Atlantica Sustainable Infrastructure Annual Report 2018

FY2018 Annual Report · Atlantica Sustainable Infrastructure

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Consolidated Annual Report
and Financial Statements

FOR THE YEAR ENDED DECEMBER 31, 2018

Atlantica Yield plc Consolidated Annual Report
and Financial Statements

Contents
Strategic Report
Directors’ Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Responsibilities Statement
Independent Auditor’s Report to the Members of Atlantica Yield plc
Consolidated Financial Statement
Company Financial Statements

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189

Strategic Report

This Strategic Report has been prepared to provide information to shareholders to assess the
Group’s strategies and the potential for the strategies to succeed.

The Strategic Report contains certain forward-looking statements. These statements are made by
the directors in good faith based on the information available to them up to the time of their
approval of this report and such statements should be treated with caution due to the inherent
uncertainties, including both economic and business risk factors, underlying any such forward-
looking information.

The directors, in preparing this Strategic Report, have complied with Section 414C of the
Companies Act 2006.

The Strategic Report discusses the following areas:

▪ Nature of the business.

▪ Business model, strategy and objectives.

▪ Fair review of the business.

▪ Key performance indicators.

▪ Principal risks and uncertainties.

▪ Corporate social responsibility.

▪ Future developments.

▪ Going concern basis.

Nature of the business

Atlantica Yield plc (hereinafter “we”, “our”, the “Company” or “Atlantica”), a Company registered in
England and Wales and incorporated in the United Kingdom, is a sustainable total return company
that owns and manages renewable energy, efficient natural gas power, transmission and
transportation infrastructures and water assets. We currently have operating facilities in North
America (United States and Mexico), South America (Peru, Chile and Uruguay) and EMEA (Spain,
Algeria and South Africa). The Company intends to expand our portfolio, maintaining North
America, South America and Europe as our core geographies.

As of December 31, 2018, 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 24
assets with 1,496 MW of aggregate renewable energy installed generation capacity, 300 MW of
efficient natural gas-fired power generation capacity, 10.5 M ft3 per day of water desalination and
1,152 miles of electric transmission lines. All of our assets have contracted revenues (regulated
revenues in the case of our Spanish assets and Chile TL3) and are underpinned by long-term
contracts. As of December 31, 2018, 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, favourable 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 focuses on sustainable technology including renewable energy,
efficient natural gas, and transmission networks as enablers of a sustainable power generation mix
and on water infrastructure. Renewable energy is expected to represent in most markets the
majority of new investments in the power sector, according to Bloomberg New Energy Finance
2018, 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. 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.

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
from AAGES, Abengoa, third parties and potential new future partners.

The address of our registered office is Great West House, GW1, 17th floor, Great West Road,
Brentford, United Kingdom TW8 9DF.

Events during the period

Change in our largest shareholder

As of December 31, 2017, Abengoa S.A. was our largest shareholder, in this report we refer to
Abengoa S.A. and its subsidiaries as “Abengoa”. On November 1, 2017, Algonquin Power and
Utilities Corp. (“Algonquin”) announced that it had reached an agreement with Abengoa to acquire
25.0% of our shares from Abengoa. Along with the 25.0% of our shares Algonquin acquired from
Abengoa in November 2017, Algonquin acquired the remaining 16.5% of our shares held by
Abengoa on November 27, 2018, bringing its total equity interest in Atlantica up to 41.5%. After
this, to our knowledge, Abengoa no longer owns any equity interest in Atlantica.

In the context of this transaction, in November 2017 we signed several agreements with Algonquin
which became effective in March 2018 upon completion of the 25% acquisition. We signed a Right
of First Offer (“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. Additionally, we have signed a ROFO agreement with Algonquin. We also plan
to collaborate with Algonquin on several co-investment opportunities in assets. In addition,
Algonquin agreed to provide, subject to its board approval, an incremental equity investment of
up to $100 million through the subscription of our ordinary shares for the acquisition of new assets

during 2019. Furthermore, Algonquin agreed to periodically discuss with us the possibility of
offering for sale interests in certain assets owned by Algonquin companies in Canada and the
United States.

2018 acquisitions

In February 2018, we completed the acquisition of a 4 MW mini-hydroelectric power plant in Peru
for a cash consideration of approximately $9 million. The plant reached Commercial Operation
Date (“COD”) in 2012. It has a fixed-price concession agreement denominated in U.S. dollars with
the Ministry of Energy of Peru and the price is adjusted annually in accordance with the U.S.
Consumer Price Index..

In October 2018 we reached an agreement to acquire PTS, a natural gas transportation platform
located in the Gulf of Mexico, close to ACT, our efficient natural gas plant. PTS will have an installed
compression capacity of 450 million standard cubic feet per day and is currently under construction.
The service agreement signed with Pemex on October 18, 2017 is a “take-or-pay” 11-year term
contract denominated in U.S. dollars starting in 2020, with a possibility of future extension at the
discretion of both parties. The share purchase agreement is structured to acquire the asset in
stages. On October 10, 2018, we acquired a 5% ownership in the project; once the project begins
operation, we will acquire an additional 65% stake; finally, we will acquire the remaining 30% one
year after COD, subject to final approvals. The total equity investment is estimated to be
approximately $150 million.

In December 2018, we completed the expansion of our ATN transmission line by acquiring a 220-
kV power substation and two small transmission lines in Peru. The substation connects our line to
the Shahuindo mine located nearby. The asset has a U.S. dollar-denominated 15-year contract in
place with Shahuindo mine, a fully owned subsidiary of Tahoe Resources Inc., a company listed in
the Toronto and New York stock exchanges. Construction finished on December 28, 2018, and part
of the price is expected to be paid after the technical connection tests are finished. The total
purchase price is expected to be approximately $16 million.

In December 2018, we completed the acquisition of Chile TL3, a transmission line currently in
operation in Chile. The asset has a tariff under the regulation in place in Chile, denominated in U.S.
dollars and indexed to U.S. and Chilean inflation rates. Our investment amounted to approximately
$6 million.

In December 2018, we completed the acquisition of Melowind, a 50 MW wind plant in Uruguay,
from Enel Green Power S.p.A. The asset has been in operation since 2015 and has a 20-year US$-
denominated PPA in place for 100% of the electricity produced. The off-taker is the state-owned
power company UTE, which has an investment grade credit rating. The total purchase price for this
asset was approximately $45 million.

In October 2018, we reached a preliminary agreement for another expansion of ATN consisting of
certain transmission assets in Peru. The assets are currently in operation and will receive revenues
under a long-term contract denominated in US dollars. Our total investment is expected to be
approximately $20 million. The final purchase agreement has not been signed yet.

In January 2019 we entered into an agreement with Abengoa under the Abengoa ROFO Agreement
for the acquisition of Befesa Agua Tenes, S.L.U., a holding company which owns a 51% stake of
Tenes, a water desalination plant in Algeria, similar in several aspects to our Skikda and Honaine
plants. Tenes has a capacity of 7 million cubic feet per day to provide water under a water purchase
agreement in place with Sonatrach and ADE (Algerienne des Eaux), with a remaining term of
approximately 22 years. It has been in operation since 2015. The tariff structure is based upon plant
capacity and water production and price is adjusted monthly based on indexation mechanisms that
include local inflation, U.S. inflation and the exchange rate between the U.S. dollar and local
currency. Closing of the acquisition is subject to conditions precedent, including the approval by
the Algerian administration. At this stage, we cannot guarantee that we will obtain this approval
nor the expected timing of such approval. The price agreed for the equity value is $24.5 million, of
which $19.9 million was paid in January 2019 as an advanced payment and the rest is expected to
be paid once the conditions precedent are fulfilled. If all the conditions precedent were not fulfilled
by September 30, 2019, the advanced payment shall be progressively reimbursed by Abengoa
through a full cash-sweep of all the dividends to be received and in any case no later than
September 30, 2031, together with an annual 12% interest.

Chapter 11 by PG&E, the off-taker of our Mojave plant

On January 29, 2019, PG&E, the off-taker for Atlantica 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 has not paid 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, PG&E has paid the portion of the invoice corresponding to the electricity delivered after
January 28. A default of the PPA agreement with PG&E occurred with the PG&E bankruptcy filing
and such default could trigger an event of default under our Mojave project finance agreement if
certain other conditions were met, namely if (i) such default could reasonably be expected to result
in a material adverse effect to Mojave or (ii) PG&E failed to assume the PPA within 60 days of its
chapter 11 filing, extendable to 180 days provided that PG&E continues to perform under the PPA.
As of December 31, 2018, Mojave had $739 million outstanding under its project financing
agreement with the Federal Financing Bank, with a guarantee from the DOE. Additionally, Mojave
represents 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 Mojave’s assets. As we discuss in Note 6 to our
consolidated financial statements, this situation could also cause an impairment of the value of the
Mojave asset in the future. 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 takes place at the end of the year, the last distribution received at the corporate level took
place in December 2018. Unless the 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.

Asset portfolio and operations

Our portfolio consists of 15 renewable energy assets, an efficient natural gas cogeneration facility,
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,
2018, approximately 93% 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 as of December 31, 2018:

Assets

Type

Ownership Location Currency(1)

Capacity
(Gross)

Offtaker

USD

280 MW

APS

Counterparty
Credit
Rating(2)
A-/A2/A-

COD

2013

Contract
Years
Left(3)
25

Solana

Mojave

Solaben
2/3(5)

Renewable
(Solar)
Renewable
(Solar)
Renewable
(Solar)

Solacor
1/2(7)

Renewable
(Solar)

PS10/20(9)

Renewable
(Solar)

Helioenergy
1/2(10)

Renewable
(Solar)

100% Class

B(4)
100%

70%(6)

Arizona
(USA)
California
(USA)
Spain

USD

280 MW

PG&E

D/WR/D

2014

EUR

2x50 MW Wholesale

A-/Baa1/A-

2012 19 / 18

market/Spanish
Electric System

87%(8)

Spain

EUR

2x50 MW Wholesale

A-/Baa1/A-

2012 18 / 18

market/Spanish
Electric System

100%

Spain

EUR

31 MW Wholesale

A-/Baa1/A-

market/Spanish
Electric System

2007 &
2009

13 / 15

100%

Spain

EUR

2x50 MW Wholesale

A-/Baa1/A-

2011 18 / 18

market/Spanish
Electric System

Helios 1/2(11) Renewable

100%

Spain

EUR

2x50 MW Wholesale

A-/Baa1/A-

2012 19 / 19

(Solar)

Solnova
1/3/4(12)

Renewable
(Solar)

Solaben
1/6(13)

Renewable
(Solar)

Seville PV

Renewable
(Solar)

Kaxu

Palmatir

Cadonal

Renewable
(Solar)
Renewable
(Wind)
Renewable
(Wind)

market/Spanish
Electric System

100%

Spain

EUR

3x50 MW Wholesale

A-/Baa1/A-

2010 16 / 16 /

100%

Spain

EUR

2x50 MW Wholesale

A-/Baa1/A-

2013 20 / 20

market/Spanish
Electric System

80%(14)

Spain

EUR

1 MW

Wholesale

A-/Baa1/A-

2006

market/Spanish
Electric System

51%(15)

100%

South
Africa
Uruguay

market/Spanish
Electric System
Eskom

100 MW

ZAR

USD

50 MW

Uruguay

100%

Uruguay

USD

50 MW

Uruguay

BB/Baa3/
BB+(16)
BBB/Baa2/
BBB-(17)
BBB/Baa2/
BBB-(17)

2015

2014

Melowind

Mini-hydro
Peru
ACT

ATN

ATS

ATN2

Quadra 1/2

Palmucho

Chile TL3

Renewable
(Wind)
Renewable
(Hydro)
Efficient
Natural
Gas Power
Transmission
Line
Transmission
Line
Transmission
Line

Transmission
Line

100% Uruguay

USD

50 MW

Uruguay

100%

Peru

USD

4 MW

Peru

99.99%(18) Mexico

USD

300 MW

Pemex

100%

Peru

USD

365 miles

Peru

100%

Peru

USD

569 miles

Peru

100%

Peru

USD

81 miles

Minera

BBB/Baa2/
BBB-(17)
BBB+/A3/ BBB+

BBB+/ Baa3/
BBB-

BBB+/A3/
BBB+
BBB+/A3/
BBB+
Not rated

2015

2012

2013

2011

2014

2015

100%

Chile

USD

100%

Chile

USD

49
miles/32
miles
6 miles

100%

Chile

USD

50 miles

Las
Bambas
Sierra
Gorda

Enel
Generacion
Chile
CNE (National
Energy
Commision)
Sonatrach/
ADE
Sonatrach/
ADE

Not rated

2014

16 / 16

BBB+/Baa1/
BBB+

A+/A1/
A

2007

1993

Regulated

Not rated

2012

Not rated

2009

Honaine

Water

25.5%(19)

Algeria

USD

Skikda

Notes:

Water

34.2%(20)

Algeria

USD

7 M
ft3/day
3.5 M
ft3/day

(1)

(2)

Certain contracts denominated in U.S. dollars are payable in local currency.

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)

(6)

(7)

(8)

(9)

Solaben 2 and Solaben 3 are separate special purpose vehicles with separate agreements, but they are treated as a single platform.

Itochu Corporation, a Japanese trading company, holds 30.0% of the shares in each of Solaben 2 and Solaben 3.

Solacor 1 and Solacor 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform.

JGC Corporation, a Japanese engineering company, holds 13.0% of the shares in each of Solacor 1 and Solacor 2.

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 Valoriza Agua, S.L.U., and a subsidiary of Sacyr S.A. owns

the remaining 25.5%.

(20) Algerian Energy Company, SPA owns 49.0% of the shares in Skikda and Valoriza Agua, S.L.U., and a subsidiary of Sacyr S.A. owns

the remaining 16.8%.

Business model, strategy and objectives

Atlantica is a sustainable total return company that owns and manages renewable energy, efficient
natural gas power, transmission and transportation infrastructures and water assets. We currently
have operating facilities in, North America (United States 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.

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 and Abengoa through our existing ROFO agreements. 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.

We believe we can achieve organic growth through the optimization of the existing portfolio, price
escalation factors in many of our assets 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
believe we will have repowering opportunities in certain existing generation assets once their
contracted life has expired.

In addition, we have in place exclusive agreements with AAGES, Algonquin and Abengoa. 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. Additionally,
we plan to collaborate with Algonquin on several co-investment opportunities for assets in
operation and for assets under development or construction, and it could represent another source
of future growth. In addition, under the Algonquin ROFO Agreement, Algonquin agreed to
periodically discuss with us the possibility of offering for sale interests in certain assets owned by
Algonquin companies in Canada and the United States. The Abengoa ROFO Agreement provides
us with a right of first offer on any proposed sale, transfer or other disposition of any of Abengoa’s
contracted renewable energy, efficient natural gas power, electric transmission or water assets in
operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia
and the European Union, as well as four assets in selected countries in Africa, the Middle East and
Asia.

Additionally, we intend to enter into similar agreements or enter into partnerships with other
developers or asset owners to acquire assets. 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. Finally, we also expect to acquire assets from third
parties leveraging the local presence and network we have in the geographies and sectors in which
we operate.

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.

In general, we expect to acquire assets that are developed and operational. We also might make
investments in assets that are under development or construction. We also might acquire assets or
businesses where revenues are not contracted.

We intend to use the following investment guidelines in evaluating prospective acquisitions in
order to successfully execute our growth strategy:

• high quality off-takers or regulation, with long-term contracted revenue;

• project financing in place at each project or mechanisms to obtain it at COD;

• management and operational systems and processes at an adequate level;

•

focus on regions and countries that provide an optimal balance between growth opportunities
and security and risk considerations, including the United States, Canada, Mexico, Chile, Peru,
Uruguay, Colombia and the European Union; and

• preference for U.S. dollar-denominated revenues, but we could also acquire assets or business

that generate revenues in other currencies.

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

(1) Focus on stable, long-term contracted or regulated assets in the power and water sectors,
including renewable energy, efficient natural gas power generation and transmission and
transportation infrastructures and water assets. We intend to focus on owning and operating
stable, long-term contracted assets, 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, as we believe these
technologies will undergo significant growth in our targeted geographies.

(2) 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 power and
transmission and transportation sectors will continue growing significantly.

(3)

Increase cash available for distribution through the optimization of the existing portfolio, price
escalation factors 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.

(4)

Increase cash available for distribution through the acquisition of new assets in the power and
water sectors, including renewable energy, efficient natural gas power, and transmission and

transportation infrastructures and water sectors. 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 a ROFO agreement with Abengoa. We
further 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. Additionally, we plan to
collaborate with Algonquin on several co-investment opportunities for assets in operation and
for assets under development or construction. 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.

(5) 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 in most cases with creditworthy offtake
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 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.

(6) 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 conservative cash
management is designed to assist us in mitigating any unexpected economic downturns or
corporate shortfalls that may reduce our cash flow generation. Our current intention is to
maintain a net corporate debt compared to cash available for distribution before corporate
interests at or below 3.0x. This is an internal target and not a limit imposed by our agreements
with third parties. It is therefore subject to change and we may from time to time exceed this
limit temporarily or during prolonged periods of time, for example to finance acquisitions until
the time when we obtain long term financing, or otherwise amend our internal target. The
foregoing information constitutes a “forward-looking statement.”

Lastly, 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.

▪ Highly diversified portfolio by geography and technology.

▪ New ownership structure and contractual arrangements with Algonquin which support our

expectation of a sustainable growth strategy.

▪ Strong corporate governance with a majority independent board and an experienced

management team.

A fair review of the business

During the year 2018 our assets performed largely according to expectations. Production increased
in our solar assets in the U.S., particularly during the summer, when they reached above average
production levels. In Spain, solar radiation was below usual levels the entire year. Impact on
revenues was limited, since most of our revenues are based on availability according to the
regulation in place for these assets. In Kaxu, our asset in South Africa, production was significantly
higher in 2018 partially because the previous year was affected by a technical problem with the
water pumps which was resolved during 2017. Our availability-based assets continued to deliver
solid performance with high availability levels in ACT, in transmission lines and in water assets.

In addition, during the year 2018 our largest shareholder changed. In March 2018, Algonquin
closed the acquisition of a 25% stake in us. In the context of this agreement, the DOE provided a
waiver for the change of ownership clause related to Abengoa in the project financing agreement
of Solana. In Solana, the EPC guarantee period expired without it reaching the expected production
levels and Abengoa, as the EPC supplier, agreed to provide certain compensation to the Solana
project. As a result, and in the context of the DOE consent to decrease Abengoa’s ownership in
Atlantica to 16.5%, 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 Algonquin closed the acquisition of the remaining 16.5% stake in
us. The DOE provided a consent to allow Abengoa to sell entirely its stake in Atlantica and in the
context of this agreement Solana received $16.5 million, of which $9 million were used to repay
project debt and $7.5 million was set aside to cover potential repairs and other Abengoa
obligations.

In the context of the Algonquin transaction, we signed several agreements with Algonquin which
became effective in March 2018. We signed a Shareholders Agreement with Algonquin, which limits
Algonquin’s ownership in us to a maximum of 41.5% of our outstanding shares (with a certain
exception where such ownership may be temporarily increased up to 46%) and limits the number
of directors they can appoint to a maximum of 50% less one. In addition, Algonquin agreed to
provide, subject to board approval, incremental equity investment of up to $100 million through
the subscription of our ordinary shares for the acquisition of new assets during 2019, with the
possibility of increasing Algonquin’s ownership in us up to 41.5% (and up to 46% in certain cases).
Additionally, we have agreed to maintain a target payout ratio of at least 80%. We agreed with
Algonquin to periodically discuss the potential acquisition of assets from Algonquin pursuant to
the Algonquin ROFO agreement.

We also signed a ROFO agreement with AAGES and Algonquin, as we previously discussed.

Factors that affect comparability of our results of operations

▪ Acquisitions mentioned previously

▪ Agreement to repurchase long-term operation and maintenance variable services

The operation and maintenance services received in some of our Spanish solar assets include a

variable portion payable in the long-term. On April 26, 2018, we purchased from Abengoa the

long-term operation and maintenance payable accrued until December 31, 2017, which

amounted to $57.3 million. We paid $18.3 million for this payable and as a result, in the second

quarter of 2018, we recorded a one-time gain for the difference, amounting to $39.0 million.

▪ Project debt refinancing

In the second quarter of 2018, we refinanced Helios 1/2 and Helioenergy 1/2. Under the new

IFRS 9, Financial Instruments, when there is a refinancing with a non-substantial modification

of the original debt, there is a gain or loss recorded in the income statement. This gain or loss

is equal to the difference between the present value of the cash flows under the original terms

of the former financing and the present value of the cash flows under the new financing, each

discounted at the original effective interest rate. As a result, we recorded non-cash financial

income of $36.6 million in the second quarter of 2018.

▪

Impairment of Solana

In the fourth quarter of 2018, we recorded an impairment of $42.7 million relating to Solana
due to the underperformance of the plant in the past few years and the uncertainty of the
production level expected in the future. See Note 6 of our Annual Consolidated Financial
Statements.

▪ Change of ownership under Section 382 of the U.S. Internal Revenue Code

Under section 382 of the IRC, an “ownership change” would occur if our direct and indirect “5-
percent shareholders,” as defined under Section 382 of the IRC, collectively increased their
ownership in us by more than 50 percentage points over a rolling three-year period. In 2017,
as a result of Abengoa’s restructuring and the change in its shareholder base, we experienced
a change of ownership as defined under section 382 of the IRC, which caused an annual
limitation on the use of the pre-ownership change U.S. NOLs generated by our U.S. solar assets
equal to the equity value of the asset 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.” In addition, because we had recorded tax
credits for the U.S. tax loss carry forwards in the past, the limitation to our ability to use net
operating loss carry forwards in the United States resulted in writing off tax credits previously
recognized equal to $96 million in 2017. This one-time income tax expense did not have any
cash impact in 2017.

▪ U.S. Tax Reform

In December 2017, the TCJA was enacted in the United States. The measures adopted include,
among other measures, a decrease in the federal corporate tax rate from 35.0% to 21.0%
effective January 1, 2018. We therefore adjusted the deferred tax assets and liabilities of our
U.S. entities using the new enacted corporate tax rate as of December 31, 2017, resulting in a
one-time non-cash income tax expense of $19 million recorded in the consolidated income
statement for the year ended December 31, 2017.

Regulation in Spain

Our solar assets in Spain receive revenues under a regulation based on a reasonable rate of return
which is subject to review every six years, with the first regulatory period ending at the end of 2019.
On July 27, 2018, CNMC (the regulator for the electric system in Spain) issued a draft proposal for
the calculation of the reasonable rate of return for the regulatory period 2020-2025. The draft
reasonable rate of return proposed by CNMC was 7.04%. 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%. This draft also
contemplates the possibility of maintaining the current reasonable rate of return for certain assets
under certain circumstances for two consecutive regulatory periods. This draft is non-binding, open
to comments and would have to be approved by the Spanish parliament. In addition, since elections
are scheduled in April in Spain, the draft may not be approved.

Detail of the changes on Revenue, Operating Profit and Profit for the Year attributable to the Parent
Company are detailed below:

$ in millions

Revenue
Operating Profit
Profit/(loss) for the Year
Profit / (Loss) for the Year Attributable to the Parent
Company

2018
1,043.8
487.9
55.3

41.6

2017
1,008.4
458.0
(104.9)

(111.8)

The Group implemented IFRS 9, 15 and 16 on 1 January 2018 and have not restated the prior year
results. Therefore the 2018 results are not comparable to those of 2017.

Revenue and Operating Profit increased in 2018 compared to the previous year. In 2017, the main
reason for the Loss for the Year was a significant Income Tax expense. As explained above, an
ownership change under Section 382 of the U.S. Internal Revenue Code caused a limitation to our
ability to use net operating loss carry forwards. As a result, we wrote off tax credits previously
recognized amounting to $96 million in 2017. In addition, the tax reform in the US resulted in an
additional one-time non-cash income tax expense of $19 million in 2017.

Liquidity

As of 31 December 2018, our cash and cash equivalents at the project company level were $524.8
million compared with $520.9 million as of 31 December 2017. In addition, our cash and cash
equivalents at the Atlantica level were $106.7 million as of 31 December 2018 compared to $148.5

million as of 31 December 2017. Additionally, as of December 31, 2018, we had approximately
$105 million available under our Revolving Credit Facility and therefore total corporate liquidity of
$211.7 million. On January 25, 2019, we entered into an amendment to our Revolving Credit Facility
under which the total amount was increased from $215 million to $300 million. Considering this
increase, availability under our Revolving Credit Facility would have been $190 million and therefore
our total corporate liquidity would have been $296.7 million. As of December 31, 2017, we had
$71.0 million available under our Former Revolving Credit Facility and our total corporate liquidity
was $219.5 million.

We expect our ongoing sources of liquidity to include cash on hand, cash generated from our
operations, project debt arrangements, corporate debt and the issuance of additional equity
securities, as appropriate, given market conditions. Our financing agreements consist mainly of the
project-level financings for our various assets, the 2019 Notes, the Revolving Credit Facility, the
Note Issuance Facility and the line of credit with a local bank.

On November 17, 2014, we issued the 2019 Notes in an aggregate principal amount of $255 million
The 2019 Notes accrue annual interest of 7.000% payable semi-annually beginning on May 15,
2015 until their maturity date of November 15, 2019. As required by the Indenture governing the
2019 Notes, we have obtained a public credit rating for the 2019 Notes from S&P and Moody’s.On
10 February 2017, we signed a Note Issuance Facility, a senior secured note facility with a group of
funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total
amount of €275 million, with three series of notes: series 1 notes worth €92 million mature in 2022;
series 2 notes worth €91.5 million mature in 2023; and series 3 notes worth €91.5 million mature in
2024. Interest on all three series accrues at a rate per annum equal to the sum of 3-month EURIBOR
plus 4.90%. The proceeds of the Note Issuance Facility were used to repay and subsequently cancel
the tranche B under our Former Revolving Credit Facility. We fully hedged the Note Issuance Facility
with a swap that fixed the interest rate at 5.5%.

On May 10, 2018, we entered into a $215 million Revolving Credit Facility with a syndicate of banks
that matures in December 2021. The facility was increased by $85 million to $300 million in January
2019. The loans under the facility accrue interest at a rate per annum equal to: (A) for Eurodollar
rate loans, LIBOR plus a percentage determined by reference to our leverage ratio, ranging between
1.60% and 2.25% and (B) for base rate loans, the highest of (i) the rate per annum equal to the
weighted average of the rates on overnight U.S. Federal funds transactions with members of the
U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%,
(ii) the prime rate of the administrative agent under the Revolving Credit Facility and (iii) LIBOR plus
1.00%, in any case, plus a percentage determined by reference to our leverage ratio, ranging
between 0.60% and 1.00%. As of December 31, 2018, we had approximately $110.0 million
outstanding under the Revolving Credit Facility. On January 25, 2019, we entered into an
amendment to our Revolving Credit Facility under which the total amount was increased from $215
million to $300 million. Considering this increase, availability under our Revolving Credit Facility
would have been $190 million and therefore our total corporate liquidity would have been $296.7
million. The Revolving Credit Facility replaced tranche A of the Former Revolving Credit Facility,
which was repaid and cancelled ahead of its maturity.

As mentioned previously, on January 29, 2019, PG&E, the off-taker of Mojave filed for
reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court. 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 takes place at the end of the year,
the last distribution received at the corporate level took place in December 2018. Unless the event
or default is cured or waived, distributions may not be made during the pendency of the
bankruptcy.

Based on our current level of operations, we believe our cash flow from operations, available cash
and available borrowings under our financing agreements will be adequate to meet our future
liquidity needs for at least the next twelve months.

In 2018, we paid total dividends of $1.33 per share to our shareholders (see the “Directors’ Report-
Dividends” for amount of each quarterly dividend). In 2017, we paid $1.05 per share and from that
amount we retained $10.4 million of the dividend attributable to Abengoa in accordance with the
provisions of the agreements reached with Abengoa in relation to our preferred equity investment
in ACBH.

As previously stated within this Consolidated Annual Report, all our assets have contracted
revenues (regulated in the case of Spain and Chile TL3) and collectively have a weighted-average
remaining contract life of approximately 18 years as of December 31, 2018. To gain an overall fair
review of the business we enclose below a detailed breakdown of our results of operations for the
years ended as of December 31, 2018 and 2017:

$ in millions
Revenue
Other operating income
Raw materials and consumables used
Employee benefit expenses
Depreciation, amortization and impairment charges
Other operating expenses
Operating profit

Financial income
Financial expense
Net exchange differences
Other financial (expense)/income, net
Financial expense, net

Share of profit of associates carried under the equity method
Profit before income tax

Income tax
Profit/(Loss) for the year

(Loss) attributable to non-controlling interests
Profit/(Loss) for the year attributable to the parent company

Revenue

2018

2017

1,008.4
1,043.8
80.8
132.5
(17.0)
(10.6)
(18.8)
(15.1)
(311.0)
(362.7)
(300.0)
(284.5)
487.9 $ 458.0

36.4
(425.0)
1.6
(8.2)

1.0
(463.7)
(4.1)
18.4
$ (395.2) $ (448.4)
5.3
14.9
(42.6)
(119.8)
55.3 $ (104.9)
(6.9)
(13.7)
41.6 $ (111.8)

97.9 $

5.2

Revenue increased by 3.5% to $1,043.8 million for the year ended December 31, 2018, compared
to $1,008.4 million for the year ended December 31, 2017. The increase was primarily due to higher
production at Kaxu in South Africa and at our solar plants in the United States as well as to the

appreciation of the euro against the U.S. dollar. On a constant currency basis, revenue for the year
ended December 31, 2018 would have been $1,024.4 million, representing an increase of 1.6%
compared to the year ended December 31, 2017. In Kaxu, production was significantly higher for
the year ended December 31, 2018 partially because the previous year was affected by a technical
problem with the water pumps which was resolved during 2017. In the United States, revenues
increased for the year ended December 31, 2018 compared to the previous year, due in part to a
very good summer in terms of production.

The constant currency presentation is an Alternative Performance Measure, 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.

Other operating income

The following table sets forth our other operating income for the years ended December 31, 2018
and 2017:

Other operating income
Grants
Income from various services

Total

Year ended December 31,

2018

2017

$ in millions
59.4
73.1

132.5

59.7
21.1

80.8

“Other operating income” increased by 64.0% to $132.5 million for the year ended December 31,
2018, compared to $80.8 million for the year ended December 31, 2017. The operation and
maintenance services received by some of our Spanish solar assets include a variable portion
payable in the long-term. On April 26, 2018, we purchased from Abengoa the long-term operation
and maintenance payable accrued until December 31, 2017, which amounted to $57.3 million. We
paid $18.3 million for this and as a result in the second quarter of 2018 we have recorded a one-
time gain for the difference, amounting to $39.0 million. The increase was also due to the one-off
payments to Solana from Abengoa in connection with the consent from the DOE. In the context of
this agreement, Solana received an aggregate of $120 million of payments in December 2017 and
March 2018. From an accounting perspective, as the payment resulted from Abengoa’s obligations
under the EPC contract, most of the amounts received were recorded as reducing the asset value
of Solana. The remainder, approximately $25 million, has been recorded in the income statement
in 2018, partially increasing income from various services and partially reducing Other operating
expenses. In addition, Solana received approximately $10 million from an insurance claim in the
third quarter of 2018. Grants represent the financial support provided by the U.S. government to

Solana and Mojave and consist of ITC Cash Grants and an implicit grant related to the below market
interest rates of the project loans with the Federal Financing Bank.

Raw materials and consumables used

“Raw materials and consumables used” decreased by 37.3% to $10.6 million for the year ended
December 31, 2018, compared to $17.0 million for the year ended December 31, 2017, primarily
due to fewer spare parts and consumables used at Solana and Mojave.

Employee benefits expenses

“Employee benefit expenses” decreased by 19.8% to $15.1 million for the year ended December
31, 2018, compared to $18.7 million for the year ended December 31, 2017, mainly due to a $4.7
million reversal of the accrual of our 2016-2018 LTIP. The plan covered the three-year period 2016
to 2018 and is payable in March 2019. Without this effect, employee benefit expenses would have
increased slightly, mainly due to the appreciation of the euro against the U.S. dollar in 2018
compared to 2017, since a large part of our personnel costs are denominated in euros and due to
an increase of our headcount in Peru and South Africa following termination of the local services
agreements with Abengoa in these countries. As a result, we no longer pay any fee to Abengoa for
these services.

Depreciation, amortization and impairment charges

“Depreciation, amortization and impairment charges” increased by 16.6% to $362.7 million for the
year ended December 31, 2018, compared with $311.0 million for the year ended December 31,
2017, mainly due to the recognition of a $42.7 million impairment relating to Solana during the
fourth quarter of 2018. Considering the lower production in Solana compared with the run-rate
production expected due to technical issues experienced and the uncertainty around the level of
production in the future, we identified a triggering event of impairment which resulted in an
impairment loss of $42.7 million (see Note 6 to our Annual Consolidated Financial Statements).

The increase was also due in part to the appreciation of the euro against the U.S. dollar in 2018
compared to the same period during 2017, which caused an increase in the depreciation and
amortization of our Spanish assets when converted to U.S. dollars, as well as to the application of
the new accounting standard IFRS 9 in effect since January 2018. The new accounting standard
requires impairment provisions based on the expected credit losses on financial assets instead of
incurred credit losses as was the case under IAS 39. These effects were partially offset by a decrease
in the amortization of Solana arising from the reduction in the asset value resulting from the
amount received from Abengoa as part of DOE’s consent.

