Currency risk
Reykjavík Energy's currency risk is mainly due to borrowing in foreign currencies and foreign revenues from Reykjavík Energy's subsidiary, ON Power, due to electric sales in USD. RE's Risk Policy includes limits on possible currency imbalance in the income statement and the balance sheet. Forward contracts are used to reduce the risk from unfavourable exchange rate fluctuations. The graph shows the estimated cash flows of foreign currencies for the next few years.
Estimated currency flow
Interest rate risk
Higher interest rates pose a risk for Reykjavík Energy's operations and balance sheet. This risk has been mitigated in the past few years by fixing interest rates with interest rate swaps. The columns show to what degree the overall liabilities for each year have fixed rates. RE's risk of higher interest is now insubstantial.
Interest rate risk
Aluminium price risk
Reykjavík Energy executes aluminium hedge contracts to hedge aluminium linked revenues against sharp declines in aluminium prices. Hedges are executed for a few years ahead and the graph shows to what extent revenues have been hedged. RE's Board of Directors decides the upper and lower limit of the aluminium hedge ratio.
Aluminium price risk
Currency risk on balance sheet
Reykjavík Energy‘s foreign assets exceeded the company‘s foreign debt at year end 2023. The reason is that the operational currency of RE's subsidiary, ON Power, is in USD. ON Power assets are greater than all RE’s liabilities in foreign currency.
