Sensitivity analyses on various dimensions and assumptions (particularly WACC) do not indicate any risk of impairment, all other things being equal.
Sensitivity analyses were also conducted for information purposes using extremely pessimistic assumptions: for example, it was estimated that a further 3-year deferral of the COD and an associated additional cost of £3 billion, or a 60-point rise in WACC, would lead to a threshold value for the goodwill impairment headroom, all other things being equal.
Finally, a multi-sensitivity scenario was developed to test the goodwill’s resilience in the event of several adverse scenarios concerning the project’s various phases (construction, operation, decommissioning) in the absence of any action or remedial plan, incorporating a delay of 1 year and additional costs of £1 billion in the construction phase, a 3% decrease in plant availability, a 5% rise in fuel costs and a 3% rise in operating and maintenance costs. Under this combined stress test, the headroom remains slightly positive, confirming the recoverability of the goodwill’s net book value.
Finally, although at this stage Brexit has no observable impact on impairment tests of EDF Energy’s assets since most cash flows (income, costs, investments) and assets are stated in sterling, the longer-term consequences are still hard to predict. The Group will monitor changes in the prices of fuel, materials and supplies, macroeconomic data, and electricity price formation, which could all potentially affect the results of future tests.
As an intangible asset with an indefinite useful life, the impairment test of the Edison brand, first recognised at the value of €945 million when Edison was taken over in 2012, is updated annually using the royalty relief method and a 100bp risk premium for determining the discount rate. The updated test at 31 December 2021, incorporated the recommendations of an external assessment carried out in 2020 (reducing the long-term growth rate from 2% to 1.5% based on GDP forecasts; increasing the royalty rate for the Business customer segment following a survey of business customers). The result showed a rise in the brand’s recoverable value, taking account of higher volume effects and a favourable WACC effect. Sensitivity analyses including a 50bp increase in the WACC, and a -0.2% decrease in royalties, did not indicate any risk of impairment.
At 31 December 2021, there was a general improvement in the recoverable value of Edison’s CGUs due to the more favourable long-term price environment, favourable operating effects, particularly higher volumes for certain CGUs, and the impact of the decrease of around 50bp in the WACC. No risk of impairment was detected. On the contrary, some of the impairment booked previously in the context of a downward trend in market prices (especially in 2015) was recovered.
Concerning Edison’s hydropower assets, accumulated impairment of €(430) million had been recorded in the past, principally in 2014, 2015 and 2016. Impairment of -€39 million was also recognised at 30 June 2020, based on conservative assumptions in the context of the Covid-19 pandemic. At 31 December 2020 the difference between this CGU’s recoverable value and book value was observed to be positive once more, but a conservative approach was applied and no impairment was recovered. The durable increase in the recoverable value, confirmed at 31 December 2021, led to a partial recovery from past impairment, amounting to €60 million. This recovery was limited by depreciation recorded since the initial recognition of assets, together with long-term market price assumptions limited by including a PUN price sensitivity of -10%.
Concerning wind power assets, accumulated impairment of some €150 million had been recorded in the past, principally in 2014 and 2015. At 31 December 2021 the recoverable value was improving, confirming the durability of the headroom observed in recent years. This was also confirmed by the sale of 49% of Edison Renewables to Crédit Agricole Assurance in December 2021 (see note 3.1.1). The durable increase in this CGU’s recoverable value at 31 December 2021 led to a partial recovery from past impairment, which was limited to €90 million due to the depreciation booked since the initial recognition of the assets.
Concerning thermal assets, on which accumulated impairment of some €600 million had been recorded in the past, the impairment test at 31 December 2021 showed significantly positive headroom, but no impairment was recovered in 2021 since this result essentially related to the new-generation CCGT plants at Marghera and Presenzano which are due to be commissioned in 2022 and 2023. Marghera and Presenzano are two new-generation gas-fired plants with respective capacities of 780MW and 760MW and low environmental impact (carbon emissions 40% below the national average, NOx emissions reduced by 70%) and will benefit from capacity revenue. Sensitivity analyses were conducted on these assets, and the results show that a 10% decrease in clean spark spreads or a 50 bp increase in WACC would not entail any risk of impairment.
Finally, the Algerian E&P assets still owned by the Group at this stage were subjected to an impairment test at 31 December 2021, particularly in view of the commodity price situation on the market. The value resulting from the test did not lead to recognition of any additional impairment.
At 31 December 2021, the goodwill of Framatome amounted to €1,428 million, almost entirely resulting from EDF’s acquisition of 75.5% of the capital of Framatome on 31 December 2017. The Group finalised recognition of the business combination in its financial statements at 31 December 2018.
The recoverable value of Framatome was determined on the basis of a 10-year business plan and a terminal value. This business plan is sensitive to assumptions concerning the completion of major construction projects that are incorporated into the reactor scenario, and market share assumptions for services to the installed base and fuel deliveries to customers’ reactors. The WACC applied in discounting future cash flows is weighted to reflect Framatome’s different businesses depending on their risk profile. The headroom indicated by the impairment test remains very significant and was slightly higher than at 31 December 2020, principally due to the lower WACC.
Sensitivity analyses were conducted using a 50bp increase in WACC and a 0% growth rate to infinity. The test conclusions were not affected.
Framatome’s intangible assets recognised after its acquisition (technologies, including the EPR, which are depreciated over an average 15 to 20 years; customer relations amortised over an average period of 11 years; and the brand) were tested and no risk of impairment was identified.
EDF Renewables’ assets mainly consist of CGUs benefiting from Power Purchase Agreements (PPAs) providing contractually defined revenues over most of the assets’ useful lives, and consequently have low market risk exposure.
In 2021, impairment of -€54 million was recognised in respect of various CGUs of EDF Renewables.
As explained in the financial statements at 31 December 2020, the French Finance Law for 2021, published in the Journal officiel on 30 December 2020, introduced a reduction in purchase tariffs for electricity generated by photovoltaic plants of over 250 kWp covered by a purchase obligation contract in application of the tariff decisions of July 2006, January 2010 and August 2010 (article 225), but it was not possible at the time to determine the potential effects for EDF Renewables (which is the exclusive or joint owner of solar plants concerned by this tariff revision, with total net capacity of 145MWp), since further details had yet to be set by decree and order. Decree 2021-1385 and the order of 26 October 2021, after examination by the Higher Energy Council (Conseil Supérieur de l’Énergie), stipulated the modalities for application of this tariff reduction and the “safeguard clause”, and put the CRE in charge of defining the conditions and format for review applications submitted to it under that clause, and the information necessary to examine those applications.
Impairment tests conducted at 30 June 2021, based on tariff assumptions made available by the CRE at the time, led to recognition of impairment of -€9 million on fully-consolidated solar power plants, and €(25) million on investments accounted for by the equity method. The updated tests at 31 December using the final tariffs only led to minor adjustments to these amounts (see note 11.2).
Other impairment at EDF Renewables concerns specific assets, including -€24 million for a wind farm and a solar power plant in the United States. Sale of these facilities is under consideration for prices expected to be lower than the value of the assets.