Other operating expenses

The following table sets forth our other operating expenses for the years ended December 31, 2018
and 2017:

Other operating expenses

Leases and fees
Operation and maintenance
Independent professional services
Supplies
Insurance
Levies and duties
Other expenses
Total

Year ended December 31,

2018

2017

$ in
millions

% of
revenue

$ in
millions

% of
revenue

1.7
145.8
43.2
26.0
24.2
37.5
21.6
300.0

0.2%
13.8%
4.1%
2.3%
2.6%
3.5%
2.0%
28.7%

6.6
129.9
36.2
20.4
24.3
52.4
14.7
284.5

0.7%
12.9%
3.6%
2.0%
2.4%
5.2%
1.5%
28.2%

“Other operating expenses” increased by 5.5% to $300.0 million for the year ended December 31,
2018, compared to $284.5 million for the year ended December 31, 2017. The increase was mainly
due to the higher operation and maintenance costs at ACT incurred in connection with major
maintenance scheduled for the beginning of 2019. In ACT, the operation and maintenance costs
increase in the quarters prior to a major maintenance. Operation and maintenance expenses also
increased due to the appreciation of the euro against the US dollar in our solar assets in Spain,
whose expenses are denominated in euros and converted to U.S. dollars at an average currency
exchange rate for the year. Levies and duties decreased mainly due to a one-time provision for
property taxes recorded at some plants in Spain in the second quarter of 2017 with no
corresponding amount during the same period of 2018.

Operating profit

As a result of the above factors, operating profit increased by 6.5% to $487.9 million for the year
ended December 31, 2018, compared with $458.0 million for the year ended December 31, 2017.

Financial income and financial expense

Financial income and financial expense
Financial income
Financial expense
Net exchange differences
Other financial income, net

Financial expense, net

Financial income

Year ended December 31,

2018

2017

$ in millions
36.4
(425.0)
1.6
(8.2)

(395.2)

1.0
(463.7)
(4.1)
18.4

(448.4)

Financial income increased to $36.4 million for the year ended December 31, 2018, compared to
$1.0 million for the year ended December 31, 2017. The increase was due in part to non-cash
financial income of $36.6 million resulting from the refinancing of Helios 1/2 and Helioenergy 1/2
in the second quarter of 2018. Under IFRS 9, when there is a refinancing with a non-substantial

modification of the original debt, there is a gain or loss recorded in the income statement. This
gain or loss is equal to the difference between the present value of the cash flows under the original
terms of the former financing and the present value of the cash flows under the new financing,
discounted both at the original effective interest rate.

Financial expense

The following table sets forth our financial expense for the years ended December 31, 2018 and
2017:

Financial expense
Expenses due to interest:
Loans with credit entities
Other debts
Interest rates losses derivatives: cash flow

Total

Year ended December 31,

2018

2017

$ in millions

(256.7)
(100.1)
(68.2)
(425.0)

(253.7)
(137.6)
(72.4)
(463.7)

Financial expense decreased by 8.3% to $425.0 million for the year ended December 31, 2018,
compared to $463.7 million for the year ended December 31, 2017. Financial expense in loans with
credit entities increased mainly due to an increase in Libor denominated project debt, which was
partially offset by a decrease in interest rate losses in derivatives, caused by an increase in Libor.
The interest on other debts consisted of Interest on the notes issued by ATS, ATN, ATN2, Atlantica,
Solaben 1/6, on the 2019 Notes and financial expense related to the Solana’s investments from
Liberty. In 2017 we updated the accounting model used to calculate this liability considering past
underperformance of Solana and recorded a non-cash expense; in 2018 we also updated the
model, which resulted in a lower non-cash expense, which explains the decrease in 2018.

Other financial income/(expense), net

Other financial income/(expenses)
Dividend from ACBH
Other financial income
Other financial losses

Total

Year ended December 31,

2018

2017

$ in millions

-
14.4
(22.6)

(8.2)

10.4
28.8
(20.8)

18.4

“Other financial income/(expense), net” was a net expense of $8.2 million for the year ended
December 31, 2018, compared to a net income of $18.4 million for the year ended December 31,
2017. The change resulted in part from the $10.4 million ACBH retained dividend compensation
recorded in the first quarter of 2017 with no corresponding amount in 2018. We no longer own
any shares in ACBH and will not retain any additional dividends. In addition, the decrease in Other

financial income was mainly due to the gain in 2017 resulting from the cancelation of the currency
swap agreement with Abengoa with no corresponding amount in 2018.

“Other financial losses” include expenses from guarantees, letters of credit, wire transfers, other
bank fees and other minor financial expenses.

Share of profit of associates carried under the equity method

Share of profit of associates carried under the equity method remained stable, amounting to $5.2
million in the year ended December 31, 2018, compared to $5.3 million in the year ended December
31, 2017. This includes mainly the income from Honaine, which we account for by the equity
method.

Profit/(loss) before income tax

As a result of the previously mentioned factors, we reported a profit before income taxes of $97.9
million for the year ended December 31, 2018, compared to a profit before income taxes of $14.9
million for the year ended December 31, 2017.

Income tax

The effective tax rate for the periods presented has been established based on management’s best
estimates. For the year ended December 31, 2018, income tax amounted to an expense of $42.6
million, with a profit before income tax of $97.9 million. For the year ended December 31, 2017,
income tax amounted to a $119.8 million of expense, with a profit before income tax of $14.9
million. In 2017, we recorded a one-time income tax of $96 million mainly due to the change of
ownership under Section 382 of the Internal Revenue Code. The effective tax rate differs from the
nominal tax rate mainly due to permanent differences and tax losses for which we do not record a
tax credit in some jurisdictions.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests was $13.7 million for the year ended December 31,
2018 compared to $6.9 million for the year ended December 31, 2017. The change was mainly
due to higher profit at Kaxu, a project in which our partner holds a 49% stake and which reported
a loss in 2017.

Profit / (loss) attributable to the parent company

As a result of the previously mentioned factors, profit attributable to the parent company was $41.6
million for the year ended December 31, 2018, compared to a loss of $111.8 million for the year
ended December 31, 2017.

Key Performance Indicators

In addition to the factors described above, we closely monitor the following key drivers of our
business sectors’ performance to plan for our needs, and to adjust our expectations, financial
budgets and forecasts appropriately.

Renewable Energy
MW in operation1
GWh produced2
Efficient Natural Gas Power
MW in operation
GWh produced2
Availability (%)3
Electric Transmission
Miles in operation1
Availability (%)4
Water
Mft3 in operation1
Availability (%)4

As of December, 31
2017
2018

1,496 1,442
3,058 3,167

300

300
2,318 2,372
99.8% 100.5%

1,152 1,099
99.9% 97.9%

10.5

10.5
102.0% 101.8%

1 Represents total installed capacity in assets owned at the end of the period, regardless of our percentage of ownership

in each of the assets.

2 Includes curtailment in wind assets for which we receive compensation.
3 Electric availability refers to operational MW over contracted MW with PEMEX.
4 Availability refers to actual availability divided by contracted availability.

During 2018, our renewable assets continued to generate solid operating results. Production
decreased by 3.7% compared to the previous year mainly due to a decrease in production in Spain
for the year ended December 31, 2018. The decrease was due to lower solar radiation, particularly
during the second quarter of 2018. However, impact on revenues was limited, since most of the
revenues is based on the availability of assets and not their actual production. This decrease was
partially offset by an increase in production in the US and South Africa. The U.S. solar portfolio
delivered a strong performance in 2018, with increased production from both Solana and Mojave,
reaching its highest yearly production ever, with a capacity factor of 28.2% in 2018. Operating
performance in 2018 of Kaxu (South Africa) was also very good, after resolving its technical issues
from 2017, reaching a capacity factor of 36.0% (compared with 24.9% in 2017). Finally, production
of our wind assets in 2018 was in line with 2017.

Total installed capacity in all our segments remained stable since we did not close significant
acquisitions in 2018 until the end of the year 2018, with no significant impact in results of
operations.

In addition to what we disclose on the table above, our main KPIs are Revenues and Further
Adjusted EBITDA, discussed below.

Regarding the assets for which revenues are based on availability, they delivered solid performance
in 2018, with high availability levels in ACT, in transmission lines and in water assets.

Our Segment Reporting

As of December 31, 2018, we organize our business into the following three geographies where
the contracted assets and concessions are located:

North America;

South America; and

EMEA.

In addition, we have identified the following business sectors based on the type of activity:

Renewable Energy, which includes our activities related to the production electricity from
solar power and wind plants;

Efficient natural gas power, which includes our activities related to the production of
electricity and steam from natural gas;

Electric transmission, which includes our activities related to the operation of electric
transmission lines; and

Water, which includes our activities related to desalination plants.

As a result, we report our results through the year ended December 31, 2018 in accordance with
both criteria.

In our segment discussion, we use Further Adjusted EBITDA, which is an Alternative Performance
Measure. 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.

Reconciliation of profit/(loss) for the year to Further Adjusted EBITDA
Profit/(loss) for the year attributable to the parent company
Profit/(loss) attributable to non-controlling interest from continued
operations
Income tax
Share of loss/(profit) of associates carried under the equity method
Financial expenses, net
Operating profit/(loss)
Depreciation, amortization and impairment charges
Dividend from preferred equity investment
Further Adjusted EBITDA

As of December 31,

2017

2018
($ in millions)
41.6

(111.8)

13.7

42.6
(5.2)
395.2
487.9
362.7
-
850.6

6.9

119.8
(5.3)
448.4
458.0
311.0
10.3
779.3

Revenue by geography
North America
South America
EMEA
Total revenue

Further Adjusted EBITDA by geography

North America
South America
EMEA
Further Adjusted EBITDA(1)

Year ended December 31,
2017
2018

% of

% of
revenue

$ in
millions
357.2
123.2
563.4

revenue
34.2 %
11.8 %
54.0 %

33.0 %
12.0 %
55.0 %
1,043.8 100.0 % 1,008.4 100.0 %

$ in
millions
332.7
120.8
554.9

Year ended December 31,
2017
2018

% of

$ in
millions
308.8
100.2
441.6
850.6

$ in
millions
revenue
282.3
86.4 %
108.8
81.3 %
78.4 %
388.2
81.5 % 779.3

% of
revenue

84.9 %
90.0 %
70.0 %
77.3 %

Note:

(1)

Further Adjusted EBITDA is an Alternative Performance Measure. 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 the year ended December 31, 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.

Volume by geography
North America (GWh)
South America (miles in operation)
South America (GWh)
EMEA (GWh)
EMEA (capacity in M ft3 per day)

North America

Volume produced/availability
Year ended December 31,
2017
2018

3,700
1,152
340
1,326
10.5

3,695
1,099
325
1,519
10.5

Revenue increased by 7.4% to $357.2 million for the year ended December 31, 2018 compared to
$332.7 million for the year ended December 31, 2017. The increase was primarily due to higher
revenues generated by our solar assets in California and Arizona which had an above average year
in terms of production. Additionally, revenue increased in ACT in the portion of the tariff related to
the operation and maintenance services, driven by the higher operation and maintenance costs for
the year ended December 31, 2018. Further Adjusted EBITDA increased by 9.4% to 308.8 million
for the year ended December 31, 2018, compared to $282.3 million for the year ended December
31, 2017. Further Adjusted EBITDA margin increased to 86.4% for the year ended December 31,
2018 compared to 84.9% in the same period in the previous year mainly due to certain one-off
items recorded in Solana and to the positive performance of our U.S. solar assets.

South America

Revenue increased by 2.0% to $123.2 million for the year ended December 31, 2018, compared to
$120.8 million for the year ended December 31, 2017 with production and availabilities in line with
the same period of last year. Further Adjusted EBITDA decreased by 7.9% to $100.2 million for the
year ended December 31, 2018, compared to $108.8 million for the year ended December 31, 2017.
Further Adjusted EBITDA margin decreased to 81.3% for the year ended December 31,2018
compared to 90.0% for the year ended December 31, 2017. Pursuant to the agreement reached
with Abengoa in the third quarter of 2016, we were acknowledged as the legal owner of the
dividends retained from Abengoa prior to the ACBH agreement settlement. As a result, we recorded
$10.4 million income in the first quarter of 2017 in our financial statements, in accordance with the
accounting treatment given previously to the ACBH dividend. We no longer own any shares in
ACBH and will not retain any additional dividends.

EMEA

Revenue increased by 1.5% to $563.4 million for the year ended December 31, 2018, compared to
$554.9 million for the year ended December 31, 2017. The increase was mainly due to higher
production levels at Kaxu, our solar plant in South Africa which experienced technical problems
during 2017 and performed significantly better in 2018 following the repairs completed during
2017. Revenue also increased due to a more favourable foreign exchange rate between the U.S.
dollar and euro. On a constant currency basis, revenue for the year ended December 31, 2018
would have been $544.0 million, representing a decrease of 2.0% compared to the same period of
2017. Further Adjusted EBITDA increased by 13.6% to $441.6 million for the year ended December
31, 2018, compared to $388.2 million for the year ended December 31, 2017. Further Adjusted

EBITDA margin increased to 78.4% for the year ended December 31, 2018, compared to 70.0% for
the same period in 2017. The increase was mainly attributable to the one-time $39.0 million gain
we recognized related to the long-term operation and maintenance payables accrued in Spain.

Revenue by business sector
Renewable energy
Efficient natural gas power
Electric transmission lines
Water

Total revenue

Further Adjusted EBITDA by business sector
Renewable energy
Efficient natural gas power
Electric transmission lines
Water
Further Adjusted EBITDA(1)
Note:

Year ended December 31,
2018

2017

$ in
Millions
793.5
130.8
96.0
23.5

% of
revenue
76.0%
12.5%
9.2%
2.3%

$ in
millions
767.2
119.8
95.1
26.3

% of
revenue
76.1%
11.9%
9.4%
2.6%

1,043.8 100.0%

1,008.4 100.0%

Year ended December 31,
2018

2017

$ in
Millions
664.4
93.9
78.4
13.9

% of
revenue
83.7%
71.8%
81.7%
59.1%
850.6 81.5%

$ in
millions
569.2
106.1
87.7
16.3

% of
revenue
74.2%
88.6%
92.2%
62.0%
779.3 77.3%

(1)

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 the year ended

December 31, 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.

Volume by business sector
Renewable energy (GWh)
Efficient natural gas power (GWh)
Electric transmission lines (miles in operation)
Water (Mft3 in operation)

Volume produced/availability

Year ended December 31,

2018

2017

3,049
2,318
1,152
10.5

3,167
2,372
1,099
10.5

Renewable energy

Revenue increased by 3.4% to $793.5 million for the year ended December 31, 2018, compared
with $767.2 million for the year ended December 31, 2017. The increase was due in part to a more
favourable foreign exchange rate between the U.S. dollar and the euro and the South African Rand.
On a constant currency basis, revenue for the year ended December 31, 2018 would have been
$773.2 million, representing an increase of 0.8% compared to the same period in 2017. The increase
was also due to the higher production in Kaxu and in our U.S. solar assets. Further Adjusted EBITDA
increased by 16.7% to $664.4 million for the year ended December 31, 2018, compared to $569.2
million for the year ended December 31, 2017. Further Adjusted EBITDA margin increased to 83.7%
for the year ended December 31, 2018 compared to 74.2% for the year ended December 31, 2017
principally due to the one-off $39.0 million gain on the long-term operation and maintenance
agreement.

Efficient natural gas power

Revenue increased by 9.2% to $130.8 million for the year ended December 31, 2018, compared to
$119.8 million for the year ended December 31, 2017. The increase was due in part to the higher
revenues in the portion of the tariff related to the operation and maintenance services, driven by
the higher operation and maintenance costs in 2018. Operation and maintenance costs are typically
higher in the quarters prior to a major maintenance, which is scheduled to take place at the
beginning of 2019. As a result, Further Adjusted EBITDA margin decreased from 88.6% in the year
ended December 31, 2017, compared to 71.8% in the year ended December 31, 2018. Further
Adjusted EBITDA decreased by 11.6% to $93.9 million for the year ended December 31, 2018,
compared to $106.1 million for the year ended December 31, 2017.

Electric transmission lines

Revenue remained stable at $96.0 million for year ended December 31, 2018, compared with $95.1
million for the year ended December 31, 2017. Further Adjusted EBITDA decreased to $78.4 million
in the year ended December 31, 2018 from $87.7 million in the year ended December 31, 2017,
primarily due to the ACBH dividend recorded in the first quarter of 2017. Pursuant to the
agreement reached with Abengoa in the third quarter of 2016, we were acknowledged as the legal
owner of the dividends retained from Abengoa prior to the ACBH agreement settlement. As a
result, we recorded $10.4 million income in the first quarter of 2017 in our financial statements, in
accordance with the accounting treatment given previously to the ACBH dividend. We no longer
own any shares in ACBH and will not retain any additional dividends. Further Adjusted EBITDA

margin decreased from 92.2% in the year ended December 31, 2017, compared to 81.7% in the
year ended December 31, 2018.

Water

Revenue and Further Adjusted EBITDA for the year ended December 31, 2018 decreased to $23.5
million and $13.9 million from $26.3 million and $16.3 million, respectively, for the year ended
December 31, 2017. This decreased was mainly due to one-off gains recorded in 2017. Further
Adjusted EBITDA margin decreased from 62.0% in the year ended December 31, 2017, compared
to 59.1% in the year ended December 31, 2018.

Principal risks and uncertainties

The Company and its underlying assets are subject to a number of risks ranging from operating,
regulatory, financial and connection to Abengoa. The processes and systems implemented have
been designed to mitigate those risks to the extent possible. We include the following table as a
summary of some of those risks and action plans carried out to mitigate them:

Risk

Poor
performance of
assets

Impact
▪ Loss of revenues and cash flows at
the project company level, which
has subsequent impact on cash
returns to the Company.

▪ In addition, we rely on third parties
for the supply of services and
equipment,

including technologically complex
equipment and operation and
maintenance services.

▪ We use insurance to seek coverage
against inherent risks in our markets.
Insurance policies are subject to
periodic review by our insurers. We
may not be able to renew our
in the terms
insurance policies
required by our power purchase
agreements and project financing
agreements, which could require a
waiver from those parties. Insurance
premiums may
in the
future, or certain types of insurance
coverage may not be available, or
deductibles may increase. These
events could have an adverse effect
on our ability to comply with our
project financing obligations.

increase

▪ Liquidity risk

▪ Not being able to meet our financial

obligations as they fall due

Mitigation of risk

▪ Dedicated

supervisory

and

management teams.

▪ Reporting and monitoring systems

in place.

▪ Proven technology through years of

experience.
▪ Operation

and

maintenance

contracted with specialists.

▪ Tracked down alternative O&M

opportunities in the market.

▪ Use the provisions of the EPC

guarantee where possible.

Assessment of change in risk year-
on-year

▪ In the

last few years, we had
technical problems in Solana and
Kaxu. Repairs and improvements
were carried out at these two assets,
but we cannot guarantee we will
reach expected performance.

▪ We filed several insurance claims in
recent periods. In summer 2017,
Solana experienced problems with
its transformers for which significant
portion of the insurance proceeds
for property damages were received
in 2017. At Kaxu, we filed a claim for
loss of
property damage and
revenue
technical
following
problems with the plants water
pumps at the end of 2016. We
received insurance compensation in
2017.

As of December 31, 2018, our
Corporate debt consists of:
▪ The 2019 bonds for $255 million,

maturing in November 2019.

▪ A note issuance facility signed in
February 2017 for €275 million

(approximately $316 million) with

three series maturing in 2022 (€92

▪ Cash on hand: as of December 31,
2018, we had $106.7 million at the
corporate level plus $105 million
available under our revolving credit
facility. Considering the increase on
the limit of the revolving credit
facility we did in January, availability
under our Revolving Credit Facility
would have been $190 million.

Risk

Impact

Assessment of change in risk year-
on-year

million), in 2023 (€91.5 million) and

2024 (€91.5 million).

▪ The revolving credit facility which
was refinanced in 2018 for a total

amount of $215 million, of which

$110 million were drawn as of

December 31, 2018 and $105

million were available. On January

25, 2019, we entered

into an

amendment

to our Revolving

Credit Facility under which the total

amount was increased to $300

million.

▪ Credit risk

▪ Not being able to collect our

revenues.

filed

certain

▪ On January 29, 2019, PG&E, the off-
taker
for
of Mojave,
reorganization under Chapter 11 of
the Bankruptcy Code in the U.S. A
default of the PPA agreement with
PG&E occurred with the PG&E
bankruptcy filing and such default
could trigger an event of default
under our Mojave project finance
agreement
other
conditions were met. If not cured or
waived, an event of default in the
project finance could result in debt
acceleration and, if such amounts
were not timely paid, the DOE could
decide to foreclose on the asset. If
not cured or waived, an event of
in
default
restrictions
cash
distributions from Mojave to the
holding level. Such events may have
a material adverse effect on our
business, financial condition, results
of operations and cash flows.

also
to make

could

result

▪ During the recent months the credit
rating of Eskom has also weakened

and is currently CCC+ from S&P, B2

from Moody’s and BB- from 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.

Mitigation of risk
▪ A portion of cash flows generated
and distributed by our project
companies to the holding company
are retained at the holding company
level.

▪ Refinancing

bullet-maturity
corporate debt. We are currently in
the process of evaluating options to
refinance the 2019 bonds.

▪ Processes and systems in place.
▪ Possibility
policy.

to change dividend

▪ Refinancing

extension

of
maturities of the revolving facilities.
▪ Most of our clients are investment
grade off-takers (based on Moody’s
rating).

▪ According to public information, the
main reason for PG&E’s bankruptcy
are the California wildfires in 2017
and 2018. PG&E intends to continue
servicing its clients and paying its
suppliers. PG&E has continued to be
in compliance with the remaining
terms and conditions of the PPA,
including with all the payments
terms of the PPA up through the
date hereof with the exception of
prepetition services payable after
the bankruptcy filing date.

• In

the case of Kaxu, 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 rating of the Republic of

South Africa as of the date of this

report

is BB/Baa3/BB+ by S&P,

Moody’s and Fitch, respectively.
▪ We maintain a diversified portfolio
where the weight of each client is
limited. In addition, we expect that
our growth strategy will further
permit us to dilute the weight of
each client.

▪ As of December 31, 2018, and 2017,
we did not have trade receivables
outstanding for more than three
months.

▪ 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,

▪ Rising temperatures are increasing
intensity of
the
frequency and
droughts and risk of
fire. For
example, in California, the size and
ferocity of
increased
significantly in the last 20 years,
which have also been very hot and
dry years. California wildfires have

fires has

▪ A large majority of our business is
clean, including renewable electricity
generation, water desalination and
lines. We are a
transmission
sustainable company and intend to
continue to be sustainable. In order
to have a positive impact on climate
change, we have a set a limit of 80%

Risk

Impact

Assessment of change in risk year-
on-year

Mitigation of risk

droughts, fires, cyclones and floods,
among others.

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

rising

of our revenues generated from
and
renewables,
and
transmission
water assets.

transportation
infrastructures

▪ We intend to set an internal system
to identify, monitor and manage
and
climate
opportunities.

risks

lines,

fatalities

especially

catastrophic,
been
and
causing human
losses. Our
significant material
transmission
including
transmission lines and substations
which are part of our solar assets,
could cause fires, which can create
significant
fire
liabilities
damaged third parties.

the

▪ Severe floods could damage our
plants, especially our transmission
lines or our generation assets.

restrictions

▪ Severe winds could cause damage in
the solar fields in our solar assets.
▪ Severe droughts could result in
a

water
deterioration of water properties.
▪ 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 molluscs 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.

to assess

Although we have insurances in place
which cover these type of events, it is
extremely difficult
the
economic financial impact this may
have. All these events could cause a
material adverse effect
in our
business, results of operations and
cash flows.

previously,

temperatures

In addition, to the physical risks
mentioned
rising
temperatures could cause an increase
in our operation and maintenance
are
costs. Rising
associated to the reduction of the
cycle efficiency of our turbines, a
in solar
reduction of efficiency
photovoltaic
lower
modules,
efficiency in wind facilities and higher
consumption of chemicals used for
operational
our
purposes
desalination plants, among others.
▪ Our growth strategy depends on our
ability to successfully identify and
evaluate acquisition opportunities
and consummate acquisitions on
favourable terms. The number of
acquisition opportunities may be
limited. We cannot be certain that
AAGES, Algonquin or Abengoa will
offer us assets under the ROFO

(optimizing

▪ We have diversified our sources of
growth, which now include organic
opportunities
the
existing portfolio, price escalation
factors and through expansions of
our assets), our ROFO agreements,
other partnerships and acquisitions
from third parties. We recently

▪ Access
future
acquisitions.

▪ Impede our ability to execute our

growth strategy.

Risk

Impact

Assessment of change in risk year-
on-year

Mitigation of risk

announced acquisitions
including
examples of all these types of assets.

▪ Dedicated

supervisory
to
teams

and
locate

management
opportunities within the market.
▪ Co-investment opportunities with

Algonquin.

▪ Limiting exposure to construction
risk,
for example, acquiring a
minority stake when the asset is
taking
under construction and
control once it is in operation.

in many
public
including,

Agreements that
fit within our
portfolio of assets or contribute to
our growth strategy. Our ability to
acquire future renewable energy
projects or businesses depends on
the viability of renewable energy
projects generally. These projects
cases
currently are
policy
contingent
among
mechanisms
others,
loan
guarantees. Furthermore, we will
compete with other 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
for acquisitions are
competitors
much
us, with
substantially greater resources.

ITCs, cash grants,

larger

than

▪ In order to grow, we depend on
including
availability,

financing
access to capital markets.

subject

▪ In order to grow our business, we
may acquire assets and businesses
which may have a higher risk profile
than the assets we currently own.
We may consider investing in assets
which are not currently in operation
and which
to
are
development and construction risk.
In addition, we may consider
acquiring businesses which are not
contracted,
regulated
including
businesses, which are subject to
demand risk. We may also consider
acquiring assets which are not
contracted or not fully contracted,
or
risk.
Furthermore, we may consider
acquiring assets with revenues not
denominated in US dollars or Euros,
which would increase our exposure
to local currency.

to merchant

subject

▪ No significant changes in the year.

▪ We intend to grow our portfolio
mainly in countries that we consider
stable in North America, Europe and
South America. We expect that
investments in countries with a
higher risk profile such as Algeria
and South Africa represent always a
small portion of our portfolio.

▪ Local presence and knowledge of

the region.

▪ International
operations
including
emerging
markets.

We operate our activities in a range of
international locations and we may
expand our operations to certain
countries within the regions where we
are already present. Accordingly, we
face a number of risks including
adapting
regulatory
requirements of such countries, the
uncertainty of judicial processes, and
the absence, loss or non-renewal of
similar
treaties,
favourable
agreements, with local authorities or
economic
political,
social
and
instability. Our

and
activities

the

Risk

Impact

Assessment of change in risk year-
on-year

Mitigation of risk

instability,

regulations,

investments
in emerging markets
involve a number of risks that are
more prevalent than in developed
markets, such as economic and
governmental
the
possibility of significant amendments
to, or changes in, the application of
governmental
the
nationalization and expropriation of
private property, payment collection
problems,
social
difficulties,
substantial fluctuations in interest and
exchange rates, changes in the tax
framework or the unpredictability of
contractual
of
enforcement
provisions, currency control measures,
limits on the repatriation of funds and
other unfavorable interventions or
imposed by public
restrictions
authorities.
▪ Uncertainty or changes to any such
regulation could adversely affect the
profitability of our current plants
and our ability to refinance projects.

▪ Revenues

parameters

in Spain are mainly
defined by regulation and some of
the
the
revenues are subject to review every
six years, with the next review taking
place at the end of 2019.

defining

▪ In

the

U.S.,

current
the
proposed
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
and
clean
initiatives designed to curtail climate
change.

programs

energy

▪ Uncertainty or changes

tax
regulations could adversely affect
the profitability of our current plants
and our ability to refinance projects.

▪ Other markets in which we operate
are subject to different tax regimes.
Changes, such as reduction or
tax benefits, or
elimination of
reduction of
could
tax
adversely affect the market for
investment in our projects by third
parties and limit our ability to grow
our business.

rates

limitation on

▪ Tax reform recently enacted in the
United States includes, among other
things,
the
deductibility of
interest and a
limitation on the deduction for new
NOLs which could adversely affect
us. In addition, certain measures
included in the tax reform such as a
reduction in the enacted income tax
rate and the new base erosion anti-
abuse tax may impact the cost and
availability of tax equity investors,
which could have a negative impact
in our growth prospects in the U.S.

▪ Regulation

legal,
environmental
general
and
compliance
-
of each asset

▪ Regulation

Tax

▪ Strong power purchase agreement
or concession contracts in many
assets.

▪ Investment grade credit ratings in

many of our clients.

▪ Management
specialized
and
compliance
continuously
teams
tracking down any potential change.

▪ Reporting and monitoring system.

▪ According to our analysis, the cash
impact of the U.S. tax reform is
considered
since we
limited
continue to expect not to pay
significant taxes in the U.S. in the
upcoming years.

▪ NOL limitation under section 382 is
partially mitigated by a certain
portion of any “built-in-gains”.

▪ Management
specialized
and
continuously
teams
compliance
tracking down any potential change.

Risk

Impact

▪ Brexit

Political, social and macroeconomic
uncertainty.

Mitigation of risk

▪ Strategic focus on market spread,
geographical capability and
diversification to protect against
the cyclical effect of individual
markets

▪ Management and specialized

compliance teams continuously
tracking down any potential
change.

▪ Reporting and monitoring system.

Assessment of change in risk year-
on-year
▪ A change of ownership as defined
under section 382 of the IRC in the
United States, including direct and
indirect shareholders, may limit our
ability to use net operating loss carry
forwards in the United States, which
could negatively affect our cash
flows.
Abengoa
restructuring caused a change of
ownership limiting our ability to use
net operating loss carry forwards in
the United States. The sale by
Abengoa of their stake in us could,
or
our
changes
shareholders could, cause another
change of ownership.

2017,

other

▪ We are also subject to changes in tax
in the rest of the

regulations
jurisdictions where we have assets.

result

impacts

the Treaty on

The exit of the United Kingdom from
the EU or prolonged periods of
uncertainty
in
could
deterioration,
macroeconomic
negative
stock
exchanges and decreased GDP in
the European Union. Under Article
50, the Treaty on the European
Union and
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. The United
Kingdom and the European Union
have not reached an agreement on
the future terms of the United
Kingdom’s relationship with the
European Union. There
the
potential that the United Kingdom
and the European Union may not
agree to a withdrawal arrangement
before the date the United Kingdom
leaves
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.

the

EU exit negotiations continue to
have limited impact to our markets.
However, longer term effects remain
difficult to predict. Our business
operates through its owned assets
mainly outside the UK, therefore we
have not been required to consider
any changes to our business model.
There could be changes to tax
regulation affecting the repatriation

Risk

Impact

▪ Financing

▪ Potential restrictions to distribute

agreements in
each contract

cash out of project companies

▪ Declare project finance debt to be
due and payable immediately if
there is an event of default

▪ Connection to
Algonquin

▪ Our reputation is closely related to

Algonquin’s reputation.

Mitigation of risk

▪ Reporting

and monitoring of

covenants in each contract

and

▪ Management
specialized
compliance
teams
continuously tracking down any
change

legal

and

Assessment of change in risk year-
on-year
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
labour, all of which could have an
adverse effect on our operations.
▪ As of December 31, 2018, Solana
met the minimum debt service
coverage ratio, however it did not
and
meet
the
performance
for
distributions. The asset may not
meet those thresholds in 2019.
▪ Kaxu had a reduced production
during the year 2017 and did not
reach the minimum debt coverage
ratios
the project
financing which, according to the
lending agreement, represented a
technical default event. Project
financing lenders had agreed to
waive the instance from causing
default. In 2018, although Kaxu’s
debt
the
minimum threshold, distributions
were delayed as a consequence of
the extension of the Guarantee
Period in October 2018.

operating
thresholds

required by

coverage

reached

▪ In 2019, the bankruptcy of PG&E
could result in a potential event of
default under the project financing
agreement (see details above).

▪ Algonquin beneficially owns and is
to vote approximately
entitled
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. There can
be no assurance that the interests of
Algonquin will coincide with the
interests of the rest of shareholders
or that Algonquin will act in a
manner that is in our best interests.

▪ Our ownership structure may give
rise to certain conflicts of interest

▪ A majority of our board is formed by

independent directors.

▪ 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
independent directors. The
our
existence of our
related party
transaction approval policy may not
insulate us from derivative claims
related to related party transactions
and
interest
described in this risk factor.

conflicts of

the

Risk

Impact

Assessment of change in risk year-
on-year

Mitigation of risk

between us, Algonquin, and the rest
of our shareholders. Currently, two
of our directors are affiliated with
Algonquin. 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
of
counterparties to do business with
us, all of which may have a material
adverse effect on our business,
financial
results of
operations and cash flows.

willingness

condition,

the

▪ During the year 2018 Abengoa
largest
be
our
ceased
to
shareholder.
certain
Although
relations remain, Abengoa is no
longer our largest shareholder.

