ENGIE SA – Annual report – 31 December 2024
Industry: utilities
NOTE 17 PROVISIONS
Accounting standards
General principles related to the recognition of a provision
The Group recognizes a provision where it has a present obligation (legal or constructive) towards a third party arising from past events and where it is probable that an outflow of resources will be necessary to settle the obligation with no expected consideration in return.
A provision for restructuring costs is recognized when the general criteria for setting up a provision are met, i.e., when the Group has a detailed formal plan relating to the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.
Provisions with a maturity of over 12 months are discounted when the effect of discounting is material. The Group’s main long-term provisions are provisions for the back-end of the nuclear fuel cycle, provisions for dismantling facilities, provisions for site restoration costs, and provisions for post-employment and other long-term benefits. The discount rates used reflects current market assessments of the time value of money and the risks specific to the liability concerned. Expenses with respect to unwinding the discount on the provision are recognized as other financial income and expenses.
Estimates of provisions
Factors having a significant influence on the amount of provisions, and particularly, but not solely, those relating to the back-end of the nuclear fuel cycle, to the dismantling of nuclear facilities and of gas infrastructures in France, include:
- cost estimates (see Note 17.2);
- the timing of expenditure (notably the timetable for the end of gas operations regarding the main gas infrastructure businesses in France) (see Notes 17.2 and 17.3); and
- the discount rate applied to cash flows. These factors are based on information and estimates deemed by the Group to be the most appropriate as of today. Modifications to certain factors could lead to a significant adjustment in these provisions.
These factors are based on information and estimates deemed by the Group to be the most appropriate as of today.
Modifications to certain factors could lead to a significant adjustment in these provisions.
(1) The classification of liabilities as current or non-current reflects the effects of the agreements signed with the Belgian government on December 13, 2023. The Group will settle a large portion of this liability (€11.5 billion2022) when the agreement come into force, and will settle the remaining balance (€3.5 billion2022) when the Tihange 3 and Doel 4 units are restarted, which is scheduled for the fourth quarter of 2025.
The impact of unwinding discount adjustments in respect of post-employment and other long-term benefits relates to the interest expense on the benefit obligation, net of interest income on plan assets.
The “Other” line mainly comprises actuarial gains and losses arising on post-employment benefit obligations in 2024 which are recorded in “Other comprehensive income”.
Additions, utilizations, reversals and the impact of unwinding discount adjustments are presented as follows in the consolidated income statement:
The different types of provisions and the calculation principles applied are described below.
17.1 Post-employment benefits and other long-term benefits
See Note 18 “Post-employment benefits and other long-term benefits”.
17.2 Obligations relating to nuclear power generation facilities
17.2.1 Current legal context and expected developments following the agreements signed with the Belgian State in 2023
The Belgian law of April 11, 2003, partially repealed and amended by the law of July 12, 2022, granted Group subsidiary Synatom the responsibility for managing provisions set aside to cover the costs of dismantling nuclear power plants and managing spent fuel.
The tasks of the Commission for Nuclear Provisions (CNP), set up pursuant to the above-mentioned law, are to oversee the process of computing and managing these provisions. In accordance with the law, every three years the CNP conducts an audit of the application and adequacy of the calculation methods used to compute nuclear provisions. The next triennial review will take place in 2025.
The agreements signed with the Belgian State in 2023 provide for:
- the 10-year extension of the Doel 4 and Tihange 3 nuclear reactors as part of a 50/50 partnership between the Belgian State and the Group, contingent upon the implementation of a contract for difference protecting ENGIE against market risks; and
- the transfer of financial responsibility to the Belgian State for managing nuclear waste and spent fuel in return for the payment of a lump-sum discharge amount of €15 billion2022, within the limit of a volumetric credit covering all nuclear waste produced by the Belgian power plants during their legal operating life, from commissioning to dismantling.
The transfer of financial responsibility for the management of nuclear waste and spent fuel meeting the transfer criteria will take place at the closing, expected in March 2025 (see Note 24 “Subsequent events”) and cannot be called into question unless the units are not restarted before November 1, 2027 due to serious negligence on the part of ENGIE. In this highly unlikely event, the Belgian State may cancel the agreement on the lump-sum discharge and revert to the current system in which the nuclear operator bears the financial responsibility. The amounts already paid by the Group would accordingly be held in escrow for the benefit of the transferred nuclear provisions until the end of the dismantling program, including nuclear waste and back-end nuclear fuel cycle management.
