Tauron Polska Energia S.A.

Annual Report • Mar 31, 2021

ANNUAL REPORT

of TAURON Polska Energia S.A. for the year 2020

March 2021

TAURON.PL

Letter of the President of the Management Board of TAURON Polska Energia S.A.

Ladies and Gentlemen,

On behalf of the Management Board of TAURON Polska Energia S.A. I have the pleasure to present to you the Annual Report of TAURON Polska Energia S.A. for 2020, that provides our financial and operating results, as well as the most important accomplishments of last year.

2020 will go down in history as the year of the coronavirus pandemic. It affected all areas of the economic life.

In spite of the challenging conditions in the market environment and the decline in the volumes of electricity distribution and supply, the financial position of TAURON Polska Energia and TAURON Group has remained stable. We adapted to the new situation efficiently, while the procedures introduced with respect to the functioning of the Group's subsidiaries in a pandemic environment allowed us to ensure continuity of the production and supply of electricity to our customers.

The sales revenue of TAURON Polska Energia S.A. came in at PLN 11.3 billion, which meant a 6 percent. increase as compared to 2019. The higher revenue is mainly a consequence of higher electricity sales prices. The operating result and the net result were negative due to the need to set up a provision for an onerous contract and the booking of the impairment charges.

In reference to the market trends that we observed last year, it should be emphasized that it was a period of an extremely fast growth of prosumer energy in the field of renewable energy sources (RES). As a result, the installed capacity in photovoltaic technology in Poland increased by almost 150 percent as compared to 2019, i.e. from 1.5 GW to 4 GW. In this context, it should be noted that TAURON Group connected 100 000 RES micro-installations with the total capacity of 658 MW to its distribution grid in 2020. This is over three times more than in 2019. Overall, the total capacity of RES installations connected to TAURON Group's grid reached 823 MW in 2020.

The expansion of renewable energy sources is an investment priority for TAURON Group, and this is why we are taking a number of initiatives to ensure that the Green Turn of TAURON, announced in May 2019, follows the strategic directions set. As part of the strategy, we are assuming that the share of zero emission sources in the Group's generation mix will rise to 66 percent by 2030. The planned investments in renewable energy sources and the decommissioning of the obsolete conventional generation sources will allow the Group to reduce its emissions by more than 50 percent by 2030.

TAURON Group is currently operating nine onshore wind farms with the total capacity of 381 MW. We want to increase this potential to more than 1 000 MW of installed capacity by 2025. The first significant step, as part of the implementation of the strategy, was the acquisition of five wind farms with the capacity of 180 MW in 2019. In December 2020, in turn, we acquired a 30 MW wind farm project located in the Łódź Province. The wind farm should be commissioned in mid-2022.

Speaking of wind energy, it should be added that offshore wind farms will play an important role in our plans to expand zero emission capacity. Due to its windiness and depth, the Baltic Sea is considered to be one of the most promising reservoirs for the development of this type of energy generation in Europe. We signed a letter of intent on the cooperation in this area with PGE Polska Grupa Energetyczna and Enea in January 2021.

Another important element of TAURON Group's expansion strategy is related to photovoltaics. In accordance with the assumptions of the Green Turn of TAURON, we are planning to operate photovoltaic farms with the capacity of 300 MW as part of our portfolio by 2025. In December 2020, we completed the implementation of the first farm based on such technology in Jaworzno, on the Group's post-industrial land. The electricity generated by that installation will power more than two thousand households. The construction of the Choszczno project is underway - a complex of photovoltaic farms with the total capacity of 6 MW that will be extended by another 8 MW. We signed several preliminary contracts last year, including agreements for the acquisition of six photovoltaic projects and five wind projects.

I would like to emphasize with satisfaction that the volume of electricity produced by TAURON Group from renewable sources went by more than 40 percent in 2020, as compared to the previous year.

Last year, we completed the construction of our final projects in the field of conventional energy - a 910 MW coal fired power generating unit in Jaworzno and a 450 MW CCGT power generating unit in Stalowa Wola. They are efficient, modern generation units, adapted to meet the demanding environment protection standards, that will constitute an important element of Poland's energy security.

Referring to the investment activities, it is worth emphasizing that last year TAURON Group allocated a budget in the amount of PLN 4 billion for investment projects, with the largest funds going to the Distribution and Generation segments. In the former one, the capital expenditures of PLN 1.9 billion were spent mainly on the modernization of the distribution grid and the installation of the new grid connections, in the latter one – on the completion of the power generating unit in Jaworzno.

Similar as in the previous years, also in 2020 we undertook a number of effective initiatives aimed at guaranteeing the funds required for TAURON Group's sustainable development. First of all, I would like to mention the first issue of sustainable development bonds in Poland, as part of which we issued fiveyear bonds worth PLN 1 billion, with the proceeds to be spent on the Group's energy transition. We also signed two loan agreements for the total amount of PLN 1 billion last year.

Ladies and Gentlemen,

In spite of the numerous challenges facing the Polish energy sector, I am convinced that the steadfast implementation of the assumptions of the Green Turn of TAURON will have a positive impact on TAURON Group's market position and prospects. I believe that high competence and extensive experience of the Group's employees will be skillfully used to shore up the key segments of our business operations. On the other hand, our initiatives with respect to social dialogue will continue to contribute to building long term, partnership based relations with all stakeholder groups.

On behalf of the Management Board of TAURON Polska Energia S.A. I would like to thank all stakeholders for their commitment and dedication to building TAURON Group's value.

Yours respectfully,

Marek Wadowski

acting as the President of the Management Board of TAURON Polska Energia S.A.

	in PLN '000		in EUR '000
SELECTED FINANCIAL DATA	2020 from 01.01.2020 to 31.12.2020	2019 from 01.01.2019 to 31.12.2019 (adjusted data)	2020 from 01.01.2020 to 31.12.2020	2019 from 01.01.2019 to 31.12.2019 (adjusted data)
Selected standalone financial data of TAURON Polska Energia S.A.
Sales revenue	11 340 464	10 680 577	2 534 635	2 482 816
Operating profit (loss)	(909 903)	101 102	(203 367)	23 502
Pre-tax loss	(3 527 630)	(346 207)	(788 438)	(80 480)
Net loss	(3 589 655)	(462 830)	(802 301)	(107 590)
Other net comprehensive income	(95 367)	11 171	(21 315)	2 597
Total comprehensive income	(3 685 022)	(451 659)	(823 616)	(104 993)
Loss per share (in PLN / EUR) (basic and diluted based on net loss)	(2.05)	(0.26)	(0.46)	(0.06)
Weighted average number of shares (pcs.) (basic and diluted)	1 752 549 394	1 752 549 394	1 752 549 394	1 752 549 394
Cash flow from operating activities	907 446	(498 270)	202 817	(115 828)
Cash flow from investing activities	(1 088 538)	74 699	(243 292)	17 365
Cash flow from financing activities	(512 772)	1 934 525	(114 606)	449 701
Increase/(decrease) in net cash and equivalents	(693 864)	1 510 954	(155 081)	351 238
	As of 31.12.2020	As of 31.12.2019	As of 31.12.2020	As of 31.12.2019
Fixed assets	24 498 483	27 010 590	5 308 677	6 342 747
Current assets	4 209 659	3 474 539	912 208	815 907
Total assets	28 708 142	30 485 129	6 220 885	7 158 654
Share capital	8 762 747	8 762 747	1 898 836	2 057 707
Equity	11 123 155	14 808 177	2 410 322	3 477 322
Long term liabilities	13 074 803	10 947 500	2 833 233	2 570 741
Short term liabilities	4 510 184	4 729 452	977 330	1 110 591
Total liabilities	17 584 987	15 676 952	3 810 563	3 681 332

The above financial data was converted to EUR according to the following principles:

• individual items of the statement of financial position at the average exchange rate of NBP announced as of December 31, 2020 4.6148 PLN/EUR (as of December 31, 2019 – 4.2585 PLN/EUR),
• individual items of the statement of comprehensive income and the statement of cash flows at the exchange rate that is an arithmetic mean of the average exchange rates of NBP announced as of the last day of each month of the financial year running from January 1, 2020 to December 31, 2020 – 4.4742 PLN/EUR (for the period from January 1, 2019, to December 31, 2019 – 4.3018 PLN/EUR).

INDEPENDENT AUDITOR'S REPORT ON THE AUDIT

of the annual standalone financial statements of TAURON Polska Energia S.A. for the year 2020

TAURON.PL

Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością sp. k. Rondo ONZ 1 00-124 Warszawa

+48 (0) 22 557 70 00 +48 (0) 22 557 70 01 www.ey.com/pl

INDEPENDENT AUDITOR'S REPORT ON THE AUDIT

To the General Meeting and Supervisory Board of TAURON Polska Energia S.A.

Audit report on the annual financial statements

Opinion

We have audited the annual financial statements of TAURON Polska Energia S.A. (the 'Company') located in Katowice at Ks. Piotra Ściegiennego 3 street, containing: the statement of comprehensive income for the period from 1 January 2020 to 31 December 2020, the statement of financial position as at 31 December 2020, the statement of changes in equity, the statement of cash flows for the period from 1 January 2020 to 31 December 2020 and additional information to the financial statements, including a summary of significant accounting policies (the 'financial statements').

In our opinion the financial statements:

• give a true and fair view of the financial position of the Company as at 31 December 2020 and its financial performance and its cash flows for the period from 1 January 2020 to 31 December 2020 in accordance with required applicable rules of International Financial Reporting Standards approved by the European Union and the adopted accounting policies,
• are in respect of the form and content in accordance with legal regulations governing the Company and the Company's Statute,
• have been prepared based on properly maintained accounting records, in accordance with chapter 2 of the Accounting Act dated 29 September 1994 (the 'Accounting Act').

The opinion is consistent with the additional report to the Audit Committee issued on 30 March 2021.

Basis for opinion

We conducted our audit in accordance with the National Standards on Auditing in the version of International Auditing Standards as adopted by the National Council of Statutory Auditors ("NAS") and pursuant to the Act of 11 May 2017 on Statutory Auditors, Audit Firms and Public Oversight (the 'Act on Statutory Auditors') and the Regulation (EU) No. 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the 'Regulation 537/2014'). Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the financial statements' section of our report.

We are independent of the Company in accordance with the International Ethics Standards Board of Accountants' (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), adopted by the National Council of Statutory Auditors and other ethical responsibilities in accordance with required applicable rules of the audit of financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. While conducting the audit, the key certified auditor and the audit firm remained independent of the Company in accordance with the independence requirements set out in the Act on Statutory Auditors and the Regulation 537/2014.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. They include the most significant assessed risks of material misstatement, including the assessed risks of material misstatement due to fraud. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we have summarized our reaction to these risks and in cases where we deemed it necessary, we presented the most important observations related to these types of risks. We do not provide a separate opinion on these matters.

Key audit matter	How the matter was addressed in our audit
Impairment of shares and loans receivable
Why the issue is a key audit matter	Audit approach
As at December 31, 2020, the Company presented:	Our procedures, in relation to the key audit matter described, included, among others:
• shares (with a carrying amount of approximately PLN 20 153 mln) • loans receivable (with a carrying amount of approximately PLN 5 381 mln),	Overview of the process and • identification of the control mechanisms operating in the Company related to impairment tests of assets, as well as an understanding of the applied accounting policies and procedures, including
constituting in total approximately 89% of the Company's balance sheet total.	internal control environment related to the assessment process of impairment
According to International Financial Reporting Standards the Management of the entity is obliged to determine the appropriate valuation method of loans receivable and, depending on the valuation method, determine the fair value of these loans receivable or determine the value of expected credit losses that may occur in the period of 12 months or remaining period of existence of receivables from loans depending on classification of assets to the brackets and for shares or joint ventures as a result of the identified assets impairment premise for performing the impairment test.	indicators; identification of the objective events indication the impairment and tests for impairment of assets, Assessment of the assumptions adopted • by the Company with regard to the grouping of assets into cash-generating units (CGU), Assessment of the impairment's • indicators and reconciliation of source data used in impairment test models and assessment of impairment triggers for financial forecasts adopted by the Company; Assessment (with the assistance of • valuation specialists) of estimates and assumptions made by the Company in order to determine the assets recoverable amount, including: - the key macroeconomic assumptions adopted by the Company for the future years (including: discount rates, projected growth rate) by comparing them to market data and available external data; - arithmetical correctness of the discounted cash flows model, and - assumptions made to determine cash flows and residual values after the

The issue was identified as key audit matter in the audit of the financial statements due to the value of the assets listed above, which is significant for the financial statements, as well as due to the complex element of the professional judgment of the Management regarding the valuation of receivables from loans, as well as shares in companies that are not subsidiaries or joint ventures and a complex element of the professional judgment of the Management Board regarding the estimation of the recoverable amount of shares in joint ventures and subsidiaries.

The valuation of receivables from loans as well as shares in companies which are not subsidiaries or joint ventures requires the application of appropriate valuation model, depending on the classification of assets, in accordance with International Financial Reporting Standard 9 Financial Instruments.

The estimation of the recoverable amount of shares in subsidiaries or joint ventures requires the Management Board to adopt a number of assumptions regarding future market and economic conditions, such as, future changes in the prices of raw materials, electricity, property rights arising from certificates of origin of energy, CO2 emission rights and future revenues, costs and cash flows, weighted average cost of capital ("WACC"), as well as the impact of potential and already approved Polish and European regulatory changes, including environmental protection and the anticipated macroeconomic situation.

• Inquiries to the employees of the financial department and the Management Board referring to the status of implementation of the adopted assumptions, including the validity of key estimates,
• Analysis of external sources of information such as industry press and evaluation of potential risk related to the implementation of the assumptions with the support of valuation specialists;
• Assessment of the classification of the receivables from loans granted in accordance with International Financial Reporting Standard 9 Financial Instruments;
• Assessment of the Company's Management Board's judgment regarding the applied valuation models for loans receivable and the existence of objective events affecting the impairment of assets;
• Assessment of the correctness of recognition of results of impairment tests of assets and the valuation of loans receivable and bought bonds in the books;
• Assessment of the valuation models of loans receivable and bought bonds adopted by the Company, including reconciliation of source data being the basis for valuation of the assets;
• Assessment of the Company's Management Board's judgment regarding the impact of the COVID-19 pandemic on the assumptions made for impairment tests;
• Obtaining detailed statements of the Management Board regarding the completeness and correctness of the data and significant assumptions provided to us;

A reference to disclosure in the financial statements The Company disclosed the information regarding impairment indicators analysis, estimates of the impairment test, as well as impairment losses on shares in note 10 of the explanatory notes to the financial statements for the year ended December 31, 2020.	Assessment of completeness of • disclosures in the financial statements of the Company in terms of impairment in accordance with the International Accounting Standard 36 Impairment of assets and International Financial Reporting Standard 9 Financial Instruments - disclosure of information.
The disclosure regarding the valuation of receivables from loans granted and bought bonds was included by the Company in note 20 of the explanatory notes to the financial statements for the year ended 31 December 2020.

Claims, lawsuits and contingent liabilities

Why the issue is a key audit matter

The Company is a party to many significant claims and court cases which, depending on the Company's assessment, are recognized as provisions or contingent liabilities. Significant in terms of value are potential and submitted claims identified by the Company related to the termination of long-term contracts for the purchase of electricity and property rights arising from certificates of origin of energy generated in renewable energy sources.

The basis for recognizing provisions and contingent liabilities in the financial statements are the Management Board's judgments regarding the likelihood of adverse effects of the claims and court cases that may cause an outflow of economic benefits from the Company. The results of these claims and lawsuits are beyond the Company's control.

The issue was identified as key audit matter in the audit of the financial statements due to the significance of the claims and lawsuits, as well as due to the complex element of the professional judgment of the Management regarding their impact on the financial statements.

Audit approach

Our procedures, in relation to the key audit matter described, included, among others:

• Obtaining an understanding of the process of making judgments by the Management Board regarding claims and lawsuits;
• Monitoring of public information to identify a violation or potential violation of laws and regulations by the Company and to assess the completeness of the effects of identified violations, as well as to assess the completeness of disclosures in the financial statements;
• Analysis of the documentation regarding court cases presented for the audit purposes and discussion of significant court cases with the Legal Project Management Team of the Company and external lawyers significant claims and lawsuits;
• Analysis of the costs of legal services incurred during the year including the identification of entities providing legal services to the Company;
• Obtaining written explanations from the lawyers serving the Company with regard to the court and disputable cases conducted by them, and the analysis of the provided explanations;
• Analysis and assessment of the level and completeness of provisions for litigation in the context of the existing legal documentation;
• Discussion of the selected claims and court cases with internal specialists in the field of law;

A reference to disclosure in the financial statements	• Obtaining detailed statements of the Management Board regarding the completeness and correctness of the data and significant assumptions
The Company disclosed information regarding claims and court cases in note 43 of the explanatory notes to the financial statements for the year ended December 31, 2020.	provided to us; • Review of minutes of meetings of the legal bodies of the Company as well as control reports of supervisory authorities and correspondence with these authorities. • Analysis of the adequacy of disclosures in relation to court and out-of-court proceedings, related provisions and contingent liabilities in the financial statements.

Assets classified as held for sale

Why the issue is a key audit matter

As described in note 28 of the additional explanatory notes to the financial statements for the year ended December 31, 2020, the Management Board of the Company in June 2020 decided to start negotiations for the sale of shares in the subsidiary TAURON Ciepło sp.z o.o.

As a consequence of the decisions and events described in note 28 of the additional explanatory notes to the financial statements for the year ended December 31, 2020, the Management Board of the Company assessed that in relation to the shares in TAURON Ciepło sp.z o.o. the conditions of the International Financial Reporting Standard 5 Fixed assets held for sale and discontinued operations ("IFRS 5") have been met. In relation to the fact that the fair value less selling costs is lower than the current book value of shares in TAURON Ciepło sp.z o.o. The Company made a write-off for this assets in the amount of PLN 1 393 mln.

Audit approach

Our procedures, in relation to the key audit matter described, included, among others:

• Analysis of accounting policies with regard to the classification of noncurrent assets as assets held for sale in accordance with IFRS 5, related significant judgments and estimates, in particular with regard to:

• identification of contracts and transactions that may be subject to recognition in accordance with IFRS 5;

• methods of determining the fair value measurement;

• Understanding of the process control environment and the accounting treatment of events that meet the requirements of IFRS 5, including an understanding of procedures to ensure the completeness of identification of such events and transactions;

• Understanding of the business aspects of the planned transaction of sale of shares in the subsidiary TAURON Ciepło sp. z o.o .;
• Analysis of the Company's offer for the sale of shares in the subsidiary TAURON Ciepło sp. Z o.o. and other documentation which is the basis for the decision of the Management Board of the Company to classify the potential transaction as meeting the conditions specified in IFRS 5;

The issue was identified as key audit matter in the audit of the financial statements due to its significant impact on the financial statements, an element of the Management Board's professional judgment with regard to classification the planned sale of shares in the subsidiary TAURON Ciepło sp.z o.o. as meeting the requirements of IFRS 5 regarding the classification of assets as held for sale, the valuation of assets held for sale and other necessary calculations and disclosures.

A reference to disclosure in the financial statements

The Company disclosed information regarding assets held for sale in note 28 of the additional explanatory notes to the financial statements for the year ended December 31, 2020.

• Analysis of the fulfillment of the conditions required to classify the shares in TAURON Ciepło sp. z o.o. as assets held for sale;
• Analysis of the valuation of the fair value of assets held for sale;
• Analysis of the assessment made by the Management Board with regard to determining the moment of classification of assets as held for sale;
• Obtaining detailed statements of the Management Board regarding the completeness of the data provided to us and significant assumptions;
• Assessment of the impact of events after the reporting period related to the planned transaction of sale of shares in TAURON Ciepło sp. z o.o. on the Company's financial statements;
• Analysis and assessment of the adequacy and completeness of disclosures in the financial statements in relation to the requirements of International Financial Reporting Standard 5 Non-current assets held for sale and discontinued operations, including disclosures related to the Company's key judgments and estimates in this respect.

Onerous contract provision

Why the issue is a key audit matter

As at December 31, 2020, the Company recognized a provision for an onerous contract with a carrying amount of approximately PLN 1 110 mln as a significant position in provisions, constituting in total approximately 4% of the Company's balance sheet total.

As described in note 36 of the additional explanatory notes to the financial statements for the year ended December 31, 2020, the Company is a party to a long-term contract under which it is obligated to purchase electricity from the subsidiary Nowe Jaworzno Grupa TAURON sp.z o.o. at a price determined according to an agreed pricing formula (the "Agreement"). As a consequence that the purchase price of electricity under the Agreement exceeds the achievable revenues from the sale of this electricity, a provision for the onerous contract was recognized in the Company's financial statements for the year ended December 31, 2020.

Audit approach

Our procedures, in relation to the key audit matter described, included, among others:

• Analysis of the accounting policies relating to the identification, recognition and measurement of provisions for onerous contracts;
• Understanding of the process and control environment for accounting for provisions for onerous contracts in accordance with IAS 37, including an understanding of the procedures to ensure that the identification of likely onerous business relationships is complete;
• Understanding the business aspects of entering into an onerous contract, including understanding the basis of unavoidable costs in excess of the achievable benefits of the onerous contract;
• Analysis of documentation as a basis for recognition of provisions for onerous contracts;
• Assessment of the key judgments and estimates of the Management Board with regard to the valuation and recognition of a provision for an onerous contract;
• performing plausibility tests with regard to provisions for onerous contracts to assess the correctness of the valuation, recognition and presentation of the provision in the financial statements;
• Obtaining detailed statements of the Management Board regarding the completeness of the data provided to us and significant assumptions;

The issue was identified as key audit matter in the audit of the financial statements due to its significant impact on the financial statements as well as the complex element of the Management Board's professional judgment regarding identification, in line with the provisions of International Accounting Standard 37 Provisions, Contingent Liabilities and Contingent Assets ("IAS 37" ), the onerous contract and estimates of the unavoidable costs that exceed the benefits of the onerous contract.

Estimation of the costs and benefits of the contract requires the adoption by the Company's Management Board a number of assumptions as to future market and economic conditions, including, inter alia, future changes in the prices of raw materials, CO2 emission rights, electricity and future revenues, costs and cash flows, as well as the impact of potential and already approved Polish and European regulatory changes, including those related to environmental protection and the expected macroeconomic situation.

Reference to disclosure in the financial statements

The Company disclosed information regarding onerous contract provision in note 36 of the additional explanatory notes to the financial statements for the year ended December 31, 2020.

• Analysis and assessment of the adequacy and completeness of disclosures in the financial statements in relation to the requirements of International Accounting Standard 37 Provisions, Contingent Liabilities and Contingent Assets, including disclosures related to the Company's key judgments and estimates in this respect.

Responsibilities of the Company's Management and members of the Supervisory Board for the financial statements

The Company's Management is responsible for the preparation, based on properly maintained accounting records, the financial statements that give a true and fair view of the financial position and the financial performance in accordance with required applicable rules of International Accounting Standards, International Financial Reporting Standards approved by the European Union, the adopted accounting policies, other applicable laws, as well as the Company's Statute, and is also responsible for such internal control as determined is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, The Company's Management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless The Company's Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Company's Management and the members of the Company's Supervisory Board are required to ensure that the financial statements meet the requirements of the Accounting Act. The members of the Company's Supervisory Board are responsible for overseeing the Company's financial reporting process.

Auditor's responsibility for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud or error, and to issue an independent auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not guarantee that an audit conducted in accordance with NAS will always detect material misstatement when it exists. Misstatements may arise as a result of fraud or error and are considered material if it can reasonably be expected that individually or in the aggregate, they could influence the economic decisions of the users taken on the basis of these financial statements.

In accordance with International Auditing Standard 320, section 5, the concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor's report. Hence all auditor's assertions and statements contained in the auditor's report are made with the contemplation of the qualitative and quantitative materiality levels established in accordance with auditing standards and auditor's professional judgment.

The scope of the audit does not include assurance on the future profitability of the Company nor effectiveness of conducting business matters now and in the future by the Company's Management.

Throughout the audit in accordance with NAS, we exercise professional judgment and maintain professional skepticism and we also:

• identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or override of internal control,
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control,
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Company's Management,
• conclude on the appropriateness of the Company's Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our independent auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our independent auditor's report, however, future events or conditions may cause the Company to cease to continue as a going concern,
• evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated to the Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other information, including the Directors' Report

The other information comprises the Directors' Report for the period from 1 January 2020 to 31 December 2020, the representation on the corporate governance and the representation on preparation of the statement on non-financial information, mentioned in article 49b, section 1 of the Accounting Act as a separate element of the Directors' Report (jointly 'Other Information').

Responsibilities of the Company's Management and members of the Supervisory Board

The Company's Management is responsible for the preparation the Other Information in accordance with the law.

The Company's Management and members of the Company's Supervisory Board are required to ensure that the Directors' Report meets the requirements of the Accounting Act.

Auditor's responsibility

Our opinion on the financial statements does not include the Other Information. In connection with our audit of the financial statements, our responsibility is to read the Other Information and, in doing so, consider whether it is materially inconsistent with the financial statements or our knowledge obtained during the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact in our independent auditor's report. Our responsibility in accordance with the Act on Statutory Auditors is also to issue an opinion on whether the Directors' Report was prepared in accordance with relevant laws and that it is consistent with the information contained in the financial statements.

In addition, we are required to inform whether the Company has prepared the representation on non-financial information and to issue an opinion on whether the Company has included the required information in the representation on application of corporate governance.

Opinion on the Directors' Report

Based on the work performed during our audit, in our opinion, the Directors' Report:

• has been prepared in accordance with the article 49 of the Accounting Act and paragraph 70 of the Decree of the Minister of Finance dated 29 March 2018 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-EU member states (the 'Decree on current and periodic information'),
• is consistent with the information contained in the financial statements.

Moreover, based on our knowledge of the Company and its environment obtained during our audit, we have not identified material misstatements in the Directors' Report.

Opinion on the corporate governance application representation

In our opinion, in the representation on application of corporate governance, the Company has included information stipulated in paragraph 70, section 6, point 5 of the Decree on current and periodic information.

Moreover, in our opinion, the information stipulated in paragraph 70, section 6, point 5 letter c-f, h and i of the Decree included in the representation on application of corporate governance is in accordance with applicable laws and information included in the financial statements.

Information on non-financial information

In accordance with the Act on Statutory Auditors, we confirm, that the Company has prepared a statement on non-financial information mentioned in article 49b, section 1 of the Accounting Act as a separate element of the Directors' Report.

We have not performed any attestation procedures in respect to the statement on non-financial information and do not express any assurance in its respect.

In accordance with the requirements of the Act on Statutory Auditors, we inform that the Company has included in Directors' Report information on the preparation of a separate report on non-financial information, referred to in art. 49b par. 9 of the Accounting Act and that the Company has prepared such a separate report.

We have not performed any attestation procedures services in respect to the separate report on non-financial information and do not express any assurance in its respect.

Report on other legal and regulatory requirements

In addition, we have concluded that the presented in note 50 balance sheet and profit and loss account, prepared separately for each type of business activity in the transmission or distribution of electricity, transmission, distribution of storage of gas comply, in all material respects, with the requirements referred to in Article 44 of the Act dated 10 April 1997 Energy Law ("Energy Law").

The scope of regulatory financial information contained in explanatory note 50 is specified in art.44 of the Energy Law. Our audit did not include an assessment on whether the information required to be disclosed by the law are sufficient to ensure equal treatment of customers and elimination of cross- subsidization between activities.

Representation on the provision of non-audit services

To the best of our knowledge and belief, we represent that services other than audits of the financial statements, which we have provided to the Company and its subsidiaries, are compliant with the laws and regulations applicable in Poland, and that we have not provided non-audit services, which are prohibited based on article 5 item 1 of Regulation 537/2014 and article 136 of the Act on Statutory Auditors. The non-audit services, which we have provided to the Company and its subsidiaries in the audited period, have been disclosed in the Directors' Report.

Appointment of the audit firm

We were appointed for the audit of the Company's financial statements initially based on the resolution of Supervisory Board from 15 March 2017 and reappointed based on the resolution from 28 November 2018. The financial statements of the Company have been audited by us uninterruptedly starting from the financial year ended on 31 December 2017, i.e. for the past four consecutive years.

Warsaw, 30 March 2021

Key Certified Auditor

Leszek Lerch Certified auditor no in the register: 9886

on behalf of: Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością sp. k. Rondo ONZ 1, 00-124 Warsaw no on the audit firms list: 130

FINANCIAL

STATEMENTS

In accordance with the International Financial Reporting Standards, as endorsed by the European Union for the year ended 31 December 2020

TAURON.PL

Financial Statements compliant with the International Financial Reporting Standards as endorsed by the European Union for the year ended 31 December 2020

1

	(in PLN thousand)
	STATEMENT OF COMPREHENSIVE INCOME 4
	STATEMENT OF FINANCIAL POSITION 5
	STATEMENT OF FINANCIAL POSITION - CONTINUED 6
	STATEMENT OF CHANGES IN EQUITY 7
	STATEMENT OF CASH FLOWS 8
	GENERAL INFORMATION ABOUT TAURON POLSKA ENERGIA S.A. AND BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS 9
1.	General Information about TAURON Polska Energia S.A. 9
2.	Shares in related parties 9
3.	Statement of compliance 11
4. 5.	Going concern 11 Functional and presentation currency 11
6.	Accounting principles (policy) and material values based on professional judgement and estimates 11
7.	Standards, amendments to standards and interpretations which have been published but are not yet effective 13
8.	Changes in the accounting policies 14
	BUSINESS SEGMENTS 15
9.	Information on operating segments 15
9.1.	Operating segments 15
9.2.	Geographical areas of operations 17
	IMPAIRMENT OF SHARES IN SUBSIDIARIES 17
	10. Impairment of financial assets 17
	EXPLANATORY NOTE TO THE STATEMENT OF COMPREHENSIVE INCOME 20
	11. Sales revenue 20
	12. Expenses by type 21
	13. Employee benefit expenses 23
	14. Finance income and costs 23 15. Income Tax 24
	15.1. Tax expense in the statement of comprehensive income 25
	15.2. Reconciliation of the effective tax rate 25
	15.3. Tax Capital Group 25
	16. Earnings (loss) per share 26
	EXPLANATORY NOTES TO THE STATEMENT OF FINANCIAL POSITION 26
	17. Investment property 26
	18. Right-of-use assets 27
	19. Shares 28 20. Loans granted 30
	20.1. Loans granted to subsidiaries 31
	20.2. Loans granted to joint ventures 32
	20.3. Loans granted under cash pool agreement 33
	21. Derivative instruments and hedge accounting 33
	22. Deferred income tax 35 23. Other financial assets 36
	24. Other non-financial assets 37
	25. Inventories 37
	26. Receivables from buyers 38
	27. Cash and equivalents 39
	28. Non-current assets classified as held for sale 40 29. Equity 42
	29.1. Issued capital 42
	29.2. Major Shareholders 42
	29.3. Reserve capital 43
	29.4. Revaluation reserve from valuation of hedging instruments 43
	29.5. Retained earnings/ (Accumulated losses) and dividend limitation 43 30. Dividends paid and proposed for disbursement 44
	31. Debt 44
	31.1. Bonds issued 45
	31.2. Bank loans 47
	31.3. Debt agreement covenants 49
	31.4. Loans from subsidiary 49
	31.5. Loans received under the cash pool service 49 31.6. Lease liabilities 50
	32. Other financial liabilities 50
	33. Liabilities to suppliers 50
	34. Other non-financial liabilities 51
	35. Provisions for employee benefits 51

36. Provision for onerous contract 52
37. Other provisions 54
38. Accruals, deferred income and government grants 54
EXPLANATORY NOTE TO THE STATEMENT OF CASH FLOWS 55
39. Significant items of the statement of cash flows 55
39.1. Cash flows from operating activities 55
39.2. Cash flows from investing activities 55
39.3. Cash flows from financing activities 56
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 56
40. Financial instruments 56
40.1. Carrying amount and fair value of financial instrument classes and categories 57
40.2. Revenue, expenses, gain and loss items included in the statement of comprehensive income by category of financial instruments 59
41. Principles and objectives of financial risk management 60
41.1. Credit risk 61
41.1.1 Credit risk related to receivables from buyers 61
41.1.2 Credit risk related to loans granted 62
41.1.3 Credit risk related to other financial assets 63
41.2. Liquidity risk 63
41.3. Market risk 65
41.3.1 Interest rate risk 65
41.3.2 Currency risk 66
41.3.3 Raw material and commodity price risk related to commodity derivative instruments 68
42. Operational risk 68
OTHER INFORMATION 68
43. Contingent liabilities 68
44. Security for liabilities 73
45. Capital commitments 74
46. Related-party disclosures 74
46.1. Transactions with related parties and State Treasury companies 74
46.2. Compensation of the executives 75
47. Finance and capital management 76
48. Employment structure 76 49. Fee of the certified auditor or the entity authorized to audit financial statements 76
50. Structure of financial statements broken down by business activity type in line with Article 44 of the Energy Law 76
51. Other material information 79
52. Events after the end of the reporting period 82

(in PLN thousand)

STATEMENT OF COMPREHENSIVE INCOME

		Year ended	Year ended
	Note	31 December 2020	31 December 2019
Sales revenue	11	11 340 464	10 680 577
Cost of sales	12	(12 101 520)	(10 431 139)
Profit (loss) on sale		(761 056)	249 438
Selling and distribution expenses	12	(20 829)	(24 036)
Administrative expenses	12	(117 509)	(121 636)
Other operating income and expenses		(10 509)	(2 664)
Operating profit (loss)		(909 903)	101 102
Dividend income	14	1 082 031	1 100 861
Interest income on loans and bonds	14	325 247	389 809
Interest expense on debt	14	(409 623)	(407 866)
Revaluation of shares	14	(589 010)	(94 920)
Revaluation of loans and bonds	14	(1 453 476)	(1 394 812)
Revaluation write-off to fair value of non-current assets classified as held for sale	14	(1 393 432)	-
Other finance income and costs	14	(179 464)	(40 381)
Loss before tax		(3 527 630)	(346 207)
Income tax expense	15.1	(62 025)	(116 623)
Net loss		(3 589 655)	(462 830)
Measurement of hedging instruments	29.4	(103 172)	15 179
Income tax expense	15.1	8 635	(2 884)
Other comprehensive income subject to reclassification
to profit or loss		(94 537)	12 295
Actuarial losses	35	(1 024)	(1 388)
Income tax expense	15.1	194	264
Other comprehensive income not subject to reclassification to
profit or loss		(830)	(1 124)
Other comprehensive income, net of tax		(95 367)	11 171
Total comprehensive income		(3 685 022)	(451 659)
Loss per share (in PLN): - basic and diluted, for net loss	16	(2.05)	(0.26)

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

STATEMENT OF FINANCIAL POSITION

		As at	As at
	Note	31 December 2020	31 December 2019
ASSETS
Non-current assets
Investment property	17	28 388	19 737
Right-of-use assets	18	28 012	34 177
Shares	19	20 152 633	21 844 183
Loans granted	20	4 233 601	5 047 552
Derivative instruments	21	36 041	20 352
Deferred tax assets	22	-	23 418
Other financial assets	23	2 541	2 348
Other non-financial assets	24	17 267	18 823
		24 498 483	27 010 590
Current assets
Inventories	25	394 031	149 364
Receivables from buyers	26	1 301 409	1 472 462
Income tax receivables	15.3	82 464	255 490
Loans granted	20	1 147 350	265 202
Derivative instruments	21	122 805	85 177
Other financial assets	23	87 303	316 949
Other non-financial assets	24	12 291	6 167
Cash and cash equivalents	27	643 134	923 728
Non-current assets classified as held for sale	28	418 872	-
		4 209 659	3 474 539
TOTAL ASSETS		28 708 142	30 485 129

(in PLN thousand)

STATEMENT OF FINANCIAL POSITION - CONTINUED

		As at	As at
	Note	31 December 2020	31 December 2019
EQUITY AND LIABILITIES
Equity
Issued capital	29.1	8 762 747	8 762 747
Reserve capital	29.3	6 338 754	6 801 584
Revaluation reserve from valuation of hedging instruments	29.4	(78 871)	15 666
Retained earnings / (Accumulated losses)	29.5	(3 899 475)	(771 820)
		11 123 155	14 808 177
Non-current liabilities
Debt	31	12 117 294	10 909 597
Other financial liabilities	32	14 090	15 126
Derivative instruments	21	73 739	16 848
Other non-financial liabilities	34	23 830	-
Provisions for employee benefits	35	4 208	5 929
Provision for an onerous contract	36	840 458	-
Accruals, deferred income and government grants	38	1 184	-
		13 074 803	10 947 500
Current liabilities
Debt	31	2 772 339	3 607 266
Liabilities to suppliers	33	764 096	424 486
Other financial liabilities	32	233 099	272 744
Derivative instruments	21	101 845	107 679
Other non-financial liabilities	34	346 471	223 035
Provisions for employee benefits	35	426	292
Provision for an onerous contract	36	269 439	-
Other provisions	37	4 909	77 094
Accruals, deferred income and government grants	38	17 560	16 856
		4 510 184	4 729 452
Total liabilities		17 584 987	15 676 952
TOTAL EQUITY AND LIABILITIES		28 708 142	30 485 129

STATEMENT OF CHANGES IN EQUITY

			TAURON Polska Energia S.A.
Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU			(in PLN thousand)
				Revaluation reserve
	Note	Issued capital	Reserve capital	from valuation of	Retained earnings/ (Accumulated losses)	Total equity
				hedging instruments
As at 1 January 2019		8 762 747	8 511 437	3 371	(2 017 719)	15 259 836
Coverage of prior years loss		-	(1 709 853)	-	1 709 853	-
Transactions with shareholders		-	(1 709 853)	-	1 709 853	-
STATEMENT OF CHANGES IN EQUITY Net loss		-	-	-	(462 830)	(462 830)
Other comprehensive income		-	-	12 295	(1 124)	11 171
Total comprehensive income		-	-	12 295	(463 954)	(451 659)
As at 31 December 2019		8 762 747	6 801 584	15 666	(771 820)	14 808 177
Coverage of prior years loss	29.3	-	(462 830)	-	462 830	-
Transactions with shareholders Net loss		- -	(462 830) -	- -	462 830 (3 589 655)	- (3 589 655)
Other comprehensive income		-	-	(94 537)	(830)	(95 367)
Total comprehensive income		-	-	(94 537)	(3 590 485)	(3 685 022)

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

STATEMENT OF CASH FLOWS

	Note	Year ended	Year ended
		31 December 2020	31 December 2019
Cash flows from operating activities
Profit (loss) before tax		(3 527 630)	(346 207)
Depreciation and amortization		14 522	13 257
Interest and dividends net		(973 218)	(950 609)
Impairment losses on shares		589 010	94 920
Impairment losses on bonds and loans		1 453 476	1 394 812
Revaluation write-off to fair value of non-current assets classified as held for sale		1 393 432	-
Exchange differences		303 464	(36 014)
Other adjustments of profit before tax		(84 178)	24 134
Change in working capital	39.1	1 738 680	(633 078)
Income tax paid		(112)	(59 485)
Net cash from operating activities		907 446	(498 270)
Cash flows from investing activities
Purchase of bonds		-	(420 000)
Loans granted	39.2	(1 933 932)	(1 281 444)
Purchase of shares	39.2	(690 623)	(863 047)
Other		(15 989)	(2 860)
Total payments		(2 640 544)	(2 567 351)
Redemption of bonds		-	1 190 000
Dividends received		1 082 031	1 100 861
Investment fund units alienation		26 747	-
Repayment of loans granted	39.2	216 558	15 600
Interest received	39.2	226 638	335 316
Other		32	273
Total proceeds		1 552 006	2 642 050
Net cash from investing activities		(1 088 538)	74 699
Cash flows from financing activities
Repayment of loans	39.3	(4 401 918)	(862 318)
Redemption of debt securities		(60 400)	(2 420 000)
Payment of lease liabilities		(9 288)	(8 566)
Interest paid	39.3	(379 871)	(405 881)
Commission paid		(21 295)	(18 710)
Total payments		(4 872 772)	(3 715 475)
Issue of debt securities		1 000 000	500 000
Contracted loans	39.3	3 360 000	5 150 000
Total proceeds		4 360 000	5 650 000
Net cash from financing activities		(512 772)	1 934 525
Net increase / (decrease) in cash and cash equivalents		(693 864)	1 510 954
Net foreign exchange difference		2 803	(239)
Cash and cash equivalents at the beginning of the period	27	(49 080)	(1 560 034)
Cash and cash equivalents at the end of the period, of which:	27	(742 944)	(49 080)
restricted cash	27	119 240	593 682

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

GENERAL INFORMATION ABOUT TAURON POLSKA ENERGIA S.A. AND BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

1. General Information about TAURON Polska Energia S.A.

These financial statements have been prepared by TAURON Polska Energia Spółka Akcyjna (the "Company") with its registered office in Katowice, ul. Piotra Ściegiennego 3, whose shares are publicly traded.

The company was established by a Notarial Deed on 6 December 2006 under the name Energetyka Południe S.A. On 8 January 2007, the District Court for Katowice-Wschód, Commercial Department of the National Court Register, registered the Company under the KRS number 0000271562. The change of its name to TAURON Polska Energia S.A. was registered by the District Court on 16 November 2007.

The entity has been assigned the statistical number (REGON) 240524697 and tax identification number (NIP) 9542583988.

TAURON Polska Energia S.A. was established for an unlimited period.

The core business of TAURON Polska Energia S.A. focuses on:

• Activities of head office and holding operations, except for financial holdings PKD 70.10 Z,
• Sales of electricity PKD 35.14 Z,
• Sales of coal PKD 46.71.Z,
• Sales of gaseous fuels in a network system PKD 35.23.Z.

TAURON Polska Energia S.A. is the parent company of the TAURON Polska Energia S.A. Capital Group. ("The Group, the TAURON Group").

The financial statements prepared by the Company cover the financial year ended 31 December 2020 and include comparative figures for the year ended 31 December 2019. These financial statements were approved for publication by the Management Board on 29 March 2021.

The Company has also prepared consolidated financial statements for the year ended 31 December 2020, which were approved for publication by the Management Board on 29 March 2021.

Composition of the Management Board

As at 1 January 2021, the composition of the Management Board was as follows:

• Filip Grzegorczyk– President of the Management Board,
• Jarosław Broda– Vice-President of the Management Board,
• Marek Wadowski– Vice-President of the Management Board.

On 14 July 2020, the Supervisory Board dismissed all members of the Management Board of the Company in its former composition, with effect as of the end of 14 July 2020.

At the same time, the Supervisory Board of the Company appointed as of 15 July 2020 the Management Board composed of:

• Wojciech Ignacok President of the Management Board,
• Jerzy Topolski Vice-President of the Management Board,
• Marek Wadowski– Vice-President of the Management Board.

After the balance sheet day, on 28 February 2021, Mr. Wojciech Ignacok resigned from his position of President of the Management Board of TAURON Polska Energia S.A. On 24 February 2021, the Supervisory Board of the Company adopted a resolution concerning the assignment of the duties of the President of the Management Board of the Company to Mr Marek Wadowski from 1 March 2021 until the date of the appointment of the President of the Management Board of the Company.

2. Shares in related parties

As at 31 December 2020, TAURON Polska Energia S.A. held, directly and indirectly, interest in the following key subsidiaries:

			Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)
Item	Company name	Registered office	Core business	Share of TAURON Polska Energia S.A. in	Share of TAURON Polska Energia S.A. in
				the entity's capital	the governing body
1	TAURON Wydobycie S.A.	Jaworzno	Hard coal mining	100.00%	100.00%
2	TAURON Wytwarzanie S.A.	Jaworzno	Generation, transmission and distribution of electricity and heat	100.00%	100.00%
3	Nowe Jaworzno Grupa TAURON Sp. z o.o.	Jaworzno	Generation of electricity	85.88%	85.88%
4	TAURON Ciepło Sp. z o.o.	Katowice	Production and distribution of heat	100.00%	100.00%
5	TAURON Serwis Sp. z o. o.	Katowice	Services	95.61%	95.61%
6	TAURON Ekoenergia Sp. z o.o.	Jelenia Góra	Generation of electricity	100.00%	100.00%
7 8	Marselwind Sp. z o.o. TEC1 Sp. z o.o.	Katowice Katowice	Generation of electricity Head office and holding operations	100.00% 100.00%	100.00% 100.00%
9	TEC2 Sp. z o.o.	Katowice	Head office and holding operations	100.00%	100.00%
10	TEC3 Sp. z o.o.	Katowice	Head office and holding operations	100.00%	100.00%
11	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno I sp.k.	Katowice	Generation of electricity	n/a	100.00%
12	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno II sp.k.	Katowice	Generation of electricity	n/a	100.00%
13	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno III sp.k.	Katowice	Generation of electricity	n/a	100.00%
14	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno IV sp.k.	Katowice	Generation of electricity	n/a	100.00%
15	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno V sp.k.	Katowice	Generation of electricity	n/a	100.00%
16	TEC1 spółka z ograniczoną odpowiedzialnością Mogilno VI sp.k.	Katowice	Generation of electricity	n/a	100.00%
17	TEC1 spółka z ograniczoną odpowiedzialnością EW Śniatowo sp.k.	Katowice	Generation of electricity	n/a	100.00%
18	TEC1 spółka z ograniczoną odpowiedzialnością EW Dobrzyń sp.k.	Katowice	Generation of electricity	n/a	100.00%
19	TEC1 spółka z ograniczoną odpowiedzialnością EW Gołdap sp.k.	Katowice	Generation of electricity	n/a	100.00%
20	TEC1 spółka z ograniczoną odpowiedzialnością Ino 1 sp.k.	Katowice	Generation of electricity	n/a	100.00%
21	WIND T1 Sp. z o.o.1	Pieńkowo	Generation of electricity	100,00%	100,00%
22	AVAL-1 Sp. z o.o.1	Jelenia Góra	Generation of electricity	100,00%	100,00%
23	TAURON Dystrybucja S.A.	Kraków	Distribution of electricity	99.75%	99.75%
24	TAURON Dystrybucja Pomiary Sp. z o.o.2	Tarnów	Services	99.75%	99.75%
25	TAURON Sprzedaż Sp. z o.o.	Kraków	Sale of electricity	100.00%	100.00%
26 27	TAURON Sprzedaż GZE Sp. z o.o. TAURON Czech Energy s.r.o.	Gliwice Ostrawa,	Sale of electricity Sale of electricity	100.00% 100.00%	100.00% 100.00%
28	TAURON Nowe Technologie S.A.3	Czech Republic Wrocław	Services	100.00%	100.00%
29	TAURON Obsługa Klienta Sp. z o.o.	Wrocław	Services	100.00%	100.00%
30	Kopalnia Wapienia Czatkowice Sp. z o.o.	Krzeszowice	Limestone quarrying and stone quarrying	100.00%	100.00%
31	Polska Energia-Pierwsza Kompania	Warszawa	Sale of electricity	100.00%	100.00%
	Handlowa Sp. z o.o.
32 33	Finanse Grupa TAURON Sp. z.o.o. Bioeko Grupa TAURON Sp. z o.o.	Katowice Stalowa Wola	Services Wholesale of fuel and derivative	100.00% 100.00%	100.00% 100.00%
			products Services	99.75%	99.75%
34 1	Wsparcie Grupa TAURON Sp. z o.o.2 TAURON Polska Energia S.A. holds indirect interest in WIND T1 Sp. z o.o. and AVAL-1 Sp. z o.o. through its subsidiary, TAURON Ekoenergia Sp.z o.o	Tarnów

Changes in the share of TAURON Polska Energia S.A. in the capital and in the governing body of Nowe Jaworzno Grupa TAURON Sp. z o.o.

In the year ended 31 December 2020, the capital of the subsidiary, Nowe Jaworzno Grupa TAURON Sp. z o.o. was increased, as further described in Note 19 to these financial statements. As at 31 December 2020, the share of the Company in the capital and in the governing body was 85.88% (as at 31 December 2019 - 84.76%).

Acquisition of AVAL-1 Sp. z o.o. and WIND T-1 Sp. z o.o. companies by the subsidiary - TAURON Ekoenergia Sp. z o.o.

In the year ended 31 December 2020, the subsidiary - TAURON Ekoenergia Sp. z o.o. acquired 100% shares in two companies carrying out investment tasks in the area of generating electricity from renewable energy sources: AVAL-1 Sp. z o.o. and WIND T-1 Sp. z o.o. Consequently, TAURON Polska Energia S.A. holds an indirect interest of 100% in both these companies. In the Company's opinion, AVAL-1 Sp. z o.o. and WIND T1 Sp. z o.o. companies do not

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

constitute a business within the meaning of IFRS 3 Business Combinations, therefore the transaction of acquisition of the companies was accounted for as an acquisition of assets other than assets constituting a business.

As at 31 December 2020, the share of TAURON Polska Energia S.A. in the capital and in the governing body of the remaining key subsidiaries and jointly-controlled entities has not changed since 31 December 2019.

As at 31 December 2020, TAURON Polska Energia S.A. held, direct and indirect interest in the following key jointlycontrolled entities:

Item	Company name	Registered office	Core business	Share of TAURON Polska Energia S.A. in the entity's issued capital and governing body
1	Elektrociepłownia Stalowa Wola S.A.1	Stalowa Wola	Generation of electricity	50.00%
2	TAMEH HOLDING Sp. z o.o.2	Dąbrowa Górnicza	Head office and holding operations	50.00%
3	TAMEH POLSKA Sp. z o.o.2	Dąbrowa Górnicza	Generation, transmission, distribution and sale of electricity and heat	50.00%
4	TAMEH Czech s.r.o.2	Ostrawa, Czech Republic	Production, trade and services	50.00%

¹TAURON Polska Energia S.A. holds an indirect share in Elektrociepłownia Stalowa Wola S.A. through its subsidiary, TAURON Wytwarzanie S.A. 2 TAURON Polska Energia S.A. holds a direct share in the issued capital and in the governing body of TAMEH HOLDING Sp. z o.o., which holds 100% interest in the issued capital and in the governing body of TAMEH POLSKA Sp. z o.o. and TAMEH Czech s.r.o.

3. Statement of compliance

These financial statements have been prepared in compliance with the requirements of the International Financial Reporting Standards ("IFRS"), as endorsed by the European Union ("EU").

The IFRS comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") as well as the International Financial Reporting Interpretation Committee.

4. Going concern

These financial statements have been prepared on the assumption that the Company will continue as a going concern in the foreseeable future, i.e. in the period not shorter than 1 year from the balance sheet date. As at the date of approval of these financial statements for publication, no circumstances had been identified which would indicate a risk to the Company's ability to continue as a going concern.

In the year ended 31 December 2020, the COVID-19 pandemic developed in the area of operations of the Group, disrupting the economic and administrative system in Poland and triggering significant changes in the market environment potentially affecting the financial position of the Group and the Company. The Management Board has analysed the situation in the context of COVID-19 and, based on the scenarios considered, at present it does not identify any risks for the continuity of the Group as a going concern in the foreseeable future, i.e. in the period not shorter than 1 year from the balance sheet date, in the areas of liquidity, financing and securing the hedging of continuing operations, taking into account the description of the impact of the COVID-19 pandemic on the Group's activities, as further described in Note 51 of these financial statements.

5. Functional and presentation currency

Polish zloty is the functional currency of the Company and the presentation currency of these financial statements. These financial statements have been presented in the Polish zloty ("PLN") and all figures are provided in PLN thousand, unless stated otherwise.

6. Accounting principles (policy) and material values based on professional judgement and estimates

The significant accounting principles are presented in the Notes to these financial statements.

When applying the accounting policy, the professional judgement of the management, along with accounting estimates, have been of key importance, affecting the figures disclosed in these financial statements and in the explanatory Notes. The assumptions underlying the estimates are based on the Management Board's best knowledge of current and future actions and events in individual areas. In the period covered by these financial statements, no significant changes occurred in the estimates or estimation methods applied, which could affect the current or future periods, other than those described below in these financial statements.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

The items of the financial statements which are exposed to the risk of material adjustment of the carrying amounts of assets and liabilities have been described in individual Notes to these financial statements. The most significant estimates refer to impairment losses on shares in subsidiaries and intercompany loans, as presented in detail in Notes 10, 19 and 20 to these financial statements.

Additionally, the Company makes significant estimates as regards the contingent liabilities recognised, in particular as regards litigation the Company is a party to. Contingent liabilities are presented in detail in Note 43 hereof.

Impact of COVID-19 on the level of expected credit losses and fair value measurement of financial instruments

Impact of COVID-19 on the level of expected credit losses of receivables from customers

Estimates and assumptions

With respect to receivables from customers, the Company estimates the amount of the allowance for expected credit losses based on the probability-weighted credit loss that will be incurred if any of the following events:

• there will be a significant (material) delay in payment,
• the debtor will be put into liquidation or bankruptcy or restructuring,
• the claims will be submitted to administrative enforcement, court proceedings or judicial execution.

For receivables from buyers, the Company has separated the portfolio of strategic counterparties and the portfolio of other counterparties. The risk of insolvency of strategic counterparties is assessed on the basis of ratings assigned to counterparties using an internal scoring model, appropriately transformed into the probability of default, taking into account the estimates of potential recoveries from the collateral provided.

In the case of receivables from other counterparties, it is expected that adjusted historical default data may reflect the credit risk that will be incurred in future periods. The expected credit losses for this group of counterparties have been estimated using an aging matrix of receivables, and percentage ratios assigned to particular ranges and groups (including, among others, receivables claimed in court, receivables from counterparties in bankruptcy) to estimate the value of receivables from buyers that are not expected to be repaid.

COVID-19 impact on the methodology of estimates and assumptions

The economic impact of COVID-19 is expected to affect the quality of the Company portfolios of financial assets and reduce the level of repayment of receivables from buyers. The projected impact varies depending on the economic sector in which the counterparty operates. Due to the uncertainty related to further development of COVID-19 and the expected impact of aid programs, the possibility of precise estimation of future repayment of receivables from buyers is limited.

In order to take into account the impact of future factors (including COVID-19) on the portfolio of strategic and other customers, the Company has performed:

• updating of the expected credit loss model parameters with respect to the terms of appropriate factors and recovery rate,

• includes a forecasting approach (forward-looking rate).

COVID-19 impact on the level of estimates performed

The estimates taking into account the uncertainties related to the effect of COVID-19 on the expected credit losses with regard to receivables from buyers amounted to PLN 7 530 thousand, which affected the burden on the Company's operating result for the year ended 31 December 2020. The total expected credit loss as at 31 December 2020 calculated for receivables from customers (excluding receivables claimed at court) was estimated at PLN 8 443 thousand.

The Company assumes that the volume of data available for analysis in future periods will grow and allow for extending the scope of analysis for expected credit losses for the next financial statements.

Impact of COVID-19 on the level of expected credit losses and fair value measurement on loans granted and the guarantee issued

Estimates and assumptions

For loans classified as assets measured at amortized cost, the Company estimates the amount of write-offs revaluating their value. The risk of borrowers' insolvency is estimated on the basis of ratings assigned to counterparties using an internal scoring model, appropriately transformed into probability of default, taking into account the time value of money.

The measurement of a loan classified as an asset measured at fair value is estimated as the present value of future cash flows, taking into account the borrower's credit risk.

The guarantees issued are estimated at the amount of expected credit losses.

COVID-19 impact on the methodology of estimates and assumptions

In order to take into account the impact of future factors (including COVID-19), the Company made adjustments to the probability of expected credit losses based on Credit Default Swap (CDS) quotations, diversified according to the internal counterparty rating.

COVID-19 impact on the level of estimates performed

The effect of considering the impact of COVID-19 on the estimation methodology for financial instruments where the Company was able to perform appropriate calculations resulted in the following changes affecting jointly the financial expenses of the Company in the year ended 31 December 2020 in the amount of PLN 19 619 thousand:

• an increase in expected credit losses calculated for loans granted by the amount of PLN 5 122 thousand (including loans granted to subsidiaries by the amount of PLN 5 079 thousand, receivables due to cash pool loans by the amount of PLN 43 thousand),

• an increase in expected credit losses calculated for contingent liabilities under the guarantee issued by the Company by the amount of PLN 14 497 thousand, which according to IFRS 9 Financial Instruments was recognised as an increase in financial liabilities.

7. Standards, amendments to standards and interpretations which have been published but are not yet effective

• Amendments to standards issued by the International Accounting Standards Board which have been endorsed by the European Union but have not yet entered into force

	liabilities.
	As at the balance sheet date, in the context of the analyses and the valuation of the loans granted to Elektrociepłownia Stalowa Wola S.A., the Company assessed that it was unable to reliably determine the impact of COVID-19 on the reduction of the carrying amount of the loans granted to Elektrociepłowni Stalowa Wola S.A.
	The Company assumes that the volume of data available for analysis in future periods will increase and will allow to extend the scope of analysis for the expected credit losses for the needs of the next financial statements.
7.	Standards, amendments to standards and interpretations which have been published but are not yet effective
	The Company did not choose earlier application of any standards, amendments to standards or interpretations which were published, but have not yet entered into force up to 31 December 2020.
•	Amendments to standards issued by the International Accounting Standards Board which have been endorsed by the European Union but have not yet entered into force
	According to the Management Board, the following amendments to standards will not materially affect the accounting policy applied so far:
		Effective in the EU as of
	Standard	(annual periods beginning on or after the date provided)
	Amendments to IFRS 4 Insurance Contracts	1 January 2021

• Standards and amendments to standards issued by the International Accounting Standards Board which have not been endorsed by the European Union and have not entered into force yet

Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Noncurrent, which are to enter into force on 1 January 2023

In accordance with the amendments to IAS 1 Presentation of Financial Statements, liabilities are classified as noncurrent if the entity has a significant right to defer the settlement of the liability for at least 12 months after the end of the reporting period. The expectations of the entity do not affect the classification.

As at the balance sheet day, the Company has revolving credit agreements under which the drawing period of the credit tranches is equal to or less than 1 year, while the period of availability of funding exceeds 12 months from the balance sheet date and the Company has the right to defer the liability by at least 12 months from the end of the reporting period. In the case of these credit agreements, the Company classifies the tranches as either a non-current liability or a current liability in accordance with the expectation regarding the repayment of the liability. As at 31 December 2020, taking into account the intentions of the Company, tranches with an aggregate nominal value of PLN 1,000,000 thousand are classified as current liabilities. Under the agreement, the Company has the right to defer the settlement of a liability for a period exceeding 12 months, thus in line with the amendments to IAS 1 Presentation of Financial Statements the said liability would be classified as a non-current liability.

