Financial and non financial reports

EPSO-G, group of energy transmission and exchange companies, has received a letter of expectations from the Ministry of Energy of the Republic of Lithuania, which owns 100% of the Group’s shares. It sets out the expectations in terms of the directions, principles and priorities for the Group’s activities that are in line with the objectives of the European Union’s Green Deal and Lithuania’s National Energy Independence Strategy. 

The Letter of Expectations provided by the Ministry of Energy consolidates the direction of change sought by the Group and enables a focused development and implementation of a long-term strategy.

The letter sets out short-term and medium-term objectives and guidelines for long-term expectations, which will serve as a basis for the development of a new long-term strategy for the EPSO-G Group, taking into account the results of the study on the transformation of Lithuania’s energy system, as well as for planning the Group’s activities in the short term.

The Letter of Expectations

Brief description of the main expectations of the Shareholder:

1. Ensuring Lithuania’s energy independence

• The Group shall ensure the independence and autonomy of the Lithuanian electricity system and its integration into the CEN (continental European network) for synchronous operation. To achieve this objective, the Group shall implement the project for synchronisation of the electricity system with the CEN. 
• In addition, the Group shall actively seek solutions and implement projects that maximise the security and independence of the Lithuanian electricity system until the synchronisation project programme is fully implemented.
• The Group shall agree with the Shareholder, and implement concrete solutions on an efficient action plan for the implementation of the renewed Harmony Link interconnection project. 
• For priority synchronisation projects agreed with the Shareholder, the Group shall apply zero tolerance periods for project delays.
• The Group shall use the potential and experience gained from the 200 MW storage facilities project and propose and implement a strategy for the further development of these activities to the Shareholder.
• The Group shall put effort to maximise the opportunities offered by the GIPL pipeline to increase the competitiveness of the Lithuanian economy and the returns to the Shareholder. 

2. Energy system security

• The Group shall ensure the adequacy of Lithuania’s electricity system in both the short and long term and pay particular attention to the changes in the electricity system as it becomes synchronous with the CEN and as renewable energy power plants are rapidly integrated. 
• The Group shall make proposals for the implementation of the necessary measures to ensure the safety and reliability of the electricity system.  
• The Group shall ensure the physical protection of objects critical to the national security, which are under the Group’s control. 
• The Group shall ensure the implementation of restrictive measures regarding the supply of energy and energy resources from countries which, according to the National Security Strategy, pose a threat to the national security of the Republic of Lithuania.
• The Group shall ensure a high level of reliability of energy transmission to network users and consumers and set specific reliability targets comparable to best practice in the European Union market to achieve this objective. 

3. Transforming energy and energy networks 

• The Group shall actively prepare for the transformation of the networks and the changes needed to implement the European Union’s Green Deal initiatives. The Shareholder’s expectation is that the Management Company and the Group companies will create value, operating as a centre of energy expertise, proactively providing proposals, advising the Shareholder and market participants on issues of relevance, and responding to changing market, economic and geopolitical circumstances. 
• The Group shall prepare a study on the transformation of Lithuania’s energy system by the end of July 2023 at the latest and present proposals on the alternatives for the development and expansion of the energy system as Lithuania transitions to green energy and becomes an energy exporting country. 
• Taking into account the results of the study on the transformation of the Lithuanian energy system, the Group must, by the end of the second quarter of 2024, update and agree with the Shareholder the Group’s long-term business strategy, the implementation of which would ensure the Group’s sustainable growth and a significant role in the Green Deal economy transformation and energy decarbonisation. 
• When examining and identifying the priority areas of the activities of the Group companies, the Group shall pay particular attention to the development of the offshore wind energy ecosystem, the strategy for the development of the necessary infrastructure and interconnection projects, and the implementation of organisational arrangements. 
• The Group shall actively develop green hydrogen generation pilot projects and come up with P2X, P2H (hydrogen to power) solutions that provide flexibility in the electricity system.
• The Group shall proactively contribute to the development of community energy in Lithuania and to the promotion of energy innovation in the Lithuanian energy sector.

4. Financial expectations

• The Group’s average return on equity shall be at least equal to the rate set by the Government.
• The Group shall aim for a return on investment and sustainable depreciation costs that are at least in line with the average for mature economies in Western Europe, and seek to maintain an investment grade credit rating of at least Baa2 (Moody’s). 
• The ratio of the Group’s net debt to annual adjusted earnings before interest, tax, depreciation and amortisation should be no more than 6 times in the medium term and no more than 5 times in the long term.
• The Group’s medium-term focus shall be on the implementation and financing of strategic energy projects.

5. Operating principles

• The Group shall conduct its business to the highest standards of transparency, governance, ethics and social responsibility.
• The activities of the Group companies shall be based on transparency, efficiency, sustainability, responsibility, values and the development of a health and safety culture.