7 Financial instruments and fair values

Carrying amounts and fair values of financial assets and liabilities

 

 

 

 

 

 

30 Jun 2022

31 Dec 2021

CHF million

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

1

1

1

Positive replacement values of derivatives

 

 

 

 

Energy derivatives 1

9,452

9,452

5,060

5,060

Currency and interest rate derivatives

84

84

38

38

Financial liabilities at amortised cost

 

 

 

 

Bonds

980

977

675

701

Loans payable

883

881

854

861

Financial liabilities at fair value through profit or loss

 

 

 

 

Negative replacement values of derivatives

 

 

 

 

Energy derivatives 2

10,362

10,362

5,322

5,322

Currency and interest rate derivatives

59

59

21

21

1 Of which, a net amount of CHF 82 million (previous year: CHF 41 million) stems from own use contracts designated at fair value on initial recognition.

2 Of which, a net amount of CHF 77 million (previous year: CHF 0 million) stems from own use contracts designated at fair value on initial recognition.

Apart from lease liabilities, the carrying amounts of all other financial instruments measured at amortised cost differ only insignificantly from the fair values. This is why the corresponding fair values have not been disclosed.

Fair value hierarchy of financial instruments

At the reporting date, the Alpiq Group measured the following assets and liabilities at their fair value or disclosed a fair value. 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 which are not based on quoted prices in active markets and which have a significant effect on fair value

CHF million

30 Jun 2022

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

 

1

 

Energy derivatives

9,452

 

9,214

238

Currency and interest rate derivatives

84

 

84

 

Financial liabilities at amortised cost

 

 

 

 

Bonds

977

977

 

 

Loans payable

881

 

881

 

Financial liabilities at fair value through profit or loss

 

 

 

 

Energy derivatives

10,362

 

9,965

397

Currency and interest rate derivatives

59

 

59

 

CHF million

31 Dec 2021

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

 

1

 

Energy derivatives

5,060

 

4,956

104

Currency and interest rate derivatives

38

 

38

 

Financial liabilities at amortised cost

 

 

 

 

Bonds

701

701

 

 

Loans payable

861

 

861

 

Financial liabilities at fair value through profit or loss

 

 

 

 

Energy derivatives

5,322

 

5,234

88

Currency and interest rate derivatives

21

 

21

 

Both in the first half of 2022 and during the 2021 financial year, there were no reclassifications between Levels 1 and 2. The reclassification from Level 2 to Level 3 in 2021 mentioned below relates to energy derivatives with a significantly increased credit risk (for more information, refer to the “Credit risk” section in note 6). The reclassification from Level 2 to Level 3 in 2022 relates to energy derivatives measured on the basis of inputs that are no longer observable in an active market due to decreased market activity. The reclassification from Level 3 to Level 2 relates to longer-term energy derivatives which are now measured on the basis of observable market prices as market liquidity increases. Alpiq always applies reclassifications between Level 2 and Level 3 at the end of the reporting period.

The energy, currency and interest rate derivatives comprise 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. Normally, the effect of credit risk on fair values is not material. Due to the persistently high and volatile energy prices, the replacement values of energy derivatives and thus the credit risk for several counterparties in various countries remain high. At 30 June 2022, the fair value of the derivatives that are classified as Level 3 due to a significantly increased credit risk is not material. More information can be found in the “Credit risk” section of note 6.

The fair value of the loans payable corresponds to the contractually agreed interest and amortisation payments discounted at market rates.

Level 3 energy derivatives

Energy derivatives disclosed under Level 3 are measured using methods that in some cases utilise input factors, such as long-term energy prices or discount rates, which cannot be derived directly from an active market. In complex cases, a discounted cash flow method is used for the measurement. 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 8 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 6.

The following table shows the development of Level 3 energy derivatives:

 

 

 

 

 

 

2022

2021

CHF million

Assets

Liabilities

Assets

Liabilities

Replacement values at 1 January

104

88

81

2

Purchases

52

 

7

2

Sales

– 46

 

– 6

 

Settlements

– 34

– 60

 

 

Fair value changes through profit and loss in net revenue 1

175

354

66

22

Transfer to level 3

66

111

8

 

Transfer out of level 3

 

– 18

 

 

Offsetting

– 69

– 66

 

– 12

Currency translation differences

– 10

– 12

2

 

Replacement values at 30 June

238

397

158

14

1 Of which, CHF 185 million (previous year: CHF 66 million) is attributable to assets and CHF 354 million (CHF 22 million) to liabilities (before offsetting), which were still held at 30 June.

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 underlying markets of the valuation inputs 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.

 

 

 

 

 

 

2022

2021

CHF million

Day one gains

Day one losses

Day one gains

Day one losses

Balance at 1 January

18

17

11

12

Deferred profit / loss arising from new transactions

52

0

7

1

Profit or loss recognised in the income statement

– 22

– 4

– 5

– 1

Currency translation differences

– 2

– 1

 

 

Balance at 30 June

46

12

13

12

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