Vattenfall N.V. Annual Report 2019 Fossil-free within one generation Table of contents Report of the Management Board: 3 • About Vattenfall NV 3 • Our beliefs about the future 3 • Changing regulatory framework 4 • Strategy 5 • Operational performance 7 • Financial performance 12 • Business risks and risk management 14 • Outlook and challenges 16 • Composition of the Management and Supervisory Board 17 Financial Statements: 18 • Consolidated accounts 19 • Notes to the consolidated accounts 24 • Company accounts 51 • Notes to the company accounts 52 Other Information: 58 • Independent auditor’s report 58 • Assurance report of the independent auditor 61 • Declaration of Compliance with the Code of Conduct for Suppliers and Metering companies operating under their responsibility 63 • Annual Statement 2019 in the framework of the Heat Act 64 • Profit appropriation 67 Table of contents Vattenfall NV Annual Report 2019 2 Report of the Management Board substantial improvements in power trading profits for wind About Vattenfall NV and solar farms as well as battery owners. Vattenfall AB is one of Europe’s largest producers and retailers of electricity and heat. Vattenfall’s main markets Vattenfall AB has committed itself to the Swedish are Sweden, Germany, the Netherlands, Denmark, and Corporate Governance Code (SCGC). Within the Vattenfall the UK. The Group has approximately 20,000 employees. Group focus on the SCGC is therefore emphasised. More The Parent Company, Vattenfall AB, is 100% owned by the information about Vattenfall can be found in the 2019 Swedish state, and its headquarters are located in Solna, Annual and sustainability report of Vattenfall AB and can be Sweden. Vattenfall is organised in six cross-border Business found at www.vattenfall.com. As part of Vattenfall, Vattenfall Areas: Heat, Wind, Customers & Solutions, Generation, NV’s financial and sustainability results are included in Markets and Distribution. In the Netherlands Vattenfall this Vattenfall report. More detailed information about is mainly active in the Business Areas: Heat, Wind and Vattenfall’s work with sustainability is also available at Customers & Solutions. https://group.vattenfall.com/who-we-are/sustainability. In 2018 it was decided that all main activities of Vattenfall will be executed under one brand. As part of that decision a Our beliefs about the future rebranding strategy for Nuon was started. In 2019, the Nuon As part of Vattenfall, we are determined to enable fossil-free brand was migrated from Nuon to Vattenfall. As part of this living within one generation. To succeed we must become rebranding strategy, the legal name of N.V. Nuon Energy fossil-free ourselves. But that is not enough. We are looking (‘Nuon’) was changed to Vattenfall N.V. (‘Vattenfall NV’) on 5 beyond our own industry to see where we can really make March 2019. a difference. Together with our partners, we are taking on the responsibility to find new and sustainable ways to Vattenfall’s operations in the Netherlands are carried out electrify transportation, industries and heating. Vattenfall by Vattenfall NV and its subsidiaries. Vattenfall NV also NV is passionate to contribute to this transformation of operates one gas storage facility located in Germany. the energy sector and drive the development to reduce Vattenfall NV produces and supplies electricity, gas, our dependence on fossil fuels. Our beliefs underpin our heat and cooling, offering its customers a wide range of strategy and represent our view of what is necessary to energy-saving products and services. Vattenfall NV has ensure Vattenfall’s success given the overall context in approximately 3,600 employees (FTEs) and more than which we operate. 2 million customers in the Netherlands. With net sales reaching EUR 2.8 billion in 2019, Vattenfall NV holds Sustainability is the business – and a prerequisite for a top-three position in the Dutch energy market. The access to customers, competence and investors activities relating to market access, trading and power plant Customers want to reduce their carbon footprint and seek optimisation are centralised in one central Continental to do so by engaging with companies with similar values hub in Hamburg. The activities that serve and support of environmental and social responsibility. Employees are Vattenfall NV’s power plants and gas portfolio optimisation driven more than ever to seek companies with strong are also handled in Hamburg, but are executed on behalf of values where they feel they can have a positive impact Vattenfall NV. on society. Likewise, investors are increasingly integrating sustainability into their decision-making and moving away In March 2019 Vattenfall acquired DELTA Energie B.V., from investments that link them to fossil fuels. Businesses strengthening Vattenfall's position in the Netherlands with viewed as forward-thinking and sustainable will be able its green profile and a strong loyal customer base. As a to leverage stakeholder expectations to their benefit, result, the activities are consolidated in Vattenfall NV as of gaining an edge in the competition for talent, easier March 2019. access to capital, and more opportunities to form strategic partnerships. With the acquisition of Dutch energy services company Senfal B.V., new services have been added for large To best serve the needs of customers, a total energy industrial customers with the aim of unlocking value perspective is necessary through flexibility and optimisation of renewable generation. Customers are becoming increasingly sophisticated as Through its services, Senfal is able to substantially reduce they progressively adopt decentralised solutions like heat the energy bill for large industrial companies and realise Report of the Management Board Vattenfall NV Annual Report 2019 3 pumps, solar power, e-mobility, energy storage, and smart Cost efficiency and competitiveness are devices. However, customers are not always equipped to prerequisites for value creation and growth optimise the interplay between the various technologies Increased competition in both core and new businesses and thus seek simple, integrated solutions that do not puts pressure on margins, necessitating a focus on both require them to be experts. Companies that can provide cost efficiency and competitiveness in order to deliver simple solutions that truly focus on customer needs by value. Improving efficiency throughout the value chain effectively leveraging their expertise across the full energy will play a significant role. Efficient operations require high value chain will have a strong competitive advantage. utilisation of people and assets, lean and digital processes and high cost awareness. Electrification is a key enabler of fossil-free living and, given the pace required, demand for fossil- Changing regulatory framework free electricity and distribution infrastructure will increase significantly Political pressure to align the regulatory framework with Electrification represents an opportunity to reduce carbon the needed changes to become fossil free and comply to emissions in the transportation, heating and industrial the Paris agreement have been intensified in 2019. This sectors. The key driver for electrification is a combination happened both on a national and on a European scale. The of cost efficiency and sustainability, and demand for following summarises key regulatory trends at EU scale and low-cost, fossil-free electricity will increase as a result. nationally. This will also place additional demand on electricity networks, creating the need for further investments in Climate Act and Dutch Climate Agreement - In 2019, a expansion and modernisation of networks. Suppliers of legally binding Climate Act, with focus on carbon-neutral fossil-free electricity and heat, as well as the respective power production by 2050 was established. In addition, network operators, will play an increasingly important role a non-binding societal Climate Agreement, with a 2030 in the work to combat climate change. greenhouse gas reduction target of 49% compared to 1990, was concluded. These agreements should result in a total of more than 84 TWh renewable power production, Digitalisation of the entire energy value chain is required to leverage flexibility and serve customers 2 million zero-emission passenger cars, and 1.5 million in a fossil-free, robust and cost-efficient energy households switching from natural gas to sustainable system energy sources for heating and cooking. Electrification As renewable resources increase and industries electrify, of industry, including carbon capture and storage (CCS), it is necessary to better leverage existing infrastructure will be incentivised via subsidies and a national CO2 tax. and the potential for flexibility in order to continue to create By 2030, hydrogen technology should be built out as a fossil-free, robust and cost-efficient energy system. In an important energy carrier in several sectors. Vattenfall addition, customers expect instant information and access has committed itself to contribute to the goal of the as smartphone applications and internet-based solutions Climate Agreement and to the implementation of relevant are the main interface for customer service and interaction. agreements and actions. This means that further digitalisation of the energy value chain is needed, including the ability to gather and make National ban on coal for power production - sense of large amounts of real-time data to forecast The utilisation of hard coal for