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The Company actively manages all risks, striving to eliminate or reduce their potential negative impact, in particular on the Group’s financial result.

[G4-2] The most important risks and their potential impact on the TAURON Group’s value drivers are presented below.

Finances and credit

1. Market risk

 

Risk associated with unfavorable impact of interest rates and exchange rates on the TAURON Group’s financial result.

 

Risk trend: 

Risk response (selected elements):
  • Ongoing monitoring of the exposure to the aforementioned risk to minimize the adverse consequences of changes in market conditions.
  • Transfer of risk with derivatives.

2. Liquidity / financial risk

 

Risk associated with the method of financing operations, following from the capital structure in the business.

 

Risk trend: 

Risk response (selected elements):
  • Diversification of funding sources using guaranteed funding programs and ensuring alternative financing sources.
  • Execution of the central financing policy.
  • Analysis of the market and availability of the sources of financing.
  • Monitoring the schedules and dates of announcement of the financing program.

3. Credit risk

 

Risk associated with the possibility of overdue receivables or conclusion of a contract with a counterparty that becomes insolvent.

 

Risk trend: 

Risk response (selected elements):
  • Regular monitoring of the counterparty’s financial standing.
  • Regular client scoring, credit assessment of each client before submission of an offer/conclusion of a contract.
  • Use of security instruments in trade agreements.

Sales

4. Market and commercial risk

 

Risk associated with unfavorable change of prices in the energy and related product markets exerting an adverse impact on the Group’s financial result.

 

Risk trend: 

Risk response (selected elements):
  • Monitoring and update of the security strategy.
  • Ongoing monitoring of the exposure to the aforementioned risk to minimize the adverse consequences of changes in market conditions.
  • Limiting commercial positions in risk mandates.

Employees and organizational culture

5. Employee risk

 

Risk associated with breaching provisions of law, rules, procedures and internal regulations prevailing in the TAURON Group. This risk also comprises employee errors or a lack of diligence and the possibility of collective disputes and employee claims and loss of specialized staff.

 

Risk trend:

Risk response (selected elements):
  • Actions to develop a model strengthening employee motivation.
  • Development of competences through employee training.
  • Application of prevailing instructions and internal regulations.

Clients and counterparties

6. Customer service risk

 

Risk associated with failure to comply with the customer service standards.

 

Risk trend: 

Risk response (selected elements):
  • Monitoring and analysis of external client satisfaction and complaint indicators.
  • Taking additional actions, e.g. in internal regulations, defining standards of conduct as a result of ratio analysis.
  • Development of competences and skills of key account managers.
  • Continuous improvement of customer service standards.

7. Risk related to performance of agreements by subcontractors

 

Risk of subcontractors’ inadequate performance of engagements, withdrawal from an agreement and ensuing delays and changes of budget and scope.

 

Risk trend:

Risk response (selected elements):
  • Conclusion of subcontractor agreements compliant with the TAURON Group’s standards.
  • Analysis of contractual performance, analysis of the quality of the services performed by subcontractors.
  • Assessment of the financial condition and reliability of subcontractors.

8. Volume risk

 

Unfavorable changes or termination of trade agreements by clients, leading to lower revenues from operations.

 

Risk trend:

Risk response (selected elements):
  • Conduct of marketing activities, acquisition of new customers.
  • Actions focused on retaining existing and recovering lost customers.
  • Ongoing update of the offering, launch of multi-bundle products.

Compliance risk

9. Internal fraud risk

 

Appropriation or temporary use of the Company’s assets, devastation of TAURON Group’s assets, use of an official position to obtain different kinds of personal benefits, e.g. by compelling customers to behave in a specific manner.

 

Risk trend:

Risk response (selected elements):
  • Close compliance with internal procedures to prevent abuse (security procedures, authority reviews).
  • Conduct of compliance activities.
  • Promotion of best practices, improvement of procedures, training.
  • Enforcement and promotion of the TAURON Group’s Code of Business Ethics.

10. External fraud risk

 

Actions of third parties involving, among others, theft, robbery, actual break-in, computer break-in, information theft, forgery.

