By Bate Felix

PARIS (Reuters) - The French government plans to introduce a "price corridor" for France's wholesale nuclear power market that will enable state-controlled utility EDF (NYSE: EDF) to cover its costs while shielding consumers from volatile electricity price spikes.

Set out in a consultative paper, the new model would replace the ARENH nuclear market scheme under which EDF, which operates France's 58 nuclear reactors, is obliged to sell 100 terawatt hour or around a quarter of its annual nuclear output to rivals at a fixed price of 42 euros ($46.84) a megawatt hour (MWh).

It would boost the bottom-line of the heavily indebted utility, while continuing to provide French consumers with one of the cheapest retail electricity rates in Europe, according to the document.

Power from the reactors covers around 75% of French energy needs.

EDF says the ARENH price is too low and is advantageous to its competitors, allowing them to buy cheap nuclear when wholesale market prices rise above 42 euros/MWh but buy elsewhere when market prices are low.

The government-proposed reform would see the introduction of a price corridor, with a floor and ceiling price for nuclear power generated by French reactors, including the under-construction Flamanville 3 EPR reactor.

"The floor and ceiling price levels would be fixed using a transparent methodology and would be implemented under the control of the energy market regulator CRE," the government said in a consultative document presented to journalists.

The floor and ceiling price levels would allow for a fair remuneration for EDF that would cover its complete costs, and for a reasonable remuneration of its assets with regard to the risks it carries, the document said.

The floor and ceiling prices are still to be determined, but the difference would be around 6 euros/MWh.

French officials say the reform will not impact European wholesale power prices, and that it will introduce more liquidity to the market, with most French nuclear power available to European consumers thanks to the coupling of the European power market. This allows suppliers to purchase power anywhere in the 28-nation bloc.

"All European consumers will have access to the (nuclear) volumes in the wholesale market, this will contribute to price formation," it said.

The French government will need the go-ahead from the European Union's competition authorities to proceed. The ARENH scheme is due to end in December 2025. ($1 = 0.8966 euros)

(Reporting by Bate Felix; editing by Richard Lough and Elaine Hardcastle)

Reuters