edf trading pdf version of 2010 annual review dokga

A cross-commodity and global perspective of the wholesale energy market.

Energy Market Perspectives

EDF TRADINGAnnual Review 2010

In 2010 we strengthened our relationship with EDF Group companies and expanded our business across all regions and commodities. We made several strategic acquisitions, established an operational platform in Asia and increased the services we provide to the EDF Group and our third party customers.

EDF Trading Annual Review 2010Introduction

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Our marketsBusiness development 20Power 22Gas 26Coal and Freight 30 Environmental products 38Derivatives and Oil 44

Our approachApproach and culture 48Risk management 50Transmission and regulation 54

Charity fundraising 56

Financial summary 60Executive Committee 62Board of Directors 64

PerspectivesEnergy perspectives 2EDF Group profile 12EDF Trading profile 14Chairman’s statement 16Chief Executive’s statement 18

2 EDF Trading Annual Review 2010Perspectives

EDF Trading takes a global and cross commodity perspective of the wholesale energy market. With our asset-backed business model, proven expertise and global capability we provide the core market services that enable EDF Group companies and third party customers to maximise the value of their assets.

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perspective

01 EDF Trading's Amsterdam coal terminal

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4 EDF Trading Annual Review 2010 Perspectives

asset-backed

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01 – 02 EDF Trading employees

03 LNG tanker. Photo by Neil Doyle,

MNI, Deep Sea & Coastal Pilots

EDF Trading has interests in coal production, owns coal terminals and we have a modern freight fleet to deliver coal worldwide. Our gas portfolio includes capacity in re-gasification terminals, underground storage and access to production.

We can source biomass and provide carbon solutions encompassing ROCs or RECs and weather derivatives.And for electricity generators we offer wholesale market access supported with asset optimisation and risk management.

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01 EDF Trading


03 EDF Trading employees

04 Ile de la Reunion © EDF-Paul Veronique

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01 EDF Trading



04 Ile de la Reunion © EDF-Paul Veronique

Nothing in the wholesale energy markets happens in isolation. Commodities are linked within and across today’s global marketplace. EDF Trading provides a dedicated, multi-commodity, wholesale energy markets interface.

Our strong positions in the electricity, gas, coal, freight, environmental products, oil and derivatives sectors enable us to optimise assets and manage market exposure for EDF Group companies and third party customers worldwide.

multi-commodity

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global


02 Gas storage project, Germany

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EDF Trading has offices in Europe, North America and Asia. We participate on all the key wholesale energy markets. We support the businesses of EDF Group companies and third party customers with worldwide interests stretching

from Australia to South Africa, China to France, Japan to the UK, Canada and the US. Our ability to operate globally delivers benefits at international, regional and local levels.

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expert

EDF Trading Annual Review 2010 Perspectives

EDF Trading’s expertise lies in our ability to operate in the wholesale energy market to optimise physical commodities and asset positions. Our operational focus ensures we do so within a framework of rigorous risk management control.

Drawing on the depth of our positions in different markets and energy sectors we apply our skills to help the EDF Group and third party customers maximise the value of their assets.

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12 EDF Trading Annual Review 2010 EDF Group profile

The EDF Group

The Group is a leader in the global energy market. Its interests range from electricity to gas, coal and carbon and its activities encompass generation, transmission, distribution, end-user supply and wholesale trading. EDF is the largest electricity producer in Europe. It has significant involvement in renewable energy production and is the world’s premier nuclear energy company.

01 Eoliennes de Castiglione Messer Marino, © EDF-Eranian Philippe

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An integrated approach to global energy

The EDF Group is a major participant in the world energy markets. It is active in all aspects of the energy value chain and has interests in electricity, gas, coal, biomass, logistics and carbon.

In Europe, EDF is one of the largest electricity generators and operates power plants in Belgium, France, Hungary, Italy, The Netherlands, Poland, Spain, Switzerland and the UK. It has power generation assets in North America and is present in Laos and Vietnam. The EDF Group is also one of the largest foreign investors in electricity production in China.

Everywhere it operates, the EDF Group is a model of quality public service for the energy sector. Its generation assets include nuclear and fossil-fired plus a growing portfolio of hydro, wind and solar. These are combined with a well trained workforce and heavily resourced R&D to deliver competitive energy solutions that respect sustainable economic development and global climate protection.

The EDF Group employs around 159,000 people worldwide. It generates in excess of 630 TWh of electricity per year, serves 37 million customers and in its most recent financial year produced sales of €65.1 billion. EDF is listed on the Paris stock exchange and is a member of the CAC40 index.

“ Being part of EDF allows us to provide the Group with global energy market solutions including international market access, asset optimisation and risk management services.”Emmanuel Deutsch Head of Group Integration and Synergies

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Global asset optimisation services

EDF Trading is focused on providing optimisation services in the wholesale energy markets. Our ability to do this is based on our global, asset-backed, multi-commodity, physical and financial business model. It is a model which enables us to add value throughout the energy supply chain.

Among our global assets are long-term supply agreements in electricity, gas and coal. We have power transmission and gas interconnector capacities across Europe and North America. Our logistical resources range from a fleet of dry-bulk carriers to inland logistics, coal terminals, LNG re-gasification and underground gas storage. We also have a comprehensive portfolio of over 200 CDM projects in 15 different countries.

Our resources provide a foundation enabling us to originate structured transactions and be highly competitive in our pricing. They also support our ability to operate effectively around the world and across the electricity, gas, coal, freight, environmental products, oil and energy derivatives wholesale markets. Our assets enhance our ability to provide market access, optimisation and risk management services to the EDF Group and our worldwide customers.

Underpinning all that we do is a culture in which talented people and an entrepreneurial spirit are balanced by precise procedural controls and a rigorous approach to risk management. We trade from a position of financial stability and robust liquidity, and have our own Moody’s A3 credit rating.

EDF Trading Annual Review 2010 EDF Trading profile

EDF Trading

“ EDF Trading has a truly global perspective. We operate across the international energy markets providing value-added services to the EDF Group and our customers worldwide.”

John Rittenhouse Chief Executive

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EDF Trading operates globally to deliver essential asset optimisation services and wholesale market access. From our prominent position as the EDF Group’s interface to the wholesale energy markets we apply our expertise and asset-backed capabilities to integrate with and add value to the assets owned or operated by EDF Group companies and third party customers.

John Rittenhouse Chief Executive

01 John Rittenhouse, Chief Executive

02 EDF Trading's Hole House gas storage facility, UK

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16 EDF Trading Annual Review 2010 Chairman’s statement

EDF Trading delivered a good performance during 2010 within the context of a volatile marketplace. It enhanced the services it provided to the EDF Group and continued to create stronger synergies with Group companies around the world.

The EDF Group has a significant network of assets which requires us to access the wholesale energy markets in order to gain the maximum value from our portfolio. EDF Trading is the EDF Group’s interface to those wholesale markets and provides core optimisation services. Its role is extensive and includes managing the Group’s power output, coal procurement and transportation, emissions trading and management of the EDF carbon fund, gas supply, storage and transportation, biomass procurement and hedging and risk management. This is all possible because EDF Trading has a fundamental expertise – its exceptional knowledge of the physical and financial wholesale energy markets.

In 2010, as the EDF Group developed its activities across the world, EDF Trading delivered a first class service. As well as continuing to perform a vital role in Europe, EDF Trading has worked closely with us in the US managing output from the CENG joint venture. It has also been alongside us in Asia as we identify opportunities in this important region.

I welcome the opportunities that 2011 will present and am proud to be working in close cooperation with EDF Trading as it develops its global activities and services in support of the EDF Group and third party customers.

Pierre Lederer Chairman, EDF Trading Board

Group Senior Executive Vice President Customers, Optimisation and Trading, EDF

“ EDF Trading operates at the heart of the EDF Group providing core wholesale market services so essential for the EDF Group’s extensive network of assets.”

18 EDF Trading Annual Review 2010 Chief Executive’s statement

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EDF Trading provides a core service and is an integral part of the EDF Group. In 2010, we delivered solid earnings and increased our wholesale market activities for the Group and our third party customers.

We have our own portfolio of physical and contractual assets which gives us a unique position in the global energy market. We are able to offer Group companies and our third party customers an end to end service. Whether we are supplying coal (utilising our coal mines, port capacity, rail cars, freight fleet, storage facilities or hedging services), or physically supplying green gas to customers (utilising our pipeline capacity, storage facilities or ability to generate renewable energy credits), we are able to do this because we have the right assets in place.

We have an in-depth knowledge of the wholesale energy markets and this, combined with the fact that we are able to operate across the world, gives us the ability to help the EDF Group and our third party customers realise the value inherent in their asset portfolios.

In 2010 our seven business units increased their respective activities and we significantly expanded our global platform particularly in Asia and the US. This report will give some detail as to our main activities during the past 12 months but I wanted to highlight the foundation transactions which have enabled us to develop our footprint in these two regions.