▪ Our reputation is still closely related
reputation, since
to Abengoa’s
Abengoa was until recently our
largest shareholder and is currently
our largest supplier.

contracts

▪ Abengoa has obligations with us
under operation and maintenance
agreements, some EPC agreements,
as well as other indemnities and
obligations. We have operation and
maintenance
with
Abengoa at most of our assets. We
cannot guarantee that Abengoa and
its subcontractors will be able to
continue performing with the same
level of service and under the same
terms and conditions,
including
prices. Although we have long-term
O&M agreements in most of our
assets, if Abengoa cannot continue
performing current services at the
same prices, this could cause a
change of supplier and we cannot
guarantee the prices and conditions
will be maintained.

▪ Cross-default provisions related to
future defaults by Abengoa could
trigger default under the project
finance arrangement of Kaxu.

▪ We have agreements in place which
Abengoa’s

have
reinforced
obligations with us.

for

▪ We believe we could find alternative
suppliers
and
maintenance services if required, as
we have already done in certain
countries.

operation

▪ Increases in rates would raise our
project

finance
expenses
companies or corporate level.

▪ Revenues and expenses of our solar
assets in Spain and our solar asset in
South Africa are denominated in
euros and South African rand,
respectively. Depreciation in the
value of euro or South African rand
against U.S. dollar may have a
negative impact on our operating

▪ No material changes.

▪ In our assets revenues, debt and
most of the expenses are always
denominated in the same currency,
creating a natural hedge.

▪ Our solar power plants in Spain have
expenses

revenues

their

and

denominated

in euros. At

the

corporate

level, we have some

general and administrative expenses

and debt denominated in euros. Our

▪ Connection to

Abengoa

rate
foreign

▪ Interest
and
currency
exchange rate

Risk

Impact

Assessment of change in risk year-
on-year

Mitigation of risk

results and our cash available for
distribution.

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 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.

▪ 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.

▪ Over 90% of our total interest risk

exposure is fixed or hedged.

Financial Risk Management

Interest rates

We incur significant indebtedness at the corporate level and asset level. The interest rate risk arises
mainly from indebtedness with variable interest rates. Most of our debt consists of project debt. As
of December 31, 2018, approximately 93% of our project debt has either fixed interest rates or has
been hedged with swaps or caps.

Regarding our corporate debt, in November 2014, we incurred indebtedness at the corporate level
through the issuance of the 2019 Notes, which have a fixed interest rate of 7.00% and mature in
November 2019.

On February 10, 2017, we signed a Note Issuance Facility, a senior secured note facility with a group
of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total
amount of €275 million (approximately $315.7 million), with three series of notes. Series 1 notes
worth €92 million mature in 2022; series 2 notes worth €91.5 million mature in 2023; and series 3
notes worth €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum
equal to the sum of 3-month EURIBOR plus 4.90%. We fully hedged the Note Issuance Facility with
a swap that fixed the interest rate at 5.5%.

weighted average of the rates on overnight U.S. Federal funds transactions with members of the
U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%,
(ii) the prime rate of the administrative agent under the Revolving Credit Facility and (iii) LIBOR plus
1.00%, in any case, plus a percentage determined by reference to our leverage ratio, ranging
between 0.60% and 1.00%. As of December 31, 2018, we had $110.0 million outstanding under the
Revolving Credit Facility. On January 25, 2019, we entered into an amendment to our Revolving
Credit Facility under which the total amount was increased from $215 million to $300 million.
Considering this increase, availability under our Revolving Credit Facility would have been $190
million and therefore our total corporate liquidity would have been $296.7 million.

To mitigate the interest rate risk, we primarily use long-term interest rate swaps and interest rate
options which, in exchange for a fee, offer protection against a rise in interest rates and we apply
hedge accounting. We estimate that approximately 91% of our total interest risk exposure is fixed
or hedged. Nevertheless, our results of operations can be affected by changes in interest rates with
respect to the unhedged portion of our indebtedness that bears interest at floating rates, which
typically bears a spread over EURIBOR or LIBOR.

Exchange rates

Our functional currency is the U.S. dollar, as most of our revenues and expenses are denominated
or linked to U.S. dollars. All our companies located in North America, South America and Algeria
have their PPAs, or concessional agreements, and financing contracts signed in, or indexed to, U.S.
dollars. Our solar power plants in Spain have their revenues and expenses denominated in euros.
Revenues and expenses of Kaxu, our solar plant in South Africa, are denominated in South African
Rand. While fluctuations in the value of the euro and the South African rand may affect our results
of operations. Fluctuations in the value of the euro may affect our operating results, however we
hedge cash distributions from our 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 have
hedged 100% of our euro-denominated net exposure for the next 12 months and 75% of our euro-
denominated net exposure for the following 12 months on a rolling basis.

In subsidiaries with functional currency other than the U.S. dollar, assets and liabilities are translated
into U.S. dollars using end-of-period exchange rates; revenue, expenses and cash flows are
translated using average rates of exchange. Although we hedge cash-flows in euros, fluctuations
in the value the euro in relation to the U.S. dollar may affect our operating results. Fluctuations in
the value of the South African rand in relation to the U.S. dollar may also affect our operating
results.

Credit risk

On January 29, 2019, PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric
Company (collectively “PG&E”), the off-taker for Atlantica 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.

During recent months, the credit rating of Eskom has also weakened and is currently CCC+ from
S&P, B2 from Moody’s and BB- from 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.

Apart from these two situations, we consider that in general we have limited credit risk with clients
as revenues are derived from PPAs and other revenue contracted agreements with electric utilities
and state-owned entities.

Liquidity risk

The objective of Atlantica’s liquidity and financing policy is ensure that the Company maintains
sufficient funds to meet our financial obligations as they fall due. Project finance borrowing permits
the Company to finance projects through project debt and thereby insulate the rest of its assets
from such credit exposure. The Company incurs in project-finance debt on a project-by-project
basis. The repayment profile of each project is established on the basis of the projected cash flow
generation of the business. This ensures that sufficient financing is available to meet deadlines and
maturities, which mitigates the liquidity risk significantly. The Company has also corporate debt.
Our 2019 Notes mature in November 2019 and we are currently working on the refinancing of such
notes.

Corporate and social responsibility

Sustainability and health and safety in our business model and activities as key values of
Atlantica

Sustainability is one of our five Core Values and for us it represents a holistic approach that includes
financial, operational, health and safety, environmental, governance and social performance. We
believe that by investing in sustainable sectors and managing our assets in a sustainable manner
we will create more value over time.

Atlantica has been firmly committed to sustainability since its incorporation. We view sustainable
development as a powerful source of competitive advantage to generate economic value that also
adds value for society by addressing environmental and social challenges and safeguarding the
transition to a low-carbon economy.

By the nature of its business, Atlantica has been at the core of, and intends to expand further, the
renewable energy footprint in energy generation and contribute to the global economy while
contributing to the sustainability of our environment.

We produce clean electricity, desalinated water and provide electricity transmission in a safe,
reliable and environmentally responsible way. We focus mainly on greenhouse gas emissions, water
management, health & safety, human capital and governance.

In 2018, we acquired a wind farm in Uruguay and a renewable hydro asset in Peru, thus,
consolidating Atlantica efforts to continue promoting a low-carbon energy industry and a business
model based on a sustainable development. Atlantica intends to take advantage of favourable

trends in the power generation, electric transmission, and water sectors globally, related to the
energy scarcity and a focus on the reduction of carbon emissions.

In February 2019, Sustainalytics rated Atlantica with “Low Risk”, ranked in 1st position within the
Renewable Power Production subindustry, 2nd position within the Utilities industry group and top
3% within the global universe. Sustainalytics considers that Atlantica has a low risk of experiencing
material financial impacts from ESG factors due to its medium exposure and strong management
of material ESG issues.

In addition, Atlantica has been ranked in the Clean 200TM which ranks the largest publicly listed
companies by their total clean energy revenues to help ensure that the companies are indeed
building the infrastructure and services needed in a just and equitable way.

In 2018, Atlantica joined the United Nations Global Compact (“UN Global Compact”), the world’s
largest corporate sustainability initiative with more than 9,700 participating companies from 160
countries. As part of its commitment with sustainability, Atlantica has formally adopted the UN
Global Compact ten basic principles in the fields of human rights, labour, environment and
anticorruption. We are determined to make the UN Global Compact and its principles an integral
part of the strategy, culture and day-to-day operations of the Company.

Environmental Policy

We are committed to invest in assets that are environmentally sustainable and managed in a
sustainable manner. We follow policies that analyse, evaluate and propose measures to minimize
the environmental impact of our business activity.

Our Environmental and Quality Management System complies with the standards ISO 14001 and
ISO 9001. These certifications cover management and acquisition of contracted assets. They were
obtained for the first time in 2015 and are valid until May 2021. Our Environmental and Quality
Management System is audited annually by an external third party (DNV GL).

Our management system guarantees that we comply with the regulations in force and with our
policies in each of the markets we operate. In this sense, we measure and monitor the
environmental impact of our activities and we define and implement action plans to reduce this
impact, in relation with:

- Emissions. We calculate and monitor our GHG emissions from Scope 1 and Scope 2.

- Water. We make a rational and sustainable use of water, regardless we use it for desalination

of for energy generation.

- Waste: Hazardous and non-hazardous waste is generated in the operation of our assets.
Our environmental management system includes actions aimed at minimization and
improvement of waste management (identification, segregation, recycling, prevention and
reporting).

As part of our certified quality management system, Atlantica sets quality and environmental
targets. The achievement of these targets is reviewed by top management in our Environment and
Health and Safety Committee, which is held once a month. We also inform our Board of Directors
on a quarterly basis.

In addition, we perform annual internal audits in our assets aimed at reviewing compliance with
our best practices and promoting constant improvement. These audits are focused on a broad
range of areas of asset management and include the environmental aspects. The purpose of these
audits is to review the operational, maintenance and environmental indicators, as well as
compliance and reporting requirements. We intend to assure compliance with our best practices.
In 2018, 11 of our assets were audited and 188 improvement actions were identified. Action plans
have been set to reach the internal standards required and are currently ongoing.

Greenhouse gas emissions

Atlantica complies with the requirements of the United Kingdom Climate Change Act 2008 for
greenhouse gas emissions reporting and with the requirements of the Commission Regulation (EU)
No 601/2012. The emissions data presented in this section corresponds to emissions in the annual
periods ended December 31, 2018 and 2017.

Our focus on renewables and sustainable technologies allows us to have greenhouse gas emissions
rates significantly lower than those traditional utilities whose portfolio is mainly based in fossil fuels.
As on December 31, 83% of our installed capacity corresponds to renewable assets and 17%
corresponds to ACT, our efficient natural gas plant in Mexico.

ACT has the status of an “efficient cogeneration facility” according to the Comision Reguladora de
Energia (CRE), the Mexican energy regulator. The CRE categorises as efficient plants those facilities
which can deliver energy above a defined efficiency threshold. This status, at the same level of
renewables according to the Mexican regulation, allows ACT to benefit from certain favorable
conditions with regard to interconnection and transmission.

Renewables
83%

Efficient natural gas
17%

Graph 1: Capacity installed in generation assets, MW

If we compare our emissions with emissions rates of traditional utilities where generation is based
in fossil fuels, approximately 5 million tons of equivalent CO2 are saved to the atmosphere
compared with a 100% fossil fuel-based generation.

0.71

h
W
M
/
e
2
O
C
f
o
s
n
o
t

0,9

0,6

0,3

0,0

0.19

Atlantica Yield emissions

Electricity-related emissions
factor (AVERT)

Graph 2: Comparison of Atlantica’s GHG emission ratio1 and fossil-fired generation GHG emissions ratio 2

Emissions figures on this report are quantified and reported according to the guidelines of the
Greenhouse Gas (GHG) Protocol, as follows:

1 Emission rate calculated taking into account emissions and energy generation of our power assets, both electric and
thermal energy.

2 The Greenhouse Gas Equivalences Calculator uses the Avoided Emissions and Generation Tool (AVERT) U.S. national
weighted average CO2 marginal emissions rate to convert reductions of Kilowatt-hours into avoided units of carbon
dioxide emissions.

• Scope 1: Emissions of greenhouse gas from sources that are owned or controlled by the

Company.

• Scope 2: Indirect emissions of greenhouse gas from consumption of purchased electricity,

heat or steam.

Scope 3 emissions, which are emissions associated to the supply chain or to transport, are not
required to be reported according to United Kingdom regulation (Climate Change Act 2008). At
this point, we have not implemented a reliable internal system to evaluate Scope 3 emissions.
However, we consider that these emissions should not be significant in comparison with Scope 1
and 2 emissions.

Scope 1 GHG emissions for our efficient natural gas asset and our solar plants in Spain, which
represent approximately a 93% of the total, have been verified by external auditors. This verification
includes information used for its calculation, such as emission factors and activity data.

The emissions are calculated based on the criteria defined by the Greenhouse Gas Protocol,
according to the operational control approach. Our reported emissions include emissions of
methane (CH4), and nitrous oxide (N2O) as CO2 equivalents. We use the GHG inventories conversion
factors indicated by the organizations listed below:

Intergovernmental Panel on Climate Change (the “IPCC”)

- United States Environmental Protection Agency (the “EPA”)

- 2018 GHG National Inventory from the Ministry of Ecological Transition in Spain

91% of the GHG emissions generated in 2018 come from our efficient natural gas plant in Mexico
as shown in Graph 3.

Efficient natural
gas 91%

Others 9%

Graph 3: GHG emissions by technology

Atlantica is committed to promote a low-carbon generation in its portfolio. We plan to reduce our
carbon emissions footprint mainly with the acquisition of renewable assets that will increase our
generation base keeping emission rates controlled. We intend to maintain an 80% of our revenues
generated from low-carbon footprint including our renewable, transportation and transmission
infrastructures and water assets.

Given that our largest business sector since our incorporation is renewable energy, our GHG
emissions have always been significantly lower than those of a company generating electricity from
fossil fuel sources. As previously explained, the emissions of our generation assets are 0.19 tons of
CO2 per MWh of electricity produced, compared to 0.71 tons of CO2 per MWh in a 100% fossil
fuel-based generation. Reducing emissions is significantly more challenging for a renewable
business than, for example, for a traditional utility with a business largely based on fossil fuel
generation transitioning progressively to renewables. Our goal is to reduce our emission rate per
unit of energy generated by 10% by 2030.

Graph 4 shows tons of carbon dioxide equivalent generated in 2018 and 2017 corresponding to
each of the previously described scopes.

e
2
O
C
f
o
s
n
o
t

0
0
0

2500

2000

1500

1000

500

1,811

1,721

1,956

1,847

2017

2018

126

145

Scope 1

Scope 2

Total

Graph 4: Greenhouse gas emissions breakdown by scope

Total carbon dioxide equivalent emissions generated by the Company in 2018 reached 1,956
thousand tons, compared to 1,847 thousand tons generated in 2017. Scope 1 GHG emissions have
increased mainly due to an increase in natural gas consumption in ACT, our efficient natural gas
plant, which generates approximately 90% of our total emissions. In 2018, this plant has been
operating at partial load for a higher number of hours due to the request of our client. In ACT we
have a tolling agreement according to which we receive water and natural gas from the client and
give them back electricity and steam, in the amount they request.

0,40

h
W
M
/
e
2
O
C
f
o
s
n
o
t

0,20

0.19

0.18

0.19

0.18

2017

2018

0,00

0.01

Scope 1

Scope 2

Total

Graph 5: Greenhouse gas emissions ratio from generation assets per energy generation by scope

The rate of equivalent tons of Carbon Dioxide (CO2) emissions per energy generation is 0.19 in
2018 versus 0.18 in 2017. This ratio applies for generation assets (solar, wind, hydro, efficient natural
gas). GHG emissions have increased mainly due to do the increase in emissions caused by client
requests in ACT, as described above and also due to a lower total production in 2018, mainly due
to lower solar radiation in Spain.

Water management

We are committed to make an efficient use of water in our operations. There are two main types
of water use in our operations:

- Generation of drinking water for local communities and industries through desalination of

seawater.

- Power generation from our renewable assets, which use cycle water in the turbine circuit

and for refrigeration purposes.

3 The ratio has been calculated considering electric and thermal energy generated by our efficient natural gas plant.
The prior period has been restated to conform with the 2018 calculation.

Graph 6: 2018 Water withdrawal sources and destinations

In 2018, we withdrew 231 million cubic meters of water of which 96% was sea water. We discharged
123 million cubic meters, of which 120 million cubic meters (98%) was returned to the sea. In 2017,
we withdrew 227 million cubic meters of water, of which 95% was sea water, we discharged 120
million cubic meters of which 117.0 million cubic meters (98%) was returned to the sea.

Sea
96%

River
2%

Aquifer
2%

Desalination

Graph 7: Withdrawal by source

Some parts of the world suffer from current drought conditions which, combined with a water
supply that is unfit for human consumption, can foster disease and death. Scarcity of water also
results in reduced availability for food production. Sea water desalination can provide a climate-
independent source of drinking water.

Our Water segment includes two desalination plants. We withdraw sea water for desalination
purposes as specified in the concession agreements of our two desalination plants. Thus, in 2018,
we withdraw 220.2 million cubic meters of sea water, which went through the desalination process
of salt and minerals removal in our water treatment facilities to prepare it for human use. We

cubic meters (54%) back to the sea. The difference between water withdrawn from and returned to
the sea is the desalinated potable water delivered to the water utility, as specified by our take-or-
pay concession agreements for consumption needs of approximately 2.2 million people.

Graph 8: Our desalination plants’ water withdrawal, discharge and potable water production

Power generation

Renewable segment is another part of our business that utilizes water in its power generation. We
primarily use water for cooling of condensers during power generation in our facilities. The fresh
water is primarily drawn from rivers and aquifers. We hold permits to withdraw water from these
sources and adhere to regulations on water quality. The difference between water withdrawn from
and returned to its source is our water consumption which occurs largely due to evaporation.

The amount of water we withdraw and return is measured by the installed water meters at the
pumping equipment of the plants. The reported volumes represent the total readings measured
by the water meters of all our assets without adjusting for our interest in the assets. The water
meters are sealed and are normally subject to audit by the inspector representing the local water
authorities. We have met the requirements and regulations of the applicable local regulatory
authorities in geographies in which we operate. We report the results of our water statistics to
local water agencies on a periodic basis.

Finally, we have implemented an air-dry cooling system, instead of cooling towers, to refrigerate
the condensers in one of our solar plants. This plant is placed in an area with water scarcity
problems and this system reduces the water demand.

Power Generation (Renewable Sector)

2017

2018

h
W
M

r
e
p
3

Withdrawal

Discharges

Graph 9: Water withdrawal and discharge ratios

In 2018, we withdrew 10.4 million cubic meters of fresh water at our power generation plants and
we returned 2.2 million cubic meters (21%) back to the source. In 2017, we withdrew 10.6 million
cubic meters of fresh water and returned 2.7 million cubic meters (24%) back to the source. The
water returned to the environment is tested by independent external laboratories on a period basis
to ensure its quality.

Our efforts to improve our water management beyond compliance is a main factor behind the
reduction of withdrawal volumes in 2018 compared to 2017. We implemented better practices for
use of water in operation and maintenance of our solar plants, such as adjustments in the operating
cycles of the water cooling towers. In 2018, we withdrew 10.4 million cubic meters which
represented 47% of the limits allowed by our water permits. In 2017, we withdrew 10.6 million
cubic meters which represented 49% of the limits allowed by our water permits. The difference
between the water permit limits and actual water withdrawn represents water savings.

Waste management

Our assets produce two main types of waste, hazardous and non-hazardous, which come from the
operation and maintenance activities. The waste included in the category of hazardous are those
from industrial processes related with the use of chemical products. On the other hand, all material
that does not contain substances that might be harmful to human health or the environment are
non-hazardous waste. Atlantica has a comprehensive waste control to ensure they are correctly
managed.

In our case, hazardous waste consists mainly of heat transfer fluid (HTF) used in our solar plants.
Also, sub products from our water treatment plants are considered as non-hazardous.

The management of hazardous waste is directly related to the occurrence of accidents, which are
the main generators of this type of waste. In 2018 we have made additional efforts in the
remediation of potentially contaminated soils in the mitigation of impacts derived from accidents.

As a result, we had an increase in the disposal of contaminated soil waste, which is the main metric
used to measure waste.

The non-hazardous wastes produced in our assets derive from the waste water treatment plants
and the reuse of the waste water before the discharges.

23,323

21,759

24,840

24,240

2017

2018

30.000

25.000

20.000

s
n
o
T

15.000

10.000

5.000

2,480

1,617

Hazardous Waste

Non Hazardous
Waste

Total Waste

Graph 10: Hazardous and Non-hazardous Waste removed

Our commitment is being oriented to improve the management and to fulfill all legal requirements
related to waste.

Human rights

We are committed to conducting our business in a manner that respects the rights and dignity of
our employees and the rest of the people related to our activities. We respect internationally
recognized human rights, as set out in the International Bill of Human Rights and the International
Labour Organization´s Declaration on Fundamental Principles and Rights at Work. Labour practice
at Atlantica and the professional activities of its employees, directors and executives are governed
by the United Nations Universal Declaration of Human Rights and its protocols, as well as by
International Agreements signed by the UN and the International Labour Organization (ILO) on
social rights, as well as the principles of the United Nations Global Pact.

We respect personal dignity, privacy and personal rights of every individual. We do not tolerate
discrimination against anyone based on any personal characteristic (ethnic background, culture,
religion, sexual identity, races, gender, etc.)

Freedom of association is a human right as defined by international declarations and
conventions. In this context, freedom of association refers to the right of employers and workers
to form, to join and to run their own organizations without prior authorization or interference by
the state or any other entity. The right of workers to collectively bargain the terms and conditions
of work is also an internationally recognized human right. Collective bargaining refers to all
negotiations which take place between one or more employers or employers' organizations, on the

one hand, and one or more workers' organizations (trade unions), on the other, for determining
working conditions and terms of employment or for regulating relations between employers and
workers.

Atlantica joined the United Nations Global Compact, whose principles derivate from, among others,
the Universal Declaration of Human Rights and the International Labour Organization’s Declaration
on Fundamental Principles and Rights at Work. By joining the UN Global Compact, we are
determined to adopt the ten principles, a part of which relate to human rights and we are
determined to make the principles an integral part of our strategy, culture and day-to-day
operations. Our code of conduct references the policy, requiring the employees, officers and
directors to report any illegal behaviour or violations of laws, rules or regulations. Finally, we are
fully aware of the diversity of the local communities where we operate. In this sense, we are fully
committed to respect and create value in these local communities. We are delivering on our human
rights policy by implementing it into the processes that govern our business activities in all the
geographies where we are present.

Occupational Health and Safety

Within Atlantica’s Values, the first one is “Integrity, Compliance and Safety”. Atlantica and its
management are committed to prioritize and actively promote health and safety as a tool to protect
the integrity and health of our employees, subcontractors and partners involved in our business
activity. We promote a safe operating culture across Atlantica and encourage a preventive culture
in the operation and maintenance (“O&M”) activities of our subcontractors as reflected in our
corporate health and safety policy.

Annually, we conduct internal and external audits to evaluate our health and safety management
system in accordance with the OHSAS:18001 standard requirements. The external audit is carried
out by an independent third party. These efforts have resulted in the certification of the
Occupational Health and Safety Management System in OHSAS: 18001 obtained in 2015. This
certification has been successfully renewed in the last three years. Additionally, we perform periodic
health and safety audits to our O&M contractors to promote the compliance with our safety best
practices in our assets.

We also develop an annual training programme to train managers and employees on safety
awareness. This annual plan has been designed in accordance with the risk in work positions and
work centres as well as with local regulations.

One of the key tools that we promote is our Health & Safety Best Practices programme. This
programme aims to define world class safety standards for our assets operations. Our H&S Best
Practices are based in the following pillars:

Management System and Procedures:

• Safety policies and safety objectives are published in all safety boards of our assets

and work centres.

• Annual objectives are defined for our asset managers.

• Operation and maintenance suppliers develop their daily activities using adequate
safety procedures and we encourage them to have their operations certified under

the OHSAS:18001 standard.

• Safety procedures compliance is enforced through annual audits and inspections in
all our assets, identifying deviations and developing corrective plans with our

subcontractors.

Safety Culture:

• Workers safety observations (Walks & Talks) are promoted to allow O&M employees
to identify unsafe acts and conditions in our assets. In 2018, we gave 32 awards to

O&M employees based on Walks & Talks.

• A zero accidents policy is promoted. We celebrate with our operation and
maintenance suppliers the achievement of 1,000 and 1,500 days without loss time

injury accidents. In 2018 one asset reached the 1,000 days milestone and two assets

the 1,500 days milestone.

• Safety Days are celebrated in all our assets with our O&M contractors to promote

safety culture and share lessons learnt.

Images: 2018 Safety days pictures

Training

• An annual training plan is established for our employees and O&M contractor’s

employees.

• The effectiveness of this training is evaluated and reviewed periodically.

Improvement of safety conditions

• Process safety analysis are performed in our assets to identify hazards and develop

preventive strategies in collaboration with O&M contractors.

• Our asset managers monitor safety conditions in our assets and workers compliance

with safety rules by standardised check-lists.

Drills and Emergency Plan

• An annual emergency drills plan is defined in all our assets to evaluate and improve
emergency procedures and to train employees on these procedures. 67 drills were

performed during 2018.

• An emergency plan is developed in our assets with an evaluation of potential

emergency scenarios and the associated emergency procedures.

• An emergency response team is defined and trained in all our assets and work centres.

KPIs and lessons learned

• Standardized key performance indicators are defined and evaluated against yearly

targets to monitor the performance in health and safety of our assets.

• Safety KPIs of our assets are benchmarked monthly to develop continuous

improvement.

•

Incidents are investigated to identify root causes to implement corrective measures.

Lessons learned are shared among our assets.

• A monthly health and safety committee is carried out with the CEO and our regional
VPs to review H&S performance and to share lessons learned. With the same purpose

a monthly committee is done with our asset managers.

•

In each meeting, the Board of Directors reviews the main Health and Safety indicators

recorded in the last month as the first point of the agenda and main safety programme

and tools to be implemented by Atlantica are discussed

2018 Health and Safety performance has continued to improve versus previous years and have
resulted in our main KPIs being well below the defined objectives.

Fatality rate has been zero since our creation. In addition, no major injuries have been recorded
since our creation.

Our General Frequency Index (GFI), that represents the total number of recordable accidents with
and without leave (loss time) recorded in the last 12 months per million of worked hours, has ended

at 7.8, 54% below our objective for the year (16.8). 2018 GFI, as can be observed on the following
graph, delivered a 22% improvement versus 2017.

Graph 12: General Frequency Index

Our Frequency with Leave Index (FWLI), that represents the total number of recordable accidents
with leave (loss time) recorded in the last 12 months per million of worked hours, also presents a
great performance. The index was 2.3, 56% below the objective for the year (5.2). As can be
observed on the following graph, the 2018 index presents an improvement versus 2017 of more
than 50%.

Graph 13: Frequency with Leave Index

We also monitor near-misses and unsafe acts and conditions through our Total Recordable
Deviation Index (TRDI). This index represents the number of near-misses and unsafe acts and
conditions recorded in the last 12 months per million of worked hours. The goal of this KPI is to
encourage the identification and communication of near misses and unsafe acts and conditions by
the employees of our O&M subcontractors. As it serves to identify risks and to implement the

adequate preventive measures, the higher the rate is, the better. The following graph shows the
relevant improvement obtained in the last years.

Graph 15: Our Total Recordable Deviations Index

As explained above, in 2018 we have continued improving our H&S performance, finalising the
year for our two key H&S indexes well below our targets. In 2019, we will continue dedicating our
efforts to continue to promote a health and safety culture and we will seek to continue improving
our H&S performance with the use of our existing tools and the implementation of new ones.

Business ethics

Atlantica is building a sustainable and successful business for our customers, colleagues, partners
and investors. This success must be delivered in the right way, doing the right things.

Integrity, Compliance and Safety are our main core values and they prevail over the rest. We
continuously strive for the highest standards of business conduct, safety and professionalism even
if it means making difficult choices. We are strongly committed to comply with all rules and
regulations.

Atlantica is committed to maintaining the highest standards of honesty, integrity and ethical
conduct. We are also committed to promote ethical business practice and comply with all relevant
laws and regulations.

In this regard, the Company has adopted a Code of Conduct to ensure consistent and effective
commitment with Integrity and Compliance. The Code is applicable to all directors, officers and
employees of Atlantica plc and each of its subsidiaries, wholly owned entities, and joint ventures.

The Whistleblowing channel is an essential part of Atlantica’s commitment to fighting fraud,
irregularities and corruption. The Whistleblowing Channel, which has been in operation since the
Initial Public Offering, is available on our website to all employees and stakeholders of the Company
and serves as a tool to report any complaints and concerns about management, as well as any
breaches of the Code of Conduct or any conduct contrary to ethics, law or company’s standards,

without any risk of reprisals for any claims made in good faith. The channel is managed by the
Audit Committee comprised of independent directors who oversee investigations of the reported
matters maintaining confidentiality and anonymity of complainants.

Confidentiality and no retaliation are the essential operating principles of the Channel. These
principles may be suspended only in cases where the claim was not made in good faith.

Our Code of Conduct requires the highest standards for honest and ethical conduct and explicitly
states that we do not tolerate bribery and corruption in any of its forms. We also promote and
strengthen the measures to prevent and combat corruption more effectively and efficiently. Our
anti-bribery and corruption policy applies to all Atlantica business.

In particular, the business activities of Atlantica are governed by laws that prohibit bribery in order
to support global efforts to fight corruption. Specifically, the U.S. Foreign Corrupt Practices Act
(“FCPA”) and the UK Bribery Act 2010 make it a criminal offense for companies as well as their
officers, directors, employees, and agents, (or any other person) to give, request, promise, offer or
authorize the payment of anything of value (such as money, any advantage, benefits in kind, or
other benefits) to a foreign official, foreign political party, officials of foreign political parties,
candidates for foreign political office or officials of public international organizations for the
purpose of obtaining or retaining business. Similar laws have been, or are being, adopted by other
countries. Private bribery is also illegal under U.S. laws, the UK Bribery Act, and the laws of other
jurisdictions. Payments of this nature are strictly against Atlantica’s policy even if the refusal to
make them may cause Atlantica to lose business.

Finally, Atlantica is committed to supporting fair and open securities markets. On this purpose,
Directors, Officers or employees are not permitted to deal on the basis of inside information or
engage in any form of market abuse.

Atlantica’s code of conduct

“We always do what is right. We continuously strive for the highest standards of business conduct,
safety, professionalism and governance even if it means making difficult choices. We are strongly
committed to comply with all rules and regulations – no question asked- “.

Atlantica is committed to maintaining the highest standards of honesty, integrity and ethical
conduct. We are committed to promoting ethical business practice and complying with all relevant
laws and regulations but also to behave fairly with colleagues, customers, partners and investors.

The Company has adopted a Code of Conduct to ensure consistent and effective commitment with
Integrity and Compliance. The Code of Conduct is intended to help everyone recognize ethics and
compliance issues before they arise and to deal appropriately with those issues that do occur.

The Code applies to all directors, officers and employees of Atlantica and each of its subsidiaries,
wholly owned entities, and in joint ventures (“JVs”) to the extent possible and reasonable given
Atlantica ´s level of participation.

We also seek to work with third parties who operate under principles that are similar to those set
out in this Code. In this sense, the Company has developed a Supplier Code of Conduct with the
minimum standards we expect third parties to adhere to.

No one has authority to order or approve any action contrary to this Code or against the law. This
Code and its standards will never be compromised for the sake of business performance or results.

Our Code of Conduct encompasses the high standards of integrity we are committed to upholding
including principles on:

 Personal & Business Integrity (Conflicts of interest, Bribery & Corruption, Insider Trading, etc.);

 Human & Labour Rights (Dignity & Respect, Equality & Diversity, Labour Standards,

Occupational Health & Safety, etc.);

 Corporate Assets & Financial Integrity (Accounting & Reporting, Anti-Money Laundering,

Confidentiality & Information Security, etc).

The Code of Conduct includes, as well, information on the channels available to report or
communicate a breach of the Code of Conduct.

The Code of Conduct was approved by the Board of Directors and is publicly available on our
website at www.atlanticayield.com.

Sustainable suppliers

At Atlantica, we have a strong commitment to operating to the highest standard of corporate
conduct. According to our Code, we also seek to work with third parties who operate under
principles that are similar to those set in the Code of Conduct. We have a Supplier Code of Conduct
and we expect our suppliers to adhere to it. We include our requirements in our contractual
arrangements with suppliers. Nevertheless, we understand that some suppliers may face significant
challenges in immediately meeting every aspect of the Code. In this sense, our commitment is also
to working together over time to help those supplies achieve adherence with this Code.

Our main O&M suppliers are large corporations that, we believe, follow strong corporate policies.
One of the main suppliers of Atlantica is Abengoa who is contracted as an O&M supplier at many
of our assets across geographies (except for ACT, ATN, ATS, Seville PV, Quadra 1, Quadra 2 and
Palmucho). In Mexico our O&M Operators are General Electric and NAES Corp.

In 2019 we intend to reinforce the environmental certification of our suppliers.

Anti-Slavery and Human Trafficking Statement

Given the nature of our business, we believe the risk of modern slavery is low. However, we do not
intend to be complacent and will continue to work to improve our policies and procedures to
ensure slavery and human trafficking is not taking place anywhere in our supply chain. In November
2018 the Board of Directors approved the “UK Anti Modern Slavery & Human Trafficking
Statements” under which we have carried out an analysis of our supply chains across the
jurisdictions in which we operate.

