Annual report 2017

We want to shape a responsible energy industry of tomorrow in our country.

Our strategy

We are consistently implementing our strategy, keeping in mind the Group's target market position. Our vision for PGE Group's future:

Leader in generation, actively taking advantage of growth opportunities

Striving to strengthen our leadership on the domestic electricity market, we must take multi-dimensional action. On the one hand, this means the development of conventional capacities and modernisation of existing assets, while on the other - development of renewable energy.

The foundation for the construction of new conventional capacities is our two flagship investments in Opole and Turów, expected to be put into service in 2019-2020. 

We are flexible about plans for the development of new generation capacities, taking into account market changes and the potential to diversify the Group's generation mix. Each time, we aim to make the most beneficial decision in economic and technical terms and taking into account the specific location of the assets. This is where we see potential to develop generation capacities based on gas or alternative fuels.

Our ambitions also include the development of renewable energy. PGE Group intends to maintain its leading position in the renewables segment by producing approx. 25% of national renewables output by 2030.

Investment flexibility in the area of renewables is our competitive advantage. We have the right potential to develop the most economically effective renewable sources. We are ready to implement the most advanced onshore wind farms, photovoltaic farms, a 1 000 MW offshore wind farm and to increase our exposure to the diffuse source segment. Implementing specific investments will depend on regulatory conditions, i.e. the support system.

We are aware of the fact that in a period of changes on the electricity market, maintaining the top position is a considerable challenge. Adapting conventional energy to the new market shape and especially to it being more flexible is just one of the activities we are involved in. To remain the leader of power generation in the long-term, we must be prepared to adapt our generation portfolio. PGE Group has three strategic options thanks to which it may make the optimal choice in the context of future regulations:Strategic options

We are prospectively looking at offshore wind farms, expecting their costs to fall significantly in the coming years, potentially developing an approx. 1 GW project. In combination with an adequate support system and the right investment financing model, this investment should be economically justified and should contribute to reducing the Group's exposure to the cost of CO2 emission allowances. Especially since in a wider social dimension this would have a positive impact on new job creation in the country and on the development of industry.

We see the possibility of building the first Polish nuclear power plant once a model ensuring the investment's economic feasibility is established.

We are also preparing to obtain permissions for new lignite deposits however these investments will depend on the shape of EU's climate policy and national regulations.

Irrespective of new investments, PGE will implement an optimal range of modernisations of conventional and CHP plants to adapt them to new BAT (Best Available Technology) emission standards, while maintaining our market position.

We are constantly searching for innovative solutions that will give us a competitive advantage and will continue reducing our environmental footprint.

Inorganic growth brings us closer to our targets. Thanks to the acquisition of EDF Polska's assets, we strengthened our top position in the power segment and became the largest supplier of eco-friendly district heating in the country, with a 15% share of the Polish district heating market. In connection with PGE Group's new role on this market and in reference to the intention previously announced in its strategy to separate a new business line for district heating assets, PGE Group's District Heating Strategy was unveiled on December 14, 2017, which highlights our ambitions in this area. 

Reliable and active utility and service supplier 

Our key responsibility is the stable supply of electricity. An expansive investment programme in the distribution segment is systematically improving reliability indicators. At the same time, we strive to meet our clients' expectations. Their satisfaction is to be a gauge of our effectiveness in action.

Modern energy must take into account changes in customer needs and behaviours. We see this as an opportunity, not as a threat. Speed of response to these changes is the basis for building an effective enterprise on a competitive market.

In trying to meet the rising expectations concerning service reliability, we place emphasis on automation and streamlining our processes and infrastructure. We are becoming more flexible and comprehensive. We care about customer service standards, focusing on strengthening our relations with clients based on knowing their needs.

In response to identified expectations, PGE Group will expand its offering by new products and services that are complementary to electricity and develop new sales and communication channels, which will have a positive impact on the customer satisfaction indicators that we are monitoring.

We try to harmonise customer service standards so that our clients are content with our services regardless of whether they are serviced by PGE Dystrybucja or PGE Obrót.

Poland’s most efficient and flexible energy group 

PGE Group’s cost and operational efficiency is one of the most important pre-conditions for achieving the rest of our strategic objectives. Flexibility is necessary to be able to quickly respond to challenges arising in PGE Group's environment, especially given the changes taking place on the power market.

