EP.18 Simone Rossi, CEO of EDF Energy

Our strategy remains to be significant in the UK and to try to contribute to the progress of the energy business in all its different components, which is the same strategy EDF has in France. In fact, the UK is a special place in EDF, almost as if it were a domestic market for our company, so there is a stronger preference to remain relevant and present in different segments to participate in these challenges.

Thank you, John. I know this sounds like a silly question in the UK, but could you just say for our international listeners what does EDF Energy do? Well, we are a generator of electricity here in the UK, about 20% of the electricity. We also supply electricity and gas to customers in the UK, with about 18% market share for large business customers and about 10% market share for the retail market. We are also building a new nuclear power station at Hinkley Point, and we are developing a sister power station at Sizewell. We also own a business called Pod Point, which focuses on a network of charging points for electric vehicles, and we own another business called Imtech, which is active in contracting and facility management across the UK. Last but not least, we have a renewable business here in the UK and internationally, part of which is running wind farms, but we are also building new wind farms onshore and offshore as well as solar.

Well, to be honest with you, being excellent in music takes a lot of talent and a lot of ambition, and I was probably a little bit short of some of those components. At the end of the story, I said, if all goes well, I might end up maybe teaching clarinet, but I thought perhaps I was actually more genuinely interested in other avenues. So at some point, I tried to keep going for a while, but I was rehearsing with some friends who were a bit more serious than me, and eventually I thought it would be better for everybody that I stepped down.

So the UK is about 10% of the overall EDF group, maybe a little more when it comes to investments or a little less when it comes to employees, but that's the order of magnitude. Actually, I took the role that I have because I was asked to. That's a very simple question. My boss, the chairman of EDF France, asked me to take this job, which I did very gladly because I knew it, having been educated already in the past between 2011 and 2014, and knowing the market, how vibrant it is and how important it is for EDF to succeed. I'm very pleased to have this job.

Well, it looks like you were there at the point in time exactly. Britain has invested its trust in EDF to deliver Hinkley C, and I'd rather they do not regret this choice that they've made. So that's your mission number one, and then there is everything else. But that's really very important to me, very important to all of us. It's a commitment to the country really, so that's absolutely the most important thing. And I talked to Vince, you know, you did the difficult bit, which was actually to structure this deal and to prepare it, etc. We just need to build it now, so it's actually rather easy compared to what he did.

It does, it does well.

I really do not, honestly. But you mentioned maybe the biggest impediment is their perception of this industry as they form their own views of the world, their appetite to do one thing rather than the other. So maybe the biggest impediment is our ability to talk about our industry in a manner which is appealing also to girls or to females. At EDF here in the UK, we have about 30% female representation in our workforce, which I suspect is above the industry average, but it's low. However, there are pockets in our company where gender diversity is really struggling. Clearly in our customer business it's better, but if you go into some parts of our nuclear generation business, historically, particularly in the upper ranks, it's much lower. I would say we are really convinced we touch it, we experience it every day: the lack of diversity of thought is a big hindrance to our business. It can come from gender diversity, from all sorts of diversity frankly, cultural backgrounds, all sorts of stuff, but gender is a big one. The evidence of the value of that sort of diversity of opinion is very high and in our industry probably undervalued in general.

Well, in a couple of manners. The first is an impact in France. There is a very large program to upgrade and extend the life of French nuclear power stations. When you work at these stations, you've got literally thousands of people in confined spaces, so COVID imposes restrictions, and this type of work has been disrupted, slowed down. This has meant that not just for this year but certainly for next year, and frankly we're not out of the woods yet, there will be a lower availability in the French nuclear fleet because this work will take longer to do. That is a big impact because the French fleet has a big weight not just in France but in Europe and through the interconnections also to the UK. That's the biggest impact. Rather than trying to produce close to 400 terawatt-hours of nuclear energy in France every year, this year we will be between 315 and 320. So a big shortfall in volumes. The second impact is mostly here in the UK in our large business supply activity. We've incurred steep losses from the unwind of hedges for customers whose consumption dropped suddenly at the moment of lockdown. We are very exposed to very large customers of all kinds, and this meant that we had purchased electricity for them to consume that was not consumed, so we had to sell it at a loss on a very depressed wholesale market. Last but not least, we have a question, more than a question, actually a reality on bad debt in our supply business in general terms, particularly in the SME part where businesses are disappearing as a result of this huge crisis, but also in the residential market where we are very conscious that we have in front of us a winter season where probably unemployment will begin to bite, so people will probably struggle to pay their bills.

It's very much as Juliette said, it's really very early. We see some signs, but they're not particularly indicative. So it's more the logic to say, look, one way or another, there will be an increase in unemployment. Exactly what the implications are going to be, how long the economy will be able to reabsorb some of that, these are all questions. We don't know. But for the time being, we do experience some bad debt issues already on the business side of the business, which for us is quite sizable. So we are already impacted, and on top of it, we have concerns and questions about what the impact is going to be in our retail business.

