Universal Registration Document 2020

Valuation of provisions related to nuclear generation in France – back-end of the nuclear cycle, plant decommissioning and last cores – and dedicated assets

Notes 1.3.4.2, 15 and 18.1 to the consolidated financial statements

Key audit matter

As at 31 December 2020, the provisions recorded to cover obligations relating to nuclear power plants for which EDF is the operator in France total €44,822 million, including €24,622 million with respect to the back-end of the nuclear cycle (management of spent fuel and radioactive waste) and €20,200 million with respect to the decommissioning of nuclear power plants and last cores.

The valuation of these provisions depends on the regulatory context is described in Notes 1.3.4.2 and 15. It requires defining technical and financial assumptions and using complex calculation models.

They are updated and the assumptions taken into consideration in the models are reviewed at least once a year. As of 31 December 2020, the methodologies used to determine the discount rate changed, in connection with the change in 2020 in certain regulations regarding secure financing of nuclear expenses. These assumptions reflect management’s best estimate at the reporting date of the impacts of the applicable regulation, the implementation of decommissioning and storage processes or changes in the main financial parameters.

Furthermore, the Company is required to allocate so-called “dedicated” assets to secure financing of certain categories of nuclear provisions in France. The realizable value of these assets should allow the Company’s commitments relating to the decommissioning of nuclear power plants and long-term storage of radioactive waste in France to be covered (Notes 15.1.2 and 18.1). The realizable value of these dedicated assets, for an amount of €33,848 million (or a net carrying amount of €32,105 million) as of 31 December 2020, was determined based on the fair value of diversified equity and bonds investments, and the equity value of a non-listed assets portfolio managed by the division EDF Invest.

We considered the valuation of provisions related to nuclear generation and dedicated assets to be a key audit matter due to:

• the sensitivity of the assumptions on which the valuation of these provisions is based, notably in terms of cost, inflation and long-term discount rates, as well as the depreciation periods of nuclear power plants in operation, and forecast cash outflows; the modification of these parameters can lead to a material revision in the provisioned amounts;
• the negative impacts on the financial position of the Company (cash earmarked to increase the amount of dedicated assets) in the event of an increase in nuclear provisions in France, a change in the realisable values of dedicated assets or changes in the coverage rate of nuclear provisions for dedicated assets;

it being specified that the valuation of provisions covers and includes uncertainties related to the fact that certain scenarios and technical solutions have never been implemented.

Responses

We have analysed the measures for recognising provisions related to nuclear generation in France and gained an understanding of the industrial scenarios for decommissioning nuclear power plants and the technical solutions adopted in terms of management of spent fuel and radioactive waste. We have assessed the compliance of the methods for determining the provisions with regard to applicable accounting, legal and regulatory measures.

We have verified the calculation models used by the Company and assessed the assumptions adopted in terms of cost, forecast cash outflows and financial parameters (discount and inflation rates).

Our work also consisted in verifying the type of costs used to determine provisions and assessing the reconciliation of forecast costs and forecast cash outflows with industrial scenarios as well as the available studies and quotes.

We have also assessed the appropriateness of:

• margins for uncertainties and risks included in the provisions, to take into account the degree of control over decommissioning techniques and the management of spent fuel and radioactive waste;
• the series and mutualisation effects adopted in the quotes for decommissioning nuclear power plants in operation, for which the nominal cost represents €19,693 million to economic conditions at the end of the period, for a provision of €12,775 million in discounted value (note 15.1.1.5).

Concerning the inflation and discount rates and their calculation methods adopted by management described in note 15.1.1.5, we have verified their compliance with applicable accounting standards and regulatory measures, notably the ministerial decree and order of 1 July 2020. We have reconciled the data used for this purpose with available market data.

Concerning the securing of financing for certain of these provisions through dedicated assets, we have reconciled the realisable value of the dedicated assets in the portfolio at the reporting date with the available certificate of depository statements, and available external data and valuations. We have also assessed the accounting treatment and their valuation, in particular, the compliance with the IFRS 9 accounting standard of the impairment model described in the accounting principles and methods of the note 18.1.

Finally, we have verified the appropriateness of the disclosures given in the Notes for the provisions related to nuclear generation in France and the dedicated assets, notably regarding the sensitivity of the valuation of provisions to changes in macro-economic assumptions (note 15.1.1.5).