 

Risk trend: 

Risk response (selected elements):
  • Monitoring of potential and actual security incidents.
  • Antivirus protection of workstations.
  • Physical security of facilities.
  • Security tests.

11. Concession risk

 

Inability to operate as a result of a protracted process to obtain a concession or changes to the concessions held. Unfavorable legal changes regarding operations requiring a concession.

 

Risk trend: 

Risk response (selected elements):
  • Ongoing control of correct performance of concession obligations.
  • Monitoring of changes in legal acts from the perspective of concession obligations.
  • Legal support in the process of extending a concession.

12. Compliance risk

 

Risk associated with non-compliance with the laws, incorrect interpretation of new laws and regulations, requirements imposed by different regulators: URE/UOKiK/KNF/GIODO etc.

 

Risk trend: 

Risk response (selected elements):
  • Constant monitoring of the legal environment and changes of regulations.
  • Update of the internal regulations in accordance with amendments to laws.
  • Appointment of task forces to prepare and implement the required changes in internal regulations.
  • Constant cooperation with the bodies supervising the energy market and the capital market.
  • Employee training on the changes introduced.

Environment

13. Reputation risk

 

Up-to-date and future impact on the company’s revenues and capital stemming from the public’s negative perception.

 

Risk trend: 

Risk response (selected elements):
  • Constant monitoring of internal and external threats to the Company.
  • Media monitoring, building contacts and relations with the media in the TAURON Group.
  • Preparation of procedures for the Company’s communication with the internal and external environment.

14. Competition risk

 

Unfavorable impact of competitors’ activities on TAURON Group’s customers and financial performance.

 

Risk trend: 

Risk response (selected elements):
  • Launch of a line of products tailored to customer needs.
  • Launch of sales of additional products to loyalize customers.
  • Introduction of the possibility of bundling TAURON’s products into multi-offers.

15. Regulatory risk

 

Unfavorable impact of legislation at the national and EU level, following from the necessity to adapt to new legal regulations and the related costs.

 

Risk trend: 

Risk response (selected elements):
  • Constant monitoring of the legal environment and changes of regulations.
  • Analysis of the bills of legal acts and planning of the required adaptation actions.
  • Implementation of the required changes to internal regulations.

Technology and infrastructure

16. Environmental risk

 

Potential adverse impact exerted by operations on the natural environment and failure to adapt to and comply with environmental requirements in national and EU law.

 

Risk trend: 

Risk response (selected elements):
  • Ongoing supervision over compliance with the conditions of environmental decisions.
  • Maintaining the required performance of emission reduction facilities.
  • Frequent assessment of compliance of actions with the legal requirements regarding environmental protection.
  • Execution of environmental investments to minimize the adverse impact exerted by mining and washing coal.

17. Weather risk

 

Impact of atmospheric factors on the operation of the business, both from a technological and commercial perspective.

 

Risk trend: 

Risk response (selected elements):
  • Modernization of the hydro structures to optimize the use of water resources.
  • Preparation of plans for overhauls, reviews and maintenance activities with flexible provisions regarding the work execution timing.
  • Constant monitoring of wind conditions and icing of wind turbine blades.
  • Constant technical monitoring over the operation of individual wind turbines conducted by the companies operating the wind farms.
  • Monitoring and analysis of new technological solutions limiting the impact exerted by unfavorable weather conditions on the volumes of generated electricity.

18. Asset failure risk

 

Impact exerted by machinery and equipment failures, overhauls, modernization, maintenance and management of the production and non-production assets on attaining the company’s objectives.

 

Risk trend: 

Risk response (selected elements):
  • Optimization of capital expenditures for replacement of assets, ongoing monitoring of the condition of machinery, equipment and installations.
  • Improvement of the professional qualifications and work culture among employees through training.
  • Responding to emergency situations through technical service and security automation.
  • Insurance of assets against acts of god (excluding underground assets).
  • Introduction of IT tools for improvement of monitoring and failure rate management.

19. IT risk

 

Risks associated with security and reliability of the IT infrastructure.

