Concerning hydropower assets, the impairment test was updated at 30 June 2020, incorporating lower forward prices and the rise in WACC in Italy, and this led to recognition of impairment of €(39) million. The updated test at 31 December 2020has not identified any additional risk. A 50bp increase in the WACC would lead to recognition of around €(15) million of additional impairment. A 5% decrease in prices over the entire horizon would have a similar result.
In energy services, impairment of €(27) million, including €(23) millions at 30 June 2020, was recorded on the Edison Facility Solution assets at 30 June 2020, mainly as a result of lower profitability prospects on certain contracts.
The decline in the recoverable value of wind power assets observed at 30 June 2020, principally due to revised price scenarios, was confirmed at the year-end and amounts to around 10% compared to 31 December 2019, although there is still a significant headroom. These test conclusions were not affected by analyses of sensitivity to the WACC (a 50bp increase) and price variations (a 5% decrease).
Thermal assets benefit from high-return investments due to construction of the new-generation CCGTs at Marghera and Presenzano which have respective capacities of 780MW and 760MW and low environmental impact (carbon emissions are 40%below the national average, and NOx emissions are reduced by 70%) and should begin generating energy in 2022 and 2023 respectively. Sensitivity analyses were conducted on these assets, and the results show that a 10% decrease in clean spark spreads or a 50 base point increase in WACC would not entail any risk of impairment.
Finally, the Algerian E&P assets presented as continuing operations were subjected to an impairment test at 31 December 2020, particularly in view of the situation of commodity prices on the market. The value resulting from the test did not lead to recognition of any additional impairment.
At 31 December 2020, the goodwill of Framatome amounted to €1,332 million, resulting from EDF’s acquisition of 75.5% of the capital of Framatome on 31 December 2017. The Group finalised recognition of the business combination in its financial statements at 31 December 2018.
The recoverable value of Framatome was determined on the basis of a 10-year business plan and a terminal value. This business plan is sensitive to assumptions concerning the completion of major construction projects that are incorporated into the reactor scenario, and market share assumptions for services to the installed base and fuel deliveries to customers’ reactors. The WACC applied in discounting future cash flows is weighted to reflect Framatome’s different businesses depending on their risk profile. The headroom indicated by the impairment test remains very significant, but the updated test at 31 December 2020 shows a lower recoverable value than at 31 December 2019, principally due to the higher WACC.
Sensitivity analyses were conducted using a 50bp increase in WACC and a 0%growth rate to infinity. The test conclusions were not affected.
Framatome’s intangible assets recognised after its acquisition (technologies, including the EPR, which are depreciated over an average 15 to 20 years; customer relations amortised over an average period of 11 years; and the brand) were tested and no risk of impairment was identified.
EDF Renewables’ assets mainly consist of CGUs benefiting from Price Purchase Agreements (PPAs) providing contractually defined revenues over most of the assets’ useful lives, and consequently have low market risk exposure.
During 2020, impairment of €(36) million was recognised in respect of various CGUs of EDF Renewables. This amount includes €(21) million of impairment concerning a wind farm in the United States that is in the process of being sold, for a price expected to be lower than the value of the assets. The rest concerns specific assets.
Besides the French Finance Law for 2021, published in the Journal officiel on 30 December 2020, introduces a reduction in purchase tariffs for solar power supplied under certain contracts signed between 2006 and 2010. EDF Renewables is the exclusive or joint owner of solar power plants concerned by this potential tariff revision, with total capacity of 145MW. The modalities for application of these measures will be set out in a Council of State decree to be issued after the CRE has given its opinion. This publication date of this decree is yet unknown and in the meantime no risk of impairment can currently be estimated.
At 31 December 2020, Dalkia’s goodwill amounts to €547 million, principally resulting from acquisition of the Dalkia group in France under the agreement of 25 March 2014 with Veolia Environment.
The recoverable value of the Dalkia group is based on future cash flows projected over a medium-term horizon, and a terminal value that represents cash flow projections to infinity. The impairment test conducted at 30 June 2020 showed a decrease in the recoverable value attributable to the macro-economic situation. The updated test at 31 December 2020 benefited from improvements in certain parameters since 30 June 2020, particularly the discount rate, but also the favourable impact of lower generation taxes introduced in France’s economic recovery plan.Under the revised assumptions, the recoverable value of Dalkia is nearly back to its level at 31 December 2019 and remains very much higher than its value to be tested.The key parameters of the test are the terminal value, and the discount rate: both were subjected to sensitivity analyses and the results did not contradict the headroom between the book value and recoverable value.
The Dalkia brand, which was recognised as an asset when the Group took control of Dalkia in 2014 at the value of €141 million, is estimated by the royalty relief method.The updated impairment test at 31 December 2020 supports its current book value.
In view of the impacts of the Covid-19 pandemic on engineering subsidiaries, tests of specific assets were conducted at 30 June 2020, leading to recognition of €(26) million of impairment on the goodwill booked following acquisition of a subsidiary in the United States. A test was also conducted on the subsidiary Imtech int he United Kingdom in view of the substantial losses of that CGU in 2020, but did not indicate any loss of value. Threshold value analyses were conducted to verify the robustness of this result with respect to the parameters applied.
Due to the integrated management and interdependence of the different generation facilities that make up the French fleet (nuclear, thermal and hydropower plants), independently of their maximum technical capacities, the Group considers the entire fleet as a single CGU. This CGU does not include any goodwill.
Even when there is no indication of any loss of value, an impairment test is performed due to the highly significant value of this CGU in the Group’s financial statements and its substantial exposure to market prices since the “yellow” and “green”regulated tariffs were discontinued on 1 January 2016.
The recoverable value of the generation fleet is estimated by discounting future cashflows under the Group’s usual methodology, described in the accounting policies, over the assets’ useful life, using an after-tax WACC of 5.2% at 31 December 2020.For nuclear assets currently in operation, the Group’s benchmark model assumes that the useful life is 50 years, in line with its industrial strategy. It also incorporates the proposals for early shutdown of two 900MW nuclear reactors, as set out in France’s multi-year energy plan.
The impairment test takes into consideration the latest forecasts concerning Flamanville 3 dating from late 2019, which adjusted the project schedule, setting the fuel loading date in late 2022, and revised the estimated construction cost to €12.4 billion in euros2015, excluding borrowing costs, an increase of €1.5 billion from the previous estimate mainly caused by exceptional additional costs for repairing penetration welds. The test assumes that these unusual costs will be included in other operating income and expenses rather than being capitalised.
The year-end impairment test, like the test at 30 June 2020, indicates that there coverable value is lower than at 31 December 2019, but the headroom over the book value remains significant. As well as the unfavourable macro-economic environment (long-term and medium-term price scenarios, WACC), calculation of there coverable value notably includes revised assumptions for electricity output and the higher cost of the Grand Carénage programme (particularly as a result of the Covid-19 pandemic), in line with Group announcements, and conversely the favourable effects of the national recovery plan on generation taxes.
