Hydropower reform: what the 17 June law changes for the electricity market

The essentials

The bill to revive investment in hydropower, definitively adopted on 17 June 2026 (National Assembly: 290 votes in favour, 59 against, after a matching vote in the Senate the previous day), is far more than a legal tidy-up. It rewrites the sharing of France's hydropower rent and settles nearly fifteen years of dispute with Brussels, opened by two pre-litigation procedures (EDF's dominant position, and the failure to re-tender expired concessions).

The compromise rests on three moves that answer one another:

• Exit from the concession regime in favour of an authorisation regime carrying a seventy-year property right, which secures the incumbent operators without re-tendering the operation itself, the State retaining ownership of the works.
• The counterpart demanded by the Commission: the obligation on EDF to open up at least 40% of national hydropower capacity to third parties, through a virtual capacity of 6 gigawatts auctioned over twenty years under the control of the energy regulator (CRE).
• A recomposition of the balance between the State, operators and territories (termination indemnities, new royalties, possible entry of local authorities into capital).

For the market, the issue is no longer the principle - now voted - but the calibration of Article 12: it will decide whether the opening is real or nominal. And the European risk is not entirely extinguished: the duration of the property right (seventy years) against that of the auctions (twenty years) remains a point of friction knowingly accepted with the Commission.

1. The unlock: ending fifteen years of European dispute

The reform was born of a deadlock. Two pre-litigation procedures by the European Commission targeted France: one on EDF's dominant position in hydropower, the other on the failure to re-tender expired concessions, operated under the "rolling deadlines" regime that prohibited any substantial investment. The result: a frozen fleet, concessions reaching their term with no framework to renew them.

The solution chosen was negotiated with the Commission even before the text was tabled, on the basis of an agreement reached in the summer of 2025. It shifts the entire regime: the concession is replaced by an authorisation held by the current operators, the State retaining ownership of the dams - therefore without re-tendering the works. The counterpart accepted by Brussels is the auction-based opening mechanism of Article 12.

The signal for the market is clear: after years of uncertainty, the legal framework for large hydropower works is stabilised, a precondition for any modernisation or new-capacity investment.

2. The new ownership regime: the seventy-year property right

For installations above 4,500 kilowatts, the concession regime is terminated and replaced by an authorisation regime in which former concession-holders receive a property right over the works, together with a right to occupy public land, for a period of seventy years.

The distinction is more than semantic. The holder may freely dispose of its rights within the scope of its authorisation, but ownership of the works and of the public domain remains entirely with the State. This property right is the condition for financing investment: it is transferable with the State's consent, can be mortgaged or leased to finance the construction and improvement of the works, and any change of control of the holder is subject to State approval. The law also opens the possibility of a minority stake held by local authorities in the operating companies.

The seventy-year term is not a detail: it is the depreciation horizon that once again makes large projects bankable, foremost among them pumped-storage power stations (STEP), explicitly cited as the justification for this long duration. It is the reform's central investment thesis - and, as we shall see, its main residual point of friction with Brussels.

3. Opening through auctions: Article 12 and virtual capacities

This is the heart of the compromise. EDF must guarantee the opening of at least 40% of installed hydropower capacity to third-party companies. The tool is not an asset sale but a virtual hydropower capacity: the buyer purchases market products, with no right whatsoever over the actual operation of EDF's works.

The mechanism is precise:

• An initial volume of 6 gigawatts, made available over twenty years. The joint committee's report notes that a capacity of 5.4 GW would have sufficed under European case law, but that the threshold was raised to 6 GW to anticipate the increase in EDF's installed capacity.
• A product structure oriented towards flexibility: one quarter in "run-of-river and pondage" products, three quarters in products reflecting the flexibility of reservoirs and pumped storage - meaning the mechanism mainly creates a tradeable pool of dispatchability, precisely as the penetration of intermittent renewables increases the need for it.
• A secret reserve price, proposed by EDF and approved by the CRE, which takes into account production costs and market conditions. The reference to production costs - "won through hard-fought negotiation" according to the rapporteur - is intended to prevent the mechanism from becoming a "hydro Arenh", i.e. a price cap transferring EDF's rent to its competitors.
• A volume revised every five years by ministerial order, after the opinion of the CRE and the Competition Authority, to maintain the 40% target.

