nuon energy annual report 2011. vattenfall is also engaged in energy trading s and lignite mining....

N.V. Nuon Energy Annual Report 2011

Creating solutions together

www.nuon.com

www.vattenfall.com

ProfileN.V. Nuon Energy is a Dutch energy company with

5,862 employees or 5,490 full time equivalents (FTE)

serving 2.3 million customers, businesses and (public)

organisations in the Netherlands. Nuon produces

and supplies electricity, gas, heat and cooling and offers

its customers a wide range of energy-saving products

and services. With a turnover of € 4,450 million in 2011,

Nuon holds a top three position in the Dutch energy market.

Vattenfall AB, Nuon’s parent company, is one of the largest

generators of electricity and the largest producer of heat in

Europe. Vattenfall’s main products are electricity, heat and

gas. Vattenfall operates in all parts of the electricity and

heat value chain: generation, transmission, distribution

and sales. Vattenfall is also engaged in energy trading

and lignite mining. The company employs approximately

34,700 full time equivalents. Vattenfall AB is wholly owned

by the Swedish state.

About this reportThe annual report of N.V. Nuon Energy is the integrated representation

of our company’s financial and non-financial performance for the calendar

year 2011. The scope of this report is N.V. Nuon Energy and its subsidiaries.

Nuon’s consolidated financial statements have been prepared in accordance

with International Financial Reporting Standards (IFRS) as adopted by the

European Union. The last section of the annual report includes the auditor’s

report and the profit appropriation.

With respect to Corporate Social Responsibility (CSR) reporting we report

on activities in countries where we have material operations. Consequently,

we have not included information on our CSR operations in Romania and

the UK. The subsidiaries in which Nuon held a minimum share of 50%

throughout the year are within the scope of this report. Nuon’s CSR reporting

was prepared using GRI 3.0 guidelines as well as the Electric Utilities Sector

Supplement of the Global Reporting Initiative (GRI). The GRI table can be

found at www.nuon.com/reporting.

Data is consolidated at corporate level.

Qualitative information about the Vattenfall group and its activities is included

as far as these activities affect Nuon’s customers, employees or stakeholders.

The qualitative reports were provided by experts throughout the organisation.

‘We’, ‘Nuon’, ‘Nuon Energy’, ‘the company’, ‘the Nuon Energy Group’,

‘the Nuon Group’, ‘the group’ or similar expressions are used in this

report as a synonym for N.V. Nuon Energy and its subsidiaries. The name

‘Vattenfall’ or similar expressions refer to Vattenfall AB, the parent company

of N.V. Nuon Energy, and its subsidiaries.

www.nuon.com/reporting

Contents

Financial statements 61

Other 120

Corporate Social Responsibility 34

Message from the CEO 2

Mission, vision and strategy 4

Highlights of 2011 6

Report of the Management Board 8

Corporate Governance 18

Report of the Supervisory Board 26

Remuneration Report 2011 30

Health and safety 36

Affordability of energy 38

Security of supply 40

Sustainability of energy 45

Together 53

Assurance report and GRI statement 59

Financial Statements 2011 62

Auditor’s report 120

Profit appropriation 121

Ratios and definitions 122

About Nuon

Nuon at a glance

N.V. Nuon Energy produces and supplies electricity, gas, heat and cooling,

and helps its customers to reduce their energy use.

Generation In this segment: ■ Business division ‘Asset Development’ is

responsible for project development and

execution of new build initiatives and large

modifications within the thermal production

park as well as heat infrastructure;■ Business division ‘Production’ is responsible

for thermal electricity generation; ■ Business division ‘Asset Optimisation and

Trading’ optimises the use of our production

assets and trades, amongst other things,

electricity, gas, oil, coal and emission

allowances.

N.V. Nuon Energy is a subsidiary of the energy company Vattenfall AB,

which currently holds a total of 64% of the shares in N.V. Nuon Energy.

36% of the shares are owned by municipalities and provinces in the

Netherlands. During 2011, Nuon and Vattenfall have further developed

into one integrated European company with strong roots in the core

markets Sweden, Germany and the Netherlands.

After the introduction of the business-led organisational structure

in 2011, Nuon’s operations are now primarily based in the Netherlands

and structured into three operating segments. Each operating segment

comprises one or more Business divisions and each Business division

is further structured into Business units.

More information about the Vattenfall structure can be found in the annual report 2011 of Vattenfall AB at www.vattenfall.com.

Distribution and Sales ■ Business division ‘Distribution and sales’

is responsible for the sale and delivery

of energy and energy-related products

to business and household customers.

In addition, the production portfolio of

heat and cold is managed in this division.

Renewables■ Business division ‘Renewables’ is responsible

for development, operation and maintenance

of all renewable energy operations except for

hydro power.

The Netherlands is one of the three core countries of the Vattenfall Group.

Core country, the Netherlands Other core countries Work areas

www.vattenfall.com

Consolidated key figures

2011 2010 2009 2008

Financial (€ million)

Net turnover 4,450 5,458 5,112 4,811

Gross margin 1,440 1,869 1,381 1,345

Operating expenses 826 829 998 919

Operating expenses excluding items affecting comparability 810 817 911 897

Earnings before interest, taxation, depreciation and amortisation (EBITDA) 783 1,104 484 585

Earnings before interest, taxation, depreciation and amortisation (EBITDA) excluding items affecting comparability 588 743 720 835

Operating profit 554 721 196 399

Operating profit excluding items affecting comparability 350 423 434 648

Net profit 438 563 200 492

Net profit excluding items affecting comparability 299 342 321 585

Capital expenditures 1,098 959 698 575

Cash flow from operating activities 448 910 1,655 844

Ratios

ROIC 10.3% 15.0% 5.5% 12.6%

Operating margin 32.4% 34.2% 27.0% 28.0%

Employees (as at 31 December)

Number of own employees (FTE) 5,490 5,766 6,188 5,820

Number of external employees (FTE) 843 847 974 1,491

Total number of employees (FTE) 6,333 6,613 7,162 7,311

Average age own employees 42 41 40 38

Female employees/total employees 26% 26% 27% 23%

Work experience placements 37 32 42 54

Absenteeism1 4.0% 4.2% 3.9% 4.4%

Lost time incidents frequency (LTIF²) for own personnel 1.6 4.5 5.8 n/a

Electricity production and emissions

Fossil-based electricity production (TWh) 13.2 13.7 14.8 14.4

Renewable production (GWh), including joint ventures 1,508 1,267 1,367 1,448

Renewable electricity production capacity installed (MW) 366 364 368 354

CO2 emissions per generated unit of electricity3 (g/kWh) 463 463 499 503

Customers

Customer satisfaction in general in the Dutch consumer market4 88.0% 89.0% 88.0% 89.0%

Customer service satisfaction in the Dutch consumer market5 95.0% 94.5% 91.5% 93.5%

1 Value for the Netherlands, excluding the subsidiaries Feenstra, Nuon Beveiliging and Nuon Isolatie, which are excluded as not all comparative figures are available.2 Number of accidents leading to absenteeism divided by the total number of hours worked, multiplied by one million.3 This relates to the CO2 emission factor of the energy production fuel mix.4 Customer satisfaction in general is defined as the percentage of surveyed customers who indicated that they are satisfied/very satisfied with Nuon.5 Customer service satisfaction is defined as the percentage of surveyed customers who indicated that they are satisfied/very satisfied with Nuon’s services.

Key figuresOperational

■ FTEs 5,490 ■ Fossil-based electricity production 13.2 TWh

■ Renewable production 1.5 TWh

Financial ■ Capital expenditures € 1,098 million

■ Net turnover € 4,450 million

■ Net profit € 438 million

< Contents

2 N.V. Nuon Energy Annual Report 20 1 1

Message from the CEO

Creating solutions with our customersIn 2011, Nuon – as part of Vattenfall – successfully carried out its strategy aimed at being an integrated energy company that provides reliable, affordable and sustainable energy solutions for our customers.

Our customer base remained stable compared to 2010, with 2.3 million electricity contracts and 1.9 million gas contracts. Nuon was the first energy company in the Netherlands to receive the Customer Operations Performance Center (COPC) Certificate in 2011 for part of its Customer operations. COPC is the world’s leading authority on customer satisfaction and customer contact best practices. In 2011, our customer satisfaction remained high.

Together with our customers we create a wide range of solutions for better energy management. Nuon remained market leader in the Netherlands in both energy products and services, including high-efficiency heating, insulation, ventilation and energy-saving consulting. Hence, Nuon’s energy-related services grew further during the year. Insulation activities grew strongly, from approximately 9,000 contracts in 2010 to 12,500 in 2011. The number of high-efficiency boilers sold also increased, from 17,500 in 2010 to almost 20,000 in 2011.

Going forward, Nuon wants to remain market leader in providing energy solutions for the Dutch market. A clear example of this goal is the introduction of the Nuon E-Manager. With this remote control tool, customers can monitor and manage their electricity consumption in real time, and compare energy consumption or CO2 emissions over a period of time via computer or smart phone. The first users of the Nuon E-Manager are very enthusiastic and Vattenfall wants to roll out this product to other core countries.

Affordability ranks high on our agenda. In addition to our focus on keeping cost levels low, adhering to an international trading strategy and helping our customers save energy, we also provide assistance to vulnerable customers. In order to find practical solutions for these customers, we are working closely with various stakeholders, including debt relief departments of municipal organisations.

We can look back on a year in which much was achieved, despite challenging

external market circumstances. N.V. Nuon Energy reports in 2011 a net profit of

€ 438 million. The net profit excluding items affecting comparability decreased

by 13% compared to the previous year to € 299 million. This decrease was mainly

due to lower gas sales as a result of warmer weather and the effects of the

turbulent energy markets. Due to continuous cost control, cost levels remained

stable at € 810 million in 2011 (2010: € 817 million).

In the ‘large businesses’ segment, the number of customers grew by 2% (to nearly 20,500) and both electricity and gas sales increased. Our business partners consider us a reliable energy consultant thanks to our efforts to create solutions for more efficient and environmental-friendly energy consumption. One good example is the agreement with Amsterdam Arena to provide sustainable energy. By delivering hot water from the Nuon power station in Diemen, Amsterdam Arena is able to achieve a CO2 reduction of approximately 50% on heating. Environmental-friendly cooling methods, using water from nearby lakes, will also reduce CO2 emissions by approximately 75%.

‘E-mobility’ is another example of our efforts to be a reliable energy partner for our customers. Together we create solutions for more efficient and environmental-friendly energy consumption. In collaboration with business partners and municipalities, Nuon has installed infrastructure for electric cars, including charging stations. Vattenfall and Volvo have closely collaborated in developing technology for a ‘plug-in’ hybrid car, which will run primarily on electricity (plug-in) but can also use diesel fuel (hybrid). This substantially reduces the emissions of this car – which is expected to be introduced to the market later in 2012.

Investing in the futureIn 2011, Nuon invested a record € 1,098 million – an increase of 14% compared to 2010. Investments were made in new and efficient gas-fired power stations in Amsterdam (435 MW), Diemen (435 MWe/ 260 MWth) and in the port of Eemshaven (1,311 MW). The new power stations will provide electricity to approximately 3.5 million households starting in 2012 and 2013, and will replace older, less efficient power plants in the electricity market. In addition, Nuon invested in existing production capacity and heat networks.

In May 2011, Nuon began constructing a heat transportation pipeline, from the power station in Diemen across the IJmeer to the city of Almere. Residual heat from electricity production in Diemen will be used to heat homes in Almere. This pipeline, which is unique in the Netherlands, is expected to fully operate by mid-2012. The combined efficiency of the new power station in Diemen will be over 85%, as it uses such

< ContentsAbout Nuon

a large portion of residual heat from the production of electricity. It will replace the old, less efficient heat producing power plants in Almere.

All our projects were executed in close collaboration with our stakeholders. A good example was the preparation of the construction of the Magnum power plant in the port of Eemshaven. A constructive dialogue with environmental, nature and wildlife organisations, governments, local residents and other interested parties has resulted in clear agreements.

At the end of 2011, Nuon began constructing the Zuidlob wind farm (122 MW). The successful initiation of one of the largest on shore wind farms in the Netherlands was particularly due to Nuon’s effective collaboration with residents, the municipality of Zeewolde, the province of Flevoland and the Dutch Government. Zuidlob will consist of 36 wind turbines which will be operational in 2013 and will produce electricity for approximately 88,000 households. This is in line with our strategy to increase sustainable electricity production capacity in general and our focus on wind energy in particular. Nuon’s investments in renewable production capacity increased to € 56 million in 2011 compared to € 6 million in 2010.

In 2011, our wind energy portfolio generated 17% more electricity than in 2010. This was due to better wind conditions in the Netherlands compared to the previous year and due to more focus on preventive maintenance. Nuon’s unique Solar Island in Almere celebrated its first anniversary in June 2011, at which time it exceeded generation expectations by 10%. The Solar Island’s yearly heat generation is equal to energy required for approximately one million hot showers.

Creating solutions with Vattenfall and implementing the new strategyThe execution of our strategy – as part of Vattenfall – aimed at focus on core activities, increased financial flexibility, lower CO2 emissions and a higher profitability is well underway. We have successfully divested our gas fields in the North Sea and our Belgian activities on good commercial terms. Both transactions are important steps towards concentrating the Vattenfall activities in the three core countries: Sweden, Germany and the Netherlands.

In early 2011, the new pan-European organisational structure of Vattenfall was implemented, whereby the former country-based structure was replaced by a business-led structure. We are part of a large, robust company, which is also expressed in the ‘Part of Vattenfall’ addition to our logo. We are not only proud of this, but are also convinced that our customers will positively benefit from our European scale. We will improve our ability to provide gas, electricity and heat 24 hours a day, at competitive prices, by further increasing our operational excellence in our plants and customer service. This is what we have always stood for and what we continue to stand for. The key difference is that we now operate on a much larger European scale. This will not only be advantageous to our customers but also for our employees, who will have access to enhanced career opportunities.

In May 2010, we initiated an international search for a strategic investment partner for Helianthos, the Nuon company that developed flexible solar cell foil. Over 150 potential investors were approached, but unfortunately none were willing to co-invest in further development. In light of this, Nuon decided in September 2011 to discontinue the activities of this company and to execute a public sale in early 2012 for the assets of Helianthos through an online auction. This will give interested parties a fair opportunity to take over all or part of the assets.

Together with our employeesThe safety of our employees is always a top priority. The number of incidents leading to lost time involving Nuon employees (measured as LTIF) has decreased significantly in 2011, indicating that we have maintained a very positive trend. In our development projects we focus on increasing safety among employees as well as contracted staff. Several safety milestones in our development activities were recorded, such as no injuries leading to lost time at the Hemweg 9 construction site. Unfortunately, serious incidents did occur during other development activities. This shows that although safety is managed in a responsible way, we will never cease to strive for improvement and we will maintain a relentless focus on controlling all safety aspects of our operations. Our employees’ strong commitment forms the basis of Nuon’s performance and results. Together, we achieved a great deal in 2011 under challenging market conditions. On behalf of the Management Board, I wish to sincerely thank all Nuon employees for their contribution to the continued success of our company!

Amsterdam, 17 April 2012

Huib Morelisse (CEO)

N.V. Nuon Energy

3 Message from the CEO

About Nuon< Contents

About Nuon


Mission, vision and strategy

Implementing the new strategic direction as part of VattenfallAs part of Vattenfall, Nuon can count on a stronger platform for both continued growth and value creation. The main objective for Vattenfall is to generate a market rate of return by operating a commercial energy business, enabling Vattenfall to be among the European leaders in developing environmentally sustainable energy production. In 2011 Vattenfall made an effort in working on the strategic direction set by the Vattenfall Board of Directors in 2010, which is based on four pillars:

■ Greater focus on profitability and value creation; ■ Focus on three core markets – Sweden, Germany and the Netherlands; ■ Three main products – electricity, heat and gas; ■ Reduction of CO2 exposure and growth of low CO2-emitting energy

production and gas.

Being a European leader in the development of environmentally sustainable energy production requires substantial investments in order to change the composition of the production portfolio. One key element is to reduce Vattenfall’s CO2 exposure to a yearly 65 million tonnes by 2020 from today’s yearly 89 million tonnes (calculated according to ownership share). For these efforts to be successful, profitability and value creation must initially be improved.

This is why Vattenfall has broken down the implementation of its strategy into two phases – a consolidation phase to be followed by a growth phase. During the consolidation phase, 2011-2013, the focus is on improving value creation by reducing costs, divesting non-core assets and revising the investment programme. This will pave the way for a transition towards a more sustainable energy production portfolio. In addition, the new business-led organisational structure of Vattenfall was established to promote synergies between the different countries of operations.

The year 2011 was the first year of implementation of the new strategic direction

of Vattenfall, in which Nuon is now fully integrated. Embedded in the strategy

and our new organisation are the three core values of Vattenfall – Safety,

Performance and Cooperation.

Nuon translates Vattenfall’s strategic pillars in such a way that the company contributes to overall value creation while fulfilling the needs of its shareholders and local stakeholders. The new business divisions have full responsibility for managing their business, all with the mission of delivering on the pillars of the new strategy.

Greater focus on profitability and value creation Nuon continues to focus on cost reduction and control, while delivering continuous operational excellence in our services and our generation activities.

The new business-led organisation provides further potential for Nuon to improve the efficiency of its operations and create synergies in the areas of cost efficiency, staffing and knowledge sharing. During the first year, the organisational change has already contributed to efficiency improvements. In the coming years, further cross-border alignment with best practices will be pursued to realise additional synergies.

For our customers, the focus on value creation will translate into increasing operational excellence in our customer service, among other things. Nuon also remains strongly committed to helping our customers realise energy savings and providing support to more vulnerable customers. In addition, we strive to keep energy affordable and in this effort we rely, among other things, on the international scope of Vattenfall’s trading and sourcing activities to mitigate the effect of energy markets’ price fluctuations.


Saving energy is also a priority for business customers, both in terms of sustainability and the costs of energy. We respond to their needs by offering a partnership model, whereby Nuon combines commodity and technical expertise to help them identify and realise their energy savings potential. We offer our business customers a three-part proposition that includes advice on optimal commodity purchase prices, tailor-made energy savings and flexible invoicing. We also aim to increase our business customers’ insight into consumption levels at individual sites.

In relation to operational excellence in our generation activities, the goal is to achieve ‘best in class’ energy generation operations. This translates into high commercial availability of our plants, continuous improvement of operating efficiency with the aim of lowering CO2 emissions, and maintaining high safety standards. The safety of our employees is a core value of Vattenfall and Nuon. Nuon aims to improve the level of safety of its operations by setting high standards and continuing development of its safety culture. Risks to health and safety are identified and reduced through comprehensive prevention programmes and well-established risk management systems. Our efforts are based on a systematic approach, which allows room for feedback and the exchange of experiences, thus promoting an open culture that will yield continuous improvements.

Stronger focus on core markets and productsOne of the pillars of Vattenfall’s strategy is the focus on its core markets Sweden, Germany and the Netherlands and its three main products: electricity, heat and gas. The focus on the core markets and products has entailed a review of operations that were located outside of these markets or were not aligned with the long-term objective to develop environmentally sustainable energy production. This resulted in the divestment of Nuon Exploration & Production (Nuon E&P) and our Belgian activities.

The Netherlands is identified as a core country in the Vattenfall strategy. Country representation is crucial in the pan-European business-led organisation to ensure that specific local issues as well as stakeholder dialogue are adequately managed and receive the attention they deserve. As a result, Nuon benefits from the European dimension of Vattenfall while maintaining its Dutch culture and presence when it comes to interaction with our employees, the environment and society at large.

Reduction of CO2 exposure To be a European leader in the development of environmentally sustainable energy production, Vattenfall must make substantial investments to change the composition of its production portfolio. By 2020 Vattenfall’s total CO2 exposure will be reduced to 65 million tonnes (corresponding to Vattenfall’s share of ownership in the respective plants), compared with 89 million tonnes in 2011.

A number of measures is needed to reduce Vattenfall’s total CO2 exposure. In the Netherlands, Nuon focuses its efforts on wind energy and biomass opportunities as well as increasing the efficiency of the fossil-fuelled generation portfolio. Furthermore, in terms of CO2/KWh, the current generation portfolio will profit from the new and efficient electricity and heat production from the three new gas-fired power plants as from the end of 2012.

5 Mission, vision and strategy


About Nuon


Highlights of 2011

In April 2011, Nuon completes its gas storage facility in Epe, Germany. The last expansion of approximately 70 million m3 of natural gas brings the facility’s total storage capacity to approximately 280 million m3 of natural gas. This gas storage facility enables us to provide gas to consumers with greater security of supply and to respond to and benefit from fluctuations in gas supply and demand.

Investments in wind energy total 131 MW in 2011

February

Nuon starts the replacement of the wind turbines at Reyndersweg in IJmuiden with more modern turbines, together with its partner Wind Groep Holland. In October, thanks to cooperation with the region’s residents, the municipality of Zeewolde, the province of Flevoland and the Dutch Government, Nuon becomes full owner of one of the largest planned onshore wind farms in the Netherlands: Zuidlob (122 MW).

As part of the new strategic direction and the focus on core markets and products, Nuon reaches agreements on the sale of Nuon E&P and Nuon’s Belgian activities.

Further investment in gas storage capacity

Stakeholder dialogue Nuon Magnum Commercial considerations, as well as the results of the long-running constructive stakeholder dialogue with nature and environmental organisations, lead to the decision to postpone the coal and biomass gasification plans for Nuon Magnum, for now, and continue with the construction of the natural gas-fired power station.

Divestments in line with new strategic direction

April July


Introducing Vattenfall to Nuon’s customers

November

December

Working with business customers to create solutions to meet their climate and energy savings objectives is at the core of Nuon’s operations in 2011. Among other constructive partnerships, Nuon announces new agreements with Amsterdam Arena and Ymere.

For the first time, the winter edition of the seasonal magazine for Nuon customers carries the Vattenfall endorsement and is sent to 1.7 million households. In addition Nuon introduces the Nuon E-Manager, with which consumers can manage their use of electricity and gas online, via their smart phone or at home. The Nuon E-Manager also provides information comparing usage with similar households and includes details such as outside temperature.

In 2011, Nuon invests an all time high amount of € 779 million in new state of the start gas-fired power stations. The construction of one of the three gas-fired power plants, the so-called Diemen 34 power plant, is in full swing. The gas turbine and generator arrive at the construction site early in the month. Diemen 34 is planned to be operational at the end of 2012.

Ongoing construction of three gas-fired power plants

Partnering with business customers

September

Highlights of 2011 7 Highlights of 2011


About Nuon


2011: a turbulent year for energy markets The year 2011 was a turbulent one, characterised by a combination of macro events and local actions and interventions. The earthquake and the subsequent tsunami in Japan, which caused the disaster in the Fukushima nuclear complex, demonstrated the level of interconnection of the world’s energy markets with a near-instant upward pressure effect on gas prices. This was followed by the German government’s decision to accelerate the phase-out of its nuclear power fleet. German electricity prices reacted immediately by increasing nearly 15% within two working days.

As a result of the cold last quarter of 2010, gas markets started 2011 with a strong impetus for forward prices. However, the mild autumn and winter temperatures prompted a situation of overload at storage locations, which all ended up running at or near capacity. The North West European market has been particularly well-supplied due to a combination of diverse factors. Market circumstances pushed gas-fired plants out of the merit order on numerous occasions, and the general gas overhang triggered by the exploration of unconventional gas has led to the US becoming an exporting country.

In a nutshell, 2011 brought about a further deterioration of spark spreads and dark spreads. This combined with the lower demand for gas and electricity resulting from the recession and the fact that utilities have entered a period of substantial oversupply in the Dutch market, has led to a significant increase in intermittent production. These factors are reflected in our margins on electricity, gas, oil and other traded commodities, which ended the year at the lower end of our expectations.

Delivering on the new strategy: focus on core marketsNuon delivered on its strategy in 2011. Operating in the new business-led organisational structure promotes higher accountability among our employees, increased customer focus throughout the company, stronger performance and a focus on costs. Non-core activities, like our gas exploration and production activities as well as Nuon Belgium, have been divested. Amidst a sequence of defining macro-events, energy

markets have been subject to tremendous uncertainty and pressure over the course of the year. Against this background, we focused on what lies ahead and what our stakeholders expect from Nuon: reliable and more sustainable energy production as well as affordable energy and service. 2011 was a record year in terms of Nuon’s investments, with a total of € 1,098 million invested mainly in new gas and wind generation capacity.

Improving the performance and flexibility of our current portfolioIn 2011, total electricity production from our plants decreased by 0.3 TWh from 15.0 TWh to 14.7 TWh.

The warmer weather and deteriorating spark spreads meant we occasionally had to reduce the operational level of our combined heat and power plants to the minimum required for continuous heat delivery. This was further intensified by the lack of volatility observed on the electricity market, as illustrated by the fact that average volatility percentages on the APX-ENDEX reached an all-time low in 2011. Short-term markets are increasingly tackling and absorbing electricity supply from renewable sources and thus non-price-dependent capacity.

We faced technical setbacks as well, including a boiler leak at our Hemweg 8 plant. Then in the summer, Hemweg 8 suffered a fire in the grid connection cable, which led to disconnection of the plant from the grid. We managed to reconnect the plant within a month. During the summer, our Merwedekanaal 11 and Buggenum plants did not produce electricity due to a planned overhaul.

In order to further improve our operating performance, Nuon continued its efficiency improvement programme. In this programme the company has identified all possible activities that improve the efficiency, and therefore lower the CO2 footprint, of its current power production portfolio.

For more information regarding our efficiency improvement programme

for our existing portfolio, please see the CSR chapter Sustainability of energy.

The year 2011 was one of consolidation, with a strong focus on our core

markets and products. Nuon, as part of Vattenfall, continues to build

the foundation for a profitable, strong and diversified sustainable energy

portfolio that delivers value to its stakeholders.

the Management BoardReport of


Huib Morelisse (1964)As of 1 July 2010, Huib Morelisse (Dutch nationality) was appointed Chief Executive Officer of the Management Board of N.V. Nuon Energy. As of the same date, Huib Morelisse also became a member of Vattenfall’s Executive Group Management (EGM) as Head of Business Group Benelux. Due to the organisational restructuring and the introduction of a business-led structure, Huib Morelisse became Head of Business division Asset Development, as of 1 January 2011.

CareerBefore joining Nuon, Huib Morelisse held several management positions at Essent, RWE, Goldman Sachs & Co and Booz, Allen & Hamilton.

Peter Smink (1965)Peter Smink (Dutch nationality) has been a member of the Management Board and Chief Financial Officer of N.V. Nuon Energy since 1 January 2010. He is responsible for managing the company’s financial affairs and was appointed Head of Group Finance Vattenfall as of 1 August 2011. From 28 October 2011 he took on the role of acting Chief Financial Officer of Vattenfall AB and became a member of Vattenfall’s EGM.

CareerPeter Smink joined N.V. Nuon in 2001 and held several management positions, mainly in the area of finance. Prior to joining Nuon, Peter Smink held various management positions at KPN and PricewaterhouseCoopers.

Supervisory board memberships/other positions ■ Amsterdam Partners: member of the Executive Committee (Treasurer); ■ Foundation Rural Energy Services (FRES): Member of the Supervisory Board;■ Yellow & Blue Clean Energy Investments B.V.: Member of the Supervisory Board.

Details of the Management Board

In addition to efforts to improve efficiency of our current portfolio, we have added flexibility to our total asset portfolio by expanding our gas storage activities. By doing this we secured the ability to respond flexibly to fluctuations in gas supply and demand. This enables the company to provide customers with greater security of supply and some ability to mitigate fluctuations in wholesale prices. In April 2011, the final part of the Epe gas storage facility, which is connected to the Dutch and German gas network, became operational. Nuon obtained the irrevocable permit to expand the gas storage facility in Zuidwending, in the province of Groningen in July. Nuon was successful in securing a long-term contract for the sourcing of seasonal storage capacity in the Bergermeer gas storage open season.

In 2011, the fuel mix used for Nuon’s electricity production reflected the lower production levels of our gas-fired power plants and more favourable wind conditions. The major part of the electricity is produced by gas-fired power plants. Overall production levels were lower in comparison to last year. The CO2 emission factor per unit of electricity increased slightly (from 462.5 g/kWh to 462.8 g/kWh) due to a relatively higher share of coal-fired production in 2011.

%

31.4% Coal

29.6% Natural gas CHP

21.0% Blast furnace gas1

9.9% Wind2

7.0% Natural gas power stations

0.8% Biomass

0.3% Hydro

0.0% Solar

Fuel mix energy production

1 At our power plants in Velsen, the residual gas released during the steel production of Tata Steel is used as a fuel to produce electricity. In this way this blast furnace gas is put to good use by Nuon. The gas contains a high percentage of CO2. It has been agreed with the Office of Energy Regulation of the Dutch Competition Authority that Nuon is to adjust the CO2 emissions in the production fuel mix to avoid double counting. The CO2 emission factor of blast furnace gas is calculated in this mix on the basis of the use of natural gas.

2 The wind energy production means all electricity that Nuon, as producer and beneficial owner, feeds into the electricity grid via grid connection points.

CO2 emission rate 462.8 g/kWh

Radioactive waste rate 0.00000 g/kWh

Fossil-based energy 89.02%

Renewable energy 10.98%

(As at 31 December 2011)

9 Report of the Management Board


About Nuon


In managing our production assets, safety is of paramount importance. As a result of our continuous focus on health and safety during 2011, the LTIF of Nuon employees decreased from 4.5 in 2010 to 1.6 in 2011. In our energy-related services, we saw a reduction of LTIF of 65% compared to 2010 levels. Unfortunately we were not able to prevent all incidents in 2011, which is why we continue our focus for improvement of health and safety management.

More information on our approach to health and safety can be found

in the CSR chapter Health and safety.

Investing in reliable supplies with a low CO2 profileNuon is currently constructing a total of 2,181 MW of efficient combined gas power generation in the Netherlands. The Nuon Magnum gas-fired power plant will come online at the end of 2012. The Hemweg 9 gas-fired plant will be operationally ready to supply Amsterdam with electricity by the end of 2012, resulting in increased efficiency of our portfolio and lower emissions per kWh. In Almere, ageing heat plants will be replaced by a new and more efficient gas-fired power plant in Diemen, also towards the end of 2012.

The largest development in our heat activities involved the construction of a heat production and distribution complex. This comprises the modification of our Diemen 33 plant, expansion by means of the construction of the Diemen 34 plant, a pipeline linking Diemen to Almere running under the IJmeer, a heat transfer station of 180 MW, peak boilers and additional noise reduction investments for the boiler house in Almere. A total of 11,000 households and companies in Almere will be connected to this project.

Despite a number of serious delays in the property development market due to the current economic climate, we succeeded in adding a total of 3,002 connections to our heating and cooling network in 2011. The municipality of Amsterdam accepted Nuon’s offer to deliver heat and develop the network of the Amstelkwartier phase 1. The contract was signed in December 2011 and includes 1,482 homes and 627 student houses. On 1 July 2011, Nuon divested three small district heating projects with 4,342 connections as part of our strategy to focus on large-scale district heating developments.

In line with Vattenfall’s strategic objective of creating a strong and diversified environmentally sustainable energy portfolio, Nuon focused the renewables investments on onshore wind and investigation of possibilities for co-firing of biomass. In addition to developing wind farms at new locations such as Zuidlob (122 MW), we are focusing on repowering and expanding existing wind projects. In December, the 9 MW repowering project on the Reyndersweg in Velsen was completed. In total, the installed capacity of renewable energy increased slightly from 364 MW in 2010 to 366 MW in 2011.

Creating value for our customersOver the course of 2011, the number of our electricity and gas supply contracts on the Dutch consumer market remained stable at 2.3 million and 1.9 million respectively. This is the result of our sales activities, which offset the effect of customer switches in the Dutch market. The number of switches remained stable compared to 2010. Gas volumes sold decreased 15% due to the mild winter. Electricity volumes supplied in the Netherlands increased by 5% compared to last year. This increase stemmed mainly from higher sales volumes to business customers.

In the consumer market, our attention was specifically focused on customer retention. In terms of our sales channels, we have put a strong emphasis on personal and internet sales. The Ed and Eduard campaign, which was introduced in 2011, yielded positive results as regards brand recognition and awareness. This campaign combines two key topics: affordability of energy and reduction of the carbon footprint.

In the area of sustainability propositions, the number of Natuurstroom and Groenstroom customers increased slightly in the consumer market, as we noticed a strong interest for our dual fuel proposition ‘CO2 OK’.

In 2011, the company particularly increased its efforts in the small and medium-sized enterprises market, which led to a significant growth of this segment in our portfolio. The total number of business customers also increased compared to prior years. This is the result of our sales efforts in 2009 and 2010, which materialised in 2011. The number of connections in the business customer market increased from 81,000 to 85,000. Thanks to the positive developments of the gas market platform TTF, there are now increasing opportunities to optimise the company’s sourcing position, leading to an improved gas proposition for our customers. Last but not least, we continued growing the number of users of our Nuon electricity trading platform, which provides access to all relevant electricity markets (spot, OTC and imbalance) as well as advice

5,000 400

4,000

3,000

2,000

1,000

300

200

100

0

0

2,567

2,1261,980

2,780

311336

307 316

GWh Customers x 1,000

2008 2009 2010 2011

Annual supply of green electricity1

Total supply Nuon GroenStroom

Total supply Nuon NatuurStroom

Total supply CO2 OK

Total number of customers

1 Relates to products for consumers/small businesses and large business customers.

1,9511,473 1,636 2,192

459157

507 490

55929


regarding the best market conditions for portfolio and risk appetite. As of the third quarter of 2012, our business customers will also be able to trade gas via the platform.

Sales of other energy-related products and services increased significantly, with a more than 50% increase in the surface insulated by Nuon in 2011 compared to 2010 levels. The number of boilers installed increased by 13% in 2011. Nuon added ventilation services to its portfolio, the uptake of which was promising with a total of nearly 2,700 contracts sold following the introduction in July.

Customer satisfaction remained high, rewarding our efforts to continuously improve the way we serve our customers. In 2011 we received COPC (Customer Operations Performance Center) certification for parts of our customer service processes. In addition, in the beginning of 2012, certification was received for all processes of the Customer Service Center. COPC is the leading international industry standard for call centre operational excellence.

Working together with our stakeholdersAn energy company is a partner to society in many aspects. It has deeply rooted relationships and mutual dependence with many different stakeholders. Foundations for sustainable partnerships are trust and confidence, something you earn. Understanding and responding to society’s expectations is crucial to Nuon’s business. We are in constant dialogue and try to respond to stakeholder expectations at every level of our business. This is shown by our efforts of implementing stakeholder engagement processes throughout business operations and by top-level involvement in stakeholder relations such as Nuon’s cooperation with the Council of Children, Foundation Rural Energy Services and the Opkikker Foundation.

More information on this cooperation and our approach and efforts in

the context of working together with our stakeholders can be found in the

CSR chapter Together.

Financial overview and analysisFinancial OverviewThe table below shows the results for 2011 compared to 2010.

Financial overviewFor the year ended 31 December

€ million

ReportedItems affecting comparability

Excluding items affecting comparability Reported

Items affecting comparability

Excluding items affecting comparability

2011 2010

Net turnover 4,450 -104 4,346 5,458 -373 5,085

Gross margin 1,440 -104 1,336 1,869 -373 1,496

Operating expenses 826 -16 810 829 -12 817

Earnings before interest, taxation, depreciation and amortisation (EBITDA) 783 -195 588 1,104 -361 743

Operating profit (EBIT) 554 -204 350 721 -298 423

Net profit 438 -139 299 563 -221 342

Electricity production (TWh) 14.7 15.0

Electricity sales (TWh) 27.1 25.7

Gas sales (m3 billion) 5.5 6.5

Number of contracts Dutch consumer market

- Electricity 2.3 million 2.3 million

- Gas 1.9 million 1.9 million

1 1 Report of the Management Board


About Nuon


Net turnover

Net turnover decreased by € 1,008 million to € 4,450 million. This decrease stems mainly from lower fair value movements on the derivative commodity contracts for own use, which positively impacted 2011 results by € 56 million. In 2010, a net gain of € 346 million was reported.

Nuon uses derivative commodity contracts for the physical sale and purchase of fuels for the generation of electricity and supply to customers. The majority of these contracts are, in accordance with IFRS, valued at fair value. As these fair value changes are included in the income statement as far as cash flow hedging can not be applied, and do not reflect the underlying purpose of these commodity contracts, the analysis of the underlying results is distorted. These fair value movements are therefore included in the ‘items affecting comparability’.

Net turnover excluding items affecting comparability decreased by € 739 million to € 4,346 million. This decrease was largely driven by the warmer weather, which prompted a decline in gas and heat volumes supplied to the customer market. Revenues were also impacted by the divestment of the gas exploration and production activities in the North Sea in mid-2011 and the lower proprietary trading results compared to 2010 due to limited market volatility.

Electricity and gas volumes supplied to the business market increased in 2011, following the successful sales activities of 2009 and 2010 (whereby delivery was realised in 2011) and the improved product propositions.

Gross margin

Gross margin decreased by € 429 million to € 1,440 million. Gross margin excluding items affecting comparability decreased by € 159 million to € 1,336 million. This decrease was mainly due to lower spark spreads, lower margin on heat and gas as a result of the warmer weather and the divestment of Nuon E&P.

Operating expenses

Operating expenses decreased by € 3 million to € 826 million in 2011 (2010: € 829 million). Excluding items affecting comparability, operating expenses decreased by € 7 million to € 810 million due to continuous cost control and the divestment of Nuon E&P. The activities that were initiated in 2010 with a focus on structural cost savings and increased cost awareness continued to have positive effects in 2011 and kept costs at 2010 levels.

The number of own staff decreased by 5%, from 5,766 FTEs at the end of 2010 to 5,490 FTEs at the end of 2011. The decline was due to the divestment of activities, synergies resulting from the transition to a business-led organisation and focus on efficiency. There were no forced redundancies.

Depreciation, amortisation and impairment charges

Depreciation, amortisation and impairment charges decreased from € 383 million in 2010 to € 229 million in 2011. Depreciation, amortisation and impairment charges, excluding items affecting comparability, decreased by € 82 million to € 238 million, which is mainly due to the divestment of Nuon E&P in mid-2011.

0

1,200

2,400

3,600

4,800

6,000

€ million

2011 2010

Electricity

Gas

Heat and other products

Fair value movements

Net turnover by product

4,450

587

1,797

2,010

56

5,458

653

2,194

2,265

346

0

250

500

750

1,000

-250

€ million

2011 2010

Sub-contracted work

Other operating expenses

Personnel expenses

Own work capitalised

Operating expenses by category

826

425

356

829

425

-47 -41

355

92 90 0

200

400

600

800

-200

€ million

2011 2010

Generation

Renewables

Distribution & Sales

Other

EBIT

554

240

120

186

8

721

162

0 -6-61

626


EBIT

EBIT (earnings before interest and taxes) decreased from € 721 million in 2010 to € 554 million in 2011. Lower fair value movements on the derivative commodity contracts for own use are partly offset by the gains on the sale of both Nuon E&P and our Belgian activities attributed to the items affecting comparability. EBIT excluding items affecting comparability decreased by € 73 million from € 423 million in 2010 to € 350 million in 2011. This is mainly the result of the warmer weather, lower spark spreads and lower proprietary trade results.

Items affecting comparability included in the results

The item ‘Gain on divestment of subsidiaries’ relates to the divestments of Nuon E&P and Nuon Belgium. The item ‘Fair value movements on derivative contracts for own use’ relates to the fair value movements on derivative commodity contracts which are held for the company’s own use. These fair value movements distort a proper analysis of the underlying results. For 2011, these fair value movements amounted to € 56 million (2010: € 346 million).

Balance sheet

Condensed balance sheetAs at 31 December

€ million

2011 2010

Non-current assets 4,408 4,483

Current assets 2,141 2,998

Cash and cash equivalents 299 1,204

Total assets 6,848 8,685

Shareholders' equity 4,101 4,134

Non-current liabilities 864 1,449

Current liabilities 1,883 3,102

Total shareholders’ equity and liabilities 6,848 8,685

Overview of items affecting comparability included in the resultsFor the year ended 31 December

€ million

2011 2010

Gain on divestment of subsidiaries 156 –

Fair value movements on derivative contracts for own use 56 346

Costs associated with the unbundling -6 -17

Other items -2 -31

Total impact on operating profit (EBIT) 204 298

Tax items affecting comparability -40 –

Tax impact on items affecting comparability -25 -77

Total impact on net profit 139 221



About Nuon


Non-current assets

Non-current assets decreased by 2%, or € 75 million, to € 4,408 million at the end of 2011. The increase from the investments in new gas-fired power plants, the pipeline to supply heat in Almere, the Zuidlob wind farm and existing assets was more than offset by the divestment of Nuon E&P and the Belgian activities. Depreciation charges and a lower market - to-market value of derivatives reduced the non-current assets further.

Current assets

Current assets decreased by 29% or € 857 million to € 2,141 million. This decrease mainly reflects a lower value of derivatives.

Cash and cash equivalents

Cash and cash equivalents decreased by € 905 million to € 299 million at the end of 2011. This decrease resulted from the high level of

investments in 2011, the lower cash flow from operating activities, and repayment of debt.

Shareholders’ equity

Shareholders’ equity decreased by 1% or € 33 million, to € 4,101 million at the end of 2011. The net profit of € 438 million was lower than the reduction in the non-distributable cash flow hedges reserve of € 300 million and dividends paid of € 171 million.

Non-current and current liabilities

Non-current liabilities decreased by 40% or € 585 million to € 864 million at the end of 2011. This is mainly attributable to the decline in deferred tax liabilities as a consequence of the divestment of Nuon E&P, the payment of dividends to our shareholders, and the repayment of debt. Current liabilities decreased by 39% or € 1,219 million to € 1,883 million resulting from a lower value of derivatives and repayment of debt.

Net cash position

Reconciliation net cash positionAs at 31 December

€ million

2011 2010

Cash and cash equivalents 299 1,204

Less: Restricted cash and cash equivalents¹ -83 -27

Total cash and cash equivalents 216 1,177

Long-term interest-bearing debt 257 392

Short-term interest-bearing debt 98 344

Finance lease payables 11 19

Gross debt position 366 755

Net cash position -150 422

1 Including clearing bank margin balances and collateral for certain bank guarantees issued but excluding bilateral margining cash balances.

Restricted cash is excluded from the net cash position as this relates to funds that are not at the free disposal of Nuon. In the ordinary course of trading business and in relation to mitigation of credit risks, Nuon receives and pays cash collaterals to and from its counterparties. In addition, Nuon holds cash balances on own bank accounts as collateral for counterparties. These collaterals impact both Nuon’s (restricted) cash balances and accounts receivable and payable. The movements in accounts receivable and payable from collaterals paid or received are presented in the cash flow from operating activities under movements in working capital.

The net cash position at the end of 2011 amounted to € 150 million negative, compared to € 422 million positive at the end of 2010. The cash flow from operating activities and divestments could not fully cover the large amount of capital expenditure and unfavourable working capital movements, which mainly resulted from higher margin calls of counterparties and redemption of short-term debt.


