113 Cloudberry Annual report 2022 Financial statements Note 7 Commercial and operational risks Risks related to changes in laws and regulations Changes in laws and regulations may affect the Group’s operations, increase the Group’s operating costs, and reduce demand for its services. It could also increase compliance costs, mandate significant and costly changes to the way the Group implements its services and solutions and threaten the Group’s ability to continue to serve certain markets. For some small-scale power plants and large-scale power plants, license fees and concessionary power must be paid or transferred to the municipality, county, or state. Often, such power plants must deliver 10-15% of their power production as concessionary power. The power plant must in such cases sell the concession power at the expected “cost price”. These are changes in regulations that would affect the Group’s profitability. Changes in tax laws of any jurisdiction in which the Group operates, or any failure to comply with applicable tax legislation, may have a material adverse effect for the Group. The Group is subject to prevailing tax legislation, treaties and regulations in the jurisdictions in which it is operating, and the interpretation and enforcement thereof. The Group’s income tax expenses are based upon its interpretation of the tax laws in effect at the time that the expense is incurred. If applicable laws, treaties or regulations change, or if the Group’s interpretation of the tax laws is at variance with the interpretation of the same tax laws by tax authorities, this could have a material adverse effect on the Group’s business, results of operations or financial condition. In September 2022, the Norwegian government proposed several tax changes, which are not yet finally voted in Parliament. The tax changes may have effect of the Groups assets, the details of the proposals and the effects are described further under note 19 Impairment. Operational risks Power plants are highly technical Investments in power generation and energy-related infrastructure involve technical and operational risks. The Group will seek to invest in power plants of expected good technical standard to reduce the technical risk of the investment. The Group will prioritize technical solutions that are well-proven and delivered by reputable suppliers, so that any repairs can be made within reasonable timeframes and at reasonable cost, and to achieve attractive insurance terms. Despite the aim of choosing sound solutions, technical problems may occur meaning possible stops in production or costly reinvestments that reduce the Group’s profitability and/or financial position. Risks related to costs of transmission and distribution Increases in charges relating to the connection to and use of the electricity transmission and distribution networks and relating to balancing of electricity supply and demand, and/or restrictions on the capacity in such networks available for use by the Group’s power plants, may result in higher operating costs, lower revenues and fewer opportunities for growth. Risks related to development projects For the development projects, there are project related risks with regards to reaching final investment decision. The Group must inter alia negotiate and conclude agreements related to construction, maintenance and operations of the plants, obtain financing and secure the necessary grid capacity and permits. If the Group fails to realize all or some of the development projects, the Group may have to write off the investments made into the project(s). Risks related to construction projects For projects under construction, both current and future, the construction phase is linked to risk of overruns and delays. The construction of power plants differs from project to project, and several aspects may cause delays or budget overruns. During construction of wind farms, challenges related to foundations or roads may lead to delays, or heavy winds may delay the installations of the turbines. Distress in the global supply chain may delay certain components and increase cost. Drilling of waterways for hydro power plants may cause delays if the bedrock proves more challenging than expected, and delay of critical components may cause delays to the project, and subsequently cost overruns.
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