Markets and sources of supply

Markets

The sales of the hard coal produced by TAURON Mining were carried out in the following directions in 2022:

  1. sales of the fine coal (coal dust) and coal sludge of the strategic importance to the power plants and the combined heat and power plants, mostly within TAURON Group, carried out under the multi year sales agreements,
  2. sales of the other assortments, in particular the large and medium size lump coal, including the eco-pea as well as the possible coal dust surpluses carried out under the contracts with the authorized hard coal sellers that constitute the company’s sales network,
  3. sales to the final customers, mainly from the power and industrial sectors, of the coal dust and medium size lump coal, carried out through contracts concluded on the basis of the individually negotiated terms or as a result of the tender and bidding procedures conducted,
  4. direct sales to the mass market customers through the Company’s in-house online channel and the customer service centers at the Company’s coal mines.

The hard coal sales to TAURON Group’s generating units, almost throughout 2022, were made through TAURON. In the fourth quarter of 2022, in connection with the planned spin-off of the coal fired generation assets out of TAURON Group as part of the implementation of the Government NABE Concept under way, the process of transferring the thermal coal sales contracts from TAURON to TAURON Wytwarzanie was initiated, leaving with the Company the responsibility for the coal fuel purchases in order to meet the demand of TAURON Ciepło.

As part of its operations TAURON Group sold 1.59 million Mg of coal to external customers, which accounted for 32% of the sold volume produced by the Group’s coal mines. Sales in 2022 on this account were 15% lower than the level of sales realized in 2021. On the other hand, TAURON Wydobycie delivered 3.31 million Mg of the thermal coal to the Group’s subsidiaries, i.e. 8% less as compared to 2021. The lower total sales of the hard coal from its own resources is a consequence of the lower production of the commercial coal, which is a result of the significantly lower output at the Sobieski Coal Mine (ZG Sobieski) brought about by the geological and mining difficulties that prevented the normal operation of the longwall and made it necessary to introduce the mining preventive measures in the section where the disturbances occurred, while the production outputs of the Janina Coal Mine (ZG Janina) and the Brzeszcze Coal Mine (ZG Brzeszcze) went up, which was a consequence of resulted a more favorable configuration of the longwall fronts than was the case in 2021.

Depending on the hard coal assortment, the coal has the following commercial:

  1. calorific value from 19 MJ/kg to 30 MJ/kg,
  2. ash content from 6.5% to 31.5%,
  3. sulfur content from 0.2% to 1.2%.

In connection with the divestment of ownership right to 100% of the shares in TAURON Wydobycie to the State Treasury, the Group is not conducting operations with respect to the commercial coal production in 2023, which is in line with its current Strategy .

TAURON Capital Group’s electricity and heat generation is carried out by:

  1. hard coal fired and biomass burning power plants and combined heat and power plants,
  2. hydroelectric power plants,
  3. wind farms,
  4. photovoltaic farms,
  5. gas engines.

In addition, as part of TAURON Nowe Technologie S.A. (TAURON Nowe Technologie) operations, electricity is produced by the gas engines fueled by methane purchased from the Brzeszcze coal mine.

The Generation Segment’s operations also include trading, distribution and transmission of heat.

The total installed electric capacity of TAURON Group’s generation units came in at 5.1 GWe of electric capacity and 2.4 GWt of thermal capacity as of the end of 2021.

The below figure presents the structure 2021 of the installed capacity of TAURON Group’s generating units as of December 31, 2022.

TAURON Capital Group’s subsidiaries generated 15.55 TWh of electricity (including 1.57 TWh from RES) in 2022, i.e. a slightly lower output as compared to 2021 when the production of electricity came in at 15.59 TWh (including 1.71 TWh from RES). The lower production from RES is the result of the lower production output of the biomass fired units and the hydro power plants, while at the same time the production of the wind farms and the photovoltaic farms was higher, which was a consequence of a rise in the installed capacity and the better meteorological conditions.

In 2022 the electricity produced by TAURON Capital Group’s subsidiaries was sold on the domestic market, first of all to TAURON Capital Group’s Supply Segment subsidiaries (67%), as well as on the balancing market (RB) to PSE (33%).

The heat sales volume by TAURON Capital Group’s subsidiaries came in at 13.80 PJ in 2022 and it was lower by 9%, as compared to 2021. The share of the heat generated from the in-house sources in the total heat sales volume clocked in at 77% in 2021.

