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Financial Instruments

12 Months Ended

Dec. 31, 2023

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
	2023			2022
	€ in thousands
Derivatives presented under current assets
Swap contracts		275			273
		275			273

Derivatives presented under non-current assets
Swap contracts		607			1,488
Financial power swap		10,341			-
		10,948			1,488

Derivatives presented under current liabilities
Financial power swap		(4,643	)		(33,183	)
		(4,643	)		(33,183	)

Derivatives presented under non-current liabilities
Financial power swap		-			(28,354	)
		-			(28,354	)

The following table sets forth the details of the Company’s financial power swap and swap contracts with banking institutions:

	December 31, 2023
	Currency/	Currency/
	linkage/interest rate	linkage/interest rate	Date of	Fair value - € in
	receivable	Payable	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		882
Financial power swap- electricity price swap fixed for float	Electricity price in Spain	Fixed price	September 30, 2030		5,698

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.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management of standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies, procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company’s Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Credit Risk

As at December 31, 2023, the Company does not have any significant concentration of credit risk.

Cash and short-term deposits

As at December 31, 2023 and 2022, the Company had cash and cash equivalents in the amount of €51,127 thousand and €46,458 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.

Restricted cash

As at December 31, 2023 and 2022, the Company had a balance of current restricted cash in an amount of €810 thousand and €900 thousand, respectively, and a balance of non-current restricted cash of €17,386 thousand and €20,192 thousand, respectively. See also Note 5.

Trade and other receivables

As at December 31, 2023 and 2022, the Company had a balance of trade receivables of €205 thousand and €420 thousand, respectively. This balance mainly refers to the sale of green certificates from the activity in the Netherland due within 30 days from issuance. In 2022, the balance mostly referred to sale of electricity to the IEC for the PV Plant located in Israel and is due in 30 days. This balance is classified as assets of disposal groups held for sale in 2023.

As at December 31, 2023 and 2022, the Company had a balance of revenue receivables of €1,013 thousand and €1,062 thousand, respectively. This balance refers to amounts to be paid mainly from the facilities in the Netherlands. The revenue receivables are from gas sold in market price in the Netherlands due within 60 days and the sale of green certificates within 60 days.

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 or by established companies that pay on a weekly or monthly basis.

As at December 31, 2023 and 2022, the Company had a balance of government authorities’ receivables of €4,851 thousand and €3,752 thousand, respectively. This balance refers to VAT receivables in Spain, Italy, 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.

As of December 31, 2023, the Company had a working capital of approximately €5,199 thousand.

The cash surpluses held by Company that are not required for financing their current activity, are invested in interest-bearing investment channels such as short-term deposits. These investment channels are chosen by the Company’ managements based on future forecasts of the cash the Company will require in order to meet their liabilities. Cash flow forecasts are determined on both an individual company basis and a consolidated basis. The Company examines current forecasts of its liquidity requirements so as to make certain that there is sufficient cash for its operating needs, and it is careful at all times to have enough unused credit facilities so that the Company does not exceed its credit limits and is in compliance with its financial covenants.

These forecasts take into consideration matters such as the Company’s plan to use debt for financing its activity, compliance with required financial covenants, compliance with certain liquidity ratios, and compliance with external requirements such as laws or regulation.

The Company has contractual commitments due to debentures issued, financing agreements and EPC and O&M agreements of its subsidiaries in Spain, Italy, the Netherlands, USA and Israel. 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, 2023
	Carrying		Contractual		Less than						More than
	amount		cash flows		1 year		2-3 years		4-5 years		5 years
	€ in thousands
Non-derivative financial liabilities

Long-term loans, including current maturities		281,938		375,334		21,883		41,743		59,691		252,017

Debentures		140,087		158,051		41,100		72,088		30,738		14,125

Lease liabilities		24,380		47,011		1,916		3,895		3,903		37,297

Trade payables, other accounts payable and Other long-term liabilities		14,496		14,496		13,703		793		-		-
		460,901		594,892		78,602		118,519		94,332		303,439

