10 years of national grid management. Full power ahead for TenneT

Transcription

1 10 years of national grid management Full power ahead for TenneT Annual Report 2008

2 10 years of national grid management 24-hour energy looking ahead

3 Full power ahead for TenneT 14 > 84 Four public figures and day-to-day practice 30 / 54 / 72 / 94 Annual Report 2008 Connecting to the future 94 Jaarverslag 2008 / Titel hoofdstuk 1

4 Introduction Ten years of national grid management Full power ahead for TenneT For ten years now, TenneT has been working to ensure a strong and stable national electricity grid. During that period issues like increasing internationalisation, ongoing integration of energy markets, continued infrastructural expansion, rising demand for sustainable energy, and grid innovation have set out the course for TenneT. Together these developments have created the dynamic, fast-paced environment in which TenneT now operates. This has prompted us to choose Full power ahead as the theme of this year s Annual Report. Since its establishment in 1998, TenneT has developed from a lean and mean grid company into a versatile organisation undertaking a wide range of activities and projects on the national and international stage. Cases in point include the establishment of the TenneT subsidiary CertiQ for the management of green electricity certificates, the development of trilateral market coupling with Belgium and France, and growing interconnection with other electricity markets, with the completion of the NorNed cable as the latest milestone. TenneT is also actively involved in several European initiatives, such as the development of offshore wind farms and the realisation of an integrated energy market for north-western Europe, including closer collaboration with Germany. What connects these wide-ranging themes and developments is their ultimate goal: a reliable supply of electricity, 24 hours a day. Society depends on electricity and demand for it continues to rise. It is TenneT s challenge to keep meeting that demand. TenneT: full of energy for everyone. This year s theme of Full power ahead is expressed in three lines that run through the Annual Report: - the development of TenneT s national grid management activities over the past ten years; - the vision of several prominent individuals on the theme of 24-hour energy ; - a timeline of future developments in the energy supply sector.

5 The Dutch transmission grid As at March 2009 Electricity transmission grid of TenneT TSO B.V. 380 kv substation / overhead connection / cable 220 kv substation / overhead connection / cable 150 kv substation / overhead connection / cable Cross-border interconnection Feda (Norway) Eemshaven-Norway Subsea cable to Feda (Norway) BritNed project subsea cable Randstad 380 kv project ( underground) (section under development) North-West 380 kv project (route under investigation) South-West 380 kv project (route under investigation) 380 kv connection Doetinchem-Wesel (route under investigation) 220 kv connection Vierverlaten-Zwolle Meeden-Germany TenneT head office / National Control Centre TenneT regional office Name of substation Electricity transmission grid of regional grid operators 150 kv substation / overhead connection / cable 110 kv substation / overhead connection / cable Power plants Capacity between 40 and 250 MW Capacity of more than 250 MW Imports and exports per cross-border interconnection Aggregate for the Netherlands Imports (GWh) Exports (GWh) Hengelo-Germany Isle of Grain (United Kingdom) Wesel (Germany) Maasbracht-Belgium Maasbracht-Germany Borssele/ Geertruidenberg- Belgium Annual Report 2008 / Full power ahead for TenneT 3

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7 Contents Introduction The Dutch transmission grid Profile Key Figures Review of 2008 Report by the Board of Management Corporate Governance Neelie Kroes on international cooperation Report by the Supervisory Board Financial Results Willem Vermeend on investments Corporate Social Responsibility Security, Crisis Management and Safety Wubbo Ockels on sustainability Personnel and Organisation Projects Mel Kroon on innovation Organisation Financial Statements of TenneT Holding B.V Annual Report 2008 / Contents 5

8 Profile Full of energy for everyone Our mission TenneT is an important facilitator in the liberalised energy market. With its high-quality transmission grid and customised approach, TenneT offers and develops a comprehensive range of transmission and system services, while also supplying services in support of free-market operation and a sustainable energy supply system. TenneT contributes to the efficient operation of the Dutch electricity market by investing both nationally and internationally in the establishment of a north-west European electricity market. TenneT also strives to facilitate the transition to a sustainable society. Based on our core values of quality and integrity, TenneT aims to provide its stakeholders with the following: Society - efficient, high-quality transmission and system services at reasonable prices; - a leading contribution to the realisation of a single, integrated energy market in northwestern Europe; - services that enhance the environmental quality of energy supplies; - services for other infrastructure systems for the purpose of realising synergy. Customers - a service offering with an excellent price/quality ratio; - non-discriminatory access of all parties to TenneT s 110 kv, 150 kv, 220 kv and 380 kv transmission grids. Shareholder - an adequate return on invested capital in line with the company s risk profile. Employees - an attractive working environment; - a competitive benefits package appropriate to the employee s position and responsibilities; - good prospects for personal growth and career advancement. 6

9 Our vision TenneT wishes to develop further in the Dutch and north-west European market in order to continue strengthening its position in that market. This ambition fits into the Strengthen and Build strategy that TenneT has adopted against the backdrop of international market conditions. As a Transmission System Operator (TSO), TenneT wants to play an active role in strengthening the European electricity market, based on an international vision in which the company shows initiative and takes specific steps together with other TSOs, regulatory bodies and government authorities. Integrating the electricity markets of the various countries is the best way to create a strong European market characterised by transparency, sufficient liquidity and good pricing. The ultimate goal is to establish a single market area in north-western Europe in which TSOs will resolve congestion and market parties will not face restrictions. This market area will have a common system for balancing supply and demand, thus creating the uniformity that market parties need in order to cover their risks. Our ambition It is our ambition to further develop the national transmission grid of 110 kv and higher, and to safeguard its quality. After all, the transmission grid is the backbone of the Dutch electricity supply system. In accordance with the Independent Grid Administration Act, TenneT has been in charge of managing all high-voltage grids with a voltage level of 110 kv and higher as of 1 January TenneT hopes eventually to secure ownership of these grids. In the meantime we are investing heavily in existing and new grid infrastructure. We are working to develop several new connections, both within the Netherlands and across national borders. Besides subsea cable links to the UK and Denmark, we are also constructing a fourth interconnection between the Netherlands and Germany. Within the Netherlands, new high-voltage lines are being realised in the north and south-west of the country and in the Randstad conurbation, with a view to the further development of the energy sector. TenneT makes every effort to ensure optimum quality across the board, supplying its customers as efficiently and professionally as possible with products and services. Where relevant and possible, we also develop and market new products and services. Annual Report 2008 / Full of energy for everyone 7

10 Key Figures Financial data (in millions of euros) Turnover Operating result (EBIT) Net profit after taxes Tangible fixed assets Equity Balance sheet total Average number of staff (FTEs) Ratios Equity to capital Return on average equity Interest cover ratio Loans and credit facilities / EBITDA Technical data Circuit length +/-450 kv DC (in km) Circuit length 380 kv (in km) Circuit length 220 kv (in km) Circuit length 150 kv (in km) Circuit length 150 kv (in km)* Circuit length 110 kv (in km)* No. of 380 kv substations No. of 220 kv substations No. of 150 kv substations No. of 150 kv substations* No. of 110 kv substations* Imports (GWh) Exports (GWh) Failures in 380/220 kv grid Interruptions in 380/220 kv grid Energy not supplied (MWh) 380/220 kv grid Failures in 110/150 kv grid Interruptions in 110/150 kv grid Energy not supplied (MWh) 110/150 kv grid 8

11 ) 2004 IFRS IFRS IFRS IFRS IFRS , , , , , , , , , , ) The profit figure was significantly influenced by several provisional and final agreements concluded with the Dutch tax authorities concerning the fiscal opening balance sheet. 2) Balance sheet total excluding assets not at free disposal, accounts receivable and accounts payable in connection with energy exchange transactions, and investment contributions received in advance. 3) This concerns the HVDC connection from Eemshaven (Netherlands) to Feda (Norway). The total length of this 46.1 % 8.0 % % 8.7 % % 7.9 % % 16.5 % % 12.3 % cable link is 580 km; 290 is owned by TenneT and the other 290 km is owned by the Norwegian TSO Statnett. 4) The difference in circuit lengths compared to previous annual reports is due to a more accurate measuring method. 5) This concerns grids brought under TenneT s management in accordance with the Independent Grid 290 3) 6) 2, ) 3,229 5) 1,955 6) ) 115 5) 79 24,967 9, ) ) 27 11) 6 11) 88 2,031 4) 653 4) 532 4) ,139 5, , ,346 5, ) , ,691 5,398 8) , ,405 5, Administration Act, which transferred responsibility for the management of all grids of 110 kv and higher to TenneT. The data excludes customer substations, the grids operated by Stedin, and the grids operated by Liander (which are subject to Cross Border Lease agreements). 6) Including the new EDC380 converter station and its one-kilometre stretch of 380 kv line (EDC-EEM380). 7) These failures did not always result in an interruption of the electricity supply. 8) Twenty failures occurred in one day due to line galloping. 9) As a result of a failure in a terminal box at the Maasvlakte site. 10) The failure of a surge diverter in the neutral point (150 kv) of a 380/150 kv interstage phase shifter at the 380 kv substation in Eindhoven resulted in an automatic switch-off of the 150 kv substations at Woensdrecht and Bergen op Zoom when lightning struck in the province of Zeeland (the energy that was not supplied amounted to 189 MWh). 11) The increase in the absolute number of failures and interruptions is explained by the increase in the total circuit length and the greater number of substations managed by TenneT. * Newly brought under TenneT s management Disclaimer: The technical data for 2008 were compiled on the basis of TenneT s own data and information supplied by the regional grid operators whose high-voltage grids (110 kv and higher) are managed by TenneT. Annual Report 2008 / Key Figures 9

12 Review of 2008 January February March Expansion of the grids On 1 January 2008 TenneT was made legally responsible for managing all high-voltage grids of 110 kilovolts (kv) or more. This concerned the grids previously managed by Liander, Enexis and Delta Netwerkbedrijf. The regional grid operators are transferring their management activities and customer contacts for these grids to TenneT. This expansion takes the number of grid management, maintenance and upgrade projects from 80 to more than 300. Peak load on 22 January 2008 The peak load on the Dutch highvoltage grid in 2008 was measured at 6.00 p.m. on 22 January, as shown in the annual data published in the Transmission on Balance report. At that point in time the total electricity demand on the grid amounted to 13,957 megawatts (MW). The peak load usually occurs on a winter s day between 5.30 and 6.00 p.m., when intensive use is being made of central heating and domestic and street lighting all over the country. Enlargement of the Board of Management On 1 February 2008 TenneT expanded its two-member Board of Management to include a Chief Financial Officer. Willem Keus joined CEO Mel Kroon (Chairman) and Chief Operating Officer Ben Voorhorst on the Board of Management as a registered director. It was considered necessary to enlarge the Board of Management to cope with the company s growth and the increase in the number of activities. Agreement between Fluxys, Gasunie and TenneT An agreement between Fluxys, Nederlandse Gasunie and TenneT Holding was signed in March, giving Fluxys a 2.68% stake in the electricity and gas exchange APX (APX Group). Later in the year this stake was increased to 4%. The reason for this collaboration was the APX Group s ambition to become a leading player in the European gas market. Fluxys is a key partner in this endeavour. Interruption in the electricity supply near Maastricht Just before noon on 15 January, the ground wire of the 110 kv high-voltage line running from Limmel to Beek (near Maastricht) became detached, causing the line to sag over the A79 motorway. The problem was resolved before the evening rush-hour, and the supply of electricity to the region was not affected by the incident. TenneT s performance in 2008 was excellent; no disruptions in the 220/380 kv grid and only two minor ones in the 150 kv grid. 10

13 April May June Wintrack design TenneT launched the Wintrack pylon, a high-voltage tower with greatly reduced magnetic field intensity compared to existing lines. Developed in collaboration with KEMA, the first of these innovative pylons will be erected in the Randstad conurbation in Your Energy Is TenneT s Strength An ambitious recruitment campaign featuring the slogan Your Energy Is TenneT s Strength was launched in May. TenneT was seeking to recruit about 200 new people and created a dedicated website, for this purpose. We also brought in an enthusiastic team for the recruitment and selection. Within a short space of time, a large number of candidates applied. The fact that our own employees played a central role in the campaign proved to be particularly appealing. NorNed cable goes live An historic moment for TenneT and the Norwegian TSO Statnett as the world s longest subsea electricity cable went live. The cable is an out-and-out success right from the start and earned approx. 110 million euros in TenneT looks ahead to 2030 The expected increase in sustainable energy production, the rapid rise in the number of production plants on the coast and the potential turnaround from a net importer to a net exporter of electricity mean that the Dutch high-voltage grid will have to undergo major changes in the years to come, according to the Quality and Capacity Plan , which was published in May along with the Vision2030 document. Construction of 380 kv underground line In May the Minister of Economic Affairs took a major decision in the Randstad 380 kv project. More than 20 kilometres of the new line through the Randstad conurbation is to be laid underground. Thus the Netherlands became a world leader in the innovative construction of high-voltage lines, this being the first 380 kv connection to be laid over such a long distance underground anywhere in the world. Covenant signed with Wateringse Veld residents A new high-voltage substation was planned near the Wateringse Veld residential district in The Hague. TenneT signed a covenant with the municipality and the residents association, agreeing a number of changes to the original plan. The substation will be built at the same location, but will be integrated differently into the surroundings. TenneT was thus able to meet the needs of local residents who promised to abandon any further procedures. Wall socket at sea The Cabinet is convinced: offshore wind farms are the wave of the future. Member of the Lower House Diederik Samsom tabled a motion tasking TenneT with the connection of offshore wind farms to the national grid. Having acquired the necessary offshore experience, TenneT set the preparations in motion. The ultimate target: 6,000 MW of new capacity by Annual Report 2008 / Review of

14 Review of 2008 July August September Announcement of collaboration with RWE TenneT agreed to set up a joint security centre in collaboration with RWE Transportnetz Strom, one of the operators of the German high-voltage grid. This centre would offer TenneT and RWE a venue for performing joint calculations and analyses based on information from each other and from the market, enabling them to apply better safety calculations to the grid, and detect and prevent any potential overload situations in good time. Plans for a new subsea cable Following the success of the NorNed cable, TenneT announced plans to carry out a feasibility study for another subsea cable. This time it would investigate the possibility of a link between the Netherlands and Denmark: the COBRA cable. Denmark generates a large amount of wind energy. APX Group and Endex join forces The electricity and gas exchanges APX Group and Endex signed a deal aimed at strengthening their positions in the wave of mergers taking place in the European wholesale energy market. This will result in new additional activities for the main shareholders in the APX Group, TenneT (70.06%) and Gasunie (26.1%), and will give the State of the Netherlands, shareholder in both TenneT and Gasunie, greater influence in the European energy trading sector. Official opening of NorNed cable On 11 September the NorNed cable was officially opened simultaneously in the Netherlands and Norway. Minister of Economic Affairs Maria van der Hoeven officiated at the opening. We made the Guinness Book of World Records for the longest subsea electricity cable in the world. 12

15 October November December CASC-CWE set up The European Commission gave the green light for a joint company made up of the Belgian, French, German, Luxembourg and Dutch national grid operators (TSOs). CASC-CWE (Capacity Allocation Service Company for the Central Western European Electricity Market) will provide cross-border services a significant step towards the integration of the five national electricity markets into a single regional electricity market for Central Western Europe. Exports In October the Netherlands achieved net exports of 1,800 MW during peak hours. With European pricing, the production system in the Netherlands has the perfect incentive for higher production and export levels. The Netherlands is set to become the energy hub of Europe. Workforce expands TenneT took over 141 employees from Essent Netwerk (now Enexis) in accordance with the operating agreements concluded for the 110 kv and 150 kv grids. The new staff took up positions in TenneT s new regional offices in Hoogeveen and Weert. NOVEC buys telecommunication towers Another successful purchase for NOVEC: 40 telecommunication towers and 13 roof installations from Dutch Tower. NOVEC took over 101 former Telfort towers from KPN earlier this year. The purchase enables NOVEC to further strengthen its position as an independent infrastructure provider for the distribution of telecommunication and broadcasting signals, and brought its total number of tower sites for mobile telecommunication and broadcasting signals in the Netherlands to 684. Congestion management system introduced in Westland region It took months of hard work for TenneT, the energy suppliers and regional grid operator Westland Infra. But they succeeded in designing and implementing a congestion management system in a short space of time, enabling horticulture businesses to connect to the grid and participate in the free market, pending the planned capacity expansion. The first horticultural businesses signed a contract for participation in the congestion management system in December. Award In December TenneT won an award for its website www. werkenbijtennet.nl. After examining the recruitment websites of 350 companies, the expert jury from Digitaal-Werven. nl judged it the Best Online Job Application Experience. TenneT also achieved its target of recruiting 200 new staff members. EnerQ operations transferred to SenterNovem Despite its successful operations, the government decided that the activities of TenneT subsidiary EnerQ should be transferred to SenterNovem by the end of The government is committed to the one-stop shop approach and is therefore transferring as many activities as possible to SenterNovem (an agency of the Ministry of Economic Affairs). Most of the EnerQ workforce was able to be transferred to other parts of the TenneT Group. Annual Report 2008 / Review of

16 New Electricity Act The new Electricity Act 1998 comes into force and provides a basis for the unbundling of grid management activities on the one hand, and supply and production activities on the other. The new Act offers fresh perspectives for the phased liberalisation of the electricity market initially for industrial users and ultimately for domestic consumers. 10 years of national grid management July 1998 Report by the Board of Management Investments require forward-looking approach TenneT celebrated its tenth anniversary in October This milestone presents an excellent opportunity to look back on what the company has achieved in the past ten years, but above all to look into the future. We see a changing energy landscape emerging. There will be further internationalisation, market integration, a transition to a sustainable energy system and more local production of electricity subjects that will become increasingly dominant in the coming years. These dynamics require a strong and flexible grid infrastructure. For TenneT as a Transmission System Operator (TSO) these developments will have major consequences. In terms of development of the national transmission grid they call for a long-term vision that goes beyond our biennial Quality and Capacity Plan. In the year under review, TenneT therefore published not only its expectations for the period, but also its Vision2030 document, which presents a robust picture of the future of the 380 kv and 220 kv grids in line with four possible scenarios for the future of energy supplies. We are also working from a national perspective on a vision of the future for the 110 kv and 150 kv grids that TenneT began managing in January TenneT s vision is built on a strong foundation. Since 1998, TenneT has been able to acquire a central role in an increasingly liberalised European electricity market. We are synonymous with a strong infrastructure that has sufficient transmission capacity and we maintain the necessary energy balance across the entire electricity supply system. Part of our vision is that the market must have maximum freedom to operate. With this in mind we set appropriate rules. Over the past ten years TenneT has performed extensive pioneering work and taken important steps in this area. They include setting up auctions, an imbalance market and a trilateral market coupling system, and working towards a level playing field. looking ahead TenneT is charged with the responsibility of ensuring an affordable, reliable and clean energy supply. In the past ten years we have succeeded in maintaining the security of supply at a high level in return for low tariffs. We wish to maintain this leading position in Europe. To what extent the surging global financial crisis in 2008 will have a knock-on effect in the European electricity market is impossible to foresee at present. One of the questions facing TenneT is whether the crisis will necessitate revising decisions to invest in new production capacity. Another important question is whether a prolonged economic recession will lead to structurally lower electricity consumption in the long term, although the already initiated transition to a sustainable energy supply will generally be accompanied by greater 14

17 Ground rules for the energy market The ground rules for the electricity market are formulated in Grid, Metering, System and Tariff Codes. The tariff structure and ground rules are defined by the Office of Energy Regulation. August 1998 Full power ahead for TenneT electricity consumption and a significantly larger demand for transmission capacity. Fossil fuels will gradually be replaced by sustainable sources of energy (wind, water and biomass) and the use of electrical transportation will continue to increase. In talks with the government TenneT has indicated its willingness to bring forward certain planned grid investments so as to help counter the economic crisis. It is possible to accelerate these projects for strengthening the electricity infrastructure (valued at EUR 150 million), provided that the necessary licensing procedures are in place and we obtain the consent of the Office of Energy Regulation. New regulatory framework needed The Electricity Act 1998 and the pursuant regulatory framework require TenneT to perform its statutory transmission duty effectively. The strong focus on cost control has proved its usefulness over the past years: Dutch households pay relatively little for a high degree of security of supply. But with the major changes planned in the energy market this regulatory framework is beginning to exert a squeeze. Over the coming period TenneT will spend hundreds of millions of euros on upgrading and expanding the high-voltage grid. This is necessary because of the expected increase in the transmission of electricity. Factors that play an important role include the growth in sustainable energy production, plans for large new power stations and the projected expansion of interconnection capacity. What challenge does this pose? On the one hand, the regulatory framework provides an incentive for short-term effectiveness and cost efficiency. TenneT was recently instructed to save 2.1% year-on-year up to 2010, for example. In TenneT s view, the regulatory framework disregards the wish of customers for a high degree of security of supply (which requires expansion of connection and transmission capacity), sustainability (i.e. the transition to a clean energy supply) and modernisation. The present regulatory framework also creates negative incentives for long-term investments. Under the present regulatory system the grid administrator is denied prior certainty as to whether it will earn back its investments, while TenneT is also being docked on the capital costs of investments already made. If this situation continues over several regulatory periods, TenneT will be unable to earn back its earlier investments, let alone achieve the return deemed reasonable on its investments. This is counterproductive given the major challenges facing TenneT. Mel Kroon The Vision2030 document presents a robust picture of the future of the 380 kv and 220 kv grids in line with four possible scenarios for the future of energy supplies. The investment climate would improve significantly for TenneT if lawmakers were to give the company greater prior certainty regarding its ability to earn back investments. It is Annual Report 2008 / Report by the Board of Management 15

18 TenneT established The establishment of TenneT becomes a reality in October TenneT is now the official administrator of the Dutch national high-voltage grid. TenneT operates as an independent company in full compliance with the provisions of the Electricity Act years of national grid management October 1998 also important for the effectiveness of investments to be scrutinised once-only instead of several times as now happens. It would be beneficial for the division of roles between the Ministry of Economic Affairs and the Office of Energy Regulation to be defined more clearly. We take the view that the ministry should determine beforehand the usefulness of and need for investments. The Office of Energy Regulation is the supervisory body that checks TenneT s investments against predefined efficiency criteria. These investments are essential to be able to continue meeting the growing demand for transmission capacity in the years ahead and, at the same time, to go on assuring the Dutch standard of security of supply. Major changes Dutch consumers and producers benefit from the internationalisation of the electricity grid, as does the economy as a whole. Internationalisation ensures a stronger market and greater security of supply. The NorNed cable between the Netherlands and Norway, an initiative of TenneT and the Norwegian TSO Statnett, went into service in May This submarine electricity cable, the world s longest, produced turnover of EUR 110 million in 2008 alone. So the return on the investment to date has been higher than estimated and it appears likely that the investment will be earned back quickly. Security of supply has increased for Norway and the Netherlands and spot market prices appear to be more stable and exhibit less pronounced peaks. The cable exerts an abating effect, notably at times of highly fluctuating energy prices as in the past six months. Moreover, NorNed has contributed positively to the reduction of CO2 emissions. For more than 80% of the time electricity was generated using hydropower imported from Norway. TenneT is to invest hundreds of millions of euros in upgrading and expanding the high-voltage grid over the next few years. looking ahead The European electricity market will integrate further in the coming years. Market integration ensures efficient trading. That is why TenneT committed to market coupling with France and Belgium as a first step. This Trilateral Market Coupling (TLC) began in 2006, with cooperation between the energy exchanges APX, Belpex and Powernext and the national grid administrators Elia (Belgium), RTE (France) and TenneT. This coupling will improve international spot trading, thus enhancing the resilience of each individual market, making it possible to absorb and reduce local price fluctuations in the short term. Thanks to these efforts the electricity prices in 2008 in the Netherlands, Belgium and France were the same 70% of the time. There has also been a drastic narrowing of the electricity price differential between the Netherlands and Germany. In the meantime additional steps have been taken towards the further integration of the electricity market in this region, known as the Central Western European (CWE) Electricity Market, in line with European objectives. The common auctioning of yearly and monthly capacity at the borders between France, Belgium, the Netherlands and Germany was started at year-end 2008 by CASC-CWE (Capacity Allocation Service Company for the Central Western European Electricity Market), an enterprise jointly owned by the TSOs concerned. 16

19 Introduction of Programme Responsibility The introduction of programme responsibility allows market parties to incorporate their planned physical transactions into programmes and announce them to the grid operator in advance The Netherlands is developing from an importer to an exporter of electricity. The pace of development will depend on how fast the plans announced for new power stations on the Dutch coast can be carried out. For producers the Netherlands is an attractive location for generating electricity for the European market. This is due to the excellent possibilities for shipping in fuels, the presence of cooling water and the quality of the transmission grid. Local generation capacity has also increased substantially and has the potential to continue doing so in the coming years. The realisation of new production units contributes to the further security of supply and the development of the Dutch economy. In the coming years TenneT will connect these producers to the national grid. The most recent Security of Supply Monitoring Report shows that the Netherlands may assume an exporting role in 2009, partly because of the sharp increase of production in our country. At a number of times in 2008 the Netherlands was already performing this export role during peak hours. This shows that the north-west European market is continuing to develop. The government continues to pursue sustainability, among other things through the construction of wind farms in the North Sea. The Cabinet intends to increase offshore wind capacity to 6000 megawatts (MW) by TenneT wants to connect these offshore wind farms efficiently to the transmission grid. This is also the wish of the Lower House of Parliament, as laid down in a motion in This widely supported motion will be embedded in legislation in To promote market forces TenneT will continue to invest in connections with other countries if the social cost-benefit analysis produces a positive outcome. In 2009 we expect to learn the outcomes of feasibility studies into a second NorNed connection and a proposed submarine electricity cable connecting the Netherlands to Denmark a country with a large wind energy capacity. We will also step up cooperation with German TSOs. The large German electricity market has always been important to the Netherlands and the German energy companies are going to hive off their network divisions after years of discussion with the European Commission. We consider independent grid management to be pivotal to market integration, as has been borne out convincingly by developments in the Netherlands. The Netherlands is developing from an importer to an exporter of electricity. These developments in Germany open up prospects for further cooperation with German TSOs, enabling the strengthening of grids and markets both in the Netherlands and in Germany. Together with RWE Transportnetz Strom, TenneT is studying the effects of a fourth connection with the German market by means of a high-voltage connection between Doetinchem in the Netherlands and Wesel in Germany. E.ON Netz is upgrading the connection between Meeden and the German grid in Diele. Cooperation has also been established in the field of security and monitoring: in 2008 TenneT and RWE Transportnetz Strom set up a joint security centre. The objective is to use joint security calculations to limit the risk of overloading the grid on each side of the border. This marks the beginning of cooperation with German TSOs in more fields. In 2008 twelve TSOs agreed to set up a Annual Report 2008 / Report by the Board of Management 17

20 Expansion of Randstad grid The first plans for expanding the grid in the Randstad conurbation are drawn up. Expansion is unavoidable due to the increase in electricity consumption in the region. A new connection in a loop structure from Diemen to Oostzaan and from Beverwijk to Zoetermeer is to be built. 10 years of national grid management February 2000 joint IT platform on which grid security will play a central role. What s more, an intraday platform became operational in 2008, with the aim of using the residual capacity still available on interconnectors for daily trading between the Netherlands and Germany. Innovation above and below ground The construction of new transmission connections increasingly prompts the question of whether they can be realised below ground. This is the wish of a public that is unenthusiastic about high-voltage pylons dominating the landscape. The 380 kv grid is fast becoming a grid for very large transmissions subject to stringent availability and controllability requirements. On account of the system risks TenneT has provisionally decided to install above ground the high-capacity transmission connections in the national 380 kv grid. But given the wishes of the public we quickly want to gain more experience with underground cable construction. The realisation of the Randstad 380 kv connection offers a possibility to obtain such experience. A total of 20 kilometres of 380 kv dualcircuit connections will be cabled, divided in a South and North section. Overnight this will elevate the Netherlands to the position of a world leader in the underground construction of 380 kv transmission connections. This represents an important innovation that may provide a stimulus for placing high-voltage grids below ground. Together with Delft University of Technology and international partners, TenneT is drawing up a monitoring programme so as to track the behaviour of the system and to learn from the experience thus gained. The Netherlands is set to become a world leader in underground 380 kv transmission grids by laying more than 20 kilometres of dual-circuit cables. looking ahead In 2008 the Dutch cabinet suggested placing a cap on the total number of kilometres of above-ground high-voltage lines. The Cabinet wants to include this cap in the Third Electricity Supply Structure Plan (SEV III) that is now on the parliamentary agenda. This means that for every new kilometre of above-ground line, the same length of high-voltage line must be installed below ground or combined with an existing high-voltage line. Compared with 220 kv or 380 kv connections, it is technically less complicated and far cheaper to install 110 kv or 150 kv lines below ground. TenneT preferably does this where it is relevant and efficient to do so, as in the case of difficult intersections with waterways, in the proximity of built-up areas and in areas of exceptional ecological value. In situations where the only option is to install lines above ground, TenneT will in the near future in principle use a new type of high-voltage pylon called Wintrack. The innovation lies in the considerable reduction of the magnetic field zone, thus significantly decreasing the utilisation of available space and leaving more space available for building. Main grid is already smart Besides large-scale renewable power generation as with offshore wind farms and imported hydropower there is also a trend towards small-scale local production. Over the past years there has been an explosive growth in the use of combined heat and power units (CHPs) by parties such as horticulture businesses in the Westland region. Capacity there quadrupled from 150 MW in 2004 to more than 600 MW in 2008, while the local demand for electricity did not increase. This growth, combined with the introduction of 18

21 Study breaks new ground The first feasibility study looking at a possible cable from the Netherlands to the UK is carried out in TenneT is exploring the options for a 200-kilometre-long subsea electricity cable in collaboration with the British utilities company National Grid. This is taking place as part of the EU TENS programme, which is designed to boost the development of the European energy market. June 2000 wind turbines and new electricity stations in the Maasvlakte industrial area, is causing a shortage of capacity in the transmission grid during peak hours. Pending the introduction of a national congestion management system, a pilot project started in the Westland region at the end of December This regional congestion management system was set up in association with regional grid operators, market parties, the Ministry of Economic Affairs and the Office of Energy Regulation. After the system has been incorporated into legislation, it will be possible to use congestion management nationwide. It should be noted that congestion management remains a temporary measure, because the goal is ultimately to expand capacity. In this context politicians have placed the prioritisation of renewable energy high on the agenda; we are studying how this would work in practice under the present market system. There are strong supply and demand dynamics in an energy landscape where electricity will increasingly be generated locally, for example by each individual household or residential district. This requires sufficient balancing capabilities and flexibility. A robust main transmission grid is crucially important in this respect. Balance differences must be evened out by means of these electricity highways, for instance by offering access to backup capacity in periods when there is no wind. TenneT is examining various possibilities for storing electricity. We are also looking at options for controlling the supply and demand of market parties. In doing so TenneT is looking far into the future. What will be the effect if, say, the Netherlands switches to electrically powered vehicles that are recharged mainly at night? Together these would form an enormous buffer capacity. And could electric cars also be deployed as vehicles for supplying electricity back to the grid when they are not being used? The concept of smart grids is playing an increasing role in discussions about these developments. Smart grids are electricity grids that can respond intelligently to the dynamics of local supply and demand patterns. The smart grid concept, which includes smart energy meters, is mainly relevant to the distribution side of the energy supply system. TenneT s main transmission grid and operational systems are already smart to a large degree and are well-suited to the required flexibility and the advent of intelligent distribution grids. Together with external parties we are continually searching for improvements and innovative solutions. With the expansions and upgrades planned for the coming years, we will be able to connect large power stations, CHP units, wind turbines and other sustainable sources of energy to the grid in an efficient manner, and to import and export electricity efficiently. In short: we are already investing in a robust, flexible and smart grid. For TenneT the future started a long time ago. TenneT anticipates smart grids, electricity grids that respond intelligently to the dynamics of local demand and supply patterns. J.M. Kroon MBA President and Chief Executive Officer Annual Report 2008 / Report by the Board of Management 19