It's a very good question. We keep asking the same question ourselves: are we the last of the dinosaurs? Is it just legacy of where we are coming from? Is it a hindrance to be integrated in a way, or should we move in a different direction? So this is an excellent question. I would say that our strategy remains to be significant in the UK and to try to contribute to the progress of the energy business in all its different components, which is the same strategy EDF has in France. In fact, the UK is a special place in EDF, almost as if it were a domestic market for our company, so there is a stronger preference to remain relevant and present in different segments to participate in these challenges globally. What we need to do, my job actually consists in trying to make sure that this is an advantage and an opportunity and it doesn't become a hindrance.

If you're a supply business that doesn't generate and you've had actual... No, we actually run the businesses at arm's length, so we are not internalizing volumes. We do do a little bit of it in the outer seasons, like season five or three or four or five years out, we do have customers occasionally that prefer to secure some power at a given price for which there's no liquidity in the market, and in that case we are in a position to do so internally. But for the rest, we very much run the two businesses independently, and particularly in our large business segment, we really have a policy to hedge our positions in general.

Broadly speaking, I would say yes. Clearly these massive projects present challenges of all sorts. It's not easy; it would be surprising if it were easy. What I'm happy about is maybe a few things. The first is that the way we are building Hinkley Point C incorporates a number of innovations from previous EPR projects, learnings from previous mistakes or optimization, and we are seeing these innovations working and delivering as expected. For example, we've lifted the cap of the liner, which is the bottom part of the reactor building, in one piece. This has never been done before. We've created a workshop where these liner caps are produced and welded together, and we have a much better outcome in terms of safety, quality, and schedule. We can do those operations while we work on site on other things, and once the component is ready, we lift it in place. We are also doing a lot of precast platforms, which again allows us to parallelize some of this production. So we will see the first moment of truth at the dome lift of Unit One. We have all the data and the return of experience from Flamanville and Olkiluoto, and I think we are ready, we are in a good way oriented to do much better than these previous sites in terms of performance. Of course, it's still in front of us, so we need to remain prudent. The second thing is that we've been able to keep the project going through COVID lockdown. That was not easy, not a foregone conclusion. Although we had to slow down, reduce the number of people on site from 5,500 to below 2,000 for a couple of months, and then gradually come back. We kept going with our critical milestones, but some of the work at the end of the year will not be done; we just couldn't do all the work we planned. Exactly what the implications of COVID are remains to be seen. We are presently doing a piece of work because COVID has also affected some equipment manufacturers in Britain and elsewhere in Europe. As the lockdown hit, a number of factories producing equipment were shut or restarted at a very slow pace. We are trying to pull together a picture to see what the impact is. There will be an impact, but hopefully it will not be dramatic. I have to be prudent because I was on the phone this morning with Stuart and we were discussing some of the recent uptick in cases and the need to put in place additional measures. We don't have a furlough scheme anymore, so back in March some people were happy to go home and be paid at home, but that's not the case anymore. Now people really want to come to site, but there is a risk if they want to come to society even if they have symptoms, so that creates a risk on our side and for the communities around the site. So we need to be very serious about that.

In general, I would say it's not such a big difference honestly. Of course, having diversity of suppliers for the same equipment would be ideal, but the nature of our activity means that this is only true for a small part of our components. Some components have unique suppliers, and the lockdown happened pretty much everywhere in the world, so pretty much everywhere there has been an impact. In general terms, there is an element of resiliency of being in Britain which is more linked to logistics and transport. We are doing whatever we can to maximize the UK content, which is about two-thirds of the investment, and we think we can do a bit better than that, for example in Sizewell we could go to around 70%. That in itself is a good measure that gives us resilience to other things such as Brexit complications.

Two things. The first is labor cost. When you see a nuclear plant, you think of lots of equipment, concrete, steel, but that's not really the cost. The cost is the cost of people, tens of thousands of people working to deliver the station. Clearly, the cost of salaries in China is significantly lower than in the UK or France, so that is a very major component. The second component is what I would call repetition. Very much like in sports, it's a matter of training. If you are well trained and your muscles are fit and you are repeating your task for the 10th or 20th time, you will perform better, be slicker, faster in solving problems. This is a challenge for us because we are restarting this industry here in Europe, and many of the issues we face we face for the first time in a long time or maybe for the first time in absolute terms because some aspects are brand new. China has been on a building spree over the last 20 or 25 years and looks like it's continuing. So that is a second factor. It's not a global phenomenon; we can't learn in China and apply that in the UK. It needs to be a European learning curve. In the UK, what we see at Hinkley Point is that we are building two units, and when you look at what we're doing on Unit Two, things are about 30% faster or more productive than Unit One. There is already a big learning impact from doing the same thing the second time, and also an element of design stabilization. That's why we are looking at Units Three and Four at Sizewell, because for us the project at Sizewell is a great opportunity to repeat what we have done already, embed all these improvements, and build knowing already at a detailed level what we are going to build. That would be the way to really get these learning curves under way and bring the economics of nuclear under control.

