about 1,150 involved in distribution. An estimated 20,000 concession-holders provided equipment and other services to these companies. The system was irrational and inefficient, going as far as having two companies providing electricity to the same place, such as in the Lyon region, where two companies competed directly, one selling alternating current from its hydroelectric plant, the other offering direct current produced at a coal-fired thermal station.

The main reason for the government's decision to consolidate the electrical industry into a single nationalized utility was its determination to speed up industrialization and urbanization after World War II. Defeat by the German forces had revealed the weaknesses of the French economy, and there was a widespread agreement on the need to modernize what was still a largely rural, agricultural society. The electric industry was central to these plans for industrialization, and the government regarded a single utility as the best way of providing the resources for the swift increase in productive capacity that would be needed, as well as overcoming the inefficiencies of the old system.

The decision to establish a nationalized utility, rather than a private one, was largely due to the influence of Marcel Paul, a Communist, who, in November 1945, seven months after being freed from the Nazi concentration camp at Buchenwald, was appointed minister for industrial production by the head of the government, Charles De Gaulle. Besides strong technical arguments for nationalization as the most efficient means of rationalizing the industry, Paul brought a firm ideological commitment to nationalization, as well as the bitter enmity of the French political left toward the private electricity owners, who had often funded right-wing political organizations and were widely suspected of collaborating with the Nazi occupiers during the war. Paul's work toward nationalization paid off on April 8, 1946, when the National Assembly voted almost unanimously in favor of the law nationalizing electricity and gas.

Given the task of dramatically increasing France's output of electricity, the new organization immediately began work on a massive program of hydroelectric plant construction, which was the method favored by Marcel Paul and by Pierre Simon, whom Paul appointed as first president and director general of EDF. Simon was the former director of hydroelectric energy at the Ministry of Public Works. The dam-building program dominated EDF's activities throughout the late 1940s and 1950s. Although generally well received by the public, the program gave the utility its first encounter with public opposition, when its first dam, which required the flooding of the village of Tignes in the Alps, met strong local resistance, including the bombing of a crane at the building site in 1946. Nevertheless, EDF pressed on with the program.

Seven new hydroelectric installations were delivered in 1949, ten more in 1950, eight in 1951, and another eight in 1952. By 1957, a further 15 hydroelectric facilities were brought into service, turning the French Alps into the heart of the French electrical industry. The dam-building program culminated in the largest project, the redirection of the Durance river inland from Marseille, a project that created one of the largest lakes in France when it began operating in 1960.

This vast hydroelectric expansion increased EDF's production by two-and-a-half times, and made water power the most important part of the French electrical system. Until 1961, hydroelectric installations provided at least half of EDF's total production every year except in two years of drought. In 1960, the dams and their associated plants produced over 37.1 billion kilowatt hours of electricity, representing 71.5 percent of EDF's total production, compared with 18 percent provided by coal-fired thermal stations and only 3 percent by oil-burning stations.

The hydroelectric program had succeeded in providing France with a solid electrical supply. In the 1960s, however, as demand for electricity continued to increase in response to the rapid growth of the French economy, EDF turned away from its hydroelectric policy in the search for more highly productive capacity. Urbanization and general prosperity had caused a sharp increase in the use of domestic electrical appliances, creating much greater variation in the seasonal and daily demand for electricity. To cater for these changes, EDF turned to oil-fired thermal power stations, which burned a cheap fuel and were capable of providing a flexible output of current in accordance with the demand for energy. By 1973, EDF's oil-fired power stations were producing 59.7 billion kilowatt hours of power, providing 43 percent of EDF's total output compared with only 3 percent 13 years before. Over the same period, hydroelectricity had dropped to only 32 percent of EDF's output compared with 71.5 percent in 1960.

