EDF / 2018 Reference document

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PRESENTATION OF EDF GROUP Description of the Group's activities

Hydropower generation issues 1.4.1.5.1.4 The hydropower segment is currently working on implementing Law no. 2015-992 ("the energy transition law"), managing access to water and developing projects. Concession renewals In France, hydropower generation facilities are operated under concessions awarded by the French State for structures of 4.5MW or more and within the framework of prefectoral authorisations for structures of less than 4.5MW (see section 1.5.6.2.4 “Regulations applicable to hydropower facilities”). Concessions have an initial term of 75 years, pursuant to the French Law of 16 October 1919 relating to hydropower use. The majority of concessions expired before 2012 were renewed for terms of 30 to 50 years. The French State has however not yet renewed 13 concessions that had expired at 31 December 2018. Since their expiry these concessions have fallen under the “rolling delay” situation defined by Article L. 521-16 par. 3 of the French Energy Code as when a concession that has expired but not been renewed is extended under its former conditions until such time as a new concession is granted so as to ensure the continuity of operations in the meantime. In this respect, these concessions under the “rolling delay” will, by virtue of Finance Law no. 2018-1317 of 28 December 2018 for 2019, be subject to a fee as from 1 January 2019. The fees will be determined by decree of the Council of State, taking into account the characteristics of the concession. The Law on the Energy Transition for Green Growth of 17 August 2015 and the Decree of 27 April 2016 concerning hydropower concessions set down a new statutory and regulatory framework in which hydropower is included. A set of legal texts supplements this framework concerning the attribution and/or performance of hydropower concession contracts: the Order of 29 January 2016 relating to concession contracts and its implementing Decree of 1 February 2016, which define together the general framework for competitive bidding, the Decree of 27 May 2016 relating to purchase obligations and additional compensation, which may apply to certain hydropower facilities (see section 1.5 “Legislative and regulatory environment”). In this context, EDF is preparing for the renewal of concessions under the legal framework set out above, combining improved energy efficiency, attention to aquatic environments, compensation of the government and municipalities through fees and regional development, while ensuring the safety and security of operations. The European Commission (EC) initiated proceedings against the French State regarding hydropower concessions in France, based on Article 106 section 1 of the Treaty on the Functioning of the European Union (TFEU) read in conjunction with Article 102 of the same treaty. The European Commission therefore sent a formal notice to the French State on 22 October 2015, stating that it considered the fact that most hydropower concessions in France are attributed to and reserved for EDF as a violation of the above articles, since these measures reinforce EDF’s dominant position on the French retail electricity markets. The State replied to this notice, which marked the beginning of an adversarial exchange of positions between the State and the EC, without prejudice to the final outcome. As the chief interested party, EDF received a copy of the formal notice and sent its observations to the EC on 4 January 2016, firmly contesting the EC’s analysis and the grounds for this analysis. EDF has since been involved in certain exchanges between the French State and the EC, particularly to provide technical details on the operation of the French market. These discussions should continue in 2019 (see section 2.1.1 “Risks associated with the regulation of energy markets”). In accordance with Article L. 521-16-3 of the French Energy Code introduced by Law 2015-992 (“energy transition law”), the French government submitted an energy transition investment package to the European Commission in exchange for the extension of certain concessions held by EDF. The European Commission is due to rule on the compatibility of such an extension with European law, in particular Article 43 of Directive 2014/23/EU of 26 February 2014 on the award of concession contracts which limits the extent to which an active concession can be modified.

On 7 March 2019, the European Commission sent the French government formal notification concerning the renewal of hydropower concessions contracts. Other member States also received similar formal notification. More specifically concerning France, the Commission had identified problems with the application of European law concerning public orders to these renewals as well as issues of non-compliance of French legislation governing these renewals with the same European Public Order law. The French government has a period of two months to reply to the arguments made by the Commission. Development EDF undertakes a number of measures to give its rightful place to a profitable hydroelectricity sector in support of energy transition. New projects include the one at Romanche Gavet, in Isère, where EDF has begun ■ work to replace the six small existing plants with the construction of a new subterranean plant (capacity of 93MW for a generation capability of 55GWh more than the existing plants). This project is carried out in the context of the renewal of the Middle Romanche concession and the decrees published on 31 December 2010. The development of storage, by harnessing the potential of pumped-storage ■ plants in France (STEP) as part of the Group's Electricity Storage Plan, announced on 27 March 2018. The Decree of 17 June 2013 authorised EDF to build a new 240MW turbine generator set on the STEP site at La Coche in Savoie. This Pelton set, construction of which began in 2017, will increase the capacity of the existing facility by 20% and will generate approximately an additional 100GWh every year; the water supply line (244 metres long) was commissioned in 2018 and the assembly of the new generation set has started. EDF is also working on a major project in the Truyère Valley, in particular to meet the storage needs for energy transition purposes. This project would be conducted as part of an extension of the Truyère and Upper Lot concessions. It was submitted by the French State in April 2017 to the European Commission. An authorisation in principle is awaited prior to the formal notification process. Capacity increase: ■ through renovation, e.g. at La Bâthie plant in Savoie with the replacement ■ of six generation groups to increase the plant's total capacity to 600MW; works to increase the capacity of a fourth set started in 2018, with the first three sets already commissioned; by increasing the capacity of existing smaller hydropower plants under the ■ system of authorisation initiated by the Order of 29 January 2016, to contribute to the development of leading-edge means; by developing reserved-flow turbines. The purpose is to equip a certain ■ number of dams in order to recover part of the energy associated with these minimum regulatory flows, by adding in 2018 an additional total capacity of 4.5MW already commissioned since 2015, plus new projects currently under consideration with commissioning scheduled by 2020; The development of “small-scale” hydropower plants (with capacity under ■ 12MW but which can sometimes reach 20 to 30MW). One of the aims is to develop small-scale hydropower by: forging partnerships with a view to developing projects and looking at ■ opportunities to develop the installed capacity of the Group's “small-scale” hydropower plants in France; optimising and increasing the generation capacity of the existing fleet with ■ the return to service in 2017-2018 of several facilities after a major programme of renovations and/or, after a long period of standstill, responding to calls for tenders to build and/or operate micro-scale and small-scale hydropower projects. Three projects proposed by SHEMA and Électricité de Strasbourg won a call for tenders issued on 26 April 2016 and two projects proposed by SHEMA were successful in 2018 (in Vichy in l'Allier and Lescherette in Savoie).

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I Reference Document 2018