The Group will settle its liability of €15 billion2022 (including the share of its Electrabel partners in certain power generation facilities) by means of a payment of €11.5 billion2022 for category B and C waste (highly radioactive waste, that is intended for geological storage), at the time of closing, after which it will settle the remaining €3.5 billion2002 for category A waste (low-level radioactive waste, that is intended for surface storage) when the extended units are restarted in the second half of 2025. These amounts are subject to a 3% indexation effective from January 1, 2023 until the date of payment.
At the end of this agreement, the Group will essentially retain responsibility for the on-site storage of spent fuel waste until the end of the dismantling operations and until 2050 at the latest, as well as for the conditioning of all waste in accordance with the contractual agreement. The Group will also remain responsible for the final shutdown of the reactors, their dismantling and the clean-up of the site at the end of their operating life. The process of setting up and managing all these provisions, for which the Group is responsible, will continue to be reviewed by the CNP every three years.
17.2.2 Provisions for the back-end of the nuclear fuel cycle
When spent nuclear fuel is removed from a reactor and temporarily stored on-site, it requires conditioning, before being consigned to long-term storage.
As part of the implementation of a lump-sum discharge payment for the transfer of financial responsibility for managing the storage and disposal of nuclear waste and spent fuel, as provided for in the agreement, the risks associated with this liability have been considerably reduced, since the agreement stipulates that the State will be financially responsible for all spent fuel management operations after its transfer to the Belgian agency for radioactive waste and enriched fissile materials (ONDRAF – Organisme national des déchets radioactifs et des matières fissiles enrichies), in return for the lump-sum discharge payment of €10.5 billion2022 for category C waste.
With regard to waste management, the Group’s responsibility will be essentially limited to on-site storage of fuel elements until the end of dismantling operations, and until 2050 at the latest, as well as compliance with the contractual criteria for transferring waste to ONDRAF, with the liability estimated at €1.7 billion2022, as indicated in the draft law implementing the agreement.
Provisions not covered by the lump-sum discharge payment are calculated based on the following principles and inputs:
- storage costs primarily comprise the costs of building and operating additional dry storage facilities and operating existing facilities, along with the costs of purchasing containers;
- radioactive spent fuel that has not been reprocessed is to be conditioned, which requires conditioning facilities to be built according to ONDRAF’s approved criteria. All ONDRAF’s recommendations regarding the cost of these facilities were taken into account at the time of the previous triennial review;
- a discount rate of 3.0% (including inflation of 2.0%) was used by the CNP (Commission for Nuclear Provisions) at the time of the previous triennial review, for the portion of the provision not covered by the lump-sum discharge payment.
The costs effectively incurred in the future may differ from the estimates in terms of their nature and timing of payment.
Sensitivity
Following the takeover by the Belgian State of all obligations relating to nuclear waste after its transfer to ONDRAF, the Group will only remain exposed to changes in future storage and conditioning costs and the corresponding discounting inputs prior to the transfer (as mentioned above, liability estimated at €1.7 billion2022):
- the costs of building dry storage facilities and purchasing fuel element containers at the Group’s sites could differ from those covered by the provisions. A 10% change in these costs, still to be incurred would represent a €60 million change in provisions;
- a 10% change in the annual operating costs of the storage facilities would result in a €30 million change in the provision;
- a 25 basis point change in the discount rate would result in a €40 million adjustment to non-transferred provisions. A fall in the discount rate would lead to an increase in outstanding provisions, while a rise in the discount rate would reduce the provisions’ amount.
It should be noted that the risk of exceeding volumetric credits is considered, at this stage, to be highly unlikely, as the volumetric credits established in the agreement have incorporated the volumetric contingencies estimated as part of the provision review in 2022.
