Universal Registration Document 2021

2.2 Risks to which the Group is exposed

The Group operates in a fast-changing environment that entails numerous risks of various kinds: they may be strategic or operational; some are exogenous, others are endogenous and inherent to the Group’s business lines. Their consequences may be manifold and may affect the Group’s operating results, the Group’s financial position and its ability to finance its strategy or development, its internal or external stakeholders or environment, or its reputation.

The Group describes hereinafter the specific risks to which it considers itself exposed. The principle of specificity leads us to describe in this section only those risks for which the specificity of the EDF group is a key factor. For risks that are not specific to the Group, the absence of a risk description in this section does not infer the Group does not take the risk into account.

The risks must be read in their entirety, as some of them may be interdependent.

Risks are divided into five categories, described in sections 2.2.1 to 2.2.5, respectively.

Section 2.2.1 “Market regulation, political and legal risks” describes the risks related to changes in public policy and regulations in the countries and territories where the Group operates, as well as the legal risks to which the Group is exposed.

Section 2.2.2 “Financial and market risks” describes the risks arising from exposure to the energy markets in which the Group operates, as well as risks related to changes in the financial markets and the reliability of related information.

Section 2.2.3 “Group transformation and strategic risks” describes the risks related to the Group’s ability to adapt, particularly in terms of strategy and skills, in response to the needs for transformation brought about by climate change, new competition, and technological and societal changes.

Section 2.2.4 “Operational performance related risks” describes the risks related to the control of the Group’s operating activities across its various industrial activities and projects, including EPR, services and sales. In particular, this section describes the Group’s risk relating to current and/or future EPR projects, which is a major risk.

Section 2.2.5 “Specific risks related to nuclear activities” supplements section 2.2.4 for the Group’s nuclear-related activities, which entails additional risk factors and special provisions, particularly in view of the primary requirements of nuclear safety and the very long-term capital-intensive nature of nuclear activity.

The risks are outlined in detail in each of the relevant sections for their respective category. They are numbered to make it easier to connect the table with the graph and the detailed descriptions that follow.

The economic disruptions caused by the Covid health crisis led to a drop in demand for electricity, especially in 2020, and had a significant impact on many of the Group’s activities, most notably nuclear production, construction sites (construction of major projects and maintenance of nuclear power plants) and service activities. This health crisis continued to affect the Group’s performance in 2021, and may continue to do so in the future. Its impact on the Group’s risks is specified in the presentation of each of the risks concerned. The main impacts are as follows:

• disruption of industrial supply chains for products or equipment from countries affected by the epidemic (risk 4B);
• health impacts on the activity of the Group’s employees and service providers (risk 4C);
• disruption in the running of the Group’s operations, construction sites and major projects in the event of restrictions that could affect business continuity (risk 4A) and the level of production, particularly in the event of an impact on nuclear unit shutdowns (risk 5A);
• Covid-19 effects on demand and the weakening of the economy (unpaid and uncollectable amounts) (3A);
• impact on the price of raw materials and electricity on the wholesale markets, as well as on the level of demand for electricity, and counterparty risks (risks 2C and 2F);
• impact of a disruption in the financial markets through a decrease in the valuation of the portfolio of dedicated assets or pension assets affecting the Group’s financial results and the coverage rate of nuclear provisions, and impact of a decrease in interest rates on the calculation of the amount of nuclear provisions and provisions for employee benefits (risks referred to in section 2.2.2 “Financial and market risks”).

The Ukrainian conflict and related geopolitical tensions could have consequences of all kinds that could make it necessary to take additional actions in order to achieve the Group’s financial objectives. The Group may not even be able to achieve these objectives. At the current stage of the conflict and related geopolitical tensions, the impacts of all kinds are difficult to quantify. To date, without claiming to be exhaustive, this conflict is an aggravating factor for the following risks :

• Energy market risk (Risk 2A): increased volatility, upward pressure on prices and reduced liquidity :
• the impacts of this risk are aggravated in France due to the uncertainties surrounding the Group’s nuclear generation (risk 5A- Non-compliance with operating objectives and/or continued operation of nuclear plants);
• it may also amplifies the adverse effects on the Group of the French government’s ⁽¹⁾ decision to increase ARENH volumes exceptionally by asking EDF to sell 20TWh of additional electricity to its competitors (risk 1A“Changes in public policies and in the regulatory framework in France and Europe”);
• Operational continuity of supply chains and contractual relationships (Risk 4B): inflationary pressures, disruption of industrial supply chains for products or equipment from countries affected by the conflict, disruption of contracts with companies affected by economic sanctions against Russia. Potential impacts on certain Groups’ activities especially in Framatome and Enedis as well as on the planned acquisition of part of GE Steam Power’s nuclear business;
• Risk with regard to the fuel cycle (Risk 5D) and the provisions for waste and decommissioning (5B), in particular in the event of the contracts with TENEX (reprocessing of spent uranium) being called into question;
• Financial risks in section 2.2.2 “Financial and market risks”: disruption of the financial markets through a fall in the valuation of the portfolio of dedicated assets or pension assets affecting the Group’s financial result and the hedge rate of nuclear provisions. Increased risk of interest rate volatility, particularly with regard to the Group’s refinancing costs and the discount rate for provisions. Impacts on banks, which are themselves exposed to the Russian financial system, which could accentuate the risks associated with access to liquidity (Risk 2D);
• Damage to assets including cyber-attacks (Risk 4D): increase in cyber threats;
• Endangerment of occupational safety or health (Risk 4C): increased risk for employees and contractors in Ukraine or Russia.

All the risks identified in this document have been selected because they are significant in terms of the materiality of their estimated impact on the Group. In addition, they are prioritised based on a qualitative assessment of their criticality, taking into account simultaneously the significance of the potential impact for the Group, the probability of their occurrence and the level of control, in light of the actions undertaken. This prioritisation produces a three-level scale for all risks: the criticality can be considered strong, intermediate or moderate. The categories are not ordered hierarchically.

The scale and diversity of the risks faced by the Group, particularly in an extremely volatile market environment, accompanied by regulatory measures that have a significant negative impact on the Company, marked by the Ukrainian conflict and associated geopolitical tensions and by the studies and work that the Group must carry out on its French nuclear fleet in connection with the recently identified stress corrosion phenomena, may have consequences of all kinds, including the emergence of new risks or the worsening of the existing ones, which are likely to require further actions in order to achieve the Group's financial objectives. The Group may even not be able to achieve its objectives.

(1) See Announcements of 13 January 2022.