	December 31, 2022
	Carrying		Contractual		Less than							More than
	amount		cash flows		1 year		2-3 years		4-5 years			5 years
	€ in thousands
Non-derivative financial liabilities

Long term loans, including current maturities		273,863		363,553		30,392		42,547		43,381			247,233

Debentures		110,428		141,140		22,878		62,710		55,552			-

Lease liabilities		22,750		35,911		1,630		3,233		3,194			27,854

Trade payables, other accounts payable and Other long-term liabilities		15,144		15,144		13,518		813		813			-
		422,185		555,748		68,418		109,303		102,940			275,087

Derivative finance liabilities

Financial power swap		61,537		61,537		33,183		26,424		(2,666	)		4,596

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 electricity prices or 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.

The Company uses hedging instruments in an attempt to manage interest rate, currency and other market-related risks. The majority of the Company’s derivative contracts are OTC derivatives, i.e., derivative contracts that are not transacted on an exchange. These derivatives are entered into under ISDA Master Agreements. If counterparty defaults on these contracts, the underlying exposure would no longer be effectively hedged, which could result in losses. Disruptions such as market crises and economic recessions may put a strain on the availability and effectiveness of hedging instruments. For example, although the Company estimates the expected transition away from Euribor, as addressed by the Amendments to IAS 39, Financial Instruments, Interest Rate Benchmark Reform – Phase 2, not to have a material effect on the Company,’s financial statements, similar benchmark rates may have a different impact on the hedged item and the hedging instrument, which could cause some of the Company hedge to become ineffective, resulting in potential losses.

(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 and profit and loss.

The Company holds cash and cash equivalents, short-term deposits, and restricted cash in various currencies, including Euro, USD and NIS. The Company’s holdings in its European PV Plants and projects under development are denominated in Euro, its holdings in projects under development in the US are denominated in USD and its holdings in its Israeli PV Plant, projects under development and indirect holdings in Dorad are denominated in NIS. The Company believes that the composition of its assets and liabilities, which are denominated in USD, Euro and NIS, sufficiently mitigates a substantial portion of its foreign currency risk.

(a)

The exposure to linkage and foreign currency risk

The Company’s exposure to linkage and foreign currency risk was as follow:

	December 31, 2023
	Non-monetary/ Non finance			*NIS ()**			USD			EURO			Total
	€ in thousands

Current assets:
Cash and cash equivalents		-			34,990			4,199			11,938			51,127
Short term deposits		-			997			-			-			997
Restricted cash		-			-			-			810			810
Intangible asset from green certificates		553			-			-			-			553
Trade and other receivables		2,584			2,660			-			6,748			11,992
Assets of disposal groups classified as held for sale		28,297			-			-			-			28,297
Non-current assets:
Investments in equity accounted investees		31,772			-			-			-			31,772
Advances on account of investments		898			-			-			-			898
Fixed assets		407,982			-			-			-			407,982
Right-of-use asset		30,967			-			-			-			30,967
Restricted cash and deposits		-			3,558			-			13,828			17,386
Deferred tax		8,677			-			-			-			8,677
Long term receivables		9,350			1,096			-			-			10,446
Derivatives		-			-			-			10,948			10,948
Current liabilities:
Current maturities of long-term bank loans		-			-			-			(9,784	)		(9,784	)
Current maturities of long-term loans		-			-			-			(5,000	)		(5,000	)
Current maturities of debentures		-			(35,200	)		-			-			(35,200	)
Trade payables		-			(832	)		(154	)		(4,263	)		(5,249	)
Other payables		(553	)		(9,445	)		-			(861	)		(10,859	)
Current maturities of derivatives		-			-			-			(4,643	)		(4,643	)
Current maturities of lease liabilities		-			(105	)		(10	)		(585	)		(700	)
Liabilities of disposal groups classified as held for sale		(17,142	)		-			-			-			(17,142	)
Non-current liabilities:
Long-term lease liabilities		-			(3,176	)		(2,150	)		(18,354	)		(23,680	)
Long-term loans		-			(69,685	)		-			(168,096	)		(237,781	)
Other long-term bank loans		-			(8,452	)		-			(20,921	)		(29,373	)
Debentures		-			(104,887	)		-			-			(104,887	)
Deferred tax		(2,516	)		-			-			-			(2,516	)
Other long-term liabilities		-			(939	)		-			-			(939	)
Total exposure in statement of financial position in respect of financial assets and financial liabilities		500,869			(189,420	)		1,885			(188,235	)		125,099

	December 31, 2022
	Non-monetary/ Non finance			*NIS ()**			USD		EURO			Total
	€ in thousands

Current assets:
Cash and cash equivalents		-			30,359			55		16,044			46,458
Marketable securities		-			-			2,836		-			2,836
Restricted cash		-			-			-		900			900
Receivable from concession project		-			1,799			-		-			1,799
Trade and other receivables		2,174			4,694			16		5,798			12,682
Non-current assets:
Investments in equity accounted investees		23,976			6,053			-		-			30,029
Advances on account of investments		2,328			-			-		-			2,328
Receivable from concession project		-			24,795			-		-			24,795
Fixed assets		365,756			-			-		-			365,756
Right-of-use asset		30,020			-			-		-			30,020
Intangible asset		4,094			-			-		-			4,094
Restricted cash and deposits		-			5,607			-		14,585			20,192
Deferred tax		23,510			-			-		-			23,510
Long term receivables		7,840			1,171			-		259			9,270
Derivatives		-			-			-		1,488			1,488
Current liabilities:
Current maturities of long-term bank loans		-			(2,091	)		-		(10,724	)		(12,815	)
Current maturities of long-term loans		-			-			-		(10,000	)		(10,000	)
Current maturities of debentures		-			(18,714	)		-		-			(18,714	)
Trade payables		-			(123	)		-		(4,381	)		(4,504	)
Other payables		-			(6,107	)		-		(5,100	)		(11,207	)
Current maturities of derivatives		-			-			-		(33,183	)		(33,183	)
Current maturities of lease liabilities		-			(193	)		-		(552	)		(745	)
Non-current liabilities:
Long-term lease liabilities		-			(4,740	)		-		(17,265	)		(22,005	)
Long-term loans		-			(13,495	)		-		(215,971	)		(229,466	)
Other long-term bank loans		-			(7,538	)		-		(14,044	)		(21,582	)
Debentures		-			(91,714	)		-		-			(91,714	)
Deferred tax		(6,770	)		-			-		-			(6,770	)
Derivatives		-			-			-		(28,354	)		(28,354	)
Other long-term liabilities		-			(2,021	)		-		-			(2,021	)
Total exposure in statement of financial position in respect of financial assets and financial liabilities		452,928			(72,258	)		2,907		(300,500	)		83,077

(*)

Including items linked to the Israeli CPI

Information regarding significant exchange rates:

	For the year ended December 31
	Rate of					Rate of
	Change					Change
	%			Dollar		%		NIS
1 Euro in 2023		3.7			1.106		6.9		4.012
1 Euro in 2022		(5.8	)		1.066		6.6		3.753

(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, 2023
	Increase			Decrease
	Equity			Equity
	€ thousands
Change in the exchange rate of:
5% in the USD		(90	)		99
5% in NIS		(9,471	)		9,471

	December 31, 2022
	Increase			Increase
	Equity			Equity
	€ thousands
Change in the exchange rate of:
5% in the USD		155			(155	)
5% in NIS		(963	)		963

(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 on the Bank of Israel interest rate and therefore it may be affected by adverse movements in interest rates. The Company utilizes interest rate swap derivatives to convert certain floating-rate debt to fixed-rate debt. The Company’s 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) the profit in the financial statements by the amounts shown below:

	December 31,
	2023			2022
	Profit or loss			Profit or loss
	€ in thousands
Increase of 1%		736			161
Increase of 3%		2,204			520
Decrease of 1%		(734	)		(196	)
Decrease of 3%		(2,201	)		(556	)

(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 electricity prices.

In order to manage its exposure to changes in the electricity prices, in June 2018, Talasol executed the Talasol PPA. The power produced by the Talasol PV Plant is expected to be sold by Talasol in the open market for the then current market power price and the Talasol PPA is expected to hedge the risks associated with fluctuating electricity market prices by allowing Talasol to secure approximately 80% of its income for the power production included under the Talasol PPA. The hedge transaction becomes effective on Talasol requesting that the counter party fix the fixed price pursuant to the price adjustment mechanism. The Talasol PPA became effective in March 2019 and its accounting treatment is according to cash flow hedge.

The fair value of the Talasol 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 valuation technique for assessing electricity future prices projections takes into consideration unobservable market data and complex pricing models.

In 2021, Talasol deposited €10 million in Talasol’s bank account as security for a letter of credit to the PPA provider. This security fund is reduced by 10% every year, up to a minimum amount of €3.5 million, which will be released at the expiration of the PPA.

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, 2023

Fair value

Valuation techniques

Inputs used to

Carrying

for determining

determine

amount

Level 1

Level 2

Level 3

fair value

€ in thousands

Non-current liabilities:

Debentures

140,087

134,464

Loans from banks and others (including current maturities)

281,938

231,057

Discounting future cash flows by the market interest rate on the date of measurement.

See Note 21F(2)

422,025

134,464

231,057

December 31, 2022

Fair value

Valuation techniques

Inputs used to

Carrying

for determining

determine

amount

Level 1

Level 2

Level 3

fair value

€ in thousands

Non-current liabilities:

Debentures

110,428

102,957

Loans from banks and others (including current maturities)

273,863

217,073

Discounting future cash flows by the market interest rate on the date of measurement.

See Note 21F(2)

384,291

102,957

217,073

(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,
	2023	2022
	%
Non-current liabilities:
Loans from banks	Discount rate of Euribor+ 2% with a zero floor	Discount rate of Euribor+ 2% with a zero floor
Loans from banks	fixed rate for several years 3.1%-6% Linkage to Euribor	fixed rate for 5 years 2.65%-4.5% Linkage to Euribor
Loans from banks	2.58%-4.78% Linkage to Consumer price index in Israel	2.58% Linkage to Israeli CPI
Loans from banks	Floating interest rate based on the Bank of Israel Rate plus a spread of 4.35%.	Floating interest rate based on the Bank of Israel Rate plus a spread of 4.35%.
Loans from banks	fixed rate of 2.58%-3.03%	fixed rate 2.58%-3.03%
Loans from others	Euribor+ 5.27%	Euribor+ 5.27%
Loans from others	7% Linkage to Consumer price index in Israel and fixed rate of 5.5%	7% Linkage to Israeli CPI and fixed rate of 5.5%

(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, 2023
	Level 1		Level 2		Level 3		Total		Valuation techniques for
	€ in thousands								determining fair value
Swap contracts		-		882		-		882	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.
Financial power swap		-		-		5,698		5,698	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, 2022
	Level 1		Level 2		Level 3			Total			Valuation techniques for
	€ in thousands										determining fair value
Marketable securities		2,836		-		-			2,836		Market price.
Swap contracts		-		1,761		-			1,761		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.
Financial power swap		-		-		(61,537	)		(61,537	)	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.

(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
	Dori Energy loan
	€ in thousands

Balance as at January 1, 2022		(20,894	)

Total income recognized in profit or loss		49,679	*

Total income recognized in other comprehensive income		(90,322	)*

Balance as at December 31, 2022		(61,537	)

Total income recognized in profit or loss		13,777

Total income recognized in other comprehensive income		53,548

Balance as at December 31, 2023		5,698

Reclassified