 

Risk trend: 

Risk response (selected elements):
  • Development and execution of IT infrastructure continuity plans.
  • Periodic identification and classification of IT resources based on service recovery objectives.
  • Use of IT solutions with appropriate technical parameters, ensuring an acceptable level of reliability and performance (including UPS devices, GSM modems, mobile phones).
  • Planning and delivery of training on business continuity and security of IT infrastructure.
  • Storage and protection of backup data.

20. Facility and information security risk

 

Risk associated with breach of integrity of machinery/equipment and security of information, comprising its inappropriate processing and unauthorized disclosure.

 

Risk trend: 

Risk response (selected elements):
  • Monitoring of execution of the security plans for facilities subject to mandatory protection.
  • Maintenance and update of emergency procedures/plans.
  • Supervision over compliance with the prevailing confidential information security rules.
  • Regular employee training on prevailing security procedures.

21. Geological risk

 

Impact exerted by geological factors on mining activity.

 

Risk trend: 

Risk response (selected elements):
  • Check boreholes for better understanding of the structure of coal deposits.
  • Continuation of preventive actions in areas at risk to improve the geological and mining conditions and protect against natural hazards (including, among others, preemptive explosions to decompress the rock mass).
White certificates white certificates "White" certificates "white" certificates Certificates confirming the saving of a specific quantum of energy as a result of completing investments to enhance energy efficiency.
Biomass biomass Denotes a biodegradable fraction of products, waste and residue from agricultural and forestry production and related branches of industry, including fishing and aquaculture, and biogas and a biodegradable fraction of industrial and communal waste.
Sub peak power generation units sub peak power generation units Power generation units used during a period when the power system has a higher demand for capacity. Power generation units in this class are used from 2000 to 4000 hours a year.
Peak power generation units peak power generation units Power generation units used only during a period when the power system has the highest demand for capacity. Power generation units in this class are used fewer than 2000 hours a year.
Blue certificates blue certificates "Blue" certificates "blue" certificates Certificates confirming the generation of energy from agricultural biomass.
CAPEX Capital expenditures.
Red certificates red certificates "Red" certificates "red" certificates Certificates confirming the generation of energy in highly-efficient coal co-generation.
Net debt net debt Liabilities for loans and borrowings less cash and cash equivalents.
Dividend dividend Portion of a company’s net earnings per share designated for payment to shareholders.
EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization.
Electromobility electromobility Using electric vehicles, both individual vehicles such as an electric car, electric scooter, electric motorcycle and electric bicycle and public transport means: trams, trolleybuses and trains. The assumptions for the Electromobility Development Plan and the domestic framework for the policy of alternative fuel infrastructure development call for there being one million electric vehicles on Polish roads by 2025. TAURON is conducting research and analyses on developing, promoting and disseminating electromobility among Polish nationals, developing the electromobility industry in Poland and in particular collaborating in launching and implementing the findings of scientific and technical work in this area. Moreover, jointly with PGE, Energa and Enea, TAURON has submitted an application to the Office of Competition and Consumer Protection to receive a permit to establish a company called ElectroMobilityPoland to create grounds for developing electromobility.
EMAS EMAS Eco Management and Audit Scheme, an EU instrument to encourage all types of organizations to improve their environmental protection constantly. Functions on the basis of Regulation (EU) no. 1221/2009 of the European Parliament and of the Council of 25 November 2009 on the voluntary participation by organizations in a Community eco-management and audit scheme (EMAS). The EMAS requirements constitute guidelines for organizations to structure their environmental protection duties, optimize costs and effectively manage energy and resources. EMAS is also a system for reporting an organization’s environmental impact making it easier to conduct dialogue in this area with stakeholders. Registration in the EMAS system means that an organization has satisfied the most rigorous environmental requirements.
Prosumer energy prosumer energy Generation of electricity, chiefly for one’s own needs and on a small-scale in installations harnessing renewable energy sources. Households and businesses that do this are called prosumers, meaning that they simultaneously play the role of energy producer and consumer.
