France opens floodgates to hydro investment

Jean-Louis Borloo, France’s energy minister, announced yesterday that he would open the floodgates of hydroelectricity generation to the private sector, re-tendering several concessions that are currently in the hands of former state monopoly EDF and, to a lesser extent, GDF Suez.

The first tenders are expected to launch in June, a local industry source said, with Borloo announcing that 10 concessions producing a combined 5,300 megawatts of electricity would be launched between 2010 and 2013.

Hydro: open to private investment

Little is clear yet about the specifics of the concession contracts. What is known from Borloo’s announcement is that the new concession lengths will be shorter at between 30 to 40 years. Borloo also pointed out that the fee future bidders are willing to pay to the government, derived from the sale of electricity, will be a part of the selection criteria. Under the previous greenfield arrangements, no such fees needed to be paid.

The head of renewable investments at a well-known French bank said the new concessions should be attractive to teams of infrastructure funds and industrials:

“The costs of hydroelectricity production are very low and we expect the new concessions to have minimal capex requirements and moderate opex costs,” the banker said. “But of course, we still have to see the criteria regulating these forthcoming concession contracts,” he added.

French financial newspaper Les Echos wrote in a report that it costs hydroelectric plants €20 per megawatt hour to produce electricity. They can then sell that electricity for an average of €55 per megawatt hour, promising future concessionaires a tidy profit.

The 10 concessions will group some 50 projects with Borloo saying he will terminate the concession contracts of some 15 projects early, so that the new packages can be grouped along territorial lines.

Several other concessions located in the Alps, the Pyrenees and France’s Massif Central – an elevated region in the south-east of the country consisting of mountains and plateaus – will be tendered between 2013 and 2015.

France’s leased hydroelectric assets generate a total of 25,000 megawatts accounting for about 12 percent of the country’s electricity generation. About 80 percent of them are being managed by former state monopoly EDF with GDF Suez running about 17 percent of the concessions.

When EDF was privatised, EU competition rules mandated that it would have to give up its virtual monopoly of the market. GDF Suez, however, has already signalled it intends to use the opportunity to increase its market share. Other industry heavyweights likely to express interest in the concessions include Germany’s E.On, Italy’s Enel and Norway’s Statkraft.