On September 6, 2016 the Supervisory Board approved PGE Group's strategy update presented by the Management Board of PGE. The update is aimed at adapting the Group’s activities to the changing environment. In the updated document, the Group also addresses threats and opportunities connected with, among others, volatility of fuel prices, climate policy directions, market model evolution and new technology development.

Mission, vision and overall objectives

In accordance with the updated strategy, PGE's mission is to ensure security and growth based on reliability of supply, technical excellence, modern services and partnership relationships. The overall objective of PGE Group's operations is to increase its shareholder value and the key role in ensuring Poland's energy security.

Redefining PGE Group’s mission

Updated vision determines the target position of the PGE Group in four areas:

 Leader in electricity generation, actively seeking development opportunities

To retain its leading position in the area of electricity generation, PGE Group must secure at least a 40% share of the electricity generation market in Poland by 2020. PGE Group is continuing its flagship investments in Opole and Turów and may invite partners to participate in these projects. At the same time, further investments in conventional energy based on a new market model will be analysed, e.g. construction of new capacities at Dolna Odra power plant. Potential for the co-firing of biomass in PGE Group’s existing production assets will be analysed, based on a new support system for renewables. The company will carry out modernisations of conventional plants and combined heat-and-power plants in an optimal scope so that they are adapted to new industrial emission standards BAT (Best Available Technology).

At the same time, within the generation area, PGE Group will seek innovative solutions that will cement its competitive advantage and allow it to reduce environmental impact, including through adapting production assets to a new energy market model, maintaining a competitive lignite extraction operation, reducing SO2, NOx, particulates and mercury emissions as well as increasing the efficiency of coal combustion by-product use.

PGE Group intends to retain its leadership in the renewables segment and account for approx. 25% of domestic renewables generation by 2030. To reach this ambitious target, PGE Group intends to complete those onshore wind farm projects that are at the most advanced stages, build an approx. 1,000 MW offshore wind farm and increase its presence in the distributed generation segment. These investments will depend on successes in the auction support system, development of an innovative financing model and implementation of new business models for the micro-installations segment.

PGE Group’s aspirational share in Poland’s electricity production from RES

In order to maintain a leading position in generation, in the long term PGE Group has three strategic options, thereby can make the optimal choice in the context of future climate policy:

- Construction of Poland’s first nuclear power plant, following the development of a model guaranteeing economic viability of the investment

- Construction of approx. 1000 MW capacity in off-shore wind farms, based on an auction support system,

- Modern coal-fired power generation, including utilization of new lignite deposits in case there is a significant easing of the climate policy.

Strategic options

Reliable and active utility and service supplier

Currently on-going investments in the distribution segment are intended to increase the reliability of supply and reduce SAIDI and SAIFI by 56% compared to 2015 and the average connection time by 40%. The achievement of these quality targets is being supported by, among others, the development of electricity quality monitoring systems, intelligent grid metering and automation as well as the construction of a digital transmission system.

In the retail area, PGE Group is planning to focus on strengthening relations with clients through gaining more knowledge about their needs. In response to identified expectations, PGE Group will expand its offering by, for example, adding new product and services that are complementary to electricity as well as through the development of new sales and communication channels.

Poland’s most efficient and flexible energy group

PGE Group’s cost and operational efficiency is one of key preconditions for accomplishing the other strategic goals. On the other hand, flexibility is key to achieving the ability to respond quickly to opportunities arising in PGE Group’s environment

Due to efficiency improvement, in 2020 PGE Group plans to achieve reduction of the forecasted controllable costs in the amount of PLN 500m versus year 2016. This will allow for the total cost reduction in 2016-2020 by approx. PLN 3.5bn versus the current efficiency scenario.

The goal of the cost reduction is to strengthen PGE Group’s competitiveness and potential, and it forms the basis for PGE Group’s further expansion. Efficiency improvements will be implemented in PGE Group’s each line of business.

Total reduction of controllable costs in 2016-2020.

Improvements in operational efficiency will concern both the organisational structure and processes. Changes in the organisational structure are intended to prepare PGE Group for development in the most promising business areas as well as to eliminate redundant functions and simplify organisational structures. These changes will be introduced through, among others, standardisation and optimisation of support functions throughout PGE Group, implementation of mechanisms for effective formation of new business lines and formation of a new business line – “Co-generation”. Process optimisation will apply to all processes at PGE Group, with a focus on the efficiency of sales and customer service channels as well as process support through modern IT systems

Moreover, within next four years, planned expenditures on modernization and replacements will be reduced by approximately PLN 500m in relation to forecasts. It will be possible thanks to introduction of integrated asset management system, among others. Unified approach to planning of expenditures on PGE Capital Group’s production assets will allow for reducing asset maintenance costs and CAPEX, while maintaining the security of power supply.

Higher flexibility at PGE Group will be achieved mainly through mechanisms for monitoring the surrounding and rapidly responding to changes, cooperating with external partners, scientific and academic institutions, as well as streamlining decision-making, analytical and reporting processes. The organisation will become more flexible also thanks to simplified organisational structures in the distribution segment’s locations and the separation of specialist functions.

Leader in development of new business models and operating segments

The updated strategy places particular emphasis on the development of new business models and operating segments. This will be possible through PGE Group’s involvement in cooperating in the area of development and commercialisation of new technologies with credible partners having competences allowing to obtain synergies and competitive advantages. PGE Group’s involvement may come in the form of financing, technical or organisational support, depending on the type of venture. New technological solutions that are of interest to PGE Group include energy warehouses, electromobility, power-to-gas technologies, LNG, diffuse energy sources, integrated intelligent solutions and the development of coal gasification installations

Involvement in the development and commercialisation of new technologies will allow PGE Group to introduce to the market a modern and comprehensive offering for clients, covering, among other things, photovoltaics, electromobility, intelligent home solutions, natural gas and demand management. A modern and comprehensive offering will contribute to the diversification of PGE Group’s revenue streams.

PGE Group intends to build up its brand of a leader on the energy efficiency market. New ESCO (Energy Saving Company) activities will provide clients with benefits such as reduced energy consumption costs, supply continuity and improved image. This will enable PGE Group to develop long-term beneficial client relationships with industry, local government and retail customers, among others.

To develop new solutions and technologies, PGE Group intends to build a research and development centre and a demo lab – PGE Lab.

Investments

The Group assumes capital expenditures of approximately PLN 34 billion in 2016-2020, including more than PLN 10 billion for ongoing projects in Opole and Turów. In connection with modernisation programs that are to be completed soon, the expenditures for the existing capacities in Conventional Energy will drop as from 2016. After construction of two flagship projects, PGE Group will be ready to invest significantly in new business areas, also abroad. Beyond 2020 PGE will be implementing a new investment program, dependent on selected strategic options, the power system's needs and new market model.

Diagram: Planned capital expenditures of PGE Group

Values of PGE Group

PGE Group’s strategy will be implemented in accordance with values Partnership, Growth, Responsibility and principles in everyday work included in the Code of Ethics of PGE Group. PGE Group is a responsible organization, aware of its impact on the environment, thus in its operations PGE focuses on reducing impact on natural environment, operating based on ethical principles and involvement in activities for the benefit of local communities ensuring sustainable business growth.