22 Electricity Production Sector Transition Act The Act stipulates that all shares in TenneT must be held by the State of the Netherlands, and not by producers, suppliers or traders. Independent grid management is an essential requirement for effective market competition. The State of the Netherlands is in possession of all TenneT shares on 25 October. 10 years of national grid management January 2001 Corporate Governance Corporate Governance Code TenneT has opted to comply with the Corporate Governance Code introduced by the Tabaksblat Committee in those areas which apply to it, even though it is not a listed company. We believe the code s principles and best-practice provisions provide an effective guideline for the way TenneT and its majority subsidiaries should operate. Our shareholder, the State of the Netherlands, represented by the Ministry of Finance, supports the way that the Code is applied by TenneT. Refer to page 27 for an explanation of why we have not adopted certain provisions of the Code. Board of Management TenneT s Board of Management has four members. Mr J.M. Kroon MBA is TenneT s Chief Executive Officer and Chairman of the Board of Management (registered director). Mr B.G.M. Voorhorst MBA was appointed as Chief Operating Officer (registered director) on 1 December 2007, and Mr W.A. Keus was appointed as Chief Financial Officer (registered director) on 1 February Mr A.A. Hartman was appointed as Director of Corporate Development (titular director) on 1 January The company operates in accordance with the four eyes principle, whereby two board members have joint authority to represent the company. To safeguard continuity within the company, each board member also holds individual power of attorney. The Board of Management is responsible for the general policy and strategy of TenneT Holding B.V. Its remit therefore includes regulated as well as unregulated activities. The Board of Management determines the extent to which the activities of unregulated companies are consistent with and contribute to the policy and strategy of the TenneT Group as a whole. The Board of Management of TenneT TSO B.V. is responsible for general policy and grid administration strategy, including administration of the national high-voltage grid and discharging the company s statutory tasks. TenneT s organisational structure can be viewed on the company s website at Supervisory Board The Supervisory Board watches over the general policy and strategy of TenneT and carries out its duties in the interests of the enterprise and all relevant stakeholders. 20

23 TSO Auction opens for business TSO Auction is an auction house dedicated to auctioning transmission capacity on the five crossborder interconnections. Capacity on the Dutch-German and Dutch-Belgian borders is auctioned in annual, monthly and daily auctions. Because both the German and the Belgian TSOs participate in the activities of TSO Auction, capacity is auctioned on both sides of the border. January 2001 Full power ahead for TenneT The Supervisory Board acts on the level of TenneT Holding B.V. The statutory two-tier ( structure ) regime applies to TenneT. The Supervisory Board has produced a profile of its composition. The profile takes into account the nature of the company and the required expertise and background of Supervisory Board members. The Supervisory Board consists of at least three members. At present it has five members. The individual members may not serve more than three terms of four years. The members step down according to a predetermined retirement rota. The Supervisory Board has selected a number of its members to form an Audit Committee and a Remuneration and Appointments Committee. The Audit Committee is charged with monitoring the company s financial reporting including its quarterly and annual reports, its financial reporting policy, its internal control mechanisms, the independent external audit of the financial statements and the evaluation of the external auditor. The Remuneration and Appointments Committee is charged with making proposals concerning the remuneration policy to be pursued, the remuneration of individual directors and the preparation of a remuneration report. The Committee also defines criteria for the appointment of directors and supervises the procedure for the appointment of new directors. Regulations have been drawn up to govern the operation of the Supervisory Board, the Audit Committee and the Remuneration and Appointments Committee. Full information concerning the Supervisory Board and its individual members can be viewed on the TenneT website. General Meeting of Shareholders The shares in the capital of TenneT are held by the State of the Netherlands, represented by the Ministry of Finance. Under the provisions of the Electricity Act 1998, its shares may only be held by the State of the Netherlands. To change this the law would have to be amended, which would require parliamentary approval. External auditor TenneT s external auditor, PricewaterhouseCoopers Accountants N.V., audits TenneT s financial statements and reports to the Supervisory Board and Board of Management. The external auditor draws up the auditor s report and the management letter and issues Annual Report 2008 / Corporate Governance 21

24 10 years of national grid management the auditor s statement that accompanies TenneT s financial statements. As a rule, the external auditor attends meetings of the Audit Committee and the Supervisory Board at which the auditor s reports, the management letters and the financial statements, including the reporting policy, are discussed. The General Meeting of Shareholders has the right to question the external auditor about its conclusions (as expressed in the auditor s statement) regarding the accuracy of the financial statements. The services that TenneT outsources to PricewaterhouseCoopers are checked beforehand to make sure they are compatible with the independence of an external auditor. The performance of the external auditor is evaluated and assessed each year by the Board of Management and the Audit Committee. The main conclusions of this assessment are communicated to the Supervisory Board. The current responsible partner of PricewaterhouseCoopers was appointed in the 2006 reporting year. In accordance with the guidelines of the Royal Netherlands Institute of Chartered Accountants (NIVRA), a different responsible partner must be appointed at least once every seven years (i.e. not later than 2013) in the interests of independence. This requirement is also in line with the principles of the Dutch Corporate Governance Code (Tabaksblat Code). Core values: quality and integrity TenneT operates in accordance with two core values: quality and integrity. These values express our shared identity as an organisation and guide all our decisions and activities. The core values are explained in TenneT s Company Code, which is also published on TenneT s website. Quality control in the transmission and system service sectors The primary risks associated with TenneT s transmission services are failure to maintain the requisite quality standards and failure to make the agreed capacity available. To promote the control of these risks, TenneT produces a Quality and Capacity Plan once every two years. The Quality and Capacity Plan is reviewed by the Office of Energy Regulation. The process of drawing up and reviewing these plans provides an insight into the management of these risks. In addition, an analysis of long-term developments affecting the Dutch electricity supply is provided in the Vision2030 document. Also in the area of quality, the Reliability programme was launched in The main aim of this programme is to ensure that the chain of processes between the various business units is managed in a manner that is compatible with the organisation s growth. Process management is further ensured by implementing the ISO 9001 quality system for our maintenance organisation. A similar process has been put in place for the part of the organisation responsible for operations. 22

25 Jaarverslag 2008 / Titel hoofdstuk 23

26 TenneT buys APX shares The acquisition of the APX spot market is a step in the right direction towards the development of an independent electricity market. The spot market is incorporated into a wholly-owned TenneT subsidiary. A total of 8.4 MWh is traded on the APX exchange in years of national grid management May 2001 Security and safety Security and safety play a key role in the TenneT organisation, both in the formulation of policy and in its day-to-day implementation. In 2008 TenneT appointed a Corporate Security and Safety Manager to coordinate all the measures arising from the Corporate Security Policy. These include measures to prevent deliberate damage to the electricity transmission system. The Corporate Security and Safety Manager also oversees employees compliance with safety requirements and is the central point of contact for ministries, local authorities, the police, the emergency services and other external parties. With the creation of this new position, TenneT has effectively combined a number of responsibilities in the organisation. Operational risks are mitigated by the implementation of control measures. Staff working at the National Control Centre are trained to perform their critical tasks and are qualified to perform switching operations. To keep their skills up to the requisite level, they receive periodic refresher training and assessment in accordance with the applicable national and international requirements. In the system service sector, the primary risk concerns system imbalance leading to noncompliance with national and international agreements, laws and regulations. Various procedures and arrangements are in place with a view to controlling this risk, and a crisis organisation has been set up to deal with any emergencies. The relevant staff members receive regular training in various scenarios. In addition, our internal control of the balance between supply and demand is audited annually. The audit in respect of 2008 will be reviewed by PricewaterhouseCoopers Accountants N.V. in 2009 with a view to extending the assurance report. An assessment of the application of international UCTE contracts was also performed in the year under review. Integrity As stated, TenneT s core values are set out in the Company Code. The Company Code describes the implications of the core values in terms of personal conduct. It applies to everyone who works at TenneT: permanent staff members as well as external temporary personnel. Compliance with the Company Code and the Code of Conduct is monitored by a Compliance Officer. The Compliance Officer acts as a point of contact for the company and has an advisory and supervisory role. In addition, the Compliance Officer reports to the Board of Management and prepares an annual compliance report for submission to the Office of Energy Regulation. Another tool for monitoring integrity in the company is the whistleblower s procedure, which enables our staff to anonymously report suspected irregularities of a general, operational or financial nature that have (allegedly) occurred within the company. Such irregularities can be reported to a specially designated confidential adviser. TenneT has 24

27 Groencertificatenbeheer B.V (now operating as CertiQ B.V.) established TenneT is tasked with setting up a green certification system with the aim of making the production and supply of sustainable electricity more transparent and promoting trade in sustainable electricity. May 2001 stated explicitly that staff may make such reports without jeopardising their legal position. The whistleblower s procedure has been published on the TenneT website. No irregularities were reported under the whistleblower s procedure during the year under review. TenneT executes its duties and responsibilities in accordance with the principles of transparency, non-discrimination and objectivity in conformity with Section 11b of the Electricity Act Regulatory framework The establishment of tariffs plays an extremely important role in securing TenneT s income. The tariffs are based on TenneT s annual permitted income, which is established by the Office of Energy Regulation. In September 2008 the Office of Energy Regulation published the Method Decision and the associated X Factor Decision for the fourth regulatory period ( ). The X Factor Decision determines TenneT s annual permitted income. TenneT finds that the permitted income for the 220 kv and 380 kv grids covers the costs incurred for these grids to a reasonable extent. However, the income level established for the 110 kv and 150 kv grids is insufficient to cover all costs. TenneT has therefore lodged an appeal with the Netherlands Trade and Industry Appeals Tribunal for the following reasons: high-voltage grids did not include any safeguards to ensure its accurate establishment. The regional grid operators established the level of the standardised asset value and the operating costs of the high-voltage (110 kv and 150 kv) grids themselves, and the Office of Energy Regulation established the grid values based on the information received from the regional grid operators, leaving the indirect operating costs out of the equation entirely. from the transfer of management of the high-voltage grids. In addition, a deduction is being made on all costs (including capital costs) as a result of the application of a parameter for generic productivity development (frontier shift). TenneT believes that it is no longer possible to achieve a productivity improvement on investments already made. Like TenneT, both the Ministry of Economic Affairs and the Office of Energy Regulation recognise that the current regulatory framework is exerting a squeeze in the changing energy market. According to the 2008 Energy Report, the regulatory framework is aimed too much at cost reduction and not enough at promoting investments in the grid. TenneT is about to make considerable investments in the replacement and expansion of the Dutch transmission grids. These investments are essential to be able to continue meeting the growing demand for transmission capacity in the years ahead and, at the same time, to go on assuring the Dutch standard of security of supply. Annual Report 2008 / Corporate Governance 25

28 Elined established The creation of Elined enables us to expand our activities to include renting out spare capacity in the fibre-optic part of the high-voltage grid and making antenna sites available. As a result, it is no longer necessary to erect new antenna towers in the landscape. 10 years of national grid management July 2001 For many years, cost reduction was the primary focus of attention. TenneT believes that more attention should now be paid to covering the costs of necessary investments. The investment climate for TenneT would improve significantly if investments were assessed in terms of their effectiveness once, in advance. Internal control and risk management The internal control and risk management system developed by TenneT is based on the following assumptions: company objectives. TenneT s internal control and risk management system is based on COSO II and was fully implemented in COSO II is an international risk management model used by numerous organisations all over the world. Strategic, operational and project risks Risk analysis at TenneT is carried out on a strategic and operational level. An organisationwide analysis of operational risks was performed in The strategic risks were also reviewed at the Board of Management level. Strategically important projects like TenneXT, Randstad 380 kv and BritNed are subject to specific risk analysis on a quarterly basis. A large number of risk management measures was put in place in Once every three months, the responsible managers report to the Board of Management on any risks that have been identified and how they are being controlled. Audits Audits, both internal and external (e.g. by the Office of Energy Regulation or the Netherlands Court of Audit), form an integral part of TenneT s risk management system. Internal audits provide an insight into the way in which and the extent to which the risks are managed. These audits are the final step in the management system and help management gain insight into the operation of the internal control system during a particular period. The Internal Audit department reports the results of the audits to the client and the Board of Management. Reports on the audits performed in the year in question are also submitted to the Supervisory Board once a year. Responsible staff members at department level are charged with ensuring that the findings from internal and external audits are addressed. Progress reports on the implementation of the recommendations in the audits are provided in the quarterly reports. 26

29 A three-yearly risk-based audit plan was also produced in 2008, and will be implemented over the next few years. Some of the processes that form part of the internal audits are also certified by the external auditors (PricewaterhouseCoopers), resulting in an assurance report on the internal management of the process concerned. Planning and control cycle A new business plan is produced at regular intervals. The business plan covers a three-year period and is discussed and approved by the Supervisory Board. It is also discussed with the shareholder. The TenneT annual plan is the plan for the coming fiscal year and, in conformity with the company s articles of association, includes an operating budget, financing plan and investment plan. The Supervisory Board approves the annual plan and authorises the Board of Management to carry it out. The annual plan comprises the plans of all group companies and, where TenneT TSO is concerned, comprises the plans of its constituent business units, shared service centres and staff departments. The group companies, business units and departments report monthly on their fulfilment and performance of the annual plan. These reports cover both financial and operational results. Financial reporting The Board of Management is of the opinion that the financial statements for 2008 contain no inaccuracies of material importance. The Board of Management is satisfied that TenneT s internal systems for the control and management of financial reporting risks operated effectively during the year under review. Deviations from the Corporate Governance Code The reasons why we decided not to adopt certain principles and best-practice provisions in the Corporate Governance Code are explained below. Board of Management II.2.1 to II.2.5. TenneT does not operate a system of remuneration in the form of share options because the State of the Netherlands is our sole shareholder. II.2.6 and III.7.3. TenneT has adopted revised Insider Trader Regulations. Members of the Board of Management and Supervisory Board are not permitted to engage in security transactions involving listed energy companies with which TenneT maintains an active relationship. A set of regulations and a list of excluded companies have been posted on the company s Intranet. II TenneT does not issue share options to its staff. Annual Report 2008 / Corporate Governance 27

30 TenneT builds backup facility In order to further enhance the security of supply, TenneT is building a backup facility in addition to the National Control Centre in Arnhem. 10 years of national grid management 2002 Supervisory Board III.2.2. Three of the dependence criteria have not been adopted by TenneT. Two of these criteria concern Supervisory Board members with shareholdings in TenneT (this does not apply to TenneT). The third deals with a Supervisory Board member who has temporarily been charged with managing the company in the event of the Board of Management being unavailable or incapacitated. It is not necessarily the case that such a Supervisory Board member would no longer be independent. III.4.3. TenneT has decided not to appoint a designated company secretary. Our Legal Affairs department has been entrusted with the responsibilities of such an officer within the meaning of the best-practice provisions for monitoring compliance with the correct procedures and acting in accordance with laws and regulations. III.5. The Supervisory Board has established an Audit Committee and a Remuneration and Appointments Committee, both made up of Supervisory Board members. Contrary to best-practice provision III.5.11, the Chairman of the Supervisory Board is also Chairman of the Remuneration and Appointments Committee. The Supervisory Board considers this desirable in view of the importance of the Committee. III.6.4. All shares in TenneT are held by the State of the Netherlands. Consequently, this provision does not apply to TenneT. III.6.6. No delegated Supervisory Board member is in office at TenneT. III.6.7. A Supervisory Board member who temporarily takes charge of the company in the event of the unavailability or incapacity of the Board of Management will in principle step down temporarily from the Supervisory Board. On completion of the supervisory director s managerial duties the Supervisory Board and the General Meeting of Shareholders will decide whether he can rejoin the Supervisory Board. The duration of the director s managerial duties may be one of their considerations. III.7.1 and III.7.2. These provisions deal with shareholdings of Supervisory Board members and do not apply to TenneT. III.8.1 to III.8.4. These provisions concern single-tier management and do not apply to TenneT as we fall under a statutory two-tier ( structure ) regime. General Meeting of Shareholders Many of the best-practice provisions pertaining to the General Meeting of Shareholders do not apply to TenneT as it has just one shareholder, has structured company status and is not listed on any stock exchange. The provisions in question are as follows: IV.1.1. Non-structure-regime company IV.1.2. Voting rights in respect of finance preference shares IV.1.3. Public disclosure of a bid IV.1.7. Registration date of voting rights IV.2.1 to IV.2.8. Depositary receipts for shares IV.3.1 to IV.3.4. Dealings with analysts, financial press and institutional investors 28

31 Phase shifter installed at Meeden substation A phase shifter allows for better control and distribution of electricity transmissions. It shifts the phase angle between the input and output voltages in order to increase the power, with the potential difference between input and output remaining unchanged. This enables TenneT to distribute the energy flows across the electricity grid, with the aim of making the grid more reliable and increasing the utilisation of cross-border capacity IV.3.7. Shareholder circular IV.3.9. Protective mechanisms IV.4.1 to IV.4.3. Responsibility of institutional investors External auditor V.3.1. TenneT has decided not to set up a complete internal audit department. However, TenneT does recognise the importance of adequate internal controls and monitoring of processes and procedures. These tasks are partly carried out by an internal audit function as part of the risk management system. Annual Report 2008 / Corporate Governance 29

32 16.00 hrs Location: Berlaymont Building, Brussels Interview with Neelie Kroes European Commissioner for Competition

33 European Commissioner Neelie Kroes Independence inspires confidence 31 Neelie Kroes has put the bite into European politics, taking a particularly firm stance against cartels, for example. As the European energy market enters a crucial phase following liberalisation and a wave of mergers, Kroes is once again showing her teeth, as she did in early 2009 in Germany. The German energy companies decision to sell their grids has changed the entire landscape of the industry. The energy market is attracting ever greater interest at the European level. Recently, Brussels earmarked hundreds of millions of euros for the creation of offshore wind farms and their connection to the national grids. There is certainly no lack of ambition among European politicians, but a degree of scepticism remains within the member states themselves. It is not easy to abandon traditional structures and interests. That is where Neelie Kroes comes in. She has championed an open, liberalised pan-european market, one which will encourage substantial new investments. As European Commissioner for Competition, she wishes to see a true internal market. By that, I mean a European energy market which is fully accessible to a large number of producers and suppliers, creating sound price-based competition, she explains. At the same time, the market must foster confidence among investors. Over the coming decades, billions of euros will be needed to ensure the sustainability and security of our energy supplies. Over the coming decades, billions of euros will be needed to ensure the sustainability and security of our energy supplies. Conflict of interests If investors are to have confidence in the market, it is essential that the grid managers, or Transmission System Operators (TSOs), are fully independent, Kroes believes. Grid managers who are also involved in energy production and supply have an intrinsic conflict of interests. They must provide access to their grids but there is little or no incentive for them to do so. During our studies of the electricity and gas market, we found indications that some companies are abusing their control of the grid. Kroes is relying on a two-pronged approach to expedite the market reforms. First, there is to be a package of new legislative measures, the most significant of which requires the separation of production and transmission activities. The second prong involves applying existing competition law against companies suspected of abusing their position as grid operators. Kroes thinks that pressure from Europe is already Annual Report 2008 / Interview Neelie Kroes / Europe

34 having an effect, as developments in Germany show. E.ON is willing to relinquish control of its highvoltage power grid, while RWE is prepared to do likewise with its high-pressure gas distribution grid. These decisions have changed the entire landscape of the energy supply sector. According to some recent press releases, other energy companies are also thinking about selling or hiving off their supply grids, Kroes notes with satisfaction. Incentives Neelie Kroes believes that TSOs such as TenneT play a crucial role in breaking down trade barriers and resolving imbalances. She applauds the many instances of cooperation between TenneT and other European TSOs, describing the NorNed cable between the Netherlands and Norway and a similar Provided they cooperate well, TSOs can accurately identify precisely where the grids require further strengthening. planned connection between the Netherlands and the UK as promising developments. Of course, cooperation between TSOs is in itself nothing new. In the past, however, companies involved in grid management, production and distribution have had fewer incentives to work together in areas such as interconnections between member states. One important consideration was that any increase in imports could result in the company losing some of its market share. That discouraged new initiatives. Having fully independent grid managers will, she believes, encourage the necessary flexible cooperation between TSOs. This is why it is so important that E.ON Netz, TenneT s German counterpart, becomes a fully independent grid manager as soon as possible. The move will open up opportunities for better cooperation and joint investment. And that will in turn lead to better utilisation of the scarce capacity. Helicopter view Kroes predicts that there will be many more independent TSOs in the TenneT mould, and that cooperation will become ever closer. At first, this cooperation will probably be limited to the companies own region, which in the case of TenneT is north-western Europe. Alongside the incentives to investment, closer collaboration between independent grid managers will bring many other benefits. It is likely to enhance the sustainability and security of energy supplies, which Kroes sees as another very good reason to pursue the reforms. We are seeing a welcome trend towards the greening of energy production throughout Europe, and particularly in north-western Europe where a growing proportion of our energy is now derived from wind power. This is due in part to the European target of reducing CO2 emissions by twenty percent, increasing the use of renewable energy sources to twenty percent of total supplies, and reducing energy demand by the same figure, all by the year TSOs know exactly what is needed to ensure the successful introduction of wind energy. They can see how the supply and demand balance is affected when there is insufficient wind to drive the turbines, for example. Their other production units, such as the gas turbines, must then spring into action to make up the shortfall. It is precisely because the TSOs enjoy this helicopter view that they must make effective agreements between themselves. We must avoid a situation in which the various TSOs are able to pass the buck during periods of insufficient wind. Provided they cooperate well, TSOs can accurately identify precisely where the grids require further strengthening. They can also determine exactly where each euro invested will bring the greatest returns in terms of additional transmission capacity. Last but not least, Neelie Kroes sees great opportunities from further cooperation in new technology such as smart grids. TSOs still have a lot to learn from each other, she concludes. 32

35 TSOs know exactly what is needed to ensure the successful introduction of wind energy. Annual Report 2008 / Interview Neelie Kroes / Europe

36 9.30 hrs Location: Doetinchem power station, starting point for the new connection to Wesel, Germany Interview with Siem Bruijns, TenneT s System Operations Manager

37 Siem Bruijns on European cooperation The developments are fast and furious The energy market is becoming increasingly pan-european. We are on the threshold of farreaching market integration, with ever more international cooperation between the grid managers. Siem Bruijns is TenneT s System Operations Manager. Cooperation is now the rule rather than the exception, he remarks. Everything becomes fluid under pressure, a rule which applies equally to the developing European energy market. Pressure from the European authorities has accelerated the integration process, according to Siem Bruijns. But a number of European TSOs, including TenneT, have realized for themselves the importance of pursuing a resilient single European market. It is now inevitable. Bruijns sees the agreement for Central Western Europe (CWE region) as a true breakthrough. In 2007, the Netherlands, Belgium, Luxembourg, France and Germany agreed on far-reaching market integration by means of implicit auctions. The relevant TSOs, energy exchanges, governments and regulatory bodies are now working out the details. If everything goes to plan, the auction systems in these five member states will be ready to accommodate yet more mutual energy trading by Further physical links with the Scandinavian countries and the United Kingdom are likely to follow. However, even this integration does not render the market perfect. To ensure an effective pricing mechanism, even more electricity must flow between the member states, and this requires further expansion of the interconnection capacity. TenneT has already begun the process of laying new cables to the United Kingdom (the BritNed connection) and Germany (Doetinchem-Wesel), and is currently examining the feasibility of further international connections. Our aim is to offer the market maximum capacity without putting the security of supply at risk. And that brings us neatly to the thorny question of reliability. As Bruijns points out, the increase in European trade will lead to more transmission fluctuations. It will be rather more difficult to predict the stability of a pan-european electricity grid. Moreover, we can expect a substantial increase in the proportion of energy derived from wind power, so output will also become less predictable. This is clearly a problem, but it is not insurmountable. Once again the answer is European cooperation. In 2008, TenneT and its German counterpart RWE Transportnetz Strom established a joint Security Service Centre in Rommerskirchen in Germany. At this location, the first of its kind, specialists from both companies closely monitor Cooperation is now very much the rule rather than the exception. the grid and forecast the supply and demand requirements for the following day. Bruijns foresees a situation in which European TSOs can no longer operate as independent islands. He welcomes the initiative of setting up a joint IT platform together with eleven other TSOs, a move which he thinks will soon be emulated throughout Europe. Closer cooperation can be seen in many other areas. Recently, the various European TSOs joined forces in the European Network of Transmission System Operators for Electricity (ENTSO-E). Cooperation is now very much the rule rather than the exception, Bruijns states. 35 Annual Report 2008 / Interview Siem Bruijns / Europe

38 Sealed with a royal kiss Twenty minutes before the civil wedding of Crown Prince Willem Alexander and his Argentinean bride Máxima Zorreguieta, the whole of the Netherlands is glued to the box. This causes a sudden drop in electricity consumption, so the surplus electricity is exported abroad. 10 years of national grid management 2 February 2002 Report by the Supervisory Board The Supervisory Board has examined the annual report, the financial statements and the auditor s report issued by PricewaterhouseCoopers Accountants N.V. We endorse these documents and have recommended that the General Meeting of Shareholders approve the financial statements. The Supervisory Board recommends that the General Meeting of Shareholders release the Board of Management from liability in respect of its management and release the Supervisory Board from liability in respect of its supervision. Activities The Supervisory Board met on six occasions in The subjects discussed by the Supervisory Board and the Board of Management included various strategic developments, investments and the progress of national and international projects. The subjects discussed by the Supervisory Board included: Several of these subjects were discussed extensively with the General Meeting of Shareholders. 36

39 Pilot project on international congestion management In 2002, the first pilot project involving congestion management on cross-border interconnections took place. Congestion management is a method of tackling traffic jams on the grid. The Belgian, French, German and Dutch TSOs plan to set up a joint system for their cross-border interconnections. The project will also look at whether the capacity allocation mechanism can be improved. May 2002 Full power ahead for TenneT Composition The Supervisory Board s composition remained unchanged in Mr Griffioen was re-appointed for a third four-year term on 15 June All members of the Supervisory Board are independent within the meaning of the shareholders thereof) engaged in the production, purchase or supply of electricity or gas. All supervisory directors are also independent within the meaning of best-practice provision III.2.2 of the Corporate Governance Code. Retirement rota The retirement rota was drawn up pursuant to Article 6.2 of the Supervisory Board rules. Name Date first appointed End of first 4-year term End of second 4-year term Latest retirement date R.E. Selman 21 Oct Oct AGM 2011 C. Griffioen 15 June June June 2008 AGM 2013 J.F.T. Vugts 17 July July 2005 AGM 2014 J.F. van Duyne 26 Oct Oct AGM 2014 A.W. Veenman AGM 2017 Audit Committee The Audit Committee consists of Mr Griffioen (Chairman) and Mr Vugts. The Committee met on two occasions in 2008 in the presence of the Board of Management. Representatives of the external auditor, PricewaterhouseCoopers Accountants N.V., also attended these meetings. The subjects discussed by the Committee at these meetings included the following: Annual Report 2008 / Report by the Supervisory Board 37

40 10 years of national grid management Remuneration and Appointments Committee The Remuneration and Appointments Committee consists of Mr Selman (Chairman) and Mr Van Duyne. The Committee met on two occasions in the year under review. The subjects discussed by the Committee included the performance of the Board of Management. The Committee subsequently submitted to the Supervisory Board proposals for fixed salary and variable remuneration. The full Remuneration Report for 2008 is shown below. Remuneration Report Introduction Each year the Remuneration Report is drawn up by the Remuneration and Appointments Committee, approved by the Supervisory Board and discussed at the General Meeting of Shareholders. The Remuneration Report sets out the substance of the remuneration policy for the Board of Management (registered directors) and the Supervisory Board of TenneT Holding B.V. as approved by the shareholder, represented by the Ministry of Finance. The Remuneration Report shows which salary adjustments occurred in the previous year for the members of the Board of Management (registered directors), the extent of attainment of the previous year s targets and the resulting awards of variable remuneration. The report also specifies the remuneration received by the members of the Supervisory Board. On 18 April 2008, the Supervisory Board approved the Remuneration and Appointments Committee s proposal for adjustments to fixed salary in accordance with the company s remuneration policy. The variable remuneration over 2008 was approved at the 2. Remuneration policy of TenneT Holding B.V. The remuneration policy approved by the shareholder consists of the following elements: 38

41 Fixed salary The fixed salary of the Board of Management (registered directors) is based on a job evaluation. Under this evaluation, the remuneration attached to the position is benchmarked against the remuneration of positions of a similar level in the general remuneration market in the Netherlands. The job evaluation and benchmark are developments in the organisation and in the general labour market. The median of the benchmark is used as a basis for determining the desired level of fixed remuneration, i.e. 50% of the reference group has a higher fixed salary and 50% a lower salary. If there is a deficit compared with the median, it is company policy to close it within a period not exceeding four years on condition of normal good performance. Additionally, the Supervisory Board may decide from year to year to index-link the salaries of executive directors. The size and structure of remuneration must make it possible to recruit and retain qualified executive directors who possess experience in a position of similar level outside or within the sector, even if there are developments within the company that result in greater complexity and thus more burdensome executive directorships. Variable salary The remuneration policy provides for a maximum of 25% of fixed salary to be awarded as variable remuneration. The amount of variable remuneration awarded is based on the extent of attainment of pre-agreed targets. These targets are set in four categories: Each year the Supervisory Board presets the specific targets for members of the Board of Management and the associated weighting factor. At the end of the year in question the Supervisory Board determines the extent to which the targets were achieved. Variable remuneration provides year-on-year motivation to fulfil the defined targets and exhibits good balance between its purpose and size. The variable remuneration is based on a simple system with a view to its practicability and transparency. Pension costs The pensions of all members of the Board of Management are administered by the ABP Pension Fund. Pension accrual is based on a career-average salary system. Besides the ABP Annual Report 2008 / Report by the Supervisory Board

42 Joint venture between Elined and Prorail Elined and Prorail set up a joint venture to rent out spare capacity in the fibre-optic networks. The two parties join forces in the newly established company Relined. The whole is more than the sum of its parts! Up to now, Elined has not had good links to the major city centres. The fibre-optic cables designed for rail traffic provide these links. 10 years of national grid management April 2003 pension, the President and CEO will accrue additional pension to facilitate retirement at 61 years of age, under a non-contributory pension plan agreed with him when he joined the company. This accrual occurs through a life-course scheme for which the remitted contributions have been included in the stated pension contributions. Severance pay Severance pay for members of the Board of Management is in conformity with the Dutch Corporate Governance Code (Tabaksblat Code) and equals one gross annual salary. Other compensations and secondary benefits TenneT offers its executive directors and employees a competitive package of secondary benefits. These benefits may include reimbursement of expenses, allowances towards medical insurance premiums, accident insurance, a scheme for incapacity for work, a company car and directors liability insurance. Future remuneration policy Given the company s substantial growth over the past two years and developments in society regarding remuneration policy, the Supervisory Board intends to submit to the 3. Remuneration of the Board of Management Fixed remuneration The Supervisory Board decided to increase the fixed salary of the President and Chief Executive Officer by 2% with effect from 1 January 2008 in recognition of performance, based on the performance appraisal and experience of the executive directors and the relationship between their fixed remuneration and what is customary for similar positions in the Dutch remuneration market. No adjustment was made to the fixed salary of the Chief Operating Officer, who at that time had been an executive director for one month. Additionally, an index-linked increase of 2.5% was awarded plus an increase of 0.8% in the year-end bonus, in each instance in accordance with developments in the collective labour agreement. The relative position of the fixed salary of the Board of Management (registered directors) compared with the median of the general remuneration market came to: Chief Operating Officer 85% 40

43 Variable remuneration Based on achievement of preset targets, the Supervisory Board decided to award the Board of Management the following percentage of maximum variable remuneration over 2008: Percentage Subject President CFO COO and CEO Profitability: EBIT level compared with budget 25% 25% 25% Strategic targets: Implementation and integration of highvoltage grids, interconnectors and market coupling 20% 20% 15% Operating targets: 25% 25% 30% Personnel, safety and reliability: 15% 15% 15% Sick leave rate, accidents and disruptions Total 85% 85% 85% This resulted in the following remunerations over 2008: J.M. Kroon MBA, President and Chief Executive Officer (x EUR 1,000) Fixed salary* Variable Total salary remuneration W.A Keus, Chief Financial Officer (director since 1 February 2008) (x EUR 1,000) Fixed salary Variable Total salary remuneration B.G.M. Voorhorst MBA, Chief Operating Officer (director since 1 December 2007) (x EUR 1,000) Fixed salary Variable Total salary remuneration Annual Report 2008 / Report by the Supervisory Board 41

44 EnerQ and CertiQ start up TenneT sets up EnerQ with the introduction of the MEP grants scheme. MEP is the Dutch abbreviation produced energy. EnerQ is responsible for implementing the scheme. The TenneT subsidiary Groencertificatenbeheer B.V. will continue under the name CertiQ. In addition to producers of sustainable electricity, its customers will also include CHP (combined heat and power) producers. 10 years of national grid management July 2003 Pension contributions The following amounts were paid in pension contributions in 2008: (x EUR 1,000) J.M. Kroon MBA* W.A. Keus B.G.M. Voorhorst MBA * The pension contributions include a supplement equal to the deducted employee s portion of the pension contributions (EUR 31,000 in 2008, EUR 33,000 in 2007). This employee s portion was presented under fixed remuneration in previous reports. 4. Remuneration of the Supervisory Board The remuneration of members of the Supervisory Board was increased by 2.5% in line with inflation with effect from 1 January 2008, in conformity with agreed arrangements (General Meeting of Shareholders ). This brings the 2008 remuneration of Supervisory Board members and Committee members to the following amounts: Chairman of Supervisory Board EUR 24,548 Member of Supervisory Board EUR 17,604 Member of Audit Committee EUR 5,868 Member of Remuneration and Appointments Committee EUR 2,128 The table below shows the total compensations received by the Supervisory Board members in (in EUR) Fixed remuneration Committee fee 2008 Total 2008 Total Chairman R.E. Selman 24,548 2,128 26,676 26,016 Deputy C. Griffioen 5,868 25,608 Chairman Member J.F. van Duyne 17,604 2,128 Member J.F.T. Vugts 17,604 5,868 23,472 Member A.W. Veenman 17,604-17,604 17,172 Total 113, ,304 42

45 Contacts with the Works Council In the year under review, representatives of the Supervisory Board attended two meetings between the Board of Management and the Works Council. There was also an annual meeting of the Works Council, the Supervisory Board and the Board of Management in which various relevant developments were discussed. The Supervisory Board would like to express its appreciation of the way in which and the speed at which the various topics were debated and discussed on these occasions. Word of appreciation The Supervisory Board wishes to thank the Board of Management and all TenneT management and staff for their efforts and commitment during the year under review. The Supervisory Board R.E. Selman (Chairman) C. Griffioen (Deputy Chairman) J.F. van Duyne J.F.T. Vugts A.W. Veenman Annual Report 2008 / Report by the Supervisory Board 43

46 Code Red During prolonged periods of hot weather, power plants are subject to restrictions concerning the discharge of cooling water into surface water. For the first time in nine years, TenneT issues a Code Red in the warning system for cooling water restrictions. The reserve capacity in production units has dropped to 390 MW. If a power plant were to fail simultaneously, a situation may arise in which electricity can no longer be supplied to the whole of the Netherlands. 10 years of national grid management 8 August 2003 Financial results Profit TenneT realised an operating profit of EUR 80.9 million in the year under review, an increase of nearly 15 percent compared to 2007, when the operating profit amounted to EUR 70.4 million. At EUR 50.7 million, the group s net profit was down 4.5 percent on 2007 levels. Besides lower profits from participating interests, higher net finance expenses are the main cause of the reduction in net profit. Under the Independent Grid Administration Act, TenneT was appointed as the administrator of all Dutch high-voltage grids with a voltage level of 110 kv and higher with effect from 1 January This means that TenneT is now the administrator of the entire transmission grid (110 to 380 kv), with the exception of grids covered by Cross Border Lease agreements. In the course of 2008, TenneT took over the operation of the 110 kv and 150 kv grids managed by Delta and Essent Netwerk up to 1 January In the course of 2009, TenneT will also take over the operation of Nuon s 110 kv and 150 kv grids, with the exception of the grids in the Randmeren area, for which a Cross Border Lease agreement was previously concluded. For the time being, TenneT has decided not to take over the management of the grids currently operated by Eneco, as these grids are also covered by a Cross Border Lease agreement. The operating profit in 2008 was negatively affected by several exceptional items, some of which were directly connected to the transfer of responsibility for the management of the 110 kv and 150 kv transmission grids. These exceptional items included non-recurring costs incurred by TenneT in order to take over the various management activities, and compensation for management activities that were still carried out by regional grid operators in These costs were insufficiently covered by TenneT s regulated tariff revenues. In September 2008, the Office of Energy Regulation of the Netherlands Competition Authority announced its Method Decision for the fourth regulatory period (2008 to 2010 inclusive). One consequence of this Method Decision is that the permitted regulated income from the 110 kv and 150 kv grids for which TenneT assumed responsibility as of 1 January 2008 will be insufficient to cover the management costs incurred by TenneT in this respect. This has prompted TenneT to lodge an appeal with the Netherlands Trade and 44

47 Full power ahead for TenneT Industry Appeals Tribunal and to create a provision for loss-incurring activities. The size of this provision is based on several scenarios with regard to the outcome of the appeal case, as well as the expected developments of costs and income during the period of TenneT s designation as the administrator of the grids concerned. These exceptional expenses are offset by several items of exceptional income, in particular the release of a reserve created in previous years in connection with arbitration proceedings instituted by a regional grid operator. This concerned the height of the management fees payable by TenneT for a 380 kv connection owned by the operator. TenneT also realised a non-recurring benefit (book profit) on a property transaction. On balance, these exceptional items have reduced the operating profit by EUR 12.4 million. This was partially compensated by the fact that the purchasing expenses for energy and capacity were fully recognised in revenue in 2008 (this was only partially the case in 2007 and in previous years). Profit after tax (in millions of EUR) Revenue Revenue in 2008 amounted to EUR million (2007: EUR million). The increase in revenue compared to 2007 is mainly due to TenneT s assumption of responsibility for the management of the 110 kv and 150 kv grids. The increase concerns only part of the revenue which can be allocated to these grids in This is a consequence of the interim agreements concluded with the regional grid operators. Under some of these agreements, the economic risk will not be transferred until Annual Report 2008 / Financial results 45

48 Fire-fighting and high-voltage cables TenneT and the municipality of Lelystad draw up rules designed to improve the safety of firefighters for the first time. One of the arrangements is that TenneT will cut power within ten minutes of a fire. The Netherlands Institute for Safety Nibra has also worked on the plan. 10 years of national grid management August 2003 The table below shows a breakdown of revenue: (in millions of EUR) Regulated Unregulated Total Regulated Unregulated Total Connection and transmission services System services Maintenance of the energy balance Operation of energy exchanges Revenue from market facilitation services Other Total Revenue from regulated services consists mainly of payments for supplying connection services, transmission services and system services, and amounts charged for balancing the supply of and demand for energy. These activities are subject to supervision by the Dutch industry regulator, the Office of Energy Regulation of the Netherlands Competition Authority, which sets tariffs from year to year. The revenue from unregulated services is mainly derived from the operation of energy exchanges. Other revenue mainly concerns the sales recorded by other subsidiaries, interest received, and work in progress for third parties. TenneT strives to improve its efficiency so as to compensate for the tariff reductions imposed by the regulator (known as the x factor ). TenneT s long-term objective is to outperform the regulated return while maintaining quality of service within a controlled risk profile. Balance sheet TenneT has a balance sheet total of almost EUR 2.9 billion, of which EUR 1.1 billion is not at the Group s free disposal as a result of: 46

49 Randstad conurbation gets new high-voltage line New connections are needed to meet the growing demand for electricity in the Randstad conurbation. The rise in demand is caused by the construction of new homes and businesses. The expansion is also needed to safeguard the security of supply and to ensure that additional transmission capacity is available for power plants. September 2003 The financial assets not at free disposal have increased sharply in recent years. They represent a substantial portion of the balance sheet total and cash flows, as shown in the graphs below. Balance sheet value (in millions of EUR) 3000 Market coupling Grants received under the Electricity Production (Environmental Quality) Act Maintenance of the energy balance 1000 Auctioning of capacity on cross-border connections 500 Energy exchange activities of APX Group Ordinary balance sheet items Cash flows from clearing transactions Cash flows (in millions of EUR) Market coupling Grants received under the Electricity Production (Environmental Quality) Act Maintenance of the energy balance Auctioning of capacity on cross-border connections Energy exchange activities of APX Group Annual Report 2008 / Financial results 47

50 TenneT acquires Transportnet Zuid-Holland (TZH) With the acquisition of TZH, TenneT takes the first step towards creating a single national transmission grid. The acquisition of the 150 kv grid in the province of Zuid-Holland will increase efficiency. 10 years of national grid management December 2003 The balance sheet total excluding assets not at free disposal and investment contributions received in advance (adjusted balance sheet total) amounts to EUR 1.8 billion 1) and is the basis for gauging the performance of the company. This produces the following ratios: Equity to capital 46.1% 45.9% 50.2% 51.6% 51.0% Return on average equity 8.0% 8.7% 7.9% 16.5% 12.3% Interest cover ratio Loans and credit facilities / EBITDA ) The adjusted balance sheet total (EUR 1.8 billion) is equal to the balance sheet total (EUR 2.9 billion) minus the assets not at free disposal (EUR 1.1 billion). 53% Solvabiliteit Equity to capital 52% 51% 50% 49% 48% 47% 46% 45% 44% 43% % 16% 14% 12% 10% 8% 6% 4% 2% Return Rentabiliteit on average gemiddeld equity eigen vermogen 0%

51 107 new employees The acquisition of Transportnet Zuid-Holland in December 2003 gives TenneT 107 new employees, bringing the total number of staff to 400, and increasing the number of kilometres of electricity lines under TenneT s management by 680. July Interest Rentedekking cover ratio The following definitions are used for accounting purposes: Equity to capital Return on average equity Interest cover ratio Loans and credit facilities / EBITDA Equity divided by the adjusted balance sheet total Income after tax divided by average equity (year-end position + opening position / 2) Operating income divided by interest paid on loans and credit facilities Withdrawals from bank loans and credit facilities divided by operating income plus depreciations and impairments of tangible and intangible fixed assets Investments TenneT s tangible fixed assets amounted to EUR 1,470 million in the year under review (2007: EUR 1,263 million) and consist mainly of the high-voltage infrastructure. Depreciations in 2008 amounted to EUR 65 million (2007: EUR 58 million). Annual Report 2008 /Financial results 49

52 New name for Code Red This year sees the introduction of new international agreements on the colour code names. These codes are used to indicate the various levels of terrorist threat. The Green, Orange and Red codes used by TenneT to announce restrictions on the use of cooling water are changed to Phase 0, 1 and years of national grid management July 2004 TenneT invested EUR 282 million in new operating assets in 2008 (2007: EUR 166 million). These investments related mainly to projects in progress to strengthen the infrastructure in the Randstad conurbation, as well as the electricity connections to Norway (NorNed cable, completed in 2008) and the UK (BritNed cable). In the coming years, we will make further investments in the replacement and expansion of the grid infrastructure. A sharp increase in plans for new production capacity is the main issue affecting the capacity of the transmission grid. As a result of these plans, it is now expected that the Netherlands will become a net exporter of electricity in the long run. Several grid upgrade projects have already been set in motion. TenneT is currently working on an expansion of the national high-voltage grid in the Randstad region. The next step will comprise expansion in the northern and central parts of the Netherlands and in the province of Zeeland, and the construction of a fourth cross-border interconnection with Germany. The planning procedures for these projects were started in Total investment in grid upgrades amounts to approx. EUR 3 to 4 billion. Financing strategy TenneT s financing strategy seeks to respond as flexibly as possible to changes in the company s environment. The treasury policy is focused on properly controlling our cash flows, protecting group equity against financial risks, and ensuring good access to the financial markets. In the long term, TenneT aims to gear its equity structure to a risk profile that is appropriate to our predominantly regulated activities, and to the longevity of our assets, while maintaining sufficient resilience to respond to opportunities arising within the company s core activities EUR per MWh Sweden Finland Norway Slovenia Belgium Netherlands Latvia France Austria Estonia Hungary Spain Bulgaria United Kingdom Germany Denmark West Denmark East Greece Romania Poland Czech Republic Portugal Italy Ireland Lithuania Slovak Republic 50

53 Office of Energy Regulation gives green light for NorNed cable At the end of 2004 TenneT and Statnett sign an agreement to lay a 580-kilometre-long subsea high-voltage cable. The NorNed cable, which will link the Netherlands with Norway, is intended for importing and exporting electricity, in line with the EU policy of interconnecting more European markets. December 2004 Tariff benchmark According to the tariff benchmark study conducted by ETSO, the organisation of European TSOs, TenneT s tariffs rank among the lowest in Europe. Due to rising costs for energy and capacity and the upgrade of the 380 kv grid in the west of the Netherlands, however, our tariffs will start to increase in the coming years. Prospects for 2009 TenneT s income from regulated activities is expected to increase further in 2009 to a level in excess of EUR 600 million, primarily as a result of the transfer of the management and operation of the 110 kv and 150 kv grids previously managed by Delta, Essent and Nuon. TenneT also intends to gain ownership of these grids, insofar as they are not subject to Cross Border Lease agreements. So far, TenneT has reached agreement with Essent on this matter, and in the course of 2009, we expect to come to an understanding with Nuon and Delta concerning the transfer of the relevant grid assets. The transfer of the ownership of these grids means that TenneT will no longer have to pay management fees to the grid owners. This is offset by the fact that TenneT will then have to bear the capital costs (depreciation charges and finance expenses) for these grids. TenneT expects the operating income in 2009 to be lower than in the year under review. This is a direct consequence of the Method Decision for the fourth regulatory period announced by the Office of Energy Regulation of the Netherlands Competition Authority in September As a result of this Method Decision and the 2009 Tariff Decision arising from it, the permitted regulated income from the 110 kv and 150 kv grids in 2009 will be insufficient to cover the management costs incurred by TenneT in this respect. This has prompted TenneT to lodge appeals or objections against these decisions. TenneT considers it unlikely that any ruling will be issued in these procedures in Consequently, TenneT s revenue will not be affected until later years. With a view to this Method Decision, TenneT created a provision in 2008 which in 2009 will mitigate the effects mentioned without fully eliminating them. Due to the extensive investment programme currently being carried out by TenneT, both the depreciation charges and the interest expenses will grow considerably in Under the current regulatory system, compensation for these rising expenses cannot be obtained until later years (through future tariffs). This so-called lag effect will have a negative impact on TenneT s profit in We are currently holding talks with the Ministry of Economic Affairs concerning possible changes to the regulatory system, so that TenneT will have a realistic chance of achieving the regulated return in the coming years, when investments levels will exceed depreciation and amortisation expenses. Annual Report 2008 / Financial results 51

54 10 years of national grid management At this time, the international economic crisis does not appear to be affecting the need for TenneT s investment programme for 2009, which will consist mainly of investments in the expansion and upgrade of the 380 kv grid in the Randstad conurbation, and in the undersea BritNed cable linking the Netherlands to the UK. TenneT expects its financing requirement to increase as a result of this extensive investment programme. TenneT aims to diversify its sources of funding in order to meet this requirement. In close consultation with the shareholder, we are also looking at ways to ensure that TenneT s balance sheet will continue to display a healthy financial position while the necessary investment programme is being carried out. 52

55 Annual Report 2008 / Financial results 53

56 14.00 hrs Location: TSS Cross Media Group, Gouda Interview with Willem Vermeend Businessman and Professor of European Fiscal Economics at Maastricht University

57 Willem Vermeend wants action Think big and dare to invest now! Willem Vermeend is a man of action. In the late 1990s, he and Gerrit Zalm, then State Secretary for Finance, devised a programme of major tax reforms which they implemented in just three years. Today he is calling for a more dynamic approach to sustainable energy. The Dutch government has been too slow to act, he comments. Our interview with Willem Vermeend took place a day after the American newspapers had led with headlines such as Oh, bama! and Our 44th and our FIRST. The new president s inauguration speech was still fresh in everyone s mind. Barack Obama had promised bold and swift action to help the economy back on its feet. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. [ ] We will harness the sun and the winds and the soil to fuel our cars and run our factories. Such promises are precisely what Willem Vermeend wanted to hear. Barack Obama understands that now is the right time to make substantial investments in sustainable energy. Our fossil fuel resources, including the Dutch gas fields, will be depleted within the next fifty years. Energy is gradually becoming more expensive, and the tensions between countries are increasing as a result. According to Vermeend, the Netherlands must invest many billions of euros if we are to avoid falling even further behind. We must also invest in the energy infrastructure. Our existing grids were designed with fossil fuels in mind, but we are now in the twilight years of the Gas Age. No government should be cutting back; it should be prioritising investments in sustainable energy. In this context, Vermeend is astonished that TenneT has been instructed to cut costs by 2.1 percent per annum over the next three years. Reducing investment is the worst possible course of action at this time. The Dutch government has been too slow to act. It lacks vision and creativity. No government investments in sustainable energy. That calls for focus. We must make firm agreements about what we are going to do in pursuit of sustainability and exactly when we are going to do it. It s as simple as that. No more prevarication or procrastination! Mega wind farm Vermeend wants ministers such as Jan Peter 55 Annual Report 2008 / Interview Willem Vermeend / Investment

58 Balkenende and Wouter Bos to take action now. They should ensure that the Netherlands is able to open the world s largest wind farm by the year This, he suggests, would be able to meet over twenty percent of the demand for electricity. But why wind energy? Biomass offers limited opportunities and has too many disadvantages. Solar power is promising, but wind power would be the quickest way to make the difference in our country. My proposal is for a mega wind farm developed especially for the deepsea offshore region, with each turbine producing at least six megawatts. An offshore location will be more efficient given the higher winds, while we will also avoid all the objections about visual pollution and obstructions to shipping. Vermeend firmly believes that this initiative would do much to bolster the national economy. We have companies able to build excellent offshore platforms which can remain in service for at least fifty to seventy years. The wind turbines can be transported to the platforms by heavy-duty helicopters or on specially designed Sometimes the wind blows hard, and sometimes it doesn t. No one can control that. We must therefore ensure that any surplus electricity can be sold to other countries. pontoons, and installed on site. The turbines themselves can be produced in the world s largest specialist factory, which could itself be built in the Eemshaven port in Groningen province, for example. We would then be creating an entire manufacturing industry with some fifty thousand new jobs. We would also be creating innovative new technology which will become a viable export product. To integrate the output of new offshore wind farms into the energy distribution system will call for major investments in the transmission grids, Vermeend continues. Sometimes the wind blows hard, and sometimes it doesn t. No one can control that. We must therefore ensure that any surplus electricity can be sold to other countries. Some people suggest that the scheme calls for artificial islands to be raised. Vermeend disagrees. I thought about this idea and did the calculations. It would be much too expensive. Moreover, it is unnecessary for the purposes of storage. Even without islands you can pump up water to be used to drive turbines later, when you actually need the electricity. Vermeend s concept of the offshore mega wind farm is a major step towards centralised, sustainable energy production. Nevertheless, he also acknowledges the advantages of small-scale, decentralised production, and believes that the grid should be adapted accordingly. This is a more gradual process, but it will also be important in the future. All new homes and offices should now be designed to allow the addition of solar panels at a later date. Emergency legislation One of the key features of Vermeend s approach is that it is to be a national undertaking. This does not mean that he dismisses the European context out of hand. Indeed, he regards interconnections between the Netherlands and other European countries as a very welcome development. However, he maintains the view the initiative must be taken by Netherlands itself. That also applies to his mega wind farm. We must not wait for Europe to announce the construction of a supergrid. Rather, we must make our own plans which allow for connection to the supergrid if and when it ever materialises. Taking the European approach from the outset will inevitably lead to delays. Vermeend further believes that drastic changes to national legislation are needed in order to prioritise the production and use of sustainable energy. Current legislation does not adequately address the specific features of new types of energy, whereupon investment is likely to suffer unnecessary delays, as TenneT has already experienced. It will only be possible to attain the targets by 2018 if the government takes the appropriate procedural measures. If it fails to take action, the entire process will become bogged down in red tape. We need emergency legislation which can be pushed through as quickly as possible, just as the minister of transport has introduced provisions to tackle congestion on the roads. 56

59 We must not wait for Europe to announce the construction of a supergrid. Rather, we must make our own plans which allow for connection to the supergrid if and when it ever materialises. Taking the European approach from the outset will inevitably lead to delays. Annual Report 2008 / Interview Willem Vermeend / Investment 57

60 15.45 hrs Location: Borssele power station, built ahead of schedule to keep pace with new production Interview with Roel Wolters, TenneT s Manager of Transmission Operations

61 Roel Wolters on investment It must be possible to speed things up Given increasing demand and the need to render energy supplies fully sustainable, the Netherlands requires greater transmission capacity. However, the process of obtaining the necessary permits and licences is extremely slow. Roel Wolters is TenneT s Manager of Transmission Operations. A complete overhaul of the legislation is required to speed things up, he states. Ideas and good intentions are one thing. To put those ideas and intentions into practice, one must often wade through a morass of legislation and practical objections, as Roel Wolters knows all too well. Although TenneT plans every investment well in advance and according to a long-term vision, it remains difficult to complete projects on schedule. Wolters considers it highly regrettable that TenneT cannot always keep up with the rapid growth in production. The process of increasing our transmission capacity frequently lags behind that of building the planned power stations, largely due to delays in obtaining the various permits, he states. Lessons are being learned, however. A case in point is the Randstad 380 kv connection currently under construction. Our experience on this project can be put to good use in the forthcoming North-West 380 kv (Eemshaven-Diemen) and South-West 380 kv (Borssele-Geertruidenberg) projects. The government is also doing its best to improve procedures, and will expedite these projects by bringing them under a special national coordination scheme. This enables many of the permits required to be combined into one all-embracing permit. Nevertheless, we shall still not be able to keep up with the growth in production, even with this special arrangement. Wouters finds the Netherlands a particularly difficult country when it comes to official procedures. Objections come thick and fast. If you avoid the densely populated areas, you soon find yourself in a protected nature reserve. Moving the infrastructure underground is one option, but it is expensive and makes the grid less reliable. It is therefore not the ideal solution. There must be fundamental changes to the permit issuance procedures if the ambitious sustainability targets are to be achieved on time. A complete overhaul of the legislation is required to speed things up, states Wolters. Otherwise it will be virtually impossible to complete all the large projects with long lead times, such as the offshore wind farms, on time. TenneT is already hard at work in preparing the grid for a sustainable future but its efforts are not confined to the large projects such as connecting the wind farms to the grid. We can also achieve We can also achieve a lot through much smaller investments such as a congestion management system. a lot through much smaller investments such as a congestion management system. This helps us to balance supply and demand more effectively. It also enables us to address the trend towards decentralised energy production, such as the combined heat and power units used by horticultural businesses in the Westland region. Our ultimate aim is to develop a grid that can achieve the perfect match between supply and demand. 59 Annual Report 2008 / Interview Roel Wolters / Investment

62 Installation of NorNed cable begins Just a few months after the agreement is signed, a start is made on preparing the site for construction work. That takes some doing in the Norwegian fjords: a tunnel has to be bored through a solid rock mountain. 10 years of national grid management May 2005 Corporate Social Responsibility TenneT is charged with the task of ensuring an efficient and reliable supply of energy. This statutory duty brings certain responsibilities with it. TenneT is committed to dealing with people and their environment (residential or otherwise) with care and respect. In recent years, TenneT has embedded the principles of Corporate Social Responsibility (CSR) in its policies and operational processes in several ways. CSR is not a discrete concept, however; it is becoming an increasingly natural part of our day-to-day operations. Where possible we lay cables underground, we paint electricity pylons in the most environmentally-friendly way possible, we use special wire spirals to prevent birds from flying into high-voltage lines, and we adhere to the strict conditions imposed on the use of sulphur hexafluoride (SF6) gas. TenneT also makes every effort to limit noise nuisance with better insulation and noise screens, and we do all we can to protect people from long-term exposure to electromagnetic radiation. TenneT endorses government policy: 20 percent of the Netherlands energy to be sustainable by In its CSR policy, TenneT is guided by the triple bottom line concept of People, Planet and Profit. In an ideal world, all three could be given equal value, but this is not always possible. Sometimes one interest outweighs another. These are difficult choices, and conflicts of interests often arise. Installing a high-voltage line underground prevents visual pollution of the landscape, for example, but it is much more expensive than an above-ground grid, and the behaviour of very long 380 kv underground cables is as yet unknown territory. TenneT always endeavours to explain the choices it makes and the reasons for making them. These choices are not always made by TenneT on its own, however. The organisation is also guided by social interests. looking ahead Minimising and greening grid losses When electricity is transmitted, a small amount is always lost in transit. TenneT has to compensate for these grid losses by buying electricity. For some years now, TenneT has been using sustainable energy for this purpose. This means that TenneT is greening its grid losses and thus neutralising its CO2 footprint as much as possible. Greening involves purchasing a quantity of Guarantees of Origin corresponding to the size of the grid losses. Guarantees of Origin constitute the only legal proof that electricity has been generated by sustainable methods. In 2008, TenneT greened some 500 GWh of its own electricity consumption. 60

63 APX makes a profit APX makes a profit in the first quarter of Later in the year, TenneT sells some of the shares to Gasunie; in addition to international electricity trading, the gas market is also important to APX. June 2005 Full power ahead for TenneT Energy that is not lost does not need to be compensated for. Preventing or minimising grid losses where possible is an important commitment for TenneT which is set to become even more strongly established in TenneT will be investigating options for reducing grid losses, for example by adjusting its operational processes or investing in operating assets, such as a new type of conductor. Grid management at sea TenneT s commitment to sustainability is entirely in line with current government policy, which has set the target of deriving 20% of the Netherlands energy from sustainable sources by One of the strategies the Netherlands is focusing on to achieve this target is the construction of wind farms in the North Sea. TenneT wants to connect these offshore wind farms efficiently to the transmission grid. This is also the desire of the Lower House, as reflected in a motion adopted in 2008 which calls on the government to amend the Electricity Act 1998 in order to give TenneT responsibility for connecting all the offshore wind farms to the existing electricity grid, including laying transmission cables along the sea bed. To further flesh out the plans for an offshore high-voltage grid, TenneT and the Ministry of Economic Affairs are exploring the options in terms of legislation, economic considerations, technology, physical planning and connection systems. The Ministry is currently looking at how the Electricity Act 1998 would need to be amended to accommodate these plans. The costs and technical requirements are also being studied. TenneT is providing the Ministry with information and is making recommendations as to where the law needs to be changed to enable the construction and operation of an offshore high-voltage grid. The cable connecting the turbine farms with the onshore high-voltage grid will need to be in place by the time the turbine farms are commissioned. In anticipation of a possible statutory task, TenneT started preparing for the construction of an offshore grid in 2008, so that it can get off to a flying start as soon as it is instructed to do so. In the year under review TenneT also made a start on the planning procedures for laying electricity cables in the North Sea. The aim is to select the most sustainable and cost-effective variant. TenneT plans to use congestion management to minimise waiting lists for connections until new infrastructure has been constructed. Decentralised and sustainable The growth in the number of combined heat and power units (CHPs) in the Westland area continued in CHPs are a decentralised form of energy generation. Because of their high efficiency (approx. 90 percent), CHPs are seen as a sustainable alternative to centrally Annual Report 2008 / Corporate Social Responsibility 61

64 Three million certificates for sustainably produced electricity CertiQ has issued three million certificates since the introduction of the grant scheme for producers using combined heat and power plants. Certificates are only issued for CO2-neutral energy generated by CHPs. 10 years of national grid management October 2005 generated electricity in the horticulture sector. Decentralised generation impacts on the scarce capacity of the high-voltage grid. TenneT is responding to this by entering into a dialogue with producers to enable measures to be put in place in good time. Decentralised power generation is set to play an ever more significant role in the transition to a more sustainable energy supply system. This not only encompasses CHPs but also onshore wind turbines (e.g. on farms), heat pumps, micro-chp boilers and solar panels on homes. In 2008 the government introduced the Promotion Scheme for Sustainable Energy Production to encourage this type of decentralised electricity generation. Connecting new smart providers to the grid The demand for capacity in the high-voltage grid is still rising very sharply. All this new centrally and decentrally generated electricity will have to be transmitted across the existing high-voltage grid. This relates not only to new gas- and coal-fired power stations, but also to CHPs and wind energy. TenneT wants to reduce waiting lists for connections as far as possible until new infrastructure has been constructed. A congestion management system was put in place in December This system allows more electricity providers to be connected to the grid. If the electricity generated simultaneously by producers causes congestion, this can be resolved by means of a market mechanism. During the course of 2009 and 2010, the congestion in the Westland area, where a lot of electricity is generated by CHPs, is expected to be finally remedied as TenneT invests in several new 150 kv cable links and transformer substations. Cradle to Cradle can lead to creative new solutions that not only promote sustainability but also generate added value. looking ahead Decentralised power generation is placing new demands on the 110/150 kv transmission grids which TenneT has been managing since 1 January Electricity will no longer flow in just one direction from power station to customer but increasingly in two directions: from the national grid to the user, and from the user (generating their own electricity) to the national grid. Wintrack pylon successfully tested In December the new Wintrack high-voltage pylon passed its first major test with flying colours. The pylon received a massive surge of current of 50 ka for half a second, peaking at 125 ka. The new pylon consists of two slender poles from which electric wires are suspended. The ingenuous suspension method creates a much smaller magnetic field, allowing the government s extremely strict requirements in this regard to be met. With the current type of 380 kv pylon and line, construction restrictions would apply to a strip of land of approximately 300 metres wide around the high-voltage line, according to the guideline. The Wintrack pylon reduces this so-called magnetic field zone to less than 100 metres. 62

65 Holding company structure established TenneT establishes a holding company structure in order to create a transparent separation between regulated and unregulated activities. The regulated activities, including the management of the transmission grid, are undertaken through TenneT TSO B.V., while unregulated activities are undertaken by subsidiaries of TenneT Holding B.V. December 2005 Sector agreement on climate and energy targets The Netherlands Association of Energy Grid Operators, of which TenneT is a member, was one of the signatories of the Energy Sector Agreement in October In this agreement the government and the energy companies agreed a joint strategy for achieving the climate and energy targets for The agreement relates to offshore and onshore wind energy, biomass, solar PV installations, CO2 sequestration, heat pumps, infrastructure and research. The agreement sets out the ambition for each area, defines the general requirements and specifies what the parties can expect from one another. The Sector Agreement is viewed as a concrete road map to a reliable, affordable and clean energy supply in the future. TenneT sponsors university chair Cradle to Cradle is a philosophy aimed at recovering all the materials we use, and re-using them in other products at the end of their life span. Cradle to Cradle invites us to look at old ways of doing things in a new light and can lead to creative new solutions that not only promote sustainability but also generate added value. Given the social importance of innovation in sustainability, TenneT is one of the sponsors of the new Cradle to Cradle chair at Erasmus University Rotterdam. The chair is held by Michael Braungart, one of the pioneers of the Cradle to Cradle philosophy. Sustainable head office The TenneT organisation is expanding, and that means we are outgrowing our current head office. TenneT intends to take out a lease on a new building in In December the development group BGB and TenneT signed an initial agreement for the construction of a new head office in the Arnhems Buiten business park. Sustainability will play a key role in the build: the new head office will be energy neutral as far as possible, CO2 reduction will be the norm, and alternative energy sources will be used. It goes without saying that the building will also be extremely energy-efficient and will use environmentally friendly and recyclable materials. The new head office is designed in such a way that it will require minimal maintenance and management. Investing in sustainability and the environment means that we cannot always choose the cheapest options. Regulatory framework puts the squeeze on Investing in sustainability and the environment means that we cannot always choose the cheapest option. TenneT sometimes gives preference to options that require a higher initial investment but which deliver lower operating and management costs in the longer term. When purchasing new transformers, for instance, we always examine their efficiency and energy losses. However, TenneT is of the opinion that the present regulatory framework focuses too strongly on short-term efficiency and cost reduction, discouraging investment in sustainability and innovation. We are not alone in highlighting this discrepancy. In 2008, for example, the Scientific Council for Government Policy and the Lower House called for this framework to be made more flexible. The government also Annual Report 2008 / Corporate Social Responsibility 63

66 10 years of national grid management recognises this need: in the 2008 Energy Report the Minister of Economic Affairs states that she intends to look at potential improvements to the regulatory framework for grid operators in Enhanced role for CSR policy In 2007 and 2008 a TenneT project team, working closely with the consultancy firm DHV, compared the company s CSR policy with internal and external expectations. This exercise revealed that Corporate Social Responsibility is important for TenneT but that its existing policy no longer meets all the expectations. TenneT therefore decided to tighten up its CSR policy and to give it a more clearly defined role in its operational processes (and the considerations made in that regard). As far as its core activities are concerned, TenneT aims to perform better than foreign TSOs. Among other things, this will mean that TenneT will have to focus even more intensively on minimising grid losses. TenneT will also make sure it is properly prepared for the impact that the growth in sustainable energy will have on the transmission grid. To achieve this, TenneT will endeavour to collaborate with foreign TSOs and other stakeholders wherever possible. For example, a cross-border regional approach is an important precondition for the efficient and cost-effective integration of sustainable electricity production in north-western Europe. TenneT will redouble its efforts to minimise grid losses over the next few years. TenneT will make sure it is properly prepared for the impact of the growth in sustainable energy on the transmission grid. looking ahead 64

