8.1 Risk management process
Energie AG is faced with a number of uncertainties in the context of current developments in the energy sector and the associated challenges, including volatile price trends and political changes. The aim of the risk management process is to identify these risks and opportunities at an early stage, to evaluate them and to implement suitable measures in order to minimise the risks and take advantage of opportunities. As an integral part of the management and control system, these risk assessments have a significant influence on the strategic and operational decision-making process of our management team.
To support this process, Energie AG’s approach to risk management follows the established COSO II framework, which is recognised as an international standard for risk management across the Group. The responsible business units follow a structured quarterly process to identify and evaluate the risks, opportunities and necessary measures, using a central management system in the process. The data collected is then analysed on Group-level and incorporated into Energie AG’s overall risk position.
Reporting to the Group Management Board takes place quarterly and, if necessary, on an ad hoc basis, with the risk management report forming an integral part of the Supervisory Board’s reporting. It is also submitted to the Audit Committee in accordance with the requirements of the Company Law Amendment Act (URÄG) in order to ensure the efficiency and validity of the processes. The central management system assures proper documentation and traceability of these processes.
8.2 Significant opportunities (+) | risks (-) 1) and measures
STRATEGIC OPPORTUNITIES | RISKS
+|− Strategic opportunities | risks due to
- Changes in general climatic conditions
- Extreme events and their consequences (periods of heat | drought, flooding, storms, hail, forest fires, avalanches)
- Long-term changes in climatic and ecological conditions (precipitation frequency/volume, increase in average temperatures)
- Changes in the general energy policy and energy market environment
- Changes in technological developments, in the market environment, in customer needs …
Measures:
- Continuous intensive monitoring of energy policy developments, markets, competitors, customers, the climate and technologies
- Participation in research projects, …
- Early and intensive monitoring of strategic opportunities | risks
VALUE OF ASSETS – OPPORTUNITIES | RISKS
- Appreciation and depreciation/amortisation of assets, procurement rights, investments
- Allowances for receivables
- Creation of provisions for impending losses
Measures:
- Ongoing monitoring, sensitivity analyses
- Long-term contracts
- Counterparty risk management
PROJECT OPPORTUNITIES | RISKS
- High, long-term investment costs, projects with a high level of complexity
- Underruns and overshooting of the planned values in terms of timing schedule, project costs and quality
- (Energy) policy uncertainty
Measures:
- Project management
- Risk management methods in the entire project cycle
- Optimised contract arrangements
SUSTAINABILITY OPPORTUNITIES | RISKS
In the medium term – in our 5-year planning horizon – we assume that climate-related opportunities | risks will remain within the statistical range of the past few years, and these have been taken into account in our (opportunities | risks) scenarios.
Potential long-term climate-related risks and opportunities beyond this have been taken into account in strategic decision-making.
Environmental, social and governance (ESG) aspects are becoming increasingly important factors in the risk management process.
MARKET AND COMPETITION RISKS
+|− Market price changes
(electricity, gas, biomass and CO2 emissions allowances prices)
Measures:
- Bundled management of commodity price risks by Energie AG Oberösterreich Trading GmbH
- Risk strategies geared for the market environment
- Leveraging of internal synergies within the Group
+|− Electricity generated from hydroelectric power
influenced by development of weather/climate
Measures:
- Optimised management of generation portfolio
+|- Electricity production from thermal power plants
Measures:
- Bundled management of commodity price risks by Energie AG Trading
- Long-term contracts
- Leveraging of internal synergies within the Group
- Risk strategies geared for the market environment
+|− Electricity, gas, heat and telecommunications services sales volumes
influenced by development of weather/climate, competition, economy, policy, ...
