Directors’ report 2011

Directors' report 2011

Statnett’s main objective is to ensure a stable supply of electricity and facilitate a well-functioning power market. In 2011 the power system was seriously put to the test. The first quarter was characterised by historically low reservoir levels, severe cold, high consumption and several operating disturbances. The second quarter was characterised by mild weather, high inflow and low consumption. This, in combination with weather conditions, caused several faults in the grid. These experiences have shown that at times there are tight margins in the power system.

To maintain and improve security of supply and facilitate value creation and reduce emissions of greenhouse gasses, Statnett is in the initial phase of its mission which is to build the next generation main grid within 2030. The mission imposes substantial demand to Statnett as an organisation and interaction with stakeholders. This requires efficient licensing processes, strengthening of Statnett's implementation capacity and increased use of the supply industry and extended contract models. Investments in the national grid in the coming decade will be NOK 40 - 50 billion and will result in increased financing needs and requires additional equity. The increased activity will also affect the risks for Statnett. Statnett's plans, which are described in the 2011 Grid Development Plan, are consistent with the Norwegian government's Grid Report issued on 2 March 2012.

In 2011 there has been an increase in investment activities and extensive planning has been undertaken showing that the increase is expected to continue in the years ahead. Statnett currently has major power line projects under construction. The main projects are Ørskog - Sogndal (Fardal) and Sima - Samnanger. These are both important power lines to secure supply of electricity to Central Norway and the Bergen area. Other major projects under construction are the Skagerrak 4 interconnector to Denmark and the Ytre Oslofjord cable. The increased investment level also includes significant reinvestments in existing facilities.

On the basis of expected new renewable energy and Nordic power surplus, and to ensure security of supply in dry years, there is a need to increase power exchange capacity outside the Nordic area. Statnett has conducted analyses (the Southern Norway study) which indicate a need for extensive grid upgrades to be able to receive renewable energy and before operation of additional interconnectors can take place. The needs are visualized through last years’ operational experience showing that the operating margins are lower than what Statnett has previously assumed. Consequently, Statnett is planning to install two interconnectors in addition to Skagerrak 4 and the South-West Link. The interconnectors are scheduled for completion in the next decade.

Statnett is the transmission system operator in Norway. The power system is developing fast due to factors such as phase-in of new renewable production capacity and closer physical and market integration with the Northern European market. In the time ahead the EU will issue important guidelines, which will also cover the development of the Nordic power system. In February, the EU adopted its third energy market package. This will have an impact on Norway and Statnett as European regulations will be prepared relating to the market, operations and planning. Statnett takes an active part in this work in order to maintain Norwegian interests in the preparation of the regulations.  

In 2011, a market coupling was established for the NorNed cable. This entails more efficient usage of the interconnector than before as the power flow from low-price areas to high-price areas and constitutes a milestone for the establishment of an integrated North-West European energy market.

On 1 January 2012, the Norwegian-Swedish electricity certificate market was launched. The market aims to generate 26.4 TWh of additional power production based on renewable energy sources by 2020. Statnett is responsible for keeping the electricity certificate register in Norway.

Statnett has a high focus on Health, Safety and the Environment (HSE) directed at both regular operations and the increasing development activities. Several measures were introduced in 2011 and Statnett is working to facilitate the zero tolerance philosophy for HSE. Despite this, there was a tragic accident in one of Statnett's development projects in 2011, where an employee of the general contractor died. The accident is being investigated by the police and the Norwegian Labour Inspection Authority. Statnett has also instigated its own investigation of the accident.

Security of supply

The power system was put to the test on several occasions in 2011, and many records were set for key measuring parameters. In the first quarter the energy situation was in focus. At the beginning of the year, reservoir levels were at 45 percent, 24 percentage points below the median for the period 1993 - 2010, and at the lowest level for the season in this measuring period. Dry and cold weather throughout the winter resulted in a period with a strained power situation in Southern Norway. At the time, the risk of rationing was estimated at more than 20 percent.

At the end of March, water levels in Norwegian reservoirs were at 18 percent, corresponding to the lowest level for the last 20 years. At that time, and approximately four weeks before normal, the spring culmination started. Due to significantly higher water levels, the power situation had changed to normal at the end of April.

High precipitation during summer resulted in an extraordinarily positive hydrological balance. From week 22 to 23 water levels increased by ten percent, and were above the median for the 1993 - 2010 period. High precipitation and low temperatures for the rest of the year resulted in water levels at 80 percent in Norwegian reservoirs at the end of 2011. This is 35 percent higher than the 2010 level, 10 percent above the median and equal to the maximum level for the measuring period. Inflow in 2011 was 149 TWh, corresponding to the highest level in the last 35 years.


Reservoir levels Norway


The hydrological resource situation resulted in maximum utilisation of the grid capacity for much of the year. In the first quarter, Norwegian and Nordic power markets relied on full import capacity availability from the continent. The Skagerrak and NorNed interconnectors, as well as the connection to Sweden were vital in order to avoid rationing in Southern Norway. The water situation changed during spring and full export capacity was required to avoid overflow and flooding damage in river systems throughout the country. Such extraordinary deficit and surplus situations highlight the insufficient transmission capacity. The price areas were central in handling the structural challenges in the power system in 2011.

The overall power consumption in 2011 was 123 TWh, down 7 percent compared with the previous year. The overall energy production increased by 2.5 percent, to 127 TWh, resulting in net exports of 4 TWh. In contrast to 2010, when the average temperature was the lowest in more than 70 years, 2011 was the hottest and wettest year recorded nationwide. This resulted in record imports and exports in the power system in one single week.

Statnett experienced several major operating disturbances in the power system in 2011. The malfunctions were rectified promptly. The most significant incident occurred on 25 and 26 December when the storm Dagmar caused several power line outages in many parts of Western and Eastern Norway. Interruptions for end-users were mainly caused by faults in the regional and distribution grid, with the exception of the Nyhamna (Aukra) connection. A power system with distributed production and systematic utilisation of this, helped prevent more numerous and extensive outages.

Another major incident occurred on 25 January when a fault in the regional grid in Romerike resulted in a breakdown of two of the three transformers at Frogner station. This resulted in an outage of 200 MW of consumption for one hour and rolling controlled outages for six hours the following day. 

Investments

Statnett has major development projects under planning and implementation in order to maintain security of supply, create value for customers and the society, and facilitate lower greenhouse gas emissions.

In total, Statnett invested NOK 2 384 million in 2011, which is the sum of commissioned and ongoing investment projects. This is an increase from NOK 1 892 million in 2010.

Implemented projects totalled NOK 1 533 million in 2011. In addition, facilities in operation were purchased from Hafslund for NOK 317 million.

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) of a licence application, but a licence application has not yet been submitted. Projects for which licence applications are pending or licences appealed are being considered by the Norwegian authorities.

Overview of Major investment projects

Project   Location   Deadline
Ongoing major investment projects     Funds granted
Ørskog - Sogndal (Fardal) Møre og Romsdal/Sogn og Fjordane NOK 5 500 million
Skagerrak 4   Norway/Denmark   NOK 1 700 million
Statnett share
Ytre Oslofjord   Vestfold/Østfold   NOK 1 200 million
Sima - Samnanger   Hordaland   NOK 1 045 million
Major investment in transformer stations     NOK 700 million
Voltage upgrade in southern Norway. Subsection Kristiansand - Bamble (eastern corridor) Vest-Agder/Telemark   NOK 650 million
Varangerbotn - Skogfoss Finnmark   NOK 500 million
Increased preparedness: New back-up transformers   NOK 250 million
Sauda - Liastølen   Rogaland   NOK 200 million

 

Licences pending or appealed     Estimated cost
Voltage upgrade western corridor Vest-Agder/Rogaland NOK 5 000 - 7 000 million*
Balsfjord - Hammerfest   Troms/Finnmark NOK 4 000 - 6 000 million
Ofoten - Balsfjord   Nordland/Troms NOK 2 000 - 3 000 million
Storheia - Snillfjord - Trollheim/Orkdal Sør-Trøndelag/
Møre og Romsdal
NOK 2 000 - 3 000 million
Namsos - Roan - Storheia Trøndelag NOK 800 - 1 200 million
Grid reinforcement
Grenland region (eastern corridor)
Telemark NOK 700 - 1 000 million
Voltage upgrade in Central Norway
Subsection Klæbu - Namsos
Trøndelag NOK 700 - 1 000 million
Hamang station   Akershus NOK 400 - 600 million

 

Planning proposal submitted     Estimated cost
The South-West Link   Norway/Sweden NOK 2 000 - 4 000 million
"Arctic Circle" Skaidi - Varangerbotn Finnmark NOK 2 000 - 4 000 million

 

ICT projects       Funds granted
Renewal of Statnett's central operations system     NOK 490 million
New Regulation and Market System     NOK 240 million
Computer network for power system management     NOK 220 million
Modernisation of ICT infrastructure in Statnett stations   NOK 130 million

 

* Sections are under licensing

See www.statnett.no and the 2011 Grid Development Plan for more information about the projects.

Commissioned projects

  • Hasle Transformer Station: The T6 transformer and capacitor bank are operative and full capacity has been established towards Sweden.
  • Other station projects: A new station in Narvik and reactor in Vågåmo and Vang have been put into operation.
  • Nedre Røssåga - Tunnsjødal: Upgrade of the suspension towers from 300 kV to 420 kV has been completed. Work has been conducted on live power lines (live working - LW).

Ongoing major investment projects

  • Ørskog - Sogndal (Fardal): Statnett has been granted a final licence for the entire section and construction work has started.
  • Skagerrak 4: In September 2011, construction work started in Kristiansand and on the cable route in Norway.
  • Ytre Oslofjord: The installation of cables was scheduled for completion in October 2012. Due to technical irregularities on the oil cables, these cables must be remanufactured. Negotiations with the supplier are completed and the oil cables will be delivered and the project completed by year-end 2013.
  • Sima - Samnanger: The power line construction work has been challenging due to frequent adverse weather and demonstrations against the project. However, the work has proceeded according to plan and the power line is scheduled to be put into operation in 2013. The Ministry of the Environment has granted Statnett a dispensation from the Cultural Heritage Act for building along the licensed routes.
  • Voltage upgrade eastern corridor Kristiansand - Bamble/Kragerø: The Norwegian Water Resources and Energy Directorate (NVE) granted a licence in the third quarter of 2011. The licence decision has been appealed to the Ministry of Petroleum and Energy.
  • Varangerbotn - Skogfoss:  Half of the pylons on the 132 kV power line are raised and construction work is ongoing on both stations.
  • Sauda - Liastølen: Some work is still remaining and will be completed as soon as the weather permits. The power line is scheduled to be put into operation in June 2012.

Research, development and competence building

Statnett invests in research and development (R&D) to promote value creation, innovation and environmentally sound solutions. Statnett's R&D strategy is linked directly to the Group's strategy to build the next generation main grid and develop sound methods for efficient operation of the grid in order to strengthen security of supply and promote value creation. The following R&D programmes have been implemented for the period 2009 - 2011: Northern European Market for Balancing Power, Offshore Power Grids - Establishment and Operations, Smart Grid and Environmental Adaptation of Power Lines. As in 2010, Statnett invested NOK 39 million in R&D in 2011.

Statnett is developing new R&D programmes for the next three years. As before, Statnett's R&D strategy and programmes will be linked to the Group strategy. The final R&D strategy including defined programmes will be published during spring 2012.

In addition to its own R&D activities, Statnett cooperates closely with external expertise environments both in Norway and in other countries. 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 relating to the items in the accounts are based on the Group accounts. Developments described for the Group also apply to the parent company.

Operating revenues

Statnett's operating revenues for 2011 totalled NOK 5 497 million (NOK 7 247 million in 2010). The reduction in operating revenues was mainly due to lower tariff revenues as a consequence of lower stipulated tariffs for 2011 compared with 2010.

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, a so-called higher or lower revenue will occur. Higher/lower revenue will level out over time through adjustment of future grid tariffs. In 2011, Statnett's higher revenue amounted to NOK 1 020 million (NOK 2 177 million). Accumulated higher revenue including interest was NOK 2 617 million at the end of 2011. The higher revenue increased by NOK 37 million compared with Q4 2011. This was due to a reduction in permitted revenue for 2011, as Statnett has been allocated a higher share of KILE (cost of energy not supplied) related to the Dagmar storm than assumed in the Q4 report.

Operating costs

The Group's operating costs totalled NOK 3 869 million in 2011 (NOK 3 968 million in 2010).

System services costs for 2011 remained at the same level as in 2010, but with increased special regulation costs offset by lower costs of tertiary reserve purchases. This reflects a year of multiple operating disturbances.

Transmission losses were NOK 204 million lower in 2011 than in 2010. This was due to lower energy prices.

Wage costs increased by NOK 110 million in 2011 compared with 2010. However, the real increase was NOK 43 million, as the costs in 2010 were reduced by NOK 67 million due to changes in the pension rules. Increased wage costs were due to an increase in staffing mainly related to Statnett's project and maintenance activities.

Depreciation increased by NOK 132 million in 2011, in line with increased investments and write-downs in connection with the disposal of reinvestments.

Other operating costs were NOK 120 million lower than in 2010. This was mainly due to repair costs for the NorNed cable and an accrual for an administrative fine from the NVE in the 2010 financial statement. This was partly offset by higher costs in connection with the company's increased activity level in 2011.

Operating profit

The Group's operating profit for 2011 amounted to NOK 1 628 million (NOK 3 279 million).

Revenues from joint ventures and associates totalled NOK 5 million in 2011 (NOK 11 million).

The Group's net financial costs for 2011 amounted to NOK 276 million (NOK 232 million). Higher interest rates on long-term loans resulted in increased financial costs in 2011. Moreover, Statnett had a financial income of NOK 28 million in 2010 as a result of the sale of shares in Nord Pool ASA.

The Group's profit after tax totalled NOK 1 000 million in 2011 (NOK 2 198 million). The reduction in profit was primarily due to lower tariff revenues. The profit for the year adjusted for changes in the balance for higher/lower revenue after tax was NOK 234 million (NOK 624 million). The reduction is primarily due to lower permitted revenue in 2011. The permitted revenue was high in 2010 due to compensation for a time backlog relating to investment revenues from previous years. In addition, the permitted revenue was reduced in 2011 due to high KILE as a result of interruptions in 2011.

Cash flow and balance sheet

The Group’s operating activities generated an accumulated cash flow of NOK 1 523 million in 2011. The net cash flow from investment activities totalled a loss of NOK 2 370 million.

In total, loans were paid down by NOK 1 738 million, and new loans of NOK 2 781 million were raised. At year-end, the Group's liquid assets and market-based securities amounted to 1 602 million (NOK 1 722 million).

At the end of 2011, the Group's total assets were NOK 23 881 million (NOK 22 070 million), and interest-bearing debt amounted to NOK 13 276 million. The market value of recognised interest swap and currency swap agreements (fair value hedges) related to interest-bearing debt was NOK 1 450 million. Net interest-bearing debt, corrected for this, totalled NOK 11 826 million.

At the end of 2011, the Group’s equity totalled NOK 8 277 million (NOK 7 628 million). The Group’s equity share at year-end was 34.7 percent, the same as the year before, and the distributable equity was NOK 5 289 million (NOK 4 788 million).

Subsidiaries and associated companies

Statnett SF has a statutory duty to provide transport preparedness for the Norwegian power supply. Statnett’s wholly owned subsidiary, Statnett Transport AS, is required to ensure efficient and competitive implementation of this duty. In 2011 operating revenues for Statnett Transport amounted to NOK 104 million (NOK 88 million) and the profit before tax was NOK 1 million (loss of NOK 2 million).

Statnett SF owns 100 percent of NorGer. In 2011 the ownership interest increased from 50 percent as the project partners announced on 7 July 2011 that they wanted to make use of their option to sell their ownership interests in the project to Statnett. The activity is related to early-phase development of a subsea cable connection to Germany. Statnett has integrated the project with Statnett's subsea cable project towards Germany, NORD.LINK. At the end of 2011, costs of NOK 48 million were accrued in NorGer (NOK 75 million), which is in line with the project's budget.

Statnett SF owns 30 percent of Nord Pool Spot AS. Statnett’s share of the result in Nord Pool Spot AS contributed NOK 5 million (NOK 2011 million) to the Statnett Group's profit in 2011. In 2010 there were additional revenues of NOK 7 million relating to Statnett's shareholding in Nord Pool ASA, which was sold in 2010.

Risk

Statnett's activities expose the company to risks. Statnett's risk management strategy mainly focuses on risks which may have a potential impact on the electricity supply, health, safety and the environment (HSE), Statnett's value creation for society and Statnett's financial situation. Risk management is part of the operational management of the company and is reported to the Board of Directors on a six months' basis.

A significant part of Statnett's work relating to development, operations and maintenance, involves operations where there is a risk of serious personal injury. An increase in project volume increases the risk of serious incidents. Furthermore, an HSE risk will exist in connection with fault correction, often combined with arduous terrain and challenging weather conditions. This risk is reduced by implementing documented work processes, safe job analyses, a strong management focus on HSE, as well as the reporting of incidents and near misses in a learning perspective.

The energy sector is 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 the activities. Any changes relating to regulation of the power sector are unlikely to affect Statnett's vision to construct the next generation power grid. However, execution may become more challenging without society's full acceptance of Statnett's activities.

Operating margins for the grid are becoming increasingly narrow and many of the facilities are approaching the end of their lifetime. Consequently, significant investment plans are in place and several major projects are under construction. There are risks associated with the realisation of these projects in accordance with the existing plans. Delays and deferrals lead to extended periods with higher electricity supply risks and reduced value creation. An important cause of delays is that the authorities’ licensing process takes longer than expected. Statnett seeks to reduce the risk through good processes, including dialogue with local stakeholders, and high quality of licence applications. With significant investment plans, access and prioritisation of resources internally and a tight external labour market, particularly within electric power expertise, will constitute a risk factor. In order to increase the company's implementation ability, new contract models are introduced where a greater share of the work is performed by external contractors. Statnett will be dependent on the contractors establishing sufficient capacity.

Faults in components during N-0 operation is the risk which most often causes interruptions in the power supply. N-0 operation means that a fault in a single component will cause a power outage for end-users. In recent years, many consumption areas have been supplied by N-0 operation for the whole or parts of the year, and this is expected to continue until the investment plans have been realised. To reduce the risk during N-0 operations Statnett is implementing preventive maintenance measures and improving the company's emergency preparedness work.

There have been several incidents in 2011 which caused disruptions for end-users. Total outage costs for connected end users (under the KILE scheme) have been estimated at NOK 270 million in 2011, compared with NOK 28 million in 2010. The costs in 2011 are mainly related to grid outages during the fourth quarter of 2011.

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.

A large proportion of Statnett's permitted revenues from grid activities are calculated as return on the enterprise's grid capital. The calculation is based on the interest rate on five-year government bonds and a risk supplement. Statnett's revenues are therefore affected by fluctuating interest rates. In order to reduce the enterprise’s total interest rate risk, Statnett seeks to achieve as good a match as possible between movements in interest rates on loans and the interest rate used to calculate return on the enterprise’s grid capital. Developments in the financial markets in 2011 show low Norwegian government interest rates combined with increased borrowing rates. A continued situation with low government interest rates and high borrowing rates will represent a challenge for Statnett's financial result and cash flow. Statnett, other grid companies and industry bodies have entered into a dialogue with the NVE regarding a possible NVE interest rate adjustment to better match the grid companies’ financing costs.

Statnett has access to multiple credit markets and has established a spread maturity structure on the debt portfolio. This reduces the risk of Statnett not being granted refinancing on the company's loans during periods with low capital availability. The enterprise has a credit facility totalling NOK 3.5 billion with a five-year term to be able to fund up to 12 months' operation and investments without incurring any new debt. Statnett has long-term borrowing ratings of A+ and A2 from Standard & Poor’s and Moody’s Investor Service, respectively.

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.

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 purchases in the currency obligations 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 regional offices in Alta and Sunndalsøra. Statnett also has offices in Trondheim and Brussels, as well as employees at facilities all over Norway.

Employees

Statnett has an ambitious assignment, and must ensure the right expertise for the right tasks. The enterprise has experienced significant growth in 2011 with 74 new employees. Statnett has a low staff turnover. However, many of the employees will retire in the next few years. Consequently, Statnett makes an effort to be an attractive employer in order to attract new employees, as well as retain and develop the expertise of existing employees. As part of this effort Statnett has introduced summer job programmes, trainee programmes and employed 23 apprentices in electrical power engineering. Furthermore, Statnett has a senior policy with flexible working arrangements to retain valuable employees and expertise up until retirement age. In the last three years, the average leaving age has increased by one year.

Project management skills are important for Statnett's ability to carry out the scheduled project portfolio. Consequently, Statnett provides training for project managers and project employees internally at a project academy developed for Statnett. 500 employees have participated in one or more training modules, and 20 employees have been awarded a Master Certificate in Project Management.

At the end of 2011, Statnett SF had 928 employees, compared with 897 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 preparedness.

Statnett conducted an employee survey in 2009, 2010 and 2011 organized by Great Place to Work. Great Place to Work appoints the best employers. Statnett has been among the top ten each year and has thus established itself as one of the best employers in Norway in this study.

Equality and diversity

Statnett has a zero tolerance policy regarding discrimination and harassment in the workplace. This is followed up through 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 2011, 9.5 percent of new employees had a non-Norwegian background, up 1.6 percentage points from the previous year.

The percentage of female employees remained stable over the past year and was 23 percent at the end of 2011. The percentage of female employees in the energy sector in general was approximately 20 percent. In 2011 four of the nine members of Statnett’s Board of Directors were women and one of the seven members of the Group management was female. In 2011 women filled 25 percent of all managerial positions in the Group and four of Statnett's ten trainees were 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 salary 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 percent for women in 2011, compared with 95.6 percent in 2010 and 98.8 percent for men in 2011, compared with 98.5 percent in 2010. See 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 target policy with regard to accidents, injuries and unnecessary environmental impact. The Group has focus on health, safety and the environment (HSE) and implemented an HSE action plan in 2011. Reporting of undesirable HSE incidents and nonconformities increased in 2011, which is a continuation of the trend from 2010. However, reporting remains low. Statnett registers incidents 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 conducted prior to all risk-exposed work operations.

Statnett had three serious accidents in 2011. On 4 November, there was an accident under the work of the Sauda - Liastølen project, where an employee of the general contractor died. The accident is being investigated by the Police and the Norwegian Labour Inspection Authority. Statnett has also instigated its own independent investigation of the accident.

The two other serious accidents were related to a helicopter crash in connection with upgrades of the Nedre Røssåga - Namskogan power line and a snow scooter accident which occurred during an inspection of the Viklandet - Fræna power line. Two persons sustained serious injuries in the helicopter crash and one person was seriously injured in the snow scooter accident.

11 internal lost-time injuries were reported in 2011, whereas Statnett contractors reported 12 lost-time injuries. The lost time injury frequency rate (H value) in Statnett was 6.3 in 2011, an increase from 2010 when the H value was 2.0.

Absence due to illness in the Statnett Group was 3.8 percent in 2011, at par with last year. Statnett is working to reduce absence due to illness. This involves adaptation of individual workplaces and various health-promoting and sickness-reducing measures, including use of safety inspections, physical therapy facilities and a low-threshold exercise programme for all employees.


Corporate social responsibility

As a result of the operations, Statnett has considerable corporate social responsibility (CSR). CSR is an integrated part of Statnett's value base, being the core of the management system and contains the tools needed to conduct the activities in the right way. CSR in Statnett is 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 main 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 the customers and society at large, and that Statnett will pave the way for realisation of Norway’ s climate objectives. CSR in Statnett entails integration of social and environmental considerations in the company's daily operations and that CSR is embedded in the company's continuous corporate governance and anchored in the enterprise's management and organisation. See Corporate Social Responsibility for more information about CSR.

Environment and climate

Statnett's Environmental Management System is certified in accordance with ISO 14001:2004. Statnett is working to improve the 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. The company's climate contributions with regard to own consumption (heating, cooling and operation of Statnett’s office premises and buildings) are zero, as Statnett purchases electricity which is guaranteed to be produced from renewable energy sources. Like Statnett's new administration office in Trondheim, the new head office in Oslo will be an energy class A office building.

Emissions of SF6 gas from Statnett's SF6 facilities were reduced by 31 percent in 2011, to 210 kg. This corresponds to an environmental impact of 5 030 tonnes of CO2 in 2011.

Corporate governance

Statnett is a state enterprise, 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, see Corporate Governance.

Changes in the Board of Directors

Kolbjørn Almlid was appointed new chairman of Statnett's Board at the general meeting on 29 June 2011. The new chairman replaced Bjarne Aamodt, who had been chairman of the Statnett Board  since May 2008.

Outlook

To ensure a stable security of supply in the future, Statnett will make substantial grid investments in the years to come. Statnett presented the 2011 Grid Development Plan in November. The plan forms the foundation of the next generation main grid, which will be completed by 2030. In the next five-year period Statnett will develop a significantly larger project volume, and the period will to a large extent be a structuring and experience phase for the organisation, by, among other measures, adopting new contract models to increase Statnett's scalability. This will involve both new power lines and facilities, and upgrades of existing ones. There will be extensive building activities in this period, and the aging main grid with narrow margins will be subject to further pressure. It is an essential requirement that development activities take into account the constraints that this entails. At the same time, Statnett will strengthen the company's operational preparedness to increase its ability to handle unforeseen and critical incidents.

To be able to realise the planned development projects according to schedule, Statnett is dependent on an efficient licensing process and an external supplier market. Statnett is concerned to further improve collaboration with all involved parties to secure important input to the planning and realisation of new power lines. In this regard, several initiatives have been taken in relation to local and regional authorities as well as other stakeholders.

Statnett has several power lines under construction. There will be particular focus on progress in the projects Sima - Samnanger and Ørskog - Sogndal (Fardal), which are important power lines to secure supply of electricity to the Bergen area and Central Norway, respectively.

Due to the strong increase in the company's investment activities in new and existing grid facilities, Statnett's asset base will increase significantly. New facilities will be commisioned 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, and aims to become PAS 55 compliant in 2012. PAS 55 is a quality standard which represents best practice for optimal asset management in a lifetime perspective. This 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.

As transmission system operator in the Norwegian power market, the NVE has assigned Statnett with the task of introducing coordinated tariffs of the regional grid scheme as of 1 January 2014. Combined with assessing and having overall responsibility for the development of a common ICT solution for smart grid systems (AMS) by 2017, these tasks will require significant effort and changes in the years ahead.

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

In the deliberations Parlamentary Bill 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 after tax for the year.

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

Amounts in NOK million:

Dividend to owner 117
To other equity 699
Total: 816

Declaration from the Board of Directors and President and CEO

We confirm that the financial statements for the period 1 January to 31 December 2011 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 parent enterprise’s and the Group’s assets, liabilities, financial position and results as a whole, and that the disclosures in the Directors’ report give a true and fair overview of the performance, 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, 29 March 2012
The Board of Directors, Statnett SF

  Kolbjørn Almlid
Chairman of the Board
Thor Håkstad
Deputy chairman
Kirsten Indgjerd Værdal
Board member
Grethe Høiland
Board member
Heidi Ekrem
Board member
Per Hjorth
Board member
Pål Erland Opgård
Employee representative
Kjerstin Bakke
Employee representative
Steinar Jøråndstad
Employee representative
Auke Lont
President and CEO