TAURON Polska Energia S.A. Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)
According to the Management Board, the following standards and amendments to standards will not materially impact the accounting policies applied thus far:
Standard	Effective date specified in the Standard, not endorsed by the EU (annual periods beginning on or after the date provided)
IFRS 14 Regulatory Deferral Accounts	1 January 2016*
Consolidated Financial Statements and Investments in Associates and Joint Revised IFRS 10 IAS 28 Ventures: Sale or Contribution of Assets between Investor and its Associate or Joint Venture with subsequent amendments	the effective date has been postponed
Business Combinations: Amendments to IFRS 3 Changes to references to the Conceptual Framework	1 January 2022
Amendments to IAS 16 Property, Plant and Equipment: Revenues earned before putting into use	1 January 2022
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets	1 January 2022
Annual Improvements to IFRS (Cycle 2018-2020):
IFRS 1 First-time Adoption of International Financial Reporting Standards	1 January 2022
IFRS 9 Financial Instruments	1 January 2022
IAS 41 Agriculture	1 January 2022
Presentation of Financial Statements Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Estimates	1 January 2023
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates	1 January 2023
	1 January 2023

8. Changes in the accounting policies

IFRS 1 First-time Adoption of International Financial Reporting Standards		1 January 2022
IFRS 9 Financial Instruments		1 January 2022
IAS 41 Agriculture		1 January 2022
Disclosure of Accounting Estimates		1 January 2023
Accounting Estimates		1 January 2023
IFRS 17 Insurance contracts		1 January 2023
* The European Commission decided not to launch the process of endorsement of the interim standard for use in the EU until the publication of the final version of IFRS 14 Regulatory Deferral Accounts.
8. Changes in the accounting policies
The accounting principles (policy) adopted for the preparation of these financial statements are consistent with those
used for the preparation of the annual financial statements of TAURON Polska Energia S.A. for the year ended 31 December 2019, except for the application of the new standards and amendments to standards and the interpretation as discussed below. According to the Management Board, the following standards and amendments to standards have not materially impact
the accounting policy applied thus far:
Standard		Effective date in the EU (annual periods beginning on or after
Presentation of Financial Statements Revised IAS 1 Accounting Estimates and Errors: Definition of Material	Accounting Policies, Changes in and IAS 8	the date provided) 1 January 2020
Amendments to IFRS 3 Business Combinations: Definition of a Business		1 January 2020
Amendments to References to the Conceptual Framework in IFRS		1 January 2020
Amendments to IFRS 16 Leasing		1 January 2020

BUSINESS SEGMENTS

9. Information on operating segments

9.1. Operating segments

The Company carries out its business in two operating segments, that is "Sales" and "Holding activity".

The "Sales" segment mainly recognises assets, liabilities revenues and operating costs related to sales of electricity, gas, fuels and commodity derivative instruments. The "Sales" segment includes liabilities and costs related to the provision for onerous contracts created by the Company.

The assets of the "Holding activities" segment are mainly:

• shares in subsidiaries and jointly-controlled entities;
• cash pool loan receivables from related parties, including a cash pool deposit;
• receivables arising from other loans granted to related parties;
• assets arising from valuation of hedging instruments relating to the incurred financing.

As at 31 December 2020 in the segment "Holding operations" the segment's assets also include shares in the subsidiary TAURON Ciepło Sp. z o.o. and shares in PGE EJ 1 Sp. z o.o., which have been classified as fixed assets held for sale.

The liabilities of the "Holding activity" segment are:

• bonds issued by the Company, credits received (except for credits in the account) and liabilities resulting from the valuation of hedging instruments related to the incurred financing;
• liabilities due to loans from related parties, including under the cash pool agreement.

The "Holding activity" segment includes intra-group receivables and liabilities arising from income tax settlements of the Tax Capital Group companies.

Finance income and finance costs include dividend income as well as net interest income and expense earned/incurred by the Company in relation to the central financing model adopted by the Group and revaluation write-offs on shares and stocks and loans (in the comparable period also write-offs on bonds), constituting assets of the "Holding activity" segment.

General and administrative expenses are presented under unallocated expenses, as they are incurred for the Group as a whole and are not directly attributable to a specific operating segment.

EBIT is the profit/loss before tax, finance income and finance costs, i.e. operating profit (loss).

EBITDA is the profit/loss before tax, finance income and finance costs, increased by amortisation/depreciation and revaluation write-offs on non-financial assets.

Year ended 31 December 2020

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU
		TAURON Polska Energia S.A.
		(in PLN thousand)
Year ended 31 December 2020
	Sales	Holding activity	Unallocated items	Total
Revenue
Sales outside the Group	1 534 327	-	-	1 534 327
Sales within the Group	9 806 132	5	-	9 806 137
Segment revenue	11 340 459	5	-	11 340 464
Profit/(loss) of the segment	(788 288)	(4 106)	-	(792 394)
Unallocated expenses	-	-	(117 509)	(117 509)
EBIT	(788 288)	(4 106)	(117 509)	(909 903)
Revaluation of shares	-	(589 010)	-	(589 010)
Revaluation of loans	-	(1 453 476)	-	(1 453 476)
Revaluation write-off to fair value of non-current	-	(1 393 432)	-	(1 393 432)
assets classified as held for sale
Other net finance income/(costs)	-	687 111	131 080	818 191
Profit/(loss) before income tax	(788 288)	(2 752 913)	13 571	(3 527 630)
Income tax expense	-	-	(62 025)	(62 025)
Net profit/(loss) for the period	(788 288)	(2 752 913)	(48 454)	(3 589 655)
Assets and liabilities
Segment assets	2 578 505	25 974 415	-	28 552 920
Unallocated assets	-	-	155 222	155 222
Total assets	2 578 505	25 974 415	155 222	28 708 142
Segment liabilities	2 359 838	14 955 850	-	17 315 688
Unallocated liabilities Total liabilities	- 2 359 838	- 14 955 850	269 299 269 299	269 299 17 584 987
EBIT Depreciation/amortization	(788 288) (14 522)	(4 106) -	(117 509) -	(909 903) (14 522)
Impairment	(991)	-	-	(991)
EBITDA	(772 775)	(4 106)	(117 509)	(894 390)
Other segment information
				16 375
Capital expenditure Capital expenditure includes expenditures for property, plant and equipment, investment properties and non-current intangible assets, except for energy certificates acquired by the	16 375	-	-

Year ended 31 December 2019

Revenue
Sales outside the Group	901 645	-	-	901 645
Sales within the Group	9 778 927	5	-	9 778 932
Segment revenue	10 680 572	5	-	10 680 577
Profit/(loss) of the segment	222 733	5	-	222 738
Unallocated expenses	-	-	(121 636)	(121 636)
EBIT	222 733	5	(121 636)	101 102
Revaluation of shares	-	(94 920)	-	(94 920)
Revaluation of loans and bonds		- (1 394 812)	-	(1 394 812)
Other net finance income (costs)	-	1 129 576	(87 153)	1 042 423
Profit/(loss) before income tax	222 733	(360 151)	(208 789)	(346 207)
Income tax expense	-	-	(116 623)	(116 623)
Net profit/(loss) for the period	222 733	(360 151)	(325 412)	(462 830)
Assets and liabilities
Segment assets	3 003 016	27 176 583	-	30 179 599
Unallocated assets	-	-	305 530	305 530
Total assets	3 003 016	27 176 583	305 530	30 485 129
Segment liabilities	836 660	14 685 415	-	15 522 075
Unallocated liabilities	-	-	154 877	154 877
Total liabilities	836 660	14 685 415	154 877	15 676 952
EBIT	222 733	5	(121 636)	101 102
Depreciation/amortization	(13 257)	-	-	(13 257)
Impairment	161	-	-	161
EBITDA	235 829	5	(121 636)	114 198
Other segment information
Capital expenditure *	2 612	-	-	2 612

* Capital expenditure includes expenditures for property, plant and equipment and non-current intangible assets, except for energy certificates acquired by the Company.

The loss of the "Sales" segment in the year ended 31 December 2020 results mainly from the creation by the Company of a provision for onerous contract in the amount of PLN 1 109 897 thousand, which is described in more detail in Note 36 to these financial statements.

In the financial year ended 31 December 2020, revenue from sales to two major clients belonging to TAURON Group accounted for 70% and 10% of the Company's total revenue in the "Sales" segment and amounted to PLN 7 942 404 thousand and PLN 1 082 379 thousand, respectively.

In the financial year ended 31 December 2019, revenue from sales to two major clients from the TAURON Group constituted 70% and 10% of the Company's total revenue in the "Sales" segment and amounted to PLN 7 849 372 thousand and PLN 1 072 616 thousand, respectively.

9.2. Geographical areas of operations

The activity of the Company is mostly carried out on the territory of Poland. In the years ended 31 December 2020 and 31 December 2019, export sales amounted to PLN 22 723 thousand and PLN 35 974 thousand, respectively.

IMPAIRMENT OF SHARES IN SUBSIDIARIES

10. Impairment of financial assets

SELECTED ACCOUNTING PRINCIPLES

Under IAS 36 Impairment of Assets, as at each reporting period end, the Company assesses shares held in subsidiaries and joint ventures for objective impairment indication regarding financial assets or asset groups.

If there is any objective indication that the assets may be impaired, the assets are tested for impairment. The tests cover shares in subsidiaries, that account for key financial assets of the Company. The amount of the impairment loss is the difference between the carrying amount of a financial asset or group of financial assets and the recoverable amount, which is the fair value less costs of disposal or the value in use, whichever is higher. The value in use is calculated as the present value of estimated future cash flows from the operations of subsidiaries and the estimated residual value discounted using the weighted average cost of capital.

The Company recognizes an allowance for expected credit losses on debt instruments measured at amortized cost in accordance with the approach described in Notes 20 and 41.1.2. of these financial statements, and revises the fair value for debt and equity instruments measured at fair value. Credit risk analyzes carried out as at the balance sheet date include, i.a. estimating future cash flows that may indicate impairment due to credit risk (measurement step 3).

As at 31 December 2020, the Company carried out impairment tests focusing on shares in subsidiaries, as well as analyses of the valuation of intra-group loans, taking into account the following premises:

• the Company's capitalization remaining below the net asset carrying amount for a long period;
• changes in global prices of energy resources, electricity and prices of CO2 emission allowances;
• significant fluctuations of energy prices on the future/forward market;
• decline in the domestic electricity consumption due to rising winter temperatures and the impact of the COVID-19 pandemic;
• regulatory activities aimed at the limiting of end user price increases;
• increased risks in commercial coal production;
• the effects of the results of the RES auctions to date and the very dynamic development of the prosumer and microinstallation sub-sector in connection with the support programmes launched;
• results of proceeding winter package provisions (including emission standards) that adversely impact the capability of coal-fired units to participate in the power market after 1 July 2025;
• tightening of emission standards persisting unfavourable market conditions for the conventional power industry;
• a decrease in the risk-free rate.

Total exposure to subsidiaries, including apart from shares also intra-group loans, accounted for about 88% of the balance sheet total as at the end of the reporting period.

The recoverable amount is the value in use. The calculation method has been presented below.

Relevant tests were conducted based on the present value of projected cash flows from operations of the key entities, by reference to detailed projections by 2030 and the estimated residual value, excluding power generating and mining units for which detailed projections cover the entire period of their operation.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

The operation of mining units was assumed until 2049. Compared to the tests carried out as at 31 December 2019, the current projections assume: reduction in the operating period of the ZG Sobieski and ZG Janina (originally 2060, now 2049); reduction in the operating period of the ZG Brzeszcze (originally 2059, now 2040).

The operation of TAURON Wytwarzanie S.A. generation units was assumed until 2035. In relation to the tests carried out as at 31 December 2019, the current projections assume: early withdrawal of one of the unit in Jaworzno III Unit with the capacity of 225 MWe (originally 2029, now 2025) and taking over production by two units in Jaworzno III Unit with the total capacity of 445 MWe; early withdrawal of two units in Jaworzno III Unit with the total capacity of 445 MWe (originally 2029, now 2028); early withdrawal of units 2 and 3 in Jaworzno II Unit (originally 2038, now 2030); early withdrawal of unit 10 in Łagisza Unit with a capacity of 460 MWe (originally 2042, now 2035). The operation of the Nowe Jaworzno Grupa TAURON Sp. z o.o. generation unit was assumed until 2060. The forecast for hydroelectric power plants covers the period until 2066 while for wind farms - until 2040.

The use of forecasts longer than 5 years results in particular from long-term investment processes in the energy sector. The macroeconomic and sector-oriented assumptions adopted for projections are updated as frequently as any indications for their modification are observed on the market. The projections also take into account changes in the regulatory environment known as at the date of the test.

Key assumptions in the scope of tests performed as at 31 December 2020

Category	Description
Coal	Coal prices show a nominal upward trend in the coming three years. The price will be subject to a nominal upward pressure resulting from the sustainable upward trends observed in the domestic mining cost. However, in the long term (2025-2040), coal prices willdecrease due to the accelerated implementation of the decarbonisation policy promoted by the European Union, aimed at reaching the climate neutrality in Europe by 2050. Its manifestation is the definite abandonment of coal by individual countries (including Germany, the Czech Republic and Poland). Another of its aspects is the increase in the share of energy from RES sources in the energy balance of European Union Member States. After 2025, the price of coal in Poland will start to fall, as a result of a decline in electricity generation with using of this raw material as well as an expected increase in import volumes in view of high levels of mining cost in the country. A real decrease in power coal prices by 0.6% was assumed in the years 2021-2040.
Electricity	The electricity wholesale price projections for the years 2021-2040, due to uncertainties about the final shape of the market architecture and the introduction of the scarcity pricing mechanism has been updated and adapted in the first period to the current market price levels for 2021-2023. Between 2024 and 2040, the wholesale electricity price (in constant prices) will increase by 16.8%. The forecast of wholesale electricity prices is affected by the current and expected situation in the national power system, fuel price forecasts and the costs of purchase of CO2 emission allowances. In 2021, a slight increase in energy prices by 1.5% compared to 2020 was assumed due to, among others, the anticipated further impact of the COVID-19 pandemic on fuel prices and declining levels of margins earned on the sales of electricity from coal-fired sources. The increase in prices by 2029 results from the growth in prices of CO2 emission allowances and planned shutdowns of coal-fired and nuclear units in Germany directly affecting the level of the interconnection exchange balance. Relative to 2021, the price increase projected to 2029 is 12.9%, whereas in the years 2030- 2040 a price increase of 4.4% relative to 2029 has been assumed. The electricity retail price path has been adopted based on the wholesale price of black energy, taking into account the costs of excise duty, the obligation to surrender energy certificates as well as the expected level of margin.
CO2	CO2 emission limits for heat generation have been adopted in line with the regulation of the Council of Ministers and adjusted by the level of operations, i.e. generation of heat.
	The CO2 emission allowances price growth path has been adopted throughout the forecasting horizon. In 2021, the 2% higher price of CO2 emission allowances has been assumed compared to the average price in 2020. In the years 2022-2026, the stabilisation of CO2 emission allowances prices was assumed at a level of EUR 30/Mg (EUR 28/Mg in fixed prices) due to the announced lack of the European Commission intervention in the EU ETS until at least 2026. In the years 2026-2028, CO2 emission allowances price will increase by 16.6% due to the assumption of an increase in the Linear Reduction Factor (LRF) to the minimum level of 3.5% from the current 2.2% and higher emission reduction targets by 2030. The projected CO2 emission allowances price in 2029 compared to the average price in 2020 will be higher by 42.6%. In the years 2029-2040, a further increase in prices of CO2 emission allowances relative to 2028 (in fixed prices) has been assumed, totalling by 31.9%. This results from the assumed increase in the economy decarbonisation rate and the strive to reach climate neutrality for Europe in 2050.
Energy dertificates	The price path assumed for emission certificates and the obligatory redemption in the subsequent years are based on the Act on Renewable Energy Sources.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

	(in PLN thousand)
Category	Description
Capacity market	The operating reserve capacity mechanism is to be excluded from the beginning of 2021, i.e. from the time the Capacity Market has been implemented.
	The Capacity Market mechanism implementation has been taken into account (in line with the adopted and notified Act on the Capacity Market and the draft Capacity Market Regulations). It is assumed that payments for capacity will be launched from 2021 and maintained until 2025 for existing coal units which do not meet the EPS 550 criterion (for which the unit emission capacity exceeds 550 kg/MWh). For units that received multi annual contracts until 31 December 2019 but not meet the EPS 550 criterion, maintaining of payments until the end of the contract effectiveness period has been assumed.
RES	Limited support periods for green energy have been assumed in accordance with the Act on Renewable Energy Sources, which provides for new support mechanisms for renewable energy. The support period has been limited to 15 years as from the date of the first supply of electricity qualifying for an energy certificate to the network.
WACC	The weighted average cost of capital (WACC) during the projection period, for particular CGUs, as used in the calculations, ranges from 6.44% to 14.99% in nominal terms before tax, taking into account the risk free rate determined by reference to the yield on 10-year treasury bonds (1.99%) and the risk premium for operations appropriate for the power industry (6.75%). The growth rate used for extrapolation of projected cash flows beyond the detailed planning period is 2.5% and it corresponds to the estimated long-term inflation rate.
	The level of WACC as at 31 December 2020 increased compared to the level as at 31 December 2019 in the Generation and Mining segments, mainly due to recognising the additional risks specific to coal assets, whereas its decline was recorded in the RES and Distribution sectors, mainly due to the fall in the risk-free rate.
Regulated revenue	Regulated revenue generated by distribution companies, ensuring coverage of reasonable costs and a reasonable level of return on capital has been assumed. The return on capital is conditional on the Regulatory Asset Value. In the years 2021-2030, an increase in electricity supplies by 1.15% year-on-year has been assumed.
Sales volume and production capacity	The assumed sales volume to end customers was based on GDP growth, the competitive situation on the market, a significant increase in financial costs (trade credit costs) charged to the sales companies. This resulted in a decrease in volume in the years 2021-2023. From 2024, it is planned to gradually recover the lost volume.
	Periods of economic utility of fixed assets and maintenance of production capacity as a result of replacement and development investments were taken into account.

At the Court of Justice of the European Union, a complaint against the European Commission's decision on the conformity of the Capacity Market Act with the European law is pending. In the opinion of the Management Board, the risk of settlement resulting in the lack of possibilities of the Capacity Market functioning in Poland is low, even in the case of temporary suspension of the Capacity Market, therefore the implementation of the Capacity Market mechanism was taken into account, in accordance with the adopted and notified Act on the Capacity Market and the Capacity Market Rules.

Fixed assets were also tested for impairment. To this end, the Company applied the relevant assumptions used for impairment testing of shares.

Necessity to impairment losses on shares in TAURON Wydobycie S.A. and TAURON Ekoenergia Sp. z o.o. and decrease in the balance sheet value of loans granted to TAURON Wydobycie S.A. and Elektrociepłownia Stalowa Wola S.A. as further described in Note 20 hereto, resulted in particular from:

• an increase in the prices of CO2 emission allowances resulting from a change in the nature of the market, the reform of the EU ETS system as well as the climate policy of the European Union strongly targeted at accelerating the pace of decarbonisation in pursuit of the climate neutrality of Europe,
• the projected decline in market margins in the short to mid-term perspective as a result of growing prices of CO² emission allowances and an increasing share of renewable energy sources and new, more effective conventional sources in the domestic energy mix, which negatively affects the forecast energy prices,
• reduced projected demand for power coal as a result of progressive decarbonisation in Europe and limiting the period of operation of hard coal mines in connection with the adjustment to the energy policy of Poland,
• changes in the assumed periods of cash flow generation by companies above, as described in detail above.

Sensitivity analysis for the Mining and Generation units

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU			TAURON Polska Energia S.A. (in PLN thousand)
Sensitivity analysis for the Mining and Generation units
Sensitivity analyses conducted by the Company reveal that the projected prices of electricity, those of CO2 emission allowances and the adopted discount rates, as well as coal prices are the key factors exerting an effect on the estimated cash flows of the key entities. The table below presents the estimated changes in write-offs on shares and changes in the value of intra-group loans in mining and generation companies recognising also the impact of its reversal as at 31 December 2020 as a result of changes in the most significant assumptions, are presented below.
Impact on the value of financial assets (in PLN million) Impact on the value of
		TAURON	TAURON		TAURON		financial assets (in PLN million)
Parameter	Change	Wydobycie S.A. Decrease of impairment loss	Wytwarzanie S.A. Increase of impairment loss	Decrease of impairment loss	Ekoenergia Sp. z o.o. Increase of impairment loss	Decrease of impairment loss	Increase of impairment	Decrease of impairment
		(net)	(net)	(net)	(net)	(net)	loss (net)	loss (net)
Change of electricity prices in the forecast period	+1% -1%	- 7	- 102	102 -	- 24	24 -	- 119	126 -
Change of CO2 emission allowances	+1%	-	46	-	-	-	46	-
prices in the forecast period	-1%	-	-	46	-	-	-	46
	+0.1 p.p.		- 59	-	16	-	75	-
Change of WACC (net)	-0.1 p.p.	15	-	60	-	17	-	92
	+1%	69	43	-	-	-	-	26
		-	-	43	-	-	-	43
Change of coal prices in the forecast period	-1%				49	-	812	-

Results of the tests and loans granted valuation analyses

The impairment tests carried out in line with IAS 36 Impairment of Assets as at 31 December 2020 indicated impairment losses on the carrying amount of shares and loans of TAURON Wytwarzanie S.A. and TAURON Ekoenergia Sp. z o.o. Moreover, the analyses performed indicated the legitimacy of reducing the carrying amount of the loans granted by the Company to TAURON Wydobycie S.A. and to Elektrociepłownia Stalowa Wola S.A. to a value of respectively PLN 0 and PLN 98 713 thousand, as further described in Note 20 hereto.

Company		WACC* assumed in tests as at		Recoverable amount of shares, intra-group loans	The amount of the recognized impairment losses on shares	The amount of the reduction in the carrying amount of the loans
	31 December 2020	30 June 2020 (unaudited)	31 December 2019	As at 31 December 2020	Year ended 31 December 2020
TAURON Wydobycie S.A.	14.85%	14.99%	14.01%	(11 936)	-	(312 312)
TAURON Wytwarzanie S.A.	9.47%	9.49%	8.60%	762 611	(194 467)	-
TAURON Ekoenergia Sp. z o.o.	8.00%	8.31%	8.76%	1 716 440	(376 106)	-
Elektrociepłownia Stalowa Wola S.A.	10.06%	8.78%	8.58%	98 713	-	(235 714)
Total					(570 573)	(548 026)

* The level of the weighted average cost of capital (WACC) in nominal terms before tax.

EXPLANATORY NOTE TO THE STATEMENT OF COMPREHENSIVE INCOME

11. Sales revenue

SELECTED ACCOUNTING PRINCIPLES

Revenue is recognized when (or as) the performance obligation is fulfilled in the form of transferring the promised goods, products, materials (i.e. assets) or perform a service to a client. The asset transfer takes place when a client obtains control over an asset. For sales of electricity and gaseous fuels, the energy is deemed sold when delivered to a consumer.

Revenue should be recognised in the amount expected by the Company, following reduction by VAT, excise duty, other sales taxes, charges and discounts.

The Company has introduced five steps of revenue recognition: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to each performance obligation; and recognize revenue when (or as) the entity satisfies a performance obligation.

For goods and materials, revenue is recognised when the Company ceases to be involved in permanent management of the goods sold to the extent the function is usually performed in relation to owned goods, and when it ceases to effectively control these items.

The revenue includes amounts the Company expects to receive from sales of electricity, gaseous fuels, CO2 emission allowances and other products, adjusted by granted rebates, discounts and excise duty.

Revenue from sales of goods includes the total positive result on transactions on CO2 emission allowances, concluded within the trading portfolio, i.e. intended for sale and to accomplish short-term profit arising from market price fluctuations, including trading in

(in PLN thousand)

emission allowances, fair value measurement of inventories as well as measurement and settlement of derivative commodity instruments related to CO2 emission allowances.

Revenue from sales of goods includes gains on change in measurement and on exercising derivative commodity instruments falling within the scope of IFRS 9 Financial Instruments and related to the purchase and sales of other commodities.

	Year ended	Year ended
	31 December 2020	31 December 2019
Revenue from sales of goods for resale and materials	11 199 496	10 526 854
Electricity	10 513 901	9 468 482
Gas	333 414	347 631
CO2 emission allowances	339 632	701 607
Other	12 549	9 134
Rendering of services	140 968	153 723
Trading income	107 672	110 256
Using trademark	26 960	37 466
Other	6 336	6 001
Total	11 340 464	10 680 577

The increase in revenue on sales of electricity in the year ended 31 December 2020 compared to the comparative period is mainly related to the accomplishment of sales of contracted energy in the forward electricity market at a higher volume with a simultaneous higher price. The increase in volume is a result of higher electricity volumes sold to generation companies in order to perform the concluded contracts and a decline in the volume to companies of the Sales segment as a result of lower demand.

The decrease in revenue on sales of CO2 emission allowances is a result of the sale in 2019 of a larger volume of allowances for the redemption needs of TAURON Wytwarzanie S.A. and TAURON Ciepło Sp. z o.o. compared to 2020. The above-mentioned decrease is the result of a change in the Company strategy in the scope of securing the redemption needs related to CO2 emission allowances of the Generation area, accordingly, the sale of CO2 emission rights under the redemption obligation of 2020 took partly place in 2020, however, a significant volume will be sold in March 2021.

TAURON Polska Energia S.A. acts as an agent coordinating and supervising purchases, supplies and transportation of fuels. The Company buys coal from entities outside the TAURON Group, while the sale is made to related companies. The Company recognises revenue from agency services (supply management) in the trading income in rendering of services. In the year ended 31 December 2020, the value of raw materials purchased and subsequently resold as a result of the aforementioned transactions amounted to PLN 1 403 938 thousand. The Company recognised revenue of PLN 33 413 thousand on account of the agency service.

12. Expenses by type

SELECTED ACCOUNTING PRINCIPLES

The Company presents costs by function.

They include:

• cost of goods, materials and services sold incurred during a given reporting period, including any impairment losses on property, plant and equipment, intangible assets, right-of-use assets, receivables and inventories,
• total selling and distribution expenses, and administrative expenses incurred in the reporting period (recognised separately in the statement of comprehensive income).

The cost of goods sold includes the total positive result on transactions on CO2 emission allowances, concluded within the trading portfolio, i.e. intended for sale and to accomplish short-term profit arising from market price fluctuations, including trading in emission allowances, fair value measurement of inventories, as well as measurement and settlement of derivative commodity instruments related to sales of CO2 emission allowances.

Costs of goods sold include losses on change in measurement and on exercising derivative commodity instruments falling within the scope of IFRS 9 Financial Instruments and related to purchases and sales of other commodities.

Costs that can be assigned directly to revenue generated by the Company affect profit or loss for the period which the revenue pertains to.

Costs that can only be indirectly assigned to revenue or other benefits obtained by the Company affect the profit or loss in the portion pertaining to the given reporting period, and match the revenue or other economic benefits.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

		(in PLN thousand)
--	--	-------------------	--

	Year ended	Year ended
	31 December 2020	31 December 2019
Depreciation of property, plant and equipment, right-of-use assets and amortization of intangible assets	(14 522)	(13 257)
Materials and energy	(1 790)	(1 533)
External services	(41 177)	(47 064)
Taxes and charges	(5 869)	(4 605)
Employee benefits expense	(96 085)	(101 710)
Advertising expenses	(17 011)	(23 943)
Other	(8 269)	(2 862)
Total costs by type	(184 723)	(194 974)
Costs of performances intended for internal purposes	250	162
Selling and distribution expenses	20 829	24 036
Administrative expenses	117 509	121 636
Cost of goods for resale and materials sold	(12 055 385)	(10 381 999)
Cost of sales	(12 101 520)	(10 431 139)

In the year ended 31 December 2020, the cost of goods for resale and materials sold increased by PLN 1 670 381 thousand compared to the comparable period, mainly due to:

• recognition of the effects of creating a provision for an onerous contract in the amount of PLN 1 109 897 thousand, as further described in Note 36 hereto;
• purchase of a higher volume of electricity at higher average electricity purchase prices. At the same time, a decrease in the cost of resold CO2 emission allowances occurred, which mainly results from the sale of a lower volume in 2020 compared to 2019 due to the postponement of the sale of CO2 emission allowances from December 2020 to March 2021;
• effects of the change in the strategy for securing the redemption needs for CO2 emission allowances of the Generation area. The transactions concluded as part of the implementation of the strategy change had an impact on charging the value of the Company goods for resale and materials sold in the amount of PLN 123 792 thousand.

As part of its management of the portfolio of CO2 emission allowances of its subsidiaries, the Company purchases allowances for redemption purposes of the Group's generation companies. The main purpose of concluding the abovementioned transactions by the Company is to secure the expected volume and cost of purchase of CO2 emission allowances, which the Group's generating companies are obliged to redeem. In the first quarter of 2020, the Group decided to change its strategy in the scope of hedging the redemption needs of the Generation area, consisting of a oneoff swap of exchange contracts with a delivery date in December 2020 to OTC contracts with a delivery date in March 2021. The decision to change the strategy was made taking into account current market circumstances which were difficult to predict at the time of concluding the transaction. These circumstances included, in particular, the increasing cost of maintaining a position on the stock exchange, which was related, among other things, to the need for ongoing contributions to stock exchange deposits, the change in legal and market circumstances in the area of CO2 emission allowances trading related to Brexit and the COVID-19 pandemic. In implementing the above change of the strategy, the Company sold off the forward position with a delivery date in December 2020 held on the exchange (it entered into an opposite transaction on the exchange), while purchasing the same volume in contracts with a delivery date in March 2021 from counterparties on the OTC market. As a result of conclusion of the countertrade, the original contract will not be settled by physical delivery and therefore the Company recognised this contract and the countertrade in accordance with IFRS 9 Financial Instruments at a fair value (these contracts were settled in December 2020). All new transactions concluded on the OTC market will be used for the purpose of meeting the redemption obligation of the TAURON Group generating companies and therefore as excluded from the scope of IFRS 9 Financial Instruments are not measured at a fair value. In the Company's opinion, the change in the strategy makes it possible, in the current market situation, to secure the redemption needs of the Group's generating companies in a manner mitigating the risks to which the Group is exposed.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

13. Employee benefit expenses

	Year ended	Year ended
	31 December 2020	31 December 2019
Wages and salaries	(79 917)	(82 321)
Social security costs	(12 234)	(11 879)
Appropriations to the Social Fund	(745)	(606)
Post-employment benefits expenses, including :	(1 144)	(3 579)
Retirement, disability and similar benefits	(815)	(410)
Special electricity rates and charges	2 935	(265)
Social Fund	(55)	(25)
Costs of employee retirement plans	(3 209)	(2 879)
Other employee benefits expenses	(2 045)	(3 325)
Total	(96 085)	(101 710)
Items included in cost of sales	(17 631)	(19 040)
Items included in costs of performances intended for internal purposes	(250)	(162)
Items included in selling and distribution expenses	(7 358)	(7 498)
Items included in administrative expenses	(70 846)	(75 010)

14. Finance income and costs

SELECTED ACCOUNTING PRINCIPLES

Finance income and costs include in particular items relating to:

• revenue from profit sharing in other entities, incuding dividends;
• interest,
• disposal/liquidation of financial assets;
• revaluation of financial instruments, except financial assets measured at fair value where the effects are recognized in other comprehensive income and charged to revaluation reserve and derivative commodity instruments falling within the scope of IFRS 9 Financial Instruments in the case of which gains/losses on change in measurement and on exercising are presented within operating activities where gains/losses on the related trading in goods are also recognized;
• interest expense related to measurement of employee benefits, in line with IAS 19 Employee Benefits;
• changes in the balance of a provision resulting from the nearing deadline to incur the expense (discount unwinding effect);
• changes in the amount of lease liabilities (effect of discount reversal);
• foreign exchange differences resulting from transactions performed during the reporting period and balance sheet measurement of assets and liabilities at the end of the reporting period, except for differences recognized in the initial value of a fixed asset;

• other items related to financing activities.

• monetary items denominated in foreign currencies are translated at the closing rate (the average exchange rate published by the National Bank of Poland as at the date),

• non-monetary items measured at historical cost in a foreign currency are translated using the exchange rate as at the date of the original transaction, and
• non-monetary items measured at the fair value in a foreign currency are translated using the exchange rate at the day of determining the fair value.

Exchange rates applied for the purpose of balance sheet measurement:

•	revenue from profit sharing in other entities, incuding dividends;
•	interest,
•	disposal/liquidation of financial assets;
• • • • •	revaluation of financial instruments, except financial assets measured at fair value where the effects are recognized in other comprehensive income and charged to revaluation reserve and derivative commodity instruments falling within the scope of IFRS 9 Financial Instruments in the case of which gains/losses on change in measurement and on exercising are presented within operating activities where gains/losses on the related trading in goods are also recognized; interest expense related to measurement of employee benefits, in line with IAS 19 Employee Benefits; changes in the balance of a provision resulting from the nearing deadline to incur the expense (discount unwinding effect); changes in the amount of lease liabilities (effect of discount reversal); foreign exchange differences resulting from transactions performed during the reporting period and balance sheet measurement of assets and liabilities at the end of the reporting period, except for differences recognized in the initial value of a fixed asset;
•	other items related to financing activities.
• • •	Foreign currency transactions in a foreign currency are translated into PLN at initial recognition according to the average exchange rate determined for a given currency by the National Bank of Poland as at the day preceding such a day. As at balance sheet day: monetary items denominated in foreign currencies are translated at the closing rate (the average exchange rate published by the National Bank of Poland as at the date), non-monetary items measured at historical cost in a foreign currency are translated using the exchange rate as at the date of the original transaction, and non-monetary items measured at the fair value in a foreign currency are translated using the exchange rate at the day of determining the fair value. Exchange differences from translation are recognized within finance income (costs), or, in the cases specified in the accounting principles (policy), capitalized in the value of assets.
	Exchange rates applied for the purpose of balance sheet measurement:
	Currency	31 December 2020	31 December 2019
	EUR	4.6148	4.2585
	USD	3.7584	3.7977

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

	Year ended	Year ended
Dividend income	31 December 2020 1 082 031	31 December 2019 1 100 861
Interest income on loans and bonds	325 247	389 809
Interest expense	(409 623)	(407 866)
Realuation of shares	(589 010)	(94 920)
Revaluation of bonds and loans	(1 453 476)	(1 394 812)
Revaluation write-off to fair value of non-current assets classified as held for sale	(1 393 432)	-
Other finance income and costs, of which:	(179 464)	(40 381)
Other interest income	4 659	8 563
Gain/(loss) on derivative instruments	125 514	(53 233)
Commissions due to external financing	(18 209)	(20 319)
Exchange differences	(303 046)	28 739
Provision release	24 732	-
Other finance income	9 279	7 579
Other finance costs	(22 393)	(11 710)
Total, of which:	(2 617 727)	(447 309)
Income and costs from financial instruments	(2 642 169)	(445 893)
Other finance income and costs	24 442	(1 416)

Significant changes in the items of financial income and expenses in the year ended 31 December 2020 resulted mainly from recognising:

• of a write-off for the revaluation to fair value of non-current assets classified as held for sale, including mainly shares in TAURON Ciepło Sp. z o.o. in the amount of PLN 1 394 167 thousand due to the classification of shares as noncurrent assets classified as held for sale;
• of net cost from revaluation of loans in the amount of PLN 1 453 476 thousand, which resulted mainly from:
  • the valuation of loans granted to the subsidiary TAURON Wydobycie S.A., therefore the financial result of the Company was charged with a negative valuation in the total amount of PLN 1 159 739 thousand, as further described in None 20.1 hereto;
  • the valuation of loans granted to a joint venture of Elektrociepłownia Stalowa Wola S.A. resulting mainly from credit risk analyses of the loans granted performed as at the balance sheet date, which resulted in a decrease of their carrying amount in the total amount of PLN 235 714 thousand (discussed in more detail in Note 20.2 to these financial statements);
  • recognition in accordance with IFRS 9 Financial Instruments a loss of PLN 62 131 thousand due to modification of financial instruments, in connection with change in the contractual provisions of intragroup loans;
• surplus of negative exchange rate differences over positive ones in the amount of PLN 303 046 thousand (in the comparable period there was a surplus of positive exchange rate differences over negative ones in the amount of PLN 28 739 thousand. Exchange differences are mainly exchange differences related to the Company's debt in the EUR, i.e. a loan obtained from a subsidiary, subordinated bonds and eurobonds;
• a positive result on derivatives due to the measurement and realization mainly of FX forwards and CCIRS;
• the reversal of the provision in the amount of PLN 24 497 thousand is related to the reversal of the provision for audit proceedings in the part relating to interest, which is discussed in more detail in Note 37 of these financial statements.

15. Income Tax

SELECTED ACCOUNTING PRINCIPLES

Current Tax

Income tax recognised in profit or loss for the period includes actual tax charge for the given reporting period determined by the Company in line with provisions of the CIT Act and including the settlement of the Tax Capital Group the Company belongs to, as well as any previous year tax adjustments.

Deferred Income Tax

The accounting policy related to deferred income tax is described in Note 22 to these financial statements.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

15.1. Tax expense in the statement of comprehensive income

	Year ended 31 December 2020	Year ended 31 December 2019
Current income tax	(29 779)	5 519
Current income tax expense	(29 485)	(4 275)
Adjustments of current income tax from prior years	(294)	9 794
Deferred tax	(32 246)	(122 142)
Income tax expense in profit or loss	(62 025)	(116 623)
Income tax expense in other comprehensive income	8 829	(2 620)

The decrease in deferred tax expense in the year ended 31 December 2020 is mainly related to the increase in deferred tax assets on debt liabilities and the discontinuation of recognition of deferred tax assets on impairment losses on loans granted in the comparative period.

15.2. Reconciliation of the effective tax rate

	Year ended 31 December 2020	Year ended 31 December 2019
Loss before tax	(3 527 630)	(346 207)
Tax at Poland's statutory tax rate of 19%	670 250	65 779
Adjustments to income tax from previous years	(294)	9 794
Tax resulting from tax non-deductible costs	(499 197)	(446 540)
Impairment loss on shares, bonds and loans in subsidiaries	(284 627)	(421 076)
Recognition of non-deductible provisions	(212 264)	(798)
Other	(2 306)	(24 666)
Tax resulting from income not included in taxable base	211 865	254 695
Reversal of impairment loss on shares in subsidiaries	-	35 183
Dividends	205 586	209 164
Other	6 279	10 348
Settlement of the TCG	5 691	(731)
Write-off of deferred tax assets	(451 317)	-
Other	977	380
Tax at the effective tax rate of -1.8% (2019: -33.7%)	(62 025)	(116 623)
Income tax expense in profit/(loss)	(62 025)	(116 623)

In the year ended 31 December 2020, the Company recognized an impairment loss on deferred tax assets, as described in detail in Note 22 hereto, of which PLN 451 318 thousand was charged to the financial result.

15.3. Tax Capital Group

The Tax Group Agreement for 2018-2020 was registered on 30 October 2017. Main companies forming the Tax Capital Group since 1 January 2018: TAURON Polska Energia S.A., TAURON Wytwarzanie S.A., TAURON Dystrybucja S.A., TAURON Ciepło Sp. z o.o., TAURON Sprzedaż Sp. z o.o., TAURON Sprzedaż GZE Sp. z o.o., TAURON Obsługa Klienta Sp. z o.o., TAURON Ekoenergia Sp. z o.o., TAURON Wydobycie S.A. and Kopalnia Wapienia Czatkowice Sp. z o.o.

On 14 December 2020, the Tax Capital Group Agreement for the years 2021-2023 was registered by the Head of the First Silesian Tax Office in Sosnowiec. Main companies forming the Tax Group since 1 January 2021: TAURON Polska Energia S.A., TAURON Wytwarzanie S.A., Nowe Jaworzno Grupa TAURON sp. z o.o., TAURON Dystrybucja S.A., TAURON Sprzedaż Sp. z o.o., TAURON Sprzedaż GZE Sp. z o.o., TAURON Obsługa Klienta Sp. z o.o., TAURON Ekoenergia Sp. z o.o., TEC1 sp. z o.o., TEC2 sp. z o.o., TEC3 sp. z o.o. i Kopalnia Wapienia Czatkowice Sp. z o.o.

As at 31 December 2020, the Tax Capital Group had an income tax receivables of PLN 82 464 thousand, which mainly represents receivables of the TCG for the year ended 31 December 2020, representing the surplus of advance payments in the amount of PLN 287 300 thousand over the tax charge of the TCG in the amount of PLN 204 935 thousand.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

At the same time, due to the Company's settlements as a Representative Company with subsidiaries belonging to the Tax Capital Group, the Company had a liability to these subsidiaries due to overpayment of tax in the amount of PLN 91 106 thousand, which was presented in the statement of financial position as "Other financial liabilities", and a receivable from the subsidiaries forming the Tax Capital Group due to underpayment of tax in the amount of PLN 21 869 thousand, recognised as "Other financial assets".

Tax settlements and other areas of activity may be subject to inspection by authorities entitled to impose penalties and any additional tax liabilities resulting from final decisions of tax inspection authorities must be paid including interest. Consequently, the amounts presented and disclosed in these financial statements may change in the future.

16. Earnings (loss) per share

SELECTED ACCOUNTING PRINCIPLES

Earnings (loss) per share for each period is calculated by dividing the net profit (loss) for a given reporting period by the weighted average number of shares existing in that period.

Loss per share (in PLN)	Year ended 31 December 2020	Year ended 31 December 2019
Basic and diluted, for net loss for the period	(2.05)	(0.26)

Presented below is information about the loss and number of shares which served as the basis for calculation of the basic and diluted loss per share presented in the statement of comprehensive income.

	Year ended 31 December 2020	Year ended 31 December 2019
Net loss attributable to ordinary shareholders	(3 589 655)	(462 830)
Number of ordinary shares	1 752 549 394	1 752 549 394

EXPLANATORY NOTES TO THE STATEMENT OF FINANCIAL POSITION

17. Investment property

SELECTED ACCOUNTING PRINCIPLES

The Company holds an investment property generating revenue from rental fees. The property is rented to a subsidiary. At initial recognition investment property is measured at acquisition costs or cost including transaction costs. After initial recognition all investment properties held are measured in line with IAS 16 Property, Plant and Equipment, i.e. at cost less impairment allowances or acquisition costs. This means that the Company gradually depreciates the real property throughout its useful life.

	Year ended	Year ended
	31 December 2020	31 December 2019
COST
Opening balance	41 513	40 095
Impact of IFRS 16 Leases	-	1 526
Restated opening balance	41 513	41 621
Direct purchase	12 447	-
Increase/(decrease) due to lease changes	404	(108)
Closing balance	54 365	41 513
ACCUMULATED DEPRECIATION
Opening balance	(21 776)	(18 085)
Depreciation for the period	(4 201)	(3 691)
Closing balance	(25 977)	(21 776)
NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD	19 737	22 010
NET CARRYING AMOUNT AT THE END OF THE PERIOD, of which:	28 388	19 737
Buildings	21 755	14 468
Perpetual usufruct of land	6 633	5 269

⁽in PLN thousand)

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

The investment property is mainly composed of a perpetual usufruct right to land and buildings located in Katowice Szopienice, at ul. Lwowska 23. The Company entered into an agreement to rent the property with a subsidiary. The rental revenue for the year ended 31 December 2020 amounted to PLN 6 005 thousand. The Company estimates that as at the end of the reporting period the fair value of the property amounts to approximately PLN 37 000 thousand.

In the year ended 31 December 2020, the increase in investment property related mainly to the purchase of the right of perpetual usufruct of the land and the building and structures located in Katowice Szopienice at ul. Lwowska 23 from the subsidiary, TAURON Wytwarzanie S.A.

The Company has decided that the assets on account of the right to use assets meeting the definition of investment property, which relate to the rights to perpetual usufruct of land, are presented in investment property. Therefore, as at 1 January 2019 the right of perpetual usufruct of land constituting an investment property was increased by the value of discounted lease payments in the amount of PLN 1 526 thousand.

18. Right-of-use assets

SELECTED ACCOUNTING PRINCIPLES

An agreement or part of a rental, lease or other agreement or part of an agreement of a similar nature under which the right to control the use of an assets for a given period is transferred in exchange for remuneration is classified as a lease. Lease classification is made at the date of commencement of the lease, based on the economic content of the agreement, not on its legal form. At the date of commencement of the lease, a right-of-use assets is recognised for use and a liability for the lease.

A right-of-use asset is measured at cost including:

• the amount of the initial measurement of the lease liability,
• any lease payments made at or before the inception of the lease, less any amount received or costs paid by the lessor (lease incentives),
• any initial direct costs incurred by the lessee,
• an estimate of the costs of dismantling and removing the underlying asset, restoring the site on which it was located or restoring it to the condition required by the lease terms.

After the initial recognition, a right-of-use asset is measured at cost less accumulated depreciation and/or amortization and impairment write-down and adjusted for the revaluation of the lease liability. Depreciation and/or amortization principles applied to assets used under leases are consistent with those applied to depreciation and/or amortization of assets owned by the Company.

PROFESSIONAL JUDGEMENT AND ESTIMATES

At the date of commencement of the lease, the Company measures an rights-of-use assets including in the current value of the lease payments remaining to be paid on that date. Lease payments are discounted using the interest rate of the lease if that rate can be easily determined. Otherwise, the Company applies the incremental borrowing rate, in accordance with the adopted methodology depending on the rating.

The Company applies the portfolio approach to similar leases regarding unified assets with similar use. When accounting for leases under the portfolio approach, the Company applies estimates and assumptions corresponding to the size and composition of the portfolio, including estimates of the weighted average lease term. In order to determine the lease period, e.g. for contracts for an indefinite period, the Company makes an estimate.

Depreciation and/or amortization principles applied to the rights-of-use of assets are consistent with those applied to depreciation and/or amortisation of assets owned by the Company. If there is no reasonable certainty that the Company will obtain ownership by the end of the lease term the asset item is fully depreciated over the shorter of the lease term and its useful life.

Rights-of-use assets for the year ended 31 December 2020

	Perpetual usufruct right	Buildings and premises	Motor vehicles	Total right-of-use assets
COST
Opening balance	-	40 262	1 817	42 079
Increase due to a new lease contract	45	-	-	45
Increase/(decrease) due to lease changes		- 2 571	-	2 571
Liquidation	-	-	(34)	(34)
Closing balance	45	42 833	1 783	44 661
ACCUMULATED DEPRECIATION
Opening balance	-	(7 226)	(676)	(7 902)
Depreciation for the period	-	(8 054)	(710)	(8 764)
Liquidation	-	-	17	17
Closing balance	-	(15 280)	(1 369)	(16 649)
NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD	-	33 036	1 141	34 177
NET CARRYING AMOUNT AT THE END OF THE PERIOD	45	27 553	414	28 012

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

Rights-of-use assets for the year ended 31 December 2019

	Buildings and premises	Motor vehicles	Total right-of-use assets
COST
Opening balance	-	-	-
Impact of IFRS 16 Leases	38 468	1 502	39 970
Restarted opening balance	38 468	1 502	39 970
New lease agreement	-	261	261
Increase(decrease) due to lease changes	1 794	54	1 848
Closing balance	40 262	1 817	42 079
ACCUMULATED DEPRECIATION	-	-	-
Opening balance	-	-	-
Depreciation for the period	(7 226)	(676)	(7 902)
Closing balance	(7 226)	(676)	(7 902)
NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD	-	-	-
NET CARRYING AMOUNT AT THE END OF THE PERIOD	33 036	1 141	34 177

19. Shares

SELECTED ACCOUNTING PRINCIPLES

Shares in subsidiaries and jointly-controlled entities

Shares in other entities

PROFESSIONAL JUDGEMENT AND ESTIMATES

Change in shares for the year ended 31 December 2020

19.	Shares
	SELECTED ACCOUNTING PRINCIPLES
	Shares in subsidiaries and jointly-controlled entities
	Shares in subsidiaries and interests in a joint venture are shown at purchase price, less impairment allowances, if any. Impairment allowances are recognized in line with IAS 36 Impairment of Assets, where the carrying amount is compared to the higher of the fair value less costs to sell and the value in use.
	Shares in other entities
	Shares in entities other than subsidiaries and jointly controlled entities held as at the balance sheet date are measured at fair value through profit or loss.
	PROFESSIONAL JUDGEMENT AND ESTIMATES
	As at every balance sheet date the Company assesses if there is any objective indication that the shares may be impaired. Should material impairment indications occur, the Company is obliged to carry out impairment tests of shares and recognize an impairment loss or reverse an existing one.
	Pursuant to IFRS 9 Financial Instruments, the Company classifies and measures at fair value shares in entities other than subsidiaries and jointly-controlled entities.
	Change in shares for the year ended 31 December 2020
No.	Company		Gross value			Impairment losses			Net value
		Opening balance	(Decreases) Increases	Closing balance	Opening balance	Decreases (Increases)	Closing balance	Opening balance	Closing balance
1 2 3 4 5	TAURON Wydobycie S.A. TAURON Wytwarzanie S.A. TAURON Ciepło Sp. z o.o. TAURON Ekoenergia Sp. z o.o. Marselwind Sp. z o.o.	1 341 755 7 865 701 1 928 043 1 939 765 307	- - (1 928 043) - 110	1 341 755 7 865 701 - 1 939 765 417	(1 341 755) (7 635 126) (168 140) - -	- (194 467) 168 140 (376 106) -	(1 341 755) (7 829 593) - (376 106) -	- 230 575 1 759 903 1 939 765 307	- 36 108 - 1 563 659 417
6 7 8	TAURON Serwis Sp. z o.o. Nowe Jaworzno Grupa TAURON Sp. z o.o. TAURON Dystrybucja S.A.	1 268 4 861 026 10 511 628	- 645 100 -	1 268 5 506 126 10 511 628	- - -	- - -	- - -	1 268 4 861 026 10 511 628	1 268 5 506 126 10 511 628
9 10 11 12	TAURON Nowe Technologie S.A. 1 TAURON Sprzedaż Sp. z o.o. TAURON Sprzedaż GZE Sp. z o.o. TAURON Czech Energy s.r.o.	640 362 613 505 129 823 4 223	9 500 - - -	649 862 613 505 129 823 4 223	- - - -	- - - -	- - - -	640 362 613 505 129 823 4 223	649 862 613 505 129 823 4 223
13 14	Kopalnia Wapienia Czatkowice Sp. z o.o. Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o.	41 178 61 056	- 17 616	41 178 78 672	- (61 056)	- (17 616)	- (78 672)	41 178 -	41 178 -
15 16 17 18	Bioeko Grupa TAURON Sp. z o.o. TAURON Obsługa Klienta Sp. z o.o. Finanse Grupa TAURON Sp. z o.o. TAMEH HOLDING Sp. z o.o.	1 269 39 831 28 482 415 852	- - - -	1 269 39 831 28 482 415 852	- - (23 925) -	- - - -	- - (23 925) -	1 269 39 831 4 557 415 852	1 269 39 831 4 557 415 852
19 20 21	PGE EJ 1 Sp. z o.o. 2 Magenta Grupa TAURON Sp. z o.o. ElectroMobility Poland S.A. 2	14 402 9 500 11 847	(14 402) (9 500) (821)	- - 11 026	- - -	- - -	- - -	14 402 9 500 11 847	- - 11 026
	EEC Magenta Sp. z o.o. ASI spółka komandytowo–akcyjna 2 EEC Magenta Sp. z o.o. 2 ASI spółka	1 058 10 950	773 8 166	1 831 19 116	- -	- -	- -	1 058 10 950	1 831 19 116
22				725	-	-	-	725	725 225
23 24 25	komandytowo–akcyjna 2 TEC1 Sp. z o.o. TEC2 Sp. z o.o.	725 225	- -	225	-	-	-	225
26 27 Total	TEC3 Sp. z o.o. Other 2	600 025 379 31 074 185	- - (1 271 501)	600 025 379 29 802 684	- - (9 230 002)	- - (420 049)	- - (9 650 051)	600 025 379 21 844 183	600 025 379 20 152 633

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Classification of shares in TAURON Ciepło Sp. z o.o. as non-current assets held for sale

As the prerequisites for the classification of shares in the subsidiary TAURON Ciepło Sp. z o.o. as held for sale were met, the Company reclassified shares in TAURON Ciepło Sp. z o.o. to assets held for sale, valuing them at their fair value of PLN 365 736 thousand, as described in more detail Note 28 of these financial statements.

Merger of TAURON Dystrybucja Serwis S.A. (now: TAURON Nowe Technologie S.A.) with Magenta Grupa TAURON Sp. z o.o.

On 29 October 2019, the Extraordinary General Meeting of Shareholders of TAURON Dystrybucja Serwis S.A. (now: TAURON Nowe Technologie S.A.) with its registered office in Wrocław and the Extraordinary General Meeting of Shareholders of Magenta Grupa TAURON Sp. z o.o. with its registered office in Katowice adopted resolutions on the merger of TAURON Dystrybucja Serwis S.A. (now: TAURON Nowe Technologie S.A., the acqiuer) with Magenta Grupa TAURON Sp. z o.o. (the acquiree). On 2 January 2020, the merger was registered in the National Court Register maintained by the District Court in Wrocław.

As a result of the merger, the Company relocated its shares in Magenta Grupa TAURON Sp. z o.o. in the net amount of PLN 9 500 thousand to the value of shares in TAURON Nowe Technologie S.A.

Increase in the share capital and classification of shares in PGE EJ1 Sp. z o.o as non-current assets held for sale

On 23 November 2020, the Extraordinary General Shareholders' Meeting of PGE EJ Sp. z o.o adopted a resolution to increase the company's share capital by PLN 379 999 thousand. As a result of the foregoing, TAURON Polska Energia S.A. acquired in the increased share capital of the company PGE EJ1 Sp. z o.o. 269 503 new shares with a nominal value of PLN 141 per share, with a total nominal value of PLN 37 999 thousand. The increase in the share capital was registered on 8 December 2020.

As the prerequisites for the classification of shares in PGE EJ1 Sp. z o.o. as held for sale were met, the Company reclassified shares in PGE EJ1 Sp. z o.o. to assets held for sale, valuing them at their fair value of PLN 53 136 thousand, as described in more detail Note 28 of these financial statements.

Additional payments to the capital of Polska Energia Pierwsza Kompania Handlowa Sp. z o.o.

In the year ended 31 December 2020, the Extraordinary General Meeting of Shareholders of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. adopted resolutions on making additional payments to the company's capital:

• on 8 January 2020 in the amount of PLN 8 016 thousand;
• on 16 June 2020 in the amount of PLN 9 600 thousand.

Increase in the share capital of Nowe Jaworzno TAURON sp. z o.o.

On 2 March 2020, the Extraordinary General Shareholders' Meeting of Nowe Jaworzno Grupa TAURON Sp. z o.o. adopted a resolution to increase the company's share capital by PLN 4 551 thousand. All the shares were acquired by the Company for the total amount of PLN 455 100 thousand. On 5 March 2020, the Company provided funds for capital increase. As a result of the transaction, the Company's share in the issued capital and the governing body increased from 84.76% to 85.88% The increase in the share capital was registered on 18 May 2020.

On 3 December 2020, the Extraordinary General Shareholders' Meeting of Nowe Jaworzno Grupa TAURON Sp. z o.o. adopted a resolution to increase the company's share capital by PLN 1 900 thousand. All the shares were acquired by the Company for the total amount of PLN 190 000 thousand. On 7 December 2020, the Company provided funds for capital increase. As a result of the transaction, the Company's share in the issued capital and the governing body will be increased from 85.88% to 86.29%. After the balance sheet day, on 13 January 2021, the increase in the share capital was registered.

Other changes in long-term investments that took place during the year ended 31 December 2020 resulted from the issued capital increases of the following companies:

• EEC Magenta Sp. z o.o. 2 ASI spółka komandytowo-akcyjna in the amount of PLN 8 166 thousand;
• EEC Magenta Sp. z o.o. ASI spółka komandytowo-akcyjna in the amount of PLN 773 thousand

and capital contribution to Marselwind Sp. z o.o. in the amount of PLN 110 thousand.

Impairment losses on shares

Change in shares for the year ended 31 December 2019

	Impairment losses on shares In the year ended 31 December 2020, the Company recognised the creation of impairment losses on shares in subsidiaries in the amount of PLN 588 189 thousand, including as a result of impairment testing in the total amount of PLN 570 573 thousand, as further described in Note 10 to these financial statements.
	Change in shares for the year ended 31 December 2019
			Gross value			Impairment losses		Net value
No.	Company	Opening balance	(Decreases)	Closing balance	Opening balance	Decreases	Closing balance	Opening balance	Closing balance
			Increases			(Increases)
1 2	TAURON Wydobycie S.A. TAURON Wytwarzanie S.A.	1 341 755 7 865 701	- -	1 341 755 7 865 701	(1 242 697) (7 635 126)	(99 058) -	(1 341 755) (7 635 126)	99 058 230 575	- 230 575
3	TAURON Ciepło Sp. z o.o.	1 928 043	-	1 928 043	-	(168 140)	(168 140)	1 928 043	1 759 903
4	TAURON Ekoenergia Sp. z o.o.	1 939 765	-	1 939 765	(185 172)	185 172	-	1 754 593	1 939 765
5	Marselwind Sp. z o.o.	307	-	307	-	-	-	307	307
6	TAURON Serwis Sp. z o.o.	1 268	-	1 268	-	-	-	1 268	1 268
7	Nowe Jaworzno Grupa TAURON Sp. z o.o.	4 611 026	250 000	4 861 026	-	-	-	4 611 026	4 861 026
8	TAURON Dystrybucja S.A.	10 511 628	-	10 511 628	-	-	-	10 511 628	10 511 628
9 10	TAURON Nowe Technologie S.A. 1 TAURON Sprzedaż Sp. z o.o.	640 362 613 505	- -	640 362 613 505	- -	- -	- -	640 362 613 505	640 362 613 505
11	TAURON Sprzedaż GZE Sp. z o.o.	129 823	-	129 823	-	-	-	129 823	129 823
12	TAURON Czech Energy s.r.o.	4 223	-	4 223	-	-	-	4 223	4 223
13	Kopalnia Wapienia Czatkowice Sp. z o.o.	41 178	-	41 178	-	-	-	41 178	41 178
14	Polska Energia-Pierwsza Kompania	61 056	-	61 056	(61 056)	-	(61 056)	-	-
	Handlowa Sp. z o.o.
15 16	TAURON Sweden Energy AB (publ) Bioeko Grupa TAURON Sp. z o.o.	28 382 1 269	(28 382) -	- 1 269	(20 933) -	20 933 -	- -	7 449 1 269	- 1 269
17	TAURON Obsługa Klienta Sp. z o.o.	39 831	-	39 831	-	-	-	39 831	39 831
18	Finanse Grupa TAURON Sp. z o.o.		- 28 482	28 482	-	(23 925)	(23 925)	-	4 557
19	TAMEH HOLDING Sp. z o.o.	415 852	-	415 852	-	-	-	415 852	415 852
	PGE EJ 1 Sp. z o.o. 2	18 651	(4 249)	14 402	-	-	-	18 651	14 402
20	Magenta Grupa TAURON Sp. z o.o. 2	9 500	-	9 500	-	-	-	9 500	9 500
21		17 500	(5 653)	11 847	-	-	-	17 500	11 847
22	ElectroMobility Poland S.A. 2			1 058	-	-	-	12	1 058
23	EEC Magenta Sp. z o.o. ASI spółka	12	1 046
	komandytowo–akcyjna 2 EEC Magenta Sp. z o.o. 2 ASI spółka
24	komandytowo–akcyjna 2	24	10 926	10 950	-	-	-	24	10 950
25	TEC1 Sp. z o.o.	-	725	725	-	-	-	-	725
26	TEC2 Sp. z o.o.	-	225	225	-	-	-	-	225
27 Other 2 28	TEC3 Sp. z o.o.	- 379	600 025 -	600 025 379	- -	- -	- -	- 379	600 025 379

20. Loans granted

SELECTED ACCOUNTING PRINCIPLES

Loans granted by the Company include intragroup loans with agreed maturities granted to subsidiaries, cash pool loans and loans granted to other entities, mainly to the joint venture. Loans are classified as financial assets measured at amortized cost or at fair value through profit or loss. Loans with a maturity date not exceeding 12 months from the balance sheet date are classified as current assets and loans with a maturity date exceeding 12 months from the balance sheet date as fixed assets, considering the expectations as regards the loan repayment as at the end of the reporting period (intentions as to the maturity period extension).