Most of our suppliers are financial and professional services organizations, including operation and
maintenance services providers for our plants, banks, legal advisors, accountants, consultants and
insurers. Other suppliers include providers of information technologies, software, office and

stationary equipment, office cleaning and other facilities management providers. Since our
activities do not directly involve operations where modern slavery or human trafficking are known
to occur, we consider the risk of modern slavery and/or human trafficking in our supply chains and
procurement processes to be very low. In fact, the goods and services providers are mainly large
multinational companies who have their own ethical standards of behavior in place.

All new suppliers, however, are subject to internal due diligence and required to confirm that their
organization will comply with our Supplier Code of Conduct (available at www.atlanticayield.com),
which includes expectations with regards to sustainable development in the following areas:
business integrity and ethical standards, human rights and labor standards, environmental
sustainability, and reporting concerns and compliance monitoring. Through our Supplier Code of
Conduct, Atlantica encourages its suppliers to conduct their operations respectfully with
fundamental human rights, as affirmed by the Universal Declaration of Human Rights. In this regard,
Atlantica was the first yieldco to join the United Nations Global Compact (the “UNGC”) initiative in
January 2018 and to formally adopt the UN Global Compact Ten Principles in the fields of human
rights, labor, environment and anticorruption. We are determined to make the UNGC and its
principles an integral part of the strategy, culture and day-to-day operations of Atlantica and its
suppliers.

We further provide our employees, shareholders and others with the whistleblower channel
(available at www.atlanticayield.com), a specific channel of communication with management and
the governing bodies that serves as an instrument to report any misconduct, instances of non-
compliance with our compliance policy framework, as well as unethical or unlawful behavior,
including any suspected or actual form of modern slavery taking place within the business or supply
chain.

Atlantica has a zero-tolerance approach to modern slavery and thus we are proud of the effective
steps we have taken to combat slavery and human trafficking that allow us to confirm that no
incidents of modern slavery were reported or identified during 2018.

We have also provided training in 2018 to members of senior management as part of our annual
training on our Code of Conduct and corporate policies, which includes specific content related to
human and labor rights, in order to promote the policy throughout our organization.

Additionally, all employees are required to read, understand and commit to follow our corporate
governance policies.

Employees

Our values and code of conduct set out the expected qualities and actions of all our people. The
honesty, integrity and sound judgment of our employees, officers and directors is essential to
Atlantica's reputation and success. We seek employees who have the right skills and who
understand and embody the values and expected behaviours that guide our business activity.

The average number of employees for the year 2018 was 207 compared to 182 in 2017.

The following table shows the average number of employees for the year 2018 and 2017 on a
consolidated basis:

Average Number of Employees per Geography
EMEA
North America
South America
Corporate
Total

Average Number of Employees per Category

Management
Middle Management
Engineers and Graduates
Assistants and Professionals
Interims

Total

Average Number of Employees per Gender
Male
Female

Total

2018
57
30
33
87
207

2018
16
39
115
15
22
207

2018

122
85

207

2017
54
29
14
85
182

2017

16
31
102
11
22

182

2017

103
79

182

The increase in the average number of employees for the year ended December 31, 2018 as
compared to the year ended December 31, 2017 is mainly due to the personnel working in the
Mini-Hydro plant acquired in Peru and the increase of headcount in our subsidiaries in Peru and
South Africa, where we have terminated our services agreements with Abengoa.

As of December 31, 2018, 85 out of 207 average employees were women, representing 41% of the
Group personnel. As of December 31, 2017, 79 out of 182 employees were women, or 43% of the
total headcount.

In 2018 our consolidated Employee benefit expense was $15.1 million, of which $12.5 million
corresponded to wages and salaries, $2.1 to social security costs incurred by the Company and the
rest to other expenses. In 2017 our consolidated Employee benefit expense was $18.9 million, of
which $16.5 million corresponded to wages and salaries, $1.9 to social security costs incurred by
the Company and the rest to other expenses. The decrease was mainly due to a $4.7 million reversal
of the accrual of our 2016-2018 LTIP in 2018.

In terms of management, as of December 31, 2018 one of 7 members of senior management team,
or 14.3% were women. As of December 31, 2018 one of 8 members of senior management team,
or 12.5% were women

In terms of our board of directors, there were no women in our 8-member board as of December
31, 2018 and 2017. See the “Directors’ Report-Directors” for information about the directors.

The graph below summarizes the age and gender diversity of our people as of December 31, 2018:

Employees by age and gender
as of December 31, 2018

100,00%
90,00%
80,00%
70,00%
60,00%
50,00%
40,00%
30,00%
20,00%
10,00%
0,00%

Women

Men

Below 30

31-40

41-50

Above 51

Below is the table of our senior management team:

Name

Position

Year of birth

Santiago Seage

Chief Executive Officer

Francisco Martinez-Davis

Chief Financial Officer

Emiliano Garcia

Vice President North America

Antonio Merino

Vice President South America

David Esteban

Vice President EMEA

Irene M. Hernandez

General Counsel

Stevens C. Moore

Vice President Corporate Strategy and
Development

1969

1963

1968

1967

1979

1980

1973

Our people

Our career development program, performance assessment and skill training programs are aimed
at talent retention and development.

To receive feedback and engage our employees, we perform periodically an employee climate
survey to assess employees’ satisfaction. The survey is managed by a third-party and results are
aggregated, shared and discussed with supervisors. Employee confidentiality is maintained.

We utilize a platform, called Meta4, as our global system for human resources management. Meta4
is accessible for all Atlantica employees. It is an interactive tool that allows employees to access
and manage their development, reviews, benefits, compensation, work time planning.

During 2018, we continued to have a low employee turnover of 5.8% which increased from 3.8% in
2017. In terms of prolonged absences, 7 of our employees took parental leave in 2018, of which 4
were men and 3 were women, and 17 employees enjoyed a parental leave in 2017. In both years,
all employees returned to work.

Our compensation policy is based on three pillars:

• Predefined remuneration structure ranges based on market surveys
• Performance evaluation
• Long term incentive plan for certain employees

Our human resources department receives remuneration data from two separate external
consultants for certain positions detailed by position and location.

Future Developments

We intend to grow our cash available for distribution and our dividend to shareholders through
organic growth and by acquiring new contracted assets from AAGES, Abengoa, third parties and
potential new future partners. At the end of 2018 and beginning of 2019, we have announced
several acquisitions, some of which are already closed. We intend to close the rest of these
acquisitions in 2019. We also expect to continue executing on our growth strategy through
additional acquisitions.

In addition, on February 13, 2019 the board of directors approved a new committee named
Strategic Review Committee with the purpose of evaluating a wide range of strategic alternatives
available to the Company to optimize the value of the Company and to improve returns to
shareholders. The committee has been mandated to review a wide range of alternatives and to
make proposals in this regard to the board of directors. We have not set a timetable for the
conclusion of the review of alternatives. There can be no assurance that a review of alternatives will
result in any change or any other outcome.

Going Concern Basis

The directors have, at the time of approving the Consolidated Financial Statements, a reasonable
expectation that the Company and the Group have adequate resources to continue in operational

Directors’ Report

The directors present their Consolidated Annual Report on the affairs of the Company and its
subsidiaries, together with the Consolidated Financial Statements and Auditor’s Report, for the year
ended December 31, 2018.

Details of significant events since the balance sheet date are contained in note 26 to the
Consolidated Financial Statements. An indication of likely future developments in the business of
the Company is included in the Strategic Report.

Information about the use of financial instruments by the Company is given in note 23 to the
Consolidated Financial Statements. Refer to the sections “Principal risks and uncertainties” and
“Financial Risk Management” of our Strategic report for a detailed analysis of risk, including
liquidity, interest rate, foreign exchange and credit risks.

Information related to the corporate and social responsibility such as our greenhouse gas emissions
is given in the “Strategic Report-Corporate and social responsibility-Greenhouse gas emissions.”

Dividends

We intend to distribute to holders of our shares a significant portion of our cash available for
distribution less all cash expense including corporate debt service and corporate general and
administrative expenses and less reserves for the prudent conduct of our business (including,
among other things, dividend shortfall as a result of fluctuations in our cash flows), on an annual
basis. We intend to distribute a quarterly dividend to shareholders. Our board of directors may, by
resolution, amend the cash dividend policy at any time. The determination of the amount of the
cash dividends to be paid to holders of our shares will be made by our board of directors and will
depend upon our financial condition, results of operations, cash flow, long-term prospects and any
other matters that our board of directors deem relevant. Our cash available for distribution is likely
to fluctuate from quarter to quarter and, in some cases significantly, as a result of the seasonality
of our assets, the terms of our financing arrangements maintenance and outage schedules among
other factors. Accordingly, during quarters in which our projects generate cash available for
distribution in excess of the amount necessary for us to pay our stated quarterly dividend, we may
reserve a portion of the excess to fund cash distributions in future quarters. In quarters in which
we do not generate sufficient cash available for distribution to fund our stated quarterly cash
dividend, if our board of directors so determines, we may use retained cash flow from other
quarters, as well as other sources of cash.

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, our board of
directors declared a quarterly dividend corresponding to the first quarter of 2018 amounting to
$0.32 per share, which was paid on June 15, 2018. On July 31, 2018, our board of directors approved
a quarterly dividend corresponding to the second quarter of 2018 amounting to $0.34 per share,
which was paid on September 15, 2018. On October 31, 2018, our board of directors approved a
quarterly dividend corresponding to the third quarter of 2018 amounting to $0.36 per share, which
was paid on December 14, 2018.

On February 26, 2019, our board of directors approved a dividend of $0.37 per share which is
expected to be paid on or about March 22, 2019 to shareholders of record on March 12, 2019.

Risks Regarding Our Cash Dividend Policy

We do not have a significant operating history as an independent company upon which to rely in
evaluating whether we will have sufficient cash available for distribution and other sources of
liquidity to allow us to pay dividends on our shares at our initial quarterly dividend level on an
annualized basis or at all. There is no guarantee that we will pay quarterly cash dividends to our
shareholders. We do not have a legal obligation to pay our initial quarterly dividend or any other
dividend. While we currently intend to grow our business, and increase our dividend per share over
time, our cash dividend policy is subject to all the risks inherent in our business and may be changed
at any time as a result of certain restrictions and uncertainties, including the following:

• The amount of our quarterly cash available for distribution could be impacted by restrictions
on cash distributions contained in our project-level financing arrangements, which require
that our project-level subsidiaries comply with certain financial tests and covenants in order
to make such cash distributions. Generally, these restrictions limit the frequency of
permitted cash distributions to semi-annual or annual payments, and prohibit distributions
unless specified debt service coverage ratios, historical and/or projected, are met. When
forecasting cash available for distribution and dividend payments we have aimed to take
these restrictions into consideration, but we cannot guarantee future dividends. In addition,
restrictions or delays on cash distributions could also happen if our project finance
arrangements are under an event of default. On January 29, 2019, PG&E, the off-taker with
respect to the Mojave plant, filed for reorganization under Chapter 11 of the Bankruptcy
Code. This situation could cause, among other consequences, restrictions to make cash
distributions to the holding company.

• Additionally, indebtedness we have incurred under the 2019 Notes, the Revolving Credit
Facility and the Note Issuance Facility contain, among other covenants, certain financial
incurrence and maintenance covenants, as applicable. In addition, we may incur debt in the
future to acquire new projects, the terms of which will likely require commencement of
commercial operations prior to our ability to receive cash distributions from such acquired
projects. These agreements likely will contain financial tests and covenants that our
subsidiaries must satisfy prior to making distributions. Should we or any of our project-level
subsidiaries be unable to satisfy these covenants or if any of us are otherwise in default
under such facilities, we may be unable to receive sufficient cash distributions to pay our
stated quarterly cash dividends notwithstanding our stated cash dividend policy.

• We and our board of directors have the authority to establish cash reserves for the prudent
conduct of our business and for future cash dividends to our shareholders, and the
establishment of or increase in those reserves could result in a reduction in cash dividends
from levels we currently anticipate pursuant to our stated cash dividend policy. These
reserves may account for the fact that our project-level cash flows may vary from year to
year based on, among other things, changes in prices under offtake agreements,
operational costs and other project contracts, compliance with the terms of project debt
including debt repayment schedules, the transition to market or re-contracted pricing
following the expiration of offtake agreements, working capital requirements and the

operating performance of the assets. Our board of directors may increase reserves to
account for the seasonality that has historically existed in our assets’ cash flows and the
variances in the pattern and frequency of distributions to us from our assets during the
year. Furthermore, our board of directors may in the future increase reserves in light of the
uncertainty associated with potential negative outcomes resulting from PG&E bankruptcy
filing on January 29, 2019, including a potential technical event of default under the Mojave
project finance agreement. If not cured or waived, an event of default in the project finance
could result in debt acceleration and, if such amounts were not timely paid, the DOE could
decide to foreclose on the asset. If not cured or waived, an event of default could also result
in restrictions to make cash distributions from Mojave to the holding level. Our board of
directors may increase reserves in light of the uncertainty associated with Abengoa’s
financial condition to account for potential costs that we may incur or limitations that may
be imposed upon us as a result of cross-defaults under our Kaxu project financing
arrangements.

• We may lack sufficient cash to pay dividends to our shareholders due to cash flow shortfalls
attributable to a number of operational, commercial or other factors, including low
availability, unexpected operating interruptions, legal liabilities, costs associated with
governmental regulation, changes in governmental subsidies, changes in regulation, as well
as increases in our operating and/or general and administrative expenses, principal and
interest payments on our and our subsidiaries’ outstanding debt, income tax expenses,
failure of Abengoa to comply with its obligations under the agreements in place, working
capital requirements or anticipated cash needs at our project-level subsidiaries.

• We may pay cash to our shareholders via capital reduction in lieu of dividends in some

years.

• Our project companies’ cash distributions to us (in the form of dividends or other forms of
cash distributions such as shareholder loan repayments) and, as a result, our ability to pay
or grow our dividends, are dependent upon the performance of our subsidiaries and their
ability to distribute cash to us. The ability of our project-level subsidiaries to make cash
distributions to us may be restricted by, among other things, the provisions of existing and
future indebtedness, applicable corporation laws and other laws and regulations.

• Our board of directors may, by resolution, amend the cash dividend policy at any time. Our
board of directors may elect to change the amount of dividends, suspend any dividend or
decide to pay no dividends even if there is ample cash available for distribution.

Our Ability to Grow our Business and Dividend

We intend to grow our business primarily through the improvement of existing assets and the
acquisition of contracted power generation assets, electric transmission lines and other
infrastructure assets, which, we believe will facilitate the growth of our cash available for distribution
and enable us to increase our dividend per share over time. Our policy is to distribute a significant
portion of our cash available for distribution as a dividend. However, the final determination of the
amount of cash dividends to be paid to our shareholders will be made by our board of directors
and will depend upon our financial condition, results of operations, cash flow, long-term prospects
and any other matters that our board of directors deems relevant.

We expect that we will rely primarily upon external financing sources, including commercial bank
borrowings and issuances of debt and equity securities, to fund any future growth capital
expenditures. To the extent we are unable to finance growth externally, our cash dividend policy
could significantly impair our ability to grow because we do not currently intend to reserve a
substantial amount of cash generated from operations to fund growth opportunities. If external
financing is not available to us on acceptable terms, our board of directors may decide to finance
acquisitions with cash from operations, which would reduce or even eliminate our cash available
for distribution and, in turn, impair our ability to pay dividends to our shareholders. To the extent
we issue additional shares to fund our business, our growth or for any other reason, the payment
of dividends on those additional shares may increase the risk that we will be unable to maintain or
increase our per share dividend level. Additionally, the incurrence of additional commercial bank
borrowings or other debt to finance our growth would result in increased interest expense, which
in turn may impact our cash available for distribution and, in turn, our ability to pay dividends to
our shareholders.

Capital Structure

Details of the share capital, together with details of the movements in the Company's issued share
capital during the year are shown in note 13 to the Consolidated Financial Statements. The
Company has one class of ordinary shares which are listed on the NASDAQ Global Select Market
under the symbol “AY.” Our shares carry no right to fixed income and each share provides the
owner the right to one vote at general meetings of the Company.

On November 1, 2017, Algonquin announced that it had reached an agreement with Abengoa to
acquire 25.0% of our shares from Abengoa, with an option to acquire the remaining 16.5% held by
Abengoa. The acquisition of the 25% stake in us closed in March 2018. On November 27, 2018,
Algonquin announced that it completed the purchase of a 16.5% equity interest, bringing its total
equity interest in Atlantica up to 41.5%. After this, Abengoa no longer owns any equity interest in
Atlantica. There are no specific restrictions on the size of a holding nor on the transfer of shares,
which are both governed by the general provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements between holders of the Company's
shares that may result in restrictions on the transfer of securities or on voting rights.

No person has any special rights of control over the Company's share capital and all issued shares
are fully paid.

With regard to the appointment and replacement of directors, the Company is governed by its
Articles of Association, the SEC listing rules, the UK Companies Act 2006 and related legislation.
The Articles of Association may be amended by special resolution of the shareholders.

Change of Control

If a buyer or another investor acquired more than 50.0% of our shares, we might need to refinance
all or part of our corporate debt or obtain waivers from the lending financial institutions, due to
customary change of control provisions included in the corporate debt financing agreements.
Additionally, we could see an increase in the yearly state property tax payment in Mojave, which
would be evaluated by the tax authority at the time the change of control potentially occurred.

In addition, in order to protect the Company's know-how and to ensure continuity in terms of
attainment of business objectives, the policy approved by our shareholders at the 2017 Annual
General Shareholders Meeting, introduced certain termination payments to key executives,
including the Chief Executive Officer in the case of a change of control. The Company agreed with
certain executives with strategic and key responsibilities in the Company (“Key Managers”),
including the Chief Executive Officer, to make payments for loss of office or employment in addition
to the severance payment under the prevailing labour and legal conditions in their contracts or
countries where they are employed if they should leave (by loss of office or employment) the
Company within 2 years of a change in control. The payment would represent six months of
remuneration and would be adjusted to ensure that total payment including severance payment
required under prevailing laws represent at least 12 months of remuneration (including salary,
benefits, long-term incentive plans and variable pay), but never more than 24 months of
remuneration, unless required by local law. A change of control means that a third party or
coordinated parties: (i) acquire directly or indirectly by any means a number of shares in the
Company which (together with the shares that such party may already hold in the Company)
amount to more than 50% of the share capital of the Company; or (ii) appoint or have the right to
appoint at least half of the members of the board of directors of the Company (“Board”).

Directors

The directors, who served throughout the year 2018, and to the date of this report, were as follows:

▪ Daniel Villalba

Director and Chairman of
the Board, independent

Chairman of the Board: appointed on November
27, 2015
Director, independent: appointed June 13, 2014,
re-elected June 23, 2017

▪ Santiago Seage

Director and Chief
Executive Officer

Appointed on December 17, 2013, resigned
March 9, 2018, re-appointed December 19, 2018

▪ Ian Robertson

Director

▪ Christopher Jarratt

Director

Director: Appointed March 12, 2018, and elected
on May 11, 2018

Director: appointed March 12, 2018, and elected
on May 11, 2018.

▪ Jackson Robinson

Director, independent

Appointed June 13, 2014, and elected on June 23,
2017

▪ Robert Dove

▪ Andrea Brentan

Director, independent

Appointed on June 23, 2017

Director, independent

Appointed on June 23, 2017

▪ Francisco J. Martinez

Director, independent

Appointed on June 23, 2017

▪ Joaquin Fernandez de

Director

Pierola

▪ Gonzalo Urquijo

Director

Appointed on November 11, 2016, elected on
June 23, 2017, resigned on March 9, 2018

Appointed on November 22, 2017, and resigned
on December 19, 2018

The Board is committed to promoting the success of the Company. The Board is responsible to
shareholders for its performance and for the strategy and management of the Company, its values,
its governance, and its business.

Directors are obliged, among other duties, to act in the way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit of its members as a whole. All
directors are expected to spend the time and effort necessary to properly discharge their
responsibilities.

Main objectives of the Board may be summarized as follows:

•

Providing entrepreneurial leadership;

Setting strategy;

Ensuring the human and financial resources are available to achieve objectives;

Reviewing management performance;

Setting the company’s values and standards; and

•

Ensuring that obligations to shareholders and other stakeholders are understood and met.

Under English law, the board of directors is responsible for management, administration and
representation of all matters concerning the relevant business, subject to the provisions of relevant
constitutional documents, applicable law and regulations, and resolutions duly adopted at general
shareholders’ meetings.

In addition, the board of directors is entitled to delegate its powers to an executive committee or
other delegated committee or to one or more persons, unless the shareholders, through a meeting,
have specifically delegated certain powers to the Board and have not approved the board of
director’s delegation to others.

The Board has established four Board Committees:

• Audit Committee, with responsibilities including monitoring the integrity of the company’s
financial statements, reviewing internal control and risk management system, as well as the

Company’s relationship with external auditors;

• Compensation Committee, mainly responsible for setting the remuneration for executive
directors and recommending and monitoring remuneration for senior management;
• Nominating and Corporate Governance Committee, responsible for leading the process for

board appointments; and

• Related Party Transactions Committee, responsible for identifying and evaluating existing

relationships between counterparties and transactions with related parties.

On February 13, 2019 the board of directors approved a new committee named Strategic Review
Committee with the purpose of evaluating a wide range of strategic alternatives available to the
Company to optimize the value of the Company and to improve returns to shareholders. The
committee has been mandated to review a wide range of alternatives and to make proposals in
this regard to the board of directors. We have not set a timetable for the conclusion of the review
of alternatives. There can be no assurance that a review of alternatives will result in any change or
any other outcome.

The Board has delegated certain responsibilities to these committees. Membership, roles, duties
and authority of these committees are described in their Terms of Reference, available in the
website of the Company (www.atlanticayield.com). Terms of Reference are reviewed and updated
by the Board on a yearly basis.

Membership and Attendance

Director

Membership

Since

Until

Role

Attendance /
Eligible to attend (1)

Mr. Daniel Villaba

Jun'14

n.a

Director, Independent
and Chairman of the
Board

Mr. Jackson Robinson

Jun'14

n.a

Director, Independent

Mr. Andrea Brentan

Jun'17

n.a

Director, Independent

Mr. Robert Dove

Jun'17

n.a

Director, Independent

Mr. Francisco J. Martinez

Jun'17

n.a

Director, Independent

Mr. Santiago Seage (4)

Dec'18

n.a

Director and Chief
Executive Officer

Mr. Ian Robertson (3)

Mar'18

n.a

Director

Mr. Christopher Jarratt (3)

Mar'18

n.a

Director

Mr. Gonzalo Urquijo (2)

Nov'17 Dec'18

Director

Mr. Joaquin Fernández
de Pierola (2)

Nov'16 Mar'18

Director

12 / 12

3 / 3

9 / 10

10 / 10

11 / 11

2 / 2

(1) Does not include matters approved by Director’s Written Resolution;
(2) Mr. Gonzalo Urquijo and Mr. Joaquin Fernández de Pierola resigned to be members of the Board of Directors
on December 18, 2018 and March 12, 2018 respectively. The Board wishes to express its appreciation for the
work done during their appointment;

(3) Mr. Ian Robertson and Mr. Christopher Jarratt joined the Board of Directors on March 12, 2018;
(4) Mr. Santiago Seage joined the Board of Directors on December 2018 as executive director. Mr. Seage was

previously a director since our formation in 2014 until March 2018.

Senior management attend meetings by invitation of the Board.

2018 Key Activities

In 2018, the Board of Directors held 12 meetings and adopted several written resolutions.

Major areas of focus of the Board during 2018 have been as follows:

• Review of health and safety issues;
• Review and approval of the strategy of the Company: growth plan, key priorities and risks;
• Review of assets performance and main technical issues;
• Approval and review of the budget of the Company;
• Review and approval of quarterly and annual accounts;
• Approval of significant transactions (acquisitions, partnerships, etc.);
• Review of capital markets updates; and

• Approval of dividends.

Directors’ indemnities

The Company has made qualifying third-party indemnity provisions for the benefit of its directors
which were made during the year and are in force at the date of this report.

Research and Development

The Group did not engage in any research and development activities during the reported period.

Political contributions

No political donations were made during 2018 nor 2017.

Substantial shareholdings

Name

Ordinary
Shares
Beneficially
Owned

Percentage

5% Beneficial Owners
“Algonquin (AY Holdco) B.V.” (1)., ............................................................................
41.47%
Morgan Stanley Investment Management Inc.(2) ………………………………… 6,582,577 6.5%

41,557,663

Note:

(1) This information is based solely on the Schedule 13D filed with the U.S. Securities and Exchange
Commission on November 27, 2018 by Algonquin Power & Utilities Corp, a corporation incorporated
under the laws of Canada. The direct beneficial owner of the shares is ”Algonquin (AY Holdco) B.V.
(2) This information is based solely on the Schedule 13G filed with the U.S. Securities and Exchange

Commission on February 12, 2019 by Morgan Stanley Investment Management Inc.

Auditors

Each person who is a director at the date of approval of this Consolidated Annual Report confirms
that:

•

so far as the director is aware, there is no relevant audit information of which the company's
auditor is unaware; and

the director has taken all the steps that he ought to have taken as a director in order to
make himself aware of any relevant audit information and to establish that the company's
auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section
418 of the Companies Act 2006.

Deloitte S.L. and Deloitte LLP have been our principal accountants providing the audit services to
the Company during 2018. Deloitte, S.L. and other member firms of Deloitte were appointed as

Audit Committee Report

The objective of this Audit Committee Report is to describe how the Committee has carried out its
responsibilities during 2018

The purpose of the Audit Committee is to monitor and review: 1) the integrity of the financial
statements; 2) the design, implementation and effectiveness of the Internal Control and Risk
Management systems; 3) the Internal Audit function; 4) the Whistleblowing Channel of the
Company; and 5) the external audit work.

Membership and Attendance

Director

Mr. Francisco J.
Martinez

Membership

Since

Until

Jun'17

n.a

Mr. Daniel Villaba

Jun'14

n.a

Role

Director, independent and
Chairman of the Audit
Committee. Financial Expert
Director, Independent and
Chairman of the Board

Mr. Jackson
Robinson

Notes:

Jun'14

n.a

Director, Independent

(1) Does not include matters approved by Audit Committee’s Written Resolutions

Attendance /
Eligible to
attend (1)

4/4

All members of the Audit Committee independent are non-executive directors in accordance with
the definition provided by Rule 5605 of the NASDAQ Stock Market (“NASDAQ”) who meet the
criteria for independence set forth in Rule 10A-3(b)(1) under the United States Securities Exchange
Act of 1934, as amended.

Senior management, such as the Head of Internal Audit, Head of Consolidation, Head of Investor
Relations and Chief Financial Officer attend meetings by invitation.

The Audit Committee meets with the External Auditors at least on a quarterly basis.

The Committee Chairman provides regular updates to the Board of Directors on the key issues
discussed at the Committee’s meetings.

Role of the Audit Committee

The Board of Directors approved Terms of Reference for the Audit Committee which are available
on the website of the Company (www.atlanticayield.com).

These Terms of Reference provide the roles and responsibilities of the Audit Committee, which are
reviewed by the Board of Directors on a yearly basis. In accordance with this document, the
Committee’s responsibilities include, but are not limited, to the following matters:

1. Monitor the integrity of the financial statements of the Company, including its annual and
quarterly reports and reporting to the Board on significant financial reporting issues

2. Review the effectiveness of the Company’s Internal Controls and Risk Management,

including the information to be included in the Annual Report;

3. Evaluate Compliance, Whistleblowing and Fraud policies, procedures and tools

implemented by the Company;

4. Review and evaluate the Internal Audit function’s performance and its effectiveness;

5. Make all decisions regarding the appointment, compensation, retention, oversight and
replacement, if necessary, of the external, independent auditor. The Audit Committee shall
meet external auditors at least once per year.

2018 Key Activities

Financial Reporting

The Audit Committee has reviewed all significant issues concerning the financial statements and
how these issues were addressed. The Committee reviewed all filed quarterly interim financial
statements. They have also reviewed the Annual Report (UK Annual Report) and the Annual Report
on Form 20-F.

This review included the accounting policies and significant judgements, estimates and disclosures
underpinning the financial statements.

Particular attention was paid to the following significant issues related to 2018 financial statements:

(1) Recoverability of Contracted Concessional Assets;

(2) Covenants Compliance; and

(3) Significant one-off transactions, including acquisitions, partnerships and other significant

agreements, etc.

Internal Control System and Risk Management

Atlantica has implemented Risk Management and Internal Control systems. These systems,
therefore, provides reasonable assurance against material misstatements or losses.

The Audit Committee assists the Board of Directors in reviewing the effectiveness of the Risk
Management and Internal Control systems annually. Effective management of risks and
opportunities is essential for the delivery of strategic objectives and meeting the requirement of
good corporate governance.

 Risk Management:

Atlantica has developed a Risk Map, a system to identify and assess all business risks based
on a standardized methodology. This system allows the Company to identify different risk
categories (strategic, legal, financial, and operational).

All risks are assessed at the Group and subsidiary levels by likelihood of occurrence and its
potential impact on the Company.

All significant risks have been properly addressed by the Company. Mitigation plans have
been implemented in order to reduce or eliminate, when possible, the exposure to risk. All
risks are re-assessed on a quarterly basis.

 Internal Control System:

The Audit Committee has primary responsibility for the oversight of the Internal Control
system.

Atlantica has deployed its Internal Control system with Atlantica SOX Procedures, (the “ASP”).
This system is essential to help the Company to meet Sarbanes-Oxley Act requirements. In
particular, the Committee reviews the application of the requirements under Section 404 of
the U.S. Sarbanes-Oxley Act of 2002 with respect to Internal Controls over Financial Reporting
(the “ICFR”).

Atlantica SOX Procedures have been designed in accordance with the internal control
framework developed by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), which is widely used. It is recognized as a leading framework for
designing, implementing and conducting an internal control system and assessing its
effectiveness.

The Audit Committee reviews the process followed by the management to assess the
effectiveness of the Internal Control System. This process includes: i) quarterly self-
assessment performed by control owners regarding the design; ii) implementation and
effectiveness of control activities they are responsible for; and iii) annual certifications by
Senior Management, including the Chief Financial Officer and the Chief Executive Officer.

The Internal Control system is updated on a yearly basis. In 2018, the Atlantica SOX
Procedures have been enhanced to include new control activities implemented to mitigate
new risks or to increase the effectiveness of the system.

In order to fulfil its oversight responsibilities, the Committee meets regularly with senior
management members. In particular the Committee is assisted by the Internal Audit department.

As a result of the procedures performed and internal assessment conducted by Internal Audit, the
Audit Committee concludes that the Internal Control System of the Company is properly designed,
implemented and that it has been operating effectively during 2018.

Compliance, Whistleblowing and Fraud

In September 2014, following Section 301 in the Sarbanes Oxley Act, the Audit Committee
implemented the Whistleblower Channel for:

a) The receipt, retention and treatment of complaints regarding accounting, internal controls

or auditing matters; and

b) The submission by employees of Atlantica, on a confidential and anonymous basis, of good

faith concerns regarding questionable accounting or auditing matters.

Atlantica’s Whistleblower Channel is available at Company’s website www.atlanticayield.com.

The Audit Committee is responsible for the management of this Channel. According to the Code
of Conduct, any allegation received through the Whistleblower Channel will be received by the
Chairman of the Audit Committee, the General Counsel and the Head of Internal Audit.

All allegations are managed by the Compliance Committee according to a specific Fraud Response
Protocol. Main procedures performed, conclusions and proposed corrective measures are
communicated to the Audit Committee.

The Audit Committee is also responsible for overseeing procedures performed by the Internal Audit
department:

 Internal Control procedures and activities implemented by management in order to prevent
fraud and corruption, in particular the US Foreign Corrupt Practice Act and the UK Bribery
Act; and

 Procedures performed and conclusions reached by Internal Audit in order to detect fraud

and any breach of any regulation.

All the information received through the Whistleblower Channel in 2018 has been properly
addressed according to the Investigation Protocol adopted by the Executive Compliance
Committee.

Internal Audit

Internal Audit is an independent, objective assurance and consulting function designed to add
value to the Company. The Internal Audit function must be independent, and all internal auditors
must be objective in performing their work. In Atlantica, the Internal Audit function reports to the
Audit Committee.

In accordance with the Audit Committee’s terms of reference, the Committee is responsible for the
supervision of the Internal Audit function.

In particular, the Audit Committee:

 Approves the Internal Audit Plan for the year.
 This plan is prepared in accordance with the conclusions of the Audit Risk Assessment, which
is prepared according to PCAOB Auditing Standards. The Committee also reviews the progress
of the Internal Audit Plan on a quarterly basis.

 Reviews Internal Audit work, their main findings, recommendations and its implementation on

a periodic basis.

 Reviews and monitors management’s responsiveness to the internal auditor’s findings and

recommendations.

 Meets regularly with the Head of Internal Audit.

External Audit

The Audit Committee has primary responsibility for overseeing the relationship with the external
auditor. This responsibility includes, at least:

• The selection and appointment of the external auditor. The Committee shall consider and
make recommendations to the Board, to be put to shareholders for approval at the AGM.

At least once every ten years the audit services contract shall be put out to tender.

Deloitte, S.L. and other member firms of Deloitte was appointed as external auditor of the
Group in June 2014. In March 2017, the Audit Committee decided to extend its appointment
for one year.

In addition, the Audit Committee decided to appoint Ernst & Young as external auditor of the
Group for the period 2019 – 2022.

• The Audit Committee is responsible for overseeing the remuneration of the external auditor
for both audit services and non-audit services. The Audit Committee approves all services

contracted with the external auditor.

The Committee has established a policy to safeguard the independence and objectivity of
external auditors. In general, external auditors may be engaged to provide services only if
their independence and objectivity are not impaired. In September 2014, the Committee
considered it appropriate to establish the Pre-Approval Policy for Audit services rendered
by the Statutory Auditor. According to this Policy, audit services, audit-related services, tax
services and other services are pre-approved by the Audit Committee.

All other services must be approved explicitly by the Audit Committee

All services performed by Deloitte are approved by the Audit Committee. All fees received
by Deloitte in 2018 have been approved by the Committee.

In thousand USD
Audit Fees
Audit-Related Fees*
Tax Fees
All Other Fees
Total

Deloitte

Other

Total

1,722
705
-
46
2,473

74
-
-
-
74

1,796
705
-
46
2,547

(*) Audit-Related Fees includes fees paid to Deloitte, S.L. during 2018 that were related to capital market

transactions of our major shareholder, which were re-invoiced.

• The Audit Committee is responsible for overseeing the work of the external auditor.

In 2018, Deloitte attended four Audit Committee meetings. Deloitte has communicated to
the Committee all relevant information related to the audit process in accordance to
Auditing Standard Nº16 issued by the PCAOB.

Furthermore, during 2018, EY attended two meetings of the Audit Committee. EY had the
opportunity to share with the Committee relevant information related to the transition plan
that was agreed with the management, their audit strategy and the composition of the global
audit team.

In particular, the following issues were covered in those meetings:

–

Independence issues, services provided to the Group or to be provided;

– Summary of their work (scope, procedures performed, results of their work,

summary of uncorrected misstatements, etc.);

– Significant and/or critical accounting policies applied by the Company;

– New Accounting Standards and new auditing standards applicable; and

– Material written communications.

As a result of the audit procedures performed by Deloitte, they have issued the following audit
reports:

 Unqualified Audit Report on Review of Consolidated Financial Information (IFRS – IASB)

under PCAOB standards (U.S. SEC filing);

 Unqualified Audit Report on Internal Control over Financial Reporting under PCAOB

standards (U.S. SEC filing); and

 Unqualified Audit Report on Review of Consolidated Financial Information (IFRS – IASB)

under ISA (UK Companies House filing).

Directors’ Remuneration Report

Introduction

This report is on the remuneration of the directors of Atlantica for the period to 31 December 2018.
It sets out the remuneration policy and remuneration details for the executive and non-executive
directors of the Company. It has been prepared in accordance with Schedule 8 of The Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in
August 2013.

The report is split into three main areas:

▪

the statement by the chair of the Compensation Committee;

the annual report on remuneration; and

the policy report.

The remuneration report and remuneration policy will be submitted to the Annual Shareholders’
Meeting in 2019.

The Companies Act 2006 requires the auditors to report to the shareholders on certain parts of the
Directors’ Remuneration Report and to state whether, in their opinion, those parts of the report
have been properly prepared in accordance with the Regulations. The parts of the Annual Report
on remuneration that are subject to audit are indicated in that report. The statement by the chair
of the Compensation Committee and the policy report are not subject to audit.

Atlantica has a Nominating and Corporate Governance Committee, responsible for reviewing the
structure, size and composition of the Board and succession planning for directors and senior
executives. It also reviews and advises the Board on the strategy and corporate governance
responsibility objectives of the Company. The Compensation Committee, is mainly focused on
setting the remuneration policy for directors and senior management.

Statement by the Chair of the Compensation Committee

I am pleased to present the remuneration report for 2018. The constant and transparent dialogue
with shareholders and investors is a vital element in our way of operating and, through this
remuneration report, we aim to increase the awareness of our shareholders of the principles of our
remuneration policy,

The Company´s remuneration policy is set in accordance with the applicable law and reflecting the
principles of the UK Corporate Governance Code, with the aim of attracting and retaining highly
skilled professional and managerial resources and aligning the interests of management with the
priority objective of value creation for shareholders, for the Company and the members of the
Company as a whole in the medium to long term.

During 2018, the Compensation Committee convened three times during the year. All members of
the Committee attended each meeting that they were eligible to attend.

Among the activities conducted by the Compensation Committee, it addressed three key
objectives:

➢ Periodically reviewing the fixed and variable remuneration for the Chief Executive Officer;
➢ Periodically reviewing the remuneration policy and overall levels of remuneration for the
Chief Executive Officer and senior management team, including the long-term incentive
plans, in accordance with the following criteria:

o seeking an alignment between incentives, business performance and creation of

value for shareholders;

o consistency with the principles of the UK Corporate Governance Code; and
o

retention in the medium to long term of high quality resources for the achievement
of ambitious targets and to face the challenges that the Company will have to face
in the current and future market context.

➢ Periodically reviewing the remuneration levels of independent non-executive directors;

During the year 2018, most of the objectives defined for the Chief Executive Officer's variable bonus
were met or exceeded and the Compensation Committee decided to approve a bonus
corresponding to 101.8% of the potential variable compensation, which will be payable in 2019. In
2017 most of the objectives defined for the Chief Executive Officer's variable bonus were met and
a bonus corresponding to 96.25% of the potential variable compensation was paid in 2018. To
finalise, I would like to thank our shareholders for their strong vote in favour of approving the
directors’ remuneration report last year, demonstrating their support on Atlantica’s remuneration
arrangements. I look forward to welcoming you and receiving your support again at the annual
general meeting this year.

Annual Report on Remuneration

Single total figure of remuneration for each director

The information provided in this part of the report is subject to audit.

Atlantica paid remuneration only to independent non-executive directors and Santiago Seage
(Chief Executive Officer and Executive Director), other directors were not paid remuneration. Since
August 2018, each independent director receives an annual compensation of $134,000
(approximately €113,444). As chairman of the audit committee, Mr. Francisco J. Martinez receives
an additional $15,000 (approximately €12.7 thousand) per year. As chairman of the Nominating
and Corporate Governance Committee and Compensation Committee, Mr. Dove and Mr. Robinson
receive an additional $10,000 (approximately €8.5 thousand) per year. As chairman of the board of
directors, Mr. Villalba receives an additional $61,000 (approximately €51.6 thousand) per year.

Until August 2018, each independent director received a total annual compensation of $100,000
(approximately €86.7 thousand) and as chairman of the board of directors, Mr. Villalba received an
additional $35,000 (approximately €29.6 thousand) per year. In 2018, each independent director
received a total annual compensation detailed in the table below.

The table below provides a breakdown of the various elements of Director pay for the year ended
31/12/2018 and for prior years. This comprises the total remuneration earned in respect of the
period from 01/01/2018 to 31/12/2018 and from the period 01/01/2017 to 31/12/2017.

Salary and fees

€´000

All taxable

2016-2018 LTIP

benefits

€´000

Annual bonuses

Total for 2018

€´000

Name

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

Santiago Seage

650.0

600.0

Daniel Villalba

135.5

119.5

Jackson Robinson

Robert Dove

Andrea Brentan

100.2

96.7

Francisco J. Martinez

101.9

Eduardo Kausel

Enrique Alarcon

Juan del Hoyo

88.5

44.3

655.0

- 865.3

818.1

2,170.3

1,418.1

135.5

100.2

96.7

101.9

119.5

88.5

44.3

Total

1,184.5 1,073.8

655.0

- 865.3

818.1 2,704.8 1,891.9

Only directors who received remuneration are included in the table above.

None of the directors received any pension remuneration in 2017 nor 2018. The CEO received the
2016-2018 LTIP compensation in 2018, payable in March 2019.

Each member of our board of directors will be indemnified for his actions associated with being a
director to the extent permitted by law.

• CAFD (cash available for distribution) – Equal or Higher than $170

million

• EBITDA – Equal or Higher than $782 million

• Present and close value creating and accretive investment

opportunities

• Achieve health and safety targets - (Loss Time Injury frequency
index below 5.2 and General frequency index below 16.4) based
on reliable targets and consistent measure metrics

• Improve the technical performance of Solana and Kaxu as per

approved plan

Percentage
weight
(50%)

(10%)

(15%)

Achievement

100.8%

109.0%

100.0%

(10%)

120.0%

(10%)

85.0%

• Prepare and implement a complete succession plan

(5%)

100.0%

The 2016-2018 Long-Term Incentive Plan (LTIP) was in place for the three-year period 2016 to 2018
ended. The award corresponding to the Chief Executive Officer was a 21.95% of the maximum
potential award, which amounted to €655 thousand, which is payable in 2019.

A new long-term incentive plan was proposed by the Compensation Committee, and approved by
the board of directors the “Long-Term Incentive Plan” or the “LTIP”. The LTIP is detailed under the
section “Long-Term Incentive Plan” of this report.

Remuneration of the Chief Executive Officer

The information provided in this part of the report is not subject to audit.

The table enclosed within the “Single total figure of remuneration for each director” sets out the
details for Mr. Seage who serves in the role of the Chief Executive Officer.

In 2018, he accrued €865.3 thousand as a bonus payment in accordance with his service agreement,
payable in 2019. In 2017, Mr. Seage accrued €818.1 thousand as a bonus payment in accordance
with his service agreement, payable in 2018.

Total Shareholder Return and Chief Executive Officer Pay

The chart below shows the Company’s total shareholder return since June 2014, the date of our
Initial Public Offering (“IPO”), until the end of 2018 compared with the total shareholder return of
the companies in the Russell 2000 Index. The chart represents the progression of the return,
including investment, starting from the time of the IPO at a 100%-point. In addition, dividends are
assumed to have been re-invested at the closing price of each dividend payment date.

We believe the Russell 2000 Index is an adequate benchmark as it represents a broad range of
companies of similar size.

TSR is calculated in US dollars.

100%
100%

104,70%

100,10%

95,10%

139%

121,30%

123,60%

71,50%

73,40%

84,10%

82,18%

Russell 2000

2013

2014

2015

2016

2017

2018

The table below shows the total remuneration of the Chief Executive Officer and his bonuses and
2016-2018 LTIP grants expressed as a percentage of the maximum he is likely to be awarded. We
have also included an additional reference point to show the maximum remuneration receivable
assuming a share price appreciation of 50%.

Bonus

2016-2018 LTIP awards

Total Pay

Year

(€ 000)

Percentage

maximum

Amount of

bonus

2018

2017

2016

2015

2014

2,170.3

1,418.1
1,329.1(1)
1,440.9(2)

130.9

101.8%

96.25%

100%

865.3

818.1

850.0

Percentage

Value

maximum

21.95%

655.0

(1)

(2)

This amount differs from the one detailed in previous UKAR because CEO’s fixed salary is applicable

only after approved by shareholders meeting

Includes a 1,189.5 thousand euros termination payment received by Mr. Garoz after leaving the
Company on 25 November 2015.

The chief executive officer did not receive any variable remuneration for service provided to the
Company for the years ended 31 December 2015 and 2014. Santiago Seage occupied that office
between January and May 2015, and again since late November 2015. Meanwhile, Mr. Garoz held
that position between May and November 2015, when he left the Company.

In 2017, the Company accrued €818.1 thousand of the bonus paid to the Chief Executive Officer in
2018. In 2018, the Company accrued €865.3 thousand of the bonus payable to the Chief Executive
Officer in 2019, in accordance with his service agreement.

If in 2018 the share price had increased by 50%, the remuneration for the CEO for the year 2018
would have been €4,449.1 million, which would have included the hypothetical 2016-2018 LTIP
award in the case that the share price had increased by 50% in 2018 plus the actual fixed and
variable remuneration for that year

Chief Executive Officer Pay vs. Employee Pay

The table below sets out the percentage change between the year 2017 and 2018 in salary, benefits
and bonus (determined on the same basis as for the Single Total Figure table) for the Chief Executive
Officer/Managing Director and the average per capita change for employees of the Group as a
whole.

The average number of employees in the year 2018 was 207 compared to an average number of
182 in 2017.

Element of remuneration

Percentage change for

Chief Executive Officer

employees

Salary

Benefits

Bonus

8.3%

n/a

5.8%

4.7%

n/a

7.5%

Relative Importance of Spend on Pay

The following table sets out the change in overall employee costs, directors’ compensation and
dividends.

€ in million

Spend on pay for all employees of the
group(1)

Amount in

2018

Amount in
2017 (2)

Difference

12.8

16.7

(3.9)

Total remuneration of directors
Dividends paid(2)
(1) The decrease is mainly due to the reversal of the accrual of our LTIP

112.8

2.7

1.9

84.0

0.8

28.8

(2) Dividend paid does not include amounts retained to Abengoa.

The company has not made any share repurchases during 2018 nor 2017.

The average number of employees in 2018 in the Group was 207 employees, compared to 182
employees in 2017. The decrease in spend on pay is due to the reversal of the accrual corresponding
to the 2016-2018 Long-Term Incentive Plan.

Directors’ shareholdings

The following table includes information with respect to beneficial ownership of our ordinary shares
as of December 31, 2018 by each of our directors and executive officers as well as their connected
persons.

Directors not included in the table below do not hold shares.

Santiago Seage

Daniel Villalba

Jackson Robinson

Francisco J. Martinez

Robert Dove

Ian Robertson

Andrea Brentan

December 31, 2018 December 31, 2017

20,000

60,000

8,647

5,700

10,347

2,500

1,300

20,000

60,000

5,690

There have been no changes in the holdings of the directors between the year end and the date of
issuance of this report.

Directors currently do not hold share options or awards. On July 31, 2018, the Board approved a
share ownership requirement applicable to independent non-executive directors pursuant to which
they shall achieve within a period of three years a minimum share ownership in the Company equal
in value to 1.5 times the annual retainer paid to independent directors.

Termination Payments

No termination payments were made in 2018 nor 2017. The policy for termination remuneration is
detailed under the section “Policy on payments for loss of office” of this report.

Statement of Implementation of Policy in 2019

The targets for bonuses are detailed under the section “Remuneration Policy” of this report. The
current policy was approved at our 2018 Annual General Meeting, held in May 2018.

For 2019, the bonus measures for the remuneration of the Chief Executive Officer, will focus on 5
areas: financial targets, value creating growth/investments, strategic review, health and safety and
a succession plan.

This approach is intended to provide a balanced assessment of how the business has performed
over the course of the year against stated objectives. Targets are aligned with the annual plan and
strategic and operational priorities for the year.

For 2019 the bonus objectives are the following:

CAFD (cash available for distribution) – Equal or higher than $190 million
EBITDA– Equal or Higher than $827 million
Present and close value creating and accretive investment opportunities
Lead the works of the strategic review and plan
Achieve health and safety targets - (Frequency with Leave / Lost Time Index
below 4.5 and General frequency index below 13.8) based on reliable targets
and consistent measure metrics
Implement the succession plan

Compensation Committee

Percentage
weight

40%
10%
15%
20%
10%

The Compensation Committee was created in February 2016, together with the Nominating and
Corporate Governance Committee. These two committees replaced the Appointments and
Remuneration Committee which was in place since the IPO.

The Compensation Committee is responsible for determining the remuneration policies and the
remuneration of the Chief Executive Officer and other senior members of management.

In 2018, the Committee focused its activities on the following key remuneration topics:

 Periodically reviewing Long Term Incentive Plans;
 Deciding on the Chief Executive Officer’s remuneration;
 Reviewing Independent non-executive director’s remuneration; and
 Analysing peers and comparable remuneration structures.

Membership and Attendance

All members of the Compensation Committee are Non-Executive Directors. No director or Senior
Manager shall be involved in any decision as to their own remuneration.

Director

Membership

Since

Until

Role

Attendance /
Eligible to attend (1)

Mr. Jackson Robinson

Mr. Andrea Brentan

Mr. Robert Dove(2)

Jun'14

Jun'17

Mr. Christopher Jarratt (1)

Mar'18

n.a

Director, Independent

Director

3/3

2/2

Notes

(1) On March 12, 2018, Mr. Christopher Jarratt was appointed as director and member of the Compensation

Committee.

(2) On December 19, 2018, Mr. Robert Dove resigned from the Compensation Committee.

The Chief Executive Officer and members of senior management, such as the Head of Human
Resources, may attend the meetings by invitation.

The Committee Chairman provides regular updates to the Board of Directors on the key issues
discussed at the Committee’s meetings.

The Committee held three meetings during the year 2018.

Role of the Compensation Committee

The Board of Directors approved Terms of Reference for the Compensation Committee which are
available on the website of the Company (www.atlanticayield.com).

These Terms of References provide the roles and responsibilities of the Committee, which are
reviewed by the Committee itself and the Board of Directors on a yearly basis. In accordance with
this document, the Committee’s responsibilities include, but are not limited, to the following
matters:

1. To analyse, discuss and make recommendations to the Board regarding the setting of the

remuneration policy for all directors and senior management;

2. To analyse and discuss proposals made by the Board regarding the Company’s

remuneration policy;

3. To obtain reliable and updated information about remuneration in other companies of

comparable scale and complexity;

4. To review the Chief Executive Officer’s annual compensation package and performance

objectives;

5. To review the design of long-term incentive plans for approval by the board and

shareholders; and

6. To review and approve the compensation payable to executive Directors, and the Chief

Executive Officer for any loss or termination of office or appointment.

2018 Key Activities

In 2018, the Compensation Committee continued its work on revising our remuneration structure
to ensure that the Company has in place an effective Remuneration Policy which:

 Allows the Company to attract and retain top quality talent; and
 Rewards and compensates sustainable performance to the benefit of both shareholders

and stakeholders.

Remuneration Analysis

The Committee has re-assessed the Remuneration Policy implemented by the Board of Directors
and approved in the Annual General Meeting. At least once a year, the Compensation Committee
reviews compensation practices for independent non-executive directors in similar companies.

The Committee has been particularly focused on reviewing the remuneration for independent non-
executive directors and Chief Executive Officer, based on the information collected from external
consultants that provided independent advice on remuneration best practices and market practice
on directors´ minimum ownership requirements.

The Compensation Committee has the responsibility to propose the remuneration of the Chief
Executive Officer and the overall remuneration of the senior management to the Board of Directors,
including any kind of compensation (fixed salary, performance-related bonuses, long-term
incentive plans, etc.).

Regarding performance-related bonuses or variable remuneration, the Committee has the
following duties:

 Definition of specific targets for the Chief Executive Officer and overall structure for senior

management.

 Evaluation of the accomplishment of those objectives in the case of the Chief Executive

Officer.

Long Term Incentive Plans

The Company had a long-term incentive plan for the period 2016-2018 (the “2016-2018 Long-
Term Incentive Plan” or “2016-2018 LTIP”) for the executive team approved at the 2016 Annual
General Meeting. The 2016-2018 LTIP ended in 2018 and the amount payable under the LTIP
amounts to 21.95% of the maximum potential amount, which will result in a total payment of €1,411
thousand that we expect to pay in March 2019.

In April 2018, a new long-term incentive plan (the “Long-Term Incentive Plan” or “LTIP”) has been
approved by the Board of Directors for the year 2019. This plan will be submitted for approval to
the Annual General Meeting in June 2019.

Voting at the 2018 Annual General Meeting

The Company takes an active interest in voting outcomes. In the event of a substantial vote against
a resolution in relation to director´s remuneration, the Company would seek to understand the

reasons for any such vote and would set out in the following Annual Report any actions in response
to it.

At the 2018 Annual General Meeting, votes in relation to the directors’ remuneration report were
as follows:

Remuneration Report

Number of votes
75,408,187
4,046,390
895,456

75.2
4.0
0.9

For
Against
Withheld

The remuneration policy was approved by the 2017 Annual General Meeting, votes in relation to
the directors’ remuneration policy were as follows:

Remuneration Policy

Number of votes
82,508,325
5,472,388
86,346

82.5
5.5
0.0

For
Against
Withheld

Remuneration Policy

The current policy was approved at our 2018 Annual General Meeting, held in June 2017.

For independent non-executive directors, the Company’s policy is to compensate in cash for the
time dedicated, subject to a maximum total annual compensation for non-executive directors in
aggregate of two million dollars. Once a year, the Compensation Committee reviews compensation
practices for independent non-executive directors in similar companies and the skills and
experience required and may propose an adjustment in the current compensation. For other non-
executive directors, the policy is not to compensate for the time dedicated.

The policy for executive directors, which is only applicable to the Chief Executive Officer as the only
executive director so far, is as follows:

Name of
component

Description of
component

Salary/fees

Benefits

Annual bonus

Fixed remuneration payable
monthly

Opportunity to join existing
plans for employees but
without any
in
remuneration

increase

is paid
Annual bonus
following the end of the
financial
for
performance over the year.
There are no retention or
forfeiture provisions

year

How does this
component support the
company’s (or group’s)
short and long-term
objectives?

What is the maximum
that may be paid in
respect of the
component?

Helps to recruit and retain
executive directors and forms
the basis of a competitive
remuneration package

Maximum amount €700
thousand, may be
increased by 5% per year

Salary levels for peers are
considered

Framework used to
assess performance

Not applicable

No retention or clawback

Helps to offer a competitive
remuneration package and
align
company’s
objectives

it with

200% of base salary

40%-50% of CAFD

Long Term
Incentive Awards

Restricted stock units and
share options subject to
certain vesting periods

Align executive directors and
shareholders interests

70% of target annual target
salary + bonus

Special one-off plan in 2019
for 50% of 2019 salary +
bonus

10% of EBITDA

40%-50%
other
operational or qualitative
objectives

No retention or clawback

75% share units subject to
5% average annual TSR,
25% options

Share units

As further discussed below, the new Long Term Inventive awards are a change to our remuneration
policy approved by the Compensation Committee and by the Board of Directors. The Company is
seeking shareholder approval to extend the Long-Term Incentive Plan to the CEO in line with other
senior executives. There will need to be a shareholder vote on any change to the current policy

CAFD, EBITDA and TSR have been selected as key parameters to measure company’s performance
due to their importance for our shareholders. These measures are considered standard indicators
of financial performance in the YieldCo sector.

Committee discretions

The committee has discretion, consistent with market practice, in respect of, but not limited to
participants, timing of payments, size of the award subject to policy, performance measures and
when dealing with special situations, such as change of control or restructuring.

The annual bonus is a variable cash bonus, based on the objectives described above. Those
objectives include Cash Available for Distribution (CAFD) and EBITDA, as these are key financial
metrics for our industry sector. Additionally, the annual bonus includes 2-3 objectives that reflect
some of the key projects, initiatives or key objectives.

For the management team and key personnel, our policy is to use two external consultants to
estimate market conditions for similar positions in terms of fixed and variable remuneration and,

based on a performance appraisal, set a target remuneration, as a general rule, within that market
practice. Variable payments are based on a number of specific measurable targets in relation to the
measures described herein, which are defined by the Compensation Committee at the beginning
of the year. For the rest of its employees, the Company establishes predefined remuneration ranges
for different positions and reviews each individual remuneration depending on performance
appraisal and within two ranges without employee consultation.

2016-2018 Long-Term Incentive Plan

The Company had a Long-Term Incentive Plan for the period 2016-2018 for the executive team
approved at the 2016 Annual General Meeting. The plan included twelve executives, including our
Chief Executive Officer, who were eligible under the 2016-2018 Long-Term Incentive Plan. The
2016-2018 Long-Term Incentive Plan provided that each eligible executive would be entitled to the
payment of a long-term incentive cash bonus in March 2019 calculated as a function of Total
Annual Shareholder’s Return, or TSR, objectives over the 2016-18 period, a metric intended to align
management and shareholder interests. The maximum bonus would be 50% (or, in the Chief
Executive Officer’s case, 70%) of the total remuneration received by the executive over the period
from 2016-18. Specifically, 50% of the bonus would be based on our TSR and 50% on the relative
performance in terms of TSR versus a group of similarly structured companies selected by the
Compensation Committee. In case of a change of control, the long-term incentives would become
due and would be calculated using the offer price or the last price based on TSR up to and including
the change of control. Given the actual TSR in the three-year period from January 1, 2016 and
December 31, 2018 and the TSR versus the peer group during that same period, the amount
payable under the 2016-2018 LTIP amounts to 21.95% of the maximum potential amount, which
amounts to €1,411 thousand in total and which is expected to be paid in March 2019.

Long-Term Incentive Plan

In April 2018, the Board of Directors approved the implementation of a long-term incentive plan
for the 2019 period (the “Long-Term Incentive Plan” or “LTIP”) which permits the grant of share
options and restricted stock units (“Awards”) to the executive team of the Company (the
“Executives”). The LTIP applies to approximately 14 executives and the Board of Directors would
also like to include the Chief Executive Officer, who is also a Director. The Chief Executive Officer’s
participation in the LTIP will be submitted for shareholders’ approval at the 2019 annual general
meeting.

The purpose of this LTIP is to attract and retain the best talent for positions of substantial
responsibility in the Company, to encourage ownership in the Company by the executive team
whose long-term service the Company considers essential to its continued progress and, thereby,
encourage recipients to act in the shareholders’ interest and to promote the success the Company.

The aggregate number of shares which may be reserved for issuance under the LTIP must not
exceed 2% of the number of the shares outstanding at the time of the Awards are granted but is
expected to be significantly less. However, the Company may decide that, instead of issuing or
transferring shares, the Executives may be paid in cash.

The value of the Awards will be defined as 50% of the Executives’ total annual compensation for
the year closed before the date upon which an Award is granted and, in the case of the Chief

Executive Officer, would be 70% of the same previous year total compensation at the grant date
(“Awards Value”). The share options will represent 25% of the Award Value and the restricted stock
units will represent 75% of the Award Value.

Main terms of the LTIP

Share Options

Restricted Stock Units

Nature

Option cost shall be calculated by
a third party using the Black-
scholes or some other accepted
methodology.

Exercisability
and
period

vesting

One-third of the total number of
options awarded shall vest on each
anniversary of the date upon
which an award was granted.

Ownership
and dividends

The Company will decide at
vesting if cash or shares are given
as payment.

The participant shall have the
rights of a shareholder only as to
shares acquired upon the exercise
of an option and not as to
unexercised options.

Until the Shares are issued or
transferred, no right to vote at any
meeting or to receive dividends or
any other rights as a shareholder
shall exist.

Conditions shall be based on
continuing employment
(or
other service relationship) and
achievement of a minimum 5%
average
total
shareholders return (“TSR”).

annual

The shares will vest on the third
anniversary of the grant date
but only if the total annual
shareholders return (“TSR”) has
least a 5% yearly
been at
average over
such 3-year
period.

The participant will be entitled
to receive, for each share unit, a
payment equivalent
the
amount of any dividend or
distribution paid on one share
between the grant date and the
date on which the share unit
vests.

Effect on termination of employment

If a participant’s employment terminates by reason of involuntary termination (death, disability,
retirement dismissal rendered unfair, etc.), any portion of his/her Award shall thereafter continue
to vest and become exercisable according to the terms of the LTIP but such participant shall be no
longer entitled to be granted Awards under the LTIP.

If a participant incurs a termination of employment for cause or voluntary resignation or
withdrawal, options that have vested on the termination date will be exercisable within the period
of 30 days from such termination date but any unvested Awards (options or restricted stock units)
shall lapse.

Change in control

If there is a change in control, all Awards shall vest in full on the date of the change in control. The
participants must exercise their options within a period of 30 days.

Delisting

If the Company is delisted, all outstanding Awards shall vest in full on the date of delisting and will
be settled in cash. The cash payment for restricted stock units will be the last quoted share price of
the Company and the cash payment for any outstanding share options will be the difference
between the last quoted share price and the exercise price for the applicable option. Such cash
payments will be made after applicable tax deductions within 30 days of the delisting.

In addition to the LTIP, in February 2019 the Board of Directors approved a special one-off plan
which permits the grant of stock units to certain members of the Management and certain
members of the Middle Management, consisting of approximately 25 managers. The value of the
award will be defined as 50% of 2019 target remuneration (including salary and variable bonus).
The share units will vest in 3 years, one third each year, provided that the manager is still an
employee of the company.

The Chief Executive Officer LTIP, including the special one-off plan, will be submitted for
shareholders’ approval at the 2019 annual general meeting expected to be held in June 2019.

Executive directors do not receive any pension contributions.

None of the non-executive directors receive bonuses, long-term incentive awards, pension or other
benefits in respect of their services to the Company.

There are no provisions for the recovery of sums paid or the withholding of any sum.

Chief Executive Officer remuneration policy

The Compensation Committee approved a fixed remuneration of €650 thousand for the Chief
Executive Officer for 2019, with no changes versus 2018.

Total remuneration of the only executive director for a minimum, target and maximum
performance in 2019 is presented in the chart below.

Thousand euros. 2019

€1,500

€1,075

40%

60%

57%

43%

€650

100%

Minimum

Target

Maximum

Salary and benefits

Annual bonus

Assumptions made for each scenario are as follows:

▪ Minimum: fixed remuneration only

▪ Target:

fixed remuneration plus half of maximum annual bonus

▪ Maximum: fixed remuneration plus maximum annual bonus

LTIP is not included as it would not vest in 2019 and is subject to achieving targets but it is proposed
that, subject to shareholder approval, the Chief Executive Officer will be eligible for a 2019 LTIP
award of 70% of this total compensation for 2018, being €752.5 if we consider the Target total
compensation above.

For 2019 the bonus objectives are the following:

Approach to recruitment

Percentage
weight

40%
10%
15%
20%
10%

As previously stated within this report, the recruitment of managers is largely based on the
estimates of two external consultants of the market conditions for similar positions, in terms of
fixed and variable remuneration.

In addition, the remuneration policy reflects the composition of the remuneration package for the
appointment of new executive directors. We expect to offer a competitive fixed remuneration, an
annual bonus not exceeding 200% of the fixed remuneration and a participation in the LTIP plan.

Lastly, whenever needed, the Company can contract an external advisor to hire key personnel.

As stated in the “Single total figure of remuneration for each director”, since August 2018, each
independent director receives an annual compensation of $134,000 (approximately €113,444). The
chairman of the Audit Committee receives an additional $15,000 (approximately €12.7 thousand)
per year. The chairman of the Nominating and Corporate Governance Committee and the chairman
of the Compensation Committee receive an additional $10,000 (approximately €8.5 thousand) per
year. The chairman of the Board of Directors receives an additional $61,000 (approximately €51.6
thousand) per year.

Until August 2018, each independent director received a total annual compensation of $100,000
(approximately €86.7 thousand) and the chairman of the board of directors received an additional
$35,000 (approximately €29.6 thousand) per year.

Nominee directors did not receive any compensation from us.

The stated above remuneration will be offered in recruitment of independent directors.

Policy on payments for loss of office

In order to protect the Company's know-how and to ensure continuity in terms of attainment of
business objectives, the policy approved by our shareholders at the 2017 Annual General
Shareholders Meeting, introduced certain termination payments to key executives, including the
Chief Executive Officer.

The Company agreed with certain executives with strategic and key responsibilities in the Company
(“Key Managers”), including the Chief Executive Officer, to make payments for loss of office or
employment in addition to the severance payment under the prevailing labour and legal conditions
in their contracts or countries where they are employed if they should leave (by loss of office or
employment) the Company within 2 years of a change in control. The payment would represent
six months of remuneration and will be adjusted to ensure that total payment including severance
payment required under prevailing laws represent at least 12 months of remuneration (including
salary, benefits, long term incentive plans and variable pay), but never more than 24 months of
remuneration, unless required by local law.

A change of control means that a third party or coordinated parties (i) acquire directly or indirectly
by any means a number of shares in the Company which (together with the shares that such party
may already hold in the Company) amount to more than 50% of the share capital of the Company;
or (ii) appoint or have the right to appoint at least half of the members of the Board of Directors
of the Company.

No payments would be made to Key Managers for dismissal for breach of contract, breach of
fiduciary duties or gross misconduct, determined (in the event of a dispute) by a court of competent
jurisdiction to reach a final determination.

Consideration of employee conditions elsewhere

For the management team and key personnel, our policy is to use two external consultants to
estimate market conditions for roles of a similar level of managerial responsibilities and complexity
in terms of fixed and variable remuneration and, based on a performance appraisal, set a target
remuneration, as a general rule, within that market practice.

The annual variable remuneration payment is calculated with reference to the achievement of a
number of specific measurable targets defined at the previous year. Each specific target is
measured on a performance scale of 0%-120%.

For the rest of its employees, the Company establishes predefined remuneration ranges for
different positions and reviews each individual remuneration depending on performance appraisal
within two ranges without employee consultation.

The remuneration of all employees, including the members of the management team, may be
adjusted periodically in the framework of the annual salary review process which is carried out for
all employees.

Overall, we expect that, following the implementation of our policies, remunerations of the
Company’s employees will increase in line with the market with the exception of individuals that
have been recently promoted or whose remuneration is above market conditions.

Statement of consideration of shareholder views

There are no comments in respect of directors’ remuneration expressed to the Company by
shareholders. The next Annual Shareholders’ Meeting is expected to be held in June 2019.

Summary of Policy for Non-Executive Directors

Name of component

Independent Non-
Executive Directors:

Fees

How does the component
support the company’s
objective?

