TAURON Capital Group’s strategy and business model in the context of climate protection requirements

Financial goals and assumptions of TAURON Group’s Strategy The implementation of TAURON Group’s Strategy and the strategic priorities in 2020
201-2, EU-DMA
Financial capital Financial capital
Human capital Human capital
Intellectual capital Intellectual capital
Natural capital Natural capital
Production capital Production capital
Social capital Social capital

Being aware of the progressing climate changes and their effects, as well as of the important role and tasks of the power sector in the broadly understood transition to a low emission economy, TAURON Group is taking actions aimed at reducing the negative impact of TAURON Group on climate and the environment and taking the greatest possible advantage of the opportunities associated therewith.

The Group was organized in a long chain of operations covering virtually all of the value building stages: from acquiring fuel, up to supplying the product to the final consumer. Such organization allows to impact the quality of the processes implemented at each stage of value creation, and thus optimize and, if required, change the way of doing business so as to respond to the current and future challenges. TAURON Group is changing towards the implementation of the assumptions of the European Green Deal, which is reflected, inter alia, in the Green Turn of TAURON. For the energy industry, the climate impact includes both, weather related occurrences, as well as regulatory changes and changes in customer attitudes. All of this is not without significance for the business model and Strategy.

In line with the European Green Deal, the transition of the European economy towards a sustainable future takes place on many levels. TAURON Group recognizes the risk of significant changes in the regulatory area, both at the European, as well as the national level, aimed at minimizing the negative impact on the climate by introducing further restrictions for coal-based power generation, mainly tightening of the climate regulations and the departure of the financial institutions and insurers from the cooperation with entities operating coal assets. The above is the main determinant for the development of RES at TAURON Group, as well as for the implementation of the principles of the so-called circular economy. However, one should be aware of Poland’s current energy mix, including that of TAURON Group, based on fossil fuels, historically associated with the large coal resources held, ensuring energy security. The departure of the energy industry from that model will be a process that must be spread over time and for which funds will be required to provide investment opportunities and activities mitigating the social implications of the changes taking place.

In order to standardize the approach to financing environmentally sustainable investments a framework for financial market participants was created at the European Union level that allows for classifying economic activity as environmentally sustainable. Such an approach, presented mainly in the European Commission Communication 2019/C 209/01 and in the Taxonomy document of June 2019, as well as in the Regulations of the European Parliament and of the Council no. 2019/2088 and 2020/852, allows for a uniform indication which investments and consequently, the revenues, can be qualified as sustainable and thus contribute to the achievement of the environmental objectives. Contributions to mitigating climate change include, among others: generation and distribution of electricity from renewable sources. In this respect, TAURON is gradually increasing the share of production from renewable sources thanks to investments in wind and photovoltaic power plants and the modernization of hydropower plants. TAURON is also implementing a distribution grid modernization and expansion program, thanks to which it is possible to connect more renewable sources, including the prosumer ones.

In 2020, nearly 100 thousand prosumer installations were connected to TAURON Dystrybucja’s grid with a total capacity of more than 650 MW, the cumulative capacity of prosumer installations connected to TAURON Dystrybucja’s grid is more than 970 MW. The use of the best available technologies can also be considered as a contribution to mitigating climate change – such a solution is the 910 MW unit in Jaworzno, commissioned in 2020, which is a unit with a supercritical parameter boiler providing the highest possible efficiency, which will replace the old generation assets with higher emissions.

In accordance with the Update of the Strategic Directions, adopted in May 2019, TAURON Group will reduce its emissions by more than 50% by 2030.

Planned CO2 emissions by TAURON Capital Group in 2018-2030

With respect to the protection of water resources, TAURON places great emphasis on saving water in technological processes, e.g. by using closed cooling circuits in conventional power plants. In case of hydroelectric power plants, environmental requirements are met, e.g. by building and maintaining systems that enable fish migration (the so-called fish passes).

Due to the adopted business model, it is important for TAURON Group is to implement the assumptions of the circular economy. This applies in particular to the initial links of the value chain. In the mining line of business, gangue (barren rock) is mined as a by-product, while ash and slag are produced in the conventional generation segment. TAURON Group strives to convert 100% of its furnace (combustion) and mining waste into products. Thanks to the actions taken, they become products used, for example, in road building, construction industry, or as a material used for the construction of flood embankments.

