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EDF feels the heat amid prolonged nuclear outages

Lower volumes and hedged forward sales mean the utility likely will not benefit from a spike in power prices as France enters winter.

EDF, the French national utility, has had to lower its output target for 2016 as delays at nuclear reactors currently on stand-by crimp output.

On Thursday, the company announced that five of them would take longer to restart after an investigation by the French nuclear safety authority into the carbon concentration at the bottom of steam generators led 18 of the country’s 58 reactors to pause. The delays have induced EDF to reduce its 2016 nuclear output target to 378-385TWh from the previous 380-390TWh objective.

Ratings agency Moody’s estimates that the event will have a negative impact on the company’s credit standing due to its effect on earnings.

The company has indeed cut its EBITDA target for 2016 by 2 percent from €16.3-€16.6 billion to €16-€16.3 billion. The agency says EDF’s ratio of funds from operations/net debt for the 12 months that ended June 2016, one of its key metrics, would have been weaker by around 0.3 percent should the later revisions to targets been taken into account.

The prolonged shortages have caused a surge in near-term forward wholesale power prices in France, a trend that will not abate in the coming months.

“Winter has a particularly significant effect on demand in France relative to other European countries given the very high sensitivity to temperatures because of the dominance of electric heating in French homes,” Moody’s said.

However, the agency believes EDF will not be able to benefit from it. While the company does not disclose its hedging strategy, Moody’s anticipates that the company has made plans similar to other European utilities and hedged its forward sales for the rest of 2016 and a large part of 2017.

“EDF is unlikely to benefit from rising power prices to offset the expected shortfall in volumes, a credit negative,” the agency said.

The company is rated A3, stable by Moody’s.