EDF / 2018 Reference document

FINANCIAL STATEMENTS Notes to the consolidated financial statements

ENERGY SAVINGS CERTIFICATES 4.6 Decree 2017-690 of 2 May 2017 issued by the French Ministry for the Environment, Energy and the Sea, published in the Journal officiel on 3 May 2017, set the obligation levels for the fourth period of energy savings obligations running from 1 January 2018 to 31 December 2020. The overall level of obligations for this three-year period was substantially increased by the decree: 1,200TWhc for the “standard” obligations and 400TWhc for the obligations that are intended to benefit households in situations of energy poverty, compared to 700TWhc and 150TWhc respectively for the previous period. Energy sellers may fulfil their obligation in three ways: by supporting consumers in their energy efficiency operations, funding ministry-approved energy savings certificate schemes, and purchasing certificates from eligible actors. Any surplus “stock” of certificates gained in the previous period also counts towards fulfilment of the obligation. If there is a shortfall at the end of the period, obligated actors must pay the Treasury the fine of €15 per MWhc of shortfall laid down in Article L. 221-4 of the Energy Code, approximately twice the current cost of the standard obligation. The EDF group achieved a substantially higher number of energy savings certificates in 2018 than in 2017, and will aim to increase it further in order to achieve the objective set by the State. However, given the significant increase in the level of the obligation, combined with the currently shallow market for energy savings certificates and doubts over that market’s future liquidity, the Group is exposed to a risk of a shortfall in certificates for the fourth period of the scheme. 4.7 ARENH applications for 2018 deliveries totalled 96.3TWh: 87.1TWh for supplies to final customers and 9.2TWh to compensate network operators for network losses. These applications were made at a time when the ARENH price (which includes a capacity guarantee in its €42/MWh) was competitive in comparison to forward baseload prices for 2018 (from early September 2017). For the ARENH applications of November 2018, total demand from alternative suppliers was above the legal maximum, at 132.98TWh excluding EDF subsidiaries, and EDF will deliver the maximum ARENH volume of 100TWh for supply to competitors’ final customers in 2019. Subscriptions to cover network losses amounted to 20.4TWh. In a decision no. 2018-222 of 25 October 2018, as required by the Energy Code the CRE set out the method for allocating ARENH volumes when applications exceed the legal maximum. This decision stipulated that if the ARENH was oversubscribed in November 2018, curtailment would only apply to new ARENH applications made in that session, and that EDF-controlled subsidiaries’ excess applications would be fully curtailed (this does not apply to distributors). Finally, it stated that EDF-controlled subsidiaries could enter into contracts with the parent company replicating the ARENH system and the terms of supply, particularly the curtailment rate for alternative suppliers. This curtailment mechanism, when applied, makes reference to market prices more influential in determining regulated sales tariffs, and all other things being equal, also increases the price of the energy component. ARENH

Finally, in accordance with decree 2016-158 of 18 February 2016 concerning compensation for public energy service charges, on 12 July 2018 the CRE published its decision 2018-156 recording the public service charges for 2017 (€6,475 million) and providing a revised forecast of charges for 2018 (€6,940 million) and a forecast of charges for 2019 (€7,206 million).

4.5

FRENCH CAPACITY MECHANISM

The French capacity mechanism took effect on 1 January 2017. It was introduced by France’s Energy Code to ensure secure national power supplies. On 8 November 2016, the European Commission authorised France’s proposed capacity mechanism subject to the country introducing 7-year certification contracts for new capacities, admitting foreign capacities, and taking measures to prevent any market manipulation. Several auctions of capacity for 2018 were held on the European Power Exchange EPEX SPOT, in 2017 and 2018. The volumes traded amounted to 10.96GW in November 2017 for the price of €9.31/kW, 10.25GW in December 2017 for the price of €9.38/kW and 1.17GW in April 2018 for the price of €9.38/kW (the market reference price for 2018 was €9.34/kW). Several auctions of capacity for 2019 were held on the European Power Exchange EPEX SPOT in 2017 and 2018. The volumes traded and the associated prices were as follows:

6.

Quantities in GW

Price in €/kW

Auction date December 2017

1.22 1.24 2.65 4.99 5.22 5.48 5.91

13.00 18.50 18.24 18.50 18.50 16.77 18.05

March 2018 April 2018 June 2018

September 2018 October 2018 December 2018

Following the auction of 13 December 2018, the last before the year of delivery, the reference price for 2019 is now known: it is €17.37/kW. An over-the-counter market exists alongside these capacity auctions. EDF has participated in these auctions since they began. All income from the auctions is recognised in full in sales of goods. The capacity price is passed on through all EDF’s customer contracts, whether the customers are on regulated sales tariff or market-price contracts, and also through other electricity suppliers’ contracts.

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EDF I Reference Document 2018