TAURON Group’s Climate Policy

With respect to the above, in November 2019, the Management Board of TAURON Polska Energia S.A. also adopted to be applied the document entitled: TAURON Group’s Climate Policy, which is updated on an ongoing basis. Effectively counteracting the climate change and the adaptation thereto are the two main objectives of the Policy.

The goal of the Policy is to set the directions for counteracting climate change and the sustainable development of the Group’s Lines of Business, through a just transition towards achieving climate neutrality in the future. The Policy constitutes the basis for TAURON Group to manage its operations in such a way so as to mitigate the risks associated with the climate, reduce the Group’s negative impact on the climate and maximize the positive effects of the climate change throughout the entire value chain.

The pro-climate actions are an integral part of TAURON Group’s Strategy published in 2022.

TAURON Group’s Climate Policy refers to all types of activities and operations carried out within TAURON Group’s value chain, the effects of which have an impact upon climate change or constitute the implication thereof, including in particular:

• measures that enable reducing the global warming,
• measures with respect to TAURON Group’s adaptation to the climate changes

The Policy is applicable to all of the Group’s subsidiaries, although each of the Group’s subsidiaries has different detailed goals and tasks stemming from the Policy. Table below identifies and classifies the determining areas related to climate in TAURON Group’s business operations, which are both positive (highlighted in green) and negative (highlighted in gray).

* TZE, TEC1 I-VI, TEC1 EW Gołdap, TEC1 Ino1, Aval 1, Wind T1, Polpawer, Megawatt Wind T4, WindT30MW, FF Park PV1, Windpower Gamów.
** Transmission Loss Rate
***RES development and emissions reduction is a direct result of TAURON Group’s Strategy for the years 2022-2030 with an outlook until 2050, adopted in 2022

TAURON continued the voluntary reporting of climate and water management information in 2022, as part of an international study conducted by CDP. The CDP disclosure standard helps to fully track the progress in adapting operations to climate change in line with the concept of sustainable development and to improve reporting.

TAURON Group in 2022, while still in the first phase of the transition (the spin-off of the coal mines as of 2023 which has been carried out and the planned spin-off of the coal fired power plants during 2023), received the following ratings:

• D as part of questionnaires related to the climate change areas (”Climate Change”),
• C as part of questionnaires related to water management (”Water”).

A comprehensive discussion of the climate related issues is particularly important due to the diversity of TAURON Group’s generation sources (presented in tables below).

TAURON Group’s main strategic objectives related to climate change have already been largely communicated as part of the Green Turn of TAURON (published in 2019) and as part of TAURON Group’s Strategy for 2022-2030 with an outlook until 2050 (published in 2022). The most important goals include: a significant increase in the share of the low- and zero-carbon sources in TAURON Group’s installed capacity by 2030 (an assumed more than fivefold increase in the RES installed capacity) and a decrease in carbon intensity (emissions) for power generation by nearly 80% and climate neutrality in 2050.

The chairperson of the ESG committee is a representative of TAURON Group’s top level of management – the Vice President for Assets of TAURON Polska Energia, and the members of the ESG committee are also the representatives of middle and senior management responsible, among others, for strategy, communications, human resources and environmental protection. The top management, the Management Board and the key managers periodically study the ESG committee’s activities, as well as the plans and results of the Group’s ESG activities.

Thus, the up to now designation and adoption of ESG related directions and goals and reporting on the implementation thereof, which until 2021 had taken place within the individual operational divisions of TAURON Group, since 2022 has been implemented in a new, fully coordinated dimension.

In addition, in parallel to taking the decision to appoint the ESG Committee, the following areas for review and development in the coming years were identified, related to the impact of TAURON Group’s activities with respect to climate change as well as the directions and goals resulting from the implementation of the Green Turn of TAURON:

• review of the options available to reduce the Scope 1 direct emissions in the conditions where it is necessary to provide services to the NPS,
• review of the options to further reduce the Scope 3 indirect emissions as part of activities related to the initiatives created throughout the value chain,
• review and revision of the short and medium term decarbonization targets related to the emissions reduction in the generation line of business (electricity and heat) for TAURON Group,
• defining indicators (metrics) and the monitoring thereof with respect to increasing the share of EBITDA from sustainable activities in the entire value chain,
• defining indicators (metrics) and the monitoring thereof with respect to the growth of the capital expenditures / CAPEX for sustainable activities throughout the value chain,
• integration of the Group’s of activities with respect to the „Crisis Response Program”,
• developing initiatives for more efficient use of natural resources,
• integration at the Group level of the superior environmental efficiency monitoring system and implementation of universal indicators (metrics) for monitoring,
• development of the environmental guidelines for liquidated (decommissioned) activities and for the use of industrial sites for new functionalities,
• development of sustainable products and services.

