Business Radar | TenneT Holding B.V.

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TenneT Holding B.V. Integrated Annual Report 2018

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Content At a glance 2018 6 *Governance and risk management 72 Corporate governance 72 Letter from the CEO 8 Risk management and internal control 74 Risk management and internal control framework 77 *About TenneT 11 Compliance and integrity 78 Profile 11 Risk appetite 79 Our mission, strategy and value creation 13 Key risks 80 Our stakeholders 17 Materiality analysis 18 Financial Statements 83 Consolidated financial statements 84 *Our performance in 2018 20 Notes to the consolidated financial statements 91 Strategic performance 20 Company financial statements 140 Secure supply 21 Notes to the company financial statements 142 Lead North West European integration 26 Innovate business 31 Other information 146 Engage stakeholders 38 Profit appropriation 146 Operational performance 42 Independent auditor’s report 147 Financial 42 Assurance report of the independent auditor 153 Non-financial 46 About this report 156 Statements of the Executive Board 55 Reconciliation of non-IFRS financial measures 160 Our Executive Board 56 Summary of stakeholder activities 161 Summary of stakeholder activities 162 Supervisory Board report 58 SWOT Analysis 164 Remuneration policy 64 Company adresses 165 Board remuneration 66 Key figures 166 Our Supervisory Board 70 Glossary 167 * These sections reflect the director’s report as mentioned by Part 9 of Book 2 of the Dutch Civil Code Integrated Annual Report 2018 - TenneT Holding B.V. 3

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Looking back at 20 years of achievement 2008 in the European TenneT takes over management of the 110 kV electricity market and 150 kV grids from the Dutch regional grid operators. ‘NorNed’ commissioned as world’s longest HVDC subsea cable (700MW), linking Norwegian and Dutch markets. 1998 TenneT is formed when the Dutch government formally appointed us to operate the country’s national high-voltage 2003 transmission grid. TenneT takes over the regional network operator B.V. Transportnet Zuid-Holland (TZH). 2006 TenneT starts to bring Europe’s electricity markets together, as cross-border electricity trading and pricing begins for France, Belgium and the Netherlands. Integrated Annual Report 2018 - TenneT Holding B.V. 4

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2016 TenneT is legally incorporated as an 2010 offshore electricity grid operator in the Netherlands. We conclude our TenneT acquires the German high-voltage grid 2013 first contract for subsea cables linking the offshore grid. We also introduce our vision for a North Sea Wind Power from E.ON, making TenneT The Randstad 380kV Hub, with the potential to serve wind Europe’s first cross-border Zuidring goes into power to tens of million Europeans TSO. Electricity market operation, supplying by 2050. integration extends to electricity to the densest central-western Europe, urban area in the DolWin2, the most powerful grid including Germany and Netherlands. The connection for offshore wind farms, Austria. project sees goes into operation (900MW). unprecedented lengths BorWin1, the first DC of high-voltage cables offshore platform (400MW) laid underground. goes into operation. 2011 2018 BritNed, a The 57-km 380 kV 1,000MW connection linking subsea electricity Doetinchem in the link between Netherlands with Great Britain and Wesel in Germany 2009 the Netherlands is commissioned. BritNed is a 2014 was commissioned, allowing further development of the Opening of the first joint venture Electricity market north-west European AC grid connection between TenneT integration electricity market. for the offshore wind and National extends to north- farm Alpha Ventus. Grid UK. west Europe, including Great Britain, the Nordics and the Baltics, and 2017 south-west Europe, With 10 out of 13 planned grid connections coupling the Iberian in operation, TenneT provides more than peninsula. 5,300MW transmission capacity in the German North Sea. TenneT opens an office in Berlin. We also opened an office in Brussels. Integrated Annual Report 2018 - TenneT Holding B.V. 5

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At a glance 2018 99.9988% Grid availability New CEO 738 Stakeholder meetings (public events) Number of employees 3,409

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2.3 Investments (EUR billion) 20 years TenneT 14 Outage Interconnectors Tilburg DolWin3 into operation Lost Time Incident Frequency Opening DW 2.36 TenneT

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Letter from the CEO “Balancing supply and demand with the unpredictable in-flows of wind and solar power requires us to make smarter use of our grid, making us more agile and proactive.” Letter from the CEO Manon van Beek CEO and Chair of the Excecutive Board In 2018, TenneT celebrated 20 years of powering society. As we proudly reflect on two decades of achievements in the European electricity market, we must also look forward. Past performance is no guarantee for the future. The rapidly evolving energy system, driven by political, societal and technological changes, challenges us to think even further ahead with ever-more innovative solutions in order to maintain a secure and stable electricity supply for all. It is TenneT’s core task to design, build, maintain and operate a reliable grid in the Netherlands and Germany, serving as a backbone infrastructure for the energy transition. We anticipate - where possible - on government energy Handover 20 years TenneT policy, such the Dutch Energy Agreement and the recently Thank you to everyone who has welcomed me as the new announced Coal Exit in Germany, and actively engage in CEO of TenneT – a position I was thrilled to officially assume the dialogues on this. With our cross-border base, we make as of 1 September 2018. I have big shoes to fill, taking over every effort to contribute to the development of a North from Mel Kroon who served TenneT with such vision and West European grid. Due to the increasing volumes of skill and dedication for 16 years. Under Mel’s leadership, renewable energy we must innovate and optimise the use of TenneT has developed into one of the leading transmission the existing grid and look beyond our traditional boundaries system operators (TSOs) in Europe. of green electrons - like hydrogen, gas and storage. At the same time, we must not forget that it is in society’s I am keen to build on his heritage and add my 25 years of common interest that the energy transition and the experience and expertise in the European energy and digital CO2 reduction come at an affordable price, without technology sectors. I look forward to collaborating with my the security of supply being jeopardized. This requires new colleagues, our most valuable assets. cooperation and partnerships at all levels, with all stakeholders. Keeping the lights on, now and in the future The substantial expansion and reinforcement of our grid I am excited to take over the baton and lead TenneT, as we demonstrates our crucial role in driving the energy transition. begin the next phase in our journey as one of the drivers, or Our commitment goes beyond what the law or the regulator even accelerators, of the energy transition. expects; we are intrinsically driven to secure the supply Integrated Annual Report 2018 - TenneT Holding B.V. 8

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of electricity, 24/7, to end users in an affordable way. We embrace this responsibility, as we see the energy transition and the ongoing electrification of society as essential steps in building a more sustainable future for all. The Dutch Agreement on Energy for Sustainable Growth (Energieakkoord voor duurzame groei) stipulates that renewable energy sources must account for at least 16% of the overall Dutch electricity supply by 2023. It also states that by 2023, 3.5 gigawatt of new wind farm capacity must have been realised in three offshore zones: Borssele, Holland Coast (south) and Holland Coast (north). TenneT has already started to prepare innovative and cost-effective solutions to connect these new offshore sites to the grid. We welcomed the opportunity to contribute to the draft Energy Agreement, which represents a substantial, integrated package aimed at reducing CO2 emissions in the Netherlands by at least 49% in 2030. Equally ambitious, the German government has committed itself through the Energiewende, to boost the efficiency, modernisation, innovation and digitisation of the energy supply. The new German government has raised the bar for the share of renewables, aiming for 65% in 2030, as well as decommissioning all nuclear and coal-fired power plants. It fully recognises the challenges of transporting energy, primarily generated in the north of Germany, over large distances to the end-users in the south. Crucial for a successful Energiewende therefore, is the expansion of both the cross-regional grids and the local distribution grids. In 2018, we continued to execute essential new infrastructure projects, to ensure a future-proof security of electricity supply. We opened the new 57 km 380 kV Doetinchem-Wesel interconnector, linking the Netherlands with Germany, allowing further exchange of electricity in the North West European market. In June, the support- structure for the Borssele Alpha transformer station was successfully transported and anchored to the sea-bed, laying a first building block in the development of the Dutch offshore grid. In November we celebrated the ‘landing’ of the COBRA-cable, a 325 km overseas interconnector that will be operational in 2019 and will connect the Dutch and Danish electricity grids. Green electricity comes at a cost To achieve vital new connections, and bring green electricity into homes and businesses across Germany and the Netherlands, we must raise financing for our extensive investment portfolio. During the year the European Letter from the CEO Investment Bank (EIB) invested in a EUR 100 million hybrid bond, issued by TenneT to support the construction of the NordLink Direct Current interconnector between Norway and Germany. In June, TenneT issued another EUR 1.25 billion through its Green Bond programme, underlining its status as the largest corporate issuer of green debt in the Netherlands. In addition, we are in a constructive dialogue with the Dutch Ministry of Finance, our shareholder, on our future equity capital needs and its role as shareholder. As our debt will increase, we need to maintain a balanced equity-debt ratio, in order to secure our current credit ratings. Setbacks and dilemmas to address In realising our ambitious project portfolio, we also faced a number of setbacks. In October 2018 we had to terminate the Wintrack II contract with consortium company Heijmans Europoles B.V. (HEP), involving and delaying the construction of new high-voltage pylons. A new tender was started in January 2019, with the aim to start construction of the project in the first quarter of 2020. As well as building for the future, we must also maintain our existing grid to ensure continuing high reliability. wind We had to deal with several outages during 2018, including the August power failure in the Tilburg area in the south of the Netherlands, when over 100,000 households and several hundred companies could not be provided with electricity for at least 22 minutes and some up to one hour. We regret these outages and make every effort to learn from these experiences. The most pressing energy-related dilemma at the moment for society and therefore for TenneT concerns the preferred path of the energy transition. Due to the long-term nature of our business, we look as far ahead as 2035 or even 2050. At present, there is no clear answer to the question of how electricity supply can be guaranteed 365 days a year with a system that is largely based on renewable energy sources, when there is hardly any sun or wind for several weeks, which often occurs in the winter. To address these situations we started a series of innovative (pilot) projects, such as crowd sourcing via blockchain technology (with IBM, VandenBron, Engie, Sonnen, Escozon, Energie Samen, Scholt Energie and Enervalis); power- to- gas (e.g. hydrogen production facility with Gasunie Deutschland and Thyssengas) and a joint initiative in Germany aimed at connecting offshore wind energy to hydrogen production (with Shell and Siemens). Integrated Annual Report 2018 - TenneT Holding B.V. 9

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Letter from the CEO Other dilemmas we face relate to the social acceptance of As we embark on designing and building the grid of the new infrastructure. Not only regarding its physical presence future, developing the system operations function of the in the built environment, but also its affordability. future with new technologies and across geographies and accelerating the energy transition, our top-management In fact, most of our dilemmas are ‘trilemmas’: our structure is changing. We started with a larger statutory continuous challenge to balance security of supply, Executive Board with a CEO, CFO and double COO affordability and sustainability. These also form the pillars of function with strong footholds in both countries. As a next Dutch and German energy policy. step we will be working to further optimise the organisation, where end-to-end processes and integrated thinking are Make smarter use of the grid(s) central and in which our people can deploy all their talents. The challenges facing TenneT require us to be more innovative than ever before. Pioneering research in areas Looking ahead such a green hydrogen and solutions based on block chain As our current strategy is nearing the end of its 5-year technology have the potential to help society achieve its term, we conducted a strategic reorientation in the fourth ambitious carbon targets, but there is more we need to quarter of 2018 and concluded that our strategy needs to do in the shorter term. Balancing supply and demand with be adapted in order to manage our fast growth and cope the unpredictable in-flows of wind and solar power requires with the rapid changes that the energy transition brings. us to make smarter use of our grid, making us more agile The recalibration our current strategy, focuses on four and proactive. pillars: maintain security of supply, today and tomorrow; accelerate the energy transition; energize our people In this way, we are becoming a more digital, data-driven and our organisation and safeguard our financial health. company, shifting us into a new area of expertise that may During this year, we will design – and start executing – a be just as essential to our future as our physical power grid, roadmap for these priorities for the medium term and long onshore and offshore. In the future, we may be able to use term. One thing is clear: collaboration at all levels and with the reserve capacity of our grid to a much greater extent. multiple stakeholders will be key. We trust that the compensation we receive from our A rising tide lifts all boats regulators will not be restricted to building and maintaining When it comes to make the energy transition happen, assets, but will also provide us with incentives to develop we are all in the same boat. As TenneT, we will hopefully innovative solutions for a smarter grid. ‘rock the boat’ sometimes with new ideas, because we want to push the limits of our current thinking. The ocean Working together on TenneT’s future or even the North Sea is big and our TenneT boat is small Our people remain our most valuable assets. I am very by comparison. The boat might be safer anchored in the proud of our exceptionally high levels of employee harbour, but that is not the purpose of boats. I call upon all engagement, running at 80% in 2017, and of the results around us to find the inspiration and courage to innovate of the 2018 MT500 survey, which ranked TenneT among together and make a great journey. the top 25 most admired companies in the Netherlands. In this survey, we achieved second place in the utility sector, and received maximum scores in terms of employment and excellent execution. Our status as one of Europe’s leading TSOs at the cutting edge of the energy transition is reflected in our new German Manon van Beek headquarters in Bayreuth, which opened in September. This CEO and Chair of the Executive Board state-of-the-art campus reflects our desire to be one of the most innovative employers in northern Bavaria, attracting the best talent to achieve our ambitious goals. Integrated Annual Report 2018 - TenneT Holding B.V. 10

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About TenneT | Profile About TenneT Profile TenneT is Europe’s first cross-border grid operator. We operate, maintain and expand the high-voltage grid in the Netherlands and a large part of Germany. We are committed to providing a secure and reliable supply of electricity, today and in the future, 24 hours a day, 365 days a year. We transport electricity over approximately 23,000 km of high-voltage lines, from wherever and whatever source it is produced, to more than 41 million end-users while keeping electricity supply and demand in balance at all times. Responsible, engaged and connected Because wind farms and power plants are often far away We transport electricity across borders, connecting from where electricity is used, we need to carry it over large countries and ensuring the power supply on which we all distances without incurring major losses on the way. To depend. As we do this we take responsibility toward the achieve this, we transport electricity at very high voltages: world around us. We work to meet our stakeholders’ needs 110 kV and higher in the Netherlands and 220 kV and by being responsible, engaged and connected. higher in Germany. The vast majority of our activities are regulated by the Our high-voltage grid is connected to regional and local ACM in the Netherlands and the Bundesnetzagentur distribution grids managed by a large number of other grid (BNetzA) in Germany. We have three regulated tasks: companies, so-called distribution system operators (DSOs). (1) the transportation of electricity, (2) system services for It is also connected to large industrial customers and maintaining the energy balance, and (3) market facilitation. prosumers, i.e. energy consumers simultaneously acting as producers. Maps of our onshore and offshore high voltage Transporting electricity grid can be found on our corporate website. The high-voltage grid is the backbone of the electricity supply system. It is used for the transport of large quantities of electricity over long distances. Electricity generated at sea, for instance, is transported via subsea cables and then connected to the high-voltage grid. We are a key player in the electricity supply chain. This chain consists of grid operators and producers of electricity from both conventional and fast-growing renewable energy sources that feed in to our grid as well as large users of electricity. Integrated Annual Report 2018 - TenneT Holding B.V. 11

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About TenneT | Profile TenneT in the supply chain Regulators Power Large plants industries Consumption Generation Renewables In-feed (Extra) High- Transmission/ Consumers/ voltage grid distribution prosumers Import Export Energy transition Market facilitation Although balancing supply and demand of electricity is far Electricity recognises no geographical borders, and we more complex than it used to be, our track record is solid believe North West Europe is better served by an integrated with our grid being available 99.9988% of the time during electricity market. As such, we have extensively connected 2018. While global electricity demand keeps increasing, so our electricity grid with the countries around us. In doing so, too does the supply from sustainable and clean sources we help establish a single market that guarantees a reliable – such as wind, solar, bio mass and tidal. These are often electricity supply at a fair price. located in remote areas, such as on the North Sea. Bringing it onshore and then transporting it over vast distances Non-regulated activities across land is a challenging task. This switch from traditional In addition to our core tasks, we are involved in a limited to renewable energy sources – often called the ‘energy number of so-called non-regulated activities. These either transition’ – is currently the biggest challenge faced by the help to ensure that the energy market operates smoothly energy sector in general and grid operators in particular. and efficiently, or are ancillary to our regulated activities by making better use of existing assets. A full overview of our Maintaining the balance between supply group structure can be found on our corporate website. and demand As electricity is fed into the grid, we need to carefully balance the electricity supply with demand. Since electricity cannot be stored in large quantities, continuous adjustment of supply and demand is needed to ensure security of supply. To do this, we have control centres in the Netherlands and in Germany, where supply and demand are monitored and balanced 24 hours a day, seven days a week. Integrated Annual Report 2018 - TenneT Holding B.V. 12

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About TenneT | Our mission, strategy and value creation Our mission, strategy and value creation As a grid operator, we have an essential role and a major responsibility. We are driven by our desire to ensure that all of the Netherlands and a large part of Germany have a reliable, sustainable, secure and affordable electricity supply. This is part of our mission. Security of supply Strategy Security of supply is our biggest concern. We consider it To succeed in our mission, we developed a strategy which is more reliable for our grid to be linked to the North West runs until 2020. This is also the strategy we will report European (NWE) network, than having a stand-alone grid. on in this Annual Report. At the time of publication, we Encouraging this integration of the European market, and are working a recalibration of our current strategy for the facilitating its evolution, is a core part of our vision. This is coming years. Our business has reached a point where particularly important as more and more renewable energy we need to pivot and embark on a new dimension of flows into the grid. It makes the market more complicated development and innovation. We arrive at this juncture in to manage and design, requiring more innovation and our 20th year – an ideal moment to take stock, re-energise cross-border collaboration. and challenge ourselves to scale new heights. In the Annual Report 2019 we will go into more detail on what this will More detailed information on our mission and vision can entail for TenneT. be found on our corporate website. Our overarching objective in 2018 is to deliver value for our stakeholders and we aim to realise this through four strategic goals: Strategic goals Secure supply Lead NWE integration Innovate business Engage stakeholders Securing Leading Innovating Engaging a reliable supply the development and adapting our with our stakeholders of electricity and of an integrated and business for the future at all levels facilitating the integration sustainable NWE of sustainable electricity market energy sources Integrated Annual Report 2018 - TenneT Holding B.V. 13

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About TenneT | Our mission, strategy and value creation This report is structured following these strategic goals. To To see whether we are on the right track with our strategy, help us realise these goals and fulfil our mission, we have we started with the project: ‘Make Strategy Work’. The set seven strategic priorities. goal of this project is to develop a KPI framework for our strategic priorities and strengthen the KPI governance Enhance the flexibility and resilience of our and monitoring. This way we are able to make qualitative transmission grid to ensure security of supply improvements and reduce undesired spending when it To manage the rapid rise of renewable energy sources, comes to less or non-effective strategic efforts. The KPI improve our ability to balance power, ensure continuous framework is still being developed and will be further voltage control and relieve grid congestion, we apply implemented in 2019. market-based solutions that improve supply and demand flexibility. We will also use software and possibly hardware Value creation solutions, such as developing storage technology. TenneT plays a vital role in society. Our work makes a fundamental difference to the people living and working Advance the use of data and analytics in the areas we serve and involves a wide range of To gain insight into the renewables feeding into the grid and stakeholders. These include our shareholder, local improve our forecasting to ensure security of supply, we communities, our employees, regulators, investors, NGOs, are collecting and enriching electricity and electricity-related politicians, the media, customers, suppliers and other data, which will also help us drive market integration. European TSOs. Drive integration of the NWE electricity market Because we operate in a stakeholder arena with many We work closely with other TSOs on various topics, different, sometimes conflicting, interests at play, it is including market design, market coupling and regional important to maintain a relationship with stakeholder security centres, to drive the further integration of the NWE groups and see where and how we can deliver value. electricity market. Creating acceptance and understanding for what we do within the highly complex and relevant energy sector is Anticipate and address what society wants and needs therefore important to us. We need to properly understand through dialogue and innovation each party’s expectations and be able to update them on We actively engage with society and respond to society’s our activities, inform them of our plans and address their needs and concerns with innovative developments such as concerns as best and as early as we can. As our range transmitting electricity underground and dynamic line rating. of stakeholders is very diverse, we need to consider each group’s questions, concerns and needs separately. This Maintain access to capital markets and equity capital diversity requires a proactive and coordinated approach to The size of our investment programme requires ongoing stakeholder management and communication – which we financing and, given the timing and regulatory uncertainties, take seriously. it also requires flexible access to equity. Our culture plays an important role in our activities. As such, Pursue operational excellence we strive to hold ourselves to the values of quality and We optimise the efficiency of our capital expenditures integrity. (capex) and operational expenditures (opex) through smart investment solutions and keeping operating costs low. Quality requires the highest standards of safety in everything we do. Pursue organisational excellence We do this by creating a performance culture, organisational Integrity means being open, honest and respectful in flexibility and best-in-class safety performance. the way we serve society, particularly local communities, partners and employees. The TenneT brand is built on our brand values, a commitment to be responsible, engaged and connected. This is our promise to the outside world, describing how we serve our stakeholders and how we want them to see us. Integrated Annual Report 2018 - TenneT Holding B.V. 14

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About TenneT | Our mission, strategy and value creation Measuring and monitoring Value creation model To know if we are on the right track and whether we should Our stakeholders play a central role in our long-term value continue or maybe change the way we work, we measure creation. The interactive value creation model summarises and monitor our performance, and the perception thereof, the input we use and the added value we create for our on a regular basis. We test opinions and sentiments stakeholders through our key activities. Furthermore, all the by conducting stakeholder satisfaction surveys – with elements in our interactive value creation model are linked to employees and customers – and we also monitor and the respective sections of this report which provide further analyse our media exposure, and make a real-time analysis details on each element. of social media. Integrated Annual Report 2018 - TenneT Holding B.V. 15

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About TenneT | Our mission, strategy and value creation Value creation model INPUTS Knowledge Assets People Laws and regulation Capital institutions Vision & Mission Strategy Governance 3 key tasks 1 3 Transmission services Facilitating the energy market by transporting electricity by establishing a single market that guarantees through a reliable grid a reliable electricity supply 2 System services by maintaining the balance Risks and between supply and demand Outlook opportunities Performance & Results OUTCOMES Deliver stakeholder value Safe and Integrated Leading Engaged Strong Committed reliable grid NWE electricity TSO stakeholders financial people and availability market innovation performance sustainable planet Strategic Operational Integrated Annual Report 2018 - TenneT Holding B.V. 16

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About TenneT | Our stakeholders Our stakeholders Providing a sustainable and secure supply of electricity to Netherlands and Germany, as well as a validation among society is about more than volts, power lines and turbines. the stakeholders identified. Our relationship with them may It’s also about having a dialogue and doing the right thing. be defined by law (shareholders, governments, political We define our stakeholders as those people or groups parties and regulatory bodies), by internal or external who are affected by our actions and who have an effect cooperation (employees, suppliers, debt investors and on our organisation and services. Who our stakeholders rating agencies) or by the nature of the services we provide are was defined in 2013 after an analysis based on (customers, the media, NGO’s, local communities, and interviews with senior management of TenneT in the other European TSOs). Engagement with our stakeholders Customers Governments, political parties Local communities • Customer events and regulatory bodies • Quantitative and qualitative research • Customer committees • Collaboration with the relevant • Local community sessions on project ministries planning and safety during building phase • Market review reports • Various bilateral and multilateral talks • Information and experience centres • Meetings with project partners (e.g. DSOs, suppliers, industry • Parliamentary face-to-face meetings • Student programmes partners) • Close cooperation with state and • Project newsletters • Pilots on e.g. improvement provincial governments • Project websites and social media of RES forecasting and • Regular contact with regulatory bodies integration of small-scale ﬂexible Employees • TenneT Virtual Vision assets in the congestion management processes • Training and education • Intranet and in-company magazine rs Inn Media old e ov • Formal and informal employee events • Press releases, press events eh a te • Health and vitality programmes and public performances t ak • (Female) Leadership programmes bu s • Frequent contact and meetings e sin ag with journalists • Good working environment es g • Media monitoring En • Continuous performance dialogues s and analysis • Market conform terms of • Social media employment • Frequent contact with Works Councils Debt investors and • Diverse and inclusive organisation, rating agencies good work-life balance • Roadshow and meetings with ﬁnancial investors Shareholders on • Regular contact with credit (corporate and projects) ati rating and sustainable Se • Approval of investment proposals rating agencies gr cu • Quarterly meetings on past te • Yearly meeting with all re su in performance and future capital relationship banks E p ply W needs dN Lea • Project updates • Financial and sustainability Other European TSOs reporting • Presidency of ENTSO-E NGOs Suppliers • Participation in consultative • Close cooperation with Greenpeace, Natuur & Milieu, • Competitive and fair tender and contract committees in ENTSO-E Stichting de NoordZee and Dutch, Danish, German, negotiations • Regular meetings with British and Brussels based NGOs • Strict safety and high CSR standards other TSOs • Extensive dialogue with national and local • Market consultations, meetings and negotiations • North Sea Wind Power environmental NGOs on our projects Hub consortium • Member of UN Global Compact (UNGC) and mandatory supplier code of conduct - Cooperation agreement with the Vlinderstichting to • Active involvement in have ecological measures implemented in projects various ENTSO-E and • Meetings on Board level with suppliers and operation CIGRE expert groups • Safety Culture Ladder (SCL) certiﬁcations - Renewed cooperation agreement with Stichting • Dialogue on performance and safety with de Noordzee and Natuur & Milieu top suppliers - Cooperation agreement with Natuurmonumenten • Contractor Forum – Sustainability, Safety, on green, sustainable, maintenance Innovation Integrated Annual Report 2018 - TenneT Holding B.V. 17