Our environmental products business executed two important acquisitions. We purchased Energy Systems International (ESI), a China-based CDM project developer with a great deal of knowledge of the China carbon market. We also acquired a portfolio of renewable energy credits from a US-based energy supplier. In the North American power market, we acquired the trading and information systems of US based EPIC Merchant Energy enabling us to transfer to a nodal pricing system. Our coal and freight business extended our joint venture with Chubu Electric Power in Japan and secured major sales contracts in China. Reflecting the level of our activities in the Asian market, we opened an office in Singapore that will become the hub for our Asia operations.

During 2011 our focus will remain on the expansion of our global activities. We will continue to utilise our asset positions in order to provide optimisation services to the EDF Group and our third party customers.

John Rittenhouse Chief Executive, EDF Trading

“ Our asset-backed, multi-commodity business model enables us to generate sustainable earnings for the EDF Group.”

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Optimising EDF Group assets

EDF Trading’s Group integration team is committed to the optimisation of EDF Group assets. The team manages our relationship and co-ordinates business development with the EDF Group. It is responsible for creating a global energy markets solution that supports Group activities with essential capabilities including wholesale market access, risk management and both short and medium term asset optimisation.

Our approach is to identify opportunities in which the skills and resources of EDF Trading can be applied to complement those existing elsewhere in the EDF Group. By doing so we realise the potential synergies of those assets and so add value.

During 2010, the Group integration team, in close co-operation with the origination team and specialised trading desks, worked with the EDF Group on the development and implementation of strategic market initiatives.

These included:

Market access for SPE in Belgium An exclusive agreement was reached with SPE for EDF Trading to provide wholesale energy market access and optimisation services.

EDF Energy virtual power plant Operating a virtual power plant has enabled EDF Trading to realise additional value for EDF Energy from its UK coal-fired generation plants.

Managing the Group’s weather risk Newly developed weather derivatives have been introduced to help manage the weather risk for EDF DOAAT and EDF Energy.

Coal services to EDF Polska EDF Trading’s increased activity in the Polish market, including stockyard arrangements has enhanced the security of coal supply for EDF Polska.

Biomass procurement for EDF Energy An agreement was entered into for EDF Trading to become the exclusive supplier of solid biomass for EDF Energy in the UK.

Maximising Group flexible assets In a joint initiative, the EDF Group and EDF Trading launched the Gamma Fund to optimise the Group’s medium term flexible power assets.

UK gas cavity storage At Hole House in Cheshire, UK, EDF Trading and EDF Energy are jointly developing a 37MTh underground gas storage facility.

Identifying business opportunities

EDF Trading’s origination team is expert at structuring medium to large scale transactions across all commodities and geographies in order to provide value for our customers. It works alongside our Group integration and cross-commodity teams and with the specialised trading desks.

The team acquires and structures the flexible physical and contractual assets that support expansion of the EDF Trading platform into new countries, markets and commodities. It also develops the commercial structures that contribute to asset optimisation for EDF Group companies and third party customers.

EDF Trading works with a wide range of third parties including utilities, industrials and other wholesale commodity consumers and producers. To help our customers achieve their operational needs and business objectives we offer very competitive standard products and tailored structures. To do so, the team draws on the breadth and depth of EDF Trading’s positions and assets across the different global markets and commodities.

Business development

EDF Trading Annual Review 2010 Our markets

EDF Trading’s approach to origination and business development is that by applying our skills and resources we can add value to the assets owned and operated by EDF Group companies and third party customers. At the heart of our ability to do this is the proven expertise of our specialist integration, origination and cross-commodity teams.

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“ By developing our portfolio of contractual and physical assets we create the flexibility essential for delivering added value services worldwide.”Philipp Büssenschütt Global Head of Origination

Throughout 2010 the global origination team has been closely involved with a number of landmark transactions completed by EDF Trading:

Business development in Poland We closed a structured power off-take agreement with Dalkia Poland, part of the EDF Group.

Secured coal supply from Australia Our investment in the Australian Narrabri coal mine in 2008 has begun to bear fruits and 2010 saw the commencement of our first coal deliveries.

Increased wholesale electricity supply in the US In North America, EDF Trading enhanced the value of its wholesale energy services by acquiring an interest in and extending its relationship with Champion Energy Marketing LLC, a leading independent retail electricity supplier.

Optimised hydro output in Scandinavia EDF Trading acquired a number of virtual contracts to optimise the flexibility of electricity production from hydro power stations in Norway.

Expanded energy management services in the US EDF Trading successfully expanded its energy management business model through agreements signed to manage two power stations in the West in Arizona and California.

Secured coal off-take in South Africa A structured long term export contract between EDF Trading and Continental Coal was established to secure coal supplies from South African mines.

Realising cross-commodity opportunities

Market conditions for most energy commodities are nowadays considerably different to those before the 2008 banking crisis and recession. Oversupply in some geographic regions and markets, coupled with lower demand and a reduction in speculative trading has led to a drop in volatility. Furthermore, uncertainties in the global economic outlook have led to an increase in commodity market investment and higher correlations between a wide range of energy and financial markets.

In 2010, EDF Trading established a dedicated cross-commodity team that works to support the activities of our Group integration and origination teams and our specialised market desks. It monitors the wider macro-economic environment and promotes the flow of information to identify potential that is not being realised already.

22 EDF Trading Annual Review 2010 Our marketsPower

– Europe – North America

Power

“ We provide a first class energy management service to ensure our customers receive the maximum value from their assets.”

Cody MooreHead of Power, North America

01 Cody Moore, Head of Power, North America

02 Pylon, © EDF - Bourdon Vincent


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EDF Trading uses its access to the energy markets and proven energy management expertise to add value to assets owned or operated by EDF Group companies and third party customers. We are one of the leading participants in both the European and North American wholesale electricity markets.

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Case studies in this section Market access interface for SPE in Belgium Wholesale market access in North America Energy management agreement in California

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24 EDF Trading Annual Review 2010 Our marketsPower

Adapting to market challenges

2010 saw the convergence of a number of factors impacting on our key European and North American markets. Most noticeably, although demand is recovering towards the 2008 pre-financial crisis levels, it is balanced by the recent introduction of additional generation capacity in the form of renewables and new CCGT power stations. As a result prices are generally stable, but the margins achieved by generation assets are compromised.

Within such an environment, the market analytical skills, experience and asset-backed business model of EDF Trading provide unrivalled capabilities to support the optimisation of assets owned and operated by EDF Group companies and third party customers.

A leader in European power

Our coverage of the European wholesale electricity market is unlike any other. The breadth of our business across the European grid and our depth in each region give us the capability to support EDF Group companies. During 2010 we participated in yearly, monthly, daily and intra-day auctions to obtain physical transmission rights, traded in 15 countries and traded across 19 national borders.

Having such comprehensive market coverage establishes us with a distinct advantage in the provision of products and services fundamental to the optimisation of EDF Group assets. Through constant monitoring we are able to analyse interconnection capacities, flows and the price of flows. Equally, reflecting the influence of renewable energy production, we analyse and forecast the impact of the weather, temperature, wind and sunshine on output and consumption. Access to such data enables us to refine our skills in hedging the Group’s market risks, maximise the value of Group assets and secure the supply of electricity to Group customers.

In 2010 we extended our virtual power plant (VPP) agreement with EDF Energy in the UK, for whom we are the exclusive wholesale market interface. In Norway, our Oslo office signed several 100 MWs of VPP structures in the Nordic region and EDF Trading became an official market maker on the Nordpool.

We also transacted with a wide range of third party customers including utilities, large commodity consumers, producers, investment banks, trading houses and oil companies.

Significant growth in North America

EDF Trading is one of the largest providers of energy management market services to the North American wholesale power sector. In 2010, generation output under our management increased to 13,000 MW.

North American wholesale electricity prices are not yet restored to pre-2008 levels. This is largely due to the slow pace of economic recovery limiting industrial demand combined with overcapacity in power supply.

The fall in gas prices has seen increased production by gas power stations and decreased production by coal-fired stations, but the margins remain slim. Within this environment a growing number of states are deregulating and allowing market access to wholesale suppliers.

Our proven ability to optimise assets in challenging market conditions has seen EDF Trading successfully maintain and expand its North American power activities. In the eastern region, the original core of our business, and in the ERCOT region of Texas we are established in providing comprehensive asset management services encompassing fuel supply, off-take and scheduling agreements. During 2010, new business developments included power plant energy management agreements in California, Arkansas, Illinois and Connecticut and our first wind asset management agreement in Pacific NW. We also contracted transmission line capacity between Washington and California by means of an agreement with Seattle City Light for a long term lease of transmission capacity.

Further expansion of our operational capabilities occurred when we acquired an interest in and extended our relationship with Champion Energy Services. We provide Champion with power on an exclusive basis. We also acquired the trading and information systems of Epic Merchant Energy, which enables us to provide nodal pricing to our customers.