67 Jaarverslag 2008 / Titel hoofdstuk 65

68 Cable to the UK TenneT and National Grid agree to collaborate on the development of a high-voltage cable linking the Netherlands with the United Kingdom. This gives the Netherlands a central position in the north-west European electricity market. 10 years of national grid management June 2006 Security, Crisis Management and Safety The electricity supply system fulfils an essential role in society. So we need to do all we can to prevent disruptions to the high-voltage grid caused by extreme weather, flooding, vandalism or sabotage. Because security of supply is in the national interest, the electricity transmission grid is included in the Ministry of the Interior s National Security Programme. This programme is designed to protect the vital interests of the Netherlands in order to prevent social disruption. TenneT participates in various working groups and uses its own expertise to contribute to identifying and controlling possible risks which may threaten the transmission of electricity across the national high-voltage grid. TenneT has a well-trained crisis organisation in place which enables it to respond efficiently to emergencies. As in previous years, a series of large-scale exercises took place in 2008, in which collaboration and communication with external parties was put to the test. Because security of supply is in the national interest, the electricity transmission grid is included in the Ministry of the Interior s National Security Programme. looking ahead While security and crisis management relates predominantly to external threats, TenneT s safety policy targets factors that could threaten the safety of our workforce and others working on our premises. It deals with aspects such as healthy working conditions and preventing absence due to sickness. Security Since the terrorist attacks in the USA, Spain and the UK, the terrorist threat situation has changed in the Netherlands. As a result, TenneT is more alert to deliberate disruptions to electricity transmissions caused by vandalism, theft or terrorism. Central contact point During the year under review TenneT fleshed out the Corporate Security Policy established in A Corporate Security and Safety Manager was appointed to coordinate all the measures arising from the policy. These include measures to prevent deliberate damage to the electricity transmission system. The Corporate Security and Safety Manager also oversees employee s compliance with the safety requirements and is the central point of contact for ministries, local authorities, the police, the emergency services and other 66

69 Intraday trading kicks off APX introduces intra-day trading on the Dutch electricity exchange. Electricity is traded for delivery on the same day, or in consecutive hourly blocks up to two days in advance. September 2006 Full power ahead for TenneT external parties. With the creation of this new position, TenneT has effectively combined a number of responsibilities in the organisation. Security at electricity substations TenneT owns a large number of high-voltage substations that are crucial for the transmission of electricity in the Netherlands. To better protect these substations against vandalism, sabotage, burglary and theft, we started developing a package of security measures in The level of protection given to a substation depends on its importance for the electricity supply. Clear internal and external arrangements In acutely threatening situations it is important to ensure that all parties involved know how to contact each other quickly and that their tasks and responsibilities are clearly defined. In the year under review TenneT held regular meetings with the Ministry of Economic Affairs, the Ministry of the Interior, the National Coordinator for Counterterrorism and regional police authorities to discuss TenneT s role and powers in the event of (deliberate) disruptions of the electricity supply and what can be expected from the government in such situations. Information security: corporate culture and technology TenneT wants its employees to be aware of the security risks involved in the use of computers. We want to see this awareness become embedded in our corporate culture, but we will also be offering our employees technical support to make it easier to protect our information, such as the use of biometric security measures. In the year under review an ICT Security Officer was appointed to coordinate the implementation of information security and data protection measures at TenneT. Crisis management The aim of crisis management is to prevent crises. In the unlikely event of a crisis happening, we need to be able to control it quickly, minimise any resultant damage, and provide appropriate information to all internal and external parties involved. Annual Report 2008 / Security, Crisis Management and Safety 67

70 Debate on segmentation The Independent Grid Administration Act gives TenneT control of all transmission grids of 110 kv and higher. A clear majority in the Dutch Lower House approves the proposal to transfer the management of all transmission grids still managed by the regional energy companies to TenneT. 10 years of national grid management November 2006 No incidents TenneT s crisis organisation consists of a duty manager, the crisis team, the escalation services of the System Operations and Transmission Operations business units, and the repair and standby services. In normal operational circumstances the crisis organisation remains on standby. In the event of a complex problem affecting more than one department which has the potential to escalate, the status is raised to the Incident phase. This happens when there is a threat of disruption of the energy supply or major damage to the grid infrastructure, for example, or in the event of intense media focus or an alert from a public body. In the event of an incident the escalation service coordinates the handling of the incident and the duty manager and spokesperson are informed. In 2008 there were no incidents which required the crisis organisation to be mobilised. Emergency response drills In September TenneT participated in an exercise with the Royal Netherlands Army (National Reserves Battalion) involving simulated break-ins at a power station adjacent to an important high-voltage substation. As a result, the energy producer, TenneT and the regional grid operator all had a role to play in the crisis organisation. TenneT was particularly keen to use the exercise to test the quality of communication with the other parties. In November the crisis team was involved in a major exercise simulating storm damage to a number of high-voltage pylons. To add to the complexity of the situation, the exercise also included a simulated goods train derailment near TenneT s head office. The exercise demonstrated that evacuation of the head office presented no problems. The appraisal of the situation in respect of shutting down part of the grid went according to plan, as did communication with the internal and external parties involved. The system of alerting and mobilising the crisis organisation also worked well. To check coordination with other crisis organisations in the event of a flood, in November TenneT participated in a national flood exercise, in which the high-voltage substation at Lelystad was flooded. The exercise demonstrated that flooding causes the low-voltage grids to fail first, as was already known. This means that some regional areas would be without power, but the national high-voltage grid can withstand considerable flooding. looking ahead Transfer of 110/150 kv grids As the administrator of the national high-voltage grid, TenneT has been responsible for managing the 110 kv and 150 kv grids since 1 January The actual operational management is currently still performed by the regional grid operators under TenneT s responsibility and is being transferred to TenneT in stages. All operational management of these grids will be handled from TenneT s second National Control Centre by 2010 at the 68

71 latest. Arrangements have also been made concerning the strategy to be followed in the event of disruptions. TenneT participated in a crisis exercise with one of the regional grid operators to check their mutual arrangements. In crisis situations TenneT is responsible for communicating with the public. Towards a new crisis organisation If the operational management of the regional 110 kv and 150 kv grids is to be directed from TenneT s National Control Centre by 2010 at the latest, this will impact on the crisis organisation. This means that the crisis organisation will have to develop not only a national but also a regional focus. The expansion of the crisis organisation, which got under way in 2008, is scheduled for completion in Safety Failure to comply fully with safety measures can result in risks for those working with high voltage levels. For this reason, safety awareness among employees has always been a top priority for TenneT. Health is also an important concern in this context. Safety and security awareness firmly established Everyone working at TenneT is responsible for safety, and all staff need to be fully aware of this. In order to focus as much attention on awareness as possible, all operational tasks relating to safety, security and health are the responsibility of the line management. This keeps lines of communication short. TenneT is also ensuring that new employees are informed more clearly about the importance of safety and security. An awareness programme for employees and managers will be introduced in Transfer of Essent employees On 1 January 2008, TenneT assumed responsibility for the management of the 110 kv and 150 kv grids, in addition to the 220 kv and 380 kv high-voltage grids that were already under our management. As a consequence TenneT has taken over the management of the regional high-voltage grid from Essent Netwerk (now known as Enexis). On 1 November, 141 Essent employees were transferred to TenneT. When they joined the company they were all given an in-depth introduction to the relevant safety regulations and attended training courses on TenneT s safety protocols and procedures. All 110 kv and 150 kv grids will be operated from TenneT s second National Control Centre by 2010 at the latest. SCC certificate renewed The Safety, Health and Environment Checklist for Contractors (SCC) is a standard compiled by the Cooperation for Safety Foundation (SSVV). The SCC programme monitors the performance of service providers in the areas of safety, health and the environment, and Annual Report 2008 / Security, Crisis Management and Safety 69

72 Power failures in Europe On 4 November, a 380 kv connection in northern Germany is shut down as a precautionary measure to allow a large cruise ship to pass. The result: the load on another connection rises too high, tripping the safety fuse on the connection. This triggers a cascade effect which causes interruptions in the supply of electricity in several European countries. The system recovers quickly and responds effectively to the various incidents. 10 years of national grid management November 2006 also defines requirements for policy and organisational matters. The SCC certificate creates uniformity and transparency and increases safety awareness. In 2008 the employees of the Transmission Operations business unit passed a test which demonstrated that all the requirements laid down in the SCC were still being met, whereupon the certificate was renewed for a year. TenneT attaches great value to the SCC certificate, since it not only encourages people to work safely but also makes the subject a permanent fixture on the agenda. No serious accidents There were no accidents resulting in serious injuries at TenneT in However, there were some minor accidents and incidents. The occurrence of such accidents and incidents needs to be reduced further by increasing awareness around the topic of safety. TenneT achieves this with safety training courses and wide-ranging supervision of work. Nearaccidents are also recorded with a view to learning lessons in order to prevent recurrence. Accidents and dangerous situations that occurred in and around the office organisation were reported for the first time in More information on sickness absence resulting from accidents can be found under the heading Sickness Absence in the chapter Personnel and Organisation. In-house emergency services standardised The assumption of responsibility for the regional 110 kv and 150 kv grids has resulted in a considerable increase in the number of TenneT offices, and an in-company emergency service has had to be set up for every office. TenneT s in-company emergency service was standardised during the year under review, so that the same training is now given at all locations. Exercises are now held jointly, buildings are equipped with the same in-house emergency response equipment, escape routes are clearly labelled throughout the premises, and arrangements with the external emergency services have been harmonised. In 2009 evacuation plans will be standardised and a TenneT-wide in-company emergency plan will be drawn up. looking ahead Sector-specific health and safety catalogue A new Working Conditions Act came into force on 1 January 2007, decentralising responsibility for health and safety policy. This new law requires organisations to set out their own health and safety rules in a health and safety catalogue. Companies and institutions can do this individually or on a sectoral basis. TenneT has opted for the latter. In 2008 we joined an industry working group made up of grid operators. The resulting industry-wide health and safety catalogue is scheduled for completion by the beginning of

73 Annual Report 2008 / Security, Crisis Management and Safety 71

74 9.30 hrs Location: Delft University of Technology Interview with Wubbo Ockels Professor of Sustainable Technology

75 Wubbo Ockels calls for action in pursuit of sustainability Practice is stronger than theory Women, small businesses and young people: we need them all if we are to render the Netherlands truly sustainable, believes Wubbo Ockels. The physicist and former astronaut is Professor of Aerospace Sustainable Engineering and Technology at Delft University of Technology. He sees a future in which vehicles are plugged into the mains like one enormous battery. To bring this energy transition a step closer, he calls for more practical experimentation. We have to find out what actually works. During his lectures, Wubbo Ockels has often noticed that women are more enthusiastic than men about working towards a truly sustainable future. There are, he states, major differences between the sexes in terms of mentality. Men are more concerned with their own interests; they take the short-term view and tend to go for the big payout. Women feel a greater responsibility towards future generations. It was for this reason that Ockels agreed to launch the Ladies First programme on 8 March 2009, International Women s Day. This new movement in which women lead the way and men follow hopes to achieve a fully clean Netherlands by the year The initiative is well timed, Ockels believes. People seem to think that you are only entitled to speak out if you actually own a water-saving shower head. Everyone should be able to demand sustainability from businesses and politicians alike. It is an entitlement. However, sustainability is not yet a given, despite the efforts of Al Gore and the like. Look around you. How many solar panels can you see? How many energy-neutral offices? What ambitious plans has the government announced? There are plenty of meetings to discuss sustainability in this country, but precious little action. People seem to think that you are only entitled to speak out if you actually own a water-saving shower head. Unrealistic target A particular bone of contention for Ockels are the subsidies offered for sustainable innovation. As he sees it, most of the funding goes to organisations, consultants and large companies who use it for purposes which are anything but new. Less than twenty percent is actually used to develop innovative products, he surmises. The smaller companies are largely ignored, although they are generally responsible for most of the true innovation. The younger generation are also being sidelined because there is so little seed money available. We have too little confidence in young people. They are 73 Annual Report 2008 / Interview Wubbo Ockels / Sustainability

76 patronised and must choose their career path at the ridiculously young age of thirteen. Ockels calls for greater investment in education and research. He quotes Robbert Dijkgraaf, President of the Royal Netherlands Academy of Arts and Sciences (KNAW): The Netherlands devotes only 1.8% of its Gross National Product to education and research, which is below the European average. Not only must more funding be made available, it should be spent in a more creative manner, Ockels contends. I firmly believe in experimentation. Only by actually trying something in practice can you develop new technology at the required tempo. Why not organise more competitions? People should be challenged to be the best, as in a reality TV programme for example. Set some apparently unrealistic target, such as building a house which can produce a kilowatt of energy at no extra cost, just to pick an example out of the air. Anyone who actually manages to do so walks off with the prize of ten million euros! Experimentation Ockels himself does not shy away from a challenge. As an experimental physicist, he focuses on concrete projects such as the Nuna solar-powered car, the zero-emissions yacht, the extending wind turbine (which actually grows to a height of ten kilometres) and the Superbus. Such projects certainly appeal to the public imagination, although they have also exposed Ockels to criticism from the sceptics. Nevertheless, he remains steadfast. I firmly believe in experimentation. Only by actually trying something in practice can you develop new technology at the required tempo. Moreover, practice is stronger than theory. You have to be able to demonstrate that the product actually works. The Nuna project has shown that it is indeed possible to build a very fast car which runs on nothing but sunlight. Solar power will be the energy source of the future, Ockels believes. The sun emits eight thousand times more energy than the entire human race actually needs. Solar panels should be installed on the roofs of all buildings, sooner rather than later. However, this will only happen when satisfactory legislation is in place. Germany has taken a step in the right direction with its feed-in tariff. We must also ensure that there are enough qualified installation staff with experience in boilers, solar panels and heat pumps. Unlike Germany or the United States, we do not yet have such people. And we must invest more in know-how with regard to storing the energy derived from wind power and heat exchangers. The opportunities are boundless, but there must be a local approach and a smart use of storage systems and infrastructure. I recently advised the City of Amsterdam to convert its old drainage system for this purpose. Vehicle to grid Finally, our conversation turns to a topic which is clearly close to the former astronaut s heart: transport. Ockels sees great potential for fuel derived from algae. Algae replicate extremely quickly a colony can double in size in twenty-four hours and can be used to produce fuel, even aviation fuel. Hydrogen, on the other hand, is something of a dead end. Its production involves a particularly complex process and the cycle is only fifty percent efficient. For the short term, Wubbo Ockels is pinning his hopes on electricity. This is the Battery Age. Electric transport seems such an obvious choice, given the low cost and low emissions. We should make the changeover immediately. But let s not fall into the trap of relying on the traditional infrastructure of fuel stations. Drivers should be able to recharge practically anywhere. I find the vehicle to grid principle particularly appealing, whereby vehicles are permanently connected to the grid, except while actually moving of course. Cars could then be used for both storage and distribution. Ockels sees a lot of mileage in similar grid concepts. I spent a while playing with the idea of an intelligent power socket, which would match the variable demand to the variable supply via the Internet. 74

77 Set some apparently unrealistic target, such as building a house which can produce a kilowatt of energy at no extra cost, just to pick an example out of the air. Anyone who actually manages to do so walks off with the prize of ten million euros! Annual Report 2008 / Interview Wubbo Ockels / Sustainability 75

78 18.15 hrs Location: Lelystad Wind Farm Interview with Lex Hartman TenneT s Director of Corporate Development

79 Lex Hartman on offshore wind power A pragmatic approach is key To make the Netherlands energy systems more sustainable calls for extensive use of offshore wind generation. The government itself is coming to realise this, and has decided that TenneT is to play a key role. The ambitions are extremely high, states Lex Hartman, Director of Corporate Development. On his office wall hangs a framed certificate from the Guinness Book of World Records, acknowledging that the NorNed cable is the world s longest subsea high-voltage connection. Lex Hartman looks at it proudly. It is a great thrill to be part of the team working on such an innovative project, he says. And indeed, he intends doing so again. Plans for the COBRA project, which will establish a similar connection with Denmark, are now in an advanced stage while a NorNed2 cable is also on the drawing board. These cables will enable the Netherlands to take better advantage of sustainable energy sources such as hydroelectric power and wind energy. The greatest sustainability challenge for TenneT is to integrate the production from offshore wind farms into the national grid. The ambitions are extremely high. The government is working on the assumption that output will be 6000 megawatts by That is sixty times greater than that of the first wind farm off the coast of Egmond. The Ministry of Economic Affairs has adopted this figure as the target and is planning accordingly. Parliament is to press for amendments to the existing legislation so that the national grid manager becomes responsible for connecting all offshore wind farms. Since the political ambitions have been so clearly defined, TenneT sees few obstacles to the preliminary studies. Just as well, since 2020 is not very far away. The initial survey suggests that it will indeed be possible to integrate a further 6000 megawatts into the current grid. In fact, in theory we could go up to 10,000. However, for anything above 6000 megawatts we would also have to include storage facilities in our plans. In TenneT s proposed It is a great thrill to be part of the team working on such an innovative project. approach, the keyword is efficiency. We wish to create the most efficient connection possible, which must be a sort of plug and play arrangement. The physical infrastructure should be laid in such as way as to allow the wind farms to be connected with a minimum of effort. Every aspect of the plan calls for a pragmatic approach, Hartman stresses. There are designs for artificial islands, each with storage reservoirs. But why invest billions when nature has provided exactly the same thing for nothing in Norway? Moreover, we have to consider new ideas, such as the vehicle to grid principle mentioned by Wubbo Ockels. It is possible that electric cars could play a part in storing the electricity produced by the wind farms at night. 77 Annual Report 2008 / Interview Lex Hartman / Sustainability

80 Market coupling starts TenneT, Elia and RTE start Trilateral Market Coupling with APX, Powernext and Belpex. Another step towards the integration of the north-west European electricity market. 10 years of national grid management November 2006 Personnel and Organisation TenneT is developing from a predominantly Dutch Transmission System Operator to a north-western European one. This increase in the scope and scale of our activities and the associated expansion of our tasks, including management of the 110 kv and 150 kv grids, are not without impact on the organisation. TenneT is growing and becoming more professional. During 2008 this development was reflected in a large-scale and successful recruitment campaign, intensive collaboration with higher education institutions, and the completion of the TenneXT integration process, relating to the implementation of the management of the 110 kv and 150 kv grids by TenneT. Number of employees rises sharply May 2008 saw the launch of a new and intensive recruitment campaign with the aim of filling 200 vacancies. The recruitment campaign was extremely successful and by 31 December 2008, 210 vacancies had been filled. In addition, 147 employees of regional grid operators were taken on as a result of the transfer of management of the 110 kv and 150 kv grids to TenneT. In 2008 the total number of employees rose from 567 to 838, an increase of nearly 50 percent. At year-end 2008 there were 355 external staff working at TenneT. As in previous years we needed to bring in these specialists for difficult-to-fill vacancies and for projects and special assignments. In 2008 the total number of employees rose from 567 to 838, an increase of nearly 50 percent. The average age of TenneT employees showed a slight increase from 41.7 years in 2007 to 42.3 years at the end of Women make up 21 percent of our workforce. TenneT is still finding it difficult to recruit women to technical positions. Furthermore, the percentage of Workforce of TenneT Holding B.V Women Men

81 TenneT acquires NOVEC shares NOVEC manages antenna sites on 35 pylons. The merger with Elined enables both parties to target the rental opportunities for mobile telephony and television antenna sites. February 2007 Full power ahead for TenneT women fell in the year under review compared with the previous year, when women made up 25 percent of our workforce. This is partly due to the large number of employees (147 in total) who transferred to TenneT from the regional grid operators, of whom only two were women. Age breakdown of TenneT Holding B.V. workforce <= >= Women Men Workforce data of TenneT Holding B.V Number of internal employees Average workforce (FTEs) Average age Average time of service (years) * External mobility (percentage) The percentage of women dropped from 25 percent to 21 percent of the workforce in the year under review. * Average length of service includes employment with TenneT s legal predecessors. Absence due to sickness continues to fall TenneT was able to reduce the sickness absence percentage further in 2008, from 3.3 to 3.1 percent. The sickness absence percentage has fallen by one percentage point since The combination of the intensive reintegration process and TenneT s health policy is bearing fruit. Annual Report 2008 / Personnel and Organisation 79

82 Lights off campaign TenneT believes the European lights off campaign is a good initiative in terms of sustainability, but not well thought through in practical terms as it could jeopardise the security of supply. On the evening in question, 1 February, no noticeable irregularities were registered at the National Control Centre. 10 years of national grid management February 2007 An SCC pilot project for hired personnel was initiated in the year under review. SCC stands for Safety, Health and Environment Checklist for Contractors. As part of this project the number of accidents occurring during maintenance or office work was registered for the first time. Accidents in the regions and at TenneT s project sites and offices were also recorded. In 2008 there were no accidents that resulted in any of our own employees taking sick leave, although the extended registration method revealed 12 accidents which resulted in hired personnel taking short periods of sick leave. Absence due to sickness at TenneT Holding B.V Sickness absence percentage Annual absence report frequency Average duration of sick leave (days) Number of accidents resulting in sick leave 12* 11* * Figure differs from previous years due to a stricter accident reporting system. The safety situation has improved, however. Once again we surpassed our mobility target of 10 percent in 2008: 19 percent of all employees transferred to a different position in the company. Healthy working conditions TenneT pursues an active health policy and operates a company sports programme to help employees keep fit and healthy. Sick employees receive support through a range of reintegration programmes aimed at speeding up their recovery. Reducing the length of time an employee is absent due to sickness has a positive effect on the success of their reintegration. For this reason, TenneT aims to get sick employees back to work as soon as possible. To encourage this, responsibility for case management (support for sick employees) was transferred to the Personnel Advisor last year. This has brought case management closer to the employee, with the benefit that the Personnel Advisor knows the medical history of every employee and can therefore respond better to personal situations. More information on employee safety and health can be found under the heading Safety in the chapter Security, Crisis Management and Safety in this annual report. Committed Power People who are fit and healthy get more enjoyment out of their work. That is why TenneT promotes sport and exercise. Committed Power is a company programme in which employees are encouraged to run, cycle or take part in Nordic walking. Participation in Committed Power has been on the increase for several years now. In 2008, 331 employees donned their trainers. Sixty-two cyclists conquered the Puy de Dôme in France, and 80

83 Connection agreements for new power stations and BritNed cable These agreements will enable TenneT to connect 7200 MW of new capacity to the transmission grid at the Maasvlakte site, allowing for a 35% growth in large-scale installed production capacity. June runners ran the Lisbon half-marathon while 110 walkers completed a tough Nordic walking event near the Portuguese capital. Committed Power also played a role in the recruitment campaign, as it is a clear Unique Selling Point for TenneT as an employer. Mobility and training TenneT is committed to offering a healthy, stimulating working environment. This includes ensuring that the organisation offers sufficient challenges. Mobility transferring to a different job or department within the company is therefore actively encouraged. Once again we surpassed our mobility target of 10 percent in Nineteen percent of all employees transferred to a different position or department in the company, while 7.3 percent left the organisation to take up positions elsewhere. A stimulating working environment also involves allowing employees to develop through training. This opportunity was taken up with great enthusiasm in A total of 55,649 hours were spent on training. Investment in training and education amounted to almost 3 percent of the average pay per employee. Compared with the national picture, TenneT spent an above-average amount of time and money on staff training and development. Recruitment campaign successful The recruitment campaign Your Energy Is TenneT s Strength put the spotlight on four TenneT employees, using billboards, advertisements and other means of communication. These standard bearers represented the types of candidates being sought: engineers at MBO (intermediate vocational education) level, and engineers, IT specialists and staff assistants at HBO (higher vocational education) or university level. The recruitment website played a prominent role in the campaign. The personal approach appealed to the target groups TenneT was aiming at. By the end of 2008 sufficient numbers of new employees had been taken on to meet the targets. The approach and tone struck exactly the right chord, and this was confirmed by the fact that Digitaal-Werven.nl voted the campaign the Best Online Job Application Experience of According to the jury, which examined the campaigns of more than 350 organisations, TenneT s recruitment website stood out because of its personal touch and easy navigation. The new recruitment campaign hit the mark with the target groups TenneT was aiming at: 210 vacancies were filled by the end of Collaboration with the education sector TenneT is committed to working closely with higher education. By maintaining close ties with higher vocational education institutions and universities, TenneT hopes to interest more students in electrical engineering and, in particular, the high-voltage system and to raise the company s profile. The aim behind these efforts is to structurally improve Annual Report 2008 / Personnel and Organisation 81

84 Monitoring Report The purpose of the Security of Supply Monitoring Report is to provide an insight into the expected development of the domestic supply of and demand for electricity. In the report, TenneT looks at the expected developments over a 15-year period. This Monitoring Report shows that the Dutch electricity system will have a significant export potential from early 2012 onwards. 10 years of national grid management July 2007 TenneT s position in the job market. In this context we maintain a close relationship with the Delft, Eindhoven and Twente Universities of Technology which are promoting energy technology as a course of study and which offer scope for doctoral research. In September 2008, 23 electrical engineering students from three Dutch higher education institutions embarked on the Power Minor course which is co-financed by TenneT. Power Minor consists of three consecutive modules which cover the whole of the energy supply chain. This course is unique in the Netherlands and ties in closely with the day-to-day reality of working in the energy sector. TenneT also contributes to the De Watt? campaign, a joint initiative of the entire energy sector. The aim of this campaign is to generate interest in technology among young people. The campaign was initially aimed at pupils in lower secondary professional and intermediate vocational education, but since 2008 it has been expanded to include those in higher vocational education as well. The campaign provides an insight into the career opportunities for students in the energy sector. TenneXT programme completed In 2007 and 2008 TenneT worked closely with the regional grid operators on the transfer of management of the 110 kv and 150 kv grids. This transfer took place in the framework of the Independent Grid Administration Act. In the first year the organisation was prepared for taking on the management activities. The actual integration took place last year. During the discussions on the transition process it became apparent that the requirements and circumstances of each grid operator differed. TenneT therefore made individual arrangements with each company. The most striking results were achieved with Essent in We took over all high-voltage activities for the 110 kv and 150 kv grids in November, as a result of which we opened two regional offices in Hoogeveen and Weert. A total of 141 Essent employees transferred to TenneT. Most are now working in the regional offices; some took up positions in various departments at our Arnhem head office. By the end of 2008 the TenneXT programme was virtually completed. The operational management of all regional grids will be controlled from TenneT s second National Control Centre by no later than 2010, and is being transferred in stages. Management development programme gets under way TenneT launched its first management development programme in The aim of this programme is to develop managerial skills. The programme, which meets TenneT s desire to further professionalize the organisation, is designed for two target groups: senior managers (employees who have already demonstrated that they can lead a team and want 82

85 Expansion of Board of Management The Supervisory Board asks for the number of board members to be increased because of the organisation s growth and the increase in the number of activities. Solution in the north To create more transmission capacity in the north of the Netherlands in the short term, TenneT retains a line that was to have been disconnected. This line is also to be upgraded to a voltage level of 380 kv. December 2007 December 2007 to enhance their skills in this area) and high potentials (young employees with several years work experience). The programme for the latter group will kick off in It will also be expanded to include group heads and managers in Young TenneT An association for young TenneT employees was set up in 2008 (Young TenneT). This group organises a range of business-related and social activities with the aim of encouraging networking within the company and promoting personal development. These activities include talks on subjects related to TenneT s area of work, excursions to substations or production units, a bi-monthly social get-together, and exchanges with other associations for young employees in the Netherlands. Young TenneT also supports recruitment of new employees by taking part in study and job fairs. Works Council In March 2007 a new Works Council was set up to handle the entire TenneXT process, i.e. the transfer and integration of the management of the 110 kv and 150 kv grids. A Works Council TenneXT contact group was created, which met monthly with the Director of Corporate Development and the TenneXT project leader. The Works Council was therefore able to keep up to speed with progress in the acquisition process for the transfer of ownership, and the integration of the grid management activities into the TenneT organisation. In 2008 the Works Council was able to advise promptly on the integration of staff, particularly from Essent, and the transfer of ownership of the grids operated by Liander (formerly Continuon) and Enexis (formerly Essent Netwerk). In 2008 the Works Council also handled the necessary advice and approval requests relating to TenneXT, covering such topics as organisational changes, accommodation and relocation and personnel schemes. The overarching aim was to equip the organisation to manage all the grids efficiently and to accommodate the incoming staff. Regular activities relating to general employment conditions and personnel policy, financial forecasts, security, and health and safety continued as usual. In 2008 the Works Council agreed to: - amend the Job Level Matrix; - amend the maintenance procedure in the job description manual; - allocate standby hours for shift workers (to be used for work meetings, training or instruction); - monitor and play back telephone calls of operators in the System Supply and Transmission Services departments; - amend the commuting schemes in both permanent and temporary situations. Annual Report 2008 / Personnel and Organisation 83

86 TenneT celebrates its tenth anniversary! More highlights from 2008 can be found in the Review on page years of national grid management December 2008 In the year under review the Works Council was able to handle a total of 20 requests for advice and approval. This was made possible by the effective strategy of working with committees and the constructive advance arrangements made with management on the involvement of the Works Council in the decision-making process. 84

87 Jaarverslag 2008 / Titel hoofdstuk 85

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89 Projects TenneT is always working to improve the high-voltage grid. After all, we can only (continue to) guarantee a reliable supply of electricity and meet the needs of the energy market if we have the best possible infrastructure at our disposal. A summary of several largeand small-scale projects undertaken in 2008 is provided below.

90 The Dutch transmission grid As at March 2009 Electricity transmission grid of TenneT TSO B.V. 380 kv substation / overhead connection / cable Feda (Norway) 220 kv substation / overhead connection / cable 150 kv substation / overhead connection / cable Cross-border interconnection Subsea cable to Feda (Norway) BritNed project subsea cable Randstad 380 kv project ( underground) (section under development) North-West 380 kv project (route under investigation) South-West 380 kv project (route under investigation) 380 kv connection Doetinchem-Wesel (route under investigation) 220 kv connection Vierverlaten-Zwolle TenneT head office / National Control Centre TenneT regional office Name of substation Electricity transmission grid of regional grid operators 150 kv substation / overhead connection / cable 110 kv substation / overhead connection / cable Power plants Capacity between 40 and 250 MW Capacity of more than 250 MW Isle of Grain (United Kingdom) Wesel (Germany) 88

91 Projects 1 PROJECT: Relocation of Bleiswijk substation STATUS: construction starts in 2009 TenneT has signed an agreement with the municipal authorities of Zoetermeer and Lansingerland concerning the relocation of the 380 kv substation at Bleiswijk. In 2010, this switching and transformer substation is to be moved from the north side to the south side of the A12 motorway. The substation is currently located in the centre of the area designated as the future site of the Bleizo transport hub by the municipal authorities of Zoetermeer and Lansingerland. In 2010, the Bleiswijk high-voltage substation is set to become the main link between the northern and southern ring of the new 380 kv connection serving the Randstad region. 2 PROJECT: Westerlee substation STATUS: under construction The Westerlee substation forms part of the wide-ranging Randstad 380 kv project. The aim of this project is to ensure security of supply in the long term. Westerlee plays an important role in transmitting the electricity generated by horticultural businesses via the transmission grid. Because horticultural businesses are installing large numbers of CHPs, there is a regular energy surplus in the Westland region. At present we are still transmitting this surplus capacity to The Hague region via the 150 kv grid, but in the future the Westland region will also be linked to the 380 kv grid. For the Westerlee substation, 2008 was taken up entirely by engineering activities and permit procedures. We started the construction work at the end of the year. The substation will be commissioned at the end of PROJECT: High-voltage connection in the Randstad conurbation STATUS: preliminary work The route of the south ring of the Randstad 380 kv highvoltage line between Beverwijk and Wateringen was finalised in Besides a northern section totalling some 65 kilometres, the high-voltage connection also includes a southern section of approx. 20 kilometres which will run from Wateringen to Bleiswijk, and from Bleiswijk to Beverwijk. The high-voltage connection will be built largely above-ground using new, innovative Wintrack pylons. In addition, TenneT will be laying approximately 20 kilometres underground, which is regarded as extremely innovative, even in an international context. TenneT will be monitoring the behaviour of the underground cables in collaboration with Delft University of Technology. 4 PROJECT: New substation at Simonshaven STATUS: under construction This substation is being built to connect a production unit and link the 150 kv grid to the 380 kv highvoltage grid, and to accommodate new production capacity. The detail engineering work was completed in After issuing calls for tenders and awarding all the contracts, TenneT started building the substation. It will be commissioned in the third quarter of Annual Report 2008 / Projects 89

92 PROJECT: New substation at Wateringen STATUS: under construction 5 8 PROJECT: TenneT completes Borssele substation in one year! STATUS: completed After completion of the engineering work, TenneT started work on the site in In order to minimise the nuisance caused by the building work, we entered into a covenant with local residents. The dyke is to be moved so that there will be more public space remaining outside the substation. We are also siting the new transformers further away from the residential area, and the high-voltage pylons to Rijswijk are being replaced by underground cables. The municipality of The Hague is still looking for an alternative site for a number of transformers. PROJECT: 6 New substation at De Lier STATUS: under construction The demand for connection capacity is growing steadily in this area on account of the installation of CHPs. In 2008 the decision was taken to build a new 150 kv substation at De Lier. Specifications were drawn up and a design was produced. The project was also put out to tender on a European level. While the engineering work was going on, all the permits were applied for and the land was purchased and prepared for the build. TenneT is also laying a cable connecting the substation to the high-voltage grid. PROJECT: Investments in Westland region STATUS: preparing for planning procedures 7 We are investing heavily in the grid in the Westland region. In the course of 2009 and 2010 new cable connections and transformer substations are to be commissioned there, which will provide more capacity. The regional electricity grid is currently undergoing expansion and the capacity for the exchange of electricity with the TenneToperated high-voltage grid is being enlarged. The planned infrastructural expansions include a new cable link to The Hague and the construction of two new highvoltage substations at Westerlee and De Lier. A major achievement: by working extremely efficiently we were able to build the Borssele substation in one year. The new 380 kv switching substation was commissioned in the third quarter of The construction of this substation has enabled us to connect the new Sloe power plant to the grid and increase the interconnection capacity. 9 PROJECT: New 150 kv connection in Westerschelde estuary STATUS: Completed A new additional underground high-voltage cable was installed in the Westerschelde estuary. In May 2008, Delta Infra laid a new 150 kv cable between Terneuzen in Zeeland Flanders (the southernmost region of the Dutch province of Zeeland, bordering Belgium) and Ellewoutsdijk in South Beveland (the peninsula immediately to the north). The cable connection will transmit the expected increase in electricity production in Zeeland Flanders to 90

93 the national grid. There are already two connections installed along the seabed of the Westerschelde estuary: a 150 kv cable and a 50 kv cable. The new cable was laid in a separate trench more than 7 kilometres in length. Work started in May, and the connection was linked to the existing 150 kv grid in South Beveland at the beginning of October. PROJECT: South-West 380 kv STATUS: preparing for planning procedures 10 The new 380 kv connection between Borssele and the national ring will link up the new production sites in Zeeland. This new connection will help to improve security of supply in the Netherlands. The organisation for the South-West 380 kv project was set up in It is a joint project with the Ministry of Economic Affairs and the Ministry of Housing, Spatial Planning and the Environment. The connection is expected to go live in late PROJECT: Extension in Bergen op Zoom STATUS: under construction The 150 kv substation in Bergen op Zoom is being extended with the addition of a transformer field for Enexis. Another extension for a customer connection for Windnet (70 MW) is also being implemented. This connection is needed to enable wind energy to be supplied to the grid. 12 PROJECT: Complete switching substation in Lelystad STATUS: under construction The upgrade involves installing an additional 380 kv transformer to create a complete switching substation. A new Electrabel power station will be connected to the substation. The new substation will be operational in PROJECT: From Vierverlaten to Hessenweg STATUS: under construction TenneT is planning to upgrade the Vierverlaten-Zeijerveen- Hoogeveen route to make more capacity available for the highvoltage grid in the north of the Netherlands. According to the Drenthe Provincial Environmental Plan and the Overijssel Regional Plan, this line would actually be decommissioned in However, because of the constantly growing demand for capacity on the grid and in order to avoid destruction of capital, TenneT has been calling for the Hoogeveen-Zwolle route to be preserved and upgraded. In concert with the Ministry of Economic Affairs and the provincial authorities, a plan was drawn up for compensating measures in Reestdal and Oude Diep, two valuable nature reserves through which the line runs. TenneT is earmarking EUR 10 million for land purchases and other measures to facilitate nature development and for wildlife corridors in the National Ecological Network. An extension of the 380 kv substation in Lelystad is planned. Construction of the substation progressed very well in Annual Report 2008 / Projects 91

94 PROJECT: 14 Expansion in Eemshaven STATUS: under construction A start has been made on the construction of a new 380 kv substation at Eemshaven. The site has been prepared for the build and the permits have been applied for. The reason for this new substation is the continuing increase in demand for connections to the grid from new producers. The substation will be commissioned in PROJECT: North-West 380 kv STATUS: preparing for planning procedures 15 TenneT is laying a new 380 kv line between the large-scale production site at Eemshaven and the national high-voltage grid in the west of the Netherlands (Diemen substation). The initial memorandum will be published in 2009, whereupon the project will be officially announced to the public. PROJECT: Doetinchem-Wesel STATUS: preparing for planning procedures 17 It is a long time since electricity was merely a local, provincial or even national issue. The Dutch electricity grid is now an integral part of the Northern European grid. To meet the demand for additional interconnection capacity with Germany, a fourth interconnection to our eastern neighbours is planned between Doetinchem (Netherlands) and Wesel (Germany). The initial memorandum for the project will be published in the spring of PROJECT: NorNed cable STATUS: completed (explicit auction only) 16 The NorNed cable has been operational since May 2008 and in little more than six months has produced approx. EUR 110 million in revenue, more than twice as much as had been expected. The business case drawn up for the NorNed cable assumed annual revenues of EUR 74 million. This revenue stream is being used to finance new interconnection projects. Trade via the NorNed cable takes place by means of an explicit auction organised jointly by TenneT and Statnett, at which market parties buy capacity and electricity separately. This system is temporary; the parties involved are working on an implicit auction which will come into operation in the future. Capacity and electricity will be traded simultaneously at the implicit auction. 18 PROJECT: BritNed: 260 kilometres of cable along the seabed STATUS: under construction BritNed is the name of the cable that will connect the Dutch and UK markets from 2011 onwards. In 2008, construction work started on the converter stations at the Maasvlakte site in the Netherlands and on the Isle of Grain on the British side. TenneT is collaborating with the British utilities company National Grid on a 260-kilometre- 92

95 long subsea electricity cable. This cable will contribute to security of supply in the Netherlands and the UK and will improve customer access to the European market. About 45 percent of the cable is now in place and we have been looking at ways of selling the capacity to market parties. 19 PROJECT: CWE market coupling STATUS: under development In 2007, a Memorandum of Understanding was signed by representatives of the five national governments of the Netherlands, Belgium, Luxembourg, Germany and France, their regulatory authorities, electricity exchanges and grid operators on the interconnection of the electricity markets and security of supply in Central Western Europe (CWE). The key part of the MoU was the implementation of market coupling between the five countries. The parties concerned designed the methodology, processes and systems in Construction and implementation will take place in 2009, and the market coupling will be operational in the first half of Annual Report 2008 / Projects 93

96 12.00 noon Location: TenneT headquarters, Arnhem Interview with Mel Kroon President and CEO of TenneT

97 Mel Kroon sees many new challenges Society demands that we are creative TenneT has greatly stepped up its innovation activities in recent years. It has done so in response to various external developments, including European market integration and the process of rendering our energy supplies more sustainable. As Mel Kroon, President and CEO of TenneT, explains: Society demands sustainable development and TenneT intends to lead the field. TenneT has greatly stepped up its innovation activities in recent years. It has done so in response to various external developments, including European market integration and the process of rendering our energy supplies more sustainable. As Mel Kroon, President and CEO of TenneT, explains: Society demands sustainable development and TenneT intends to lead the field. TenneT is playing a particularly active role in the development of an integrated energy market for north-western Europe. Mel Kroon predicts that the Netherlands will soon be the energy hub of the entire region, and believes that TenneT will be closely involved in the process of integrating sustainable energy, including that from large-scale offshore wind farms, into the national grid. In 2002, when Kroon first came to TenneT, grid managers had little incentive to pursue innovation. Our lines, grids and substations had shown a consistently high degree of reliability for many years. That was important, and it remains so today. TenneT is judged in terms of the security of supply, so that must be a key focus. Nevertheless, there are now many developments which must also be addressed. They include the emergence of an integrated regional market, increasing national and international demand for transmission capacity, and the desire for greater interconnection between national markets. These developments will all benefit the Dutch economy and the country s energy consumers, both business and domestic. The process of rendering our energy supplies sustainable must also be an international undertaking. We have a relatively small domestic market and that forces us to take a more European perspective. Energy hub Kroon sees the 2004 decision to invest in the NorNed cable, the undersea connection between the Netherlands and Norway, as a prime example of TenneT s commitment to market integration, and to making cleaner hydroelectric power available to Europe as a whole. We were not deterred by the pessimists who cited vast budget over-runs on other major infrastructure projects. We dared to take the risk because we were convinced that this cable would make a substantial contribution to the socio-economic wellbeing of our country. TenneT continues to pursue innovation in all its many forms. The Netherlands is now a leading player in the integration of the regional market. Kroon considers this only fitting. We have a relatively small domestic market and that forces us to take a more European perspective. The Netherlands geographic location makes it an ideal candidate to become an energy hub for the entire European market. We should 95 Annual Report 2008 / Interview Mel Kroon / Innovation

98 be proud of our part in innovations such as the interconnection of energy markets. To maximise the benefits of market integration, TenneT will continue to invest in interconnections with other countries. Feasibility studies for a new undersea cable to Denmark are ongoing and will be completed in The plan foresees a significant role for wind power produced in Denmark. A second NorNed connection is also on the drawing board, while cooperation with the German transmission system operators has already been stepped up. International cooperation is essential if the market is to be strengthened. In the past, the Netherlands has been a net importer of electricity. It is now rapidly becoming a net exporter. Our country is an ideal location for producers supplying the European market, Kroon explains. Not only are there good transport routes for fuel and a constant supply of cooling water, but the transmission grid itself is of very high quality. There are new production units coming online all the time. They enhance the security of supply and therefore bolster the Dutch economy. It falls to TenneT to ensure that the grid has the capacity to cope with this additional supply. We will therefore invest billions of euros in expansion during the next few years. Smart grids Another social trend which encourages innovation is the desire for sustainability. TenneT is currently investigating how to connect large offshore wind farms to the national grid in the most efficient manner possible. Kroon also foresees a future of smart meters and grids which, due to the increase in decentralised generation from combined heat and power units, wind turbines and solar panels, are truly two way. It is all about balancing supply and demand as efficiently as possible. These developments call for a more flexible system. If there are high winds at sea at night and the wind farms can generate a substantial amount of sustainable energy, we must be able to buffer or store that energy, given that demand will be extremely low at that very moment. We must therefore investigate new storage methods, such as the energy island concept, hydroelectric turbines in disused mineshafts, or a millionstrong fleet of electric vehicles. TenneT can play a significant part in all such innovations. Wintrack pylon Kroon contends that TenneT is now far more aware of the wishes of society, and is responding accordingly. This is inevitable. Society demands that we are creative. And indeed we are: look at the new underground 380 kv cable in the Randstad region, which at twenty kilometres is the longest of its type anywhere in the world. If we were concerned solely with commercial interests, we would much prefer to lay these heavy-duty connections above ground for reasons of cost and reliability. Another example of innovation in response to societal demand comes in the form of the Wintrack pylon. The Wintrack concept is a direct result of the discussions about the possible health risks of exposure to electromagnetic fields. When the Ministry of Housing, Spatial Planning and the Environment reduced the permissible exposure levels, we did not put up a fight. Rather, we unleashed our creativity. Staff in various parts of the organisation came up with some excellent ideas as to how the electro-magnetic fields around these pylons could be reduced. Eventually, we settled on a design in which the cables are suspended from the pylon in a circular pattern. This does indeed reduce the electromagnetic fields, allowing buildings to be sited much closer to the new Wintrack pylon than to their traditional counterparts. Open mind An open mind is not only essential within the organisation, but externally as well, Kroon stresses. TenneT and its counterparts throughout Europe will cooperate even more closely in future, as demanded by the nature of European free trade agreements. TenneT has already joined forces with its German counterpart RWE Transportnetz Strom to set up a joint Security Service Centre which monitors the flow of electricity between the two countries. Kroon believes TenneT can learn much from other 96

99 Society demands that we are creative. And indeed we are: look at the new underground 380 kv cable in the Randstad region, which at twenty kilometres is the longest of its type anywhere in the world. TSOs in areas such as efficiency in construction and transmission. International cooperation is essential if the market is to be strengthened. We can learn much from each other s working methods and experience. TenneT will continue to innovate. At present we ourselves are one of the country s main consumers of electricity. Innovation will enable us to reduce our grid losses. Cutting these losses by just 25% will make a significant difference. Annual Report 2008 / Interview Mel Kroon / Innovation 97

100 10.30 hrs Location: Zoetermeer Site of the planned connection with the innovative Wintrack pylon Interview with Mart van der Meijden, TenneT s Innovation Manager 98

101 Mart van der Meijden on innovation We must innovate more quickly Innovation involves far more than just the latest technology. Grid managers must keep up to date on all fronts, whether it be physical infrastructure, international cooperation or funding arrangements. Mart van der Meijden is TenneT s Innovation Manager. We have now professionalized our innovation activities, he reports. If there is any market which has been particularly dynamic in recent years, it is the energy market. There has been a process of liberalisation throughout Europe, leading to inevitable changes. Partly due to Al Gore s efforts, more people have come to realise the urgency of taking action on the sustainability front. TenneT faced a further challenge as new production suddenly peaked and we had to build new infrastructure much earlier than planned, recalls Van der Meijden. We therefore had to step up the pace of innovation. In order to bring new ideas to maturity more quickly, TenneT restructured its innovation activities, whereupon Van der Meijden was appointed coordinator of a new innovation support team. The team includes a programme manager from each business unit, he explains. These managers encourage staff to come up with new ideas, and try to give those ideas a chance. This really is a bottomup process, with many suggestions coming from the work floor. We are not an academic group; we like to get our hands dirty! TenneT pursues innovation in four main areas. The first is the transition to more sustainable energy sources. Ideas include a plan for a wall socket at sea which would connect offshore wind production with the landside grid, with enhanced flexibility by means of electricity storage, either local or international. The second main area is environment, health and safety, in which TenneT s innovations include the Wintrack pylon with its particularly low magnetic field. The third area is quality and security of supply. The Netherlands enjoys a particularly strong reputation in this regard, not least due to its use of very long underground 380 kv cables. The length of those cables is limited by the risks to voltage stability and the security of supply. Two of the country s Universities of Technology Delft and Eindhoven are researching ways to overcome the inherent problems. The fourth area is efficiency and efficacy, The system-based approach is becoming increasingly important, as amply illustrated by the energy storage studies we have conducted. which will soon become particularly important, Van der Meijden believes. We wish to utilise the grids as efficiently as possible using a number of new systems such as flow-based allocation. This helps to coordinate supply and demand between countries, further to the integration of the market. The increase in exports and imports, and the resulting fluctuations, have changed everything. Many of Van der Meijden s examples involve a form of systems innovation. The system-based approach is becoming increasingly important, as amply illustrated by the energy storage studies we have conducted. It is not so much a question of which solution will work, but which combination of solutions will work best. This is TenneT s real strength: the ability to think in terms of the system as a whole rather than a series of isolated solutions. 99 Annual Report 2008 / Interview Mart van der Meijden / Innovation

102 Organisation Activities TenneT Holding B.V. currently manages the following businesses (as at March 2009): Regulated activities TenneT TSO B.V. carries out regulated activities. These are statutory tasks related to managing the national transmission grid and maintaining the required energy balance between supply and demand in the Dutch electricity grid. TenneT has delegated several regulated activities of an operational nature to subsidiaries. TenneT TSO B.V. This company manages the Dutch national high-voltage grid and the cross-border interconnections. As of 1 January 2008, the national transmission grid includes all electricity grids with a voltage level of 110 kv and higher. TenneT TSO B.V. also maintains the energy balance between supply and demand in the Dutch electricity grid. B.V. Transportnet Zuid-Holland (trading as TenneT Zuid-Holland) This company owns the 150 kv grid and part of the 380 kv grid in the province of Zuid- Holland. TSO Auction B.V. This company auctions the available capacity on the five cross-border interconnections in the high-voltage grid (two to Belgium and three to Germany). The activities of TSO Auction are to be transferred to CASC-CWE S.A. in the near future. The monthly and annual auctions have already been transferred. The daily auctions are still organised by TSO Auction. CertiQ B.V. This company issues certificates for sustainably generated electricity. The object of these Guarantees of Origin is to confirm sustainable generation and to obtain grants under the government scheme operated by SenterNovem. The Guarantees are registered, issued and traded electronically. 100

103 Organisational structure TenneT Group (as at January 2009) State of the Netherlands TenneT Holding B.V. 100% Regulated activities Unregulated activities TenneT TSO B.V. 100% Stichting Beheer Doelgelden 100% 100% 100% 100% 100% B.V. Transportnet Zuid-Holland EnerQ B.V. (in liquidation) CertiQ B.V. TSO Auction B.V. Saranne B.V % 50% 100% 100% APX B.V. New Values B.V. NOVEC B.V. NLink International B.V. 100% European Energy Auction B.V. 100% ENDEX European Energy Derivatives Exchange N.V. 100% APX Commodities Ltd. 100% APX Gas NL B.V. 100% APX Gas Zeebrugge B.V. 100% Nozema Agro Beheer B.V. 50% Relined B.V. 50% BritNed Development Ltd. Annual Report 2008 / Organisation 101

104 EnerQ B.V. (in liquidation) The activities of EnerQ ended on 1 January The company was dissolved with effect from the same date. This is the result of the Minister of Economic Affairs decision to transfer the implementation of the MEP grants scheme to SenterNovem with effect from 1 January Saranne B.V. Saranne B.V. is the legal owner of those components of the 220 kv and 380 kv grid of which TenneT TSO B.V. is the economic owner. Foundation for the Management of Allocated Funds from the National High-Voltage Grid This foundation (in Dutch: Stichting Beheer Doelgelden Landelijk Hoogspanningsnet) was established as a trust office to manage the allocated funds received by TenneT in its capacity as administrator of the national high-voltage grid through performance of its statutory duties. These allocated funds comprise proceeds of imbalance settlements and auction receipts. TenneT TSO B.V. s allocated funds are intended for specifically designated purposes. Unregulated activities Besides the regulated activities TenneT Holding B.V. also undertakes several activities aimed at supporting the energy market and ensuring that it operates smoothly. It is precisely the company s independent position that makes it prudent for TenneT Holding B.V. to perform these activities. In doing so TenneT applies unambiguous criteria when deciding whether or not to carry out new activities. They must in any event contribute to enhancing the transparency and efficiency of the Dutch energy market, or to the environmental quality of energy. The activities must support our statutory tasks and not put them at risk. They may not impair the quality or independence of TenneT TSO B.V. APX B.V. APX Group, with its head office in Amsterdam, is a group of international electricity and gas exchanges for short-term trading in Belgium, the Netherlands, Luxembourg and the United Kingdom. N.V. Nederlandse Gasunie owns 26.1% of the shares, the Belgian gas transport company Fluxys S.A. owns 3.84%, and the remaining 70.06% are held by TenneT Holding B.V. The core activity in the Netherlands concerns the spot market for electricity. It is possible to trade anonymously on this market by means of an auction system that runs on an electronic trading platform. Trading is in spot contracts for next-day and intraday delivery. The exchange clears the contracts and publishes information, including a daily price index. APX Commodities Ltd. facilitates two thirds of all 24-hour and spot trading of gas in the United Kingdom. In 2007 APX Power Ltd. subsumed the activities of APX Power UK, the 102

105 independent electricity exchange in the United Kingdom which facilitates anonymous continuous trading in spot and forward contracts, under APX Commodities Ltd. Inactive company, activities incorporated into APX Commodities Ltd. Dormant company. In collaboration with Gas Transport Services B.V., APX Gas NL B.V. facilitates intraday and spot trading on the Title Transfer Facility (TTF), a virtual platform in the Netherlands. APX Gas Zeebrugge B.V. provides a gas trading platform at the Belgian port of Zeebrugge. It acts as a central counterparty to allow parties to trade anonymously. Endex European Energy Derivatives Exchange N.V. was established with the aim of developing a trading platform for bilateral long-term transactions in the electricity market. APX holds 10% of the shares in Belpex, the Belgian electricity exchange. NLink International B.V. NLink International B.V. was established to develop and build international submarine cables, including a submarine cable to the United Kingdom. BritNed Development Ltd. is a 50/50 joint venture of NLink International B.V. and National Grid International Ltd., with its registered office in London. It was set up to develop, build and operate an interconnector between the Netherlands and the United Kingdom. NOVEC B.V. NOVEC B.V. rents out and manages antenna sites for distributing radio and television signals via the air and for telecommunication purposes. This 50/50 joint venture between NOVEC B.V. and ProRail B.V. operates the fibre-optic cable infrastructure of the high-voltage grid and the railway network. This company manages the land surrounding the antenna site at Zeewolde. New Values B.V. New Values B.V. is a 50/50 joint venture of TenneT Holding B.V. and Rabobank Netherlands. New Values is an electronic market that facilitates trading in carbon dioxide emission allowances by means of a full-trade electronic trading platform. EnergieKeuze (Energy Choice) is an on-line auction house that facilitates the trade in supply contracts for the business market in the Netherlands and Belgium. Annual Report 2008 / Organisation 103

106 TenneT also holds the following minority interests: CASC-CWE S.A. CASC-CWE (Capacity Allocation Service Company for the Central Western European Electricity Market) was established in 2008 by the TSOs of Belgium, the Netherlands, Luxembourg, France and Germany for the purpose of auctioning cross-border interconnection capacity. TenneT TSO B.V holds 14.3% of the shares in CASC-CWE S.A. EDSN facilitates message traffic and data exchange between market parties in support of regulated and unregulated customer-related processes in the gas and electricity sector. TenneT TSO B.V. holds a 25% stake in EDSN. Belpex S.A. Belpex S.A. is the Belgian electricity exchange. TenneT Holding B.V. holds a 10% stake in Belpex S.A. HGRT TenneT TSO B.V. holds a 24.5% interest in the holding company HGRT (Holding de Gestionnaires de Réseaux de Transport d Electricité S.A.S), through which TenneT TSO B.V. participates indirectly in Powernext S.A. Powernext S.A. is the French electricity exchange. HGRT has held 52.25% of the shares since 3 July

107

108 Organisational structure TenneT TSO B.V. BOARD OF MANAGEMENT Chief Executive Officer Chief Operating Officer IA Information Technology PO Human Resources IBH IT Management FAZ Facility Management ISB Information Provision System Operations KMO Customer & Market Development ITS Information Provision Transmission Operations, Staff Departments & Asset Management AM Asset Management TI Transmission Operations NST Grid Strategy PRM Programme Management RP Risk & Portfolio Management KAM Quality Assurance, Health & Safety and Environmental Affairs CON Transmission Operations Control IMA Information Management BHO Management & Maintenance ROM Spatial Planning & Environmental Affairs TEC Technology PG Physical Planning & Land Management OPR Operations REG Regional Management NET Grid Development ENG Engineering GRZ Land Management TEL Telecommunications TDS Technical Documentation Service Centre TC Technology & Consultancy 106

109 Chief Financial Officer Corporate Development Officer INK Procurement TRE Treasury CDV Corporate Development FSC Financial Service Centre OBR Ownership, Business Planning & Regulatory Affairs IMC Corporate Information Management RVM Risk & Insurance Management JUZ Legal Affairs COM Communications CR Control & Reporting AUD Audit FIS Fiscal Affairs SB System Operations Regulated subsidiaries CertiQ MO Monitoring & Development SVZ System Provision TVZ Transmission Provision PON Process Support REW Region West UIW Region West Operations ONW Region West Support REZ Region South ONZ Region South Support IBZ Region South Engineering Office STZ Region South Substations VBZ Region South Connections REO Region East UIO Region East Operations ONO Region East Support REN Region North ONN Region North Support IBN Region North Engineering Office STN Region North Substations VBN Region North Connections Annual Report 2008 / Organisation 107

110 TenneT Board of Management From left to right: Willem Keus, Mel Kroon, Ben Voorhorst and Lex Hartman Born: Appointed: Previous positions: Non-company positions: - J.M. (Mel) Kroon MBA President and Chief Executive Officer Managing Director of Hooge Huys Verzekeringen N.V. - Deputy Chairman of the Executive Board of SNS Reaal Verzekeringen N.V. - Marketing & Sales Director of the Traction Division at Holec N.V. - Marketing Director of Fokker Aircraft Chairman of the Supervisory Board - NOVEC B.V. Member of the Supervisory Board - Havenbedrijf Rotterdam N.V. - Diamond Tools Group B.V. - APX B.V. Member - Steering Committee of the Association of European Transmission System Operators (ETSO) - Board of Belpex S.A. - Board of Directors of Powernext S.A. 108

111 Born: Appointed: Previous position: Non-company position: - B.G.M. (Ben) Voorhorst MBA Chief Operating Officer various management positions within TenneT - head of information provision at SEP (TenneT s predecessor) - various management positions in the software industry Member of the Supervisory Board - Energie Data Services Nederland B.V. Member - Steering Committee of the Union for the Coordination of Transmission of Electricity (UCTE) - Executive Committee of the Netherlands Association for Energy Data Exchange (NEDU) - Executive Committee of the Netherlands Association of Energy Grid Operators (ENBIN) - Board of the Rotterdam Sustainability Initiative Foundation, Cradle to Cradle Born: Appointed: Previous positions: Non-company positions: - W.A. (Willem) Keus Chief Financial Officer Director of Finance & Control at Delta N.V. - Director of Corporate Control at Essent - Chief Financial Officer at PNEM/Mega Group - Chief Financial Officer at Mega Limburg - Treasurer at Unilever Europe Member of the Supervisory Board - NOVEC B.V. Member - Board of BritNed Development Ltd. - Board of Directors of Powernext S.A. Born: Appointed: Previous positions: Non-company positions: - A.A. (Lex) Hartman Director of Corporate Development various management positions within TenneT - manager of the Metaalunie Legal Assistance Foundation - lawyer in Utrecht and Nijmegen - part-time lecturer in management and marketing - Chairman of the NorNed Steering Committee - Chairman of the Board of BritNed Development Ltd. - Director of NLink International B.V. Annual Report 2008 / Organisation 109

112 TenneT Supervisory Board From left to right: Jan Vugts, Cees Griffioen, Ruud Selman, Fokko van Duyne and Aad Veenman Born: Appointed: Term of office expires: Previous position: Non-company positions: - R.E. (Ruud) Selman Chairman of the Supervisory Board, Chairman of the Remuneration and Appointments Committee Deputy Chairman of the Board of Management of Koninklijke DSM N.V. Chairman of the Supervisory Board - Broadview Chairman - Board of the Shares Trust Office Foundation of ASM Lithography Member - Governing Board of the VOPAK Shares Trust Office Foundation Born: Appointed: Reappointed: Term of office expires: Previous position: Non-company positions: - A.W. (Aad) Veenman Member of the Supervisory Board President and CEO of Netherlands Railways Chairman of the Supervisory Board - Koninklijke Ten Cate N.V. Member of the Supervisory Board - Rabobank Netherlands Member - Executive Committee of the Next Generation Infrastructures Foundation (NGInfra) Chairman - Community of European Railway and Infrastructure Companies (CER) - Supervisory Board of ICT Regie - Advisory Council of the National Aerospace Laboratory of the Netherlands (NLR) 110

113 Born: Appointed: Reappointed: Term of office expires: Previous position: Non-company positions: - J.F.T. (Jan) Vugts Member of the Supervisory Board, member of the Audit Committee Chairman of the Board of Management of SNS REAAL N.V. Chairman of the Supervisory Board - Van Grinsven Drukkers B.V. Chairman - Board of Alewijnse Foundation Member - Board of the Trust Office Foundation of Marleau Pierre - Board of the Trust Office Foundation of MercaChem Holding Born: Appointed: Reappointed: Term of office expires: Previous position: Non-company positions: - J.F. (Fokko) van Duyne Member of the Supervisory Board, member of the Remuneration and Appointments Committee Chairman of the Board of Management of Hoogovens/Corus Chairman of the Supervisory Board - Gamma Holding N.V. - OPG Groep N.V. - De Nederlandsche Bank N.V. - Koninklijke Verkade N.V. Crown-appointed member of the Social and Economic Council of the Netherlands (SER) Born: Appointed: Reappointed: Term of office expires: Previous position: Non-company positions: - C. (Cees) Griffioen Deputy Chairman of the Supervisory Board, Chairman of the Audit Committee Deputy Chairman of the Board of Management and CFO of Koninklijke KPN N.V. Member of the Supervisory Board - N.V. Nederlandse Gasunie - Berenschot Holding B.V. - KAS BANK N.V. Member - Supervisory Council of Noorderbreedte Care Group Advisor to the Board of Management of Deloitte Annual Report 2008 / Organisation 111

114 TenneT senior management S.P. (Sjouke) Bootsma Business unit Asset Management S.J.M. (Siem) Bruijns Business unit System Operations R.J.A. (Roel) Wolters Business unit Transmission Operations drs. R.R. (Raoul) van Aalst Control and Reporting T. (Teun) van Biert Asset Ownership, Business Planning and Regulatory Affairs O. (Otto) Jager Treasury R.L. (René) Kerkmeester Customer and Market Development C.C. (Lian) Krijger Human Resources U.J.G. (Ursela) Schennink-Reulink Communications J.M. (Martin) Schreuder Procurement Y.T.M. (Yvonne) Visser-Stam Legal Affairs P.S.J. (Pascal) Zandbelt Financial Shared Service Centre M.P. (Marc) de Zwaan Information Technology G.C. (Gineke) van Dijk CertiQ 112

115 Executive management of wholly-owned subsidiaries APX B.V. TSO Auction B.V. CERTIQ B.V. NLink International B.V. NOVEC B.V. Composition of the Works Council As of March 2007 B. (Bert) den Ouden B.G.M. (Ben) Voorhorst MBA G.C. (Gineke) van Dijk A.A. (Lex) Hartman J.W. (Jan Willem) Tom Bart Rotte Chairman Henk Sanders Secretary Herman ten Haken Deputy Chairman Ed Bakker Member Ebart van den Berg Member Chair of Health, Safety, Welfare and Environment Committee Jan de Boer Member Harry van Dijk Member Chair of Communications Committee Peter van der Meer van Houtum Member Paul Steenmans Member Chair of Finance Committee René Velthuizen Member Chair of Conditions of Employment and Personnel Policy Committee Inge Visschers Member Chair of Organisational Committee Petra van Leeuwen and Mieke Lantsink serve as administrative secretaries to the Works Council. From left to right: Peter van der Meer van Houtum, Harry van Dijk, Paul Steenmans, René Velthuizen, Henk Sanders, Ed Bakker, Ebart van den Berg, Jan de Boer, Herman ten Haken. Not pictured: Bart Rotte, Inge Visschers. Annual Report 2008 / Organisation 113

116 114

117 Financial Statements of TenneT Holding B.V. Content Consolidated balance sheet at 31 December 2008 Consolidated profit-and-loss account for the year 2008 Statement of changes in equity for the year 2008 Consolidated cash flow statement for the year 2008 General notes Notes to the consolidated balance sheet at 31 December 2008 Notes to the consolidated profit-and-loss account for the year 2008 Company balance sheet at 31 December 2008 Company profit-and-loss account for the year 2008 Statement of changes in equity for the year 2008 Notes to the company balance sheet and profit-and-loss account for the year 2008 Other information Auditor s report Annual Report 2008 / Financial Statements 115

118 Consolidated balance sheet at 31 December 2008 ( x EUR 1,000 ) ASSETS Ref. 31 December December 2007 NON-CURRENT ASSETS Tangible fixed assets 1 1,469,998 1,263,001 Intangible assets 2 46,534 13,738 Participating interests 3 11,779 - Financial assets 4 31,485 43,721 Deferred tax assets 5 55,839 50,117 Other receivables 6 12,075 11,709 CURRENT ASSETS 7 1,627,710 1,382,286 Inventory 7 1,216 1,710 Receivables Accounts receivable and other receivables 8 193, ,564 Accounts receivable in connection with energy exchange transactions 9 223, ,196 Corporation tax 2,712 3,190 Derivative financial instruments 10 1,101 1, , ,325 Financial assets 4 81,000 14,500 Cash and cash equivalents 11 Collateral securities 532, ,468 Deposits 99, ,700 Cash at banks 117, , ,248 1,236,809 Non-current assets available for sale 12 5,320 5,320 2,886,486 2,912,950 The balance sheet total includes an amount of EUR 1,094,504 (2007: EUR 1,432,829) that relates to assets not at the Group s free disposal (see page 133). 116

119 LIABILITIES Ref. 31 December December 2007 Equity 13 Share capital 100, ,000 Hedging reserve -/- 1,476 2,355 Reserve for exchange rate differences -/- 3,439 -/- 817 Retained earnings 561, ,669 Equity attributable to shareholder 656, ,207 Minority interest 8,946 6, , ,592 Non-current liabilities Loans , ,420 Investment contributions ,471 69,543 Auction receipts , ,266 Provisions ,370 75,350 Derivative financial instruments 18-1,747 Deferred tax liabilities 19 4,285 1, , ,465 Current liabilities Investment contributions 15 10,437 3,137 Auction receipts ,000 Amounts received in advance 20 31, ,939 Provisions 17 21,453 1,664 Loans ,000 50,000 Bank overdrafts , ,677 Accounts payable in connection with energy exchange transactions , ,208 Liabilities relating to collateral securities , ,468 Accounts payable and other liabilities , ,280 Corporation tax 2,129 2,330 Derivative financial instruments 18 8, ,300,587 1,716,893 2,886,486 2,912,950 Annual Report 2008 / Financial Statements 117

120 Consolidated profit-and-loss account for the year 2008 ( x EUR 1,000 ) Ref Revenue , ,814 Changes in work in progress for third parties - -/- 288 Other income 9,100 3, , ,530 Operating expenses Energy and capacity expenses , ,571 Transmission grid and system expenses 27 38,525 20,252 Personnel expenses 28 47,249 38,741 Depreciation and amortisation 29 59,495 61,414 Impairments 1, 2, 29 11,678 - Other operating expenses 30 56,302 53, , ,175 Operating profit 80,912 70,355 Finance income 31 27,186 38,022 Finance costs 31 39,087 40,287 -/- 11,901 -/- 2,265 Profit before corporation tax 69,011 68,090 Corporation tax expense 32 17,731 17,275 Profit from participating interests ,124 Profit for the year 52,182 54,939 Allocated to: Shareholder 50,702 53,072 Minority interest 1,480 1,867 52,182 54,

121 Statement of changes in equity for the year 2008 ( x EUR 1,000 ) Attributable to shareholders of the company Minority interest Total Paid-up and calledup capital Hedging reserve Reserve for exchange rate differences Retained earnings Balance at 1 January ,000 3, ,597 6, ,361 Exchange rate differences - - -/ / /- 1,265 Increase in fair value - -/- 1, /- 1,601 Tax payable on increase in fair value Sale of interest to third parties Profit for the year ,072 1,867 54,939 Total recognised income for /- 1,193 -/ ,072 1,544 52,481 Dividend 2006 TenneT /- 25, /- 25,000 Dividend 2006 APX /- 1,250 -/- 1,250 Balance at 1 January ,000 2,355 -/ ,669 6, ,592 Exchange rate differences - - -/- 2, /- 1,127 -/- 3,749 Change in fair value - -/- 5, /- 5,141 Tax payable on change in fair value - 1, ,310 Sale of interest to third parties ,460 1,460 Capital increase 1,496 1,496 Profit for the year ,702 1,480 52,182 Total recognised income for /- 3,831 -/- 2,622 50,702 3,309 47,558 Dividend 2007 TenneT - - -/- 27, /- 27,000 Dividend 2007 APX - -/ /- 748 Balance at 31 December ,000 -/- 1,476 -/- 3, ,371 8, ,402 Annual Report 2008 / Financial Statements 119

122 Consolidated cash flow statement for the year 2008 ( x EUR 1,000 ) Ref Cash flows from clearing transactions Receipts: - Market coupling 381, ,774 - Energy exchange transactions 6,285,382 3,932,505 - Auctions 77, ,978 - MEP grants 403, ,777 - Maintenance of energy balance 64,608 43,516 7,212,795 4,755,550 Expenditure: - Market coupling -/- 366,675 -/- 186,065 - Energy exchange transactions -/- 6,285,382 -/- 3,932,505 - Auctions -/- 39,828 -/- 53,988 - MEP grants -/- 636,416 -/- 457,920 - Maintenance of energy balance -/- 62,921 -/- 23,469 -/- 7,391,222 -/- 4,653,947 -/- 178, ,603 Cash flows from operating activities , ,321 Interest paid -/- 37,027 -/- 31,846 Interest received 12,894 10,064 Interest received on third-party funds 15,624 16,421 Amounts received and to be settled in future tariffs 1,861 -/- 5,655 Corporation tax paid -/- 22,119 -/- 20, ,627 94,351 Cash flows from investing activities Acquisition of tangible fixed assets 1 -/- 273,717 -/- 163,615 Acquisition of intangible assets 2 -/- 5,578 -/- 2,581 Acquisition of minority participating interests 4 -/- 5 -/- 7,773 Acquisition of Endex N.V. -/- 20,178 - Acquisition of Telfort Masten B.V. and Dutch Tower B.V. -/- 23,415 -/- 2,803 Sale of Endex N.V. 1,340 - Other receivables -/ /- 322,250 -/- 176,

123 Ref Cash flows from financing activities New loans ,000 40,420 Purchase of securities not at free disposal 4 -/- 90,000 -/- 222,500 Redemption of securities not at free disposal 4 23, ,436 Redemption of private loan -/- 50,420 - Increase in bank overdrafts 21 -/- 166,048 -/- 38,080 Dividend paid -/- 27,748 -/- 26,250 Amounts paid out with regard to securities 23 -/- 18,803 -/- 38,420 -/- 179, ,606 Change to cash and cash equivalents -/- 489, ,788 Cash and cash equivalents at 1 January 1,236, ,536 Cash and cash equivalents of acquisitions 5,797 5,387 Exchange rate differences on cash and cash equivalents -/- 2,789 -/- 902 Cash and cash equivalents at 31 December 750,248 1,236,809 Annual Report 2008 / Financial Statements 121

124 1. General notes TenneT s regulated activities are undertaken through TenneT TSO B.V.; non-regulated activities are the direct responsibility of TenneT Holding B.V. 2. Nature of the business TenneT provides transmission and system services, constructs, operates and manages transmission grids, facilitates the operation of the energy market, encourages the development of a sustainable energy market and rents out telecommunications infrastructure. TenneT has been in charge of managing all grids with a voltage level of 110 kv and higher as of 1 January 2008, with the exception of grids encumbered by Cross Border Leases. This expansion of our remit is a consequence of the Independent Grid Administration Act, which was passed in TenneT TSO is responsible for the operation of electricity transmission grids within the Netherlands, as well as cross-border interconnection grids rated for voltages of 110 kv or more. TenneT TSO also facilitates market activities by maintaining the energy balance between supply and demand, authenticating electricity produced by environmentally friendly methods, and operating grant schemes to encourage production of environmentally friendly electricity. The parameters within which TenneT TSO operates are defined in legislation and regulations laid down by the Ministry of Economic Affairs and the Office of Energy Regulation. The most important of these instruments are the Electricity Act 1998 and the associated Technical Codes (Metering Code, System Code, Information Code and Grid Code), as well as the Tariff Code drawn up by the Office of Energy Regulation. These codes explain how the provisions of the Act should be complied with. As administrator of the national high-voltage grid, TenneT TSO receives funds to enable it to perform its statutory duties. These assets, which may not be used to fund the company s general activities, are managed by the Foundation for the Management of Allocated Funds from the National High-Voltage Grid (statutory name: Stichting Beheer Doelgelden Landelijk Hoogspanningsnet). As stated above, TenneT TSO additionally facilitates the operation of the (sustainable) energy market. In this capacity, the company operates a number of energy exchanges and builds and operates interconnections. Energy exchanges are market places for the reconciliation of demand for and supply of energy, Energy exchanges arrange the financial settlement of anonymously negotiated transactions. TenneT also manages part of the infrastructure required to send and receive broadcasting signals. The entire issued share capital in TenneT Holding B.V. is held by the State of the Netherlands. TenneT s head office is located in Arnhem, the Netherlands. 122

125 3. Summary of accounting principles applied 3.1 General notes The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as published by the International Accounting Standards Board (IASB) and endorsed by the European Commission. Under European law, compliance with these standards became compulsory for all listed companies in TenneT TSO is not a listed company, but has nevertheless chosen to adopt the IFRS with a view to ensuring (international) comparability. Moreover, adoption of IFRS is increasingly necessary to gain efficient access to capital markets. The financial statements have been prepared in accordance with the historical cost convention, with the exception of derivative financial instruments and financial assets possibly available for sale, which have been stated at fair value. The preparation of the financial statements requires the management to make certain estimates and assumptions. The most important of these estimates and assumptions are considered in greater detail on page 138. Standards, amendments and interpretations effective in 2008 that are not relevant to TenneT or that have no implications for TenneT s financial reporting: from 1 January 2009) Standards, amendments and interpretations that are not yet effective in 2008 and that have not been adopted early IFRIC 15 and IFRIC 16. TenneT will assess the implications of these interpretations in the course of Principles of consolidation The consolidated financial statements cover TenneT and those group companies over whose financial and operating policies TenneT is able to exercise direct or indirect control. The assets, liabilities and results of such group companies are fully consolidated. Financial data concerning joint ventures, over which joint control is exercised pursuant to an agreement with a third party, are consolidated proportionally in accordance with TenneT s accounting principles. The financial data of new group companies are consolidated with effect from the date on which TenneT obtained decisive control. From the moment of acquisition, the acquired company is stated at the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed, plus the costs directly resulting from the acquisition. Identifiable Annual Report 2008 / Financial Statements 123

126 assets acquired, liabilities incurred and contingent liabilities assumed (identifiable net assets) in a business combination are stated initially at their fair value on the acquisition date, irrespective of the extent of any minority interest. The excess of the acquisition price over the fair value of TenneT s share in the identifiable net assets acquired is recorded as goodwill. If the acquisition price is lower than the fair value of the identifiable net assets acquired, the difference is recognised directly in the profit-and-loss account. A company is deconsolidated from the date on which decisive control ceases or it is designated as a discontinued operation. The difference between the selling price, on the one hand, and the net asset value including associated goodwill and the currency translation reserve at the date of sale, on the other, is recognised in the profit-and-loss account. THE FOLLOWING LEGAL ENTITIES ARE INCLUDED IN THE CONSOLIDATION: Share of capital held TenneT TSO B.V., Arnhem (100%) (100%) (100%) (100%) (100%) (100%) TenneT Holding B.V., Arnhem APX B.V., Amsterdam (70.065%) (100%) (100%) (100%) (100%) (100%) (100%) Amsterdam NOVEC B.V., The Hague (100%) (100%) (50%) New Values B.V., Utrecht (50%) (100%) NLink International B.V., Arnhem (100%) (50%) The companies in which TenneT holds 50% of the share capital are joint ventures. 124

127 The consolidation also includes the Foundation for the Management of Allocated Funds from the National High-Voltage Grid (Stichting Beheer Doelgelden Landelijk Hoogspanningsnet), based in Arnhem. The unrealised results of transactions between the group and its participating interests have been eliminated in proportion to the group s interest in the participation. Unrealised losses have not been eliminated. Where necessary, the valuation principles applied by participating interests have been harmonised with those applied by the group. 3.3 Notes to the consolidated cash flow statement The cash flow statement has been prepared using the indirect method. The cash flow statement covers the cash flows associated with clearing transactions, as well as those associated with operating, investment and financing activities. The cash flows associated with clearing transactions derive from activities undertaken on behalf of third parties. These involve clearing transactions on physical exchanges, auctioning capacity on cross-border connections, application of the and demand. These cash flows have not been recognised in the profit-and-loss account; in a footnote to the balance sheet, as a result of undertaking these activities, other than credit and liquidity risks, which are adequately covered. The company is paid for the services in question. 3.4 Foreign currencies Each item in the financial statements is measured using the currency of the primary economic environment in which the entity concerned operates (the functional currency). The consolidated financial statements are prepared in euros, as this is is pounds sterling. The balance sheet items relating to foreign currency assets and liabilities have been converted at the exchange rate prevailing on the balance sheet date. The resulting translation differences have been recognised in the profit for the year. Foreign currency transactions completed during the reporting period have been recognised in the financial statements at the exchange rate at which they were effected. The assets and liabilities of consolidated non-dutch group companies have been converted at the exchange rate applicable on the balance sheet date. The resulting translation differences have been recognised directly in equity. The results of consolidated non-dutch group companies have been recognised at the average exchange rate for the financial year in question. The cumulative exchange rate differences resulting from the partial disposal of investments in non-dutch participating interests have been recognised in the profit-and-loss account. Goodwill acquired through the acquisition of a non-dutch entity continues to be stated in the relevant non-dutch currency and is converted at the exchange rate applicable on the balance sheet date. Annual Report 2008 / Financial Statements 125

128 3.5 Accounting principles applied to the valuation of assets and liabilities Tangible fixed assets The tangible fixed assets consist of high-voltage substations and connections and other assets; many of the assets in question are components of the transmission grids operated by TenneT TSO. TenneT TSO does not own the land on which its high-voltage pylons are located, but pays the landowners for the right to use the sites. The payments are charged to the result each year. Where the valuation of tangible fixed assets within the national high-voltage grid is concerned, use has been made of the facility provided for in IFRS 1, which allows tangible fixed assets to be stated at their fair value on the transition date voltage grid components is derived from their regulated asset value. The latter value is set by the Office of Energy Regulation and partly determines the permissible revenue. The other tangible fixed assets have been stated at acquisition price or manufacturing cost, including interest charges incurred during the construction phase and future decommissioning costs, less linear depreciation over the estimated useful life of the asset. The useful life and current residual value of tangible fixed assets are reviewed annually and adjusted if necessary. Where applicable, the acquisition price or manufacturing cost of an asset does not exceed the investment budget specified by the Office of Energy Regulation. The depreciation principles applied have been defined by reference to the regulation system. Modification and maintenance costs incurred after the initial recognition of an asset in the financial statements are either included in the book value of the asset, or recognised as a separate asset. Other repair and maintenance costs are included in the profit-and-loss account for the period in which they are incurred. Investments made at the request and expense of third parties are capitalised after the deduction of third-party contributions. Any profit on such projects is attributed to the appropriate financial year(s) in proportion to the progress of the project. Depreciation is calculated on a linear basis, assuming the useful life of the various asset types to be as follows (in years): Earthing switches, isolating switches, power cut-out switches 35 Security and control equipment 10 Power transformers 35 Capacitor banks 35 Telecommunications equipment 10 Pylons / lines 20/40 Cables (underground)

129 Office buildings 40 Office ICT equipment 3-5 Process automation facilities 3-5 Other company assets 5-10 Land (and its preparation for building) is not subject to depreciation. Investments funded from auction revenues With the approval of the Office of Energy Regulation, certain investments in tangible fixed assets are funded by revenues from the auctioning of cross-border interconnection capacity. Auction revenues applied for this purpose are recorded separately as investment contributions and therefore not deducted from the book values of the relevant tangible fixed assets. Intangible asset Goodwill represents the excess of the costs of an acquisition over the fair value of the group s share of the net identifiable assets of the acquired subsidiary/associate. Computer software is capitalised at acquisition price or manufacturing cost, less linear depreciation. The depreciation period is equal to the estimated useful life (three to five years). The manufacturing cost is calculated by adding a mark-up for indirect costs to the direct labour costs. Research and maintenance expenditure associated with computer software is recognised in the profit-and-loss account. The other intangible assets consist of an acquired trade name, a membership database and contracts and relationships with participants; these have been stated at acquisition price less linear depreciation. The amortisation period is equal to the estimated useful life and amounts to 5, 11 or 14.5 years. Research costs are charged directly against the operating result. Development costs relate to the costs of a new technological development. Such costs are recorded as an intangible asset if the project in question is likely to be successful, in view of its commercial and technical feasibility, and if the costs can be reliably ascertained. Financial assets and liabilities Financiële activa en verplichtingen worden als volgt gecategoriseerd: effective interest method. incorporated into the profit-and-loss account. Securities and deposits with a remaining term of more than one year have been included under long-term financial assets. Securities and deposits with an original term of more than three months and a remaining term of less than twelve months Annual Report 2008 / Financial Statements 127

130 from the balance sheet date have been classified as short-term financial assets. Deposits with an original term of less than three months have been regarded as cash and cash equivalents. Impairment of asset Assets that have an indefinite useful life are not subject to depreciation and/or amortisation and are tested annually for impairment. An annual review is performed to determine whether acquired goodwill has been subject to any impairment; the value of goodwill is stated at cost less cumulative impairment. Impairment losses on goodwill are not reversed. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. An impairment is deemed to have occurred if the asset s book value is greater than its realisable value. Any impairment is recognised in the profit-and-loss account. For the purposes of assessing impairment, assets are grouped at the lowest level which is monitored by management and for which there are separately identifiable cash flows. Deferred tax assets and liabilities Deferred tax assets and liabilities that are relevant in the context of forward loss compensation and temporary differences between the fiscal and carrying values of assets and liabilities are calculated on the basis of the prevailing rates of corporation tax applicable at the time of settlement. Deferred tax assets are accounted for insofar as it is probable that future tax benefits will be available to make use of the temporary differences. Deferred tax assets and liabilities are presented on a net basis insofar as they are associated with the same corporation tax entity and are likely to be settled in the same period. Deferred corporation tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Non-current assets available for sale Non-current assets available for sale are defined as non-current assets (other than financial instruments or property investments) likely to be sold within a year. Non-current assets available for sale have been stated at the lower of the asset s book value and fair value less costs to sell. Inventory estimated sales return). 128

131 On an incidental basis, TenneT undertakes projects on behalf of third parties. Such projects are valued at construction cost, i.e. the direct costs of material and labour, plus an allowance for indirect costs, directly attributable subcontracting costs, other external costs and interest incurred during the construction phase. If such projects yield demonstrable net earnings, any profit is assigned to the appropriate financial year(s) in proportion to the progress of the project. Provisions for any anticipated losses are recognised in the period during which it becomes apparent that a project is likely to result in a loss; Accounts receivable and other receivable Accounts receivable and other receivables are initially stated at fair value and subsequently at amortised cost, using the effective interest method, less any bad-debt provisions that may be considered necessary. Cash and cash equivalents Cash and cash equivalents are bank account balances and other short-term high-liquidity investments with an original term of up to three months. Negative bank account balances are presented as bank overdrafts. Loans Loans are initially stated at fair value minus the associated transaction costs. Subsequently, they are stated at amortised cost, with the difference between the initial valuation and the redemption value included in the profit-and-loss account over the term of the loan. Calculations are made using the effective interest method. Redemption obligations with a term of less than one year are presented as current liabilities. Investment contributions contributions are made out of the auction proceeds. An annual amount equal to the depreciation charges, plus a portion of Amounts received in advance Amounts received in advance relate to amounts to be settled in future tariffs, or receipts that are not at free disposal. The Provisions Provisions are formed when the company has a present legal or constructive obligation as a result of past events, when it is more likely than not that an outflow of resources will be required to settle the obligation, and when the amount can be reliably estimated. Where non-current liabilities are concerned, corresponding provisions are based on present value. The treated as an interest charge. The provision for environmental management and decommissioning serves to cover the costs associated with the disposal Annual Report 2008 / Financial Statements 129

132 Provisions have been created to cover the cost of special personnel benefit schemes with liabilities that existed prior to the balance sheet date. The schemes in question are redundancy schemes, long-service bonus schemes and health insurance premium schemes. The amounts set aside to cover these liabilities have been calculated in accordance with actuarial principles. TenneT operates a number of pension and pension-related schemes for the benefit of current and former personnel. The pensions of almost all personnel are administered by the ABP Pension Fund in the form of a defined-benefit pension scheme, under which the amounts payable to pensioners are based on length of service and average salary during service. The pension scheme administered by ABP is a multi-employer scheme. IAS 19 requires the reporting of certain information regarding defined-benefit pension schemes in the operators financial statements. In particular, the balance of the scheme s assets and defined-benefit obligations has to be included on the balance sheet. However, ABP has indicated that it is unable to provide company-specific information of the kind required by IAS 19 for defined-benefit pension schemes. In addition, there is no obligation to make additional payments, nor a right to make withdrawals from the pension fund, other than through adjustments to the annual pension contributions. Hence, the scheme has been treated as if it were a definedcontribution scheme, and the pension contributions payable in respect of the financial year under review are charged against the result as pension costs. As of 1 January 2008, TenneT TSO has been in charge (by operation of law) of managing all grids with a voltage level of 110 kv and higher, with the exception of grids encumbered by Cross Border Leases. This expansion of our remit is a consequence of the adoption of the Independent Grid Administration Act. Under the Act, TenneT has a legally enforceable obligation to execute the management of all grids with a voltage level of 110 kv and higher. Under the revenue regulation system defined by the Office of Energy Regulation for the fourth regulatory period, TenneT is unable to fulfil this obligation in such a manner that its costs are covered. TenneT has created a provision for this purpose. Derivative financial instruments Derivative financial instruments are stated at fair value. If effective cash flow hedging is employed, any changes in value are recorded in equity using hedge accounting methods. Effective hedging means that the derivative financial instrument fully compensates any changes in the fair values or cash flows of the hedged position. In addition, the following information must be documented at the inception of a transaction: the relationship between the hedging instrument and the hedged position, the risk management objectives and the strategy for undertaking various hedging transactions. This documentation is prepared at the moment a derivative financial contract is entered into and is subsequently kept up-to-date. If, on the basis of the above-mentioned criteria, it is not permitted to recognise changes in the value of derivative financial instruments in equity, the change in value is recognised in the profit-and-loss account as finance income or expenses. 3.6 Accounting principles for determining the profit General Profit is determined as the difference between the fair value of consideration received for services rendered and the costs incurred over the year. 130

133 Revenue The revenue for connection services, transmission services and system services is based largely on the tariffs set by the Office of Energy Regulation for the year in question, in accordance with the structure specified in the Tariff Code and any supplementary decisions by the Office of Energy Regulation. The revenue from maintenance of the energy balance between supply and demand is equal to the cost of obtaining the energy and capacity required for this purpose. This is an inherent feature of the system of programme responsibility. Under the System Code, parties with programme responsibility are required to pay the administrator of the national high-voltage grid for any imbalances arising out of departures from their declared programmes. The System Code requires the administrator of the national high-voltage grid to set each year s system services tariff in a way that reflects the balance of the imbalance settlement charges and the costs associated with obtaining energy and capacity in the previous year. Revenue from energy exchange activities includes membership subscriptions, transaction fees and income from services rendered by the energy exchanges. Revenue from market facilitation services consists mainly of compensation to cover the costs of providing such services. Interest income consists mainly of interest received on securities and short-term deposits made in the context of energy exchange activities. Other revenues The other revenues consist of the amortisation of investment contributions received in advance. Operating expenses The energy and capacity expenses arise out of the purchase of energy and capacity for the provision of transmission and system services and ensuring the energy balance between supply and demand. The transmission grid and system expenses include both the cost of operating the transmission grids, and the cost of maintaining systems to support the primary business processes. The costs of capitalisations associated with the construction of tangible fixed assets are deducted from the personnel expenses. Finance income and expenses The finance expenses consist of interest on loans, current account facilities and other debt positions. The finance income associated with resources managed by the Foundation for the Management of Allocated Funds from the National High- Voltage Grid and with MEP grant payments are added directly to the balances of the assets in question. Leases Leases that are the economic property of the lessor are qualified as operational leases. Payments made under such lease contracts are charged to the profit-and-loss account on a linear basis over the term of the lease. Annual Report 2008 / Financial Statements 131

134 Taxes Taxes in respect of the profit have been calculated on the basis of the profit reported in these financial statements and the applicable rules and rates of taxation. Account has been taken of fiscally non-deductible expenses and possible forward loss compensation. 4. Financial risk management TenneT s policy is aimed at effective cash flow management and protection of the group equity against financial risks. 4.1 Risks associated with clearing transactions The operation of energy exchanges, the auctioning of cross-border interconnection capacity (activity partially transferred in 2009 to CASC-CWE, the Capacity Allocation Service Company for the Central Western European Electricity Market), the implementation of the MEP grant scheme (activity transferred to SenterNovem as of 1 January 2009), and maintenance of the energy balance between supply and demand all require TenneT to handle large cash flows. The company s policy is designed to minimise the risks associated with the clearing transactions of these cash flows. Energy exchanges The energy exchanges enter into contracts with participants, under which trading is permitted only insofar as the securities lodged by a trader are considered sufficient. Securities may include bank guarantees, cash and cash equivalents, and guarantees issued by parent companies. Once a transaction has been made, settlement is effected against the trader s securities, or receivables and payables are created (in the case of APX Commodities Ltd. only). Under the latter system, the amounts receivable from and payable to a participant are first set off against one another, after which the residual balances are collected or paid. Securities are also provided to cover the receivables involved. Endex European Energy Derivatives Exchange N.V. has outsourced its clearing activities to ECC A.G. in order to avoid incurring a clearing risks on the contracts concerned. Auctioning of cross-border interconnection capacity TSO Auction B.V. enters into contracts with participants, under which capacity is made available on the annual, monthly and daily auctions only insofar as sufficient securities have been lodged. The securities concerned may consist of collaterals and bank guarantees. Once a transaction has been made, settlement is effected against the trader s collaterals. Market coupling As of November 2006, the daily capacity available on the interconnections between the Netherlands and Belgium is traded directly on the energy exchanges. While the capacity on the cross-border interconnections is auctioned off, TenneT supplies the required energy by means of trading on power exchanges in the Netherlands and Belgium. Amounts receivable from and payable to market parties are set off against one another by the exchanges, where securities are also provided. Settlement 132

135 with the Belgian TSO Elia takes place two months after the transaction concerned, resulting in temporary risk exposure. TenneT deems the risk involved to be low. MEP grants The payment of MEP grants is financed by the Ministry of Economic Affairs, which underwrites any shortfall. Maintenance of the energy balance between supply and demand TenneT TSO is responsible for maintaining the energy balance between supply and demand. The associated costs are covered by income from parties with programme responsibility, which are billed for any imbalances attributable to them. Any surplus is deducted from the tariffs for system services. Securities in the form of bank guarantees and collaterals are held as protection against default by the parties with programme responsibility. In connection with the clearing transactions, TenneT s balance sheet includes funds that are not at the group s free disposal. The breakdown of these funds by origin is as follows: ( x EUR 1,000 ) Energy exchanges 707, ,889 Auctioning of cross-border interconnection capacity 160, ,061 Market coupling 76,762 71,887 MEP grants 18, ,537 Maintenance of energy balance between supply and demand 131,076 40,455 All funds not at free disposal 1,094,504 1,432,829 Other assets 1,791,982 1,480,121 Balance sheet total 2,886,486 2,912, Treasury risk It is TenneT s policy to minimise the treasury risks that are inherent to its operations. TenneT s Corporate Treasury department is responsible for managing the company s financial risks. This does not apply to APX, which conducts its own risk management. Annual Report 2008 / Financial Statements 133

136 Funds that may only be released with the approval of the Netherlands Competition Authority, the Office of Energy Regulation and market parties are kept separate from funds resulting from operational activities. The former funds, which are not at free disposal, are managed by the Foundation for the Management of Allocated Funds from the National High- Voltage Grid. TenneT s Treasury Regulations and the Management and Investment Regulations for Allocated Funds, which have been approved by the Supervisory Board, prescribe a framework for the activities of the Corporate Treasury department. Every quarter, the Corporate Treasury department reports to the Supervisory Board on the control of treasury risks. Use of all normal financial instruments is permitted, provided these are used solely to cover positions. The use of financial instruments without an underlying value is expressly forbidden. The main treasury risks are market risks, credit risks, liquidity risks and refinancing risks Market risk The main market risks to which TenneT is exposed are interest risks, foreign currency risks and commodity price risks. Interest risk Interest risk is defined as the risk that the interest paid on loan capital differs from the interest received on such capital. Under the prevailing regulatory system, TenneT receives regulated interest on loan capital. The relevant rate has been set at 4.8% for the period. In addition, TenneT has taken out several loans at floating rates of interest. In order to minimise the associated interest risk, interest rate swaps (IRSs) have been arranged, under which the floating rates are converted into fixed rates. These interest rate swaps expire on the redemption dates of the underlying loans. TenneT uses scenarios to analyse its interest risk exposure. TenneT s interest risk exposure is linear in nature. Based on TenneT s net financing position at 31 December 2008, an increase of 200 base points in the market interest rate would result in an increase of EUR 3.4 million in the interest expenses. TenneT has covered a substantial portion of this interest risk by means of interest rate swaps. If the interest rate increased by 200 base points, the value of these interest rate swaps would increase by EUR 1.3 million. Foreign currency risk policy to cover foreign currency transaction risks as far as possible. In principle, the exchange rate risks associated with participating interests in the equity of subsidiaries are not covered. These risks are deemed to be inherent in doing business TenneT is exposed to a transaction risk in pounds sterling in connection with the BritNed project. The positions in pounds sterling resulting from the investment cash flows are covered by means of forward exchange contracts concluded with financial parties. 134

137 If TenneT had not covered its positions in pounds sterling and the EUR/GBP exchange rate were to rise or fall by 20%, then the project costs would be EUR 2.3 million lower or higher, respectively. If the forward exchange rate were to rise by 20%, the value of the forward contracts would increase by EUR 2.3 million. Commodity price risk TenneT is exposed to a certain level of risk due to fluctuations in the prices of commodities like copper, lead, aluminium and can be estimated with sufficient certainty Credit risk TenneT has established a policy for the management of its credit risks. Credit risks arise from TenneT s transactions and positions with financial institutions, and from its accounts receivable position. On the balance sheet date, the maximum credit risk amounted to EUR 1.3 billion (2007: EUR 1.6 billion). Concentration limits apply when funds are placed in deposit or when financial derivatives are arranged. In addition, the counterparty must have an AA- credit rating or higher. The terms of the deposits are geared to the expected time of deployment of the funds. On the balance sheet date, TenneT TSO had deposited EUR 64 million with counterparties (2007: EUR nil). On the balance sheet date, the Foundation for the Management of Allocated Funds from the National High-Voltage Grid had deposited EUR 167 million with counterparties (2007: EUR 44 million) Liquidity risk The liquidity risk is defined as the risk that TenneT cannot meet its short-term financial obligations. In order to minimise its exposure to liquidity risks, TenneT has credit facilities at its disposal to accommodate any fluctuations. The scope of these credit facilities is such that any adverse financial developments and events can be accommodated and continuation of day-to-day operations is ensured. On the balance sheet date, TenneT (i.e. TenneT TSO and TenneT Holding) had a total of EUR 512 million in cash and cash equivalents and unused credit facilities at its free disposal. The maturity schedule below presents TenneT s financial obligations at 31 December 2008 and 31 December 2007 on a non-discounted basis, using five maturity intervals. From the maturity schedule for 2008, it can be concluded that TenneT is exposed to a limited liquidity risk: 74.6% (2007: 63%) of the balance that expires within 1 month is offset by financial assets. In all likelihood, redemption payments on the loan of EUR 200 million will probably be covered by credit facilities currently being negotiated by TenneT. Annual Report 2008 / Financial Statements 135

138 Maturity schedule 31 December 2008 ( x EUR 1,000 ) < 1 month 1-3 months 3-12 months 1-5 years > 5 years Total Funds not at free disposal Accounts payable in connection with energy exchange transactions* 133,830 89, ,980 Liabilities relating to collateral securities* 532, , ,495 89, ,645 Funds at free disposal Loans 10, ,000 55, , ,000 Interest payable on loans ,913 35,383 37,317 85,009 Bank overdrafts 55,929 44, ,629 Interest payable on bank overdrafts Accounts payable and other liabilities 159, ,940 Derivative financial instruments - Interest rate swaps -/ / , ,642 - Forward exchange contracts 773 2, ,494 - Energy exchange transactions 1, , ,120 47, ,024 91, , ,217 Total 894, , ,024 91, ,676 1,540,

139 Maturity schedule 31 December 2007 ( x EUR 1,000 ) < 1 month 1-3 months 3-12 months 1-5 years > 5 years Total Funds not at free disposal Accounts payable in connection with 69,566 74, ,208 energy exchange transactions* Liabilities relating to collateral securities* 551, , ,034 74, ,676 Funds at free disposal Loans , ,000 70, ,420 Interest payable on loans 1,916 1,917 11,240 18,110 14,629 47,812 Bank overdrafts 266, ,677 Interest payable on bank overdrafts Accounts payable and other liabilities 131, ,280 Derivative financial instruments Interest rate swaps -/- 1,927 -/- 1,993 1,427 2, Energy exchange transactions ,916 -/ , ,897 85, ,653 Total 1,020,150 74,566 62, ,897 85,049 1,473, Refinancing risk Refinancing risk is defined as the risk that funds cannot be obtained under reasonable conditions on the money or capital market when existing financing arrangements expire. The global credit crisis has focused renewed attention on this risk. TenneT will have a substantial refinancing requirement of EUR 690 million in 2009 (existing bank facilities in the amount of EUR 480 million and several loans totalling EUR 210 million are set to expire in 2009). TenneT intends to manage this risk by starting negotiations with providers of funds well before the due date of the existing financing arrangements, and by diversifying its sources of funding in order to reduce the company s dependence on the banking sector. Annual Report 2008 / Financial Statements 137

140 5. Principal estimates and assumptions underlying the financial statements All estimates and forecasts with a bearing on the preparation of the financial statements are subject to continual evaluation. They are based on experience and prognoses regarding future events, which are reasonable under the relevant circumstances. The group makes estimates and assumptions regarding future developments. By definition, estimates rarely prove to coincide precisely with actual outcomes. The estimates and assumptions that could lead to significant adjustments to the book values of assets and liabilities in the coming financial year are further described below. Useful life of tangible fixed assets The valuation of tangible fixed assets is based on depreciation periods derived from studies of the actual useful lives of components in high-voltage grids in the Netherlands and elsewhere. Estimated impairment of goodwill and tangible fixed assets Each year, TenneT considers whether there has been any impairment of goodwill. The recoverable values of cash-generating units have been determined by reference to the calculated value in use. These calculations, which entail the use of estimates, are based on long-term plans that reflect the market conditions anticipated by the management. Provision for environmental management and decommissioning of the provision is based on management forecasts regarding the cost and timing of decommissioning activities. At the close of 2008, the provision amounted to EUR 84.2 million. Decommissioning ten years sooner than anticipated, for instance, would increase the overall costs by approximately EUR 5.3 million. Loss-incurring activities As of 1 January 2008, TenneT TSO has been in charge (by operation of law) of managing all grids with a voltage level of 110 kv and higher, with the exception of grids encumbered by Cross Border Leases. This expansion of our remit is a consequence of the adoption of the Independent Grid Administration Act. Under the Act, TenneT has a legally enforceable obligation to execute the management of all grids with a voltage level of 110 kv and higher. Under the revenue regulation system defined by the Office of Energy Regulation for the fourth regulatory period, TenneT is unable to fulfil this obligation in such a manner that its costs are covered. A provision has been created to cover the unavoidable losses resulting from this legally enforceable obligation in the period, insofar as current estimates indicate that these losses cannot be compensated with future profits resulting from these activities over the period (the period during which TenneT has been designated as the national grid administrator). The total amount of the provision is EUR 38.2 million. Pensions The defined-benefit pension scheme administered by ABP Pension Fund has been treated as if it were a defined-contribution scheme. Treating the scheme as a defined-benefit scheme may have major implications for the company s profit and equity. 138

141 Notes to the consolidated balance sheet at 31 december 2008 ( x EUR 1,000 ) 1. Tangible fixed assets High-voltage substations include transformers. High-voltage connections consist of overhead and underground connections, insofar as they are owned by TenneT. TenneT does not own the land around its high-voltage pylons and cables. The other tangible fixed assets consist of office buildings, office ICT equipment and other company assets. The book values of the tangible fixed assets in use on the balance sheet date can be specified as follows: High-voltage substations High-voltage connections Other assets Tangible fixed assets under construction Total At 1 January 2007: Cost 757, ,977 40, ,030 1,651,368 Accumulated depreciation and impairment 266, ,128 16, ,979 Net book value 490, ,849 23, ,030 1,148,389 Acquisitions , ,615 Transfers 5,231 6,335 3,255 -/- 14,821 - Disposals at book value -/ /- 19 Initial consolidation of NOVEC B.V ,617-8,617 Exchange rate differences - - -/ /- 2 Depreciation -/- 27,006 -/- 27,745 -/- 2, /- 57,599 Movement in /- 21,794 -/- 21,410 9, , ,612 At 31 December 2007: Cost 749, ,015 51, ,824 1,807,730 Accumulated depreciation and impairment 280, ,576 19, ,729 Book value at 31 December , ,439 32, ,824 1,263,001 Annual Report 2008 / Financial Statements 139

142 High-voltage substations High-voltage connections Other assets Tangible fixed assets under construction Total At 1 January 2008: Cost 749, ,015 51, ,824 1,807,730 Accumulated depreciation and impairment 280, ,576 19, ,729 Net book value 469, ,439 32, ,824 1,263,001 Acquisitions , ,813 Initial recognition of Telfort Masten B.V. and Dutch Tower B.V ,518-8,518 Transfers 139, ,338 20,841 -/- 404,266 - Disposals at book value -/ / /- 744 Exchange rate differences Impairments - -/- 10, /- 10,000 Depreciation -/- 30,737 -/- 30,390 -/- 3, /- 64,602 Movement in , ,948 25,894 -/- 130, ,999 At 31 December 2008: Cost 887, ,353 81, ,371 2,089,329 Accumulated depreciation and impairment 310, ,966 22, ,331 Book value at 31 December , ,387 58, ,469 1,469,998 The Office of Energy Regulation has attached conditions to the reimbursement of the costs of the NorNed cable. An initial settlement was effected in This settlement included a penalty in the amount of EUR 10 million payable by TenneT TSO. This penalty has been recognised in the accounts as a depreciation of the NorNed cable. 140

143 The book value of the tangible fixed assets can be attributed to the associated activities as follows: ( x EUR 1,000 ) International transmission grid (450 kv) 298,205 - National transmission grid (380 kv and 220 kv) 635, ,242 Regional transmission grid (150 kv) 227, ,935 Other 81,378 15,000 Net book value at 31 December of assets in use 1,242, ,177 Tangible fixed assets under construction 227, ,824 Balance at 31 December 1,469,998 1,263,001 At 31 December 2008, the inflation-adjusted regulated book value of the national high-voltage grid ( kv), including grid components owned by third parties, amounted to EUR 1,175 million (2007: EUR 860 million). The nominal value of this asset amounted to EUR 1,063 million at 31 December 2008 (2007: EUR 752 million). The fiscal book value of the tangible fixed assets at 31 December 2008, excluding tangible fixed assets under construction, amounted to EUR 1,365 million. Annual Report 2008 / Financial Statements 141

144 Tangible fixed assets under construction The tangible fixed assets under construction can be broken down into the associated projects as follows: ( x EUR 1,000 ) Randstad 380 kv project 59,386 9,029 Cable link to Norway (NorNed) - 299,953 75,550 11,537 Breukelen substation 6,215 1,162 Lelystad substation 10, Simonshaven substation 13,285 3,658 Reactive power compensation Eindhoven/ Dodewaard 9,797 - Other assets 53,122 32,061 Total 227, ,824 In 2008, construction interest amounting to EUR 11.2 million (2007: EUR 10.0 million) has been capitalised. The interest rate was 4.6% (2007: 4.0%). 142

145 2. Intangible assets The book value of the intangible assets can be specified as follows: Goodwill Software Other intangible assets Total At 1 January 2007: Cost 23,962 30,506 1,892 56,360 Accumulated amortisation and impairment 16,031 23,960 1,147 41,138 Net book value 7,931 6, ,222 Acquisitions - 2,581-2,581 Exchange rate differences -/ /- 43 -/- 250 Amortisation - -/- 3,522 -/ /- 3,815 Movement in / / / /- 1,484 At 31 December 2007: Cost 23,809 32,769 1,445 58,023 Accumulated amortisation and impairment 16,085 27,164 1,036 44,285 Book value at 31 December ,724 5, ,738 Annual Report 2008 / Financial Statements 143

146 Goodwill Software Other intangible assets Total At 1 January 2008: Cost 23,809 32,769 1,445 58,023 Accumulated amortisation and impairment 16,085 27,164 1,036 44,285 Net book value 7,724 5, ,738 Acquisitions 14,043 5,777 20,639 40,459 Sale of participating interest -/- 1, /- 1,051 Impairments -/- 1, /- 1,678 Amortisation - -/- 4,422 -/ /- 4,934 Movement in ,314 1,355 20,127 32,796 At 31 December 2008: Cost 36,801 38,546 22,084 97,431 Accumulated amortisation and impairment 17,763 31,586 1,548 50,897 Book value at 31 December ,038 6,960 20,536 46,

147 Impairment test The goodwill can be divided between the cash-generating units as follows: ( x EUR 1,000 ) APX B.V. 4,465 4,465 APX Commodities Ltd. 1,703 2,208 Endex European Energy Derivatives Exchange N.V. 4,171 - NOVEC B.V. (in connection with Telfort Masten B.V. and Dutch Tower Masten B.V.) 8,458 - European Energy Auction B.V ,051 Total goodwill 19,038 7,724 arrangements with participants at Endex N.V., APX B.V. (EUR 10.9 million) and Endex European Energy Derivatives Exchange N.V., and the membership portfolio of APX B.V. (EUR 1.4 million). The recoverable amounts of the cash-generating units have been determined using discounted cash flow calculations of the value in use. The calculations are based on long-term (five-year) cash flow projections based on financial forecasts approved by the management. Cash flows for the period more than five years ahead have been extrapolated on the assumption that there will be no further growth. The figures have been discounted to net present value, using discounting rates (ranging from 7.3% to 10%) that reflect the risks associated with the activities. Annual Report 2008 / Financial Statements 145

148 3. Participating interests This item relates to TenneT s participating interest in Holding des Gestionnaires de Réseaux de Transport d Electricité S.A.S. (HGRT). The movement in this item was as follows: ( x EUR 1,000 ) From minority participating interests 11,301 - Movement in value Balance at 31 December 11,779 - Holding des Gestionnaires de Réseaux de Transport d Electricité S.A.S. (HGRT) holds shares in Powernext S.A., a French electricity exchange. In 2008, HGRT increased its stake in Powernext to 52.2%. TenneT TSO has a 24.5% holding in HGRT and thus indirectly a 12.8% holding in Powernext S.A. The value of TenneT s stake in HGRT has been calculated in accordance with the equity method. In 2007, HGRT was stated at fair value and included in the accounts as a minority participating interest. 146

149 4. Financial assets The value of the financial assets can be broken down as follows: ( x EUR 1,000 ) Financial assets not at free disposal 110,500 44,000 Minority participating interests 1,985 14,221 Total 112,485 58,221 Long-term 31,485 43,721 Short-term 81,000 14,500 Total 112,485 58,221 Financial assets not at free disposal Financial assets not at free disposal consist of Dutch government bonds and deposits of the Foundation for the Management of Allocated Funds from the National High-Voltage Grid. Annual Report 2008 / Financial Statements 147

150 The movement in the value of the securities and deposits can be broken down as follows: ( x EUR 1,000 ) Balance at 1 January 44, ,936 Acquisitions 90, ,500 Redemptions -/- 23, ,436 Balance at 31 December 110,500 44,000 Long-term 29,500 29,500 Short-term 81,000 14,500 Total 110,500 44,000 The fair value of the securities and deposits amounted to EUR million (2007: EUR 44.6 million), with an average effective interest rate of 4.8% (2007: 4.5%). The fair value of the non-freely negotiable financial instruments (i.e. the deposits) has been calculated using discounted cash flow valuation techniques, on the basis of the market conditions prevailing on the balance sheet date (including interest incurred). Financial assets not at free disposal (i.e. securities and deposits) can be attributed as follows to the various activities: ( x EUR 1,000 ) Auctioning of cross-border capacity by TSO Auction B.V. 85,500 29,500 Maintenance of the energy balance between supply and demand 25,000 14,500 Balance at 31 December 110,500 44,

151 The item minority participating interests relates to: ( x EUR 1,000 ) HGRT S.A.S. - 11,301 EDSN B.V Belpex S.A. 1,800 1,400 Endex N.V. - 1,340 CASC-CWE S.A. 5-1,985 14,221 Energie Data Services Nederland (EDSN) B.V. is an innovative provider of high-quality services for the design, recording and improvement of supra-organisational administrative processes and the required message traffic for the liberalised energy market in the Netherlands. TenneT holds 25.0% of the shares in EDSN. CASC-CWE S.A. (Capacity Allocation Service Company for the Central Western European Electricity Market). This joint enterprise for cross-border services operates as an integrated auction house and was set up to implement and organise long-term (annual and monthly) auctions of transmission capacity on the borders between the five countries in the region. Belpex S.A., Belgium s electricity exchange, was established in TenneT holds 17.5% of the shares (10% directly, 7.5% indirectly through APX B.V. and HGRT S.A.S.). Endex European Energy Derivatives Exchange N.V. is a long-term electricity contract exchange covering the Netherlands and Belgium. TenneT held 9.89% of the shares in Endex European Energy Derivatives Exchange N.V. In 2008, TenneT sold its shares in Endex N.V. to APX B.V., which acquired 100% of the shares. The minority participating interests have been stated at fair value, with the movement in value recognised in the profit-andloss account. The fair value has been derived from discounted cash flow calculations. The cash flow projections have been derived from long-term plans and the figures have been discounted to net present value, using discounting rates that reflect the risks associated with the activities. Annual Report 2008 / Financial Statements 149

152 The movement in the value of the minority participating interests can be broken down as follows: ( x EUR 1,000 ) Fair value at 1 January 14,221 2,323 To participating interests -/- 11,301 - Investment in EDSN B.V Capital deposit HGRT S.A.S. - 7,595 Movement in value of HGRT S.A.S. - 3,323 Movement in value of Belpex S.A Investment in CASC-CWE S.A. 5 - Sale of Endex N.V. -/- 1,340 - Balance at 31 December 1,985 14, Deferred tax assets The deferred tax assets relate to temporary differences between the fiscal and carrying values of the non-current assets, financial instruments and provisions, and to losses which may be used for forward loss compensation. Deferred tax assets and liabilities are presented on a net basis insofar as legally enforceable entitlements exist and the taxes are imposed by the same authority. 150

153 The movement in the deferred tax assets can be broken down as follows: Non-current assets Forward loss compensation Financial instruments Provisions Total Balance at 1 January ,347 2, ,340 47,301 Initial valuation of NOVEC B.V ,126 1,126 Recognised in the profit-and-loss account 2,647 -/ / ,433 Recognised in equity Exchange rate differences - -/ /- 151 Balance at 31 December ,994 1, ,466 50,117 From acute position Recognised in the profit-and-loss account 1, ,524 4,665 Balance from Endex N.V Recognised in equity - - 1,311-1,311 Exchange rate differences - -/ /- 414 Balance at 31 December ,444 1,500 1,905 20,990 55,839 The total of the deferred tax assets relates mainly to the tangible fixed assets within the 380 kv grid and the 150 kv grid. Realisation of the deferred tax assets will take place principally during the remaining useful lives of the tangible fixed assets (approximately twenty years). This means that the deferred tax assets are predominantly long-term in character. The group has restricted fiscal losses available for forward loss compensation totalling EUR 3.6 million, for which no deferred tax asset has been created, because it is not yet certain that such an asset would be realised. Of the deferred tax assets arising from fiscal losses available for loss compensation, EUR nil relates to losses which arose in Annual Report 2008 / Financial Statements 151

154 6. Other receivables The other receivables relate to the redemption of long-term ground leases and rent for fibre-optic cables (paid 25 years in advance). The movement in the value of these receivables can be broken down as follows: ( x EUR 1,000 ) Balance at 1 January 12,012 12,315 Redemption payments Charged against the profit-and-loss account Total 12,406 12,012 Long-term 12,075 11,709 Short-term Balance at 31 December 12,406 12,012 Each year, part of the value of the other receivables, calculated on a linear basis, is charged against the profit-and-loss account; the breakdown is as follows: ( x EUR 1,000 ) < 1 year 1-5 years > 5 years Total At 31 December ,324 10,751 12,406 At 31 December ,212 10,497 12,

155 7. Inventory The inventory consists of warehouse stocks. The value of this item at year-end 2008 was EUR 1.2 million. The warehouse stocks are held mainly in connection with maintenance of TenneT s own grid and the grids of third parties. 8. Accounts receivable and other receivables The accounts receivable and other receivables can be broken down as follows: ( x EUR 1,000 ) Accounts receivable 36,848 14,317 Government subsidies receivable 18,810 - Amounts to be invoiced 11,918 6,114 Interest receivable 2,599 2,648 Taxes 17,395 6,470 Amounts receivable from TSOs 4,706 7,568 Amounts receivable in connection with market coupling 76,762 71,887 Other 24,803 14,560 Total 193, ,564 The increase in the value of the accounts receivable position relates mainly to one specific debtor. TenneT expects that this debtor will pay the outstanding amount in In view of the nature of the remaining accounts receivable, there is no significant credit risk. The fair value of the receivables equals the carrying value. All amounts are short-term. A provision totalling EUR 0.2 million (2007: EUR 0.2 million) has been created. The ageing analysis of the accounts receivable in 2008 and 2007 and the movement in the provision for bad debts are presented below. Annual Report 2008 / Financial Statements 153

156 Before due date 0-30 days late days late > 60 days late Provision Total Balance at 31 December ,827 2,652 2,040 12, ,643 Balance at 31 December ,824 2, , ,317 Based on past experience, TenneT expects that those invoices that have exceeded their due date will eventually be paid. At balance sheet date, none of the other accounts receivable had exceeded their due date. The provision is calculated in accordance with the static method, based on the estimated probability of collection of the bad debts. The movement in the provision for bad debts was as follows: ( x EUR 1,000 ) Balance at 1 January Movement 64 -/- 139 Balance at 31 December Accounts receivable in connection with energy exchange transactions The accounts receivable in connection with energy exchange transactions (2008: EUR million, 2007: EUR million) relate to transactions effected by APX Commodities Ltd. Such transactions involve the contract-based sale and purchase of energy and give rise to corresponding receivables and liabilities, which are cleared approximately one month after the month in which the transaction took place. The receivables are underpinned by a system of securities comprising bank guarantees and collaterals. The credit risk is fairly concentrated, since 59% of the receivables are owed by just five traders (2007: 36%). All the receivables were settled in February

157 10. Derivative financial instruments ( x EUR 1,000 ) Basis swap Interest rate swap (short-term) Subtotal - 1,255 Exchange transactions 1, Total 1,101 1, Cash and cash equivalents The cash and cash equivalents consist of securities, deposits and bank account balances with a remaining term of less than three months. The cash and cash equivalents can be broken down as follows, on the basis of their nature and the associated activities: ( x EUR 1,000 ) Securities Deposits Bank account balances Total 2008 Funds not at free disposal: - Trading activities of APX Group 407,992 75, , Auctioning of cross-border capacity including NorNed cable 100,106 24,000 31, ,186 - Maintenance of energy balance 24,567-1,509 26,076 Funds at free disposal ,144 85,144 Total at 31 December ,665 99, , ,248 Annual Report 2008 / Financial Statements 155

158 ( x EUR 1,000 ) Securities Deposits Bank account balances Total 2007 Funds not at free disposal: - Trading activities of APX Group 468,493 77, , , ,532 - Auctioning of cross-border capacity 66, ,500 26, ,561 - Maintenance of energy balance 16,648-9,307 25,955 Funds at free disposal ,068 64,068 Total at 31 December , , ,641 1,236, Non-current assets available for sale TenneT intends to sell its office building in Voorburg. The book value of this asset amounted to EUR 5.3 million at 31 December The building was not sold in 2008 because an investigation into the security of supply of a substation located on the same site had not been completed yet. Delivery of the office building is expected to take place within one year s time. No changes in the value of this asset were recorded in Equity Share capital On the balance sheet date, the company s authorised share capital amounted to EUR 500 million, divided into one million shares of five hundred euros. Of these shares, two hundred thousand have been issued and paid-up. There was no change in this item during the year under review. Hedging reserve The hedging reserve relates to changes in the fair value of interest rate swaps and forward exchange contracts that are recorded in equity. Reserve for exchange rate differences The reserve for exchange rate differences serves to cover movements in exchange rates associated with the equity of 156

159 Dividend proposal The management has proposed to pay a dividend of EUR 10.0 million (2007: EUR 27.5 million) to the shareholder. The proposed dividend per share is EUR 50 (2007: EUR 135). Profit per share The profit per share has been calculated by dividing the profit by the average number of shares during the year under review. ( x EUR 1,000 ) Profit after tax 50,702 53,072 Average number of shares (thousands) Profit per share (in EUR) Minority interest The minority interest relates to % of the shares in APX B.V., held by N.V. Nederlandse Gasunie (26.096%) and Fluxys S.A. (3.839%). Annual Report 2008 / Financial Statements 157

160 14. Loans The movement in the loans was as follows: ( x EUR 1,000 ) Balance at 1 January 330, ,000 New loans 150,000 40,420 Redemptions 50,420 - Balance at 31 December 430, ,420 Long-term 220, ,420 Short-term 210,000 50,000 Total 430, ,420 Long-term credit facilities The long-term credit facilities of TenneT TSO amounted to EUR 420 million at 31 December Of this amount, EUR 220 million had a remaining term of more than one year at 31 December 2008, while EUR 200 million had a remaining term of less than one year. The long-term portion of the credit facilities consists of two loans taken out with the European Investment Bank (EIB). 2006, TenneT drew a sum of EUR 40 million from this loan, under a fixed interest rate of 4.2% and a term that is set to expire in In 2007, TenneT drew a second sum of EUR 40 million from this loan under a fixed interest rate of 4.5% and a term that is set to expire in These two withdrawals must be repaid by means of linear redemptions starting in 2010 and 2011, respectively. Of the total loan sum of EUR 160 million, EUR 80 million is not yet available on demand. In 2007, TenneT TSO agreed a loan of EUR 140 million with the EIB in order to fund the construction of the NorNed cable. In 2008, TenneT TSO drew the full amount from this loan under a fixed interest rate of 4.3%. This loan must be repaid by means of linear redemptions starting in The terms and conditions of the loan agreements concluded with the EIB include stipulations for negative pledge and pari passu. No securities have been issued. 158

161 The loans agreed with the EIB include arrangements concerning ratios. The short-term portion of the long-term credit facilities consists of five loans of EUR 40 million which will be redeemed in June These loans were arranged with five banks in 2004 under a bilateral loan agreement. The terms and conditions of the loans include stipulations for negative pledge and pari passu. No securities have been issued. The average effective rate of interest payable on long-term loans in 2008 was 3.9%. The arranged interest rate swaps are included in this percentage. These interest rate swaps have been arranged in order to cover the interest risk of the short-term portion of the loan portfolio. Short-term loan In October 2008, TenneT Holding took out a short-term loan of EUR 10.0 million with ING. This loan is set to expire on 31 March The book value of the loans is EUR million (2007: EUR million). The fair value of the loans is EUR million (2007: EUR million). The fair value of the loans has been calculated using discounted cash flow valuation methods, on the basis of the market conditions prevailing on the balance sheet date. Short-term credit facilities TenneT TSO has short-term uncommitted credit facilities with a total value of EUR 330 million at its disposal. The terms and conditions of these credit facilities include stipulations for negative pledge and pari passu. No securities have been issued. The facilities all attract interest at a floating rate. On the balance sheet date, no withdrawals had been made from these facilities. TenneT Holding has short-term committed credit facilities with a total value of EUR 150 million at its disposal. The terms and conditions of these credit facilities include stipulations for negative pledge and pari passu. No securities have been issued. The facilities all attract interest at a floating rate. On the balance sheet date, a sum of EUR 34 million (comprising a current account credit facility of EUR 24 million and a short-term loan of EUR 10 million) had been drawn from these facilities. APX Commodities Ltd. has a rolling drawdown facility to a maximum value of GBP 20 million at its disposal. Interest is payable on drawings at a variable rate; on the balance sheet date, a sum of EUR 1.7 million had been drawn from this facility. the balance sheet date, this facility had not been used. The facility was terminated as of 1 January 2009 in connection with the transfer of activities to SenterNovem. 15. Investment contributions The investment contributions relate to capital expenditure and associated operating expenses, which are financed using auction revenues (with the approval of the Office of Energy Regulation). The contributions are amortised on a linear basis over the useful life of the relevant tangible fixed asset(s), or in accordance with the pattern of the operating expenses. Annual Report 2008 / Financial Statements 159

162 Interest (at a rate of 5.41%) is added to the present value of the payments for operating expenses, in accordance with the guidelines of the Office of Energy Regulation. The movement in the value of the investment contributions was as follows: ( x EUR 1,000 ) Balance at 1 January 72,680 74,684 Additions in line with auction-funded capital expenditure 302,732 - Additions in line with other capital expenditure Interest Amortisation (profit-and-loss account): - Depreciation -/- 9,066 -/- 2,955 - Maintenance expenditure -/- 34 -/- 49 Balance at 31 December 366,908 72,680 Long-term 356,471 69,543 Short-term 10,437 3,137 Total 366,908 72,680 The increase in the value of the investment contributions is the result of the initial settlement effected for the NorNed cable. 160

163 The terms of the investment contributions are as follows: ( x EUR 1,000 ) < 1 year 1-5 years > 5 years Total At 31 December ,437 41, , ,908 At 31 December ,137 8,688 60,855 72, Auction receipts TenneT TSO auctions the available capacity on the cross-border connections. The resulting receipts are not at free disposal and are transferred to the Foundation for the Management of Allocated Funds from the National High-Voltage Grid. Funds held by the Foundation may be disbursed only as authorised by the Office of Energy Regulation. The auction receipts are invested by TenneT. The revenue from such investments is added to the balance. The rate of return in 2008 was 4.4% (2007: 3.6%). ( x EUR 1,000 ) Balance at 1 January 440, ,267 Additions of auction receipts / market coupling 107,010 69,248 Interest 11,637 13,858 To investment contributions -/- 302,732 - Other withdrawals -/- 21,810 -/- 107 Balance at 31 December 234, ,266 Long-term 234, ,266 Short-term - 318,000 Total 234, ,266 Annual Report 2008 / Financial Statements 161

164 In 2004, the Office of Energy Regulation decided that capital expenditure on the cable link to Norway could be funded from auction receipts. In May 2008, a sum of EUR million was withdrawn from the auction receipts in order to fund investments in the NorNed cable, based on the forecasts made at the time. The position on the balance sheet date would have resulted in a withdrawal of EUR million. The capitalised value of the cable is EUR million. The remaining EUR 16.2 million concerns interest received on investments made by TenneT TSO during the construction period, and EUR 6.3 million in reimbursement of the operating expenses for the NorNed cable and reimbursement of energy and capacity expenses (mainly grid losses). The terms of the auction receipts are as follows: ( x EUR 1,000 ) < 1 year 1-5 years > 5 years Total At 31 December , ,371 At 31 December , , , Provisions The movements in the provisions can be broken down as follows: ( x EUR 1,000 ) Environmental management and decommissioning Personnel redundancies Long-service bonuses Health insurance premiums Lossincurring activities Total Balance at 1 January ,000 2,861 1,717 1,017-73,595 Acquisition of NOVEC B.V. 4, ,417 Additions Actuarial result Releases -/- 2,142 -/ / /- 2,300 Interest 2, ,928 Capitalisation Withdrawals -/ / / / /- 1,946 Balance at 31 December ,417 1,798 1, ,

165 ( x EUR 1,000 ) Environmental management and decommissioning Personnel redundancies Long-service bonuses Health insurance premiums Lossincurring activities Total Balance at 1 January ,417 1,798 1, ,014 Capitalisation 7, ,000 Acquisitions by NOVEC B.V. 1, ,866 Additions , ,200 40,360 Releases - -/- 1, /- 1,197 Interest 2, ,946 Withdrawals -/ / / / /- 1,166 Balance at 31 December , , , ,823 Long-term 84, , , ,370 Short-term ,800 21,453 Total 84, , , ,823 Provision for environmental management and decommissioning The provision for environmental management and decommissioning serves to cover future obligations to dispose of and (antenna) sites. The provision has been stated at net present value. The main assumptions made in this context concern the future price level and a discount rate of 4.0%. Personnel provisions: Personnel redundancies The provision for personnel redundancies serves to cover the costs of redundancies for which the liabilities were incurred before the balance sheet date. Long-service bonus provision The group has future liabilities under the Collective Labour Agreement, involving the payment of salary-related bonuses to principles. The main assumptions made in this context concern the annual salary increase of 2.5%, an age-dependent Annual Report 2008 / Financial Statements 163

166 retention rate and a discount rate of 4.0%. The balance at year-end 2008 includes the Collective Labour Agreement commitments relating to the Essent staff who transferred to TenneT as of 1 November Health insurance premiums of the associated provision has been calculated on the basis of the Collective Labour Agreement and actuarial principles. The main assumptions made in this context concern the annual premium increase of 2.0% and a discount rate of 4.0%. Loss-incurring activities The provision for loss-incurring activities serves to cover the unavoidable losses resulting from the legally enforceable obligation (under the Independent Grid Administration Act) to manage the 110 kv and 150 kv grids. The provision has been stated at net present value. 18. Derivative financial instruments The derivative financial instruments have been stated at fair value. The derivative financial instruments in question are interest rate swaps and have been included under long-term liabilities or short-term liabilities, depending on the remaining term. The breakdown is as follows: ( x EUR 1,000 ) Interest rate swaps (credit) 4,333 1,507 Forward exchange transactions 3, Subtotal 7,826 1,817 Exchange transactions 1, Total 8,927 1,937 Long-term - 1,747 Short-term 8, Total 8,927 1,

167 Interest Rate Swaps (IRSs) The interest rate swaps concern long-term loans; under an IRS contract, a floating interest rate is swapped for a fixed interest rate, thus protecting TenneT against movements in floating rates. The notional value of these transactions on 31 December 2008 was EUR 200 million. The floating interest rates of the loans in question are based on the EURIBOR rate. The fixed rates of interest vary from 3.7% to 3.9% (2007: 3.7% to 3.9%). The interest rate swaps expire in the next few years, on the redemption dates of the underlying loans. The fair values of the IRS contracts have been calculated using discounted cash flow valuation techniques, on the basis of the market conditions prevailing on the balance sheet date. Forward exchange transactions The forward exchange transactions relate to the position in pounds sterling that results from the investment cash flows associated with the construction of the BritNed cable. These transactions are arranged in order to fix the exchange rate. The notional value of these transactions on 31 December 2008 was EUR 15.2 million. In the coming years, the forward exchange transactions will expire on the due dates of the underlying liabilities, which are denominated in pounds sterling. Exchange transactions One of TenneT s goals is to facilitate the energy supply market. To this end, the group operates a number of energy exchanges. Energy exchanges arrange the financial settlement of anonymously negotiated transactions. Hence, the group is a counterparty in all transactions effected on the exchanges concerned. The net value of all concluded purchase and sale associated with these transactions occur several days after their conclusion, the contracts awaiting settlement on 31 December have to be treated as derivative financial instruments. The contracts have been stated at fair value, by reference to the market price on 31 December. On 31 December 2008, the fair value of open trading contracts amounted to EUR 1.1 million (2007: EUR 0.1 million); this sum Annual Report 2008 / Financial Statements 165

168 19. Deferred tax liabilities The movement in the deferred tax liability was as follows: ( x EUR 1,000 ) Other Non-current assets Total Balance at 31 December ,139 1,139 Initial valuation of Endex European Energy Derivatives Exchange N.V Recognised in the profit-and-loss account -/ /- 150 Balance at 31 December ,139 1,139 ( x EUR 1,000 ) Other Non-current assets Total Balance at 31 December ,139 1,139 Initial valuation of NOVEC B.V. - 3,146 3,146 Recognised in the profit-and-loss account Balance at 31 December ,285 4,285 The deferred tax liability relates to the goodwill associated with the spot market activities of APX B.V., which has already been written off for tax purposes, as well as the intangible assets which were commercially valued upon acquisition of Endex European Energy Derivatives Exchange N.V. (customer base, arrangements with participants). Realisation will take place principally during the remaining useful lives of the intangible assets in question (approximately ten years). 166

169 Current liabilities 20. Amounts received in advance The movement in amounts received in advance was as follows: ( x EUR 1,000 ) Grant funds To be set off Maintenance Payments Total (MEP) against tariffs of energy from power- charged in later balance generating years between companies for supply and cross-border demand capacity Balance at 1 January ,955 4,534 29, ,160 Additions 501,725 23,942 48, ,663 Interest 1,483 1,181 1, ,744 Withdrawals -/- 457,904 -/- 6,377 -/- 64,297 -/- 50 -/- 528,628 Balance at 31 December ,259 23,280 15, ,939 Additions 405,487 11,256 63, ,330 Reclassification under other receivables 18, ,800 Interest 2,818 1,477 1, ,464 Withdrawals -/- 636,364 -/- 13,658 -/- 71, /- 721,106 Balance at 31 December ,355 9, ,427 Annual Report 2008 / Financial Statements 167

170 Grant funds (MEP) and operating costs are covered directly and indirectly, respectively, by contributions from the Ministry of Economic Affairs. This activity was transferred to SenterNovem as of 1 January An amount of EUR 18.8 million in government subsidies to To be set off against tariffs charged in later years The sum included under this heading concerns the discrepancy between the actual tariff revenue and the permitted revenue for the year under review. This sum is taken into account when settling the tariffs charged to market parties in future years. Maintenance of the energy balance between supply and demand One feature of the system of energy balance maintenance is that TenneT TSO receives payments each year, which are taken into account when settling the tariffs payable for system services in future years. 21. Bank overdrafts This item consists of the balances in bank accounts in respect of which other cash and cash equivalents have been provided as security, and to which interest compensation (in the amount of EUR 76.5 million) has been applied, as well as credit extended by banks (EUR 24.1 million). 22. Accounts payable in connection with energy exchange transactions The accounts payable in connection with energy exchange transactions (2008: EUR million, 2007: EUR million) derive from the gas trading activities of APX Commodities Ltd. 168

171 23. Securities The liabilities relate to collateral securities given by third parties to underwrite trading on energy exchanges and the auctioning of cross-border interconnection capacity. The liabilities relating to collateral securities can be attributed to the various activities as follows: ( x EUR 1,000 ) Energy exchange activities of APX Group 407, ,493 Auctioning of cross-border capacity by TSO Auction B.V. 78,141 66,327 Auctioning of capacity on NorNed cable 21,965 Energy balance maintenance by TenneT TSO 24,567 16,648 Total 532, , Accounts payable and other liabilities The accounts payable and other liabilities can be broken down as follows: ( x EUR 1,000 ) Expenses payable in respect of transmission and system services 42,777 29,253 Accounts payable 45,325 24,450 Auction receipts yet to be credited to TSOs 11,552 11,977 Taxation and social security contributions 3,006 5,424 20,348 - Interest 5,985 6,871 Other 30,947 53,305 Total 159, ,280 Annual Report 2008 / Financial Statements 169

172 Financial instruments Fair values and categories The accounting principles for valuation and recognition of financial instruments were applied to the following items (2008 and 2007): 2008 Classes FINANCIAL ASSETS Refer to section Carrying amount Items other than financial assets/ liabilities Financial assets/liabilities recognised at fair value with changes in value recorded in P&L account Designated upon initial recognition Held for trading Categories of financial instruments Loans and receivables / Other financial liabilities Investments held until maturity Financial assets available for sale Derivatives held for hedge accounting purposes Fair value Financial assets Financial assets not at free disposal (4) 110, , ,500 Minority participating interests (4) 1,985-1, ,985 Total financial assets 112,485-1, , ,485 Receivables Accounts receivable and other receivables (8) 194,792 11, , ,792 Accounts receivable in connection with energy exchange transactions (9) 223, , ,338 Derivative financial instruments (10) 1, , ,101 Total receivables 419,231 11, ,426 1, ,231 Cash and cash equivalents Securities (11) 532, , ,665 Deposits (11) 99, , ,850 Bank account balances (11) 117, , ,733 Total cash and cash equivalents 750, ,398 99, ,248 TOTAL FINANCIAL ASSETS 1,281,964 11,704 1,985-1,056, , ,281,964 FINANCIAL LIABILITIES Long-term liabilities Loans (14) 220, , ,500 Derivative financial instruments (18) Total long-term liabilities 220, , ,500 Short-term liabilities Loans (14) 210, , ,000 Bank overdrafts (21) 100, , ,629 Accounts payable in connection with energy exchange transactions (22) 222, , ,980 Liabilities relating to collateral securities (23) 532, , ,665 Accounts payable and other liabilities (24) 159, , ,940 Derivative financial instruments (18) 8, , ,927 Total short-term liabilities 1,235, ,226,214 8, ,235,141 TOTAL FINANCIAL LIABILITIES 1,455, ,446,214 8, ,456,

173 2007 Classes FINANCIAL ASSETS Refer to section Carrying amount Items other than financial assets/ liabilities Financial assets/liabilities recognised at fair value with changes in value recorded in P&L account Designated upon initial recognition Held for trading Categories of financial instruments Loans and receivables / Other financial liabilities Investments held until maturity Financial assets available for sale Derivatives held for hedge accounting purposes Fair value Financial assets Financial assets not at free disposal (4) 44, , ,000 Minority participating interests (4) 14,221-14, ,221 Total financial assets 58,221-14, , ,221 Receivables Accounts receivable and other receivables (8) 123,564 7, , ,564 Accounts receivable in connection with energy exchange transactions (9) 144, , ,196 Derivative financial instruments (10) 1, , ,375 Total receivables 269,135 7, ,059 1, ,135 Cash and cash equivalents Securities (11) 551, , ,468 Deposits (11) 375, , ,700 Bank account balances (11) 309, , ,641 Total cash and cash equivalents 1,236, ,236, ,236,809 TOTAL FINANCIAL ASSETS 1,564,165 7,701 14,221-1,496,868 45, ,564,165 FINANCIAL LIABILITIES Long-term liabilities Loans (14) 280, , ,520 Derivative financial instruments (18) 1, , ,747 Total long-term liabilities 282, ,420 1, ,267 Short-term liabilities Loans (14) 50, , ,000 Bank overdrafts (21) 266, , ,677 Accounts payable in connection with energy exchange transactions (22) 144, , ,208 Liabilities relating to collateral securities (23) 551, , ,468 Accounts payable and other liabilities (24) 131, , ,280 Derivative financial instruments (18) Total short-term liabilities 1,143, ,143, ,143,823 TOTAL FINANCIAL LIABILITIES 1,425, ,424,053 1, ,428,090 Annual Report 2008 / Financial Statements 171

174 Notes to the consolidated profit-and-loss account for the year 2008 ( x EUR 1,000 ) 25. Revenue The revenue can be broken down as follows: ( x EUR 1,000 ) Connection and transmission services 219, ,017 System services 142, ,449 Maintenance of energy balance 47,708 34,551 Operation of energy exchanges 16,996 14,518 Revenue from market facilitation services 8,886 6,501 Revenue from other services 11,708 14, , ,565 Work undertaken for third parties 869 1,185 Interest received 12,894 10,064 Revenue 460, ,814 The revenue from connection, transmission and system services is to a large extent regulated by the Office of Energy Regulation. Three regulatory mechanisms were used in 2008: revenue regulation for transmission activities on the 380 kv and 220 kv grid, yardstick regulation for transmission activities on the 150 kv and 110 kv grid, and budget regulation for system services. In 2008, the Office of Energy Regulation s Method Decision for the fourth regulatory period entered into effect. The decision applies to the period from 2008 to 2010 inclusive. During this regulatory period, the transmission activities on the 110 kv and 150 kv grids are subject to revenue regulation. Since 1 January 2008, TenneT TSO has been in charge of managing all grids with a voltage level of 110 kv and higher, with the exception of grids encumbered by Cross Border Leases. The grids concerned are those of Delta N.V., Enexis B.V., Alliander accordance with interim agreements concluded with Alliander N.V. and Enexis B.V. (stipulating that the grids have been operated on behalf of the relevant parties at their risk and expense), TenneT has not recognised the full regulatory revenue from these grids in its own revenue. Revenue from the grids of Alliander N.V. has not been recognised. Revenue from the 172

175 grids of Enexis B.V. was recognised in the last two months of Revenue from the grids of Delta N.V. has been recognised in full. The revenue from connection and transmission services includes the revenue from services to regional grid administrators (resolution of transmission restrictions and reactive power management) and income from the provision of cross-border interconnection capacity (cross-border tariffs). The revenue from maintenance of the energy balance between supply and demand is equal to the cost of purchasing the associated energy and capacity. Any surplus in revenue is settled through the future system service charges and is not included in the revenue. The revenue from market facilitation services consists of fees for authenticating electricity produced by environmentally friendly methods, operating subsidy schemes, and auctioning cross-border interconnection capacity. The revenue from other services consists mainly of rent for the provision of sites and fibre-optic cable capacity for telecommunications and antenna sites. The interest received relates mainly to securities and deposits associated with energy exchange activities. 26. Energy and capacity expenses Expenditure on the purchase of energy and capacity can be broken down as follows: ( x EUR 1,000 ) Connection and transmission services 51,247 41,479 Cross-border tariffs 10,873 19,925 System services 65,369 61,616 Maintenance of energy balance 47,708 34, , ,571 The expenditure associated with the provision of connection and transmission services relates to purchases for grid losses, transmission restrictions and reactive power. Annual Report 2008 / Financial Statements 173

176 The expenditure associated with cross-border tariffs relates to payments that the Netherlands has to make for the use of foreign transmission grids. The expenses in question are settled through TenneT s transmission service tariffs. The expenditure associated with system services involves the purchase of regulating and reserve capacity, black-start facilities and emergency capacity. 27. Transmission grid and system expenses The expenditure associated with transmission grids and systems is made up of operating costs for the transmission grids, plus the cost of maintaining systems used for the primary operating processes. The breakdown is as follows: ( x EUR 1,000 ) Systems for primary operating processes 4,139 2,976 Costs of maintaining and operating transmission grids 19,631 15,744 Payments for use of grids owned by third parties 12,617 3,045 Cost of work undertaken for third parties 1, Release from/addition to the provision for environmental management and decommissioning 500 -/- 2,142 38,525 20,252 TenneT TSO is responsible for the administration of the national high-voltage grid, but does not own the entire grid. Management agreements have therefore been concluded to cover those parts of the grid that are owned by third parties. These management agreements were not extended at year-end Negotiations were held in the course of 2008 concerning the acquisition of these grid components by TenneT TSO. On the balance sheet date, these negotiations had not paid compensation to Delta N.V. (12-month period) and Enexis B.V. (2-month period) in

177 28. Personnel expenses The personnel expenses can be broken down as follows: ( x EUR 1,000 ) Salaries 43,551 34,736 Social security contributions 2,761 2,950 Pension charges 5,417 4,315 Other personnel expenses 3,441 2,085 Addition to the personnel provision Capitalised costs for tangible fixed assets -/- 8,384 -/- 5,399 47,249 38,741 In 2008, the average workforce amounted to 626 FTEs (2007: 515 FTEs), of whom 584 FTEs were employed in the Netherlands (2007: 473 FTEs). TenneT took over approx. 140 FTEs from Enexis B.V. as of 1 October Remuneration of members of the Board of Management and Supervisory Board The remuneration paid to members of the Board of Management and Supervisory Board by the company is summarised below. The remuneration paid to members of the Board of Management and Supervisory Board relates to the activities performed for TenneT Holding B.V. and TenneT TSO B.V. collectively. ( x EUR 1,000 ) Fixed remuneration Variable remuneration Pension contributions Total Total , The variable remuneration depends on the attainment of targets during the year under review. Annual Report 2008 / Financial Statements 175

178 Remuneration paid to members of the Board of Management in respect of supervisory directorships in affiliated entities accrues to the company. The remuneration of the company s supervisory directors is indexed annually for inflation and was as follows in the year under review: ( x EUR 1,000 ) Fixed remuneration Committee fee Total 2008 Fixed remuneration Committee fee Total 2007 Total Depreciation and amortisation of assets The depreciation and amortisation of assets can be broken down as follows: ( x EUR 1,000 ) Amortisation of intangible assets 4,934 3,815 Depreciation of tangible fixed assets 64,602 57,599 Book profit on sale of assets -/- 10,041-59,495 61,

179 The impairments can be broken down as follows: ( x EUR 1,000 ) Penalty in respect of NorNed cable 10,000-1,678-11,678 - The Office of Energy Regulation has attached conditions to the reimbursement of the costs of the NorNed cable. An initial settlement was effected in The settlement includes a penalty of EUR 10 million. This penalty has been recognised in the accounts as a depreciation of the NorNed cable. 30. Other operating expenses The other operating expenses can be broken down as follows: ( x EUR 1,000 ) Accommodation and office expenses 8,130 6,466 Consultancy expenses 9,453 5,135 Hiring of temporary personnel 25,604 17,911 Travel and subsistence expenses 4,666 3,687 Research expenses 2,194 1,563 Other operating expenses 6,255 18,435 56,302 53,197 Annual Report 2008 / Financial Statements 177

180 The cost of hiring temporary personnel relates in part to temporary staff employed by the company until specific vacancies can be filled. These vacancies arose as a result of TenneT s assumption of responsibility for the management of the 110/150 kv grids, and as a result of the expansion of our investment programme. PricewaterhouseCoopers Accountants N.V. and other PricewaterhouseCoopers network firms. The fees can be specified as follows: ( x EUR 1,000 ) Audit of the financial statements Other audit procedures Tax consultancy Other services ,559 1, Finance income and expenses The finance income can be broken down as follows: ( x EUR 1,000 ) Interest on assets under construction 11,854 9,995 Interest received on securities associated with energy exchange activities 7,784 8,311 Other interest received 8,715 16,587 Movement in the value of financial instruments: - Interest rate swaps -/- 1,167 3,129 27,186 38,

181 The interest received on funds administered by the Foundation for the Management of Allocated Funds from the National High-Voltage Grid and on MEP grant funds has been added directly to the funds in question. The total amount involved was EUR 15.6 million (2007: EUR 16.2 million). The finance expenses can be broken down as follows: ( x EUR 1,000 ) Loans and credit facilities 14,668 16,734 Interest paid on deposits associated with energy exchange activities 7,763 9,210 Interest paid on securities associated with energy exchange activities 7,784 8,311 Other interest expenses 5,926 3,104 2,946 2,928 39,087 40,287 The average effective rate of interest payable on long-term loans was 3.9% in 2008 (2007: 3.9%). Annual Report 2008 / Financial Statements 179

182 32. Corporation tax The corporation tax expense on the profit before taxation differs from the tax charge based on the average tax rate. Further details are given in the table below: ( x EUR 1,000 ) Profit before taxation 69,913 72,214 Deducted: share in the result of participating interests -/ /- 4,124 69,011 68,090 Tax expense based on the average rate of taxation 17,709 17,200 Non-valued losses Non-deductible items Corporation tax expense in previous years -/ Non-taxable profit -/- 43 -/- 78 Effect of rate change on value of deferred tax assets ,731 17,275 On the basis of the actual rates of taxation payable, the tax burden on the result for 2008 proved to be 25.7% (2007: 25.5%). The breakdown of the tax burden is as follows: ( x EUR 1,000 ) Deferred tax -/- 4,665 -/- 1,662 Tax payable 22,396 18,937 17,731 17,

183 33. Profit from participating interests ( x EUR 1,000 ) Movement in value of HGRT S.A.S ,323 Movement in value of Belpex S.A Other , Off-balance sheet rights and obligations Transfer of management of transmission grids with a voltage level of 110 kv or higher responsibility for managing all transmission grids with a voltage level of 110 kv and higher with effect from 1 January 2008, with the exception of grids encumbered by Cross Border Leases. This transfer of responsibility has major consequences. In combination with the Method Decision for the fourth regulatory period, the consequences of this transfer of management for TenneT s results are negative. TenneT has concluded an interim contract with Alliander for the period up to and including 31 March (Long-term) financial obligations By 31 December 2008, commitments totalling EUR million (2007: EUR 57.7 million) had been entered into with regard to tangible fixed assets. expected to exceed EUR 588 million, 50% of which will be borne by TenneT. Agreements have been concluded with third parties for approx. EUR 250 million in total. TenneT has issued guarantees as security against BritNed Development Ltd. in case the company is unable to meet its financial obligations under the cable contract. The guarantees issued by TenneT cover 50% of the commitments of BritNed Development Ltd. TenneT TSO s remaining obligation under this contract had a value of EUR 49.8 million at year-end Annual Report 2008 / Financial Statements 181

184 TenneT TSO has entered into commercial ground lease contracts with the owners of the land on, under or over which TenneT s substations, lines and underground cables are sited or routed. TenneT s annual obligation under these contracts amounts to EUR 2.3 million (2007: EUR 2.3 million). The total obligation under the operating leases for office premises and vehicles is as follows: ( x EUR 1,000 ) < 1 year 1-5 years > 5 years Total At 31 December ,071 8,999-12,070 At 31 December ,986 6,579-8,565 Subject to approval from the Provincial Council, agreement was reached with the provincial authorities of Groningen, EUR 10 million in projects designed to strengthen nature and landscape values in the provinces of Drenthe and Overijssel. TenneT intends to recognise this sum in its accounts as a substantial investment. Conditional obligations In 2004, the Office of Energy Regulation decided that APX B.V. s spot market activities would no longer be regulated. This decision was based on the assumption that the advance bid obligation in the APX spot market for the daily auctioning of cross-border interconnection capacity would be retained until 1 January If this obligation is abolished either before or after 1 January 2009, this would give rise to a claim by or obligation on TenneT, respectively. TenneT has entered into a long-term commitment to sell its head office and rent a new office building. Conditional rights At the close of 2008, TenneT had received bank guarantees totalling EUR 78.7 million. Securities Participants active on the energy exchanges have issued guarantees and securities with a total value of EUR 803 million (2007: EUR 788 million) to APX B.V. and APX Commodities Ltd. to cover their trading positions. Parties with programme responsibility have issued bank guarantees totalling EUR 30.1 million (2007: EUR 26.2 million) to TenneT TSO in connection with the latter s maintenance of the energy balance between supply and demand. 182

185 TenneT Holding has issued a group guarantee with a maximum value of GBP 29.5 million to National Grid Electricity Transmission (NGET) to underwrite TenneT s obligations with regard to the BritNed project. The guarantee covers the period from 1 April 2009 to 30 September 2009 inclusive. The group has various other off-balance sheet rights and obligations, which are not sufficiently large to be mentioned separately. Termination of activities TenneT has decided to terminate the activities of TSO Auction B.V. in The annual auction will be organised by a newly established company called CASC-CWE S.A. (Capacity Allocation Service Company for the Central Western European Electricity Market), a joint venture between the TSOs of the Central Western European (CWE) region. The daily auction (on the Belgian-Dutch border) now takes place by means of market coupling on the APX exchange. On 13 July 2007, the Minister of Economic Affairs announced that implementation of the Promotion Scheme for Sustainable Energy Production (SDE) and the MEP grant scheme would be transferred to the Ministry s SenterNovem agency. The The above-stated decisions have not resulted in the devaluation of assets. 35. Events after the balance sheet date No events that required reporting occurred after the balance sheet date. 36. Acquisitions B.V. to 100%. This acquisition has no effect on the consolidated revenue. On 12 December 2008, APX B.V. also acquired 90.9% of the shares in Endex N.V. On 30 December 2008, APX B.V. acquired another 8.1% of the shares in Endex N.V., bringing its total stake to 99.0%. The remaining 1.0% of the shares was retained by Endex N.V. The acquired business contributed EUR 0.2 million to the revenue realised in 2008, and contributed -/- EUR 0.1 million to the profit for the year. If the acquisition had taken place on 1 January 2008, the acquired business would have contributed EUR 4.9 million to the revenue and EUR 2.2 million to the profit for the year. Annual Report 2008 / Financial Statements 183

186 The acquisition has been recognised in the financial statements as follows: ENDEX ( x EUR 1,000 ) 2008 Arrangements with participants 10,967 Customer contracts 1,369 Other intangible assets 528 Tangible fixed assets 93 Net working capital 364 Cash and cash equivalents 5,797 Deferred tax liability -/- 3,146 Goodwill 4,206 Total 20,178 NOVEC B.V. made two acquisitions in 2008: it acquired all the shares in Telfort Masten B.V. and it acquired the assets of Dutch Tower B.V. As a result of these acquisitions, NOVEC B.V. added 140 pylons to its plant. The acquisitions are expected to generate an annual revenue growth of approx. 30%. 184

187 The acquisitions have been recognised in the financial statements as follows: NOVEC ( x EUR 1,000 ) 2008 Tangible fixed assets 8,521 Intangible assets 8,303 Goodwill 8,458 Provisions -/- 1,867 Total 23,415 The acquired business contributed EUR 0.8 million to the revenue realised in 2008, and contributed EUR 0.2 million to the profit for the year. If the acquisition had taken place on 1 January 2008, the acquired business would have contributed EUR 1.7 million to the revenue and EUR 0.3 million to the profit for the year. 37. Cash flow statement The cash flow statement has been prepared using the indirect method, using data on the cash flows from clearing activities and the cash flows from operating, investment and financing activities. Cash flows from operating activities The cash flows from operating activities have been calculated using the indirect method. The following table summarises the adjustments to the cash flows from operating activities. Generally speaking, these adjustments concern non-cash flow items. Annual Report 2008 / Financial Statements 185

188 Ref Profit for the year 52,182 54,380 Adjustments for: - Corporation tax included in the result 32 17,731 17,275 - Depreciation of assets 29 69,536 61,414 - Disposals of assets 1, Impairments 1, 2 11, Withdrawal of auction receipts and investment contributions -/- 21, Amortisation of investment contributions 15 -/- 9,066 -/- 2,955 - Amortisation of ground lease charges paid in advance Amounts settled or to be settled in tariffs -/- 13,894 1,035 - Change in long-term provisions 17 47,942 -/ Adjustment to the fair value of financial instruments 31 2,122 -/- 3,129 - Interest expenses 31 36,141 32,829 - Interest income 25 -/- 12,894 -/- 10,064 - Recognition of financial instruments -/- 7,264 1,185 - Change in value of (minority) participating interests 3, 4 -/ /- 4,123 - Change to minority interest due to sale 13 2, ,213 93,637 Movement in working capital: - Inventory Receivables (excluding MEP grant funds receivable) 9, 11, 12 -/- 149,623 -/- 10,776 - Other receivables and liabilities 193,128 -/- 11,301 43,999 -/- 21, , ,

189 Annual Report 2008 / Financial Statements 187

190 Company balance sheet at 31 december 2008 before profit appropriation ( x EUR 1,000 ) ASSETS Ref. 31 December December 2007 NON-CURRENT ASSETS Investments in group companies , ,592 Minority participating interests ,040 Receivables from group companies 42 83,123 31, , ,659 CURRENT ASSETS Receivables Accounts receivable and other receivables Derivative financial instruments 41 3,493 - Receivables from group companies 42 12, , Cash and cash equivalents 3,858 19,

191 LIABILITIES Ref. 31 December December 2007 Equity 43 Share capital 100, ,000 Revaluation reserve 149, ,729 Hedging reserve -/- 1,476 2,355 Reserve for exchange rate differences -/- 3,417 -/- 796 Retained earnings 357, ,847 Reserve for participating interests 4,899 4,021 Profit for the year 51,801 49, , ,207 Non-current liabilities Derivative financial instruments Current liabilities Loans 44 10,000 - Bank overdrafts 45 23,985 - Liabilities payable to group companies 46 1,051 1,979 Corporation tax 1,711 - Derivative financial instruments 41 3, Accounts payable and other liabilities ,500 2, , ,187 Annual Report 2008 / Financial Statements 189

192 Company profit-and-loss account for the year 2008 ( x EUR 1,000 ) Ref Balance of other income and expenses after tax 4, Profit from participating interests after tax 47 48,551 52,573 Profit for the year 52,679 53,

193 Statement of changes in equity for the year 2008 ( x EUR 1,000 ) Share capital Hedging reserve Revaluation reserve Reserve for exchange rate differences Reserve for participating interests Retained earnings Profit for the year Total Balance at 1 January ,000 3, , ,570 46, ,270 Exchange rate differences / /- 942 Profit for the year ,072 53,072 Addition to reserve for participating interests , /- 4,021 - Increase in fair value - -/- 1, /- 1,601 Tax payable on increase in fair value Realisation of revaluation - - -/- 10, , Profit appropriation ,700 -/- 46,700 - Dividend /- 25, /- 25,000 Balance at 1 January ,000 2, ,729 -/ , ,847 49, ,207 Exchange rate differences /- 2, /- 2,621 Profit for the year ,679 52,679 Addition to reserve for participating interests / Increase in fair value - -/- 5, /- 5,141 Tax payable on increase in fair value - 1, ,310 Realisation of revaluation - - -/- 10, , Profit appropriation ,051 -/- 49,051 - Dividend /- 27, /- 27,000 Balance at 31 December ,000 -/- 1, ,152 -/- 3,417 4, ,475 51, ,434 Annual Report 2008 / Financial Statements 191

194 Notes to the company balance sheet and profit-and-loss account for the year 2008 ( x EUR 1,000 ) 38. Principles governing the valuation of assets and liabilities and the determination of results General The company financial statements for TenneT Holding B.V. have been prepared in accordance with the provisions of Part 9, Book 2, of the Netherlands Civil Code. The same principles governing valuation and the determination of results (including the principles governing the statement of financial instruments as equity or loan capital) have been applied in compilation of the company financial statements as in compilation of the consolidated financial statements, as permitted by Article 2:362, clause 8, of the Civil Code. Pursuant to Article 402, Book 2 of the Netherlands Civil Code, the company profit-and-loss account has been presented in abridged form. Management report The management report appears on pages 5 to 114. Comparative data The accounting principles used for the valuation of assets and liabilities and the determination of the result remain unchanged compared to the previous year. The principles applied in the company financial statements for the valuation of assets and liabilities and for the determination of the result are the same as those used in the consolidated financial statements. For a description of these principles, please refer to pages 126 to 132 of the general notes to the consolidated balance sheet and profit-and-loss account. The following notes provide information that is additional to the information given in the notes to the consolidated financial statements. 192

195 39. Investments in group companies Participating interests in group companies and other companies over which TenneT exercises control are stated at net asset value. The net asset value of a participating interest is determined by valuing the assets, provisions and liabilities and calculating the result using the principles applied to the consolidated financial statements. The movement in participations in group companies can be broken down as follows: ( x EUR 1,000 ) Balance at 1 January 589, ,864 Shares in NOVEC B.V. brought in - 8,190 Capital increase 11,401 - Exchange rate differences -/- 2,671 -/- 942 Minority participating interests Share in the result 48,351 52,173 Other changes -/ Sale -/- 1,149 - Change to hedging reserve -/- 4,061 -/- 962 Dividend payment -/- 46,793 -/- 42,731 Balance at 31 December 594, ,592 The participations in group companies relate to the legal entities included in the consolidation: TenneT TSO B.V., APX B.V., APX B.V., NOVEC B.V., NLink International B.V. and New Values B.V. These participating interests have been valued in accordance with TenneT s accounting principles. TenneT TSO B.V. has issued a declaration of liability as referred to in Book 2, Part 9, Section 403 of the Netherlands Civil Code from 1 January Annual Report 2008 / Financial Statements 193

196 40. Minority participating interests This item relates to TenneT Holding B.V. s participating interests in Endex European Energy Derivatives Exchange N.V and Belpex S.A. Endex European Energy Derivatives Exchange N.V. is a long-term electricity contract exchange covering the Netherlands and Belgium. In 2008, TenneT Holding B.V. sold its stake in Endex European Energy Derivatives Exchange N.V. to APX B.V. Belpex S.A., Belgium s electricity exchange, was established in TenneT holds 17.5% of the shares (10% directly, 7.5% indirectly through APX B.V. and HGRT). Since TenneT is unable to exert significant influence on Belpex s policy, this holding is treated as a minority participating interest. The minority participating interests have been stated at fair value, with the movement in value recognised in the profit-andloss account. The fair value has been derived from discounted cash flow calculations. The cash flow projections have been derived from long-term plans, to which a discount rate of approximately 10% (before taxation) has been applied. The figures have been discounted to net present value, using discounting rates that reflect the risks associated with the activities. The movement in the value of the minority participating interests can be broken down as follows: ( x EUR 1,000 ) Balance at 1 January 2,040 1,640 Sale of Endex European Energy Derivatives Exchange N.V. -/- 1,340 - Change in value (Belpex S.A.) Balance at 31 December 900 2,040 TenneT Holding B.V. recognises no related parties other than the entities included in the consolidation, members of the company s Board of Management and Supervisory Board, and minority participating interests. Services with a total value of EUR 1.1 million (2007: EUR 1.4 million) were provided to minority participating interests in the year under review. These transactions took place in accordance with normal business terms and conditions. 194

197 41. Derivative financial instruments Forward exchange transactions The forward exchange transactions relate to the position in pounds sterling that results from the investment cash flows rate. The notional value of these transactions on 31 December 2008 was EUR 15.2 million. In the coming year, the forward exchange transactions will expire on the due dates of the underlying liabilities, which are denominated in pounds sterling. In 2008, TenneT Holding transferred its derivative financial instrument internally to NLink International B.V. 42. Receivables from group companies ( x EUR 1,000 ) NLink International B.V. 83,339 31,027 NOVEC B.V. 9,907 - Other 2, Balance at 31 December 96,118 31,387 Long-term 83,123 31,027 Short-term 12, Total 96,118 31,387 Annual Report 2008 / Financial Statements 195

198 43. Equity Share capital On the balance sheet date, the company s authorised share capital amounted to EUR 500 million, divided into one million shares of five hundred euros. Of these shares, two hundred thousand have been issued and paid-up. There was no change in this item during the year under review. Revaluation reserve The revaluation reserve serves to cover the revaluation of tangible fixed assets within the national high-voltage grid of TenneT TSO B.V. Following the implementation of IFRS on 1 January 2004, the fair value exception provided for in IFRS 1 has been applied. This (once-only) exception allows tangible fixed assets to be stated at their fair value on the transition date. the restated value of the tangible fixed assets that results from application of the fair value exception, less the deferred tax liability. Hedging reserve The hedging reserve relates to changes in the fair value of interest rate swaps that are recorded in equity. Reserve for exchange rate differences The reserve for exchange rate differences serves to cover movements in exchange rates associated with participating Reserve for participating interests The reserve for participating interests relates to the increase in value of TenneT s minority participating interest in Belpex S.A., for which TenneT cannot secure payment. The revaluation reserve, the hedging reserve, the reserve for exchange rate differences and the reserve for participating interests are not freely distributable. 44. Loans TenneT Holding took out a short-term loan with ING in October This loan is set to expire on 31 March Bank overdrafts This item concerns credit extended by banks. 196

199 46. Liabilities payable to group companies This item concerns a liability payable to TenneT TSO B.V. 47. Share in the results of participating interests The share in the result of participating interests can be broken down as follows: ( x EUR 1,000 ) TenneT TSO B.V. 44,440 44,913 APX B.V. 3,466 5,618 NOVEC B.V. 1,036 2,115 NLink International B.V. -/ /- 602 Other changes ,351 52,173 Belpex S.A ,551 52,573 Annual Report 2008 / Financial Statements 197

200 48. Affiliated entities All participating interests in group companies referred to in section 39 are regarded as affiliated entities. The long-term receivables from group companies relate mainly to a receivable from NLink International B.V. During the year under review, the company had no employees. Arnhem, 9 April 2009 Board of Management of TenneT Holding B.V. B.G.M. Voorhorst MBA The Supervisory Board R.E. Selman C. Griffioen J.F.T. Vugts J.F. van Duyne A.W. Veenman 198

201 Other information Appropriation of profit The appropriation of profits is governed by Section 38.3 of the Articles of Association, which states: Subject to approval by the Supervisory Board, the Board of Management may reserve a portion of any profit that may remain after application of the provisions of clause 2, sufficient in the Board of Management s view to finance capital expenditure to support fulfilment of the company s statutory duties as grid administrator, such as maintenance, expansion and environmental management. Any profit which is not thus reserved shall be at the free disposal of the General Meeting of Shareholders. When calculating the amount of profit to be paid out on each share, account shall be taken only of the sum of the obligatory call on the nominal value of the shares. In the event of a tied vote regarding the distribution or reservation of profits, the profit to which the proposal relates shall be reserved. The Board of Management proposes the following appropriation of profit for 2008 (values x EUR 1,000): Addition to retained earnings 40,702 Proposed dividend 10,000 Profit for the year 50,702 The proposed appropriation of profit has not been recorded in the financial statements. Annual Report 2008 / Financial Statements 199

202 Auditor s report To the Shareholder and the Supervisory Board of TenneT Holding B.V. Report on the financial statements We have audited the financial statements 2008 of TenneT Holding B.V., Arnhem. The financial statements comprise the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated balance sheet as at 31 December 2008, the profit-and-loss account, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. The company financial statements comprise the company balance sheet as at 31 December 2008, the company profit-andloss account for the year then ended and the notes. The board of management s responsibility The board of management of the company is responsible for the preparation and fair presentation of the financial statements in accordance with the International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the report by the board of management in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the board of management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 200

203 Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of TenneT Holding B.V. as at 31 December 2008, and of its result and its cash flows for the year then ended, in accordance with the International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code. Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of TenneT Holding B.V. as at 31 December 2008, and of its result for the year then ended, in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Report on other legal requirements and/or requirements of regulatory authorities Pursuant to the legal requirement under Section 2:393 sub 5 part f of the Netherlands Civil Code, we report, to the extent of our competence, that the report by the board of management is consistent with the financial statements as required by Section 2:391 sub 4 of the Netherlands Civil Code. Arnhem, 24 April 2009 PricewaterhouseCoopers Accountants N.V. drs. C.J.A.M. Romme RA Annual Report 2008 / Financial Statements 201

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205 Colophon Production and final editing TenneT Communications Department Text Joost Bijlsma, IJsselstein Rutger Vahl, Montfoort TenneT Communications Department Translation DBF Communicatie, Alphen aan den Rijn Design Photography Chris Pennarts, Montfoort Layout and coordination Imprima (Nederland) B.V., Amsterdam Printing Roos en Roos, Arnhem No rights may be derived from the contents of this Annual Report. This Annual Report is also available in Dutch. TenneT Holding B.V. Utrechtseweg 310 P.O. Box 718 NL-6800 AS Arnhem The Netherlands Phone Fax Website Annual Report 2008 / Financial Statements 203

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