EDF / 2018 Reference document

6.

FINANCIAL STATEMENTS Notes to the financial statements

The costs associated with conclusion and management of purchase obligation contracts will be eligible for compensation in 2019, as they have been since 2017. This concerns an annual amount of around €45 million. In addition to these measures, the amended French finance law for 2018 applied a downward adjustment to the amounts of compensation paid by the State for public service charges in 2018: these charges had decreased substantially due to a rise in 2018 electricity market prices between the initial forecast of July 2017 and the adjusted forecast of July 2018, and that decrease automatically narrowed the differential between the purchase obligation tariff payable to producers and the market price for electricity. For the same reason, in 2018 the State also lowered 2018 compensation for the difference between 2017 expenses as reforecast in July 2017 and actual 2017 expenses as determined in July 2018. Public service charges borne by EDF The amount of expenses (excluding the annual contribution to repayment and associated interest) to be compensated to EDF for 2018 is €6,554 million. The amounts received in the year 2018 (excluding the annual contribution to repayment and associated interest) totalled €6,919 million (including €4,610 million for the dedicated “energy transition” budget account and €2,309 million for the general budget). A repayment schedule for EDF’s receivable corresponding to the accumulated shortfall in compensation, which amounted to €5,780 million at 31 December 2015, was set out in the ministerial decision of 13 May 2016, amended on 2 December 2016. Under this schedule the receivable will be fully repaid by 2020. On 22 December 2016, EDF securitised a portion of this receivable (€1.5 billion) through a State-approved “Dailly law” assignment to two groups of assignees. Consequently, since 1 January 2017, EDF has received 73.6% of payments made by the State in reimbursement of the receivable as set out in the repayment schedule. The remainder is paid directly to the assignees. During 2018, the State paid EDF €1,217 million of the principal amount of the financial receivable, comprising €1,194 million relating to the 2018 repayment schedule and €23 million, paid on 2 January 2018, relating to the 2017 repayment schedule. The €1,194 million received corresponds to the amount due for 2018 under the repayment schedule. At 31 December 2018, EDF’s share of the outstanding financial receivable amounted to €2,014 million. 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).

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:

Price (€/kW) 13.00 18.50 18.24 18.50 18.50 16.77 18.05

Quantities (GW)

Auction date December 2017

1.22 1.24 2.65 4.99 5.22 5.48 5.91

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. 3.7 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 L221-4 of the Energy Code, approximately twice the current cost of the standard obligation. EDF 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, EDF is exposed to a risk of a shortfall in certificates for the fourth period of the scheme. ENERGY SAVINGS CERTIFICATES

3.6

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.

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EDF I Reference Document 2018