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Market access interface for SPE in Belgium

Houston-based Champion Energy Services serves residential, commercial and industrial customers in the deregulated electricity markets of Texas, Illinois, Pennsylvania and Ohio. It is ranked among the top retail electricity providers in the US.

In October 2010, EDF Trading acquired a minority interest in Champion and the two businesses announced an extension of their existing wholesale supply arrangements. This agreement supports Champion’s rapidly expanding business through the supply of long term power. This arrangement fits well with our strategy to further expand our wholesale market activity in the US.

Wholesale market access in North America

EDF Trading has reached agreement to provide a range of energy management services to the independently owned La Paloma gas-fired combined cycle power generation facility in California.

EDF Trading will assume the role of scheduling co-ordinator for all four of La Paloma’s generators and provide comprehensive energy management services for the entire facility including fuel procurement, power scheduling and purchasing and risk management services.Energy

management agreement in California

Case studies Power

SPE is Belgium’s second largest energy utility and has a portfolio of mainly nuclear and gas-fired generation assets serving its electricity and gas customer base. The EDF Group has a majority 63.5% stake in the company.

In early 2011, EDF Trading entered into an agreement with SPE to provide a range of services centred on enhanced access to the wholesale energy markets. This agreement enables SPE to deal exclusively through

EDF Trading for most of its energy commodities. The benefits for SPE include improved price and liquidity conditions as well as a reduction in credit and operational risks. EDF Trading will benefit from an increased power and gas flow business in Belgium. The agreement also provides a solid basis to continue building the co-operation between SPE and EDF Trading in services such as short and medium term optimisation of SPE’s asset base.

26 EDF Trading Annual Review 2010 Our marketsGas

Gas

Canada

USA

Trinidad

01 Steve Lewis, Global Head of Gas

02,03 EDF Trading's Hole House gas storage facility, UK

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EDF Trading is one of the leading participants in the global wholesale gas market. We operate across a very wide geographic spread and our asset-backed business model combined with robust risk management procedures provide a dependable foundation for supporting EDF Group companies and third party customers.

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Case studies in this section LNG growth and expansion of Group activity Underground gas storage in Germany US supply and storage management

“ Our gas footprint is unparalleled. We use it to dynamically support the growth objectives and risk management requirements of our customers worldwide.”

Steve LewisGlobal Head of Gas

Countries where EDF Trading is currently transacting

Egypt

Qatar Abu Dhabi

India

JapanKorea

China

Oman

Australia

Nigeria

Europe Austria, Belgium, Czech Republic, Denmark, France, Germany, Hungary, Ireland, Italy, The Netherlands, Norway, Poland Slovakia, Portugal, Spain, Switzerland, UK

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28 EDF Trading Annual Review 2010 Our marketsGas

Delivering complete solutions

EDF Trading has strategically grown its natural gas pipeline and LNG activities so that the two business streams can be worked together. We are able to capture market opportunities quickly and in a co-ordinated manner, which helps us secure supply and optimise asset value for EDF Group companies and third party customers. With a global reach and well-structured asset portfolio we are able to support and enhance the EDF Group’s growing gas business and offer our customers bespoke products providing complete solutions.

In 2010, from a global perspective, the marketplace was comparatively stable and wholesale prices generally retained a degree of consistency. The overall volume of gas traded, and our share of that traded volume, increased during the year.

Direct support for EDF in Europe

By volume, EDF Trading is one of the top three wholesale market participants in Europe. We transact on the principle hubs of Germany, Belgium, France, Holland and the UK and we are also active in the developing trading markets of Austria, the Czech Republic, Ireland, Italy, Portugal, Spain and Switzerland. During the year we expanded our already significant positions in Belgium, France and Holland and also achieved good growth in Spain.

The nature of the gas business in Europe is such that gas consumed in any country is likely to have crossed at least one international border. Recognising this, in 2010 a review was undertaken by the EDF Group of its European gas activities. Following the review it was agreed that EDF Trading’s responsibilities should be expanded to include optimisation of the Group’s gas position on a pan-European basis. This new structure will better enable the utilisation of Group assets and further enhance the risk management services provided by EDF Trading to the Group.

Top 10 in North American gas

Our strong growth in North America has continued and EDF Trading is now fifth in the Top North American Gas Marketers rankings (Q4 2010). The EDF brand is firmly established in the marketplace and EDF Trading is regarded as a ‘preferred supplier’. We have transportation contracts with 74 pipelines, approximately 42 bcf of storage capacity, transport an average of 1.2 bcf per day and support more than 300 third party customers.

During 2010 we continued to build our presence in Canada and Mexico as well as the US. Our ability to implement structured transactions has proved particularly beneficial in securing new asset management and optimisation agreements with public utilities and other asset owners.

The market itself witnessed converging issues during the year; the slow pace of economic recovery resulted in lower demand for gas while the improved efficiency of shale gas production increased supply volumes. As a consequence, prices remained at a comparatively low level and there was less price volatility.

Global activities in LNG

EDF Trading’s position as one of the leading participants in the global LNG market is a major contributor to the security of supply for EDF Group companies and third party customers.

Underpinning our activities is the strength of our relationships with LNG producers worldwide. We now have master agreements with 50 of the market’s major participants, including a long term contract with Qatar’s RasGas Company Limited. During the year we extended our reach and sourced supplies from producers as far afield as Trinidad and Nigeria while expanding our customer base to Brazil and South Korea. We have also been active in loading LNG in the US and transporting it to Europe.

Reflecting the stability of our position, in 2010 we received our 100th LNG cargo.

EDF Trading’s participation in the LNG market integrates seamlessly with EDF Group strategic activities and enables optimisation of Group assets. In Europe, in addition to our own LNG capacity at Montoir and Zeebrugge, the EDF Group has significant midstream positions with re-gasification capacity at terminals in Rovigio and Fos-Cavaou. We also have access to re-gasification capacity at a terminal in Freeport, US.

At Zeebrugge, in 2010 we undertook our first loadings of LNG onto trucks. It was used as road fuel for freight haulage thereby pioneering the use of LNG as a low emission transportation fuel.

In addition to securing physical supply, EDF Trading offers a complete support service to Group companies and third party customers. These services include terminal operations, re-gasification and nominations into the appropriate network, offshore transportation management and hedging services to producers and major consumers of gas.

29Case studies Gas

In 2010 we achieved a major benchmark in the growth of EDF Trading’s LNG operations when we took receipt of our 100th LNG cargo. The cargo was sourced in Nigeria and delivered to the Incheon terminal in South Korea.

Our LNG services to the EDF Group expanded in 2010 when we were able to act quickly to protect the security of supply for our colleagues at Edison.

A landslide had disrupted the overland transit gas pipeline as it passed from Switzerland to Italy. We rapidly delivered an LNG cargo to Edison in Italy and so provided an alternative gas resource as cover until the pipeline reopened.

LNG growth and expansion of Group activity

EDF Trading is currently working with the EDF Group on the market optimisation of a gas storage project at Etzel in North West Germany. EDF Trading originated the project in 2006/2007 and EDF Group assumed responsibility for its implementation. The first development stage will see the opening of two underground caverns with a combined gas storage capacity of approximately 160 million

cubic metres. This project also involves the construction of a gas plant and a new pipeline for connection with the TTF network in the Netherlands. EDF Gas Deutschland is the project company developing the facility.

EDF Trading is providing the project hedging services, project support and the design of the commercial contracts and structures around the assets.

Underground gas storage in Germany

In 2010, EDF Trading entered into an agreement with a US Midwest refinery that consumes around 30,000 mmbtu/d. The refinery operates behind a utility city gate and is allocated 1.3 bcf of storage within the system. The refinery has a need to run the plant without interruption and was concerned about security of supply.

EDF Trading has significant asset positions across North America and its expertise in asset management made it a good partner for this refinery.

Within the agreement, EDF Trading undertakes to supply 100% of the refiner’s natural gas needs and to manage and optimise its storage capacity.US supply

and storage management

30 EDF Trading Annual Review 2010 Our markets Coal and Freight

Coal

01-02 EDF Trading's Amsterdam coal terminal

03 Bert van Druten, Head of Coal and Freight

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With multiple sources of coal supply worldwide, and the ability to ship, store, blend and deliver coal globally, EDF Trading is ideally resourced to meet the coal needs of EDF Group companies and third party customers. Our assets include long term off-take contracts, a modern freight fleet, coal terminals and an inland logistics business.

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Case studies in this section EDF Trading opens Singapore office Off-take agreement for South African coal Securing quality coal from Australia

Bert van DrutenHead of Coal and Freight

“ Our resources and logistics are such that we adopt an ‘anywhere, anytime’ approach to meeting our customers’ coal needs.”

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A globally diversified marketplace

There were a number of developments in 2010 that led to volatility within the coal marketplace. In Europe we witnessed considerable de-stocking as traditional coal-fired power stations became less competitive against gas-fired generation and renewable energy sources. Conversely, demand for coal to fuel economic growth increased in China and the Far East. Such global diversity, coupled with comparative stability in the oil and gas markets, encouraged an influx of new participants into the market and a rise in speculative trading.

Proven effective business model

EDF Trading’s asset-backed business model has proved to be highly resilient to the recent changes in marketplace dynamics. Amid all the global fluctuations we have maintained our ability to ensure the stability and cost effectiveness of coal supplies to EDF Group companies and third party customers.

EDF Trading is the exclusive supplier of coal to EDF in France, we have a long term supply agreement with EDF Energy in the UK and supply agreements with EDF Polska in Poland. We also have long term supply contracts with other major European utilities.

We have enhanced our operations in North America and have relocated our coal team to dedicated offices in Chevy Chase. Although US coal production has reduced in recent years there is still considerable demand in the home market and good export potential to Europe and the Far East. Among our significant assets is a long term contract with a US rail company that delivers coal to East Coast ports. We have also obtained long term export capacity through terminals in Baltimore.

Worldwide growth in 2010

Among the highlights in 2010 was the extension of our fuel procurement and supply joint venture with Chubu Electric Power in Japan. The joint venture company, Chubu Energy Trading, is now the exclusive interface to the wholesale coal market for Chubu Electric Power and manages the total coal supply operation, which amounts to approximately 10 million metric tons a year.

2010 also saw an expansion of our activities in Poland where we already provide considerable support to EDF Polska. The Polish market is nearly 100% coal-fired for electricity and has a constant demand for high quality coal imports. In recognition of this we have established stockyard arrangements and plan to open a dedicated office in the near future.

During the year we entered into a long term off-take agreement with Continental Coal in South Africa. We also saw production begin to flow from our joint venture interest in the Narrabri mine in Australia. These arrangements, combined with other long term off-take agreements around the world, reinforce our ability to secure supply for EDF Group companies, Chubu Electric Power and our third party customers around the world.

To facilitate our increased activity in the Far East we have opened an EDF Trading office in Singapore. In the coming months we will develop our strategic Asian coal and freight business through that office.

EDF Trading Annual Review 2010 Our markets Coal and Freight

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The growing globalisation of the wholesale energy commodities market has seen an expansion of activities for EDF Trading throughout the Far East. In particular we have significantly increased coal shipments and the provision of dry-bulk freight services to the region. Reflecting this, in 2010 we opened a dedicated EDF Trading office in the heart of Singapore’s business district.

The office will form the hub of our operations in Asia. Initially the office will be focused on growing the existing EDF Trading coal and freight business and our Asian carbon origination business. However, we anticipate expanding the team and extending our services to encompass other commodities.

EDF Trading opens Singapore office

In 2010, EDF Trading signed a long term off-take agreement with Continental Coal of Australia. The agreement consists of a number of elements including an exclusive export and marketing contract for Continental’s existing coal producing mines and key future coal projects located in South Africa. The first shipment from the main existing South African mine was received in December.

These mines are well managed and produce export quality coal. This agreement is significant in helping to ensure the security of supply to EDF Group companies and our third party customers.

Off-take agreement for South African coal

Coal supplies have begun to flow from the Narrabri coal mine in Australia, with which EDF Trading has a joint venture interest and a long term off-take agreement.

The coal produced is of high quality. It is ideally suited to the needs of coal-fired power stations and also, in a powdered form, for blast furnaces. The mine is conveniently located for export shipments via the Australian port of Newcastle.

EDF Trading has an off-take contract for a volume in excess of 50 million metric tons over the life of the mine. When development is complete, Narrabri will have an estimated annual output of 6 million metric tons.

Securing quality coal from Australia

Case studies Coal

34 EDF Trading Annual Review 2010 Our marketsCoal and Freight

Freight

Michael NaglerHead of Freight Trading

“ Our assets provide the essential flexibility for dynamic management of both the physical and financial risks of dry-bulk freight scheduling.”

01 Michael Nagler, Head of Freight Trading



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The EDF Trading freight team plays a key role in securing the stability and cost effective supply of dry-bulk commodities to EDF Group companies and third party customers around the world. With our modern fleet of capesize and panamax vessels we add consistency and value to supply chain logistics.

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Case studies in this section Adding value for Sanko Securing US coal supplies into Europe The launch of Cape Agnes

36 EDF Trading Annual Review 2010 Our marketsCoal and Freight

Creating the freight hedge

EDF Trading is one of the largest operators in the dry-bulk commodities sector and our fleet is among the most modern currently crossing the oceans. Our reputation for reliability and efficiency is built upon our proven ability to support the business interests of EDF Group companies and third party customers worldwide.

At the end of 2010 the EDF Trading fleet consisted of 21 capesize and 6 panamax vessels with another capesize vessel under construction in Japan. This mix enables us to carry the coal shipment volumes typically required by EDF Trading in managing the commodity logistics for Group businesses. It also provides the flexibility to meet other third party global demands for dry-bulk shipments.

Our freight team works closely with and supports EDF Trading’s coal team, as well as other commodity teams within the company, in the effective management of freight exposure. The freight requirement is met by our own time charter tonnage and the freight risk is managed by the use of freight derivatives or, in exceptional circumstances, by voyage charter from third party ship owners. In such a way we create the freight hedge that allows our colleagues to negotiate supply contracts and take positions safe in the knowledge that freight capacity is available at fixed levels.

Strong global relationships

During 2010 we saw a sense of stability return to the marketplace compared to the volatility witnessed in 2008 and 2009. To a large extent this was due to the growth of the global fleet and the subsequent availability of additional capacity to manage the high demands of China and other Far Eastern countries for coal and iron ore. There were no major defaults by freight companies in 2010 and the smaller ad-hoc speculators have left the market.

Within such an environment, EDF Trading has strengthened relationships with key counterparts around the world. In particular, we are proud to have expanded our relationships with K-Line in Japan, with whom we have entered into a five year chartering agreement, Empire Navigation in Greece and Valé in Brazil. Another important development was an extension of our relationship with Sanko in Japan.

The opening in 2010 of our coal and freight office in Singapore reflects our increased business levels with China and Asia in general. In China we have grown our relationships with steel mills and made several shipments of iron ore and furnace coal into the country.

We have also increased the volumes and types of activities undertaken through the EDF Trading dedicated coal office in Chevy Chase, US. Reflecting the growth of coal exports from US East Coast ports into Europe we have significantly expanded the level of panamax chartering.

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Sanko is a very well established and highly regarded Japanese shipping company with whom EDF Trading has had a good business relationship for many years. With the trust inherent in that relationship we entered into a new style of agreement that provided us with additional freight capacity while also enabling Sanko to gain maximum value from their chartering activities.

The essence of the arrangement is that rather than Sanko trading its freight capacity on an annual fixed rate system, an optimisation formula was structured whereby capacity is linked to the floating Baltic Index rates which can then be managed in the derivatives market. Sanko can therefore benefit from increases in market rates while also having a hedge against rate falls.Adding value

for Sanko

The quality and competitive pricing of US coal makes it a sought after commodity in the European marketplace.

To secure supplies for EDF Group companies and third party customers we entered into agreements with three blue chip European shipping companies for additional freight capacity.

EDF Trading in North America handles the freight logistics out of our Chevy Chase office and utilises a rail loading facility with which we have capacity agreements to deliver the coal to port. The contracted panamax vessels operate to a monthly schedule for delivering the coal into Europe.

Securing US coal supplies into Europe

In December 2010, EDF Trading took delivery of the newest addition to our freight fleet, the Cape Agnes capesize vessel. The vessel is a joint venture with Mitsubishi and construction was undertaken at the Imabari shipyard in Japan. Capesize vessels have a capacity of 181,000 DWAT.

The launch of Cape Agnes was attended by Michael Nagler, EDF Trading’s Head of Freight Trading and Philippe Torrion, Vice Chairman, EDF Trading Board and Executive Vice President, Optimisation and Trading, EDF. On its maiden voyage, Cape Agnes transported a shipment of coal from Australia to Europe.

The launch of Cape Agnes

Case studies Freight

38 EDF Trading Annual Review 2010 Our marketsEnvironmental products

It is a core commitment of the EDF Group to continue reducing the carbon impact of its activities. EDF Trading actively supports this by providing EDF Group companies, and our third party customers, with environmental products and services ranging from CDM origination and biomass through to ROCs or RECs. Our services also include weather risk management.

Environmental products

01 Photovoltaic project, China

02-03 François Joubert, Global Head of Environmental Products

04 Budapest Power Plant

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02

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Case studies in this section Enhanced CDM expertise in China Carbon management with Budapest Power Plant Carbon reduction agreement in PeruBiomass procurement for EDF Energy Enhancing our US RECs portfolio Weather derivatives in North America

“ Strategic acquisitions and strong organic growth have significantly enhanced our ability to deliver a complete environmental products service.”

François Joubert Global Head of Environmental Products

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04

40 EDF Trading Annual Review 2010 Our markets Environmental products

Complete environmental solutions

EDF Trading’s position within the environmental products market is unlike any other. Our size, geographic reach and product coverage give us a presence across the whole value chain. As such, we are ideally positioned to support EDF Group companies and third party customers with a comprehensive service addressing all the key areas of activity including regulation, CDM origination, biomass, ROCs or RECs and weather derivatives.

Off-setting carbon emissions

EDF Trading is involved throughout the wholesale environmental products value chain and has sourced Clean Development Mechanism (CDM) emission reduction projects in more than 15 countries. We have an extensive understanding of the UN’s CDM project approval process and of the assessment of delivery risk associated with each project. Working with project developers, we focus on maintaining the highest compliance standards to ensure efficient project delivery.

The EDF Trading CDM portfolio is mature in terms of UN approval in that approximately 85% of our projects are already UN registered. Included in our portfolio are projects involving wind, hydro and biomass power generation, industrial energy efficiency, coal mine methane, waste water and MSW management. We are currently involved in over 200 CDM projects in countries as diverse as Brazil, China, India, Korea, Malaysia, Mexico, the Philippines, Russia, Thailand and Vietnam.

Our practical knowledge of the CDM process combined with our role as the wholesale market interface for the EDF Group provides a solid platform from which to optimise the Group’s carbon position. We also work with large industrial concerns and end-user organisations to propose carbon products as a means of helping them manage risk and optimise their carbon position.

A significant development in 2010 was the acquisition by EDF Trading of Energy Systems International (ESI). ESI is a China-based CDM project developer with a strong business portfolio in the region.

Other notable activities during the year included EDF Trading being confirmed as a preferred off-set supplier to the UK Government. Under the agreement, Certified Emission Reductions (CERs) from the EDF Trading portfolio of CDM projects will be used to off-set emissions from several Government offices.

In Peru, we signed an emission reduction purchase agreement with the country’s largest cement manufacturer. In India, following the successful completion of a pilot CDM project to exchange traditional incandescent lamps with energy efficient CFLs, we are now working with the project developer to roll the initiative out across the country.

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In July 2010, EDF Trading acquired Energy Systems International (ESI), a CDM project developer based in China. ESI is one of the pioneers in the CDM sector, having been active in the market since 2001, with a mature portfolio of projects that are 85% UN registered and issuing credits. The ESI business complements our own and will contribute to the effective management and expansion of the EDF Trading CDM portfolio.

ESI is the carbon off-taker for the first ‘non small-scale’ solar photovoltaic registered CDM project in the world. Solar power is growing in popularity among China’s CDM projects and is being favourably supported by the local authorities.

Enhanced CDM expertise in China

BERT (Budapest Power Plant), 96% owned by EDF S.A., operates three CCGT cogeneration plants and one heating plant in Budapest. Over the past 15 years the company has invested considerably to secure heat and power supplies to the Hungarian capital in a safe, environmentally friendly and economically viable manner. It has reduced the environmental impact of its heating plant by an average of 10% less fuel and CO2 emissions compared to conventional plants.

In 2010, EDF Trading entered into two agreements with BERT. The first involved a swap agreement whereby BERT provides certified emission reduction credits (CERs) and, in return, EDF Trading supplies European emission allowances (EUAs). This structure optimises BERT’s swap capacity. For the second agreement, we procured EUA’s for BERT on a competitive basis.

Carbon management with Budapest Power Plant

EDF Trading has signed a certified emission reduction purchase agreement with Cementos Lima, the leading cement manufacturer in Peru.

Cementos Lima’s Atocongo plant is one of the three largest cement manufacturing facilities in the Americas. It was registered as a UN CDM project because of its switch from coal to natural gas as the main source of energy. The project issued its first CERs in mid 2010 and is expected to have a second issuance in early 2011.

The agreement represents one of the largest CER transactions in Latin America in 2010. It is EDF Trading’s first CER transaction in Peru.

Carbon reduction agreement in Peru

42 EDF Trading Annual Review 2010 Our marketsEnvironmental products

Case studies Environmental products

EDF Energy is implementing a major carbon reduction initiative at its UK Cottam coal-fired power station by installing a semi direct injection system to increase the efficiency of biomass co-firing. As part of this initiative, EDF Energy and EDF Trading have entered into an agreement whereby EDF Trading becomes the exclusive supplier of internationally sourced solid biomass to EDF Energy.

The agreement enhances procurement efficiencies for both EDF Energy and EDF Trading by establishing a single presence in the wholesale market. It creates a structure that aligns the interests of both businesses and maximises added value to the EDF Group.

Biomass procurement for EDF Energy

EDF Trading significantly expanded its North American environmental products business with the acquisition, in March 2010, of a portfolio of Renewable Energy Credits (RECs) from Integrys Energy Services, a diversified US energy group.This acquisition has enabled EDF Trading to become one of the most active participants in the US RECs market.

It has also enabled us to develop a platform for further growth in the US environmental products business. We are able to offer third party power generation and industrial customers a complete product and service solution for emissions reduction through compliance and voluntary RECs.

Enhancing our US RECs portfolio

Although the North American environmental products market is still developing, key players in the power generation and industrial sectors have shown considerable interest in the comprehensive nature of EDF Trading’s environmental products and services offer. In addition to increases in our RECs, 2010 also saw the first uptake of our new weather derivatives capabilities.

In the final quarter of the year we completed our first US weather derivatives transaction with a gas and power supplier in the mid-Atlantic region. This was quickly followed by an arrangement covering several locations for another gas and power supplier operating in the US and Canada.

Weather derivatives in North America

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Global biomass sourcing and delivery

With extensive experience of the biomass fuels market, EDF Trading sources and ships biomass materials worldwide and we are actively involved in developing new types of biomass for our customers. We do this for EDF Group companies and third party power generators that co-fire biomass in their coal-fired power stations.

Co-firing with biomass is one of the most cost effective yet scalable means of carbon abatement. It helps power generators achieve environmental sustainability objectives and is linked to the value of carbon emission allowances and the value of Renewable Obligation Certificates (ROCs) in the UK and similar incentives in other European Union countries.

Co-firing with biomass is also intricately linked to other environmental products and initiatives. Using our expertise of the environmental products market, we help implement the EDF Group’s renewable energy strategy by consolidating biomass procurement for Group companies and supporting them in the development of biomass related business opportunities.

In Poland, where the majority of power generation is coal-fired, there is a Government scheme to encourage the use of biomass for power generation. Within this environment we have maintained close relationships with our colleagues at EDF Polska and provide on-going support in the form of global biomass sourcing and logistics.

In the UK, we have entered into an agreement with EDF Energy whereby EDF Trading is now the exclusive supplier of internationally sourced solid biomass for EDF Energy’s coal-fired power generation assets.

Driving the RECs market in North America

EDF Trading is a participant in the North American environmental products sector and particularly in Renewable Energy Certificates (RECs). Our strength lies in the depth of our international experience in the RECs market coupled with the close relationship we have with businesses requiring low carbon solutions. In 2010 we enhanced our capabilities in North America further with the acquisition of a significant REC portfolio from Integrys Energy Services.

RECs are a tradable asset to promote the development of renewable energy.

EDF Trading is also active in the introduction and expansion of additional environmental products in North America including biofuels and weather derivatives.

Asset optimisation with weather derivatives

EDF Trading has expanded its weather derivatives business to help EDF Group companies and third party customers assess, qualify and hedge their weather exposure. Following significant investment in trading and portfolio management systems, and the implementation of new risk metrics, we are now active market participants in the UK, mainland Europe, Scandinavia and North America.

Weather derivatives are generally applicable to temperature, precipitation, wind and other weather-related underlying indices. However, virtually any weather index can be structured provided a long term history of reliable weather measurement is available.

Activities with EDF Group companies include an exclusive agreement for EDF Trading to undertake dynamic management of the Group’s weather positions through a flexible weather hedging framework. We are also working in close cooperation with EDF Energy in the UK to manage its weather hedging exposure.

For our third party customers, weather derivatives are a logical development of the asset management and optimisation services we already provide. In 2010 we completed transactions for customers in Germany, Norway, the US and Canada.

44 EDF Trading Annual Review 2010 Our marketsDerivatives and Oil

EDF Trading uses its knowledge of the wholesale energy markets to help EDF Group companies and third party customers realise the value of their flexible assets. We also provide the EDF Group with hedging and procurement services to manage the Group’s oil price risk.

Derivatives and Oil

01 Exhaust stacks of the Vaires-sur-Marne combustion turbines. © EDF-Vautrin Laurent

02 Namesh Hansjee, Head of European Power, Cross Commodities, Derivatives and Oil

01

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Case studies in this section Enhanced value for EDF’s power assets Hydro power plant optimisation

“ Derivatives enable us to increase the return from physical and flexible assets by using the volatile nature of energy prices.”