17.2.3 Provisions for dismantling nuclear facilities
Accounting standards
A provision is recognized when the Group has a present legal or constructive obligation to dismantle facilities or to restore a site. The present value of the obligation at the time of commissioning represents the initial amount of the provision for dismantling with, as the counterpart, an asset for the same amount, which is included in the carrying amount of the facilities concerned. This asset is depreciated over the operating life of the facilities and is included in the scope of assets subject to impairment tests. Adjustments to the provision due to subsequent changes in (i) the expected outflow of resources, (ii) the timing of dismantling expenses or (iii) the discount rate, are deducted from or subject to specific conditions, added to the cost of the corresponding asset. The impacts of unwinding the discount each year are recognized in expenses for the period.
A provision is also recorded for nuclear units for which the Group holds a capacity right up to its share of the expected dismantling costs to be borne by the Group.
At the end of their operating life, the nuclear power plants must be shut down for the period during which spent fuel is unloaded from the plant, and until the site is decommissioned and cleaned up.
The dismantling strategy is based on the facilities being dismantled (i) immediately after the reactor is shut down, (ii) on a mass basis rather than on a unit-by-unit basis, and (iii) completely, the land being subsequently returned to greenfield status.
As a result of the agreement, financial responsibility for all Category A and B waste management operations conditioned in accordance with the contractual transfer criteria will henceforth lie with the State, in return for payment of the lump sum discharge amount described in Note 17.2.2 above. The Group will transfer this liability when the closing of the transaction will take place (see Note 24 “Subsequent events”), for a total of €1 billion2022 for category B waste, and when the extended units are restarted at the end of 2025, for a total of €3.5 billion2022 for category A waste.
The Group only remains responsible for the final shutdown and dismantling (as well as for the conditioning of category A and B waste from these operations, as described in Note 17.2.2). The Group’s remaining liability for the final shutdown and dismantling is estimated at €6.7 billion2022, as set out in the law implementing the agreement. At December 31, 2024, provisions for dismantling nuclear facilities are calculated based on the following inputs:
- the start of the technical shutdown procedures depends on the unit concerned and on the timing of operations for the whole nuclear reactor. The shutdown procedures are immediately followed by dismantling operations;
- the scenario adopted is based on a dismantling program and on timetables that must be approved by the nuclear safety authorities. The safety conditions for the shutdown phases have been defined with the Belgian Federal Agency for Nuclear Control (AFCN) for the Doel 3 and Tihange 2 units that have already been shut down. The safety conditions for the dismantling phase have not yet been determined. The costs may change depending on the outcome of these discussions and the detailed schedule for the implementation of these phases which is currently being defined;
- costs payable over the long term are calculated by reference to the estimated costs for each nuclear facility, based on a study conducted by independent experts under the assumption that the facilities will be dismantled on a mass basis. The costs effectively incurred in the future may differ from the estimates in terms of their nature and timing of payment;
- for the various phases, margins for contingencies, reviewed by ONDRAF and the Commission for Nuclear Provisions, are included;
- an inflation rate of 2.0% is applied until the dismantling obligations expire in order to determine the value of the future obligation;
- the discount rate used by the CNP is 2.5% (including inflation of 2.0%).
The 10-year extension of the Doel 4 and Tihange 3 units provided for in the agreement “deoptimizes” the systematic dismantling of the various units. The agreement stipulates that the Belgian State will bear the increase in dismantling costs relating to the dis-synergies generated by the change to the initial scenario, which provided for two of the units to be dismantled on a mass basis rather than on a deferred basis. The Group therefore recognized an additional provision for dismantling of €0.2 billion, against a receivable from the Belgian State. This amount was confirmed by the Commission for Nuclear Provisions (CNP) in its opinion of June 24, 2024. This amount will be settled upon closing of the agreement with the Belgian State.
The costs effectively incurred in the future may differ from the estimates in terms of their nature and timing of payment. Certain ONDRAF recommendations from the 2022 triennial review of nuclear provisions that could not yet be quantified will be specifically examined under the oversight of the CNP within the context of the triennial review in 2025.
Lastly, the Group sets aside provisions to cover the costs relating to the final shutdown phase of its drawing rights in Tricastin and Chooz B, as well as for the dismantling period leading to the decommissioning and clean-up of the Chooz B site, in accordance with the respective agreements with EDF. These are based on provisions for Belgian assets that most closely resemble these power plants, and are updated in line with revisions by the CNP.
