EDF / 2020 Universal Registration Document

6 FINANCIAL STATEMENTS

Notes to the consolidated financial statements

IMPAIRMENT OF OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT

Cash-Generating Unit or asset

Impairment indicators

WACC after tax

Impairment 2020 (in millions of euros)

Operating segment

Decrease in market prices and early shutdowns of certain AGR units/lower production forecasts Regulatory investments in certain fully-depreciated plants

Nuclear assets*

6.0%

(621)

United Kingdom

Gas storage assets

5.4%

(13)

Unfavourable change in regulations on hydropower concessions

Hydropower assets*

6.5%

(39)

Lower profitability on certain contracts

Italy

Energy services*

6.5%

(27) (36) (32)

EDF Renewables Other impairment

Some CGUs

Unfavourable tariff prospects

3.4%-6.6%

IMPAIRMENT OF OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT

(768)

Impairment mainly booked at 30 June 2020. *

General assumptions In view of the specific context resulting from the Covid-19 pandemic, at the half-year 2020 closing a specific approach was adopted to take account of macro-economic conditions (discount rates), changes in market prices for commodities and electricity, the initial orientations resulting from adjustment of the Medium-Term Plan, and the specific situation of certain Group entities. This led to recognition of a total €738 million of impairment at 30 June 2020. At 31 December 2020, the Group applied its usual method for impairment testing, updating the annual tests for goodwill and intangible assets, including those tested at 30 June 2020. Electricity prices Over the market horizon, the forward prices used in the impairment tests are the market prices observed at the year-end, which were substantially lower than at the 2019 year-end. Over the long-term horizon, these tests consider price curves constructed analytically by assembling blocks of assumptions and fundamental models of the supply-demand balance, in an annually updated scenario-building process. The long-term price curves in the 2020 scenario are lower at the start of the horizon (2024-2030) than in the 2019 scenario, with a loss of value in non-peak electricity supplies in the four principal countries (France, the UK, Italy and Belgium), as anticipated in the interim tests conducted at 30 June 2020. They are then higher than in the 2019 scenario in most countries over the following period (2030-2040). There are several explanatory factors for this pattern: the long-term price of fossil commodities, especially gas prices in Europe, declined ● between the two scenarios due to an upward adjustment to assumptions of LNG supply (as many new LNG plant projects have been announced in several parts of the world), plentiful resources at durably low prices in the United States (non-conventional gas and associated gas), and falling demand in Europe over the whole horizon reflecting the effect of energy efficiency policies and the expansion of renewable energies; meanwhile, the price trajectory of CO 2 quotas in the ETS (EU Emissions Trading ● System) was adjusted upwards in view of the European Union’s plans for tougher commitments to achieve a substantial reduction in greenhouse gas emissions, particularly concerning targets for the years 2030 and 2050;

updated assumptions regarding supply and demand for electricity, showing a ● downturn in demand for electricity in the medium term (due to higher energy efficiency, and to a lesser extent lower prices for gas supplied in Europe). This trend self-corrects over the longer term, with demand rising in line with the growth in electric vehicles and electrolytic hydrogen. As these assumptions are crucial in determining recoverable value, sensitivity analyses are conducted on long-term price curves when impairment tests are carried out. The information disclosed about the sensitivity of recoverable value to electricity prices remains appropriate in the current context: the effects of the Covid-19 pandemic are expected to be limited after 2025, and reference is made to forward prices that capture the effects on short-term growth. Regarding the assumptions concerning capacity mechanisms, capacity revenue is expected to be slightly higher than in the 2019 scenario in most European countries, due to the downward revision of the return on the most recent generation assets on the electricity sales market, particularly in connection with upward revision of CO 2 prices. This structural trend also concerns France, but with a time lapse. With the new capacities set to arrive in France between now and 2025 (particularly the Flamanville EPR, the Landivisiau CCG plant, and France’s first offshore wind farm), the French electricity system will regain some room for manoeuvre, and this will bring capacity prices down. Discount rates The discount rates used in these tests are higher than at 31 December 2019 for most core European countries, to reflect EDF’s broader financing spread combined with an increase in the market risk premium. However, the increase is more moderate than at 30 June 2020, due to revision of the financing spread and to take account of the lower risk-free rates. In the United Kingdom, the change in the income tax rate leads to a stability of the discount rate compared to 31 December 2019. In Italy, the sovereign risk premium was raised at 30 June 2020 due to the specific national context, and remains higher at the year-end than in 2019 because of volatility, resulting in a more pronounced increase in WACC. The year-on-year increase in the principal WACC rates used in the tests is around 10 to 20bp for France and Belgium and 40bp for Italy. The test results have been subjected to analyses of their sensitivity to the discount rate. At 31 December 2020, the great majority of the Group’s assets are impacted by the macro-economic context presented earlier. The possible consequences in terms of impairment were already broadly identified for the half-year closing at 30 June 2020.

347

EDF - UNIVERSAL REGISTRATION DOCUMENT 2020