Namesh HansjeeHead of European Power, Cross Commodities, Derivatives and Oil

02

46 EDF Trading Annual Review 2010 Our markets Derivatives and Oil

Using derivatives for added value

The EDF Trading derivatives team manages complex market risks through the development of derivative products across multiple commodity markets. Doing so enables us to help EDF Group companies and third party customers optimise the value of their flexible assets. Our activities include valuation and hedging along with product development and structuring.

Using bespoke software, our quantitative analysts and developers provide analytical pricing and deal structuring support to help optimise power production assets. They have also built specific models to rationalise the behaviour of different types of deal structures such as fast-cycle gas storage and pumped storage hydro.

Quantitative trading strategies enable us to evaluate opportunities in a wide range of complementary energy markets. We then pursue those opportunities to produce consistent and diversified revenue streams.

Managing EDF Group oil procurement

EDF Trading provides physical fuel oil and financial hedging services for the EDF Group to ensure that oil exposure is contained within parameters defined by the Group’s risk policy.

Oil pricing has a major impact on energy prices in that nowadays the oil market behaves in a way similar to a financial market and is impacted by factors such as exchange rates, interest rates and stock market prices. EDF Group companies are directly exposed to changes in the price of oil via the fuel oil consumed by oil-fired power stations and, to a lesser extent, indirectly exposed through the price of oil being used in some formulas to establish the price of other energy commodities. EDF Trading works to manage those exposures by analysing, quantifying and hedging oil price fluctuations.

Oil procurement services for the EDF Group are managed and delivered by our EDF Trading Logistics business in Paris. Working to ISO14000 standards, our service encompasses procurement, freight, storage, logistics and all the ancillary operational requirements. The service is focused on security of supply and maintaining the flexibility to meet short notice peak demands.

EDF Trading Logistics acts primarily for EDF Group businesses in France, Corsica and Belgium. Our oil team also provides hedging services to Chubu Energy Trading, the joint venture between Chubu Electric Power of Japan and EDF Trading.

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The Gamma Fund was launched in December 2009 as a joint initiative between the EDF Group and EDF Trading.

Operated by EDF Trading, the fund is active in the wholesale energy markets and is dedicated to realising the value of the flexibility inherent in the EDF Group’s generation assets.

Phase 1 in the development of the fund is now almost complete and is realising considerable benefits to the Group. Phase 2, which is currently being finalised, is likely to see the scope of the fund expanded to address added value opportunities with coal and gas assets.

Enhanced value for EDF’s power assets

EDF Trading has introduced a new market initiative to optimise hydro power plant output by realising additional value arising from changes in the price of power on the wholesale market.

The initiative takes into account the hydro plant’s reservoir capacity, turbine capacity and water inflows.

This data is used as a basis for securing ahead of time the value of the electricity produced during future periods where prices are expected to be highest. EDF Trading’s derivatives team is ideally positioned to implement the initiative based on its pricing expertise, rigorous risk management systems and the ability to buy and sell electricity in the wholesale market.Hydro power plant

optimisation

Case studies Derivatives and Oil

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Approach and culture

EDF Trading is focused on integrating with and supporting the activities of the EDF Group and third party customers wherever they may operate around the world. We work in a global marketplace and have therefore established our structure, culture and business methodologies to be global in both their perspective and application.

“ EDF Trading is entrepreneurial by nature; it is essential for our success. But we balance that entrepreneurial spirit with rigorous risk and procedural controls.”

John RittenhouseChief Executive

EDF Trading Annual Review 2010 Our approach Approach and culture

01 John Rittenhouse, Chief Executive

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Combining innovation with discipline

Maintaining success within the constantly evolving wholesale energy markets requires us to be innovative in our thinking at all levels and in every facet of our business. As such, our people are encouraged to challenge conventional ideas, test new approaches, anticipate market developments and react quickly to market opportunities.

However, wholesale energy trading also requires discipline in the form of rigorous risk and procedural management. The precision of our legal, financial, market and credit risk programmes establishes the parameters within which our business operates. In turn, our transmission and regulatory team ensures that we comply with the appropriate regulatory frameworks wherever in the world we conduct our business.

An entrepreneurial culture

With a team of around 900 people, EDF Trading is a combination of experience and expertise. We employ the best skills in every position and have people from all over the world working together. Such diversity is our strength and a critical factor in our ability to grow our business and enhance our support for the EDF Group and third party customers.

Ultimately, the success of EDF Trading is based upon a culture in which entrepreneurial spirit and procedural control are combined with advanced technology. This creates a highly motivated cohesive unit.

Managing our global business

EDF Trading’s senior management is structured to reflect the global nature of EDF Trading’s business.

Our Executive Committee has ultimate management responsibility across all the business units in every region. Reporting to the Executive Committee is our team of Business Heads who have specific responsibility for their own commodity lines. In this way we are ideally positioned to maintain focus on the major issues affecting our business while also ensuring that for the commodity lines we have a free flow of knowledge within and between each line to clearly identify the best opportunities.

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Risk management

EDF Trading Annual Review 2010 Our approach Risk management

Risk management creates the framework within which EDF Trading operates and is fundamental to the success of the products and services we use to support EDF Group companies and third party customers. As such, our senior executives are personally involved in all risk management processes.

01 Justin Rowland, Chief Operating Officer


01

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“ The effectiveness of our risk management procedures are governed by attention to risk issues at the highest executive level.”

Justin RowlandChief Operating Officer

High level risk management governance

EDF Trading’s commitment is such that our senior executives take personal and direct responsibility for risk management.

In 2010, we reorganised our risk functions to reflect the evolving business of EDF Trading and to enable clear focus on specific areas of activity. Within the new structure we have a Global Risk Committee, a Global New Business Committee and a Global Credit Committee. All of these committees are attended by members of the Executive Committee.

Limiting market risk

Fundamental to our market risk control is the imposition of stop-loss and Value-at-Risk (VaR) limits. These tools are complemented by additional techniques such as stress testing, which assesses the profit and loss impact of extreme movements in our portfolio’s underlying variables.

At 31 December 2010, EDF Trading’s overall VaR limit for its trading books stood at €34.4 million (2009: €32.4 million).

In addition to stop-loss and VaR, the Global Risk Committee is responsible for the allocation of risk capital. Capital allocation provides a consistent method for measuring both the absolute level and the change in the overall level of risk within the business as well as supporting the calculation of risk-adjusted returns on capital. The methodology is based on the Basel Accord, which includes the assessment of market, credit and operational risk capital. EDF Trading includes a capital provision against tangible and intangible assets.

The Committee also reviews and establishes the parameters of trading policy for products and markets, establishes limits, manages breaches and assesses and reviews risk across the entire EDF Trading portfolio.

Managing new business risk

The primary function of our Global New Business Committee is to review EDF Trading’s entry into new markets or products. Within this the Committee evaluates our operational readiness to enter into new business structures, new subsidiaries, branches or joint ventures, asset acquisitions and stake holdings and all unique business arrangements. It also evaluates the risk associated with new transactions and assesses proposals for restructuring existing long term contracts.

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Implementing global credit risk management

EDF Trading has established a global approach to credit risk management by implementing a consistent credit risk management framework with standardised systems, processes and controls throughout our offices in Europe, North America and Asia.

The credit risk management activities are reviewed and monitored by the Global Credit Committee whose function is to approve counterparty exposure and term limits based on a qualitative and quantitative assessment of the counterparty. The analysis includes a review of a company’s business model, corporate structure and management, financial ratios, cash flow and liquidity assessment.

Our credit risk management processes are designed to enable us to react prudently yet quickly to credit events and are founded on a strong credit risk culture built across all business functions.

EDF Trading works to support the development of credit risk management and mitigation techniques across the global energy sector. There is active participation in industry working groups involved in the development of contractual arrangements and clearing initiatives. Our Head of Credit is Deputy President of the European Energy Credit Association and Director and Board Member of its parent entity, the International Energy Credit Association.

Maintaining robust liquidity

The global economic crisis of the past few years has changed the way participants in the wholesale energy markets look at risk management. Today, in addition to all the considerations of market risk, many participants are now placing renewed emphasis on liquidity.

Within such an environment, the robustness of EDF Trading’s liquidity position offers dependable reassurance. We maintain approximately €2 billion excess liquidity, financed largely through arrangements with the EDF Group, and regularly run stress testing scenarios on our position.

Our liquidity management not only ensures that sufficient cash is available to meet all contractual commitments as they fall due, but also that we have sufficient funding to withstand stressed market conditions or an extreme event.

The EDF Group supports our liquidity management through the provision of letter of credit facilities, medium term notes, working capital facilities and a committed back-up credit facility.

Safeguarding transaction integrity

In Europe, North America and Asia, transactions are executed under standard industry agreements that provide cross commodity netting, material adverse change and default provisions. We also execute margining agreements and obtain collateral where appropriate.

