Report by the Board of Management

Investments require forward-looking approach

TenneT celebrated its tenth anniversary in October 2008. This milestone presents an excellent opportunity to look back on what the company has achieved in the past ten years, but above all to look into the future. We see a changing energy landscape emerging. There will be further internationalisation, market integration, a transition to a sustainable energy system and more local production of electricity - subjects that will become increasingly dominant in the coming years. These dynamics require a strong and flexible grid infrastructure. For TenneT as a Transmission System Operator (TSO) these developments will have major consequences. In terms of development of the national transmission grid they call for a long-term vision that goes beyond our biennial Quality and Capacity Plan. In the year under review, TenneT therefore published not only its expectations for the 2008-2014 period, but also its 'Vision2030' document, which presents a robust picture of the future of the 380 kV and 220 kV grids in line with four possible scenarios for the future of energy supplies. We are also working from a national perspective on a vision of the future for the 110 kV and 150 kV grids that TenneT began managing in January 2008.

TenneT's vision is built on a strong foundation. Since 1998, TenneT has been able to acquire a central role in an increasingly liberalised European electricity market. We are synonymous with a strong infrastructure that has sufficient transmission capacity and we maintain the necessary energy balance across the entire electricity supply system. Part of our vision is that the market must have maximum freedom to operate. With this in mind we set appropriate rules. Over the past ten years TenneT has performed extensive pioneering work and taken important steps in this area. They include setting up auctions, an imbalance market and a trilateral market coupling system, and working towards a level playing field.

TenneT is charged with the responsibility of ensuring an affordable, reliable and clean energy supply. In the past ten years we have succeeded in maintaining the security of supply at a high level in return for low tariffs. We wish to maintain this leading position in Europe.

To what extent the surging global financial crisis in 2008 will have a knock-on effect in the European electricity market is impossible to foresee at present. One of the questions facing TenneT is whether the crisis will necessitate revising decisions to invest in new production capacity. Another important question is whether a prolonged economic recession will lead to structurally lower electricity consumption in the long term, although the already initiated transition to a sustainable energy supply will generally be accompanied by greater electricity consumption and a significantly larger demand for transmission capacity. Fossil fuels will gradually be replaced by sustainable sources of energy (wind, water and biomass) and the use of electrical transportation will continue to increase. In talks with the government TenneT has indicated its willingness to bring forward certain planned grid investments so as to help counter the economic crisis. It is possible to accelerate these projects for strengthening the electricity infrastructure (valued at EUR 150 million), provided that the necessary licensing procedures are in place and we obtain the consent of the Office of Energy Regulation.