4B – Operational continuity of supply chains and of contractual relationships
Summary: The Group is exposed to the due completion and operational sustainability of the supply chains and of the contractual relations with its suppliers, as well as being exposed to the risk of price volatility, the risk to availability (discontinuance or shortage of supply), the logistic risk entailed in materials, equipment or services that it purchases for the requirements of its business lines. These risks may be exacerbated by crises and conflicts, such as the Russian-Ukrainian conflict, with nations or blocks of nations at loggerheads with each other, particularly when major sources of raw materials or of production resources essential to continuity of supply to the Group or to its industrial partners are located in the territories concerned.
Criticality: 
Intermediate
a) Main risks
Access to materials or products that are critical for the Group
The Group’s needs for critical materials or products may arise in markets with a reduced area or in markets subject to growing pressure, due in particular to the structure of and trends in the industrial offer or to increased competition from new uses. This pressure is attributable in particular to the growing needs of information systems and the needs of energy actors, especially those related to climate transition. These market pressures may increase the cost of supplying certain critical products or services and lead to a reduction in supply by some suppliers in response to a contraction in their margins. Fluctuations in the price and availability of certain raw materials or products that play a key role in setting the price of electricity and energy services may affect the Group’s supply capacity and earnings. This risk is currently heightened due to inflationary pressures on the price of raw materials and components needed for operations.
The Group uses technologies, mainly in the fields of nuclear, hydraulic and renewable energy generation, electrical storage and mobility, which require materials and elements that may be highly sensitive in terms of access (1). The scarcity of or conditions of access to certain raw materials may be critical for the Group due to geological, geopolitical, industrial, regulatory or competitive limitations, particularly in a context of energy transition. Certain crisis situations, such as the Covid health crisis, may also accentuate or generate difficulties regarding access to certain products, materials or services required for the Group’s activities and may make the provision of certain services particularly complex or even delay their completion. The development, particularly related to storage/ disposal, the growth of renewable energies and the market penetration of low-carbon electricity, could pose problems regarding access to certain materials: lithium for batteries, ferromagnetic rare earths for wind power, indium or selenium for solar energy. These difficulties could limit the Group’s ability to achieve its development objectives. In addition, control of the conditions under which raw or semi-finished materials are extracted, processed, packaged or made available for the Group’s needs may be subject to provisions calling for greater control of regulatory requirements and the duty of vigilance.
Supplier panels
The Group currently depends on a limited number of industrial players with specific skills and the required experience. This situation reduces competition in markets where EDF is a buyer and exposes the Group to the risk of default of one or more of these specialised suppliers or service providers. Apart from the large groups, it is the small and medium-sized French companies that represent the main portion of the supplier industrial fabric. These companies have so far weathered the Covid crisis relatively well. Those companies that were the most affected suffered from their exposure to the aeronautics, oil and automotive sectors rather than to the nuclear sector, as the nuclear sector continued to ensure sustained activity thanks to the major maintenance projects under way, particularly in France. However, the trend towards financial vulnerability observed over the last ten years or so persists, although bankruptcies, which are limited in number, generally end in a takeover and provide an opportunity for revitalisation.
Contractual relations and partnerships
Relations with the partners involved with EDF in completing these projects may also be a source of difficulties. Trade tensions between the United States and China could have an impact on the conduct of some of these projects given the technologies and partnerships implemented.
In this respect, decisions were made in October 2018 by the US Department of Energy (“US DoE”) relating to civil nuclear cooperation with China with regard to CGN, and in August 2019 by the US Department of Commerce (“US DoC”) placing four CGN Group entities on the Restricted Entity List. These decisions concern in particular the transfer of American goods and technologies, in particular dual-use goods and technologies, to CGN, EDF’s partner, notably in its new nuclear projects in the United Kingdom. As a result of these decisions, the transfer of goods and technology within the technical scope to the entities in question must be specifically authorised in advance by the competent US authorities.
In June 2020, the US Department of Defense also published a list of entities, including CGN, presumed to belong to or be affiliated with the Chinese army. This geopolitical risk also exists in the United Kingdom.
As a result of these measures, the People’s Republic of China enacted its first integrated law on the control of exports of sensitive goods and technologies (December 2020), as well as a “blocking law” against decisions, particularly those of the United States, that are extraterritorial in scope (January 2021).
These risks may be aggravated by conflicts between nations or blocs of nations, and in particular, to date, the Ukrainian conflict, when major sources of raw materials or of production resources essential for the continuity of supply to the Group or to its industrial partners are located in the territories concerned.
b) Control actions
In 2021, the Group adopted a new Suppliers policy which aims to secure the performance objectives of projects by ensuring their reliance on panels of suppliers that meet their needs and by allaying risk situations of supplier failure, quality crisis or contractual deadlock.
Furthermore, the Excell plan launched in 2020 (see section 1.4.1.1.1 “The excell plan”) aims to meet these challenges, in particular those concerning strengthening the sector’s skills (welding plan and initiatives connected with professional and educational facilities), improving supplier selection and qualification processes, taking into account the CSR issues relating to “Ethics, compliance and human rights” and to “responsible territorial development” (see sections 3.3.2 “Ethics, compliance and human rights” and 3.4.2 “Responsible regional development”), as well as increasing the number of more partnership-based contractual relationships. In 2021 in this context, the Group set up a “Supplier policy panel” for the nuclear sector intended to coordinate the actions of the entities involved in the relationship with suppliers. GIFEN (2) is also a key player in relaying the Group’s industrial policy.
Regarding contracts entered into between the Group and suppliers of equipment or services, improved contracting processes and management of the contracts that have been entered into, in particular through the implementation of vigilance actions at each stage, constitute a major issue as concerns controlling operations, deadlines and associated costs.
(1) The topic of Uranium supply is not considered here. It is dealt with in Risk 5D Control of the fuel cycle.
(2) The Groupement des industriels français de l’énergie nucléaire (French Nuclear Energy Industry Group), created in October 2018, aims to bring together all the actors of the French nuclear industry to ensure the attractiveness of the sector and maintain its skills.