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Risk

Statnett practises unified risk management which reflects that the enterprise is responsible for critical infrastructure in a vulnerable society, and that the enterprise is in a phase with a significant project volume as well as increase in facilities.

A secure supply of electric power forms the basis for a stable supply of electricity to the end-users, value creation and realisation of climate-friendly solutions. Statnett's risk management covers the entire scope of the enterprise, including strategic, commercial, operational and financial aspects. Statnett's risk management is an integrated part of the company's activities, coordinated across the organisation by means of a common methodical foundation and framework.

There is a strong focus on risks with a potential impact on HSE, supply of electrical power, finances, reputation and compliance, and consequences at the enterprise level will take priority. Statnett’s tolerance for risks with a potential impact on HSE and supply of electrical power is low. Important activities for managing risk in connection with supply of electrical power include:

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

Statnett works systematically to review any risks associated with our activities. The Board of Directors receives a complete overview of the enterprise's risk profile twice a year, with the addition of two annual updated overviews of the short-term risk profile. All development projects approved by the Board of Directors are reported to the Board and include an updated risk profile for the individual project. Statnett's activities are subject to comprehensive authority regulations from several regulatory bodies. Statnett's compliance with these regulations helps ensure low risk in connection with supply of electrical power.

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

Below follows a description of selected risks of an operational and financial nature.

Operational risk

HSE risk
Statnett's work relating to development, operations and maintenance involves work where there is a risk of serious personal injury. Examples include helicopter accidents, falling from heights, injury in connection with handling construction machinery, electrocution, traffic accidents, diving accidents and shipwreck. Measures to reduce the risk and prevent serious incidents have already been implemented and the improvement work has been further intensified. Statnett's ambition is that, by the end of 2017, the company and its external suppliers will be the leading TSO in Europe. The HSE risk is reduced by focusing on sound, documented work processes, use of risk analyses during planning and implementation, close collaboration with suppliers, reporting of incidents and near misses in a learning perspective and considerable management follow-up. An extensive HSE network across the Group is an important contributor to uniform work methods and efficient learning and development.

Risk of power supply interruptions
Interruptions in the electricity supply may occur as a result of a fault in a single component during N-0-operation or as a result of concurrent faults in situations with normal operational reliability. Some geographical areas have N-0-supply for parts of the year; such as Bergen, Stavanger, Northern Norway north of Ofoten, Lofoten/Vesterålen, Sunnmøre and parts of Eastern Norway. The number of hours with N-0-operation depends on the grid structure, level of consumption as well as the extent of any grid outages due to faults, maintenance and modifications. An increase in N-0-operation hours increases the risk of supply interruptions. Some of the consumption is constantly supplied by N-0, such as the process facility for Ormen Lange in Nyhamna. Preliminary estimated outage costs for connected end-users (under the KILE scheme) amounted to NOK 163 million in 2013, compared with NOK 31 million in 2012.

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

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

Risks relating to systems and operations
The frequency quality in the Nordic region, measured as the number of minutes outside the 49.9 - 50.1 Hz frequency band, is not as good as we would like. Frequency deviations are indicators of the risk in the system. If an incident should occur in the Nordic power system during a situation which cannot be covered by available reserves, the frequency may fall to a level where consumption is disconnected. Together with the other TSOs, Statnett has established a market for automatic reserves, Frequency Restoration Reserves (FRR, known as secondary reserves) which will reduce frequency deviations. The FRR market is in the introduction phase with limited volumes, and has consequently had limited effect on the frequency quality so far.

Energy access
Risk relating to energy access for the system as a whole is currently considered to be normal based on a normal energy situation, combined with the fact that Swedish nuclear power is expected to produce for high utilisation. Other measures that will be implemented to reduce the risk include purchase of energy options in consumption and earlier investments in back-up power facilities.

Project and portfolio risk
Statnett is implementing several major projects, and is planning to launch a number of new projects. This entails project risk which may impact HSE, security of supply, financial aspects, reputation and compliance. The projects have many common risk factors in addition to the project-specific factors. Common risk factors in the project portfolio include HSE risks, disconnection needs in the existing grid, capacity and cost development relating to certain expertise groups and suppliers, awarding of licences and authority permits as well as insufficient quality in deliveries. Risk is managed by taking into account risk in the project development and implementation by using defined work processes, assessments and follow-up of suppliers, adapted implementation models and management follow-up.

To ensure good governance of the projects approved by the Board of Directors, the Statnett Board has appointed a project committee. The project committee will follow up to ensure that Statnett's management of the projects is satisfactory and that the projects have sound HSE practice, supply good technical quality, follow schedules, abide budgets and are cost-efficient.

Loss of critical ICT services
The control centres and associated communication systems are critical ICT services. Loss of such services can make it challenging to handle system operations, for instance in the event of faults in grid facilities or major changes in generation and consumption. Historically, Statnett has had high uptime for this type of services. Risk analyses have shown that the probability of the various services being down for extended periods is relatively low. At the same time, further risk-reducing measures are under implementation. Should a loss of services still occur, preparedness measures are in place involving increased staffing of control centres and substations, as well as implementation of many manual system operation routines.

Risk of misconduct
Misconduct exists when employees, employee representatives or business connections violate the trust that has been placed in them to achieve an unjustified advantage on behalf of themselves or the enterprise. The risk of misconduct is followed up through risk identification and reporting in the line organisation. Key measures to reduce the risk are Statnett's value base and code of conduct, structured processes including in connection with acquisitions and continuous management follow-up and internal control.

Regulation
The energy sector is strongly regulated and the development trend points towards even more regulation to achieve political objectives. Furthermore, power lines historically represent controversial disruptions to the landscape and Statnett's facility upgrades will affect many of the country's municipalities in the coming decades. Statnett is dependent on society's acceptance of any disruptions to the landscape as a consequence of our activities. A majority of the Storting supports the main aspects of the Grid Report, which to a large extent embraces Statnett's activities.

Financial risk

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

Financial risk
Statnett has access to several credit markets and has a diversified maturity structure for its borrowings. This reduces the risk of Statnett not being able to refinance the company's loans during periods with little available capital. The enterprise has a credit facility totalling NOK 6.5 billion with a duration until January 2018 to be able to fund at least 12 months' revolving operations and investments without incurring any new debt. Statnett has long-term credit ratings of A+ and A2 from Standard & Poor’s and Moody’s Investor Service, respectively.

Interest rate risk
Statnett's permitted revenues are partly based on the return on the enterprise's grid capital, calculated on the basis of the NVE-interest rate (Norwegian Water Resources and Energy Directorate-interest rate). The model used to calculate the NVE-interest rate has been changed with effect from 1 January 2013. The change will reduce Statnett's interest rate risk, as the new model is more in line with that of the grid companies, and Statnett's real financing costs.

Credit risk
Statnett assumes credit risk through placing surplus liquidity with securities issuers. Statnett has limits which set credit rating requirements for counterparties and maximum exposure limits for each individual investment of surplus liquidity. Statnett is also exposed to credit risk relating 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 trading on the regulating power market.

Foreign exchange risk
Statnett's revenues are mainly in Norwegian Kroner (NOK), whereas some of the Group's expenses are in foreign currencies. Currency risk is minimised through several measures, including using currency swap agreements to hedge risk in connection with purchases in investment projects. All Statnett loans in foreign currency are converted to NOK through currency swap agreements.

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