It's a very difficult question. In terms of where we are, we're about where we were more than one year ago. So I have to say it's a big disappointment from my point of view. In July 2019, the government published a consultation document for financing new nuclear, and we haven't seen an answer to this consultation document yet, and we are in October 2020. So on this front, there has been zero progress over this period of time. Now I have to put that into context: there have been a general election, changing government, Brexit, the Secretary of State changed, and then we got into the pandemic. So we can't ask for miracles. What I can tell is that now I see encouraging signs of really active engagement with government officials and various counterparts. We now know that the issue is being looked at very seriously. What I really would like to have is an answer, possibly a positive answer to say we intend to do it and here is a framework to finance it, or vice versa. But the tendency would be to maybe postpone and wait and see, maybe why don't we wait until Hinkley Point C is delivered and then decide? That would be too late, I'm afraid, because in order to transfer lessons learned, you need to dovetail one project into the other. Afterwards, there is a risk that some obsolescence sets in and you can't replicate the design because some components are not available anymore. So it's a bit complex; it's a decision that really has a clock ticking on it. The funding question is the mother of all questions, and I really want to have a sense of direction before the end of the year.

It's a good question. We have a cap on our development expenditure that we cannot exceed, and we will not exceed. With the current trend, these ends depending on another thing could end between the end of 2021 and mid-2022, just to give you an idea. But at some point, we will have no option other than really shutting down the project because we run out of funds. We certainly don't want to be in a position that we've been in the past, where you pile up money to develop a project in good faith and eventually it doesn't get done for whatever reasons. So I think generally we have all the elements for a decision to be made, so there's no reason for this decision to be postponed. So I think really the time is now.

Well, our focus will be on green hydrogen, I have to say, and in particular on electrolysis in two forms: electrolysis that can be coupled to renewables or to any form of electricity for that matter, could be also electricity from nuclear as long as electricity doesn't emit carbon in the first place, but also high-temperature electrolysis, electrolysis of steam, which has the potential to be more efficient. Why am I saying that? Because when it comes to decarbonizing electricity, renewables do a fantastic job, but decarbonizing heat is much harder. When you think about a nuclear power station, it's actually a machine that produces heat, and we choose to transform all the heat that we can, which is around a third of the overall heat, into electricity because of thermodynamics laws. So two-thirds of the heat actually go into the sea. Is there something better we can do with this heat? The answer is probably yes. So we are studying ways to use some of the low-carbon heat produced abundantly in a nuclear power station and divert it to feed into processes such as hydrogen production, which would be of higher efficiency electrolysis, potentially cheaper than classical electrolysis. The second is direct air capture. Direct air capture needs to be coupled with a carbon storage system. Having low-carbon heat can make the direct air capture solution work and therefore become a machine that absorbs CO2 from the atmosphere. These are very interesting concepts which could make the nuclear business carbon negative.

Underrated.

I think it's underrated because it's still small and I think it will become bigger, and we will have to learn to use it.

I think they are overrated. It depends on the business. Of course, if you have a global renewable business, it is an advantage to having a local renewable business when you do large offshore wind farms, but what we can observe here in the UK, you mentioned some of our competitors, and I'm not afraid to say that some of them are quite excellent, like Octopus. Even Ørsted is also opening up to multiple jurisdictions now, Texas I think was the latest. But the local focus for me is the most important thing in our business. Electricity doesn't move around very easily, and the political communities are the most important ones, and politics still turns around countries or nations. So I would say you can be multiple jurisdictions, but that doesn't make a difference. The difference they can make is to be more local and more precisely fitting the local needs of a specific country or context.

It is clearly overrated. I think there is a lot of posturing and declarations, a lot of greenwashing in general terms. Companies purchasing renewable energy but not really renewable energy, rather certificates. So there is a lot of posturing, and I think it's way overrated.

Well, I think it's clearly underrated, at least nuclear fusion that happens in the sun because we can do more with photovoltaics. But it's maybe overrated the one that happens on Earth because it doesn't happen yet and maybe one day it will. So it is a great dream to have, but I think it belongs to the domain of research. I know you are in Oxford and there are startups and companies having projects, so this is still in the domain of research however it's funded. That's my view on nuclear fusion.

I think it's underrated, but I would expand more generally to decarbonization. That is to say that today if you heat your home with gas and produce emissions, that doesn't make a difference if you heat your home with a green alternative. So I think the impact that the actions of everybody in the country has on climate change gases is something that eventually will have to be considered. It's a huge transition as a system, but there will be a moment where this carbon taxation needs to be expanded to further activities to drive the type of behaviors and answers that we need.

Thank you, John.