Foremost uncertainty factors and risks
Since the company 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:
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. A widespread disturbance in the power system may be caused by several simultaneous faults in the grid or in electricity production. A disturbance can also result from the combination of a technical fault and human operating error, from an unexpected meteorological phenomenon, work error, accident, vandalism or deliberate intrusion in critical IT systems. The extent or duration of the disturbance can be increased by a severe fault, appearing in the company’s operation control system or other system, that hinders the operation of the grid. A major disturbance can cause significant financial and physical damage to Fingrid and society in general. Through capital investments in the transmission grid and reserve power, we are prepared for a widespread disturbance affecting Finland or the Nordic power system. We develop the operations together with other transmission system operators. In our strategy, we focus on the diverse utilisation of the operation control system, expedited disturbance clearing and management of power shortages. We prepare for disturbances through continuity management, procedural guidelines, continuity plans and exercises, and by building up various reserves. Fingrid limits its financial claims liability in all cases of disturbances through contracts and insurance policies.
A poorly functioning electricity market is a significant risk for Fingrid and society. The reasons that may lead to the materialisation of this risk are a lack of regional energy policy co-ordination, market-distorting state subsidies and problems in the formation of the price of electricity. The impacts can be seen as a lack of investments and the exit of adjustable capacity from the markets due to unprofitability. In electricity market disturbances, a price cannot be calculated for electricity on the electricity exchange to guide production plants and electricity consumption. Efforts are being made to manage the risk by promoting market integration on the domestic and Nordic level. The risks faced by the electricity market can be reduced by promoting demand-side management, developing smart grid solutions for the retail market, increasing cross-border transmission capacity and carrying out investments that make it possible to maintain Finland as a single bidding area.
From the point of view of society and Fingrid, the most significant environmental risks are related to environmental damage and the failure to anticipate the environmental obligations set for the company’s operations. The most concrete risks in our view are fuel and oil leaks, and tank and transformer fires. The key contingency measures for these environmental risks are proactive assessment of environmental impacts, monitoring of changes in legislation, prevention of accidents by technical means, contractual terms related to environmental issues and auditing.
Serious accidents are linked to the electrical safety of the transmission grid, especially in connection with construction and repair work. Electrical safety risks may also affect bystanders. Causes that can result in a realised risk include, for example, human error or an accident close to live components, an error occurring in construction work, damage or vandalism to live structures, and carelessness. 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.
Risks to society
Investments can sometimes take place at the wrong time. The reasons for incorrect timing of capital investments may be, for example, changes in the overall economic situation, regulation, or in electricity consumption and production, a postponement of a permit process, lack of resources or strike. Changes in energy policy goals can affect investments. Unsuccessful timing may cause restrictions in the electricity market whereby the market fails to operate efficiently. We carefully plan and build key projects to strengthen the cross-border transmission connections and the grid, and take into account the long-term effects on the market through regularly updated grid plans. Co-operation with customers, Nordic transmission system operators, other stakeholders and cross-national decision-making bodies reduces the risk of incorrect timing.
Long-term transmission capacity restrictions may be caused by, for example, technical failures or limitations related to system security and other operators. Restrictions and outages in power transmission may cause financial harm to customers and society. We manage the risk by securing the critical parts of the transmission grid and cross-border connections and by means of efficient outage planning. We maintain disturbance-clearing readiness by ensuring know-how and developing back-up systems.
A problem or error in the production of a service or the functioning of technology can cause significant harm to a customer. The consequences may be seen as a disturbance in the services produced by the power system or in the electricity market. Errors in Fingrid’s guidelines or decisions may also cause harm.
Risks to Fingrid
Fingrid’s operations are subject to official regulation and supervised by the Energy Authority. Risks related to the unfavourable development of official regulation, such as changes in Finnish or European regulation or legislation, can weaken the company’s financial position or its opportunities to pursue the objectives related to the development of the electricity market. We aim to establish effective co-operation and interaction models with the various stakeholders and to contribute actively to the reports and working groups of authorities and to increase understanding of grid operations.
Financing risks include currency risks, interest rate risks, commodity price risks, liquidity and refinancing risks, and credit risks. Financing risks can be caused by a major deviation in our operating environment or business, disturbances in the capital and money markets, by the realisation of counterparty risks in terms of derivatives or investments, by the realisation of credit risks in operations or disturbances in payment transactions. Liquidity risks can be caused by, e.g., an unexpected increase in market-based costs or an unexpected decrease in income. The goal is to limit risks through internal control, a high and stable credit rating, and a diverse financing structure with an even maturity profile. We aim to restrict unanticipated increases in costs or decreases in income by enhancing financial control and forecasting in the Group and assessment concerning financial latitude. We use derivative contracts to hedge against changes in the price of electricity. 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. More information about financing risks can be found in the consolidated financial statements, section 6.2 and 6.3.
Personnel risks concern the maintenance of expertise. We strive to limit personnel risks by the company’s strategic long-term personnel planning, training programmes targeted at personnel and high-quality stakeholder communication. Developing deputy systems and occupational safety is part of our personnel planning. We strive to develop competence in the energy industry.
ICT risks can materialise as a result of an accident in ICT hardware facilities, long-term inoperability of telecommunications or a serious ICT system failure. Such a situation may also be caused by a work error or breach of data security. We prepare for these risks through sufficient and solid ICT expertise and by ensuring that the operations are secured in terms of hardware facilities, telecommunications and systems. We also ensure sufficient expertise in terms of service providers. We have drawn up continuity plans for the most critical systems and we monitor and anticipate possible data-security and cyber-security threats.
Asset risks cover significant damage to Fingrid’s assets, such as widespread failures or failures rendering significant assets beyond repair. A permanent failure of significant assets, such as the grid, a reserve power plant or a submarine cable, may cause extensive damage. Further causes of damage may include other significant and unanticipated events such as violent storms, protests or war. Asset risks can be managed through grid safety planning, geographical diversification, preventive maintenance management, insurance policies for key grid components, detailed specifications for and quality control of projects and maintenance management, and by using proven technology and suppliers with extensive expertise.
Reputation risks can be caused by, for example, serious disturbances or accidents, changes in prices, redemption of land areas or delayed grid investments. Serious accusations linked to the company’s operations or various reputation risks in the media, such as allegations of corruption, may increase criticism of the company’s operations. We strive to reduce these risks by means of effective risk and change management as well as responsible, transparent and impartial operations, a high standard of communication and active stakeholder dialogue.