Summary : Public energy policies and market regulation in Europe, France and more generally the countries where the Group operates are likely to change even at short notice and, as a result, the Group faces major regulatory risk. In France, these changes may have an impact on regulated sales tariffs, the ARENH or the Tariffs for Using the Public Transmission and Distribution Networks (TURPE). They may also affect the framework of CO2 emission certificates or the Group’s investment financing mechanisms through the European taxonomy. The consequences might be considerable for the Group, and could slow its development compared to its competitors or hinder its ability to finance its strategy or meet its commitments to climate protection.
In particular,
- the French government announcements of 13 January 2022 requiring EDF to sell to its competitors an additional volume of the ARENH of 20TWh at a price of €46.2 per MW/h in 2022 will have significant financial consequences for the Group (estimated to (10.2) billion euros of EBITDA);
- the risk of a lack of comprehensive reform of the regulations applicable to the sale of the Group’s nuclear generation in France, or of a reform contrary to EDF’s interests, is significant for the Group;
- the risk of a lack of comprehensive reform of the regulations applicable to the sale of the Group’s nuclear generation in France, or of a reform contrary to EDF’s interests, is significant for the Group;
Criticality : ●●● Strong
a) Context
In France, the context determining the scale of this risk (laws, regulations, policy
directions) is as follows :
- the Energy-Climate Act, enacted on 8 November 2019. This Act specifies the key points of the energy and ecological transition policy in France
and in particular :
- the Act changes the ARENH system in two ways :
1/ it raises the “ARENH ceiling” from 100 to 150TWh as of 1 January 2020 to allow the French government to increase the maximum overall volume of electricity that EDF transfers to alternative suppliers by decree to 150TWh.
2/ the Act also authorises the Government to review the ARENH price by decree. (1) See below for additional measures on the ARENH and the TRV – Announcements of 13 January 2022.
- in terms of energy mix, the Act ratifies the postponement to 2035 of the deadline for reducing the share of nuclear power in electricity generation to 50%. The Act also raises the fossil fuel consumption reduction target from 30% to 40% by 2030 (compared to 2012), and plans to achieve carbon neutrality by 2050 by dividing greenhouse gas emissions by a factor of more than six.
- the Multi-Year Energy Programme (PPE) adopted by decree of 21 April 2020 :
- ARENH and nuclear regulation : The Multi-Year Energy Programme (PPE)
provides that the Government will propose “details for a new regulation of
existing nuclear power ensuring consumer protection (...), while simultaneously affording EDF the financial capacity to ensure the economic
sustainability of the production tool”.
- The negotiations that the French State began in early 2019 with the
European Commission on the new regulation for existing nuclear power
were unsuccessful in 2021.
- The PPE follows the objective of diversifying the energy mix and reducing nuclear power to 50% of electricity generation in France by 2035, which would lead to the closure of 14 reactors (including the two at
Fessenheim) ;
- other critical elements of the political and regulatory context :
- tariff shield : On 30 September 2021, the French Prime Minister announced
the introduction of a bouclier tarifaire (“tariff shield”) for 2022 based on
the principle of limiting the increase in the regulated sales tariffs (TRV) for
residential customers to 4% (including tax). This tariff shield has been
implemented and is based on two measures provided for in the 2022 Finance Act :
- – a reduction in the domestic tax on the final consumption of electricity
(TICFE) applicable from 1 February 2022 for all consumers, up to the legal
minimum amount,
- – the possibility for the Government to set the level of tariffs by decree at a
lower level than the Energy Regulation Commission’s (CRE’s) proposal if
the latter is still higher than 4% by including the previous lever, with in return a catch-up in 2023 of the losses borne by EDF as well as a compensating mechanism for market offer suppliers. This possibility was
used in January 2022 and allows to limit the increase in residential and
non-residential blue tariffs to 4%.
- additional measures for the ARENH and the TRV : In the context of an
unprecedented rise in electricity prices, the French Government has set up
two measures to supplement the tariff shield :
- – exceptional increase of 20TWh in the volume of the ARENH to be delivered
in 2022 at a price of €46.20/MWh.
he texts (decree and orders) implementing these measures have been
published on 11 March. The decree stipulates that, in order to benefit from
the additional volumes, eligible suppliers will have to sell to EDF a volume equivalent to the one that will be granted to them by EDF under this additional allocation, at a price equal to the average of wholesale market
quotations recorded between 2 and 23 December 2021 of the calendar
base product for electricity delivery in mainland France for the year 2022,
i.e. 257 €/MWh. CRE will allocate the additional ARENH volumes between
suppliers according to the same distribution as for the delivery period that
began on 1 January 2022.
- – extension of the principle of capping the increase in the regulated sales
tariffs (TRV) to an average of 4% (including tax) for non-residential customers who are still eligible for it (mechanism implemented as of
1 February).
These elements are set out in section 1.4.3.2. “Long-term electricity
purchase and sale contracts";
- emergency supply : Emergency supply (the taking over by a supplier of the
customers of a defaulting supplier) is provided for in Article L. 333-3 of the
French Energy Code. It allows the Minister in charge of Energy to launch a
tender with the support of the Energy Regulation Commission (CRE). In November 2021, in a context of exceptionally high market prices and the
failure of an alternative supplier, the French State designated by decree
emergency suppliers on a transitional basis (EDF or ELD, as the case may
be). The provision was implemented when two suppliers defaulted in
November and December 2021;
- the “Fit for 55” Package, published by the European Commission on 14 July 2021, is one of the flagship schemes of the new European Commission. In particular, it includes an increase in all targets to achieve - 55% net GHG by 2030 compared to 1990 and carbon neutrality by 2050. The main orientations relate to:
- – the revision of the EU Emissions Trading Scheme (EU-ETS) within the EU, including its extension to other sectors
- – various legislative proposals (energy efficiency, renewable energies, energy taxation), including proposals aimed at regulating the development of hydrogen (with a definition of low-carbon electrolytic hydrogen compatible with the French electricity mix),
- – a revision of the Guidelines on State aid for environmental protection and
energy (EEAG) adopted on 21 December 2021, applicable from January 2022, which constitute a framework for structuring future EDF
group investments;
(1) In its decision of 7 November 2019, the Conseil constitutionnel (the French constitutional council) subjected the legality of such a decree to sufficient consideration of the “economic conditions under which electricity is generated by the nuclear power plants”.
