Universal Registration Document 2022

2.2.1 Market regulation, political and legal risks

1A – Changes in public policies and in the regulatory framework in France and Europe, especially relating to ARENH

a) Context

In France, the context determining the scale of this risk (laws, regulations, policy directions) is as follows:

• Energy mix: the Act sets at 2035 the target date for the reduction to 50% of the nuclear power component in electricity generation, and sets at 40% the target for reduction in fossil fuel consumption by 2030 (compared with 2012), and plans to achieve carbon neutrality by 2050 by dividing greenhouse gas emissions by a more than factor of six.
• The speech by the President of the Republic on 10 February 2022 in Belfort: the President of the Republic called upon EDF to prolong the life of all the nuclear reactors that could be extended without any concessions on safety, to examine the conditions for extension beyond 50 years in coordination with the nuclear safety authority (ASN), and to launch a new reactor programme: the construction of six EPR2 reactors and the launching of feasibility studies for the construction of eight additional EPR2 reactors. The President also announced the massive development of renewable energies: solar energy (with a tenfold increase in installed power to exceed 100GW), offshore wind power (target 40GW to be commissioned in 2050), onshore wind power (installed power 18.5GW at end 2021, to be doubled by 2050), and hydropower.
• The review process for the SFEC (French energy climate strategy) began in October 2021. A first public consultation was held from November 2021 to February 2022, giving EDF the opportunity to express itself via a consultation paper. The aim is to publish in 2024 the texts comprising the French strategy: the SNBC (national low-carbon strategy), the PPE (multi-year energy programming) with its two periods, namely, 2023-2028 and 2029 to 2033, and the PNACC (national plan for adapting to climate change). the French State services organised – the sequence is still continuing in March 2023 – working parties (for the SNBC) and some 35 workshops (for the PPE) during which EDF has presented and continues to present its analyses and expectations. A first version of the long-term scenario underpinning the SFEC was published in the summer of 2022 and a new version will be drafted in the spring of 2023. This scenario must respond to a number of constraints or assumptions recognised as critical to achieving carbon neutrality in 2050 (quantity of electricity to be generated, availability of bio energy, the quantitative role of hydrogen and energy of synthesis generation, the feasibility and acceptability of assumptions relating to restraint or efficiency on the final-demand side, etc.).
  
