The Paris Agreement (2015 XXI UnitedNations Climate Change Conference, or COP21) seeks to minimise the impact of climate change, entailing a reduction in emissions that is only possible if there is a long-term transformation in energy. This energy transformation may be an opportunity, since it will require increased investment, but it will also reshape the appeal of businesses and investments alike.
Although there is no single path to achieving the climate goals, the most ambitious scenarios pose significant challenges for fossil fuels.
Due to falling capital costs, renewables are consolidating their leadership and will be the fastest-growing primary energy source in the medium and long term. Renewables are expected to expand from 2% of primary energy demand in 2016 to 6% by 2040.
Natural gas is expected to account for 20% of the primary energy mix in 2040, as it is the main energy source that is compatible with the climate commitments.
In terms of final energy consumption, electricity will expand by 62%, from total worldwide demand of 21,000 TWh in 2016 to 34,000 TWh in 2040. Development of the emerging economies will require increased use of electrical applications (motors, cooling systems, information technology, etc.), while greater electrification of homes and transportation, coupled with digitalisation, will drive growth of electricity as a final energy source.
Electricity's share of total energy demand is expected to rise from 19% in 2016 to 23% in 2040.
Digitalisation in the energy sector, such as the development of applications and services that transform the relationship with customers due to greater connectivity, will enable demand management to be optimised (smart devices) and the portfolio of products and services to be expanded
The number of connected devices is expected to increase by 27 billion between 2017 and 2020. Sales via digital channels are expected to increase by over USD 1 trillion in the same period.
Naturgy's risk management model seeks to ensure that the company's performance is predictable in all aspects that are of relevance to its stakeholders. This requires establishing the risk tolerance by setting limits for the main risk categories. In this way, the company can anticipate the consequences of certain risks and be perceived in the market as a sound, stable company, with all the benefits that entails.
Naturgy has a framework integrating the vision of governance, risks and compliance so as to provide a 360º view of the group's processes, existing controls and the associated risks.
Guaranteeing the predictability and sustainability of the company's operational and financial performance is a key aspects of risk management at Naturgy, and is supported by a number of bodies with clearly identified areas of responsibility.
Supervises the company's internal control and risk management systems. Its function is to identify the various types of risk and the measures implemented to mitigate them, and to address them in the event that they materialise in the form of actual damage.
Entrusted with determining and reviewing the company's target risk profile. It ensures that the risk profile is aligned with the company's strategic position and it also safeguards stakeholders' interests. It also exercises oversight to ensure that the entire organisation understands and accepts its responsibility for identifying, assessing and managing the main risks.
In charge of monitoring and reporting risks and ensuring that they fall within the limits defined in the target risk profile by the Risks Committee. Three units in particular stand out:
In charge of managing risk in all their areas of action. They identify trends and positions that may entail risk and report them to the Risk Units. They also apply the guidelines and criteria established by the Risk Units.
Responsible for applying the general principles established in the Risk Control and Management Policy and for risk management in their areas of responsibility, observing, reporting, managing and mitigating risks.
Each business unit has specific information on the main types of risk that may affect it. The goal is to facilitate decision-making, which is positive for the company since it enhances profitability, predictability and efficiency.
The system addresses basically three categories of risk:
|Risk type||Description||Management approach||Metric||Trend|
|Commodity prices||Gas||Volatility in the international markets that set gas prices.|| |
Physical and financialhedges. Portfolio management.
|Stochastic||Decoupling of long-term contracts from hub prices.hubs.|
|Electricity||Volatility in the Spanish and Portuguese electricity markets.||CPhysical and financial hedges. Optimisation of the power generating fleet.||Stochastic||Penetration by renewables with zero marginal cost and intermittent production.|
|Volume||Gas||Mismatch between gas supply and demand.||Optimisation of contracts and assets worldwide.|| |
|Aggregate demand pressure in Spain in a context of energy efficiency.|
|Electricity||Reduction of the available thermal gap. Uncertainty about volume of hydroelectric output.||Optimisation of the balance between supply and generation.||Stochastic||Aggregate demand pressure in Spain in a context of energy efficiency.|
|Regulatory||Exposure to regulatory review of the criteria and returns recognised for regulated activities.||Heightened intensity of communication with regulatory bodies. |
Adjusting efficiencies and investments to recognised rates.
|Scenarios||Different business units at different stages of maturity.|
|Exchange rate||Volatility in international |
Hedging via local
currency funding and
of the net position.
|Stochastic||Uncertainty about |
growth prospects in Latin
|Interest rate and credit |
|Volatility in funding rates.||Financial hedges. |
|Stochastic||Uncertainty about the |
interest rate scenario.
|Tax||Ambiguity or subjectivity |
in the interpretation of
current tax regulations,
or due to a material
amendment of same.
|Queries to a |
Engagement of top
level advisory firms.
Adoption of the Code
of Best Tax Practices.
provisions on a
|Scenarios||Different business units |
at different stages of
|Credit||Uncertainty about |
performance of bad debt
ratios as a result of the
|Analysis of customer |
solvency to define
|Stochastic||Pursues efficiency in debt |
|Operational: insurable risks||Accidents, damage |
and non-availability of
Optimisation of total
cost of risk and of
|Stochastic||Growing tension in |
the insurance market
in the face of natural
|Operational: image and |
|Impaired perception of |
Naturgy by stakeholders.
|Identification and |
tracking of potential
|Scenarios||Stabilisation of MERCO |
|Harm to the natural |
environment. Evolution of
|Emergency plans at |
facilities with risk
|Scenarios||Implementation of an |
System that is audited
and certified each year byo
|Changes in environmental |
factors as a result of
Regulation aimed at
|Corporate positioning |
|Uncertainty about |
to encourage energy
Naturgy's main opportunities are as follows:
Renewable generation: Increase renewable capacity internationally, given that renewable energies are costcompetitive and considering Naturgy's presence in growth markets.
Generation mix: Naturgy's generating fleet, which is dominated by CCGTs, has the necessary flexibility to adapt to different market situations and is a valuable asset for seizing opportunities related to volatility in prices and demand volume in the gas and electricity markets.
Portfolio of natural gas and LNG procurements: Management of gas pipelines, stakes in plants and the fleet of LNG carriers make it possible to meet the needs of the Group's various businesses in a flexible, diversified way by optimising for different energy scenarios. Naturgy is one of the world's leading LNG operators and a key player in the Atlantic and Mediterranean basin.
A balanced structural position: in businesses and regions, many of them with stable flows that are independent of commodity prices, making it possible to optimise the capture of energy demand growth and maximise new business opportunities in new markets.
Technological development and innovation: Naturgy focuses on research, development and innovation as a means of generating a reliable, sustainable energy supply.
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