PROFESSIONAL JUDGEMENT AND ESTIMATES

The Company makes appropriate classification and valuation of the loans granted. Loans granted with a maturity period of less than one year, for which an extension of the repayment period or roll-over is planned, are classified as long-term instruments. As at 31 December 2020, the nominal value of loans with a repayment term of less than one year, which had been classified as long-term due to the expectation of the Company at the balance sheet date regarding the repayment term of loans more than 12 months after the balance sheet date, amounted to PLN 1 900 000 thousand.

In accordance with the requirements of IFRS 9 Financial Instruments, in the case of loans measured at amortized cost, the Company estimates the amount of impairment losses on loans, as described in detail below and in Note 41.1.2 of these financial statements.

Loans granted by the Company as at 31 December 2020 and 31 December 2019 are presented in the table below.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

		(in PLN thousand)
--	--	-------------------

		As at 31 December 2020		As at 31 December 2019
	Gross value	Impairment loss	Carrying amount	Gross value	Impairment loss	Carrying amount
Loans measured at amortized cost
Loans granted to subsidiaries	5 074 636	(71 113)	5 003 523	4 623 619	(37 284)	4 586 335
Loans granted to EC Stalowa Wola S.A.	27 670	(1 480)	26 190	27 746	(730)	27 016
Loans granted to PGE EJ 1 Sp. z o.o.	-	-	-	8 252	(45)	8 207
Loans granted under cash pool agreement	312 756	(34 041)	278 715	537 404	(62 226)	475 178
Loans measured at fair value
Loans granted to EC Stalowa Wola S.A.	72 523	n.a.	72 523	216 018	n.a	216 018
Total	5 487 585	(106 634)	5 380 951	5 413 039	(100 285)	5 312 754
Non-current	4 336 528	(102 927)	4 233 601	5 139 751	(92 199)	5 047 552
Current	1 151 057	(3 707)	1 147 350	273 288	(8 086)	265 202

20.1. Loans granted to subsidiaries

As part of the operation of intra-group financing, the Company grants loans to its subsidiaries.

The table below presents the balance of loans granted to subsidiaries as at 31 December 2020 and 31 December 2019, broken down by individual companies.

		As at 31 December 2020				As at 31 December 2019
Company	Contractual loan value	Gross value	Impairment loss	Carrying amount	Contractual loan value	Gross value	Impairment loss	Carrying amount
TAURON Dystrybucja S.A.	3 250 000	3 284 433	(10 781)	3 273 652	3 000 000	3 014 526	(7 453)	3 007 073
TAURON Ciepło Sp. z o.o.	975 000	977 318	(1 054)	976 264	975 000	978 752	(19 879)	958 873
TAURON Wydobycie S.A.	2 868 354	-	-	-	1 970 000	268 576	(3 596)	264 980
TAURON Wytwarzanie S.A.	500 000	504 226	(53 784)	450 442	200 000	200 768	(5 582)	195 186
TAURON Ekoenergia Sp. z o.o.	160 000	154 121	(1 340)	152 781	160 000	160 997	(774)	160 223
TAURON Sprzedaż Sp. z o.o.	100 000	100 330	(1 856)	98 474	-	-	-	-
Other	53 992	54 208	(2 298)	51 910	-	-	-	-
Total	7 907 346	5 074 636	(71 113)	5 003 523	6 305 000	4 623 619	(37 284)	4 586 335
Non-current		3 929 234	(67 516)	3 861 718		4 612 447	(33 632)	4 578 815
Current		1 145 402	(3 597)	1 141 805		11 172	(3 652)	7 520

As at the balance sheet date, the loans granted to TAURON Ciepło Sp. z o.o. were classified as short-term assets, including loans with a total nominal value of PLN 70 000 thousand, whose repayment date exceeds one year from the end of the reporting period. The above classification is related to the project conducted by the Company aimed at market verification of the possibility of selling shares in the subsidiary TAURON Ciepło Sp. z o.o. and to the reclassification, as at the balance sheet date, of the shares in TAURON Ciepło Sp. z o.o. held by the Company to assets held for sale, which is described in more detail in Note 28 of these financial statements. The Company believes a possible sale of TAURON Ciepło shares will involve an earlier termination of the debt financing of TAURON Ciepło Sp. z o.o. by the Company.

In the first quarter of 2020, the Company amended the loan agreements granted to its subsidiaries with regard to changes in the interest rate. In accordance with IFRS 9 Financial Instruments, the Company recognised the change in the contractual provisions as a modification of financial instruments, therefore a loss of PLN 62 131 thousand was recognised in financial expenses, which decreased the gross value of loans.

In the year ended 31 December 2020, the Company, within the intra-group financing, granted a loans to a subsidiary TAURON Wydobycie S.A. with a nominal value of PLN 898 354 thousand, which was initially recognised as an impaired financial asset due to credit risk, with the result that the loss on the initial measurement of PLN 851 022 thousand reduced the gross value of the loan and charged to the Company's profit/(loss). The amount of credit loss as at the date of recognition was estimated on the basis of scenarios assumed by the Company for repayment of the loan granted, taking into account the results of the most recent asset impairment test.

Analyses of credit risk of the loans granted to TAURON Wydobycie S.A. carried out as at the balance sheet date, including among others the estimation of the future cash flows of the company, showed that it was justified to assess the carrying amount of the above loans at a zero value, which resulted in additional charge of the financial result of the company in the amount of PLN 312 312 thousand. In 2020, the Company also recognized a change in impairment losses on accrued interest, which increased the financial result by PLN 3 595 thousand. In the year ended 31 December 2020, the Company received from its subsidiary TAURON Wydobycie S.A. interest on loans granted in the amount of PLN 125 802 thousand.

Taking into account the impact epidemiological situation related to COVID-19, resulted in an increase in impairment losses on loans granted to subsidiaries by PLN 5 122 thousand, as further described in Note 6 to these financial statements.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

After the end of the reporting period, the Company granted loans to its subsidiaries with a nominal value of PLN 820 000 thousand.

Change in loans and impairment losses

			Year ended 31 December 2020				Year ended 31 December 2019
		Level 1: allowance equal to 12 monthly expected credit losses (no impairment)	Level 2: allowance for expected credit losses over the life period (no impairment)	Instruments purchased with an impairment	Total	Level 1: allowance equal to 12 monthly expected credit losses (no impairment)	Level 2: allowance for expected credit losses over the life period (no impairment)	Instruments purchased with an impairment	Total
Gross value
Opening balance		4 052 722	302 321	268 576	4 623 619	4 387 594	1 016 115	-	5 403 709
Buy-back of bonds / loan repayment		(200 000)	-		- (200 000)	(720 000)	(670 000)	-	(1 390 000)
Issue of bonds / loan granting		903 992	-	43 736	947 728	420 000	-	264 980	684 980
Reclassification between the levels		(511 000)	511 000		- -	-	-	-	-
Significant modifications		302 321	(302 321)		- -	-	-	-	-
Conversion of bonds into loans		-	-		- -	14 025	(623)	-	13 402
Modification of loans		(62 131)	-		- (62 131)	-	-	-	-
Impairment		-	-	(312 312)	(312 312)	-	-	-	-
Interest accrued		168 012	10 300	125 802	304 114	199 126	43 943	3 596	246 665
Interest received		(94 505)	(6 075)	(125 802)	(226 382)	(248 023)	(87 114)	-	(335 137)
Closing balance		4 559 411	515 225		- 5 074 636	4 052 722	302 321	268 576	4 623 619
Impairment loss
Opening balance		(17 525)	(16 163)	(3 596)	(37 284)	(19 164)	(148 253)	-	(167 417)
Recognition		(3 453)	(55 716)		- (59 169)	(1 753)	(12 131)	(3 596)	(17 480)
Reversal		5 581	16 163		- 21 744	3 392	641	-	4 033
Utilized			- -	3 596	3 596	-	143 580	-	143 580
Closing balance
		(15 397)	(55 716)		- (71 113)	(17 525)	(16 163)	(3 596)	(37 284)
Net carrying amount at the beginning of the period Net carrying amount at the end of the period		4 035 197 4 544 014	286 158 459 509	264 980	4 586 335 - 5 003 523	4 368 430 4 035 197	867 862 286 158	- 264 980	5 236 292 4 586 335
20.2. Loans granted to the joint venture Elektrociepłownia Stalowa Wola S.A. as at 31 December 2020 and as at 31 December 2019 are presented in the table below.		Loans granted to joint ventures	As at 31 December 2020			As at 31 December 2019
	Loan amount	Gross value	Impairment loss	Carrying amount	Gross value	Impairment loss	Maturity Carrying date amount		Interest rate
Loans measured at fair value
Debt consolidation agreement	609 951	72 523	n.a.	72 523	216 018		n.a. 216 018 30.06.2033		fixed
Loans measured at amortized cost
VAT loan
	15 000	2 453	(33)	2 420	5 109	(110)	4 999 31.03.2021	WIBOR 1M+mark-up
	7 290	1 986	(353)	1 633	7 955	(218)	7 737
	9 500	2 295	(304)	1 991	9 197	(252)	8 945
Other loans	5 175	1 372	(165)	1 207	5 485	(150)	5 335 30.06.2033		fixed
	59 175	14 404	(598)	13 806	-	-	-

20.2. Loans granted to joint ventures

Buy-back of bonds / loan repayment		(200 000)		-	- (200 000)		(720 000)	(670 000)	-	(1 390 000)
Issue of bonds / loan granting		903 992		- 43 736	947 728		420 000	-	264 980	684 980
Reclassification between the levels		(511 000)	511 000		-	-	-	-	-	-
Significant modifications		302 321	(302 321)		-	-	-	-	-	-
Conversion of bonds into loans		-		-	-	-	14 025	(623)	-	13 402
Modification of loans		(62 131)		-	- (62 131)		-	-	-	-
Impairment		-		- (312 312)	(312 312)		-	-	-	-
Interest accrued		168 012	10 300	125 802	304 114		199 126	43 943	3 596	246 665
Interest received		(94 505)	(6 075)	(125 802)	(226 382)		(248 023)	(87 114)	-	(335 137)
Closing balance		4 559 411	515 225		- 5 074 636	4 052 722		302 321	268 576	4 623 619
Impairment loss
Opening balance		(17 525)	(16 163)		(3 596) (37 284)		(19 164)	(148 253)	-	(167 417)
Recognition		(3 453)	(55 716)		- (59 169)		(1 753)	(12 131)	(3 596)	(17 480)
Reversal		5 581	16 163		- 21 744		3 392	641	-	4 033
Utilized			-	-	3 596 3 596		-	143 580	-	143 580
Closing balance Net carrying amount at the beginning of the period		(15 397)	(55 716)		- (71 113)		(17 525)	(16 163)	(3 596)	(37 284)
Net carrying amount at the end of the period		4 035 197 4 544 014	286 158 459 509	264 980	4 586 335 - 5 003 523	4 368 430 4 035 197		867 862 286 158	- 264 980	5 236 292 4 586 335
20.2.		Loans granted to joint ventures
Loans granted to the joint venture Elektrociepłownia Stalowa Wola S.A. as at 31 December 2020 and as at 31 December 2019 are presented in the table below.
			As at 31 December 2020			As at 31 December 2019
	Loan amount	Gross value	Impairment loss	Carrying amount	Gross value	Impairment loss	Carrying amount	Maturity date	Interest rate
Loans measured at fair value Debt consolidation agreement	609 951	72 523	n.a.		216 018			30.06.2033	fixed
				72 523			n.a. 216 018
Loans measured at amortized cost
VAT loan	15 000	2 453	(33)	2 420	5 109	(110)	4 999	31.03.2021	WIBOR 1M+mark-up
	7 290	1 986	(353)	1 633	7 955	(218)	7 737
	9 500	2 295	(304)	1 991	9 197	(252)	8 945
Other loans								30.06.2033	fixed
	5 175	1 372	(165)	1 207	5 485	(150)	5 335
	59 175	14 404	(598)	13 806	-	-	-
	35 000	5 160	(27)	5 133	-	-	-
Total		100 193	(1 480)	98 713	243 764	(730)	243 034
Non-current		97 740	(1 447)	96 293	238 655	(620)	238 035

Under the agreement consolidating the borrower's debt of 28 February 2018 for the total amount of PLN 609 951 thousand, under which all existing liabilities of Elektrociepłownia Stalowa Wola S.A. towards the Company resulting from the loans granted and not repaid by 28 February 2018 were renewed. As at the balance sheet date, the par value of the loan was PLN 310 851 thousand (the principal of PLN 299 100 thousand was repaid on 30 April 2018). The debt in question is subordinated debt, valued as at the balance sheet date at fair value of PLN 72 523 thousand.

The decrease in the gross value of the VAT loan in the amount of PLN 2 656 thousand results mainly from granting loan tranches in the year ended 31 December 2020 in the total amount of PLN 13 600 thousand and the repayment of the loan tranche by Elektrociepłownia Stalowa Wola S.A. in the amount of PLN 16 250 thousand.

The following loan agreements were concluded between the Company and Elektrociepłownia Stalowa Wola S.A. in 2020:

• Agreement of 20 February 2020 up to the amount of PLN 59 175 thousand to finance liabilities related mainly to the completion of the construction of the gas-steam unit and the Back-Up Heat Source in Stalowa Wola. As at the balance sheet date, the amount of the loan granted was equal to the maximum amount resulting from the agreement in question;
• Agreement of 16 October 2020 up to the amount of PLN 35 000 thousand to secure the operational activities and electricity trading activities. As at the balance sheet date, under the agreement, the Company provided the borrower with tranches in the total amount of PLN 22 000 thousand.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

The repayment of the two loans described above, accrued interest and costs and other amounts due to the Company under the agreements are secured by the borrower's blank promissory Notes including the promissory Note declarations.

Analyses of credit risk of loans granted to Elektrociepłownia Stalowa Wola S.A. performed as at the balance sheet date, taking into account, among others, the estimated future cash flows of Elektrociepłownia Stalowa Wola S.A., indicated an impairment losses due to credit risk (valuation level 3) resulting in a decrease in the carrying amount of the loans granted in the total amount of PLN 235 714 thousand, of which the fair value of the debt consolidation agreement was reduced by PLN 156 881 thousand, while in relation to other loans measured at amortised cost, gross value of loans granted was adjusted by PLN 72 943 thousand, interest was adjusted by PLN 4 442 thousand and additional impairment losses were recognised in the amount of PLN 1 448 thousand. The amount of credit loss as at the date of recognition has been estimated taking into account the entire lifetime of the financial instrument. As at 31 December 2019 the allowance for expected credit losses was measured at an amount equal to 12-month expected credit losses.

20.3. Loans granted under cash pool agreement

In order to optimise cash and liquidity management, TAURON Group has implemented a cash pool mechanizm. Cash pooling is carried out under the agreement concluded with Santander Bank Polska S.A. on 8 December 2020 for the operation of a cash management system for a group of accounts, with the effective term until 31 December 2023. As a result of the cash pool mechanism, cash is transferred between the accounts of the service participants and the pool leader's account whose function is performed by TAURON Polska Energia S.A.

The above agreement replaced the existing agreement for the provision of the actual cash pooling service, which expired in December 2020 (agreement of 9 October 2017 concluded with PKO Bank Polski S.A.).

The balance of receivables due to cash pooling as at 31 December 2020 and 31 December 2019 is presented in the table below.

		As at 31 December 2020		As at 31 December 2019
	Gross value	Impairment	Carrying	Gross value	Impairment	Carrying
		loss	amount		loss	amount
Receivables from cash pool transatcions	312 216	(34 041)	278 175	525 938	(62 226)	463 712
Interest eceivable from cash pool transatcions	540	-	540	11 466	-	11 466
Total	312 756	(34 041)	278 715	537 404	(62 226)	475 178
Non-current	309 554	(33 964)	275 590	283 551	(57 917)	225 634
Current	3 202	(77)	3 125	253 853	(4 309)	249 544

Information on liabilities due to cash pooling is presented in Note 31.5 of these financial statements.

Recognising in the calculation of expected credit losses of the impact of the epidemiological situation related to COVID-19, resulted in an increase in impairment losses on loans granted under the cash pool agreement by PLN 43 thousand, as further discussed in Note 6 to these financial statements.

21. Derivative instruments and hedge accounting

SELECTED ACCOUNTING PRINCIPLES

Derivative financial instruments falling within the scope of IFRS 9 Financial Instruments are classified as financial assets/financial liabilities measured at fair value through profit or loss, except derivatives which are designated as hedging instruments and subject to hedge accounting. Derivative instruments acquired and held for internal purposes as excluded from the scope of IFRS 9 Financial Instruments are not measured at the end of the reporting period.

Derivatives classified as "financial assets/financial liabilities measured at fair value through profit or loss" are measured at fair value, taking into account their market value as at the end of the reporting period. Changes in the fair value of these instruments are recognized in profit or loss for the period. Derivatives are disclosed as assets if their value is positive or as liabilities if their value if negative.

As at the end of the reporting period, Interest Rate Swaps (IRS) acquired and held to hedge the interest rate risk relating to debt are subject to hedge accounting. Other derivative instruments held by the Company as at the end of the reporting period are not subject to hedge accounting.

Hedge accounting

In order to hedge the interest rate risk, the Company uses IRS (Interest Rate Swap) contracts. These instruments hedge cash flows related to bonds issued and loans taken. Such transactions are subject to hedge accounting.

At the inception of the hedge the hedging relationship and the risk management objective and strategy for undertaking the hedge are documented formally.

A cash flow hedge is accounted for in the following manner:

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

• the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in other comprehensive income; and
• the ineffective portion of the gain or loss on the hedging instrument is recognized in profit or loss for the period.

Gain or loss from revaluation of the hedging instrument disclosed in other comprehensive income is recognized directly in profit or loss in the same period during which the hedged item affects profit or loss for the period. For IRS, interest costs arising from debt are adjusted accordingly.

PROFESSIONAL JUDGEMENT AND ESTIMATES

The Company measures fair value at each balance sheet date. The methodology is presented below.

	Derivative instrument Methodology of determining fair value
IRS	The difference between discounted floating-rate interest cash flows and those based on fixed interest rates. Reuters interest rate curve is the input data.
CCIRS	The difference between discounted interest cash flows relating to payments and receipts, in two different currencies, expressed in the valuation currency. Interest rate curves, basis spreads and NBP fixing for the relevant currencies from Reuters are the input data.
Forward currency contracts	The difference between discounted future cash flows: the forward price at the valuation date and the transaction price, multiplied by the nominal value of the contract in a foreign currency. NBP fixing and the implied interest rate curve from FX swap transactions for the relevant currency from Reuters are the input data.
Commodity forwards, futures	The fair value of forwards for the purchase and sale of CO2 emission allowances, electricity and other commodities is based on prices quoted on an active market or based on cash flows being the difference between the price reference index (forward curve) and the contract price.
	As at each reporting period end, the Group checks the hedge effectiveness. As a result of the delayed commissioning of the Jaworzno power unit, as at the balance sheet date the Company held a significant
as at the balance sheet date.	surplus of CO2 emission allowances contracted to be purchased for resale to a subsidiary on account of redemption in connection with the 2020 issue. As at the end of the reporting period, the Company intended to purchase CO2 emission allowances at maturity and therefore these contracts were recognised as excluded from IFRS 9 Financial Instruments and were not measured at a fair value
	As at the balance sheet date, the Company holds the following derivative instruments:
Instrument	Description
	Derivative instruments subject to hedge accounting

CCIRS	The difference between discounted interest cash flows relating to payments and receipts, in two different currencies, expressed in the valuation currency. Interest rate curves, basis spreads and NBP fixing for the relevant currencies from Reuters are the input data.
Forward currency contracts	The difference between discounted future cash flows: the forward price at the valuation date and the transaction price, multiplied by the nominal value of the contract in a foreign currency. NBP fixing and the implied interest rate curve from FX swap transactions for the relevant currency from Reuters are the input data.
Commodity forwards, futures	The fair value of forwards for the purchase and sale of CO2 emission allowances, electricity and other commodities is based on prices quoted on an active market or based on cash flows being the difference between the price reference index (forward curve) and the contract price.
	As at each reporting period end, the Group checks the hedge effectiveness.
as at the balance sheet date.	As a result of the delayed commissioning of the Jaworzno power unit, as at the balance sheet date the Company held a significant surplus of CO2 emission allowances contracted to be purchased for resale to a subsidiary on account of redemption in connection with the 2020 issue. As at the end of the reporting period, the Company intended to purchase CO2 emission allowances at maturity and therefore these contracts were recognised as excluded from IFRS 9 Financial Instruments and were not measured at a fair value
	As at the balance sheet date, the Company holds the following derivative instruments:
Instrument Derivative instruments subject to hedge accounting	Description
IRS	IRS (Interest Rate Swap) instruments are used to hedge a portion of the interest rate risk on the cash flows associated with the exposure to WIBOR 6M designated under the dynamic risk management strategy, i.e: • interest on a loan with a nominal value of PLN 750 000 thousand, for periods commencing respectively from July 2020 and expiring in December 2024; • interest on bonds with a total nominal value of PLN 3 090 000 thousand, for periods beginning in December 2019 and expiring successively from 2023 to 2029. Under the terms of the transaction, the Company pays interest based on a fixed interest rate in PLN, while receiving payments at a floating interest rate in PLN.
	Derivative instruments measured at a fair value through the profit and loss other than subject to hedge accounting
CCIRS	CCIRS (Coupon Only Cross Currency Swap fixed-fixed) derivatives involve an exchange of interest payments on a total notional amount of EUR 500 000 thousand. The transaction matures in July 2027. Under the terms of the transaction, the Company pays interest based on a fixed interest rate in PLN, while receiving payments at a fixed interest rate in EUR. CCIRS derivatives aimed at securing the currency flows generated by interest payments on Eurobonds issued.
Commodity forward/future	Derivative instruments (future, forward) comprise forward transactions for the purchase and sale of CO2 emission allowances and other commodities.

				TAURON Polska Energia S.A.
Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU
			(in PLN thousand)
		As at 31 December 2020				As at 31 December 2019
		Charged to				Charged to
	Charged to profit or	other		Total	Charged to	other		Total
	loss	comprehensive	Assets	Liabilities	profit or loss	comprehensive	Assets	Liabilities
		income				income
Derivative instruments subject to hedge accounting
IRS	(6 230)	(83 831)	-	(90 061)	121	19 341	19 462	-
Derivative instruments measured at fair value
through profit or loss
CCIRS	3 268	-	5 023	(1 755)	(12 885)	-	-	(12 885)
Commodity future/forward	2 321	-	86 089	(83 768)	4 248	-	86 067	(81 819)
Currency forward	67 734	-	67 734	-	(29 823)	-	-	(29 823)
Total			158 846	(175 584)			105 529	(124 527)
Non-current Current			36 041 122 805	(73 739) (101 845)			20 352 85 177	(16 848) (107 679)

The fair value hierarchy for derivative financial instruments is as follows:

	As at 31 December 2020		As at 31 December 2019
	1 level	2 level	1 level	2 level
Assets
Derivative instruments - commodity	86 089	-	86 067	-
Derivative instruments - currency	-	67 734	-	-
Derivative instruments - IRS	-	-	-	19 462
Derivative instruments - CCIRS	-	5 023	-	-
Total	86 089	72 757	86 067	19 462
Liabilities
Derivative instruments - commodity	83 768	-	81 819	-
Derivative instruments - currency	-	-	-	29 823
Derivative instruments - IRS	-	90 061	-	-
Derivative instruments - CCIRS	-	1 755	-	12 885
Total	83 768	91 816	81 819	42 708

22. Deferred income tax

SELECTED ACCOUNTING PRINCIPLES

Deferred income tax

The Company recognizes a deferred tax asset and a deferred tax liability arising from temporary differences between the book value of assets and liabilities and their tax value, and a tax loss deductible in the future.

The carrying amount of the deferred tax asset is reviewed at the end of each reporting period. The Company reduces the carrying amount of the deferred tax asset to the extent the generation of taxable income sufficient to use the deferred tax asset in part or in whole is not probable. Unrecognized deferred tax asset is reviewed at the end of each reporting period and recognized to the extent its use is probable following generation of taxable income in the future. Deferred tax assets on deductible temporary differences arising from investments in subsidiaries is recognized insofar as their reversal is probable in the foreseeable future and where taxable income will be available to enable realization of deductible differences.

The deferred tax asset and liability are measured with the application of tax rates expected to be applicable in the period of realization of the asset or derecognition of the liability, with the consideration of tax rates (and tax regulations) that had been enacted or substantively enacted at the end of the reporting period.

Income tax related to items which are not recognized in profit or loss, i.e. items recognized in other comprehensive income or directly in equity, is recognized in other comprehensive income or in equity, respectively.

The Company offsets its deferred tax asset and deferred tax liability only if it has an enforceable legal title to offset its current tax receivables with liabilities and the deferred tax asset and liability concern the same tax authority.

PROFESSIONAL JUDGMENT AND ESTIMATES

As at each balance sheet date, the Company analyzes realizability of deferred tax asset and assesses its unrecognized items.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

		(in PLN thousand)
--	--	-------------------	--

	As at 31 December 2020	As at 31 December 2019
difference between tax base and carrying amount of financial assets	39 326	23 181
difference between tax base and carrying amount of property, plant and equipment and intangible assets and right-of-use assets	5 810	7 599
valuation of hedging instruments	-	3 698
difference between tax base and carrying amount of ficiancial liabilities	326	7 884
other	1 159	-
Deferred tax liabilities	46 621	42 362
difference between tax base and carrying amount of financial assets	2 874	5 367
difference between tax base and carrying amount of financial liabilities	85 159	38 976
valuation of hedging instruments	17 112	-
difference between tax base and carrying amount of non-current assets classified as held for sale	366 180	-
different timing of recognition of revenue and cost of sales for tax purposes	30 961	14 851
provisions and accruals	3 306	3 594
difference between tax base and carrying amount of fixed and intangible assets	2 319	2 458
other	995	534
Deferred tax assets	508 906	65 780
Write-off of deferred tax assets in correspondence with the financial result	(451 317)	-
Write-off of deferred tax assets in correspondence with other comprehensive income	(10 968)	-
Deferred tax assets/(liabilities), net	-	23 418

Deferred tax assets on deductible temporary differences arising from investments in subsidiaries is recognized insofar as their reversal is probable in the foreseeable future and where taxable income will be available to enable realization of deductible differences. According to the Company, deductible temporary differences related to recognition of impairment allowances on shares in subsidiaries of PLN 9 650 051 thousand will not be reversed in the foreseeable future, as the investments are not intended for sale. Consequently, no related deferred tax asset has been recognized.

In the year ended 31 December 2020, the Company recognised a deferred tax asset of PLN 362 872 thousand related to the difference between the tax and balance sheet value of shares in the subsidiary TAURON Ciepło Sp. z o.o. in connection with the intention to sell and the classification of the shares as assets held for sale, while recognising an impairment loss on this deferred tax asset due to the impossibility of realising it in the foreseeable future.

In connection with the analyses performed indicating uncertainty as to the possibility of tax profits in the Company in future years, in the financial statements, deferred tax assets on all negative temporary differences other than those described above were recognised only up to the amount of the deferred tax liability, which had an impact on the financial result charged in the amount of PLN 88 445 thousand and other comprehensive income in the amount of PLN 10 968 thousand.

23. Other financial assets

SELECTED ACCOUNTING PRINCIPLES

Other financial assets include, i.a. investment fund units, Tax Capital Group receivables, deposits, performance bonds, collateral transfered and receivables arising from sales of property, plant and equipment and intangible assets.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

	(in PLN thousand)
--	-------------------

	As at 31 December 2020	As at 31 December 2019
Initial deposits arising from stock exchange transactions	48 663	184 353
Receivables arising from income tax settlements of the TCG companies	21 869	-
Bid bonds, deposits, collateral transferred	19 161	82 951
Variation margin deposits arising from stock exchange transactions	-	25 113
Units in investment funds	-	26 622
Other	151	258
Total	89 844	319 297
Non-current	2 541	2 348
Current	87 303	316 949

The value of initial deposits (in the comparable period also of variation margin deposits) are related mostly to futures transactions on the CO2 emission allowances concluded on foreign regulated markets. The change in the value of initial deposits compared to the comparative period results mainly from the Company's position on the stock exchange as at the balance sheet date and changes in CO2 emission allowances prices. The reduction in the volume of exchange-traded futures contracts for CO2 emission allowances is mainly related to the change in the strategy of securing the Group's redemption needs, consisting in a one-off replacement of exchange contracts with OTC contracts (more information in Note 12 of these financial statements) and the conclusion of new contracts for redemption purposes of the Group's companies on OTC market.

The decrease in the value of the bid bonds, deposit and collaterals transferred versus the comparative period in the amount of PLN 63 790 thousand concerns mainly the collaterals transferred within the framework of the clearing guarantee system with Izba Rozliczeniowa Giełd Towarowych S.A. As at 31 December 2020, the collaterals amounted to PLN 12 443 thousand and as at 31 December 2019 - PLN 80 237 thousand.

24. Other non-financial assets

SELECTED ACCOUNTING PRINCIPLES

Other non-financial assets include mostly settlement of taxes and charges, except for income tax presented in the statement of financial position under a separate line item, prepaid expenses and advance payments for deliveries.

Settlements due to taxes and charges comprise:

• VAT and excise duty settlements;
• PIT and social insurance;
• Environmental fees and other regulatory settlements.

Prepayments are measured at the amount of reliably estimated expenses incurred by the entity, related to future reporting periods and resulting in an inflow of economic benefits to the entity in the future. Prepaid expenses may be settled based on the elapsed time or amounts paid.

	As at 31 December 2020	As at 31 December 2019
Prepaid expenses, including:	14 076	15 126
Prepaid fee on debt	13 707	14 563
VAT receivables	4 316	-
Advance payments for deliveries	3 888	4 957
Other	7 278	4 907
Total	29 558	24 990
Non-current	17 267	18 823
Current	12 291	6 167

25. Inventories

SELECTED ACCOUNTING PRINCIPLES

The Company's inventories include acquired CO2 emission allowances, property rights arising from certificates of energy generated using renewable sources and property rights arising from energy efficiency certificates, intended for trading purposes.

At initial recognition inventories are measured at purchased cost or manufacturing cost. At the end of the reporting period inventories are measured at purchased cost/ manufacturing cost or net realizable value, whichever is lower. If the cost is higher than the net realizable value, the Company recognizes an appropriate impairment loss.

CO² emission allowances purchased for resale and generation of profit in the short term due to volatility of market prices are

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

recognized within inventories. They are measured at fair value at initial recognition and at the end of each reporting period.

Releases of CO2 emission allowances and of the purchased rights arising from certificates of energy origin are measured with the FIFO method.

	As at	As at
	31 December 2020	31 December 2019
Gross Value
CO2 emission allowances	394 810	149 151
Energy certificates	250	250
Materials	-	-
Total	395 060	149 401
Measurement to net realisable value
CO2 emission allowances	(987)	-
Energy certificates	(42)	(37)
Measurement to fair value
CO2 emission allowances	-	-
Total	(1 029)	(37)
Net value
CO2 emission allowances	393 823	149 151
Energy certificates	208	213
Materials	-	-
Total	394 031	149 364

26. Receivables from buyers

SELECTED ACCOUNTING PRINCIPLES

Receivables from buyers are recognized at originally invoiced amounts, except situations where the effect of the time value of money is material, less allowances/write-downs.

Impairment allowances are recognized for both overdue and current receivables based on probability-weighted credit loss to be incurred should any of the following events occur:

• material payment delay;
• a debtor is put in liquidation, declared bankrupt or undergoes restructuring procedures;
• receivables are claimed at administrative or common court, or undergo enforcement.

Amounts receivable from buyers are divided into the portfolios of strategic and other counterparties.

Impairment of receivables is recognized in classes of expenses corresponding to each asset's function, i.e. as operating or financial expenses, depending on the related type of amount receivable.

PROFESSIONAL JUDGEMENT AND ESTIMATES

For the portfolio of strategic counterparties, it is expected that the historical performance does not provide full information on the expected credit losses that the Company may be exposed to. The risk of insolvency on the part of strategic counterparties is assessed based on ratings assigned to the counterparties using an internal scoring model and appropriately restated to account for the probability of default. The expected credit loss, in line with IFRS 9 Financial Instruments, is calculated based on the estimated potential recoveries from security interests.

It is expected that the historical performance information concerning receivables from other counterparties may reflect the credit risk that will be faced in future periods. The expected credit losses for this group of counterparties have been estimated through an analysis of ageing of receivables and percentage ratios assigned to individual ranges and groups (such as receivables claimed at court, receivables from counterparties in bankruptcy) which help estimate the value of receivables from buyers which are not expected to be paid.

In order to consider future factors, the Company adjusts the historical probability of default using the probability level implied by quotings of annual Credit Default Swap (CDS) instruments for each rating.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

		As at		As at
		31 December 2020		31 December 2019
Gross Value
Receivables from buyers		1 309 852		1 474 635
Receivables claimed at court			1 039	1 005
Total		1 310 891		1 475 640
Allowance/write-down
Receivables from buyers			(8 443)	(2 173)
Receivables claimed at court			(1 039)	(1 005)
Total			(9 482)	(3 178)
Net Value
Receivables from buyers		1 301 409		1 472 462
			-	-
Receivables claimed at court Total As at 31 December 2020 and 31 December 2019, the largest item of receivables from buyers was receivables from TAURON Sprzedaż Sp. z o.o., a subsidiary, amounting to PLN 748 448 thousand and PLN 694 511 thousand, respectively.		1 301 409		1 472 462
The impact of COVID-19 on the level of allowance for expected credit losses for receivables from buyers is further described in Note 6 of these financial statements.
Ageing of receivables from buyers as at 31 December 2020
		Past due
	Not past due	<30 days 30-360 days	>360 days	Total
Value of item before allowance/write-down	1 309 488	- 397	1 006
				1 310 891
Percentage of allowance/write-down	1%	-	99% 100%	-
Allowance/write-down Net Value	(8 084) 1 301 404	- (392) -	(1 006) 5 -	(9 482) 1 301 409

Ageing of receivables from buyers as at 31 December 2020

Receivables claimed at court			-		-
Total			1 301 409		1 472 462
As at 31 December 2020 and 31 December 2019, the largest item of receivables from buyers was receivables from TAURON Sprzedaż Sp. z o.o., a subsidiary, amounting to PLN 748 448 thousand and PLN 694 511 thousand,
respectively.
The impact of COVID-19 on the level of allowance for expected credit losses for receivables from buyers is further described in Note 6 of these financial statements.
Ageing of receivables from buyers as at 31 December 2020
	Not past		Past due
	due				Total
Value of item before allowance/write-down	1 309 488	-	397	1 006	1 310 891
Net Value	1 301 404	-	5	-	1 301 409
Ageing of receivables from customers as at 31 December 2019	Not past		Past due		Total
	due	<30 days	30-360 days	>360 days
Value of item before allowance/write-down	1 474 610	23	39	968	1 475 640
Percentage of allowance/write-down	0%	-	85%	100%	-
	(2 177)	-	(33)	(968)	(3 178)
Allowance/write-down

Ageing of receivables from customers as at 31 December 2019

	Not past
	due				Total
Value of item before allowance/write-down	1 474 610	23	39	968	1 475 640
Net Value	1 472 433	23	6	-	1 472 462

Impairment allowances on receivables from buyers

In the year ended 31 December 2020 and in the comparative period, allowances for receivables from buyers were created in the amount of PLN 6 304 thousand and PLN 1 317 thousand respectively.

Transactions with related parties and balances of settlements with these entities are presented in Note 46.1 of these financial statements.

27. Cash and equivalents

SELECTED ACCOUNTING PRINCIPLES

Cash and short-term deposits presented in the statement of financial position comprise, in particular, cash in hand and at bank and short-term deposits with the original maturity period not exceeding three months.

The balance of cash and cash equivalents shown in the cash flow statement consists of cash and cash equivalents as defined above. If the entity uses overdraft facilities as a cash management solution, in line with IAS 7 Statement of Cash Flows, the balance of cash is presented in the statement of cash flows less the outstanding balance of such facilities. Additionally, cash is adjusted by the balances of short-term loans granted and taken out in a cash pool transaction as their main objective is to manage liquidity on an ongoing basis.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

	As at	As at
	31 December 2020	31 December 2019
Cash at bank and in hand	393 129	923 721
Short-term deposits (up to 3 months)	250 005	7
Total cash and cash equivalents presented in the statement of financial position, including :	643 134	923 728
restricted cash, including:	119 240	593 682
collateral of settlements with Izba Rozliczeniowa Giełd Towarowych S.A.	108 917	571 699
Cash pool	(1 383 241)	(951 564)
Overdraft	-	(21 210)
Foreign exchange	(2 837)	(34)
Total cash and cash equivalents presented in the statement of cash flows	(742 944)	(49 080)

The decrease in the balance of restricted cash compared to the comparable period in the total amount of PLN 474 442 thousand relates mainly to settlements with Izba Rozliczeniowa Giełd Towarowych S.A. (a decrease in the cash balance on this account by PLN 462 782 thousand) and results from a decline in the value of required margins.

Information on balances arising from the cash pool agreement is presented in Notes 20.3 and 31.5 of these financial statements.

28. Non-current assets classified as held for sale

SELECTED ACCOUNTING PRINCIPLES

The Company classifies a non-current asset classified as held for sale if it meets the following criteria:

• representatives of the competent governing body of the Company are committed to implement the plan to sell,
• the assets are available for immediate sale in their current status,
• an active programme to locate a potential buyer has been initiated,
• the sale is highly probable and may be performed within 12 months of the decision,
• the sales price is reasonable in relation to the current fair value,
• it is unlikely that the plan to dispose of such assets will be significantly changed.

Fixed assets or groups of assets classified as held for sale are measured at the lower of the carrying amount and the fair value less costs of sales, except for deferred tax assets, assets arising from employee benefits and financial assets within the scope of IFRS 9 Financial Instruments.

PROFESSIONAL JUDGEMENT AND ESTIMATES

The Group recognises the impairment loss upon initial or subsequent revaluation of an assets (or a disposal group) to the fair value less disposal costs.

	As at
	31 December 2020
Shares in TAURON Ciepło Sp. z o.o.	365 736
Shares in PGE EJ1 Sp. z o.o.	53 136
Non-current assets classified as held for sale	418 872

Within non-current assets classified as held for sale the Company presents shares in the subsidiary TAURON Ciepło Sp. z o.o. and shares in the PGE EJ 1 Sp. z o.o.

TAURON Ciepło Sp. z o.o.

	As at
	31 December 2020
Shares carrying amount at the moment of reclassification to assets held for sale	1 759 903
Book value of loans granted	976 264
The total book value of the capital involvment in TAURON Ciepło Sp. z o.o.	2 736 167
Fair value of the capital involvment in TAURON Ciepło Sp. z o.o.	1 342 000
Write-off for revaluation to fair value less selling costs	(1 394 167)

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

	As at
	31 December 2020
Current book value of shares	1 759 903
Revaluation to fair value less sale costs	(1 394 167)
Fair value of shares less sale costs	365 736

The purpose of the disposal of shares in TAURON Ciepło Sp. z o.o. is in line with the update of the strategic directions, adopted by the Management Board of the Company and approved by the Supervisory Board in May 2019, which supplement the TAURON Group Strategy for 2016-2025. Taking into account the need for the Group's energy transformation, optimisation of the investment portfolio and maintenance of financial stability, it was decided to carry out market-based verification of, inter alia, a strategic option involving making the Group's asset portfolio more flexible by adjusting the mining assets to the Group's planned demand for fuel, reorganisation of the Generation segment and the capital investment portfolio. The above option includes, among others, market verification of the possibility of selling shares in the subsidiary TAURON Ciepło Sp. z o.o.

As a result of the above events, the Company launched a project aimed at market verification of the possibility of selling shares of the subsidiary TAURON Ciepło Sp. z o.o. and possible continuation of the sales process. As part of the project, on 22 November 2019, the Management Board of the Company received preliminary non-binding offers to purchase shares in TAURON Ciepło Sp. z o.o., among others, decided to admit bidders to the due diligence of the company.

On 16 June 2020 the Management Board of the Company decided to proceed to the next stage of the process of selling shares in TAURON Ciepło Sp. z o.o. and commencement of negotiations on an agreement on the sale of shares in TAURON Ciepło Sp. z .o.o. with Polskie Górnictwo Naftowe i Gazownictwo S.A. in the exclusivity mode established for a period of six weeks, which was subsequently extended until 30 November 2020. On 30 November 2020, the Management Board of the Company decided to further extend the negotiations until 31 January 2021. After the end of reporting period, on 29 January 2021, Polskie Górnictwo Naftowe i Gazownictwo S.A. expressed its intention to discontinue the negotiations aimed at the acquisition of shares in the TAURON Ciepło Sp. z o.o.

Due to the failure to conclude the transaction, the Management Board of the Company decided to commence analyses concerning the heat area, taking into account the projected changes in the external environment, including regulatory and market changes as well as taking into account the outlook of the Polish heat sector, which may affect further decisions on the sale of shares in TAURON Ciepło Sp. z o.o. or keeping TAURON Ciepło Sp. z o.o. in TAURON Group.

As at the balance sheet date, the Company assessed that in relation to the shares in TAURON Ciepło Sp. z o.o. the conditions of IFRS 5 Non-current assets held for sale and discontinued operations were met as regards the classification of the above assets as held for sale, in particular the shares are, in the Company's opinion, available for immediate sale in their current state, taking into account only normal and customary conditions for sales, therefore the Company reclassified the shares in TAURON Ciepło Sp. z o.o. as non-current assets classified as assets for sale as at 30 June 2020. As at the balance sheet date, the Company assessed to fair value the total involvement in TAURON Ciepło in the form of its shares with a balance sheet value of PLN 1 759 903 thousand, and whereas, in the Company's opinion, a possible sale of TAURON Ciepło Sp. z o.o.'s shares will involve an earlier termination of the company's debt financing of the intra-group loans granted to TAURON Ciepło Sp. z o.o. with a value of PLN 976 264 thousand. The fair value of the said involvement was estimated at the level of PLN 1 342 000 thousand, based on the information collected in the course of the market sales process of shares in TAURON Ciepło Sp. z o.o. Due to the fact that the fair value less costs of sale is lower than the accounting value of the shares held to date and loans granted, the Company recognised non-current assets classified as held for sale at fair value less costs of sale and recognised financial costs due to revaluation of shares to fair value in the amount of PLN 1 394 167.

PGE EJ 1 Sp. z o.o.

On 1 October 2020, the Company signed a letter of intent with the State Treasury concerning the acquisition of 100% of the shares in PGE EJ 1 Sp. z o.o. by the State Treasury. The Letter of Intent was signed by all entities holding shares in PGE EJ 1 Sp. z o.o. (apart from TAURON Polska Energia S.A., they include: PGE Polska Grupa Energetyczna S.A., Enea S.A. and KGHM Polska Miedź S.A.), which is responsible for the preparation and implementation of the investment consisting in the construction and operation of the first Polish nuclear power plant. The Company holds 10% of shares in PGE EJ1 sp. z o.o..

The entities signing the Letter of Intent undertook to carry out in good faith all actions necessary to prepare and execute the transaction consisting in the acquisition of shares in PGE EJ 1 Sp. z o.o. by the State Treasury. The letter of intent does not entail a commitment by the parties to conclude the transaction. The decision to proceed with the transaction will depend on the outcome of negotiations in this regard and the fulfilment of other conditions stipulated by law or corporate documents.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

As at the balance sheet date, the Company assessed that in relation to the shares in PGE EJ 1 Sp. z o.o. the prerequisites resulting from IFRS 5 Non-current Assets Held for Sale and Discontinued Operations were met, in particular the shares are, in the Company's opinion, available for immediate sale in their present condition subject only to the terms and conditions that are usual and customary for sale; therefore, as at 31 December 2020 the Company reclassified the shares in PGE EJ 1 Sp. z o.o. to fixed assets classified as assets held for sale. As at the balance sheet date, the Company carried out a fair value measurement of shares in PGE EJ 1 Sp. z o.o., which was estimated at PLN 53 136 thousand, based on information gathered in the course of the sale process of shares in PGE EJ 1 Sp. z o.o.

29. Equity

29.1. Issued capital

SELECTED ACCOUNTING PRINCIPLES

Issued capital

Reserve capital

Revaluation reserve from valuation of hedging instruments

Issued capital as at 31 December 2020

			53 136 thousand, based on information gathered in the course of the sale process of shares in PGE EJ 1 Sp. z o.o.
29.	Equity
	29.1.	Issued capital
		SELECTED ACCOUNTING PRINCIPLES
	Issued capital
	Company's court register.		In the financial statements, issued capital is presented at the amount specified in the articles of association and entered in the
	Reserve capital
			Supplementary capital is created, to which at least 8% of profit for each financial year is appropriated in order to offset the loss of the joint stock company, until its amount equals at least one-third of the issued capital.
			Revaluation reserve from valuation of hedging instruments
			Revaluation reserve arising from hedging instruments is related to the measurement of Interest Rate Swaps hedging interest rate risk of debt. Its amount is determined as the fair value of the effective portion of cash flow hedging instruments, including deferred tax.
		Issued capital as at 31 December 2020
	Class/ issue	Type of shares	Number of shares	Nominal value of one share (in PLN)	Value of class/issue at nominal value	Method of payment
	AA	bearer shares	1 589 438 762	5	7 947 194	cash/in-kind contribution
	BB	registered shares	163 110 632	5	815 553	in-kind contribution
Total			1 752 549 394		8 762 747
	since 31 December 2019. 29.2.	Major Shareholders	At 31 December 2020, the value of issued capital, the number of shares and the par value of the shares has not changed
			Shareholding structure as at 31 December 2020 (to the best of the Company's knowledge)	Nominal value of
		Shareholder	Number of shares	shares	% of issued capital	% of total vote*
State Treasury			526 848 384	2 634 242	30.06%	30.06%
	KGHM Polska Miedź S.A.	Nationale - Nederlanden Otwarty	182 110 566 88 742 929	910 553 443 715	10.39% 5.06%	10.39% 5.06%
Fundusz Emerytalny Other shareholders			954 847 515	4 774 237	54.49%	54.49%

29.2. Major Shareholders

Shareholding structure as at 31 December 2020 (to the best of the Company's knowledge)

Shareholder	Number of shares	Nominal value of
State Treasury	526 848 384	2 634 242	30.06%	30.06%
KGHM Polska Miedź S.A.	182 110 566	910 553	10.39%	10.39%
Nationale - Nederlanden Otwarty Fundusz Emerytalny	88 742 929	443 715	5.06%	5.06%
Other shareholders	954 847 515	4 774 237	54.49%	54.49%
Total	1 752 549 394	8 762 747	100%	100%

*The voting rights of the shareholders holding more than 10% of the total votes in the Company have been limited in such a manner that none of them is entitled to exercise the right to more than 10% of votes at the General Shareholders' Meeting of the Company. The limitation does not apply to the State Treasury and State Treasury owned companies in the period when the State Treasury and State Treasury owned companies hold shares in the Company entitling to not less then 25% of the total votes in the Company.

To the best of the Company's knowledge, the shareholding structure as at 31 December 2020 has not changed since 31 December 2019.

29.3. Reserve capital

On 15 July 2020, the Ordinary General Shareholders' Meeting of the Company adopted a resolution to cover the net loss for the financial year 2019 in the amount of PLN 462 830 thousand from the Company reserve capital.

29.4. Revaluation reserve from valuation of hedging instruments

	Year ended	Year ended
	31 December 2020	31 December 2019
Opening balance	15 666	3 371
Remeasurement of hedging instruments	(96 821)	15 074
Remeasurement of hedging instruments charged to profit or loss	(6 351)	105
Deferred income tax	19 603	(2 884)
Write-off of deferred tax assets	(10 968)	-
Closing balance	(78 871)	15 666

The revaluation reserve from valuation of hedging instruments results from valuation of Interest Rate Swaps (IRS) hedging the interest rate risk arising from debt, which has been discussed in more detail in Note 21 to these financial statements.

For concluded hedging transactions covered by the financial risk management policy, the Company applies hedge accounting.

As at 31 December 2020, the Company recognised the amount of PLN (67 903) thousand of revaluation reserve from valuation of hedging instruments. This amount represents the liability arising from the measurement of IRS instruments as at the end of the reporting period in the amount of PLN 90 061 thousand, adjusted by the portion of valuation relating to interest accrued on debt as at the end of the reporting period, including deferred tax.

Due to the recognition of the deferred tax asset in the financial statements only up to the amount of the deferred tax liability, as described in more detail in Note 22 to these financial statements, the revaluation reserve on hedging instruments was charged with the amount of PLN 10 967 thousand.

29.5. Retained earnings/ (Accumulated losses) and dividend limitation

Reserve capital — dividend limitation

	As at 31 December 2020	As at 31 December 2019
Amounts subject to distribution	4 886 520	4 886 520
Amounts from distribution of prior years profits	4 886 520	4 886 520
Non-distributable amounts	1 452 234	1 915 064
Decrease in the value of issued capital	1 217 354	1 680 184
Settlement of mergers with subsidiaries	234 880	234 880
Total reserve capital	6 338 754	6 801 584

The part of reserve capital in the amount of one third of the issued capital amounting to PLN 2 920 916 thousand can only be used to cover the loss disclosed in the financial statements.

Retained earnings/ (Accumulated losses) - dividend limitation

	As at	As at
	31 December 2020	31 December 2019
Distributable amounts or losses to be covered	(3 589 642)	(462 817)
Loss for the year ended 31 December 2020	(3 589 655)	-
Loss for the year ended 31 December 2019	-	(462 830)
Adjustment of prior years profit	13	13
Non-distributable/coverage amounts	(309 833)	(309 003)
Actuarial gains and losses on provisions for post-employment benefits	(1 800)	(970)
Effects of implementing IFRS 9 Finanical Instruments	(388 551)	(388 551)
Settlement of mergers with subsidiaries	80 518	80 518
Total retained earnings/ (accumulated losses)	(3 899 475)	(771 820)

The Management Board of the Company recommends to cover the net loss for 2020 in the amount of PLN 3 589 655 thousand from reserve capital of the Company.

30. Dividends paid and proposed for disbursement

In the year ended 31 December 2020 and the comparative period, the Company did not propose to pay or paid any dividends to the shareholders of the Company.

31. Debt

SELECTED ACCOUNTING PRINCIPLES

The Company presents its debt obligations in the statement of financial position:

• loans, borrowings, bonds issued

At initial recognition, all credits, loans and bonds issued are measured at fair value less the cost incurred to obtain a borrowings or loan as well as discounts or bonuses obtained due to the liability. After initial recognition interest-bearing loans and debt securities are measured at amortized cost using the effective interest method.

• lease

An agreement or part of a rental, lease or other agreement or part of an agreement of a similar nature under which the right to control the use of an asset (underlying asset) for a given period is transferred in exchange for remuneration is classified as a lease. The lease liability is measured at the present value of the outstanding lease payments, discounted at the lease interest rate specified in the agreement (if determinable) or the incremental borrowing rate. Lease payments included in the valuation of the lease liability include:

• fixed lease payments less any applicable lease incentives,
• variable lease payments that depend on an index or rate, valued initially using that index or rate at their starting date,
• the amounts expected to be paid by the lessee under the underlying asset's residual value guarantee,

• the exercise price of the call option, if it can be assumed that the lessee will exercise it,

• monetary penalties for termination of the lease.

PROFESSIONAL JUDGEMENT AND ESTIMATES

When measuring liabilities at amortized cost using the effective interest rate method, the Company estimates future cash flows considering all contractual terms of a given financial instrument, including the early repayment option. As at the reporting period end, early buy-back of bonds was included in the measurement of liabilities arising from issue of hybrid bonds under agreements concluded with the European Investment Bank and Bank Gospodarstwa Krajowego, in relation to the intention to buy back the bonds after the end of the first financing period.

In the case of a loan agreement defining the maximum term of individual loans tranches up to 1 year or with a repayment date at the end of the interest period, where the financing available under the agreement is revolving and the term of availability exceeds 1 year, the Company classifies the tranches according to the intention and ability of maintaining financing under the agreement, i.e. as longterm or short-term liabilities.

The lease incremental borrowing rate is estimated as a weighted average cost of TAURON Group's debt adjusted for the Company individual rating, taking into account a breakdown by lease term.

\
	As at	As at
	31 December 2020	31 December 2019
Long-term portion of debt
Unsubordinated bonds	4 550 767	3 544 236
Subordinated bonds	1 993 876	1 908 871
Bank loans	4 782 363	4 719 385
Loans from the subsidiary	768 185	708 831
Lease	22 103	28 274
Total	12 117 294	10 909 597
Short-term portion of debt
Unsubordinated bonds	200 518	86 808
Subordinated bonds	4 491	4 556
Bank loans	1 169 924	2 300 443
Loans from the subsidiary	2 309	2 125
Cash pool loans received	1 386 443	1 205 417
Lease	8 654	7 917
Total	2 772 339	3 607 266

31.1. Bonds issued

Bonds issued as at 31 December 2020

				Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU	(in PLN thousand)	TAURON Polska Energia S.A.
31.1.		Bonds issued
Bonds issued as at 31 December 2020										of which maturing within
Investor	Interest rate	Currency	Bonds at nominal	Maturity date		As at balance sheet date				(after the balance sheet date)
			value in currency		Total carrying amount	Accrued interest	Principal at amortized cost	up to 1 year	1-2 years	2 - 5 years	over 5 years
Bank Gospodarstwa Krajowego	floating, based on WIBOR 6M	PLN	800 000 630 000	2021-2028 2021-2029	799 393 630 105	448 342	798 945 629 763	99 953 69 990	99 917 69 983	299 607 209 924	299 468 279 866
A series bonds (TPE 1025)	floating, based on WIBOR 6M	PLN	1 000 000	30.10.2025	1 000 115	2 760	997 355	-	-	997 355	-
Eurobonds	fixed	EUR	500 000	5.07.2027	2 321 672	27 025	2 294 647	-	-	-	2 294 647
Unsubordinated bonds					4 751 285	30 575	4 720 710	169 943	169 900	1 506 886	2 873 981
Bank Gospodarstwa Krajowego	floating, based on WIBOR 6M	PLN	400 000	29.03.20312	400 026	559	399 467	-	-	-	399 467
European Investment Bank	fixed1	EUR	190 000	16.12.20342	864 530	1 767	862 763	-	-	862 763	-
		PLN PLN	400 000 350 000	17.12.20302 19.12.20302	391 458 342 353	1 243 922	390 215 341 431	- -	- -	390 215 341 431	- -
Subordinated bonds					1 998 367	4 491	1 993 876	-	-	1 594 409	399 467
Total bonds 1 In the case of hybrid (subordinated) financing - bonds subscribed for by the European Investment Bank, two periods are distinguished. In the first period, the interest rate is fixed, while in the second period the interest rate is variable based on the base rate (EURIBOR/WIBOR) plus a fixed margin. 2 In the case of subordinated bonds, the maturity date shall take into account two financing periods, as referred to below. The maturity dates presented in					6 749 652	35 066	6 714 586	169 943	169 900	3 101 295	3 273 448
the table above are the final terms of redemption according to agreement, after two period of financing. Measurement of bonds as at the end of the reporting period, includes earlier redemption, intention of bonds redemption is after end of first period of financing. Ageing takes into account estimation of redemption after first period of financing.
Bonds issued as at 31 December 2019
Investor	Interest rate	Currency	Bonds at nominal	Maturity date		As at balance sheet date			of which maturing within (after the balance sheet date)
			value in currency		Total carrying amount	Accrued interest	Principal at amortized cost	up to 1 year	1-2 years	2 - 5 years	over 5 years
Bank Gospodarstwa	floating, based on		800 000	2021-2028	799 551	856	798 695	-	99 906	299 568	399 221
Krajowego	WIBOR 6M	PLN	630 000	2021-2029	630 368	657	629 711	-	69 980	209 914	349 817
	floating, based on		3 100	25.03.2020	3 123	24	3 099	3 099	-	-	-
BNP Paribas Bank Polska S.A.1	WIBOR 6M		6 300	9.11.2020	6 323	27	6 296	6 296	-	-	-

Bonds issued as at 31 December 2019

Krajowego
(TPE 1025)	floating, based on WIBOR 6M
Krajowego	floating, based on WIBOR 6M
European Investment Bank	fixed1
					342 353	922	341 431	-	-	341 431	-
Subordinated bonds					1 998 367	4 491	1 993 876	-	-	1 594 409	399 467
Total bonds					6 749 652	35 066	6 714 586	169 943	169 900	3 101 295	3 273 448
In the case of subordinated bonds, the maturity date shall take into account two financing periods, as referred to below. The maturity dates presented in the table above are the final terms of redemption according to agreement, after two period of financing. Measurement of bonds as at the end of the reporting period, includes earlier redemption, intention of bonds redemption is after end of first period of financing. Ageing takes into account estimation of redemption after first period of financing. Bonds issued as at 31 December 2019
			Bonds at nominal			As at balance sheet date				of which maturing within (after the balance sheet date)
Investor	Interest rate	Currency	value in currency	Maturity date	Total carrying amount	Accrued
			800 000	2021-2028	799 551	856	798 695	-	99 906	299 568	399 221
Bank Gospodarstwa Krajowego	floating, based on	PLN
	WIBOR 6M		630 000	2021-2029	630 368	657	629 711	-	69 980	209 914	349 817
	floating, based on		3 100	25.03.2020	3 123	24	3 099	3 099	-	-	-
BNP Paribas Bank Polska S.A.1		PLN	6 300	9.11.2020	6 323	27	6 296	6 296	-	-	-
	WIBOR 6M		51 000	29.12.2020	50 979	13	50 966	50 966	-	-	-
Eurobonds	fixed	EUR	500 000	5.07.2027	2 140 700	24 870	2 115 830	-	-	-	2 115 830
Unsubordinated bonds					3 631 044	26 447	3 604 597	60 361	169 886	509 482	2 864 868
Bank Gospodarstwa Krajowego	floating, based on WIBOR 6M	PLN	400 000	29.03.20313	400 123	761	399 362	-	-	-	399 362
		EUR	190 000	16.12.20343	771 161	1 630	769 531	-	-	769 531	-
European Investment Bank	fixed2	PLN	400 000	17.12.20303	395 901	1 243	394 658	-	-	-	394 658
				19.12.20303	346 242	922	345 320	-	-	-	345 320
		PLN	350 000
Subordinated bonds					1 913 427	4 556	1 908 871	-	-	769 531	1 139 340
Total bonds					5 544 471	31 003	5 513 468	60 361	169 886	1 279 013	4 004 208
1 Bond issue Scheme dated 24 November 2015.