Condensed cash flow statement

Condensed cash flow statement€ million

2011 2010

Operational cash flow 607 745

Movements in receivables, liabilities and derivative positions -159 165

Cash flow from operating activities 448 910

Cash flow used in investing activities -796 -934

Cash flow from financing activities -375 -204

Cash flow for the year -723 -228

Cash and cash equivalents as at 1 January 1,022 1,250

Cash and cash equivalents as at 31 December 299 1,022

Consists of:

Debt to credit institutions – 182


Cash flow from operating activities

Cash flow from operating activities in 2011 decreased to € 448 million (2010: € 910 million) due to the lower EBITDA, unfavourable changes of working capital, the repayment of short-term debt and higher net cash collateral positions. These effects were partially offset by lower receivables from customers as the warmer weather resulted in lower volumes supplied.

Cash flow used in investing activities

Investments in fixed assets amounted to € 1,098 million, an increase of 14% compared to € 959 million in 2010 (excluding contributions from third parties). In addition to the regular investments in our existing production capacity and heat networks, investments were made in the three gas-fired power plants, the heat pipeline under the IJmeer, the expansion of our gas storage facilities in Epe (Germany) and in the Zuidlob wind farm. The divestments resulted in proceeds of € 298 million. The net effect is a decrease in cash flow used in investing activities, from € 934 million in 2010 to € 796 million in 2011.

Cash flow used in financing activities

Cash flow used in financing activities in 2011 amounted to € 375 million (2010: € 204 million) and was primarily related to the payment of dividend, internal restructuring of financing and repayment of debt.

DividendBased on Nuon’s dividend policy, the Management Board, in consultation with the Supervisory Board, proposes to pay out a dividend of € 71 million to class A shareholders and € 75 million to class B shareholders. The Management Board proposes to add the remaining profit of € 363.4 million to the Other reserves.

Adoption of the dividend proposal for 2011 is planned to take place during the General Meeting of Shareholders on Tuesday 15 May 2012 in Amsterdam.



About Nuon

16 Nuon Energy Annual Report 20 1 1

Branding and sponsoringThe main brand management activities are focused on securing our strong reputation and brand preference in the Netherlands. Nuon introduced new products, like the Nuon E-Manager to further build its positioning as a company that helps customers to get the most out of energy. The Nuon E-Manager was positively received by our customers and public opinion. Also the ‘Ed & Eduard’ campaigns, the Nuon customer magazines and several expert sessions with our business customers supported the further strengthening of the brand. The campaigns, magazines and sessions demonstrate concrete solutions for customers to use their energy in a more efficient way.

The international scope, in light of the partnership with Vattenfall has been introduced incrementally. In 2011 the Vattenfall brand name and logo was widely used in the Dutch Market for the first time, under the header of ‘Nuon, part of Vattenfall’. This brand endorsement was started in our customer magazine and will be more widely used in 2012. As part of our international scope, Nuon and Vattenfall also announced a unique cooperation with the Olympic Committees in the core markets of Vattenfall. As a result, the Nuon/Vattenfall team was introduced. It is a team of young talents and Olympic stars that will be supported by Vattenfall and Nuon in achieving their Olympic dreams. The cooperation offers Nuon the opportunity to introduce our cooperation with Vattenfall into the Netherlands and to engage our customers on the road to success of these talented athletes.

In August the Nuon solar team left for Australia to compete against 30 other teams in the World Solar Challenge. The Nuna6 was built by the students from the Technical University of Delft and runs solely on the power generated from the sun. The Nuna6 finished in second place.

For more information on our sponsoring activities, please see the

CSR chapter Together.

Human ResourcesGeneralAt the end of 2011, our own workforce totalled 5,490 FTEs (2010: 5,766 FTEs), and the number of external employees amounted to 843 FTEs (2010: 847 FTEs). The decrease in the total number of FTEs is the result of increased efficiency of our operations as well as the divestments of Nuon E&P and the Belgian activities. At year-end 2011, there were 1,504 female employees and 4,358 male employees within Nuon. There were 5,447 employees with a permanent contract at year-end 2011, compared to 5,640 at year-end 2010. The number of employees with a temporary employment contract decreased from 565 in 2010 to 415 in 2011, thereby continuing the trend of recent years.

In 2011, the average age of Nuon employees in the Netherlands was 42.5. This number is impacted by an increased average age of the Nuon’s technical and engineering workforce within our production and installation divisions. To counterbalance this effect and ensure continuity of operations when our employees retire, we have put various initiatives in place to attract new talent to technical work, starting with assisting education orientation choices. For the first time in 2011, we participated in an event for female students of the three technical universities in the Netherlands.

The overall ambition of Vattenfall is to firmly establish diversity as a natural part of our daily business lives. Vattenfall aims to increase the number of female managers to achieve a more balanced ratio within the organisation. To this end, Vattenfall has initiated a mentoring programme to boost the ranks of female executives within the company. A number of Nuon’s female managers are participating in this programme.

Employer of choiceIn the Netherlands, Nuon provides a significant source of local employment in the provinces where we operate. In 2011, we paid special attention to our branding as an employer. In this effort, we combine talent management, traineeship programmes as well as our new platform for flexible employment benefits, in which individual choices and flexibility play a key role. The geographical scale of

0

7

14

21

28

35

%Age structure

31 December 2011 31 December 2010

years<25 25-35 35-45 45-55 >55

15

18

24242627

3028

53

Number

2008 2009 2010 2011

Male Female

Diversity by gender1

4,358

1,504

4,783 4,693 4,576

1,784 1,785 1,629

1 Relates to total number of employees excluding contracted staff.

100%

80%

60%

40%

20%

0


Vattenfall allows for international exchanges and opens up new opportunities and horizons for our employees. In December, we initiated a traineeship at Business division level, allowing new recruits to work in different countries during their traineeship.

Employment terms and conditionsThe new Collective Labour Agreement for the energy production and supply sector took effect on 1 May 2011 and will apply for a period of 24 months until 30 April 2013. This agreement allowed more flexibility for additional arrangements to be made at company level. To optimally facilitate its employees, Nuon introduced the flexible compensation and benefit arrangement platform ‘my budget, my choice’ in April 2011. Using this arrangement, employees can make their own personal choices with respect to their flexible employment benefits. They can opt to have those benefits paid out, purchase extra flexible benefits, or reserve the benefits for payment later in the year. As part of the new Collective Labour Agreement, Nuon has committed to additional payments to our employees’ personal budget.

Finally, and as part of Vattenfall, we reviewed our compensation and salary policy to align within the Vattenfall group.

Employee representationAs a result of the introduction of Vattenfall’s business-led structure, a new employee representation structure was adopted accordingly for Nuon at the beginning of 2011. A number of issues arose during the year in which the employee representatives were closely involved. Amongst others, we discussed the ongoing organisation optimisation as result of the new organisation structure as well as investments in the Zuidlob wind farm and the divestment of Nuon E&P.

Outlook and challengesWe face an increasing complex, volatile and uncertain operating environment, exacerbated by political risk and a recessionary economic environment. In the coming years, energy supplies will have to be expanded in a way that is safe, secure, affordable and environmentally responsible. A crucial element of the EU’s transition to a competitive low-carbon economy by 2050 concerns the electrification of energy consumption. Electricity generation will therefore account for an increasingly large percentage of European energy consumption. In the short-term, the financial crisis in Europe calls for short-term actions and long-term reforms. For Nuon, the strategic direction of Vattenfall will continue to provide the framework for meeting these demands in the long term and for our day-to-day operations in the coming year.

With the new organisational structure well in place, in 2012 we will continue our focus on cost-containment and further efficiency by achieving and maintaining operational excellence throughout the organisation. Among other things, this will be realised by reviews of our product, asset, and project portfolio, further taking advantage of synergies in the new organisation and active management of risk exposure for the group. In addition, we will continue to review the strategic fit and performance of our assets and operations especially in the light of market development and circumstances.

We will provide our customers in the consumer and business markets with integrated solutions by means of further development of multiple energy products into so-called ‘product bundles’. We look forward to introducing the Nuon E-Manager in other core markets in cooperation with Vattenfall, building on the experience gained in the Netherlands. In the business market, we will further build on the concept of partnerships, working together to tailor our products and services to our customers’ needs. Such services include the possibility of conducting gas transactions on our trading platform.

The new regulatory framework for the supplier’s model of the Dutch retail market, affecting billing and metering processes for household customers and small and medium-sized enterprises (SMEs), will have to be prepared in the coming year. This framework and other national and international regulatory changes are a constant challenge for our organisation. We need to implement the adaptations as a result of the supplier model to our systems and processes without affecting current customer satisfaction levels and in time for the regulatory implementation deadline of April 2013.

In terms of security of supply, we expect to complete all three new modern gas-fired power plants by the end of the year. With the expected completion of wind farm Zuidlob in 2012, new renewable capacity will come online as well. These developments will contribute to the strategic objective of Vattenfall to grow its production portfolio in such a way that lower CO2 exposure is achieved.

Especially considering the market circumstances, any projection of the future is full of uncertainty; in our view, meeting these challenges will require a collaborative approach. Because we know that the energy future will be shaped by decisions made not just by energy market players, but also by policymakers and consumers, in determining the way forward we continue to strive for cooperation with our partners in society, with our customers and with our employees and shareholders. The Management Board’s policy is to refrain from making any statements regarding expected future results.

We believe these targets and activities will contribute to Vattenfall’s ambitions while accommodating the economic and environmental landscape in the Netherlands. And of course Nuon will continue to take the interests of our stakeholders into consideration.

A final wordWe as Management Board are proud of what has been achieved so far and realise that this would not have been possible without the commitment and hard work of our staff. We would therefore like to take this opportunity to express our gratitude for their efforts and achievements in the past year.


The Management Board



About Nuon


Dutch Corporate Governance CodeThe Code is specifically applicable to Dutch listed companies and is designed to promote more efficient supervision of the Management Board (the ‘checks’) and a more balanced distribution of influence between the Management Board, Supervisory Board and shareholders (the ‘balances’).

In view of the company’s size, the social role that Nuon plays in the performance of its tasks in the field of energy supply, and because of

Corporate Governance

Nuon has taken notice of the revised Dutch Corporate Governance Code

published by the Corporate Governance Code Monitoring Committee on

10 December 2008 and effective as per 1 January 2009.

its strong commitment to openness and transparency, Nuon voluntarily applies the principles and best practices of the Dutch Corporate Governance Code. The company’s articles of association, by-laws and regulations are fully in line with the provisions of the applicable Dutch Corporate Governance Code.

In the table below, Nuon reports the departures from the best practice provisions in the Code, stating the motivation for said departures from the Code (the ‘comply or explain’ principle).

Departures from the Code

Code Departures from the code and motivation

III Supervisory Board

Principle III.4.2: The Chairman of the Supervisory Board may not be a former

member of the Management Board of the company.

Øystein Løseth was appointed as member of the Supervisory Board by the

shareholders following nomination by the Supervisory Board. Subsequently,

the Supervisory Board appointed Øystein Løseth as Chairman of the

Supervisory Board in line with the articles of association of the company

and Vattenfall’s grandfather principle.

Principle III.5: If the Supervisory Board consists of more than four members,

it appoints from among its members an Audit Committee, a Remuneration

Committee and a Selection and Appointment Committee.

The Supervisory Board has appointed a separate Audit Committee, whereas

the tasks of the Remuneration Committee and Selection and Appointment

Committee have been combined in a Remuneration Committee, since these

are closely linked.

IV General Meeting of Shareholders

Principle IV.1: to the extent that the company is able to do so, it provides all

shareholders with distance voting facilities and the means to communicate

with each other.

Written powers of attorney are sent together with the notice to convene

shareholders meetings. In addition, all shares are registered. Because of

and with due regard to the above, distance voting contributes little to the

realisation of this provision.

Best practice provisions IV 3.1 to IV 3.4: about analysts’ meetings and reports. These do not apply since the Nuon shares are not listed, are not freely

marketable and/or are not prone to price-sensitive information. Despite

the fact that Nuon is not a listed company, meetings are held with (major)

shareholders following the publication of financial reports. Nuon endorses

the principle of simultaneous dissemination of information to all shareholders

but deems it too costly to put in place facilities that would enable all

shareholders to simultaneously follow all the meetings and presentations

as envisaged in the Code. Nuon does ensure, however, that after the

end of the meetings concerned, the documentation is made available.


Corporate Governance structureGeneralOn 1 July 2009, Vattenfall AB acquired 49% of the shares in the capital of N.V. Nuon Energy and obtained managerial control of Nuon. As a consequence, Nuon was consolidated in the Vattenfall figures as of 1 July 2009. On 1 July 2011, Vattenfall AB acquired an additional 15% of the shares and consequently holds 64% of the shares in the capital of N.V. Nuon Energy. Vattenfall AB is a public limited liability company with its registered office in Stockholm, and is subject to the Swedish Company Act. The rules for large companies (‘structuurvennootschap’) referred to in articles 2:158 to 2:164 of the Dutch Civil Code are voluntarily complied with by N.V. Nuon Energy. As such, Nuon has a two-tier management structure comprising a Management Board and an independent Supervisory Board. The Management Board is in charge of the day-to-day management of the company, while an independent Supervisory Board supervises the Management Board. Both the Supervisory Board and the Management Board are accountable to the General Meeting of Shareholders for the performance of their duties.

Management BoardThe Management Board is in charge of the company’s management. The Management Board members are jointly responsible for the management of Nuon. During 2010, Vattenfall introduced its new strategic direction. To support this new strategic direction, Vattenfall, including Nuon, has been restructured from a regional structure to a pan-European business-led structure as of 1 January 2011. Each of Nuon’s activities has been allocated to one of the five Business divisions and managerially form part of the respective Business divisions. Due to these changes, Nuon’s legal and business governance structures are not fully aligned. To enable the Management Board within the new business-led structure to perform its obligations towards the Supervisory Board and its stakeholders, the Vattenfall management will ensure that all necessary tools and assistance are made available to the Management Board in order to perform its fiduciary duties in this respect.

Nuon’s Supervisory Board appoints the members of the Management Board. The Management Board consists of at least two members. The Supervisory Board determines the remuneration and other conditions of employment for each member of the Management Board in accordance with the remuneration policy adopted by the General Meeting of Shareholders. The information on the remuneration of individual members of the Management Board can be found in the Remuneration Report of this annual report (on page 30).

The company’s articles of association and the by-laws of the Management Board which set out, for example, the procedures governing the composition, tasks and powers, meetings and decision-making, can be viewed on Nuon’s corporate website, www.nuon.com/corporate-governance.

Supervisory BoardThe Supervisory Board supervises the policy of the Management Board and Nuon’s operations in general, including the realisation of the company’s objectives, the strategy and risks related to the business activities, the design and operation of the internal risk management and control systems, the financial reporting process, and compliance with laws and regulations. In addition, the Supervisory Board functions as the Management Board’s advisory body.

Pursuant to its articles of association, Nuon shall have a Supervisory Board consisting of eight Supervisory Board members. There shall be four Supervisory Directors A and four Supervisory Directors B. The Supervisory Directors A are to be appointed by the General Meeting of Shareholders upon their nomination by the Supervisory Board following the recommendation of the class A shareholders. They shall include two persons recommended by the Central Works Council. The Supervisory Directors B are to be appointed by the General Meeting upon their nomination by the Supervisory Board following the recommendation by the class B shareholders. The Chairman of the Supervisory Board shall be nominated by the class B shareholders. At least five members of the Supervisory Board will reside in the Netherlands.

A Supervisory Board member must resign no later than 12 years after his/her first appointment. Members of the Supervisory Board are appointed for a maximum of three terms of four years each. The Supervisory Board is made up in such a way that it has at its disposal all the expertise required to ensure the proper performance of its tasks, and that the members are able to operate independently and critically in relation to each other, the Management Board and any partial interest whatsoever.The by-laws of the Supervisory Board can be viewed on Nuon’s corporate website, www.nuon.com/corporate-governance.

Committees of the Supervisory Board

The Supervisory Board can appoint standing or adhoc committees consisting of its own members and charge these committees with tasks defined by the Supervisory Board. The Supervisory Board has two standing committees: an Audit Committee and a Remuneration Committee. The task of these committees is to prepare the decision-making of the Supervisory Board. In general, each committee meeting is reported on in the Supervisory Board meeting to serve as a basis for the decision-making in the Supervisory Board.

Regulations have been drawn up for both standing committees. These regulations indicate, for example, the tasks, the composition and the manner in which each of these committees performs its tasks. The terms of reference for both the Audit Committee and the Remuneration Committee can be viewed on Nuon’s corporate website, www.nuon.com/corporate-governance.

19 Corporate Governance


About Nuon

www.nuon.com/corporate-governance




The agenda for the General Meeting of Shareholders is determined by the Management Board and the Supervisory Board. The annual General Meeting of Shareholders is held to discuss the items laid down in the articles of association, the annual report, the adoption of the annual accounts, the release from liability of the members of the Management Board and the Supervisory Board, the allocation of profits and other business presented for discussion by the Management Board, the Supervisory Board or by the shareholders, the latter representing at least one hundredth of the issued capital.

All shareholders have the right to attend the General Meeting of Shareholders, to speak at the meeting and to exercise their voting rights, either in person or by written proxy. At the General Meeting of Shareholders, each share entitles the holder to cast one vote. All decisions are taken by absolute majority of votes cast, unless the law or the articles of association require a larger majority.

The General Meeting of Shareholders receives all information that it requests, unless the Management Board and the Supervisory Board are of the opinion that this is against the overriding interests of the company.

Nuon has two classes of shares, class A Shares and class B Shares as held by the class A shareholders and class B shareholders, respectively. The class A shareholders and class B shareholders agreed on a shareholders agreement that sets out, for example, the terms and conditions of the sale of the shares in the capital of the company and the course Vattenfall will take to acquire full ownership of the company. One of the items agreed upon is a six-year lock-up period for the class A shareholders, which started as of 1 July 2009. During this period, conditions on offering, selling and contracting to sell any shares apply.

Nuon Energy Public Assurances FoundationAs part of the transaction whereby Vattenfall initially acquired 49% of the outstanding share capital from Nuon shareholders on 1 July 2009, it was agreed that a foundation would be set up for a period of eight years. This foundation is called ‘Nuon Energy Public Assurances Foundation’ (‘the Foundation’).

The objective of the Foundation is to safeguard the so-called Nuon Public Assurances as envisaged by the agreement governing the acquisition and to render binding advice on the interpretation of the Nuon Public Assurances.

The management of Nuon will inform the shareholders and the Foundation of any intended management decision or action that deviates or causes a deviation from the Nuon Public Assurances. An intended decision, action or omission of Nuon that could be in contravention of the Nuon Public Assurances can be submitted to the Nuon Public Assurances Foundation for review, by:

■ The shareholders (at least two shareholders and collectively representing 5% or more of the outstanding and issued share capital);

■ Nuon (represented by the majority of the Supervisory Board members); or

Audit CommitteeThe Audit Committee prepares, within its designated area of duties, the decision-making of the Supervisory Board and advises the Supervisory Board on the understanding that the entire Supervisory Board remains collectively responsible for the fulfilment of its duties. The Audit Committee is charged with such tasks as monitoring, amongst other things, the integrity of Nuon’s financial statements, the operation of the internal risk management and control systems, compliance with recommendations and actions taken in response to comments of the Internal Audit Department and the external auditor, the company’s policy in relation to tax planning and the financing of the company.

The Audit Committee consists of at least three members, all of whom must be members of the Supervisory Board. All members of the Audit Committee should be independent within the meaning referred to in the by-laws of the Supervisory Board, with the exception of no more than one member. At least one member of the Audit Committee must be a financial expert, which means that this person has acquired relevant knowledge and experience in the fields of finance, administration and/or accounting at listed companies or other large legal entities.

Remuneration CommitteeThe Remuneration Committee prepares, within its designated area of duties, the decision-making of the Supervisory Board and advises the Supervisory Board on the understanding that the entire Supervisory Board remains collectively responsible for the fulfilment of its duties. The Remuneration Committee is charged with such tasks as drawing up selection criteria and appointment procedures relating to the members of the Supervisory Board and the Management Board, periodically reviewing the functioning of the individual Supervisory Board and Management Board members, submitting proposals for appointments or reappointments, submitting proposals on the remuneration policy to be pursued regarding members of the Management Board (this remuneration policy and any material change to it is to be presented at the General Meeting of Shareholders for adoption) and submitting proposals on the remuneration of individual Management Board members.

The Remuneration Committee consists of three members, all of whom should be Supervisory Board members. The committee may not be chaired by the Chairman of the Supervisory Board, a former member of the Management Board or a member of the Management Board of another listed company.

ShareholdersThe annual meeting is held each year no later than six months after the end of the financial year. Other General Meetings of Shareholders can, if necessary, be held at the request of the Supervisory Board or Management Board. Shareholders who jointly represent at least 10% of the issued capital have the right to request that the Management Board or the Supervisory Board convene a General Meeting of Shareholders, stating specifically the business to be discussed. Nuon’s General Meetings of Shareholders are generally not open to the public.


The external auditor also attends the Supervisory Board meeting that is devoted to the discussion of the financial statements to be submitted for adoption to the General Meeting of Shareholders. In addition, the external auditor attends the General Meeting of Shareholders and may, on that occasion, be asked to elaborate on his audit activities and his auditor’s report on the reliability of the financial statements.

Internal auditorNuon’s Internal Audit department, part of Vattenfall’s Internal Audit department, is an independent function that provides additional assurance to management, and the Management Board in particular, concerning the control, effectiveness, efficiency and compliance of the business processes. In this context, Internal Audit systematically evaluates the processes in relation to control, risk management and governance. In doing so, Internal Audit complies with the procedures as laid down in the Internal Audit Charter as approved by the Management Board and the Audit Committee.

Every year, Internal Audit draws up a plan, in which the selection of subjects is based on, for example, a periodic evaluation of the risks by Staff Function Internal Audit (in consultation with the external auditor and partly on the basis of the audit findings and risk reports of management). The annual plan must be approved by the Management Board and the Audit Committee.

Nuon Internal Audit is an integrated part of the Staff Function Internal Audit of Vattenfall that operates under the responsibility of the Chairman of the Board of Vattenfall and the Audit Committee of Vattenfall. Nuon Internal Audit reports to the Nuon Management Board and Audit Committee. Twice a year, Internal Audit reports on the follow-up of the audit findings by means of a monitoring report. This report is also discussed with the Audit Committee. In this context, and for the purpose of the planning and execution of the audit of the financial statements, the Internal Audit department works in close collaboration with the external auditor.

Measuring Corporate Social ResponsibilityCorporate Social Responsibility targets are an integral part of management and business unit targets. Performance is measured periodically and remunerated as part of regular performance management measures which are organised through the Vattenfall Human Resources organisation.Management scorecards contain the KPIs that are important for Vattenfall and Nuon as a whole. These KPIs are then cascaded down through the organisation. There are scorecards applicable for all Staff Functions, Business divisions and their units in which the Management Board members and employees are included. The scorecards incorporate financial and non-financial KPIs such as reputation, climate and safety targets, which are all necessary to ensure the company operates and develops in line with the Strategic and Business plans.

■ One director of the Foundation within four weeks of becoming aware of the (intent to take the) decision or action.

The Foundation can then decide whether or not to issue advice to the management of Nuon. The Foundation can only advise to:

■ Take the decision or action; or ■ Reverse the decision or action, or, if not yet taken, not to take

such action or decision and correct any non-compliance.

The advice is binding for Nuon’s management except, if in doing so, the management would violate its fiduciary duties. If management refuses to comply with the advice, the question of whether the management was allowed to deviate from the advice can be submitted for review by the Netherlands Arbitrage Institute.

The Foundation consists of three members. One member is nominated by the class A shareholders and a second by the class B shareholders. A third member, to be the Chairman, shall be nominated by the other two members.

The articles of association of the Foundation can be viewed on Nuon’s corporate website, www.nuon.com/corporate-governance.

The role of auditors External auditorThe external auditor PricewaterhouseCoopers Accountants N.V. is appointed by the General Meeting of Shareholders based on a motion drawn up by the Supervisory Board following advice received from the Audit Committee and the Management Board.

The Management Board and the Audit Committee report to the Supervisory Board annually on the developments in the relationship with the external auditor, in particular with regard to the external auditor’s independence. Based on this and other factors, the Supervisory Board prepares its motion to the General Meeting of Shareholders on the appointment of an external auditor.

At least once every four years, the external auditor’s performance is thoroughly evaluated and reviewed by the Management Board and the Audit Committee. The principal conclusions of this review are communicated to the General Meeting of Shareholders in order to assist in its review of the motion to appoint the external auditor.

Generally, the external auditor attends the meetings of the Audit Committee. In compliance with current legislation, the external auditor reports on his audit activities to the Management Board and the Supervisory Board and sets out the matters he wishes to bring to the attention of these boards. These matters could include issues with respect to the audit, the financial figures and the operation of the internal risk management and control system (including the reliability and continuity of the electronic data processing) and the quality of the internal information systems.

2 1 Corporate Governance


About Nuon



■ The Risk Management organisation, headed by the Chief Risk Officer of Vattenfall, supports Nuon, applying Vattenfall’s risk framework. The Risk Management organisation monitors market risk on a daily basis, manages credit risk, oversees compliance with policies and risk limits, and guides the group-wide reporting of significant business risks. Together with other specialist risk stakeholders (for example health and safety, information security), the Risk Management organisation supports the business units in the identification, quantification, mitigation, monitoring and reporting of risk;

■ The Nuon Internal Control department is responsible for reporting on internal control aspects such as the authorisation matrices, the key controls (including authorisations for key systems) and progress of the follow-up on audit findings;

■ The Compliance department within Nuon is responsible for creating awareness of compliance issues and internal regulations including the Code of Conduct, advising the line management on measures to enhance compliance and monitoring compliance risks, and the Compliance report, which contains a summary of compliance items and investigations;

■ The Nuon Integrity Committee, whose tasks include monitoring the Code of Conduct and promoting the integrity policy. This includes the incident and fraud policy, according to which incidents are reported to and investigated by the Internal Audit Department;

■ The Nuon Business Control Framework, containing the key controls for the different business areas;

■ The planning & control cycle, in which yearly budgets are assigned for each organisational unit and the outcome is subsequently discussed between the Management Board and the business units;

■ The periodic reporting on business units’ financial and operational performance, partly based on the system of Key Performance Indicators (KPIs);

■ The monthly business reviews, executed by the Management Board in cooperation with Nuon business units’ management;

■ The Nuon governance reporting cycle, in which all aspects of governance such as Risk, Compliance, Claims & Litigation, Internal Control and Tax are reported based on a COSO self-assessment of risk management and internal control and the Nuon business units’ ‘Statements on Business Control’. The Management Board discusses these statements annually with the responsible management and the Audit Committee;

■ The Risk reports, highlighting the risks identified as having a potentially significant impact on the business. These reports are challenged by Risk Management and further reviewed in quarterly sessions with members of the Management Board. These business unit risk reports are used as the basis for Risk Managements’ formulation of the quarterly Enterprise Risk Report, which summarises the most significant risks facing the organisation. This report is reviewed by the Management Board prior to being presented to the Audit Committee of the Supervisory Board;

■ The responsible management’s confirmation at the corporate and unit level of the reliability of the financial reporting through signed Letters of Representation;

Risk management and risk factorsRisk management Nuon is exposed to a number of risks that could have an adverse impact on operations. A better understanding of and control over these risks potentially generate better results from the business activities. The Nuon Management Board is responsible for the company’s risk management and control system. This system operates in accordance with the Vattenfall Risk Management framework, which is based on the COSO Enterprise Risk Management Framework (ERM). Nuon strives for transparency when it comes to risks and recognises all risks that may affect the company. The following paragraphs describe some of the main risks that Nuon faces, as well as risk management efforts undertaken.

The Nuon Risk Management FrameworkThe objective of the Nuon Risk Management Framework is to provide reasonable assurance that the achievement of strategic and operational objectives is effectively monitored, that the financial reporting is reliable, and that current laws and regulations are complied with. The framework is designed to ensure an acceptable risk exposure, independent oversight of Nuon’s governance and a thorough and transparent analysis of Nuon’s risks, thus facilitating decision-making based on an appropriate assessment of the risk-reward balance. The framework facilitates the monitoring of risks with potential impact on the organisation and is based on a set of best practice policies, procedures and internal control mechanisms.The Nuon Risk Management Framework focuses on ensuring that the most important risks are identified and that appropriate control measures are taken to manage these risks.

Important components of the Nuon Risk Management Framework are: ■ The Vattenfall Management System (VMS) that Nuon, as part of

Vattenfall, implemented, which contains regulations, guidelines and procedures that are relevant for the relationship between N.V. Nuon Energy and its subsidiaries, business units, staff functions and other Vattenfall companies. VMS includes the Vattenfall Code of Conduct and the Whistleblower Policy, which are publicly accessible at www.nuon.com. VMS also comprises the (IFRS) accounting manual and the reporting manual;

■ The Vattenfall Code of Conduct, which sets the behavioural rules for all employees. The Code of Conduct fosters an honourable business culture in which the rules applicable to employees are clear. Breaches of the Code of Conduct are not tolerated, but are investigated and lead to sanctioning;

■ The organisational set-up, in which line management is primarily responsible for the identification and management of all risks in the related area of business. This is in accordance with the Basel II ‘three lines of defence’ model, which establishes the different roles in risk ownership, control and assurance. Line management, as risk owner, provides the first line of defence. The second line of defence is provided by specialist risk stakeholders such as the Risk, Control and Compliance Functions. The third line of defence is provided by the (internal) auditor;


■ The execution of audits by the Internal Audit department in conformity with the annual plan, which is approved by the Management Board and the Audit Committee. Their reports and findings are discussed with the Management Board and the Audit Committee. The Internal Audit department represents the third line of defence;

■ The follow-up of findings from internal and external audits by the business units, which are periodically reported on to the Management Board.

The Nuon Risk Management Framework is regularly evaluated and further developed.

Important aspects in the further development and alignment of the Risk Management Framework in 2011 were:

■ The further implementation of the Tax Control Framework, in particular with regard to the bottom-up analysis of tax risks and controls in the Customer Care Center;

■ Enhancing design and partial implementation of authorisation matrices for all key systems, including regular reporting on actual assigned authorisations;

■ The further improvement of the processes and organisation within Nuon’s energy-related services subsidiaries.

In 2012, further alignment of the risk management and control systems is planned as well as the Governance reporting systems with those of Vattenfall, based on the approach of applying best practices.

Principal risks – main risks and mitigationThis section describes the most important risks within Nuon. The defined risk categories according to the ERM model are: Market & Financial, Technology, Infrastructure, Laws & Regulations, Personnel & Organisation and Politics & Society. The risks are based on current insights. While these risk factors have been described as comprehensively as possible, the summary provided below is not exhaustive.

Note [29] to the financial statements provides further qualitative and quantitative information on financial instruments and financial risk management.

Market and financial risks Electricity and fuel price risk

As is common for all energy companies, and by virtue of the nature of its business, Nuon has an inherent exposure to the price changes of energy commodities and related products. Although these risks are actively managed, price developments in these markets may have a significant impact on the financial results.

Nuon is exposed to the impact of market fluctuations in the prices of a range of energy commodities, including but not limited to: electricity, coal, gas, oil and emission rights. These risks are a result of ownership of physical assets (gas and coal power plants and gas storage facilities), sales positions in electricity and gas to both consumers and business customers, and the proprietary positions taken in these energy commodity markets. In general, all the electricity and fuel price risks arising from these activities are managed by the Business division Asset Optimisation & Trading, which contains Nuon’s wholly-owned subsidiary Vattenfall Energy Trading Netherlands N.V. (VET NL).

Nuon’s largest electricity and fuel price risk is the exposure of thermal generation assets to unfavourable changes in the relative prices of power and fuel. If power prices decrease relative to the costs of fuel and emission rights, then the margin from the sale of the power produced by the operation of the power plants (i.e. spark spread and dark spread) will be negatively impacted. VET NL uses a range of physical and financial instruments, in both spot and forward markets, to manage the exposure related to power sales and purchases of fuel and CO2. The open price exposures of the assets are managed taking into account market price developments, the limitations of market liquidity and the risk appetite of the organisation.All electricity and fuel price exposures are monitored on a daily basis by the Risk Management Group, covering positions arising due to activities associated with the assets, proprietary trading and sourcing in support of Nuon’s consumer, business, and industrial customers. Market risk is measured using the Value at Risk (VaR) metric, which quantifies potential changes in the value of commodity positions as a result of market price movements.

Credit risk

Credit risk can arise if a counterparty or contractor cannot or is not willing to fulfil its obligations and exists in Nuon’s commodity trading, sales activities, treasury activities and investments. Nuon has a strict framework for governing and reporting credit risks to ensure that they are monitored, measured and minimised in a suitable manner. The framework ensures consistent application of credit risk management within the entire group. As part of this framework, Nuon has a clear credit risk mandate that reflects the company’s risk appetite. The credit risk function within Risk Management analyses potential counterparties before any undertakings are made, and credit limits are set in accordance with the credit risk framework. A thorough counterparty analysis and reporting of exposures as well as risk mitigation measures are central activities in Nuon’s credit risk management. A number of tools are used to determine existing and potential future exposures. In addition to the company’s internal assessment, the credit ratings provided by the major credit rating agencies are used.



About Nuon


Liquidity risk

Liquidity risk is the risk that the organisation has insufficient cash to meet its immediate requirements. Liquidity risk is deemed limited. Nuon uses daily, short-term and 12-month rolling cash forecasts to ensure that available funds and back-up facilities are sufficient to cover cash outflows from operating activities, debt service, maintenance and other capital expenditure. Furthermore, Nuon is in a cash pool with Vattenfall and has back-up liquidity arrangements in place. Note that, as a consequence of trade floor operations and the associated bilateral and exchange margining requirements, commodity price movements have a significant impact on the company’s cash requirements. Liquidity risk also pertains to the risk of not being able to pursue the trading strategy due to insufficient liquidity in the electricity and fuel markets. This risk is managed through proxy hedging (hedging with the help of an instrument that correlates with the risk to be hedged) and collateral agreements as well as by securing an optimal number of counterparties.

Currency risk

Currency risks arise on purchases, trading activities, cash and cash equivalents, loans obtained and other balance sheet positions denominated in a currency other than the euro. The company’s currency policy is ‘exposure-based’; generally, all significant foreign currency exposures are hedged and foreign currency proprietary positions are not allowed. A break-up of or change in the composition of the Euro zone and its currency could have an impact on business performance among others, due to the adverse macroeconomic impact such a break-up may cause. In addition, a break-up or change could result in a devaluation of assets and profits due to currency devaluations. Also, it could restrict the free transfer of money and currencies and may adversely affect the creditworthiness of our counterparts.

Interest rate risk

Interest rate risk is the chance that the market value of a fixed-income security or a fixed-rate loan will change due to a change in interest rates. Further, changes in short-term interest rates can impact the rate of return on short-term cash investments.

Cross-border leases

There is an indirect exposure to a cross-border lease on heat networks, as the company subleases these assets from Alliander. The company therefore carries a portion of the strip risks related to this contract, which amounts to $ 47 million per 31 December 2011.

Competitive pressure

European markets for energy services are continuing to evolve, leading to increased competition and pressure on margins and market share in general. While the company’s position as an incumbent supplier in the Netherlands is vulnerable, opportunities are also arising from the ongoing liberalisation of the European market.

Technology and infrastructure risksOperation of assets

The financial results are highly dependent on the availability and reliability of the operation of the company’s electricity production and gas storage assets. To safeguard this, strict operational procedures and stringent maintenance schedules apply. In addition, adequate insurance cover has been arranged.

Risks related to ICT

Like all energy companies; Nuon is increasingly dependent on sophisticated ICT systems. In almost all aspects of the business, ICT systems play a key role. Consequently, disruptions in ICT could have a detrimental impact on performance. For example, disruption in the invoicing and collection processes could result in reputational damage, whilst the failure of trade floor systems could lead to lost opportunities, penalties and marked-to-market losses. Due to the dependence on ICT systems, Nuon places a strong focus on status monitoring and on the presence of back-up arrangements.

Laws & regulations risks Regulatory requirements

Nuon complies with all current regulations concerning all our activities. Changes in regulatory requirements may have an impact on future results. Nuon has an expert team dedicated to monitoring and reviewing regulatory developments that have a direct or indirect impact on our operations. The goal is to recognise potential changes in regulations at an early stage so that appropriate measures can be taken to stay compliant.

Permits

Both the ongoing operation of existing assets and the construction of new assets require environmental, zoning, and other permits from national, provincial and municipal entities. Nuon’s current operations and business plans for the coming years are contingent on the granting and renewal of the necessary permits. Because a delay in the permitting process could have a material impact on Nuon’s results, Nuon has an expert team dedicated to reviewing requirements and securing the necessary permits.

Personnel & organisation risksOperational risk

Operational risk is the risk of loss related to the failure of people, processes or systems. Operational risk is mitigated by striving for operational excellence in all business activities. Governance is kept up to date, including the Code of Conduct, and possible exceptions are monitored. All authorisations are regularly monitored as well. Back-up facilities are in place for key systems.

Risk of losing unique expertise and key persons

Nuon has unique expertise and key persons in certain areas, where the impact would be particularly tangible if the individuals in question were to leave Nuon. To manage this risk, a record is kept of where persons with these qualities work in the organisation, and the risk is mitigated through efforts to spread their expertise. Nuon takes a structured approach to succession and competence planning, as well as to leadership and management development programmes, especially in view of the demographic trend and competition for specialists.


Health and safety risks

Nuon is exposed to safety and environmental risks in the normal course of our activities. Health, safety and environmental (HSE) risks are managed by compliance with relevant legislation as well as an internal HSE control system, which includes internal procedures and policies. Legislation and related developments are monitored and checked with respect to the operations. The management and staff’s awareness, attitude and behaviour regarding HSE policies are continuously improved through frequent training and education. The Management Board and Supervisory Board are informed on these topics on a monthly and quarterly basis, respectively.

Fraud

Nuon strives for good internal governance and control. Preventive measures ensure that assets and information are protected from improprieties and fraud. The so-called four eyes-principle is used within the whole Vattenfall group, which entails that most decisions must be approved by at least two persons. In addition, various forms of analyses and follow-ups are performed as an effective means of discovering any improprieties.

Security risks

Nuon’s security organisation works with loss prevention and mitigating security measures to protect the assets, IT systems, information, personnel and thereby the continuing operations. This also includes protecting the company and its customers against various types of crimes.

Pensions

The pension and pre-pension liabilities for the majority of the employees have been placed with pension funds, and largely with ABP pension fund for staff in the Netherlands. The pension contributions that Nuon pays to the pension funds are based on such aspects as assumptions relating to inflation, salary increases, ageing, mortality risks and the returns on the pension fund’s investment portfolio. Actual developments in relation to the aforementioned assumptions may differ from the assumptions used.

Furthermore, there may be changes to legislation and regulations on pensions, pre-pensions and Collective Labour Agreements. As a result, pension contributions and/or the related commitments charged to Nuon may be subject to fluctuations from year to year, which are outside Nuon’s direct sphere of influence. The pension premium policy is determined by the ABP Pension Board.

Politics & society and other broader risk areasPolitical risk

Political risk is defined as the business risk that can arise as a result of political decisions, such as price regulations in heat distribution, uncertainty regarding a new political majority, or changes in finance policies. In connection with acquisitions and other investments, this type of risk is taken into account by e.g., adjusting the cost of capital or through scenario analyses. Another type of political risk stems from changes in legislation and in the rules and regulations that govern the energy industry. These can be factors such as changes in taxes, surcharges, environmental legislation and permit requirements, as well as changes in how natural monopolies are regulated and political objectives regarding the energy mix. For example, the EU Emissions

Trading System will change in 2013. For Nuon this will essentially result in a discontinuation of the system of free allocation of a fixed predetermined quantity of CO2 emission allowances, which will affect the cost of Nuon’s CO2-intensive generation negatively. To protect itself from political risk, Vattenfall conducts active business intelligence activities and maintains contacts with decision-makers. For example, changes in EU regulations could affect commodity trading. We monitor market developments in order to be prepared to adapt the company’s instructions and policies when and if this should be necessary. In addition, Vattenfall participates in various national and international trade organisations to safeguard the company’s interests.

Investment risk

Nuon is a highly capital-intensive company and has an extensive investment programme. Before every investment decision, a risk analysis is performed. By simulating various outcomes resulting from such factors as price, cost, delays and the cost of capital, risks are estimated for an investment. Several different types of investment risk exist in the various risk areas, including procurement risk, financing risk, market risk, risk in the choice of technology and the risk of changes regarding environmental permits.Vattenfall group’s staff function Asset Management ensures that capital is invested in a manner that maximises long-term economic value. In addition to the strategic investment roadmap, a detailed plan of investment projects is updated yearly to provide the Vattenfall Group Executive Management with guidance in the investment decision process. Projects are ranked according to a number of criteria as fit with the group strategy, consequences for the existing generation portfolio, risk profile and profitability.

Responsibility

Nuon’s Management Board is responsible for the design and operation of our internal risk management and control system. During 2011, the design and operation of this system is evaluated, mainly based on the business control information, the Internal Audit reports and the management letter from the external auditor.

The Nuon Risk Management Framework does not provide absolute assurance as to the achievement of the corporate objectives, nor does it give absolute assurance that material errors, losses, fraud or violations of laws and regulations will not occur in the operational processes and/or the financial reporting.

With due regard to the above, the Management Board is of the opinion that the internal risk management and control systems provide a reasonable assurance that the financial reporting does not contain any errors of material importance and that the risk management and control systems worked properly as regards the financial reporting risks in the year under review.

Based on the above, Nuon is of the opinion that the company thus satisfies the best practice provisions II.1.3, II.1.4 and II.1.5 of the Dutch Corporate Governance Code.

The above was also discussed with the Audit Committee of the Supervisory Board, in the presence of the internal and external auditors.



About Nuon


Report of

the Supervisory Board

During 2011, the Supervisory Board (‘the Board’) carried out its tasks in

accordance with the statutory provisions and the articles of association

of N.V. Nuon Energy and supervised and advised the Management Board.

Composition of the Supervisory Board as at 31 December 2011

Composition Director A or B Committees First appointment Reappointment Current term until

Øystein Løseth, Chairman B Member of the Remuneration and Audit Committee

2010 – 2014

Torbjörn Wahlborg B - 2011 – 2015

Tuomo Hatakka B - 2009 – 2013

Tom de WaardB

Chairman of the Remuneration Committee

2010 – 2014

Leni Boeren A Member of the Remuneration Committee

2009 – 2013

Pieter Bouw A Chairman of the Audit Committee 2009 – 2013

Derk Haank A Member of the Audit Committee 2009 – 2013

Jacques Schraven A - 2009 – 2013

As at 31 January 2011, Torbjörn Wahlborg was appointed as a member of the Supervisory Board succeeding Dag Andresen, who resigned with effect per the above date. On the same date, Øystein Løseth was appointed as a member of the Audit Committee.

The Board has drawn up a profile indicating the desired criteria and competences for the composition of the Board. This profile can be found on our corporate website www.nuon.com. Appointments and reappointments are assessed in the light of the profile. In the case of reappointments, the performance of the person involved is also taken into consideration.

In the opinion of the Board, all members of the Board can be considered to be independent in the sense of best practice provision III.2.2 of the Dutch Corporate Governance Code (‘the Code’).

The current members of the Board comply with best practice provision III.3.4 of the Code, which stipulates that the number of supervisory directorships of Dutch listed companies may not exceed five (per person), on the understanding that a Chairmanship is equivalent to two memberships.


www.nuon.com

Meetings and activities of the Supervisory BoardMeetings of the Supervisory BoardThe Board met eight times in the reporting year. During its meetings, the Board discussed a broad range of subjects, such as strategic projects that require the approval of the Board, the business plan and budget, investments, the quality of service and customer satisfaction, health and safety organisation, the effects of the revised strategic direction of Vattenfall from 1 January 2011, litigations and divestments, cost control and cost-to-serve and other relevant matters that were brought to its attention. The financial results were discussed extensively in the meetings of the Board before publication of this report. Furthermore, the Board evaluated its functioning, the functioning of its committees and its individual members. The self-evaluation was based on a questionnaire completed in advance of the evaluation. The results of the questionnaire were discussed amongst the members of the Supervisory Board.

Shareholder meetings All members of the Board attended the Annual General Shareholders meeting on 13 May 2011. During this meeting, the financial statements and the profit appropriation for 2010 were approved. The members of the Board and the Management Board were discharged for their management activities during the 2010 financial year. Furthermore, PricewaterhouseCoopers Accountants N.V. was appointed as the external auditor for 2011. On 31 January 2011 and 7 December 2011, several members of the Board attended the Extraordinary General Meetings of Shareholders. During the meeting on 31 January 2011, the proposal to appoint Torbjörn Wahlborg as a member of the Supervisory Board was approved. During the meeting on 7 December 2011, the Board approved a revised remuneration policy for the Management Board of Nuon and the proposal to publish the annual report of Nuon only in English.

Contacts with the Central Works CouncilIn accordance with the covenant agreed with the Central Works Council, consultations were held prior to meetings of the Board between the members of the Board appointed following recommendation of the Central Works Council, namely Pieter Bouw, and Leni Boeren and the Executive Committee of the Central Works Council.

Meetings of the Audit CommitteeThe Audit Committee consists of the following three members of the Supervisory Board: Pieter Bouw (Chairman), Derk Haank and Øystein Løseth. The composition of the Audit Committee meets the requirement of best practice provision III.5.7 of the Code. The Audit Committee of Nuon met six times in 2011. Five of these meetings were scheduled meetings and one was an extra meeting (by telephone) about a specific topic.

The Audit Committee reviewed and discussed in particular all financially relevant matters that were presented to the Supervisory Board. The Audit Committee also monitored the internal risk framework and risk management systems. Topics discussed included the quarterly results, the annual report, reports of the internal and external auditor, appointment of the external auditor, budget and projections and risk reports.

Meetings of the Remuneration CommitteeThe Remuneration Committee consists of the following three members of the Supervisory Board: Tom de Waard (Chairman), Øystein Løseth and Leni Boeren.

In 2011, the Remuneration Committee met six times. The committee reviewed and approved the target realisation for 2010 and reviewed the criteria for short-term incentives for 2011 for the members of the Management Board. Furthermore, the Remuneration Committee evaluated the performance of the members of the Management Board, discussed the amended remuneration policy for the members of the Management Board and decided on the amended remuneration package of Peter Smink.

Corporate governanceThe Board endorses virtually all the principles and best practice provisions of the Corporate Governance Code. Nuon departs from the Code in a very limited number of cases. The manner in which Nuon applies the Code remained unchanged in the reporting year. A separate chapter of this annual report describes the corporate governance structure in general terms and indicates how Nuon has applied the principles and best practice provisions of the Code. This chapter also explains the cases where Nuon departs from the Code.

General terms of the remuneration policyThe remuneration policy is designed to enable Nuon to recruit, motivate and retain qualified and expert directors in order to achieve its strategic objectives. The total remuneration package of the members of the Management Board consists of an annual gross base salary, pension benefits and other emoluments. In addition, the CFO is entitled to a short-term variable salary.

The Remuneration Report in this annual report (page 30) provides a full and detailed overview of the remuneration policy for the Management Board, as well as a description of the execution of the remuneration policy for the Management Board in 2011. An overview of the remuneration of the Supervisory Board members is also provided.

2 7 Report of the Supervisory Board


About Nuon


(As at 31 December 2011)

Chairman of the Supervisory Board and member of the Remuneration Committee and the Audit Committee.Øystein Løseth (Norwegian nationality) was appointed as a member of the Supervisory Board on 8 April 2010. On 1 April 2010, Løseth resigned as member and Chief Executive Officer of the Management Board of N.V. Nuon Energy and was appointed as the president and CEO of Vattenfall AB as per 12 April 2010. Løseth graduated in 1983 for his Master Engineering from the Technical University of Trondheim and he studied Economics in the period 1985-1986, Bedriftsøkonomisk Institutt, Bergen. In the period 2003 until April 2010, Løseth fulfilled several management positions at n.v. Nuon and after 1 July 2009 at N.V. Nuon Energy. He was a member of the Management Board from January 2006 and was appointed as Chief Executive Officer as per April 2008. Before joining Nuon in 2003, Løseth fulfilled several management positions at Statkraft in Norway. Prior to his career at Statkraft, he worked at Naturkraft, Alliance Gas and Statoil.

Torbjörn Wahlborg (Swedish nationality) was appointed as member of the Supervisory Board on 31 January 2011. Wahlborg studied Computer Science and Technology at Chalmers, the Technical University of Gothenburg, and has been with Vattenfall for more than sixteen years. From 1997 to 2010 Wahlborg worked in Poland in different executive roles and from 2010 as Head of Business Group Vattenfall Nordic and Executive Vice President of Vattenfall AB. In January 2011, he became Head of the Business division Distribution and Sales and a member of the Vattenfall Executive Group Management.

Tuomo Hatakka (Finnish nationality) was appointed as a member of the Supervisory Board on 17 June 2009. Hatakka has been serving as Senior Executive Vice President of Vattenfall AB since 2005 and as Head of Business division Production since 1 January 2011. He was Head of Business Group Central Europe from January 2008 to December 2010 and previously the head of Vattenfall’s Polish activity. He studied Economics at the Helsinki School of Economics and Business Adminis-tration and has an MBA from the Instituto de Estudios Superiores de la Empresa, in Barcelona, Spain. His professional experience includes work as a consultant at Bain & Company, London, Executive Vice President and partner at Enterprise Investors in Warsaw, Poland, and President and CEO of Elektrim Kable SA, Warsaw, Poland.

Member of the Remuneration Committee Leni Boeren (Dutch nationality) was appointed as a member of the Supervisory Board on 17 June 2009. Boeren has been a member of the Board of Management of Robeco Groep N.V. since 2005. She is a former member of the Executive Committee of Euronext N.V. (2000–2005) where one of the positions she held was that of Managing Director of Information Services. She was a member of the board of the Amsterdam Exchanges N.V. (1997–2000), and previously worked for Robeco Groep, Rabobank and BNP Paribas. Other supervisory directorships and advisory functions of Boeren include that of Vice Chairman of the Supervisory Board and Chairman of the Audit Committee of the Tergooiziekenhuizen (hospitals in Blaricum and Hilversum) and member of the board of the Stichting Kunsthal Rotterdam (museum of art), member of the board of the Stichting Kunsthal Rotterdam (museum of art) and member of the board of Amsterdam Sinfonietta (String Orchestra).

Details of the Supervisory Board

Øystein Løseth (1958)

Torbjörn Wahlborg (1962)

Tuomo Hatakka (1956)

Leni Boeren (1963)

Annual Report and Dividend ProposalThis annual report contains, among other things, the financial statements for the 2011 financial year as signed by the Management Board and the Supervisory Board. The financial statements for 2011, as prepared by the Management Board, were audited by the external auditor PricewaterhouseCoopers Accountants N.V., who issued an unqualified audit opinion on these financial statements. The independent auditor’s report on the consolidated and company financial statements is included in the section Other on page 120.

The 2011 financial statements were discussed by the Audit Committee and the external auditor, in the presence of the Chief Executive Officer and the Chief Financial Officer. In addition, the Supervisory Board

also discussed the 2011 financial statements with the Management Board in the presence of the external auditor. On the basis of these discussions, the Supervisory Board is of the opinion that these 2011 financial statements meet the requirements and also provide a good basis of accountability for the conducted supervision.

It is recommended that the General Meeting of Shareholders: ■ Adopts the financial statements 2011; ■ Adopts the dividend proposal as included in the section Other

in this annual report for the financial year 2011; ■ Endorses the conduct of the company’s affairs by the members of the

Management Board during the financial year 2011 and the supervision by the members of the Board during the 2011 financial year.


Chairman of the Audit CommitteePieter Bouw (Dutch nationality) was appointed as a member of the Supervisory Board on 17 June 2009. Bouw is a former CEO and President of KLM Royal Dutch Airlines N.V. and a former member of the Supervisory Board of n.v. Nuon. Currently Bouw is Chairman of the Supervisory Board VU Amsterdam – VU University Medical Centre – Windesheim; Chairman of the Bank Council and board member of the trust office of a number of Dutch companies.

Member of the Audit CommitteeDerk Haank (Dutch nationality) was appointed as a member of the Supervisory Board on 17 June 2009. Haank is Chairman of the Corporate Executive Board of Springer Science + Business Media. He is a former member of the Reed Elsevier N.V. Management Board and the Supervisory Board of n.v. Nuon. Other supervisory and advisory positions of Haank include that of member of the Supervisory Board of MSD Nederland, KPN and member of the Supervisory Council of the Dutch broadcasting association TROS.

Jacques Schraven (Dutch nationality) was appointed as a member of the Supervisory Board on 17 June 2009. Schraven used to be Chairman of the Confederation of Netherlands Industry and Employers VNO-NCW, and before that he was president-director of Shell Nederland B.V. Schraven was also a member of the Supervisory Board of n.v. Nuon. He is currently Chairman of the Supervisory Board of Tata Steel Nederland B.V. and a non-executive director of Tata Steel Ltd (India). He is also a member of the Supervisory Board of Stork B.V. and BNP OBAM N.V. In addition, he is the Chairman of the Foundation Trust Office Unilever N.V. Outside the business sector, Schraven serves as Chairman of the Supervisory Board of the Netherlands Blood Institute Sanquin. His other directorships include the Netherlands Normalization Institute (NEN), the Carnegie Foundation and the Rotterdam Philharmonic Orchestra.

Chairman of the Remuneration CommitteeTom de Waard (Dutch nationality) was appointed as member of the Supervisory Board on 8 April 2010. De Waard graduated from Leiden University in 1971 and joined Stibbe in Amsterdam as a lawyer in the same year, where he became a partner in 1979. He was the resident partner of Stibbe in New York (1985-1990). In 2000 he joined Clifford Chance, where he was Managing Partner of the Amsterdam office (2002-2005) and a Member of the Global Management Committee representing Continental Europe (2005-2007). His expertise includes privatisations, especially in the energy sector. De Waard is currently Partner at Reuling Schutte DeWaard, which specialises in mediation, arbitration and other forms of alternative dispute resolution. De Waard is a member of the Supervisory Board of STMicroelectronics N.V. (STM). In that capacity he is Chairman of the Audit Committee and of the Nominating and Corporate Governance Committee and a member of the Remuneration Committee. De Waard is Chairman of the Supervisory Board of BE Semiconductor Industries N.V. (BESI) and member of the Audit Committee and of the Remuneration Committee of BESI.

Pieter Bouw (1941)

Derk Haank (1953)

Jacques Schraven (1942)

Tom de Waard (1946)

Developments in 2012During 2012 the Act on Management and Supervision (Wet Bestuur en Toezicht) will take effect. This legislation will introduce a limitation on the number of supervisory positions as well as management board positions held by an individual and target figures for a more even distribution of board seats between men and women.

During 2011, the Supervisory Board discussed this new legislation and the possible implications. It concluded that, at this time, no alterations regarding the Supervisory Board are required based on the Act on Management and Supervision. A possible implication for the Supervisory Board of N.V. Nuon Energy is that the profile of the Supervisory Board may have to be changed to bring it in line with the target figures for a more even distribution of board seats under the new act. These figures

will be one of the factors taken into account when looking for new candidates for Supervisory Board members, therefore appointments and reappointments will be considered carefully.

A word of thanksThe Board would like to take this opportunity to thank the members of the Management Board and all Nuon employees for their contribution to the results in 2011.


The Supervisory Board

29 Report of the Supervisory Board


About Nuon


IntroductionPursuant to the articles of association of Nuon, the Supervisory Board, acting on the advice of the Remuneration Committee, formulates the remuneration policy for the members of the Management Board of Nuon. The General Meeting of Shareholders of Nuon adopts the remuneration policy. Within that remuneration policy, the Supervisory Board, again acting on the advice of the Remuneration Committee, adopts the remuneration and other employment conditions of the individual members of the Management Board.

On 7 December 2011, a revised remuneration policy for N.V. Nuon Energy was adopted by the General Meeting of Shareholders, with retrospective effect as of 1 January 2011. This policy was put to the General Meeting of Shareholders by the Supervisory Board while being simultaneously submitted for information purposes to the Central Works Council. Compared to the former remuneration policy, this policy does not include a long-term variable salary. Furthermore the policy includes a mandate for the Supervisory Board to amend or increase the total remuneration package temporarily to reflect additional responsibilities and workload.

The policy facilitates compliance with the Dutch Corporate Governance Code as well as with the guidelines of the Swedish State. These guidelines of the Swedish State state that the remuneration package for leading employees should follow a specific design. Members of the Executive Group Management (EGM) of Vattenfall AB are considered to be leading employees in the context of the Swedish State guidelines.

Nuon’s remuneration policy and remuneration report comply with the Dutch Corporate Governance Code. Where this is not the case, the departures are highlighted and explained.

This remuneration report has been drawn up on behalf of the Remuneration Committee.

The composition and activities of this committee in 2011 are described in the Report of

the Supervisory Board.

Remuneration Report 2011

Remuneration policyRemuneration Nuon’s remuneration policy is aimed at creating conditions conducive to recruiting, motivating and retaining qualified and talented management in order to enable the company to achieve its strategic and operational objectives. Nuon’s specific remuneration policy is geared to the median of the relevant remuneration market and includes the fixed and to the extent applicable variable components associated with that market. The relevant remuneration market is defined as the Dutch employment market for the Management Boards of companies with comparable turnover, staff levels and complexity.

The total remuneration shall be reasonable and well considered. Overall, the remuneration principles shall be characterised by moderation. The following will apply:

■ Salaries shall be competitive but not market-leading in the relevant employment market;

■ Variable pay is not applicable for a member of the Management Board who is simultaneously a member of the EGM of Vattenfall AB;

■ Pension is defined as contribution capped at 30% of fixed salary unless a group pension scheme or equivalent exists.

The total remuneration package for the members of the Management Board might consist of the following components:(a) Annual base salary;(b) Short-term variable salary;(c) Pension benefits;(d) Other emoluments.

(a) Annual base salary

The objective for the annual base salary is based on the median level of the aforementioned reference group of comparable companies.

(b) Short-term variable salary

The short-term variable salary might be applicable for individual members of the Management Board. The maximum of this variable salary is 50% of the annual base salary.


The short-term variable part of the salary is aimed at achieving challenging objectives which are set in advance by the Supervisory Board for every accounting year.

The specific objectives are laid down annually in a scorecard. The targets for short-term variable salary shall be objectively measurable, i.e. verifiable by audit procedures as clearly defined and the objectives shall be set at a level that is sufficiently ambitious and simultaneously sufficiently realistic.

However, given the Swedish guidelines ‘Terms of Employment for Senior Executives in State-owned Companies’, the short-term variable salary is not applicable for a board member who is simultaneously a member of the EGM of Vattenfall AB.

(c) Pension benefits

Members of the Management Board participate in the pension scheme that applies to Nuon’s staff. This mandatory scheme, which is arranged through the ABP pension fund, consists entirely of an average pay scheme, with a retirement age of 65. An early retirement option is included in the ABP pension fund. In accordance with current industry practice, pension entitlement is built up on the basis of the annual base salary, and the members of the Management Board pay an individual contribution for membership in the pension scheme.

(d) Other emoluments

Besides the emoluments described above, members of the Management Board are also entitled to an allowance as well as the use of a company car.In cases where a Management Board member takes on temporary additional responsibilities, the Supervisory Board will have the possibility to amend or increase the total remuneration package temporarily to reflect additional responsibilities and workload.

EmploymentEvery member of the Management Board has an employment contract with Nuon. As a matter of company policy, employment contracts with members of the Management Board are entered into for a fixed term (generally four years), after which they can be renewed. It is company policy that members of the Management Board receive a severance payment equal to his or her annual base salary in the case of termination or non-renewal of the employment contract by the company. Conditions per individual member of the Management Board may differ.

Execution of the remuneration policyThis remuneration report has been drawn up on the basis of the IFRS principles, and Title 9 Book 2 of the Dutch Civil Code, as is also used for the preparation of the financial statements. This means that the report on the variable elements of the remuneration relate to the year in which the elements were earned, regardless of the time of payment.

The following overview summarises the remuneration elements of the members of the Management Board of Nuon based on the employment contract with Nuon. On 28 October 2011, Peter Smink was appointed as acting CFO of Vattenfall. He is fulfilling this role in addition to his role as CFO of Nuon. In the period during which Peter Smink is fulfilling the role of acting CFO Vattenfall, he is also part of Vattenfall’s Executive Group Management, and is considered to be a leading employee. Consequently, his remuneration package may not include a flexible salary component during this period. The activities and the duties associated with the role of acting CFO are governed in a separate contract between Peter Smink and Vattenfall AB. The remuneration in respect of this contract amounts to a fixed amount of € 23,583 per month.

Overview of total remuneration of the Management Board€ thousand

Base salary1

Short-term variable salary2

Accrued long-term incentive3

Termination benefit

Incidental remuneration4 Total income

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Øystein Løseth5 – 110 – 39 – 42 – – – – – 191

Huib Morelisse 750 375 – – – – – – 169 578 919 953

Peter Smink 317 300 118 90 50 73 – – – – 485 463

Total 1,067 785 118 129 50 115 – – 169 578 1,404 1,607

1 Huib Morelisse was appointed CEO as per 1 July 2010. The base salary for Peter Smink as included is for his role as CFO of N.V. Nuon Energy. 2 Peter Smink has been appointed acting CFO Vattenfall as per 28 October 2011. Given the Swedish Guidelines, Peter Smink is not entitled to any variable payment during the period he is

fulfilling the role of acting CFO of Vattenfall, as in this position he is considered to be leading personnel. The STI 2011 is therefore based on 50% of the annual base salary over the period 1/1/11 up to and including 27/10/11. The short term incentive increased from 30% to 50% per 1 January 2011 due to termination of the long-term incentive as per 2011. The base salary of Peter Smink increased as partial compensation for the termination of the long-term incentive.

3 The amount for the accrued long-term incentive for Peter Smink comprises pro-rata accrued amounts, including interest, for the LTIs of 2009-2011, 2010-2012. Please note that the LTI for the period 2009-2011 is based on his former position with N.V. Nuon Energy. The LTI 2010-2012 is based on his position as CFO of N.V. Nuon Energy. As per 2011 Peter Smink is no longer entitled to a long-term incentive.

4 The incidental remuneration for Huib Morelisse includes a compensation for missed option schemes with his former employer payable in 2010, 2011 and 2012.5 Øystein Løseth was CEO of N.V. Nuon Energy until 1 April 2010.

3 1 Remuneration Report 2011


About Nuon


Annual base salaryThe employment contract with Huib Morelisse was entered into from 1 July 2010 for a period of four years. The annual base salary of Huib Morelisse is € 750,000.

The employment contract with Peter Smink was entered into from 1 January 2010 for a period of four years. The annual base salary of Peter Smink increased as partial compensation for the termination of the long-term incentive as per 1 January 2011, and amounts to € 317,000.

Short-term variable salaryThe remuneration package of Huib Morelisse does not include a short-term variable component. Following the termination of the long-term variable salary per 1 January 2011 for Peter Smink, the short-term variable salary increased from a maximum of 30% to a maximum of 50% of the annual base salary. The realisation of the short-term variable salary under the performance contract for 2011 for Peter Smink has been determined at 90.2% of the 50% of the annual base salary. This considers the period from 1 January 2011 until 27 October 2011. This is based on the goals achieved in relation to the scorecard as determined by the Supervisory Board.

Long-term variable salaryFollowing the amended remuneration policy no long-term variable salary is applicable as per 1 January 2011 for Huib Morelisse and Peter Smink. The amount for the long-term variable salary (LTI) of Peter Smink amounting to € 50,491 comprises of the pro rata accrued amounts including interest for the earlier awarded LTI’s of 2009-2011 and 2010-2012. The LTI 2009-2011 relates to former positions of Peter Smink within Nuon. Following the amended remuneration policy no LTI 2011-2013 is applicable.

Incidental remunerationDuring 2011, incidental remuneration for Huib Morelisse consists of paid and accrued compensation for missed option schemes with his former employer amounting to € 169,000.

Pension benefits, social security contributions and other emolumentsThe members of the Management Board participate in the ABP pension scheme that is applicable to the company.

Nuon has not provided any loans, advances or guarantees to members of the Management Board or Supervisory Board.

EmploymentAs a deviation from the policy Huib Morelisse is not entitled to any severance payment after his four year contract term has ended.

Overview pensions, social charges and other€ thousand

Pensions Social charges

and other Total

2011 2010 2011 2010 2011 2010

Øystein Løseth1 - 95 - 15 - 110

Huib Morelisse2 125 62 14 11 139 73

Peter Smink 50 49 9 13 59 62

1 Øystein Løseth was CEO of N.V. Nuon Energy until 1 April 2010.2 Huib Morelisse was appointed CEO as per 1 July 2010.


Remuneration of the Supervisory Board€ thousand

Director A/B1 January 2011 - 31 December 2011

1 January 2010 - 31 December 2010

Øystein Løseth, Chairman1 B - -

Lars G. Josefsson, Chairman2 B - -

Dag Andresen3 B - -

Torbjörn Wahlborg4 B - -

Leni Boeren A 45 45

Pieter Bouw A 45 45

Derk Haank A 45 45

Tuomo Hatakka B - -

Jacques Schraven A 35 35

Tom de Waard1 B 45 33.75

Total 215 203.75

1 As per 8 April 2010.2 Until 1 April 2010.3 Until 31 January 2011.4 As per 31 January 2011 .


The Remuneration Committee

also a member of the Audit Committee or Remuneration Committee receive an extra payment of € 10,000 based on full year membership.Remuneration is only paid to those members of the Supervisory Board who are not employed by Vattenfall AB. The remuneration is in line with remuneration packages of companies comparable to Nuon and Vattenfall.

Remuneration of the Supervisory Board 2011The remuneration of the Supervisory Board is determined by the General Meeting of Shareholders. With effect from 1 July 2009, the members of the Supervisory Board receive € 35,000 per annum. The Chairman of the Supervisory Board receives a remuneration of € 45,000 per annum. Members of the Supervisory Board, who are

33 Remuneration Report 2011


About Nuon


We believe that we are uniquely positioned to respond to the expectations of our stakeholders by adopting the energy triangle approach. We build on the trust and long-established relationship we maintain with our customers, as well as on our skill and expertise in energy production, sourcing and sales. But most importantly, we rely on a committed and talented workforce that is committed to the societal themes associated with energy.

Our relationship with our employees, customers and other stakeholders is based on a principled approach supported by an open dialogue. Embracing social themes leads to new market opportunities, as evidenced by the growth of our insulation activities in recent years. This, in turn, contributes to value creation for our shareholders. Business continuity and prosperity can therefore go hand in hand with value creation for our other stake-holders. First and foremost, all actions must be safe and responsible.

Sustainabilityof energy

Any conversion of energy to electricity impacts the environment and the climate

Security of supply

Primary energy supplies should be reliable, and converted energy should be available to meet demand

Affordabilityof energy

The cost of generatingelectricity varies amongenergy sources

The energy triangle

Corporate Social ResponsibilityBalancing the care of all stakeholders: the environment, our customers, employees, societal

stakeholders and shareholders is vital to the execution of the company’s overall business

strategy. At the core of this vision are three themes and the dilemma of what we refer to as

the energy triangle: the need to strike a balance between keeping energy affordable, while

reducing environmental impact and ensuring that energy supplies remain reliable at all times.

This is a translation of the main interests of stakeholders in the energy market.

< ContentsCorporate Social Responsibil i ty

Affordabilityof energy

Security of supply

Sustainabilityof energy

Energy costs consume a significant share of customers’ disposable income while energy remains a basic necessity. Customers therefore rightly expect their energy to remain affordable. On the one hand, Nuon aims to achieve this by keeping its costs low and adhering to an international trading and sourcing strategy. On the other hand, Nuon works with its customers to help them save energy.

As an energy producer and supplier, the company needs to create solutions to continue to secure the balance within the energy triangle. Nuon’s view is that we should attempt to create this balance in our activities and our strategy together with the society we operate in. Our aim is for our employees, customers, business partners, policymakers and interest groups to participate actively in creating solutions together. We do so in a context which best matches the type of interaction and depth required for the dialogue.

At the heart of its business operations, Nuon has set itself an unconditional objective: the company stands for absolute safety for all Nuon employees. To Vattenfall and Nuon, safety means that the company takes responsibility for the health and safety of its operations.

Together

Health and safety

Reducing CO2 exposure is core for both Vattenfall and Nuon, with the clear objective of lowering overall CO2 emissions of the group from the 89 million tonnes per year in 2011 to 65 million tonnes per year by 2020 (according to rate of ownership). Nuon is currently conducting an efficiency improvement programme aimed at lowering the CO2 footprint of its existing power production assets. Meanwhile, as part of Vattenfall, Nuon aims to realise its sustainability commitment by expanding its renewable production portfolio.

In our industry, security of supply entails both the secure sourcing of fuels and the reliable production of electricity and heat, to meet demand essentially 100% of the time. Energy supply to customers should be totally reliable, now and in the future. Nuon seeks to do this by managing a diverse portfolio of assets.

35 Corporate Social Responsibil i ty

Corporate Social Responsibil i ty< Contents

Corporate Social Responsibil i ty


Promoting a safe and healthy working environmentFor this purpose, an open and fair safety culture has been created in which each of us takes responsibility for our own health and safety as well as that of our colleagues. This is achieved by focusing on prevention and dialogue, enabling us to learn from each other and our mistakes to ensure that the working environment is continuously improving.

Safety firstAs an employer, the focus on safety remains undiminished. In fact, in the context of Vattenfall’s new strategic direction, ‘safety’ has been established as the first core value for employees. We fully recognise and accept the responsibility we have to ensure the safety of our employees. Operations containing a high level of risk also call for safety management of contracted staff. The registration of near safety incidents for employees, contractors and other parties is integrated into one registration system. Near-incident information provides a solid basis for continuous control and improvement. We monitor and register these indicators as a means to decrease the key-indicator LTIF.

The LTIF gives a perspective on the number of injuries among Nuon employees – and is defined as the number of lost-time injuries per million worked hours. The LTIF was 1.6 in 2011 compared to 4.5 in 2010 and 5.8 in 2009, which is a significant decrease. The main improvement relates to our Business unit Energy Related Services (insulation, boiler installation and servicing), where extra attention is paid to safety prior to the work being carried out. As an example, our advisors are now required to perform a safety assessment during a survey visit to the customer to obtain additional technical information and issue a price estimate. The internal safety culture has evolved from reactive to pro-active. In total, the LTIF of our Business unit Energy Related Services decreased sharply from 11.4 in 2010 to 4.0 in 2011. Our goal is to reduce that number further to 2.4 in 2014. We were successful in reducing the LTIF of Nuon employees in our Business division Production to a level of 0.8 in 2011.

Despite efforts to achieve absolute safety in 2011 for all operations, we recorded a total of 1,572 safety and near safety incidents. As shown in the graph on the next page, this includes near safety and safety incidents (with and without lost time) for all employees, third parties and contractors of Nuon operations. The number of registered safety incidents increased sharply compared to the 818 safety incidents reported in 2010. This partly results from the simplification of the registration process and focus on near safety incidents. Each registration now contains more information about the circumstances of a near-or actual incident, as well as the speed,

nature and efficiency of the intervention. Important safety milestones were reached in 2011 despite a highly challenging environment at the building sites of the new electricity production plants:

■ With construction activities on the site every day and with over 2,200 employees of 38 different nationalities working together, employees and contractors at the site of Nuon Magnum achieved one million working hours without Lost Time Injury by mid-2011. Unfortunately, incidents did occur later that year, including three serious accidents involving subcontracted workers at the construction site;

■ Since the start of the execution phase of Hemweg 9 in Diemen in March 2010, the project has experienced no occupational injury or illness involving days away from work;

■ Together with its partners of the offshore wind farm Egmond aan Zee, Nuon has an excellent Health and Safety record during five years of operations: 270,000 hours worked with no Lost Time Incidents.

Although Nuon is proud of its safety milestones, the occurrence of serious incidents demonstrates the need for a relentless focus on controlling all safety aspects, as well as working together with contractors to improve safety in all operations. We have the ambition for all parties hired by Nuon to observe the same level of safety standards as we do internally.

Health and safety

Development, production and installation activities present an inherent

level of risk with respect to both health and safety. Together with Vattenfall,

Nuon takes full responsibility for the absolute safety of its employees in all

its operations.

0.0

5.0

7.5

10.0

12.5

Lost Time Injury Frequency (LTIF)1

1 LTIF = Lost Time Injury Frequency; relates to the number of accidents leading to absenteeism divided by the number of worked man hours x 1 million. LTIF relates to Nuon employees excluding contracted staff. Business Unit (BU) Energy Related Services relates to the activities of Feenstra, Nuon Beveiliging, Nuon Isolatie and Helianthos. Business Division (BD) Production relates in 2010 to Thermal Operations and Heat (including Industry Parks). In 2011, BU Heat (including industry parks) is reported separately. Nuon Other relates in 2010 to corporate departments and Asset Development. In 2011, BD Asset Development is reported separately. Nuon Total is the LTIF of all Nuon employees’ activities.

2011 2010

BU Energy Related Services

BDProduction

BU Heat BD AssetDevelopment

Nuon other

Nuon total

Number of incidents/million worked hours

1.6

4.5

0.2

2.5

0 0.20

4.4

00.8

7.6

11.4

4.0


The safety policy includes the implementation of relevant management systems and a staff and leadership improvement programme. As part of the Health, Safety and Environment management system, we are in the process of having our locations OHSAS 18001 accredited. A total of three production locations were certified in 2011 (Velsen, Buggenum and Epe). OHSAS 18001 is the international assessment specification for occupational health and safety management systems. Engineering subsidiary Ebatech also received certification in 2011 and the installation and remaining production locations are expected to follow in the course of 2012.

In addition to this process, and to ensure that safety is even further embedded in our company and culture, Nuon and Vattenfall launched the Hearts and Minds Programme aimed at improving the safety culture of our organisation. Initiated in 2010, the programme has now been implemented throughout the organisation with a series of workshops conducted by our operational teams and their management. As a core value, safety is included in the performance management process. This helps managers set safety goals at an individual level and enables employees to keep track of and improve their safety awareness, performance and results.

Health managementThe moving average absenteeism rate of Nuon in the Netherlands decreased from 4.2% in 2010 to 4.0% in 2011. This compares to the national average rate of 4.2%. The decline was mainly driven by a lower long-term absenteeism rate, in part due to a more proactive dialogue with our employees.

In terms of health policy, Nuon focuses on each individual, paying close attention to feedback from our employees about their health and working environment. A range of employee surveys, such as the Nuon barometer, were used to gather this information. Similar to the ‘every customer matters’ policy, the Customer Service Center bases its activities on the

principle that ‘every employee matters’. In 2011, this policy resulted in renovation activities at several office locations. For example, employees were provided physiotherapy services and improvements were made to individual work stations by adding a second screen to desktops.

Following the announcement in 2010 that preventive medical checks would be carried out, we conducted an initial round of checks at our Heat business unit in 2011. This examination takes into account our employees’ physical health in addition to such elements as work-related stress. While participation was voluntary, 72% of the unit employees took part in the health check. In 2012, we will continue to perform such checks in other areas of the organisation.

Furthermore, we are making efforts to ensure that our line managers adequately understand and address health issues, and we are providing them with the tools to do so. We are currently developing an online ‘health management platform’ to actively help managers engage in a continuous dialogue with their team members in the event of long-term or frequent absenteeism. The platform will allow all files and communication to be managed from one central point.

Safety also includes promoting a working environment in which our employees feel comfortable. To this end, we have established a code of conduct to address undesirable and inappropriate behaviour at work. In addition, we have contracted external ‘confidential counsellors’ whom our employees can contact if in need.

New way of workingA healthy work-life balance requires both cultural and practical adaptation to changes in the lives of our employees. In response to a greater identified need among our employees for more flexibility in working locations and working hours, we launched a project, which will be realised in three stages. Firstly, the meaning of the ‘new way of working’ for our organisation will be examined. Secondly, the tools and services needed for successful implementation will be identified (workspace concept, services to enable remote working). Finally, attention focused on developing a working culture can be developed in which individual responsibility plays a central role.

1 Value for the Netherlands, excluding the subsidiaries Feenstra, Nuon Beveiling and Nuon Isolatie, which are excluded as not all comparable figures are available.

2 Due to a correction of the scope of the moving average absenteeism data, the data of 2008 and 2009 differs with those data reported in the 2010 Nuon CSR report.

NumberMoving average absenteeism1/2

2008 2009 2010 2011

5%

4%

3%

2%

1%

0%

4.4%

3.9%4.2%

4.0%

Number

8362 71999328

Total registered safety incidents and near incidents1

Near-incidents2 Incidents without lost time3 Lost time incidents4

2008 2009 2010 2011

1 Total near-incidents, incidents without lost time and lost time incidents for all Nuon employees, including contractors and third parties of Nuon in the Netherlands and Germany.

2 Definition of near-incident: dangerous probability of risk of injury, damage or loss resulting in negative consequences, which can lead to an incident.

3 Definition of incidents without lost time: an unintended and sudden event affecting an employee in connection with the performance of work and causing an interruption of activities.

4 Definition of lost time incident: every occupational incident involving injury which temporarily prevents the person involved from carrying out his or her work.

269

549648

33

158

1,3811,500

1,200

900

600

300

0

37 Health and safety




Managing fluctuating energy pricesIn light of the challenging economic climate, and given that energy markets are increasingly interlinked, international macro-economic events have a direct impact on the pricing of electricity and gas for our customers. In many respects, 2011 was a difficult year on the global energy markets, which saw an increase in oil, gas and electricity prices. Nuon, as part of Vattenfall, buys, sells and trades energy, fuels and carbon exposure on international markets. To some extent, this allows Nuon to mitigate wholesale market price fluctuations for its customers. Despite these efforts, international market developments led to a significant increase in energy tariffs from July 2011. This was mainly driven by a renewed growth in demand for raw materials as well as macro-events such as political instability in the Middle East, the Fukushima disaster and the German government’s announcement that it would accelerate the phase-out of nuclear energy.

To mitigate the effect of these increases for business customers Nuon provides an analysis of anticipated market developments via a weekly market report, advising them on the optimum sourcing strategy for their energy needs. In 2011, Nuon also made significant progress in the area of customised billing, helping its business customers understand the drivers and patterns of their energy consumption and associated costs.

Saving energy mattersSaving energy serves two key purposes: it contributes to the reduction of greenhouse gas emissions and helps households, business customers and industries minimise their energy costs. Energy saving was at the heart of the political debate in 2011, with the proposal of a new European Directive promoting energy efficiency. The proposal for this new directive contains a set of measures aimed at stepping up EU Member States’ efforts to use energy more efficiently at all stages of the energy chain. Nuon uses its portfolio of products and services for energy management to create solutions for its customers. Our approach is two-fold:

■ We provide our customers with an insight into their energy consumption, which helps them better understand how they use energy. This is a necessary step to achieve behavioural change;

■ We offer tools to achieve energy efficiency via a portfolio of energy management products and services.

Creating awareness and providing insightsThe Nuon E-Manager, which was introduced in November 2011, allows household customers to gain a real-time insight into their energy consumption and that of their appliances. This product was developed by Nuon and builds on the successful pilots with the energy display conducted in Amsterdam in previous years. Following its market introduction in the Netherlands, Vattenfall will roll out the Nuon E-Manager in Germany and Sweden.

For corporate clients, the online service ‘NuonMijnVerbruik’ (Nuon my consumption) provides a platform to monitor both electricity and gas consumption. Nuon further developed the tool in 2011, adding the option for multi-sites customers to access location-specific information, thereby tailoring their approach to energy savings more accurately. The number of users decreased slightly to a total of 476 compared to the 509 registered users in 2010.

Smart meters are gradually being introduced, offering customers an opportunity to keep track of and understand the internal drivers and patterns of their energy consumption. For the business market, metering services are offered by Ebatech, Nuon’s in-house energy management expertise centre. We also installed smart meters in the course of 2011 at the request of a number of our multi-sites customers, offering them real-time insight into consumption data per location. On the household market, a number of our customers received new smart meters from their regional network operator, in line with the relevant laws and regulations. No data from these meters was collected in 2011.

Creating solutions with our business customersFollowing the successful partnership with property investment company Corio, Nuon has signed contracts with Ymere, Parteon and Woonzorg, among others, to partner up with the objective of reducing energy costs for individual tenants. In 2011, Nuon used this partnership model to focus the company’s efforts on the real estate sector as well as on housing corporations. Projects and partnerships included:

■ A five-year partnership was agreed with housing corporation Ymere, thereby formalising our longstanding cooperation in the area of energy management and savings. The aim of the collaboration is to help the tenants of Ymere save energy and improve their carbon footprint.

Affordability of energyNuon is committed to helping its customers control the cost of their energy, in line with

the first pillar of the energy triangle. We do this by strategically sourcing the energy we

supply, carefully managing the portfolio of assets as well as by directly helping customers

reduce their energy usage. In cooperation with its Dutch shareholders, Nuon also

provides assistance to vulnerable customers facing payment arrears.


The agreement, which was signed in March 2011, includes two main elements. Nuon has agreed to a price reduction over the coming years, which will directly translate into lower service costs for tenants. Secondly, Nuon will work with Ymere on maximising existing solutions such as home insulation but also jointly seek innovative ways to influence tenants’ energy consumption behaviour. As an initial step, Nuon E-Managers have been installed in a number of dwellings, providing a baseline for the project as well as information for tenants on their actual energy consumption;

■ Ymere and Feenstra, Nuon’s boiler installer and servicer subsidiary, conducted a pilot in 2011 in Almere setting targets for sustainability, customer satisfaction and installation safety. It yielded significant improvements in terms of the number of boiler breakdowns (-29% in comparison to 2010) as well as the number of repeat visits for maintenance and repairs (-45%). Upon successful completion of the pilot in January 2012, Feenstra was awarded the servicing contract for all Ymere boilers in Almere;

■ In August 2011, Nuon and Amsterdam Arena agreed to work together to help Arena realise its objective of becoming the first CO2-neutral stadium by 2015. Among other things, this will be achieved by delivering sustainable cooling and district heating to the stadium;

■ A lighting plan was developed for Corio Vastgoed’s Alexandrium shopping centre in Rotterdam. If implemented fully, this plan could lead to on-site energy savings of 40-50% from lighting. This is a follow-up on the partnership between Nuon’s Ebatech and Corio, established in 2010, under which Nuon advises Corio on how to achieve its target of saving 15% on energy and water;

■ Nuon developed a set of energy and sustainability scenarios for the redevelopment of 7,000 m2 of retail space by Redevco in Gouda. The Dutch Shopping Centres Council (NRW) has designated the project a ‘sustainable building’ pilot, which will be certified according to the sustainable building assessment method BREEAM-NL;

■ A large-scale renovation project was carried out in the neighbourhood of ‘De Kroeven’ in Roosendaal. This project was unique in its scope as it involved a total of 246 houses which were renovated and upgraded to CO2 neutrality. The renovation included thorough insulation, which not only improved the energy balance but led to noticeable reductions in noise and overall improvements in comfort. This project also had the special feature of not being invasive for tenants as it focused on the outside of the dwellings. This opens a new perspective on renovation;

■ A new Step2Save programme was launched in the Province of Groningen. This version of the programme is being conducted in cooperation with Energie Convenant Groningen, ISD Noorden kwartier, the municipalities of Leek, Grootegast, Marum and Zuidhorn, as well as Housing Corporation Wold and Waard. Over the course of 2011, Step2Save advisors visited a total of 7,500 homeowners and tenants, who were given free energy advice and an energy-saving box.

Helping our household customers realise their savingsNuon aims to provide the tools consumers need to reduce their energy costs. In 2011, this led to the following results:

■ 19,935 high-efficiency boilers were sold and installed in households, a significant increase compared to 2010. However, the corporate market suffered a setback due to the economic situation and associated levels of investments in the construction market;

■ 1,679,868 m2 of insulation was installed: 1,255,939 m2 of cavity-wall insulation, 400,381 m2 of floor insulation and 23,548 m2 of loft insulation;

■ 419 households received a home visit from an energy advisor, compared to 6,984 in 2010. Due to the withdrawal of the national subsidy for energy advice, there was significantly less interest from the market in requesting such a service;

■ A total of 3,157 energy labels were issued; ■ To complement the products and services portfolio, Nuon has added

ventilation to the services it offers. The approach to lowering the concentrations of indoor air pollutants involves increasing the amount of outdoor air coming in, via ventilation. Nuon offers service contracts to ensure ventilation remains optimal. The service was introduced at the end of the summer and a total of 2,700 service contracts were sold in 2011.

Payment assistance to vulnerable customersPart of the company’s commitment to working together with its stake-holders is to create solutions for its more vulnerable customers. Nuon aims to intervene at an early stage in cases of payment arrears to prevent deterioration in a customer’s debt situation. Nuon offers three possible solutions: payment deferral, a tailored payment plan or debt assistance. In all cases, Nuon seeks direct contact with the customer.

Introduced in December 2006, the so-called Wijn Law initiated a mandatory referral system whereby energy suppliers notify municipal agencies of customers with payment difficulties. Via a number of coop-erative ventures with partners such as the Communal Health Services (GGDs), municipal social services and specialised instances, Nuon aims to help its customers who require debt assistance. This is to ensure that financial assistance is offered early enough to help those with payment arrears. Nuon is in discussion with various municipalities how this assistance can be further improved, especially when it comes to shortening the delays in processing customer cases. Furthermore, there is regulation in place to protect household customers from supply interruptions during periods of extremely cold weather. Since the unbundling of the energy sector, the final decision on terminating the supply of gas and/or electricity is in the hands of the network operator. For heating, the decision is currently made by the energy supplier. In 2011, the number of customers who requested use of the ‘help with outstanding debts’ programme (via city councils) increased by approximately 25%. However, most of these customers did not meet the eligibility criteria, mainly due to the level of their monthly/yearly income. The inflow of cases in the last dunning phase remained relatively stable. Together with the municipality of Almere, Nuon organised a pilot to provide households with a monthly overview of their energy costs. Lessons learned will be used when, as part of regulatory requirements, Nuon rolls out bi-monthly cost overviews for all customers with a smart meter in 2012.

39 Affordabil ity of energy




Sources of energy and supply chain responsibilityA balanced mix of energy sources implies the purchase of a variety of raw materials, goods and services. As a supplier of energy and purchaser of these raw materials, Nuon has both a direct and indirect social, environmental and economic impact on its surroundings at different levels of the value chain.

In the current energy mix, we still need coal-fired capacity to guarantee a reliable and affordable energy supply. In this context, coal supply chain responsibility remains an important agenda item. The following table provides an overview of the countries from which Vattenfall sources hard coal for use in our own power plants. Vattenfall and Nuon contribute to improving best practices in the coal supply chain by working together with mining companies, stakeholders and our market peers in various stakeholder dialogues and initiatives.

Physical coal purchased for Vattenfall Power stations in 2011

Poland 37.9%

Colombia 24.9%

Russia 20.7%

South Africa 9.8%

USA 6.2%

Venezuela 0.5%

In 2011, the Dutch coal dialogue entered its second phase. Nuon participates in this multi-stakeholder dialogue, which aims to strengthen assurance processes with a view to improve, where applicable, local

circumstances of communities, workforce and environment in places where coal for Dutch markets originates, respecting human rights, labour rights, environment and conflict sensitive business practices. The dialogue also aims to improve transparency in the coal supply chain towards the Dutch end consumers. Efforts made in the Netherlands have contributed to the establishment of an international initiative aimed at continuous improvement of the coal supply chain: Bettercoal. Vattenfall is a founding member of Bettercoal. In this business led initiative started by a group of major European energy companies, members aim to improve coal mining practices by putting forward a shared set of standards that will encourage and support mining companies and operators to adopt and improve good practices to protect workers, the environment and local communities from the impact of coal mining and to conduct joint assessments. Efforts in 2011 focused on the set-up of Better Coal and, together with mining companies and civil society stakeholders, on drafting a shared standard: the ‘Better Coal Code of Practice’. After global consultation, this Code will serve as the basis for joint assessments focused on human rights, safety and business ethics as well as the environmental impact of coal sourcing.

More information is available from www.bettercoal.org

Social and environmental aspects are taken into account in the area of biomass procurement. Nuon sources biomass from countries such as France, Portugal, the US and Canada. As in recent years, wood chips and forest residues from Staatsbosbeheer (the Dutch Forestry Commission) were the main source of biomass for the Lelystad plant in 2011. Biomass used at the Buggenum plant consisted exclusively of wood, predominantly supplied in the form of industrial wood pellets. We occasionally use smaller volumes of enhanced wood pellets and char.

Security of supplySecurity of supply means enabling a steady supply of energy to customers

by preventing and mitigating any fluctuations in our energy production.

Using different energy sources for our production portfolio allows us to supply

electricity and heating as securely, affordably and sustainably as possible.

This is why Nuon is aiming for a diversified asset and fuels portfolio.


www.bettercoal.org

Energy production in a changing landscapeAs in many countries in Europe, the energy landscape in the Netherlands is in transition. The combination of rising electricity demand and an ageing production park requires investments in new production capacity. Location and technology choices are made in the context of expected market developments, regulatory frameworks and with the objective of reducing the negative impact on our environment.

ElectricityNuon’s total installed electricity production capacity in 2011 was 3,722 MW. Development activities focused on three new and efficient gas-fired power plants in Eemshaven, Amsterdam and Diemen. The construction of the 1,311 MW Nuon Magnum power plant in Eemshaven, in the north-east of the Netherlands, reached its highest point in July 2011 and is expected to be completed in 2012. The two 435 MW gas plants in Amsterdam and Diemen are expected to be operationally ready by the end of 2012. Total installed capacity of the Nuon renewable portfolio in 2011 amounted to 366 MW, of which 333 MW is wind energy capacity. 320 MW of this capacity is based in the Netherlands and 13 MW abroad.

Total electricity production was relatively low this year, as shown in the graph on this page. Combined heat and power plants operated for a considerably lower number of production hours in 2011 due to market circumstances and the warmer weather. Furthermore, production was impacted by planned maintenance, including the maintenance at the Willem Alexander plant in Buggenum. The Hemweg 8 plant was unable to deliver to the grid for a number of weeks due to a boiler leak, followed later in the year by a fire in a grid connection cable.

Electricity from our renewable energy portfolio 2011 was a very good year for our wind energy activities. Total wind production in the Netherlands, including direct purchasing from third parties increased by 17% compared to the previous year: from 1,163 GWh in 2010 to 1,357 GWh in 2011. Our offshore wind farm Egmond aan Zee reached an all-time high production level of 383 GWh, as a result of high availability and favourable weather conditions. The sharp increase in wind energy production was therefore a combination of good weather conditions and more focus on preventative maintenance.Nuon’s biomass activities continued to grow in 2011. This included the further development of co-firing biomass and the development of dedicated biomass production capacity. The Buggenum plant has continuously co-fired a higher percentage biomass (energy-based) since September 2011. Tests with higher percentages of refined pellets have also been successful. Meanwhile at the Hemweg 8 plant we successfully tested co-firing in 2011. Production at Nuon’s hydropower plants was low in 2011 due to the low inflow of water.

TWh/PJTotal net production of electricity and heat

Renewable electricity1

Fossil-based electricity

Heat

1 Renewable electricity comprises all renewable electricity that Nuon, acting as producer, and beneficial owner, feeds into the electricity grid via grid connection points. In the annual report, wind energy production from minority interests and third parties which we, as beneficial owner, feed into the electricity grid, is included, while foreign wind energy production (which we do not feed into the electricity grid) is excluded.

11.9

14.8

16.8

13.713.514.4

2008 2009 2010 2011

1.4 1.4 1.3

14.713.2

1.5

20

16

12

8

4

0

GasAs part of Vattenfall’s new strategic direction of focusing operations on core markets and products, the gas exploration and production activities were divested. These activities were sold to Tullow Oil plc. on 30 June 2011.

To ensure a flexible response to fluctuations in gas supply and demand, gas storage activities were continued. This enables the company to provide customers with greater security of supply and some degree of mitigation for fluctuations in wholesale prices. In April 2011, the final part of the gas storage facility in the German town of Epe became operational. The total natural gas storage capacity in these disused salt mines is now approximately 280 million m³. In July 2011, Nuon obtained the irrevocable permit to expand the gas storage facility in the Dutch town of Zuidwending, in the province of Groningen.

41 Security of supply




HeatIn addition to the dedicated production of power, Nuon aims to develop gas-fired production units that allow for the use of residual heat. In Almere, two older units will be replaced by the new gas-fired plant in Diemen. In addition, residual heat produced in Diemen will be supplied to approximately 11,000 homes in Almere. The new pipeline to supply heating to Almere is due for completion in the first half of 2012.

For more information on the heat project to Almere, please refer to

Report of the Management Board.

District heating and cooling distribution and supply activities continued to grow steadily. In 2011, 3,002 new district heating and cooling connections were realised. The total number of connections decreased slightly compared to last year following the sale of three of our smaller district heating projects to public energy and waste company HVC. The sale of these smaller units is in line with the strategy to focus on

Installed capacity and production of energy production plants | RA-verified

Installed capacity1 Production2

2011 2011 2010

Electric Heat Electricity Heat Electricity Heat

MWe MWth GWh TJ GWh TJ

Buggenum 253 – 1,153 – 1,215 –

Diemen 249 354 1,232 1,494 1,630 1,624

IJmond 144 105 832 292 1,035 486

Velsen 834 – 2,900 – 2,695 –

Hemweg (Amsterdam) 1,209 – 3,421 – 2,990 –

Lage Weide & Merwedekanaal (Utrecht) 567 575 2,163 3,859 2,413 4,378

BMC Lelystad – 7 – 140 – 143

AHP Purmerend – 90 – 136 – 394

AHP Kanaleneiland (Utrecht) – 81 – 2 – 16

AHP Nic. Beetsstraat (Utrecht) – 58 – 8 – 91

AHP Nieuwegein – 128 – 26 – 39

AHP Overvecht (Utrecht) – 145 – 4 – 27

AHP Almere – 116 – 65 – 102

CHP Purmerend 69 99 196 723 216 768

CHP Almere3 118 259 500 2,505 632 2,819

CHP Industry park Emmtec 67 392 239 1,696 238 1,639

CHP Industry park De Kleef 45 100 238 535 254 582

CHP Industry park Sittard4 – – – – – –

CHP Industry park Heerlen5 – – – – – 27

CHP Industry park Düren 7 43 13 481 15 451

CHP Industry park Heinsberg 37 288 – 134 – 157

Small-scale CHPs (various locations) 122 548 359 2,588 416 3,023

Total 3,722 3,388 13,245 14,688 13,749 16,765

1 With a higher heat supply capacity, the electrical capacity decreases, depending on, for instance, the temperature of the outside air, cooling water and heating pipelines.2 Production of electricity means all electricity that Nuon, as producer and benificial owner, feeds into the electricity grid via grid connection points.3 Due to a correction of the electricity production data of CHP Almere, the data of 2010 differs with the data reported in the 2010 Nuon CSR report.4 CHP Industry Park Sittard was not operational in 2010 and 2011.5 CHP Industry Park Heerlen was sold in 2011, for comparative reasons the data of 2010 is displayed.

large-scale district heating projects. Taking into account this reduction of 4,342 connections, the total number of connections at year-end 2011 was 105,312.

Nuon responded to the economic recession in the construction market by intensifying efforts in the renovation market. With this new focus, the company’s ambition to realise 3% to 5% annual growth in connections still stands. New connections were added in Amsterdam Nieuw-West, Duiven, Rotterdam, Leiden and Almere. An example of the renovation projects is the Presikhaaf, Arnhem project, where we connected approximately 500 houses and 90 shops to a district heating system in October 2011. The heat supplied to these customers is residual heat from our CHP plant in Kleefse Waard, Arnhem. The project was realised in close cooperation with various partners, including property investment company, Corio, and contractor, Kroon. The new heat supply system replaces the customers’ central gas-fired boilers, thereby reducing the corresponding CO2 emissions by up to 70%.


Capacity expansion for Westpoort Warmte was achieved by signing an agreement with Orgaworld in July 2011 for the off-take of 3.5 MW. The waste heat from the Orgaworld organic waste treatment plant is CO2-free and will be fed into the Westpoort Warmte district heating network, thereby increasing the renewability of heat.

Nuon’s 7,000 m2 solar island in Almere exceeded expectations in its first full year of operation. In 2011, a total of 9,224 GJ was supplied to our customers.

In our sustainable cooling business, we completed the pilot project for the delivery of Comfort Cooling to Kadoelerbreek in North Amsterdam in August 2011. This project involved the use of cold storage to supply 180 dwellings for senior citizens in Amsterdam with sustainable cooling. It was conducted in collaboration with social housing corporation, Ymere, in Amsterdam.

Cooperation involving our industry parksNuon owns and operates industry parks in the Netherlands and Germany. These parks not only offer on-site facilities, energy and infrastructure, but present an opportunity for partnerships with our clients. In 2011, the Emmtec Park opened a knowledge centre for polymore research & education, together with Stenden University and API Institute. The same park celebrated five years of Sunoil biodiesel operations. The service vehicles fleet of the Nuon Emmtec Park was proud to be the launching customer. In August 2011, the sale of our Heerlen industry park to Dalkia was completed.

Both the industry parks in Emmen and Heinsberg realised an expansion of their energy services in 2011, following the opening of new innovative production facilities on site. Such modern production facilities align with the development strategy of Nuon’s industry parks. In November 2011, the industry park operator (IPKW) in Arnhem opened a new building (incubator) for hosting start-up companies. This is the start of re-development activities at the park and involves an expansion of 40 hectares.

Renewable production capacity and production by source | RA-verified

Production capacity Production1

20112011 pro rata of Nuon ownership 2010 2011 2010

MW MW MW GWh GWh

Wind2

The Netherlands 320 210 317 1,357 1,163

Abroad 13 13 13 – –

Subtotal 333 223 330 1,357 1,163

Hydro

Small scale the Netherlands 24 24 24 42 73

Subtotal 24 24 24 42 73

Solar

Photovoltaic 8 8 8 5 4

Subtotal 8 8 8 5 4

Biomass

Stand-alone 2 2 2 8 7

Co-/auxiliary firing Buggenum station - - - 97 20

Subtotal 2 2 2 104 28

Total 366 257 364 1,508 1,267

1 Renewable production comprises all renewable electricity that Nuon, acting as producer and benificial owner, feeds into the electricity grid via grid connection points. In the annual report wind energy production from minority interests and third parties which we, as benificial owner, feed into the electricity grid, is included while the foreign wind energy production (which we do not feed into the electricity grid) is excluded.

2 Relates to the total wind energy production capacity from both majority and minority interests.

43 Security of supply




PJ

2008 2009 2010 2011

Power plants Nuon

Power plants other

Wls1

CHPs

Sources of heat for supply to customers

2.0

3.5

0.60.5

3.5

0.50.6

2.0 4.7

0.90.60.5

1 WI = Waste Incinerator.

6.6 6.60.70.6

1.1

5.2

7.6

6.7

10

8

6

4

2

0

5,3535,3325,241

6,452

170162156

169

TJ Customers x 1,000 (HE)1

2008 2009 2010 2011

Supply of district heating to customers

1 HE = Housing Equivalent (see list of definitions).

0

2,000

4,000

6,000

8,000

10,000

0

40

80

120

160

200

¤ million

2008 2009 2010 2011

Investments in district heating and cooling networks1

44.5

58.1

44.1

23.3

1 Relates to gross investments and also includes cooling projects.

0

12

24

36

48

60

164.7

118.2106.3

142.1

3.43.6

3.1

4.1TJ Customers x 1,000 (HE)1Supply of district cooling to customers

1 HE = Housing Equivalent (see List of definitions).

2008 2009 2010 20110

50

100

150

200

250

0.8

1.6

2.4

3.2

4.0

0


As a European energy company, our strategy and ambitions are aligned with Europe’s sustainability objectives, which are illustrated by the vision to achieve climate neutrality by mid-century and the reshaping of Vattenfall’s production portfolio. The main environmental impact of Nuon related businesses comes from the electricity and heat production portfolio. Efforts to reduce the environmental impact of our operations therefore focus on increasing energy efficiency and reducing emissions of the energy production assets, as well as increasing the scale of the renewable asset portfolio.

Balancing our energy generation fuel mixEnergy companies use a broad mix of fuel and technology sources to generate electricity. The combination of energy sources used is referred to as the generation mix. Part of this mix comes from renewable energy, which forms a solid basis for a sustainable production portfolio. However, in the transition towards fully sustainable supply, the current generation mix also relies on fossil fuels, which result in environmental emissions. Our challenge in the energy triangle is to optimally balance the need for a secure and affordable energy supply with the goal of further improving the sustainability of this supply.

Nuon’s renewable energy comes from wind, small-scale hydropower, solar and biomass. The company’s fossil-fuelled production comes from coal, natural gas and blast furnace gas. The latter are process gases from steel production at Tata Steel, which Nuon reuses to produce electricity.

The balance of the annual generation fuel mix is influenced by several factors, such as market circumstances, portfolio optimisation and main-tenance of the asset portfolio. In 2011, Nuon’s electricity production consisted of 11% of renewable sources, of which 9.6% comes from wind energy. Most of our fossil-fuelled electricity is produced using natural gas. Total production in 2011 amounted to 14.7 TWh.

The share of biomass co-firing in our coal-fired plant in Buggenum increased from nearly 2% in 2010 to 8% in 2011. Wind power production increased by 17%, due to favourable weather conditions and greater availability of our wind energy assets. Compared to 2010 levels, Nuon processed more blast furnace gas, due to higher production at Tata Steel. Total production remained stable.

More information about energy production can be found in the CSR chapter

Security of supply. The chart representing the fuel mix of Nuon’s production

can be found in the Report of the Management Board.

Expansion of renewablesTogether with Vattenfall, Nuon has defined the expansion of its renewable production portfolio as a main pillar to achieve the target of reducing CO2 emissions by 50% by 2030, from 1990 levels. This is based on a European strategy, identifying which locations and regulatory circumstances yield the best results for investments.

In the current market, renewable energy cannot yet compete with fossil-fuelled production. Therefore, the key to achieving our ambitions in renewable energy is a consistent regulatory framework and support system. In 2011, the Dutch government implemented changes to the renewable energy production support scheme: now called SDE+ (Sustainable Energy Production Incentive Programme plus). Compared to previous years, the main changes are the lower tariffs and competition among technologies. The government also announced that the scheme will probably be changed to a supplier obligation system by 2015. Details of this scheme are still being discussed. The extent to which Nuon’s new renewable projects will be realised in the Netherlands will largely depend on the availability of appropriate support as well as economic circumstances and spatial planning developments.

Achieving more by joining forces Nuon’s ambition to increase the share of renewable energy requires large investments, as shown in the chart on page 46. Nuon needs to work together with its shareholders and stakeholders to further expand these investments. This is illustrated, for instance, by the development of the Zuidlob wind farm, where a group of 63 farmers joined forces to establish a wind farm, and asked Nuon to develop it. In October 2011, all parties were pleased to announce that Nuon, as part of Vattenfall, would acquire full ownership of the farm. Thanks to a successful cooperation with many local stakeholders, the project planning phase has developed rapidly. The wind farm will consist of 36 turbines, with a total capacity of around 122 MW, enough power to supply 88,000 households.

Sustainability of energyEurope’s long-term ambition is to achieve a competitive low-carbon economy

in which electricity production is carbon-neutral by 2050. Political guidance

on achieving these ambitions was presented in March 2011 in the EU roadmap

2050. The Dutch government fully adopted these ambitions in its climate letter

(‘Klimaatbrief 2050’), published in November 2011.

45 Sustainabil ity of energy




Opportunities to expand onshore wind power production activities are affected in the Netherlands by a limited availability of new production sites. Nuon is therefore looking to invest in the repowering of existing projects. This means older wind energy sites are being redeveloped using new turbines, which increases the level of production on the site. At the Reynderweg in Velsen, for instance, five 225 kW wind turbines were replaced by 3 MW turbines. Nuon and its partner Wind Groep Holland each own 50% of the shares. The new turbines started supplying electricity in December 2011. Together with its partners in the ‘Windkracht Wieringermeer’, Nuon aims to replace 106 MW of single wind energy turbines in the region by developing one wind farm with a total capacity of over 300 MW. This corresponds with the structural plan of the Wieringermeer municipality. Other repowering projects include sites in Slufterdam (21 MW) and Hiddum Houw (7 MW).

Permit applications for various other farms are at an advanced stage, and Nuon is aiming for a significant increase in operating capacity by 2015.

The dismantling of the wind farm Harry van den Kroonenberg was finalised in July 2011. Because of local regulations concerning dike management, repowering was not possible. Almost all materials from the 18 turbines, the foundations and the roads could be recycled, re-used or used as waste-to-energy. The concrete, for example, was crushed and re-used for new roads. The small metal parts were recycled and cables were re-used by the copper industry. Finally, steel from components such as the turbine and mast were melted down at Tata Steel, where the blast furnace gas emitted during the melting process is used as fuel at Nuon’s Velsen power plant.

Together with Vattenfall, Nuon aims to strengthen its position in offshore wind energy. Our expertise dates back to 2007, when we started operating the first Dutch offshore wind farm at Egmond aan Zee. Unfortunately, Nuon was unable to further pursue its ambitions to rapidly expand the offshore portfolio in 2011 because the planned 340 MW Beaufort park was not granted subsidies. In an attempt to secure offshore wind development in the Netherlands in the near future, Vattenfall and Nuon considered cooperating with Eneco to jointly develop the permitted location Q10. In the end, Vattenfall and Nuon decided against investing in this specific project in view of the European offshore wind portfolio and level of ambition. Beaufort continues to be our preferred project. In close cooperation with Havenbedrijf Rotterdam and Rijkswaterstaat, the permit for the location of Beaufort was extended in 2011. Nuon and Vattenfall continue to explore other opportunities, whether in the Netherlands or elsewhere in Europe.

Evaluating the environmental impact of offshore windAs part of the sustainable development strategy, Vattenfall and Nuon foresee a strong growth in their European wind power development activities, both onshore and offshore. In the process of developing new wind farms, great care is taken to limit the potential negative impact of locating and operating wind farms. When planning new developments, many potential negative impacts, such as noise or visual intrusion, are considered in advance and either avoided or significantly reduced. In August 2011, a team of researchers led by Wageningen University’s Imares Institute published the results of their study on the potential

impact of offshore wind on fauna, carried out at the location of our offshore wind farm Egmond aan Zee. They concluded that the net impact of the wind farm on fauna is positive. In short, the farm provides a new natural habitat for organisms living on the sea bed such as mussels, anemones and crabs, thereby contributing to increased biodiversity. For fish and marine mammals, it provides an oasis of calm in a relatively busy coastal area.

More information is available from www.noordzeewind.nl.

Increasing biomass opportunitiesNuon is exploring various ways of using refined pellets as a means of co-firing biomass in coal plants. For example by planning tests for 2012/2013 at the Hemweg plant and exploring opportunities with various technology developers. In order to secure the company’s biomass ambitions Vattenfall also increased its activities in the biomass supply chain. Various initiatives are ongoing to secure feedstock supply from Canada.

Milestones in other renewable activitiesIn September 2011, Nuon had to discontinue development of the Helianthos thin film solar technology. This decision followed an 18-month international search for a strategic investment partner to bring this highly advanced technology to the market.

Further information on Helianthos can be found in the Report of

the Management Board.

The renovation of Nuon’s 240 kWp photovoltaic (PV) installation in Nieuw Sloten in Amsterdam is on schedule, with 80% of the project complete in November 2011. It will be finalised in 2012, after which the installation will once again reach its full production level. Since November 2011, a fish-friendly turbine management system has been in operation at the Maurik and Alphen hydro-power plants. The plant in Roermond already has a fish passage in place, an option that is also being studied for other plants. Together with Rijkswaterstaat, the University of Wageningen and Essent, among others, a test installation has been built in Linne, Limburg to determine the effect of a proposed

€ million

2008 2009 2010 2011

Wind

Solar

Hydro

Biomass2

Investments in renewable energy capacity 1 | RA-verified

32.0

22.0

56.0

12.1

19.1

0.8

1.4 0.4

20.6

6.7 0.10.4

5.8

1 Relates to gross investments. 2 Biomass investments data has been added, including 2010 data.

53.9

0.3

1.60.2

0

12

24

36

48

60


www.noordzeewind.nl

fish passage solution on our hydro power plants. Options to expand the company’s hydropower capacity are being explored. One option involves the use of standard caissons to realise reliable and affordable small-scale hydropower units.

Environmental subsidiesNuon’s renewable energy production facilities and our innovations may qualify for environmental subsidies. The subsidies received in 2011 are shown in the chart below. New renewable (SDE) subsidies were granted for the Zuidlob and Reyndersweg wind projects, with maximum subsidy amounts of € 229 million and € 17 million, respectively, over a period of 15 years. The decrease of exploitation subsidies for renewable energy production in the table Subsidies reflects the end of subsidy terms for several renewable production assets of Nuon. The former subsidy regulation ‘MEP’ included a cap on the total subsidy pay-out per installation. Several projects reached this cap in 2011, such as the wind farms Slufterdam and Waterkaaptocht and several solar-PV installations. Furthermore, lower production volumes due to planned maintenance of the Buggenum plant led to a substantial decrease in subsidies for biomass production at that plant.

In August, the refurbishment of the industry park in Heinsberg received a subsidy from the German state of North Rhine-Westphalia for a joint venture with the municipality of Heinsberg.

The Amsterdam Harbour sustainability and innovation fund awarded a subsidy of € 178,000 to connect the Orgaworld project to the district heating network of Westpoort Warmte.

In the first semester of 2011, Nuon also received a WBSO innovation subsidy of € 238,000. This subsidy was granted to accommodate part of the labour costs for R&D activities in that period at Helianthos.

¤ million

20092008 2010 2011

Education/Employment

Innovation/R&D

Exploitation Renewable Energy

EIA

Subsidies1 | RA-verified

2

20

426

11

11

1124

33

23

26

2

26

133 33

1 Relates to the granted subsidies and fiscal facilities: the subsidies under the MEP (Environmental Quality of Electricity Production) scheme were actually received and the conditions of the subsidy have been met. Subsidies under the other schemes have been granted but the conditions of the subsidy have not yet all been (fully) met. The EIA amounts are gross numbers and are eligible for Energy Investment Allowance. Along with the implementation of the subsidised project, the actual receipts depend on the prescribed allocation table. For 2011, the maximum amount of subsidy received was approximately 11% of the total invested amount.

0

8

16

24

32

40

Reducing environmental impactEnergy generation from fossil fuels results in emissions of carbon dioxide (CO2), nitrogen oxides (NOx) and sulphur dioxide (SO2), among other pollutants. The environmental impact of electricity and heat production is therefore closely monitored and Nuon continuously works on improving the environmental performance of these fossil-fuelled production plants to lower carbon emissions.

CO2 emissions from energy production CO2 reductions are at the core of Vattenfall’s vision to achieve climate neutrality by mid-century. Meeting the target of reduced emissions will require investments in new generation, primarily in wind and natural gas. In the Netherlands, investments in new gas-fired power will result in more efficient generation capacity scheduled to come online in 2012 and 2013.

CO2 emissions per unit of electricity (kWh) of Nuon’s electricity production increased slightly from 462.5 g/kWh in 2010 to 462.8 g/kWh in 2011. This was the result of a relative increase in production from the coal-fired plants compared to 2010, due to the major overhaul of Hemweg 8 in that year. Furthermore, the gas-fired power plants produced less due to market circumstances. Nuon continued the efficiency improvement programme. This programme identifies all activities that can potentially lower the CO2 footprint of its power production assets. For example, by decreasing the temperature of gasification and by repairing pipe leakages at the Buggenum plant, energy efficiency was increased and pressed air consumption was lowered further. At the IJmond plant, Nuon started operating the steam turbine in ‘sliding pressure’ mode, which results in lower fuel consumption. And at the Lage Weide 6 plant, the steam injection pipeline was cut off, which reduced hot water drainage.

Nuon’s absolute CO2 emissions from electricity and heat production in energy production plants decreased from 8,199 ktonnes in 2010 to 8,124 ktonnes in 2011. This reduction is largely explained by lower electricity production. Details on emissions per production site are included in the table on the following page.





CO2, NOx and SO2 emission per production site | RA-verified1

CO2 emission (ktonnes) NOx emission (tonnes) SO2 emission (tonnes)

2011 2010 2011 2010 2011 2010

Buggenum 896 1,007 182 173 285 216

Diemen 521 668 416 500 – –

IJmond2 419 520 334 414 111 292

Velsen2 1,517 1,367 1,088 997 386 440

Hemweg (Amsterdam) 2,792 2,367 496 588 534 467

Lage Weide & Merwedekanaal (Utrecht) 951 1,084 803 1,055 – –

BMC Lelystad – – 24 25 – –

AHP Purmerend 8 24 4 15 – –

AHP Kanaleneiland (Utrecht) – 1 – 1 – 1

AHP Nic. Beetsstraat (Utrecht) 1 6 – 6 – –

AHP Nieuwegein 2 3 1 2 – 1

AHP Overvecht (Utrecht) – 2 – 2 – –

AHP Almere 4 6 1 2 – –

CHP Purmerend 122 128 96 145 – –

CHP Almere 294 364 299 505 – –

CHP Industry park Emmtec 179 178 204 177 – –

CHP Industry park De Kleef 133 141 131 130 – –

CHP Industry park Sittard3 – – – – – –

CHP Industry park Heerlen4 – 3 – 2 – –

CHP Industry park Düren 31 31 12 20 1 1

CHP Industry park Heinsberg 9 10 3 4 – –

Small-scale CHPs (various locations) 246 288 355 407 – –

8,124 8,199 4,449 5,169 1,318 1,417

1 The RA-verified relates to the data on CO2 emission.2 At our power plants Velsen and IJmond, the residual gas released during the steel production of Tata Steel is used as a fuel to produce electricity. In this way this blast furnace gas is put

to good use by Nuon. The gas contains a high percentage of CO2. With effect from 2006, it has been agreed with the Office of Energy Regulation of the Netherlands Competition Authority that Nuon is to adjust the CO2 emissions in the production fuel mix to avoid double counting. The CO2 emission factor of blast furnace gas is calculated in this mix on the basis of the use of natural gas.

3 CHP Industry Park Sittard was not operational in 2010 and 2011.4 CHP Industry Heerlen was sold in 2011. For comparative reasons the data of 2010 is displayed.

1 From energy production. 2 At our power plants in Velsen, the residual gas released during the steel production of

Tata Steel is used as a fuel to produce electricity. In this way this blast furnace gas is put to good use by Nuon. The gas contains a high percentage of CO2. With effect from 2006, it has been agreed with the Office of Energy Regulation of the Netherlands Competition Authority that Nuon is to adjust the CO2 emissions in the production fuel mix to avoid double counting. The CO2 emission factor of blast furnace gas is calculated in this mix on the basis of the use of natural gas.

KtonnesAnnual CO2 emission1/2

2008 2009 2010 2011

8,969 9,202

8,199 8,124

0

2,500

5,000

7,500

10,000

12,500

G/kWh

0.082

0.329

0.094

0.344

0.090

0.328

CO2, NOx and SO2 emission ratios per unit of electricity production1

CO2 2 NOx SO2

2008 2009 2010 2011

1 The electricty production comprises the total production from renewable sources and fossil fuels of energy production plants.

2 Relates to the CO2 emissions factor on the basis of the production fuel mix. At our power plants in Velsen the residual gas released during the steel production of Tata Steel is used as a fuel to produce electricity. In this way this blast furnace gas is put to good use by Nuon. The gas contains a high percentage of CO2. With effect from 2006, it has been agreed with the Office of Energy Regulation of the Netherlands Competition Authority that Nuon is to adjust the CO2 emissions in the production fuel mix to avoid double counting. The CO2 emission factor of blast furnace gas is calculated in this mix on the basis of the use of natural gas.

503 499 463

0.089

0.302

463

0

0.25

0.50

0.75

1.00


The Willem-Alexander plant in Buggenum uses coal gasification tech-nology, which has much lower SO2 emissions than a regular coal com-bustion plant. All Nuon’s SO2-emitting plants are also equipped with cat-alysts and scrubbers to clean flue gases and lower the amount of SO2 emissions. The remaining SO2 emissions in the Buggenum and Hemweg plant are re-used as much as possible by producing raw materials for other industries. Details are included in the section Re-using waste from

energy production below.

Total SO2 emissions in 2011 decreased by 7% compared to the levels of 2010, as can be seen in the chart above. The main reason for this is the lower production levels. Details on SO2 emissions per production site are included in the table on the previous page.

Emissions to waterNuon’s power production plants require cooling water to absorb the heat produced in generation processes. Most plants use surface water for cooling purposes. The development of cooling water intake from Nuon’s power production plants is shown in the graph on the next page.

The heated water is discharged into a nearby canal, river or lake. As this water has a higher temperature than the surface water, this does have an impact on the aquatic environment. Nuon aims to reduce this impact by using the heat for industrial processes or district heating. In addition to reducing water discharge, this can also generate an overall fuel saving of up to 40%.

Further details on heat supply are included in the CSR chapter

Security of Supply.

The chart on the next page shows that the relative emissions of heat in cooling water were again lower than the previous year, a decrease of 14%. The decrease is mainly due to lower electricity production levels. The largest decrease in emissions of heat in cooling water occurred at the plants in Buggenum and Diemen.

Improved efficiency to lower NOx emissionsEmissions of nitrogen oxides (NOx), together with sulphur dioxide (SO2), are the main causes of acidification, which results in damage to vegetation in forests and lakes. Nitrogen oxides also cause eutrophication in forest soils and on sea beds. Therefore, these emissions need to be reduced and are subject to stringent regulations. In 2011, Nuon again stayed within the permitted limits in grams per GJ of fuel used. The company’s total NOx emissions decreased from 5.17 ktonnes in 2010 to 4.45 ktonnes in 2011. Levels were again lower than the previous year, despite the fact that technical problems in the IJmond plant meant part of its planned production had to be taken up by the Velsen 24 plant. As this plant operates at a lower efficiency than the IJmond plant, local NOx emissions consequently increased. NOx emissions in the Buggenum plant increased, which is predominantly caused by the increased share of biomass co-firing. Total average NOx emissions per kWh in this plant were still well below the permitted level. Nuon’s average level of NOx per kWh produced decreased from 0.344 g/kWh in 2010 to 0.302 g/kWh in 2011. Details on NOx emissions per production site are included in the table on the previous page.

Lowering SO2 emissions by replacing coal with biomassCombustion of coal and blast furnace gas causes sulphur dioxide (SO2) emissions. Nuon emits SO2 in the Hemweg 8 and Buggenum coal-fired power plants, and in the plants in Velsen and IJmond where blast furnace gases from Tata Steel are re-used as fuel. SO2 emissions can be lowered in several ways, including using coal with low sulphur content, replacing coal with biomass, cleaning flue gases and using more efficient technologies for electricity production with coal. In line with the overall strategy, Vattenfall has decided not to invest in new coal-fired production units without the application of carbon capture and storage (CCS).

In 2011, Nuon made further progress in replacing part of the coal inputs in the Hemweg and Buggenum plants with biomass.

Further details on co-firing with biomass are provided in the CSR chapter

Security of Supply.

Ktonnes

2008 2009 2010 2011

Annual NOx emission

4.45

5.19 5.34 5.17

0

1,500

3,000

4,500

6,000

7,500

Ktonnes

2008 2009 2010 2011

Annual SO2 emission

1.321.42

1.331.42

0

0.4

0.8

1.2

1.6

2.0





Waste flow tonnes

Energy production locations1 Other locations

2011 2010 2009 2011 2010 2009

Non-Hazardous waste 8,846 2,354 1,202 15,784 4,093 4,341

Hazardous waste2 60 479 1,017 2,201 61 82

Total 8,906 2,833 2,220 17,985 4,154 4,423

1 At power plants, office waste is processed with industrial waste.2 In 2011 the number of items of equipment containing PCB was zero.

3.23.13.53.5

37.737.1

48.745.4

Absolute emissions in PJ TJ/GWh

2011

Discharge of heat with cooling water1

Relative per unit of production2

1 Exclusively relates to production of energy production plants that discharge heat.2 Due to a correction, the data concerning relative per unit of production for 2010

differ from those reported in the 2010 Nuon CSR Report.

20092008 20102

0

20

40

60

80

100

20

40

60

80

100

0

1

2

3

4

Million m3/year

2008 2009 2010 2011

Cooling water intake energy production plants

2,5922,356

2,036 2,065

0

700

1,400

2,100

2,800

3,500

Industrial and office wasteThe construction of new production plants has had a strong impact on the amount of hazardous and non-hazardous waste, as is shown in the table above. The main reason for the increase in hazardous waste in this case is waste water from the sceptic tanks used for toilets and showers on the construction sites. The amount of hazardous waste at our existing energy production locations reduced sharply.

Re-using waste from energy productionCapturing SO2 for raw material production is an important way of lowering SO2 emissions in our coal-fired power plants. The main change in the production of residual substances compared to 2010 occurred at the Hemweg 8 location, where the production of gypsum and fly ash increased by 34% and 30% respectively. Longer operating hours and a higher sulphur content of coal were the main reasons for this increase.

Ktonnes

20092008 2010 2011

Fly ash

Plaster

Bottom ash/slag

Sulphur

Residues from power stations for re-use

80

26

45

2153

101

35

45

2183

116 128

38

61

3

43

59

3221 230

0

60

120

180

240

300


Learning from complaints and incidentsComplaints This section reports on complaints and incidents in the direct vicinity of our energy production units. Customer complaints relating to energy sales or other activities are reported on in CSR chapters Affordability of

energy and Together.

A total of 17 complaints from residents in the vicinity of company sites were registered in 2011. This is much lower than the peak observed in 2010, which was mainly caused by a discharge of rust in Velsen. Following this incident, technical cleaning measures were taken during maintenance at both the Velsen 24 and Velsen 25 plants. The measures were successful and no discharge of rust occurred in 2011.

IncidentsAt the Hemweg 8 power plant, a high-voltage electricity cable spontaneously ignited. The fire that followed destroyed a total of six cables and caused the plant to be disconnected from the grid. In close cooperation with Tennet, Liander and material suppliers, the company was able to reconnect the plant one month later.In June 2011, lightning struck one of the blades of Nuon’s offshore wind park in Egmond aan Zee. The blade was replaced and experts are discussing with the supplier about whether the lightning discharge from the blades can be further improved.

In 2011, Nuon recorded a total of 93 environmental incidents. This sharp increase is a result of a further strengthening of the registration policy at the Emmtec Industry Park where each incident, no matter how small, is registered. This led to an increase from two incidents reported in 2010 to 67 incidents in 2011. All incidents are registered in Nuon’s internal incident registration system and, where required, also reported to the competent authorities.

Number

2008 2009 2010 2011

Noise

Rust

Odour

Light

Other

Complaints received from local residents of company sites

1

7211

2

5

2,338

11

2,346

6

614

17

910

28

47

0

25

50

75

100

In February 2011, Nuon paid three fines of € 2,500 each, following an underestimation in 2010 of the CO2 and NOX emissions in three production units. No further fines were issued for environmental incidents in 2011.

More information about incidents and safety management is reported

in CSR chapter Health and Safety.

Reducing the carbon footprint of our company and our clientsAs a supplier and producer of the basic necessity that is energy, Nuon believes that the reduction of carbon emissions should not limit itself to a cleaner production portfolio. Nuon also takes steps to reduce the carbon footprint of its own activities and helps its clients to reduce theirs. More information on how Nuon works together to create sustainable solutions for its customers can be found in the CSR chapters Affordability of energy and Together.

In 2011, Nuon significantly expanded the use of videoconferencing, which is an important way of limiting travel at an international company. In 2011, a total of 10 videoconferencing systems were added in the Netherlands, in addition to the 14 systems previously installed and the video-conferencing systems installed on individual computers. The systems were used for a total of 7,208 hours in 2011 (compared to a total of 568 hours in November and December 2010).

To offset the CO2 emissions resulting from the company’s travel activities, Nuon voluntarily retires certified emission reduction units. In 2011, this was carried out for all Vattenfall business units. As a result, a total of 40,400 certified emission reduction units were retired originating from a biomass-based power project in India, mainly fired with crop residues. In December 2011, this received some press attention as the Dutch Environment Ministry and the Dutch emission authority made a public statement labelling this voluntary retiring as ‘best practice’.

On a local scale, Nuon also initiates and participates in business-led initiatives aimed at improving the sustainability of a city or a region. For instance, Nuon is one of the founding partners of the Green Business Club, which promotes and initiates projects aimed at enhancing the sustainability of Amsterdam’s Zuidas business district. Nuon has pioneered the extraction and distribution of sustainable district cooling in this district.





CO2 footprint Nuon1

ktonnes CO2

CO2-equivalent emission

2011 2010

Electricity and heat production 8,124 8,199

Office buildings Nuon sites2 11 8

Travel and transportation3 21 21

Total 8,156 8,228

1 Composition based on the Greenhouse Gas Protocol (a Corporate Accounting and Reporting Standard (2004)); excluding emissions as a result of supply to end users.2 Energy consumptions as far as can be determined are based on meter readings, invoices, annual statement of landlords and service charges. 3 Excluding commuter travel by private car.

Our energy supply fuel mixIn line with European legislation, all electricity suppliers in the EU are required to publish the fuel mix of their electricity supply. Policymakers regard this fuel mix disclosure as a means for customers to compare the supply portfolio of different electricity suppliers and the associated environmental impact. Nuon is a net supplier, which means that the company supplies more electricity to its customers than it produces. Therefore, the Nuon supply mix is predominantly the representation of the average electricity mix in the Netherlands. The figure below shows Nuon’s supply mix. This illustrates that the majority of supply is

sourced from natural gas, as is the case in the Netherlands. The share of renewable electricity represents the number of Guarantees of origin purchased for green electricity supplies to end customers. This share showed a small increase to 28.3% for Nuon household and business customers in the Netherlands. The share of green electricity purchased by our household customers remained at the same level, the share for business customers decreased slightly.

More information on green power sales to customers and Nuon’s fuel mix

of energy production can be found in the Report of the Management Board.

%

85.4% Fossil-based electricity

14.6% Nuon NatuurStroom, Nuon GroenStroom and Nuon CO2 OK

Share of customers with green electricity of total consumer/small business customers the Netherlands

%Fuel mix supply Nuon Group1 | RA-verified





49.6% Natural gas

19.1% Coal

15.1% Hydro

4.9% Miscellaneous

4.7% Nuclear

4.0% Wind

2.6% Biomass

0.0% Solar

1 These data include Belgium, whose fuel mix is based for more than 50% on renewables.

%Fuel mix supply Retail | RA-verified

55.8% Natural gas

21.5% Coal

7.3% Wind

5.5% Miscellaneous

5.3% Nuclear

4.6% Hydro

0.0% Biomass

0.0% Solar





%

53.0% Natural gas

20.4% Coal

14.7% Hydro

5.2% Miscellaneous

5.0% Nuclear

1.2% Wind

0.5% Biomass

0.0% Solar

Fuel mix supply Business | RA-verified






Together with our shareholdersNuon, part of VattenfallBeing part of Vattenfall also broadens the scope for this dialogue, allowing Nuon to reflect on experiences gained in other core countries and markets. As part of Vattenfall, Nuon has been able to introduce several new activities and services to its operations in the Netherlands. Examples are the Sustainable Cities programme, new features in the Nuon E-mobility activities, new sponsoring opportunities and access to large scale R&D programmes. Similarly, Nuon best practices are used in Vattenfall’s other core countries. These include the Nuon E-Manager and the stakeholder engagement programme for project development.

Working with our Dutch shareholdersThe developments in the governance structure have brought about a shift in our relationship with our public Dutch shareholders to one based on a partnership. Now, with crucial issues such as climate change, security of supply, employment and the cost of energy intrinsically linked, Nuon and its Dutch shareholders can work together to bring about the necessary changes. To maintain a strong relationship, in addition to the official shareholders meetings, we have frequent discussions with representatives from the shareholders in the Sounding Board Group (‘Klankbordgroep’). During these discussions, we exchange information and ideas on strategic choices and policy developments. We also organise working visits to several parts of our operations to create a better under-standing of the dilemmas related to energy production and supply.

%Our ultimate shareholders

64% Vattenfall AB

16% Gelderland

5% Friesland

3% Noord-Holland

3% Amsterdam

9% Other

Nuon works with its Dutch shareholders in several areas. This is illustrated by the number of cooperative ventures Nuon has in place with municipal social services to provide assistance to its customers with payment problems. Furthermore, the development of new services such as electric transport, the energy-saving programme Step2Save, Step2 Work and the Vattenfall ‘sustainable cities’ initiatives are excellent examples of how our activities depend on cooperation with our shareholders.

Step2SaveStep2Save is a Nuon initiative through which young unemployed individuals are trained and qualified as energy advisors. They offer free energy-saving advice to tenants of participating housing corporations and municipalities. Participants are offered a one-year contract as door-to-door energy advisors, as well as vocational training once a week, which leads to a certificate to help them find work in the future. Following a number of successful series in Amsterdam (in 2007, 2008 and 2010), the programme was conducted in Groningen over the course of 2011. A total of 7,383 homeowners and tenants received a visit from a Step2Save advisor and were given an energy-saving box. In March 2011, the Labour Party on the Amsterdam City Council submitted a proposal to the city’s administrators asking for the project to be continued in Amsterdam. In their proposal, they referred to Step2Save as the kind of ‘social coalition that brings parties together and strengthens the city’. Nuon has also been exploring a further roll-out of the programme with the municipalities of Schagen Zijpe and Harenkarspel in the north-west of the Netherlands. This started in March 2012 and aims to provide energy advice to 8,000 households.

E-mobility Vattenfall is working on the development of electric transportation solutions in Berlin and Hamburg and Nuon does the same in Amsterdam. In March 2011, Nuon and Amsterdam launched the 100th public charging station for electric transport, making the Amsterdam network of charging stations one of the largest in Europe. Nuon expects other large municipalities to follow, matching the demand from the growing population of electric car drivers in the Netherlands. The market for electric vehicles requires thorough preparation, not only in terms of infrastructure, but also legislation. Nuon maintains an active dialogue with the relevant regulatory authorities, providing them with feedback on our company’s experiences in the field.

In 2011, Nuon developed additional services for electric drivers such as the creation of an online platform www.nuon.nl/ev. This platform allows users to create and manage their account as well as submit a request for a new charging station in their area. The platform also helps electric vehicle drivers to find the closest charging station in Amsterdam.

Nuon plans to launch individual electric transportation solutions for our household and business customers. This development will include the installation and servicing of a safe and easy-to-use charge box, accompanied by an underlying supply contract for green electricity.

TogetherNuon aims to create solutions in active collaboration and dialogue with its stakeholders.

To enable an open dialogue, Nuon strives to be as transparent as possible in its reports

and interactions with the society it operates in. CSR reporting is one of various instruments

used to inform and interact with our stakeholders. Our main activities relating to interactions

with our stakeholders are summarised on the next pages.

53 Together



www.nuon.nl/ev


Nuon in interaction with stakeholders 2011

Stakeholder Form Highlights 2011

General Annual Stakeholder Round Table event See CSR – Together

New Year’s Concert Nuon hosted an event for approximately 1,500 business

relations and stakeholders of the company

Issue and reputation survey among parliamentarians, civil servants

and NGOs

For the first time, Nuon took part in Vattenfall's annual

Reputation Monitor amongst opinion leaders and came in

at a very strong position, both absolute and relative to the

other Vattenfall countries. These surveys help us focus on

what's needed to improve our relations with our stakeholders

Stakeholder engagement approach Nuon has implemented a structured stakeholder engagement

approach to support employees in proactive stakeholder

dialogue. See CSR – Together

Customers ■ Customer satisfaction surveys The launch of ‘Every Customer Matters’ in 2011 stands for a

customer-focused organisation, where customers consistently

experience excellent service. See CSR – Together ■ Klantenman

■ Customer panels

■ Continuous monitoring of service experiences via, for example, service calls

■ Seasonal customer magazine

Business partners ■ Energy Masterclass at Nyenrode Business University Nuon hosted the conference ‘Energy in debate’ in

cooperation with RTL Z and Nyenrode in September 2011.

Key opinion influencers and topmanagement were invited

to debate the question about the Energy Transition.

Parallel to the event, online platforms were launched

to discuss current energy issues with interested parties,

business partners and opinion influencers

■ Linked-in Energy in debate group and internet site

www.nuon.nl/grootzakelijk/acties/energie-in-debat

■ E-Book ‘The Future of Energy’

Green Business Club See CSR – Together

Stichting Spaar Het Klimaat (Save the energy foundation) Nuon is founding partner of the foundation to stimulate

energy savings among customers

Market reports See CSR – Affordability of Energy

Employees Consultative meeting with Central Works Council See Corporate Governance

Employees networks: MegaWatt (Young People’s Network), Winergy

(Women’s Network), Nuon employees association and the Trainee

Network (KNEC)

Nuon supports these networks with the aim of encouraging

active participation of employees in the company

Nuon Foundation See: CSR – Together

Intranet In 2011 the Vattenfall intranet was introduced into the Nuon

organisation. The Vattenfall intranet has several features

whereby employees can voice their opinion about internal

announcements and news

Shareholders General Meeting of Shareholders (1x a year) See Corporate Governance

Major shareholders meetings (2x a year) See Corporate Governance

■ Sounding board group Nuon consults and updates representatives of our major

shareholders year-round on issues and decisions in the form

of a focus group, newsletters and meetings. As we do each

year, in 2011 we organised visits and operational workshops

to engage our shareholders in our operations. This year

our shareholders could choose between visiting the district

cooling plant in Amsterdam, several Step2Work programmes

and a wind farm

■ Operational experiences

■ Digital newsletter (Nuon Issues)

Politicians &

civil servants

Working visits In 2011, several Members of Parliament were, for instance,

invited to be present during an energy savings advice session

at a customer’s home

Regular contact and (bilateral) meetings The energy markets are heavily regulated. Regular contact

with national, regional and local organisations are part of our

day-to-day operations

NGOs Regular meetings Nuon has regular contact with NGOs active in

the energy market to discuss current developments

and energy transition measures

Local community Complaints handling See CSR – Together

Newsletters and community meetings See CSR – Together

Step2Save & Step2Work See CSR – Together


www.nuon.nl/grootzakelijk/acties/energie-in-debat

Sustainable citiesIt is expected that within ten years, 75% of the world’s population will live in or around a city, thus rapidly making urban areas the new main consumers of energy. Cities strive to minimise their impact on the climate, but energy systems can be a complex puzzle to solve, and planning takes years. Vattenfall developed the Sustainable Cities programme, contributing a unique system integration perspective, connecting existing products and providing energy demand monitoring. There are currently three cities participating in the programme: Uppsala (Sweden), Berlin and Hamburg (Germany). Nuon is currently in discussions with Amsterdam to establish the first sustainable city partnership in the Netherlands.

Every customer mattersCreating excellent service togetherTo strengthen the further integration with Vattenfall and strive for the same level of customer service, the management team of Vattenfall’s Customer Service business unit has developed a joint vision encompassing all three countries of customer operations (Sweden, Germany and the Netherlands). This vision, referred to as ‘Every Customer Matters’, stands for a customer-focused organisation, with customers consistently experiencing excellent service.

The joint mission of Nuon and Vattenfall for the coming years is to make sure that everyone in the Customer Service business unit is able to deliver on this overall objective, whether involving technological or management support. This vision will guide our companies in the implementation of their largest programme for 2012/2013: WOW (way of working), in which each of the Vattenfall core countries will implement the best practices from the other two countries. In the Netherlands, it means that Nuon will take the extra step towards a multi-skilled Customer Service Center, including implementing the IT improvements that will enable this step.

In 2011, Nuon was certified according to the standards of the COPC, the leading international organisation that defines standards for Customer Services according to a benchmark of the best 200 performing contact centres in the world. The COPC certificate was officially granted to Nuon on 10 March 2011 for three areas of our customer service. These areas applied for this annual certificate to be renewed in the first quarter of 2012. At the same time, the Customer Service Center has also applied for certification for the rest of its processes, including all activities for both business customers as consumers. On 10 March 2012, this has resulted in the COPC certificate for the entire Customer Service organisation.

Customer service satisfaction is a key indicator for Nuon’s sales operations. Overall customer satisfaction remains high at 88% in 2011. Customer service satisfaction, showing the average satisfaction amongst customers with the services provided by Nuon increased slightly to 95%. Customer satisfaction among business customers increased from 64% in December 2010 to 65% in 2011. Despite the economic climate, Nuon is proud of the further professionalisation of the services it delivers to its business customers. In both the household and business segments, a sharp decrease has been identified in the number of customers dissatisfied (from 4.4% to 3.2% and from 4.6% to 2.6%, respectively).

The company’s improvements in customer service were confirmed by an external customer satisfaction survey conducted by the Dutch Ministry of Economic Affairs, Agriculture and Innovation in 2011, in which Nuon scored significantly better in two key areas at 92% (listening to our customers and providing the right answers/solutions). Nuon received a total score of 7.5 out of 10, which corresponds with the average score within the energy sector. This survey was conducted among 100,000 panel participants who took part in a mystery calling research project. The energy sector as a whole received positive reviews from consumers in this survey. Moving forward, Nuon will integrate the areas for improvement into its overall plans and become an even better service company for its customers.

Complaints

8993.5 91.5

88 8994.5

8895

%

2008 2009 2010 2011

Customer satisfaction the Netherlands

0

20

40

60

80

100

Customer satisfaction in general1 Customer service satisfaction2

1 Customer satisfaction in general is defined as the percentage of surveyed customers who indicated that they are satisfied/very satisfied with Nuon.

2 Customer service satisfaction is defined as the percentage of surveyed customers who indicated that they are satisfied/very satisfied with Nuon's services.

0

20

40

60

80

100

58

83

2

Received by

Klantenman1

Brought before the

‘Geschillen-commissie’2

Customers beenput in the right by the ‘Geschillen-

commissie’2

1 The Klantenman is a person appointed by Nuon to deal with complaints and operates independently of Nuon, but Nuon pays this salary and other expenses.

2 The Energy and Water Disputes Committee is an independent national committee. Cases are only put to the Committee if both the customer and Nuon agree to this. The Disputes Committee is an alternative to court proceedings.

Number

Complaints received from consumer/small business customers the Netherlands

55 Together




When customers feel that their complaint has not been adequately addressed, they have the option of either taking it up with the appointed Ombudsman or referring their complaint to the Dispute Committee. The Ombudsman assesses the responses to complaints independent of the Customer Service Center. The Dispute Committee is an independent organisation that is not affiliated with Nuon. Contrary to the verdict of the Ombudsman, the verdict of the Dispute Committee is binding for both Nuon and the customer. In 2011, 126 complaints were handled by the ombudsman and 83 dealt with by the Dispute Committee, two of which were ruled in favour of the customer. Where applicable, Nuon uses this feedback to structurally improve its processes. Customer satisfaction with the company’s approach to resolving their complaints continued to improve and the number of complaints decreased by more than 30% between 2010 and 2011.

Continuous attention to sales channelsIn early 2011, the Dutch competition authority NMa launched an investigation at Nuon and grid company Liander N.V. into Nuon’s access to competition-sensitive customer data held by the grid company. In September, Nuon received a report from the NMa stating that both Customer Service Centre and Nuon had violated the law. The outcome of the hearing was still pending at the time of writing. Given that Liander and Nuon Customer Services need to access a portion of each other’s data in preparation for the new market model, there are measures and procedures in place to safeguard the confidentiality of such data.

The regulator for the communication markets (OPTA) imposed a fine of € 70,000 on Nuon for violating the rules on telemarketing, as Nuon had contacted 15,000 customers at the end of 2009 who were on the ‘don’t call me’ list for telesales. We have accepted the ruling and associated penalty and will not be appealing against the verdict.

Selling energy and energy-related services forms the core of Nuon’s business and is also the company’s first contact with its customers. It is crucial that the company gets this contact right. Unfortunately, there continue to be isolated incidents when this initial contact does not go as planned. Nuon continuously controls the quality of its sales channels, ending contractual relationships with employees or third parties involved in malpractice.

At the end of 2011, Nuon was informed by Dutch Consumer Association ‘Consumentenbond’ that the contract Nuon outsourced for door-to-door sales did not follow the legal procedures. In light of their request, the company therefore amended the wording of its contracts as of 1 December.

Together with our stakeholdersVattenfall is building a corporate culture which promotes an open and constructive relationship with all parties within our markets and community. Nuon believes in an active dialogue with interest groups and environmental organisations, as well as with its customers, employees and shareholders. Nuon is also in active dialogue with local and central governments, providing feedback to policymakers about the company’s experiences and sharing its new initiatives and ideas. By doing so, Nuon strives to provide transparency to its stakeholders and to nurture strong community involvement among employees. Nuon is convinced that involving stakeholders in the company’s activities leads to practical solutions that enjoy a broad base of support and are more sustainable.

Stakeholder engagement as a prerequisite for project developmentNuon maintains relationships on various levels with our clients, employees, shareholders, as well as politicians, non-governmental organisations (NGOs) and the local environment. This is a continuous process, which is structured around three axes: stakeholder involvement in project management, improved communication and transparency, and dialogue with policymakers. An example of how Nuon works with its stakeholders was the announcement in 2011 of the company’s decision to postpone its plans for the gasification of biomass and coal at the Nuon Magnum power plant in the Eemshaven. Aside from economic considerations, this decision was the result of a long-running constructive dialogue with nature and environmental organisations, as well as other local interest groups. Nuon had been in discussion with these parties for some time, which resulted in an agreement ratified by all involved, making this a unique document.

Vattenfall and Nuon strive to make this type of stakeholder dialogue a systematic practice in their development activities. The Stakeholder Engagement manual and toolbox for project managers has been rolled out throughout the organisation in the Netherlands. Vattenfall aims to introduce this approach throughout its European organisation.

In June 2011, Nuon organised another roundtable session for high-level stakeholders following the positive feedback received in 2010. These roundtable events give the company the opportunity to listen to its stakeholders and hear what they think of the company’s activities as well as how they view the different topics of the so-called energy triangle. Other topics discussed included the need for a skilled workforce to ensure the continuity of the energy sector.

As part of stakeholder dialogue, the Nuon e-magazine ‘Nuon and Society’ (www.nuonemagazine.com) was launched on 1 May 2011. This elec-tronic magazine is a new way of presenting the company’s involvement with society at large. Nuon also publishes newsletters for residents and businesses located in the vicinity of its production plants. Furthermore, Nuon’s striving for transparency led to its annual report coming seventh in the Dutch government’s Transparency Benchmark for 2010. Nuon’s annual report won first place in the category Energy, Oil and Gas. Following suggestions from the Benchmark committee, this year Nuon has increased the amount of information provided on the coal supply chain, incidents and the dialogue with its stakeholders in its report.


www.nuonemagazine.com

1 Relates to total number of employees in the Netherlands and Germany.

Number

Workforce by employment contract1

Nuon staff permanent contract

Nuon staff temporary contract

Contracted staff

5,498

1,621

5,541

1,066

1,069937

5,640

973

565

5,447

932

415

20092008 2010 20110%

20%

40%

60%

80%

100%

2009 2010 20112008

Number

Full-time Part-time

Workforce broken down by employment type1/2

1 Relates to the total number of employees, including contracted staff.2 Due to disinvestment of Belgium, workforce in 2011 does not include Belgium.

5,135

1,845

5,585

1,959

5,346

1,832

5,067

1,727

0%

20%

40%

60%

80%

100%

Working togetherA workforce with an array of backgrounds and experiences is more creative and willing to adapt to new input, different views, and ways of working, providing the business with a number of tangible advantages. The company’s workforce should reflect the societies in which it operates with regard to gender, age and ethnic/cultural background. Vattenfall aims to increase the number of female managers to achieve a more balanced ratio within the organisation. To ensure continuity of our operations going forward, the company also encourages young potentials to develop technical and leadership expertise.

The majority of Nuon’s workforce are located in the Netherlands (98%), the remaining 2% of the Nuon workforce is located at the industry parks in Germany (Heinsberg and Düren).

In the graphs on this page the number of Nuon employees and of contracted staff at year-end 2011 are shown. The corresponding FTE numbers are 5,490 for Nuon employees and 843 for contracted staff.

1 Relates to employees, excluding contracted staff.

%

Change in personnel in the Netherlands1

Inflow Outflow

20092008 2010 2011-20%

-10%

0%

10%

20%

30%

12%

-11%

13%

-12%

8%

-10%

7%

-8%

0

20

40

60

80

100

% employees

2008 2009 2010 2011

� <25 year

� 26-35 year

36-45 year

46-55 year

>56 year

Diversity by age¹

31

26

23

13

32

26

23

13

30

26

24

15

28

27

24

18

1 Relates to total number of employees excluding contracted staff.

7 6 5 3

Positioning Nuon as an employerIn order to attract new talent to the company, Nuon dedicated time and effort in 2011 to branding Nuon as an attractive employer. This was done through a number of campaigns on university campuses as well as advertisements on Dutch radio. In all radio commercials for Nuon’s products and services, the company has also taken the opportunity to reflect on how it communicates as a potential employer. This has led to a significant increase in the number of applicants for jobs with Nuon.

57 Together




TraineeshipNuon welcomed 28 new trainees in 2011. They followed a one-year programme either as management trainees or as participants in one of the specialist traineeship programmes Nuon offers in the area of energy markets, engineering, finance and IT. While the number of trainees hired remained constant, Nuon is pleasantly surprised to see that the number of candidates had increased significantly, to over 1,000 candidates in 2011. In addition, three Nuon employees were put forward to participate in the Vattenfall international traineeship. And in 2012, Nuon and Vattenfall will work together to create business programmes in each business division. In 2011, Nuon offered a record number of internships to college and university students.

Budding techniciansNuon continued its cooperation agreements with foundations such as Stichting Leer werken in de Techniek, in cooperation with the NOVA college in Noord-Holland. Alongside other industrial partners, Nuon offers students internships in mechanical engineering, electrical engineering and general operating technology. At the end of the programme, which is financed by the foundation, students receive an employment guarantee with one of the participating companies. The same principle applies in the Groningen region, where Nuon works together with the Noorderpoort College in Delfzijl, Groningen and Stadskanaal to meet the expected recruitment needs for its Nuon Magnum power plant. In 2011, the first graduate from this programme successfully applied for a job with Nuon. A total of 145 students completed a technical internship at Nuon, compared to 123 in the previous year.

Work experience programmesWith 37 placements in 2011, the number of participants in Nuon’s work experience programme increased compared to 32 in 2010. Twenty of the new Step2Work participants had learning or physical disabilities (and were therefore receiving the so-called Wajong welfare benefits). In 2011, 60% of participants in the programme who completed their training found jobs afterwards. For the Step2Work programme, Nuon has reached agreements with its municipality partners: Amsterdam, Arnhem, Leiden and Leeuwarden. The terms and form of these partnerships could serve as a basis for the roll-out of the work experience programme in other municipalities. In October, Nuon received a visit from a delegation of some 30 Swedish municipalities, who were shown the approach and programme aimed at attracting individuals back to the employment market. A study conducted by the municipality of Amsterdam in 2011 concluded that 70% of Step2Work participants were still employed two years after the programme ended. This is considered a very high and encouraging percentage.

Socially engagedNuon fosters social engagement among its employees and the employees are supported in their social initiatives and volunteer work, either as part of a team activity or individually. The Nuon Foundation was initiated by the company as a platform for employees to appeal to their colleagues for assistance with their social projects as well as to Nuon for financial sponsoring of their activities. In 2011, Nuon moved towards supporting more team-oriented activities. For example, 100 employees participated in one of the activity days organised by the Opkikker Foundation for sick children and their families. The Foundation and Nuon have entered a

structural partnership. The number of participants and the monetary contribution made by Nuon via the Noun Foundation was approximately the same as that for 2010. In 2012, Nuon expects, alongside its existing partnerships, to seek more interaction with its large business customers in organising joint events.

In addition to encouraging its employees, Nuon is engaged in several social initiatives. This is illustrated by the following examples.

Children’s Advisory Board This innovative initiative was introduced by the Missing Chapter Foundation (MCF). The concept of the Children’s Advisory Board involves a series of dialogue sessions between children and board members from ten Dutch companies. The Children’s Advisory Board inspires, advises and confronts top management and the rest of the organisation with a variety of topics which are relevant in the inter action between the company in question and society at large. Nuon is a founding partner of the Missing Chapter Foundation.

Plantronics awards For the third year in a row, Nuon Customer Services won the Plantronics Telesales Team award by collecting a record amount in donations together with call centre Cendris for the Ronald McDonald Children’s Charity (Kinderfonds). The Ronald McDonald Children’s Charity is a foundation that offers local housing to families of terminally ill children hospitalised away from home. The total amount collected by the Nuon/Cendris team was € 119,389.

FRESFRES, a non-profit organisation was set up by Nuon in 2004. FRES (Foundation Rural Energy Services) increases rural electrification in developing countries by setting up small-scale utilities in areas not connected to the national electricity grid. Currently there are five FRES companies in Africa. In 2011 FRES served over 16,000 households and SMEs with light and electricity in rural areas in South Africa, Mali, Burkina Faso, and Uganda. In Guinea-Bissau, the first customers will be welcomed in 2012. FRES Netherlands provides the expertise and investments needed for the FRES businesses to start up and grow.

Promoting cultural diversity Nuon further supports a number of initiatives such as the Giving Back Foundation, a professional organisation which encourages and enables talented scholars and students from different cultural backgrounds to fully exploit their talents. Coaches from Nuon and other companies help them to develop their leadership skills. In the longer term, participants in the programme can apply to join our workforce. In 2011, eight Nuon coaches started their ‘giving back’ activities. The intention for 2011 was to increase the company’s participation to 15 coaches. Nuon also supports the activities of the Moroccan Dutch Leadership Institute (MDLI), an organisation which believes in the power of the Moroccan-Dutch community and is geared towards creating and mobilising an independent Moroccan-Dutch spearhead. Through its partnership with the MDLI, Nuon contributes to the development of such talent.

More information on the company’s sponsoring activities can be found

in Report of the Management Board.


To: the Management Board of N.V. Nuon Energy

Report on the Corporate Social Responsibility ReportEngagement and responsibilitiesWe have examined the Corporate Social Responsibility Reporting Activities for the year 2011 (hereafter: ‘the CSR Report’) of N.V. Nuon Energy, Amsterdam, as presented in Nuon at a glance, Profile, page 1 to 11, (up to Financial overview and analysis), page 16, 17 and the section ‘Corporate Social Responsibility’, in which the company renders account of its performance related to sustainability in 2011.

Combination of audit and review procedures

Our examination consisted of the following combination of audit and review procedures:

■ Audit of data and graphs as included in the CSR Report and labelled as ‘RA-verified’:

■ The fuel mix of electricity supplied/produced; ■ The renewable production capacity and production by source; ■ The CO2 emission per production site; ■ The installed capacity and production of energy production plants; ■ The investments in renewable energy capacity; ■ The subsidies.

■ Review of all the other elements included in the CSR Report.

Audit procedures focus on obtaining reasonable assurance, substantiated by sufficient and appropriate supporting audit evidence. Review procedures focus on obtaining limited assurance which does not require exhaustive gathering of evidence, therefore providing less assurance than audit procedures. Consequently, we report our conclusions with respect to the audit and review procedures separately. We believe these combined procedures fulfill a rational objective.

We do not provide any assurance on the assumptions and feasibility of prospective information, such as targets, expectations and ambitions, included in the CSR Report.

The Management Board of N.V. Nuon Energy is responsible for the preparation of the CSR Report. Our responsibility is to provide an assurance report on the CSR Report.

Reporting criteriaN.V. Nuon Energy developed its reporting criteria on the basis of the G3 Guidelines of the Global Reporting Initiative (GRI) as published in October 2006, as set out in About this report. We consider the reporting criteria to be relevant and sufficient for our examination.

Scope and work performed We planned and performed our work in accordance with Dutch law, including Standard 3410N ‘Assurance engagements relating to sustainability reports’.

Audit procedures

With regard to the audited data, among other things, we have gathered audit evidence as follows:

■ Testing the design, existence and the effectiveness of the relevant internal control measures during the reporting period;

■ Analytical review, relation checks and detailed checks.

Review procedures

Our most important review procedures were: ■ Performing an external environment analysis and obtaining insight

into the industry, relevant social issues, relevant laws and regulations and the characteristics of the organisation;

■ Assessing the acceptability of the reporting policies and consistent application of this, such as assessment of the outcomes of the stakeholder dialogue and the reasonableness of estimates made by management, as well as evaluating the overall presentation of the CSR Report;

■ Reviewing the systems and processes for data gathering, internal controls and processing of other information, such as the aggregation process of data to the information as presented in the CSR Report;

■ Reviewing internal and external documentation to determine whether the information in the CSR Report is substantiated adequately;

■ Assessing the application level according to the G3 Guidelines of GRI.

We believe that the evidence obtained from our examination is sufficient and appropriate to provide a basis for our conclusion.

Conclusion Based on our audit procedures

In our opinion the data and graphs, as included in the CSR Report and labelled ‘RA-verified’, as set out in our audit procedures, are in all material respects presented reliably and adequately, in accordance with the N.V. Nuon Energy reporting criteria.

Based on our review procedures

With respect to the other elements of the CSR Report, based on our review procedures performed, nothing has come to our attention that would cause us to conclude that the CSR Report, in all material respects, does not provide a reliable and adequate presentation of the policy of N.V. Nuon Energy on sustainability, or of the activities, events and performance of the organisation relating to sustainability during the reporting year, in accordance with the N.V. Nuon Energy reporting criteria.


PricewaterhouseCoopers Accountants N.V.

Original has been signed by

Drs. J. van Hoof RA

Assurance report

59 Together


Assurance report and GRI statement



GRI statementNuon’s corporate social responsibility reporting for 2011 has the GRI A+ status. The ‘GRI Standard Disclosure and Indicators Table’ references disclosures by report sections and also provides additional information on specific GRI indicators.

For further information on GRI G3 guidelines and indicators please

refer to the GRI website (www.globalreporting.org).

The Nuon GRI table of contents 2011 is provided as an independent

download to the Annual Report 2011 on the corporate website:

www.nuon.com/reporting.


www.globalreporting.org

www.nuon.com/reporting

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Financial statements

Consolidated financial statements Consolidated statement of financial position 62Consolidated statement of comprehensive income 64Consolidated cash flow statement 65Consolidated statement of changes in shareholders’ equity 66

Notes to the consolidated financial statements General information 67Summary of significant accounting policies 67 Property, plant and equipment 78 Intangible assets 80 Investments in associates and joint ventures 81 Other financial assets 82 Derivatives 82 Inventories 83 Trade and other receivables 83 Cash and cash equivalents 84 Shareholders’ equity 84 Interest-bearing debt 85 Deferred income 86 Provisions for employee benefits 86 Other provisions 88 Deferred taxation 89 Trade and other payables 90 Leases 90 Contingent assets and liabilities 92 Net turnover from sales of goods and delivery of services 92 Other operating income 93

Cost of energy, raw materials and supplies 93 Cost of sub-contracted work 93 Employee compensation and benefit expenses 93 Other operating expenses 94 Financial income 94 Financial expenses 95 Taxation 95 Licences 95 Related parties 96 Information on risks and financial instruments 97

Company financial statements Company balance sheet 112Company income statement 113

Notes to the company financial statements Summary of significant accounting policies 114 Property, plant and equipment 115 Investments in subsidiaries 116 Deferred tax assets and other financial assets 117 Derivatives 117 Cash and cash equivalents 117 Shareholders’ equity 117 Provisions 118 Interest-bearing debt 118 Contingent assets and liabilities 119 Other income less expenses after taxation 119

Financial statements 2011

< ContentsFinancial statements


Consolidated statement of financial position As at 31 December

€ million

Assets

2011 2010 Note

Non-current assets

Property, plant and equipment 3,840 3,407 1

Intangible assets 158 295 2

Investments in associates and joint ventures 111 111 3

Other financial assets 37 37 4

Derivatives 262 625 5

Deferred tax assets - 8 14

4,408 4,483

Current assets

Inventories 186 219 6

Trade and other receivables 1,350 1,837 7


Current tax assets 22 17 7

Cash and cash equivalents 299 1,204 8

2,440 4,202


Consolidated financial statements

Financial Statements 2011

< Contents financial statementsFinancial statements

63


Consolidated statement of financial position As at 31 December

€ million

Shareholders’ equity and liabilities

2011 2010 Note

Shareholders' equity

Share capital 684 684

Share premium 2,797 2,797

Hedge reserve -67 233

Currency translation reserve 1 1

Other reserves 246 -146

Unappropriated profit for the year 438 563

Total shareholders' equity attributable to Nuon shareholders 4,099 4,132

Non-controlling interests 2 2

Total shareholders' equity 4,101 4,134 9

Liabilities

Long-term liabilities

Interest-bearing debt 257 392 10


Finance lease payables 11 19 16

Deferred income 170 166 11

Deferred tax liabilities 79 281 14

Provisions for employee benefits 22 28 12

Other provisions 60 135 13

864 1,449

Short-term liabilities

Trade and other payables 1,267 2,033 15



Provisions for employee benefits 22 17 12

1,883 3,102

Total liabilities 2,747 4,551

Total shareholders' equity and liabilities 6,848 8,685



Consolidated statement of comprehensive income For the year ended 31 December

€ million

2011 2010 Note

Net turnover from sales of goods and delivery of services 4,450 5,458 18

Other operating income 169 64 19

Cost of energy, raw materials and supplies 3,010 3,589 20

Cost of sub-contracted work 92 90 21

Employee compensation and benefit expenses 425 425 22

Depreciation and impairments of property, plant and equipment 227 376 1

Amortisation and impairments of intangible assets 2 7 2

Other operating expenses 356 355 23

Gross operating expenses 4,112 4,842

Own work capitalised -47 -41

Operating expenses 4,065 4,801

Operating profit 554 721

Financial income 13 15 24

Financial expenses -14 -20 25

Share in result after taxation of associates -5 2 3

Share in result after taxation of joint ventures 21 14 3

Profit before taxation 569 732

Taxation -131 -169 26

Profit after taxation 438 563

Other comprehensive income

Changes in fair value of cash flow hedges -250 414 29

Release to income of cash flow hedges -151 -52 29

Income tax relating to components of other comprehensive income 101 -91 14

Total other comprehensive income -300 271

Total comprehensive income for the year 138 834

Of which:

- Total comprehensive income attributable to Nuon shareholders 138 834

- Total comprehensive income attributable to non-controlling interests – –


65


Consolidated cash flow statement For the year ended 31 December

€ million

2011 2010 Note

Cash flow from operating activities


Adjustments for:

Financial income and expenses 1 5 24 25

Income tax expenses 131 169 26

Profit after taxation from associates and joint ventures -16 -16 3

Result after tax from entities sold -115 –

Depreciation, amortisation and impairments 229 383 1 2

Changes in provisions, unrealised fair value movements and other -73 -378

Changes in working capital

Inventories 33 -109 6

Trade receivables and other receivables -56 -404 7

Trade payables and other short-term liabilities -213 534 15

Total changes in working capital -236 21

Changes in deferred tax balances and settled derivative balances 75 263

Cash flow from operations 434 1,010

Financial expenses paid -14 -20

Financial income received 13 15

Dividends received from associates and joint ventures 20 24 3

Income tax paid -5 -119

Total 14 -100

Cash flow from operating activities 448 910

Cash flow used in investing activities

Acquisitions, excluding acquired cash and cash equivalents -34 -9

Capital expenditures on property, plant and equipment -1,053 -948 1

Construction contributions received 4 23

Investments in intangible assets -11 -2 2

Proceeds from sales of subsidiaries 298 –

Disposals of non-current assets (associates and joint ventures) – 2

Cash flow used in investing activities -796 -934

Cash flow from financing activities

New interest-bearing debt 49 9

Repaid interest-bearing debt -138 -25

Repayment of share premium Nuon Germany GmbH – 13

Dividends paid to class A shareholders -115 -101

Dividends paid to class B shareholders -171 -100

Cash flow used in financing activities -375 -204

Net cash flow -723 -228

Cash and cash equivalents as at 1 January 1,022 1,250

Net cash flow -723 -228


1 Consists of € 1,204 million cash and cash equivalents and € 182 million debt to credit institutions.



Consolidated statement of changes in shareholders’ equity

€ million

Equity attributable to shareholders1

Share capital

Share premium

Hedge reserve²

Currency translation

reserveOther

reserves

Unappro-priated

profit for the year³ Subtotal

Non-controlling

interest Total

As at 1 January 2010 684 2,797 -38 1 -246 200 3,398 2 3,400

Profit after taxation 2010 – – – – – 563 563 – 563

Other comprehensive income – – 271 – – – 271 – 271

Comprehensive income 2010 – – 271 – – 563 834 – 834

Profit appropriation 2009: dividend – – – – – -100 -100 – -100

Profit appropriation 2009: added to other reserves – – – – 100 -100 – – –

Shareholders' equity as at 31 December 2010 684 2,797 233 1 -146 563 4,132 2 4,134

Profit after taxation 2011 – – – – – 438 438 – 438

Other comprehensive income – – -300 – – – -300 – -300

Comprehensive income 2011 – – -300 – – 438 138 – 138

Profit appropriation 2010: dividend – – – – – -171 -171 – -171

Profit appropriation 2010: added to other reserves – – – – 392 -392 – – –

Shareholders' equity as at 31 December 2011 684 2,797 -67 1 246 438 4,099 2 4,101

1 For further information in regard to shareholders’ equity attributable to shareholders, please refer to note 9.2 The negative hedge reserve lowers the distributable reserves accordingly.3 During the year, dividends amounting to € 171 million were distributed to class B shareholders. The dividends per share amounted to € 2.55.


67


Notes to the consolidated financial statements

General informationN.V. Nuon Energy is a public limited liability company, registered in Amsterdam, the Netherlands. The most significant activities of Nuon and its subsidiaries comprise the production and supply of gas, electricity, heat and cooling to customers in the Netherlands, as well as a broad portfolio of energy-saving products and services.

‘We’, ‘Nuon’, ‘Nuon Energy’, ‘the company’, ‘Nuon Energy group’, ‘the Nuon group’, ‘the group’ or similar expressions are used in these financial statements as a synonym for N.V. Nuon Energy and its subsidiaries. N.V. Nuon Energy originated in 2009 from the unbundling of former parent company N.V. Nuon into a production and supply company, N.V. Nuon Energy, and a network company, Alliander N.V. The former holding company n.v. Nuon remained in charge of the network company and was renamed Alliander N.V. after the unbundling. In order to avoid misunderstanding, the names ‘former shareholder’, ‘former parent company’, ‘Alliander’ or ‘the Alliander Group’ used throughout these financial statements all refer to n.v. Nuon, Alliander N.V., and/or Liander N.V. and their respective subsidiaries, which jointly form the network company.

On 1 July 2009 Vattenfall AB acquired 49% of the shares of N.V. Nuon Energy and on 1 July 2011 a tranche of 15% was acquired by Vattenfall in accordance with the ‘share sale and purchase agreement’. The remaining 36% of the shares will be acquired by Vattenfall AB in tranches in the coming period. The last tranche will be acquired as per 1 July 2015. As Vattenfall effectively gained operational control over Nuon on 1 July 2009, the financial data of Nuon have been consolidated in the financial statements of Vattenfall since then.

These financial statements for the financial year 2011 are authorised for publication by the Management Board and Supervisory Board on 17 April 2012. Subsequently, these financial statements are scheduled to be adopted by the General Meeting of Shareholders on 15 May 2012.

Since the company income statement for 2011 of N.V. Nuon Energy is included in the consolidated financial statements, a condensed income statement has been disclosed in the company financial statements in accordance with Section 402, Book 2, of the Dutch Civil Code.

Summary of significant accounting policiesBasis of preparationThe financial statements of Nuon have been prepared in accordance with the International Financial Reporting Standards (IFRS) as applicable as at 31 December 2011, and adopted by the European Commission. IFRS consists of the IFRS standards and the International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB), as well as the interpretations of IFRS and IAS standards issued by the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC) respectively.

The significant accounting policies and principles that were used in the preparation of the consolidated financial statements are discussed below. The historical cost convention has been applied, except for certain assets and liabilities. Inventories held for trading, derivatives and energy commodity contracts in particular, are valued at fair value. Furthermore, inventories that are not held for trading purposes are valued at the lower of cost and net realisable value. Unless stated otherwise, these accounting policies have been applied consistently over the financial years covered in these financial statements. Unless stated otherwise, all amounts reported in these financial statements are in millions of euros.

Judgements, estimates and assumptions used in the financial statements (critical accounting policies)The preparation of financial statements and the measurement of items in the financial statements require the use of judgements, estimates and assumptions. These are mainly based on past experience and on an assessment made by Nuon’s management of the specific circumstances that are, in the opinion of management, applicable in the given situation. These judgements, estimates and assumptions have an impact on the valuation and presentation of the reported assets and liabilities, on the assets and liabilities that are not held on the statement of financial position and on the reported gains and losses during the financial year. The judgements, estimates and assumptions used in the financial statements often relate to future developments. Actual developments may differ from the judgements, estimates and assumptions used. As a result, the actual outcome may differ significantly from the current valuation of a number of items in the financial statements. Consequently, the judgements, estimates and assumptions used may have a significant impact on shareholders’ equity and the results. In this section, an analysis is provided of the main areas where the measurement of assets, liabilities and the results are affected by the judgements, estimates and assumptions used.

Energy commodity contracts

Nuon uses energy commodity contracts for the physical sales and purchases of oil, gas, coal, electricity and emission allowances for the generation of electricity and the supply of energy to its customers. The majority of these contracts, to which IAS 39 can be applied, are accounted for as derivatives and measured at fair value through profit and loss. Hedge accounting is applied for these contracts where possible.

Hedge effectiveness is tested periodically, using predefined methods, models and assumptions.

Fair values

The fair value of financial instruments or inventories that are not traded in an active market is determined by using valuation techniques. Nuon uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each



reporting period. The main uncertainty in calculating cash flows relates to the effect on cash flows of underlying assumptions with regard to future commodity prices, interest rates and foreign exchange rates. For an extensive disclosure on methods used, reference is made to note [29] Information on risks and financial instruments.

Useful lives, residual values of and impairments on property,

plant and equipment

In determining the carrying amount of property, plant and equipment, use is made of estimates regarding depreciation rates, which are derived from the expected technological and economic lives of the assets concerned and estimates of the residual value. Technological developments, developments in market circumstances and changes in the actual usage of the items of property, plant and equipment involved may lead to changes in the expected technological and economic lives and the estimated residual value of the assets. These factors may trigger impairments. In determining the extent of the impairment, estimates and calculations are made of the fair value less costs-to-sell and the value in use. The fair value less costs-to-sell is derived from assumptions with regard to the probable selling price of a particular item of property, plant and equipment. The actual fair value in the case of a disposal may deviate from the estimates used. The value in use is based upon the discounted value of the expected future cash flows, which are derived from the business plans for the coming years regarding the assets involved. The amount and timing of these cash flows are uncertain. Adverse developments with customers that may trigger impairment, such as suspension of payments and bankruptcy, are also taken into account. It is possible that Nuon may have to recognise additional impairments in the future as a result of changes in market or other circumstances. For an extensive disclosure on methods used, reference is made to note [1] Property,

plant and equipment.

Impairments on goodwill

Goodwill is tested annually for impairment and whenever there is an indication that the intangible assets might need impairment. Previously recognised impairments on goodwill cannot be reversed in future years when the impairment has ceased to exist. The impairment tests make use of estimates and assumptions with regard to both the fair value less costs-to-sell and the value in use. The estimate of fair value less costs-to-sell is derived from available information on stock and market prices, recent transactions of comparable companies and bids and offers received. The actual proceeds and costs-to-sell in the case of a disposal may deviate from the estimates used. The value in use is based upon the discounted value of the expected future cash flows of the cash-generating units. The amount and timing of these cash flows are uncertain. Actual cash flows may deviate from the estimated cash flows. The discount rate used also affect the ultimate value in use. It is possible that Nuon may have to recognise additional impairment charges in the future as a result of changes in market or other circumstances. Impairment charges (being the difference between the carrying amount and the recoverable amount) are recognised in the statement of comprehensive income. For an extensive disclosure on methods used, reference is made to note [2] Intangible assets.

Impairments on exploration and evaluation assets

Nuon applied the successful efforts method to exploration and evaluation expenditures. Capitalised costs were impaired when an asset well was not considered to be technically feasible and economically viable. Estimates and assumptions made by management on the technical feasibility and economical viability were potentially subject to, amongst others, more recent discoveries from the exploration and evaluation activities and changes in market conditions. For an extensive disclosure on methods used, reference is made to note [2] Intangible assets.

Other provisions

Nuon has a number of other provisions, including environmental restoration provisions and provisions for onerous contracts. One characteristic of provisions is that management has to make estimates and assumptions at the reporting date with regard to the probability that an obligation will arise, the time at which an obligation will arise and the amount that will have to be paid. Certain developments, such as changes in market circumstances, changes in legislation, judicial decisions, and assumptions used, may cause the actual obligation to deviate from the provision. In addition, Nuon is involved in a number of legal proceedings. Management assesses each individual case and decides, based on the factual circumstances, whether or not a provision is considered necessary. This assessment encompasses the probability that the claim will be successful and the amount that is likely to be paid.

Revenue recognition

The allocation process, being part of the electricity balance, serves to determine the daily produced and delivered quantities of electricity and gas by using an estimation process. In particular, standard annual consumption patterns are used in the allocation process in the consumer and business markets. These estimates are reviewed regularly and quantities allocated to customers are adjusted for actual quantities ascertained through meter readings as part of this process (‘reconciliation’). The legal requirements on reconciliation prescribe settlement within 17 months after the end of the month of delivery. The expected settlements from these processes have been estimated and recognised in the financial statements as accurately as possible, but the final settlement may affect future results.

Taxation

When preparing the financial statements, Nuon pays close attention to assessing that all significant tax risks and the current tax position have been reflected in the financial statements to the best of our knowledge. Changing insights, as a result of e.g. final tax assessments for previous years, may lead to additional tax charges or income. In addition, new tax risks may arise. In the measurement of deferred tax assets, assumptions are made regarding the extent to, and the term within which these receivables can be realised. This takes place on the basis of business plans, among other things. In addition, the financial statements are prepared using assumptions regarding the temporary and permanent differences between valuations for financial reporting purposes and for tax purposes. The actual situation may differ from the assumptions used in determining deferred tax positions, partly due to differences of opinion and changes in tax legislation.


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Contingencies

When determining contingent assets and liabilities, management uses judgements, estimates and assumptions. These factors are subject to changes due to, amongst others, a changing market environment and specific events.

New and/or amended IFRS standards that are applicable in 2011The IASB and the IFRIC have issued new and amended standards and interpretations which are applicable to Nuon for the financial years 2011 and onwards. These standards and interpretations can only be applied after adoption by the European Commission.

The following amendments, interpretations or revisions have been adopted by the European Commission, but have no or no significant impact on Nuon’s financial statements:

■ Amendments to IFRS 7: ‘Disclosures – Offsetting Financial Assets

and Financial Liabilities’; ■ Amendment to IAS 24: ‘Related Party Disclosures’; ■ Amendment to IAS 32: ‘Financial Instruments: Presentation’; ■ Amendment to IFRIC 14: ‘Prepayment of a Minimum

Funding Requirement’; ■ IFRIC 19: ‘Extinguishing financial liabilities with equity instruments’; ■ Improvements to IFRS (May 2010).

Changes in accounting policies not yet applicable and not early adoptedIn addition to the above-mentioned new and amended standards, the IASB and the IFRIC have issued new and amended standards and interpretations up to and including 2011 that will become applicable after the financial year 2011. These standards and interpretations will only be applicable after adoption by the European Commission.

The following new and/or amended standards and interpretations have been issued:

■ Amendments to IAS 1: ‘Presentation of Financial Statements’. The amendments to IAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has therefore no impact on the Group’s financial position or performance;

■ Amendments to IAS 12: ‘Income Taxes’. The amendment clarifies the determination of deferred tax on investment property measured at fair value. The Group does not have any investment property and therefore this amendment has no impact;

■ Amendments to IAS 19: ‘Employee Benefits’. The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The impact on the financial performance and operation of the group will be limited as the group has no significant pension schemes that are accounted for as a defined benefit scheme;

■ Revised IAS 27: ‘Separate Financial Statements’. As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities

and associates in separate financial statements. The Group does not present separate financial statements under IFRS;

■ Revised IAS 28: ‘Investments in Associates and Joint Ventures’. As a consequence of the new IFRS 11 and IFRS 12, see below, IAS 28 has been renamed IAS 28 ‘Investments in Associates and Joint Ventures’ and describes the application of the equity method to investments in joint ventures in addition to associates;

■ IFRS 9: ‘Financial instruments: recognition and measurement’. This standard is part of a complete revision of the present standard IAS 39 ‘Financial instruments: recognition and measurement’. The standard involves a reduction in the number of measurement categories of financial assets, and the main categories for measurement are amortised cost and fair value through profit or loss, respectively. For certain investments in equity instruments, it is allowed to recognise them at fair value with the value changes recognised in other comprehensive income for the year and with no recycling to profit for the period when they are disposed. The Group is currently assessing the impact that this standard will have on the financial position and performance. It is expected that rules on impairment and hedge accounting will be added to the standard by the European Commission during 2012;

■ IFRS 10: ‘Consolidated Financial Statements’. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were stated in IAS 27. The standard might have impact on the financial position and performance of some relatively small group entities. The group is currently assessing the impact in detail that this standard will have on the financial position and performance;

■ IFRS 11: ‘Joint Arrangements’. IFRS 11 makes a distinction between the accounting for joint arrangement classified as joint venture and joint operation. The accounting for joint ventures is comparable with the current accounting for joint arrangements. Interests in joint operations are however no longer recognised at equity value, instead the proportional interests in the assets and liabilities of the joint operations are recognised in the consolidated accounts. The standard might have impact on the financial position and performance from some relatively small group entities. The Nuon group is currently assessing the impact in detail that this standard will have on the financial position and performance;

■ IFRS 12: ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The group is yet to assess IFRS 12’s full impact, however since it affects disclosures only it therefore has no impact on the group’s financial position or performance;

■ IFRS 13: ‘Fair value measurement’ establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The group is currently assessing in detail the impact that this standard will have on the financial position and performance, however the impact from this standard is expected to be limited.



The following new and amended standards and interpretations have been adopted by the European Commission, but have no significant impact:

■ Amendments to IFRS 7: ‘Financial instruments: Disclosures’. The amendment requires additional disclosure about financial assets that have been transferred but not derecognised, to enable the user of the group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with the entity’s continuing involvement in those derecognised assets. The amendment affects disclosure only and has no impact on the group’s financial position or performance;

■ IFRIC 20: ‘Stripping Costs in the Production Phase of a Surface Mine’. The group does not have any activities in surface mines and therefore this interpretation has no impact.

Accounting policies for consolidationSubsidiaries

The consolidated financial statements comprise the financial data of Nuon and its subsidiaries. Subsidiaries are companies over which Nuon, either directly or indirectly, has the power to control both operational and financial policies in order to benefit from them. In order to ascertain whether or not Nuon has control, actual and potential voting rights that are currently exercisable or convertible are taken into account, as well as the existence of other agreements enabling Nuon to control the operations and financial policies.

The assets, liabilities and results from subsidiaries are fully consolidated. The results of consolidated subsidiaries that have been acquired during the year are consolidated as of the date Nuon effectively acquired control over these subsidiaries. Consolidation of these subsidiaries ceases as of the moment Nuon no longer controls the subsidiary.

The interests of third parties in Shareholders’ equity and the Total

comprehensive income are presented separately under the items Non-controlling interests and Total comprehensive income attributable

to non-controlling interests. The item Non-controlling interests on the statement of financial position consists of the share of non-controlling interests in the fair value of the identified assets and liabilities of subsidiaries on the date of acquisition and the share of non-controlling interests in the movements in Shareholders’ equity as of that date. The acquisition method is applied in the case of an acquisition of a subsidiary by the group. The purchase price of an acquisition consists of the fair value of the assets transferred, the equity instruments that were issued and the assumed or acquired liabilities. The identifiable assets and liabilities and contingent liabilities that are acquired are initially recognised at fair value at the date of acquisition, irrespective of the amount that is attributable to non-controlling interests (see also the accounting policies for goodwill).

Intercompany transactions, statement of financial position items and unrealised gains on transactions with and between subsidiaries are eliminated. Unrealised losses are also eliminated, unless the transaction gives rise to the recognition of impairment charges.

Where applicable, the accounting policies of subsidiaries have been adjusted in order to assure the consistent application of accounting policies across the group.

Associates and joint ventures

Associates are entities over which Nuon, directly or indirectly, exercises significant influence on the financial and operational policies, but over which Nuon has no control. Significant influence is assumed when Nuon can exercise between 20% and 50% of the voting rights.

Joint ventures are agreements by which Nuon, together with one or more parties, conducts activities that are controlled jointly by all parties involved.

Investments in associates and interests in joint ventures are measured in accordance with the equity method. Initial measurement is at historical cost. The carrying amount of the associate or the joint venture includes the goodwill (adjusted for the accumulated impairments that may have been recognised) paid at the date of acquisition of the associate or conclusion of the joint venture and Nuon’s share in the movements in the equity of the associate or joint venture after the date of the transaction. In the case that the (accumulated) losses exceed the carrying amount, these losses are no longer recognised, unless Nuon has the obligation or has made payments to make up these losses. In this case, a provision is recognised as a charge against income.

Unrealised gains on transactions between the group and its associates or joint ventures are eliminated on a pro rata share of the interest of the Group in the associate or joint venture. Unrealised losses are also eliminated, unless the transaction gives rise to the recognition of impairment charges. If appropriate, the accounting policies of associates and joint ventures are adjusted in order to assure a consistent application of accounting policies.

Scope of consolidation

The significant subsidiaries, associates and joint ventures are listed separately in these financial statements. The information on the equity interests as referred to in sections 379 and 414, Book 2, Part 9 of the Netherlands Civil Code has been filed separately with the Amsterdam Trade Register. The following changes in consolidation are applicable for these financial statements:

■ In December 2011 the sale of N.V. Nuon Belgium, including Nuon Power Generation Walloon N.V. and Nuon Wind Belgium N.V., was completed. The results of Nuon Belgium are consolidated until 31 December 2011. The assets, and liabilities are not included in the consolidated balance sheet as per 31 December 2011. The shares were transferred on 10 January 2012;

■ In October 2011 Nuon increased its share in Zuidlob Wind B.V. from 5% to 100%. The assets, liabilities and results are included in these consolidated financial statements as from 3 October 2011;

■ In June 2011 the sale of Nuon E&P to Tullow Oil plc was completed. The results of Nuon E&P are not longer included as from 30 June 2011. The shares were transferred on 30 June 2011;


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■ In March 2010 the sale of Nuon Deutschland GmbH to ENERVIE AG (formerly known as SEWAG) was completed. The assets, liabilities and results of Nuon Deutschland GmbH are no longer included in these consolidated financial statements as from 1 January 2010. The shares were transferred on 18 March 2010;

■ In March 2010 the sale of Nuon’s 50% share in the Vleemo wind farm to Electrawinds and Aspiravi was completed. This share was exchanged for full ownership of Nuon Wind Belgium N.V., which was sold in December 2011 as a part of the sale of Nuon Belgium. The 50% equity share and operational results of Vleemo are no longer included in these consolidated financial statements as of 1 January 2010. The shares were transferred on 16 March 2010.

Foreign currency translationFunctional currency and presentation currency

The items in the financial statements of the entities forming part of the Nuon group are recorded in the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated and company financial statements are prepared in euros, Nuon’s functional and presentation currency.

Translation of transactions and statement of financial position

items denominated in foreign currency

Transactions denominated in foreign currency are translated into the functional currency at the exchange rates prevailing at that time. Monetary assets and liabilities in foreign currency are translated at the exchange rates as at the reporting date. Foreign currency exchange differences resulting from the settlement of transactions denominated in foreign currency or the translation at the reporting date are recognised in the income statement unless these exchange gains or losses are accounted for as cash flow hedges or net investment hedges in a foreign entity. Foreign currency exchange differences on non-monetary items, such as investments that are valued at fair value through the profit or loss, are accounted for as part of the movement in the fair value of the item involved.

Translation differences regarding the statement of financial

positions and results of foreign subsidiaries

The assets and liabilities of subsidiaries of which the functional currency differs from the euro are translated at the exchange rate at the reporting date, whereas the results are translated at the average exchange rate for the period. The resulting exchange rate differences are recognised in Other comprehensive income and included in the Currency translation

reserve within Shareholders’ equity.

Foreign currency exchange differences resulting from the translation of net investments in foreign entities, loans and other currency instruments that are used as hedges of net investments are recognised in Other comprehensive income and included in Shareholders’ equity. If a foreign entity is sold, the corresponding exchange rate differences are recognised through the profit or loss as part of the result on the sale.

Goodwill resulting from the acquisition of a foreign entity is regarded as an asset of the foreign entity and is translated at the exchange rate at the reporting date.

ImpairmentsWhenever certain events or changes in circumstances trigger this, an impairment test is performed in order to determine whether or not the value of property, plant and equipment, intangible assets or other assets not valued at fair value has to be impaired. Goodwill is tested annually for impairment. Assets are allocated to the lowest possible level at which they generate separately identifiable cash flows (cash-generating units). Goodwill is allocated to a level that is consistent with the manner in which goodwill is internally reviewed by management, but not at a higher level than the segments used for management reporting. Impairments of cash-generating units are initially allocated to the goodwill of these cash-generating units (or group of cash-generating units) and are subsequently allocated on a pro rata basis to the carrying amount of the other assets of the cash-generating unit.

The recoverable amount is the higher of the fair value less costs-to-sell and the value in use. In the determination of the value in use, the estimated future cash flows are discounted at a pre-tax discount rate. The discount rate reflects the time value of money and the specific risks that are associated with the assets involved. If an asset does not generate cash flows independently, the value in use is determined for the cash-generating unit to which the asset involved belongs.

If a previously recognised impairment ceases to exist, it is only reversed to the original carrying amount less regular depreciation and amortisation until the date of reversal. Impairments on goodwill are not reversed.

Property, plant and equipmentThe item Property, plant and equipment is subdivided into the following categories:

■ Land and buildings; ■ Power generation facilities; ■ Networks; ■ Gas fields and platforms; ■ Other plant and equipment; ■ Assets under construction.

Property, plant and equipment are measured at historical cost less accumulated depreciation and impairments. Historical cost includes all expenditure directly attributable to the purchase of property, plant and equipment or the production of property, plant and equipment for own use. The cost of assets produced for the company’s own use includes the direct costs of materials used, labour and other direct production costs attributable to the production of the item of property, plant and equipment and the costs required to bring the assets into their current operational condition. The costs of loans associated with the purchase and/or construction of property, plant and equipment or assets in progress are capitalised if the asset is identified as a qualifying asset in accordance with IAS 23.

Costs incurred after the date on which the asset has been taken into use are only capitalised as property, plant and equipment if it can be assumed that these costs will generate future economic benefits and when these costs can be measured reliably. Depending on the circumstances, these costs form part of the carrying amount of the asset involved or are capitalised separately. Maintenance expenditure is charged directly to the income statement in the year these costs are incurred.



Historical cost also contains the net present value of the estimated costs of dismantling and site restoration and, if applicable, the costs of returning land to its original condition as far as there is a legal or constructive obligation to do so. These costs are capitalised at the moment of acquisition or at a later date when the obligation arises. In both cases, the capitalised costs are depreciated over the expected remaining useful life of the asset involved.

Property, plant and equipment are depreciated over the expected useful lives of the various components of the asset involved, taking account of the expected residual value, using the straight-line method with the exception of gas fields and platforms. Gas fields and platforms were depreciated on the basis of the ‘unit of production’ method. The basis for depreciation was the expected remaining production volume (i.e. gas reserve estimates) and was determined annually on the basis of recognised industrial practice. New discoveries during extraction activities could also cause interim changes in the expected remaining production volume. The depreciation amount per unit was thus adjusted for the coming period to the new expected remaining production volume.

The useful lives of the asset categories are as follows: ■ Land is not depreciated; ■ Buildings: 20-50 years; ■ Power generation facilities: 20-35 years; ■ Networks: 5-60 years; ■ Gas fields and platforms: determined annually on the basis

of the expected remaining production volume; ■ Other plant and equipment: 3-60 years; ■ Assets under construction are not depreciated.

The expected useful lives, residual values and depreciation methods are reviewed annually and adjusted when deemed necessary. Gains or losses on disposals are determined based on the sales proceeds and the carrying amount on the date of the disposal.

Intangible assetsGoodwill

Goodwill is the amount by which the purchase price exceeds the fair value of the identifiable assets and liabilities and contingent liabilities of the subsidiaries, joint ventures or associates acquired. Goodwill paid on the acquisition of subsidiaries is classified under intangible assets. Goodwill paid on the acquisition of joint ventures and associates is part of the value of the joint venture or associate involved. If the purchase price is lower than the fair value of the identifiable assets and liabilities and contingent liabilities (negative goodwill), this difference is included in the income statement.

The carrying amount of goodwill consists of historical cost less accumulated impairments. Impairment tests are performed annually in order to determine whether the value of the goodwill has to be impaired. The goodwill is taken into account in the determination of the results on the disposal of entities or cash-generating units.

Exploration and evaluation assets

Exploration and evaluation assets concerned the capitalised costs relating to the exploration for and evaluation of gas reserves. Examples of costs eligible for capitalisation include exploration rights, geological and other studies, and exploration drillings in relation to either prospective or possible reserves under evaluation, or prospective deposit sites. Costs that were not eligible for capitalisation were costs incurred before the acquisition of exploration rights and other general costs that were not related to a specific exploration well. Exploration and evaluation assets were valued at cost less accumulated impairments. Exploration and evaluation assets were not amortised.

Nuon applied the successful efforts method to exploration and evaluation expenditures. This entailed that when a specific well was designated as technically feasible and economically viable, and a management decision to develop the site had been taken or would be taken within a year in conformity with the most recent business plan, the capitalised costs were reclassified to property, plant and equipment – assets under construction. A well that did not satisfy these criteria was designated as not successful and any costs already capitalised were charged as impairment to the income statement.

Concessions, permits and licences

Concessions, permits and licences are valued at historical cost less accumulated amortisation and accumulated impairments. These assets are amortised over their estimated useful life, using the straight-line method. The term of the concessions, permits and licences is used as the useful life.

Capital expenditure and research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if these costs can be measured reliably, the product or process is technically and economically feasible, future economic benefits are probable and Nuon intends to, and has sufficient resources to, complete development and to use or sell the asset. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Cost includes the cost of materials, direct labour, overhead costs that are directly attributable to the preparation of the asset for its intended use and, if applicable, borrowing costs. Other development expenditure is recognised in the income statement as incurred.

Financial instrumentsGeneral

IFRS requires that financial assets, which include derivative commodity contracts for trading purposes, are classified in one of the following categories: at fair value through profit or loss, held-to-maturity, loans and receivables and available-for-sale. Nuon only has financial assets at fair value through profit or loss, and loans and receivables. Financial liabilities, which include derivative commodity contracts for trading purposes, have to be classified in one of the following categories: at fair value through profit or loss, and other financial liabilities.


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The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the classification of financial assets and liabilities at initial recognition.Financial assets are derecognised when the rights to receive cash flows from the asset have expired or have been transferred and Nuon has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Financial assets

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading and are recognised on the trade date. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are categorised as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. Financial assets carried at fair value through profit or loss are initially recognised at fair value and are subsequently carried at fair value. Transaction costs are expensed in the income statement.Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within Net turnover from sale of goods and delivery

of services or Financial income or expense in the period in which they arise. Classification depends on the nature of the derivative contract (e.g. commodity contract or interest or foreign exchange contract).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or floating receipts that are not quoted in an active market. They are included in current assets, except for instruments with maturities of more than 12 months after the end of the reporting period, which are classified as non-current assets. Nuon’s loans and receivables comprise Other financial assets, Trade and other receivables and Cash and cash

equivalents in the statement of financial position (notes [4], [7] and [8]). Loans and receivables are initially recognised at fair value adjusted for transaction costs. Loans and receivables are subsequently carried at amortised cost using the effective interest method. If the fair value of these financial assets has been hedged, the amortised cost is adjusted for the profit or loss attributable to the hedged risk. These adjustments are recognised in the income statement.

Impairment of financial assets carried at amortised cost

Nuon assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets requires an impairment. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events impacting the estimated future cash flows of the financial asset that can be reliably estimated. Nuon uses criteria indicating the creditworthiness of the borrower to determine whether there is objective evidence of an impairment loss. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The loss is recognised in the income statement.

Previously recognised impairments may be reversed following changed conditions and/or changed estimates.

Financial liabilities

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial liabilities held for trading. A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are categorised as held for trading unless they are designated as a hedging instrument.

Other financial liabilities

This category includes interest-bearing and non-interest-bearing financial liabilities that are not held for trading and are valued at amortised cost. Trade liabilities have a short anticipated term and are therefore valued at nominal amount which approaches amortised cost. Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. They are included in current liabilities, except for liabilities with maturities greater than 12 months after the end of the reporting period, which are classified as long-term liabilities. Nuon’s other financial liabilities comprise Interest-bearing debt and Trade and other payables in the statement of financial position (notes [10] and [15]). Other financial liabilities are initially recognised at fair value adjusted for transaction costs and are subsequently carried at amortised cost using the effective interest method.

Derivatives and hedge accounting

General

Nuon uses different types of derivative instruments (forwards, futures and swaps) to hedge various financial risks, currency risks, electricity and fuel price risks and interest rate risks.

Derivative instruments with a positive fair value are reported as a separate item in the statement of financial position as non-current or current assets, while derivative instruments with a negative fair value are reported as a separate item as long-term or short-term liabilities.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The fair values are derived from market prices that are listed in active markets or by using comparable recent market transactions or valuation methods, e.g. discounted cash flow models and option pricing models in the case that there is no active market.

The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current or non-current, based on the remaining term of the derivative.

Accounting for the movements in fair value of derivatives

The accounting treatment for the movements in fair value of derivatives depends on whether the derivative is designated as held for trading



purposes or as a hedging instrument and if the latter is the case, the risk that is being hedged.

In principle, all fair value movements of derivatives are recognised in the income statement. The exception to the general principle that fair value movements are recognised in the income statement is applicable for derivatives for which hedge accounting is applied.

Commodity contracts

Nuon uses energy commodity contracts for oil, gas, coal and electricity for the purpose of the production, sale and purchase of energy. The majority of these contracts, which can be net, settled as derivatives, are valued at fair value through profit or loss. Hedge accounting is applied for these contracts if possible. For further information, please refer to the section on ‘Judgements, estimates and assumptions used in the financial

statements’ (critical accounting policies).

Derivatives used for hedging

Nuon uses derivatives to hedge foreign exchange risks on assets and liabilities, and fair value and cash flow risks arising from energy commodity contracts. These hedge transactions can be divided into three categories:1. Fair value hedges: these hedge transactions hedge the risk of

movements in the fair value of all or part of the assets and/or liabilities held on the statement of financial position, or firm commitments, or a part thereof, that may affect profit or loss. A firm commitment is a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates. Fair value movements of derivatives that are designated as fair value hedges are recognised in the income statement, together with the movements in the fair value of the assets or liabilities or groups of assets or liabilities that are attributable to the hedged risk;

2. Cash flow hedges: these hedge transactions hedge the risk of movements in (future) cash flows that may affect profit or loss. The hedges are attributable to a specific risk that is related to a statement of financial position item or a future transaction that is highly probable. The effective part of the changes in the fair value of the hedge is recognised in other comprehensive income (‘OCI’) in the hedge reserve. The non-effective part is taken to the income statement. The accumulated amounts that are taken to OCI are recycled to the income statement in the same period in which the hedged transaction is recognised in the income statement. However, if an anticipated future transaction that is hedged leads to the recognition of a non-financial asset or liability, the accumulated value movements of the hedges are included in the initial measurement of the asset or liability involved. If a hedge ceases to exist, or is sold, or if the criteria for hedge accounting are no longer being met, the accumulated fair value movements are held in equity until the anticipated future transaction is recognised in the income statement. If an anticipated future transaction is no longer expected to take place, the accumulated fair value movements that were recognised in OCI are recycled to the income statement;

3. Net investment hedges: these hedging instruments hedge the risk of movements in the value of net investments in foreign activities, whose functional currency differs from the euro, resulting from changes in foreign exchange rates. If the hedge is effective, the fair value movement of the hedging instrument is charged or credited to Other comprehensive income and included in the Currency translation

reserve within Shareholders’ equity. If this is not the case, the fair value movements are taken to income. In the case of a disposal of a foreign entity, the accumulated exchange rate differences of the hedge that are included in Shareholders’ equity are recycled to the income statement.

LeasingLeases where Nuon acts as lessor

Finance leases

Nuon has concluded a number of leases for energy-related installations. Where all risks and rewards with regard to the ownership of the assets have effectively been transferred to the lessee, the lease is accounted for as a finance lease. The net present value of the lease payments, together with the residual value if appropriate, is recognised as the carrying amount on the statement of financial position. The estimated residual values used in the determination of Nuon’s gross investment that are not guaranteed by parties other than the lessee are reviewed periodically. If the residual value is expected to be lower, the decrease of the finance lease receivables is charged directly to income. The lease payments received are treated as repayments of, and interest payments on, the investment of Nuon in the lease. The interest income reflects the effective interest on Nuon’s net investment.

Operating leases

In addition to finance leases, Nuon has concluded a number of operating leases for energy-related installations. Operating leases are leases that are not designated as finance leases and where the risks and rewards with regard to the ownership of the assets have not been effectively transferred, or not completely transferred, to the lessee.

The assets that are leased to third parties under operating leases are classified under the item Property, plant and equipment. The proceeds from operating leases are recognised in the results on a straight-line basis over the lease term.

Leases where Nuon acts as lessee

Finance leases

If all risks and rewards with regard to the ownership have effectively been transferred to Nuon, the contract is accounted for as a finance lease. In this case an asset and a liability are recognised on the statement of financial position at the lower of the fair value and the net present value of the future lease payments. The asset is depreciated over the shorter of the useful life of the asset and the term of the lease contract. Consequently, the lease payments are regarded as repayment of principal amounts and interest expenses for the counterparty (lessor). The interest expenses reflect the effective interest on the investment made by the lessor.


75


The assets that Nuon holds under finance leases are recognised as Property, plant and equipment. The corresponding lease obligations are recognised as long-term liabilities.

Operating leases

Operating leases are leases that are not classified as finance leases and where the risks and rewards with regard to the ownership of these assets have effectively not been transferred, or not completely transferred, to the lessee. The cost of operating leases is charged to the profit and loss.

InventoriesGeneral

Inventories, except for coal-, oil-, and gas inventories, are valued at the lower of cost and lower net realisable value. These inventories consist of raw materials and consumables, inventories in process of production, finished goods and spare parts. The cost of inventories is determined by using the FIFO (first-in, first-out) method. Net realisable value is determined using the estimated sales price under normal operating circumstances, less the estimated selling costs. In contrast to the above, coal-, oil-, and gas inventories are valued at fair value less costs-to-sell, as these inventories form part of the trade position in this type of commodity. Movements in the fair value of coal-, oil-, and gas inventories are recognised in the result in the period in which the movement takes place.

Work in progress

Nuon uses the percentage of completion method for determining the costs and proceeds that are recognised in the income statement during a period. If the outcome of a project cannot be reliably estimated, the recognised proceeds are limited to the costs that have been incurred up to the reporting sheet date and that will probably be reimbursed.

Work in progress includes the amounts that are owed by Nuon’s customers in respect of work in progress, as far as the costs incurred and realised profits, less losses, exceed the advance payments. Advance payments to be received and amounts withdrawn are recognised as current assets under the item Trade and other receivables.

The net amount that Nuon owes to its customers, being the costs incurred and realised profits less advance payments and recognised losses, is recognised under liabilities. Advance payments, received for projects for which no work has been performed yet, are recognised as short-term liabilities under the item Trade and other payables. The progress of the project is determined from the costs incurred on the project up to the reporting date, taking into account inefficiencies, in relation to the total estimated costs of the project.

Project costs are recognised at the moment they are incurred. If the outcome of a project can be estimated reliably and it can be assumed that the project will be profitable, the profit on the project is recognised over the period in which the project is executed. Losses on projects are recognised immediately.

Emission allowances

With regard to the accounting for emission allowances, a distinction is made between emission allowances designated for own use, necessary to cover the number of rights required for the actual emissions, and emission allowances that are held for trading purposes.

Emission allowances designated for own use are recognised at cost. When actual emissions exceed the volume of emission allowances available, a liability is recognised for the deficit and charged to the income statement, measured at market prices. These liabilities are subsequently carried at fair value (market price) until additional emission allowances are purchased to offset the deficit. Gains or losses arising from changes in the fair value of these deficits are presented in the income statement within Operating expenses in the period in which they arise.

The trading position in emission allowances is accounted for at market prices at the reporting date and changes are recognised directly in the income statement. The possibility of converting Certified Emissions Reductions (CERs) or Emissions Reduction Units (ERUs), into (European) emission allowances is taken into account for the trading positions in CERs and ERUs.

Cash and cash equivalentsThe item Cash and cash equivalents comprises all liquid financial instruments with a maturity date at inception of less than three months. Cash and cash equivalents include cash at hand, cash held on bank accounts, cash held at banks through the cash pool of Vattenfall, short-term deposits held at Vattenfall, call money and other short-term deposits. Amounts owed to banks are only classified as cash and cash equivalents when Nuon has the right to offset amounts owed and due held on bank accounts with the same banks and Nuon has the intention to use this right and effectively uses this right.

Amounts owed to credit institutions are reported under the item Interest-bearing debt.

Construction contributions, government grants, investment premiums and operating subsidiesConstruction contributions

Contributions to construction and payments received from customers, property developers and local and regional governmental bodies for the costs incurred for heating infrastructure of new housing projects and industrial estates are measured at their fair value and subsequently recognised as Deferred income on the statement of financial position. Deferred income is amortised over the expected useful lives of the assets involved.

Government grants, investment premiums and operating subsidies

Government grants, investment premiums and operating subsidies are recognised at fair value if there is reasonable certainty that the criteria for receiving the grant or premium are or will be met, and that the grant or premium will be received. Grants and premiums received for capital expenditures for property, plant and equipment are subsequently recognised as Deferred income in the statement of financial position and are amortised over the expected useful lives of the assets involved.



Government grants and operating subsidies that do not relate to capital expenditures for property, plant and equipment or other non-current assets are taken to income at the moment the associated costs are incurred.

TaxationDeferred tax assets and liabilities that arise from temporary differences between the carrying amount in the financial statements and the carrying amount for tax purposes are determined based on the corporate income tax rates that are currently applicable or will be applicable, based on current legislation, at the time of settlement of the deferred tax asset or liability. Deferred tax assets arising from operating losses, for example, are only recognised if it can be reasonably assumed that sufficient future taxable income will be available. Deferred tax assets and liabilities are only offset if Nuon has a legal right to offset current tax assets and liabilities and the assets and liabilities relate to taxes that are levied by the same tax authority or governmental body. Deferred tax assets and liabilities are measured at nominal value.

The corporate income tax charge is determined based on the applicable rates for corporate income taxes and is measured at nominal (i.e. undiscounted) value. The effective tax rate is affected by permanent differences between the results for tax purposes and financial reporting purposes as well as the possibilities of the utilisation of tax losses carried forward, to the extent that no deferred tax assets have been recognised for these tax losses.

Provisions for employee benefitsMulti-employer plans

Nuon has a number of defined benefit plans and defined contribution plans for which contributions are generally paid to pension funds or insurance companies. The most significant pension plans have been transferred to the ABP pension fund and the ‘Metaal en Techniek’ pension fund. These plans can be characterised as multi-employer plans. The pension plans offered by these funds are, in fact, defined benefit plans; however, as Nuon does not have access to the required information, both pension plans are treated as defined contribution plans. The pension contributions paid during the financial year are accounted for as pension costs in the financial statements. If there is a contractual agreement with a multi-employer plan determining how a surplus is distributed to the participants or a deficit is to be financed, and the plan is accounted for as a defined contribution plan, a receivable or liability following from the agreement is recognised in the statement of financial position. The resulting gains or losses are recognised in the income statement. The pensions of the majority of Nuon’s workforce have been transferred to the ABP pension fund and the ‘Metaal en Techniek’ pension fund. These plans do not contain the aforementioned contractual agreements. As a result, no receivable or liability has been recognised in the statement of financial position.

Other long-term employee benefits

Other long-term employee benefits include plans, other than pension plans, in which payment does not occur within 12 months after the end of the period in which the employees render the related service. These plans consist of long-term sickness benefits, jubilee benefits, disability benefits for former employees, conditional bonuses and additional annual leave for older employees. These obligations have not been transferred to pension funds or insurance companies.

The obligation for other long-term employee benefits recognised in the statement of financial position consists of the net present value of the vested benefits. If appropriate, estimates are used for example for future salary raises, employee turnover and similar factors. These factors are incorporated in the calculation of the provision. Changes in the provision resulting from changes in actuarial assumptions used and changes in the benefits are taken directly to the income statement.The service costs attributable to the year of service and the accretion of interest to the provision are reported under the item Employee

compensation and benefit expenses in the income statement.

Termination benefits

Termination benefits are benefits resulting from the decision of Nuon to terminate the employment contract before the retirement date, or resulting from the voluntary decision of an employee to agree to the termination of the employment contract. The nature and amount of the termination benefits are laid down in the Social Plan. The Social Plan is renegotiated periodically.A provision is only recognised when Nuon has drawn up a detailed plan for the restructuring, the plan has been approved and communicated, and it is not probable that the plan will be withdrawn at a later date. The provision is measured at the present value of the expenditures expected to be required to settle the termination benefit obligation.

Other provisionsProvisions are recognised when:

■ There is a legal and/or constructive obligation as at the reporting date, arising from events that occurred before the reporting date;

■ It can be reasonably assumed that there will be an outflow of economic resources in order to settle the obligation;

■ The obligation can be reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Net turnover from sales of goods and delivery of servicesNet turnover comprises the following components:

■ Supply of goods – electricity, gas, heating and cooling: net turnover from electricity, gas, heating, cooling and other energy-related products is recognised at the moment of supply to the customer, when the sales price has been agreed and the receipt of the sales proceeds can be reasonably assumed. Value-added taxes (VAT) and regulating energy taxes (RET) are not included in net turnover. In addition, Nuon uses derivatives, such as energy commodity contracts, swaps and options, in order to hedge financial risks (mainly price risks) of sales contracts. The net results of these hedging instruments are also reported under this item;

■ Supply of goods – heating equipment and other equipment: net turnover from the supply of heating and other equipment is recognised at the moment of supply or installation, when practically all risks and rewards with regard to the ownership have been transferred, the sales price has been agreed and the receipt of the sales proceeds can be reasonably assumed;


7 7


■ Work in progress: this encompasses the proceeds from construction activities on behalf of third parties. Turnover is determined based on the percentage of completion method;

■ Income from operating leases: these proceeds are recognised on a straight-line basis over the term of the lease;

■ Delivery of service/maintenance contracts: the amounts received for maintenance contracts are allocated to the periods to which they relate;

■ Fair value movements of energy commodity contracts. This item consists of the following categories of fair value movements:

■ Trading activities: Nuon actively trades in oil, gas, coal and energy commodity contracts and in options and swaps within the bounda-ries and risk limits. The trading portfolio is valued at fair value and fair value movements on the open energy commodity positions are recognised in the income statement;

■ Fair value movements of commodity contracts designated for own use: Nuon uses energy commodity contracts for the physical sale and purchase of raw materials and energy. Optimisation takes place due to uncertainties with regard to future production and consequently the expected and contracted purchases, sales and production deviate from the actual purchases, sales and production. These contracts are recognised at fair value and hedge accounting is applied where this is possible;

■ The non-effective part of hedges: Nuon uses commodity contracts in order to hedge price and other risks that arise from the future expected sales of electricity and gas and from the purchases necessary for covering the generation of power or the sourcing of sales. These contracts are designated as cash flow hedges. The effectiveness tests may demonstrate that the hedges, or part of the hedges, are not effective. The non-effective part of the fair value movements of the hedges is recognised in the income statement.

Net turnover is recognised in the period in which the supply of goods and services takes place at the fair value of the transaction. In addition, turnover is only recognised if the risks and rewards with regard to the ownership have effectively been transferred to the customer, if it is probable that the economic benefits will flow to Nuon and the proceeds can be measured reliably.

Other operating incomeOther operating income consists of the following items:

■ Amortisation of construction contributions, government grants, investment premiums and operating subsidies: please refer to the specific accounting policies for these items;

■ Result from the disposal of assets (including subsidiaries, joint ventures and associates): this relates to the net proceeds from the disposal and the carrying amount of the disposed asset. Gains and losses from the disposal of assets are presented as a net amount;

■ Services to external parties such as activities of the Customer Service Center.

Cost of energy, raw materials and suppliesThis item consists of the cost of gas and electricity purchased from third parties and the raw materials used for the generation of power for supply to Nuon’s customers. The results of derivatives, such as energy commodity contracts, swaps and options, in order to hedge financial risks (mainly price risks) of purchase contracts are recognised under this item. The cost of raw materials, consumables and supplies used for the supply of goods and services are recognised under this item.

Own work capitalisedThis item includes the cost of own personnel, incurred on capital expenditure projects.

Financial incomeThis item consists of the interest income on financial interest-bearing assets being loans, receivables and cash and cash equivalents, determined using the effective interest method.

Financial expensesThis item consists of the following:

■ Interest expense: this includes the interest expense on interest-bearing debt, determined using the effective interest method. In addition, expenses related to the time value of provisions are included. The costs of financing, such as costs of letters of credit, commitment fees, etc., are also reported under this item;

■ Foreign exchange results: foreign exchange results arising from the translation of transactions denominated in foreign currencies and the translation of financial assets and liabilities and derivatives in foreign currencies are reported under this item. The exchange rate differences arising on cash flow hedges and net investment hedges are initially recognised in Shareholders’ equity;

■ Fair value movements of interest derivatives (including those that are used as fair value hedges) and the corresponding adjustment of the amortised cost value of hedged financial assets and liabilities for the movement in the value of the hedged risk.

Policies for the consolidated cash flow statementThe cash flow statement is prepared in accordance with the indirect method. The movement in Cash and cash equivalents is derived from Profit after taxation according to the income statement. Exchange rate differences are eliminated as far as they did not lead to cash flows. In addition, non-cash transactions (such as finance leases) are excluded from the Cash flows used in/from investing and/or financing activities. The financial consequences of the acquisition or sale of subsidiaries, joint ventures and associates are shown separately in the Cash flow

used in investing activities. As a result, the cash flows presented do not necessarily reconcile with the movements in the items in the consolidated statement of financial position.

The definition of cash and cash equivalents used in the cash flow statement and statement of financial position includes the bank overdrafts, and are recognised under interest-bearing debt.



Property, plant and equipment


€ million

Land and buildings

Power generation facilities Networks

Gas fields and platforms

Other plant and equipment

Assets under construction Total

As at 1 January 2010

Historical cost 117 1,461 424 556 885 892 4,335

Accumulated depreciation and impairments -52 -723 -168 -177 -468 – -1,588

Carrying amount as at 1 January 2010 65 738 256 379 417 892 2,747

Movements 2010

Capital expenditure 2 1 4 12 49 880 948

New consolidations – – – – 13 – 13

Disposals – – – – -3 -1 -4

Depreciation -3 -82 -18 -142 -71 – -316

Impairments -8 – -29 – -29 – -66

Reversal of impairments – – 6 – – – 6

Transfers and other movements 1 126 80 79 60 -267 79

Total -8 45 43 -51 19 612 660

As at 31 December 2010

Historical cost 120 1,588 505 647 991 1,504 5,355

Accumulated depreciation and impairments -63 -805 -206 -319 -555 – -1,948

Carrying amount as at 31 December 2010 57 783 299 328 436 1,504 3,407

Reclassifications 2011

Reclassification of historical cost – 180 -71 – -104 -5 –

Reclassification of depreciation and impairments – -76 50 – 26 – –

Total – 104 -21 – -78 -5 –

Movements 2011

Capital expenditure 2 7 – – 38 1,006 1,053

Disposals -3 -14 -16 -298 -31 -10 -372

Depreciation -3 -105 -15 -38 -75 – -236

Impairments -4 -1 – – -13 -15 -33

Reversal of impairments – – 39 – 3 – 42

Transfers and other movements 7 95 73 8 78 -282 -21

Total -1 -18 81 -328 – 699 433


Historical cost 125 1,749 484 – 839 2,228 5,425

Accumulated depreciation and impairments -69 -880 -125 – -481 -30 -1,585

Carrying amount as at 31 December 2011 56 869 359 – 358 2,198 3,840

Note 1


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Borrowing costsThe borrowing costs of Nuon that can be attributed to the acquisition, production or construction of qualifying assets amounted to € 13 million (2010: € 14 million) and are included in the capital expenditure.

Operating leasesProperty, plant and equipment includes € 84 million (2010: € 74 million) relating to assets for which operating lease contracts have been agreed upon with third parties and for which Nuon is the lessor.

Reclassification 2011From the alignment of our asset classification with Vattenfall accounting principles, a reclassification was made between different categories of € 180 million of historical costs and € 76 million of related accumulated depreciation.

Capital expendituresCapital expenditure in 2011 mainly relates to investments in the power plant Nuon Magnum in Eemshaven and two gas-fired power plants in Amsterdam and Diemen.

DisposalsThe disposals mainly relate to the sale of Nuon E&P and Nuon Belgium.

Impairments and reversal of impairmentsIn 2011 a net impairment gain of € 9 million (2010: € 60 million charge) was recognised, consisting of reversals of previously recognised impairments on Heat networks totalling € 42 million (2010: € 6 million) offset by an impairment charge of € 33 million (2010: € 66 million) mainly relating to an impairment on the CO2 separation pilot plant.

As part of the Vattenfall group, impairment testing has been conducted through calculation of the value in use at a Business unit’s level. As a result of Vattenfall’s new organisation, the definition of cash-generating units (CGUs) of Nuon also changed per 1 January 2011. The adjustment in definition of CGUs resulted in a reversal of previously recognised impairments on Heat networks of € 42 million.

The main assumptions that management has used in calculating projections of future cash flows for the Business units within the Generation segment are – for the power-generating assets – based on forecasts of the useful life of the respective assets. In other respects, they are based on the business plan for the coming five years, after which their residual value is taken into account, based on a growth factor of 1.5%. The calculated revenues in these forecasts are based on long-term pricing projections, which are the result of a very large number of simulations. In calculations of the value of power-generating assets in the Generation segment, a so-called flexibility value is taken into account. Most of the power-generating assets have a technical degree of flexibility that gives the owner the opportunity to adapt generation to current prices in the market. If spot prices are low, a production plant can reduce its generation or even go off line during the time in which generation would be unprofitable. On the other hand, a production plant can be brought back on line or be ramped up in cases where spot prices allow for positive production margins. In option valuation theory, this asymmetry in potentially earned margins results

in an additional value component. This flexibility value is mainly dependent on two key elements: the volatility of energy prices and the technical flexibility of the power plants, which affects decisions in the daily production optimisation. The calculation models that have been developed in previous years and which include both of these factors were further evaluated and improved in 2011 in a group-wide process involving experts from Vattenfall Group Asset Management, Vattenfall Energy Trading, Group Risk Management and Energy Business Management. Scientific institutes have reviewed the models.

The main driving force behind the estimated flexibility value for the power-generating assets in the Generation division segment consists of the effects of production optimisation; however, calculation of the flexibility value is also affected by a multitude of simulation scenarios for future prices of electricity, fuel and CO2 emission allowances. The calculation of these scenarios takes into account fundamental market dynamics, including the historical as well as the anticipated future level of volatility. Future cash flows have been discounted to value in use using a discount rate of 7.0% (2010: 8.6%) before tax. In the year’s impairment testing, the calculated value in use exceeds the carrying amount, which is why no impairment has been recognised. A change of the discount rate by +/- 0.5% would affect the estimated value in use for the Nuon group by approximately € -/+ 78 million and would not lead to an impairment.

The main assumptions that management has used in calculating the projected future cash flows for the Distribution and Sales division are based on the business plan for the coming five years and residual value, based on a growth factor of 1.5%. Future cash flows have been discounted to value in use using a discount rate of 7.0% (2010: 8.6%) before tax. In the year’s impairment testing, the calculated value in use exceeds the carrying amount, which is why no impairment has been recognised. A change of the discount rate by +/- 0.5% would affect the estimated value in use of the CGUs in the Nuon Distribution and Sales division by approximately € -/+ 76 million and would not lead to an impairment.

The main assumptions that management has used in calculating the projected future cash flows for the wind power operations in the Renewables division are based on forecasts of the useful life of the respective assets and the commercialisation of planned projects in the existing investment plan. The calculated revenues in these forecasts are based on Vattenfall’s long-term price forecasts, which are the result of a large number of simulations. Future cash flows have been discounted to value in use using a discount rate of 7.0% (2010: 8.6%) before tax. In the year’s impairment testing, the calculated value in use exceeds the carrying amount, which is why no impairment has been recognised. A change of the discount rate by +/- 0.5% would affect the estimated value in use by approximately € -/+ 7 million and would not lead to an impairment.

Value of assets held under finance leasesThe value of assets held under finance leases totalled € 15 million as at year-end 2011 (2010: € 18 million) and is classified under Other plant

and equipment. These finance leases relate to property, plant and equipment for the production of renewable energy, such as wind farms, solar and biomass generation assets.



Intangible assets

Intangible assets

€ million

GoodwillExploration and evaluation assets

Other intangible assets Total


Historical costs 210 158 38 406

Accumulated amortisation and impairments -43 – -3 -46

Carrying amounts as at 1 January 2010 167 158 35 360

Movements 2010

Capital expenditure and new consolidations – 2 2 4

Impairments – -2 -5 -7

Transfers and other movements 1 -62 -1 -62

Total 1 -62 -4 -65


Historical cost 211 98 39 348

Accumulated amortisation and impairments -43 -2 -8 -53

Carrying amount as at 31 December 2010 168 96 31 295

Movements 2011

Capital expenditure and new consolidations 3 – 42 45

Disposals -105 -96 – -201

Impairments – – -1 -1

Amortisation – – -1 -1

Transfers and other movements – – 21 21

Total -102 -96 61 -137


Historical cost 93 – 102 195

Accumulated amortisation and impairments -27 – -10 -37

Carrying amount as at 31 December 2011 66 – 92 158

The Other intangible assets item comprises concessions, permits and licences. Concessions, permits and licences are amortised over their term. Transfers and other movements relates to reclassifications from or to Property, plant and equipment.

Note 2

The heating networks belonging to Alliander N.V. that had been placed within a cross-border lease were subleased in mid-2008 via subleases to N.V. Nuon Warmte, now part of Nuon. This was done in connection with the implementation of the Independent Network Operation Act (WON) and the preparations for the unbundling of our former shareholder n.v. Nuon. The strip risk (the part of the termination value – i.e. the possible compensation payable by Nuon to N.V. Alliander

in the event of premature termination of the transaction – that cannot be settled from the deposits and investments held for this purpose) related to these subleased assets is borne by Nuon and amounted to $ 47 million as at year-end 2011 (2010: $ 58 million). As these subleases are still operational, no liability for this strip risk is included in the statement of financial position.

Capital expenditures and new consolidationsThe capital expenditures and new consolidations in 2011 partly relate to the acquisition of Zuidlob Wind B.V.


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DisposalsThe disposals relate to the sale of Nuon E&P.

GoodwillThe goodwill as at 31 December 2011 relates to subsidiaries acquired in former years (mainly in the retail business).

At the end of 2011, the goodwill on the statement of financial position was tested for impairment. The value in use was taken as a basis for this calculation. The value in use was determined on the basis of the most recent business and strategic plan (including a long-term outlook), using a discount rate before taxation of 7.0% (2010: 8.6%) for the cash-generating units to which goodwill is allocated. Based on a

sensitivity analysis, an increase of the pre-tax discount rate by 0.5% would have only a limited impact on the outcome of the impairment test. The change in discount rate compared to 2010 was due in part to movements in market interest rates.

The main assumptions on which the business plan and long-term outlook are based are estimates with regard to the most recent tariff estimates and estimates of operating and other expenses and capital expenditure. To a large extent, these estimates are based on past experience. The strategic plan covers a period of five years, and the terminal value is calculated on the basis of the projected cash flows at the end of that period. A prudent growth rate is assumed for the years after the strategic plan period.

Investments in associates and joint ventures

Investments in associates and joint ventures

€ million

Associates Joint ventures

2011 2010 2011 2010

Carrying amount as at 1 January 28 17 83 93

Movements

Investments 4 10 – –

Disposals – – – -2

Share in results -5 2 21 15

Dividends received -1 -1 -19 -23

Total -2 11 2 -10

Carrying amount as at 31 December 26 28 85 83

Financial information of investments in associates As at 31 December

€ million

Assets Liabilities RevenueProfit/ (Loss)

% Interest held

Carrying amount

2011

B.V. NEA, the Netherlands 64 – – – 23 14

Other 12

Total 26

2010

B.V. NEA, the Netherlands 68 – 3 4 23 14

Other 14

Total 28

Note 3



Financial information of investments in joint ventures As at 31 December

€ million

Non-current assets

Current assets Provisions


Short-term liabilities Revenue Expenses

% Interest held

Carrying amount

2011

NoordzeeWind C.V., the Netherlands 160 19 7 20 1 55 15 50 75

Westpoort Warmte B.V. 61 8 – 55 12 8 6 50 –

Other 10

Total 85

2010

NoordzeeWind C.V., the Netherlands 170 10 6 22 3 42 15 50 74

Westpoort Warmte B.V. 58 8 – 50 15 7 5 50 –

Other 9

Total 83

Other financial assets

Other financial assets consist mainly of loans and receivables (including incremental costs) with related parties.

Note 4

Derivatives

Derivatives As at 31 December

€ million

Current assets

Non-current assets



2011 2010 2011 2010 2011 2010 2011 2010

Trading derivatives

Commodity contracts oil 177 204 60 101 192 239 281 307

Commodity contracts gas 1,059 816 239 367 868 782 177 275

Commodity contracts coal 234 516 163 265 220 528 42 97

Commodity contracts power 516 612 125 135 490 603 102 145

Commodity contracts other 221 78 33 136 233 62 35 101

Foreign exchange contracts 72 47 36 46 63 29 15 37

Interest rate contracts – – – – – 7 – –

Other derivatives – – – – 3 – – –

Total 2,279 2,273 656 1,050 2,069 2,250 652 962

Cash flow hedges

Commodity contracts oil 12 4 – 25 11 9 – –

Commodity contracts gas 60 155 13 87 117 – 15 1

Commodity contracts coal 8 37 10 16 4 1 8 –

Commodity contracts power 1 26 1 14 40 42 5 33

Commodity contracts other 26 – 4 – 35 1 32 2

Foreign exchange contracts 8 21 – 22 6 4 – 11

Total 115 243 28 164 213 57 60 47

Effect from netting agreements -1,811 -1,591 -422 -589 -1,786 -1,599 -447 -581

Total 583 925 262 625 496 708 265 428

Note 5


83


Inventories

Inventories As at 31 December

€ million

2011 2010

Raw materials 32 23

Finished goods 1 3

Inventories at fair value 153 193

Total 186 219

Inventories at fair value include coal, gas, emission allowances and oil inventories.

Note 6

Overall, the gross value of the derivatives decreased compared to the previous year as at year-end 2011 cash settlements of derecognised derivative assets and derecognised derivative liabilities have been

netted. Also, the limited volatility in market prices had a decreasing effect on the total derivatives balances.

In 2011, a devaluation of inventories valued at lower of cost and net realisable value has occurred for € 1 million (2010: € 1 million).

Trade and other receivables

Trade and other receivables As at 31 December

€ million

2011 2010

Trade receivables - regular sales 461 554

Trade receivables - trade activities 438 250

Provisions for impairments on trade receivables -51 -68

Trade receivables (net) 848 736

Taxes and social security premiums 17 15

Receivables from related parties 54 –

Other receivables 390 704

Accrued income and prepayments 41 382

Total 1,350 1,837

The net balance of trade receivables from regular sales related mainly to energy receivables in the business and consumer markets. Receivables from trading activities have a maximum credit term of one month since they are normally settled in the month following invoicing.

Note 7

At the end of 2011, the impairments on trade receivables totalled € 51 million (2010: € 68 million). The decrease is mainly due to the divestment of Nuon Belgium. An impairment charge on trade receivables of € 25 million (2010: € 21 million) was charged to the income statement in 2011.

Current tax assets As at 31 December

€ million

2011 2010

Corporate income tax 22 17

Total 22 17




Cash and cash equivalents As at 31 December

€ million

2011 2010

Cash held at banks 181 306

Vattenfall group cash pool 115 364

Deposits 3 9

Vattenfall group deposits – 525

Total 299 1,204

The effective interest rate on credit balances available on demand and short-term deposits was 0.63% (2010: 0.29% to 0.81%). Cash and cash

equivalents are denominated almost entirely in euros. Cash and cash

equivalents included cash and deposits of € 83 million (2010: € 27 million) to which Nuon does not have free access. This amount relates to cash held at banks which is provided as collateral and for margin call payments to cover exchange-based commodity trades.The balance of cash held at banks is presented gross and therefore excludes the credit balance of cash held at banks of € 0 million (2010: € 182 million). This amount is classified as short-term interest-bearing debt.

Note 8

The class A shareholders are entitled to an annual fixed preferred dividend on the remaining class A shares, amounting to 2% of the outstanding predetermined purchase price for the outstanding class A shares. As these payments qualify as a liability rather than equity in accordance with IAS 32, a liability of € 430 million was recognised as at 1 July 2009, as a charge to Other reserves. This represented the net present value of the fixed dividends payable until 1 July 2015. As per 31 December 2011 this liability amounted to € 244 million. Interest is accreted to the dividend liability. The dividend becomes payable every year around 30 June of the following year, with a final payment around 30 June 2015. As a result of presenting this future dividend distribution as a liability, the future profit appropriation has been partially determined in advance. Annually, part of the profit equal to the 2% preferred dividend for that financial year will be allocated to Other reserves. If insufficient profits are available, future profits covering the deficit will be allocated to Other reserves.

Share premiumShare premium consists of the additional paid-up or contributed value to Nuon. Under the ‘share sale and purchase agreement’, no dividend distributions can be made from the freely distributable reserves, including the share premium, until all class A shares have been sold to Vattenfall AB.

Hedge reserve and currency translation reserveThe changes in the fair value of derivatives, net of taxes, which effectively hedge the risk of changes in future cash flows, are included in the Hedge reserve. The exchange rate differences resulting from the assets and liabilities of subsidiaries with a different functional currency being translated at closing rate while their results are translated at an average rate, are recognised in Other comprehensive income and included in the Currency translation reserve within Shareholders’ equity. Neither the Hedge reserve nor the Currency translation reserve is freely distributable.

Other reserves Other reserves consist mainly of retained earnings. Results which are not distributed as dividend to class B shareholders are in principle added to the other reserves. The Other reserves are not freely distributable until all class A shares have been sold to Vattenfall AB.


Authorised, issued and paid-up share capital The authorised share capital of Nuon amounts to € 1,500,000,000 consisting of 150,000,000 class A shares and 150,000,000 class B shares, each with a nominal value of € 5 per share. The total number of issued and paid-up shares amounts to 49,246,182 class A shares and 87,548,782 class B shares totalling € 683,974,820. The class B shares, equal to 64% of the total number of outstanding shares, are held by Vattenfall.

In accordance with the ‘share sale and purchase agreement’ between the class A shareholders in Nuon, Vattenfall AB and Nuon, 15% of the class A shares were delivered to Vattenfall AB on 1 July 2011 at € 72.10 per share. These shares have subsequently been converted into B shares. The remaining class A shares, representing a 36% stake in Nuon, will be sold to Vattenfall AB at € 72.10 share in the coming period. The last tranche will be acquired as per 1 July 2015. After each subsequent sale, the sold class A shares will also be converted into class B shares.

Rights and obligations related to class A and B sharesThe ‘one share, one vote’ principle applies to the issued shares. Further information is provided in the Corporate Governance section of the annual report on page 18.

Note 9


85


Interest-bearing debt


€ million

2011 2010

Carrying amount as at 1 January 736 650

Movements

Additions and loans received 49 235

New consolidations – 3

Loans repaid -138 -61

Bank overdrafts repaid -182 –

Dividend liability class A shareholders -115 -101

Other movements 5 10

Total -381 86

Carrying amount as at 31 December 355 736

Loans repaid include € 103 million relating to the transfer of external green loans to Vattenfall AB. This transfer was settled in cash. Bank overdrafts repaid in 2011 relates to the negative cash and cash equivalents balances as at 31 December 2010.

Note 10

The carrying amount of the long-term interest-bearing debt, including the short-term part, is as follows.

Short- and long-term interest-bearing debt As at 31 December

€ million

Effective interest rate Short-term part Long-term part

2011 2010 2011 2010 2011 2010

Green loans 3.2% 3.5% 23 47 58 150

Banks – 4.8% – 182 – 3

Debt to class A shareholders 3.4% 3.3% 71 115 173 234

Other 7.4% 4.8% 4 – 26 5

Total 98 344 257 392

Some of the company’s credit contracts with respect to the green loans are subject to covenant clauses, under which the company is required to meet certain key performance indicators. Nuon fulfilled all indicators as required in these contracts.

At year-end 2011 (as well as 2010), the carrying amount of the interest-bearing liabilities was denominated almost entirely in euros.

Maturities of interest-bearing debt As at 31 December

€ million

2011 2010

Less than 1 year 98 344

Between 1 and 2 years 99 93




Over 5 years 36 64

Total 355 736



Short-term interest-bearing debt amounting to € 98 million at year-end 2011 (2010: € 344 million) comprised the short-term part of the long-term debt in addition to liabilities in respect of employee schemes

(mainly deposit schemes) and current account liabilities with credit institutions.

Deferred income

Deferred income

€ million

2011 2010


New consolidations – 1

Contributions received 4 23

Amortisation recognised as income -8 -7

Transfers and other 8 -8


Deferred income relates to construction contributions, government grants, investment premiums and operating subsidies received. These amounts were mainly attributable to ‘green’ investments.

Note 11

The amortisation periods of these amounts are equal to the depreciation periods of the underlying assets and range from 10 to 50 years.

Provisions for employee benefits

Provisions for employee benefits As at 31 December

€ million

Short-term part Long-term part

2011 2010 2011 2010

Termination benefits 9 6 1 1

Jubilee benefits 1 1 9 11

Long-term sickness leave and disability benefits 5 3 4 4

Unemployment benefits 2 2 4 1

Reduction in working hours older employees 4 4 3 7

Other 1 1 1 4

Total 22 17 22 28

PensionsNuon has various pension and similar plans for its current and former employees. The majority of the pension obligations have been transferred to the ABP pension fund and the ‘Metaal en Techniek’ pension fund. In addition to these two main pension plans, Nuon has a number of other defined benefit plans that are not material. The ABP and ‘Metaal en Techniek’ plans can be characterised as multi-employer plans. The pension benefits offered by these funds are in fact defined benefit plans. In principle, a pro rata share of the defined benefit obligation, the plan assets and the costs associated with the plan should be included in Nuon’s financial statements. However, as Nuon does not have access

Note 12

to the required information, both pension plans are treated as defined contribution plans. If there is a contractual agreement with a multi-employer plan determining how a surplus is distributed to the participants or a deficit is to be financed, and the plan is accounted for as a defined contribution plan, a receivable or liability following from the agreement should be recognised in the statement of financial position. The resulting gains or losses are recognised in the income statement. The pension plans that are transferred to the ABP pension fund and the ‘Metaal en Techniek’ pension fund do not contain the aforementioned contractual agreements. As a result, no receivable or liability has been recognised in the statement of financial position.


87


Termination benefitsThe provision covers payments and/or supplements to benefits paid to employees whose employment contract has been terminated. These benefits and supplements are based on the Social Plan operated by Nuon and individual arrangements. The Social Plan is periodically renegotiated and established during the Collective Labour Agreement negotiations. In 2011 a net amount of € 10 million (2010: € 6 million) was added to the provision for new restructuring programmes. The provision for termination benefits totalled € 10 million at the end of 2011 (2010: € 7 million).

Other provisions for employee benefitsNuon operates a number of other employee benefit schemes, including the following:

■ Jubilee benefits: this benefit covers the jubilee benefits paid to employees after 10, 20, 30 and 40 years of service;

■ Long-term sickness benefits: this benefit covers the obligation to continue paying all or part of an employee’s salary during the first two years of sick leave;

■ Disability benefits: Nuon is the risk-bearer within the meaning of the Income and Employment Act (WIA); this benefit covers the obligation in respect of Nuon employees who have become partly or fully incapacitated for work;

■ Unemployment benefits: Nuon is the risk-bearer within the meaning of the Unemployment Act (WW); if a Nuon employee becomes unemployed, the unemployment benefit they receive is borne by Nuon for a period of between six months and five years, depending on the employment history of the employee concerned;

■ Reduction of working hours of older employees: in the light of the legal measures in relation to early retirement, it was agreed in the 2005 Collective Labour Agreement to create a transitional scheme in which older employees would work less in the future.

Movements in provisions for employee benefitsThe following table shows the movements in the provisions for termination benefits and other employee benefits.

Movements in provisions for employee benefits

€ million

Termination benefitsOther

employee benefits Total

As at 1 January 2010 7 40 47

Releases to income -2 -3 -5

Additions 8 7 15

Interest accretion – 1 1

Benefits paid -6 -5 -11

Actuarial gains and losses that are recognised immediately – -2 -2

Total – -2 -2

As at 31 December 2010 7 38 45

Releases to income -1 – -1

Additions 11 6 17

Interest accretion – 1 1

Benefits paid -7 -11 -18

Actuarial gains and losses that are recognised immediately – – –

Total 3 -4 -1

As at 31 December 2011 10 34 44



The main assumptions used in determining the provisions are given below.

Assumptions As at 31 December

2011 2010

Mortality table Generation table 2010-2060

GBM/GBV 00-05

Discount rate 3.0% 3.3%

Expected future salary increases 2.5% 2.5%

Expected increase in disability benefits 2.5% 2.5%

Other provisions

Other provisions

€ million

Environment and dismantling

Onerous contracts Other Total

Carrying amount as at 1 January 2010 76 22 58 156

Movements 2010

Additions 12 3 11 26

Withdrawals -1 -2 -9 -12

Release to other expenses -2 -13 -27 -42

Interest accretion – – – –

Other movements – 8 -1 7

Total 9 -4 -26 -21


Movements 2011

Additions 1 – 9 10

Release to other expenses -1 -3 -16 -20

Interest accretion 3 – – 3

Companies sold -68 – – -68

Total -65 -3 -7 -75


The environmental restoration provision, as included in Environment

and dismantling, covers expected obligations related to soil pollution.

The provision for dismantling costs, as included in Environment and

dismantling, is formed for the dismantlement and removal of assets, including gas caverns and drilling rigs and the expenses to be incurred to restore certain sites to their original condition. The decrease in environment and dismantling provision included in Companies sold results from the divestment of Nuon E&P.

Note 13

The provision for onerous contracts relates mainly to obligations in relation to the purchase of green certificates from Norwegian wind farms and contracts for the construction of heat pumps.

The item Other includes provisions for various claims and litigation.

An amount of € 9 million (2010: € 29 million) of the Other provisions is expected to lead to a cash outflow in 2012.


89


Deferred taxation

The balances and gross movements of the deferred tax assets and deferred tax liabilities were as follows:

Gross movement in deferred tax assets/(liabilities)

€ million


Intangible assets

Non-settled derivatives

Settled derivatives

Tax losses Provisions Other Total

Carrying amount as at 1 January 2010 -64 -79 16 -3 12 10 4 -104

Movements 2010

Charged to income -72 31 -39 – -4 6 4 -74

Charged to other comprehensive income – – -92 1 – – – -91

Reclassifications and other movements -4 – – – – – – -4

Total -76 31 -131 1 -4 6 4 -169

Carrying amount as at 31 December 2010 -140 -48 -115 -2 8 16 8 -273

Of which:

- Deferred tax asset – – – – 8 – – 8

- Deferred tax liability -140 -48 -115 -2 – 16 8 -281

Movements 2011

Disposals 153 48 – – -4 3 – 200

Charged to income -78 – 3 – -4 -10 -9 -98

Charged to other comprehensive income – – 101 – – – – 101

Reclassifications and other movements -3 -9 – – – – 3 -9

Total 72 39 104 – -8 -7 -6 194

Carrying amount as at 31 December 2011 -68 -9 -11 -2 – 9 2 -79

Of which:

- Deferred tax asset – – – – – – – –

- Deferred tax liability -68 -9 -11 -2 – 9 2 -79

The deferred tax liabilities for property, plant and equipment and intangible fixed assets mainly represent the difference between the carrying value and the value for tax purposes of the assets of the power-generating facilities and are recorded at 25.0% (2010: 25.5%).

The deferred tax liabilities in respect of derivatives reflect the temporary differences – measured at the prevailing tax rate – between the

Note 14

valuation of derivatives for tax purposes and the valuation in the financial statements. The settled derivatives refer to cash-settled derivatives of which the fair value movements are not yet recognised in the income statement as cash flow hedge accounting is applied.

The disposals in 2011 related to the sale of Nuon E&P and Nuon Belgium.



Unrecognised deferred tax assetsUnrecognised deferred tax assets relate to the temporary differences in the valuation of tax losses carried forward and amounted to € 12 million (2010: € 10 million). These tax losses carried forward relate mainly to

Trade and other payables

Trade and other payables As at 31 December

€ million

2011 2010

Trade payables 198 145

Invoices to be received from energy supplies and trading activities 515 1,131

Deposits received 49 177

Payables to related parties 40 42

Other payables 450 254

Other taxes and social securities 15 284

Total 1,267 2,033

Other payables included short-term employee benefit accruals of € 65 million at the end of 2011 (2010: € 74 million) relating to salaries to be paid, holiday allowances, bonuses payables and other personnel expenses to be paid.

Note 15

losses in foreign operations, where insufficient taxable profit is considered to be available in the foreseeable future to recognise the losses carried forward. These tax losses on the foreign operations do not have an expiration date.

Leases

Receivable from leasesThe total future minimum lease receipts from non-cancellable operating leases were as follows:

Operating lease receivables As at 31 December

€ million

2011 2010



Over 5 years 19 5

Total 140 136

These operating lease receivables relate mainly to leases of heating equipment to consumers.

Note 16


91


Lease payables

Finance lease payables As at 31 December

€ million

Less than 1 year Between 1 to 5 years Over 5 years Total

2010

Future minimum lease obligations 8 12 – 20

Future finance charges on finance leases – -1 – -1

Present value of finance lease obligations 8 11 – 19

2011

Future minimum lease obligations 4 5 2 11

Future finance charges on finance leases – – – –

Present value of finance lease obligations 4 5 2 11

Finance lease payables relate to property, plant and equipment mainly for the generation of renewable energy, such as wind farms and solar and biomass generation assets.

The total future minimum lease payments in respect of non-cancellable operating leases were as follows.

Operating lease payables As at 31 December

€ million

2011 2010



Over 5 years 39 60

Total 347 342

Nuon has off-balance operating lease payables in respect of district heating networks, buildings, company cars, IT assets and gas storage assets.



Contingent assets and liabilities

Rights and obligations arising from operating leasesPlease refer to note [16] Leases for a breakdown of the rights and obligations with regard to operating leases.

Note 17 Capital expenditure and purchasing commitmentsThe outstanding capital expenditure commitments and other purchasing commitments at the end of the year are listed below:

Capital expenditure and purchasing commitments As at 31 December

€ million

2011 2010

Capital expenditure commitments regarding property, plant and equipment and intangible assets 526 1,253

Other purchasing commitments – 1

Total 526 1,254

Sales and purchase commitmentsNuon has concluded a number of long-term purchase contracts with terms varying from 2012 to 2017. In addition, Nuon has concluded long-term sales contracts on varying terms and conditions. Nuon enters into energy commodity contracts for the sale and purchase of electricity, oil, gas, coal and emission allowances. The energy commodity contracts that are held for trading purposes and the energy commodity contracts that are designated as hedging instruments are recognised on the statement of financial position at fair value. These contracts are not generally settled by means of physical delivery but by concluding opposite transactions in which only the net cash flows are settled. The energy commodity contracts that are designated for own use are generally settled by physical delivery. The majority of these contracts are also valued at fair value. Hedge accounting is applied if possible.

Contingent liabilitiesAt the reporting date, Nuon (including its subsidiaries, associates and joint ventures) was involved in a number of legal proceedings and investigations by tax authorities. Provisions have been made as far as deemed necessary.

On the instruction of Nuon, bank guarantees had been issued amounting to € 23 million at the end of 2011 (2010: € 22 million) and letters of credit had been issued amounting to € 9 million (2010: € 8 million).

N.V. Nuon Energy has issued declarations of joint and several liabilities pursuant to article 403, Part 9, Book 2 of the Netherlands Civil code for a number of its subsidiaries. The significant group companies for which such a declaration is issued are included in the list of subsidiaries, joint ventures and associates included in note [28] Related parties of the consolidated financial statements. As partners in a number of general partnerships, subsidiaries of Nuon are liable for the obligations of these partnerships. The exposure under these obligations is not considered to be significant.

N.V. Nuon Energy and the majority of its subsidiaries form a fiscal unity for both corporate income tax and VAT purposes. Consequently, every legal entity forming part of the fiscal unity is jointly and severally liable for the tax liabilities of the legal entities forming part of the fiscal unity.

Contingent assetsAt the end of 2005, Nuon and Statkraft reached agreement on the settlement of the obligation to purchase green energy certificates from the Norwegian Smøla 1 and 2 and Hitra wind farms. Nuon retains the right to 50% of the gain on any future sale of green certificates from these three wind farms.

Net turnover from sales of goods and delivery of services

Net turnover from sales of goods and delivery of services For the year ended 31 December

€ million

2011 2010

Electricity 2,066 2,611

Gas 1,797 2,194

Heat and other products 587 653

Total 4,450 5,458

Note 18


93


Net turnover was affected by the impact of fair value movements of certain derivatives. These fair value movements relate to the change in value of commodity contracts which are designated for own use.

The total impact of these fair value movements was € 56 million positive in 2011 (2010: € 346 million positive).

Other operating income

Other operating income For the year ended 31 December

€ million

2011 2010

Amortisation of construction obligations 8 7

Other 161 57

Total 169 64

The item Other consists mainly of the income related to the services of the Customer Care Center of € 29 million (2010: € 34 million) and the gain on the divestment of Nuon Belgium and Nuon E&P.

Note 19

Cost of energy, raw materials and supplies

Cost of energy, raw materials and supplies For the year ended 31 December

€ million

2011 2010

Electricity -1,125 -1,633

Gas -1,687 -1,786

Heat and other products -198 -170

Total -3,010 -3,589

Note 20

Cost of sub-contracted work

The cost of sub-contracted work relates mainly to external hires.Note 21

Employee compensation and benefit expenses

Employee compensation and benefit expenses For the year ended 31 December

€ million

2011 2010

Wages and salaries -333 -333

Social security contributions -33 -33

Pension expenses -36 -34

Termination benefit expenses -10 -6

Other long-term employee benefit expenses -2 -3

Other personnel expenses -11 -16

Total -425 -425

Note 22



Financial income

Financial income For the year ended 31 December

€ million

2011 2010

Interest income deposits and call money 3 7

Financial income current account with Vattenfall 7 4

Other financial income 2 4

Currency translation differences 1 –

Total 13 15

Note 24

The number of employees (FTE based on a 38-hour working week) is shown in the following table.

Number of employees (FTEs)

2011 2010

Average

Employed FTEs 5,641 5,859

As at 31 December

Employed FTEs 5,490 5,766

Number of employees abroad 99 254

The decrease of number of employees abroad results mainly from the divestment of Nuon Belgium.

Other operating expenses

Other operating expenses For the year ended 31 December

€ million

2011 2010

Additions to provisions -27 -5

Maintenance expenses -74 -97

Marketing expenses -55 -52

Costs charged by Vattenfall and its subsidiaries -23 -15

Related office and ICT expenses -115 -129

Transportation and travelling expenses -32 -27

Other -30 -30

Total -356 -355

Note 23

The other long-term employee benefits consist mainly of medical benefits for Nuon employees after retirement.


95


Financial expenses

Financial expenses For the year ended 31 December

€ million

2011 2010

Interest on loans and liabilities -7 -12

Interest added to provisions -4 –

Other financial expenses -3 -6

Currency translation differences – -2

Total -14 -20

Note 25

Taxation

Taxation For the year ended 31 December

€ million

2011 2010

Current tax expense -33 -105

Movement in deferred taxes -98 -64

Total -131 -169

Note 26

The following table provides a reconciliation between the corporate income tax rate in the Netherlands and the effective tax rate.

Reconciliation of effective corporate income tax rate For the year ended 31 December

%

2011 2010

Enacted corporate income tax rate in the Netherlands 25.0 25.5

Impact of:

- Valuation of temporary differences -2.0 –

- Prior-year adjustments 5.0 -0.5

- Non-deductible cost 0.5 1.5

- Tax-exempt income -5.4 -4.2

- Unrecognised tax losses 0.3 0.5

- (Foreign) tax rate difference 0.4 0.3

- Other -0.9 -0.1

Effective corporate income tax rate 22.9 23.0

The statutory tax rate is 25.0% (2010: 25.5%). The difference between the statutory tax rate and other (foreign) tax rates is disclosed in the corresponding line. This includes the difference with respect to the state profit share (which amounts to 50%). Part of the exploration and production results is exempt from state profit share and the effect of this is included in the tax-exempt income line.

Licences

Nuon has a licence for the supply of electricity and gas and holds licenses for constructing its district heating network.

Note 27



Significant subsidiaries, associates and joint ventures As at 31 December 2011

Registered office %

Subsidiaries

N.V. Nuon Energy Sourcing1 Amsterdam 100

Nuon Power Generation B.V.1 Utrecht 100

Nuon Storage B.V. Amsterdam 100

N.V. NUON Duurzame Energie1 Amsterdam 100

Nuon Wind Development B.V.1 Rhenen 100

Nuon UK Ltd. Long Rock, Penzance (United Kingdom) 100

ENW Duurzame Energie B.V.1 Amsterdam 100

Nuon Power Projects I B.V.1 Amsterdam 100

Vattenfall Energy Trading Netherlands N.V.1 Amsterdam 100

N.V. Nuon Warmte1 Arnhem 100

De Kleef B.V.1 Arnhem 100

Emmtec Services B.V.1 Emmen 100

N.V. Nuon Sales Nederland1 Amsterdam 100

Ingenieursbureau Ebatech B.V.1 Amsterdam 100

Yellow & Blue Clean Energy Investments B.V. Amsterdam 82.2

n.v. Nuon Customer Care Center1 Arnhem 100

Nuon Energie und Service GmbH Heinsberg (Germany) 100

Nuon Retail Beveiliging Service B.V.1 Didam 100

Feenstra Verwarming B.V. Lelystad 100

Nuon Isolatie B.V. Veendam 100

Nuon Energie Advies B.V.1 Amsterdam 100

Zuidlob Wind B.V. Ede 100

Associates

B.V. Nederlands Elektriciteit Administratiekantoor Amsterdam 22.5

Joint Ventures

NoordzeeWind C.V. The Hague 50

Westpoort Warmte B.V. Amsterdam 50

1 N.V. Nuon Energy has issued a declaration of liability for these subsidiaries.

A complete list of subsidiaries, other associates and joint ventures, as required by sections 379 and 414 of Book 2 Title 9 of the Netherlands Civil Code, is filed with the Chamber of Commerce in Amsterdam.

Related parties

As of 1 July 2011, 64% of Nuon’s shares are owned by Vattenfall AB (class B shares). Vattenfall AB has a casting vote in the Supervisory Board and qualifies as a related party. The remaining 36% (class A shares) are held by various municipalities and provinces in the Netherlands (a total of 58 shareholders), none of which has significant influence (>20%) and they therefore do not qualify as related parties. Nuon also conducts transactions with subsidiaries within the group and with other entities in the Vattenfall group. Furthermore, the group

Note 28 has interests in various associates and joint ventures over which it exercises significant influence, but no control or joint control of the operations and financial policy. Transactions with the parties classified as related parties, some of which are significant, are conducted at market conditions and prices that are not more favourable than the conditions and prices offered to independent third parties. The following list includes the significant subsidiaries, associates and joint ventures and the share that Nuon holds in these entities.


97


The following transactions have taken place with related parties with regard to sales and purchases of goods and services, including leases.

Related parties transactions For the year ended 31 December

€ million

2011 2010

Sales of goods and services to associates and joint ventures 13 12

Costs charged by Vattenfall and its subsidiaries -23 -15

Various goods and services are bought or provided on normal commercial terms and conditions within Vattenfall. Also a cost-sharing programme is in place following the change from a country-based to a business-division management structure from the start of 2011. This entails that general divisional costs within the group are recharged to all users of that division based on estimated usage.

In the ordinary course of business, Nuon has outstanding payables and receivables with Vattenfall companies (note [8]) as well as with its associated companies and joint ventures (note [3]). Nuon has also granted a limited number of loans to related parties. Where relevant, this has been disclosed in these financial statements. The members of the board of Nuon have been identified as individuals who qualify as related parties. The employee benefits related to these individuals have been disclosed in the Remuneration Report set out on page 30 of the Annual Report.

Market riskNuon is exposed to the following market risks:

■ Electricity and fuel price risk: the risk that the value of a financial instrument will fluctuate due to changes in commodity prices;

■ Currency risk: the risk that the value of a financial instrument will fluctuate due to changes in exchange rates;

■ Interest rate risk: the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

Nuon hedges market risks through the purchase and sale of derivatives. Nuon seeks to reflect this practice as far as possible in its financial statements through the application of hedge accounting. All transactions are carried out within the boundaries and risk limits set.

Electricity and fuel price risk

Nuon is exposed to the impact of market fluctuations in the prices of a range of energy commodities including, but not limited to, electricity, coal, natural gas, oil and emission allowances. These risks are a result of ownership of physical assets (primarily gas- and coal-fired power plants in the Netherlands), sales positions in electricity and gas to both households and business customers in the Netherlands and the proprietary positions taken in the energy commodity markets.

All market risk associated with commodity price risk is measured using the Value at Risk (VaR) method. VaR calculation quantifies potential changes in the value of commodity positions as a result of market price movements. Nuon takes the view that all commodity price risks should be monitored in the same way, irrespective of their origin – whether as a consequence of asset ownership, customer sales, hedging or proprietary trading. The inputs to the VaR calculation are positions (open volumes), current market prices and the variability of prices (volatilities and correlations), all of which are updated daily. A 95% confidence level and a 1-day VaR holding period is used. Thus, the VaR measures the marked-to-market loss arising from a 1-day change in market prices, under normal market conditions, which should only be exceeded 5% of the time (1 day in 20 days).

Information on risks

and financial instrumentsGeneralThe following risks can be identified with respect to financial instruments: market risk, credit risk and liquidity risk. Market risk is defined as the risk of loss due to an adverse change in market prices. Credit risk is the risk resulting from counterparty default, including suppliers, investments and trading counterparties. Liquidity risk is the risk that the company will not be able to meet its obligations associated with financial liabilities.

This note provides information on the above-mentioned financial risks to which Nuon is exposed, the objectives and the policy for the management of risks arising from financial instruments as well as the management of capital.

Note 29



It is Vattenfall’s policy to centralise its exposures on group level and to hedge via different Market Access Points. Vattenfall Energy Trading Netherlands (‘VET NL’), which is legally part of Nuon, is designated as Market Access Point for a number of commodities for Vattenfall and is also active in proprietary trading. Hedge contracts between VET Germany and VET NL as well as hedge contracts between VET NL and the market are treated as derivatives and valued against fair value in the statement of financial position. Since the second quarter of 2011,

the position is closely monitored using a VaR methodology on total Vattenfall level. The VaR for Vattenfall as at 31 December 2011 amounts to 7.8 (10.4 on average), which is based on a 99% confidence level. However, for the best measurement of market risk for Nuon as a whole, see below the VaR levels for VET NL. These VaR levels mainly include oil, gas, and coal positions, and some small power positions.

The VaR on Nuon level for trading is:

Trading VaR levels

€ million

2011 2010

As at 31 December 4.2 6.6

Average for the year 4.3 3.3

As of 1 February 2010, Nuon changed its risk management strategy as a result of the change in the Vattenfall Energy Trading organisation. The changed organisation is managed based on the actual operational structure instead of the legal structure. As of February 2010, all commodity exposures arising from assets and the customer book are fully hedged via Vattenfall Energy Trading Germany (‘VET Germany’) and as such do not result in a direct open position on Nuon level. Nuon treats the aforementioned contracts with VET Germany as derivatives which are valued at fair value on the statement of financial position. If possible, hedge accounting is applied.

Currency risk

General

Nuon is exposed to currency risk on purchases, trading activities, cash and cash equivalents, loans borrowed and other positions denominated in a currency other than the euro. Currency risks mainly arise in respect of positions in USD and, to a more limited extent, in respect of positions in JPY, CHF and GBP.

Nuon has an exposure-based currency policy. Nuon recognises three types of risk in relation to foreign currency:

■ Transaction risk concerns the risk in respect of future cash flows in foreign currency as well as in relation to statement of financial positions in foreign currency. This risk is 100% hedged. Subsidiaries report current positions and risks to the Treasury Department within Nuon. These positions and risks are principally hedged ‘back-to-back’ with external counterparties through average rate options, cross-currency interest rate swaps and spot and forward exchange contracts. The financial settlement of foreign currency purchases of commodities are, as far as committed, hedged by means of forward exchange contracts and average rate options (AROs). Nuon classifies the AROs (forward contracts) to hedge expected transactions as far as possible

as cash flow hedges, measured at fair value, with changes in fair value deferred in equity until the hedged item affects the income statement. Changes in the fair value of these derivatives are recognised in the income statement. Other non-euro-denominated monetary assets and liabilities as well as expected transactions in foreign currency that are almost certain to be affected are generally hedged with forward exchange contracts. The expected transactions in foreign currency include, amongst other things, the purchase of parts of the planned power station and spare parts to an amount of JPY 18 billion (€ 182 million) (2010: JPY 21 billion/€ 173 million).

■ Translation risk concerns the risk in respect of the translation of foreign subsidiaries with a functional currency other than the euro. The risk arising from this is only hedged if Nuon expects to terminate the business activities in question in due course. The net asset value of the subsidiary can be hedged in this case. If no decision has been taken to sell or close the subsidiary, the translation differences are accounted for via Other comprehensive income and included in the currency translation reserve in Shareholders’ equity;

■ Economic risk is related to a possible deterioration of the competitive position as a result of a change in the value of foreign currencies. This risk is generally not hedged but is considered on a case-by-case basis.

Exposure to currency risks and sensitivity analysis

Nuon’s exposure to significant currency risks based on nominal values for these foreign currencies is included in the following table. This table indicates the pre-tax effect that a possible increase or decrease in the value of foreign currencies relative to the euro would have, assuming all other circumstances remain unchanged, on Nuon’s financial income and expenses and shareholders’ equity. In this connection, account was taken of derivatives concluded to hedge the currency risk. The effects on shareholders’ equity and income are calculated using the closing rate at the reporting date.


99


Sensitivity analysis currency risk As at 31 December

€ million

Position Income Equity

Decrease by 10% relative to the euro

Increase by 10% relative to the euro

Decrease by 10% relative to the euro

Increase by 10% relative to the euro

2011

Exposure in USD -141 -5 6 3 -4

Hedged position in USD 141 -11 15 -3 4

Sensitivity cash flow in USD (net) – -16 21 – –

Exposure in JPY -182 – – – –

Hedged position in JPY 180 – – -18 18

Sensitivity cash flow in JPY (net) -2 – – -18 18

Exposure in CHF -40 – – – –

Hedged position in CHF 40 – – -4 4

Sensitivity cash flow in CHF (net) – – – -4 4

Exposure in GBP 57 -5 6 2 -2

Hedged position in GBP -74 7 -8 – –

Sensitivity cash flow in GBP (net) -17 2 -2 2 -2

Total exposure in foreign currencies -306 -10 12 5 -6

Total hedged position in foreign currencies 287 -4 7 -25 26

Sensitivity cash flow in foreign currencies (net) -19 -14 19 -20 20

2010

Exposure in USD -338 – 1 13 -16

Hedged position in USD 337 -14 16 -13 16

Sensitivity cash flow in USD (net) -1 -14 17 – –

Exposure in JPY -193 – – – –

Hedged position in JPY 193 – – -19 19

Sensitivity cash flow in JPY (net) – – – -19 19

Exposure in CHF -44 – – – –

Hedged position in CHF 44 – – -4 4

Sensitivity cash flow in CHF (net) – – – -4 4

Exposure in GBP 23 -5 5 1 -1

Hedged position in GBP -35 3 -3 – –

Sensitivity cash flow in GBP (net) -12 -2 2 1 -1

Total exposure in foreign currencies -554 -5 6 14 -17

Total hedged position in foreign currencies 539 -11 13 -36 39

Sensitivity cash flow in foreign currencies (net) -15 -16 19 -22 22

The table includes risk positions from any exposure in foreign currencies, whether arising from financial instruments or not, while the effects on income and equity have been presented taking into account financial instruments only.

The most important effects in the table in respect of the exposure to currency risks in USD are related to the AROs concluded to hedge the currency risk on purchased commodities. The effects of the sensitivity analysis for AROs that are not designated for cash flow hedging are



recognised in the income statement. Conversely, opposite effects take place at the time of the physical delivery of the commodities. These effects are not presented in the table.

The following exchange rates regarding the significant currency risks exposures were applicable as at the reporting date:

Exchange rates As at 31 December

€ 1

Spot rate

2011 2010

USD 1.29 1.32

GBP 0.84 0.85

CHF 1.22 1.24

JPY 100.22 107.87

Interest rate risk

General

Nuon makes limited use of derivatives such as interest rate swaps to mitigate the interest rate risk. Nuon had interest-rate derivatives outstanding with a notional amount of € 10 million at 31 December 2011 (2010: € 10 million).

The following tables provide insight into the degree to which Nuon is exposed to changes in the interest rates for financial instruments. The tables show the effective interest rate as at the reporting date as well as the maturity date or – if earlier – the contractual interest repricing date. This means that a long-term loan whose interest reprices in the forthcoming year is classified in the category Less than 1 year.

Earliest of maturity or repricing As at 31 December

€ million

Effective interest rate

Variable/Fixed Carrying amounts

Less than 1 year

Between 1 and 5 years

Over 5 years Total

2011


Loans and receivables 2.8% Fixed 6 26 5 37

Trade and other receivables Variable 165 – – 165

Cash and cash equivalents Variable 299 – – 299

Total assets 470 26 5 501


Green loans 3.2% Fixed 23 40 11 74

Green loans Variable 7 – – 7

Debt to class A shareholders 3.4% Fixed 71 173 – 244

Other 8.0% Fixed – 1 25 26

Other Variable 4 – – 4

Finance lease payables 3.1% Fixed 4 5 2 11

Total short-term and long-term financial liabilities 109 219 38 366

Trade and other payables Variable 49 – – 49

Derivatives Variable 10 – – 10

Derivatives Fixed – -10 – -10

Total liabilities 168 209 38 415


10 1


Earliest of maturity or repricing (continued) As at 31 December

€ million

Effective interest rate

Variable/Fixed Carrying amounts

Less than 1 year


Over 5 years Total

2010


Loans and receivables 2.9% Fixed 10 5 22 37

Trade and other receivables Variable 677 – – 677

Cash and cash equivalents Variable 1,204 – – 1,204

Total assets 1,891 5 22 1,918


Green loans 3.5% Fixed 46 85 58 189

Green loans Variable 1 7 – 8

Banks 4.8% Fixed – 3 – 3

Banks Variable 182 – – 182

Debt to class A shareholders 3.3% Fixed 115 234 – 349

Other Variable – 5 – 5

Finance lease payables 3.6% Fixed 8 11 – 19

Total short-term and long-term financial liabilities 352 345 58 755

Trade and other payables Variable 177 – – 177

Derivatives Variable 10 – – 10

Derivatives Fixed – -10 – -10

Total liabilities 539 335 58 932



Sensitivity analysis interest rate risk As at 31 December

€ million

Position Income Equity

Decrease by 100 basis points

Increase by 100 basis points

Decrease by 100 basis points

Increase by 100 basis points

2011

Variable rated instruments 404 -4 4 – –

Interest rate swaps -10 – – n/a n/a

Sensitivity cash flow (net) 394 -4 4 – –

2010

Variable rated instruments 1,509 -15 15 – –

Interest rate swaps -10 – – n/a n/a

Sensitivity cash flow (net) 1,499 -15 15 – –

Hedging transactionsCash flow hedging

Future cash flows where price risks are hedged relate to the purchase of gas and coal for the company’s own use as well as the purchase of gas for direct supply to our customers. In this connection, use is made of variable price contracts where the gas price is indexed to the average price of coal or oil over a preceding period. The price risks arising from these purchases are hedged by means of coal swaps and oil swaps. These swaps are usually expressed in USD. The additional currency risk is hedged by means of AROs. The fair value changes of these swaps and AROs that are recognised in the hedge reserve in equity will be released from the hedge reserve when the cash flows of the underlying item (the

Sensitivity analysis in relation to fair value for fixed-interest assets

and liabilities

Nuon has one fixed-interest financial asset that is recognised through profit or loss at fair value. This represents an interest derivative whose fair value is not significant. As such no sensitivity analysis has been added for this derivative.

Sensitivity analysis in relation to cash flows for variable interest

assets and liabilities

A change of 100 basis points in the interest rates as at 31 December 2011 would, assuming all other circumstances remain unchanged, have a pre-tax effect on Nuon’s shareholders’ equity and income on an annual basis (financial income and expenses) as indicated in the following table.

gas contract) take place. For instance, if the above-mentioned example is followed, the hedge reserve will be released gradually over the first quarter period when the gas under contract is delivered and both will be taken to the income statement. For the contracts that were hedged as at 31 December 2011, all cash flows will take place and have an effect on income within the subsequent five years.

In addition to the above cash flow hedges, Nuon has used currency forward contracts to hedge, amongst other things, the capital expenditure on the new Nuon Magnum power station, which will be settled in Japanese yen.


103


The following table presents the movement of the cash flow hedge reserve in the financial year before tax. As at 31 December 2011,

the hedge reserve after tax amounted to € 67 million negative (2010: € 233 million positive).

Movement schedule cash flow hedge reserve

€ million

Hedge ineffectiveness

Hedge reserve as at 1 January

Changes in fair value

Release to income

Hedge reserve as at 31 December

2011

Fuels

Coal swaps – 52 13 -59 6

Gas swaps – 362 -274 -146 -58

Oil swaps 1 -103 106 -3 –

CO2 contracts – -4 -34 2 -36

Power contracts – -36 -55 48 -43

Currency contracts -1 -4 1 6 3

Total hedges on fuels purchased – 267 -243 -152 -128

Currency

Forward contracts – 43 -7 1 37

Total – 310 -250 -151 -91

2010

Fuels

Coal swaps – -32 56 28 52

Gas swaps 1 186 291 -115 362

Oil swaps 1 -69 -14 -20 -103

CO2 contracts – -3 -2 1 -4

Power contracts – -126 29 61 -36

Currency contracts -1 -21 27 -10 -4

Total hedges on fuels purchased 1 -65 387 -55 267

Currency

Forward contracts – 13 27 3 43

Total 1 -52 414 -52 310



Credit riskGeneral

Credit risk arises as a result of the activities of Nuon’s sales divisions, development projects, trading and other activities. Credit risk is the risk of a loss incurred through a counterpart’s lack of willingness or ability to perform. A consistent approach to credit analysis and management is applied throughout the organisation, with the degree of review undertaken varying depending on the magnitude of credit risk in a transaction.

In the trading segment, credit risk is calculated as a settlement plus replacement cost. The credit risk calculations are based on the marked-to-market value calculated by the Risk Analysis & Reporting Group within Risk Management and aggregated on a counterparty level. In cases where legally enforceable netting agreements have been reached, the exposure is monitored on a net basis. In some cases, credit protection has been purchased in the credit default swap market. These instruments are measured on a monthly basis, but are not actively traded.

Credit risk is managed through established credit policies, regular monitoring of credit exposures and application of appropriate mitigation tools. While credit exposure is also managed at portfolio level, there are limitations to the extent to which diversification is possible as Nuon is exposed to concentration risk in the energy markets as well as to energy-intensive industries.

Credit quality

Treasury

Cash and cash equivalent surpluses are to a large extent held within Vattenfall, by using both a cash pool and deposits.

Trading

As a result of the application of high credit risk standards, the trading portfolio has remained at a stable investment grade throughout the last years. No write-offs linked to credit risk were made for the trading portfolio in 2011 or 2010.

Sales

The sales segment is exposed to credit risk in the case of non-payment by customers for energy delivered as well as the loss from the resale of energy previously committed to a customer at a fixed price. In the business segment, most of the small and medium-sized trade debtors are rated by Dun & Bradstreet and Moody’s KMV Riskcalc®. Due to a strong focus on credit control, the composition of the debtors aging relatively improved slightly during 2011 compared to 2010 despite the continued economic stress. Nuon considers the credit quality of this portfolio as satisfactory. Credit risk mitigation tools in this segment include parent company guarantees, bank guarantees, letters of credit and prepayments. Our debtors in the retail market are not rated. Nuon considers this

portfolio to be comparable to the average credit quality of this segment for the Netherlands as a whole. Following the economic downturn, the average credit losses in 2011 slightly increased compared to 2010, which is reflected in the level of our provisions (excluding the effect of the divestment of Nuon Belgium).

Maximum credit risk

The maximum credit risk is the value in the statement of financial position of each financial asset, with the exception of the following instruments: trade receivables – trade activities, commodity derivatives, interest rate derivatives and currency derivatives.

The credit risk for these trade debtors and derivatives are lower than their carrying amounts for several reasons. Firstly, there is a difference between the use of netting agreements by Nuon and the netting rules in accordance with IFRS. For example, Nuon uses Master Netting Agreements (MNAs) where legally enforceable. These MNAs allow netting over multiple classes and categories of financial assets and liabilities as well as non-financial assets and liabilities that are excluded under IFRS. Also, Nuon nets positions when calculating credit risk (close-out nettings) even though in its daily operations Nuon does not intend to settle on a net basis or if it is practically not possible to settle on a net basis, for example due to timing differences. Secondly, there is a difference between the way Nuon calculates credit risk (the net settlement per counterpart plus replacement value) and the carrying amount of the derivatives in the statement of financial position (fair value).

Furthermore, the credit risk is mitigated through the use of collateral such as bank guarantees, letters of credit and cash. Nuon also uses bilateral margining agreements with many of the major trading counterparties. As a result of these agreements, but also due to other credit support received, as at 31 December 2011 Nuon held € 49 million in cash and € 1,447 million as collaterals (including parent company guarantees) (2010: € 176 million and € 1,405 million respectively). Included in collaterals are credit default swaps purchased for a nominal amount of € 80 million (2010: € 80 million).

Overall the group evaluates the concentration of credit risk with respect to trade receivables as low, due to the use of bank guarantees and letters of credit and also as its customers are located in several jurisdictions and industries and operate in largely independent markets.

Past due instalments

The provision for bad debts and uncollectible receivables exclusively concerns trade receivables from regular sales. The ageing of trade receivables, concerning trade receivables from regular sales and trade receivables from trade activities, was as follows on the reporting date (gross amounts).


105


Age analysis trade debtorsAs at 31 December

€ million

2011 2010

Not past due 725 600

0 to 30 days 53 62

30 to 90 days 28 34

90 to 360 days 42 49

>360 days 51 59

Total 899 804

The movement of the provision for bad debt in relation to the trade debtors can be presented as follows.

Movement schedule provision for bad debt

€ million

2011 2010

Balance as per 1 January 68 64

Use of allowance account (impairment trade receivables) -19 -17

Addition to allowance account charged to income 25 21

Disposals -23 –

Balance as per 31 December 51 68

The major part of the provision for bad debt is formed based on graduated calculations (€ 23 million; 2010: € 42 million). The remainder is formed based on an individual assessment of debtors (€ 28 million; 2010: € 26 million).

No collateral relating to past due and impaired debtors has been obtained.

Liquidity riskLiquidity risk comprises the risk that Nuon is not able to obtain the required financial resources for the timely fulfilment of its financial commitments. In this connection, Nuon regularly assesses the expected cash flows over a period of one year. These cash flows include operational cash flows, dividends, payments of interest and repayments of debts, (replacement) investments, the consequences of changes in the creditworthiness of Nuon and ‘margin calls’ for trading activities.

For the latter, Nuon makes use of a Margin-VaR as well as a Margin Stress Test tool. These tools allow Nuon to assess future margin calls based upon historic market price developments, stress tests and contractual agreements including rating thresholds on Nuon and its counterparties. The overall aim is to have sufficient committed credit facilities at all times in order to secure the required liquidity in the coming year. Capital requirement planning is performed by Vattenfall for the Vattenfall group over a horizon of five years.

To provide insight into the liquidity risk, the following table shows the contractual terms of the financial obligations (translated at reporting date rate), including interest payments. The contractual cash flows of non-current assets as well as current assets combined with the credit facility available cover the current need for liquidity as included in the following table.



Liquidity riskAs at 31 December

€ million

Carrying amount Contractual cash flows

Less than 1 year

Between 1 and 5 years Over 5 years Total

2011


Green loans - notional amounts -81 -30 -40 -11 -81

Green loans - interest – -4 -5 -1 -10

Other interest-bearing debt - notional amounts -252 -68 -158 -26 -252

Other interest-bearing debt - interest -22 -8 -40 -13 -61

Finance lease payables -11 -4 -8 – -12

Trade payables -198 -198 – – -198

Other payables -1,069 -1,069 – – -1,069

Off-balance sheet commitments

Operating lease payables -81 -227 -39 -347

Interest rate swaps – 1 – 1

Forex instruments

AROs -67 -53 -11 – -64

Forward contracts1

Forward receivables 69

Buy -738 -161 -7 -906

Sell 785 178 9 972

Forward obligations -37

Buy -618 -92 – -710

Sell 588 86 – 674

Total forward contracts 17 11 2 30

Commodity derivatives1

Swap receivables 450 788 614 – 1,402

Swap obligations -504 -769 -686 – -1,455

Total swaps 19 -72 – -53

Forward receivables 1,962

Buy -2,322 -1,529 -3 -3,854

Sell 11,332 3,522 – 14,854

Forward obligations -1,860

Buy -11,795 -3,213 -10 -15,018

Sell 1,887 972 – 2,859

Total forwards -898 -248 -13 -1,159

Total -1,620 -2,377 -797 -101 -3,275

1 Forward contracts are settled on a gross basis with our counterparties. Payments and receipts coincide. To best present the actual liquidity risk, both outgoing and incoming cash flows are presented for each contract. Also for commodity derivatives, both outgoing and incoming cash flows are presented.


107


Liquidity risk (continued) As at 31 December

€ million

Carrying amount Contractual cash flows

Less than 1 year


Over 5 years Total

2010


Green loans - notional amounts -197 -45 -91 -58 -194

Green loans - interest – -5 -18 -4 -27

Other interest-bearing debt - notional amounts -336 -109 -222 – -331

Other interest-bearing debt - interest -18 -6 -38 – -44

Finance lease payables -19 -8 -11 – -19

Trade payables -145 -145 – – -145

Other payables -1,888 -1,814 – – -1,814

Off-balance sheet commitments

Operating lease payables -64 -218 -60 -342

Interest rate swaps – 1 – 1

Forex instruments

AROs -63 -35 -24 – -59

Forward contracts1

Forward receivables 62

Buy -500 -324 -13 -837

Sell 531 349 15 895

Forward obligations -31

Buy -482 -235 – -717

Sell 462 225 – 687

Total forward contracts 11 15 2 28

Commodity derivatives1

Swap receivables 1,192 3,013 1,505 – 4,518

Swap obligations -1,149 -2,989 -1,488 – -4,477

Total swaps 24 17 – 41

Forward receivables 2,401

Buy -8,564 -3,420 – -11,984

Sell 3,222 1,816 – 5,038

Forward obligations -2,074

Buy -3,335 -1,982 – -5,317

Sell 7,539 2,623 – 10,162

Total forwards -1,138 -963 – -2,101

Total -2,265 -3,334 -1,552 -120 -5,006

1 Forward contracts are settled on a gross basis with our counterparties. Payments and receipts coincide. To best present the actual liquidity risk, both outgoing and incoming cash flows are presented for each contract. Also for commodity derivatives, both outgoing and incoming cash flows are presented.



Fair valuesGeneral

Nuon’s financial assets and liabilities are valued at either amortised cost or fair value. The following table provides insight into the different

IAS 39 categories Nuon presents its financial assets and liabilities in, the measurement principle used and the fair value of the financial assets and liabilities.

Fair value of financial assets and liabilities As at 31 December

€ million

Carrying amount IAS 39 categories Level Note

Fair value through profit or loss/hedge accounting

Loans and receivables

Other financial liabilities Total Fair value I II III

2011

Other financial assets 37 37 39 4

Derivative assets 845 845 845 616 229 5

Trade and other receivables 1,350 1,350 1,350 7

Cash and cash equivalents 299 299 299 8

Interest-bearing debt -355 -355 -365 10

Derivative liabilities -761 -761 -761 -434 -327 5

Finance lease payables -11 -11 -11 16

Trade and other payables -1,267 -1,267 -1,267 15

2010

Other financial assets 37 37 35 4

Derivative assets 1,550 1,550 1,550 1,270 280 5

Trade and other receivables 1,837 1,837 1,837 7

Cash and cash equivalents 1,204 1,204 1,204 8

Interest-bearing debt -736 -736 -759 10

Derivative liabilities -1,136 -1,136 -1,136 -875 -261 5

Finance lease payables -19 -19 -19 16

Trade and other payables -2,033 -2,033 -2,033 15


109


Financial instruments valued at fair value through profit

or loss/hedge accounting

IFRS 7 requires disclosure of fair value measurements of financial instruments that are valued in the statement of financial position at fair value, per level of the following fair value measurement hierarchy:

■ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level I);

■ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level II);

■ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level III).

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level I.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level II. If one or more of the significant inputs is not based on observable market data, the instrument is included in level III. The fair value of financial instruments is determined as follows:

■ Derivatives. Reference is made to the summary of significant accounting policies and note [5] Derivatives;

■ The measurement of certain purchased and sold commodity derivatives were perceived to take place on the basis of market prices obtained from third parties (Level I). Compared to the previous year Nuon reclassified these commodity derivatives to level II due to an improved understanding that their measurement is derived from market prices. As such Nuon held no Level I fair value measurements of financial instruments in the years 2011 and 2010;

■ Currency derivatives and interest rate derivatives are recognised on the basis of the present value of the future cash flows, making use of the interbank rate (such as Euribor, or Euroswap for cash flows longer

than one year) applicable on the reporting date for the remaining term of the contracts. The present value in foreign currency is translated at the spot rate applicable on the reporting date. These financial instruments are included in level II;

■ Futures, for which quoted prices can be obtained: the marked-to-market valuation is applied (Level II);

■ For certain commodities, delivery tenors and market instruments: no reliable market quotes are available for fair value calculation. In these cases, positions are marked-to-model. For some positions (e.g. illiquid commodities, long-dated tenors) the price of the commodity is modelled and positions marked against this price. For certain structured derivatives where a similar instrument is not regularly traded in the market, the value of the derivative is modelled based on market prices together with the specific terms of the agreement. This also relates to the valuation of CERs from CDM projects, which is derived from so-called risk adjustment factors. These factors are calculated using the carbon valuation tool developed by Point Carbon to quantify the risk and calculate the fair value of CER projects or contracts. The tool is based on Point Carbon’s valuation methodology, which was developed by several experienced market players. The valuation methodology is strictly empirical, and all risk parameters are extracted from Point Carbon’s proprietary databases of CER project data, which entails a correct valuation of the contracts even where market prices are not listed (Level III). As at 31 December 2011 the total risk adjusted volume of CERs amounting to 1.0 million is valued at a market price of 4.19 per CER;

■ The most significant exposure that is marked against modelled prices is the long-term portion of a large gas supply contract. This contract extends further ahead in time than liquid trading in the gas market. The agreement is valued at the market price, as long as a market price can be observed. For commodity deliveries beyond the market horizon, long-term price forecasts (modelled prices) are used for the relevant commodities. The large gas supply contract is hedged with OTC forward trades of underlying products. These trades are also marked against the same market and modelled prices. The long-term price forecasts are benchmarked against reliable financial information obtained from the company Markit; this information is well-known and is used by many energy companies, offering a fair valuation of the portion of the large gas supply contract that cannot be valued against market prices (Level III). The fair value movements of the large gas contact and the hedged position together are limited with respect to market price movements.


1 10 N.V. Nuon Energy Annual Report 20 1 1

The movement of the financial instruments categorised in Level III is as follows:

Level III Fair value of financial assets and liabilities

€ million

2011 2010

Balance as at 1 January 19 -13

Movements

Included in income statement -117 32

Total -117 32

Balance as at 31 December -98 19

Nuon’s financial policy, which is part of its general policy and strategy, is to obtain an adequate return for shareholders and lenders, while maintaining the flexibility to grow and invest in the business.

According to the articles of association: ■ The company will distribute an annual 2% dividend yield on the

average outstanding number of class A shares valued at € 72.10 per share to the holders of class A shares around 30 June of each year until the class A shares are sold to Vattenfall AB or revoked by Nuon. This dividend shall be distributed from profits available. Should no profit be available in any year, the amount shall be distributed from freely distributable reserves. In this case, part of the future profits equalling the preferred dividend distributions from freely distributable reserves shall be added to these freely distributable reserves;

■ The remaining profit shall be put at the disposal of the General Meeting provided that no further dividend shall be distributed on the class A shares;

■ Distributions of profit shall be made after the adoption of the annual accounts if permissible under the law, given the contents of the annual accounts.

Nuon’s major shareholder is Vattenfall AB, holding the B shares representing 64% of the paid-up share capital of Nuon as at 31 December 2011. The largest other shareholders in Nuon per year end are the provinces of Gelderland and Noord-Holland, B.V. Houdstermaatschappij Falcon and the Municipality of Amsterdam. These parties jointly hold approximately 76% of Nuon’s class A shares. The remainder is in the hands of 54 other shareholders.

Fair value of other financial instruments valued at amortised cost

The fair value of all short-term financial instruments equals the carrying amount. The fair value of financial instruments valued at amortised cost is determined as follows:

■ Other financial assets are discounted at the appropriate market rate; ■ The fair value of financial obligations is determined by making use

of market quotes. As no market quotes are available for the majority of the loans, the fair value of the short-term and long-term loans is determined by calculating their present value at the yield curve applicable to Nuon as at 31 December. This yield curve is derived from the zero coupon rate plus the credit spread applicable to Nuon;

■ At year-end 2011 the following yield curve was applied:1-year 1.86% (2010: 1.56%)5-year 2.49% (2010: 3.10%)10-year 3.53% (2010: 4.23%)20-year 4.32% (2010: 5.00%);

■ Finance lease payables: the fair value is estimated at the present value of the future cash flows, discounted at the interest rate applicable to comparable contracts on reporting date;

■ The fair value of the trade and other receivables and short-term payable tax liabilities is, in view of their short-term nature, identical to the carrying amount;

■ Cash and cash equivalents are recognised at nominal value which, in view of their short-term and risk-free nature, corresponds with the fair value.

Capital managementThe group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, which is based on Vattenfall group policies, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders or sell assets to reduce debt.


1 1 1


Financial income and expensesThe table below indicates which income and expenses are recognised in respect of financial instruments in the income statement, excluding tax impact.

Effect on income statement from financial instruments For the year ended 31 December

€ million

2011 2010

Net result on financial assets and liabilities at fair value through profit or loss

- Fair value changes and settlements of commodity derivatives -241 279

- Fair value changes and settlements of other derivatives – –

Net turnover from sale of goods and supply of services -241 279

Net changes in fair value of cash flow hedges transferred from equity -151 -52

Cost of energy, raw materials and supplies -151 -52

Impairment charges loans and receivables -25 -21

Other operating expenses -25 -21

Net result on financial assets and liabilities at fair value through profit or loss

- Fair value changes and settlements of derivatives held for trading: forex instruments – -2

Net result on financial assets and liabilities at amortised cost

- Interest income on financial assets 10 11

- Interest expense on financial liabilities -7 -12

Ineffective part of changes in fair value of cash flow hedges – 1

Net financial income and expenses 3 -2

The table below indicates which income and expenses are recognised directly in shareholders’ equity in respect of financial instruments, excluding tax impact.

Effect on shareholders’ equity from financial instruments For the year ended 31 December

€ million

2011 2010

Effective part of changes in fair value of cash flow hedges -250 414

Net change in fair value of cash flow hedges transferred to the income statement -151 -52

Total recorded in cash flow hedge reserve -401 362



Company balance sheetAs at 31 December, before appropriation of result

€ million

Assets2011 2010 Note

Non-current assets

Property, plant and equipment 48 56 30

Investments in subsidiaries and associates 2,994 3,246 31


Deferred tax assets 7 4 32

Receivables from group companies 1,247 288

Other financial assets 32 32 32

Total non-current assets 4,347 3,645

Current assets

Trade and other receivables 34 55


Current receivables from group companies 2,010 440

Cash and cash equivalents 24 917 34

Total current assets 2,293 1,547


Company financial statements


1 13


Company balance sheet As at 31 December, before appropriation of result

€ million

Shareholders’ equity and liabilities2011 2010 Note


Share capital 684 684

Share premium 2,797 2,797

Hedge reserve -67 233

Currency translation reserve 1 1

Legal reserves 177 129

Other reserves 69 -275

Unappropriated profit for the year 438 563

Total shareholders’ equity attributable to Nuon shareholders 4,099 4,132 35

Provisions 40 26 36



Derivatives 42 – 33

Total long-term liabilities 273 384


Trade and other payables 121 153


Current payables to group companies 1,810 –


Total short-term liabilities 2,228 650

Total shareholders’ equity and liabilities 6,640 5,192

Company income statementFor the year ended 31 December

€ million

2011 2010 Note

Result after taxation from subsidiaries 457 617

Other income less expenses after taxation -19 -54 39




Notes to the company financial statements

Summary of significant accounting policies The company financial statements have been prepared in accordance with the provisions of Part 9, Book 2 of the Netherlands Civil Code. In the company financial statements, Nuon uses the option provided for in Part 9, Book 2 of the Netherlands Civil Code to prepare the company financial statements in accordance with the IFRS accounting policies that are used in the preparation of the consolidated financial statements. The company income statement is presented in abridged form, as allowed by section 402, Part 9, Book 2 of the Netherlands Civil Code. In addition to the accounting policies for the consolidated financial statements, specific accounting policies for the company financial statements are included below.

Investments in subsidiariesInvestments in subsidiaries are valued at net asset value, which is determined on the basis of IFRS accounting policies as used in the consolidated financial statements.

Legal reserve for unrealised fair value gains of financial instrumentsA legal reserve, in the form of a revaluation reserve, is recognised for unrealised fair value gains of financial instruments of Nuon’s subsidiary VET NL that are recognised in income, and for which no frequent market quotations are available (Level II and Level III financial instruments). With regard to Nuon, this issue relates to energy commodity contracts for oil, gas, coal, electricity and emission allowances that are not traded through recognised exchanges (e.g. Amsterdam Power Exchange, Endex), known as over-the-counter or OTC contracts. A legal reserve of € 177 million in total is held for the unrealised fair value movements of these contracts (2010: € 129 million), which is calculated on a collective basis.


1 15




€ million

Land and buildings

Other plant and equipment

Assets under construction Total



Accumulated depreciation and impairments – -87 – -87

Carrying amount as at 1 January 2010 1 46 39 86

Movements 2010

Capital expenditure – 2 10 12

Disposals – -2 – -2

Depreciation – -24 – -24

Internal transfer – -8 -8 -16

Transfers and other movements – 34 -34 –

Total – 2 -32 -30





Movements 2011

Capital expenditure – 8 8 16

Disposals – – – –

Depreciation – -24 – -24

Transfers and other movements – 4 -4 –

Total – -12 4 -8





For further disclosure, reference is made to note [1] Property, plant

and equipment in the consolidated financial statements.

Note 30



Investments in subsidiaries


€ million


Carrying amount as at 1 January 2010 3,389

Movements 2010

Capital contributions 6

Acquisitions 3

Disposals -39

Share premium repaid -1,000

Result of the year 617

Movement hedge reserve 271

Currency translation adjustments and other movements -1

Total -143

Carrying amount as at 31 December 2010 3,246

Movements 2011

Capital contributions 73

Disposals -36

Share premium repaid -374

Dividends received -71

Result of the year 457

Movement hedge reserve -301

Currency translation adjustments and other movements –

Total -252

Carrying amount as at 31 December 2011 2,994

A list of directly and indirectly held participations in subsidiaries is included in note [28] Related parties in the consolidated financial statements. The disposals in 2011 relate to the sale of Nuon E&P.

Note 31


1 1 7


Deferred tax assets and other financial assets

Deferred tax assets and other financial assets

€ million

Deferred tax assets Other financial assets Total

Carrying amount as at 1 January 2010 6 18 24

Movements 2010

Internal transfers -1 – -1

Loans granted – 16 16

Loans and interest repaid – -2 -2

Temporary differences charged to profit or loss -1 – -1

Total -2 14 12


Movements 2011

Loans granted – 22 22

Loans and interest repaid – -22 -22

Temporary differences charged to profit or loss 3 – 3

Total 3 – 3


Note 32

Other financial assets consist of loans and receivables (including incremental costs) with related parties of which € 5 million is short-term.

Derivatives

DerivativesAs at 31 December

€ million

Current assets

Non-current assets



2011 2010 2011 2010 2011 2010 2011 2010

Trading derivatives

Foreign exchange contracts 225 134 19 19 200 153 42 –

Interest instruments – 1 – – – – – –

Total 225 135 19 19 200 153 42 –

Note 33


The cash and cash equivalents at the end of 2011 included € 5 million restricted cash (2010: € 13 million).

Note 34

Shareholders’ equity The Consolidated statement of changes in shareholders’ equity and disclosure to that statement are included in the Consolidated financial statements. In addition to the Consolidated statement of changes in shareholders’ equity, a legal reserve was formed within shareholders’ equity for the unrealised gains on OTC contracts for an amount of € 177 million (2010: € 129 million). This reserve was charged against the Other reserves. The hedge reserve, legal reserve and the currency translation reserve are not freely distributable.

Note 35



Provisions

Movements in provisions for employee benefits

€ million

Termination benefits

Other employee benefits Other Total

As at 1 January 2010 2 26 2 30

Movements 2010

Releases to income -8 -9 -1 -18

Additions 8 7 – 15

Interest accretion – 1 – 1

Reclassifications and other movements -1 -1 – -2

Total -1 -2 -1 -4

As at 31 December 2010 1 24 1 26

Movements 2011

Releases to income -1 -1 – -2

Additions 11 4 – 15

Interest accretion – 1 – 1

Benefits paid -7 -8 -1 -16

Reclassifications and other movements 6 10 – 16

Total 9 6 -1 14

As at 31 December 2011 10 30 – 40

Note 36



€ million

2011 2010


Movements

New loans 25 235

Dividend liability class A shareholders -115 -101

Loans repaid -324 -59

Currency translation adjustments and other movements 14 12

Total -400 87


Note 37


1 19


Both the interest rates and carrying amounts of interest-bearing debt can be analysed as follows.

Short-term and long-term interest-bearing debt As at 31 December

€ million

Effective interest rate Short-term part Long-term part

2011 2010 2011 2010 2011 2010

Green loans 3.2% 3.6% 23 47 58 150

Banks – 4.8% – 182 – –

Dividend liability class A shareholders 3.4% 3.3% 71 115 173 234

Other 2.5% – 3 – – –

Total 97 344 231 384

The employee benefits related to the members of the Management Board have been disclosed in the Remuneration Report as included on page 30 of the Annual Report.


Supervisory Board

Øystein Løseth, Chairman

Torbjörn Wahlborg

Tuomo Hatakka

Tom de Waard

Leni Boeren

Pieter Bouw

Derk Haank

Jacques Schraven

Management Board

Huib Morelisse

Peter Smink

Contingent assets and liabilities

Reference is made to note [17] Contingent assets and liabilities.

Other income less expenses

after taxation Other income less expenses after taxation was € 19 million negative (2010: € 54 million negative) and consists mainly of expenses of company-wide activities at holding company level.

Note 38

Note 39



Independent auditor’s reportTo: the General Meeting of Shareholders of N.V. Nuon Energy.

Report on the financial statementsWe have audited the accompanying financial statements 2011 of N.V. Nuon Energy, Amsterdam as set out on pages 61 to 119. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated statement of financial position as at 31 December 2011, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended and the notes, comprising a summary of significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at 31 December 2011, the company income statement for the year then ended and the notes, comprising a summary of accounting policies and other explanatory information.

Management Board’s responsibility

The Management Board is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Management Board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Management Board is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and

fair presentation of the financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion with respect to the consolidated financial statements

In our opinion, the consolidated financial statements give a true and fair view of the financial position of N.V. Nuon Energy as at 31 December 2011, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.

Opinion with respect to the company financial statements

In our opinion, the company financial statements give a true and fair view of the financial position of N.V. Nuon Energy as at 31 December 2011, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirementsPursuant to the legal requirement under Section 2: 393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Management Board report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2: 392 sub 1 at b-h has been annexed. Further we report that the Management Board report, to the extent we can assess, is consistent with the financial statements as required by Section 2: 391 sub 4 of the Dutch Civil Code.


PricewaterhouseCoopers Accountants N.V.

Original has been signed by

Drs. R. Dekkers RA

Other

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121

Other

■ The basis for dividend distribution is the net profit, adjusted for significant non-cash fair value movements on financial instruments other than fair value movements on trade positions;

■ In accordance with the ‘Shareholders Agreement’ class A shareholders – the provinces and municipalities that will sell their respective interests to Vattenfall in tranches until 2015 – will receive a predetermined annual dividend yield, irrespective of the net profit achieved in a financial year. A separate liability for the dividend payments to class A shareholders had been recognised in Nuon’s balance sheet on 30th June 2009, which is reduced every year by the dividend payments;

■ The remaining profit after taking into account the adjustments/payout in points 1 and 2 above is available for distribution to class B shareholders (Vattenfall AB), subject to:

■ A gearing ratio (Interest-Bearing Debt/(Interest-Bearing Debt + Total Equity) of no more than 50%. This ratio is based on the guidance of S&P and Moody’s as the maximum for investment grade companies;

■ Fulfilment of financial restrictions in Nuon’s financial documentation (i.e. covenants);

■ Sufficient sustainable cash position over the next 12 months as proven by the long-term cash forecast of Nuon;

■ Adequate liquidity lines available to Nuon.

Proposed profit appropriationIn accordance with the Articles of Association and the ‘Shareholders Agreement’, the Management Board, after consulting the Supervisory Board, proposes to distribute the preferred dividend payable amounting to € 71.0 million to class A shareholders (€ 1.44 per class A share) as per 1 July 2012. As this amount is already included as a liability in the statement of financial position, this part of the net profit after taxation will not deduct the profit appropriation to the other reserves. Furthermore, the Management Board proposes to distribute a dividend of € 75.0 million to class B shareholders (€ 0.86 per class B share) and add the remaining profit of € 363.4 million to other reserves.

Profit appropriationProfit appropriation is governed by Article 34 of the Articles of Association of N.V. Nuon Energy, which reads as follows.

Article 34: Profits and distributions ■ Subject to the approval of the Supervisory Board, the Management

Board shall decide annually what portion of the distributable profit – the positive balance of the profit and loss account – shall be retained with due observation of a dividend policy, to be discussed with the General Meeting;

■ Any unretained profit shall be available to the General Meeting. In the case that the General Meeting decides for distribution of profits, a dividend shall be distributed as far as possible on the class A shares, the percentage of which, to be computed on the computation basis set out below, shall be two percent (2%). The basis for the computation of the dividend on the class A shares amounts to € 72.1042626 per class A share;

■ If, for any financial year, the distribution on the class A shares cannot be effected or cannot be fully effected because the profit after reservation does not suffice, the deficit shall be distributed to the debit of the following financial years, without prejudice to the provisions of Article 34.6. In that case, each time as much as possible, the overdue dividend, augmented by the dividend for the last expired financial year, shall be distributed on the class A shares according to Article 34.2;

■ The remaining profit shall be put at the disposal of the General Meeting provided that no further dividend shall be distributed on the class A shares;

■ Distributions of profit shall be made after the adoption of the annual accounts if permissible under the law, given the contents of the annual accounts.

Dividend policyIn Nuon’s General Meeting of Shareholders held on 13 May 2011, the following dividend policy was discussed:

Dividend proposal€ million

2011

Dividend

Preferred dividend shareholders 71.0

Dividend class B shareholders 75.0

Total dividend to be distributed 146.0

Profit after taxation 438.4

Dividend proposal: Dividend to be distributed -146.0

Dividend paid from dividend liability 71.0

Profit to be added to other reserves 363.4

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RatiosOperating margin The 12-months profit before taxation and interest divided by net turnover.

Return on Invested Capital (ROIC)Net operating profit as a percentage of invested capital.

DefinitionsAHP Auxiliary Heat Plant.

ARO Average rate option are option contracts used to hedge against fluctuations

in exchange rates by averaging the spot rates over the life of the option and

comparing that to the strike price of the option.

Bar Unit of gas pressure.

Carbon footprint The total CO2 emissions.

CCS Carbon Capture and Storage; capture, transport and storage of CO2 released

during, for example, industrial activities or the production of electricity.

CDM Clean Development Mechanism, projects aimed at reducing greenhouse gases

registered by the CDM Executive Board in countries that are not signatories of

the Kyoto Protocol.

CERs Certified Emissions Reductions, certificates originated from CDM projects.

CHP Combined Heat and Power plant/installation.

CO2 Carbon dioxide; mainly released during the burning of fossil fuels such as natural

gas and coal.

CO2-equivalent The effect of greenhouse gases other than CO2 converted into CO2 values.

Coal gasification A process for converting coal into synthesis gas (a mixture of mainly carbon

monoxide and hydrogen).

Co-combustionCo-combustion or co-firing is the combustion of two types of materials

at the same time.

Ratios and definitions

Combined Heat and Power (CHP)An alternative to the classical supply of electricity and heating is the local

co-generation of heating and electricity: an engine powers a generator for the

production of electricity; the released heat is used for heating purposes. This is

referred to as combined heat and power generation (CHP). If properly implemented,

CHP can lead to energy savings.

Credit spreadCredit spread is the difference between the rate of return on a bond and that

on a benchmark (mid swap) used by the market. This difference can be attributed

to the risk profile of the company issuing the bond.

Cross-border leaseA cross-border lease is a structured financial transaction by virtue of which a

business sells the user rights of certain non-current assets to a foreign company,

only to lease these user rights back.

Dark spreadThe difference between the market price of raw materials for the production

of energy in our coal-fired power stations and the market price of electricity.

See also spark spread.

Degree daysThe unit of measurement that indicates the number of fictitious days that the

average 24-hour temperature (T) lies below the reference temperature of 18 °C.

T is derived from 24-hour observations (UT) of the Netherlands Meteorological

Office (KNMI). Each degree of average 24-hour temperature below the reference

temperature is counted as one degree day. If T is higher than 18 °C, then no degree

day has occurred.

District heatingAn environmentally friendly supply of energy that makes use of residual heat.

The generation of electricity or the burning of waste or biomass releases heat.

Nuon utilises this heat for the district heating network. The central generation of

heat means that the emission of harmful gases, such as CO2, is significantly reduced.

Emission allowancesA right to emit a predetermined quantity of carbon dioxide (CO2) during a

certain period. Any organisation operating one or more installations that emit

CO2 is required to apply for an emission permit. This permit is granted by the

Dutch Emission Authority (Nederlandse Emissieautoriteit or NEa).

Energy Tax This is a tax on the use of energy. The energy tax (or ecotax) is levied on

environmentally-unfriendly sources of energy: nuclear energy and energy

generated by means of fossil fuels. Green energy does not pollute and is

therefore exempt from ecotax.

Energy and Water Disputes Committee The Energy and Water Disputes Committee is an independent body to

which customers can submit disputes with energy companies.

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123

Other

ERUs Emissions reduction units, certificates for Greenhouse Gas reduction originating

from JI projects.

Fair value Fair value is the amount for which an asset could be exchanged, or a liability

settled between knowledgeable willing parties in an arm’s length transaction.

Footprint See Carbon Footprint.

Fossil-based powerFossil-based power is understood as energy generated from coal, natural gas

and other non-renewable resources.

FTE (full time equivalent)Equivalent of the number of employees working a full week of 38 hours.

Gasification See coal gasification.

GJ Gigajoule, 1,000,000,000 joules. One GJ is equal to about 32 m3 gas or 278 kWh.

GRI Global Reporting Initiative, global organisation that issues guidelines for

CSR reporting.

Guarantees of origin Guarantees of origin are certificates that give the customer guarantees on

the way in which the power was generated. Guarantees of origin are tradable.

GW Gigawatt, 1,000,000 kW.

GWh Gigawatt hour, 1,000,000 kWh.

HE Housing Equivalent, a household or a 10 kWh connection capacity of a large user.

IFRS International Financial Reporting Standards.

J Joule, unit of energy.

kW Kilowatt, 1,000 watts (kWe is a unit of electric power, kWth is a unit of

thermal power).

kWh Kilowatt hour, unit of electricity.

LTIF Lost Time Injury Frequency (number of accidents leading to absenteeism divided

by the total number of hours worked, in millions).

m3 natural gas One cubic metre (1,000 litres) of natural gas.

Methane Type of gas, chief component of natural gas.

Mid swapThe mid swap rate can be defined as the rate (or rates) equivalent to a series of

current, observable and objective euro interest rate swap mid (in between bid/offer)

rates (derived from the relevant zero coupon curve) that relates to the term of the

future liability cash flows.

When determining the mid swap rate, separate zero coupon discount rates should

apply to cash flows of different outstanding terms. To the extent that such an

approach is not feasible in practice, a single rate may be used such that, when

applied to all cash flows, the resulting present value is expected to be materially

the same as the sum of the present values of the separate cash flows discounted

at an appropriate zero coupon rate.

MJ Megajoule, 1,000,000 joules.

MWMegawatt, 1,000 kW.

MWh Megawatt hour, 1,000 kWh.

NEa Dutch Emission Authority (Nederlandse Emissieautoriteit) The competent authority that enforces the law on trade in NOx and CO2 emission

allowances. The activities of the NEa are made up of permit issuing, keeping

records of the balance of emission allowances and supervising. NEa supervises

the trade in emission allowances and manages the CO2 and NOx Emission Trade

Registers, which contain all the Dutch account balances of emission allowances.

Trading via the NEa is therefore not possible. Instead, companies trade among

themselves or via trade platforms.

NGO Non-governmental organisation.

Nm3 Standard measurement conditions for gas production and gas reserves estimates,

based on a temperature of 0 °C and 1 atmosphere of absolute pressure.

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NOx Nitrogen oxides, gases that arise during the burning of fuels.

Office of Energy RegulationThe Office of Energy Regulation is a department within the Netherlands

Competition Authority (NMa) charged with the implementation and supervision

of compliance with the Electricity Act 1998 and the Gas Act.

OHSAS Operational Health and Safety Standard, international accreditation for safe

working practices.

PCB Polychlorinated biphenyl, chemical name for chloride compound with strong

heat-resistant properties.

RA-verified Items in scope for the Corporate Social Responsiblity Report on which reasonable

assurance is provided by PwC as explained in the Assurance report of PwC.

SDE Renewable Energy Incentive Scheme.

SO2 Sulphur dioxide, a gas produced by burning sulphur or substances containing

sulphur (such as coal).

Spark spreadThe difference between the purchase price of raw materials for the production

of energy in our gas-fired power stations and the market price of electricity.

See also dark spread.

Syngas Synthesis gas, a mixture of mainly carbon monoxide (CO) and hydrogen (H2).

TJ Terajoule, 1 billion kJ.

TWh Terawatt hour, 1 billion kWh.

VCA Contractor Safety Checklist, Dutch guideline for safe working procedures.

VER Verified Emission Reductions, certificate used to offset CO2 emissions.

The certificate originates from CDM projects (see above) that are not registered

by the CDM Executive Board.

W Watt, unit of power.

Whistleblower facilityThis is the procedure for dealing with suspected abuse, including abuses relating,

for instance, to a serious offence, defeating the ends of justice or endangering

public health. Whistleblowers who report an instance of abuse may not be faced

with retaliatory action in any way.

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N.V. Nuon Energy

Spaklerweg 20

1096 BA Amsterdam

Telephone: +31 (0)88 098 00 00

P.O. Box 41920

1009 DC Amsterdam

The Netherlands

Email: [email protected]

The annual report is available in PDF on our website www.nuon.com

Contact information

Media relations

Spaklerweg 20, P.O. Box 41920, 1009 DC Amsterdam, the Netherlands

Telephone: +31 (0)88 098 88 88

Email: [email protected]

Publication

© N.V. Nuon Energy, 2012

Concept and realisation

Dart | Brand guidance & Design, Amsterdam, the Netherlands

Editing

Bosch & Bosch Translations and Copy, Amsterdam, the Netherlands

Printing

Stadsdrukkerij Amsterdam N.V., the Netherlands

Paper

Cover: Fastprint Gold 250 gm

Inside pages: Fastprint Gold 120 gm

‘We’, ‘Nuon’, ‘Nuon Energy’, ‘the company’, ‘Nuon Energy group’,

‘the Nuon group’ ‘the group’ or similar expressions are used in

this report as a synonym for N.V. Nuon Energy and its subsidiaries.

N.V. Nuon Energy originated from the unbundling of former parent

company n.v. Nuon, currently Alliander N.V. In order to avoid

misunderstanding, the names ‘our former shareholder n.v. Nuon’,

‘Alliander’ or ‘the Alliander group’ are used in this annual report

to refer to n.v. Nuon, Alliander N.V. and/or Liander N.V. with their

respective subsidiaries, which jointly form the network company.

Where the name Nuon is used in terms, project names or other titles,

such as Nuon Magnum, this relates to activities that fall under the

Nuon group. The name ‘Vattenfall’ or similar expressions refer to

Vattenfall AB and its subsidiaries. Vattenfall acquired 49% of the

shares of N.V. Nuon Energy on 1 July 2009 and an additional 15%

on 1 July 2011 and consequently holds 64% of the shares in Nuon.

The financial data of Nuon are consolidated in the financial

statements of Vattenfall.

Parts of this report contain prospective information. These parts

– without exceptions – may include unqualified statements on

future operating results, government measures, the impact of other

regulatory measures on all activities of Nuon as a whole, Nuon’s

shares and those of its subsidiaries and joint ventures in existing

and new markets, industrial and macro-economic trends and Nuon’s

performance in these, and statements preceded or followed by or

containing words such as ‘believes’, ‘expects’, ‘anticipates’ or similar

expressions. These prospective statements are based on the current

assumptions concerning future activities and are subject to unknown

factors, and other uncertainties, many of which are beyond Nuon’s

control, so that future actual results may differ significantly from

these statements.

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