Cfd with edf France

[Jonny]

Hi

The French government in 2016 decided to replace the FIT ( feed in tariff) incentive scheme by the CFD.

The FIT before was concluded with EDF.

With the new scheme the producer sells energy produced on the wholesale market, mainly through contracts concluded with aggregator and has a CFD (Contract for difference) with EDF with a Target remuneration of the electricity: and 74€/MWh. CFD duration: 20 years;

The result for the company is to have a fixed price of 74 euro MWh

Is the CFD a derivative?

Thanks

[Leo]

Could you please give an example? Thanks.

[Jonny]

sure!

If the market price is 100. The company cashes 100 from the aggregator for selling energy and pays to EDF 26 euro per MWh (100-74).
If the market price is 50. The company cashes 50 from the aggregator for selling energy and cashes from EDF 24 euro per MWh (50-74).

[Marek Muc]

it looks like a typical derivative to me, what are your doubts here?

[Jonny]

looks like.

IMO it does not meet this point:

"its value changes in response to changes in the so-called ‘underlying’, i.e. the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (in case of a non-financial variable, the variable must not be specific to a party to the contract)"

in the sense that in case the company quits the contract has to give back all the cash in from the inception (EDF will not give back the cash out). Look like a penalty.
In general derivatives (as swap), in case you quit, the contract is regolated at fair value. How can you post the fair value in the BS if will never be cashed or paid by the company?

[Marek Muc]

oh, so these are pretty substantial terms of this arrangement! Please take some time and list all the key terms in one post

[Jonny]

The main characteristics of the CFD are as follows:

- Sale of electricity on the wholesale market, mainly through contracts concluded with aggregators;
- CFD concluded with EDF;
- Target remuneration of the electricity: between 72€ and 74€/MWh, depending on the diameter of the rotor (L indexation);
- Management premium: 2.8€/MWh;
- CFD duration: 20 years;
- Monthly payment;
- In the event of negative prices of more than 20 hours (consecutive or not) during a calendar year and if the installation has not produced during the period of negative prices, the power producer receives compensation;
- In the event that it is impossible to sell electricity on the wholesale market, the power producer can conclude a power purchase agreement with an offtaker of last resort
/ Remuneration equivalent to 80% of the target remuneration

I found this article that could be helpfull
https://www.wfw.com/articles/france-upd ... -projects/

Thanks

[Leo]

Have you come to a conclusion on this one ?

[Jonny]

not yet

[Leo]

Have you asked your auditors opinion ?

[Jonny]

Yes, but still waiting replay. Honestly, as it is common since 2017 in France, I expected a fast reply.
IMO is a derivative but as is an incentive plan I expect a specific analysis.
Thanks

[Leo]

The analysis you asked, to any big, it's at least 10K.

[Marek Muc]

I thought about this but to me the scope is too broad for a forums post, unless someone already went through this

[Marek Muc]

PS. Do you have any energy producers in France that are public companies? What do they say about this arrangement in their financial statements?