Energy from distributed sources energy from distributed sources energii ze źródeł rozproszonych energetyka rozproszona rozproszone wytwarzanie generacja rozproszona energetyki rozproszonej generacji rozproszonej distributed energy Generation of energy by small generation units or facilities connected directly to distribution grids or located in the user’s electrical energy grid that usually generate electricity from renewable energy sources or non-conventional sources, frequently in cogeneration with the generation of thermal energy (distributed cogeneration). The following parties, for instance, may be part of a distributed generation grid: prosumers, energy cooperatives and municipal power plants.
Purple certificates purple certificates "Purple" certificates "purple" certificates Certificates confirming the generation of energy from methane captured in mines.
grid parity Grid parity Signifies the equivalence of the production costs of renewable energy with the energy generated in conventional power plants.
TGE’s FCM Indices Towarowa Giełda Energii (TGE) is the power exchange running the following markets: electricity (Forward Commodity Market - FCM), Day-Ahead Market - DAM, Intraday Market - IDM) and gas (FCMg, DAMg) and the Property Right Market.
smart metering Smart metering Comprehensive and integrated information system encompassing electrical energy smart meters for users of energy, telecommunication infrastructure, central database and management system. Smart metering systems support two-way communication in real time between information systems and electronic electricity meters installed in customers’ locations. Moreover, they may automate the entire billing process for energy users - from obtaining metering data to processing and aggregating them to issuing invoices.
Stakeholder stakeholder stakeholders Natural or legal entity (individual, community, institution, organization, office etc.) which may affect the company or remain under the influence of its actions.
IoT Internet of Things – concept according to which clearly identified objects may directly or indirectly collect, process or exchange data via computer network.
Emergency Cold Reserve IRZ Mechanism introduced by the transmission system operator in 2016. It involves the TSO paying the owners of generation sources which are planned to be withdrawn for keeping them ready to run in response to the operator’s instruction during the anticipated periods of capacity shortage.
ISO 14001 PN-EN ISO 14001:2005 standard PN-EN 14001 standard One of the ISO standards used in managing environmental protection. This standard designated for all organizations regardless of their type and size defines the requirements whose satisfaction supports the achievement of environmental (for instance preventing the emission of pollutants) and economic objectives.
Covenant covenant Contractual clause, order or ban imposed on a borrower to minimize the risk of its invsolvency. Covenents most frequently constitute protection for sources of debt payment to creditors, e.g. by banning further borrowing or disposing of assets.
Aggregate aggregate Bulk organic or mineral material used mainly to produce construction mortar and concrete and build roads.
HV and MV Lines linii WN i SN sieci WN i SN HV - high voltage grid in which the voltage ranges from 110 kV. This grid is used to transmit electrical energy over large distances. MV - medium voltage grid, i.e. an electrical energy grid in which the electrical voltage ranges from 1 kV to 110 kV. Medium voltage is broadly used in electrical energy grids to transmit electrical energy over medium distances and switch energy. It is used as an intermediate voltage between high voltage and low voltage connected to end-users.
Customer loyalization customer loyalization Strategy to acquire and retain customers in this time of growing competition.
Micro-grid micro-grid Electrical energy micro-grid – set of generation equipment, electrical energy storage and receiver units connected in a joint network to ensure the reliable supply of electrical energy and minimize its cost.
Micro-cogeneration micro-cogeneration Technological process involving the cogeneration of thermal and electrical energy based on the utilization of small-scale equipment and medium capacities. Micro-cogeneration may be employed in all facilities in which there is a concurrent need for electrical and thermal energy. The greatest benefits from employing micro-generation are obtained in facilities in which the demand for these two types of energy does not oscillate much or is constant. That is why individual users, hospitals and educational centers, sports centers, hotels and public utilities are usually the most frequent users of cogeneration systems.
MSCI Emerging Markets Europe 10/40 Index Index comprising key companies listed on emerging markets in Europe.
MSCI Poland Index Index comprising more than 20 key companies listed on the Warsaw Stock Exchange.
Best Available Technology BAT The most efficient and sophisticated level of technology development and methods for conducting a given business. BAT are defined for various branches of industry. In the energy sector BAT forms the basis for determining borderline emission quantities, among others, to eliminate, or if that is not practicable, limit emissions and their overall environmental impact.
