and 2023 due to risks of pressure on the electricity system. The end of the depreciation period is currently unchanged at 2026, and the depreciation schedule takes account of the new operating rules.
Due to the integrated management and interdependence of the different generation facilities that make up EDF’s fleet (nuclear, thermal and hydropower plants), independently of their maximum technical capacities, EDF considers the entire fleet as a single CGU. This CGU includes the Flamanville 3 plant, with net book value of €12,464 million (see note 15 (3)).
The recoverable value of the generation fleet is estimated by discounting future cash flows by the usual methodology, described in the accounting policies for long- term asset impairment, over the assets’ useful life, using an after-tax WACC of 6.3% at 31 December 2022 (120bp higher than the 5.1% at 31 December 2021). For nuclear assets, EDF’s benchmark model assumes an operating lifetime of 50 years for 900MW and 1,300MW-series plants and 40 years for N4-series plants, based on the depreciation period applicable at 31 December 2022, although it is EDF’s strategy to keep plants in operation well beyond 50 years. The impairment test also incorporates the latest forecasts for Flamanville 3 (which has a planned operating lifetime of 60 years), with an adjusted schedule and cost (see note 15 (3)).
For the period 2023-2025, the key assumptions concerning price and regulation take account of forward prices (significantly higher over this horizon than at the 2021 year-end) and hedges already contractualised, an ARENH volume of 100TWh and price of €42/MWh, a tariff cap for final consumers that will be funded by the French State budget in accordance with the current Finance Law (and therefore no loss of cash flow for EDF) and the best estimate of the inframarginal rent cap, considering the negative rents for 2022 (see note 8). These assumptions are consistent with the 2023 budget approved by the Board of Directors.
From 2026, when the ARENH scheme ends, since to date there is no regulation of the existing nuclear power fleet, the reference impairment test framework applies an assumption of full market exposure in constructing tariffs and prices.
As a result of medium and long-term price analyses, in the context of a gradual recovery in nuclear power generation starting from a range of 300-330TWh for 2023, the impairment test indicates substantially higher headroom than in 2021 (even before the effect of measures associated with the exceptional additional ARENH allocation and the impacts of the drop in nuclear power output in 2022), although the increase is mitigated by the higher WACC. The test shows that the recoverable value is well above the net book value.
The key assumptions in the test still concern:
These key assumptions were subjected to individual and combined sensitivity analyses (a 50bp increase in the WACC; a 10TWh per year decrease in nuclear power output across the whole period; a 5% increase in investments or operating expenses across the whole period; a decline in capacity prices; and post-2026 market prices 10% below the reference scenario price for a sustained period) and the results did not call into question the existence of a positive difference between the book value and the recoverable value. An additional sensitivity test was also conducted using a less favourable income scenario over the 2024-2025 horizon, particularly considering potential unfavourable regulatory measures which could lead to a significant decrease in the test headroom, all other things being equal.
Investments are carried at acquisition cost.
Gains and losses on sales of investments are valued using the FIFO (first in first out) method.
Transfer duties, fees and commissions and legal fees related to acquisitions of investments are included in the cost of acquisition of the asset.
Expenses of this type relating to other shares are included in expenses. Tax- regulated amortisation of acquisition costs is recorded in an excess depreciation account.
When the book value of investments is higher than their value in use, impairment is recorded equivalent to the difference.
For investments in companies consolidated by the EDF group, value in use is principally determined by reference to the entity’s equity value consolidated in the Group’s financial statements. It also takes other factors into consideration where relevant, such as information gathered during impairment tests conducted by the Group.
EDF holds investment securities comprising financial assets intended to finance operations at the end of the nuclear cycle, for which provisions have been accrued. These assets are managed separately from other financial assets and investments in view of their specific objective, and consist of bonds, equities, collective investment funds and “reserved” funds.
Other investments also include treasury shares that cover obligations relating to debt instruments providing access to the Company’s capital, acquired under a liquidity contract with an investment services company or through an external growth operation or capital reduction.
Shares are recorded at acquisition cost. Transfer duties, professional fees, commissions, legal expenses and purchasing costs are all charged to expenses, applying the option used for other investments.
Investment securities (shares and bonds) are recorded at acquisition cost. If the carrying amount of a security is lower than the acquisition cost, the unrealised capital loss is fully covered by a provision without being netted against potential gains on other securities. The carrying amount of listed securities is assessed individually, taking the stock market price into account. For unlisted securities, the carrying amount is also assessed individually, mainly by reference to the growth prospects of the companies concerned.
EDF grants short-term loans in foreign currencies to its subsidiaries for the purposes of the Group’s activities.
In order to reduce exposure to foreign exchange risks, EDF mainly finances these loans by short-term commercial paper issues in foreign currencies and in Euros, together with the use of currency hedging derivatives. Capitalised receivables are stated at nominal value. Impairment is recognised when the market value falls below the book value.