Cost reduction intends to strengthen PGE Group's competitiveness and potential and creates a basis for PGE Group's further development and implementation of an ambitious investment programme. Improvement in effectiveness will apply to all of PGE Group's business lines.

Effective asset management

PGE owns a portfolio of assets with various levels of profitability and different functions performed within the power system. A harmonised approach to planning expenditures on generating assets at PGE Group will make it possible to reduce asset maintenance costs and CAPEX, without sacrificing energy supply security.

From a financial point of view, it is necessary to specify economically justified expenditures on modernisations and replacements by segmenting generating assets - in terms of profitability and importance.

In effect, we are expecting to reduce modernisation and repair expenditures in 2016-2020 by approx. PLN 500 million.

The aim of changes in the company's organisational structure is to improve operational efficiency and prepare PGE Group for development in the most promising business areas, under changing market conditions.

These changes will be carried out through:

  • Standardisation and optimisation of support functions at Group level.
  • Speeding up decision-making, analytical and reporting processes.
  • Simplifying PGE Group's organisational structures and increasing decision-making authority at lower management levels.
  • Optimising subsidiaries' processes and organisation.
  • Carve-out of the cogeneration segment.
  • Removal of redundant functions.

In the process of managing and developing the organisation, we place great emphasis on developing our employees' competences in industry know-how and the ability to pro-actively build relations with our stakeholders. We are developing and modernising management systems for work results, evaluations and bonuses and we aim to enhance the pro-efficiency culture based on integrated processes and HR tools. 

Flexible organisation

We believe that effective operations are not enough in a changing market environment. The organisation must become flexible in action so as to quickly adapt to changes. 

PGE Group will become more flexible mainly through:

  • Mechanisms for monitoring the surroundings and quickly reacting to changes.
  • Openness for business cooperation with external partners, also on international markets.
  • Cooperation with scientific institutions and universities.
  • Speeding up decision-making, analytical and reporting processes.
  • Removing systemic barriers for employee mobility.

Leader in developing new business models and lines of business

We are aware of the need to adapt PGE Group to a world in which changes are happening dynamically and growth opportunities are available only to the most innovative and client-centric companies. PGE wishes to be an active participant of changes, not merely focusing on improving existing technologies. We strive to exceed our key competences and we are open to getting involved in new business areas.

We are actively getting involved in cooperation in the area of development and commercialisation of new technologies with credible partners with competences allowing to generate synergies and competitive advantages. PGE Group's support may be financial, technical or organisational, depending on the type of venture and form of implementation. One form of such involvement will be a specialist fund, PGE Ventures, with own funds of PLN 20-22 million and the capacity to raise funds from private investors and other external sources.

As the electricity market changes, we are making room for new activities. Using these opportunities is a path towards evolutionary changes at the Group as well as growing revenue from outside the generation and distribution segments.

Involvement in the development and commercialisation of new technologies will let PGE Group introduce a modern and comprehensive offering for clients, covering photovoltaics, electromobility, smart home solutions, natural gas and demand management.

Another potential direction of development is presence on the energy efficiency market. Such involvement would make it possible for PGE Group to build long-term beneficial relations with clients such as industry, local governments or retail clients. Aside from this, a wide array of initiatives will be implemented to improve the energy efficiency of infrastructure and buildings belonging to the Company.

Planned capital expenditures

In accordance with the 2016-2020 strategy, PGE Group will spend PLN ~34 billion on capital expenditures, including over PLN 10 billion on on-going projects in Opole and Turów. In connection with modernisation programmes that are to be completed soon, expenditures on existing capacities in Conventional Generation will be gradually decreasing. After 2020, we will be pursuing an investment programme dependent on the selected strategic options, system needs and the new market model. Investment plans do not take into account investments related to inorganic growth.

PGE Group's planned capital expenditures

PGE Group's values

PGE Group's strategy will be implemented in compliance with the following values: Partnership, Growth, Responsibility, and principles in everyday work included in PGE Group's Code of Ethics. PGE Group is a socially responsible organisation, aware of its impact on the environment, thus in its operations it focuses on reducing impact on the natural environment, operating based on ethical principles and involvement in activities for the benefit of local communities.


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