Risk management
Risks are inherent to any business activity. Through constant monitoring, data collection, analysis and reporting, a structured risk management approach is applied with the aim of reducing risks to an acceptable level.
Risks related to current activities
Through geographical diversification with operations in two countries and diversification within 2 different technologies, Athena seeks to manage the overall and particular risks in order to reduce the uncertainty related to any potential issue in a specific market or technology.
The overall risk categories related to Athena’s current business activities are presented in the table aside. The list is not exhaustive and categories are not presented in order of priority or significance:
Operating risks
- Weather conditions
- Mechanical operation
- Credit related to the off-taker
- Regulatory
- Variation in energy price
Acquisition risks
- Access to and possibility of information verification
- Regulatory requirements
- Possibility of transfer of rights/financing
- Determination of acquisition price and price structure
- Expenses incurred for acquisition activities
General risks
- Human capital
- Interest rate evolution
- Exchange rate evolution
- Insurance
- Project financing
Risks 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 actual 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).
Weather conditions
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.
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.
Regulatory
In recent years, Athena has been exposed to a number of regulatory changes regarding subsidies and settlement terms of renewable energy projects in the Company’s primary 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 feedin 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. In November 2018, the Company was granted the final award for the arbitration against the Kingdom of Spain with a very positive outcome (see Company Announcement No. 17/2018) and it is currently challenging the appeal. The Kingdom of Spain has commenced an action with the SVEA Court of Appeal in order to overturn the Award.
In December 2018, the Company was granted the final award for the arbitration against the Republic of Italy with a very positive outcome (see Company Announcement No. 21/2018). As the Republic of Italy hasn’t voluntarily complied with the Award, the Company is currently filing the Petition to Confirm it.
In recent years, Athena has been exposed to a number of regulatory changes regarding subsidies and settlement terms of renewable energy projects in the Company’s primary 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 feedin 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. In November 2018, the Company was granted the final award for the arbitration against the Kingdom of Spain with a very positive outcome (see Company Announcement No. 17/2018) and it is currently challenging the appeal. The Kingdom of Spain has commenced an action with the SVEA Court of Appeal in order to overturn the Award.
In December 2018, the Company was granted the final award for the arbitration against the Republic of Italy with a very positive outcome (see Company Announcement No. 21/2018). As the Republic of Italy hasn’t voluntarily complied with the Award, the Company is currently filing the Petition to Confirm it.
Potential further regulatory changes or variations in settlement terms or prices in Athena’s markets may affect the Company’s projects.
Variation in energy price
In addition to regulatory changes of the support regime settlement, the evolution of the market price of energy may affect the Company’s revenue. In 2018, energy prices were generally at an unexpectedly higher level than anticipated in Spain and especially in Italy, a trend in line with 2017. Athena carefully monitors the price trend and acquires qualified forecasts on a regular basis in order to anticipate align forecast data to market ones.
In addition to regulatory changes of the support regime settlement, the evolution of the market price of energy may affect the Company’s revenue. In 2018, energy prices were generally at an unexpectedly higher level than anticipated in Spain and especially in Italy, a trend in line with 2017. Athena carefully monitors the price trend and acquires qualified forecasts on a regular basis in order to anticipate align forecast data to market ones.
Project financing
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.
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.
Risks related to potential future activities
In December 2017, the Company changed its name and objects with the aim of diversifying the business activities while also limiting the risk exposure through focus on investments in segments or sectors less capital-intensive compared to renewable energy production. The future risk profile of Athena will depend on the actual future activities; however, it is a clear priority of the Company to preserve a balanced risk exposure to ensure long-term value creation and stable growth. For further disclosure on Risk Management, please refer to Note 3 of the Financial Statements.