Electric Vehicle Adoption Favors EDF

| About: Electricite de (ECIFY)

Summary

EV adoption as a whole isn't a dramatically gigantic mover for electricity demand.

However, patterns of EV demand for electricity can have their own impacts.

Those patterns are particularly favorable for EDF in France.

A while ago, I published an article titled "EV Revolution I - Electric Utilities." In that article, I tried to arrive at a rough estimate of how large an impact EV adoption could have on demand for electricity.

The conclusion was that even 100% EV adoption wouldn't change electricity demand dramatically (it would increase such demand by about 22% in the US and Europe). Moreover, it wouldn't necessarily require tremendous amounts of new generation capacity because much of such increased demand would happen at night, when electricity demand is otherwise low. It could however necessitate grid improvements.

That EVs get charged mostly at night, though, can still have implications. This is particularly obvious when it comes to Electricité de France (OTCPK:ECIFY), France's dominating electric utility. Let me explain why.

First off, EDF's generating fleet is highly reliant on nuclear power:

Source: EDF

Nuclear powerplants are usually baseload generation. That is, generation which is supposed to always be running, because it has trouble varying its own output technically or economically. However, EDF has so many nukes in France, that these nukes forcibly have to perform in "load following" roles at times. For instance, back in 2013, France's nuclear fleet (which is the same as saying EDF's nuclear fleet) ran at a 73% load factor, vs. 91% for the US nuclear fleet.

Source: Euanmearns.com, "Energy Matters"; Entso statistical fact sheet

When and why do these low load factors occur? They occur in the summer (because France uses electricity heating during winter, so the fleet is sized for winter peak demand) and at night. At these times, demand falls low enough that the nuclear fleet's capacity greatly exceeds demand. Necessarily, it has to follow load down, even if this can at times be somewhat mitigated through exports.

So why are EVs a major positive for EDF, then? For two easy-to-see reasons:

  • EVs (cars) are driven year-round, and there's even something of a peak in summer. Thus, they will help the lower loads during summer.
  • And most importantly, EVs tend to be charged at night, so they'll increase loads at night.

These two factors will thus "fill in" demand voids which are particularly dear for EDF given the characteristics of its generation fleet. The factors will help EDF achieve a higher load factor on its nukes. And the nukes properly operate at a more or less fixed cost, so an increase in load factor should help overall profits over time.

Conclusion

It's likely that heavy EV adoption in Europe/France over time will favor EDF. The reason is that EDF's nuclear fleet is forced to run at a low load factor during the summer and night. EVs will tend to fill in spots where EDF's nuclear fleet would most likely see higher demand.

This is obviously a longer-term factor, as EV adoption won't be instantaneous.

Disclosure: I am/we are long ECIFY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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