This annual report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, is anticipated, likely to, believe,
will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict, aim and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Such statements
occur throughout this annual report and include statements with respect to our strategy, including the development and construction of new assets, expected trends and outlook, electricity prices, potential market and currency fluctuations,
occurrence and effects of certain trigger and conversion events, our capital requirements, changes in market price of our shares, future regulatory requirements, the ability to identify and/or make future investments and acquisitions on
favorable terms, ability to capture growth opportunities, organic growth, reputational risks, divergence of interests between our company and that of our largest shareholder, tax and insurance implications, and more. Forward-looking statements
involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, important factors included in Part I, of “Item 3.D. Risk Factors” (in addition to any
assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on our operations and financial results, and could cause our actual results, performance or
achievements, to differ materially from the future results, performance or achievements expressed or implied in forward-looking statements made by us or on our behalf in this annual report, in presentations, on our website, in response to
questions or otherwise. These forward-looking statements include, but are not limited to, statements relating to:
| • |
the condition of, and changes in, the debt and equity capital markets and other traditional liquidity sources and our ability to borrow additional funds, refinance existing debt and access capital
markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness going forward;
|
| • |
our plans relating to our financings, including refinancing plans;
|
| • |
the ability of our assets to serve our project debt and comply with financial or other covenants on their terms, including but not limited to our projects debts in Chile, and our ability to serve our
corporate debt;
|
| • |
the ability of our counterparties, including Pemex, to satisfy their financial commitments or business obligations and our ability to seek new counterparties in a competitive market;
|
| • |
government regulation, including compliance with regulatory and permit requirements and changes in market rules, rates, tariffs, environmental laws and policies affecting renewable energy, including the
IRA and recent changes in regulation defining the remuneration of our solar assets in Spain;
|
| • |
changes in tax laws and regulations, including the new legislation on restrictions to tax deductibility in Spain;
|
| • |
risks relating to our activities in areas subject to economic, social and political uncertainties;
|
| • |
global recession risks, volatility in the financial markets, an inflationary environment, increases in interest rates and supply chain issues, and the related increases in prices of materials, labor,
services and other costs and expenses required to operate our business;
|
| • |
risks related to our ability to capture growth opportunities, develop, build and complete projects in time and within budget, including construction risks and risks associated with the arrangements with
our joint venture partners;
|
| • |
our ability to grow organically and inorganically, which depends on our ability to identify attractive development opportunities, attractive potential acquisitions, finance such opportunities and make new
investments and acquisitions on favorable terms;
|
| • |
our ability to distribute a significant percentage of our cash for distribution as cash dividends, intention to increase such dividends over time;
|
| • |
risks relating to new assets and businesses which have a higher risk profile and our ability to transition these successfully;
|
| • |
potential environmental liabilities and the cost and conditions of compliance with applicable environmental laws and regulations;
|
| • |
risks related to our reliance on suppliers, including financial or technical uncertainties of original equipment manufacturer (OEM) suppliers, among others;
|
| • |
risks related to disagreements and disputes with our employees, unions and employees represented by unions;
|
| • |
risks related to our ability to maintain appropriate insurance over our assets;
|
| • |
risks related to our facilities not performing as expected, unplanned outages, higher than expected operating costs and/ or capital expenditures, including as a result of interruptions or disruptions
caused by supply chain issues and trade restrictions;
|
| • |
risks related to our exposure in the labor market;
|
| • |
risks related to extreme and chronic weather events related to climate change could damage our assets or result in significant liabilities and cause an increase in our operation and maintenance costs;
|
| • |
the effects of litigation and other legal proceedings (including bankruptcy) against us our subsidiaries, our assets and our employees;
|
| • |
price fluctuations, revocation and termination provisions in our off-take agreements and PPAs;
|
| • |
risks related to information technology systems and cyber-attacks could significantly impact our operations and business;
|
| • |
our electricity generation, our projections thereof and factors affecting production;
|
| • |
risks related to our current or previous relationship with Abengoa, our former largest shareholder, including litigation risk;
|
| • |
performing the O&M services directly and the successful integration of the O&M employees where the services thereunder have been recently replaced and internalized;
|
| • |
our guidance targets or expectations with respect to Adjusted EBITDA derived from low-carbon footprint assets;
|
| • |
risks related to our relationship with our shareholders, including Algonquin, our major shareholder;
|
| • |
the process to explore and evaluate potential strategic alternatives, including the risk that this process may not lead to the approval or completion of any transaction or other strategic change;
|
| • |
potential impact of potential pandemics on our business and our off-takers’ financial condition, results of operations and cash flows;
|
| • |
reputational and financial damage caused by our off-takers PG&E, Pemex and Eskom;
|
| • |
our plans relating to the sale or disposition of assets, including the sale of our equity interest in Monterrey;
|
| • |
risks related to Russian military actions in Ukraine, to military actions in the Middle East, or to the potential escalation of any of the foregoing global geopolitical tensions; and
|
| • |
other factors discussed in “Part I, Item 3.D. – Risk Factors”.
|
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances,
including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of these factors,
nor can it assess the impact of each of these factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.
CURRENCY PRESENTATION AND DEFINITIONS
In this annual report, all references to “U.S. dollar,” “$” and “USD” are to the lawful currency of the United States, all references to “euro,” “€” or “EUR” are to the single currency of the
participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time and all references to “South African rand,” “R” and “ZAR” are to the lawful currency of the Republic
of South Africa.
Unless otherwise specified or the context requires otherwise in this annual report:
| • |
references to “2020 Green Private Placement” refer to the €290 million (approximately $320 million) senior secured notes maturing on June 20, 2026 which were issued under a senior secured note purchase
agreement entered with a group of institutional investors as purchasers of the notes issued thereunder as further described in “Item 5.B— Operating and Financial Review and Prospects— Liquidity and Capital Resources— Corporate debt
agreements —2020 Green Private Placement”;
|
| • |
references to “Abengoa” refer to Abengoa, S.A., together with its subsidiaries, unless the context otherwise requires;
|
| • |
references to “ACT” refer to the gas-fired cogeneration facility located inside the Nuevo Pemex Gas Processing Facility near the city of Villahermosa in the State of Tabasco, Mexico;
|
| • |
references to “Adjusted EBITDA” have the meaning set forth in the Section entitled “Presentation of Financial Information—Non-GAAP Financial Measures” in the section below;
|
| • |
references to “Albisu” refer to the 10 MW solar PV plant located in Uruguay;
|
| • |
references to “Algonquin” refer to, as the context requires, either Algonquin Power & Utilities Corp., a North American diversified generation, transmission and distribution utility, or Algonquin
Power & Utilities Corp. together with its subsidiaries;
|
| • |
references to “Algonquin ROFO Agreement and Liberty GES ROFO Agreement” refer to the agreements we entered into with Algonquin and with Liberty GES, respectively, on March 5, 2018, under which Algonquin
and Liberty GES granted us a right of first offer to purchase any of the assets offered for sale located outside of the United States or Canada as amended from time to time. See “Item 7.B—Related Party Transactions—ROFO Agreements”;
|
| • |
references to “Amherst Island Partnership” refer to the holding company of Windlectric Inc;
|
| • |
references to “Annual Consolidated Financial Statements” refer to the audited annual consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and
2021, including the related notes thereto, prepared in accordance with IFRS as issued by the IASB (as such terms are defined herein), included in this annual report;
|
| • |
references to “ASI Operations” refer to ASI Operations LLC;
|
| • |
references to “Atlantica” refer to Atlantica Sustainable Infrastructure plc and, where the context requires, Atlantica Sustainable Infrastructure plc together with its consolidated subsidiaries;
|
| • |
references to “Atlantica Jersey” refer to Atlantica Sustainable Infrastructure Jersey Limited, a wholly-owned subsidiary of Atlantica;
|
| • |
references to “ATM Plan Letter Agreement” refer to the agreement by and among the Company and Algonquin dated August 3, 2021, pursuant to which the Company offers Algonquin the right but not the
obligation, on a quarterly basis, to purchase a number of ordinary shares to maintain its percentage interest in Atlantica at the average price of the shares sold under the Distribution Agreement in the previous quarter, as adjusted;
|
| • |
references to “ATN” refer to ATN S.A., the operational electric transmission asset in Peru, which is part of the Guaranteed Transmission System;
|
| • |
references to “ATS” refer to Atlantica Transmision Sur S.A.;
|
| • |
references to “AYES Canada” refer to Atlantica Sustainable Infrastructure Energy Solutions Canada Inc., a vehicle formed by Atlantica and Algonquin to channel co-investment opportunities;
|
| • |
references to “Befesa Agua Tenes” refer to Befesa Agua Tenes, S.L.U.;
|
| • |
references to “cash available for distribution” or “CAFD” refer to the cash distributions received by the Company from its subsidiaries minus cash expenses of the Company (including third-party debt
service and general and administrative expenses), including proceeds from the sale of assets;
|
| • |
references to “CAISO” refer to the California Independent System Operator;
|
| • |
references to “Calgary District Heating” or “Calgary” refer to the 55 MWt thermal capacity district heating asset in the city of Calgary which we acquired in May 2021;
|
| • |
references to “CENACE” refer to Centro Nacional de Control de Energía, the Mexican decentralized public agency, and an Independent System Operator;
|
| • |
references to “Chile PV 1” refer to the solar PV plant of 55 MW located in Chile;
|
| • |
references to “Chile PV 2” refer to the solar PV plant of 40 MW located in Chile;
|
| • |
references to “Chile PV 3” refer to the solar PV plant of 73 MW located in Chile;
|
| • |
references to “Chile TL 3” refer to the 50-mile transmission line located in Chile;
|
| • |
references to “Chile TL 4” refer to the 63-mile transmission line located in Chile;
|
| • |
references to “CNMC” refer to Comision Nacional de los Mercados y de la Competencia, the Spanish state-owned regulator;
|
| • |
references to “COD” refer to the commercial operation date of the applicable facility;
|
| • |
references to “Coso” refer to the 135 MW geothermal plant located in California;
|
| • |
references to the “Distribution Agreement” refer to the agreement entered into with BofA Securities, Inc., MUFG Securities Americas Inc. and RBC Capital Markets LLC, as sales agents, dated February 28,
2022 as amended on May 9, 2022, under which we may offer and sell from time to time up to $150 million of our ordinary shares and pursuant to which such sales agents may sell our ordinary shares by any method permitted by law deemed to
be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the U.S. Securities Act of 1933, as amended;
|
| • |
references to “DOE” refer to the U.S. Department of Energy;
|
| • |
references to “DTC” refer to The Depository Trust Company;
|
| • |
references to “EMEA” refer to Europe, Middle East and Africa;
|
| • |
references to “EPACT” refer to the Energy Policy Act of 2005;
|
| • |
references to “ESG” refer to environmental, social and corporate governance;
|
| • |
references to “Eskom” refer to Eskom Holdings SOC Limited, together with its subsidiaries, unless the context otherwise requires;
|
| • |
references to “EURIBOR” refer to Euro Interbank Offered Rate, a daily reference rate published by the European Money Markets Institute, based on the average interest rates at which Eurozone banks offer to
lend unsecured funds to other banks in the euro wholesale money market;
|
| • |
references to “EU” refer to the European Union;
|
| • |
references to “Exchange Act” refer to the U.S. Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated by the SEC thereunder;
|
| • |
references to “Federal Financing Bank” refer to a U.S. government corporation by that name;
|
| • |
references to “FERC” refer to the U.S. Federal Energy Regulatory Commission;
|
| • |
references to “Fitch” refer to Fitch Ratings Inc.;
|
| • |
references to “FPA” refer to the U.S. Federal Power Act;
|
| • |
references to “Green Exchangeable Notes” refer to the $115 million green exchangeable senior notes due in 2025 issued by Atlantica Jersey on July 17, 2020, and fully and unconditionally guaranteed on a
senior, unsecured basis, by Atlantica, as further described in “Item 5.B— Operating and Financial Review and Prospects—Liquidity and Capital Resources— Corporate debt agreements —Green Exchangeable Notes”;
|
| • |
references to “Green Project Finance” refer to the green project financing agreement entered into between Logrosan, the sub-holding company of Solaben 1 & 6 and Solaben 2 & 3, as borrower, and ING
Bank, B.V. and Banco Santander S.A., as lenders, as amended in June 2023 as further described in “Item 5.B— Operating and Financial Review and Prospects—Liquidity and Capital Resources— Corporate debt agreements —Green Project Finance”;
|
| • |
references to “Green Senior Notes” refer to the $400 million green senior notes due in 2028, as further described in “Item 5.B—Liquidity and Capital Resources— Corporate debt agreements —Green Senior
Notes”;
|
| • |
references to “gross capacity” refer to the maximum, or rated, power generation capacity, in MW, of a facility or group of facilities, without adjusting for the facility’s power parasitics’ consumption,
or by our percentage of ownership interest in such facility as of the date of this annual report;
|
| • |
references to “GWh” refer to gigawatt hour;
|
| • |
references to “IAS” refer to International Accounting Standards issued by the IASB;
|
| • |
references to “IASB” refer to the International Accounting Standards Board;
|
| • |
references to “IFRIC 12” refer to International Financial Reporting Interpretations Committee’s Interpretation 12—Service Concessions Arrangements;
|
| • |
references to “IFRS as issued by the IASB” refer to International Financial Reporting Standards as issued by the IASB;
|
| • |
references to “IRA” refer to the U.S. Inflation Reduction Act;
|
| • |
references to “IPO” refer to our initial public offering of ordinary shares in June 2014;
|
| • |
references to “Italy PV” refer to the solar PV plants with combined capacity of 9.8 MW located in Italy;
|
| • |
references to “ITC” refer to investment tax credits;
|
| • |
references to “Kaxu” refer to the 100 MW solar plant located in South Africa;
|
| • |
references to “La Sierpe” refer to the 20 MW solar PV plant located in Colombia;
|
| • |
references to “La Tolua” refer to the 20 MW solar PV plant located in Colombia;
|
| • |
references to “Liberty GES” refer to Liberty Global Energy Solutions B.V., a subsidiary of Algonquin (formerly known as Abengoa-Algonquin Global Energy Solutions B.V. (AAGES)) which invests in the
development and construction of contracted clean energy and water infrastructure assets;
|
| • |
references to “Logrosan” refer to Logrosan Solar Inversiones, S.A.;
|
| • |
references to “Lost time injury rate” refer to the total number of recordable accidents with leave (lost time injury) recorded in the last 12 months per two hundred thousand worked hours;
|
| • |
references to “LTIP” refer to the long-term incentive plans approved by the Board of Directors;
|
| • |
references to “MACRS” refer to the Modified Accelerated Cost Recovery System;
|
| • |
references to “M ft3” refer to million standard cubic feet;
|
| • |
references to “Monterrey” refer to the 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity, located in Monterrey, Mexico;
|
| • |
references to “Multinational Investment Guarantee Agency” refer to the Multinational Investment Guarantee Agency, a financial institution member of the World Bank Group which provides political insurance
and credit enhancement guarantees;
|
| • |
references to “MW” refer to megawatts;
|
| • |
references to “MWh” refer to megawatt hour;
|
| • |
references to “MWt” refer to thermal megawatts;
|
| • |
references to “Moody’s” refer to Moody’s Investor Service Inc.;
|
| • |
references to “NEPA” refer to the U.S. National Environment Policy Act;
|
| • |
references to “NOL” refer to net operating loss;
|
| • |
references to “Note Issuance Facility 2020” refer to the senior unsecured note facility dated July 8, 2020, as amended on March 30, 2021 of €140 million (approximately $155 million), with Lucid Agency
Services Limited, as facility agent and a group of funds managed by Westbourne Capital, as purchasers of the notes issued thereunder, as further described in “Item 5.B— Operating and Financial Review and Prospects—Liquidity and Capital
Resources— Corporate debt agreements — Note Issuance Facility 2020”;
|
| • |
references to “OECD” refer to the Organization for Economic Co-operation and Development;
|
| • |
references to “O&M” refer to operation and maintenance services provided at our various facilities;
|
| • |
references to “Omega Peru” refer to Omega Peru Operacion y Maintenimiento S.A.;
|
| • |
references to “operation” refer to the status of projects that have reached COD (as defined above);
|
| • |
references to “Pemex” refer to Petróleos Mexicanos;
|
| • |
references to “PFIC” refer to passive foreign investment company within the meaning of Section 1297 of the US Inland Revenue Code (the “IRC”);
|
| • |
references to “PG&E” refer to PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company, collectively;
|
| • |
references to “PPA” refer to the power purchase agreements through which our power generating assets have contracted to sell energy to various off-takers;
|
| • |
references to “PTC” refer to production tax credits;
|
| • |
references to “PTS” refer to Pemex Transportation System;
|
| • |
references to “PV” refer to photovoltaic power;
|
| • |
references to “Revolving Credit Facility” refer to the credit and guaranty agreement with a syndicate of banks entered into on May 10, 2018 as amended on January 24, 2019, August 2, 2019, December 17,
2019, August 28, 2020, March 1, 2021, May 5, 2022 and May 30, 2023 providing for a senior secured revolving credit facility in an aggregate principal amount of $450 million, as further described in “Item 5.B— Operating and Financial
Review and Prospects—Liquidity and Capital Resources— Corporate debt agreements — Note Issuance Facility 2020”;
|
| • |
references to “Rioglass” refer to Rioglass Solar Holding, S.A.;
|
| • |
references to “ROFO” refer to a right of first offer;
|
| • |
references to “ROFO Agreements” refer to the Liberty GES ROFO Agreement and Algonquin ROFO Agreement;
|
| • |
references to “RPS” refer to renewable portfolio standards adopted by 29 U.S. states and the District of Columbia that require a regulated retail electric utility to procure a specific percentage of its
total electricity delivered to retail customers in the respective state from eligible renewable generation resources, such as solar or wind generation facilities, by a specific date;
|
| • |
references to “RRRE” refer to the Specific Remuneration System Register in Spain;
|
| • |
references to “SEC” refer to the U.S. Securities and Exchange Commission;
|
| • |
references to the “Shareholders’ Agreement” refer to the agreement by and among Algonquin Power & Utilities Corp., Abengoa-Algonquin Global Energy Solutions and Atlantica, dated March 5, 2018, as
amended;
|
| • |
references to “Skikda” refer to the seawater desalination plant in Algeria, which is 34% owned by Atlantica;
|
| • |
references to “SOFR” refer to Secured Overnight Financing Rate;
|
| • |
references to “Solaben Luxembourg” refer to Solaben Luxembourg S.A.;
|
| • |
references to “Solnova 1, 3 & 4” refer to three solar plants with capacity of 50 MW each wholly owned by Atlantica, located in the municipality of Sanlucar la Mayor, Spain;
|
| • |
references to “S&P” refer to S&P Global Rating;
|
| • |
references to “Tenes” refer to Ténès Lilmiyah SpA, a water desalination plant in Algeria, which is 51% owned by Befesa Agua Tenes;
|
| • |
references to “Tierra Linda” refer to the 10 MW solar PV plant located in Colombia;
|
| • |
references to “U.K.” refer to the United Kingdom;
|
| • |
references to “U.S.” or “United States” refer to the United States of America;
|
| • |
references to “Vento II” refer to the wind portfolio in the U.S. in which we acquired a 49% interest in June 2021; and
|
| • |
references to “we,” “us,” “our,” “Atlantica” and the “Company” refer to Atlantica Sustainable Infrastructure plc and its consolidated subsidiaries, unless the context otherwise requires.
