Cloudberry Clean Energy Annual report 2020

Cloudberry Annual report 2020 Financial statements 76 · Payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect adjustments in lease payments due to an adjustment in an index or rate. The Group does not include variable lease payments in the lease liability arising from future events, such as lease payments which depend on production vol- ume. Instead, the Group recognises these variable lease expenses in profit or loss, se under description of water right lease agreement. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease, i.e. the date the underlying asset is available for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Water right lease agreements Cloudberry enters into water-right lease agree- ments with owners of water rights, which entitles the company to utilise the water in the rivers. The agreements typically have a period varying from 40 to 100 years, starting when the power plant is put into commercial operation. The agreement with the owners of the water rights has a variable payment depending on the gross revenue of the power plant and is typically around 10% of the gross revenue. In certain agreements the variable payment depends on the net profit of the power plant (not the gross revenue). In these cases, Cloudberry is secured a minimum return on the investment (typically 4 – 7% p.a.) before owners of the water rights are compensated. Excess return above this minimum return is then split between the owners of the water rights and Cloudberry. When Cloudberry has a commitment to pay rent to the owners of the water rights, we account for this as a regular cost as the commitment arises. Upon expiration of the agreement the owners have the right to purchase the power plant with all rights and technical installations at a price based on certain specific conditions. Land lease agreements for construction of wind farms Cloudberry enters into lease agreements with land- owners, which entitles the company to utilise the land for construction of wind farms. The agreement typically has a period varying from 25 to 35 years dependent on the concession period, starting when the power plant is put into commercial operation. The typical agreement with the landowners has a variable payment depending on the gross revenue of the power plant (around 4%). When Cloudberry has a commitment to pay rent to the landowners, we account for this as a regular cost as the commit- ment arises. Fixed amount- agreement: In certain cases, Cloudberry can be obligated to pay landowner a fixed annual amount, in such cases it may be accounted according to IFRS 16 lease agreement. For Cloudberry these amounts are insignificant and are accounted annually as lease payment. Upon expiration of the agreement the landowner has the right to purchase the powerplant with all rights and technical installations at a price based on book value at the end of the lease agreement. Financial instruments Financial instruments are recognised in the finan- cial statements when the Group becomes party to contractual conditions relating to the financial instrument. Financial assets and financial liabilities are classified based on the type and purpose for holding the instruments at fair value, amortised cost or as a designated hedge accounting instrument (e.g. derivatives used for hedging financial risks). Financial assets The group classifies its financial assets in the follow- ing measurement categories: · those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss), and · those to be measured at amortised cost