The overarching objective of the Company is to grow the value of the company, guaranteeing a return on capital employed for shareholders. Furthermore, the Company performs functions associated with the energy security of Poland. Because of the high proportion of regulated activities in its business structure, the Group maintains the status of a company with a balanced risk profile. As a result, it is relatively resilient to adverse developments on the electricity market. In response to the evolving regu-latory and business environment, in 2016 the Management Board of Energa SA adopted the Energa Group Strategy for 2016-2025.
The Energa Group is consistently seeking to become a leading distribution system operator (DSO) by improving its grid performance and liability, and providing top quality customer service. In 2019, the planned investment budget of the Distribution Business Line is PLN 1,282 m.
The key investment focus in 2019 includes:
In 2018, most of the work planned as part of the deployment of the TETRA network at Energa Operator SA under the TETRA project was completed. 136 out of the 139 planned BTSs were started up by the end of 2018. The remaining three, due to administrative issues during the construction of towers, will be completed in the first half of 2019. The other deployment and integration activities were also completed, and a range of pre-production tests were conducted. Aside from the radiotelephones installed in emer-gency vehicles and handportable radios used by staff working on the power grid, the TETRA network is now the main communication route for more than 2,500 radio-controlled disconnectors. This figure is steadily growing due to ongoing investments, which include both ongoing maintenance and the Smart-Grid project. Completion of the TETRA project is scheduled for end of March 2019, after the BTSs are built in Elbląg and Dobre Miasto. Thereafter, the production operation of the TETRA network will com-mence and development will be planned to optimise and expand the network. At the same time, inten-sive efforts are made in cooperation with Enspirion Sp. z o.o., a Group company, in order to be able to offer the excess capacities of the TETRA network. A few test installations were carried out jointly in 2018, for instance for the Maritime Search and Rescue Service (SAR) and Polskie Sieci Elektroener-getyczne SA (PSE).
In 2019, the Energa Group will support and promote the development of electromobility in its area of operation. It is a new segment of the electricity market offering huge growth prospects, necessitating – due to its specific nature – independent energy distribution capabilities. To guarantee the stable devel-opment of the new market segment, the Distribution Business Line will take action in two areas: coop-erating with local authorities and investing in MV and LV networks in order to enable the connection of charging stations.
The year 2019 is a subsequent year of the Regulation Strategy for Distribution System Operators 2016-2020. The Strategy has introduced far-reaching changes, for instance in the calculation of the return on capital employed, level of operating expenses reflected in the tariff, and quality regulation. Performance against key performance indicators will have an impact on the regulated revenue in future periods – performance in 2019 will be reflected in the 2021 tariff. What is noteworthy is that the President of the URE published an evaluation of the quality regulation for DSOs, which is to apply from 2018 to 2025. An important issue is to make a distinction for four areas within SAIDI/SAIFI targets: cities, towns with district rights, towns and villages. In this context, the President of the URE set very ambitious targets for the improvement of the said indicators. Aside from the continuity of power supply indicators (SAIDI/SAIFI), it is essential to maintain a good supply time for initial connection.
In 2019, intensive efforts will have to be undertaken to bring the infrastructure of Energa Operator SA necessary for the restoration of the National Electricity System in line with the requirements of Commis-sion Regulation (EU) 2017/2196 of 24 November 2017 establishing a network code on electricity emer-gency and restoration. It is worth mentioning that on 18 December 2018, in accordance with the provi-sions of the aforesaid regulation, PSE submitted – along with other documents – a Restoration Plan to the President of the URE, which defined the measures to be implemented in the network of Energa Operator SA in connection with the provisions of that regulation. Energa Operator SA is obliged to com-plete those measures by the end of 2022.
In 2019, in accordance with a contract, the document “Concept for the operation of the LV transmission network and 110 kV distribution network as a meshed grid in the territory of Energa Operator SA until 2030” will be finalised in cooperation with PSE. This study will allow for planning of the optimum devel-opment of the power network infrastructure for the identified power demand growth scenarios and lanned initial connections to the electricity grid, forming the basis for a new Corporate Development Plan for 2020-2025, to be drawn up in 2019.