Another activity related to the achievement of environmental targets, implemented within TAURON Group, is pollution prevention. It is achieved mainly through investment and modernization activities, involving the construction and operation of the technological lines that treat flue gases (e.g. electrostatic precipitators, flue gas desulphurization and denitrification) and wastewater (sewage treatment plants), as well as organizing processes in a manner that minimizes waste generation.

Actions taken and results achieved, related to environment protection, including those associated with water consumption and waste management, are presented in the section TAURON Group’s Environmental Policy.

Due to the technologies used, business operations in the energy sector may generate a number of negative impacts on the climate, in particular emissions from fossil fuel combustion sources, or drainage and degradation of the land as a result of mining activities. TAURON Group reduces its negative impact on the environment and climate thanks to the continuous modernization of conventional generating units, expansion of capacity in renewable energy sources, capturing and economic use of methane from coal deposits, limiting losses in electricity and heat distribution or retiring ineffective coal-fired units.

Positive effects can also be indicated, such as water damming and its accumulation during periods of heavy rainfall and the release during periods of drought, which not only allows for reducing the effects of drought, but also reduces the risk of inundation or flooding. The expansion of the heating infrastructure makes it possible to replace non-ecological individual coal-fired boilers with district heating. Modernization and expansion of the electricity distribution grid improves the reliability of electricity supply and enables connecting an ever-increasing number of distributed electricity producers using renewable sources, including prosumers. As a result of its investment activities TAURON Group’s production of electricity from renewable sources is gradually increasing, contributing to the mitigation of climate change.

TAURON Capital Group’s 2020 electricity production from renewable sources, broken down into generation technologies and from other sources, is presented in the section TAURON Group’s Climate Policy.

The Group’s current Strategy responds to the current market, regulatory, technological and customer relationship challenges. The business model employed by TAURON Group allows for the implementation of strategic assumptions and thus supports the achievement of strategic goals. Referring to the terms of the Paris Accord (COP 21), which included an action plan assuming limiting global warming to a value below 2⁰C, it should be indicated that the currently implemented Strategy and the business model of TAURON Group are in line with the implementation of this goal.

In case the expected limitation of the temperature increase does not materialize, the measures and actions taken will have to be more radical, and their implementation will have to be significantly accelerated. Table 16 presents our understanding of the current situation and activities with respect to regarding shoring up the resilience of the business model to climate change.

Changes to TAURON Capital Group’s business model in the short, medium and long term

Export to Excel
Temperature rise scenario
Short term
(until 2025)
Medium term (until 2035)
Check point 2030
Long term
(until 2050)
Up to the check point<
Past the check point
< 2 OC
We have solutions ready – we are implementing TAURON Group’s Strategy:

  • Shutdown of obsolete 120 MW coal fired units (approx. 1 GW).
  • Participation in implementing system solutions for the coal-fired units, conducted at the government level (NABE).
  • Prepared plan to change the fuel mix including a plan to invest in low and zero emission sources (approx. 900 MW in wind power plants + 300 MW in solar power plants). The completion of the above activities will allow for increasing the RES share to approx. 28% of the installed capacity.
  • New high efficiency and lower emission 910 MW unit in Jaworzno has been commissioned.
  • Option to sell the Heat Line of Business – including the coal-fired generating units.
  • Option to sell a coal mine / mining company – government works underway on the system-wide solution for the coal mining assets.
  • Growing role of the distribution and increasing expenditures on adapting the grid to the rapid growth of the RES mini- and micro-installations
  • Shutdown of the 200 MW coal fired units.
  • Participation in the off-shore wind farm construction project.
  • Service and product offering for the prosumers.
  • Construction of successive large RES installations. It is assumed that low and zero emissions capacity will increase by further 1.4 GW. The completion of the above activities will allow for increasing the RES share to approx. 66% of the Group’s capacity.
  • Maintaining profitable coal-fired units as regulating and intervention sources.
  • Significant role of the distribution in the local balancing.
  • Building installations that use “green hydrogen”.
*Preparation of the development assumptions for the years 2030+
> 2 OC
Adapting the mining operations to the demand of the Group’s coal-fired generating units.
  • Limiting the mining operations to the level based on the Group’s generating units regulating and intervention operation.
  • Maintaining the leading role of the distribution, including the need to commence building energy storage facilities for the local balancing.
*Preparation of the development assumptions for the years 2030+

* The main determining factors (drivers) for formulating the applicable provisions are: 1) Passing of Poland’s Energy Policy; 2) Results of the government works on the system-wide solutions for the coal mining and conventional power generation.

Based on the scenario assuming warming at a maximum level of 2C, changes in the external environment will be rather evolutionary, as a result of the growing awareness of the society and businesses and the ever-increasing availability of the new technologies. If the evolutionary activities cannot stop the temperature rise and the forecasts will be clearly indicating that there is a high probability of exceeding the average temperature rise by more than 2 °C above the value from the pre-industrial era, changes in the external environment, in particular with respect to the regulations, organization of the power (energy) system and the power (energy) production model, as well as the customer awareness and behaviors will be very deep and fast. As of today, we can plan counteracting climate change taking into account the available technologies and the best knowledge as well as, very importantly, the availability of financial resources. The potential emergence of modern and breakthrough technological solutions and their commercialization may lead to fundamental changes in the entire energy sector’s functioning model.

The growing energy awareness, combined with the rising energy cost, will lead to the ever higher and rising interest in energy efficiency, energy saving and electricity production from the renewable energy sources (RES). More and more customers will accept higher electricity costs as long as it is produced without the negative impact on the climate. Social pressure and the EU regulations are causing Poland to introduce increasingly more stringent environmental standards and a rising taxation of the CO2 emissions (fees for the CO2 emissions). The continuous increase in the CO2 emission allowances prices is also associated with the use of the regulatory mechanisms leading to the reduced supply of the emission allowances, the EU’s commitments to reduce the emissions by 55% in 2030 will be implemented through the supply controls – that is why the development of low- and zero-emission energy sources is so important. The next version of the BAT conclusions is expected to be released in the second half of the decade. The adaptation of the coal fired units to the more stringent emission standards may prove to be impossible technologically or very expensive and ultimately economically unjustified for the older generation sources. In response to the above, TAURON Group is already today assuming a gradual decommissioning of the old coal-fired units. The first of such steps was the permanent shutdown of the coal-fired units with a total capacity of 970 MW at the turn of 2020 and 2021. In accordance with the Strategy, further coal-fired units will gradually be retired by 2030.

The improvement of energy efficiency and the levels of greenhouse gas emissions in 2020 are presented in section TAURON Group’s Environmental Policy.

The EU’s new requirements imposed on the financial institutions practically cut off the coal technologies from the European funding sources. At the same time, investors and financial institutions are eager to participate in the RES projects. We assume that no European aid funds will be available for the development of the coal-based electricity generation sector, and for the gas fired generation sources such access will be limited. With respect to the power and heat generation sector, aid funds will be allocated solely to the restructuring and mitigation of the social effects as well as the transition of the energy towards electricity generation from RES. TAURON Group acquires financing to support the Green Turn of TAURON, allocating funds for investments that contribute to the implementation of the environmental goals – mainly with respect to electricity distribution and renewable generation sources.

The list of funds obtained for pro-climate investments is presented in section Strategic Research Agenda.

With respect to renewable energy sources, offshore wind energy is a technology that could play an important role in the current decade. It is assumed that in the first phase support will be granted to projects with a total capacity of approx. 5.9 GW, in the second phase, beyond 2025, as a result of an auction, this capacity may be increased by another approx. 5 GW. It should be mentioned that at the EU level the offshore strategy assumes the construction of more than 300 GW of capacity by 2050 as part of the development of offshore wind energy. In order to take full advantage of this potential, it is necessary to develop technologies that enable energy storage. One of such solutions is the production of hydrogen using electricity from renewable sources. The European hydrogen strategy envisages the construction of approx. 40 MW of capacity in electrolyzers interworking with renewable sources by 2030 and a further development of this technology by 2050. Work is underway in Poland on the “Polish Hydrogen Strategy until 2030”. The draft document assumes that these activities will cover both the energy sector, as well as transportation and manufacturing industry. TAURON, acting in line with the indicated trends, both develops energy storage technologies, but also carries out activities aimed at developing offshore wind energy – among others, an agreement was signed in 2020 on the cooperation in the joint implementation of offshore wind farm projects in the Polish economic zone. TAURON informed investors of this event in the current report (regulatory filling) no. 56/2020 of December 29, 2020. In January 2021, PGE, Enea and TAURON also concluded a letter of intent regarding cooperation with respect to offshore wind energy.

The rising share of the wind farms in the production mix will lead to the higher price volatility. A similar situation occurs with respect to the PV sources. Prosumer installations and large-scale installations operating today and forecast to be launched cause and will cause a still higher price volatility. Electricity during the peak hours of renewable energy production will be cheap, therefore it is likely to worsen the economic efficiency of such installations. The solution to this issue is technology diversification. TAURON Group does not focus on one renewable energy technology. Another solution to this problem can be energy storage technologies – both using storage facilities based on electrochemical cells as well as based on the production and storage of hydrogen using redundant, cheap electricity. As of today, both of these energy storage technologies are being developed by TAURON Group.

The rising number of the intermittent (non-controllable) renewable energy sources, as well as the growing number of prosumer installations are ever increasingly affecting the power system from the technical and commercial point of view. Rising energy efficiency of the customers and growing production from the prosumer installations lead to a drop of the demand for the electricity generated by the system (utility scale) sources. This trend, combined with the rising prices of the fossil fuels and/or the increase in the environmental and climate costs (CO2 emission and the costs of the other emissions) related thereto, causes a shift in the role of the system (utility scale) power plants (in particular, the coal fired ones) from the position of primary sources to that of complementary and stabilizing ones.

TAURON Group’s Strategy places a strong emphasis on the development of renewable energy sources. The modern 910 MW coal-fired unit in Jaworzno, commissioned in 2020, is the last coal-based generation unit, and the investment plans envisage the expansion of capacity in onshore and offshore wind technologies and the construction of photovoltaic farms. The first effects of implementing such strategy included doubling of the wind farms capacity in 2019

The nature of the transmission systems and distribution grids is changing. This is mainly due to the development of distributed energy and requires the allocation of significant investment outlays for the expansion and adaptation of the grid to bi-directional flows. The technical solutions and network topologies are also significantly affected by the extreme weather conditions. Their increasing number and intensity make it necessary to use the solutions resilient against, in particular, strong winds. This leads to the need to build cable and insulated networks (for the medium and low voltage grids) and upgrade the overhead networks, especially in the built-up and forest areas. TAURON Dystrybucja, as the Distribution System Operator, has, for years, been, implementing investment tasks to improve the quality and reliability of electricity supplies, mainly through automation, modernization of the existing grid and its expansion. Such activities improve network management, allow for a faster response to the grid disruptions, enable connecting further renewable energy sources and, inter alia, thanks to cabling, they reduce the possibility of a negative impact of weather and climate phenomena on the grid.

Climate changes observed in recent years do not significantly affect the way TAURON Group uses its natural capitals. Temperature rise associated with climate change has a negative impact on the production from hydroelectric power plants (due to the hydrological drought), but thanks to the development of photovoltaic and wind generation, including off-shore, the Group will be able to use such renewable generation sources even to a larger degree. In the long run, TAURON Group’s impact on natural resources will be decreasing, both due to the need to meet the expected tightening of environmental requirements and climate policy, as a result of investments into new, low- and zero-emission energy sources, but also thanks to the permanent shutdown of obsolete conventional units. The Group’s transition towards low- and zero -emission energy will impact the business model, shifting revenue generation place within the value chain. In turn, the implementation of this scenario will have an impact on human capital, causing the need to change the qualifications of some employees and hire people with new skills. Thanks to the transition being implemented, there is also a chance that dedicated and qualified persons might become interested in working at TAURON Group, as they would be offered an opportunity to build career paths in the new renewable technology fields. The challenges associated with therewith and the opportunity to work in a stable industry will become one of the factors changing the perception of the energy sector by young generations, as an industry viewed as modern and climate neutral.

More on TAURON Group’s capitals in section Our capitals.

TAURON Group has no significant impact on climate change through deforestation, forest degradation or changes to land use. More information on this topic can be found in sections describing TAURON Group’s Environmental Policy and Climate Policy.

Taking into account the above-mentioned scenarios and TAURON Group’s potential responses, the Management Board of TAURON Polska Energia adopted, in May 2019, the Update of the Strategic Directions, supplementing TAURON Group’s Strategy for 2016-2025.

Planned CO2 emission level by the TAURON Group in 2018-2030