Sensitivity
In light of the agreement, the Group will only be responsible for shutdown and dismantling, including conditioning of the nuclear waste arising from these operations, in accordance with the contractual transfer criteria (as indicated above, liability estimated at €6.7 billion2022):
- a 10% change in shutdown costs of the units would lead to a change in the provisions of around €200 million;
- a 10% change in unit dismantling costs would lead to a change of around €400 million in nuclear provisions;
- a 25 basis point change in the discount rate would lead to an adjustment of approximately €170 million in the provisions. A fall in the discount rate would lead to an increase in outstanding provisions, while a rise in the discount rate would reduce the provisions amount.
17.2.4 Financial assets set aside to cover the future costs of dismantling nuclear facilities and managing radioactive fissile material
As indicated above, the Belgian law of July 12, 2022, partially repealing and amending the law of April 11, 2003, granted the Group’s wholly-owned subsidiary Synatom responsibility for managing and investing funds received from operators of nuclear power plants in Belgium and intended to cover the costs of dismantling nuclear power plants and managing spent fuel. Pursuant to the law of April 11, 2003, Synatom could lend up to 75% of these funds to nuclear power plant operators provided that certain credit quality criteria are met.
The amount of outstanding loans between Synatom and nuclear operators, representing the countervalue of provisions for spent fuel management, will be repaid to Synatom by December 31, 2025, and the amount of outstanding loans between Synatom and Electrabel, representing the countervalue of provisions for dismantling, will be repaid by September 30, 2031.
The percentage of the provisions not subject to loans to nuclear operators is invested by Synatom either in external financial assets or in loans to legal entities meeting the “credit quality” criteria imposed by law.
The Synatom Board of Directors and its Investment Committee are responsible for defining Synatom’s investment policy after consultation with the CNP, in accordance with the law of July 12, 2022. Based on a rigorous risk control policy, the Investment Committee oversees investment decisions, which are managed by a team headed by an Investment Director.
Synatom invested some €2.5 billion in such assets in 2024.
The value of financial assets dedicated to covering nuclear provisions amounted to €12,871 million at December 31, 2024, and their return was 4.8% for the year. A reorganization of the portfolio took place in 2024, with a split between:
- assets related to provisions for nuclear waste processing: these assets will be transferred to Hedera, a public institution set up by the Belgian State, upon closing of the agreements signed with the Belgian State. The objective set for Synatom to date is to maintain the value of the underlying assets by investing in money-market instruments, providing a return at least equivalent to the indexation rate of 3%;
- assets related to residual provisions for dismantling and on-site storage: the aim is to guarantee a sufficient return, with an acceptable level of risk, to cover dismantling and spent fuel storage costs. This portfolio complies with the diversification, risk minimization and availability requirements defined by the law of July 12, 2022.
The portfolio reorganization led to the liquidation of a significant portion of the funds and their reallocation to various Synatom investment vehicles in order to ensure sufficient liquidity to settle the lump-sum discharge payments due to the Belgian State.
17.2.4.1 Valuation of financial assets in 2024
Loans to entities outside the Group and other cash investments are shown in the table below:
(1) Not including €301 million in uranium inventories at December 31,2024 (€307 million at December 31, 2023).
Loans to legal entities outside the Group and the cash held by the Undertaking for Collective Investment in Transferable Securities (UCITS) are presented in the statement of financial position under “Loans and receivables at amortized cost”. Bonds and associated hedging instruments held by Synatom through the UCITS are presented under equity or debt instruments (see Note 14.1 “Financial assets”).
The breakdown in the change in the cumulative fair value of Synatom’s assets is presented as follows:
The net gain for the period generated by these assets amounted to €324 million in 2024 (net loss of €184 million in 2023).
17.3 Dismantling of non-nuclear plant and equipment and site rehabilitation
17.3.1 Dismantling obligations arising on non-nuclear plant and equipment
Certain items of plant and equipment, including conventional power stations, transmission and distribution pipelines, storage facilities and LNG terminals, have to be dismantled at the end of their operational lives or at least safely shut down. These obligations are the result of prevailing environmental regulations in the countries concerned, contractual agreements, or an implicit Group commitment. The most important challenge for the Group concerns gas infrastructures in France.
