Corner image

Key risks

An overview of the main risks in 2016 is provided below, including the actions taken to mitigate these risks. The risks are categorised according to four types of risk as defined by the COSO II model: strategic, operational, reporting and compliance (TenneT's financial risks are presented separately in the notes to the financial statements '6.7 Financial risk management').

Strategic risks

Based on the strategic risk assessment conducted in November 2016, the most important strategic risks are presented in the following table.

Risk scores

Strategic goal
Risk Score
Low Moderate High

Secure Supply

Blackout caused by TenneT
Blackout caused by other grid operator
Significant delay of certain large infrastructure projects
Major disruptions in the business due to terror attack (physical or cyber)
Inability to attract and develop qualified people for specific functions

Lead NWE integration

Loss of planning and/or system operations tasks to a pan European entity
Loss of strategic position due to merger or strategic partnership of other European TSO’s
Changing future role of TSO’s within the value chain (including threat of new entrants)

Engage stakeholders

Divergence of company objectives and political sentiments in NL
Diminishing political or public acceptance due to cost to society or size

Innovate business

Failure or malfunctioning of new (high-voltage) technology
Inability to adapt to fast changes (especially within IT domain)

Deliver stakeholder value

Lack of sustainable access to equity
Adverse changes in NL/GE regulation or changes in regulatory parameters
Inability to achieve reasonable Opex efficiency (meet regulatory requirements)
Inability to achieve reasonable Capex efficiency (meet regulatory requirements)
Fraud within the company
Risk appetite
Risk score
Risk trend

Mitigation actions for strategic risks

Mitigation to secure supply

Strategic risk
Mitigating actions
Risk Score
Low Moderate High

Secure Supply

Blackout caused by TenneT
  • Operate the system compliant with ENTSO-E rules
  • Ensure sufficient amount of control and grid reserve power
  • Ensure and monitor grid investments and maintenance
  • Perform and report on root cause analyses of incidents
  • Safeguard adequate insurance coverage
Blackout caused by other grid operator
  • Enforce the correct implementation of ENTSO-E rules
  • Common simulator trainings with other TSO’s
  • Maintain and improve Regional Security Coordination – TSC
Significant delay of certain large infrastructure projects
  • Organisational changes to improve internal processes
  • Implement TenneT planning tools (resources/VNB)
  • Improved supplier management to communicate future needs
  • Active stakeholder management to speed up permits and licensing
Major disruptions in the business due to terroristic attack (physical or cyber)
  • Implement anti-terrorism measures: Tensec/Tenter
  • Business Continuity plans
  • Maintain and update Asset Protection Guideline
  • Security contingency plans with national authorities
  • Preparation for certification ISO 27001
Inability to attract and develop qualified people for specific functions
  • Development of strategic workforce planning
  • Development of flexible (external) workforce for non key positions
  • Campaign to promote TenneT as an attractive employer
Risk appetite
Risk score
Risk trend

Mitigation to lead NWE integration

Strategic risk
Mitigating actions
Risk Score
Low Moderate High

Lead NWE integration

Loss of planning and/or system operations tasks to a pan European entity
  • Active involvement at European interest groups (TSC, ENTSO-E, Acer)
  • Invest in relationship with relevant policy stakeholders
Loss of strategic position due to merger or strategic partnership of other European TSO’s
  • Keeping a close eye on M&A activity through discussions with banks, investors, fellow TSOs, etc.
  • Searching for opportunities for future cross participations
Changing future role of TSO’s within the value chain (including threat of new entrants)
  • Pro-actively follow developments with Asset Owner & CM
  • Start-up of the new DTC department to anticipate on new role
  • Lobby activities for new future role of TenneT
  • Presentation of innovative solutions to show our leading role (e.g. Energy island idea on the North Sea)
Risk appetite
Risk score
Risk trend

Mitigation to innovate business

Strategic risk
Mitigating actions
Risk Score
Low Moderate High

Innovate business

Failure or malfunctioning of new (high-voltage) technology
  • Pre qualifying of suppliers: Standard technical designs, contracts and as built documentation
  • Participating in system studies & international working groups
  • Availability of spare parts and cable repair SLA’s
  • Simulations and root cause analysis of root causes in case of failures
Inability to adapt to fast changes (especially within IT domain)
  • Implementation of Connect IT structure within business and IT
  • Implement sourcing strategy within IT
  • Power to Perform initiative
  • Always energy project
Risk appetite
Risk score
Risk trend

Mitigation to engage stakeholders

Strategic risk
Mitigating actions
Risk Score
Low Moderate High

Engage stakeholders

Divergence of company objectives and political sentiments in NL
  • Alignment/involvement of future strategy and investments with shareholder in an early stage
  • Invest in relationship with relevant policy stakeholders (shareholder, regulators, ministries of economic affairs)
Diminishing political or public acceptance due to cost to society or size
  • Active stakeholder management
  • Close monitoring of online exposure
  • Corporate Social Responsibility activities to improve public acceptance
Risk appetite
Risk score
Risk trend

Risks with a potential high (financial) impact on achieving our goals if they apply:

Blackout caused by TenneT

Although we did not have major interruptions such as the power outage of 2015 in the Netherlands, the further integration of renewables continues to affect dynamics of the load and generation mix. This, combined with international market developments and the integration of the European energy landscape, increases the challenges we face in balancing our grid. Continuous focus on this changing landscape and investing in a future-proof grid is crucial with respect to our security of supply.

Significant delay of certain large infrastructural projects

Potential delays in realising our large projects is still one of our key risks. Although we spent much time and effort mitigating the risk of delays and made good progress in completing planning and licensing procedures, this generally took more time than expected. The additional underground cabling imposed on several of these projects also took more time. Given the large investment programme, managing potential project delays continues to be a priority in both the Netherlands and Germany in order to safeguard continued security of supply.

Adverse changes to Dutch and/or German regulations or changes in regulatory parameters

A substantial part of TenneT's revenues comes from regulated activities. Changes to regulatory frameworks in the Netherlands and Germany directly affect our activities and performance. It is therefore crucial that our activities are supported by realistic, sustainable tariffs and by a solid regulatory framework. Our Corporate Regulatory department monitors regulatory risks and manages steps taken to mitigate these.

The regulatory risks are summarised in the table below.

Regulatory riskRisk mitigating actions
Europe
The current European Discussion in the market area focusses strongly on the continuous decrease of cross-border capacities that TSOs make available for cross-border trades. In the first place German TSOs, among them TenneT Germany, are accused of projecting internal congestions to the borders, in particular the DE/DK border. This would be against provisions from EU-legislation. Largest risks for TenneT: EC legal actions, leading to penalties for TenneT or to other measures relevant for the German market design.Transparently communicate the facts and causes.
To mitigate the effects for the market, TenneT cooperates with national authorities (regulators and ministries) to introduce temporary remedial actions that create reliable capacities for the market, such as 're-dispatch'.
Politically, TenneT cooperates with European authorities (EC DG ENER, EC DG COMP, ACER) to create awareness for the causes of the trouble, and to avoid any impression of withholding information. The only sustainable and long term solution is grid extension such as SuedLink.
The Netherlands
Insufficient investment incentives within national regulatory frameworkImplement international best practices regarding financeability of investments in the national regulatory framework that relate to an adequate balance between risk, reward and timely remuneration. As of 1 April 2016 a remuneration mechanism for large projects has been introduced that already compensates the financing costs during the construction phase and thus improves the financeability of investments.
TenneT is not able to achieve a reasonable rate of return on its invested capital as the regulatory WACC is set at a too low level as a consequence of the artificially low risk free interest rate.TenneT seeks dialogue with its regulator to discuss a solution that reflects the current financial market conditions. For the next regulatory period (2017 - 2021) ACM has chosen to hold on to the existing WACC approach for reasons of stability and predictability.
ACM is required by court to substantiate its approach to cost of debt in such a way that the efficient costs will be remunerated within a regulatory period. Based on this ruling for the next regulatory period (2017 - 2021) ACM has introduced a two-way WACC approach differentiating between existing and new capital, the latter as the basis for the onshore and offshore expansion investments.
Inability to achieve the efficiency targets set by the regulator on operational and capital expenditures by organisation measures TenneT has successfully appealed at court against the efficiency parameter that was set by ACM based on the national run of the international benchmark study. ACM is required to repair its decision. The efficiency level from the repair decision will also be the basis for the next regulatory period. The repair decision from ACM still needs to be confirmed by court.
In the new legislation as per 1 April 2016 additional conditions have been introduced for TenneT's offshore investments such as the treatment of non-influenceable costs in determining and setting the efficiency target.
Germany
Investments in energy infrastructure could become less attractive in case the regulatory regime will be changedTenneT actively participated in the evaluation process for the regulatory regime in Germany and reached that a stable regulatory framework for investments in the energy infrastructure is ensured.
TenneT is not able to achieve a reasonable rate of return on equity within the third regulatory period (2019-2023).Although TenneT had intensive dialogues with BNetzA and BMWi to reach a sufficient rate of return on equity, BNetzA determined a value which is below the expectations of a reasonable rate of return that reflects the challenges of the energy turnaround in Germany and the higher risk profile for TSOs due to the high investment obligations. TenneT started a court proceeding against the BNetzA determination to reach a higher value.
TenneT receives a fixed percentage reimbursement of 3.4% over the capital invested in offshore projects for operating and maintenance costs during the investment measure phase of projects. With a significant number of offshore projects going into operation at the end of 2015, the actual spending on operating and maintenance during the year 2016 exceeded the fixed percentage reimbursement for some connections. In average the lump-sum was sufficient to cover the opex for the year 2016. However, it is uncertain how actual operating and maintenance costs of these connections will develop in the near future.Following an initial investigation the regulator may determine a lump sum that is insufficient to cover actual costs. We will lobby for a sustainable solution of the issue.

Operational risks

The following table details TenneT Holding's most important operational risks.

Operational riskRisk mitigating actionsRelated strategic goal
Not realising planned portfolioSecure supply
Gap between planned and realised maintenance and preservation. Risk of deterioration of the condition of the grid in the long term.Risk-based maintenance and preservation planning in alignment with the commissioning dates for large projects
Substation driven replacement strategy
Strengthen project scheduling and project risk management functions
Risk of liability claims due to delayed or interrupted/non-functioning grid extensionsAlign project risk, claim and contract management over the complete project life-time
SHE incidents and accidentsEngage stakeholders
Work-related incidents and accidents that may harm the health and well-being of our own employees and the employees of contractorsImplementation Life Saving Rules
Development Safety, Health, Environment (SHE) management system
Integrate SHE requirements in contract management
Electricity market risksDeliver stakeholder value
Risk of not realizing efficiency targets set by regulator.Develop a procurement strategy reflecting the regulatory framework
Unavailability of ancillary services due to mothballing of conventional powerDevelop standards for the market integration of renewable energies and (pools of) small generation plants

Reporting risks

The following table presents TenneT Holding's most important reporting risks.

Reporting riskRisk mitigating actions
Financial statements do not give a true and fair view of the company's financial position, financial performance and cash flowsICF, including control self assessments and LOR procedure
Incorrect (regulatory) reports or information to BNetzA, ACM and/or tax authoritiesExternal and internal audit reviews and follow-up on findings
Use of internal accounting manuals

Compliance risks

TenneT aims to comply fully with all relevant national and international legislation, technical standards and regulatory decisions. Any breach of these may have negative consequences. Non-compliance with laws, technical standards and regulations is a key risk demanding ongoing management attention.

The business managers are responsible for remaining up-to-date on relevant legal, technical and regulatory developments and for implementing any relevant changes to their processes.

The following table presents compliance risks and mitigating actions, grouped according to three areas.

Compliance riskRisk mitigating actions
General/legal compliance
Non-compliance with European or national laws and regulations, e.g. in the area of tendering and energy marketsActive involvement of experts from Legal Affairs, Procurement, Human Resources, Safety & Security, Regulation, etc.
Non-compliance with bilateral agreements between TenneT and other TSOs, suppliers, customers, etc.Adequate registration of decisions and contracts by Legal Affairs and other departments involved
Non-compliance with labour laws and agreementsInvolvement of external specialists (e.g. legal experts) when deemed necessary
Non-compliance with permits and licensesTraining and awareness programmes
Non-compliance with health, safety and environment laws and regulations
Financial compliance
Non-compliance with IFRS, local GAAP, the Dutch Corporate Governance Code, the German Control and Transparency in Business Act, the German Accounting Law Reform Act, etc.Active involvement of experts from Finance & Control, Treasury, Tax and Legal departments
Non-compliance with financing agreementsFrequent knowledge update by means of training, external audit/expert reviews, etc.
Non-compliance with financial legislationAvailability of accounting manuals, treasury statute, etc.
Non-compliance with tax laws and regulationsUse of outside expertise, if and when necessary
Technical compliance
Non-compliance with electricity laws and technical codes, ENTSO-E operational handbook, electrical safety regulations and standards, etc.Regular assessments by the technical compliance officer
Cooperation with regulatory authorities by the Corporate Asset Owner department
Involvement of authorised electrical safety experts and technical strategists