The changes observed in property, plant and equipment used in generation owned by the Group include a €2,062 million impact of translation adjustments due to the rise of the pound sterling against the euro and a €(1,031) million impact resulting from extension to 50 years of the depreciation period of 1300MW PWR nuclear plants at 1 January 2021 (see note 1.4.1).
As stated in note 1.3.4.1, the depreciation period of nuclear power plants currently in operation in France, i.e. thirty-two 900MW reactors, twenty 1300MW reactors and four 1450MW reactors, is 50 years for 900MW-series plants (since 1 January 2016) and 1300MW-series plants (since 1 January 2021), and 40 years for N4- series plants which do not yet fulfil the conditions for a longer depreciation period.
Under France’s multi-year energy programme (PPE, standing for programmation pluriannuelle de l’énergie) for the periods 2019-2028, adopted by decree 2020- 456 of 21 April 2020, twelve French nuclear reactors are to be shut down by 2035, in addition to closure of the two reactors at Fessenheim which took place in the first half of 2020 in accordance with decree 2020-129 of 18 February 2020 terminating the plant’s operating licence. Consequently two 900MW reactors will be shut down in 2027 and 2028 ahead of their fifth 10-year inspection (two others could also be shut down early in 2025-2026 if certain conditions are fulfilled, notably concerning the price of electricity and security of supply). To select the two reactors concerned, priority will be given to shutdowns that minimise the economic and social impact, have the lowest impact on the electricity network, and do not entail closure of an entire site. At the request of the French government, based on these criteria, on 20 January 2020 EDF proposed to examine the possibility of shutting down pairs of reactors at the sites of Blayais, Bugey, Chinon, Cruas, Dampierre, Gravelines and Tricastin. The PPE also stipulates that early reactor shutdowns will be confirmed 3 years prior to implementation. Consequently, notwithstanding the depreciation periods indicated above, adoption of the PPE in April 2020 has led to re-estimation of nuclear provisions since 2020 by reference to various scenarios for the early shutdowns of two 900MW reactors, resulting in a €29 million increase in nuclear provisions (mainly decommissioning provisions, due to the payment schedules being shortened by a few years). Accelerated depreciation schedules were also estimated based on these scenarios, leading to an increase in the depreciation expense recognised, with no significant impact on the Group’s financial statements.
In view of France’s Energy and Climate law of 8 November 2019, the ends of the depreciation periods for the Le Havre and Cordemais coal-fired plants were changed at 1 June 2019, setting the closure of Le Havre at 1 April 2021 while Cordemais is to continue operating until 2026, considering a conversion to biomass as part of the Ecocombust project.
Le Havre power plant was permanently shut down on 31 March 2021.
As a result of the changes made in 2019 to the end of the depreciation period, accelerated depreciation (compared to the previous depreciation period) of €222 million was recognised during 2021 (€250 million in 2020, as the Le Havre plant ceased operations on 31 March 2021).
On 8 July 2021, EDF announced it had decided to put an end to the Ecocombust project to develop fuel from class B “waste” wood as an alternative to coal, since the conditions for continuing the project were not fulfilled: the project cost could not guarantee an attractive price for the final product, and the industrial partner recently withdrew.
EDF began the Ecocombust project in 2015. Since late 2018 the project had consisted of adapting the Cordemais plant to use this alternative fuel, and creating a dedicated facility to produce pellets on site. EDF carried out successful technical and environmental feasibility studies.
The economics of the project were penalised by its very innovative nature, and the lack of experience with this type of product, as well as recently soaring commodity prices. Also, the partner with which EDF was holding discussions for the treatment of effluents from the pellet production facility decided to withdraw from the project. This meant the industrial commissioning date had to be deferred to 2024, as the Cordemais plant would not have been able to produce electricity from an alternative non-coal fuel during the period 2022/2024.
Cordemais will continue to operate until 2024, perhaps even 2026, to meet the requirements of the electricity system as defined by RTE, in compliance with the Energy and Climate law which allows the Cordemais plant to be used at full capacity for a maximum 750 hours a year. Consequently, the end of the depreciation period is currently unchanged at 2026, and the depreciation schedule was accelerated from the second half of 2021 to take account of the expected new operating arrangements. The investment expenditure on the Ecocombust project was written off at 30 June 2021.
Under IFRS 16, applicable since 1 January 2019, a contract is, or contains, a lease if it confers the right to control the use of an identified asset for a period of time in exchange for a consideration.
Identified arrangements that do not have the legal form of a lease contract but nonetheless convey the right to control the use of an asset or group of specific assets to the purchaser are classified as leases by reference to IFRS 16.
The Group’s lease contracts as lessee essentially concern real estate assets (office and residential properties), industrial installations (land, wind farms) and to a lesser extent vehicles, IT and industrial equipment.
IFRS 16 requires leases to be recognised in the lessee’s balance sheet when the leased asset is made available, in the form of a “right-of-use” asset, presented in “Property, plant and equipment used in generation and other tangible assets owned by the Group, including right-of-use assets” with a corresponding financial liability associated with the lease commitment, presented in “Current and non-current financial liabilities”.
Upon initial recognition of a lease, the right of use and the lease liability are valued by discounting the future lease payments over the term of the lease, taking into consideration assumptions regarding the renewal or termination of leases if the relevant options are reasonably certain to be exercised.
As a rule, since the implicit interest rate in a lease is difficult to determine, the lessee’s incremental borrowing rate is used to discount the lease liability. This rate is based on zero-coupon EDF bond rates, adjusted for the currency risk, a country risk premium, the term of the lease contracts and the subsidiary’s credit risk at the date of initial recognition of the contract. In certain cases, it is based on a subsidiary’s specific incremental borrowing rate.
Subsequently, the right of use is amortised over the expected term of the lease, while the lease liability is stated at amortised cost, i.e. adding the interest recognised in the financial result, and deducting the amount of the lease payments made.
The Group applies the two exemptions allowed by IFRS 16, and as a result leases with a term of 12 months or less and leases of assets with individual value when new of less than USD 5,000 are not recognised in the balance sheet. Consequently, the payments on these leases are recognised on a straight-line basis over the lease term in the income statement.
If the Group performs a sale and leaseback operation – consisting of selling an asset to a third party and then renting it back as lessee – which is classified as a sale under IFRS 15, it measures the right-of-use asset resulting from the lease as the proportion of the asset’s previous book value that corresponds to the right of use retained by the Group. Also, the gain on the sale of the asset by the Group only corresponds to the proportion of the right of use actually transferred to the third party. The lease liability is not adjusted, unless the conditions of the sale or lease do not reflect market values.
Off-balance sheet commitments presented in note 21.1.1 concern:
The accounting treatment of a lease contract in which the Group is lessor depends on the classification of the contract. For a finance lease which transfers substantially all risks and rewards inherent to ownership of the underlying asset to the lessee, the Group recognises a financial asset in its balance sheet instead of the initial fixed asset; in this case, the receivable is equal to the discounted value of future lease payments.
