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Financial Instruments

12 Months Ended

Dec. 31, 2019

Disclosure of detailed information about financial instruments [abstract]

Financial Instruments

Note 21 - Financial Instruments

Overview

The Company has exposure to the following risks from its use of financial instruments:

•

Credit risk

•

Liquidity risk

•

Market risk

This note presents quantitative and qualitative information about the Company’s exposure to each of the above risks, and the Company’s objectives, policies and processes for measuring and managing risk.

In order to manage these risks and as described hereunder, the Company executes transactions in derivative financial instruments. Presented hereunder is the composition of the derivatives:

	For the year ended December
	2019			2018
	€ in thousands
Derivatives presented under current assets
Currency swap		94			-

Derivatives presented under non-current assets
Financial power swap		4,967			-
Currency swap		103			-
Forward contracts		92			-
		5,162			-

Derivatives presented under current liabilities
Currency swap		-			(192	)
Swap contracts		(766	)		(173	)
		(766	)		(365	)
Derivatives presented under non-current liabilities
Forward contracts		(344	)		(977	)
Currency swap		-			(1,925	)
Swap contracts		(6,919	)		(459	)
		(7,263	)		(3,361	)

The following table sets forth the details of the Company’s Forward and SWAP contracts with banking institutions:

	December 31, 2019
	Currency/	Currency/
	linkage/interest rate	Linkage/interest rate		Fair value - € in
	receivable	Payable	Date of expiration	thousand

Euro 17.6 million interest swap transaction for a period of 18 years, semi-annually.	Euribor 6 months	Fixed 1%	December 20, 2037	(907)
The principal of the interest rate swap transaction is based on a pre-determined sculptured repayment schedule in the maximum amount of Euro 131 million for a period of 12 years, semi-annually.	Euribor 6 months	Fixed 0.9412%	September 30, 2031	(6,778)
Forward Euro/USD contracts with an aggregate Euro denominated principal of Euro 18 million.	weighted average rate of approximately 1.18		November 2021	(252)
NIS 83.2 million currency swap transaction Euro/NIS for a period of 7 years, semi-annually.	NIS	Euro	June 2024	197
Financial power swap- Electricity price swap fixed for float	Electricity price in Spain	Fixed price	September 30, 2030	4,967

Risk management framework

The Company's management and board of directors have overall responsibility for the establishment and oversight of the Company’s risk management framework.

Credit Risk

As at December 31, 2019, the Company does not have any significant concentration of credit risk.

Cash and short-term deposits

As at December 31, 2019 and 2018, the Company had cash and cash equivalents in the amount of €44,509 thousand and €36,882 thousand, respectively. The Company’s cash and cash equivalents are deposited with financial institutions that received a credit rating (international rating scale). See also Note 4.

Marketable securities

As at December 31, 2019 and 2018, the Company invested in a traded Bond in an amount of €2,242 thousand and €2,132 thousand, respectively, with the intention to maintain the value of its liquid resources. See also Note 5.

Restricted cash

As at December 31, 2019 and 2018, the Company had a balance of current restricted cash in an amount of €22,162 thousand and €1,315 thousand, respectively, and a balance of non-current restricted cash of €10,956 thousand and €5,400 thousand, respectively. See also Note 5 and also Note 2 E for Reclassified comparative data.

Trade and other receivables

As at December 31, 2019 and 2018, the Company had a balance of trade receivables of €805 thousand and €156 thousand, respectively. This balance mainly refers to the balance from the Israeli Electricity Authority for the PV Plant located in Israel and is due in 30 days. It is also referring to NEXUS or GNERA that represent the PV Plants located in Spain in its dealings with the Spanish National Energy Commission, and are due within 60 days from issuance.