Also with respect to the new operations or investment projects, the risks associated with the climate change are taken into account, as an additional criterion for the assessment thereof, in particular the physical risks, when placing (siting) new investment projects.

Based on the document Poland’s Environmental (Ecological) Policy 2030 and the ISOK (National IT Protection System) portal, regions were identified that were more exposed to the physical risk related to climate. Priorities for actions with respect to the assets have been worked out in terms of the adaptation of the assets to climate change in the regions potentially more exposed to acute or long- term physical risk related to climate. The Group’s assets are mostly located in southern Poland, which, according to the data disclosed in Poland’s Environmental (Ecological) Policy 2030 and in the ISOK system, is less exposed to desertification than the areas of central Poland. Due to their location, the Group’s assets are also outside the area that may be transforming due to the forecast sea level rise.

The consequences of the extreme weather conditions are most strongly felt by the TAURON Ekoenergia and TAURON Dystrybucja subsidiaries.

At TAURON Ekoenergia, the hydrological drought and uneven precipitation, resulting in longer periods with no rainfall, intermittent abrupt precipitation (torrential rains) periodically lead to the inability to generate electricity. For these reasons, the integration of water scarcity into regular risk assessments and the detailed reporting of risks arising from water scarcity or lack thereof has become a necessity for a company like TAURON Ekoenergia, whose model is based largely on hydro power generation. However, due to the fact that it has reservoir based hydro power plants and not just the run-of-river hydro plants, TAURON Ekoenergia is not critically exposed to the water shortage risks. The number of days on which the electricity production at TAURON Ekoenergia did not take place due to the too low or too high water level in the rivers, is presented in table below.

At TAURON Dystrybucja, an increase in the frequency and intensity of hurricanes and strong winds, incidentally accompanied by whirlwinds and lightnings can, in extreme cases, result in mass failures, and as a consequence, breaking of the power lines, as well as periodic and local flooding. The percentage of this type of failures at TAURON Dystrybucja in 2022 is illustrated in Table below.

Failures often result in interruptions in the supply of electricity, the frequency and duration of which are illustrated in the tabeles below.

Overhead infrastructure is also disadvantaged by the more frequent occurrence of temperatures oscillating around zero degrees Celsius (for overhead lines, in these conditions such occurrences as wet snow deposition or icing become more intense and frequent, and thus lead to a potential increase in the frequency of failures) and the weakening of the stands of trees, making trees more susceptible to the damage caused by the wind. This is mitigated by the steps taken, inter alia, aimed at increasing the share of the cable lines as compared to the overhead ones (illustrated in Table below).

The consequences of the more frequent temperature extremes and the occurrence of milder winters are also felt by TAURON Ciepło, however these are not only the adverse effects.

According to the data and analyses, winters have been much milder in the area served by TAURON Ciepło (Silesia- Dąbrowa metropolitan area, as well as Zawiercie and Olkusz) over the last few years. This fact, of course, translates into a reduction in the demand for heat supply for the purpose of heating apartments and buildings.

An additional factor is the modernization the thermal insulation of buildings, which also has an impact on reducing heat demand. The trends of changes during the heating season are shown in the charts below.

In the same period of 2020 to 2022, the length of the heating season got extended by 32 days (the trend line in Figure below), which to a certain degree mitigated the difference resulting from an increase in the season temperature. However, this does not make up for an increase in outdoor temperatures.

Comparing the 2022 data to the 2021 data, the heat production as well as the demand for heat supply at TAURON Ciepło, during the heating period were at a much lower level, with a difference in heat production (decrease) coming in at approximately 20%. This was a consequence of a number of factors: length of the season (a similar number of the heating days) and the average temperature of the heating season in 2022 (higher than in 2021).

The impact of the situation related to the war in Ukraine (the armed invasion of Ukraine by the Russian Federation) and the resulting short term shortages and disruptions in the fuel supplies (breaking and rebuilding of the supply chains mainly for the residential customers), numerous appeals by the influential representatives, such as the EU countries’ ministers of the environment asking for energy conservation and efficient use of energy, from the point of view of the behavior of the district heating consumers contributed to the occurrence of a general trend in energy conservation (among other things, setting a lower indoor temperature without compromising the comfort for users), which has translated into the lower demand and lower heat production.

In addition to the long term reduction plans related to the ultimate change in the Group’s fuel mix, the reduction of the greenhouse gas emissions is also achieved through smaller ongoing reduction measures, adequate to the line of business, and such reductions made in 2022 are reflected in the Table below.

TAURON Group's greenhouse gas emission reductions achieved in 2022, presented above, do not include emissions avoided as a result of the direct production increases from the RES sources, as they are not built directly to replace specific fossil fuel based sources, but the balance of production enables demonstrating such emissions.

TAURON Group engages in the public discussion on the energy transition concerning climate related issues on an ongoing basis.

Matters related to the energy transition were discussed on an ongoing basis during meetings of such working groups as the Regional Energy Council at the Silesian Union of Municipalities and Counties or the Regional Team for the Initiative of Mining Regions at the Office of the Marshal of the Silesia Province. In 2022, TAURON continued its operational cooperation with the Local Government Units (JST – Jednostki Samorządu Terytorialnego) with respect to the National and Regional Just Transition Plans.

Through this cooperation and dialogue, the Group has an opportunity to co-create strategic documents for the benefit of the regions most vulnerable to the transition, whose goals include:

• greater opportunities in terms of employment in new and transitioning sectors,
• opportunities for skills transition,
• improving the energy efficiency of buildings,
• investing in the fight against energy poverty,
• better access to clean, affordable and secure energy,
• supporting the transition to the low carbon technologies and economic diversification based on the climate-resilient investments and jobs,
• creating attractive conditions for public and private investors,
• providing easier access to credit and loans as well as financial support,
• investing in the creation of new companies, SMEs and start-ups,
• investing in scientific research and innovation,
• investing in public, sustainable transportation,
• investing in renewable energy sources,
• improving digital connectivity networks,
• providing loans on preferential terms to public bodies at the local level,
• improving energy infrastructure, district heating systems and transportation networks.

TAURON Group’s business model has both a positive as well as a negative impact on the climate. The operations related to the burning of fossil fuels, which are the core business operations of TAURON Wytwarzanie and TAURON Ciepło, as well as unorganized (scattered) emissions of methane into the atmosphere from Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine), owned by TAURON Wydobycie, are important sources of greenhouse gas emissions.

Direct greenhouse gas emissions by TAURON Capital Group in 2022 are presented in tables below.

With regard to the final consumer, TAURON Group, by offering and selling products within its value chain (mainly electricity and gas fuels), causes greenhouse gas emissions accounted for as Scope 3 indirect emissions. Scope 3 indirect emissions also include GHG emissions from the transportation of fuels, materials and products (the Group’s subsidiaries and intermediaries) as well as GHG emissions from business trips. In 2022, it was respectively:

Scope 2 and Scope 3 indirect greenhouse gas emissions are presented in tables below.. The methodology used to determine indirect emissions and factors used to calculate indirect GHG emissions (Scope 2 and 3) are presented directly under tables below. A summary of the carbon footprint for TAURON Capital Group for 2022 is presented in Table below.

Actions taken for the climate are also reflected in various types of investment projects carried out by TAURON Group’s subsidiaries in 2022 and in the previous years, which have a direct and indirect impact on reducing specific (unit) fuel and energy consumption as well as reducing or avoiding gas emissions to the atmosphere.

The Group’s subsidiaries are undertaking a number of activities aimed at improving energy efficiency, which is reflected in the implementation, at the operational level of asset management, of measures aimed at supporting a preliminary energy efficiency audit for the planned initiatives related to the modernization or replacement of the production assets. As a result of these activities, investment tasks will be evaluated with respect to their estimated potential for acquiring property rights, the so-called „white certificates,” in the aggregate amount of min. 10 toe. The Group’s subsidiaries with the highest primary energy savings potential are getting ready to implement an energy management system.

TAURON Nowe Technologie, a subsidiary dedicated to the operation and maintenance of street lighting in the area of the Group’s operations, continued in 2022 the program of replacing the street lights with the energy saving lighting (approx. 32.6 thousand units), which will allow for the annual savings in the final electricity consumption by the consumers (more than 20 municipalities) in the estimated amount of approx. 9.5 thousand MWh/year.