|
PRESENTATION OF FINANCIAL INFORMATION
The financial information as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 is derived from, and qualified in its entirety by reference to, our Annual
Consolidated Financial Statements, which are included elsewhere in this annual report and prepared in accordance with IFRS as issued by the IASB.
Certain numerical figures set out in this annual report, have been subject to rounding adjustments, and, as a result, the totals of the data in this annual report may vary slightly from the actual
arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Item 5.A—Operating and Financial Review and Prospects—Operating Results” are calculated using
the numerical data in our Annual Consolidated Financial Statements or the tabular presentation of other data (subject to rounding) contained in this annual report, as applicable, and not using the numerical data in the narrative description
thereof.
Non-GAAP Financial Measures
This annual report contains non-GAAP financial measures including Adjusted EBITDA.
Adjusted EBITDA is calculated as profit/(loss) for the year attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest, income tax expense,
financial expense (net), depreciation, amortization and impairment charges of entities included in the Annual Consolidated Financial Statements and depreciation and amortization, financial expense and income tax expense of unconsolidated
affiliates (pro rata of our equity ownership).
Our management believes Adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool
to compare business performance across companies and across periods. Adjusted EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and
amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. Adjusted EBITDA is widely used by other companies in
our industry.
Our management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period and we aim to use it on a consistent basis moving forward and to
readily view operating trends, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our Board of Directors, shareholders, creditors, analysts and
investors concerning our financial performance.
We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interested parties as
supplemental measures of performance and liquidity. The non-GAAP financial measures including Adjusted EBITDA may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be
considered in isolation or as a substitute for analysis of our operating results as reported under IFRS as issued by the IASB. Non-GAAP financial measures and ratios are not measurements of our performance or liquidity under IFRS as issued by
the IASB and should not be considered as alternatives to operating profit or profit for the year or any other performance measures derived in accordance with IFRS as issued by the IASB or any other generally accepted accounting principles or as
alternatives to cash flow from operating, investing or financing activities.
Some of the limitations of these non-GAAP measures are:
| • |
they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
|
| • |
they do not reflect changes in, or cash requirements for, our working capital needs;
|
| • |
they may not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments, on our debts;
|
| • |
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and Adjusted EBITDA does not reflect any cash
requirements that would be required for such replacements;
|
| • |
the fact that other companies in our industry may calculate Adjusted EBITDA differently than we do, which limits their usefulness as comparative measures.
|
Information presented as the pro rata share of our unconsolidated affiliates reflects our proportionate ownership of each asset in our portfolio that we do not consolidate and has been calculated
by multiplying our unconsolidated affiliates’ financial statement line items by the Company’s percentage ownership thereto. Note 7 to the Annual Consolidated Financial Statements includes a description of our unconsolidated affiliates and our
pro rata share thereof. We do not control the unconsolidated affiliates. Multiplying our unconsolidated affiliates’ financial statement line items by the Company’s percentage ownership may not accurately represent the legal and economic
implications of holding a non-controlling interest in an unconsolidated affiliate. We include depreciation and amortization, financial expense and income tax expense of unconsolidated affiliates (pro rata of our equity ownership) because we
believe it assists investors in estimating the effect of such items in the profit/(loss) of entities carried under the equity method (which is included in the calculation of our Adjusted EBITDA) based on our economic interest in such
unconsolidated affiliates. Each unconsolidated affiliate may report a specific line item in its financial statements in a different manner. In addition, other companies in our industry may calculate their proportionate interest in
unconsolidated affiliates differently than we do, limiting the usefulness of such information as a comparative measure. Because of these limitations, the information presented as the pro-rata share of our unconsolidated affiliates should not be
considered in isolation or as a substitute for our or such unconsolidated affiliates’ financial statements as reported under applicable accounting principles.
PRESENTATION OF INDUSTRY AND MARKET DATA
In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and
forecasts used in this annual report were obtained from internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants. We believe that
these industry publications, surveys and forecasts are reliable, but we have not independently verified them, and there can be no assurance as to the accuracy or completeness of the included information.
Certain market information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from
independent third parties but reflect our best estimates. We have based these estimates upon information obtained from our customers, trade and business organizations and associations and other contacts in the industries in which we operate.
Elsewhere in this annual report, statements regarding our contracted assets and concessions activities, our position in the industries and geographies in which we operate are based solely on our
experience, our internal studies and estimates and our own investigation of market conditions.
All of the information set forth in this annual report relating to the operations, financial results or market share of our competitors has been obtained from information made available to the
public in such companies’ publicly available reports and independent research, as well as from our experience, internal studies, estimates and investigation of market conditions. We have not funded, nor are we affiliated with, any of the
sources cited in this annual report. We have not independently verified the information and cannot guarantee its accuracy.
All third-party information, as outlined above, has to our knowledge been accurately reproduced and, as far as we are aware and are able to ascertain, no facts have been omitted which would render
the reproduced information inaccurate or misleading, but there can be no assurance as to the accuracy or completeness of the included information.
PART I
| ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
| ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
| B. |
Capitalization and Indebtedness
|
Not applicable.
| C. |
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Investing in our securities involves a high degree of risk. Before making any investment decision, you should carefully consider the risks and uncertainties described below, together with the
other information contained in this annual report, including our Annual Consolidated Financial Statements and related notes, included elsewhere in this annual report. The risks described below may not be the only risks we face. We have
described only those risks that we currently consider to be material and there may be additional risks that we do not currently consider to be material or of which we are not currently aware. Any of the following risks and uncertainties could
have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our securities could decline due to any of these risks and uncertainties, and you could lose all or part of your
investment.
Risk Factor Summary
Set forth below is only a summary of the key risks we face. See below under this “Item 3.D—Risk Factors.” for a detailed discussion of the numerous risks and uncertainties to which the Company is
subject.
Risks Related to Our Business and Our Assets
| • |
Our failure to maintain safe work environments may expose us to significant financial losses, as well as civil and criminal liabilities.
|
| • |
Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms or at all in light of
increasing competition in the markets in which we operate.
|
| • |
The PPAs and concession agreements under which we conduct some of our operations are subject to revocation, termination or tariff reduction.
|
| • |
The performance of our assets under our PPAs or concession contracts may be adversely affected by problems including those related to our reliance on suppliers.
|
| • |
Supplier concentration may expose us to significant financial credit or performance risk.
|
| • |
Certain of our facilities may not perform as expected.
|
| • |
Maintenance, expansion and refurbishment of electric generation and other facilities involve significant risks that could result in unplanned power outages or reduced output or availability.
|
| • |
The generation of electric energy from renewable energy sources depends heavily on suitable meteorological conditions, and if solar or wind conditions are unfavorable, or if the geothermal resource is
lower than expected, our electricity generation, and therefore revenue from our renewable energy generation facilities using our systems, may be substantially below our expectations.
|
| • |
Our business may be adversely affected by an increased number of extreme and chronic weather events including related to climate change.
|
| • |
Our insurance may be insufficient to cover relevant risks or the cost of our insurance may increase.
|
| • |
A pandemic could have a material adverse impact on our business, financial condition, liquidity, results of operations, cash flows, cash available for distribution and ability to make cash distributions
to our shareholders.
|
| • |
We may have joint venture partners or other co-investors with whom we have material disagreements.
|
| • |
We depend on our key personnel and our ability to attract and retain skilled personnel. The operation and maintenance of most of our assets is labor intensive, and therefore work stoppages by employees
could harm our business.
|
| • |
Revenue from some of our renewable energy facilities is or may be partially exposed to market electricity prices.
|
| • |
Our information technology and communications systems are subject to cybersecurity risk and other risks.
|
Risks Related to Our Relationship with Algonquin and Abengoa
| • |
Algonquin is our largest shareholder and exercises substantial influence over us.
|
| • |
Our ownership structure and certain agreements may create significant conflicts of interest that may be resolved in a manner that is not in our best interests.
|
| • |
Legal proceedings involving Abengoa, our former largest shareholder, and its current and previous insolvency processes and events and circumstances that led to them could affect us.
|
Risks Related to Our Indebtedness
| • |
Our indebtedness could limit our ability to react to changes in the economy or our industry, expose us to the risk of increased interest rates and limit our activities due to covenants in existing
financing agreements. It could also adversely affect the ability of our project subsidiaries to make distributions to Atlantica, our ability to fund our operations, pay dividends or raise additional capital.
|
| • |
We may not be able to arrange the required or desired financing for investments and acquisitions and for the successful financing or refinancing of the Company’s project level and corporate level
indebtedness.
|
| • |
Potential future defaults by our subsidiaries, our off-takers, our suppliers or other persons could adversely affect us.
|
| • |
The process to explore and evaluate potential strategic alternatives may not be successful.
|
Risks Related to Our Growth Strategy
| • |
We may not be able to identify or consummate future investments and acquisitions on favorable terms, or at all.
|
| • |
Our ability to develop renewable projects is subject to development and construction risks and risks associated with the arrangements with our joint venture partners.
|
| • |
In order to grow our business, we may invest in or acquire assets or businesses which have a higher risk profile or are less ESG-friendly than certain assets in our current portfolio.
|
| • |
We cannot guarantee the success of our recent and future investments.
|
| • |
Our cash dividend policy may limit our ability to grow and make investments through cash on hand.
|
Risks Related to the Markets in Which We Operate
| • |
We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.
|
Risks Related to Regulation
| • |
We are subject to extensive governmental regulation in a number of different jurisdictions, including stringent environmental regulation.
|
| • |
Revenues in our solar assets in Spain are subject to review periodically.
|
Risks Related to Ownership of Our Shares
| • |
We may not be able to pay a specific or increasing level of cash dividends to holders of our shares in the future.
|
| • |
Future dispositions of our shares by substantial shareholders or the perception thereof may cause the price of our shares to fall.
|
Risks Related to Taxation
| • |
Changes in our tax position can significantly affect our reported earnings and cash flows.
|
| • |
Our future tax liability may be greater than expected if we do not use sufficient NOLs to offset our taxable income.
|
| • |
Our ability to use U.S. NOLs to offset future income may be limited.
|
| I. |
Risks Related to Our Business and Our Assets
|
Our failure to maintain safe work environments may expose us to significant financial losses, as well as civil and criminal liabilities.
The ownership, construction and operation of our assets often put our employees and others, including those of our subcontractors, in close proximity with large pieces of mechanized equipment,
moving vehicles, manufacturing or industrial processes, electrical equipment, batteries, heat or liquids stored under pressure or at high temperatures and highly regulated materials. On most projects and at most facilities, we, together in some
cases with the operation and maintenance supplier or the construction company, are responsible for safety. Accordingly, we must implement safe practices and safety procedures, which are also applicable to on-site subcontractors. If we or the
operation and maintenance supplier or the construction company fail to design and implement such practices and procedures, or if the practices and procedures are ineffective, or if our operation and maintenance service providers or the
contractors in charge of the construction of our assets or other suppliers do not follow them, our employees and others may become injured. In addition, the construction and operation of our facilities can involve the handling of hazardous and
other highly regulated materials, which, if improperly handled or disposed of, could subject us or our suppliers to civil and criminal liabilities. Unsafe work sites also have the potential to increase employee turnover, increase the cost of a
project or the operation of a facility, and raise our operating costs. Although we maintain teams whose primary purpose is to ensure we implement effective health, safety and environmental work procedures throughout our organization, the
failure to comply with such regulations could subject us to reputational damage and/or liability. In addition, we may incur liability based on complaints of illness or disease resulting from exposure of employees or other persons to hazardous
materials or equipment that we handle or are present in our workplaces. Any of the foregoing could result in civil, criminal or other liabilities, reputational damage and/or financial losses, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them
with agreements on similar terms or at all in light of increasing competition in the markets in which we operate.
A significant portion of the electric power we generate, the transmission capacity we have, and our desalination capacity is sold under long-term off-take agreements with public utilities,
industrial or commercial end-users or governmental entities, with a weighted average remaining duration of approximately 131 years as of December 31, 2023.
If, for any reason, including, but not limited to, a deterioration in their financial situation or bankruptcy, any of our clients are unable or unwilling to fulfill their related contractual
obligations or if they refuse to accept delivery of power delivered thereunder or if they otherwise terminate such agreements prior to the expiration thereof, or if prices were re-negotiated under a bankruptcy situation or a contract default
situation, or if they delayed payments, our business, financial condition, results of operations and cash flow may be materially adversely affected. Furthermore, to the extent any of our power, transmission capacity or desalination capacity
purchasers are, or are controlled by, governmental entities, our facilities may be subject to sovereign risk or legislative or other political action that may hamper their contractual performance.
The credit rating of Eskom is currently B from S&P, B2 from Moody’s and B from Fitch. Eskom which is the off-taker of our Kaxu solar plant, is a state-owned, limited liability company, wholly
owned by the Republic of South Africa. Eskom’s payment guarantees to our Kaxu solar plant are underwritten by the South African Department of Mineral Resources and Energy, under the terms of an implementation agreement. The credit ratings of
the Republic of South Africa have also weakened and as of the date of this annual report are BB-/Ba2/BB- by S&P, Moody’s and Fitch, respectively.
In addition, Pemex’s credit rating is currently BBB, B3 and B+ from S&P, Moody’s and Fitch, respectively. We have experienced delays in collections in the past, especially since the second
half of 2019, which have been significant in certain quarters, including the fourth quarter of 2023.
1 Calculated as weighted average years remaining as of December 31, 2023 based on CAFD estimates for the 2024-2027
period, including assets that have reached COD before March 1, 2024.
The cost of renewable energy has considerably decreased since most of our plants were built and renewable energy has become a consistently competitive source of power generation compared to
traditional fossil fuels in many regions, and it is expected to continue falling in the future. Our competitors may be able to operate at lower costs, which may adversely affect our ability to compete for off-take agreement renewals. Our
off-takers may try to renegotiate or terminate our PPAs, most of which were signed several years ago and may be more expensive than recent PPAs or current market prices. We may not be able to replace an expiring or terminated agreement with an
agreement on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis.
Our inability to enter into new or replacement off-take agreements or to compete successfully against current and future competitors may have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The power purchase agreements and concession agreements under which we conduct some of our operations are subject to revocation, termination or
tariff reduction.
Certain of our operations are conducted pursuant to contracts and concessions granted by various governmental bodies and others are pursuant to PPAs signed with governmental entities and private
clients. Generally, these contracts and concessions give us rights to provide services for a limited period, subject to various governmental regulations. The governmental bodies or private clients responsible for regulating and monitoring these
services often have broad powers to monitor our compliance with the applicable concession and PPAs and can require us to supply them with technical, administrative and financial information. Among other obligations, we may be required to comply
with operating targets and efficiency and safety standards established in the respective concession. Such commitments and standards may be amended in certain cases by the governmental bodies. Our failure to comply with the concession agreements
and PPAs or other regulatory requirements may result in contracts and concessions being revoked, not being granted, upheld or renewed in our favor, or, if granted, upheld or renewed, may not be done on as favorable terms as currently
applicable. In addition, in some cases our off-takers have an option to acquire the asset or to terminate the concession agreement in exchange for a compensation. All the above could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
In addition, in some cases, if we fail to comply with certain pre-established conditions, the government or customer (as applicable) may reduce the tariffs or rates payable to us. Also, during the
life of a PPA or a concession, the relevant government authority may in some cases unilaterally impose additional restrictions on our tariff rates, subject to the regulatory frameworks applicable in each jurisdiction. Furthermore, changes in
laws and regulations may, in certain cases, have retroactive effect and expose us to additional compliance costs or undermine our existing financial and business planning.
The performance of our assets under our power purchase agreements or concession contracts may be adversely affected by problems including those related to
our reliance on suppliers.
Our projects rely on the supply of services, equipment, including technologically complex equipment and software which we subcontract in some cases to third-party suppliers in order to meet our
contractual obligations under our PPAs and concessions. In circumstances where key components of our equipment, including, but not limited to, turbines, water pumps, heat exchangers, PV panels, solar fields, tanks, batteries, transformers or
electrical generators fail because of design failures or faulty operation or for any other reason, we rely on internal teams and third parties to continue operating our assets. Equipment may not last as long as expected and we may need to
replace it earlier than planned. Damages to our equipment may not be covered by insurance in place. In some cases, the replacement of damaged equipment can take a long period of time, which can cause our plants to curtail or cease operations
during such time, which could have a negative impact on our business, financial condition, results of operations and cash flows.
For example, Solana and Kaxu have experienced technical issues in their storage and solar field systems. Repairs have been carried out in both assets. In Solana, availability in the storage system
was lower than expected in 2021, 2022 and 2023 due to the repairs and replacements that we are carrying out after leaks were identified in the first quarter of 2020. These works have impacted production in 2021, 2022 and 2023, together with a
lower solar field performance and may impact production in 2024 and upcoming years. We experienced delays in the repairs and replacements that we carried out. We cannot guarantee that the repairs will be effective, that Solana will reach
expected production or that additional repairs will not be required. In addition, in 2023 an unscheduled outage occurred at Kaxu when a problem was found in the turbine, a few weeks after a scheduled turbine major overhaul was carried out by
Siemens, the original equipment manufacturer. Part of the damage and the business interruption is covered by our insurance property policy, after a 60-day deductible. The plant restarted operations in mid-February 2024. Restarting operations
after a long outage might result in lower production during a ramp-up period. Similar interruptions could happen again at our plants due to failure of key equipment.
In addition, we currently have several projects under construction in different geographies. For example, Coso Batteries 1 and Coso Batteries 2 are currently under construction. Both projects were
fully developed in-house. We will rely on batteries, software and other components manufactured by third parties which may contain undetected manufacturing-related defects or errors in a sector where our expertise is not as proven as in the
rest of our businesses yet. Design failures, technical inspections by suppliers or the need to replace key equipment can require unexpected capital expenditures and/or outages in our plants, which may have a material adverse effect on our
business, financial condition, results of operations and cash flows.
In addition, the delivery by our subcontractors of products or services which are not in compliance with the requirements of the subcontract, or delayed supply of products and services, can cause
us to be in default under our contracts with our concession counterparties. To the extent we are not able to transfer all of the risk or be fully indemnified by third-party contractors and suppliers, we may be subject to a claim by our
customers as a result of a problem caused by a third party that could have a material adverse effect on our reputation, business, results of operations, financial condition and cash flows.
Supplier concentration may expose us to significant financial credit or performance risk.
We often rely on a single contracted supplier or a small number of suppliers for the provision of certain personnel, spare parts, equipment, technology, fuel, transportation of fuel, and/or other
services required for the operation of certain of our facilities. If any of these suppliers, including Siemens, Naes, GE, Nordex, Tesla, construction suppliers and equipment suppliers for assets under construction cannot or will not perform
under their operation and maintenance and other agreements with us, or satisfy their related warranty obligations, we will need to access the marketplace to replace these suppliers or acquire or repair these products. There can be no assurance
that the marketplace can provide these products and services as, when and where required. We may not be able to enter into replacement agreements on favorable terms or at all. If we are unable to enter into replacement agreements to provide for
equipment, technology or fuel and other required services, we may have to seek to purchase the related goods or services at higher prices. We may also be required to make significant capital contributions to remove, replace or redesign
equipment that cannot be supported or maintained by replacement suppliers, which may have a material adverse effect on our business, financial condition, results of operations, and cash flows.
The failure of any supplier to fulfill its contractual obligations to us may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Consequently, the financial performance of our facilities may be dependent on the credit quality of, and continued performance by, our suppliers and vendors.
Certain of our facilities may not perform as expected.
Our expectations regarding the operating performance of certain assets in our portfolio, particularly Solana and Kaxu, assets recently acquired such as Italy PV 4 and Chile PV 3 or assets which
have recently ended construction such as Albisu, La Tolua, Tierra Linda and Honda 1, or assets under construction are based on assumptions, estimates and past experience, and without the benefit of a substantial operating history under our
control. Our projections regarding our ability to generate cash available for distribution assumes facilities perform in accordance with our expectations. However, the ability of these facilities to meet our performance expectations is subject
to the risks inherent to the construction and operation of such facilities, including, but not limited to, degradation of equipment in excess of our expectations, system failures and outages and higher maintenance capital expenditures than
initially expected. The failure of these facilities to perform as we expect and/or higher than expected operational costs or maintenance capital expenditures may have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Maintenance, expansion and refurbishment of electric generation and other facilities involve significant risks that could result in unplanned
power outages or reduced output or availability.
The facilities in our portfolio may require periodic upgrading and improvement in the future. Any unexpected operational or mechanical failure, including failure associated with breakdowns and
forced outages, could reduce the performance and availability of our facilities below expected levels, reducing our revenues. Degradation of the performance of our solar facilities above levels provided for in the related off-take agreements
may also reduce their revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability.
If we make any major modifications to our renewable power generation facilities, efficient natural gas or electric transmission lines, we may be required to comply with more stringent
environmental regulations, which would likely result in substantial additional capital expenditures. We may also choose to repower, refurbish or upgrade our facilities based on our assessment that such activity will provide adequate financial
returns. Such facilities require time for development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions
regarding construction costs, timing, available financing and future fuel and power prices. This may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our business may be adversely affected by an increased number of extreme and chronic weather events including related to climate change.
Climate change is causing an increasing number of severe, chronic and extreme weather events which are a risk to our facilities and may impact them. In addition, climate change may cause
transition risks, related to existing and emerging regulation related to climate change. These risks include:
| • |
Acute physical. Severe and extreme weather events include severe winds and rains, hail, hurricanes, cyclones, droughts, as well as the risk of fire and flooding, among
others and are becoming more frequent as a result of climate change. Any of these extreme weather events could cause damage to our assets and/or business interruption.
|
Our assets were designed and built by third parties complying with technical codes, local regulations and environmental impact studies. Technical codes should consider extreme weather events based
on historical information and should include design safety margins. However, an increased severity of extreme weather events could have an impact on our assets.
| |
- |
Severe floods could damage our solar generation assets or our water facilities. Floods can also cause landslides which may affect our transmission lines.
|
|
- |
If our transmission assets caused a fire, we could be found liable if the fire damaged third parties.
|
|
- |
Severe winter weather, like the storm in February 2021 in Texas, could cause supply from wind farms to decline due to wind turbine equipment freezing. In 2023, a winter storm affected a transmission line
in our geothermal asset Coso in California and affected production for several days. Also, natural gas assets and battery systems could face operational issues caused by freezing or very cold conditions.
|
|
- |
Rising temperatures and droughts could cause wildfires like the ones that have affected California in recent years. In California wildfires have been especially catastrophic, causing human fatalities and
significant material losses. Although our assets in California are located in areas without trees and vegetation, wildfires affected PG&E, one of our clients in 2018 and 2019.
|
|
- |
Severe winds could cause damage to the solar fields at our solar assets.
|
Components of our equipment and systems, such as structures, mirrors, absorber tubes, blades, PV panels, batteries or transformers are susceptible to being damaged by severe weather. In addition,
replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable and may have long lead times. In addition, damage caused by our equipment to third parties due to weather events can result in
liabilities for the Company.
|
o |
An increase in temperatures can reduce efficiency and increase operating costs at our plants. The main impacts of rising temperatures include:
|
|
- |
Lower turbine efficiency in our efficient natural gas asset.
|
| |
- |
Reduced efficiency at our solar photovoltaic generation assets.
|
|
- |
Lower air density at our wind facilities.
|
|
- |
Lower efficiency in battery systems.
|
|
o |
A reduction of mean precipitations may result in a reduction of availability of water from aquifers and could also modify the main water properties at our generation facilities. Droughts could result in
water restrictions that may affect our operations, and which may force us to stop generation at some of our facilities. For example, some regions in Spain are currently experiencing a severe drought, which may affect our facilities. A
deterioration of the quality of the water would also have a negative impact on chemical costs in our water treatment plants at our generating facilities.
|
If any of these acute physical or chronic physical risks were to materialize at any of our plants, facilities or electric transmission lines, we may not be able to carry out our business
activities at that location or such operations could be significantly reduced. Any of these circumstances could result in lost revenue at these sites during the period of disruption and costly remediation, which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
| • |
Current Regulation. Atlantica is directly affected by environmental regulation at all our assets. This includes climate-related risks driven by laws, regulation,
taxation, disclosure of emissions and other practices. As an example, we are subject to the requirements of the U.K. Climate Change Act 2008 on greenhouse gas (“GHG”) emissions reporting, and the Commission Regulation (EU) No 601/2012.
Two U.S. solar plants are also subject to the permits under the Clean Air Act.
|
Starting from 2024, we are required under UK regulations to include certain climate-related disclosures aligned with the Task Force on Climate-Related Financial Disclosures
(TCFD) in our UK Annual Report.
Additionally, a group of our subsidiaries is currently subject to the EU Non-financial Reporting Directive as adopted by implementing regulations in Spain. In particular, on
January 5, 2023, the European Union’s Corporate Sustainability Reporting Directive (“CSRD”) entered into force. Among other things, the CSRD expands the number of companies required to publicly report sustainability and ESG-related information
on their management report to understand how sustainability matters affect their own development, performance and position, and defines the related information that companies are required to report in accordance with European Sustainability
Reporting Standards (“ESRS”). The CSRD raises the bar on ESG matters and requires a “double materiality” analysis, meaning companies will have to detail both the impacts on the environment (e.g. the impact of corporate activity on
sustainability matters from perspective of citizens, consumers, employees, etc.) and the climate-related risks they face (e.g. sustainability matters which from the investor perspective are material the company’s development, performance and
position). Impacts, risks and opportunities are material if they satisfy one or both of these materiality tests. A sub consolidated group of our subsidiaries will fall within the scope of the new reporting requirements , effective January 1,
2025, and we will be required to provide such information for the fiscal year 2025 for this sub-consolidated group. In addition, the entire group will become subject to the CSRD from January 1, 2028. This will involve implementing processes to
gather the relevant data, conduct materiality assessments and prepare a CSRD-compliant report, which will likely be a time-consuming and costly exercise and in the event that our disclosures prove incorrect we may incur liabilities.
| • |
Emerging Regulation. Changes in regulation could have a negative impact on Atlantica’s growth or cause an increase in costs. Currently, renewable
energy projects benefit from various U.S. federal, state and local governmental incentives. These policies have had a significant impact on the development of renewable energy and they could change. These incentives make the
development of renewable energy projects more competitive by providing tax credits, accelerated depreciation and expensing for a portion of the development costs. The U.S. Inflation Reduction Act
(IRA) signed into law on August 16, 2022 increased and / or extended some of these incentives and established new ones. For example, the IRA includes, among
other incentives, a 30% solar investment tax credit (“ITC”) for solar projects to be built until 2032, a production tax credit (“PTC”) for wind projects to be built until 2032, a 30% ITC for standalone storage projects to be built
until 2032 and a new tax credit that will award up to $3/kg for low carbon hydrogen. The IRA also includes transferability options for the ITCs and PTCs, which should allow an easier and faster monetization of these tax credits. A reduction in such incentives in the future could decrease the attractiveness of renewable energy to developers, utilities, retailers and customers. In addition, an increase in regulation could cause an
increase in our compliance costs. See “—VII Risks Related to Regulation — Government regulations could change at any time and such changes may negatively impact our current business and growth strategy”.
|
In addition, there may be additional taxes on GHG emissions. Some governments in certain geographies already have mechanisms in place for taxing GHG emissions and some
other governments are considering establishing comparable mechanisms for the future. Additional taxes on emissions would increase the costs of operating the assets in our portfolio which have GHG emissions, particularly our natural gas assets.
Furthermore, several regions are increasing reporting requirements in relation to climate-related risks and opportunities and we will or may be subject to several of those
requirements. We will be subject to new mandatory climate-related disclosures pursuant to SEC, proposed rules that are currently in draft form. The consolidated group or part of our subsidiaries will or may be subject to the Corporate
Sustainability Reporting Directive in Europe, IFRS requirements for disclosure of sustainability-related financial information and may be subject to the California Climate Related Regulation.
| • |
Reputation. Decreased access to capital.
|
Climate change and ESG are important criteria for some shareholders and investors. While a significant part of our business consists of renewable energy assets, we also own
assets that can be considered less environmentally friendly, currently consisting of a 300 MW efficient natural gas plant and a non-controlling stake in a gas-fired engines facility which uses natural gas, both in Mexico. Owning these assets
with higher GHG emissions than the rest of the portfolio may have a negative reputational impact on Atlantica as a renewable energy company. We rely on capital markets and bank financing to fund our growth initiatives. If our reputation
worsened, our cost of capital could increase and our access to capital may become more difficult. In addition, some potential employees and /or suppliers could perceive Atlantica as a less appealing company due to an eventual deterioration in
our reputation due to the foregoing.
| • |
Downstream. Some of our clients are large utilities or industrial corporations. These are also exposed to significant climate change related risks, including current
and emerging regulation, acute and chronic physical risks. If our clients are affected by climate related risks, this could impact their credit quality and affect their ability to comply with the existing contract.
|
The efforts we may undertake in the future, to respond to the evolving and increased regulation, environmental initiatives of customers, investors, shareholders and other
stakeholders, reputational risks related to climate change and climate related risks affecting our clients may cause increased costs, more difficult access to capital markets, a deterioration in the credit quality of our clients and other
negative circumstances which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The generation of electric energy from renewable energy sources depends heavily on suitable meteorological conditions, and if solar or wind conditions are
unfavorable, or if the geothermal resource is lower than expected, our electricity generation, and therefore revenue from our renewable energy generation facilities using our systems, may be substantially below our expectations.
The electricity produced, and revenues generated by a renewable energy generation facility are highly dependent on suitable meteorological conditions, and associated weather conditions which are
beyond our control.
Unfavorable weather and atmospheric conditions could impair the effectiveness of our assets or reduce their output beneath their rated capacity or require shutdown of key equipment, hampering
operation of our renewable assets and our ability to achieve forecasted revenues and cash flows.
We base our investment decisions with respect to each renewable generation facility on the findings of related wind, solar and geothermal studies conducted on-site by third parties prior to
construction or based on historical conditions at existing facilities. However, actual climatic conditions at a facility site, particularly wind conditions, which are sometimes severe, may not conform to the findings of these studies and
therefore, our solar, wind and geothermal energy facilities may not meet anticipated production levels or the rated capacity of its generation assets, which may have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Our geothermal asset Coso depends on the geothermal resource available on the site of the plant, which is also ultimately beyond our control. If geothermal resource does not meet our expectations
as it is, this may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our business may be adversely affected by catastrophes, natural disasters, unexpected geological or other physical conditions, or criminal or terrorist acts
at one or more of our plants, facilities and electric transmission lines.
If one or more of our plants, facilities or electric transmission lines were to be subject in the future to fire, flood, earthquakes, electric storms, lightning (especially in our wind farms),
drought or other natural disaster, terrorism, or other catastrophe, or if unexpected geological or other adverse physical conditions were to occur at any of our plants, facilities or electric transmission lines, we may not be able to carry out
our business activities at that location or such operations could be significantly reduced. We own two assets in Southern California, which is an area classified as high seismic risk. Any of these circumstances could result in lost revenue at
these sites during the period of disruption and costly remediation, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, it is possible that our sites and assets
could be affected by criminal or terrorist acts. There are also certain risks for which we may not be able to acquire adequate insurance coverage, including earthquakes and severe convective storms. Any such events could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Our insurance may be insufficient to cover relevant risks or the cost of our insurance may increase.
We cannot guarantee that our insurance coverage is, or will be, sufficient to cover all the possible losses we may face in the future. Our property damage and business interruption policy have
significant deductibles and exclusions with respect to some key equipment which, if damaged, could result in financial losses and business interruptions. Moreover, insurance market terms and conditions have become more onerous over the last few
years and insurance companies are requiring some companies in our sector to retain a portion of the overall risks instead of transferring 100% to the insurers. As a result, we have self-retained a portion of our own risks and may need to
increase this percentage in the future. If equipment failed in one of our assets and this equipment was part of the insurance exclusions or if the event was part of the risks we self-insured, we would need to assume the repairs and business
interruption costs, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Furthermore, some of our project finance agreements and PPAs include specific conditions regarding insurance coverage that we may need to modify. If we did not obtain a waiver from our project
finance lenders accepting these modifications, an event of default could be triggered by our lenders due to non-compliance with the terms of the project finance agreement. If we were to incur a serious uninsured loss or a loss that
significantly exceeded the coverage limits established in our insurance policies or we were not able to modify coverage conditions, this could have a material adverse effect on our business, financial condition, results of operations and cash
flows. In addition, our insurance policies are subject to periodic renewals and the terms of the renewal are in some cases subject to approval by our lenders or counterparties. If we were unable to renew our insurance coverage, we would not be
in compliance with the requirements of our project finance agreements and our PPAs, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. If insurance premiums were to increase in
the future and/or or if additional key components were excluded from insurance coverage and/or if certain types of insurance coverage were to become unavailable or there was a further increase in deductibles for damages and/or loss of
production, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, we might not be able to maintain insurance coverage comparable to those in effect in the past or currently at comparable cost, or at all. If insurance costs materially increased, such
additional costs could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A pandemic could have a material adverse impact on our business, financial condition, liquidity, results of operations, cash flows, cash available for
distribution and ability to make cash distributions to our shareholders.
A pandemic could affect our operation and maintenance activities. We may experience delays in certain operation and maintenance activities, or certain activities may take longer than usual, or, in
a worst-case scenario, a potential outbreak at one of our assets may prevent our employees or our operation and maintenance suppliers’ employees from operating the plant. All these can hamper or prevent the operation and maintenance of our
assets, which may result in a material adverse effect on our business, financial condition, results of operations and cash flows.
We could also experience commercial disputes with our clients, suppliers and partners related to implications of a pandemic in contractual relations. All the risks referred to can cause delays in
distributions from our assets to the holding company. In addition, we may experience delays in distributions due to logistic and bureaucratic difficulties to approve those distributions, which can negatively affect our cash available for
distributions, our business, financial condition and cash flows. If we were to experience delays in distributions due to the risks previously mentioned and this situation persisted over time, we may fail to comply with financial covenants in
our credit facilities and other financing agreements. All these situations may have a material impact on our business, financial condition, results of operations or cash flows or the pace or extent of any subsequent recovery.
We may have joint venture partners or other co-investors with whom we have material disagreements.
We have made and may continue to make equity investments in certain strategic assets managed by or together with third parties, including governmental entities and private entities. In certain
cases, we may only have partial or joint control over a particular asset. We hold a minority stake in Vento II (our 596 MW wind portfolio in the United States composed by Elkhorn Valley, Prairie Star, Twin Groves II and Lone Star II), Honaine
(Algeria), Monterrey (Mexico), Amherst (Canada) and Ten West Link (United States) and do not have control over the operation of these assets. In addition, we have partners in Seville PV, Solacor 1 & 2, Solaben 2 & 3, Skikda, Kaxu, Chile
PV 1, Chile PV 2 and Chile PV 3 and we have invested through a debt instrument in Tenes. We also have partners in projects and assets under development or construction. Investments in assets or projects under development or construction over
which we have no control, or partial or joint control are subject to the risk that the other shareholders of the assets, who may have different business or investment strategies than us or with whom we may have a disagreement or dispute, may
have the ability to independently make or block business, financial or management decisions, such as appoint members of management, which may be crucial to the success of the project or our investment in the project, or otherwise implement
initiatives which may be contrary to our interests. If we do not have control of a project or an asset, our partner may decide to sell such project or asset under terms and conditions that may not be the most beneficial to us. In Ten West Link
we hold minority stakes, and our partner is an infrastructure fund that may decide to sell these assets in the future. In Monterrey, our partner initiated a process to sell its 70% stake in the asset and we do not have control of this process.
Additionally, the approval of other shareholders or partners may be required to sell, pledge, transfer, assign or otherwise convey our interest in such assets. Alternatively, other shareholders may have rights of first refusal or rights of
first offer in the event of a proposed sale or transfer of our interests in such assets or in the event we acquire an interest in new assets pursuant to ROFO agreements with third parties. These restrictions may limit the price or interest
level for our interests in such assets, in the event we want to sell such interests.
Finally, our partners in existing or future projects may be unable, or unwilling, to fulfill their obligations under the relevant shareholder agreements, may experience financial or other
difficulties or might sell their position to third parties that we did not choose, which may adversely affect our investment in a particular joint venture or adversely affect us. In certain of our joint ventures, we may also rely on the
expertise of our partners and, as a result, any failure to perform its obligations in a diligent manner could also adversely affect the joint venture. If any of the foregoing were to occur, our business, financial condition, results of
operations and cash flows may be materially adversely affected.
We depend on our key personnel and our ability to attract and retain skilled personnel. The operation and maintenance of most of our assets is labor
intensive, and therefore work stoppages by employees could harm our business.
In some of the geographies where we operate, competition for qualified personnel is high and our turnover has increased recently, in particular in the United States. Some of our assets are in
remote locations, and it may be difficult for us to retain employees or to cover certain positions. We may experience difficulty in hiring and retaining employees with appropriate qualifications. We may face high turnover, requiring us to
dedicate time and resources to find and train new employees. The challenging markets in which we compete for talent may also require us to invest significant amounts of cash and equity to attract and retain employees. If we fail to attract new
personnel or fail to retain and motivate our current personnel, the performance of our assets, our business and future growth prospects and ability to compete could be adversely impacted.
In addition, the operation and maintenance of most of our assets is labor intensive and in many cases our employees and our operators’ employees are covered by collective bargaining agreements. A
dispute with a union or employees represented by a union could result in production interruptions caused by work stoppages. In addition, we subcontract the operation and maintenance services for some of our assets. If our employees or our
operators’ employees were to initiate a work stoppage, they may not be able to reach an agreement with them in timely fashion. If a strike or work stoppage or disruption were to occur, our business, financial conditions, results of operations
and cash flows may be materially adversely affected.
Revenue from some of our renewable energy facilities is or may be partially exposed to market electricity prices.
We currently have three assets with merchant revenues (Chile PV 1 and Chile PV 3, where we have a 35% ownership, and Lone Star II, where we have a 49% ownership) and one asset with partially
contracted revenues (Chile PV 2, where we have a 35% ownership). Although assets with merchant exposure represent less than a 2%2 of our portfolio in terms of
Adjusted EBITDA, if electricity market prices were lower than expected, this may have a negative impact on our business, revenues, results of operations and cash flows.
For example, due to low electricity prices in Chile, which determine lower merchant revenues and consequently less cash and debt service payment capacity, the project debts of Chile PV 1 and 2
were under an event of default as of December 31, 2023 and impairments were recorded in 2023 and 2022. For further information, see “Item 4.B–Business overview–Our Operations.”
Market prices may be volatile and are affected by various factors, including the cost of raw materials, user demand, and the price of GHG emission where applicable. During the year 2022 and 2023,
electricity market prices in Europe have also been affected by the war in Ukraine. In several of the jurisdictions in which we operate including Spain, Chile and Italy, we are exposed to remuneration schemes which contain both regulated
incentives and market price components. In such jurisdictions, the regulated incentive or the contracted component may not fully compensate for fluctuations in the market price component, and, consequently, total remuneration may be volatile.
Recent high market prices that we have been experiencing in Spain since the third quarter of 2021 resulted in higher cash collections in 2021 and 2022 which, in accordance with the regulation in place, caused a reduction of the regulated
remuneration component in 2022 and 2023. During 2023, electricity market prices have been lower than the price expected by the regulation. If market prices continue to be lower than the prices assumed by the regulation and the regulated
parameters are not revised until 2026, we may have an adverse effect on revenues, results of operations and cash flows in 2024 and 2025, which we expect will be compensated starting in 2026 in accordance with the regulation in place (see “—VII
Risks related to Regulation — Revenues in our solar assets in Spain are mainly defined by regulation and some of the parameters defining the remuneration are subject to review every periodically.”).
2 Calculated as a percentage of our Adjusted EBITDA for the year 2023.
In addition, operating costs in certain of our existing or future projects depend to some extent on market prices of electricity used for self-consumption and, to a lower extent, on market prices
of natural gas. In Spain, for example, operating costs increased in 2022 as a result of the increase in the price of natural gas and electricity.
There can be no assurance that market prices will remain at levels which enable us to maintain profit margins and desired rates of return on investment. A decline in market prices below
anticipated levels could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Additionally, in some of our current or future PPAs, and contracts our subsidiaries have obligations to reach a minimum production, to deliver certain amounts of energy irrespective of actual
production or to settle with the customer for the difference between the market price at our delivery point and a pre-agreed price in certain locations. This can result in our subsidiaries facing additional costs to purchase or sell power in
the market or to settle for differences or defaulting on PPAs or contracts or not reaching minimum production. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Lack of electric transmission capacity availability, potential upgrade costs to the electric transmission grid, and other systems constraints could
significantly impact our ability to generate electricity power sales and develop new projects.
We depend on electric interconnection and transmission facilities owned and operated by others to deliver the wholesale power we sell from our electric generation assets to our customers. We also
depend on the assignment of the access to new interconnection points for the development and construction of new projects. A failure or delay in the operation or development of these interconnection or transmission facilities or a significant
increase in the cost of the development of such facilities could result in the loss of revenues or in delays in the development and construction of new assets. Such failures or delays could limit the amount of power our operating facilities
deliver or delay the completion of our construction projects, as the case may be. Additionally, such failures, delays or increased costs may have a material adverse effect on our business, financial condition, results of operations and cash
flows. If a region’s electric transmission infrastructure is inadequate, our ability to generate electricity may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have a sufficient incentive
to invest in expansion of transmission infrastructure. We cannot predict whether interconnection and transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. Certain of our operating
facilities’ generation of electricity may be curtailed without compensation, or access to the grid might become uneconomical at certain times, due to transmission limitations or limitations on the electricity grid’s ability to accommodate
intermittent electricity generating sources, reducing our revenues and impairing our ability to fully capitalize on a particular facility’s generating potential. For example, in 2023 and 2022 some of our wind assets in the U.S. and some of our
solar assets in Chile and in Spain have been subject to curtailment and may be subject to similar or higher curtailment in the future. In addition, our solar assets in Spain need to achieve an annual minimum production threshold in order to
obtain the right to receive the Remuneration on Investment (Rinv). In the second quarter and beginning of third quarter of 2022, some of these assets were subject to significant technical curtailment by the grid operator, which had happened
very seldomly in the past. Although curtailments in Spain were lower in 2023, if curtailments increased in the future, Atlantica’s assets may not reach the annual minimum production threshold necessary to obtain the Remuneration on Investment
(Rinv). Curtailments in our different geographies may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our information technology and communications systems are subject to cybersecurity risk and other risks. The failure of these systems could significantly
impact our operations and business.
We are dependent upon information technology systems to run our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including,
without limitation, computer viruses, security breaches, cyber-attacks, ransomware attacks, malicious or destructive code, phishing attacks, natural disasters, design defects, denial-of-service-attacks or information or fraud or other security
breaches. Recently, energy facilities worldwide have been experiencing an increased number of cyber-attacks. Cybersecurity incidents, in particular, are constantly evolving and include malicious software, attempts to gain unauthorized access to
data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and to the corruption of data. There have been cyber-attacks within the energy
industry on electricity infrastructure such as substations and related assets in the past and there may be such attacks in the future. Our generation assets, transmission facilities, storage facilities, information technology systems and other
infrastructure facilities and systems could be direct targets of, or otherwise be materially adversely affected by such activities.
Given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production stops, unavailability in our transmission lines,
operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial
actions. These events could cause reputational damage and could limit our ability to raise capital. In addition, the implementation of security guidelines and measures has resulted in and is expected to continue to result in increased costs.
Such events or actions may materially adversely affect our business, financial condition, results of operations and prospects
We maintain global information technology and communication networks and applications to support our business activities. Given the increasing sophistication and evolving nature of the above
mentioned threats, we cannot rule out the possibility of them occurring in the future, and information technology security processes may not prevent future damages to systems, malicious actions, denial-of-service attacks, or fraud, resulting in
corruption of our systems, theft of commercially sensitive data, unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, misappropriation of funds and businesses (also known
as phishing), or other material disruptions to network access or business operations. Although we have a cybersecurity insurance policy, the costs related to cybersecurity threats or disruptions may not be fully insured. Material system
breaches and failures could result in significant interruptions that could in turn affect our operating results and reputation and cash flows. For further information about our cybersecurity systems and management, see “Item 16K-
Cybersecurity”.
Negative impacts on biodiversity, including harming of protected species or other environmental hazards can result in curtailment of power plant operations,
monetary fines. Negative publicity and delays in development of projects.
Managing and operating large infrastructure assets may have a negative impact on biodiversity in the regions where we operate. In particular, the operation of wind and solar power plants can
adversely affect endangered, threatened or otherwise protected animal species. Wind power plants involve a risk that protected species will be harmed, as the turbine blades travel at a high rate of speed and may strike flying animals (such as
birds or bats) that happen to travel into the path of spinning blades. Solar power plants can also present a risk to animals. Development of renewable and storage projects also requires us to comply with strict regulations aimed at preserving
biodiversity in the development sites. Compliance with regulation and with our own biodiversity policy could cause delays in the development of these projects.
Excessive killing of protected species or other environmental accidents or hazards could result in requirements to implement mitigation strategies, including curtailment of operations, and/or
substantial monetary fines and negative publicity. We cannot guarantee that any curtailment of operations, monetary fines that are levied, decrease on our ESG ratings and credentials or negative publicity as a result of incidental killing of
protected species and other environmental hazards will not have a material adverse effect on our business, financial condition, results of operations and cash flows. Violations of environmental and other laws, regulations and permit
requirements may also result in criminal sanctions or injunctions.
We may be subject to litigation, other legal proceedings and tax inspections.
We are subject to the risk of legal claims and proceedings (including bankruptcy proceeding), requests for arbitration, tax inspections as well as regulatory enforcement actions in the ordinary
course of our business and otherwise, including claims against our subsidiaries, assets, deals, or our subsidiaries not meeting their obligations. The results of legal and regulatory proceedings or tax inspections cannot be predicted with
certainty. We cannot guarantee that the results of current or future legal or regulatory proceedings, tax inspections or actions will not materially harm our operations, business, financial condition or results of operations, nor can we
guarantee that we will not incur losses in connection with current or future legal or regulatory proceedings, tax inspections or actions that exceed any provisions we may have set aside in respect of such proceedings or actions or that exceed
any available insurance coverage, which may have a material adverse effect on our business, financial condition, results of operations and cash flows. For further information about our legal proceedings, see “Item 4.B—Business Overview—Legal
Proceedings.”
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which
may make it difficult for us to complete strategic acquisitions or effect combinations.
If we were deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”), our business would be subject to applicable restrictions under the Investment
Company Act, which could make it impractical for us to continue our business as contemplated. We believe our Company is not an investment company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in a
non-investment company business, and we intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including
limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated.
| II. |
Risks Related to Our Relationship with Algonquin and Abengoa
|
Algonquin is our largest shareholder and exercises substantial influence over us.
Currently, Algonquin beneficially owns 42.2% of our ordinary shares and is entitled to vote approximately 41.5% of our ordinary shares. As a result of this ownership, Algonquin has substantial
influence on our affairs and has the power to vote a significant percentage of the shares eligible to vote on any matter requiring the approval of our shareholders. Such matters include the election of directors, the adoption of amendments to
our articles of association and approval of mergers, the sale of all or a high percentage of our assets and other strategic transactions.
In addition, Algonquin or other significant shareholders (present or future) could exercise substantial influence and could seek to direct or change our strategy or corporate governance or could
obtain effective control of us. The Shareholders Agreement that we have entered into with Algonquin may be amended and Algonquin may increase its voting rights above 41.5% or may increase its equity interest and take a controlling position in
Atlantica and change our strategy, including our dividend policy. Algonquin may also sell its stake in Atlantica and a third party may gain control over us and decide to change our strategy. There can be no assurance that the interests of
Algonquin or other (present or future) significant shareholders will coincide with the interests of our other shareholders or that Algonquin or other significant shareholders (present or future) will act in a manner that is in our best
interests. This concentration of ownership of our shares may also have the effect of discouraging others from making tender offers for our shares or propose other transactions that might otherwise provide you with an opportunity to dispose of
or realize a premium on your investment in our shares.
Further, our reputation is closely related to that of Algonquin. Any damage to the public image or reputation of Algonquin including as a result of adverse publicity, poor financial or operating
performance, liquidity, changes in financial condition, rating downgrades, decline in the price of its shares or otherwise could have a material adverse effect on our business, financial condition, results of operations, cash flows or the price
of our shares.
Our ownership structure and certain agreements may create significant conflicts of interest that may be resolved in a manner that is not in our best
interests.
Our ownership structure involves several relationships that may give rise to certain conflicts of interest between us, Algonquin, and the rest of our shareholders. Currently, one of our directors
is an officer of Algonquin and another director was an officer of Algonquin until August 10, 2023.
Currently, Algonquin is a related party and may have interests that differ from our interests, including with respect to the growth appetite, types of investments made, the timing and amount of
dividends paid by us, the re-investment of returns generated by our operations, the use of leverage or capital increases when making investments, the appointment of outside advisors and service providers and the potential sale of their equity
interest in Atlantica, including its timing and process, among others. Any transaction between us and Algonquin or Liberty GES (including the acquisition of any assets under the ROFO Agreements or any co-investment with Algonquin or Liberty GES
or any investment in an Algonquin or Liberty GES asset) is subject to our related party transactions policy, which requires prior approval of such transaction by the related party transactions committee, which is composed of independent
directors. The existence of our related party transactions approval policy may not insulate us from derivative claims related to related party transactions and the conflicts of interest described in this risk factor. Regardless of the merits of
such claims, we may be required to spend significant management time and financial resources in the defense thereof. Additionally, to the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation
and ability to raise additional funds and the willingness of counterparties to do business with us, all of which may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Legal proceedings involving Abengoa and its current and previous insolvency processes and events and circumstances that led to them could affect us.
Prior to the completion of our initial public offering in 2014, we and many of our assets were part of Abengoa. Many of our senior executives have previously worked for Abengoa. Abengoa’s
restructuring processes, and the events and circumstances that led to them, are currently the subject of various legal proceedings and investigations, and may in the future become the subject of additional proceedings. To the extent that
allegations are made in any such proceedings that involve us, our assets, our dealings with Abengoa or our employees, such proceedings may have a material adverse effect on our business, financial condition, results of operations and cash
flows, as well as on our reputation and employees.
In addition, in Mexico, Abengoa was the owner of a plant that shares certain infrastructure and has certain back-to-back obligations with ACT. ACT is required to deliver an equipment to Pemex
which has been donated and delivered to ACT by such plant. If we are unable to comply with these obligations, it may result in a material adverse effect on ACT and on our business, financial conditions, results of operations and cash flows.
According to public information, the plant mentioned above is currently controlled by a third party.
| III. |
Risks Related to Our Indebtedness
|
Our indebtedness could limit our ability to react to changes in the economy or our industry, expose us to the risk of increased interest rates and limit our
activities due to covenants in existing financing agreements. It could also adversely affect the ability of our project subsidiaries to make distributions to Atlantica Sustainable Infrastructure plc, our ability to fund our operations, pay
dividends or raise additional capital.
As of December 31, 2023, we had (i) $4,319 million of total indebtedness under various project-level debt arrangements and (ii) $1,085 million of total indebtedness under our corporate
arrangements, which include the Revolving Credit Facility, the Note Issuance Facility 2020, the 2020 Green Private Placement, the Green Exchangeable Notes and the Green Senior Notes. Furthermore, we may incur in the future additional
project-level debt and corporate debt.
Our substantial debt could have important negative consequences on our business, financial condition, results of operation and cash flows including:
| • |
increasing our vulnerability to general economic and industry conditions;
|
| • |
requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to pay dividends to holders of
our shares or to use our cash flow to fund our operations, capital expenditures, and future business opportunities;
|
| • |
limiting our ability to enter into long-term power sales, fuel purchases and swaps which require credit support;
|
| • |
limiting our ability to fund operations or future investments and acquisitions;
|
| • |
restricting our ability to make certain distributions with respect to our shares and the ability of our subsidiaries to make certain distributions to us, in light of restricted payment and other financial
covenants in our credit facilities and other financing agreements;
|
| • |
exposing us to the risk of increased interest rates because a portion of some of our borrowings (approximately 7% as of December 31, 2023 after giving effect to hedging agreements) are at variable
interest rates and exposing Atlantica to the risk of increased interest rates in the future when the Company needs to refinance its corporate debt;
|
| • |
limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, investments and acquisitions and general corporate or other purposes, and limiting
our ability to post collateral to obtain such financing; and
|
| • |
limiting our ability to adjust to changing market conditions and placing us at a disadvantage compared to our competitors who have less debt.
|
The operating and financial restrictions and covenants in the Revolving Credit Facility, the 2020 Green Private Placement, the Note Issuance Facility 2020 and the Green Senior Notes may adversely
affect our ability to finance our future operations or capital needs, to engage in other business activities that may be in our interest and to execute our business strategy as we intend to do so. Each contains covenants that limit certain of
our, the guarantors’ and other subsidiaries’ activities. If we breach any of these covenants (including as a result of our inability to satisfy certain financial covenants), a default may result which may entitle the related noteholders or
lenders, as applicable to demand repayment and accelerate all such debt or to enforce their security interests, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. See “Item
5.B—Operating and Financial Review and Prospects—Liquidity and Capital Resources— Corporate debt agreements.”
In addition, our inability to satisfy certain financial covenants may prevent cash distributions by the particular project(s) and other subsidiaries to us. If our project-level and other
subsidiaries are unable to make distributions, it would likely have a material adverse effect on our ability to service debt at the corporate level or to pay dividends to holders of our shares. Our failure to comply with those and other
covenants could result in an event of default which, if not cured or waived, may entitle the related noteholders or lenders, as applicable to demand repayment or to enforce their security interests, which may have a material adverse effect on
our business, financial condition, results of operations and cash flows. In addition, failure to comply with such covenants, may entitle the related noteholders or lenders, as applicable, to demand repayment and accelerate all such
indebtedness.
Due to low electricity prices in Chile, the project debts of Chile PV 1 and 2 are under an event of default as of December 31, 2023 and as of the date of this annual report. Chile PV 1 was not
able to maintain the minimum required cash in its debt service reserve account as of December 31, 2023 and did not make its debt service payment in January. In addition, in October 2023, Chile PV 2 did not make its debt service payment. This
asset obtained additional financing from the banks and made the debt service payment in December 2023, although it was not able to sufficiently fund its debt service reserve account subsequently. As a result, although we do not expect an
acceleration of the debt to be declared by the credit entities, as of December 31, 2023 Chile PV 1 and 2 did not have an unconditional right to defer the settlement of the debt for at least twelve months and the project debt was classified as
current in our Annual Consolidated Financial Statements. We are in conversations with the banks, together with our partner, regarding a potential waiver. Impairments were recorded in these assets in 2023 and 2022. The value of the net assets
contributed by Chile PV 1 and 2 to our Annual Consolidated Financial Statements, excluding non-controlling interest, was close to zero as of December 31, 2023. If we do not reach an agreement with the banks which have financed Chile PV 1 and 2,
we may lose these assets.
Letter of credit facilities or bank guarantees to support project-level contractual obligations generally need to be renewed, at which time we will need to satisfy applicable financial ratios and
covenants. If we are unable to renew the letters of credit as expected or replace them with letters of credit under different facilities on favorable terms or at all, we may experience a material adverse effect on our business, financial
condition, results of operations and cash flows. Furthermore, such inability may constitute a default under certain project-level financing arrangements, restrict the ability of the project-level subsidiary to make distributions to us and/or
reduce the amount of cash available at such subsidiary to make distributions to us.
We may not be able to arrange the required or desired financing for investments and acquisitions and for the successful financing or refinancing of the
Company’s project level and corporate level indebtedness.
Our ability to arrange the required or desired financing, either at corporate level or at a project-level, and the costs of such capital, are dependent on numerous factors, including:
| • |
general economic and capital market conditions;
|
| • |
credit availability from banks, other financial institutions and tax equity investors;
|
| • |
investor confidence in us;
|
| • |
our financial performance, cash flow generation and the financial performance of our subsidiaries;
|
| • |
our level of indebtedness and compliance with covenants in debt agreements;
|
| • |
maintenance of acceptable project and corporate credit ratings or credit quality; and
|
| • |
tax and securities laws that may impact raising capital.
|
We may not be successful in obtaining additional capital for these or other reasons. Furthermore, we may be unable to refinance or replace project-level financing arrangements or other credit
facilities on favorable terms or at all upon the expiration or termination thereof. We may be unable to repay our existing debt as it becomes due if we fail, or any of our projects fails, to obtain additional capital or enter into new or
replacement financing arrangements, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. We may be unable to find financing for projects under construction or long-term project
financing and tax equity investor financing once the assets reach COD.
