Scope Ratings ( Thomas Gillet) | The European Commission has started consultations on a draft text for labelling nuclear as a ‘green’ energy source under the EU’s taxonomy for environmentally sustainable activities. If the proposal is approved by the European Parliament and the Council, it would have positive credit implications for France (AA/Stable) given the importance of nuclear in the country’s power mix, climate plan and energy independence.
The EU taxonomy is a critical pillar of the EU’s strategy to meet its climate and energy targets for 2030 under the European green deal. It aims to establish a classification system for environmentally sustainable economic activities and scale up ‘green’ investments.
France’s stance on nuclear energy has come to the fore in the presidential election as the climate transition becomes more prominent in the public debate and the recent surge in energy prices raises the question of energy independence. We see a clear divide among candidates. Those at the left of the political spectrum advocate dropping nuclear energy while those at the right are pushing for renewed investments in the sector.
France is the largest producer of nuclear power in the EU. Reliance on atomic power explains why France also has the lowest per capita emissions of advanced economies according to the International Energy Agency. Nuclear power generation derived from France’s 56 reactors is critical for domestic electricity production and total energy supply. It accounted for 42% of France’s total energy supply and 66% of its total electricity generation in 2020, versus 14% and 26% in the EU respectively (Figure 1).
More importantly, nuclear power is expected to play a crucial role in France’s energy transition. The National Low-Carbon Strategy (Stratégie Nationale Bas Carbone) relies on decarbonised electricity to help carbon intensive sectors such as industry, transport, or buildings to reduce CO2 emissions through electrification. France has legislated a reduction in the share of nuclear in the electricity supply to 50% by 2035, but it is likely to remain a major energy source.
Even so, France will have to mobilise substantial investments in the nuclear sector to deliver climate commitments. Several reactors are due to close in coming years and others will require refurbishment works to extend their lifetimes, with the average age of the nuclear fleet at 35 years. President Emmanuel Macron announced in October 2021 that France will invest EUR 1bn in small modular reactors under the France 2030 investment plan. France allocated half of public energy R&D spending to nuclear energy in 2020.
Labelling of nuclear activities as ‘sustainable’ under the EU’s taxonomy would be credit positive for France. The move would support public finances, as the government could potentially fund nuclear spending through green bonds (OAT verte), benefiting from the growing ESG-investment community. It would also support strategic government-related entities in the nuclear industry such as EDF (83.5% owned by the French State) and nuclear-fuels company Orano (90%). Finally, nuclear’s inclusion in the taxonomy would ultimately help channel funds to largescale investment projects and increase funding flexibility as investors’ appetite for sustainable investments grows.
