Universal Registration Document 2020

2.2.1 Market regulation, political and legal risks

1A: Public policy developments in France and Europe.

 Criticality in view of the control actions undertaken: Strong.

By decree of 21 April 2020, the French government adopted the Multi annual Energy Programming (PPE) which sets out the government’s priorities for action in the field of energy for the continental metropolis for the period 2019-2028.

In particular, in this context:

• the French Government has confirmed the objective of diversifying the electricity mix and reducing nuclear power to 50% of electricity production in France by 2035: to reduce nuclear power to 50% of the energy mix, 14 reactors should be shut down by 2035 (including the two at Fessenheim). This would represent a quarter of the reactors currently operating in France. At the request of the French government, EDF offered to study the shutdown of reactor pairs at the Blayais, Bugey, Chinon, Cruas, Dampierre, Gravelines and Tricastin sites. It will ultimately be up to the government to identify which sites have priority. It could therefore be decided to shut down one or more reactors in the EDF fleet prematurely, not as a result of an industrial choice but as a result of the application of the Multi-year Energy Programme (PPE). Such decisions should lead to EDF being compensated for the harm suffered, as reiterated by the French Constitutional Council in a decision of 13 August 2015;
• in this respect, with regard to the Fessenheim nuclear power plant, on 27 September 2019, EDF sent the Minister responsible for ecological and solidarity transition and the Nuclear Safety Authority the declaration of permanent shutdown of the two reactors of the Fessenheim nuclear power plant, and, on 30 September 2019 a request to terminate the authorisation to operate such plant. The submission of this request and declaration follows the signing, on 27 September 2019, by the French State and EDF, of the protocol governing the State’s indemnification of EDF for the early closure of the Fessenheim power plant. In accordance with the Decree of 18 February 2020 repealing this authorisation, reactors no. 1 and no. 2 were definitively shut down on 22 February 2020 and 30 June of the same year, respectively. Decommissioning operations will only begin once the decree stipulating decommissioning operations has been issued by the French Minister in charge of nuclear safety.

The Energy-Climate Act was enacted on 8 November 2019. It specifies the key points of the energy and ecological transition policy in France and updates the objectives set by the energy transition act for green growth.

In particular:

• in terms of energy mix, the Act ratifies the postponement to 2035 of the deadline for reducing the share of nuclear power in electricity production to 50%. The Act also raises the fossil fuel consumption reduction target from 30 to 40% by 2030 (compared to 2012), and plans to achieve carbon neutrality by 2050 by dividing greenhouse gas emissions by a factor of more than six;
• it sets up a scheme to limit from 1 January 2022 the level of CO₂ emissions from installations generating electricity from fossil fuels, with the aim of closing down coal-fired power stations by 2022;
• in addition, the Act changes the ARENH system in two ways: it raises the “ARENH ceiling” from 100 to 150TWh as of 1 January 2020 to allow the French government to increase the maximum overall volume of electricity that EDF transfers to alternative suppliers by decree to 150TWh. The Act also authorises theFrench government to revise the price of ARENH. In its decision of7 November 2019, the French Conseil constitutionnel (Constitutional Council)made the legality of such a decree conditional on sufficient consideration of “the economic conditions governing the generation of electricity by nuclear power plants”. However, the French government had not implemented these possibilities by the end of 2020.

The Act also specifies the procedure concerning the Strategic Business Plan (PSE),which will have to cover both periods of the Multi-year Energy Programme (PPE), be made public (with the exception of information relating to business secrecy), and present the accompanying measures put in place for employees as a result of the closure of nuclear or thermal power stations. In the event that the PSE is incompatible with the PPE, the act provides for a formal notice followed, if necessary, by sanctions.

The European legal framework, which notably organises the liberalisation of the energy sector and climate and energy policies, underwent significant changes in 2019 with the finalisation of the Clean Energy Package and is likely to evolve in the future, in particular through the “Green deal”.

The “Green deal”, a flagship mechanism of the new European Commission, is likely to include key provisions for the energy sector in general and the EDF group in particular. In this context, the foundations for important changes in the European legal framework applicable to the energy sector and affecting climate and energy policies were laid in 2020 with the publication by the EuropeanCommission of several strategies and a limited number of concrete legislative proposals on infrastructure and sustainable finance. The potential consequences could be as follows:

• the revision of the EU Emissions Trading Scheme (EU-ETS) within the EU, including its extension to other sectors, could introduce many uncertainties and risks regarding the level and predictability of prices. Furthermore, the relationship between the various measures and objectives currently under review (renewables, energy efficiency) must also be clarified;
• the various legislative proposals aimed at regulating the development of hydrogen could limit support policies to renewable hydrogen only, thus limiting funding for electrolytic hydrogen produced from the French low-carbon electricity mix;
• the revision of the Guidelines for State Aid for Energy and the Environment (LDAEE) poses a pivotal challenge for the EDF group’s future investments. The main risks are the alignment of the LDAEE with the taxonomy (in particular the possible exclusion of nuclear and certain hydraulic activities), the creation of brakes on long-term investments and possible restrictions on capacity mechanisms.

In 2020, the legal framework for the European Taxonomy for Sustainable Finance was set out in more detail. At the end of 2020, the taxonomy delegated act proposed by the Commission did not include nuclear power, which was dealt within a specific process; referred to restrictions on hydraulic works that go beyond the applicable European legal framework; and proposed an emission threshold for low-carbon hydrogen that would not allow the hydrogen produced from the French electricity mix to be classified as sustainable. EDF continues to be strongly active on this subject, even though the Council and the European Parliament have the right to veto the text in its entirety. This poses a major risk for the Group, as the exclusion of nuclear power could seriously hamper the Group’s ability to finance itself.

In addition, the negotiations that the French State began in 2020 with theEuropean Commission on the new regulation of existing nuclear power will continue in 2021.

These developments could be unfavourable to the Group and could adversely affect its ability to meet its commitment to climate protection. In particular, they could result in insufficient asset compensation, not be in line with the Group’s development objectives, change the competitive environment in which the Group operates, change the level of regulated tariffs or affect the profitability of current or future production units or any of the Group’s other activities. In general, the legislative and regulatory framework put in place in France, in Europe or in the countries where the EDF group is present is likely to have a significant impact on the Group’s results or its business model.