European Energy Financial Overview

Risk Factors, continued == EUROPEAN ENERGY In order to construct and operate the Group's wind parks and solar PV plants, contracts are concluded with a large number of third parties. Should a third party become financially distressed or default on its obligations it may result in a financial loss for the Group. Similarly, the Group is exposed to counterpart risks when part of the consideration which the Group is entitled to for a renewable energy project is deferred When constructing wind parks and solar PV plants, the Group concludes agreements concerning delivery of construction services, components and infrastructure etc. with third party suppliers. Although the largest part of the payment to the suppliers will often be aligned with the supplier's delivery of goods and/or services, the suppliers will often demand that an advance payment is made before delivery takes place. While some suppliers issue a guarantee that covers the risk of the advance payment, most suppliers do not and if the suppliers become financially distressed the advance payment may be lost. Additionally, there are no guarantees that the supplier does not default on its deliveries or is not delayed. If that occurs, it may impact negatively on the construction process which could result in the Group not being able to meet its contractual obligations to a buyer of the project in question. The Group is also exposed to counterpart risks during the operating phase of its assets, as the servicing and/or management of the assets are being carried out by third party suppliers. While any financial exposure is limited due to the fact that the suppliers of these services are usually not paid in advance, a defaulting supplier could result in an interruption to the operations of a plant until a replacement supplier has been found. Furthermore, in some instances a part of the consideration that the Group receives for a renewable energy project is deferred (such as earn-out payments tied to the production of the wind farm or solar PV project in question). Should the buyer of the project not be able to pay the deferred consideration when it becomes due, this would have a negative impact on the Issuer. Disagreement or deadlock with third parties whom the Group collaborates with can have a negative impact on the Group's renewable energy projects The Group has entered into a number of partnerships with third parties. The partnerships are related to all phases of the Group's renewable energy projects (from development to construction, divestment, and/or operation) and takes place both as incorporated and un-incorporated joint ventures/joint arrangements. In a number of partnerships, the Group does not have a controlling interest or only has a controlling interest with regard to some matters. This entails the risk of disagreement or deadlock on substantial matters, including the funding of the project that is the subject matter of the partnership. Disagreement or deadlock may have negative consequences for - inter alia - the development, construction or divestment of the project or could lead to the project not being able to achieve its full economical potential. Furthermore, partners may not always be able to honour their commitments which could also have an adverse impact on the Group. Disputes that the Group is or in the future will become involved in may have a negative effect on the Group should decisions go against it Disputes related to the Group's business, including the development, construction and divestment of wind farms and solar PV plants, may arise in the future. Such disputes may be resolved outside the courts or through court or arbitration proceedings. The outcome of such disputes could have a negative effect on the Issuer's ability to fulfil its obligations under the Bonds should a decision or settlement go against the Group. It may prove difficult to replace key personnel and the process of recruiting replacements could last for a prolonged period of time which could affect the Issuer negatively The Issuer is to a large extent dependent on its management, department heads and other key personnel due to the extensive knowledge and experience these persons possess. If one or more of these key persons decide to leave the Issuer, this may result in loss of know-how and may delay or prevent the implementation of the Group's projects and business strategy. New members of the staff are being recruited on a regular basis. However, the Group's ability to hire and retain qualified staff depends on a number of factors. Due to the office's location in Denmark and the fact that positions in the company often require specific knowledge of a foreign market and corresponding language skills, the process of recruiting specific competences can at times persist for a prolonged period of time. The markets on which the Group is engaged are highly competitive. This requires the Group to continuously react to its competitors, e.g. by increasing its efficiency and cutting costs The Group is engaged in competitive markets. With regard to the development and subsequent divestment of renewable energy projects, there is large number of competitors - ranging from small- and medium sized developers with a profile similar to that of the Issuer to large state-owned utilities. Also with regard to the sale of electricity and certificates at market prices, the Group is faced with intense competition from other power generators and operators of renewable energy plants. The competition increases the demand on the Issuer to constantly improve its development and operating activities and cut costs in order to remain competitive. Any failure to do so could lead to an advantage for the Group's competitors which would negatively impact the Group. Further, even though the Group has developed a significant project portfolio there is a risk that a number of projects forming part of the portfolio will not be executed due to non-issuance of relevant permits, changes in political views, decrease in subsidy levels, failure to agree with relevant project partners, delayed delivery of components etc. with the consequence that the expected divestment of projects will not take place, or expected revenue from the project will not be realized. Insurance taken out by the Group to cover its assets may not in all situations cover the losses incurred, e.g. in case of natural disasters and other unforeseen events While the Group maintains normal insurance both in the construction and operating phase of its assets, there may be situations where the insurance cover is insufficient or the loss incurred exceeds the maximum pay-out of the insurance policy. The resulting losses would affect the Group negatively. This could occur in a situation - but is not limited to - where natural disasters (such as storms, earthquakes, hail storms, floods etc.) or other unforeseen events (such as war, riots, armed conflict etc.) destroy the Group's operating assets, impair the production or affect an on-going construction negatively. Price hedging agreements that the Group enters into can expose the Group to losses should the agreed minimum level of production not be reached The Group may from time to time enter into hedging agreements in order to receive a guaranteed fixed price instead of a variable price for the sale of - inter alia - electricity and certificates. Such agreements may require a minimum level of production and should the production not meet the agreed minimum level - for example, due to unforeseen events or unexpected adverse weather conditions - it may be necessary to purchase electricity or certificates on the spot market in order to meet the obligations under the hedging agreement. If the spot prices at the time of purchase is higher than the price obtained by virtue of the hedging agreement this could lead to a loss which may have an adverse effect on the financial position of the Group. The Group does not operate with a general price hedging strategy. | 43