Universal Registration Document 2021

There is a risk that these factors will continue to impact construction progress and the supply chain. Action plans are underway to address delays and improve the performance of civil engineering and electromechanical assembly. Compliance with the schedule and cost to completion (see section 1.4.5.1.2.5 “United Kingdom – New Nuclear Division”) requires that these actions produce the expected results. However, in this context, risks to the schedule and costs to completion increased in 2021. They are now very high.

The IRR of the HPC project is sensitive to:

• inflation and changes in electricity market prices beyond the term of the CFD. 0.1% inflation has a 0.1% impact on HPC’s IRR. A change in the electricity price of £ 2015 10/MWh following the CFD has an impact of 0.1% on HPC’s IRR;
• impacts of the agreements between EDF and CGN, which include a mechanism for compensation between the two shareholders in case of a deviation from the initial cost budget or delays. Given the current schedule and the forecasted cost to completion, this mechanism is applicable and will be triggered at the appropriate time;
• the risk of CGN not contributing Voluntary Equity;
• the exchange rate between the British Pound and the Euro. A hedging strategy for this risk is in place at the HPC project and Group levels.

Due to the difficulties encountered by the project, notably on civil performance and marine works, and the increase in risks such as the Ukrainian conflict, Brexit, COVID, supply chain disruption and inflation, a new comprehensive review to update the costs and schedule estimates announced in January 2021⁽¹⁾ is underway and is expected to be finalised by summer 2022.

c3) Control of future projects

1. Renewal of the nuclear fleet in France – EPR2 (see section 1.4.1.1.3.2 “Other projects – New Nuclear”)

On 25 January 2019, the French government published the main guidelines of the Multi-year Energy Programme adopted by a decree of 21 April 2020. The sector contract signed on 28 January 2019 by the French government and the French Nuclear Sector Strategic Committee (CSFN) includes a section on the preparation of the industrial capacity necessary for the execution of a construction programme for new reactors in France.

In accordance with these orientations, the government has asked EDF to prepare a comprehensive file with the nuclear industry by mid-2021 relating to a programme for the renewal of nuclear facilities in France. EDF, along with the nuclear industry, submitted to the French State, in May 2021, a dossier of economic and industrial proposals for the launch of a new reactor programme in France. This dossier, based on EPR2 technology, details what the regulatory and financing framework for such a programme could be. It is based on the implementation of a programme of three pairs of EPR 2 successively at Penly, Gravelines and a third riverside site in the Auvergne Rhône Alpes region (Bugey or Tricastin), while continuing the feasibility analysis on other nuclear sites.

This offer was subject to an audit in the summer of 2021 commissioned by the French General Directorate for Energy and Climate (DGEC), which validated the methodology used to estimate the schedule and costs.

In addition, on 25 October 2021, RTE made public its study “Futurs énergétiques 2050” (Energy Future 2050), which analyses possible changes in electricity consumption in France and lays out six electricity mix scenarios to achieve carbon neutrality by 2050. The study clearly indicates that an electricity mix with a significant nuclear base is preferable to other scenarios.

The main challenge now is therefore to ensure that the conditions for a decision to launch the programme and its transposition into the legal and financial framework necessary for its implementation are brought about as soon as possible.

This requires three main prior actions:

• structuring of the programme, in particular the financing, regulation and governance scheme to which the State and EDF would commit;
• notification of the programme’s structuring arrangements to the European Commission with regard to state aid regulations;
• public consultation on the programme and on the site for the first buildings. The conclusions of this consultation must be taken into account as part of the application for “authorisation to create” (DAC) that the nuclear operator must submit to the administrative authorities in order to launch the construction of a new nuclear facility.

In order to bring about the conditions for a commitment decision, EDF is now working with the public authorities on several points, in particular:

• preparation of future public consultations, in particular the consultation to be held on the site where the first buildings will be constructed. Taking into account the conclusions of this consultation is an important element of the dossier for the application for authorisation to create (DAC), which must be submitted to the administrative authorities in the government before the construction of a new nuclear facility is launched;
• the structuring required to implement such a programme is essential for EDF. Several organisational, regulatory and financial schemes are currently being discussed with the French State; the State’s involvement in financing the programme must also be approved by the European Commission.

2. Sizewell C (United Kingdom)

A description of the Sizewell C project development in 2021 is provided in section 1.4.5.1.2.5. EDF’s ability to make the final investment decision alongside other investors and to contribute to the financing of the construction phase is contingent on, inter alia:

• sufficient funds to finance development costs until the final investment decision is made;
• a regulatory framework, a risk-sharing mechanism and a government support package (GSP) allowing private investors (debt and equity) to invest;
• an appropriate financing structure for the construction and operation phase with a sufficient number of investors willing to invest in the project. This would be the first time in the United Kingdom that a nuclear asset would be brought to market under a regulated asset base, and obtaining an investment grade credit rating from the rating agencies is a pre-requisite;
• an agreement with suppliers on major construction and operating contracts;
• obtaining the required approvals and authorisations, including planning permission (DCO), the nuclear site licence and environmental permits;
• the ability to deconsolidate in the Group’s financial statements (including in the calculation of economic debt by rating agencies) after the final investment decision.

Thus, the project is pursuing its strategy of replicating the HPC design as widely as possible, especially with suppliers, and of using the lessons learned from HPC.

Failure to bring about these conditions could result in the Group not making a final investment decision.

The main control actions to create favourable conditions for the decision include :

• ongoing discussions with the UK Government to define the project’s financing conditions and to obtain financial support before the investment decision;
• working with supply chain operators to develop an appropriate contractual strategy, in particular including the replication strategy;
• a detailed review of the cost and schedule;
• completion of studies to obtain the necessary planning permissions, licences and permits.

3. Jaitapur (India)

EDF and its partners submitted a comprehensive conditional non-binding bid to NPCIL at the end of 2018; in this offer, the EDF group and its partners undertake to supply all the studies and equipment for the nuclear island, the conventional island, the auxiliary systems, as well as the heat sinks and galleries of the EPR technology.

EDF does not plan to invest in the project, and the NPCIL client will be the overall project manager and integrator in the implementation phase (bearing in particular the risks of licensing, construction, assembly and overall integration). In April 2021, a binding technical and commercial offer was transmitted and discussions are ongoing. (See section 1.4.1.1.3.2 “Other New Nuclear projects” and section 1.4.5.3.6.2 “Southeast and Southern Asia”).

The project has the risk profile of a supplier of engineering services and equipment supplies; its value therefore lies in the realisation of the margin included in the price of the services sold. Like all large complex industrial projects, this project presents technical, industrial and cost control risks for the scope under the responsibility of EDF and its partners, as well as a risk relating to compliance with pre-defined milestones, particularly with regard to the expected revenue model. In addition to the country risk, which includes a substantial tax dimension, the conditions related to the nuclear liability framework in India and the securing of the project’s financing plan must be resolved before the final contracts are signed.

(1) See EDF's press release on 27 January 2021 "Hinkley Point C project update".