EDF / 2019 Universal registration document

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

Carbon Pricing As the largest generator of low-carbon electricity in the country, EDF Energy benefits significantly from the increase in the wholesale power price as a result of the application of a carbon price to the carbon emissions of fossil fuelled generation. Electricity generators in Great Britain are subject to two main carbon pricing mechanisms, the EU Emissions Trading System (EU ETS) and the UK’s Carbon Price Support tax. The UK will remain part of the EU ETS until the end of the Brexit Transition Period in December 2020. In 2019, the UK Government consulted on options to replace the UK’s membership of the EU ETS after Brexit; the Government’s preferred option is the establishment of a UK ETS linked to the EU ETS, to come into effect in January 2021, which would require agreement between the UK and the EU to link the schemes. However, if this cannot be achieved, possible alternatives would be the introduction of a new carbon tax or of a stand-alone UK ETS. The Carbon Price Support tax applied to electricity generators in Great Britain is currently set at £18/tonne until March 2021 and the tax rate for 2021/22 is expected to be set in the March 2020 Budget.

In 2019, Cottam and West Burton A power plants generated 2.4TWh of electricity. This is 2.1TWh less than last year due to the impact of cold weather “Beast from the East” in 2018 and uneconomic market spreads in 2019 along with the closure of Cottam. The decision to close Cottam power plant after more than 50 years of being in service was made on 7 February 2019. This decision reflects market changes and a drive to actively remove carbon from the power generation process. West Burton B CCGT generated 6.2TWh of electricity in 2019, a decrease of 0.6TWh from 2018. This represented a good performance considering the market volatilities, plant challenges and associated extended outage periods during the year. EDF Energy operates also two mid cycle gas storage facilities in Cheshire. Hill Top Farm became commercially operational in mid-January 2015 with three cavities. A fourth cavity became commercially operational in 2018 with the remaining cavity returning to service in December 2019. During 2018 the decision was made not to return the Hole House Facility to commercial operation for the foreseeable future due to challenging market conditions coupled with imminent requirements for some significant investment to the plant.

Customer business 1.4.5.1.2.3

31/12/2019

31/12/2018

Customer electricity supplied  (in GWh) Customer gas supplied (in GWh)

44,526 28,527

43,939 28,944

Number of domestic customer accounts at the end of the period (in thousands)

5,043

4,945

The Customers business is responsible for the supply of gas and electricity to residential and business customers across the United Kingdom and the wholesale market optimisation of EDF Energy’s generation and customer assets. EDF Energy sells energy to two major customer segments: domestic and business customers. The size of business customers ranges from large public sector contracts to small privately-owned businesses. EDF Energy adopts different risk management strategies for domestic and business customers. In the context of the Net Zero ambition, EDF Energy is developing innovative low-carbon products and services to better answer our customer needs and grow the business beyond supply, as an opportunity for EDF Energy to have longer customer relationships and create new revenue streams. The company deployed a first of a kind Electric Vehicle offer for B2C and B2B customers including tariff, charging point installation and car leasing. Early market take-up from both residential and business customers is promising, with more than 10,000 inquiries, including major B2B installation contracts such as Royal Mail Group. EDF Energy has launched a smart home store offering connected devices and a battery offer for customers who generate the own power and apps for energy efficiency using smart meter data. For industry, solutions for renewable energy, storage, energy audits and a demand-side management aggregation trading platform have been successfully rolled out, providing ways to support EDF’s customers in low-carbon transition. Domestic EDF Energy supplied 11.05TWh of electricity and 28.07TWh of gas for the domestic segment in 2019. As of 31 December 2019, EDF Energy had 3.025 million electricity accounts and 2.019 million gas accounts. Competition The latest data to the end of Q3 2019 showed that the combined market share of small and medium suppliers is now around 31%, compared to 27% at the end of Q3 2018. There were 49 small and medium suppliers at the end of Q3 2019 (excluding white labels and Licence Lites), compared to 60 small and medium suppliers at the end of Q3 2018. EDF Energy had 5.043 million product accounts at December 2019, an increase of 98k since the beginning of the year. EDF Energy’s market share as a whole fell from 9.52% in Q4 2018 to 9.45% in Q4 2019. This decrease is favourable compared to an average loss of market share of 2% for the other major suppliers. Mergers and acquisitions are also driving change in the market. The asset swap between E.On and RWE has resulted in E.On acquiring the npower business and Ovo

Energy sought approval to purchase SSE’s domestic customer business in 2019, this was approved by the competition regulator and the sale was subsequently confirmed in early 2020. Competition is also causing supplier failure and on 26 October 2019, it was announced that EDF Energy had been appointed Supplier of Last Resort for Toto Energy’s c.134,000 domestic customers (c.240,000 accounts) and Solarplicity Supply Limited (c. 7,500 domestic and 500 business customers). Regulatory Change Default Tariff Cap Ofgem introduced a cap on default tariffs for domestic customers on 1 January ■ 2019; The cap level is updated to reflect revised costs every 6 months, alongside the ■ separate cap on tariffs for domestic customers with prepayment meters; During 2020 Ofgem will make a recommendation to Government about whether ■ the default tariff cap should remain in place for the following year. Smart metering Policy after 2020 GB energy suppliers are required to take “all reasonable steps” to install smart ■ meters for their domestic and small business customers before the end of 2020; Government has consulted on a new obligation on all suppliers for the period ■ 2021 to 2024. The government received a number of responses from industry which challenged the level of ambition they set, and proposed alternative approaches. EDF Energy expects the next stage of the consultation process to begin by early Q2 which will provide more clarity on the governments preferred approach. Supplier of Last Resort In the United Kingdom energy market there are licence arrangements to protect ■ customers of failed suppliers. Ofgem appoints a Supplier of Last Resort (SoLR) to take on the customers of the failed supplier. The costs of failures, including unpaid contributions to environmental schemes, are then generally mutualised across all remaining suppliers; The number of failed suppliers has been significant in the last two years (13). In ■ October 2019 EDF Energy was appointed as SoLR by Ofgem for two failed suppliers; Toto Energy and Solarplicity. Together these have increased EDF Energy’s domestic customer portfolio by around 5%.

61

EDF | Universal registration document 2019