EDF is exposed to equity risks, interest rate risks and foreign exchange risks through its dedicated asset portfolio.
The market value of the listed equities in EDF’s dedicated asset portfolio was €14,801 million at 31 December 2021. The volatility of the listed equities at the same date was 10.93% based on 52 weekly performances, compared to 26.6% at 31 December 2020. Applying this volatility to the value of listed equity assets at 31 December 2021, the Group estimates the annual volatility of the equities portion of dedicated assets at €1,618 million.
At 31 December 2021, the sensitivity of the listed bonds (€13,011 million) was 5.3, i.e. a uniform 100 base point rise in interest rates would result in a €685 million decline in market value. This sensitivity was 5.5 at 31 December 2020.
In compliance with the applicable regulations, based on the target allocation for dedicated assets stated above, studies to simulate the expected rate of return for the next few years, particularly the next twenty years (a horizon close to the duration of nuclear provisions) show with high probability that the average projected rate of return is higher than the 3.7% discount rate used to calculate nuclear provisions at 31 December 2021 (see note 15.1.1.5 to the 2021 consolidated financial statements).
The average annualised performance of dedicated assets since 2004, the year when their value first exceeded €1 billion, was 6.5% at 31 December 2021.
EDF received ministerial authorisation on 31 May 2018 to increase the portion of unlisted assets in its dedicated assets from 10% to 15% subject to conditions (this does not apply to the shares of CTE or real estate assets).
In addition, Cyclife, an EDF subsidiary, has received a prescription from the administrative authority to reach a coverage ratio of at least 100% by 31 December 2022. In order to comply with this requirement, allocations to cover assets may be made in 2022 (see note 17.1 to the 2021 consolidated financial statements).
Counterparty risk represents the potential loss the EDF group would sustain in the event of future default by its counterparty. The Group has a counterparty risk management policy which applies to EDF and all operationally controlled subsidiaries. This policy sets out the governance associated with monitoring for this type of risk, and organisation of the counterparty risk management and monitoring. The policy also involves quarterly consolidation of the Group’s exposures. The Financial Risks Control (CRFI) department closely monitors Group counterparties (daily review of alerts, special cautionary measures for certain counterparties).
The table below gives details, by rating category, of the EDF group’s consolidated exposure to counterparty risk. At 30 September 2021, 89% of the Group’s exposure concerned “investment grade” counterparties, mainly due to the predominance of exposures generated by the cash and asset management activity, as most short-term investments concern low-risk assets.
| Good credit rating | Poor credit rating | No internal rating | Total | |
|---|---|---|---|---|
| At 31/03/2021 | At 31/03/2021 Good credit rating91% |
At 31/03/2021 Poor credit rating8% |
At 31/03/2021 No internal rating1% |
At 31/03/2021 Total100% |
| At 30/09/2021 | At 30/09/2021 Good credit rating89% |
At 30/09/2021 Poor credit rating10% |
At 30/09/2021 No internal rating1% |
At 30/09/2021 Total100% |
The exposure to counterparty risk by nature of activity is distributed as follows:
| Purchases | Insurance | Distribution and sales | Cash and asset management | Fuel purchases and energy trading | Total | |
|---|---|---|---|---|---|---|
| At 31/03/2021 | At 31/03/2021Purchases 6% |
At 31/03/2021Insurance 1% |
At 31/03/2021Distribution and sales 9% |
At 31/03/2021Cash and asset management 76% |
At 31/03/2021Fuel purchases and energy trading 8% |
At 31/03/2021Total100% |
| At 30/09/2021 | At 30/09/2021 Purchases7% |
At 30/09/2021 Insurance1% |
At 30/09/2021 Distribution and sales10% |
At 30/09/2021 Cash and asset management62% |
At 30/09/2021 Fuel purchases and energy trading20% |
At 30/09/2021 Total100% |
Exposure in the energy trading activities is concentrated in EDF Trading, where each counterparty is assigned a limit that depends on its financial robustness. A range of methods are used to reduce counterparty risk at EDF Trading, primarily position netting agreements, cash-collateral agreements and establishment of guarantees from banks or affiliates.
For counterparties dealing with EDF’s trading room, the CRFI department has drawn up a framework specifying counterparty authorisation procedures and the methodology for calculation of allocated limits. The level of exposure can be consulted in real time and is systematically monitored on a daily basis. The suitability of limits is reviewed without delay in the event of an alert or unfavourable development affecting a counterparty. Only banking, sovereign and corporate counterparties with good credit ratings are authorised, for limited amounts and maturities.
Through its Generation and supply activities, the EDF group has operations on deregulated energy markets, principally in Europe, which expose it to price variations on the energy market that can significantly affect its financial statements.
Consequently, the Group has an “energy market” risk policy for all energy commodities, applicable to EDF and entities over which it has operational control.
The purpose of this policy is to:
