Floene Energias S.A.

In the meantime, Floene is well positioned to address biogas opportunities. Floene's network is mostly in polyethylene, which could support renewable gas. Challenges remain on the transition phase of the natural gas network into biogas and hydrogen, notably on timing and capex needs to be bared by Floene for such a shift. Regulation of these activities will be key with timely remuneration of potentially sizable investments and protection from volume or price risk. The stable outlook on Floene reflects our expectation that the regulatory environment will continue to support stable cash flow, Floene's operating environment will remain relatively low risk, and management will continue to manage costs and meet regulatory expectations. We consider that adequate investment opportunities remain within the

...Floene Energias' (Floene) regulated cash flows are protected from inflation and volume risk thanks to a supportive regulatory framework. Floene's portfolio of gas distribution networks is managed under long-term contracts that regulate the construction, maintenance, and operation of regulated utility infrastructure. S&P Global Ratings considers the Portuguese regulator Energy Services Regulatory Authority (ERSE)'s track record of stability solid, and note that Floene's activities are further supported by the EU's supervisory framework. We think the Portuguese regulated framework is adequately protecting Floene's cash flows from the current recessionary environment because the base rate of return is adjusted every year with 10-year Portuguese government bond yield evolution, and the company does not bear volume risk. We expect the rate of return to increase to close to 6% by 2023, from 4.72% in 2020, due to the annual indexation to the Portuguese government yield. Additionally, the current...

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