  A second consultation, on the energy mix, was launched in November 2022. Among other features, it includes discussions in the regions. It is planned to introduce an energy-climate planning bill in mid-2023, for adoption by the year-end. The PPE and SNBC decrees would then be drafted in 2024.
• To support the SFEC process, in late 2022, the Government took the initiative of preparing two bills, which, without impinging on the development goals set by the SFEC, are designed to facilitate and accelerate the deployment of new renewable and nuclear installations:
  • the law on accelerating renewable energy generation was passed by Parliament on 7 February 2023, aimed in particular at easing the constraints on the development of the various renewable energies: hydropower, onshore wind power, offshore wind power, and solar power;
  • the bill “on accelerating the procedures relating to the construction of new nuclear installations close to existing nuclear sites, and to the operation of existing installations” will be examined by Parliament in 2023. Its aims are:
    • on one hand, to facilitate the construction of new nuclear reactors by making the building-permit rules for urban-planning purposes less stringent; under the Coastline Act from the moment that the new reactors are sited next to an existing power plant; this will be under French State control,
    • on the other, to facilitate the extension of the operating life of the present nuclear installations by simplifying the procedure for periodic review of reactors aged more than 35 years, and by replacing the automatic permanent shutdown of a nuclear installation that has ceased to operate for more than two years by a procedure requiring a decree of closure.
• The ARENH and the regulatory framework for the existing nuclear facilities: law No. 2022-1158 of 16 August 2022 introducing emergency measures for protecting purchasing power set the “ARENH ceiling” at 120TWh, within which limit the Government has powers to lay down in an order the “maximum overall volume of electricity that EDF can pass on” to alternative suppliers, and this Act introduced scope for raising its price to €49.5/MWh upon agreement by the European Commission. At this stage, however, the Government has maintained the maximum overall volume of electricity that can be passed on at 100TWh for 2023, and, as far as we are aware, has not approached the Commission to raise the ARENH price ^(1).
• Emergency measures
  • A €3 billion fund has been set up to assist major companies particularly affected by the price crisis. The criteria for entitlement to these exceptional French State aids are controlled by the Community decision relating to the Ukraine emergency measures.
  • A “tariff shield”: for 2023, the French State has decided to cap the increase in TRVE to 15% including VAT. The corresponding loss of earnings is recognised as a public service expense and the Company will be compensated for its sales to TRVE customers as a market offer to customers eligible for TRVE.
  • A “cushioning effect”, consisting of a reduction of the portion supplied to customers exceeding an updated price charged, and charged to a fraction of the volumes delivered, has been instituted to benefit SMEs and local and regional authorities that are not eligible for TRVE, and are not eligible for the tariff shield referred-to in the previous point. Two successive decrees specified the scope of the measure in January 2023.
  • The compensation mechanisms of these measures (tariff shield and cushioning) are discussed in the paragraph below entitled “public service expenses and income”.
  • A “Contribution levied on the infra-marginal electricity generation windfall” (CRIM): the Finance Act for 2023 implements EU regulation 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, by instituting a levy, above a ceiling expressed as an MWh price, on income of electricity producers derived from certain primary energy sources. A decree specifying the terms and procedures for declaration and payment of the CRIM levy is pending. Its promulgation is expected before the end of the 1st quarter of 2023.
  • EDF falls under this measure for its power generation as follows: nuclear (excluding revenues derived from ARENH volumes made over to competitors to supply end customers or network managers in order to offset their losses); hydropower from free-running water, and part of the energy generated at dams (controllable hydropower from large-capacity lakes and dams is not covered by this measure); thermal fire generation (excluding coal-fired).While the European regulation covers only a period expiring in July 2023, the French measure applies to a period from July 2022 to December 2023. On the basis of both the calculation method laid down in the Act and the market price outturns in 2022 and forecast for 2023, and allowing for the eligibility for any loss carry-forwards, the levy is estimated at between €0 billion and €5 billion for 2023. The final amounts are not yet known and are awaiting the future implementing decree.
  • The intention of the European Commission and the Member States is to use the resources thereby accruing for redistribution to consumers in order to uncouple the final costs of electricity from gas prices.
  • Excluding France, but in the UK, Belgium and Italy, mechanisms for tapping infra-marginal windfalls were also adopted in 2022 (UK: 45% above £75/MWh; Belgium and Italy: 100% above €180/MWh).
• Public service expenses and income:
  • In France, public service missions are assigned to EDF under French law (in particular by Articles L. 121-1 et seq. of the French Energy Code), which also provides for compensation mechanisms in favour of EDF in respect of the discharge of such missions in accordance with a rule of full compensation of expenses out of the French State general budget. Nevertheless, financial flows may differ from one year to the next, since the French State may accelerate or defer the settlement of the amounts paid to EDF, when the amounts of the expenses recognised exceed or fall short of forecast.
  • On 15 July 2022, The French Energy Regulation Commission (CRE) discussed, as it does each year, the amount of public service expenses to be compensated in 2023. It met afresh on 3 November 2022 in the context of the high rise in market prices, and estimated a negative compensation amount of €31.6 billion, excluding price-freezing measures. Thus, for the first time, these sums should be repaid to the French State by EDF in respect of the public service missions carried out by the Company. However, taking into account the significant fall in electricity prices since end December  2022, (Cal23 at €270/MWh to be compared with the €517/MWh used by the CRE in its discussions on 3  November 2022), the expenses to be reimbursed for 2023 by EDF to the French State are now estimated by EDF at €14.8 billion. These fluctuations in market prices may still be very sizeable in 2023.
  • Moreover, the expenses relating to the emergency measures applied in 2023 (tariff shields, cushioning effects) were not evaluated by CRE (the French Energy Regulation Commission) in its latest discussions, since the principle for compensating them was only introduced on 30 December 2022, under the 2023 Finance Act. In early February, EDF estimated the amount of that compensation (flow from the French State to EDF) at around €18 billion. The CRE will provide a final evaluation of that amount in May 2023.
  • On the basis of these different amounts, EDF estimates a net compensation flow between EDF and the French State to date of the order of some €3 billion.
  • The Finance Act for 2023 includes a special provision authorising the CRE to re-evaluate the overall amount of compensation during 2023. The CRE has confirmed its intention to conduct that re-evaluation in July  2023. This re-evaluation should allow a firm figure to be arrived-at for the net flow between DF and the French State for the year 2023. The final provisions have not yet been laid down for a possible mechanism to neutralise the different compensation flows between now and that firm evaluation.