The effects from the production of the new photovoltaic farms and wind farms are taken into account in 2022:

• a photovoltaic farm in Jaworzno (5 MWe), commissioned at the end of 2020 by TAURON Wytwarzanie and currently managed by the Group subsidiary (TAURON Inwestycje),
• a photovoltaic farm in Choszczno I (6 MWe), commissioned at the end of 2020 and operationally managed by TAURON Ekoenergia,
• a photovoltaic farm in Choszczno II (8 MWe), commissioned at the end of 2022 and operationally managed by TAURON Ekoenergia,
• a wind farm in Majewo (6 MWe), commissioned at the end of 2022 and operationally managed by TAURON Ekoenergia,
• a wind farm in Piotrków Trybunalski (30 MWe), commissioned at the end of 2022 and operationally managed by TAURON Ekoenergia.

Preparation and adaptation of the infrastructure taking into account the need to adapt to climate change is one of the significant items of TAURON Capital Group’s capital expenditures. As part of these activities, among others, the alteration and replacement of the grid (including adaptation to the RES grid connections), modernization of sub-stations in order to increase their efficiency, replacement of lighting with the energy saving solutions, construction of „e-mobility” and smart distribution infrastructure were carried out. The expenditures on the projects related to climate change adaptation are presented in Table below (capital expenditures in line with the EU Environmental Taxonomy).

TAURON Ekoenergia's  operations (along with the operations of the companies it is managing or its subsidiaries), which are based entirely on the production of electricity from the renewable sources, have a positive impact on the climate. As a result of the optimization of the wind farms related production assets and the favorable conditions at the sites where the wind farms are located, very good results have been achieved, both in the form of a significant reduction in the rate of in-house needs (efficiency), as well as in an increase of the renewable energy produced. Tables below show the volume of electricity produced by TAURON Group’s units in 2022, broken down by its main sources.

Implementing the vision of a sustainable development, TAURON Group continued its efforts in 2022 with aimed at increasing the installed capacity of the low- and zero-emission generation sources. As a result, TAURON Group will be creating added value for all stakeholders in the coming years, while at the same time benefiting from the chosen direction of the energy transition of its assets and curbing the related risks (transition risks).

In 2022, TAURON joined the United Nations Global Compact (UN Global Compact), the UN’s largest sustainable business initiative. The UN Global Compact is an integral part of the UN system, headquartered in New York City and operating in more than 160 countries. It is the world’s largest initiative bringing together business working for the sustainable development, inaugurated by the UN Secretary-General in 2000. It brings together firms that cooperate with the UN and develop strategies and actions based on the UN policies, in particular the Sustainable Development Goals and the 10 Principles of the United Nations Global Compact  related to four areas: human rights, labor standards, environment protection, anti-corruption.

UN Global Compact Network Poland is the country office as well as a local contact and information point for the Polish members of the UN Global Compact. It carries out its mission through activities in four umbrella programs: Climate Positive, Business and Human Rights, Anticorruption Program and United Business for Ukraine. The country office also coordinates the cooperation with the Polish government, local government representatives and other UN agencies and programs operating in Poland or on the territory of Poland, supporting the efforts of the UN Global Compact headquarters to achieve the UN Sustainable Development Goals.

TAURON Group places its commitment to achieving the Sustainable Development Goals – SDG 13 „Action on Climate Change” – at the center. TAURON is seeking to be one of the leaders of the energy transition in Poland and therefore in 2021 it revised its long term investment plan to increase and provide adequate funds to continuously develop renewable energy (SDG 7). In 2021, the Photovoltaics Development Program was modified with a view to use the Company’s own industrial sites and convert such land to perform a new functionality.

In addition, in line with SDG 9 „Industry, innovation and infrastructure” and SDG 11 „Sustainable cities and municipalities„, the Group intends to promote electrification and an increase in the consumption of electricity from renewable energy sources (RES) as well as the development of new services for the final consumers, focusing on providing adequate infrastructure.

The Green Turn of TAURON, constituting a kind of a sustainable development plan, takes into account the results of the materiality analysis and the synergies with the directions of the Strategy TAURON Group defined the directions of activities related to the sustainable development and identified, as part thereof, the specific goals to be implemented in the 2021-2025 time frame. Every year, these goals will be updated and new goals will be set to ensure compliance with the business strategy and the results achieved thus far, to increasingly integrate the sustainable development throughout the value chain. Anticipating the global trends, TAURON Group tries to identify such business opportunities that provide an advantage, keeping up with the changes in the energy sector towards sustainable development based on the change of the mix to low and zero emission.

