When a concession is operated in these circumstances, a fee based on the “rolling extension” profits has been payable since 2019. This fee amounts to 40% of the normative earnings of the concession as defined by Article R. 523-5 of the French Energy Code, less corporate income tax.
Long-term asset impairment
At each reporting date, EDF assesses whether there is an indication that an asset could have significantly lost value. If so, an impairment test is carried out as follows:
- EDF measures any long-term asset impairment by comparing the carrying value of these assets, combined into groups where necessary, and their recoverable amount, usually determined using the discounted future net cash flow method. When this recoverable amount is lower than the value in the balance sheet, an amount equivalent to the difference is written off under Depreciation and impairment;
- the discount rates used are based on the weighted average cost of capital (WACC) for each asset or group of assets concerned;
- future cash flows are calculated on the basis of the best available information at the valuation date:
- for the first few years, the flows correspond to the Medium-Term Plan (MTP). Over the MTP horizon, energy and commodity prices are determined based on available forward prices, taking hedges into consideration,
- beyond the MTP horizon, cash flows are estimated based on long-term assumptions prepared for each country and each energy, in a scenario development process that is updated annually. Medium and long-term electricity prices are constructed analytically by assembling blocks of assumptions concerning factors such as economic growth, commodity prices (oil, gas, coal) and CO2 prices, demand for electricity, interconnections, and developments in the energy mix (rise of renewable energies, installed nuclear capacity, etc.), combined with fundamental models of supply-demand balance. EDF compares each principal component of assumption with analyses by external bodies (for example, for commodities and CO2, which are primary influences on electricity prices, EDF compares its own scenarios with scenarios developed by organisations such as the IEA, IHS, Wood Mackenzie or Aurora, bearing in mind that each of these analysts itself proposes a cone of scenarios corresponding to different macro-economic environments),
- income from capacity market mechanisms is also taken into consideration in valuing generation assets.
These calculations may be significantly influenced by several variables:
- changes in discount rates;
- changes in market prices for energy and commodities and tariff regulations;
- changes in demand and EDF’s market shares, and the attrition rate on customer portfolios;
- the useful life of facilities, or the duration of concession agreements where relevant;
- the growth rates used beyond the medium-term plans and where relevant the terminal values taken into consideration.
