3.2 Financial instruments
Carrying amounts and fair values of financial assets and liabilities
The fair values of financial assets and financial liabilities are summarised in the following table. Not included therein are cash and cash equivalents, trade receivables and trade payables, as well as miscellaneous receivables and liabilities whose carrying amounts differ only insignificantly from their fair values.
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31 Dec 2023 |
31 Dec 2022 (restated) |
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CHF million |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
Financial assets at fair value through profit or loss |
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|
|
|
Financial investments |
1 |
1 |
1 |
1 |
Positive replacement values of derivatives |
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|
|
|
Energy derivatives 1 |
2,268 |
2,268 |
5,071 |
5,071 |
Currency and interest rate derivatives |
35 |
35 |
5 |
5 |
Derivatives designated for hedge accounting |
36 |
36 |
2 |
2 |
Financial liabilities at amortised cost |
|
|
|
|
Bonds |
1,085 |
1,105 |
850 |
835 |
Loans payable |
476 |
474 |
710 |
697 |
Financial liabilities at fair value through profit or loss |
|
|
|
|
Negative replacement values of derivatives |
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|
|
|
Energy derivatives 2 |
1,759 |
1,759 |
5,452 |
5,452 |
Currency and interest rate derivatives |
2 |
2 |
11 |
11 |
Derivatives designated for hedge accounting |
25 |
25 |
43 |
43 |
1 Of which a net amount of CHF 3 million (previous year: CHF 9 million) originates from own-use contracts designated at fair value on initial recognition.
2 Of which a net amount of CHF 24 million (previous year: CHF 94 million) originates from own-use contracts designated at fair value on initial recognition.
Fair value hierarchy of financial instruments
The fair value hierarchy shown below was used to classify the financial instruments:
Level 1:
Quoted prices in active markets for identical assets or liabilities
Level 2:
Valuation model based on prices quoted in active markets that have a significant effect on the fair value
Level 3:
Valuation models utilising inputs that are not based on quoted prices in active markets and which have a significant effect on the fair value
At the reporting date, the Alpiq Group measured the following assets and liabilities at their fair value or disclosed a fair value.
CHF million |
31 Dec 2023 |
Level 1 |
Level 2 |
Level 3 |
Financial assets at fair value through profit or loss |
|
|
|
|
Financial investments |
1 |
|
1 |
|
Energy derivatives |
4,494 |
|
4,385 |
109 |
Currency and interest rate derivatives |
35 |
|
35 |
|
Derivatives designated for hedge accounting |
36 |
|
36 |
|
Financial liabilities at amortised cost |
|
|
|
|
Bonds |
1,105 |
1,105 |
|
|
Loans payable |
474 |
|
474 |
|
Financial liabilities at fair value through profit or loss |
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|
|
|
Energy derivatives |
3,985 |
|
3,930 |
55 |
Currency and interest rate derivatives |
2 |
|
2 |
|
Derivatives designated for hedge accounting |
25 |
|
25 |
|
CHF million |
31 Dec 2022 (restated) |
Level 1 |
Level 2 |
Level 3 |
Financial assets at fair value through profit or loss |
|
|
|
|
Financial investments |
1 |
|
1 |
|
Energy derivatives |
13,888 |
|
13,610 |
278 |
Currency and interest rate derivatives |
5 |
|
5 |
|
Derivatives designated for hedge accounting |
2 |
|
2 |
|
Financial liabilities at amortised cost |
|
|
|
|
Bonds |
835 |
835 |
|
|
Loans payable |
697 |
|
697 |
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
Energy derivatives |
14,269 |
|
13,889 |
380 |
Currency and interest rate derivatives |
11 |
|
11 |
|
Derivatives designated for hedge accounting |
43 |
|
43 |
|
The energy, currency and interest rate derivatives comprise only OTC products, the majority of which are to be classified as Level 2. Fair value of energy derivatives is determined using a price curve model. The observable input factors (market prices) in the price curve model are supplemented by hourly forward prices, which are arbitrage-free and compared with external price benchmarking on a monthly basis.
The fair value of the loans payable corresponds to the contractually agreed interest and amortisation payments discounted at market rates.
Energy derivatives disclosed under Level 3 are measured using methods that in some cases use input factors, such as long-term energy prices or discount rates, that cannot be derived directly from an active market. In complex cases, a discounted cash flow method is used for measurement. The determination of these input parameters and the application of specific valuation models for non-standardised products require significant management estimates.
Level 3 energy derivatives
The following table shows the development of Level 3 energy derivatives:
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2023 |
2022 (restated) |
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CHF million |
Assets |
Liabilities |
Assets |
Liabilities |
Fair values at 1 January |
278 |
380 |
105 |
152 |
Purchases |
11 |
|
55 |
1 |
Sales |
|
|
– 45 |
|
Settlements |
– 82 |
– 108 |
– 67 |
– 119 |
Fair value changes of derivatives still held at period end |
– 24 |
– 147 |
202 |
263 |
Fair value changes of derivatives settled / sold / transferred |
– 49 |
– 62 |
– 17 |
14 |
Transfer to Level 3 |
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|
56 |
75 |
Transfer from Level 3 |
– 20 |
– 11 |
– 9 |
|
Currency translation differences |
– 5 |
3 |
– 2 |
– 6 |
Fair values at 31 December |
109 |
55 |
278 |
380 |
Transfers from Level 2 to Level 3 relate to energy derivatives measured on the basis of input factors that are no longer observable in an active market due to decreased market activity. Transfers out of Level 3 relate to energy derivatives measured on the basis of input factors that became observable in the financial year. Alpiq always applies reclassifications between Level 2 and Level 3 at the end of the reporting period. Both in the reporting year and during the previous year, no transfers between Level 1 and 2 took place.
A change in the price of EUR 1 of the underlying commodity would lead to an increase/decrease in the fair value of Level 3 instruments of CHF 5 million. The sensitivity analysis does not include any interdependencies between different commodities. In order to hedge contracts assigned to Level 3, Alpiq enters into hedges that may be classified as Level 2 or Level 1. It is also possible that the Level 3 instrument is a hedge for an own-use contract. Thus, the sensitivity analysis of Level 3 instruments does not include the offsetting effect from the hedging position or the own-use contract. More information about the credit risk associated with Level 3 energy derivatives can be found in note 3.1.
Development of day one gains and losses
Measuring financial instruments with valuation inputs that are not entirely based on quoted prices in active markets may result in deviations between the fair value and the transaction price at the time of entering into the contract. These deviations are recognised as day one gains or losses and are amortised on a straight-line basis until the markets of the valuation inputs used become active.
The following table shows the reconciliation of the change in deferred day one gains and losses. These items relate entirely to Level 3 energy derivatives.
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2023 |
2022 |
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CHF million |
Day one gains |
Day one losses |
Day one gains |
Day one losses |
Balance at 1 January |
21 |
12 |
18 |
17 |
Deferred profit / loss arising from new transactions |
11 |
|
55 |
1 |
Profit or loss recognised in the income statement |
– 8 |
– 3 |
– 53 |
– 5 |
Currency translation differences |
– 1 |
– 1 |
1 |
– 1 |
Balance at 31 December |
23 |
8 |
21 |
12 |
Expense/income related to financial assets and liabilities
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2023 |
2022 |
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CHF million |
Income statement |
Other comprehensive income |
Income statement |
Other comprehensive income |
Net gains / losses (excluding interest) |
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|
|
Financial assets and liabilities at fair value through profit or loss |
326 |
|
– 541 |
|
Own use contracts designated at fair value on initial recognition |
73 |
|
– 227 |
|
Financial assets at amortised cost |
– 23 |
|
– 5 |
|
Financial instruments designated for hedge accounting |
– 2 |
15 |
24 |
9 |
Interest income and expense |
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Interest income for financial assets at amortised cost |
42 |
|
6 |
|
Interest expense for financial liabilities at amortised cost |
– 52 |
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– 44 |
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Interest expense for financial liabilities measured at fair value and designated for hedge accounting |
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– 4 |
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For information on the impairment of trade receivables, see note 4.5.
Accounting policies
Financial investments, securities and derivatives are measured at fair value through profit or loss. All other financial assets and liabilities are measured at amortised cost. The Alpiq Group does not have financial instruments measured at fair value through other comprehensive income.
Financial assets and liabilities at fair value through profit or loss
Financial assets and financial liabilities in this category are initially recognised at fair value. The corresponding transaction costs are recognised immediately in the income statement. Changes in value of the financial instruments measured at fair value are recognised through profit or loss in the financial result with the exception of energy derivatives and currency derivatives concluded in connection with the hedging of energy transactions. Changes in the fair value of derivatives in connection with the energy business are presented in net revenue.
In principle, future own-use energy transactions are not reported in the balance sheet. This also includes contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments. By way of exception, Alpiq irrevocably designates some of these transactions as contracts measured at fair value through profit or loss if otherwise an accounting mismatch would occur.
Financial assets and liabilities at amortised cost
With the exception of trade receivables, financial assets and financial liabilities at amortised cost are initially recognised at fair value plus or minus direct transaction costs. Trade receivables are measured at transaction price.
For the subsequent measurement of financial assets at amortised cost, any impairments are calculated using the expected credit loss model according to which losses on unsecured financial assets expected in future are also recognised. Impairment losses expected in the future are determined using publicly available probability of default, which takes into account forward-looking information and historical probabilites of default. For financial assets, losses that are expected to occur in the next 12-month period are generally recognised. If the credit risk increases significantly for specific counterparties, impairment is recognised on the assets affected over the entire residual term of the asset. In accordance with IFRS 9, the simplified approach is applied for trade receivables for the measurement of the expected losses by recognising the lifetime expected credit losses (see note 4.5).
Alpiq analyses historical credit losses and derives a forward-looking estimate of expected credit losses taking, into account the economic conditions and information obtained externally. The estimates are reviewed and analysed periodically. However, actual results can differ from these estimates, resulting in adjustments in subsequent periods.
Hedge accounting
Alpiq uses foreign currency and interest rate derivatives to hedge the exposure to fluctuations in cash flows of highly probable forecasted transactions (cash flow hedges). Cash flow hedge accounting is applied to certain foreign currency and interest rate derivatives. In general, hedge accounting is not applied to energy derivatives. However, for selected energy purchase contracts, Alpiq introduced fair value hedge accounting in 2022.
Cash flow hedge accounting
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31 Dec 2023 |
31 Dec 2022 |
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Foreign currency hedges |
Interest rate swaps |
Foreign currency hedges |
Interest rate swaps |
Derivative financial instruments in current assets (in CHF million) |
36 |
|
2 |
|
Derivative financial instruments in current liabilities (in CHF million) |
25 |
|
12 |
1 |
Nominal amount (in CHF million) |
1,104 |
|
1,377 |
|
Nominal amount (in EUR million) |
1,713 |
39 |
897 |
69 |
Change in cash flow hedge reserves
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2023 |
2022 |
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CHF million |
Foreign currency hedges |
Interest rate swaps |
Foreign currency hedges |
Interest rate swaps |
Cash flow hedge reserves at 1 January |
34 |
– 5 |
32 |
– 10 |
Recognition of gain / loss |
13 |
|
25 |
4 |
Reclassification of realised gain / loss to net revenue |
2 |
|
– 24 |
|
Reclassification of realised gain / loss to financial result |
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|
4 |
Income tax expense |
– 2 |
|
1 |
– 3 |
Cash flow hedge reserves at 31 December |
47 |
– 5 |
34 |
– 5 |
Foreign currency hedges
Foreign currency positions from the sale of Swiss production capacity in euros are hedged with forward transactions on the basis of the expected transaction volumes. Each spot component is designated as a hedging instrument for hedge accounting. The unrealised gains/losses of the spot components are included in other comprehensive income taking deferred taxes into account. Changes in the forward components are recognised through profit or loss. There were no ineffective portions of the hedge from the foreign currency hedges at the reporting date. The underlying transactions will be recognised in the income statements 2024 to 2028.
Interest rate swaps
At 31 December 2023, interest rate swaps were in place in order to fix interest rates on variable-interest project financing facilities in Italy. The project financing facilities have a remaining maturity of between two and six years.
CHF million |
2023 |
2022 |
Negative replacement values of interest rate swaps at 1 January |
1 |
8 |
Realised interest payments |
– 1 |
– 3 |
Change in fair value |
|
– 4 |
Currency translation differences |
|
|
Negative replacement values of interest rate swaps at 31 December |
0 |
1 |
Fair value hedge accounting
Since 1 July 2022, Alpiq applies fair value hedge accounting to selected fixed-priced, physical energy purchase contracts (firm commitments). Changes in fair value of firm commitments result mainly from commodity price fluctuations. To mitigate the exposure to these market price changes, Alpiq hedges the fair value of such transactions in accordance with its hedging strategy and risk management objectives either with physical contracts or financial derivatives (see note 3.1). The introduction of fair value hedge accounting allows the fair value changes of the hedged item to be recognised in the IFRS financial statements, thereby eliminating the accounting mismatch for the effective part of the hedge. Beside prospective effectiveness testing, a half-yearly own use eligibility test is conducted to ensure that no over-hedging exists that would lead to significant ineffectiveness.
Hedged item
The fair value changes of the hedged items are recorded in net revenue and reflected in the balance sheet line items “Other non-current assets” and “Other current liabilities”. The following table shows the carrying amount of the hedged items that represents the accumulated amount of fair value hedge adjustments on the hedged items since inception of the hedge relationship.
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Other non-current assets |
Other current liabilities |
Net hedged item |
Carrying amount of the hedged item at 1 July 2022 |
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|
0 |
Fair value movement included in the hedge relationship |
2 |
37 |
35 |
Carrying amount of the hedged item at 31 December 2022 |
2 |
37 |
35 |
Fair value movement included in the hedge relationship |
– 2 |
25 |
27 |
Release of fair value adjustment due to matured hedge relationship |
|
– 37 |
– 37 |
Carrying amount of the hedged item at 31 December 2023 |
0 |
25 |
25 |
Hedging instruments
The maturity profile and the average price of the hedging instruments used for hedging a layer of a firm commitment are shown in the table below.
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31 Dec 2023 |
31 Dec 2022 |
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Futures 2024 |
Futures 2023 |
Futures 2024 |
Forwards 2023 |
Nominal amount in CHF million |
62 |
18 |
6 |
10 |
Nominal amount in MWh |
489,669 |
245,280 |
70,272 |
175,200 |
Average forward price in CHF |
132.79 |
73.44 |
83.32 |
55.31 |
Forwards are recorded under the “Derivative financial instruments” balance sheet line item (either as assets or liabilities). Futures are cash settled daily and therefore no open exposure is recognised in the balance sheet. The following table provides an overview of the hedging instruments:
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31 Dec 2023 |
31 Dec 2022 |
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Nominal amount in MWh |
Nominal amount in CHF million |
Carrying amount in CHF million |
Nominal amount in MWh |
Nominal amount in CHF million |
Carrying amount in CHF million |
Forwards |
|
|
|
175,200 |
10 |
– 30 |
Futures 1 |
489,669 |
62 |
|
315,552 |
24 |
|
1 No carrying amount for futures is disclosed in the balance sheet, as they are settled in cash as part of the daily margining.
Hedge effectiveness
At each reporting date, or when circumstances change significantly, a quantitative hedge effectiveness assessment is performed. The fair value of the hedged items and hedging instruments are measured and the net difference of the changes represents the amount of hedge ineffectiveness. Specific factors that may cause ineffectiveness are timing differences (i.e. mismatch between the designated hedge period and the maturity period of the hedging instrument) and location differences. Hedge ineffectiveness is recorded under net revenue in the income statement.
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2023 |
2022 |
Change in fair value of hedging instruments |
55 |
33 |
Change in fair value of the hedged items |
– 55 |
– 35 |
Year to date hedge ineffectiveness |
0 |
– 2 |
Lifetime hedge ineffectiveness |
– 2 |
– 2 |