Measures:
- Bundling of sales organisations
- Price guarantee
- Service and subsidy offerings
- Focus on digitalisation
- Positioning as an energy service provider
+|- Market price and volume changes in waste management
Recycling materials, industrial waste, domestic waste, delivery prices, thermal, …
- Increased competition from pretreatment plants and industrial co-incinerators
- Increased re-municipalisation efforts of municipal waste management associations
Measures:
- Long-term indexed contracts with defined delivery volumes and prices
- Focused market activities
- Intensification of cooperation with the public sector
- Further development of the digitalisation projects
+|- Contractual losses|gains and contract changes in the water|wastewater sector
Measures:
- Synergy projects
- Ongoing participation in (concession) tenders
OPPORTUNITIES | RISKS FROM BUSINESS OPERATIONS
- Facility risks
Impairment of the availability of facilities due to
- Technical malfunctions, sabotage, …
- Natural disasters such as storms, flooding, …
Measures:
- Maintenance and quality controls
- Optimised maintenance strategy
- Structural (flood) protection measures
- Strategy programmes “Replacing overhead medium-voltage lines that are particularly susceptible to disruption with underground cable”,
“Replacing low-voltage lines”, consistent expansion of grid automation - Crisis and contingency management
- Insurance
+|− Physical weather risks
such as periods of heat|drought, flooding, storms, hail, forest fires, avalanches and their impact on third parties
Measures:
- Structural (flood) protection measures
- Strategy programmes “Replacing overhead medium-voltage lines that are particularly susceptible to disruption with underground cable”,
“Replacing low-voltage lines”,
consistent expansion of grid automation - Crisis and contingency management
- Insurance
- Risks from information security, cyber-security and data protection
Measures:
- Optimised insurance strategy
- Comprehensive technical measures
- Management systems for information security and data protection
- Personnel risks
- Health and safety risks for company staff and temporary employees
- Loss of expertise and practical knowledge
Measures:
- Safety training courses for employees
- In-house health management project energy@work
- Apprenticeship|trainee programmes
- “Human Resource Management”, “Management by Objectives” and “Management Academy” Group policies
POLITICAL, REGULATORY AND STATUTORY OPPORTUNITIES | RISKS
+|− Changes in the statutory environment
for the electricity and gas grids
Measures:
- Intensive and constructive dialog with the regulatory authorities
- Cooperation with interest groups
+|- Legal risks
from pending legal disputes
Measures:
- Legal support
- Provisions in the balance sheet
- Out-of-court settlements
+|- Political and statutory environment
- EU climate policy provisions and their implementation in Austria
- Statutory environment for project development and implementation
- Changes to subsidy regime
Measures:
- Intensive and constructive dialog with authorities and politicians
- Cooperation with interest groups
COMPLIANCE RISKS AND DATA PROTECTION INFRINGEMENTS
- Compliance risks
- Antitrust and corruption risks
- Financial market compliance
Measures:
- Group policies “Compliance Management System” and “Anti-Corruption”, “Handling on Insider Information”, “ICT Information Security Management”
- In-person training and e-learning courses
- Data protection infringements
- Accidental or unlawful destruction, loss, alteration or disclosure of data
- Hacker attack
Measures:
- Group policies “Data Protection Management System” and “Data Protection Compliance Policy”
- In-person training and e-learning courses
FINANCIAL RISKS
+|- Changes in interest rates
Measures:
- Long-term fixed interest agreements
+|- Foreign exchange risk
Primarily from the transaction and translation risks of the Czech Group companies
Measures:
- Ongoing monitoring
- Currency hedging, where necessary
+|- Prices changes in financial assets (securities, funds)
resulting from fluctuations in market value on the capital markets
Measures:
- Conservative Investment Policy
- Consistent monitoring
- On-going quantification of share price risks
+|- Rating change
relates to lower| higher refinancing costs
Measures:
- The management of Energie AG continues to seek to maintain Energie AG's Single A credit rating in the long term
- Ensuring compliance with the required key financial performance indicators
+|- Opportunities|Risks from investments in other companies
- Fluctuations in the returns on investments
- Fluctuations in dividends received
Measures:
- Ongoing monitoring
- Representation on boards of the subsidiaries
+|- Changes in the discount rate for provisions
The present value of provisions decreases at a higher discount rate and increases at a lower discount rate
Measures:
- Ongoing monitoring
- Counterparty risks
Complete or partial failure of counterparties
Measures:
- Ongoing monitoring
- Credit limit systems
- Hedging instruments
- targeted strategy of diversification of business partners
- Liquidity risk
Measures:
- Centralised, forward-looking liquidity planning
- Sufficient liquidity reserves
- Open, partially committed credit lines
1)
1)
Risk|opportunities, definition:
- A risk is the possibility of an event occurring which has a negative impact on targets (EBT, EBIT, cash flow)
- An opportunity is the possibility of an event occurring which has a positive impact on targets (EBT, EBIT, cash flow)