Sensitive user sensitive user According to the Act entitled Energy Law, a sensitive user is a person to whom a housing allowance has been awarded and who is a party to a comprehensive agreement or electricity sale agreement and who lives in the place where electrical energy is supplied.
Impairment losses impairment losses Losses because of the impairment of non-current assets taken in accordance with the regulations of international accounting IFRS (MSSF) standard.
Corporate Social Responsibility CSR Corporate Social Responsibility – business philosophy and management strategy calling for an organization to take responsibility for the impact exerted by its decisions and actions on society and the environment. Its foundations are rooted in ethical and transparent conduct, taking into consideration the expectations of stakeholders and cultivating good long-term relations with the overall environment. Corporate social responsibility is one of the key methods of achieving sustainable socio-economic development.
PV cells Photovoltaic cell (PV) – semi-conductor material in which the energy of solar radiation is converted into electrical energy.
omni-channel Omni-channel According to the omni-channel idea, the future of commerce is to conduct online sales while simultaneously encouraging customers to make traditional purchases. Online and offline sales during the digital revolution should fluidly penetrate one another.
Operating Capacity Reserve ORM Mechanism of providing operational reserves by the Centrally Discharged Units (JWCD), where they were able to deliver electricity to the system, but for market reasons were not used. It was implemented in Poland in 2014.
RES Renewable energy sources.
PM-RES Property rights to certificates of energy for electrical energy generated in RES.
Polygeneration polygeneration Parallel generation of energy and chemicals.
RESPECT Index Index consisting of companies listed on the Warsaw Stock Exchange to identify companies managed in a responsible and sustainable manner. It takes into account the quality of reporting, the level of investor relations, corporate governance and liquidity, among others, whereby it simultaneously constitutes a real point of reference to measure the attractiveness of companies as investments.
Balancing market balancing market The balancing market is what is referred to as a technical market. That means it is not a place to sell energy. Its purpose is the physical delivery of the energy purchase/sale agreements executed by participants and balancing the demand for electricity with its generation in real time in the national electrical energy system (KSE). The existence of the balancing market is indispensable for the energy market to function. Entities that buy energy have an obligation to participate in this market.
CATALYST Market Catalyst market Bond market. It is run on the transaction platforms of the Warsaw Stock Exchange and BondSpot.
SAIDI System average interruption duration index in the supply of electricity calculated in minutes per user. It is a reliability index whose value is the sum of the products of interruption duration in energy supply and the number of users affected by the consequences of such an interruption during a year divided by the total number of users connected to a grid.
SAIFI System average interruption frequency index of long interruptions in energy supply. It is a reliability index whose value is the number of users affected by the consequences of all such interruptions during a year divided by the total number of users.
Gangue gangue The rock that is extracted from a deposit of a given mineral that is considered to be unusable waste.
Smart City smart city Smart city is a project involving the implementation of specific solutions exerting a real impact on citizens. One example is supplying tools to urban residents to monitor energy consumption, among others. This is possible thanks to the special platform called eLicznik (eMeter). TAURON supplies smart meters, for instance, under the Smart City Wrocław project.
Smart Home smart home System to control a smart home. SMART HOME technologies control burglar alarms, temperature control and electricity supply systems. This is a real-time power consumption monitoring solution that TAURON offers via a platform to check readings from the smart power meter.
Smart grid smart grid Smart electrical energy grids to facilitate communication between participants on the energy market to supply energy services while cutting costs and enhancing efficiency and integrating distributed sources of energy, including renewable energy.
smart metering Smart metering Smart metering system – electronic system used to measure energy consumption obtaining more information than from a conventional meter, and to send and receive data through electronic communication.
small carbonate sorbent Small carbonate sorbent Fine carbonate sorbent (limestone powder) – is a product derived from the process of dehydrating and profound milling of limestone whose active ingredient is calcium carbonate, CaCO3. Fine carbonate sorbent is used in processes to desulfurize flue gas – to remove SOx.