EDF Concentrates on Nuclear Power in the 1970s

Although oil had come to dominate EDF's activities, the company had also begun relatively small-scale developments in producing electricity from nuclear fission. Closely connected with the French military's development of its own arsenal of nuclear weapons, a civil nuclear project was begun in the late 1940s. In 1957 EDF decided to build its first nuclear power station at Chinon in the Loire valley, using technology developed by the French Atomic Energy Commissariat (CEA). Compared with later projects, the Chinon plant was fairly small, using natural uranium as fuel, graphite as a moderator, and carbon gas as a refrigerant. The first phase of the project, with a capacity of just 68 megawatts (MW), came into service in 1962; the second 200MW stage in 1965; and the third in 1967, with capacity of 500MW. Research and development programs were launched on Heavy Water Reactors and Pressurized Water Reactors (PWR). It was determined that PWR was the more efficient technology, and a the government began work on a 1300MW system. As nuclear power gradually increased in importance within EDF during the 1960s, the utility commissioned more plants, turning from gas-graphite technology to the more efficient PWR. By 1973, nuclear stations were producing 14 million kilowatt hours of electricity a year, representing 8 percent of EDF's output.

Despite this development, nuclear power remained the poor relation of the French electrical family, dominated by oil and hydroelectricity, until oil was delivered a devastating blow in 1973. When the Organization of Petroleum Exporting Countries (OPEC) decided to increase oil prices sharply in that year, the importance of oil to the industrialized West was crudely illustrated. In France, the prospect of a huge increase in the oil bill for the electrical industry prompted the government to swing strongly in favor of rapid nuclear development, which had previously been considered too expensive compared to oil. Now, as oil prices shot up, the slogan of French independence, which had prompted the postwar hydroelectric projects, reemerged as the rationale for a massive nuclear power project to ensure that France would never again depend on other countries' whims for its energy.

The French prime minister, Pierre Messmer, outlined the pro-nuclear case in a speech on national television on March 6, 1974: 'France has not been favored by nature in energy resources. There is almost no petrol on our territory, we have less coal than England and Germany and much less gas than Holland ... our great chance is electrical energy of nuclear origin because we have had good experience with it since the end of World War II ... In this effort that we will make to acquire a certain independence, or at least reduced dependence in energy, we will give priority to electricity and in electricity to nuclear electricity.' The Messmer Plan, as it became known, involved a huge and sudden swing toward nuclear dependence, foreseeing the launch of 13 nuclear power plants, each with a capacity of 1,000MW, within two years.

In 1974 alone, three new plants--Tricastin, Gravelines, and Dampierre, with a combined capacity of nearly 11,000MW--were begun. By 1977 work had begun on another five stations, all using PWR, with a total capacity of 13,000MW. As part of a consortium of European utilities, in which it holds a 51 percent stake, EDF also began building the most ambitious of all its nuclear installations--the FFr27 billion Superphenix fast-breeder reactor at Creys-Malville on the banks of the Rhone, the world's only commercial fast-breeder reactor, using enriched uranium and plutonium and capable of generating 12,000MW.

The Messmer plan succeeded in turning France into a nuclear-powered country. In the six years to 1979, nuclear energy's share of EDF's total output rose from 8 percent to 20 percent. By 1983 it had jumped to 49 percent, and by 1990 nuclear plants were providing 75 percent of EDF's electricity. By contrast, the share produced by stations burning oil or coal fell from 53 percent in 1973 to 24 percent in 1983, and down to just 11 percent in 1990. The importance of hydroelectricity also continued to decline, although less sharply, dropping from 32 percent in 1973 to 14 percent in 1990. EDF's total nuclear capacity had reached 54,000MW by the end of 1990, with another 6,800MW under construction, giving France a nuclear capacity greater than those of West Germany, the United Kingdom, Spain, and Sweden combined.

EDF's nuclear buildup faced opposition from anti-nuclear groups, but the utility and the government refused to yield to any pressure to moderate their ambitious nuclear plans, or even to accept a public debate on the issue. When huge demonstrations took place at the building site for the Superphenix plant in 1977, the authorities relied on firm police action to disperse the protesters. One demonstrator was killed in the violent clashes that followed. The unimpeded nuclear program finally slowed in 1981, when the newly elected Socialist government of François Mitterrand froze reactor construction. However, the government soon changed its position and allowed construction to continue, but at a greatly reduced rate.

