TAURON Group’sClimate Policy

TAURON’s pro-climatic activities had begun before the announcement of Communication 2019/C 209/01. The Group introduced an Update of the Group’s Strategic Directions for 2016-2025 in May 2019, as part of which the so-called TAURON’s Green Turn is being implemented.

The Group’s management took part in internal workshops in September 2019, whose purpose was to determine the climate materiality and the climate risks for all of the Group’s lines of business. The effect of this work was the adoption by the Management Board of TAURON Polska Energia S.A. of the document titled: the TAURON Group’s Climate Policy, in November 2019.

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

The goal of the Climate 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 the 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 the TAURON Group’s generation sources (presented in the tables).

One of the most important commitments in this respect 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.

The policy refers to all kinds of activities and operations carried out within the TAURON Group’s value chain, the effects of which impact climate change or constitute the implication thereof, including in particular:

• measures aimed at reducing the global warming,
• measures with respect to the 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.

TAURON’s Climate Policy is in accordance with the provisions of the EC Communication 2019/C 209/01 and the TCFD Report for the energy sector and fulfills the provisions thereof.

The TAURON Group’s Climate Policy will be implemented gradually in 2020. Therefore, due diligence procedures that accommodate the climate sensitive issues will be included in:

• Risk management – process-based management of climate risk in the short, medium and long term (-2020, -2025, -2030) will be 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 the 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 2020 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 two subsidiaries, TAURON Wytwarzanie and TAURON Ciepło, are obligated to participate in the so-called European Emissions Trading System, the climate related issues are included in the operational decision making processes at these subsidiaries.

The TAURON Group’s Climate Policy Update will be implemented each time there is a change in the general directions of the TAURON Group’s operations or changes in the priorities to be followed by the TAURON Group in the climate related matters.

The 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, will be implemented, among others, as part of the system approach to Asset Management.

Also for 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) the new investment projects.

On the basis of the Polish Environmental Policy document, regions were identified that were more exposed to the physical risk related to climate 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 policy 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, the TAURON Group’s conventional power plants are much less exposed to the need to reduce the 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.

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 consequently, breaking of the power lines, as well as periodic and local flooding. The percentage of this type of failures at TAURON Dystrybucja in 2019 is illustrated in Table no. 36.

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

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 in Table no. 39).

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 are much milder in the area served by TAURON Ciepło (Silesia‑Dąbrowa metropolitan area and Zawiercie and Olkusz) over the last few years. This 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 in the figures.

In the corresponding period of 2002 to 2018, the length of the heating season was extended by 20 days, which somewhat mitigates the difference resulting from an increase in the season temperature, but this does not make up for an increase in outside temperatures.

Comparing the 2019 data to the 2018 data, TAURON Ciepło saw a noticeable drop in demand for the heat supplies during the heating period in the region of approximately 1.6%.

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 ongoing reduction measures, adequate to the line of business, and such reductions made in 2019 are reflected in the table.

Even before adopting the Climate Policy, TAURON Group was involved in the climate related issues as part of the cooperation with the external partners. The project entitled Urban Adaptation Plans, under which 44 Polish cities, in cooperation with the Ministry of the Environment, took part in a project with a goal to adapt them to the observed and forecast climate change, was completed in January 2019. As part of this project, TAURON Polska Energia’s representatives took part in the consultation workshops in selected cities, during which members of the so-called Municipal Teams and the representatives of the city authorities and related entities indicated the energy sector as an area of particular importance for the adaptation process. In addition to TAURON’s representatives, the workshops were also attended by the representatives of the emergency rescue services and local government institutions, scientific communities and local organizations representing the residents, as well as the institutions responsible, among others, for water management, security, public transportation and health. In addition to directly impacting the final content of the Municipal Adaptation Plan, the workshops enabled the presentation of the results of the analyses conducted by the experts and contributed to building confidence in the activities undertaken under the Project.

The TAURON Group is also involved in the public discussion on the subject of energy transition regarding the climate related issues. In November 2019, as part of the cooperation with WWF Polska, the TAURON Group hosted meetings and site visits organized within the international project Just Transition Eastern and Southern Europe, implemented in Poland, Germany, Greece and Bulgaria by the local WWF branches using the European Climate Initiative (EUKI) funds.

TAURON participates in the works of the working group on energy within the framework of the project Zeroemission Poland 2050. An opportunity for the economy and climate, established based on the initiative of WWF. The project aims to find answers to the questions regarding the key challenges, but also the opportunities facing the national economy striving for climate neutrality. The representatives of various stakeholder groups participate in the meetings: expert organizations, business, non-government organizations and the representatives of the public sector.

Also in November 2019, as part of the so-called TAURON Group Open University, TAURON organized a lecture on the climate change, available to all employees of the subsidiaries. The lecture was conducted by an independent authority and promoter of climate science. The transcript of the lecture is available on a continuous basis in the Group’s intranet, and as a consequence all employees have access to professional knowledge regarding the climate issues.

The 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 and TAURON Ciepło, as well as unorganized emission of methane into the atmosphere from Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine), owned by TAURON Wydobycie, are important sources of greenhouse gas emissions.

Direct greenhouse gas emissions due to the secondary operations of TAURON Wytwarzanie and TAURON Ciepło as well as the Group’s other subsidiaries do not constitute a significant share and, above all, are related to the combustion of fuels in the engines of the production machines and cars. Direct greenhouse gas emissions by the TAURON Group in 2019 are presented in the tables.

On the other hand, TAURON Ekoenergia, whose operations are based on the production of electricity from the renewable sources, have a positive impact on the climate. The tables show the volume of electricity produced by the TAURON Group’s units in 2019, broken down into its main sources.

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 the 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 table) and the Emission Reduction Index (shown in the table).

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

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

WM_{RES_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 2019 as defined by the emissions trading scheme).

The installed capacity change index is calculated as follows:

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

M_{RES_r} [MW_e] denotes the installed capacity of RES units in year r, excluding biomass fired units, and the units of TAURON Ciepło Sp. z o.o.

M_{RES_2018} [MW_e] denotes the installed capacity of RES units in the base year, excluding biomass fired units and the units of TAURON Ciepło Sp. z o.o.

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

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 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:

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 TAURON Group introduced the Update of the Strategic Directions in 2019, thus conducting the first activities as part of the final review and adaptation of the Strategy. The above activities are aimed at reducing the risk associated with the transition of the energy sector and taking advantage of the market expectations related to the climate.

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. This is because their physical availability is not dependent on the rate of the global warming. The TAURON Group’s dependence on the individual types of the natural capital in 2018 and 2019 is presented in the tables.

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 translates into a decrease in surface water resources in the river basins where hydropower plants are located. TAURON Ekoenergia is monitoring such developments on an ongoing basis and has an inventory of assets most exposed to such restrictions.

The Group is also regularly monitoring the rate of energy consumption related to its operations, as shown in the indices in Table no. 50.

The TAURON Group has, inventoried during inventory audits, potential tasks related to reducing energy consumption. Based on these measures, the targets related to energy consumption were set, as shown in Tables no. 51, 51-a, 51-b.

The TAURON Group established a specialized entity – Bioeko Grupa TAURON (formerly Biomasa Grupa TAURON) in 2019, with its operations, in addition to the supply of biomass, which is a solid fuel considered neutral in terms of climate impact, focused on the implementation of the principles of Circular Economy with respect to the by-products of combustion and mining, thus contributing directly to the resource efficiency. As such materials of anthropogenic origin successfully replace the natural materials, reducing the consumption of the minerals such as sand, gravel, gypsum etc. The activities related to the development of new products and services in this field and gaining access to the new markets related thereto began in 2019, also carrying out scientific cooperation with the AGH University of Science and Technology in Cracow.

As part of the steps taken to improve resource efficiency, the activities related to the development of new products and services for local governments, for which TAURON Dystrybucja Serwis is managing the lighting systems, were also started in 2019. The goal for 2020 is to replace at least 28 thousand LED fixtures as part of the lighting replacement efforts and install more electric vehicle charging stations so that their total number could reach 100 units in 2020.

TARUON Ciepło took an inventory of its metering network in 2019 in order to prepare the model that would enable quick identification of the district heating network water leaks. The ultimate implementation in the future is directly dependent on the availability of water at the current price and potential possible savings in the operating costs.

The Group’s operations contribute little to the deforestation, forest degradation or land use change. Only the operations of KW “Czatkowice” directly entail a change in the use of forest land, but this adverse impact is compensated.

The extraction of the deposit in the newly documented area requires deforestation of approx. 29 ha of forests. To date, approximately 14.5 ha have been gradually deforested. The afforestation of the so-called protection belt to minimize the mining impacts, including compensation for the future deforestation, was begun in 2014. The measure had been taken ahead of the commencement of the exploitation of a new part of the deposit, which took place in 2016. More than 100,000 trees were planted on the protection belt in the years 2014 – 2016, which together with the natural succession formed an area of approx. 33 ha, fully compensating for the deforestations carried out so far, as well as those planned in the coming years. It is believed that when the last batch of forests is cleared for mining, the forest stand on the protection belt will be fully mature and will take over the functions of the land deforested for mining.

The summary shown in the table indicates the allocation of the funds from the individual sources of financing of the TAURON Group for the purpose of the investment projects aimed at minimizing the impact on the climate. As a rule, TAURON does not take on targeted financing from which the funds are dedicated directly to the given investment task. In case of the financing from the European Investment Bank, TAURON undertakes to carry out specific tasks, the performance of which is confirmed by the relevant reports submitted to the bank.