Chapter 3 - The French Paradox: Competition, Nuclear Rent, and Price Regulation

Abstract

The European Commission wants to introduce more competition into the European electricity market. But the low nuclear electricity prices, currently enjoyed by the incumbent Electricité de France (EDF), prevent its competitors from breaking into the French market. To promote competition, either French-regulated price must rise to the level of the European market prices, dominated by more expensive fossil-fueled generation, or EDF’s competitors must lower their prices to the French level. Usually, one would expect competition to lead to lower prices. In the case of the so-called “the French paradox,” it has been decided that EDF must share a portion of the “nuclear rent” with its competitors to allow them greater markets share in domestic market. This solution, chosen by the French government and embodied in recently passed New Organization of the Electricity Market law, is further described in this chapter as well as a discussion of how the nuclear costs are accounted in the Regulated Access to Incumbent Nuclear Electricity scheme and what may be the future course of energy policy in France.