In the mid-1980s it gradually became clear that the frenzied rush towards nuclear dependence had been overambitious. The construction program had compelled EDF to borrow heavily and, although building a standardized reactor had allowed the company to streamline the construction process and thus cut costs, this saving would only be realized if the plants were operating at full capacity. The sheer size of the nuclear build-up, caused by incorrect energy demand forecasts made in the late 1970s and by the obsession with energy independence, had, however, left EDF with an immense overcapacity. By 1988, EDF's nuclear units were operating at an average load factor of 61 percent, compared with West Germany's 74 percent, and the much more efficient systems of smaller nuclear operators like Switzerland, at 84 percent, and Finland, at 92 percent.

During this period EDF began to sell its expertise and its product in foreign markets. The utility became closely involved in power projects in French-speaking countries in Africa and in 1985 began a series of projects in China, working on thermal, hydroelectric, and nuclear generation, distribution networks, maintenance, and training. By 1990, EDF had signed 20 contracts in China, had become project consultant for a controversial 1,800MW sea-water-cooled nuclear plant at Daya Bay and on the construction of a 1,200MW pumped storage power station.

EDF also began a concerted campaign to export its electricity to neighboring countries. In 1986, after six years of building, an undersea electrical cable was completed between France and Britain. Although this was theoretically to allow each country to draw on the other's power grid in times of shortage, it effectively became a one-way cable for the export of electricity from France to Britain. By 1990, France was exporting 11.9 billion kilowatt hours of power a year to Britain, close behind its two biggest customers: Italy, with 12.9 billion kilowatt hours, and Switzerland, with 13.6 billion kilowatt hours. EDF also exported large bands of power to Germany, the Netherlands, Belgium, and Luxembourg and in 1990 signed an agreement worth $4 million to supply the Spanish electrical grid with 1,000MW of capacity beginning in the mid-1990s.

The utility was also quick to take advantage of the dramatic changes in eastern Europe following the collapse of Communism in 1989 and 1990. In 1991, EDF was on the verge of joining a German-led consortium to modernize East Germany's power network, and was leading an international team providing technical and management advice to Bulgaria's troubled nuclear industry. EDF was also broadening its activities in more developed markets. In July 1991, the utility became a key part of a consortium with Britain's East Midlands Electricity and several other companies to build a £400 million, 800 MW gas-fired power station in Lincolnshire, in a direct challenge to the two main British power companies, National Power and PowerGen, on their own territory. The consortium, Independent Power Generators, planned to invest in private power projects around the world.

While these foreign moves went ahead, EDF was also trying to stimulate demand for electricity within France to soak up its spare capacity. EDF also set out to encourage industrial companies to build power-consuming plants in France. However, large companies would only do this if EDF offered them power at a heavily subsidized rate, which the utility agreed to do when the aluminum producer Pechiney threatened to move its production to Venezuela because French power was too expensive. Instead, Pechiney, in partnership with EDF, built a new plant at Dunkirk in 1988, to which EDF agreed to provide electricity at half the production cost per kilowatt hour for the first six years, with the price rising gradually over subsequent years. The European Commission (EC) regarded the deal as nothing less than anti-competitive electricity dumping and forced EDF to renegotiate it on more competitive grounds, but EDF received EC approval in 1990 for similar cheap power deals with the Exxon Chemicals and Allied Signal, two U.S. companies.

EDF Reaches a Turning Point in the 1990s

The problems confronting EDF crystallized in 1989, when the utility reported an annual loss of FFr4 billion, a result that EDF's president, Pierre Delaporte, described in the Financial Times of January 31, 1990, as 'catastrophic, though mainly due to unforeseen problems, such as the mild winter, drought, and reduced availability of the PWR 1300MW series.' In 1990, it received a further blow when the overseer of nuclear technology in France, EDF's former partner, the CEA, released a report sharply criticizing EDF's overinvestment in nuclear capacity and calling for urgent solutions to unresolved problems of nuclear waste disposal. By 1990, EDF had begun looking for ways to diversify its power sources.

Although EDF returned a small profit in 1990, a nuclear program costing FFr800 billion had left the utility with long-term debt of FFr226 billion. The long-term problems of waste disposal needed to be dealt with, while many of EDF's older reactors would soon be due for decommissioning, an operation whose cost, although unknown, was expected to be very high and would provide no financial return. However, the problem of overcapacity had been reduced, owing to the development of exports and increasing demand from French heavy industries. EDF ordered a new nuclear plant in 1991 and anticipated further investment in peak facilities and nuclear plants. From 1990 onward, debt was also decreasing. By 1990 repayment exceeded borrowing by FFr 3 billion, with a provisional figure of FFr 13 billion for 1991. EDF's rates, meanwhile, though already among the lowest in Europe, continued to decrease at 1.5 percent per year in real terms.

