Group management report and group financial statements 2013

Transcription

1 Group management report and group financial statements

2 List of abbreviations 50Hertz 50Hertz Offshore 50Hertz Transmission BGH BIP BNetzA BVerwG CAO CEPS ct/kwh EEG EEX Elia EMCC EMTN EnWG EOG Eurogrid Eurogrid International GBBerG GW GWh HGB HRB IAS IFM IFRS IFRIC ING Bank KBV BAV KraftNAV kv KWKG MVA MW NEP OLG O-NEP OPEX OTC OWP PUCM ResKV StromNEV TenneT UmwG ÜNB 50Hertz Transmission GmbH, Berlin und 50Hertz Offshore GmbH, Berlin 50Hertz Offshore GmbH, Berlin 50Hertz Transmission GmbH, Berlin Bundesgerichtshof Bruttoinlandsprodukt Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahn, Bonn Bundesverwaltungsgericht Central Allocation Office GmbH, Freising CEPS a.s., Tschechien (tschechischer Übertragungsnetzbetreiber) Cent pro Kilowattstunde Gesetz für den Vorrang Erneuerbarer Energien (Erneuerbare-Energien-Gesetz) European Energy Exchange AG (Strombörse) Elia System Operator NV/SA, Brüssel/Belgien European Market Coupling Company GmbH, Hamburg Guaranteed EURO Medium Term Note Gesetz über die Elektrizitäts- und Gasversorgung (Energiewirtschaftsgesetz) Erlösobergrenze Eurogrid GmbH, Berlin Eurogrid International CVBA/SCRL, Brüssel/Belgien Grundbuchbereinigungsgesetz Gigawatt Gigawattstunde Handelsgesetzbuch Handelsregister Abteilung B International Accounting Standards Industry Funds Management Luxembourg No. 2 S.à.r.l., Luxembourg/Luxembourg International Financial Reporting Standards (internationaler Rechnungslegungsstandard) International Financial Reporting Interpretations Committee ING-Diba Bank AG Konzernbetriebsvereinbarung zur betrieblichen Altersversorgung Kraftwerksnetzanschlussverordnung Kilovolt Gesetz für die Erhaltung, die Modernisierung und den Ausbau der Kraft-Wärme-Kopplung (Kraft-Wärme-Kopplungsgesetz) Megavoltampere Megawatt Netzentwicklungsplan Oberlandesgericht Offshore-Netzentwicklungsplan Absolutgröße für die operativen Kosten Over-the-Counter Offshore-Windpark Projected Unit Credit Method Reservekraftwerksverordnung Stromnetzentgeltverordnung TenneT TSO GmbH, Bayreuth Umwandlungsgesetz Übertragungsnetzbetreiber

3 Group management report and financial statements of Eurogrid GmbH Group management report 4 Group financial statements 24 Consolidated income statement 24 Consolidated income statement of financial position 26 Consolidated income statement of cash flows 28 Notes to the financial statements 30 Auditor`s report 90

4 4 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS Group management report Background of the Group Purpose The Eurogrid GmbH Group (the Group) comprises Eurogrid GmbH (Eurogrid) as well as 50Hertz Transmission GmbH (50Hertz Transmission) and 50Hertz Offshore GmbH (50Hertz Offshore; together with 50Hertz Transmission also referred to as 50Hertz) as affiliates of Eurogrid, also including the equity investments of 50Hertz Transmission. All three companies have their registered offices in Berlin. Eurogrid Eurogrid GmbH is a wholly owned subsidiary of Eurogrid International CVBA/SCRL (Eurogrid International) with its registered office in Brussels, Belgium. Elia System Operator NV/SA (Elia), Brussels, Belgium, and Industry Funds Management Luxembourg No. 2 S.à.r.l. (IFM), Luxembourg, Luxembourg, hold a 60 per cent and 40 per cent shareholding in Eurogrid International, respectively. Elia is the Belgian national transmission system operator and a company listed on the BEL20 index in Belgium. The purpose of Eurogrid is the acquisition, holding and operation of equity investments, in particular the investment in 50Hertz Transmission. 50Hertz Transmission in turn has a shareholding in 50Hertz Offshore and additional companies such as European Energy Exchange AG (EEX) and Coreso SA (Coreso). In the fiscal year, the Company primarily arranged and secured the financing of 50Hertz s construction and operating activities. As part of the uniform financial management of all the German companies, GridLab GmbH, a subsidiary of Eurogrid International located in Cottbus, is included in the cashpooling agreement with Eurogrid. 50Hertz Transmission und 50Hertz Offshore As transmission system operator, 50Hertz Transmission operates a grid which, at voltage levels of 150 kilovolts (kv), 220 kv and 380 kv, spans northern and eastern Germany with a network grid length of around 10,000 km. The business activities of 50Hertz Offshore comprise the planning, approval, construction, acquisition, maintenance and operational management of electricity lines as well as the associated plants and facilities for connecting offshore wind turbines/farms erected in the Baltic Sea to the grid. Management system The operational management of the Group is performed by the management of 50Hertz Transmission as the Group s leading company using a key performance indicator system that contains economic, technical and personnel performance indicators. The board of directors of Eurogrid International is responsible for monitoring the Group s activities. All performance indicators are analyzed on a monthly basis comparing actual figures, forecast and planning. From an economic point of view, the grid business is managed using the distributable net result in accordance with the HGB [ Handelsgesetzbuch : German Commercial Code] as well as an absolute value for operating expenses (OPEX), which reflects the efficiency value of 50Hertz. These operating expenses primarily contain personnel expenses and the non-energy-related cost of materials. The expansion targets for the transmission grid are determined by the level of capital expenditure per year. The net result and capital expenditure are discussed in more detail in the Net assets, financial position and results of operations and Forecast sections. The financial position of the Group is assessed by means of rolling liquidity planning, which primarily takes into account the EEG [ Erneuerbare-Energien-Gesetz : German Renewable Energy Act] settlement and status of investment accounting. The quality of grid availability is used as a technical performance indicator as well as the accident rate and employee availability as a personnel performance indicator.

5 GROUP MANAGEMENT REPORT EUROGRID GMBH 5 In addition to the grid business, 50Hertz Transmission performs the fiduciary accounting of the legal provisions of the EEG, KWKG [ Kraft-Wärme-Kopplungsgesetz : German Combined Heat and Power Act] and particular allocations pursuant to the EnWG [ Energiewirtschaftsgesetz : German Energy Industry Act] and StromNEV [ Stromnetzentgeltverordnung : Ordinance on Electricity Network User Charges]. These transactions do not have any impact on profit for the transmission system operator; however, their cash effects have a considerable influence on the consolidated statement of financial position. Overall economic and industry-related conditions Economic and political environment The downward trend in general economic development in Germany was halted over the course of as the overall economic situation stabilized. Following a period of stagnation of the gross domestic product (GDP) at the beginning of the year caused also by the cold weather the economy picked up moderately. Positive growth rates in the second and third quarter of led to a priceadjusted increase in GDP on the prior year of 0.4 per cent, or 0.5 per cent adjusted for seasonal effects. This was primarily attributable to increased consumer spending by both public bodies and private households, while capital expenditures adjusted for price effects were down. Net exports had a negative impact on GDP. This was caused by a slowdown in exports while imports increased at a greater rate by comparison. The economic outlook for 2014 is viewed optimistically, which is why the federal government in its third-quarter outlook forecast a price-adjusted increase in GDP of 1.7 per cent in comparison to the figures forecast for. Electricity consumption in decreased by 1.8 per cent on the prior year, while the Arbeitsgemeinschaft Energiebilanzen e. V. (working group on energy balances) had predicted a year-on-year increase in total energy consumption in Germany of 2.6 per cent for. The most important cause for this is deemed to be the increased demand for heat energy as a result of the long winter and cool spring. In terms of electricity generation, renewable energy sources again increased by just under 6 per cent on the prior year. While hydropower and wind power across Germany recorded a decrease of 2.5 per cent and 2 per cent in, respectively, photovoltaic and biomass increased their share of electricity generation by 7 per cent and 11 per cent, respectively. The situation on the money and capital markets eased in. While the prior year was shaped to a large extent by uncertainty stemming from the euro debt crisis, both the measures initiated in each member state of the European Union (EU) and the monetary policies of the European Central Bank helped build further trust. By contrast, at the end of discussions on ending the policy of quantitative easing were intensified, without however any indication of an abrupt change in monetary policy. This meant that, compared to the prior year, no further decrease in interest rates was seen for either current or non-current investments and loans. Although Deutsche Bundesbank reported only moderate development in issuing corporate loans in its monthly reports, Eurogrid noted a great interest among financial institutions and investors wanting to participate in the financing of the Eurogrid Group s business. The development of the economy as a whole as well as the development in electricity consumption did not have any significant influence on the Eurogrid Group s earnings. The rating agency Moody s once again issued Eurogrid with a Baa1 rating, which helped gain excellent access to the capital market. The political environment of the transmission system operators in the fiscal year was primarily shaped by the general elections in September. Part of the election cam-

6 6 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS paign concerned the costs of the new energy concept in Germany, and in particular the costs of promoting renewable energies. Negotiations between federal and state governments failed to reach an agreement before the election on an electricity price freeze as suggested by the federal government. After the election, the new governing coalition agreed in its coalition agreement on a prompt reform of the EEG, the introduction in the medium term of a cost-efficient capacity mechanism that is competitive and open to all technologies at a European level, a reliable expansion plan for renewable energies onshore and offshore, measures to ensure system security, further development of the network user charge system and measures to increase energy efficiency. The further expansion in renewable energies is to be better synchronized with grid expansion. Regulatory framework for the energy industry European law On a European level, several legal measures came into force in, or are still at the implementation stage, which are expected to aid the creation of a uniform single market by increasing market transparency and further expanding the infrastructure. To implement the Regulation (EU) No. 648/ on OTC (over-the-counter) derivatives, central counterparties and trade repositories, also known as EMIR (European Market Infrastructure Regulation), several implementing acts as well as national implementation acts were issued. In, the European Commission initiated proceedings in the energy sector against the Federal Republic of Germany. Firstly, a formal government aid investigation was opened in March regarding the exemption of electricity-intensive industries from network user charges. However, these proceedings were superseded by legislative and judicial developments in Germany; a decision has therefore not yet been made. Secondly, the European Commission began reviewing the compatibility of relief granted to energy-intensive industry companies under the EEG with the single market as part of a formal EU government aid investigation in December. By a ruling of the European Court of Justice, the German Environment Information Law was rejected as not compatible with higher-ranking law. Although the law does not apply until it has been amended accordingly, the rights to information of environmental-protection and nature-conservation associations were reinforced as a result of this amendment having to be made. National law In, national law as well as established case law continued to be shaped by the implementation of the new energy concept in Germany, which has picked up pace since its launch in In addition to legislative activities, several court rulings have also brought about significant changes to the legal framework in the field of the energy industry. The EnWG amended at the end of regulated liability for any delays and interruptions when establishing offshore grid connections. In such cases, the offshore wind farm affected receives compensation from the transmission system operator, which can then pass on the costs incurred to the grid users via a newly introduced offshore liability cost allocation, provided the transmission system operator has not acted with willful intent. While the amount of the first offshore liability cost allocation for was still prescribed by law, the amount of this cost allocation for 2014 was determined by the transmission system operators for the first time based on forecast compensation payments. The cost allocation for 2014 was disclosed as of 15 October and set at a maximum value of 0.25 cents per kilowatt-hour (ct/kwh) for the largest end consumer group. There were changes to the regulatory framework as a result of amendments made to the StromNEV stemming from earlier court rulings. Firstly, the index series to be used to determine the current value are stipulated for the first time. Secondly, it sets the interest rate at which the share of equity is charged exceeding the regulatory equity ratio of 40 per cent (equity II). Following the implementation of the regulation on agreements on interruptible loads as of 1 January, the

7 GROUP MANAGEMENT REPORT EUROGRID GMBH 7 legal framework for the utilization of interruptible loads by transmission system operators was further defined. The ResKV [ Reservekraftwerksverordnung : German Regulation on Reserve Power Plants], which came into force in July also further specifies the provisions on supply reliability created by amending the EnWG. Two rulings of the Düsseldorf higher regional court proved significant in the indirect economic effects they had for 50Hertz. In March, the court declared the network user charge exemptions under Sec. 19 (2) StromNEV as well as the cost allocation to distribute losses in income among the grid operators to be unlawful. However, these decisions made by the Düsseldorf higher regional court have not become final and absolute as operators, including 50Hertz have filed an application for judicial review with the Federal Court of Justice. Moreover, the regulatory authority reacted by amending the StromNEV to no longer allow exemption from network user charges but instead to only allow for reduced network user charges upon fulfilling certain requirements. In July, the first Federal Requirements Plan Act was announced based on the first German grid development plan prepared in. This completed the new legal framework for the planning and approval of large line construction projects in place since the end of, which contains 36 specific projects in the extra-high voltage grid setting out the necessity and priority needs for the energy sector. However, constitutional complaints were lodged at the Federal Constitutional Court against the Federal Requirements Plan Act; a decision has yet to be made. To the benefit of 50Hertz, the Federal Court of Justice rejected the administrative practice of the Federal Network Agency (BNetzA) as well as the corresponding legal precedents of the Düsseldorf higher regional court on the grounds that measures to retrofit secondary technology may not from the outset be permissible as investment measures in accordance with Sec. 23 ARegV [ Anreizregulierungsverordnung : Incentive Regulation Ordinance]. The Federal Network Agency as well the Düsseldorf higher regional court had always maintained that this only concerned replacement measures and not restructuring measures. The reasons for the Federal Court of Justice s decision, which are still outstanding, will affect further pending 50Hertz cases as well as the approval of future investment measures. The court ruling of the Berlin regional court of August meant a decision was made for the first time on the liability of a transmission system operator when connecting offshore wind farms. The court rejected the action against 50Hertz and ruled that the offshore wind farm operator EnBW Baltic 1 had no claim to damages for default. In, the Federal Administrative Court (BVerwG) also made a decision on the second southwest connecting line and rejected all appeals against the planning approval decision. Further development in regulatory legislation was largely shaped by court rulings in. The Düsseldorf higher regional court, for instance, ruled in April that the formula used by the regulatory authorities to calculate the equity interest rate before taxes was flawed. Adjusting the formula increased the equity interest rates for new and existing plants. The Düsseldorf higher regional court also declared the Federal Network Agency calculating capital and operating costs resulting from approved investment measures to be unlawful in some respects. However, an application for judicial review has been filed, meaning that the existing administrative practice will for the time being be continued for the second regulatory period. By contrast, the Federal Court of Justice confirmed the practice of regulatory authorities in that trade tax pursuant to StromNEV is not an operating tax in line with the list of permanently uncontrollable costs and therefore the revenue caps are not to be adjusted upon changes in trade tax. Grid development plans A core component of the grid development plan, which initially only comprised the onshore grid development requirement, was transferred to the federal requirements planning. In, 50Hertz and the other German transmission system operators also revised their planning activities and prepared the second national grid development plan (NEP ) as well as the first national offshore grid

8 8 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS development plan (O-NEP ) based on input parameters for 2023 (looking towards 2033) broadly consulted and then determined by the Federal Network Agency. The package of measures developed by the transmission system operators in the grid development plan was submitted following consultation for confirmation to the Federal Network Agency as a concept for a stable and bottleneck-free electricity supply in 2023 (looking towards 2033). The transmission system operators categorized the identified grid expansion measures by priority and observed grid measures. The grid development plan was confirmed at the beginning of January During its review, the Federal Network Agency went beyond the planning approach taken by the transmission system operators and, as in the grid development plan, applied far-reaching criteria to assess the necessity and robustness of the measures so as to afford flexibility in expanding the grid in light of a changing energy industry and policy environment. Of the 90 line measures in the grid development plan submitted by the transmission system operators across Germany, 20 relate to 50Hertz s balancing zone. Two of these measures have already successfully completed the public-works planning procedure or are under construction and do not require any further confirmation, while seven measures were not confirmed. With the system change introduced by the amendment of the EnWG, demand for connection capacities is stipulated in the offshore grid development plan. The offshore grid development plan is therefore the key tool for improved offshore conditions. The scenario framework confirmed by the Federal Network Agency provides for a maximum expansion capacity of 1.3 gigawatts (GW) in Scenario B 2023 for the Baltic Sea, whereas the forecasts and project applications at 50Hertz expected an expansion capacity of 2.1 gigawatts in this time frame. The offshore grid development plan takes the connections of the Baltic 1 and 2 offshore wind farms in the offshore starter grid into account and also provides for the connection of another cluster with four grid connection systems in Scenario B In parallel to the offshore grid development plan, 50Hertz took part in the preparation of the Federal Maritime and Hydrographic Agency s offshore federal plan, which handles regional planning for offshore wind farms in the exclusive economic zone. Business development Eurogrid Significant transactions performed by Eurogrid in its function as parent company in included: The conclusion of two bilateral loan agreements each of EUR 100m with a term of six months with Coöperatieve Centrale Raiffeisen-Boerenleenbank b.a. (Rabobank), Utrecht, Netherlands, and ING Bank, branch of ING-Diba Bank AG (ING Bank), Frankfurt am Main The loan agreements secured the financing requirements of Eurogrid and 50Hertz arising from the balance of the EEG account. These funds can be called upon at any time and in any amount and are available until 17 February 2014 at ING Bank and 17 March 2014 at Rabobank (EEG financing). The conclusion of a supplementary agreement with BNP Paribas S.A., Frankfurt am Main branch, to increase the overdraft facility to up to EUR 150m. The provision of funds for the business operations of 50Hertz Transmission in the form of credit facilities, with the above mentioned EEG financing being used to also temporarily increase these facilities After adjusting the corresponding contracts, Eurogrid provided 50Hertz with funds totaling EUR 1,050m as of the end of fiscal year.

9 GROUP MANAGEMENT REPORT EUROGRID GMBH 9 Grid usage and grid connection 50Hertz is currently processing seven applications in accordance with the Kraft-NAV [ Kraftwerks-Netzanschlussverordnung : Ordinance for Regulating Grid Connections] for connecting conventional power stations and storage facilities to the transmission grid as well as a planned compressed-air storage plant at Förderstedt (outside the scope of Kraft-NAV). The projects together have a gross nominal output of around 6,600 megawatts (MW), of which 50Hertz has granted grid connection permits for approximately 5,000 MW. Over the course of, the grid connection application to 50Hertz for the gas and steam-turbine and biomass combined heat and power (CHP) plant project with approximately 330 MW at a location in Berlin was withdrawn; the project for this grid connection is now being exclusively pursued for the 110 kv distribution grid. An application filed for an increase in output of around 40 MW was confirmed by 50Hertz for a gas and steam turbine CHP project in the state of Brandenburg. In addition, a grid connection application for a pumped-storage power plant in Thuringia with approximately 400 MW was submitted at year-end. As a result, the gross nominal output of conventional power plants and storage facilities for a network connection applied for from 50Hertz only changed marginally in compared to the prior year. Apart from the Moorburg coal-fired power station in Hamburg, which is about to start operations, construction work is currently not scheduled to begin at any of the planned power stations and storage facilities. With regard to the grid connection applications that fall under the EEG, there are still 21 applications for offshore wind farms, which now total approximately 6,400 MW as a result of an increase in output announced in (including competing applications). There are a total of six applications for onshore wind farms of up to 2,100 MW, bringing the output for applications to connect to 50Hertz s grid to approximately 8,500 MW for offshore and onshore wind farms. On top of this, there are three applications for solar farms with a total output of around 300 MW and an application filed jointly with an onshore wind farm totaling 370 MW from photovoltaic and biomass power. The preliminary 2014 network user charges published on 15 October showed a steady trend compared to the prices. Among other things, new pooling provisions were observed during pricing from the beginning of The final prices for 2014 correspond roughly to the preliminary network user charges. 50Hertz s grid customers were informed of this in December. Regulatory issues The revenue caps for were set with effect as of 1 January in accordance with the provisions of the ARegV. They were increased by around 26 per cent on the prior year and form the basis of the price list valid since 1 January. The increase is primarily attributable to catch-up effects for cost increases in prior years as well as an increase in the expected redispatch costs as part of the voluntary commitment for system services. The increase in onshore and offshore investments also contributed greatly to this increase. The revenue caps in effect from 1 January 2014 were also determined in accordance with the provisions of the ARegV. These revenue caps decreased slightly by 4 per cent compared to the prior year, in particular due to lower energy costs. By 31 December, of the 99 active applications filed since 2008 for the approval of investment measures, 50Hertz had received a total of 69 approvals. Based on the total application volume of EUR 9.9b, an investment volume of EUR 3.6b had been approved by the Federal Network Authority by the aforementioned date. Grid provision and expansion The provision and maintenance of 50Hertz s 66 own substations and switching systems with its 153 transformers in operation, amounting to a total capacity of 44,030 megavoltampere (MVA), comprises inspection, servicing and maintenance. The total capacity of transformers therefore increased by 880 MVA, or 2 per cent compared to. While servicing and maintenance is largely performed by external personnel, inspection and monitoring of the quality and safety of the services performed is secured by the Company s own

10 10 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS staff. Transformer capacity reserves are being increasingly determined by the feed-in volume from the distribution grid level into the transmission grid, which is attributable to the growth in renewable energies. The focus in was again on carrying out construction activities and preparatory measures for strengthening and expanding the grid. For the European priority project relating to the southwest interconnection line from Halle (Saxony-Anhalt) to Schweinfurt (Bavaria), the lawsuits of one municipality and several private individuals were pending in the main action for the second construction phase from Vieselbach to Altenfeld. The Federal Administrative Court rejected these lawsuits in July and ruled that the planning approval decision by the Free State of Thuringia is lawful. The construction work started in was continued as planned in. The second construction phase is expected to go into operation at the end of The public works planning procedure for the third construction phase of the southwest interconnection line from Altenfeld to Redwitz (in TenneT TSO s area), which will also continue to Schweinfurt, was opened in September for the phase that is under 50Hertz s responsibility up to the Thuringian Bavarian border. The planning approval decision on the construction of the new 380 kv overhead line from Bärwalde to Schmölln along the existing route was issued in February. The construction work was started immediately during operations. The first circuit of the new higher-performing double circuit line went into operation on 25 October. Together with the circuit of the current double circuit line, this resulted in improved conditions for the feed-in of power stations in Lusatia in winter /2014 until construction and assembly work continues in the coming year. The new line s second circuit is expected to go into operation before the winter of 2014/2015. The planning approval decision for the western section of the Nordring Berlin [Berlin Northern Ring] (380 kv line) was issued in the third quarter of. In the Baltic Sea, plans are also underway to link the grid connection of the Kriegers Flak offshore wind farm with a cross-border line between Germany and Denmark. Preparatory work on the project has commenced. In the Wolmirstedt transformer substation, the first construction phase of the new 380-kV plant was completed and put into operation. The existing 220/110 kv transformers were replaced in full by the commissioning of two 380/110-kV transformers in June. The construction and assembly work for the Förderstedt location, which will also be switched to 380/110-kV transformers in the future, started in after the necessary approvals were granted. Furthermore, the newly constructed 380-kV Altentreptow/Nord transformer substation for the connection of the Werder Kessin onshore wind farm went into operation on 30 August. In the Perleberg transformer substation, line connections were converted and the first of two additional 380/110 kv transformers went into operation in November as part of the location s expansion. Environmental protection is an extremely important factor in the use of technical plants. The safe handling of waterpolluting substances and technical gases, proper disposal of waste as well as nature conservation and pollution control place high demands on the planning, construction and operation of plants. For this reason, such work included regularly controlling and modernizing the environmental equipment, implementing noise-protection measures as well as compensatory and replacement measures to compensate for the impact of nature and landscape. In for example, a large transformer was dismantled on site, properly disposed of and decontamination performed as part of the 380-kV expansion in the Schmölln transformer substation. In the Hamburg plants, additional security systems such as large separators and oil lines were inspected, retrofitted and modernized. Using high-performance contingency and damage concepts, the impact of events relating to the environment can be contained and eliminated as quickly as possible. The high level of environmental protection is ensured on the one hand by active environment management and on the other hand by the constant training and sensitization of the Company s employees. In this context, regular environmen-

11 GROUP MANAGEMENT REPORT EUROGRID GMBH 11 tal consulting was available for employees in, as was the further education of environmental officers by external training, for example. Employees in regional centers were trained on topics such as waste disposal and transport of dangerous goods by means of activity-based instruction. System management As of 31 December, 50Hertz s balancing zone contained onshore wind turbines with a total installed output of 13,430 MW. This corresponds to approximately 40 per cent of Germany s installed capacity and an increase of just under 9 per cent compared to 31 December. The installed output of offshore wind turbines in the Baltic Sea continues to stand at around 50 MW. The photovoltaic output installed within the balancing zone increased by approximately 5 per cent in comparison to the end of and now stands at around 7,600 MW. The maximum simultaneous feed-in from wind turbines of 11,064 MW and from photovoltaic plants of 5,346 MW was achieved on 6 December and 5 June, respectively. The maximum amount fed into 50Hertz s transmission grid registered on 4 January came to 15,961 MW (instantaneous one-minute value). To avoid the failure-related overloading of grid elements within the transmission grid, it was necessary at the beginning of to take measures on 220 days in accordance with Sec. 13 EnWG (with a reduction in output generated by energy on 142 of those days). This resulted in a redispatch amount of 2,051 gigawatt-hours (GWh) and a reduced EEG energy offering of 138 GWh. The situation in 50Hertz s balancing zone continued to be marked by increased load flows from north to south and east to west in. One particular challenge for system management was posed by the effects of Hurricane Xaver on 5 and 6 December. To take control of the situation, it was necessary to implement extensive redispatch measures with conventional power plants and, to a lesser degree, reduce the output of wind turbines. More than 50 cases of electricity lines and additional grid elements tripping on account of the weather were recorded, although these were quickly powered on again. Following evaluation of the / winter, 50Hertz together with the other German transmission system operators prepared for winter /2014 by carrying out extensive investigations mainly as part of the implementation of the ResKV [ Reservekraftwerksverordnung : German Regulation on Reserve Power Plants]. In this context, the necessity was identified to maintain reserve power plant output of around 2,500 MW to cover redispatch measures in southern Germany taking into account (n 1) outages in the transmission grid for winter /2014. This output was fixed contractually by the transmission system operators. Energy management Balancing group management 50Hertz invoices all balancing groups in its balancing zone on a monthly basis, including its own balancing groups. As of the end of, there were 1,367 balancing groups for 495 of the traders, electricity distributors and grid operators operating in the balancing zone. EEG settlement In, the supply of EEG electricity within 50Hertz s balancing zone increased by approximately 7 per cent in comparison to the prior year. In, the share of direct marketing increased again on, reporting growth of around 30 per cent. Overall, only around 32 per cent of EEG electricity output in 50Hertz s balancing zone was sold by the transmission system operator. As of year-end, around 85 per cent of onshore wind turbines and the entire offshore wind generation was sold directly using the market premium model, also causing electricity volumes exchanged between the transmission system operators in the horizontal equalization of burdens to fall further. The average price on the electricity exchange, which continued to fall sharply and which could not be taken into account in the calculation for the EEG cost allocation was one of the main reasons why the EEG cost allocation, was again not sufficient in to fully cover the costs of feed-in compensation and the market premium payments to plant operators. Taking into account the maximum liquidity reserve as permitted by law when calculating the cost allocation for proved to be justified. However, it

12 12 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS was unable to prevent a deficit in the EEG cost allocation in peaking at EUR 2.3b, of which EUR 460m was attributable to 50Hertz. Overall, was shaped by cash inflows due to the EEG cost allocation in such a way that avoided a continuous deficit over a protracted period. Other cost allocations in the energy industry In addition to the KWKG cost allocation and the cost allocation pursuant to Sec. 19 (2) StromNEV, the offshore liability cost allocation was levied for the first time in via the grid operators. Grid losses, voltage control and operating consumption 50Hertz covers the energy it needs to cover grid losses in the long term as part of a risk-averse procurement strategy. In, the long-term need for 2014 of 2.1 terawatt hours (TWh) was procured. The procurement of long-term components for 2015 and 2016 was also largely concluded. In, a total of 2.1 TWh and 2.2 TWh was secured for 2015 and 2016, respectively. In, the realignment of the contractual provisions with power plants connected to the 50Hertz grid was concluded as a way of providing reactive power. Voltage control agreements have now been concluded with all power plant operators. These are in line with market criteria and ensure a reliable provision of reactive power by the power plants. As part of an operating efficiency program, work began in to combine and optimize the partly individual procurement of operating consumption for the substations and locations of 50Hertz by implementing uniform regulations. Measures introduced in this regard will be concluded in the course of As part of this process, in it was decided to introduce an energy management system and work was begun. International and national cooperation with the transmission system operators Operations of the Internal Grid Control Cooperation (IGCC) occurred without incident and made a significant contribution towards the integration and increased efficiency of the balancing-energy markets in Europe by avoiding any opposing requests for balancing energy in the balancing zone between Belgium, Denmark, the Netherlands, Switzerland, the Czech Republic and Germany. The IGCC was officially recognized as the cross-border pilot project on electricity balancing of the European Network of Transmission System Operators Electricity and a grid bottleneck module was added allowing available transmission capacities to be used better. The cooperation with TenneT TSO, which has been in place for several years now, was also successfully continued in. In addition to providing market entry, additional cooperation opportunities were also examined: one example is TenneT TSO and 50Hertz attempting together to include direct marketers of EEG plants in the redispatch processes. Cross-border load flows and regional initiatives Continuing the activities introduced by 50Hertz in to tackle the increasing volume of unplanned load flows across transnational borders and their influence on ensuring secure system management, 50Hertz and the Polish transmission system operator Polskie Sieci Elektroenergetyczne S.A. (PSE) piloted a virtual phase shifter between January and April. This involved applying a response mechanism into how power plants are run under defined conditions and coordinated across borders in order to avoid overloading lines and threatening system operations. Although the effectiveness of this procedure was proven, it confirmed the necessity of erecting physical phase shifters. As of year-end, negotiations on an agreement with PSE concerning the coordinated erection and operation of such phase shifters on the German Polish border as well as the use of a virtual phase shifter in the meantime were in the final stages. Furthermore, with regard to the cross-border line to the Czech transmission system operator CEPS a.s., a technical solution was agreed for erecting phase shifters on both sides of the border. This is to be supplemented by regulations on the coordinated use of the equipment.

13 GROUP MANAGEMENT REPORT EUROGRID GMBH 13 In, a portion of transmission capacity was auctioned off for the first time as annual capacity for 2014 on the crossborder direct-current connection to eastern Denmark (highvoltage direct-current transmission KONTEK) at the request of market participators and regulators. The majority of capacity continues to be available for daily auctions as well as monthly auctions. 50Hertz is involved in the development of electricity markets in various European regions. In northwestern Europe, further progress was made in on preparations for the introduction of load flow-based market coupling procedures, especially for awarding bottlenecks capacities the day ahead. They are expected to be implemented in In the region of central eastern Europe, work on a load flowbased market coupling procedure was recommenced. This work will be continued in 2014 with the close involvement of the electricity exchanges in the region. In, 50Hertz assumed the role of coordinator between the eight transmission system operators affected. Employees The number of employees in the Group increased from 725 to 784 as of 31 December, a rise of 8 per cent compared to the prior year. New jobs were mostly created in the technical areas and support the high investment program. At the same time, the number of temporary workers hired was further reduced through targeted insourcing measures. To prepare for the large number of employees expected to enter retirement in the coming years, the number of trainees was increased and totaled 24 at year-end. The Group offered its employees the chance to participate in the successes of the fiscal year in the form of a stock program and so provided each employee with ten Elia shares free of charge in. This offer was exercised by 92 per cent of the eligible employees. all times. 50Hertz s health and industrial safety management system was successfully certified according to the Occupational Health and Safety Assessment Series 18001:2007 in. The rescue concept for offshore activities was improved by entering into agreements with the Maritime Rescue Coordination Centre in Bremen for the North Sea and the Baltic Sea and the German air rescue service DRF Luftrettung. In, there were six reportable work-related accidents, three accidents while traveling on business and ten commuting accidents within the Group. None of these accidents resulted in serious injury. IT security There were no IT-related security incidents with a material influence on the Group s business processes in. The creation of a comprehensive IT security structure that began in the past year was systematically continued in. An IT security program to set up an IT security management system for 50Hertz was prepared and its implementation kicked off. Research and development In the course of the grid expansion, 50Hertz reviews and develops technologies to make better use of routes, to improve public acceptance of overhead line projects as well as to support system reliability. For example, a project to develop space-optimized overhead lines was launched in and is being subsidized by the German Federal Ministry of Economics and Technology for a term of five years. Overall, around EUR 1.0m was spent on research and development projects in (prior year: around EUR 2.0m). Health and industrial safety The primary aim is to shape conditions at the workplace or in the working environment in such a way that they fulfill the employees health-and-safety requirements at

14 14 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS Net assets, financial position and results of operations of the Group Results of operations The figures for fiscal year, as in the prior year, relate to the respective calendar year for all group companies. Presentations and explanations are based on the accounting system in accordance with International Financial Reporting Standards (IFRSs). Income statement Revenue and income 8, ,608.4 Operating expenses (8,289.9) (8,338.0) Amortization, depreciation and write-downs (75.0) (75.4) Financial result 1.1 (29.1) Income taxes (62.5) (55.2) Group net profit The Group s income and expenses are largely characterized by the settlement not through profit or loss of the EEG, KWKG, Sec. 19 (2) StromNEV and the offshore liability cost allocation. The transmission system operators sell the renewable electricity fed in by upstream grid operators and directly connected producers to an electricity exchange. In addition to this sales revenue, the transmission system operators levy a charge for all trading and distribution companies operating in the balancing zone to cover the difference between the costs for the reimbursement of electricity generated from renewable sources and the revenue from selling the electricity generated from renewable sources. The settlement of the EEG and the KWKG generated revenue of EUR 6,284.1m (prior year: EUR 6,343.2m) and EUR 88.5m (prior year: EUR 76.2m), respectively. The settlement of Sec. 19 (2) StromNEV generated income of EUR 225.4m (prior year: EUR 176.9m). Income of EUR 155.4m was generated for the first time in the fiscal year as a result of introducing a new nationwide allocation mechanism for delays and interruptions when establishing the grid connections as part of the reform of the EnWG. The amount of the cost allocation for was prescribed by law. Part of the cost allocation was paid out for compensation in the fiscal year; the rest is transferred to general liquidity and will be deducted from future cost allocations with a time delay of two years. This revenue is matched by expenses of the same amount. The settlement volume of services rendered to third parties has decreased since the beginning of the year as a result of the change to the EEG settlement mechanism. In the fiscal year, this generated revenue of EUR 907.5m (prior year: EUR 1,113.4m), which is matched by expenses of the same amount.

15 GROUP MANAGEMENT REPORT EUROGRID GMBH 15 Revenue from the grid business breaks down as follows: Horizontal grid income national Horizontal grid income international Vertical grid income Electricity income national Electricity income international Construction cost subsidies Subtotal Net income from regulatory issues (182.8) (4.4) Revenue The organically growing business is reflected in the growth in income. In the fiscal year, there was a net loss from regulatory issues of EUR 182.8m (prior year: net loss of EUR 4.4m). This increase was largely influenced by the allocation of regulatory obligations for actual additional income generated from grid utilization in the fiscal year as well as the components from the revenue cap of 50Hertz Transmission not utilized in as a result of actual energy costs. Both issues result in corresponding contrary items in subsequent periods when calculating the network user charges. Other income of EUR 36.5m (prior year: EUR 53.4m) primarily contained other own work capitalized. Personnel expenses amount to EUR 68.2m (prior year: EUR 63.9m); the increase on is due, among other things, to a collectively bargained wage and salary adjustment and also represents the constant growth in the number of employees as a result of the ever-increasing sphere of responsibility. Other expenses amounted to EUR 8.7m (prior year: EUR 3.9m). They contain fees, other taxes, bad debt allowances on receivables and losses from the retirement and sale of assets. EUR 75.0m (prior year: EUR 75.4m) relates to amortization and depreciation. On account of an impairment loss recognized in the prior year, amortization and depreciation are practically unchanged in absolute figures, despite a constant increase in fixed assets in the fiscal year. Amortization and depreciation tend to increase from year to year as investments progress further. The financial result amounts to EUR 1.1m (prior year: negative balance of EUR 29.1m). The decrease in financial income is primarily attributable to lower interest on securities. The unwinding of the discount and discounting of regulatory issues (EUR 7.6m; prior year: EUR 8.8m) as well as of provisions (EUR 2.2m; provisions: EUR 8.3m) explain the decrease in financial expenses. Earnings before taxes amount to EUR 228.9m (prior year: EUR 165.9m). After deducting income taxes (EUR 62.5m; prior year: EUR 55.2m), the group net profit comes to EUR 166.4m (prior year: EUR 110.7m). As in the prior year, this positive trend in earnings is mainly due to effects now occurring from the regulatory framework; this primarily relates to catch-up effects for prior years as well as the compensation for the further increase in investment activity. The positive effects were included

16 16 EUROGRID GMBH GROUP MANAGEMENT REPORT AND GROUP FINANCIAL STATEMENTS in current income. As the positive effects are primarily due to the elimination of the two-year delay compensating for incurred costs, the relatively lower results in past fiscal years also have to be considered when interpreting the results. In addition, positive contributions to earnings resulted from the adjusted measurement of individual provisions as well as from efficiency improvements in operating expenses. Net assets and financial position As of the reporting date, the Group s assets comprised non-current assets as well as current assets. The non-current assets largely contain property, plant and equipment and assets under construction, of which 49.7 per cent are covered by equity. The increase in non-current assets on the prior year is attributable to extensive investment activities. The current assets primarily comprise trade receivables, other receivables and cash and cash equivalents. The increase in trade receivables highlights the high billing volumes for the grid business, although this is compensated for by the decrease in other receivables largely on account of compensation claims stemming from the EEG settlement process. Liabilities break down into non-current liabilities (primarily liabilities to bond creditors), current liabilities (primarily trade payables) and the surplus obligation from regulatory items. Within the current assets and liabilities, the high billing volumes are attributable to the largely non-profit business. The development of the items of the statement of financial position is largely dependent on the feed-in and weather conditions as well as the associated energy costs of the balancing zone. Statement of financial position Assets Non-current assets 2, ,889.7 Current assets 1, , , ,984.3 Equity and liabilities Equity 1, ,017.0 Non-current liabilities Current liabilities 1, ,126.5 Regulatory items (net) , ,984.3 In the short term, financial management s goals include ensuring the group companies are solvent at all times and minimizing the potentially negative impact from the developments on the financial markets. In the medium and long term, financial planning is performed with a view to ensuring the Group is able to maintain its finan- cing capability for its extensive investment activities as well as its credit rating. To achieve these goals, the financial parameters are continually monitored as based on group policy.