Engie shows the biggest drop in the CAC 40
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(News Bulletin 247) – The Belgian authorities are asking the group to increase these provisions by 3.3 billion euros, an amount deemed excessive by Engie. The company has also assessed the impact on its accounts of the European price cap for electricity produced from certain technologies at lower cost.

Engie issues two warnings in one. The energy group first delivered an announcement on the provisions it must make for the exit from nuclear power in Belgium, where the company operates seven reactors via its subsidiary Electrabel.

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The Belgian Nuclear Provisions Commission (CPN) has reassessed the amount of provisions for the dismantling of power plants and the management of the downstream end of the spent fuel cycle. It shows that the CPN is asking Engie to increase its provisions by a total of 3.3 billion euros, including 400 million for Electrabel and 2.9 billion euros for Synatom (a subsidiary of Electrabel) . Of these nearly 2.9 billion, about 2.3 billion are related to dismantling and nearly 700 million to the management of the fuel cycle downstream.

According to Engie, the increase proposed by the CPN is due to several factors, in particular the drop “in the discount rate for provisions for the downstream end of the spent fuel cycle from 3.25% to 3%”. “This rate includes an unchanged inflation rate of 2.0%”, points out the French company, while the inflation rate currently exceeds 10% in Belgium.

The energy company also explains that the CPN has reviewed the “industrial scenarios for the dismantling of the power plants and the increase in operating costs and works during the period of final shutdown”. It also took into account certain cost assumptions, in particular on waste packaging.

An “excessive” increase

In the end, Engie considers the increase in provisions proposed by the Belgian authority to be “unjustified”, stressing that it has proposed an increase more than three times less, of 900 million euros.

Engie believes that most of the risks considered by the CPN have already been taken into account by its subsidiaries. The company is also contesting the drop in the discount rate for fuel-related provisions, which in a context of rising market rates is “unjustified”.

Deeming therefore “excessive” the proposals of the CPN, the energy group will submit “an adapted proposal in order to open discussions which should be completed by the end of March 2023 at the latest”. “Engie and its subsidiaries will then assess the advisability of submitting an appeal to the Market Court, within 30 days”, continues the company.

The Belgian nuclear file has long been a thorn in the side of Engie, and has led the group to already provision 15.36 billion euros, at the end of June 2022.

The law of January 2003 in Belgium provides for the exit from nuclear power with the end of operation of the seven Engie reactors by 2025. But, at the beginning of the year, the war in Ukraine and its consequences pushed Brussels to review its copy and start discussions with Engie with a view to extending two reactors, Doel 4 and Tihange 3, by ten years.

Revenue cap

In addition to the Belgian nuclear file, Engie also announced that it had assessed the impact on its accounts of a European agreement aimed at limiting the profits of electricity producers using certain energies.

Clearly, the Europeans had decided in early October to cap revenue from electricity produced by operators using so-called “inframarginal” technologies, such as nuclear energy, renewable energy or lignite. “These operators have made financial gains of an unexpected magnitude in recent months, without their operating costs increasing,” explained the Council of the European Union at the time.

The European regulation adopted at the beginning of October must be transcribed into national laws, Engie being mainly concerned in France, Belgium and Italy. This can take the form of a taxation, for example at 90%, of the receipts drawn beyond a defined price ceiling.

The company estimates that all the measures adopted or planned by these countries should have an impact on its operating profit of between 700 and 900 million euros for 2022 then between 1.2 billion and 1.5 billion euros for 2023. Most of this impact is linked to the group’s nuclear activities in France and Belgium, she said.

“They don’t give them a gift”

“Engie reserves the right to challenge the taxes which, in its opinion, would not respect the existing legal framework and would introduce unjustified discrimination between operators or technologies, in particular in Belgium and Italy”, warned the company.

On the Paris Stock Exchange, Engie yielded 4.4% to 13.33 euros, in reaction to all of these announcements.

“The increases in provisions for the dismantling of nuclear probably further explain the fall of the title, because it was not expected”, considers Tancrède Fulop, analyst at Morningstar. For their part “the impacts on the inframarginal rent, although important, come from laws already passed and do not constitute a very big surprise”, he adds.

“These new provisions [sur le nucléaire belge, NDLR] are mainly due to a drop in the discount rate, which is surprising in a context where rates are rising”, notes the analyst. “What the market is also taking badly is that this announcement shows that the dialogue between Engie and the Belgian regulator is complicated. They don’t give them a gift,” he added.