Accounting principles and methods
General principles
Other intangible assets mainly comprise:
- software, which is amortised on a straight-line basis over its useful life, including SaaS (Software as a Service) contracts which are not treated as service contracts and included in expenses. To qualify for treatment as fixed assets, SaaS contracts must confer a right of control to the user in addition to access to the software for a fixed period;
- research and development costs that qualify for capitalisation under IAS 38 amortised on a straight-line basis over their foreseeable useful life.
- purchased brands with an indefinite useful life, or amortised on a straight-line basis over their useful life;
- operating or usage rights for power plants, which are amortised on a straight-line basis over the useful life of the underlying asset;
- the positive value of energy purchase/sale contracts stated at fair value as part of a business combination governed by IFRS 3: this value is amortised as the contractual deliveries take place;
- assets related to concession contracts governed by IFRIC 12, under the “intangible model” (see note 10.5);
- technology related to activities as designer and supplier of nuclear steam supply systems and manufacturer of control rod clusters and nuclear fuel (Framatome) including codes and methods, EPR technology, patents and manufacturing processes, all amortised over their useful life;
- purchased customer contracts and relations, amortised over their useful life;
- incremental costs of winning or renewing customer contracts, which are amortised over the average duration of customer contracts;
- intangible assets related to environmental regulations.
Intangible assets relating to environmental regulations
These include greenhouse gas emission rights and renewable energy certificates purchased (see notes 20.1.1 and 20.1.2).
Greenhouse gas emission rights
EU Directive 2003/87/EC set up a greenhouse gas emission quota system for the European Union. Although the United Kingdom is no longer a member of the European Union, it is still concerned by this system.
This quota system was incorporated into national laws. Among other things it requires obligated actors, which is the case of EDF, to surrender to the State a number of greenhouse gas emission credits each year, corresponding to their emissions for the year.
In the EDF group, the entities subject to this Directive are EDF, EDF Energy, Edison, Dalkia, and Luminus.
The accounting treatment of emission rights depends on the holding intention. Two economic models coexist in the Group:
- rights held under the “Trading” model are included in “Other inventories” at fair value. The change in fair value observed over the year is recorded in the income statement;
- rights held to comply with regulatory requirements on greenhouse gas emissions (the “Generation” model) are recorded in intangible assets as “Greenhouse gas emission rights – green certificates”:
- at acquisition cost when purchased on the market,
- at nil value when allocated free of charge (in countries that still have a free allocation system).
A provision is established at the year-end when the estimated annual emissions by an entity are higher than the rights held or purchased on the forward market, less any rights sold on the forward market (see note 17.2).
This provision is equal to the acquisition cost up to the amount of rights acquired on the spot or forward markets, and to market prices for the balance. It is cancelled when the rights are surrendered to the State.
At the closing date, the portfolio of emission rights and the obligation to surrender rights for the emissions of the year are presented gross, without netting.
If the number of emission rights at the end of the year and not subject to forward sale is higher than the number of rights to be surrendered to the State for the year’s emissions, an impairment test must be applied to the excess. If the realisable value is lower than the net book value, impairment is booked.
Renewable energy certificates (green certificates)
In application of EU Directive 2009/28/EC on the promotion of the use of energy from renewable sources, every EU member state has set national targets for consumption of electricity from renewable sources. Although the United Kingdom is no longer a member of the European Union, it is still concerned by this system.
States can use two possible mechanisms to meet these targets:
- introducing a specific sales tariff for energy from renewable sources (this system is used in France and Italy);
- introducing a system of renewable energy certificates to be surrendered by energy suppliers (this system is used in the United Kingdom (Renewable Obligation Certificates) and Belgium (Certificats verts)).
For renewable energy certificate systems, the Group applies the following accounting treatment:
- certificates earned through energy generation are not recognised, since their cost is nil;
- certificates purchased are recognised as intangible assets in the line “Greenhouse gas emission rights – green certificates”;
- a provision is established to reflect the obligation to surrender certificates. It is based on the cost of certificates earned (with nil value) and purchased (on the spot or forward market), the market price of the certificates still be purchased, and where relevant the market price or penalty price for the balance. The provision is cancelled when the certificates are surrendered to the State (see note 17.2).
