Athena’s risk profile has changed significantly during 2019. Following the sale of the majority of the operating wind and solar assets in Italy and Spain, the Company has reduced its risk exposure from a geo-political, operational and financial perspective. The remaining renewable portfolio is located in Italy and maintains diversification within 2 different technologies.
The overall risk categories related to Athena’s business activities are presented below. The list is not exhaustive and categories are not presented in order of priority or significance:
- Weather conditions
- Mechanical operation
- Credit related to the off-taker
- Variation in energy price
- Human capital
- Interest rate evolution
- Exchange rate evolution
- Project financing
Risks may have substantial impact on a company’s earnings, financial positiRisks may have substantial impact on a company’s earnings, financial position and achievements of other objectives. Presented below are some operating risks assessed by Athena as inherent to the business (weather conditions) or actualised in the recent past (political risks related to regulatory changes of economic regimes and subsidies as well as variations in energy prices).
Athena’s operational activities are, inevitably, exposed to variations in weather conditions, which may impact the production and ultimately the earnings of each plant. Athena’s activities within complementary technologies reduces this risk. In addition, in order to minimise the risks related to the business forecasts, Athena only applies a realistic approach in terms of wind conditions and irradiation when forecasting the production.
In the past, Athena has been exposed to a number of regulatory changes regarding subsidies and settlement terms of renewable energy projects in the Company’s markets Italy and Spain. With retroactive replacement of the support scheme applicable to renewable energy generation, tax measures, elimination of minimum guaranteed prices and changes in feed-in tariffs, Athena’s profitability has been negatively impacted by a number of factors with limited possibilities of counteracting. To mitigate the negative consequences of the changes, in 2015, Athena initiated two arbitration procedures under the Energy Charter Treaty against respectively the Republic of Italy and the Kingdom of Spain. The Company was granted the final awards for the arbitrations against the Kingdom of Spain in November 2018 and against the Republic of Italy in December 2018 with a very positive outcome. Both Countries have commenced an action with the SVEA Court of Appeal in order to overturn the awards, and Athena is currently challenging such appeals. In the proceedings between Spain and Athena, the SVEA Court is considering whether referral to the EU Court of Justice is necessary, which, in such case, may result in a further delay in the appeal decision. Nonetheless, the Company has started the confirmation procedure of the Awards according to the 1958 New York Convention for its further enforcement. Potential further regulatory changes or variations in settlement terms or prices in Athena’s market may affect the Company’s projects.
In addition to regulatory changes of the support regime settlement, the evolution of the market price of energy may affect the Company’s financial results. Athena carefully monitors the price trend and acquires qualified forecasts on a regular basis in order to align forecast data to market ones.
The production of energy is a capital intense business requiring financing provided largely by credit institutions. Therefore, the optimisation of the capital structure of the Company is a key element of the overall performance of the business. For each project, the Company makes an assessment of the maximum leverage to obtain from the credit institutions subject to the performance of the project. The higher the leverage, the higher the internal rate of return of each project. But an excessive leverage could also lead to a breach of covenants or a reduced cash flow to the shareholder when the performance of the project is affected by operating risks such as poor weather conditions or a decrease in energy price. Athena has a number of existing material financing contracts which could impact the transferability in the event of a takeover. A change in ownership and control on the project companies could impact the current financing agreements. A potential new owner should be accepted by the financing parties in order to avoid the anticipated reimbursement of the outstanding debt. Should the potential owner neither be accepted by the current financing parties nor be able to find new financing parties, the ownership of the assets would be transferred to the current financing parties.