2 In the case of hybrid (subordinated) financing - bonds subscribed for by the European Investment Bank, two periods are distinguished. In the first period, the interest rate is fixed, while in the second period the interest rate is variable based on the base rate (EURIBOR/WIBOR) plus a fixed margin. 3 In the case of subordinated bonds, the maturity date shall take into account two financing periods, as referred to below. The maturity dates presented in the table above are the final terms of redemption according to agreement, after two period of financing. Measurement of bonds as at the end of the reporting period, includes earlier redemption, intention of bonds redemption is after end of first period of financing. Ageing takes into account estimation of

redemption after first period of financing.

The bonds issued by the Company are unsecured coupon bonds. The bonds were issued at the par value, except for Eurobonds with the issue price accounting for 99.44% of the par value. The Eurobonds were admitted to trading on the regulated market of the London Stock Exchange.

Bonds subscribed by the European Investment Bank ("EIB") are subordinated, which means that they have priority of satisfaction only before the amounts due to the Company's shareholders in the event of its bankruptcy or liquidation. This in turn positively affects Company's financial stability, since the bonds are excluded from the net debt / EBITDA ratio calculation, a covenant in some financing agreements concluded by the Company. Additionally, 50% of the subordinated bond amount has been classified by the rating agency as equity in the rating model, which has had a beneficial effect on the rating of the TAURON Group.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

In the case of bonds subscribed for by the European Investment Bank, two financing periods are distinguished. The Company cannot early buy-back the bonds in the first (non-call) period, nor can EIB early sell them to third parties (in both cases except for cases indicated in the subscription agreement). In this period, the interest is fixed, while after the non-call period, it is floating and refers to the base rate (WIBOR for bonds issued in PLN and EURIBOR for bonds issued in EUR) increased by a determined margin. In the case of bonds issued in PLN, the maturity date was set at 12 years from the issue date, i.e. 17 and 19 December 2030, with the first financing period defined as 7 years and the next one as 5 years in accordance with the characteristics of hybrid financing. In the case of bonds issued in EUR, the maturity date is set at 18 years from the issue date, i.e 16 December 2034, with the first financing period defined as 8 years and the next one as 10 years in accordance with the characteristics of hybrid financing.

The bonds issued under the agreement of 6 September 2017 concluded with Bank Gospodarstwa Krajowego with a par value of PLN 400 000 thousand are also of a subordinated nature. For these bonds, two periods are also distinguished. The Company cannot early buy-back the bonds in the first 7-year period (non-call) period, nor can BGK early sell them to third parties (in both cases except for cases indicated in the documentation). The interest rate is variable based on WIBOR 6M increased by a fixed margin, with the margin being further increased after a 7-year financing period.

Changes in the balance of bonds, excluding interest increasing their carrying amount, in the year ended 31 December 2020 and in the comparative period, have been presented in below table. The change in the valuation of the bonds is mainly due to the currency valuation of the liabilities contracted in EUR.

	Year ended	Year ended
	31 December 2020	31 December 2019
Opening balance	5 513 468	9 317 854
Issue*	997 318	499 312
Redemption	(60 400)	(2 420 000)
Replacing the bond issue scheme by the loan arrangement	-	(1 839 600)
Measurement change	264 200	(44 098)
Closing balance	6 714 586	5 513 468

		Year ended		Year ended
		31 December 2020		31 December 2019
Opening balance			5 513 468	9 317 854
Issue*			997 318	499 312
Redemption			(60 400)	(2 420 000)
	Replacing the bond issue scheme by the loan arrangement		-	(1 839 600)
Measurement change			264 200	(44 098)
Closing balance			6 714 586	5 513 468
*Costs of issue have been included.
	In the year ended 31 December 2020, the Company carried out the following bond issue and redemption transactions:
			Year ended
		Date of issue/		31 December 2020
Agreement/ Scheme	Description	Date of redemption	Par value of issue	Redemption
		25.03.2020		(3 100)
BNP Paribas Bank Polska	Redemption of bonds according to maturity	9.11.2020		(6 300)
S.A.	date	29.12.2020		(51 000)
A series bonds (TPE 1025)	Issue of bonds in the total nominal amount of PLN 1 000 000 thousand under the Scheme Agreement with Santander Bank Polska S.A. of 6 February 2020	30.10.2020	1 000 000	-

Establishment of a bond issue scheme (A series bonds – TPE 1025)

On 6 February 2020, TAURON Polska Energia S.A. concluded a programme agreement with Santander Bank Polska S.A. under which a bond issue scheme was established (the "Scheme") up to PLN 2 000 000 thousand. Funds from the bond issue will support the implementation of the Group's energy transformation, including increasing the share of lowand zero-carbon sources in its productions structure.

On 30 October 2020, under the Scheme, the Company issued bonds in the total nominal amount of PLN 1 000 000 thousand. The bonds are unsecured bearer securities, denominated in PLN, with a maturity of 5 years. The Bonds have been listed in the alternative trading system Catalyst operated by the Warsaw Stock Exchange since 19 January 2021.

The terms and conditions of the bond issue include sustainability indicators in the form of the CO2 emission reduction rate and a RES capacity expansion rate, the achievement of which determined the level of the bond margin.

New subordinated bond issue scheme

31.2. Bank loans

31.2.	New subordinated bond issue scheme After the end of the reporting period, on 11 March 2021, TAURON Polska Energia S.A. concluded the agreement with Bank Gospodarstwa Krajowego on the new scheme for the issue of subordinated bonds up to PLN 450 000 thousand, as described in detail in Note 52 of these financial statements.
	Bank loans
Borrowing institution	Purpose	Interest rate	Maturity date	As at 31 December 2020	As at 31 December 2019
			28.06.2020 3	-	1 839 159
			02.09.2020 3	-	151 376
			10.09.2020 3	-	302 555
			01.10.2020 3	-	604 070
			14.10.2020 3	-	301 714
			31.01.2020 30.04.2020	- -	502 358 502 330
Consortium of	Redemption of bonds, investment and		28.02.2020	-	501 195
banks I 1	Group's general expenditures	floating	13.01.2020	-	600 868
			14.04.2021 3	601 673	-
			30.04.2021 3	200 429	-
			29.06.2021 3	1 099 541	-
			10.09.2021 3 25.01.2021	100 366 300 100	- -
			28.01.2021	600 089	-
			29.01.2021	100 007	-
Bank Gospodarstwa Krajowego	Group's capital expenditures and refinancing of a portion of debt	floating	20.12.2033	998 232	998 458
	Construction of a boiler fired with biomass at Jaworzno III Power Plant and renovation of a steam turbine	fixed	15.12.2021	20 354	40 047
	Construction and start-up of a co generation unit at EC Bielsko Biała	fixed	15.12.2021	29 105	57 294
European Investment		fixed	15.06.2024	137 682	175 298
Bank	Modernization and extension of power	fixed	15.09.2024	72 151	89 820
	grid	fixed	15.09.2024	90 440	112 661
	Modernization and extension of power grid and improvement of hydropower plants	fixed	15.03.2027	190 532	219 415
				250 832	-
Intesa Sanpaolo	Group's investment expenditure, except
S.p.A.	for financing or refinancing projects related to coal assets	floating	19.12.2024	250 758	-
				250 526	-
SMBC BANK EU AG	Group's general corporate expenses, excluding financing and refinancing of coal-fired power plants	fixed	23.03.2025	498 860	-
Consortium of banks II 2	Group's general corporate expenses, excluding financing of any new coal assets-related projects	floating	10.03.2021 3	160 610	-
Bank Gospodarstwa Krajowego (bank overdrafts)	Financing of CO2 emission allowance, electricity and gas transactions on european stock exchanges	floating	30.12.2021	-	20 456
mBank (bank overdrafts)	Financing of performance bonds and commodity transactions	floating	31.03.2020	-	754

2 Consortium of banks II consists of Intesa Sanpaolo S.p.A. acting through Intesa Sanpaolo S.p.A. S.A. Branch in Poland and China Construction Bank (Europe) S.A. acting through China Construction Bank (Europe) S.A. (Joint Stock Company) Branch in Poland.

3 Tranche classified as a long-term liability Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Pursuant to the provisions of the loan agreement of 19 June 2019 concluded with the bank consortium (Consortium of banks I), the maximum period for drawing individual loan tranches is 12 months. The financing available under the agreement is renewable and the deadline for its availability is end 2022. Due to the intention and ability to maintain financing under the said agreement for a period exceeding 12 months from the balance sheet date, tranches with the total nominal value of PLN 2 000 000 thousand are presented as a long-term liability as at the balance sheet date. Tranches with a total nominal value of PLN 1 000 000 thousand are classified as current liabilities as at 31 December 2020.

Likewise, the syndicated loan taken out under the agreement of 25 March 2020 (Consortium of Banks II) is of revolving nature. The Company may raise financing against available financing with a selected interest period. Under the agreement, the repayment occurs at the end of the interest period, whereas the Company has the option to re-borrow. Due to the intention and ability to maintain financing under the said agreement for a period exceeding 12 months from the balance sheet date, the drawdown used is classified as a long-term liability as of the balance sheet date.

Loan Agreement with SMBC BANK EU AG

On 16 March 2020, TAURON Polska Energia S.A. concluded a loan agreement with SMBC BANK EU AG for the amount of PLN 500 000 thousand, the funds from which are used to finance the general corporate purposes of the Group, excluding the construction, acquisition, expansion of coal-fired power plants and refinancing of any financial liabilities contracted or expenses incurred for such purposes. On 23 March 2020, the Company drew down funds under the said agreement in the amount of PLN 500 000 thousand.

Syndicated loan agreement (Consortium of banks II)

On 25 March 2020, TAURON Polska Energia S.A. concluded a syndicated loan agreement for the amount of PLN 500 000 thousand with Banca IMI S.P.A., London Branch, Banca IMI S.A.P., Intesa Sanpaolo S.P.A. acting through intermediation of Intesa Sanpaolo S.P.A. S.A. Branch in Poland and China Construction Bank (Europe) S.A. acting through intermediation of China Construction Bank (Europe) S.A. Branch in Poland.

The funds of the loan agreement are intended to finance general corporate purposes of the Company and the TAURON Group, excluding the financing of any new projects related to coal assets.

Pursuant to the loan agreement, the financing period is 5 years from the date of conclusion of the loan agreement with a possibility of two one-year extensions, i.e. up to a maximum of 7 years. The interest rate is calculated on the basis of a variable WIBOR interest rate, appropriate to the interest period in question, plus a margin which depends, among others, on the extent to which the loan is used and the fulfilment of pro-ecological contractual conditions, i.e. reduction of emissions and increasing the share of renewable energy sources in the TAURON Group's generation structure.

On 10 September 2020, the Company drew down funds under the said agreement in the amount of PLN 160 000 thousand.

Changes in the balance of and loans, excluding interest increasing their carrying amount, in the year ended 31 December 2020 and in the comparative period, are presented in the table below.

	Year ended	Year ended
	31 December 2020	31 December 2019
Opening balance	6 996 963	846 751
Movement in bank overdrafts	(21 210)	20 443
Movement in loans (excluding bank overdrafts):	(1 035 307)	6 129 769
Repaid	(9 451 918)	(1 362 318)
Taken*	8 403 709	5 646 173
Replacing the bond issue scheme by the loan arrangement	-	1 837 822
Change in valuation	12 902	8 092
Closing balance	5 940 446	6 996 963
Interest increasing the carrying amount	11 841	22 865
Total bank loans	5 952 287	7 019 828

* Inclusive of the borrowing costs

In the year ended 31 December 2020, the Company carried out the following transactions relating to bank loans (at a nominal value), excluding overdraft facilities:

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

		(in PLN thousand)
--	--	-------------------

		Year ended 31 December 2020
Lender	Description	Drawdown	Repayment
Consortium of banks I	Drawdown of new tranches and repayment of tranches		(9 289 600)
	according to maturity date	7 000 000
Intesa Sanpaolo S.p.A.	Drawdown of 3 tranches of PLN 250 000 thousand each
	(total available financing)	750 000
SMBC BANK EU AG	Drawdown of total of available financing	500 000
Consortium of banks II	First tranche drawdown	160 000
European Investment Bank	Repayment of capital instalments according to schedule		(162 318)
Total, including:		8 410 000	(9 451 918)
Cash flows		3 360 000	(4 401 918)
Net settlement (without cash flow)		5 050 000	(5 050 000)

After the end of the reporting period, under the agreement of 19 June 2019 (Consortium of Banks I), the Company has drawn tranches with a total nominal value of PLN 1 750 000 thousand and repaid tranches in accordance with the repayment schedule in the aggregate amount of PLN 2 300 000 thousand.

Bank overdrafts

The Company has available financing under current account overdraft facilities. As at 31 December 2020, the Company had no overdrafts liabilities (PLN 21 210 thousand as at 31 December 2019).

31.3. Debt agreement covenants

The agreements signed by the Company with the banks include legal and financial covenants which are commonly used in such transactions. The key covenant is the net debt to EBITDA ratio (for long-term loans agreements and domestic bond issue schemes) which sets the debt less cash in relation to generated EBITDA. The maximum permissible value of the net debt/EBITDA ratio is 3.5 calculated on the basis of consolidated data as at 30 June and 31 December.

As at 31 December 2020, the net debt/EBITDA ratio was 2.51 thus, the covenant was not exceeded.

31.4. Loans from subsidiary

As at 31 December 2019, the carrying amount of the liability to the subsidiary Finanse Grupa TAURON Sp. z o.o. on account of the loan received was PLN 770 494 thousand (EUR 166 961 thousand), including interest accrued as at the balance sheet date of PLN 2 309 thousand (EUR 500 thousand). As at 31 December 2018, the carrying amount of the loan from the subsidiary was PLN 710 956 thousand (EUR 166 950 thousand), including interest of PLN 2 125 thousand (EUR 499 thousand) accrued as at the end of the reporting period.

The Company's liability is a long-term loan granted under an agreement entered into in December 2014 by TAURON Polska Energia S.A. and a subsidiary - TAURON Sweden Energy AB (publ) (currently Finanse Grupa TAURON Sp. z o.o.). The loan bears interest at a fixed rate and interest is paid annually, in December - until full repayment of the loan. The loan repayment date under the agreement is 29 November 2029.

31.5. Loans received under the cash pool service

The balances of liabilities arising from cash pool transactions have been presented in the table below.

	As at	As at
	31 December 2020	31 December 2019
Liabilities from cash pool transactions	1 386 443	1 204 453
Interest liabilities from cash pool transactions	-	964
Total, of which:	1 386 443	1 205 417
Current	1 386 443	1 205 417

At the same time, the Company has receivables arising from cash pool transactions, as presented in Note 20.3 of these financial statements.

The cash surplus raised by the Company under the cash pool agreement is invested in interest-bearing bank accounts.

31.6. Lease liabilities

As at 31 December 2020, the Company had a lease liability of PLN 30 757 thousand. The liability concerns the right of perpetual usufruct of land, lease of office and warehouse premises, parking spaces and cars.

Ageing of the lease liability

Maturity within (after the balance sheet date)	As at 31 December 2020	As at 31 December 2019
Within 1 year	9 502	9 339
Within 1 to 5 years	21 318	29 116
Within 5 to 10 years	411	331
Within 10 to 20 years	822	662
More than 20 years	4 088	3 356
Gross lease liabilities	36 141	42 804
Discount	(5 384)	(6 613)
Present value of lease payments	30 757	36 191

32. Other financial liabilities

SELECTED ACCOUNTING PRINCIPLES

Other financial liabilities include Tax Capital Group settlements, payroll liabilities, deposits, performance bonds, collateral received and liabilities arising from purchases of property, plant and equipment and intangible assets, measured at amount due since the discount effects are immaterial.

	As at 31 December 2020	As at 31 December 2019
Liabilities arising from income tax settlements of the TCG companies	91 106	212 598
Margin deposits arising from stock exchange transactions	73 221	104
Bid bonds, deposits and collateral received	25 331	16 164
Measurement of financial guarantee	28 184	15 265
Commissions related to borrowings	4 999	7 564
Wages and salaries as well as other employee related liabilities	7 387	7 571
Other	16 961	28 604
Total	247 189	287 870
Non-current	14 090	15 126
Current	233 099	272 744

The value of margin deposits is related mostly to futures transactions in CO2 emission allowances concluded on foreign regulated markets. The change in the value of margin deposits to the comparable period results mainly from the significant increase in the price of allowances, while taking into account the number of exchange contracts open as at the balance sheet date. The margin deposits represented funds received by the Company on account of current exchange clearing, in connection with the change in the valuation of the concluded futures contracts open as at the balance sheet date.

Liabilities due to income tax settlements of the Tax Capital Group are described in more detail in Note 15.3 to these financial statements.

33. Liabilities to suppliers

SELECTED ACCOUNTING PRINCIPLES

Current liabilities to suppliers are recognised at the amount due.

As at 31 December 2020, the highest balance of liabilities to suppliers were liabilities towards subsidiaries, Nowe Jaworzno Grupa TAURON Sp. z o.o., TAURON Sprzedaż Sp. z o.o. and TAURON Wydobycie S.A. and amounted to PLN 162 665 thousand, PLN 143 459 thousand and PLN 94 459 thousand respectively.

As at 31 December 2019, the highest balance of liabilities to suppliers were liabilities towards subsidiaries, TAURON Sprzedaż Sp. z o.o. and TAURON Wytwarzanie S.A. and towards the state-owned Polska Grupa Górnicza S.A. and amounted to PLN 150 454 thousand, PLN 51 887 thousand and PLN 43 517 thousand respectively.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

34. Other non-financial liabilities

SELECTED ACCOUNTING PRINCIPLES

Other non-financial liabilities include, in particular, liabilities on account of advances received which are settled by the delivery of goods as well as liabilities arising from taxes and charges, which include:

• VAT settlements;
• Personal income tax and social security settlements;
• Environmental fees and other regulatory settlements.

	As at	As at
	31 December 2020	31 December 2019
Advances received for deliveries	355 403	-
VAT	7 655	215 605
Social security	5 341	5 200
Personal Income Tax	1 856	2 186
Other	46	44
Total	370 301	223 035
Non-current	23 830	-
Current	346 471	223 035

Under the advances received for supplies, the Company presents advances received from a subsidiary TAURON Wytwarzanie S.A. for the delivery of CO2 emission allowances resulting from transaction agreements.

35. Provisions for employee benefits

SELECTED ACCOUNTING PRINCIPLES

• retirement and disability benefits paid on a one-off basis, when an employee retires or is vested with the right to receive disability benefits;
• death benefits;
• benefits from the Company's Social Benefit Fund.

PROFESSIONAL JUDGEMENT AND ESTIMATES

The decrease in VAT liabilities results mainly from the settlement in the first quarter of 2020 of a VAT liability as at 31 December 2019 in the amount of PLN 160 528 thousand resulting from the disposal of CO2 emission allowances by the Company to subsidiaries TAURON Wytwarzanie S.A. and TAURON Ciepło Sp. z o.o.
35. Provisions for employee benefits
SELECTED ACCOUNTING PRINCIPLES
In accordance with the Compensation Policy the employees of the Company are entitled to the following post-employment benefits:
• retirement and disability benefits — paid on a one-off basis, when an employee retires or is vested with the right to receive disability benefits; • death benefits; • benefits from the Company's Social Benefit Fund.
The present value of such liabilities is calculated by an independent actuary at the end of each reporting period. The accrued liabilities are equal to discounted future payments, including employee turnover, and pertain to the time remaining until the end of the reporting period. Demographic and employee turnover data are based on historical information.
Actuarial gains and losses on post-employment benefits are fully charged to other comprehensive income.
PROFESSIONAL JUDGEMENT AND ESTIMATES
Provisions for post-employment benefits have been estimated using actuarial methods. Key actuarial assumptions made as at the end of the reporting period for provision calculation purposes:
	31 December 2020	31 December 2019
Discount rate (%)	1.20%	2.10%
Estimated inflation rate (%)	2.50%	2.50%
Employee rotation rate (%)	8.79%	8.98%
Estimated salary increase rate (%)	2.50%	2.50%
Estimated electricity price increase rate (%)	-	3.50%
Estimated increase rate for contribution to the Social Fund (%)	3.50%	3.50%
Remaining average employment period	21.62	22.67

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Change in provisions for employee benefits for the year ended 31 December 2020

	Provision for retirement, disability and similar benefits	Employee electricity rates	Social Fund	Provisions, total
Opening balance	3 274	2 695	252	6 221
Current service costs	815	238	55	1 108
Actuarial gains and losses, of which :	206	672	146	1 024
arising from changes in financial assumptions	390	736	91	1 217
arising from other changes	(184)	(64)	55	(193)
Benefits paid	(180)	-	(2)	(182)
Costs of past employment	-	(3 627)	-	(3 627)
Interest expense	63	22	5	90
Closing balance	4 178	-	456	4 634
Non-current	3 755	-	453	4 208
Current	423	-	3	426

Change in provisions for employee benefits for the year ended 31 December 2019

		Provision for retirement, disability and similar benefits	Employee electricity rates	Social Fund	Provisions, total
Opening balance		2 389	1 502	141	4 032
Current service costs		410	265	25	700
Actuarial gains and losses, of which :		410	895	83	1 388
arising from changes in financial assumptions		299	523	48	870
arising from other changes		111	372	35	518
Benefits paid		-	(12)	(1)	(13)
Interest expense		65	45	4	114
Closing balance		3 274	2 695	252	6 221
Non-current		2 995	2 684	250	5 929
Current		279	11	2	292
Sensitivity analysis A sensitivity analysis of measurement results as at 31 December 2019 to changes in key actuarial assumptions by 0.5 percentage point has been presented below:	Measurement as at	Financial discount rate			Planned increases in base
Provision	31 December 2020	-0.5 p.p.	+0.5 p.p.	-0.5 p.p.	amount +0.5 p.p.
Provision for retirement, disability and	4 178	4 423	3 955	3 961	4 413
similar benefits
Social Fund	456	518	401	402	516

Sensitivity analysis

Provision	Measurement as at	Financial discount rate		Planned increases in base amount
	31 December 2020
Provision for retirement, disability and similar benefits	4 178	4 423	3 955	3 961	4 413
Social Fund	456	518	401	402	516
Total	4 634	4 941	4 356	4 363	4 929

36. Provision for onerous contract

SELECTED ACCOUNTING PRINCIPLES

Provision for onerous contract

The Company creates the provision for the onerous contract because it is a party to the contract pursuant to which unavoidable costs of fulfilling the obligation outweigh the benefits will be obtained under it. The present obligation resulting from such an agreement is recognized by the Company and measured as a provision.

The unavoidable costs arising from the contract comprise, at least, net costs of contract termination, corresponding to the costs of fulfilment of the contract or costs of any damages or penalties arising for the failure to fulfil it, whichever is lower. The unavoidable costs of meeting the obligation shall be increased by the value of the interest due if it can be estimated reliably.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

As at 31 December 2020, the Company recognised the provision for the onerous contract in the amount of PLN 1 109 897 thousand (of which the current portion amounts to PLN 269 439 thousand), resulting from the effects of a multi-annual agreement for the purchase of electricity generated in the 910 MW unit in Jaworzno by the Company from its the subsidiary, Nowe Jaworzno Grupa TAURON Sp. z o.o. (hereafter referred to as: the "Agreement"). The Agreement was concluded in 2018 and is part of the transaction documentation related to the investment of the Closed End Investment Funds managed by Polski Fundusz Rozwoju S.A. in the company Nowe Jaworzno Grupa TAURON Sp. z o.o. (at the time of singing the project implementing the 910 MW power unit in Jaworzno. The Company and Nowe Jaworzno Grupa TAURON Sp. z o.o. concluded an advance pricing agreement (the so-called APA) with the tax authority regarding the principles adopted in the Agreement for determining prices of electricity generated by the 910 MW unit and sold to the Company, which was approved in 2018 by the decision of the Head of the National Revenue Administration. On 13 November 2020, the 910 MW unit was put into operation.

The provision created in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets was calculated assuming the purchase by the Company from the company Nowe Jaworzno Grupa TAURON sp. z o.o. of the volume of electricity generated by the 910 MW unit at prices specified in the Agreement. The calculation of the provision was based on the difference between the purchase price of electricity purchased from Nowe Jaworzno Grupa TAURON Sp. z o.o. in the cost-plus formula enabling the company Nowe Jaworzno Grupa TAURON Sp. z o.o. to achieve the determined return on assets and the selling price of electricity to the subsidiaries, TAURON Sprzedaż Sp. z o.o. and TAURON Sprzedaż GZE Sp. z o.o. The average annual volume of electricity purchased from Nowe Jaworzno by the TAURON Group was estimated at a level of 7 TWh.

The sales price was calculated on the basis of the following detailed assumptions:

• the calculation of the price for 2021-2023 was based on the contracting status as at the time of developing the assumptions for the Company financial plan,
• the volume for the above three years is profiled on an hourly basis and measured based on, among other things, BASE and PEAK price, SPOT market, profile risk, unbalancing risk, trading costs, implied spread and other portfolio assumptions to the best of the company knowledge,
• the open position price for 2021 was calculated based on medium-term energy price paths,
• the price for the 2022 and 2023 open position was calculated based on sectoral energy price paths,
• the price for 2024-2030 takes into account the profiling but is treated entirely as an open position,
• the price for 2031-2060 was calculated based on the BASE electricity market price path adjusted by the average level of BASE and PEAK customer profiling for 2021-2030.

Sensitivity analysis

	the volume for the above three years is profiled on an hourly basis and measured based on, among other things, BASE and PEAK price, SPOT market, profile risk, unbalancing risk, trading costs, implied spread and other portfolio assumptions to the best of the company knowledge,
	the open position price for 2021 was calculated based on medium-term energy price paths,
		the price for the 2022 and 2023 open position was calculated based on sectoral energy price paths,
		the price for 2024-2030 takes into account the profiling but is treated entirely as an open position,
 the price for 2031-2060 was calculated based on the BASE electricity market price path adjusted by the average level of BASE and PEAK customer profiling for 2021-2030.
appropriately in order to achieve the profitability of assets of Nowe Jaworzno Grupa TAURON sp.z o.o. as specified in
the Agreement. The assumptions underlying the determination of the cost of electricity generation in terms of the prices of CO2 emission allowances, coal prices and the capacity market are consistent with those adopted for asset impairment tests and are described in Note 10 to these financial statements. The provision was calculated over the term of the agreement, i.e. 40 years, covering the years 2021-2060.
Sensitivity analysis A sensitivity analysis of the provision for onerous contract for profiling of key factors is presented in the table below: Parameter		Change		Impact on the value of provision
			Increase	Decrease
Change of electricity prices in the forecast period		+1%		1 109 897
		-1%	(1 711 555)
Change of CO2 emission allowances prices in the forecast period		+1% -1%	(220 737)	220 737
		+1%	(154 293)
Change of coal prices in the forecast period		-1%		154 293

37. Other provisions

SELECTED ACCOUNTING PRINCIPLES

Provisions are recognised if the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated.

As at the end of the reporting period, the Company recognized a provision against the risk of an adverse decision arising from the pending inspection procedure and the provision for recourse claims against the Company.

	Year ended 31 December 2020	Year ended 31 December 2019
Opening balance	77 094	72 894
Recognision	7 281	4 200
Reversal	(24 732)	-
Utilisation	(54 734)	-
Closing balance	4 909	77 094
Current	4 909	77 094

In the current reporting period and in the comparable period, the Company updated provisions for tax risks due to the control proceedings instigated in 2014 and 2016 by the Director of the Tax Inspection Office in Warsaw ("Director of the TIO"). The duration of these proceedings was several times extended by the TIO Director and by the Head of Mazowiecki Customs and Tax Office.

On 17 September 2020, the Head of the Mazowiecki Customs and Tax Office in Warsaw issued a decision terminating the control proceedings initiated in 2014, which was received on 7 October 2020. Therefore, the Company revaluated the provision accordingly:

• the provision of PLN 54 734 thousand was used in connection with the determination of the liability;
• the provision of PLN 24 497 thousand was released in the scope of interest accrued.

The payment of the liability in the total amount of PLN 54 734 thousand (of which PLN 51 819 thousand was the principal and PLN 2 915 thousand was the interest due until the date the proceedings were initiated) was made in October 2020. At the same time, on 20 October 2020, the Company filed an appeal against the decision of the Head of the Mazowiecki Customs and Tax Office in Warsaw of 17 September 2020. The appeal, together with the case files was forwarded to the second instance authority, i.e. the Director of the Revenue Administration Chamber in Katowice. On 18 December 2020 the Director of the Revenue Administration Chamber in Katowice had issued a decision setting a new deadline for the conclusion of the appeal proceedings. The new deadline was set for 15 April 2021.

As regards the control proceedings initiated in 2016, in November 2020 the Company received the result of the control, i.e. a document ending the control proceedings, in which no irregularities were found as regards the subject matter of the control. The Company did not create provisions for the effects of these proceedings.

As regards the next control proceedings initiated in 2016, after the end of the reporting period, on 15 January 2021, the Head of the Mazowiecki Customs and Tax Office in Warsaw issued a decision ending the control proceedings. On 3 February 2021, the Company paid the amount of the liability covered by the decision including interest in the total amount of PLN 798 thousand.

38. Accruals, deferred income and government grants

	As at	As at
	31 December 2020	31 December 2019
Bonuses	8 178	8 006
Unused holidays	3 019	2 689
Other	7 547	6 161
Total	18 744	16 856
Non-current	1 184	-
Current	17 560	16 856

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

EXPLANATORY NOTE TO THE STATEMENT OF CASH FLOWS

SELECTED ACCOUNTING PRINCIPLES

The statement on cash flows is prepared according to the indirect method.

39. Significant items of the statement of cash flows

39.1. Cash flows from operating activities

Change in working capital

	Year ended	Year ended
	31 December 2020	31 December 2019
Change in receivables	395 753	(777 570)
Change in inventories	(244 667)	260 223
Change in payables excluding loans	553 961	(121 826)
Change in other non-current and current assets	(3 356)	942
Change in deferred income, government grants and accruals	1 888	152
Change in provisions	1 035 101	5 001
Change in working capital	1 738 680	(633 078)

39.2. Cash flows from investing activities

Loans granted

The granting of loans in the amount of PLN 1 933 932 thousand included:

• granting a loan to the subsidiaries:
  • TAURON Wydobycie S.A. in the amount of PLN 898 354 thousand;
  • TAURON Wytwarzanie S.A. in the amount of PLN 500 000 thousand;
  • TAURON Dystrybucja S.A. in the amount of PLN 250 000 thousand;
  • TAURON Sprzedaż Sp. z o.o in the amount of PLN 100 000 thousand;
  • TEC 1 Sp. z o.o. EW Śniatowo sp. k. in the amount of PLN 34 000 thousand;
  • TAURON Serwis Sp. z o.o in the amount of PLN 11 000 thousand;
  • AVAL -1 Sp. z o.o in the amount of PLN 9 300 thousand;
• granting tranches of a loan to the jointly controlled entity, Elektrociepłownia Stalowa Wola S.A. in the total amount of PLN 94 775 thousand;
• granting a loan to the subsidiary, PGE EJ1 Sp. z o.o in the amount of PLN 10 500 thousand;
• change of the balance of loans granted to subsidiaries under the long-term cash pool agreement in the amount of PLN 26 003 thousand.

Acquisition of shares

Payments to acquire shares of PLN 690 623 thousand were related to the Company's transfer of funds to increase the capital of the following companies:

• Nowe Jaworzno Grupa TAURON Sp. z o.o. in the amount of PLN 645 100 thousand;
• PGE EJ1 Sp. z o.o in the amount of PLN 18 858 thousand;
• EEC Magenta Sp. z o.o. 2 ASI spółka komandytowo-akcyjna in the amount of PLN 8 166 thousand;
• EEC Magenta Sp. z o.o. ASI spółka komandytowo-akcyjna in the amount of PLN 773 thousand;

and capital contribution to Polska Energia – Pierwsza Kompania Handlowa Sp. z o.o. of PLN 17 616 thousand and Marselwind Sp. z o.o. of PLN 110 thousand.

Repayment of loans granted

Repayment of loans granted in the amount of PLN 216 558 thousand related mainly to repayment of the loan granted to the subsidiary, TAURON Wytwarzanie in the amount of PLN 200 000 thousand.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Interest received

	Year ended 31 December 2020	Year ended 31 December 2019
Interest received in relation to debt securities	-	334 996
Interest received in relation to loans granted	226 638	320
Total	226 638	335 316

39.3. Cash flows from financing activities

Loans repaid

Expenditure on repayment of loans related to repayment by the Company in the year ended 31 December 2020:

• tranches of loans to the consortium of banks (Consortium of banks I) in the amount of PLN 4 239 600 thousand;
• instalments of the loan to the European Investment Bank in the amount of PLN 162 318 thousand.

Interest paid

	Year ended	Year ended
	31 December 2020	31 December 2019
Interest paid in relation to loans	(205 710)	(114 878)
Interest paid in relation to debt securities	(173 850)	(290 531)
Interest paid in relation to the lease	(311)	(400)
Other interest	-	(72)
Total	(379 871)	(405 881)

Loans taken

Proceeds from loans in the amount of PLN 3 360 000 thousand in the year ended 31 December 2020 related to the drawdown of:

• tranches of the loan under the agreement concluded with the consortium of banks (Consortium of banks I) in the amount of PLN 1 950 000 thousand;
• all available financing under the loan agreement concluded with Intesa Sanpaolo S.p.A. bank, acting through Intesa Sanpaolo S.p.A. S.A. Branch in Poland, in the amount of PLN 750 000 thousand;
• all available financing under the loan agreement concluded with SMBC BANK EU AG in the amount of PLN 500 000 thousand;
• a tranche of a loan in the amount of PLN 160 000 thousand under the syndicated loan agreement of 25 March 2020 (Consortium of banks II), as described in more detail in Note 31.2 to these financial statements.

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

40. Financial instruments

SELECTED ACCOUNTING PRINCIPLES

Financial assets held by the Company under IFRS 9 Financial Instruments are classified into the following classes of financial instruments:

• financial assets measured at amortised cost
• financial assets measured at a fair value through profit or loss,

As at the balance sheet date, the Company had no financial assets measured at a fair value through other comprehensive income.

Pursuant to IFRS 9 Financial Instruments, financial assets are classified upon initial recognition based on cash flow characteristics (SPPI test) and a business model underlying the management of a given financial asset.

The above equity instruments are measured at fair value through profit or loss in line with IFRS 9 Financial Instruments.

The Company divides the liabilities into the following classes:

• financial liabilities measured at a fair value through profit or loss,
• other financial liabilities, measured at amortised cost at each subsequent balance sheet date at amortised cost.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

PROFESSIONAL JUDGEMENT AND ESTIMATES

The Company makes judgements regarding classification of financial instruments.

As at each reporting period end, the Company measures the fair value of assets and liabilities classified as measured at fair value and discloses the fair value of other financial instruments. The methodology fair value measurement is presented below. The Company recognizes an impairment loss upon initial recognition of a financial asset and then remeasures the loss amount as at each reporting day. The Company recognises the allowance for expected credit losses on financial assets measured at amortized cost includes mostly receivables from buyers and loans granted. The measurement methodology is presented in Notes 26 and 41.1.2. hereof.

40.1. Carrying amount and fair value of financial instrument classes and categories

	As at 31 December 2020		As at 31 December 2019
Categories and classes of financial assets	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
1 Financial assets measured at amortized cost	6 632 136	6 632 136	6 569 821	6 569 821
Receivables from buyers	1 301 409	1 301 409	1 472 462	1 472 462
Loans granted under cash pool agreement	278 715	278 715	475 178	475 178
Other loans granted	5 029 713	5 029 713	4 621 558	4 621 558
Other financial receivables	22 299	22 299	623	623
2 Financial assets measured at fair value through profit or loss (FVTPL)	1 027 536	1 027 536	1 592 623	1 592 623
Derivative instruments	158 846	158 846	86 067	86 067
Long-term shares	32 352	32 352	48 136	48 136
Shares classified as non-current assets held for sale	53 136	53 136	-	-
Loans granted	72 523	72 523	216 018	216 018
Other financial receivables	67 545	67 545	292 052	292 052
Investment fund units	-	-	26 622	26 622
Cash and cash equivalents	643 134	643 134	923 728	923 728
3 Derivative hedging instruments	-	-	19 462	19 462
4 Financial assets excluded from the scope of IFRS 9
Finanical Instruments	20 486 017		21 796 047
Shares in subsidiaries	19 704 429		21 380 195
Shares in a subsidiary classified as non-current assets held for sale	365 736	365 736	-	-
Shares in jointly-controlled entities	415 852		415 852
Total financial assets,	28 145 689		29 977 953
of which in the statement of financial position: Non-current assets	24 424 816		26 914 435
Shares	20 152 633		21 844 183
Loans granted	4 233 601		5 047 552
Derivative instruments	36 041		20 352
Other financial assets	2 541		2 348
Current assets	3 720 873		3 063 518
Receivables from buyers	1 301 409		1 472 462
Loans granted	1 147 350		265 202
Derivative instruments	122 805		85 177
Other financial assets	87 303		316 949
Cash and cash equivalents	643 134		923 728
Non-current assets classified as held for sale	418 872		-

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

	As at 31 December 2020		As at 31 December 2019
Categories and classes of financial liabilities	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
1 Financial liabilities measured at amortized cost	15 870 161	16 312 262	15 193 028	15 483 307
Arm's length loans, of which:	8 109 224	8 244 276	8 914 991	9 001 735
Liability under the cash pool loan	1 386 443	1 386 443	1 205 417	1 205 417
Bank loans	5 952 287	5 984 104	6 998 618	7 014 391
Loans from the subsidiary	770 494	873 729	710 956	781 927
Overdraft	-	-	21 210	21 210
Bonds issued	6 749 652	7 056 701	5 544 471	5 748 006
Liabilities to suppliers	764 096	764 096	424 486	424 486
Other financial liabilities	246 661	246 661	287 819	287 819
Liabilities due to purchases of fixed and intangible assets	528	528	51	51
2 Financial liabilities measured at fair value through profit or loss (FVTPL)	85 523	85 523	124 527	124 527
Derivative instruments	85 523	85 523	124 527	124 527
3 Derivative hedging instruments	90 061	90 061	-	-
4 Financial liabilities excluded from the scope of IFRS 9
Finanical Instruments	30 757		36 191
Liabilities under leases	30 757		36 191
Total financial liabilities, of which in the statement of financial position:	16 076 502		15 353 746
Non-current liabilities	12 205 123		10 941 571
Debt	12 117 294		10 909 597
Other financial liabilities	14 090		15 126
Derivative instruments	73 739		16 848
Current liabilities	3 871 379		4 412 175
Debt	2 772 339		3 607 266
Liabilities to suppliers	764 096		424 486
Derivative instruments	101 845		107 679
Other financial liabilities	233 099		272 744

Total financial liabilities,
			16 076 502	15 353 746
of which in the statement of financial position:
Non-current liabilities			12 205 123	10 941 571
Debt			12 117 294	10 909 597
Other financial liabilities			14 090	15 126
Derivative instruments			73 739	16 848
Current liabilities			3 871 379	4 412 175
Debt			2 772 339	3 607 266
Liabilities to suppliers			764 096	424 486
Derivative instruments			101 845	107 679
Other financial liabilities			233 099	272 744
these instruments are presented in the following tables. Financial asset/liabilities classes	Fair value measurement level		Fair value measurement methodology
		Financial assets/liabilities measured at fair value
Derivatives, including:
IRS and CCIRS	2
Currency forwards	2			Derivatives have been measured in line with the methodology presented in Note 21 hereto.
Commodity forwards and futures	1
	3	The Company estimated the method, considering its share measurement, such as the the above instruments. In justify approximation of the fair value.	fair value of shares held in the net assets and non-controlling interest cases, the Company	in other entities using the adjusted net assets adjusting the value by relevant factors affecting the discount and the discount for the limited liquidity of assumes that the historical cost is an acceptable
Non-current shares
Loans granted	3	Fair value measurement of the borrower's credit risk.	loan had the form of	the current value of future cash flows, including
		Financial liabilities whose fair value is disclosed

The fair value of other financial instruments as at 31 December 2020 and 31 December 2019 (except from those excluded from the scope of IFRS 9 Financial Instruments) did not differ considerably from the amounts presented in the financial statements for the following reasons:

• the potential discounting effect relating to short-term instruments is not significant;
• the instruments are related to arm's length transactions.

Change in the balance of financial assets whose measurement is classified at the 3rd level of the fair value hierarchy

TAURON Polska Energia S.A. Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)
Shares in subsidiaries and jointly-controlled entities excluded from the scope of IFRS 9 Financial Instruments are measured at cost less any impairment allowances. In the year ended 31 December 2020 no changes occurred in the measurement methodology applied to the above financial instruments.
The Company classifies a loan granted to Elektrociepłownia Stalowa Wola S.A. under an agreement of 28 February 2018 to assets measured at fair value though profit or loss, as discussed in detail in Note 20.2 to these financial statements.
Change in the balance of financial assets whose measurement is classified at the 3rd level of the fair value hierarchy
	Year ended 31 December 2020	Year ended 31 December 2019
Not quoted shares	Loans granted	Not quoted shares	Loans granted
Opening balance 48 136	216 018	46 066	199 256
Gains/(losses) for the period recognized in financial revenue/costs (87)	(143 495)	(9 902)	16 762
Purchased 46 939	-	11 972	-
Other changes (9 500)	-	-	-

In the year ended 31 December 2020 and 31 December 2019, no reclassification occurred between level 1 and 2 of the fair value hierarchy; nor did such classification occur from or to level 3 of that hierarchy.

40.2. Revenue, expenses, gain and loss items included in the statement of comprehensive income by category of financial instruments

Year ended 31 December 2020

	Assets / liabilities measured at fair value through profit or loss	Financial liabilities measured at amortized cost	Financial liabilities measured at amortized cost	Hedging instruments	Financial assets / liabilities excluded from the scope of IFRS 9	Total
Dividends	4 463	-	-	-	1 077 568	1 082 031
Interest income/(expense)	3 762	325 389	(378 241)	(29 465)	(1 162)	(79 717)
Commissions		- -	(18 209)	-	-	(18 209)
Exchange differences	(4 918)	5 705	(303 833)	-	-	(303 046)
Impairment / revaluation	111 674	(1 453 507)	(12 919)	(34)	(1 982 355)	(3 337 141)
Gain/loss on disposal of investments	2 073	-	-	-	-	2 073
Gain/(loss) on realized derivative instruments*	11 838	-	-	-	-	11 838
Net financial income/(costs)	128 892	(1 122 413)	(713 202)	(29 499)	(905 949)	(2 642 171)
Revaluation	(1 926)	(6 273)	-	-	-	(8 199)
Gain/(loss) on realized derivative instruments*	(136 382)	-	-	-	-	(136 382)
Net operating income/(costs)	(138 308)	(6 273)	-	-	-	(144 581)
Remeasurement of IRS	-	-	-	(103 172)	-	(103 172)
Other comprehensive income	-	-	-	(103 172)	-	(103 172)

* The Company recognises revenue and expenses related to commodity instruments in operating activities. Revenue and expenses regarding other derivatives are recognized under financial revenue/expenses.

The loss on realised derivative financial instruments in the amount of PLN 136 382 thousand also includes the result of closing forward transactions maturing in December 2020 in connection with the change in the strategy for securing the redemption needs related to CO2 emission allowances of the Generation area (loss of PLN 123 792 thousand), as further discussed in Note 12 to these financial statements.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Year ended 31 December 2019

	Assets / liabilities measured at fair value through profit or loss	Financial liabilities measured at amortized cost	Financial liabilities measured at amortized cost	Hedging instruments	Financial assets / liabilities excluded from the scope of IFRS 9	Total
Dividends	3 035	-	-	-	1 097 826	1 100 861
Interest income/(expense)	6 430	390 406	(405 353)	743	(1 720)	(9 494)
Commissions		- -	(20 319)	-	-	(20 319)
Exchange differences	2 647	(2 848)	28 940	-	-	28 739
Impairment / revaluation	(27 684)	(1 411 613)	(3 271)	34	(85 019)	(1 527 553)
Gain/loss on disposal of investments	17	-	-	-	-	17
Gain/(loss) on realized derivative instruments*	(18 144)	-	-	-	-	(18 144)
Net financial income/(costs)	(33 699)	(1 024 055)	(400 003)	777	1 011 087	(445 893)
Revaluation	21 386	(1 278)	-	-	-	20 108
Gain/(loss) on realized derivative instruments*	(34 054)	-	-	-	-	(34 054)
Net operating income/(costs)	(12 668)	(1 278)	-	-	-	(13 946)
Remeasurement of IRS	-	-	-	15 179	-	15 179
Other comprehensive income	-	-	-	15 179	-	15 179

* The Company recognizes revenue and expenses related to commodity instruments in operating activities. Revenue and expenses regarding other derivatives are recognized under financial revenue/expenses.

41. Principles and objectives of financial risk management

• credit risk;
• liquidity risk;
• market risk, including:
  • interest rate risk;
  • exchange rate risk;
  • raw material and commodity price risk related to commodity derivative instruments.

The financial risk is managed on the Capital Group level, which means that within the framework of financial risk management, the Company performs the functions assigned to it as a member of the TAURON Group and the management, control and monitoring functions assigned to it as the central unit. Types of risk resulting from financial instruments to which the Company is exposed in the course of its business:  credit risk;  liquidity risk;  market risk, including: - interest rate risk; - exchange rate risk; - raw material and commodity price risk related to commodity derivative instruments. the exposure and the risk management method are presented in the below. Risk exposure Risk management Regulation Credit risk Credit risk management is aimed at limiting losses resulting from the deterioration of the financial standing of the TAURON Group's counterparties and minimizing the risk of credit exposures at risk of impairment. Trading transactions of significant value are preceded by an assessment of the counterparty's creditworthiness, including an economic and financial analysis of the entity. On the basis of the assessment, the counterparty is granted a credit limit, which is a limitation of the maximum credit exposure understood as the amount that may be lost if the counterparty fails to fulfil its Possible loss resulting from the contractual obligations within a specified period of time (taking into account the value of counterparty default on contractual contributed collaterals). The credit exposure is calculated for the current day and divided into Credit risk obligations. The credit exposure involves payment and replacement exposure. management a default risk (the amount that may be policy lost if a counterparty defaults on goods The TAURON Group has a decentralized credit risk management system, which means that for the and service) and a replacement risk (the each risk owner is actively responsible for managing the credit risks that arise within its scope TAURON amount that may be lost if a delivery is of activity, however, the control, mitigation and reporting are managed centrally at a Company Group not made or a service is not provided). wide level. The TAURON Group's Credit Risk Management Policy sets out the credit risk management procedures for the entire Group with the view to reduce the impact of the risk on the Group's objectives.	41.	Principles and objectives of financial risk management
Risks related to financial instruments which the Company and TAURON Group are exposed to, including a description of table
		Based on the value of exposure and assessment of financial standing of each client, the value
			60

	TAURON Polska Energia S.A. Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)
Risk exposure	Risk management	Regulation
	Liquidity risk
Possible loss or limitation of the ability to make payments on a day-to-day basis due to an inappropriate volume or structure of liquid assets as compared to current liabilities or an insufficient level of the actual net proceeds from operating activities.	The Company and TAURON Group's liquidity is reviewed on an ongoing basis to detect any deviation from plans and the availability of external sources of funds, in the case of which the amount materially exceeds the expected short-term demand, mitigates the liquidity risk. To this end the Company applies the rules of determining the liquidity position both of individual companies and the entire TAURON Group which helps ensure funds that would cover any potential liquidity gaps by allocating funds between companies (cash-pooling) as well as using external financing. The Company manages the financing risk, understood as no capability to obtain new funding, an increase in funding costs and the risk of terminating the existing funding agreements. To minimize the risk, the Company's policy assumes obtaining funding for the Group well in advance of the planned time of use, i.e. up to 24 months prior to the planned demand. The key objective of the policy is to ensure flexible selection of funding source, use favorable market conditions and reduce the risk related to the necessity to contract new debt on adverse terms.	Liquidity management policy for the TAURON Group
	Market risk – interest rate and currency risks
The possibility of an adverse effect on the Group's performance through fluctuations in the fair value of financial instruments or the related future cash flows, driven by changes in interest rates or foreign exchange rates.	TAURON Group manages the currency risk and the interest rate risk on the basis of the TAURON Group Financial Risk Management Policy developed and adopted for use, as well as the Risk Tolerance, the Global Limit for Financial Risk and its decomposition into individual types of financial risk approved by the Management Board. The key objective of such risk management is to minimize the cash flow sensitivity of the Company and the TAURON Group to financial risks and to minimize finance cost and costs of hedging with the use of derivative instruments. Wherever possible and commercially viable, TAURON uses derivative instruments, whose nature allows for the application of hedge accounting. The financial risk management policy of the TAURON Group has also introduced hedge accounting principles which set out the terms and conditions and types of hedge accounting, along with the accounting treatment of hedging instruments and hedged items, to be applied as part of hedge accounting under IFRS.	Financial risk management policy for the TAURON Group
	Market risk –price risk
Unplanned volatility of the operating profit/loss of the TAURON Group resulting from fluctuations of prices in the commodity markets in individual areas of commercial activities of the TAURON Group.	Effective management is ensured by a commercial risk management system linked in terms of organization and information with the TAURON Group's strategy of hedging trading positions. The policy has introduced an early-warning system and risk-exposure limiting system in various trading areas. The basic operational measure of the market risk at the TAURON Group is the Value at Risk measure which determines the maximum allowed change in the value of the position over a given time period and with a given probability.	Commercial risk management policy for the TAURON Group

41.1. Credit risk

Classes of financial instruments that give rise to credit risk exposure with different characteristics are presented in the table below.

	As at	As at
Financial asset classes	31 December 2020	31 December 2019
Receivables from buyers	1 301 409	1 472 462
Loans granted	5 380 951	5 312 754
Cash and cash equivalents	643 134	923 728
Derivative instruments	158 846	105 529
Other financial receivables	89 844	292 675

The credit risk related to financial assets of the Company results from the inability to make payment by the other party to the agreement and the maximum exposure is equal to the carrying amount of these instruments.

41.1.1 Credit risk related to receivables from buyers

The Company monitors credit risk related to its operations on an ongoing basis, in line with the Credit Risk Management Policy adopted by the TAURON Group. As a result of the analysis of credit standing of counterparties with significant credit exposure, the conclusion of trading transactions resulting in an increase in credit exposure above the allocated exposure limit generally requires the establishment of a collateral.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

In accordance with IFRS 9 Financial Instruments, the Company estimates and recognizes in the profit or loss allowances on expected credit losses. For strategic counterparties, the risk is estimated based on ratings assigned to counterparties using an internal scoring model, appropriately converted to probability of default. The Company expects that the historical performance information concerning other counterparties may reflect the credit risk that will be faced in future periods. The expected credit loss on receivables from buyers is calculated upon recognition of such receivables in the statement of financial position and updated as at each subsequent reporting period end taking into account the forward looking aspect.

In an environment of uncertainty and dynamic changes caused by the COVID-19 pandemic, TAURON Group's credit risk measures focus on early identification of potential counterparties exposed to increased levels of credit risk. These measures include, among others, tightening of the rules for assessing the financial standing of counterparties, continuous monitoring of receivables, monitoring of industry information and the macroeconomic environment.

Company's exposure to credit risk related to receivables from buyers, including aging, impairment and risk concentration of risk, is presented in Note 26 to these financial statements.

41.1.2 Credit risk related to loans granted

As far as granted loans measured at amortized cost are concerned, the Company assesses the risk of insolvency on the part of the borrowers based on the ratings assigned to the counterparties using an internal scoring model, appropriately restated to account for the probability of default. The expected credit loss is calculated based on the time value of money.

For the purposes of determining the calculation horizon for expected credit losses, material credit risk increases related to certain financial assets are analysed beginning from the initial recognition of a given asset.

When analysing a significant increase in credit risk related to such assets, the Company considers the following indications:

• counterparty's internal or external rating as at the reporting period end having deteriorated by more than two rating levels compared to its rating upon initial recognition;
• counterparty's probability of insolvency projected within one-year horizon as at the reporting period end being at least twice higher than as at the initial recognition date;
• receivables related to a given asset being overdue by more than 30 days.

If a given counterparty's receivables are overdue by more than 90 days, they are classified as bad debt, i.e. the 100% probability of insolvency is assigned to that counterparty. The loans granted by the Company as at 31 December 2020 and 31 December 2019 were not overdue.

Under the applied model of measuring expected credit losses, the Company recognizes and remeasures allowances for expected credit losses as at each reporting period end. In the Company's opinion, no additional credit risk occurs at stage 1 and 2 that would exceed the level determined by the allowance for expected credit losses, recognised for each item of loans granted. At stage 3, the Company recognised impaired loans measured at amortised cost for which interest was accrued on the net carrying amount (net of allowance).

Measurement of the loan granted to the joint venture Elektrociepłownia Stalowa Wola S.A., classified as financial assets measured at fair value through profit or loss, with the carrying amount of PLN 72 523 thousand, includes credit risk effects. The loan is collateralized with a blank promissory Note accompanied by a promissory note agreement.

Company's exposure to credit risk related to loans granted, including information on impairment, its changes and the underlying reasons, as well as assignment to classes of allowances for expected credit losses in line with the rating used by the Company, are presented below and in Note 20 hereto.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Loans measured at amortised cost by ratings used in the Company

			Year ended 31 December 2020		Year ended 31 December 2019
	Level 1: allowance equal to 12 monthly expected credit losses -no impairment	Level 2: allowance for expected credit losses over the life period - no impairment	Level 3: allowance for expected credit losses over the life period - with impairment	Instruments purchased with an impairment	Total	Level 1: allowance equal to 12 monthly expected credit losses - no impairment	Level 2: allowance for expected credit losses over the life period - no impairment	Level 3: allowance for expected credit losses over the life period - with impairment	Instruments purchased with an impairment	Total
AAA do A	-	-	-	-	-	3 014 527	-	-	-	3 014 527
A- do BBB-	4 458 974	-	-	-	4 458 974	160 997	-	-	-	160 997
BB+ do BB	-	-	-	-	-	666 984	320 020	-	-	987 004
BB- do B	103 061	825 357	27 670	-	956 088	652 422	11 362	-	-	663 784
B- do D	-	-	-	-	-	5 230	96 903	-	268 576	370 709
Gross value	4 562 035	825 357	27 670	-	5 415 062	4 500 160	428 285	-	268 576	5 197 021
impairment loss	(15 474)	(89 680)	(1 480)	-	(106 634)	(27 883)	(68 806)	-	(3 596)	(100 285)
Net value	4 546 561	735 677	26 190	-	5 308 428	4 472 277	359 479	-	264 980	5 096 736

41.1.3 Credit risk related to other financial assets

Cash and equivalents

The Company manages its cash credit risk by diversifying the banks where surplus cash can be deposited while reducing the cost of holding cash in accounts. These are banks holding investment grade ratings.

As at 31 December 2020, the share of three banks in which the Company holds the highest cash balances amounted to 96%, of which the highest balance of cash was held in accounts with Bank Gospodarstwa Krajowego - 56%.

Derivative instruments

The entities the Company concludes derivative transactions with in order to hedge against interest rate and currency risk operate in the financial sector. These banks receive investment rating. The Company diversifies banks with whom derivative transactions are concluded.

Derivatives, which basis are non-financial assets, included in IFRS 9 Financial Instruments, involve futures (exchange market) and forward transactions (OTC). Exchange markets apply appropriate mechanisms to protect, in the form of initial and variation margin deposits. Under variation margin deposits, the Company provides and receives cash arising from changes in the measurement of the underlying instruments on an ongoing basis, which means that as at the end of the reporting period, credit risk does not occur in relation to futures transactions.

In the case of OTC instruments there is a credit risk related to the possibility of insolvency of the other party to the agreement. Therefore, commercial transactions of significant value are preceded by the assessment of the credit standing counterparty, including the economic and financial analysis of the entity. On the basis of the assessment, the counterparty is granted a credit limit, which is a limit of the maximum credit exposure. Execution of trade transactions resulting in an increase in credit exposure above the allocated exposure limit generally requires the establishment of collateral in accordance with the Credit Risk Management Policy in the TAURON Group.

Other financial receivables

	As at 31 December 2020	As at 31 December 2019
Initial and variation margin deposits arising from stock exchange transactions	48 663	209 466
Receivables due to income tax settlement by TCG companies	21 869	-
Bid bonds, deposits and collateral transferred	19 161	82 951
Other	151	258
Total	89 844	292 675

The main item comprises initial margins and other collaterals resulting from transactions concluded on exchanges. Commodity exchange mechanisms and collateral used materially mitigate the credit risk.

41.2. Liquidity risk

The Company maintains a balance between continuity, flexibility and cost of financing by using various sources of funding, which enable management of liquidity risk and effective mitigation of risk consequences. The Company pursues a policy of diversification of financing instruments but first of all it seeks to secure financing and maintain the ability of the TAURON Group companies to meet current and future liabilities in the short and long term. Liquidity risk management is connected with planning and monitoring cash flows in the short and long term and taking actions to ensure funds for the operations of the Group companies.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

TAURON Group carries out a centralized finance management policy, allowing effective management in this respect on the Capital Group level. Among others, the Group has adopted Liquidity management policy for the TAURON Group, which facilitates optimization of liquidity management at the Group, reduces the risk of liquidity loss, as well as financial expenses in the Group and in each company from the TAURON Group. Having implemented appropriate projection standards, the TAURON Group can precisely determine its liquidity position and optimize the time of obtaining funding, maturity and types of deposit instruments, as well as an appropriate level of the liquidity provision.

Additionally, in order to mitigate a possibility of cash flow disruption and liquidity risk, the TAURON Group uses the cash pooling mechanism. The cash pooling structure enables the Group companies that experience short-term shortage of funds to use cash provided by companies with cash surplus, without the need to obtain borrowings from third parties.

The Company also has available financing under the concluded overdraft agreements up to the amount of EUR 45 000 thousand allocated for financing transactions on the European exchanges. The purpose of concluding a FX loan agreement is to mitigate the exchange rate risk associated with euro-denominated trade transactions. As at 31 December 2020, the Company did not have any liabilities arising from the aforementioned loan.

In addition, the Company primarily has available financing under syndicated loan agreements which can be used for general corporate purposes, including securing the Group's current liquidity position.

Financial liabilities as at 31 December 2020

general corporate purposes, including securing the Group's current liquidity position.
The policy pursued with regard to the acquisition of financing sources enables, above all, an increase in the possibility of obtaining financing for general corporate purposes and capital expenditure, a reduction in the cost of external capital, a reduction in the amount and forms of collateral established on TAURON Group assets and covenants required by financial institutions, and allows a decrease in administrative expenses. The centralized financing model allows access to funding sources inaccessible for individual companies.
In terms of liquidity, the Company was obliged, as a result of the high price volatility in the electricity and related products market, which was affected by the COVID-19 pandemic, to pay (especially in the first half of 2020) high amounts of the required variation margins both to the IRGiT and to the ICE exchange, which consequently translated into the level of cash committed for this purpose. In order to mitigate the impact of the pandemic on its liquidity position, the Company has under taken a number of measures including, but not limited to, entering into additional agreements to allow the required collateral to be lodged with the IRGiT in non-cash form, as further described in Note 51 to these financial statements.
In 2020, the Company was fully able to pay its liabilities at maturity.
The tables below show the ageing of the Company financial liabilities by undiscounted contractual payments.
Financial liabilities as at 31 December 2020
	Carrying	Contractual undiscounted		Including contractual undiscounted payments maturing during the period (from the		reporting date)
	amount	payments	less than 3 months	3 -12 months	1 - 2 years	2 - 3 years	3 - 5 years	over 5 years
Financial liabilities other than derivative instruments
Interest-bearing loans, borrowings and bonds issued	14 858 876	(16 913 848)	(2 437 580)	(584 219)	(2 560 796)	(613 482)	(5 377 045)	(5 340 726)
Liabilities to suppliers	764 096	(764 096)	(764 096)	-	-	-	-	-
Liabilities due to purchases of fixed and intangible assets	528	(528)	(208)	-	(160)	(160)	-	-
Other financial liabilities	246 661	(246 661)	(232 784)	(107)	(2 500)	(2 500)	(5 000)	(3 770)
Lease liabilities	30 757	(36 141)	(2 556)	(6 946)	(9 037)	(8 706)	(3 575)	(5 321)
Derivative financial liabilities
Derivative instruments - commodity	83 768	(17 920)	(288)	(12 956)	(4 676)	-	-	-
Derivative instruments - IRS	90 061	(90 412)	(1 746)	(30 979)	(31 305)	(21 793)	(3 646)	(943)
Derivate instruments - CCIRS	1 755	(13 448)	-	(1 962)	(1 888)	(1 888)	(3 932)	(3 778)
Total	16 076 502	(18 083 054)	(3 439 258)	(637 169)	(2 610 362)	(648 529)	(5 393 198)	(5 354 538)

Financial liabilities as at 31 December 2019

		TAURON Polska Energia S.A.
Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU
			(in PLN thousand)
Financial liabilities as at 31 December 2019
		Contractual		Including contractual undiscounted payments maturing during the period (from the		reporting date)
	Carrying amount	undiscounted payments	less than 3	3 -12 months	1 - 2 years	2 - 3 years	3 - 5 years	over 5 years
			months
Financial liabilities other than derivative instruments
Interest-bearing loans, borrowings and bonds issued	14 480 672	(16 722 064)	(2 879 285)	(975 809)	(643 883)	(3 884 113)	(1 984 541)	(6 354 433)
Liabilities to suppliers	424 486	(424 486)	(424 486)	-	-	-	-	-
Liabilities due to purchases of fixed and
intangible assets	51	(51)	(51)	-	-	-	-	-
Other financial liabilities	287 819	(287 819)	(256 632)	(16 061)	(2 500)	(2 500)	(5 000)	(5 126)
Lease liabilities	36 191	(42 804)	(2 436)	(6 904)	(8 978)	(8 577)	(11 561)	(4 348)
Derivative financial liabilities
Derivative instruments - commodity	81 819	(29 676)	(24 602)	(4 950)	(124)	-	-	-
Derivative instruments - currency	29 823	(29 823)	(2 505)	(19 911)	(7 407)	-	-	-
Derivate instruments - CCIRS Total	12 885 15 353 746	(49 267) (17 585 990)	- (3 589 997)	(6 207) (1 029 842)	(6 188) (669 080)	(6 120) (3 901 310)	(12 326) (2 013 428)	(18 426) (6 382 333)

As at 31 December 2020, the Company had guarantees, sureties and collaterals granted to related companies for the total amount of PLN 1 438 339 thousand (excluding registered and financial pledges on shares), as at 31 December 2019 - PLN 1 404 068 thousand. As at 31 December 2020, the most significant item is a corporate guarantee granted to a subsidiary up to EUR 168 000 thousand (PLN 775 286 thousand) and a bank guarantee in the amount of PLN 517 500 thousand issued to Bank Gospodarstwa Krajowego, as further discussed in Note 43 to these financial statements.

Guarantees and collaterals granted by the Company are contingent liabilities and do not significantly affect the Company's liquidity risk.

41.3. Market risk

Market risk is associated with the possibility of a negative impact on the Company's results through fluctuations in the fair value of financial instruments or future cash flows associated with them due to changes in market prices.

The Company identifies the following types of market risk it is exposed to:

• interest rate risk;
• currency risk;
• raw material and commodity price risk related to commodity derivative instruments.

41.3.1 Interest rate risk

The Company is exposed to the risk of interest rate changes in connection with the acquisition of capital bearing a variable interest rate and investing in assets bearing a variable and fixed interest rate. The Company is also exposed to the materialisation of risk related to the lost benefits due to the decrease in interest rates, in the case of fixed interest rate debt.

The purpose of interest rate risk management is to limit negative effects of market interest rate fluctuations on the Company's cash flows to an acceptable level and to minimize finance costs. In order to hedge interest rate risk related to floating-rate debt, the Company entered into interest rate swap (IRS) contracts, described in detail in Note 21 hereto. IRS transactions concluded in order to hedge interest rate risk are subject to hedge accounting.

As the Company has adopted a dynamic financial risk management strategy where the hedged item is cash flows relating to the exposure to the floating WIBOR 6M interest rate, the interest rate risk for a portion of interest cash flows has been reduced by the hedging IRS transactions. Thus, a portion of the carrying amount of debt with floating interest cash flow fluctuations hedged with interest rate swaps has been presented in the tables below together with valuation of these hedging instruments as fixed-rate items.

Financial instruments measured at a fair value are also exposed to interest rate risk: IRS, CCIRS and selected loans.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Financial instruments by interest rate type

		Year ended 31 December 2020			Year ended 31 December 2019
Financial instruments	Fixed interest rate	Floating interest rate	Total	Fixed interest rate	Floating interest rate	Total
Financial assets
Loans granted	5 099 816	281 135	5 380 951	4 832 577	480 177	5 312 754
Cash and cash equivalents	-	632 426	632 426	-	923 728	923 728
Derivative instruments - CCIRS	5 023	-	5 023	-	-	-
Derivative instruments - IRS	-	-	-	19 462	-	19 462
Financial liabilities
Bank overdrafts	-	-	-	-	21 210	21 210
Arm's length loans	3 559 966	4 549 258	8 109 224	3 603 661	5 311 330	8 914 991
Bonds issued	6 009 594	740 058	6 749 652	5 043 940	500 531	5 544 471
Derivative instruments - IRS	90 061	-	90 061	-	-	-
Derivative instruments - CCIRS	1 755	-	1 755	12 885	-	12 885
Leases liabilities	30 757	-	30 757	36 191	-	36 191

Other financial instruments of the Company, which are not included in the above tables, are not interest-bearing and therefore they are not subject to interest rate risk.

Interest rate risk sensitivity analysis

	Interest rate risk sensitivity analysis
The analysis of sensitivity to changes in market risk factors is conducted by means of a scenario analysis. The Company relies on expert scenarios reflecting its judgment concerning the behaviour of individual market risk factors in the future. The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.
The interest rate risk sensitivity analysis is conducted by the Company using the parallel shift in the yield curve by the potential change in reference interest rates within a horizon until the date of the next financial statements. The interest rate risk sensitivity analysis has been carried out based on average reference interest rates in the year. The scale of potential changes in interest rates has been estimated on the basis of implied volatility for interest rate options quoted on the interbank market for currencies which expose the Company to the interest rate risk as at the end of the reporting
period.
The Company identifies its exposure to the risk of changes in WIBOR, EURIBOR, ESTRON and LIBOR USD interest rates. As at 31 December 2020 and 31 December 2019, its exposure to changes in EURIBOR, ESTRON and LIBOR USD rates was insignificant. The tables below present sensitivity of the gross profit/loss as well as other comprehensive income (gross) to reasonably potential changes in interest rates within a horizon until the date of the next financial statements, assuming that all other
risk factors remain unchanged.
	31 grudnia 2020		Analiza wrażliwości na ryzyko stopy procentowej na 31 grudnia 2020 roku		31 grudnia 2019		Analiza wrażliwości na ryzyko stopy procentowej na 31 grudnia 2019 roku
Klasy instrumentów finansowych	Wartość bilansowa	Wartość narażona na ryzyko	WIBOR +225 pb Wynik finansowy /	WIBOR -225 pb	Wartość bilansowa	Wartość narażona na ryzyko	WIBOR +38 pb Wynik finansowy /	WIBOR -38 pb
Pożyczki udzielone	5 380 950	353 657	Pozostałe całkowite dochody* (8 730)	13 080	5 312 754	696 195	Pozostałe całkowite dochody* (8 093)	8 608
Środki pieniężne i ich ekwiwalenty	643 134	632 426	11 525	(5 658)	923 728	923 728	3 476	(3 476)
Instrumenty pochodne (aktywa)	158 845	5 023	29 458	(29 458)	105 529	19 462	37 204	(37 204)
Kredyty i pożyczki udzielane na warunkach rynkowych	8 109 222	6 299 605	(141 741)	110 546	8 914 991	7 509 499	(28 536)	28 536
Wyemitowane obligacje	6 749 655	2 829 640	(63 667)	63 667	5 544 471	1 890 467	(7 184)	7 184
Instrumenty pochodne (zobowiązania)	175 583	91 816	415 964	(415 964)	124 527	12 885	6 098	(6 098)

As at 31 December 2020, the sensitivity analysis for the risk of falling interest rates does not take into account cash on bank accounts and cash pool funds, for which banks will not charge a negative interest rate in accordance with contractual provisions.

The risk exposure as at 31 December 2020 and as at 31 December 2019 is representative of the Company's risk exposure during the preceding one-year period.

41.3.2 Currency risk

The tables below present the Company's exposure to currency risk by particular classes of financial instruments as at 31 December 2020 and 31 December 2019. The Company's significant exposure relates to changes in the EUR/PLN exchange rate, mainly due to external financing incurred in EUR. The Company's exposure to other currencies is immaterial.

(in PLN thousand)
-------------------	--

	TAURON Polska Energia S.A.
Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU
	(in PLN thousand)
		Stan na 31 grudnia 2020			Stan na 31 grudnia 2019
	Łączna wartość	EUR		Łączna wartość	EUR
	bilansowa w PLN	w walucie	w PLN	bilansowa w PLN	w walucie	w PLN
Financial assets
Receivables from buyers	1 301 409	11	50	1 472 462	285	1 214
Other financial receivables	89 844	11 153	51 470	292 675	49 784	212 005
Cash and cash equivalents	643 134	25 561	117 961	923 728	1 503	6 400
Derivatives (assets)	158 846	17 529	80 894	105 529	14 214	60 531
	Razem 2 193 233	54 254	250 375	2 794 394	65 786	280 150
Financial liabilities
Arm's length loans	8 109 224	166 961	770 494	8 914 991	166 950	710 957
Bank overdrafts	-	-	-	21 210	4 804	20 456
Bonds issued	6 749 652	690 431	3 186 202	5 544 471	683 776	2 911 861
Liabilities to supplier	764 096	7 440	34 333	424 486	267	1 137
Other financial liabilities	246 661	15 867	73 221	287 819	2 530	10 774
Derivatives (liabilities)	175 584	17 026	78 573	124 527	13 206	56 238
Pozycja walutowa netto	Razem 16 045 217	897 725 (843 471)	4 142 823 (3 892 448)	15 317 504	871 533 (805 747)	3 711 423 (3 431 273)

TAURON Polska Energia S.A. uses forward contracts for currency risk management purposes. Transactions were intended to protect the Company from forex risk, related to its commercial operations, mostly to purchases of CO² emission allowances and from currency exposure generated by interest payments on borrowings denominated in euro.

Measurement at fair value of FX forward contracts and CCIRS transactions is exposed to the risk of changes in the EUR/PLN exchange rate. These transactions are not subject to hedge accounting.

Currency risk sensitivity analysis

The analysis of sensitivity to changes in market risk factors is conducted by means of a scenario analysis. The Company relies on expert scenarios reflecting its judgment concerning the behaviour of individual market risk factors in the future. The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.

The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.						relies on expert scenarios reflecting its judgment concerning the behaviour of individual market risk factors in the future.
The potential changes in foreign exchange rates have been determined within a horizon until the date of the next financial statements and calculated on the basis of annual implied volatility for FX options quoted on the interbank market for a given currency pair as at the end of the reporting period or, in the absence of quoted market prices, on the basis of historical volatility for a period of one year preceding the end of the reporting period.
The Company identifies its exposure to foreign currency risk related to EUR/PLN, USD/PLN, GBP/PLN, CZK/PLN. Significant risk exposure occurs for EUR; other currencies do not generate material risk for the Company.
The table below presents sensitivity of the gross financial profit/loss to reasonably possible changes in the EUR/PLN exchange rate within a horizon until the date of the next financial statements, assuming that all other risk factors remain unchanged.
		31 grudnia 2020	na 31 grudnia 2020 roku	Analiza wrażliwości na ryzyko walutowe		31 grudnia 2019		Analiza wrażliwości na ryzyko walutowe na 31 grudnia 2019 roku
Klasy instrumentów finansowych	Wartość bilansowa	Wartość narażona na	EUR/PLN kurs EUR/PLN	kurs EUR/PLN	Wartość bilansowa	Wartość narażona na	EUR/PLN kurs EUR/PLN	kurs EUR/PLN
		ryzyko	+5,78%	-5,78%		ryzyko	+4,24%	-4,24%
Należności od odbiorców	1 301 409	50	3	(3)	1 472 462	1 214	51	(51)
Inne należności finansowe Środki pieniężne i ich ekwiwalenty	89 844 643 134	51 470 117 961	2 975 6 818	(2 975) (6 818)	292 675 923 728	212 005 6 400	8 989 271	(8 989) (271)
Instrumenty pochodne (aktywa)	158 845	153 650	160 819	(160 819)	105 529	60 531	2 567	(2 567)
Kredyty i pożyczki udzielane na warunkach rynkowych	8 109 222	770 493	(44 535)	44 535	8 914 991	710 957	(30 145)	30 145
Kredyty w rachunku bieżącym Wyemitowane obligacje	- 6 749 655	- 3 186 202	- (184 162)	- 184 162	21 210 5 544 471	20 456 2 911 861	(867) (123 463)	867 123 463
Zobowiązania wobec dostawców	764 096	34 333	(1 984)	1 984	424 486	1 137	(48)	48
Pozostałe zobowiązania finansowe	247 189	73 221	(4 232)	4 232	287 819	10 774	(457)	457
Instrumenty pochodne (zobowiązania)	175 583	80 327	(1 370)	1 370	124 527	98 946	79 408	(79 408)

The risk exposure as at 31 December 2020 and as at 31 December 2019 is representative of the Company's risk exposure during the preceding one-year period.

41.3.3 Raw material and commodity price risk related to commodity derivative instruments

The Company concludes derivative contracts, with underlying instruments being commodities and raw materials. The Company's exposure to price risk inherent in commodity derivative instruments is related to a risk of changes in the fair value of the said instruments, driven by fluctuations of prices of the underlying raw materials/commodities. The Company limits price risk related to commodity derivatives concluding offsetting transactions. The risk is limited to open long and short positions concerning a given commodity or raw material, i.e. concern unbalanced portfolio.

42. Operational risk

Company's exposure to price risk inherent in commodity derivative instruments is related to a risk of changes in the fair value of the said instruments, driven by fluctuations of prices of the underlying raw materials/commodities. The Company limits price risk related to commodity derivatives concluding offsetting transactions. The risk is limited to open long and short positions concerning a given commodity or raw material, i.e. concern unbalanced portfolio.
As at 31 December 2020, the portfolio of concluded contracts is fully balanced. This minimises market risk in the commodity derivatives portfolio. This is confirmed by a sensitivity analysis, which indicated immaterial effects of potential changes in the prices of emission allowances on Company's gross profit/loss.
42. Operational risk
The Company is exposed to adverse effects of risks related to changes in cash flows and financial performance in the domestic currency due to changes in prices of goods in the open market position.
Commercial operational risk is managed at the level of the TAURON Group, which has been discussed in more detail in
Note 53 to the consolidated financial statements of the TAURON Polska Energia S.A. Capital Group for the year ended 31 December 2019. The Company manages its commercial risk following the Commercial risk management policy developed and adopted in the TAURON Group.
The Company's exposure to the risk of prices of goods reflects the volume of electricity and gas acquired. The volume and cost of electricity and gas acquired have been presented in the table below.
Fuel type	Unit		2020		2019
		Volume	Purchase cost	Volume	Purchase cost
Electricity Gas	MWh MWh	40 781 732 4 123 571	10 183 880 337 711	38 811 497 3 595 490	9 371 915 351 085

In terms of coal trading, the Company is not exposed to the price risk, as it acts as an agent generating revenue from agency services only.

OTHER INFORMATION

43. Contingent liabilities

As at 31 December 2020 and 31 December 2019, the Company's contingent liabilities were mainly the effect of securities and guarantees given to related parties and were as follows:

		TAURON Polska Energia S.A.
		Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU
		(in PLN thousand)
Type of contingent	Company in respect of which contingent liability	Beneficiary	Validity			As at 31 December 2020	As at 31 December 2019
liability	has been granted				Currency	PLN	Currency	PLN
corporate guarantee	Finanse Grupa TAURON Sp. z o.o.	Private placement investors	3.12.2029	EUR	168 000	775 286	168 000	715 428
liability towards MUFG
Bank, Ltd. under guarantees issued by the	Elektrociepłownia Stalowa	Bank Gospodarstwa Krajowego	11.04.2021			517 500		517 500
bank for jointly-controlled	Wola S.A.
entity
registered pledges and financial pledge of shares	TAMEH Czech s.r.o.	RAIFFEISEN BANK
in TAMEH HOLDING Sp. z o.o.	TAMEH POLSKA Sp. z o.o.	INTERNATIONAL AG	31.12.20281			415 852		415 852
blank promissory note with	TAURON Wytwarzanie S.A.	Regional Fund for Environmental Protection and Water Management	15.12.2022			40 000		40 000
a promissory note declaration	TAURON Ciepło Sp. z o.o.	in Katowice				30 000		30 000
	Kopalnia Wapienia Czatkowice	Regional Fund for Environmental Protection	-			-		914
	Sp. z o.o.	and Water Management in Kraków	31.12.2023			293		293
	Nowe Jaworzno Grupa	Fund Advisors	28.09.2025			2 500		2 500
	TAURON Sp. z o.o.	Polskie Sieci Elektroenergetyczne S.A.	-			-		33 024
surety contract2	TAURON Wytwarzanie S.A.	Polskie Sieci Elektroenergetyczne S.A.	indefinite			5 000		5 000
	TAURON Sprzedaż Sp. z o.o.	Polska Spółka Gazownictwa Sp. z o.o.	30.11.2021			20 000		20 000
		Operator Gazociągów Przesyłowych GAZ-	-			-		1 667
	Elektrociepłownia Stalowa	SYSTEM S.A.	30.01.2021			9 959		9 959
	Wola S.A.	Bank Gospodarstwa Krajowego	-		-	-	3 664	13 915
				USD
			24.04.2021		1 329	4 993	1 329	5 047
liability towards CaixaBank
S.A. being result of guarantees issued by the	various subsidiaries	various entities	31.12.2020- 28.07.2029			32 808		8 821

¹The registered pledges are valid in the collateral period, i.e. until the total repayment or until release of the pledge by the pledgee. The financial pledge is valid in the entire collateral period or until release by the pledgee, not later than on 31 December 2028.

²In the year ended 31 December 2020 surety granted to subsidiaries in the amount of PLN 914 thousand and PLN 33 024 thousand and surety granted to Elektrociepłownia Stalowa Wola S.A. in the amount of USD 3 664 thousand expired.

After the end of the reporting period:

• on 28 January 2021, a guarantee agreement was concluded between the Company, PGNiG S.A. and Elektrociepłownia Stalowa Wola S.A., whereby the Company granted a corporate guarantee of up to PLN 6 750 thousand for obligations of Elektrociepłownia Stalowa Wola S.A. on account of electricity sale agreements, electricity transmission or distribution service agreements. The guarantee is valid until 15 February 2022;
• bank guarantees issued by CaixaBank S.A. entered into force to secure liabilities and transactions of subsidiaries of TAURON Polska Energia S.A. for a total amount of PLN 29 234 thousand. The most important item is the guarantee issued to secure the liabilities of the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. in the amount of PLN 25 000 thousand for the contract concluded with PSE S.A. contracts for the provision of electricity transmission services, valid form 19 February 2021 to 30 June 2021.

The most significant items of contingent liabilities concern:

Corporate guarantee for the amount of EUR 168 000 thousand

The corporate guarantee was granted in 2014 to secure the bonds (so-called NSV) of Finanse Grupa TAURON Sp. z o.o. The guarantee is valid until 3 December 2029, i.e. until the date of redemption of bonds, and amounts to EUR 168 000 thousand (PLN 775 286 thousand), and the beneficiaries of the guarantee are the privet placement investors who purchased the issued bonds.

Liability towards MUFG Bank, Ltd.

At the Company's request, MUFG Bank, Ltd. issued a bank guarantee to secure Bank Gospodarstwa Krajowego's receivables under the loan agreement concluded on 8 March 2018 between the borrower Elektrociepłownia Stalowa Wola S.A. and Bank Gospodarstwa Krajowego and Polskie Górnictwo Naftowe i Gazownictwo S.A.

After the end of the reporting period, on 2 February 2021, a guarantee limit agreement was concluded, under which an annex to a bank guarantee of up to PLN 517 500 thousand was issued, valid until 11 April 2022. The collateral for MUFG Bank, Ltd.'s claims against the Company is a declaration on submission to execution up to the amount of PLN 621 000 thousand with the term of validity until 31 October 2022.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

In relation to the guarantee issued, the Company recognised a liability in the amount of expected credit losses, amounting to PLN 28 184 thousand as at 31 December 2020 (PLN 15 265 thousand as at 31 December 2019).

Registered and financial pledges on shares

Under the agreement of 15 May 2015, annexed on 15 September 2016, TAURON Polska Energia S.A. established on 3 293 403 shares in the share capital of TAMEH HOLDING Sp. z o.o, constituting approximately 50% of the shares in the share capital, a financial pledge and registered pledges for RAIFFEISEN BANK INTERNATIONAL AG, i.e. a first lien registered pledge on the shares up to the maximum security amounting to CZK 3 950 000 thousand, and a first ranking registered pledge on the shares up to the maximum collateral amount of PLN 1 370 000 thousand. The Company also agreed to establish a financial pledge and registered pledges on new shares acquired or taken up. Moreover, the Company assigned the rights to dividend and other payments.

The agreement to establish registered pledges and a financial pledge was concluded to secure transactions including the agreement for term loans and working capital loans, entered into by TAMEH Czech s.r.o. and TAMEH POLSKA Sp. z o.o. as original borrowers, TAMEH HOLDING Sp. z o.o. as the parent and the guarantor, and RAIFFEISEN BANK INTERNATIONAL AG as the agent and the collateral agent. The registered pledges are valid in the collateral period, i.e. until the total repayment or until release of the pledge by the pledgee. The financial pledge is valid in the entire collateral period or until release by the pledgee, not later than on 31 December 2028. The carrying amount of shares in TAMEH HOLDING Sp. z o.o. as at 31 December 2020 was PLN 415 852 thousand.

Blank promissory Notes with a promissory Notes declarations

The Company issued two blank promissory notes with promissory notes declarations with a total value of PLN 70 000 thousand to secure loan agreements received by its subsidiaries from the Regional Fund for Environmental Protection and Water Management (WFOŚiGW) in Katowice. The collateral in the form of promissory notes is valid until all liabilities to the lender are paid by the subsidiaries, i.e. until 15 December 2022. As at the balance sheet date, the outstanding amount of loans secured with the promissory Notes was PLN 8 000 thousand.

Significant items of the Company's contingent liabilities due to court proceedings and concluded agreements:

Claims related to termination of long-term contracts

Claims relating to termination of long-term contracts against subsidiary Polska Energia - Pierwsza Kompania Handlowa Sp. z o.o.

In 2015 companies of the following groups of companies: in.ventus, Polenergia and Wind Invest filed a case against Polska Energia - Pierwsza Kompania Handlowa Sp. z o.o. to declare notices of termination submitted by Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. with regard to electricity purchase and property rights concluded with these companies ineffective. In the course of court proceedings, plaintiffs extend their scope raising new contractual penalty and contract termination related claims, or they file separate suits for the payment of damages.

As of the date of approval of these financial statements for publication, the amount of damages claimed in the lawsuits is as follows: Polenergia Group companies - PLN 115 566 thousand (including Amon Sp. z o.o. - PLN 69 488 thousand, Talia Sp. z o.o. - PLN 46 078 thousand); Wind Invest group companies - PLN 322 313 thousand.

In the case filed by Amon Sp. z o.o. and Talia Sp. z o.o., partial and preliminary judgements were issued (judgement of 25 July 2019 in the Amon Sp. z o.o. lawsuit and judgement of 6 March 2020, supplemented by the court on 8 September 2020 in the Talia Sp. o.o. lawsuit), in which the courts determined that the statements of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. on termination of long-term contracts concluded between Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and Amon Sp. z o.o. and concluded between Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and Talia Sp. z o.o. for the purchase of electricity and property rights arising from certificates of origin are ineffective and do not have legal effect in the form of termination of both agreements, as a result of which these agreements after the notice period, i.e. after 30 April 2015 remain in force for all provisions and are binding on the parties. Moreover, the Courts recognised the claims of Amon Sp. z o.o. and Talia Sp. z o.o. for payment of damages as justified in principle, but they did not prejudge the amount of possible damages. The judgements are not valid. Polska Energia Pierwsza Kompania Handlowa sp. z o.o. filed a complaint against the judgments.

The above partial and preliminary judgements do not change the Group's assessment that the chances of losing a case are no higher than the chance of winning it.

In the case filed by Pękanino Wind Invest Sp. z o.o. to secure the claims for establishing that the termination of long-term agreements submitted by Polska Energia - Pierwsza Kompania Handlowa Sp. z o.o. is ineffective, the Court of Appeal in Warsaw on 6 November 2019 partially accepted the motion for security by ordering Polska Energia - Pierwsza Kompania Handlowa Sp. z o.o. to execute in full the provisions of the agreements on the existing terms and conditions, in accordance with their contents, until the legal conclusion of the proceedings in the action brought by Pękanino Wind Invest Sp. z o.o. against Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o., pending before the District Court in Warsaw. The security order is final and binding. This provision does not prejudge the merits of the action, which can only take place in a judgement which is final and binding, but only temporarily regulates the parties' relations for the duration of the proceedings. Bearing in mind the need to implement the provision on collateral referred to above, Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. created a provision for onerous contracts which value as at balance sheet date is amounted of PLN 8 297 thousand.

The remaining proceedings are pending before the courts of first instance (including one which was referred to the second instance

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

court for re-examination by the first instance court).

In light of the current status of the proceedings and the related circumstances, the Group believes that the chances of losing other cases both as regards declaration of ineffectiveness of the termination notices and securing non-monetary claims and the claims for compensation are not higher than the chances for winning them. Therefore, no provision for the related costs except for the reserve created for the proceedings of Pękanino Wind Invest Sp. z o.o. as referred to above) will be created.

In connection with the transaction of purchase on 3 September 2019 by subsidiaries of TAURON Polska Energia S.A., i.e. TEC1 Sp. z o.o, TEC2 Sp. z o.o. and TEC3 Sp. z o.o. five wind farms belonging to the in.ventus group and financial claims of Hamburg Commercial Bank AG against the companies operating the wind farms, the cases from the in.ventus group companies brought against Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. were suspended by the court, at the joint request of the parties. In March 2020, the parties filed an application to initiate proceedings in order to withdraw the claimant's statement of claim together with a waiver of the claim. In June 2020, the court took up the proceedings and the companies submitted statements of withdrawal of the waiver of claims. By order of 3 July 2020, the court discontinued the proceedings in the above-mentioned case. The judgment is final and binding.

Claims relating to termination of long-term contracts against TAURON Polska Energia S.A.

In 2017 and 2018 companies of the following capital groups: in.ventus, Polenergia and Wind Invest filed cases against TAURON Polska Energia S.A. regarding damages and liability for potential future losses resulting from tort, including unfair competition. According to the plaintiffs notices of termination submitted by Polska - Energia Pierwsza Kompania Handlowa Sp. z o.o. regarding long-term contracts for the purchase of power and property rights related to energy certificates allegedly directed by TAURON Polska Energia S.A., provided the factual basis for these claims.

As at the date of approval of these financial statements for publication, the amount of damages claimed in lawsuits is as follows: Polenergia group companies – PLN 78 855 thousand, Wind Invest group companies – PLN 272 450 thousand.

Moreover, the claimants' companies indicate in their lawsuits the following values of estimated damages that may arise in the future: Polenergia group companies – PLN 265 227 thousand, Wind Invest group companies – PLN 1 119 363 thousand.

The court competent for hearing the claims is the Regional Court for Katowice. All cases are held before the first instance courts. Those filed by Wind Invest group companies are held in camera. As at the date of approval of these financial statements for publication, the Company's chances of obtaining a positive resolution in disputes should be assessed positively, i.e. the chances of losing are no higher than the chances of winning it.

In connection with the transaction of purchase on 3 September 2019 by subsidiaries of TAURON Polska Energia S.A., i.e. TEC1 Sp. z o.o, TEC2 Sp. z o.o. and TEC3 Sp. z o.o. five wind farms belonging to the in.ventus group and financial claims of Hamburg Commercial Bank AG against the companies operating the wind farms, the cases from the in.ventus group companies brought against TAURON Polska Energia S.A. were suspended by the court, at the joint request of the parties. In the first quarter of 2020, the parties filed an application to initiate proceedings in order to withdraw the claimant's statement of claim together with a waiver of the claim. The court has taken action at the unanimous request of the parties. By letter dated 5 June 2020, the claimant party withdrew its waiver of the claim. By order of 6 August 2020, the court discontinued the proceedings in the above-mentioned case. The judgment is final and binding.

Claims relating to termination of long-term contracts against a subsidiary TAURON Sprzedaż Sp. z o.o.

In 2018, the subsidiary TAURON Sprzedaż Sp. z o.o. was notified of cases filed against it by two Polenergia group companies with regard to settlement related to damages in the total amount of PLN 78 855 thousand for an alleged loss incurred by the Polenergia group companies as a result of groundless termination of the long-term agreement concluded between them and Polska Energia - Pierwsza Kompania Handlowa Sp. z o.o. The companies indicated in their conclusions that the Company, Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. and liquidators of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. have caused and continue to cause damage to the companies from the Polenergia group, and TAURON Sprzedaż Sp. z o.o. has consciously benefited from this damage and – according to the companies from the Polenergia group – is responsible for it. TAURON Sprzedaż Sp. z o.o. considered the claims of the Polenergia group companies groundless; thus, no settlement was reached. Based on the analysis of the legal situation, in the opinion of the Management Board of TAURON Sprzedaż Sp. z o.o., there are no grounds for creating a provision for the above case. The case is not subject to legal proceedings.

Claim against PGE EJ 1 Sp. z o.o.

On 13 March 2015, a consortium consisting of WorleyParsons Nuclear Services JSC, WorleyParsons International Inc, WorleyParsons Group Inc (hereinafter referred to as the "WorleyParsons Consortium"), which is the research contractor for the investment process related to the construction of a nuclear power plant by PGE EJ 1 Sp. z o.o. (hereinafter referred to as the "Agreement"), reported in connection with the Agreement – in a call for payment to PGE EJ 1 Sp. z o.o. – claims for a total amount of PLN 92 315 thousand. As a result, on 15 April 2015, the Company (as a holder of 10% of shares in the issued capital of PGE EJ 1 Sp. z o.o.) concluded an agreement with PGE EJ 1 Sp. z o.o. and its other shareholders (i.e. PGE Polska Grupa Energetyczna S.A., KGHM Polska Miedź S.A. and ENEA S.A.) that regulated mutual relations related to these claims, including principles of providing additional funds (if any) to PGE EJ 1 Sp. z o.o. by its shareholders.

In the Company's view, its potential additional exposure to PGE EJ 1 Sp. z o.o. arising from the agreement shall not exceed its percentage capital exposure to that entity. In November 2015, the District Court in Warsaw delivered to PGE EJ 1 Sp. z o.o. a lawsuit of WorleyParsons consortium for the amount of about PLN 59 million, subsequently extended in 2017 and 2019 to about PLN 128 million.

PGE EJ1 Sp. z o.o. did not accept the claim and believed that the probability that the court would decide in favour of the plaintiffs was remote. No provisions were recognised in relation to the above events.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Claims filed by Huta Łaziska S.A.

In connection with the Company's merger with Górnośląskie Zakład Elektroenergetyczny S.A. ("GZE") – TAURON Polska Energia S.A. became a party to a court dispute with Huta Łaziska S.A. ("Huta") against GZE and the State Treasury represented by the President of ERO. Currently, the trial is pending before the Court of Appeal in Warsaw.

Under a suit of 12 March 2007 against GZE and the State Treasury represented by the President of the Energy Regulatory Office (jointly and severally) Huta claimed the payment of PLN 182 060 thousand with interest from the date of filing the suit to the date of payment, in respect of damages for alleged losses resulting from GZE's failure to comply with the decision of the ERO President dated 12 October 2001 concerning resumption of deliveries of electricity to Huta.

In this case, the courts of the first and second instance passed judgements favourable for GZE; however, in its judgement of 29 November 2011 the Supreme Court overruled the judgement of the Court of Appeals and remanded the case for re-examination by that Court. On 5 June 2012, the Court of Appeals overruled the decision of the Regional Court and remanded the case for reexamination by the latter. By judgement of 28 May 2019, the Regional Court in Warsaw dismissed Huta's claim in its entirety and ruled that Huta reimbursed each of the respondents for the costs of the proceedings. The judgement is not final and binding. Huta appealed (dated 25 July 2019), challenging the above judgement in its entirety and requesting that it be amended by upholding the claim in its entirety and awarding the costs of the proceedings against the respondents in favour of Huta, or alternatively that the contested judgement be set aside in its entirety and the case be referred back to the court of first instance. In response to the appeal of 9 August 2019, the Company requested that the appeal be dismissed in its entirety as manifestly unfounded and that the costs of the appeal proceedings be awarded against Huta in favour of the Company.

Based on the legal analysis of the claims, as well as taking into account the above judgement, the Company believes that the claims are unfounded and the risk of having to satisfy them is negligible. As a result, no provision has been recognised by the Company for any costs associated with those claims.

Case filed by ENEA S.A.

Case filed by ENEA S.A. ("ENEA") against TAURON Polska Energia S.A., which has been heard by the Regional Court in Katowice since 2016, regards the payment of PLN 17,086 thousand with statutory interest from 30 June 2015 until the payment date. The actual basis of ENEA's claim are allegations concerning unjust enrichment of the Company in connection with possible errors in the determination of aggregated measurement and settlement data by ENEA Operator Sp. z o.o. constituting the basis for settlements between ENEA and the Company and Polskie Sieci Elektroenergetyczne S.A. on account of imbalance on the Balancing Market in the period from January to December 2012. During the proceedings, at the request of ENEA additional sellers were summoned, for whom TAURON Polska Energia S.A. acted as an entity responsible for trade balancing, including the Company's subsidiaries, i.e. TAURON Sprzedaż Sp. z o.o. and TAURON Sprzedaż GZE Sp. z o.o. The claim for payment by the above subsidiaries amounting in total to PLN 8 414 thousand, together with statutory interest, was submitted by the claimant in the event the action against TAURON Polska Energia S.A. is dismissed.

After the end of the reporting period, on 22 March 2021, the Regional Court in Katowice dismissed ENEA's claim in its entirety and ruled on ENEA's obligation to reimburse the Company for the costs of the proceedings. The judgment is not final and binding.

The Company did not recognize any provision as, in the opinion of the Company, the risk of losing the case is below 50%. Provisions were recognized by the subsidiaries of TAURON Polska Energia S.A. in the total amount of PLN 5 928 thousand in case of TAURON Sprzedaż Sp. z o.o.) and in the total amount of PLN 4 214 thousand in case of TAURON Sprzedaż GZE Sp. z o.o.

The commitment of the Funds in the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o.

The investment agreement signed by the Company with the Closed-End Investment Funds ("Funds") managed by the Polish Development Fund provides for a number of situations whose occurrence constitutes a material breach of the agreement by the Company. The above situations, some of which are beyond the direct control of the Company, include, among others, the occurrence of events of a legal nature, events relating to the financial and material situation of the TAURON Group, decisions of an investment and operational nature taken by the Group with respect to the financing and construction of the 910 MW unit, as well as events relating to the future operation of the unit. Any possible material breach of the agreement on the part of the Group's companies may lead to the potential launch of a procedure, the effect of which may be a request (activation of an option) by the Closed-End Investment Funds to repurchase from the Closed Investment Funds the shares in the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. held by those Funds, in the amount invested by the Funds in the shares, increased by the agreed return and a material breach bonus and reduced by the distribution of funds by Nowe Jaworzno Grupa TAURON Sp. z o.o. to the Funds.

n 27 March 2020, an annex to the investment agreement was concluded, removing from the catalogue of significant breaches of the agreement on the part of the Company the breaches referring to debt ratios combined with a simultaneous amendment to the shareholders' agreement, consisting in granting the Funds special rights in case of exceeding the agreed levels of these ratios.

On 4 May 2020, the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. and the contractor signed an agreement relating to the performance of the 910 MW Unit construction contract, in which the estimated date of commissioning of the 910 MW Unit was postponed to 15 November 2020, which is described in more detail in Note 51 of these financial statements. On 5 August 2020, the Company, the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. and the Funds concluded annexes to the investment agreement as well as an annex to the conditional agreement on the sale of the Funds' shares in Nowe Jaworzno Grupa TAURON Sp. z o.o. concluded by the Company with the Funds. On the basis of the above annexes, in particular the deadline for commissioning of the unit specified in the investment agreement was postponed by six months. On 13 November 2020, the 910 MW power unit was commissioned, which in the context of the annexes to the investment agreement signed, means that the cut-off date for unit commissioning has not been exceeded, and thus no breach of the investment agreement.

As at the date of approval of these financial statements for publication, the Company does not identify on its part any risk of material breach of the agreement, which is beyond the Company's direct control, and is of the opinion that there is no real possibility, including in the future, of occurrence of material breaches of the agreement.

44. Security for liabilities

of PLN 880 000 thousand.				Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand) As at the balance sheet date, the Closed Investment Funds hold shares in Nowe Jaworzno Grupa TAURON Sp. z o.o. in the amount
44.		Security for liabilities
table below.				The most significant types of collateral securing the Company's liabilities as at 31 December 2020 are presented in the
Collateral		Collateral amount Currency PLN	Due date	Agreement/transaction
		7 284 000	31.12.2025	Loan arrangement with a consortium of banks of 19 June 2019
		2 550 000	20.12.2032	Long-term Bond Issue Scheme in Bank Gospodarstwa Krajowego of 31 July 2013
		1 500 000	31.12.2036	Overdraft agreement with Bank Gospodarstwa Krajowego of 19 December 2018
		900 000	31.12.2027	Credit agreements with Intesa Sanpaolo S.p.A. of 19 December 2019
		621 000 600 000	31.10.2021 30.06.2034	Bank guarantee agreement dated 28 January 2020 with MUFG Bank, Ltd.1 Subordinated Bond Issue Scheme in Bank Gospodarstwa Krajowego of 6 September
				2017
		600 000	17.12.2021	Bank account agreement (intraday limit) with PKO Bank Polski S.A. of 9 October 20172
		600 000	31.12.2028	Credit agreement with SMBC Bank EU AG of 16 March 2020
		600 000 600 000	31.12.2030 14.03.2023	Credit agreement with a consortium of banks of 25 March 2020 Agreement concluded with BGK for bank guarantees in favour of Izba Rozliczeniowa
Declarations of submission to enforcement		600 000	31.03.2021	Giełd Towarowych S.A. of 13 March 2020 Membership agreement in the Exchange Clearing Chamber operated by Izba Rozliczeniowa Giełd Towarowych S.A.2
		360 000	29.12.2021	Overdraft agreement with PKO Bank Polski S.A. of 9 October 2017 2
				Agreement concluded with Santander Bank Polska S.A. for bank guarantees for the
		300 000	24.04.2024	benefit of Izba Rozliczeniowa Giełd Towarowych S.A. of 24 April 2020 Agreement concluded with Santander Bank Polska S.A. on intra-day credit in the Intra
		384 000	31.12.2027	Day auxiliary account of 8 December 2020
		240 000	31.12.2023	Bond Issue Scheme of 24 November 2015 2
		180 000	25.05.2024	Contingent agreement concluded with Intesa Sanpaolo S.p.A. Spółka Akcyjna Branch in Poland for bank guarantees for the benefit of Izba Rozliczeniowa Giełd Towarowych S.A. of 25 May 2020
		24 000 110 755
	EUR	50 000 230 740	31.12.2021	Overdraft agreement with Bank Gospodarstwa Krajowego of 30 December 2015 2
		67 500 311 499	31.12.2022
		96 000	27.05.2024	Framework bank guarantee agreements with CaixaBank S.A. of 27 May 2019
		24 000	27.05.2029
		500 000	13.03.2022	Agreement concluded with BGK for bank guarantees in favour of Izba Rozliczeniowa Giełd Towarowych S.A. of 13 March 2020
		300 000	22.02.2021	Bank account agreement (intraday limit) with PKO Bank Polski S.A. of 9 October 2017 2
Bank account mandates		300 000		Overdraft agreement with PKO Bank Polski S.A. of 9 October 2017 2
	EUR	45 000 207 666	30.12.2021	Overdraft agreement with Bank Gospodarstwa Krajowego of 30 December 2015
		80 000	26.05.2023	Framework bank guarantee agreements with CaixaBank S.A. of 27 May 2019
		20 000	26.05.2028
		100 000	15.01.2021	Bank guarantees issued by Intesa Sanpaolo S.p.A. Spółka Akcyjna Oddział w Polsce,
		50 000		Santander Bank Polska S.A. and BGK to Izba Rozliczeniowa Giełd Towarowych S.A.
Bank guarantees		30 000	18.02.2021	as a collateral of transactions concluded on Power Commodity Exchange
		10 000	30.06.2021	Bank guarantee issued by CaixaBank S.A. to PSE S.A. as performance security for
		1 000	31.03.2021	the power transmission service agreement and to GAZ-SYSTEM S.A. as transmission
			500 31.12.2021	contract performance security
Blank promissory notes to secure the payment of the Company's liabilities		7 559	-	Security for adequate performance of obligations under the concluded grants agreements

2 The security relates to an agreement for which, as at the balance sheet date, the liabilities expired, were repaid or replaced with other liabilities (in case of an overdraft facility agreement with BGK of 30 December 2015, it concerns declarations of submission to enforcement in the amount of EUR 24 000 thousand and EUR 50 000 thousand).

After the end of the reporting period:

• bank guarantees securing the Company's liabilities were issued in favour of the IRGiT. On the date of approval of these financial statements for publication, two bank guarantees are valid in the total amount of PLN 80 000 thousand, with expiry dates on 16 April and 18 June 2021;
• on 12 March 2021, the annex to the agreement with Bank Gospodarstwa Krajowego on bank guarantees in favour of IRGiT was concluded, under which the declaration on submission to enforcement up to the amount of PLN 300 000 thousand with the effectiveness term until 14 March 2024 was issued. The new declaration replaces the declaration

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

on submission to enforcement up to the amount of PLN 600 000 thousand with the effectiveness term until 14 March 2023.

Transfer of title to CO2 emission allowances and property rights arising from certificates of energy origin

In 2019 and in February 2020, agreements for the transfer of title to CO2 emission allowances to the IRGiT were concluded between the Company and the IRGiT and between the Company, a subsidiary of TAURON Wytwarzanie S.A. and the IRGiT. As of 31 December 2020, title to CO2 emission allowances in the total amount of 3 021 799 tonnes were transferred to the IRGiT, including:

• The Company has deposited 2 205 000 tonnes of allowances held in the Union Registry account,
• the subsidiary, TAURON Wytwarzanie S.A. has transferred of title to rights owned by her in total amount of 816 799 tons.

After the end of the reporting period, on 16 February 2021, all allowances owned by subsidiary were returned to the account of TAURON Wytwarzanie S.A. and are no longer the subject of the transfer of title. Additionally, on 17 March 2021 some allowances in the amount of 1 660 000 tonnes were returned to the Company.

On 10 February 2020, two ownership transfer agreements concerning property rights arising from certificates of energy origin were concluded between the Company, the subsidiary TAURON Sprzedaż Sp. z o.o. and the IRGiT and between the Company, the subsidiary TAURON Sprzedaż GZE Sp. z o.o. and the IRGiT. As at 31 December 2020, pursuant to the agreements entered into, the subsidiaries submitted an instruction to block the property rights held in a total of 1 930 594.92 MWh in the Certificate of Origin Register maintained by the Polish Power Exchange. After the end of the reporting period, on 18 January 2021, all property rights arising from certificates of origin were unblocked and are no longer the subject of the transfer of title.

45. Capital commitments

As at 31 December 2020 and as at 31 December 2019 the Company did not have any capital commitments.

46. Related-party disclosures

46.1. Transactions with related parties and State Treasury companies

The Company enters into transactions with related parties, as presented in Note 2 to these financial statements. In addition, due to the fact that the State Treasury of the Republic of Poland is the Company's majority shareholder, State Treasury companies are treated as related parties. Transactions with State Treasury companies are mainly related to the operating activities of the Company and are made on an arm's length terms.

The total value of transactions with the aforementioned entities and the balances of receivables and liabilities have been presented in the tables below.

Revenues and expenses

	Year ended	Year ended
	31 December 2020	31 December 2019
Revenue from subsidiaries	12 726 629	12 328 267
Revenue from operating activities	11 220 072	10 836 473
Dividend income	1 077 568	1 065 648
Other finance income	428 989	426 146
Revenue from jointly-controlled entities	262 304	145 866
Revenue from State Treasury companies	196 282	253 360
Costs from subsidiaries	(3 190 863)	(1 928 766)
Costs of operating activities	(3 158 745)	(1 884 774)
Finance costs	(32 118)	(43 992)
Costs incurred with relation to transactions with jointly-controlled entities	(60 668)	(9 149)
Costs from State Treasury companies	(686 783)	(954 395)

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

Receivables and liabilities

	As at	As at
	31 December 2020	31 December 2019
Loans granted to subsidiaries and receivables from subsidiaries	9 752 655	8 322 763
Receivables from buyers	1 283 880	1 434 004
Loans granted under cash pool services	312 756	532 174
Other loans granted	8 130 671	6 351 775
Receivables arising from the TCG	21 371	-
Other financial receivables	89	178
Other non-financial receivables	3 888	4 632
Loans granted to jointly-controlled entities and receivables from jointly controlled entities	495 496	388 189
Receivables from State Treasury companies	18 893	25 912
Liabilities to subsidiaries	3 152 699	2 392 415
Liabilities to suppliers	545 363	264 063
Loans received under cash pool services	1 365 579	1 189 214
Other loans received	770 494	710 956
Liabilities arising from the TCG	91 106	212 446
Other financial liabilities	24 025	15 015
Other non-financial liabilities	356 132	721
Liabilities to jointly-controlled entities	40 991	633
Liabilities to State Treasury companies	85 389	73 399

Revenue from subsidiaries include revenue from the sale of coal to TAURON Wytwarzanie S.A., TAURON Ciepło Sp. z o.o. and Nowe Jaworzno Grupa TAURON Sp. z o.o, which is presented in the statement of comprehensive income less cost in the amount of the surplus constituting the revenue due to agency services, presented in detail in Note 11 to these financial statements.

In the year ended 31 December 2020, the major contracting party as regards sales revenue from transactions made by TAURON Polska Energia S.A. with State Treasury companies was PSE S.A. Sales to that entity accounted for 97% of the total revenue from State Treasury companies.

In the year ended 31 December 2020, Polska Grupa Górnicza S.A., Węglokoks S.A. and Jastrzębska Spółka Węglowa S.A. were the major contracting parties of TAURON Polska Energia S.A. as regards costs incurred in relation to transactions with State Treasury companies. Costs in transactions with those entities represented 92% of total costs incurred in purchase transactions entered into with State Treasury companies

The Company concludes material transactions on the energy market through Izba Rozliczeniowa Giełd Towarowych S.A. As it is only responsible for organization of commodities exchange trading, the Company does not classify purchase and sale transactions made through this entity as related-party transactions.

46.2. Compensation of the executives

The amount of compensation and other benefits paid or payable to the Management Board, Supervisory Board and other key executives of the Company in the year ended 31 December 2020 and in the comparative period has been presented in the table below.

	Year ended	Year ended
	31 December 2020	31 December 2019
Management Board	4 679	5 209
Short-term benefits (with surcharges)	3 699	4 650
Temination benefits	829	541
Other	151	18
Supervisory Board	648	898
Short-term employee benefits (salaries and surcharges)	648	898
Other members of key management personnel	16 853	17 805
Short-term employee benefits (salaries and surcharges)	14 910	15 707
Temination benefits	959	933
Other	984	1 165
Total	22 180	23 912

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

The above table takes into account the amounts paid or payable until 31 December 2020. In addition, in accordance with the adopted accounting policy, the Company recognizes provisions for termination of management contract benefits for members of the Management Board and termination employment benefits allocated to other key executives, which may be paid or payable in future reporting periods.

No loans have been granted from the Company's Social Benefit Fund to members of the Management Board, Supervisory Board or other key executives.

47. Finance and capital management

Finance and capital management is carried out at the level of TAURON Polska Energia S.A. Capital Group. During the period covered by these financial statements, there were no significant changes in the objectives, principles and procedures of capital and financial management. Capital and finance management has been discussed in more detail in Note 57 to the Consolidated Financial Statements for the year ended 31 December 2020.

48. Employment structure

The following note presents average headcount in the annual periods ended 31 December 2020 and 31 December 2019.

	Year ended	Year ended
	31 December 2020	31 December 2019
Administration	380	385
Sales department	95	95
Total	475	480

The above table does not include persons covered by contracts for the provision of management services.

49. Fee of the certified auditor or the entity authorized to audit financial statements

Information on the auditor's remuneration is presented in section 6. in the Management Board's reports on the activities of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020.

50. Structure of financial statements broken down by business activity type in line with Article 44 of the Energy Law

Under Article 44.2 of the Energy Law, TAURON Polska Energia S.A., as an energy company, is obliged to disclose specific items of the balance sheet and the statement of profit or loss broken down by individual types of business activity in Notes to these financial statements.

In accordance with Article 44.2 of the Energy Law, The Company has identified the two types of business activities, i.e.: trade in gaseous fuels and other activity.

The principles of preparing a statement of comprehensive income (statement of profit or loss) broken down by type of business activity

The Company keeps accounting records which enable separate calculation of expense and revenue and the profit/loss for individual types of activities.

The Company has directly separated sales revenue and cost of sales related to individual types of activities.

Costs of sells related to the entire sales process carried out by the Company have been divided proportionally to the sales revenue generated by the Company.

Other operating and financing activities have been identified as those related to other business activities of the Company.

Administrative expenses of the Company are incurred for the benefit of the entire Capital Group, hence they have been recognized in the statement of comprehensive income as unallocated items and are not directly attributable to a specific business activity, as such attribution would be unjustified. Also CIT charged to profit or loss has been presented under unallocated items.

Statement of comprehensive income by type of activity for the 2020 financial year

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU	TAURON Polska Energia S.A.
	(in PLN thousand)
Statement of comprehensive income by type of activity for the 2020 financial year
	Gas	Other activity	Unallocated items	Total
Sales revenue	342 433	10 998 031	-	11 340 464
Cost of sales	(336 954)	(11 764 566)	-	(12 101 520)
Profit on sale (loss)	5 479	(766 535)	-	(761 056)
Selling and distribution expenses Administrative expenses	(629) -	(20 200) -	- (117 509)	(20 829) (117 509)
Other operating income and expenses	-	(10 509)	-	(10 509)
Operating profit (loss)	4 850	(797 244)	(117 509)	(909 903)
	-	1 082 031	-	1 082 031
				325 247
Dividend income Interest income on bonds and loans	-	325 247	-
Interest expense on debt	-	(409 623)	-	(409 623)
Revaluation of shares	-	(589 010)	-	(589 010)
Revaluation of bonds and loans	-	(1 453 476)	-	(1 453 476)
Revaluation write-off to fair value of non-current assets classified as held
for sale			-	(1 393 432)
Other finance income and costs	-	(179 464)	-	(179 464)
Profit (loss) before tax	4 850	(3 414 971)	(117 509)	(3 527 630)
Income tax expense Net profit (loss)	- 4 850	- (3 414 971)	(62 025) (179 534)	(62 025) (3 589 655)

Statement of comprehensive income by type of activity for the 2019 financial year

Sales revenue	353 537	10 327 040	-	10 680 577
Cost of sales	(350 901)	(10 080 238)	-	(10 431 139)
Profit on sale	2 636	246 802	-	249 438
Selling and distribution expenses	(795)	(23 241)	-	(24 036)
Administrative expenses	-	-	(121 636)	(121 636)
Other operating income and expenses	-	(2 664)	-	(2 664)
Operating profit (loss)	1 841	220 897	(121 636)	101 102
Dividend income	-	1 100 861	-	1 100 861
Interest income on bonds and loans	-	389 809	-	389 809
Interest expense on debt	-	(407 866)	-	(407 866)
Revaluation of shares	-	(94 920)	-	(94 920)
Revaluation of bonds and loans	-	(1 394 812)	-	(1 394 812)
Other finance income and costs	-	(40 381)	-	(40 381)
Profit (loss) before tax	1 841	(226 412)	(121 636)	(346 207)
Income tax expense	-	-	(116 623)	(116 623)
Net profit (loss)	1 841	(226 412)	(238 259)	(462 830)

The principles of preparing a statement of financial position (balance sheet) broken down by type of business activity

The Company has directly separated receivables from buyers, liabilities to suppliers, other receivables and liabilities, as well as derivatives related to individual types of its business activities.

Equity, provisions for employee benefits, cash, receivables and liabilities relating to taxes and charges and deferred tax asset / liability have been presented as unallocated items in the statement of financial position.

The remaining assets and liabilities are related to other activities of the Company.

<-- PDF CHUNK SEPARATOR -->

(in PLN thousand)

Statement of financial position by type of activity as at 31 December 2020

TAURON Polska Energia S.A. Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand) Statement of financial position by type of activity as at 31 December 2020 Gas Other activity Unallocated items Total ASSETS Non-current assets, of which: 943 24 497 540 - Shares - 20 152 633 - Loans granted - 4 233 601 - Derivative instruments 482 35 559 - Deferred tax assets - - - Other financial assets 461 2 080 - Current assets, of which : 37 526 3 442 219 729 914 Receivables from buyers 35 621 1 265 788 - Income tax receivables - - 82 464 Loans granted - 1 147 350 - Derivative instruments 2 122 803 - Other financial assets 1 903 85 400 - Other non-financial assets - 7 975 4 316 Cash and cash equivalents - - 643 134 TOTAL ASSETS 38 469 27 939 759 729 914 EQUITY AND LIABILITIES Equity - - 11 123 155 Non-current liabilities, of which: 735 13 069 860 4 208 Debt - 12 117 294 - Other financial liabilities 400 13 690 - Derivative instruments 335 73 404 - Provisions for employee benefits - - 4 208 Current liabilities, of which: 3 915 4 159 372 346 897 Debt - 2 772 339 - Liabilities to suppliers 3 913 760 183 - Other financial liabilities - 233 099 - Derivative instruments 2 101 843 - Other non-financial liabilities - - 346 471 Provisions for employee benefits - - 426 TOTAL EQUITY AND LIABILITIES 4 650 17 229 232 11 474 260 Statement of financial position by type of activity as at 31 December 2019 Gas Other activity Unallocated items Total ASSETS Non-current assets, of which: 530 26 986 642 23 418 Shares - 21 844 183 - Bonds and loans granted - 5 047 552 - Derivative instruments 104 20 248 -
24 498 483 20 152 633 4 233 601 36 041 - 2 541 4 209 659 1 301 409 82 464 1 147 350 122 805 87 303 12 291 643 134 28 708 142 11 123 155 13 074 803 12 117 294 14 090 73 739 4 208 4 510 184 2 772 339 764 096 233 099 101 845 346 471 426 28 708 142 27 010 590 21 844 183 5 047 552 20 352
23 418 Deferred tax assets - - 23 418

Statement of financial position by type of activity as at 31 December 2019

ASSETS
Non-current assets, of which:	530	26 986 642	23 418	27 010 590
Shares	-	21 844 183	-	21 844 183
Bonds and loans granted	-	5 047 552	-	5 047 552
Derivative instruments	104	20 248	-	20 352
Deferred tax assets	-	-	23 418	23 418
Other financial assets	426	1 922	-	2 348
Current assets, of which :	33 938	2 261 383	1 179 218	3 474 539
Receivables from buyers	33 291	1 439 171	-	1 472 462
Income tax receivables	-	-	255 490	255 490
Bonds and loans granted	-	265 202	-	265 202
Derivative instruments	644	84 533	-	85 177
Other financial assets	3	316 946	-	316 949
Other non-financial assets	-	6 167	-	6 167
Cash and cash equivalents	-	-	923 728	923 728
TOTAL ASSETS	34 468	29 248 025	1 202 636	30 485 129
EQUITY AND LIABILITIES
Equity	-	-	14 808 177	14 808 177
Non-current liabilities, of which:	-	10 941 571	5 929	10 947 500
Debt	-	10 909 597	-	10 909 597
Derivative instruments	-	16 848	-	16 848
Provisions for employee benefits	-	-	5 929	5 929
Current liabilities, of which:	4 127	4 501 998	223 327	4 729 452
Debt	-	3 607 266	-	3 607 266
Liabilities to suppliers	3 379	421 107	-	424 486
Other financial liabilities	104	272 640	-	272 744
Derivative instruments	644	107 035	-	107 679
Other non-financial liabilities	-	-	223 035	223 035
Provisions for employee benefits	-	-	292	292
TOTAL EQUITY AND LIABILITIES	4 127	15 443 569	15 037 433	30 485 129

(in PLN thousand)

51. Other material information

Judgement of the Court of Arbitration at the Polish Chamber of Commerce on the claims of Abener Energia S.A. Against Elektrociepłownia Stalowa Wola S.A.

