Untitled

ANNUAL

REPORT

Legal address: Kadaka tee 42, 12915 Tallinn, Eesti

Estonian Commercial Register code: 11022625

Telephone: +372 715 1222

Fax: +372 715 1200

E-mail: info@elering.ee

Internet homepage: www.elering.ee

Main activity: Electricity and gas transmission

Chairman of the Management Board: Taavi Veskimägi

Owner: The Republic of Estonia

Auditor: AS PricewaterhouseCoopers

Statement by the Chairman of the Management Board 4

Management report 8

From Elering’s mission to strategic goals 8

Goal 1: Ensuring security of electricity and gas supply

at all times 10

Goal 2: Guarantee electricity and gas prices that

support the competitiveness of the Estonian economy 16

Goal 3: Creation of economic value added 18

Goal 4: Committed employees 18

Goal 5: Customer satisfaction 19

Activities of Elering in ensuring security of supply 20

Overview of economic activities and results in 2021 30

Our Elering action plan for involving and motivating employees 40

Elering and corporate social responsibility 44

Corporate Governance 56

Financial statements 70

Table of contents

STATEMENT BY THE

CHAIRMAN OF THE

MANAGEMENT BOARD

nia as it purchases nearly 400 GWh electricity for

compensating the physical losses arising from the

supply of electricity to consumers which is twice

the amount that the second biggest consumer in

Estonia purchases. Expenses on network losses

are the highest item of expenditure in Elering’s

budget. While Elering spent 12.2 million euros

throughout 2020 on the purchase of electricity for

covering physical network losses related to elec-

tricity transmission, 38 million euros were needed

for compensating the purchase of the electricity

required for compensating network losses in 2021.

In Estonia, network charges are cost-based and

therefore, when expenses on the transmission

of electricity increase, it means higher network

charges for covering these expenses. Elering has

no other financing sources for covering the ex-

penses related to network activities in addition to

the network charge.

Excellent reliability of the transmission

network

Strategic discussions concerning the future of the

energy sector can be held as long as the lights are

on and homes are kept warm. Should one or the

other fail, discussions on whether electricity is

cheap or expensive and whether it should be pro-

duced from renewable sources or fossil fuels are

temporarily hindered. The question of how to get

the lights on and keep homes warm will instantly

become the focus question. We are therefore

proud that no failures occurred in the transmis-

sion network administered by Elering that would

have caused a hazard to the functioning of the

electricity system as a whole last year. Only the

electricity amounting to the consumption of a

couple of private homes was not supplied to cus-

tomers compared to the 7.8 million MWh supplied

throughout the year. This means that the relia-

bility of Elering’s network was 99.9998 percent.

Statement by the Chairman of

the Management Board

Value-based choices in energy policy

As always, we are living in unprecedentedly

unpredictable times. However, for specialists in

the energy sector, the key factor differing from

regular unforeseeable future right now is the fact

that due to high energy prices, discussions regard-

ing the future of the energy sector have become

the focal point of the public debate. The worry in

society is absolutely justified. The energy system

will definitely be in a rather tense situation in the

subsequent years, but Elering is closely monitor-

ing the situation and is prepared to immediately

implement the measures required for ensuring

the security of supply of consumers.

Impact of the increase in the price of

network losses

The changes in the electricity market in 2021 di-

rectly affected the economic activities of Elering.

Elering is the biggest electricity consumer in Esto-

TAAVI VESKIMÄGI,

Chairman of the Management Board

I would like to extend my thanks to all colleagues

at Elering who deal with network management

and whose daily hard work at administering the

electricity network ensured this excellent result.

The amount of energy not supplied has been

decreasing throughout the period of Elering’s

operation. The average energy not supplied in

the last 10 years amounts to 61.7 MWh per year.

This indicates that the programme launched more

than 10 years ago for preventing failures causing

power outages has provided clear results.

Likewise, we were able to maintain the operation

of the Estonian-Finnish interconnections at an

excellent level. EstLink 2 was available for 99.79

percent of all the hours in the year in 2021, which

is the highest reliability indicator of the intercon-

nection in history. The earlier interconnection,

EstLink 1, was available for 98.12 percent of all

hours throughout the year, which means that its

reliability was also close to its historical peak.

Connection to the electricity system of

Continental Europe is on schedule

More than 10 years ago, we commenced the project

for separating the electricity system of the Baltics

from Russia and for creating the capacity for inde-

pendently operating our electricity system. It took

many years to convince society, politicians and

our neighbours in order to implement this costly

project. Today, we are glad to have gone through

this 10-year period of time for developing the

electricity and gas infrastructure and markets of

the region, which has already largely rendered us

independent of Russia by now. In the current geo-

political situation, the priority number one for the

Estonian energy sector is to continue developing

the capacity of frequency management by Esto-

nia and the Baltics in our electricity system that is

independent of Russia. The capacity for frequen-

cy management independent of Russia provides

us an additional energy security guarantee to be

prepared for difficult situations. The preparations

of the Baltics for leaving the Russian electricity

system as of 1 January 2026 are currently being

made according to the agreed plan both in terms

of the schedule and the budget.

In 2021, an important step in the synchronisation

project was guaranteeing financing in a manner to

ensure that investments in synchronisation would

not mean additional expenses for Estonian electric-

ity consumers. In addition to financing the previous

stages, the European Commission allocated 170

million euros from the Connecting Europe Facility

to the Baltics and to Poland for implementing the

final stage of investments in synchronisation

with the Continental Europe frequency area. The

European Commission had previously allocated 196

million euros to Elering in two financing stages for

the investments required for synchronisation. The

total cost of the projects in Estonia is approximate-

ly 300 million euros. The majority of the funds are

spent on renewing the transmission lines beginning

in north-eastern Estonia leading to Latvia via Tartu

and Valga, and for building three synchronising

compressors at Viru, Püssi and Kiisa substations,

with work already ongoing or in the planning stage.

Focus on the security of supply

Elering’s objective is to ensure the security of

supply of energy for Estonian consumers in a

climate neutral manner and therefore support the

competitiveness of Estonian economy. Firstly, the

security of supply of consumers must be ensured

to keep the lights on and homes warm. This must

be done in a climate neutral manner by avoiding

CO2 emissions when producing the energy re-

quired for ensuring the security of supply. And

it must be ensured that the security of supply

achieved in a climate neutral manner would cre-

ate additional jobs and economic welfare for the

Estonian society.

When ensuring the security of supply,

Elering proceeds from the positions set

out below

First off, we must consider the technical security

of supply. The security of supply of consumers

must be viewed in conjunction of local production

and cross-border connections, excluding Russia

and Belarus. The current Estonian peak consump-

tion is approximately 1,600 MW, and the annual

consumption is nearly 8.5 TWh. The consumption

of electricity will increase in the following decades,

yet the peak consumption will increase at a limited

level thanks to the development of technologies

for consumption management and storage, which

allows for shifting the use of the produced energy

over time. We anticipate that the electricity

required for covering the consumption is available

via the functioning electricity exchange. Howev-

er, should it become apparent that we have the

issue of production not covering consumption in

the next 10 years, we will implement a prepared

strategic reserve as a rapid solution that covers

the existence of at least 1,000 MW of deployable

production capacity in Estonia.

Secondly, we must consider ensuring the security

of supply in a climate neutral manner. The energy

sector is the biggest (globally more than 70%)

creator of the ecological footprint and without

making changes to the energy sector, we will

not be able to achieve the objective of the Paris

Agreement of keeping the global rise in temper-

ature below two degrees Celsius. When reducing

the carbon footprint in the Estonian electricity

production portfolio, we are focusing on five di-

rections: development of distributed generation;

large-scale offshore production; management of

storage and consumption; energy savings; decar-

bonisation of the fuel and transport sectors.

The interest in joining the power grid with produc-

tion capacities free of greenhouse gas emissions

was explosive in 2021. As of the end of the year,

there were requests from producers for joining the

power grid to the extent of nearly 8,375 MW of

which there was a valid network contract for 3,152

MW of capacity, with 5,223 MW of capacity un-

dergoing the connection process. In comparison,

the all-time peak consumption in the Estonian

electricity system is 1,587 MW.

Thirdly, we must consider climate neutral security

of supply as a part of the economic policy.

We must keep the lights on and homes warm in

a climate neutral manner that does not reduce

the well-being of Estonian people but rather

increases it. Climate change must be seen as an

opportunity to enter the global market with new

technologies and business models. The focal idea

is to see the decarbonisation of the energy sector

as an opportunity rather than a threat. There are

plenty of companies and entrepreneurial people

in Estonia who are able to create new jobs and

economic welfare in Estonia based on the trend of

decarbonisation, for example Elcogen, Skeleton,

PowerUp, Gridio, Fusebox, Energiasalv, and many

others.

Taavi Veskimägi

Chairman of the Management Board

MANAGEMENT REPORT

FROM ELERING’S MISSION

TO STRATEGIC GOALS

Our main mission is to guarantee security of sup-

ply to Estonian consumers at all times, to syn-

chronise Estonia with the power system of Con-

tinental European by 2026 whilst maintaining

a reliable electricity supply during the transition

period, which is the most important step to en-

sure continuous security of supply for Estonian

consumers.

At the same time, we will help Estonia and the

wider EU community achieve the 2030, 2035 and

2050 climate policy targets, keeping in mind the

competitiveness of the Estonian economy.

As we work towards the achievement of our mis-

sion and implementation of our vision, it’s nec-

essary to find a balance between the interests of

various stakeholders: society, clients, employees

and the owner. Therefore, we’ve set five strategic

goals for Elering.

he access to electricity has become a right in

society. The lack of electricity has an impact

on a large part of the Estonian society, including

on the functioning of vital services. Elering’s mis-

sion as the electricity and gas system operator is

“keeping the rooms bright and warm in Estonia”.

At all times and in any situation.

Rapidly changing environment is setting massive

challenges to us in coping with the increasingly

faster climate change, whilst ensuring safety in

the current geopolitical situation.

Our vision in Elering is to have “SECURITY OF

SUPPLY in a climate neutral manner and there-

fore support the competitiveness of the Estonian

economy”.

The mission of Elering:

Keeping the rooms

bright and warm

GOAL 1:

Ensuring security of

electricity and gas supply

at all times

GOAL 2:

Guarantee electricity and

gas prices that support the

competitiveness of the

Estonian economy

GOAL 3:

Creation of

economic added

value

GOAL 4:

Committed employees

EMPLOYEES

SOCIETY

CLIENT

Quality

Price

Time

Profit

OWNER

GOAL 5:

Satisfied

customers

Goal 1: Ensuring security of elec-

tricity and gas supply at all times

The value chain of security of supply consists of

four pillars of system capability: control, network,

system and digital. In order to efficiently man-

age and develop these capabilities, we’ve set our-

selves the objective of ensuring a well-function-

ing power and gas transmission network before

2025. In the power system, our goal has been to

keep the ten-year average level of electricity not

served on a downward trend. We want to keep

this indicator at the lower level than 120 MWh/

year in 2025.

For society and consumers it does not matter

whether the energy not served is related to a

breakdown of equipment, a failure in the opera-

tion of the system, a shortage of capacities or a

cyber-attack. As a result of climate policy, elec-

tricity plays an increasingly important role as an

energy carrier. More production and consumption

equipment of rapidly changing character is added

to the energy system, also new participants join

the energy system, which makes the manage-

ment, control and protection of the system more

complicated. Thus, the achievement of this stra-

tegic goal requires the use of new technologies as

well as smarter and more efficient solutions.

We keep developing a risk- and condition-based

asset management solution to manage assets

more efficiently. Thus we systematically collect

and aggregate data on Elering’s assets, which

we use to make the necessary management de-

cisions. High-quality condition-based informa-

tion helps to reduce the number of breakdowns

and the time it takes to fix them. Secure and con-

trolled management of versions, configurations

and settings on devices reduces the possibility of

cyber attacks and human error. For this purpose,

we’re improving our work processes and develop

a solution where information is centralised and

configuration management is systematic and

controlled. In 2021, we conducted an analysis of

the implementation of risk and condition-based

asset management and created the technical con-

cept for the implementation of a centralised risk

and condition-based Equipment Register to en-

sure timely investments in the right equipment.

In 2021, we managed to bring the 10-year average

of energy not served of the transmission system

to its historically lowest level. The 10-year average

energy not served fell from 136 megawatt-hours

to 61.7 megawatt-hours. Energy not served in

2021 only amounted to 13.8 megawatt-hours

(10.6 megawatt-hours in 2020). Approximately

7.8 million megawatt-hours of energy was trans-

mitted during the year, which means that the re-

liability of Elering’s network in 2021 was 99.9998

percent.

In the gas system, energy not served in the trans-

mission network has remained at the level of 0

megawatt-hours (2020: 0 megawatt-hours) and

our goal is to maintain the achieved level. Achiev-

ing a high level of security of supply is possible

thanks to correct maintenance and investment

decisions. We implement more new solutions to

ensure that operation, maintenance and invest-

ment decisions are more based on information

on the condition of individual devices and their

impact on the entire network.

In order to ensure the continuity of a vital service,

the functioning of the electricity market and the

security of Elering’s internal information, given

the public attention related to synchronisation,

the changing market organisation due to climate

policy (more controlled devices, more parties ex-

changing data) and the general increase in digital-

isation of business processes, we need to ensure

that the cyber security of Elering is systemic. In

2021, we carried out the following major actions

to improve cyber security.

• Security testing of the SCADA control

system, which tested the possibility of an

attacker to disrupt the system by manip-

ulating parameters or by attacks against

the computer network.

• Acquisition of a security incident manage-

ment system to improve Elering’s capabil-

ity to detect potentially dangerous activi-

ties, to investigate suspicious incidents in

IT systems in greater detail and to respond

faster to anomalies and potential attacks.

• ENTSO-E audit of the security require-

ments for data exchange, during which

ENTSO-E audited European system ad-

ministrators for the first time to ensure

the security of pan-European data ex-

change.

• Developing a security testing strategy, on

the basis of which we will systematically

test many of Elering’s online services open

to the outside world.

• Development of security requirements for

the future software architecture of the

control centre and security requirements

for the SCADA control system.

Synchronisation of the Baltic States with

the Continental European frequency area

One of the biggest risks in ensuring security of

supply is the exceptional separation of the Baltic

States to the synchronous area, which arises from

the developments in the Russian unified power

system (IPS/UPS) and the current geopolitical sit-

uation. In order to reduce this risk and ensure the

stability and reliability of the power system, we

carry out developments to synchronise the power

system of the Baltic States with the Continental

European frequency area by 2026.

We develop a stronger capacity of the Baltic syn-

chronisation area within the scope of the synchro-

nisation project. We already have the capacity to

cope with the unexpected islanding of the Baltic

States. However, currently automatic restriction

of consumers must be applied on a short-term ba-

sis in case major breakdowns would occur if island

mode of operation would happen.. Additional de-

velopments and measures will help us achieve the

capability for long-term synchronous operation in

an N-1 (switch-off of any one element) situation

without restricting consumers automatically.

One of the important milestones in the synchroni-

sation project in Estonia was accomplished in June,

when Elering signed the last of four major infra-

structure contracts for the synchronisation pro-

ject. A 55.9-million-euro contract was entered into

with Leonhard Weiss and Empower for the full ren-

ovation of the 330 kV high-voltage line between

Tsirguliina and Viru substations. The length of the

Tsirguliina-Viru overhead line to be renovated is

244 kilometres and the leads in the lines will be

supported by 722 pylons. The line will pass through

12 municipalities in four counties. The route of the

line will remain the same and the new pylons will

be erected in the current locations. Use of the ex-

isting line corridor for the renovation of the given

connections is the solution that will pose the few-

est socioeconomic and environmental impacts.

In 2020, we carried out procurements and entered

into contracts for the renovation of the Baltic-Tar-

tu and Tartu-Valmera lines. In 2021, the construc-

tion projects for these lines were completed and

renovation work started on the Baltic-Tartu line.

The completion and energisation of these lines

has been planned for 2023.

After joining the Continental European frequen-

cy area, the Baltic States will be subject to the

technical requirements for the operation of the

electricity network and the assessment of net-

work stability, which will require TSOs to extend

existing or create new control systems. In order to

ensure a stable network service, it’s necessary to

implement a frequency management procedure

in line with Continental European principles, to

assess the different indicators of stability of the

electricity system, to ensure a high quality data

exchange between new and existing systems

and to upgrade the forecasting systems for both

network status and external indicators. Modern

control systems are needed to complement these

functions. Existing control systems are upgraded

and new ones will be procured between 2021 and

2024. Elering will take over frequency control af-

ter synchronisation with Continental Europe.

An extremely important measure in synchronisa-

tion is the existence of sufficient inertia, which

ensures the stability of the system in the event of

breakdowns and the maintenance of better sta-

bility of frequency in the ordinary situation.

In order to synchronise the power system of the

Baltic States with the Continental European pow-

er system, it is necessary to ensure that there is

an adequate quantity (17,100 MWs) of inertia in

the system of the Baltic States at all times. Baltic

system administrators will install a total of nine

synchronous compensators throughout the Baltic

States. In 2020, we carried out the procurement

and entered into the contract for the construction

of a synchronous compensator at Viru, Püssi and

Kiisa 330 kilovolt substations. The total value of

the joint tender of Siemens Energy Oy Estonia

branch and Siemens Energy Global is 83.5 million

euros. The equipment will be built in the German

plant of Siemens Energy Global. In 2021, we com-

pleted the preparatory works for the Püssi, Kiisa

and Viru synchronous compensators and started

the construction of the Püssi synchronous com-

pensator.

In 2020, we started developing the framework for

the market for system services and in 2021 we car-

ried out public consultations on the pre-qualification

process and requirements for generating equipment

in respect of frequency maintenance reserves, man-

ual and automatic frequency restoration reserves.

The respective capacities will be implemented and

developed in the Baltic States according to the Con-

tinental European frequency reserve principles and

the capacity for local voltage optimisation will be

created. The existing optimisation systems will be

updated and additional optimisation systems will

also be implemented in order to meet the require-

ments of Continental European frequency areas.

This will allow us to procure fast emergency reserves

through the existing direct current submarine cables

between the Baltic States and the Nordic countries

as well as through the cable to be established be-

tween Lithuania and Poland.

Capacity of the energy system

The ambitious climate policy objectives of the

European Union and European countries and the

electricity prices in late 2021 have made the ade-

quacy of the energy system an increasingly more

important issue from the viewpoint of security

of supply. Where will electricity be generated in

the future if the carbon-intensive production ca-

pacities with a flexible scope of regulation and a

generation cycle that can be planned are pushed

out of the market because of climate policy? We

believe that well-functioning markets continue

to ensure the cheapest and the best system ade-

quacy. The market guarantees that the best tech-

nologies, for which there is a demand and which

are also permitted by environmental restrictions,

are developed and invested in. Thus, the primary

task of achieving system adequacy is to ensure a

transparent and well-functioning market organi-

sation and platforms.

The goal we’ve set ourselves is that the Estoni-

an standard for security of electricity supply is

met at all times over a three-year horizon. We’ve

regularly analysed the adequacy of the energy

system in cooperation with Entso-E and other Eu-

ropean system administrators. The analysis for

2021 indicates that according to the best knowl-

edge available today, Estonia will have no prob-

lems with the adequacy of the energy system

until 2030. We analyse and assess the security

of supply every year, as the market environment

of the energy sector is changing rapidly due to

the climate policy. In order to be able to respond

quickly to these changes, we have prepared and

carried out a public consultation on the concept of

a strategic reserve in 2021. If a future analysis of

the security of supply shows that the security of

supply standard has not been reached, we will be

ready to implement a strategic reserve.

The hourly electricity price in Estonia reached the

level of €1,000/MWh as a result of the events oc-

curred in the electricity system in December 2021

. High CO2 and gas and coal prices driven by the

rapid recovery of the economy from the coronavi-

rus pandemic caused the increase of the electric-

ity prices It was exacerbated by several simulta-

neous events in the region, the occurrence of one

or two of which would not lead to very high prices.

As a result of unusually cold weather conditions

in the beginning of December, the peak consump-

tion reached 1,552 MW (usually around 1,400

MW). At the same time, the largest electricity

generating plants in each of the Baltic States was

under repair: Auvere PP 272 MW in Estonia, one

unit of the CHP2 443 MW in Latvia and 9

block

of the Lithuanian PP445 MW in Lithuania. Due

to Lithuania’s initiative in the direction of Bela-

rus, trade with Russia was limited at the Latvian

border, with an average transmission capacity of

ca 123 MW (570 MW in the same period in 2020).

Today, we can admit that the market has worked

exactly as it was designed to. In the situation of

system stress, the electricity price sends the right

signal to consumers and contributes to system

control through behaviour. In such situations of

system stress, the generation assets owned by

TSOs play an important role keeping the electric-

ity system operational – the emergency reserves

of the Baltic TSOs and the Finnish-Swedish stra-

tegic reserves and contingency reserves. System

capacity in 2021 had sufficient reserves to ensure

that no consumers were under-loaded in the Es-

tonian electricity system in 2021 for system man-

agement purposes..

Estonian power system is attractive to

generation and storage capacities

It’s important to us that the Estonian power sys-

tem is attractive to generation and storage ca-

pacities in order to make the energy system cli-

mate neutral. The European Union has set itself

the goal of becoming climate neutral by 2050 and

our neighbouring country, Finland, with whom we

are strongly integrated in terms of electricity and

gas systems and markets, wants to achieve the

same objective by 2035. We will create solutions

and cooperate with our neighbours so we can of-

fer a competitive environment for the generation

of new production capacities.

Historically, electricity in Estonia has mainly been

generated in Ida-Viru County. The locations suit-

able for renewable energy generation equipment

(wind farms, solar power plants) can be found

throughout Estonia, but the most attractive plac-

es for wind capacities can primarily be found in

Western Estonia due to wind conditions. The third

Estonian-Latvian 330-kilvolt electricity connec-

tion Harku-Lihula-Sindi, which started operating

on 1 January 2021, was one of the important pre-

requisites for opening also Western Estonia for a

larger volume of electricity production.

In order to improve the situation, investments

related to increasing the capacity of the existing

overhead transmission lines in the 110-330 kV

network will be made and the 110 kV network will

be more strongly connected to the 330 kV tran-

sit network. This helps to increase the capacity

and reliability of the network, renew the ageing

network, eliminate bottlenecks and increase the

storm resilience in areas of high winds.

In 2021 we applied for a grant under the EU Recov-

ery and Resilience Facility (RRF) to increase the

capacity to integrate renewable energy produc-

tion into the grid in Western Estonia. Ursula von

der Leyen, President of the European Commis-

sion, approved the recovery and resilience plan of

Estonia on 5

October 2021.

The total cost of the Elering network develop-

ment investments in the given plan is €68.8 mil-

lion, with the share of support being €30 million.

Investment support is granted to the transmis-

sion system operator as non-refundable aid. As

non-refundable aid is not included in the calcula-

tion of network charges, the pressure to increase

network charges is reduced. The investments will

benefit the owners of the renewable energy gen-

erating facilities to be connected to the grid. We

already started the necessary preliminary activi-

ties for the implementation of the investments in

2021 and the final deadline of the work pursuant

to the requirements of the RRF is July 2026.

The impact of these investments on the increase

of generation capacities will be available from

January 2022 through the e-Gridmap solution,

which is unique in the region, where investors will

be able to get the cost-based price of the initial

connection to the electricity system at different

substations within seconds. In order to facilitate a

fast connection process, we’ve developed a solu-

tion where we can build a standard connection

point in 18 months. We’ve also developed a con-

nection solution with flexible capacity in order to

make possible connection cheaper and more at-

tractive to investors.

We can see that offshore wind farms represent

one of the biggest potentials and resources in

Estonia for the emergence of large-scale climate

neutral production capacities. One of the chal-

lenges in using the potential of offshore wind

farms is connecting the production capacities lo-

cated at sea to the energy network. In late 2020,

we entered into a joint declaration of intent with

TSOs in the Baltic Sea region to launch the Baltic

Offshore Grid Initiative. The objective of the coop-

eration is to develop the concept of the Baltic grid

and to carry out preliminary feasibility analyses.

The terms of reference for these analyses were

agreed in 2021.

The objective and obligation in cooperation with

AST, the Latvian TSO, is to plan and build addi-

tional transmission capacities between Estonia

and Latvia. In order to analyse the feasibility of

an Estonian-Latvian IV connection, we signed a

cooperation agreement on 28 April 2021 to car-

ry out preliminary studies. In 2021, we provided

joint input to the pan-European TYNDP 2022 (The

10-Year Network Development Plan) process to

identify the socio-economic benefits of the new

connection.

As previously stated, Finland has set itself the

ambitious goal of achieving climate neutrality by

2035. As a result, we can already see a major con-

nection of wind generation capacities to the net-

work in the Nordic countries in the next 10 years,

which in turn is expected to lead to an increase in

hours with price differences at the Estonian-Finn-

ish border. In order to assess whether the price

differences are sufficient to create the third Esto-

nian-Finnish transmission link, we submitted the

third Estonian-Finnish connection to the TYNDP

2022 development plan process in cooperation

with the Finnish transmission system operator

Fingrid in 2021. In the framework of TYNDP 2022,

we will carry out calculations of the socio-econom-

ic feasibility of the third Estonia-Finland power

connection, which is also a prerequisite for the

implementation of the project. The Estonia-Lat-

via and Estonian-Finland maritime links would in-

crease the export potential of the generation and

storage capacities to be built in Estonia.

Goal 2: Guarantee electricity

and gas prices that support the

competitiveness of the Estonian

economy

As the system operator of the power grid and gas

network, we can contribute to the price of elec-

tricity and gas through three parameters

Cross-border capacities must operate to

the maximum in order to equalise the

electricity price level with the Baltic Sea

countries

It’s important to ensure the highest possible us-

age of the existing cross-border capacities in or-

der to ensure that the electricity and gas price in

the Estonian price region would be as similar as

possible to the price in Baltic Sea countries. We

make sure that we can keep the capacities in op-

eration as much as possible during the bottleneck

hours. It’s good to admit that we’ve managed to

keep the reliability of DC connections one of the

highest in Europe in cooperation with the Finnish

power system operator. In 2021, we managed to

guarantee one of the all-time highest EstLink 2

(650 MW) reliabilities at 99.8% and the relia-

bility of EstLink 1 (350 MW) was 98.1 (2020: the

reliability of EstLink 2 was 97.4% and the reliabil-

ity of EstLink 1 was 97.5%) and the connections

worked at maximum capacity for 41% of the time

(2020: 30% of the time).

Thin power grid

Another important aspect is to make the power

grid ‘thinner’ which helps to keep the transmission

network tariff under control. Our long-term goal is

that our replacement investments for five years

are smaller than the depreciation of the regulat-

ed assets over the next five years. This goal has

a long-term impact. As at the same time the de-

crease in energy not served must be maintained,

we have to find solutions and technologies in the

operation of the grid that are more efficient and

innovative than the present ones.

In 2021, we prepared and submitted to the Com-

petition Board for processing the methodology

of the capacity-based tariff component, as the

transmission network is becoming increasing-

ly more and more responsible for ensuring the

availability of energy and the reliability of the

system due to the development of distribution

production. As a result, clearer input on custom-

er capacity is also needed for long-term planning

of developments. A tariff based on the capacity

component would provide a clear input on where

the network must be strengthened and where it

should be made thinner in the long term.

A positive example of the optimisation of invest-

ments is also the fact that we’ve essentially man-

aged to develop the synchronisation project in

such a manner that the investments required for

synchronisation will not bring about an increase

in the electricity network tariff. Elering finances

three-quarters of the construction costs from the

European CF and one-quarter from congestion

income. The project for synchronisation with the

power system of Continental Europe will cost Es-

tonia approximately €300 million, the majority of

which will be covered from European Union co-fi-

nancing. In October 2021, we submitted a grant

application for €170 million to the Connecting

Europe Facility (CEF) for the last synchronisation

project with the power system operators of four

countries – Estonia, Latvia, Lithuania and Poland.

The application received a positive funding deci-

sion at the maximum rate among the five most

important EU infrastructure projects to be imple-

mented between 2021 and 2027. Elering will use

the funding from the last support round to mod-

ernise the control and information systems of the

Estonian electricity system, which includes the

construction of a reserve control centre and the

upgrading of the control systems of the EstLink

direct current connectionst.

Highly competitive energy market

The third aspect of ensuring a competitive ener-

gy price is the development of a well-functioning

market and platforms that would promote the

biggest possible competition and ensure a com-

petition market with many participants. In the

long run as a result of climate policy goals, dif-

ferent energy carriers should compete with each

other. For this purpose, we develop digital solu-

tions for system services, flexibility services, cer-

tificates of origin of renewable energy and market

platforms of flexibility products as well as energy

data solutions that would make it easier to har-

monise the rules and data exchange of regional

reserve, wholesale and retail markets.

We are introducing a new data exchange platform

Estfeed as a digital solution to exchange data on

the electricity and gas markets for an open re-

placement of suppliers, transmit metering data

and perform the obligations and guarantee the

rights given to market participants by law. The dig-

ital platform will bring together electricity and gas

companies to ensure that their business processes

work. At Elering, the whole solution of energy data

will be brought under the Estfeed brand to avoid

duplication and guarantee compliance with data

protection and data security requirements.

Preliminary analyses were carried out in 2021 with

the aim of introducing the Estfeed data exchange

platform by 2024 with the following scope:

• We develop new electricity and gas mar-

ket data warehouses that ensure a fast

and efficient process for exchanging sell-

ers on retail markets;

• We develop an energy statistics module

to allow for detailed analysis of generation

and consumption in the system;

• We develop a solution for open ener-

gy data that will enable the provision of

pre-calculated energy data for public use

and also transfer data.

Elering manages the information system for ver-

ifying the origin of renewable energy and pay-

ing subsidies in Estonia. We help to bring new

renewable energy-based technologies and gen-

eration capacity to the market in the most effi-

cient way for society. We promote market-based

energy carriers and cross-sectoral competitive

solutions involving both suppliers and end-con-

sumers. We focus on regional and pan-European

markets. In 2021, we completed the digital and

cross-sectoral solution created for producers to

certify the origin of energy and trade in renew-

able energy, which facilitates the market entry

of new technologies and renewable generation

capacities.

Goal 3: Creation of economic

value added

Every owner expects the capital invested in their

company to generate value according to the es-

tablished goals. Elering is one of the largest elec-

tricity consumers in Estonia through electricity

losses. The current tariff methodology estab-

lished by the Competition Board does not allow

Elering to fix the electricity price for a long period,

which means that the market price of electricity

has a direct and strong impact on Elering’s finan-

cial performance for 2021. 2021 was a difficult year

for financial performance due to high electricity

prices. The operating profit of Elering in 2021 was

€9.0 million (2020: €32.6 million). The impact of

the electricity price on the 2021 profit compared

to the 2020 profit was €26.2 million. In late 2021,

the Estonian Competition Authority approved a

new tariff for Elering, which reduces the impact

arising from the electricity prices somewhat and

enters into force starting from 1 April 2022.

From the viewpoint of economic value added, long-

term developments in the gas system are definite-

ly important. Currently the development of the gas

network is affected by climate policy goals more

than ever. Green gases will certainly be a part of

the renewable energy circulation system, includ-

ing in energy transmission, storage and conversion

from gas to electricity and vice versa. The challenge

to maintain a balance between power consumption

and generation, which brings about the need for a

stronger integration of the whole energy system,

i.e. the electricity, gas, hydrogen and transport

sector, and the need for storage of electricity, will

increase in relation to the increase in the share of

inverter-based renewable energy. The addition of

non-controllable production and closure of ordi-

nary power plants requires greater capacity for

storing energy so that the energy system can be

safely managed. The main challenge in the inte-

gration of the presumably installed wind energy in

2030+ is the need to apply seasonal flexibility on

a large scale. The existing gas infrastructure has

the potential to play an important role in the ful-

ly climate neutral power system, as it may offer

possibilities for transportation of synthetic gases

and hydrogen to power plants that can be rapid-

ly launched. Thus, the challenge is how to make

the gas infrastructure usable for green gases. We

are currently in a situation where we don’t have

enough knowledge of technologies, the applicabil-

ity of different green gases in the gas network and

in equipment of end-consumers as well as possible

solutions for transferring to various green gases. In

2021, we will analyse the long-term usability of gas

in the Estonian gas network and we’re initiating re-

gional surveys in cooperation with regional system

administrators. We’re currently only making una-

voidable investments in order to maintain the level

of security of supply of the gas network until we’ve

ascertained how we can regionally switch to green

fuels with the gas system.

Goal 4: Committed employees

Keeping and finding talent is increasingly more dif-

ficult under the pressure of the generally low un-

employment rate and payroll. Therefore, a strong

team spirit and a good work culture are important

for keeping our existing people, achieving the am-

bitious goals set for the next five years and man-

aging changes in the energy system. Committed

employees are more content with their work and

contribute more. We understand that managing

the commitment of our employees is important

and it has real consequences for the achievement

of Elering’s mission. Every year, we conduct a com-

mitment survey and we’ve set ourselves the goal of

keeping the company’s commitment index at over

70%. In 2021, the commitment index of our people

was 81% (2020: 87%). Similar to 2020, the biggest

challenges in 2021 were related to the COVID-19

crisis. However, we managed to keep the focus on

improving the skills and management quality of

middle-level managers and maintaining a common

culture during this difficult time.

Goal 5: Customer satisfaction

Elering has four key service segments: electric-

ity and gas network service, connection to the

electricity and gas system, electricity and gas

balancing service, and payment agency for re-

newable energy support. Whilst making the mas-

sive changes in the energy system and on energy

markets that arise from climate and geopolitical

challenges, Elering cannot be successful if our

clients are not satisfied. Also, increasingly more

new clients are connected to the network, includ-

ing wind and solar energy producers who expect

Elering to operate quickly and efficiently. We’ve

worked hard to achieve a customer-centred work

culture. The energy price crisis at the end of 2021

has clearly demonstrated the importance of joint

information and discussion formats: the Advisory

Council on Interconnection and Network Services,

the Electricity Market and Gas Market Advisory

Council. In 2021, we upgraded the network cus-

tomer portal for the transition to the new tariff

structure with the aim of increasing the trans-

parency and efficiency of information exchange

and processes resulting from the change and to

further improve the customer experience. We

also developed the e-Gridmap application for con-

nection clients, which gives primary information

about the cost of connection in seconds. We’ve

developed automated solutions for clients of re-

newable energy support that they can use to ap-

ply for support and for activities with the certifi-

cates of origin of energy.

In order to be the leader of a carbon neutral ener-

gy system and make it possible for our clients to

use climate neutral energy throughout the value

chain, we’re moving towards making Elering cli-

mate neutral by 2030, thereby also minimising

the footprint of energy transmission.

ACTIVITIES OF ELERING

IN ENSURING SECURITY

OF SUPPLY

the electricity system is assessed using a proba-

bilistic method. The methodology is based on the

Monte Carlo simulations during which 35 different

climate years are calculated 20 times each, con-

sidering the changes in consumption, wind condi-

tions, solar radiation, hydrological situation and

breakdowns in system elements.

Both current experience as well as the analysis

of the electricity system capacity carried out in

2021 indicate that the Estonian electricity sys-

tem will function well up to 2030. Electricity is

ensured for the consumer and there is no need

for additional measures.

In order to ensure the operation of the system in

Estonia, there is approximately 1,000 MW of guar-

anteed production capacity of electricity, plus 250

MW of emergency reserves. Guaranteed produc-

tion capacity is formed by capacities of production

and management-enabled consumption that can

be relied on during periods of high consumption,

for example in the case of severe cold that lasts

for days. These capacities also ensure the securi-

ty of supply in potential extraordinary situations,

for example in the case of the separation of the

Baltic countries into an independent frequency

area. Likewise, sufficient frequency reserves are

ensured for functioning in the Continental Europe

synchronisation area.

If Elering forecasts that a guaranteed capacity of

1,000 MW has not been ensured in the Estonian

electricity system, the strategic reserve mecha-

nism is applied in order to ensure the required ca-

pacity. The strategic reserve is a state aid meas-

ure that ensures the owner of the capacity rev-

enue for ensuring the readiness of the capacity

even when, market-wise, it would not be practi-

cal to preserve and operate such production ca-

pacities. Since the costs of this measure are borne

lering’s mission is to ensure security of sup-

ply for electricity and gas consumers . Elering

systematically observes security of supply by four

so-called security of supply pillars: system ca-

pacity, network capacity, management capacity

and digital capacity. Elering regards the situation

where the expected consumption is covered by lo-

cal production, import opportunities and oppor-

tunities for management of consumption as sys-

tem capacity. Network capacity means that the

transmission network is adequate in terms of ca-

pacity and reliability to ensure that energy reach-

es the consumption centres. Management capac-

ity helps us to keep the power system operation-

al as a whole and to cope with various disruptions

and malfunctions. Digital capability is the ability

to provide the necessary information to manage

the system in a timely manner and the ability to

perform the necessary operational activities digi-

tally, including resilience to cyber-attacks.

In order to ensure a high level of security of sup-

ply, it’s important to ensure the simultaneous and

strong performance of all four security of supply

pillars at the same time.

System capacity

In order to assess the capacity of the Estonian

power system, Elering carries out a pan-European

evaluation of system capacity in cooperation with

the European Network of Transmission System

Operators ENTSO-E every year. The assessment

is based on the data of European system opera-

tors about the generation capacities, consump-

tion and transmission capacities of each country.

The report covers a period of up to 2030, and the

results include the electricity system capacity in-

dicators of all European countries. The capacity of

by electricity consumers, the implementation of

the measure must be thoroughly considered. In

2021, Elering prepared the Estonian strategic re-

serve concept and launched a public consultation

to gather feedback from market participants.

There are three main stages for ensuring the ca-

pability of the electricity system:

1. implementation of the standard for secu-

rity of supply – the Government of the Re-

public approved the standard for security

of supply in May 2021

;

2. long-term analysis of assessing the ca-

pacity of the electricity system – an an-

nual process, the 2021 version of which is

reflected in Elering Security of Electricity

Supply Report 2021;

3. if the standard for security of supply is

complied with, the capability of the sys-

tem is ensured. If the analysis indicates

a worse system capacity than the stand-

ard, the market disruptions must be re-

moved according to the instructions of

the European Commission, and the capac-

ity mechanism (strategic reserve) must be

launched as the last remedy.

In order to ensure the supply of electricity, it is

necessary for the electricity market price to cov-

er the production costs of electricity – both short-

term variable costs such as fuel costs and car-

bon emissions as well as long-term investments.

Therefore, even in an electricity system with a

high level of security of supply, the exchange price

can vary and, at periods, be very high. This is nec-

essary for ensuring the capacity of the system

and does not always refer to a structural prob-

lem. In order to ensure the competitiveness of

the Estonian economy, it is important that the

electricity in Estonia does not cost more than in

our neighbouring countries in the long term. The

equal price level is ensured by an electricity mar-

ket that is open and with strong interconnections

where electricity is supplied to Estonia from the

region with the lowest production cost at the re-

spective moment.

The pan-European analysis of system capacity car-

ried out in 2021 gives an overview on the long-term

adequacy of the European electricity system. Pur-

suant to the analysis, the capacity of the Estoni-

an system is at a good level and the standard for

the security of supply has been met with surplus.

While the standard provides for nine loss of load

expectation hours per year, only 0.1 such hours are

anticipated for 2030 pursuant to the analysis.

The security of supply standard defines the economically viable level of system capacity that is maintained in the Estonian

electricity system. The security of supply standard is determined by two parameters – Loss of Load Expectation (LOLE)

and Expected Energy Not Served (EENS). Values have been established for Estonia: the number of hours of loss of load

expectations is 9 hours a year and the amount of energy not served is 4.5 GWh a year.

Results of the analysis of the capacity of the pan-

European system for 2025 and 2030

The economic sustainability of power plants was

also analysed for the first time in 2021. According

to the analysis, 1,000 MW of production capacity

is also sustainable on the Estonian market in 2030.

There may be room on the market for an additional

gas-fired power plant in the 2025 perspective.

Elering does not merely proceed from the Pan-Eu-

ropean analysis and the expectation that the elec-

tricity market is functioning ordinarily when as-

sessing the capacity of the electricity system. We

also analyse extraordinary scenarios in order to as-

sess the impact of risks that have a small likelihood

but a high impact on the capacity of the system.

Elering also assesses the level of such risks and

prepares action plans for alleviating their impact.

The extraordinary islanding of the Baltic States has

been analysed as such a scenario. This is a situation

where alternating current connections with the re-

mainder of the frequency area are interrupted due

to a certain event and the Baltic countries must

maintain the frequency in an islanded state. Ex-

traordinary scenarios provide for the necessity of

existence of guaranteed capacity in Estonia. Eler-

ing classifies guaranteed capacity as generation

and consumption capacity that can also be relied

on during peak consumption periods.

Network capacity

Investments in the 110-330 kV power grid

In order to ensure network capacity and thereby

also maintain good security of supply and opti-

mise and modernise the network, Elering as has

consistently made various developments and in-

vestments. A major project for synchronisation

with the Continental European frequency area is

ongoing. The third 330 kV connection between

Estonia and Latvia was completed within the

framework of the project in 2020, which has sig-

nificantly increased the security of supply of the

Estonian and Latvian power systems and guaran-

tees higher capacity. The next step will be the re-

construction of the existing Baltic-Tartu-Valmiera

and Viru-Tsirguliina-Valmiera 330 kV connections

from 2022 to 2025 and the Mustvee 330 kV sub-

station will also be built, to which the Viru-Tsir-

guliina and Viru-Paide 330 kV overhead line will be

connected. Upon the reconstruction of Balti-Tar-

tu-Valmiera, it is planned to free some of the 110

kV overhead lines and transfer the existing 110 kV

overhead lines running in parallel to the common

poles along with 330 kV overhead transmission

lines. This guarantees a smaller impact on the

environment as well as savings on maintenance

costs. The scope of the project also includes the

installation of synchronous compensators in the

strategic points of the network to guarantee sta-

bility in ordinary and disruption situations as well

as shunt reactors for voltage control.

TThe programme of network investments to in-

crease the capacity of distributed and renewable

electricity in Western Estonia and the islands is

another important project. Historically, electricity

in Estonia has mainly been generated in one re-

gion – Ida-Viru County. The locations suitable for

renewable energy generation equipment can be

found throughout Estonia, primarily in Western

Estonia, where the network has been the weak-

est in terms of connecting the renewable energy

generation capacity with the network. In order to

improve connection possibilities, Elering plans to

make large investments from 2022-2026 in order

to increase the capacity of the 110-330 kV elec-

tricity network of Western Estonia and the is-

lands and increase the security of supply. The Ki-

isa-Paide-Mustvee overhead line will be recon-

structed and a new 330/110 kV substation will be

built in Lihula within the scope of the investments

to be made in the 330 kV network. The new sub-

station is necessary to strengthen the connec-

tion of the 110 kV network to the 330 kV transit

network. The substation will shorten the length

of 110 kV lines in the western region, which will

reduce the negative effects and losses caused by

voltage drops and increase the security of supply.

The new substation will also reduce the impact of

north-south transit flows through the 110 kV net-

work in Western Estonia. The investments in the

110 kV network include the reconstruction of the

110 kV lines feeding the islands from the main-

land from the Lihula substation to the Rõuste

and Virtsu substations and the construction of a

new 110 kV overhead line for the connection of the

Rõuste and Virtsu substations. The dimensions of

the existing 110 kV overhead lines in Western Es-

tonia and the islands will also be increased, i.e. the

distance between the ground and the cable will be

increased. In order to increase security of supply,

the lines running to the Sikassaare substation will

be taken to separate towers and a parallel line

between Võiküla and Orissaare on Muhu island

will be built. In order to reduce the environmen-

tal impact and increase weather resistance, the

overhead line section across the dam in the Väike

Strait will be taken into a cable.

Elering is developing additional cross-border con-

nections with Latvia and Finland. Due to the lim-

itations in transmission capacity between Es-

tonia and Finland, a price difference has come

about between Estonian and Finnish pricing are-

as. Therefore, Elering and the Finnish TSO Fingrid

have commenced studies for developing the Es-

tlink 3 connection. Additional interconnection ca-

pacities with Latvia are also being planned. As a

result of the plans to develop offshore wind pow-

er in the Gulf of Riga and the wider Baltic Sea, it is

probably practical to develop transmission capac-

ity between Estonia and Latvia through the Gulf

of Riga. In 2020, Elering and the other Baltic Sea

TSOs launched a project for the development of

the Baltic Sea undersea network. The power grid

of the Baltic Sea is an energy network that con-

nects the countries by the Baltic Sea and offshore

wind farms, which helps cost-effectively achieve

the climate goals whilst guaranteeing security of

supply. The planned marine substation and con-

verter station in the Gulf of Riga will have a max-

imum capacity of 1,000 MW. The location of the

converter, the marine substation and the route of

the submarine power cable connecting them are

not fixed at this stage, as they depend on the en-

vironmental impact assessment, the design and

the location of the wind energy sources to be

pre-developed by countries. The development of

the undersea network will result in significantly

higher power flows in the western part of Estonia,

which is why the 330 kV Paide-Sopi-Sindi and Ki-

isa-Rakvere-Püssi overhead lines must be recon-

structed to increase capacity, and a new 330 kV

overhead line must be built between Aruküla and

Kiisa substations.

In addition to said projects, the company will

also invest locally in guaranteeing the reliability,

capacity and efficiency of the power grid and in

stopping the ageing of the grid. The emphasis in

the two larger consumption areas of Estonia – Tal-

linn and Tartu – is on replacing the existing 110 kV

overhead lines with cable lines. The new Iru-Viimsi

110 kV cable line in Tallinn and the Tartu-Ülejõe 110

kV in Tartu will be built. 110 kV overhead lines in

the surroundings of Tallinn will also reconstruct-

ed and optimised. The power grid is being recon-

figured in north-eastern Estonia as a result of

the changes in flows and redistribution of loads,

which will create the strong Püssi-Ahtme-Alu-

taguse multipoint-ring configuration. The 110 kV

network will also be optimised in the Balti-Alli-

ka-Oru direction.

Network connection capacity

Available connection capacities are the capaci-

ties in the case of which it’s not necessary to in-

crease the capacities of the transmission lines

upon connection to Elering. The main restricting

factor is the thermal limit of transmission lines,

which depends on the current passing through the

line. The available connection capacities decrease

with new connections and increases of the exist-

ing connection capacity, and increase with the in-

vestments made in the power grid, and the ones

with the most significant impact among them are

the investments to be made within the scope of

the programme of synchronisation, the undersea

power gird and the network investments of West-

ern Estonia and the islands.

In order to increase the capacity of connection to

the grid, Elering offers flexible connection as a

new alternative, where network investments can

be replaced with a sufficient quantity of flexibil-

ity service, i.e. management of consumption and

production. This will make connection to the grid

more attractive to new clients, as they can choose

whether to pay for the increase in the capacity

of the overloading network element or to agree

to the reduction of their production and/or con-

sumption capacity in situations where an over-

load occurs. Through flexibility, it’s theoretically

possible to achieve the maximum utilisation of

limited network resources, which ensures a more

optimum power grid for the network operator and

reduce the investment and maintenance costs of

the network.

Operational network security

No failures occurred in the power transmission

network administered by Elering that would have

caused a hazard to the functioning of the electric-

ity system as a whole last year. Only 13.8 mega-

watt-hours of electricity was not served to custom-

ers (2020: 10.2 MWh), which means that the reliabil-

ity of Elering’s network was 99.9998 percent.

The amount of energy not supplied has been de-

creasing throughout the period of Elering’s opera-

tion. The average energy not supplied in the last 10

years amounts to 61.7 megawatt-hours per year.

In the previous year, there were 107 failures that

caused a shutdown in Elering’s power grid (2020:

112), including 85 short-circuits. The most com-

mon causes for the failures were activities by

birds and animals, lightning, and the depreciation

of equipment. Only one failure was related to a

tree falling on a power line, which means that the

consistent work for the maintenance of protec-

tion zones has provided excellent results.

Contributing to the supervision of construction

work, implementing new methods for identify-

ing the condition and defects of equipment and

annual power line safety and notification cam-

paigns have also played their part in the decrease

of failures. Of all shutdowns, only 12 resulted in a

customer failing to receive electricity. The major-

ity of the non-supply of the amount of 13.8 MWh

to customers was caused due to two events relat-

ed to Elering’s substations. The root cause of the

event that occurred in Saaremaa in April 2021 was

a phase conductor broken due to metal fatigue

in the Sikassaare substation, which resulted in a

chain of faults that left 5.13 MWh of electricity

transmitted to consumers in the region. The root

cause of the event that took place in the Jõgeva

substation in August was a full fire on the switch-

gear rooms belonging to the customer, when 4.39

MWh of electricity was not served to the electric-

ity consumers in the region as a result of a human

error that occurred in the course of the liquidation

work. The quantity of energy not served as a re-

sult of other faults in the network was marginal.

In recent years, there have been no mass switch-

offs caused by trees, as the protected zones of

lines have been streamlined as a result of con-

sistent activities. This is also the reason why big-

ger storms have not caused switch-offs, which is

something that happened often in previous years.

Although there have been no major storms in re-

cent years that would have exceeded the stand-

ards used as the basis for designing equipment,

there have been gusts of wind that are strong-

er than usual, but they have not brought about

mass switchouts. This proves that the power grid

can successfully withstand wind as a result of the

systemic maintenance of the line routes, which

has significantly reduced the number of trees fall-

ing or being felled on the lines, which used to be

one of the main reasons of energy not served for

years. The area of land not cleared of trees in the

power line protection zones is only 180 ha. The

maintenance of protection zones requires con-

stant work, incl. regular inspections of lines and

protection zones.

Elering is transferring to risk and condition based

maintenance. In addition to manned inspections,

lines are also inspected automatically with a hel-

icopter equipped with a photo camera. The use

of drones in the future is also not ruled out. This

equipment allows us to see the condition of the

lines from angles that are not possible when the

lines are inspected from the ground.

Management Capacity

The reliability of the power system is guaranteed

if the power system operates within the permit-

ted limits of normal operation. In the case of the

power system, this means that:

• the frequency is either 50 Hz or the devia-

tion of the frequency from 50 Hz is mini-

mal;

• voltages and power flows within the per-

mitted limits;

• there are sufficient reserves of active and

reactive power to cope with disruptions

that may occur in the power system;

• the power system will operate within the

permitted limits of operational security

also after the occurrence of a disruption of

the highest impact.

In the case of the gas system, this means that:

• pressures and gas flows in the transmis-

sion pipeline are within the permitted lim-

its;

• there are sufficient cross-border transmis-

sion capacities to cover internal consump-

tion in Estonia and guarantee transit;

• the gas system will operate within the

permitted limits of operational security

also after the occurrence of a disruption of

the highest impact.

Ensuring the reliability of the energy system is or-

ganised by Elering’s control centre. Guaranteeing

reliability can basically be divided into two parts –

operative planning of the energy system and the

subsequent real-time management of the opera-

tion of the energy system. From a management

capacity perspective, successful completion of

these two steps ensures the necessary capacity

and reliability of the power system.

The task of operational planning is to carry out

a coordinated inspection of the permissibility of

the operation of the energy system, i.e. an analy-

sis of the operational reliability and, if necessary,

bring the planned operation within the permit-

ted limits and prepare plans and forecasts for the

stage of management of operation. Operation-

al planning proceeds from the requirements set

out in the Grid Code and the plans and forecasts

prepared in the course thereof must comply with

the reliability and security of supply requirements

set out in the Grid Code, ensure optimal losses

and allow for the maximum possible cross-border

transmission capacity. The operational planning

of the energy system is followed by the process

of real-time control of the operation, which takes

place 24 hours a day. The function of operational

management is to ensure the safe and reliable op-

eration of the energy system in real time. Opera-

tional management is the process that covers all

of the activities required for the real-time opera-

tion of the energy system in the case of normal,

disrupted and emergency operation as well as in

the case of the shut-off of the energy system and

the restoration of operation.

The management process is carried out by proper-

ly qualified dispatchers whose knowledge is regu-

larly checked and updated in emergency training.

The duties of the dispatchers include correction of

real-time deviations from the planned balancing

plan, ensuring quality energy supply to the cus-

tomers of the transmission network, control of

taking transmission network equipment to main-

tenance, operation and reserve, identification

and liquidation of the disrupted and faulty oper-

ation. The organisation of cooperation with cus-

tomers and informing the control centres of the

system administrators of neighbouring countries

and market participants of changes in cross-bor-

der transmission capacities is also their duty.

It’s necessary to ensure the 24-hour uninterrupt-

ed operation and constant improvement of the

relevant processes. The priority in 2021 was fur-

ther development and improvement of various IT

tools – the solution for real-time assessment of

the status of the power system in the technical

control system of the energy system, i.e. SCADA,

was perfected, the balance management soft-

ware was developed to improve data exchange

with market participants and neighbouring TSOs.

Improvement of the cyber security, reliability and

data quality of the technical control systems of

the energy system was also in focus. Several tests

were carried out in order to achieve this objective,

which included testing the functioning of the con-

trol systems in the event of various disturbances

in order to find possible weaknesses in them. In

order to prepare synchronisation with the conti-

nental Europe, a concept of the frequency control

area of the Baltic States was developed and dis-

cussed with market participants, which regulates

the principles of frequency control and acquisition

of reserves in the new situation.

Summarising 2021, it can be said that the opera-

tional planning and real-time management of the

energy system was organised in a manner that

made it possible to ensure the reliability of the

Estonian energy system as a whole at all times.

Digital capacity

Increasing digital capacity and growth of new

technologies

Electrification increases the role of electricity in

society and adds to the complexity of the system.

We are moving towards an energy system with

more participants, smart devices and data quan-

tities, and changes in the system take place fast-

er. Due to the volatile nature of renewable ener-

gy, more data move in a shorter timeframe and

more operations are performed to manage it. This

creates the need for automatic control functions

that humans cannot optimally manage on their

own without digital solutions in real time. As a re-

sult, there is a growing need for smart technolo-

gies to help power system operators manage the

electricity system in real time.

The digitalisation of the society and the energy

system leads to the situation where the share of

new technological solutions increases as a result

of the automation of business operations, which

in turn leads to an increase in data volumes. In-

creased data volumes bring the need to process

and analyse the data close to real time in order

to make the right management decisions for the

power system. In view of the future, management

decisions based on real-time data will be made

every day.

Digitisation also brings vulnerability, which is why

the high availability and cyber-centricity of Eler-

ing’s IT systems are important as a vital service.

In the coming years, the European Commission is

expected to implement cybersecurity standards

for electricity companies, including critical service

providers such as transmission networks. Cyber-

security network rules are currently being devel-

oped in European working groups.

The volume of Elering’s digital solutions has

grown significantly between 2010 and 2021. Data

volumes have also increased considerably. Look-

ing ahead, data volumes will continue to grow as

more and more smart devices transmit very large

volumes of data. As we keep moving towards re-

al-time decisions, smart devices that collect re-

al-time data will also help make the necessary

management decisions in real time.

OVERVIEW OF ECONOMIC

ACTIVITIES AND RESULTS IN 2021

Economic environment

Elering is an independent electricity and gas

transmission system operator in Estonia, which

main objective is to ensure the high quality energy

supply at any point of time.

The recovery from the recession experienced

from the pandemic situation in 2020 has been

remarkable, despite of the fact that the pandemic

situation has not disappeared nor in Estonia nor

in other part of the world. Still there have been

few restrictions compared to 2020 which helped

the growth of economy in 2021. Whilst the GDP

in 2020 was -3.0%, then according to the forecast

published by Ministry of Finance the GDP in 2021

is expected to reach 9.5%.

There is a contradictory situation in labour mar-

ket, whilst it is difficult to find qualified work-

force, the unemployment rate continues to be

high. The unemployment rate in 2021 was 6.2%

(in 2020 it was 6.8%). Increase in prices puts

the pressure on salary demand which also puts

a pressure on the company’s expenses. In 2020

the average salary increase was 2.9%, in the

third quarter in 2021, the salary increase reached

7.8% and it can be foreseen, that it continues

also in years to come.

The inflation in 2021 has been remarkable being

driven by the high electricity and fuel prices. In

December 2021 the inflation rate was 12.2%,

whilst the inflation rate in 2020 was negative of

0.4%. The trend of price increase continues having

an impact on salaries, energy costs incl network

losses but also to other services and investments.

Due to high stock exchange electricity prices, the

Government of the Republic of Estonia decided

to compensate electricity consumers for 50% of

the costs associated with the network service fee

in the period October 2021-March 2022. This has

no effect on Elering’s economic activities, as the

Environmental Investment Center pays Elering a

compensable part for end users. From October to

December, the Environmental Investment Center

paid 603.0 thousand euros of network fees, in-

cluding VAT, for customers.

COVID-19 has no significant impact on the Com-

pany’s operations.

In 2021 ongoing political tension in the region

escalated as a result of further developments of

the situation with Ukraine which have negatively

impacted commodity and financial markets, and

increased volatility, particularly with regard to

foreign exchange rates. Since December 2021, the

circumstances have been deteriorating and the

situation remains highly unstable.

There is increased volatility in the financial and

commodity markets. There is an expectation of

further sanctions and limitations on business

activity of companies operating in the region, as

well as consequences on the economy in general,

but the full nature and possible effects of these

are unknown.

Nature of economic activities

The economic activity of Elering is divided largely

in two:

a. Regulated power and gas network activi-

ties;

b. Non-regulated activities.

Regulated network activity consists of the trans-

mission of power and gas through the company’s

power and gas transmission networks. Network

activity is by far the most important in terms of

turnover, profitability and assets, as can be seen

from the graph below.

Network activities are regulated, which means

that the allowed network tariffs are approved by

the Competition Authority. The regulator assesses

whether the costs included in the network tariff

application are justified and allows a reasonable

return, which is calculated on the basis of the Capi-

tal Asset Pricing Model. The network tariffs consist

of the operating expenses, capital expenditure and

justified profitability for power and gas tariffs.

Operating profit is calculated as a multiple of the

regulated asset base and the weighted average

cost of capital (WACC).

The company has 27 power grid service clients and 9

gas network service clients in total (2020: 27 power

grid service clients and 11 gas network service cli-

ents). The majority, i.e. 91.6%, of the network ser-

vice revenue (2020: 89.9%) is received from clients

which are regulated distribution network operators

acting as natural monopolies. The biggest client in

terms of network service is Elektrilevi OÜ, whose

share in network service revenue is 75.0% (2020:

75.6%). Elektrilevi is a distribution network opera-

tor that is part of the Eesti Energia AS group, which

in turn is owned by the Republic of Estonia.

Elering’s non-regulated areas of activity mostly

consist of the provision of the electricity and gas

balancing service.

In order to ensure a stable frequency of electricity

in the power system, the system must be balanced,

i.e. generation must be equal to consumption at

any given time. For this purpose, all market partici-

pants also need to be in balance and most of them

buy their power balancing services from balance

responsible parties. Elering, in turn, provides the

power balancing service to the balance responsible

parties. There are 18 balance responsible parties to

whom Elering provides the service (2020: 15).

The principles of balancing the gas system are

generally similar to the principles of balancing the

2020

Operating revenues

2021

Regulated Non-regulated

20%

40%

60%

80%

100%

27%

73%

2019

34%

66%

47%

53%

Operating profit

2020

2021

12%

88%

2019

34%

66%

35%

65%

Total assets

2020

2021

32%

68%

2019

30%

70%

39%

61%

power system. The only difference is that the gas

system does not have to be balanced at all times.

When the consumption of gas is higher than the

inflow, the pressure in the system drops, and vice

versa. As a gas system operator, Elering’s task is

to keep the pressure within the permitted limits.

For this purpose, Elering buys and sells gas to bal-

ance responsible parties. The number of balance

2021 2020 2019 2018 2017

Sales revenue (mil €) 201.4 137.1 142.1 143.0 130.3

Other operating income (mil €) 6.7 5.3 13.1 1.9 1.6

Operating expenses (mil €) 199.1 109.8 113.4 113.9 98.8

Operating prot (mil €) 9.0 32.6 41.8 31.0 33.1

EBITDA (mil €) 54.6 72.7 78.7 65.7 67.6

Financial expenses net (mil €) 2.3 2.3 2.2 7.3 11.0

Income tax (mil €) 1.6 5.0 6.8 5.0 5.0

Net prot (mil €) 5.1 25.3 32.8 18.6 17.1

Operating prot margin 4.5% 23.8% 29.4% 21.7% 25.4%

EBITDA margin 27.1% 53.0% 55.4% 45.9% 51.9%

Net prot margin 2.5% 18.5% 23.1% 13.0% 13.1%

Return on equity 1.3% 6.5% 8.5% 5.1% 4.9%

Equity to assets ratio 32.3% 36.0% 37.9% 40.6% 38.3%

Net debt to EBITDA (mil €) 4.8 3.9 3.8 4.4 4.1

Investments (mil €) 78.8 85.0 129.8 125.0 32.2

Dividends (mil €) 10.0 25.6 29.4 20.0 20.0

EBITDA = Operating prot + depreciation

Return on equity = Net prot / average equity

Equity to assets ratio = Equity / Total assets

Net debt = Debt - cash and cash equivalents

responsible parties with whom balancing gas is

bought and sold is 11 (2020: 11).

The impact of the balancing service on the prof-

it of Elering is insignificant, as the price of the

balancing service is calculated in such a manner

that the revenue earned covers the expenses of

providing the service.

Economic performance

Key financial indicators

Revenues

Total revenue amounted to 208.1 million euros

(2020: 142.4 million euros). The most important

source of revenue was the sale of network ser-

vices, which comprised 54.9% or 110.7 million

euros (2020: 75.3% or 103.2 million euros) of sales

revenue. Revenue from power network service

comprised 81% and revenue from gas network

services comprised 19% of network services

(2020: 82% and 18%).

60-80% of the gas and electricity transmission

revenues are earned from October to March.

Both, the power grid and gas transmission reve-

nues increased in 2021. The electricity transmis-

sion revenues increased by 4.3% or 3.4 million eu-

ros and the gas transmission revenues increased

by 13.5%, i.e. 2.2 million euros. Whilst the average

temperature in 2020 was higher than normal,

then the temperature in 2021 was about average

being even lower than average by 0.3 degrees.

Revenue from the balancing and regulation ser-

vice increased by 195.8%, i.e. 54.4 million euros,

and amounted to 82.2 million euros (2020: 27.8

million euros). Balance service revenue increased

mainly because of the higher balancing energy

prices which increased by 42.8 million euros.

65.5% or 28.0 million euros of the increase derived

from the higher electricity price and 34.5% or 14.8

million euros were related to bigger volumes. The

increase of gas balancing services was also related

to increase in prices and volumes.

Expenses

Operating expenses amounted to 199.1 million eu-

ros (2020: 109.8 million euros). In relation to the

increase in sales of balancing services, we see a

similar increase in the balancing service purchas-

ing expenses as well, i.e. the balancing service

purchasing expenses were 204.2%, i.e. 54.4 mil-

lion euros higher (2020: 18.1% or 5.9 million euros

lower). Remarkable increase compared to 2020

was related to the significantly higher electricity

prices in 2021, which raised the network losses

expenses more than twice or 26.0 million euros

(in 2020 the expenses for energy network losses

decreased compared to 2019 by 28.0% or 4.8

million euros). Labor expenses increased by 2.3%

or 0.3 million euros in comparison with 2020 and

amounted to 11.2 million euros (2020: 14.8% or 1.4

million euros). The increase in salaries and wages

is related to the increase in number of employees.

Depreciation expenses have increased in relation

to additional significant investments by 13.5% or

5.4 million euros, amounting to 45.5 million euros

(2020: 8.7% or 3.2 million euros).

Operating profit for the financial year amounted

to 9.0 million euros (2020: 32.6 million euros).

Net financial expenses remained relatively stable

and amounted to 2.3 million euros (2020: 2.3

million euros).

Corporate income tax amounted to 1.6 million

euros (2020: 5.0 million euros).

Net profit for the financial year amounted to 5.1

million euros (2020: 25.3 million euros).

Investments

The company’s investments can be divided into

ordinary and cross-border investments.

Ordinary investments are made primarily in the

replacement of depreciated parts of the power

and gas networks. On average, replacement

investments amount to approximately 30 million

euros per year.

Million euros

Total invest-

ment <=2021 2021–2025 Investment

Estonian-Latvian third power

transmission line

82 80 2 2011-2021

Synchronisation 252 37 215 2018-2025

Estonian-Finnish gas

connection

139 137 2 2013-2023

Estonian-Latvian gas

connection

45 44 1 2015-2022

Polish-Lithuanian gas

connection GIPL

2 0 2 2022

EU Recovery and Resilience

Facility (RRF)

69 0 69 2022–2026

Total 589 300 289

Similarly to 2020, the keyword for 2021 is certainly

preparation for synchronisation with the Conti-

nental European frequency area. Investments in

synchronisation with Continental Europe will also

continue from 2022–2024.

In addition to ordinary investments, Elering

has initiated an intensive special investments

programme. These are investments in the con-

struction of cross-border energy networks. The

projected amounts of cross-border investments

are shown in the table below.

Million euros

2021 2020

Depreciable portion of long-term bank loans with average

interest rate 0.69% (2020: 0.7%)

10.6 10.6

Total short-term interest-bearing liabilities 10.6 10.6

Eurobonds with 0.875% coupon rate

Long-term bank loans with average effective interest rate of

0.69% (2020: 0.7%)

Total long-term interest-bearing liabilities 312.0 322.4

Total interest-bearing payables 322.6 333.0

Financing

The company financed its investments with

European Union funds as well as loans and bonds.

The company’s interest-bearing liabilities as at

the balance sheet date are as follows:

Elering has issued Eurobonds at the nominal value

of 225 million euros. The Eurobonds are listed on

the London Stock Exchange with a redemption

deadline of 3 May 2023 and a coupon rate of

0.875%.

The bank loans have been taken from the Euro-

pean Investment Bank and the Nordic Investment

Bank. The balances of these loans as at 31 Decem-

ber 2021 were 78.2 million euros and 19.7 million eu-

ros, respectively (2020: 85.4 million euros and 23.0

million euros). The loans taken from the European

Investment Bank and the Nordic Investment Bank

can both be amortised. The last repayment of the

loans taken from the European Investment Bank will

be made in 2033 and the loan taken from the Nordic

Investment Bank will be repaid in 2032. The repay-

ment schedule for debt obligations is as follows:

Eurobond

Loan repayment

2022 2023 2024 2025

50 000

100 000

150 000

200 000

250 000

2026

In addition to interest-bearing liabilities, Elering

also finances investments from sources that

do not involve any interest expenses. The main

source is the non-repayable aid received from the

European Union. Elering has entered into financ-

ing agreements with the EU INEA (Innovation and

Networks Executive Agency) for financing the

following projects:

Million euros

Total EU aid

received

Receipt of EU aid

<=2021

Receipt of EU aid

2022–2026

Total 445 223 222

The power

transmission line

connecting Estonia

and Latvia

Strengthening the

connection between

the gas networks of

Estonia and Latvia

The investments

required for

synchronisation

The sub-sea gas

pipeline connecting the

Estonian and Finnish

gas networks along

with the accompanying

infrastructure

Summary of expected EU aid for larger cross-border investments:

The other source of finance that does not bear

interest is congestion income. It occurs in the sit-

uations, when there is a price difference in differ-

ent price areas, the money collected by the stock

exchange is transferred to TSO-s. According to EU

regulation the congestion income can be used in

order to strengthen the cross-border connections

and reduce the congestion. Elering has collected

connection charges for 176.6 million euros by the

end of 2021, out of which 124.7 million euros is

not yet used (2020: 112.4 million euros, unused

70.8million euros).

The assets acquired with EU financing or from con-

gestion charges are not included in regulated asset

base which means that those are tariff neutral.

OUR ELERING ACTION

PLAN FOR INVOLVING AND

MOTIVATING EMPLOYEES

ur people and their knowledge and skills are

the biggest asset of Elering in the everyday

implementation of the mission and attainment

of the vision.

258 people worked at Elering as at the end of

2021 (2020: 240 people). The average length

of employment is a little over 12 years and the

average age of employees is 43 (2020: average

length of employment slightly more than 13

years and average age of employees was 43).

Around three-quarters of the employees are

men (2020: ¾ of the employees were men).

Elering is characterised by relatively low labour

turnover. In 2021 the voluntary low labour turno-

ver was a bit higher as a result of the situation

in the job market but also due to the pandemic

situation, reaching to 7.8% (2020: 2.4%). Low la-

bour turnover is a strategically important indica-

tor for maintaining the high level of competence

necessary for the main activities of Elering. To

maintain this level, it is important to engage in

good dialogue with employees to better unders-

tand their expectations and involve them in the

development of the organisation. The vast ma-

jority of our employees are university graduates,

and nearly half of Elering’s employees have a

Master’s or a doctoral degree.

Elering supports the integration of work and

studies and encourages its specialists to pursue

professional and personal development. Elering

offers flexible working arrangements and addi-

tional days of study leave to employees who are

acquiring an education or furthering their educa-

tion. In order to maintain Elering’s reputation

as an attractive employer in the energy sector

among students, the company awards Elering

scholarships and invites students to complete

their traineeships at Elering. Bachelor’s, Mas-

ter’s and doctoral students studying at Estonian

universities receive support to conduct research

on cutting-edge topics related to energy within

the scope of the scholarship programme. The

scholarship programme is also a part of Elering’s

activities in the development of an energy cent-

re of excellence. Students of sciences who have

acquired basic knowledge in their field of study

and want to work in the area of energy can par-

ticipate in the programme. Traineeship consists

of introductory seminars and trips to Elering’s

sites (substations, gas transmission and me-

tering stations). We will also include more IT

students in traineeships. Job-shadowing and

information classes at schools are also used to

introduce Elering to school and university stu-

dents. Human resources management and per-

sonnel-related activities at Elering are guided by

the human resources management policy of Ele-

ring, which focuses on the following key points:

a unified company and a strong reputation as an

employer, an inclusive management culture and

systematic talent management.

The commitment of employees is important to

Elering; therefore, we have set this value as one

of the strategic goals of Elering. We carry out

an employee commitment survey once a year,

where we study the interaction of the compo-

nents of the index with overall satisfaction. The

components of the index are four questions that

measure employee satisfaction, loyalty and, of

course, commitment.

The Meie Elering (Our Elering) steering group

has been formed for the development and coor-

dination of the follow-up activities of the sur-

vey. The steering group of Our Elering prepares

the Our Elering action plan on the basis of the

feedback, which is aimed at the preservation

and development of the strengths of Elering as

an employer to ensure that the commitment in-

dex of Elering’s people exceeds 70% and to work

on the solution of the problems that prevent the

commitment and satisfaction of Elering’s peop-

le. The result of the commitment survey carried

out at the end of 2021 was 81% (2020: 87%).

In order to create better synergy between va-

rious activities and implement area-specific

policies, we have created permanent steering

groups within Elering’s structure, which include

specialists and managers from different struc-

tural units of Elering that enable the company

to create synergy between various topics and

provide broader perspectives and challenges for

employees. Cooperation within and between

teams is also promoted with team-to-team

cooperation events. Elering has a long tradition

of cooperation and joint activities for the purpo-

ses of developing and maintaining a unified en-

terprise and cultivating team spirit. This allows

new and experienced, younger and older Elering

employees to establish good contact by sharing

their experiences and learning from one another.

The company’s annual joint events, such as the

annual seminar, sports day, the summer seminar

and the celebration of the establishment of a

combined system operator in autumn, have all

become great traditions. An event organisation

team has been created to better organise events

and guarantee that employees are valued, which

is responsible for organising the internal events

of Elering.

We support a healthy lifestyle; therefore, in

addition to the exercise benefit, we hold various

sporting events and weekly exercise sessions

with instruction at the office. Compulsory

health checks are carried out every two years

and employees aged 40+ can undergo an exerci-

se stress test.

117 new employees have joined Elering over the

last five years. It is important to us that the

organisation of induction and development ac-

tivities in our company is well thought through

in order to help new employees join the company

more smoothly. The duration of the induction

programme is approximately 1.5 months. In the

course of the programme, new employees meet

with representatives of structural units and get

an overview of the company’s fields of activity

and the work of different units, corporate va-

lues, culture and Elering’s role and responsibility

in society. Mentoring and supervision are part of

corporate culture. In addition to training aimed

at creating and maintaining professional com-

petence, we provide other training courses for

general competencies that range from modern

machine-learning techniques and artificial in-

telligence to time management methodologies.

The focus is on combining IT and energy com-

petencies and exchanging knowhow within the

company. In order to better distribute knowled-

ge in the organisation, we have launched a series

of seminar Fridays, where internal and external

speakers introduce current or interesting topics

in their field.

The talent programme of Elering Academy is ai-

med at specialists of Elering who want to expand

their knowledge and contribute to and participa-

te in the topics concerning the future of Elering

and the Estonian energy system and have the

motivation and readiness to act as leaders of

changes in Elering. In order to support the de-

velopment of our managers, we prepared the

good corporate governance practices of Elering

with our managers and offered management

training. We are constantly striving to improve

the work environment by gathering ideas and

needs on a regular basis as well as through bian-

nual collaborative discussions. The company has

created all necessary conditions for people with

special needs to be able to work in the same

work environment (lifts, comfortable entry into

rooms). Spacious, light and modern workplaces

with a good inner climate have been created

for all office employees. Employees working on

transmission lines wear specific clothing and

have comfortable auxiliary rooms for showering,

dressing and drying their clothes. It is possible

to use quiet and private workspaces and ergo-

nomic tables and chairs in the office.

ELERING AND CORPORATE

SOCIAL RESPONSIBILITY

sustainable approach whereby the impact of

our activities on the society and the environ-

ment is as small as possible has been important

to Elering for a long time. When Elering partici-

pated in the assessment of CSR (corporate social

responsibility) for the first time in 2019, we were

awarded the golden badge of corporate social

responsibility, which is valid for two years, in the

CRS index organised by the CSR Forum. This high-

lights our desire to contribute more to corporate

social responsibility than required by law. In 2021,

we also participated in the index and maintained

the golden level. We will continue to work towards

an increase in the positive impact and a reduction

in the negative impact.

In order to share and gain experience of a

sustainable mindset, we joined the agree-

ment on voluntary social and environmental

liability of companies and foundations with

state participation initiated by the Ministry

of Economic Affairs and Communications

in 2019, the objective of which is to make

the Estonian business environment more

responsible and sustainable.

In autumn 2020, we became a member of

the CSR Forum in order to guide the issues

of corporate social responsibility in greater

detail, pursue closer cooperation with com-

panies in the sector and bring added value to

employees, partners and society.

The world keeps moving towards supporting

companies that are part of ethical business

– businesses whose activities do not pollute

the environment and cause climate warm-

ing, who adhere to labour and human rights

and do not engage in bribery and corruption.

However, we cannot stand still, but have to

work every day to ensure that the impact of

our activities is the best considering the sit-

uation, technologies and possibilities. In our

everyday activities in Elering, we contribute

to the achievement of the UN sustainable

development goals.

We work on guaranteeing access to afforda-

ble, reliable, sustainable and modern energy.

We believe that energy, which is the cheapest

socio-economically, can only be ensured by an

efficiently functioning regional energy mar-

ket, which is based on a reliable and smart

energy network. Our vision is to ensure the

security of supply in a climate neutral manner

and with the support of digital tools.

In Elering, we think along and contribute to

the achievement of the European climate

goals. We are the leaders in making power

and gas systems climate neutral. Assessing

the impact of the company’s activities on dif-

ferent fields, increasing the positive impact of

our activities and reducing the potential neg-

ative impact on the surrounding environment

is important to us.

Elering has developed climate policy princi-

ples and we have also mapped Elering’s car-

bon footprint and developed a plan to reduce

it. As a company, we’ve set ourselves a goal

in reducing the carbon footprint that is more

ambitious than the goal of the EU: we want

to make Elering climate neutral by 2030. This

will also allow our clients to achieve climate

neutrality sooner, as the transport of power

and energy to the end customer has a major

impact on the footprint of all the products

and services offered in society.

ESG action plan

Elering’s ESG (environmental, social, govern-

ance) topics are closely integrated into the

company’s strategy, which includes five key

strategic objectives with metrics and targets.

Elering prepares an annual action plan, or

ESG plan for the management of corporate

social responsibility issues. In the plan for

2021, activities were divided into three larger

groups, covering the environmental impact,

social impact and the impact of governance,

i.e. the three larger dimensions, which play an

important role in responsible and sustainable

governance. The action plan highlights the

most important activities for the develop-

ment of sustainable entrepreneurship, which

we plan to carry out in the coming year.

Elering’s supervisory board, as the company’s

highest governance level, also approved the

ESG Action Plan 2021 as part of the 2021 budget.

Under the environmental dimension, the ESG

action plan of Elering gives special attention

to the aspects of the climate policy, renewa-

ble energy, recovery of the environment, haz-

ardous waste, impact and visual impact of the

lines. The dimension of social impact covers

activities in the field of education, landown-

ers, clients, community, associated groups,

employees, contractors and data protection.

The dimension of governance focuses on the

inclusion and satisfaction of employees and

transparency.

Environmental Impact

Elering follows the principles of conserva-

tion and restoration of the environment

when implementing its objectives. We

took the overhead lines Veskimetsa-Volta

and Veskimetsa-Kopli, Harku-Veskimetsa,

Harku-Kadaka and Veskimetsa-Kadaka

trajectories, whose lifecycles have ended,

to underground cables in 2021 within the

scope of the Cities to Cables project so that

Environment Social dimension Management

Restoration of the environment Employees Inclusion and satisfaction

Impact of lines Education Transparency

Visual impact of lines Contractors Data protection

Renewable energy Customers Cybersecurity

Climate policy Community

Hazardous waste Stakeholder groups

Green office

overhead lines and pylons will disappear

from the urban space and the city can use

the empty line corridors for initiatives that

improve the living environment of the cit-

izens. We also started work on taking the

Volta-Paljassaare and Kopli-Paljassaare

lines underground. The replacement of over-

head lines is part of a major Elering project

that will see the densely populated areas

of Tallinn freed of ageing transmission grid

overhead lines. The work to bring overhead

power lines underground includes the full

restoration of landscaping and additional

tree and shrub planting.

The general principle of Elering is to consid-

er the possible impact of all investments

on wildlife and the ecosystem of the given

area, which is why we monitor birds, for

example, and mark the overhead lines with

bird markets if necessary. The decision we

made about the overhead line located on

the Väike Strait dam was to move it to a

submarine cable, as we did with the first

overhead line in 2020. In 2021, we added the

second submarine cable of the Väike Strait

to the company’s investment budget. The

overhead line remaining on the dam can be

removed from the bird migration route after

the installation of the cable, so that it does

not endanger them in any way.

In 2021, we made preparations for the erec-

tion of the next Elering designer high-voltage

mast on the Baltic-Tartu overhead line as

part of the Continental European frequency

area synchronisation project. The new mast

Sookurg, based on the first designer mast

Soorebase, will be erected in 2022 on the

outskirts of Tartu. The objective of Elering’s

designer masts is to fit the technical power

line into the natural environment and to raise

awareness of the role of the electricity system

in modern society.

Activities at substations

EThe biggest environmental hazards where

Elering’s substations are concerned are oil that

can leak from transformers, chemicals and haz-

ardous waste (mainly batteries). Potential envi-

ronmental hazards may also arise from the sub-

station transformers when taking oil samples

and electrolyte samples from battery packs,

wherein small amounts of hazardous sub-

stances may be released into the environment.

The oil collection systems of transformers were

renovated and new oil traps were installed at

Sõmerpalu and Kanepi substations during the

reconstruction of substations in 2021 in order

to reduce the potential environmental impact.

The equipment of working substations may

cause noise that disturbs the surroundings.

The noise caused by substation equipment was

also measured at Endla, Kilingi-Nõmme and

Tartu substations in 2021. The measurements

indicated that no thresholds were exceeded

and there is no need to take extra measures in

order to limit the spread of noise.

Activities on lines

During the reconstruction of the Baltic-Tartu

line, we dismantled and decommissioned 133

km of overhead lines in 2021, during which

we decommissioned 333 towers, more than

800 running kilometres of conductors, more

than 260 running kilometres of lightning

protection cables and 333 towers worth of

concrete foundations, as well as dismantling

and decommissioning 220 kV overhead lines

taken out of service and 110 kV overhead lines

replaced by underground cables.

On the 220 kV Püssi-Kiisa overhead line, we

dismantled and decommissioned 30 km of

overhead line in 2021, decommissioning 92

towers, more than 90 running kilometres

of conductors, more than nine running kilo-

metres of lightning protection cables and 56

towers worth of concrete foundations.

On the 110 kV overhead lines of Kada-

ka-Veskimetsa, Veskimetsa-Volta, Veskimet-

sa-Kopli, Harku-Veskimetsa and after the

replacement of Harku-Kadaka with cables,

we dismantled and decommissioned 18 km

of overhead lines in 2021, during which we

decommissioned 51 towers, more than 53

running kilometres of conductors, more than

18 running kilometres of lightning protection

cables/optics. During the renovation and

maintenance of lines, we also dismantled and

decommissioned 31 towers and 33 running

kilometres of lightning protection cables

Activities in the gas network

We made several investments in the gas

transmission network in 2021, which increased

the safety of the gas network and improved

the overall condition of the environment. We

replaced the boilers of the heating systems

of Saku, Veriora and Põlva gas distribution

stations with the more economical natural

gas boilers that operate according to the con-

densation principle.

We replaced or renovated a total of 2,047

metres of depreciated gas pipes. We built

the remote control system of the Salla and

Ühendussõlme pipeline valve stations, which

guarantees the faster and safer operation of

gas pipelines and loses the need to drive to

the site for making switches, which reduces

our environmental impact. We also built

a unit for inside diagnostics in the DN500

pipeline between Haljala and Tallinn at Ühen-

dussõlme which, when put into operation,

will allow us to examine the condition of this

section of the pipeline with great precision

and carry out preventive repairs, which will

significantly increase the safety of the pipe-

line for the environment. Internal diagnostics

of four pipelines – Irboska-Tartu, Tartu-Rak-

vere, Kiili-Paldiski and Paldiski-Inkoo – were

also carried out. The diagnostics give us very

accurate information on the condition of the

pipelines, and based on this, we have planned

safety-enhancing, or preventive, repairs on

the Irboska-Tartu-Rakvere pipeline in 2022

and 2023.

We also replaced 12 cathodic stations on

pipelines with remotely controlled ones,

which ensure low corrosion levels in the

pipelines and also lower energy consump-

tion. The need to drive to the site every

month for the performance of the necessary

regulations disappeared when controlling

the cathodic stations remotely became

possible, which also reduces the use of car

transport for monitoring.

Since the work on Elering’s transmission

lines is carried out by subcontractors, it is

very important to Elering that the subcon-

tractors are fully aware of potential envi-

ronmental risks. One of the most important

training topics is environmental safety

– avoiding forest fires, avoiding creating

life-threatening situations for humans and

animals, not felling trees on the transmis-

sion lines and properly maintaining equip-

ment. Elering ensures continuous training

and supervision for people carrying out the

work on a scale larger than the requirements

actually prescribe. Last year, seven safety

training sessions were held for workers and

employees.

The quantity of steel and concrete waste

generated by the renewal and replacement

of lines and pipelines generates the biggest.

The subcontractors carrying out this work

divert the waste and materials generated

into recycling. Elering monitors that waste

management at the site complies with re-

quirements.

Continuous and proper maintenance of the

equipment is the basis for reducing some of

Elering’s main environmental impacts, as

there is a smaller risk of leaks when the equip-

ment is in working order. During maintenance,

we mitigate potential environmental risks and

reduce our impact on the environment – for

example, when servicing equipment that uses

environmentally hazardous SF6 gas, the gas is

pumped out and properly disposed of. In 2021,

we carried out a review of the process for the

management and disposal of hazardous waste

(SF6 gas, oil, batteries) and identified areas for

improvement. We also mapped out improve-

ment opportunities in the area of transformer

oil traps and are taking them forward.

In the maintenance of line protection zones,

we prefer milling woody vegetation to work

where the cuttings are left behind as an

even layer. Last year, we maintained around

1600 hectares in this way. Milling from the

surface of protection zones gives a tidier

appearance to the land under lines and, in

turn, reduces the risk of fires caused by the

storage of cuttings and increases landown-

er satisfaction. It also increases the scrub

cutting interval – while the average cutting

interval for scrub is three to five years, with

milled soil it increases to four to six years,

depending on soil type.

In terms of digital solutions related to re-

newable energy, we continued developing

the renewable energy portal in 2021 which,

when completed, will allow every electricity

consumer to track the amount of renewable

energy consumed, compare it with the aver-

age Estonian consumer and their supplier’s

portfolio, and thus help businesses and in-

dividuals to act more responsibly.

We also started working with TSOs in Den-

mark and Germany to develop the concept

of real-time certificates of origin for renew-

able energy.

JAt Elering’s offices, we follow the principles

of circular economy – we sort our waste, use

rainwater in the flush tanks of toilets, and

generate about a fifth of the electricity con-

sumed in the office with solar panels on site.

In the summer months, we carried out a cam-

paign among staff to reduce the use of paper.

Last year, we switched to fair trade products

in terms of the coffee we offer to staff in the

office.

We also piloted electric cars as general-use

vehicles for employees for work trips, as the

future trend is to replace general-use cars

with cars powered by renewable energy.

Research and development

We contribute one percent of our turnover

to research and development as expected

by Elering’s owner. The objective of the R&D

projects is to contribute to the achievement

of Elering’s strategic goals in order to ensure

security of supply in a climate-neutral man-

ner, by supporting the competitiveness of

the Estonian economy.

In 2021, several studies were carried out in

order to support the connection of the Bal-

tic States to the Continental European fre-

quency area and the creation of new reserve

markets. The possibilities of procuring high-

speed frequency reserves and sharing them

within the Baltic States and the capacity of

synchronous compensators to increase the

stability of the power system were studied.

Studies and analyses on these topics will

continue in 2022.

Achieving the climate objectives set by the

European Union and its Member States will

mean major changes in the energy system,

which will also affect Elering’s work directly.

In order to assess possible developments in

the gas system, a study on the transition of

gas consumption to clean energy was carried

out in 2021, forecasting Estonia’s national

pipeline gas consumption until 2050 and

assessing the possibility to replace fossil

natural gas with other energy sources. In

2022, we are updating our electricity con-

sumption forecast for Estonia, which takes

into account the increase of energy efficien-

cy in the transport sector, heating and build-

ings management, emission reductions and

possible electrification. The results of these

studies will be used in the preparation of

network development plans and in analyses

of system adequacy.

Making the entire energy sector climate-neu-

tral and reducing carbon emissions will proba-

bly require the introduction of hydrogen as an

energy carrier. Hydrogen could be used to re-

place fossil fuels in uses where electrification is

not possible, or would be too costly. Hydrogen,

or its compounds, would also allow long-term

storage of renewable energy, contributing to

security of supply. Elering is evaluating the

possibilities for hydrogen transmission from

two angles. Firstly, allowing a limited amount

of hydrogen into the existing gas system – in

2021, a project plan was commissioned with

the Baltic and Finnish gas system operators,

listing the necessary activities and studies to

assess the suitability of the gas system and

its components for hydrogen transfer. The

studies listed in the project plan will be car-

ried out in the coming years. Secondly, in early

2021, Elering joined the European Hydrogen

Backbone, which includes assessing the need

and possibilities for the establishment of a

pan-European clean hydrogen transmission

infrastructure.

Social impact

Last year, we implemented the Our Elering

action plan resulting from the employee

satisfaction survey, which includes activi-

ties to implement the development needs

resulting from the survey. Regular seminar

Fridays were organised for the staff with

in-house and external speakers to introduce

and discuss important topics at Elering as

planned.

Within the scope of the ESG activities,

Elering has assumed the responsibility of

disseminating energy-related information

in society, whereby an annual safety infor-

mation campaign for operating safely in the

vicinity of lines is carried out to raise aware-

ness and reduce the number of accidents.

For Elering’s own employees, it is important

to ensure complete awareness of equipment

safety through proper maintenance – all main-

tenance workers are trained on general safety

issues 2-3 times a year, and additionally, more

specific topics such as the maintenance of

power transmission lines and gas transmission

lines are addressed in smaller groups.

In the field of biomethane, we have been

running a biomethane awareness campaign

for several consecutive years. We also organ-

ise public security of supply conferences and

webinars, and other public conferences and

webinars as necessary.

Elering supports the next generation in the

field of energy and information technology.

Elering employees give lectures at universi-

ties and also introduce the functioning of

the energy system to students in schools.

There are also regular student excursions

to Elering’s sites, which were unfortunately

hampered by the COVID-19 restrictions last

year, but which we will certainly continue in

accordance with the current restrictions.

Elering contributes at least one percent of

its annual sales revenue to research and de-

velopment every year. Last year, we joined

the 2% club of the Estonian Employers

Confederation, which brings together com-

panies that invest 2% or a million euros of

their turnover in research and development.

We also developed our cooperation with

TalTech in the field of research and devel-

opment in order to increase Estonia’s elec-

tricity and gas expertise at Elering, TalTech

and, from there, in the students studying

at TalTech. The cooperation is framed by a

cooperation agreement, the discussions for

which we finalised last year.

In cooperation with the TalTech Develop-

ment Fund, we gave three Future Energy

System scholarships and two Smart Energy

System scholarships to bachelor’s, master’s

and doctoral studies in 2021. The scholarship

was worth €1,000 at bachelor level, €2,000

at master level and €3,000 at doctoral level.

In the interests of landowners, we will con-

tinue to use free-standing masts without

pullers on arable land to build new lines,

which take up the minimum area of land

and allow better farming. This is also the

case for the reconstruction of the lines from

Eastern Estonia to Southern Estonia in rela-

tion to the synchronisation with the Conti-

nental European frequency area, where work

started in 2021. As part of our network opti-

misation and synchronisation programmes,

we will concentrate lines on shared masts

to reduce line corridors and thus the burden

on landowners. The new lines will be safer,

quieter and more modern. By disconnecting

from the Russian frequency area by the

beginning of 2026, we will free up a total of

almost 400 kilometres of line routes, which

can be used without restriction, for example

as agricultural or forest land, once the area

has been cleared.

One of Elering’s strategic goals is custom-

er satisfaction and a satisfaction survey is

conducted annually.

Corporate governance

ESG is an important focus for Elering’s

management, as a result of which an ESG

working group consisting of nine employees,

including a member of the management

board and four executives, was set up to

monitor the implementation of the ESG ac-

tion plan and to integrate ESG issues more

deeply into Elering’s core activities. The ESG

working group prepares and monitors the

implementation of the company’s ESG ac-

tion plan, formulates Elering’s principles for

responsible operation, works on integrating

ESG issues into the corporate culture, par-

ticipates in filling in the questionnaire in the

CSR index.

In addition to the ESG working group, the

company has nine steering groups, whose

areas of expertise are closely related to ESG

issues, as are Elering’s activities in general.

The steering groups work on customer poli-

cy, connection development, climate policy,

energy market development, research and

development, digitalisation and synchro-

nisation. Our Elering and Balticconnector

working groups are also active.

In order to bring the concept and field of ESG

closer to the employees and to broaden the

understanding of the responsible nature of

Elering’s operations, we conducted an ESG

workshop at the summer seminar, which

introduced the ESG working group, the ESG

action plan and its preparation, and partici-

pation in the CSR index.

We implemented the COVID-19 Virus Risk

Reduction Action Plan and kept it updated,

and the company follows it to do all it can to

protect the health and lives of its stuff dur-

ing this new crisis. The action plan includes

three levels – corporate, office and individ-

ual. The action plan is regularly reviewed

and updated at management board level,

indicating the current safety levels of the

company and its offices.

Based on the ESG action plan, an anti-cor-

ruption policy was established and approved

by the Elering supervisory board. Elering’s

Code of Ethics also includes principles

against corruption.

In the field of data protection, Elering car-

ries out personal data processing training

for its employees at least once a year, which

was also done last year. We also created and

added a separate menu item on the intranet

for staff on the processing of personal data,

which contains forms and instructions for

staff to use in their work, the personal data

processing policy with its annexes, training

materials (including video training) and the

possibility for all staff to send questions

directly to the DPO, which are published

anonymously in the Q&A section.

In the area of cyber security, a pilot project

was carried out last year to implement a

mobile device management and security

solution to ensure secure access to Elering’s

resources from mobile devices. We also car-

ried out a procurement for the introduction

of incident events management software

in order to improve the capacity of security

monitoring and responding to incidents.

CORPORATE GOVERNANCE

General Meeting of

Shareholders 100%

Estonia

Audit

Committee

Internal

Auditor

External

Auditor

Supervisory

board

Management

Board

he corporate governance of Elering is based on

the Commercial Code, the State Assets Act,

the articles of association of Elering and the Cor-

porate Governance Code prepared by the Financial

Supervision Authority and the OMX Tallinn Stock

Exchange.

Elering is committed to following the Corporate

Governance Code and wishes to grow further

in this area. We consider this a prerequisite to

achieving our strategic goals and shaping our

organisational culture. The Corporate Governance

Code has been implemented in Elering in such

a manner that all employees work towards the

achievement of the company’s goals. A detailed

report regarding compliance with the CGC in 2021

is accessible on Elering’s website: elering.ee/en/

investors#tab2.

CORPORATE GOVERNANCE STRUCTURE

General Meeting of Shareholders

The general meeting is the highest managing

body of Elering. The general meeting is com-

petent to amend the articles of association;

increase and decrease share capital; elect and

remove members of the Supervisory Board; elect

auditors; designate a special audit; approve the

annual report and distribute profit; and decide

on the merger, division, transformation and/or

dissolution of the company as well as and decide

on other issues placed in the competence of the

general meeting by law and the articles of asso-

ciation. In addition to the Commercial Code, the

general meeting follows in its activities (calling

a meeting, information to be disclosed, etc.) the

State Assets Act.

The owner is represented at the general meeting

by the Minister of Economic Affairs and Infrastruc-

ture, who was Taavi Aas in 2021. The decisions are

taken during the called meeting or without calling

the general meeting of shareholders.

One general meeting was held during the year on

14 May 2021, which approved the annual report

and the distribution of profit for 2020. Also the

decision was made without calling the general

meeting of shareholders during which the dis-

tribution of profit decided on 14 May 2021 was

revised.

Supervisory Board

The owner’s interests in the company are guaran-

teed by members of the supervisory board. The

supervisory board issues guidelines for the man-

agement board of the company and supervises the

activities of the company’s management board.

The supervisory board regularly reviews and eval-

uates the company’s strategy, main activities, risk

assessments, the annual report and the budget.

In accordance with the articles of association, the

meetings of the supervisory board are held when

necessary but no less frequently than once every

three months.

Supervisory Board Membership and Remuneration

The Supervisory Board consists of three to five

members. The number of members of the Super-

visory Board is decided and the Members of the

Supervisory Board are elected and removed by

the representative of the owner, i.e. the Minister

of Economic Affairs and Infrastructure, on the

basis of recommendations made by an independ-

ent Remuneration Committee. The work of the

Supervisory Board is organised by the Chairman

of the Supervisory Board. The Chairman of the

Supervisory Board sets the agenda for Superviso-

ry Board meetings, chairs the meetings, observes

the efficiency of the work of the Supervisory

Board, organises the operational communication

of data to members of the Supervisory Board,

ensures that the Supervisory Board has enough

time for preparing resolutions and examining data

and represents the Supervisory Board in commu-

nication with the Management Board of Elering.

In order to organise the work of the Supervisory

Board, the General Meeting has established a

work procedure for the Supervisory Board.

Four annual and five electronic meetings were held

in 2021. The supervisory board approved the annual

report for 2020 before submitting it to the annual

general meeting of shareholders for approval and

approved Elering’s strategy for 2022-2026 and

the 2022 business and investment budgets. At its

meetings, the supervisory board usually addresses

issues arising from regulations and laws, financial

issues, internal control and other important issues

concerning the main activity of Elering.

In 2021, the supervisory board of Elering had the

following members:

• Timo Kyösti Rajala (entrepreneur), chair-

man of the supervisory board from 14 June

2017. The mandate is valid until 22 May

2022. Timo Rajala attended four regular

meetings and participated in five elec-

tronic votes.

• Timo Tatar (Deputy Secretary General for

Energy and Mineral Resources, Ministry

of Economic Affairs and Communications)

from 26 March 2012. The mandate is valid

until 22 May 2023. Timo Tatar attended

four regular meetings and participated in

five electronic votes.

• Indrek Kasela (entrepreneur) from 21

August 2016. The mandate is valid until

22 May 2023. Indrek Kasela attended four

regular meetings and participated in four

electronic votes.

• Tarmo Porgand (Deputy Head of the State

Assets Department, Ministry of Finance)

from 22 May 2017. The mandate is valid

until 7 March 2022. Tarmo Porgand at-

tended four regular meetings and partic-

ipated in five electronic votes.

• Janek Stalmeister (entrepreneur) from

22 May 2020. The mandate is valid until

22 May 2023. Janek Stalmeister attended

four regular meetings and participated in

five electronic votes.

Member of the Supervisory

Board

Remuneration in 2021

(thousand euros)

Remuneration in 2020

(thousand euros)

Timo Rajala 18.0 18.0

Timo Tatar 9.0 9.0

Indrek Kasela 9.0 9.0

Tarmo Porgand 9.0 9.0

Janek Stalmeister 9.0 6.0

Toomas Põld 0.0 3.8

There is no provision for the payment of severance

benefits or other benefits to members of the su-

pervisory board. Toomas Põld left the supervisory

board in 2020 and Janek Stalmeister was elected a

new member of the supervisory board. The man-

date is valid until 22 May 2023.

Members of the supervisory board must meet

the requirements prescribed for members of a

supervisory board in the Commercial Code and the

State Assets Act and comply with the obligations

imposed on the members.

Management Board

The Management Board is a managing body of

Elering that represents and manages the everyday

activities of the company in accordance with the

requirements of law and the articles of associa-

tion of the company and organises the accounting

of the company. Elering’s Management Board has

full discretion, and day-to-day management de-

cisions are made independently of the owner and

the supervisory board. The Management Board

needs approval from the Supervisory Board for

transactions and operations that go beyond the

day-to-day economic activities of the company.

The Management Board must ensure that the

members of the Supervisory Board are adequate-

ly informed about the economic situation of the

company and the most important circumstances

with regard to the economic activity and inform

the Supervisory Board of the most important cir-

cumstances with regard to the economic activity,

as necessary.

The remuneration paid to Supervisory Board members in 2021 were as follows:

Composition and remuneration

of the Management Board

In accordance with the articles of association,

the Management Board may have one to three

members. A member of the Management Board

is elected by the Supervisory Board for up to five

years. According to Elering’s articles of associ-

ation, the company may be represented in all

legally binding acts jointly by two members of

the Management Board or independently by the

Chairman of the Management Board.

A person authorised by the supervisory board

concludes contracts with members of the man-

agement board, which set out more precisely the

rights and obligations of the management board

member with regard to the company and specify

the member’s remuneration.

Throughout 2021, the management board of Eler-

ing consisted of three members:

• Taavi Veskimägi as the chairman of the

Management Board performs, among

other things, the daily responsibilities of

Elering’s CEO, i.e. manages and represents

the company, ensures that activities are

in compliance with contracts and relevant

laws, organises the work of the manage-

ment board, coordinates the development

of the company’s strategy and leads its

implementation;

• Riina Käi, member of the Management

Board who also performs the role of the

CFO, manages Elering’s financial activi-

ties, the area of renewable energy and the

areas of administration and information

technology;

• Kalle Kilk as a member of the Management

Board performs, among other things, the

daily tasks of the head of asset manage-

ment.

According to the articles of association, a member

of the Management Board may be remunerated

only on the basis of a Management Board member

contract previously concluded with the member.

A member of the Management Board may also be

paid additional remuneration, taking into consid-

eration their performance, of up to four months’

regular remuneration. A bonus can be paid to a

member of the Management Board on the basis of

annual results, or on a different basis, based on a

Supervisory Board decision. The remuneration of

the members of the Management Board is fixed

and is stipulated in the contract concluded with

the Management Board member. Elering has no

long-term bonus schemes in place. A member of

the Management Board may only be paid sever-

ance benefits upon their removal at the initiative

of the Supervisory Board before the term of their

authority has expired in the amount of up to three

months’ remuneration.

Taavi Veskimägi Riina Käi Kalle Kilk

The mandates for Management Board members

are as follows:

Taavi Veskimägi mandate is valid until 30 Novem-

ber 2024

Kalle Kilk mandate is valid until 31 December 2024

Riina Käi mandate is valid until 31 December 2024

Prevention of conflicts of interest

Members of the Management Board do not make

decisions based on their personal interests and do

not use the business offers directed at Elering in

their personal interests. A member of the Man-

agement Board notifies the Supervisory Board

and other members of the Management Board of

any conflicts of interest prior to the conclusion of

their contract and without delay upon its subse-

quent occurrence. A member of the Management

Board promptly informs other members of the

Management Board and the Chairman of the Su-

pervisory Board of any business offers related to

the company’s economic activities directed at the

member of the Management Board, their relatives

or other related persons.

The requirement to avoid any conflicts of interest

is stipulated in the contract concluded with the

member of the Management Board.

A member of the Management Board avoids any

conflicts of interest arising between the interests

of the company and the member of the Manage-

ment Board and informs the Elering Supervisory

Board of its direct or indirect interest in the trans-

actions carried out by the company and immedi-

ately informs the Supervisory Board if a conflict

of interest occurs or if a situation occurs in which

such a conflict may arise. The Supervisory Board

decides on the conduct of transactions with a

member of the Management Board or the conduct

of transactions involving the personal interest

of a member of the Management Board and also

specifies the terms of such transactions.

Members of the Management Board must de-

clare any related parties, and the amounts of

transactions executed with said related parties

are disclosed in the annual report. Elering did not

conclude any transactions with members of the

Management Board or the parties related to them

in 2021 (no transactions were concluded with

members of the Management Board or the parties

related to them in 2020).

Audit Committee

The Supervisory Board elects the Audit Com-

mittee, which has up to five members and is

responsible for exercising supervision over risk

The remuneration paid to Management Board members in 2021 were as follows:

Member of the Management

Board

Total remuneration in 2021

(thousand euros)

Total remuneration in 2020

(thousand euros)

Taavi Veskimägi 170.5 161.7

Kalle Kilk 127.1 120.8

Riina Käi 125.4 98.4

management, internal control and financial re-

porting. The Audit Committee advises the Super-

visory Board in the area of accounting, financial

reporting, verification of the independence of the

sworn auditor, risk management, internal control

and audit, exercising supervision and preparation

of the budget as well as the legality of activities.

Members of the committee are elected for a term

of three years and the members elect a chairman

from among themselves who organises the ac-

tivities of the Audit Committee. The Chairman of

the Supervisory Board may not hold the position

of the Chairman of the Audit Committee.

The members of the Audit Committee in 2021

were:

• Timo Tatar (Deputy Secretary General for

Energy and Mineral Resources, Ministry of

Economic Affairs and Communications);

• Indrek Kasela (entrepreneur);

• Tarmo Porgand (Deputy Head of the State

Assets Department, Ministry of Finance);

• Janek Stalmeister (entrepreneur).

The Audit Committee held five meetings in 2021:

on 15 March, 8 June, 16 June (electronic), 15 Sep-

tember and 14 December (four times in 2020). The

Audit Committee discussed the following internal

audits that were carried out: IT service request

and incident management organisation; gas bal-

ancing management; management of renewables

administration, overview of risk management

process. In addition the audit plan was reviewed,

the work of external auditor was reviewed, the

topics of internal control and financial reporting

were analysed. The internal audit service is out-

sourced from the external service provider. The

internal auditor was paid 29.7 thousand euros for

their services in 2021 (2020: 30.1 thousand euros).

Member of the Audit

Committee

Total remuneration in 2021

(thousand euros)

Total remuneration in 2020

(thousand euros)

Timo Tatar 1.4 1.1

Indrek Kasela 0.8 0.8

Tarmo Porgand 0.9 0.8

Janek Stalmeister 0.9 0.0

Toomas Põld 0.0 0.6

In 2021 the remuneration paid to Audit Committee members were as follows:

Cooperation between the

Management Board and

Supervisory Council

The Management Board and the Supervisory Coun-

cil work in close cooperation to best protect the

interests of Elering. The Management Board and

the Supervisory Board work together to develop the

company’s strategy. The Management Board follows

the strategic guidelines provided by the Supervisory

Board when making management decisions.

The Management Board regularly informs the Super-

visory Board of all material circumstances regarding

the planning of the company’s activities and business

activities and draws special attention to significant

changes in Elering’s business activities. The Manage-

ment Board forwards information to the Supervisory

Board, including any financial reports, in a timely

manner before the supervisory board meeting. At

the request of the Supervisory Board, a member of

the Management Board provides the Supervisory

Board with oral or written information regarding the

activities of the Management Board and the compa-

ny and provides the Supervisory Board access to any

information concerning the Management Board and

the activities of the company.

The management of the company is governed by rel-

evant laws, the articles of association, the decisions

of and the goals set by the General Meeting and the

Supervisory Board meetings.

Disclosure of the information

The website of Elering (www.elering.ee) presents

a separate list of data subject to disclosure pur-

suant to legislation. The website presents annual

reports, financial results, performance indicators,

an overview of principal activities, the structure

of Elering, a summary of its strategy, news and

notices as well as other information necessary for

investors and the public. The website is also availa-

ble in English. The information (including news and

notices) on the website is constantly updated.

Financial reporting and auditing

The management board of Elering publishes the

annual report every year and the quarterly financial

results during the financial year. The annual report

has been prepared in accordance with IFRS standards

and audited in compliance with ISA guidelines. At the

invitation of the Supervisory Board, the auditor of the

company also attends the meeting of the Superviso-

ry Board. The annual report, which is signed by the

members of the Management Board, is submitted

to the General Meeting for approval. A Supervisory

Board report regarding the annual report is submitted

to the General Meeting with the annual report.

Elering elects an external auditor by following a public

procurement procedure. Tenders are only requested

from companies that offer services of internationally

recognised quality.

The external auditor is elected by the decision of

the general meeting, and the contract for auditing

services is concluded by the management board.

The contract with the auditor sets out the auditor’s

duties, schedule and remuneration. A contract con-

cluded with an auditor may not obstruct the auditor

in any way in assessing the activities of the company.

In spring 2017, a new procurement was carried out

to find an auditor for 2017-2021. The tender was

awarded to AS PricewaterhouseCoopers. In carrying

out the external audit, the company complies with

the laws of the Republic of Estonia, international

auditing standards and the risk management rules

of the audit firm, including the European Union Reg-

ulation on audit activities that entered into force in

2016. In 2021, Elering paid 14.0 thousand euros for

the audit of the annual report on the basis of the

submitted invoices (2020: 14.2 thousand euros).

In addition to the audit of the financial state-

ments, the external auditor has provided the

following services during 2021:

• an assurance engagement on Activities report

in accordance with Electricity Market Act § 17;

• report on audit findings to the National Audit

Office of Estonia;

• performed transactions legality control in ac-

cordance with requirements of the National

Audit Office of Estonia;

• tax and accounting advice services that are

permissible in accordance with the Auditors

Activities Act.

The activities of the external auditor are overseen

by the audit committee pursuant to the Auditors

Activities Act.

Risk management and risks

Elering performs a very important public task – the

provision of electricity and gas network services

through the transmission network across the coun-

try, which is a vital service by law. Therefore, the

company’s risk management consists of two parts:

The objective of risk management at Elering

is to identify the risks that may jeopardise the

achievement of strategic goals and thereafter to

reduce the risks related to a level acceptable to

the company. The company uses the COSO ERM

risk management framework for this purpose.

The purpose of risk management at Elering as a pro-

vider of vital services is to minimise the probability

and extent of interruptions in network connection

that would result in an emergency for the customers

of the network service, so to the whole society. To

this end, the company uses the risk management

framework provided for in the Emergency Act.

Risk management in the company

Risk management is integrated into the compa-

ny’s strategic and daily management.

Risk assessment results are used as an important

input in the course of updating the annual strat-

egy. If new activities are considered as a result of

updating the strategy, they will pass a risk analy-

sis before they are approved.

All employees of the company participate in risk

management on a daily basis by considering possible

consequences when making decisions, which may

prevent the company from achieving its objectives.

The management board is responsible for the

functioning of risk management and reports the

results to the audit committee and the superviso-

ry board. The company’s CRO and risk committee

organise risk management on a daily basis with

the risk working groups. The quality of risk man-

agement is assessed by an independent internal

auditor who reports the results of the assessment

to the audit committee. Ernst & Young Baltic AS

was the internal auditor in the financial year.

Elering’s financial risks are discussed in more de-

tail in Note 5 to the financial statements.

Risk management is a constant process characterised by the following picture:

Adjustment

Monitoring

Risk

identification

Risk

assessment

Comparison of risk

levels with

risk appetite

Selection of risk

management

methods

Implementation

of internal control

measures

1. Risk identification – the scenarios that

may threaten the achievement of objec-

tives are described and placed into cate-

gories;

2. Risk assessment – the probability and

impact of a risk is analysed and the level

of the risk is determined with the relevant

matrix on the basis of the analysis;

3. Risk levels are compared to the company’s

risk appetite. The company has defined the

level of risk appetite, which it’s prepared

to take without applying any additional

risk management measures. Accepting

residual risks of high and very high level is

not considered justified by the company

because of its special role in society, which

is the provision of a vital service;

4. Risk management methods are selected

according to the comparison of the risk

described in the previous section with the

company’s risk appetite. If the risk level in

the case of a new risk is higher than the

company’s risk appetite, the company will

seek suitable mitigation methods that

may be avoidance of the risk or reduction

of the risk. If the risk level is low or medi-

um, then accepting the risk may also be a

method;

5. Internal control measures ensure the pre-

vention and timely detection of and rapid

response to the events that obstruct the

achievement of the company’s goals and

the minimisation of the damage caused;

6. Monitoring means the collection and anal-

ysis of the data of internal control meas-

ures and reporting them to the managing

bodies;

7. Adjustment means the introduction of

amendments to internal control measures

immediately if monitoring reveals that

some measures do not serve their purpose

or the possibility to achieve the same

goal with more suitable measures has

emerged.

Risk assessment

The risk assessment showed that external threats

have increased significantly during the year:

- Geopolitical risk.

The international situation has become

considerably more tense in Eastern Eu-

rope. The electricity and gas supply of

Estonia is related to the respective energy

systems of the Russian Federation and

they may also affect the operation of the

Estonian energy system.

- Cyber threat.

The number of cyberattacks increased

during the year, both globally and in Es-

tonia. Energy infrastructure is a potential

target for cyberattacks, and we need to be

prepared for this threat.

- Volatility of energy markets.

The year 2021 went down in history as a

year of rare increases in electricity and gas

prices. In January, the average price in the

Estonian price area of the power exchange

was €54/MWh, but by December it had

risen to €203/MWh.

Number Low Average High Very high Total

Energy system risks 3 5 2 0 10

Financial Risks 0 3 0 0 3

IT risks 4 2 2 0 8

Activity risks 5 4 1 0 10

Compliance risks 1 4 0 0 5

Total 13 18 5 0 36

The increase in external risks is also reflected in the estimated residual risks:

The company’s risk tolerance does not allow it to ac-

cept residual risks of a high or very high level. As the

table shows, five risks were above the company’s

risk tolerance limit. In order to mitigate them, the

management board decided to implement 23 new

additional measures, which will bring the residual

risk down to the tolerable level in the coming years.

A significant materialised risk was identified in

2021 – the electricity price risk. The price of elec-

tricity in the Estonian price area of the Nord Pool

Spot electricity exchange increased 2.5 times on

average (2021 vs 2020), and Elering buys electrici-

ty from the exchange to offset network losses. As

a result of the price increase, electricity purchase

costs increased by €26 million compared to 2020.

Electricity price changes were monitored period-

ically at the level of the management board, in-

cluding by checking that the ratios set out in loan

agreements remained within the allowed limits.

Risk management related to vital service

Risk management related to vital services is based

on the requirements and principles set forth in the

Emergency Act and its sub-acts. Pursuant to the

Act, each provider of vital services must prepare

a risk analysis related to the vital service and a

business continuity plan.

A risk analysis covers:

- the content and required level of the vital

service;

- the resources necessary for the provision

of the vital service;

- the possible threats that may bring about

the interruption of vital services;

- descriptions of risk scenarios and attribu-

tion of risk classes to them on the basis of

the criteria provided for in legislation;

- preventive measures aimed at reducing

the probability of realisation and/or im-

pact of risk scenarios.

The most important part of the business continu-

ity plan is the description of the recovery plans of

the most important risk scenarios identified in the

risk analysis. Each risk scenario has one or several

recovery plans that describe how energy supply

is restored in a situation where the risk scenario

has materialised. The continuous operation plan

also describes the work of the company’s crisis

committee, the exchange of information with the

Ministry of Economic Affairs and Communica-

tions in emergency situations, the contact details

of the main contractual partners involved in the

recovery of energy supply, etc.

The scenarios addressed the following threats:

- Weather (storm, exceptional cold snap);

- Human errors;

- Physical attacks;

- Cyberattacks;

- Deterioration of the technical condition of

equipment;

- Impact of neighbouring electricity sys-

tems;

- Etc.

Elering AS renewed the risk analysis and business

continuity plan for the vital service of electricity

supply and the Ministry of Economic Affairs and

Communications approved these documents in

2021.

Despite the increased threats in the external en-

vironment, the management board is convinced

that risks are well managed for both the achieve-

ment of the company’s and the energy supply of

the customers of the vital service.

Equal treatment

As a system operator, Elering has system respon-

sibility pursuant to the Electricity Market Act, i.e.

the obligation to ensure the security of supply

and balance of the power system at all times. The

system operator exercises its rights and performs

its obligations in accordance with the principle of

equality of treatment.

To ensure the equality of treatment, Elering has

established internal procedures and, based on

national and European Union legislation, includ-

ing network codes, has prepared various standard

terms, methodologies and other rules that are

published on the company’s website and approved

by the Estonian Competition Authority.

Ethics and anti-corruption

activities

It is important to Elering that all of its employ-

ees and managers adhere to the highest ethical

standards. It is important that our activities are

transparent and comply with all laws and ethical

standards. The company has established a code

of ethics as well as guidelines for the prevention

of corruption and conflicts of interest. Regular

training is also carried out among employees.

Elering is a company where corruption in any

shape or form is impermissible.

The UN Global Compact Pact highlights four main

consequences of corruption for companies:

The risk of violation of laws, because corruption is

clearly an unlawful activity.

Elering wants to be an example to other compa-

nies in society in terms of abidance with law and

this can only be achieved if the company complies

with the requirements of legislation itself.

Reputational risk

Elering’s functions include several activities whose

impact extends outside ordinary business activities.

We must guarantee functioning and efficient elec-

tricity and gas markets with our activities, arrange

the collection and payment of renewable energy

support, want to have a say in shaping the energy

and climate policies of the state, etc. All of this can

only be done if our reputation is impeccable.

Financial risk

It’s possible to suffer remarkably serious eco-

nomic damage as a result of corruption. This may

become evident in higher purchasing costs, lower

quality of the equipment purchased, etc.

Loss of internal trust

If employees notice that unethical behaviour is

enabled in the company, it will lead to a serious loss

of trust in the company, a decrease in loyalty and a

deterioration of the general company culture.

The emergence of corruption must be prevented

in order to avoid the aforementioned negative

consequences.

The supervisory board of the company has approved

the Anti-corruption Policy, which focuses primarily

on the prevention of corruption. The policy address-

es the following aspects of prevention of corruption:

Bribery/income derived from corrupt practices

The policy defines bribery and income derived from

corrupt practices and rues out any association of

management bodies and employees with it.

Conflict of interests

The obligation to avoid any conflict of interest has

been stipulated, the meaning of a related party

has been defined and notification of a conflict of

interest has been made mandatory.

Support and donations

Elering is allowed to grant support and donations

only in accordance with the State Assets Act and

the respective procedure of the company.

Gifts and hospitality

Gifts and hospitality are only permitted within

the limits of good business practices, which are

defined in the policy.

Obligation and procedure of reporting suspi-

cions

All employees must immediately inform the

company of any breaches or suspected breaches

of the Anti-corruption Policy.

In addition to the Anti-corruption Policy, there

are provisions aimed at the emergence of corrup-

tion in nine different procedures of the company.

The risk analysis revealed that procurements are

the most likely points of contact with the risk of

corruption. Compliance with several preventive

measures has therefore been made obligatory

for employees in the respective procurement

procedure. For example, employees are obliged

to submit the procurement documents to the

meeting of the management board in advance

and the management board approves the results

of procurements after the tenders have been

received. The use of the four-eyes principle in

processing the invoices received is guaranteed

with IT tools.

The business software of the company provides

accurate accounting of all the assets, including

the ones that are in use but whose book value is

zero. Assets can be written off only by preparing

the respective record that must be approved by

the owner of the assets, their line manager and

the member of the management board responsi-

ble for the area.

The intranet of the company includes the section

Protection of Corruption, where employees can

find guidelines on the recognition and preven-

tion of corruption. All employees have confirmed

electronically that they have read the guidelines.

Corruption prevention training was held in spring

and it was mandatory for all staff. The main fo-

cus of the training was on the quick recognition

of potential corruption situations. In society,

there have often been cases of corruption in

which the participants committed an unlawful

act without realising it and for no personal gain.

Completing the training enables the employees

of Elering to better recognise possible situations

of corruption and respond to them preventively.

No cases of corruption were identified in Elering

in 2021 or 2020 and the management board is

convinced that the measures taken to prevent

corruption also help to keep the risk of corrup-

tion minimal in the future.

The measures for prevention of corruption

described above have a very important role in

reducing the risk of corruption, but the attitude

and ethical beliefs of employees themselves are

no less important. The attitude of employees can

be shaped by the personal example set by both

middle and senior managers. The company’s code

of conduct is also accessible on the intranet. It

includes descriptions of the general beliefs and

principles that employees are expected to hold.

FINANCIAL STATEMENTS

1.01.2021 – 31.12.2021

Statement of financial position 72

Statement of comprehensive income 73

Cash flow statement 74

Statement of changes in equity 75

Notes to the Financial Statements 76

Note 1. Elering AS and its operations 76

Note 2. Summary of significant accounting policies 76

Note 3. Critical accounting estimates and judgements

in applying accounting policies 90

Note 4. New accounting pronouncements 91

Note 5. Financial risk management 93

Note 6. Segment reporting 100

Note 7. Bank accounts and deposits 104

Note 8. Trade and other receivables 105

Note 9. Inventories 107

Note 10. Property, plant and equipment 108

Note 11. Intangible assets 110

Note 12. Borrowings 111

Note 13. Trade and other payables 114

Note 14. Deferred income 115

Note 15. Equity 116

Note 16. Revenue 117

Note 17. Other income 118

Note 18. Goods, raw materials and services 119

Note 19. Other operating expenses 120

Note 20. Staff costs 121

Note 21. Financial income and costs 122

Note 22. Operating lease 123

Note 23. Balances and transactions with related parties 124

Note 24. Contingent liabilities and commitments 126

Independent Auditor’s Report 127

Profit allocation proposal 133

Signatures of the Management to the 2021 Annual Report 134

The Revenue of Elering AS According to EMTAK 2008 135

Table of contents

Annual report 2021

Statement of financial position

In thousands of euros Note 31.12.2021 31.12.2020

ASSETS

Current assets

Cash and cash equivalents 7 62,668 50,619

Short-term deposits 7 42,000 0

Investments in equity instruments 2 0 899

Trade and other receivables 8 59,683 38,586

Inventories 9 3,658 3,535

Total current assets 168,009 93,639

Non-current assets

Property, plant and equipment 10 1,000,232 968,049

Intangible assets 11 14,613 14,048

Total non-current assets 1,014,845 982,097

TOTAL ASSETS 1,182,854 1,075,736

LIABILITIES

Current liabilities

Borrowings 12 12,010 11,911

Trade and other payables 13 57,135 27,102

Total current liabilities 69,145 39,013

Non-current liabilities

Borrowings 12 312,095 322,389

Contract liability from connection fees 14 36,154 34,855

Deferred income 14 383,372 292,511

Total non-current liabilities 731,621 649,755

TOTAL LIABILITIES 800,766 688,768

Statement of comprehensive income

In thousands of euros Note 2021 2020

Revenue 16 201,457 137,068

Other income 17 6,672 5,327

Goods, raw materials and services 18 -135,210 -53,255

Other operating expenses 19 -7,144 -5,445

Staff costs 20 -11,222 -10,970

Depreciation and amortization 10, 11 -45,531 -40,123

Operating profit 9,022 32,602

Financial income 21 16 2

Financial costs 21 -2,302 -2,338

Profit before income tax 6,736 30,266

Income tax expense 15 -1,628 -4,964

Profit for the year 5,108 25,302

Other comprehensive income

Items that will not be reclassified to profit or loss

Changes in the fair value of equity investments at fair value

through other comprehensive income

2 0 -1,001

Profit from sale of equity investments at fair value through other

comprehensive income

2 12 0

Total other comprehensive income 12 -1,001

Total comprehensive income for the year 5,120 24,301

The notes on pages 76 to 126 are an integral part of these financial statements.

EQUITY

Share capital 15 229,890 229,890

Revaluation reserve 2 0 -1,047

Statutory reserve capital 15 17,595 16,330

Retained earnings 15 134,603 141,795

TOTAL EQUITY 382,088 386,968

 

TOTAL LIABILITIES AND EQUITY 1,182,854 1,075,736

The notes on pages 76 to 126 are an integral part of these financial statements.

Cash flow statement

In thousands of euros Note 1.01.2021-

31.12.2021

1.01.2020-

31.12.2020

Cash flows from operating activities

Profit before income tax 6,736 30,266

Adjustments for:

 Profit from sale of property, plant and equipment 17 -257 -100

 Depreciation, amortisation and impairment 10, 11 45,531 40,123

 Dividends received from long-term financial investments 17 0 -873

 Government grants expended and amortised 17 -5,122 -2,978

 Interest expenses 21 2,295 2,287

 Interest income 21 -6 -2

Operating cash flows before working capital changes 49,177 68,723

 Changes in inventories 9 -123 152

 Changes in receivables and prepayments related to operating

activities

8 -20,476 1,707

 Changes in liabilities and prepayments related to operating

activities

13 24,272 -1,155

 Changes in deferred income from connection and other service fees 14 224 -583

Changes in working capital 3,897 121

Income tax paid 13, 15 0 -6,531

Dividends received 17 0 873

Interest paid 12, 21 -2,016 -2,319

Interest received 8, 21 6 2

Total cash flows from operating activities 51,064 60,869

Cash flows from investing activities

Purchases of property, plant and equipment and intangible assets 10, 11, 13 -75,497 -100,214

Net change in deposits over 3 months 7 -42,000 0

Grants to acquire non-current assets 14 31,827 59,477

Proceeds from sale of equity instruments 2 912 0

Proceeds from sale of property, plant and equipment 10, 17 773 264

Congestion fees received 8, 13, 14 65,582 24,053

Total cash flows used in investing activities -18,403 -16,420

Cash flows from financing activities

Repayments of bank loans 12 -10,558 -10,558

Repayments of lease liabilities 12 -54 -19

Dividends paid 15 -10,000 -25,600

Total cash flows used in financing activities -20,612 -36,177

Statement of changes in equity

In thousands of euros Share

capital

Statutory

reserve capital

Retained

earnings

Reveluation

reserve

Total

Balance as at 1.01.2020 229,890 14,686 143,737 -46 388,267

Comprehensive income for the year 0 0 25,302 0 25,302

Other comprehensive income for the

year

0 0 0 -1,001 -1,001

Total comprehensive income for the

year

0 0 25,302 -1,001 24,301

Transactions with owners:

Transfers to statutory reserve capital 0 1,644 -1,644 0 0

Dividends paid 0 0 -25,600 0 -25,600

Total transactions with owners 0 1,644 -27,244 0 -25,600

Balance as at 31.12.2020 229,890 16,330 141,795 -1,047 386,968

Comprehensive income for the year 0 0 5,108 0 5,108

Other comprehensive income for the year 0 0 -1,035 1,047 12

Total comprehensive income for the

year

0 0 4,073 1,047 5,120

Transactions with owners:

Transfers to statutory reserve capital 0 1,265 -1,265 0 0

Dividends paid 0 0 -10,000 0 -10,000

Total transactions with owners 0 1,265 -11,265 0 -10,000

Balance as at 31.12.2021 229,890 17,595 134,603 0 382,088

More detailed information on share capital and other equity items is set out in Note 15.

The notes on pages 76 to 126 are an integral part of these financial statements.

Net increase/(-)decrease in cash and cash equivalents 12,049 8,272

Cash and cash equivalents at the beginning of the period 7 50,619 42,347

Cash and cash equivalents at the end of the period 7 62,668 50,619

The notes on pages 76 to 126 are an integral part of these financial statements.

Notes to the Financial Statements

Note 1. Elering AS and its operations

The financial statements of Elering AS (hereinafter “Elering”) for the year ended 31 December 2021

have been prepared in accordance with International Financial Reporting Standards as adopted by the

European Union. Elering is incorporated in the Republic of Estonia and its registered address is Kadaka

tee 42, 12915 Tallinn, Estonia. The principal business activity of Elering is electricity and natural gas

transmission in the Republic of Estonia.

The economic activities of Elering are regulated by the laws of the Republic of Estonia and European

Union. Elering’s transmission business and balancing service business are regulated by the Estonian

Competition Authority, including the approval of network tariffs and standard terms and conditions of

such contracts.

The sole shareholder of Elering is the Republic of Estonia.

The Management Board has approved the financial statements of Elering on 10 March 2022. Pursuant

to the Commercial Code of the Republic of Estonia, the annual report shall be presented for approval to

Elering’s Supervisory Board and the General Meeting of Shareholders.

Note 2. Summary of significant accounting policies

Bases of preparation. These financial statements have been prepared in accordance with International Fi-

nancial Reporting Standards (“IFRS”) as adopted by the European Union under the historical cost convention.

The principal accounting policies applied in the preparation of these financial statements are set out below.

These policies have been consistently applied to all the periods presented, unless otherwise stated.

Changes in presentation.

The presentation of information in the 2021 financial statements has been changed. The presentation of

comparative information for the previous period has been adjusted to the new presentation scheme.

In accordance with IFRS 16, rights of use of land must be shown among property, plant and equipment. In this

report, rights of use of land are presented among property, plant and equipment and the comparative figures

of the previous period have been adjusted according to the same principle.

The contract liability from the connection fees is recognized separately from the deferred income in the

statement of financial position and the comparative data of the previous period has been adjusted accord-

ing to the same principle.

The accrued interest liability arising from long-term borrowings is presented among borrowings and

the comparative figures of the previous period have been adjusted according to the same principle.

The effects of the changes are set out below:

In thousand of euros

Line item 31.12.2020 Change Adjusted 31.12.2020

Property, plant and equipment 961,285 6,764 968,049

Intangible assets 20,812 -6,764 14,048

Borrowings (short-term part) 10,565 1,346 11,911

Trade and other payables 28,448 -1,346 27,102

Contract liability from connection fees 0 34,855 34,855

Deferred income 327,366 -34,855 292,511

Segment reporting. Business segment disclosures are provided in a manner that operating results

are regularly reviewed by Elering’s chief operating decision maker. The chief operating decision maker

responsible for the allocation of resources for business segments and the results of their operations is

Elering’s management board.

Functional and presentation currency. The financial statements of Elering are presented in thousands

of euros which is Elering´s functional and presentation currency.

Foreign currency translation. Foreign currency transactions are translated into the functional currency

using the exchange rates of the European Central Bank prevailing on the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the

translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange

rates are recognised in the profit or loss.

Cash and cash equivalents. In the statement of cash flows, cash and cash equivalents include short-

term (up to 3 months) highly liquid investments that can be converted to known amounts of cash and

that lack significant risk of market value changes, incl. cash on hand, bank accounts and short-term

deposits with original maturities of three months or less.

Financial assets

Classification

Elering classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income or

through profit or loss), and

• those to be measured at amortised cost.

The classification depends on Elering’s business model for managing the financial assets and the con-

tractual terms of the cash flows.

Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which

Elering commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have

expired or have been transferred and Elering has transferred substantially all the risks and rewards of

ownership.

Measurement

At initial recognition, Elering measures a financial asset at its fair value plus, in the case of a financial

asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to

the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed

in profit or loss.

Debt instruments. Subsequent measurement of debt instruments depends on Elering’s business mod-

el for managing the asset and the cash flow characteristics of the asset. All Elering’s debt instruments

are classified in amortised cost measurement category.

Assets that are held for collection of contractual cash flows where those cash flows represent solely

payments of principal and interest are measured at amortised cost. Interest income from these fi-

nancial assets is included in finance income using the effective interest rate method. Any gain or loss

arising on derecognition is recognised directly in profit or loss and presented in other income/expenses.

Foreign exchange gains and losses and impairment losses are presented as separate line items in profit

or loss.

As at 31 December 2021 and 31 December 2020, the following financial assets of Elering were classified

in this category:

• trade receivables,

• bank deposits,

• cash and cash equivalents.

Equity instruments. Elering recognises equity investments at fair value. Where Elering’s management

has made an irrevocable election to present in other comprehensive income (OCI) the fair value gains

and losses on equity investments that are not held for trading, there is no subsequent reclassification

of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends

from such investments continue to be recognised in profit or loss as other income when Elering’s right

to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in other income/expenses in the

statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on

equity investments measured at FVOCI are not reported separately from other changes in fair value.

The following equity instruments of Elering are measured at FVOCI:

• Shares of Nord Pool AS (until 2016 AS Nord Pool Spot). The principal business activity of Nord Pool

AS Group, registered in Norway, is the organisation of electricity exchanges in the Nordic countries,

Great Britain and the Baltic States. The investment was made with a long-term strategic goal of

taking part in the decision-making process concerning the development of electricity market in the

Nordic-Baltic region. As the shares are not held for trading, the management has made an irrevocable

decision to measure the shares at FVOCI. In December 2020, Elering’s Supervisory Board made a

decision to sell all the shares owned by Elering. The write-down has been done to the net selling price

of the shares. The impairment loss of EUR 1,001 thousand was recognized in the statement of 2020

and the impairment loss of EUR 46 thousand in the statement of 2019 comprehensive income. The

shares were sold in 2021 and the revaluation reserve was written off to retained earnings.

Impairment

Elering assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its debt

instruments carried at amortised cost. The impairment methodology applied depends on whether

there has been a significant increase in credit risk.

The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by

evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable

information that is available without undue cost and effort at the end of each reporting period about past

events, current conditions and forecasts of future conditions.

For trade receivables Elering applies a simplified approach permitted by IFRS 9 and measures the

allowance for impairment losses at expected lifetime credit losses from initial recognition of the re-

ceivables. Elering uses a provision matrix in which allowance for impairment losses is calculated for

trade receivables falling into different ageing or overdue periods.

For cash and cash equivalents and bank deposits where there is an investment grade it is considered

there has been no significant increase in credit risk.

Prepayments. Prepayments are carried at cost less a provision for impairment. A prepayment is classified

as non-current when the goods or services relating to the prepayment are expected to be obtained after

one year, or when the prepayment relates to an asset which itself will be classified as non-current upon

initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset

once Elering has obtained control of the asset and it is probable that future economic benefits associated

with the asset will flow to Elering. Other prepayments are written off to profit or loss when the goods or

services relating to the prepayments are consumed or received. If there is an indication that the assets,

goods or services relating to a prepayment will not be received, the carrying amount of the prepayment is

written down accordingly and a corresponding impairment loss is recognised in profit or loss.

Inventories. Inventories are initially recorded at cost, consisting of the purchase costs and other costs

incurred in bringing the inventories to their present location and condition.

The purchase costs of inventories include the purchase price, customs duties and other non-refundable

taxes and direct transportation costs related to the purchase, less discounts and subsidies. Inventories

are expensed using the FIFO method.

Inventories are carried in the statement of financial position at the lower of the acquisition cost and net

realizable value. Net realisable value is calculated by deducting estimated expenses that are necessary

for preparing the product for sale and for completing the sale from the estimated sales price used in the

ordinary course of business.

Property, plant and equipment. Property, plant and equipment are tangible assets that are used in

business activities and the useful life of which is longer than one year. Property, plant and equipment

are carried using the cost method, i.e. at historical cost less any accumulated depreciation and any im-

pairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of

the items. Other than the purchase price, cost of the acquired property, plant and equipment includes

transportation and installation expenses, as well as other expenses directly related to acquisition and

putting such assets into operation. Cost includes borrowing costs incurred on specific or general funds

borrowed to finance construction of qualifying assets. Borrowing costs are capitalised if the borrowing

costs and expenditures for the asset have been incurred and the construction of the asset has com-

menced. Capitalisation of borrowing costs is ceased when the construction of the asset is completed or

when the construction has been suspended for an extended period of time.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as ap-

propriate, only if they meet respective criteria for property, plant and equipment. The carrying amount

of the replaced part is derecognised. All other repairs and maintenance costs are charged to profit or

loss during the financial period in which they are incurred.

If property, plant and equipment consist of components with significantly different useful lives, the

components are recognised as separate items of property, plant and equipment.

Payments made for rights of use of land are recognised as property, plant and equipment. The costs

related to rights of use of land are depreciated according to the contract period, not exceeding 99 years.

Land is not depreciated. Depreciation of other items of property, plant and equipment is calculated

using the straight-line method to allocate their cost to their residual values over their estimated useful

lives:

Useful lives in years

Buildings 25–40

Facilities – electricity transmission lines, gas pipelines 30–60

Machinery and equipment – electricity and natural gas transmission

equipment

7–40

Other property, plant and equipment 3–20

Land use rights 99

The expected useful lives of items of property, plant and equipment are reviewed during the annual

stocktaking, when subsequent expenditures are recognised and in the case of significant changes in

development plans. When the estimated useful life of an asset differs significantly from the previous

estimate, it is treated as a change in the accounting estimate, and the remaining useful life of the

asset is changed, as a result of which the depreciation charge of the following periods also changes.

The residual value of an asset is the estimated amount that Elering would currently obtain from dis-

posal of the asset less the estimated costs of disposal, if the asset were already of the age and in

the condition expected at the end of its useful life. The assets’ residual values and useful lives are

reviewed, and adjusted if appropriate, on each balance sheet date.

Gains and losses on disposals and write-offs determined by comparing proceeds with the carrying

amount are recognised in profit or loss under “Other income” or “Other operating expenses” respec-

tively.

Intangible assets. Intangible assets are recognised in the statement of financial position only if the

following conditions are met:

• the asset is controlled by Elering ;

• it is probable that the future economic benefits that are attributable to the asset will flow to

Elering;

• the cost of the asset can be measured reliably.

An intangible asset is initially recognised at its cost, comprising its purchase price, any directly attributable

expenditure on preparing the asset for its intended use and borrowing costs that relate to assets that take

a substantial period of time to get ready for use. After initial recognition, an intangible asset is carried at

its acquisition cost less any accumulated amortisation and impairment losses.

Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring them

to use.

Intangible assets and personal of use are amortised using the straight-line method over their useful

lives:

Useful lives in years

Software licences 3-5 years

If impaired, the carrying amount of intangible assets is written down to the higher of value in use and

fair value less costs of disposal.

Impairment of non-financial assets. Land and assets that are subject to depreciation/amortisation

are reviewed for impairment whenever events or changes in circumstances indicate that the carrying

amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s

carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s

fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are

grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating

units). Non-financial assets that suffered an impairment loss are reviewed for possible reversal of im-

pairment on each reporting date.

Leases. Leases are contracts that transfer the right to control the use of an asset for a specified period

of time against payment. For such contracts, IFRS 16 requires the lessee to account for the asset and its

lease liability. Assets used under the right of use are depreciated and interest is charged on the liability.

Elering has applied a practical expedient for leases with a lease term of 12 months or less without call

options and low value assets (immaterial leases). Payments made or received under such operating

leases are recognized in the statement of comprehensive income on a straight-line basis over the period

of the lease term. The principles of IFRS 16 for lessors remain substantially unchanged from those of IAS

17, namely that a lessor continues to classify its leases into operating and finance leases and recognizes

those types of leases differently.

Financial liabilities. Financial liabilities have the following measurement categories: (a) held for trading

which also includes financial derivatives and (b) other financial liabilities. Elering has financial liabilities

only in the category of ‘other financial liabilities’.

Other financial liabilities are initially recognised at fair value, net of transaction costs incurred and are

subsequently carried at amortised cost. The amortised cost of current liabilities normally equals their

nominal value; therefore, current liabilities are stated in the statement of financial position in their

redemption value. Non-current liabilities are subsequently carried at amortised cost. The difference be-

tween the amortised cost and the redemption value is recognised as an interest expense in profit or loss

over duration of the contract using the effective interest rate method. The borrowing costs associated

with the qualifying assets meeting respective requirements are capitalised as part of cost of the assets.

A financial liability is classified as current when it is due within 12 months after the balance sheet date

or Elering does not have an unconditional right to defer the payment for longer than 12 months after the

balance sheet date. Borrowings with a due date of 12 months or less after the balance sheet date that are

refinanced into non-current borrowings after the balance sheet date but before the approval of the annual

report, are classified as current. Borrowings that the lender has the right to recall due to the violation of

terms specified in the contract if such right is established by the balance sheet date are also classified as

current liabilities.

Provisions and contingent liabilities. Provisions for liabilities and charges are non-financial liabilities of

uncertain timing or amount. They are accrued when Elering has a present legal or constructive obligation

as a result of past events and, it is probable that an outflow of resources embodying economic benefits

will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be

made.

Other possible or present obligations arising from past events but whose settlement is not probable or

the amount of which cannot be measured with sufficient reliability are disclosed as contingent liabilities

in the notes to the financial statements.

Development costs. Development costs are costs that are incurred in applying research findings for

the development of specific new products or processes. Development costs are capitalised if all of the

criteria for recognition specified in IAS 38 have been met. Capitalised development costs are amortised

over the period during which the products are expected to be used. Expenses related to research carried

out for collecting new scientific or technical information and training costs are not capitalised.

Share capital. Elering does not have any preference shares. Incremental costs directly attributable to the

issue of new shares are recognised as a reduction of equity. Any excess of the fair value of consideration

received over the par value of shares issued is recorded as share premium in equity.

Dividends. Dividends are recorded as a liability and deducted from equity in the period in which they

are declared and approved. Any dividends declared after the balance sheet date and before the financial

statements are authorised for issue are disclosed in the notes to the financial statements.

Statutory reserve capital. Statutory reserve capital is formed to comply with the requirements of the

Commercial Code. Reserve capital is formed from annual net profit allocations. During each financial

year, at least one-twentieth of the net profit shall be entered in reserve capital, until reserve capital

reaches one-tenth of share capital. Reserve capital may be used to cover a loss, or to increase share

capital. Payments shall not be made to shareholders from reserve capital.

Revenue

Revenue recognition. Revenue is income arising in the course of Elering’s ordinary activities. Revenue is

measured in the amount of transaction price. Transaction price is the amount of consideration to which

Elering expects to be entitled in exchange of transferring control over promised goods or services to a

customer, excluding the amounts collected on behalf of third parties. Elering recognises revenue when

it transfers control of goods or services to a customer.

Electricity transmission service. Elering measures the quantity of electricity transmission by remotely

read metres in customers’ connection points. The transmission service fees are calculated on the basis of

the volumes of electricity transmitted in these points and regulated transmission tariffs. Revenue from

providing services is recognised over time in the accounting period in which the services are rendered.

Natural gas transmission service. Elering measures the quantity of natural gas transmission by remotely

read metres in customers’ connection points. The transmission service fees are calculated on the basis

of the volumes of natural gas transmitted in these points and regulated transmission tariffs. Revenue

from providing services is recognised over time in the accounting period in which the services are ren-

dered.

Electricity balancing service. Elering prepares on an hourly basis the energy balance in kilowatt-hours

(kWh) of the Estonian electricity system that consists of the energy balances of Elering itself and bal-

ance providers that have entered into a balance agreement with Elering. Energy balances are prepared by

comparing the measurement data of Elering and that received from distribution network operators with

balancing plans of balance providers. In a trading period when the real consumption of electricity, based on

the measurement data, is bigger than electricity volume presented in the energy balance, Elering sells the

balance providers electricity to the extent of shortage. In a trading period when the situation is opposite,

Elering buys electricity from the balance providers to the extent of surplus. The sale and purchase prices

are calculated by Elering for each trading period using methodology approved by the Estonian Competition

Authority. Elering has considered that it is a principal in selling electricity as part of providing the balancing

service as Elering is ultimately responsible for keeping the system in balance. Revenue from providing

services is recognised over time in the accounting period in which the services are rendered.

Gas balancing service. Elering prepares on a daily basis the gas balance in kilowatt-hours (kWh) of the

Estonian gas system that consists of the gas balances of Elering itself and balance providers that have

entered into a balance agreement with Elering. Gas balances are prepared by comparing the measurement

data of Elering and that received from distribution network operators with balancing plans of balance

providers. In a trading period when the real consumption of natural gas, based on the measurement

data, is bigger than natural gas volume presented in the gas balance, Elering sells the balance providers

gas to the extent of shortage. In a trading period when the situation is opposite, Elering buys gas from

the balance providers to the extent of surplus. The sale and purchase prices are calculated by Elering

for each trading period using methodology approved by the Estonian Competition Authority. Elering

has considered that it is a principal in selling gas as part of providing the balancing service as Elering is

ultimately responsible for keeping the system in balance. Revenue from providing services is recognised

over time in the accounting period in which the services are rendered.

Electricity inter-transmission system operator compensation mechanism (ITC). ITC is a mechanism for

the compensation of cross-border energy flows, as designated by the EU regulation No 838/2010, in

which transmission system operators of over 30 countries participate. The mechanism works under the

principle that a transmission system operator of a country compensates, through the ITC fund, the other

transmission network operators for additional expenses caused by cross-border energy flows in case if

that country has exported or imported electricity during the reporting period, and a transmission system

operator receives compensation from the fund if a transit flow caused by market participants of other

countries has crossed the country. Such accounting is kept by specifically authorised administrators in

Switzerland, who submit to the members of the mechanism the data in the form of net amounts to

be paid each month. Elering recognises the net amounts in the statement of comprehensive income

depending whether it is net income or net expense under “Revenue” within ‘Other electricity network

services’ or under “Goods, raw materials and services” within ‘Other costs’ respectively.

Natural gas inter-transmission system operator compensation mechanism. The gas zone connecting Estoni-

an and Latvian gas systems started operating on 1 January 2020, which also brought changes in the charges

for the provision of transmission services with the gas network. Until then, the charge for the transmission

service had been collected only on the volume of gas exiting the transmission system and the payers of the

transmission service charge have been clients connected to the transmission network on the basis of network

contracts, mostly distribution networks. As of January, some of the transmission service charges move to the

gas network input points. Such charges for entry points have been harmonised in three countries: Estonia,

Finland and Latvia. This means that the entry of gas from the Finnish, Estonian or Latvian entry points costs

the same and the gas moves within the three countries without additional transmission charges. In order to

ensure the independence of transmission revenue from the entry point preferred by market participants, Es-

tonian, Finnish and Latvian transmission network operators entered into a mutual compensation agreement

(gas ITC). The compensation agreement stipulates that the transmission revenue collected from the entry

points of three countries is subject to distribution between the three countries proportionally to their gas

consumption. This ensures the relative stability of the entry revenue of the transmission network operators,

regardless of which entry point the gas market prefers in a specific period of time. Elering recognises said

amounts as net income under “Revenue” within ‘Other gas network services’.

Recognition of connection fees. When connecting to the electricity network, the clients must pay a

connection fee based on the actual costs of infrastructure to be built in order to connect to the network.

The management has concluded that that connection is part of a single performance obligation of pro-

viding the ongoing access to the grid and network service. Therefore, the consideration received from

customers for connection is recognised as contract liability and recognised as revenue evenly over the

estimated customer relationship period, being 25 years.

Interest income is recognised on an accrual basis using the effective interest method.

Congestion income. In situations where market participants place more requests for cross-border trans-

mission of electricity than is technically possible, transmission rights for cross-border electricity are sold

at special auctions. Under the principle used in these auctions, 50% of auction proceeds belong to the

transmission system operator of either country. Types of the auctions:

1. Proceeds from the day-ahead market auction are essentially the difference between the ex-

change prices of Estonia and neighbouring price regions of the Nord Pool power exchange every

hour. The power exchange collects the aforementioned price difference through its trading

mechanism and transfers it to respective transmission system operators.

2. An auction of long-term transmission capacity, which is aimed at reducing the inter-regional price

risk resulting from a lack of transmission capacity. Estonian and Latvian system operators Eler-

ing AS and AS Augstprieguma tikls offer forward transmission rights (FTRs) (until 31 December

2018, Physical Transmission Rights (PTRs)) on an annual, quarterly and monthly basis. Market

participants that have bought an FTR capacity have the right to the hourly auction proceeds of the

day-ahead market for the same volume. Auctions are organised and the proceeds distributed by

the Single Allocation Platform (SAP) under the authority of the pan-European System Operators

operated by the Joint Allocation Office (JAO). According to the regulators’ decision, no long-term

auctions are scheduled at the Finnish border for 2021 and 2020.

Net proceeds from the day-ahead market and FTR (until 31 December 2018 PTR) auctions are recognised

in compliance with the requirements of Article 16 of Regulation (EC) No. 714/2009 of the European

Parliament and of the Council, pursuant to which congestion income should be used in particular for

the construction of new interconnection capacities between countries and for guaranteeing the actual

availability of the allocated transmission capacity; if the proceeds cannot be used for these purposes,

the proceeds will be taken into account when reducing the network service tariff.

If congestion proceeds are used for the construction of new interconnection capacities, then they are

recognized in the financial statements similarly to the government grants. Initially, they are recognized

as deferred income, and then are credited to income over the estimated useful life of the asset. If

congestion proceeds are used for the reduction of tariffs, then proceeds are recognised as revenue in

the period when Elering’s right to receive proceeds from the day-ahead market and FTR auctions is

established. Since 1 July 2014 Elering has been using auctions proceeds for the construction of new

interconnection capacities.See also Note 3.

Accounting for government grants. Government grants are recognised at fair value when there is reason-

able assurance that Elering will comply with all the conditions attached to government grants and that

the grant will be received. The government grants are recognised in profit or loss on a systematic basis

over the periods in which Elering incurs the related costs which the grants are intended to compensate.

Government grants are presented in the statement of financial position using the gross method, ac-

cording to which the government grant is recognised at its cost, if the government grant is received

in the form of a transfer of a non-monetary asset, it is recognised at its fair value. The amount of the

government grant received for the purpose of acquisition of assets is recognised as deferred income

from government grants. The acquired asset is depreciated and the grant is credited to income over the

estimated useful life of the asset.

Subsidies to electricity producers. The law obliges Elering to participate in supporting mechanism

for eligible electricity producers (first and foremost power plants using renewable sources of energy).

Elering collects subsidies from consumers and distribution network operators and pays it out to those

electricity producers who meet the criteria.

In accordance with current principles, Elering prepares an estimate of the amount of subsidies for the

following calendar year, based on estimates on the amount of electricity produced by these producers,

and the amount of network services to be provided to the end users in Estonia. Elering uses these

estimates to determine the charge of subsidy for the following calendar year per kWh (kilowatt-hour)

of network services, taking into account any difference between estimated and actual amounts of

subsidies paid during the previous period (from November to October), interest earned on over collected

amounts or interest paid on under collected amounts and justified expenses incurred for management

of subsidies.

The customers are charged according to the estimated charge per kWh. For different reasons the actual

amounts paid out and received as subsidies always differ from the estimated amounts. Over or under

collected subsidies are shown in the statement of financial position as either “Trade and other payables”

(in case of surplus) or “Trade and other receivables” (in case of deficit). These balances are taken into

account when determining the charge for the next period as described above. Collecting and paying of

subsidies has no material impact on profit or loss of Elering. See also Note 8 and 13.

Subsidies to biogas producers. In accordance with law, Elering must participate in the mechanism for

subsidising biogas producers that are in compliance with the requirements provided for by law. Elering

is compensated for biogas subsidies by the Ministry of Economic Affairs and Communications. Elering

as a system operator organises entry into contracts with biogas producers, supervision of use of the

subsidies and payment of the subsidies.

Activities necessary for the implementation of the contract are financed as a prepayment on the basis

of a quarterly expenditure forecast submitted by Elering. For different reasons the actual amounts

paid out and received as subsidies always differ from the estimated amounts. Over or under collected

subsidies are shown in the statement of financial position as either “Trade and other payables” (in case

of surplus) or “Trade and other receivables” (in case of deficit). Collecting and paying of subsidies has no

material impact on profit or loss of Elering. See also Note 8 and 13.

Employee benefits. Employee short-term benefits include wages, salaries and social taxes, benefits

related to temporary suspension of employment contracts (holiday or other similar pay). These benefits

are recognised in profit or loss in the year in which the associated services are rendered by the employees

of Elering. Any amounts unpaid by the balance sheet date are recognised as a liability.

If during the reporting period, an employee has provided services for which payment of compensation is

to be expected, Elering will recognise a liability (accrued expense) in the amount of forecasted compen-

sation, from which all amounts already paid, will be deducted.

Income tax. According to the Income Tax Act, the annual profit earned by entities is not taxed in Es-

tonia. Income tax is paid on dividends, fringe benefits, gifts, donations, costs of entertaining guests,

non-business-related disbursements and adjustments of the transfer price.

The tax rate on the net dividends paid out of retained earnings is 20/80. From 2019, tax rate of 14/86

can be applied to dividend payments. The more beneficial tax rate can be used for dividend payments

in the amount of up to the average dividend payment during the three preceding years that were taxed

with the tax rate of 20/80. When calculating the average dividend payment of three preceding years,

2018 will be the first year to be taken into account. The corporate income tax arising from the payment

of dividends is recognised as a liability and an income tax expense in the period in which dividends

are declared, regardless of the period for which the dividends are paid or the actual payment date. An

income tax liability is due on the 10th day of the month following the payment of dividends.

Due to the nature of the taxation system, the companies registered in Estonia do not have any differ-

ences between the tax bases of assets and their carrying amounts and hence, no deferred income tax

assets and liabilities arise. A contingent income tax liability which would arise upon the payment of

dividends is not recognised in the statement of financial position. The maximum income tax liability

which would accompany the distribution of retained earnings is disclosed in Note 15 to the financial

statements.

Tax rates in Estonia.

The following tax rates have been valid through 2021:

Tax Tax rate

Social security tax 33% of the paid payroll to employees and fringe benefits

Unemployment insurance tax 0.8% of the payroll paid to employees

Fringe benefit income tax 20/80 of fringe benefits paid to employees

Land tax 1.0 - 2.5% on taxable value of land per annum

Excise tax on electricity EUR 1 per MWh of electricity (EUR 4.47 per MWh until 30.04.2020)

Excise tax on gas

EUR 40 per thousand cubic meters (EUR 79.14 per thousand cubic

meters until 30.04.2020)

Corporate income tax on non-business-

related expenses

20/80 on non-business-related expenses

Note 3. Critical accounting estimates and judgements in applying accounting policies

Elering makes estimates and assumptions that affect the amounts recognised in the financial state-

ments and the carrying amounts of assets and liabilities within the next financial year. Estimates and

judgements are continually evaluated and are based on management’s experience and other factors,

including expectations of future events that are believed to be reasonable under the circumstances.

Management also makes certain judgements, apart from those involving estimations, in the process

of applying the accounting policies. Judgements that have the most significant effect on the amounts

recognised in the financial statements and estimates that can cause a significant adjustment to the

carrying amount of assets and liabilities within the next financial year include:

Useful lives of property, plant and equipment.

The estimated useful lives of items of property, plant

and equipment (Note 10) are based on management’s estimates regarding the period during which

the asset will be used. The estimation of useful lives is based on historical experience and takes into

consideration production capacity and physical condition of the assets. In the reporting period, depre-

ciation amounted to EUR 42,403 thousand (2020: EUR 38,032 thousand). If depreciation rates were

increased/decreased by 10%, the depreciation charge for the year would increase/decrease by EUR

4,240 thousand (2020: EUR 3,803 thousand).

Congestion income.

According to the accounting principles described in Note 2, timing of recognition of

congestion income depends on the purposes for which the proceeds is used – for constructions of new

interconnection capacities (in which case it is recognised as deferred income, until such construction

is completed) or reduction of current network tariffs (in which case it is recognised in profit and loss).

The purposes are outlined in the Article 16 of European Parliament and Council Regulation (EC) No

714/2009. Determining the appropriate accounting requires management judgment. The management

has assessed that since 1 July 2014 congestion income should be used for constructions of new in-

terconnection capacities. In 2021 Elering recognised deferred congestion income in the amount EUR

65,232 thousand (2020: EUR 25,320 thousand); see also Note 14. Amounts accrued since 1 July 2014 are

used to finance investments in network that will increase the cross-border interconnection capacity,

i.e. the construction of the third electricity transmission line between Estonia and Latvia.

Note 4. New accounting pronouncements

Adoption of new or revised standards and interpretations

The following new or revised standards and interpretations became effective for Elering from 1 Janu-

ary 2021:

“Benchmark Interest Rate (IBOR) Reform” - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4

and IFRS 16 (effective for annual periods beginning on or after 1 January 2021). The Phase 2 amend-

ments address issues that arise from the implementation of the reforms, including the replacement

of one benchmark with an alternative one. The amendments cover the following areas:

• Accounting for changes in the basis for determining contractual cash flows as a result of IBOR

reform: For instruments to which the amortised cost measurement applies, the amendments

require entities, as a practical expedient, to account for a change in the basis for determining

the contractual cash flows as a result of IBOR reform by updating the effective interest rate

using the guidance in paragraph B5.4.5 of IFRS 9. As a result, no immediate gain or loss is

recognised. This practical expedient applies only to such a change and only to the extent it is

necessary as a direct consequence of IBOR reform, and the new basis is economically equiv-

alent to the previous basis. Insurers applying the temporary exemption from IFRS 9 are also

required to apply the same practical expedient. IFRS 16 was also amended to require lessees

to use a similar practical expedient when accounting for lease modifications that change the

basis for determining future lease payments as a result of IBOR reform.

• End date for Phase 1 relief for non contractually specified risk components in hedging relation-

ships: The Phase 2 amendments require an entity to prospectively cease to apply the Phase

1 reliefs to a non-contractually specified risk component at the earlier of when changes are

made to the non-contractually specified risk component, or when the hedging relationship is

discontinued. No end date was provided in the Phase 1 amendments for risk components.

• Additional temporary exceptions from applying specific hedge accounting requirements: The

Phase 2 amendments provide some additional temporary reliefs from applying specific IAS 39

and IFRS 9 hedge accounting requirements to hedging relationships directly affected by IBOR

reform.

• Additional IFRS 7 disclosures related to IBOR reform: The amendments require disclosure of: (i)

how the entity is managing the transition to alternative benchmark rates, its progress and the

risks arising from the transition; (ii) quantitative information about derivatives and non-deriv-

atives that have yet to transition, disaggregated by significant interest rate benchmark; and

(iii) a description of any changes to the risk management strategy as a result of IBOR reform.

The amendment did not have a material impact on Elering’s results or the scope of information dis-

closed by Elering.

There are no other new or revised standards or interpretations that are effective for the first time for

the financial year beginning on or after 1 January 2021 that would have a material impact to Elering.

New or revised standards and interpretations

Certain new or revised standards and interpretations have been issued that are mandatory for the

Elering’s annual periods beginning on or after 1 January 2022, and which Elering has not early adopted:

“Classification of liabilities as current or non-current” - Amendments to IAS 1 (effective for annual

periods beginning on or after 1 January 2022; not yet adopted by the European Union). These narrow

scope amendments clarify that liabilities are classified as either current or non-current, depending on

the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a

substantive right, at the end of the reporting period, to defer settlement for at least twelve months.

The guidance no longer requires such a right to be unconditional. Management’s expectations whether

they will subsequently exercise the right to defer settlement do not affect classification of liabilities.

The right to defer only exists if the entity complies with any relevant conditions as of the end of the

reporting period. A liability is classified as current if a condition is breached at or before the reporting

date even if a waiver of that condition is obtained from the lender after the end of the reporting period.

Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting

date. In addition, the amendments include clarifying the classification requirements for debt a company

might settle by converting it into equity. ‘Settlement’ is defined as the extinguishment of a liability

with cash, other resources embodying economic benefits or an entity’s own equity instruments. There

is an exception for convertible instruments that might be converted into equity, but only for those

instruments where the conversion option is classified as an equity instrument as a separate component

of a compound financial instrument.

“Classification of liabilities as current or non-current, deferral of the effective date” - Amendments

to IAS 1 (effective for annual periods beginning on or after 1 January 2023; not yet adopted by the

European Union). The amendment to IAS 1 on classification of liabilities as current or non-current

was issued in January 2020 with an original effective date 1 January 2022. However, in response to the

Covid-19 pandemic, the effective date was deferred by one year to provide companies with more time

to implement classification changes resulting from the amended guidance.

“Amendments to IAS 8: Concept of Accounting Estimates” (effective for annual periods beginning on

or after 1 January 2023; not yet adopted by the European Union). The amendment to IAS 8 clarified how

companies should distinguish changes in accounting policies from changes in accounting estimates.

Elering assesses the impact of the amendments as not material.

There are no other new or revised standards or interpretations that are not yet effective that would

be expected to have a material impact on Elering.

Note 5. Financial risk management

The risk management function is performed at Elering in accordance with internationally approved

Enterprise Risk Management Mode methodology, which has been developed by the Committee of

Sponsoring Organizations of the Treadway Commission (COSO). Elering’s risks are assessed in four

categories: strategic, operational, financial and external risks. Financial risk comprises market risk

(including electricity and natural gas price risk, currency risk, interest rate risk), credit risk and liquid-

ity risk. The primary objectives of the financial risk management function are to establish risk limits,

and then to ensure that exposure to risks stays within these limits. Risk management is monitored at

the Management Board level and the results are reported to the Audit Committee. Elering’s financial

risks are managed at Elering’s Finance Department.

The following table provides reconciliation of classes of financial assets and financial liabilities of

Elering in accordance with the measurement categories of IFRS 9:

Financial assets

In thousands of euros 31.12.2021 31.12.2020

Financial assets at amortised cost

Cash and cash equivalents (Note 7) 62,668 50,619

Short-term deposits (Note 7) 42,000 0

Trade and other receivables (Note 8) 59,122 38,120

Total financial assets at amortised cost 163,790 88,739

Financial assets at fair value through other comprehensive income

Investments in equity instruments (Note 2) 0 899

Total financial assets at fair value through other comprehensive income 0 899

Total financial assets 163,790 89,638

In thousands of euros 31.12.2021 31.12.2020

Liabilities at amortised cost

Trade and other payables (Note 13) 49,662 21,723

Borrowings (Note 12) 324,105 334,300

Total financial liabilities 373,767 356,023

Financial liabilities

Credit risk

Elering takes on exposure to credit risk, which is the risk that one party of a financial instrument will

cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk

arises as a result of Elering’s sales on credit terms and other transactions with counterparties giving

rise to financial assets. In accordance with Elering’s risk management principles, Elering’s short-term

available cash resources can be deposited in the following domestic financial instruments: overnight

deposits at acceptable credit institutions and term deposits at credit institutions. The following prin-

ciples are followed when depositing short-term available cash resources: ensuring of liquidity, capital

preservation, interest income generation.

Elering’s assets exposed to credit risk as of balance sheet days were as follows:

In thousands of euros 31.12.2021 31.12.2020

Cash and cash equivalents (Note 7) 62,668 50,619

Short-term deposits (Note 7) 42,000 0

Trade and other receivables (Note 8) 59,122 38,120

Total exposure of assets to credit risk in the statement of financial position

163,790 88,739

Elering structures the levels of credit risk it undertakes by placing limits on the amount of risk accept-

ed in relation to counterparties or groups of counterparties or by applying additional instruments for

credit risk management. Elering established criteria for holding financial assets at credit institutions.

According to the given criteria maximum permitted limits depend on the credit rating and equity of the

credit institution. Limits on the level of credit risk are approved regularly by management. Such risks are

monitored on an ongoing basis and they are subject to an annual review.

Elering’s Accounting Department reviews ageing analysis of outstanding trade receivables and follows

up on past due balances each week. The results are reported to the CFO of Elering. Information about

credit risk is disclosed in Note 8.

To measure the expected credit losses, trade receivables have been grouped based on shared credit

risk characteristics and the days past due. The expected loss rates are based on the payment profiles

of sales over a period of 12 months before 31 December 2021 or 31 December 2020 respectively and

the corresponding historical credit losses experienced within this period. The historical loss rates are

adjusted to reflect current and forward-looking information on macroeconomic factors affecting the

ability of the customers to settle the receivables. Elering has identified the GDP and the unemploy-

ment rate of the countries in which it sells its goods and services to be the most relevant factors, and

accordingly adjusts the historical loss rates based on expected changes in these factors.

On that basis described above, the loss allowance as at 31 December 2021 and 31 December 2020 was

determined immaterial. While cash and cash equivalents and bank deposits are also subject to the

impairment requirements of IFRS 9, the identified impairment loss was immaterial as at 31 December

2021 and 31 December 2020.

Credit risk concentration.

Elering is exposed to concentrations of credit risk. Management monitors and

discloses concentrations of credit risk by reports, which list exposures to counterparty with aggregated

balances in excess of 5% of Elering’s equity. On 31.12.2021, Elering had one counterparty (31.12.2020: one

counterparty) with an aggregated receivables balance of EUR 21,528 thousand (31.12.2020: EUR 19,646

thousand) or 39% of the total amount of accounts receivable (31.12.2020: 63%). In 2021 as well as in

2020 the major part of receivables was to the wholly state-owned company who is monopolist in distri-

bution network. Therefore, management believes that the credit risk arising from the concentration of

receivables is not significant.

Cash in bank is deposited in four banks. The credit ratings of the banks are described in Note 7.

Market risk

Elering is exposed to market risk. Market risk arises mainly from changes in the electricity price, as well

as from open positions in foreign currencies and interest-bearing assets and liabilities. Management

sets limits on the value of exposed positions that may be accepted, which is monitored on a daily basis.

However, the use of this approach does not completely prevent losses outside of these limits but limits

their maximum amounts.

Sensitivities to market risks shown below are based on a change in one factor while holding all other

factors constant. In practice, this is unlikely to occur and changes in some of the factors may be corre-

lated – for example, changes in the interest rate and changes in foreign currency rates.

Electricity price risk.

For compensating network losses, Elering buys electricity primarily in the electric-

ity exchange. The average electricity exchange price of the last period is used for calculation of network

tariffs. In a situation where the exchange price differs from the one used for calculation of tariffs,

the difference is not compensated in the next tariff period. According to Elering, this risk may cause

fluctuations in profits in the short term, but it does not endanger Elering’s sustainability. Therefore, no

financial instruments have been used to mitigate this risk.

Price risk of natural gas.

Elering purchases natural gas for compensating network losses. In a situation

where the price of gas estimated for the calculation of network tariffs differs from its actual price, the

difference is not compensated in the next tariff period. This results in a situation where Elering may

generate a profit or sustain a loss on the purchased gas in the short-term as the price of gas changes.

Elering does not expect the risk of potential loss to be high and therefore it does not employ any finan-

cial instruments to mitigate this risk.

Currency risk.

Currency risk is the risk that in the future fair value of financial instruments of cash flow

will fluctuate due to changes in currency rates. As virtually all of Elering’s transactions and balances

are denominated in euros, Elering is not exposed to significant currency risk. Elering established sep-

arate limits for open currency positions depending on the currency and duration. Transactions in other

currencies are insignificant; there were no financial instruments denominated in other currencies as of

31.12.2021 and 31.12.2020.

Interest rate risk.

The financial instruments with floating interest rate expose Elering to cash flow

interest rate risk, i.e. the risk that an increase in market interest rates will cause an increase in Elering’s

interest expense. At the same time, in case of short-term deposits, a change in market interest rates

has effect on Elering’s interest income arising from investment of available resources into new deposits.

Elering established the minimum limit for fixed interest-bearing liabilities at 50% of all liabilities. To

some extent, Elering is protected against interest rate risk, because according to tariff regulations, the

average interest rate of the last five years is included in the calculation of network tariffs. Since Elering

does not carry interest-bearing financial instruments at fair value, change in market interest rates does

not have effect on balance value of available assets or liabilities, nor interest income or expense arising

from them.

As of 31.12.2021 borrowings with fixed interest rate constituted 70% (31.12.2020: 67%) of all borrowings

carried at amortised cost; the remaining 30% (31.12.2020: 33%) of the above-mentioned liabilities were

long-term bank loans with a floating interest rate carried at amortised cost. More detailed information

borrowings items is set out in Note 12.

The floating interest rate of bank loans is based on the 6-month Euribor and it is fixed twice a year.

As at 31.12.2021 borrowings with a floating interest rate totalled EUR 97,836 thousand (31.12.2020:

EUR 108,379 thousand).

If, as at 31.12.2021, the interest rates of Elering’s borrowings, that are exposed to the cash flow interest

rate risk, had been 50 basis points (2020: 50 basis points) higher with all other variables held constant,

profit for the year would have been EUR 489 thousand (2020: EUR 542 thousand) lower.

Elering’s interest-bearing financial assets are overnight deposits and term deposits. The rate for over-

night deposits is being fixed once a day and term deposits have a fixed interest rate for the whole term

of the deposit. Therefore, Elering is not exposed to cash flow interest rate risk from financial assets.

Elering did not have other financial instruments exposed to risk of change in interest rate.

Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associat-

ed with financial liabilities. Elering is exposed to daily calls on its available cash resources. Elering’s objective

is to obtain a stable funding base primarily consisting of amounts due to banks and bonds. Liquidity risk

is managed by the Finance Department of Elering by monitoring the liquidity position and regular liquidity

stress testing under a variety of scenarios covering both normal and more severe market conditions.

The table below shows liabilities on 31.12.2021 and 31.12.2020 by their remaining contractual maturity.

The amounts disclosed in the maturity table are contractual undiscounted cash flows. The cash flows

for borrowings subsequent periods are calculated on the basis of loan interest rates effective at bal-

ance sheet date.

The maturity analysis of financial liabilities on 31.12.2021 is as follows:

In thousands of euros On demand and

less than 1 month

From 1 to 12

months

From 12 months

to 5 years

Over 5 years Total

Liabilities

Trade and other payables (Note 13) 44,775 4,887

0 0 49,662

Borrowings (Note 12)* 0 12,604

266,955 47,556 327,115

Total future payments 44,775 17,49 1

266,955 47,556 376,777

*Including interest

The maturity analysis of financial liabilities on 31.12.2020 is as follows:

Elering holds its money in bank deposits. As of 31.12.2021, Elering had cash and cash equivalents EUR

62,668 thousand and short-term deposits EUR 42,000 thousand (as at 31.12.2020, cash and cash

equivalents amounted to EUR 50,619 thousand and there were no short-term deposits). See further

information in Note 7.

Capital management

Elering’s main goal in capital risk management is to ensure Elering’s sustainability of operations in

order to generate return for its shareholder and provide a sense of security to creditors and thereby,

preserve an optimal capital structure and lower the cost of capital. In order to preserve or improve the

capital structure, Elering can regulate the dividends payable to the shareholders, buy back shares from

shareholders, issue new shares or bonds and take new loans.

In thousands of euros On demand and

less than 1 month

From 1 to 12

months

From 12 months

to 5 years

Over 5

years

Total

Liabilities

Trade and other payables (Note 13) 16,234 5,489

0 0 21,723

Borrowings (Note 12)* 0 12,732

269,852 56,198 338,782

Total future payments 16,234 18,221

269,852 56,198 360,505

*Including interest

According to the widespread industry practice, Elering uses the equity to asset ratio for monitoring

Elering’s capital structure, arrived at by dividing total equity by total assets as of the balance sheet

date. Elering’s target has been to preserve the ratio of equity to assets at 20 - 45%.

The equity to asset ratio is presented in the table below:

In thousands of euros 31.12.2021 31.12.2020

Equity 382,088 386,968

Total assets 1,182,854 1,075,736

Equity to asset ratio 32.3% 36%

Fair value of financial instruments

Fair value is the amount at which a financial instrument could be exchanged in a current transaction

between willing parties, other than in a forced sale or liquidation, and is best expressed by an active

quoted market price.

The tables below analyses financial instruments carried at fair value, by valuation method. The differ-

ent levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset

or liability, either directly or indirectly.

Level 3: inputs for the asset or liability that are not based on observable market data.

Estimated fair values of financial instruments have been determined by Elering using available market

information, where it exists, and appropriate valuation methodologies. The additional estimations are

used for interpreting market data to determine the fair value.

Financial assets carried at amortised cost.

Carrying amounts of trade and other financial receivables

approximate their fair values (level 3).

Liabilities carried at amortised cost. Carrying amounts of trade and other payables approximate their

fair values (level 3).

The estimated fair value of bonds rate is determined using their quoted price (level 1). The estimated

fair value of non-current borrowings with a floating interest rate (level 3) is determined using valuation

techniques, based on expected cash flows discounted at current interest rates (0.45%) for new instru-

ments with similar credit risk and remaining maturity.

The fair value analysis of borrowings on 31.12.2021 is as follows:

In thousands of euros Fair value Carrying amount

Bonds 227,106 224,749

Bank loans 95,693 97,836

In thousands of euros Fair value Carrying amount

Bonds 228,922 224,562

Bank loans 105,683 108,379

The fair value analysis of borrowings on 31.12.2020 is as follows:

100

Note 6. Segment reporting

The Management Board is the chief operating decision maker. Elering has determined main products

and services that generate external revenues and profit and has built up a methodology of allocation of

revenues and expenses, and assets to the products.

For the purposes of monitoring the Elering’s performance and making management decisions, the Man-

agement Board uses product-based reporting.

Elering has distinguished three reportable segments of its business representing its main products and

services; a number of minor products and services are presented together as “Other income and expenses”:

1. Regulated electricity network services that consist in the transmission of electricity through the

electricity transmission networks based on tariffs approved by the regulator, i.e. the Estonian

Competition Authority and the revenue from the Inter TSO Compensation Mechanism (ITC);

2. Regulated gas network services that consist in the transmission of gas through the gas transmis-

sion networks based on tariffs approved by the regulator, i.e. the Estonian Competition Authority

and the revenue from the Inter TSO Compensation Mechanism (ITC);

3. Balancing services (while there is a separate reporting for electricity and gas balancing services, the

two have been aggregated into one reportable segment as they have common business processes

and similar characteristics, clients and regulatory environment);

4. Other income and expenses.

Other segments include minor products and services (e.g. connection fees, government grant, congestion

income, lease income, etc.) which individual share of Elering’s revenue and EBITDA is immaterial and

which is not taken into account by the Estonian Competition Authority for calculating network tariffs and

determining principles of charging for balancing services. None of these products and services meet the

quantitative thresholds that would require reporting separate information.

The internal reporting provided to the Management Board has been prepared using the accounting policies

and presentation consistent with those used in preparation of the financial statements.

All revenues and expenses that can be directly allocated to a specific segment are reported under the

respective segment. Costs that are not directly attributable to a single segment are allocated on a pro rata

basis. The drivers are either the proportion of the segment’s sales revenue or the proportion of working

time directly related to the segment. Net financial income / expenses are allocated to all segments ac-

cording to the proportion of long-term and short-term interest-bearing debt in the statement of financial

position at the end of the previous period. The income taxes are allocated to regulated electricity segment

only, as dividends are paid out from this activity.

101

All significant balance sheet accounts that can be allocated directly between segments are reported under

the respective segment. Balance sheet items not allocated using the direct method are allocated to seg-

ments by balance sheet item using different drivers: either the proportion of the segment’s fixed assets or

the proportion of working time of employees directly related to the segment.

The Management Board assesses the performance of the operating segments based on revenue, EBITDA

(net profit plus income taxes, net finance cost, and depreciation and amortization) and net profit. EBITDA

is not a defined performance measure under IFRS. The Elering’s definition of EBITDA may not be compara-

ble with similarly titled performance measures and disclosures by other entities.

Elering is domiciled in Estonia and its non-current assets are also located in Estonia. In the reporting period.

Elering had one counterparty with an aggregated revenue more than 10% of Elering´s revenue. The largest

customer´s revenue is attributable to the electricity transmission segment and it amounts to EUR 77,115

thousand in the reporting period (2020: EUR 73,678 thousand).

Revenue division by geographical location of customers is disclosed below.

Segment reporting, 1.01.2021–31.12.2021

In thousands of euros Regulated

electricity

network services

Regulated

gas network

services

Balancing

services

Other Total

Revenue from external

customers

89,683 20,949 82,214 8,611 201,457

Revenue between segments -28 53 -25 0 0

Total revenue 89,655 21,002 82,189 8,611 201,457

Other operating income 0 0 0 6,672 6,672

Total income 89,655 21,002 82,190 15,283 208,129

Goods, raw materials and

services

-48,841 -3,316 -81,033 -2,020 -135,210

Other operating expenses

and staff costs

-10,137 -5,181 -1,360 -1,688 -18,366

EBITDA 30,677 12,505 -204 11,575 54,553

Depreciation and

amortization (Note 10, 11)

-30,984 -6,311 -193 -8,043 -45,531

Net financial income (costs)

(Note 21)

-1,694 -218 -17 -357 -2,286

Income tax (Note 15) -1,628 0 0 0 -1,628

102

Net profit -3,629 5,976 -414 3,175 5,108

Total assets 599,663 119,849 29,143 434,199 1,182,854

Total liabilities 315,573 48,640 28,448 408,105 800,766

Additions to property, plant

and equipment (Note 10)

13,889 13,644 51 47,519 75,103

Additions to intangible

assets (Note 11)

1,848 369 540 935 3,692

Segment reporting, 1.01.2020-31.12.2020

In thousands of euros Regulated

electricity

network

services

Regulated

gas network

services

Balancing

services

Other Total

Revenue from external

customers

84,305 18,886 27,838 6,039 137,068

Revenue between segments -24 75 -51 0 0

Total revenue 84,281 18,961 27,787 6,039 137,068

Other operating income 0 0 0 5,327 5,327

Total income 84,281 18,961 27,787 11,366 142,395

Goods, raw materials and

services

-22,616 -3,407 -26,697 -535 -53,255

Other operating expenses

and staff costs

-9,651 -4,124 -1,046 -1,594 -16,415

EBITDA 52,014 11,430 44 9,237 72,725

Depreciation and

amortization (Note 10, 11)

-30,038 -4,846 -117 -5,122 -40,123

Net financial income (costs)

(Note 21)

-1,726 -136 -10 -464 -2,336

Income tax (Note 15) -4,964 0 0 0 -4,964

103

Net profit 15,286 6,448 -83 3,651 25,302

Total assets 612,043 114,691 5,580 343,422 1,075,736

Total liabilities 314,322 49,458 4,471 320,517 688,768

Additions to property, plant

and equipment (Note 10)

30,168 8,721 235 40,828 79,952

Additions to intangible

assets (Note 11)

3,107 1,011 433 484 5,035

In thousands of euros Regulated

electricity

network

services

Regulated

gas network

services

Balancing

services

Other Total

Estonia 83,955 19,496 44,273 5,167 152,892

Norway 795 0 0 0 795

Latvia 0 198 5,646 -20 5,824

Finland 0 1,254 1,913 3,299 6,466

Lithuania 264 0 30,382 43 30,689

Other 4,669 0 0 122 4,791

Total revenue 89,684 20,948 82,214 8,611 201,457

Revenue by geographical location of customers, 1.01.2021-31.12.2021

Revenue by geographical location of customers, 1.01.2020-31.12.2020

In thousands of euros Regulated

electricity

network

services

Regulated

gas network

services

Balancing

services

Other Total

Estonia 80,506 18,271 12,553 4,320 115,650

Norway 1,233 0 0 0 1,233

Latvia 0 411 3,804 9 4,224

Finland 11 204 1,969 1,495 3,679

Lithuania 0 0 9,512 146 9,658

Other 2,555 0 0 69 2,624

Total revenue 84,305 18,886 27,838 6,039 137,068

104

Note 7. Bank accounts and deposits

In thousands of euros 31.12.2021 31.12.2020

Cash and cash equivalents 62,668 50,619

Short-term deposits* 42,000 0

In thousands of euros 31.12.2021 31.12.2020

Bank accounts and deposits at banks:

with Moody’s credit rating of Aa2* 25,193 2,107

with Moody’s credit rating of Aa3* 24,671 48,447

with Moody’s credit rating of A3 0 65

with Moody’s credit rating of Baa1 54,804 0

Total bank accounts and deposits at banks 104,668 50,619

* As at 31.12.2021, seven contracts for an amount of EUR 35,000 thousand were signed with Coop Pank

AS. The maturity of the contracts is April - December 2022 and the interest rates are 0.15%-0.35%.

One contract amounting to EUR 7,000 thousand was concluded with LHV Pank AS. The maturity of the

contract is 13.12.2022 and the interest rate is 0.02%. All contracts are denominated in EUR.

Bank accounts and deposits:

* The two unrated banks in which Elering deposited its funds are Estonian-registered subsidiaries of

international banks rated Aa2 and Aa3 by Moody’s.

105

Note 8. Trade and other receivables

In thousands of euros 31.12.2021 31.12.2020

Trade receivables

Accounts receivable 55,551 30,963

 Incl. FTR-Limited auction receivables 1,904 1,284

 Incl. provision for doubtful receivables -11 -8

Other receivables 3,571 7,15 7

 Incl. accrued compensation* 0 5,700

 Incl. Accrued potential ITC receivables 3,470 1,358

 Incl. security deposit 0 99

 Incl. interest receivables 1 0

Total financial assets within trade and other receivables

in the statement of financial position

59,122 38,120

Tax receivables 33 88

Prepayments 528 378

Total trade and other receivables 59,683 38,586

* According to the agreement between the Estonian and Finnish regulators “Cross-Border Cost Alloca-

tion Agreement between the Estonian Competition Authority and Energy Authority of Finland”, Baltic

Connector Oy will compensate Elering with EUR 5.7 million, which exceeds the amount provided by the

European aid for the construction of the gas infrastructure. The given compensation was recognised as

receivable on 31.12.2020. The compensation was collected in 2021.

106

In thousands of euros 31.12.2021 31.12.2020

Accounts receivable not yet due

 Distribution networks 26,445 23,765

 Other clients 29,098 6,603

Total accounts receivable not yet due 55,543 30,368

Accounts receivable past due but not classified as doubtful

 1 to 90 days overdue 8 595

Total accounts receivable past due but not classified as doubtful 8 595

Total accounts receivable past due and classified as doubtful

 1 to 90 days overdue 0 5

 more than 90 days overdue 11 3

Total accounts receivable past due and classified as doubtful 11 8

Total accounts receivable past due 19 603

Provision for doubtful accounts receivable -11 -8

Total trade receivables 55,551 30,963

Analysis by credit quality of trade receivables is as follows:

Under the accounting policies of Elering, receivables 90 days past due are usually written down in full.

The total amount of allowance for receivables 90 days past due is adjusted using prior experience of

how many of the receivables classified as doubtful are collected in a later period and how many of the

receivables not more than 90 days past due are not collected in a later period. Also other individual and

extraordinary impacts like the global economic recession are taken into account during evaluation.

In the reporting period, write-downs of receivables in the amount of EUR 3 thousand have been made.

As of 31.12.2020 write-downs of receivables in the amount of EUR 8 thousand have been made.

Further information on receivables from related parties is disclosed in Note 23.

107

Note 9. Inventories

In thousands of euros 31.12.2021 31.12.2020

Fuel oil 2 372 2 447

Natural gas reserves 661 344

Other materials at warehouses 625 744

Total inventories 3,658 3,535

Elering maintains fuel reserves for the purposes of emergency reserve power plants, natural gas reserves

and natural gas balance for providing gas-related transmission and balancing services, respectively,

and inventories of other materials used for repairs of gas equipment and gas pipelines.

108

Note 10. Property, plant and equipment

In thousands of euros Land Right

of use

of land

Buildings Facilities Machinery

and

equipment

Other Construction

in progress

Total

Property, plant and

equipment as at 1.01.2020

Cost as at 1.01.2020 6,126 6,580 51,888 604,622 538,425 489 106,354 1,314,483

Accumulated depreciation 0 -244 -11,158 -190,416 -191,322 -276 0 -393,416

Carrying amount as at

01.01.2020

6,126 6,336 40,730 414,206 347,103 213 106,354 921,067

Prepayments 4 0 0 824 4,397 0 0 5,225

Total property, plant and

equipment as at 01.01.2020

6,130 6,336 40,730 415,030 351,500 213 106,354 926,293

Movements

1.01.2020-31.12.2020

Additions 80 499 0 0 0 0 80 380 80 960

Reclassified from

construction in progress

0 0 705 20 341 22 836 16 -43 898 0

Capitalised borrowing costs

(Note 21)

0 0 0 0 0 0 264 264

Disposals and write-offs

at carrying amount

-26 0 0 0 -137 0 0 -164

Prepayments 5 0 0 -824 -453 0 0 -1,272

Depreciation charge 0 -71 -1,439 -15,995 -20,420 -106 0 -38,032

Total movements

1.01.2020-31.12.2020

55 428 -734 3,522 1,826 -90 36,746 41,757

Cost as at 31.12.2020 6,180 7,078 52,541 611,275 557,405 505 143,100 1,378,082

Accumulated depreciation 0 -314 -12,545 -192,722 -208,023 -382 0 -413,986

Carrying amount as at

31.12.2020

6,180 6,764 39,996 418,553 349,382 122 143,100 964,098

Prepayments 9 0 0 0 3 944 0 0 3 953

Total property, plant and

equipment as at 31.12.2020

6,189 6,764 39,996 418,552 353,326 122 143,100 968,051

109

Construction in progress mainly consists of substations, electricity transmission lines and gas pipelines.

Upon completion, cost of these assets is recognised as cost of buildings, machinery and equipment and

facilities.

Additions to construction in progress during the financial year include capitalised borrowing costs of

EUR 145 thousand (2020: EUR 264 thousand). The capitalisation rate is 0.75% (2020: 0.76%).

Further information on operating lease of property, plant and equipment is disclosed in Note 22.

Movements 1.01.2021-31.12.2021

Additions 29 183 0 0 0 0 78,389 78,601

Reclassified from

construction in progress

0 0 16,828 90,119 68,332 11 -175,290 0

Capitalised borrowing costs

(Note 21)

0 0 0 0 0 0 145 145

Disposals and write-offs

at carrying amount

-4 0 -5 0 -508 0 0 -517

Prepayments 0 0 0 0 -3,643 0 0 -3,643

Depreciation charge 0 -73 -1,799 -18,679 -21,759 -93 0 -42,403

Total movements

1.01.2021-31.12.2021

25 110 15,024 71,440 42,422 -82 -96,756 32,182

Property, plant and

equipment as at 31.12.2021

Cost as at 31.12.2021 6,205 7,261 69,280 699,862 620,664 516 46,343 1,450,131

Accumulated depreciation 0 -387 -14,260 -209,870 -225,217 -475 0 -450,209

Carrying amount as at

31.12.2021

6,205 6,874 55,020 489,992 395,447 41 46,343 999,922

Prepayments 9 0 0 0 301 0 0 310

Total property, plant and

equipment as at 31.12.2021

6,214 6,874 55,020 489,992 395,748 41 46,344 1,000,232

110

Note 11. Intangible assets

In thousands of euros Acquired software & licenses Total

Intangible assets as at 1.01.2020

Cost as at 1.01.2020 11,822 11,822

Accumulated amortisation -5,862 -5,862

Carrying amount 1.01.2020 5,960 5,960

Intangible assets not yet available for use 5,145 5,145

Total intangible assets as at 1.01.2020 11,105 11,105

Movements 1.01.2020-31.12.2020

Additions 5,035 5,035

Amortisation charge -2,092 -2,092

Total movements 1.01.2020-31.12.2020 2,943 2,943

Intangible assets as at 31.12.2020

Cost as at 31.12.2020 19,670 19,670

Accumulated amortisation -7,671 -7,671

Carrying amount as at 31.12.2020 11,999 11,999

Intangible assets not yet available for use 2,049 2,049

Total intangible assets as at 31.12.2020 14,048 14,048

Movements 1.01.2021-31.12.2021

Additions 3,693 3,693

Amortisation charge -3,128 -3,128

Total movements 1.01.2021-31.12.2021 565 565

Intangible assets as at 31.12.2021

Cost as at 31.12.2021 22,070 22,070

Accumulated amortisation -10,553 -10,553

Carrying amount as at 31.12.2021 11,517 11,517

Intangible assets not yet available for use 3,096 3,096

Total intangible assets as at 31.12.2021 14,613 14,613

111

Note 12. Borrowings

In thousands of euros 31.12.2021 31.12.2020

Short-term borrowings

Current portion of long-term bank loans 10,558 10,558

Accrued interests 1,387 1,346

Lease liabilities 65 7

Total short-term borrowings 12,010 11,911

Long-term borrowings

Bonds issued 224,749 224,562

Long-term bank loan 87,278 97,821

Lease liabilities 68 6

Total long-term borrowings 312,095 322,389

Borrowings are denominated in the following currencies:

Borrowings denominated in EUR 324,105 334,300

Total borrowings (Note 5) 324,105 334,300

Reconciliation of borrowings

In thousands of

euros

Short-term borrowings Long-term borrowings Total

Balance Bank

loans

Accrued

interests

Lease

liabilities

Bonds

issued

Bank

loans

Lease

liabilities

Balance as at

01.01.2020

10,558 1,315 19 224,376 108,362 13 344,643

Repayment of

borrowings

-1,558 0 -19 0 0 0 -10,577

Transfers 10,558 0 7 0 -10,558 -7 0

Non-cash

movements

0 0 0 186 17 0 203

Accrued interests 0 2,193 0 0 0 0 2,193

Paid interests 0 -2,162 0 0 0 0 -2,162

112

Balance as at

31.12.2020

10,558 1,346 7 224,562 97,821 6 334,300

Increase in

borrowings

0 0 0 0 0 174 174

Repayment of

borrowings

-10,558 0 -54 0 0 0 -10,612

Transfers 10,558 0 112 0 -10,558 -112 0

Non-cash

movements

0 0 0 187 15 0 202

Accrued interests 0 2,057 0

0 0

2,057

Paid interests 0 -2,016 0

0 0

-2,016

Balance as at

31.12.2021

10,558 1,387 65 224,749 87,278 68 324,105

The average effective interest rate on borrowings was 0.69% in 2021 (2020: 0.70%).

Elering has used the following types of facilities for financing purposes:

1. Loans from the European Investment Bank

Elering has two loans with outstanding balance of EUR 78,175 thousand (2020: EUR 85,422

thousand). The maturity dates of the loans are 2030 and 2033, the interest rate is floating

which is the sum of 6-month Euribor and the margin. In the reporting period Elering repaid loans

in the amount of EUR 7,209 thousand (2020: EUR 7,209 thousand).

2. Loans from the Nordic Investment Bank

Elering has two loans with outstanding balance of EUR 19,661 thousand (2020: 23,034 thous-

and). The maturity dates of the loans are 2025 and 2032. The interest rate is floating which is

the sum of 6-month Euribor and the margin. In the reporting period Elering repaid loans in the

amount of EUR 3,349 thousand (2020: EUR 3,349 thousand).

3. Eurobonds

In 2011, Elering issued Eurobonds with the maturity of seven years and the nominal value of

EUR 225 million and these bonds were listed on London stock exchange. Bonds’ coupon was

fixed at 4.625% p.a. and interest payments were made once a year. The bonds were redeemed

on 12 July 2018.

113

On 3 May 2018 Elering issued new Eurobonds with the nominal value of EUR 225 million which

were used to refinance previous Eurobonds. New bonds’ coupon is fixed at 0.875% p.a., maturity

date is 3 May 2023 and interest payments are made once a year.

4. Overdraft agreements

Elering has entered into four overdraft agreements in the total amount of EUR 70 million to

mitigate the refinancing risk, with an interest margin of 1 month EURIBOR plus a margin of

0.36-0.55%. The loans have not been withdrawn at 31.12.2021. Overdraft agreements have been

concluded until January-February 2023.

The loan agreements entered into by Elering set limits on Elering’s financial indicators (equity

to total assets and net debt / EBITDA). The limits have not been exceeded.

114

Note 13. Trade and other payables

In thousands of euros 31.12.2021 31.12.2020

Trade payables 37,529 11,967

Payables for purchased property, plant

and equipment and intangible assets

7,246 4,267

Subsidies due to biogas producers 4,122 4,193

Subsidies due to electricity producers 113 807

Other payables 652 489

Total financial liabilities within trade and other payables in the statement of

financial position

49,662 21,723

Taxes payable:

VAT 2,684 2,286

Corporate income tax and income tax on fringe benefits 1,634 5

Social security tax 490 448

Personal income tax 288 254

Excise tax 94 113

Unemployment insurance tax 32 29

Contributions to mandatory funded pension 23 22

Total taxes payable 5,245 3,157

Accrued expenses - employee benefits:

Wages and salaries 560 512

Bonuses 803 834

Holiday pay 305 292

Social security and unemployment insurance tax 374 381

Total accrued expenses - employee benefits 2,042 2,019

Other payables 186 203

Total trade and other payables 57,135 2 7,102

Further information on payables to related parties is disclosed in Note 23.

115

Note 14. Contract liability and deferred income

Contract liability from connection and other service fees

In thousands of euros 2021 2020

Contract liability from connection and other service fees at the beginning of

the period

34,855 35,020

Connection and other service fees received 3,284 1,784

Connection and other service fees recognised as revenue (Note 16) -1,985 -1,949

Contract liability from connection and other service fees at the end of the

period

36,154 34,855

Government grants

In thousands of euros 2021 2020

Deferred income from government grants at the beginning of the

period

180,109 123,573

Grants received for acquisition of property, plant and equipment 31,827 59,514

Amortisation of grants (Note 17) -5,122 -2,978

Deferred income from government grants at the end of the period 206,815 180,109

Congestion fees

In thousands of euros 2021 2020

Deferred congestion income at the beginning of the period 112,402 87,498

Congestion fees received during the period 65,231 25,320

Recognised as income (Note 17) -1 075 -416

Deferred congestion income at the end of the period 176,558 112,402

Total deferred income 383,372 292,511

Total contract liability from connection and other service fees and

deferred income

419,526 327,366

116

Note 15. Equity

Elering’s share capital consists of 229,890 shares with the nominal value of EUR 1,000 (31.12.2020:

229,890 shares with the nominal value of EUR 1,000). The shares have been paid for in full.

During the reporting year, the sole shareholder has not made a decision to increase the share capital.

In 2021 dividends totalling EUR 10 million were paid out and dividends per share totalled EUR 43.50 (in

2020 EUR 25.6 million, dividends per share amounted to EUR 111.36).

The payment of dividends resulted in an income tax expense of EUR 1.6 million (2020: EUR 5.0 million).

As of 31.12.2021, Elering’s statutory reserve capital totalled EUR 17,595 thousand (31.12.2020: EUR

16,330 thousand). As at 31.12.2021, Elering has the obligation to additionally transfer EUR 255 thousand

(31.12.2020: EUR 1,265 thousand). In 2021 Elering additionally transferred to statutory reserve capital

EUR 1,265 thousand (2020: EUR 1,644 thousand).

The distributable retained earnings of Elering as of 31.12.2021 amounted to EUR 134,348 thousand

(31.12.2020: EUR 140,530 thousand). From 2019, tax rate of 14/86 can be applied to dividend payments.

The more beneficial tax rate can be used for dividend payments in the amount of up to the average

dividend payment during the three preceding years that were taxed with the tax rate of 20/80. When

calculating the average dividend payment of three preceding years, 2018 will be the first year to be taken

into account (tax rate in 2018: 20/80). As of 31.12.2021, it would be possible to distribute EUR 102,586

thousand as net dividends (31.12.2020: EUR 107,578 thousand) and the corresponding income tax would

amount to EUR 31,761 thousand (31.12.2020: EUR 32,952 thousand). These numbers are calculated

taking into account the obligation to transfer certain amount of retained earnings to statutory reserve

capital. The amount of income tax calculated at more beneficial rate is EUR 3,527 thousand.

117

Note 16. Revenue

Analysis of revenue by activity

In thousands of euros 2021 2020

Sales of balancing and regulation services

Balancing electricity 65,165 22,397

Balancing gas 2,756 3,329

Regulation services 14,268 2,061

Total sales of balancing electricity and regulation services 82,189 27,787

Sales of electricity and gas network services

Electricity network services 83,927 80,483

Gas network services 18,418 16,232

Other electricity network services 5,728 3,799

Other gas network services 2,584 2,728

Total sales of network services 110,657 103,242

Sales of other goods and services

Revenue from connection fees (Note 14) 1,985 1,949

Lease of transmission equipment (Note 22) 920 917

Other services 5,417 2,956

Other goods 288 217

Total sales of other goods and services 8,611 6,039

Total revenue 201,457 137,068

118

Note 17. Other income

In thousands of euros 2021 2020

Government grants related to acquisition of property, plant and equipment

(Note 14)

5,122 2,978

Congestion income (Note 14) 1,075 416

Profit from sale of property, plant and equipment 289 104

Fines, penalties and compensations received 113 788

Grants for operating expenses 72 168

Dividends from long-term financial investments 0 873

Other income 1 0

Total 6,672 5,327

119

Note 18. Goods, raw materials and services

In thousands of euros 2021 2020

Electricity and gas purchased to provide the balancing service

Purchase of balancing energy 60,473 20,188

Purchase of balancing gas 13,876 3,103

Purchase of power regulation service 6,289 3,293

Expenses of emergency reserve power plant to provide balancing services 351 39

Total electricity purchased to provide the balancing service 80,989 26,623

System services

Reactive energy 410 438

Operating expenses of emergency reserve power plant 131 39

Total system services expenses 541 477

Losses in electricity and gas network

Electricity network losses 38,145 12,193

Gas network losses 379 158

Total electricity and gas to compensate for network losses 38,524 12,351

Maintenance and repair works

On facilities and equipment related to core activities 9,261 9,485

On production buildings and sites 1,253 1,086

Disassembly works and waste processing 771 1 122

Other maintenance and repair costs 514 538

Total maintenance and repair works 11,799 12,231

Other costs

Other costs 2,804 1,195

Operative switching and dispatching management expenses 553 378

Total other costs 3,357 1,573

Total goods, raw materials and services 135,210 53,255

120

Note 19. Other operating expenses

In thousands of euros 2021 2020

Research and consulting 1,768 1,199

Information technology 1,592 1,169

Telecommunication 951 1,026

Training and other miscellaneous operating expenses 874 599

Security, insurance and occupational safety 858 616

Research and development costs (R&D) 529 270

Office expenses 442 388

Other expenses 68 92

Transportation and tools 62 86

Total other operating expenses 7,144 5,445

Elering’s statement of comprehensive income includes expense relating to short-term leases and leases of

low-value assets in the amount of EUR 296 thousand (2020: EUR 248 thousand).

121

Note 20. Staff costs

Three members of the Management Board receive compensation for premature termination of their

employment contracts, such compensation amounts up to the three months’ salary.

In thousands of euros 2021 2020

Base salaries, additional remuneration, bonuses, vacation pay 8,087 7,841

Termination benefits 11 44

Other remuneration 275 305

Total remuneration to employees 8,373 8,190

Social security tax 2,789 2,714

Unemployment insurance tax 60 66

Total staff costs 11,222 10,970

Incl. compensations to the members

of the Management and Supervisory Board

Salaries, additional remuneration bonuses, vacation pay 481 439

Social security tax 179 162

Fringe benefits 49 41

Income tax on fringe benefits 12 10

Total compensations to the members of the Management and Supervisory

Boards

721 653

Average number of employees 253 234

Average number of employees by type:

Persons working under an employment contract 248 230

Persons providing services under law of obligations act 5 4

Members of the Management and Supervisory Boards 8 8

The average monthly pay of all employees including benefits 3,093 3,080

122

Note 21. Financial income and costs

In thousands of euros 2021 2020

Financial income

Interest income 6 2

Foreign exchange gains 10 0

Total financial income

16 2

Financial costs

Interest expenses -2,439 -2,552

Foreign exchange losses -6 -2

Other financial costs -2 -48

Total financial costs -2,447 -2,603

Less: capitalised borrowings costs (Notes 10) 145 264

Total financial costs recognised in the statement of comprehensive income -2,302 -2,338

Net financial income (costs) -2,286 -2,336

123

Note 22. Operating lease

Elering as a lessor

Operating lease revenue

Transmission equipment. Elering has an operating lease contract under which the free fibres of the fibre-optic

cable fixed to the line masts are leased out. This cable also acts as a lightning protection cord for the lines and

the fibres are used by Elering for its technical communication. The free fibres have been leased out to Tele2

Eesti AS. The lease contract contains a restriction under which Elering cannot give its transmission equipment

out for use by other companies operating in the telecommunications field. The contract is effective until 31

March 2025. Annual lease payments vary depending on the length of fibres leased out during the year.

Information about assets (facilities) leased out under operating leases

In thousands of euros 2021 2020

Buildings 81 82

Transmission equipment 920 917

Other 2 2

Total operating lease revenue 1,003 1,001

In thousands of euros 31.12.2021 31.12.2020

Acquisition cost 5,674 5,567

Accumulated depreciation at the end of period -5,118 -4,970

Carrying amount 556 597

In thousands of euros 31.12.2021 31.12.2020

Less than 1 year 940 916

From 1 year to 5 years 2,115 2,977

Over 5 years 0 0

Total future minimum lease payments 3,055 3,893

In thousands of euros 2021 2020

Depreciation charge 265 141

Depreciation charge

Estimated future lease payments under operating leases

124

Note 23. Balances and transactions with related parties

Parties are generally considered to be related if the parties are under common control or if one party has

the ability to control the other party or can exercise significant influence or joint control over the other

party in making financial and operational decisions. In considering each possible related party relationship,

attention is directed to the substance of the relationship, not merely the legal form.

In preparing financial statements of Elering, the following parties have been considered as related parties:

(i) Republic of Estonia and the entities under its control or significant influence;

(ii) Management and Supervisory Boards of Elering;

(iii) Close family members of the persons described above and the entities under their control or signif-

icant influence.

The outstanding balances with related parties were as follows:

In thousands of euros 31.12.2021 31.12.2020

Trade receivables

Companies controlled or significantly influenced by the State 31,136 21,441

Total trade receivables 31,136 21,441

incl. from network operators 21,824 19,692

Trade payables and other liabilities

Companies controlled or significantly influenced by the State 6,635 2,104

Total trade payables and other liabilities 6,635 2,104

125

Income and expense items with related parties were as follows:

In thousands of euros Related party 2021 2020

Revenue from sale of goods

Companies controlled or significantly

influenced by the State

17,250 5,430

Revenue from sale of services

Companies controlled or significantly

influenced by the State

82,810 82,311

Total revenue from sale of goods and

services

100,060 87,741

Purchase of goods

Companies controlled or significantly

influenced by the State

12,450 5,224

Purchase of services

Companies controlled or significantly

influenced by the State

6,319 2,150

Total purchase of goods and services 18,769 7,374

Expenditures on non-current assets

Companies controlled or significantly

influenced by the State

880 345

• Revenue from sale of goods is incurred by the sale of imbalance energy and imbalance gas.

• Revenue from sale of services is incurred mainly from sale of electricity and gas network services.

• The purchase of goods results from the purchase of imbalance energy and gas.

• The purchase of services results from regulation, operative switching, dispatching management

and maintenance and repair services.

There were no transactions with companies in which the members of the Supervisory Board and the

Management Board or their close relatives have significant influence in the reporting period.

Key management personnel compensations are disclosed in Note 20.

No receivables from related parties were written off in 2021 and 2020.

The potential payroll liability would be EUR 94.5 thousand excluding social security contributions if the

Supervisory Board were to replace all Management Board members.

126

Note 24. Contingent liabilities and commitments

Capital expenditure commitments.

The network operator must develop the network within its service area

in a way that ensures the continued provision of network services in accordance with the set requirements.

As at 31.12.2021, Elering has contractual capital expenditure commitments in respect of property, plant and

equipment totalling EUR 151,275 thousand (31.12.2020: EUR 93,459 thousand).

Tax legislation.

The tax authorities have the right to verify Elering’s tax records up to 5 years from the time

of submitting the tax declaration and upon finding errors, impose additional taxes, interest and fines.

Elering’s management estimates that there are not any circumstances which may lead the tax authorities

to impose additional significant taxes on Elering.

127

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

128

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Our audit approach

Overview

Materiality Overall Company materiality is EUR 1,700 thousand, which represents

approximately 2.5% of the average profit before interest, tax,

depreciation and amortization (EBITDA) for the last three years (2019-

2021).

Key audit matters ● Estimates involved in capitalisation of capital expenditures and

determining their useful lives

● Accounting for congestion income

As part of designing our audit, we determined materiality and assessed the risks of material

misstatement in the financial statements. In particular, we considered where the Management Board

made subjective judgments; for example, in respect of significant accounting estimates that involved

making assumptions and considering future events that are inherently uncertain. As in all of our audits,

we also addressed the risk of management override of internal controls, including among other

matters, consideration of whether there was evidence of bias that represented a risk of material

misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an

opinion on the financial statements as a whole, taking into account the structure of the Company, the

accounting processes and controls, and the industry in which the Company operates.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain

reasonable assurance whether the financial statements are free from material misstatement.

Misstatements may arise due to fraud or error. They are considered material if individually or in

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of the financial statements.

Based on our professional judgment, we determined certain quantitative thresholds for materiality,

including the overall materiality for the financial statements as a whole as set out in the table below.

These, together with qualitative considerations, helped us to determine the scope of our audit and the

nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both

individually and in aggregate on the financial statements as a whole.

Overall Company materiality EUR 1,700 thousand

How we determined it Approximately 2.5% of the average profit before interest, tax,

depreciation and amortization (EBITDA) for the last three years

(2019-2021). EBITDA is a non-GAAP performance measure

that is defined and calculated by the management and for which

the management is responsible. Definition and calculation of

EBITDA may differ between entities.

Rationale for the materiality

benchmark applied

We have applied the average EBITDA for the last three years as

the benchmark because it is one of the key measures the

management uses to assess the Company’s performance. Due

to the volatility of annual EBITDA due to the significant increase

in electricity prices, we used a three-year average EBITDA that

better reflects the Company's operating volumes.

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

129

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in

our audit of the financial statements of the current period. These matters were addressed in the

context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we

do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Management’s estimates involved in

capitalisation of capital expenditures and

determining their useful lives (refer to Note 2

“Summary of significant accounting policies”,

Note 3 “Critical accounting estimates and

judgments in applying accounting policies” and

Note 10 “Property, plant and equipment” for

further details).

In 2021 the Company capitalised additions to

property, plant and equipment (PPE), mainly

related to the construction of electricity and

gas transmission network, in the amount of

EUR 78.6 million.

Expenditures are capitalised if they create new

or enhance the existing assets, and expensed

if they relate to repair or maintenance of the

assets. Classification of the expenditures

involves judgment.

The useful lives of PPE items are based on

management’s estimates regarding the period

during which the asset or its significant

components will be used. The estimates are

based on historical experience and market

practice and take into consideration the

physical condition of the assets.

Capital expenditure is not considered to be an

area of significant risk for our audit but as it

requires considerable time and resource to

audit due to its magnitude, it is considered to

be a key audit matter.

We assessed whether the Company’s accounting

policies in relation to the capitalisation of

expenditures are in compliance with IFRS.

We understood and evaluated controls related to

capital expenditures.

We evaluated whether the useful lives determined

in Company’s accounting policy for PPE were

appropriate given the nature of the asset,

business and industry environment.

We obtained a listing of capital expenditures

incurred during the year and, on a sample basis,

inspected underlying invoices to check that the

item has been correctly capitalised.

We also obtained a listing of repair and

maintenance expenses incurred during the year

and, on a sample basis, inspected underlying

invoices to ensure the classification as operating

expenditure was appropriate.

We obtained a detailed listing of items transferred

from the construction-in-progress to the finished

items during the year. On a sample basis, we

checked whether the depreciation of the item was

commenced timely, by comparing the depreciation

starting date with the date of the act of completion

of the work.

We also evaluated whether the useful lives

assigned to these items were consistent with the

Company’s accounting policy.

Accounting for congestion income (refer to

Note 2 “Summary of significant accounting

policies – Congestion income”, Note 3 “Critical

accounting estimates and judgments in

applying accounting policies” and Note 14

“Deferred income” for further details).

In 2021 the Company has received congestion

fees of EUR 65.2 million and the deferred

congestion income as of 31 December 2021

amounted to EUR 176.6 million.

We assessed whether the Company’s accounting

policy in relation to accounting for the congestion

revenue is compliant with IFRS.

We evaluated the management’s assessment on

whether and when the congestion fees will be

used for constructions of new interconnection

capacities. We corroborated the information

received with the Management and Supervisory

Board minutes of meetings describing future

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

130

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Accounting for congestion fees received

depends on the purposes for which it will be

used. Congestion fees used for construction of

new interconnection capacities are recognised

as deferred income (similarly to government

grants), until such construction is completed.

Congestion fees used for the reduction of

network tariffs are recognised in profit and

loss.

Determining the appropriate accounting

requires judgment. Due to the size and related

estimation uncertainty, it is considered a key

audit matter.

investments and with the capital expenditures

budget.

We obtained a confirmation letter from the third

party confirming the total amount of congestion

fees received during the year.

Furthermore, we assessed the adequacy of the

disclosures related to congestion income.

Reporting on other information including the Management report

The Management Board is responsible for the other information. The other information comprises the

chapter “Statement by the Chairman of the Management Board” and the management report (From

Elering’s mission to strategic goals, Activities of Elering in ensuring security of supply, Overview of

economic activities and results for 2021, Our Elering action plan for involving and motivating

employees, Elering and corporate social responsibility and Corporate Governance) (but does not

include the financial statements and our auditor’s report thereon).

Our opinion on the financial statements does not cover the other information, including the

Management report.

In connection with our audit of the financial statements, our responsibility is to read the other

information identified above and, in doing so, consider whether the other information is materially

inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears

to be materially misstated.

With respect to the Management report, we also performed the procedures required by the Auditors

Activities Act. Those procedures include considering whether the Management report is consistent, in

all material respects, with the financial statements and is prepared in accordance with the

requirements of the Accounting Act.

Based on the work undertaken in the course of our audit, in our opinion:

● the information given in the Management report for the financial year for which the financial

statements are prepared is consistent, in all material respects, with the financial statements; and

● the Management report has been prepared in accordance with the requirements of the Accounting

Act.

In addition, in light of the knowledge and understanding of the Company and its environment obtained

in the course of the audit, we are required to report if we have identified material misstatements in the

Management report and other information that we obtained prior to the date of this auditor’s report. We

have nothing to report in this regard.

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

131

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Responsibilities of the Management Board and those charged with governance for

the financial statements

The Management Board is responsible for the preparation and fair presentation of the financial

statements in accordance with International Financial Reporting Standards as adopted by the

European Union, and for such internal control as the Management Board determines is necessary to

enable the preparation of financial statements that are free from material misstatement, whether due

to fraud or error.

In preparing the financial statements, the Management Board is responsible for assessing the

Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless the Management Board either

intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting

process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional scepticism throughout the audit. We also:

● Identify and assess the risks of material misstatement of the financial statements, whether due to

fraud or error, design and perform audit procedures responsive to those risks, and obtain audit

evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not

detecting a material misstatement resulting from fraud is higher than for one resulting from error,

as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override

of internal control.

● Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Company’s internal control.

● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Management Board.

● Conclude on the appropriateness of the Management Board’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Company’s ability to continue

as a going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditor’s report to the related disclosures in the financial statements or, if such

disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditor’s report. However, future events or conditions may

cause the Company to cease to continue as a going concern.

● Evaluate the overall presentation, structure and content of the financial statements, including the

disclosures, and whether the financial statements represent the underlying transactions and

events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit.

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

132

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

We also provide those charged with governance with a statement that we have complied with relevant

ethical requirements regarding independence, and to communicate with them all relationships and

other matters that may reasonably be thought to bear on our independence, and where applicable,

actions taken to eliminate threats or safeguards applied .

From the matters communicated with those charged with governance, we determine those matters

that were of most significance in the audit of the financial statements of the current period and are

therefore the key audit matters. We describe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we

determine that a matter should not be communicated in our report because the adverse

consequences of doing so would reasonably be expected to outweigh the public interest benefits of

such communication.

AS PricewaterhouseCoopers

Lauri Past

Certified auditor in charge, auditor’s certificate no.567

10 March 2022

Tallinn, Estonia

AS PricewaterhouseCoopers

Pärnu mnt 15, 10141 Tallinn, Estonia; License No. 6; Registry code: 10142876

T: +372 614 1800, F: +372 614 1900, www.pwc.ee

Translation note:

This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate

representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over

this translation.

Independent Auditor’s Report

To the Shareholder of Elering AS

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of

Elering AS (the “Company”) as at 31 December 2021, and the Company´s financial performance and

cash flows for the year then ended in accordance with International Financial Reporting Standards as

adopted by the European Union.

What we have audited

The Company’s financial statements comprise:

● the statement of financial position as at 31 December 2021;

● the statement of comprehensive income for the year then ended;

● the cash flow statement for the year then ended;

● the statement of changes in equity for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the

International Ethics Standards Board for Accountants (IESBA Code). We have fulfilled our other

ethical responsibilities in accordance with the IESBA Code.

133

Profit allocation proposal

The retained earnings of Elering AS as of 31.12.2021 were EUR 134,603 thousand.

The Management Board of Elering AS proposes to the sole shareholder to allocate the retained earnings

as follows:

To transfer to the statutory reserve capital EUR 255 thousand

Not to distribute the remaining retained earnings EUR 134,348 thousand

134

Signatures of the Management to the 2021 Annual Report

The signing of Elering AS 2021 Annual Report on 10 March 2022

Chairman of the

Management Board

Taavi Veskimägi

Member of the

Management Board

Kalle Kilk

Member of the

Management Board

Riina Käi

135

The Revenue of Elering AS According to EMTAK 2008

The revenue of Elering AS is divided by the main areas of activities as follows:

EMTAK* economic activity 1.1.2021 - 31.12.2021 1.1.2020 - 31.12.2020

35121 Transmission of electricity – transmission through the

transmission network

95,195 87,901

35221 Natural gas transmission 21,003 18,962

35141 Trade of electricity (balancing electricity) 67,921 24,457

35231 Trade of gas (balancing gas) 14,268 3,329

77399 Renting and leasing of other machinery, equipment

and tangible goods

920 919

47770 Retail sale of other second-hand goods 289 217

68201 Renting and operating of own or leased real estate 83 84

46699 Other sales 1,778 1,199

* EMTAK – classification of Estonian economic activities