111 Cloudberry Annual report 2022 Financial statements Key risks and financial instruments Through its business activities, the Group is exposed to various risks and has engaged in various financial instruments. This section outlines the key risks and management activities undertaken to manage the Group’s exposure to financial and other risks. The Group focuses on the following risk categories: stratgic risk, market/external risk, operational risks, financial and ESG risks. Guidelines for risk management and strategy for handling and using financial instruments as a part of the business activities and handling risks have been approved by the Board of Directors. The Group’s overall risk management programme seeks to minimize the potential for adverse effects on the Groups performance. The Group uses derivative financial instruments to hedge certain risk exposures. For full disclosure of the Group’s ESG risk reporting see also the Groups sustainability report for 2022. Note 6 Market related risks Political and regulatory risk The power industry is a highly regulated sector and thus subject to political risk The power industry is publicly regulated, and regulations may change over time. Thus, there is political risk of investments in the renewable and infrastructure industries in the Nordic countries. The guarantee of origin scheme is subject to political risk In accordance with EU legislation, power plants in the EEA may get approval for guarantees of origin for five years at a time. Energy suppliers may buy such guarantees of origin from the power producer in order to guarantee its customers that the delivered energy is produced from renewable sources. The relevance of the latest revision of the current European Renewable Energy Directive is currently being assessed by the EEA/EFTA. The revision seems to extend the guarantee of origin scheme, although no decision has been made. The future of the scheme is thus subject to political risk. The renewable sector is still under development Unexpected success in other areas of renewable energy may reduce the pressure on the authorities to allow for development of wind parks and hydropower plants. This may affect the Group’s future investment opportunities and reduce the second-hand value of its power plants. The same may also hold true for non-renewable or currently unknown energy technologies. The uncertainties associated with the development of the renewable sector, as well as the emergence of other technologies, are factors which could adversely affect the Group’s business and growth opportunities. Risks related to new sustainability regulations All industries must expect stricter laws and regulations related to sustainability in the years to come. This is based on the fact that financial markets, creditors and investors need consistent, comparable and high-quality information on the impacts of environment and climate change on businesses. The Task Force on Climate-related Financial Disclosure (TCFD) developed recommendations to improve and standardize the reporting of climate-related financial information and to enhance market transparency and stability. Further, mandatory, or voluntary reporting requirements are likely to continue to come as this is a field in fast change. Price risk The profitability of the Group’s producing power plants depends on the volume and relevant price of the electricity produced. The majority of the Group’s sale will be exposed to price risk related to electricity sold at spot rates. The Group’s production volume sold in the spot market is consequently exposed to fluctuations in the market prices for electricity, unless new fixed terms agreements are entered into. Electricity prices are inter alia dependent on substitute or adjacent commodity prices such as e.g. oil, gas and coal prices, but also dependent
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