EDF / 2018 Reference document

2.

RISK FACTORS AND CONTROL FRAMEWORK Risks to which the Group is exposed

Description 5C-1: The amount of dedicated assets in France allocated by the Group to cover the costs of its long-term nuclear business commitments (radioactive waste and decommissioning) might need to be revised upwards or require additional expenditures. In France, as of 31 December 2018, the market value of EDF’s portfolio of dedicated assets was €27.7 billion, compared to €28.1 billion on 31 December 2017 (see sections 1.4.1.1.7 “Assets available to cover long-term nuclear commitments (outside the operating cycle)” and 1.5.6.2.2 “Specific regulations applicable to basic nuclear facilities” and note 45.3 to the consolidated financial statements for the financial year ended 31 December 2018). In the event of a significant change in the provisions determining the reference base of the dedicated assets, it might prove necessary to make additional allocations to adjust the value of these assets, which could have a material adverse impact on EDF’s financial position. Moreover, stricter regulations at the national level (in particular those that impact the base for determining the dedicated assets to be constituted by EDF) or European level may lead to more stringent requirements regarding the constitution of dedicated assets and have a significant impact on EDF’s financial position. Lastly, although these assets are constituted and managed in accordance with strict prudential rules, the Group cannot guarantee that price fluctuations in the financial markets or changes in valuation will not have a material adverse impact on the value of these assets (see section 5.1.6.1.6 “Management of financial risk on EDF’s dedicated asset portfolio” for a sensitivity analysis), which could require EDF to allocate additional amounts to restore the value of these assets; such events could have a material adverse effect on the Group’s financial position. In the United Kingdom, funds to finance nuclear commitments are managed by an independent organisation created by the UK government (Nuclear Liabilities Fund – NLF). Operators therefore have no assets to manage for this purpose (see section 1.4.5.1.2.1 “Nuclear generation”). The unavailability or insufficient amount of dedicated assets to hedge the expenditure schedules of the Group's long-term commitments could have a negative impact on the Group's financial position and reputation. Description 5C-2: The provisions allocated by the Group for final processing and storage of radioactive waste may be insufficient, particularly for long-lived waste from spent fuel reprocessing and decommissioning. The Group’s liability may be alleged, in particular as a nuclear power operator or producer of radioactive waste within the meaning of applicable legislation on waste, in the event of an accident or any damage to third parties or the environment from spent fuel or waste, even if they are handled, transported, kept, warehoused or stored by contractors other than the Group (especially, in France, the ORANO group and the French National Agency for the Management of Radioactive Waste (ANDRA)), in particular in the event of a breach by such contractors. In France, the EDF Group is responsible for all radioactive waste produced during the operation of its nuclear facilities, during the reprocessing of spent fuel from its reactors, and during the decommissioning operations of its nuclear facilities. (See section 1.4.1.1.4 "Nuclear fuel cycle and related issues - Storing conditioned ultimate waste"). The long-term management of radioactive waste has been the subject of various studies under programme laws no. 91-1381 of 30 December 1991 on research on radioactive waste management and no. 2006-739 of 28 June 2006 on the sustainable management of radioactive materials and waste. The Group cannot guarantee that all long-life high- and medium-level waste will constitute “final radioactive waste” within the meaning of Article L. 542-1-1 of the French Environment Code and, therefore, that such waste may be directly stored in deep geological layers, especially as the nuclear order of 10 February 2016 adopted pursuant to Law no. 2015-992 on the Energy Transition for Green Growth empowers the administrative authority to reclassify radioactive material as radioactive waste and radioactive waste as radioactive material. Nor can the Group guarantee the time-frame within which the authorisations allowing such storage will be granted by the public authorities, nor what the technical guidelines will be, which is likely to create uncertainties regarding the fate of waste, liability and the resulting costs for EDF.

In 2016, all the technical, economic and governance conditions necessary for the amortisation period of France’s nuclear fleet with the Group’s industrial strategy to match were met (see notes 1.3.2 “Group management judgements and estimates” and 3.7.1 “Extension to 50 years of the depreciation period of the 900MW PWR series in France” in the notes to the financial statements as of 31 December 2018). The consolidated financial statements dated 31 December 2018 incorporate the extension from 40 to 50 years of the amortisation period of the 900MW PWR units (except Fessenheim), without prejudice to any decisions which might be made by the French Nuclear Safety Agency following each ten-year inspection regarding authorisations to continue operations, reactor by reactor. The accounting period of the other series of France’s nuclear fleet (1,300MW and 1,450MW), which are more recent, currently remains at 40 years, because the conditions for an extension have not been met. The subsequent extension of these other series remains an industrial objective of the Group that may not be achieved. In the United Kingdom, in-service inspection and upgrading programmes for reactors in operation, in particular advanced gas reactors (AGR) with specific technology, may result in prolonged downtime. The current planned operating period for the reactors in EDF Energy's existing nuclear fleet ranges from 41 to 47 years for advanced gas reactors (AGRs) and is 40 years for the pressurised water reactor (PWR). Since EDF Energy acquired them, the operating lifespan of the AGR power plants has been extended by 10 years on average and the objective is to increase the operating life of the PWR power plant by 20 years after the currently planned 40 years (see section 1.4.5.1.2.1 “Nuclear generation”). However, in light of the nuclear safety rules applicable in the United Kingdom, the Group cannot guarantee that EDF Energy will obtain the necessary authorisations at the appropriate time to operate its existing nuclear reactors until the end of their currently projected operating life, or that such authorisations will not be obtained subject to conditions that entail significant expenditures or investments for the Group. For nuclear reactors where EDF is not in charge of operation but has financial interests (United States, Belgium, Switzerland, China), the Group is financially exposed to the same risks. The Group may be required to contribute up to the amount of its share to costly repairs or modifications to be carried out on these units or to events that may have an impact on their operating lifespan, production or availability. As in France and the United Kingdom, the nuclear safety authorities in these countries may take decisions that require additional works or controls, in particular as regards exploiting feedback from international experience and anticipating potentially precursory events. Furthermore, despite the quality of operations and the changes made by the Group to its nuclear facilities, it cannot be ruled out that some of these facilities will be subject to special operating conditions to reinforce the operating safety margins at the initiative of the nuclear operator responsible for nuclear safety or at the request of the Nuclear Safety Agency. Finally, a potential serious nuclear accident not involving the Group but with widespread consequences worldwide could lead the Safety Authorities to require new reactor upgrades applicable to the Group's reactors, and to those in which the Group has a stake. The Group cannot guarantee that it will receive the expected operating lifespan extension from the competent authorities. Furthermore, such extensions could also be obtained under certain conditions, the financial impact of which, in particular in terms of investments, could affect the Group’s strategy with respect to extending the operating life of its reactors or the Group’s ability to pursue its global investment strategy. These events could have a significant negative impact on the Group's financial position.

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EDF I Reference Document 2018