France’s political and societal guidelines for the energy transition aim to achieve carbon neutrality by 2050, by reducing greenhouse gas emissions and promoting renewable or so-called “green” energies, particularly biomethane and hydrogen. The various scenarios that make it possible to achieve carbon neutrality, in particular the National Low Carbon Strategy in France, the French Environment and Energy Management Agency (ADEME) scenarios, and the “Energy Futures” prospective study by the electricity transmission system operator, RTE, all lead to a significant decrease in the quantities of gas consumed, while maintaining a high number of gas connection points to manage peak electricity demand. The Group is closely analyzing this prospect, particularly for the purpose of defining its strategy and assessing the useful life of assets and evaluating provisions for their possible dismantling.
The future French Strategy for Energy and Climate (SFEC) will set out France’s updated roadmap to achieve carbon neutrality by 2050 and ensure that France can adapt to the impacts of climate change. The SFEC will encompass the National Low-Carbon Strategy (SNBC, 3rd condition), the National Climate Change and Adaptation Plan (PNACC, 3rd condition) and the Mult-Annual Energy Plan (PPE 2024-2033), which are all to be adopted in 2025 (see Note 13.4.2).
In line with the objective of carbon neutrality by 2050, the long-term scenario adopted by the Group, which governs the implementation of its strategy, is one that combines reasonable electrification, i.e. just under 50% of final demand in 2050, with the development of a diversified range of green gases (biomethane, synthesized e-CH4, natural gas with the Carbon Capture and Storage process, pure hydrogen). The Group’s scenario is close to that of the International Energy Agency, with its APS (Announced Pledges Scenario) model, and that of ADEME (“green technology”).
Due to the importance of green gases in the French energy mix scheduled for 2050 and beyond, gas infrastructures will remain largely necessary and will be essential to provide flexibility to the energy system. The adaptation and conversion of these infrastructures to green gas mean that they can be used in the very distant future, which means that the present value of dismantling provisions is almost zero, except in the specific cases of LNG terminals and reduced operation and non-regulated storage sites mainly in France and Germany, for which provisions for dismantling amounted to €353 million at December 31, 2024 versus €326 million at December 31, 2023.
Given its time horizon and developments in the French and European public policies, the Group will continue to assess the long-term scenario that will enable it to achieve carbon neutrality by 2050 on a regular basis. These assessments will be accompanied by a review of the valuation of dismantling provisions.
A more substantial change in the regulatory framework could have an impact on the sizing, operating life and dismantling schedule of gas infrastructures in France, and could have a significant impact on the amount of the provision for dismantling.
17.3.2 Hazelwood Power Station & Mine (Australia)
The Group and its partner Mitsui announced in November 2016 their decision to close the coal-fired Hazelwood Power Station, and cease coal extraction operations from the adjoining mine from late March 2017. The Group holds a 72% interest in the former 1,600MW power station and adjoining coal mine, which has been consolidated as a joint operation.
At December 31, 2024, the Group’s share (72%) of the provision covering the obligation to dismantle and rehabilitate the mine amounted to €239 million, versus €280 million at December 31, 2023.
Dismantling and site rehabilitation work commenced in 2017 and focused on: managing site contamination; planning site wide environmental clean-up; the demolition and dismantling of all of the site’s industrial facilities, including the former power station; and ongoing aquifer pumping and designated earthworks within the mine to ensure mine floor and batter stability with a view to long-term rehabilitation into a pit lake.
The ultimate regulatory obligations are likely to be revised during the life of the project and could therefore have an impact on provisions.
The amount of the provision recognized is based on the Group’s best current estimate of the demolition and rehabilitation costs that Hazelwood is expected to incur. However, the amount of this provision may be adjusted in the future to take into account any changes in the key inputs.
17.4 Other contingencies
This caption essentially includes provisions for commercial litigation, tax claims and disputes (except income tax, pursuant to IFRIC 23), provisions for restructuring and provisions for onerous contracts relating to storage and transport capacity reservation contracts.
Accounts examples 