EDF / 2019 Universal registration document

1. The Group, its strategy and activities Group strategy

Group strategy 1.3

Environment and strategic 1.3.1 challenges The fight against climate change, by curbing greenhouse gas emissions, has entered a crucial phase with a view to limiting global warming to a maximum of +2°C, while continuing efforts to limit it to 1.5°C. The agreement reached in Paris at the 21st session of the Conference of Parties (COP 21) in 2015 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. With the Climate Change and Clean Energy Packages in 2008 and 2019, the European Union has set itself ambitious goals for 2020 and 2030. It is currently considering raising its decarbonisation objectives for 2030 and adopting a carbon neutrality target for 2050. In December 2019, the new European Commission announced a Green Deal to make this ambition a reality. In 2019, France adopted a National Low-Carbon Strategy, which incorporates the carbon neutrality target for 2050 set by its 2017 Climate Plan. The UK, which must undertake a major renewal of its electricity generation facilities, adopted the Climate Change Act in 2008 and established a market model consistent with that policy (Carbon Price Floor, Contracts for Difference, capacity market, consideration of a regulated asset base model for new nuclear generation facilities). Given that fossil fuel energy accounts for most CO 2 emissions worldwide, it is crucial to rapidly reduce their use in order to meet the climate target. To this end, the two major levers of actions are: lowering energy consumption by developing energy efficiency solutions and increasing the use of carbon-free energy sources, i.e. renewable energies – thermal (wood, biomass) or electric (hydro, photovoltaic or wind) – and nuclear energy. Thus, uses currently covered by fossil fuels must be replaced by carbon-free energy solutions, first and foremost electric power solutions. Today, electricity accounts for about 20% of energy consumed woldwide. Shifting uses to electric power primarily concerns the two sectors with the highest emissions: construction and transport. Given that electric power solutions are very often seen by consumers as being synonymous with energy efficiency, they contribute to the joint objective of reducing energy consumption and moving away from fossil fuels for transport, buildings and industry: heat pumps as a replacement for fuel-oil or gas boilers, electric vehicles as replacement for combustion-powered vehicles. Although electricity consumption is rising fast in emerging markets, especially in Asia, with forecasts  (1) of around +171TWh per year in China between 2018 and 2040 (+2.2% per year on average), and +45TWh per year in Africa (+4.1% per year), it is more gradual in the European Union: +28TWh per year (+0.9% per year). In Europe, the market and regulatory environment provide very little visibility as to revenues from power generation assets, despite the fact that major investments are still required to maintain existing assets and, in the longer term, to renew generation facilities: commodity prices are highly volatile and are expected to remain so in spite of the ■ abundance of fossil fuels. They remain very sensitive to geopolitical tensions, changes in economic growth, adverse climatic and technical conditions; the price of CO 2 is directly dependent on the applicable regulations. In Europe, ■ the emissions quota system currently in place does not ensure a minimum CO 2 price; the electricity market price depends directly on the above factors and impacts the ■ breakeven point of electricity generation plants. Under these circumstances, most production capacity is brought on stream under subsidy and/or guaranteed revenue schemes.

In France, the Climate and Energy Law of 8 November 2019 sets out several medium and long term objectives relating to greenhouse gas emissions, energy consumption and the energy mix in France. This law is implemented by a multi-year energy programme (PPE) that manages 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 proposed PPE for the periods 2019-2023 and 2024-2028 was submitted for consultation by the government in January 2020. 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, two additional reactors could close by 2025-2026, based on a decision to be taken in 2023. The proposed 2019-2028 multi-year energy programme also provides for ceasing coal-fired power generation by 2022. 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. The government asked the EDF group to prepare by mid 2021 a file with the nuclear industry relating to its industrial capacity, a “de-risking” programme of the new EPR 2 reactor model proposed by EDF, comprising the valuation of the costs 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. Furthermore, this PPE project provides that “ the French government will 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 ”. To achieve this objective, the French government plans to introduce economic regulation requiring EDF to provide a service of general economic interest (SGEI) to all French consumers, in a transparent and non-discriminatory manner, focusing on consumer and climate protection. This SGEI would be based on economic regulation of the existing nuclear fleet in order to reconcile and contribute to the following objectives: providing all consumers in France, regardless of their supplier, with long-term ■ protection by allowing them to take advantage, for a portion of their basic power needs, of the stable conditions offered by the carbon-free and controllable electricity generated by the existing nuclear fleet they helped finance;

(1) Sources: AIE, World Energy Outlook, November 2019, Sustainable Development Scenario

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EDF | Universal registration document 2019

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