| Operating segment | Cash-Generating Unit or asset | Impairment indicators | WACC after tax | Impairment2019 |
|---|---|---|---|---|
Cash-Generating Unit or asset CCGT | Impairment indicators Decline in spark spreads and long-term capacity revenue prospects | WACC after tax 6.0% | Impairment2019 (118) | |
| United Kingdom | United Kingdom Cash-Generating Unit or asset Other thermal assets | United Kingdom Impairment indicators Plants in the process of shutting down | United Kingdom WACC after tax 5.4%-6.0% | United Kingdom Impairment2019 (9) |
Cash-Generating Unit or asset Hydropower assets | Impairment indicators Unfavourable change in regulations on hydropower concessions | WACC after tax 6.1% | Impairment2019 (33) | |
| Italy | Italy Cash-Generating Unit or asset Energy services | Italy Impairment indicators Lower profitability on certain contracts | Italy WACC after tax 6.1%-7.2% | Italy Impairment2019 (5) |
| France | France Impairment indicators Discontinued projects | France WACC after tax - | France Impairment2019 (24) | |
Cash-Generating Unit or asset Poland CGU | Impairment indicators Less favourable market prospects | WACC after tax 6.3% | Impairment2019 (48) | |
| Dalkia | Dalkia Cash-Generating Unit or asset Other Dalkia CGUs | Dalkia WACC after tax 4.9% | Dalkia Impairment2019 (44) | |
| EDF Renewables | EDF Renewables Cash-Generating Unit or asset Some CGUs | EDF Renewables Impairment indicators Unfavourable tariff prospects | EDF Renewables WACC after tax 3.4%-6.5% | EDF Renewables Impairment2019 (29) |
| Other impairment | Other impairment Impairment2019 (36) | |||
Operating segment IMPAIRMENT OF OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT | Cash-Generating Unit or asset (346) | |||
Note 1.3.14 explains the methodology used by the Group for impairment testing.
The weighted average costs of capital (WACC) in reference European countries are down slightly compared to 31 December 2018, as current market conditions led to a decline in the risk-free rate. The other parameters used to calculate WACC remained stable overall compared to 31 December 2018. The test results are subjected to discount rate sensitivity analyses.
The market environment in 2019 showed a slight improvement from 2018, with small rises in market prices in France and Belgium. In Italy, the situation was stable compared to the previous year. However, electricity prices in the United Kingdom retreated slightly.
On the market horizon, the forward prices used were in line with these developments.
On the long-term horizon, visibility of fundamentals was stable year-on-year, as the benchmark scenario used for impairment testing at the 2018 year-end anticipated lower commodity price trajectories for gas and coal. The upward trajectory for CO2 quota prices under the ETS (EU Emissions Trading System) was retained since Phase 3 of the system is working well towards achieving the objectives of the European decarbonisation policy. Nonetheless, a slight dip in the curve is observed at the beginning of the horizon, reflecting the higher energy efficiency assumptions, and to a lesser degree the lower prices for gas delivered in Europe. This is followed at the end of the horizon by a slight recovery, due to higher assumptions concerning electric vehicles and hydrogen. As these assumptions are crucial in determining recoverable value, sensitivity analyses are applied to long-term price curves when impairment tests are undertaken.
In addition, although some uncertainties remain, the capacity mechanisms progressively being introduced under different approaches in different countries are generating income that contributes to the profitability of certain generation assets, confirming the assumptions used in impairment testing. After the suspension in late 2018 of the United Kingdom’s Capacity Market, on 24 October 2019 the European Commission confirmed its initial decision to grant a State aid authorisation allowing the British government to resume its mechanism. In Italy, the country’s first capacity auctions took place in November for deliveries in 2022 and 2023.
At 31 December 2019, the macro-economic context presented above does not introduce any new major risk for the Group in addition to the risks already noted in previous years’ financial statements; the impairment booked reflects the risks of certain CGUs or specific assets.
Significant amounts of impairment have been booked in recent years in respect of the Group’s thermal assets in England, notably reducing the net book value of coal-fired plants and gas storage facilities practically to zero. At 31 December 2019, the necessary investments made in the Cottam and West Burton A coal-fired plants are fully depreciated for an amount of €(6) million, consistent with the decisions to close these plants early: on 7 February 2019 EDF Energy announced its decision to close the Cottam coal-fired plant in September 2019, and closure of the West Burton A plant will be dependent on the capacity contracts. Concerning gas facilities, the investments made during 2019 in the Hole House gas storage assets are fully depreciated for an amount of €(3) million.
At 31 December 2019, despite the resumption of the Capacity Market, the lower long-term prospects compared to 2018 for spark spreads and capacity revenue, combined with the expectation that network expenses will be higher than anticipated at the previous year-end, led to recognition of additional impairment of €(118) million related to the West Burton B CCGT plant. The value of this plant is sensitive to price variations, such that a 5% change in spark spreads would have an impact of approximately 6% on its recoverable value.
The recoverable value of existing nuclear assets (8 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, the most recent decisions dating from February 2016). As the generation difficulties experienced by Hunterston and Dungeness in 2018 carried over into 2019, a conservative approach was taken in impairment testing, with downward revision of the assumed generation output. Updating these generation assumptions has an unfavourable effect on the recoverable value of EDF Energy’s nuclear power plants, which is lower than in 2018, but still well above the book value. A 5% decrease in electricity prices compared to the trajectory assumed for the test would have a 15% impact on the assets’ recoverable value, but they would still be higher than their net book value.
EDF Energy’s goodwill amounted to €8 billion (or £6.7 billion) at 31 December 2019 and mainly resulted from the takeover of British Energy in 2009.
