EDPR governance model is fully aligned and integrated in the EDP group risk governance model based on the concept of 3 internal lines of defence to the organization, complemented by a fourth external line of defence, in the figure of external audit and regulation/supervision.
The Three Lines of Defence Risk Governance Model
Risk management is embodied by the Risk Business Enablement Function (RISK), encompassed by overarching Centres of Excellence and Platform Business Partners (including EDPR RISK responsible), ensuring fluid articulation and communication throughout EDP Group regarding the main sources of exposure and risk mitigation measures.
A detailed description of EDPR Group’s competent bodies, as well as their respective responsibilities, is available at the document below.
EDPR's Risk Management aims to comprehensively cover all company risks. To maintain a holistic view, risks are categorized into Energy Market, Financial, Strategic, Counterparty, Operational and ESG.
EDPR’s Risk Taxonomy
The definition of Risk Categories at EDPR is as follows:
- Energy Market Risk: Risk EDPR faces due to market price fluctuations. Production risk is included within market risk due to the relationship between wind and solar production and energy prices. Additionally, liquidity risk is included because of its relationship with extreme energy price changes.
- Financial Risk: Includes risks impacting EDPR’s ability to meet financial obligations due to financial market fluctuations This includes fluctuations in interest rates, exchange rates (FX), inflation, and commodity prices. It also includes Capital Gains risk, due to the importance of EDPR’s asset rotation strategy in its business.
- Strategic Risk: Risks arising from macroeconomic, political, social, or environmental conditions in EDPR's operating regions, as well as changes in the competitive landscape, technological disruptions, or supply chain issues. Investment Decisions criteria and Reputational issues also fall under this category.
- Counterparty Risk (credit and operational): Risk of a counterparty defaulting before the final settlement of transaction cash flows. A direct economic loss would occur if transactions with the counterparty had positive economic value at the time of default. Even in the case of not defaulting, it may not comply with its contract obligations (timing, quality, etc.), implying additional higher costs due to its replacement or to delays in fulfilling the contract.
- Operational Risk (other than counterparty): Defined as the risk of loss due to inadequate or failed internal processes, people, systems, or external events (e.g., increased equipment default rates, rising O&M costs, or natural disasters), including losses from business continuity failures.
- ESG Risk encompasses risks related to Environment (e.g., Climate change, Circular economy), Social (e.g., Communities, Health & Safety), and Governance (e.g., Corporate Governance, Business Ethics). They help define a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments.
A more detailed description of all the risks affecting EDPR is available in the document below.
EDPR follows the risk management process of EDP Group, which is structured around five main phases (identification, analysis, evaluation, treatment, and monitoring), complemented by a prior phase of establishing the context, and by adequate levels of communication between the various stakeholders:
A more detailed description of each phase is available in the document below.
EDPR’s Risk Appetite Framework (RAF) takes into consideration EDP’s existing RAF and defines level of risk EDPR is willing to take when executing its strategy. The risk appetite statement formally defines a set of risk appetite statements complemented by risk indicators and thresholds. EDPR’s 1st level statements are as follows:
