Climate and environmental risks and opportunities

1. Frequent occurrence of extreme temperatures, greater rainfall intensity that can cause floods at any time of the year, uneven rainfall resulting in longer periods of no rainfall, intermittent abrupt rainfall (torrential rain),
2. Increase in the frequency and intensity of hurricanes, strong winds, incidentally accompanied by tornadoes and lightnings causing machinery and equipment failures, distribution grid failures (electricity, heat), more frequent drought occurrences and water restrictions related thereto, as well as an increased risk of fires.

The risk materialization also results in:

1. Increased costs of maintaining transmission systems resulting from the costs of fixing failures, a decrease in the volume of electricity and heat supply, a decrease in the volume of production, a deterioration of the electricity distribution quality indicators affecting the regulated revenue
2. Sharp fluctuations of market prices due to the occurrence of extreme temperatures affecting the levels of demand and the ability to satisfy such demand by the supply side
3. The need to shut down individual power generating units due to the too low water level in rivers, the water from which is used to cool the units

The risk includes the risks identified and managed by TAURON Group: environmental risk (in the context of excessive impact on the climate), weather risk, company assets related risk and market risk.

1. Applying TAURON Group’s Climate Policy.
2. Planning and implementing projects that are aligned with the sustainable development activities.
3. Applying TAURON Group’s Strategic Asset Management Plan
4. Supporting innovative technologies with the potential of significant energy savings.
5. Conducting business operations that affect the climate in accordance with the sustainable development principles.
6. Maintaining the required level of the pollution reduction devices’ efficiency (performance).
7. Frequent assessment of compliance of the activities with the legal requirements regarding climate impact.
8. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s activities on climate change, gradual adaptation of the production assets to the consequences of extreme weather occurrences and the volatility of weather conditions, in particular in the Lines of Business sensitive to these factors.
9. Optimization of investment outlays allocated for asset replacement, active monitoring of the condition of the machinery, equipment and installations.
10. Raising the professional qualifications and work culture of employees by organizing courses and training sessions.
11. Responding to an emergency situation by the technical operational personnel and the automated protection systems.
12. Property insurance against fortuitous events (excluding the underground assets).
13. Introduction of IT tools with respect to improving the monitoring and management of failure rates.
14. Gradual adaptation of the production assets to the consequences of extreme weather occurrences and volatility of weather conditions, in particular in the Distribution Line of Business.

1. Decrease in the volume of sales of the products offered by TAURON Group’s subsidiaries, in particular as a result of a temperature deviation from the planned values, resulting primarily in a loss of revenues in the individual segments of TAURON Group’s operations as a consequence of reduced demand.
2. Drop, especially in summer, of the water levels in rivers and water reservoirs, and an increase in their temperature, which generates a decrease in the efficiency of the generating units and a decline in the dispatchability of the units during the peak electricity demand periods. The above may lead to a blackout in an extreme scenario.
3. Change of the market conditions for the operations of TAURON Group’s subsidiaries, in particular as a result of changes in the weather conditions resulting in a drop of the margin in the Generation Line of Business (CDS / volume) and, in general, an increase of the costs and a decrease of the revenues,
4. Increased failure rate of the machines and devices constituting the assets of TAURON Group’s subsidiaries due to permanent climate changes – such as prolonged droughts, global warming, for example.

The risk includes risks identified and managed by TAURON Group: volume and margin risk, company assets related risk and market risk.

1. Ongoing offering updates, launching of the multi-packet type products for sale.
2. Conducting marketing activities, acquiring new customers.
3. Activities focused on retaining current customers and recovering the lost ones.
4. Daily measuring and reporting of the portfolio positions.
5. Optimization (streamlining) of investment outlays allocated for asset replacement, active monitoring of the condition of the machinery, equipment and installations.
6. Property (asset) insurance against fortuitous events (excluding the underground assets).
7. Introduction of IT tools with respect to improving the monitoring and management of failure rates.
8. Gradual adaptation of the production assets to the consequences of extreme weather occurrences and volatility of weather conditions, in particular in the Distribution Line of Business.

The consequences of the risk include the reputation, technology, policy and regulatory issues, as well as the market issues. In particular, the effects of the risk may include:

1. Decrease in the volume of sales of the products offered by TAURON Group’s subsidiaries, in particular as a result of the development of energy efficiency, insulation of buildings, growth of prosumers, resulting primarily in a loss of revenue in the individual segments of TAURON Group’s business operations resulting from the reduced demand,
2. Change of the market conditions for the operations of TAURON Group’s subsidiaries, in particular as a result of the tightening of the European Union’s climate policy, the growing ecological awareness of the public, the activities supporting energy efficiency (departure from the use of coal as fuel, growth of prosumers, support for thermal insulation, construction of in-house electricity and heat sources) resulting in a drop of the margin in the Generation Line of Business (CDS/volume) and, in general, an increase of the costs and a decrease of the revenues,
3. Difficulties or an increase in the cost of raising capital to finance operations based on fossil fuels,
4. Loss of reputation due to involvement in fossil fuels,
5. The need to transform the assets and, as a consequence, the need to incur additional expenses as a result of the climate change,
6. Difficulty or an increase in the insurance costs for the assets based on fossil fuels,
7. An increase in the costs of the environmental fees and the need to incur additional investment outlays to adapt the assets to the environmental requirements,
8. An increase in the price of the CO₂ emission allowances and, as a consequence, a decrease in the margin in the conventional electricity segment,
9. A decrease in demand for electricity as a result of energy efficiency and growth of the prosumers segment,
10. A decrease of the demand for the products offered thus far by TAURON Group’s subsidiaries,
11. Limiting or discontinuing the operations based on fossil fuels.
12. The need to restructure employment resulting from a change in the business operations profile,
13. Impediments to administrative procedures involving the public by non-government organizations,
14. A decline in the company value,
15. Inability to meet market expectations due to the lack of the expected products in the portfolio.

The risk includes risks identified and managed by TAURON Group: climate change, reputation, regulatory, volume and margin, market, obtaining of the financing, company assets, human resources related risks.

1. Applying TAURON Group’s Climate Policy.
2. Defining and updating as well as implementing of TAURON Group’s Strategy.
3. Update of TAURON Group’s Strategic Research Agenda.
4. Adaptation of TAURON Group’s Investment Strategy to the guidelines stemming from the Climate Policy and the Investment Strategy.
5. Ongoing analysis of the draft ordinances (regulations) and acts.
6. Active participation in the work of teams providing opinions on projects and proposing optimal solutions.
7. Gradual adaptation of TAURON Group’s production assets and energy mix to the production of renewable energy and zero and low-emission electricity generation technologies.
8. Gradual withdrawal of the anthropogenic sources of greenhouse gas emissions coming from fossil fuels through the development of renewable energy and zero and low-emission electricity generation technologies.
9. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s operations on the climate change.
10. Promoting eco-mobility or climate- neutral mobility.
11. Cooperation with business and social partners with respect to adaptation to climate change.

1. The demand for electricity is materially affected by the outdoor temperature, the fluctuations of which have a direct impact on TAURON Group’s operations, including on the demand for electricity and heat, and as a consequence, on the amount of revenue.
2. The intensification of the implemented Green Turn of TAURON Strategy and the transition to the low- and zero-emission economy in the medium term and long term – the expansion of investments and the expectations of the higher return on invested capital.
3. Changes in the functioning of the energy market, and as a consequence, in the level and volatility of the prices on the commodity and financial markets.
4. Evolution of the energy mix – increase in the share of the renewable energy sources, changes in the demand for electricity among the retail customers, the development of the electric vehicle market.
5. The widespread electrification of industries providing opportunities for the development of the energy and energy-related products and services
6. Greater investment opportunities with respect to the development of the new electric technologies dedicated to households and residential housing as well as to the electric transportation

1. Applying TAURON Group’s Climate Policy.
2. Technological diversification and the direction of the Group’s development towards low and zero emission economy mean that the impact of changes (positive and negative) in the climate variable is positive / mitigated at the business level throughout the entire supply chain. To ensure that its operations always account for the weather and climate developments, the Group adopts a number of practices, such as for example weather forecasting, real time monitoring and long term climate scenarios.
3. Planning and implementing projects that are aligned with the sustainable development activities.
4. Conducting business operations that affect the climate in accordance with the sustainable development principles.
5. Optimization and growth of investment outlays for sustainable operations and low and zero emission generation assets.
6. Gradual adaptation of the production assets to the consequences of weather development and volatility of weather conditions, in particular in the Distribution Line of Business.
7. Updating the number and range of the products offered to the customers by the Capital Group’s subsidiaries.
8. Looking for the opportunities and possibilities (options) through the steadfast development of the Group’s strong position in the new businesses and the „smart” services.
9. Taking into account the energy transition scenarios, the Group is evaluating the impact of the trends in the share of the renewable energy sources, electrification and the growth of the electric vehicle sales, etc. to estimate their potential impact on its future business operations.

The risk also involves the possibility of:

1. a lack of valid environmental decisions,
2. depositing waste in places not intended for this purpose or not in accordance with the operating conditions of the facilities designated for such purpose,
3. occurrence of a crisis situation: e.g. fire, displacement of earth masses, extreme weather events,
4. use of waste not in accordance with the authorized intended purpose,
5. a lack of adequate safeguards reducing the negative impact of TAURON Group’s operations on the environment,
6. release of hazardous substances to the environment,
7. social protests (unrest).

The consequence of the materialization of the risk is the degradation of the natural environment and penalties for a failure to comply with the environmental requirements, the need to fix the deficiencies, curtailment of the production, delays in the implementation of the investment projects, pollution of water sources in a way that prevents their use, destruction of a valuable natural habitat, site or area – environmental (nature) compensation, restrictions on further business development, damage to TAURON Group’s image, limitation of the use of financial assistance programs. The risk also includes an increase in the environmental requirements stemming from the tightening of the European Union’s climate policy.

1. Applying TAURON Group’s Environmental Policy.
2. Conducting business operations that affect the environment in accordance with the sustainable development principles.
3. Conducting and intensifying activities aimed at increasing the utilization of the UPS/UPW waste.
4. Striving to maximize the management (utilization) of the post- production waste generated at all of TAURON Group’s coal mines.
5. Striving for the optimum management of water resources.
6. Ongoing supervision over compliance with the conditions of the environmental decisions.
7. Maintaining the required level of the pollution reduction devices’ efficiency (performance).
8. Frequent assessment of compliance of the activities with the legal requirements with respect to the environment protection
9. Implementation of the investment projects with respect to the environment protection in order to minimize the consequences of an adverse impact of mining and processing operations on the environment and climate.
10. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s operations on climate change