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AT THE HEART OF THE ENERGY TRANSITION ANNUAL REPORT 2015 GEARING UP FOR THE FUTURE ENERGY LANDSCAPE The Elia Group, comprising Elia in Belgium, 50Hertz in northern and eastern Germany and Elia Grid International (EGI), is keen to be a driving force within the European electricity market. The electricity system faces many challenges: current generation units are ageing, while renewables are coming to account for an increasingly large proportion of the energy landscape. The variable nature of renewables, though, means that keeping the electricity system as a whole balanced is becoming an increasingly complex task. Local players are beginning to emerge. The energy transition is under way and the Group is busy developing tools and services which will make grid management easier in the future. This report summarises the key events in 2015 within Elia and the Group at large. To address the challenges of a changing energy landscape, Elia is working on shoring up and maintaining its grid through major infrastructure projects. The federal development plan for the next decade and new tariff conditions for 2016- 2019 (approved in 2015) form a solid foundation for the grid of the future. Elia fully appreciates the importance of innovation in developing its grid and optimising existing infrastructure and thus favours a sustainable, environmentally friendly approach which creates added value for stakeholders. When developing its projects, Elia takes care to factor in the views and opinions of stakeholders and the relevant authorities while fulfilling the stated economic requirements and providing a top-quality service at the most competitive price. At the same time, Elia intends to pursue its international ambitions via its subsidiary Elia Grid International. A KEY PLAYER AT EUROPEAN LEVEL System operation Managing the electricity system is becoming ever more complex, requiring increasingly sophisticated tools and processes and specialist skills to keep the grid balanced 24 hours a day, all year round. Since power cannot be stored in large quantities, balancing activities must be conducted in real time so as to guarantee a reliable supply and efficient operational management of the high-voltage grid. Market facilitation The Elia Group is a core player on the electricity market and as such acts as a market facilitator. To this end, it makes its infrastructure available to the market in a transparent, non- discriminatory way. It devises services and mechanisms to boost market development and forges new connections to open up new possibilities for the market. This encourages more effective competition between market players and enables renewable energy to be incorporated into the energy mix, for the wellbeing of the economy and of the community as a whole. Asset management The Elia Group maintains and develops high-voltage equipment and infrastructure: lines, cables, transformers and so on. The Group is using advanced technologies to modernise and extend its grid to enable it to integrate more advanced technologies. THE ELIA GROUP IN 2015 210.6 Mio€ NET RESULTS 1.55 €/share DIVIDEND Contribution to results 3.6% DIVIDEND YIELD (CLOSING PRICE 2015) 44% 56% 2,583.4 Mio€ BELGIUM GERMANY NET DEBT Investments 353 902 Mio€ Mio€ BELGIUM GERMANY CONTENTS 01 EXECUTIVE REPORT 2 Foreword by the Chairman of the Board 2 Foreword by the CEO 4 Elia in 2015 6 50Hertz in 2015 8 The Elia Group in 2015 10 EGI in 2015 11 The Energy Transition 12 02 CHALLENGES AHEAD AND FUTURE PROSPECTS 14 A new regulatory tariff period to address the challenges facing the electricity market 14 Asset management 16 System operation 26 Market facilitation 30 Devising solutions for the grid of tomorrow 34 Developing and maintaining the grid in a sustainable manner 38 Inside Elia 42 03 CORPORATE GOVERNANCE STATEMENT 48 Composition of the management bodies as at 31 December 2015 49 Remuneration report 56 Features of the internal control and risk management systems 60 Risks and uncertainties facing the company 64 04 THE ELIA SHARE IN 2015 68 05 MANAGEMENT DISCUSSION AND ANALYSIS OF THE 2015 RESULTS 70 06 CONSOLIDATED FINANCIAL STATEMENTS 74 Consolidated statement of financial position 74 Consolidated statement of changes in equity 75 Consolidated statement of cash flows 76 Consolidated statement of profit or loss and comprehensive income 77 Consolidated statement of profit or loss 78 07 REPORTING PARAMETERS 79 Discover our online report 08 FACTS & FIGURES 2015 80 @ http://annualreport.elia.be/2015 2 Executive report > Foreword by the Chairman FOREWORD BY THE CHAIRMAN OF THE BOARD The Elia Group achieved solid financial and operational results in 2015. Over the course of the year, it continued to grow as one of the leading players on the European electricity market. Miriam Maes Chairman of the Board of Elia Group In 2015, the Board of Directors appointed Chris Peeters as the new CEO of the Elia Group. Chris took up his post in July 2015 and has moved to continue ongoing projects. He is also working closely with the Board to conduct a more in-depth examination of the Group’s strategic activities and objectives. On behalf of the Board of Directors, I would like to thank François Cornelis, who stepped in as the Group’s interim CEO for the first half of 2015. During his tenure, François served the Group expertly and with the utmost professionalism, ensuring that operations continued uninterrupted. The Group’s development is characterised by the international I firmly believe that thanks to the unwavering dedication of its staff, the Elia Group is ideally placed to figure prominently in the activities conducted by both energy transition and fully accomplish its role as a transmission Elia and 50Hertz, particularly at system operator in both Belgium and Germany, for the benefit of regional European level (Central the community as a whole. All the more so since the agreements West Europe and Central East signed at the COP21 conference in Paris in December 2015 Europe). emphasised the importance of cutting carbon emissions – and thus integrating renewables – for mitigating the impact of climate change. Safety is always Elia’s number-one operational priority, whether in interventions, maintenance or the construction of new electricity infrastructure, and whether the staff concerned are employed by Elia or its subcontractors. 3 Executive report > Foreword by the Chairman EUROPEAN ENERGY UNION This year, the Elia Group continued to build new energy transmission structure and consolidate its grid operation activities, with an eye to achieving the three core targets of offering a reliable, affordable and low-carbon electricity system. “I am delighted with the progress made in 2015, not least the launch The ultimate aim of the European energy policy, as formally of the flow-based market coupling presented by the European Commission in 2015, is to establish system in the Central West Europe a European Energy Union comprising a model of fully integrated region, which is testament to the Group’s commitment to playing electricity markets and grids, capable of handling increasingly large a pioneering role in integrating volumes of renewable energy. European energy markets.” The strategy pursued by the Elia Group’s companies dovetails perfectly with this road map. The Group’s developments, such as its major interconnection projects linking Belgium with neighbouring countries or its off-shore electricity grids, demonstrate the international scope of Elia and 50Hertz’s activities. ORGANIC GROWTH The Elia Group’s companies are thus playing an active role in drawing up European grid development plans. Consequently, organic growth remains a top priority for the Group. The opportunities afforded by European policies on energy, climate change and infrastructure are taking the form of ambitious THANK YOU investment plans in Belgium and Germany, intended to upgrade I would like to thank the entire staff of the Elia Group for their the respective national grids, develop ‘electricity highways’ and professionalism and their devotion. Thanks, too, to my colleagues establish international interconnections to carry renewable energy on the Board of Directors for their support and for the energy they from where it is generated to the consumers who will use it. Last bring to the Elia Group. but not least, the Elia Group is developing offshore grids in the Baltic Sea and will soon begin a similar project in the North Sea. Finally, the Elia Group is pleased to have the support of its shareholders, the regulators and the federal and regional For these investments to be financed successfully (which will require governments, and we would like to thank them all. around five billion euros between now and 2020), the regulatory frameworks in Belgium and Germany must remain stable and there must be a prospect of sufficient return to attract the necessary capital. Miriam Maes VALUE CHAIN EXPANSION Chairman of the Board of Elia Group The Group’s second strategic objective remains the expansion of our operational activity and the effective integration of renewables (value chain expansion). Elia has taken a number of market facilitation measures and is involved in building both the integrated European market and the European Energy Union. I am delighted with the progress made in 2015, not least the launch of the flow-based market coupling system in the Central West Europe region, which is testament to the Group’s commitment to playing a pioneering role in integrating European energy markets. This development improved price convergence in the region and substantially reduced electricity wholesale prices on some markets. It also highlights the benefits of international cooperation with our colleagues in other countries. The Group also plans to shore up international partnerships between system operators and electricity exchanges by developing new products to integrate new resources – such as demand-side management and storage – into the electricity system. Within the strategic framework of value chain expansion, 2015 was a year of further growth for Elia Grid International (EGI), a 50/50 joint venture between Elia and 50Hertz.