The Energy and Climate law

France’s Energy and Climate law of 8 November 2019 was published in the Journal officiel on 9 November 2019. Its principal measures affecting the Group’s business are the following:

Article 1 revises the objectives of France’s energy policy in the light of results of preparatory work for the national low-carbon strategy and the Multi-Year Energy Programme (PPE):

• the objective of “dividing greenhouse gas emissions by four between 1990 and 2050” is replaced by the objective of “achieving carbon neutrality by 2050, by reducing greenhouse gas emissions by a factor of more than six between 1990 and 2050”;
• the objective of “reducing primary fossil fuel energy consumption by 30%, compared to the reference year of 2012, by 2030” is replaced by the objective of “reducing primary fossil fuel energy consumption by 40% by 2030”;
• and finally, the time horizon for reducing the nuclear share of France’s electricity output to 50% is set at 2035.

Article 12 introduces a cap on greenhouse gas emissions, applicable from 1 January 2022 to installations generating energy from fossil fuel. This cap was set by decree 2019-1467 of 26 December 2019, and will lead to the closure of entirely coal-fired plants by 1 January 2022. State support measures will be provided for the employees and subcontractors concerned, and local projects are planned, as indicated in the press file on the closure of coal-fired power plants by 2022 released by the Ministry for the Ecological and Inclusive Transition.

Based on the proposed version of this law, the Group had previously announced that it intended to close down the Le Havre plant by the spring of 2021, and was still examining the possibilities of converting the Cordemais plant to a biomass plant. After a meeting held on 24 January 2019, EDF and the Ministry for the Ecological and Inclusive Transition approved a programme of work prior to making a decision about the Ecocombust project for production of an innovative, ecological fuel that could be used by heating facilities or electricity plants that currently run on coal. To guarantee a secure electricity supply, if the studies by RTE commissioned by the French government confirm the need, some or all of the biomass produced could be used to provide 80% of the fuel for the current Cordemais units until 2026, to keep the electricity network in the west of France secure at the highest peak consumption times.

As a result, the ends of the depreciation periods for the Le Havre and Cordemais plants were changed in the first half of 2019 and set at 2021 for Le Havre and 2026 for Cordemais. The closure date for Le Havre has been confirmed as 1 April 2021, but the dates for Cordemais could still change depending on final decisions yet to be made, particularly concerning the Ecocombust project.

The principal consequence of this prospective modification of the depreciation periods in the Group’s financial statements at 31 December 2019 is an increase of some €141 million in the depreciation expense.

Article 62 of The Energy and Climate law aims to modify the calculation of the price supplements in the ARENH mechanism for Regulated access to historic nuclear power, to take account of the effect of the ceiling defined in Article L. 336-1 of the Energy Code. A key objective of these price supplements is to ensure that demand from suppliers for ARENH is commensurate with their requirements, and thus avoid effects that are detrimental to the public interest.

The ARENH ceiling was raised to 150TWh from 1 January 2020. However, the volume limit that determines the maximum total volume of ARENH deliveries allowed per year (up to the ceiling) has not been changed for 2020, and thus remains at 100TWh.

The Energy and Climate law also contains four articles concerning regulated sales tariffs, following the rejection of provisions initially proposed in the draft “PACTE” law for business growth and transformation:

• Article 63 sets out the terms for the discontinuation of regulated gas sales tariffs for all consumers, to bring French law into line with European Union law. Sales of regulated-tariff gas contracts were discontinued in the month following enactment of the law, and it is now impossible to subscribe or modify a new natural gas contract on regulated sales tariffs. The regulated tariffs will be discontinued for small businesses from 1 December 2020, and for all consumers from 1 July 2023. The necessary support measures for these tariff discontinuations are defined in the law;
• Articles 64 and following set out the terms for the discontinuation of regulated electricity sales tariffs for non-residential customers with more than 10 employees or annual sales, total income or balance sheet total of more than €2 million.

A new draft PPE taking account of comments and opinions expressed was published on 20 January 2020 by the Ministry for the Ecological and Inclusive Transition and is subject to a consultation process until 19 February 2020

Concerning nuclear electricity and the objective of having 50% nuclear power in France’s energy mix by 2035, which is now part of the Energy Code as a result of the Energy and Climate law of 8 November 2019, this revised draft PPE specifies the details and conditions for the reactor shutdowns. Priority will be given to shutdowns that minimise the economic and social impact, have the lowest impact on the electricity network, and do not entail closure of an entire site. At the request of the French government, based on these criteria, on 20 January 2020 EDF proposed to examine the possibility of shutting down pairs of reactors at the sites of Blayais, Bugey, Chinon, Cruas, Dampierre, Gravelines and Tricastin.

It is also now stipulated that early reactor shutdowns will be confirmed 3 years prior to implementation.

Finalisation and adoption of this PPE would result in reflection in the Group’s financial statements of the two early reactor shutdowns in 2027 and 2028, ahead of their fifth 10-year inspection. The change to their operating life would lead to prospective modification of the depreciation period, and a change in estimate for the nuclear provisions. As this situation would bring forward the shutdown of two reactors in the fleet by a few years, the various scenarios examined indicate that the potential effect on nuclear provisions, particularly the decommissioning provision, could be an increase of some tens of millions of euros, which would be recognised via an adjustment to the relevant balance sheet assets.

Public consultation on regulation of existing nuclear facilities

In January 2020, the French government launched a consultation process, to have the opinions of actors from the world of energy on the reform of regulation of existing nuclear facilities (ARENH).

This consultation has been undertaken in application of the draft Multi-Year Energy Programme (PPE), which states that “the Government will propose the terms of a new regulation system for existing nuclear plants that will protect consumers against rising market prices after 2025 by allowing them to benefit from the competitive advantage of investments made in the historical nuclear power plant fleet, while giving EDF the financial capacity to ensure economic sustainability of generation facilities and meet the requirements of the PPE in low-price scenarios”.

To achieve this objective, the French government intends to introduce economic regulations obliging EDF to provide a service of general economic interest (SGEI) to the benefit of all French consumers, in a transparent and non-discriminatory manner, with a focus on protection of the consumer and the climate.

This SGEI would be supported by economic regulation of the existing nuclear fleet, to reconcile and contribute to the following aims:

• long-term protection of all consumers located on French territory, regardless of their supplier and with respect to some of their non-peak power supplies, by enabling them to benefit from stable conditions for carbon-free, manageable production of electricity by the existing nuclear fleet they helped to finance;
• achievement of the climate targets France has set itself, and also of its objectives for a secure power supply and energy independence, by safeguarding the carbon-free electricity supply in France and more broadly in Europe, through secure long-term financing for operation of the existing nuclear installations that are necessary for that supply.

Like many other actors in the sector, the EDF group will take part in this consultation, which is to continue until 17 March 2020.