Universal Registration Document 2020

2. Risk factors and control framework

gas heating in collective housing, the 2020 ER aims to promote the use of low carbon energy in low-energy buildings by concentrating on three priority areas:

  • continuing to improve energy performance and reduce consumption in new. buildings, with even more efficient insulation, with the same minimum level of insulation for all;
  • reducing the carbon impact of new buildings on the “operation” and “construction” sides;
  • ensuring better adaptation to future climatic conditions, including “summer comfort” to “withstand the heat waves that will become more frequent and intense as a result of climate change”.

In particular, it is expected that a greenhouse gas (GHG) emission cap on operations will be set at 4kg CO2 eq/m2.yr in single-family homes and 14kg CO2 eq/m2.yr in collective housing, initially before being reduced to 6kg CO2 eq/m2.yr thereafter. These values would facilitate the deployment of efficient, low-carbon solutions such as heat pumps (PAC), virtuous heating networks (rate of renewable and recoverable ENR&R energy >60%) and biomass.

The texts – decree and order – enabling the implementation of this system are expected to be published in the first half of 2021.

  • Energy Savings Certificates: In France, the energy savings certificates (ESC) measure, which is set out in Articles L. 221-1 et seq. of the French Energy Code, imposes energy savings obligations on energy sellers. It sets a multi-year savings target and financial penalties for non-compliance. This measure was revised as of the third period (2015-2017) by adding an additional measure relating to energy savings for the benefit of households facing energy poverty, thereby reinforcing the Group’s actions relating to the CSR issue of “Energy poverty and social innovation”. The overall level of bonds was doubled in the fourth period (2018-20, extended to 2021). The Act of 8 November 2019 also includes a chapter on the fight against ESC fraud and aims to greatly increase the number and effectiveness of controls and sanctions.The doubling of the bond, in a market where the activation of new energy-saving deposits generating Energy Saving Certificates takes time and is subject to increased competition between obligors, has led to considerable pressure, resulting in particular in a significant increase in the price paid for trading Energy Saving Certificates over-the-counter. The latter has level led off relatively well since the beginning of 2019 under the combined effect of the Government’s “stimulus package” and the one-year extension of the fourth period. However, there is still a. risk that the objective will not be achieved by the end of the period, which may therefore lead to deterioration in the Group’s financial position. In addition, the fifth period, which is to begin in 2022, could result in increased bond volumes and constraints, which would pose new risks to achieving the objective. Finally, there isa risk of non-compliance regarding the ESCs (produced or acquired by EDF), for which the Group has set up appropriate governance and mechanisms.
  • Price of CO2 : There is also a risk, which could be brought about by inadequate regulation, that CO2 prices may be too low or highly volatile and not allow sufficient development of low-carbon energy solutions, at the expense of an effective transition in favour of the fight against climate change. This may represent a loss of opportunity to promote the Group’s low-carbon energy solutions and call into question the Group’s ability to achieve its decarbonisation objectives.
1C: Evolution of the legal and regulatory framework for hydraulic concessions.

The Group carries out its hydropower generation activities under concessions, licence or delegation agreements. Therefore, the Group does not always own the assets it operates. In France, changes in the legislative and regulatory framework, particularly for the renewal of concessions (provisions for the most powerful installations), changes in the economic conditions of concession specifications and the conditions for implementing advertising and competitive bidding procedures could have an impact on theGroup’s results.

Criticality in view of the control actions undertaken: Intermediate.

In France, hydropower generation facilities are operated under concessions awarded by the French State for structures of 4.5MW or more and within the framework of prefectoral authorisations for structures of less than 4.5MW. The challenges associated with the renewal of hydraulic concessions in France are specified in section 1.4.1.3.1.4 “Hydropower generation issues”. To date, the French State has still not renewed 20 concession titles that expired on 31 December 2020, corresponding to an installed capacity of 2,508MW.

The EDF group cannot guarantee that each of the concessions that it currently operates will be renewed, or that any concession will be renewed under the same financial terms and conditions as the initial concession. Furthermore, the Group cannot guarantee that the compensation paid by the government in the event of early termination of a concession’s operation will fully compensate the Group’s consequent loss of revenue, or that future regulations will not change in a way that could negatively affect the Group. These factors could have an adverse impact on its activities and financial position.

The Group also operates under hydroelectric power generation concessions in other countries where it operates, notably in Italy. Depending on the conditions in each country, these concessions may not be continued or may not be renewed in its favour with changes to the financial terms and conditions of the concession specifications, which would have an adverse impact on the Group’s activities and financial position.

1D: Evolution of the regulatory framework for electricity distribution concessions.

Enedis conducts its distribution activities under public service concessions and does not own most of the assets it operates. Changes in the regulatory framework, and in concession specifications could have an impact on the Group’s results

Criticality in view of the control actions undertaken: Intermediate.

In France, the law stipulates that Enedis and the Local Distribution Companies (LDC) have, in their respective service areas (as well as EDF for areas not interconnected to the continental metropolitan network), exclusive rights to ensure the public service of public electricity distribution. In the same way, EDF and the LDCs carry out a supply mission in their service areas at regulated tariffs, similarly under the exclusive rights granted to them under law.

Insofar as all the assets constituting the public electricity distribution network, with the exception of the source substations, are owned by the authorities organising the public distribution of electricity (AODE), the law provides that Enedis enters into concession agreements with the latter, generally for a term of 25 to 30 years. In this way, Enedis carries out its public service missions (network maintenance, renewal and development, metering, connections, etc.) both under the law (the French EnergyCode specifies the missions of distribution network operators) and under these contracts. Moreover, the purpose of such contracts is, yet again in application of the law, to provide access to the regulated sales tariffs; they are therefore trilateral (they bind the authorities organising the public distribution of electricity (AODE), the distribution system operator and the supplier to the regulated tariffs).

Due to the exclusive rights granted to them, Enedis and EDF, when renewing a concession contract, cannot be pitted against other players. This is the legal basis for the current process of renewing concession contracts with all of the authorities in charge of organising electricity distribution, based on a new contract template drawn up in December 2017 by the FNCCR (Fédération nationale des collectivités concédantes et régies (National Federation of Licensing Authorities)), France Urbaine,EDF and Enedis. Although two recent decisions by the French Council of State(Conseil d’État) have confirmed the compatibility of the exclusive rights granted to EDF and Enedis with, on the one hand, European Union law and, on the other hand, the constitutional principle of the free administration of local authorities, the Group cannot guarantee that such provisions will not be modified in the future through legislation. Furthermore, the Group may not obtain the renewal of these contracts under the same financial terms and conditions.