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About TenneT | Materiality analysis Materiality analysis Engaging with our stakeholders and understanding what is in their hearts and minds is important to us in our day to day business. By understanding our stakeholders, we are able to make Topics such as financing and financial performance remain choices that have a sustainable benefit. Determining what is evenly material, which seems logical considering our role and material to our stakeholders and focussing on our material responsibility in the energy transition and the trade-off we as impacts is important as it enables us to address these TenneT have between our regulatory task and leading the topics internally as well as report to our stakeholders on this way to a more sustainable energy grid. The topics of security externally. and cyber-security have become more material in this year’s analysis. In the previous year, only copper theft was The process starts with interacting with our stakeholders included, but we have broadened and renamed this topic to and having a common understanding of the road include (cyber) security to better reflect our task of providing forward, so we can determine the right policies can be a safe and secure grid infrastructure in a better way. made and proper actions to be taken. Every year, we analyse what our stakeholders consider to be important and Our policies, decision-making and our reporting are where we have a significant impact from a social, economic not limited by the topics that are both material to our and environmental point of view. Last year we performed stakeholders and can be significantly impacted by us. a survey to make sure this understanding is current. This We also consider other topics in this report, including year, in addition to the information gleaned from our regular those deemed less significant or material enough to be of stakeholder engagements, we updated our understanding importance to act upon and to disclose them in this report based on a document review and media analysis. The or on our corporate website. outcome of this update has been validated internally by key senior decision makers. We aim to perform a survey again We also report on how we contribute to the United Nations in 2019. Sustainable Development Goals. With our core business activities we clearly contribute to SDG7 and SDG9, and This analysis shows that the topics most material to our in the execution of these activities we realise we have an stakeholders remain unchanged from last year. These are; impact on other SDGs. In the previous year, we asked engaging with local communities; securing supply for our stakeholders to identify the SDGs where they felt our markets; societal financial impact and the North West TenneT could make most impact. In 2018, we have used European (NWE) electricity market are still key material this as an input for our CSR ambition plan 2025. And we topics as they were last year. Also safety in our working have linked our ambitions and our contribution to specific environment and investments in our grid (onshore and SDGs. The relevant SDGs are shown below and we have offshore) to realise the energy transition are still important included these in the table on the next page, where we have topics. We have renamed the topic related to our investments disclosed the connection between the SDGs, our materiality ‘Sustainable Grid Infrastructure’. This is a better reflection analysis, performance metrics and chapters in our report. of our challenges related to the way we can make smarter use of our assets and in what way we can invest in our infrastructure to facilitate the energy transition. Integrated Annual Report 2018 - TenneT Holding B.V. 18

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About TenneT | Materiality analysis Materiality Economic 1 2 High Environmental 3 4 Social Relevance for stakeholders 7 17 10 11 Medium 5 6 18 20 12 13 14 15 8 9 16 19 23 Low 21 22 Low Medium High Significance of TenneT's Economic, Environmental en Social impact # Subject 1 Security of supply 9 Financing 17 Biodiversity 2 Sustainable grid infrastructure 10 Connecting citizens 18 Human Rights 3 NWE Electricity Market 11 Customer Care and Satisfaction 19 Employee health & development 4 Community engagement 12 Environmental incidents 20 Tax transparency 5 Societal financial impact 13 Regulatory framework 21 Remuneration policy 6 Safety 14 Carbon footprint 22 (Cyber) security 7 Digital technologies 15 Diversity and equal opportunity 23 Talent attraction 8 Financial performance 16 Procurement practices & Supplier Assessments SDG Subject Reference Related metrics Non-financial - % of female employees, 15 - % newly hires females at management level - % of female EB and SB members Secure supply - Grid availability 1 5 7 8 9 Financial - Financial metrics (Revenue, EBIT, ROIC) Non-financial - LTIF 6 18 Secure supply - Grid availability - Annual investments 1 2 3 4 Innovate business - # of interconnectors - # of stakeholder engagements Financial - Price convergence Non-financial - Import / export Non-financial - Reduction of virgin copper use 16 Non-financial - Gross / net carbon footprint 14 - SF6 leaked Non-financial - Environmental incidents 12 17 - Liters of oil leaked Non-financial - Environmental incidents 12 17 - Liters of oil leaked Integrated Annual Report 2018 - TenneT Holding B.V. 19

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Our performance in 2018 | Strategic performance Our Hoofdstuk performance titel in 2018 Strategic performance Our performance in 2018 is split into our strategic performance and our operational performance. Our reporting related to our strategic performance is structured following our four strategic goals. Our reporting related to our operational performance includes our financial and non-financial results. Secure supply At TenneT, our mission is clear: to keep the lights on. Making sure that more than 41 million people across the Netherlands and Germany enjoy uninterrupted access to electricity is the foundation of our business. By investing in new assets, performing necessary maintenance and making sure that we are prepared in case of unforeseen events, we aim to ensure security of supply for society. In today’s always-on world, electricity users assume they Meeting these expectations is not only core to our mission have power available at their fingertips – never more than to deliver security of supply, it also links to the wider a power outlet away. ambition of SDG 7 – Affordable & Clean Energy. SDG 7 links to TenneT’s role in contributing to national and international We have worked hard to meet this expectation on every climate agreements, as we want to facilitate access to step of our 20-year journey. This is a complex task, which affordable, reliable and modern energy services. involves operating, maintaining, upgrading and expanding a network of approximately 23,000 km of high-voltage lines This goal, which recognises a basic need of modern and cables. society, is central to TenneT’s role and we are committed to supporting it by operating our grid with maximum availability. In addition, we must transport electricity from a growing Our work to build cross-border electricity transport capacity number of renewable energy sources (RES) that are, by is an important part of this endeavour, growing our access nature, more difficult to predict and supply. If the wind to supply and thereby helping to lower electricity costs for doesn’t blow in one area or the sun doesn’t shine in end-users. To ensure that we are able to secure supply, another, the market must be ready to flexibly shift electricity we are continuously maintaining our grid and monitoring its from one source to another to meet demand. availability. When an unexpected outage occurs, we report and investigate its nature and impact so we can resolve it as quickly as possible and learn from it to prevent – as far as possible – it re-occurring in the future. Integrated Annual Report 2018 - TenneT Holding B.V. 20

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Our performance in 2018 | Secure supply Results Grid availability 2018 2017 2016 Onshore 1) Grid availability 99.9988% 99.9986% 99.9999% Interruptions 16 11 6 Energy not transported (MWh) 1,184 1,072 59 Offshore Grid availability 94.50% 97.80% 92.00% 1 The 2018 figures are presented based on the former definition. When applying the updated definition, the grid availability remains unchanged (99.9988%), the number of interruptions will be 17 and the energy not transported will be 1,244 MWh. Our onshore security of supply rose slightly to 99.9988% Expanding, modernising and future-proofing our grid helps in 2018. Although we work hard to secure supply of energy us avoid outages as much as possible. TenneT assesses its at all times, several outages occurred that contributed to investments each quarter, adjusting plans and actions as this result. These included a notable outage in August, in necessary. In 2018 we invested EUR 2.3 billion in expanding the Tilburg area in the south of the Netherlands, where at and maintaining our grid. We can face delays in this least 100,000 households and hundreds of companies lost important process for example when approval processes power for at least 22 minutes and some up to one hour. take longer than expected or when late delivery of materials Another incident occurred in April, in the Amsterdam area. puts projects behind schedule. This occurred in 2018, when The outage was resolved within a couple of hours, however the summer drought made the water level in parts of the due to knock-on effects at Schiphol, the main airport in Rhine river too low for transport. We experienced a notable the Netherlands, the impact was visible throughout the setback in October 2018 when we terminated the Wintrack next day. Starting 2018, we have updated our definition of II contract, involving the construction of new high-voltage interruptions to create further alignment in the Netherlands pylons running on two tracks: Eemshaven-Vierverlaten and Germany. This now includes interruptions of supply, and Borssele-Rilland. This contract was with the Dutch which is not only related to end-use consumers, but also consortium Heijmans Europoles B.V. (HEP). to energy suppliers when they are unable to deliver energy to our grid. Technical data 2018 2017 2016 Total circuit length (km) 22,862 22,857 22,637 Overhead lines (km) 18,725 18,974 18,830 Underground cabling (km) 4,137 3,883 3,724 Interconnectors 14 13 13 Number of substations 462 462 458 Number of HVDC stations 18 16 16 With respect to securing supply through new projects, work DolWin3 is also a significant step in the development of the is progressing well on both the Mittelachse line and the offshore grid and the North West European market. This Westküstenleitung line in Schleswig-Holstein. These are 160 km DC connection for offshore wind power became important projects for the energy transition. In the future, the operational at the end of 2018 and is the third in the DolWin connection will transport this renewable electricity to energy cluster. It connects wind farms in the southwestern part of the users in southern Germany. German North Sea to the onshore transmission grid supplying more than one million households with clean wind energy. Integrated Annual Report 2018 - TenneT Holding B.V. 21

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Our performance in 2018 | Secure supply Linking the wind energy hubs of the north with consumption Our ongoing goal is to provide a secure and reliable centres in the south is essential for the success of the supply of energy. We aim to do this as cost efficiently as energy transition in Germany. This will be especially true possible to provide affordable electricity. This is why we after 2022, when nuclear power plants will stop generating invest in innovation as we believe this will make our grid electricity in Germany. That is why TenneT is working on more resilient and futureproof providing long-term value major projects such as SuedLink and SuedOstLink helping for society. However the current reimbursement structure to future-proof the German energy infrastructure. does not always compensate for innovation, especially with respect to IT driven solutions, which we believe will We reached a milestone in 2018 when the jacket of TenneT’s benefit the security of supply. In this context, we need to first offshore transformer platform for the Borssele offshore balance the financial health of the company with the cost wind farm was successfully installed. The project will see of innovation projects that will be beneficial for society two connections of 1,400 MW, come into service in 2019 in the future. and 2020. Four AC cables will run from the platforms to the mainland, routed via the Western Scheldt river. Coming Also, when planning and tendering our projects, we ashore near the existing high-voltage substation at Borssele, acknowledge that increasing standards we expect from our they will connect to the substation via underground 220 kV suppliers are a challenge. However, as we feel that we are a cables. The onshore Borssele substation will be expanded company that wants to meet these standards, we want to to create extra room for the transformers required to convert help our suppliers and reach the level we desire, rather the voltage level from 220 kV to 380 kV. The national 380 kV than lower the bar for ourselves. high-voltage grid will then distribute the wind energy to households across the country. In September, TenneT signed an agreement with Enecogen for the provision of a ‘black-start’ facility at the Enecogen gas station in Rotterdam-Europoort. In the event of a black out, this emergency provision can be used to put the high- voltage grid back into operation. TenneT now has three such facilities available in the Netherlands, contributing to a stable and reliable energy supply. In Germany we continue to work on facilities to secure and restore supply in case of local grid situations. By law, we are permitted to assign third parties to build and provide these facilities. We are currently reaching an agreement for this purpose with Amprion and TransnetBW in Bavaria, Baden-Wuerttemberg and South Hesse, with the intention to finalise in Q2 2019. We have also contracted additional reserves in southern Germany and outside of Germany. Looking to the future, when wind and solar generation will account for higher amounts of electricity feeding into the grid, TenneT believes that the use of green hydrogen will be an important addition to our energy system. Produced through the electrolysis of water by renewable electricity, green hydrogen is carbon-free and is considered alongside other renewables in the Dutch Climate and Energy Agreement. As it can be stored, green hydrogen is a flexible controllable energy source, which will benefit security of supply. Integrated Annual Report 2018 - TenneT Holding B.V. 22

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Our performance in 2018 | Secure supply Challenges Challenge Action The investment portfolio leads to high workload along the We settle framework agreements, bulk orders, enforce entire supply chain. TenneT faces scarcities in the supplier standardisation, increase storage capacities, improve markets caused by a strongly increasing market demand demand forecasts, actively support development of on power transmission components and especially for new technologies (e.g. 525 kV DC-cables) and look for overhead-lines and cables. With this high workload we also alternative supplier and service providers worldwide. see a lack of qualified staff for TenneT and its suppliers, Furthermore, we extend employment of external project which we see as a challenge related to our investment management service providers to staff construction portfolio. This could result in a delay of projects. projects in the onshore grid. To mitigate a lack of internal resources, we pro-actively perform analysis to have an adequate succession plan of our staff. Due to faster RES integration and increased activities on We continue to develop new and innovative ways to further our existing grid reducing the outage planning is essential improve our way of working to be able to secure supply of electricity. TenneT had some successes in 2018 in keeping systems up during maintenance, thanks to innovative uses of technology. For example, when we discovered that a high voltage cable buried under the seabed of the North Sea was beginning to surface due to sediment movements of the actual seabed, our engineers successfully managed to re-bury them whilst the cable remained in service, thereby minimizing the down-time to a short interruption that was required for technical reasons. TenneT has also executed a pilot project with a spin-off company of ETH Zürich to investigate if a four-legged robot can execute inspections in support of unmanned phases of the offshore platforms. The low carbon emission ambition resulting in increasing Being able to better predict weather conditions and RES integration creates new challenges related to system translating this properly will become increasingly important. balancing, as RES output predictions prove to be Unlocking flexibility and investing in broad spectrum more volatile due to fluctuations in the real time weather predictive RES output modelling in a progressive market conditions. design is essential. With this we can better inform and challenge other market parties in system balancing. Strategic risks The likelihood of unplanned outages increases as TenneT’s Most relevant risks regarding security of supply are related infrastructure assets grow older. The growing share of to the ageing of infrastructure assets, resource constraints in renewable electricity can also add to the risk of outages; the supply chain, scarcity of qualified personnel, uncertainty as wind or solar-generated energy is less predictable, in energy markets and politics terror/cyber-attacks as well it is more challenging to shut down parts of the grid to as major delays of large infrastructure projects. However, perform maintenance works. To mitigate this risk, additional there are also opportunities, particularly in the use of resources are made available for maintenance works digitalisation and the development of new technologies. and we are increasing the efficiency and flexibility of our maintenance programme by monitoring and simplifying internal processes. Integrated Annual Report 2018 - TenneT Holding B.V. 23

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Our performance in 2018 | Secure supply In today’s cross-border energy market, security of supply TenneT takes the possibility of a severe outage resulting is enhanced by the interconnectivity of the European from a terror or cyber-attack very seriously. We regard the transmission grid, from Portugal to Turkey and from risk of a politically-motivated attack, either government- Scandinavia to Italy. However, misalignment in the energy backed or non-state cyberterrorists, higher than “usual” policies of individual European countries – such as stalling computer fraud crime. Hence, a successful attack cannot plans to invest in nuclear power, stopping the development be ruled out entirely, despite us having physical and of coal or lignite plants, or increasing the development digital prevention measures in place that are continuously of renewables – have a significant impact on the entire assessed, optimised and tested. To this end, we develop, European grid. As such, the challenge of dealing with align and carry out contingency plans together with national European grid issues becomes more of a daily occurrence, authorities. In Germany, TenneT achieved ISO27001 especially as the further integration of renewables and lower certification in 2018. availability of conventional power production increases the likelihood of critical situations. This is particularly true during Outlook autumn and winter. This requires international alignment of Maintaining a reliable and safe electricity supply by political targets. TenneT works towards this by engaging in improving and maintaining the high-voltage grid is and providing transparency in political discussions. only part of the challenge. As society demands more renewable electricity, all grid operators face the challenge Our planned investment projects all involve a high of maintaining security of supply in a more volatile energy degree of organisational complexity. This can include environment. communicating with a large number of stakeholders, assessing different technological options, routing options, On the 26th of January 2019, the coal commission presented interdependencies of work packages between different a consensus on the phase-out of coal fired power plants in projects and challenges in the political environment. Germany. The main cornerstones are a 12.5 GW reduction of Delays in licensing (especially necessary permits from the coal-fired power plants by 2022, a further reduction of 13 GW authorities) as well as challenges arising from the use of until 2030 and a complete phase-out by 2038. This might innovative technology (HVDC, Wintrack-II respectively) can influence our grid extension plans until 2035 and beyond. also throw a project off schedule. TenneT works to mitigate these risks by communicating transparently with regional As we advance with the energy transition, the task of stakeholders, working closely with authorities, enforcing maintaining this balance becomes more complex and high quality standards and closely monitoring its suppliers involves more market players, including large generators and and deliverables. Additionally, TenneT continuously works small-scale domestic producers. These players now actively to optimise its organisational processes , including lean participate in an increasingly decentralised electricity market. decision making processes, an emphasis on employee training and use of probabilistic schedule analyses. In this scenario, TenneT – along with other grid operators – needs more sophisticated solutions and flexible commercial Nonetheless, technology plays a crucial role in mitigating agreements to balance electricity demand and supply. risks around security of supply. In particular, TenneT Existing market designs can become barriers to innovation sees an opportunity in using digitalisation to improve the and progress and may need to be changed. Significant grid utilisation of the grid, without increasing black-out risks. innovations will be essential to prevent energy shortages To this end, we are exploring the potential of big data to and realise society’s green energy ambitions. improve our capacity to predict the weather and assess levels of consumer demand. Sophisticated data analytics can also help us determine the condition of our assets and reduce demand on the grid at peak times by connecting decentralised batteries together (so-called “peak shaving”). Owning, or at least having real-time access to, specific data while complying with the requirements of the EU General Data Protection Regulation (GDPR) certainly presents risks for TSOs. It also means high requirements for IT skills and capacity, requiring data to be processed in real time. Integrated Annual Report 2018 - TenneT Holding B.V. 24

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True Value DolWin2 This is one of our most recent offshore projects taken avoid carbon emissions that otherwise would have been into operation. This offshore converter platform connects emitted by less sustainable sources such as coal plants. renewable energy from wind farms through a 135 km long This case study shows that next to the economical costs cable to the onshore grid. The development of these offshore and benefits, the true value of this project lies in the projects is essential to realise climate ambitions. Construction environmental impact this project has for society, of this platform started in 2012 and with a transport capacity Monetised impact (indicative) of 916 MW, DolWin2 has the potential to supply more than one million households with clean energy per year. benefits As we aim to invest a significant amount to expand and maintain our grid, we are aware that our impact goes beyond the financial ‘bottom line’. Our assets, have both positive and negative impacts for society. To gain more insights of these impacts, we have monetised environmental, social and economical factors related to DolWin2. Our case study has focused on specific steps in the value chain, from costs raw material extraction to the operation phase of this project. We realise that this case study is a part of the first steps we Societal are taking to gain insights on the True Value of our operations. Environmental In recent years, we have performed similar pilot projects for Economical our onshore operations. That is why we have chosen an offshore project for this year’s case study. We aimed to collect We acknowledge that impact reporting is still an area that is data for the most material impacts of each phase of DolWin2 under development. That is why we work together with other and monetise these impacts with a Euro value, to have one companies in the Dutch infrastructure sector and MVO common denominator at the end of this case study. Nederland in the ‘Groene Netten’ coalition to take next steps and create a common language. This will help our The results of this case study show that the main impact of stakeholders gain more insight into the impacts we as DolWin2 is environmental. Negative environmental impacts companies in this sector have. It can also help us internally are mainly related to material extraction and constructing the in our decision-making process. More details on this case platform. However, by realising this project, we are able to study can be found on our website. Integrated Annual Report 2018 - TenneT Holding B.V. 25

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Our performance in 2018 | Lead North West European integration Lead North West European integration Electricity doesn’t recognise borders, electrons simply flow to the point of least resistance. Therefore, in an energy market with an increasing share of renewables, it makes little sense to act on a national level. To secure the supply of electricity and to integrate large amounts of renewable energy into the grid, TenneT is building an interconnected, cross-border grid, strengthening the electricity market in North West Europe (NWE). TenneT has been working to integrate the NWE electricity In this regard, our work can be linked to SDG 9 - Industry, markets for more than a decade, with the aim of creating a Innovation and Infrastructure, as well as to SDG 13, Climate single market where electricity can be traded and supplied, Action. Our work to increase the amount of cross-border easily and efficiently. By connecting our electricity grid with capacity for electricity transport and ensure a secure, the countries around us, we physically enable electricity to sustainable, efficient and cost-effective energy supply, helps flow across Europe. With increased interconnection capacity combat climate change and its impacts. between countries, EU-wide rules have become crucial to manage electricity flows. In addition to building and operating the high-voltage transmission grid, it is also our role to support harmonising the rules and regulations for grid operation and electricity trading across national European electricity markets. By doing so we are creating one single fully-functioning integrated European electricity market. Results Market results Price convergence (%) 1 price in CWE zone 15 2 prices in CWE zone 40 42 43 34 34 3 prices in CWE zone 2018 2017 2016 4 prices in CWE zone 33 7 17 17 6 5 6 5 prices in CWE zone Integrated Annual Report 2018 - TenneT Holding B.V. 26

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Our performance in 2018 | Lead North West European integration Inbound and outbound flows of Dutch TenneT grid Inbound and outbound flows of German TenneT grid (GWh) (GWh) Import Export Import Export 76,390 67,411 65,593 63,464 57,223 52,417 24,735 24,258 20,625 18,730 18,917 19,343 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 Operating generation capacity Netherlands Operating generation capacity Germany (GW) (GW) Source: BNETZA, kraftwerkslisten 30,993 30,397 29,924 203,655 30 200 197,834 194,408 0 0 Operational Operational Operational Operational Operational Operational 2018 2017 2016 2018 2017 2016 Nuclear Lignite Oil Biomass Wind (offshore) Other Hard coal Natural gas Hydro Wind (onshore) Solar These results show how we are working on creating a line with the German government’s ambition to phase out all more integrated NWE market. By increasing the number of nuclear power plants by the end of 2022 and the phase out interconnectors, we create more opportunities to import and of coal-fired power plants in the Netherlands. export energy. This can benefit a more cost-efficient supply, as energy with a lower price on the other side of the border Infrastructure investments can be imported. Additionally it creates more opportunities With currently four connections between the Netherlands to secure supply within the NWE region. Furthermore, we and Germany, one with the United Kingdom, two with see that the installed capacity of the Dutch and our German Belgium, two with Austria, one with the Czech Republic, part of the grid have a higher share of renewable energy one with Sweden, two with Denmark and one with Norway, sources (RES). Conventional generation such as nuclear our grid forms a crucial link in the integrated NWE electricity and coal have a reduced share in the energy mix, which is in system (see grid map on our website). Integrated Annual Report 2018 - TenneT Holding B.V. 27

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Our performance in 2018 | Lead North West European integration A good example of our work to strengthen the cross-border Each network code is integral to the drive towards electricity market was recently completed. After years of completing the internal energy market, and achieving planning, preparing and construction together with Amprion, the European Union’s energy objectives for 2030 of: the Doetinchem-Wesel 380 kV line became fully operational • At least a 40% cut in greenhouse gas emissions in November 2018. This 57 km connection between the (from 1990 levels); Netherlands and Germany can carry up to 1,500 MW of • At least 27% share for renewable energy; electricity. Doetinchem-Wesel brings the number of cross- • At least 27% improvement in energy efficiency. border interconnectors operated by TenneT up to 14. ENTSO-E has delivered a total of eight network codes, In 2018, we continued our construction activities on the but the work is not yet completed as each requires TSOs COBRAcable together with Energinet.dk. This high-voltage to deliver more detailed methodologies and implement direct current (HVDC) sub-sea cable directly connects the the regulations from the network codes. TenneT has been grids in the Netherlands and Denmark with a capacity of actively involved in drafting the network codes and is fully 700 MW. In November 2018 a new milestone was reached involved in delivering the remaining required methodologies when the cable was brought ashore in the Netherlands. and implementing them at EU, regional and national levels. The cable is planned to commence commercial operation This is a very time consuming process and requires a major in Q3 2019. An innovative feature of the COBRAcable is its effort of TenneT as many local IT-systems, documents and ability to connect with an offshore wind farm. This project procedures have to be adapted. Key milestones in 2018 are contributes to a sustainable international energy landscape the delivery of capacity calculation methodologies for day- by stabilising electricity prices in both countries, while further ahead and intraday, a common grid-model methodology, facilitating European market integration. as well as methodologies for coordinating operational security analyses. Our NordLink cable connecting the German and Norwegian grid is another important new interconnection supporting In June 2018, following several years of intensive the development of an integrated European energy development and testing, an important step towards market. Once it is fully operational in 2020, it will be the creating a European intraday market was taken with the first direct connection between the two countries’ power successful launch of the European cross-border intraday markets. With a capacity of 1,400 MW, the interconnector (XBID) solution. XBID enables continuous trading of can provide renewable energy for more than 3.6 million electricity across 14 countries, including the Netherlands households and will be able to export wind energy from and Germany, and automatically couples 10 local intraday approximately 466 wind turbines of 3 megawatts, each. markets. Most other European countries are due to take part in a second ‘wave’ in 2019. The Westküstenleitung project constructs new, high capacity lines, which will collect the wind power produced In October 2018, meeting the requirement of the on the west coast of Germany and transport it to the Bundesnetzagentur (BNetzA), TenneT and other German South. To meet the requirements of the energy transition, TSOs successfully implemented congestion management the Mittelachse project is replacing the 220 kV overhead on the border between Germany and Austria. Prior to that, line between Hamburg and Denmark with a new 380 kV there was unrestricted electricity trading between the two overhead line that can transport seven times as much countries, but this led to bottlenecks in the heavily-loaded electricity over a distance of around 150 km. power grid that could only be stabilised with extensive measures. By implementing congestion management, the Market rules and regulations TSOs expect the effects of capacity constraints between To facilitate the harmonisation, integration and efficiency of Germany and Austria to be less severe. This will reduce the European electricity market, the association of European the need for grid stabilisation and ease pressure on Transmission System Operators (ENTSO-E) has been neighbouring transmission grids. In the long-term, this will tasked with drafting the so-called “network codes”. These have a positive effect on grid fees and help to reduce costs network codes are legally binding European Commission for electricity consumers. regulations, governing cross-border electricity market transactions and system operations. Integrated Annual Report 2018 - TenneT Holding B.V. 28