In addition, the global capital and credit markets have experienced in the past and may continue to experience periods of extreme volatility and disruption. At times, our access to financing was
curtailed by market conditions and other factors. Continued disruptions, uncertainty or volatility in the global capital and credit markets may limit our access to additional capital required to refinance our debt on satisfactory terms or at
all, may limit our ability to replace, in a timely manner, maturing liabilities, and may limit our access to new debt and equity capital to make further investments and acquisitions. Volatility in debt markets may also limit our ability to fund
or refinance many of our projects and corporate level debt, even in cases where such capital has already been committed. In addition, given that our dividend policy is to distribute a high percentage of our cash available for distribution, our
growth strategy and refinancing relies on our ability to raise capital to finance our investments and acquisitions. Our high pay-out ratio may hamper our ability to manage liquidity in moments when accessing capital markets becomes more
challenging. In the event we are not able to raise capital, we may have to postpone or cancel planned acquisitions, investments or capital expenditures. The inability to raise capital, higher costs of capital or postponement or cancellation of
planned acquisitions, investments or capital expenditures may have a material adverse effect on our business, financial condition, results of operations and cash flows. If financing is available, utilization of our credit facilities, debt
securities or project level financing for all or a portion of the purchase price of an acquisition, as applicable, could significantly increase our interest expense and debt repayment, impose additional or more restrictive covenants, and reduce
cash available for distribution.
We may be subject to increased finance expenses if we do not effectively manage our exposure to interest rate and foreign currency exchange rate risks.
We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes and foreign currency exchange rate fluctuations. Some of our
indebtedness (including project-level indebtedness) bears interest at variable rates, generally linked to market benchmarks such as EURIBOR or SOFR. During 2022, the U.S. Federal Reserve increased the reference interest rates in the United
States from 0.125% to a targeted range between 4.25% and 4.50%, which was further increased to a range between 5.25% to 5.50% in 2023. Similarly, the European Central Bank increased the reference interest rates in the Euro zone from negative
levels up to 2% in 2022 and up to 4.5% in 2023. Any increase in interest rates would increase our finance expenses relating to our un-hedged variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing
new debt at the corporate level or at the project level.
In addition, we seek to actively work with lending financial institutions to mitigate our interest rate risk exposure and to secure lower interest rates by entering into interest rate options and
swaps. We estimate that approximately 92% of our project debt and 94% of our corporate debt was fixed or hedged as of December 31, 2023. The Revolving Credit Facility, with a limit of $450 million of which $378 million were available as of
December 31, 2023 is subject to variable interest rates.
In addition, although most of our long-term contracts are denominated in, indexed or hedged to U.S. dollars, we conduct our business and incur certain costs in the local currency of the countries
in which we operate. In addition, the revenues, costs and debt of our solar assets in Spain, Italy, South Africa and Colombia are denominated in local currency. We have a hedging strategy for our solar assets in Europe. Since the beginning of
2017, we have maintained euro-denominated debt at the corporate level. Interest payments in euros and our euro denominated general and administrative expenses create a natural hedge for a portion of the distributions from assets in Europe. Our
strategy is to hedge the exchange rate for the distributions received in euros after deducting euro-denominated interest payments and euro-denominated general and administrative expenses. Through currency options, we hedge on a rolling basis
100% of the net euro net exposure for the next 12 months and 75% of the net euro net exposure for the following 12 months. However, if the euro depreciated against the U.S. dollar in the long term, we would have a negative impact on our cash
flows after 24 months. In addition, a depreciation of the South African rand, the Colombian peso or a long-term depreciation of the Euro could have a negative impact on our results of operations and cash flows. See “Item 5.A—Operating and
Financial Review and Prospects —Results of Operations—Factors Affecting the Comparability of Our Results of Operations.”
In addition, although we hedge cash-flows in euros, fluctuations in the value of the euro in relation to the U.S. dollar may affect our operating results. For example, revenue in euro-denominated
companies could decrease when translated to U.S. dollars at the average foreign exchange rate solely due to a decrease in the average foreign exchange rate, in spite of revenue in the original currency being stable. Fluctuations in the value of
South African rand and Colombian peso with respect to the U.S. dollar may also affect our operating results.
As we continue expanding our business, an increasing percentage of our revenue and cost of sales may be denominated in currencies other than our reporting currency, the U.S. dollar. Under that
scenario, we would become subject to increasing currency exchange risk, whereby changes in exchange rates between the U.S. dollar and the other currencies in which we do business could result in foreign exchange losses.
If our risk-management strategies are not successful in limiting our exposure to changes in interest rates and foreign currency exchange rates our business, financial condition, results of
operations and cash flows maybe materially adversely affected.
Potential future defaults by our subsidiaries, our off-takers, our suppliers or other persons could adversely affect us.
The financing agreements of our project subsidiaries are primarily loan agreements which provide that the repayment of the loans (and interest thereon) is secured solely by the shares, physical
assets, contracts and cash flow of that project company. This type of financing is usually referred to herein as “project debt.” As of December 31, 2023, we had $4,319 million of outstanding indebtedness under various project-level debt
arrangements.
While the lenders under our project debt do not have direct recourse to us or our subsidiaries (other than the letter of credit and bank guarantee facilities), defaults by the project borrowers
under such financings can still have important consequences for us and our subsidiaries, including, without limitation:
| • |
reducing our receipt of dividends, fees, interest payments, loans and other sources of cash, since the project company will typically be prohibited from distributing cash to us and our subsidiaries until
the event of default is cured or waived;
|
| • |
default under our other debt instruments;
|
| • |
causing us to record a loss in the event the lender forecloses on the assets of the project company; and
|
| • |
the loss or impairment of investors and project finance lenders’ confidence in us.
|
If we fail to satisfy any of our debt service obligations or breach any related financial or operating covenants, the applicable lender could declare the full amount of the relevant project debt
to be immediately due and payable and could foreclose on any assets pledged as collateral.
Under the Revolving Credit Facility, the 2020 Green Private Placement, the Green Senior Notes and the Note Issuance Facility 2020, a payment default with respect to indebtedness having an
aggregate principal amount above certain thresholds by us, any guarantor thereof or one or more of our non-recourse subsidiaries representing more than 25% of the cash available for distribution distributed in the previous four fiscal quarters
could trigger a default.
Any of these events may have a material adverse effect on our business, financial condition, results of operations and cash flows.
A change of control or a delisting of our shares may have negative implications for us.
If any investor acquires over 50.0% of our shares or if our ordinary shares cease to be listed on the NASDAQ or a similar stock exchange, we may be required to refinance all or part of our
corporate debt or obtain waivers from the related noteholders or lenders, as applicable, due to the fact that all of our corporate financing agreements contain customary change of control provisions and delisting restrictions. The project debt
of some of our assets also requires a waiver in the event of a change of control. If we fail to obtain such waivers and the related noteholders or lenders, as applicable, elect to accelerate the relevant corporate debt, we may not be able to
repay or refinance such debt (on favorable terms or at all), which may have a material adverse effect on our business, financial condition results of operations and cash flows. In addition, the PPAs of some assets would require a waiver in the
event of a change of control and some of our PPAs and project financing agreements would require a notification. Additionally, in the event of a change of control we could see an increase in the yearly state property tax payment in Mojave,
which would be reassessed by the tax authority at the time the change of control potentially occurred. Our best estimate with current information available and subject to further analysis is that we could have an incremental annual payment of
property tax of approximately $9 million to $11 million, which could potentially decrease progressively over time as the asset depreciates. There could also be other tax impacts and other impacts that we have not yet identified. Furthermore, a
change of control could trigger an ownership change under Section 382 of the IRC which could have a material adverse effect on our business, financial condition results of operations and cash flows (see “Risks Related to Taxation – Our ability
to use U.S. NOLs to offset future income may be limited”).
The process to explore and evaluate potential strategic alternatives may not be successful.
On February 21, 2023, Atlantica’s board of directors commenced a process to explore and evaluate potential strategic alternatives that may be available to Atlantica to maximize shareholder value.
There is no assurance about the outcome of this process, that any specific transaction will be identified or consummated or that any other strategic change will be implemented as a result of this strategic review, or that any such review may
achieve any expected results.
Unanticipated developments could delay, prevent or otherwise adversely affect the planned strategic review, including but not limited to volatility in the financial markets, disruptions in general
or financial market conditions or potential problems or delays in obtaining various regulatory and tax approvals or clearances.
In addition, whether or not any such strategic alternative is identified, pursued and/or consummated, such review could cause disruptions in the businesses of the Company by directing the
attention of the board of directors and management and other resources (including significant costs) toward such review or the preparation of the Company to pursue and consummate any strategic alternative. The process could potentially increase
employee turnover. If no such strategic alternative is identified or completed, the Company may have incurred significant costs, including the diversion of directors and management resources, for which they will have received little or no
benefit. The process could result in a transaction or a change in strategy that negatively affects our share price, either temporarily or permanently. As of the date of this annual report, the strategic review is ongoing and we have not
determined a timeframe for its conclusion.
| IV. |
Risks Related to Our Growth Strategy
|
We may not be able to identify or consummate future investments and acquisitions on favorable terms, or at all.
Our business strategy includes growth through investments in projects under development or construction and through the acquisition of additional revenue-generating assets. This strategy depends
on our ability to successfully identify and evaluate investment opportunities, develop and build new assets and consummate acquisitions on favorable terms. The number of investment opportunities may be limited.
Our ability to develop, build or acquire future renewable energy projects or businesses depends on the viability of renewable energy projects generally. These projects are in some cases contingent
on public policy mechanisms including, among others, ITCs, PTCs, cash grants, loan guarantees, accelerated depreciation, expensing for certain capital expenditures, carbon trading plans, environmental tax credits and research and development
incentives. See “—VII. Risks Related to Regulation—Government regulations could change at any time and such changes may negatively impact our current business and our growth strategy.” Our ability to develop and build new assets depends, among
other things, on our ability to secure transmission interconnection access or agreements, to secure land rights, to secure PPAs or similar schemes and to obtain licenses and permits and we cannot guarantee that we will be successful obtaining
them (see “Our ability to develop renewable projects is subject to construction risks and risks associated with the arrangements with our joint venture partners”). Our ability to consummate future investments and acquisitions may also depend on
our ability to obtain any required government or regulatory approvals for such investments, including, but not limited to, FERC, approval under Section 203 of the FPA in respect of investments in the United States; or any other approvals in the
countries in which we may purchase assets in the future. We may also be required to seek authorizations, waivers or notifications from debt and/or equity financing providers at the project or holding company level; local or regional agencies or
bodies; and/or development agencies or institutions that may have a contractual right to authorize a proposed acquisition.
Furthermore, we will compete with other local and international companies for acquisition opportunities from third parties, which may increase our cost of making investments or cause us to refrain
from making acquisitions from third parties. Some of our competitors for investments and acquisitions may pay more for acquisitions and may be able to identify, evaluate, bid for and purchase a greater number of assets or projects under
development than our financial or human resources permit. If we are unable to identify and consummate future investments and acquisitions, it will impede our ability to execute our growth strategy and limit our ability to increase the amount of
dividends paid to holders of our shares.
Our ability to consummate future investments also depends on the availability of financing. See “—IV. Risks Related to Our Indebtedness—We may not be able to arrange the required or desired
financing for investments or for the successful refinancing of the Company’s project level and corporate level indebtedness.”
Demand for renewable energy may be affected by the cost of other energy sources. To the extent renewable energy becomes less cost-competitive, demand for renewable energy could decrease. Slow
growth or a long-term reduction in the energy demand could cause a reduction in the development of renewable energy program projects. Decreases in the prices of electricity could affect our ability to acquire assets, as renewable energy
developers may not be able to compete with providers of other energy sources at such lower prices. Our inability to acquire assets could have a material adverse effect on our ability to execute our growth strategy.
In addition, our ability to grow organically is limited to some assets which have inflation indexation mechanisms in their revenues, to our transmission lines and to some renewable assets. We may
not be able to deliver organic growth.
In addition, although we have a ROFO Agreement with Algonquin, our growth through the acquisitions from Algonquin or co-investments with them has been limited. Liberty GES and Algonquin may not
offer us assets at all or may not offer us assets that fit within our portfolio or contribute to our growth strategy. Only certain assets outside the United States and Canada are included in the Algonquin ROFO Agreement. Liberty GES and
Algonquin may decide to keep assets subject to our ROFO Agreements in their portfolios and not offer them to us for acquisition. Algonquin can terminate the Algonquin ROFO Agreement with us with a 180-day notice. Additionally, we may not reach
an agreement on the price of assets offered by Liberty GES or Algonquin. For these reasons, we may not be able to consummate future investments from Liberty GES or Algonquin, which may restrict our ability to grow.
Our ability to develop renewable projects is subject to development and construction risks and risks associated with the arrangements with our joint venture
partners
We are developing projects and we have reached agreements with a number of partners in order to develop assets in the geographies in which we operate, however we cannot guarantee that our
investments will be successful and that our growth expectations will materialize. Additionally, we cannot guarantee that we will be successful in identifying new potential projects and partners or that we will be able to acquire additional
assets from those partners in the future. If we are unable to identify projects under such agreements or to reach new agreements on favorable terms with new partners, or if we are unable to consummate future acquisitions from any such
agreement, it may limit our ability to execute our growth strategy and may have a materially adverse effect on our business, financial condition, results of operation and cash flows.
Furthermore, development and construction activities are subject to failure rate and different types of risks. Our ability to develop new assets is dependent on our ability to secure or renew our
rights to an attractive site on reasonable terms; accurately measuring resource availability; the ability to secure new or renewed approvals, licenses and permits; the acceptance of local communities; the ability to secure transmission
interconnection access or agreements; the ability to successfully integrate new projects into existing assets; the ability to acquire suitable labor, equipment and construction services on acceptable terms; the ability to attract project
financing, including tax equity; our ability to estimate the future revenue and returns for storage projects after the end of the contracted period and the ability to secure PPAs or other sales contracts on reasonable terms. Failure to achieve
any one of these elements may prevent the development and construction of a project. If any of the foregoing were to occur, we may lose all of our investment in development expenditures and may be required to write-off project development
assets.
In addition, the construction and development of new projects is subject to environmental, engineering and construction risks that could result in cost over-runs, delays and reduced performance. A
number of factors that could cause such delays, cost over-runs or reduced performance include, changes in local laws or difficulties in obtaining permits, rights of way or approvals, changing engineering and design requirements, construction
costs exceeding estimates for various reasons, including inaccurate engineering and planning, failures to properly estimate the cost of raw materials, components, equipment, labor or the inability to timely obtain them, unanticipated problems
with project start-up, the performance of contractors, labor disruptions, inclement weather, defects in design, engineering or construction and project modifications. A delay in the projected completion of a project can result in a material
increase in total project construction costs through higher capitalized interest charges, additional labor and other expenses, and a delay in the commencement of cash flow.
If we co-invest with partners, or on our own, in assets under development or construction, we cannot guarantee that the development and construction of the asset will be successful and that we end
up owning an operational asset.
In order to grow our business, we may invest in or acquire assets or businesses which have a higher risk profile or are less ESG-friendly than certain assets in our current
portfolio.