Operation

Maximum

retain

Attract and
performing
executive directors

independent

the high-
non-

Reviewed
annually
committee and board

the

lead

The
independent
director/chairman of the Board and
the chair of each committee receive
additional fees

Annual total compensation for -
independent
non-executive
directors, in any case, will not exceed
two million dollars

Benefits

Reasonable travel expenses to the
registered office or
Company’s
venues for meetings

Customary control procedures

Real costs of travel with a maximum
of one million dollars for all directors

Other Non-Executive
Directors:

Fees

Attract and
the high-
performing non-executive directors

retain

Directors appointed by shareholders
receive no fees

No prescribed maximum annual
increase

Benefits

Reasonable travel expenses to the
Company’s
registered office or
venues for meetings

Customary control procedures

Real costs of travel

Service Contracts

Mr. Seage has a service contract with Atlantica that includes a 6-month notice period.

The non-executive directors do not have a service contract and were elected for a period of three
years starting June 2017.

Employee Benefit Trusts

The Company has not established employee trusts for share plans.

Directors’ Responsibilities Statement
The directors are responsible for preparing the Consolidated Annual Report and the Consolidated
Financial Statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under
that law the directors are required to prepare the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the International Accounting
Standards Board (IASB) and Article 4 of the IAS Regulation and have elected to prepare the parent
company financial statements in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework. Under company law the directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period.

In preparing the parent company financial statements, the directors are required to:

▪

select suitable accounting policies and then apply them consistently;

▪ make judgments and accounting estimates that are reasonable and prudent;

▪

state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been
followed, subject to any material departures disclosed and explained in the financial
statements;

prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the company will continue in business;

In preparing the group financial statements, International Accounting Standard 1 requires that
directors:

o properly select and apply accounting policies;

o present information, including accounting policies, in a manner that provides

relevant, reliable, comparable and understandable information;

o provide additional disclosures when compliance with the specific requirements in
IFRSs are insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position and
financial performance; and

o make an assessment of the company's ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the company’s transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that the financial statements comply
with the Companies Act 2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.

Independent Auditor’s Report to the Members of Atlantica
Yield plc

100

Consolidated Financial Statement

Consolidated Income Statement

Amounts in thousands of U.S. dollars

Revenue
Other operating income
Raw materials and consumables used
Employee benefit expenses
Depreciation, amortization, and impairment charges
Other operating expenses

Operating profit

Finance income
Finance expenses
Net exchange gains/(losses)
Net other finance (expenses)/income

Net finance costs

Note (1)

For the year ended December 31,

4
8

7
12

9
9

2018

1,043,822
132,557
(10,648)
(15,130)
(362,697)
(299,994)

2017

1,008,381
80,844
(16,983)
(18,854)
(310,960)
(284,461)

487,910

457,967

36,444
(425,019)
1,597
(8,235)

1,007
(463,717)
(4,092)
18,434

(395,213)

(448,368)

Share of profit/(loss) of associates carried under the
equity method

5,231

5,351

Profit before income tax

97,928

14,950

Income tax

(42,659)

(119,837)

Profit/ (Loss) for the year

55,269

(104,887)

Profit attributable to non-controlling interests

(13,673)

(6,917)

Profit/ (Loss) for the year attributable to owners of the
Company

41,596

(111,804)

Weighted average number of ordinary shares outstanding
(thousands)

100,217

Basic and diluted earnings per share (U.S. dollar per share)

0.42

(1.12)

(1) Notes 1 to 30 are an integral part of the consolidated financial statements

All results are derived from continuing operations.

109

Consolidated Statement of other comprehensive income

Amounts in thousands of U.S. dollars

Year
Ended
December
31, 2018

Year
Ended
December
31,2017

Profit / (Loss) for the year

55,269

(104,887)

Items that may be reclassified subsequently to profit or loss:

Change in fair value of cash flow hedges
Less: reclassification adjustments for gains / (losses) transferred
to profit or loss

(40,220)

67,519

(28,535)

70,953

Exchange differences on translation of foreign operations

(57,628)

121,924

Income tax relating to items that may be reclassified
subsequently to profit or loss

(10,685)

(13,312)

Other comprehensive income/(loss) for the year net of tax

(41,014)

151,030

Total comprehensive income for the year

14,255

46,143

Total comprehensive income/ (loss) attributable to:
Owners of the Company
Non-controlling interests

2,301
11,954

31,370
14,773

110

Consolidated Balance Sheet

Amounts in thousands of U.S. dollars

Assets
Non-current assets

Note (1)

As of
December
31, 2018

As of
December 3
1, 2017

Contracted concessional assets
Investments carried under the equity method
Financial investments
Deferred tax assets

12
13
22
10

Total non-current assets

Current assets

Inventories
Trade and other receivables
Financial investments
Cash and cash equivalents

Total current assets

Total assets

Equity

Share capital
Parent company reserves
Other reserves
Accumulated currency translation reserve
Retained earnings
Equity attributable to the Company

Non-controlling interests

Total equity

Non-current liabilities

Long-term corporate debt
Long-term project debt
Grants and other liabilities
Related parties
Derivative liabilities
Deferred tax liabilities

Total non-current liabilities

Current liabilities

Short-term corporate debt
Short-term project debt
Trade payables and other current liabilities
Income and other tax payables

Total current liabilities

Total equity and liabilities

14&22
22
15&22

16
17
18
26
22
10

16
17
19

(1) Notes 1 to 30 are an integral part of the consolidated financial statements

111

8,549,181
53,419
52,670
136,066
8,791,336

18,924
236,395
240,834
631,542
1,127,695

9,919,031

9,084,270
55,784
45,242
165,136
9,350,432

17,933
244,449
210,138
669,387
1,141,907

10,492,339

10,022
2,029,940
95,011
(68,315)
(449,274)
1,617,384
138,728
1,756,112

415,168
4,826,659
1,658,126
33,675
279,152
211,000
7,423,780

268,905
264,455
192,033
13,746
739,139

10,022
2,163,229
80,968
(18,147)
(477,214)
1,758,858
136,595
1,895,453

574,176
5,228,917
1,636,060
141,031
329,731
186,583
8,096,498

68,907
246,291
155,144
30,046
500,388

9,919,031

10,492,339

Notes to the consolidated financial statements
31 December 2018

Consolidated Statement of changes in equity

Amounts in thousands of U.S. dollars

Share
Capital

Parent
company
reserve*

Other
reserve
s

Retained
earnings

Accumulated
currency
translation
differences

Total
equity
attributable
to the
Company

Non-
controlling
interest

Total
equity

Balance as of December 31, 2017

10,022

2,163,229

80,968

(477,214)

(18,147)

1,758,858

136,595 1,895,453

Application of new accounting
standards (See Note 2)

1,326

(11,812)

(10,846)

Balance as of January 1, 2018

10,022

2,163,229

82,294

(489,026)

(18,147)

1,748,372

136,595 1,884,967

Profit for the year after taxes

Change in fair value of cash flow
hedges

Currency translation differences

Tax effect

Other comprehensive loss

Total comprehensive income

Dividend distribution

41,596

21,474

(236)

41,596

13,673

55,269

21,238

6,061

27,299

(50,168)

(7,460)

(57,628)

(8,757)

(1,608)

(10,365)

(320)

(10,685)

12,717

(1,844)

(50,168)

(39,295)

(1,719)

(41,014)

12,717

39,752

(50,168)

2,301

11,954

14,255

(133,289)

(9,821)

(143,110)

Balance as of December 31,2018

10,022

2,029,940

95,011

(449,274)

(68,315)

1,617,384

138,728 1,756,112

Balance as of January 1, 2017

10,022

2,268,457

52,797

(365,410)

(133,150)

1,832,716

126,395 1,959,111

Loss for the year after taxes

Change in fair value of cash flow
hedges

Currency translation differences

Tax effect

Other comprehensive income

Total comprehensive income

Dividend distribution

(111,804)

41,242

(13,071)

28,171

(111,804)

6,917

(104,887)

41,242

1,176

42,418

115,003

6,921

121,924

(13,071)

(241)

(13,312)

115,003

143,174

7,856

151,030

28,171

(111,804)

115,003

31,370

14,773

46,143

(105,228)

(4,573)

(109,801)

Balance as of December 31, 2017

10,022

2,163,229

80,968

(477,214)

(18,147)

1,758,858

136,595 1,895,453

*Parent company reserve consists of both Distributable reserves as well as the Share Premium. Refer to company statement of changes in equity on page
190 for the composition of these.

Notes 1 to 30 are an integral part of the consolidated financial statements

113

Notes to the consolidated financial statements
31 December 2018

Consolidated Cash flow statement

Amounts in thousands of U.S. dollars

Profit/(Loss) for the year

Non-monetary adjustments

Depreciation, amortization and impairment charges
Finance costs
Fair value losses on derivative financial instruments
Shares of (profits)/losses from associates
Income tax
Changes in consolidation and other non-monetary items

Note
(1)

For the year ended

2018

2017

55,269

(104,887)

362,697
396,411
399
(5,231)
42,659
(99,280)

310,960
443,517
759
(5,351)
119,837
(20,882)

Profit for the year adjusted by non-monetary items

752,924

743,953

Variations in working capital

Inventories
Trade and other receivables
Trade payables and other current liabilities
Financial investments and other current assets/liabilities

Variations in working capital

Income tax paid
Interest received
Interest paid

Net cash provided by operating activities

Investments in entities under the equity method
Investments in contracted concessional assets*
Other non-current assets/liabilities
(Acquisitions) / sales of subsidiaries and other financial instruments

(1,991)
5,564
(4,898)
(17,019)

(2,548)
(23,799)
22,474
(4,924)

(18,344)

(8,797 )

(12,525)
6,726
(327,738)

(4,779)
4,139
(348,893)

401,043

385,623

4,432
68,048
(16,668)
(70,672)

3,003
30,058
8,183
30,124

Net cash (used in) / provided by investing activities

(14,860)

71,368

Proceeds from Project & Corporate debt
Repayment of Project & Corporate debt
Dividends paid to Company´s shareholders

Net cash used in financing activities

123,767
(385,964)
(143,034)

296,398
(613,242)
(99,483)

(405,231)

(416,327)

Net increase / (decrease) in cash and cash equivalents

(19,048)

40,664

Cash, cash equivalents and bank overdrafts at beginning of the year

Translation differences cash or cash equivalent

669,387
(18,797)

594,811
33,912

Cash and cash equivalents at the end of the year

631,542

669,387

* Includes proceeds for $72.6 million and $42.5 million for the years ended December 31, 2018 and
2017, respectively (See Note 12)

(1)

Notes 1 to 30 are an integral part of the consolidated financial statements

114

Notes to the consolidated financial statements
31 December 2018

Notes to the consolidated financial statements

1. General information

Atlantica Yield plc. (‘Atlantica’ or the Company) is a company incorporated in the United
Kingdom under the Companies Act. The Company is a public Company limited by shares and is
registered in England and Wales. The address of the registered office is Great West Road,
Brentford TW8 9DF, Greater London (United Kingdom). The nature of the Group’s operations
and its principal activities are set out in the strategic report on pages 3 to 62.

These financial statements are presented in US Dollars because that is the primary currency in
which the Group operates. Foreign operations are included in accordance with the policies set
out in Note 3.

In addition, in Solana and Mojave, in November 2017, in the context of the agreement reached
between Abengoa and Algonquin for the acquisition by Algonquin Power & Utilities
(“Algonquin”) of 25% of the shares of the Company and based on the obligations of Abengoa
under the EPC contract, the Company signed a consent with the DOE which reduced this
minimum ownership required by Abengoa in Atlantica Yield to 16%, which became effective
upon closing of the transaction on March 9, 2018, when Abengoa announced it made effective
the sale of a 25% stake in Atlantica to Algonquin. In addition, the DOE approved on November
27, 2018 the sale to Algonquin of the residual stake of 16.47% in the Company held by Abengoa,
cancelling any residual change of ownership clause of previous agreements.

Algonquin is the largest shareholder of the Company which currently owns a 41.47% stake in
Atlantica. Algonquin does not consolidate the Company, in its consolidated financial statements.

Basis of accounting

The financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as issued by the IASB, and on a basis consistent with the prior year.

The financial statements have been prepared on the historical cost basis, except for the
revaluation of certain financial instruments that are measured at fair values at the end of each
reporting period, as explained in the accounting policies below. Historical cost is generally based
on the fair value of the consideration given in exchange for goods and services.

Basis of consolidation

a) Controlled entities

The consolidated financial statements incorporate the financial statements of the Company and
entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control
is achieved when the Company:

• has the power over the investee;

115

Notes to the consolidated financial statements
31 December 2018

•

is exposed, or has rights, to variable return from its involvement with the investee; and

• has the ability to use its power to affects its returns.

The Company reassesses whether or not it controls an investee when facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.

The Company uses the acquisition method to account for business combinations of companies
controlled by a third party. According to this method, identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date. Any contingent consideration is recognized at fair value at the
acquisition date and subsequent changes in its fair value are recognized in accordance with IFRS
9 either in profit or loss or as a change to other comprehensive income. Acquisition related costs
are expensed as incurred. The Company recognizes any non-controlling interest in the acquire
either at fair value or at the noncontrolling interest’s proportionate share of the acquirer’s net
assets on an acquisition by acquisition basis.

All assets and liabilities between entities of the group, equity, income, expenses, and cash flows
relating to transactions between entities of the group are eliminated in full.

b) Investments accounted for under the equity method

An associate is an entity over which the Company has significant influence. Significant influence
is the power to participate in the financial and operating policy decisions of the investee but is
not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements
using the equity method of accounting. Under the equity method, an investment in an associate
is initially recognized in the statement of financial position at cost and adjusted thereafter to
recognize the Company share of the profit or loss and other comprehensive income of the
associate.

Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation
that the Company and the Group have adequate resources to continue in operational existence
for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting
in preparing the consolidated financial statements. Further detail is contained in the Strategic
Report on page 61.

2. Adoption of new and revised Standards

a) Standards, interpretations and amendments effective from January 1, 2018 under IFRS-IASB,

applied by the Company in the preparation of these consolidated financial statements:

116

Notes to the consolidated financial statements
31 December 2018

IFRS 9 ‘Financial Instruments’.

IFRS 15 ‘Revenues from contracts with Customers’.

IFRS 15 (Clarifications) ‘Revenues from contracts with Customers’.

IFRS 16 ‘Leases’. This Standard is applicable for annual periods beginning on or
after January 1, 2019 under IFRS-IASB, earlier application is permitted, but
conditioned to the application of IFRS 15.

IFRS 2 (Amendment) ‘Classification and Measurement of Share-based Payment
Transactions’.

IFRS 4 (Amendment). Applying IFRS 9 ‘Financial Instruments’ with IFRS 4
‘Insurance Contracts’.

Annual Improvements to IFRSs 2015-2017 cycles.

IFRIC 22 Foreign Currency Transactions and Advance Consideration.

IAS 40 (Amendment). Transfers of Investment Property.

IAS 28 (Amendment). Long-term Interests in Associates and Joint
Ventures.

The applications of these amendments have not had any material impact on these consolidated
financial statements.

In relation to IFRS 15, IFRS 9 and IFRS 16, the Company performed the following analysis:

IFRS 15 ‘Revenues from contracts with Customers’

In May 2014, the IASB (International Accounting Standards Board) published IFRS 15
“Recognition of Revenue from Contracts with Customers”. This Standard brings together all the
applicable requirements and replaces the current standards for recognizing revenue: IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programme, IFRIC 15
Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and
SIC-31 Revenue—Barter Transactions Involving Advertising Services.

The new requirements may lead to changes in the current revenue profile, since the Standard’s
main principle is that the Company must recognize its revenue in accordance with the transfer
of goods or services to the customers in an amount which reflects the consideration that the
Company expects to receive in exchange for these goods or services. The model laid out by the
Standard is structured in five steps:

Step 1: Identifying the contract with the customer.

Step 2: Identifying the performance obligations.

Step 3: Determining the transaction price.

117

Notes to the consolidated financial statements
31 December 2018

Step 4: Assigning the transaction price in the performance obligations identified
in the contract.

Step 5: Recognition of revenue when (or as) the Company performs the
performance obligations.

Contracted concessional assets and price purchase agreements (PPAs) include fixed assets
financed through project debt, related to service concession arrangements recorded in
accordance with International Financial Reporting Interpretations Committee 12 (“IFRIC 12”),
except for Palmucho, which is recorded in accordance with IAS 17 Leases and PS10, PS20, Seville
PV, Mini-hydro and Chile TL3, which are recorded as tangible assets in accordance with IAS 16.
Property, Plant and Equipment. The infrastructures accounted for by the Company as
concessions are related to the activities concerning electric transmission lines, solar electricity
generation plants, efficient natural gas plants, wind farms and water plants.

Currently, assets recorded in accordance with IFRIC 12 are classified as intangible assets or as
financial assets, depending on the nature of the payment entitlements established in the
contracts.

According to IFRS 15, the Company should assess the goods and services promised in the
contracts with the customers and shall identify as a performance obligation each promise to
transfer to the customer a good or service (or a bundle of goods or services).

In the case of contracts related to financial assets, the Company has identified two performance
obligations (construction and operation of the asset). The contracts state that each service
(construction and operation) has its own transaction price. For this reason, both performance
obligations are separately identifiable in the context of the contract. The Company must allocate
the total consideration to be received by the contract to each performance obligation. As
mentioned above, the different services performed have been identified as two different
performance obligations (construction and operation). Each performance obligation has its own
transaction price stated in the contract. Such transaction prices are agreed in the contract by the
parties in an orderly transaction, with no interrelation between both transaction prices and
therefore correspond to the fair value of the goods and services provided in each case. As a
result, for IFRS 15 purposes, the total transaction price will be allocated to each performance
obligation in accordance with the two transaction prices stated within the contract, as they
represent the respective fair values of the identified performance obligations.

For the assets classified as intangible assets, the Company has identified the same performance
obligations, (construction and operation), but in this case , instead of a monetary consideration
in exchange of the construction service, the Company received a license. The grantor makes a
non-cash payment for the construction services by giving the operator an intangible asset. When
allocating fair value for IFRS 15 purposes, the Company will recognize as revenue for the first
performance obligation the fair value of the construction services, and the amount

118

Notes to the consolidated financial statements
31 December 2018

corresponding to the sales of energy as the fair value of second performance obligation
(operation).

Additionally, in both cases, the services are satisfied over time. All the concessional assets of the
Company are in operation and the Company satisfies the performance obligations and
recognizes revenue over time. The same conclusion applies to concessional assets that are
classified as tangible assets or leases.

IFRS 15 also incorporates specific criteria to determine which costs relating to a contract should
be capitalized by distinguishing between incremental costs of obtaining a contract and costs
associated with fulfilling a contract. No significant costs of obtaining a contract or compliance
(other than those that are already capitalized) have been identified.

As the practice for revenue recognition applied until December 31, 2017, is consistent with the
analysis above under IFRS 15, the Company considers that the adoption of this standard has no
impact in the consolidated financial statements of the Company.

Also, the Company adopted IFRS 15 applying the full retrospective method to each prior
reporting period presented, but without changes in the comparative reporting periods as the
adoption of the standard has no effect in the consolidated financial statements.

IFRS 9 ‘Financial Instruments’

IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB’s replacement of IAS 39 Financial
Instruments: Recognition and Measurement. The standard addresses the classification,
measurement and derecognition of financial assets and financial liabilities, introduces new rules
for hedge accounting and a new impairment model for financial assets. The Company adopted
the standard as of January 1, 2018, including the new requirements for hedge accounting. The
Company adopted retrospectively without restating comparative periods. The analysis
performed by the Company is as follows:

Classification and measurement of financial instruments:

a) Financial assets: IFRS 9 classifies all financial assets that are currently in the scope
of IAS 39 into two categories: amortized cost and fair value. Where assets are measured
at fair value, gains and losses are either recognized entirely in profit or loss (fair value
through profit or loss, “FVTPL”), or recognized in other comprehensive income (fair
value through other comprehensive income, “FVTOCI”). The new guidance has no
significant impact on the classification and measurement of the financial assets of the
Company as the vast majority of financial assets (except for derivatives) are currently
measured at amortized cost, and meet the conditions for classification at amortized
cost under IFRS 9. As a result, the Company maintained this classification.

b) Financial liabilities: IFRS 9 does not change the basic accounting model for
financial liabilities under IAS 39. Two measurement categories continue to exist: FVTPL
and amortized cost. Financial liabilities held for trading are measured at FVTPL, and all

119

Notes to the consolidated financial statements
31 December 2018

other financial liabilities are measured at amortized cost unless the fair value option is
applied. As a result, the Company concluded that there is no significant impact on the
consolidated financial statements.

-The new impairment model requires the recognition of impairment provisions based on
expected credit losses (“ECL”) rather than only incurred credit losses as is the case under IAS 39.
The Company reviewed its portfolio of financial assets subject to the new model of impairment
under the new methodology (using credit default swaps, rating from credit agencies and other
external inputs in order to estimate the probability of default), and recorded an adjustment to
the opening balance sheet of these consolidated financial statements as detailed below in the
table showing the adjustments arising from the application of IFRS 9.

-The accounting for certain modifications and exchanges of financial liabilities measured at
amortized cost (e.g. bank loans and issued bonds) changes on the transition from IAS 39 to IFRS
9. This change arises from a clarification by the IASB in the Basis for Conclusions of IFRS 9. Under
IFRS 9 it is now clear that there can be an effect in the income statement for modification and
exchanges of financial liabilities that are considered “non-substantial” (when the net present
value of the cash flows, including any fees paid net of any fees received, is lower than 10%
different from the net present value of the remaining cash flows of the liability prior to the
modification, both discounted at the original effective interest rate). The Company reviewed
retrospectively these transactions and recorded an adjustment to the opening balance sheet of
these consolidated financial statements as detailed below in the table showing the adjustments
arising from the application of IFRS 9.

-IFRS 9 also introduces changes in hedge accounting. The hedge accounting requirements in
IFRS 9 are optional and tend to facilitate the use of hedge accounting by preparers of financial
statements. As a result, the Company reviewed its portfolio of derivatives and recorded an
adjustment to the opening balance sheet of these consolidated financial statements as detailed
below in the table showing the adjustments arising from the application of IFRS 9.

The impact of applying IFRS 9 to the consolidated financial statements for the year ended
December 31, 2018 is not significant.

IFRS 16 ‘Leases’

The IASB issued a new lease accounting standard, IFRS 16, in January 2016, which requires the
recognition of lease contracts on the consolidated statement of financial position.

IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a
lessee. Instead all leases are treated in a similar way to finance leases applying IAS 17. Leases are
‘capitalized’ by recognizing the present value of the lease payments and showing them either as
lease assets (right-of-use of assets) or together with contracted concessional assets. If lease
payments are made over time, a company also recognizes a financial liability representing its
obligation to make future lease payments.

120

Notes to the consolidated financial statements
31 December 2018

In the income statement, IFRS 16 replaces the straight-line operating lease expense for those
leases applying IAS 17, with a depreciation charge for the lease asset (included within operating
expenses) and an interest expense on the lease liability (included within finance expenses). IFRS
16 also impacts the presentation of cash flows related to former off-balance sheet leases.

The Company performed its assessment of the impact on its consolidated financial statements.
The most significant impact identified is that the Company recognizes new assets and liabilities
for its existing operating leases of land rights, buildings, offices and equipment.

The standard is effective for annual periods beginning on or after January 1, 2019, with earlier
application permitted for entities that apply IFRS 15 at or before the date of initial application of
IFRS 16. The Company decided to early adopt the standard as of January 1, 2018.

An entity shall apply this standard using one of the following two methods: full retrospectively
approach or a modified retrospective approach. The Company has chosen the latter and
accounted for assets as an amount equal to liability at the date of initial application. The impact
on the opening balance sheet of these consolidated financial statements is shown in the table
below.

The impact of applying IFRS 16 to the consolidated financial statements for the year ended
December 31, 2018 is not significant.

Summary of adjustments arising from application of IFRS 9 and IFRS 16 as of December 31, 2017

($ in thousands)

Expected

Modification

IFRS 9 Adjustments

credit

of financial

Hedge

IFRS 16

reported

losses (*)

liabilities

accounting

Adjustments

Restated at

January

1, 2018

Contracted concessional

assets

9,084,270

(53,048 )

—

Deferred tax assets

165,136

14,866

(3,055 )

—

62,982

9,094,204

—

176,947

Long- term project debt

5,228,917

—

(39,599 )

—

5,189,318

Grants and other liabilities

Deferred tax liabilities

Other Reserves

Retained Earnings

1,636,060

186,583

—

8,849

—

62,982

1,699,042

—

195,432

80,968

—

1,326

—

82,294

(477,214 )

(38,182 )

27,695

(1,326 )

—

(489,027 )

(*) The expected credit losses provision only applies to the contracted concessional assets recorded as financial assets

for an amount before provision of $936,004 thousand as of December 31, 2017 (see Note 12).

121

Notes to the consolidated financial statements
31 December 2018

b) Standards, interpretations and amendments published by the IASB that will be effective for

periods beginning on or after January 1, 2019:

IFRS 9 (Amendments to IFRS 9): Prepayment Features with Negative Compensation. This
Standard is applicable for annual periods beginning on or after January 1, 2019 under IFRS-IASB,
earlier application is permitted.

IFRS 17 ‘Insurance Contracts’. This Standard is applicable for annual periods beginning on or
after January 1, 2021 under IFRS-IASB, earlier application is permitted.

IAS 19 (Amendment). Amendments to IAS 19: Plan Amendment, Curtailment or Settlement. This
amendment is mandatory for annual periods beginning on or after January 1, 2019 under IFRS-
IASB, earlier application is permitted.

IFRIC 23: Uncertainty over Income Tax Treatments. This Standard is applicable for annual periods
beginning on or after January 1, 2019 under IFRS-IASB.

IAS 28 (Amendment). Long-term Interests in Associates and Joint Ventures. This amendment is
mandatory for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier
application is permitted.

IFRS 3 (Amendment). Definition of Business. This amendment is mandatory for annual periods
beginning on or after January 1, 2020 under IFRS-IASB, earlier application is permitted.

IAS 1 and IAS 8 (Amendment). Definition of Material. This amendment is mandatory for annual
periods beginning on or after January 1, 2020 under IFRS-IASB, earlier application is permitted.

Amendments to References to the Conceptual Frameworks in IFRS Standards. This Standard is
applicable for annual periods beginning on or after January 1, 2020 under IFRS-IASB.

The application of these accounting standards is not expected to have a material impact on the
consolidated financial statements of the Company.

3. Significant accounting judgements

Critical accounting judgements and estimates

The critical judgements which have been made in the process of applying the accounting policies
are detailed below:

• Contracted concessional assets and purchase price agreements

The application of IFRIC 12 requires judgement to (i) the identification of certain infrastructures
and contractual agreements in the scope of IFRIC 12; (ii) the understanding of the nature of the
payments in order to determine the classification as a financial asset or as an intangible asset,
and (iii) the timing and recognition of the revenue for construction and concessional activity.

122

Notes to the consolidated financial statements
31 December 2018

Key sources of estimation uncertainty

The Group does not have any key assumptions concerning the future, or other key sources of
estimation uncertainty in the reporting period that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial
year, expect for the uncertainty regarding credit outlooks of PG&E that may trigger an
impairment of the Mojave concessional asset further to the reorganization process under
Chapter 11, in which PG&E is involved (see Note 12 and Note 25).

Contracted concessional Assets and price purchase agreements

Contracted concessional assets and price purchase agreements (PPAs) include fixed assets
financed through project debt, related to service concession arrangements recorded in
accordance with International Financial Reporting Interpretations Committee 12 (“IFRIC 12”),
except for Palmucho, which is recorded in accordance with IAS 17 Leases and PS10, PS20, Mini-
Hydro, Chile TL 3 and Seville PV, which are recorded as tangible assets in accordance with IAS
16 Property, Plant and Equipment. The infrastructures accounted for by the Company as
concessions are related to the activities concerning electric transmission lines, solar electricity
generation plants, cogeneration plants, wind farms and water plants. The useful life of these
assets is approximately the same as the length of the concession arrangement. The infrastructure
used in a concession can be classified as an intangible asset or a financial asset, depending on
the nature of the payment entitlements established in the agreement.

The application of IFRIC 12 requires extensive judgment in relation with, among other factors, (i)
the identification of certain infrastructures and contractual agreements in the scope of IFRIC 12,
(ii) the understanding of the nature of the payments in order to determine the classification of
the infrastructure as a financial asset or as an intangible asset and (iii) the timing and recognition
of the revenue from construction and concessionary activity.

Under the terms of contractual arrangements within the scope of this interpretation, the
operator shall recognize and measure revenue in accordance with IAS 11 Construction Contract
and IFRS 15 for the services it performs. If the operator performs more than one service (i.e.
construction or upgrade services and operation services) under a single contract or arrangement,
consideration received or receivable shall be allocated by reference to the relative fair values of
the services delivered, when the amounts are separately identifiable.

a) Intangible assets

The Company recognizes an intangible asset to the extent that it receives a right to charge final
customers for the use of the infrastructure. This intangible asset is subject to the provisions of
IAS 38 Intangible Assets and is amortized linearly, taking into account the estimated period of
commercial operation of the infrastructure which coincides with the concession period.

Once the infrastructure is in operation, the treatment of income and expenses is as follows:

123

Notes to the consolidated financial statements
31 December 2018

• Revenues from the updated annual revenue for the contracted concession, as well as
operations and maintenance services are recognized in each period according to IFRS 15
“Revenue from contracts with customers”.

• Operating and maintenance costs and general overheads and administrative costs are
recorded in accordance with the nature of the cost incurred (amount due) in each period.

• Financing costs are expensed as incurred.

b) Financial assets

The Company recognizes a financial asset when demand risk is assumed by the grantor, to the
extent that the concession holder has an unconditional right to receive payments for the asset.
This asset is recognized at the fair value of the construction services provided, considering
upgrade services in accordance with IAS 11 Construction Contracts, if any.

The financial asset is subsequently recorded at amortized cost calculated according to the
effective interest method. Revenue from operations and maintenance services is recognized in
each period according to IFRS 15. The remuneration of managing and operating the asset
resulting from the valuation at amortized cost is also recorded in revenue.

Financing costs are expensed as incurred.

According to IFRS 9, Atlantica recognises an allowance for expected credit losses (ECLs) for all
debt instruments not held at fair value through profit or loss. ECLs are based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows
due in accordance with the contract and all the cash flows that the Company expects to receive.

There are two main approaches to applying the ECL model according to IFRS 9: the general
approach which involves a three stage approach, and the simplified approach, which can be
applied to trade receivables, contract assets and lease receivables. Atlantica has elected to apply
the simplified approach. Under this approach, there is no need to monitor for significant
increases in credit risk and entities will be required to measure lifetime expected credit losses at
each end of reporting period.

The key elements of the ECL calculations are the following:

the Probability of Default (“PD”) is an estimate of the likelihood of default over a
given time horizon. Atlantica calculates PD based on Credit Default Swaps spreads
(“CDS”);

the Exposure at Default (“EAD”) is an estimate of the exposure at a future default
date;

the Loss Given Default (“LGD”) is an estimate of the loss arising in the case where a
default occurs at a given time. It is based on the difference between the contractual
cash flows due and those that the Company would expect to receive. It is expressed
as a percentage of the EAD.

124

Notes to the consolidated financial statements
31 December 2018

c) Property, plant and equipment

Property, plant and equipment includes property, plant and equipment of companies or project
companies. Property, plant and equipment is measured at historical cost, including all expenses
directly attributable to the acquisition, less depreciation and impairment losses, with the
exception of land, which is presented net of any impairment losses. Once the infrastructure is in
operation, the treatment of income and expenses is the same as the one described above for
intangible assets.

Borrowing costs

Interest costs incurred that are directly attributable to the construction of any qualifying asset
are capitalized over the period required to complete and prepare the asset for its intended use.
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for
its internal use or sale, which is considered to be more than one year. Remaining borrowing
costs are expensed in the period in which they are incurred.

Asset impairment

Atlantica reviews its contracted concessional assets to identify any indicators of impairment at
least annually.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value
in use, defined as the present value of the estimated future cash flows to be generated by the
asset. In the event that the asset does not generate cash flows independently of other assets,
the Company calculates the recoverable amount of the Cash Generating Unit (‘CGU’) to which
the asset belongs. When the carrying amount of the CGU to which these assets belong is lower
than its recoverable amount, the assets are impaired.

Assumptions used to calculate value in use include a discount rate, growth rate and projections
considering real data based in the contracts terms and projected changes in both selling prices
and costs. The discount rate is estimated by Management, to reflect both changes in the value
of money over time and the risks associated with the specific CGU. For contracted concessional
assets, with a defined useful life and with a specific financial structure, cash flow projections until
the end of the project are considered and no terminal value is assumed.

Contracted concessional assets have a contractual structure that permits the Company to
estimate quite accurately the costs of the project (both in the construction and in the operations
periods) and revenue during the life of the project.

Projections take into account real data based on the contract terms and fundamental
assumptions based on specific reports prepared internally and supported by specialists,
assumptions on demand and assumptions on production. Additionally, assumptions on macro-
economic conditions are taken into account, such as inflation rates, future interest rates, etc. and
sensitivity analyses are performed over all major assumptions which can have a significant
impact in the value of the asset.

125

Notes to the consolidated financial statements
31 December 2018

Cash flow projections of CGUs are calculated in the functional currency of those CGUs and are
discounted using rates that take into consideration the risk corresponding to each specific
country and currency. Taking into account that in most CGUs the specific financial structure is
linked to the financial structure of the projects that are part of those CGUs, the discount rate
used to calculate the present value of cash-flow projections is based on the weighted average
cost of capital (WACC) for the type of asset, adjusted, if necessary, in accordance with the
business of the specific activity and with the risk associated with the country where the project
is performed.

