Universal Registration Document 2020

• Creys Malville: this plant was shut down in 1998 and received its dismantling decree in 2006. The following key stages have been completed: removal of the fuel, dismantling of the machine room, drainage of the circuits, processing and elimination of the sodium used for cooling in all circuits, filling the reactor vessel, opening and extracting the vessel caps, and the start of dismantling of the core vessel cap (which weighs several hundred tonnes). The next stages are dismantling the vessel internals (due to be completed in 2026), electromechanical dismantling in the reactor building, then decontamination (dismantling should end in 2038);
• Brennilis: this plant was shut down in 1985 and received a partial dismantling decree in 2011 allowing dismantling of all installations peripheral to the “reactor block”. The following key stages have been completed: removal of the fuel, dismantling of the machine room, the fuel building, auxiliary buildings, heat exchangers and the effluent treatment station. The next stages are examination of the application for full dismantling authorisation, with a view to obtaining a dismantling decree in 2022 that would enable EDF to dismantle the reactor block (the end of these operations is currently forecast at 2040)

15.1.1.4Provisions for last cores

These provisions cover the future expenses resulting from scrapping fuel that will only be partially irradiated when the reactor is shut down. It is measured based on:

• the cost of the loss on fuel in the reactor that is not totally spent at the time of final reactor shutdown and cannot be reused due to technical and regulatory constraints (“front-end” expenses);
• the cost of fuel processing, and waste removal and storage operations (“back-end” expenses). These costs are valued in a similar way to provisions for spent fuel management and long-term radioactive waste management.

These unavoidable costs are components of the cost of nuclear reactor shutdown and decommissioning. As such, they are fully covered by provisions from the commissioning date and an asset associated with the provision is recognised. In a decision of 11 December 2020, France’s Council of State challenged the tax-deductibility of the consequences of immediate recognition of a provision for dismantling of the last core (“front-end” last core expenses) (see note 17.3.1).

In 2020 after the Fessenheim plant was definitively shut down, €99 million of the provision for last cores, concerning the two reactors at Fessenheim, was reversed with a corresponding reduction in the inventories of non-irradiated fuel in the reactor at the time of the shutdown, and in parallel, provisions for spent fuel management and long-term radioactive waste management were recognised for the cost of processing this fuel and storage of the waste that will result.

15.1.1.5 Discount rate, inflation and sensitivity analyses

Calculation of the discount rate and inflation rate

Until 30 June 2020, the discount rate was based on the sliding 10-year average yield on French OAT 2055 treasury bonds which have a similar duration to the obligations, plus the spread of corporate bonds rated A to AA.

As of 31 December 2020, the methodologies used to determine the discount rate changed as follows:

The discount rate is now based on an interest rate curve, which comprises a sovereign yield curve constructed on year-end market data for liquid horizons (OAT bond 0-20 year curve) and then converging, using an interpolation curve, towards the very long-term rate UFR (Ultimate Forward Rate) – with yields that become close to the UFR after 50 years – plus a curve of the spread of corporate bonds rated A to BBB. Based on the disbursements expected to meet nuclear obligations, a single equivalent discount rate is deduced by applying the discount rates from the interest rate curve constructed in this way to each flow as appropriate to its maturity. This single discount rate is then applied to the forecast disbursement schedules for the costs of the obligations, to determine the provisions.

The UFR was defined by the European Insurance and Occupational Pensions Authority (EIOPA) for very long-term insurance liabilities that will involve disbursements beyond market horizons. The UFR calculated for 2020 is 3.51%. This is used in the calculation methodology, in compliance with the decision by the French authorities, which in the ministerial order of 1 July 2020 amending the order of 21 March 2007 on secure financing of nuclear expenses (see below) changed the formula of the regulatory ceiling for the discount rate, such that it now refers to the UFR instead of the arithmetic 48-month average of the TEC 30-year rate. The UFR is considered more relevant for nuclear provisions in view of the very long-term maturities. The sovereign yield curve indicates rates in a range of [-0.6%; 0.2%] for outflows between 0 and 20 years, [0.2%; 3.2%] for outflows between 20 and 50 years, and a rate moving towards 3.51% for outflows after 50 years.

This change in calculation methodology for the discount rate provides the best assessment of the time value of money with regard to nuclear provisions, which are characterised by very long-term disbursement outflows, well beyond market horizons. This assessment is largely achieved through:

• use of an interest rate curve based on observed year-end market data with liquid horizons, converging over non-liquid horizons towards a very long-term rate with no cycle effect (instead of an average rate concerning a single duration corresponding to the average duration of the obligations), i.e. yield data for all the maturities associated with nuclear provisions;
• use of a very long-term rate (calculated UFR) produced by an independent body and now adopted by the French authorities in setting the formula for regulatory ceiling, to take account of long trends in yield movements, in coherence with the distant disbursement horizon;
• a change in the references of the bond spread to include corporate bonds rated A to BBB by ratings agencies, in order to construct a robust spread curve since there are few AA-rated bonds, particularly on long maturities, whereas most “Investment Grade” bonds are BBB-rated bonds and the great majority of them have longer maturities

The inflation assumption is based on an inflation curve constructed by reference to inflation-indexed market products and economic forecasts, in long-term coherence with the inflation assumption underlying the UFR (2%).

The discount rate determined is thus 3.3% at 31 December 2020, assuming inflation of 1.2% (3.7% and 1.4% respectively at 31 December 2019), giving a real discount rate of 2.1% at 31 December 2020 (2.3% at 31 December 2019).

Based on the calculation method used until 30 June 2020, the real discount rate would also be 2.1%.

Regulatory discount rate limit

Following the letter dated 12 February 2020 from the Minister for the Ecological and Inclusive Transition and the Minister of the Economy and Finance informing EDF of their decisions to change certain regulations regarding secure financing of nuclear expenses (see note 32.1.5.1 to the financial statements at 31 December 2019), the following were published in the Journal Officiel of 2 July 2020:

• the decree of 1 July 2020 on secure financing for nuclear expenses, codifying and updating the initial decree of 23 February 2017;
• the ministerial order of 1 July 2020 on secure financing for nuclear expenses, amending the initial ministerial order of 21 March 2007.