EDF_REGISTRATION_DOCUMENT_2017

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PRESENTATION OF EDF GROUP Group strategy

INTRA-GROUP CONTRACTS 1.2.2 The information on the regulated agreements and commitments referred to in Article L. 225-38 of the French Commercial Code is stated in the Statutory Auditors’ special report, which is reproduced in section 7.5.4 to this Reference Document. Financial flows between EDF and its subsidiaries In addition to the financial flows relating to the cash pooling agreements mentioned above, financial flows between EDF and its subsidiaries are also related to distributions of dividends within the Group. A substantial portion of the dividends is paid by EDF International. In 2017, EDF received a total of €1,763 million in dividends from its consolidated subsidiaries. Other financial flows between EDF and its subsidiaries correspond mainly to loans, asset transfers and guarantees made by the parent company of the Group for the benefit of certain subsidiaries. In the context of the Group’s financing centralisation policy, decided on in 2006, EDF centralises part of the financing of its foreign subsidiaries, through a subsidiary located in Belgium, EDF Investissements group, which aims to grant medium- and long-term intra-group financing. In addition, the nuclear fuel purchases are managed centrally by EDF SA, including the purchases intended to its subsidiary EDF Energy. With regard to financial flows related to fees paid by subsidiaries, contracts for the supply of intra-group services have been concluded with the main subsidiaries under The fight against climate change has entered a crucial phase with the objective of limiting global warming to +2 °C. Today, energy accounts for most CO 2 emissions worldwide: lowering energy consumption by developing energy efficiency solutions is crucial for decarbonisation. We must continue to step up the reduction of the carbon intensity of electricity generation and heating – which account for over 40% of CO 2 emissions worldwide, by driving the development of low carbon solutions: renewable, thermal, electric and nuclear energies. In this respect, France – which already has low carbon intensity facilities – is a step ahead of its major European neighbours. This low carbon and competitive mix must be preserved in the long term, drawing on the complementary relationship between renewable and nuclear energy. Electricity is a key factor for the direct reduction of CO 2 , as well as a substitute for fossil fuel in the mobility, building and industry sectors. In the forward-looking scenarios limiting global warming to +2°C, low carbon electricity should thus become the leading source of energy by 2040-2050: the use of electricity should therefore be stepped up and boost energy efficiency efforts, in order to bring down emissions to a quarter of current levels by 2050, and to aim at carbon neutrality. However, the current business models of electricity producers are under pressure due to the market and European regulatory context, although significant investments are still required to maintain existing assets, and in the longer term, to renew generation facilities: in 2017, fuel prices (oil, gas, coal) confirmed the recovery that began at the end ■ of 2016, but remained at levels much lower than those of the beginning of the decade, as a result of the abundance of resources, in particular shale gas; GROUP STRATEGY 1.3 ENVIRONMENT AND STRATEGIC 1.3.1 CHALLENGES

the scope of consolidation since 2012. EDF may also be required to provide specific services to certain subsidiaries or entities outside the Group. In addition, following EDF brand development work, the Company has set up licensing agreements with subsidiaries that use the EDF brand. Cash pooling agreements entered into between EDF and its subsidiaries The cash pooling system set up by EDF centralises all the cash positions of its subsidiaries and thus optimises the group’s liquidity. Cash pooling consists of grouping all the cash balances of subsidiaries at the level of the parent company. It includes certain French and international subsidiaries. It does not include RTE. The cash pooling system in place for companies of the EDF group is defined under cash agreements. Bilateral agreements between EDF and each subsidiary define the specific conditions for each arrangement (remuneration of balances, etc.). At international level, subsidiaries participating in the system enter into a framework agreement, whereby EDF serves as the Cash Centre. EDF also centralises all the currency flows from its French subsidiaries. Insurance EDF and its subsidiaries have entered into accession protocols in order for the latter to benefit from the insurance coverage provided for by the group’s insurance programs. the price of CO 2 ■ remains very low, which is at odds with the decarbonisation and energy transition targets in Europe; such a low CO 2 price de facto supports the economic viability of coal and lignite ■ generation means at a time when European electricity demand remains subdued (0.6% annual average increase between 2000 and 2016 (1) ) and when, nonetheless, significant subsidised energy capacity has been connected to the grid. Therefore, the over-capacity in the European generation sector, which could lead to additional massive decommissioning in Europe, explains the historically low electricity market prices: for instance, in France, whereas prices had settled at around €40/MWh in 2015, and below this level in 2016, France N+1 electricity market prices fluctuated between €33 and €44/MWh in 2017. These levels are lower than the development costs of new generation facilities, regardless of the sector. By way of contrast, electricity consumption is rising fast in emerging markets, especially in Asia, benefiting the electricity producers in these regions with forecasts (1) of around +173TWh p.y. in China between 2016 and 2040 (+2.2% p.y. on average) and +52TWh p.y. in Africa (+4.0% p.y.), versus +11TWh p.y. in the European Union (+0.3% p.y.). In Europe, France and the UK are developing low carbon energy independence policies, primarily built around a mix combining energy efficiency, renewable and nuclear energies. Thus, the UK, which must undertake a major renewal of its electricity generation facilities, has established a market model consistent with this policy (Carbon Price Floor, Contracts for Difference, capacity market, etc.). In France, electricity is also used as a driver towards low carbon, and the Law of 17 August 2015 on Energy Transition and Green Growth sets a ceiling of 63.2GW for the nuclear capacity installed in France, which given the evolution in demand and export capacities suits the development of renewable energies in the energy mix. Capacity markets are also being developed, in particular in France, the United Kingdom and Belgium. , despite a relative increase during the second half of 2017,

Source: AIE, World Energy Outlook, November 2017. (1)

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EDF I Reference Document 2017