EDF / 2018 Reference document

6.

FINANCIAL STATEMENTS Notes to the consolidated financial statements

REGULATORY CHANGES IN FRANCE NOTE 4 FRANCE’S MULTI-YEAR ENERGY 4.1 PROGRAMME (PPE)

If these measures are confirmed in the final laws and regulations, the principal consequence of their adoption for the Group’s financial statements will be recognition of the prospective modification of the depreciation period for the coal-fired plants operated by the Group in France, at Le Havre and Cordemais (an increase of some €200 million in the annual depreciation expense over the period 2019-2022). The Group is, however, examining the possibilities of converting these plants to biomass plants. At the end of a meeting held on 24 January 2019, EDF and the Ministry for the Ecological and Inclusive Transition approved a programme of work leading up to a decision on the Ecocombust project. As announced in EDF’s press release of 29 January 2019, between now and autumn 2019, this programme of work should help validate the technical trials, environmental impact studies and economic model for this conversion project. After that period, if the technical, economic and environmental conclusions are satisfactory, once discussions have been held with the Government and local communities, EDF will embark on the industrialisation stage, aiming to start producing the fuel in 2022. The Ecocombust project concerns the production of an innovative, ecological fuel that can be used to run heating or electricity generation facilities that currently run on coal. To ensure secure electricity supplies in the north-west quarter of France, especially Brittany, some or all of the biomass produced could be used to provide 80% of the fuel for current reactors until 2026 if the studies by RTE commissioned by the government confirm the need, to ensure the electricity network in the west of France is secure at the highest peak consumption times. The draft PPE also sets the objective of a significant step-up in the pace of development of renewable energies. Legal challenges against the tariff decisions of 2016 and 2017 were brought before France’s Council of State by Anode (the national association of retail energy operators) and Engie, on the grounds that the “blue” regulated electricity sales tariffs for residential and non-residential customers were contrary to European Union law. Ruling on these challenges, by decisions of 18 May and 3 October 2018 the Council of State validated the principle of regulated electricity sales tariffs, notably acknowledging that they serve the public economic interest objective of guaranteeing consumers an electricity price that is more stable than market prices. The Council of State confirmed that this objective cannot be achieved by softer State intervention and that regulation of sales tariffs guarantees electricity firms equal access to consumers and is not discriminatory. However, the Council of State considered that the tariff regulation is disproportionate in its duration, which is permanent, and its scope of application, which currently covers large business sites with subscribed power levels below 36kVA. These facts were cited as justification for partial cancellation of the tariff decisions of 28 July 2016 and 27 July 2017. Implementation of these decisions is the responsibility of the lawmaker, which is currently preparing the necessary legislative measures through France’s future “Pacte Law” for business growth. Tariff changes Since 8 December 2015, in accordance with the NOME Law on organisation of the French electricity market (Articles L. 337-4 and L. 337-13 of the French Energy Code), the French Energy Regulatory Commission (Commission de régulation de l’énergie or CRE) has been responsible for sending the Ministers for the Economy and Energy its reasoned proposals for regulated sales tariffs for electricity. If no objections are made within three months, the proposals are deemed to have been approved. REGULATED ELECTRICITY 4.2 SALES TARIFFS IN FRANCE – “BLUE” TARIFFS Council of State decision of 18 May 2018

On 25 January 2019, France’s Ministry for the Ecological and Inclusive Transition issued the draft PPE, the oversight tool for the energy policy introduced by the French law on the energy transition for green growth adopted in 2015. In principle, the PPE covers two successive five-year periods. The first PPE published in October 2016 departed from this rule by setting out two successive periods of three and five years respectively, 2016-2018 and 2019-2023. The revised PPE, which is not yet finalised, will cover the periods 2019-2023 and 2024-2028. This draft PPE follows the Ministry’s press release of 27 November 2018 presenting the government’s targets for the multi-year programme and the national low-carbon strategy. For nuclear electricity generation, the French government has now set the deadline of 2035 for reaching the objective of a 50% nuclear share in the national electricity mix. This objective will consequently be modified in the Energy Code. To achieve it, 14 nuclear reactors would have to be shut down by 2035, including the closure of the two reactors at Fessenheim “by spring 2020, in application of the cap on installed electronuclear power, so that the Flamanville EPR can be put into operation”. The schedule for these shutdowns would be aligned with the timing of the fifth 10-year inspections of the reactors concerned, except for 2 reactors scheduled for closure during the second period of the PPE, in 2027 and 2028, provided the criterion of secure supply is respected. If certain conditions relating to electricity prices and European electricity market trends are fulfilled, two additional reactors could also be shut down in 2025-2026 by a decision to be made in 2023. The final version of the PPE will name the priority sites for these reactor shutdowns. All of the closures would be associated with State support for the regions concerned, mainly through an ecological transition contract to foster new local development dynamics. The draft PPE is currently undergoing a consultation process before it can be adopted and translated into laws or regulations in 2019. If the measures described above are confirmed in the final laws and regulations, the principal consequence of their adoption for the Group’s financial statements will be recognition of the change in the expected shutdown date of two nuclear reactors to 2027 and 2028, ahead of their fifth 10-year inspection: this will have an impact on the value of nuclear provisions at the time of the change of estimate, and prospective modification of the depreciation period for the two units concerned. As this situation would bring forward the shutdown of two reactors in the Group’s fleet by a few years, the various scenarios examined indicate that the potential effect on nuclear provisions, particularly the decommissioning provision, could be an increase of some tens of millions of euros, via an adjustment to the relevant balance sheet assets. The French government is to propose the terms of a new system of regulations for existing nuclear plants that will protect consumers against rising market prices after 2025 by allowing them to benefit from the competitive advantage of investments made in the historical nuclear power plant fleet, while giving EDF the financial capacity to ensure economic sustainability of generation facilities and meet the requirements of the PPE in low-price scenarios. The draft PPE also states that “the Government, together with the industry, will conduct a programme of work by mid-2021 to examine the questions of the cost of new nuclear energy production and its advantages and disadvantages in relation to other low-carbon generation methods, the possible financing models, the project management modalities for new reactor projects and public consultation, and matters relating to the management of waste generated by the potential new nuclear fleet. Based on this information and depending on developments in the energy situation, the Government will make a decision regarding the suitability of launching a renewal programme for nuclear installations”. For fossil-fired electricity generation, under the draft PPE the last coal-fired plants would be closed down by 2022, and no further authorisations would be issued for new electricity plants that use fossil fuels.

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