IFRS 10 para 23, disposal without loss of control treated as equity transaction

Electricité de France S.A. – Annual report – 31 December 2016

Industry: utilities



On 21 October 2015, EDF and China General Nuclear Power Corporation (CGN) signed a Strategic Investment Agreement for joint investment in the construction of two EPRs at the Hinkley Point C site (HPC) in Somerset. The agreement also includes a UK partnership to develop the new nuclear power plants Sizewell (SZC) in Suffolk and Bradwell B (BRB) in Essex.

The final agreements concerning Hinkley Point C were signed on 29 September 2016 following the final investment decision authorized by EDF’s board of directors on 28 July 2016.

This important milestone marks the end of the development phase for the Hinkley Point C project after ten years of planning and preparation involving assessment of the generic EPR design, obtaining the licence for the nuclear site, and the start of on-site work. 


Under the Strategic Investment Agreement, EDF holds 66.5% of the project entity HPC and CGN holds 33.5%.

EDF intends to remain the majority shareholder and has noted the British Government’s stipulation that control of HPC should not be transferred during the construction phase without its approval. EDF has not ruled out the possibility of bringing other investors into the project in due course, but will retain a stake of at least 50%.

Financing guarantee agreements for the HPC project were also signed with the British Treasury on 29 September 2016. A first tranche of a maximum £2 billion will be made available once certain required conditions are fulfilled. However, as EDF has indicated to the British government, it currently has no intention of using this guarantee, and the project will be self-funded, at least initially.

Return on investment and sensitivity

The total project cost is estimated at £18 billion nominal (excluding interim interest). This investment will be equity financed by the partners, at least in an initial phase. The EDF group’s share amounts to £12 billion and CGN’s share is £6 billion. These figures include a contingency provision. In the event the final project cost is lower, any gains made will be shared with consumers under the profit-sharing mechanism of the Contract for Difference. The plant construction risks, particularly those associated with delays and budget overruns, are borne by the investors.

The total equity commitment by the shareholders includes an additional 15% margin amounting to £2.7 billion, in addition to the £18 billion planned.

The projected IRR is estimated at around 9%.

The sensitivity of this IRR is approximately 45 base points for a twelve-month delay on construction.

Agreement for secure income: the Contract for Difference – CfD.

As announced on 21 October 2015, the HPC project entity and the British government’s Department of Energy and Climate Change (DECC) have finalised the terms for the Contract for Difference that was approved in October 2014 by the European Commission as compliant with EU regulations on State aid.

This CfD was signed on 29 September 2016 and is designed to guarantee returns on the electricity produced and sold by HPC, through payments based on the differential between the contractual strike price defined below and the market price over a 35-year period beginning once the plant starts operation.

From that date, if the benchmark price for the sales of HPC-generated electricity on the market falls below the strike price agreed in the contract, the generator will receive a top-up payment. If the price is higher, the generator will pay the difference.

Impacts on the 2016 consolidated financial statements

The agreements signed notably led to the partial sale by EDF to CGN of Hinkley Point C (33.5%) and Sizewell C (20%). As these are non-controlling interests, Hinkley Point C and Sizewell C remain fully consolidated and the operation has no impact on net income. This operation had an impact of €(548) million on EDF’s share of equity and €1,510 million on the non-controlling interests’ share of equity. These amounts comprise the reallocation to non-controlling interests of part of the goodwill of EDF Energy, which was essentially recognised when the Group took over British Energy in 2009.

The amount received in 2016 for these sales was €830 million. CGN also participated to the extent of its ownership interest in the capital increases undertaken by Hinkley Point C and Sizewell C after these operations, in the total amount of €469 million.