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Investor Presentation
June 2020
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Investor presentation March 2020
The most important infrastructure. Of all.
The future is electric3
1
2
3
4
Green investments
Business Risk: Excellent
Low finance risk
THE MOST IMPORTANT
INFRASTRUCTURE. OF ALL.
The most important infrastructure. Of all.4
1
Government (AAA) ownership and backing. Fully regulated.
The most important infrastructure. Of all.5
Critical infrastructure in one of the world's richest countries
Statnett is the TSO in the Kingdom of Norway (Aaa/AAA/AAA)
• "Pure play" transmission
• CICERO: Dark green shading
• No volume or commodity risk
• State Enterprise – by law, only the government can be the owner
• Fully regulated
• Low volatility in underlying earnings
• Stable regulatory regime, one of the longest track records in Europe
• The board committed to a "robust A rating"
• Issuer rating A2/A+ by Moody’s and S&P, respectively
• COVID-19 – measures in place - very limited consequences for operations,
investments and financials.
• Temporary reduction in tariffs in 2021 to be made up, underlying revenue unchanged
The most important infrastructure. Of all.6
Main figures 2019
Facts
Grid size (km high voltage power lines) 11,000
Subsea and land cables (km) 1,600
Substations (No.) 170
Empoyees (No.) 1,490
Financials (NOK billion)
Balance sheet 76.3
Revenues (adj) 10.4
EBITDA (adj) 6.2
Profit after tax (adj) 2.5
Ministry of Petroleum and Energy
The most important infrastructure. Of all.7
The Board
Customers
RME NVE
Governance reflects the strategic role
Regulator
Security of supply
One defined mission
8
MISSION
ClimateValue
creation
“To develop the
next generation
power system
in Norway
by 2030"
The most important infrastructure. Of all.
9
Statnett – Green, social and responsible.
Supporting 8 key UN Sustainable Development Goals
The most important infrastructure. Of all.
The most important infrastructure. Of all.10
Sustainable highlights 2019
Environment
• Construction work without fossil fuel
• Climate: Procurement selection criteria
• GHG reduction by 4 %
• Initiatives on biodiversity
Social
• Decreased injury rate by contractors
• 80 % covered by collective bargaining agreements
• Signed agreement with the Norwegian Tax Authorities
Governance
• Established ESG Committee
• Appointed dedicated ESG coordinator
- English picture
The most important infrastructure. Of all.11
Low emission construction site
Photo: Mimsy Møller, Dagsavisen
• Constructing the Smestad-Sogn cable tunnel for the electric future of Oslo
• Total site emissions reduced by 78%
• Electric tunnel machinery
• Electric light duty vehicles
• Trucks and heavy machinery: Renewable diesel without palm oil
• Statnett targets to cut own emissions by 25% compared to 2020 before
2025
The most important infrastructure. Of all.12
We combat labour crime
• Formalized collaboration on labour crime with tax authorities from Nov. 2019
• Statnett's guidelines prerequisite for suppliers
• Must comply on HSE, environment and quality standards
• Acceptance for info sharing with tax authorities
• On-site control of salary and working conditions for workers
• Maximum two layers of sub-suppliers allowed
• Zero injuries vision. Injury frequency halved since 2014.
Statnett and Norway's tax authorities join forces to combat labour crime
The most important infrastructure. Of all.13
Governance – Transparency, dialogue and acceptance
CEO Auke Lont
• ESG Committee established in 2019
• Dedicated ESG position
• The Board of Directors overarching responsibility for CSR
• Top management responsible for measures and reaching goals
• Policy on CSR part of Statnett's management system
• Zero tolerance on corruption, harassment and labour crime
• Dedicated Ethics Representative managing whistleblower programme
GREEN
INVESTMENTS
Green investments14
2
Green investments15
Green projects in Statnett
• Contribute to national climate goals
• Ambition: Leading company in climate and environmental activities
• Minimized impact on biodiversity, landscape and communities
• Green projects exceed NOK 20 billion
• Connecting renewable power production
• Enabling efficient use of clean energy
• Increasing the market for renewable energy
• Currently financing: "Smestad – Sogn" and "North Sea Link"
Green investments16
Smestad – Sogn: Supporting The Green Capital of Norway
• Renew Smestad substation and build new cable interconnector
between Smestad and Sogn
• Expected cost 1,250 – 1,390 NOK million
• Oslo is the European Green Capital 2019
• 30 % new cars sold being electric vehicles
• Targets to cut emissions by 50 % by 2020 and 95 % by 2030
• The project is a part of The Greater Oslo Grid Plan ensuring a
reliable supply of electricity to Oslo and Akershus
Green investments17
Connecting the European power market
• Norwegian electricity production is generated by 98%
renewable energy, of which 97% is hydro power
• The power surplus in Norway generates clean electricity
export to both UK and Germany when prices are high -
reducing the initiation of higher marginal cost electricity
abroad, typically fossil fuels
• When wind blows and the sun shines there is an excess of
renewable energy in UK (wind) and Germany (wind/solar)
which Norway then imports and can conserve water in
many of the reservoirs
North Sea LinkCapacity app. 1,400 MW
Est. compl. 2021NordLinkCapacity app. 1,400 MW
RAB in 2019 with trial and
commercial operation in 2020/2021
Green investments18
Green investments all over the country
Connection of wind-power along the coast – Fosen and Bjerkreim
Capacity projects on the west coast
Energy intensive industry, electrification offshore
Interconnectors to Germany and the UK
Connection of data centers in all parts of the country
Security of supply in major cities - Oslo, Bergen and Stavanger
Necessary replacements of stations and lines
New industry and security of supply – North Norway
Green investments19
CICERO Second Opinion: Dark Green
Strengths
• "Overall, Statnett’s green bond framework provides a progressive,
clear and sound framework for investments into projects that well
align with the Green Bond Principles"
• "The overall assessment of the governance structure of Statnett
gives it a rating of Excellent"
• "Statnett has updated its climate and environment strategy and
defined ways for how to reduce emissions"
Weaknesses
• “There are no apparent weaknesses in the framework”
sentence
Green investments20
Bringing Statnett´s investments to a new level
0
2
4
6
8
10
12
14
Bill
ion
NO
K
• Investments will stay at a high level until
both interconnectors are completed in
2021. After 2021, investment levels are
expected to be more moderate
• Contractual obligations (exceeding NOK
50 million) amounted to NOK 6.6 billion
as of 31 December 2019.
Green investments21
Significant investments successfully completed
Execution
on track
Consistent and
significant
savings
Numerous major projects completed within the last 10 years
“BUSINESS RISK:
EXCELLENT”
"Business risk: Excellent" - S&P22
3
_________
S&P, Research Update, February 2020
Excellent business risk confirmed by both Moody’s and S&P
"Business risk: Excellent" - S&P23
Moody’s Credit Opinion, May 2019 S&P Global Ratings, 14 March 2019
“Stable and predictable cash flows generated under one of the most well-established and transparent regulatory frameworks in Europe”
“Efficient grid and transmission system”
"Business risk: Excellent" - S&P24
Cost based revenue with a regulated rate of return
• "Pure play" transmission - fully regulated
• No power price or volume exposure
• Allowed revenue – cost based - 100% when efficient
• Operating costs (with 2 year time lag, plus inflation,
some costs are back-to-back same year). Depreciation is cash
compensated same year
• RAB (as of 31 Dec each year), regulated return (WACC, 5.69% in
2019).
• Allowed Revenue annually adjusted to fit updated costs and rates –
no regulatory period end point
• No "x-factor" (no general across industry efficiency improvement
requirement)
• Allowed revenue distributed between customers through tariffs
• Differences to allowed revenues made up in subsequent years
• No significant counterparty risk - limited credit allowed and any losses
would be picked up by all customers (included in allowed revenues)
Stable earnings, driven by growing Regulated Asset Base (RAB)
"Business risk: Excellent" - S&P25
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Mill
ion N
OK
RAB (index) EBITDA excl. higher/lower revenues EBITDA (IFRS)
LOWFINANCE RISK
Low finance risk26
4
Low finance risk27
Prudent financial policies and low financial risk
Sufficient liquidity…
Low counterparty risk
Low interest rate risk
• … to fund operations, investments and redemptions over a minimum 12 months period
• NOK 8.0 billion committed RCF (undrawn, matures Jan 2024)
• Normalised cash position: Approx. NOK 2.3 billion
• Minimum rating requirement of A-
• Credit Support Annex (CSA)
• Regulated rate of return 5.69% in 2019
• Seek to correlate rate on debt with NVE-interest rate (regulated return)
Low finance risk28
Multiple sources of capital as of 31.12.2019: Total NOK 40.6 billion
Domestic CP3,0
Domestic Bonds10,2
Issues in EUR10,0
Issues in USD7,2
SEK1,6
CHF0,9
Drawn Bank Loans EIB & NIB
7,8
Low finance risk29
Low refinancing risk as of 31.12.2019
Average time to
maturity: 7.1 years
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
MN
OK
Commercial Paper
Bank Loans
Domestic Bonds
International Bonds
Rating Agency Short-term Rating Long-term Rating Outlook
Moody´s P-1 A2 Stable
S&P Global A-1 A+ Stable
Low finance risk30
Long term funding
• Undrawn Credit Facility NOK 8.0 billion
• Strong and supportive bank group
• Robust A rating policy
Access to capital markets supported by
The owner of Statnett SF (The Kingdom of Norway), is rated Aaa/AAA/AAA by Moody´s, S&P and Fitch, respectively
Latest credit opinion report on Statnett SF from S&P Global: 26 Feb 2020, from Moody's: 24 April 2020
SUMMARY
Summary31
5
The most important infrastructure. Of all.
Summary32
1
2
3
4
Green investments
Business Risk: Excellent
Low finance risk
Summary33
Key investment highlights
Statnett is the TSO in the Kingdom of Norway (Aaa/AAA/AAA)
See appendix for details on revenue regulation model
• "Pure play" transmission
• CICERO: Dark green shading
• No volume or commodity risk
• State Enterprise – by law, only the government can be the owner
• Fully regulated
• Low volatility in underlying earnings
• Stable regulatory regime, one of the longest track records in
Europe
• The board committed to a "robust A rating"
• Issuer rating A2/A+ by Moody’s and S&P, respectively
APPENDIX
Appendix34
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Appendix35
Climate – Ambitious strategy
• Industry leadership on environment and climate efforts.
• Support national climate goals - facilitate electrification and renewable energy.
Operative targets
Integrated & documented
Procurement
Incentives & choices
Appendix36
Norway – hydro reservoirs supporting a greener Europe
• Norwegian power production dominated by hydro (96%)
• Power surplus – clean energy export
• Reservoir flexibility supports European renewables
Week 2 2019: Wind power production and power exchange
I
Appendix37
Key investments
Project Region Expected investment (MNOK)
Commissioned projects
Namsos - Åfjord and Snilldal - Surna, new 420 kV power line Central
Bjerkreim, new transformer substation South
Elhub
Under construction
Western Corridor, voltage upgrade South 6,600 - 6,800
Balsfjord – Skaidi, new 420 kV power line North 4,000 - 4,500
Lyse - Fagrafjell, new line and substation South 2,020 - 2,095
Smestad – Sogn substation and cable installation East 1,250 - 1,390
Interconnectors, under construction
Cable to UK (North Sea Link) 1) MEUR 750 - 1,000
Cable to Germany (NordLink) 1) MEUR 750 - 1,000
1)Statnett’s share. Exposure mainly in EUR, in range of NOK 7–9 billion per project
Agreements with partners in Germany and UK are denominated in EUR.
Appendix38
Reconciliation of financial key figures (in million NOK)
*See note 4 in Annual Report for changes in accumulated
higher/lower revenue.
Unadjusted figures 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenue 7,247 5,497 5,334 4,561 5,563 5,906 6,678 7,401 9,138 9,641
EBITDA 3,945 2,426 2,260 1,394 2,528 3,340 3,296 3,715 5,100 5,432
EBIT 3,279 1,628 1,433 346 1,378 1,714 1,152 1,312 3,120 3,027
Profit after tax 2,198 1,000 837 82 829 1,103 645 813 2,213 1,906
Adjustments
Accumulated higher revenue* 1,553 2,617 3,455 2,413 1,790 1,346 343 -303 59 -732
Adjustment for changes in acc. higher/lower revenue -2,186 -1,064 -838 1,042 623 444 1,003 646 -362 791
Adjusted figures
Adjusted revenue 5,061 4,433 4,496 5,603 6,186 6,350 7,681 8,047 8,776 10,432
EBITDA 1,759 1,362 1,422 2,436 3,151 3,784 4,299 4,361 4,738 6,223
EBIT 1,093 564 595 1,388 2,001 2,158 2,155 1,958 2,758 3,818
Profit after tax 624 234 234 832 1,284 1,427 1,397 1,304 1,934 2,523
Appendix39
Predictable revenues and profitability dynamically adapted to costs
Efficiency score: 100%Successful benchmark with other
European TSOs. Efficiency
programme initiatives
Timely compensationNo time lag on investments, system service
costs or depreciation, two years lag on operational costs
(compensated with inflation)
1.5% + Inflation + 0.875 x 5%
(1-Tax rate)
Costs1 x 40%2 + Costs1 x 60%2 x Efficiency Score
2Regulated rate of return (2019: 5.69%)
1Revenues:
x 40%3 + (5y swap rate + margin) x 60%3
1) See separate slide for definition of costs 2) From 2023: 40% and 60% will change to 30% and 70% respectively 3) 40% equity share regulatory assumption – fixed parameter independent of company
Appendix40
Transportation Loss in grid in
year n-2, times updated power
market price in year n (which
takes away practically all price
risk for Statnett)
Cost of
Energy
not
delivered
times 60%1
Cost of
system
services
Transit
costs
(back-
to-back)
Property
tax (back-
to-back)
Norm Cost = Cost Base * Efficiency score
Cost Base = O&Mn-2 * CPIn
CPIn-2
+ Dn + 1.01*RABn * NVEraten
Revenue Cap = 40%1 * Cost Base + 60%1 * Norm Cost + TLn-2 * Pn + CENS + Sn-2 + TrC + Ptax
Inflation adjusted operating
and mainenance costsDepreciation in
year n
Rate of return on Regulatory
Asset Base in year n
Note that the regulator calculated Dn and RABn*NVEraten in two steps, first with two year's timelag on Dn-2 and RABn-2,
then adding the increase in basis from n-2 to n. Total effect as described above.
Calculation of allowed revenue
1) From 2023: 40% and 60% will change
to 30% and 70% respectively
Appendix41
Organizational structure
Knut HundhammerCFO and Executive Vice President
Hundhammer was educated at the Norwegian Military Academy and has an MBA from Wharton School of Business in the US. He joined Statnett in May 2011, and is responsible for the Group's economy, finances, HR, HSE, legal affairs, risk management and quality. He has previously been Deputy Managing Director/CFO of Finansbanken ASA and CFO/COO of Høegh Autoliners. He has also been president of the commercial shipping division in the Klaveness Group, and a consultant for McKinsey & Co.
Auke LontPresident and CEO
Lont holds a Master's degree in econometrics from Vrije University in Amsterdam. He became President and CEO of Statnett in February 2009 after having held the position of CEO with the consulting company Econ in Norway. Lont has previously held top executive positions in Statoil, has worked in South Africa and was the CEO of Naturkraft AS. He has more than 30 years’ experience from the energy sector. Auke Lont is a member of the board of the employers' association Spekter and the railway infrastructure company Bane NOR
Appendix42
Connecting the European Power Market
NordLink• Interconnector between Norway and Germany• The last few years have seen a significant increase in wind power and
solar power in Germany. When the winds blow and the sun shines this creates a surplus of renewable energy in Germany, which also leads to lower prices than in Norway. Norway can then import this power and conserve the water in Norway's many hydropower reservoirs.
• When there is little production of wind power and solar power in Germany the need for power increases and the prices will be higher than in Norway. Norway can then produce hydropower and export it to Germany. This way we get more out of the resources on both sides of the cable.
North Sea Link (NSL)• Interconnector between Norway and the UK• The interconnector will link the Nordic and UK markets, providing
benefits on both sides• When the winds blow in the UK and wind power production is
high, Norway will be able to import power from the British to a lower price than in the Norwegian market and conserve the water in Norway's many hydropower reservoirs.
• When there is little wind and a greater need for power in the UK, the situation will be the other way around. The UK can then import Norwegian hydropower at a lower price than in the British market and through this secure the power supply.
• The advantages of this exchange of green energy include:• Increased security of supply because one can import more electricity at a lower price when the power situation is tight• Increased market for power producers when there is a surplus of power in the national markets• Facilitation of higher production and consumption of renewable energy in Norway, the UK and Germany, thereby contributing to future climate-friendly energy• More predictable supply situation and price throughout the year and from year to year
• Both projects are organized as "unincorporated joint ventures". Statnett holds 50%. Statnett's part in NordLink is organized in a wholly owned subsidiary, but fully financed by the parent company. Costs and trade revenues are shared equally. Counterparts are National Grid for the NSL and TenneT and KfW owns the southern part of NordLink through a jointly owned German company.
• Statnett's parts are fully regulated, revenues are cost based, same as for onshore grid. So the trade revenue risk rests with the customers.
Appendix43
Tariff
• Tariff is split between a variable part and a fixed
part.
• The variable part (approximately 20%) is based on
marginal transmission loss in each node and billed
weekly
• The fixed part is designed to cover the remaining
part of the allowed revenues. It is allocated
according to customer groups, load/production and
point of connection, and paid mid-month for the
same month
• Set by Statnett ahead of each year.
• Defines how Statnett distributes the allowed
revenue between different customer groups.
• The tariff does not define the long term
revenue:
• Any difference between collected tariffs
and the allowed revenue is made up in
subsequent years
• End result: Over time, Statnett ends up
with the cost based regulated allowed
revenue cap.
Appendix44
Financial information and contact info
Contact details:
Knut Hundhammer (Executive Vice President CFO Corporate and Public Relations)
Tel. +47 23 90 32 10
Petter Erevik (SVP, Director of Finance)
Tel. +47 23 90 35 70
Marte Bakken (Senior Advisor, ESG)
Tel. +47 23 90 30 05
Availableat:
http://www.statnett.no/en/investor-relations/