RENOVA, Inc.

If the FIT scheme, FIP scheme, Long-term Decarbonization Power Source Auction, or subsidy programs are reduced, terminated, or subject to unfavorable regulatory changes, this could have a material impact on the Group's electricity sales revenue and business plans. Delayed response to amendments to the Act on Special Measures Concerning Renewable Energy, associated cost increases, or falling under grounds for certification revocation could also affect the Group's financial condition. While the Company has established a compliance framework and thoroughly verifies the operation of legal systems, policy change risk cannot be entirely eliminated.

In the Biomass Power Generation & Electricity Sales Business, fuel such as imported wood pellets and PKS is procured under U.S. dollar-denominated contracts, and there is a risk that supplier bankruptcy, supply disruptions, freight rate fluctuations, or geopolitical risks could directly impact business earnings by making procurement difficult. Although long-term fixed-price contracts have been concluded, the Company becomes exposed to spot prices if cumulative losses exceed a certain amount or after the contract period expires. To hedge foreign exchange risk, the Company had entered into forward exchange contracts totaling US$4,344 million as of the end of March 2026 and applies hedge accounting; however, if hedge accounting is discontinued due to changes in plans or other factors, losses may occur.

As of the end of FY2026 (ending March 2026), the Group's consolidated interest-bearing debt balance stood at ¥340,796 million, and net interest-bearing debt was ¥254,994 million, with the net interest-bearing debt ratio (net interest-bearing debt / total capital ratio) at a high level of approximately 57.8%. Much of the interest-bearing debt is subject to financial covenants, and a breach of these covenants would affect the Group's business, operating results, and financial condition. There is a risk that interest payment costs on variable-rate borrowings will increase if market interest rates rise; although a portion is hedged with interest rate swaps, there are also concerns about rising procurement costs for new power plants.

As of the end of March 2026, six grid-scale battery storage facilities were under construction, and there is a risk of exceeding the operation commencement deadline for projects awarded through the Long-term Decarbonization Power Source Auction, as well as risk of delay penalties or termination under offtake agreements. Because revenue from market-based battery storage sales depends on prices in the balancing market, capacity market, and wholesale electricity market, changes in systems or rules, or deterioration in market conditions, could impair investment recovery plans. Penalties for suspension of trading due to greater-than-expected battery capacity degradation or system malfunctions could also affect operating results.

Solar and wind power generation may be subject to unlimited and uncompensated output curtailment to balance supply and demand, and there is a risk that electricity sales revenue may decrease due to curtailment exceeding expectations. Discussions are underway regarding a review of the priority dispatch rules that curtail FIT power sources first, which could be implemented as early as FY2026, and power plants subject to unlimited curtailment rules need to have their impact carefully examined and countermeasures implemented. The Company conducts simulation analyses to assess project feasibility, but if curtailment exceeding expectations is implemented, it will affect operating results and financial condition.

If multiple development risks materialize simultaneously—such as land acquisition, permits and licenses, environmental assessments, grid interconnection, equipment procurement, and securing of candidate sites by competitors—planned power plant and battery storage development could be discontinued or significantly delayed. Deterioration in EPC contractor creditworthiness, surging material prices, or additional work outside lump-sum contracts could also lead to increased construction costs and schedule delays. If a project is discontinued, expenditures already capitalized as assets must be recognized as losses, resulting in a significant impact on operating results and financial condition.

In business operations in Vietnam, the Philippines, the United States, and other countries, country risks exist, including political instability, changes in laws and regulations, expropriation by the state, suspension of remittances, and import/export restrictions. In overseas businesses where electricity sales revenue is denominated in local currency, yen-translated earnings fluctuate due to exchange rate movements, and there is also a risk of currency inconvertibility for less liquid currencies. Risk of exceeding the cap on FIT certification allocations in the Philippines, and risk of forfeiture of performance bonds or disqualification due to delays in projects awarded under the GEAP auction, could also affect operating results.

At biomass power plants, there is a risk of prolonged operational shutdowns due to unforeseen repairs during periodic inspections, suspension of operation of the boiler and other main equipment, and fire caused by fuel dust or spontaneous combustion, which could affect operating results and financial condition through equipment damage or halted power generation. The Group implements fire prevention measures such as thorough patrols, inspections, and cleaning, as well as the installation of nitrogen injection systems for fuel storage tanks, but the risk cannot be entirely eliminated. In the event of an unforeseen incident, the Company may be required to provide additional funding to subsidiaries.

The Company holds equity interests in numerous SPCs at a level subject to the equity method, and if co-investors exercise put options, resulting in an unplanned obligation to acquire additional equity interests, this could affect the Group's financial condition. Under certain conditions, such as deterioration in an SPC's performance, sponsor support obligations (subordinated loans, additional capital contributions) under loan-related agreements may arise, with lending syndicates tending to require greater support particularly in the biomass, wind power, battery storage, and Asian businesses. Fulfillment of individual guarantee obligations related to fuel supply to Kanda Biomass Energy could also affect operating results and financial condition.

If it becomes difficult to recruit, develop, and retain highly specialized personnel, a shortage of human capital necessary for business expansion could affect future business activities. Leakage, loss, or destruction of personal information or confidential information could lead to claims for damages or loss of credibility, and leakage of information related to projects under development carries the risk of delaying or derailing business development. The Group implements measures such as access control, network security measures, employee training, and confidentiality agreements, but the risk cannot be entirely eliminated.