Adoption of the update of the PGE Group’s Strategy until 2030

The Management Board of PGE Polska Grupa Energetyczna S.A. (the “Company”, „PGE”) discloses that on August 29, 2023 the Management Board of PGE adopted and the Supervisory Board approved the update of the PGE Group’s (the “Group”) Strategy until 2030 (the “Strategy”). This reports presents the most significant elements of the Strategy. At the same time the Management Board of the company informs that the that the presentation on the strategy will be published on PGE's website.

The Strategy confirms the Group’s development direction chosen in 2020 and published in the current report no. 29/2020 of October 19, 2020, setting new, more ambitious goals in decarbonisation and efficiency enabling the implementation of the PGE Group’s vision as the leader of the energy transition. The Strategy was prepared on the base of the Group’s operations in structure after sale of the Conventional Generation segment.

PGE’s mission – providing energy for a safe future – is to be achieved on the strength of the Strategy built on three business-integrated pillars: (i) Modern Energy Services, based on (ii) Clean Energy, provided by and (iii) Efficient and Effective organisation. Realisation of the vision of the leader of the energy transition will be supported by the integrated management of the environmental and social aspects, in line with the sustainable development principles.

As a result of the Strategy implementation, the PGE Group is to become a leader in clean energy generation, reach the highest customer satisfaction ratio in the power sector and become the employer and business partner of the first choice. The key long-term aspirations of the Group are:

- 100% of clean energy for customers in 2040,

- carbon net zero in 2040,

- zero unused energy.

Modern Energy Services

The main objective of the pillar of the Strategy regarding customer relations is development of the sale offer of the Group that will ensure achievement of the ultimate goal of 100% of clean energy for customers and will facilitate their participation in the energy transition. The Group will offer to customers devices and installations enabling full utilisation of green electricity and heat potential. The goals for 2030 in this area include providing customers with:

– 800 MW of PV installations,

– 200 MW in energy storages,

– 100,000 of heat pumps and other heating sources.

In addition, the Group will supports customers in obtaining financing for own installations in order to broaden the accessibility of the energy transition profits. The 2030 goal assumes support for 300,000 customers with a call for applications in the co-financing programmes.

At the same time, decarbonisation of individual heating sector will be accompanied by the electrification of the district heating, within which PGE assumes construction of 1,000 MWt of electrode boilers and heat storages and 500 MWt district heat pumps.

PGE intends to contribute in halting the growth of greenhouse gases emissions from transport through providing solutions for its direct and indirect electrification. According to the Strategy, a goal of 85% of green energy in railway contact lines will be reached in 2030 and commencement of green hydrogen supplies for locomotives shall start in 2035 perspective.

The Strategy of the Group emphasises significance of adaptation of distribution grid to the technological changes in the energy market. The main goals in the grid infrastructure area assume:

– 750-1000 MW connection capacity of renewable sources per year by 2030,

– 100% grid observability in 2030,

– at least 20% share of contracted flexibility sources in 2040,

– 100% of grid operation automation in 2050.

Recognising the potential of new IT solutions and need to meet the requirements associated with the decentralisation of energy systems PGE Group will focus more on providing stable energy supplies through flexibility and automation of the infrastructure, realising investment program which implements new grid operation model with an estimated scale of PLN 500-800 million of capital expenditures per year.

Clean Energy

The Group’s aspiration is absolute Net Zero of the operations in 2040 achieved due to expansion of renewables portfolio, development of zero-emission of electric utilities and decarbonisation of district heating. At the same time the energy storages portfolio will increase the electro energy system flexibility and the conversion of electricity into green fuels will allow for decarbonisation of other economy sectors, thus supporting the aspiration of zero unused energy.

The main goals of the pillar include:

– Offshore wind farms – construction of 2.5 GW capacity until 2030 and at least 7.0 GW by 2040, including the participation of partners,

– Onshore wind farms – reaching 1.5 GW capacity by 2030,

– Photovoltaic farms – reaching 3.0 GW capacity by 2030,

– Gas-fired power plants – construction of 2.2 GW capacity in CCGT units (Gryfino and Rybnik) by 2030 and further refurbishment of units to be fired with green hydrogen or equipped with carbon capture facilities.

– Nuclear power plants – construction of 2.8 GW capacity by 2040, including the participation of partners.

– Battery energy storage – construction of 1.2 GWe capacity by 2030,

– Pumped storage power plants – reaching 2.5 GWe capacity by 2035,

– Heat storages and electrode boilers – reaching 1.0 GWt capacity by 2035,

– Installations for electrolysis – construction of 300 MW in electrolysers by 2035 and reaching 10-15 thousand tonnes of green hydrogen production.

– District heating – reaching 40-50% share of renewable and electric sources by 2030 along with decommissioning of coal-fired installations by 2030 and 80% share of renewable and electric sources by 2040.

The Group assumes implementation of the investment programmes with the participation of strategic and technological partners and with maximisation of seizing opportunities for co-financing from the public aid programmes.

Efficient and Effective Organisation

Operational efficiency as a requirement to maintain competitiveness and potential for further development is a primary assumption of the Efficient and Effective Organisation pillar. The strategic goals include increasing cost efficiency, shorter time to market and low financing costs. Ensuring financial predictability of the business model will enable conduct of the capital-intensive investment programmes and implementation of the new services.

The main goal of the pillar include:

– 7-10% reduction of fixed costs by 2030 in real terms with reference to 2022 cost base exclusive of, among others, Conventional Generation segment what is to bring annual savings of PLN 350-450 million,

– Time to market shorter by 20%,

– 100% of own costs covered in tariff mechanisms,

– Process cost efficiency maintained among 25% of best practices,

– Maintenance or upgrade of the credit rating.

The Group’s Strategy assumes that the modernised ICT systems will form a basis for construction of digital platform combining all Company’s operations what will enable creation of values based on data, adaptation of new technologies improvement of customer experience.

Sustainable development strategy

Integrated management of environmental and social aspects is an integral element of the Strategy.

Key goals in environmental area:

– Net Zero in 2040, reached through reduction of gross emission of greenhouse gases by 95% in Scope 1, by 90% in Scope 2 and 90% in Scope 3, with covering other emissions through capture and offset.

– Reduction of NOx emissions by 90% by 2040.

– Reduction in water use in conventional district heating and gas-fired power plants by 50% by 2040,

– Reaching percentage of suppliers holding environmental statements at 80% in 2040,

– Reaching energy efficiency of building ration below 100 kWh/m2/year in 2040.

Key goals in social area:

– Striving for zero accidents among employees,

– Maintaining gender pay gap rate at the level below 5%,

– Maintaining a rate of training hours at level of more than 30 hours per year.

Key goals in governance area:

– 25% of remuneration directly linked to sustainability targets,

– At least 25% of quarterly and annual targets directly related to ESG goals.

Financial dimension of the Strategy

The investments realised within the Strategy are to focus on decarbonisation and electrification. Total capital expenditures in years 2024-2030 will amount to more than PLN 125 billion.

The investments will be implemented jointly with partners and with the maximal utilisation of national and EU aid funds for energy transition. The Strategy assumes that 25% of capital expenditures will be covered from preferential sources.

As a result of the implementation of the Strategy the expected cumulated PGE Group’s EBITDA in 2024-2030 will amount to more than PLN 90 billion and will amount to more than PLN 15 billion in 2030.

The Strategy assumes that the PGE Group’s revenues will be based on stable, regulated business models that limit exposure to market changes. Long-term revenue hedging is predominantly based on bilateral contracts for difference, regulated return on assets and tariff mechanisms.

Exposure to price fluctuations of CO2 emission rights and imported fossil fuels will systematically decrease.

Alternative Performance Measures used in the Strategy:

EBITDA - Earnings before interest, taxes, depreciation and amortisation.