STRATEGY

RISK MANAGEMENT
RISK MANAGEMENT

In line with EDPR’s controlled risk profile, Risk Management process defines the mechanisms for evaluation and management of risks and opportunities impacting the business, increasing the likelihood of the company in achieving its financial targets, while minimizing fluctuations of results.

RISK MANAGEMENT PROCESS

EDPR’s Enterprise Risk Management Process is an integrated and transversal management model that ensures the minimization of the effects of risk on EDPR’s capital and earnings, as well as the implementation of best practices of Corporate Governance and transparency. The process aligns EDPR’s risk exposure with the company’s desired risk profile. Risk management policies are aimed to mitigate risks, without ignoring potential opportunities, thus, optimizing return versus risk exposure.

The process is closely followed and supervised by the Audit and Control Committee, an independent supervisory body composed of non-executive members.

Risk management is endorsed by the Executive Committee, supported by the Risk Committee and implemented in day- to-day decisions by all managers of the company.

EDPR created three distinct meetings of the Risk Committee in order to help decision-making, separating discussions on execution of mitigation strategies, from those on the definition of new policies:

  • RESTRICTED RISK COMMITTEE: Held every month, it is mainly focused on development risk and market risk from electricity price (market, basis, profile, GCs and RECs). It is the forum to discuss the evolution of projects under development and construction and the execution of mitigation strategies to reduce merchant exposure. It also monitors the limits of defined risk policies, with regards to counterparty risk, operational risk and country risk.
  • FINANCIAL RISK COMMITTEE: Held every quarter, it is held to review main financial risks and discuss the execution of mitigation strategies. Exchange rate risk, interest rate risk and credit risk from financial counterparties are most relevant risk reviewed in this committee.
  • RISK COMMITTEE: Held every quarter, it is the forum where new strategic analyses are discussed and new policies are proposed for approval to the Executive Committee. Additionally, EDPR’s overall risk position is reviewed, together with EBITDA@Risk and Net Income@Risk.

RISK MAP AT EDPR

Risk Management at EDPR is focused on covering all risks of the company. In order to have a holistic view, they are classified in five Risk Categories.

Within each Risk Category, risks are classified in Risk Groups. The full description of the risks and how they are managed can be found in the Corporate Governance chapter. The graph below summarizes the Risk Categories, the Risk Groups and the Risk Management mitigation strategies at EDPR.

EDPR RISK MATRIX BY RISK CATEGORY

EDPR Risk Matrix is a qualitative assessment of likelihood and impact of the different risk categories within the company. It is dynamic and it depends on market conditions and future internal expectations.

FOCUS ON MARKET RISK IN US MARKETS

EDPR has some merchant exposure in some US windfarms. This risk is mitigated through hedging the three components of locational marginal prices (LMP), namely energy price, congestion cost and transmission losses.

The most volatile risk factor is the energy price, followed by congestion cost and transmission losses. The hedging strategy will depend on the exposure of each wind farm, as well as on the liquidity of the hedging instruments.