Portugal’s EDP Renováveis quits Colombia after posting lost profits of €500 million

The renewables arm of Portuguese energy giant EDP – EDP Renováveis – is to abandon the Colombian market just five years after entering the market having lost €500 million in profits.

EDP CEO Miguel Stilwell d’Andrade called the decision to pull out of the Latin American market “difficult” but said in a conference call with investors (as reported in the business daily Negócios) that it was in the “best interests of the company and admitted EDP might consider withdrawing from other loss-making markets.

EDP Renovavéis losses will have a considerable impact on EDP’s overall results with a loss of €500 million without affecting shareholder payouts.

Colombia, where the company entered the market in 2019, “was weighing on the company and its results and cash flow” due to significant delays” in renewable energy licensing processes.

In order to continue in the market, the company would have had to invested “over €400 million” said the CEO in the conference call.

“Instead of investing more, we opted for terminating operations and invest in others”, he said.

“The projects had been in a state of advanced development, with protocols with communities and renegotiating PPA contracts – a power purchase agreement (PPA), or electricity power agreement, is a long-term contract between an electricity generator and a customer, usually an utility, government or company. PPAs may last anywhere between 5 and 20 years, during which time the power purchaser buys energy at a pre-negotiated price. Such agreements play a key role in the financing of independently owned (i.e. not owned by a utility) electricity generators, especially producers of renewable energy like solar farms or wind farms.
“We hope to have an environmental licence in February but despite all our efforts there continues to be a lack of visibility and these projects do not align with EDP’s risk profile”, said Stilwell d’Andrade.

The energy company has been trying to sell its operations in Colombia since May but without success to date.

“If we manage to find a buyer, the amount (of expected losses) would be lower, but that’s not the key issue. The worst case scenario would mean a loss of €700 million for EDP Renovavéis, of which €200 million are regarding guarantees and losses that would have to be potentially paid in the future”, he said.

For the EDP Group, the bill is €500 million while between January and September the company registered profits of over €1.0Bn and was on the road to a record result but will now have to recognise an extraordinary loss, although the impact for investors will be limited.