The CRE is the arbiter of the mechanism: it approves the auction terms in advance, monitors transactions, ensures that the promised flexibility is actually delivered, and can require EDF to modify the parameters as reviews proceed. Above all, the law closes the gap raised by the Commission - the lack of enforceability against EDF - by giving the Dispute Settlement and Sanctions Committee (CoRDiS) the power to sanction EDF without prior formal notice. This is a signal of regulatory firmness that will weigh on the operator's behaviour from the very first auction round.

4. Indemnities, royalties and territories

The termination of concessions opens a two-way financial mechanism. Each concession-holder receives an early-termination indemnity (based on forecast cash flows, undepreciated expenditure and rights vested in title), but must in return pay a financial consideration for the grant of the property right. Both amounts are assessed by independent experts on the binding opinion of the CRE, then submitted to the binding opinion of the Commission for Holdings and Transfers. According to the rapporteur, the financial consideration "will without doubt exceed the termination indemnity" - a way of meeting the European requirement of no State aid, the indemnity clause "being intended not to apply". The net balance for the State's finances will depend on the experts' valuation, but the thrust of the compromise works in its favour.

The law also introduces a new royalty regime: a progressive production royalty (a scale by bands of net income per MWh), a land royalty of 2,000 euros per installed megawatt, and an overhaul of local taxation (IFER). A 3% fraction of the production royalty is paid to public territorial basin authorities, and a mechanism to compensate local authorities for lost revenue is planned from 2029. This is a territorial recomposition of the rent accompanying the reform.

5. Implications by operator

EDF is the first concerned. Securing its fleet legally over seventy years is a major gain, where the rolling deadlines had prohibited any substantial investment. The counterpart - selling the equivalent of 6 GW of virtual capacity over twenty years - is real but manageable, since the reserve price incorporates production costs and remains confidential; as one rapporteur summed up, "it is EDF that will propose the reserve price to the CRE: the incumbent will keep the upper hand". The risk for EDF therefore shifts downstream: the formation of the reserve price and its control by the CRE will be the recurring point of tension.

The other concession operators face a negotiation challenge over the termination indemnity: Engie's representative, heard in a hearing, indicated that the group's investments in hydropower would depend on the indemnities likely to be received. For alternative suppliers (energy companies, aggregators), the law opens for the first time access to a significant fraction of French hydropower capacity; but the value of that access will depend entirely on the auction rules the CRE has yet to set - until the first round has taken place, the benefit remains theoretical.

6. Residual risks to watch

• European risk, not extinguished. The Commission contested the asymmetry between the duration of the property right (seventy years) and that of the auctions (twenty years). The Senate knowingly accepted this divergence and flagged it to the Commission during its hearing. If this imbalance were judged excessive, it could revive the grievance when the pre-litigation procedures are closed. The Senate also regretted not having been shown the Commission's "comfort letters".
• Risk on the 40% target. With virtual capacity capped at 6 GW, the 40% target may no longer be met once EDF has invested and increased its installed capacity - "a source of litigation with the Commission and EDF's competitors", hence the five-yearly review clause.
• Calibration risk (the "hydro Arenh"). Everything hinges on the reserve price: too low, it turns the mechanism into a rent transfer to competitors; too high, it empties the opening of substance and exposes France to a fresh grievance. It is the CRE that will decide, mechanism by mechanism.
• Timetable risk. The operational shift depends on regulatory texts not yet adopted (the order setting the volume, decrees from the Conseil d'Etat) and on the concession termination-and-grant procedure; the law provides for entry into force by decree, no later than 1 September 2026. External analyses estimate the effective transition at about eighteen months - an estimate outside the text of the law, to be confirmed.

7. So what

For a market player, the reading is twofold.

In the short term, the reform lifts an uncertainty that had frozen investment for more than ten years: it is a clear unlock, favourable to modernisation projects and new pumped-storage stations, and therefore to the entire engineering and financing chain of hydraulic infrastructure.

In the medium term, the value concentrates on two regulatory parameters still open: the auction reserve price and the duration that Brussels will ultimately accept. These will determine how the rent is shared between EDF, its competitors and the State. Vigilance should therefore bear less on the law, now passed, than on the CRE's implementing texts and the formal position of the European Commission, expected in the coming months. That is where it will be decided whether the opening is real or nominal.