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Our performance in 2018 | Lead North West European integration Adhering to European harmonised rules has created While TenneT rejected the notion that the company a dilemma for TenneT. As a consequence of applying behaves discriminatory, TenneT nevertheless committed to approved rules on capacity calculation on the Danish- increase the capacity offered at the German-Danish border German border, the amount of capacity that could be irrespective of the results of common capacity calculation offered went down considerably over time. This decrease in rules. Based on this commitment proposal the European offered capacity was reason for the European Commission Commission has closed the case, thereby obliging TenneT to open a competition procedure against TenneT Germany. to implement the commitment. The effect will be that The European Commission argued that the lack of capacity capacity offered at the border by TenneT will be higher than at the Danish border might be considered discriminatory the capacity offered in the past. against Danish producers as it closed the German market. Challenges Challenge Action A potential negative impact of the European Commission’s We continue to invest a great deal of time in discussing Clean Energy Package legislation (to keep the European how an integrated European market should function. We Union competitive as the clean energy transition changes provided detailed input to policy-makers throughout all global energy markets), is the prescribed new way of ministry, council and parliamentary consultations and cross-border calculations. Not only does it carry a risk for discussions. Collaboration between TSOs is vital, we need security of supply, it could also lead to higher financial to work together on future market design and the way of burdens for member states and TSOs, and increased market coupling. electricity prices for end-users. The fact that the package rules out a possible tariff reduction, through income from congestion rents, is not encouraging. Lack of coordination in European context to plan / Given the share of RES increases with a high level of collaborate more efficiently between the member states in correlation between regions, the current practise of relying realizing our joint responsibility to ensure security of supply on neighbours to secure security of supply diminishes. in an efficient and effective manner while also facilitating the We continue to work together and engage with other TSOs shift to a low carbon economy. and governments to make progress in this field. Strategic risks integration and cross-border co-operation are reaching a As a result of increasingly uncertain power production and stage where significant volumes of cross-border trade will power flows, caused by the rapidly increasing amount of have a significant impact on the internal high-voltage grid renewable energy flowing into the European grid, there is a and will compete with internal transactions. growing need for more cross-country power balancing and concerted system operation. TenneT is well prepared to take With upcoming rules from the Clean Energy Package (CEP) a leading role in the further integration of national markets which oblige TenneT to always offer an amount of minimum and developments. For instance, TenneT operates and capacity for cross-border trade, the electricity system will be builds interconnectors, increases border capacities and is forced towards the limits of safe and secure operation and currently heading ENTSO-E. more congestions in the local networks is expected. The focus will therefore shift from investing in more cross-border Outlook interconnection capacity towards increasing investments in After many years of effort to realise an interconnected local grids so that electricity flows from cross-border trade North-West European electricity market, we have can be safely transported alongside electricity flows from reached a turning point. Now that TenneT has brought internal electricity markets. 14 interconnectors into operation and crucial projects like COBRAcable and NordLink are nearing completion, Integrated Annual Report 2018 - TenneT Holding B.V. 29

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European Cross-Border Intraday (XBID) trading platform On 12 June, 2018 the European Cross-Border Intraday TenneT has at specific moments in the project, and at key (XBID) trading platform was launched. This is one of the key positions within the project, clearly put the leading ambitions projects on the roadmap towards the European Commission for NWE integration into practice. Examples of this are the end-goals of the European Internal Energy Market. The XBID TSO project manager position filled in by TenneT during the project realised the delivery of a single and harmonised XBID early initiation of the XBID project, the IT task force leader trading platform. role during the implementation of the IT systems and also the broadly acknowledged key-expert contribution of TenneT The delivery of the XBID platform has been a complex and during the entire project. intensive but successful process that lasted for several years. The cause for the specific delivery circumstances Now that XBID is in stable operation, the positive effects originate from the fact that the project context consists of can be clearly observed. The short-term and cross-border a multitude of project partners (TSOs and Operators of the trading of electricity in Europe has evidently become electricity trading markets) and stakeholders (European much easier and attractive. The availability of such an Commission, European & national regulators, market parties) easily accessible, well-functioning and liquid short-term from 14 countries that joined the XBID GO-live. Managing trading platform at pan-European scale is a pre-requisite to the complex dimensions such as international governance, smoothly incorporate the increasing share of electricity political, regulatory, competition, technical, operational, etc. production from Renewable Energy Sources into the is something all involved parties can be proud of. European electricity system. The successful delivery of XBID was without any doubt For the next years, a further European extension of the XBID a clear European team effort of above mentioned project trading platform is planned simultaneously with additional parties and stakeholders. system improvements and further harmonisation. Integrated Annual Report 2018 - TenneT Holding B.V. 30

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Our performance in 2018 | Innovate business Innovate business Since TenneT was founded 20 years ago, we have seen a revolution in the energy market, as renewables have moved from niche to mainstream. The coming decades will see even more change, with international co-operation and ground-breaking innovation required to meet both the energy needs of society and the national and international carbon-reduction targets. The energy transition and the resulting in-flows of wind and To create a grid that is fit for the future, old market rules and solar energy, require radical new thinking. For decades, models must be upgraded to unlock modern technology society relied on a relatively simple and linear electricity options and new players need to step forward to provide model, where one power station would serve a large previously unforeseen solutions. For TenneT, innovation is area, with electricity carried over relatively short distances. critical to developing the systems, services and technology Today, electricity can be generated in any place, from we need to address the changes we face. wind farms far out in the North Sea to solar panels on the roofs of home-owners. Feeding this electricity into We define innovation as ‘the successful exploitation of the grid, balancing its volatility and fluctuating supply with new ideas to create value for the company and society’. growing demand, transporting it over longer distances Our approach to innovation is to create benefits for our and maintaining affordable electricity prices and security stakeholders with a focus on our strategic goals, to enhance of supply, requires radical new thinking and innovative system flexibility and ensure security of supply. We also solutions. rely on innovation to advance the use of data and analytics and to drive the integration of the NWE electricity market. And renewable energy is not the only transformational As such, our approach fits closely with SDG 9, ‘Industry, change driving the need for innovation. The rapid Innovation and Infrastructure’, promoting inclusive and development of an interconnected cross-border North sustainable industrialisation and innovation. Currently, we West European (NWE) electricity market is another major are working on ways to further improve how we manage technological challenge. TenneT is leading the way in this strategic innovation goal to monitor our progress. facilitating this change and helping other TSOs, governments and technology providers build the infrastructure and high-tech backbone this model needs to function. Integrated Annual Report 2018 - TenneT Holding B.V. 31

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Our performance in 2018 | Innovate business Results Innovate business Secure Lead NWE Engage supply integration stakeholders Innovate DELIVER business stakeholder value 1 2 6 7 8 9 3 4 5 10 11 12 1. Blockchain pilot with Vandebron and Sonnen 2. Next Generation Scada project 3. Standardized substation replacement program 4. InnoSys 2030 5. Energised working 6. North Sea Wind Power Hub 7. XBID: Cross border intraday for 14 countries (see case study Lead NWE integration) 8. 10 year partnership with TU Delft 9. Multi supplier challenge for 2 - 5km horizontal drilling technology 10. Sector coupling as option for renewable integration 11. Supporting market parties for future flexibility products 12. Engaged in research consortia such as Promotion and Migrate TenneT relies on continuous innovation to stay ahead in our Innovating with stakeholders fast-changing industry and to add value for society. Our 10 year partnership with TU Delft people are experts in their field and we value their creativity. External stakeholders – and stakeholder engagement – This ensures innovation, which helps us in our ongoing play an important role in our approach to innovation. This success and improvement. includes close cooperation with universities, as research and innovation is essential for developing a sustainable energy To incorporate innovation in the core of our operations, system of the future. In this respect, TenneT has entered we have designed and implemented an innovation into a partnership with TU Delft to develop a new Electrical programme that is connected to our strategy and overseen Sustainable Power Lab (ESP Lab). by our Innovation Board. Experts from the academic world, research centres and other TSOs help to push us further and make sure we are fully aware of cutting-edge technologies. Integrated Annual Report 2018 - TenneT Holding B.V. 32

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Our performance in 2018 | Innovate business Multi supplier challenge for 2 - 5 km horizontal For example, the electricity sector can be coupled with drilling technology the mobility sector (e.g. electric vehicles), green gas To plan for the future we also seek innovation with other transmission and storage, (dual fuel heat boilers, steel stakeholders, such as contractors and cable suppliers, industry transferring to green gas and micro grids fuelled especially as demands increase to lay cables underground. by hydrogen). Exploring these kind of options shows As we explore innovations in this area, we aim to cause as that TenneT is not solely focused on electricity solutions, little disruption for the environment and local residents as but is also looking for solutions that support an affordable possible, while also realising projects more quickly. Horizontal and secure power system and the evolution of a carbon- drilling over longer distances could be a solution, with the free future. possibility to drill distances of five or more kilometres for our high voltage grid. We are now cooperating with contractors Engaged in research consortia such as and cable suppliers to make this innovation a reality. PROMOTioN and MIGRATE To better understand how energy can be brought onshore, Supporting market parties for future TenneT is also actively engaged in research consortia of two flexibility products EU Horizon2020 projects; MIGRATE and PROMOTioN. By As more renewable electricity is fed into the grid, demand 2020, high levels of wind and solar energy will flow through for commercially viable energy storage solutions is growing. the pan-European high-voltage grid. As this occurs, more TenneT is facilitating the process with the Electricity Storage and more devices that generate and consume electricity Valuation tool. This is designed for business users who need will be connected to the grid through Power Electronics insight into the costs and benefits of large-scale energy (PE). This will lead to technical challenges due to the lack storage allowing them to determine the optimal storage of rotational inertia in the future power system, which capacity for specific applications and plan large-scale endangers stability at 50 Hz. The MIGRATE research storage projects. programme seeks to develop solutions to these technical issues, aiming to maintain grid availability and stability, The Flexibility Monitor is another innovation that will help quality of supply, control and grid protection. PROMOTioN manage a future energy system with variable renewable will set out the development plan and optimise the generation. Developed by TenneT, this aims to quantify the regulatory and financial framework for Meshed Offshore assets in the Dutch electricity market that provide flexibility Transmission Networks. when supply and demand need to be balanced in the grid. An understanding of the actual volume of flexibility Innovation to secure supply in the market is important for TenneT as system operator, Blockchain pilot with Vandebron and Sonnen and also for energy producers, consumers and investors. In the future, decentralised energy sources will become To get this insight, TenneT teamed up with organisations increasingly important to maintain the balance between the such as VEMW, Unie van Waterschappen and Energie supply and demand for electricity. To explore this, TenneT Nederland. A questionnaire was distributed among different is undertaking a pilot project in collaboration with seven market parties, including grid users, Balance Responsible market parties: Engie, Enova, Escozon & Energie Samen, Parties and aggregators. They were asked to provide their Next Kraftwerke & Jedlix, Scholt Energy & Enervalis, expected amounts of demand, storage and generation. The Sympower and Vandebron. This is a follow-up to a previous acquired data from the questionnaire and accompanying collaboration with Vandebron and uses blockchain software data analysis are being assessed and first results will be to manage transactions for electricity demand and supply. compiled in 2019. To model how electricity can be supplied from a growing number of sources, the project partners will apply a Sector coupling as option for renewable integration software management tool to energy sources including Sector coupling is an important area of innovation that also wind, solar, combined heat and power (CHP), heating grids, requires TenneT to cooperate with external stakeholders as electric cars, electric boilers and electric pumps. During the we seek new solutions to manage the complexity of multiple pilot project, new data communication technologies will be energy sources. Sector coupling aims to harness the tested to enable TenneT and suppliers of flexible generating flexibility and/or storage capabilities of other energy sources capacity to exchange the required information for balance and infrastructure to keep the power system balanced maintenance purposes. and stable. Integrated Annual Report 2018 - TenneT Holding B.V. 33

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Our performance in 2018 | Innovate business InnoSys 2030 However, given the importance of the availability of the TenneT is exploring IT solutions for balancing the grid in high-voltage grid and the complexity of electricity supply as Germany. It is leading a research project to investigate a result of the energy transition, it is increasingly difficult to new IT concepts and tools to help in the energy transition, switch off the operating voltage when we need to perform called InnoSys 2030. The German government initiated work. As a result, it has become difficult to maintain certain this programme with the four German TSOs, to investigate parts of the grid or to do so on time. Energised Working new ways to optimise grid utilisation through automated offers a safe alternative and does not pose greater risks system operation. than working on disconnected installations. To explore this further, TenneT collaborated with its partners. Next Generation Scada project Internally, TenneT is upgrading its own operating system Innovation to facilitate North West Europe to manage more complex electricity flows. The Next- market integration Gen operating system will be designed to meet the North Sea Wind Power Hub challenges of the more complex energy landscape. As TenneT plays a leading role in facilitating the evolution In 2018 we conducted a market consultation to identify our of a cross-border NWE electricity market, new approaches requirements and potential suppliers, to be followed by a must be investigated to connect large scale offshore tender process in 2019. wind to the onshore grids. This will become even more important as wind generation capacity grows in the North Standardised substation replacement program Sea, with WindEurope forecasting a planned deployment To make our 110/150 kV substations ready for the future, of up to 70 GW by 2030. In this context, TenneT’s vision we need to replace approximately 140 substations over for a North Sea Wind Power Hub, as part of a consortium the next 10 years. These are over 45 years old. This means with Energinet.dk, Gasunie and Port of Rotterdam, is a replacing an average of approximately one substation per particularly important innovation. The concept of one or month. To achieve the desired predictability and acceleration two hubs located in the North Sea, with interconnectors of replacement, we will introduce common technical linking to neighbouring countries, would allow the mass- standards and take a uniform approach to replacement, scale harvesting of wind power, delivered under the sea and maintenance and management. Our Bay Replacement across borders to North Sea bordering countries. Together programme, which started in 2017, has largely designed with external experts, TenneT and its consortium partners this new approach in 2018, with inputs from market are investigating feasible design options, the economic parties. The new concepts will be tested in 2019 with the rationale, and the regulatory and market requirements for replacement of six proof of concept-substations with AIS this ambitious international infrastructure. and GIS technology. Based on the results of the proof of concept phase from technical, organisational and financial The current regulatory framework incentivises grid perspectives, TenneT will proceed with the large volume maintenance and investments, whereas TenneT believes replacement of 110/150 kV substations using the new that investments in smart technologies and big data will technical standards and ways of working, for which TenneT enable us to optimise the use of our grid. To maintain will start preparations in 2019. an affordable cost for society, we continuously balance possible innovations against regulatory reimbursements. Energised working As work on our assets becomes essential to secure supply and future-proof our infrastructure, we face the challenge of working with live installations, also known as ‘Energised Working’. In the Netherlands this is prohibited by law, although the practice is permitted in other European countries. Integrated Annual Report 2018 - TenneT Holding B.V. 34

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Our performance in 2018 | Innovate business Challenges Challenge Action One of the biggest challenges in this dynamic environment As TenneT, we believe innovation is crucial to realise an is the relentless pace of change and the constant need to affordable energy transition whilst meeting the demands of deliver solutions to meet the needs of society, regulators society, regulators and government. Through engagement and government. Particularly challenging is spearheading with our stakeholders we continuously seek opportunities innovation within an EU regulatory framework that has not to enhance our toolbox of solutions meeting these fully caught up with the reality of today’s electricity market. demands. This has resulted in a joint assessment framework “Netverzwaren tenzij” in the Netherlands. This allows TenneT to consider in a transparent and verifiable way when it is socially efficient to include flexibility from the market as a (temporary) alternative to a grid reinforcement. The framework is now being discussed for regulatory implementation. In Germany the research project consortia of InnoSys 2030 with 17 partners has started research in 2018 to deliver innovative system operation concepts to increase transport capacity on existing lines. And together with Gasunie, TenneT has developed an Infrastructure Outlook 2050, exploring the opportunities of sector coupling based upon Dutch and German studies for our networks in the Netherlands and Germany. Participation both in Netherlands and Germany to support development of a 1 GW electrolyser solution by 2030 with significant cost reduction targets is also part of our commitment. Keeping pace with the demand for transmission increase and We are in close contact with our stakeholders, also our renewals in our existing grid requires innovative approaches. suppliers to keep each other informed and to make sure As TenneT we rely on our suppliers to have the capacity and delays are avoided as much as possible. capability for delivery of the solutions we require. Strategic Risks As new technologies are introduced, whether in physical It is clear that technological innovation plays an essential assets or software solutions, there could be an increased role in achieving the energy transition. Although innovations risk of outages caused by malfunctioning. As such, TenneT abound in the energy sector, there are currently no decisive demands high quality standards from its suppliers and breakthroughs that will simultaneously guarantee security service providers. As an additional measure, TenneT builds of supply, affordability for society and competitiveness test procedures, test periods and guarantee periods into its of industry prices. It is not clear which technological project planning and supplier contracts. developments hold the most promise; most likely it will be a mix of digitalisation, big data, market and price models, sector coupling, new types of cables, lines and other assets to transmit energy. Integrated Annual Report 2018 - TenneT Holding B.V. 35

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Our performance in 2018 | Innovate business In a highly dynamic market, there is some risk attached TenneT and other industry players are engaged in a pilot to the emergence of new players who may either over- project in Germany called Element 1, to bring green reach themselves, fail or go out of business. To avoid a hydrogen solutions to market. TenneT is joining forces consequential lack of support or (spare) parts, TenneT with the gas transport network operators Gasunie and assesses the financial stability of suppliers and prescribes Thyssennet to jointly build a power-to-gas installation with a a long-term availability of parts and services as one of its capacity of 100 MW. Upon completion in 2022, this facility contractual pre-conditions. will be the largest power-to-gas installation in Germany. It will be constructed near a TenneT transformer station in On the other hand, digitalisation can also be an opportunity, Lower Saxony, where electricity from offshore wind turbines helping to reduce costs and achieve a secure energy is distributed. transition. However, that comes with high requirements, not only regarding data security, but especially for By storing wind energy surplus as hydrogen via power-to- information management and human resources in the fields gas conversion, TenneT has access to an important means of designing, developing, maintaining and operating the to increase flexibility in its power system. This is a relevant systems. Therefore, TenneT continuously develops its IT solution for balancing the ever-increasing share of weather- capabilities, enhancing its organisation, training employees dependent power production from wind and sun in the and reviewing the performance of IT service providers. system. Hydrogen can also be mixed in the natural gas distribution networks and sold in hydrogen filling stations. Outlook From 2022 onwards, the three partners envisage to start The challenges facing TenneT require us to embrace truly storing green electricity as green hydrogen and thereby gain pioneering inventions, such as green hydrogen. This will experience with power-to-gas on an industrial scale. likely be among the solutions to help society achieve its ambitious carbon targets. To explore the possibilities, we are part of the Hydrogen Coalition, led by Greenpeace Netherlands, with 23 industry players. The coalition has presented government with a manifesto to stimulate the production of emissions-free green hydrogen, which is produced through the electrolysis of water by renewable electricity. TenneT is actively exploring the possibilities for new services made possible by converting wind-generated electricity into hydrogen. As well as being a carbon-free alternative to natural gas, the key benefit of this process is that hydrogen can be stored. This addresses an important challenge in the energy transition, as storage will help to even out imbalances between the supply and demand of renewable electricity. Integrated Annual Report 2018 - TenneT Holding B.V. 36

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Grid booster In Germany, the power generating landscape is changing In contrast to the classic preventive approach, the Grid- fast. At the same time, the grid infrastructure needs to Booster ensures a (n-1) secure grid operation reactively, expand. As a result, the German power grid is reaching i.e. after fault occurred. Therefore, the power load of existing its thermal and stability limits. Consequently, congestion power lines can be increased beyond presently valid stability measures like Redispatch and EISMAN are needed. To limits saving preventive Redispatch. In order to implement cope with these challenges, the idea is to use unexploited and test the Grid-Booster concept a pilot project has been transmission capacities, for example by implementing started. Specifically, two spatially separated energy storage concepts of automated grid operation which are about to devices are planned to be installed in the north and south of be investigated in the InnoSys2030 research project. Among the main grid congestions which act as source and sink of a the most promising of these concepts is the Grid-Booster. “virtual power line” in case of emergency. Integrated Annual Report 2018 - TenneT Holding B.V. 37

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Our performance in 2018 | Engage stakeholders Engage stakeholders Consumers and businesses across the Netherlands and Germany rely on the electricity we transport, across land and sea, giving us an important role in society. Every minute of every day, 365 days a year, TenneT works It is also important for us to play our part in the public to ensure electricity is reliably and affordably available to debate on the energy transition, for example through our all who need it in the markets we serve. Meeting society’s involvement in the Dutch government’s Climate Tables. This electricity needs is a fundamental responsibility that guides forum was introduced to gain expert insight and advice everything we do. We have a dialogue with our stakeholders from key players in the energy transition, as the Dutch every day and, as we perform our work, we aim to make all government strives to meet the CO2 reduction ambitions of information easily available, take concerns seriously and use the Dutch Climate Agreement. our expertise and experience to explain the necessity and effects of our work. Our ambition to engage with stakeholders links to several United Nations Sustainable Development Goals (SDGs). As we aim to do everything in the interests of our For example, SDGs 14 and 15, respectively relating to the stakeholders, we must proceed in a way that attempts sustainable use of sea and land, direct us in how we engage to build consensus and acceptance. We are aware that with communities and NGOs when planning and conducting powering society cannot be done without impact on local our work in the natural environment. SDG 8, on decent communities and the environment. Installing new power work and economic growth, reflects our responsibility lines – above or below ground, or under the sea – has towards our employees and contractors. Furthermore, as consequences for nature and people. This is why we a company that promotes diversity, we embrace SDG 5 engage with our stakeholders during and after our projects. on gender equality, with initiatives to encourage female Our priority is to minimise any negative impact, while leaders and equal opportunities for all employees. Among delivering the critical electricity infrastructure – on land and our stakeholders, we also aim to foster an environment at sea – our society relies on. of equality and respect, where everyone’s views and standpoints are listened to and taken into account. More Our reputation as a responsible, engaged and connected details on how we performed in these areas are disclosed in corporate citizen is important to us; better understanding the Non-financial chapter. and acceptance of our work, developed patiently over time through clear and transparent communication and respectful dialogue, underpins our licence to operate. Results Stakeholder engagement 2018 2017 2016 # stakeholder engagement 738 756 171 Stakeholder dialogue is essential for developing In the latest survey, conducted in the Netherlands, our understanding and acceptance. During 2018, we held overall customer satisfaction score (customers directly 738 public meetings and events in the Netherlands and connected to our grid) rose slightly to 87%, compared to Germany, with over 12,500 visitors and participants. We aim 86% in 2016. In the most recent survey in Germany (2017), for a fully transparent process, where all stakeholders’ views we recorded a customer satisfaction score of 94% showing and standpoints are listened to and considered. that our ongoing work to engage with stakeholders is helping to maintain consistently high satisfaction scores. We measure the effectiveness of our stakeholder dialogue with customers, employees and local communities, using Gauging how sustainably engaged our employees are is various tools. Our customer satisfaction survey, which we also important. We do this via an employee survey. The last run in alternate years in Germany and the Netherlands, is a survey conducted in 2017, showed a high level of employee major source of insights. engagement of 80%. Integrated Annual Report 2018 - TenneT Holding B.V. 38

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Our performance in 2018 | Engage stakeholders To maintain and further increase this level of employee Research in the Netherlands shows that, on average, the engagement, we also recognise the importance of building public values the contact with infrastructure companies that our reputation among potential recruits versus our industry execute large projects at 6.4, demonstrating that TenneT is peers. To this end, our success in the 2018 MT500 survey performing on par with accepted benchmarks. is an important achievement, ranking TenneT among the 25 most-respected companies in the Netherlands. For particularly large projects, we also opened dedicated information centres. During 2018, for example, we opened Other ongoing tools for measuring satisfaction with our an information centre in Dankern, Germany, for the AC cable stakeholder engagement, are the regular surveys we run under construction between Dörpen and Niederrhein, and a at each phase of a new project. These ask people in the DC cable information centre in Wilster, for the new converter local community how they value their contact with TenneT, site serving the NordLink. In the Netherlands we opened and the quality of communication and dialogue through an information centre in Kruiningen for people seeking information evenings, social media, emails, website and information about the high-voltage connection between newsletters. On average, TenneT receives a rating of 6.7/10. Borssele and Rilland. Challenges Challenge Action As a company that builds critical infrastructure in the We meet this challenge by ensuring we have dialogues natural environment, our engagement with stakeholders taking into account local interests, but we are aware that may tread a line between societal and private interests. we will not overcome all local opposition. Moreover we What is good for and desired by society is not always identify possible constraints and cost of solutions in early welcomed by the communities which are affected by our stages of the decision-making process and communicate projects. After all, lines and pylons in our landscape may this openly on both local and political level. not easily be accepted, but they are a necessity to transport electricity. Furthermore, the debate regarding health risks related to We make sure we comply with rules and regulations when power cables and magnetic fields is still ongoing. building our assets taking sufficient caution. We proactively inform both governments and other stakeholders on magnetic fields related to our projects in cooperation with other parties involved (e.g. RIVM, DSOs, etc). Strategic risks To ensure a future-proof grid, investments in extension As the energy transition gathers pace, there is a growing and reinforcement by TSOs are necessary. The amended need for better external communication to explain its German NABEG legislation will include improvements effects on society transparently. If there is a perceived with regard to licencing requirements, for instance for the lack of transparency, there is a risk of high dissatisfaction replacement of existing overhead lines by higher voltage with TSOs, with consequential reputational damage, or capacities and the option to use renewables as re-dispatch financial loss in the form of lower investment or reduced capacity. In the event of delays in project realisation, cost reimbursements by ACM and/or BNetzA. To mitigate penalties could be imposed. To mitigate this risk, TenneT this risk, TenneT takes a leading role in stakeholder introduced professional project management many years engagement, explaining its decisions to communities ago. Despite this, we experienced and still anticipate the affected by its work, while also opening the door to discuss risk of bottlenecks caused by scarcity of resources and alternatives. As part of this, TenneT also takes into account delays during the licensing process including as a result of alternatives outside the TSO business, e.g. sector coupling. stakeholder objections. Bearing these possible delays in Those alternatives have the potential to significantly reduce mind, TenneT continuously reviews its project milestones investments. and project commissioning dates. Integrated Annual Report 2018 - TenneT Holding B.V. 39