Enterprise Risk Management System ERM Set of rules, standards and tools to accomplish the fundamental objective of risk management i.e. ensuring the security of the TAURON Group’s operations. This system is regulated by the document entitled Enterprise Risk Management System in the TAURON Group, defining the TAURON Group’s enterprise risk management framework and rules.
Tauronet tauronet TAURON Group’s corporate intranet portal, one of the most important tools of communicating with employees. One of the largest platforms of its type in Poland at the time of publishing this report.
CCS Carbon dioxide capture, transport and geological storage technology.
CCU Capture and use (management) of carbon dioxide, eg. in the the chemical industry.
Smart Technology smart technology Control system in a smart home, among others - it is responsible for the safety and living comfort of residents.
Towarowa Giełda Energii S.A. Polish Power Exchange TGE Towarowa Giełda Energii (TGE) (Polish Power Exchange) is the only licensed power exchange in Poland. Presently, TGE runs the following markets: Day-Ahead Market (DAM), Commodity Forward Market with physical delivery (CFM), Property Rights Market for RES and Cogeneration. TGE also keeps a register of the Certificates of Origin for electrical energy produced in RES and in highly efficient cogeneration sources and the CO2 Emission Allowance Market.
Energy Regulatory Office ERO Government authority regulating the Polish energy market (electricity and gas, among others).
Coal winnings coal winnings The rock material taken from the mine face. It includes the mineral and gangue.
WACC Financial ratio - weighted average cost of capital.
WIBOR Warsaw Inter Bank Offered Rate Warsaw Inter Bank Offered Rate - interest rate used on the Polish interbank market for interbank loans.
WIG Index comprising all the companies listed on the Main Market of the Warsaw Stock Exchange that fulfill the basic criteria for inclusion in its indices.
WIG20 Index comprising the 20 largest and most liquid companies listed on the Main Market of the Warsaw Stock Exchange.
WIG30 Index comprising the 30 largest and most liquid companies listed on the Main Market of the Warsaw Stock Exchange.
WIG-Energy Sectoral index comprising companies participating in the WIG index and simultaneously classified in the energy generation sector.
WIG-Poland National index comprising only the domestic companies listed on the Main Market of the Warsaw Stock Exchange that fulfill the basic criteria for inclusion in its indices.
Underground mining pit underground mining pit Space created as a result of mining works.
Highly-efficient cogeneration high-efficiency cogeneration Generating electrical or mechanical energy and usable thermal energy in cogeneration to save the original energy used in the cogeneration unit in an amount no lower than 10% compared to the generation of electrical energy and thermal energy in separate systems or in a cogeneration unit with an installed electricity capacity under 1 MW compared to the generation of electrical energy and thermal energy in separate systems.
Green certificates green certificates "Green" certificates "green" certificates Certificates of origin, i.e. a document that confirms the generation of electricity with renewable energy sources. The green certificate system has been in force in Poland since 1 October 2005 (and has changed in the new RES Act).
Yellow certificates yellow certificates "Yellow" certificates "yellow" certificates Certificate certifying the origin of energy. Operators of cogeneration units fired with gaseous fuels or with a total installed power source of less than 1 MW may be compensated with yellow certificates.
TPA Third Party Access - TPA is one of the most important principles (besides unbundling) on which the deregulated energy market is founded. TPA gives an energy user the right to buy it from any energy seller of its choosing.
EUA CO2 emission unit.
IFRS International Financial Reporting Standards – standards and their interpretations approved by the International Accounting Standards Board (IASB).
RFX Request for proposal.
Global Reporting Index GRI Independent international organization whose mission is to create a joint global framework for communicating responsibility and sustainable development. The GRI guidelines are an international reporting standard for organizations regardless of size, business sector and venue. Their application gives a guarantee of consistency in terminology and indicators.
International Integrated Reporting Council IIRC The International Integrated Reporting Council is an organization whose purpose is to create globally accepted integrated reporting guidelines based on combining financial, environmental, social and corporate governance reporting in a clear, succinct, coherent and comparable format. It consists of global leaders such as the International Federation of Accountants (IFAC), the International Accounting Standards Board, the United Nations Environmental Program (UNEP), the International Organization of Securities Commissions, the World Business Council for Sustainable Development and the Global Reporting Initiative (GRI).
integrated reporting non-financial reporting standard International integrated reporting standard encompassing financial and non-financial data devised by IIRC.

GRI indicators