France plans tax to pay EDF €4.9-bn compensation for renewables loss

French energy giant Electricite de France SA (EDF) and the country's government have reached a deal under which EDF will receive €4.9-billion ($6.56 billion) in compensation for its financial deficits due to subsidies for renewable power generation over the years.

The French government had devised a special tax known as Contribution to Electricity Public Services (CSPE) under which a tariff set by the state is levied on electricity consumers to enable energy companies to recover extra cost incurred on financing more cost-incentive renewable energy generation and selling power at market prices, and other public services.

Since 2007, the tax set for CSPE was insufficient to compensate for the cost increases, resulting in accumulation of deficit, borne entirely by state-owned EDF. The deal brings an end to the years-long talks between EDF and the state on the mounting debt position of the company due to the subsidies.

Under the agreement, the state will reimburse the deficit of around €4.3 billion as at the end of December 2012, as well as the implied financing costs of €0.6 billion. The total amount of €4.9 billion will be reimbursed gradually by the end of 2018, with the outstanding receivable carrying interest at market rates.

The government plans to reimburse the company in installments with increases in the CSPE contribution starting with €3 per megawatt hour with effect from 1 of January.

The final receivable amount will be determined later in 2013 by the country's energy regulatory commission CRE.