Universal Registration Document 2022

Impairment of other intangible assets and property, plant and equipment

General assumptions

At 31 December 2022, the Group applied its usual method for impairment testing, updating the annual tests for goodwill and intangible assets.

Particular attention was paid to the determination of WACC in an environment of rising and volatile interest rates (see the section on the Discount rates). When performing impairment and sensitivity tests, close attention was also paid to the effects of scenarios concerning prices and measures announced or introduced by the authorities in countries where the Group does business.

Electricity prices

Over the market horizon (generally three years), the forward prices used in the impairment tests are the market prices observed at 31 December, including hedged positions, which (to an even greater extent than at 30 June) were significantly higher than observed forward prices at 31 December 2021, in all geographical zones.

Over the long-term horizon, these tests use price curves constructed analytically founded on assumptions and fundamental models of the supply-demand balance, in an annually updated scenario-building process that is subject to specific internal governance.

The long-term scenarios established for electricity prices in the various countries where the Group has operations take account of the objectives of public energy and climate policies such as the Paris Agreement at worldwide level, Fit For 55 and RepowerEU at European Union level, and the National Low Carbon Strategy (Stratégie nationale bas carbone) in France. The scenarios used mainly include high CO₂ prices supporting carbon-free electricity production in Europe, and a lower-carbon economy more generally through electrification of uses.

The long-term price curves in the 2022 scenario follow an upward trend early in the horizon due to the effects of the current energy crisis, but in the longer term these effects dissipate and electricity prices are closer to those in the 2021 scenario.

Compared to the 2021 scenario, price levels are substantially higher at the start of the horizon, with an average increase in the baseload power price of around +€10 to +€25/MWh in the four core countries (France, the United Kingdom, Italy and Belgium). From 2030 and over a long-term horizon, electricity prices remain stable compared to the 2021 scenario.

There are several explanatory factors for this pattern:

• the Russian invasion of Ukraine had a major impact on gas supply levels and put great pressure on the gas markets, leading to an upward adjustment to gas prices early in the horizon. In the longer term, Europe is expected to significantly reduce its dependence on Russian gas (and compensate with LNG), and long-term gas price trajectories are relatively similar to 2021;
• to reflect European ambitions for decarbonisation and cutting greenhouse gas emissions, CO₂ quota prices have a rising trajectory and are higher than in 2021 over the horizon 2027-2035. At the start of the horizon, the impact of CO₂ prices on electricity price levels is of secondary importance given the significant upward influence of gas prices;
• at the end of the horizon, the increase in CO₂ prices combines with accelerated development of low-carbon generation facilities (nuclear power and renewable energy) to result in relatively stable electricity prices compared to the projections in the 2021 scenarios.

Demand for electricity is rising across all timescales at European level. Electrification of uses, particularly in transport and industry, is reinforced by a greater need for electrolytic hydrogen. These developments, in addition to RePowerEU plan should accelerate energy independence in Europe, have led an increased in the need for electricity.

As these assumptions are structuring for the determination of the recoverable value of Group’s assets, sensitivity analyses are carried out on long-term price curves as part of the impairment tests.

Furthermore, for the assumptions concerning capacity mechanisms generally in European countries, the necessary additional remuneration is expected to be lower than in the 2021 scenario. In the early stages of the 2022 scenario horizon, due to the current energy crisis, the upward revision of electricity prices on the Energy-Only Markets increases returns on peakload generation assets on the open market and automatically decreases the need for additional remuneration on those assets. In the long term, capacity mechanism revenues are also lower overall than in the 2021 scenario. In the case of France, this trend is explained by the increase in generation capacities, in keeping with the strategic orientations presented in the French President’s speech at Belfort (construction of new EPRs, extension of the existing fleet’s operating lifetime, and accelerated expansion in renewable energies while reducing end-user demand for energy), which give France a greater margin in the medium and long term.