Annual and Transition Report (foreign Private Issuer) (20-f)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509

Form 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report__________
For the transition period from_________to_________
Commission file number: 001-36487

Atlantica Yield plc

(Exact name of Registrant as specified in its charter)

Not applicable
(Translation of Registrant’s name into English)

England and Wales
(Jurisdiction of incorporation or organization)

Great West House, GW1, 17th floor
Great West Road
Brentford, United Kingdom TW8 9DF
Tel: +44 203 499 0465
(Address of principal executive offices)

Santiago Seage
Great West House, GW1, 17th floor
Great West Road
Brentford, United Kingdom TW8 9DF
Tel: +44 203 499 0465

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class
Trading Symbol
 
Name of each exchange on which registered
Ordinary Shares, nominal value $0.10 per share
AY
 
NASDAQ Global Select Market



Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 101,601,666 ordinary shares, nominal value $0.10 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒Yes ☐ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
   
Emerging growth company ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐
International Financial Reporting Standards
as issued by the International Accounting
Standards Board ☒
Other ☐

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒No


ATLANTICA YIELD PLC
TABLE OF CONTENTS

   
Page
6
10
11
ITEM 1.
12
ITEM 2.
12
ITEM 3.
12
A.
12
B.
18
C.
18
D.
19
ITEM 4.
51
A.
51
B.
53
C.
116
D.
117
ITEM 4A.
117
ITEM 5.
117
A.
117
B.
132
C.
145
D.
145
E.
145
F.
146
G.
146
ITEM 6.
147
A.
147
B.
149
C.
156
D.
158
E.
158
ITEM 7.
159
A.
159
B.
160
C.
163
ITEM 8.
163
A.
163
B.
166
ITEM 9.
166
A.
166
B.
166
C.
166
D.
166
E.
166
F.
166
ITEM 10.
166
A.
166
B.
167
C.
167
D.
167
E.
167
F.
171
G.
171


H.
171
I.
171
ITEM 11.
171
ITEM 12.
173
A.
173
B.
173
C.
174
D.
174
ITEM 13.
174
ITEM 14.
174
ITEM 15.
174
ITEM 16.
175
ITEM 16A.
175
ITEM 16B.
175
ITEM 16C.
175
ITEM 16D.
177
ITEM 16E.
177
ITEM 16F.
177
ITEM 16G.
177
ITEM 16H.
178
ITEM 17.
178
ITEM 18.
178
ITEM 19.
178

4

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, is anticipated, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Such statements occur throughout this report and include statements with respect to our expected trends and outlook, potential market and currency fluctuations, occurrence and effects of certain trigger and conversion events, our capital requirements, changes in market price of our shares, future regulatory requirements, the ability to identify and/or consummate future acquisitions on favorable terms, reputational risks, divergence of interests between our company and that of our largest shareholder’s and affiliates’, tax and insurance implications, and more. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, important factors included in Part I, Item 3D. Risk Factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on our operations and financial results, and could cause our actual results to differ materially from those contained or implied in forward-looking statements made by us or on our behalf in this Form 20-F, in presentations, on our website, in response to questions or otherwise. These forward-looking statements include, but are not limited to, statements relating to:


the condition of the debt and equity capital markets and our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness going forward;
 

the ability of our counterparties to satisfy their financial commitments or business obligations and our ability to seek new counterparties in a competitive market;
 

government regulation, including compliance with regulatory and permit requirements and changes in tax laws, market rules, rates, tariffs, environmental laws and policies affecting renewable energy;
 

risks relating to our activities in areas subject to economic, social and political uncertainties;
 

our ability to finance and consummate new acquisitions on favorable terms;
 

risks relating to new assets and businesses which have a higher risk profile and our ability to transition these successfully;
 

potential environmental liabilities and the cost and conditions of compliance with applicable environmental laws and regulations;
 

risks related to our reliance on third-party contractors or suppliers;
 

risks related to our exposure in the labor market;
 

potential issues arising with our operators’ employees including disagreement with employees’ unions and subcontractors;
 

risks related to extreme weather events related to climate change could damage our assets or result in significant liabilities and cause an increase in our operation and maintenance costs;
 

the effects of litigation and other legal proceedings (including bankruptcy) against us and our subsidiaries;
 

price fluctuations, revocation and termination provisions in our off-take agreements and power purchase agreements;
 

our electricity generation, our projections thereof and factors affecting production, including weather conditions, energy regulation, availability and curtailment;
 

risks related to our relationship with our shareholders including bankruptcy;
 

our substantial short-term and long-term indebtedness, including additional debt in the future;
 

reputational and financial damage caused by our off-taker PG&E and potential default under our project finance agreement due to a breach of our underlying PPA agreement with PG&E; and
 

other factors discussed under “Risk Factors”.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.

5

CURRENCY PRESENTATION AND DEFINITIONS

In this annual report, all references to “U.S. dollar,” “$” and “USD” are to the lawful currency of the United States, all references to “euro,” “€” or “EUR” are to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time and all references to “South African rand,” “R” and “ZAR” are to the lawful currency of the Republic of South Africa.

Definitions

Unless otherwise specified or the context requires otherwise in this annual report:


references to “2016-2018 LTIP” refer to the long-term incentive plan which was in place between 2016 and 2018, and paid in March 2019;
 

references to “2019 Notes” refer to the 7.000% Senior Notes due 2019 in an aggregate principal amount of $255 million issued on November 17, 2014, as further described in “Item 5.B—Liquidity and Capital Resources—Financing Arrangements—2019 Notes”;
 

references to “2020 Green Private Placement” refer to the €290 million (approximately $320 million) senior secured notes maturing in June 20, 2026 which are expected to be issued under a senior secured note purchase agreement to be dated on or about April 1, 2020, to be entered with a group of institutional investors as purchasers of the notes issued thereunder as further described in “Item 5.B—Liquidity and Capital Resources—Financing Arrangements—2020 Green Private Placement;
 

references to “AAGES” refer to the joint venture between Algonquin and Abengoa to invest in the development and construction of clean energy and water infrastructure contracted assets;
 

references to “AAGES ROFO Agreement” refer to the agreement we entered into with AAGES on March 5, 2018, which became effective upon completion of the Share Sale, that provides us a right of first offer to purchase any of the AAGES ROFO Assets, as amended and restated from time to time;
 

references to “AAGES ROFO Assets” refer to any of AAGES’ contracted assets or proposed contracted assets that we expect to evaluate for future acquisition, with certain exceptions, for which AAGES has provided us a right of first offer to purchase if offered for sale by AAGES;
 

references to “Abengoa” refer to Abengoa, S.A., together with its subsidiaries, unless the context otherwise requires;
 

references to “Abengoa ROFO Agreement” refer to the agreement we entered into with Abengoa on June 13, 2014, as amended and restated on December 9, 2014, that provides us a right of first offer to purchase any of the present or future contracted assets in renewable energy, efficient natural gas, electric transmission and water of Abengoa that are in operation, and any other renewable energy, efficient natural gas, electric transmission and water asset that is expected to generate contracted revenue and that Abengoa has transferred to an investment vehicle that are located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, and four additional assets in other selected regions, including a pipeline of specified assets that we expect to evaluate for future acquisition, for which Abengoa will provide us a right of first offer to purchase if offered for sale by Abengoa or an investment vehicle to which Abengoa has transferred them;
 

references to “ACBH” refer to Abengoa Concessões Brasil Holding, a subsidiary holding company of Abengoa that was engaged in the development, construction, investment and management of concessions in Brazil, comprised mostly of transmission lines and which is currently undergoing a restructuring process in Brazil;
 

references to “ACS” refer to ACS Group;
 

references to “ACT” refer to the gas-fired cogeneration facility located inside the Nuevo Pemex Gas Processing Facility near the city of Villahermosa in the State of Tabasco, Mexico;
 

references to “Algonquin” refer to, as the context requires, either Algonquin Power & Utilities Corp., a North American diversified generation, transmission and distribution utility, or Algonquin Power & Utilities Corp. together with its subsidiaries;
 

references to “Algonquin ROFO Agreement” refer to the agreement we entered into with Algonquin on March 5, 2018, which became effective upon completion of the Share Sale, under which Algonquin granted us a right of first offer to purchase any of the assets offered for sale located outside of the United States or Canada as amended from time to time.  See “Item 7.B—Related Party Transactions—Algonquin drop down agreement and Right of First Offer on assets outside the United States or Canada”;
 
6


references to “Annual Consolidated Financial Statements” refer to the audited annual consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, including the related notes thereto, prepared in accordance with IFRS as issued by the IASB (as such terms are defined herein), included in this annual report;
 

references to “ASI Operations” refer to ASI Operations LLC;
 

references to “Asset Transfer” refer to the transfer of assets contributed by Abengoa prior to the consummation of our initial public offering through a series of transactions;
 

references to “Atlantica” refer to Atlantica Yield plc and, where the context requires, Atlantica Yield plc together with its consolidated subsidiaries;
 

references to “ATN” refer to ATN S.A., the operational electronic transmission asset in Peru, which is part of the Guaranteed Transmission System;
 

references to “ATS” refer to ABY Transmision Sur S.A.;
 

references to “AYES Canada” refer to Atlantica Yield Energy Solutions Canada Inc., a vehicle formed by Atlantica and Algonquin to channel co-investment opportunities;
 

references to “Befesa Agua Tenes” refer to Befesa Agua Tenes, S.L.U;
 

references to “cash available for distribution” refer to the cash distributions received by the Company from its subsidiaries minus cash expenses of the Company, including debt service and general and administrative expenses;
 

references to “CESCE” refer to Compañia Española de Seguros de Credito a la Exportacion, S.A. the Spanish Company of Export Credit Insurance;
 

references to “CNMC” refer to Comision Nacional de los Mercados y de la Competencia, the Spanish state-owned regulator;
 

references to “COD” refer to the commercial operation date of the applicable facility;
 

references to “DOE” refer to the U.S. Department of Energy;
 

references to “DTC” refer to The Depository Trust Company;
 

references to “EMEA” refer to Europe, Middle East and Africa;
 

references to “EPACT” refer to the Energy Policy Act of 2005;
 

references to “EPC” refer to engineering, procurement and construction;
 

references to “EURIBOR” refer to Euro Interbank Offered Rate, a daily reference rate published by the European Money Markets Institute, based on the average interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market;
 

references to “EU” refer to the European Union;
 

references to “Exchange Act” refer to the U.S. Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated by the SEC thereunder;
 

references to “Federal Financing Bank” refer to a U.S. government corporation by that name;
 

references to “Financial Support Agreement” refer to the Financial Support Agreement we entered into with Abengoa on June 13, 2014, as amended and restated on September 28, 2017, pursuant to which Abengoa agreed to maintain certain guarantees or letters of credit for a period of five years following our IPO;
 

references to the “First Dropdown Assets” refer to (i) a solar power complex in Spain, Solacor 1/2, with a capacity of 100 MW; (ii) a solar power complex in Spain, PS10/20, with a capacity of 31 MW; and (iii) one on-shore wind farm in Uruguay, Cadonal, with a capacity of 50 MW, each as further described in “Item 4.B—Business Overview—Our Operations—Renewable Energy”;
 

references to “Flip Date” refer to such date that Liberty reaches a certain rate of return;
 
7


references to “Former Revolving Credit Facility” refer to the credit facility entered into on December 3, 2014, among the Company, as borrower, and Banco Santander, S.A., Bank of America, N.A., Citigroup Global Markets Limited, HSBC Bank plc and RBC Capital Markets, as joint lead arrangers and joint bookrunners;
 

references to “FPA” refer to the U.S. Federal Power Act;
 

references to “Further Adjusted EBITDA” have the meaning set forth in “Presentation of Financial Information—Non-GAAP Financial Measures” in the section below;
 

references to “gross capacity” refers to the maximum, or rated, power generation capacity, in MW, of a facility or group of facilities, without adjusting for the facility’s power parasitics’ consumption, or by our percentage of ownership interest in such facility as of the date of this annual report;
 

references to “GWh” refer to gigawatt hour;
 

references to “IFRIC 12” refer to International Financial Reporting Interpretations Committee’s Interpretation 12—Service Concessions Arrangements;
 

references to “IFRS as issued by the IASB” refer to International Financial Reporting Standards as issued by the International Accounting Standards Board;
 

references to “Initial Funding Commitment” refer to the provision of equity funding as required by Atlantica Yield, by AAGES and Algonquin, for the acquisition of assets and/or interests by Atlantica Yield or its subsidiaries during 2018 and 2019, but no more than $100 million, subject to the approval of the board of directors of Algonquin;
 

references to “IPO” refer to our initial public offering of ordinary shares in June 2014;
 

references to “IRC” refer to the Internal Revenue Code of 1986;
 

references to “ITC” refer to investment tax credits;
 

references to “LIBOR” refer to London Interbank Offered Rate;
 

references to “LTIP” refer to the long-term incentive plan approved by the Board of Directors for 2019.
 

references to “MACRS” refer to the Modified Accelerated Cost Recovery  System;
 

references to “Monterrey” refer to the 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity, located in, Monterrey, Mexico;
 

references to “Multinational Investment Guarantee Agency” refer to Multinational Investment Guarantee Agency, a financial institution member of the World Bank Group which offers political insurance and credit enhancement guarantees;
 

references to “MW” refer to megawatts;
 

references to “MWh” refer to megawatt hour;
 

references to “NEPA” refer to the National Environment Policy Act;
 

references to “NOL” refer to net operating loss;
 

references to “Note Issuance Facility 2017” refer to the senior secured note facility dated February 10, 2017, of €275 million (approximately $308 million), with Elavon Financial Services DAC, UK Branch, as facility agent and a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder;
 

references to “Note Issuance Facility 2019” refer to the senior unsecured note facility dated April 30, 2019, of $300 million, with Lucid Agency Services Limited, as facility agent and a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder;
 

references to “O&M” refer to operations and maintenance services provided at our various facilities;
 

references to “operation” refer to the status of projects that have reached COD (as defined above);
 

references to “Pemex” refer to Petróleos Mexicanos;
 

references to “PFIC” refer to passive foreign investment company within the meaning of Section 1297 of the IRC;
 

references to “PG&E” refer to PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company collectively;
 
8


references to “PPA” refer to the power purchase agreements through which our power generating assets have contracted to sell energy to various off-takers;
 

references to “PTC” refer to production tax credits;
 

references to “PTS” refer to Pemex Transportation System;
 

references to “PURPA” refer to the Public Utility Regulatory Policies Act of 1978;
 

references to “REC” refer to Renewable Energy Certificate;
 

references to “Restructured Debt” refers to the restructuring agreement of Abengoa which we signed and agreed on October 25, 2016, subject to implementation of the restructuring, to receive 30% of the amount owed to us in the form of tradable notes to be issued by Abengoa with the remaining 70% owed to us to be received in the form of equity in Abengoa;
 

references to “Registrar” refer to The Bank of New York Mellon;
 

references to “Revolving Credit Facility” refers to the credit and guaranty agreement with a syndicate of banks entered into on May 10, 2018 and amended on January 24, 2019 and August 2, 2019, providing for a senior secured revolving credit facility in an aggregate principal amount of $425 million, of which $37.5 million matures on December 31, 2021, and the remaining $387.5 matures on December 31, 2022. The Revolving Credit Facility replaced tranche A of the Former Revolving Credit Facility, which was repaid in full and cancelled prior to its maturity on June 1, 2018;
 

references to “Rioglass” refer to Rioglass Solar Holding, S.A.;
 

references to “ROFO” refer to a right of first offer;
 

references to “ROFO agreements” refer to the AAGES ROFO Agreement, Algonquin ROFO Agreement and Abengoa ROFO Agreement;
 

references to “RPS” refer to renewable portfolio standards adopted by 29 U.S. states and the District of Columbia that require a regulated retail electric utility to procure a specific percentage of its total electricity delivered to retail customers in the respective state from eligible renewable generation resources, such as solar or wind generation facilities, by a specific date;
 

references to “RRRE” refer to the Specific Remuneration System Register (Registro de Regimen Retributivo Especifico) in Spain;
 

references to “Share Sale” refer to the sale by Abengoa to Algonquin of 25% of our ordinary shares pursuant to an agreement for the sale that was entered into in November 2017. All conditions precedent have been satisfied and the parties have commenced the process for the transfer of our shares, which we expect to close in the upcoming days;
 

references to the “Shareholders’ Agreement” refer to the agreement by and among Algonquin Power & Utilities Corp., Abengoa-Algonquin Global Energy Solutions and Atlantica Yield plc, dated March 5, 2018 which became effective upon completion of the Share Sale;
 

references to “Solnova 1/3/4” refer to a 150 MW concentrating solar power facility wholly owned by Atlantica Yield, located in the municipality of Sanlucar la Mayor, Spain;
 

references to “TCJA” refer to the Tax Cuts and Jobs Act of 2017;
 

references to “U.K.” refer to the United Kingdom;
 

reference to “U.S.” or “United States” refer to the United States of America;
 

references to “we,” “us,” “our,” “Atlantica” and the “Company” refer to Atlantica Yield plc and its subsidiaries, unless the context otherwise requires.
 
9

PRESENTATION OF FINANCIAL INFORMATION

The selected financial information as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 is derived from, and qualified in its entirety by reference to, our Annual Consolidated Financial Statements, which are included elsewhere in this annual report and prepared in accordance with IFRS as issued by the IASB. The selected financial information as of December 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015, is derived from, and qualified in its entirety by reference to, the annual consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, which are included in the annual report on Form 20-F filed with the SEC on February 28, 2019, and prepared in accordance with IFRS as issued by the IASB. The selected financial information as of December 31, 2015 is derived from, and qualified in its entirety by reference to, the annual consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, which are included in the annual report on Form 20-F filed with the SEC on March 7, 2018, and prepared in accordance with IFRS as issued by the IASB.

Certain numerical figures set out in this annual report, including financial data presented in millions or thousands and percentages describing market shares, have been subject to rounding adjustments, and, as a result, the totals of the data in this annual report may vary slightly from the actual arithmetic totals of such information. Percentages and amounts reflecting changes over time periods relating to financial and other data set forth in “Item 5.A—Operating and Financial Review and Prospects—Operating Results” are calculated using the numerical data in our Annual Consolidated Financial Statements or the tabular presentation of other data (subject to rounding) contained in this annual report, as applicable, and not using the numerical data in the narrative description thereof.

Non-GAAP Financial Measures

This annual report contains non-GAAP financial measures including Further Adjusted EBITDA.

Further Adjusted EBITDA is calculated as profit/(loss) for the year attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax, share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Annual Consolidated Financial Statements, and dividends received from our preferred equity investment in ACBH prior to December 31, 2017. Further Adjusted EBITDA for 2014 includes preferred dividends received from ACBH for the first time during the third and fourth quarters of 2014. Further Adjusted EBITDA for 2016 and for first quarter of 2017 includes compensation received from Abengoa in lieu of ACBH dividends.

Our management believes Further Adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. This measure is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired. This measure is widely used by other companies in the same industry.

Our management uses Further Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with our board of directors, shareholders, creditors, analysts and investors concerning our financial performance.

In our discussion of operating results, we have included foreign exchange impacts in our revenue by providing constant currency revenue growth. The constant currency presentation is not a measure recognized under IFRS and excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations. We calculate constant currency amounts by converting our current period local currency revenue using the prior period foreign currency average exchange rates and comparing these adjusted amounts to our prior period reported results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to substitute for recorded amounts presented in conformity with IFRS as issued by the IASB nor should such amounts be considered in isolation.

We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS as issued by the IASB. Non-GAAP financial measures and ratios are not measurements of our performance or liquidity under IFRS as issued by the IASB and should not be considered as alternatives to operating profit or profit for the year or any other performance measures derived in accordance with IFRS as issued by the IASB or any other generally accepted accounting principles or as alternatives to cash flow from operating, investing or financing activities.

10

Some of the limitations of these non-GAAP measures are:


they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
 

they do not reflect changes in, or cash requirements for, our working capital needs;
 

they may not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments, on our debts;
 

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and Further Adjusted EBITDA does not reflect any cash requirements that would be required for such replacements;
 

some of the exceptional items that we eliminate in calculating Further Adjusted EBITDA reflect cash payments that were made, or will be made in the future; and
 

the fact that other companies in our industry may calculate Further Adjusted EBITDA differently than we do, which limits their usefulness as comparative measures.
 
PRESENTATION OF INDUSTRY AND MARKET DATA

In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this annual report were obtained from internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants. We believe that these industry publications, surveys and forecasts are reliable, but we have not independently verified them, and there can be no assurance as to the accuracy or completeness of the included information.

Certain market information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties but reflect our best estimates. We have based these estimates upon information obtained from our customers, trade and business organizations and associations and other contacts in the industries in which we operate.

Elsewhere in this annual report, statements regarding our contracted assets and concessions activities, our position in the industries and geographies in which we operate are based solely on our experience, our internal studies and estimates and our own investigation of market conditions.

All of the information set forth in this annual report relating to the operations, financial results or market share of our competitors has been obtained from information made available to the public in such companies’ publicly available reports and independent research, as well as from our experience, internal studies, estimates and investigation of market conditions. We have not funded, nor are we affiliated with, any of the sources cited in this annual report. We have not independently verified the information and cannot guarantee its accuracy.

All third-party information, as outlined above, has to our knowledge been accurately reproduced and, as far as we are aware and are able to ascertain, no facts have been omitted which would render the reproduced information inaccurate or misleading, but there can be no assurance as to the accuracy or completeness of the included information.

11

PART I

ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.
KEY INFORMATION

A.
Selected Financial Data
 
The tables below present selected consolidated financial and business level information for Atlantica as of and for each of the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

The selected financial information as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 is derived from, and qualified in its entirety by reference to, our Annual Consolidated Financial Statements, which are included elsewhere in this annual report and prepared in accordance with IFRS as issued by the IASB. The selected financial information as of December 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015, is derived from, and qualified in its entirety by reference to, the annual consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, which are included in the annual report on Form 20-F filed with the SEC on February 28, 2019, and prepared in accordance with IFRS as issued by the IASB. The selected financial information as of December 31, 2015 is derived from, and qualified in its entirety by reference to, the annual consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, which are included in the annual report on Form 20-F filed with the SEC on March 7, 2018, and prepared in accordance with IFRS as issued by the IASB.

The selected financial information as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 is not intended to be an indicator of our financial condition or results of operations in the future. You should review such selected financial information together with our Annual Consolidated Financial Statements and notes thereto, included elsewhere in this annual report.

The following tables should be read in conjunction with “Item 5.A—Operating and Financial Review and Prospects—Operating Results” and our Annual Consolidated Financial Statements and related notes included elsewhere in this annual report.

Consolidated income statements for the years ended December 31, 2019, 2018, 2017, 2016 and 2015

   
Year ended December 31,
 
   
2019
   
2018
   
2017
   
2016
   
2015
 
   
($ in millions, except for share and per share information)
 
Revenue
   
1,011.5
     
1,043.8
     
1,008.4
     
971.8
     
790.9
 
Other operating income
   
93.8
     
132.5
     
80.8
     
65.5
     
68.8
 
Employee benefit expense
   
(32.2
)
   
(15.1
)
   
(18.7
)
   
(14.8
)
   
(5.8
)
Depreciation, amortization and impairment charges
   
(310.8
)
   
(362.7
)
   
(311.0
)
   
(332.9
)
   
(261.3
)
Other operating expenses
   
(261.8
)
   
(310.6
)
   
(301.5
)
   
(287.2
)
   
(248.1
)
Operating profit/(loss)
   
500.5
     
487.9
     
458.0
     
402.4
     
344.5
 
Financial income
   
4.1
     
36.4
     
1.0
     
3.3
     
3.5
 
Financial expense
   
(408.0
)
   
(425.0
)
   
(463.7
)
   
(408.0
)
   
(333.9
)
Net exchange differences
   
2.7
     
1.6
     
(4.1
)
   
(9.6
)
   
3.9
 
Other financial income/(expense), net
   
(1.1
)
   
(8.2
)
   
18.4
     
8.5
     
(200.2
)
Financial expense, net
   
(402.3
)
   
(395.2
)
   
(448.4
)
   
(405.8
)
   
(526.7
)
Share of profit/(loss) of associates carried under the equity method
   
7.4
     
5.2
     
5.3
     
6.7
     
7.8
 
Profit/(loss) before income tax
   
105.6
     
97.9
     
14.9
     
3.3
     
(174.4
)
Income tax benefit/(expense)
   
(31.0
)
   
(42.6
)
   
(119.8
)
   
(1.7
)
   
(23.8
)
Profit/(loss) for the year
   
74.6
     
55.3
     
(104.9
)
   
1.6
     
(198.2
)
Profit/(loss) attributable to non-controlling interest
   
(12.5
)
   
(13.7
)
   
(6.9
)
   
(6.5
)
   
(10.8
)
Profit/(loss) for the year attributable to the parent company
   
62.1
     
41.6
     
(111.8
)
   
(4.9
)
   
(209.0
)
Less Predecessor Loss prior to Initial Public Offering on June 12, 2014
   
     
     
     
     
 
Net profit/(loss) attributable to the parent company subsequent to Initial Public Offering
   
     
     
     
     
 
Weighted average number of ordinary shares outstanding (millions)
   
101.1
     
100.2
     
100.2
     
100.2
     
92.8
 
Basic and diluted earnings per share attributable to the parent company (U.S. dollar per share)
   
0.61
     
0.42
     
(1.12
)
   
(0.05
)
   
(2.25
)
Dividend paid per share(1)
   
1.57
     
1.38
     
1.05
     
0.4530
     
1.4292
 


Notes:

(1)
2019: On February 26, 2019, the board of directors declared a dividend of $0.37 per share corresponding to the fourth quarter of 2018, which was paid on March 22, 2019. On May 7, 2019, the board of directors approved a dividend of $0.39 per share corresponding to the first quarter of 2019, which was paid on June 14, 2019. On August 2, 2019, the board of directors approved a dividend of $0.40 per share corresponding to the second quarter of 2019, which was paid on September 13, 2019. On November 5, 2019, the board of directors approved a dividend of $0.41 per share corresponding to the third quarter of 2019, which was paid on December 13, 2019.

2018: On February 27, 2018, the board of directors declared a dividend of $0.31 per share corresponding to the fourth quarter of 2017, which was paid on March 27, 2018. On May 11, 2018, the board of directors declared a dividend of $0.32 per share corresponding to the first quarter of 2018, which was paid on June 15, 2018. On July 31, 2018, the board of directors declared a dividend of $0.34 per share corresponding to the second quarter of 2018, which was paid on September 15, 2018. On October 31, 2018, the board of directors declared a dividend of $0.36 per share corresponding to the third quarter of 2018 which was paid on December 14, 2018.

2017: On February 27, 2017, the board of directors declared a dividend of $0.25 per share corresponding to the fourth quarter of 2016, which was paid on March 15, 2017.  From that amount, we retained $10.4 million of the dividend attributable to Abengoa. On May 12, 2017, the board of directors declared a dividend of $0.25 per share corresponding to the first quarter of 2017 which was paid on June 15, 2017.  On July 28, 2017, the board of directors declared a dividend of $0.26 per share corresponding to the second quarter of 2017 which was paid on August 31, 2017.  On November 10, 2017, the board of directors declared a dividend of $0.29 per share corresponding to the third quarter of 2017 which was paid on December 15, 2017.

