Board of Director's report

Statnett’s main objective is to ensure a stable supply of electricity and facilitate a well-functioning power market. 2012 has been a year with stable operations, and the power situation in Norway has been good throughout the year. The overall energy production increased by 17 percent compared with 2011, both production and export records were set and net imports were only necessary for two weeks.

The Nordic frequency quality, measured as the number of minutes outside the 49.9 - 50.1 Hz frequency band, has deteriorated in recent years. Together with the other Nordic transmission system operators (TSOs), Statnett has drawn up an action plan to improve the quality. The Frequency Restoration Reserves (FRR), a new market for automatic reserves, was activated in December. The reserves will help bring the frequency back to 50 Hz and reduce the impact of any incidents in the system.

To maintain and improve security of supply, facilitate value creation and reduce emissions of greenhouse gases, Statnett is in the initial phase of its mission to build the next generation main grid by 2030. Statnett’s plans, which are described in the 2011 Grid Development Plan and the updated 2012 Investment Plan, are consistent with the Norwegian government's Grid Report presented on 2 March 2012. The mission imposes substantial demands on Statnett’s organisation and on the interaction with stakeholders. This requires efficient licensing processes, a strengthening of Statnett's implementation strategy as well as increased use of the supplier industry through extended contract models. Statnett investments in the main grid in the next decade will be within an estimated cost range of NOK 50 and 70 billion. This will result in increased financing needs and hence also considered the need for additional equity. The increased activity affects the risk situation for Statnett. Statnett practises unified risk management. The risk profile has been assessed, and extensive improvements and measures have been implemented to meet this challenge.

In 2012 there has been an increase in investments, and extensive planning has been undertaken which shows that the investment level is expected to increase in the years ahead. Statnett currently has major power line projects under construction. The main projects are Ørskog - Sogndal and Sima - Samnanger, which are both important power lines for security of supply to central Norway and the Bergen area respectively. Other major important projects under construction are the Skagerrak 4 interconnector to Denmark and the Ytre Oslofjord cable. The increased investment levels also include significant reinvestments in existing plants and facilities.

Statnett's future investments in the main grid will result in increased grid tariffs and will thus represent higher costs for the users. In as far as possible, Statnett tries to balance phase-in of investment initiatives necessitated by the need to ensure security of supply, with a cost-efficient overall development plan. Furthermore, Statnett prioritises coordination of contract solutions across projects to ensure efficient use of the supplier market. At the end of 2012, Statnett held licences for 17 percent of the estimated investment portfolio of NOK 50 - 70 billion. The figures in the investment plan may be affected by, for instance, reassignment of priorities in the portfolio, new licensing terms and cost developments in the supplier market. Each individual project goes through several decision stages before a final investment decision is made. The largest projects will also be subject to external quality assurance. Since 2003, about 80 percent of Statnett's projects have been implemented within budget.

The Nordic and north European energy system is undergoing structural changes. This places new demands on the future Norwegian main grid to ensure a robust grid and a flexible supply of energy. To facilitate new renewable energy and an expected Nordic power surplus, and in order to ensure security of supply in dry years, it is necessary to increase the power exchange capacity to the system outside the Nordic region. In 2012, Statnett has entered into agreements with key parties in Germany and the UK for the construction of international interconnectors. These interconnectors are scheduled to be completed by 2018 and 2020 respectively. These projects are important for the development of the Northern European power grid and have top priority for all parties involved.

In 2012, Statnett was certified according to the quality standard PAS 55 (Publicly Available Specification 55). PAS 55 sets requirements to the enterprise's asset management in a lifetime perspective. The standard assumes a clear connection between the enterprise's strategy and plans and the implementation of activities and risk-based decisions. The PAS 55 requirements are stringent; they assume continuous asset management improvement and, furthermore, underpin Statnett's focus on cost-efficient operations during a strong growth phase.

Statnett has focus on Health, Safety and the Environment (HSE) directed at both regular operations and the increasing construction activities. Several measures were introduced in 2012 and Statnett is working systematically to facilitate the zero tolerance philosophy for HSE. There were no serious incidents in Statnett in 2012. However, on 3 January 2013, a tragic accident occurred on one of Statnett’s development projects. A subcontractor employee lost his life. The accident is being investigated by the Police and the Norwegian Labour Inspection Authority. Statnett has also initiated its own investigation of the accident. 

Security of supply

The power situation in Norway was good throughout 2012. The hydrological balance was 12 TWh entering 2012, which is above normal, and the balance remained at this level through most of the year. Cold and dry weather towards the end of the year reduced the hydrological balance to 3 TWh below normal at year-end.

Reservoir levels varied greatly in 2012. At the beginning of 2012 reservoir levels were 80 percent, 35 percentage points higher than in 2011, 10 percentage points above the median, and on par with the maximum level for the period 1993 - 2011. In March the temperature was 4.3 degrees above normal, the warmest March ever recorded nationwide since the year 1900. Precipitation levels in March were 155 percent of normal, resulting in high inflow for this time of year.

In the second quarter, precipitation levels were higher than normal. However, temperatures were lower than normal which resulted in late spring culmination, and thus reduced reservoir levels compared to the median. Due to heavy precipitation in July, reservoir levels increased. The average temperature in December was 2.6 degrees below normal and precipitation averaged 70 percent of normal precipitation, which reduced reservoir levels. At the end of 2012, reservoir levels were 70 percent, at median level.

The average temperature in 2012 was normal and precipitation was 105 percent of normal. This corresponds to 129 TWh of precipitation energy, 1 TWh above normal. Inflow in 2012 was 134 TWh, 5 TWh higher than normal (based on the period 1981 - 2010), but 15 TWh less than in 2011. The main reason for the changes in reservoir levels, from 10 percentage points above the median at the beginning of the year to median levels at year-end, was high exports throughout the year.

The overall power consumption in 2012 was 130 TWh, compared to 123 TWh last year. Overall power generation was 148 TWh in 2012, an increase of 17 percent from 2011. This resulted in net exports of 18 TWh, which is the highest since 2000.

Net imports were only necessary for two weeks in 2012. High production set new records for production and exports: On 2 February, production for one hour reached 25 910 MWh/h, on 3 April the registered exchange per hour was 5 195 MWh/h and for the week 13-19 August power exchange measured 655 GWh.

On 27 June, a new power line between Sauda and Saurdal was put into operation. This is a 420 kV line, but is operated at 300 kV. The power line has efficiently relieved the other power lines in the area and improved the operating and supply situation in western Norway.

The Nordic frequency quality has been somewhat reduced in certain periods, and Statnett has, together with the other Nordic TSOs, drawn up an action plan to improve the quality. On 3 December, a new market for automatic reserves was launched, the Frequency Restoration Reserves (FRR). The reserves will help bring the frequency back to 50 Hz and reduce the impact of any incidents in the system. From January 2013 Sweden and Denmark have also contributed FRR to the Nordic system.

There were several operational interruptions in 2012 that affected operations for shorter or longer periods:

  • Security of supply to Troms and Finnmark counties was affected following a transformer breakdown in Kvandal in the autumn of 2011. On 2 February, a pylon broke down on the connection between Varangerbotn and Finland, which further deteriorated the situation.  The connection to Finland was restored on 10 February. On 15 February, a back-up transformer was put into operation in Kvandal and security of supply was close to normal.
  • On 26 January, a transformer outage occurred in Vang (Hamar) causing a consumption outage of 100 MW which lasted for about three hours.
  • On 4 April, two pylons on the Aura - Viklandet power line broke down due to an avalanche. This affected security of supply to the Møre area. The situation improved throughout spring due to lower consumption and higher production. The power line returned to operation on 4 November.
  • On 19 November, an operational interruption occurred in connection with work at Rød transformer station.  The manufacturing industry at Herøya, Rafnes and Esso Slagentangen was affected and approx. 500 MW of production was interrupted. Industrial consumption and production was resumed after approx. 35 minutes. Rød T4 was back in operation on 25 January 2013.
  • A storm in south-western Norway on 14 and 15 December broke pylons on the power lines between Saurdal - Sauda and Førre - Lyse. The power lines returned to operation in January 2013.


Investments

Statnett has major development projects under planning and implementation. The plans are presented in Statnett's grid development plan from 2011 and the updated 2012 investment plan. The plans are in line with the white paper  No. 14 (2011-2012), the Grid Report. Statnett invested NOK 3 152 million in 2012, including both commissioned and ongoing investment projects. This is an increase from NOK 2 384 million in 2011. 

Commissioned projects totalled NOK 1 339 million in 2012.

At year-end, the value of plants under construction was NOK 4 277 million, a net increase of NOK 1 840 million in 2012. This was mainly related to the power lines Ørskog - Sogndal and Sima - Samnanger, as well as the Skagerrak 4 interconnector to Denmark.

The most important projects are listed in the table below. Planning proposal submitted means that Statnett has notified the Norwegian Water Resources and Energy Directorate (NVE) that a licence will be applied for, but a licence application has not yet been submitted. Projects for which licence applications are pending or licences have been appealed are being considered by the Norwegian authorities

Overview of major investment projects

See www.statnett.no for more information about the projects.

Project Location Expected investment NOK million
     
Commissioned projects    
Hasle transformer station   400
Sauda - Liastølen Rogaland 200
Modernisation of ICT infrastructure in Statnett's stations   87
     
Ongoing major investment projects    
Ørskog - Sogndal Møre og Romsdal/Sogn og Fjordane 4 600 - 5 600
Voltage upgrade
Eastern corridor (Kristiansand - Rød)
Vest-Agder/Telemark 1 350 - 1 950 1)
Station investments (Frogner, Mestervik, back-up transformers and reactors for voltage reduction)   1 400 - 1 750
Skagerrak 4 Norge/Danmark 1 400 - 1 700 2)
Ytre Oslofjord Vestfold/Østfold 1 200 - 1 400
Sima - Samnanger Hordaland 900 - 1 100
Varangerbotn - Skogfoss Finnmark 480 - 580
     
Licences pending or appealed    
Ofoten - Balsfjord - Hammerfest Nordland/Troms/Finnmark 8 000 - 12 000
Voltage upgrade Western corridor Vest-Agder/Rogaland 6 000 - 9 000
Station investments (Hamang, Lakselv,
transformer capacity Eastern Norway)
  2 900 - 4 100
Storheia - Snillfjord - Trollheim Sør-Trøndelag/Møre og Romsdal 2 600 - 3 900
Namsos - Roan - Storheia Trøndelag 1 400 - 2 100
Voltage upgrade Central Norway
Klæbu - Namsos section
Trøndelag 700 - 1 000
Reinvestments Indre Oslofjord - interconnectors   670 - 870
     
Planning proposal submitted    
The South-West Link Norway/Sweden 3 300 - 5 000
"Arctic Circle" Skaidi - Varangerbotn Finnmark 2 250 - 3 500
     
Interconnectors    
Cable to England   6 000 - 8 000 2)
Cable to Germany   6 000 - 8 000 2)
     
ICT projects    
Renewal of Statnett's central operations system   400 - 500
New Regulation and Market System   200 - 250
Computer network for power system management   200 - 250
     
1) Sections are under licensing    
2) Statnett share    

 

The amounts in the table show the anticipated interval including all project costs. Commissioned and ongoing projects are shown in current NOK, other projects in 2012 NOK.

Important project events in 2012

Major investment projects - completed

  • Hasle Transformer Station: A new upgraded station assumed operation in November.
  • Sauda - Liastølen: A new 420 kV and 29 km long power line came online in June. The power line is operated at 300 kV.
  • Modernisation of ICT infrastructure in Statnett stations: The project will improve capacity, availability, security, safety and functionality of ICT services at Statnett stations. The project has been completed below budget.

Ongoing major investment projects

  • Ørskog - Sogndal: There is a high level of activity related to construction of power lines and substations. Work is ongoing to gain land access after a final licence was granted in December 2011. 
  • Voltage upgrades Eastern Corridor Kristiansand - Rød: Construction work has started on the Kristiansand - Bamble section. Statnett received a final licence for the Bamble - Rød section on 1 March 2013.
  • Skagerrak 4: Progress is according to plan and completion is scheduled at year-end 2014.
  • Ytre Oslofjord: Due to technical irregularities on the oil cables, the cables must be remanufactured. The production of a prototype oil cable has been completed and preparations for type testing are ongoing. The production of the PEX cables has been delayed. A back-up cable has been deployed to handle a potential outage situation. The back-up cable can be put into operation 1 – 2 weeks after a decision to do so has been made.
  • Sima - Samnanger: Progress is somewhat behind schedule. However, completion is expected in 2013  as planned.
  • Varangerbotn - Skogfoss: Progress is somewhat behind schedule. However, commissioning is expected in 2013 as planned.

Other projects under development:

  • Ofoten - Balsfjord - Hammerfest: In 2012, the NVE granted Statnett a licence for the construction and operation of a 420 kV power line from Ofoten through Balsfjord to Hammerfest. The decision has been appealed. This is the longest power line project in Norway (513 km). In January 2013, the Statnett Board of Directors made an investment decision in principle for the Ofoten - Balsfjord section.
  • Interconnector to Germany: The project is under development and scheduled for commissioning in 2018. Statnett has signed a partnership agreement with TenneT and the German state-owned financial institution KfW and is, together with these partners, developing the interconnector project towards a final investment decision in 2014.
  • Interconnector to England: The project is under development and scheduled for commissioning in 2020. Statnett and National Grid International Limited have signed a collaboration agreement for the construction of the interconnector.


Research, development and competence building

Research and development (R&D) in Statnett is a strategic tool to promote value creation, innovation and environment friendly solutions. Statnett invested NOK 37 million in R&D in 2012, two million less than in 2011. In the first quarter of 2012, a new R&D strategy was developed for the period 2012 - 2014, linked to Statnett's Group strategy. The following R&D programmes were initiated:

  • Smart Grid: Developing and testing new solutions for safe and efficient operations which will meet future challenges.
  • Solutions and technology for the next generation main grid: Developing and implementing a pilot facility to support  the development of a robust main grid adapted to the environment.
  • Priorities:
    - Environmental challenges: Impact of new infrastructure on the environment
    - Social acceptance: Ensure acceptance and understanding for Statnett’s social mandate, ensure security of supply and promote value creation through interaction with the other Nordic countries and Europe.

In addition to its own R&D activities, Statnett cooperates closely with external expertise both in Norway and abroad. Furthermore, Statnett is committed to developing an R&D strategy through ENTSO-E, which will give the enterprise the opportunity to participate in jointly financed R&D projects together with other transmission system operators, as well as universities in Europe with financial support from the EU. See Corporate Social Responsibility for more information about Statnett's R&D work.

Financial results

The annual financial statements for Statnett SF and the Statnett Group have been prepared in compliance with the International Financial Reporting Standards (IFRS) and interpretations established by the International Accounting Standards Board (IASB) which have been approved by the EU. Comments to the accounting items are in relation to the Group's financial statement. Developments described for the Group also apply to the parent company.

Operating revenues

Statnett's operating revenues for 2012 totalled NOK 5 334 million (NOK 5 497 million). The reduction in operating revenues was due to lower tariff revenues in 2012, due to planned downward adjustment of tariffs for 2012 as well as lower electricity prices in 2012, somewhat offset by increased congestion revenues.

Statnett's operating revenues mainly derive from regulated grid operations. Operating revenues from regulated activities in Statnett's financial reporting consist primarily of fixed grid tariffs from the customers as well as congestion revenues (price differences between areas in the Nordic region and towards the Netherlands). Statnett's grid operations are regulated by the NVE which stipulates a cap for Statnett's revenues (permitted revenue). If the total revenues from grid operations for one year diverge from the permitted revenue, so-called higher or lower revenue will occur. Higher/lower revenue will even out over time through adjustment of future grid tariffs. In 2012, Statnett's higher revenue amounted to NOK 1 065 million (NOK 1 020 million). Accumulated higher revenue including interest was NOK 3 455 million at the end of 2012.  

Operating costs

The Group's operating costs in 2012 totalled NOK 3 901 million (NOK 3 869 million).

System services costs were reduced by NOK 70 million due to reduced costs of reserves. 2012 was characterised by high reservoir water levels and high production. All generators supplied reserves. Consequently, the need to purchase further reserves was low. In 2011, on the other hand, reservoir water levels were low as was production. This was combined with extraordinary high inflow in some periods, and in some parts of the country, production exceeded grid capacity in 2011. Production had to be regulated downwards despite water loss at some power plants. This was particularly costly during the revision period.

Transmission losses were NOK 263 million lower in 2012 compared to 2011. This was due to lower energy prices in 2012.

Wage costs increased by NOK 142 million in 2012 compared to 2011. This was due to an increase in pension costs attributable to changes in actuarial assumptions applied to pension calculations as well as an increase in staff throughout 2012 as a result of increased activity in development, operations and maintenance.

Depreciation and write-downs increased by NOK 29 million in 2012 compared with 2011. This was due to a net increase in the value of commissioned facilities.

Other operating costs were NOK 194 million higher in 2012 than in 2011. This was primarily due to increased interconnector activity, preparedness measures for Ytre Oslofjord, as well as reversal of provisions in 2011 related to the cost-sharing agreement for NorNed’s first two operating years.

Net profit

The Group's operating profit for 2012 amounted to NOK 1 433 million (NOK 1 628 million).

Revenues from associates totalled NOK 9 million in 2012 (NOK 5 million).

The Group's net financial items for 2012 amounted to net cost of NOK 280 million (net cost of NOK 276 million). Interest costs were higher in 2012 due to an increase in loans in 2012. This was offset by an increase in capitalized contruction interest as a result of significantly higher project activities in 2012.

Profit for the year after tax in 2012 was NOK 837 million (NOK 1 000 million). Lower tariff revenue is the main reason for the reduction in profit. The adjusted profit after tax for the year amounted to NOK 234 million, and is adjusted for changes in higher/lower revenue, including decisions relating to earlier years of NOK 272 million and estimated interest costs. Dividend is based on the adjusted profit.

Cash flow and balance sheet

The Group’s operating activities generated an accumulated cash flow of NOK 1 426 million in 2012. The net cash flow from investment activities totalled NOK -3 085 million. In total, loans were redeemed by NOK 4 439 million, and new loans of NOK 5 903 million were raised. At year-end 2012, the Group's liquid assets and market-based securities amounted to NOK 1 302 million (NOK 1 602 million).

At the end of 2012, the Group had total assets of NOK 25 794 million (NOK 23 881 million), and interest-bearing debt amounted to NOK 14 390 million. The market value of recognised interest swap and currency swap agreements (fair value hedges) related to interest-bearing debt was NOK 932 million. Interest-bearing debt, corrected for this, totalled NOK 13 458 million.

At year-end 2012, the Group’s equity totalled NOK 8 955 million (NOK 8 277 million). The company's distributable equity was NOK 5 979 million at year-end (NOK 5 289 million). Adjusted for net higher/lower revenue, the equity ratio was 25.1 percent.

Subsidiaries and associated companies

Statnett SF is required to provide heavy transport preparedness for the Norwegian power supply. The wholly owned subsidiary Statnett Transport AS shall ensure efficient and competitive execution of these obligations. In 2012, operating revenues for Statnett Transport amounted to NOK 137 million (NOK 104 million) and the profit before tax was NOK 18 million (NOK 1 million).

At the beginning of 2012, Statnett SF had an ownership interest of 30 percent in Nord Pool Spot AS. On 1 August 2012 there was an increase in capital in Nord Pool Spot AS, where Elering AS and Litgrid AB, systems operators in Estonia and Lithuania, purchased a shareholding of two percent each. Statnett's shareholding was consequently reduced to 28.8 percent The Latvian system operator Augstsprieguma has issued a letter of intent to purchase two percent of the shares in Nord Pool Spot and will effectuate this agreement when the power market opens in Latvia. Statnett's shareholding after the three Baltic system operators have become co-owners in Nord Pool Spot AS, will be 28.2 percent. Statnett’s share of the profit in Nord Pool ASA contributed NOK 9 million (NOK 5 million) to the Statnett Group's profit in 2012.

Risk

Statnett practises unified risk management which reflects that the enterprise manages a critical infrastructure in a vulnerable society, and that the enterprise is in a growth phase with a significant project volume. Statnett’s tolerance for risks with a potential impact on HSE and supply of electrical power is very low. A secure power supply in general forms the basis for stable supply of electricity to the end-users specifically, value creation and realisation of climate-friendly solutions. Important activities for managing risk in connection with power supply include:

  • Asset management including new investments and reinvestments, maintenance and security measures
  • Exercising Statnett's system responsibility
  • Preparedness

Statnett's risk management covers the enterprise's entire perspective, including strategic, commercial, operational and financial aspects. Statnett's risk management is an integrated part of the company's activities, coordinated across divisions by means of a common methodical foundation and framework. There is focus on risks with a potential impact on HSE, power supply, financial aspects, reputation and compliance. Consequences at enterprise level will take priority.

Market risks are centally managed in Statnett, and checks are conducted to ensure that exposure does not exceed mandates. Assets, responsibility and personnel are insured at Group level. A coordinated mapping of exposure is conducted and an insurance portfolio has been established through Statnett Forsikring AS and the open insurance market.

Statnett's risk areas are, to a large extent, of an operational and financial nature.

Operational risk

  • HSE risk. Statnett's work relating to development, operations and maintenance, involves operations where there is a risk of serious personal injury. Statnett's activity level will increase in the time ahead and there will be focus on health, safety and environment risks. This HSE risk is reduced by focussing on sound, documented work processes, safe job analyses, management focus on HSE, as well as the reporting of incidents and near misses in a learning perspective. An extensive HSE network across the Group is an important contributor to a uniform work method and for efficient learning and development.
     
  • Project and portfolio risk. Statnett is implementing several major projects, and is planning to launch a number of new projects. This entails increased project risk. The projects are relatively uniform and take place mainly in Norway. This means that the projects are exposed to many common risk factors in addition to the project-specific factors. In 2012, Statnett conducted comprehensive analyses to look into the possibility of establishing a project portfolio with a more favourable risk profile and an ambitious, but acceptable schedule for goal realisation. The portfolio was adopted in the autumn of 2012. The project execution risk still remains, even after this replanning.

    Significant common risk factors in the project portfolio include HSE risks, disconnection needs in the existing grid, capacity challenges relating to certain expertise groups, awarding of licences and authority permits as well as insufficient quality in deliveries. Risk is managed by focusing on quality in work processes, various implementation models and internal allocation of expertise and capacity.

    In order to increase the company's implementation capacity new contract models are introduced where a greater share of the work is performed by external contractors. It is important to take into account the various risks arising from the chosen contract model, including how risk is shared between Statnett and suppliers. Furthermore, there are various risks associated with the contractor's ability to meet Statnett’s quality requirements, the ability to operate under Norwegian conditions, meeting Statnett’s safety requirements and compliance with statutory and contractual tariff wages and working conditions for foreign workers. Efficient management of these risk factors sets strict requirements for Statnett as a construction client. Statnett will also be more exposed to non-deliveries should any of the company's suppliers run into financial difficulties. There is focus on assessment and continuous follow-up of suppliers.

    To ensure good governance of the projects approved by the Board of Directors, the Statnett Board has appointed a project committee. The project committee will follow up to ensure that Statnett's management of the projects is satisfactory and that the projects have sound HSE practice, supply good technical quality, follow schedules, comply with budgets and are cost-efficient.
     
  • Risks relating to systems and operation. The frequency quality in the Nordic region, measured as the number of minutes outside the 49.9 - 50.1 Hz frequency band, has deteriorated in recent years. Frequency deviation is an indicator of the risk in the system. If an incident should occur in the Nordic power system during a situation which cannot be covered by available reserves, the frequency may fall to a level where consumption is disconnected (automatic frequency control). The Nordic TSOs have implemented measures to improve the frequency quality, most recently in December 2012 when a market for secondary reserves was launched. 
     
  • Risk of grid facility faults. Interruptions in the electricity supply may occur as a result of a fault in a single component during N-0 operation or as a result of concurrent faults in situations with normal operational reliability. Some geographical areas have N-0 supply for parts of the year; such as Bergen, Stavanger, northern Norway north of Ofoten, Lofoten/Vesterålen, Sunnmøre and parts of eastern Norway. The number of hours with N-0 operation depends on the level of consumption as well as the extent of any grid outages due to faults, maintenance and reconstructions. An increase in N-0 operation hours increases the risk of supply interruptions. Some of the consumption is constantly supplied by N-0, such as the process facility for Ormen Lange in Nyhamna. In 2012, few incidents have resulted in outages for end-users. Preliminary estimated outage costs for connected end-users (under the KILE scheme) amounted to NOK 31 million in 2012, compared with NOK 270 million in 2011.

    For areas supplied by N-1 operation, at least two faults must occur before supply is interrupted. The main reasons for concurrent faults are extreme weather, operational incidents during grid work as well as other extreme incidents. Concurrent faults are less likely to occur than single faults. However, these may last longer and be more extensive.

    Many different measures are applied for managing the risk of faults in grid facilities. Completed new investments reduce the risk of N-0 operation in the event of a fault. However, the risk may increase during the construction period as existing facilities need to be disconnected. Reinvestment and maintenance will improve the condition of a facility and reduce the risk of faults in the existing grid structure. Safety measures reduce the risk of externally generated faults as well as injuries. Emergency preparedness measures reduce the impact of faults and other incidents, should they occur.

    In the medium term, many of the ongoing risk-adjustment measures, in particular development projects, will be completed, and some of the areas which currently have N-0 operation for parts of the year will have a more reliable power supply. Developments in production and consumption, ageing of existing grid facilities and weather changes are some factors that will result in some areas still being exposed to faults in grid facilities. Statnett is continuously conducting analyses to identify areas that are exposed to risks in the medium term.
     
  • Energy access. Risk related to energy access for the system as a whole is considered to be normal based on a regular hydrological balance, combined with the fact that Swedish nuclear power is expected to produce with a high load factor. Other measures that will reduce the risk include purchase of energy options in consumption and earlier investments in back-up power facilities.
     
  • Operating control systems. A fault in the operating control system may lead to disruptions in the power system, power failures, physical damage to facilities or may pose a risk to human life and health. Such incidents will also complicate fault correction in the power grid. There were no incidents with major consequences in 2012. Measures that are implemented to reduce the risk include systematic risk management, duplication of technical solutions, improved access control and establishment of a more robust data communications network.
     
  • Regulation. The energy sector is strongly regulated and the development trend points towards even more regulation to achieve political objectives. Furthermore, power lines historically represent controversial disruptions to the landscape and Statnett's facility upgrades will affect many of the country's municipalities in the coming decades. Statnett is dependent on society's acceptance of any disruptions to the landscape as a consequence of our activities. A majority of the Storting supports the main aspects of the Grid Report, which to a large extent embraces Statnett's activities.

Financial risk

Statnett has established a financial policy and framework for financial management, including limits in connection with credit risk, settlement risk and counterparty risk, as well as instructions for implementation of financial transactions. Control procedures have been established which are carried out independently.

  • Financial risk. Statnett has access to multiple credit markets and has a diversified maturity structure on its debt. This reduces the risk of Statnett not being able to refinance the company's loans during periods with limited captial availability. The enterprise has a credit facility totalling NOK 3.5 billion with a five-year term to support an ability to fund at least 12 months' operation and investments without incurring any new debt. Statnett has long-term credit ratings of A+ and A2 from Standard & Poor’s and Moody’s Investor Service, respectively.
     
  • Interest rate risk. Statnett's permitted revenues are partly based on the return on the enterprise's grid capital, calculated on the basis of the NVE interest rate. The model used to calculate the NVE interest rate has been changed with effect from 1 January 2013. The change will reduce Statnett's interest rate risk, as the new model is better adapted to the actual financing costs of the grid companies, including Statnett.
     
  • Credit risk. Statnett assumes credit risk through placing surplus liquidity with securities issuers. Statnett has limits which set credit rating requirements for counterparties and maximum exposure limits for each individual investment of surplus liquidity. Statnett is also exposed to credit risk related to the company's collection of main grid tariffs, and as responsible for balance settlement in the regulating power market. Routines have been established for provision of security relating to trade on the regulating power market.
     
  • Currency risk. Statnett's revenues are mainly in Norwegian Kroner (NOK), whereas some of the Group's expenses are in foreign currencies. Currency risk is minimised through several measures, including using currency swap agreements to hedge risk in connection with purchases in investment projects. All Statnett loans in foreign currency are converted to NOK through currency swap agreements.


Employees and organisation

Statnett's head office is in Oslo, with administrative offices in Alta, Sunndalsøra and Strinda in Trondheim and in Brussels. In addition, Statnett employees work at facilities all over Norway.

Employees

Statnett has an ambitious assignment and must ensure that the right expertise is in place for the right jobs. The enterprise had significant growth in 2012 with 132 new employees. Statnett has a low staff turnover. However, many of our employees will retire in the next few years. Consequently, Statnett makes a targeted effort to be an attractive employer in order to attract new employees, as well as to retain and develop the expertise of existing employees. This includes summer job programmes, trainee programmes and apprentices in electrical power engineering. Statnett has introduced a career model which focuses on individual professional development of Statnett's employees. Furthermore, Statnett has a senior policy with flexible working arrangements to retain valuable employees and expertise until retirement age.

Project management skills are important for Statnett's ability to carry out the scheduled project portfolio. Consequently, we provide training for project managers and project employees internally at a project academy developed for Statnett. In 2012, 256 course modules were held and 57 examinations were held at various levels.

At the turn of the year, Statnett SF had 994 employees, compared to 928 the year before. The increase in staff is mainly owing to an increasing number of tasks in connection with planning and implementation of investment projects, as well as increased requirements related to preparedness and new expertise regulations.

Statnett conducts annual organisation surveys. In 2012, Statnett implemented a more suitable tool. In several areas, Statnett's results are better than the comparative basis for Norway and the energy sector, including job satisfaction, motivation and loyalty. Statnett's employees also report that they are familiar with the company's objectives and strategies, that there is ample opportunity for professional and personal development in the company and that safety is very well maintained.

Gender equality and diversity

Statnett has a zero tolerance policy regarding discrimination and harassment in the workplace. The enterprise follows this up with local safety delegates, appraisal interviews and opinion polls. For Statnett it is important to ensure a diverse organisation in terms of gender, ethnicity and age. In 2012, 5.3 percent of new employees came from non-Norwegian backgrounds, down from 9.5 percent in 2011.

The percentage of female employees has increased by one percentage point since 2011, to 24.1 percent. The percentage of female employees in the energy sector in general was approximately 20 percent. At the end of 2012, four of the nine members of Statnett’s Board of Directors were women and one of the seven members of the Group management. Women filled 22 percent of all managerial positions in the Group and two of Statnett's eight trainees in 2012 are female. Statnett aims to increase the number of women in technical and managerial positions.

Employment conditions for women and men are monitored using a variety of methods, including wage reviews and staff surveys. Women and men with approximately the same educational background and experience, and employed in comparable positions receive equal pay. The average percentage of personnel in full-time positions is increasing, with 96.5 percent for women in 2012, compared with 96 percent in 2011 and 99.4 percent for men in 2012, compared with 98.8 percent in 2011. See also Notes 4 and 14 for more information about wage costs and remuneration to the Group management.

Health, safety and the working environment

Statnett has a zero tolerance policy with regard to accidents, injuries and unnecessary environmental impact. The Group maintains strong focus on health, safety and the environment (HSE) and implemented an HSE action plan in 2011. This was continued in 2012 with new focus areas. Reporting of undesirable HSE incidents and nonconformities increased in 2012, which is a continuation of the trends from 2010 and 2011. This is a result of strong encouragement to report such incidents as well as better reporting systems. Statnett registers undesirable HSE incidents and deviations occurring in its own organisation, as well as in contractor/supplier organisations. HSE plans are drawn up for every project, and Safe Job Analyses are prepared before all risk-exposed work operations.

There were no serious incidents in Statnett in 2012. However, on 3 January 2013, a tragic accident occurred on one of Statnett development projects. A subcontractor employee lost his life. The accident is being investigated by the Police and the Norwegian Labour Inspection Authority. Statnett has also initiated its own investigation of the accident.

Eight internal lost-time injuries were reported in 2012, whereas our contractors/suppliers reported 18 lost-time injuries. The Lost Time Injury Frequency Rate (H value) in Statnett was 4.4 in 2012, down from the 2011 rate of 6.3. The F value in Statnett was 63.4 in 2012, down from 209.4 in 2011.

The Group’s overall absence due to illness was 3.6 percent in 2012, compared with 3.8 percent in 2011. Statnett is working to reduce absence due to illness. This involves adaptation of individual workplaces and various health-promoting and illness-reducing measures, including use of safety inspections and physical therapy treatment. 


Corporate social responsibility

Corporate social responsibility (CSR) is an integrated part of our fundamental values. It is at the very core of our management system and contains the tools we need to help us conduct our activities in the right way. Corporate social responsibility in Statnett is all about understanding the expectations of the community, and handling these expectations in a manner which generates mutual respect. The key elements are embedded in Statnett's objectives, which stipulate that Statnett will maintain security of supply through a grid with sufficient capacity and high quality, that Statnett's services will generate value for our customers and society at large, and that Statnett will pave the way for realisation of Norway’s climate objectives. Corporate social responsibility in Statnett entails integration of social and environmental considerations in the company's day-to-day operations. Corporate social responsibility is embedded in the enterprise´s continuous corporate governance and in the enterprise's management and organisation. Please see the chapter on CSR in Statnett's annual report for more information about corporate social responsibility.

Environment and climate

Statnett's Environmental Management System is certified in accordance with ISO 14001:2004. Statnett is working to continuously improve the company's environmental performance and focuses on minimising the environmental impact of the company's operations as much as possible.

Statnett is working to reduce its own emissions of greenhouse gases by minimising the company's climate contributions with regard to own consumption, such as heating, cooling and operation of Statnett's offices and other buildings. Like Statnett's new administration building in Trondheim, the new head office in Oslo is an energy class A office building.

The largest sources of greenhouse gas emissions from Statnett's activities are leaks from the SF6 facilities, emissions from mobile reserve power plants and passenger transport. In addition, emissions occur in connection with construction activities.

Emissions of SF6 gas from Statnett's facilities increased by 69 percent, from 210 kg in 2011 to 354 kg in 2012. This corresponds to an environmental impact of 8 256 tonnes of CO2-equivalents in 2012. The increase was due to maintenance and refilling of several SF6 facilities. The emissions for 2012 amounted to 0.3 percent of the total 113 tonnes of SF6 gas in Statnett's facilities. This is below the normal level of leakages from facilities of this type.

Statnett owns two mobile reserve power plants, located at Tjeldbergodden and Nyhamna in Møre og Romsdal. They have been part of Statnett’s preparedness plans since 2009 in case of a risk of rationing in central Norway. One reserve power plant in operation will have carbon emissions of 2 450 tonnes per day (0.68 tonnes/MWh), and are only put into operation in very strained power situations.

Air travel in Statnett totalled 8 790 410 km, corresponding to total carbon emissions of 1 179 tonnes. In addition, the use of private cars for work-related travel (excluding rental cars) totalled 1 278 249 km. Based on average carbon emissions of 134 g/km (for newer cars, the Norwegian Public Roads Administration), this corresponds to carbon emissions of 171 tonnes.

Corporate governance

Statnett is a state enterprise wholly owned by the Norwegian State through the Ministry of Petroleum and Energy.

Statnett’s corporate governance principles clarify the distribution of roles among the owner, the Board of Directors and the general management. Statnett adheres to the Norwegian State’s Principles for Good Corporate Governance and follows the recommendations laid down by the Norwegian Corporate Governance Board (NUES) to the extent permitted by the company's organisation.  For more information about Statnett's compliance with NUES recommendations, please see the chapter on Corporate Governance.

Changes in the Board of Directors

At the Enterprise General Meeting on 27 June, Egil Gjesteland and Kristin Lian were elected to the board of Statnett SF. Gjesteland and Lian replaced Thor Håkstad and Grethe Høiland. At same meeting, Per Hjort was elected deputy chairman.

In connection with the Main Grid User Council being disbanded, the practice of appointing one representative from the users among the members of the board was discontinued. Maria Sandsmark was elected to the Board of Statnett SF at an extraordinary enterprise meeting on 11 January 2013. She replaced Kristin Lian who represented the users.

Outlook

Statnett's 2011 Grid Development Plan and updated investment plan for 2012 form the basis for the next generation main grid which will be completed by 2030. Consequently, Statnett will make grid investments of between NOK 50 and 70 billion in the next decade. Statnett currently holds a final licence for 17 percent of this portfolio. Statnett has a large project volume in the implementation phase. The coming period will be characterised by development and implementation. This will involve both new and upgrades of existing power lines and facilities. There will be intense construction activity in this period. This places great demands on Statnett when it comes to coordinating a number of projects in existing facilities while operating the power system. Statnett is strengthening operative preparedness to improve the ability to handle any unforeseen and critical incidents.

Statnett has several important projects under construction. There is currently particular focus on progress in the Sima - Samnanger project, as well as Ørskog - Sogndal, which are important power lines to secure supply to the Bergen area and central Norway, respectively. Statnett also has focus on completing the cable projects Ytre Oslofjord and Skagerak 4 to Denmark.

Statnett is working to realize the construction of interconnectors to Germany and the UK, which are scheduled for completion in 2018 and 2020 respectively. These projects are important for the development of the Northern European power grid and are a top priority for all parties involved. The projects will help ensure security of supply during cold and dry periods and contribute to balance variations in German and British renewable power production throughout the day. Power exchange capacity generates value in Norway. Moreover, the projects will support the ambition to increase generation of renewable energy throughout the region and the EU's climate and energy targets. Furthermore, the new interconnectors will contribute to the further integration of the Northern European power market.

To be able to implement the planned development projects according to schedule, Statnett is dependent on an efficient licensing process and an external supplier market that can offer sufficient capacity in the years to come. Statnett is eager to further improve collaboration with all involved parties to secure important input to the planning and realisation of new power lines. In this regard, initiatives have been taken in relation to local and regional authorities as well as other stakeholders. Among other initiatives, Statnett has strengthened cooperation with regional grid companies to ensure the best possible knowledge of local conditions.

Due to an increase in the enterprise's investment activities in new and existing grid facilities, Statnett's asset base will increase significantly. New facilities will be commissioned and some of the old facilities will be phased out. Statnett is concerned with managing the company’s facilities in a uniform and prudent manner. PAS 55, which is a quality standard representing best practice for optimum asset management, will be one of several measures to ensure that Statnett maintains high cost efficiency in its operations and during the development of the next generation main grid.

In the autumn of 2012, the NVE submitted several regulations for consultation. The regulations relate to Statnett's responsibility for the system, for emergency preparedness, for operation and maintenance, as well as for planning and reporting, and will entail more tasks.

Statnett is involved in international cooperation both at a European and Nordic level. This work is important as many of the framework conditions are stipulated by the EU and are relevant for Norway through the EEA agreement. The establishment of a common European power market makes it necessary to harmonise the framework for the electricity market, as well as for system and grid operations. As the Norwegian hydropower system differs from the European system it is essential that the framework conditions are formulated to secure Norwegian security of supply and help promote value creation. The Nordic TSOs cooperate on many key issues at the European level.

ENTSO-E, of which Statnett is a member, has been assigned the task of preparing a proposal for European network codes for the power market. Statnett also cooperates with other grid companies and power exchanges in north-western Europe on the establishment of a common market algorithm which will calculate the price and flow of electricity for Norway, the Nordic region and Europe. This is expected to be launched in November 2013.

Statnett has experienced strong growth in recent years. Statnett is currently implementing a necessary restructuring of its organisation to increase the company’s implementation ability. Most of this work is expected to be completed in 2013. Concurrently, Statnett is faced with a demand from customers and the authorities for a high degree of cost efficiency. In order to realise the benefits of our resource development, ongoing improvement work and improved use of the supplier market, the Group management and the Board of Directors have established a necessary goal which involves increasing productivity in the enterprise before the end of 2016.

The increased investments will result in higher tariffs in the years to come. Statnett has a balance for higher revenue at year-end 2012 which will be partly returned to Statnett's customers through reduced tariffs in 2013. This will also curb the increase in tariffs somewhat in the coming years.

The Storting has decided to disband the Main Grid User Council. To ensure continued good dialogue between users and customers, Statnett has established a Markets and Operation Forum. The representatives hold leading positions in companies and associates in the energy industry. Otherwise, Statnett is concerned to have a constructive dialouge with all stakeholders through the licensing process.

In accordance with Section 3-3a of the Norwegian Accounting Act, the Board of Directors confirms that conditions exist for continued operation of the enterprise on a going concern basis and that the annual accounts have been prepared under this assumption.

Allocation of profit

Its deliberations on Parlamentary bill to the Storting No.1 (2011-2012), the fiscal budget for 2012, the Norwegian government established a long-term dividend policy of 50 percent of the defined dividend basis up to and including the fiscal year 2015. The basis for the dividend is defined as the Group's net profit after tax, adjusted for changes in the balance for higher/lower revenue for the year after tax.

On the basis of the above, the Board of Directors therefore recommends that the annual profit from Statnett SF be allocated as follows:

Amounts in NOK million:

Dividend to owner 117
To other equity 690
Total 807


Declaration from the Board of Directors and President and CEO

We confirm that the financial statements for the period 1 January to 31 December 2012 have, to the best of our knowledge, been prepared in compliance with IFRS and that the disclosures in the financial statements give a true and fair picture of the enterprise’s and the Group’s assets, liabilities, financial position and results as a whole, and that the disclosures in the annual report give a true and fair overview of the development, results and position of the enterprise and the Group, together with a description of the most significant risk and uncertainty factors faced by the enterprises.

 

 

Oslo, 21 March 2013

The Board of Directors, Statnett SF
 

Kolbjørn Almlid
Chairman of the Board
Kirsten Indgjerd Værdal Kjerstin Bakke
Per Hjorth
Deputy Chairman
Heidi Ekrem
Egil Gjesteland
Maria Sandsmark
Pål Erland Opgård
Steinar Jøråndstad

Auke Lont
President and CEO