A new vision took shape for EDF in the early 1990s. With limited potential for growth on the domestic front, the company expanded its international efforts. Spending abroad increased from FFr300 million to FFr3 billion in 1994. The company purchased stakes in Sweden's Sydkaft and Italy's Ilva SE. In 1996 EDF joined a consortium of companies to buy a major Brazilian electric company. A year later it purchased 55 percent of a Polish power station. On the distribution side, EDF invested in Massachusetts-based American Superconductor Corporation to develop new technology that would permit 5 to 10 times more electric power to be conveyed over the same size cable or conduit. EDF also joined forces with Texaco, Inc. to build an integrated gasification/combine-cycle plant in Normandy, France, despite the company's general reluctance to add to its already high electric power capacity. The new plant would allow EDF to offer process steam and industrial gases to industrial clients, thus providing a competitive edge when the European Union (EU) allowed open competition in the electricity market.

In 1996, the EU energy ministers met to discuss the opening of its markets to allow consumers to choose among competing suppliers of electricity. France was reluctant to agree to the proposal, afraid of the effects on its state-run monopoly, in particular the loss of jobs. It was estimated that as much as 30 percent of the workforce would have to be trimmed if EDF lost its privileged status in France. EDF workers were members of a strong union, and it was certain that they would rally in the streets of Paris, much to the discomfort of the politicians. Jobs were also the payoff to local communities for accepting reactors in their backyards. As The Economist noted in a 1996 article: 'If EDF loses its reputation as a creator of jobs, public support for its nuclear programme may begin to ebb. Meanwhile, competition would certainly encourage suppliers in other countries to question whether EDF had incorporated all the costs of decommissioning reactors in its tariffs; they would also demand that EDF be financed at market rates. EDF is a mighty edifice which has so far been supported by powerful union, political and industrial interests. Take one leg away, however, and the whole structure could collapse.'

Only after a meeting between the French president, Jacques Chirac, and German chancellor, Helmut Kohl, did France finally agree to European deregulation of electricity. The plan was to be phased in over several years beginning on February 19, 1999, when high-volume customers would be allowed to choose suppliers, with a minimum market opening of 25 percent. When that date arrived, however, legislation had still not been completed to provide for France's participation. In the meantime, EDF completed its most ambitious acquisition when, for $2.3 billion, it purchased London Electricity. France's subsequent failure to comply with EU deregulation sparked outrage from many governments, whose own companies were barred from competing in the French market.

Ironically, its was the lobbying of EDF itself that would finally lead to France opening its markets to a minimum level of compliance. Francois Roussely, who had become chairman and chief executive of EDF in July 1998, was convinced that the utility could prosper under the new conditions. He set a goal of EDF realizing half its revenues from business other than electricity in France by 2005. That portion in 1999 stood at just 18 percent of revenues. Roussely also set an ambitious target for a return on capital, growing it from 7.4 percent to 10 percent. Despite Roussely's belief that EDF was destined to play a major role in Europe and the world in general, he still had to contend with the nature of the utility's ownership. To prosper, EDF had to act like a private-sector company, yet it remained caught in a political thicket. Privatization, even partial, would seem a likely step for EDF, but political considerations may very well trump economics ones, at least in the short term.

Principal Operating Units: London Electricity; Atel; ASA; Clemessy; Graninge.

Principal Competitors: Suez Lyonnaise des Eaux; E.ON AG.


Additional Details

Further Reference

'A Giant Awakes,' Economist, November 4, 2000, pp. 71--72.George, Gerry, 'The Global Giants,' Transmission & Distribution World, 2000, pp. 30--50.Holmes, A., Electricity in Europe: Power and Profit, London: Financial Times Business Information Ltd., 1990.'How the French Get Power,' Economist, May 11, 1996, p. 62.Picard, J.-F., A. Beltran, and M. Bungener, Histoires de l'EDF, Paris, Dunod, 1985.

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