1.3 Significant estimation uncertainties and judgments
The preparation of the consolidated financial statements requires the management to exercise judgment and make estimates and assumptions. These can significantly affect recognised assets and liabilities, reported income and expenses and disclosures. Estimates and assumptions are based on historical experience and expectations of future events that are believed to be reasonable under the circumstances. Actual amounts may differ from these estimates. Any revisions to estimates and assumptions are recognised and disclosed in the period in which they are identified.
The explanations on significant estimation uncertainties and judgments are highlighted in colour. They are contained in notes 2.2 Net revenue, 2.7 Income tax, 3.2 Financial instruments, 3.6 Leases, 4.1 Property, plant and equipment, 4.2 Intangible assets, 4.7 Provisions, 4.8 Contingent liabilities and guarantees, 5.2 Companies sold and 6.3 Employee benefits.
Impact of the COVID-19 pandemic on Alpiq
The coronavirus and the disease it causes (COVID-19) have been spreading on a global scale since the beginning of 2020, forcing governments to take drastic protective measures. Thus far, the pandemic has not led to any substantial restrictions on the operating activities of the Alpiq Group. However, the spread of COVID-19 and the protective and stimulation measures taken by governments and central banks are having far-reaching effects on the macroeconomic environment of all industries across the globe and thus also on Alpiq. These effects were assessed at 31 December 2020 and taken into account in the 2020 consolidated financial statements, although the effects of COVID-19 cannot be estimated separately from other market fluctuations:
- The COVID-19 pandemic caused wholesale electricity prices to drop in 2020, hitting short-term prices particularly hard. In addition to this, electricity consumption was also lower. Medium and long-term forward prices have more or less recovered in the meantime and are now at a similar level to that seen before the pandemic. Alpiq had to increase its provisions for onerous contracts (see note 4.7) and recognise impairment losses (see note 4.1) at the reporting date. Alpiq’s revenue in 2020 was also negatively affected to a limited extent.
- The development of the financial markets had a significant impact on the performance of the decommissioning and waste disposal funds for nuclear power plants, which in turn has an impact on Alpiq’s energy procurement costs. The assets of the pension funds were also impacted, which had an influence on the defined benefit liabilities. Exchange losses incurred during the year were compensated for by the end of 2020.
At the time of approval of the consolidated financial statements by the Board of Directors of Alpiq Holding Ltd., the financial impact of the pandemic on the financial position, financial performance and cash flows of the Group cannot yet be fully assessed and estimated, as the effective impact will only become apparent as the situation develops over the coming months. This could have a significant impact, in particular on the following assumptions made by management regarding estimation uncertainties:
- Recoverable amount of non-current assets
- Provisions for onerous contracts
- Recoverability of deferred tax assets
- Calculation of defined benefit liabilities
Furthermore, the development of the financial markets in particular has a significant impact on the performance of the decommissioning and waste disposal funds for nuclear power plants, which in turn has an impact on Alpiq’s energy procurement costs. In addition, the market changes caused by the pandemic may have an effect on the future measurement of derivative financial instruments. Alpiq regularly monitors the development of the pandemic as well as its effects on the aforementioned estimation uncertainties, and takes the necessary measures.