13. Intangible fixed assets

Intangible fixed assets consist of goodwill, acquired or self-created application software and capitalised leases. Intangible fixed assets, except for goodwill, are valued at acquisition costs, less amortisation calculated on this value and any impairments. Costs are only capitalised if it is likely that future economic benefits will result from the use of a specific asset.

Changes in intangible fixed assets in 2023 were as follows:

Assets classified as software consist mainly of the grid registration system, various operating systems, connection registrations, customer information systems, job order management systems, and other support systems. The capitalised software consists mainly of purchased and externally developed software for which no statutory reserve was formed.

The comparative overview for 2022 is as follows:

Impairments of intangible fixed assets

The recoverable value of intangible fixed assets is calculated if events or changes in circumstances give cause to do so (“triggering event” analysis). The results of this calculation are used to determine if any impairment exists. An assessment is performed annually and in the event of interim publications in order to ascertain whether such events or changes have occurred. As a result, there were no impairments in 2023.  

In this triggering event analysis, Enexis Groep also took into account the developments in connection with the energy transition. The developments in connection with the energy transition do not form a trigger to make a calculation of the recoverable amount for the assets of the gas grid. For more information about this topic, we refer to the paragraph ‘Future outlook for the gas grid’. 

Goodwill impairment test

Goodwill relates to the acquisitions of Intergas Energie B.V. in 2011, Endinet Groep B.V. in 2016 and N.V. Stedin Netten Weert in 2017 and is the result of the difference between the cost of the acquisition and the fair value of the net assets at the time of the acquisition. Enexis Groep performed a goodwill impairment test at year-end 2023 for the segments in which goodwill is included.

Goodwill resulting from acquisitions has been allocated to the segments as follows:

Outcomes

The calculated indirect realisable value of the regulated assets are significantly higher than the carrying values of the corresponding assets, plus the goodwill allocated to them. As a result, there is no necessity for an impairment of goodwill.

Assumptions

The indirect realisable value of the regulated assets are determined based on the most recent Long-Term Financial Calculation. This calculation comprises a forecast period of fifteen years. The forecast period is fifteen years in order to arrive at a proper reconciliation between the necessary investments in connection with the energy transition and the income generated by these investments. The main assumptions included in the Long-Term Financial Calculation are an estimate of the discount rate based on the Weighted Average Cost of Capital (WACC) rates used by ACM, regulated tariffs, and changes in the number of connections and services, as well as operating and other costs. The chosen assumptions concern estimates, mainly based on the most recent information with regard to tariff regulation (Method Decision 2022-2026), the decision of the Trade and Industry Appeals Tribunal (CBb) in 2023, the investment programme (quality and capacity document, and strategic asset management plan), the smart meter roll-out programme, and Enexis Groep’s efficiency objectives.

In its decision of 4 July 2023 the Trade and Industry Appeals Tribunal (CBb) ordered the ACM to amend the Method Decision Electricity for the regulation period 2022-2026 in such a manner that the estimates of the costs, and thus the permitted revenues for the regional grid operators, are more in line with the actual costs in connection with the energy transition. As a result, Enexis's revenues will be higher during the period 2022-2026 than expected earlier based on the Method Decision. Following the decision of the CBb, the ACM published a new Method Decision Electricity for the regulation period 2022-2026 on 21 December 2023. The ACM decided to include an advance in the 2024 tariffs for the corrections pertaining to the years 2022, 2023, and 2024. The final correction will be incorporated in the 2025 and 2026 tariffs.

Together with the increase in TenneT purchasing costs in 2024 and post-calculations for the year 2022 in connection with the relatively increased feed-in volumes and interest expenses in the WACC, the advance in connection with the correction as a result of the CBb decision will lead to a strong increase in revenue in 2024 compared to 2023. Together with the normal inflation adjustment and the reduction imposed by the ACM to stimulate efficient business operations, i.e., the x-factor, this results in a tariff increase in 2024 for electricity of about 31% and the tariffs for gas will be about 10% higher.

As the largest share of the corrections in connection with the decision of the CBb will only be incorporated in the tariffs of 2025 and 2026, there will also be an upward effect in the tariffs in these years due to the CBb decision. Together with the growth of the number of connections and the expected capacity demand of customers, this is expected to result in a further increase in revenue.

Enexis Groep devotes a great deal of attention to efficient operations, initiating programmes designed to achieve a level of efficiency that is at least equal to the increase in costs due to inflation. Despite these efforts, operating cost levels are expected to increase, mainly due to extra work as a result of the energy transition.

The efficient (average) costs are covered in the tariffs to be set by the ACM as determined in the regulation. It is estimated that Enexis Netbeheer B.V.’s performance will be average compared with other grid operators in the field of investments, as the grids of all grid operators in the sector are comparable.

A growth rate for the regulated activities of 0% is used to determine the final value under the assumption that the whole sector shall be operating equally efficiently at that time. The final value is therefore assumed to be equal to the efficient book value (Standardised Asset Value). The assumption here is that the regional grid operator will continue to receive compensation for its efficient costs including a reasonable return in accordance with the existing tariff regulation method. For more information regarding Enexis Groep's views on the future outlook for the gas grid and the consequences thereof for the valuation of gas assets, reference is made to the paragraph ‘Future outlook for the gas grid’ at the end of this note.

The impairment assessment is based on the variables:

Sensitivity analysis

The calculated indirect realisable value of the regulated assets in the operational segment Enexis regulated are considerably higher than the carrying values of the corresponding assets, plus the goodwill allocated to them. Despite the fact that the indirect realisable value is significantly higher than the carrying value of the regulated assets and the goodwill allocated to these assets, Enexis Groep performed a sensitivity analysis on the most important criteria that were used to determine the indirect realisable value of the regulated assets to provide insight into the estimate uncertainty. Based on this, Enexis Groep concluded that a reasonable change in the criteria, as shown in the sensitivity analysis below, will not lead to an impairment of goodwill. The sensitivity analysis has the following outcomes:

• A decrease in the expected market share, expressed in Compound Output, of Enexis Netbeheer B.V. by 0.1% leads to a decrease in the realisable value by € 35 million.

• A delay of the convergence assumption, the year in which all regional grid operators operate equally efficiently, by one year leads to an increase in the realisable value by € 8 million.

• An increase in the discounting rate after tax by 0.1% leads to a decrease in the realisable value by € 198 million. 

• A structural increase in the expected operating expenses by € 10 million a year leads to an increase in the realisable value by € 13 million, due to the difference between the time that costs are incurred and compensation in the future tariffs.

• A structural increase in the expected investments by € 50 million a year leads to an increase in the realisable value by € 41 million, due to the difference between the time that costs are incurred and compensation in the future tariffs.

The above sensitivity analysis shows that an increase in the discounting rate after tax by 0.1% leads to a decrease in the realisable value by € 198 million. However, the discounting rate is based on the regulatory WACC. The reasonable return that Enexis Groep receives on its efficient investments also depends on the regulatory WACC. In the above sensitivity analysis, only an adjustment of the discounting rate is taken into account and not a comparable increase in the reasonable return that Enexis Groep receives on its efficient investments in the tariffs. A reasonable change in the discounting rate due to changes in the regulatory WACC will therefore not lead to an impairment of goodwill.

Future outlook for the gas grid

Part of the National Energy Agenda of the Ministry of Economic Affairs and Climate Policy is the aim of the Netherlands to achieve a low-carbon energy supply by 2050. An interim target was set whereby the total emissions in the Netherlands must decrease by at least 49% compared to 1990 by 2030. The outgoing Rutte IV cabinet further sharpened the CO₂ target in the Climate Act to at least 55% CO₂ reduction in 2030 via the coalition agreement ‘Omzien naar elkaar, vooruitkijken naar de toekomst’ [Looking after each other, looking ahead to the future]. To make sure that this target is actually realised, it was also agreed to aim for a higher target of about 60% in 2030 in the government's policy.

Various measures were proposed in the Climate Agreement in 2019 to realise this ambition. The share of natural gas in the total energy supply will be limited strongly and terminated where possible. The abolition of the gas connection obligation for new buildings is one of the first concrete measures in built-up areas. The Regional Energy Strategies and Municipal Heating Transition Proposals will also reduce the dependence of existing buildings on natural gas as from 2020. A potential risk associated with this development might be that the useful lives of the gas grids transporting this natural gas become shorter than the currently applied depreciation periods.

The Climate Agreement acknowledges that it is virtually impossible to meet the heating demand without a gaseous energy carrier. Use of electricity alone is not always a technically and economically feasible option. A heating grid is by no means suitable for use everywhere. In such situations, the use of sustainable gaseous energy carriers— such as hydrogen produced from renewable electricity or green gas—in combination with the use of hybrid heat pumps is the most viable route to sustainability. The war in Ukraine and the increase in energy prices have accelerated the electrification and hybridisation trend. Road maps have been drawn up for both green hydrogen and green gas together with colleague grid operators within Netbeheer Nederland and the Ministry of Economic Affairs and Climate Policy. A safe and reliable gas grid is expected to continue to be necessary, even within a (more) sustainable energy supply.

Enexis Netbeheer B.V. sees a decrease in the number of gas connections since April 2020. This downward trend is expected to continue. No significant development is expected on the main grids in the coming five to ten years as transitions in districts still have to begin and these will be carried out in stages. Any reduction in the main grids following from this will be delayed and is less strong. As the main grids not only have a district function but also a transmission function for feeding the parts of the grids located downstream. It can even be the case that by removing main pipelines in residential districts that are “going gas-free” upgrades and/or expansion must take place elsewhere in the gas grid. The high-pressure gas grid functions as a sort of “fixed constant” backbone for the low-pressure gas grid and the gas supply for the industrial sector.

Enexis Netbeheer B.V. is closely involved in consultations regarding the Regional Energy Strategies, Heating Transition Vision, and pilot projects in gas-free districts. Consultations are held here with the parties involved such as provinces, municipalities, project developers, and housing corporations. Analyses performed by both the Netherlands Environmental Assessment Agency and Enexis in connection with the Heating Transition Proposals also indicate that a hybrid solution continues to be an option, which means that an infrastructure for gaseous energy carriers remains necessary.

Enexis expects that there will be a role for the gas grid for the distribution of green gas and hydrogen in the low-carbon energy supply in 2050. In view of the through transmission function of the main grid, a decrease in the number of gas connections will not lead directly to a corresponding removal of main grids. Enexis Netbeheer B.V. does not believe that the gradual phasing out of natural gas will also lead to the large-scale decommissioning of gas grids.

Although the number of users of the gas grid is decreasing, this is not expected to lead to large-scale decommissioning of gas assets. Therefore, Enexis switched to the diminishing balance depreciation method as of the financial year 2022. The consumption pattern of the future economic benefits of the assets is reflected in the pattern in which the number of users of the gas grid decreases. For more information, reference is made to note 5. Depreciation and decommissioning.

Enexis does not see any need at present to shorten the depreciation periods of the existing gas grids or to start impairing the existing gas grids. However, to further limit this risk, Enexis Netbeheer B.V. is extremely reluctant to construct new or replace existing gas grids when alternative heating systems, such as heating grids or all-electric solutions, are available. To ensure the reliability and safety of the gas grid, the large-scale multi-year replacement plans that are being carried out due to the obsolescence of grid components will continue at the same level up to and including 2030. After completing this, the level of replacements in the gas grid will gradually decrease.

In the Method Decision Gas for the regulation period 2022-2026, the ACM has taken the expected future decrease in the number of users of the gas grid into account. The ACM also did this by switching to the nominal method instead of the real method for the calculation of the WACC so that inflation compensation is no longer shifted to the future. Another important change concerns the switch to a diminishing balance depreciation method for gas assets as of 2022. The ACM has opted for the diminishing balance depreciation method as this method is more suitable in view of the expected future decrease in the number of users of the gas grid. This way, the ACM aims to avoid fewer and fewer users having to bear the annual depreciation charges which would otherwise be the case if a straight-line depreciation method was used. The ACM sees no reason to revise the economic and technical useful lives of the gas assets. These changes in the Method Decision Gas have led to setting the efficient costs, including a reasonable return that the regional grid operators receive, at a higher level.

Enexis Groep has formulated the above assumptions and criteria with great care. However, there is still a lot of uncertainty surrounding the assumptions and criteria with regard to the future of the gas grid. The assumptions and criteria are reviewed periodically in principle, unless unexpected significant events require immediate adjustment.