Foremost uncertainty factors and risks
Since Fingrid plays a significant role in Finnish society, the impact of risks is assessed from both the company’s and society’s perspective. The following have been identified as strategic risks, either for society, for Fingrid or for both:
Risks to society and Fingrid
One of the company’s biggest business risks and the biggest risk, where society is concerned, is a major disturbance related to the functioning of the power system. Extensive disturbances to the power system can be caused by a technical malfunction, an unexpected weather event, an accident or vandalism. A major disturbance can result in a situation where most of the grid is out of power, which paralyses society’s functions and causes major damage to the economy. We have prepared for a major disturbance through grid investments and reserve power plants and by keeping our IT systems up-to-date. The contingency plans enable continued grid operations at all times in the event of one major disturbance and, if necessary, two simultaneous disturbances. Alternative methods for restoring the grid voltage are continuously developed. The key components of disturbance management include accurate real-time control of the power system, clear roles and responsibilities of Fingrid’s personnel in the event of a major disturbance, and securing the competence of the personnel and deputy systems. Operations control has been continuously developed, and contingencies are planned for various crisis situations. The potential duration of a major disturbance is kept in check through regular major disturbance exercises and measures to secure effective crisis communications. Fingrid limits its financial claims liability in all cases of disturbances through contracts and insurance policies.
Poorly functioning electricity market
A poorly functioning electricity market is a significant risk for Fingrid and society. From Fingrid’s point of view, the risk may be realised if the electricity transmission capacity is not sufficient for the markets’ needs. Extended limitations on transmission capacity can also result in significant harm to the markets. The reasons that may lead to the materialisation of this risk also include a lack of regional energy policy co-ordination and market-distorting state subsidies. Poorly functioning electricity markets directly reflect on Fingrid’s operations by making it increasingly difficult to balance demand and supply. The risk is mitigated by long-term development of the transmission grid according to the electricity markets’ needs and by ensuring the continuous operational efficiency of the grid through effective maintenance management. Other means for managing this risk include the development of market rules and operational practices in international co-operation.
The most significant environmental risks for society and Fingrid include changes in the regulations on electromagnetic fields, and environmental damage, such as accidents with work machinery and worksite equipment containing chemicals. Other recognised risks include changes in the requirements of the environmental legislation resulting in deviations from the company’s current practices, and potential impacts of ecoterrorism. The potential impacts include rising costs, delays in investment projects, injury or death of personnel, damage to the environment, and reputation risks. The risks are managed by determining the investment needs proactively and sustainably and by assessing the environmental impacts in connection with investments. Responsible operating methods and continuous development of environmentally sustainable land-use and environmental policies mitigate the risk. Other means for managing the risk include securing environmental expertise, advocacy in the preparation of legislation, and providing correct information.
Serious workplace accidents
Serious accidents are linked to the electrical safety of the transmission grid, especially in connection with construction and repair work. Causes that can result in a realised risk include human error or an accident close to live components, an error occurring in construction work, damage or vandalism to live structures, and carelessness. Accidents can result in bodily harm or, in the worst-case scenario, death. Workplace accidents may cause local interruptions of electricity supply or interruptions of work. We constantly improve the safety of the transmission grid by promoting safe ways of working and developing, for example, technical solutions, work methods, skills and communications, and by increasing risk awareness.
Risks to society
Unsuccessful timing of investments
The potential reasons for incorrect timing of capital investments include changes in the overall economic situation and in electricity consumption and production, delays in the permit process, lack of resources, or a strike. Changes in energy policy goals can affect the necessity of investments. The construction of cross-border transmission connections may be postponed if the neighbouring countries are not able to reach a mutual understanding. Unsuccessful timing may result in decreased system security and restrictions to the electricity market whereby the market fails to operate efficiently. Unsuccessful timing of investments may also make it more difficult to connect electricity production and consumption to the grid. Achieving the set climate goals and renewable energy goals also becomes more difficult. We carefully plan and build key projects to strengthen the cross-border transmission connections and the grid and consider the long-term effects on the market through regularly updated grid plans. This requires close co-operation with customers and the TSOs of the neighbouring countries. A predictive view of future transmission needs and the related uncertainties decreases the risk of failure in investment timing. Promoting grid investments on the EU-level and advocacy in grid planning in the Baltic Sea area also affects national grid investment decisions.
Long-term transmission capacity restrictions
The reasons for drawn-out transmission capacity restrictions include technical failures or system security problems. Dysfunctionality of the power system results in inefficiencies and decreased system security. Restrictions and outages in power transmission may cause regional price differences and financial harm to customers and society. The risks are managed through co-operation between the TSOs of neighbouring countries. System security can be improved by developing the terms of grid connection and by adopting the EU grid codes. Effective utilisation of technical best practices and building a third cross-border transmission connection to Sweden will mitigate transmission capacity problems.
Major harm to customers
A problem or error in the production of a service or the functioning of technology can cause significant harm to a customer. A problem or error resulting from the failure of Fingrid’s operations or technology may cause harm to customers. The risk is managed through excellent and reliable customer service. The means for ensuring well-functioning co-operation include holistic development of the customer operations model, effective communication of the company’s Code of Conduct and policies, and continuous customer engagement.
Risks to Fingrid
Unfavourable development of regulation
Fingrid's operations are subject to official regulation and supervision by the Energy Authority. The risks related to unfavourable development of regulation include negative development in the EU’s grid codes, more stringent financial or other regulation, an official decision that prevents Fingrid from reaching its goals, or a serious error on the company’s part concerning its obligations. Financial regulation directly impacts shareholder value, financing and credit ratings. Regulation related to the environment, Fingrid’s operations or technology may impede the company’s basic mission or construction of transmission lines. We aim to establish effective co-operation and interaction models with stakeholders and to contribute actively to the reports and working groups of authorities and to increase understanding of grid operations. The means for diminishing unfavourable development of regulation include active advocacy, and open interaction and communication with stakeholders.
Fingrid sees financing risks in events such as the realisation of the interest rate risk and extended low interest rates on fixed income markets, which bring down the WACC (Weighted Average Cost of Capital). Another risk in our view is a situation where the company cannot obtain debt financing or the price of debt financing increases substantially on the debt and money markets due to an extended disruption. The realisation of counterparty risks is a genuine possibility with derivatives or direct investments, and a defaulting customer, for example, may cause the realisation of operational credit risks. Financing risks also include interruptions in payment transactions. The impacts from the above risks manifest themselves in the decrease in the allowable earnings resulting from the lower WACC, increased financing costs or weaker solvency. Further impacts include delayed investments or weaker development of shareholder value. The refinancing risk is offset by efforts to keep the company’s credit rating high and by creating a stable maturity profile for the debt programme. Fingrid obtains debt capital diversely and from various sources. Liquidity is managed by obtaining a sufficient amount of low-risk financial assets, by issuing commercial papers, and with overdraft facilities. Solvency is secured with long-term committed credit lines and revolving credit facilities. Even cash flow is managed by creating flexibility in the costs of investment projects. The counterparty risk related to obligations of parties having a contractual relationship with Fingrid is limited contractually, by defining limits and by regularly monitoring the financial position of the counterparties. Fingrid’s financing risks are described in more detail in sections 6.2 and 6.3 of the consolidated financial statements (IFRS).
Asset risks refer to the risk of major damage to Fingrid’s assets, such as irreparable failures. A permanent failure of the transmission grid, a reserve power plant or a submarine cable may cause extensive damage. Potential causes of damage also include unanticipated events such as violent storms or other forces of nature, vandalism, protests by stakeholders or war. The impacts can include extensive physical damage, disruptions in the grid, or increased complexity in or inability to carry out damage control or maintenance management. This could result in significant disruption to the electricity markets. Asset risks can be managed through grid safety planning, geographical diversification, preventive maintenance management, detailed specifications for and quality control of projects and maintenance management, and by using proven technology and suppliers with extensive expertise. The risk can also be managed by obtaining insurance based on the replacement value for key grid components, such as the transmission lines, transformers, submarine cables and reserve powerplants.
Compliance breaches may be the result of ignorance of or disregard for the applicable legislation or regulations. The risk exists that the company fails to recognise the requirements of changed regulations. The most significant recognised corporate responsibility risks involving major implications are related to the following: REMIT, Market Abuse Regulation (MAR), GDPR (General Data Protection Regulation), obligations related to debt programmes (e.g. sanctions, money laundering and corruption), and public procurement legislation. Non-compliance can result in loss of reputation or internal trust. The risks are managed by behaviour in compliance with the requirements and by developing a corporate culture that always takes into account good governance practices and responsible behaviour.
Serious ICT disturbance
ICT-related risks can be realised through a failure in a critical ICT system or a breach of data security. Potential causes of ICT risks include a serious accident in an ICT facility, extended interruption in data communications or an error in the maintenance of the ICT environment. The potential impacts of ICT risks include a disruption in the grid, and increased difficulty or complete failure in accomplishing successful disruption management. This could result in significant disruption to the electricity markets or Fingrid’s reputation. The risks are managed by maintaining sufficient and solid in-house ICT expertise. The ICT environment is secured in terms of hardware facilities, data communications and systems. The critical systems have dedicated continuity plans, instructions and testing routines to ensure continued operations in exceptional circumstances. The impact of cyber-security threats on Fingrid’s operations is monitored continuously and proactively, and any necessary preventive measures are taken early on. Solidifying Fingrid’s ICT assets and expertise in the selected technologies is a part of the company’s risk management policies.
Fingrid’s personnel risks concern the narrowing down of employees’ expertise within the company specifically and in the industry in general. Personnel risks additionally include intentional unethical or unlawful behaviour. The means for limiting personnel risks include long-term personnel planning, training programmes targeted at personnel and high-quality stakeholder communication. Developing deputy systems and occupational safety is part of Fingrid’s HR planning. Proactive recruiting to replace retiring key personnel, and creating a positive employer image also help to mitigate personnel risks. Increasing the competence of the work-force is a common effort of the entire energy industry.