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EDP Renewables 2013 Annual Report

Message from the Chairman

In regions with solid renewable resources, wind is already the most competitive technology.

DEAR SHAREHOLDERS,

2013 was a year marked with numerous challenges for EDP Renováveis. However, our vision remains intact and our ability to achieve our targets, yet again, is a testament to the strength and focus of our team. Strategic initiatives implemented in 2012 were successfully executed in 2013 and will serve as the foundation of our growth moving forward. Regulatory changes in Spain changed the investment landscape in one of our core markets and due to the extension of the PTCs, the US placed itself as the growth pillar of EDPR for the upcoming years. The development of the renewable energy sector into a mature sector is unstoppable, becoming increasingly cost-competitive, and we believe we are well positioned to capture value and deliver it to our shareholders.

Marking the five year anniversary of becoming a publicly traded company, 2013 was a year of record performance. Our renewable energy portfolio reached 8.5 GW, produced 19.9 TWh of clean energy, delivered leading operational and financial metrics and all while maintaining the highest levels of sustainability principles.

EDPR shares the DNA of the EDP group, in what regards maintaining a low risk profile as a core priority. Our low risk profile was key to implement a successful self-funding business model – reducing exposure to the volatility of financial markets – which is based on the asset rotation program. Yielding EDPR 620 million euros of value crystallization through several transactions, the program success was determinant. CTG has also been instrumental in this success by recognizing the high quality of our assets and generating interest from our other partners. During the year, EDPR successfully closed its first transaction with CTG and signed a memorandum of understanding (MoU) for an investment in our ENEOP projects. This agreement provided further evidence of the successful implementation of the Strategic Partnership.

The wind energy sector is becoming increasingly competitive. Alongside with increased competitiveness, renewables have clear benefits in terms of reducing carbon emissions, creating local jobs, and securing national energy demands. Clearly there is a paradigm shift and in regions with solid renewable resources, wind is already the most competitive technology representing a significant portion of the production mix. For example, in the UK, the entrance price for new nuclear power stations can be 20%-30% above the cost for onshore wind. Also, the outcome of the energy auctions in Brazil showcased the strength of wind as it competed with conventional technologies and secured the bulk of the new long-term contracts. Towards the end of 2013, a record number of wind power MW were under construction in the United States and renewables was the overall leader for new installations in Europe. All this facts are testimonial to the significance of renewable energy, its increased competitiveness and sustainability. Now it is time to debate at a European level the importance of adopting a new Market Design, one that properly answers to the current challenges of the whole electric sector, where the cost of capital is a key factor of competitiveness and where fixed costs are increasingly dominant, as is the case with renewables.

As the sector continues to change and mature, it’s important for us to maintain a flexible strategy. Given the inherent quality of our assets EDPR signed over 1,200 MW of long term power purchase agreements in the United States, providing visibility of our growth three years in advance. Because of its diversified portfolio, EDPR additionally secured long-term agreements in Italy and Brazil, an exceptional achievement in our growth markets. But we cannot afford to be careless and must maintain a prudent approach to the business. Inspired by our vision and confident of the long- term value of investing in renewables we continue to explore new markets and new technologies. On the solar side, 2013 was the first year of production of our newly installed plants and we will continue to search for opportunities and capture their potential as their costs continue to decline. In offshore wind, we partnered with GDF Suez and presented ourselves to the French Offshore Round II licenses program. The offshore market showed considerable growth in Europe during the year and looks to be an increasing source of growth in the long-term.

The Company’s policy of investing in a diverse portfolio aims to generate consistent returns over the long term. We are pleased with our consistent performance despite the poor economic environment since 2008. We therefore view the next year with a mixture of caution and optimism as we continue to believe that good quality assets in which we invest can prosper even in the current tough environment.

The company continues to execute its strategy to develop and operate a worldwide fleet that generates clean and CO2- free electricity. Respect for biodiversity and supporting the society are decisive contributors to achieve a leadership position in the global arena of sustainability. We continued our commitment with the UN Global Compact to align our operations with the ten principles in the areas of human rights, labour, environment, and anti-corruption. This year, EDPR was distinguished with the number one worldwide position in the FTSE4Good Index and contributed to EDP’s leading position in the Dow Jones Sustainability Index.

It takes the performance and dedication of our employees and their strong relationships with our stakeholders to achieve these humbling recognitions. I would like to openly praise their determination in overcoming challenges and capturing new growth opportunities. Based on their assessment, the company was selected as a Best Place to Work in several countries and I along with my colleagues of the Board, will make sure the Company keeps with the highest standards of health and safety, ethics and diversity, while providing challenging career opportunities for our employees.

I would also like to express my confidence in the work developed by the executive team and to give thanks to my fellow board directors for their support and supervisory role. The company has come a long way in five years as a public company. It is now a mature company facing increased challenges. We need to make sure we continue to operate our assets with premium metrics and continue to define our own growth path.

Sincerely,

 

António Mexia

Chairman of the Board of Directors

Assinatura António Mexia