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Material factors impacting TAURON Group’s growth

Notes TAURON Group against the backdrop of the world’s greatest challenges – climate changes and insufficient resources

The following factors will have the most material impact upon the results of TAURON Capital Group’s operations over at least the next quarter:

  1. macroeconomic situation in Poland at the EU and global economy level, including changes of interest rates, FX rates, etc., impacting valuation of assets and liabilities listed by the Company in the statement of financial position,
  2. market situation in Poland and in the EU, as well as the global economy, including changes of the electricity prices, prices of the CO2 emission allowances, prices of the raw materials (commodities), etc., affecting the revenues and the level of the costs generated,
  3. introduction of the state of epidemic in Poland, as of March 20, 2020, effective until cancelled due to the COVID-19 virus infections which, as a consequence, leads to a decrease of the demand for electricity, and thus a decline of the volume of electricity distributed and supplied, as well as a curtailment of electricity production,
  4. possibility of a further tightening of the constraints and trade restrictions as a result of an increase in the number of COVID-19 cases,
  5. potential increase of the overdue accounts receivable caused by the deterioration of the financial condition of the counterparties (contractors),
  6. extraordinary preventive measures implemented at TAURON Capital Group’s subsidiaries due to the state of epidemic, aimed at ensuring the safety of the employees and customers and ensuring the security of the continuity of the operations of the critical infrastructure,
  7. political environment in Poland and at the EU level, including the positions and decisions of the state administration institutions and offices, e.g.: UOKiK, URE (ERO) and the European Commission (EC),
  8. result of the Court of Justice of the European Union (CJEU) proceedings conducted in connection with a complaint submitted by TEMPUS against the European Commission regarding the declaring the decision of the European Commission, deeming the Polish capacity market mechanism to be in line with the internal market, as null and void,
  9. changes to the regulations related to the power sector, and also changes in the legal environment, including: tax law, commercial law, environment protection law,
  10. changes to the regulations governing the operation of the PPX (TGE), in particular the possibility of abolishing the exchange obligation,
  11. change in the policies of the financial institutions with respect to the financing of coal fired electricity generation,
  12. possibility of using the European funds supporting the transition of the energy sector and mitigating the effects of the social changes
  13. geological and mining factors, as well as the natural hazards that may affect the volume of fossil fuel extraction,
  14. start of the functioning, from January 2021, of the generation capabilities compensation mechanism (capacity market), under which the deliveries of electric capacity will be carried out by TAURON Capital Group subsidiaries’ generating units and demand side reduction units. The deliveries will be carried out under capacity contracts concluded during the main and additional auctions for the years 2021-2025. The launch of the capacity market results in a simultaneous expiration of the operational capacity reserve and the cold intervention reserve,
  1. support system for electricity generation from the dedicated sources (color certificates), resulting, on one hand, in the costs of redeeming (retiring) certificates for the suppliers of electricity to the final consumers, and on the other hand, in revenue from the sales of certificates for the generators of electricity,
  2. RES support system, the so-called RES auctions,
  3. competitive environment (landscape), including the activities and steps taken by the competition on the energy market,
  4. further tightening of the EU climate policy, in particular, resulting in the energy transition focused on the RES, as well as in an increase of the prices of the CO2 emission allowances,
  5. ongoing works on the government’s solution with respect to the shape of the mining and coal-based energy sector in Poland
  6. growth of the prosumer market and its impact on the Supply, Distribution, as well as the Generation and Mining Lines of Business,
  7. level of tariff for the electricity and heat supply to the households (tariff group G) approved by the President of ERO,
  8. level of tariff for the electricity distribution approved by the President of ERO,
  9. environment protection requirements as a consequence of changes to the Act of April 27, 2001, Environment Protection Law, the so-called anti-smog resolutions,
  10. planned changes to the regulations related to the Act of August 25, 2006 on the system for monitoring and inspecting fuel quality, among others, with respect to the quality requirements for the solid fuels,
  11. science (research) and technical progress,
  12. demand for electricity and the other energy market products, taking into account changes due to seasonality and weather conditions,
  13. shaping of the personnel policy, including the results of the negotiations with the Social Council of TAURON Group,
  14. changes to the schedules, budgets and scopes of the investment projects implemented by TAURON Capital Group,
  15. impact of weather conditions (factors), including those of extreme nature, resulting in the impact on the failure rate of the assets of TAURON Capital Group and the seasonality of the revenue generated and the costs incurred,
  16. results of the ongoing analyses related to the Heat Line of Business, taking into account the forecast changes in the external environment, including the regulatory and the market environment, and taking into account the prospects of the Polish heating sector, which may affect further decisions regarding the sale of the shares in TAURON Ciepło or keeping TAURON Ciepło within TAURON Capital Group.

TAURON Capital Group’s operations are characterized by seasonality that is applicable, in particular, to heat production, distribution and supply, electricity distribution and supply to the individual consumers, as well as the hard coal sales to the individual consumers for heating purposes. Heat supply depends on the weather conditions, in particular on outdoor temperature, and it is higher in the autumn and winter season. The volume of electricity supply to the individual consumers depends on the length of day which usually makes electricity supply to this group of consumers lower in the spring and summer season and higher in the autumn and winter season. Hard coal sales to the individual consumers are higher in the autumn and winter season. The seasonality of TAURON Capital Group’s other lines of business is low.

High volatility of the conditions for conducting business operations has been observed in Poland recently. Additionally, the constantly tightening climate regulations at the European and the national level constitute an important premise for the analysis of the current and future situation of TAURON Capital Group. Therefore, the Company has intensified its analytical works with respect to the assessment of the impact of the ongoing and planned changes in the economic and regulatory environment on the financial position, assets and personnel situation of TAURON Capital Group. This is why it may be justified to update the current Strategy to reflect the changes in the market and regulatory environment. A potential adaptation of the Strategy might take place if the conclusions from the analyses and consultations conducted were to demonstrate the possibility of a more efficient use of TAURON Capital Group’s potential, and in particular a chance for a faster transition of the Company’s energy mix towards RES.