As at December 31, 2019 and 2018, the Company had a balance of revenue receivables of €1,075 thousand and €3,830 thousand, respectively. This balance refers to amounts to be paid from several entities. In Italy, the amounts to be paid are from GSE, Italy's energy regulation agency. The incentives are paid through equal monthly installments in an amount of 90% of the average production of each plant in the relevant solar calendar year, based on the effective production before June 30th of the previous year, or if not available, on the basis of the regional forecast. The balance is paid within 60 days from the sending of the actual production data and in any event within June 30th of the subsequent year. On December 20, 2019, the Company sold ten Italian indirect wholly-owned subsidiaries. In Spain, the amounts to be paid are from NEXUS or GNERA that represent the PV Plants located in Spain in its dealings with the Spanish National Energy Commission. To the extent the facility is eligible to receive incentives (such as the Company’s existing four Spanish PV facilities), the incentives (consisting of an investment retribution and operational retribution) are paid on a monthly basis (commencing January) based on varying percentages of the accumulated incentives from the beginning of the fiscal year, provided that the entire amount of the incentives is required to be paid to the eligible entity by the end of June of the following fiscal year. In the Netherlands, the amounts to be paid are from Enterprice Agency that is responsible to pay the amount of subsidy for the Biogas installations in the Netherlands. The incentives are paid through equal monthly installments based on the effective production of the previous year for each plant, or if not available, on the basis of the regional forecast. The balance is paid within June 30th of the subsequent year.

The Company’s management closely monitors the economic and political environment in which it operates. As per the Company's management estimations there are no significant credit risks assigned to the trade receivables and income receivables as these amounts are due by governmental agencies.

As at December 31, 2019 and 2018, the Company had a balance of government authorities' receivables of €781 thousand and €2,706 thousand, respectively. This balance refers to VAT and withholding tax receivables in Italy, Spain, Israel and the Netherlands.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has contractual commitments due to debentures issued, financing agreements and EPC and O&M agreements of its subsidiaries in Spain. See also Note 6, Note 11 and Note 12.

The following are the contractual maturities of financial liabilities at undiscounted amounts and based on the spot rates at the reporting date, including estimated interest payments. This disclosure excludes the impact of netting agreements:

	December 31, 2019
	Carrying		Contractual		Less than						More than
	amount		cash flows		1 year		2 years		3-5 years		5 years
	€ in thousands
Non-derivative financial liabilities

Long term loans, including current maturities		93,320		100,415		5,075		9,041		19,154		67,145

Debentures		71,584		78,235		28,718		8,615		33,899		7,003

Lease liabilities		15,627		25,859		462		806		2,417		22,174

Trade payables and other accounts payable		2,928		2,928		2,928		-		-		-
		183,459		207,437		37,183		18,462		55,470		96,322

Derivative finance liabilities

Forward contracts		252		252		-		252		-		-

Swap contracts		7,685		7,685		766		2,682		2,172		2,065
		7,937		7,937		766		2,934		2,172		2,065

	December 31, 2018
	Carrying		Contractual		Less than						More than
	amount		cash flows		1 year		2 years		3-5 years		5 years
	€ in thousands
Non-derivative financial liabilities

Long term loans, including current maturities		66,092		71,826		7,350		7,805		22,501		34,170

Debentures		51,343		58,667		11,029		10,656		31,133		5,849

Trade payables and other accounts payable		4,819		4,819		4,819		-		-		-

		122,254		135,312		23,198		18,461		53,634		40,019

Derivative finance liabilities

Forward contracts		977		977		-		-		977		-

Currency swap		2,117		2,117		192		622		947		356

Swap contracts		632		632		173		263		155		41

		3,726		3,726		365		885		2,079		397

Market risk

Market risk is the risk that changes in market prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The principal risks that the Company faces, as assessed by management, are as follows: a change in the regulation applicable to the area of activity, a change in the tariffs as approved by the relevant electricity authorities in the countries in which the Company operates, changes in the situation of the electricity and gas market, political and security events.

(1)

Foreign currency risk

As a result of the Company's operations and presentation currency, the Company is exposed to the impact of exchange rate fluctuations of the Euro/USD and NIS/Euro on the Company's balance sheet.

In order to manage the currency risk resulting from the Series B Debentures, which are denominated in NIS, the Company executed currency swap transactions in April 2017. The Company exchanged Series B Debentures NIS denominated notional principal in the aggregate amount of NIS 83.232 million with a euro notional principal (currency swap transactions). Such currency swap transactions qualify for hedge accounting.

In order to manage the foreign exchange exposure in USD, the Company executed several forward transactions, of which Euro/USD forward positions with an aggregate euro denominated principal of €18 million, with a weighted average rate of approximately 1.18 USD/EUR and expiration dates in November 2021.

(a)

The exposure to linkage and foreign currency risk

The Company's exposure to linkage and foreign currency risk except in respect of derivatives (see hereunder) was as follow:

	December 31, 2019
	Non-monetary/ Non finance			NIS(*)			Unlinked		EURO			Total
	€ in thousands

Current assets:
Cash and cash equivalents		-			23,385			1,517		19,607			44,509
Marketable securities		-			-			2,242		-			2,242
Short term deposits		-			6,446			-		-			6,446
Restricted cash		-			22,162			-		-			22,162
Asset from concession project		-			1,463			-		-			1,463
Financial asset short-term		-			1,418			-		-			1,418
Trade and other receivables		304			1,199			396		2,983			4,882
Non-current assets:
Investments in equity
accounted investees		26,131			7,430			-		-			33,561
Advances on account of
investments in process		883			-			-		-			883
Asset from concession project		-			27,122			-		-			27,122
Fixed assets		114,389			-			-		-			114,389
Right of use asset		-			1,585			-		13,816			15,401
Concession intangible asset		5,042			-			-		-			5,042
Restricted cash long-term		-			5,639			-		5,317			10,956
Deferred tax		2,285			-			-		-			2,285
Other assets		12,218			31			-		-			12,249
Derivatives		-			-			-		5,162			5,162
Current liabilities:
Loans and borrowings		-			(1,669	)		-		(2,469	)		(4,138	)
Short-term debentures		-			(26,773	)		-		-			(26,773	)
Trade payables		-			(266	)		-		(1,499	)		(1,765	)
Accrued expenses and
other payables		-			(3,519	)		-		(1,491	)		(5,010	)
Non-current liabilities:
Lease liability		-			(1,529	)		-		(13,873	)		(15,402	)
Long-term loans		-			(19,409	)		-		(69,773	)		(89,182	)
Long-term debentures		-			(44,811	)		-		-			(44,811	)
Deferred tax		(6,467	)		-			-		-			(6,467	)
Derivatives		-			-			-		(7,263	)		(7,263	)
Other long-term liabilities		-			(28	)		-		(1,767	)		(1,795	)
Total exposure in statement
of financial position in
respect of financial assets
and financial liabilities		154,785			(124	)		4,155		(51,250	)		107,566

(*) including items linked to CPI

	December 31, 2018
	Non-monetary/ Non finance			NIS(*)			Unlinked		EURO			Total
	€ in thousands

Current assets:
Cash and cash equivalents		-			287			937		35,658			36,882
Marketable securities		-			-			2,132		-			2,132
Restricted cash short-term and
restricted marketable securities		-			-			-		1,315			**1,315
Asset from concession project		-			1,292			-		-			1,292
Financial asset short-term		-			1,282			-		-			1,282
Trade and other receivables		1,279			780			531		10,033			12,623
Non-current assets:
Investments in equity
accounted investees		21,175			6,571			-		-			27,746
Advances on account of
investments in process		798			-			-		-			798
Asset from concession project		-			25,710			-		-			25,710
Fixed assets		87,220			-			-		-			87,220
Concession intangible asset		4,882			-			-		-			4,882
Restricted cash long-term		-			4,992			267		141			**5,400
Deferred tax		2,423			-			-		-			2,423
Other assets		1,055			-			-		400			1,455
Current liabilities:
Loans and borrowings		-			(1,622	)		-		(4,242	)		(5,864	)
Short-term debentures		-			(8,758	)		-		-			(8,758	)
Trade payables		-			(24	)		-		(2,102	)		(2,126	)
Accrued expenses and
other payables		-			(1,116	)		-		(1,987	)		(3,103	)
Non-current liabilities:
Long-term loans		-			(18,314	)		-		(41,914	)		(60,228	)
Long-term debentures		-			(42,585	)		-		-			(42,585	)
Deferred tax		(6,219	)		-			-		-			(6,219	)
Other long-term liabilities		-			(19	)		-		(5,301	)		(5,320	)
Total exposure in statement
of financial position in
respect of financial assets
and financial liabilities		112,613			(31,524	)		3,867		(7,999	)		76,957

(*) Including items linked to CPI

(**) Reclassified, see Note 2 E

Information regarding significant exchange rates:

	For the year ended December 31
	Rate of					Rate of
	Change					Change
	%			Dollar		%			NIS
1 Euro in 2019		(2	)		1.122		(9.6	)		3.878
1 Euro in 2018		(4.4	)		1.145		3.3			4.292

(b)

Sensitivity analysis

A change as at December 31 in the exchange rates of the following euro against the USD and euro against the NIS, as indicated below would have increased (decreased) equity by the amounts shown below (after tax). This analysis is based on foreign currency exchange rate that the Company considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

	December 31, 2019
	Increase		Decrease
	Equity		Equity
	€ thousands
Change in the exchange rate of:
5% in the USD		185		(185	)
5% in NIS		412		(412	)

	December 31, 2018
	Increase			Increase
	Equity			Equity
	€ thousands
Change in the exchange rate of:
5% in the USD		169			(169	)
5% in NIS		(367	)		367

(2)

Interest rate risk

The Company is exposed to changes in fair value, as a result of changes in interest rate in connection with its loans and borrowings. The debt instruments of the Company bear interest at variable rates.

The Company entered into various project finance agreements that are based on EURIBOR rate and therefore it may be affected by adverse movements in interest rates. The Company utilize interest rate swap derivatives to convert certain floating-rate debt to fixed-rate debt. The Company interest rate swap derivatives involve an agreement to pay a fixed-rate interest and receive a floating-rate interest, at specified intervals, calculated on an agreed notional amount that matches the amount of the original loan and paid on the same installments and maturity dates.

Sensitivity analysis

A change in interest rate would have increased (decreased) profit or loss by the amounts shown below:

	December 31,
	2019			2018
	Profit or loss			Profit or loss
	€ in thousands
Increase of 1%		580			1,012
Increase of 3%		1,701			2,604
Decrease of 1%		(542	)		(581	)
Decrease of 3%		(1,663	)		(2,172	)

(3)

Electricity market prices risk

As a result of the Company's operations in the electricity market, the Company is exposed to the impact of changes in the electricity prices.

In June 2018, Talasol executed a financial power swap in respect of approximately 80% of the output of the Talasol Project for a period of 10 years (the "PPA").The power produced by the Talasol Project is expected to be sold by Talasol in the open market for the then current market power price and the PPA is expected to hedge the risks associated with fluctuating electricity market prices by allowing Talasol to secure a certain level of income for the power production included under the PPA. The hedge transaction becomes effective on Talasol requesting that the counter party will fix the fixed price pursuant to the price adjustment mechanism. The PPA became effective in March 2019.

The fair value of the PPA is measured by discounting the future fixed and assessed cash flows, over the period of the contract and using market interest rates appropriate for similar instruments. The value is adjusted for the parties’ credit risks. The future prices are assessed the electricity field.

Fair value

(1)

Fair values versus carrying amounts

The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, other accounts receivables, pledged deposits, financial derivatives credit from banks and trade payables and other accounts payables are the same or proximate to their fair value.

The fair values of the other financial liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

	December 31, 2019
			Fair value
	Carrying								Valuation techniques for	Inputs used to
	amount		Level 1		Level 2		Level 3		determining fair value	determine fair value
	€ in thousands
Non-current liabilities:
Debentures		71,584		73,211		-		-
Loans from banks and others (including current maturities)		93,320		-		94,677		-	Discounting future cash flows by the market interest rate on the date of measurement.	Discount rate of Euribor+ 2.53%, fix rate for 5 years 2.9%-3.1% and 4.65% Linkage to Consumer price index in Israel

		164,904		73,211		94,677		-

	December 31, 2018
			Fair value
	Carrying								Valuation techniques for	Inputs used to
	amount		Level 1		Level 2		Level 3		determining fair value	determine fair value
	€ in thousands
Non-current liabilities:
Debentures		51,343		49,190		-		-
Loans from banks and others (including current maturities)		66,092		-		66,233		-	Discounting future cash flows by the market interest rate on the date of measurement.	Discount rate of Euribor+ 2.53%, Discount rate of Euribor+ 1.85%, fix rate for 5 years 2.9%-3.1% and 4.65% Linkage to Consumer price index in Israel

		117,435		49,190		66,233		-

(2)

Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread, and were as follows:

December 31

2019

2018

Non-current liabilities:
Loans from banks	Euribor+ 2.53%	Euribor+ 2.53%
Loans from banks	4.65% Linkage to Consumer price index in Israel	4.65% Linkage to Consumer price index in Israel
Loans from banks	-	Euribor+ 1.85%
Loans from banks	fix rate for 5 years 2.9% - 3.1%	fix rate for 5 years 2.9% - 3.1%

(3)

Fair values hierarchy

The financial instruments presented at fair value are grouped into classes with similar characteristics using the following fair value hierarchy which is determined based on the source of data used in the measurement:

Level 1	-	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2	-	Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly.
Level 3	-	Inputs that are not based on observable market data (unobservable inputs).

	December 31, 2019
	Level 1		Level 2			Level 3		Total			Valuation techniques for
	€ in thousands										determining fair value
Income receivable in connection with the A.R.Z. electricity pumped storage project (see Note 6B)		-		-			1,418		1,418		The fair value of the income receivable in connection with the A.R.Z. electricity pumped storage project was calculated according to the cash flows expected to be received in 4.5 years following the financial closing of the project, discounted at a weighted interest rate of 2.36% reflecting the credit risk of the debtor.
Marketable securities		-		2,242			-		2,242		Market price
Forward contracts		-		(252	)		-		(252	)	Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Swap contracts		-		(7,685	)		-		(7,685	)	Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Currency swap		-		197			-		197		Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Dori Energy loan		-		-			10,595		10,595		The fair value is measured by discounting the expected future loan repayments and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks. The discounting rate was estimated at approximately 10% and the expected yearly change of Israeli Consumer Price Index, during the expected lifetime of the loan, was estimated at approximately 1%.
Financial power swap		-		-			4,967		4,967		Fair value is measured by discounting the future fixed and assessed cash flows, over the period of the contract and using market interest rates appropriate for similar instruments. The value is adjusted for the parties’ credit risks.

	December 31, 2018
	Level 1		Level 2			Level 3		Total			Valuation techniques for
	€ in thousands										determining fair value
Income receivable in connection with the A.R.Z. electricity pumped storage project (see Note 6B)		-		-			1,282		1,282		The fair value of the income receivable in connection with the A.R.Z. electricity pumped storage project was calculated according to the cash flows expected to be received in 4.5 years following the financial closing of the project, discounted at a weighted interest rate of 2.36% reflecting the credit risk of the debtor.
Marketable securities		-		2,132			-		2,132		Market price
Forward contracts		-		(977	)		-		(977	)	Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Swap contracts		-		(632	)		-		(632	)	Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Currency swap		-		(2,117	)		-		(2,117	)	Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Dori Energy loan		-		-			9,189		9,189		The fair value is measured by discounting the expected future loan repayments and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks. The discounting rate was estimated at approximately 10% and the expected yearly change of Israeli Consumer Price Index, during the expected lifetime of the loan, was estimated at approximately 1%.

(4) Level 3 financial instruments carried at fair value

The table hereunder presents reconciliation from the beginning balance to the ending balance of financial instruments carried at fair value in level 3 of the fair value hierarchy:

	Financial assets
	Income receivable in connection with the A.R.Z. electricity pumped storage project


	€ in thousands
Balance as at December 31, 2018		1,282

Foreign Currency translation adjustments		136

Balance as at December 31, 2019		1,418

	Financial assets
	Dori Energy loan
	€ in thousands

Balance as at December 31, 2018		9,189

Total income recognized in profit or loss		413
Foreign Currency translation adjustments		993

Balance as at December 31, 2019		10,595

	Financial assets
	Financial power swap
	€ in thousands

Balance as at December 31, 2018		-

Total income is recognized in other comprehensive income		4,967

Balance as at December 31, 2019		4,967