avatar TenneT TSO B.V. Transportation, Communications, Electric, Gas, And Sanitary Services
  • Location: GELDERLAND 
  • Founded: 2005-12-19
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    TenneT TSO B.V. Annual Report 2019


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    About TenneT TSO B.V. Contents Contents About TenneT TSO B.V. 3 Management Board Report 4 Financial statements 20 Consolidated financial statements 20 Company financial statements 62 Independent auditor’s report 71 Enclosures 74 Annual Report 2019 TenneT TSO B.V. 2


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    About TenneT TSO B.V. About TenneT TSO B.V. About TenneT TSO B.V. TenneT TSO B.V. (hereafter 'TenneT') is the electricity transmission system operator (TSO) with activities in the Netherlands. 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. Our task The vast majority of our activities are regulated by the ACM in the Netherlands. We have three regulated tasks: (1) the transportation of electricity, (2) system services for maintaining the energy balance, and (3) market facilitation. In addition to our core tasks, we are involved in a limited number of so-called non-regulated activities. These either help to ensure that the energy market operates smoothly and efficiently, or are ancillary to our regulated activities by making better use of existing assets. Transporting electricity The high-voltage grid is the backbone of the electricity supply system. It is used for the transport of high-voltage electricity over long distances. We are a key player in the electricity supply chain. On the one side, this consists of producers of electricity from both conventional and fast-growing renewable energy sources and on the other side large industry and distribution system operators (DSOs). Next to that, we import and export electricity across borders to keep the grid stable and balanced at all times. Because wind farms and power plants are often far away from where electricity is used, we need to carry it over large distances without incurring major losses on the way. To achieve this, we transport electricity at very high voltages: 110 kV and higher. Also, electricity generated at sea, for instance, is transported via subsea cables and then connected to the high voltage grid. Market facilitation Electricity recognises no geographical borders, and we believe North West Europe (NWE) is better served by an integrated electricity market. As such, we have extensively connected our electricity grid with the countries around us. In doing so, we facilitate a single market that guarantees a reliable electricity supply at a fair price. Strategy and value creation TenneT TSO B.V. is part of the TenneT Group, which operates as TSO in the Netherlands and a large part of Germany. In 2019, we finalised our strategic reorientation to recalibrate our strategic pillars. This has led to the following four newly defined pillars: 1) Energise our people and organisation; 2) Secure supply today and tomorrow; 3) Drive the energy transition and 4) Safeguard our financial health. Maintaining the balance between supply and demand As electricity is fed into the grid, we need to carefully balance the level of electricity supply with demand. Since electricity still cannot be stored in large quantities, continuous adjustment of electricity supply and demand is needed to ensure security of supply. To do this, we have national control centres in the Netherlands, where supply and demand are monitored and balanced 24 hours a day, seven days a week. Annual Report 2019 TenneT TSO B.V. 3


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    Management Board report Management Board report Management Board report TenneT plays a vital role in society. Our work makes a fundamental difference to the people living and working in the areas we serve and involves a wide range of stakeholders. These include our shareholder, local communities, our employees, regulators, investors, NGOs, politicians, the media, customers, suppliers and other European TSOs. Our performance How we want to create long term value for society is defined alongside the six capitals from our value creation model. Deliver a high security of supply In today’s connected world, people expect that power will always be available, when we flick a switch or reach for a power outlet. We rely on electricity to power many aspects of our lives –at work, home and on the move. As the grid operator for the Netherlands, our biggest responsibility is to ensure a safe, reliable and secure supply of electricity to 17 million end-users, 24 hours a day, 365 days a year. We have worked hard to meet this expectation during every step of our 20-year journey. This is also becoming more complex and dynamic as more renewable energy sources (RES) are introduced into the energy mix. By nature, power generated by the sun or wind is volatile, which makes it harder for TenneT to balance supply and demand of electricity in the grid. To manage this, we need to be innovative, agile and more forward- thinking than ever before. Securing the supply of electricity is a responsibility that our society as a whole depends on. Our modern, connected and growing high-tech economy relies on a high-performing electricity infrastructure. If we fail to meet the energy needs of society, we risk slowing economic growth and social prosperity. Furthermore, TenneT plays a critical role in helping society make the transition to a low carbon economy. The challenge is how to achieve this energy transition on the scale and at the speed society requires, whilst also considering the affordability of this societal change. It is a challenging quest for our entire industry, sparking a new age of ground-breaking invention and collaboration the world over. Maintaining security of supply also means investing in new assets, performing necessary maintenance and further linking our grid to the NWE network. One of the most important reasons for investment is to help the grid cope with the unpredictable peaks and troughs of in-feed from wind and solar energy. We need to make ongoing investments in the grid to help us overcome this volatile in-feed and maintain a secure supply. An example of this is our 'Beter Benutten' programme. Starting in 2019, this will increase the capacity of the national 380 kV electricity transmission network in the Netherlands. It does not involve installing new lines but increasing the capacity of the existing connections. The first stage of work began with the Lelystad-Ens connection. Four other connections will be upgraded in the period 2019 to 2024. Smart investments like this will enable the network to transport more electricity in the future, helping it to cope with the strongly fluctuating transport needs for sustainable energy. To meet the challenges of the energy transition and fulfil our mission to provide security of supply for society, we must realise all capabilities of our grid so that it is fit for the future. To do this, we must harness new innovations, in both the market and technology, to develop more flexibility that can support the system. Doing this is not only a matter of building more assets. We also need to be smarter, using for example digital solutions to prepare our grid for more volatile renewable energy sources. As such, we are investing in many innovations to unlock new flexibility, such as smart monitoring, advanced data analytics, crowd balancing and blockchain technology. Annual Report 2019 TenneT TSO B.V. 4


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    Management Board report Management Board report Ensuring security of supply also means connecting NWE’s energy markets so we can share electricity with our neighbours. TenneT has long been a pioneer in building cross-border connections and supporting the evolution of an integrated NWE electricity trading market. An important example is the COBRA cable between the Netherlands and Denmark, which became available for the electricity market in September 2019. The 325 km-long subsea high-voltage direct current cable has a capacity of 700 megawatts (MW) and will enable the Netherlands to import more sustainable electricity, mainly wind energy from Denmark. It can also be used to export electricity to Denmark when prices are high in the Netherlands. The project was supported with a European Energy Programme for Recovery (EEPR) grant from the European Commission to stimulate innovation. The COBRAcable is an initiative of TenneT and the Danish electricity and gas grid operator Energinet.dk, with construction starting in 2016, the cable runs between Eemshaven (the Netherlands) via Germany and Endrup (Denmark). Two onshore converter stations, one in the Netherlands and one in Denmark, convert alternating current (AC) into direct current (DC) and vice versa. This is beneficial when transporting electricity over longer distances as it reduces the losses in the system. Ensure critical infrastructure for society Investment in energy infrastructure has never been more important – not only for TenneT, but for all players in this complex and fast-changing market. We have an important role to meet society’s demands with respect to the energy transition, while maintaining reliability and affordability for end-users. The fight against climate change demands a long-term commitment. To this end, our plans should look as far ahead as 2030 or even 2050. We have to think big, plan for the unexpected and work closely together with our stakeholders to safeguard security of supply in a carbon-free energy future. For the next decade, our investments in the Netherlands will result in the required backbone to deliver the energy transition, with solutions that accommodate and balance renewables in the electricity supply, connect across borders, allow renewable electricity to be stored and transported further, and link the offshore and onshore grids. At the same time, we strive to keep the cost for society as low as possible, minimise our impact on the natural environment and local communities and optimise the working environment of our people. In September, Borssele Alpha, TenneT’s first and largest connection system for wind farms on the Dutch North Sea became ready for operation. Completed according to plan, Borssele Alpha is ready to transport the future wind energy from the major offshore wind farms in the North Sea. The Borssele area is critical for the Netherlands to meet its renewable energy targets. Borssele Alpha is the first of two connections of 1,400 MW in aggregate, with the second expected to be ready in 2020. October 2019 saw the completion of the Randstad 380 kV Noordring project. This strategically important connection is a new 380 kV high-voltage connection between Beverwijk and Bleiswijk. With a length of 65 km, it is TenneT's largest landbased project in the Netherlands and is essential for the security of supply of electricity in the Randstad, a metropolitan area comprising the four largest Dutch cities and their surrounding areas. Not only is this region of great economic and strategic importance, its energy demands are growing. Having overcome the challenges of constructing a powerline in one of Europe’s most urbanised environments, TenneT is proud of the completion of this project. The connection also helps to future-proof our grid, as it will transport green energy from the wind farms in the North Sea. A significant project for supporting the energy transition in the Netherlands is the 'Hollandse Kust (zuid)' grid connection. This consists of two 700 MW connections, so in total 1,400 MW. During 2019 the construction of the topside and jacket for the platforms has started. The platforms will be connected to the high-voltage 220 kV substation at the Maasvlakte by means of four AC cables. The civil works to accommodate the installation of the cables (horizontal directional drillings) through the sea defence wall and crossing the Yangtze channel were completed in 2019. Annual Report 2019 TenneT TSO B.V. 5


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    Management Board report Management Board report An important element of our ongoing maintenance programme is to make our 110/150 kV substations ready for the future. To do this, we need to replace approximately 140 substations, many of which are over 45 years old. Over the next 10 years, we will be replacing approximately one substation per month. To move fast, we have introduced common technical standards so we can take a uniform approach to replacement, maintenance and management. Our Bay Replacement programme, which started in 2017, has largely designed this new approach. The new concepts were tested in 2019 with the replacement of six proof-of-concept-substations with air insulated (AIS) and gas insulated (GIS) technology. Based on the results of this, from technical, organisational and financial perspectives, TenneT started with the large volume replacement of 110/150 kV substations using the new technical standards during 2019. Create a sustainable workplace TenneT is proud of the successes of the past 20 years in the European electricity market. During this time, we have grown rapidly with a dedicated workforce exceeding 1,580 employees. We are pioneers, working at the forefront of the energy transition, which is an important challenge for our entire society. To continue to meet this challenge, TenneT needs to transform. We are proud of what we have achieved so far, but to reach our goals, we must adapt and evolve. We need an organisation that allows our people to perform at their best with new ways of working, so that we’re in the best possible shape to drive the energy transition, now and in the future. We also need to attract and retain the best people. Given the skills shortage in our industry and our demand for new hires, we simply cannot afford to overlook any talent. To fulfil our role, keep pace with respect to our culture and processes and sharpen our strategy. We are organising for growth, adopting structures and processes to enable our employees to take faster and more decisive action, in step with the ever-faster pace of the energy transition. We want to accelerate decision-making with more personal responsibility, clearer roles, and work seamlessly across borders and departments. We are working to energise our people and our organisation, with an inclusive and safe environment where people enjoy coming to work. Our aim is to create a leadership model that empowers, inspires and creates growth opportunities, so everyone can perform at their best and work as one. In 2019, the average number of full time equivalents increased to 1,442 (2018: 1,337), reflecting the growth of our investments. With our role in driving and realising the energy transition, we need to attract new talent and expand our workforce. However, recruiting talent is getting harder, particularly in the technical sector where there is strong competition for good people. As the energy transition requires us and our partners to step up our efforts to recruit and train of technical staff, we have been working on new ways to attract talent. That is why we signed an agreement to train MBO students (Intermediate Vocational Education) for work on the energy transition. This is a new way for us to attract technical staff and help us build and maintain the future grid. The MBO-Covenant Klimaattechniek is a collaboration between the educational sector, government and grid operators and includes agreements to create more training positions and job guarantees for technical MBO students. We believe this will help alleviate the shortage of technical staff. Furthermore, we are also working with NGOs, such as the Refugee Talent Hub and Rising You. With the Refugee Talent Hub, we entered a partnership to uncover new talent. In 2019, we welcomed six new colleagues through the Refugee Talent Hub who will gain relevant work experience at TenneT. With Rising You, we are helping to train refugees to work high above ground, developing the talents we are looking for. We value diversity in a wider sense, not only in terms of gender, religion and culture, but also socio-economic backgrounds, skills, knowledge, personality, experience and a balanced reflection of geographical backgrounds. We believe that a diverse working environment helps us perform better as a company and deliver better value for our stakeholders and society. We strive to be a workplace where everybody feels safe and included. Safe not only in its physical sense, but also socially. Annual Report 2019 TenneT TSO B.V. 6


