Letter form the Board

Towards a new balance

We look back to an extraordinary year 2020 with important lessons for business and wider society. For TenneT, 2020 highlighted once again that our employees are our most important asset: amid unprecedented uncertainty caused by the COVID-19 pandemic they have proved to keep the balance between delivering security of supply and meeting the demands of the energy transition.

We are proud to have delivered on our mission to provide a robust security of supply performance of 99.9999% onshore grid availability and record investments of EUR 3.4 billion to expand and maintain our critical infrastructure. But we cannot rest and must work towards a new balance of meeting the climate targets of 2050 while addressing the challenges of making the energy system future-proof. With the European Green Deal giving a boost to the integration of large volumes of renewable energies into the electricity system, TenneT will continue contributing to a cleaner energy future. We are in international cooperation and industry partnerships to tap the energy potentials of the North Sea and develop new solutions to provide green electricity at socially acceptable costs. In doing so, we are playing our part to help Northwest Europe become one of the most sustainable and competitive regions in the world.

Europe has recently decided to step up its climate ambition and reduce its carbon footprint by 55% by 2030 compared to 1990. Further ahead, Europe aims to be climate-neutral by 2050. To reach these goals, the electricity infrastructure which sits at the heart of the transition to a net-zero carbon world is undergoing a fundamental redesign. With more fluctuating electricity generation and increasingly difficult planning & licensing procedures as well as deteriorating regulatory conditions, TenneT will need to work towards a new balance between growth and stability, between individual and societal needs and between investment incentives and the cost of the energy transition.

To successfully meet the future challenges, in 2020 TenneT started a transformation with a new organisational structure and a sharpened strategy based on four pillars. Pursuing our new purpose 'to connect everyone with a brighter energy future', we are helping build the sustainable, affordable and reliable energy system of tomorrow.

TenneT’s 5,722 dedicated employees are our most important and valuable asset. Due to the COVID-19 pandemic, 2020 was a balancing act for everyone in our organisation, as we combined an extraordinary level of activity and company growth with efforts to keep our workforce safe, engaged and connected. More than 800 new colleagues were hired to contribute to the energy transition. Over 30% of these are female, also in the senior leadership team. A new organisational structure was introduced and TenneT was once again certified as a Top Employer. In an extraordinary year when normal working became a real challenge, we are proud that employees are highly engaged (82% positive) with their role at TenneT.

As safety is at the core of everything we do, we are keenly aware of the risks associated with our activities and believe that every safety incident is one too many. We deeply regret two fatal accidents that occurred in 2020 with our subcontractors. We are deeply saddened by these incidents, and our thoughts go out to the families and friends of these two workers. Early 2021, TenneT intensified the training programme in collaboration with all partners to continuously raise awareness and strive for improved safety leadership on the road towards zero harm.

TenneT's role in the future of society also brings new tasks for our employees. We are growing fast and will focus on speeding up our work in the coming years by further improving operational excellence. Employees are encouraged to contribute by developing new solutions and work on more efficient processes enabling them to provide an excellent service. Our restated company values of 'courage, ownership and connection' are the guiding principles for this exciting journey.

Sourcing the talent we need to grow is an ongoing endeavour in our organisation. For 2021 we plan to hire over 600 additional employees. We are actively recruiting on a highly competitive European market to attract dedicated people and also work closely with sectoral and regional educational institutions to train young professionals for technical jobs.

Security of supply is of critical importance for all 42 million end-users in our service area and the core mission of TenneT. To keep our grid in balance is a growing challenge for system operators such as TenneT with a growing share and volatile nature of renewable energy. TenneT is proud to have achieved an onshore grid availability of 99.9999% in 2020.

Providing security of supply with increasing volumes of renewable energies also requires substantial infrastructure expansion. In 2020, TenneT made record investments in grid construction, despite the challenges of COVID-19. Our portfolio is on track and with EUR 3.4 billion invested in our network during the year, TenneT is one of the largest investors in Europe driving the energy transition. However, the magnitude and fast pace of grid construction, combined with the growing infeed of renewables, has also put our operational implementation under increasing pressure. Grid expansion and maintenance is a highly challenging work: not only does it demand a great deal of resources, but technical expertise is scarce and spatial procedures are more complex. It requires new forms of cooperation with suppliers, intensive local community management, long-term planning and continuous innovation.

On the road to the future, unlocking flexibility and system integration will be essential to enhance the efficiency of the energy system, reduce the need for grid expansion and to keep the grid balanced. As a response, and together with other leading European TSOs, we set up the crowd balancing platform Equigy in 2020. By using blockchain technology, the platform gives system operators access to the flexible electricity available in consumer-owned devices, such as electric vehicles or heat pumps.

The North Sea, with its offshore wind potential, will undoubtedly become the new powerhouse of Northwest Europe. With Europe aiming to achieve 300 GW offshore wind by 2050, a further rapid and internationally coordinated expansion of the North Sea grid is needed, demanding new concepts and partnerships. TenneT is contributing to develop this region which requires a balance to reconcile regional, national and cross-border interests to forge new alliances between neighbouring countries and stakeholders. In 2020, we carried out a record number of offshore activities and our windfarm connections continued to grow with the completion of the 12th offshore grid connection in Germany, BorWin3. Towards 2030, TenneT has committed to build at least fifteen new grid connection systems, of which five additional grid connections of 2 GW each in the North Sea. This will lead in total to an additional 18 GW generation capacity.

The future will see the coupling of energy markets through interconnection and smart integration into onshore grids. Driving this progress, TenneT announced a cooperation agreement to explore the feasibility of connecting Dutch and British wind farms to the energy systems of both countries. We are also investigating joint energy hubs in the North Sea with Denmark, in close cooperation with the German, Dutch and Danish governments.

TenneT's financial results in 2020 were solid and proved that we can keep a balance of strong and stable credit ratings while embarking on record financing. In 2020 underlying revenue of EUR 4.45 billion increased by 9% compared to 2019. Adjusted underlying EBIT group increased from EUR 753 million in 2019 to EUR 796 million in 2020. TenneT cherishes its position as a leader in sustainable finance. With more than EUR 10 billion of green debt and sustainable funding available, TenneT is the largest corporate issuer of green debt instruments in the Netherlands. In 2020, we successfully issued a green hybrid bond of EUR 1 billion and EUR 1.35 billion of green senior bonds. Furthermore, we are proud to have won the prestigious FD Henri Sijthoff award for outstanding financial reporting with our Integrated Annual Report 2019.

Looking forward, TenneT is determined to maintain a solid financial position as we prepare to facilitate an annual investment portfolio growing to EUR 5 to 6 billion within the next 5 years to drive the energy transition. In 2020, exclusive talks were held about a possible participation in TenneT by the German state, to secure future long term capital requirements. Discussions with our shareholder and other stakeholders on alternative options to attract additional capital will be further explored in 2021.

In addition to our capital requirements, we also call for a review of the regulatory frameworks in both, the Netherlands and Germany to make it future-proof and better suited to drive the energy transition. With a growth–driven business, TenneT is determined to continue investing responsibly and to generate an adequate return in a low-interest environment.

Towards a new balance

The energy transition is an enormous and compelling challenge, demanding players like TenneT to master complexity and agility. The time to shape the European transition is now and it can only be solved with a strong commitment of the EU and its member states to engage in a new balance of collaboration among governments, market players, industries, regulators and transmission system operators.

Over the past decade, TenneT has achieved substantial socio-economic benefits with its cross-border approach: markets have been integrated and contributed to the competitiveness of the Northwest European markets. For the future, TenneT will embark on a new balance of providing an unwavering high level of security of supply while undergoing a structural system change. It will endeavour to deliver grid expansion at an affordable cost for society. With investments reaching new records, financial stability remains crucial for TenneT.

TenneT is ready to play its part for the next phase of the transition, with the public interest always as guiding principle. We want to thank all our partners, stakeholders and employees for their contribution in 2020. In particular, we wish to thank our Supervisory Board members Pieter Verboom and Rien Zwitserloot and our colleague in the Executive Board, COO Ben Voorhorst, as they said farewell to TenneT in 2020 after a long record of service and tremendous contribution.