French Electricity Leader en route to the U.S.

UNCLAS SECTION 01 OF 02 PARIS 000227 SIPDIS SENSITIVE STATE PASS USTR E.O. 19528: DECL: N/A TAGS: ENRG ECON ENRG ETRD EINV PREL FR CH SUBJECT: French Electricity Leader en route to the U.S. PARIS 00000227 001.2 OF 002 SENSITIVE BUT CLASSIFIED. NOT FOR INTERNET DISTRIBUTION. ¶1. (SBU) Summary: Henri Proglio is making his first trip to the U.S. as CEO of Electricite de France (EDF). His goal is to gauge potential American partners and review the firm's U.S. investments. EDF plans to expand as a "diversified service company" that can operate different nuclear reactor types, but also develop renewable energy projects, and advise on energy asset management and energy optimization. Proglio noted different trends in nuclear energy market development: France is highly concentrated (one reactor operator),the U.S. diversified (23 operators),and China somewhere in between with three operators. In the long-term, the EDF CEO estimated that nuclear power could make up for 40 percent of America's electricity. End summary. ¶2. (SBU) On February 18, Ambassador Rivkin met with Henri Proglio, CEO of state-owned Electricite de France. The Ambassador requested the meeting to discuss EDF's business plan on the eve of Proglio's roadshow in the U.S. (February 24-26) with stops in New York, Boston, and Washington/Maryland. In addition to meetings with financiers, analysts, and the Department of Energy, Proglio will review the economic and financial terms of the firm's investment in Constellation Energy. The EDF CEO said his overall objective is to learn more about potential American partners for the firm's nuclear energy development strategy. He also intends to bolster EDF activities in U.S. renewable energy markets and energy asset management (sectors in which its U.S. subsidiaries "EDF Energies Nouvelles" and "EDF Trading North America" are specialized). EDF: A Diversified Service Company -------------- ¶3. (SBU) Driven by the conviction that EDF must do more than power generation, Proglio wants the firm to be a "diversified service company". EDF could operate a range of nuclear reactors with different technologies, he confirmed. To be competitive, EDF should not be limited to French suppliers and the European Pressurized Reactor (EPR),he said. After all, "we are not married to Areva", added Gerald Wolf, EDF Senior VP for International Operations. EDF recognizes that new customers may want smaller reactors and have different capacities and regulatory issues, Proglio said. Coordinator in an International Supply Chain -------------- ¶4. (SBU) Proglio sees EDF's future lying beyond the realm of a traditional French utility. EDF is a coordinator and player in an international supply chain, he stressed. EDF operates 58 nuclear reactors in France, but it runs another 24 in foreign markets, Proglio noted. Moreover, EDF has projects to build new generation reactors in the U.S., the U.K., China, and Italy. Looking ahead, it makes sense to diversify EDF's strategic partnerships from an industrial policy standpoint, he told us. Although the GOF would argue otherwise, Proglio is convinced the French nuclear industrial supply chain lacks the capacity to meet EDF's international business plan. How Many Operators? -------------- ¶5. (SBU) Turning to nuclear energy development, Proglio recalled that the French market is highly concentrated with a standardized pool of reactors and a single operator, EDF. The arrangement has led to gains in efficiency, economies of scale, common safety practices, labor training, and social acceptability. Proglio said that the U.S. should keep this in mind as it pursues a much more diverse civil nuclear energy market with four competing reactor designs and 23 operators. On the long-term prospects of the U.S. nuclear energy market, the EDF executive estimated that nuclear power could make up as much as 40 percent of electric power in the U.S., (up from the current 20 percent),given the U.S. energy mix. On China -------------- ¶6. (SBU) Proglio discussed EDF's entry into the Chinese nuclear generation market. He told the Ambassador that the Chinese decided to limit the domestic market to three reactor operators. Each operator will have a clear and specific role and mission. Further, civil nuclear energy development will be restricted to a few Chinese provinces. Proglio observed that the advantage of working with the China Guangdong Nuclear Power Company (CGNPC) was that the decision making process goes quickly and the Chinese build fast. (Note: last PARIS 00000227 002.2 OF 002 December, the Chinese authorities approved the creation of an EDF-CGNPC joint venture which will build and operate two EPR nuclear reactors in Taishan, with EDF's holding fixed at 30 percent for 50 years. End note.) Not just about Nuclear -------------- ¶7. (SBU) In the U.S., EDF anticipates expanding services in asset management, energy optimization, and energy efficiency. EDF's industrial strategy is not just about nuclear generation, he argued. The U.S. market offers the EDF Group opportunities for further growth in other energy markets - hydraulic, thermal, and renewable energies. (Note: in the last few years, EDF Energies Nouvelles has also diversified into ocean power and biofuels. End note.) RIVKIN