Climate Policy

TAURON Group’s pro-climatic activities had begun before the announcement of the Communication 2019/C 209/01 and the attachments related thereto (the first documents announcing pro-climate legislation for enterprises in the European Union). The Group introduced the Update of the Strategic Directions in May 2019, as part of which the so-called Green Turn of TAURON is being implemented. With respect to the above the Management Board of TAURON Polska Energia S.A. also adopted to be applied the document entitled: TAURON Group’s Climate Policy, in November 2019.

Effectively counteracting the climate change and the sustainable development are the two main objectives of TAURON Group’s Climate Policy. This document is also in line with the assumptions of the Green Turn of TAURON strategic concept.

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

The Group also has photovoltaic micro-installations operated for in-house needs. TAURON Ekoenergia has panels with the capacity of 12.26 kW installed on the roofs of its buildings, operated for the company’s in-house needs, while TAURON Dystrybucja has 120 kW of such capacity.

One of the most important commitments with respect to climate change is the declaration of support for the measures aimed at reducing the global warming by maintaining the rate of the temperature rise below 2°C relative to the pre-industrial levels.

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 underway.

The Policy is applicable to all of the Group’s subsidiaries, although each of them has detailed goals and tasks stemming from the policy.

DUE DILIGENCE PROCEDURES AND INTERNAL REGULATIONS

TAURON’s Climate Policy is in accordance with the provisions of the EC Communication 2019/C209/01 and the TCFD Report for the energy sector appended thereto and fulfills the provisions thereof.

The due diligence procedures that accommodate the climate sensitive issues, implemented gradually in 2020, have been included in:

• Risk management – process based management of climate risk in the short, medium and long term (2020 – 2025 – 2030) wis implemented starting from 2020.
• Asset management – adaptation to the climate change, aimed at reducing the impact of the physical risks related to the climate, has been included in TAURON Group’s asset management policy since 2020.
• Human capital, employee training and recruitment management – the Group does not yet have a policy on the employees that would reference the climate change, but is aware of the need to prepare such a policy in the near future in order to invest in the skills necessary during the transition to the low-emission technologies in the subsequent years.

Due to the fact that three subsidiaries, TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa TAURON, are covered by the obligation to participate in the so-called European Emissions Trading System (ETS), the climate related issues are included in the operational decision making processes at such subsidiaries. In 2020, the organizational regulations of TAURON Polska Energia S.A. changes took place as a result of which the Climate Area was established. Changes were introduced to the organizational regulations of TAURON Polska Energia S.A. in 2020, as a result of which the Climate Area was established.

Adaptation to climate change

TAURON Group’s Climate Policy defines the basic priorities with respect to the adaptation to the climate change. The gradual adaptation of the production assets to the consequences of extreme weather occurrences and volatility of weather conditions, in particular in case of the Lines of Business sensitive to the volatility of temperature, rainfall and wind strength, is implemented as part of the system-wide approach to Asset Management.

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, in order to prioritize 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.

Due to the cooling systems used, TAURON Group’s conventional power plants are much less exposed to the need to reduce production due to the shortage of water than the power plants with the so-called open cooling systems. The above factor puts TAURON at an advantage as compared to the other energy groups operating in Poland and in Europe.

The consequences of the extreme weather conditions are most strongly felt by 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. The number of days on which the electricity production at TAURON Ekoenergia did not take place due to the low water level in the rivers, is presented below.

At TAURON Dystrybucja, the 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 2020 is illustrated below.

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

Overhead infrastructure is also disadvantaged by the more frequent occurrence of temperatures oscillating around zero degrees Celsius in winter 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 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 our data and analyses, winters have been much milder in the area served by TAURON Ciepło (Silesia-Dąbrowa metropolitan area, and 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 thermo-modernization of buildings, which also has an impact on reducing heat demand. The trends of changes during the heating season are shown below.

In the same period of 2002 to 2020, the length of the heating season was extended by 20 days, which somewhat mitigated the difference resulting from an increase in the season temperature. However, this does not make up for an increase in outside temperatures.

Comparing the 2020 data to the 2019 data, the heat production as well as the demand for heat supplies at TAURON Ciepło, during the heating period were at a very similar level, with a very small difference in heat production (decline) amounting to approximately 0.5%. The length of the season and the average temperature of the heating season were at a very similar level in 2020 and 2019, and the situation related to the coronavirus did not change the preferences of the district heating users.

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.

ACTIONS TAKEN AND RESULTS ACHIEVED

Cooperation with partners to counter climate change

TAURON Group engages in the public discussion on energy transition concerning climate-related issues on an ongoing basis. Despite the COVID-19 pandemic, it also began cooperation with non-business partners in 2020.

A webinar devoted to the Group’s Climate Policy was held for TAURON Polska Energia employees in May 2020, as part of the so-called internal trainers program, attended by nearly 40 employees from various organizational units.

TAURON cooperated in the works of the working group on energy as part of the project Zero-emission Polska 2050. A chance for the economy and climate, established of the initiative of WWF Poland. The project ended in September 2020 with the publication of a report, and its aim was to create a different perspective on the issue of climate neutrality in Poland among the representatives of the public sector, business and non-government organizations, outlining the main directions of intervention in the area of construction, energy, agriculture and forestry, as well as transportation.

Matters related to energy transition were also discussed on an ongoing basis during 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 Marshal of Silesia”. In 2020, TAURON was also operationally involved in the work on the Regional Just Transition Plans.

In November 2020, TAURON also supported the organization of an event dedicated to climate change, which was the Metropolitan Climathon 2020. This marathon of creativity on climate protection was held on-line in 2020, and was devoted to the issue of drought in the city. The concept of Climathon is to jointly develop solutions responding to specific climate challenges at the given place, during 24 -hour events that take place simultaneously in more than 100 cities around the world in 47 countries. This year’s metropolitan edition was organized under the slogan: Metropolis in the era of global warming – water retention and drought prevention.

Improving the efficiency of the production processes that have an impact on the climate change

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, TAURON Ciepło and Nowe Jaworzno Grupa TAURON, as well as unorganized emissions of methane into the atmosphere from Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine), owned by TAURON Wydobycie, are important sources of greenhouse gas emissions. Methane emissions come from the mine ventilation, over which the company has no direct influence and cannot control it in a technically justified manner. The emissions constitute the so-called off-balance sheet methane emissions, which are calculated and included in the charges for the use of the environment for the business purposes.

In addition, ZG Brzeszcze is equipped with a mine methane extraction (drainage) plant, in which, in 2020, 100% of methane was obtained and utilized (sold) in the quantity of approx. 40 million Nm³ of methane, thus it was not a source of direct methane emissions to the atmosphere and was used in the combustion processes by external entities as an energy source.

Direct greenhouse gas emissions due to the secondary operations of TAURON Wytwarzanie, TAURON Ciepło, Nowe Jaworzno Grupa TAURON, as well as the Group’s other subsidiaries do not account for a significant share and, above all, are related to the combustion of fuels in the engines of the production machines and cars.

Actions taken for the climate are also reflected in various types of investment projects carried out by TAURON Capital Group’s subsidiaries in 2020 and in the previous years, which have a direct and indirect impact on reducing 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 acquisition of energy efficiency property rights in the quantity of 715 toe in 2020. The Group’s subsidiaries with the highest primary energy savings potential are getting ready to implement an energy management system.

The number of electric vehicle charging stations connected to the power grid of the Group’s subsidiary went up by another 64 stations in 2020.

TAURON Nowe Technologie, a subsidiary dedicated to the operation and maintenance of street lighting in the area of the Group’s operations, continued in 2020 the program of replacing the street lights with the energy-saving lighting (approx. 28.4 thousand units), which will allow for annual savings in the final electricity consumption by the consumers (21 municipalities) in the estimated amount of approx. 8 267 MWh/year.

At the end of 2020, TAURON Wytwarzanie completed the construction of a photovoltaic farm in Jaworzno (5 MWe), and the effects of the production from that renewable energy source will be accounted for starting from 2021.

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 stations in order to increase their efficiency, replacement of lighting with the energy-saving solutions, construction of “e-mobility” and “e-grid” infrastructure were carried out.

TAURON Group’s total capital expenditures on the projects directly related to climate change measures and the adaptation to climate change came in at nearly PLN 197 million in 2020, which represented approx. 4.9% of the Group’s total investment outlays.

The operations of TAURON Ekoenergia, which are based entirely on the production of electricity from renewable sources, have a positive impact on the climate. As a result of the optimization of the wind farms’ production assets and favorable conditions at the locations thereof, very good results were achieved, both in the form of a significant reduction of the in-house needs ratio (efficiency) as well as an increase in the electricity produced from RES.

Both the assumption of a warming at the level of at most 2°C, as well as the assumption of a warming by more than 2°C will translate into TAURON Group’s business model and strategy. However, their expected consequences may be different over time. The so-called energy mix of the electricity produced will have to undergo a gradual change. The Sustainable Development Indices that will reflect the transition process denote: RES Capacity Growth Index (shown in the first table below) and the Emission Reduction Index (shown in the send table below).

RES Capacity Growth Index denotes the index of the average annual increase of installed capacity in RES, calculated as follows:

where:

JWZM_{OZE_r} [%] denotes the unit index of increasing RES capacity in year r;

WM_{OZE_r} [%] denotes the installed capacity change index;

r denotes calendar year;

2018 is the base year (the calculation was adopted following the adoption of the Climate Policy in November 2019, i.e. before the settlement of the year 2019 as defined by the emissions trading scheme).

The installed capacity change index is calculated as follows:

where:

WM_{OZE_r} [%] denotes the installed capacity change index;

M_{OZE_r} [MW_e] denotes the installed capacity of RES units in year r, excluding biomass fired units, and the units of TAURON Ciepło;

M_{OZE_2018} [MW_e] odenotes the installed capacity of RES units in the base year, excluding biomass fired units and the units of TAURON Ciepło.

Emission Reduction Index denotes the average annual CO₂ emission reduction index for gross electricity production, calculated as follows (excluding the units of TAURON Ciepło):

where:

JWREr [%] denotes the average annual CO₂ emission reduction index in year r;

WE_{CO2_}r [MgCO₂/MWh] denotes the CO₂ emission index in year r, accounted for under the Community Emission Trading Scheme;

WE_{CO2_2018} [MgCO₂/MWh] denotes the CO₂ emission index in the base year, accounted for under the Community Emission Trading Scheme;

r denotes a calendar year;

2018 is the base year (the calculation was adopted following the adoption of the Climate Policy in November 2019, i.e. before the settlement of 2019 as defined by the emissions trading scheme).

The CO₂ emission index is calculated as follows:

where:

WE_{CO2_r} [MgCO₂/MWh] denotes the CO₂ emission index for gross electricity production;

E_CO2(ee)r [MgCO₂] denotes the CO₂ emissions in year r for gross electricity production from fossil fuels and biomass as well as RES in year r;

P_ee(brutto)r [MWh] denotes gross electricity production from fossil fuels and biomass as well as RES in year r.

The Group’s dependence on the natural capital varies in different lines of business. Mining, Generation and Heat Line of Business depends on the fossil fuel resources, which are not very sensitive to the climate change. As their physical availability is not dependent on the rate of the global warming. TAURON Group’s dependence on the individual types of the natural capital in 2019 and 2020 is presented in the tables below.

Due to generating electricity in hydropower 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 a decrease in surface water resources in river basins, where hydropower 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 related to its operations on an ongoing basis, as shown in the indices in the table below.

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

The 2020 targets in terms of energy consumption indicators for TAURON Wytwarzanie and TAURON Ciepło subsidiaries reached values higher than those assumed 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 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 index for heat production and worse than assumed for electricity production.

Climate-related opportunities

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.

EKO product lines (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 below.

As a principle, TAURON does not take on targeted financing, with funds dedicated directly to the given investment task, as it obtains funds that enable financing of TAURON Group’s corporate and investment activities. Pursuant to the terms of some of the agreements, TAURON is obliged to implement the indicated investment projects, comply with specific sustainable development indicators, as well as act in accordance with the principles of environmental and social policy, the implementation of which is confirmed by relevant reports submitted to the financial institutions. Additionally, in some financing agreements, TAURON undertakes not to allocate funds from the given financing to finance activities related to the operations of the generation and mining lines of business.

The table below presents the allocation of funds from TAURON Group’s individual sources of financing for investment purposes aimed at minimizing the negative impact of the Group’s operations on the climate.

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

Natural capital