Key social impacts
As an energy network company, Alliander contributes significantly to the prosperity and well-being of millions of people. Our activities have significant impacts on society: on the economic development of regions and stakeholders, on greenhouse gas emissions, on knowledge development, and on the well-being of employees. We have a positive impact, for instance by improving the well-being of customers and making the energy system more sustainable. We want to increase this impact. In addition, we seek to minimise our negative impacts, such as greenhouse gas emissions and waste. In order to explain the nature and extent of our impact, we express the positive and negative effects on society and the environment in terms of euros wherever possible. The calculations for this ‘monetisation’ are based on robust assumptions to approximate the actual value as closely as possible. All principles applied and calculations used are included in the appendix to this annual report.
Impact measurements allow us to present a balanced, quantitative picture of the significance of our activities. We are constantly working on improving the impact model and our social impact. The insights we gain through these measurements give us a more accurate idea of our social performance and the extent to which we are achieving our objectives. With this, within the company we can improve our decision-making, and outside the company we can show the added value of our choices for society. We have reported on our social impacts since 2015. Transparency allows stakeholders to gain a better understanding of our contribution to social developments, and it enables us to make better decisions about projects and activities.
Why quantify impact?
A reliable, affordable and sustainable energy supply is of great social and economic significance. For this reason, our choices for today and the future must be made with great care. When assessing the social contribution of activities, our main focus has traditionally been on inputs (costs) and outputs (direct results). Now we also use impact measurements to calculate to what extent these activities affect society (our ‘social impact’). Traditionally, our main impacts have concerned economic added value, prosperity, well-being, the environment, and employment. Impact measurements cast light on the relative scope of the impacts and present us with ways that we can increase our beneficial contribution to society. Impact measurements also give us greater insight into our contribution to the global Sustainable Development Goals.
Our steps in quantifying impact
Quantifying impact is an important link in our endeavours to create long-term value across the board. We further refined our impact model in 2019. During this procedure, we also looked closer at the significance of making energy-related data available to market parties and partners; the availability of data makes a positive contribution to the creation of new market models and open platforms. Reporting on this impact on ‘intellectual capital’ is new in our model. Besides this, we place great value on how our stakeholders see and appreciate us. ‘Value of Alliander’s change in reputation’ based on the perceptions of stakeholders provides us insight into our reputation compared to similar companies. We disclose the result of this comparison as part of the social capital component in the impact model.
Since 2018, we have been working in a coalition of network and infrastructure companies on the development of a sector model for impact measurements. In 2019 we concentrated on quantifying shared impacts. Dutch infrastructure companies share knowledge on underlying principles and aims. We coordinate methods and key figures and are working together on a guide that describes the key areas of impact for the national infrastructure sector as a whole. Thanks to the work put into this by the coalition, we now have a firm foundation for the further development of joint infrastructure impact measurements.
2019 impact at a glance
Alliander follows the ‘six capitals model’ of the International Integrated Reporting Council (IIRC). The illustration shows the relative size of Alliander’s social impact. In the model, we mainly quantify and monetise the impacts where we can make the largest contribution to society. The model recognises both direct and indirect impacts. Direct impacts occur entirely due to the activities of Alliander: the impact of grid losses, our own emissions, and the well-being of our employees. Then there are supply chain effects, that’s to say impacts for which parties in the chain are jointly responsible. One example would be the impact of energy transmission on the well-being of consumers, or emissions from the consumption of electricity, gas and heating.
Impact measurement results in 2019
The results of the impact calculation show the (approximate) size of our impacts for 38 indicators. The size of 24 indicators was calculated and expressed in monetary terms. For comparative figures, we refer to Comparative figures for impacts in the Other information chapter. Our four most significant impacts are connected to financial, manufactured, natural and human capital. For the other indicators, we made a qualitative description and an estimate based on external sources. We would like to point out that, in all cases, the size referred to is relative, i.e. the impact may be small at group level but large at individual level, such as with an accident involving a person.
Financial capital impacts indicate the funds flows of our stakeholders. The change for stakeholders is shown as incoming and outgoing cash flows. Regulated tariffs, other income and revenue give us the financial resources for investments in and maintenance of our energy networks. We thus withdraw capital from society to finance our activities. There is a difference of €108 million in other income, of which €105 million is explained by the sale of the Allego business unit in 2018. Repayments and the successful issuance of a green bond in 2019 have led to a substantial decrease in the impact of dividends, repayments and interest, €341 million in total. Through our role and position in the energy supply chain, we feed value back into society. We pay our suppliers for goods, services and assets. We generate work and income for other parties. In 2019, our impact increased by €120 million through investments at our suppliers and supply chain partners. Our employees receive a salary for their effort and time. On balance, our work stimulates the economy and generates long-term employment, income and prosperity.
Prosperity and well-being are largely affected by the availability of energy and heat. Energy transmission and distribution has a high prosperity value for society. The value for manufactured capital is made up of two components. The first consists of regulated tariffs for transmission and connection services and the metering services for small users. These have been designated as exclusive statutory tasks of network operators. The second consists of the consumer surplus, i.e. the added value that customers are in theory prepared to pay above the price for a service or product. The prosperity value of energy transmission relates to all price elements in the energy supply chain, including taxes and the (partly regulated) prices for the supply and transmission of energy. The amounts presented as manufactured capital indicate the economic part of the energy supply chain that is attributable to Alliander. The consumer surplus is currently the most common method for determining economic value, both for liberalised and regulated markets.
Energy transmission has a high prosperity value for society. Alliander’s share in the value for consumers amounted to €4.6 billion in 2019. More and more consumers are feeding renewable electricity back into the grid; the number of households with a solar panel installation that feeds electricity into our network increased from 6% in 2018 to 9% in 2019. According to our calculation, consumer feed-in had a positive prosperity effect of €13 million. Alliander’s share in the value for business customers for electricity and gas transmission amounted to €563 million. In 2019, we were confronted with an average of 0.306 power outages per household, which translates as, on average, homes being 21.9 minutes without electricity in 2019. Because this interruption duration is lower than the national average, the result is a positive effect of €31 million. The impact of unregulated heating transmission on consumer well-being is modest. The number of heating connections for small consumption has increased by 25%, resulting in an added value for consumers of €0.3 million.
Alliander invests time, attention and money in the network management of the future, developing knowledge in conjunction with digitalising energy grids, using data and applying new business and market models, and developing alternatives to natural gas. By acquiring and applying knowledge, intellectual value is developed, for Alliander and for the community at large. This intellectual capital comprises the stock of immaterial man-made goods. We measured the benefits of the use and availability of data for stakeholders for the first time in 2019. Alliander makes data available through multiple channels: we share open data directly on the network operator’s website, and certain other data can be provided on request. The quality and usage value of this data can add social value through the data-based applications made available to users. Making data available also offers market opportunities for other companies. In 2019, the ‘market-facilitation data’ represented a value of €6 million. With this first measurement of intellectual capital we can present an initial, tailored image. Given that Alliander has much more data at its disposal, in our estimate, the value is considerably greater than the figure that has emerged using the current calculation parameters. The quantification and monetisation of intellectual capital calls for reliable historical data and informed choices.
The burden the world population places on the stock of natural capital is enormous. The day each year on which humanity has exhausted more biological resources than the planet can renew in a year, Earth Overshoot Day, is moving to an earlier date each year. Alliander is working hard to strictly limit the negative impact on this shared natural capital. The impact on the climate due to carbon emissions from our activities in 2019 decreased by €6 million compared to 2018, to €280 million. This includes pro-rated emissions from the Dutch energy supply chain for Alliander. The Dutch energy supply chain still contains a large component of energy generated from fossil fuel. By reducing the negative impact of greenhouse gas emissions, we make a long-term contribution to national and international climate commitments. On balance, the monetised climate impact decreased in 2019. The monetised impact of Alliander’s carbon footprint came to €30 million in 2019, mainly due to our grid losses. For more information, see Achieving sustainability in the energy supply and our operations. Another challenge is reducing the ecological damage that arises through the purchase of raw materials, especially through the consumption of scarce raw materials or the use of toxic materials. The purchase of our key assets caused €20 million in ecological damage in 2019, an amount significantly absorbed through our use of recycled materials, which resulted in an avoided impact of €4.2 million, or approximately 18% of the total eco costs. Aluminium (6,014 tonnes) and PVC (3,452 tonnes) account for the biggest volumes of our materials procurement. Because a large part of the waste is recycled or reused, the negative impact from the processing of waste is minor. Only a small part is dumped or incinerated, translating to €182,000 in ecological damage caused by waste. With these figures, we have quantified the largest part of our material impacts. We are looking into whether it would be desirable to expand the parameters of our measurement, by including the impact of our drinking water use for example. Despite the changes in our networks due to the energy transition and the increase in the procurement of materials, our footprint for raw and other materials has only increased to a limited extent thanks to the increased purchasing of recycled materials, while the impact of our carbon-related emissions has decreased.
The perception and appreciation of our performance by stakeholders is part of our social capital. ‘Value of Alliander’s change in reputation’ based on the perceptions of stakeholders provides us insight into our reputation compared to similar companies. Making this impact more specifically quantifiable will increase the transparency and clarity of the impact. In 2019, the impact was calculated as representing a value of €28 million. A favourable outcome for our reputation translates into more opportunities for collaboration and for employee recruitment, and higher customer satisfaction. We never lose sight of the fact that the bottlenecks in the feed-in of locally generated energy and connecting customers to our networks affect the perception and appreciation of customers who are confronted with this.
One important impact of an energy network operator is the contribution towards social cohesion in residential areas. High social cohesion ensures that local energy initiatives are broadly supported and meet the needs as perceived by the local community.
Losses resulting from the unsecured exchange of privacy-sensitive information must be avoided in order to limit the risk of negative social impacts. We have been successful in preventing unsought data exchange. Although it is possible that a data-related incident has occurred, we have not yet quantified any losses caused by this.
On average, people who are in work tend to experience a greater sense of well-being than those who are unemployed. Alliander contributes to the well-being of employees by offering rewarding and fulfilling work. Work is not just about earning money: work offers immaterial benefits as well. Since 2017, we have been reporting the well-being effect of having work. This concerns the direct non-financial benefits that employees derive from having paid work. The analysis shows that immaterial factors such as appreciation, contact with colleagues and customers, and the structuring effect of work represent a positive impact value of €93 million. We have been measuring the value of immaterial factors for a number of years now and are seeing that these have a substantial long-term social effect. This comes on top of compensation in terms of salary and benefits, which are included under financial capital in the graph. As the result of international research carried out over the long term, we have adjusted our calculation method, for which reason it is no longer possible to compare our figures for this reporting year with those of 2018. On balance, as a result of the new coefficient arising from the research, the figure has declined.
The analysis shows that the loss of well-being and happiness due to work-related accidents and sickness amounts to about €1 million (2018: €1 million). This impact value is relatively small compared to the positive impact of having work. No major changes in the data occurred in 2019. Safety and prevention of work-related complaints are a constant priority for Alliander. As an employer, we aim to make a positive contribution to the well-being of our employees.
What have we learned?
In conclusion, even with an increase in the impact of investments and purchasing volumes, in 2019 our footprint for raw and other materials did not increase as much, and, on balance, we limited the impact of our carbon-related emissions. From this it can be seen that our policy of moving towards being a circular business and having climate-neutral processes is bearing fruit. At the same time, higher investments result in our operations having a greater impact on society. In short, we have achieved a higher level of manufactured capital through our spending without this equating to a much higher impact on natural capital. In 2019, we intensified our collaboration with knowledge partners and infrastructure-oriented companies to develop and refine impact measurements. These efforts have resulted in the emergence of new methods and insights. In the area of natural capital, the Laarberg substation impact case study gave us a different view on biodiversity and the possibilities a technical installation site has to offer. We have seen from the impact case study on the application of flexible solutions to deal with grid congestion that the use of temporary alternatives has varying costs and benefits, and in any case that the network operator incurs higher costs. These case studies, which we developed with the input of various stakeholders, are described elsewhere in this annual report.
Reliable network management is a source of great and constant financial and economic value for Alliander. The impact of making data available for market facilitation appears to be greater than originally expected. From a social point of view, our efforts in this area have added to the intellectual capital. Alliander appears to have a stable reputation in comparison with other energy network operators: this emerged from the value of our reputation as an indicator for social capital.
The impact measurements continuously force us to make robust assumptions about such aspects as expected carbon impacts. This is the way to deal with uncertainties that inevitably arise when making estimates of indirect and complex impacts. In 2019 we started on an ‘impact journey’ with a wider group of infrastructure-related companies.
Our plans for 2020
Alliander is continuing to improve its impact model in order to increase its positive social impact in the future. Alongside collaborating with infrastructure companies, we are working on expanding intellectual capital. We also want to more often use our impact model to make better-informed choices regarding new developments and have this be a part of our decision-making process. Lastly, we will continue the dialogue with stakeholder representatives with the aim of improving our methodology.
Impact case study: increasing transmission capacity by using flexible energy solutions
The time involved in expanding the grid by conventional means is now sometimes such that the needs of the customer are not always being met. As a result of the procedures involved during the design phase and when commissioning new capacity, expanding the infrastructure can in some cases take up to five years. Until the new capacity becomes available, businesses with a growing demand for electricity are unable to expand. One way of addressing this issue is to use flexible solutions, such as deploying local combined heat and power (CHP) systems in a local flex-market. The flexible procurement of available local capacity can serve as a stopgap until new substations can be brought into operation. This case study involved investigating the social impacts of offering a stopgap solution, i.e. using existing CHP systems to power and heat commercial greenhouses in the Zuidplas region (Zuid-Holland) and switching off lighting in the area to bridge a maximum period of 5 years until capacity expansion can be completed. Alliander wanted to determine whether it was worthwhile, from a social perspective, to invest in the use of flexible solutions.
The question in this case study was whether, in addition to investing in the standard network expansions, additional investment in a local stopgap solution to address the capacity problem of a few businesses outweighs the costs that Alliander and, indirectly, all who are connected incur. From a direct-cost perspective, the local flex-market is more expensive because the network operator spends extra money. On the other hand, however, purchasing flexibility and connecting customers earlier can also prevent customers from suffering financial losses and damage to the Dutch economy. So, the local impact needs to be weighed against the question of whether the network operator can facilitate the local stopgap solution in exchange for the social return.
In this case, the impact on financial capital is positive for businesses in the area and for the government. Expansion of the growers’ businesses saves on social benefits and increases tax revenues on profits and salaries, while the companies generate more sales and profits. The network operator is faced with a negative financial impact of €3.1 million due to the costs of the flexibility solutions: the CHP, temporarily switching off lights, the payment to the high-voltage network operator TenneT, and deferred income from new connections. The creation of jobs has a positive impact of €1.9 million on human capital because of the increase in well-being that comes along with the extra jobs. The use of the flex solutions results in a €2.4 million negative impact on natural capital. Thanks to Alliander’s activities, regular power consumption, the use of CHP systems, and the use of lighting are all changing. Using CHP systems causes production to increase, and emissions change thanks to switching off lighting. The result is extra power consumption and higher carbon emissions. The carbon-related costs are an estimate based on the total economic costs associated with damage caused by an increase in CO2 emissions. The flex solutions have a positive impact of €600,000 on social capital due to the extra income through the spending by companies and employees. This new injection of spending then results in more sales and more income elsewhere, i.e. the ‘multiplier effect’. The impact of this case on intellectual capital in the form of technological advancement and Alliander’s reputation is considered to be minimal.
This case shows that a stopgap flexibility solution for bottlenecks in the electrical infrastructure has additional social costs and benefits. In this case, the network operator incurs additional costs that are not reimbursed. The use of the CHP system results in a negative impact on natural capital. Part of the effects are shifts: the wages of the new employees at the businesses in the area supplant social benefits, and many of the costs Alliander incurs are on balance benefits gained by commercial growers and aggregators in the area.