In order to grow our business, we may develop and build or acquire assets and businesses which may have a higher risk profile than certain of the assets we currently own. Availability of assets
with long-term contracts has decreased over the last few years, competition to acquire contracted assets in operation has been high in recent years and is expected to continue being so. We intend to increase our investments in assets which are
not currently in operation, and which are subject to development and construction risk. Construction of renewable assets, among others, is subject to risk of cost over-runs and delays. There can be no assurances that assets under development
and construction will perform as expected or that the returns will be as expected. In addition, we may consider investing more in assets which are not contracted or not fully contracted, for which revenues will depend on the price of the
electricity and which are therefore subject to merchant risk. We may also consider investing in businesses which are regulated or which are contracted with “as contracted” agreements or hedge agreements where we need to deliver the contracted
power even if the facility is not in operation or which are subject to demand risk. We have recently invested and may consider investing in business sectors where we do not have previous experience and may not be able to achieve the expected
returns. We may also consider investing with partners or on our own in new technologies which do not have for the moment a long history track record as proven as our current assets, such as storage, district heating, geothermal, offshore wind
or hydrogen. We may also consider investing in distributed generation in smaller commercial and industrial facilities. Furthermore, we may consider investing in assets in new markets or with revenues not denominated in U.S. dollars or euros,
which would increase our exposure to local currency, and which could generate higher volatility in the cash flows we generate. In all these types of assets and businesses, the risk of not meeting the expected cash flow generation and expected
returns is higher than in contracted assets. In addition, these type of assets and businesses could present a higher variability in the cash flows they generate. We may also invest in assets which may be considered as less ESG-friendly than
certain assets in our current portfolio by current and potential investors. For example, considering the competitive landscape for renewable assets in recent years, we may acquire additional natural gas assets. Although we have set a target to
maintain at least 85% of our Adjusted EBITDA generated by low carbon footprint assets, some investors with a focus on ESG may consider this target insufficient, which could cause us to become less attractive to investors.
As a result, the consummation of investments and acquisitions may have a material adverse effect on our ability to grow, our business, financial condition, results of operations and cash flows.
We cannot guarantee the success of our recent and future investments.
Acquisitions of and investments in companies and assets are subject to substantial risks, including unknown or contingent liabilities (including violations of environmental, antitrust,
anti-corruption, anti-bribery and anti-money laundering laws, and tax and labor disputes), the failure to identify material problems during due diligence (for which we may not be indemnified post-closing) or the risk of over-paying for assets
(or not making acquisitions on an accretive basis). In some of our acquisitions the former owners agreed, or may agree, to indemnify us for certain of these matters. However, such indemnification obligations are often subject to materiality
thresholds and guaranty limits, and such obligations are generally time limited. For certain acquisitions, we may not be able to successfully negotiate for such indemnification obligations. As a result, we may not recover any amounts with
respect to losses due to unknown or contingent liabilities or breaches by the sellers of their representations and warranties. All this may adversely affect our business, financial condition, results of operations and prospects.
Furthermore, the integration and consolidation of acquisitions require substantial human, financial and other resources and, ultimately, our acquisitions may divert management’s attention from our
existing business concerns, disrupt our ongoing business or not be successfully integrated at all. As a result, the consummation of acquisitions may have a material adverse effect on our ability to grow, our business, financial condition,
results of operations and cash flows.
We may be unable to complete all, or any, such transactions that we may analyze. Even where we consummate investments, we may be unable to achieve projected cash flows or we may encounter
regulatory complications arising from such transactions. Furthermore, the terms and conditions of financing for such investments could restrict the manner in which we conduct our business. These risks could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
We may also make acquisitions or investments in assets that are located in different jurisdictions and are different from, and may be riskier than, those jurisdictions in which we currently
operate (Canada, the United States, Mexico, Peru, Chile, Colombia, Uruguay, Spain, Italy, South Africa and Algeria). See “—VI. Risks Related to the Markets in Which We Operate—We have international operations and investments, including in
emerging markets that could be subject to economic, social and political uncertainties.” These changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our cash dividend policy may limit our ability to grow and make investments through cash on hand.
Our dividend policy is to distribute a high percentage of our cash available for distribution, after corporate general and administrative expenses and cash interest payments and less reserves for
the prudent conduct of our business, and to rely primarily upon external financing sources, including the issuance of debt and equity securities as well as borrowings under credit facilities to fund our acquisitions, investments and potential
growth capital expenditures. In addition, Algonquin may terminate the Shareholders Agreement if dividend payment is lower than 80% of the cash available for distribution. Our Board of Directors may change our dividend policy at any time. We may
be precluded from pursuing otherwise attractive investments if the projected short-term cash flow from the acquisition or investment does not meet our minimum expectations.
Because of our dividend policy, our growth may not be as fast as that of businesses that re-invest their available cash to expand ongoing operations. To the extent we issue additional equity
securities in connection with any acquisitions or growth capital expenditures, the payment of dividends on these additional equity securities may increase the risk that we will be unable to maintain or increase our per share dividend. There are
no limitations in our articles of association on our ability to issue equity securities, including convertible bonds, preferred shares or other securities ranking senior to our shares.
In addition, our Board of Directors may decide at any time to change our strategy and may agree on measures to foster our ability to grow which could include, for example, to acquire a large
development company to have a larger pipeline of projects under development or to reduce our dividend to re-invest in growth a larger part of the cash we generate.
| VI. |
Risks Related to the Markets in Which We Operate
|
Difficult conditions in the global economy and in the global capital markets have caused, and may continue to cause, a negative impact on our business.
Our results of operations have been, and continue to be, materially affected by conditions in the global economy. Capital markets have been experiencing high volatility during 2022 and 2023 both
in the United States and Europe. Concerns over the COVID-19 pandemic, high inflation, interest rate increases, war in Ukraine, energy crisis in Europe, volatile gas prices, high electricity prices particularly in Europe, tensions between the
U.S., Russia and China, the availability and cost of credit, and the instability of the euro have contributed to increased volatility in capital markets and worsened expectations for the economy. During the year 2023 and beginning of 2024, the
valuations of renewable ETFs and renewable companies in the United States and Europe have generally decreased.
After the sharp recession caused by the COVID-19 pandemic in 2020, the recovery in demand during the year 2021 caused disruptions in the supply chain with global shortages of some products and
materials and high inflation rates. Supply chain issues persisted in 2022 and 2023. Further disruptions in the supply chain could limit the availability of certain parts required to operate our facilities and could adversely impact our ability
(or our operation and maintenance suppliers’ ability) to operate our plants or to perform maintenance activities. If we were to experience a shortage of or inability to acquire critical spare parts, we could incur significant delays in
returning facilities to full operation, which could negatively impact our business, financial condition, results of operations and cash flows. Supply chain tensions may also affect our projects in development and construction where we can
experience delays or an increase in prices of equipment and materials required for the construction of new assets, which may cause a material adverse effect on our business, financial condition, results of operations and cash flows. Prolonged
inflation may also cause a material adverse effect on our business, financial condition, results of operations and cash flows
Adverse events and continuing disruptions in the global economy and capital markets may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Moreover, even in the absence of a market downturn, we are exposed to risk of loss due to market volatility and other factors, including volatile oil and gas prices, increasing electricity prices, interest rates swings, changes in consumer
spending, business investment, government spending, and rising inflation, among others, that could affect the economic and financial situation of our concession agreements’ counterparties and, ultimately, the profitability and growth of our
business. In the past, including in 2023, the price of shares in certain sectors including companies paying a high dividend and companies with a strategy focused on growth has been inversely correlated with interest rates. If interest rates
continued to raise, this may have a further negative impact on the price of our shares.
Generalized or localized downturns or inflationary pressures in our key geographical areas could also have a material adverse effect on our business, financial condition, results of operations and cash flows. A significant portion of our
business activity is concentrated in the United States, Spain, Mexico and Peru. Consequently, we are significantly affected by the general economic conditions in these countries. To the extent uncertainty regarding the European economic
recovery continues to negatively affect government or regional budgets, our business, financial condition, results of operations and cash flows could be materially adversely affected.
Global geopolitical tensions, including from the February 2022 Russian military actions across Ukraine, from October 2023 military actions in the Middle East and military actions in the Red Sea
may rise further and create heightened volatility in the electricity market as well as disruptions and delays in the supply chain that could negatively affect both our ability to execute our business and growth strategy. Such military actions,
and sanctions in response thereof as well as escalation of conflicts, could significantly affect worldwide electricity market prices and demand, negatively affect supply chains and cause turmoil in the capital markets and generally in the
global financial system. This could have a material adverse effect on our business, financial condition, results of operations and cash flows, making it difficult to execute our growth strategy.
We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.
We operate our activities in a range of international locations, including North America (Canada, the United States and Mexico), South America (Peru, Chile, Colombia and Uruguay), and EMEA (Spain,
Italy, Algeria and South Africa), and we may expand our operations to certain core countries within these regions. Accordingly, we face several risks associated with operating and investing in different countries that may have a material
adverse effect on our business, financial condition, results of operations and cash flows. These risks include, but are not limited to, adapting to the regulatory requirements of such countries, compliance with changes in laws and regulations
applicable to foreign corporations, the uncertainty of judicial processes, and the absence, loss or non-renewal of favorable treaties, or similar agreements, with local authorities, or political, social and economic instability, all of which
can place disproportionate demands on our management, as well as significant demands on our operational and financial personnel and business. As a result, we can provide no assurance that our future international operations and investments will
remain profitable.
A significant portion of our current and potential future operations and investments are conducted in various emerging countries worldwide. Our activities and investments in these countries
involve a number of risks that are more prevalent than in developed markets, such as economic and governmental instability, the possibility of significant amendments to, or changes in, the application of governmental regulations, the
nationalization and expropriation of private property, payment collection difficulties, social unrest or protests, substantial fluctuations in interest and exchange rates, changes in the tax framework or the unpredictability of enforcement of
contractual provisions, currency control measures, limits on the repatriation of funds and other unfavorable interventions or restrictions imposed by public authorities. Countries like Mexico, Peru and Chile currently have governments which are
favorable to increase public spending and tax pressure. In addition, the current government in Mexico proposed in the past regulations which intend to benefit local business rather than foreign investors. In Peru, after an attempt by the former
president to dissolve congress and replace it with an “exceptional emergency government”, the president was replaced. Political uncertainty may persist in the upcoming months. In countries such as Algeria or South Africa, a change in government
can cause instability in the country and a new government may decide to change laws and regulations affecting our assets or may decide to expropriate such assets. All this may have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Our U.S. dollar-denominated contracts in several assets are payable in local currency at the exchange rate of the payment date and in some cases include portions in local currency. In the event of
a rapid devaluation or implementation of exchange or currency controls, we may not be able to exchange the local currency for the agreed dollar amount, which could affect our cash available for distribution. Likewise, our contracts in South
Africa and Colombia are payable in local currency. Governments in Latin America and Africa frequently intervene in their economies and occasionally make significant changes in policy and regulations. Governmental actions aimed to control
inflation and other similar policies and regulations have often involved, among other measures, price controls, currency devaluations, capital or exchange controls and limits on imports. Such devaluation, implementation of exchange or currency
controls or governmental involvement may have a material adverse effect on our business, financial condition, results of operations and cash flows.
| VI. |
Risks Related to Regulation
|
We are subject to extensive governmental regulation in a number of different jurisdictions, and our inability to comply with existing regulations or
requirements in applicable regulations or requirements may have a negative impact on our business, financial condition, results of operations and cash flows.
We are subject to extensive regulation of our business in the countries in which we operate. Such laws and regulations require licenses, permits and other approvals to be obtained in connection
with the operations of our activities. This regulatory framework imposes significant actual, day-to-day compliance burdens, costs and risks on us. The power plants, transmission lines and other assets that we own are subject to strict
international, national, state and local regulations relating to their operation and expansion (including, among other things, leasing and use of land, and corresponding building permits, landscape conservation, noise regulation, environmental
protection and environmental permits and electric transmission and distribution network congestion regulations). Non-compliance with such regulations could result in reputational damage, the revocation of permits, sanctions, fines, criminal
penalties or affect our ability to satisfy applicable ESG standards. Compliance with regulatory requirements may result in substantial costs to our operations that may not be recovered. All the above could have a negative impact on us and a
material adverse effect on our business, financial condition, results of operations and cash flows.
Our business is subject to stringent environmental regulation.
We are subject to significant environmental regulation, which, among other things, requires us to obtain and maintain regulatory licenses, permits and other approvals and comply with the
requirements of such licenses, permits and other approvals and perform environmental impact studies on changes to projects. In addition, our assets need to comply with strict environmental regulation on air emissions, water usage and
contaminating spills, among others. Our policy is to maintain environmental insurance policies. We can give no assurance that we will be able to maintain such policies in the future. Additionally, as a company with a focus on ESG and most of
the business in renewable energy, environmental incidents can also significantly harm our reputation. There can be no assurance that:
| • |
public opposition will not result in delays, modifications to or cancellation of any project or license;
|
| • |
laws or regulations will not change or be interpreted in a manner that increases our costs of compliance or require new investments and may have a material adverse effect on our business, financial
condition, results of operations and cash flows, including preventing us from operating an asset if we are not in compliance; or
|
| • |
governmental authorities will approve our environmental impact studies where required to implement proposed changes to operational projects.
|
We believe that we are currently in material compliance with all applicable regulations, including those governing the environment. In the past, we have experienced some environmental accidents
and we have been found not to be in compliance with certain environmental regulations and have incurred fines and penalties associated with such violations which, to date, have not been material in amount. At any point in time, we are subject
to review and in some cases challenges regarding our compliance that might result in future fines and penalties or other remediation measures. At this point in time, we believe that such reviews will not result in a material financial impact.
In one of our plants in Spain we have a difference of interpretation with an agency which may result, if the agency, and eventually the court, decided against our position in an eventual modification of the plant several years from today with a
cost that we do not expect to be material. We can give no assurance, however, that we will continue to be in compliance or avoid material fines, penalties, sanctions and expenses associated with compliance issues in the future. Violation of
such regulations may give rise to significant liability, including fines, damages, fees and expenses, additional taxes and site closures. The costs of compliance as well as non-compliance may have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Government regulations could change at any time and such changes may negatively impact our current business and our growth strategy.
Our assets are subject to extensive regulation. Changes in existing energy, environmental and administrative laws and regulations may have a material adverse effect on our business, financial
condition, results of operations and cash flows, including on our growth plan and investment strategy. Also, such changes may in certain cases, have retroactive effects and may cause the result of operations to be lower than expected, or
increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and even criminal penalties. Our business may also be affected by additional taxes imposed on our activities or changes in
regulations, reduction of regulated tariffs and other cuts or measures.
Changes in laws and regulations could increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and even criminal penalties. In addition,
changes in laws and regulations may, in certain cases, have retroactive effect and may cause the result of operations to be lower than expected. In particular, our activities in the energy sector are subject to regulations applicable to the
economic regime of generation of electricity from renewable sources and to subsidies or public support in the benefit of our production of energy from renewable energy sources, which vary by jurisdiction, and are subject to modifications that
may be more restrictive or unfavorable to us.
Furthermore, in some of our assets such as the solar plants in Spain and one of our transmission lines in Chile, revenues are based on existing regulation. We may also acquire in the future
additional assets or businesses with regulated revenues. For these types of assets and businesses, if regulation changes, it may have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, our strategy to grow our business through investments in renewable energy projects partly depends on current government policies that promote and support renewable energy and enhance
the economic viability of owning solar and wind energy projects. Renewable energy projects currently benefit from various U.S. federal, state and local governmental incentives, such as ITCs, PTCs, loan guarantees, RPS programs, or MACRS along
with other incentives. These incentives make the development of renewable energy projects more competitive. These policies have had a significant impact on the development of renewable energy, and they could change at any time. A loss or
reduction in such incentives or the value of such incentives, a change in policy away from limitations on coal and gas electric generation or a reduction in the capacity of potential investors to benefit from such incentives could decrease the
attractiveness of renewable energy projects to project developers, and the attractiveness of renewable assets to utilities, retailers and customers. Such a loss or reduction could reduce our investment opportunities and our willingness to
pursue renewable energy projects due to higher operating costs or lower revenues from off-take agreements. See also “—Risks Related to Taxation.”
