Making the world a cleaner place 1 Annual report 2019 | Eesti Energia Annual Report | Operating environment | Contents MANAGEMENT REPORT FINANCIAL STATEMENTS Eesti Energia in 2019 .............................................. 3 Risk management ................................................. 63 Chairman’s letter ...................................................... 5 Consolidated financial Key figures and ratios ........................................... 9 Financial results statements Operating environment........................................ 10 67 Our long term plan ................................................ 15 90 Eesti Energia’s journey in 2019 Income statement ................................................. 92 Revenue and EBITDA .......................................... 68 22 Statement of comprehensive income ....... 93 Electricity..................................................................... 69 Statement of financial position ..................... 94 Distribution.................................................................. 72 Statement of changes in equity ................... 96 Shale oil ..................................................................... 75 Notes to the financial statements ............... 97 Other products and services ........................... 77 Protecting the enviroment .............................. 36 Independent auditor's report ........................ 177 Our people ................................................................... 41 Cash flows ................................................................. 79 Profit allocation proposal .............................. 185 Giving back to society ......................................... 44 Investment ................................................................ 81 Glossary .................................................................... 187 Tax footprint .............................................................. 48 Financing .................................................................... 84 Investor information .......................................... 188 Corporate governance report ....................... 51 Outlook for 2020 ................................................... 88 Eesti Energia 4 business lines • customer services • renewable energy 2 times 2019 • large-scale energy production • network services less carbon emissions ~ 5000 employees ~3 times more renewable energy 956 million euros revenue for 2019 6 home markets 23 million euros • Estonia net profit for 2019 • Latvia • Lithuania • Poland 3 • Finland • Sweden 9 5 8 6 7 2 3 10 1 4 BUSINESS LINES LARGE-SCALE ENERGY PRODUCTION 1. Oil shale mines I 2. Thermal power plants I 3. Oil plants NETWORK SERVICES 9. Electricity distribution network RENEWABLE ENERGY 4. Hydro power plant I 5. Cogeneration plants I 6. Wind farms I 7. Solar power plants I8. Pellet factory CUSTOMER SERVICES 10. Sales of electricity and gas solutions Chairman’s letter Almost three times more renewable energy and two times less carbon emissions – in 2019 we made rapid progress towards making the world a cleaner place. HANDO SUTTER Chairman of the Management Board Last year, for the first time, our electricity sales across our home mar- We began selling household customers in Estonia and Latvia a solar kets exceeded our electricity output. We increased retail sales primarily energy solution, which quickly gained popularity. Among other benefits, in Lithuania and Poland and began selling electricity to households in it offers them an opportunity to participate in the reduction of the Latvia, where we attracted 10,000 new customers. ecological footprint. Also, during the year the number of households that buy from us electricity produced solely from renewable sources In our energy production operations, renewable energy became the rose to around 25,000. driving force, its output growing over two and a half times. Consistent with our growth plan, we acquired 20 solar parks in Poland and The share of electricity produced from renewable and alternative entered the Polish renewable energy market. sources increased to 36% of our total output, moving us closer to our goal of reaching the 45% milestone by 2023. 5 | Eesti Energia Annual Report | Chairman’s letter | For the execution of further renewable energy development plans, In an environment where the average market prices of electricity were the owner has granted us permission to list a non-controlling stake in lower and CO2 emission allowance prices higher than a year earlier, the subsidiary Enefit Green on the stock exchange. We will announce we reduced the volume of electricity produced from oil shale at our our next steps when the time is ripe. We have built a strong renewable Estonian large-scale energy production units around two times. energy portfolio over the years and by realising it we wish to continue Abrupt changes in the operating environment required swift restruc- to expand our renewable energy production in all our home markets. turing – we had to adjust our mining and production volumes and In 2019, a key factor in our operating environment was the CO2 human resource to market conditions and our owner’s expectations. emission allowance price, which surged by almost 60% to 25 euros per On the other hand, our hybrid power plants were able to produce more tonne on average. The high level of the carbon allowance price had a renewable energy from wood waste on market terms. positive effect on the profitability of renewable energy but undermined Through the progress made towards our strategic goals of reducing the competitiveness of electricity produced from oil shale. the direct burning of oil shale in electricity production and increasing the output of shale oil and renewable energy, in 2019 we reduced our CO emissions by around 50%, helping Estonia move far ahead of the We reduced our CO2 emissions by around 50%. 2 European Union’s schedule for reducing carbon emissions. Eesti Energia will remain on its chosen course: we will continue Last year, the Baltic and Finnish electricity market was distorted by increasing our renewable energy production capacities, expanding increasing imports from third countries, which exceeded 15 TWh, setting shale oil production and developing the circular economy. a new record. Electricity sourced from Russia and Belarus accounted already for over 30% of the Baltic electricity consumption. Electricity Last year our shale oil output broke a new record. Market forecasts exempt from carbon tax constitutes a significant distortion of compe- predicting a rise in liquid fuel consumption and improvements in tition, which has a negative impact on the investment environment of the reliability and availability of our existing oil plants have given us the energy sector and all producers that observe the environmental confidence to build another Enefit technology-based oil plant by 2024. regulations of the European Union. By doing this, we will also meet the target of increasing the coproduc- tion of oil, electricity and gas, as set out in the national development The situation is a clear example of carbon leakage. The Estonian plan for the energy sector, without breaching the European Union’s government, the transmission system operator and the European climate policy. Commission are all aware of and acknowledge the market distortion issue but have not been able to resolve or alleviate it. Instead, in 2019 Eesti Energia can use old tyres, which to date have been a major the situation exacerbated. environmental problem, as a raw material in shale oil production and is exploring opportunities for using plastic waste in oil production. 6 | Eesti Energia Annual Report | Chairman’s letter | We are making every effort to become a regional leader in the To create synergies with the electricity distribution network, we have circular economy. started building a high-speed internet network in Estonia. On the new network, services will be provided by over ten telecommunication To supply the market with low-sulphur liquid fuels, we are planning to operators. In the first year of construction, we made connection to the build a shale oil pre-refining facility in partnership with other Estonian telecommunication network available to more than 9,000 customers. oil producers. The project is currently in the preliminary design phase. By 2023 we wish to make our high-speed internet network available to Eesti Energia’s long-term experience and extensive expertise in around 200,000 households and corporate customers. adding value to oil shale attract international attention, which opens We are a recognised trend-setter in the field of digital network and up knowledge export opportunities. We have signed a licensing and customer service solutions. For further development and export of our consulting services agreement for an Enefit280 oil plant with an Israeli digital energy and electricity network management solutions, we have company. We are also conducting geological surveys and analyses entered into a partnership with the global technology company Micro- of Turkish oil shale at the request of Turkish state-owned enterprises, soft. Our main focus is on the development of the electricity distribution which may result in the sale of a licence to the Enefit technology. network, convenient customer services and electromobility solutions. A new focus area for our distribution network operator is integrated management of multiple infrastructures, including the electricity, telecommunication, electric vehicle