On 25 April 2019, a judgement of the Court of Arbitration at the Polish Chamber of Commerce in Warsaw ("Judgement") was issued in the case filed by Abener Energia S.A. ("Abener") against Elektrociepłownia Stalowa Wola S.A. ("ECSW"), which is a joint venture of the TAURON Group, in which the Company holds, indirectly through its subsidiary TAURON Wytwarzanie S.A., 50% of shares in the issued capital.

The case pending at the Court of Arbitration concerned a claim for payment, for establishing the legal relationship and for the obligation to submit a declaration of intent in connection with the terminated contract concluded between Abener general contractor) and ECSW (contracting authority) for the construction of a gas and steam unit in Stalowa Wola. Under the Judgement, ECSW was obligated to pay to Abener the amount of PLN 333 793 thousand along with statutory interest for delay and costs of the arbitration proceedings. On 24 June 2019, ECSW filed a complaint against the Judgement.

On 22 September 2020, the Court of Appeals in Rzeszów, by its judgement, dismissed the complaint of ECSW to repeal the Judgement, and on 29 September 2020, declared the Judgement enforceable. ECSW filed a request for service of the aforementioned judgement on the adjudication of the action with a statement of reasons; the company received a copy of the judgement on 20 October 2020.

In addition, on 25 September 2020, ECSW filed a request with the Court of Appeals in Rzeszów to suspend the enforceability of the Judgement until the cassation appeal is heard, and on 7 October 2020, it filed a complaint against the decision to make the Judgement enforceable.

On 20 November 2020, the Court of Appeals in Rzeszów issued a decision to suspend the execution of the Judgement until the conclusion of the cassation proceedings or the expiry of the time limit for filing a cassation appeal. On 21 December 2020, ECSW filed a complaint in cassation.

In connection with the above Judgement, Elektrociepłownia Stalowa Wola S.A. recognised a provision in the statement of financial position, which amounts to PLN 439 144 thousand as at 31 December 2020.

On 20 December 2019, ECSW received a new case filed by Abener with the Court of Arbitration. The subject matter of the claim is the payment by the ECSW to Abener of the total amount of PLN 156 447 thousand and EUR 537 thousand together with statutory interest for delay on account of damages resulting from demanding and obtaining by the ECSW, at Abener's expense, payment from the performance bond or, alternatively, reimbursement of unjustified enrichment obtained by the ECSW at Abener's expense in connection with obtaining payment from the performance bond. The guarantee was granted to ECSW by Abener in accordance with the contract concluded between the parties for the construction of the CCGT unit in Stalowa Wola. The respond to it was filed by ECSW on 20 March 2020. Assessment of the claims and the grounds on which they are based indicates that they are unfounded. The arbitration case is pending.

On 19 October 2020, ECSW filed a statement of claim with the Court of Arbitration at the Polish Chamber of Commerce in Warsaw against Abener for payment by Abener to ECSW of PLN 198 664 thousand and EUR 461 thousand, together with interest, as compensation for damages corresponding to the costs of rectifying the defects, faults and deficiencies in the works, deliveries and services performed by Abener during the performance of the above contract. The proceedings are ongoing.

The CCGT unit construction contract concluded between ECSW and Abener does not contain any regulations obliging the Company to pay remuneration to Abener in any form for ECSW. On 30 September 2020, Elektrociepłownia Stalowa Wola was commissioned.

Change of the commissioning date for the 910 MW power unit

In connection with the failure of one of the boiler elements during the last testing phase of the 910 MW power unit ("Unit") in Jaworzno, the Consortium RAFAKO S.A. - MOSTOSTAL WARSZAWA S.A., being the contractor of the Unit, the designer of the boiler and the entity responsible for the start-up of the boiler indicated that it was necessary to postpone the commissioning of the Unit. On 6 March 2020, the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. received information from the contractor, according to which the estimated commissioning of the Unit was to take place by the end of July 2020. On 4 May 2020, the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o. and the contractor signed an agreement related to the execution of the contract for the construction of the Unit. In the signed agreement, the parties agreed on the causes of the damage to one of the boiler components referred to above. According to the conclusions presented by the emergency commission consisting of representatives of the parties, the failure resulted from an Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

unfavourable combination of phenomena during the start-up of the Unit. In addition, the emergency committee agreed on a method of repairing the damaged boiler components that will avoid similar failures in the future.

The agreement also established a schedule of activities including procedures to prevent the risk of recurrence of failures and procedures for tuning and start-up work on the Unit. The agreement was followed by an addendum to the main contract between the parties, in which the Contractor undertook to commission the Unit by 15 November 2020. This deadline took into account the additional time needed to remedy the failure referred to above.

On 13 November 2020, the Unit was commissioned. On the day of commissioning of the 910 MW Unit, Nowe Jaworzno Grupa TAURON Sp. z o.o., E003B7 Sp. z o.o. (a company 100% controlled by RAFAKO S.A. in restructuring) and the Consortium (acting with the consent of the supervisor of the arrangement in simplified restructuring proceedings) signed a settlement agreement which is the result of mediation conducted before the Court of Arbitration at the Polish Prosecutor General's Office and which regulates in particular the following issues:

• Nowe Jaworzno Grupa TAURON Sp. z o.o. and the Consortium waived their mutual equivalent claims which had occurred by the date of signing the Settlement Agreement, except for, inter alia, Nowe Jaworzno Grupa TAURON Sp. z o.o.'s claims under warranty or guarantee and recourse claims against the Consortium for payment of further subcontractors' claims and the Consortium's claims for work performed in accordance with the contract,
• The Consortium will perform additional services for Nowe Jaworzno Grupa TAURON Sp. z o.o., including optimising the operation of the Unit, which will result, inter alia, in reducing the technical minimum of the Unit from 40% to 37%. In addition, the technical guarantee for the high-pressure part of the boiler will be extended by six months (to 36 months), for which Nowe Jaworzno Group TAURON Sp. z o.o. will receive additional security provided by the guarantors.

The Settlement became effective after the end of the reporting period, on 6 January 2021, following the fulfilment of all conditions precedent, key among which were the commissioning of the Unit by 15 November 2020, the submission by the Consortium of an agreement in the form of a Promissory note with financial institutions on how to raise the funds necessary to complete the project and the approval of the Settlement by a court of law.

In connection with the conclusion of the settlement, on 13 November 2020, Nowe Jaworzno Grupa TAURON Sp. z o.o. and the Consortium concluded an annex to the agreement for the construction of the Unit, which regulates in detail the arrangements between the parties set out in the Settlement Agreement with respect to additional services provided by the Consortium, including, inter alia, dates of their performance and related dates of payments.

Impact of the COVID-19 pandemic on the activity of the Company and TAURON Group

The development of COVID-19 disease has been observed in Poland during the year ending 31 December 2020. As a result, numerous restrictions have been introduced in the country to stop the spread of the SARS-CoV-2 virus that causes COVID-19 disease. This situation has caused disturbances in the economic and administrative system in Poland and worldwide. As a result, the pandemic has significantly reduced economic activity, affecting the work of industrial plants and companies in the small and medium-sized companies segment. Consequently, in the medium and long term, it is expected that the pandemic will continue to affect national, European as well as global economic conditions, having a negative impact on economic growth in Poland in 2021 and beyond. Material issues relating to the impact of the pandemic on the TAURON Group are presented below. Bearing in mind that the Company is the parent company of the Group, which coordinates selected aspects of the activities of the subsidiaries, the areas of pandemic impact on the Group presented below are significant from the point of view of the Company, as they may indirectly affect its financial situation.

The situation related to the COVID-19 pandemic in 2020 significantly affected the level of demand for electricity in the National Power System and, consequently, the volumes of electricity distribution and sales in the TAURON Group. In the second half of 2020, the impact of the COVID-19 pandemic on domestic demand was milder than it was in the first half of 2020. The biggest drop in electricity consumption in Poland took place in the second quarter of 2020, amounting to as much as 8.5%, while the country's annual electricity consumption fell by around 2.3% compared to the same period in 2019. Changes in electricity demand resulted in a decrease in revenues mainly in the area of electricity distribution and sales. The Group estimates that, in terms of the Distribution segment, the adverse impact of the pandemic on EBITDA amounted to PLN 47 876 thousand, which is due to the loss of some sales volume to non-household customers. With regard to the Sales segment, the estimated negative impact of the pandemic on EBITDA amounted to PLN 77 179 thousand, due to the loss of margin associated with the decrease in electricity sales and the need to balance the purchase position. In addition, the pandemic situation has led to a reduction in production in the area of conventional generation and, consequently, to a fall in demand for hard coal and an increase in coal stocks. In view of this situation, renegotiations were undertaken with coal suppliers on price and quantity conditions for its purchase. In order to mitigate the negative impact of the pandemic on TAURON Group, an

TAURON Polska Energia S.A.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU

(in PLN thousand)

agreement was signed between the Management Board of the Company and the social side, limiting working hours and reducing the remuneration of the company's Management Board and employees by 20% in the period of three months starting from 1 May 2020. In turn, at TAURON Wytwarzanie S.A., an agreement signed between the company's Management Board and the social side limited working hours and reduced the remuneration of the company's Management Board and employees by 10% in the corresponding period. These agreements made it possible to reduce costs and obtain funds under the solutions contained in the anti-crisis shield for reduced working hours of employees.

• Disturbances in economic activity in Poland caused financial difficulties for customers and contractors of the TAURON Group. The situation was mitigated by regulatory measures in the introduction of successive anti-crisis shields, which were aimed at maintaining liquidity and protecting jobs at Polish entrepreneurs. In the period from March to December 2020, changes in the level of overdue receivables were observed in the first weeks of the development of the pandemic. In the remainder of the year, past due receivables were broadly stable, with increased migration of the balance of receivables into subsequent past due periods observed. In order to limit potential credit losses, extended credit risk management criteria are applied, monitoring of receivables has been intensified and debt collection activities have been stepped up. The COVID-19 pandemic has further affected the need for additional allowances for expected credit losses of financial instruments and the remeasurement to fair value of loans granted. This increased the Company's operating expenses by PLN 7 530 thousand and financial expenses by PLN 19 619 thousand.
• In terms of the market environment, increased volatility was observed in the prices of commodity instruments, in particular electricity and CO2 emission allowances, which translated into an increase in the required security deposits and, consequently, the level of cash committed for this purpose. In order to improve its liquidity position, the Company has entered into guarantee limit agreements allowing it to provide the required collateral to the IRGiT in non-cash form. The Company has also taken advantage of the anti-crisis shield solution by filing a declaration of submission to enforcement with the IRGiT, thereby reducing the level of deposits made both in cash and in established bank guarantees (this solution, in accordance with the Act, expired on 30 September 2020). In order to further reduce the liquidity risk, the Company matched the delivery dates of the concluded forward contracts for CO² emission allowances with their redemption dates and decided to conclude new contracts exclusively on the OTC market. A capping system for TAURON expenditure has also been introduced.
• In terms of financial instruments, a depreciation of the zloty and a fall in interest rates were observed, including an intervention reduction in the NBP reference interest rate. Changes in exchange rates affect the costs incurred to purchase CO2 emission allowances, as well as the valuation of the Company's debt denominated in foreign currencies. On the other hand, changes in interest rates may affect the costs resulting from the concluded financing agreements based on a variable interest rate.
• As a result of the COVID-19 pandemic, there were also some difficulties in the implementation of TAURON Group's strategic investment projects. In the case of the investment in the construction of the 910 MW unit at Jaworzno and the construction of the unit at EC Stalowa Wola, these occurred in the early stages of the pandemic as a result of the introduction of strict controls on access to infrastructure and additional security procedures. With regard to the construction of the 910 MW unit, COVID-19 was one of the reasons for amending the contract with the consortium of Rafako S.A. and Mostostal Warszawa S.A. (the change in the commissioning date of the 910 MW power unit is described above in this Note). In order to mitigate the consequences of project disruptions, all contractors implementing the projects cooperate closely and on an ongoing basis with TAURON Group companies responsible for the investments, which monitor the situation in the projects and respond appropriately to the situation using available tools.
• The pandemic situation also affected the operations of individual business areas through increased employee absenteeism and increased operating costs resulting from the need to meet epidemiological conditions. In this regard, the TAURON Group has taken a number of preventive measures in organisational and material terms aimed at protecting employees of individual TAURON Group companies and maintaining the continuity of critical infrastructure operations. Dedicated Crisis Teams have been established at the level of the Parent Company as well as individual Subsidiaries in order to coordinate the security work related to the threat of COVID-19.

In conclusion, the TAURON Group, being aware of the risks related to the epidemiological situation, undertook in 2020 and continues to undertake active measures to mitigate the impact of the current and expected economic situation as well as to protect against extreme events. However, it should be stressed that the COVID-19 pandemic situation is highly volatile and the future impact and scale of the pandemic are difficult to estimate precisely at present. The duration of the pandemic, its severity and spread, and its impact on Polish economic growth in the short, medium and long term will be important. The Company's Management Board, being aware of the threats resulting from the pandemic, monitors the impact on an ongoing basis and takes all possible steps to mitigate any negative effects of the COVID-19 pandemic on the TAURON Group.

52. Events after the end of the reporting period

Conclusion of the negotiations in the sales process of shares in TAURON Ciepło Sp. z o.o.

Polskie Górnictwo Naftowe i Gazownictwo S.A., on 29 January 2021, expressed its will to discontinue the negotiations aimed at the acquisition of shares in TAURON Ciepło Sp. z o.o.

Due to the failure to conclude the transaction, the Management Board of the Company decided to commence analyses concerning the Heat Area, taking into account the projected changes in the external environment, including regulatory and market changes as well as taking into account the outlook of the Polish heat sector, which may affect further decisions on the sale of shares in TAURON Ciepło Sp. z o.o. or keeping of the Company in in Group.

New subordinated bond issue scheme

On 11 March 2021, TAURON Polska Energia S.A. concluded the agreement with Bank Gospodarstwa Krajowego on the new scheme for the issue of subordinated bonds up to PLN 450 000 thousand.

The subordinated bond issue scheme provides for a possibility to carry out the issue within a period of two years from signing of the documentation. The financing period is 12 years from the date of issue. In the period of the first 7 years following the issue, the Company cannot redeem the bonds earlier and BGK cannot sell the bonds to third parties. The interest rate is variable based on WIBOR 6M increased by a fixed margin, and after the 7-year financing period, the margin is additionally increased.

If issued, the bonds will be subscribed by Bank Gospodarstwa Krajowego on the primary market.

Funds from the issue may be used to finance the Group's current and investment needs, including projects related to Green Turn of TAURON.

Until the date of approval of these financial statements for publication, no bonds had been issued.

Contributions to the capital of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o.

On 17 March 2021, the Extraordinary General Meeting of Polska Energia-Pierwsza Kompania Handlowa Sp. z o.o. adopted a resolution on contributing to the company's equity in the amount of PLN 10 800 thousand by the sole shareholder of TAURON Polska Energia S.A. As part of the additional payments, the funds were contributed by the Company on 24 March 2021.

Restructuring of the portfolio of CO2 emission allowances of the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o.

As part of the management of the portfolio of CO2 emission allowances of its subsidiaries, the company acquires allowances for redemption purposes of the Group's production companies. After the balance sheet date, in March 2021, the Group restructured the portfolio of CO2 emission allowances of the subsidiary Nowe Jaworzno Grupa TAURON Sp. z o.o., in relation to the volume of 3 258 000 CO2 emission allowances, with the deadline for collection in March 2021.

Due to the delay in putting the 910 MW unit into operation and, consequently, lower production, the company's portfolio had a significant surplus of allowances contracted for the purpose of meeting the redemption obligation for 2020 over the actual demand. As at the balance sheet date, the Group intended to purchase CO2 emission allowances with a maturity date of March 2021, therefore these contracts are recognized as excluded from IFRS 9 Financial Instruments and therefore are not measured at fair value as at the balance sheet date.

In the first quarter of 2021, as a result of the analysis of new premises and circumstances that appeared after the balance sheet date, the Group changed its intentions regarding the above CO2 emission allowances and decided to roll them over with the conclusion of new contracts with delivery dates in March 2022, 2023 and 2024.

Therefore, the original contracts were not settled by physical delivery, and therefore the Group recognized the contracts in accordance with IFRS 9 Financial Instruments at fair value at the date of the change of judgment, i.e. in March 2021, and then recognized the result from the settlement of the instruments, which resulted in an increase in its operating result in the amount of EUR 65 893 thousand.

New contracted transactions with an execution date in the years 2022-2024 are excluded from the scope of IFRS 9 Financial Instruments and are not measured at fair value. At the same time, these transactions were made at prices Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

higher than the originally contracted purchase, which means higher costs of purchasing CO2 emission allowances for resale to a subsidiary.

The Company estimates, taking into account the selling price to the subsidiary, that the total impact of rolling and selling on its operating results in 2021-2024 will not be significant.

Signing an agreement for the sale of shares in PGE EJ 1 Sp. z o.o. for the State Treasury

After the balance sheet date, on 26 March 2021, the Company signed an agreement with the State Treasury for the sale of shares in PGE EJ 1 Sp. z o.o. ("Agreement"). The Agreement was signed by all entities holding shares in PGE EJ 1 Sp. z o.o. In addition to the Company, these are: PGE Polska Grupa Energetyczna S.A., Enea S.A. and KGHM Polska Miedź S.A., jointly (the "Shareholders"). The company PGE EJ 1 Sp. z o.o. is responsible for the preparation and implementation of the investment consisting in the construction and operation of the first Polish nuclear power plant.

Pursuant to the Agreement, the Company sold to the State Treasury 532 523 shares of PGE EJ 1 Sp. z o.o. representing 10% of the share capital and representing 10% of votes at the shareholders' meeting of PGE EJ 1 Sp. z o.o. After closing the transaction, the Company will not have any shares in PGE EJ 1 Sp. z o.o. The selling price for 100% of the shares amounted to PLN 531 362 thousand, of which PLN 53 136 thousand is attributable to the Company. Payment for shares in PGE EJ 1 Sp. z o.o. will take place no later than 31 March 2021. The selling price will be subject to adjustment based on the valuation of PGE EJ 1 Sp. z o.o. updated as of the closing date of the transaction. In the opinion of the Company, any possible adjustment will not have a significant impact on the final sale price.

Moreover, the Shareholders concluded with PGE EJ 1 Sp. z o.o. an annex to the agreement of 15 April 2015 in the case of WorleyParsons, according to which the Shareholders are proportionally liable for the liabilities or are proportionally entitled to benefits potentially arising as a result of the settlement of the dispute with WorleyParsons up to the level of claims, together with interest as at 26 March 2021.

Financial statements for the year ended 31 December 2020 prepared in accordance with the IFRS, as endorsed by the EU (in PLN thousand)

Company Management Board

Katowice, 29 March 2021

Marek Wadowski – acting President of the Management Board / Vice-President of the Management Board

Jerzy Topolski – Vice-President of the Management Board

Oliwia Tokarczyk - Executive Director in Charge of Taxes and Accounting

Report of the Management Board on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020

This is a translation of the document originally issued and signed in Polish

MANAGEMENT BOARD REPORT OF THE

TAURON.PL

1

on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020

TABLE OF CONTENTS

1.	TAURON POLSKA ENERGIA S.A. AND TAURON CAPITAL GROUP4
1.1.	Basic information 4
1.2.	Segments of operations (lines of business) 5
1.3.	Organization of TAURON Capital Group and the changes thereof, as well as the entities subject to consolidation7
1.4.	Organizational or equity ties with other entities9
1.5.	Major domestic and foreign investments, as well as equity investments 9
1.6.	TAURON Group's Strategy for the years 2016-2025 12
1.7.	Description of the expansion policy and directions21
	Implementation of the strategic investment (CAPEX) projects 22
	Evaluation of the capability to complete the intended investment projects 28
	Directions for advancing innovations as well as research and development activities 29
1.8.	Major achievements in the field of research and development29
1.9. 1.10.	TAURON Group's Business and Operational Model33 Principles of management of TAURON Polska Energia S.A. and TAURON Capital Group and the changes
	thereof 34
	2. OPERATIONS OF TAURON POLSKA ENERGIA S.A. AND TAURON CAPITAL GROUP38
2.1.	Core products, goods and services38
2.2.	Markets and sources of supply 41
2.3.	Assessment of the factors and non-typical (one-off) events that have a significant impact on the financial result achieved 46
2.4.	Material factors impacting growth 61
2.5.	Timeline62
2.6.	Major events ha a significant impact on the operations in 2020 and after the balance sheet date, i.e. December 31, 2020 63
2.7.	Prizes and accolades (honorable mentions) 69
2.8.	Information on the employment and employee related issues 70
2.9.	Corporate Social Responsibility (CSR) Policy77
2.10.	Key non-financial efficiency ratios (metrics, performance indicators)82
2.11.	Sponsoring activities83
	3. TAURON CAPITAL GROUP'S RISK MANAGEMENT 85
3.1.	Risk management objective and principles 85
3.2.	Risk management strategy 85
3.3.	Key risks management 91
3.4.	Description of the most material risk categories96
3.5.	Risk classification in the individual operating Segments 103
	4. ANALYSIS OF THE FINANCIAL POSITION AND ASSETS OF TAURON POLSKA ENERGIA S.A107
4.1.	Overview of the economic and financial data disclosed in the annual financial statements 107
4.2.	Differences between the financial results reported in the annual report and the forecasts of results for the given
	year published earlier 112
4.3.	Key financial ratios and the Alternative Performance Measures 112
4.4.	Principles of preparing annual financial statements 112
	5. ANALYSIS OF TAURON CAPITAL GROUP'S FINANCIAL RESULTS113
5.1.	TAURON Capital Group's financial results113
5.2.	TAURON Capital Group's financial results by operating Segments (Lines of Business) 114
5.3.	Characteristics of the structure of assets and liabilities in the consolidated statement of financial position122
5.4.	Discussion of the economic and financial figures disclosed in the annual consolidated financial statement 129
5.5.	Material off-balance sheet items 134
5.6.	Differences between the financial results reported in the annual report and the forecasts of results for the given
	year published earlier 134
5.7. 5.8.	Key financial ratios and the Alternative Performance Measures 134 Most significant financial and operating data for the last 5 years 137
5.9.	What can we expect in 2021140
5.10.	Current and forecast financial and assets situation (financial and assets outlook)140
5.11.	Principles of preparing annual consolidated financial statements 141
	6. INFORMATION ON THE AUDIT FIRM 142
7.	FINANCIAL RESOURCES AND INSTRUMENTS143
7.1.	Proceeds from security issues 143

7.2.	Financial instruments143
7.3.	Assessment of financial resources management 143
	8. SHARES AND SHAREHOLDERS OF TAURON POLSKA ENERGIA S.A. 145
8.1.	Shareholding structure145
8.2.	Dividend policy 145
8.3.	Number and nominal value of TAURON Polska Energia S.A.'s shares, as well as of the shares in the related
	units, held by the Members of the Management Board and the Supervisory Board 145
8.4.	Agreements related to potential changes to the shareholding structure146
8.5.	Share buybacks146
8.6.	Employee stock award programs146
8.7.	Shares performance on the Warsaw Stock Exchange (WSE)146
8.8.	Investor relations 149
9.	STATEMENT ON APPLICATION OF CORPORATE GOVERNANCE151
9.1.	Applied set of corporate governance rules151
9.2.	Set of abandoned rules of corporate governance 151
9.3.	Main characteristics of internal controls and risk management systems in relation to the process of generating
	the financial statements and consolidated financial statements 152
9.4.	Shareholders holding substantial blocks of shares 154
9.5.	Holders of securities providing special control rights154
9.6.	Restrictions on exercising the voting right154
9.7.	Restrictions on transfer of the ownership right to securities 155
9.8.	Rules on appointing and dismissing the Members of the Management Board and the Supervisory Board of
	TAURON Polska Energia S.A., and the powers thereof155
9.9. 9.10.	Procedure of amending TAURON Polska Energia S.A.'s Articles of Association159 General Meeting of TAURON Polska Energia S.A. and the shareholders' rights 159
9.11.	Management Board and Supervisory Board of TAURON Polska Energia S.A. and the committees thereof 161
9.12.	TAURON Group's Diversity Policy176
10.	STATEMENT ON NON-FINANCIAL INFORMATION178
11.	MANAGEMENT AND SUPERVISORY PERSONNEL COMPENSATION POLICY 179
11.1.	Compensation system for the Members of the Management Board and the key managers 179
11.2.	Principles, conditions and amount of compensation for the Members of the Management Board of TAURON
	Polska Energia S.A. and the entities that are a part of TAURON Capital Group 182
11.3.	Agreements concluded with the management personnel that envisage compensation in case of their
	resignation or dismissal from the position held, with no important reason, or if their dismissal or resignation
	takes place as a consequence of the merger of the Company as a result of a takeover183
11.4.	Non-financial components of the compensation due to the Members of the Management Board of TAURON Polska Energia S.A. and the key managers183
11.5.	Information on the changes to the compensation policy during the last financial year 183
11.6.	Assessment of the functioning of the compensation policy in terms of the fulfilment of its objectives, in particular
	the long term growth in shareholder value and stability of the company's performance184
11.7.	System of Compensation for the Members of the Supervisory Board 184
11.8.	Compensation of the Members of the Supervisory Board of TAURON Polska Energia S.A185
12.	OTHER MATERIAL INFORMATION AND EVENTS186
12.1.	Material proceedings pending before the court, competent arbitration authority or public administration authority
	186
12.2.	Agreements that are material for TAURON Capital Group's operations189
12.3.	Transactions with related entities on terms other than at arm's length191
12.4.	Concluded and terminated credit and loan agreements191
12.5.	Loans and sureties granted as well as sureties and guarantees received 192
12.6.	The impact of the COVID-19 pandemic on the operations of TAURON Capital Group in 2020193
12.7.	Other information that could be material for the evaluation of TAURON Capital Group's personnel, assets,
	financial position, financial result and changes thereof, as well as the information that could be material for the
	evaluation of the ability of TAURON Capital Group to meet its obligations 195
	Appendix A: GLOSSARY OF TERMS AND LIST OF ABBREVIATIONS 195 Appendix B: INDEX OF TABLES AND FIGURES201

1. TAURON POLSKA ENERGIA S.A. AND TAURON CAPITAL GROUP

Pursuant to art. 55 clause 2a of the Act of September 29, 1994, on accounting (Journal of Laws of 2019, item 351) and § 71 clause 8 of the Regulation of the Minister of Finance of March 29, 2018 on current and periodic information to be disclosed by securities issuers and conditions for recognizing as equivalent the information required by the legal regulations in force in a non-member state (Journal of Laws of 2018, item 757), TAURON Polska Energia S.A. drew up the report of the Management Board on the operations of TAURON Polska Energia S.A. and the report of the Management Board on the operations of TAURON Polska Energia S.A. Capital Group in a form of a single document.

At the same time, it is noted that pursuant to art. 49b, clause 9 and art. 55, clause 2c of the Act of September 29, 1994 on accounting (Journal of Laws of 2019, item 351), TAURON Polska Energia S.A. drew up a Non-financial Report of TAURON Capital Group in accordance with the requirements set out in art. 49b,clauses 2-8 of the above mentioned Act, in the form of a separate document.

1.1. Basic information

TAURON Capital Group's parent (holding) company is TAURON Polska Energia S.A. (hereinafter called the Company or TAURON), that was established on December 6, 2006 as part of the Program for the Power Sector. The Company was registered in the National Court Register on January 8, 2007 under the name: Energetyka Południe S.A. The change of the Company's name to its current name, i.e. TAURON Polska Energia S.A., was registered on November 16, 2007.

The Company does not have any branches (plants).

TAURON Polska Energia S.A. Capital Group (TAURON Capital Group) is a vertically integrated energy group located in the south of Poland. TAURON Capital Group conducts its operations in all key segments of the energy market (excluding electricity transmission which is the sole responsibility of the Transmission System Operator (TSO)), i.e. hard coal mining as well as electricity and heat generation, distribution and supply.

• property security
• financial operations • Segment's FY 2020 EBITDA: PLN 229 million.

During the period covered by this report 100% of the shares in TAURON Ciepło sp. z o. o. (TAURON Ciepło) was classified by the Company as held for sale. Due to the above, the operations of TAURON Ciepło are presented in this report as part of the Discontinued Operations (in contrast to the previous presentation as part of the Generation Segment) and thus the comparable data has been adjusted (restated) accordingly only for 2019.

The detailed information on the sale of the shares in TAURON Ciepło is presented in section 2.6. of this report.

1.2. Segments of operations (lines of business)

In accordance with TAURON Group's Business and Operational Model (Business Model) in force, TAURON Capital Group's business operations are conducted by the units defined as: Corporate Center and the Lines of Business: Trading, Mining, Generation, Renewable Energy Sources (RES), Heat, Distribution and Supply as well as Shared Services Centers (Centra Usług Wspólnych - CUW).

The detailed information on the Business Model is provided in section 1.9. of this report.

For the needs of reporting TAURON Capital Group's results the operations of TAURON Capital Group are divided into the following 5 main Segments (Operating Segments), hereinafter also referred to as the Lines of Business:

Mining Segment comprising mainly hard coal mining, cleaning (upgrading) and sales in Poland. The Segment's operations are conducted by TAURON Wydobycie S.A. (TAURON Wydobycie).

Generation Segment comprising mainly electricity generation using conventional sources, including cogeneration, as well as electricity generation from biomass burning. The Segment also includes heat generation and supply. The Segment's operations are conducted by TAURON Wytwarzanie S.A. (TAURON Wytwarzanie) and Nowe Jaworzno Grupa TAURON sp. z o.o. (Nowe Jaworzno Grupa TAURON). The Segment also includes TAURON Serwis sp. z o.o. (TAURON Serwis) subsidiary, dealing primarily with the generation equipment's overhauls.

RES Segment comprising electricity generation from renewable energy sources: hydroelectric power plants and wind farms. The Segment's operations are conducted by TAURON EKOENERGIA sp. z o.o. (TAURON EKOENERGIA), Marselwind sp. z o.o., TEC1 sp. z o.o. (TEC1), TEC2 sp. z o.o. (TEC2) and TEC3 sp. z o.o. (TEC3), as well as 10 subsidiaries acquired in September 2019, i.e.: TEC1 sp. z o.o. Mogilno I spółka komandytowa (limited partnership), TEC1 sp. z o.o. Mogilno II spółka komandytowa (limited partnership), TEC1 sp. z o.o. Mogilno III spółka komandytowa (limited partnership), TEC1 sp. z o.o. Mogilno IV spółka komandytowa (limited partnership), TEC1 sp. z o.o. Mogilno V spółka komandytowa (limited partnership), TEC1 sp. z o.o. Mogilno VI spółka komandytowa (limited partnership), TEC1 sp. z o.o. EW Śniatowo spółka komandytowa (limited partnership), TEC1 sp. z o.o. EW Dobrzyń spółka komandytowa (limited partnership), TEC1 sp. z o.o. EW Gołdap spółka komandytowa (limited partnership), TEC1 sp. z o.o. Ino 1 spółka komandytowa (limited partnership). Moreover, starting from the financial statements for the year ended December 31, 2020, the companies AVAL-1 Sp. z o.o. (AVAL-1) and Wind T1 Sp. z o.o. (Wind T1) have been assigned to the RES Segment.

Distribution Segment comprising distribution of electricity using the distribution grids located on the territory of the following voivodeships (regions): Małopolska, Lower Silesia, Opole, Silesia, partly: Świętokrzyskie, Podkarpackie, Łódź, Wielkopolska and Lubuskie. The Segment's operations are conducted by TAURON Dystrybucja S.A. (TAURON Dystrybucja). TAURON Dystrybucja uses modern technological solutions and has the potential to guarantee security of electricity supply and a high quality standard of the services provided to the customers. In order to ensure the achievement of the strategic goals, it is actively looking for innovative solutions, participating in the research and development works, as well as implementing new technologies, with a particular emphasis placed on the smart grid technology. In addition, it is seeking to build a modern distribution segment by integrating the segment's structures and processes, maintaining the leading position on the Polish market with respect to the grid security (safety) and efficiency as well as preparing the grid infrastructure and organization for the development of the distributed (dispersed) power generation sources. The Segment also includes TAURON Dystrybucja Pomiary sp. z o.o. (TAURON Dystrybucja Pomiary) subsidiary, dealing mainly with technical support services related to the electricity metering systems and metering data acquisition.

Supply Segment comprising electricity and natural gas supply to the final consumers and electricity, natural gas and derivative products wholesale trading, as well as trading and management of the CO² emission allowances, property rights arising from the certificates of origin that confirm electricity generation from the renewable sources, in cogeneration and the property rights arising from the energy efficiency certificates, as well as fuels, and, as of January 2019, also the lighting services sales. The Segment's operations are conducted by TAURON Polska Energia S.A., TAURON Sprzedaż sp. z o.o. (TAURON Sprzedaż), TAURON Sprzedaż GZE sp. z o.o. (TAURON Sprzedaż GZE), TAURON Czech Energy s.r.o. (TAURON Czech Energy) and TAURON Nowe Technologie S.A. (formerly: TAURON Dystrybucja Serwis S.A.) subsidiary providing services for the business and individual customers with respect to, among others, innovative products and services related to the modern Led lighting systems, smart city, e-mobility products as well as energy efficiency, operating the MV/LV grids, the construction of electric vehicle charging stations.

Apart from the main Segments of operations, TAURON Capital Group is also conducting the operations presented as part of the Other operations that comprise, among others, customer service for TAURON Capital Group's customers, provision of the support services for TAURON Capital Group's subsidiaries with respect to accounting, HR management and ICT, conducted by TAURON Obsługa Klienta sp. z o.o. (TAURON Obsługa Klienta) subsidiary, as well as the operations related to the extraction of stone (rocks), including limestone, for the needs of the power generation, steel making, construction and road building industries, as well as the production of sorbing agents for wet flue gas desulphurization installations and for the use in fluidized bed boilers, carried out by Kopalnia Wapienia "Czatkowice" sp. z o.o. (KW Czatkowice) subsidiary. The Other operations also include the following subsidiaries: Finanse Grupa TAURON sp. z o.o. (Finanse Grupa TAURON) dealing with the financial operations, Bioeko Grupa TAURON sp. z o.o. (Bioeko Grupa TAURON) dealing mainly with the utilization (management) of the hard coal combustion and extraction processes' by-products, biomass acquisition, transportation and processing, Wsparcie Grupa TAURON sp. z o.o. (Wsparcie Grupa TAURON) dealing primarily with the real estate administration, property security, as well as the technical support of vehicles and Polska Energia - Pierwsza Kompania Handlowa sp. z o.o. (PEPKH).

The operations of TAURON Ciepło (thus far included as part of the Generation Segment) are presented under the Discontinued Operations. The core operations of TAURON Ciepło comprise the production, distribution and supply of thermal energy (heat) for the purpose of heating, preparing (conditioning) domestic (tap) hot water and ventilation.

The below figure presents the location of TAURON Capital Group's key assets, as well as the distribution area where TAURON Dystrybucja is conducting operations as the Distribution System Operator (DSO).

Figure no. 2. TAURON Capital Group's key assets

1.3. Organization of TAURON Capital Group and the changes thereof, as well as the entities subject to consolidation

As of December 31, 2020, and as of the date of drawing up this report, TAURON Capital Group's key subsidiaries, besides TAURON parent company, included 34 subsidiaries subject to consolidation, that are listed below.

In addition, as of December 31, 2020, and as of the date of drawing up this report, the Company held, directly or indirectly, shares in the other 38 companies.

Entities subject to consolidation

The below figure presents TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2020.

Figure no. 3. TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2020

*As of December 31, 2020, TAURON Capital Group assessed that in relation to the net assets of the TAURON Ciepło subsidiary, the conditions for classifying the above assets as a group for disposal, classified as held for sale were met.

**The shares in TAURON Dystrybucja Pomiary and Wsparcie Grupa TAURON are held by TAURON Polska Energia S.A. indirectly via TAURON Dystrybucja subsidiary, TAURON Polska Energia S.A. is a user of the shares of TAURON Dystrybucja Pomiary.

***The shares in Aval-1 and Wind T1 are held by TAURON indirectly via TAURON Ekoenergia subsidiary.

****In the limited partnerships indicated: TEC1 is the General Partner, TEC3 is the Limited Partner.

Changes to the organization

The following changes to the organization of TAURON Capital Group had taken place in 2020 and by the date of drawing up this information:

Merger of TAURON Dystrybucja Serwis S.A. (currently: TAURON Nowe Technologie S.A.) with Magenta Grupa TAURON sp. z o.o. (Magenta Grupa TAURON)

On January 2, 2020, the District Court for Wrocław – Fabryczna in Wrocław, the 6th Commercial Department of the National Court Register registered the merger of the companies TAURON Dystrybucja Serwis S.A. (the Acquiring Company) with the company Magenta Grupa TAURON sp. z o.o. (the Acquired Company).

The above event was the result of adopting, on October 29, 2019, of the resolutions regarding the merger of the above mentioned companies, by the Extraordinary General Meeting (GM) of the Acquiring Company and the Extraordinary General Meeting (GM) of the Partners (Shareholders) of the Acquired Company.

As a result of the merger the share capital of the Acquiring Company was raised from the amount of PLN 9 494 173 to the amount of PLN 9 535 649, i.e. by the amount of PLN 41 476, by way of establishing (issuing) 41 476 ordinary shares with the nominal value of PLN 1 each. As a sole shareholder of Magenta Grupa TAURON, TAURON received, in exchange for 30 000 shares in the share capital of Magenta Grupa TAURON, 41 476 shares in the increased share capital of TAURON Dystrybucja Serwis S.A.

The merger of TAURON Dystrybucja Serwis S.A. and Magenta Grupa TAURON was aimed at integrating resources and competences as well as optimizing operational efficiency at TAURON Capital Group by integrating the mutually complementary entities with respect to creating and implementing new solutions at TAURON Capital Group as well as selling them on the external market in the form of various types of products and services.

On March 3, 2020, the Extraordinary General Meeting (GM) of TAURON Dystrybucja Serwis S.A. adopted a resolution to change the company's name to: TAURON Nowe Technologie S.A.

On June 1, 2020, the District Court for Wrocław – Fabryczna in Wrocław, the 6th Commercial Department of the National Court Register registered the change of the name of the company TAURON Dystrybucja Serwis S.A. to TAURON Nowe Technologie S.A.

Acquisition by TAURON EKOENERGIA sp. z o.o. of 100% of the shares in AVAL-1

On January 2, 2020, TAURON EKOENERGIA acquired 100% shares in AVAL-1 with its registered office in Szczecin, i.e. 50 shares with a nominal value of PLN 100 each and the total value of PLN 5 000.

AVAL-1 is implementing a 6 MW photovoltaic farm construction project in the municipality of Choszczno in the West Pomerania Region.

The implementation of the investment project is in line with the assumptions of the Update of the Strategic Directions in TAURON Capital Group' Strategy for the years 2016-2025 (Update of the Strategic Directions), that provides for an increase of the share of low and zero emission sources in TAURON Capital Group's generation structure (mix) to more than 65% in 2030.

The detailed information on the implementation of the photovoltaic farm construction project in the municipality of Choszczno is provided in section 1.7. of this report

Cessation of the legal existence of German limited partnerships

On April 1, 2020, TEC3 – the limited partner of the below listed companies, acquired from TEC2 – the general partner of the below listed companies, the general rights and obligations of the general partner in the German limited partnerships, i.e.:

• 1. SCE Wind Mogilno 2008 I GmbH & Co. KG,
• 1. SCE Wind Mogilno 2008 II GmbH & Co. KG,
• 1. SCE Wind Mogilno 2008 III GmbH & Co. KG,
• 1. SCE Wind Mogilno 2008 IV GmbH & Co. KG,
• 1. SCE Wind Mogilno 2008 V GmbH & Co. KG,
• 1. SCE Wind Mogilno 2008 VI GmbH & Co. KG,
• 1. Windpark Sniatowo GmbH & Co. KG,
• 1. Windpark Dobrzyn 2008 GmbH & Co. KG,
• 1. Windpark Goldap GmbH & Co. KG,
• 1. Windpark Ino 1 GmbH & Co. KG.

As a result of completing the above transaction, as of April 1, 2020, the legal existence of the German limited partnerships ceased without conducting the liquidation proceedings (the so-called collapse based on the provisions of the German law), and thus the assets and liabilities of the German limited partnerships were transferred, by way of a universal succession, to TEC3.

The purpose of the above action was to simplify the structure of TAURON Capital Group.

Classifying the net assets of TAURON Ciepło as a group for disposal, classified as held for sale, and the operations of TAURON Ciepło as discontinued operations

As of December 31, 2020, TAURON Capital Group assessed that with respect to the net assets of TAURON Ciepło, the conditions for classifying the above assets as a group for disposal, classified as held for sale, stemming from International Financial Reporting Standards (IFRS) 5 Fixed assets held for sale and discontinued operations, were met. In connection with the above, the net assets of TAURON Ciepło were valued, as of December 31, 2020, at fair value (mark to market).

Furthermore, as of December 31, 2020, the Company assessed that with respect to the operations of TAURON Ciepło, the conditions for classifying its operations as discontinued, stemming from IFRS 5 Fixed assets held for sale and discontinued operations, were met.

The detailed information on the sale of the shares in TAURON Ciepło is presented in section 2.6. of this report.

Acquisition by TAURON EKOENERGIA sp. z o.o. of 100% of the shares in WIND T1 (WIND T1)

On December 15, 2020, TAURON EKOENERGIA acquired 100% shares in WIND T1 with its registered office in Pieńków, i.e. 100 shares with a nominal value of PLN 50 each and the total nominal value of PLN 5 000.

WIND T1 is implementing a project that includes the preparation, construction and commissioning of two wind farms with a joint name of Park Piotrków Północ, i.e. the "Moszczenica" Wind Farm and the "Wolbórz" Wind Farm. The power plant located on the territory of the municipalities of Wolbórz and Moszczenica in the Piotrków Trybunalski county (poviat) in the Łódź voivodeship (region) will be composed of 15 wind farms, each with a capacity of 2 MW (30 MW in total).

The implementation of the investment project is in line with the assumptions of the Update of the Strategic Directions that provides for an increase of the share of low and zero emission sources in TAURON Capital Group's generation structure (mix) to more than 65% in 2030.

The detailed information on the implementation of the wind farm construction project with a joint name of Park Piotrków Północ is provided in section 1.7. of this report.

1.4. Organizational or equity ties with other entities

Apart from the equity ties with the companies presented in section 1.3. of this report, the organizational or equity ties are applicable to the material joint subsidiaries in which the Company held, directly or indirectly, shares as of December 31, 2020 include the companies listed in the below table.

Table no. 1. List of material joint subsidiaries as of December 31, 2020

Company name	Registered office	Main subject of operations	TAURON's share in the company's capital and in the parent company
Elektrociepłownia Stalowa Wola 1. S.A.*	Stalowa Wola	Electricity generation	50.00%
2. TAMEH HOLDING sp. z o.o.**	Dąbrowa Górnicza	Central (head office) companies and holding operations	50.00%
3. TAMEH POLSKA sp. z o.o.**	Dąbrowa Górnicza	Electricity and heat generation, transmission, distribution and trading	50.00%
4. TAMEH Czech s.r.o.**	Ostrava, Czech Republic	Production, trading and services	50.00%

*Shares in Elektrociepłownia Stalowa Wola S.A. (EC Stalowa Wola) are held by TAURON indirectly via TAURON Wytwarzanie subsidiary.

**Companies form a capital group. TAURON holds a direct stake in the share capital and in the parent company TAMEH HOLDING sp. z o.o. (TAMEH HOLDING), that holds a 100% stake in the share capital and in the parent company of TAMEH POLSKA sp. z o.o. and TAMEH Czech s.r.o.

1.5. Major domestic and foreign investments, as well as equity investments

The major domestic and foreign investments, as well as equity investments made in 2020 and by the date of drawing up this report are listed below.

Taking up or acquiring share securities in TAURON Capital Group companies

The below table presents a summary of equity increases in TAURON Capital Group's subsidiaries in 2020 and by the date of drawing up this report.

Table no. 2. Summary of equity increases in TAURON Capital Group's subsidiaries in 2020 and by the date of drawing up this report

Subsidiary	Share capital increase (total price for taking up shares)	Company taking up shares	Nominal value of shares taken up	Date of passing the resolution by the GM	Structure of the share capital following the increase
AVAL-1	PLN 4 500 000	TAURON EKOENERGIA	PLN 45 000	27.02.2020	TAURON EKOENERGIA 100%
					TAURON 85.88%
Nowe Jaworzno Grupa TAURON	PLN 455 100 000	TAURON	PLN 4 551 000	02.03.2020	FIIK FIZAN 7.06%
					PFR IFIZ 7.06%
AVAL-1	PLN 11 060 000	TAURON EKOENERGIA	PLN 110 600	10.06.2020	TAURON EKOENERGIA 100%

	Subsidiary	Share capital increase (total price for taking up shares)	Company taking up shares	Nominal value of shares taken up	Date of passing the resolution by the GM	Structure of the share capital following the increase
4.	PGE EJ 1 sp. z o.o. (PGE EJ 1)	PLN 37 999 923	TAURON	PLN 37 999 923	23.11.2020	TAURON 10%
		PLN 265 999 461	PGE Polska Grupa Energetyczna S.A. (PGE)	PLN 265 999 461		PGE 70%
		PLN 37 999 923	KGHM Polska Miedź S.A. (KGHM Polska Miedź)	PLN 37 999 923		KGHM Polska Miedź 10%
		PLN 37 999 923	Enea S.A. (Enea)	PLN 37 999 923		Enea 10%
5.	Nowe Jaworzno Grupa TAURON	PLN 190 000 000	TAURON	PLN 1 900 000	03.12.2020	TAURON 86.29%
						FIIK FIZAN 6.85%
						PFR IFIZ 6.85%
6.	WIND T1	PLN 50 000 000	TAURON EKOENERGIA	PLN 500 000	21.12.2020	TAURON EKOENERGIA 100%

Making additional contributions to the capital of PEPKH

As part of the implementation of the resolution of the Extraordinary General Meeting (GM) of PEPKH of January 8, 2020, regarding the imposition on TAURON, as the sole shareholder, of the obligation to make additional payments, on January 10, 2020, TAURON made additional contributions to the share capital of the above mentioned company in the total amount of PLN 8 016 000. The resolution of the Extraordinary General Meeting (GM) was adopted in connection with the pending licensing proceedings before the Energy Regulatory Office (URE) for granting PEPKH a new license for trading in electricity.

As part of the implementation of the resolution of the Extraordinary General Meeting (GM) of PEPKH of June 16, 2020, regarding the imposition on TAURON, as the sole shareholder, of the obligation to make additional payments, on June 18, 2020, TAURON made additional contributions to the share capital of the above mentioned company in the total amount of PLN 9 600 000.

As part of the implementation of the resolution of the Extraordinary General Meeting (GM) of PEPKH of March 17, 2021, regarding the imposition on TAURON, as the sole shareholder, of the obligation to make additional payments, on March 24, 2021, TAURON made additional contributions to the share capital of the above mentioned company in the total amount of PLN 10 800 000.

The purpose of the above mentioned contributions was to meet the requirements of the President of the Energy Regulatory Office (ERO) with respect to PEPKH having certain financial resources and to enable PEPKH to continue its business operations with respect to its main subject of operations, based on the granted license for trading in electricity.

Making additional contributions to the capital of KOMFORT Zarządzanie Aktywami sp. z o.o. (KOMFORT Zarządzanie Aktywami)

As part of the implementation of the resolution of the Extraordinary General Meeting (GM) of KOMFORT Zarządzanie Aktywami of June 5, 2020, regarding the imposition on TAURON Dystrybucja Pomiary, as the sole shareholder, of the obligation to make additional payments, on June 9, 2020, TAURON Dystrybucja Pomiary made additional contributions to the share capital of the above mentioned company in the total amount of PLN 35 175.00.

The purpose of the above mentioned contributions to the shares was to enable KOMFORT Zarządzanie Aktywami to continue its business operations.

Making additional contributions to the capital of the company Marselwind

As part of the implementation of the resolution of the Ordinary General Meeting (GM) of Marselwind of September 2, 2020, regarding the imposition on TAURON, as the sole shareholder, of the obligation to make additional payments, by September 8, 2020, the Company made additional contributions to the share capital of the Marselwind in the total amount of PLN 110 000.00.

The purpose of making additional contributions was to cover the losses from previous years, the potential losses in the subsequent years of Marselwind's operations, and maintain the level of the financial resources sufficient for the functioning of the above mentioned company.

Taking up or acquiring share securities in the other companies in which TAURON holds an equity stake

The below table presents a summary of equity increases in the other companies in which TAURON holds an equity stake in 2020 and by the date of drawing up this report.

Table no. 3. Summary of equity increases in the other companies in which TAURON holds an equity stake in 2020 and by the date of drawing up this report

Company		Share capital increase (total price for taking up shares)	Company taking up shares	Nominal value of shares taken up	Date of passing the resolution by the GM	Structure of the share capital following the increase
1.	EEC Magenta spółka z ograniczoną odpowiedzialnością ASI spółka komandytowo – akcyjna (EEC Magenta limited liability company ASI limited joint stock partnership) (EEC Magenta ASI)	PLN 17 200	EEC Ventures spółka z ograniczoną odpowiedzialnością spółka komandytowa (EEC Ventures limited liability company limited partnership) (EEC Ventures)	PLN 172	02.03.2020	EEC Ventures 3%
		PLN 414 600	PFR Starter FIZ	PLN 4 146		PFR Starter FIZ 72.1%
		PLN 143 200	TAURON	PLN 1 432		TAURON 24.9%
		PLN 75 900	EEC Ventures	PLN 759	27.08.2020	EEC Ventures 3%
		PLN 1 823 300	PFR Starter FIZ	PLN 18 233		PFR Starter FIZ 72.1%
		PLN 629 700	TAURON	PLN 6 297		TAURON 24.9%
		PLN 21 000	EEC Ventures	PLN 210		EEC Ventures 3%
		PLN 504 700	PFR Starter FIZ	PLN 5 047	23.12.2020	PFR Starter FIZ 72.1%
		PLN 174 300	TAURON	PLN 1 743		TAURON 24.9%
	EEC Magenta spółka z ograniczoną odpowiedzialnością 2 ASI spółka komandytowo – akcyjna (EEC Magenta limited liability company 2 ASI limited joint stock partnership) (EEC Magenta 2 ASI)	PLN 60 200	EEC Ventures spółka z ograniczoną odpowiedzialnością 2 spółka komandytowa (EEC Ventures limited liability company 2 limited partnership) (EEC Ventures 2)	PLN 1 790	04.05.2020	EEC Ventures 2 2.95%
		PLN 2 986 000	PFR NCBR CVC FIZAN	PLN 29 860		PFR NCBR CVC FIZAN 49.02%
		PLN 2 925 800	TAURON	PLN 29 258		TAURON 48.03 %
2.		PLN 20 500	EEC Ventures 2	PLN 601		EEC Ventures 2 2.95%
		PFR NCBR CVC PLN 10 000 28.05.2020 PLN 1 000 000 FIZAN		PFR NCBR CVC FIZAN 49.02%
		PLN 979 500	TAURON	PLN 9 795		TAURON 48.03 %
		PLN 88 800	EEC Ventures 2	PLN 2 571		EEC Ventures 2 2.95%
		PLN 4 350 000	PFR NCBR CVC FIZAN	PLN 43 500	24.09.2020	PFR NCBR CVC FIZAN 49.02%
		PLN 4 261 200	TAURON	PLN 42 612		TAURON 48.03 %

The other most significant equity investments in the financial assets as of December 31, 2020, include stakes in the following entities:

• 1. Spółka Ciepłowniczo Energetyczna Jaworzno III sp. z o.o. (limited liability company) with the balance sheet value of PLN 29 476 000,
• 1. EEC Magenta 2 ASI with the balance sheet value of PLN 19 116 000,
• 1. ElectroMobility Poland S.A. (ElectroMobility Poland) with the balance sheet value of PLN 11 026 000.

Investments in financial assets

TAURON Capital Group's investments in financial assets made in 2020 include loan agreements concluded with the below listed companies:

• 1. PGE EJ 1 in the amount of PLN 4 000 000 with the repayment date of January 30, 2023,
• 1. PGE EJ 1 in the amount of PLN 6 500 000 with the repayment date of September 1, 2023,

• EC Stalowa Wola in the amounts of PLN 59 175 000 and PLN 35 000 000 with the repayment dates of June 30, 2033.

All of the loans granted to PGE EJ 1 in the total amount of PLN 18 240 000 PLN, including interest, were repaid on November 25, 2020.

As of December 31, 2020, the loan extended to EC Stalowa Wola for the amount of up to PLN 35 000 000 had been paid out in the total amount of PLN 22 000 000.

Investments in the financial assets were financed using in-house funds and the funds obtained as part of the financing model in place at TAURON Capital Group.

The detailed information on the financing model in place at TAURON Capital Group is provided in section 7.3. of this report.

On February 11, 2020, the Company redeemed all of its participation units in the investment funds worth PLN 26 747 000.

1.6. TAURON Group's Strategy for the years 2016-2025

2020 was the year of the continuation of the implementation of TAURON Group's Strategy for the years 2016-2025 (Strategy), that had been adopted by the Management Board of TAURON and received a positive opinion of the Company's Supervisory Board on September 2, 2016.

Since the date of adopting the Strategy some of its assumptions have changed, first of all the regulations that have a material impact on TAURON Capital Group's operations have become more specific and detailed, among others, the act on the capacity market, the act on promoting high efficiency cogeneration electricity, the energy law act, the act on electromobility, and the regulations related to quality requirements for solid fuels.

In view of the above, on May 27, 2019, the Company's Management Board adopted, and the Company's Supervisory Board issued a positive opinion on the Update of the Strategic Directions in TAURON Group's Strategy for the years 2016-2025, which complemented the Strategy. The Update of the Strategic Directions takes into account the impact of the above mentioned documents and the key regulatory changes on TAURON Capital Group and assumes the so-called Green Turn of TAURON, i.e. a sustainable transition of TAURON Capital Group towards becoming the leading low emission energy group in Poland that will mainly focus on changing the energy mix of TAURON Capital Group by shutting down obsolete coal fired units and developing low and zero emission sources.

Currently, work is underway on the TAURON Capital Group's new Strategy, taking into account the recent regulatory changes and the prospects for the power sector in Poland.

Mission, Vision and values

Strategy defines the Mission and Vision and specifies the key values of TAURON Capital Group:

"We are the company that responds best to customer needs in the Polish power sector"

Mission and Vision best describe the strategic intentions of TAURON Capital Group that sees a large growth potential in developing sales of products and services that are tailored to customer needs. TAURON Capital Group is adjusting its profile in order to ensure full focus on the customer, appreciating the potential of new products, compatible services, modern contact channels as a response to customer needs.

The key values that support the implementation of the Strategy include Partnership, Development, Boldness (Partnerstwo, Rozwój, Odwaga - PRO), and these are values that reflect the way in which TAURON Capital Group wants to accomplish its business goals. What is important as part of the Partnership is customer orientation, development of sustainable relationships and engagement. Development means focus on innovations, developing competences, skills and knowledge as well as seeking ever better solutions, meeting customer needs and improving the quality of services. Boldness means courage and openness, determination as well as engagement and passion in achieving common goals.

TAURON Capital Group's Strategy

Strategy adopted for the years 2016-2025, and updated in 2019, ensures financial stability and a prospect for growth, while at the same time providing support for ensuring the stability of the power system. It is assumed that the long term growth will be driven by solutions based on customer relationships. The Mission and the Vision reflect such management philosophy and are in line with the customer-oriented growth concept.

Strategy describes the approach to developing the individual Segments of TAURON Capital Group's operations, dividing them into those segments that TAURON Capital Group is planning to strongly expand, the segments that will constitute the foundation of the financial stability and the segments where strong emphasis on cost efficiency is required. In the Update of the Strategic Directions, TAURON Capital Group emphasized the focus on the development of the low and zero emission sources while making TAURON Capital Group's portfolio of assets more flexible. The above reflects the need for the energy transition of TAURON Capital Group and for increasing the investment potential aimed at developing the renewable energy sources (RES), which, combined with the changed management philosophy and the orientation towards the customer and his / her needs, allows for the development of TAURON Capital Group that is innovative and open to the new challenges.

The below figure presents the foundations for the growth of TAURON Capital Group's value.

Figure no. 4. Foundations for the growth of TAURON Capital Group's value

Strategy sets three priorities that assume the transition of TAURON Capital Group into a growing energy company that is aligned to the market and customer needs, ultimately providing a return on invested capital for its shareholders:

The Update of the Strategic Directions confirmed the validity of TAURON Capital Group's priorities, emphasizing the need to build a strong capital group through:

• 1. transition of the energy mix, and a strategic pursuit of a more than 65% share of low and zero emission sources in TAURON Capital Group's installed capacity in 2030,
• 1. optimization of the coal assets and the capital expenditure (capex) project portfolio.

The overarching goal with respect to the capital expenditures is to adapt the investment project portfolio to the market needs. The update highlighted the need to increase the investment potential aimed at developing the renewable energy sources. The activities will be geared (oriented) towards:

• 1. optimization of the asset structure in all lines of business operations and adaptation to the environmental requirements,
• 1. investments in the development and modernization of the distribution grid as well as the low and zero emission generation sources,
• 1. implementation of the investment projects that guarantee the expected rate of return on capital and are not burdened with material market risks,
• 1. use of off-balance sheet financing, in particular by involving external partners,
• 1. investing in the projects in energy related sectors (in particular in services) in order to supplement the value chain that TAURON is operating in and in the so-called new energy sector, among others the prosumer energy, Smart Home solutions, Smart City solutions, electromobility and energy related services.

The below table below presents the strategic goals and growth prospects in the individual operating Segments.

Table no. 4. Strategic goals and growth prospects in the individual operating Segments

Strategic goals	Growth prospects
Mining Segment
The main goal for the Mining Segment is to provide a stable supply of cost-competitive and adequate, in terms of quality, fuel and to align the output level to TAURON Capital Group's planned demand for fuel. The goals set in the Strategy are implemented through such actions as:	The introduction of further restrictions with respect to environment protection, quality of solid fuels placed on the market, taxes and local government regulations (including the anti-smog ones) pose a challenge for the sector. The energy and climate regulations lead to a successive decline of the competitiveness of the coal fired electricity generation. The directions of the mining industry's development will also be strongly
1. optimizing the costs and capital expenditures, 2. tri-product processing at Sobieski Coal Mine (ZG Sobieski) and Janina Coal Mine (ZG Janina), 3. expanding the line for packaging eco-pea coal, preparing dedicated fuel for the generating units	correlated with the guidelines outlined in the government documents: Poland's Energy Policy until 2040 (draft) and the National Plan for Energy and Climate for 2021-2030. The above-mentioned documents demonstrate the growing importance of the renewable energy sources, including off-shore wind energy, new technologies and a gradual change
As part of the Update of the Strategic Directions, a strategic option was adopted that involved conducting a market verification of the sale of ZG Janina. (Janina Coal Mine).	in the country's generation mix at the expense of conventional Energy. The future of the Polish mining industry will depend on the ultimate shape of the government program for the mining industry.
Generation Segment
The main goals for the Generation Segment include:	The tightening energy and climate policy of the European Union (EU),
1. for TAURON Wytwarzanie: to develop an optimal, from the point of view of profitability and risk, generation assets portfolio and the efficient operation thereof, 2. for TAURON Ciepło: to achieve a return on invested capital.	including the further implementation of the European Green Deal, combined with the increase in the prices of the CO2 emission allowances set the direction of the development of the energy sector. The curtailment of the support systems for conventional energy, the revision of the EU ETS emissions trading system, the works on the
The goals set in the Strategy are to be accomplished by:	implementation of the carbon footprint tax will mean a permanent loss of profitability for such units. The resignation of the financial institutions from financing both coal installations as well as capital groups that own coal assets, and the impact of the EU Taxonomy on the possibility of financing investment projects in the energy sector reduce the economic
1. optimizing the costs and capital expenditures as well as streamlining employment (headcount), 2. optimizing production assets,

• 1. selling redundant non-production assets,
• 1. investment projects that lead to the upgrading of the generation fleet

The Update of the Strategic Directions indicated that the priority was to decommission all obsolete coal fired units (120 MW units - by the end of 2020 and 200 MW units - after 2025) and to maintain assets that receive the regulatory support. Ultimately, the modern conventional units will remain a part of the production portfolio: Łagisza 460 MW and Jaworzno 910 MW.

In the heat generation, distribution and trading line of business significant actions include eliminating low emissions, looking for solutions in the co-generation area as well as improving the rate of utilizing the existing infrastructure.

As part of the Update of the Strategic Directions, a market verification of the TAURON Ciepło sale (divestment) option was assumed.

In addition, the sale of the shares in EC Stalowa Wola and PGE EJ1 is planned.

financing investment projects in the energy sector reduce the economic sense of maintaining conventional assets. The key issue will be ensuring the security of the operation of the

National Power System (Krajowy System Elektroenergetyczny - KSE). The capacity market has been introduced in Poland, which is one of the elements supporting the transition of the Polish power sector. Obtaining derogations from the requirements to adapt the generating units to the BAT Conclusions represents an opportunity for the conventional power generation.

On the heat market Poland's policy, aimed at providing support for the co-generation and improving air quality, may lead to an increase of investments and the growth of this area. An important factor is rising social awareness, the actively conducted battle against smog waged by the local government and the national aid programs. On the other hand, the growth opportunities for the heating market are limited due to the improvement in the energy efficiency of buildings and the rising competition from the ever more efficient individual heating devices. The curtailment of the financing and insurance of the coal investment projects should also be taken into account.

The ultimate shape of the domestic conventional energy sector will depend on the final provisions of the government program for the energy sector.

RES Segment

The main goal for the RES Segment is to improve the profitability of its generation assets and the profitable growth of this line of business in wind and PV technologies.	A strong growth of photovoltaics is observed, associated primarily with the launch of the support programs. According to SolarPower Europe, Poland was ranked fourth in the EU in 2020 in terms of new solar
The activities undertaken are focused on improving the operational efficiency, while preparing and implementing investment and expansion	capacity growth. In 2021, another step up increase in new PV capacity is estimated.
projects at the same time. Options for expanding RES installations are being prepared by building in-house sources, acquiring existing installations and ready-made projects.	An additional factor supporting the growth is the possibility of obtaining funds for investments from the dedicated funds.
The Update of the Strategic Directions has strengthened the importance of clean energy development, which will be the basis for building the value of TAURON Capital Group.	The growth of investments in the renewable energy sources (RES) will also apply to on-shore wind farms and, in the long term, off-shore wind farms. The technological changes related to wind farms and the favorable regulations (the potential amendment of the so-called distance
	act) will translate into the growth of the line of business repowering of

The involvement in the low and zero emission energy is implemented through:

1. investments in on-shore wind farms – the ultimate (target) level of wind based capacity in 2025: approx. 1.1 GW, which represents an

also apply to on-shore wind farms and, in the long term, off-shore wind favorable regulations (the potential amendment of the so-called distance act) will translate into the growth of the line of business repowering of the installations, and thus increasing the capacity and improving the efficiency of the use thereof. At the end of December 2020, the Parliament adopted the Act on promoting electricity generation in offshore wind farms, assuming a two-phase support model and granting,

Strategic goals Growth prospects

increase by approx.. 900 MW as compared to the level as of the end of 2018, in the first phase, support for wind farms with a total installed capacity of 5.9 GW and conducting the first auctions in 2025.

• 1. investments in photovoltaic farms: the ultimate (target) level of PV based capacity in 2025: approx. 0.3 GW,
• 1. readiness to take part in off-shore wind farm projects.

Distribution Segment

The main goal for the Distribution Segment is to maintain its leadership position on the Polish market in terms of the security and efficiency of the grid operation.

The level of annual capital expenditures in the Distribution Segment stands at PLN 2 billion. Mainly tasks related to connecting new customers to the grid, as well as upgrading and expanding of the grid are carried out.

Activities underway are aimed at ensuring the flexibility of the grid and simplifying the procedures related to connecting new customers to the grid. The investment projects underway are adapting the distribution assets to the growing volume of electricity generated by the renewable sources, are aimed at ensuring the timely implementation of the process of connecting micro-installations to the grid and are also preparing the grids to interoperate with the infrastructure for charging electric vehicles.

The Single Distribution Program, that was made up of projects aimed at optimizing the company's operational processes, including; activities leading to raising customer satisfaction and improving the company's image, was completed.

The activities aimed at ensuring the reliability of electricity supply and simplifying the procedures related to connecting the new consumers and micro-installations to the grid will be continued. The investment projects carried out will allow for adapting TAURON Capital Group's distribution assets to the growing volume of electricity generated by the distributed renewable sources, and also for preparing the grid to interoperate with the infrastructure to be used for charging electricity vehicles. The development of TAURON Capital Group with respect to smart grids and meters will allow for introducing additional functionalities, both on the part of the distributor, as well as the customer. The Distribution Segment's growth will be significantly affected by the ability to obtain aid funds, both with respect to improving the grid security, as well as the research and development (R&D) activities.

The Distribution Segment's operations are dependent on the new elements of the regulatory policy introduced by the President of ERO. Significant changes to the functioning of the Distribution Segment may be a consequence of changes to the energy law. - work is underway to amend the Energy Law regarding smart metering, energy storage and DSO unbundling.

Supply Segment

The main goal for the Supply Segment is to achieve the leadership position in the relationships with the customers based on the high quality customer service as well as product leadership.

A number of initiatives are implemented, i.e.: increasing the sales potential by transforming the customer service channels into integrated customer contact channels, increasing the value of the products and services sales to mass customers by developing the product offering and sales techniques, developing products and developing contact channels with respect to specialty products as well the partnership offering addressed to the mass customer segment.

The Update of the Strategic Directions confirmed the continuation of the development of new energy related products and services, including:

• 1. for business customers: consulting and management of energy assets and infrastructure, energy audit and efficiency improvement services,
• 1. for institutional customers: products and services with respect to Smart City, electromobility, low emission reduction, multiutility.

The actions taken by the competition and the rising customer expectations have an impact on developing the product offering and maintaining the highest customer service standards. The growing customer awareness has an impact on the rising requirements, both with respect to the products offered, as well as the speed and quality of the customer service. The importance of ecology, a change in the customer's approach to the way electricity is consumed and a large increase in the number of prosumers are ever more affecting the needs and expectations of customers. TAURON Capital Group is systematically expanding its product offering, tailoring it to the expectations of the individual and business customers, and developing the communications channels, both on the level of digital platforms, as well as that of direct contacts.

Competing companies are offering products on the market that are often very similar to the products offered by the Supply Segment. With similar price offerings the competition for a customer will take place on the level of innovative product and service proposals, in particular on the level of customer communications platforms and customer service quality.

Key challenges

The Strategy and the Update of the Strategic Directions are TAURON Capital Group's responses to the challenges posed by the business environment and the requirements of the energy sector's customers:

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Regulations

The European Union's (EU) decarbonization policy and the implementation of the activities aimed at achieving climate neutrality, as well as the successive regulations seeking to tighten the environmental standards and climate targets, the introduction of the quality based regulation model in the distribution segment, the changes to the system of support for the RES installations and the EU's actions aimed at developing a common electricity market. The implementation of the guidelines provided in the National Plan for Energy and Climate and in Poland's Energy Policy until 2040. Changes in the energy and coal sectors, including work on the government program for energy and mining.

Market

Rising costs of electricity generation, availability and quality of hard coal, demand for electricity, demand for capacity, growing competition on the retail market, increasing level of the cost competitive generation from renewable energy sources (RES), the curtailment or lack of financing of coal-based energy. The expected solutions regarding the shape of the mining sector and the coal-based energy sector in Poland.

Customer

Growing awareness of the customers and the rising requirements with respect to satisfying their needs, as well as the comprehensiveness of the offering, the increasing expectations with respect to customer service quality and availability. An increase in the ecological awareness of the society (public) and a change of the customer's approach to the way electricity is consumed, including a strong rise in the number of prosumers.

Technology

Falling prices of renewable technologies, rising competitiveness of such sources versus the conventional sources, the growth of the prosumer energy, a change of the role of the distribution service due to the expansion of dispersed (distributed) power generation. The advancement of the smart technologies, microgeneration, energy storage and hydrogen technologies.

The tightening decarbonization policy at the EU level has a significant impact on the functioning of the electricity market in Poland. A permanent change in the structure (mix) of electricity production in connection with the decarbonization of the energy sector is underway. There will be a strong growth of the renewable energy sources (RES) and a change in the national energy mix towards low and zero emission sources at the expense of reducing the importance of the conventional sources.

A transition of the utility scale (system) power generation sector towards decentralized generation, increased role of cross-border connections, energy storage and new energy services, such as for example virtual power plants, demand side management, is foreseen. The above direction of the changes has an impact on both, the Distribution Segment that must deal with the smart technologies, electric vehicle charging infrastructure, distributed (dispersed) generation, including the prosumers and the bi-directional electricity flows, while at the same time increasing the quality and security of the supply of electricity, as well as the Generation Segment, whose transition will be geared (oriented) towards performing the function of regulating (adjusting) and stabilizing the power system.

Opportunities and threats

The below table presents the opportunities for and threats to TAURON Capital Group's operations, taking into account the sector's situation as of the end of 2020.

Table no. 5. Opportunities and threats to TAURON Capital Group's operations

	Opportunities		Threats
	Regulations
1. 2. 3. 4. 5.	Functioning of the dual-product market – additional revenue for maintaining generation capacity. Support for electromobility (growing electricity consumption). Introduction of legal solutions supporting the curtailment of low emissions (e.g. system district heating). Obtained derogations from the BAT Conclusions. Use of the aid funds for the expansion of TAURON Capital Group's operations and the funds allocated to the energy transition and stimulating the economy following the end of the COVID-19 pandemic.	1. 2. 3. 4.	Tightening energy and climate policy of the European Union (EU). Increase of the costs of generating electricity using the conventional sources due to, among others, the ever higher environmental costs and the decarbonization policy. The need to incur additional expenses due to the changes to the energy law. EU taxonomy and its impact on the possibilities of financing investments in the energy sector, the exclusion of the support for the coal assets.
	Market
1. 2. 3. 4.	Access to the largest, among Poland's energy companies, customer base. Entry into the energy related services market segments based on the competences held. Commercialization of innovative solutions developed as part of the research and development activities. Solutions related to the shape of the mining sector and the coal based energy sector in Poland.	1. 2. 3. 4. 5.	Decline of the margin and the deteriorating economic profitability of the coal fired units, along with a simultaneous increase of the cost competitive generation from RES and the growth of the prosumers; lower utilization rate (load factor, workload) of the conventional assets. Loss of volume and profitability of the Supply Segment. Pressure on the electricity prices with the growing cross-border exchange volumes. Curtailment of the financing for the coal related investments as well as for the capital groups with coal assets. Impact of the COVID-19 pandemic on the national economy.
	Customer
	1. Competitive advantage with respect to the customer service quality. 2. Customer segmentation and offering of the additional products in line with customer expectations. 3. Growing customer awareness and expectations towards comprehensive, personalized offering of additional services and products. 4. Expanding an offering of services for the customers based on the competences held and trust in the TAURON brand. 5. Developing modern and integrated sales and customer service channels. 6. New competences and business models based on the research and development (R&D) activities. 7. Maintaining of an upward trend in electricity consumption by the final consumers. 8. Developing competences and competitive advantages in the new areas of operations.	1. 2. 3. 4. 5. 6. 7.	Potential loss of customers due to an increase in the number of competitors offering customers similar products and due to the low electricity supply market entry barriers. Decrease of the customer loyalty – intense activities conducted by the competitors. Growing customer awareness and requirements with respect to the customer service quality and product offering. Increase of the ecological awareness of the society (public). Power independence of the consumers (prosumers, energy (power) islands, energy storage facilities, clusters). Energy intensive consumers building in-house generation sources, as a result of the drive to reduce the electricity costs. "Carbon leakage" – moving business operations to other countries due to the cost of energy.

Opportunities			Threats
	Technologies
1. 2. 3.	Continued decline of the prices of the renewable technologies. Advancement of the storage technologies, smart technologies and the technologies related to the dispersed (distributed) generation. Additional services for the customers related to the new technologies (internet of things, dynamic tariffs, virtual power plants).	1. 2. 3.	Growth of prosumer energy, partial energy independence of the final consumers. The need to adapt the grid to the growth of dispersed (distributed) power generation (bi-directional electricity flows). Arrival of the new, cost competitive electricity generation technologies in the countries neighboring with Poland.
4.	Developing and implementing (commercializing) of proprietary innovative solutions that provide a competitive advantage.	4. 5.	Growing number of cyberthreats and the infrastructure vulnerable to such attacks. Multitude of the communications standards, problems with providing the expected goals for the projects implemented.

Long term financial goals and assumptions of TAURON Group's Strategy

At the stage of preparing the Strategy it was assumed that the activities outlined therein would allow for accomplishing the key goals set for TAURON Capital Group, i.e.:

• 1. EBITDA above PLN 4 billion in 2020.
• 1. Maintaining the net debt/EBITDA covenant below 3.5x.
• 1. Maintaining a high Customer Satisfaction Index (CSI).
• 1. Power plants generating positive cash flows by 2020.
• 1. Maintaining the customer base.
• 1. Unit margin leadership among Poland's 4 largest electricity suppliers.
• 1. New businesses will account for at least 25% of the revenue/margin in 2025.

Actions planned for the coming years will allow for arresting the profitability decline. This will be achieved by optimizing the operations in the Mining Segment and the Generation Segment, while at the same time maintaining stability in the Distribution Segment.

The Update of the Strategic Directions indicated the ultimate (target) structure of the generating assets of TAURON Capital Group. The assumed ultimate energy mix of TAURON Capital Group is the consequence of investments in the low and zero emission assets and the reduction in the number of the coal fired units, as presented in the below figure.

Figure no. 5. TAURON Capital Group's ultimate energy transition

A natural consequence of the change in the structure (mix) of TAURON Capital Group's capacity will be a significant reduction in CO² emissions, which will allow the Company to be ranked among the most environmentally responsible energy companies. Ultimately, it is assumed that CO² unit emissions well below 550 kg / MWh will be achieved.

The below figure shows TAURON Capital Group's assumed ultimate unit emissions level.

Figure no. 6. TAURON Capital Group's ultimate unit emissions level

The implementation of TAURON Group's Strategy and the strategic priorities in 2020

The activities undertaken and the achieved values (levels) of the strategic goals, the Efficiency Improvement Program and the Strategic Initiatives are the result of the implementation of the Strategy.

The below table presents TAURON Capital Group's strategic goals realized in 2020.

Table no. 6. TAURON Capital Group's strategic goals realized in 2019

Strategic goal		Realization in 2020
1. EBITDA above PLN 4 billion in 2020.		The goal was realized by the core operations of TAURON Capital Group's business segments. In 2020 EBITDA of PLN 4.2 billion was achieved.
2.	Net debt/EBITDA covenant below 3.5x	Maintaining the covenants is both the consequence of actions leading to the improved financial results as well as actions aimed at improving the investment efficiency. As part of the Strategy the investment portfolio was optimized and modern financing in the form of a hybrid bond issue was obtained. As of the end 2020 the net debt/EBITDA ratio came in at 2.8x.
Maintaining a high Customer 3. Satisfaction Index (CSI) customers 77 points.		TAURON Capital Group is an industry leader in customer service quality. The annual customer satisfaction surveys performed by an external company confirm a high satisfaction level of TAURON Capital Group's customers. The results of the December 2020 CSI survey were as follows: for households 83 points, for small and medium size enterprises 74 points, and for the business
4.	Power plants generating positive cash flows by 2020	Achievement of this goal will be the consequence of a number of actions undertaken within TAURON Capital Group, among others: optimizing the costs and outlays related to the generating units, TAURON Capital Group's trading strategy, as well as the impact of the external environment, both the regulatory one, as well as the market one. The goal was achieved for 3 out of 5 power plants: in 2020, positive flows were obtained at the following power plants: Łagisza, Siersza and Stalowa Wola. The goal for the Łaziska and Jaworzno Power Plants was not achieved. The lack of positive cash flows in 2020 by the Jaworzno and Łaziska branches is due to the accumulation of investments: in 2020 the Jaworzno and Łaziska Branches were implementing the key stages of the program for adapting the units to the BAT Conclusions, incurring investment outlays in the amount of PLN 239 million for that purpose. Taking advantage of the shutdown of those units, major and medium scope overhauls were also carried out for the total amount of PLN 181 million. The revenues resulting from the participation of those units in the new support mechanism on the electricity market, which is the Capacity Market, will have a material positive impact on achieving positive cash flows by TAURON Capital Group's generating units starting from 2021. The revenues expected to be obtained by TAURON Wytwarzanie from that source in the time frame until 2028 have already been contracted as part of the completed capacity auctions.
5.	Maintaining the customer base	TAURON Capital Group is Poland's largest electricity distributor and the second largest electricity supplier. Maintaining the customer base constitutes for TAURON Capital Group a long term growth platform and is implemented by both, actions improving the quality of the services provided, among others an expansion of the customer communications channels, as well as a broad product offering. As of the end of 2020, TAURON Capital Group provided services for approx. 5.6 million customers of the Supply Segment and approx. 5.7 million customers of the Distribution Segment.
6.	Unit margin leadership among Poland's 4 largest electricity suppliers	Maintaining of the leadership position is based both on maintaining a high volume of electricity supplied, as well as the ability to generate a positive financial result. TAURON Capital Group, by focusing on the customer, is developing a broad, profitable base of products and services. Based on the data for the first three quarters of 2020, TAURON Capital Group maintained the leading position among Poland's 4 largest utilities in terms of the unit margin, calculated as the Supply Segment's EBITDA attributed to the electricity supplied to the final consumers.

Strategic goal		Realization in 2020
7.	New businesses are to account for at least 25% of the revenue / margin in 2025	The largest project as part of the implementation of the goal with respect to the New Businesses is the broadband internet access deployment. This project is composed of the Digital Poland Operational Program (POPC) implemented in 7 regions of southern Poland and the construction of structures enabling taking advantage of the business potential of the infrastructure within the Business Services Center at TAURON Customer Service. In 2020, connecting of 100% of schools to the network was completed and the construction of broadband access for households was continued, which was a significant milestone in the implementation of the project. The attractiveness of the project is additionally enhanced by the amount of the subsidy that is ultimately worth PLN 187 million. With respect to the development of eMobility, TAURON Capital Group is building an infrastructure for charging electric cars. As of the end of 2020, after more than 2 years from the commencement of the first activities with respect to electromobility, the charging network of TAURON Capital Group is composed of more than 70 charging stations in operation, which puts it in the 4th place in Poland in terms of size. In 2020, the works related to the construction of the cogeneration engines were continued based on the model assuming the optimization of the use of methane obtained from the mining headings at Brzeszcze Coal Mine (Zakład Górniczy Brzeszcze - ZG Brzeszcze). The commissioning of the units as part of Stage 1 took place at the turn of January and February 2021.

Ensuring TAURON Capital Group's financial stability

Ensuring TAURON Capital Group's financial stability is achieved through the Efficiency Improvement Program, the implementation of the Strategic Initiatives and the improvement of the investment efficiency.

The implementation of the Efficiency Improvement Program was completed in 2018. The implementation of the program brought savings of PLN 1 719 million which represented 132% of the planned savings, with PLN 1 067 million impacting EBITDA and PLN 652 million having been due to the reduction of the capital expenditures.

As part of the implementation of the Strategic Initiatives and the rationalization of the investment outlays for the years 2017-2020, it was assumed that the financial effects at the level of PLN 3.4 billion would be achieved.

The below figure presents the assumptions of the Strategic Initiatives and the CAPEX rationalization in the years 2017-2020.

Figure no. 7. Assumptions of the Strategic Initiatives and the CAPEX rationalization in the years 2017-2020

In 2020, the Strategic Initiatives brought a financial effect of PLN 673 million, with PLN 587 million impacting EBITDA, and PLN 86 million having been due to the reduction of the capital expenditures. The Generation and RES Line of Business (PLN 342 million) and the Supply Line of Business (PLN 181 million) made the largest contributions to the savings achieved. The cumulative effects achieved as of the end of 2020 amounted to PLN 4 210 million, with PLN 2 123 million having a positive impact on EBITDA, and PLN 2 087 million coming from the reduction of the investment outlays.

The figure below shows the implementation of the Strategic Initiatives in the years 2017-2020.

Figure no. 8. Implementation of the Strategic Initiatives in the years 2017-2020 (cumulatively)

Pursuant to the Update of the Strategic Directions, maintaining financial stability is to be supported by a market verification of the strategic options: disinvestments in the Mining Line of Business and in the Heat Line of Business. In 2019, a decision was made to carry out the market verification of the sale of the Janina Coal Mine (ZG Janina). The goal of this decision was to make TAURON's portfolio of assets more flexible by adapting the mining assets to the planned demand for fuel. On December 10, 2019, the process of searching for a potential investor was ended due to the lack of interest in the acquisition of the Janina Coal Mine (ZG Janina). The strategic option of adapting the level of fuel production to the future needs of the coal generating units that will continue to be operated within TAURON Capital Group remains valid and the conceptual and analytical works are underway, as a result of which alternative solutions should be developed. TAURON is continuing its works on making the Mining Segment profitable, among others, by implementing the Turnaround Program for TAURON Wydobycie.

business: PLN 196m.

The project involving the sale of the shares in TAURON Ciepło was implemented during 2020. The most advanced talks (exclusive negotiations) were conducted with PGNiG. On January 29, 2021, PGNiG S.A. disclosed the information on the discontinuing of the negotiations aimed at the acquisition of the shares in TAURON Ciepło.

The detailed information on the sale of the shares in TAURON Ciepło is presented in section 2.6. of this report.

Building a strong capital group

at increasing revenue: PLN 865m.

TAURON Capital Group is offering a rich product and service portfolio for the customers. The measures aimed at developing the Supply Segment are also supported by the dedicated projects as part of the Strategic Research Agenda (Strategiczna Agenda Badawcza - SAB) adopted by the Management Board in 2018. Works are underway on improving high customer service standards and developing modern and integrated sales and customer service channels.

The regulated assets that deal with the operations with respect to electricity and heat distribution are an important link in TAURON Capital Group's value chain. A significant portion of the capital expenditures is spent on the construction and refurbishment of the distribution grid. TAURON Capital Group invested PLN 1 908 million in total in the Distribution Segment in 2020, while at the same time implementing initiatives aimed at improving the Segment's cost and organizational efficiency. The main activities involved unifying the processes and systems as well as implementing an optimal and coherent structure of TAURON Dystrybucja.

The steps aimed at improving the economic efficiency of the generation assets held were continued in the Mining Segment and the Generation Segment in 2020, thanks to the optimization of the costs and capital expenditures related to the assets that will not generate positive results in the future, the optimization of the production assets and the sale of the redundant non-production assets, the streamlining of the employment (headcount). The refurbishment investment projects are conducted as part of the undertakings aimed at adapting the generating units to the BAT Conclusions requirements. As a result of concluding agreements, as a consequence of taking part in the capacity market auctions conducted, TAURON Capital Group's generating units will be receiving additional revenue. As part of the Update of the Strategic Directions, the new schedules for the 120 MW and 200 MW unit shutdowns were developed and adopted. As of the end of 2020, all of the 120 MW units were shut down, except for the two units at the Stalowa Wola branch, that were shut down on February 1, 2021 (970 MW in total). In the years 2026-2030, further units with a total capacity of 2.5 GW will be decommissioned, mainly the 200 MW units. In connection with the implementation of the Strategy, in particular the change of the energy mix, works are underway to launch a comprehensive program for the transition of the Company consisting in the preparation and commencement of the activities aimed at adapting the organizational and production (technical) structure to the above mentioned change, including the competences of organizational units, potential protective programs, method of consultation and communication, and other important issues related to the permanent shutdown of the selected units from the operation and the management (utilization) of the remaining production assets.

As part of the implementation of the assumptions of the new green policy, TAURON Capital Group acquired 5 wind farms in September 2019, with a total installed capacity of 180 MW owned by the in.ventus group, and as a result of the deal its installed capacity in wind based technology was doubled. On December 15, 2020, TAURON EKOENERGIA, through the acquisition of the WIND T1 shares, obtained a 30 MW wind farm project ready for construction (FW Piotrków project).

On January 2, 2020, TAURON EKOENERGIA, through the acquisition of the AVAL-1 shares, acquired the Choszczno photovoltaic farm project with a total capacity of 6 MW (ultimately 14 MW). At the same time, the works related to the preparation for the development of photovoltaic installations on TAURON Capital Group's land (sites) that is not used commercially are in progress. The construction of a 5 MW photovoltaic farm on the land owned by TAURON Wytwarzanie was completed in December 2020.

TAURON declares its readiness to take part in offshore wind farm construction projects. In December 2020, the Company signed a cooperation agreement with OW OFFSHORE S.L., regarding the development of offshore wind farm construction projects in the Polish Exclusive Economic Zone on the Baltic Sea. In January 2021, PGE, TAURON and Enea signed a letter of intent on the cooperation in offshore projects, in which it was agreed that a special purpose vehicle would be established and it would apply for new licenses.

The detailed information on the implementation of the above investment projects in the RES area is provided in section 1.7. of this report.

Introduction of the organizational changes supporting the implementation of the Strategy

The basis of the operational model is process based management and the division of the tasks and responsibilities among the defined units: Corporate Center, Lines of Business and Shared Services Centers (CUW). TAURON Capital Group's cooperation with start-up companies has become important, apart from the traditionally understood research and development activities, as part of the innovative culture. TAURON Capital Group's new proposal for startups is the TAURON Progres acceleration program enabling a quick presentation of the solution to experts, without waiting for the call for applications to be opened.

1.7. Description of the expansion policy and directions

Strategy sets the directions of TAURON Capital Group's short and long term expansion (growth). The priority is to maintain a stable financial position and lay down solid foundations for growth in a changing environment. The Update of the Strategic Directions additionally highlighted the importance of the transition of the energy mix, including the development of low and zero emission sources as well as the optimization of the capital expenditures portfolio.

Strategy sets the priority directions for the innovations as well as research and development activities that will be the basis for developing new products and services in the longer term. In order to achieve this goal TAURON Capital Group adopted a new model for the innovations as well as research and development activities, setting up a dedicated central organization to manage and coordinate such operations.

In the longer term the Strategy assumes the full utilization of the potential of TAURON Capital Group's assets, which is to support innovations, organizational culture and, first of all, focusing on the customer needs. Taking into account the need for TAURON Capital Group's energy transition, the optimization of the investment portfolio and maintaining financial stability, the strategic options to be implemented were adopted as part of the Update of the Strategic Directions.

The below figure presents TAURON Capital Group's adopted strategic options.

Figure no. 9. TAURON Capital Group's adopted strategic options

Implementation of the strategic investment (CAPEX) projects

Key strategic investment (CAPEX) projects underway

The below table presents the activities carried out by TAURON Capital Group in 2020 and by the date of drawing up this report in connection with the implementation of the key strategic investment (CAPEX) projects.

Table no. 7. Key strategic investment (CAPEX) projects' work progress in 2020 and by the date of drawing up this report

	Investment project	Investment project's work progress
1.	Construction of a new 910 MWe supercritical parameters power generation unit in Jaworzno	The trial (test) run of the unit was begun in January 2020 and the trial runs of the auxiliary and accompanying systems (installations) were continued.
	Contractor: RAFAKO S.A. and MOSTOSTAL WARSZAWA S.A. Consortium Planned project completion date: Q2 2021	The contractual deadline for commissioning the unit was January 31, 2020. On January 30, 2020, the RAFAKO S.A. - MOSTOSTAL WARSZAWA S.A. Consortium (General Contractor) provided the information that the unit would be ready for commissioning on February 4, 2020. In February 2020, in the final phase of the unit's
	Work progress: 99% Expenditures incurred: PLN 6 007.6 million*	test run, a failure occurred, as a result of which the boiler components - dust burners - were damaged. Thus, the General Contractor failed to meet the above mentioned deadline.
		On March 6, 2020, the RAFAKO S.A. - MOSTOSTAL WARSZAWA S.A. Consortium estimated that the unit's commissioning should take place by July 31, 2020.
		On May 4, 2020, Nowe Jaworzno Grupa TAURON sp. z o.o., the RAFAKO S.A. - MOSTOSTAL WARSZAWA S.A. Consortium and E003B7 sp. z o.o. (SPV), RAFAKO'S special purpose vehicle set up to build the unit, signed an Agreement in which the causes of the damage to one of the boiler components were determined. According to the conclusions presented by the fact finding commission composed of the representatives of NJGT, the Consortium and SPV the failure was a consequence of an unfavorable coincidence of circumstances that had occurred during the start-up of the unit. Each of these circumstances, occurring individually, could not have led to an occurrence of the failure. In addition, the fact finding commission has agreed on how to repair the damaged boiler components, which will allow for avoiding similar failures in the future. As part of the agreement, a schedule of actions has also been agreed upon, including procedures aimed at providing protection against the risk of a recurrence of a failure as well as procedures for tuning (adjusting) and the commissioning works related to the unit.
		On June 10, 2020, an amendment to the Contract was concluded in accordance with the intentions expressed in the above mentioned agreement and the rules for the further implementation of the Contract were established. The new contract implementation schedule was introduced, confirming the date of commissioning the unit as November 15, 2020. The parties also provided for regulating the other mutual relations and settlements in a separate amendment/ agreement.
		In addition, a permit to use the buildings of the new unit was obtained and the trial (test) run with respect to the auxiliary and accompanying systems (installations) was completed. The fulfillment of the above conditions enabled the Employer to take over, as of February 28, 2020, the auxiliary and accompanying systems (installations).
		In March 2020, the Supreme Administrative Court (Naczelny Sąd Administracyjny) dismissed the cassation appeal against the ruling of the Voivodeship Administrative Court (Wojewódzki Sąd Administracyjny) in Warsaw of November 21, 2017, regarding the decision granting the integrated permit to Nowe Jaworzno Grupa TAURON. The decision is legally binding (final), which allows Nowe Jaworzno Grupa TAURON to finally operate the new unit in accordance with the applicable BAT Conclusions and the environment protection regulations.
		In the third quarter of 2020, the assembly (erection) works were continued and the commissioning works were resumed after the effects of the failure of the boiler

Investment project Investment project's work progress

elements from February 2020 had been fixed. As part of the commissioning works, the technological process systems were brought back into operation and the boiler was re-fired in July 2020. Subsequently, after the required steam purity had been achieved, the unit was synchronized with the National Power System in August 2020, which enabled the repeated adjustment run of the unit to begin. As part of that run, a program of trials and tests was carried out, including, among others: the rated (nominal) power of the unit was achieved, the performance tests were carried out for the boiler feed water pumps and the unit's power (capacity) adjustment tests were continued.

In accordance with the schedule, in the fourth quarter of 2020, the adjustment and trial runs had been completed, and subsequently, on November 13, 2020, the unit was handed over (commissioned) for operation. In addition, under the contract, the General Contractor is managing the transition period during which the General Contractor is conducting the additional optimizations and tests on the operating facility in order for the unit to meet the changed and new Guaranteed Technical Parameters (Performance Tests).

As part of the implementation of the provisions of the amendment to the contract with the General Contractor concluded on June 10, 2020, regarding the settlement by the parties of the other mutual relations and settlements, Nowe Jaworzno Grupa TAURON, E003B7 sp. z o.o. and the Consortium, including RAFAKO S.A. under restructuring acting with the consent of the supervisor (administrator) of the arrangement under the simplified restructuring proceedings, signed a settlement which is the result of the mediation conducted before the Arbitration Court at the General Counsel to the Republic of Poland (Prokuratoria Generalna Rzeczypospolitej Polskiej) and which regulates, in particular, the following issues:

• 1. waiver by the parties of their mutual and equivalent claims that had arisen by the date of signing the above mentioned settlement, with the exception of, inter alia, Nowe Jaworzno Grupa TAURON's claims under the statutory warranty or the warranty, as well as the recourse claims against the Consortium for the payment of the claims of further subcontractors and the claims of the Consortium related to the works carried out in accordance with the contract,
• 1. performance by the Consortium of the additional services for Nowe Jaworzno Grupa TAURON, including the works aimed at optimizing the unit's operation (performance), the results of which will include, inter alia, the reduction of the unit's technical minimum power generation output from 40 percent to 37 percent In addition, the technical warranty for the boiler's high-pressure part will be extended by 6 months (to 36 months), with respect to which Nowe Jaworzno Grupa TAURON will receive an additional security (bond) issued by the warranty providers..

The settlement entered into force on February 6, 2021, after the decision of the District Court in Katowice of December 17, 2020, on the approval of the settlement, had become final (legally binding) on January 5, 2021.

In connection with the conclusion of the settlement, on November 13, 2020, Nowe Jaworzno Grupa TAURON and the Consortium an annex to the agreement that regulated in detail the agreements between the Parties, specified in the Settlement, with respect to the additional services to be provided by the Consortium, including, among others, the deadlines for the completion thereof and the payment terms related thereto. The conclusion of the settlement and the annex will not lead to the exceeding of the assumed total amount of expenditures that is foreseen for the implementation of this investment project, i.e. PLN 6.2 billion, where the remuneration for the Consortium under the agreement signed and the concluded annexes thereto will, in total, amount to PLN 4.6 billion. Moreover, on the basis of the introduced provisions, the Employer agreed to the implementation of the 72-hour reliable operation run during the transition period.

On January 13, 2021, the Management Board of Rafako S.A. disclosed in the regulatory filing (current report) that it had received from the District Court in Gliwice, the 12th Commercial Division, verbal information on the issuing by the competent court of a decision approving the arrangement under the simplified restructuring proceedings pursuant to the Act of May 15, 2015, Restructuring Law. As of the date of drawing up this report the said decision is not final (not legally binding).

In addition, on November 18, 2020, Nowe Jaworzno Grupa TAURON received a notification, from the ERO, of the granting of a license for electricity generation for the period from November 20, 2020, until December 31, 2030.

The generating unit is operating in the Polish power system within the full range of achievable capacity and the schedule of trials and tests envisaged in the transition period is successively implemented, including the trials with the participation of the TSO (PSE).

1. Construction of a 449 MWe CCGT unit, including a 240 MWt heat generation unit at Stalowa Wola (Project implemented jointly with the strategic partner – Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG)). In 2020, all of the contractors completed the works at the construction site. The assembly of the steam pipelines, auxiliary installations and the steel structures was completed. The mechanical assembly was also completed. The unit's chemical

Contractor: the contract with Abener Energia S.A. was terminated. The project's completion is implemented under the EPCM formula (Contract Manager) – Energoprojekt Gliwice – Energopomiar Katowice consortium

cleaning was successfully completed. On March 4, 2020, the first synchronization of the gas turbine with the electricity grid was carried out. The steam purging (blowdown) process was successfully carried out and it was completed in the second week of April 2020. The commissioning

group carried out all the necessary tests and commissioning of individual

technological (process) systems.

	Investment project	Investment project's work progress
	Planned project completion date: Q4 2020 Work progress: 100 %	As a result of the inventory taking carried out by the Contract Manager, the assembly errors were identified, as a consequence of which it was necessary to dismantle the
	Expenditures incurred: PLN 1 398.4 million	steam pipelines, and subsequently make them anew and reassemble. As a result of the accumulation of the additional activities required to be performed, and not planned in the original schedule, the project schedule was revised and a new date for the unit's commissioning was set, originally in the first quarter of 2020, and subsequently, as a result of another revision, in the third quarter of 2020.
		In August 2020, the first synchronization of the steam turbine was carried out.
		On September 30, 2020, the unit was commissioned with a capacity curtailment of 300 MWe. The unit's nominal (rated) capacity was achieved in November 2020. The unit's optimization run was completed.
		Following its commissioning the unit obtained a license for electricity and heat generation valid until December 31, 2040, as well as the Decisions of the President of the Energy Regulatory Office (ERO) approving the Tariff for heat. The unit is operating commercially in line with the operator's expectations, providing the supply of heat and electricity.
		The implementation of the investment project has been completed.
3.	Construction of the "Grzegorz" shaft (TAURON Wydobycie) including the infrastructure (above the ground and underground) and the accompanying	The passing of the fault on the 540 m level was completed. The works related to the drilling of the horizontal workings towards the shaft in order to merge the longwalls are underway.
	longwall faces (headings). Contractor: Consortium of KOPEX Przedsiębiorstwo Budowy Szybów S.A. (formerly: KOPEX Przedsiębiorstwo Budowy Szybów S.A.), FAMUR Pemug sp. z o.o. (main task – Stage I), LINTER S.A. – contract terminated, the works in this	At the construction site of the "Grzegorz" Shaft, the construction of the infrastructure required to sink the shaft was completed and more than 80 m of the shaft was bored in the so-called ultimate mine shaft enclosure. TAURON Wydobycie and the General Contractor are continuing their cooperation. Talks are held to determine the detailed conditions of the further conducting of the investment project. The freezing process is maintained at the construction site.
	respect have been halted.	The site continues to be ready for the continuation of the investment project works.
	Planned project completion date: 2023
	Work progress: 50 %
	Expenditures incurred: PLN 275.9 million
4.	Construction of the 800 m level at the Janina Coal Mine in Libiąż (TAURON Wydobycie). Contractor: Consortium of Mostostal Zabrze GPBP S.A. and SIEMAG TECBERG POLSKA S.A. (Construction of the ultimate above the ground and underground infrastructure including the Janina VI	In connection with the COVID-19 pandemic, there was a partial stoppage in the performance of the works related to that investment project. However, the works related to installing the equipment (furnishings) of the hoisting machine and the shaft cage were conducted. A flyover was constructed for the crew to access the newly built tower, which connected the new and the old infrastructure. The installation works related to the heating and ventilation systems, as well as cabling and woodwork (carpentry) in the headframe building have been completed.
	shaft mine shaft elevator), KOPEX S.A. and KOPEX Przedsiębiorstwo Budowy Szybów S.A. (task completed – shaft drilling)	Concrete pouring works have been completed and the installing of the shaft equipment (furnishings) has been commenced on the shaft bottom (pit) at the 800 m level.
	Planned project completion date: Q3 2021	W IV kwartale 2020 r. rozpoczęto ruch próbny górniczego wyciągu szybowego.
	Work progress: 87 % Expenditures incurred: PLN 450.0 million	In the fourth quarter of 2020, a trial (test) operation of the mining shaft hoist was begun.
		A tender was prepared and announced for the boring of the 800 m level headings, the announcement of which, due to the optimization of the scope thereof, had been postponed until 2020. The opening of the bids took place in February 2021. Due to the submission of two bids, one of which did not meet the criteria and the other significantly exceeded the employer's budget, no contractor was selected. The procedure is being prepared again.
5.	Brzeszcze CAPEX Program	The extraction of the 510 deposit was conducted in 2020. The works aimed at altering and improving the efficiency of the ventilation system are continued.
	Contractors: TRANS-JAN, FAMUR and KOPEX Machinery Consortium, FAMUR and KPRGiBSz Consortium, MAS and Carbospec Consortium,	By the end of 2020, a total of 7 078.8 m of headings (workings) had been bored and altered as part of the program.
	Elektrometal Cieszyn	Due to the operational nature of the activities carried out as part of the Program, in
	Program completion date: 2020	December 2020, a decision was made to terminate the Program earlier (originally, the Program's completion date was planned in 2025). Further work will be carried
	Work progress: the Program was ended at the work progress of 72% of the planned works	out as part of operating activities.
	Expenditures incurred: PLN 326.8 million
6.	Implementing heat generation at unit no. 10 and the construction of the peaking and backup boilers in Łagisza	The steam turbine set refurbishment and the implementation of the heat generation unit including the station's adaptation were completed as part of the Project in the fourth quarter of 2019. The systems were tested, commissioned and handed over for operation in the fourth quarter of 2019
	GE Power (steam turbine set Contractor: refurbishment), Mostostal Warszawa (implementing the heat generation unit including refurbishing the heat production part), SBB Energy (construction of the peaking and backup boilers)	In the first half of 2020, the final task of the thermal insulation works was continued, namely the construction of the peaking and backup boilers. In 2020, the construction of the oil tanks was completed, and subsequently the adjustment run of the boilers was begun.
		A test run of the boiler house was carried out and the required tests were conducted.

	Investment project		Investment project's work progress
	Investment project completion date: Q4 2019 / Q2		The boiler room was commissioned in June 2020.
	2020		The implementation of the investment project has been completed.
	Work progress: 100%
	Expnditures incurred: PLN 127.4 million
7.	Low Emission Elimination Program (PLNE – Program Likwidacji Niskiej Emisji) on the territory of the Silesia and Dąbrowa conurbation		The PLNE program is carried out on the territory of the following metropolitan areas: Będzin, Chorzów, Czeladź, Dąbrowa Górnicza, Katowice, Siemianowice Śląskie, Sosnowiec and Świętochłowice.
	Contractor: Contractors are being selected to carry out specific work (project) stages.		The new agreement with the Voivodeship Fund for Environmental Protection and Water Management (Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej - WFOŚiGW) was concluded on January 31, 2020, as a result of a new
	Planned project completion date: 2023 Work progress: 23 %		application submitted by TAURON Ciepło to WFOŚiGW in 2019, for the co-financing of the PLNE Program for a new scope of the program's implementation in the form of 22 MWt. The amount of the funding obtained is PLN 32 million.
	Expenditures incurred: PLN 25.8 million		In 2020, the works related to installing the network connections were continued
			under the network connection agreements concluded and the process of acquiring new customers continued. As part of the planned target for 2020, more than 7.8 MWt of new customers were acquired under the network connection agreements concluded.
8.	TAURON Internet (POPC) – implementation of the project in the areas awarded (7 projects on the territory of the following areas: Rybnik, Katowice Tychy, Oświęcim, Kraków, Wałbrzych A, Wałbrzych		The POPC program involves implementing an infrastructure to enable high speed internet connections for households (min 30 MB/s). The final product of the project will be the provision of the wholesale services enabling connecting of the end users by the retail operators.
	B, Sosnowiec) Contractor: Atem Polska sp. z o.o. (Katowice		In January 2020, a contractor for the construction of the backbone network was selected, and the selected contractor completed the works contracted in 2020.
	Tychy), MZUM sp. z o.o. (Sosnowiec), Atem Polska sp. z o.o. (Wałbrzych A), Mediamo Sp. z o.o. (Oświęcim), MX3 sp. z o.o. (Rybnik), MZUM sp. z o.o. (Wałbrzych B), ZICOM sp. z o.o. (Kraków		All of the contractors had been conducting the works related to the deployment of the fiber optic network and connecting of the schools to the network until the end of 2020.
	Tarnów)		The contractors had been actively connecting the schools and installing the fiber optic line terminal cabinets (racks) until the end of September 2020,
	Planned project completion date: 2022 Work progress: 38%		In the fourth quarter of 2020, a significant milestone was achieved as 100% of the schools had been connected under the funding agreement.
	Expenditures incurred: PLN 116.7 million		In the next period, the works related to the further expansion of the optical fiber network will be carried out.
9.	Program aimed at adapting TAURON Wytwarzanie's generating units to comply with the		As part of the program the refurbishment of the following power generating units, in accordance with the following scope of works, is planned:
	operational conditions in force beyond 2021 Contractor: Contractors are being selected to carry out specific projects.	1.	Jaworzno II Power Plant, units no. 2 and 3 – the construction of the flue gas desulfurization (FGD) installation. The implementation of the project was halted in the second quarter of 2020 due
	Planned project completion date: Q4 2021		to the obtained derogations from the BAT Conclusions, which allowed for further operation of the units. The parties are preparing documents that will enable the
	Work progress: 94%		termination of the contract and the mutual settlements.
	Expenditures incurred: PLN 281.6 million	2.	Jaworzno III Power Plant, units no. 1, 3, 5 – the construction of the selective catalytic reduction (SCR). installation In the fourth quarter of 2020, the assembly was completed in all branches for unit 5, the adjustment is underway. The installation for unit no. 1 was commissioned. Unit no. 3 was commissioned, the works related to final acceptance are in progress
		3.	Łaziska Power Plant, units no. 9, 10, 11, 12 – the refurbishment of the selective catalytic reduction (SCR) installation. The installation for unit no. 9 and unit no. 10 was commissioned. In the fourth quarter of 2020, the installations for units no. 11 and no, 12 were commissioned.
		4.	Łaziska Power Plant, units no. 9, 10, 11 and 12 – the refurbishment of the flue gas desulfurization (FGD) installation. The installation for units no. 9 and no. 10 was commissioned. In the fourth quarter of 2020, most of the flue gas channel switching (rerouting) tests were completed at the connection of units no. 9, 10, 11 and 12.
		5.	Łaziska Power Plant – the refurbishment of the sewage treatment plant. The reduced scope of the refurbishment works will be carried out as part of the ongoing overhauls (maintenance) starting from the spring of 2021, the works will be conducted without any impact on the power plant's operation.
		6.	Siersza Power Plant - the adaptation of the existing flue gas desulfurization (FGD) installations. The implementation of the project was suspended due to the obtained derogations from the BAT Conclusions.
		7.	Łagisza Power Plant – the construction of the flue gas desulfurization (FGD) installation was substituted by the completion of the dry additives feeding installation. The tender procedure has been carried out. The project implementation has been halted due to the obtained derogations from the BAT Conclusions.

Investment project	Investment project's work progress
8.	Projekt Monitoring - w IV kwartale 2020 r. wykonawca w ramach etapu pierwszego (prace niezbędne do wykonania w elektrowniach) zakończył prace obiektowe dla Elektrowni Łaziska i Elektrowni Jaworzno III. Monitoring Project – in the fourth quarter of 2020 the contractor, as part of the first stage (the works required to be performed at the power plants), completed the field works for the Łaziska Power Plant and Jaworzno III Power Plant/ The contractor handed over the detailed engineering designs for all of the facilities (sites).

*The amount increased by, among others, training, fast wearing parts

Other investment projects

Preparation and implementation of investment projects in the field of renewable energy sources (RES)

In accordance with the assumptions of the Update of the Strategic Directions, that assumes an increase in the share of the low and zero emission sources in the generation mix of TAURON Capital Group to more than 65% in 2030, TAURON Capital Group's subsidiaries have been steadfastly developing projects related to the new RES capacity. By 2025, the Group is planning to invest in on-shore wind farms (additional 900 MW), photovoltaic farms (additional 300 MW) and commence the process of getting involved in the construction of off-shore wind farms.

As part of the investments in the field of renewable energy sources (RES), the program of building photovoltaic (PV) farms in the areas that were reclaimed or required rehabilitation as a result of long term industrial activity (TAURON PV Program) was continued in the fourth quarter of 2020. The Program includes the construction of the PV farms at several locations (sites), with the total capacity of up to 150 MWp

The civil works, as part of the first project of the TAURON PV Program – the construction of a 5 MW photovoltaic (PV) farm in Jaworzno, were commenced in August 2020. The investment outlays for the construction of the farm amounted to PLN 15 million. The project was co-financed by the Voivodeship Fund for Environmental Protection and Water Management (WFOŚiGW) in Katowice (a loan with an option to redeem up to PLN 3 million). The farm was commissioned in December 2020. The project competed in the RES auction for the installations of > 1 MW in 2020, however, due to the strong competition from the wind sources, it did not receive the support.

The next most advanced project is a photovoltaic farm in Mysłowice with an estimated capacity of approx. 40 MW. The project is currently awaiting the issuance of the Building Permit. Preparations are underway to start the process of selecting the contractor for the farm and the grid connection. The subject matter evaluation of the project is also underway as part of a competition dedicated to Silesia under the Infrastructure and Environment Operational Program.

At other locations (sites) the works currently underway include obtaining the required administrative (zoning) approvals (clearances) and decisions, however the final decisions on their implementation will be taken in the event that the business case (justification) turns out positive. Works are also underway on changing the scope of the TAURON PV Program in connection with the possibility of extending the program to cover the new locations.

Apart from the TAURON PV Program the PV Choszczno project is also under construction - a complex of 1 MW photovoltaic farms with the total capacity of 6 MW (the first stage). The investment project is implemented as part of the acquisition of the AVAL-1 shares by TAURON EKOENERGIA on January 2, 2020. The construction of the farm was completed in the fourth quarter of 2020, and preparations are currently underway for the commissioning and handing the project over for operation. The investment project received support as part of the 2019 RES auction for the installations of <1 MW. The total budget of the project is approx. PLN 17 million. The second stage of the investment project involves extending the farm by adding another 8 MW. The investment project took part in the RES auction in 2020 for the installations of <1 MW, but did not receive the support. The planned date of its commissioning is the turn of 2021 and 2022.

Apart from developing their in-house projects, TAURON Capital Group's subsidiaries are also looking for the opportunities to acquire advanced RES projects ready for construction on the market. As part of such efforts, on December 15, 2020, TAURON EKOENERGIA, through the acquisition of the WIND T1 shares, acquired a 30 MW wind farm project ready for construction (Piotrków FW project). The first civil works are to begin at the turn of March and April 2021. The total project budget is approximately PLN 200 million. According to the plan, the investment project is to be commissioned in June 2022.

The due diligence analyses of further projects are underway. All of the investment decisions will be made after the detailed analyses of the technical, legal and business risks have been completed, after the positive financial results of the individual projects have been obtained and after the final terms have been agreed upon with the sellers.

Obecnie postępowania dotyczące pozwoleń lokalizacyjnych w polskich obszarach morskich są zawieszone, do czasu przyjęcia w drodze rozporządzenia planów zagospodarowania przestrzennego dla tych obszarów (planowo do dnia 31 mara 2021 r.) Dodatkowo zostały złożone wnioski o wydanie Pozwolenia na układanie i utrzymywanie kabli lub rurociągów na obszarach morskich wód wewnętrznych i morza terytorialnego.

As part of the activities related to TAURON's participation in the offshore wind farm projects, the applications were submitted in the fourth quarter of 2020 for a Permit for the construction of artificial islands as a supplement to the previously submitted applications, that are waiting for a review at the Ministry of Maritime Economy and Inland Navigation. Currently, the proceedings regarding the location (siting) permits in the Polish maritime areas are suspended until the spatial development (zoning) plans for these areas are adopted by way of a regulation (planned by March 31, 2021). In addition, the applications for a Permit for laying and maintaining cables or pipelines in the areas of the internal waters and the territorial sea have been submitted

On December 29, 2020, TAURON concluded a two-year cooperation agreement with OW OFFSHORE S.L. on the development of offshore wind farm construction projects in the Polish Exclusive Economic Zone on the Baltic Sea.

The detailed information on the conclusion of the above agreement is provided in section 12.2.1. of this report.

On January 18, 2021, (an event occurring after the balance sheet date) PGE, Enea and TAURON signed a Letter of Intent, in which they expressed their will to commence strategic cooperation related to the future offshore wind energy investment projects in the Polish Exclusive Economic Zone of the Baltic Sea.

The detailed information on the signing of the above mentioned Letter of Intent is provided in section 2.6. of this report.

Nuclear power plant construction project

PGE EJ 1 was carrying out the project's initial stage scope of works related to conducting environmental and siting studies at Żarnowiec and Lubiatowo-Kopalino sites in 2020. Having collected the appropriate amount of data, the writing of the environmental and siting reports began. Currently, the compiling of both reports is underway.

The project is carried out under the Partners' (Shareholders') Agreement concluded in 2014 by TAURON, Enea S.A. (Enea) and KGHM Polska Miedź S.A. (KGHM Polska Miedź) (Business Partners) with Polska Grupa Energetyczna S.A. (PGE). In accordance with the above agreement each of the Business Partners holds 10% of the shares in PGE EJ 1 – a special purpose vehicle responsible for preparing and implementing the investment project involving the construction and operation of a nuclear power plant.

The Partners' (Shareholders') Agreement governs the principles of cooperation in the project implementation, including the parties' commitment to jointly, in proportion to the stakes held, finance the operations as part of a project development milestone (stage).

The preparations for the sale of TAURON's shares in PGE EJ1 were commenced in the third quarter of 2020,. The content of the Letter of Intent was agreed. The Letter of Intent regarding the sale of the shares was signed by all of the shareholders of PGE EJ 1 and a representative of the State Treasury on October 1, 2020.

On March 26, 2021, (an event occurring after the balance sheet date), the Company signed an agreement with the State Treasury for the sale of the shares in PGE EJ 1.

The detailed information on the signing of the above mentioned Letter of Intent and the conclusion of the above mentioned agreement is provided, respectively, in section 2.6. and section 12.2. of this report.

413 MWe CCGT unit construction project including an approx. 250 MWt heat generation unit at TAURON Wytwarzanie Łagisza Power Plant Branch in Będzin (TAURON Wytwarzanie Oddział Elektrownia Łagisza w Będzinie)

In September 2016, in accordance with TAURON Group's Strategy for the years 2016-2025 (Strategy), as part of the priority of ensuring TAURON Capital Group's financial stability, the 413 MWe CCGT unit construction project including a heat production unit at TAURON Wytwarzanie Łagisza Power Plant Branch in Będzin (TAURON Wytwarzanie Oddział Elektrownia Łagisza w Będzinie) was halted due to the loss of its business justification. TAURON Capital Group is currently conducting analyses that would enable a potential resumption of the project and other similar projects at TAURON Capital Group subsidiaries locations. Smaller units or batteries of gas engines operating in high-efficiency cogeneration are also considered. The fuel under consideration is natural gas with a much lower emission than coal, also as a transition fuel on the path to the low emission generation. Taking of the investment decision will, on one hand, be based on the assessment of the projects' profitability, and, on the other hand, on TAURON Capital Group's financial standing. The possibility of involving an equity partner to implement the project cannot be excluded.

Capital expenditures (CAPEX)

TAURON Capital Group's capital expenditures came in at PLN 4 039 million in 2020 and they were 2% lower than the expenditures incurred in 2019 that stood at approx. PLN 4 128 million (excluding equity investments). This is primarily due to the decrease of the outlays in the Mining and Generation Segments and the increase of the outlays in the Distribution, RES and Other Operations Segments.

The below table presents the selected, highest by value, capital expenditures incurred by TAURON Capital Group's Lines of Business in 2020.

Table no. 8. The highest by value capital expenditures incurred by TAURON Capital Group's Lines of Business in 2020

Item	Capital expenditures (PLN m}
Distribution
1. Installation of new grid connections	924
2. Existing grid assets' upgrades (refurbishments) and replacements	827
3. Dispatcher Communications System	52
Generation
4. Construction of a 910 MWe super critical parameters generation unit in Jaworzno	688
5. Adaptation of TAURON Wytwarzanie generation units to the BAT Conclusions	239
6. CAPEX on replacements and upgrades (refurbishments), as well as components at TAURON Wytwarzanie	187
7. Connecting of new facilities to the grid	33
8. Implementing heat generation module at the Łagisza Power Plant	18
9. Investment projects related to the development (expansion) and maintenance of the district heating networks	16
10. Connecting of the facilities heated using the low emission sources to the district heating networks	9
11. Restoration of the SUW demineralized water preparation (conditioning) station	7
RES
12. Construction of the PV farm in Choszczno	16
13. Construction of the PV farm in Jaworzno	15
Mining
14. Preparation of the future production	139
15. Construction of the 800 m level at the Janina Coal Mine (ZG Janina)	41
16. Brzeszcze Coal Mine's (ZG Brzeszcze) Investment Program	32
17. Purchase / modernization of the longwall boring miner system in the 301 deposit	38
18. Construction of the "Grzegorz" shaft at the Sobieski Coal Mine (ZG Sobieski	17
Supply and Other Operations
19. Construction of the broadband Internet as part of the POPC III project	102
20. Maintenance and development of the street lighting	43
21. Gas fired engines	10

The detailed information on the capital expenditures incurred in the individual Segments of TAURON Capital Group's operations is provided in section 5.2 of this report.

Evaluation of the capability to complete the intended investment projects

TAURON Capital Group's strategic investment projects and the financing thereof are centrally managed at the Company level. Based on the completed analyses with respect to the planned investment outlays and resources the Company's Management Board assesses that TAURON Capital Group is able to finance the current and future intended investment projects included in the Strategy using the funds generated from the operating activities and by obtaining debt financing, both the corporate as well as the project financing.

The Company pursues a policy of diversifying financing instruments and strives to secure the financing and maintain the ability of TAURON Capital Group's subsidiaries to meet both the current as well as the future obligations in the short and the long term, including the ones related to the capex plans. Steps are taken to acquire new sources of financing, resulting, among others, in a program agreement concluded with Santander Bank Polska S.A. on February 6, 2020, under which the bonds worth PLN 1 000 000 000 were issued on October 30, 2020, and the agreements concluded in March 2020: a syndicated loan agreement with Intesa Sanpaolo S.P.A. and China Construction Bank (Europe) S.A. as well as a loan agreement with SMBC BANK EU AG.