Besides, the U.S. Inflation Reduction Act (IRA) signed into law on August 16, 2022 increased and / or extended some of these incentives and
established new ones. For example, the IRA includes, among other incentives, a 30% solar ITC for solar projects to be built until 2032, a PTC for wind projects to be
built until 2032, a 30% ITC for standalone storage projects to be built until 2032 and a new tax credit that will award up to $3/kg for low carbon hydrogen. The IRA also includes transferability options for the ITCs and PTCs, which should
allow an easier and faster monetization of these tax credits. Presidential elections will take place in the US in November 2024 and the republican party has claimed its opposition to the IRA and its preference for traditional energy sources
over renewables. A potential repeal of the IRA or a reduction of its tax benefits could have an adverse impact on our business, our ability to execute our growth strategy, our financial condition, results
of operations and cash flows.
Additionally, some U.S. states with RPS targets have met, or in the near future will meet, their renewable energy targets. For example, California, which has among the most aggressive RPS laws in
the United States will be required to meet the higher renewable energy mandate of 60.0% by 2030 and 100% by 2045 that was adopted in 2018. If, as a result of achieving these targets, these and other U.S. states do not increase their targets in
the near future, demand for additional renewable energy could decrease. In addition, the substantial increase of grid connected intermittent solar and wind generation assets resulting from the adoption of RPS targets has created significant
technical challenges for grid operators. As a result, RPS targets may need to be scaled back or delayed in order to develop technologies or infrastructure to accommodate this increase in intermittent generation assets.
In addition, regulations approved in the United States in relation with the import of solar equipment from China and Southeast Asia, including the Antidumping and countervailing duties and the
Uyghur Forced Labor Prevention Act has hindered the ability of developers to acquire equipment for the construction of new assets. If this situation persisted in the future and a domestic alternative industry was not able to develop, our growth
in the U.S. through the development and construction of new assets may be negatively affected.
Subsidy regimes for renewable energy generation have been challenged in the past on constitutional and other grounds (including that such regimes constitute impermissible European Union state aid)
in certain jurisdictions. In addition, certain loan-guarantee programs in the United States, including those which have enabled the DOE to provide loan guarantees to support our Solana and Mojave projects in the United States, have been
challenged on grounds of failure by the appropriate authorities to comply with applicable U.S. federal administrative and energy law. If all or part of the subsidy and incentive regimes for renewable energy generation in any jurisdiction in
which we operate were found to be unlawful and, therefore, reduced or discontinued, we may be unable to compete effectively with conventional and other renewable forms of energy. We currently have two financing arrangements with the Federal
Financing Bank for the Solana and Mojave assets, repayment of which to the Federal Financing Bank by those projects is with a guarantee by the DOE. Additionally, these projects benefitted from the ITCs. Unilateral changes to these agreements or
the ITC regime may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Revenues in our solar assets in Spain are mainly defined by regulation and some of the parameters defining the remuneration are subject to review periodically.
According to Royal Decree 413/2014, solar electricity producers in Spain receive: (i) the pool price for the power they produce, (ii) a payment based on the standard investment cost for each type
of plant (without any relation whatsoever to the amount of power they generate) and (iii) an “operating payment” (in €/MWh produced).
The principle driving this economic regime is that the payments received by a renewable energy producer should be equivalent to the costs that they are unable to recover on the electricity pool
market where they compete with non-renewable technologies. This economic regime seeks to allow a “well-run and efficient enterprise” to recover the costs of building and running a plant, plus a reasonable return on investment (project
investment rate of return). The rate applicable during the first regulatory period from 2015 until 2020 was 7.398%
The first review of this rate was at the end of 2018 applicable for the second regulatory period 2020-2025. On November 2, 2018, CNMC (the state-owned regulator for the electricity system in
Spain) issued its final report with a proposed reasonable rate of return of 7.09%. In December 2018, the government issued a draft project law proposing a reasonable rate of return of 7.09%, with the possibility of maintaining the 7.398%
reasonable rate of return under certain circumstances. On November 24, 2019, the government of Spain approved Royal Decree-law 17/2019 setting out a 7.09% reasonable rate of return applicable from January 1, 2020 until December 31, 2025, as a
general rule and the possibility, under certain circumstances including not having any ongoing legal proceeding against the Kingdom of Spain ongoing, of maintaining the 7.398% reasonable rate of return for two consecutive regulatory periods.
The reasonable rate of return was calculated by reference to the weighted average cost of capital (WACC), the calculation method that most of the European regulators apply to determine the return rates applicable to regulated activities within
the energy sector. As a result, some of the assets in our Spanish portfolio are receiving a remuneration based on a 7.09% reasonable rate of return until December 31, 2025, while others are receiving a remuneration based on a 7.398% reasonable
rate of return until December 31, 2031.
If the payments for renewable energy plants are revised to lower amounts in the next regulatory period starting on January 1, 2026 until December 31, 2031, or starting on January 1, 2032,
depending on each asset, this could have a material adverse effect on our business, financial condition, results of operations and cash flows. As a reference, taking into account that the reasonable rate of return will be revised only for part
of our portfolio on January 1, 2026, assuming our assets in Spain continue to perform as expected and assuming no additional changes of circumstances, with the information currently available, a reduction of 100 basis points in the reasonable
rate of return set by the government of Spain from 2026 could cause a reduction in its cash available for distribution of approximately €6 million per year. This estimate is subject to certain assumptions, which may change in the future.
In addition, the regulation includes a mechanism under which regulated revenues are reviewed every three years to reflect the difference between expected and actual market prices over the
remaining regulatory life if the difference is higher than a pre-defined threshold. Given that since mid-2021 electricity prices in Spain have been, and may continue to be, significantly higher than expected, it will cause lower regulated
revenue and lower cash flows over the remaining regulatory life of our solar assets. On March 30, 2022, the Royal Decree Law 6/2022 introduced certain temporary changes to the detailed regulated components of revenue received by our solar
assets in Spain, which is applicable from January 1, 2022. The proposed remuneration parameters for the year 2022 were published on May 12, 2022 and were declared final on December 14, 2022, with a decrease in regulated revenue. The
remuneration parameters for the next semi-regulatory period, starting on January 1, 2023 were published on December 28, 2022 in draft form and on June 30, 2023, the final parameters were published, including a revised assumption for electricity
prices for the years 2023, 2024 and 2025. The current regulatory parameters assume a market price which is higher than current market prices. If electricity market prices continue to be lower than the market price assumed in the regulation and
regulatory parameters are not adjusted until 2026, this may have a negative impact on our cash flows in 2024 and 2025.
Our international operations require us to comply with anti-corruption and other laws and regulations of the United States government and various non-U.S.
jurisdictions.
Doing business in multiple countries requires us and our subsidiaries to comply with the laws and regulations of the United States government and various non-U.S. jurisdictions. Our failure to
comply with these rules and regulations may expose us to liabilities. These laws and regulations may apply to us, our subsidiaries, individual directors, officers, employees and agents, and may restrict our operations, trade practices,
investment decisions and partnering activities.
In particular, our non-U.S. operations are subject to United States and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”),
and similar laws and regulations. The FCPA prohibits United States companies and their officers, directors, employees and agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign
officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies keep books, records and accounts that accurately and fairly reflect
transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered
foreign officials for purposes of the FCPA. As a result, business dealings between our employees, agents, intermediaries, subcontractors or similar business parties, and any such foreign official could expose us to the risk of violating
anti-corruption laws even if such business practices may be customary or are not otherwise prohibited between the us and a private third party. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil
penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures.
We have established policies and procedures designed to assist us and our personnel in complying with applicable United States and non-U.S. laws and regulations; however, we cannot assure you that
these policies and procedures will completely eliminate the risk of a violation of these legal requirements, and any such violation (inadvertent or otherwise) could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
| VII. |
Risks Related to Ownership of Our Shares
|
We may not be able to pay a specific or increasing level of cash dividends to holders of our shares in the future.
The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other
things:
| • |
operational performance of our assets;
|
| • |
maintenance capital expenditures in our assets and other potential capital expenditure requirements in our assets in the case there were technical problems, requirements by insurance companies,
environmental or regulatory requirements, capital expenditures necessary to increase safety of our employees, or unanticipated increases in construction and design costs;
|
| • |
our debt service requirements and other liabilities;
|
| • |
fluctuations in our working capital needs;
|
| • |
fluctuations in foreign exchange rates;
|
| • |
the level of our operating and general and administrative expenses;
|
| • |
seasonal variations in revenues generated by the business;
|
| • |
losses experienced not covered by insurance;
|
| • |
shortage of qualified labor;
|
| • |
restrictions contained in our debt agreements (including our project-level financing);
|
| • |
our ability to borrow funds, including corporate debt to finance growth and project debt and tax equity investments to finance new assets under construction or which have recently reached COD;
|
| • |
changes in our revenues and/or cash generation in our assets due to delays in collections from our off-takers, legal disputes regarding contact terms, adjustments contemplated in existing regulation or
changes in regulation or taxes in the countries in which we operate, or adverse weather conditions;
|
| • |
other business risks affecting our cash levels; and
|
| • |
unfavorable regional, national or global economic and market conditions;
|
As a result of all these factors, we cannot guarantee that we will have sufficient cash generated from operations to pay a specific or increasing level of cash dividends to holders of our shares.
Furthermore, holders of our shares should be aware that the amount of cash available for distribution depends primarily on our cash flow, and is not solely a function of profitability, which is affected by non-cash items.
We are a holding company whose sole material assets consist of our interests in our subsidiaries. We do not have any independent means of generating revenue. We intend to cause our operating
subsidiaries to make distributions to us in an amount sufficient to cover our corporate debt service, corporate general and administrative expenses, all applicable taxes payable and dividends, if any, declared by us. To the extent that we need
funds for a quarterly cash dividend to holders of our shares or otherwise, and one or more of our operating subsidiaries is restricted from making such distributions under the terms of its financing or other agreements or applicable law and
regulations or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition and limit our ability to pay dividends to shareholders. Our project-level financing agreements generally
prohibit distributions to us unless certain specific conditions are met, including the satisfaction of financial ratios. The ability of our operating subsidiaries to make distributions could also be limited by legal, regulatory or other
restrictions or limitations applicable in the various jurisdictions in which we operate, such as exchange controls or similar matters or corporate law limitations. Our ability to pay dividends on our shares is also limited by restrictions under
the Revolving Credit Facility, the 2020 Green Private Placement, the Note Issuance Facility 2020 and the Green Senior Notes.
Our cash available for distribution will likely fluctuate from quarter to quarter, in some cases significantly, due to seasonality. See “Item 4.B—Business Overview—Seasonality.” As result, we may
reduce the amount of cash we distribute in a particular quarter to establish reserves to fund distributions to shareholders in future periods. If we fail to establish sufficient reserves, we may not be able to maintain our quarterly dividend
with respect to a quarter adversely affected by seasonality.
Dividends to holders of our shares will be paid at the discretion of our Board of Directors. Our Board of Directors may decrease the level of or entirely discontinue payment of dividends. Our
Board of Directors may change our dividend policy at any point in time or modify the dividend for specific quarters following prevailing conditions. Our Board of Directors may also decide to change our dividend policy if, for example, they
considered that increasing the portion of growth self-funded with cash generated by our operations is more efficient than raising most of the funds required to finance our growth strategy. For a description of additional restrictions and
factors that may affect our ability to pay cash dividends, please see “Item 8.A—Consolidated Statements and Other Financial Information—Dividend Policy.”
Future dispositions of our shares by substantial shareholders or the perception thereof may cause the price of our shares to fall.
Future dispositions of substantial amounts of the shares and/or equity-related securities in the public market, or the anticipation or perception by the market that such dispositions could occur,
could adversely affect prevailing trading prices of the shares and could impair our ability to raise capital through future offerings of equity or equity-related securities.
Further, Algonquin is the beneficial owner of approximately 42.2% of our ordinary shares some of which have been and may be encumbered in the future to secure debt or other obligations of
Algonquin, its subsidiaries or affiliates. The market price of our shares could decline as a result of future dispositions of our shares by Algonquin, its secured creditors or other significant stockholders whether in public or private
transactions (whether in a single transaction, a series of related organized transactions or otherwise), or the perception that these dispositions could occur.
Liberty GES has a secured credit facility in the amount of $306,500,000 maturing on September 30, 2024. Such loan is collateralized by a pledge over most of the Atlantica shares held indirectly by
Algonquin through certain of its subsidiaries. A collateral shortfall under that facility would occur if the quotient of the net obligations of Liberty GES, divided by the aggregate collateral share value is equal to or greater than 50% in
which case the creditors under that facility may sell Atlantica shares to eliminate the collateral shortfall. In addition, a default by Liberty GES under such facility may result in its creditors having the right to foreclose on the shares and
sell the shares.
Many factors may influence Algonquin’s operations, plans, or strategy (including with respect to the holding or disposition of all or any portion of our shares), and we have limited knowledge
and/or visibility with respect to Algonquin’s operations, plans, or strategy. In 2023, Algonquin conducted a strategic review which concluded in August 2023 with the announcement that they will pursue the sale of its renewable energy business
and their intention focus on their regulated business. This announcement did not include Algonquin’s ownership in Atlantica. It is possible that in the future Algonquin may have interest in selling part or all of its equity interest in
Atlantica. Uncertainty about Algonquin’s plans or strategy with respect to the holding or disposition of all or any portion of its equity interest in Atlantica and such uncertainty may negatively affect the market price for our shares and our
ability to raise capital by offering equity or equity-related securities.
We cannot predict whether future sales of our shares, or the increase in the availability of our shares for sale, will occur and the impact thereof on the market price for our shares and our
ability to raise capital by offering equity or equity-related securities.
As a “foreign private issuer” in the United States, we are exempt from certain rules under the U.S. securities laws and are permitted to file less
information with the SEC than U.S. companies.
As a “foreign private issuer,” we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section
14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with
respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange
Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
If we were to lose our “foreign private issuer” status, we would no longer be exempt from certain provisions of the U.S. securities laws we would be required to commence reporting on forms
required of U.S. companies, and we could incur increased compliance and other costs, among other consequences.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation organized in Delaware.
We are incorporated under the laws of England and Wales. The rights of holders of our shares are governed by the laws of England and Wales, including the provisions of the UK Companies Act 2006,
and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware. The principal differences are set forth in “Item 10.B—Memorandum and Articles of
Association.”
There are limitations on enforceability of civil liabilities against us.
We are incorporated under the laws of England and Wales. A majority of our officers and directors reside outside the United States. In addition, a significant portion of our assets and a
significant portion of the assets of our directors and officers are located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon us or such officers and directors,
with respect to matters arising under U.S. federal securities law, or to force us or them to appear in a U.S. court. It may also be difficult or impossible to enforce a judgment of a U.S. court against persons outside the United States,
predicated upon civil liability provisions under U.S. federal securities law, or to enforce a judgment of a foreign court against such persons in the United States. We believe that there may be doubt as to the enforceability against persons in
England and Wales and in Spain, whether in original actions or in actions for the enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the laws of the United States, including its federal securities laws. In
addition, puniti