In 2016, our company was actively engaged in the development of the energy supply for today and tomorrow. We replaced and upgraded infrastructure, prevented and remedied outages, and constructed new networks. Together with our stakeholders we are addressing the challenges of the energy transition. We are making the transition together.
In the first half of the year, a tragic incident had a huge impact. On Friday morning, 26 February, a colleague of Liandon suffered a fatal accident while working on a high-voltage installation at one of our substations. This event deeply affected everyone within the company and a lot of time was devoted to assisting the family and immediate colleagues. We investigated what had happened and how this type of incident could be avoided in the future. This accident served as are a reminder of the risks we are exposed to during our daily work. Ensuring that everyone returns home safely every day remains a key ambition.
Increased demand for new connections
The economy gathered further momentum in 2016. More homes and businesses were built, spurring demand for new connections. We also worked hard to keep the existing energy network reliable and safe by investing in replacement and maintenance. Another major ongoing activity concerns the roll-out of the smart meter in our service area. All in all, there was more work to do than we could handle. Difficult choices needed to be made, and priorities set. Connecting customers and mitigating safety risks always come first, and this sometimes led to delays in the roll-out of our digitisation projects. However, as everyone put their shoulder to the wheel, we as an organisation managed to get through a vast workload, also thanks to our contractors. Our employees deserve a big compliment for all their efforts in 2016. And also right at the start of 2017, when a major gas outage occurred in Ede: a pipe breakage caused water to enter the gas mains, depriving about 500 households of gas for several days. Over 150 employees worked around the clock to reconnect everyone to the gas supply as soon as possible.
Results of our strategy
The 2015 Paris climate agreement has galvanised the thinking about changing the energy system. Our stakeholders are already making plans to become climate neutral and switch over to renewable local energy. The number of customers using decentralised energy thus continues to grow. With this in mind, we launched a clear four-pillar strategy last year. The initial results are already becoming visible. First of all, we want to give customers choices that are not just good for them, but for the energy system as a whole. Opportunities to store and share energy is one example. Together with 200 households and companies such as IBM and Essent, we trialled a flexible energy market in the municipality of Heerhugowaard.
Secondly, we are working on sustainable open networks with equal access for everyone. One unique project in this connection is the world's first-ever public direct current network that Alliander is developing for a business park in Lelystad.
Digitisation is Alliander's third strategic pillar. Smarter infrastructure enables us to resolve outages faster and target our investments more effectively. In 2016, smart meters were offered to 428,000 addresses. In the province of Gelderland we embarked on the roll-out of a new intelligent network, which can be more effectively controlled at a distance with sensors and communication devices. Despite all these efforts, a lot of work remains to be done in the field of digitisation. We had set ambitious targets for the year under review, precisely because we recognised the crucial importance of digitisation. One target was to complete 95% of the digitisation projects scheduled for 2016, but we only achieved 8%. This was mainly due to the complexity and amount of work was more intense than previously estimated. Among others, the program was put stop by technical flaws in a new digital application on our stations. More time is needed to fully realize the projects.
Our final strategic aim is to achieve operational excellence. The introduction of the operational control method has been completed for all teams within Liander and improvements to the planning process are under way.
A tour of 160 municipalities
The energy transition demands a continuous dialogue with our stakeholders. Intensive collaboration between municipalities and network operators is crucial to realise the energy transition in time and at the lowest social costs. That is why we, as the Management Board, started in the year under review to visit all of the 160 municipalities in our service area. The purpose of this tour is to explain the company's strategy in more detail and to exchange ideas. These conversations are lively and provide a good opportunity to discuss how we can best work together to bring about the transition to a sustainable future.
One major dilemma last year was the future of the gas network. Should we continue investing in gas networks, even though we know that fossil gas is finite? This is one of our main dilemmas and was also a major topic of debate during our tour.
Another important event at the end of 2016 was the publication of the government's Energy Agenda. In this agenda, network operators, alongside municipalities and provinces, are assigned an important role in deciding on the preferred spatial heating technology and energy infrastructure investments. This proposal enables us to make the correct choices from a sustainability and social cost perspective as we progress towards the energy system of the future.
In addition to our day-to-day network management, we also undertake activities in the public interest that contribute towards the reliability, affordability and accessibility of our energy system of the future. Some of these business activities are advancing with great strides, notably at Allego (e-vehicle charging infrastructure) and Alliander Duurzame Gebiedsontwikkeling (e.g. heating networks). These successes reaffirm our commitment to finding suitable answers to the complex issues arising from the energy transition. It is therefore unfortunate that the Progress of the Energy Transition Bill (Voortgang Energietransitie / VEt) that the Ministry of Economic Affairs presented to the Dutch House of Representatives late in 2016 seeks to restrict the role allotted to network operators in the energy transition. Alliander sees the proposed legislation as counterproductive. We advocate a more integrated approach centring on an energy transition that puts the public interest first.
We achieved some commendable social results in the past year. We worked include the development of options to adapt the grid for the supply of sustainably produced energy, such as wind and solar power. And we are working together with a number of other parties on a test with local storage in the form of a neighborhood battery. In addition, our CO2 footprint decreased significantly and was Board member Ingrid Thijssen named top woman of the year. Alliander was well represented in the sustainable top 100 and the 2015 annual report was rewarded with both the FD Henri Sijthoff prize and the Crystal Price. We were also pleasantly surprised by the tremendous interest shown in our new 'circular economy' office building at Duiven. The building turned out to be a great public attraction, drawing large numbers of visitors from inside and outside the organisation. The renovation of the Bellevue head office in Arnhem was completed late in 2016, marking a further step in our drive towards making our own buildings more sustainable. Also noteworthy was the 10th anniversary of both the Alliander Foundation, which encourages our staff to do voluntary work for the benefit of society, and the Step2Work programme, which offers job opportunities to people at a distance from the labour market. Finally, Alliander issued its first-ever green bond. This is a bond loan where the entire proceeds must be used to finance sustainability initiatives.
Alliander's net profit amounted to € 282 million (2015: € 235 million). The increase was mainly attributable to the sale of Endinet, which was completed in 2016. Total operating expenses rose to € 1,516 million (2015: € 1,341 million). This increase was largely caused by the higher sufferance tax, which jumped from € 110 million to € 149 million. Our financial position remained solid in 2016, as is reflected in the affirmation of our S&P and Moody’s credit A-ratings.
The energy transition is gathering pace and the economy is also accelerating. The amount of work to our networks is therefore expected to continue increasing in the coming year. Moreover, we need to make energy transition plans with 160 municipalities. The challenge here is to find sufficient technically skilled colleagues in a tight labour market. We must come up with creative solutions to continue performing the required work to the highest standards. Fortunately, doing smart things is in our DNA. Our employees play a pivotal role in the uninterrupted distribution of energy. It is a special privilege for us to see them putting their heart and soul into their work every day. We are extremely grateful for their commitment.
Together, we are making the transition to the new energy system.
Peter Molengraaf, Ingrid Thijssen, Mark van Lieshout
Management Board of Alliander
Ir. P.C. (Peter) Molengraaf, MBA Chairman and Chief Executive Officer (CEO)
Mr. I.D. (Ingrid) Thijssen Member and Chief Operating Officer (COO)
Drs. M.R. (Mark) van Lieshout Member and Chief Financial Officer (CFO)