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    Management Board report Management Board report In 2019 we launched our TenneT Safety Vision 2022, based on two central themes: Safety Leadership and Safety Execution. The Safety Vision 2022 builds on TenneT's previous safety vision, with new targets to achieve Zero Harm. Developing Safety Leadership and keeping it up to date is a continuous effort. In 2019, two Safety Leadership Development pilots were conducted succesfull. In these initiatives al managers and employees of the department Grid Service Offshore and Grid Service Netherlands have been trained to stimulated Safe behaviour throughout the chain. The best practices and lessons learned are input for the Safety Leadership Development program for the other departments within TenneT. The two departments will build further on strong safety behaviour in 2020. Safety is not just about TenneT’s own employees, but also about the employees of our contractors who perform work for us. As such, we involve our suppliers as much as possible in our safety improvement programmes. An example is the rollout of the Safety Culture Ladder (SCL) to our contractors. More than 100 TenneT contractors have now been certified for the SCL, and that number is rising steadily. TenneT also opted to be certified by the SCL and last year achieved SCL level 3 out of the 5 levels of the SCL. This level means that all relevant instruments within the organisation are correctly implemented and employees are familiar with the systems and how to use them. In 2019, we successfully passed the intermediate audit, which verified that we still complies to the results of the initial certification achieved in 2018. Create value to transition to a low carbon economy We cannot escape the fact that we work in the natural environment and depend on it. When we construct high-voltage connections to meet society’s energy demands and realise the energy transition, we need to work with nature. This is the case whether we work under or above ground, or in a marine environment. We also need to use natural resources, such as copper and steel, to realise our projects. Our impact on nature is one of the factors in the balancing act we face in our business: we strive to deliver a reliable and secure supply of electricity, at an affordable cost for consumers while ensuring that we act as sustainably as possible. This means minimising our negative impacts and creating positive impacts wherever possible. Looking at our business from a natural capital point of view, we create significant positive impact by connecting renewable energy sources to the electricity grid. This does however go hand in hand with impact and dependencies related to the use of energy sources, the natural environment and natural materials to build operate and maintain our grid. These are put to use in our projects to secure supply and to connect more and more renewable energy sources. Our main carbon impact is related to our grid losses. There are many factors that influence the amount of these losses, but they are inherent to the transportation of electricity. We continue to look for opportunities that can reduce these losses. A TSO-specific part of our carbon footprint is the leakage of SF6 gas. This gas is used as a highly-effective insulator and extinguisher in switching installations. It allows for compact switching installations, which is often necessary in built-up environments. It is also necessary for interrupting currents in the networks. There is currently no proven technology concept for gases other than SF6 at our (high) voltage levels. This makes it necessary for TenneT to use SF6 in our operations. However, we recognise the growing concerns about the use of SF6 in our industry and noted reports in the media during 2019 focused on the climate impact of SF6. We have been working on reducing our climate impact related to SF6 for many years and realise that we need to accelerate this important work. We define circularity as minimising our use of scarce materials, re-using materials where possible, and reducing waste in our operations. As we realise that operating fully circular is not yet possible and we therefore focus on contributing to a circular economy with feedback loops. 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 by taking steps with respect to circularity. For our raw material use, we are focussing our sights on copper as it is expected to become scarce in the near future and we have a high dependency on it in our operations. Annual Report 2019 TenneT TSO B.V. 7


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    Management Board report Management Board report As our assets are often located in areas of natural beauty, we are aware our business has an impact on biodiversity, ecosystems and the landscape. Our commitment to nature is to minimise our impact and protect and improve nature in the areas where we operate. Our Nature ambition is for our projects to have zero net impact on nature in 2020. Achieving this relates to creating positive impacts, such as promoting biodiversity at our substations. Have a solid financial performance and reputation Rising investments, financing costs and related grid fees all impact the tariffs we pass on to end users. We seek to limit this impact through stringent cost management and operational excellence. In addition, we also need our regulators to provide us with more cost-efficient incentives to develop innovative solutions for a smarter grid. This would be preferable to current incentives, which is to simply develop more assets. While we have a clear role in helping to drive the energy transition, it comes at a financial cost. Either through taxes, subsidies or tariffs, the public cost of the energy transition will rise. Monitoring and managing the performance of our business is based on underlying financial information and not on IFRS- reported financials. Underlying financial information involves the recognition of regulatory receivables and payables, which – based on the current regulatory framework – can be recouped or are to be returned through future grid tariffs (see section 2 of our consolidated financial statements). Under IFRS, reimbursement/settlements through future grid tariffs may not be taken into account. As a result, the balance of any expense or income is not recognised as a regulatory asset or a liability under IFRS. Results In EUR million based on underlying financial information 2019 2018 Change Change in % Investments in tangible fixed assets 1,091 876 215 24.5% Revenue 1,038 945 93 9.8% EBIT 211 121 90 74.4% In 2019, revenue increased as a result of significant investments in new assets over the past years. The regulatory regime ensures that we are compensated for the depreciation of our investments and that we make a return on the capital invested in our regulatory asset base. In addition, the revenue increased due to the CBb verdict of 28 november. The CBb ruled favourably for TenneT regarding both the WACC and the ex-post settlement of offshore OPEX costs. Operating expenses remained stable with decreasing grid expenses being offset by higher depreciation costs. Depreciation costs increased due to implementation of IFRS 16 and increasing assets. All in all, underlying EBIT increased from EUR 121 million in 2018 to EUR 211 million in 2019. The increase in EBIT is due to an increase in revenue and lower grid expenses, partly offset by higher depreciation. Last year's EBIT was further impacted by a write-off of assets under construction as a result of the termination of the Wintrack II - contract with Heijmans- Europoles B.V. We continue to invest in our grid in order to maintain a high security of supply and to facilitate the energy transition. Capital expenditure (capex) totalled EUR 1,132 million in 2019 and increased by EUR 256 million compared to 2018 (EUR 876 million). The investments mainly increased due to investments in offshore projects in the Netherlands. Capex in 2019 for a significant part related to the following projects under construction: the Net on Sea (Borssele and Hollandse Kust), the cross-border interconnectors COBRAcable (Netherlands - Denmark) and the connection Bleiswijk - Vijfhuizen - Beverwijk. Solve societal challenges with stakeholders and in partnerships Working with our stakeholders and through partnerships, TenneT has an important role to play in driving the energy transition. To drive this revolutionary change for society, we need to work even more closely with our partners to share perspectives, develop new energy solutions and build support for the energy transition. This is one of the key ways we create value for society. Annual Report 2019 TenneT TSO B.V. 8


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    Management Board report Management Board report Our partners range from fellow European TSOs and DSOs, to governments, national regulatory authorities and political parties, knowledge and business partners and NGOs and local communities. Together, we are able to take the necessary steps by using our combined knowledge and experience to realise this transition in a way that is beneficial for society. At government level, we actively engage in the public debate on the energy transition. We work closely with communities and governments, local, regional and national. For example, we participated as a partner in the Dutch climate agreement (Klimaatakkoord). We are one of the signatory members of this agreement and have committed ourselves to follow up on the measures that were agreed upon. Announced in June 2019, the agreement is the result of a multi-stakeholder consensus on how to transition to a low carbon economy, contributing to solutions that will help the Netherlands achieve its target to reduce carbon emissions by 49% by 2030. Another example of our dialogue with our stakeholders is the first TenneT E-TOP we organised in 2019. Together with CEOs and other experts in the energy sector, we discussed the energy transition and how we can further accelerate. The aim of this meeting was to find opportunities for more cooperation on important issues with respect to the energy transition and system integration. The infrastructure and technology needed to deliver electricity to the end user’s door unavoidably impacts local communities. Our work involves a delicate balance: what is good for and desired by the broader society is not always welcome at a local level. We manage this by striving to act as a partner who puts our newly defined values of ownership, connection and courage into practice. Whenever we start a new project, our goal is to listen to the concerns and needs of those affected and provide all relevant information to evaluate and discuss. We want all stakeholders’ views to be listened to and considered. At the same time, we want to build a better understanding of our work, developed patiently over time through clear and transparent communication. This is essential to our licence to operate and our reputation as a responsible corporate citizen. For larger projects, we open dedicated information centres, going the extra mile to ensure everyone has the chance to make their voice heard and helping us minimise the impact of our work. Working with our stakeholders also means enabling, encouraging and partnering with entities that can help us unlock flexibility in the energy market. We need to do this because matching supply and demand in a market with a higher infeed of renewable energy sources carries significant technological and capacity challenges. There are several areas where we are increasingly partnering up to overcome these challenges, including our collaborations to explore the integration of the electricity and gas power networks. TenneT is working with Gasunie to find answers to the energy transition. A joint project, called Infrastructure Outlook 2050, proposes a scenario where the electricity and gas energy infrastructures are seamlessly integrated. One of the principal benefits of this is that it allows wind-generated electricity to be stored, after conversion into hydrogen gas using power-togas technology (electrolysis). Energy storage will be increasingly important to keep electricity supply and demand in balance and coping with the fluctuations in weather-dependent renewable energy sources. As we rely on more renewable energy sources, TenneT is also working with partners to explore new digital solutions that can help us balance electricity supply and demand. To help to keep the grid balanced, TenneT is looking for new (decentralised) sources that can offer flexibility, such as household batteries and electric cars, and ‘prosumers’ who generate their own electricity from solar and wind installations. By working with different suppliers and ‘aggregators’, and by applying innovative blockchain technology, the capacity of all these sources can be harnessed, and consumers can also participate directly in the energy market. Annual Report 2019 TenneT TSO B.V. 9


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    Management Board report Management Board report TenneT has also been working with other partners to unlock flexibility through new market concepts. An example is a partnership with the Dutch Distribution System Operators (DSOs) to launch GOPACS, a new smart solution to reduce congestion in the electricity grid by using flexible power from the market. It is an important step to mitigate capacity shortages in the electricity grid (congestion) and help keep the Dutch grid reliable and affordable. GOPACS is a good example of active collaboration between TenneT and regional grid operators. We also work together with NGOs to realise our ambitions, specifically to lead as a green grid operator. We entered into key partnerships in which we share knowledge and information and define actions together to enhance our impacts. Examples of this include the "Vlinderstichting", with respect to our nature ambitions, MVO Nederland, where we work together in the "Groene netten" coalition to achieve certain common goals with other companies in the Infrastructure sector and the "Natuur & Milieu" and North Sea Foundation, where we extended a partnership to work together with respect to our offshore projects. As a company with a strong social purpose, we also give back to society through several partnership initiatives, such as supporting sports activities for underprivileged children with the Johan Cruyff Foundation, and supporting nature through a partnership with the Nationale Park de Hoge Veluwe, located near our office in Arnhem. We also help to bring refugees and employers close together through our partnership with the Refugee Talent Hub. Risk Management and Internal Control Risk management and internal control objectives Actively applying and advancing our risk management system, we periodically identify and continuously manage uncertainties (comprising of risks and opportunities) affecting the realisation of TenneT’s strategic and operational objectives. Applying top notch standards within TenneT's internal control system, we also enhance efficiency and effectiveness of day-to-day processes. The key objectives of our risk management and internal control system are to establish: • Identification and assessment of uncertainties bearing potential negative or positive impact on strategic and operational (department, process and project) objectives • Creating risk awareness and open culture of addressing risks and opportunities • Providing a uniform risk management framework and tools to help the organisation take risk based decisions founded on relevant, reliable, timely, an information - also to ensure efficient priority based resource allocation • Providing transparency to the boards, internal and external auditors as well as shareholders so they stay informed about most significant risks potentially impacting strategic objectives TenneT's enterprise risk management and internal control frameworks are based on ISO 31000 and COSO standards and are compliant with the requirements of applicable laws and regulations like the Dutch Corporate Governance Code. Enterprise risk management is clustered in: • Strategic risk management • Operational risk management • Project risk management • Risk & portfolio management • Internal control Annual Report 2019 TenneT TSO B.V. 10


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    Management Board report Management Board report Risk management and internal control Mission, Risk Business Achieve Vision & Core Management Objectives Objectives Values Process Board Level Department, Process & Project Level Derive business objectives strategic objectives • Department level • Project level and internal control processes • Process level (end-to-end) At TenneT, the following factors are seen as crucial to realise full value of risk management and internal control for the organisation. They are designed in line with stakeholder requirements: • Structure: policies (e.g. corporate enterprise risk management policy), IT-systems, reports, processes, etc. • People: roles and accountabilities, profile, education and skills, etc. • Competencies: risk culture and competence on management level, etc. Key factors of Risk Management Framework • Risk competence Competencies • Culture and behavior • Roles • Accountabilities People • Rewards & Sanctions • Policy Structure • IT-system • Training & processes • Strategic objectives Stakeholder • Operational Targets Requirements • Project Targets • Process Targets Principles of risk management are expected to be taken into account in all activities performed within and for TenneT. Furthermore, at the heart of the governance system, risk management and internal control is interlinked with other 2nd line of defence functions like risk transfer, business control, project control and compliance office as well as third line functions, such as internal audit. Annual Report 2019 TenneT TSO B.V. 11


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    Management Board report Management Board report Top down and bottom up dialogues and workshops as well as special topic analyses are facilitated by corporate risk management. Resulting outcomes provide management with insights relevant to take risk based decisions to support achievement of objectives set on all organizational levels. Strategic risk management (SRM) SRM focusses on future events which may influence strategic objectives in positive or negative ways. The Executive Board evaluates the risks as they develop as well as the effectiveness of applicable mitigating actions. TenneT’s strategic risk position is shared and discussed with the Supervisory Board and the Audit, Risk and Compliance Committee. Operational risk management (ORM) Operational risks affecting the various business units and corporate departments are - inter alia - documented and evaluated in the course of interviews and workshops with senior management to assess the adequacy of mitigating actions. TenneT’s corporate risk management & internal control team facilitates the organisation to review its risks, opportunities and related responses. TenneT’s updated operational risk position is part of the Letter of Representation (LoR). Project risk management (PRM) To meet challenges arising from the enormous investment portfolio and related objectives around ten years ago TenneT started to implement project risk management, first with a focus on large projects. PRM aims at enhancing the chance of realising project goals on time, budget and quality. For all large projects, dedicated project risk managers review and manage risks together with project leads systematically within the quality and uniformity standards safeguarded by corporate risk management. Project risk management has reached a high maturity level within TenneT. Risk & portfolio management Furthermore to strengthen the security of supply, TenneT’s asset management uses condition monitoring and risk based assessments to plan maintenance and investments. Grid constraints are identified by analysing grid components and failures and by monitoring the necessary transport capacity. These constraints are assessed according to the risk they pose to TenneT’s objectives. Should the risk exceed a predefined level, a measure to mitigate this risk is proposed and included in our investment portfolio. Internal control (IC) Our internal control framework is designed to support and safeguard the realisation of our process objectives, as well as fulfil our legal obligations and establish the reliability of our internal and external reporting. To assess the effectiveness of this framework and identify opportunities for improvement, a control self-assessment is performed by control owners and validated by management twice a year. Risk management & internal control performs quality assessments on the outcomes. Internal audit checks randomly selected self-assessments during the year to form an independent opinion. The outcomes of these control self-assessments are direct input for the Letter of Representation procedure. Identified issues are reported to risk management & internal control, which monitors and follows up on mitigating steps with the relevant business owners. Overall control effectiveness is reported in our State of Risk report. Thus, we strive for a high-quality and harmonised TenneT wide internal control framework. Our framework is gradually shifted from a core finance perspective towards a business objective driven approach with the inclusion of core business- and non-financial reporting processes. Compliance and integrity TenneT intends to provide all parties with guaranteed, non-discriminatory access to our transmission grid. With Compliance & Integrity we aim to prevent, detect and respond to compliance risks that threaten the realisation of TenneT's strategy and objectives and may lead to economic or reputational harm. Next to having clear guidance by means of corporate and local policies (like the Supplier Code of Conduct, Policy on Gifts & Hospitality, Whistleblowing Policy, Conflict of Interest Policy and Investigation Policy), the right tone at the top, leadership principles and a training & communication plan are essential elements of a well-functioning Compliance & Integrity management system. Annual Report 2019 TenneT TSO B.V. 12


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    Management Board report Management Board report As part of Transforming TenneT, TenneT revisited the organisational design of the company in order to be prepared for future growth. As part of the currently ongoing reorganisation, it is envisaged that the Data Protection officers will become part of the Compliance & Integrity department. Furthermore, the team is expected to be strengthened with additional resources. The Head of Compliance & Integrity will report directly to the CEO and form part of the Senior Leadership Team. Beginning 2019, a new head Compliance & Integrity Officer was appointed on an ad interim, part-time basis, because of the departure of the former lead. As of October, the new head is fulltime in function.The regional Compliance & Integrity officer in Germany has not changed. As part of our compliance management system TenneT has set up a compliance & integrity committee that deals with compliance and integrity issues, comprising members from relevant functions (Risk Management & Internal Control, Internal Audit, Corporate Safety & Security, Human Resources Corporate, trusted counsellors and Compliance & Integrity officers). The objective of the committee is to share company information on compliance and integrity risks, raise awareness and remediate risks by taking action. In 2019, the committee met twice. TenneT also has an external committee that deals with sexual harassment, a whistleblowing policy and a procedure for internal and external compliance and integrity issues. Employees can report any concerns confidentially to either a trusted counsellor or a compliance & integrity officer, and if the concerns relate to sexual harassment or violence, they can report them to the committee dealing with sexual harassment. In addition, employees as well as external parties can report compliance and integrity issues through an independent whistleblowing portal freely accessible on the internet. In the current year, besides day-to-day management of compliance risks and supporting, advising and handling compliance cases, the project to align the existing compliance management system with the ISO 19600, a best practice for international Compliance Management Systems (CMS), has progressed. It is foreseen that the outline of the CMS and a multi-year strategy and implementation plan will be in place ultimately by mid-2020. In addition, the updated Supplier Code of Conduct and Conflicts of Interest Policy have been implemented. In April, for the first time a company-wide, mandatory e-learning about compliance & integrity and data protection was rolled out. Next e-learnings on REMIT (Regulation on wholesale Energy Market Integrity and Transparency) and information security will be launched beginning 2020. E-learnings on compliance related topics will be part of a training curriculum and of the HR performance management system, i.e. a personal 'licence to operate'. The Compliance & Integrity officers have received more than one hundred requests for advice throughout the year. The majority of the questions relate to gifts & hospitality and conflicts of interest, but also relate to interpretation of legal directives and guidelines, information security and integrity matters. No fraud, bribery nor corruption breaches with material impact were identified by TenneT in 2019. Material impact is defined in our risk matrix by a severe breach that has a significant adverse effect on TenneT’s reputation and/or financial position. Risk appetite Risk appetite is the amount and type of risk TenneT is willing to take or not to take, in pursuit of value, relative to its major business objectives. TenneT’s risk appetite has been set by the Executive Board for each of our strategic pillars. It is communicated by management, endorsed by the Executive Board and disseminated throughout the company. In terms of the amount of risk that we are willing to accept in relation to our strategic goals, we differentiate between the following categories: • Risk averse (low risk appetite), • Risk neutral (medium risk appetite) and • Risk-taking (high risk appetite). Annual Report 2019 TenneT TSO B.V. 13


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    Management Board report Management Board report The following graph summarises risk appetite and trends on risks and opportunities assessed by the Executive Board. Risk appetite and trend score Risk Appetite Risk Opportunities Strategic goal Goal description Trend Trend - + - + Drive the as a green grid operator and a energy thought leader. transition Energise our with an inclusive and safe environment people and where people enjoy coming to work. organisation Secure supply by maintaining the grid to meet reliability today and targets and operating it to its maximum tomorrow capability. by implementing a regulatory framework to Safeguard support our strategy, and delivering a return our financial in line with what our capital providers expect, health and raising the necessary external financing. Key risks We categorise our risks according to the four types of risk defined by the COSO II model: strategic, regulatory, operational, reporting and compliance. TenneT's financial risks are presented separately in notes 6.7 of the financial statements. Strategic risks Deliver a high security of supply In today’s cross-border energy market, security of supply is enhanced by the interconnectivity of the European transmission grid. However, misalignment in the energy policies of individual European countries – such as stalling plans to invest in nuclear power, stopping the development of coal or lignite plants, or increasing the development of renewables – is having a significant impact on the entire European grid. Dealing with European grid issues has become more of a daily challenge, especially as the further integration of renewables and reduced availability of conventional energy production has increased the likelihood of critical situations. This is particularly likely during the autumn and winter. To address this requires international alignment of political targets. TenneT works towards this by engaging in and providing transparency in political discussions. An example of how political decisions can impact us is the Clean Energy Package (CEP), which is an initiative of the European Commission. The CEP will come into force in 2020 and includes measures with respect to the electricity market. The effect of some articles of the CEP may endanger our security of supply as congestion is likely to increase and could be in conflict with the decarbonisation targets of the member states. In close cooperation with the ministry and regulator we have defined actions to be compliant to the CEP. We have agreed structural congestion reports and defined starting values for capacities on our network elements. Our ministriy has provided an action plan to reach 70% market capacity on all critical network elements. We have also submitted two derogations in order to prepare our organisation to be able to meet the yearly increased targets. Cyber risks are an ongoing risk in our sector. To ensure we can handle cyber-related risks and any repercussions, we continuously work on understanding our cyber risks (and how best to handle them) as a joint effort between internal and external allies. We have ISO 27001 certification ongoing and we also carry out penetration tests and crisis management exercises every year. Annual Report 2019 TenneT TSO B.V. 14


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    Management Board report Management Board report Ensure critical infrastructure for society Society is demanding a swift transition towards renewable energy. Our investment portfolio causes a high workload throughout the entire supply chain and we face scarcities in our supplier markets due to strongly increasing market demand for power transmission components and especially for overhead lines and cables. This high workload is amplified by the lack of skilled staff available to us and our suppliers in the labour market. Together with the high degree of organisational complexity our projects have, these factors present a viable risk to realising our investment portfolio and achieving a successful return on investment without delay and against affordable costs. To mitigate this challenge, we use framework agreements, bulk orders, standardisation, increased storage capacities, improved demand forecasting and we actively support the development of new technologies (e.g. 525 kV DC-cables) and look for alternative supplier and service providers. We also employ external project management service providers to staff construction projects in the onshore grid. To counterbalance a lack of internal resources, we pro-actively perform analyses to ensure adequate succession planning. Ageing infrastructural assets are a challenge in realising the investment portfolio of an asset-driven company like TenneT. We continuously work to optimise our organisational processes, including lean decision-making, an emphasis on employee training, and using probabilistic schedule analyses. We make additional resources available for maintenance work and are increasing the efficiency and flexibility of our maintenance programme by monitoring and simplifying internal processes. We consider bottlenecks in outage planning in addition to an increasing duration of unplanned outages still to be a risk. As a company that builds critical infrastructure in the natural environment, our engagement with stakeholders treads a fine line between societal and local interests. What is good for and desired by society is not always welcomed by the communities affected by our projects. We communicate with a large number of stakeholders, assess different technological options, routing options, interdependencies of work packages between different projects and challenges in the political environment. Delays in licensing (especially mandatory permits issued by authorities) as well as challenges arising from the use of innovative technology (e.g. newly designed 525 kV cabling) can also throw a project off schedule. TenneT works to mitigate these risks by identifying possible constraints and the cost of viable solutions in the early stages of the decision- making process, communicating transparently with regional stakeholders, working closely with authorities, enforcing high quality standards and closely monitoring its suppliers and deliverables. We are aware that we will not always overcome local opposition. There are certain environmental developments in Europe, also related to our service area, that may pose a risk and delay projects. These include various European government policies on perfluoroalkylated substances (PFAs) and nitrous oxide. This is embedded in our daily operation. Create a sustainable workplace Without the right culture, structure and common understanding throughout all layers of our organisation, TenneT might not be able to execute the strategy as intended. Furthermore, the impact of “Transforming TenneT” on employee perception of job security could also impact the motivation of our workforce. As such, ongoing dialogue and open communication with our employees are essential in this perspective. Transforming TenneT is a clear objective for us, and next to this we remain focussed on the development and mobility of our people. One key risk both in the shorter and longer term is the scarcity of qualified staff. To address this risk, we focus on tailored sourcing approaches and are aiming on building an image of TenneT as an attractive employer, as well as actively work on internal succession planning. We are interacting more with potential employees, actively participating in career events and reaching out to students during their studies. We are investing in our future talent pipeline, including initiatives to attract potential employees such as our International Trainee Programme and our High Voltage Trainee programme. Working with high voltages and in capital-intensive projects can mean an increased risk of injuries and even fatalities. This also applies to, perhaps even to a greater extent, the work our suppliers are performing. They might consider and apply safety values that are different to the ones at TenneT. We continue to explain what safety means at TenneT and build awareness of this among subcontractors. Annual Report 2019 TenneT TSO B.V. 15


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    Management Board report Management Board report Create value to transition to a low carbon economy The scarcity of natural resources (such as copper and aluminium) may jeopardise our ability to complete projects, also against affordable costs. As such, we have defined a policy and actions for our circular ambitions. We are stepping up our efforts to use the resources we need in our daily operations with maximum efficiency and raising the bar on our circular ambitions. That is why we are striving to reduce our use of virgin copper in our asset management activities. Our initial focus is on our copper usage. We will then use this information to determine what actions we need to take to reach our goals. Our circular ambitions are a part of our overall CSR ambition. Together with our stakeholders, such as our contractors, we strive to realise these ambitions. We work together with contractors and sometimes we need to challenge them to help us to realise our goals. However, this is not always easy as there is quite some pressure from different stakeholders to build and maintain our assets in a way that is affordable and putting demands on the market that they cannot fulfil is contra productive. To us, the challenge is to balance this out and try to raise the bar at the same time for us but also for our contractors to find a solution that meets our ambition and those of our stakeholders. We have also noticed that our stakeholders are increasingly paying attention to our climate-related risks and opportunities. Physical climate-related risks with respect to our assets include drought and higher temperatures significantly increasing the risk of wildfire, resulting in damage to substations and over-headlines, which in turn causes outages. With respect to climate adaptation, we are working together with other authorities. For instance, we are cooperating with national and local authorities to protect our assets against rising sea levels. Have a solid financial performance and reputation In order to fund our investment portfolio and raise the required debt financing, TenneT needs to secure a sufficient credit rating by attracting sufficient additional equity. At the same time, society and politicians are critically assessing investments by the Dutch state. As such, we work closely together with the Dutch Ministry of Finance and continuously work on alternative solutions for financing. Our revenues are based on the regulatory framework. The growing sentiment against the increasing cost of energy is putting more pressure on the reimbursement system. Adverse changes in the regulatory system might impact our performance. Solve societal challenges with stakeholders and reputation To be able to drive the energy transition and lead as a green grid operator, it is important to create societal acceptance of the energy transition. Lack of acceptance could lead to the inability to fulfil our ambitions and delay the transition to a low-carbon economy. Societal acceptance of our assets remains important. TenneT’s construction and operation of substations, underground cables and transmission lines, and investments in sustainable energy solutions may affect a large number of people and interests. Because grid expansion projects take years to develop and cost hundreds of millions of euros, the impact of project delays, difficulties or shutdowns may be significant. The expansion of our high-voltage electricity grid may significantly alter landscapes in a way that can affect the livelihood of surrounding residents. The debate with respect to potential health risks related to our overhead transmission lines and magnetic fields is ongoing. As TenneT, our aim is to comply with rules and regulations and take sufficient caution in the construction and operation of our assets. We are also currently working together with the respective authorities and other involved stakeholders to include their views as we in the process of updating our policy with respect to magnetic fields. In our view, forming long-term partnerships within and outside the TSO playing field is an opportunity to drive the energy transition. Initiatives like crowd balancing need strong partnerships between several industries and the public domain. Annual Report 2019 TenneT TSO B.V. 16


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    Management Board report Management Board report Regulatory risks The following table details TenneT's most important regulatory risks. Regulatory risk Risk-mitigating actions • Inability to meet exacerbating efficiency targets imposed by • TenneT performs regular reviews of processes and organizational incentive regulation. Especially taking into account a strongly structure and introduced lean management. Additionally, TenneT growing company and the need of investments in innovation. scrutinizes the results of efficiency audit by the regulators and disputes or starts litigation, if needed. • TenneT is unable to achieve a reasonable return on its invested • In the Netherlands, TenneT constructively discusses with the capital as the regulated return continues to decline due to the ACM the regulatory parameters for the next regulatory period. low interest environment and stricter regulatory incentives on its In general, no material changes are expected in ACM's WACC total expenditures. approach. In Germany the discussions focus on the remunera- tion of investments. Europe • The 'Clean Energy Package' (CEP) has entered into force. It • Advocate at the ministry and regulator that redispatch and other requires a.o. that TSOs provide to the market 70% of the total costs are reasonably covered since they arise as an effect of cross-border transmission capacity, a number hardly possible changes in European law. Constantly follow up the development without extensive and costly redispatch activities. The CEP of the action plan both in the making (until end 2019) and in the however allows a linear fade-in until 2024 if an action plan is implementation to ensure technical and financial feasibility of the provided by governments. This plan might impose costly and proposed actions within the required timeframe. In addition, hard-to achieve measures on TenneT. Other provisions of the TenneT puts resources in the relevant working groups at CEP have a financial impact e.g. how TSOs have to use European level (ENTSO) to shape methodologies which are congestion revenues developed at that level such that they are not harmful for TenneT. The Netherlands • The ACM has initiated the start of the next regulatory period • TenneT is in a constructive dialogue with the ACM to ensure (starting 2022 with an expected duration of 5 years). The ACM reasonable efficiency targets and cost recovery. However, similar will set the regulatory parameters relating a.o. to the efficiency to the 6th regulatory period (2014 - 2016), there is a risk that (based on the international TSO benchmark), cost of capital and TenneT will need to dispute the applied efficiency targets before recovery of operational expenditures such as procurement of court. TenneT is advocating the regulation includes forward energy and ancillary services. There is the risk that the ACM sets looking challenges, such as cost recovery for congestion too strict regulatory incentives, particularly relating to efficiency. management and positive incentives for innovation. Annual Report 2019 TenneT TSO B.V. 17


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    Management Board report Management Board report Operational risks The following table details TenneT's most important operational risks. Operational risk Risk mitigating actions • Limited availability of adequate resources – external and internal • Strategic procurement planning and development based on workforce, material and services deep demand analyses • Further integration of external service providers (e.g. via EPCm) • Further develop employer branding and recruiting process • Development and qualification of new suppliers and markets • Risk of outages caused by progressing obsolescence of high • Adapt reinforcement strategy to current developments voltage equipment • Continuously improve the asset risk based approach • Bundled project portfolio with optimized outage requirements • Lacking pro-active safety culture and behavior. In conjunction • Further development of safety leadership and behavior with high pressure on people and projects that might increase • Certification on Safety Culture Ladder Level 4 the risk of work-related incidents and accidents • (Cyber) Terrorist or state attack against critical infrastructure • Implementation and certification of Information Security Management System (ISO 27001) • Implement further security processes based on existing anomaly detection • Improvement projects focusing on protection of physical assets • Develop disaster recovery plan for IT services and performing regular tests • Public resistance and political opposition against large DC • Early involvement of stakeholders, proactive consultation about projects resulting in significant project delays identified issues and transparent communication • Intense talks with political stakeholders on all levels in order to guarantee efficient planning Reporting risks The following table presents TenneT's most important reporting risks. Reporting risk Risk-mitigating actions • Financial statements do not give a true and fair view of the • Internal control framework, including control self-assessments company's financial position, financial performance and cash and Letter of Representation procedure. flows. Financial statements are not compliant with applicable laws and regulations. • Training of personnel. • Verification of compliance with legal requirements and auditing standards by external auditor and Internal Audit. • Incorrect (regulatory) reports or information to ACM and/or tax • Internal and external audit reviews and follow-up on findings. authorities. • Use of internal accounting manuals. • Intensive monitoring of internal activities by the Regulatory department. • Position papers. • Data analytics. Annual Report 2019 TenneT TSO B.V. 18


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    Management Board report Management Board report Compliance risks The table below presents compliance risks and mitigating actions, grouped according to three areas. Compliance risk Risk-mitigating actions General / Legal compliance Risk-mitigating actions • Non-compliance with European or national laws and regulations, • Actively involve experts from Legal Affairs, Procurement, Human e.g. regarding health, safety and environment, labour, tendering Resources, Safety & Security, Regulation, etc. Monitoring by and energy markets. Compliance via the LOR procedure. • Train employees • Risk of fraud and/or conflict of interest. • Corporate Gifts & Hospitalities policy • Increase cultural awareness via internal communication messages and face-to-face training sessions • Non-Compliance with Code of Conduct • Content of the Code of Conduct is confirmed by all (new) employees via written consent. • Compliance Experts explain the principles in the Code of Conduct via training sessions. • Non-compliance with bilateral agreements between TenneT and • Ensure adequate registration of decisions and contracts by Legal other TSOs, suppliers, customers, etc. Affairs and other departments involved. • Non-compliance with GDPR • Company-wide process- and data analyses. Awareness campaigns and trainings and ISO 27001 certification • Non-compliance with permits and licenses. • Provide regularly training and awareness programs. Financial compliance Risk-mitigating actions • Non-compliance with financial and tax laws and legislation, e.g. • Actively involve experts from Finance & Control, Treasury, Tax IFRS, local GAAP, the Dutch Corporate Governance Code, etc. and Legal departments. Monitoring by Compliance via the internal LOR procedure. • Ensure availability of accounting manuals, treasury statute, etc. • Use internal and external experts as advisors, if and when necessary. • Non-compliance with financing agreements. • Frequent knowledge update by means of training, external audit/ expert reviews, etc. • Quality control by participations control and / or treasury Technical compliance Risk-mitigating actions • Non-compliance with electricity laws and technical codes, • Actively involve experts from Asset Management and System ENTSO-E operational handbook, electrical safety regulations and Operations. Assessments by the technical compliance and standards, etc. quality officer. Use of four eye-principles. • Cooperate with regulatory authorities through the Corporate Asset Owner department. • Involve authorised electrical safety experts and technical strategists. • Technical Audits Annual Report 2019 TenneT TSO B.V. 19


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    Consolidated financial statements Consolidated statement of comprehensive income Consolidated financial statements Consolidated statement of comprehensive income For the year ended 31 December (EUR million) Notes 2019 2018 Revenue 3.1 811 804 Grid expenses 3.2.1 -393 -433 Personnel expenses 3.2.2 -91 -89 Depreciation and amortisation of assets 4.1, 4.2, 5.1 -243 -190 Other operating expenses 3.2.3 -91 -86 Other gains/(losses) -1 -22 Total operating expenses -819 -820 Share in result of joint ventures and associates 5.3 - 3 Operating (loss)/profit -8 -13 Finance income 3.3 11 14 Finance expenses 3.4 -42 -31 Finance result -31 -17 Profit before income tax -39 -30 Income tax expense 3.5 - 17 (Loss)/Profit for the year -39 -13 Other comprehensive income (net of tax) - - Total comprehensive income -39 -13 Annual Report 2019 TenneT TSO B.V. 20


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    Consolidated financial statements Consolidated statement of financial position Consolidated statement of financial position For the year ended 31 December (EUR million) Assets Notes 2019 2018 Non-current assets Tangible fixed assets 4.1 5,746 4,864 Right-of-use assets 4.2 129 - Intangible assets 5.1 109 66 Investments in joint ventures and associates 5.3 2 3 Other financial assets 5.4 383 375 Total non-current assets 6,369 5,308 Current assets Inventories 5.9 4 5 Account- and other receivables 5.5 151 438 Cash and cash equivalents 6.4 81 71 Total current assets 236 514 Total assets 6,605 5,822 Annual Report 2019 TenneT TSO B.V. 21


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    Consolidated financial statements Consolidated statement of financial position Consolidated statement of financial position For the year ended 31 December (EUR million) Equity and liabilities Notes 2019 2018 Total equity 6.1 3,293 2,922 Non-current liabilities Borrowings 6.3 2,114 2,189 Contract liabilities 4.3 286 263 Deferred tax liability 3.5 43 100 Provisions 5.7 74 16 Lease liabilities 4.2 125 - Total non-current liabilities 2,642 2,568 Current liabilities Borrowings 6.3 75 - Provisions 5.7 25 28 Other financial liabilities 5.8 79 71 Lease liabilities 4.2 6 - Account- and other payables 5.6 485 233 Total current liabilities 670 332 Total equity and liabilities 6,605 5,822 Annual Report 2019 TenneT TSO B.V. 22


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    Consolidated financial statements Consolidated statement of changes in equity Consolidated statement of changes in equity For the year ended 31 December (EUR million) Paid-up and Share called-up premium Retained Unappropri- capital reserve earnings ated result Total equity Notes At 1 January 2018 100 1,380 1,336 120 2,936 - Total comprehensive income - - - -13 -13 - Transition effect IFRS 9 - - -1 - -1 Appropriation remaining prior year result - - 120 -120 - At 31 December 2018 100 1,380 1,455 -13 2,922 Total comprehensive income - - - -39 -39 - Capital contributions - 410 - - 410 Appropriation remaining prior year result - - -13 13 - At 31 December 2019 100 1,790 1,442 -39 3,293 Annual Report 2019 TenneT TSO B.V. 23


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    Consolidated financial statements Consolidated statement of cash flows Consolidated statement of cash flows For the year ended 31 December (EUR million) Notes 2019 2018 Operational activities Operating profit -8 -13 Non-cash adjustments to reconcile operating profit to net cash flows: Depreciation, amortisation and impairment of assets 4.1, 4.2, 5.1 243 190 Result on disposal of assets 4.1 2 22 Share in profit of joint ventures and associates 5.3 - -3 Increase/(decrease) in deferred income 4.3 23 20 Movements in provisions and other assets 5.4, 5.7 -4 -2 264 227 Working capital adjustments: (Increase)/decrease in account- and other receivables 5.5 -2 -29 (Increase)/decrease in inventories 5.9 1 1 Increase/(decrease) in account- and other payables 5.6 149 676 Increase/(decrease) in contract liabilities 4.3 - - Increase/(decrease) in current financial liabilities 5.8 8 10 156 658 Net cash flows from operating activities 412 872 Investing activities Purchase of tangible and intangible fixed assets 4.1, 5.1 -1,093 -876 Dividends received from joint ventures and associates 5.3 1 3 Interest received 3.3 11 11 Net cash flows used in investing activities -1,081 -862 Financing activities Proceeds from capital contributions 6.1 690 - Proceeds from borrowings 6.3 - - Payment of lease liabilities 4.2 -11 - Interest paid 3.4 - - Net cash flows from financing activities 679 - Net change in cash and cash equivalents 10 10 Cash and cash equivalents at 31 December 6.4 81 71 Cash and cash equivalents at 1 January 6.4 71 61 10 10 Annual Report 2019 TenneT TSO B.V. 24


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    Notes to the consolidated financial statements Notes to the consolidated financial statements Notes to the consolidated financial statements We are continuously improving our financial reporting to make it more relevant and understandable to our stakeholders. These financial statements focus on the key (financial) topics for 2019. Like last year, the notes to the consolidated financial statements have been grouped into seven sections relating to key topics and figures from a business perspective. Accounting policies are indicated with i, while key assumptions and estimates are identified by using + in front of the header. Annual Report 2019 TenneT TSO B.V. 25


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    Notes to the consolidated financial statements > Notes consolidated financial statements 1. BASIS FOR REPORTING The accounting policies describe our approach to recognising and measuring transactions and balance sheet items in our financial statements. Accounting policies including new European Union (EU) endorsed accounting standards, amendments and interpretations, relating to the consolidated financial statements as a whole are described below. This section also provides general guidance regarding assumptions, estimates and judgements used in the preparation of the consolidated financial statements. A more detailed description of accounting policies and significant estimates related to specific reported amounts is presented in the respective notes. Accounting policies which are deemed non-material are not presented in these financial statements. We consider an item material if, in our view, it is likely to have an impact on the economic decisions of the primary users of these financial statements. 1.1 General TenneT TSO B.V. ("The company" or "TenneT") and its subsidiaries as an electricity transmission system operator (TSO) have the principal tasks to provide (1) power transmission services, by constructing and maintaining a robust high-voltage grid and (2) system services, by maintaining the balance between supply and demand of electricity 24 hours 7 days a week and (3) facilitating the market in order to have a liquid, stable electricity market with prices in line with the surrounding countries. These activities are governed by the provisions of relevant legislation in the Netherlands. Regulatory authorities oversee TenneT's compliance with these provisions. TenneT Holding B.V. holds the entire issued share capital of TenneT TSO B.V. Our head office and legal seat is located in Arnhem, the Netherlands. These consolidated financial statements for the year ended 31 December 2019 were prepared and authorised by our Management Board for issue on 9 March 2020. For regulatory, risk management and treasury activities TenneT relies on support from corporate departments of TenneT Holding B.V. These activities are executed under responsibility of the management board of TenneT TSO B.V. 1.2 Basis for preparation These consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union, and Part 9, Book 2 of the Dutch Civil Code. The company financial statements for TenneT TSO B.V. have been prepared in accordance with the provisions of Part 9, Book 2, of the Dutch Civil Code. These consolidated financial statements have been prepared on a going concern basis. The going concern basis presumes that TenneT has adequate resources to remain in operation, and that the Management Board intend it to do so, for at least one year from the date of the end of the reporting period. These consolidated financial statements are prepared on a historical cost basis, except for derivative financial instruments (if any) which are measured at fair value. They are presented in euros and all values are rounded to the nearest million (EUR 000,000), except when otherwise indicated. 1.3 Changes in EU-endorsed published IFRS standards and interpretations effective in 2019 Significant new and amended standards adopted TenneT has not adopted any standard, interpretation or amendment that has been issued but is not yet effective. Annual Report 2019 TenneT TSO B.V. 26


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    Notes to the consolidated financial statements > Notes consolidated financial statements TenneT is applying IFRS 16 Leases for the first time in 2019. The nature and impact is described below. IFRS 16 was issued in January 2016 and replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Lease-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees are required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset in the statement of income. Lessees are also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate set to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of- use asset. IFRS 16 requires lessees and lessors to make more extensive disclosures than under IAS 17. TenneT has adopted IFRS 16 using the modified retrospective approach. Under this approach, the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to equity at the date of initial application (e.g. 1 January 2019). Comparative figures for the year ended 31 December 2018 are not restated to reflect the adoption of IFRS 16 but instead continue to reflect the lessee's accounting policies under IAS 17 Leases. TenneT applied the available practical expedients wherein it: - Used a single discount rate to a portfolio of leases with reasonably similar characteristics; - Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application; - Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application; - Applied the low value leases exemptions to leases for which the underlying asset is of low value.. TenneT has elected to measure the right-of-use asset for an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial application. TenneT has elected not to apply IFRS 16 for contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4. In summary, the impact of adopting IFRS 16, on 1 January 2019 (note 4.2) on total assets was EUR 109 million as we recognised 'right-of-use assets' as part of the non-current assets. Correspondingly, we recognised an aggregated EUR 109 million for the items 'lease liability (long)' and 'lease liability (short)'. The impact on equity was EUR nil. IFRS standards issued but not yet effective and adopted The IASB made amendments to the definition of materiality in IAS 1 and IAS 8. The new definition reads: Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. In line with the amendments we consider an item material if, in our view, it could reasonably be expected that the item has impact on the economic decisions of users of our general financial statements. The amendments to IAS 1 and IAS 8 are effective for annual periods beginning on or after 1 January 2020 and must be applied prospectively. Earlier application is permitted. No significant impact on the financial statements is expected. 1.4 Basis for consolidation The consolidated financial statements incorporate the financial statements of TenneT TSO B.V. and its subsidiaries as at 31 December 2019. A list of the legal entities included in the consolidation is included in note 7.3. Annual Report 2019 TenneT TSO B.V. 27


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    Notes to the consolidated financial statements > Notes consolidated financial statements Subsidiaries are consolidated from the date of acquisition, that being the date on which control is obtained, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances, transactions, unrealised gains and losses resulting from intercompany transactions and dividends are eliminated in full in consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If we cease to have control of a subsidiary, we derecognise the subsidiary's assets (including goodwill) liabilities and any non-controlling interest in the former subsidiary at the date control is lost (including the cumulative translation differences). Furthermore, the fair value of the consideration received, the fair value of any investment retained and any surplus or deficit in the statement of income are recognised. Acquisitions are accounted for using the acquisition method, where the purchase price is allocated to the identifiable assets acquired and liabilities assumed on a fair value basis and the remainder recognised as goodwill. 1.5 Significant accounting judgements, estimates and assumptions The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Such estimates are assessed continuously on the basis of previous results and experience, consultations with experts, trends, prognoses and other methods which we deem appropriate in each individual case. Actual results could differ from these estimates. Significant items containing estimates and assumptions are as follows: Item Note Estimate/assumptions Tangible fixed assets 4.1 Estimate of remaining useful life Estimate of discount rate and expected extention or accelerated Right-of-use assets and lease liabilities 4.2 termination date Intangible assets 5.1 Estimate of recoverable amount and remaining useful life Account- and other receivables 5.5 Estimate of expected credit loss Grid expense payable 5.6 Estimate of electricity usage and energy prices Estimate of removal costs, removal dates, discount rate and Provision for environmental management and decommissioning 5.7.1 price increases in the period leading up to removal Tariffs related provision 5.7.2 Estimate of electricity usage and number of parties Financial, actuarial, demographic assumptions and probability of Other provisions 5.7.3 cash outflow 1.6 Foreign currency These consolidated financial statements are presented in euros, which is also the parent company’s and all subsidiaries functional currency. 1.7 Changes in presentation As of 2019, the intangible assets under construction are no longer presented as part of the tangible fixed assets under construction but separately as part of the intangible assets. This change affected the classification in the consolidated statement of financial position, prospectively impacting the line items tangible fixed assets and intangible assets prospective for EUR 26 million. There was neither an impact on the consolidated statement of income nor on total equity. Annual Report 2019 TenneT TSO B.V. 28


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    Notes to the consolidated financial statements > Notes consolidated financial statements 2. UNDERLYING FINANCIAL REPORTING ANALYSIS This section sets out the financial performance for the year in accordance with the way we manage our business. We measure and assess our performance based on underlying financial information, which is explained further below. We generate our revenue from our regulated operating activities in the Netherlands. Therefore close collaboration with our respective regulator to obtain agreements that provide reasonable compensation for the risks we face is key to us. Our involvement in certain limited non-regulated activities are closely related and ancillary to our core tasks. 2.1 Underlying financial information Our Management Board is the chief operating decision-making body of the company (as defined by IFRS 8 ‘Operating segments’). Periodically, it monitors the performance of the respective operating segments for the purpose of performance management and decision making about resource allocation. The segment performance is based on underlying financial information, where EBIT and investments are the key metrics. The definition of EBIT equals operating profit. Performance of non-regulated activities is evaluated based on EBIT of these activities. Underlying financial information is based on the principle of recognising regulatory assets and liabilities for all of our regulated activities. This implies that amounts resulting from past events and which are allowed to be received or required to be returned trough future tariffs are recorded as an asset or liability, respectively (see note 2.2 for further reference). We believe that the presentation of underlying financial information leads to a sound, consistent and transparent financial insight into past and future business performance. For management information purposes, the performance of our regulated activities in the Netherlands is considered one segment (corresponding to the geographical distribution). This segmentation, based on separately applicable regulatory frameworks, is the key determinant for financial management of the business and for decision-making on budgets, allocation of resources and financing. Financing activities (including finance income and expenses) are managed on a Group basis and amounts related thereto are not allocated to the segments. Transfer prices between the Netherlands and Germany are set at arm’s length in a manner similar to transactions with third parties. These intercompany transactions are eliminated in the consolidation. 2019 2018 (EUR million) Revenue EBIT Investments Assets Liabilities Revenue EBIT Investments Assets Liabilities TSO Netherlands 1,038 211 1,133 7,075 4,014 945 121 876 6,165 3,646 For an analysis of the underlying results see the 'Financial performance' section of our Management Board report. Annual Report 2019 TenneT TSO B.V. 29


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    Notes to the consolidated financial statements > Notes consolidated financial statements 2.2 i Accounting policies applied for underlying financial information Underlying financial information matches the regulatory revenues and expenses in a corresponding reporting period, and defers certain income items until used for investments or tariff reductions. Regulatory IFRS Deferral Accounts Underlying Matching is achieved by recognizing regulatory deferral accounts. The key requirement for the recognition of regulatory deferral accounts is that an existing regulatory framework must be in place that permits the future reimbursement or requires the future settlement of regulated assets or liabilities, respectively. Consequently, a regulated asset is recognised in underlying financial information in respect of permitted reimbursements of current year expenses in future year's tariffs. Vice versa, a regulated liability is recognised in underlying financial information in respect of required settlements (i.e. repayments) of current year revenues through future tariffs. Furthermore, until 2015 some investments were financed via auction receipts resulting from auctioning available capacity on cross-border interconnections (see 2.3). The different accounting treatment of the regulatory deferral accounts results in a different value of these assets. 2.3 Regulatory deferral accounts: reconciliation to IFRS figures The difference between the underlying financial information and IFRS reported figures is related to the recognition of regulated assets and liabilities, auctions receipts, the measurement of tangible fixed assets and maintenance of energy balance. Consequently, also the aforementioned results in different deferred tax balances in underlying financial information compared to IFRS reported figures. No other differences between underlying financial information and IFRS are applicable. In the IFRS financial statements, revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. In the underlying financial information revenues are recognised according the permissible tariff decision adopted by the regulator. By doing so, volume and post calculation differences are directly matched to the related costs and therefore provide better insight to management for steering TenneT. Underlying financial information is reconciled to reported IFRS figures as follows: Recovery/ reversal period 2019 (EUR million) Revenue EBIT Assets Liabilities (years) Consolidated underlying information 1,038 211 7,075 4,014 To be settled in tariffs -304 -303 -246 -2 0-5 Auction receipts 62 62 - -470 0-4 Investment contributions -10 -10 - -239 0 - 29 Maintenance of the energy balance 25 25 - -34 0-1 Difference in tangible fixed assets - 7 -195 - 0 - 29 Effect on deferred tax balances - - -29 43 0 - 29 Consolidated IFRS financial statements 811 -8 6,605 3,312 Annual Report 2019 TenneT TSO B.V. 30


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    Notes to the consolidated financial statements > Notes consolidated financial statements Recovery/ reversal 2018 (EUR million) Revenue EBIT Assets Liabilities period (years) Consolidated underlying information 945 121 6,165 3,646 To be settled in tariffs -255 -256 -123 -1 0-5 Auction receipts 96 96 - -555 0-8 Investment contributions -10 -10 - -249 0 - 30 Maintenance of the energy balance 28 28 - -41 0-1 Difference in tangible fixed assets - 8 -203 - 0 - 30 Effect on deferred tax balances - - -17 100 0 - 30 Consolidated IFRS financial statements 804 -13 5,822 2,900 As the adjustments for reconciling consolidated underlying revenue to consolidated IFRS revenue are the same for the reconciliation of EBIT, no further information is shown in this respect in the above tables. To be settled in tariffs Revenue surpluses and deficits resulting from differences between expected (ex ante) and realised (ex post) electricity transmission volumes are incorporated in the tariffs of subsequent years. In the underlying financial information, these surpluses and deficits are recorded as assets and liabilities, respectively, in the statement of financial position under ‘to be settled in tariffs’. The expenses have to be settled in future tariffs in coming years. Auction receipts & investment contributions Auction receipts result from auctioning the available transmission capacity on cross-border interconnections. These receipts are not at our free disposal. In accordance with European law, auction receipts are to be used to invest in additional cross- border interconnections or to be refunded through tariff reductions. In the Netherlands, we have agreed with our regulator, Autoriteit Consumenten Markt (ACM) to fully utilise auction receipts to reduce future tariffs. The current outstanding balance of auction receipts will be refunded via the tariffs over the coming years. On 19 November 2019, an addendum to the original power agreement was signed. The agreements relate to the restitution of existing auction fees in order to limit the increase in net tariffs in 2020. Investments financed by using auction receipts are classified as investment contributions and are reported under ‘liabilities’. A periodic amount equal to the depreciation charges, plus a portion of the operating expenses, is released to the statement of income. Following the release scheme as described above. Maintenance of the energy balance As system manager of the high-voltage grid in the Netherlands, we receive funds from performing certain statutory duties, such as the maintenance of the energy balance. The proceeds from these activities (i.e. imbalance settlements) may only be used after approval by the ACM. Imbalance settlements collected during the year are offset in transmission tariffs in the subsequent year. Consequently, these amounts are recorded as a liability and settled in the subsequent year in the underlying financial information. Differences in tangible fixed assets Differences in tangible fixed assets occur due to the difference in accounting treatment of the regulatory deferral accounts and the related cash flows in order to determine the economic useful life and recoverable amount of the assets resulting from acquisitions and used for impairment analysis. The difference in asset value is related to the decrease in value of the NorNed assets in 2015 (EUR 232 million) due to regulatory changes as recognised under IFRS. The proceeds generated by operating the NorNed cable are incorporated in the tariffs. Annual Report 2019 TenneT TSO B.V. 31


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    Notes to the consolidated financial statements > Notes consolidated financial statements Depreciation tangible assets Between Underlying and IFRS there is no difference in depreciation method, but the amount of depreciation differs due to an impairment under IFRS of the NorNed cable in 2015 of EUR 232 mln which is not recognised under Underlying. Annual Report 2019 TenneT TSO B.V. 32


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    Notes to the consolidated financial statements > Notes consolidated financial statements 3. RESULTS FOR THE YEAR This section comprises notes related to the revenue, operating expenses and results for the year as determined under IFRS. 3.1 Revenue (EUR million) 2019 2018 Connection and transmission services 634 594 Maintenance of energy balance 68 72 Operation of energy exchanges 68 102 Other 41 36 Total revenue IFRS 811 804 3.1.1 Connection, transmission and system services Revenue from connection and transmission is regulated by ACM in the Netherlands. The revenue mainly increased due to a higher asset base. 3.1.2 Maintenance of the energy balance We are responsible to ensure that electricity supply and demand is in balance at all times (i.e. alternating current frequency in the power grid must be at 50Hz continuously). If this balance is disrupted, it may result in a power outage or even a black- out, depending on the length and severity of the imbalance. To ensure this balance, we contract and deploy (among others) reserve and emergency capacity to compensate unexpected fluctuations in supply and demand. The proceeds from maintaining this energy balance (e.g. imbalance settlements) fluctuate considerably and are refunded through regulated tariffs in subsequent years. The tariffs are set by ACM. 3.1.3 Operation of energy exchanges This amount includes revenues resulting from the auctioning of cross-border (electricity transmission "interconnection") capacity. 3.1.4 i Accounting policy with respect to revenue Revenue primarily represents the sales value derived from the connection and transmission of electricity together with the sales value derived from the provision of other services to customers during the year. Revenue from contracts with customers is recognised when control of the services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. Revenues are from contracts with a single performance obligation. The assessment of unbilled connection and transmission services supplied to customers between the date of the last meter reading and year-end is subject to judgement. This assessment is primarily based on expected consumption and weather patterns. If revenue received or receivable exceeds the maximum annual amount as determined by the regulator, ACM, an adjustment will be made to future tariffs to reflect this over-recovery. Under IFRS, no liability is recognised since this adjustment relates to the provision of future services. Similarly, no asset is recognised when a regulator permits increases to be made to future tariffs in respect of under-recovery. Annual Report 2019 TenneT TSO B.V. 33


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    Notes to the consolidated financial statements > Notes consolidated financial statements 3.2 Operating expenses 3.2.1 Grid expenses (EUR million) 2019 2018 System services 109 155 Connection and transmission services 155 135 Maintenance of energy balance 43 48 Maintaining and operating transmission grids 98 105 Other -12 -10 Total 393 433 System services expenses mainly comprise of the expenses incurred for measures taken to balance demand and supply of capacity. 3.2.2 Personnel expenses (EUR million) 2019 2018 Salaries 109 100 Social security contributions 12 11 Pension charges other plans 18 16 Other personnel expenses 21 17 Capitalised costs for tangible fixed assets -69 -55 Total 91 89 In 2019, the average workforce amounted to 1,442 FTE's (2018: 1,337 FTE's). For our personnel we have a multi-employer scheme at ABP Pension Fund (ABP) in the Netherlands. The pension contribution rate for 2019 was 24.9% of the pensionable salary. In 2020 we expect to contribute EUR 17 million to the multi-employer scheme administered. Compared to the total participants in the ABP pension fund, our share in ABP is limited. We are not liable for deficits in the multi-employer plan. ABP has indicated that it is unable to provide the kind of company-specific information required by IFRS for defined-benefit pension schemes. As such, this scheme is treated as if it was a defined contribution scheme. Since the financial situation of the ABP pension plan at 31 December 2015 was inadequate from a regulatory persperctive, ABP filed a new recovery plan, which was approved by De Nederlandsche Bank (DNB) during the course of 2016. In accordance with this recovery plan, ABP evaluates how recovery is progressing at the start of each year. Progress is measured by means of the policy funding ratio at the end of the preceding year. The policy funding ratio is the 12-month moving average of the nominal funding ratio. ABP’s policy funding ratio at 31 December 2019 is 95.8% (2018: 103.8%) which is above the critical regulatory coverage rate level under which pensions would have to be reduced. Annual Report 2019 TenneT TSO B.V. 34


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    Notes to the consolidated financial statements > Notes consolidated financial statements Key management remuneration Members of the Executive Board of the parent company are regarded as key management. Aggregate remuneration paid to TenneT's Management Board is as follows: Executive Board (EUR thousand) Fixed Variable Pension cost Total 2019 442 69 90 601 2018 584 97 99 780 Due to a refined cost allocation between the legal entities of TenneT Holding B.V., the total remuneration 2019 recharge for TenneT TSO B.V. decreased by EUR 210 thousand. Pension remuneration equals (i) the contributions payable to the defined contribution plan for service rendered in the period or (ii), for defined benefit plans, the current service cost and, when applicable, past service cost. Remuneration paid to members of the Management Board in respect of supervisory directorships in affiliated entities accrues to the company. Composition of the Management Board TenneT’s Management Board consists of people with diverse experiences, skills and knowledge. TenneT values this diversity and believes it contributes positively to the way situations are assessed and decisions are made. TenneT is aware that women are currently underrepresented in the Management Board and takes this into account for new appointments by making gender one of the assessment criteria and by a focused search for qualified female candidates. When multiple qualified candidates are available, the candidate that contributes to a more equal division in gender will in principle be preferred. For future appointments, TenneT will continue its current approach and will make serious efforts to comply with the gender equality targets as described in the Dutch law and as set by the European Commission, to ensure a more equal gender representation in the Management Board by 2020. i Accounting policy Payments to defined contribution plans are charged as an expense in the period to which they relate. 3.2.3 Other operating expenses (EUR million) 2019 2018 Accommodation and office expenses 25 28 Consultancy expenses 11 5 Hiring of temporary personnel 20 23 Travel and living expenses 6 6 Lease expenses 2 4 Other expenses 27 20 Total 91 86 The other expenses include mainly net operating costs related to projects, contribution and subscription costs and training expenses. Annual Report 2019 TenneT TSO B.V. 35


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    Notes to the consolidated financial statements > Notes consolidated financial statements The total fees for EY Accountants LLP were as follows: (EUR thousand) 2019 2018 Audit of the financial statements Ernst & Young Accountants LLP 307 232 Total audit of the financial statements 307 232 Other assurance services Ernst & Young Accountants LLP 188 164 Total other assurance services 188 164 Total assurance services 495 396 3.3 Finance income (EUR million) 2019 2018 Interest from participations 9 11 Interest from shareholder (TenneT Holding B.V.) 2 5 Other interest income - -2 Total 11 14 3.4 Finance expenses (EUR million) 2019 2018 Interest expenses borrowings shareholder (TenneT Holding B.V.) 49 40 Capitalised interest on assets under construction -9 -8 Interest on lease liabilities 2 - Other finance expenses - -1 Total 42 31 For the effective rate of interest on assets under construction and interest on long-term loans, reference is made to note 4.1 respectively 6.3. In 2019 the borrowings from the shareholder increased from EUR 1.7 billion to EUR 2.1 billion. As a result interest expenses for borrowings from the shareholder increased. 3.5 Income tax TenneT TSO B.V. forms a fiscal unity with TenneT Holding B.V. regarding income tax. TenneT TSO B.V. has recognised income tax as if the company is solely liable for income tax. The key components of income tax expense are: Consolidated income statement (EUR million) 2019 2018 Current income tax charge 57 33 Relating to origination and reversal of temporary differences -57 -50 Income tax expense reported in the statement of income - -17 Annual Report 2019 TenneT TSO B.V. 36


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    Notes to the consolidated financial statements > Notes consolidated financial statements The income tax related to temporary differences is related to regular depreciation and amortisation. In the Netherlands, a statutory corporate income tax rate of 25% applied. Reconciliation between tax expense and the accounting profit multiplied by the statutory income tax rate of 25% is as follows: (EUR million) 2019 2018 Profit before income tax -39 -30 Statutory income tax rate of 25% (2018: 25%) -10 -8 Effect future tax rate change in the Netherlands 9 -10 Non taxable income 1 - Adjustments in respect to current and deferred tax of previous years - 1 At the effective income tax rate of 3% (2018: 57%) - -17 Deferred tax is presented in the statement of financial position as follows: Statement of financial position Statement of income (EUR million) 2019 2018 2019 2018 Auction receipts -110 -125 -13 -37 Investment contributions -60 -58 2 -14 Tariffs to be settled 50 18 -33 -5 Depreciation for tax purposes 74 62 -13 6 Provisions 3 3 - - Net deferred tax assets/(liabilities) -43 -100 Deferred tax expense/(income) -57 -50 Movement of the deferred tax position is set out below. (EUR million) 2019 2018 At 1 January -100 -150 Tax expense during the period recognised in statement of income 57 50 Other - - At 31 December -43 -100 The fiscal unity did not have any tax loss carry forwards as of 31 December 2019. i Accounting policy The tax charge for the period is recognised in the statement of income, the statement of comprehensive income or directly in equity, in accordance with the relevant accounting treatment of the related transaction. The tax charge comprises both current and deferred tax. Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to calculate these amounts are those enacted or substantively enacted at the reporting date in those countries where we operate and generate taxable income. Deferred tax is recognised using the liability method with respect to temporary differences between the tax bases of assets and liabilities and their respective carrying amounts for financial reporting purposes at the reporting date. Annual Report 2019 TenneT TSO B.V. 37


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    Notes to the consolidated financial statements > Notes consolidated financial statements Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date in the relevant jurisdictions. Deferred tax is generally recognised in respect of all temporary differences, the carry-forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised. This is assessed annually. Deferred tax is not recognised for the temporary differences arising from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are recognised gross in the statement of financial position unless: • the entity has a legally enforceable right to set off current tax assets, against current tax liabilities and; • the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: • the same taxable entity or • different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Annual Report 2019 TenneT TSO B.V. 38


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    Notes to the consolidated financial statements > Notes consolidated financial statements 4. GRID INVESTMENTS, OTHER TANGIBLE FIXED ASSETS AND RELATED COMMITMENTS We own a significant physical asset base to operate our transmission grid. To solve transmission bottlenecks and ensure grid stability we continue to invest in our network. To accommodate expanding renewable energy sources substantial further onshore and offshore grid investments are necessary in the upcoming years. This section focuses on our tangible fixed assets and related commitments which form the backbone of our activities. 4.1 Tangible fixed assets High-voltage High-voltage Assets under (EUR million) substations connections Other assets construction Total Cost At 1 January 2018 2,140 2,394 286 1,327 6,147 Additions - - - 841 841 Transfers 136 223 2 -361 - Disposals - - - -22 -22 At 31 December 2018 2,276 2,617 288 1,785 6,966 Additions - - - 1,092 1,092 Transfers 643 791 33 -1,467 - Changes in estimations (note 5.7.1) 8 17 - - 25 Internal transfer to/from (in)tangible assets - - - -26 -26 At 31 December 2019 2,927 3,425 321 1,384 8,057 Depreciation and impairment At 1 January 2018 859 963 110 - 1,932 Depreciation for the year 76 72 22 - 170 At 31 December 2018 935 1,035 132 - 2,102 Depreciation for the year 95 89 23 - 207 Impairment 2 - - - 2 At 31 December 2019 1,032 1,124 155 - 2,311 Net book value: At 1 January 2018 1,281 1,431 176 1,327 4,215 At 31 December 2018 1,341 1,582 156 1,785 4,864 At 31 December 2019 1,895 2,301 166 1,384 5,746 Annual Report 2019 TenneT TSO B.V. 39


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    Notes to the consolidated financial statements > Notes consolidated financial statements High-voltage substations include onshore and offshore transformers and converter stations. High-voltage connections consist of overland and underground connections. Unlike lands for substations, lands surrounding high-voltage pylons and cables are generally not owned by TenneT. Other tangible fixed assets consist of office buildings, office ICT equipment and other company assets. In 2019 the discount rate for decommissioning provision is 0.7% for OWF connections (see note 5.7). Since the main part of the decommissioning provision was recognised as part of the carrying value of the related asset, changes in discount and inflation rate, if any, directly impact this carrying amount. The amount of borrowing costs capitalised during 2019 was EUR 9 million (2018: EUR 8 million). The effective interest rate used to determine the amount of borrowing costs eligible for capitalisation is 2.1% (2018: 2.2%). i Accounting policy tangible fixed assets Tangible fixed assets are valued at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the asset and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of the asset are required to be replaced at intervals, such parts are recognised as individual assets with specific useful lives and depreciated accordingly. Likewise, when a major maintenance is performed, its cost is recognised in the carrying amount of the asset as a replacement, if the recognition criteria are met. All other repair and maintenance costs are recognised in the statement of income as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset, if the recognition criteria for a provision are met. Depreciation is calculated on a straight line basis. An asset is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income when the asset is derecognised. General and specific borrowing costs directly attributable to the acquisition, construction or production of the tangible fixed assets, are added to the cost, until such time that the assets are substantially ready for their intended use or sale. No borrowing costs are capitalised where the borrowing costs are directly compensated in the year of construction. Annual Report 2019 TenneT TSO B.V. 40


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    Notes to the consolidated financial statements > Notes consolidated financial statements + Key estimates and assumptions tangible fixed assets To calculate depreciation amounts, the following useful lives of various asset categories are assumed: Estimated useful lives tangible fixed assets Years Substations Switches and offshore converter stations 20-35 Offshore platforms 20 Security and control equipment 10 Power transformers 35 Capacitor banks 35 Telecommunications equipment 10 Connections Pylons/lines 40 Cables (subsea and underground) 20-40 Other Office buildings 40 Office IT equipment 3-5 Process automation facilities 5 Offshore assets 20 Other company assets 5-10 Land (and its preparation for building) is not subject to depreciation Residual values, useful lives and methods of depreciation of assets are reviewed at each financial year-end and adjusted prospectively, if appropriate. 4.2 Right-of-use assets and lease liabilities Right-of-use assets Other Land & right-of-use (EUR million) buildings assets Total Cost At 1 January 2019 - - - Initial recognition IFRS 16 83 26 109 Additions 11 21 32 Depreciation -8 -4 -12 At 31 December 2019 86 43 129 Leased Land & Buildings Land is mainly leased to set up pylons for transmission cables. These contracts run for a period of 25 - 170 years. Buildings are leased mainly as office space and storage space. These contracts run for a period of 1 - 15 years. Lease contracts for buildings are negotiated individually and include a variety of different terms and conditions, including extension options. Lease payments are in substance fixed, only a minority of the lease contracts contain clauses with reference to the CPI index. Annual Report 2019 TenneT TSO B.V. 41


  • Page 42

    Notes to the consolidated financial statements > Notes consolidated financial statements Other lease assets Telecom lease contracts (including fibreglass cables) run for a period between 6 and 36 years. For qualifying employees TenneT leases cars with a lease term between 2 and 10 years. TenneT does not purchase or guarantee the value of leased cars or telecom assets. TenneT has several contracts with termination / extension options. In determining the lease term all relevant facts and circumstances that create a significant economic incentive to exercise those options are taken into consideration. TenneT had no material 'sub lease' contracts in 2019 and therefore no material income from subleasing right-of-use assets. TenneT has not entered into any sale and leaseback contracts. No lease contracts with residual value guarantees are entered into. No lease contracts have been concluded that contain restrictions or covenants. Short-term leases and low value leases In some cases TenneT leases other assets with terms of 1-3 years. TenneT considers these assets to be of low-value or short term in nature and therefore no right of use assets and lease liabilities are recognised for these leases. The total of short-term lease expenses for more than one month and low value assets lease expenses amounted to EUR 1 million. Leased liability Lease liability Land & Lease liability (EUR million) buildings other leases Total At 1 January 2019 - - - Initital recognition IFRS 16 83 26 109 Addition 10 21 31 Interest 1 1 2 Change of index - - - Repayments -6 -5 -11 At 31 December 2019 88 43 131 Long-term liability 84 41 125 Short-term liability 4 2 6 Total 88 43 131 The total cash outflow (including low value items and short term leases) in 2019 was EUR 11 million. TenneT TSO did not commit to any future cash outlfow of lease contracts. The maturity analysis of lease liabilities is disclosed in note 6.7. The total amount recognised in the consolidated statement income is as follows: (EUR million) 2019 Depreciation expense of right-of-use assets -12 Short-term lease expenses -1 Interest expense on lease liabilities -2 Total -15 i Accounting policy At inception of a contract, TenneT assesses whether a contract conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Annual Report 2019 TenneT TSO B.V. 42


  • Page 43

    Notes to the consolidated financial statements > Notes consolidated financial statements TenneT recognises a right-of-use asset and a lease liability at the lease commencement date. The asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. The lease asset is subsequently depreciated using the straight-line method from the commencement date to the end of the useful life of the right-of-use asset, considered to be indicated by the lease term. The lease asset is periodically adjusted for certain remeasurements of the lease liability and impairment losses (if any). The lease liability is initially measured at the present value of outstanding lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, TenneT's incremental borrowing rate. If available, TenneT uses its incremental borrowing rate as the discount rate. Otherwise the used discount rates are shown below: 2019 Under 5 year 0.00% 5-10 years 0.50% 10-15 years 1.10% 15-25 years 1.60% Above 25 years 2.00% After initial recognition, the lease liability is measured at amortised cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate or if TenneT changes its assessment of whether it will exercise a purchase, extension or termination option. A corresponding adjustment is made to the carrying amount of the right-of-use asset with any excess over the carrying amount of the asset being recognised in the profit or loss. Short-Term Leases and Leases of Low Value TenneT has elected not to recognise right of use assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. TenneT recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 4.3 Contract liabilities The majority of the contract liabilities relates to investment contributions received from certain third parties for the construction of a new substation, a grid connection or increased connection capacity and amounted to EUR 286 million (2018: EUR 263 million). This was due to received contributions of EUR 33 million minus EUR 10 million amortisation. i Accounting policy Contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when TenneT performs under the contract. At initial recognition contributions received from third parties are measured at fair value, presented as contract liabilities (‘investment contributions’) and are subsequently recognised as revenue over the related asset’s useful life. Annual Report 2019 TenneT TSO B.V. 43


  • Page 44

    Notes to the consolidated financial statements > Notes consolidated financial statements 4.4 Commitments and contingencies related to investments Off-balance sheet rights and obligations related to investments consist of the following categories: (EUR million) 2019 2018 Off-balance sheet rights Bank guarantees received 308 338 Total off-balance sheet rights 308 338 Off-balance commitments Capital commitments 1,126 1,148 Operating lease commitments 1 130 Total off-balance sheet obligations 1,127 1,278 4.4.1 Bank guarantees received At year-end 2019, TenneT TSO B.V. has received bank guarantees totalling EUR 308 million (2018: EUR 338 million) with respect to prepayments in relation to investment projects. 4.4.2 Capital commitments At 31 December 2019, external commitments totalling EUR 1,126 million (2018: EUR 1,148 million) had been entered into with regard to the purchase of tangible fixed assets. Annual Report 2019 TenneT TSO B.V. 44


  • Page 45

    Notes to the consolidated financial statements > Notes consolidated financial statements 5. OTHER INVESTED CAPITAL INCLUDING WORKING CAPITAL AND PROVISIONS Other invested capital includes intangible assets to support our operations, goodwill related to acquired business and working capital. Working capital comprises current assets and current liabilities which result from our daily operations (such as trade receivables and payables). Our working capital requirements are significantly impacted by our grid related accruals and investments. We carry a provision that reflects the expected cost to remediate and decommission our assets. Also in the ordinary course of our business, we are exposed to several claims from and disputes with third parties. We record a provision for these claims and disputes if we expect a future cash outflow. 5.1 Intangible assets Other Intangible Customer intangible assets under (EUR million) Goodwill Software contracts assets construction Total Cost At 1 January 2018 3 155 64 15 - 237 Additions - - - - 35 35 Transfers - 35 - - -35 - At 31 December 2018 3 190 64 15 - 272 Additions - - - 1 40 41 Transfers - 20 - 10 -30 - Internal transfer to/from (in)tangible assets - - - - 26 26 At 31 December 2019 3 210 64 26 36 339 Amortisation and impairment At 1 January 2018 - 141 43 2 - 186 Amortisation for the year - 15 5 - - 20 At 31 December 2018 - 156 48 2 - 206 Amortisation for the year - 16 5 3 - 24 At 31 December 2019 - 172 53 5 - 230 Net book value: At 1 January 2018 3 14 21 13 - 51 At 31 December 2018 3 34 16 13 - 66 At 31 December 2019 3 38 11 21 36 109 Annual Report 2019 TenneT TSO B.V. 45


  • Page 46

    Notes to the consolidated financial statements > Notes consolidated financial statements As at of 2019 all intangible assets under construction are presented as part of the intangible assets and no longer as part of tangible fixed assets under construction. i Accounting policy Intangible assets are measured at acquisition cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Except for capitalised development costs, internally generated intangible assets are not capitalised and expenses are reflected in the statement of income in the period in which they incur. Goodwill is initially measured at cost and represents the excess of the consideration transferred over TenneT TSO B.V.'s interest in the value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the amount of the non-controlling interest in the acquiree. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At each reporting date, we assess whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the asset’s recoverable amount is estimated. The recoverable amount is the higher end of an asset’s or CGU’s fair value less costs of disposal and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. + Key estimates and assumptions Estimated useful lives intangible assets Years Goodwill Indefinite Software 3-5 Customer contracts 10-14 Purchased rights to use land 25-45 Other 5-15 Intangible assets, with the exception of goodwill, have a fixed useful life as shown above and are amortised over such useful life. The useful life is re-assessed each reporting period. Intangible assets are amortised on a straight line basis, as this best reflects the use of the asset. Goodwill is assumed to have an indefinite useful life and is therefore not amortised, but is tested for impairment annually or more frequently, if events or changes in circumstances indicate a triggering event, either individually or at the CGU level. Impairment testing of goodwill For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs (our operating segments) or groups of CGUs expected to benefit from the synergies of the combination. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, an appropriate valuation model is used, if no recent market transactions can be identified. The impairment calculation is based on detailed projections, which are prepared separately for each of the CGUs to which the individual assets are allocated. The projections reflect current regulatory parameters, taking into account expected future regulatory developments. Management believes that the resulting cash flows can be determined reliably and that they give an appropriate reflection of the CGUs cash flow generating potential. Annual Report 2019 TenneT TSO B.V. 46


  • Page 47

    Notes to the consolidated financial statements > Notes consolidated financial statements 5.2 Business combinations i Accounting policy Business combinations are accounted for using the acquisition method. The cost of the acquisation is measured as the aggregate of the assets and liabilities measured at their acquisition-date fair value (with a limited number of specified exceptions) including the amount of any non-controlling interest in the acquiree. For each business combination, we elect whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. Non-current assets held for sale are defined as non-current assets (other than financial instruments or property investments) immediately available for sale and highly likely to be sold within a year. Non-current assets held for sale have been stated at the lower end of the asset's carrying value and fair value less costs of disposal. 5.3 Investments in joint ventures and associates 5.3.1 Joint ventures and associates We have, directly or indirectly, 50% equity stakes in Reddyn B.V., Tensz B.V. and TeslaN B.V.. These investments are classified as joint ventures. In addition TenneT TSO B.V. holds an immaterial investment in Energie Data Services Nederland (EDSN) B.V.. In 2019 we received EUR 1 million dividend from our associates and joint ventures (2018: EUR 3 million). 5.3.2 i Accounting policy joint ventures and associates A joint venture is an arrangement whereby the parties in the arrangement have joint control over the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. An associate is an entity in which we have significant influence, but no control. Significant influence is the power to participate in the financial and operating policy decisions of the investor. Investments in joint ventures and associates are accounted for using the equity method. Under the equity method, the investment in the joint venture or associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in TenneT's share of net assets of the investment since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of income reflects our share of the results of operations of the investment. Any change in other comprehensive income of those investors is presented as part of the other comprehensive income. In addition, when there is a change recognised directly in the equity of the investment, our share of any change is recognised in the statement of changes in equity. Unrealised gains and losses resulting from transactions between us and the investment are eliminated to the extent of the interest in the investment. When an associate or joint venture distributes dividend to us in excess of our carrying amount, a liability is recognised if TenneT: (i) is obliged to refund the dividend; (ii) has incurred a legal or constructive obligation; or (iii) made payments on behalf of the associate. In the absence of such obligations, the excess in net profit for the period is recognised. When the associate or joint venture subsequently makes profits, this is only recognised when they exceed the excess cash distributions recognised in net profit plus any previously unrecognised losses. After application of the equity method, we determine whether it is necessary to recognise an impairment loss on our investment in the joint venture or associate. At each reporting date, we determine whether there is objective evidence that the investment is impaired. If such evidence exists, the amount of impairment is calculated as the excess of the carrying value of the investment over its recoverable amount and recognised in the statement of income. Annual Report 2019 TenneT TSO B.V. 47


  • Page 48

    Notes to the consolidated financial statements > Notes consolidated financial statements On loss of significant influence over the joint venture/associate, any retained investment is valued at fair value. Any difference between the carrying amount of the investment on loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in the statement of income. 5.4 Other financial assets (EUR million) 2019 2018 Amounts due from other related parties 375 375 Other prepayments 8 - Total 383 375 The Foundation for the Management of Allocated Funds from the National High-Voltage Grid (hereafter: 'The Foundation') holds a 10% investment in TenneT GmbH & Co. KG recognised at fair value. In order to protect the allocated funds and to ensure their immediate availability upon request from the Dutch regulator a put- and a call option have been emitted at 25 February 2010. The call option with an exercise price of EUR 375 million and a maturity period of ten years entitles TenneT Holding B.V. to acquire the investment from 'The Foundation'. The put option has an exercise price of EUR 375 million and a maturity period of ten years and requires TenneT Orange B.V. to buy the investment for 'The Foundation' upon offer. The obligation of TenneT Orange B.V. is largely covered by means of a guarantee issued by the Dutch government. The fair value of the participation amounts to EUR 383 million; the fair values of the options are minus EUR 9 million for the call option and nil for the put option. Other prepayments of EUR 8 million comprises a reclassification from account and other receivables. Details on the amounts due from the shareholder are included in note 6.1. 5.5 Account- and other receivables (EUR million) 2019 2018 Trade receivables 80 71 Amounts to be invoiced 34 36 Amounts due from the shareholder (TenneT Holding B.V.) - 280 Amounts due from other related parties 3 14 VAT receivable 7 7 Interest receivable 1 1 Other 26 29 Total 151 438 Amounts due from the shareholder reflects our contractual right to receive the cash consideration following the 2016 capital commitment. The EUR 280 million receivable from 2017 was settled in 2019. 'Other' decreased EUR 8 million due to a reclassification of a receivable to other financial assets. Annual Report 2019 TenneT TSO B.V. 48


  • Page 49

    Notes to the consolidated financial statements > Notes consolidated financial statements 5.5.1 Trade receivables As at 31 December, the ageing analysis of the trade receivables is as follows: Past due but not impaired Neither past due nor More than 60 (EUR million) Total impaired 0-30 days 31-60 days days 2019 80 75 2 - 3 2018 71 67 1 1 2 Changes in the bad debt provision are as follows: (EUR million) 2019 2018 At 1 January 11 5 Charge for the year 2 9 Unused amounts reversed -1 -3 At 31 December 12 11 As at 31 December 2019, receivables with an initial value of EUR 1 million (2018: EUR 1 million) were fully provided for. 5.6 Account- and other payables (EUR million) 2019 2018 Account payables 58 52 Grid expenses payable 36 43 Social securities and other taxes payable 15 7 Payables to other related parties 296 15 Other payables 80 116 Total 485 233 Payables to other related parties increased from EUR 15 million to EUR 296 million. This is mainly due to amounts payable to the shareholder (TenneT Holding B.V.) of EUR 287 million with an expected due date within one year. On this current account an interest of 0.55% is calculated. Other payables mainly comprise of personnel payables of EUR 16 million (2018: EUR 16 million), accruals for which invoices are not yet received of EUR 23 million (2018: EUR 48 million) and investment related payables of EUR 50 million (2018: EUR 21 million). 5.7 Provisions 2019 2018 (EUR million) Current Non-current Total Current Non-current Total Environmental and decommissioning 4 57 61 7 2 9 Tariffs related 14 - 14 14 - 14 Other 7 17 24 7 14 21 Total 25 74 99 28 16 44 Annual Report 2019 TenneT TSO B.V. 49


  • Page 50

    Notes to the consolidated financial statements > Notes consolidated financial statements Environmental management and decommis- (EUR million) sioning Tariffs related Other Total At 1 January 2018 12 22 12 46 Addition 2 2 5 9 Utilisation -3 -3 -1 -7 Changes in estimations - - 5 5 Unused amounts reversed -2 -7 - -9 At 31 December 2018 9 14 21 44 Addition 30 - 2 32 Utilisation -3 - -1 -4 Changes in estimations 25 - 2 27 Unused amounts reversed - - - - At 31 December 2019 61 14 24 99 5.7.1 Provisions for environmental management and decommissioning Provisions for environmental management and decommissioning serves to cover future obligations in relation to high-voltage connections and underground cables, and to cover the decommissioning costs. In 2019 EUR 31 million was added (2018: EUR 9 million) for future decommissioning costs for projects constructed during 2019. There was no decommissioning of substations in 2019. The first decommissioning of an offshore grid connection is expected to start in 2041. 5.7.2 Tariffs related provisions Tariff-related provisions mainly relate to provisions for system service fees. We charge electricity consumers a fee for system services performed. Following a change in law, the court in the Netherlands concluded that only parties with a direct connection to a grid maintained by a TSO are required to pay system service fees for the period prior to 31 December 2014. Consequently, we are required to refund amounts paid by certain parties to us without a direct grid connection. These refunds can be recouped through future tariffs. In 2019 no material amount (2018: EUR 3 million) of the provided amount was paid out to consumers. The exact amount to be repaid for system services fees is uncertain and depends on such factors as the electricity usage of the relevant party in the past, the legal expiring date and the nature and legal structure of each individual party. 5.7.3 Other provisions The majority of the other provisions relate to legal claims and to personnel provisions. TenneT has future liabilities under the Collective Labour Agreement involving the payment of salary-related bonuses to long-serving and retiring employees on their retirement date. The size of the associated provision has been calculated on the basis of actuarial principles. The main assumptions made in this context concern the annual salary increase of 3.0% (2018: 3.0%) in the Netherlands, leave chance of 5.0% (2018: 5.0%), an age-dependent retention rate and a discount rate of 1.5% (2018: 2.2%). 5.7.4 i Accounting policy provisions Provisions are recognised when there is (i) a legal or constructive obligation as a result of past events, (ii) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (iii) when the amount can be reliably estimated. The provisions are measured at the present value of estimated cash flows to settle the obligation, based on expected price levels. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the liability. The interest unwinding is recognised in the statement of income as a finance cost. The estimated future costs are reviewed annually and adjusted as appropriate. Changes in estimated future costs and discount rates for decommissioning costs are recognised as changes in estimations in the tangible fixed assets. For all other provisions changes in estimated future costs and discount rates are recognised in the statement of income. Annual Report 2019 TenneT TSO B.V. 50

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