In addition to these sensitive technical and industrial factors, the amount of provisions currently recorded could also change in the coming years depending on the assumptions used in terms of costs, inflation rate, long-term discount rate and disbursement schedules, as well as to any change in the regulations. The amount of these provisions, in accordance with the French Environmental Code, is subject in France to control by the administrative authority, composed jointly of the ministers in charge of the economy and energy, with said control verifying in particular the adequacy of the amounts provided for and imposing a ceiling on the discount rate of the provisions. Given these sensitivity factors, changes in certain parameters may require significant adjustments of the provisions booked. In such case, any insufficiency of provisions for long-term nuclear commitments may have a material adverse impact on the Group’s financial position (see note 32 of the appendix to the consolidated financial statements for the financial year ended 31 December 2019).
Note 32 “Analyses of sensitivity to macro-economic assumptions” of note 32 “Nuclear provisions in France” of the appendix to the consolidated financial statements as of 31 December 2019 shows the connection between “costs based on year-end economic conditions”, which represent estimated amounts as at 31 December 2019, and provisions made at present value. Concerning the long-term management of waste and the recovery and packaging of waste, the expenses at year-end economic conditions are evaluated at €33,615 million and the corresponding provision is €11,336 million, as the discounting effect is very significant due to distant waste storage maturities. Note 32 “Analyses of sensitivity to macro-economic assumptions” indicates the analyses of sensitivity of provisions and Group’s results to a discount rate change, for the different types of provisions.
Failure to control the costs and time-frames for completion with respect to the solutions for the treatment and ultimate storage of waste for which the Group is liable would have a negative impact on the Group’s financial position and reputation.
In France, the market value of EDF’s portfolio of dedicated assets to cover the costs of long-term nuclear commitments (radioactive waste and decommissioning), amounted to €31.6 billion as of 31 December 2019, compared to €27.7 billion as of 31 December 2018 (see sections 1.4.1.1.7 “Assets available to cover long-term nuclear commitment (outside the operating cycle)” and 1.5.3.2 “Specific regulations applicable to basic nuclear facilities” and note 48.3 of the appendix to the consolidated financial statements for the year ended 31 December 2019).
In the event of a significant change in the provisions determining the reference base of the dedicated assets, it might prove necessary to make additional allocations to adjust the value of these assets, which could have a material adverse impact on EDF’s financial position. Moreover, stricter regulations at the national level, in particular those that impact the base for determining the dedicated assets to be constituted by EDF(1) or European level may lead to more stringent requirements regarding the constitution of dedicated assets and have a significant impact on EDF’s financial position.
Lastly, although these assets are constituted and managed in accordance with strict prudential rules, the Group cannot guarantee that price fluctuations in the financial markets or changes in valuation will not have a material adverse impact on the value of these assets (see section 5.1.6.1.6 “Management of financial risk on EDF’s dedicated asset portfolio” for a sensitivity analysis), which could require EDF to allocate additional amounts to restore the value of these assets; such events could have a material adverse effect on the Group’s financial position.
In the United Kingdom, the funds for nuclear liabilities are managed by a body independent of EDF set up by the British government (Nuclear Liabilities Fund – NLF) for the existing nuclear fleet. For HPC-related liabilities, the funds will be managed by FundCo, a body (Trust) independent of HPC’s shareholders (EDF Energy and CGN) and the UK government. Operators therefore have no assets to manage for this purpose (see section 1.4.5.1.2.1 “Nuclear generation”).
The unavailability or insufficient amount of the dedicated assets to hedge the expenditure schedules of the Group’s long-term commitments could have a negative impact on the Group’s financial position and reputation.
In addition to the control of industrial performance, and given the place of nuclear generation within the EDF group and with nuclear safety as the number one priority, our responsibility as a nuclear operator determines the Group’s overall performance. As a result of its nuclear activities, the Group is exposed to nuclear civil liability risks.
Criticality in view of the control actions undertaken: Intermediate.
The primary responsibility for nuclear safety lies with the nuclear operator throughout the operating cycle of nuclear reactors. This principle along with the principle of control are reaffirmed in the EDF group’s nuclear safety policy. The Chairman and CEO delegate this nuclear operator liability to the Group Executive Director for the Nuclear and Thermal Fleet Department and the Group Executive Director for the New Nuclear Engineering and Projects Department, who then sub-delegate it to the Directors of the Divisions involved, who in turn sub-delegate it to unit managers.
The no. 1 priority given to nuclear safety drives the industrial performance of the nuclear activity as a whole. Nuclear safety takes into account the design by the nuclear operator and the operation by the designer. Failure to control operating safety could have major or even vital consequences on the value of the Group’s industrial assets, its financial position and its development outlook or even on the continuation of its industrial activity.
Any serious event related to the Group’s nuclear activities, with a potential or proven impact on the population or on a territory, could lead to a significant increase in the operating constraints of the Group’s industrial sites, or even the partial or total interruption of the Group’s nuclear activities. Such an event could have a significant negative impact on the Group’s activities, financial position, strategy and reputation.
The nuclear civil liability scheme that applies to nuclear facility operators of States parties to the Paris Convention, and the insurance applicable thereto, are described in section 1.5.3.2 (“Regulations applicable to basic nuclear facilities”) and section 2.1.2.6 (“Insurance”). This scheme is based on the principle of the operator’s strict liability. Accordingly, if an event occurs that causes nuclear damage, the Group would be automatically liable up to a monetary maximum set by the law applicable in the country, regardless of the source of the event that caused the damage and any safety measures that may have been taken.
The Group cannot guarantee that in countries where it operates nuclear facilities the maximum liability set by law will not be increased or cancelled. For example, the protocols amending the Paris Convention and the Brussels Convention, not yet in force (see section 1.5.3.2 “Specific regulations applicable to basic nuclear facilities”), provide for these maximum amounts to be increased and a substantial expansion of the damage to be covered. With regard to the new amounts, act no. 2015-992 of 17 August 2015 on the energy transition for green growth made them applicable as from 18 February 2016. The operator’s liability in France now amounts to €700 million in the event of a nuclear accident in a facility and €70 million in the event of a nuclear accident during transport. The entry into force of the other changes laid out in these protocols is likely to increase yet again the cost of insurance and the Group cannot guarantee that insurance covering this liability will always be available or that it will always be able to maintain such insurance. Insurance coverage for the Group’s nuclear operator’s civil liability and for the transport of nuclear substances is described in section 2.1.2.6 “Insurance”.
Property damage to EDF’s nuclear facilities is covered by insurance programmes (see section 2.1.2.6 “Insurance”). Despite this cover, any event that may cause significant damage to a nuclear facility of the Group could have an adverse impact on the Group’s business and financial position.
Lastly, the Group cannot guarantee that the insurers that cover both its liability as a nuclear plant operator and property damage to its facilities will always have available capacity or that the costs of cover will not significantly increase, particularly in light of the impacts on the insurance market of events such as the nuclear accident in Japan that occurred in March 2011.
In view of these risks, and in application of Group policy, each Group company operating nuclear facilities acts within the framework of legal and regulatory requirements specific to the country in which it operates and is obliged to comply with them. Each one ensures the nuclear safety of its facilities and constantly improves the level, based on its methods, skills and values. The Group develops common principles aiming to obtain the best level of prevention of incidents and protection of workers, the public and the environment. These principles apply to all stages of the activity,
(1) The French Cour des Comptes’ report on the decommissioning and dismantling of nuclear power plants, published on 4 March 2020, recommends that the costs of all decommissioning preparation operations, post-operational expenses and the cost of taxes, levies and insurance premiums directly attributable to decommissioning sites should gradually be included in the long-term expense categories.