The Sustainable Development Plan, predicated on clear and ambitious goals, reaffirms the leading role of TAURON Group in promoting and accelerating the energy transition, creating long term added value for all stakeholders.

Both assuming a warming at the level of at most 2 °C, as well as seeking not to cause a warming by more than 1.5 °C, will translate into TAURON Group’s business model and strategy. However, their expected consequences may be different over time. The so-called electricity generation mix will have to undergo a gradual change. The Sustainable Development Indices that will reflect the transition process include: the RES Capacity Growth Index (shown in Table below) and the Emissions Reduction Index (shown in Table below).

TAURON Group’s dependence on the individual types of the natural capital in the years 2020-2022 is presented in Table below and in the years 2021-2022 is presented in Tables below.

Due to generating electricity in hydro power plants, the RES Line of Business is highly exposed to the risk of outages or reduction of production as a result of prolonged droughts, which translate into shrinking of the surface water resources in river basins, where hydro power plants are located. TAURON Ekoenergia is monitoring such developments on an ongoing basis and has an inventory listing of assets most exposed to such restrictions.

The Group is also monitoring the rate of energy consumption (intensity) related to its operations on an ongoing basis, as shown in the indices in Table below.

TAURON Group has inventoried, during inventory energy audits, the potential tasks related to reducing energy consumption (intensity). The targets related to energy consumption were set based on such measures, as shown in Tables below.

The energy consumption rates for the TAURON Wytwarzanie and TAURON Ciepło subsidiaries in 2022 reached values that were higher than those assumed on the path to reaching the set targets (2020 targets) in terms of energy consumption for electricity production. The reasons for this can be as follows:

• need to operate TAURON Wytwarzanie units as centrally controlled (dispatched) generation units that stabilized the power system in the south of Poland in highly volatile energy flow conditions, also with respect to international trade (imports/exports). This resulted in the operation of the units at sub-optimal operating points (high volatility of the efficiency of the individual generating units),
• much more frequent than assumed number of start-ups and shutdowns of TAURON Wytwarzanie’s generation units,
• high heat production combined with the reduction of the operation in the condensation mode at TAURON Ciepło translated into a slightly better result of the energy consumption rate for heat production and worse than assumed for electricity production.

The Group can turn the climate related risk into opportunities by offering products and services that contribute to mitigating climate change or adapting thereto. TAURON Group is observing a clear trend underway that involves a redirection of the consumers’ and business customers’ choices towards products and services that are less harmful to the climate. This is a key factor leading to the development of the so-called ECO line. Such an offering increases the resilience of the product portfolio against climate change. In addition, as part of the sales of certified products, the so-called EKO Product Line, including contracting the sale of the electricity „certified based on its origin” to business customers, a total of approx. 794 GWh of green energy coming from TAURON Group’s in-house sources was contracted.

EKO product lines (for business and individual customers) are products that allow, among others, for the conscious purchase, by the Group’s customers, of electricity produced by renewable energy installations or by low-emission generation sources and confirmed by the applicable certificates from independent institutions (Polish Energy Certification Society, TUV Sud). The EKO products sales’ results are presented in Table below.

A wide range of energy efficiency program activities are being implemented through the energy programs conducted by TAURON Group’s subsidiaries. These programs are targeted at a number of customer segments, including residential customers, industry, and local governments. These include:

• educational campaigns and IT tools to promote energy efficiency at TAURON Sprzedaż, TAURON Dystrybucja and TAURON Ciepło
• Energy Audit of Enterprises,
• implementation of the replacement of street lighting with energy efficient lighting, also providing the possibility of controlling the intensity of the light stream.

TAURON Group has been implementing an energy efficiency improvement program for several years, which includes, among other things, the implementation of a certified energy management system (based on the highest standards or norms) in the near future, an efficient approach to estimating the potential for primary energy savings (the so-called „white certificates”) related to the modernization of generation assets as well as district heating and power distribution systems, and the sale of goods and services aimed at promoting energy savings to customers.

One of the absolute targets is the mandatory verification of conditions for each modernization initiative with estimated primary energy savings of more than 10 toe (also an aggregation of projects and tasks), and an intermediate target has been set to acquire energy efficiency property rights annually in order to cover the Group’s own obligations in this regard.

Examples of the programs implemented by TAURON Group in the field of energy efficiency include: