4.1 Property, plant and equipment

Impairment losses and reversals of impairment losses in 2020

Impairment losses of CHF 23 million (previous year: CHF 202 million) and reversals of impairment losses of CHF 68 million (CHF 0 million) were recognised in 2020.

On 27 January 2020, Gestore dei Servizi Energetici GSE S.p.A. (GSE), which is responsible for implementing and monitoring incentive mechanisms and subsidies for the production of electricity from renewable energies in Italy, issued Società Agricola Solar Farm 4 S.r.l. (SASF 4) with the final report on its inspection, which started in July 2017 and ended in 2019. In this, GSE stated that, on the one hand, it identified deviations between the specifications named in the documentation to apply for feed-in tariffs and the evidence provided, and, on the other hand, that certain evidence was not available. The application to receive feed-in tariffs was made by the Moncada Energy Group before the solar plants were constructed. As the builder of the plants, it was also responsible for ensuring that the plants were built in compliance with the specifications and that the corresponding evidence could be provided. Alpiq acquired SASF 4 from the Moncada Energy Group S.r.l. in 2018. GSE deemed the deviations identified to be significant and therefore withdrew the right of SASF 4 to the feed-in tariffs it had already received and stipulated that SASF 4 loses the right to all future feed-in tariffs. Alpiq contested the decision by making use of the legal means of appeal at its disposal. On account of the potential reduction of the right to future feed-in tariffs, Alpiq recognised impairment losses on the solar plants concerned in the previous year and in the first half of 2020. In the previous year, it also posted a provision in other provisions for potential repayments of feed-in tariffs received. Following the submission of further evidence and various proceedings, at the end of 2020, GSE reversed the complete revocation of the right to feed-in tariffs ordered at the start of 2020 and, instead, stipulated a reduction of the feed-in tariffs originally awarded by 18 %. Alpiq therefore recognised a reversal of the impairment loss of CHF 12 million on the power plants and a reversal of the provision of CHF 9 million on SASF 4, which belongs to the Generation International business division. The recoverable amount was calculated using a pre-tax discount rate of 7.54 %. Alpiq is also reviewing the legal steps against the Moncada Energy Group to protect itself from losses.

In the Generation International business division, impairment losses had to be recognised on the wind farms of the Italian companies Alpiq Wind Italia S.r.l. and Enpower 2 S.r.l., on the solar plants of the Italian company Società Agricola Solar Farm 2 S.r.l. (SASF 2) and on the small-scale hydropower plants of Isento Wasserkraft AG. These came to CHF 17 million for the wind farms, CHF 2 million for the solar plants and CHF 2 million for the small-scale hydropower plants. The main reasons behind these impairment losses are feed-in tariffs that have expired or are due to expire in the coming years, forecasts of falling electricity prices and a higher discount rate. The recoverable amount was calculated using a pre-tax discount rate of 6.77 % for Alpiq Wind Italia, of 5.39 % for Enpower 2, of 6.20 % for SASF 2 and of 5.25 % for Isento Wasserkraft.

Alpiq recognised a reversal of the impairment loss of CHF 52 million on the thermal power plant San Severo in Italy, which belongs to the Generation International business division. The profits generated and the future prospects demonstrate that the performance potential has increased for the long term. The recoverable amount was calculated using a pre-tax discount rate of 9.62 %.

In connection with the sale of the Swedish wind farm Tormoseröd, which belonged to the Generation International business division, Alpiq recognised a reversal of the impairment loss of CHF 4 million. For more information about the sale, please refer to note 5.2.

Impairment 2019

Impairment losses of CHF 186 million related to the sold Czech coal-fired power plants Kladno and Zlín in the Generation International business division before the reclassification to assets held for sale. For detailed explanations on this and on impairment losses on sold assets, please refer to note 5.2. In addition, impairment losses of CHF 14 million had to be recognised on solar plants in connection with GSE’s final inspection report (see impairment losses and reversals of impairment losses in 2020). The recoverable amount was calculated using a pre-tax discount rate of 4.63 %.

Contractual obligations

At the reporting date, the Group had contractual commitments of CHF 29 million (previous year: CHF 25 million) for the construction and acquisition of property, plant and equipment.

Accounting policies

Property, plant and equipment is stated at cost, net of accumulated depreciation and any impairment losses. Obligations to restore land and sites after licence expiry or decommissioning are accounted for individually in accordance with the contract terms. Estimated restoration costs (including decommissioning costs) are included in the cost of acquisition and manufacture, and are recognised as a provision. Replacements and improvements are capitalised if they substantially extend the useful life, increase the capacity or substantially improve the quality of the property, plant or equipment.

Depreciation is applied to property, plant and equipment on a straight-line basis over their estimated useful lives, or to the expiry date of power plant licences. Assets under construction and prepayments are not subject to depreciation until they are completed or in working condition and have been reclassified to the corresponding asset category; they are depreciated for the first time once they have been completed or have been brought to a working condition. The estimated useful lives of the various classes of assets range as follows:

• Power plants: 20 – 80 years
• Transmission assets: 15 – 40 years
• Buildings: 20 – 60 years
• Machinery, equipment and vehicles: 3 – 20 years
• Land: only in case of impairment
• Assets under construction and prepayments: if impairment is already evident

The residual value and useful life of an asset are reviewed regularly, but at least at each financial year end, and adjusted where required. At every reporting date, a test is performed to determine whether there is any indication that items of property, plant and equipment are impaired. If there is any indication of impairment, the recoverable amount is determined for the asset. If the asset’s carrying amount exceeds its estimated recoverable amount, an impairment loss equivalent to the difference is recognised. An impairment loss previously recognised for an asset is reversed in the income statement if the impairment no longer exists, or has decreased. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised.