Risk management

 

RISK MANAGEMENT

Consistent with the “controlled risk profile” strategic pillar, EDPR has implemented mechanisms of evaluation and
management of risks and opportunities that may impact its business, enabling the company to increase the likelihood of achieving its financial targets.

Risk Management Process

EDPR’s risk management processes are supported on an integrated and transversal management model that ensures
the implementation of best practices of Corporate Governance and transparency in the communication to the market and shareholders. This 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 directly by the Risk Committee and put into practice by all managers of the company. This integrated process ensures the identification and prioritization of critical risks, the development of adequate risk management strategies, and the implementation of controls in order to ensure the alignment of EDPR’s risk exposure with the company’s desired risk profile.

Focus on ebitda at risk
WhaT is ebiTda aT risk?
EBITDA at risk is used in EDPR to measure the maximum EBITDA loss associated with a certain statistical confidence level. This metric allows for Management and risk managers to understand what the EBITDA would be in adverse and worst case scenarios.

EBI TDA at Risk in EDPR

In line with EDPR’s controlled risk approach, Management sets targets for EBITDA at Risk, hence ensuring that the business is exposed to a limited risk level. This approach increases the likelihood of achieving our financial targets.
One of the levers for reducing EBITDA at risk is eliminating merchant exposure through power purchase agreements and energy hedges. EDPR is actively managing its merchant exposure in order to keep EBITDA at risk within the conservative levels defined by Management.
EDPR follows EBITDA at Risk position monthly based on forecasts for market prices, foreign exchanges, wind resource and other volatile factors.

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Risk management process at EDPR

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EDPR’s Risk Committee intends to be the forum to discuss how EDPR can optimize its risk-return position according to its risk profile. The Committee integrates and coordinates all the risk functions and assures the link between risk strategy and the company’s operations.

The responsibilities of the committee are:
• To analyze EDPR’s overall exposures and propose actions;
• To follow-up on the effectiveness of the mitigation actions;
• To review transactional limits, risk policies and macro- strategies;
• To review reports and significant findings of the risk profiler analysis and the risk control areas;
• To review the scope of the work of the risk profiler and its planned activities.

Risk committee functions are the following:

Risk profiler – Responsible for setting guidelines and limits for risk management within the company and for holding the Risk Committee;
Risk manager – Responsible for day-to-day operational decisions and for taking or mitigating risks within approved levels;
Risk controller – Responsible for follow up of the result of risk taking decisions and for contrasting alignment of operations with general policy approved by the board.

Risk areas and main risk factors

Along the entire business cycle, major strategic questions are raised and grouped by risk area. Each strategic question is subject to EDPR’s risk process analysis in order to produce specific guidelines to risk managers.

After a detailed analysis of EDPR´s risk exposure throughout wind energy business cycle, the following risk areas and risk factors were identified. The following matrix summarizes the main risk areas and risk factors of EDPR’s business and the tools employed to manage them. Additionally, the table defines the risk mitigating actions in 2012 and structural competitive advantages of EDPR that help in risk mitigation. The full description of the risks and how they are managed can be found in the Corporate Governance chapter.

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