2016: In February 2016, taking into consideration the uncertainties resulting from the situation of Abengoa, the board of directors decided to postpone the decision whether to declare a dividend in respect of the fourth quarter of 2015 until the second quarter of 2016. In May 2016, considering the uncertainties in Abengoa situation, our board of directors decided not to declare a dividend in respect of the fourth quarter of 2015 and to postpone the decision on whether to declare a dividend in respect of the first quarter 2016 until we had obtained greater clarity on cross default and change of ownership issues. On August 3, 2016, based on waivers or forbearances obtained to that date, our board of directors decided to declare a dividend of $0.145 per share for the first quarter of 2016 and a dividend of $0.145 per share for the second quarter of 2016. The dividend was paid on September 15, 2016, to shareholders of record August 31, 2016. From that amount, we retained $12.3 million of the dividend attributable to Abengoa. On November 11, 2016, our board of directors, based on waivers or forbearances obtained to that date, decided to declare a dividend of $0.163 per share, paid on December 15, 2016, to shareholders of record on November 30, 2016, and from that amount we retained $6.7 million of the dividend attributable to Abengoa in accordance with the provisions of the parent support agreement and an agreement reached with Abengoa in relation to the ACBH preferred equity investment.

2015: On March 16, 2015 we paid a dividend of $0.2592 per share to shareholders of record February 28, 2015. On June 15, 2015 we paid a dividend of $0.34 per share to shareholders of record May 29, 2015. On September 15, 2015 we paid a dividend of $0.40 per share to shareholders of record May 29, 2015. On December 16, 2015, we paid a dividend of $0.43 per share to shareholders of record as of November 30, 2015, corresponding to the third quarter of 2015, and from that amount we retained $9 million of the dividend attributable to Abengoa in accordance with the provisions of the parent support agreement and an agreement reached with Abengoa in relation to the ACBH preferred equity investment. See “Item 4.B—Business Overview—Electric Transmission—Exchangeable Preferred Equity Investment in Abengoa Concessões Brasil Holding.”

Consolidated statements of financial position as of December 31, 2019, 2018, 2017, 2016 and 2015

   
As of December 31,
 
   
2019
   
2018
   
2017
   
2016
   
2015
 
   
($ in millions)
 
Non-Current assets:
                             
Contracted concessional assets
   
8,161.1
     
8,549.2
     
9,084.2
     
8,924.2
     
9,300.9
 
Investments carried under the equity method
   
139.9
     
53.4
     
55.8
     
55.0
     
56.2
 
Financial investments
   
91.6
     
52.7
     
45.3
     
69.8
     
93.8
 
Deferred tax assets
   
148.0
     
136.0
     
165.1
     
202.9
     
191.3
 
Total non-current assets
   
8,540.6
     
8,791.3
     
9,350.4
     
9,251.9
     
9,642.2
 
Current assets:
                                       
Inventories
   
20.3
     
18.9
     
17.9
     
15.5
     
14.9
 
Trade and other receivables
   
317.6
     
236.4
     
244.4
     
207.6
     
197.3
 
Financial investments
   
218.6
     
240.8
     
210.1
     
228.0
     
221.4
 
Cash and cash equivalents
   
562.8
     
631.5
     
669.4
     
594.8
     
514.7
 
Total current assets
   
1,119.2
     
1,127.7
     
1,141.9
     
1,045.9
     
948.3
 
Total assets
   
9,659.8
     
9,919.0
     
10,492.3
     
10,297.8
     
10,590.5
 
Total equity
   
1,714.9
     
1,756.1
     
1,895.4
     
1,959.1
     
2,023.5
 
Non-current liabilities:
                                       
Long-term corporate debt
   
695.1
     
415.2
     
574.2
     
376.3
     
661.3
 
Long-term project debt
   
4,069.9
     
4,826.7
     
5,228.9
     
4,629.2
     
3,574.5
 
Other liabilities
   
2,206.6
     
2,181.9
     
2,292.9
     
2,158.1
     
2,238.4
 
Total non-current liabilities
   
6,971.6
     
7,423.8
     
8,096.5
     
7,163.6
     
6.474.2
 
Current liabilities:
                                       
Short-term corporate debt
   
28.7
     
268.9
     
68.9
     
291.9
     
3.2
 
Short-term project debt
   
782.4
     
264.4
     
246.3
     
701.3
     
1,896.1
 
Other liabilities
   
162.3
     
205.8
     
187.0
     
181.9
     
193.5
 
Total current liabilities
   
973.4
     
739.1
     
500.4
     
1,175.1
     
2,092.8
 
Equity and total liabilities
   
9,659.8
     
9,919.0
     
10,492.3
     
10,297.8
     
10,590.5
 

Consolidated cash flow statements for the years ended December 31, 2019, 2018, 2017, 2016 and 2015

   
Year ended December 31,
 
   
2019
   
2018
   
2017
   
2016
   
2015
 
   
($ in millions)
 
Gross cash flows from operating activities
                             
Profit/(loss) for the year
   
62.1
     
55.3
     
(104.9
)
   
1.6
     
(198.2
)
Adjustments to reconcile after-tax profit to net cash generated by operating activities
   
701.8
     
697.6
     
848.8
     
664.8
     
734.9
 
Profit for the year adjusted by non-monetary items
   
776.4
     
752.9
     
743.9
     
666.4
     
536.7
 
Net interest / taxes paid
   
(299.5
)
   
(333.5
)
   
(349.5
)
   
(334.0
)
   
(310.2
)
Variations in working capital
   
(113.4
)
   
(18.4
)
   
(8.8
)
   
2.0
     
73.1
 
Total net cash flow provided by/(used in) operating activities
   
363.6
     
401.0
     
385.6
     
334.4
     
299.6
 
Net cash flows from investing activities
                                       
Investments in entities under the equity method
   
30.4
     
4.4
     
3.0
     
5.0
     
4.4
 
Investments in contracted concessional assets(1)
   
22.0
     
68.0
     
30.1
     
(6.0
)
   
(106.0
)
Other non-current assets/liabilities
   
2.7
     
(16.7
)
   
8.2
     
(3.6
)
   
5.7
 
Acquisitions / sales of subsidiaries and other financial instruments
   
(173.4
)
   
(70.6
)
   
30.1
     
(21.7
)
   
(834.0
)
Total net cash flows provided by/ (used in) investing activities
   
(118.2
)
   
(14.9
)
   
71.4
     
(26.3
)
   
(929.9
)
Net cash flows provided by/ (used in) financing activities
   
(310.1
)
   
(405.2
)
   
(416.3
)
   
(226.1
)
   
810.9
 
Net increase/(decrease) in cash and cash equivalents
   
(64.8
)
   
(19.1
)
   
40.7
     
82.0
     
180.6
 
Cash, cash equivalents and bank overdrafts at beginning of the year
   
631.5
     
669.4
     
594.8
     
514.7
     
354.2
 
Translation differences cash or cash equivalents
   
(3.9
)
   
(18.8
)
   
33.9
     
(1.9
)
   
(20.1
)
Cash and cash equivalents at the end of the year
   
562.8
     
631.5
     
669.4
     
594.8
     
514.7
 
_________________

Note:
(1)
Includes proceeds for $22.2 million, $72.6 million and $42.5 million in 2019, 2018 and 2017 respectively. See note 6 of the Annual Consolidated Financial Statements.

Geography and business sector data

Revenue by geography

 
Year ended December 31,
 
 
2019
   
2018
   
2017
   
2016
   
2015
 
 
($ in millions)
 
North America
   
333.0
     
357.2
     
332.7
     
337.0
     
328.1
 
South America
   
142.2
     
123.2
     
120.8
     
118.8
     
112.5
 
EMEA
   
536.3
     
563.4
     
554.9
     
516.0
     
350.3
 
Total revenue
   
1,011.5
     
1,043.8
     
1,008.4
     
971.8
     
790.9
 

Revenue by business sector

 
Year ended December 31,
 
 
2019
   
2018
   
2017
   
2016
   
2015
 
 
($ in millions)
 
Renewable energy
   
761.1
     
793.5
     
767.2
     
724.3
     
543.0
 
Efficient natural gas
   
122.3
     
130.8
     
119.8
     
128.1
     
138.7
 
Electric transmission
   
103.5
     
96.0
     
95.1
     
95.1
     
86.4
 
Water
   
24.6
     
23.5
     
26.3
     
24.3
     
22.8
 
Total revenue
   
1,011.5
     
1,043.8
     
1,008.4
     
971.8
     
790.9
 

Non-GAAP financial data

Further Adjusted EBITDA by geography

 
Year ended December 31,
 
 
2019
   
2018
   
2017
   
2016
   
2015
 
 
($ in millions)
 
North America(1)
   
305.1
     
308.8
     
282.3
     
284.7
     
279.6
 
South America
   
115.3
     
100.2
     
108.8
     
124.6
     
110.9
 
EMEA(1)
   
390.8
     
441.6
     
388.2
     
354.0
     
233.7
 
Further Adjusted EBITDA(2)(3)(4)
   
811.2
     
850.6
     
779.3
     
763.3
     
624.2
 


Note:

(1)
Further Adjusted EBITDA for EMEA and North America does not include our pro rata share of EBITDA from unconsolidated affiliates, which was $10.4 million, $8.1 million, $7.3 million, $8.8 million and $12.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

(2)
Further Adjusted EBITDA is a supplemental non-GAAP financial measure. We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interest parties. The non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS as issued by the IASB. Non-GAAP financial measures are not measurements of our performance or liquidity under IFRS as issued by the IASB and should not be considered as alternatives to operating profit or profit for the year or any other performance measure derived in accordance with IFRS as issued by the IASB or any other generally accepted accounting principles. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

(3)
Further Adjusted EBITDA is calculated as profit/(loss) for the year attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax, share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Annual Consolidated Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for 2016 and the first quarter of 2017 includes compensation received from Abengoa in lieu of ACBH dividends. Further Adjusted EBITDA is not a measure of performance under IFRS as issued by the IASB and you should not consider Further Adjusted EBITDA as an alternative to operating income or profits or as a measure of our operating performance, cash flows from operating, investing and financing activities or as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted accounting principles. We believe that Further Adjusted EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate us. Further Adjusted EBITDA and similar measures are used by different companies for different purposes and are often calculated in ways that reflect the circumstances of those companies. Further Adjusted EBITDA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

(4)
Further Adjusted EBITDA does not include our pro rata share of EBITDA from unconsolidated affiliates, which was $10.4 million, $8.1 million, $7.3 million, $8.8 million and $12.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

Further Adjusted EBITDA by business sector
 
 
Year ended December 31,
 
 
2019
   
2018
   
2017
   
2016
   
2015
 
 
($ in millions)
 
Renewable energy(1)
   
603.7
     
664.4
     
569.2
     
538.4
     
414.0
 
Efficient natural gas(1)
   
107.5
     
93.9
     
106.1
     
106.5
     
107.7
 
Electric transmission
   
85.6
     
78.4
     
87.7
     
104.8
     
89.0
 
Water(1)
   
14.4
     
13.9
     
16.3
     
13.6
     
13.5
 
Further Adjusted EBITDA(2)(3)(4)
   
811.2
     
850.6
     
779.3
     
763.3
     
624.2
 


Note:

(1)
Further Adjusted EBITDA for Water, Efficient natural gas and Renewable energy does not include our pro rata share of EBITDA from unconsolidated affiliates, which was $10.4 million, $8.1 million, $7.3 million, $8.8 million and $12.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

(2)
Further Adjusted EBITDA is a supplemental non-GAAP financial measure. We present non-GAAP financial measures because we believe that they and other similar measures are widely used by certain investors, securities analysts and other interest parties. The non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results as reported under IFRS as issued by the IASB. Non-GAAP financial measures are not measurements of our performance or liquidity under IFRS as issued by the IASB and should not be considered as alternatives to operating profit or profit for the year or any other performance measure derived in accordance with IFRS as issued by the IASB or any other generally accepted accounting principles. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

(3)
Further Adjusted EBITDA is calculated as profit/(loss) for the year attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interest from continued operations, income tax, share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in the Annual Consolidated Financial Statements, and dividends received from our preferred equity investment in ACBH. Further Adjusted EBITDA for 2016 and the first quarter of 2017 includes compensation received from Abengoa in lieu of ACBH dividends. Further Adjusted EBITDA is not a measure of performance under IFRS as issued by the IASB and you should not consider Further Adjusted EBITDA as an alternative to operating income or profits or as a measure of our operating performance, cash flows from operating, investing and financing activities or as a measure of our ability to meet our cash needs or any other measures of performance under generally accepted accounting principles. We believe that Further Adjusted EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate us. Further Adjusted EBITDA and similar measures are used by different companies for different purposes and are often calculated in ways that reflect the circumstances of those companies. Further Adjusted EBITDA may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results. See “Presentation of Financial Information—Non-GAAP Financial Measures.”

(4)
Further Adjusted EBITDA does not include our pro rata share of EBITDA from unconsolidated affiliates, which was $10.4 million, $8.1 million, $7.3 million, $8.8 million and $12.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

The following table sets forth a reconciliation of Further Adjusted EBITDA to our profit/(loss) for the year from continuing operations:

Reconciliation of profit/(loss) for the year to Further Adjusted EBITDA

   
Year ended December 31,
 
   
2019
   
2018
   
2017
   
2016
   
2015
 
   
($ in millions)
 
Profit/(loss) for the year attributable to the parent company
   
62.1
     
41.6
     
(111.8
)
   
(4.9
)
   
(209.0
)
Profit/(loss) attributable to non-controlling interest from continued operations
   
12.5
     
13.7
     
6.9
     
6.5
     
10.8
 
Income tax
   
30.9
     
42.6
     
119.8
     
1.7
     
23.8
 
Share of loss/(profit) of associates carried under the equity method
   
(7.5
)
   
(5.2
)
   
(5.3
)
   
(6.7
)
   
(7.8
)
Financial expenses, net
   
402.3
     
395.2
     
448.4
     
405.8
     
526.7
 
Operating profit/(loss)
   
500.4
     
487.9
     
458.0
     
402.4
     
344.5
 
Depreciation, amortization and impairment charges
   
310.8
     
362.7
     
311.0
     
332.9
     
261.3
 
Dividend from preferred equity investment
   
-
     
-
     
10.3
     
28.0
     
18.4
 
Further Adjusted EBITDA
   
811.2
     
850.6
     
779.3
     
763.3
     
624.2
 

The following table sets forth a reconciliation of Further Adjusted EBITDA to our net cash generated by or used in operating activities:

Reconciliation of net cash generated by operating activities to Further Adjusted EBITDA

   
Year ended December 31,
 
   
2019
   
2018
   
2017
   
2016
   
2015
 
   
($ in millions)
 
Net cash generated by operating activities
   
363.5
     
401.0
     
385.6
     
334.4
     
299.6
 
Interests (paid)/received
   
299.5
     
321.0
     
344.7
     
332.1
     
310.2
 
Income tax (paid)/received
   
0
     
12.5
     
4.8
     
2.0
     
(0.5
)
Variations in working capital
   
113.4
     
18.4
     
8.8
     
(2.0
)
   
(73.1
)
Non-monetary adjustments, other cash finance costs and other
   
34.8
     
97.7
     
35.4
     
96.8
     
88.0
 
Further Adjusted EBITDA
   
811.2
     
850.6
     
779.3
     
763.3
     
624.2
 

B.
Capitalization and Indebtedness

Not applicable.

C.
Reasons for the Offer and Use of Proceeds
 
Not applicable.

D.
Risk Factors
 
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the other information contained in this annual report, including our Annual Consolidated Financial Statements and related notes, included elsewhere in this annual report, before making any investment decision. The risks described below may not be the only risks we face. We have described only those risks that we currently consider to be material and there may be additional risks that we do not currently consider to be material or of which we are not currently aware. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations and financial condition. The market price of our securities could decline due to any of these risks and uncertainties, and you could lose all or part of your investment.

Risks Related to Our Business and the Markets in Which We Operate

Difficult conditions in the global economy and in the global capital markets have caused, and may continue to cause, a sharp reduction in worldwide demand for our products and services.

Our results of operations have been, and continue to be, materially affected by conditions in the global economy. In the United States, capital markets have been experiencing some volatility recently probably driven by signs of a global economic slowdown, concerns on upcoming decisions on interest rates, inflation fears, trade tensions with China and the escalation of the conflict with Iran. Concerns over inflation, volatile oil and gas prices, geopolitical issues, the availability and cost of credit, sovereign debt and the instability of the euro have contributed to increased volatility and diminished expectations for the economy and global capital markets going forward. These factors have in the past precipitated economic slowdowns and led to a recent recession and weak economic growth. Adverse events and continuing disruptions in the global economy and in the global capital markets may have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility with certain factors, including volatile oil prices, interest rates, consumer spending, business investment, government spending, inflation affecting the business and economic environment that could affect the economic and financial situation of our concession contracts counterparties and, ultimately, the profitability and growth of our business.

Generalized or localized downturns or inflationary or deflationary pressures in our key geographical areas could also have a material adverse effect on our business, financial condition, results of operations and cash flows. A significant portion of our business activity is concentrated in the United States, Mexico, Peru and Spain. Consequently, we are significantly affected by the general economic conditions in these countries. Spain, for instance, has experienced negative economic conditions in the last few years, including high unemployment and significant government debt, increased lately by the continued uncertainty regarding the Catalonian political situation, which we believe could adversely affect our operations in the future. The effects on the European and global economy of the exit of the United Kingdom from the European Union or of any other member states from the Eurozone, the dissolution of the euro, or the perception that any of these events are imminent, are inherently difficult to predict and could give rise to operational disruptions or other risks of contagion to our business and have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, to the extent uncertainty regarding the European economic recovery continues to negatively affect government or regional budgets, our business, financial condition, results of operations and cash flows could be materially adversely affected. Various European political parties who question the austerity policies implemented in certain European countries have added political instability to the region. Finally, the elections to the European Parliament held on May 23-26, 2019, have resulted in changes in the political landscape which may have an impact on the internal policies of the European Union and, ultimately, on our business, financial condition, results of operations and cash flows. Additionally, political changes in key geographies, including the United States, could affect our business in the United States or in other countries including, for example, Mexico. Finally, other downturns or disruptions provoked by social unrest in the countries where we operate, like those we have seen in Chile or Algeria, or diseases like the COVID-19 could have a material adverse impact on our business, financial condition, results of operations and cash flows.

We may not be able to arrange the required or desired financing for acquisitions and for the successful refinancing of the Company’s project level and corporate level indebtedness.
 
The global capital and credit markets have experienced in the past and may continue to experience periods of extreme volatility and disruption. At times, our access to financing was curtailed by market conditions and other factors. In recent years, capital markets have been highly volatile, particularly in the United States and Europe. These adverse market conditions could prevent us from accessing the capital markets in a manner that would permit the Company to make acquisitions or refinance its debt on satisfactory terms or at all. Continued disruptions, uncertainty or volatility in the global capital and credit markets may limit our access to additional capital required to operate or grow our business, including our access to new debt and equity capital to make further acquisitions or access to project debt, which we may use to fund or refinance many of our projects and corporate level debt, even in cases where such capital has already been committed. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to grow our business, or replace financing previously committed for a project that ceases to be available to us. As a result, we may be forced to delay raising capital, issue shorter-term securities than we prefer, or bear a higher cost of capital which could decrease our profitability and significantly reduce our financial flexibility or even require us to modify our dividend policy. In the event we are required to replace previously committed financing to certain projects that subsequently becomes unavailable, we may have to postpone or cancel planned acquisitions or capital expenditures. The inability to raise capital, higher costs of capital or postponement or cancellation of planned acquisitions or capital expenditures may have a materially adverse effect on our business, financial condition, results of operations and cash flows. In addition, our ability to arrange financing, either at the corporate level or at a non-recourse project level subsidiary, and the costs of such capital, are dependent on numerous factors, including:


general economic and capital market conditions;
 

credit availability from banks and other financial institutions;
 

investor confidence in us and Algonquin as our largest shareholder
 

our financial performance and the financial performance of our subsidiaries;
 

our level of indebtedness and compliance with covenants in debt agreements;
 

maintenance of acceptable project credit ratings or credit quality;
 

cash flow; and
 

provisions of tax and securities laws that may impact raising capital.
 
We may not be successful in obtaining additional capital for these or other reasons. Furthermore, we may be unable to refinance or replace project level financing arrangements or other credit facilities on favorable terms or at all upon the expiration or termination thereof. Our failure, or the failure of any of our projects, to obtain additional capital may constitute a default under such existing indebtedness and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate.

A significant portion of the electric power we generate, the transmission capacity we have, and our desalination capacity is sold under long-term off-take agreements with public utilities, industrial or commercial end-users or governmental entities, with a weighted average remaining duration of approximately 18 years as of December 31, 2019.

If, for any reason, including, but not limited to, a deterioration in their financial situation or bankruptcy, any of the purchasers of power, transmission capacity or desalination capacity under these agreements are unable or unwilling to fulfill their related contractual obligations or if they refuse to accept delivery of power delivered thereunder or if they otherwise terminate such agreements prior to the expiration thereof, or if prices were re-negotiated under a bankruptcy situation, or if they delayed payments, our assets, liabilities, business, financial condition, results of operations and cash flow may be materially adversely affected. Furthermore, to the extent any of our power, transmission capacity or desalination capacity purchasers are, or are controlled by, governmental entities, our facilities may be subject to sovereign risk or legislative or other political action that may hamper their contractual performance.

On January 29, 2019, PG&E, the off-taker for Atlantica Yield with respect to the Mojave plant, filed for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California (the “Bankruptcy Court”). As a consequence, PG&E did not pay the portion of the invoice corresponding to the electricity delivered for the period between January 1 and January 28, 2019, which was due on February 25, given that the services relate to the pre-petition period and any payment therefore would require approval by the Bankruptcy Court. However, Mojave Solar filed a 503(b)(9) claim for the portion of energy delivered 20 days prior to the PG&E filing, which was approved by an order of the Bankruptcy Court on August 15, 2019. Mojave Solar filed a general unsecured claim on October 17, 2019 for the remaining outstanding balance of energy. Further, PG&E has paid all invoices corresponding to the electricity delivered after January 28. Due to the PG&E Chapter 11 filings, a default of the PPA agreement with PG&E occurred with the PG&E bankruptcy filing. Since PG&E failed to assume the PPA within 180 days from the commencement of PG&E’s Chapter 11 proceeding, a technical event of default was triggered under our Mojave project finance agreement in July 2019. Although we do not expect the acceleration of debt to be declared by the DOE, the project debt agreement does not have what International Accounting Standards define as an unconditional right to defer the settlement of the debt for at least twelve months, as the event of default provision make that right not totally unconditional, and therefore the debt has been presented as current in our financial statements. As of December 31, 2019, Mojave had $707 million outstanding under its project financing agreement with the Federal Financing Bank, with a guarantee from the DOE. Additionally, Mojave represented approximately 13.5% of 2018 project level cash available for distribution. Chapter 11 bankruptcy is a complex process and we do not know at this time whether PG&E will seek to reject the PPA or not.  However, PG&E has continued to be in compliance with the remaining terms and conditions of the PPA, including with all payment terms of the PPA up through the date hereof with the exception of services for prepetition services that became due and payable after the chapter 11 filing date. It remains possible that at any time during the chapter 11 proceeding, PG&E may decide to cease performing under the PPA and attempt to reject or renegotiate the terms of its contract with us. If PG&E rejected the contract and stopped making payments in accordance with the PPA, Mojave could fail in servicing its debt under its project finance agreement, which would also cause a default under the project finance agreement. If not cured or waived, an event of default in the project finance agreement could result in debt acceleration and, if such amounts were not timely paid, the DOE could decide to foreclose on the asset. Further, it is possible that the current timetable for confirmation could be delayed due to various matters relating to the treatment of claims, including claims that may arise during the Chapter 11 case. The PG&E bankruptcy has heightened the risk that project level cash distributions could be restricted for an undetermined period of time, thereby impacting our corporate liquidity and corporate leverage. Mojave project cash distributions to the corporate level normally take place at the end of the year. The last distribution received at the corporate level took place in December 2018. Unless the technical event or default is cured or waived, distributions may not be made during the pendency of the bankruptcy. Such events may have a material adverse effect on our business, financial condition, results of operations and cash flows.

During recent months, the credit rating of Eskom has also weakened and is currently CCC+ from S&P Global Rating (“S&P”), B3 from Moody’s Investor Service Inc. (“Moody’s”) and BB- from Fitch Ratings Inc. (“Fitch”). Eskom is the off-taker of our Kaxu solar plant, a state-owned, limited liability company, wholly owned by the government of the Republic of South Africa. Eskom’s payment guarantees to our solar plant Kaxu are underwritten by the South African Department of Energy, under the terms of an implementation agreement. The credit ratings of the Republic of South Africa as of the date of this report are BB/Baa3/BB+ by S&P, Moody’s and Fitch, respectively.

In addition, the credit rating of Pemex has also weakened and is currently BBB+ from S&P, Baa3 from Moody’s and BB+ from Fitch. We have been experiencing delays in collections in the last few months. Although we believe they are partially due to changes in personnel following the elections last year, we continue to monitor the situation closely.

The cost of renewable energy has considerably decreased over the past years, becoming a consistently competitive source of power generation compared to traditional fossil fuels in many regions, and it is expected to continue falling in the future. In addition, there has been an increase in the number of players and competition in the renewable energy space in the last few years, industrial companies and other independent power producer as well as large infrastructure funds and other financial players. The reduction in the cost of renewable energy and the intense competition has contributed to a reduction in electricity prices paid by the off-takers. In light of these market conditions, we may not be able to replace an expiring or terminated agreement with an agreement on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. In addition, we believe many of our competitors have well-established relationships with our current and potential suppliers, lenders and customers and have extensive knowledge of our target markets. As a result, these competitors may be able to respond more quickly to evolving industry standards and changing customer requirements than us. Adoption of technology more advanced than our own could reduce the power production costs of our competitors, resulting in their having a lower cost structure than is achievable with the technologies we currently employ and adversely affect our ability to compete for off-take agreement renewals. If we are unable to replace an expiring or terminated off-take agreement, the affected facility may temporarily or permanently cease operations. External events, such as a severe economic downturn and lower commodity prices, could also impair the ability of some counterparties to our off-take agreements and other customer agreements to pay for energy and/or other products and services received.

Our inability to enter into new or replacement off-take agreements or to compete successfully against current and future competitors in the markets in which we operate may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Government regulations could change at any time and such changes may negatively impact our current business and our growth strategy.

In some of our assets such as the Spanish solar plants and one of our transmission lines in Chile, revenues are based on existing regulation. We may also acquire in the future additional assets or businesses with regulated revenues. For these types of assets and businesses, if regulation changes, it may have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, our strategy to grow our business through the acquisition of renewable energy projects partly depends on current government policies that promote and support renewable energy and enhance the economic viability of owning solar and wind energy projects. Renewable energy projects currently benefit from various U.S. federal, state and local governmental incentives, such as ITCs, PTCs, loan guarantees, RPS programs, or MACRS along with other incentives. These policies have had a significant impact on the development of renewable energy and they could change at any time, especially in the event that the current administration was to embark on further significant changes in federal energy policy. The current U.S. administration has also made public statements regarding overturning or modifying policies of, or regulations enacted by, the prior administration that placed limitations on coal and gas electric generation, mining and/or exploration. Additionally, many of these government incentives, including the ITCs and the PTCs, are subject to phase-out and/or expiration. These incentives make the development of renewable energy projects more competitive by providing tax credits, accelerated depreciation and expensing for a portion of the development costs, decreasing the costs associated with developing such projects or creating demand for renewable energy assets through RPS programs. A loss or reduction in such incentives or the value of such incentives, a change in policy away from limitations on coal and gas electric generation, mining and exploration, or a reduction in the capacity of potential investors to benefit from such incentives could decrease the attractiveness of solar or renewable energy projects to project developers, and the attractiveness of solar energy systems to utilities, retailers and customers. Such a loss or reduction could also reduce our acquisition opportunities and our willingness to pursue renewable energy projects due to higher operating costs or lower revenues from off-take agreements. See also “—Risks Related to Taxation.”

The current U.S. administration’s environmental and tax policies may create regulatory uncertainty in the clean energy sector and may lead to a reduction or removal of various clean energy programs and initiatives designed to curtail climate change. Such a reduction or removal of incentives may diminish the market for future renewable energy off-take agreements and reduce the ability for renewable developers to compete for future energy off-take agreements, which may reduce incentives for project developers to invest in the development and construction of clean energy and water infrastructure contracted assets. To the extent that these policies are changed in a manner that reduces the incentives or the value of such incentives or reduces the capacity of potential investors to benefit from such incentives, this could cause reduced revenues and reduced economic returns, resulting in increased financing costs and difficulty in obtaining financing.

The reduction in the corporate tax rate diminishes the benefit of tax incentives for potential investors and reduces the value of accelerated depreciation deductions and the expensing of certain capital expenditures. Any effort to overturn federal and state laws, regulations or policies that are supportive of existing or new solar energy generation or that remove costs or other limitations on other types of generation that compete with solar energy projects could materially and adversely affect the Company’s business. Additionally, the current U.S. administration is exploring potential legal and regulatory strategies to subsidize coal and nuclear generation, which could allow those technologies to become more cost competitive relative to renewable generation sources.

Additionally, some U.S. states with RPS targets have met, or in the near future will meet, their renewable energy targets. For example, California, which has among the most aggressive RPS laws in the United States, is poised to meet its current mandate of 33.0% renewable energy by 2020 with already-proposed new renewable energy projects, though significant additional investments will be required to meet the higher renewable energy mandate of 60.0% by 2030 and 100% by 2045 that was adopted in 2018. If, as a result of achieving these targets, these and other U.S. states do not increase their targets in the near future, demand for additional renewable energy could decrease.

In addition, the substantial increase of grid connected intermittent solar and wind generation assets resulting from the adoption of RPS targets has created significant technical challenges for grid operators. As a result, RPS targets may need to be scaled back or delayed in order to develop technologies or infrastructure to accommodate this increase in intermittent generation assets.

We rely, in a significant part, on environmental and other regulations of industrial and local government activities, including regulations mandating, among other things, reductions in carbon or other greenhouse gas emissions or use of energy from renewable sources. If the businesses to which such regulations relate were deregulated or if such regulations were materially changed or weakened, the profitability of our current and future projects could suffer, which could in turn have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, uncertainty regarding possible changes to any such regulations has adversely affected us in the past, and may adversely affect in the future, our ability to refinance a project or to satisfy other financing needs.

Subsidy regimes for renewable energy generation have been challenged in the past on constitutional and other grounds (including that such regimes constitute impermissible European Union state aid) in certain jurisdictions. In addition, certain loan-guarantee programs in the United States, including those which have enabled the DOE to provide loan guarantees to support our Solana and Mojave projects in the United States, have been challenged on grounds of failure by the appropriate authorities to comply with applicable U.S. federal administrative and energy law. If all or part of the subsidy and incentive regimes for renewable energy generation in any jurisdiction in which we operate were found to be unlawful and, therefore, reduced or discontinued, we may be unable to compete effectively with conventional and other renewable forms of energy.

We currently have two financing arrangements with the Federal Financing Bank for the Solana and Mojave assets, repayment of which to the Federal Financing Bank by those projects is with a guarantee by the DOE. Additionally, these projects benefit from the ITCs. Unilateral changes to these agreements or the ITC regime may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Potential acquisition of solar projects could be more challenging if the cost of solar panels does not decline or increases in the future, including as a result of increases in the cost of solar panels or tariffs on imported solar panels imposed by the U.S. government.

The cost of solar panels, which declined in recent years, and the raw materials necessary to manufacture them has been a key driver in the pricing of solar energy systems and customer adoption of this form of renewable energy. The U.S. government has imposed tariffs on solar cells manufactured in China, which is a large producer of solar cells, thereby increasing the price of solar panels containing Chinese-manufactured solar cells. While solar panels containing solar cells manufactured outside of China are not subject to such tariffs, the prices of these solar panels are, and may continue to be, more expensive than panels produced using Chinese solar cells, before giving effect to the tariff penalties, and such tariffs may create upward pressure on prices.

In addition, the U.S. government conducted in the past years trade investigations relating to solar modules manufactured in China (with cells from other countries) and cells manufactured in Taiwan, which resulted in import tariffs on foreign-manufactured solar panel. As a result, in early January 2015, the U.S. government imposed preliminary tariffs on solar cells manufactured in Taiwan and solar panels and modules containing such cells. Similar measures were taken for solar cells manufactured in China at the beginning of 2018, the tariff steps down from 30% in 2018 to 15% over four years and then is eliminated.

With the stabilization or increase of solar panel and raw materials prices, our growth could slow. Although Atlantica does not purchase solar panels directly, higher cost solar panels could reduce our willingness to pursue renewable energy projects due to higher operating costs or lower revenues from off-take agreements.

We are exposed to political, social and macroeconomic risks relating to the United Kingdom’s exit from the European Union.

On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union (commonly referred to as “Brexit”), and the U.K. government invoked Article 50 of the Lisbon Treaty related to withdrawal on March 29, 2017. The withdrawal of the United Kingdom from the European Union was initially expected to take effect on March 29, 2019. Under Article 50, the Treaty on the European Union and the Treaty on the Functioning of the European Union cease to apply in the relevant state from the date of entry into force of a withdrawal agreement or, failing that, two years after the notification of intention to withdraw, although this period may be extended in certain circumstances. On March 14, 2019, the U.K. government sought permission from the EU to extend Article 50 and agree a later Brexit date. On January 31, 2020, the U.K. ceased to be part of the European Union and entered into a transition period to, among other things, negotiate an agreement with the EU on the future terms of the United Kingdom’s relationship with the European Union. The transition period is currently expected to end on December 31, 2020. As of the date of this report, the United Kingdom and the European Union have not reached an agreement. Therefore, the impact of the United Kingdom’s departure from, and future relationship with, the European Union are uncertain. There is the potential that the United Kingdom and the European Union may not agree to a withdrawal arrangement before the date the United Kingdom leaves the European Union. Regardless of the eventual timing or terms of the United Kingdom’s exit from the EU, the result of the 2016 referendum continues to create significant political, regulatory and macroeconomic uncertainty.

There are a number of areas of uncertainty in connection with the future of the United Kingdom and its relationship with the EU. The negotiation of the United Kingdom’s exit terms and related matters may take several years. Given this uncertainty and the range of possible outcomes, it is not currently possible to determine the impact that the United Kingdom’s departure from the EU and/or any related matters may have on general economic conditions in the United Kingdom or the EU. The exit of the United Kingdom (or any other country) from the EU or prolonged periods of uncertainty relating to any of these possibilities could result in significant macroeconomic deterioration, including, but not limited to, further decreases in global stock exchange indices, increased foreign exchange volatility, decreased GDP in the European Union or other markets in which we operate, issues with cross-border trade, political and regulatory uncertainty and further sovereign credit downgrades. In addition, there could be changes to tax regulation affecting the repatriation of dividends from other countries, which may negatively affect us. Additionally, the impact of potential changes to the United Kingdom’s migration policy could adversely impact our employees of non-U.K. nationality currently working in the United Kingdom as well as have an uncertain impact on cross-border labor. The potential loss of the EU “passport,” or any other potential restrictions on free travel of UK citizens to Europe, and vice versa, could adversely impact the jobs market in general and our operations in Europe. Finally, Brexit is likely to lead to legal uncertainty in areas such as data protection, taxation, and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate, including the General Data Protection Regulation. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, financial condition, results of operations and cash flows.

We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.

We operate our activities in a range of international locations, including North America (Canada, the United States and Mexico), South America (Colombia, Peru, Chile and Uruguay), and EMEA (Spain, Algeria and South Africa), and we may expand our operations to certain core countries within these regions. Accordingly, we face a number of risks associated with operating and investing in different countries that may have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include, but are not limited to, adapting to the regulatory requirements of such countries, compliance with changes in laws and regulations applicable to foreign corporations, the uncertainty of judicial processes, and the absence, loss or non-renewal of favorable treaties, or similar agreements, with local authorities or political, social and economic instability, all of which can place disproportionate demands on our management, as well as significant demands on our operational and financial personnel and business. As a result, we can provide no assurance that our future international operations and investments will remain profitable.

A significant portion of our current and potential future operations and investments are conducted in various emerging countries worldwide. Our activities and investments in these countries involve a number of risks that are more prevalent than in developed markets, such as economic and governmental instability, the possibility of significant amendments to, or changes in, the application of governmental regulations, the nationalization and expropriation of private property, payment collection difficulties, social problems, substantial fluctuations in interest and exchange rates, changes in the tax framework or the unpredictability of enforcement of contractual provisions, currency control measures, limits on the repatriation of funds and other unfavorable interventions or restrictions imposed by public authorities. In countries such as Algeria or South Africa, a change in government can cause instability in the country and a new government may decide to change laws and regulations affecting our assets or may decide to expropriate such assets, all of which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

For example, in Algeria, protests started in February 2019 after former president announced that he would run for a fifth term in office. Although the president stepped down several weeks later, demonstrations and protests have been ongoing and political instability remains. In addition, in Chile violent social protests started in October 2019. Several social measures were approved; however, the social crisis has not been resolved yet. Protests could have an adverse effect on our business, financial condition, results of operations and cash flows. In addition, potential social measures could also have an adverse effect in our business, for example, if the government decided to increase taxation on our assets.

Our U.S. dollar-denominated contracts in Algeria, Mexico, Chile and Peru are payable in local currency at the exchange rate of the payment date and in some cases include portions in local currency; our contract for Kaxu in South Africa is denominated and payable in South African rands. In the event of a rapid devaluation or implementation of exchange or currency controls, we may not be able to exchange the local currency for the agreed dollar amount, which could affect our cash available for distribution. Governments in Latin America and Africa frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions in certain countries to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital or exchange controls and limits on imports. Such devaluation, implementation of exchange or currency controls or governmental involvement may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Decreases in government budgets, reductions in government subsidies and adverse changes in law may adversely affect our business and growth plan.

Poor economic conditions have affected, and continue to affect, government budgets and threaten the continuation of government subsidies such as regulated revenues, cash grants, tax benefits and other similar subsidies that benefit our business, particularly with respect to renewable energy. Such economic conditions may also lead to changes in laws that may be adverse to us. Policies supporting the development of renewable energy have had a significant effect on the growth of investments in renewable energy and could change at any time. Government subsidies and incentives make the development of renewable projects more competitive by providing tax credits and accelerated depreciation for a portion of the development costs, decreasing the costs associated with developing such projects or creating demand for renewable energy assets through RPS programs. A loss or reduction in such incentives could decrease the attractiveness of renewable energy projects to project developers and the attractiveness of renewable energy to utilities, which could reduce our acquisition opportunities. Such a loss or reduction could also reduce our willingness to pursue renewable energy projects due to higher operating costs or lower revenues. The reduction or elimination of subsidies or incentives or adverse changes in law could have a material adverse effect on our business, financial condition, results of operations and cash flows, inclusive of our existing projects, and the lack of availability of new projects undertaken in reliance on the continuation of such subsidies could adversely affect our growth plan.

Our cash dividend policy may limit our ability to grow and make acquisitions through cash on hand.

Our dividend policy is to distribute a high percentage of our cash available for distribution, after corporate general and administrative expenses and cash interest payments and less reserves for the prudent conduct of our business, each quarter and to rely primarily upon external financing sources, including the issuance of debt and equity securities as well as borrowings under credit facilities to fund our acquisitions and potential growth capital expenditures. We intend to distribute as dividend a high portion of the cash available for distribution that we generate on an annual basis, although our board of directors could modify that payout target in the future. We may be precluded from pursuing otherwise attractive acquisitions if the projected short-term cash flow from the acquisition or investment is not adequate to service the capital raised to fund the acquisition or investment, after giving effect to our available cash reserves.

On account of our dividend policy, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional equity securities in connection with any acquisitions or growth capital expenditures, the payment of dividends on these additional equity securities may increase the risk that we will be unable to maintain or increase our per share dividend. There are no limitations in our articles of association on our ability to issue equity securities, including preferred shares or other securities ranking senior to our shares. The issuance of additional debt securities and/or the incurrence of additional bank borrowings or other debt by us or by intermediate subsidiaries or by our project-level subsidiaries to finance our growth strategy could result in increased interest expense, increased debt repayment and the imposition of additional or more restrictive covenants, which, in turn, may impact the cash distributions we receive from our subsidiaries.

We may not be able to identify and reach agreements with new partners similar to the AAGES and Algonquin ROFO agreements.

We intend to enter into an agreement or agreements with new partners that own or develop renewable energy, electric transmission or water assets in the geographies in which we operate. Any such new partner would be a source of assets in addition to AAGES, Algonquin and Abengoa. We cannot be certain that we will be successful in identifying or reaching an agreement with new partners. We also cannot be certain that any agreement with a new partner will have terms similar to the AAGES ROFO Agreement and such terms may be less favorable to us. Even if we do reach an agreement with a new partner, it cannot be certain that we will be able to acquire additional assets from any such partner in the future.

If we are unable to identify and reach an agreement on favorable terms with new partners with suitable assets, or unable to consummate future acquisitions from any such sponsor, it may limit our ability to execute our growth strategy and may have a materially adverse effect on our business, financial condition, results of operation and cash flows.

We may not be able to arrange the required or desired financing for acquisitions.

Our ability to effectively consummate future acquisitions will also depend on our ability to arrange the required or desired financing for acquisitions or to refinance existing corporate debt. We may not have access to the capital markets to issue new equity or debt securities or sufficient availability under our credit facilities or have access to project level financing on commercially reasonable terms when acquisition opportunities arise. At times, our access to financing was curtailed by market conditions and other factors. In recent years, capital markets have been highly volatile, particularly in the United States and Europe. These adverse market conditions could prevent us from accessing the capital markets in a manner that would permit us to make an acquisition or refinance any corporate facility in a timely manner.

An inability to obtain the required or desired financing could significantly limit our ability to consummate future acquisitions and accomplish our growth strategy. If financing is available, utilization of our credit facilities, debt securities or project level financing for all or a portion of the purchase price of an acquisition, as applicable, could significantly increase our interest expense and debt repayment, impose additional or more restrictive covenants, and reduce cash available for distribution. Similarly, the issuance of additional equity securities as consideration for acquisitions could cause significant shareholder dilution and reduce our per share cash available for distribution if the acquisitions are not sufficiently accretive. If we are unable to obtain financing necessary for acquisitions, it will hamper our ability to execute our growth strategy and limit our ability to increase the amount of dividends paid to holders of our shares.

We may not be able to identify or consummate future acquisitions on favorable terms, or at all.

Our business strategy includes growth through the acquisition of additional revenue-generating assets. This strategy depends on our ability to successfully identify and evaluate acquisition opportunities and consummate acquisitions on favorable terms. However, the number of acquisition opportunities may be limited. We cannot be certain that AAGES, Algonquin or Abengoa will offer us assets under the ROFO agreements that fit within our portfolio of assets or contribute to our growth strategy. The Atacama project in Chile is currently owned by APW-1, an investment vehicle initially created by Abengoa as a joint venture with EIG and currently fully owned by EIG, an investment fund; although the Atacama project is subject to our ROFO agreement with APW-1, we cannot be certain that APW-1 will wish to sell the Atacama project at an attractive price or at all. See “Item 4.B—Business Overview—Our Business Strategy.”

Our ability to acquire future renewable energy projects or businesses depends on the viability of renewable energy projects generally. These projects currently are in many cases contingent on public policy mechanisms including, among others, ITCs, cash grants, loan guarantees, accelerated depreciation, expensing for certain capital expenditures, carbon trading plans, environmental tax credits and research and development incentives, as discussed in “Item 4.B—Regulation—Regulation in the United States—U.S. Federal Considerations for Renewable Energy Generation Facilities.” These mechanisms have been implemented at the U.S. federal and state levels and in certain other jurisdictions where our assets are located to support the development of renewable generation and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of our growth strategy and expansion into clean energy investments. See “—Government regulations providing incentives and subsidies for renewable energy could change at any time, including pursuant to the proposed environmental and tax policies of the current administration in the United States, and such changes may negatively impact our current business and our growth strategy.”

Our ability to consummate future acquisitions may also depend on our ability to obtain any required government or regulatory approvals for such acquisitions, including, but not limited to, the Federal Energy Regulatory Commission, or FERC, approval under Section 203 of the FPA in respect of acquisitions in the United States; or any other approvals in the countries in which we may purchase assets in the future. We may also be required to seek authorizations, waivers or notifications from debt and/or equity financing providers at the project or holding company level; local or regional agencies or bodies; and/or development agencies or institutions that may have a contractual right to authorize a proposed acquisition.

Furthermore, we will compete with other local and international companies for acquisition opportunities from third parties, which may increase our cost of making acquisitions or cause us to refrain from making acquisitions from third parties. Some of our competitors for acquisitions are much larger than us, with substantially greater resources. These companies may be able to pay more for acquisitions due to cost of capital advantages, potential synergies or other drivers, and may be able to identify, evaluate, bid for and purchase a greater number of assets than our financial or human resources permit. If we are unable to identify and consummate future acquisitions, it will impede our ability to execute our growth strategy and limit our ability to increase the amount of dividends paid to holders of our shares.

Our ability to consummate future acquisitions also depends on the availability of financing. See “—We may not be able to arrange the required or desired financing for acquisitions.”

Finally, demand for renewable energy may be affected by the cost of other energy sources, including nuclear, coal, natural gas and oil. For example, low natural gas prices have led, in some instances, to increased natural gas consumption in lieu of other energy sources. To the extent renewable energy becomes less cost-competitive, demand for renewable energy could decrease. Slow growth or a long-term reduction in the energy demand could cause a reduction in the development of renewable energy programs projects. Decreases in the prices of electricity could affect our ability to acquire assets, as renewable energy developers may not be able to compete with providers of other energy sources at such lower prices. Our inability to acquire assets could have a material adverse effect on our ability to execute our growth strategy.

In order to grow our business, we may acquire assets or businesses which have a higher risk profile or are less ESG-friendly than certain assets in our current portfolio.

In order to grow our business, we may acquire assets and businesses which may have a higher risk profile than certain of the assets we currently own. Competition to acquire contracted assets in operation has been high in recent years and is expected to continue being so. As a result, we have recently announced acquisitions with some exposure to development and construction risk. We may consider investing in assets which are not currently in operation and which are subject to development and construction risk. Construction of renewable assets, among others, is subject to risk of cost overruns and delays. There can be no assurances that assets under development and construction will perform as expected or that the returns will be as expected. In addition, we may consider acquiring business which are not contracted, including regulated businesses, which are subject to demand risk. We may also consider acquiring assets which are not contracted or not fully contracted, for which revenues will depend on the price of the electricity and which are subject to merchant risk. Furthermore, we may consider acquiring assets with revenues not denominated in US dollars or euros, which would increase our exposure to local currency and which could generate higher volatility in the cash flows we generate. In all these types of assets and businesses, the risk of not meeting the expected cash flow generation and expected returns is higher than in contracted assets. In addition, these type of assets and businesses could present a higher variability in the cash flows they generate. In addition, we may acquire assets which may be considered as less ESG-friendly than certain assets in our current portfolio by current and potential investors. For example, considering the competitive landscape for renewable assets in recent years, we may acquire additional natural gas assets. Although we have set a target to maintain at least 80% of our revenues generated by low carbon footprint assets, some investors with a focus on ESG may consider this target not sufficiently, which could cause us to become less attractive to investors.

As a result, the consummation of acquisitions may have a material adverse effect on our ability to grow, our business, financial condition, results of operations and cash flows.

We cannot guarantee the success of our recent and future acquisitions.

Acquisitions of companies and assets are subject to substantial risks, including the failure to identify material problems during due diligence (for which we may not be indemnified post-closing), the risk of over-paying for assets (or not making acquisitions on an accretive basis) and the ability to retain customers. Furthermore, the integration and consolidation of acquisitions requires substantial human, financial and other resources and, ultimately, our acquisitions may divert management’s attention from our existing business concerns, disrupt our ongoing business or not be successfully integrated at all. There can be no assurances that any future acquisitions will perform as expected or that the returns will be as expected. As a result, the consummation of acquisitions may have a material adverse effect on our ability to grow, our business, financial condition, results of operations and cash flows.

We may be unable to complete all, or any, such transactions that we may analyze. Even where we consummate acquisitions, we may be unable to achieve projected cash flows; recognize unexpected liabilities or costs; or encounter regulatory complications arising from such transactions. Furthermore, the terms and conditions of financing for such acquisitions or financial investments could restrict the manner in which we conduct our business. These risks could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be able to close some of the acquisitions that we have recently announced. In some of these acquisitions, we have signed a share purchase agreement, but closing of the acquisition is subject to closing conditions and authorizations. For example, in the acquisition of PTS, we have acquired a 5% interest in the project and intend to increase our interest once the asset is in operation and we have obtained authorizations from third parties. In the acquisition of ATN Expansion 2, transfer of the concession agreement is pending authorization from the Ministry of Energy in Peru. If this authorization were not to be obtained within an eight-month period from signing, the transaction would be reversed with no penalties to Atlantica.

In addition, some of the transactions we have announced are acquisitions of assets under construction. Although our construction risk is limited, taking into account the nature of the assets and protection clauses in the share purchase agreements, there could be delays in construction and cost overruns not covered by the protection clauses in the relevant share purchase agreement, which may restrict us to get to the expected CAFD in the assets we are acquiring.

We may also make acquisitions or investments in assets that are located in different jurisdictions and are different from, and may be riskier than, those jurisdictions in which we currently operate (Canada, the United States, Mexico, Colombia, Peru, Chile, Uruguay, Spain, South Africa and Algeria). See “—We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.” These changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to extensive governmental regulation in a number of different jurisdictions, and our inability to comply with existing regulations or requirements or changes in applicable regulations or requirements may have a negative impact on our business, financial condition, results of operations and cash flows.

We are subject to extensive regulation of our business in the countries in which we operate. Such laws and regulations require licenses, permits and other approvals to be obtained in connection with the operations of our activities. This regulatory framework imposes significant actual, day-to-day compliance burdens, costs and risks on us. In particular, the power plants and transmission lines that we own are subject to strict international, national, state and local regulations relating to their operation and expansion (including, among other things, leasing and use of land, and corresponding building permits, landscape conservation, noise regulation, environmental protection and environmental permits and electric transmission and distribution network congestion regulations). Non-compliance with such regulations could result in reputational damage, the revocation of permits, sanctions, fines, criminal penalties or decrease in our ESG ratings. Compliance with regulatory requirements may result in substantial costs to our operations that may not be recovered. In addition, we cannot predict the timing or form of any future regulatory or law enforcement initiatives. Changes in existing energy, environmental and administrative laws and regulations may have a material adverse effect on our business, financial condition, results of operations and cash flows, including on our growth plan and investment strategy. Our business may also be affected by additional taxes imposed on our activities, reduction of regulated tariffs and other cuts or measures.

Further, similar changes in laws and regulations could increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and even criminal penalties. In addition, changes in laws and regulations may, in certain cases, have retroactive effect and may cause the result of operations to be lower than expected. In particular, our activities in the energy sector are subject to regulations applicable to the economic regime of generation of electricity from renewable sources and to subsidies or public support in the benefit of our production of energy from renewable energy sources, which vary by jurisdiction, and are subject to modifications that may be more restrictive or unfavorable to us.

Our business is subject to stringent environmental regulation.

We are subject to significant environmental regulation, which, among other things, requires us to obtain and maintain regulatory licenses, permits and other approvals and comply with the requirements of such licenses, permits and other approvals and perform environmental impact studies on changes to projects. In addition, our assets need to comply with strict environmental regulation on air emissions, water usage and contaminating spills, among others. As a company with a focus on ESG and most of the business in renewable energy, environmental incidents can also significantly harm our reputation. There can be no assurance that:


public opposition will not result in delays, modifications to or cancellation of any project or license;
 

laws or regulations will not change or be interpreted in a manner that increases our costs of compliance and may have a material adverse effect on our business, financial condition, results of operations and cash flows, including preventing us from operating an asset if we are not in compliance; or
 

governmental authorities will approve our environmental impact studies where required to implement proposed changes to operational projects.
 
We believe that we are currently in material compliance with all applicable regulations, including those governing the environment. In the past, we have experienced some environmental accidents and we have been found not to be in compliance with certain environmental regulations and have incurred fines and penalties associated with such violations which, to date, have not been material in amount. We can give no assurance, however, that we will continue to be in compliance or avoid material fines, penalties, sanctions and expenses associated with compliance issues in the future. Violation of such regulations may give rise to significant liability, including fines, damages, fees and expenses, and site closures. Generally, relevant governmental authorities are empowered to clean up and remediate releases of environmental damage and to charge the costs of such remediation and clean-up to the owners or occupiers of the property, the persons responsible for the release and environmental damage, the producer of the contaminant and other parties, or to direct the responsible parties to take such action. These governmental authorities may also impose a tax or other liens on the responsible parties to secure the parties’ reimbursement obligations.

Environmental regulation has changed rapidly in recent years, and it is possible that we will be subject to even more stringent environmental standards in the future, including in relation to climate change. We cannot predict the amounts of any increased capital expenditures or any increases in operating costs or other expenses that we may incur to comply with applicable environmental, or other regulatory, requirements, or whether these costs can be passed on to its concession contract counterparties through price increases. The costs of compliance as well as non-compliance may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Increases in the cost of energy and gas could increase our operating costs in some of our assets.

Some of our activities require some consumption of energy and gas, and we are vulnerable to material fluctuations in their prices. For example, our Spanish solar assets produce a small percentage of their electricity using natural gas. Although our energy and gas purchase contracts generally include indexing mechanisms, we cannot guarantee that these mechanisms will cover all of the additional costs generated by an increase in energy and gas prices, particularly for long-term contracts, and some of the contracts entered into by us do not include any indexing provisions. Significant increases in the cost of energy or gas, or shortages of the supply of energy and/or gas, may have a materially adverse effect on our business, financial condition, results of operations and cash flows.

Transactions with counterparties expose us to credit risk which we must effectively manage to mitigate the effect of counterparty default.

We are exposed to the credit risk profile of the counterparties to our long-term concession contracts, our suppliers and our financing providers. Although we actively manage this credit risk through diversification and other measures, our risk management strategy may not be successful in limiting our exposure to credit risk. Our inability to manage this exposure may have a material adverse effect on our business, financial condition, results of operations and cash flow. See “Risk Factors - Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate.”

We may be subject to increased finance expenses if we do not effectively manage our exposure to interest rate and foreign currency exchange rate risks.

We are exposed to various types of market risk in the normal course of business, including the impact of interest rate changes and foreign currency exchange rate fluctuations. Some of our indebtedness (including project-level indebtedness) bears interest at variable rates, generally linked to market benchmarks such as EURIBOR and U.S. LIBOR. Any increase in interest rates would increase our finance expenses relating to our variable rate indebtedness and increase the costs of refinancing our existing indebtedness and issuing new debt.

In addition, although most of our long-term contracts are denominated in, indexed or hedged to U.S. dollars, we conduct our business and incur certain costs in the local currency of the countries in which we operate. In addition, the revenues, costs and debt of our solar assets in Spain are denominated in euros. Since the beginning of 2017, we have maintained euro-denominated debt at the corporate level. Interest payments in euros and our euro denominated general and administrative expenses create a natural hedge for a portion of the distributions from Spanish assets. Our strategy is to hedge the exchange rate for the distributions from our Spanish assets after deducting euro-denominated interest payments and euro-denominated general and administrative expenses. Through currency options, we hedge on a rolling basis 100% of the net euro net exposure for the next 12 months and 75% of the net euro net exposure for the following 12 months. See “Item 5.A—Operating and Financial Review—Results of Operations—Factors Affecting our Results of Operations.”

As we continue expanding our business, an increasing percentage of our revenue and cost of sales may be denominated in currencies other than our reporting currency, the U.S. dollar. Under that scenario, we would become subject to increasing currency exchange risk, whereby changes in exchange rates between the U.S. dollar and the other currencies in which we do business could result in foreign exchange losses.

In addition, we seek to actively work with lending financial institutions to mitigate our interest rate risk exposure and to secure lower interest rates by entering into interest rate options and swaps. As a matter of policy, we seek to cover at least 70% of our outstanding long-term project debt interest rate risk. We estimate that approximately 91% of our total interest risk exposure was fixed or hedged as of December 31, 2019.

If our risk-management strategies are not successful in limiting our exposure to changes in interest rates and foreign currency exchange rates our business, financial condition, results of operations and cash flows maybe materially adversely affected.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR in the future may adversely affect the value of any outstanding debt instruments.

National and international regulators and law enforcement agencies have conducted investigations into a number of rates or indices known as “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain reference rates are determined, their discontinuance, or the establishment of alternative reference rates. In particular, on July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current form cannot and will not be guaranteed after 2021. As a result, it appears highly likely that LIBOR will be discontinued or modified by 2021. On May 31, 2019, the Alternative Reference Rates Committee (“ARRC”) published their final recommendations for new guidelines for LIBOR securitizations, which has been well-received by the securities market. The ARRC proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. SOFR is a more generic measure than LIBOR and considers the cost of borrowing cash overnight, collateralized by U.S. Treasury securities. Whether or not SOFR will attain market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain. In preparation for the potential phase out of LIBOR starting in 2021, we may need to renegotiate our financial obligations and derivative instruments linked to LIBOR.

Given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR. At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or any other reference rate, or the establishment of alternative reference rates may have on LIBOR, other benchmarks, or LIBOR-based debt instruments. Uncertainty as to the nature of such potential discontinuance, modification, alternative reference rates or other reforms may materially adversely affect the trading market for securities linked to such benchmarks. Furthermore, the use of alternative reference rates, including SOFR, or other reforms could cause the interest rate calculated for the LIBOR-based debt instruments to be materially different than expected. As of December 31, 2019, total notional amount of debt referenced to LIBOR was approximately $847 million and total notional amount of derivatives hedging this debt, thus indexed to LIBOR as well was approximately $569 million.

Our competitive position could be adversely affected by changes in technology, prices, industry standards and other factors.

The markets in which our assets or projects operate change rapidly because of technological innovations and  rapid price fluctuations, industry standards, product instructions, customer requirements and the economic environment. New technology or changes in industry and customer requirements may put pressure on the profitability of our existing projects by increasing the incentives of counterparties to our long-term contracts to seek new alternative projects or request higher service standards.

The performance of our assets under our concession contracts may be adversely affected by problems related to our reliance on third-party contractors and suppliers.

Our projects rely on the supply of services, equipment, including technologically complex equipment and software which we subcontract to Abengoa and other third-party suppliers in order to meet our contractual obligations under our contracted concessions. We rely on the equipment, design and technology of third parties to operate our assets. In circumstances where key components of our equipment, including but not limited to turbines, water pumps, heat exchangers, transformers or electrical generators fail because of design failures or faulty operation or for any other reason, we rely on third parties to continue operating our assets. Equipment may not last as long as expected and we may need to replace it earlier than planned. Damages to our equipment may not be covered by insurance in place. In some cases, the replacement of damaged equipment can take a long period of time, which can cause our plants to curtail or cease operations during such time, which could have a negative impact on our business, financial condition, results of operations and cash flows. We had significant interruptions in 2017 at Kaxu as a result of water pump failures and at Solana in 2017 as a result of transformer failures. In addition, Solana and Kaxu have experienced technical issues in the heat exchangers within their storage system. Repairs have been carried out in both assets. In Solana, in 2019 we completed the implementation of  improvements in our heat exchangers as proposed by the equipment supplier and Abengoa in order to improve reliability, replaced one of the six heat exchangers and acquired an additional one as back-up. In addition, in the last quarter of 2017 and the first quarter of 2018, we had temporary unavailability at some of our plants due to technical inspections of the turbines that were requested by the supplier of the turbines. Furthermore, in Mojave certain improvements in one of our turbines carried out by General Electric in late 2018 resulted in technical difficulties in 2019, which has caused the plant to produce at reduced capacity in the second half of 2019. Similar interruptions could happen again at our plants due to failures in key equipment. Design failures, technical inspections by suppliers or the need to replace key equipment can require unexpected capital expenditures and/or outages in our plants, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, the delivery of products or services which are not in compliance with the requirements of the subcontract, or the late supply of products and services, can cause us to be in default under our contracts with our concession counterparties. To the extent we are not able to transfer all of the risk or be fully indemnified by third-party contractors and suppliers, we may be subject to a claim by our customers as a result of a problem caused by a third party that could have a material adverse effect on our reputation, business, results of operations, financial condition and cash flows.

Supplier concentration may expose us to significant financial credit or performance risk.

We often rely on a single contracted supplier or a small number of suppliers for the provision of equipment, technology, fuel, transportation of fuel, and/or other services required for the operation of certain of our facilities. If any of these suppliers, including Abengoa and its subsidiaries, cannot perform under their operation and maintenance and other agreements with us, or satisfy their related warranty obligations, we will need to access the marketplace to provide or repair these products and services. There can be no assurance that the marketplace can provide these products and services as, when and where required. We may not be able to enter into replacement agreements on favorable terms or at all. If we are unable to enter into replacement agreements to provide for equipment, technology or fuel and other required services, we may be required to seek to purchase the related goods or services at market prices, exposing us to the risk of unavailability and market price volatility. We may also be required to make significant capital contributions to remove, replace or redesign equipment that cannot be supported or maintained by replacement suppliers, which may have a material adverse effect on our credit support terms, business, financial condition, results of operations, and cash flows.

The failure of any supplier or customer to fulfill its contractual obligations to us may have a material adverse effect on our business, financial condition, results of operations and cash flows. Consequently, the financial performance of our facilities is dependent on the credit quality of, and continued performance by, our suppliers and vendors.

We may have joint venture partners or other co-investors with whom we have material disagreements.

We have made and may continue to make equity investments in certain strategic assets managed by or together with third parties, including governmental entities and private entities. In certain cases, we may only have partial or joint control over a particular asset. We hold a minority stake in Honaine (Algeria), PTS and Monterrey (Mexico), Amherst (Canada) and Ten West Link (United States) and do not have control over the operation of these assets. In addition, we have partners in Seville PV, Solacor 1/2, Solaben 2/3, Skikda, Kaxu and Solana. Investments in assets over which we have no, partial or joint control are subject to the risk that the other shareholders of the assets, who may have different business or investment strategies than us or with whom we may have a disagreement or dispute, may have the ability to independently make or block business, financial or management decisions, such as appoint members of management, which may be crucial to the success of the project or our investment in the project, or otherwise implement initiatives which may be contrary to our interests. Additionally, the approval of other shareholders or partners may be required to sell, pledge, transfer, assign or otherwise convey our interest in such assets. Similarly, the approval of other shareholders or partners may be required to acquire AAGES’, Algonquin’s, Abengoa’s or third parties’ interests in potential acquisitions. Alternatively, other shareholders may have rights of first refusal or rights of first offer in the event of a proposed sale or transfer of our interests in such assets or in the event of our acquisition of an interest in new assets pursuant to the ROFO agreements or with third parties. These restrictions may limit the price or interest level for our interests in such assets, in the event we want to sell such interests.

Finally, our partners in existing or future projects, including tax equity investors, may be unable, or unwilling, to fulfill their obligations under the relevant shareholder agreements, may experience financial or other difficulties or might sell their position to third parties that we did not choose, which may adversely affect our investment in a particular joint venture or adversely affect us. In certain of our joint ventures, we may also be reliant on the particular expertise of our partners and, as a result, any failure to perform its obligations in a diligent manner could also adversely affect the joint venture. If any of the foregoing were to occur, our business, financial condition, results of operations and cash flows may be materially adversely affected.

Our failure to maintain safe work environments may expose us to significant financial losses, as well as civil and criminal liabilities.

The facilities we operate often put our employees and others, including those of our subcontractors, in close proximity with large pieces of mechanized equipment, moving vehicles, manufacturing or industrial processes, heat or liquids stored under pressure and highly regulated materials. On most projects and at most facilities, we, together with the operations and maintenance supplier, are responsible for safety and, accordingly, must implement safe practices and safety procedures, which are also applicable to on-site subcontractors. If we or the operations and maintenance supplier fail to design and implement such practices and procedures or if the practices and procedures are ineffective or if our operations and maintenance service providers or other suppliers do not follow them, our employees and others may become injured and our and others’ property may become damaged. Unsafe work sites also have the potential to increase employee turnover, increase the cost of a project to our customers or the operation of a facility, and raise our operating costs. Any of the foregoing could result in reputational damage and/or financial losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, our projects and the operation of our facilities can involve the handling of hazardous and other highly regulated materials, which, if improperly handled or disposed of, could subject us or our suppliers to civil and criminal liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain divisions whose primary purpose is to ensure we implement effective health, safety and environmental work procedures throughout our organization, the failure to comply with such regulations could subject us to reputational damage and/or liability. In addition, we may incur liability based on allegations of illness or disease resulting from exposure of employees or other persons to hazardous materials that we handle or are present in our workplaces.

The operation and maintenance of most of our assets is labor intensive, and therefore work stoppages by employees could harm our business.

The operation and maintenance of most of our assets is labor intensive and our operators’ employees and some of our employees in assets where we perform the operation and maintenance services are covered by collective bargaining agreements. A dispute with a union or employees represented by a union could result in production interruptions caused by work stoppages. In addition, we subcontract the operation and maintenance services in some of our assets. Abengoa is the operation and maintenance supplier in most of the assets for which we subcontract operation and maintenance services and Abengoa’s financial situation could cause a higher risk of dispute with their employees. If our operators’ employees were to initiate a work stoppage, they may not be able to reach an agreement with them as fast as in the case where we were negotiation with our own employees. Further, outbreaks of pandemic diseases, such as COVID-19, or the fear of such events, could provoke responses, including government-imposed travel restrictions, which may limit our employees' access to our facilities. If a strike or work stoppage or disruption were to occur, our business, financial conditions, results of operations and cash flows may be materially adversely affected.

We may be subject to litigation and other legal proceedings.

We are subject to the risk of legal claims and proceedings (including bankruptcy), requests for arbitration as well as regulatory enforcement actions in the ordinary course of our business and otherwise, including claims against our subsidiaries related to Abengoa or our subsidiaries not meeting their obligations. See “Item 4.B—Business Overview—Legal Proceedings.” The results of legal and regulatory proceedings cannot be predicted with certainty. We cannot guarantee that the results of current or future legal or regulatory proceedings or actions will not materially harm our operations, business, financial condition or results of operations, nor can we guarantee that we will not incur losses in connection with current or future legal or regulatory proceedings or actions that exceed any provisions we may have set aside in respect of such proceedings or actions or that exceed any available insurance coverage, which may have a material adverse effect on our business, financial condition, results of operations and cash flows. See “Item 4.B—Business Overview—Legal Proceedings.”

We are subject to reputational risk, and our reputation is closely related to that of Algonquin and Abengoa.

We rely on our reputation to do business, obtain financing, hire and retain employees and attract investors, one or more of which could be adversely affected if our reputation were damaged. Harm to our reputation could arise from real or perceived faulty or obsolete technology, failure to comply with legal and regulatory requirements, difficulties in meeting contractual obligations or standards of quality and service, ethical issues, money laundering and insolvency, among others.

Algonquin is currently our largest shareholder. Our reputation is affected by Algonquin’s reputation. If the public image or reputation of Algonquin were to be damaged as a result of adverse publicity, poor financial or operating performance, changes in financial condition, decline in the price of its shares or otherwise, we could be adversely affected, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, our reputation remains affected by Abengoa’s reputation, given Abengoa was until 2018 our largest shareholder and is currently our largest supplier. The public image and reputation of Abengoa has suffered as a result of its financial condition and its restructuring process. We have been adversely affected due to our relationship with Abengoa. Any further developments with respect to Abengoa’s financial condition or operating performance or any failure by Abengoa to satisfactorily resolve the proceedings could further harm our reputation, which could have an adverse effect on our business, financial condition, results of operations and cash flows. See “—Risks Related to Our Relationship with Algonquin and Abengoa.”

The loss of one or more of our executive officers or key employees may adversely affect our ability to effectively manage our projects.

We depend on our experienced management team and the loss of one or more key executives may negatively affect our business. We also depend on our ability to retain and motivate key employees and attract qualified new employees. We may not be able to replace departing members of our management team or key employees. Integrating new executives into our management team and training new employees with no prior experience in our industry could prove disruptive to our projects, require a disproportionate amount of resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient technical and managerial personnel could limit our ability to effectively manage our projects, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We use information technology and communications systems to run our business, the failure of which could significantly impact our operations and business.

We are dependent upon information technology systems to run our operations. Our information technology systems are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, phishing attacks, natural disasters and design defects. Recently, energy facilities worldwide have been experiencing an increased number of cyber-attacks. Cybersecurity incidents, in particular, are constantly evolving and include malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and to the corruption of data. Various measures have been implemented to minimize our risks related to information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, we could potentially be subject to production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on our competitive position, financial condition, results of operations or cash flows.

We maintain global information technology and communication networks and applications to support our business activities. Information technology security processes may not prevent future malicious actions, denial-of-service attacks, or fraud, resulting in corruption of operating systems, theft of commercially sensitive data, misappropriation of funds and businesses (also known as phishing) and operational disruption. Material system breaches and failures could result in significant interruptions that could in turn affect our operating results and reputation.

Negative impacts on biodiversity, including harming of protected species or other environmental hazards can result in curtailment of power plant operations, monetary fines and negative publicity.

Managing and operating large infrastructure assets may have a negative impact on biodiversity in the regions where we operate. In particular, the operation of wind and solar power plants can adversely affect endangered, threatened or otherwise protected animal species. Wind power plants involve a risk that protected species will be harmed, as the turbine blades travel at a high rate of speed and may strike flying animals (such as birds or bats) that happen to travel into the path of spinning blades. Solar power plants can also present a risk to animals.

Excessive killing of protected species or other environmental accidents or hazards could result in requirements to implement mitigation strategies, including curtailment of operations, and/or substantial monetary fines and negative publicity. We cannot guarantee that any curtailment of operations, monetary fines that are levied or negative publicity as a result of incidental killing of protected species and other environmental hazards will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our international operations require us to comply with anti-corruption and other laws and regulations of the United States government and various non-U.S. jurisdictions.

Doing business in multiple countries requires us and our subsidiaries to comply with the laws and regulations of the United States government and various non-U.S. jurisdictions. Our failure to comply with these rules and regulations may expose us to liabilities. These laws and regulations may apply to us, our subsidiaries, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities.

In particular, our non-U.S. operations are subject to United States and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), and similar laws and regulations. The FCPA prohibits United States companies and their officers, directors, employees and agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately and fairly reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. As a result, business dealings between our employees and any such foreign official could expose us to the risk of violating anti-corruption laws even if such business practices may be customary or are not otherwise prohibited between the us and a private third party. Violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts as well as other remedial measures.

We have established policies and procedures designed to assist us and our personnel in complying with applicable United States and non-U.S. laws and regulations; however, we cannot assure you that these policies and procedures will completely eliminate the risk of a violation of these legal requirements, and any such violation (inadvertent or otherwise) could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The seasonality of our operations may affect our liquidity.

We will need to maintain sufficient financial liquidity at the asset level to absorb the impact of seasonal variations in energy production or other significant events. In our assets, the principal source of liquidity is cash generated from our operating activities and the principal use of liquidity consists of project debt service. Our quarterly results of operations may fluctuate significantly for various reasons, mostly related to weather patterns.

For instance, the amount of electricity and revenues generated by our solar generation facilities is dependent in part on the amount of solar radiation. The electricity produced and revenues generated by a wind power plant depend heavily on wind conditions, which are variable and difficult to predict. Operating results for wind power plants vary significantly from period to period depending on the wind conditions during the periods in question. We expect our portfolio of renewable energy facilities to generate the lowest amount of electricity during the first and fourth quarters.

The seasonality of our energy production may create increased demand on our working capital reserves during periods where cash generated from operating activities is lower, which could result in lower distributions from assets to the holding company level, in which event our financial condition may be materially adversely affected.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete strategic acquisitions or effect combinations.

If we were deemed to be an investment company under the Investment Company Act of 1940 (the “Investment Company Act”) our business would be subject to applicable restrictions under the Investment Company Act, which could make it impractical for us to continue our business as contemplated. We believe our company is not an investment company under Section 3(b)(1) of the Investment Company Act because we are primarily engaged in a noninvestment company business, and we intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the Investment Company Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated.

Risks Related to Our Assets

The concession agreements or power purchase agreements under which we conduct some of our operations are subject to revocation or termination.

Certain of our operations are conducted pursuant to contracts and concessions granted by various governmental bodies and others are pursuant to power purchase agreements signed with governmental entities and private clients. Generally, these contracts and concessions give us rights to provide services for a limited period of time, subject to various governmental regulations. The governmental bodies or private clients responsible for regulating and monitoring these services often have broad powers to monitor our compliance with the applicable concession and power purchase contracts and can require us to supply them with technical, administrative and financial information. Among other obligations, we may be required to comply with operating targets and efficiency and safety standards established in the concession. Such commitments and standards may be amended in certain cases by the governmental bodies. Our failure to comply with the concession agreements and power purchase agreements or other regulatory requirements may result in contracts and concessions being revoked, not being granted, upheld or renewed in our favor, or, if granted, upheld or renewed, may not be done on as favorable terms as currently applicable. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In some of the markets in which we are present, or in which we may own assets in the future, political instability, economic crisis or social unrest may give rise to a change in policies regarding long-term contracted assets with private companies, like us, in strategic sectors such as power generation, electric transmission or water. Any such changes could lead to modifications of the economic terms of our concession contracts or, in extreme scenarios, the nationalization of our assets, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Revenues in our solar assets in Spain are mainly defined by regulation and some of the parameters defining the remuneration are subject to review every six years. Revenues in Chile TL3 are also mainly defined by regulation.

In 2013, the Spanish government modified regulations applicable to renewable energy assets, including solar power. According to Royal Decree 413/2014, solar electricity producers in Spain received: (i) the pool price for the power they produce and (ii) a payment based on the standard investment cost for each type of plant (without any relation whatsoever to the amount of power they generate). This payment based on investment (in €/MW of installed capacity) is supplemented, in the case of solar plants, by an “operating payment” (in €/MWh produced).

The principle driving this economic regime is that the payments received by a renewable energy producer should be equivalent to the costs that they are unable to recover on the electricity pool market where they compete with non-renewable technologies. This economic regime seeks to allow a “well-run and efficient enterprise” to recover the costs of building and running a plant, plus a reasonable return on investment (project investment rate of return). The rate applicable during the first regulatory period was 7.398%. Until December 31, 2019, this reasonable return was calculated as the average yield on Spanish government 10-year bonds on the secondary market in a 24-month period preceding the new regulatory period, plus a spread depending on the government’s decision based on (i) appropriate profit for this specific type of renewable electricity generation and electricity generation as a whole, considering the financial condition of the Spanish electricity system and Spanish prevailing economic conditions; and (ii) borrowing costs for electricity generation companies using renewable energy sources with regulated payment systems, which are efficient and well run, within Europe.

Payment criteria are based on prevailing economic conditions in Spain, demand for electricity and reasonable profits for electricity generation activities and can be revised every six years at the end of each regulatory period. The first regulatory period commenced on July 14, 2013, the date on which Royal Decree-law 9/2013 came into force and ended on December 31, 2019. The values of parameters used to calculate the payments can be changed at the end of each regulatory period, except for a plant’s useful life and the value of a plant’s initial investment.

On July 27, 2018, CNMC (the regulator for the electricity system in Spain) issued a draft proposal for the calculation of the reasonable rate of return for the regulatory period 2020-2025. On November 2, 2018, CNMC issued its final report with a proposed reasonable rate of return of 7.09%. In December 2018 the government issued a draft project law proposing a reasonable rate of return of 7.09%, with the possibility of maintaining the 7.398% reasonable rate of return under certain circumstances. On November 24, 2019, the Spanish government approved Royal Decree-law 17/2019 setting out a 7.09% rate of reasonable return applicable from January 1, 2020 until December 31, 2025 as a general rule and the possibility, under certain circumstances including not having any ongoing legal proceeding against the Kingdom of Spain ongoing, of maintaining the 7.398% reasonable rate of return for two consecutive regulatory periods. The reasonable return is no longer calculated by reference to the Spanish government 10-year bonds but by reference to the weighted average cost of capital (WACC). The WACC is the calculation method that most of the European regulators apply in most of the cases to determine the return rates applicable to regulated activities within the energy sector. As a result, some of the assets in our Spanish portfolio are receiving a remuneration based on a 7.09% reasonable rate of return until December 31, 2025 while others are receiving a remuneration based on a 7.398% reasonable rate of return until December 31, 2031. We estimate the impact of this change to be approximately € 3 million per year reduction in our cash available for distribution.

If the payments for renewable energy plants are revised to lower amounts in the next regulatory period starting on January 1, 2026 until December 31, 2031 or starting on January 1, 2032, depending on each asset, this could have a material adverse effect on our business, financial condition, results of operations and cash flows. As a reference, assuming our Spanish assets continue to perform as expected and assuming no additional changes of circumstances, with the information currently available, Atlantica estimates that a reduction of 100 basis points in the reasonable rate of return on investment set by the Spanish government could cause a reduction in its cash available for distribution of approximately €18 million per year. This estimate is subject to certain assumptions, which may change in the future.

Revenue from our contracted assets and concessions is significantly dependent on regulated tariffs or other long-term fixed rate arrangements that restrict our ability to increase revenue from these operations.

The revenue that we generate from our contracted assets and concessions is significantly dependent on regulated tariffs or other long-term fixed rate arrangements. Under most of our concession agreements, a tariff structure is established upon execution of such agreements, and we have limited or no possibility to independently raise tariffs beyond the established rates and indexation or adjustment mechanisms. Similarly, under a long-term PPA, we are required to deliver power at a fixed rate for the contract period or to maintain our asset available for a fixed rate, in some cases with predefined escalation rights. In addition, we may be unable to adjust our tariffs or rates as a result of fluctuations in prices of raw materials, exchange rates, labor and subcontractor costs during the operating phase of these projects, or any other variations in the conditions of specific jurisdictions in which our concession-type infrastructure projects are located, which may reduce our profitability. Moreover, in some cases, if we fail to comply with certain pre-established conditions, the government or customer (as applicable) may reduce the tariffs or rates payable to us. In addition, during the life of a concession, the relevant government authority may in some cases unilaterally impose additional restrictions on our tariff rates, subject to the regulatory frameworks applicable in each jurisdiction. In some cases, governments may also postpone annual tariff increases until a new tariff structure is approved without compensating us for lost revenue. Furthermore, changes in laws and regulations may, in certain cases, have retroactive effect and expose us to additional compliance costs or interfere with our existing financial and business planning.

Revenue from our renewable energy and efficient natural gas facilities is partially exposed to market electricity prices.

Revenue and operating costs from certain of our existing or future projects depend to some extent on market prices for sale of electricity. Market prices may be volatile and are affected by various factors, including the cost of raw materials, user demand, and if applicable, the price of greenhouse gas emission rights. In several of the jurisdictions in which we operate, we are exposed to remuneration schemes which contain both regulated incentive and market price components. In such jurisdictions, the regulated incentive component may not compensate for fluctuations in the market price component, and, consequently, total remuneration may be volatile. There can be no assurance that market prices will remain at levels which enable us to maintain profit margins and desired rates of return on investment. A decline in market prices below anticipated levels could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our renewable energy projects will be negatively affected if there are adverse changes to national and international laws and policies that support renewable energy sources.

Certain countries, such as the United States, a market that is one of our principal markets, have in recent years enacted policies of active support for renewable energy. These policies have included feed-in tariffs and renewable energy purchase obligations, mandatory quotas and/or portfolio standards imposed on utilities and certain tax incentives (such as ITCs in the United States).

Certain policies currently in place may expire, be suspended or be phased out over time, cease upon exhaustion of the allocated funding or be subject to cancellation or non-renewal, particularly if the cost of renewable energy exceeds the cost of generation of energy from other means. Accordingly, we cannot guarantee that such government support will be maintained in full, in part or at all.

If the governments and regulatory authorities in the jurisdictions in which we operate or plan to operate were to further decrease or abandon their support for development of renewable energy due to, for example, competing funding priorities, political considerations or a desire to favor other energy sources, renewable or otherwise, the assets we plan to acquire in the future could become less profitable or cease to be economically viable. Such an outcome could have a material adverse effect on our ability to execute our growth strategy.

Lack of electric transmission capacity availability, potential upgrade costs to the electric transmission grid, and other systems constraints could significantly impact our ability to generate electricity power sales.

We depend on electric interconnection and transmission facilities owned and operated by others to deliver the wholesale power we sell from our electric generation assets to our customers. A failure or delay in the operation or development of these interconnection or transmission facilities or a significant increase in the cost of the development of such facilities could result in the loss of revenues. Such failures or delays could limit the amount of power our operating facilities deliver or delay the completion of our construction projects, as the case may be. Additionally, such failures, delays or increased costs may have a material adverse effect on our business, financial condition, results of operations and cash flows. If a region’s electric transmission infrastructure is inadequate, our ability to generate electricity may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have a sufficient incentive to invest in expansion of transmission infrastructure. We cannot predict whether interconnection and transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. Certain of our operating facilities’ generation of electricity may be curtailed without compensation due to transmission limitations or limitations on the electricity grid’s ability to accommodate intermittent electricity generating sources, reducing our revenues and impairing our ability to fully capitalize on a particular facility’s generating potential. Such curtailments may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We do not own all of the land on which our renewable energy, efficient natural gas or electric transmission assets are located, which could result in disruption to our operations.

We do not own all of the land on which our power generation or electric transmission assets are located, and we are, therefore, subject to the possibility of less desirable terms and increased costs to retain necessary land use if we do not have valid leases or rights-of-way or if such rights-of-way lapse or terminate or if the owners of the land enter into bankruptcy protection or seek to terminate contracts in some other way. Although we have obtained rights to construct and operate these assets pursuant to related lease arrangements, our rights to conduct those activities are subject to certain exceptions, including the term of the lease arrangement. Our loss of these rights, through our inability to renew right-of-way contracts or otherwise, may adversely affect our ability to operate our power generation and electric transmission assets and may therefore have a material adverse effect on our business, financial condition, results of operation and cash flow.

Certain of our facilities may not perform as expected.

Our expectations regarding the operating performance of certain assets in our portfolio, particularly Solana and Kaxu, assets recently acquired and assets for which acquisition has recently been announced, are based on assumptions, estimates and past experience, and without the benefit of a substantial operating history. Our projections regarding our ability to generate cash available for distribution assumes facilities perform in accordance to our expectations. However, the ability of these facilities to meet our performance expectations is subject to the risks inherent in power generation facilities and the construction of such facilities, including, but not limited to, degradation of equipment in excess of our expectations, system failures and outages. The failure of these facilities to perform as we expect may have a material adverse effect on our business, financial condition, results of operations and cash flows.

In the case of Solana, we have a partnership with Liberty Interactive Corporation, or Liberty, pursuant to which Liberty agreed to invest $300 million in the parent company of the project entity, in exchange for the right to receive a large part of taxable losses and distributions until such time when Liberty reaches a certain rate of return, or the flip date. Given the underperformance of the asset in the last years, we cannot assure the Flip Date will occur or when it will occur. We expect potential cash distributions from Solana to go mostly or entirely to Liberty in the upcoming years. If the Flip Date never occurs or if there is a delay longer than currently anticipated, this will adversely affect the cash flows expected from that project. We signed an option to acquire, until April 30, 2020, Liberty’s equity interest in Solana for approximately $300 million.

Our business may be adversely affected by an increased number of extreme weather events related to climate change.

Climate change is causing an increasing number of severe and extreme weather events which are a risk to our facilities, including days of extremely high temperatures, severe winds and rains, hurricanes, droughts, fires, cyclones, hail and floods, among others. Other risks include:


Rising temperatures are also increasing the frequency and intensity of droughts and risk of fire. For example, in California, the size and ferocity of fires has increased significantly in the past 20 years, which have also been very hot and dry years. California wildfires have been especially catastrophic, causing human fatalities and significant material losses. Our transmission lines, including transmission lines and substations which are part of our solar assets, could cause fires, which can create significant liabilities if the fire damaged third parties.
 

Severe floods could damage our plants, especially our transmission lines or our generation assets. If an unexpected flood runs close to an existing transmission tower it could cause the fall of one or more transmission towers. Similarly, floods can damage the solar field in our solar plants.
 

Severe winds could cause damage in the solar fields in our solar assets. In 2016, the solar field of Solana was damaged by a wind micro-burst and similar events could happen in the future in our assets.
 

Severe droughts could result in water restrictions or in a deterioration of water properties. Droughts may affect the cooling capacity of our power projects. A deterioration of the quality of the water would have an impact on chemical costs in our water treatment plants within our generation capabilities.
 

Changes in temperature extremes could also affect to feed water process temperature in desalination plants, causing an increase of the chemical products consumption and generating a risk of growth of algae and mollusks within the facilities.
 

Storms with intense lightning activity could damage our plants, especially our wind assets. Our wind farms in Uruguay have already experienced some damages in the past and our assets could be affected again.
 
Furthermore, components of our system, such as structures, mirrors, absorber tubes, blades, PV panels or transformers are susceptible to being damaged by severe weather, including for example hail. In addition, replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable and may have long lead times.

If any of these events were to occur at any of our plants, facilities or electric transmission lines, we may not be able to carry out our business activities at that location or such operations could be significantly reduced. Any of these circumstances could result in lost revenue at these sites during the period of disruption and costly remediation, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business may be adversely affected by rising mean temperatures caused by climate change.

In addition, to the physical risks previously mentioned, rising temperatures could cause an increase in our operation and maintenance costs. Rising temperatures are associated to the reduction of the cycle efficiency of our turbines. A temperature rise would also be associated to a reduction of efficiency in solar photovoltaic modules. Modules efficiency is reduced above a certain temperature threshold. When the temperature of the solar panel increases, its output current slightly increases while the voltage output is reduced linearly therefore panel power decreases. A mean temperature rise would also have an impact in our wind facilities. Wind energy component is dependent on the air density among other factors. Our desalination plants could also be affected by a temperature increase that would imply higher consumption of chemicals used for operational purposes. This could cause a material adverse effect in our business, financial condition, results of operations and cash flows.

Our business may be adversely affected by catastrophes, natural disasters, unexpected geological or other physical conditions, or criminal or terrorist acts at one or more of our plants, facilities and electric transmission lines.

If one or more of our plants, facilities or electric transmission lines were to be subject in the future to fire, flood, extreme weather conditions (including severe wind), earthquakes or other natural disaster, adverse weather conditions, drought, terrorism, power loss or other catastrophe, or if unexpected geological or other adverse physical conditions (including earthquakes) were to occur at any of our plants, facilities or electric transmission lines, we may not be able to carry out our business activities at that location or such operations could be significantly reduced. Any of these circumstances could result in lost revenue at these sites during the period of disruption and costly remediation, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, it is possible that our sites and assets could be affected by criminal or terrorist acts. There are also certain risks for which we may not be able to acquire adequate insurance coverage, including earthquakes. Any such events could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our insurance may be insufficient to cover relevant risks or the cost of our insurance may increase.

We cannot guarantee that our insurance coverage is, or will be, sufficient to cover all of the possible losses we may face in the future. Our property damage and business interruption policies have exclusions with respect to some equipment which, if damaged, could result in financial losses and business interruptions. Some of our project finance arrangements include conditions regarding coverage that we could need to modify. If we were to incur a serious uninsured loss or a loss that significantly exceeded the coverage limits established in our insurance policies or we were not able to modify coverage conditions, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, our insurance policies are subject to review by our counterparties. We may not be able to renew our insurance policies in the terms required by our power purchase agreements and project financing agreements, which could require a waiver from those parties. If insurance premiums were to increase in the future, if certain types of insurance coverage were to become unavailable or there was an increase in deductibles for damages and/or loss of production, it could have a material adverse effect on our ability to comply with our obligations to off-takers and lenders in our project finance agreements. In addition, we might not be able to maintain insurance coverage comparable to those that are currently in effect at comparable cost, or at all. If we were unable to pass any increase in insurance premiums on to our customers, such additional costs could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The generation of electric energy from renewable energy sources depends heavily on suitable meteorological conditions, and if solar or wind conditions are unfavorable, our electricity generation, and therefore revenue from our renewable energy generation facilities using our systems, may be substantially below our expectations.

The electricity produced, and revenues generated by a renewable energy generation facility are highly dependent on suitable solar or wind conditions, as applicable, and associated weather conditions, which are beyond our control.

Unfavorable weather and atmospheric conditions could impair the effectiveness of our assets or reduce their output beneath their rated capacity or require shutdown of key equipment, hampering operation of our renewable assets and our ability to achieve forecasted revenues and cash flows. As climate change increases the frequency and severity of severe weather conditions and may have the long-term effect of changing meteorological conditions at our project sites, such situations may increase in frequency and/or severity.

We base our investment decisions with respect to each renewable generation facility on the findings of related wind and solar studies conducted on-site by third parties prior to construction or based on historical conditions at existing facilities. However, actual climatic conditions at a facility site, particularly wind conditions, which are sometimes severe, may not conform to the findings of these studies and therefore, our solar and wind energy facilities may not meet anticipated production levels or the rated capacity of its generation assets, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Disruption of the fuel supplies necessary to generate power at our efficient natural gas generation facilities may increase costs or result in disruptions in production.

Delivery of fossil fuels to fuel our efficient natural gas and some solar power generation facilities is dependent upon the infrastructure, including natural gas pipelines, available to serve each such generation facility, as well as upon the continuing financial viability of contractual counterparties. As a result, we are subject to the risks of disruptions or curtailments in the production of power at these generation facilities if a counterparty fails to perform or if there is a disruption in the relevant fuel delivery infrastructure. Increased costs and disruptions in production may have a material adverse effect in our business, financial condition, results of operations and cash flows.

Maintenance, expansion and refurbishment of electric generation and other facilities involve significant risks that could result in unplanned power outages or reduced output or availability.

The facilities in our portfolio may require periodic upgrading and improvement in the future. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, could reduce the performance and availability of our facilities below expected levels, reducing our revenues. Degradation of the performance of our solar facilities above levels provided for in the related off-take agreements may also reduce its revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability.

If we make any major modifications to our efficient natural gas or renewable power generation facilities or electric transmission lines, we may be required to comply with more stringent environmental regulations, which would likely result in substantial additional capital expenditures. We may also choose to repower, refurbish or upgrade our facilities based on our assessment that such activity will provide adequate financial returns. Such facilities require time for development and capital expenditures before commencement of commercial operations, and key assumptions underpinning a decision to make such an investment may prove incorrect, including assumptions regarding construction costs, timing, available financing and future fuel and power prices. This may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Relationship with Algonquin and Abengoa

Algonquin is our largest shareholder and exercises substantial influence over us.

Currently, Algonquin beneficially owns 44.2% of our ordinary shares and is entitled to vote approximately 41.5% of our ordinary shares. As a result of this ownership, Algonquin has substantial influence on our affairs and their ownership interest and voting power constitute a significant percentage of the shares eligible to vote on any matter requiring the approval of our shareholders. Such matters include the election of directors, the adoption of amendments to our articles of association and approval of mergers or sale of all or a high percentage of our assets. This concentration of ownership may also have the effect of discouraging others from making tender offers for our shares. There can be no assurance that the interests of Algonquin will coincide with the interests of the purchasers of our shares or that Algonquin will act in a manner that is in our best interests. If Algonquin sells its shares to a single shareholder, that new shareholder could continue to exercise substantial influence and could seek to influence or change our strategy or corporate governance or could take effective control of us. In addition, we did not have a prior relationship with Algonquin and we have limited knowledge and visibility of their operations and plans.

Our ownership structure and certain service agreements may create significant conflicts of interest that may be resolved in a manner that is not in our best interests.

Our ownership structure involves a number of relationships that may give rise to certain conflicts of interest between us, Algonquin, and the rest of our shareholders. Currently, two of our directors are affiliated with Algonquin.

Currently, AAGES and Algonquin are related parties and may have interests that differ from our interests, including with respect to the types of acquisitions made, the timing and amount of dividends paid by us, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers. Any transaction between us and AAGES or Algonquin (including the acquisition of any ROFO assets or any co-investment with AAGES or Algonquin or any investment on an Algonquin asset) is subject to our related party transaction policy, which requires prior approval of such transaction by a majority of the non-conflicted directors, typically our independent directors. The existence of our related party transaction approval policy may not insulate us from derivative claims related to related party transactions and the conflicts of interest described in this risk factor. Regardless of the merits of such claims, we may be required to spend significant management time and financial resources in the defense thereof. Additionally, to the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us, all of which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

If Abengoa defaults on certain of its debt obligations, we could potentially be in default of certain of our project financing agreements.

The project financing arrangement of Kaxu contains cross-default provisions related to Abengoa such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger a default under the Kaxu project financing arrangement. In March 2017, Atlantica obtained a waiver in its Kaxu project financing arrangement which waives any potential cross-defaults with Abengoa up to that date, but it does not cover potential future cross-default events.

Abengoa has been undergoing a debt restructuring process and may default on its debt again in the future. If Abengoa defaults on its debt, there is no guarantee that we will be able to obtain additional cross-default waivers under the Kaxu project financing. Without a waiver, we would be in default of our obligations under the Kaxu project financing. A cross-default scenario, if not cured or waived, may entitle lenders to demand repayment or enforce on their security interests, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Abengoa’s financial condition could affect its ability to satisfy its obligations with us under different agreements, including (i) operation and maintenance agreements and, (ii) the Tenes share purchase agreement, as well as indemnities and other contracts in place.

We have current and future collection rights with certain subsidiaries of Abengoa. Moreover, Abengoa has a number of obligations and indemnities which have resulted or could result in additional liability obligations to us or to our assets. Inability of Abengoa to pay their obligations when due would have a negative impact on our current or future cash position.

A deterioration in the financial position of Abengoa and of certain of its subsidiaries may result in a material adverse effect on certain of our operation and maintenance agreements. Abengoa and its subsidiaries provide operation and maintenance services for many of our assets. We cannot guarantee that Abengoa and/or its subcontractors will be able to continue performing with the same level of service and under the same terms and conditions, and at the same prices. For instance, although we have separated our IT systems from Abengoa’s, we still rely on some of Abengoa’s operational IT systems and communications systems in some of our assets. If Abengoa faces a deterioration in its financial position, it may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Because we have long-term operation and maintenance agreements with Abengoa for many of our assets, if Abengoa cannot continue performing current services at the same prices, we may need to renegotiate contracts and pay higher prices or change the scope of the contracts. This could also cause us to change suppliers or to pay higher prices or change the level of services. This may have a material adverse effect on our business, financial condition, results of operations and cash flows. A deterioration in the financial position of Abengoa may also result in a material adverse effect on Abengoa’s and its subsidiaries’ obligations, warranties and guarantees, indemnities or any other agreement. In addition, Abengoa represented that further to the accession to the restructuring agreement, we would not be a guarantor of any obligation of Abengoa with respect to third parties and agreed to indemnify us for any penalty claimed by third parties resulting from any breach in such representations.

In January 2019, we entered into an agreement with Abengoa under the Abengoa ROFO Agreement for the acquisition of Befesa Agua Tenés, S.L.U., a holding company which owns a 51% stake of Tenes, a water desalination plant in Algeria. The price agreed for the equity value was $24.5 million, of which $19.9 million were paid in January 2019 as an advanced payment. Closing of the acquisition was subject to conditions precedent, including approval by the Algerian administration. Such conditions precedent were not fulfilled as of September 30, 2019. Therefore, in accordance with the terms of the share purchase agreement the advanced payment was converted into a secured loan to be reimbursed by Befesa Agua Tenes, together with 12% per annum interest, through a full cash-sweep of all the dividends generated to be received from the asset. These dividends would be guaranteed by a right of usufruct over the economic rights and certain political rights and a pledge over the shares of Befesa Agua Tenes, granted by Abengoa to the Company. The share purchase agreement requires that the repayment occurs no later than September 30, 2031. In October 2019 the Company received a first payment of $7.8 million through the cash sweep mechanism. If Abengoa was not able to reimburse the advanced payment, this may have an adverse effect on our results of operations and cash flows.

Furthermore, pursuant to different agreeements, Abengoa has certain amounts payable to us and has provided guarantees and indemnities covering for example potential tax liabilities for assets acquired from Abengoa. If as a result of its financial situation Abengoa did not comply with these obligations, this could have a material adverse effect on our business, financial situation, results of operations and cash flows.

There may be unanticipated consequences of further restructurings by Abengoa or ongoing bankruptcy proceedings by Abengoa’s subsidiaries that we have not yet identified. There are uncertainties as to how any further bankruptcy proceedings would be resolved and how our relationship with Abengoa would be affected following the initiation or resolution of any such proceedings.

We may not be able to consummate future acquisitions from AAGES, Algonquin or Abengoa.

Our ability to grow through acquisitions depends, in part, on AAGES’, Algonquin’s and Abengoa’s ability to present us with acquisition opportunities. AAGES, Algonquin or Abengoa may have financial and resource constraints limiting or eliminating their ability to continue building the contracted assets which are currently under construction and may have financial and resource constraints limiting or eliminating their ability to develop and build new contracted assets. Abengoa has undergone a restructuring process in recent years. In addition, AAGES, Algonquin or Abengoa may sell assets under development and, in the case of Abengoa, under construction, before they reach their commercial operation date. In addition, some of the assets subject to the ROFO Agreements may not be attractive enough to us for different reasons. For example, in the case of A3T, a cogeneration asset in Mexico, Abengoa signed PPAs with payments to be made in local currency, which may make our acquisition of this asset less likely. In addition, the Atacama project in Chile is currently owned by APW-1, an investment vehicle initially created by Abengoa as a joint venture with EIG and currently fully owned by EIG, an investment fund; although the Atacama project is subject to our ROFO agreement with APW-1, we cannot be certain that APW-1 will wish to sell the Atacama project at an attractive price or at all. Furthermore, there may be circumstances out of our control which limit our ability to acquire the rest of the assets in the Abengoa portfolio which are subject to the Abengoa ROFO Agreement.

AAGES and Algonquin may not offer us assets at all or may not offer us assets that fit within our portfolio or contribute to our growth strategy. Only certain assets outside the United States and Canada are included in the Algonquin ROFO Agreement. Furthermore, Algonquin can terminate its ROFO agreement with us with a 180-day notice.

Additionally, we may not reach an agreement on the price of assets offered by AAGES, Algonquin or Abengoa. For these reasons, we may not be able to consummate future acquisitions from AAGES, Algonquin or Abengoa which may restrict our ability to grow. Furthermore, we may not be able to renew the Abengoa ROFO Agreement. The Abengoa ROFO Agreement had an initial term of five years and has been extended until July 2022. We will be able to unilaterally extend the term of the Abengoa ROFO Agreement as many times as desired for an additional three-year period, provided that we have executed at least one acquisition in the previous two years after having been offered at least four projects.

All the above could limit our ability to grow, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Abengoa may be forced to initiate a bankruptcy filing under the Spanish Insolvency Act and, as a result, it may be subject to insolvency claw-back actions in which transactions may be set aside.

Under the Spanish Insolvency Act, the transactions a company has entered into during the two years prior to the opening of insolvency proceedings can be set aside, irrespective of whether there was intent to defraud, if those transactions are considered materially damaging to the insolvency estate. Material damage is assessed on the basis of the circumstances at the time the transaction was carried out, without the benefit of hindsight and without considering subsequent events or occurrences, including events in relation to insolvency proceedings or the request to set-aside the transaction. Though we could be considered a “connected person” for purposes of Spanish bankruptcy proceedings (which triggers a presumption of damage), transactions we have entered into with Abengoa in the previous two years before it may be declared insolvent (if such action were to take place) would not automatically be set aside. The court would consider if the transactions were detrimental to Abengoa on the terms on which they were made and the suitability of the transactions at the time they were entered into, if the transaction followed market standards and prices, had real economic value and if a transaction was carried out on the same conditions as it would have been by independent parties.

In practice, transactions that are subject to claw-back with respect to companies in the same group relate to: (a) unjustified payments or advances from the insolvent company to another group company, (b) transfers of assets or rights by the insolvent company to another group company at below market value, (c) payment-in-kind arrangements in which the property another group company receives in payment is higher in value than the debt owed to it, and (d) security provided by the insolvent company for another group company’s obligations. This determination will be a question of fact before a Spanish court if Abengoa initiates a bankruptcy filing in Spain, however if any of the transactions entered into between us and Abengoa, including those related to drop-downs assets, were declared invalid by a Spanish court, unless it is determined we acted in bad faith, such transaction would be unwound and we would receive back the cash paid, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.

The outcome of any bankruptcy proceedings that may be initiated by Abengoa would be difficult to predict given that Abengoa is incorporated in Spain and has assets and operations in several countries around the world. In the event of any bankruptcy or similar proceeding involving Abengoa or any of its subsidiaries, bankruptcy laws other than those of Spain could apply. The rights of Abengoa’s creditors may be subject to the laws of a number of jurisdictions and such multi-jurisdictional proceedings are typically complex and often result in substantial uncertainty. In addition, the bankruptcy and other laws of such jurisdictions may be materially different from, or in conflict with, one another. If Abengoa is subject to U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of its assets, wherever located, including property situated in other countries.

A bankruptcy filing by Abengoa may permanently affect Abengoa’s operations. We cannot predict how any bankruptcy proceeding would be resolved or how our relationship with Abengoa will be affected following the initiation of any such proceedings or after the resolution of any such proceedings. Any bankruptcy proceedings initiated by Abengoa may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Indebtedness

Our indebtedness could expose us to the risk of increased interest rates and limit our ability to react to changes in the economy or our industry. It could also adversely affect our ability to raise additional capital to fund our operations or pay dividends.

As of December 31, 2019, we had (i) $4,852.3 million of total indebtedness under various project-level debt arrangements and (ii) $723.8 million of total indebtedness under our corporate arrangements, which include the Note Issuance Facility 2019, the three tranches of the €275 million Note Issuance Facility 2017 maturing in 2022, 2023, and 2024, and drawdowns under the Revolving Credit Facility. In addition, we may incur in the future additional project-level debt and corporate debt.

Our substantial debt could have important negative consequences on our business financial condition, results of operation and cash flows including:


increasing our vulnerability to general economic and industry conditions;


requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to pay dividends to holders of our shares or to use our cash flow to fund our operations, capital expenditures and future business opportunities;


limiting our ability to enter into long-term power sales, fuel purchases and swaps which require credit support;
 

limiting our ability to fund operations or future acquisitions;
 

restricting our ability to make certain distributions with respect to our shares and the ability of our subsidiaries to make certain distributions to us, in light of restricted payment and other financial covenants in our credit facilities and other financing agreements;
 

exposing us to the risk of increased interest rates because a portion of some of our borrowings (below 10% as of December 31, 2019 after giving effect to hedging agreements) are at variable rates of interest;
 

limiting our ability to obtain additional financing for working capital, including collateral postings, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and
 

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt.
 
The operating and financial restrictions and covenants in the Revolving Credit Facility, the Note Issuance Facility 2017 and the Note Issuance Facility 2019 may adversely affect our ability to finance our future operations or capital needs, to engage in other business activities that may be in our interest and to execute our business strategy as we intend to do so. Each contains covenants that limit certain of our, the guarantors’ and other subsidiaries’ activities. In February 2020 we have priced our secured 2020 Green Private Placement that we expect to close in April 2020. We expect to use the proceeds of the 2020 Green Private Placement to refinance and cancel in full the Note Issuance Facility 2017. The note purchase agreement to be entered into under the 2020 Green Private Placement will also contain financial restrictions and covenants which, if closed, may also limit certain of our the guarantors’ and other subsidiaries’ activities. If we breach any of these covenants, a default may result, which, if not cured or waived, could result in the acceleration of our debt. See “Item 5.B—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financing Arrangements—Revolving Credit Facility.”

Our inability to satisfy certain financial covenants may prevent cash distributions by the particular project(s) to us and, our failure to comply with those and other covenants could result in an event of default which, if not cured or waived, may entitle the related noteholders or lenders, as applicable to demand repayment or to enforce their security interests, which may have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, failure to comply with such covenants, including covenants under the Revolving Credit Facility, the Note Issuance Facility 2017, the Note Issuance Facility 2019 and, if closed, the 2020 Green Private Placement may entitle the related noteholders or lenders, as applicable, to demand repayment and accelerate all such indebtedness. If our project-level subsidiaries are unable to make distributions, it would likely have a material adverse effect on our ability to pay dividends to holders of our shares.

Letter of credit facilities or bank guarantees to support project-level contractual obligations generally need to be renewed, at which time we will need to satisfy applicable financial ratios and covenants. If we are unable to renew the letters of credit as expected or replace them with letters of credit under different facilities on favorable terms or at all, we may experience a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, such inability may constitute a default under certain project-level financing arrangements, restrict the ability of the project-level subsidiary to make distributions to us and/or reduce the amount of cash available at such subsidiary to make distributions to us.

We may not be able to refinance our existing indebtedness.

Our ability to arrange financing, either at corporate level or at a project-level, and the costs of such capital, are dependent on numerous factors, including:


general economic and capital market conditions;
 

credit availability from banks and other financial institutions;
 

investor confidence in us and our partner Algonquin, our largest shareholder;
 

our financial performance and the financial performance of our subsidiaries;
 

our level of indebtedness and compliance with covenants in debt agreements;
 

maintenance of acceptable project and corporate credit ratings or credit quality;
 

cash flow; and
 

provisions of tax and securities laws that may impact raising capital.
 
We may not be successful in obtaining additional capital for these or other reasons. Furthermore, we may be unable to refinance or replace project-level financing arrangements or other credit facilities on favorable terms or at all upon the expiration or termination thereof. Our failure, or the failure of any of our projects, to obtain additional capital or enter into new or replacement financing arrangements when due may constitute a default under such existing indebtedness in case we are not able to repay such indebtedness and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Potential future defaults by our subsidiaries, our off-takers, our suppliers, Abengoa or other persons could adversely affect us.

The financing agreements of our project subsidiaries are primarily loan agreements and related documents which, except as noted below, require the loans to be repaid solely from the revenue of the project being financed thereby, and provide that the repayment of the loans (and interest thereon) is secured solely by the shares, physical assets, contracts and cash flow of that project company. This type of financing is usually referred to herein as “project debt.” As of December 31, 2019, we had $4,852.3 million of outstanding indebtedness under various project-level debt arrangements.

While the lenders under our project debt do not have direct recourse to us or our subsidiaries (other than the letter of credit and bank guarantee facilities) ), defaults by the project borrowers under such financings can still have important consequences for us and our subsidiaries, including, without limitation:


reducing our receipt of dividends, fees, interest payments, loans and other sources of cash, since the project company will typically be prohibited from distributing cash to us and our subsidiaries until the event of default is cured or waived;
 

default under our other debt instruments;
 

causing us to record a loss in the event the lender forecloses on the assets of the project company; and
 

the loss or impairment of investors’ and project finance lenders’ confidence in us.
 
If we fail to satisfy any of our debt service obligations or breach any related financial or operating covenants, the applicable lender could declare the full amount of the relevant project debt to be immediately due and payable and could foreclose on any assets pledged as collateral.

In addition, the financing arrangement of Kaxu contained cross-default provisions related to Abengoa, such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger defaults under such project financing arrangement. In March 2017, the Company signed a waiver which gives clearance to cross-defaults that might have arisen from Abengoa insolvency and restructuring up to that date, but does not extend to potential future cross-default events.

Under the Revolving Credit Facility, the  2020 Green Private Placement (which is expected to be funded on or about April 1, 2020 and replace our Note Issuance Facility 2017) and the Note Issuance Facility 2019, a payment default with respect to indebtedness having an aggregate principal amount of $100 million (or the greater of $40.0 million and 1.5% of consolidated total assets with respect to the Note Issuance Facility 2019) or more by one or more of our non-recourse subsidiaries representing more than 25% of the cash available for distribution distributed in the previous four fiscal quarters could trigger a default under such Revolving Credit Facility and/or the Note Issuance Facility 2019, as the case may be. In addition, our Note Issuance Facility 2017 (which is expected to be replaced by the 2020 Green Private Placement) includes a cross-default provision related to a payment default by one or more of our non-recourse subsidiaries representing more than 20% of the cash available for distribution distributed in the previous four fiscal quarters could trigger a default, provided that these subsidiaries have an indebtedness higher than $100 million in the case of non-recourse subsidiaries or more than $75 million in the case of subsidiaries other than non-recourse subsidiaries.

Any of these events may have a material adverse effect on our business, financial condition, results of operations and cash flows.

A change of control or a delisting of our shares may have negative implications for us.

If any investor acquires more than 50.0% of our shares or if our ordinary shares cease to be listed in NASDAQ or a similar stock exchange, we may be required to refinance all or part of our corporate debt or obtain waivers from the related noteholders or lenders, as applicable, due to the fact that all of our corporate financing agreements contain customary change of control provisions and delisting restrictions . If we fail to obtain such waivers and the related noteholders or lenders, as applicable, elect to accelerate the relevant corporate debt, we may not be able to repay or refinance such debt (on favorable terms or at all), which may have a material adverse effect on our business, financial condition results of operations and cash flows. Additionally, in the event of a change of control we could see an increase in the yearly state property tax payment in Mojave, which would be reassessed by the tax authority at the time the change of control potentially occurred. Our best estimate with current information available and subject to further analysis is that we could have an incremental annual payment of property tax of approximately $12 million to $14 million, which could potentially decrease progressively over time as the asset depreciates. Additionally, an ownership change under section 382 could be triggered and could have a significant negative impact on our tax positions in the U.S.

Risks Related to Ownership of Our Shares

We may not be able to pay a specific or increasing level of cash dividends to holders of our shares in the future.

The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:


the level of our operating and general and administrative expenses;
 

seasonal variations in revenues generated by the business;
 

operational performance of our assets;
 

potential capital expenditure requirements in our assets in the case there were technical problems not covered by the EPC contractor guarantee or by insurance;
 

our debt service requirements and other liabilities;
 

fluctuations in our working capital needs;
 

fluctuations in foreign exchange rates;
 

our ability to borrow funds;
 

restrictions contained in our debt agreements (including our project-level financing);
 

changes in our revenues due to delays in collections from our off-takers, legal disputes regarding contact terms or adjustments contemplated in existing regulation or changes in regulation or taxes in the countries in which we operate;
 

potential restrictions on payment of dividends arising from the bankruptcy of PG&E;
 

potential restrictions on payment of dividends arising from cross-default provisions with Abengoa in our Kaxu project financing agreements; and
 

other business risks affecting our cash levels.
 
As a result of all these factors, we cannot guarantee that we will have sufficient cash generated from operations to pay a specific or increasing level of cash dividends to holders of our shares. Furthermore, holders of our shares should be aware that the amount of cash available for distribution depends primarily on our cash flow, and is not solely a function of profitability, which is affected by non-cash items. We may incur other expenses or liabilities during a period that could significantly reduce or eliminate our cash available for distribution and, in turn, impair our ability to pay dividends to shareholders during the period. Because we are a holding company, our ability to pay dividends on our shares is limited by restrictions or limitations on the ability of our subsidiaries to pay dividends or make other distributions, such as pursuant to shareholder loans, capital reductions or other means, to us, including restrictions under the terms of the agreements governing project-level financing, the Revolving Credit Facility, the Note Issuance Facility 2017, the Note Issuance Facility 2019, the 2020 Green Private Placement (if and when closed) or legal, regulatory or other restrictions or limitations applicable in the various jurisdictions in which we operate, such as exchange controls or similar matters or corporate law limitations, any of which could change from time to time and thereby limit our subsidiaries’ ability to pay dividends or make other distributions to us. Our project-level financing agreements generally prohibit distributions to us unless certain specific conditions are met, including the satisfaction of financial ratios.

In 2016, our board of directors decided not to pay a dividend with respect to the first quarter, and declared a reduced dividend in the following quarters, based on the fact that certain of our assets contained cross default provisions and change of ownership provisions with Abengoa.  In 2017 and 2018, with the receipt of most waivers, we progressively increased our dividends. However, we cannot assure you that our board of directors will not take similar measures in upcoming periods.

Our cash available for distribution will likely fluctuate from quarter to quarter, in some cases significantly, due to seasonality. See “Item 4.B—Business Overview—Seasonality.” As result, we may reduce the amount of cash we distribute in a particular quarter to establish reserves to fund distributions to shareholders in future periods for which the cash distributions we would otherwise receive from our subsidiary project companies would otherwise be insufficient to pay our quarterly dividend. If we fail to establish sufficient reserves, we may not be able to maintain our quarterly dividend with a respect to a quarter adversely affected by seasonality.

Dividends to holders of our shares will be paid at the discretion of our board of directors. Our board of directors may decrease the level of or entirely discontinue payment of dividends. Our board of directors may change our dividend policy at any point in time or modify the dividend for specific quarters following prevailing conditions. For a description of additional restrictions and factors that may affect our ability to pay cash dividends, please see “Item 8.A—Consolidated Statements and Other Financial Information—Dividend Policy.”

We are a holding company and our only material assets are our interests in our subsidiaries, upon whom we are dependent for distributions to pay dividends, taxes and other expenses.
 
We are a holding company whose sole material assets consist of our interests in our subsidiaries. We do not have any independent means of generating revenue. We intend to cause our operating subsidiaries to make distributions to us in an amount sufficient to cover our corporate debt service, corporate general and administrative expenses, all applicable taxes payable and dividends, if any, declared by us. To the extent that we need funds for a quarterly cash dividend to holders of our shares or otherwise, and one or more of our operating subsidiaries is restricted from making such distributions under the terms of its financing or other agreements or applicable law and regulations or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition and limit our ability to pay dividends to shareholders.

We have a limited operating history and as a result there is no assurance we can operate on a profitable basis.

We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of operation. We cannot assure you that we will be successful in addressing the risks we may encounter, and our failure to do so could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Market interest rates may have an effect on the value of our shares.

One of the factors that will influence the price of our shares will be the effective dividend yield of our shares (i.e., the yield as a percentage of the then-market price of our shares) relative to market interest rates. A continued increase in market interest rates, which are still at low levels compared to historical rates, may lead prospective purchasers of our shares to expect a higher dividend yield. Lower stock price of our shares might make our dividend per share growth more difficult, since acquisitions financed with equity could be less accretive or not accretive. Our inability to increase our dividend as a result of an increase in borrowing costs, insufficient cash available for distribution or otherwise could result in selling pressure on, and a decrease in, the market price of our shares as investors seek alternative investments with higher yield.

Market volatility may affect the price of our shares and the value of your investment.

The market for securities issued by issuers such as us is influenced by economic and market conditions and, to varying degrees, market conditions, interest rates, currency exchange rates and inflation rates in other countries. There can be no assurance that events in the United States, Latin America, Europe, Africa or elsewhere will not cause market volatility or that such volatility will not adversely affect the price of the shares or that economic and market conditions will not have any other adverse effect. Fluctuations in interest rates may give rise to arbitrage opportunities based upon changes in the relative value of the shares. Any trading by arbitrageurs hedge funds could, in turn, affect the trading price of the shares. In the past there has been correlation between the price of our shares, the price of oil and the price of shares of master limited partnerships, or MLPs, and a decline in the price of oil or MLP shares could cause a decline in the price of our shares. The price of our shares can also be affected by our peers’ share price. Securities markets in general may experience extreme volatility that is unrelated to the operating performance of particular companies. Any broad market fluctuations may adversely affect the trading of our shares.

In addition, the market price of our shares may fluctuate in the event of negative developments at Algonquin, termination of the AAGES, Algonquin or Abengoa ROFO Agreements, failure by us to close co-investments or drop-downs from Algonquin, if Algonquin communicated lower interest in co-investments with us or a change in their strategy regarding our partnership, additions or departures of our key personnel, changes in market valuations of similar companies, Algonquin or Abengoa and/or speculation in the press or investment community regarding us, Algonquin or Abengoa.

There can be no assurance that our exploration of strategic alternatives will result in any transaction being consummated, and speculation and uncertainty regarding the outcome of our exploration of strategic alternatives may adversely impact our business.
 
Our board of directors has formed a Special Committee with the purpose of evaluating a wide range of strategic alternatives available to us to optimize our value and to improve returns to shareholders. There can be no assurance that this process will result in the pursuit or consummation of any strategic transaction or that there will be a formal cessation of the process.
 
In addition, this process involves the dedication of significant resources and the incurrence of significant costs and expenses. Certain strategic alternatives for us may require shareholder approval. In addition, speculation and uncertainty regarding our exploration of strategic alternatives may cause or result in the disruption of our business; diversion of significant resources of our management and staff difficulty in recruiting, hiring, motivating and retaining talented and skilled personnel; difficulty in maintaining or negotiating and consummating new, business or strategic relationships or transactions; disruption of our relationships with customers, business partners and service providers; inability to respond effectively to competitive pressures, industry developments and future opportunities; and increased share price volatility.
 
If we are unable to mitigate these or other potential risks related to the uncertainty caused by our exploration of strategic alternatives, it may disrupt our business or adversely impact our financial condition, results of operations and cash flows.
 
Furthermore, even if this process results in the pursuit of any proposed strategic transaction, there is no assurance that such strategic transaction will be consummated. We may be unable to obtain any regulatory or third-party approvals or consents (including any applicable approvals or consents related to our projects) that may be required to complete such strategic transaction, and we may be unable to satisfy other closing conditions for such strategic transaction, in the anticipated timeframe or at all. Any condition, to the extent imposed, for obtaining any necessary approvals or consents could delay the completion of such strategic transaction for a significant period of time or prevent it from occurring at all.  Our failure to complete such strategic transaction could materially adversely affect our business and prospects.
 
 You may experience dilution of your ownership interest due to the future issuance of additional shares.
 
In order to finance our business and in order to finance the growth of our business through future acquisitions, we may require additional funds from additional equity or debt financings, including tax equity financing transactions or sales of preferred shares or other classes of shares or convertible debt or convertible equity issued by a subsidiary. We may need to issue equity to complete future acquisitions, expansions and capital expenditures. We may also need to issue equity for other reasons, including paying the general and administrative costs of our business or our corporate debt. In the future, we may issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of purchasers of our shares . The potential issuance of additional shares or preferred stock or convertible debt may create downward pressure on the trading price of our shares. We may also issue additional shares or other securities that are convertible into or exercisable for our shares in future public offerings or private placements for capital-raising purposes or for other business purposes, potentially at an offering price, conversion price or exercise price that is below the offering price for our shares in any of our previous offering.

If securities or industry analysts do not publish or cease to publish research or reports about us, our business or our market, or if they change their recommendations regarding our shares adversely, the price and trading volume of our shares could decline.

The trading market for our shares will be influenced by the research and reports that industry or securities analysts may publish about us, Algonquin, our business, our market or our competitors. If any of the analysts who may cover us change their recommendations regarding our shares adversely, or provide more favorable relative recommendations about our competitors, the price of our shares would likely decline. The fact that the size of the yieldco sector may be reducing may cause a decrease in interest from industry analysts in us. In addition, increased regulation, especially in Europe is also causing a decrease in coverage in small and mid-capitalization companies. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price or trading volume of our shares to decline.

Future sales of our shares by Algonquin or its lenders or by other substantial shareholders may cause the price of our shares to fall.

The market price of our shares could decline as a result of future sales by Algonquin of its shares in the market, or the perception that these sales could occur. Algonquin is the beneficial owner of approximately 44.2% of our ordinary shares. On November 28, 2018, AAGES obtained a secured credit facility in the amount of $306,500,000.  The AAGES secured credit facility is collateralized through a pledge of the Atlantica shares held by AY Holdings. A collateral shortfall would occur if the net obligation as defined in the agreement would equal or exceed 50% of the market value of the Atlantica shares in which case the AAGES Credit Facility lenders would have the right to sell Atlantica shares to eliminate the collateral shortfall.

If AAGES defaulted on any of these financing arrangements, its lenders may foreclose on the shares and sell the shares in the market. Future sales of substantial amounts of the shares and/or equity-related securities in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of the shares and could impair our ability to raise capital through future offerings of equity or equity-related securities. The price of the shares could be depressed by investors’ anticipation of the potential sale in the market of substantial additional amounts of shares. Disposals of shares could increase the number of shares being offered for sale in the market and depress the trading price of our shares.

As a “foreign private issuer” in the United States, we are exempt from certain rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. companies.

As a “foreign private issuer,” we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

If we were to lose our “foreign private issuer” status, we would no longer be exempt from certain provisions of the U.S. securities laws we would be required to commence reporting on forms required of U.S. companies, and we could incur increased compliance and other costs, among other consequences.

Judgments of U.S. courts may not be enforceable against us.

Judgments of U.S. courts, including those predicated on the civil liability provisions of the federal securities laws of the United States, may not be enforceable in courts in the United Kingdom or other countries in which we operate. As a result, our shareholders who obtain a judgment against us in the United States may not be able to require us to pay the amount of the judgment.

There are limitations on enforceability of civil liabilities under U.S. federal securities laws.

We are incorporated under the laws of England and Wales. Most of our officers and directors reside outside of the United States. In addition, a portion of our assets and the majority of the assets of our directors and officers are located outside the United States. As a result, it may be difficult or impossible to serve legal process on persons located outside the United States and to force them to appear in a U.S. court. It may also be difficult or impossible to enforce a judgment of a U.S. court against persons outside the United States, or to enforce a judgment of a foreign court against such persons in the United States. We believe that there may be doubt as to the enforceability against persons in England and Wales and in Spain, whether in original actions or in actions for the enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the laws of the United States, including its federal securities laws. Because we are a foreign private issuer, our directors and officers will not be subject to rules under the Exchange Act that under certain circumstances would require directors and officers to forfeit to us any “short-swing” profits realized from purchases and sales, as determined under the Exchange Act and the rules thereunder, of our equity securities. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in England and Wales and in Spain.

Shareholders in certain jurisdictions may not be able to exercise their pre-emptive rights if we increase our share capital.

Under our articles of association, holders of our shares generally have the right to subscribe and pay for a sufficient number of our shares to maintain their relative ownership percentages prior to the issuance of any new shares in exchange for cash consideration. Holders of shares in certain jurisdictions may not be able to exercise their pre-emptive rights unless securities laws have been complied with in such jurisdictions with respect to such rights and the related shares, or an exemption from the requirements of the securities laws of these jurisdictions is available. To the extent that such shareholders are not able to exercise their pre-emptive rights, the pre-emptive rights would lapse, and the proportional interests of such holders would be reduced.

In addition, under the Shareholders Agreement, AAGES or Algonquin or both of them may subscribe to capital increases in cash for (i) up to 100.0% of our ordinary shares if the purpose of the issuance is to fund our acquisition of assets under the AAGES or Algonquin ROFO Agreement; and (ii) up to 66.0% of our ordinary shares if the purpose of the issuance is to fund our acquisition of assets under the Abengoa ROFO Agreement. If we issue ordinary shares for any other purpose, AAGES or Algonquin may subscribe in cash for our ordinary shares in a pro rata amount of such AAGES’ or Algonquin’s aggregate holding of voting rights in us. The Shareholders Agreement may be terminated or modified in the future.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation organized in Delaware.

We are incorporated under English law. The rights of holders of our shares are governed by English law, including the provisions of the UK Companies Act 2006, and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware. The principal differences are set forth in “Item 10.B—Memorandum and Articles of Association.”

Provisions in the UK City Code on Takeovers and Mergers may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders.

The UK City Code on Takeovers and Mergers, or the Takeover Code, applies, among other things, to an offer for a public company whose registered office is in the United Kingdom and whose securities are not admitted to trading on a regulated market in the United Kingdom if the company is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control in the United Kingdom. This is known as the “residency test.” The test for central management and control under the Takeover Code is different from that used by the UK tax authorities. Under the Takeover Code, the Takeover Panel will determine whether we have our place of central management and control in the United Kingdom by looking at various factors, including the structure of our board of directors, the functions of the directors and where they are resident.

If at the time of a takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, we would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (2) we may not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders.

Risks Related to Taxation

Changes in our tax position can significantly affect our reported earnings and cash flows.

We have assets in different jurisdictions, which are subject to different tax regimes. Changes in tax regimes such as the reduction or elimination of tax benefits, or the reduction of tax rates overall in markets where we operate could adversely affect the market for investments in our projects by third parties. A reduction in corporate tax rates could make investments in renewable projects less attractive to potential tax equity investors, in which case we may not be able to obtain third-party financing on terms as beneficial as in the past, or at all, which could limit our ability to grow our business.  Limitations on the deductibility of interest expense could reduce our ability to deduct the interest we pay on our debt.  These and other potential changes in tax regulations could have a material adverse effect on our results and cash flows.
 
Changes in corporate tax rates and/or other relevant tax laws in the United Kingdom, the United States, Spain, Mexico or the other countries in which our assets are located may have a material impact on our future tax rate and/or our required tax payments. Such changes may include measures enacted in response to the ongoing initiatives in relation to fiscal legislation at an international level, such as the Action Plan on Base Erosion and Profit Shifting of the Organization for Economic Co-operation and Development. The final determination of our tax liability could be different from the forecasted amount, which may have a material adverse effect on our business, financial condition, results of operations and cash flows. Changes to the U.K. controlled foreign company rules or adverse interpretations of them, could have an impact on our future tax rate and/or our required tax payments. With respect to some of our projects, we must meet defined requirements to apply favorable tax treatment, such as lower tax rates or exemptions. We intend to meet these requirements in order to benefit from the favorable tax treatment; however, there can be no assurance that we will be able to comply with all of the necessary requirements in the future, or the requirements could change or be interpreted in another manner, which could give rise to a greater tax liability and which may have a material adverse effect on our business, results of operations, financial condition and cash flows.

According to public information, the government of Spain has proposed a modification to the tax legislation to limit certain deductions and introduces a minimum tax rule in the corporate income tax. The proposed modification would also contemplate a reduction in the tax exemption on dividends received from affiliates from 100% to 95% . This modification is subject to approval by Parliament and could be changed in the future. In addition, the details of the new regulation are still largely unknown. Based on available public information we do not expect a significant impact in cash flows from our Spanish solar assets in the upcoming years, but the outcome is still uncertain.

In addition, the Chilean Congress recently approved the tax reform bill proposed by the local government to increase taxes that would fund the new social agenda, announced after recent social protests.

In 2019, the Mexican Congress approved the tax bill proposed by the new government, which introduces new provisions in the income tax law and value added tax laws, among others. The tax reform introduced an additional limitation to the deduction of interest for tax purposes up to 30% of the adjusted EBITDA. However, this limitation might not be applicable to debt granted to finance public infrastructure works, construction and land located in Mexico, exploration, extraction, and other projects of the extractive industry, transport, storage or distribution of oil and hydrocarbons, or for the generation, transmission or storage of electricity or water.

Our future tax liability may be greater than expected if we do not use sufficient NOLs to offset our taxable income.

We have NOLs that we can use to offset future taxable income. Based on our current portfolio of assets, which include renewable assets that benefit from an accelerated tax depreciation schedule, and subject to potential tax audits, which may result in income, sales, use or other tax obligations, we do not expect to pay significant taxes in the upcoming years.

Although we expect these NOLs will be available as a future benefit, in the event that they are not generated as expected, or are successfully challenged by the local tax authorities, such as the IRS or Her Majesty’s Revenue and Customs among others, by way of a tax audit or otherwise, or are subject to future limitations as discussed below, our ability to realize these benefits may be limited. A reduction in our expected NOLs, a limitation on our ability to use such NOLs or the occurrence of future tax audits may result in a material increase in our estimated future income tax liability and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to use U.S. NOLs to offset future income may be limited.

We have generated significant U.S. NOLs. We generally are able to carry U.S. NOLs forward to reduce our tax liability in future years. Federal U.S. NOLs generated on or before December 31, 2017 can generally be carried back two years and carried forward for up to twenty years and can be applied to offset 100% of taxable income in such years. Under the TCJA, however, federal U.S. NOLs incurred in 2018 and in future years may be carried forward indefinitely but may not be carried back and the deductibility of such federal U.S. NOLs is limited to 80% of taxable income in such years.

In addition, our ability to use U.S. NOLs generated is subject to the rules of Sections 382 of the IRC. This section generally restricts the use of U.S. NOLs if we were to experience an “ownership change” as defined under Section 382 of the IRC, and similar state rules. In general, an “ownership change” would occur if our “5-percent shareholders,” as defined under Section 382 of the IRC, collectively increased their ownership in us to more than 50 percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual limitation on the use of its pre-ownership change U.S. NOLs equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurs, and increased by a certain portion of any “built-in-gains.”

The Abengoa restructuring carried out in 2017 caused a change of ownership under Section 382 of the IRC, which limited in part our ability to use net operating loss carryforwards. The 41.5% Share Sale by Abengoa of its stake in us may have caused another change of ownership, which may limit further our ability to use net operating loss carryforwards in the United States. Future sales by our largest shareholder, future equity issuances and in general the activity of our direct or indirect shareholders may limit further our ability to use net operating loss carryforwards in the United States, which could have a potential adverse effect on cash flows from U.S. assets expected in the future. In addition, changes in our shareholder base during 2019 may have triggered an ownership change under Section 382 of the IRC. In addition, the Internal Revenue Service recently issued proposed regulations for the calculation of built-in gains and losses under Section 382.  If enacted, these new regulations, may significantly limit our annual use of pre-ownership change U.S. NOLs in the event a new ownership change occurs after the new rule is in place.
 
In addition, because we have recorded tax credits for the U.S. tax losses carryforwards in the past, a limit to our ability to use U.S. NOLs could result in writing off tax credits, which could cause a substantial non-cash income tax expense in our financial statements.

Distributions to U.S. Holders of our shares may be fully taxable as dividends.

It is difficult to predict whether or to what extent we will generate earnings or profits as computed for U.S. federal income tax purposes in any given tax year. If we make distributions on the shares from current or accumulated earnings and profits as computed for U.S. federal income tax purposes, such distributions generally will be taxable to U.S. Holders of our shares as ordinary dividend income for U.S. federal income tax purposes. Under current law, if certain requirements are met, such dividends would be eligible for the lower tax rates applicable to qualified dividend income of certain non-corporate U.S. Holders. While we expect that a portion of our distributions to U.S. Holders of our shares may exceed our current and accumulated earnings and profits as computed for U.S. federal income tax purposes, and therefore may constitute a non-taxable return of capital to the extent of a U.S. Holder’s basis in our shares, no assurance can be given that this will occur. We intend to calculate our earnings and profits annually in accordance with U.S. federal income tax principles. See “Item 10.E—Taxation—Material U.S. Federal Income Tax Considerations.”

If we are a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. Holders of our shares could be subject to adverse U.S. federal income tax consequences.

If we were a PFIC for any taxable year during which a U.S. Holder held our shares, certain adverse U.S. federal income tax consequences may apply to the U.S. Holder. We do not believe that we were a PFIC for our 2019 taxable year and do not expect to be a PFIC for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, PFIC status depends on the composition of a company’s income and assets and the fair market value of its assets (including, among others, less than 25.0% owned equity investments) from time to time, as well as on the application of complex statutory and regulatory rules that are subject to potentially varying or changing interpretations. Accordingly, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we were a PFIC, U.S. Holders of our shares may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred, and additional reporting requirements. See “Item 10.E—Taxation—Material U.S. Federal Income Tax Considerations—Passive foreign investment company rules.”

ITEM 4
INFORMATION ON THE COMPANY

A. History and Development of the Company

We were incorporated in England and Wales as a private limited company on December 17, 2013 under the name “Abengoa Yield Limited.” On March 19, 2014, we were re-registered as a public limited company, under the name “Abengoa Yield plc.” On January 7, 2016, we changed our corporate brand to Atlantica Yield. At our annual shareholders meeting held in May 2016, we changed our legal name to Atlantica Yield plc.

The address of our principal executive offices is Great West House, GW1, 17th floor, Great West Road, Brentford, United Kingdom TW8 9DF, and our phone number is +44 203 499 0465.

Our current agent in the U.S. is ASHUSA Inc., a Delaware company with its principal office located at 1553 W. Todd Drive, Suite 204, Tempe, Arizona 85283, United States.

We are a sustainable infrastructure company that owns and manages renewable energy, efficient natural gas, transmission and transportation infrastructures and water assets. We currently have operating facilities in North America (United States, Canada and Mexico), South America (Peru, Chile and Uruguay) and EMEA (Spain, Algeria and South Africa). We intend to expand our portfolio, maintaining North America, South America and Europe as our core geographies.

We own or have an interest in a portfolio of diversified assets in terms of type of technology and geographic footprint. Our portfolio consists of 25 assets with 1,496 MW of aggregate renewable energy installed generation capacity, 343 MW of efficient natural gas-fired power generation capacity, 10.5 M ft3 per day of water desalination and 1,166 miles of electric transmission lines.

On June 18, 2014, we completed our IPO and listed our shares on the NASDAQ Global Select Market under the symbol “ABY.” On November 14, 2017, the ticker symbol was changed to “AY.” Prior to the consummation of our IPO, Abengoa transferred to us ten assets representing an initial portfolio comprising 710 MW of renewable energy generation, 300 MW of efficient natural gas power generation and 1,018 miles of electric transmission lines and an exchangeable preferred equity investment in ACBH.

On November 1, 2017, Algonquin agreed to acquire 25.0% of our shares from Abengoa and upon completion of the Share Sale, became our largest shareholder. In addition, Algonquin and Abengoa created a joint venture, AAGES, to jointly invest in the development and construction of clean energy and water infrastructure contracted assets. On March 5, 2018 we entered into a ROFO agreement with AAGES, which provides us with a right of first offer on any proposed sale, transfer or other disposition of AAGES ROFO Assets.  In addition, we entered into a ROFO agreement with Algonquin covering certain of their non-U.S. and non-Canadian assets. Additionally, on November 27, 2018, Algonquin acquired from Abengoa the remaining 16.5% of our shares previously held by Abengoa and in 2019, Algonquin progressively increased its stake in our shares up to 44.2%.

Recent Acquisitions

In January 2019, we entered into an agreement with Abengoa under the Abengoa ROFO Agreement for the acquisition of Befesa Agua Tenes, a holding company which owns a 51% stake in Tenes, a water desalination plant in Algeria that is similar in several aspects to our Skikda and Honaine plants. The price agreed for the equity value was $24.5 million, of which $19.9 million was paid in January 2019 as an advanced payment. Closing of the acquisition was subject to conditions precedent, including approval by the Algerian administration. The conditions precedent set forth in the share purchase agreement were not fulfilled as of September 30, 2019. Therefore, in accordance with the terms of the share purchase agreement the advanced payment has been converted into a secured loan to be reimbursed by Befesa Agua Tenes, together with 12% per annum interest, through a full cash-sweep of all the dividends generated to be received from the asset. The share purchase agreement requires that the repayment occurs no later than September 30, 2031. In October 2019 we received a first payment in the amount of $7.8 million through the cash sweep mechanism.

In April 2019, we entered into an agreement to acquire a 30% stake in Monterrey, a 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity. The acquisition closed on August 2, 2019 and we paid $42 million for the total equity investment. The asset, located in Mexico, has been in operation since 2018 and represents our first investment in electric batteries. It has a U.S. dollar-denominated 20-year PPA with two international large corporations engaged in the car manufacturing industry as well as a 20-year contract for the natural gas transportation from Texas with a U.S. energy company. The PPA also includes price escalation factors. The asset is the sole electricity supplier for the off-takers, it has no commodity risk and also has the possibility to sell excess energy to the North-East region of the country. We have also entered into a ROFO agreement with the seller of the shares for the remaining 70% stake in the asset.

Additionally, on May 24, 2019, Atlantica and Algonquin formed AYES Canada, a vehicle to channel co-investment opportunities in which Atlantica holds the majority of voting rights. AYES Canada’s first investment was in Amherst Island, a 75 MW wind plant in Canada owned by the project company Windlectric, Inc. (“Windlectric”). Atlantica invested $4.9 million and Algonquin invested $92.3 million, both through AYES Canada, which in turn invested those funds in Amherst Island Partnership, the holding company of Windlectric. Since Atlantica has control over AYES Canada under IFRS 10 “Consolidated Financial Statements”, its consolidated financial statements initially showed a total investment in the Amherst Island project of $97.2 million, accounted for as “Investments carried under the equity method” (Note 7) and Algonquin’s portion of that investment of $92.3 million as “Non-controlling interest”. In addition, and under certain circumstances considered remote by both companies, Atlantica and Algonquin have options to convert shares of AYES Canada currently owned by Algonquin into Atlantica ordinary shares in exchange for a higher stake in the plant, subject to the provisions of the standstill and enhanced collaboration agreements with Algonquin.

On May 31, 2019, we entered into an agreement with Abengoa to acquire a 15% stake in Rioglass, a multinational manufacturer of solar components in order to secure certain Abengoa obligations. The investment was $7 million, and it is classified as available for sale and is expected to generate interest income for us once divested.

On August 2, 2019, we closed the acquisition of ASI Operations, the company that performs the operation and maintenance services to Solana and Mojave plants. The consideration paid was $6 million. Additionally, we have internalized part of the operation and maintenance activities contracted in two wind assets, maintaining a direct relationship with the supplier for the turbine maintenance services.

On October 22, 2019, we closed the acquisition of ATN Expansion 2, as previously announced, for a total equity investment of approximately $20 million. The off-taker is Enel Green Power Peru. Transfer of the concession agreement is pending authorization from the Ministry of Energy in Peru. If this authorization were not to be obtained within an eight-month period, the transaction would be reversed with no penalties to Atlantica.

Our largest shareholder Algonquin

On November 1, 2017, Algonquin announced that it had reached an agreement with Abengoa to acquire 25.0% of our shares from Abengoa, which closed in March 2018.  On November 27, 2018, Algonquin acquired the remaining 16.5% of our shares held by Abengoa, bringing its total equity interest in Atlantica up to 41.5%.

On May 9, 2019, Algonquin, AAGES and Atlantica entered into the Enhanced Cooperation Agreement, and Algonquin and Atlantica entered into a subscription agreement pursuant to which, among other things, Atlantica agreed to permit Algonquin to acquire, and Algonquin agreed to purchase, a 1.4% stake in Atlantica. Algonquin completed this on May 22, 2019. On May 31, 2019, AAGES (AY Holdings) B.V. entered into an accelerated share purchase transaction with Morgan Stanley & Co. LLC, pursuant to which AAGES acquired 2,000,000 ordinary shares, bringing its total equity interest in Atlantica up to 44.2%. Under this agreement, we agreed with Algonquin to analyze jointly during the next six months Algonquin’s contracted assets portfolio in the U.S. and Canada to identify assets where a drop down could add value for both parties, according to each company’s key metrics. This process is taking longer than initially expected and we cannot guarantee that it will result in investments. Furthermore, the Shareholders Agreement has been amended to allow Algonquin to increase its shareholding in Atlantica up to a 48.5% without any change in corporate governance. Algonquin’s voting rights and rights to appoint directors are limited to a 41.5% and the difference between Algonquin’s ownership and 41.5% will vote replicating non-Algonquin’s shareholders vote.

In 2017, we also signed a ROFO agreement with AAGES, the joint venture created between Algonquin and Abengoa to invest in the development and construction of clean energy and water infrastructure contracted assets. The AAGES ROFO Agreement provides us with a right of first offer on any proposed sale, transfer or other disposition of AAGES ROFO Assets. See “Item 7.B—Related Party Transactions.”

B.
Business Overview

Overview

We are a sustainable infrastructure company that owns and manages renewable energy, efficient natural gas, transmission and transportation infrastructures and water assets. We currently have operating facilities in North America (United States, Canada and Mexico), South America (Peru, Chile and Uruguay) and EMEA (Spain, Algeria and South Africa). We intend to expand our portfolio, maintaining North America, South America and Europe as our core geographies.

As of the date of this annual report, we own or have an interest in a portfolio of high-quality and diversified assets in terms of type of asset, technology and geographic footprint. Our portfolio consists of 25 assets with 1,496 MW of aggregate renewable energy installed generation capacity, 343 MW of efficient natural gas-fired power generation capacity, 10.5 M ft3 per day of water desalination and 1,166 miles of electric transmission lines.

All of our assets have contracted revenue (regulated revenue in the case of our Spanish assets and one transmission line in Chile) and are underpinned by long-term contracts. As of December 31, 2019, our assets had a weighted average remaining contract life of approximately 18 years. Most of the assets we own or in which we have an interest have project-finance agreements in place.

We intend to take advantage of, and leverage our growth strategy on, favorable trends in the clean power generation, transmission and transportation infrastructures and water sectors globally, including energy scarcity and the focus on the reduction of carbon emissions. Our portfolio of operating assets and our strategy focus on sustainable technology including renewable energy, efficient natural gas, water infrastructure, and transmission networks as enablers of a sustainable power generation mix. Renewable energy is expected to represent in most markets the majority of new investments in the power sector in most markets, according to Bloomberg New Energy Finance 2019. Approximately 50% of the world’s power generation by 2050 is expected to come from renewable sources, which indicates that renewable energy is becoming mainstream. Global installed capacity is expected to shift from 57% fossil fuels today to approximately two-thirds renewables by 2050. A 12-terawatt expansion of generating capacity is estimated to require approximately $13.3 trillion of new investment between now and 2050 – of which approximately 77% is expected to go to renewables. Another approximately $843 billion of investment goes to batteries along with an estimated $11.4 trillion to expected to go to transmission and distribution during that period. We believe regions will need to complement investments in renewable energy with investments in efficient natural gas, in transmission networks and in storage. We believe that we are well positioned to benefit from the expected transition towards a more sustainable power generation mix. In addition, we believe that water is going to be the next frontier in a transition towards a more sustainable world. New sources of water are needed worldwide and water desalination and water transportation infrastructure should help make that possible. We currently participate in two water desalination plants with a 10 million cubic feet capacity and we have reached an agreement to acquire a third.

We are focused on high-quality and long-life facilities as well as long-term agreements that we expect will produce stable, long-term cash flows. We intend to grow our cash available for distribution and our dividend to shareholders through organic growth and by acquiring new assets and/or businesses where revenues may not be fully contracted.

We believe we can achieve organic growth through the optimization of the existing portfolio, price escalation factors in many of our assets and the expansion of current assets, particularly our transmission lines, to which new assets can be connected. We currently own three transmission lines in Peru and four in Chile. We believe that current regulations in Peru and Chile provide a growth opportunity by expanding transmission lines to connect new clients. Additionally, we should have repowering opportunities in certain existing generation assets.

Additionally, we expect to acquire assets from third parties leveraging the local presence and network we have in geographies and sectors in which we operate. We have also entered into and intend to enter into agreements or partnerships with developers or asset owners to acquire assets in operation, construction or development. We may also invest directly or through investment vehicles with partners in assets under development or construction, ensuring that such investments are always a small part of our total investments.

In addition, we have in place exclusive agreements with AAGES and Algonquin. The AAGES ROFO Agreement provides us with a right of first offer on any proposed sale, transfer or other disposition of certain of AAGES’s assets. The Algonquin ROFO Agreement provides us a right of first offer on any proposed sale, transfer or other disposition of any of Algonquin’s contracted facilities or with infrastructure facilities located outside of the United States or Canada which are developed under expected long-term revenue agreements or concession agreements. See “Item 4.B—Business Overview—Our Business Strategy” and “Item 7.B—Related Party Transactions—Abengoa Right of First Offer.”

With this business model, our objective is to pay a consistent and growing cash dividend to shareholders that is sustainable on a long-term basis. We expect to distribute a significant percentage of our cash available for distribution as cash dividends and we will seek to increase such cash dividends over time through organic growth and through the acquisition of assets. Pursuant to our cash dividend policy, we intend to pay a cash dividend each quarter to holders of our shares.

Current Operations

Our portfolio consists of 15 renewable energy assets, a natural gas-fired cogeneration facility, a minority stake in a 142 MW gas-fired engine facility including, several electric transmission lines and minority stakes in two water desalination plants, all of which are fully operational. We expect that the majority of our cash available for distribution over the next three years will be in U.S. dollars, indexed to the U.S. dollar or in euros. We intend to maintain a ratio of over 80% of our cash available for distribution denominated in U.S. dollars or euros and to hedge the euros for the upcoming 24 months on a rolling basis strategy. As of December 31, 2019, approximately 92% of our project-level debt was hedged against changes in interest rates through an underlying fixed rate on the debt instrument or through interest rate swaps, caps or similar hedging instruments.

The following table provides an overview of our current assets:

Assets
 
Type
 
Ownership
 
Location
 
Currency(1)
 
Capacity
(Gross)
 
off-taker
 
Counterparty
Credit
Rating(2)
 
COD
 
Contract
Years
Left(3)
Solana
 
Renewable (Solar)
 
100% Class B(4)
 
Arizona (USA)
 
USD
 
280 MW
 
APS
 
A-/A2/A-
 
2013
 
24
Mojave
 
Renewable (Solar)
 
100%
 
California (USA)
 
USD
 
280 MW
 
PG&E
 
D/WR/WD
 
2014
 
20
Solaben 2/3(5)
 
Renewable (Solar)
 
70%(6)
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A/Baa1/A-
 
2012
 
18 / 17
Solacor 1/2(7)
 
Renewable (Solar)
 
87%(8)
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2012
 
17 / 17
PS10/20(9)
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
31 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2007 & 2009
 
12 / 14
Helioenergy 1/2(10)
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2011
 
17 / 17
Helios ½(11)
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2012
 
18 / 18
Solnova 1/3/4(12)
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
3x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2010
 
15 / 15 / 16
Solaben 1/6(13)
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2013
 
19 / 19
Seville PV
 
Renewable (Solar)
 
80%(14)
 
Spain
 
EUR
 
1 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2006
 
16
Kaxu
 
Renewable (Solar)
 
51%(15)
 
South Africa
 
ZAR
 
100 MW
 
Eskom
 
BB/Baa3/
BB+(16)
 
2015
 
15
Palmatir
 
Renewable (Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
BBB/Baa2/
BBB-(17)
 
2014
 
14
Cadonal
 
Renewable (Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
BBB/Baa2/
BBB-(17)
 
2014
 
15
Melowind
 
Renewable
(Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
 BBB/Baa2/
BBB-(17)
 
2015
 
16
Mini-hydro Peru
 
Renewable (Hydro)
 
100%
 
 
Peru
 
USD
 
4 MW
 
Peru
 
 BBB+/A3/ BBB+
 
 2012
 
13
ACT
 
Efficient
Natural
Gas
 
99.99%(18)
 
 Mexico
 
USD
 
300 MW
 
Pemex
 
 BBB+/ Baa3/
BB+
 
 2013
 
13
Monterrey
 
Efficient Natural Gas
 
30%
 
 Mexico
 
USD
 
142 MW
 
Industrial Customers
 
Not rated
 
 2018
 
19
ATN
 
Transmission
Line
 
100%
 
 Peru
 
USD
 
379 miles
 
Peru
 
 BBB+/A3/
BBB+
 
 2011
 
21
ATS
 
Transmission
Line
 
100%
 
 Peru
 
USD
 
569 miles
 
Peru
 
 BBB+/A3/
BBB+
 
 2014
 
24
ATN2
 
Transmission
Line
 
100%
 
 Peru
 
USD
 
81 miles
 
Minera
Las
Bambas
 
 Not rated
 
 2015
 
13
Quadra 1/2
 
Transmission
Line
 
100%
 
Chile
 
USD
 
49
miles/32
miles
 
Sierra
Gorda
 
 Not rated
 
 2014
 
15 / 15
Palmucho
 
Transmission
Line
 
100%
 
 Chile
 
USD
 
6 miles
 
Enel
Generacion
Chile
 
 BBB+/Baa2/
BBB+
 
 2007
 
18
Chile TL3
 
Transmission
Line
 
100%
 
 Chile
 
USD
 
50 miles
 
CNE    (National Energy Commision)
 
 A+/A1/A
 
 1993
 
Regulated
Honaine
 
Water
 
25.5%(19)
 
 Algeria
 
USD
 
7 M
ft3/day
 
Sonatrach/ADE
 
Not rated
 
 2012
 
18
Skikda
 
Water
 
34.2%(20)
 
 Algeria
 
USD
 
3.5 M
ft3/day
 
Sonatrach/ADE
 
 Not rated
 
 2009
 
14

Notes:
(1)
Certain contracts denominated in U.S. dollars are payable in local currency.
(2)
Reflects the counterparty’s issuer credit ratings issued by Standard & Poor’s Ratings Services, or S&P, Moody’s Investors Service Inc., or Moody’s, and Fitch Ratings Ltd, or Fitch.
(3)
Number of years remaining on contract as at December 31, 2018.
(4)
On September 30, 2013, Liberty agreed to invest $300 million in Class A shares of Arizona Solar Holding, the holding company of Solana, in exchange for a share of the dividends and the taxable loss generated by Solana.
(5)
Solaben 2 and Solaben 3 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.
(6)
Itochu Corporation, a Japanese trading company, holds 30.0% of the shares in each of Solaben 2 and Solaben 3.
(7)
Solacor 1 and Solacor 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform.
(8)
JGC Corporation, a Japanese engineering company, holds 13.0% of the shares in each of Solacor 1 and Solacor 2.
(9)
PS10 and PS20 are separate special purpose vehicles with separate agreements but they are treated as a single platform.
(10)
Helioenergy 1 and Helioenergy 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform.
(11)
Helios 1 and Helios 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform.
(12)
Solnova 1, Solnova 3 and Solnova 4 are separate special purpose vehicles with separate agreements but they are treated as a single platform.
(13)
Solaben 1 and Solaben 6 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.
(14)
Instituto para la Diversificacion y Ahorro de la Energia, or IDEA, a Spanish state-owned company, holds 20.0% of the shares in Seville PV.
(15)
Industrial Development Corporation of South Africa owns 29.0% and Kaxu Community Trust owns 20.0% of Kaxu.
(16)
Refers to the credit rating of the Republic of South Africa.
(17)
Refers to the credit rating of Uruguay, as UTE is unrated.
(18)
1 share is owned by Abengoa México, S.A. de C.V. and 1 share is owned by Abener Energía, S.A., both wholly owned by Abengoa.
(19)
Algerian Energy Company, SPA owns 49.0% of the shares in Honaine and Sacyr Agua, S.L. and a subsidiary of Sacyr S.A. owns the remaining 25.5%.
(20)
Algerian Energy Company, SPA owns 49.0% of the shares in Honaine and Sacyt Agua, S.L., and a subsidiary of Sacyr S.A. owns the remaining 25.5%.

Our assets and operations are organized into the following four business sectors:

Renewable Energy

Our renewable energy assets include two solar power plants in the United States, Solana and Mojave, each with a gross capacity of 280 MW and located in Arizona and California, respectively. Solana is a party to a PPA with Arizona Public Service Company and Mojave is a party to a PPA with PG&E. PG&E filed for reorganization under Chapter 11 of the Bankruptcy Code in the U.S., which has caused a default under the PPA agreement with Mojave, which could have a material adverse effect on our business, financial condition, results of operations and cash flow. See “Item 3.D—Risk Factors—Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate.”

Additionally, we own or have an interest in the following solar power plants in Spain with a total gross capacity of 682 MW: (i) Solaben 2/3, a 100 MW solar power complex; (ii) Solacor 1/2, a 100 MW solar power complex; (iii) PS10/20, a 31 MW solar power complex; (iv) Helioenergy 1/2, a 100 MW solar power complex; (v) Helios 1/2, a 100 MW solar power complex; (vi) Solnova 1/3/4, a 150 MW solar power complex; (vii) 74.99% of the shares and a 30-year usufruct of the economic rights of the remaining 25.01% of the shares of Solaben 1/6, a 100 MW solar power complex in Spain, which usufruct does not expire until September 2045; and (viii) an 80% stake in Seville PV, a 1 MW solar photovoltaic plant. All such projects receive market and regulated revenues under the economic framework for renewable energy projects in Spain. See “Item 4.B—Business Overview—Regulations.”

We also own 51.0% of Kaxu, a 100 MW solar power plant in South Africa. Kaxu is a party to a 20-year (15 years remaining) PPA with Eskom, the state-owned utility company in South Africa.

We also own three onshore wind farms in Uruguay: Palmatir, Cadonal and Melowind, each with an installed capacity of 50 MW. Each wind farm is subject to a 20-year (14, 15 and 16 years remaining, respectively) U.S. dollar-denominated PPA with a state-owned utility company in Uruguay.

Finally, we have an exclusive concession of a 4 MW hydroelectric power plant in Peru pursuant to a 20-year concession agreement (13 years remaining) with the Peruvian Ministry of Energy.

Efficient Natural Gas

Our efficient natural gas asset consists of ACT and Monterrey. ACT is a 300 MW cogeneration plant in Mexico which is a party to a 20-year take-or-pay agreement (13 years remaining) with the state-owned company Petróleos Mexicanos, or Pemex, for the sale of electric power and steam. Pemex also supplies the natural gas required for the plant at no cost to ACT, which insulates the project from natural gas price fluctuations.

We also own a 30% stake in Monterrey, a 142 MW gas-fired engine facility including 130 MW installed capacity and 12 MW battery capacity. Monterrey’s acquisition was closed on August 2, 2019. The asset, located in Mexico, has been in operation since 2018 and represents our first investment in electric batteries. It has a U.S. dollar-denominated 20-year PPA with two international large corporations engaged in the car manufacturing industry as well as a 20-year contract for the natural gas transportation from Texas with a U.S. energy company. The PPA also includes price escalation factors. The asset is the sole electricity supplier for the off-takers, it has no commodity risk and also has the possibility to sell excess energy to the North-East region of the country. We have also entered into a ROFO agreement with the seller of the shares for the remaining 70% stake in the asset.
 
Electric Transmission

Our electric transmission assets consist of (i) three lines in Peru (ATN, ATN2 and ATS), spanning a total of 1,029 miles and (ii) four lines in Chile (Quadra 1, Quadra 2, Palmucho and Chile TL3), spanning a total of 137 miles.

ATN and ATS are subject to a U.S. dollar-denominated 30-year contract (21 and 24 years remaining, respectively) with the Peruvian Ministry of Energy. ATN2 is subject to a U.S. dollar-denominated 18-year contract (13 years remaining) with Minera Las Bambas mining company, which is owned by a partnership consisting of subsidiaries of China Minmetals Corporation, Guoxin International Investment Co. Ltd and CITIC Metal Co. Ltd. Quadra 1 and Quadra 2 are subject to a contract with 15 years remaining with Sierra Gorda SCM, a mining company owned by Sumitomo Corporation, Sumitomo Metal Mining and KGHM Polska Mietz. Palmucho is a six-mile electric transmission line and substation subject to a contract with 20 years remaining with a utility, Endesa Chile. Finally, Chile TL3 is a 50-mile transmission line that has a tariff under the regulation in place in Chile, denominated in U.S. dollars and indexed to U.S. and Chilean inflation rates.

Water

Our water assets consist of minority stakes in two desalination plants in Algeria, Honaine and Skikda, with an aggregate capacity of 10.5 M ft3 per day. Each asset has a 30-year take-or-pay water purchase agreement (18 and 14 years remaining, respectively) with Sonatrach/Algerienne des Eaux. We also have a secured loan in Tenes, another water desalination plant in Algeria, to be reimbursed by Befesa Agua Tenes, together with 12% per annum interest, through a full cash-sweep of all the dividends generated to be received from the asset.

Our Business Strategy

Our primary business strategy is to generate stable cash flows through our portfolio of assets under long term contracts or under regulation. We intend to distribute a stable cash dividend to our shareholders. Our objective is to increase the dividend, while ensuring the ongoing stability and sustainability of our business.

We will seek to grow our cash available for distribution and our dividend to shareholders through organic growth and by acquiring new assets. We believe that our diversification by business sector and geography provides us with access to different sources of growth. We expect to deliver organic growth through the optimization of the existing portfolio and through investments in the expansion of our current assets, particularly in our transmission lines sector. In addition, we expect to acquire assets from AAGES. We expect to complement this with acquisitions from third parties and potential new future partnerships. We intend to grow our business in the segments where we are already present, maintaining renewable energy as our main segment and with a focus in North and South America.

Our plan for executing this strategy includes the following key components:

Focus on stable, long-term contracted or regulated assets in the power and water sectors, including renewable energy, efficient natural gas generation and transmission and transportation infrastructures, as well as water sectors

We intend to focus on owning and operating stable, long-term contracted sustainable infrastructures, for which we believe we possess extensive experience and proven systems and management processes, as well as the critical mass to benefit from operating efficiencies and scale. We expect that this will allow us to maximize value and cash flow generation. We intend to maintain a diversified portfolio in the future, maintaining a large majority of our revenues from low-carbon footprint assets, as we believe these technologies will undergo significant growth in our targeted geographies.

Maintain geographic diversification across three principal geographic areas
 
Our focus on three core geographies, North America, South America and Europe, helps to ensure exposure to markets in which we believe the renewable energy, efficient natural gas and transmission and transportation sectors will continue growing significantly.

Increase cash available for distribution through the optimization of the existing portfolio and through the investments in the expansion of our current assets, particularly in our transmission lines, to which new assets can be connected.

We intend to grow our cash available for distribution to shareholders through organic growth that we expect to deliver through the optimization of the existing portfolio, price escalation factors in many of our assets as well as through investments in the expansion of our current assets, particularly in our transmission lines sector. We intend to increase production in our assets through further management and optimization initiatives and in some cases through repowering.

We currently own three transmission lines in Peru and four in Chile. Current regulations in Peru and Chile provide a growth opportunity by expanding transmission lines to connect new clients.

We have identified several opportunities to grow organically in Peru and Chile by expanding our current assets. These opportunities consist of (i) new clients that need to use our current assets, in situations where virtually no investments are required from us, while we will get additional revenues from these new business opportunities and (ii) expansion of current transmission lines to grant access to new clients. In this case, certain investments are required to build new assets that connect the new clients to our current backbone transmission lines. We would expect that in some cases these new assets would become part of our concession assets contract with the State, for which we would be remunerated.

Increase cash available for distribution through the acquisition of new sustainable infrastructure, including renewable energy, efficient natural gas and transmission and transportation infrastructures, as well as water assets

We will seek to grow our cash available for distribution to shareholders by acquiring new assets, typically contracted or regulated. We have an exclusive ROFO agreement with AAGES and Algonquin.  We further have and expect to execute similar agreements with other developers or asset owners or enter into partnerships with such developers or asset owners in order to acquire assets in operation or to invest directly or through investment vehicles in assets under development or construction, ensuring that such investments are always a small part of our total investments. Finally, we expect to acquire assets from third parties leveraging the local presence and network we have in the geographies and sectors where we operate. We believe that our know-how and operating expertise in our key markets together with a critical mass of assets in several geographic areas and the access to capital provided by being a listed company will assist us in realizing our growth plans.

Foster a low-risk approach

We intend to maintain a portfolio of contracted assets with a low-risk profile for all or part of our revenues by engaging with creditworthy off-take counterparties and entering into long-term contracted revenue agreements. Over 80% of cash available for distribution is in U.S. dollars or euros, and we hedge euros for the upcoming 24 months on a rolling basis. We further mitigate the risk of our investments by pursuing proven technologies in which we have significant experience, located in countries where we believe conditions to be stable and safe.

In certain situations, we could invest, or co-invest with partners, in assets before they enter into operation, in assets with shorter or partially contracted revenue period, or subject to regulation, or in assets with revenue in currencies other than U.S. dollar or euro.
Additionally, our policies and management systems include thorough risk analysis and risk management processes that we apply whenever we acquire an asset, and which we are obligated to review monthly throughout the life of the asset. Our policy is to insure all of our assets whenever economically feasible.

Maintain financial strength and flexibility

We intend to maintain a solid financial position through a combination of cash on hand and undrawn credit facilities.

Our Competitive Strengths

We believe that we are well-positioned to execute our business strategies because of the following competitive strengths:

Stable and predictable long-term cash flows with attractive tax profiles

We believe that our asset portfolio has a stable, predictable cash flow profile consisting of predominantly long-life electric power generation and electric transmission assets that generate revenues under long-term fixed priced contracts or pursuant to regulated rates. Additionally, our facilities have minimal or no fuel risk. The off-take agreements for our assets have a weighted average remaining duration of approximately 18 years as of December 31, 2019, providing long-term cash flow stability and visibility. For the fiscal year 2019, approximately 54% of our revenues was related to availability payments in the different business sectors in which we operate, which includes our transmission lines, our efficient natural gas plant ACT, our water assets and approximately 70% revenues received by our Spanish solar assets. Furthermore, due to the fact that we are a U.K. resident company, we should benefit from a more favorable treatment than would apply if we were a corporation in the United States when receiving dividends from our subsidiaries that hold our international assets because they should generally be exempt from U.K. taxation due to the U.K.’s distribution exemption. Based on our current portfolio of assets, which includes renewable assets that benefit from an accelerated tax depreciation schedule, and current tax regulations in the jurisdictions in which we operate, we do not expect to pay significant income tax in the upcoming years in most of our geographies due to existing net operating losses, or NOLs. See “Item 3.D—Risk Factors—Risks Related to Taxation—Our future tax liability may be greater than expected if we do not use NOLs sufficient to offset our taxable income,” “Item 3.D—Risk Factors—Risks Related to Taxation—Our ability to use U.S. NOLs to offset future income may be limited” and “Item 3.D—Risk Factors—Risks Related to Taxation—Changes in our tax position can significantly affect our reported earnings and cash flows.” Furthermore, based on our current portfolio of assets, we believe that there is limited repatriation risk in the jurisdictions in which we operate. See “Item 3.D—Risk Factors—Risks Related to Our Business and the Markets in Which We Operate—We have international operations and investments, including in emerging markets that could be subject to economic, social and political uncertainties.”

Highly diversified portfolio by geography and technology

The renewable energy industry has grown during the recent years and it is expected to continue growing in the next decades. According to Bloomberg New Energy Finance – 2019, approximately 50% of the world’s power generation by 2050 is expected to come from renewable sources, which it is expected to translate into approximately $10 trillion in investments in new zero-emissions power generation assets through 2050. Global installed capacity is expected to shift from 57% fossil fuels today to approximately two-thirds renewables by 2050. A 12-terawatt expansion of generating capacity is estimated to require approximately $13.3 trillion of new investment between now and 2050 – of which approximately 77% is expected to go to renewables. Another approximately $843 billion of investment goes to batteries along with an estimated $11.4 trillion to expected to go to transmission and distribution during that period. The significant increase expected in the renewable energy space over the next decades also requires significant new investments in electric transmission and distribution lines for power supply, as well as storage and natural gas generation for dispatchability, with each becoming key elements to support wind and solar energy generation.

