EDF / 2019 Universal registration document

1. The Group, its strategy and activities Description of the Group’s activities

Performance of the hydropower generation fleet 1.4.1.5.1.3 In 2019, EDF spent more than €470 million in mainland France for the development and maintenance of its hydropower generation fleet to ensure optimum and safe operation. A highly-automated and remotely-managed fleet In order to take advantage of the flexibility of its hydropower generation facilities, for some years now EDF has been initiating ambitious programmes involving automation, remote control of hydropower plants and centralised management for each valley. Currently, the largest plants in EDF’s hydropower fleet, representing over 15GW (around 75% of its installed hydropower capacity) are remote-controlled from four control centres able to make adjustments to the plants’ operating programmes at any time in order to respond to the needs of the electrical system and to economic opportunities arising on the electricity market. To improve the reliability of its largest power plants, EDF monitors physical parameters (including temperature and vibration) of machinery, from five regional operations centres. This enables any discrepancy to be speedily detected; incidents can be avoided thanks to greater familiarity with the status and operational behaviour of the equipment. Technical performance of the fleet and hydro power conditions in 2019 Hydropower generation may witness substantial variations from one year to the next, depending on climatic fluctuations in water resources. Key points for 2019 were: good production performance, with the implementation of transformation worksites; cash-oriented management; downtime optimisation based on market needs and prices; and production being impacted by very poor hydrological conditions through until October. Hydropower electricity generation before the deduction of the power needed to operate pumped-storage plants was 39.7TWh in mainland France. The 2019 generation indicators show a highly satisfactory level of performance with a low rate of internal loss  (1) of 4.0% (4.5% in 2018). The overall availability of the hydropower fleet, i.e. the percentage of time over the year during which the power plants are available at full capacity, was 99.3% in 2018 compared with 99.2% in 2018. The damage rate was 4.0% in 2019. After having modernised maintenance and operation of its hydropower fleet, in particular through the renovation of electrical installations, I&C, and computerised management, maintenance, and operation solutions, EDF is continuing work to optimise and modernise its assets. Anticipating needs relating to the expansion of variable renewable energy (solar and wind power), the emphasis is on increasing the flexibility of hydroelectric production resources and adaptation of power plant operation to capture the opportunities opened up by the development of European intraday power trading. Hydropower generation issues 1.4.1.5.1.4 France’s “Climate and Energy” Act of 8 November 2019 made hydroelectric development a French energy policy goal. EDF has decided to implement an appropriate structure to address the challenge of improving the hydropower potential of its installations. Over and above the production of renewable energy and its expansion, hydroelectric power also plays a major role in managing water resources locally. Issues surrounding 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 1.5.3.3. “Regulations applicable to hydropower facilities and other renewable energy installations” and 2.2.1 “Market regulation; political and legal risks”, risk factor 1C Changes to the regulatory framework for hydraulic concessions).

EDF operates 80% of continental France’s hydroelectric capacity, and 66% of hydroelectric power production. 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 context, EDF is preparing for the renewal of concessions under the legal framework set out in this section 1.5.3.3, 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. Discussions between the French State and the European Commission (EC) to resolve to formal warnings in this respect are ongoing. Indeed, the European Commission (EC) initiated proceedings against the French State regarding hydropower concessions, 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 the French State a formal notice on 22 October 2015, stating that it considered that the French State has infringed the above-mentioned provisions by awarding the majority of the hydroelectric concessions in France to EDF and renewing them with EDF as these steps strengthen 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, which does not affect the final decision that will be adopted by the EC. 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. In 2019, these discussions continued, in particular in view of the performance of the French market. Furthermore, on 7 March 2019, the European Commission sent the French government formal notification concerning the renewal of hydropower concessions contracts. Seven other Member States also received formal warnings: Austria, Germany, Poland, Sweden, Portugal, and the UK, with Italy also receiving a second, additional formal warning. More specifically concerning France, the Commission alleged 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 State had two months to reply to the EC. Development In recent years, EDF has undertaken a number of major development projects for its hydropower fleet that are now coming to an end: construction of a new 240MW pumped-storage plantsat La Coche, inaugurated ■ in Q4 2019; renovating and increasing the generator output at the La Bathie power plant, ■ increasing its capacity to 600MW: this work was completed in 2019; a new project at Romanche Gavet (93MW capacity with production potential of ■ 55GWh), due to be commissioned in 2020. EDF is intending to continue this expansion. Indeed, hydropower is a key component in energy transition, due both to the low-carbon nature of output and to its flexibility and storage capacity, which outperforms other energy storage solutions by far.

(1) Internal loss is the energy from flows that do not pass through turbines which were not stored. The rate of internal loss is obtained by dividing the internal loss by the generation performed during the year, and then adding the internal loss.

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EDF | Universal registration document 2019