In any case, sensitivity analyses are performed, especially in relation to the discount rate used
and fair value changes in the main business variables, in order to ensure that possible changes
in the estimates of these items do not impact the possible recovery of recognized assets.

Accordingly, the following table provides a summary of the discount rates used (WACC) and
growth rates to calculate the recoverable amount for CGUs with the operating segment to which
it pertains:

Operating segment

Discount

Growth

Rate

EMEA ................................................................................... 4% - 6%

North America................................................................. 5% - 6%

South America................................................................. 5% - 7%

In the event that the recoverable amount of an asset is lower than its carrying amount, an
impairment charge for the difference would be recorded in the income statement under the item
“Depreciation, amortization and impairment charges”. Pursuant to IAS 36, an impairment loss is
recognized if the carrying amount of these assets exceeds the present value of future cash flows
discounted at the initial effective interest rate.

Loans and accounts receivable

Loans and accounts receivable are non-derivative financial assets with fixed or determinable
payments, not listed on an active market. In accordance with IFRIC 12, certain assets under
concessions qualify as financial assets and are recorded as is described in note 12. Pursuant to
IAS 36 Impairment of Assets, an impairment loss is recognized if the carrying amount of these
assets exceeds the present value of future cash flows discounted at the initial effective interest
rate. Loans and accounts receivable are initially recognized at fair value plus transaction costs
and are subsequently measured at amortized cost in accordance with the effective interest rate
method. Interest calculated using the effective interest rate method is recognized under other
financial income within financial income.

126

Notes to the consolidated financial statements
31 December 2018

Derivative financial instruments and hedging activities

Derivatives are recorded at fair value. The Company applies hedge accounting to all hedging
derivatives that qualify to be accounted for as hedges under IFRS-IASB.

When hedge accounting is applied, hedging strategy and risk management objectives are
documented at inception, as well as the relationship between hedging instruments and hedged
items. Effectiveness of the hedging relationship needs to be assessed on an ongoing basis.
Effectiveness tests are performed retrospectively at inception and at each reporting date,
following the dollar offset method or the regression method, depending on the type of
derivatives and the type of tests performed.

Atlantica applies cash flow hedging. Under this method, the effective portion of changes in fair
value of derivatives designated as cash flow hedges are recorded temporarily in equity and are
subsequently reclassified from equity to profit or loss in the same period or periods during which
the hedged item affects profit or loss. Any ineffective portion of the hedged transaction is
recorded in the consolidated income statement as it occurs.

When interest rate options are designated as hedging instruments, the intrinsic value and time
value of the financial hedge instrument are separated. Changes in intrinsic and time value which
are highly effective are recorded in equity and subsequently reclassified from equity to profit or
loss in the same period or periods during which the hedged item affects profit or loss. Any
ineffectiveness is recorded as financial income or expense as it occurs.

When the hedging instrument matures or is sold, or when it no longer meets the requirements
to apply hedge accounting, accumulated gains and losses recorded in equity remain as such
until the forecast transaction is ultimately recognized in the income statement. However, if it
becomes unlikely that the forecast transaction will actually take place, the accumulated gains
and losses in equity are recognized immediately in the income statement.

Fair value estimates

Financial instruments measured at fair value are presented in accordance with the following level
classification based on the nature of the inputs used for the calculation of fair value:

• Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2: Fair value is measured based on inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).

• Level 3: Fair value is measured based on unobservable inputs for the asset or liability.

In the event that prices cannot be observed, the management shall make its best estimate of the
price that the market would otherwise establish based on proprietary internal models which, in
the majority of cases, use data based on observable market parameters as significant inputs

127

Notes to the consolidated financial statements
31 December 2018

(Level 2) but occasionally use market data that is not observed as significant inputs (Level 3).
Different techniques can be used to make this estimate, including extrapolation of observable
market data. The best indication of the initial fair value of a financial instrument is the price of
the transaction, except when the value of the instrument can be obtained from other
transactions carried out in the market with the same or similar instruments, or valued using a
valuation technique in which the variables used only include observable market data, mainly
interest rates. Differences between the transaction price and the fair value based on valuation
techniques that use data that is not observed in the market, are not initially recognized in the
income statement.

Atlantica derivatives correspond primarily to the interest rate swaps designated as cash flow
hedges which are classified as Level 2.

Description of the valuation method

Interest rate swap valuations are made by valuing the swap part of the contract and valuing the
credit risk. The methodology used by the market and applied by Atlantica to value interest rate
swaps is to discount the expected future cash flows according to the parameters of the contract.
Variable interest rates, which are needed to estimate future cash flows, are calculated using the
curve for the corresponding currency and extracting the implicit rates for each of the reference
dates in the contract. These estimated flows are discounted with the swap zero curve for the
reference period of the contract.

The effect of the credit risk on the valuation of the interest rate swaps depends on the future
settlement. If the settlement is favourable for the Company, the counterparty credit spread will
be incorporated to quantify the probability of default at maturity. If the expected settlement is
negative for the Company, its own credit risk will be applied to the final settlement.

Classic models for valuing interest rate swaps use deterministic valuation of the future of variable
rates, based on future outlooks. When quantifying credit risk, this model is limited by considering
only the risk for the current paying party, ignoring the fact that the derivative could change sign
at maturity. A payer and receiver swaption model is proposed for these cases. This enables the
associated risk in each swap position to be reflected. Thus, the model shows each agent’s
exposure, on each payment date, as the value of entering into the ‘tail’ of the swap, i.e. the live
part of the swap.

Variables (Inputs)

Interest rate derivative valuation models use the corresponding interest rate curves for the
relevant currency and underlying reference in order to estimate the future cash flows and to
discount them. Market prices for deposits, futures contracts and interest rate swaps are used to
construct these curves. Interest rate options (caps and floors) also use the volatility of the
reference interest rate curve.

To estimate the credit risk of the counterparty, the credit default swap (CDS) spreads curve is
obtained in the market for important individual issuers. For less liquid issuers, the spreads curve

128

Notes to the consolidated financial statements
31 December 2018

is estimated using comparable CDSs or based on the country curve. To estimate proprietary
credit risk, prices of debt issues in the market and CDSs for the sector and geographic location
are used.

The fair value of the financial instruments that results from the aforementioned internal models
takes into account, among other factors, the terms and conditions of the contracts and
observable market data, such as interest rates, credit risk and volatility. The valuation models do
not include significant levels of subjectivity, since these methodologies can be adjusted and
calibrated, as appropriate, using the internal calculation of fair value and subsequently compared
to the corresponding actively traded price. However, valuation adjustments may be necessary
when the listed market prices are not available for comparison purposes.

Trade and other receivables

Trade and other receivables are amounts due from customers for sales in the normal course of
business. They are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest rate method, less allowance for doubtful accounts. Trade receivables
due in less than one year are carried at their face value at both initial recognition and subsequent
measurement, provided that the effect of not discounting flows is not significant.

An allowance for doubtful accounts is recorded when there is objective evidence that the
Company will not be able to recover all amounts due as per the original terms of the receivables.

Grants

Grants are recognized at fair value when it is considered that there is a reasonable assurance
that the grant will be received and that the necessary qualifying conditions, as agreed with the
entity assigning the grant, will be adequately complied with.

Grants are recorded as liabilities in the consolidated statement of financial position and are
recognized in “Other operating income” in the consolidated income statement based on the
period necessary to match them with the costs they intend to compensate. In addition, grants
correspond also to loans with interest rates below market rates, for the initial difference between
the fair value of the loan and the proceeds received.

Loans and borrowings

Loans and borrowings are initially recognized at fair value, net of transaction costs incurred.
Borrowings are subsequently measured at amortized cost and any difference between the
proceeds initially received (net of transaction costs incurred in obtaining such proceeds) and the
repayment value is recognized in the consolidated income statement over the duration of the
borrowing using the effective interest rate method.

Loans with interest rates below market rates are initially recognized at fair value in liabilities and
the difference between proceeds received from the loan and its fair value is initially recorded
within “Grants and Other liabilities” in the consolidated statement of financial position, and

129

Notes to the consolidated financial statements
31 December 2018

subsequently recorded in “Other operating income” in the consolidated income statement when
the costs financed with the loan are expensed.

Bonds and notes

The Company initially recognizes ordinary notes at fair value, net of issuance costs incurred.
Subsequently, notes are measured at amortized cost until settlement upon maturity. Any other
difference between the proceeds obtained (net of transaction costs) and the redemption value
is recognized in the consolidated income statement over the term of the debt using the effective
interest rate method.

Income taxes

Current income tax expense is calculated on the basis of the tax laws in force as of the date of
the consolidated statement of financial position in the countries in which the subsidiaries and
associates operate and generate taxable income.

Deferred income tax is calculated in accordance with the liability method, based upon the
temporary differences arising between the carrying amount of assets and liabilities and their tax
base. Deferred income tax is determined using tax rates and regulations which are expected to
apply at the time when the deferred tax is realized.

Deferred tax assets are recognized only when it is probable that sufficient future taxable profit
will be available to use deferred tax assets.

Trade payables and other liabilities

Trade payables are obligations arising from purchases of goods and services in the ordinary
course of business and are recognized initially at fair value and are subsequently measured at
their amortized cost using the effective interest method. Other liabilities are obligations not
arising in the normal course of business and which are not treated as financing transactions.
Advances received from customers are recognized as “Trade payables and other current
liabilities”.

Foreign currency transactions

The consolidated financial statements are presented in U.S. dollars, which is Atlantica functional
and reporting currency. Financial statements of each subsidiary within the Company are
measured in the currency of the principal economic environment in which the subsidiary
operates, which is the subsidiary’s functional currency.

Transactions denominated in a currency different from the subsidiary’s functional currency are
translated into the subsidiary’s functional currency applying the exchange rates in force at the
time of the transactions. Foreign currency gains and losses that result from the settlement of
these transactions and the translation of monetary assets and liabilities denominated in foreign
currency at the year-end rates are recognized in the consolidated income statement, unless they

130

Notes to the consolidated financial statements
31 December 2018

are deferred in equity, as occurs with cash flow hedges and net investment in foreign operations
hedges.

Assets and liabilities of subsidiaries with a functional currency different from the Company’s
reporting currency are translated to U.S. dollars at the exchange rate in force at the closing date
of the financial statements. Income and expenses are translated into U.S. dollars using the
average annual exchange rate, which does not differ significantly from using the exchange rates
of the dates of each transaction. The difference between equity translated at the historical
exchange rate and the net financial position that results from translating the assets and liabilities
at the closing rate is recorded in equity under the heading “Accumulated currency translation
differences”.

Results of companies carried under the equity method are translated at the average annual
exchange rate.

Equity

The Company has recyclable balances in its equity, corresponding mainly to hedge reserves and
translation differences arising from currency conversion in the preparation of these consolidated
financial statements. These balances have been presented separately in Equity.

Non-controlling interest represents interest from other partners in entities included in these
consolidated financial statements which are not fully owned by Atlantica as of the dates
presented. Parent company reserves together with the Share capital represent the Parent’s net
investment in the entities included in these consolidated financial statements.

Provisions and contingencies

Provisions are recognized when:

•

there is a present obligation, either legal or constructive, as a result of past events;

it is more likely than not that there will be a future outflow of resources to settle the
obligation; and

the amount has been reliably estimated.

Provisions are initially measured at the present value of the expected outflows required to settle
the obligation and subsequently valued at amortized cost following the effective interest
method. The balance of Provisions disclosed in the Notes reflects management’s best estimate
of the potential exposure as of the date of preparation of the consolidated financial statements.

Contingent liabilities are possible obligations, existing obligations with low probability of a
future outflow of economic resources and existing obligations where the future outflow cannot
be reliably estimated. Contingences are not recognized in the consolidated statements of
financial position unless they have been acquired in a business combination.

131

Notes to the consolidated financial statements
31 December 2018

Some companies included in the group have dismantling provisions, which are intended to cover
future expenditures related to the dismantlement of the solar plants and it will be likely to be
settled with an outflow of resources in the long term (over 5 years).

Such provisions are accrued when the obligation for dismantling, removing and restoring the
site on which the plant is located, is incurred, which is usually during the construction period.
The provision is measured in accordance with IAS 37, “Provisions, Contingent Liabilities and
Contingent Assets” and is recorded as a liability under the heading “Grants and other liabilities”
of the Financial Statements, and as part of the cost of the plant under the heading “Contracted
concessional assets.”

4. Financial information by segment

Atlantica’s segment structure reflects how management currently makes financial decisions and
allocates resources. Its operating and reportable segments are based on the following
geographies where the contracted concessional assets are located:

•

North America

South America

EMEA

Based on the type of business, as of December 31, 2018 the Company had the following business
sectors:

Renewable energy: Renewable energy assets include two solar plants in the United
States, Solana and Mojave, each with a gross capacity of 280 MW and located in Arizona and
California, respectively. The Company owns eight solar platforms in Spain: Solacor 1 and 2 with
a gross capacity of 100 MW, PS10 and PS20 with a gross capacity of 31 MW, Solaben 2 and 3
with a gross capacity of 100 MW, Helioenergy 1 and 2 with a gross capacity of 100 MW, Helios
1 and 2 with a gross capacity of 100 MW, Solnova 1, 3 and 4 with a gross capacity of 150 MW,
Solaben 1 and 6 with a gross capacity of 100 MW and Seville PV with a gross capacity of 1 MW.
The Company also owns a solar plant in South Africa, Kaxu with a gross capacity of 100 MW.
Additionally, the Company owns three wind farms in Uruguay, Palmatir, Cadonal and Melowind,
with a gross capacity of 50 MW each, and a hydroelectric power plant in Peru with a gross
capacity of 4MW.

Efficient natural gas: The Company´s sole efficient natural gas asset is ACT, a 300
MW cogeneration plant in Mexico, which is party to a 20-year take-or-pay contract with Pemex
for the sale of electric power and steam.

Electric transmission lines: Electric transmission assets include (i) four lines in Peru,

132

Notes to the consolidated financial statements
31 December 2018

ATN, ATS and ATN2, spanning a total of 1,015 miles; and (ii) four lines in Chile, Quadra 1, Quadra
2, Palmucho and Chile TL3, spanning a total of 137 miles.

Water: Water assets include a minority interest in two desalination plants in Algeria,

Honaine and Skikda with an aggregate capacity of 10.5 M ft3 per day.

Atlantica’s Chief Operating Decision Maker (CODM) assesses the performance and assignment
of resources according to the identified operating segments. The CODM considers the revenues
as a measure of the business activity and the Further Adjusted EBITDA as a measure of the
performance of each segment. Further Adjusted EBITDA is calculated as profit/(loss) for the
period attributable to the parent company, after adding back loss/(profit) attributable to non-
controlling interests 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 these consolidated financial statements, and
compensations received from Abengoa in lieu of Abengoa Concessoes Brasil Holding (“ACBH”)
dividends (for the years 2017 and 2016 only).

In order to assess performance of the business, the CODM receives reports of each reportable
segment using revenues and Further Adjusted EBITDA. Net interest expense evolution is
assessed on a consolidated basis. Financial expense and amortization are not taken into
consideration by the CODM for the allocation of resources.

In the year ended December 31, 2018, Atlantica Yield had four customers with revenues
representing more than 10% of the total revenues, i.e., three in the renewable energy (42%, 12%
and 11% of total revenues respectively) and one in the efficient natural gas business sectors
(12% of total revenues), and on December 31, 2017, Atlantica Yield had three customers with
revenues representing more than 10% of the total revenues, i.e., two in the renewable energy
(45% and 11% of total revenues respectively) and one in the efficient natural gas business sectors
(12% of total revenues).

133

Notes to the consolidated financial statements
31 December 2018

a) The following tables show Revenues and Further Adjusted EBITDA by operating

segments and business sectors for the years 2018 and 2017:

Revenue
$’000

Further Adjusted EBITDA
$’000

For the twelve-
month period ended December 31,

Geography

2018

2017

2018

2017

North
America
South
America
EMEA

357,177

123,214

563,431

332,705

308,748

282,328

120,797

100,234

108,766

554,879

441,625

388,216

Total

1,043,822

1,008,381

850,607

779,310

Revenue
$’000

Further Adjusted EBITDA
$’000

For the twelve-
month period ended December 31,

2018

2017

2018

2017

793,557

130,799

95,998

767,226

664,428

569,193

119,784

95,096

93,858

78,461

106,140

87,695

23,468

26,275

13,860

16,282

Business
sector

Renewable
energy
Efficient
natural gas
Electric
transmission
lines
Water

Total

1,043,822

1,008,381

850,607

779,310

The reconciliation of segment Further Adjusted EBITDA with the loss attributable to the
parent company is as follows:

134

Notes to the consolidated financial statements
31 December 2018

For the twelve-
month period ended December 31,

2018

$’000

2017

$’000

Profit/(Loss) attributable to the Company
Profit attributable to non-controlling interests
Income tax
Share of profits/(losses) of associates
Dividend from exchangeable preferred equity
investment in ACBH
Financial expense, net
Depreciation, amortization, and
charges

impairment

41,596
13,673
42,659
(5,231)
-

395,213
362,697

(111,804)
6,917
119,837
(5,351)
10,383

448,368
310,960

Total segment Further Adjusted EBITDA

850,607

779,310

b) The assets and liabilities by operating segments (and business sector) at the end of 2018

and 2017 are as follows:

Assets and liabilities by geography as of December 31, 2018:

North
America

South
America

EMEA

Balance as of
December 31,
2018

Assets allocated

Contracted concessional assets

3,453,652

1,210,624

3,884,905

8,549,181

Investments carried under the equity method

Current financial investments

Cash and cash equivalents (project companies)

147,213

195,678

61,959

41,316

53,419

30,080

287,456

53,419

239,252

524,450

Subtotal allocated

Unallocated assets

Other non-current assets

Other current assets (including cash and cash
equivalents at holding company level)
Subtotal unallocated

Total assets

3,796,543

1,313,899

4,255,860

9,366,302

188,736

363,993

552,729

9,919,031

135

Notes to the consolidated financial statements
31 December 2018

North
America

South
America

EMEA

Balance as of
December 31,
2018

Liabilities allocated

Long-term and short-term project debt

Grants and other liabilities

Subtotal allocated

Unallocated liabilities

Long-term and short-term corporate debt

Other non-current liabilities

Other current liabilities

Subtotal unallocated

Total liabilities

Equity unallocated

Total liabilities and equity unallocated

Total liabilities and equity

1,725,961

1,527,724

900,801

2,464,352

7,550

122,852

3,253,685

908,351

2,587,204

5,091,114

1,658,126

6,749,240

684,073

523,827

205,779

1,413,679

8,162,919

1,756,112

3,169,791

9,919,031

Assets and liabilities by geography as of December 31, 2017:

North
America

South
America

EMEA

Balance as of
December 31,
2017

Assets allocated

Contracted concessional assets

3,770,169

1,100,778

4,213,323

9,084,270

116,451

149,236

4,035,856

59,831

55,784

31,263

42,548
1,203,157

329,078
4,629,448

Investments carried under the equity method

Current financial investments

Cash and cash equivalents (project companies)

Subtotal allocated

Unallocated assets

Other non-current assets

Other current assets (including cash and cash
equivalents at holding company level)
Subtotal unallocated

Total assets

55,784

207,545

520,862

9,868,461

210,378

413,500

623,878

10,492,339

136

Notes to the consolidated financial statements
31 December 2018

North
America

South
America

EMEA

Balance as of
December 31,
2017

Liabilities allocated

Long-term and short-term project debt

Grants and other liabilities

Subtotal allocated

Unallocated liabilities

Long-term and short-term corporate debt

Other non-current liabilities

Other current liabilities

Subtotal unallocated

Total liabilities

Equity unallocated

Total liabilities and equity unallocated

Total liabilities and equity

1,821,102

1,593,048

876,063

2,778,043

810

42,202
2,820,245

3,414,150

876,873

5,475,208

1,636,060

7,111,268

643,083

657,345

185,190

1,485,618

8,596,886

1,895,453

3,381,071

10,492,339

Assets and liabilities by business sectors as of December 31, 2018:

Assets allocated
Contracted concessional assets
Investments carried under
equity method
Current financial investments
Cash and cash equivalents (project
companies)
Subtotal allocated

the

Unallocated assets
Other non-current assets
Other current assets (including cash
and cash equivalents at holding
company level)
Subtotal unallocated

Total assets

Renewable
energy

Efficient
natural
gas

Electric
transmission
lines

Water

Balance as of
December
31, 2018

6,998,020

580,997

882,980

87,184

8,549,181

10,257
15,396

453,096

7,476,769

-
147,192

45,625

773,814

-
61,102

43,162
15,562

53,419
239,252

14,043

958,125

11,686
157,594

524,450

9,366,302

188,736

363,993

552,729

9,919,031

137

Notes to the consolidated financial statements
31 December 2018

Renewable
energy

Efficient
natural
gas

Electric
transmission
lines

Water

Balance as of
December
31, 2018

3,868,626

545,123

647,820

29,545

5,091,114

Liabilities allocated
Long-term and short-term project
debt
Grants and other liabilities

1,656,146

161

1,025

794

Subtotal allocated

5,524,772

545,284

648,845

30,339

and

Unallocated liabilities
Long-term
corporate debt
Other non-current liabilities
Other current liabilities

short-term

Subtotal unallocated

Total liabilities

Equity unallocated

liabilities and equity

Total
unallocated
Total liabilities and equity

1,658,126

6,749,240

684,073
523,827
205,779

1,413,679

8,162,919

1,756,112

3,169,791

9,919,031

Assets and liabilities by business sectors as of December 31, 2017:

Assets allocated
Contracted concessional assets
Investments carried under the equity
method
Current financial investments
Cash and cash equivalents (project
companies)
Subtotal allocated

Unallocated assets
Other non-current assets
Other current assets (including cash
and cash equivalents at holding
company level)
Subtotal unallocated

Total assets

Renewable
energy

Efficient
natural
gas

Electric
transmission
lines

Water

Balance as of
December
31, 2017

7,436,362
12,419

17,249
452,792

660,387
-

116,430
39,064

897,269
-

59,289
15,325

90,252
43,365

14,577
13,681

9,084,270
55,784

207,545
520,862

7,918,822

815,881

971,883

161,875

9,868,461

210,378
413,500

623,878

10,492,339

138

Notes to the consolidated financial statements
31 December 2018

Liabilities allocated
Long-term and short-term project
debt
Grants and other liabilities

Subtotal allocated

and

Unallocated liabilities
Long-term
corporate debt
Other non-current liabilities
Other current liabilities

short-term

Subtotal unallocated

Total liabilities

Equity unallocated

liabilities

Total
unallocated
Total liabilities and equity

and

equity

Renewable
energy

Efficient
natural
gas

Electric
transmission
lines

Water

Balance as
of
December
31, 2017

4,162,596

579,173

698,346

35,093

5,475,208

1,635,508

5,798,104

552

579,725

698,346

35,093

1,636,060

7,111,268

643,083

657,345
185,190

1,485,618

8,596,886

1,895,453

3,381,071

10,492,339

c) The amount of depreciation, amortization and impairment charges recognized for
the years ended December 31, 2018 and 2017 are as follows:

Depreciation, amortization and
geography
North America
South America

EMEA

Total

For the twelve-month period
ended December 31,

$’000

impairment by

2018

2017

(166,046)
(42,368)
(154,283)

(123,726)
(40,880)

(146,354)

(362,697)

(310,960)

For the twelve-month period
ended December 31,

$’000

Depreciation, amortization and
business sectors

impairment by

2018

2017

Renewable energy

Electric transmission lines

Efficient natural gas

Total

(323,438)

(28,925)

(10,334)

(282,376)

(28,584)

(362,697)

(310,960)

139

Notes to the consolidated financial statements
31 December 2018

5. Changes in the scope of the consolidated financial statements

For the year ended December 31, 2018

On February 28, 2018, the Company completed the acquisition of a 100% stake in Hidrocañete,
S.A. (Mini-Hydro). Total purchase price for this asset amounted to $9,327 thousand. The
purchase has been accounted for in the consolidated accounts of Atlantica, in accordance with
IFRS 3, Business Combinations.

On October 10, 2018, the Company completed the acquisition of a 5% stake in Gas CA-KU-A1,
S.A.P.I de C.V. (Pemex Transportation System or “PTS”). The purchase has been accounted for in
the consolidated accounts of Atlantica, in accordance with IAS 28, Investments in Associates.
Consideration for the initial 5%, which amounts to approximately $7 million will be disbursed
progressively as construction progresses. Once the project enters into operation, which is
expected for late 2019 or early 2020, the Company expects to acquire an additional 65%. Finally,
the Company expects to acquire the remaining 30% one year after COD, subject to final
approvals. The total equity investment is estimated to amount to approximately $150 million.

On December 11, 2018, the Company completed the acquisition of a transmission line in Chile
(Chile TL3). The total purchase price for this asset amounted to $6,000 thousand. The purchase
has been accounted for in the consolidated accounts of Atlantica, in accordance with IFRS 3,
Business Combinations.

On December 13, 2018, the Company completes the acquisition of a 100% stake in Estrellada,
S.A. (Melowind). Total purchase price for this asset amounted to $45,276 thousand. The purchase
has been accounted for in the consolidated accounts of Atlantica, in accordance with IFRS 3,
Business Combinations.

On December 28, 2018, the Company completed the acquisition of a power substation and two
small transmission lines in Peru, being an expansion of the ATN transmission line (“ATN
expansion 1”). Total purchase price for this asset amounted to $16,000 thousand. The purchase
has been accounted for in the consolidated accounts of Atlantica, in accordance with IFRS 3,
Business Combinations.

140

Notes to the consolidated financial statements
31 December 2018

Impact of changes in the scope in the consolidated financial statements

The amount of assets and liabilities integrated at the effective acquisition date for the
aggregated change in scope is shown in the following table:

Asset Acquisition
for the year ended December 31, 2018
$‘000

Concessional assets (Note 12)

Investments carried under the equity

method (Note 13)

Current assets

Project debt long term (Note 17)

Deferred tax liabilities (Note 10)

Project debt short term (Note 17)

Other current and non-current liabilities

Asset acquisition - purchase price

Net result of the asset acquisition

155,909

5,646

(79,016)

(590)

(2,346)

(3,000)

(76,604)

As a result of the acquisitions being made effective near to year end, the allocation of
the purchase prices is provisional as of December 31, 2018. As such, the amounts
indicated may be adjusted during the measurement period to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if
known, would have affected the amounts recognized as of December 31, 2018. The
measurement period will not exceed one year from the acquisition dates.

The amount of revenue contributed by the acquisitions performed during 2018 to the
consolidated financial statements of the Company for the year 2018 is $1.8 million,
and the amount of loss after tax is $0.3 million. Had the acquisitions been consolidated
from January 1, 2018, the consolidated statement of comprehensive income would
have included additional revenue of $13.3 million and additional loss after tax of $0.7
million.

Costs related to these acquisitions are not material and have all been recorded within
the line “Other operating expenses” in the consolidated income statement when
incurred.

For the year ended December 31, 2017

There is no change in the scope of the consolidated financial statement in the year
2017.

141

Notes to the consolidated financial statements
31 December 2018

6. Auditor’s remuneration

The analysis of the auditor’s remuneration is as follows:

Year

ended

2018
$’000

Year

ended

2017
$’000

Fees payable to the company’s auditor and their associates
for the audit of the company’s annual accounts

891

871

Fees payable to the company’s auditor and their associates
for other services to the group

–The audit of the company’s subsidiaries

905

833

Total audit fees

- Audit-related services
- Other services

Total non-audit fees

1,796

705

751

1,704

303

328

2,547

2,032

The fee payable to the Company’s auditor for the audit of the Company’s annual accounts amounts to $12,000 (2017: $12,000).

"Audit Fees" are the aggregate fees billed for professional services in connection with the audit
of our Annual Consolidated Financial Statements, quarterly reviews of our interim financial
statements and statutory audits of our subsidiaries’ financial statements under the rules of
England and Wales and the countries in which our subsidiaries are organized. The increase in
audit fees is mainly due to foreign exchange differences.

"Audit-Related Fees" include fees charged for services that can only be provided by our auditor,
such as audits of non-recurring transactions, consents, comfort letters, attestation services and
audit services required for SEC or other regulatory agencies. Audit-Related fees also includes
assurance and related services that are reasonably related to the performance of the audit or
review of our financial statements. Fees paid during 2018 related to comfort letters and
consents required for capital market transactions of our major shareholder are also included in
this category.

The Audit Committee approved all of the services provided by Deloitte, S.L. and by other
member firms of Deloitte.

142

Notes to the consolidated financial statements
31 December 2018

"Other services" comprises fees billed in relation to financial advisory services and
other services which cannot be comprised under other categories.

7. Staff costs

The average monthly number of employees (including executive directors) was:

Executives

Middle Managers

Engineers and Graduates

Assistants and Professionals

Plant technicians

Their aggregate remuneration comprised:

Wages and salaries

Social security costs

Other staff costs

2018

2017

Number

115

207

102

182

Year

ended
2018
$’000

Year

ended
2017
$’000

(12,677)

(16,685)

(2,082)

(1,877)

(371)

(292)

(15,130)

(18,854)

143

Notes to the consolidated financial statements
31 December 2018

8. Other operating income

Other Operating income

Grants
Income from various services and insurance
proceeds
Income from the purchase of the long-term
operation and maintenance payable to Abengoa
(see Note 26)

For the twelve-
month period
ended December
31, 2018

For the twelve-
month period
ended December
31, 2017

$’000

59,421
34,181

38,955

59,707
21,137

Total

132,557

80,844

Grants income mainly relate to ITC cash grants and implicit grants recorded for accounting purposes in
relation to the FFB loans with interest rates below market rates in Solana and Mojave projects (see Note
18).

9. Finance income and expenses

The following table sets forth our financial income and expenses for the years ended December 31, 2018
and 2017:

For the twelve-
month period
ended December
31, 2018
$’000

For the twelve-
month period
ended December
31, 2017
$’000

Finance income
Interest income from loans and credits

Profit on interest rate derivatives: cash flow hedges

TOTAL

36,296
148
36,444

325

682

1,007

144

Notes to the consolidated financial statements
31 December 2018

Finance expenses

Expenses due to interest:

- Loans from credit entities

- Other debts

Losses on interest rate derivatives: cash flow hedges

TOTAL

For the twelve-
month period
ended December
31, 2018
$’000

For the twelve-
month period
ended December
31, 2017
$’000

(256,736)
(100,057)
(68,226)
(425,019)

(253,660)

(137,562)

(72,495)

(463,717)

Financial income from loans and credits primarily includes a non-monetary financial income of $36.6
million resulting from the refinancing of the debts of Helios 1&2 and Helioenergy 1&2 in the second
quarter of 2018.

Interest from other debts are primarily interest on the notes issued by ATS, ATN, ATN2, Atlantica and
Solaben Luxembourg and interest related to the investment from Liberty. The decrease in 2018 is
primarily due to a lower increase of the amortized cost of the Liberty debt of $23 million compared to
the year 2017 (see Note 18). Losses from interest rate derivatives designated as cash flow hedges
correspond primarily to transfers from equity to financial expense when the hedged item is impacting
the consolidated income statement.

Other finance income / (expenses)

Dividend from ACBH (Brazil)

Other finance income

Other finance expenses

TOTAL

For the twelve-
month period
ended
December 31,
2018
$’000

For the twelve-
month period
ended
December 31,
2017
$’000

14,431

(22,666)

(8,235)

10,383

28,809

(20,758)

18,434

According to an agreement reached with Abengoa in the third quarter of 2016, Abengoa
acknowledged that Atlantica is the legal owner of the dividends declared on February 24, 2017 and
retained from Abengoa amounting to $10.4 million. As a result, the Company recorded $10.4 million
as Other financial income on 2017 in accordance with the accounting treatment previously given
to the ACBH dividend.

Other financial income in 2018 are primarily interests on deposits and on loan granted to third
parties. In 2017, it included a $16.2 million income as a result of the termination of the currency
swap agreement with Abengoa.

145

Notes to the consolidated financial statements
31 December 2018

Other financial losses primarily include expenses for guarantees and letters of credit, wire transfers,
other bank fees and other minor financial expenses.

10. Tax

All the companies included in the Company file income taxes according to the tax regulations in
force in each country on an individual basis or under consolidation tax regulations.

The consolidated income tax has been calculated as an aggregation of income tax expenses of each
individual company. In order to calculate the taxable income of the consolidated entities
individually, the accounting profit is adjusted for temporary and permanent differences, recording
the corresponding deferred tax assets and liabilities. At each consolidated income statement date,
a current tax asset or liability is recorded, representing income taxes currently refundable or
payable. Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial statement and income tax purposes, as
determined under enacted tax laws and rates.

Income tax payable is the result of applying the applicable tax rate in force to each tax-paying
entity, in accordance with the tax laws in force in the country in which the entity is registered.
Additionally, tax deductions and credits are available to certain entities, primarily relating to inter-
company trades and tax treaties between various countries to prevent double taxation.

As of December 31, 2018, and 2017, the analysis of deferred tax assets and deferred tax liabilities
is as follows:

Year
ended
2018
$’000

Year
ended
2017
$’000

Net tax credits for operating losses carry forwards
Temporary differences derivatives financial instruments
Other temporary differences

55,835
79,865
366

71,219
93,719
198

Total deferred tax assets

136,066

165,136

Most of the net tax credits for operating losses carry forwards corresponds to Peru, South Africa
and solar plants in Spain as of December 31, 2018.