The ambition of the Distribution Business Line is to lead the implementation of innovative technical, organisational and process solutions. The Energa Group implements innovative solutions in such areas as smart grid, smart metering, advanced network asset management and cable diagnostics systems or smart energy storage. The DSO’s activities additionally involve cooperation with another DSO on inter-national research and development projects. The goal of the projects is to devise mechanisms for the development and integration of the future energy market and to set up the conditions for new services on the market on the DSO’s side.
In the area of research and development, it is important to build relationships with universities and sci-entific institutes. Cooperation with local research institutions: the Gdańsk University of Technology, the Gdańsk Branch of the Institute of Power Engineering, and the Institute of Fluid-Flow Machinery at the Polish Academy of Sciences is being developed in the framework of the activities.
In the Generation Business Line, led by Energa Wytwarzanie SA, in accordance with the Multi-Annual Plan of Strategic Investments, the capital expenditure planned for 2019 amounts to PLN 0.8 bn. The main spending areas are investments in the modernisation of existing assets and development activities strengthening the generation capacity of the Group.
In line with the Strategy in place at the Energa Group, key generation investments are: the Ostrołęka C coal-fired power plant project with a capacity of approx. 1,000 MWe, and the project for the construction of a hydro power plant at the second barrage on the Vistula River with a capacity of approx. 80 MWe. The Ostrołęka C project is implemented by Elektrownia Ostrołęka Sp. z o.o. (an SPV), which has two shareholders: Energa SA and Enea SA. On 12 July 2018, a contract was signed with the General Con-tractor for the unit, a Consortium of GE Power Sp. z o.o. as the Consortium Leader and Alstom Power Systems SAS. On 21 December 2018, the Project took part in a capacity auction for the supply period starting in 2023, obtaining support for 15 years for a capacity of approx. 853 MW at 202.99 PLN/kW/year. On 28 December 2018, having obtained consent from the Extraordinary General Meet-ing, Elektrownia Ostrołęka Sp. z o.o. issued a notice to proceed with the construction activities for Os-trołęka Power Plant C to the General Contractor. In 2019, design work will be carried out and construc-tion will start in connection with the project. In 2018, two working groups were set up pursuant to a decision of the Steering Committee relating to the construction of the Siarzewo Barage project: for tech-nical and organisational matters and for legal matters and finance, made up of representatives of the project owner (PGP Wody Polskie), representatives of the Energa Group, the Ministry of Maritime Econ-omy and Inland Navigation, the Ministry of Environment, the Ministry of Energy, and representatives of the Office of Inland Navigation in Bydgoszcz.
The expenditure made for these projects will have a significant bearing on the investment projects of the Energa Group.
The measures prepared in the field of strategic investments diversify the development opportunities in four areas of maintenance, capacity expansion or new development areas.
The first one includes activities in the area of capacity maintenance and expansion for conventional capacities (construction of a flue gas desulphurisation plant at Ostrołęka Power Plant B) and cogenera-tion capacities (in Kalisz and Elbląg), in connection with measures aimed at bringing sources in con-formity to the standards of the IED Directive and BAT conclusions.
The second area involves the expansion of RES generation capacities and includes the construction of the 30 MW Przykona wind farm, proceeding with PV (solar energy) capacity construction projects and proactive acquisition of investment projects or existing sources. The activity in this area will be largely determined by the outcomes of RES auctions.
The third area involves preparation of investments in new generation capacities: combined cycle power plants with cogeneration capabilities. The investment project in Grudziądz envisages the construction of an approx. 600 MWe combined cycle unit. Furthermore, a project for the construction of an approx. 450 MWe combined cycle power plant in Gdańsk is being prepared for implementation, and so is a project for the construction of a 115 MWe combined cycle unit with cogeneration in Elbląg.
The fourth area involves activities relating to the possible expansion of capacity volumes in promising directions, in line with the guidelines set out in the energy policy of the State. This activity includes the implementation of an international project for the construction of a 6+ MW battery energy storage, which is described above as the NEDO project. Efforts are also made to gain access to offshore wind farm investment opportunities and development activities are carried out with regard to the use of photovol-taics in inland water bodies. In cooperation with Centrum Badawczo-Rozwojowe im. M. Faradaya, the options for engagement in development activities are being explored, of which some based on external funding.
Activities carried out by the Generation Business Line companies are focused on the diversification of development areas and maintaining and strengthening the market position.
Energa Obrót SA is the leading entity in the Sales Business Line, engaged in activities relating to trading in electricity and customer service. Companies within the Sales Business Line are engaged in selling electricity and gas along with bundled products to all customer segments, from industry to small, medium and large enterprises and to households.
The Company continually monitors developments in the market environment (the most important ones being a sudden spike in wholesale electricity prices on the Polish Power Exchange, discontinuation of electricity selling by Energetyczne Centrum and Energia dla Firm, and raising of the ‘power exchange obligation’) and changes within the Energa Group.
In 2018, the unprecedented volatility of market prices coupled with consolidation of the producer markets affected the selling activities, and thus the financial performance of Energa Obrót SA. The adverse situation on the Polish Power Exchange had serious consequences for key energy market players as well. Rising prices were driven mostly by increasing prices of CO2 emission allowances (from about 5 to almost 25 EUR per tonne) and a 20% pick-up in coal prices. The situation affected smaller companies (discontinuation of sale of electricity by Energetyczne Centrum and Energia dla Firm), their customers, who were taken over by suppliers of last resort, and the largest trading companies, including Energa Obrót SA.
Energa Obrót SA is working intensively to bring the company’s pricing policy in line with the requirements of the Act of 28 December 2018 Amending the Act on Excise Duty and Certain Other Acts.
The strategic objectives laid down in the Energa Group Strategy for 2016-2025 are pursued through corresponding Strategic Programmes. Energa Obrót SA is the leader of Strategic Programme No. 5: Implementation of a new customer-centric business model and development of new business areas. The Integrator model focused in particular on the development and selling of a new product offering, addressed mostly to individual customers. The ever-changing market environment, growing expecta-tions of increasingly aware customers, aggressive competition, but above all the changes taking place in the Company after the restructuring and identification of a number of limitations and challenges, ne-cessitated a redefinition of the concept of the Integrator Model Implementation Programme. Therefore, it has become key to transform the corporate structure, to review the assumptions of the Programme for accuracy and appropriateness in view of the real situation within the Company and its market posi-tion, and in consequence, to redefine the projects and reassign responsibilities. As a result, the final version of the Corporate Development Programme was developed and approved by the Company’s Management Board on 10 August 2018. The objectives of the Programme are aligned with the execution of the Energa Group Strategy for 2016-2025 and support the achievement of the Management Board’s objectives with respect to customer focus, improvement of organisational performance and adaptation to the evolving market environment.
The deliverables expected from the implementation of the Programme were classified into two main groups of objectives:
The strategy of the Sales Business Line envisages an increased share in market margin by growing the number of electricity and gas connections and defending own customer base by winning customer loy-alty and cross-selling. The sales network is being expanded, new selling channels are being set up and the existing ones are undergoing optimisation. New categories have been added to the product portfolio: core offering, medical services, savings zone, insurance, auto assistance and TV. Making its customers aware that aside from selling electricity, it offers other attractive services for business customers, the company added the ‘Efficiency Product Suite’ to its portfolio. In addition to this, the company optimises its processes on an ongoing basis, in particular those relating to handling of complaints. In consequence, the number of overdue complaints is minimised, and the internal consultation delivery indicators are improving, which translates directly into timely resolution of customer complaints. The Company has initiated the third stage of a project aimed at the implementation of an online selling and customer service system, including a mobile application.