EDF_REGISTRATION_DOCUMENT_2017

FINANCIAL STATEMENTS Income Statement

General assumptions Note 1.3.15 explains the methodology used by the Group for impairment testing. The WACC in the benchmark countries was lower overall than at 31 December 2016 (variable decline of around 10 to 70 base points, depending on the country). In core Euro zone countries (especially France and Belgium), the slight decrease in the WACC largely reflects the downward trend in risk-free rates in recent years. The sharper downturn in the WACC in other Euro zone countries (especially Italy) reflects the positive change in country risk. Test results are submitted to analyses of sensitivity to the discount rate, and the principal results of these analyses are detailed below. The market environment remained weak and volatile in 2017 as the trends observed in 2015 continued. Low market prices for electricity and commodities, and for CO 2 , affected profitability on traditional generation assets (essentially thermal plants), and the recent introduction of capacity mechanisms with different modalities in each country cannot so far restore sufficient returns for these generation facilities. On the market horizon, however, forward prices were slightly better than the price levels used in the previous medium-term plan. Over the medium and long-term horizon, fundamentals show relative year-on-year stability. The fuel and electricity price trajectory used in impairment testing is slightly lower than last year, except for the United Kingdom where the price trajectories expressed in pounds sterling are slightly higher than those used last year. As these assumptions are crucial in determining recoverable value and thus for the results of impairment tests, sensitivity analyses are applied to long-term price curves. At 31 December 2017, the macro-economic context presented above does not introduce any major risk for the Group in addition to the risks already noted in previous years’ financial statements; the impairment booked reflects risks specific to certain CGUs or specific assets. In 2015, €(1,096) million of impairment was recorded on EDF Energy’s thermal assets (mainly coal-fired plants and gas storage facilities, and to a lesser degree combined-cycle gas (CCGT) plants), reflecting the low spreads, volatility and additional revenues generated by the capacity mechanism. Additional risks were also identified in 2016, amounting to €(44) million. At 31 December 2017, the persistently poor market for coal-fired plants (declining clean dark spreads and lower than expected results from capacity auctions) and for gas storage (continuously low volatility) led the Group to review the strategy relating to these assets, and decisions were made for early shutdown, sale or mothballing of plants. The operating lifetimes of the Cottam and West Burton A coal-fired plants were reassessed and reset to end in 2019 and 2021 respectively, in line with the results of the latest capacity auctions. As a result of updated assumptions regarding the Group’s use of these facilities, their residual book value of €(188) million was fully written off at 31 December 2017. The updated impairment test on the West Burton B CCGT plant showed a surplus recoverable value over the book value. As it is currently considered that the test result does not necessarily indicate a long-term improvement in the asset’s profitability prospects, there was no partial reversal of the €(216) million impairment recorded in 2015 on this plant. A 5% variation in clean spark spreads would have an impact of approximately 5% on the recoverable value of the West Burton B CCGT plant, with no effect on a positive difference between the recoverable value and the book value. United Kingdom – EDF Energy Thermal assets and gas storage assets

Nuclear assets (plants in operation and the Hinkley Point C project) The recoverable value of existing nuclear assets (7 power plants) is estimated by discounting future cash flows over the assets’ useful life, assuming a 20-year extension for the Sizewell B PWR plant (other, Advanced Gas-cooled Reactor (AGR) plants have already had their useful life extended by the British Nuclear Authority, which announced the most recent decisions in February 2016). The recoverable value of EDF Energy’s nuclear fleet has improved compared to 2016, in line with slightly more favourable long-term price trajectories, and is significantly higher than the assets’ book values. Sensitivity analyses of the benchmark price curve do not call into question the existence of a positive difference between the recoverable value and the book value, identified by the impairment test. EDF Energy’s goodwill amounted to €7.6 billion (£6.7 billion) at 31 December 2017 and mainly resulted from the takeover of British Energy in 2009. The recoverable value of EDF Energy is estimated by discounting future cash flows over the assets’ expected useful life, taking into consideration the plan to construct two EPRs with a 60-year useful life at the Hinkley Point site, a project for which the final contracts were signed on 29 September 2016. Future cash flows relating to these plants are determined by reference to the Contract for Difference (CfD) between the Group and the UK government. The CfD sets stable, predictable prices for EDF Energy for a period of 35 years from the date the two EPRs are first commissioned: if market prices fall below the CfD exercise price, EDF Energy will receive an additional payment. The impairment test incorporates the revised project costs (see press release of 3 July 2017) and thus includes total project completion costs (excluding borrowing costs and exchange rate effects compared to the project’s benchmark rate of £1=€1.23) of £19.6 billion (in 2015 sterling), £1.5 billion more than previous estimates, still assuming delivery of Unit 1 by the end of 2025. This estimate also assumes successful completion of operational action plans in partnership with suppliers. The estimated additional costs (net of action plans) essentially result from a better understanding of the design, which has been adjusted to meet the regulator’s requirements, the volume and sequencing of work on site, and the gradual implementation of supplier contracts. EDF’s projected rate of return (IRR) is now estimated at 8.5% compared to about 9% initially. On these revised bases, the difference between the recoverable value and the book value of EDF Energy remains significant at 31 December 2017. The project review also identified a risk of deferral of the Commercial Operation Date (COD), estimated at 15 months for Unit 1 and 9 months for Unit 2, entailing an additional potential cost of around £0.7 billion (in 2015 sterling) which would lead to an IRR for EDF of around 8.2%. This risk of deferral and the associated additional cost would reduce the margin resulting from the EDF Energy impairment test by approximately 20%. Further sensitivity analyses were also conducted for information purposes, for example based on a 4-year deferral of commissioning and an associated additional cost of £4 billion over the new benchmark business plan. The results do not call into question the book value of EDF Energy. Impairment of €58 million was recognised on other assets, including one real estate asset. Although the Brexit decision has no immediate impact on EDF Energy’s impairment tests since most cash flows (receipts, costs, investments) and assets are stated in pounds sterling, it is still difficult at this stage to anticipate the long-term consequences, given the uncertainties over the timing and terms of the UK’s departure from the European Union. The Group will monitor movements in the rates of return demanded by investors and changes in fuel prices, CO 2 prices and macro-economic data such as GDP growth, which could affect price curves. Italy – Edison As an intangible asset with an indefinite useful life, the Edison brand, first recognised at the value of €945 million when Edison was taken over in 2012, was subjected to an impairment test that did not identify any risk of impairment. This test used the royalty relief method.

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EDF I Reference Document 2017