In the first half of 2016 there were impairment gains on generation assets and an impairment loss on an interest. These break down by segment as follows:
Market Switzerland segment
In the first half of 2016 an impairment gain of TCHF 4,716 was recognised on generation assets (hydropower). It related to the Taschinas generation plant.
The impairment gain was driven by positive developments in critical input parameters. There was a further fall in the cost of capital (WACC) versus 2015 as interest rates continued to decline. The EUR/CHF exchange rate also developed positively. This is significant to the extent that electricity is traded in euros, with the forecast price curve translated from euros into Swiss francs. In the long term the outlook for the price curve is also slightly more positive than in 2015.
The generation asset is valued on the basis of its value in use calculated on a discounted cash flow basis. The value in use comes to TCHF 53,726. The discount rate before tax is 5.3 per cent (at 31 December 2015: 5.6 per cent).
Market Italy segment
In the first half of 2016 an impairment gain of TCHF 12,743 was recognised on generation assets (hydropower). It related to the Teverola combined-cycle gas turbine plant. At the same time an impairment charge of TCHF 1,463 was taken on the Aerochetto S.r.l. interest.
The impairment gain on the Teverola combined-cycle gas turbine plant was prompted by an increase in the clean spark spread combined with a sharp improvement in revenues from ancillary services. The clean spark spread is the theoretical gross margin earned by a combined-cycle plant on the sale of one unit of energy, containing only the costs of the fuel and the carbon certificates. All other costs have to be covered by the gross margin. The generation asset is valued on the basis of its value in use calculated on a discounted cash flow basis. The value in use comes to TCHF 107,298. The discount rate before tax is 9.7 per cent (at 31 December 2015: 9.7 per cent).
The reason for the impairment on the Aerochetto S.r.l. interest (carried at equity) is that expected revenues from wind energy fail to cover the pro-rata value of the interest. The generation asset is valued on the basis of its value in use calculated on a discounted cash flow basis. The pro-rata value in use comes to TCHF 2,745. The discount rate before tax is 10.1 per cent.