EDF / 2018 Reference document

PRESENTATION OF EDF GROUP Group strategy

however, there is no guarantee that any of these parameters will remain at the ■ current level, as evidenced for example by the sharp fluctuations in the price of European CO 2 emissions licences, which fluctuated between €7/t and €25/t in 2018. In contrast with Europe, electricity consumption is rising fast in emerging markets, especially in Asia. This is to the benefit of electricity producers in these regions with forecasts (1) of around +200TWh p.y. in China between 2017 and 2040 (2.3% p.y. on average) and +51TWh p.y. in Africa (3.9% p.y.), versus +9TWh p.y. in the European Union (+0.3% p.y.). In Europe, France and the UK are developing low carbon energy independence policies, primarily built around a mix combining energy efficiency, renewable and nuclear energies. Thus, the UK, which must undertake a major renewal of its electricity generation facilities, has adopted the Climate Change Act and established a market model consistent with this policy (Carbon Price Floor, Contracts for Difference, capacity market, etc.). In France, electricity is also used as a decarbonisation catalyst, and the Law of 17 August 2015 on Energy Transition and Green Growth sets a ceiling of 63.2GW of installed nuclear capacity in France. Given the evolving demand and export capacities this capacity suits the development of renewable energies in the energy mix. Capacity markets are also being developed, in particular in France, the United Kingdom (2) and Belgium. The agreement reached in Paris at the 21 st session of the Conference of Parties (COP 21) confirms the effort being made to combat climate change and the ramping up of energy transitions beyond Europe. This agreement, which was ratified by 168 countries as well as the European Union, came into force on 4 November 2016. The One Planet summit organised in Paris in December 2017 helped to mobilise funds and resulted in commitments in favour of the fight against global climate change. In France, the energy transition law for green growth adopted in August 2015 sets out several medium and long term objectives relating to greenhouse gas emissions, energy consumption and the energy mix in France. This law led to the drawing up of a national low carbon strategy and a multi-year energy programme (PPE) to manage these targets. The PPE defines the orientations and action priorities of public authorities for managing all the different energy forms for five-year periods. The first PPE covered the periods 2016-2018 and 2019-2023. In 2017 and 2018, the new PPE was developed for the periods 2019-2023 and 2024-2028 bringing together several players. Against this backdrop, the government further committed to the National low carbon strategy by adopting the goal of carbon neutrality by 2050. From October 2017 to January 2018, 24 workshops were organised by the government to revise the PPE. From March to June 2018, a public debate was organised by the “Commission nationale du débat public” (French national public debate commission). The government then presented the main thrusts of the draft PPE on 27 November 2018 and the full draft on 25 January 2019. This document restates that the French energy targets relate to the reduction of energy consumption, by focusing on lowering the consumption of high-carbon energies and replacing carbon energies by carbon-free energies. It states that electricity is a decarbonisation lever for a number of uses. In particular, it sets the following targets: reduction of greenhouse gas emissions to 277Mt CO 2 in 2023 and to 227Mt CO 2 ■ in 2028; decrease in the primary consumption of fossil fuels of 20% in 2023 and 35% ■ in 2028 compared with 2012; development of renewable energies (consumption of renewable heat of 196TWh ■ in 2023 and a range of between 218 and 247TWh in 2028; installed capacity of renewable electricity in France of 74GW in 2023 and a range of between 102 and 113GW in 2028); development of electric vehicles (1.2 million private electric cars on the road ■ in 2023); end to the sale of new greenhouse gas emission vehicles in 2040; ■ 500,000 energy efficient home renovations every year. ■ It sets as its objective for 2035 a share of 50% nuclear power in the French energy mix, with the closure of 14 reactors by 2035, two of which are the Fessenheim reactors, and 2 to 4 other reactors shutting down by 2028: two reactors to close in the second period of the PPE, in 2027 and in 2028, subject to complying with the security of supply requirement; furthermore, if certain conditions relating to

electricity prices and the development of the European electricity market are met, of two additional reactors could close by 2025-2026, based on a decision to be taken in 2023. The text also provides for the closure by 2022 of electric power generation plants that are exclusively coal-fired. For the long term, the PPE project states that it is important to maintain the capacity to build new nuclear reactors based on national industrial capacities and technology. By mid-2021, the government will conduct a working programme with the nuclear sector relating to the industrial capacity, a de-risking programme of the new EPR 2 reactor model proposed by EDF, the valuation of the cost of this reactor, a review of the financing options of a programme for new reactors for the French electricity system and the necessary actions for the approval by the European Commission of the programme's financing mechanism and implementation. Moreover, the government will propose the details of a new regulation for the existing nuclear fleet to protect consumers against market price increases beyond 2025 while giving EDF the financial capacity to ensure the economic sustainability of the generation facilities to meet the needs of the PPE in the event of low prices. This outlook as well as the nuclear fleet's development path confirm the relevance of the major overhaul programme (“Grand Carénage”) of the nuclear fleet (excluding Fessenheim) undertaken by EDF. The PPE project will be subject to consultations in the 1 st half of 2019 and the decree should be published in the course of 2019. Customers are looking to increasingly take ownership of their consumption, and local communities of their energy policy. These new expectations are forcing energy producers to come up with new solutions and new, more decentralised models, facilitated by innovations in telecommunications and digital technologies and the emergence of new uses, including electric vehicles. The electricity sector is thus changing more than ever, at the centre of medium and long term societal and technological trends. Against this backdrop and given this outlook, European electricity producers have scaled back their investments in their traditional activities, focussing them on targeted segments, in particular renewable energy and low carbon solutions, international growth areas, networks, supply to customers, storage and services. Thus, the EDF group has set out its CAP 2030 strategic priorities in response to this context and the need to contribute to the scenario limiting global warming to +2°C (see section 1.3.2 “Priorities of the CAP 2030 strategy”). The EDF group must remain the champion of very low carbon generation by gradually changing its generation mix to tackle the challenges of energy transition. The Group’s decarbonisation strategy is detailed in chapter 3 of this document. EDF is investing in innovative technologies and in electricity storage to support energy transition. EDF has thus announced plans for the development of photovoltaic power, electric mobility and electricity storage. EDF leverages its key assets, namely its customer portfolio and its regional involvement, to ensure the successful implementation of energy transition. All of these activities contribute to positioning the EDF group as the leader in energy transition. Indeed: the competitive advantage of the existing nuclear fleet, the leadership in ■ hydropower and in the development of other renewable energies (wind, solar), investments in innovative technologies, such as storage, give it the means to tackle, over the long-term and in a complementary manner, the challenges of an energy mix with an increasing share of renewable energies, available at all times and at the best cost; investments in electricity grids are vital to the development of renewable energies ■ and the decarbonisation of practices; the customer portfolio and regional involvement are key assets in the effective ■ implementation of carbon-free energy practices and energy efficiency solutions. With its focus on major industrial issues, EDF has, since its creation, carried out public service missions and public service obligations. As a responsible player, it has included long-term industrial, social and regional dimensions in its strategic decision-making, in addition to economic performance. These include, in particular, solidarity, combating fuel poverty, respect for people, responsibility and ethics in the conduct of business. Therefore, in a particularly difficult market context, the EDF group is working hard to pursue its CAP 2030 strategy in order to be able to finance its priority developments.

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Sources: AIE, World Energy Outlook November 2018, and Eurostat for France, United Kingdom, Italy and Belgium. (1) See section 1.4.5.1.1 “United Kingdom– Strategy”. (2)

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EDF I Reference Document 2018