Temporary differences for derivatives financial instruments are mainly due to ACT ($13 million)
and solar plants in Spain ($62 million).

In relation to tax loss carry forwards and deductions pending to be used recorded as deferred tax
assets, the entities evaluate its recoverability projecting forecasted taxable income for the

146

Notes to the consolidated financial statements
31 December 2018

upcoming years and taking into account their tax planning strategy. Deferred tax liabilities
reversals are also considered in these projections, as well as any limitation established by tax
regulations in force in each tax jurisdiction.

Year
ended
2018
$’000

Year
ended
2017
$’000

Temporary differences tax/book amortization
Other temporary differences tax/book value of contracted
concessional assets
Other temporary differences

126,792
73,793

113,432
66,247

10,415

6,904

Total deferred tax liabilities

211,000

186,583

As of December 31, 2018, and 2017, temporary differences as a result of accelerated tax
amortization resulted in a net deferred tax liability position. These are primarily due to Solana and
Mojave ($55 million in 2018 and $63 million in 2017) and solar plants in Spain ($74 million in 2018
and $51 million in 2017).

In the year ended as of December 31, 2017 there was an impact on the U.S. entities as a result of
the tax reform and U.S. Internal Revenue Code Section 382 described as follows:

In December 2017 a tax reform, the Tax Cuts and Jobs Act, was enacted in the U.S.,
consisting mainly in a decrease in the corporate tax rate from 35% to 21% effective
January 1st, 2018. The Company therefore adjusted the deferred tax assets and
liabilities of its U.S. entities using the new enacted corporate tax rate as of December
31, 2017, resulting in a loss of $19 million recorded in the consolidated income
statement for the year ended December 31, 2017;

In addition, the U.S. Internal Revenue Code (“IRC”) Section 382 establishes an annual
limitation on the use of U.S. Net Operating Losses (“NOLs”) as a result of an
ownership change. An “ownership change” would occur if the direct and indirect “5-
percent shareholders”, as defined under Section 382 of the IRC, collectively increased
their ownership in the Company by more than 50 percentage points over a rolling
three-year period. The Company experienced during 2017 an ownership change due
to Abengoa´s restructuring and changes in its shareholders´s base. As a result, the
U.S. NOLs carry forwards generated through the date of change are subject to an
annual limitation under Section 382, which resulted in a derecognition of deferred
tax assets previously recognized amounting to $96 million corresponding to an
amount of $387 million of NOLs and also taking into consideration the newly
enacted corporate tax rate of 21%. This loss has been recorded in the consolidated
income statement for the year ended December 31, 2017.

147

Notes to the consolidated financial statements
31 December 2018

Other temporary differences tax/book value of contracted concessional assets, which resulted in a
net deferred tax liability position relate primarily to ACT in both years.

The movements in deferred tax assets and liabilities during the years ended December 31, 2018
and 2017 were as follows:

Deferred tax assets

As of January 1, 2017

Increase/(decrease) through the consolidated income statement

Increase/(decrease) through other consolidated comprehensive income (equity)

Other movements

As of December 31, 2017

First application of IFRS 9 as of December 31, 2017 (Note 2)

Increase/(decrease) through the consolidated income statement

Increase/(decrease) through other consolidated comprehensive income (equity)

Other movements

As of December 31, 2018

Deferred tax liabilities

As of January 1, 2017

Increase/(decrease) through the consolidated income statement

Increase/(decrease) through other consolidated comprehensive income (equity)

Other movements

As of December 31, 2017

First application of IFRS 9 as of December 31, 2017 (Note 2)

Increase/(decrease) through the consolidated income statement

Increase/(decrease) through other consolidated comprehensive income (equity)

Change in the scope of the consolidated financial statements (Note 5)

Other movements

As of December 31, 2018

148

Amount

202,891

(31,421 )

(13,312 )

6,978

165,136

11,811

(24,195 )

(10,685 )

(6,001)

136,066

Amount

95,037

86,418

5,128

186,583

8,849

17,996

590

(3,018 )

211,000

Notes to the consolidated financial statements
31 December 2018

Details for income tax for the years ended December 31, 2018 and 2017 are as follows:

Current tax

Deferred tax

relating to the origination and reversal of
temporary differences

relating to changes in tax rates

Year
ended
2018
$’000

Year
ended
2017
$’000

(468 ) (1,998)

(42,191 ) (117,839)

(42,191)

(98,508)

(19,331)

Total income tax benefit/(expense)

(42,659 ) (119,837)

The reconciliation between the theoretical income tax resulting from applying an average
statutory tax rate to income/(loss) before income tax and the actual income tax expense
recognized in the consolidated income statements for the years ended December 31, 2018 and
2017 are as follows:

149

Notes to the consolidated financial statements
31 December 2018

Year
ended
2018
$’000

Year
ended
2017
$’000

Profit before tax

97,928

14,950

Tax at the average statutory tax rate of 30% (2017: 30 %)

(29,378)

(4,485)

Tax effect of share of results of associates

Permanent differences

Incentives, deductions, and unrecognized tax losses carry
forwards
Change in corporate income tax

Effect of different tax rates of subsidiaries operating in other
jurisdictions
U.S Internal Revenue Code Section 382

Other non-taxable income/(expense)

1,639

5,385

1,765

19,324

(22,972)

(20,994)

(19,331)

752

3,304

(96,328)

1,915

(3,092)

Tax charge for the year

(42,659)

(119,837)

Permanent differences in 2018 and 2017 are mainly due to ACT (Mexico).

The main implications derived from the Tax Cuts and Jobs Act enacted in December 2017 in the
U.S. entities are:

- A reduction of the Federal income tax rate from 35% to 21%, effective since January 1,
2018. This measure will imply a reduction of the tax burden of the Company. The effect on
the deferred tax assets and liabilities has resulted in a $19 million loss;

- A limitation of the deduction for net interest expense of all businesses in the U.S. The new
limitation is imposed on net interest expense that exceeds 30% of EBITDA from 2018 to
2021, and 30% of EBIT from 2022 onwards. Interests disallowed would be deducted in the
future in the event that those limits are not exceeded. After having considered the impacts
of Section 382 commented above, the Company does not expect significant negative
effects from this net interest expense limitation;

- NOLs arising in tax years beginning after 2017 would be limited to 80% of taxable income.
For new NOLs recognized after 2017, an indefinite carry forward would be allowed. The
limitation of 80% is not applicable for NOLs generated before 2018. For existing NOLs
before 2018, a carry forward of 20 years is still applicable. The new limitation does not
trigger adverse tax effects to the U.S. subsidiaries of the Company considering the amount

150

Notes to the consolidated financial statements
31 December 2018

of NOLs to be generated in upcoming years and the projected amount of taxable income
of these entities after having considered the impacts of Section 382;

- Base erosion anti-abuse tax (BEAT): The BEAT applies to certain U.S. corporations that make
relevant deductible payments to foreign affiliates. The excess of 10% of a corporation’s
taxable income increased by those payments to foreign related parties over its regular tax
liability, will be the base erosion tax due. BEAT provisions do not trigger adverse tax
consequences for the U.S. subsidiaries of the Company considering the amount of
payments made to foreign affiliates for management and support services;

- Potential tax erosion in the U.S.: The Company does not expect to have material adverse
tax consequences in the U.S. subsidiaries as a result of the measures previously described.

11. Dividends

Amounts recognised as distributions to equity holders in
the period:

Year

ended
2018
$’000

Year

ended
2017
$’000

(133,289)

(109,801)

The dividends indicated above fully relate to the dividends declared by Atlantica Yield Plc. to its
shareholders. These have been declared as follows:

- On February 27, 2018, the Board of Directors declared a dividend of $0.31 per share
corresponding to the fourth quarter of 2017. The dividend was paid on March 27,

2018.

- On May 11, 2018, the Board of Directors of the Company approved a dividend of
$0.32 per share corresponding to the first quarter of 2018. The dividend was paid on

June 15, 2018.

- On July 31, 2018, the Board of Directors of the Company approved a dividend of
$0.34 per share corresponding to the second quarter of 2018. The dividend 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. The dividend was paid on December 14,

2018.

12. Contracted concessional assets

Contracted concessional assets include fixed assets financed through project debt, related to
service concession arrangements recorded in accordance with IFRIC 12, except for Palmucho,
which is recorded in accordance with IAS 17 Leases, and PS10, PS20, Seville PV, Mini-Hydro and
Chile TL3 which are recorded as property plant and equipment in accordance with IAS 16

151

Notes to the consolidated financial statements
31 December 2018

Property, Plant and Equipment. Concessional assets recorded in accordance with IFRIC 12 are
either intangible of financial assets. As of December 31, 2018, contracted concessional financial
assets amount to $843,291 thousand ($936,004 thousand as of December 31, 2017).

a) The following table shows the movements of contracted concessional assets included in

the heading “Contracted Concessional assets” for 2018:

Cost
At 1 January 2018
Additions
Application of IFRS 16 – Leases (Note 2)
Substractions
Change in the scope of the consolidated financial
statements (Note 5)
Translation differences
Reclassification and other movements

At 31 December 2018

Accumulated amortization losses

At 1 January 2018
Adjustments arising from application of IFRS9 -
Expected Credit Losses (Note 2)
Additions
Change in the scope of the consolidated financial
statements (Note 5)
Translation differences

At 31 December 2018

Carrying amount
At 1 January 2018

At 31 December 2018

2018
$’000

10,633,769
10,463
62,982
(92,814)

170,040
(280,680)
(27,932)

10,475,828

(1,549,499)

(53,048)

(362,697)

(14,131)

52,728

(1,926,647)

9,084,270

8,549,181

During 2018, contracted concessional assets decreased primarily due to the effect of the
depreciation of the Euro against the U.S. dollar for the year ended December 31, 2018 compared
to the year ended December 31, 2017 and to the amortization charge for the year.

Other relevant movements in the cost of contracted concessional assets are an increase for the

152

Notes to the consolidated financial statements
31 December 2018

acquisition of new concessional assets (see Note 12), the impact of the application of IFRS 16,
´Leases´ from January 1, 2018 (see Note 2), partially offset by a decrease for the payments
received by Solana from Abengoa in March and December 2018 further to Abengoa´s obligation
as EPC Contractor (see Note 26).

Amortization and impairment amount includes the recognition of impairment provisions based
on expected credit losses due to the application of IFRS 9, ´Financial instruments´ from January
1, 2018 (see Note 2).

The decrease included in “Reclassification and other movements” is mainly due to the
reclassification from the long to the short term of the current portion of the contracted
concessional financial assets.

Considering the lower production compared with the run-rate production expected for Solana
due to the technical issues experienced since COD in the asset and the uncertainty around level
of production in the future, the Company identified a triggering event of impairment during the
year 2018 in compliance with IAS 36, Impairment of Assets. As a result, an impairment test has
been performed resulting in the recording of an impairment loss of $42,721 thousand as of
December 31, 2018.

The impairment has been recorded within the line “Depreciation, amortization and impairment
charges” of the consolidated income statement, decreasing the amount of “Contracted
concessional assets” pertaining to the Renewable energy sector and North America geography.
The recoverable amount considered is the value in use and amounts to $1,141,209 thousand for
Solana, as of December 31, 2018. A specific discount rate has been used in each year considering
changes in the debt/equity leverage ratio over the useful life of this project, resulting in the use
of a range of discount rates between 5.0% and 5.8%. An adverse change in the key assumptions
which are individually used for the valuation could lead to future impairment recognition;
specifically, a 5% decrease in generation over the entire remaining useful life (PPA) of the project
would generate an additional impairment of approximately $72 million. An increase of 50 basis
points in the discount rate would lead to an additional impairment of approximately $50 million.

In addition, the Company identified a triggering event of impairment for Mojave as a result of
the negative credit outlooks of Pacific Gas and Electric Company, the off-taker of the plant, as
of December 31, 2018 (see Note 25 for further details). This project is within the Renewable
energy sector and North America geography. The Company therefore performed an impairment
test as of December 31, 2018, which resulted in the recoverable amount (value in use) exceeding
the carrying amount of the asset by 10%. To determine the value in use of the asset, a specific
discount rate has been used in each year considering changes in the debt/equity leverage ratio
over the useful life of this project, resulting in the use of a range of discount rates between 4.6%
and 5.8%.

An adverse change in the key assumptions which are individually used for the valuation would
not lead to future impairment recognition; neither in case of a 5% decrease in generation over
the entire remaining useful life (PPA) of the project nor in case of an increase of 50 basis points
in the discount rate.

153

Notes to the consolidated financial statements
31 December 2018

b) The following table shows the movements of contracted concessional assets included in

the heading “Contracted Concessional assets” for 2017:

Cost
At 1 January 2017
Additions
Substractions
Translation differences

At 31 December 2017

Accumulated amortization losses
At 1 January 2017
Charge
Translation differences

At 31 December 2017

Carrying amount
At 1 January 2017

At 31 December 2017

2017
$’000

10,067,596
15,426
(42,500)
593,247

10,633,769

(1,143,324)
(309,846)
(96,329)

(1,549,499)

8,924,272

9,084,270

During 2017 contracted concessional assets increased primarily due to the effect of appreciation
of the Euro against the U.S. dollar for the year ended December 31, 2017 compared to the year
ended December 31, 2016, this effect has been partially compensated by “the amortization
charge for the year”.

The decrease fully relates to the indemnity received from Abengoa by Solana in December 2017
further to Abengoa´s obligation as EPC Contractor (see Note 26).

No losses from impairment of contracted concessional assets were recorded during the year
ended December 31, 2017.

13. Investments carried under the equity method

The table below shows the breakdown and the movement of the investments held in
associates for 2018 and 2017:

154

Notes to the consolidated financial statements
31 December 2018

Investments in associates

Initial balance

Share of profit/(loss)

Dividend distribution

Equity distribution

2018
$’000

55,784

5,231

(4,463)

(122)

2017
$’000

55,009

5,351

(2,454)

(549)

Currency translation differences

(3,011)

(1,573)

Final balance

53,419

55,784

Details of the Group's associates at the end of the reporting period are as follows:

Name
associate

Principal
activity

Place of
incorporation
and principal place of
business

Proportion of ownership
interest / voting rights held
by the Group

31/12/2018

31/12/2017

Evacuación
Valdecaballero
s, S.L.
Myah
Bahr
Honaine, S.P.A.
Pectonex, R.F.
Proprietary
Limited
Evacuación
Villanueva del
Rey, S.L
Ca
Ku A1,
S.A.P.I de CV
(PTS)

Connection
Facilities

Cáceres (Spain)

57.16%

Water plant

Dély Ibrahim (Algeria)

25.50%

Connection
Facilities

Efficient

natural gas

Pretoria (South Africa)

50.00%

Sevilla (Spain)

40.02%

Mexico D.F. (Mexico)

5.00%

All of the above associates are accounted for using the equity method in these consolidated financial
statements as set out in the group’s accounting policies in note 3.

There are no significant movement in the investments held in associates during the years 2018 and
2017.

The tables below show a breakdown of stand-alone amounts of assets, revenues and profit and loss
as well as other information of interest for the years 2018 and 2017 for the associated companies:

155

Notes to the consolidated financial statements
31 December 2018

% Shares

Non-

Current

Non-

Current

Revenue Operating

Net

Investment

current

assets

current

liabilities

profit/

under the

assets

liabilities

(loss)

equity

method

Evacuación Valdecaballeros,
S.L.

57.16

19,679

820

381

420

320

(668)

(693)

8,773

Myah Bahr Honaine, S.P.A. (*)

25.50

186,484

63,224

81,942

13,184

50,118

25,778

22,193

43,161

Pectonex, R.F. Proprietary
Limited

Evacuación Villanueva del
Rey, S.L

50.00

3,186

Ca Ku A1, S.A.P.I de CV (PTS)

5.00

50,547

40.02

3,190

257

2,021

383

50,625

(209)

1,485

(83)

(624)

As of December 31, 2018

263,086

64,314

83,344

64,614

50,438

24,862

20,667

53,419

% Shares

Non-

Current

Non-

Current

Revenue Operating

Net

Investment

current

assets

current

liabilities

profit/

under the

assets

liabilities

(loss)

equity

method

Evacuación Valdecaballeros,
S.L.

57.16

21,306

841

373

451

298

(708)

(730)

9,175

Myah Bahr Honaine, S.P.A. (*)

25.50

195,275

64,114

91,205

12,649

46,767

28,468

24,464

43,365

Pectonex, R.F. Proprietary
Limited

Evacuación Villanueva del
Rey, S.L

50.00

3,904

40.02

3,526

2,265

190

(206)

3,244

As of December 31, 2017

240,011

65,008

93,843

13,292

47,065

27,591

23,528

55,784

The Company has no control over Evacuación Valdecaballeros, S.L. as all relevant decisions of
this company require the approval of a minimum of shareholders accounting for more than
75% of the shares.

None of the associated companies referred to above is a listed company.

(*) Myah Bahr Honaine, S.P.A., the project entity, is 51% owned by Geida Tlemcen, S.L. which
is accounted for using the equity method in these consolidated financial statements. Share
of profit of Myah Bahr Honaine S.P.A. included in these consolidated financial statements
amounts to $5,659 thousand in 2018 and $6,238 thousand in 2017.

156

Notes to the consolidated financial statements
31 December 2018

14. Trade and other receivables

Trade and other receivables as of December 31, 2018 and 2017, consist of the following:

Trade receivables

Tax receivables

Prepayments

Other accounts receivable

Total

Balance as of
December
31, 2018
$’000

Balance as of
December
31, 2017
$’000

163,856

54,959

5,521

12,059
236,395

186,728

39,607

6,375

11,739

244,449

As of December 31, 2018, and 2017, the fair value of clients and other accounts receivable does
not differ significantly from its carrying value.

The Group has not provided for these debtors as they are all considered to be fully recoverable.

Trade receivables in foreign currency as of December 31, 2018 and 2017, are as follows:

Euro

Rand

Other

Total

Balance as of
December
31, 2018
$’000

Balance as of
December
31, 2017
$’000

91,303

25,193

9,884

109,165

23,792

7,363

126,380

140,320

The following table shows the maturity of Trade receivables as of December 31, 2018 and 2017:

Balance as of
December
31, 2018
$’000

Balance as of
December
31, 2017
$’000

163,855

186,728

Up to 3 months

Total

157

Notes to the consolidated financial statements
31 December 2018

15. Cash and cash equivalents

The following table shows the detail of cash and cash equivalents as of December 31, 2018 and
2017:

2018
$’000

2017
$’000

Cash and cash equivalents

631,542

669,387

631,542

669,387

Cash includes funds held to satisfy the customary requirements of certain non-recourse debt
agreements within the Company´s projects amounting to $296 million.

The following breakdown shows the main currencies in which cash and cash equivalent balances
are denominated:

2018
$’000

2017
$’000

328,716

319,400

228,036

288,625

11,602

13,628

55,257

40,999

7,931

6,735

631,542

669,387

US Dollar

Euro

Algerian Dinar

South African Rand

Others

16. Corporate debt

The breakdown of the corporate debt as of December 31, 2018 and 2017 is as follows:

Non-current

Balance as
of
December
31, 2018
$’000

Balance as

of
December
31, 2017
$’000

Credit Facilities with financial entities

415,168

320,783

158

Notes to the consolidated financial statements
31 December 2018

Notes and Bonds

253,393

Total Non-current

415,168

574,176

Current

Balance as
of
December
31, 2018
$’000

Balance as
of
December
31, 2017
$’000

Credit Facilities with financial entities
Notes and Bonds

11,580
257,325

65,833
3,074

Total Current

268,905

68,907

On November 17, 2014, the Company issued the Senior Notes due 2019 in an aggregate
principal amount of $255,000 thousand (the “2019 Notes”). The 2019 Notes accrue annual
interest of 7.00% payable semi-annually beginning on May 15, 2015 until their maturity date. As
of December 31, 2018 the amount of 2019 Notes has been classified as Current, considering its
maturity is November 15, 2019.

On December 3, 2014, the Company entered into a credit facility of up to $125,000 thousand
with 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 (the “Former
Revolving Credit Facility” or ”Former RCF”). On December 22, 2014, the Company drew down
$125,000 thousand under the Former RCF. $71,000 thousand of the Former RCF were partially
repaid in 2017. The remaining $54,000 of nominal of the Former RCF has been entirely repaid
on May 16, 2018 and the credit facility cancelled.

On February 10, 2017, the Company issued Senior Notes due 2022, 2023, 2024 (the “Note
Issuance Facility”), in an aggregate principal amount of €275,000 thousand. The 2022 to 2024
Notes accrue annual interest, equal to the sum of (i) EURIBOR plus (ii) 4.90%, as determined by
the Agent. Interest on the Notes are payable in cash quarterly in arrears on each interest payment
date. The Company pays interest to the holders of record on each interest payment date. The
interest rate on the Note Issuance Facility is fully hedged by two interest rate swaps contracted
with Jefferies Financial Services, Inc. with effective date March 31, 2017 and maturity date
December 31, 2022, resulting in the Company paying a net fixed interest rate of 5.5% on the
Note Issuance Facility. Changes in fair value of these interest rate swaps have been recorded in
the consolidated income statement. The Note Issuance Facility is a € denominated liability for
which the Company applies net investment hedge accounting. When converted to US$ at US$/€
closing exchange rate, it contributes to reduce the impact in translation difference reserves
generated in the equity of these consolidated financial statements by the conversion of the net
assets of the Spanish solar assets into US$.

159

Notes to the consolidated financial statements
31 December 2018

On July 20, 2017, the Company signed a credit facility (the “2017 Credit Facility”) for up to €10
million, approximately $11.5 million, which is available in euros or U.S. dollars. Amounts drawn
down accrue interest at a rate per year equal to EURIBOR plus 2.25% or LIBOR plus 2.25%,
depending on the currency. As of December 31, 2017, the Company drew down the credit facility
in full and used the entire proceeds to prepay a part of the Tranche A of the Credit Facility. The
credit facility had a maturity date in July 2018. It was renewed during the month of July 2018
and the new maturity date is July 20, 2019.

On May 10, 2018, the Company entered into a $215 million revolving credit facility (the “New
Revolving Credit Facility”) with Royal Bank of Canada, as administrative agent and Royal Bank of
Canada and Canadian Imperial Bank of Commerce, as issuers of letters of credit. Amounts drawn
down accrue interest at a rate per year equal to (A) for Eurodollar rate loans, LIBOR plus a
percentage determined by reference to the leverage ratio of the Company, ranging between
1.60% and 2.25%; and (B) for base rate loans, the highest of (i) the rate per annum equal to the
weighted average of the rates on overnight U.S. Federal funds transactions with members of the
U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus ½ of 1.00%,
(ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus a percentage determined by
reference to the leverage ratio of the Company, ranging between 0.60% and 1.00%. Letters of
credit may be issued using up to $70 million of the Revolving Credit Facility. The maturity of the
Revolving Credit Facility is December 31, 2021. As of December 31, 2018, the Company had
drawn down an amount of $108 million (net of debt issuance costs). During the month of January
2019, the amount of the New Revolving Credit Facility has been increased from $215 million to
$300 million.

Current Corporate debt corresponds mainly to the nominal and accrued interest of the 2019
Notes and to the nominal of the 2017 Credit Facility.

The repayment schedule for the Corporate debt at the end of 2018 is as follows:

2019

2020

2021

2022

2023

New Revolving Credit Facility
Note Issuance Facility
2017 Credit Facility
2019 Notes
Total

—
128
11,452
257,325
268,905

—
—
—
—
—

107,560
—
—
—
107,560

—
102,908
—
—
102,908

—
102,350
—
—
102,350

Subsequent
years

—
102,350
—
—
102,350

Total

107,560
307,736
11,452
257,325
684,073

The following table details the movement in Corporate debt for the year 2018, split between
cash and non-cash items:

Corporate debt

January 1, 2018
643,083

Cash Flow

14,403

Non- cash changes December 31, 2018
684,073

26,587

160

Notes to the consolidated financial statements
31 December 2018

17. Project debt

The main purpose of the Company is the long-term ownership and management of contracted
concessional assets, such as renewable energy, efficient natural gas and electric transmission line
assets, which are financed through project debt. This note shows the project debt linked to the
contracted concessional assets included in note 12 of these consolidated financial statements.

Project debt is generally used to finance contracted assets, exclusively using as guarantee the
assets and cash flows of the company or group of companies carrying out the activities financed.
In most of the cases, the assets and/or contracts are set up as guarantee to ensure the repayment
of the related financing.

Compared with corporate debt, project debt has certain key advantages, including greater
leverage period permitted and a longer tenor.

The variations for 2018 and 2017 of project debt have been the following:

Project debt -
long term
$’000

Project debt -
short term
$’000

Total
$’000

Balance as of December 31, 2017

Increases

Decreases

First time application of IFRS 9 (Note 2)

Debt refinancing IFRS 9 impact

Change in the scope of the consolidated
financial statements (Note 5)
Currency translation differences

Reclassifications

5,228,917
105,466

(98,450)

(39,599)

(36,642)

79,016

(150,019)

(262,030)

246,291
288,541

(522,317)

2,346

(12,436)

262,030

5,475,208
393,007

(620,767)

(39,599)

(36,642)

81,362

(162,455)

Balance as of December 31, 2018

4,826,659

264,455

5,091,114

161

Notes to the consolidated financial statements
31 December 2018

Project debt -
long term
$’000

Project debt -
short term
$’000

Total
$’000

Balance as of December 31, 2016

4,629,184

Increases

Decreases

Currency translation differences

Reclassifications

Balance as of December 31, 2017

52,027

(42,560)

316,646

273,620

701,283

304,707

(509,131)

23,052

(273,620)

5,330,467

356,734

(551,691)

339,698

5,228,917

246,291

5,475,208

The line “Increases” includes primarily accrued interest for the year.

Main variations in Project debt during the year 2018 are the result of:

A net decrease primarily due to the contractual payments of debt for the year and the
partial repayment of Solana debt using the indemnity received from Abengoa during the
year 2018 for $61.5 million (see Note 26). Interests accrued are offset by a similar amount
of interests paid during the year;

The impact of the first application of IFRS 9, ´Financial instruments´ from January 1, 2018
(see Note 2);

The impact of the refinancing of the debts of Helios 1/2 and Helioenergy 1/2 on May 18,
2018 and June 26, 2018 respectively. The terms of the new debts are not substantially
different from the original debts refinanced and therefore the exchange of debts
instruments does not qualify for an extinguishment of the original debts under IFRS 9,
´Financial instruments´. When there is a refinancing with a non-substantial modification
of the original debt, there is a gain or loss recorded in the income statement. This gain
or loss is equal to the difference between the present value of the cash flows under the
original terms of the former financing and the present value of the cash flows under the
new financing, discounted both at the original effective interest rate. In this respect, the
Company recorded a $36.6 million financial income in the profit and loss statement of
the consolidated financial statements (see Note 9);

The acquisition of assets and the consolidation of its debt during the year (see Note 5).

The repayment schedule for Project debt in accordance with the financing arrangements, at
the end of 2018 is as follows and is consistent with the projected cash flows of the related
projects.

162

Notes to the consolidated financial statements
31 December 2018

2019

2020

2021

2022

2023

Interest
Repayment

Nominal
repayment

Subsequent
years

Total

21,916

242,538

257,012

268,625

299,840

326,413

3,674,770

5,091,114

The following table details the movement in Project debt for the year 2018, split between cash
and non-cash items:

Project debt

January 1, 2018
5,475,208

Cash Flow
(579,598)

Non- cash changes December 31, 2018

195,504

5,091,114

The non-cash changes primarily relate to interests accrued and to currency translation
differences.

Current and non-current loans with credit entities include amounts in foreign currencies for a
total of $2,464,352 thousand as of December 31, 2018 ($2,778,043 thousand as of December 31,
2017).

18. Grants and other liabilities

Grants
Other liabilities

Balances as of
December 31,
2018

Balances as of
December 31,
2017

$’000

1,150,805
507,321

1,225,877
410,183

Grant and other non-current liabilities

1,658,126

1,636,060

As of December 31, 2018, the amount recorded in Grants corresponds primarily to the ITC Grant
awarded by the U.S. Department of the Treasury to Solana and Mojave for a total amount of $739
million ($771 million as of December 31, 2017), which was primarily used to fully repay the Solana
and Mojave short-term tranche of the loan with the Federal Financing Bank. The amount recorded
in Grants as a liability is progressively recorded as other income over the useful life of the asset.

The remaining balance of the “Grants” account corresponds to loans with interest rates below
market rates for Solana and Mojave for a total amount of $410 million ($452 million as of
December 31, 2017). Loans with the Federal Financing Bank guaranteed by the Department of

163

Notes to the consolidated financial statements
31 December 2018

Energy for these projects bear interest at a rate below market rates for these types of projects and
terms. The difference between proceeds received from these loans and its fair value, is initially
recorded as “Grants” in the consolidated statement of financial position, and subsequently
recorded in “Other operating income” starting at the entry into operation of the plants. Total
amount of income for these two types of grants for Solana and Mojave is $59.3 million and $59.6
million for the year ended December 31, 2018 and 2017, respectively.

Other liabilities mainly relate to the investment from Liberty Interactive Corporation (‘Liberty’)
made on October 2, 2013 for an amount of $300 million. The investment was made in class A
shares of Arizona Solar Holding, the holding of Solana Solar plant in the United States. Such
investment was made in a tax equity partnership which permits the partners to have certain tax
benefits such as accelerated depreciation and ITC. Liberty has the right to receive 61.20% of
taxable losses and distributions until such time as Liberty reaches a certain rate of return, or the
Flip Date, and 22.60% of taxable losses and distributions thereafter. Given the underperformance
of the asset in the last years, there is uncertainty regarding the Flip Date, regarding when it will
occur, if so. The Company expects potential cash distributions from Solana to go mostly or entirely
to Liberty in the upcoming years.

According to the stipulations of IAS 32 Financial Instruments and in spite of the fact that the
investment of Liberty is in shares, it does not qualify as equity and has been classified as a liability
as of December 31, 2018 and 2017. The liability is recorded in Grants and other liabilities for a
total amount of $358 million ($352 million as of December 31, 2017) and its current portion is
recorded in other current liabilities for the remaining amount (see Note 19). This liability has been
initially valued at fair value, calculated as the present value of expected cash-flows during the
useful life of the concession, and is then measured at amortized cost in accordance with the
effective interest method, considering the most updated expected future cash-flows.

Additionally, other liabilities include $57 million of finance lease liabilities as of December 31,
2018, further to the application of IFRS 16, Leases from January 1, 2018 (see Note 2).

19. Trade and other payables

Balance as of December 31,
2018

Balance as of December 31,
2017

Item

Trade accounts payable
Down payments from clients
Liberty (see Note 18)
Other accounts payable

Total

$’000

109,430
6,289
37,119
39,195

192,033

$’000

107,662
6,466
-
41,016

155,144

Trade accounts payables mainly relate to the operating and maintenance of the plants.

164

Notes to the consolidated financial statements
31 December 2018

Nominal values of Trade payables and other current liabilities are considered to approximately
equal to fair values and the effect of discounting them is not significant.

20. Equity

Atlantica’s shares began trading on the NASDAQ Global Select Market under the symbol “ABY”
on June 13, 2014. The symbol changed to “AY” on November 11, 2017.

As of December 31, 2018, the share capital of the Company amounts to $10,021,726 represented
by 100,217,260 ordinary shares completely subscribed and disbursed with a nominal value of
$0.10 each, all in the same class and series. Each share grants one voting right. Algonquin
completed in 2018 the acquisition from Abengoa of its entire stake in Atlantica, 41.47% of the
total shares of the Company, becoming the largest shareholder of the Company.

Atlantica reserves as of December 31, 2018 are made up of share premium account and
distributable reserves.

Retained earnings primarily include results attributable to Atlantica in the years 2018 and 2017.

Non-controlling interests fully relate to interests held by JGC in Solacor 1 and Solacor 2, by Idae
in Seville PV, by Itochu Corporation in Solaben 2 and Solaben 3, by Algerian Energy Company,
SPA and Sacyr Agua S.L. in Skikda and by Industrial Development Corporation of South Africa
(IDC) and Kaxu Community Trust in Kaxu Solar One (Pty) Ltd.

Dividends declared during the year 2018:

- On February 27, 2018, the Board of Directors declared a dividend of $0.31 per share
corresponding to the fourth quarter of 2017. The dividend was paid on March 27, 2018.
- On May 11, 2018, the Board of Directors of the Company approved a dividend of $0.32
per share corresponding to the first quarter of 2018. The dividend was paid on June 15,
2018.

- On July 31, 2018, the Board of Directors of the Company approved a dividend of $0.34
per share corresponding to the second quarter of 2018. The dividend 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. The dividend was paid on December 14,
2018.

In addition, as of December 31, 2018, there was no treasury stock and there have been no
transactions with treasury stock during the period then ended.

165

Notes to the consolidated financial statements
31 December 2018

21. Notes to the cash flow statement

Analysis of changes in net debt

January 1, 2018
$’000

Cash Flow
$’000

Non monetary
items
$’000

December 31,
2018
$’000

Cash and bank balances

669,387

(19,048)

(18,797)

631,542

Borrowings

6,118,291

(565,195)

(222,091)

5,775,187

Net debt

5,448,904

(546,147)

(240,888)

5,143,645

22. Financial instruments by category

Financial instruments are primarily deposits, derivatives, trade and other receivables and loans.
Financial instruments by category (current and non-current), reconciled with the statement of
financial position as of December 31, 2018 and 2017 are as follows: