Elering AS Strategy 2017–2026 “Merging energy systems”
September 2016
Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Key trends Mission, vision, values Strategic goals and projects KPIs
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
5 key trends affecting Elering I Regulatory environment
§ • Weighted Average • Cost of Capital (WACC) continues to decrease • Withdrawal of ”old • assets“ from regulated asset base • Income tax paid on • dividends not reflected in tariffs
II EU energy policy
III Stakeholder expectations
IV Smart grid development
V Competition for talents
Effect on Elering Regional • Partial centralisation of socialisation of TSO competences connection costs Reducing the for industrial influence of third consumers countries on the • Facilitating the energy system connecting Considerable process for preference on generators developing renewable energy • Lowering network tariffs
• Emergence of new participants in the energy market • Cyber security • The need to transfer information along with energy
• Considerable decrease in the number of power engineers entering the labour market
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Elering AS Strategy 2017-2026 „Merging energy systems“
I
§
September 2016
Regulatory environment
Description • Regulatory WACC continues to decrease in relation to low interest rates. • “Old assets“ will be withdrawn from regulatory assets at the end of 2018, resulting in reduced revenue from power network services in the amount of approximately 15.5 million euros.
• The formula for calculating regulatory WACC does not include the income tax component. Elering pays income tax on dividends but this cannot be included in tariffs.
Elering’s activities 1. Refinancing bonds in 2018 with probably much lower interest 2. Applying for new tariffs by the time when it is economically efficient 3. Proposal to include the income tax component in the formula for calculating regulatory WACC 4. Applying for making an amendment to the regulation governing the calculation of electricity transmission tariffs (Electricity Market Act) in terms of the accounting principles of assets to make it similar with the regulation governing the calculation of gas transmission tariffs (Natural Gas Act)
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Elering AS Strategy 2017-2026 „Merging energy systems“
II
September 2016
EU energy policy
Description
Elering’s activities
• EU energy policy – single network, single market – works in the interests of Estonia.
1. Supporting the principles of the Energy Union
• The objective of the Energy Union is to reduce EU’s dependence on fuel and gas imports, strengthen the functioning of the internal energy market, increase the share of renewable energy and energy efficiency, and ensure the leading position of the European Union in the fight against global warming.
• Developing cross-border infrastructure
• Considerable preference on developing renewable energy challenges adequacy of generation capacities and calls the suitability of the existing electricity market design into question.
2. Desynchronisation of the Baltic electricity system from the united Russian system is Elering’s strategic priority
• Regionalisation means creating different types of collaboration structures between the system operators in Europe.
• Ensuring the equal treatment of different fuels and technologies • Implementing the harmonised European Network Codes for market integration
• Increasing energy independence and energy security
3. Establishment of a joint Baltic-Finnish gas market with the necessary cross-border connections (primarily Balticconnector) 4. Creation of an efficient Baltic TSOs’ Regional Security Coordinator (RSC) 5. Creating a vision of the future electricity market design as part of SoS Report 5
Elering AS Strategy 2017-2026 „Merging energy systems“
III
September 2016
Stakeholder expectations
Description • Expectations are changing amongst all stakeholders, including market participants, clients, consumers, the owner and the regulator. • More and more clients are connecting to the network, including wind and solar energy producers, who expect swift and effective action and advice from Elering during both the connection process and network service provision. • For making the Estonian economic environment more attractive to investors, partial socialisation of the connection costs for industrial consumers is under discussion. • Society does not perceive a link between investments in cross-border connections, network charges, and a functioning energy market that provides the best energy price.
Elering’s activities 1. Improvement in customer service level quality • Full implementation of the customer portal, including the information system of connections • Continued activities for improving network reliability with the necessary investments 2. Cost control and monitoring • Detailed analysis of investments to optimise network investments and pressure on network tariffs • Rethinking the network service pricing philosophy • Creating synergies in network operation through more active collaboration with distribution system operators in planning and operating the network
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Elering AS Strategy 2017-2026 „Merging energy systems“
IV
September 2016
Smart grid development
Description • The smart grid means combined changes in the energy system, resulting from the widespread deployment of information and communication technologies, the development of demand side management and storage, and distributed and renewable energy based generation. • This will likely lead to significant changes in the network structure and smaller, irregular and unpredictable transmission of power in the grid. • This trend will be leveraged by subsidies, and more affordable and available technologies. • Therefore, making investment decisions and load forecasts will become increasingly complicated.
Elering’s activities 1. In the development of a retail energy market we see the key solution in the implementation of smart solutions for ensuring access to data and services 2. Developing solutions for network constraint management and system balancing
3. Ensuring network access for energy produced from renewable sources while not infringing on principles of equal treatment 4. Further development of the Estfeed platform to ensure growth in energy efficiency and to give consumers and microgenerators an active role in the energy market 5. Smart grid awareness building and participation in energy discussions
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Elering AS Strategy 2017-2026 „Merging energy systems“
V
September 2016
Competition for talents
Description • In the period 2013-2022, 12 thousand people annually will leave the Estonian workforce. One of the industries most affected by the movement of older workers is the energy industry. During the same period, the number of graduates from high school, vocational colleges and tertiary institutions will fall by an average of 15-30% a year compared with the period 2008-2013 (MEAC Labour requirements and supply projection until 2022). • About 25% of Elering employees are at or will reach pension age within the next 10 years. • Changes in personnel present the company with a variety of new expectations about work arrangements and content, benefits offered by the employer, development opportunities, and the work environment.
Elering’s activities 1. Finding talents • Developing reputation as an attractive employer for young talents 2. Retaining committed and productive employees • Implementation of career and development programme for young people with potential • Further development of remuneration and motivation system • Ongoing development of corporate culture according to changing personnel needs • Development and harmonisation of management quality (incl. implementation of performance management principles) • As part of the performance management system, regular overviews of performance in business-critical positions and ongoing development
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Key trends Mission, vision, values Strategic goals and projects KPIs
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Elering’s mission and vision
Mission Elering’s mission is to ensure security of energy supply to Estonian consumers through effective regional energy markets based on reliable energy networks and competent employees. In doing so, we support competitiveness of Estonian economy. .
Vision Elering’s vision is to be the best energy infrastructure company in the Baltic Sea region.
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Elering’s values RESPONSIBILITY We feel that our responsibility to society is ensuring electricity and gas supplies in an economically efficient way. A well-functioning energy market where market participants are treated equally is the best path towards ensuring the security of supply. We value each employee’s contribution – this helps us perform our duties to the society at a high level. DEDICATION There is a client behind every activity performed at Elering. We are committed to creating value for our clients and our clients’ clients. We create value for our clients by combining the longstanding experience of our people with the latest knowledge. This is how we offer the best solutions in the energy sector. OPENNESS The energy system is undergoing a rapid change. Elering is dynamic and open to changes. We initiate changes in the energy sector. Readiness for changes begins with our people. To lead the way for changes, we value everyone’s initiative, creativity, and wish to evolve.
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Key trends Mission, vision, values Strategic goals and projects Regionalisation perspective Energy market perspective Asset management perspective Financial perspective Customer and society perspective Personnel perspective
KPIs
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
6 strategic perspectives and goals Regionalisation perspective
Initiative in regional energy economy
We take the initiative in the development of regional energy economy management, enhancing regional cooperation and investigating expansion opportunities. . Asset management perspective We manage the regions’ most efficient electricity and gas networks, ensuring security of supply through a reduction of outages in transmission network and high availability of cross-border capacities. Customer and society perspective We have strong customer satisfaction and stakeholder reputation as credible partner and well-managed company. Society values our contribution to socio-economic development through security of supply, innovation, environmental awareness and affordability.
B
A Development of regional electricity and gas market
C Region’s most efficient network
D Strong financial performance
E
F Recognition by customers and society
Attractive employer
Energy market perspective We develop the Baltic Sea regional energy market to provide suppliers with opportunities to effectively supply their customers; and consumers to freely choose their suppliers. . Financial perspective We create positive economic added value and maintain a strong credit rating, providing the owner with dividend revenue. . Personnel perspective We offer our employees opportunities for professional development and fulfilment in a company, which has an inclusive management culture and a close-knit team. Elering is a valued employer for current employees as well as external talents working in energy sector.
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Regionalisation perspective: Initiative in regional energy economy
A
Strategic goal: We take the initiative in the development of regional energy economy management, enhancing regional cooperation and investigating expansion opportunities
KPIs
N/A
Targets
Strategic projects
N/A
1. Establish Regional Security Coordinator (RSC) in the Baltic States 2. Assess the feasibility of a joint Baltic control centre
2015
2016
2017
2018
2019
2020
20212023
20242026
A1
A2
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Energy market perspective: Development of regional electricity and gas market B
Strategic goal: We develop the Baltic Sea regional energy market to provide suppliers with opportunities to effectively supply their customers; and consumers to freely choose their suppliers. KPIs Reliability of Estfeed PTR-L price ratio to price difference of EE and LV power exchanges Number of gas suppliers
Targets >99%
Strategic projects 1. Develop Estfeed platform
0.9-1.1 2. Develop financial (3-year instruments to hedge average) market risks 10
2015
2016
2017
4. Create common Nordic-Baltic electricity balancing market 5. Promote demand side management
a) Amount of RES a) >80% covered by certificates of origin b) Proportion of b) >3% biomethane in transport fuels
6. Contribute to fulfilling Estonian renewable energy objectives
2019
2020
20212023
20242026
B1
B2
3. Establish joint BalticFinnish gas market by 2020
a) Number of a) 7 balancing providers b) Availability time of b) >95% balancing energy between Baltics and Nordics
2018
B3
B4
B5
B6
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Asset management perspective: Region’s most efficient network
C
Strategic goal: We manage the regions’ most efficient electricity and gas networks, ensuring security of supply through a reduction of outages in transmission network and high availability of cross-border capacities KPIs
Targets
Strategic projects
a) Electricity not delivered
a) <114 MWh
1. Implement Network Reliability Enhancement Plan
b) Outages
b) <168
c) Gas N-1
c) >100%
d) Gas losses
d) <0.1%
e) Uncongested time on EstonianFinnish border
e) >95%
2. Establish Balticconnector
2015
2016
2017
2018
2019
2020
20212023
20242026
C1
C2
3. Desynchronise from Russia
C3
4. Ensure reliability of electricity system
C4
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Financial perspective: Strong financial performance
D
Strategic goal: We create positive economic added value and maintain a strong credit rating, providing the owner with dividend revenue. KPIs
Economic added value EVA
Dividends
Financial credit rating
Targets
Strategic projects
>0
1. Engage more cost-effective financing options 2. Apply for new tariffs timeously 3. Apply for making an amendment to tariffs’ regulation 4. Analyse the feasibility of expanding Elering’s activities and possible synergies
20 MEUR per year
A3
2015
2016
2017
2018
2019
2020
20212023
20242026
D1 D2 D3 D4
5. Include owners request for dividends in financial forecasts
D5
6. Consider Moody’s rating methodology requirements in company’s strategy and budget
D6
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Elering AS Strategy 2017-2026 „Merging energy systems“
September 2016
Customer and society perspective: Recognition by customers and society
E
Strategic goal: We have strong customer satisfaction and stakeholder reputation as a credible partner and well-managed company. Society values our contribution to socio-economic development through security of supply, innovation, environmental awareness and affordability KPIs
Customer satisfaction index
Corporate reputation index
Targets
Strategic projects
TBD
1. Ensure client satisfaction
40%
2. Develop energy competence centre 3. Strengthen company’s image 4. Organise corporate governance practices according to the best practice requirements of Tallinn Stock Exchange and Financial Inspection
2015
2016
2017
2018
2019
2020
20212023
20242026
E1
E2 E3 E4
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Elering AS Strategy 2017-2026 â&#x20AC;&#x17E;Merging energy systemsâ&#x20AC;&#x153;
September 2016
Personnel perspective: Attractive employer
F
Strategic goal: We offer our employees opportunities for professional development and fulfilment in a company, which has an inclusive management culture and a close-knit team. Elering is a valued employer for both current employees and external talents working in energy sector. KPIs
a) Reputation as an employer among energy students b) Voluntary turnover
Targets
a) Place in top three b) < 7%
Strategic projects
1. Ensure a solid reputation as an employer and a joint organisational culture 2. Establish and implement systematic talent management 3. Develop management quality, incl. implementing a performance management system
2015
2016
2017
2018
2019
2020
2021- 20242023 2026
F1 F2
F3
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Elering AS Strategy 2017-2026 â&#x20AC;&#x17E;Merging energy systemsâ&#x20AC;&#x153;
September 2016
Key trends Mission, vision, values Strategic goals and projects KPIs
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Elering AS Strategy 2017-2026 „Merging energy systems“ KPIs
Metric
September 2016
Actual levels
Targets
2011
2012
2013
2014
2015
2017
2021
2026
Reliability of Estfeed PTR-L price ratio to price difference of EE and LV exchanges Number of gas suppliers
%
N/A
N/A
N/A
N/A
99.7
> 99
> 99
> 99
Ratio
N/A
N/A
N/A
N/A
0.77
0.8-1.2
0.9-1.1
0.9-1.1
#
1
1
1
2
6
6
10
10
Number of balancing providers Availability time of balancing energy between Baltics and Nordics Amount of renewable energy covered by certificates of origin Proportion of biomethane in transport fuels Electricity not delivered
#
1
1
1
1
1
1
3
7
%
N/A
N/A
N/A
N/A
N/A
N/A
> 95
>95
%
N/A
N/A
N/A
N/A
81
> 80
> 80
> 80
%
0
0
0
0
0
N/A
>3
>3
MWh
782
148
58
27.6
11.9
176
148
114
Outages
#
251
204
261
166
133
189
180
168
Gas N-1
%
68
68
68
68
68
68
> 100
> 100
Gas losses Uncongested time on EstonianFinnish border Economic value added EVA
%
N/A
N/A
N/A
0.4
0.32
< 0.25
< 0.1
< 0.1
%
N/A
N/A
N/A
93.6
91.8
> 95
> 95
> 95
MEUR
4.9
15.8
6.7
10.2
19.0
>0
>0
>0
Dividends
MEUR
0
0
0
0
20
20
20
20
Financial credit rating
Moody’s
A3
A3
A3
A3
A2
A3
A3
A3
Customer satisfaction index
%
N/A
N/A
N/A
N/A
N/A
tbd
tbd
tbd
Corporate reputation index Reputation as an employer among energy students Voluntary turnover
%
41
N/A
27
N/A
N/A
30
35
40
N/A
N/A
N/A
N/A
N/A
5th
3rd
3rd
6
5
7
4
4
<7
<7
<7
Place %
21