Flexibility as the basis for energy security and PGE's value creation philosophy

PGE's strategy until 2035 presents a comprehensive investment plan underpinned by flexibility, renewable energy and a modern distribution and district heating infrastructure. The PGE Group's mission is to provide energy for a secure future, and in the new Group Strategy, energy security takes on a new dimension: it is defined as a flexibility of the system that enables further dynamic development of renewable energy sources while maintaining supply stability.

PGE's strategy was developed in response to the increasing volatility of the market, the unpredictability of the environment, the need for responsible transformation of the sector and the implementation of megaprojects in the energy sector. In addition, the Strategy addresses the issue of supporting the competitiveness of the Polish economy by lowering energy costs through investments in renewable energy sources and introducing modern models of cooperation and development of the national supply chain (‘local content’), and focuses on building shareholder value with respect for employees, local communities and in line with the ESG philosophy.

As part of the Strategy, which sets flexibility as the direction of development, the PGE Group expects its operating profit to evolve in such a way that gas capacity and energy storage facilities will account for an increasing share alongside the regulated and RES segments, which willtranslate into an increase in EBITDA from PLN 11 billion in 2024 to PLN 17 billion in 2030 and PLN 30 billion in 2035.

The strategy envisages a total capital expenditure of PLN 235 billion, including maintenance and development expenditure of PLN 175 billion, PLN 39 billion for acquisitions and PLN 21 billion for the implementation of development options. 

Of this expenditure, 39% will be allocated to projects under the tariff model and 22% to installations with contracts for difference. As part of the investment programme, PLN 75 billion will be spent on the development of distribution, PLN 85 billion on offshore and onshore renewable energy, PLN 37 billion on the new flexible gas capacity segment, while PLN 14 billion will be spent on energy storage and PLN 18 billion on district heating. One of the effects of PGE's implementation of the above investment programme will be an inflow of PLN 150 billion to companies in the domestic supply chain (local content), which will enable long-term and stable support for their development.

With the change in the risk profile of its operations, the PGE Group anticipates an increase in opportunities to use external financing. The predicted level of the financial net debt to EBITDA ratio allows the covenants in the current financing agreements to be met and at least the current rating level to be maintained. Consequently, it is also envisaged that dividend payments will be resumed once recurring net profit and the prospect of positive free cash flow for at least 2 years is achieved, while maintaining an investment rating and no non-recurring events materially burdening the cash flow take place. The prospect of a dividend payment could be significantly accelerated if the challenge of funding the operating gap in the coal power segment is addressed through an off-market support mechanism or the spin-off of assets from the Group. 

The key premise of the Strategy is for PGE to maintain its role as a leader in modern energy, through the fulfilment of its strategic ambition to achieve leadership in the 8 strategic leadership areas outlined below.

Reliable distribution services

A modern distribution infrastructure is the foundation of the energy transition and a prerequisite for the integration of distributed energy sources. The Group is focusing on the development of reliable and smart distribution grids that will enable an increase in the available connection capacity for RES, reduce the duration of planned and unplanned supply interruptions and reduce the cost of breakdown repairs. The PGE Group's target by 2035 is to increase the available connection capacity for RES, energy storage facilities and charging stations by 11 GW and for new customers by 12 GW. 

In addition, out of the total capital expenditure of PLN 75 billion planned in the distribution area, investments will be made in grid development and modernisation, digitalisation and automation (application of artificial intelligence), the construction of an independent LTE450 communications network, the cabling of 10,000 km of distribution grids and the installation of Remote Reading Meters for 100% of customers.

Energy from RES

Renewable energy sources are key to the PGE Group's energy transition and ensuring access to competitively priced energy for the economy. Offshore wind energy plays a special role in this process and will be one of the key business segments. 
In this area, the PGE Group is implementing or preparing projects in the Baltic Sea with a total capacity of approximately 7 GW. By 2035, at least 4 GW of wind farms are planned to be built with partners, which will provide clean energy to 7.5 million households and reduce CO2 emissions by 11 million tonnes.

In terms of onshore renewables, the PGE Group aims to achieve 4 GW in onshore wind farms by 2035 and 1 GW in photovoltaic installations. The development of this capacity will be carried out through new investments, acquisitions of operational and construction-ready projects, and potentially repowering existing farms in selected locations.

All RES assets - both onshore and offshore - are expected to provide 28 TWh of energy in 2035. The Group estimates that this will correspond to a share of more than 20% of RES energy sales in Poland. In total, the PGE Group will allocate PLN 85 billion for the development of projects in this area, of which PLN 51 billion will be allocated to the development of offshore wind energy and PLN 34 billion for the development of onshore renewable sources. 

Flexible gas capacities

Increasing the share of renewables in the energy mix requires a parallel development of flexible generation capacity to ensure the stability of the electricity system. The Group is planning to build modern, controllable gas-fired power plants with a total capacity of 10 GW, which will provide a stabilising function under conditions of variable generation from RES. The investments will include gas and steam units in the CCGT technology with a planned total capacity of 4 GW, including the existing PGE Gryfino Dolna Odra power plant with a gross capacity of 1366 MW, the PGE Nowy Rybnik power unit currently under construction with a capacity of 882 MW, as well as the new project in Turów, which is currently in the analysis phase. The remaining 6 GW will be constructed using the OCGT technology, including additional power units in Gryfino and Rybnik, the power plant under study in Ostrów Wielkopolski and new locations. The implementation of the full programme will depend on the shape of the new capacity mechanisms in Poland after 2030. All new units will be designed to burn decarbonised gases in the future, increasing their role in the long-term decarbonisation of the sector. The total investment in this segment by 2035 will amount to PLN 37 billion.

Energy storage 

Energy storage is one of the key elements for integrating RES and increasing the flexibility of the electricity system. The PGE Group will allocate PLN 14 billion for the development of this segment over the next 10 years. Storage systems will be used to manage surplus RES energy and stabilise energy price volatility. The group is planning to expand its existing portfolio to a total capacity of more than 18 GWh, which is estimated to correspond to a 60% market share in domestic storage capacity in 2035. The PGE Group will invest in battery energy storage (with a capacity of 8 GWh), pumped storage power plants (with a capacity of 10 GWh) and heat storage (capable of receiving approximately 0.5 GWh). The Group also remains open to acquisitions of operational and construction-ready projects. 

Clean system heat

District heating systems play an important role in the decarbonisation process, especially in cities and regions with high heat demand. The PGE Group is planning a comprehensive modernisation of its units and networks based on low- and zero-emission technologies.

The operation of coal-fired district heating units will end by 2030. They will be replaced by modern sources that ensure security of supply, energy efficiency and reduced emissions. 

The PGE Group will allocate approximately PLN 18 billion for investments in this segment until 2035, of which:
• PLN 15 billion will be spent on new generation units such as gas engines, electrode boilers, heat pumps, gas-fired water boilers, biomass boilers and heat accumulators,
• PLN 3 billion will go towards potential acquisitions of district heating networks and their subsequent modernisation, particularly in cooperation with local authorities.

Offer for partners/business clients

The PGE Group's offer to its partners and business clients responds to their expectations for efficient management of their electricity and heatconsumption profile, reduces their exposure to price volatility and ultimately enables them to reduce costs. The cooperation envisages enabling active participation of PGE's clients in the energy market, capacity mechanisms and the balancing capacity market, and the scope of cooperation will include prosumer solutions (generation sources, storage facilities, consumption profile management) and energy services, as well as advisory support.

Customer service quality

PGE's highest standard of customer service includes ensuring certainty of energy supply, enabling participation in the energy transition, the availability of friendly contact channels and the possibility to purchase additional services. The aim is to maintain the customer satisfaction index of 85 points and the integration and availability of remote service channels and physical customer service points, as well as the effective integration of communication channels through the availability of customer service points and advanced digital solutions.

Responsible transition 

Although coal-fired units will remain technically essential to the stability of the National Electricity System over the next decade, their role will, for market-related and technical reasons, gradually be reduced to a back-up function. High-carbon installations will be run mainly during peak demand periods, implying the need for a significant change in the way these units are managed and maintained to adapt their economics to the new market conditions. In the Group's view, it will be important to implement financing mechanisms for coal assets to address the operational gap, which will support their continued operation. 

The transition of the coal power sector is being carried out with respect for the role of workers and local communities, and the Group declares a responsible approach to the changes and prioritises investment projects in locations where it currently operates coal-fired power generation facilities.

The investment strategy of the PGE Group also assumes carrying out analyses in selected locations of the possibility of building large-scale nuclear power facilities (Bełchatów), SMRs (Turów), CHP plants, potential Waste-to-Energy and energy storage facilities and RES facilities. In addition, as part of responsible management of the entire asset lifecycle, the economic revitalisation of brownfield sites is being planned, in cooperation with the national government and local authorities, in a way that will preserve the regions’ character associated with the energy sector and create new jobs. 

In conclusion, the Management Board of PGE anticipates that within the horizon of the implementation of the new Strategy, the Group's stable financial position will support the country's energy security, and partnership with Polish and international financial institutions will enable a significant increase in the share of project finance in the implementation of investment projects. The Group will also maximise the possibilities of obtaining preferential funding (including the National Reconstruction Plan and ESG funds). In the opinion of the Management Board of PGE, the implementation of the Strategy and consistent application of a disciplined investment policy providing for a minimum return on investment of at least 7.5% (except for projects with secured revenue in the form of CfD or PPA for which this requirement may be lowered) will translate into a significant increase in the Group’s value.