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Our performance in 2018 | Engage stakeholders Outlook Overall, the German public are well-informed and have During 2018, the Dutch government engaged in an strong views about the effects of the Energiewende on their intense debate as it formulated a new action plan to lives, resulting in ongoing public debate. This makes the combat climate change. This resulted in the publication planning and execution of new construction more of the ‘Klimaatakkoord’ (Climate Agreement) in July, with challenging. In this context, we feel it is our responsibility to the Netherlands setting itself a target to cut greenhouse be open and transparent and involve local communities and gas emissions (primarily carbon dioxide) by almost half other stakeholders in the decision-making process as much (49%) in 2030, compared to 1990. That is 48.7 megatons as possible. (48.7 billion kilograms) more than targeted by previous policy. These investments are essential to achieve our over- riding mission: to ensure that over 41 million end-users Arriving at this landmark agreement involved an intensive in the Netherlands and a large part in Germany have process of multi-stakeholder consultation, including five a secure supply of energy. With an investment portfolio ‘Climate Tables’ of energy sector players, three task of approximately EUR 35 billion over the next 10 years, groups and dozens of working groups. More than one involving onshore and offshore projects in both countries, hundred parties, including TenneT, were directly involved we are working hard to provide a grid that meets society’s in the preparations. The result is an extensive package of energy demands and helps government achieve ambitious agreements, measures and instruments that should reduce climate targets. Dutch CO2 emissions by at least 49% by 2030. Harnessing ground-breaking new technology plays an Since the summer, a great deal of hard work has been essential role in this, as well as working closely with industry done, within and between sectors, on a package of partners. Green hydrogen (hydrogen produced as a result measures to put the Dutch government’s plans into of the electrolysis of water, using renewably generated action. The focus of this work follows three main areas: electricity) is one such solution, and is being increasingly standardisation, pricing and subsidies. Cost is a recurring considered as part of a sustainable energy mix. The key theme in all discussions, as the investments required to benefit of green hydrogen is that it can be stored, which achieve the targets are high, but at the same time the means it can help balance the fluctuating supply of wind government requires energy to remain affordable for all and solar electricity. TenneT has joined forces with Gasunie, households. In addition, the competitive position of the which owns the Netherlands gas transmission network, to Dutch business community must be maintained. conduct studies into the use of green hydrogen in the future. In Germany the Energiewende will rely heavily on As we and others work to build an electricity system in the renewable energy (particularly wind, photovoltaics, and challenging years ahead, we will strive to keep the cost hydroelectricity), energy efficiency, and energy demand for society as low as possible. We will also involve our management. Most, if not all, existing coal-fired generation stakeholders – including local communities – at the earliest capacity will need to be retired. The phase-out of Germany’s stage of our projects, thereby building social consensus for nuclear power stations, to be complete by 2022, is a key our construction activities. part of the program. The German government has set itself the ambition to reduce CO2 emission by 55% in 2030, compared to 1990. These targets go well beyond European Union legislation and the national policies of other European states. As TenneT is a TSO covering large parts of Germany, we are adapting and upgrading our electricity infrastructure to play our part in facilitating the Energiewende. One of the obstacles we face is that attitudes to new infrastructure – such as the construction of power lines – varies between German states. Integrated Annual Report 2018 - TenneT Holding B.V. 40

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Community dialogue Netherlands - Geertruidenberg Germany - Westküstenleitung When TenneT began planning a new 380 kV connection An example of our close connection with our stakeholders, is between Rilland and Tilburg in the Netherlands, the Minister TenneT’s West Coast Line (Westküstenleitung) a 380 kV and of Economic Affairs decided that the route would pass over 140 km-long AC power line. Starting in Brunsbüttel, it will part of the territory of the municipality of Geertruidenberg. connect the German and the Danish electricity transmission The plan included placing sections of the existing above- systems (planned to be completed in 2022). The West ground 150 kV connection, between Geertruidenberg and Coast Line is on the European Commission’s list of Projects Waalwijk, partially underground. of Common Interest (PCI), as an important interconnector supporting the EU’s energy and climate policy. The Geertruidenberg town council was given the opportunity to decide the location of the underground cable. During In 11 community events, stakeholders were invited to the process, TenneT worked closely with the municipality, receive information concerning TenneT’s building activities. engaging local residents, landowners, provincial authorities, Moreover, meetings with local communities and mayors neighbourhood associations, water boards and nature were organised to find the most acceptable solutions for organisations to find a consensus for the route of the cable erecting pylons along the route as well as discussions on and, where possible, making decisions together. how to use local roads during construction in the, safest and most careful way. For the most northern part, between For example, two design workshops were organised Klixbuell and the Danish border, TenneT has started the pre- involving representatives of various interest groups. During planning period with eight dialogue events, also involving the these, the possible locations for the new underground cable government of Schleswig-Holstein and representatives of all were considered, with the advantages and disadvantages of local districts. each one mapped out and discussed. The workshop results were presented at an information evening for Geertruidenberg residents and landowners. We were very pleased with the turnout and the positive feedback received afterwards from attendees regarding this event. Integrated Annual Report 2018 - TenneT Holding B.V. 41

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Our performance in 2018 | Financial Operational performance Financial Securing supply and facilitating the integration of sustainable energy sources into the high-voltage grid require substantial investments and flexible access to equity. Over the next 10 years, TenneT expects to invest approximately EUR 35 billion in onshore and offshore grid connections. It is our role to ensure our capital expenditures are efficient and our responsibility to keep the costs of power transmission and system services as low as possible for end-users. We seek to balance the financial interests of our stakeholders with our obligation to ensure electricity remains affordable and available to all. Results efficiency assessments and reference grid analyses, which In 2018, we issued additional Green Bonds and had positive outcomes. In our LEAN and continuous successfully signed a United States Private Placement improvement programme, we performed scans to gain a (USPP) transaction to fund our extensive investment better insight into the drivers affecting our productivity and programme. We work with our regulators to ensure our implemented over 100 improvement initiatives. investments are as efficient as possible with project-specific Underlying results (EUR million) 2018 2017 Difference in € Diference in % Revenue 4,176 3,948 228 6% Operating expenses 3,439 3,119 320 10% EBIT 806 897 -91 -10% EBITDA 1,528 1,549 -21 -1% Profit for the year 443 531 -88 -17% Monitoring and managing the performance of our business Cold reserve costs in Germany are lower due to decreased is based on underlying financial information and not on use of Austrian power plants caused by congestion IFRS-reported financials. Underlying financial information management on the German-Austrian border. involves the recognition of regulatory receivables and payables, which – based on the current regulatory In order to maintain the balance between supply and framework – can be recouped or are to be returned through demand in the electricity transmission system, TenneT future grid tariffs (see section 2 of our consolidated financial concluded contracts with electricity suppliers to obtain statements). Under IFRS, reimbursement/settlements emergency reserve power. Due to an increase in the through future grid tariffs may not be taken into account. required volumes combined with higher prices, the costs for As a result, the balance of any expense or income is not emergency reserve power increased in the Netherlands. recognised as a regulatory asset or a liability under IFRS. Operating expenses During 2018, rising grid and depreciation expenses from increased investments, caused our operating expenses to increase. In Germany, we had higher redispatch costs caused by bottlenecks due to grid investments of neighbouring TSOs as the expansion of wind energy plants forced us to temporarily suspend the feed-in of renewable energy sources. Integrated Annual Report 2018 - TenneT Holding B.V. 42

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Our performance in 2018 | Financial Revenues Underlying EBIT decreased from EUR 897 million in 2017 to EUR 806 million in 2018 which can mainly be explained by Revenue the special items in both years. The 2018 offshore EUR million reimbursement in Germany exceeding the actual costs considerably decreased compared to 2017. In addition, 3,230 3,122 there have been smaller retrospective regulatory changes and a write-off of the Wintrack II assets to fair value, decreasing the 2018 EBIT. The overall decrease in EBIT is partly compensated by the EBIT growth in our asset base, causing a higher return on capital in Euro terms. 945 838 Investments Capital expenditure (capex) totalled EUR 2,253 million 36 35 in 2018. This is slightly less than planned, although 2018 2017 represented an increase of approximately 30% compared to 2017 (EUR 1,774 million). Investments increased mainly due TSO Netherlands to offshore projects in the Netherlands. TSO Germany Investments Non-regulated EUR million Regulation in the Netherlands and Germany compensate for 2,253 7 the depreciation of our investments and allow us to make 1,774 a return on the capital invested in our regulatory assets. 2 As this asset base has grown in the past few years, this revenue increased in 2018. 1,370 1,037 Revenues are also influenced by regulatory decisions and changes. Following a CBb-decision in July, the Dutch 876 735 regulator changed the regulatory treatment of system services back from a “budget-based” system to a “pass-through” 2018 2017 system. This resulted in higher revenue compared to 2017. TSO Netherlands TSO Germany Non-regulated companies EBIT At the end of 2018, our main projects under construction are: EBIT • Germany: BorWin3, DolWin6, SuedLink and EUR million SuedOstLink • Netherlands: Randstad 380 and the 897 “Net op Zee” (Borssele Alpha + Beta) 806 155 • Cross-border: COBRAcable (Netherlands - Denmark), 819 742 NordLink (Germany - Norway), Hamburg Nord-Kassø (Germany - Denmark) and Westküstenleitung (Germany - Denmark) -13 2018 2017 EBIT excluding special items Special items Integrated Annual Report 2018 - TenneT Holding B.V. 43

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Our performance in 2018 | Financial We have updated our 10-year investment programme. ROIC At this moment, we expect to invest approximately (%) EUR 35 billion in the next 10 years. Investments in the portfolio in the Netherlands amount to EUR 7 billion offshore and EUR 5.5 billion onshore. For Germany these amount 7.1 to EUR 16 billion and EUR 7 billion respectively. The 5.9 amount of these investments have increased approximately Target 4.1 EUR 7 billion compared to the amount reported in our 2017 integrated annual report. The main driver for this difference is related to Wind op Zee 2 (EUR 5 billion). Other factors 0 causing this increase are related to changing planning 2018 2017 of projects, inflation and increased investments in our existing grid. Capital structure and financing We seek to maintain a solid financial position, with sufficient TenneT’s investment plans are strongly influenced by flexibility and resilience to manage any necessary or the climate ambitions and resulting energy agendas of required changes to our operations as well as any regulatory the Netherlands and Germany, in particular as it relates amendments. To carry out our extensive and ongoing to the timing and location of additional renewable energy investment programme, we need sufficient funding and full sources. In addition, a wide range of ongoing technological access to the financial markets under favourable conditions. developments, such as energy storage, energy conversion Senior unsecured credit ratings for TenneT Holding B.V. and digitalisation, may impact the energy system in remained unchanged in 2018 and were reaffirmed by general, and the operation, build-out and maintenance Standard & Poor’s (A- / stable outlook) and Moody’s of the electricity grid specifically. This requires extensive Investor Service (A3 / stable outlook). scenario analysis and flexibility in the investment plans of TenneT, including regular reassessment of its entire CSR rating agency Oekom assessed our social, investment portfolio. environmental and governance performance, resulting in our overall CSR rating remaining unchanged at level B (status For more detailed information on these and our other Prime). In June 2018, we obtained a MSCI “A”-rating. projects, please visit the dedicated project section of our website. Equity On 13 August 2018, the European investment Bank (EIB) Return on invested capital purchased EUR 100 million hybrid securities, reaffirming its When measuring the value we deliver to our financial support for the NordLink interconnector between Germany stakeholders, we use the rate of return on invested capital and Norway, after the loans to TenneT and Statnett in 2017. (ROIC) as our key performance indicator. Our target is based on an average of the long-term returns as stipulated Net debt position in, or implied by, Dutch or German regulations. For 2018, Our net debt position increased from EUR 7,687 million ROIC decreased compared to 2017, due to our decreased in 2017 to EUR 8,712 million in 2018. This mainly reflects EBIT (see “EBIT” paragraph for further details) and increased the higher net funding provided for our capital investment invested capital. The main driver for the decline is the programme. (relative) decrease in allowed regulatory return on invested capital in the Netherlands. The ROIC of 5.9% significantly In June 2018, TenneT successfully completed another exceeded our minimum target of 4.1%. green bond issue, worth EUR 1.25 billion, under its Green Bond programme. The issue was split into two tranches – a EUR 500 million tranche, with a 10-year maturity (coupon of 1.375%) and a EUR 750 million tranche with a 16-year maturity (coupon of 2.000%). Integrated Annual Report 2018 - TenneT Holding B.V. 44

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Our performance in 2018 | Financial In December 2018, we successfully signed an As TenneT is set-up as a private company with a societal EUR 500 million United States Private Placement (USPP) role, we need to carefully balance our financial and societal transaction, consisting of a tranche of EUR 160 million, with interests. a 10-year maturity (coupon of 1.610%) a EUR 295 million tranche with a 12-year maturity (coupon of 1.830%) and a We face the ongoing dilemma of balancing public demand tranche of EUR 45 million, with a 15-year maturity (coupon for better electricity infrastructure with financial constraints. of 2.01%). The settlement is carried out at 24 January 2019. Because TenneT’s investments are mainly publicly funded, we ensure our investments in the high-voltage grid are The green bonds relate to investments in the transmission efficient, as defined by the regulators. If the additional of renewable electricity from offshore wind farms to the costs of a project cannot be recovered via grid fees, there onshore electricity grid. The eleven offshore projects are limits to how much TenneT can invest. For example, in financed with the proceeds from the green bonds are 2018, TenneT announced it would not press ahead with a examples of how we use green financing to invest in the pilot project to install a 3.4 km underground ‘super cable’ infrastructure we need to support the energy transition. in the Dutch city of Enschede. The superconducting high- voltage system would have had benefits for the city and was For more information on our capital management policy, welcomed when announced, but further planning made it procedures and financial risks, see note 6 (Capital structure clear that the cost of such a project would be prohibitive. and financing) of our consolidated financial statements. For more information on our green bonds as included in our For our solvability reference is made to note 6.1 of the separate Green Finance Report. consolidated financial statements. Challenges Challenge Action Attracting equity & debt to finance investments facilitating We have regular contact with our financial investors and the energy transition is an area of focus. are working on further broadening our green bond program and extending our investor base to the USPP. We are in discussions with our shareholder about the level and timing for payment of additional equity Risks Outlook The significant amount of investments requires additional Looking ahead, we face the challenge of realising a very equity to secure a sufficient credit rating. In parallel, large investment portfolio. For the next ten years, we expect investments by the Dutch state are critically assessed our asset base to keep growing, increasing our depreciation by society and politics. We work closely together with and revenues. This growth will also increase our operating the Dutch Ministry of Finance and continuously work on expenses, as we work to attract more staff, leading to an alternative solutions for financing. increase of overhead costs. We plan to compensate for this rise through more focus on cost management and Our revenues are based on the regulatory framework in operational excellence by streamlining the organisation and the Netherlands and Germany. With the growing sentiment improving our decision making processes. on the energy bill tension on the reimbursement system increases. Adverse changes in the regulatory system might Regulatory changes will also impact the development of impact our performance. For more information we refer to our revenue. In Germany, revenue is expected to decrease the regulatory risks in the risk paragraph. due to unification of grid fees and a new offshore regulatory framework in which the operational expenses are treated as pass-through instead of a fixed percentage. In addition, there is a discussion on the regulatory treatment of the onshore operational expenses, which could impact future revenues. Integrated Annual Report 2018 - TenneT Holding B.V. 45

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Our performance in 2018 | Non-financial Non-financial Transporting electricity and maintaining the security of electricity supply in a responsible manner are critically important for a modern, well-functioning society. We strive to make choices that benefit people and the Our CSR plan includes clear ambitions in seven areas where planet, at the same time as generating an adequate return we believe we can make a difference. We have set, or are for our capital providers. In doing so, we not only aim to in the process of setting, key performance indicators (KPIs) fulfil our company’s role, but also our responsibilities to our and targets for each ambition area to demonstrate our stakeholders and help to fulfil national and international progress to our stakeholders, showing how we are reducing agreements and goals, such as the UN SDGs. How we our negative impacts, and maximising the positive ones. want to achieve this is set out in our Corporate Social Responsibility (CSR) ambition plan 2025. In this chapter we show how we address our responsibility as a company with regard to our people and planet With this plan we aim to: ambition. Our performance against our profit ambition is • Contribute to society, creating maximum impact for presented in the financial section of our integrated annual people working for us and impacted by us; report. • Commit to the environment, avoid, minimise and compensate for our environmental impact on the planet; • Ensure an affordable cost of electricity supply for society and an adequate return on capital for our capital providers. Results Our people ambition SDG Impact area KPI identified Target 2018 2017 2016 Percentage of female employees (headcount) 22% in 2023 22% 21% 22% Percentage of newly hired females at management level 22% in 2023 29% N/A N/A Diversity Percentage of female Executive and Supervisory Board members 30% in 2023 22% 20% 17% Safety LTIF <1.8 in 2020 2.36 2.53 3.60 Society # Stakeholder engagement 1) 738 756 171 1 We are currently developing a new KPI for the society impact area. We consider our employees to be our most valuable This is why we aim to create a safe and inclusive working asset. They are essential to our ability to fulfil our purpose environment where our employees can thrive and perform to in society and live up to our promises and ambitions. the best of their ability. Headcount 2018 2017 2016 Internal employees (headcount) 3,409 3,187 304% External employees (headcount) 1,129 871 63100% Integrated Annual Report 2018 - TenneT Holding B.V. 46

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Our performance in 2018 | Non-financial As our business plays a role in helping society tackle For now, we focus on gender diversity in our CSR ambition far-reaching challenges – including the transition to a plan, as we believe we can improve on this front. We are low-carbon economy – TenneT needs to attract a larger not alone in our sector in facing this challenge, including workforce. In 2018 our workforce grew from 3,187 to 3,409. at senior management level. In 2018, we saw positive However, recruiting talent is getting harder, particularly in developments for all of our diversity ambitions and in 2019, the technology sector where there is strong competition for we intend to maintain this focus and momentum. That is good people. To overcome this, we invested in initiatives why we have developed a diversity road map, outlining the such as the Power Minor – a module in which bachelor- steps we need to take to achieve our goals. These include level students can learn more about technology and the building further diversity awareness and discussion around energy sector. In 2018, this initiative was nominated for the diversity within TenneT and further embedding it in our Pro-Motor award, an annual award for innovative solutions recruitment activities. We have introduced various initiatives where governments, companies and higher education work to improve gender equality, including a female leadership together. We have also invested in attracting female talent training programme and diversity workshops in Germany through university and career events. and the Netherlands. We recognise it will take considerable time to make significant progress, but we are making Diversity progress here. Additional information can be found in our Diversity is an important area of our people ambition, as Supervisory Board report. we strive to create an inclusive environment with equal opportunity for all. We recognise diversity in its wider sense – not only in terms of gender, religion and culture, but also socio-economic backgrounds, skills, knowledge, personality and experience. We believe that a diverse working environment helps us perform better as a company and deliver better value for our stakeholders and society. Diversity at TenneT 3,409 37 78% 22% Employees Nationalities Male Female Integrated Annual Report 2018 - TenneT Holding B.V. 47

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Our performance in 2018 | Non-financial Safety Recognising that our suppliers play a big part in our We consider safety to be among the highest priorities for overall safety performance, we continue to seek dialogue everyone who works for us, whether directly or indirectly. and close cooperation with our suppliers on improving We are building a company-wide safety culture, introducing safety performance, by sharing best practices, working it to employees when they join the company, and reinforcing on joint programmes and creating a pro-active safety it on a daily. An example of this is further embedding the culture. Developing a safety culture starts with building Safety Culture Ladder (SCL) – a NEN (Dutch Standardisation a common awareness on all levels within the company. Institute) certification which allows us to assess the safety TenneT organises this by mobilising safety initiatives and culture within a company. awareness bottom up, and organising top down via Safety Leadership. In 2018 TenneT rolled out two Safety We request our suppliers to adhere to this standard. In 2018 Leadership pilot programs within the Business Units Grid 65 contractors were certified, with more expected in 2019. Service Offshore and Grid Service Onshore Netherlands, We also measure ourselves against this standard, which has covering management and employees. Further roll out of resulted in a SCL level 3 certification. We have developed Safety Leadership initiatives are embedded in TenneT Safety our Safety ambitions further in the new TenneT Safety Vision Vision 2022 and Safety Roadmap. 2022 (Act Safe, Stay Safe), which primarily focuses on Safety Leadership and Safety Execution. To measure the impact of these efforts, we use the Lost Time Injury Frequency (LTIF). In 2018, this was 2.36 which is an improvement compared to 2.53 in 2017. Starting in 2019, we will replace LTIF as our key performance indicator (KPI) for safety with Total Recordable Incident Rate (TRIR) as it counts all incidents, not only the Lost Time Injuries. In 2018, the TRIR was 3.1. Integrated Annual Report 2018 - TenneT Holding B.V. 48

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Our performance in 2018 | Non-financial Society discussion and feedback. We organise leadership trainings Our aim is to engage with all stakeholders impacted by our for new potentials and career development workshops activity. We track this through the number of stakeholder where we want to think together with our employees how engagements we hold during the year in local communities. we can ensure their employability. For instance, we discuss with employees in different stages of their life and working We are currently working on updating our goals and KPIs care on how we can enable them to continue working in a regarding this ambition. More on how we engaged with sustainable manner. our stakeholders is disclosed in the Engage stakeholders section. We also offer a competitive reward package. Currently 83% of our employees in the Netherlands and Germany are Other people developments covered by our CLA. In December 2018, we reached a new To be a sustainable employer of choice, we also support our agreement with a term of 18 months. In Germany, a new employees in their personal and professional development, ‘Vergütungstarifvertrag’ was also negotiated early 2018. helping them to learn and grow, on and off the job. We do This agreement ends in June 2019. this through formal training, on-the-job learning and regular Remuneration Remuneration ratio 2018 2017 2016 Remuneration ratio 5.6 7.5 7.0 Our remuneration ratio, compares the organisation’s In our new Bayreuth campus in Germany, which opened highest-paid individual to the median annual total in February 2018, we have built a designated active health compensation for all other employees. Due to the salary facility, where health courses and trainings are offered. cap of our shareholder, the ratio in 2018 dropped to 5.6 compared to 7.5 in 2017. In the appointment of our new Our Planet ambition CEO we have complied with our shareholders’ policy. The Our Planet ambition relates to the actions we take to have median of the annual total compensation did not change a positive impact on the environment, while minimising our significantly this year. negative impact. In going about our business, we generate emissions, create waste, use non-renewable materials, Wellbeing and have an impact on the natural environment around us. We consider employee wellbeing to be an important This is why we have included three main impact areas in our aspect, which is why we support initiatives that maintain a Planet ambition: Climate, Circularity and Nature. healthy balance, between body and mind. These include encouraging our people to stay active with a sports membership and to participate in our Always Energy health and vitality programme. In 2018, a number of workshops were held to help our people build and maintain a healthy body and mind. Integrated Annual Report 2018 - TenneT Holding B.V. 49

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Our performance in 2018 | Non-financial SDG Impact area KPI identified Target 2018 2017 2016 To be climate neutral for our substations, offices and mobility in 2020. To be fully climate neutral (SF6 Climate CO2 footprint of our substations, emissions, grid losses, energy use offices and mobility (net emission in offices, stations and mobility of our tonnes of CO2) employees) in 2025. 2,037,122 2,095,129 1,709,354 SF6 leakage (%) < 0.28% in 2020 0.30% 0.28% 0.38% SF6 leakage (kg) < 1,106kg in 2020 1,069 934 1,248 In 2025 25% less impact on virgin Reduction of virgin copper use copper use 1) N/A N/A N/A Circularity In 2025 25% less impact of Reduction of non-recyclable waste non-recyclable waste 1) N/A N/A N/A (Net) impact on nature 2) Zero (net) impact on Nature in 2020 N/A N/A N/A Nature 50% reduction of oil leakage in Oil leakages (litres) 2020, compared to 2017 6,379 6,860 2,087 1 Not applicable as 2020 will be our base year. 2 This KPI is currently in progress. Climate Climate 2018 2017 2016 Gross carbon footprint (ton CO2e)/transported electricity (GWh) 10.5 10.8 9.3 Grid losses (GWh) 5,040 5,080 4,212 As we facilitate the energy transition, we work to protect We will ‘green’ our electricity use with green certificates against climate change by connecting more renewable to the maximum extent permissible by law, we report a energy sources. However, we also accept that through gross carbon footprint (without greening) and a net carbon our infrastructure we are responsible for greenhouse gas footprint (with greening). As we work to minimise these (GHG) emissions, which are mostly the result of electricity factors, we are striving to become carbon neutral in 2025. produced to compensate for grid losses in our network. The To get there, we have set a milestone to be climate neutral electricity we use in our own operations and some leakage for our substations, offices and mobility by 2020. of sulphur hexafluoride (SF6) – used as an insulating gas in high-voltage equipment – account for the majority of the remainder. Integrated Annual Report 2018 - TenneT Holding B.V. 50

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Our performance in 2018 | Non-financial Carbon footprint breakdown We also realise that unfortunate incidents might occur, where SF6 is leaked. In 2018, we have had an incident in Germany at our Siems substation, which is the main reason for the slight increase of percentage of SF6 leaked tonnes CO2e (gross) tonnes CO2e (net) in 2018 (0.30% compared to 0,28% in 2017). We will keep focussing on our efforts to avoid leakage of SF6 in the next years to reduce our environmental impact and reach our 2020 target. Circularity As a large player in the energy transition we use copper, steel, aluminium and many more materials to expand our grid. In working with these materials, we aim to reduce our impact taking our next steps with respect to circularity. For our raw material use, we focus on copper as it is expected to become scarce in the near future and we have a high dependency on it in our operations. Regarding our waste, we have set a new target (refer to the table above) to reduce non-recyclable waste as we want to contribute to closing the material loop. Indirect Indirect Direct To reach this goal, we have set a new target (refer to the table above) for our virgin copper use and non-recyclable waste, to reduce both by 25% in 2025 compared to 2020. Upstream Upstream Own operations To obtain insight into our current virgin copper use, we will Travel and Grid losses SF6 leakage apply a raw material passport in our tender procedures and transport 94.53% 0.93% identify all sources of waste. This will set the basis for our 0.54% reference year 2020. Pilot projects are designed to make Electricity Lease progress on these focus areas, including a 2018 project use stations vehicles at our Emmeloord Zuidervaart station to identify the value 3.60% 0.20% of waste streams for re-use. Electricity Gas use offices consumption Nature 0.16% 0.04% It is essential to consider, our impact on the environment. As our assets are located throughout the Netherlands and Germany, often in areas of natural beauty, we are aware our To reach our climate goals, we save energy and green our business has an impact on biodiversity, ecosystems and consumption. We use Internal CO2 Pricing (also known landscape. as internal carbon pricing) to place a monetary value on greenhouse gas emissions. This allows us to factor the As a responsible company, we strive to reduce our negative carbon cost (30 euros per tonne) into our investment impact while stimulating positive impacts. We have included decisions and business operations. This is especially our initiatives in this respect in our Green Charter. Examples useful when taking grid design decisions. With respect include creating better nesting spaces for kestrels and owls to leakage of SF6, a greenhouse gas that is over 20,000 and ‘insect hotels’ to improve biodiversity, two of these are times more pollutive than CO2, we continue to experiment located around our Arnhem and Bayreuth offices. Our Green with replacement alternatives and have taken action to Charter is regularly updated with new initiatives. reduce leakage across our network. During 2018 we also introduced measures to green our energy at several of our In addition, we work with external partners, including substations and are in the process of installing solar panels Natuurmonumenten and the Vlinderstichting, to care for the at our Redwitz substation in Germany. flora and fauna near our stations and cables. Integrated Annual Report 2018 - TenneT Holding B.V. 51

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