In 2021, apart from the effects of extending the depreciation period for 1300MW- series plants at 1 January 2021 (see note 2.1.1 to the 2021 financial statements), there were few changes in provisions for last cores.
In 2022, provisions for last cores were adjusted after experience with core management at Fessenheim and its optimisation was finalised. The main consequence was an update to the masses of unused heavy metals included in the calculation of the last core provisions for the entire fleet, resulting in a €(145) million decrease in provisions.
The methodologies used to determine the discount rate changed as follows from 31 December 2020:
The discount rate is based on an interest rate curve, which comprises a sovereign yield curve constructed on year-end market data for liquid horizons (OAT bond 0-20 year curve) and then converging, using an interpolation curve, towards the very long-term rate UFR (Ultimate Forward Rate) - with yields that become close to the UFR after 50 years – plus a spread curve for corporate bonds rated A to BBB. Based on the disbursement outflows expected to meet nuclear obligations, a single equivalent discount rate is deduced by applying the discount rates from the interest rate curve constructed in this way to each flow as appropriate to its maturity. This single discount rate is then applied to the forecast disbursement schedules for the costs of the obligations, to determine the provisions.
The UFR was defined by the European Insurance and Occupational Pensions Authority (EIOPA) for very long-term insurance liabilities that will involve disbursements beyond market horizons. The UFR calculated for 2022 is 3.43%. This is used in the calculation methodology, in compliance with the decision by the French authorities, which in the ministerial order of 1 July 2020 amending the order of 21 March 2007 on secure financing of nuclear expenses (see below) changed the formula of the regulatory ceiling for the discount rate, such that it now refers to the UFR instead of the arithmetic 48-month average of the TEC 30-year rate. The UFR is considered more relevant for nuclear provisions in view of the very long-term maturities. The sovereign yield curve at 31 December 2022 indicates rates in a range of [2.7%;3.3%] ([-0.6%;0.6%] in 2021) for outflows between 0 and 20 years, [3.3%;3.4%] [0.6%;3.1%] in 2021) for outflows between 20 and 50 years, and a rate moving towards 3.43% (3.46% in 2021) for outflows after 50 years.
This calculation methodology for the discount rate provides the best assessment of the time value of money with regard to nuclear provisions, which are characterised by very long-term disbursement outflows, well beyond market horizons. This assessment is largely achieved through:
The inflation assumption is based on an inflation curve constructed by reference to inflation-indexed market products and economic forecasts, in long-term coherence with the inflation assumption underlying the UFR (2%).
The discount rate determined is thus 4.8% at 31 December 2022 (3.7% at 31 December 2021), assuming inflation of 2.3% (1.7% at 31 December 2021), i.e. a real discount rate of 2.5% at 31 December 2022 (2.0% at 31 December 2021).
The increase in the discount rate reflects the observed increase in OAT bond rates and the broader corporate bond spreads since 31 December 2021, notably driven by changes in the ECB’s monetary policy and a risker economic environment.
The increase in the inflation rate assumption reflects the higher inflation forecasts in France since that date, particularly for 2023, and the forecast breakeven inflation rate beyond that horizon in the current context of geopolitical and economic crisis. A 2% long-term inflation rate is still used in line with the ECB’s target level, and consistent with the inflation assumption underlying the UFR.
Furthermore, cost estimates were adjusted to 2022 year-end economic conditions, with a total impact of €215 million on provisions for decommissioning, spent fuel management and waste management, since actual inflation rates exceeded initial inflation forecasts.
The discount rate must comply with two regulatory limits. Under the decree of 1 July 2020 on secure financing for nuclear expenses (which codified and updated the initial decree of 23 February 2007 as part of the Environment Code) and the ministerial order of 1 July 2020 on secure financing for nuclear expenses (which amended the initial ministerial order of 21 March 2007), it must be lower than:
The maximum discount rate calculated by reference to the UFR in application of the order that took effect on 1 July 2020 is 2.85% at 31 December 2022 (2.80% at 31 December 2021).
The real discount rate used in the financial statements at 31 December 2022, calculated by the method presented above, is 2.5%.