Against this backdrop of expected growth, we believe that our exposure to international markets will allow us to pursue greater growth opportunities and achieve higher returns than we would have if we had a narrow geographic or technological focus. Our portfolio of assets uses technologies that we expect to benefit from these long-term trends in the electricity sector. Our renewable energy generation assets generate low or no emissions and serve markets where we expect growth in demand in the future. Additionally, our electric transmission lines connect electricity systems to key areas in their respective markets and we expect significant electric transmission investment in our geographies. As a result, we believe that we may be able to benefit from opportunities to repower some of our assets during the lives of our existing PPAs and, in some cases, to extend the terms of those contracts after current PPAs expire. We expect our well-diversified portfolio of assets by technology and geography to maintain cash flow stability.

A sustainable growth strategy

We expect to acquire assets from third parties leveraging the local presence and network we have in geographies and sectors in which we operate. We have also entered into and intend to enter into agreements or partnerships with developers or asset owners to acquire assets in operation, construction or development. We may also invest directly or through investment vehicles with partners in assets under development or construction, ensuring that such investments are always a small part of our total investments. Additionally, Algonquin, a North American diversified generation, transmission and distribution utility company and our largest shareholder, owns a 44.2% stake in our capital stock. In addition, Algonquin and Abengoa have created AAGES, a joint venture designed to invest in the development and construction of contracted clean energy and water infrastructure contracted assets. We have signed a ROFO agreement with AAGES aimed at enhancing our growth opportunities by creating a new platform for the development and construction of contracted clean energy and water infrastructure assets.

Our Operations

Renewable energy

The following table presents our renewable energy assets, all of which are operational:
 
Assets
 
Type
 
Ownership
 
Location
 
Currency
 
Capacity
(Gross)
 
off-taker
 
Counterparty
Credit
Rating(1)
 
COD
 
Contract
Years
Left
Solana
 
Renewable (Solar)
 
100% Class B
 
Arizona (USA)
 
 
USD
 
280 MW
 
APS
 
A-/A2/A-
 
2013
 
24
Mojave
 
Renewable (Solar)
 
100%
 
California (USA)
 
 
USD
 
280 MW
 
PG&E
 
D/WR/WD
 
2014
 
20
Solaben 2/3
 
Renewable (Solar)
 
70%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A/Baa1/A-
 
2012
 
18 / 17
Solacor 1/2
 
Renewable (Solar)
 
87%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2012
 
17 / 17
PS10/20
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
31 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2007 &  2009
 
12 / 14
Helioenergy 1/2
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2011
 
17 / 17
Helios ½
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2012
 
18 / 18
Solnova 1/3/4
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
3x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2010
 
15 / 15 / 16
Solaben 1/6
 
Renewable (Solar)
 
100%
 
Spain
 
EUR
 
2x50 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2013
 
19 / 19
Seville PV
 
Renewable (Solar)
 
80%
 
Spain
 
EUR
 
1 MW
 
Wholesale market/Spanish Electric System
 
A /Baa1/A-
 
2006
 
16
Kaxu
 
Renewable (Solar)
 
51%
 
South Africa
 
ZAR
 
100 MW
 
Eskom
 
BB/Baa3/
BB+(2)
 
2015
 
15
Palmatir
 
Renewable (Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
BBB/Baa2/
BBB-(3)
 
2014
 
14
Cadonal
 
Renewable (Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
BBB/Baa2/
BBB-(3)
 
2014
 
15
Melowind
 
Renewable
(Wind)
 
100%
 
Uruguay
 
USD
 
50 MW
 
Uruguay
 
BBB/Baa2/
BBB-(3)
 
2015
 
16
Mini-hydro Peru
 
Renewable (Hydro)
 
100%
 
Peru
 
USD
 
4 MW
 
Peru
 
BBB+/A3/ BBB+
 
2012
 
13


Notes:—

(1)
Reflects counterparty’s issuer credit ratings issued by S&P, Moody’s and Fitch.
(2)
Refers to the credit rating of the Republic of South Africa.
(3)
Refers to the credit rating of Uruguay, as UTE is unrated.

Solana
 
Overview. The Solana Solar plant, or Solana, is a 250 MW net (280 MW gross) solar electric generation facility located in Maricopa County, Arizona, approximately 70 miles southwest of Phoenix, Arizona Solar One LLC, or Arizona Solar, owns the Solana project. Solana includes a 22-mile 230kV transmission line and a molten salt thermal energy storage system. Solana reached COD on October 9, 2013.

Solana relies on a conventional parabolic trough solar power system to generate electricity. The parabolic trough technology has been used for over 25 years at the Solar Electric Generating Systems (SEGS) facilities located in the Mojave Desert in Southern California. Our thirteen 50 MW parabolic trough facilities in Spain have also used this technology since 2010. Solana produces electricity by means of an integrated process using solar energy to heat a synthetic petroleum-based fluid in a closed-loop system that, in turn, heats water to create steam to drive a conventional steam turbine. Solana employs a two-tank molten salt thermal energy storage system that provides an additional six hours of solar dispatchability to increase its efficiency.

PPA. Solana has a 30-year, fixed-price PPA with Arizona Public Service Company, or APS, for at least 110% of the output of the project. The PPA provides for the sale of electricity at a fixed base price approved by the Arizona Corporation Commission with annual increases of 1.84% per year. The PPA includes on-going performance obligations and is intended to provide Arizona Solar with consistent and predictable monthly revenues that are sufficient to cover operating costs and debt service and to earn an equity return.

EPC Agreements. The construction of Solana was carried out by subsidiaries of Abengoa under an arm’s-length, fixed-price and date-certain EPC contract, that was executed on December 20, 2010. Abengoa completed construction of Solana on October 9, 2013.

Arizona Solar’s EPC contract contains warranties that protect Arizona Solar against defects in design, materials and workmanship for one year after completion and under these warranties Abengoa is required to conduct certain repairs and improvements to ensure the plant reaches its technical capacity. Solana has not yet achieved its technical capacity on a continuous basis. During the last few years and into 2020, repairs and improvements were and will be conducted on three plant systems: the steam generator, the water plant and the storage heat exchangers. In July 2016, the solar field was damaged after a severe wind event and in 2017, we received insurance compensation for damages and loss of revenue. In July 2017, there was an incident with electric transformers, which caused the plant to produce at a reduced capacity during July and part of August. All the necessary repairs were completed in August and we received a significant portion of the insurance compensation in 2017. In addition, Solana experienced technical issues in the heat exchangers within its storage system. Repairs have been carried out in the past years. In 2019 we completed the implementation of such improvements and the replacement of one of the six heat exchangers and acquired an additional one as back-up. We cannot assure that the repairs, improvements and replacements made will be effective or sufficient.

In November 2017, in the context of the agreement reached between Abengoa and Algonquin for the initial acquisition by Algonquin of 25.0% of our shares and based on the obligations of Abengoa under an EPC contract, the DOE signed a consent in relation to the Solana and Mojave projects which reduced the minimum ownership required by Abengoa in us from 30.0% to 16.0%. Solana received an aggregate amount of $120 million in payments from Abengoa ($42.5 million in December 2017 and $77.5 million in March 2018). Of the received sums, $95 million was used to repay project debt and $25 million was set aside to cover other Abengoa obligations. In addition, in November 2018 in the context of the DOE consent to allow Abengoa to sell entirely its stake in Atlantica, Solana received $16.5 million, of which $9 million was used to repay project debt and $7.5 million were set aside to cover potential repairs and other Abengoa obligations. Additionally, the long-term payments schedule signed between Abengoa and Solana was amended to include $7.4 million payable semi-annually over 2 years and $10.3 million payable semi-annually over the subsequent 4 years, beginning in January 2019. Solana also received a parcel of land adjacent to the Solana site accounted for at a fair value of $7.3 million and $22.2 million of cash proceeds received by Abengoa. Furthermore, Abengoa agreed to pay $13 million to fund a reserve account progressively in 2020 and 2021. If Abengoa were not to make these payments, we would need to make them and in return we would reduce future bonus payments to Abengoa under certain operation and maintenance agreements. The aforementioned amounts result of Abengoa’s obligations as EPC contractor.

O&M. ASI Operations, a former wholly-owned subsidiary of Abengoa, provides O&M services for Solana, focused exclusively on providing personnel. On July 30, 2019, Atlantica signed an agreement with Abengoa to acquire ASI Operations for a price of approximately $6 million. ASI Operations, provides O&M services for Solana, focused exclusively on providing personnel. Payments to third-party suppliers are made directly by Arizona Solar. With this acquisition, we reduced our dependence on Abengoa as an O&M supplier and expect to achieve cost reductions.

Project Level Financing. Arizona Solar executed a loan guarantee agreement with the DOE on December 20, 2010, to provide a loan guarantee in connection with a two-tranche loan of approximately $1.445 billion from the FFB. The short-term tranche of $450 million has been repaid. The long-term tranche is payable over a 29-year term with the cash generated by the project. The principal balance of this tranche was $779 million as of December 31, 2019.

The FFB loan permits dividend distributions on a semi-annual basis as long as the debt service coverage ratio for the previous four fiscal quarters is at least 1.20x after December 31, 2019, and the projected debt service coverage ratio for the next four fiscal quarters is at least 1.20x. As of December 31, 2019, Solana met the minimum debt service coverage ratio, however it did not meet certain operating thresholds applicable in 2019 for distributions. The asset may or may not meet ratios or other conditions thresholds in 2020.

Partnerships. On September 30, 2013, Abengoa entered into an agreement with Liberty, pursuant to which Liberty agreed to invest $300 million for all of the Class A membership interests of ASO Holdings Company LLC, the parent of Arizona Solar, giving Liberty the right to receive 61.20% of ASO Holdings Company LLC’s taxable losses and distributions until such time as Liberty reaches a certain rate of return, or the Flip Date. Given that Solana has not performed as expected, Liberty will require additional distributions in order to reach the agreed rate of return. The distributions in the upcoming years will depend on the performance of Solana and we expect them to go mostly or entirely to Liberty. After the Flip Date, Liberty will be entitled to receive 22.60% of taxable losses and distributions. In 2017, we agreed with Liberty to increase their information rights and their participation in decisions with respect to Arizona Solar. All figures in this annual report take into account Liberty’s share of dividends. We indirectly own 100% of the Class B membership interests in ASO Holdings Company LLC. In addition, we signed an option to acquire, until April 30, 2020, Liberty’s equity interest in Solana for approximately $300 million. According to the contract signed, final price includes a performance earn-out based on the average annual net production of the asset for the four calendar years with the highest annual net production during the five calendar years of 2020 through 2024. We expect to initially finance the acquisition with available liquidity, proceeds of a bridge financing currently under negotiation and potential project debt refinancing in Spain.

 Mojave

Overview. The Mojave Solar Project, or Mojave, is a 250 MW net (280 MW gross) solar electric generation facility wholly-owned by us located in San Bernardino County, California, approximately 100 miles northeast of Los Angeles. Mojave completed construction and reached COD on December 1, 2014. Mojave Solar LLC, or Mojave Solar, owns the Mojave project.

Mojave relies on a conventional parabolic trough solar power system to generate electricity and is similar to Solana with respect to technology and general design. The main difference between Solana and Mojave is that Mojave does not have a molten salt storage system, as the off-taker did not require one.

PPA. Mojave has a 25-year, fixed-price PPA with Pacific Gas & Electric Company, or PG&E, for 100% of the output of Mojave. The PPA began on COD. The PPA provides for the sale of electricity at a fixed base price with seasonal adjustments and adjustments for time of delivery. Mojave Solar can deliver and receive payment for at least 110% of contracted capacity under the PPA.

On January 29, 2019, PG&E, the off-taker for Atlantica Yield with respect to the Mojave plant, filed for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of California. See “Item 3.D—Risk Factors— Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate.”


O&M. ASI Operations, a former wholly-owned subsidiary of Abengoa, used to provide O&M services for Solana, focused exclusively on providing personnel. On July 30, 2019, Atlantica signed an agreement with Abengoa to acquire ASI Operations, the company that performs the operation and maintenance services for our U.S. solar assets, for a price of approximately $6 million. ASI Operations, provides O&M services for Solana, focused exclusively on providing personnel. Payments to third-party suppliers are made directly by Arizona Solar. With this acquisition, we reduced our dependence on Abengoa as an O&M supplier and expect to achieve cost reductions.

Project Level Financing. Mojave Solar executed a loan guarantee agreement with the DOE on September 12, 2011, to provide a loan guarantee in connection with a two-tranche FFB loan of approximately $1,202 million. The short-term tranche has been repaid. The long-term tranche is payable over a 25-year term with the cash generated by the project. The principal balance of this tranche was $698 million as of December 31, 2019. The FFB loan has an average fixed interest rate of 2.75% and each disbursement is linked to the U.S. Treasury bond with the maturity of that disbursement. Since PG&E failed to assume the PPA within 180 days from the commencement of PG&E’s Chapter 11 proceeding, a technical event of default was triggered under our Mojave project finance agreement in July 2019. However, PG&E has continued to be in compliance with the remaining terms and conditions of the PPA, including with all payment terms of the PPA up through the date hereof with the exception of services for prepetition services that became due and payable after the chapter 11 filing. See “Item 3.D—Risk Factors— Counterparties to our off-take agreements may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms in light of increasing competition in the markets in which we operate.”

 The financing arrangement permits dividend distributions on a semi-annual basis after the first principal repayment of the long-term tranche, as long as the debt service coverage ratio for the previous four fiscal quarters is at least 1.20x and the projected debt service coverage ratio for the next four fiscal quarters is at least 1.20x. As a result of the PG&E Chapter 11, a technical event of default was triggered under our Mojave project finance agreement in July 2019 and the asset was not able to make distributions in 2019. Until the technical event of default is cured or waived, distributions may not be made during the pendency of the bankruptcy.

Solaben 2/3

Overview. The Solaben 2 and Solaben 3 projects are two 50 MW solar power plants located in the municipality of Logrosan, Spain. Solaben 2 reached COD in 2012 and Solaben 3 reached COD in 2012. Solaben 2/3 each rely on a conventional parabolic trough solar power system to generate electricity. The technology is similar to the technology used in other solar power plants that we own in the United States and in other locations in Spain. Solaben 2/3 benefits from the tax accelerated depreciation regime established by the Spanish Corporate Income Tax Act.

Regulation. Renewable energy projects in Spain sell the power they produce into the wholesale electricity market and receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator.

Solar power plants receive, in addition to the revenues from the sale of electricity in the market, two monthly payments. These payments consist of: (i) a fixed monthly payment based on installed capacity, and (ii) a variable payment based on net electricity produced. There is a maximum number of production hours per year beyond which no variable payment is received. The regulation also includes a minimum number of yearly hours of generation, under which the plant would receive no regulated payments for that year and another higher threshold below which regulated payments would be reduced for a certain year. Those numbers are 35.0% and 60.0% of the maximum yearly hours, respectively. We expect that a plant would fail to achieve these thresholds only in cases of major breakdowns. See “—Regulation—Regulation in Spain.”

Spain has senior unsecured credit ratings of A from S&P, Baa1 from Moody’s and A- from Fitch.

O&M. ASE, an Abengoa’s subsidiary, is the contractor for O&M services at Solaben 2/3. ASE has agreed to operate the facility in accordance with prudent industry practices, ensure compliance with all applicable government and agency permits, licenses and approvals, and feed-in tariff terms, and to assist Solaben 2/3 in connection with the procurement of all necessary support and ancillary services. Each O&M agreement is an all-in contract that we could terminate every third year starting in December 2015.

Project Level Financing. On December 16, 2010, Solaben 2 and Solaben 3 each entered into a 20-year loan agreement with a syndicate of banks formed by the MUFG, Mizuho, HSBC and Sumitomo Mitsui Banking Corporation. The loan for Solaben 2 was for €169.3 million and the loan for Solaben 3 was for €171.5 million. The banks providing these loans obtained commercial and political risk insurance from Nippon Export and Investment Insurance, which allowed for lower financing costs. The interest rate for each loan is a floating rate based on six-month EURIBOR plus a margin of 1.5%. We initially hedged 80% of our EURIBOR exposure with the same banks providing the financing. The hedge was structured 50% through a swap set at approximately 3.7% and 50% through a cap with a 3.75% strike. In November 2013, Solaben 2/3 hedged the remaining 20% exposure through a cap with a 0.75% strike through 2017. Furthermore, in 2017, we contracted additional caps with a 1% strike covering 19.1% of the principal of Solaben 2 and 20% of the principal of Solaben 3. Both caps hedge the interest rate from the middle of 2017 through 2025.

The outstanding amount of these loans as of December 31, 2019 was €121 million for Solaben 2 and €124 million for Solaben 3.

The financing arrangements permit cash distribution to shareholders twice per year if the debt service coverage ratio is at least 1.10x.

Partnerships. Itochu Corporation, a Japanese trading company, holds a 30% stake in the economic rights of each of Solaben 2 and Solaben 3.

Solacor 1/2

Overview. The Solacor 1/2 project is a 100 MW solar power complex located in the municipality of El Carpio, Spain. COD was reached in February 2012 for Solacor 1 and in March 2012 for Solacor 2. Solacor 1/2 relies on a conventional parabolic trough solar power system to generate electricity. The technology is similar to the technology used in other solar power plants that we own in other locations in Spain. Solacor 1/2 benefits from the tax accelerated depreciation regime established by the Spanish Corporate Income Tax Act.
 
Regulation. Renewable energy projects in Spain sell the power they produce into the wholesale electricity market and receive additional payments from CNMC. See Solaben 2/3 above and “—Regulation—Regulation in Spain.”

Spain has senior unsecured credit ratings of A from S&P, Baa1 from Moody’s and A- from Fitch.

O&M. ASE is the contractor for O&M services at Solacor 1/2. ASE has agreed to operate the facility in accordance with prudent utility practices, ensure compliance with all applicable government and agency permits, licenses and approvals, and feed-in tariff terms, and to assist Solacor 1/2 in connection with the procurement of all necessary support and ancillary services. Each O&M agreement is an all-in contract that we could terminate every third year starting in December 2015.

Project Level Financing. On August 6, 2010, Solacor 1/2 entered into 20-year loan agreements with a syndicate of banks formed by BNP Paribas, Mizuho, HSBC and SMBC. The loans for Solacor 1/2 totaled €353 million. The banks providing these loans obtained commercial and political risk insurance from Nippon Export and Investment Insurance, which allowed for lower financing costs. The interest rate for the loans is a floating rate based on six-month EURIBOR plus a margin of 1.5%. We initially hedged 82% of our EURIBOR exposure on with the same banks providing the financing. The hedge was structured 54% through a swap set at approximately 3.20% and 28% through a cap with a 3.25% strike. Furthermore, in 2017, we contracted additional caps with a 1% strike covering 19.3% of the principal of Solacor 1 and 18.2% of the principal of Solacor 2. Both caps hedge the interest rate through 2025. The total outstanding amount of these loans as of December 31, 2019 was €243 million.

These financing arrangements permit cash distribution to shareholders twice per year if the debt service coverage ratio is at least 1.10x.

Partnerships. JGC Corporation, a Japanese engineering company, holds a 13% stake in the economic rights in Solacor 1/2.

PS10/20

Overview. PS10/20 is a 31 MW solar power complex wholly owned by us located in the municipality of Sanlucar la Mayor, Spain. PS10 reached COD in March 2007 and PS20 reached COD in May 2009.

Regulation. Renewable energy projects in Spain sell the power they produce into the wholesale electricity market and receive additional payments from CNMC. See Solaben 2/3 above and “Regulation—Regulation in Spain.”

Spain has senior unsecured credit ratings of A from S&P, Baa1 from Moody’s and A- from Fitch.

O&M. ASE is the contractor for O&M services at PS10/20. ASE has agreed to operate the facility in accordance with prudent utility practices, ensure compliance with all applicable government and agency permits, licenses and approvals, and feed-in tariff terms, and to assist PS10/20 in connection with the procurement of all necessary support and ancillary services. Each O&M agreement is a 21-year all-in contract that expires on the 21st anniversary of COD.

Project Level Financing. On November 17, 2006, PS10 entered into a 21.5-year loan agreement with a syndicate of banks formed by Bankia and Natixis. On June 14, 2007, the loan agreement entered into a novation in order to include in the syndicate of banks the European Investment Bank and Caja de Ahorros del Mediterraneo, which was later acquired by Banco Sabadell, S.A. The loan was for €43.4 million. The interest rate for the loan is a floating rate based on six-month EURIBOR plus a margin of 1.0% to 1.10% (depending on the level of the debt service coverage ratio). We hedged 100% of our EURIBOR exposure with the same banks providing the financing. The hedge was structured 30% through a swap set at approximately 4.07% and 70% through a cap with a 4.25% strike. Furthermore, in 2017, we contracted an additional cap with a 1% strike covering 35.0% of the principal of PS10 through 2025. The outstanding amount of this loan as of December 31, 2019 was €23 million.

PS20 entered into a 24.5-year loan agreement with a syndicate of banks formed by Bankia and Natixis Banques Populaires, Spanish Branch on November 17, 2006. On June 14, 2007, the loan agreement was entered into a novation in order to include in the syndicate of banks the European Investment Bank and Caja de Ahorros del Mediterraneo, which was later acquired by Banco Sabadell, S.A. The loan was for €94.6 million. The interest rate for the loan is a floating rate based on six-month EURIBOR plus a margin of 1.0% to 1.10% (depending on the level of the debt service coverage ratio). We initially hedged 100% of our EURIBOR exposure with the same banks providing the financing. The hedge was structured 30% through a swap set at approximately 4.07% and 70% through a cap with a 4.5% strike. Furthermore, in 2017, we contracted additional caps with a 1% strike covering 35.0% of the principal of PS20 through 2025. The outstanding amount of this loan as of December 31, 2019 was €58 million.

These financing arrangements permit cash distribution to shareholders once per year if the debt service coverage ratio is at least 1.10x.

Helios 1/2

Overview. The Helios 1/2 project is a 100 MW solar power facility wholly owned by us located in the municipality of Arenas de San Juan, Puerto Lapice and Villarta de San Juan, Spain. Helios 1 and Helios 2 reached COD in 2012. Helios 1/2 relies on a conventional parabolic trough concentrating solar power system to generate electricity. This technology is similar to the technology used in other solar power plants that we own in other locations in Spain. Helios 1/2 benefits from the tax accelerated depreciation regime established by the Spanish Corporate Income Tax Act.

Regulation. Renewable energy projects in Spain sell the power they produce into the wholesale electricity market and receive additional payments from CNMC. See Solaben 2/3 above and “—Regulation—Regulation in Spain.”

Spain has senior unsecured credit ratings of A from S&P, Baa1 from Moody’s and A- from Fitch.

O&M. ASE is the contractor for O&M services at Helios 1/2. ASE has agreed to operate the facility in accordance with prudent utility practices, ensure compliance with all applicable government and agency permits, licenses and approvals, and feed-in tariff terms, as well as to assist Helios 1/2 in connection with the procurement of all necessary support and ancillary services. The O&M agreement is an all-in contract that expires on the 25th anniversary of the COD.

Project Level Financing. On May 17, 2018 we refinanced Helios 1/2 as expected in our financial plan.

The new project finances are two mini-perm loan agreements for a total amount of €292 million for both projects with a syndicate of eight banks formed by Santander S.A., Caixabank S.A., Bankia S.A., ICO, Credit Agricole Corporate, ING Bank N.V., Abanca S.A. and Bankinter S.A. The increase in notional with respect to the previous financing was used to partially cancel the swap in place and pay refinancing costs. The mini-perm structure consists of sculpting semiannual debt service payments using an underlying tenor of 15 years but with a contractual legal maturity in 2027. We expect to refinance Helios 1/2 before 2028. The interest rate for the loans is a floating rate based on six-month EURIBOR plus a margin of: (i) 2.25% until December 2020; (ii) 2.50% from January 2021 until December 2024; (iii) 2.75% from January 2025 until maturity.

The loans are currently 70% hedged with swaps with some of the same banks providing the financing. We have maintained part of the swaps which were previously in place. As a result, 64% of the swap hedged portion is structured through a swap set at approximately 3.85% and 36% through a new swap contracted in 2018 set at approximately 0.89%. Furthermore, in 2017, we contracted additional caps with a 1% strike covering 11% of the principal of both loan agreements through 2025. The outstanding amount of the loans as of December 31, 2019 was €227 million.

The financing agreements of both plants permit cash distributions to shareholders twice per year from 2019 onwards if the debt service coverage ratio is at least 1.15x.

Helioenergy 1/2

Overview. Helioenergy 1/2 is a 100 MW solar power complex wholly owned by us located in Ecija, Spain and reached COD in the second half of 2011. Helioenergy 1/2 relies on a conventional parabolic trough concentrating solar power system to generate electricity. This technology is similar to the technology used in other solar power plants that we own in other locations in Spain. Helioenergy 1/2 benefits from the tax accelerated depreciation regime established by the Spanish Corporate Income Tax Act.
 
Regulation. Renewable energy projects in Spain sell the power they produce into the wholesale electricity market and receive additional payments from CNMC. See Solaben 2/3 above and “—Regulation—Regulation in Spain.”

Spain has senior unsecured credit ratings of A from S&P, Baa1 from Moody’s and A- from Fitch.

O&M. ASE is the O&M services contractor for Helioenergy 1/2. ASE agreed to operate the facility in accordance with prudent utility practices, ensure compliance with all applicable government and agency permits, licenses and approvals, and feed-in tariff terms, as well as to assist Helioenergy 1/2 in connection with the procurement of all necessary support and ancillary services. The O&M agreement is an all-in contract that expires on the 20th anniversary of the COD.

Project Level Financing. On June 26, 2018 we refinanced Helioenergy 1/2 as part of our financial plan, for the same amount that was outstanding as of the date of the refinancing. On June 26, 2018, Helioenergy 1 entered into a 15-year loan agreement of €108.9 million and Helioenergy 2 entered into a 15-year loan agreement of €109.6 million with a syndicate of banks consisting, in both agreements, of Banco Santander, S.A., CaixaBank, S.A., Bankia, S.A., Credit Agricole Corporate and Investment Bank, S.A., Bankinter, S.A., Unicaja Banco, S.A. and ING Bank, N.V., Spanish Branch and the investment firm Rivage Investment. The interest rate for the loans is a floating rate based on six-month EURIBOR plus a margin of 2.25% until December 2025 and 2.50% until maturity. Debt service is sculpted according to the specific characteristics of the project. In addition, each of the two projects entered into a 17-year, fully amortizing loan agreement with an institutional investor for a €22.5 million (€45 million in total) with a fixed interest rate of 4.37%.

We have maintained the original swap which hedged the previous financing. As a result, the banking tranche is 97% hedged through a swap set at approximately 3.8% strike. In addition, we have the remaining 3% hedged through a cap with a 1% strike. The outstanding amount of these loans as of December 31, 2019 was €221 million.

The financing arrangements permit cash distributions to shareholders semi-annually year based on a debt service coverage ratio of at least 1.15x.

Solnova 1/3/4

Overview. The Solnova 1/3/4 project is a 150 MW solar power facility wholly owned by us located in the municipality of Sanlucar la Mayor, Spain. Solnova 1 and Solnova 3 projects reached COD in the second quarter of 2010 and Solnova 4 reached COD in the third quarter of 2010. Solnova 1/3/4 relies on a conventional parabolic trough concentrating solar power system to generate electricity. This technology is similar to the technology used in other solar power plants that we own in other locations in Spain. Solnova 1/3/4 benefits from the tax accelerated depreciation regime established