Cloudberry Annual report 2022 Financial statements 112 on meteorological conditions, CO2 pricing and other supply and demand factors going into the clearing of the market price of electricity. Further, massive climate goal subsidy schemes may put downward pressure on revenues (i.e. electricity prices) of non-subsidized existing assets. The Group considers subsidized offshore wind power as the most likely threat. As sale of electricity constitutes a material share of the Group’s revenues, the price risks related to electricity prices could result in reduced revenue and profitability for the Group and also reduce the fair market value of the Group’s assets. Electricity price risks are mainly hedged by entering into exchange traded electricity derivatives contracts (NordPool/Nasdaq OMX Commodities), as well as derivative contracts directly with industry counterparties (bilateral contracts). The Group’s hedging strategies are continuously evaluated as electricity market prices, the hydrological balance and other relevant parameters change. For further information on hedging and outstanding derivative contracts see details under note 10 Hedge accounting. Sensitivity analysis The table below is calculated based on the Group’s electricity position (i.e. derivatives) as of 31 December and illustrates the potential impact on the income statement and equity. The sensitivity analysis includes only the market risks arising from derivatives i.e. the underlying physical electricity sales and purchases are not included. The analysis is based on the assumption that the forward price quotations of electricity would change +/-10%, flat in the time period that the Group is exposed with PPA’s, with all other variables held constant. The sensitivity is what management assumes may be a reasonable change: +10% change in electricity forward price quatations 2022 2021 Effect on profit before income tax (2) - Effect on equity (5) - -10% change in electricity forward price quatations 2022 2021 Effect on profit before income tax 2 - Effect on equity 5 - Inflation risk does not have a direct impact on the Groups financial position, but inflation and related price risk may have an adverse impact on Group’s projects under development, accounted as inventory. The Group’s development projects are capital intensive and increasing commodity prices will result in higher capital expenditures to develop and construct the projects (i.e. due to higher construction costs and turbine costs). High inflation may carve out the value of the expected cash flows from the Group’s development projects relative to the up-front investments. Further, high inflation is expected to lead to higher short and long-term interest rates, affecting the financial costs for the Group’s development projects. These factors and uncertainties may result in lower expected profitability from projects under development and ultimately that projects under development are postponed or abandoned leading to an impairment loss. On the opposite high inflation may be caused by higher energy prices, and thus power prices which can act as a counterweight to the risk. War in Ukraine On 24 of February 2022 Russia attacked Ukraine thereby started a war that has been lasting for more than a year. The invasion has resulted in severe implications on global trade, global markets, energy prices and commodity prices. During 2022, Europe, and the Nordics, saw record high power prices, primarily driven by soaring gas prices after European gas imports from Russia ended. The intermediate danger of a European gas shortage has since been reduced, and power prices has dropped significantly, albeit to still historically high levels. As the Group primarily sells its electricity in the spot market, the war’s effect on energy prices have, and will continue to have, a significant impact on the Group’s revenues. Further, there may be implications on the global trade, and transportation costs and/or higher commodity prices may increase the cost of the Group’s construction projects. It is still highly uncertain how the conflict will evolve and how it will continue to have an impact on the global economy going forward. The Group continues to assess the risk related to the volatility on the energy prices, and implications caused by the war in detail going forward.
RkJQdWJsaXNoZXIy NTYyMDE=