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Letter of the Management Board

About us

Dear Stakeholders,

On behalf of TAURON Capital Group, we have the pleasure to present to you the Consolidated Annual Report of TAURON Polska Energia S.A. Capital Group for 2020, that provides our financial, operating and ESG results, as well as the most important accomplishments of last year.

2020 will go down in history as the year of the coronavirus pandemic. It affected all areas of the economic life. In spite of the challenging conditions in the market environment and the decline in the volumes of electricity distribution and supply, the financial position of TAURON Group has remained stable. We adapted to the new situation efficiently, while the procedures introduced with respect to the functioning of the Group’s subsidiaries in a pandemic environment allowed us to ensure continuity of the production and supply of electricity to our customers.

Taking into account such extraordinary circumstances, out view of the financial results generated by TAURON Group in 2020 is positive. Sales revenue came in at PLN 20.9 billion, which meant a 7 percent. increase as compared to the previous year. EBITDA clocked in at PLN 4.2 billion and it was higher by 17 percent than in 2019. The consolidated loss attributable to the shareholders of the parent company stood at PLN 2.5 billion, mainly as a result of the booking of the impairment charges related to the loss of the assets’ carrying amount, first and foremost in the Generation and Mining segments. The net debt to EBITDA ratio continued to stay at a level that guaranteed financial stability and security.

In reference to the market trends that we observed last year, it should be emphasized that it was a period of an extremely fast growth of prosumer energy in the field of renewable energy sources (RES). As a result, the installed capacity in photovoltaic technology in Poland increased by almost 150 percent as compared to 2019, i.e. from 1.5 GW to 4 GW. In this context, it should be noted that TAURON Group connected 100 000 RES micro-installations with the total capacity of 658 MW to its distribution grid in 2020. This is over three times more than in 2019. Overall, the total capacity of RES installations connected to TAURON Group’s grid reached 823 MW in 2020.

The expansion of renewable energy sources is an investment priority for TAURON Group, and this is why we are taking a number of initiatives to ensure that the Green Turn of TAURON, announced in May 2019, follows the strategic directions set. As part of the strategy, we are assuming that the share of zero emission sources in the Group’s generation mix will rise to 66 percent by 2030. The planned investments in renewable energy sources and the decommissioning of the obsolete conventional generation sources will allow the Group to reduce its emissions by more than 50 percent by 2030.

TAURON Group is currently operating nine onshore wind farms with the total capacity of 381 MW. We want to increase this potential to more than 1,000 MW of installed capacity by 2025. The first significant step, as part of the implementation of the strategy, was the acquisition of five wind farms with the capacity of 180 MW in 2019. In December 2020, in turn, we acquired a 30 MW wind farm project located in the Łódź Province. The wind farm should be commissioned in mid-2022.

Speaking of wind energy, it should be added that offshore wind farms will play an important role in our plans to expand zero emission capacity. Due to its windiness and depth, the Baltic Sea is considered to be one of the most promising reservoirs for the development of this type of energy generation in Europe. We signed a letter of intent on the cooperation in this area with PGE Polska Grupa Energetyczna and Enea in January 2021.

Another important element of TAURON Group’s expansion strategy is related to photovoltaics. In accordance with the assumptions of the Green Turn of TAURON, we are planning to operate photovoltaic farms with the capacity of 300 MW as part of our portfolio by 2025.

In December 2020, we completed the implementation of the first farm based on such technology in Jaworzno, on the Group’s post-industrial land. The electricity generated by that installation will power more than two thousand households. The construction of the Choszczno project is underway – a complex of photovoltaic farms with the total capacity of 6 MW that will be extended by another 8 MW. We signed several preliminary contracts last year, including agreements for the acquisition of six photovoltaic projects and five wind projects.

We would like to emphasize with satisfaction that the volume of electricity produced by TAURON Group from renewable sources went by more than 40 percent in 2020, as compared to the previous year. Last year, we completed the construction of our final projects in the field of conventional energy – a 910 MW coal fired power generating unit in Jaworzno and a 450 MW CCGT power generating unit in Stalowa Wola. They are efficient, modern generation units, adapted to meet the demanding environment protection standards, that will constitute an important element of Poland’s energy security.

Referring to the investment activities, it is worth emphasizing that last year TAURON Group allocated a budget in the amount of PLN 4 billion for investment projects, with the largest funds going to the Distribution and Generation segments. In the former one, the capital expenditures of PLN 1.9 billion were spent mainly on the modernization of the distribution grid and the installation of the new grid connections, in the latter one – on the completion of the power generating unit in Jaworzno.

Similar as in the previous years, also in 2020 we undertook a number of effective initiatives aimed at guaranteeing the funds required for TAURON Group’s sustainable development. First of all, we would like to mention the first issue of sustainable development bonds in Poland, as part of which we issued five-year bonds worth PLN 1 billion, with the proceeds to be spent on the Group’s energy transition. We also signed two loan agreements for the total amount of PLN 1 billion last year.

Ladies and Gentlemen,

In spite of the numerous challenges facing the Polish energy sector, we are convinced that the steadfast implementation of the assumptions of the Green Turn of TAURON will have a positive impact on TAURON Group’s market position and prospects. We believe that high competence and extensive experience of the Group’s employees will be skillfully used to shore up the key segments of our business operations. On the other hand, our initiatives with respect to social dialogue will continue to contribute to building long term, partnership-based relations with all stakeholder groups.

Yours respectfully,

Management Board

TAURON Polska Energia S.A.