Universal Registration Document 2022

For the delivery years shown below the mean market prices resulting from capacity auctions ahead of the delivery year were as follows:

The delivery year 2023 was opened to auction in 2022, and six auctions have been held since then. These capacity auctions resulted in the following prices: €42.4/ kW in March; €42.5/kW in April; €41.9/kW in June; €41.9/kW in September and €45.0/kW in October and €60.0/kW in December.

Four auctions were also held in 2022 for the delivery year 2024, with the following results: €20/kW in April and June, €34.1/kW in October, and €23.1/kW in December.

The operations are recorded as follows:

• sales of certificates are recognised in income when the auctions or over-the-counter sales take place;
• the cost of the capacity mechanism passed on to final customers through regulated sales tariffs and market-price offers is recognised in sales revenues as and when the electricity is delivered. In addition, the ARENH price is considered to have included a capacity value since January 2017 when the capacity mechanism took effect, as the terms of transfer for the capacity guarantees associated with the ARENH scheme were defined by the CRE;
• stocks of certificates are stated either at their certification value (i.e. cost of certification by RTE) or at their purchase value on the markets;
• decreases in the stock of certificates are valued at the weighted average unit cost. The timing of recognition depends on the actor:
  • operators of installations: when the auction sales take place,
  • obligated actors: over the 5-month peak period;
• for operators of installations, if the effective capacity is lower than the certified capacity, a liability (accrued expenses or provision) is recorded equivalent to the best estimate of the expense necessary to extinguish the obligation (rebalancing or settlement mechanism);
• for obligated actors, if there is a shortfall in the stocks of capacity certificates, a provision is recorded equivalent to the best estimate of the expense necessary to extinguish the obligation;
• at the closing date, if the realisable value of the stock of capacity certificates is lower than its net book value, impairment is recognised.

British system: The British capacity mechanism was introduced in 2014 to ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. It is based on a system of auctions for operators, organised by the electricity system operator “National Grid” to procure capacity 4  years ahead of delivery with “top-up” actions one year ahead of delivery. Delivery years run from 1 October to 30 September. Capacity providers, which have been successful at the auctions are remunerated in the year of delivery out of a fund consisting of contributions from electricity suppliers but may be liable for penalties for failure to meet their obligations.

The electricity suppliers’ contribution to this mechanism is proportional to their sales to customers in the peak period and the cost of capacity is passed on to final customers through their sale price.

EDF Energy is concerned by both aspects of this system, as an operator of electricity plants and a supplier.

For accounting purposes, the remuneration received in its capacity as an operator is recognised in sales revenues in the year of delivery, and the contribution paid to the mechanism in its capacity as an electricity supplier is recognised in energy purchases over the peak period. The cost of the capacity mechanism passed on to final customers is recognised in sales revenues as and when the electricity is delivered.

The government has implemented several changes to the detailed operation of the Capacity Market with the objective of ensuring that it continues to meet its objective in an efficient way. However, the main principles of the mechanism have remained unchanged.

The government is currently exploring options for reform of the Capacity Market to improve delivery assurance and to support alignment with net zero and its commitment to deliver a decarbonised electricity system by 2035, subject to security of supply. It may also consider further changes as part of the Review of Electricity Market Arrangements (REMA). The key measures currently under consideration include: strengthening security of supply through changes to the requirements for demonstrating satisfactory performance and increasing penalties for non-delivery at times of system stress; and aligning the Capacity Market with net zero by introducing much tighter emission limits from October 2034 for new plants.

As with previous changes to the Capacity Market, changes to the rules should apply to any new capacity agreements awarded but would not materially change the rights and obligations of capacity providers in respect of existing capacity agreements.

Italian system: A capacity mechanism was set up in 2019 using rules approved in a decree of 28 June 2019 issued by the Economic Development Ministry.

This mechanism is based on an auction process organised by TERNA, the Italian transmission grid operator, for each delivery year. Operators of existing and future production or storage units can participate in the auctions. The operators of the capacities selected are paid through a fixed premium during one year for existing capacities and 15 years for future capacities. The fixed premium is paid during the delivery year.

The selected operator must offer its capacity on the day-ahead market (Mercato del Giorno Prima) and the balancing market (Mercato per il Servizio di Dispacciamento). If the selling price on these markets reaches a level exceeding a strike price defined by the Italian Regulatory Authority for Energy, Networks and Environment (ARERA), the operator must repay the surplus to TERNA.

Two auctions were held during 2019 for delivery dates set in 2022 and 2023, and Edison won 3.8GW for 2022 and 3.3GW for 2023 for an annual price of €75,000/ MW for new capacities and €33,000/MW for existing capacities. In February 2022 a new auction for 2024 was held: the capacity offered by Edison was entirely assigned for an annual price of 33k€/MW for existing plants, for a total capacity of 2.3GW.

The fixed premium is recorded in income during the corresponding delivery year, and reduced if appropriate by any repayments made to TERNA, or if the power plant is unavailable.