To provide an additional safeguard, the EDF Trading legal team is involved in every significant transaction. The team contributes advice and guidance to senior management on all business issues and ensures that we act in a manner commensurate with legal and regulatory requirements.

EDF Trading Annual Review 2010 Our approach Risk management

01-02 EDF Trading employees

03 Béatrice Bigois, Chief Financial Officer

01 02

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Mitigating risk in our operations

Managing operational risk is an ongoing priority. We continuously assess the level of operational risk across all business lines and implement measures to mitigate areas of exposure.

Our business transaction policies, which govern the activities of all employees, are regularly updated to address operational risk. Central to this is that procedures for gaining authorisation for new business or trading instruments must undergo a rigorous operational authorisation process.

In the critical area of system outage risk, we have established back-up systems and procedures to manage every degree of incident ranging from short term disruptions to full scale disaster recovery. Our infrastructure is highly resilient with no single point of failure.

Operating procedures are documented for each functional area and are designed to prevent the occurrence of operational errors. However, should an error occur, we have early detection mechanisms in place to enable prompt implementation of corrective actions and so minimise the impact.

Performance indicators are used to monitor the effectiveness of key operational processes and provide assurance that the processes are functioning effectively. The indicators are reviewed monthly by individual business managers and reported to the Chief Executive, Chief Operating Officer and Chief Financial Officer on a regular basis.

Transparent and fair accounting

EDF Trading uses mark-to-market accounting for positions where there is an observable traded market or fair values can be estimated with reasonable certainty, in accordance with UK accounting principles.

The overall valuation of the trading portfolio reflects credit and operational risks.

The market prices used to value EDF Trading’s positions take account of the cost of closing out our net trading position in the market.

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Transmission and regulation

Although we operate in a global marketplace, some markets are governed by their own national and international regulations. Our transmission and regulation team has expert knowledge of such matters and works with the EDF Group to help shape the evolving regulatory framework and ensure that EDF Trading is compliant in every facet of activity.

“ When any form of regulatory change is being discussed we make a point of getting involved at the beginning so that we can help shape the response.”

Robert QuickGeneral Counsel

EDF Trading Annual Review 2010 Our approach Transmission and regulation

01 & 03 EDF Trading employees

02 Robert Quick, General Counsel

01

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An evolving business environment

In Europe, the opening and integration of the energy market has created a rapidly evolving business environment. Similar developments are beginning to happen in North America where individual states have or are preparing to open their borders in anticipation of implementing initiatives that could eventually lead to the creation of regional or even national markets.

EDF Trading’s transmission and regulation team co-ordinates with the EDF Group to manage relationships with the European Commission, with Europe’s national regulators and with the gas and power transmission companies. This ensures that appropriate measures are taken to prepare for compliance with impending legislative and regulatory reform.

There have been some important regulatory changes taking place during 2010:

Electricity tariff pricing in France An important legislative development affecting EDF power generation activities in France was the passing of the Loi Nome bill in 2010. The new law, which is expected to be implemented during 2011, reforms France’s electricity tariff pricing system with the intention of boosting competition.

European and US derivatives A major development we have been following closely and contributing opinion to is the European Commission’s proposals to reform the derivatives market, which EDF Trading uses to help optimise EDF Group assets. The draft legislation is currently being debated and, if implemented, could have an impact due to the requirement for certain derivatives transactions to be cleared or traded on exchanges. In the US, the Dodd-Frank Bill was agreed in June 2010 for the reform of financial services regulation which also includes similar proposals for the reform of derivatives.

European market integration and coupling From the outset, EDF Trading has been a major contributor to discussions with the power exchanges that shaped the market integration and market coupling process introduced between Germany, France, Belgium, the Netherlands and Scandinavia. The coupling of France and Germany was successfully implemented during November 2010.

New European energy market model EDF Trading is heavily involved in a pan-European project led by ERGEG (the EU energy regulator) to establish a new energy market model throughout Europe. This is a key strategic project that the European Commission has designated as a priority for implementation by 2015.

Carbon market EDF Trading actively participates in discussions shaping the development of carbon markets aimed at mitigating climate change. Our transmission and regulation team leads on policy issues for the EU carbon market and the transition to the third phase of the EU Emissions Trading Scheme (such as auctioning of EU allowances). It is also active in discussions around the reform of Kyoto market mechanisms and on the development of other regional markets including the forthcoming ‘Cap and Trade’ scheme in California.

Securing transmission rights Our transmission and regulation team integrates with our origination team and specialised market desks in respect to transmission auctions that enable us to transact across borders. Auctions are inherently complex and require the input of many different EDF Trading functions including legal, financial and IT. The transmission and regulation team essentially acts as a project manager in such instances to ensure that all regulatory requirements and contractual obligations are in place for successful acquisition of transmission capacity.

In 2010, EDF Trading participated in 50 annual auctions involving 15 countries and 19 national borders and acquired approximately 14 TWh of physical transmission rights.

02 03

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Charity fundraising

Throughout 2010, teams of EDF Trading employees undertook a series of sponsored challenges on behalf of various charities. Participation required our people to make a solid commitment and step outside their comfort zone. But the effort was worth it, a magnificent sum of nearly £200,000 was raised.

“ The charity challenges reflect the heart and soul of EDF Trading. They are about people giving time and making an effort to help others.”


EDF Trading Annual Review 2010 Charity fundraising

01 London to Paris cycle challenge

02 Sailing challenge

03 Dragon Boat challenge

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Sailing challenge

With the help of the Royal Danish Yacht Club, 29 EDF Trading employees took part in a 24 hour race across the Baltic Sea. Divided into three teams, they departed from Tuborg Havn in Copenhagen and sailed around the island of Anholt.

The boats used by the teams were designed for racing and had little in the way of creature comforts. Surprisingly, one of the many difficulties encountered was a lack of wind. This required constant changes to the sails and so everyone suffered sleep deprivation. It was tough going, but the teams rose to the challenge and came home safely.

The nominated charities were: Royal National Lifeboat Institution Pakistan Floods Appeal Nelson Mandela Children’s Fund

London to Paris cycle challenge

EDF Trading’s head office in Victoria, central London, was the starting point for a gruelling 180 mile sponsored bicycle ride to Paris in France.

The 16 strong EDF Trading team first negotiated their way through the congestion of London and its suburbs before heading south via the Sussex countryside to the port of Newhaven. After an overnight rest on the Channel ferry, the team set off again to negotiate the route from Dieppe to Paris. A busy Champs Élysées provided the final hurdle as they coaxed aching muscles towards the ultimate destination of the Eiffel Tower. The goal was achieved and everyone arrived tired but jubilant.

The nominated charity was: The Paediatric and Intensive Care Unit of the Evelina’s Children’s Hospital

Dragon boat challenge

Dragon boats are not easy to steer or paddle. Before the 31 EDF Trading employees could even contemplate sitting on the starting line at the annual Dragon Boat race they had to put in considerable extra training to get fit for the exertions.

Held on the River Thames at Oakley Court in Surrey, the Dragon Boat race pitted teams from around the country against each other. It was hard work! The wind added to the challenge as the paddlers stretched every sinew in a frantic sprint to the finish. The three EDF Trading teams put on a great show against tough opposition and are to be highly commended for their efforts.

The nominated charity was: The Children’s Trust

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Three peaks challenge

To trek up one mountain is enough for most people. But, in 2010, 37 brave-hearted EDF Trading employees set themselves the challenge of surmounting the UK’s three highest peaks in just one day.

Starting with a climb to the top of Ben Nevis in Scotland, the teams then drove to and climbed Scafell Pike in England and finished by climbing Mount Snowdon in Wales. Fortunately the weather stayed dry, though the temperature dropped well below freezing at night. The itinerary included a journey of around 480 miles between the peaks and a cumulative total of approximately 3000 vertical meters climbed. Well done to all. Completing the course took real grit and determination.

The nominated charities were: TEST for Africa Cancer Research UK World Wildlife Fund

Open-water swimming challenge

John Rittenhouse, with three of his children, took part in the ‘Swim Across America’ 2010 charity event. Their challenge was an open-water 10K swim from Larchmont in New York to Glen Cove. The swim was tough going with the wind in their faces and the tide going out so they had a strong current to fight against. They successfully completed the swim and all made it back to land safely, albeit exhausted.

The nominated charity was: Swim Across America

Military challenge

A cold winter’s day saw 22 gallant EDF Trading employees swap their city suits for fatigues and the mud and grime of a military training course at Frant in Kent.

It was a day of two halves. In the morning, a bruising encounter with an assault course was followed by the terror, for some, of abseiling. The afternoon’s task was about teamwork and helping each other across a river using ropes and wires suspended above the water. This earned points that were exchanged for extra rope to build a raft capable of ferrying everyone back to the other side. The money raised through sponsorship was hard won and all who took part deserve praise for their achievement.

