MAIN REGULATORY RISKS 1 Operational risks

a) Regulatory risks

We are subject to changes in regulations.

We must comply with specific regulations relating to our EPC and Concessions divisions as well as general regulations in the various jurisdictions where we operate (such as those related to accounting, employment, data protection and taxation). As in all highly regulated sectors, any deregulation or regulatory changes in the EPC or concession sectors could adversely affect our business, financial condition and results of operations. In the case of significant regulatory changes (including tax amendments) affecting the concessionaires in which we hold a stake, there may in certain circumstances be a right to adjust the terms of a concession or to negotiate changes with the competent administration in order to reestablish the economic and financial balance between the parties. We cannot guarantee that an adjustment, however, will be possible in all cases, that any such adjustment would be satisfactory for the concessionaires or that it would be carried out in a reasonable time period. If these adjustments are not possible, do not provide sufficiently greater income or are delayed, our business, results of operations and financial condition may be materially adversely affected. Our operations in solar photovoltaic generation and continued growth depend on regional, national and international policies supporting renewable energies, including the availability of state incentives and approved premiums for renewable power.

The development and profitability of renewable energies are dependent, in significant part, on national and international political support. In particular, the European Union and its Member States, including Spain and Italy, have been pursuing policies of active support for renewable energies for several years. In countries where no feed-in tariff regime exists or is being contemplated, we are required to sell electricity under power purchase agreements with governments or utilities. The prices under such agreements are freely negotiated and are often linked to current market prices for electricity, which may be substantially lower than the feed-in tariffs established under regulatory frameworks in Spain or elsewhere. In addition, while certain regulatory frameworks establish feed-in tariffs for periods of up to 30 years, power purchase agreements typically have substantially shorter durations and we can give no assurance that we will be able to enter into new power purchase agreements or renew our existing power purchase agreements when they expire. Any changes in tariff regimes or our inability to enter into power purchase agreements on favorable terms or at all, could significantly reduce a relevant project’s economic viability and may have a material adverse effect on our business, results of operations and financial condition.

Regulatory changes may have an adverse effect on our electricity operations.

Regulatory changes related to our electricity operations may have an adverse effect on our electric power generation and transmission operations and ultimately our results of operations and financial condition. In particular, on January 27, 2012, the Spanish Council of Ministers approved a new regulation (the “Moratorium”), temporarily suspending further renewable energy generation capacity. The Moratorium, so long as it remains in effect, therefore removes incentives for growing our electricity operations and introduces uncertainty with regard to the development of new facilities, as the suspension period is open-ended and may extend indefinitely.

On 28 December, 2012, a law aimed at reducing the deficit within Spain’s heavily-subsidized electricity production industry and ensuring the sustainability of Spain’s energy supply through the imposition of certain tax measures was published in the Spanish Official Gazette (the “Energy Tax Law”). The Energy Tax Law, which became effective as of January 1, 2013, provides for, among other things, a direct tax on energy generators equal to 7% of the total annual revenue of each energy generation facility.

Moreover, Royal Decree Law 2/2013 of February 1 introduced some measures that affect the remuneration to be received by energy generators under the special regime (the “Additional Measures”):

and energy products.

Regulatory changes such as the Moratorium, the Energy Tax Law and the Additional Measures may have a material adverse effect on our business, results of operations and financial condition.

Furthermore, the Spanish government has initiated a reform of the electricity sector (the “Energy Reform”) with the aim of guaranteeing the sector’s financial stability. The first step of such reform was implemented by means of the Royal Decree Law 9/2013, of July 13, 2013 (the “RDL 9/2013”). In late 2013, Law 24/2013, of December 26, on the electricity sector was approved (containing, among others, the principles set out in RDL 9/2013 in respect of the remuneration of renewable energy generators). As with previous regulations (i.e., RDL 14/2010, the Moratorium, the Energy Tax Law or the Additional Measures), the purpose of the Energy Reform is to resolve the unsustainability of the electricity tariff deficit.

On June 11, 2014 a new regulation on renewable energy electricity generation activity was passed by means of Royal Decree 413/2014, which regulates electricity generation activity using renewable energy sources, cogeneration, and waste (the “RD 413/2014”). Additionally, on June 16, 2014, the Ministerial Order IET/1045/2014 (the “MO IET/1045/2014”) was passed, approving the remuneration parameters based on standardized costs and revenues for certain electricity production facilities using renewable energy sources, cogeneration and waste. The new regulations establish a new remuneration system for facilities producing electricity from renewable energy sources, cogeneration and waste, which replaces the former remuneration regime and has had an adverse impact on our electricity operations in Spain. Compliance with new regulations relating to electricity generation activity may have a material adverse effect on our business, results of operations and financial condition.

b) Operational risks:

We depend on a limited number of suppliers for materials and components and various outside contractors to construct, operate and maintain our projects.

If we are not able to obtain the necessary materials and components for our EPC or concession-type projects that meet our quality, quantity and cost standards on time, our capacity to construct or develop a project could be interrupted and our production costs could be increased. We may not be able to identify new suppliers or approve their products for use in our projects in a timely manner and on commercially reasonable terms. Materials and components from new suppliers may also be less suitable for our technology and result in lower efficiency that may materially adversely affect our business, results of operations and financial condition. We frequently subcontract certain works in our EPC and concession-type projects to third parties. We therefore depend on the capacities of these third parties to complete the construction of certain parts of the works of our projects according to the quality standards, price and deadline to which we have agreed. Most of our construction and operating agreements with third-party contractors contain fixed deadlines and prices. If these contracts are breached, the guarantees that may have been given may be insufficient to cover the losses we suffer and our business, results of operations and financial condition may be materially adversely affected.

We are exposed to fluctuations in the price and problems with the supply of raw materials.

The primary raw materials we use in our projects are steel, stainless steel, stone and sand aggregate, cement, reinforcing bars, iron and copper. Our raw materials suppliers vary in each market in which we operate due to the market-specific requirements of our projects. Although we include raw material cost estimates in our tender estimates, raw material costs are subject to price fluctuations. In addition, the supply of essential raw materials may be delayed or interrupted due to factors beyond our control, including the implementation of import restrictions, which could result in project delays and increased costs if alternative suppliers are unable to provide replacement raw materials at competitive prices or at all. Moreover, we may be unable to pass on any or all of the increased raw material costs to our customers. Such price fluctuations or supply interruptions could have a material adverse effect on our business, financial condition and results of operations.

Our operations require us to obtain licenses, authorizations and permits for both our EPC and our concession-type projects, which may entail a long and complex process. Any failure to obtain or renew such approvals, licenses and permits or comply with the terms of such approvals, licenses and permits may have a material adverse effect on our business, results of operations and financial condition.

future. We may be unable to obtain all licenses, authorizations and permits required for the projects we are planning. Procedures for obtaining authorizations vary from country to country and requests may be rejected by the relevant authorities for many reasons, or they may be approved, but with significant delays. The process of obtaining permits can be further delayed or hindered by changes in national or other legislation or regulation or by opposition from communities in the areas affected by a project. Moreover, certain operating or construction permits that have been issued to us could be contested.

We may be subject to claims made against us by customers, suppliers, subcontractors or other third parties, and other litigation and legal proceedings.

Our EPC and concession-type projects involve complex design and engineering, procurement of supplies to be manufactured specifically for the project, and management of the project’s construction management. We may encounter difficulties in engineering, equipment delivery, scheduling changes and other factors, some of which are beyond our control and may affect our ability to complete the project in accordance with the original delivery schedule or to meet the contractual performance obligations. In addition, we rely on third-party partners, equipment manufacturers and subcontractors to assist us with the completion of our contracts. As such, claims involving customers, partners, suppliers, subcontractors and third parties may be brought against us, and by us, in connection with our project contracts. Claims brought against us could include back charges for alleged defective or incomplete work, breaches of warranty and/or late completion of the project and claims for canceled projects and involve actual damages, as well as contractually agreed upon liquidated sums. Claims brought by us against customers could include claims for additional costs incurred in excess of current contract provisions arising out of project delays and changes in the previously agreed scope of work. Claims between us and our suppliers, subcontractors and vendors include claims like any of those described above. These project claims, if not resolved through negotiation, are often subject to lengthy and expensive litigation or arbitration proceedings. Charges associated with claims may materially adversely affect our business, results of operations and financial condition. As of 31 December, 2015, our recorded provisions for “litigation and other” were 23.8 million euro.

c) Concentration of customers

During 2015 the Group carried out transactions with a single customer representing more than 10% of the Group revenue. These revenues correspond to the EPC segment and in Latin America. During 2014 no transactions carried out with a single customer which represents more than 10% of the Group revenue. Management believes that this situation is punctual with no concentration risk.