edp – energias de portugal, sa edp finance bv €12500000000 - CMVM

Regarding EDP’s Portuguese electricity generation activity, power plants are operated in the market but
subject to the CMEC legislation, which was designed, following the early termination of the corresponding PPAs
on 1 July 2007, to ensure parity between the revenues expected in a market regime based on the initial
compensation value (calculated by reference to amounts expected to be received under the PPAs) and the
revenues obtained in the market. The CMEC payment is subject to an annual revision during the first ten years
of implementation, which is expected to involve financial compensation between EDP and the electricity
system to be received in the year after, ensuring that the company is compensated in order to receive what
would have been received or paid if the power plants were still operating under PPAs. The annual revision
procedure only applies until a maximum global compensation amount defined by law is reached. Finally, and
although the “true-up” system of the CMEC allows for recovery in the year following a year in which there was a
failure of collections, the operation of the CMEC in a given year may also be affected by significant decreases in
the level of contracted power or by extensive failure of the electricity system to collect tariffs from consumers.
Failure to recover any amounts under the CMEC could have a material adverse effect on EDP’s business,
financial condition, prospects or results of operations.
The profitability of EDP’s hydro power plants is affected by variable river flows at the sites of its operations,
which are dependent on weather conditions.
As of June 2011, hydro power plants represented approximately one-third of EDP’s total installed
capacity of electricity generation, amounting to 6,955 MWs out of a total 22506 MWs. During the development
phase and prior to the construction of any hydro power plant, EDP conducts a study to evaluate the potential
river flows at the proposed site, which may vary as a result of seasonal fluctuations in river currents and, over
the long term, as a result of more general climate changes and shifts. EDP bases its core assumptions and
investment decisions on the findings of these studies. The expected levels of electricity generation output from
EDP’s hydro power plants in operation, under construction and under development are based essentially on
historical averages of river flows at the site of each power plant, which are highly dependent on weather
conditions, particularly rain, which varies substantially across the different locations of the power plants,
seasons and years. Moreover, the upstream use of river flows for other purposes, restrictions imposed by
legislation or the impact of climate change may also result in a reduction in the water flow available for
electricity generation purposes. EDP cannot guarantee that actual weather conditions at a project site will
conform to the assumptions that were made during the project development phase on the basis of such
studies and, therefore, it cannot guarantee that its hydro power plants will be able to meet their anticipated
generation levels. Failure by EDP’s hydro power plants to meet the anticipated generation levels could have a
material adverse effect on EDP’s business, financial condition, prospects or results of operations.
As of June 2011, 59 per cent. of EDP’s total installed capacity from hydro power plants, totalling 4,094
MWs, corresponded to plants operated in Portugal and subject to the CMEC legislation. Under the CMEC
legislation, the profitability of these plants is not impacted by the volatility in river flows at those plants until
either June 2017 or any earlier applicable date corresponding to the original termination date of a particular
plant’s PPA. Until any of such dates, positive or negative differences in the actual hydraulicity levels at these
plants when compared to the levels established in 2007 by the CMEC initial assumptions will lead to payments
made to or by all Portuguese electricity consumers through the use of the electricity system tariff. After these
dates, these plants will be fully operated in the liberalised market, in which it is expected that in line with what
has happened historically in the Iberian Peninsula, hydro power plants should obtain higher revenues per MWh
in dry periods and lower revenues per MWh in humid periods, reducing volatility in operating revenues
resulting from annual volatility in river flows. As of June 2011, 26 per cent. of EDP’s total installed capacity of
hydro power plants, totalling 1,790 MWs, corresponded to hydro plants in Brazil, mostly under PPAs. In Brazil,
the hydraulicity risk is shared up to a specified level by all the hydro plants in the country, but the profitability
of the plants can be affected in the event of a long dry period generalised in the regions with higher
contribution to the country’s hydro power production.
The profitability of EDP’s wind power plants is affected by variable wind speeds at the sites of its operations,
which are dependent on weather conditions.
As of June 2011, wind power plants represented 31 per cent. of EDP’s installed capacity of electricity
generation, amounting to 6,887 MWs of installed capacity. The expected levels of electricity generation output
from EDP’s wind power plants in operation, under construction and under development are based on historical
averages of wind speeds at the power plants’ sites, which are highly dependent on weather conditions,
particularly wind levels, which vary materially across the different locations of the power plants, seasons and
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