The nominated charity was: Help for Heroes

01 Three Peaks challenge

02 John Rittenhouse, Open-water swim

03 Pupils from Westminster City School / Band challenge

04 Military challenge

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58 EDF Trading Annual Review 2010 Charity fundraising

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Band challenge

Many people dream of playing in a band. For 14 EDF Trading employees, the charity task was to make such a dream come true.

Under the expert guidance of the Guildhall School of Music and Drama, the team practiced hard at Westminster City School to meld their disparate skills into a musical unit. Some played instruments, others became the backing singers and those with a good tone took lead vocals. Four very talented pupils and the head of music from the school added to the quality. On the night, in front of a packed audience at a London club, the band rocked the rafters with classics ranging from Road To Nowhere and I Feel Good through to a beautiful sultry rendition of Summertime.

The nominated charity was The Paediatric and Intensive Care Unit of the Evelina’s Children’s Hospital

To find out more about all the charities mentioned, please visit their websites:

Cancer Research UK www.cancerresearchuk.org

The Children’s Trust www.thechildrenstrust.org.uk

Help for Heroes www.helpforheroes.org.uk

Nelson Mandela Children’s Fund www.nelsonmandelachildrensfund.com

Royal National Lifeboat Institution www.rnli.org.uk

Pakistan Floods Appeal www.dec.org.uk

The Paediatric and Intensive Care Unit of the Evelina’s Children’s Hospital www.guysandstthomas.nhs.uk

Swim Across America www.swimacrossamerica.org

TEST for Africa www.testforafrica.com

World Wildlife Fund www.wwf.org.uk

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59

03

60 EDF Trading Annual Review 2010 Financial summary

Financial summary

Physical Derivatives

Total Shareholder’s Equity (�Millions)

0

250

500

750

1,00

0

1,25

0

1,50

0

1,75

0

2,00

0

2,25

0

2008

2009

2010 2,050

1,962

1,678

0

100

200

300

400

500

600

700

800

900

1,00

0

1,10

0

Profit Before Tax (�Millions)

2008

2009

2010

1,678 1,011

873

584

26617393

CO2 Certificates traded volumes (Million tonnes)

0

100

200

300

400

500

2008

2009

2010 23316568

395129266

Coal traded volumes (Million tonnes)

0

100

200

300

400

500

2008

2009

2010 412232180

369214155

419245174

Gas traded volumes (Billion therms)

0 50 100

150

2008

2009

2010 12018102

1041589

751263

Power traded volumes (TWh)

0

500

1000

1500

2000

2500

3500

3000

2008

2009

2010 232

1,6083171,291

3,307

8432,464

2,3155351,780

Oil traded volumes (Million tonnes)

0

250

500

750

1000

2008

2009

2010

4447 437

6826 676

6 807 813

156

159

10650

Freight traded volumes (Million tonnes)

0 50 100

150

200

2008

2009

2010 117

114

83

45

200

61

EDF Trading Group Balance Sheet SummaryAs at 31 December 2010 2010 2009 €’000 €’000

Tangible and intangible assets 327,715 260,782 Current assets 13,875,008 15,973,235

Current liabilities (11,449,744) (13,552,296)

Net current assets 2,425,264 2,420,939 Total assets less current liabilities 2,752,979 2,681,721

Non-current liabilities (691,176) (712,833)

Provisions (11,847) (6,584)

Net assets 2,049,956 1,962,304 Shareholder's equity 2,049,956 1,962,304

Statutory accounts The financial summaries presented above are based on IFRS accounting standards. Financial information contained in this document does not constitute statutory accounts within the meaning of section 404 of the Companies Act 2006 ("the Act"). The statutory accounts for the year ended 31 December 2010, prepared in accordance with UK GAAP, will be filed with the Registrar of Companies. The auditors have reported on these accounts; their report was unqualified and did not contain a statement under section 495 (c) of the Act.

EDF Trading Group Profit and Loss SummaryFor the year ended 31 December 2010 2010 2009 €’000 €’000

Turnover 139,949,411 139,012,330Cost of sales (139,098,601) (137,868,871)

Net trading income 850,810 1,143,459Operating costs (228,869) (223,179)

Operating profit 621,941 920,280Net interest payable (21,656) (30,761)

Depreciation and amortisation (23,351) (20,016)

Income before taxation 576,934 869,503Taxation (180,641) (234,867)

Share of profits of associates' 6,762 3,088

Net income 403,055 637,724Dividend declared (320,000) (360,000)

Retained profit carried forward 83,055 277,724

62

Executive Committee

John Rittenhouse is Chief Executive of EDF Trading. Supported by the executive team, he is responsible for the development and implementation of EDF Trading’s strategy. Prior to his appointment as Chief Executive in July 2008, he has held the roles of Managing Director and Chief Financial Officer. He joined the EDF Trading Board of Directors in April 2006. John has an MBA from Fordham University and is a Certified Public Accountant.


Béatrice Bigois is Chief Financial Officer, a role she assumed in September 2008. She joined EDF Trading in 2006 to set up and run its Paris office. Prior to that, she was at EDF Group who she joined in 1994. Béatrice joined the EDF Trading Board of Directors in September 2008. Béatrice has held a number of roles in the Finance Department, Risk Management and Asset Optimisation at both EDF and EDF Energy. She graduated from Ecole Polytechnique and Ecole Nationale des Ponts et Chaussees, where she specialised in Applied Mathematics and Economics.

Béatrice BigoisChief Financial Officer

Justin Rowland is Chief Operating Officer for EDF Trading. He joined in May 2001 as Head of Risk Management and succeeded John Rittenhouse as Chief Financial Officer in April 2005. He became COO in September 2008. In January 2010 Justin took on the additional responsibility of Head of Front Office Risk Management. He has a first class BEng in Aeronautics from Imperial College and is a Chartered Accountant.

Justin RowlandChief Operating Officer

EDF Trading Annual Review 2010 Executive Committee

63

Robert Quick is the General Counsel and Head of Compliance for EDF Trading. He joined in January 2002 as Assistant General Counsel and became General Counsel in May 2005. In April 2010 Robert took on the additional responsibility of Managing Director of EDF Trading North America, based in Houston. He relocated back to London in March 2011. He is a graduate of Pembroke College, Cambridge and is a solicitor.

Robert QuickGeneral Counsel

Emmanuel Deutsch joined EDF Trading and the executive team in September 2007 as Head of Group Integration and Synergies. He is responsible for building EDF Trading’s relationship with the EDF Group and for developing trading and risk management services in order to realise synergies with other EDF companies. Emmanuel has held a number of roles within EDF. He joined the Research and Development team in 1991 and in 1998 moved to the marketing division where he was responsible for structuring and pricing end-user contracts in the deregulated market. He was appointed Head of Group Energy Market Risk Control in 2002. He has a PhD in physics.

Emmanuel Deutsch Head of Group Integration and Synergies

Philipp Büssenschütt is Global Head of Origination. He joined EDF Trading in March 2002 and in February 2009 moved to Houston as Head of Origination and Business Development for EDF Trading North America. He was appointed to the Executive Committee and his current role in January 2010. Prior to that, he worked in private equity and at Enron Europe in natural gas and electricity. Philipp has an MSc in mining engineering and is a Chartered Financial Analyst.

Philipp BüssenschüttGlobal Head of Origination

64

Board of Directors

Pierre Lederer Chairman, EDF Trading Board Group Senior Executive Vice President Customers, Optimisation and Trading, EDF

Gérard Wolf Senior Executive Vice President International Development, EDF

Philippe Torrion Vice Chairman, EDF Trading Board Executive Vice President, Optimisation and Trading, EDF

Marianne Laigneau Group Senior Executive Vice President Human Resources, EDF

Bruno Lescoeur Senior Executive Vice President Gas and Southern Europe, EDF

EDF Trading Annual Review 2010 Board of Directors

65

Stéphane Tortajada Group Head of Finance and Investments, EDF

Bénédicte Gendry General Counsel International, EDF

Béatrice Bigois Chief Financial Officer, EDF Trading

Martin Lawrence Managing Director, Energy Sourcing and Customers Supply, EDF Energy

John Rittenhouse Chief Executive, EDF Trading

66

www.edftrading.comwww.edftrading.com

Images on back cover:

Gas storage project, Germany

LNG tanker. Photo by Neil Doyle, MNI, Deep Sea & Coastal Pilots

EDF Trading's Hole House gas storage facility, UK

EDF Trading Markets LimitedArranger for EDF Trading, authorised and regulated by the Financial Services Authority as an Energy Market Participant

EDF TRADING 80 Victoria StreetCardinal Place, 3rd FloorLondon SW1E 5JLUnited Kingdom

tel +44 (0) 20 7061 4000fax +44 (0) 20 7061 5000www.edftrading.com

edf trading pdf version of 2010 annual review dokga

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