TAURON Ciepło’s heat supply market includes the following diverse consumers: the cooperative sector (40.2%), the private sector – multi-family buildings (housing communities) and single family houses (17.3%), the municipal sector (14.5%), the offices and institutions sector (14.4%) as well as the industrial sector and others (13.5%).

In 2022, TAURON Ciepło’s acquired the company Energetyka Cieszyńska, with a heat capacity of 70 MWt, of which 23 MW comes from the cogeneration. The heat distribution system includes more than 55 kilometers of the district heating network and 434 heat substations. Energetyka Cieszyńska provides the supply of heat to the residents of Cieszyn, the Pogwizdów estate and the Municipality of Hażlach.

In addition, TAURON Capital Group’s generation subsidiaries obtain the guarantees of origin due to the electricity generation from RES, which are subsequently purchased by the Supply Segment subsidiaries and submitted to the President of ERO for redemption.

The regulated market on which TAURON Dystrybucja is operating includes the operations of 5 large electric utilities dealing with the electricity distribution and 183 other smaller enterprises of such type. The operations in the field of the electricity distribution is carried out under the conditions of a natural monopoly, which means that it is licensed by the President of the Energy Regulatory Office (ERO), and the scope of the operations is limited to the distribution grids located in a strictly defined area (municipalities and/or cities in whole or in part). The rules for determining the justified revenue obtained by the electricity distribution companies (revenue allocated to the rates of charges for the provision of the electricity distribution services) are defined in the regulatory models developed and implemented by the President of the Energy Regulatory Office (ERO).

TAURON Dystrybucja is providing the electricity distribution services for approx. 5 836 000 final consumers.The Company covers with its operations the area of about 57 thousand km2, located mainly in the Lower Silesia, Małopolska, Opole and Silesia regions and, in addition, in the Łódź, Podkarpacie and Świętokrzyskie regions. The operational functions are performed by 11 branches located in: Bielsko-Biała, Będzin, Częstochowa, Gliwice, Jelenia Góra, Kraków, Legnica, Opole, Tarnów, Wałbrzych and Wrocław.

Sales to the tariff eligible consumers on the individual voltage levels: high voltage (A group), medium voltage (B group) and low voltage (C,G), represent 96.0% of the distribution services sales volume. The total electricity volume delivered to the tariff eligible consumers connected to TAURON Dystrybucja’s grid in 2022, as part of the sales of the distribution services, came in at 53.68 TWh and it was lower, as compared to 2021, by 0.29 TWh, i.e. by 0.5%.

The below figure presents the structure of the electricity distribution by the tariff groups in 2022.

The sales of the distribution services are carried out on the basis of the comprehensive agreements as well as the agreements on the provision of the distribution services concluded with the consumers. The first type of the agreement covers both electricity supply by the Supply Segment’s subsidiaries as well as the delivery of this electricity by the subsidiary acting as a DSO. The second type of the agreement regulates only the delivery of electricity by the subsidiary acting as a DSO. In the case of this type of agreements, the purchase of electricity is governed by the separate electricity supply agreements, concluded by a consumer with the supplier selected thereby.

The wholesale trading operations conducted by TAURON comprise mainly the trading of electricity and natural gas, Such activities are performed, first and foremost, for the needs of securing (hedging) the buy and sell positions of TAURON Capital Group’s entities. The Company is operating on the wholesale markets in Poland and abroad, and it is also trading in all of the segments of the domestic energy market, i.e. on the intraday market, the day-ahead market and the forward market. The Company is an active participant of TGE (PPX).

With respect to the wholesale gas fuels trading operations the Company is an active participant of the gas market run by TGE (PPX), carries out transactions on the SPOT market as well as on the commodity forward market (RTT) products. It is involved in the proprietary trading activity on the international gas exchange POWERNEXT Pegas that, as of January 1, 2020, was taken over by The European Energy Exchange, to which the Company already had access. The Company is present on the following hubs: GASPOOL, New Connect Germany and Tittle Transfer Facility. TAURON is operating on the foreign markets due to the agreements concluded by the Company with the German transmission system operators: GASCADE Gastransport and ONTRAS Gastransport GmbH as well as Czech NET4GAS s.r.o.

In addition, the Company is a participant of the Intercontinental Exchange on the National Balancing Point hub. The access to the hubs is a consequence of the activity aimed at increasing TAURON’s gas related competences and the access to the new sources. The volume of the OTC market transactions concluded by the Company is also successively increasing. By operating on the gas market the Company is securing the commodity supplies for the entities of TAURON Capital Group; in addition, the proprietary trading operations are carried out on the RTT market, aimed at taking advantage of the volatility of the gas prices to generate the additional margins.

TAURON is also a participant of the European transmission capacity trading platform PRISMA European Capacity Platform GmbH, where the purchasing of the inter-system (interconnector) transmission capacities takes place. With respect to booking the transmission capacity on the Polish market the Company is operating as a participant of the GSA GAZ-SYSTEM Aukcje auction platform.

Electricity and natural gas retail supply to the final consumers is conducted by TAURON Sprzedaż and TAURON Sprzedaż GZE subsidiaries.

The customer segmentation applied by TAURON Capital Group (strategic, business and mass customers), depending on the volume of electricity consumed, is aimed at tailoring the product offering, sales channels and marketing communications to the expectations of the specific customer segment.

The below table presents the categories of TAURON Capital Group’s final customers, resulting from the market segmentation used and the specific nature of their business operations.

Categories of TAURON Capital Group’s final customers

Customer group Description of customers
1. Strategic customers Customers with the annual potential energy consumption at a level not lower than 40 GWh or strategic business partners of TAURON Capital Group, i.e. mainly entities representing the sector of heavy industry, for example: metallurgical industry, chemical industry, mining industry, automotive industry.
2. Business customers Customers with the annual potential energy consumption at a level above 250 MWh (other than consumers), or purchasing energy based on the provisions of the Act of January 29, 2004, Public procurement law, i.e. entities representing the other sectors of the manufacturing industry, producers of equipment, consumers from food industry, public sector, construction sector and municipal services sector.
3. Mass customers – small and medium sized enterprises Customers dealing with the sales, services, banking, catering and small businesses.
4. Mass customers – households Households

The supply subsidiaries were operating in 2022 in a market environment where the level of the competitiveness in the individual market segments did not change significantly as compared to the previous years. The household market (individual customers) continued in 2022 to be covered by the obligation to have the electricity sales prices approved by the President of ERO.

According to the ERO data, from mid-2007 until November 2022, i.e. since the beginning of the electricity market liberalization process, approx. 740 000 households and more than 230 000 institutional entities switched their electricity supplier.

In the institutions and business entities (business customer) market segment the competition is strong and the businesses have already been taking advantage of the liberalization of the electricity prices for several years. The progress of the liberalization has resulted in the increasing awareness of the business customers expecting the competitive solutions. The enhanced sales activities of the energy companies exert ever increasing price pressure. The business customers are willing to switch their supplier. The consequences of such a situation include the activities aimed at protecting own customer base against the actions taken by the competition by introducing the loyalty building agreements.

The household segment, where the number of the supplier switch cases represents a small percentage, is considered to offer a strong potential. In 2022 more than 28 200 consumers of electricity switched their suppliers (including approximately 6 400 institutional customers and approximately 21 900 households). In 2022 the pace of the supplier changes went down, as compared to 2021, in the case of the households by 17.4%, and in the case of the institutional entities, by 7.2%.

The sales offering of TAURON Sprzedaż for the business segment in 2022 included electricity and gas fuel. The company continued its activities geared towards building customer loyalty, with a particular emphasis placed on developing an offering based on the Green Turn of TAURON. The customers were offered a number of products to choose from, taking into account their needs and the specifics of their electricity consumption, including the ecological, exchange based and the technical products. The activities related to the promotion and sales of the „EKO” products – TAURON EKO PREMIUM (TEP), TAURON EKO BIZNES and the Guarantees of Origin – were continued. As part of these activities, the TEP product contracts for nearly 500 GWh were concluded in 2022. The TAURON EKO Biznes product was also very popular with the customers, the Company sold electricity, as part of this product, with a volume in the region of 1.3 TWh. The sales of the Guarantees of Origin also came in at the level of more than 0.6 TWh. In 2022, as many as 78% of the business customers, based on the sales volume, took advantage of the additional products from the TAURON Sprzedaż offering.

The process of the mass segment customers (individual customers as well as the small and medium sized enterprises) migrating from the tariff based pricing to the product based pricing, was also observed in 2022. As of the end of 2022, TAURON Capital Group was selling electricity under the agreements guaranteeing the commercial terms over the specified period to 49% of the segment’s customers (loyalty building agreements), while 51% of the customers were buying electricity at the tariff based prices.

The key elements of the commercial offering for the mass customers in 2022 were the combined products: Elektryk (Electrician) and Serwisant (Repair Man), based on the assistance functionality, that were used by more than 1.8 million customers. The assistance products will represent the core of the offering also in 2023.

In addition, in 2022 the sales of the specialized products were continued, in particular the photovoltaic installations, with its sales in 2022 reaching more than 1 200 units. In 2022, the retail supply of electricity by the Supply Segment subsidiaries, including also by TAURON Czech Energy, to approx. 5.7 million customers stood at 31.13 TWh, i.e. 93% of the 2021 level when the supply came in at 33.39 TWh. The decrease of the supply volume was reported both in the Business Customer Segment, as well as in the Mass Customer Segment, which was primarily due to the curtailed consumption of electricity by the customers in view of the very high prices of electricity on the market.

The below table presents the information on the volume of electricity supplied by TAURON Capital Group’s subsidiaries conducting operations related to the retail electricity supply, as well as the number of customers, broken down into the individual customer segments, in 2022.

Volume of retail electricity supplied and the number of customers in 2022

Customer type Electricity volume supplied (TWh) Number of customers (‘000)
1. Strategic customers 3.6 1
2. Business customers 12.8 190
3. Mass customers, including: 11.5 5 507
Households 9.5 5 128
4. Supply to TAURON Dystrybucja to cover the balancing differences 2.9 0.001
5. Other (exports, in-house needs) 0.3 –
Supply Segment 31.13 5 698

In addition, in 2022. TAURON Sales completed sales of gas to 120 000 Business and Mass Market customers. The volume of the sales of this fuel came in at more than 2.3 TWh. At the end of 2022, the company, in view of rapid changes on the energy commodities market resulting in a several fold increase in the gas prices, took a decision to terminate the gas sale contracts with more than 40 thousand individual customers billed according to the tariff price list. This decision will also have an impact on 2023, in which the company is planning to take further steps to continue its withdrawal from the retail trading of this fuel.

In the financial years ended on December 31, 2022, and December 31, 2021, TAURON Capital Group generated revenue from the sales of fuel to the Commodity Exchange Clearing House, that accounted for 16% of the Group’s total revenue in the Supply and Generation Segments and 11% of the Group’s total revenue in the Supply Segment, respectively.

Supply sources – fuels

50% of the hard coal supplies used for electricity and heat generation in 2022 were met with the hard coal from TAURON Wydobycie’s in-house coal mines, which accounted for 3.31 million Mg. The remainder of the demand was met based on the agreements concluded with the following suppliers from outside TAURON Capital Group:

  1. Polska Grupa Górnicza S.A. (20%1),
  2. Jastrzębska Spółka Węglowa S.A. (7.0%1),
  3. Węglozbyt S.A. (2.0%1),
  4. Other suppliers.

* Suppliers’ shares in the total hard coal supplies. 

The below figure presents the quantity of the hard coal and coal sludge purchased by TAURON Capital Group in 2022.

 

The Company is an active participant of the gas market managed by TGE, it carries out transactions on the SPOT market, as well as on the RTT forward market products.

TAURON is also involved in the proprietary trading activity on an international gas exchange POWERNEXT Pegas (as of January 1, 2020, The European Energy Exchange) and is present in the following hubs: GASPOOL, New Connect Germany and Tittle Transfer Facility.

In addition, the Company is a participant of the Intercontinental Exchange on the National Balancing Point. The volume of the transactions concluded by the Company on the OTC market is also systematically growing.

By operating on the gas market the Company is securing the supplies of gas for TAURON Capital Group’s entities.

In the financial years ended on December 31, 2022, and December 31, 2021, TAURON Capital Group did not identify single customers from outside TAURON Capital Group that would generate revenue from the sales of the coal and gas exceeding the level of 10% of the total sales revenue of TAURON Capital Group.

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