EDF_REGISTRATION_DOCUMENT_2017

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PRESENTATION OF EDF GROUP Description of the Group's activities

Hydropower generation issues 1.5.1.4.1.4 The hydropower segment is currently working on implementing Law 2015-992 (“energy transition law”), managing access to water and development. Concessions renewal Hydropower generation facilities are operated through concessions granted by the State for facilities exceeding or equal to 4.5MW and under prefectoral authorisation for facilities under 4.5MW (see section 1.5.6.2.4 “Regulations applicable to hydropower facilities”). EDF currently holds the majority of the hydropower concessions in France. Concessions have an initial term of 75 years, pursuant to the French Law of 16 October 1919 relating to hydropower use. The majority of concessions expired before 2012 were renewed for terms of 30 to 50 years. The French government has however not yet renewed 12 concessions that have expired. Since their expiry these concessions have fallen under the “rolling delay” situation defined by Article L. 521-16 par. 3 of the French Energy Code as when a concession that has expired but not been renewed is extended under its former conditions until such time as a new concession is granted so as to ensure the continuity of operations in the meantime. The Law on the Energy Transition for Green Growth of 17 August 2015 and the Decree of 27 April 2016 concerning hydropower concessions set down a new statutory and regulatory framework in which hydropower is included. A set of legal texts supplements this framework concerning the attribution and/or performance of hydropower concession contracts: for example, the Order of 29 January 2016 relating to concession contracts and its implementing Decree of 1 February 2016, which define together the general framework for competitive bidding, the Decree of 27 May 2016 relating to purchase obligations and additional compensation, which may apply to certain hydropower facilities, the Orders of 3 August 2016 relating to the environmental assessment of projects and procedures for information of the public and public participation, the Law of 7 October 2016 for a Digital Republic, etc. (see section 1.5 “Legislative and regulatory environment”). Under the current regulation, the former concession holder does not receive any compensation if an expiring concession is not renewed. Article L. 521-15 of the French Energy Code enacted by the amended Finance Act for 2006 provides for the reimbursement of unamortised expenses related to modernisation works or to works that enable the expansion of generation capability, provided that these works were carried out during the second half of the term of the concession. However, if a concession is terminated by anticipation by the French government, the operator receives compensation. This compensation from the government is intended to offset the shortfall for the outgoing operator due to the early termination of the operation of the concession, as provided by the concession specifications. In this context, for some years EDF has prepared itself to submit its best offer for each concession, combining improved energy efficiency, attention to aquatic environments, compensation of the government and municipalities through fees and regional development, while ensuring the safety and security of operations. The European Commission (EC) initiated proceedings against the French State regarding hydropower concessions in France, based on Article 106 § 1 of the Treaty on the Functioning of the European Union (TFEU) read in conjunction with Article 102 of the same treaty. The European Commission therefore sent a formal notice to the French State on 22 October 2015, stating that it considered the fact that most hydropower concessions in France are attributed to and reserved for EDF as a violation of the above articles, since these measures reinforce EDF’s dominant position on the French retail electricity markets. The State replied to this notice, which marked the beginning of an adversarial exchange of positions between the State and the EC, without prejudice to the final outcome. As the chief interested party, EDF received a copy of the formal notice and sent its observations to the EC on 4 January 2016, firmly contesting the EC’s analysis and the grounds for this analysis. EDF has since been involved in certain exchanges between the French State and the EC, particularly to provide technical details on the operation of the French

market, and thus advance towards an agreement. These exchanges should continue in 2018 until the EC closes the file. There is a risk that an agreement will be reached to set up a competitive tender process (see section 2.1.2 “Risks associated with the Group’s activities”). In accordance with Article L. 521-16-3 of the French Energy Code introduced by Law 2015-992 (“energy transition law”), the French government submitted an energy transition investment package to the European Commission in exchange for the extension of certain concessions held by EDF. The European Commission is due to rule on the compatibility of such an extension with European law, in particular Article 43 of Directive 2014/23/EU of 26 February 2014 on the award of concession contracts which limits the extent to which an active concession can be modified. Managing access to water Water reservoirs held by EDF’s 239 large dams in France enable the storage of 7.5 billion cubic metres of water, corresponding to 75% of national surface storage reserves. The hydropower facilities have positive effects on both economic development and the environment, and EDF applies a proactive management policy in relation to water resources, in liaison with various water stakeholders. Agreements are entered into with local elected officials, farmers, fishermen, managers of tourist sites and manufacturers (see section 1.5.6.1 “General regulations that are applicable to the environment, health, hygiene and safety”). The Law of 30 December 2006 on Water and Aquatic Environments contains provisions relating to the management of water resources (in particular, the benefits of reserved flows (1) and the flexibility of hydropower plant operations). These provisions were supplemented by the statute on the reconquest of biodiversity, nature and landscapes of 8 August 2016. The EDF group nevertheless remains vigilant concerning the local implementation procedures and forthcoming developments of this regulation, and calls for more coherent public policies on water, energy and the environment. Development Currently, 95% of France’s hydropower potential is being used. EDF is committed to developing its hydropower activities, through the study and realisation of new profitable projects, in particular: developing reserved-flow turbines. The purpose is to equip a certain number of ■ dams in order to recover part of the energy associated with these minimum regulatory flows: in 2017 two turbine sets were being installed at the facilities at Manciès ■ (scheduled to come into operation on 01/12/2017) and La Raviège (scheduled to come into operation on 01/06/2018), thus adding 0.7MW of power in total to the 3.8MW already installed in 2015 and 2016, new projects are being studied with phased commissioning before 2020; ■ increasing the potential of energy transfer by pumped-storage hydropower plants ■ in France (STEPs). The Decree of 17 June 2013 authorised EDF to build a new 240MW turbine generator set on the STEP site at La Coche in Savoie. This Pelton set, construction of which began in 2017, will increase the capacity of the existing facility by 20% and will generate approximately an additional 100GWh every year; looking into the possibilities for increasing the capacity of existing hydropower ■ plants, in particular those detailed in Article L. 511-6 of the French Energy Code enacted by the Law of 13 July 2005 setting out the guidelines for the energy policy, to contribute to the development of leading-edge means. This provision having been repealed with effect on 1 April 2017 by Order no. 2017-65 of 29 January 2017 on concession contracts, several projects were submitted before this date, in order to preserve EDF’s option to increase the capacity of the relevant power plants, in particular for the facilities in Saussaz-Hermillon, Salelles, Vinon, Manosque Sainte-Tulle II, Peyrat le Château.

Minimum flow maintained downstream of dams to protect aquatic life. (1)

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DF I Reference Document 2017