Introduction
Our investment level is reaching a record high in the energy transition. Building the energy system of the future requires a lot of money. Our expenditure in connection with work on the energy grids amounted to a record amount of € 1,214 million in 2023.
Our expenditure is increasing every year in order to make the energy transition possible with our infrastructure. We were able to afford this high extra expenditure due to our sound financial position. Our work package amounted to € 1,214 million this year; this is € 187 million more than the € 1,027 million in 2022. We are aware that we have to spend our money wisely. This is part of our public task and contributes to being able to keep energy affordable for everyone. This is why we focus on our core tasks and we make cost-efficient choices, for example, by working in accordance with the LEAN method and optimising our ICT landscape. We also worked on innovations in 2023 to expand the grid as efficiently and cost-effective as possible.
Financing the energy transition
Enexis will see a huge growth in investments and expenditure in the coming years. Besides cost savings and efficiency, for which we have to take the initiative ourselves, it is important that our revenues are sufficient to be able to make investments for the energy transition.
We are aware of the risk that Enexis's financial position will deteriorate if the financial consequences of the energy transition are not sufficiently compensated for in the present regulation method. Enexis is reimbursed for its efficient costs in the tariffs, but often with a delay because in the current regulatory methodology the tariffs are based on historical costs. Most of the costs in 2023 will only be reimbursed in future tariffs. The cash flow from operating activities and investing in (in)tangible assets was € 516 million negative in 2023. This is an increase of € 288 million compared to 2022. Therefore, Enexis, together with other regional grid operators, has lodged an objection to the current method decisions and entered into consultations with the ACM about the regulation in the next method decisions.
The Trade and Industry Appeals Tribunal (CBb) issued a decision on 4 July 2023. The CBb decided in favour of the regional grid operators with regard to a number of important points. As a result, the ACM must adjust the method decisions. The ACM published the new method decision on 21 December 2023. The changes in the method decision have a positive effect on the revenue of Enexis Netbeheer B.V. However, the CBb did not decide in favour of all the regional grid operators’ objections. Despite the to be implemented changes in the Method Decisions 2022-2026, the funding of the energy transition remains a challenge.
At the end of 2022, the Dutch State and the three large regional grid operators (Alliander, Enexis, and Stedin) and representatives of their shareholders reached an agreement on the Framework Agreement Capital Requirement Regional Grid Operators (‘Framework Agreement’). Should the Dutch State decide in the future, at the request of the grid operators and in cooperation with their shareholders, to become a stateshareholder, then this will take place under certain conditions. These conditions, such as the processing time of a participation request and agreements about governance are described in the Framework Agreement. The Framework Agreement serves as the basis for a possible participation agreement, in which more detailed conditions will be laid down at the time that the State actually becomes a shareholder.
The shareholders of Enexis agreed to the signing of this Framework Agreement during the General Meeting of Shareholders on 13 April 2023. After the signing of the Framework Agreement by the shareholders of all three grid operators, of which the last signed at the end of 2023, the last signing condition of the Framework Agreement was met. It is now binding for all the above-mentioned parties. Concretely, this means that it has now been formally laid down how the Dutch State will assess any future capital contribution requests of the regional grid operators and which requirements the Dutch State will set for such a request to participate and for a possible participation as new shareholder. In view of the Framework Agreement, Standard & Poor's (S&P) decided to assign the status of Government-Related Entity (GRE) to the regional grid operators, which in turn resulted in S&P raising the credit rating by one level.
With its strong financial position, Enexis has ample access to the financial markets to be able to realise the large investment requirement in connection with the energy transition.
A sustainable investment
Enexis Holding N.V. issued a € 500 million green bond with an interest rate of 3.625% in June 2023. At present, Enexis still has five bonds outstanding. Three of the five outstanding bonds are green bonds. Enexis Holding N.V. used the bond for investments in grid expansions and upgrades that are necessary to accommodate renewable energy, for distribution automation, smart meters, and for its sustainable buildings. In connection with the issue of this green bond, the 2020 Green Finance Framework was updated in April 2023 taking into account relevant trends. The Green Finance Framework is completely in accordance with the EU Taxonomy. This was externally validated and confirmed by ISS ESG. With this, Enexis demonstrates that it delivers a large contribution to sustainability and has a positive impact on a sustainable society.
By following the EU taxonomy and the Green Bond Principles and incorporating these in the Green Finance Framework, Enexis ensures that there is complete transparency in the process. In combination with good ratings at Sustainalytics and ISS ESG, this provides guidance and assurance to investors for investments in green bonds issued by Enexis. All our green bonds are listed on Euronext Amsterdam.
Besides the issue of a green bond, Enexis concluded a € 500 million loan with the European Investment Bank (EIB) in 2023. This loan will be used to finance investments in Enexis's electricity grid. These investments are necessary to further expand and upgrade the grid. It is expected that the investments that Enexis is financing with this loan will be completed by the end of 2024. Enexis has the possibility to make draw downs under this facility in the coming three years with a maximum term of 13 years. No draw downs under this facility took place in 2023.
Maintaining credit rating profile
Maintaining at least an A/A2 credit rating profile with a 5-year horizon is an important pillar of Enexis's financial policy. It is the basis for a healthy capital structure and for maintaining the confidence of investors. Enexis makes use of the credit ratings of Standard & Poor's Global Ratings (S&P) and Moody’s. The long-term credit rating issued by S&P for Enexis Holding N.V. and Enexis Netbeheer B.V. was changed to A+ with a positive outlook (previously A+ with a stable outlook) in February 2023. The reason for this change was that in February 2023 S&P assigned the Government-Related Entities (GREs) status to the regional grid operators. After the balance sheet date on 7 February 2024, the long-term credit rating issued by S&P for Enexis Holding N.V. and Enexis Netbeheer B.V. was improved to AA- with a stable outlook.
Moody’s only issues a credit rating for Enexis Holding N.V. and this remained unchanged at Aa3 with a stable outlook.
After being granted the GRE status by S&P, Enexis decreased its minimum target for the ratio FFO/net interest-bearing liabilities from 16% to 12% to maintain at least an A credit rating profile and a financially robust capital structure.
For financing, liquidity, and credit ratings, we refer to note 31 in the financial statements 'Financing policy and risks associated with financial instruments'.
Strong sustainability profile
The high degree of sustainability of Enexis's business activities is often an important reason for investors to invest in our green bonds. Our contribution to the Sustainable Development Goals and our ESG ratings play an important role in this. ESG stands for Environment, Social & Governance. The ESG rating is also determined based on the impact on climate change, our role in the community, the reliability of our grid, safety, business ethics, and good corporate governance. With its present ESG ratings, Enexis shows a strong sustainability profile. Enexis maintains close contacts with rating agencies ISS ESG and Sustainalytics.
At the rating agency Sustainalytics, Enexis falls in the category low risk. Enexis scored second place out of the 100 companies in the sub-sector multi-utility companies.
Rating agency ISS ESG has given Enexis a B rating with a Prime label. With this rating, Enexis is among the best scoring companies in the category Gas and Electricity Network Operators.
