Regulatory environment

National regulations

Amendment to the Act on the Amendment to the Act on the Excise Tax and Certain Other Acts (electricity prices)

As of the beginning of 2019 the Act of 28 December 2018 on the Amendment to the Act on the Excise Tax and Certain Other Acts came into force with its goal to provide protection for the electricity consumers against a significant increase of the costs of purchasing electricity in 2019. Apart from reducing the excise tax rate and the transition fee rates, the above Act introduced the ”freezing” in 2019 of the prices and rates of the fees stemming from the tariffs and electricity price lists applied by the electricity trading companies at the level of prices and fees applied in 2018.

The Act of 13 June 2019 amending the Act on the Amendment to the Act on the Excise Tax and Certain Other Acts, the Act on Energy Efficiency and the Act on the Biocomponents and Liquid Biofuels, upheld the right to the reduced electricity prices for the entire period of 2019 for:

  1. final household consumers – without the need for them to take any additional actions,
  2. microbusinesses and small businesses, hospitals, public finance sector units and other state organizational units with no legal personality (the so-called special status consumers) – provided they have submitted the applicable declaration.

Medium size and large enterprises were, in the second half of 2019, entitled to the support involving subsidizing of electricity prices as part of the de minimis aid, provided that they had submitted, by the statutorily defined deadline, to the trading company that is a party to the electricity sale agreement or the comprehensive (master) agreement with the given final consumer, the declaration confirming the status of such a consumer. Consumers operating in the energy intensive sectors and sub-sectors were be able to take advantage of the support system set up based on the Act of 19 July 2019 on the System of Compensations for the Energy Intensive Sectors and Sub-Sectors.

Following the June amendment to the Act on the Excise Tax, for the period:

  1. from 1 January 2019 to 30 June 2019, utility companies and the final consumers that buy electricity on the Polish Power Exchange directly, will be entitled to receive the so-called ”price difference amount”,
  2. from 1 July 2019 to 31 December 2019:
    • trading companies, supplying electricity to the consumers with a special status, had the right to receive the so-called financial compensation in connection with the provision of the service in the overall economic interest,
    • final consumers being medium size and large enterprises (excluding the energy intensive enterprises) had the possibility to apply for a subsidy to the electricity purchased in that period (the so-called subsidy).

The receipt of the refund of the difference amount, financial compensation and subsidy requires a request of an entitled entity. The support, the calculation rules of which are defined in the executive regulations to the Act, is financed using the funds of the Price Difference Payout Fund (Fundusz Wypłaty Różnicy Ceny), controlled by the Minister of Energy (as of 15 November 2019, Ministry of State Assets), and managed by Zarządca Rozliczeń S.A. (Settlements Manager).

On 19 July 2019, the Minister of Energy issued a regulation on the way to calculate the amount of the price difference and financial compensation, and the method to be used to set the reference prices, which came into force on 14 August 2019. Additionally, the Minister of Energy, on 28 August 2019, published a notice on the other unit cost and the subsidy rate, which defines, for a utility company dealing with the trading: in-house costs of conducting business operations, the costs of balancing the electricity demand curve and the margins dependent on the total volume of electricity supply to the final consumers. Based on the provisions of the above mentioned Regulation of the Minister of Energy, the President of the Energy Regulatory Office publishes information on the amount of other unit costs constituting the components used to calculate the amount of the price difference and the financial compensation.

The electricity prices (for the households’ final consumers using the tariff of TAURON Sprzedaż as an ex officio seller) and the distribution service rates in force in 2020 were determined and approved by the President of the Energy Regulatory Office in accordance with the standard mechanisms for the determination thereof under the Energy Law. Legislative works are currently underway on the introduction of a new mechanism to compensate for the increase in the electricity prices for the household final consumers.

The Act on the System of Compensations for the Energy Intensive Sectors and Sub-Sectors was passed on 19 July 2019 and came into force as of 29 August 2019. Based on the above Act, the energy intensive enterprises have the right to the compensation for an increase of the electricity prices due to the rising costs of the emission allowances. The use of the above support system excludes the use of the support system introduced under the Act of 28 December 2018 on the Amendment to the Act on the Excise Tax and Certain Other Acts. For these reasons in 2019 the energy intensive enterprises could choose only one of the above support systems. At the same time, in accordance with the Act on the System of Compensations for the Energy Intensive Sectors and Sub-Sectors, in case the given energy intensive enterprise submits a declaration on waiving the right to have the electric utility apply prices and fee rates for electricity at the level as of 30 June 2018:

  1. an energy intensive enterprise will have to refund the amounts that it has obtained thanks to this mechanism – in case the electric utility has adjusted its prices and fee rates for electricity,
  2. an electric utility will be exempted from the obligation to adjust its prices and fee rates for electricity for such energy intensive enterprise – in case it has not done it yet.

The Act of 13 June 2019 amending the Act on the Amendment to the Act on the Excise Tax and Certain Other Acts, the Act on Energy Efficiency and the Act on Biocomponents and Liquid Biofuels also introduced a material change to the Act of 20 May 2016 on Energy Efficiency. It involves an extension, until 30 June 2021, of the deadline within which energy efficiency certificates issued under the Act on Energy Efficiency previously in force (the so-called tender certificates) will be taken into account in the implementation of the obligation to obtain energy efficiency certificates and present them for retirement to the President of ERO.

The Act on the Amendment to the Act on Renewable Energy Sources and Certain Other Acts was passed on 19 July 2019. The material changes that were introduced under the said amendment include:

  1. extension of the support systems’ effective term, envisaged under the Act, until 30 June 2039,
  2. extension of the ”prosumer” definition to cover entrepreneurs, provided that sales of electricity generated by their own micro-installations will not be the subject of the given entrepreneur’s dominating business operations,
  3. extension of the deadlines (running from the auction session closing date) by which an auction participant will be obligated to sell, for the first time, electricity generated by a renewable energy source installation, that will be erected or will be upgraded following the auction date,
  4. extension of the so-called discount system to cover entrepreneurs operating micro-installations with the installed capacity greater than 10 kW,
  5. increase in the micro-installations’ installed capacity level which cannot be exceeded in case of completing an upgrade of such installation, from 40 kW to 50 kW,
  6. increase in the maximum level of installed capacity making biogas and hydroelectric installations eligible to take advantage of the so-called FIP system from 1 MW to 2.5 MW,
  7. enabling participation in the FIT and FIP support system for the installations that use biomass,
  8. increase in the maximum age of devices that constitute a part of RES installations eligible to take advantage of the auction based support system from 18 months to 24 months – for photovoltaics, from 24 months to 33 months – for on-shore wind based power generation and from 36 months to 42 months – for a different type of technology (excluding off-shore wind based power generation).

The above Act also defines the minimum share of electricity from the renewable energy sources in the total annual electricity supply for 2020 as follows:

  1. 50% – with respect to electricity generated from agricultural biogas prior to the entry into force of section 4 of the Act or renewable energy sources other than agricultural biogas or the substitution fee paid,
  2. 50% – with respect to electricity generated from agricultural biogas from the date of entry into force of section 4 of the Act or equivalent volume of electricity stemming from the retired certificates of origin of agricultural biogas or the substitution fee paid.

Furthermore, the above amendment includes regulations that define the maximum volume of electricity and its value to be sold at auctions for 2019 and the conditions under which auctions for the purchase of electricity from renewable energy sources installations will be conducted in 2019.

The majority of the Act’s regulations came into force as of 29 August 2019. For some of the regulations the vacatio legis period was extended until 2020, and with respect to some regulations that might potentially impact the EU’s internal market, the notification procedure before the European Commission regarding changes to the support program was commenced. In the letter of 31 October 2019, the European Commission provided information that it assessed the changes to the renewable energy sources auction system introduced by the Act as changes of a purely administrative nature, which did not require the notification of the new support (aid) to the European Commission.

  1. regulation of the Minister of Energy of 21 August 2019 on the maximum volume and value of electricity from high efficiency cogeneration covered by the support and unit amounts of the guaranteed bonuses in 2019 and 2020, which came into force as of 17 September 2019,
  2. regulation of the Minister of Energy of 21 August 2019 on the maximum value of investment costs (capital expenditures) and operating expenses in case of building and operating a new comparable cogeneration unit, which came into force as of 17 September 2019,
  3. regulation of the Minister of Energy of 21 August 2019 on the reference values for new and substantially upgraded (refurbished) cogeneration units in 2019, which came into force as of 17 September 2019,
  4. regulation of the Minister of Energy of 6 September 2019 on the methodology to be applied to determine eligibility for the individual cogeneration bonus and the values of coefficients taken into account when determining such eligibility, which came into force as of 1 October 2019.
  5. regulation of the Minister of Energy of 22 September 2019 on the range of data required to calculate the individual guaranteed bonus and the cogeneration bonus, including the way to take into account the value of the public aid received, which came into force as of 15 October 2019,
  6. regulation of the Minister of Energy of 23 September 2019 on the way to calculate data provided for the needs of the use of the support system and the detailed scope of the obligation to confirm the data related to the volume of electricity from high efficiency cogeneration, which came into force as of 15 October 2019,
  7. regulation of the Minister of Energy of 14 November 2019, on the reference values for new and substantially upgraded (refurbished) cogeneration units in 2020, which came into force as of 3 December 2019,
  8. regulation of the Minister of State Assets of 20 December 2019 on the amount of the cogeneration fee for 2020, which came into force on 1 January 2020.

The goal of the above regulations is to enable implementing a support mechanism for the generation units generating electricity from the high efficiency cogeneration.

The Act on the Amendment to the Act on the System of Greenhouse Gas Emissions Trading Scheme and Certain Other Acts was passed on 4 July 2019 and it came into force as of 24 August 2019. The essential goals of the Act include implementing and introducing into use the European Union regulations regulating the rules of emission allowances trading in the so-called fourth trading (settlement) period and dispelling the interpretation doubts arisen over almost three years of applying the Act on the system of greenhouse gas emissions trading scheme, and also aligning the regulations with respect to greenhouse gas emission allowances trading to the current economic and social conditions. The above Act, among others:

  1. introduces regulations related to the allocation of emission allowances to other production than electricity production in the 2021–2030 trading (settlement) period and in the subsequent trading (settlement) periods,
  2. introduces changes with respect to accounting for the investment costs (capital expenditures) related to the tasks included in the National Investment Plan (Krajowy Plan Inwestycyjny), including the possibility to balance (offset) the emission allowances granted for the discontinued tasks or tasks that have not led to achieving the approved indicators of compliance against the costs of other completed investment tasks,
  3. imposes an obligation to develop monitoring methodology plans and submit such plans by entities operating an installation for approval to the applicable (competent) authority (feedback (opinions) on the plans will be provided by the National Centre for Emissions Management (Krajowy Ośrodek Bilansowania i Zarządzania Emisjami – KOBiZE)),
  4. assumes simplifying and accelerating the procedure used to apply for the allocation of emission allowances in case of a new installation, by transferring the up-to-now authorizations of the competent minister responsible for the environment to the National Centre for Emissions Management (Krajowy Ośrodek Bilansowania i Zarządzania Emisjami – KOBiZE),
  5. limits (to 5 years) the obligation to prepare and enter the reports on emissions volume into the National data base,
  6. aims to eliminate a number of interpretation doubts that have surfaced during the application of the existing version of the Act.

Since the end of 2018, the public consultation process related to the draft act amending the Act of 10 April 1997 – Energy Law and Certain Other Acts has been underway. The Act underwent changes during the legislative process and the draft is currently dated 30 January 2020. Changes introduced in the draft that are most important for the TAURON Group’s subsidiaries include the proposals to:

  1. introduce the central energy market information system to be used for the implementation of electricity market processes that will be determined pursuant to the regulation of the minister competent for energy,
  2. impose, on a DSO, an obligation to install, by 31 December 2028, remote readout electricity meters connected to the remote readout system in at least 80% of the total number of electricity consumption points at the final consumers, equipped with a direct metering system, connected to the grid with a rated voltage not higher than 1 kV in accordance with the schedule defined in the Act,
  3. impose, on a DSO that is a part of a vertically integrated enterprise, an obligation to have separate personnel from the personnel used by the remaining part of the vertically integrated enterprise, with the only exception foreseen for the administrative staff,
  4. introduce regulations regarding the relationship between the trademark of a DSO and the trademark of the electricity supplier that is a part of the same vertically integrated company,
  5. grant to the President of ERO the right to obligate the parties, by way of a decision, to amend the content of an agreement on the provision of the gas fuels / electricity transmission or distribution services concluded between a supplier (seller) and the transmission system operator (TSO) / distribution system operator (DSO), in order to enable the supplier (seller) to supply (sell) gas fuels / electricity or provide a comprehensive service to the consumers connected to such operator’s grid or, if required: ensure that the final consumers’ interests are protected, balance the parties’ interests, counter competition limiting practices,
  6. define the rules for recognizing and operating closed distribution systems and electricity storage facilities, including the rules for connecting storage facilities to the grid, and obligate the DSO to include, in its development plan, projects with respect to the use of electricity storage facilities, provided the given DSO deems it technically justified to ensure supply of electricity and will demonstrate that the use of electricity storage facilities will bring benefits and it will not involve disproportionately high costs,
  7. strengthen the position of electricity consumers, including by: shortening the process of switching electricity suppliers to 7 days, obligating electricity or gas suppliers (sellers) to provide public access to the currently applicable regulations defining the rights of an electricity consumer, introducing a ban prohibiting the conclusion of supply contracts or comprehensive (master) contracts for the supply of gas fuels or electricity with households consumers outside business premises, otherwise the contract will be null and void, introducing detailed provisions specifying the rules for providing property security (collaterals) in case of claims of third parties that may arise as a result of the improper conducting of the operations covered by the license,
  8. extend the catalog of cases in which the ERO President has the right to amend or revoke the relevant license, to cover the situations in which:
    • the President of the Office for Competition and Consumer Protection (UOKiK) has issued, with respect to an entity operating based on such license, a decision on deeming the practice as infringing upon the collective interests of consumers,
    • an energy company has stopped to guarantee proper performance of its operations,
  9. introduce the required definitions or clarify in detail the applicable provisions in order to fix the identified gaps or dispel the interpretation doubts.

On 2 August 2019, the regulation of the Minister of Energy on the parameters of the main auction for the delivery year 2024 and the parameters of the additional auction for the delivery year 2021 was published. In accordance with the Act of 8 December 2017 on the Capacity Market, the regulation laid down, in particular, such parameters as:

  1. values determining the demand in the given auction,
  2. maximum prices for the so-called price takers,
  3. maximum number of rounds in the given auction,
  4. unit levels of the capital expenditures determining the qualification of the given capacity market units as new or refurbished.

On 1 September 2019, the amendments to the Act of 11 March 2004 on the Value Added Tax passed by way of the Act of 12 April 2019 on the Amendment to the Act on the Value Added Tax and Certain Other Acts came into force. These amendments introduced the so-called white list of the VAT taxpayers, i.e. the list of the taxpayers registered as VAT taxpayers, managed by the Head of the National Tax Administration, containing also the data on the bank accounts indicated by these entities for settlements.

On 1 November 2019, the provisions of the Act of 9 August 2019, on the Amendment to the Act on the Value Added Tax and Certain Other Acts came into force, introducing the obligation to apply the so-called split payment mechanism regarding trade in goods and services indicated in Annex 15 to the Act on VAT. The above amendments provide for sanctions (effective as of 1 January 2020) for a failure to make a payment using the split payment mechanism with respect to the above mentioned goods and services, as well as for the settlements using bank accounts other than the bank accounts indicated on the white list of the VAT taxpayers. These sanctions include:

  1. inability to classify as the tax deductible costs the amounts paid to the accounts other than those on the white list of the VAT taxpayers or paid without using the split payment mechanism if there is a legal obligation to use this mechanism (goods and services listed in Annex 15 to the Act on VAT),
  2. joint and several liability with the taxpayer for the VAT related obligations in the proportion of the tax corresponding pro rata to the supply of goods or services for which payment was made to an account other than the one indicated on the white list of the VAT taxpayers.

European Union regulations

Winter package Clean Energy for all Europeans

On 26 March 2019, the European Parliament, and on 22 May 2019, the Council formally accepted the worked out content of the political agreements related to the 4 remaining elements of the Winter Package (the acts published in the EU Official Journal in June 2019), i.e.:

  1. directive on the common rules for the internal market in electricity and amending directive 2012/27/EU (Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019),
  2. regulation on the internal market for electricity (Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019),
  3. regulation on the risk-preparedness in the electricity sector and repealing directive 2005/89/EC (Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019),
  4. regulation establishing a European Union Agency for the Cooperation of Energy Regulators (Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019).

Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (EMIR REFIT Regulation) was published in the Official Journal of the European Union on 28 May 2019.

The above regulation impacts the TAURON Group’s operations, primarily in the areas of the reporting obligations related to the derivatives contracts and the thresholds for the clearing of such contracts by a central counterparty.

In the first area a possible exemption from reporting derivative contracts concluded by non-financial counterparties within the same group (intragroup) to the trade repository is envisaged under the following collective conditions: both counterparties are included in the same consolidation on a full basis, both counterparties are subject to the appropriate centralized risk evaluation, measurement and control procedures; and the parent undertaking is not a financial counterparty. However, the application of the exemption referred to above requires notifying the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego). The exemption will apply unless the indicated authority finds within 3 months that the said conditions have not been fulfilled.

In the second area the EMIR REFIT Regulation imposes on non-financial counterparties an obligation to calculate, as of the day of the above mentioned Regulation’s entry into force (i.e. as of 17 June 2019), and subsequently every 12 months, the aggregate average position in OTC derivative contracts. The calculations are used to determine the group’s position with respect to the obligation to clear contracts with a central counterparty (CCP), i.e. with the so-called NFC+ or NFC- status. Furthermore, the obligation for derivative contract counterparties to inform each other of the above mentioned status in the contract documentation was introduced.

Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund was published in the Official Journal of the European Union on 28 May 2019. The said fund was set up under Article 10a(8) of the amended Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, in order to provide support for projects demonstrating highly innovative technologies, processes or products, indicating a significant potential to reduce greenhouse gas emissions. However, these projects must have an appropriate level of maturity and scalability. The available financing amount is to correspond to the market value of at least 450 million CO2 emission allowances.

The above regulation lays down the Innovation Fund’s necessary principles of operations, such as: the operational objectives of the Innovation Fund, the forms of the support provided under the Innovation Fund, the application procedure for the Innovation Fund support (calls for proposals), the procedures and criteria for project selection under the Innovation Fund, rules for the disbursement of the Innovation Fund support, the governance of the Innovation Fund, reporting, monitoring, evaluation, control and publicity (transparency) concerning the operation of the Innovation Fund. However, a possibility of transferring some implementation activities, such as organizing an invitation to submit applications (a call for proposals), preliminary selection of projects or management of the agreements related to grants, to executive authorities is envisaged. Grants that may reach up to 60% of the costs are envisioned as a basic form of financing investment projects from the fund. An extended funding option has been proposed for small-scale projects (below 7.5 million EUR).

A draft executive regulation was developed in 2019, specifying the principles of the functioning of the Modernization Fund, which is the second fund provided for in Directive 2003/87/EC for the financing of the energy transition. The fund will operate in 2021–2030 and is to be funded by the sale of the CO2 emission allowances, which will be allocated to the modernization of the energy systems and the improvement of the energy efficiency in the EU Member States in which GDP per capita in 2013 was less than 60% of the EU average. To the priority areas, which include:

  1. generation and use of energy from renewable energy sources,
  2. improvement of energy efficiency (except for energy efficiency due to the production of energy from solid fossil fuels),
  3. energy storage and modernization of the energy network, including heating systems,
  4. increase in interconnections,
  5. support of fair changes in the coal regions of the beneficiary countries of the Modernization Fund, including the reduction of negative social effects,

no less than 70% of the funds of the Modernization Fund are to be allocated.

Determining of the final content and publishing of the above mentioned Regulation is planned for 2020.

On 19 December 2019, the Agency for the Cooperation of Energy Regulators published an opinion no. 22/2019 containing the technical guidelines for calculating the values indicated in the first paragraph of Article 22(4) of the Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity. These values condition the possibility of the given capacity market unit being covered by the capacity obligation or receiving remuneration for performing the capacity obligation.

The final version of the opinion does not contain provisions regarding the extension of the catalog of the emissions included in the calculation of the approved emission factors, by adding methane and nitrous oxide.

On 11 December 2019, the European Commission presented the assumptions of the so-called European Green Deal (COM (2019) 640 final) – a strategy of actions aimed at: using resources more efficiently by moving to a clean circular economy, halting the climate change, countering biodiversity loss and reducing pollution. The objective of Europe reaching climate neutrality by 2050 is to be achieved by, among others, taking the following measures, implemented successively from 2020:

  1. adoption of the first European climate law – a road map for this regulation was presented for consultation by the European Commission on 9 January 2020, and the regulation indicates that the purpose of the climate law is to be in particular to ensure an ambitious and fair EU climate policy, to contribute to the implementation of the Paris Agreement and to set a long term legal path to achieving the objective of climate neutrality by the EU in 2050,
  2. setting of the new pollution emission targets by 2030,
  3. adoption of a new industrial strategy (in a number of sectors of the economy, including energy) and an EU action plan for the circular economy,
  4. development and adoption of an investment plan for a sustainable Europe to ensure that the climate and energy targets set for 2030 are met – investment financing is envisaged to counter the climate change using the funds in the amount of at least 25% of the EU’s long-term budget and funding from the European Investment Bank (EIB),
  5. adoption of a green funding strategy to include the private sector in financing the green transformation,
  6. covering of new sectors by the ETS system,
  7. review of the directive related to the taxation of the energy with respect to the environmental issues,
  8. promotion of the EU objectives and standards with respect to the environment protection at the global forum, including during the UN Convention on Biological Diversity and Climate,
  9. introduction of a just transition mechanism (fund) intended to support regions with an economy based mainly on the activities resulting in significant CO2 emissions, in particular through the programs allowing for the acquisition of new professional qualifications and the creation of jobs in new sectors of the economy.

Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment

On 18 December 2019, the European Parliament and the Council reached an agreement on the Regulation on the establishment of a framework to facilitate sustainable investment, aimed at introducing the world’s first classification system (the so-called green list) for sustainable economic activities (Taxonomy). The Taxonomy Regulation aims to establish a general framework to determine, in a uniform and harmonized manner, which economic activities can be considered environmentally sustainable. The above regulation provides for further delegated acts specifying and developing its standards. The EU, Member States, financial market participants offering financial products (through the obligation to disclose information on how and to what extent the investments underlying their financial product support economic activity that meets all criteria for environmental sustainability), financial and non-financial companies covered by the non-financial reporting will be obligated to use Taxonomy from December 2021. In particular, companies covered by the non-financial reporting will be required to disclose how and to what extent their activities constitute environmentally sustainable activities within the meaning of the Regulation, including the share of revenues from such activities, the share of CAPEX and OPEX expenses. Entities that do not meet the relevant requirements may be exposed to the higher costs of financing their operations and investments. Taxonomy will also be possible to be used on a voluntary basis by other market participants, including entities raising funds for conducting environmentally sustainable activities.

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector introduces uniform requirements as to how institutional investors (such as asset managers, insurance companies, pension funds or investment advisors) should take into account the ESG factors – i.e. environmental, social and corporate governance factors – in the investment decision making process. The exact requirements in this respect will be specified in the delegated acts of the European Commission.

Pursuant to the above regulation, asset managers and institutional investors will have to demonstrate compliance of their investments with the ESG objectives and disclose how these requirements are met. Financial market participants and financial advisors will be required, in their activities, including as part of due diligence, to introduce and continuously assess not only the financial risks, but also risks to sustainable development that could have a significant negative impact on the return on investment or consultancy. Risk for sustainable development means an event or environment, social or management related conditions that, if they occur, could have a significant negative impact on the value of the investment. Financial market participants and financial advisors will also be required to specify in their strategies how they take account of these risks and to publish those strategies, as well as to have procedures to address the major adverse effects of sustainable development risks and to publish information on these procedures on their websites along with a description of the main adverse effects. The assessments of risk for sustainable development should become a part of pre-contractual disclosure by the financial advisers. If it is determined that there are no risks to sustainable development in relation to the given financial product, the regulation introduces an obligation to indicate the justification for such a statement, and where the assessment leads to the conclusion that those risks are relevant, the extent to which those sustainability risks might impact the performance of the financial product should be disclosed, either in qualitative or quantitative terms. The above regulation also establishes a harmonized definition, stating that the companies receiving the investments (investee companies) follow good governance practices and ensure compliance with the precautionary principle – “do not cause significant environmental or social harm”. The regulation applies, in principle, from 10 March 2021 (some of its provisions are to apply from 1 January 2022).

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks

Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks introduces 2 new categories of low-emission benchmarks:

  1. a climate transition benchmark to be a low-emission alternative to the commonly used benchmarks,
  2. a specialized benchmark whose investment portfolios will be in line with the target set in the Paris Agreement stipulating that the global temperature rise should be limited to 1.5˚C in reference to the level before the industrial age.

The new categories are to be voluntary labels to facilitate the choice of investors who want to adopt a climate-friendly investment strategy. They are designed to reflect the carbon footprint of enterprises and provide investors with the information on the carbon footprint of the investment portfolio. The new benchmarks will have a significant impact on the investment flows, including the creation of the investment products, measuring their results and developing an asset allocation strategy. The European Commission has been authorized to adopt delegated acts to specify the minimum standards for the above mentioned benchmarks.

The above regulation imposes an obligation on all benchmark administrators, except for the administrators of the interest rates benchmarks and the currency benchmarks, to disclose in the statement regarding the benchmark whether the benchmarks or groups of such benchmarks meet the objectives of environment protection, social policy and corporate governance, and whether the benchmark administrator offers such benchmarks.

The above-mentioned regulations may affect the conditions for obtaining financing by the TAURON Group.

TGE launched the European Electricity SIDC (Single Intra-Day Coupling) market based on the XBID (Cross-Border Intraday) model on 19 November 2019. XBID is a project aimed at creating a single cross-border electricity market for the intraday trading within the EU (currently connects 21 countries). The goal of the project is to increase the efficiency of trading on the European intraday market by using existing cross-border transmission capacity in the exchange trading. It allows for the matching of the market participants’ orders in a continuous trading formula (24 hours a day), locally and in any price zone within the scope of the project, as long as the cross-border transmission capacity is available. Transactions on this market are concluded in EUR, and the settlements between TGE and the participants of the Polish market are carried out by the Commodity Clearing House (IRGiT S.A.) in PLN. The intraday clearing and settlement model developed by IRGiT, appropriately adapted to the requirements of the XBID model, will allow for optimizing the costs of the collaterals contributed by the IRGiT members.

The launch of the single intraday electricity market in Western and Northern Europe took place in June 2018. In the case of Central and Eastern European countries the launch of this market took place in the fourth quarter of 2019 and it involved merging the electricity markets of the following countries with the earlier operating XBID market: Poland, Germany, Czech Republic, Austria, Hungary, Romania, Bulgaria, Slovenia, Croatia, Sweden and Lithuania. In Poland XBID is implemented by Polskie Sieci Elektroenergetyczne (PSE – TSO), in cooperation with the following exchanges: TGE, EPEX SPOT and EMCO.

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