Letter from the CEO
In 2018, TenneT celebrated 20 years of powering society. As we proudly reflect on two decades of achievements in the European electricity market, we must also look forward. Past performance is no guarantee for the future. The rapidly evolving energy system, driven by political, societal and technological changes, challenges us to think even further ahead with ever-more innovative solutions in order to maintain a secure and stable electricity supply for all. It is TenneT's core task to design, build, maintain and operate a reliable grid in the Netherlands and Germany, serving as a backbone infrastructure for the energy transition. We anticipate - where possible - on government energy policy, such the Dutch Energy Agreement and the recently announced Coal Exit in Germany, and actively engage in the dialogues on this. With our cross-border base, we make every effort to contribute to the development of a North West European grid. Due to the increasing volumes of renewable energy we must innovate and optimise the use of the existing grid and look beyond our traditional boundaries of green electrons - like hydrogen, gas and storage. At the same time, we must not forget that it is in society's common interest that the energy transition and the CO2 reduction come at an affordable price, without the security of supply being jeopardized. This requires cooperation and partnerships at all levels, with all stakeholders.
I am excited to take over the baton and lead TenneT, as we begin the next phase in our journey as one of the drivers, or even accelerators, of the energy transition.
Handover 20 years TenneT
Thank you to everyone who has welcomed me as the new CEO of TenneT – a position I was thrilled to officially assume as of 1 September 2018. I have big shoes to fill, taking over from Mel Kroon who served TenneT with such vision and skill and dedication for 16 years. Under Mel's leadership, TenneT has developed into one of the leading transmission system operators (TSOs) in Europe.
I am keen to build on his heritage and add my 25 years of experience and expertise in the European energy and digital technology sectors.
Keeping the lights on, now and in the future
The substantial expansion and reinforcement of our grid demonstrates our crucial role in driving the energy transition. Our commitment goes beyond what the law or the regulator expects; we are intrinsically driven to secure the supply of electricity, 24/7, to end users in an affordable way. We embrace this responsibility, as we see the energy transition and the ongoing electrification of society as essential steps in building a more sustainable future for all.
The Dutch Agreement on Energy for Sustainable Growth (Energieakkoord voor duurzame groei) stipulates that renewable energy sources must account for at least 16% of the overall Dutch electricity supply by 2023. It also states that by 2023, 3.5 gigawatt of new wind farm capacity must have been realised in three offshore zones: Borssele, Holland Coast (south) and Holland Coast (north). TenneT has already started to prepare innovative and cost-effective solutions to connect these new offshore sites to the grid. We welcomed the opportunity to contribute to the draft Energy Agreement, which represents a substantial, integrated package aimed at reducing CO2 emissions in the Netherlands by at least 49% in 2030.
Equally ambitious, the German government has committed itself through the Energiewende, to boost the efficiency, modernisation, innovation and digitisation of the energy supply. The new German government has raised the bar for the share of renewables, aiming for 65% in 2030, as well as decommissioning all nuclear and coal-fired power plants. It fully recognises the challenges of transporting wind energy, primarily generated in the north of Germany, over large distances to the end-users in the south. Crucial for a successful Energiewende therefore, is the expansion of both the cross-regional grids and the local distribution grids.
In 2018, we continued to execute essential new infrastructure projects, to ensure a future-proof security of electricity supply. We opened the new 57 km 380 kV Doetinchem-Wesel interconnector, linking the Netherlands with Germany, allowing further exchange of electricity in the North West European market. In June, the support-structure for the Borssele Alpha transformer station was successfully transported and anchored to the sea-bed, laying a first building block in the development of the Dutch offshore grid. In November we celebrated the 'landing' of the COBRA-cable, a 325 km overseas interconnector that will be operational in 2019 and will connect the Dutch and Danish electricity grids.
Green electricity comes at a cost
To achieve vital new connections, and bring green electricity into homes and businesses across Germany and the Netherlands, we must raise financing for our extensive investment portfolio. During the year the European Investment Bank (EIB) invested in a EUR 100 million hybrid bond, issued by TenneT to support the construction of the NordLink Direct Current interconnector between Norway and Germany. In June, TenneT issued another EUR 1.25 billion through its Green Bond programme, underlining its status as the largest corporate issuer of green debt in the Netherlands.
In addition, we are in a constructive dialogue with the Dutch Ministry of Finance, our shareholder, on our future equity capital needs and its role as shareholder. As our debt will increase, we need to maintain a balanced equity-debt ratio, in order to secure our current credit ratings.
Setbacks and dilemmas to address
In realising our ambitious project portfolio, we also faced a number of setbacks. In October 2018 we had to terminate the Wintrack II contract with consortium company Heijmans Europoles B.V. (HEP), involving and delaying the construction of new high-voltage pylons. A new tender was started in January 2019, with the aim to start construction of the project in the first quarter of 2020.
As well as building for the future, we must also maintain our existing grid to ensure continuing high reliability. We had to deal with several outages during 2018, including the August power failure in the Tilburg area in the south of the Netherlands, when over 100,000 households and several hundred companies could not be provided with electricity for at least 22 minutes and some up to one hour. We regret these outages and make every effort to learn from these experiences.
The most pressing energy-related dilemma at the moment for society and therefore for TenneT concerns the preferred path of the energy transition. Due to the long-term nature of our business, we look as far ahead as 2035 or even 2050. At present, there is no clear answer to the question of how electricity supply can be guaranteed 365 days a year with a system that is largely based on renewable energy sources, when there is hardly any sun or wind for several weeks, which often occurs in the winter. To address these situations we started a series of innovative (pilot) projects, such as crowd sourcing via blockchain technology (with IBM, VandenBron, Engie, Sonnen, Escozon, Energie Samen, Scholt Energie and Enervalis); power- to- gas (e.g. hydrogen production facility with Gasunie Deutschland and Thyssengas) and a joint initiative in Germany aimed at connecting offshore wind energy to hydrogen production (with Shell and Siemens).
Other dilemmas we face relate to the social acceptance of new infrastructure. Not only regarding its physical presence in the built environment, but also its affordability.
In fact, most of our dilemmas are 'trilemmas': our continuous challenge to balance security of supply, affordability and sustainability. These also form the pillars of Dutch and German energy policy.
Make smarter use of the grid(s)
The challenges facing TenneT require us to be more innovative than ever before. Pioneering research in areas such a green hydrogen and solutions based on block chain technology have the potential to help society achieve its ambitious carbon targets, but there is more we need to do in the shorter term. Balancing supply and demand with the unpredictable in-flows of wind and solar power requires us to make smarter use of our grid, making us more agile and proactive.
In this way, we are becoming a more digital, data-driven company, shifting us into a new area of expertise that may be just as essential to our future as our physical power grid, onshore and offshore. In the future, we may be able to use the reserve capacity of our grid to a much greater extent.
We trust that the compensation we receive from our regulators will not be restricted to building and maintaining assets, but will also provide us with incentives to develop innovative solutions for a smarter grid.
Working together on TenneT's future
Our people remain our most valuable assets. I am very proud of our exceptionally high levels of employee engagement, running at 80% in 2017, and of the results of the 2018 MT500 survey, which ranked TenneT among the top 25 most admired companies in the Netherlands. In this survey, we achieved second place in the utility sector, and received maximum scores in terms of employment and excellent execution.
Our status as one of Europe’s leading TSOs at the cutting edge of the energy transition is reflected in our new German headquarters in Bayreuth, which opened in September. This state-of-the-art campus reflects our desire to be one of the most innovative employers in northern Bavaria, attracting the best talent to achieve our ambitious goals.
As we embark on designing and building the grid of the future, developing the system operations function of the future with new technologies and across geographies and accelerating the energy transition, our top-management structure is changing. We started with a larger statutory Executive Board with a CEO, CFO and double COO function with strong footholds in both countries. As a next step we will be working to further optimise the organisation, where end-to-end processes and integrated thinking are central and in which our people can deploy all their talents.
As our current strategy is nearing the end of its 5-year term, we conducted a strategic reorientation in the fourth quarter of 2018 and concluded that our strategy needs to be adapted in order to manage our fast growth and cope with the rapid changes that the energy transition brings. The recalibration our current strategy, focuses on four pillars: maintain security of supply, today and tomorrow; accelerate the energy transition; energize our people and our organisation and safeguard our financial health. During this year, we will design – and start executing - a roadmap for these priorities for the medium term and long term. One thing is clear: collaboration at all levels and with multiple stakeholders will be key.
A rising tide lifts all boats
When it comes to make the energy transition happen, we are all in the same boat. As TenneT, we will hopefully 'rock the boat' sometimes with new ideas, because we want to push the limits of our current thinking. The ocean or even the North Sea is big and our TenneT boat is small by comparison. The boat might be safer anchored in the harbour, but that is not the purpose of boats. I call upon all around us to find the inspiration and courage to innovate together and make a great journey.
Last, but not least, I wish to thank all TenneT employees for their hard work and their dedication to the company and what it stands for: securing the supply of electricity, 24/7, in an affordable and sustainable way.
Manon van Beek
CEO and Chair of the Executive Board