The detailed information on the conclusion of the above mentioned agreements is provided in section 12.2. of this report.

Directions for advancing innovations as well as research and development activities

The research and development as well as innovations related activities (R+D+I) are reflected in the Strategic Research Agenda adopted by the Company's Management Board in 2018. TAURON Capital Group introduced portfolio based management of research and development projects in accordance with the R+D+I priority directions.

Strategic Research Agenda is in line with the directions of the R+D+I activities assumed in the Strategy.

Strategic Research Agenda is a document that describes in a precise manner the directions of innovations pursued and it is a detailed extension of the Strategy. For each direction a separate portfolio of projects is created and the key challenges, development goals and research areas are defined within such projects. Such a structure of the Strategic Research Agenda supports selecting specific projects and rejecting others, and it will also allow for an optimum allocation of the financial resources. Strategic Research Agenda includes the following portfolios:

• 1. Customer and His / Her Needs,
• 1. Smart Grid Services,
• 1. Dispersed (Distributed) Power Generation,
• 1. Low Emission Generation Technologies.

This way TAURON Capital Group's R+D+I activities are carried out and developed based on complete and detailed assumptions of strategic nature – with clearly defined goals and results tied to a timeline.

Strategic Research Agenda is in line with and complementary to the other strategic documents, prepared or adopted by TAURON Capital Group.

1.8. Major achievements in the field of research and development

Approx. PLN 40 million was allocated to the R+D+I area in 2020. 10 projects (including 8 start-ups) were launched in various lines of business. As part of four portfolios of the Research and Innovations Area, 54 projects with the total value of almost PLN 109 million were carried out. For the implementation of some of these projects TAURON Capital Group obtained funding from the external sources in the total amount of almost PLN 42 million.

There was a visible decline in the number of projects in 2020, both currently implemented as well as newly launched, which was caused in particular by:

• 1. COVID-19 pandemic, the impact of which in the Research and Innovation Area results in a reduced number of new initiatives (the effect of delays in the implementation of the works commissioned to the external institutions, in combination with the curtailment of the operations of a number of institutions cooperating with TAURON Capital Group),
• 1. redefinition of the portfolio of the R&D&I projects at TAURON Capital Group as a result of the Green Turn of TAURON (among others, the involvement in the conventional energy projects was significantly reduced).

The below table presents selected R&D projects implemented in 2020 by TAURON Capital Group's subsidiaries, co-financed from the external sources.

Table no. 9. Selected R&D projects implemented in 2020 by TAURON Capital Group's subsidiaries, co-financed from the external sources

Projects / programs / tasks		Co-financing source
1.	Development and testing of an adaptive electricity storage system based on the second life of batteries from electric vehicles.
2.	System for assessing propagation and improvement of the quality of electricity in the distribution grids.	National Research and Development Center (Narodowe Centrum Badań i Rozwoju - NCBR)
3.	Developing a platform allowing for aggregating the generation and regulating (adjustment) potential of the dispersed (distributed) renewable energy sources and energy storage devices (accumulators) as well as the selected categories of the controllable consumers.
4.	Integrated Grid Diagnostics System
5.	Development of the industrial design of the carbonate fuel cells and ceramic electrolyzers enabling integration with the power-to-gas installations
6.	Flexibility of the existing power generation units with limited capital expenditures.
7.	Development and demonstration of a computer system to be used for the operation control as well as availability and reliability management of industrial infrastructure based on artificial intelligence algorithms.
8.	Dispersed (distributed) energy solutions model 2.0 – self-balancing power grid areas.
9.	Development of an innovative system for effective monitoring and supporting of the protection devices compliant with the DMS assumptions.
	10. Development and implementation of the technological process for processing waste from fluidized bed boilers with the use of CO2 for the production of cement substitute.

Projects / programs / tasks	Co-financing source
11. Development of the hybrid system for reducing the emission of acid components and fly ash from flue gases.
12. Development of advanced technology for monitoring and predictive analysis of the technical condition of the boiler in order to increase the reliability of the boiler unit.
13. Project TEXMIN - impact of extreme weather conditions on the mining operations.	European Union's Coal
14. Project RECOVERY - assessment of the environmental management and the measures aimed to protect and and Steel Research Fund repair it using tools to analyze the state of the ecosystem.
15. Project MOBISTYLE - technology solutions that will allow for positively influencing customer behavior by raising the consumers' awareness and feeling of ownership.	Horizon 2020 (Horyzont
16. Project UtilitEE - implementing a solution that will increase electricity consumption efficiency by actively engaging customers in their behaviors related to electricity consumption with the use of information and communications technologies and DSM mechanisms.	2020): Framework Program with respect to scientific research and innovations
17. Project GEMINI+ - developing a design of a high temperature gas cooled nuclear reactor (HTGR) for electricity

and heat production.

Project M-GRID 2.0 - "Dispersed (distributed) energy model 2.0 - self-balancing power grid areas"

The project that combines the research and development (R&D) activities of TAURON, TAURON Dystrybucja, TAURON EKOENERGIA and TAURON Sprzedaż. As part of the project, a pilot installation of a power microgrid is being prepared, with the ability to independently cover the local demand for electricity. The pilot installation will be equipped with the generation sources, energy storage facility and the management system, along with the advanced network automation solution. The consumers served will include households and enterprises billed under tariff C. The entire solution will be connected to the existing low voltage grid. The goal of the project is to verify the technology of building local power grids whose the main advantages include the reduction of losses in electricity distribution and the improvement of system reliability and flexibility. The gained knowledge and experience with respect to developing and operating microgrids will allow for offering a new type of services to the external customers of TAURON Capital Group. The tender for the selection of the Contractor for the pilot installation was completed in 2020 and the building permit for the construction thereof was obtained. A number of technical agreements related to the operation of the future installation have also been reached.

So-called Virtual Power Plant platform

The development of the so-called Virtual Power Plant allowing for the aggregation of the generation and regulation (adjustment) potential of the distributed renewable energy sources and energy storage facilities (accumulators) as well as the selected categories of controllable loads (consumers) is the subject of the project implemented by TAURON EKOENERGIA. As part of the project, both the management platform as well as the components were developed to enable the connecting of various types of energy sources, storage and electricity consumers (controllable) and their joint, coordinated management as a single energy facility. The testing and optimization of the solution's functioning were carried out in 2020, and the inclusion of the platform in TAURON Capital Group's offering for the participants of the electricity market is planned in 2021. At the same time, the works on the commercial implementation of the solutions developed are underway.

Project TENNESSEE

The project is one of the significant R&D projects implemented by TAURON Capital Group in 2020. The scope of the project covers high efficiency electrolysis of water vapor supported by fuel cells, in order to increase the efficiency of the green hydrogen storage in the form of synthetic natural gas, with the use of CO² captured from the power generating units' flue gas. The purpose of the pilot Power-to-Gas installation is to test innovative, high efficiency technologies for the production of hydrogen and CO² capture from boiler flue gas. The CO² and hydrogen obtained this way are blended and transformed into synthetic natural gas using the methanation installation. This process will ultimately be powered by the surplus of cheap energy generated from the renewable sources during the so-called load valleys (when the demand is reduced, e.g. at night). The technology is a promising solution for storing electricity from non-controllable energy sources - wind farms (in particular, the planned off-shore farms) or photovoltaic cells. The contractor for the pilot installation was selected in 2020 and the construction thereof began at the Łaziska Power Plant.

Second Life ESS

The goal of the project is to reuse the lithium-ion cells previously used in the urban transportation vehicles. The project is being developed with the support of the consortium of Solaris Bus & Coach Sp. z o.o. and Impact Clean Power Technology S.A. As part of the project, Solaris Bus & Coach Sp. z o.o. will provide batteries with a total capacity of 160 kWh for the construction of the energy storage facility. Before that, rechargeable batteries had been used by one of the PKM Jaworzno electric buses. The solutions developed can also be used as chargers for electric cars, or as an element of the smart energy infrastructure of a business user (e.g. as supplementary or emergency power supply), as well as with respect to the grid solutions - supporting the DSO.

Program HEMS

The program is addressed to the retail customers. The goal of the program is to prepare TAURON Capital Group to obtain a new revenue stream for TAURON Capital Group's subsidiaries, by developing a strategy, organization and model for the provision of services and selling products under HEMS based on the existing as well as the new products and services. As part of the program, the works related to the following projects were carried out in 2020:

• 1. Web site and e-consulting the first stage of the project was completed, including, among others, the preparation of a website for the HVAC devices,
• 1. Thermal Comfort Management the stage of preparing an algorithm for optimizing the operation of the boiler had been completed, which subsequently passed the stage of tests at a research institution,
• 1. Community of Experts.

Internet of Things

The works related to the Internet of Things were continued in 2020. The activities aimed at developing and implementing services for the needs of a smart city with the use of the above mentioned technology were carried out. The implementation of this type of solutions will be Poland's first undertaking that uses the Internet of Things on the scale of a city with the population of several hundred thousand inhabitants. The implementation assumes a comprehensive optimization of the use of and developing the new services based on the city, municipal, power and telecommunications infrastructure, which will be possible due to the use of a network of sensors providing information facilitating the management of the individual functions of the metropolitan area. The existing distribution infrastructure of TAURON Capital Group is used to provide advanced technology solutions for the inhabitants, the city authorities and businesses. The data was collected from the infrastructure of sensor devices and the works on the delivery of the ultimate platform for data visualization in selected functional areas of the city were carried out in 2020. The functionalities for measuring air quality along with the pollution prediction module, a smart parking service that helps residents find vacant parking spaces, the functionality of managing smart street lighting are tested, and the functionality of monitoring the level of filling waste bins was verified in order to try to optimize the waste collection process. In addition, the works on the development and testing of the analytical models for monitoring city traffic based on the image from the cameras were undertaken.

OPTI AI UNIT

A project launched in 2020, related to the development and demonstration of a computer system for controlling the operating parameters of the critical industrial infrastructure devices, as well as the construction of the models allowing for the dynamic management of their availability (dispatchability) and reliability. The integration of the control system with the digital models, artificial intelligence and machine learning algorithms will allow for including an additional component to support the decision making process. Solutions developed as part of the project, in line with the assumptions of the so-called Industry 4.0, will allow for, among others, predicting potential failures within the critical industrial infrastructure devices with an appropriate lead time (in advance).

Cooperation with the American Electric Power Research Institute

The cooperation with the American Electric Power Research Institute was continued in 2020 and, as part of that project, TAURON is participating in 2 research programs related to energy storage and identifying electricity consumer needs. The participation in the program of identifying the needs of electricity consumers enables TAURON Capital Group's subsidiaries to identify customer needs faster and precisely, and thus to build a portfolio of energy services and products adapted to the changing market trends. The program will also allow the products and services just being developed in the new business lines, such as electromobility or Smart Home, to be better adapted to the customer expectations.

The energy storage program uses modern tools that allow for estimating the costs of installing and operating energy storage facilities or software that enables verifying the benefits and requirements in specific energy storage cases. Such solutions provide support for implementing TAURON's research and development (R&D) projects, i.e. the construction of an energy storage facility in order to provide uninterrupted power supply to electricity consumers, the second life for batteries, microgrids or the demand side response (DSR) mechanisms.

Cooperation with start-ups

Activities were continued within TAURON Capital Group in 2020 with respect to the cooperation with startups under external acceleration programs, as well as under the acceleration program of TAURON Capital Group - TAURON Progres. The programs are addressed to entities that have an innovative idea related to the areas indicated in the Strategic Research Agenda and are willing to cooperate in the development of innovative solutions that would allow for extending the current offering of TAURON Capital Group's subsidiaries by adding the new products and services.

Scaleup acceleration programs (PilotMaker Elektro ScaleUp and KPT ScaleUp) announced and co-financed by the Polish Agency for the Development of Entrepreneurship (Polska Agencja Rozwoju Przedsiębiorczości - PARP) provided TAURON with the projects focused on the use of new, innovative technologies and solutions in the following areas: Electromobility, Industry 4.0, Internet of Things, Smart Grid (Network) Services. In 2020, TAURON expanded its cooperation with the startups also as part of its proprietary program, TAURON Progres, that enables

reaching TAURON directly with an innovative idea. In accordance with the assumptions of the program, the participants have the opportunity to test their solutions with the use of TAURON Capital Group's infrastructure and with the participation of experts from TAURON Capital Group's subsidiaries.

Continuing to build the strategic position of TAURON Capital Group in the area of startups, TAURON carried out, in 2020, further investments under EEC Magenta - a CVC type fund created in 2018. EEC Magenta increased its investment portfolio to the amount of PLN 37.1 million in 2020 and currently has 6 innovative startups therein.

As part of the implementation of the activities related to the cooperation with the startups TAURON took part in the Govtech Program for the second time in 2020. The goal of the program is to enable the cooperation among the Ministries, local government authorities, State Treasury companies with the startups and small enterprises, which are selected, by way of a competition, as the ultimate contractors performing the tasks (Challenges) prepared by the contracting parties (employers).

The below table presents the selected projects with the startups carried out in 2020 as part of the acceleration programs, which are the subject of EEC Magenta's investments and undertaken as part of the GovTech initiative.

Table no. 10. Projects with the startups carried out in 2020

Projects	Programs and activities related to cooperation with the startups
1. EV Charge: An electric vehicle charger (for cars and electric bikes) built into a composite street lighting pole, to be used to build an electric vehicles charging stations network based on the street lighting power supply.	Pilot Maker Elektro
2. Born Electric: A charger for the micro-mobility vehicles (electric scooters and bicycles) and the batteries for the light vehicles (scooters) mounted directly on a regular street lighting lamp pole.	ScaleUp
3. MC2 Energy: Greenstock VPP Platform - a trading and clearing (settlement) platform for the RES micro-market for the needs of the green energy exchange, based on the blockchain technology
4. Nanobots Software: A platform for collecting, managing and standardizing the data coming from the devices located in urban space.
5. Seedia: A range of urban small architecture products powered by solar energy, dedicated to the cities and municipalities, along with a system enabling remote management of the devices.
6. Roboticon: Chatbot enabling 24/7 customer service on the tauron.pl portal, acting as a virtual assistant that supports customers in finding the content they are interested in.	KPT ScaleUp
7. Assess24.io: A recruitment platform based on challenges, i.e. the tasks that test the knowledge of the candidates and at the same time constitute the initial stage of the recruitment process.
8. NNT: A measuring device designed for quick and non-invasive diagnostics of long steel elements and a diagnostic system that uses magnetostrictive pulses to quickly diagnose damage.
9. Billon: Durable (Non-volatile) Information Medium - a system based on the blockchain technology that enables reliable and unchangeable publishing of any data, providing a full range of functions for the digital data management.	TAURON Progres
10. Cash Director: Digital Financial Assistant (Cyfrowy Asystent Finansowy) – a web application targeted at micro, small and medium sized enterprises, which enables conducting online accounting, as well as providing the accounting service with the used thereof.
11. Reliability Solutions sp. z o.o. offering a solution responding to the problem of maintaining the process (operation) continuity in the manufacturing industry and the high costs of production downtime, i.e. the predictive maintenance system, which, through the use of artificial intelligence algorithms analyzing the data collected from the devices, predicts the possibility of an occurrence of a failure.
12. Take Task S.A. offering a solution responding to the problem of managing dispersed groups of employees, i.e. a platform for mobile communication, creating and distributing tasks, as well as collecting feedback at enterprises where numerous groups of employees do not use computers every day	EEC Magenta Companies in the investment portfolio of the CVC-EEC Magenta fund
13. Sinterit S.A. launching on the market unique solutions with respect to prototyping and production of short series of spare parts and offering high precision 3D printers to distributed designer teams for the price of a consumer product.
14. Challengerocket sp. z o.o. offering a solution that responds to a market problem with respect to recruiting top class computer programmers, i.e. a platform. made available under the SaaS formula, for automatic evaluation of programmers using tests with a self-adapting level of difficulty. Based on the artificial intelligence technology the system enables quick and reliable assessment of the candidates' skills.
15. ICSec S.A. offering the Scadvance system, composed of software and a hardware probe, enabling the monitoring of the process control networks and the detection of potential threats and anomalies in traffic among the devices of such network using the big data, machine learning and artificial intelligence mechanisms. The system provides comprehensive protection both in the case of ultra-modern factories as well as older types of industrial installations and is dedicated primarily to energy, manufacturing and chemical companies.
16. Cash Director S.A. developing the Digital Financial Assistant (Cyfrowy Asystent Finansowy) platform enabling the digitization of accounting processes at micro, small and medium sized enterprises, which can replace the traditional accounting services and make it easier for the owners to make optimal financial decisions.
17. TAURON announced the need to develop a system and application for assessing the ability to build and evaluating the potential of photovoltaic installations. The result of the actions taken as part of the competition is to bring about an increase in the share of electricity generated from the renewable energy sources (RES), in particular from the photovoltaic cells, in the total energy balance. This challenge also aims to increase public awareness of the renewable energy sources (RES) and the financial benefits of using such technology. As part of the second stage of the competition, the finalist was selected in 2020, with whom the detailed terms and conditions as well as the scope of the cooperation are agreed upon.	GovTech

1.9. TAURON Group's Business and Operational Model

TAURON Capital Group is a fully integrated energy group with its business model covering all elements of the value chain: from mining, through generation, distribution and supply to the final consumers, supplemented with the innovations ecosystem and the development of new businesses, closely integrated with the operations in the energy sector.

TAURON Capital Group comprises selected companies managed jointly as a uniform business entity (organization), made up of independent commercial law companies, led by TAURON as the parent entity.

TAURON Group's Business and Operational Model in force in 2020 was adopted by the Management Board of the Company on January 23, 2018. In recent years, changes taking place in the external and internal environment of TAURON Capital Group led to the need to undertake works on updating that document in order to take into account the changes that have occurred. The result of the completed review was the adoption by the Management Board of the Company of the updated TAURON Group's Business and Operational Model on February 23, 2021.

The Business Model defines TAURON Capital Group's management model, defines the high level architecture of the processes and contains guidelines related to the key performance indicators of the units that make up TAURON Capital Group.

Assumptions of TAURON Group's Business and Operational Model

The works on updating the assumptions of the Business Model were carried out in 2020. The key assumptions of the updated Business Model include support for building the value of TAURON Capital Group in accordance with the Strategy, acting in line with the PRO values, organizational and decision making consistency within TAURON Capital Group, ensuring compliance with the principles of unbundling with respect to the DSO in TAURON Capital Group, clear division of duties and responsibilities, efficient exchange of information, the use of the employees' knowledge, Business Model variability, flexibility, resilience and adaptation to the changes in the external and internal environment.

The Business Model is an element of the implementation of the Strategy and through the structuring of the operations, organizing them into logical, interworking business processes, allows for optimizing the building of the value of TAURON Capital Group as a whole, taking advantage of the economies of scale of the business operations conducted and the synergies resulting from the interworking of the individual links of the value chain.

Lines of Business

In accordance with the Business Model in force the division of roles and responsibilities was implemented, based on assigning the process competences to:

superior business unit responsible for the management of TAURON Capital Group's operations and taking the most important decisions affecting TAURON Capital Group, Lines of Business, Shared Services Centers and TAURON Capital Group's subsidiaries,

7 lines of TAURON Capital Group's core business operations, defined in accordance with the links of the electricity and heat production value chain: Mining, Generation, Renewable Energy Sources (RES), Heat, Distribution, Trading and Supply,

SHARED SERVICES CENTERS AND CUSTOMER SERVICE

units responsible for the provision of specific support services (e.g. accounting, IT, human resources and payroll, insurance, customer service, security) for the other units of TAURON Capital Group.

The below figure presents the structure of TAURON Capital Group's Lines of Business.

Figure no. 10. Structure of TAURON Capital Group's Lines of Business

TAURON Capital Group's Shared Services Centers (CUW)

Centralizing of the support services is aimed at relieving the Corporate Centre and the Lines of Business from performing the processes that are not directly associated with their core business operations (the so-called support processes) as well as at reducing the costs of the implementation of such processes due to the economies of scale and increased operational efficiency. Within the structure of TAURON Capital Group the CUWs are placed in: TAURON Obsługa Klienta (CUW IT, CUW HR, CUW R), TAURON Ubezpieczenia sp. z o.o. (CUW Ubezpieczenia) and Wsparcie Grupa TAURON (CUW Ochrona) subsidiaries.

Customer service is provided by TAURON Obsługa Klientów for the Supply Line of Business and, taking into account the ensuring of the independence of the DSO and other unbundling rules, for the Distribution Line of Business.

1.10. Principles of management of TAURON Polska Energia S.A. and TAURON Capital Group and the changes thereof

Principles of management of TAURON Polska Energia S.A.

In accordance with the provisions of the By-laws of the Management Board of TAURON Polska Energia S.A. (Bylaws of the Management Board), the Management Board conducts the affairs of the Company and represents it in all judicial and extra-judicial proceedings. All issues connected with managing the Company, which are not restricted by the legal regulations and the provisions of the Articles of Association of TAURON Polska Energia S.A. (Company's Articles of Association) to the competence of the General Meeting (GM) or the Supervisory Board shall be within the competence of the Company's Management Board. Cooperation of two members of the Management Board or one member of the Management Board together with a proxy is required for making statements on behalf of the Company.

The detailed information on the matters lying within the competence of the Management Board, acting as a collective body, is provided in section 9.8. of this report.

In accordance with the Organizational Regulations of TAURON Polska Energia S.A. (Organizational Regulations), the Company is managed directly by the Management Board of the Company, as well as through proxies (power of attorneys), Executive Directors or persons holding other positions reporting directly to the Members of the Company's Management Board.

The Company carries out its tasks through:

• 1. separate organizational units (business units):
  2. 1) Business areas, comprising independent work positions and organizational units (business units) reporting directly to the Executive Directors. The work of the Executive Directors is managed (supervised) by the Members of the Company's Management Board directly,
  3. 2) Teams, constituting organizational units (business units) reporting to the Executive Directors. The activities of the Team are managed by the Team Leader (Manager),
• 1. independent work positions:
  2. 1) Executive Directors who manage and lead the work of the subordinate Teams or work positions constituting the given business area of the Company,
  3. 2) other independent work positions that may be entrusted to, in particular, Power of Attorneys, Inspectors, Spokespersons,
• 1. temporary organizations Project Teams set up with the goal to implement tasks and projects of the Company.

Changes to the principles of management of TAURON Polska Energia S.A.

As a result of the progressing transition of the energy sector, which poses new challenges for the entity operating on this market, the gradual change in the situation in the energy sector, mainly due to the broadly understood policy of decarbonizing the economies of the European Union (EU) and the changes taking place in the Company's business environment, the Management Board of TAURON Polska Energia SA adopted the new version of the Organizational Regulations of TAURON Polska Energia S.A. on October 20, 2020, which was approved by the Company's Supervisory Board on October 23, 2020.

The below figure presents the organizational diagram of TAURON as of December 31, 2020, and as of the date of drawing up this report.

Figure no. 11. Organizational diagram of TAURON as of December 31, 2020, and as of the date of drawing up this report

In connection with the new Organizational Regulations, the required modifications of the scopes of functions of the individual Business Areas in the Company's organizational structure were also made.

As of November 3, 2020, the Company's Management Board, by way of a resolution, assigned the individual Business Areas and the independent work positions directly to the Members of the Company's Management Board.

The below figure presents the diagram of the division of responsibilities of the Members of the Company's Management Board as of the date of drawing up this report.

Figure no. 12. Diagram of the division of responsibilities of the Members of the Company's Management Board as of the date of drawing up this report

Principles of management of TAURON Capital Group

The core regulatory act of TAURON Capital Group is the Code of TAURON Group adopted by the Management Board of the Company, which regulates its operations, ensuring the implementation of the goals through tailored solutions in the area of management of TAURON Capital Group's entities, including, in particular, setting the objectives of the subsidiaries' business operations, enabling achieving of the effects assumed in the Strategy.

The regulations implemented in 2016, updated in 2018, introduced the management by processes (process based management) within TAURON Capital Group, whose essence involves the constant search for and implementation of improvements and a clear and transparent division of the competences and responsibilities. Processes are subject to appropriate modifications to improve the efficiency thereof and they constitute a superior organization in relation to the organizational structure of the individual subsidiaries and run horizontally across entire TAURON Group.

The goal of the process based management model implemented is to benefit from the operating synergies among TAURON Capital Group's various companies, share and use the best practices, standardize and automate processes, and also to ensure consistency of actions taken within TAURON Capital Group's subsidiaries in order to support the implementation of the Strategy.

Members of the Management Board are responsible for the management of the mega-processes allocated thereto. The owners of the mega-processes are indicated TAURON's Executive Directors.

The process documentation (maps, diagrams and process sheets) defines and describes decision making powers (competences) and actions to be undertaken by the individual organizational units within TAURON Capital Group's various subsidiaries. The owners of the mega-processes decompose these into lower level processes and appoint the owners thereof. Each process has its owner and process metrics defined by the higher level process owner. The process documentation also defines the course of action (interdependencies) and decision competences for the recurring processes, the operational processes along with the descriptions of the products and services listed. The competences and process interdependencies described in the process documentation supplement the competences stemming from the organizational structure of the individual subsidiaries and support the operations of TAURON Capital Group's subsidiaries as a single entity.

TAURON Capital Group's standing Committees are operating within TAURON Capital Group, including:

• 1. Investment Committee,
• 1. Risk Committee,
• 1. New Businesses Committee,
• 1. Digitization Committee,
• 1. TAURON Group's Liquidity Committee,
• 1. Sponsoring Committee.

The above mentioned Committees were established in order to enable performing of the operations in accordance with the principles of operating consistency, in compliance with the law and interests of TAURON Capital Group and its stakeholders.

The Business Model identifies 23 mega-processes cutting across all units of TAURON Capital Group.

The below figure presents the structure of TAURON Capital Group's processes (mega-processes).

Figure no. 13. Structure of TAURON Capital Group's processes (mega-processes)

Changes to the principles of management of TAURON Capital Group

In 2020, works were carried out on updating the Business Model in place thus far, which defines TAURON Capital Group's management model. In order to provide flexibility, resilience and adaptation of TAURON Capital Group to the changes in the environment, in particular those resulting from climate change, the updated Business Model emphasizes the role of ESG (Environmental, Social Responsibility, Corporate Governance) as an increasingly important communication tool with the environment (stakeholders).

The updated Business Model was developed taking into account the requirements related to the unbundling, established in the Compliance Program - Program for Ensuring Non-discriminatory Treatment of Users of the Distribution System at TAURON Dystrybucja S.A. approved by the President of the ERO and the generally applicable legal regulations, taking into account the legal, functional and organizational separation of the DSO within the structure of TAURON Capital Group.

Furthermore, the functions and tasks performed within all of TAURON Capital Group's mega-processes were reviewed in 2020, which was done jointly with the owner thereof, and the provisions were updated or the required additional functions and tasks were formulated, assigning the competences to the Corporate Center, Business Areas and Shared Services Centers accordingly.

The process maturity of selected processes of TAURON Capital Group was assessed in 2020, using TAURON Capital Group's Process Maturity Model. 555 processes were assessed, which represented 21% of TAURON Capital Group's processes in place. As a result of the assessment completed, TAURON Capital Group achieved, on average, level IV-V of process maturity on an eight-level scale. The maturity assessment will be continued in 2021, based on the plans defined by TAURON Capital Group's subsidiaries.

2. OPERATIONS OF TAURON POLSKA ENERGIA S.A. AND TAURON CAPITAL GROUP

2.1. Core products, goods and services

The core products, goods and services of TAURON Polska Energia S.A.

As the parent entity of TAURON Capital Group, TAURON performs the consolidating and management function at TAURON Capital Group. As a result of implementing the Business Model and centralizing of the functions, TAURON concentrated many competences related to the functioning of TAURON Capital Group's subsidiaries and is currently carrying out operations, among others, in the following areas:

• 1. wholesale trading in electricity, gas and related products, in particular, with respect to providing trading (commercial) services for the subsidiaries, securing the requirements with respect to fuel, CO² emission allowances and certificates of origin of electricity,
• 1. management of the portfolio of electricity, CO² emission allowances and Property Rights,
• 1. purchasing management,
• 1. finance management,
• 1. asset management,
• 1. corporate risk management,
• 1. managing the IT model in place,
• 1. coordinating the research and development (R&D) activities carried out within TAURON Capital Group,
• 1. advisory services with respect to accounting and taxes,
• 1. legal support (services),
• 1. audit.

The above functions are gradually limited at TAURON Capital Group's subsidiaries. Such centralization is aimed at improving TAURON Capital Group's efficiency.

The core operations of the Company, besides managing TAURON Capital Group, include wholesale electricity trading on the territory of the Republic of Poland, based on the license for trading in electricity issued by the President of ERO for the period from June 1, 2008 until December 31, 2030.

The Company is focusing on purchasing and selling electricity for the needs of securing the buy and sell positions of TAURON Capital Group's entities and on wholesale electricity trading. The Company bought and sold 40.7 TWh of electricity in 2020. Electricity sales performed by TAURON during that period were mainly addressed to the following subsidiaries: TAURON Sprzedaż and TAURON Sprzedaż GZE, with 81.6% of the electricity purchased sold thereto. The above subsidiaries are carrying out the retail electricity supply to the final consumers, and therefore TAURON is not dependent on any single electricity consumer. The other consumers (the trading companies outside TAURON Capital Group, the exchanges) accounted for less than 7.8% of the revenue and none of them exceeded 4% of the total revenue from electricity sales. A decision was made in the third quarter of 2020 to discontinue the trading activities with respect to intersystem exchange. This is due to the situation regarding the restriction of importing options (transmission capacity available), which has been prevailing since the beginning of 2020, the Company's trading strategy, as well as the planned changes with respect to the system for allocating of the transmission capacity for intersystem exchange at the level of the Community electricity market (the planned introduction of the Market Coupling mechanism for the Day-ahead and Intraday markets). In connection with the above, the documents terminating the transmission contracts were submitted to the TSO in Germany (50Hertz Transmission GmbH, TenneT TSO GmbH, Amprion GmbH) in September 2020.

With respect to wholesale electricity trading, as of the end of 2019, the Company took over electricity trading from TAURON Wytwarzanie generation subsidiary, and in April 2020, from TAURON Ciepło, and centralized this activity at TAURON level. The principles of cooperation were defined in the SLA service provision agreements with respect to the trading operations conducted by TAURON for TAURON Wytwarzanie and TAURON Ciepło. Pursuant to those contracts the Company is providing, among others, the market access service, as part of which it is operating on the Polish Power Exchange (TGE) on its own behalf for the benefit of TAURON Wytwarzanie and TAURON Ciepło, fulfilling the exchange obligation for those subsidiaries.

The Company's additional operations include wholesale trading in natural gas on the territory of the Republic of Poland based on the license for trading in gas fuels issued by the President of ERO for the period from May 4, 2012 until May 4, 2022. In 2020 the Company purchased and sold 4.1 TWh of gas fuel. The Company is focusing on selling natural gas for the supply needs of TAURON Sprzedaż, with 58.4% of the purchased fuel gas sold thereto.

On September 29, 2020, the President of ERO granted TAURON a license to conduct business operations involving trading in natural gas with foreign entities (counterparties). The new competence will enable TAURON to expand its currently conducted trading operations with respect to natural gas trading on the territory of the Republic of Poland by adding the options of bringing (importing) natural gas from the neighboring markets and the dispatching (exporting) thereof to the neighboring markets that Poland is connected with via the gas transportation (pipeline) system.

In the fourth quarter of 2020, TAURON submitted to the President of ERO applications for an extension of the granted licenses for the conducting of business operations involving trading in natural gas on the territory of Poland and with foreign entities (counterparties) until June 20, 2035. The extension of the above mentioned license is necessary in order to maintain the existing competences with respect to the conducted trading operations related to natural gas trading on the territory of the Republic of Poland and bringing (importing) natural gas from the neighboring markets and the dispatching (exporting) thereof to the neighboring markets that Poland is connected with via the gas transportation (pipeline) system.

The competences of the Company also include management, for the needs of TAURON Capital Group, of the property rights related to the certificates of origin of electricity, constituting the confirmation of electricity generation from the renewable sources (including the sources using agricultural biogas), as well as the property rights related to electricity efficiency certificates. The principles of cooperation are defined in the agreements for the management of the property rights' balance (TAURON Sprzedaż, TAURON Sprzedaż GZE, TAURON Wytwarzanie, TAURON Ciepło) and in the agreements for the provision of the trading services with respect to the portfolio management of the property rights and guarantees of origin (TAURON Ekoenergia, EW Dobrzyń, EW Śniatowo, EW Inowrocław, EW Gołdap, EW Mogilno). The Company did not carry out trading in the property rights in 2020, such trading was carried out by TAURON Capital Group's subsidiaries that were acquiring the individual rights and the subsidiaries obligated to redeem (retire) the above mentioned property rights.

TAURON is a competence center with respect to the management and trading in the CO² emission allowances for TAURON Capital Group's subsidiaries. As a result of centralizing trading in the emissions, a synergy effect was achieved, involving optimizing of the costs of utilizing the resources of TAURON Capital Group's entities. In pursuit of the above objectives with respect to the CO² emission allowances trading, the Company is actively participating in trading on the ICE exchange, the EEX exchange and on the OTC market. In connection with the centralizing of this function, TAURON is responsible for the settlements (clearing) of the subsidiaries' CO² emission allowances, securing the subsidiaries' emission needs taking into account the allowances allocated. In the first half of 2020 the Company changed the model of contracting the CO² emission allowances under which the CO² contracts concluded were transferred from the ICE exchange to the OTC market, while at the same time aligning the settlement (clearing) date of the above mentioned contracts with the retirement (redemption) period.

TAURON also acts as the Market Operator and the entity responsible for trade balancing for TAURON Capital Group's subsidiaries and for the external customers. These functions are carried out under the transmission agreement concluded with the TSO – PSE (Polskie Sieci Elektroenergetyczne S.A. – Transmission System Operator) and other regulations in this respect (Terms and Conditions for Balancing and the Transmission Grid Code).

The Company currently holds exclusive control over the generation capacity with respect to the trading and technical capabilities related thereto, it is responsible for optimizing the generation, i.e. the selection of the generation units for operation, as well as the adequate distribution of the loads in order to execute the contracts concluded, taking into consideration the technical conditions of the generation units, as well as the grid constraints and other factors, over various time frames. As part of the services provided for the Generation Segment the Company participates in preparing the overhaul plans, plans of available (dispatchable) capacity, as well as the production plans for the generation units, over various time frames, as well as in agreeing them with the relevant grid (network) operator. TAURON is also developing its competences with respect to the Market Operator function for gas under the transmission agreement with GAZ-SYSTEM S.A. (GAZ-SYSTEM). In July 2015, TAURON, as one of the first entities in Poland, launched a balancing group for the entities carrying out trading transactions on the gas market and is currently conducting the balancing of the trading for two of TAURON Capital Group's entities and the external entities.

In 2020, TAURON conducted, on behalf of TAURON Capital Group's subsidiaries, the general certification of physical units, existing and planned as part of the capacity market. As a result, the physical generating units and the controllable loads (demand reduction units) will be able to take part in the certification process for the main auctions for the delivery year 2025 and for the additional auctions for the individual quarters of the delivery year 2022, and subsequently they will be able to be offered as part of the above mentioned auctions. In the fourth quarter of 2020, the certification process for the main auction for 2025 was completed and the certification process for the additional auctions for the individual quarters of the delivery year 2022 was started and completed in January 2021.

Four additional capacity market auctions were held in the first quarter of 2020, for the individual quarters of the delivery year 2021. The auctions were conducted by Polskie Sieci Elektroenergetyczne S.A. (PSE – TSO) in accordance with the Act of December 8, 2017, on the capacity market (in July 2020, the Ministry of Climate presented a draft amendment to the act on the capacity market, which was mainly aimed at adapting the national regulations to the provisions of Regulation No 2019/943 on the internal electricity market, with regard to the emissions limits of the units participating in the capacity mechanisms, Moreover, in order to prepare for the certification for the main auction in the context of the above mentioned restrictions, PSE conducted consultations with respect to the amendment of the Capacity Market Regulations. TAURON Capital Group took an active part in both consultations).

On April 9, 2020, the President of the Energy Regulatory Office (ERO) published the information on the final results of the additional auctions in the Public Information Bulletin (Biuletyn Informacji Publicznej). In accordance with the information, the closing price of each of the four auctions stood at 286.01 PLN/kW/year. TAURON Capital Group's subsidiaries concluded capacity contracts with the volume of:

• 1. 154.3 MW in the additional auction for the 1st quarter of 2021,
• 1. 163.3 MW in the additional auction for the 2nd quarter of 2021,
• 1. 16.0 MW in the additional auction for the 3rd quarter of 2021,
• 1. 146.3 MW in the additional auction for the 4th quarter of 2021

The total revenue of TAURON Capital Group stemming from the performance of the capacity contracts concluded as a result of the additional auctions will reach PLN 34.3 million.

On December 14, 2020, PSE conducted the main auction for the delivery period falling or starting in 2025. On January 5, 2021, the President of the ERO published information on the final results of the main auction in the Public Information Bulletin (Biuletyn Informacji Publicznej). According to the information, the closing price of the auction was 172.85 PLN/kW/year. TAURON Capital Group's subsidiaries concluded capacity agreements, including one long term agreement for the period of 15 years, with the total volume of 46 356 MW. The implementation of the contracts concluded will allow for obtaining revenues in the amount of PLN 19.8 million in the time frame until 2039.

In the fourth quarter of 2020, the President of the Energy Regulatory Office (ERO) conducted the RES auctions for the purchase of electricity produced by the RES installations. TAURON coordinated TAURON Capital Group's works related to the preparation and submission of the auction bids. TAURON Capital Group's subsidiaries submitted a total of 9 auction bids, including one for the new wind farms and photovoltaic installations with the installed capacity above 1 MW and 8 bids for the new wind farms and photovoltaic installations with the installed capacity of no more than 1 MW. All of the bids were related to the photovoltaic installations.

From February to November in 2020 TAURON was taking part in the so-called guaranteed program of the reduction of electricity demand at the request of PSE, acting as the Aggregator in this respect. Based on the reduction potential, jointly with the customers participating in the program, TAURON was providing readiness to reduce the demand for electricity at selected hours of the day, thus affecting the balancing of the National Power System (KSE) and increasing the security of that system.

In accordance with TAURON Group's adopted Business Model the Company is performing the management function with respect to managing the purchasing of production fuels for the needs of TAURON Capital Group's generation entities and secures the fuel position thereof. All of the hard coal for the production needs of TAURON Capital Group is contracted and secured by TAURON. In this respect the Company provides the deliveries of appropriate quality and quantity, guaranteeing that the mandatory reserves of coal are stored at all of the generation units of TAURON Capital Group.

The core products, goods and services of TAURON Capital Group

TAURON Capital Group is conducting its operations and generating its revenue, first and foremost, from electricity and heat supply and distribution, electricity and heat production, as well as hard coal sales.

The detailed information related to the Operating Segments (lines of business) is provided in section 1.2. of this report.

TAURON Capital Group's core products include electricity and heat, as well as hard coal. In addition, TAURON Capital Group is trading in commodities: electricity and energy market products as well as hard coal and gas, and it is also providing electricity distribution and supply services, including to the final consumers, heat distribution and transmission and other services related to the operations conducted thereby.

The below table presents TAURON Capital Group's 2019 - 2020 production and sales volumes.

Table no. 11. 2019 - 2020 production and sales volumes

	Production and sales volumes	unit	2019	2020	Change in % (2020 / 2019)
1.	Commercial coal production	Mg m	3.78	4.54	120%
2.	Coal sales by the Mining Segment	Mg m	3.80	4.08	107%
3.	Electricity generation (gross production), including:	TWh	13.88	12.50	90%
4.	Electricity generation from renewable energy sources, including:	TWh	1.38	1.94	141%
	1) Production from biomass	TWh	0.34	0.57	168%
	2) Production of hydro and wind power plants	TWh	1.04	1.37	132%
5.	Heat production	PJ	10.85	11.63	107%

	Production and sales volumes	unit	2019	2020	Change in % (2020 / 2019)
6.	Heat supply	PJ	14.55	14.24	98%
7.	Electricity distribution	TWh	51.73	50.26	97%
8.	Electricity supply	TWh	45.90	45.62	99%
	1) retail	TWh	33.73	32.43	96%
	2) wholesale	TWh	12.17	13.19	108%
9.	Number of customers – Distribution	'000	5 651	5 715	101%

The amounts corresponding to the sales volumes presented above are provided in section 5 of this report.

2.2. Markets and sources of supply

Markets

Hard coal sales

At TAURON Capital Group, coal sales are carried out by TAURON, with respect to supplying the generation subsidiaries of TAURON Capital Group, and by TAURON Wydobycie, with respect to the sales on the domestic market and to TAURON.

With a view to implementing its tasks with respect to the fuel (hard coal) trading, TAURON continued, in 2020, to sell the fuels solely to TAURON Capital Group's subsidiaries, i.e. TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa Tauron, based on the purchase of fuels on the market and from within TAURON Capital Group - from the TAURON Wydobycie subsidiary.

The below figure presents the summary of the Company's 2020 coal shipments.

Figure no. 14. Summary of the Company's 2020 coal shipments (Mg m)

The detailed information related to the fuel purchasing is provided in section 2.2. of this report.

TAURON Wydobycie is selling coal from its own extraction and production, offered for sale on the market in coarse, medium coal assortments and as steam coal dust as well as methane being the accompanying mineral from the Breszcze deposit.

Depending on the hard coal assortment, coal has the following commercial parameters

• 1. calorific value from 19 MJ/kg to 30 MJ/kg,
• 1. ash content from 6.5% to 31.5%,
• 1. sulfur content from 0.2% to 1.2%.

TAURON Wydobycie conducts the sales of hard coal in 2 directions:

• 1. sales of fine coal (coal dust) and coal sludge to the power plants and combined heat and power plants, mostly within TAURON Capital Group (via the Company),
• 1. sales of large and medium size lump coal as well as a small amount of coal dust assortments through the nationwide organized sales network, primarily on the domestic market

TAURON Wydobycie is selling coal mainly in southern and central Poland, in particular in the following regions (provinces): Silesia, Małopolska, Podkarpacie, Świętokrzyskie and Lower Silesia, both to the enterprises as well as the individual consumers.

The hard coal sales by TAURON Wydobycie to TAURON Capital Group's Generation Segment companies reached approx. 4.1 million Mg in 2020, including 3.3 million Mg (approx. 80%) to TAURON for the needs of TAURON Capital Group's Generation Segment subsidiaries. It means an 8% increase as compared to 2019 and is due to the higher commercial coal production by the individual coal mines. An increase in the production was recorded at the Janina Coal Mine (ZG Janina) and the Brzeszcze Coal Mine (ZG Brzeszcze), which was due to a more favorable arrangement of the longwall (coal face) fronts than in 2019. The lower production at the Sobieski Coal Mine (ZG Sobieski) is a consequence of a smaller number of the longwall faces.

Sales of generated electricity and heat

TAURON Capital Group's electricity and heat generation (the operations of the following Segments: Generation, RES and the Discontinued Operations) is performed by:

• 1. hard coal fired and biomass burning power plants and combined heat and power plants
• 1. hydroelectric power plants,
• 1. wind farms.

The Discontinued Operations Segment's operations also include trading, distribution and transmission of heat.

The total installed electric capacity of TAURON Group's generation units reached 6.1 GWe of electric capacity and 2.4 GWt of thermal capacity at the end of 2020.

The below figure presents the structure of installed electric capacity as of December 31, 2020 (as compared to 2019, the installed capacity increased by 910 MWe as a result of the commissioning of the power generating unit in Jaworzno).

Figure no. 15. Structure of the Generation Segment's installed capacity as of December 31, 2020

25%

19%

12%

9% 6%

• Łagisza Power Plant
• Siersza Power Plant
• Stalowa Wola Power Plant
• ZW Bielsko-Biała
• ZW Katowice
• ZW Tychy Wind farms
• Hydro power plants

In 2020 TAURON Capital Group's subsidiaries generated 12.5 TWh of electricity (including 1.9 TWh from RES), i.e. 10% less as compared to 2019 when the production of electricity came in at 13.9 TWh (including 1.4 TWh from RES). It is a consequence of the lower sales of electricity from in-house production year on year and the result of the adopted trading strategy. The higher production from RES is due to the full year of operating the wind farms acquired in September 2019, the more favorable hydrological conditions and the higher production of the biomass fired units.

In 2020 the electricity produced by TAURON Capital Group's subsidiaries was sold on the domestic market, first of all to TAURON Capital Group's Supply Segment subsidiaries (57%), as well as on the balancing market (RB) (PSE Operator) (27%) and on TGE (14%).

Heat sales by TAURON Capital Group's subsidiaries came in at 14.2 PJ in 2020 and it was lower by 2%, as compared to 2019. The share of the heat generated from in-house sources in the total heat sales volume reached 71% in 2020. TAURON Wytwarzanie subsidiary's power plants are selling heat in the Upper Silesia and Zagłębie, and also in parts of the Podkarpackie region – Stalowa Wola and Nisko supplied by the Stalowa Wola Power Plant and Małopolska region – a part of Trzebinia supplied by the Siersza Power Plant.

Heat is supplied mainly via the heat distributors: TAURON Ciepło, SCE Jaworzno III, Przedsiębiorstwo Energetyki Cieplnej (PEC) Tychy and others, and on the Podkarpackie market - Przedsiębiorstwo Energetyki Cieplnej sp. z o.o. and ENESTA sp. z o.o. Small volumes of heat are supplied directly to the consumers located in the vicinity of the generation companies.

On the other hand, TAURON Ciepło's heat supply market - mainly for heating purposes, production of hot water for domestic use, process water, includes diverse consumers: the cooperative sector (48%), the private sector – multifamily buildings (housing communities) and single family houses (15%), the municipal sector (17%), the offices and institutions sector (11%) as well as the industrial sector and others (9%).

In addition, TAURON Capital Group's generation subsidiaries obtain certificates of origin due to the electricity generation from RES, which are subsequently purchased by the Supply Segment subsidiaries and submitted to the President of ERO for redemption (retirement).

Sales of electricity distribution services

TAURON Dystrybucja is a company conducting sales of electricity distribution services in TAURON Capital Group and, pursuant to the decision of the President of ERO, it is a Distribution System Operator (DSO) operating under the natural monopoly conditions.

The regulated market on which TAURON Dystrybucja is operating includes the operations of 5 large distribution system operators (DSOs) that are subject to the full regulatory model. Each DSO is operating on the territory defined in the license. Following changes to the law, also more than a hundred of small distribution system operators are operating on this market that have a small market share, with respect to which the President of ERO is applying a simplified regulatory model. Their operations are local, based on the technical infrastructure held. One of the larger entities holding a license for the distribution operations nationwide is PKP Energetyka sp. z o.o.

TAURON Dystrybucja is providing electricity distribution services for approx. 5 714 000 final consumers. The above company covers with its operations the area of about 57 thousand km² , located mainly in the Lower Silesia, Małopolska, Opole and Silesia regions and, in addition, in the Łódź, Podkarpacie and Świętokrzyskie regions. The operational functions are performed by 11 branches located in: Bielsko-Biała, Będzin, Częstochowa, Gliwice, Jelenia Góra, Kraków, Legnica, Opole, Tarnów, Wałbrzych and Wrocław.

Sales to the tariff eligible consumers on individual voltage levels: high voltage (A group), medium voltage (B group) and low voltage (C,G,R), represent 96.7% of the distribution services sales volume. The total electricity volume supplied to the tariff eligible consumers connected to TAURON Dystrybucja's grid in 2020, as part of the sales of distribution services, came in at 50.3 TWh (upward adjusted) and it was lower, as compared to 2019, by approximately 1.5 TWh, i.e. by -2.8%.

The below figure presents structure of electricity distribution by tariff groups in 2020.

Figure no. 16. Structure of electricity distribution by tariff groups in 2020

Sales of the distribution services are carried out on the basis of the comprehensive agreements as well as the agreements on the provision of distribution services concluded with the consumers. The first type of the agreement covers both electricity supply by the companies of the Supply Segment as well as the delivery of this electricity by the company acting as a DSO. The second type of the agreement regulates only the delivery of electricity by the company acting as a DSO. In case of this type of agreements, the purchase of electricity is governed by separate electricity supply agreements, concluded by a consumer with the supplier selected thereby.

Wholesale and retail supply of electricity and gas

Electricity supply is conducted by the Supply Segment companies, with respect to the wholesale trading of electricity, natural gas and other products of the energy market as well as with respect to retail electricity and natural gas supply.

TAURON's wholesale trading operations comprise mainly wholesale of electricity, trading and management of CO² emission allowances, property rights arising from the certificates of origin of electricity as well as natural gas, Such activities are performed, first and foremost, for the needs of securing the buy and sell positions of TAURON Capital Group's entities.

TAURON was actively participating in daily electricity auctions as part of the inter-system exchange on the Polish-German, Polish-Czech and Polish-Slovak border. The trading on the German market was carried out through the participation in the EPEX Spot exchange. On the other hand, on the Czech and Slovak markets the trading is performed through a subsidiary, TAURON Czech Energy, via which the Company is present on the OTE a.s. (Czech Republic) and OKTE a.s. (Slovakia) exchanges.

Furthermore, on the German market the Company was active with respect to trading in financial instruments, such as futures, through the EEX exchange

The Company is operating on the wholesale markets in Poland and abroad, and it is also trading in all segments of the domestic energy market, i.e. on the intraday market, the day-ahead market and the forward market. The Company is an active participant of TGE (PPX).

With respect to the wholesale gas fuels trading operations the Company is an active participant of the gas market run by TGE, carries out transactions on the SPOT market as well as on the commodity forward market (RTT) products. It is involved in the proprietary trading activity on the international gas exchange POWERNEXT Pegas (as of January 1, 2020, The European Energy Exchange). The Company is present on the following hubs: GASPOOL, New Connect Germany and Tittle Transfer Facility. TAURON is operating on the foreign markets due to the agreements concluded by the Company with the German transmission system operators: GASCADE Gastransport and ONTRAS Gastransport GmbH as well as Czech NET4GAS s.r.o.

Furthermore, the Company is a participant of the Intercontinental Exchange (ICE) on the National Balancing Point (NBP) hub. Gaining of access to the hubs is a consequence of the activity aimed at increasing TAURON's gas related competences and access to the new sources. The volume of the OTC market transactions concluded by the Company is also successively increasing. By operating on the gas market the Company is securing the commodity supplies for the entities of TAURON Capital Group; moreover, proptrading operations are carried out on the RTT market, aimed at taking advantage of the volatility of gas prices to generate additional margins.

TAURON is also a participant of the European transmission capacity trading platform PRISMA European Capacity Platform GmbH, where purchasing of inter-system (interconnector) transmission capacities takes place. With respect to booking transmission capacity on the Polish market the Company is operating as a participant of the GSA GAZ-SYSTEM Aukcje auction platform.

Electricity and natural gas retail supply to the final consumers is conducted by TAURON Sprzedaż and TAURON Sprzedaż GZE subsidiaries.

The customer segmentation applied by TAURON Capital Group (strategic, business and mass customers), depending on the volume of electricity consumed, is aimed at tailoring the product offering, sales channels and marketing communications to the expectations of the specific customer segment.

The below table presents the categories of TAURON Capital Group's final customers, resulting from the market segmentation used and the specific nature of their business operations.

Table no. 12. Categories of TAURON Capital Group's final customers

Customer group		Description of customers
1.	Strategic customers	Customers with the annual potential energy consumption at a level not lower than 40 GWh or strategic business partners of TAURON Capital Group, i.e. mainly entities representing the sector of heavy industry, for example: metallurgical industry, chemical industry, mining industry, automotive industry.
2.	Business customers	Customers with the annual potential energy consumption at a level above 250 MWh (other than consumers), or purchasing energy based on the provisions of the Act of January 29, 2004, Public procurement law, i.e. entities representing the other sectors of the manufacturing industry, producers of equipment, consumers from food industry, public sector, construction sector and municipal services sector.
3.	Mass customers - small and medium-sized enterprises	Customers dealing with sales, services, banking, catering and small businesses.
4.	Mass customers - households	Households

The supply companies (subsidiaries) were operating in 2020 in a market environment where the level of competitiveness in the individual market segments did not change significantly as compared to the previous years. The household market (individual customers) continued in 2020 to be covered by the obligation to have the electricity sales prices approved by the President of ERO.

According to the ERO data, from mid-2007 until December 2020, i.e. since the beginning of the electricity market liberalization process, approx. 657 000 households and more than 214 000 institutional entities switched their electricity supplier.

In the institutions and business entities (business customer) market segment the competition is strong and companies have already been taking advantage of the liberalization of electricity prices for several years. The progress of the liberalization has resulted in the increasing awareness of business customers expecting competitive solutions. The enhanced sales activities of the energy companies exert ever increasing price pressure. Business customers are willing to switch their supplier. The consequences of such a situation include activities aimed at protecting own customer base against the actions taken by the competition by introducing loyalty building agreements.

The household segment, where the number of supplier switch cases represents a small percentage, is considered to offer a strong potential. In 2020 more than 23 500 consumers of electricity switched their suppliers (including approximately 4 200 institutional customers and approximately 19 400 households). In 2020 the pace of supplier changes in case of households dropped, as compared to 2019, by 2.9%, and in case of institutional entities, by 1.98%.

The offering of TAURON Sprzedaż for the business segment in 2020 included 2 media: electricity and gas fuel. The above company continued its activities geared towards building customer loyalty, with particular emphasis placed on developing an offering that would meet customer expectations. Customers were offered a number of products to choose from, taking into account their needs and the specifics of electricity consumption, including ecological, exchange based and technical products. The activities related to the promotion and sale of the "EKO" products - TAURON EKO PREMIUM (TEP), TAURON EKO BIZNES, Guarantees of Origin - were continued. As part of these activities, the entire volume of the TEP product from the certified sources that were a part of the assets of TAURON Capital Group was sold and the external sources were used. At the end of the year, this product of electricity was sold for the years 2020-2023 in a volume in the order of 1 TWh. The share of the customers buying electricity and gas fuel based on the exchange model came in at 28% of the total volume purchased by the customers this year. An increased interest in the photovoltaic installations was observed, which translated into a significant increase in the customer inquiries for proposals and the implementation of the first photovoltaic projects, such as a contract with a chain of stores, the subject of which was the sale and installation of 50 PV installations, each with a capacity of almost 40 kWp.

The process of mass segment customers (individual customer and small and medium sized enterprises) migrating from the tariff based pricing to the product based pricing, was also observed in 2020. As of the end of 2020, TAURON Capital Group was selling electricity under agreements guaranteeing commercial terms over the specified period to 46% of the segment's customers (loyalty building agreements), while 54% of the customers were buying electricity at tariff based prices.

The key element of the commercial offering for the mass customers in 2020 were the combined products: Elektryk and Serwisant, based on the assistance functionality, that were used by more than 2 million customers. The assistance products will represent the core of the offering also in 2021.

Furthermore, in 2020 the range of products addressed to the customers was extended by adding specialized products, e.g. photovoltaics in particular, with its sales in 2020 reaching almost 1 300, i.e. almost 7 times more than in 2019.

The COVID-19 pandemic was a significant element that has impacted and continues to impact the everyday business operations. The outbreak of the pandemic changed a lot of behaviors in the business space, and the entire segment entered the mode of performing sales activities under epidemic conditions. The pandemic situation had a negative impact on the 2020 results due to the volumes of electricity consumption that were not realized by the customers. The decrease in electricity demand during the lockdown period clocked in at 9-10%, and on an annual basis terms, it came in at approx. 7%.

In 2020 the retail supply of electricity by the Supply Segment companies to almost 5.6 million customers stood at 32.1 TWh, i.e. 96% of the 2019 level when the supply came in at approx. 33.4 TWh. The decline of the supply volume was reported, first and foremost, in the Strategic Customer Segment, which was primarily due to COVID-19 and the change of the valuation, which led to the loss of customers and the fall of the demand from the customers included in the portfolio of TAURON Capital Group's supply companies.

In 2020 the retail supply of electricity by the Supply Segment companies to approx. 5.6 million customers stood at 32.4 TWh, i.e. 96% of the 2019 level when the supply came in at approx. 33.7 TWh. The decline of the supply volume was reported, first and foremost, in the Business Customer Segment, which was due to drop of the demand caused by the COVID-19 pandemic.

The below table presents information on the volume of electricity supplied by TAURON Capital Group's subsidiaries conducting operations related to the retail electricity supply, as well as the number of customers, broken down into individual customer segments, in 2020.

Customer type		Electricity volume supplied (TWh)	Number of customers ('000)
1.	Strategic customers	4.4	1
2.	Business customers	12.7	200
3.	Mass customers, including::	12.0	5 389
	households	9.9	5 011
4.	Supply to TAURON Dystrybucja to cover the balancing differences	3.0	0,001
5.	Other (exports, in-house needs)	0.3	-
	Supply Segment	32.4	5 590

Table no. 13. Volume of retail electricity supplied and the number of customers in 2020

In the financial years ended on December 31, 2020, and December 31, 2019, TAURON Capital Group did not identify single customers from outside TAURON Capital Group that would generate revenues from the sales of coal, generated electricity and heat, electricity distribution services, as well as wholesale and retail electricity and gas, accordingly, exceeding the level of 10% of the total sales revenues of TAURON Capital Group.

Supply sources – fuels

Hard coal (domestic market)

TAURON Capital Group is sourcing hard coal solely from the domestic market.

In 2020 TAURON continued hard coal and coal sludge purchasing and trading, for the needs of TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa TAURON, under the agreements concluded with the suppliers from outside TAURON Capital Group:

• 1. Polska Grupa Górnicza Sp. z o.o. (64%* ),
• 1. Węglokoks S.A. (15%* ),
• 1. Jastrzębska Spółka Węglowa S.A. (14%* ),
• * suppliers' shares in the total coal supplies.
• 1. EP Coal Trading Polska S.A. (5%* ),
• 1. TRANSLIS Sp. z o.o. (2%* ).

In total, the Company bought 2.6 million tons of hard coal from the suppliers outside TAURON Capital Group.

In addition, the Company bought hard coal and coal sludge for the purposes of electricity and heat production by the Generation Segment from TAURON Wydobycie - a total of 3.3 million tons was delivered.

The below figure presents the quantity of hard coal and coal sludge purchased by TAURON Capital Group in 2020.

Figure no. 17. Coal and coal sludge purchased in 2020 (in Mg m)

56% of the hard coal supplies for the electricity and heat production were satisfied by the hard coal coming from TAURON Wydobycie's own coal mines in 2020. The remaining part of the demand was covered from the external sources, among which Polska Grupa Górnicza S.A. (PGG) and Węglokoks S.A. had the largest shares.

TAURON does not have any equity ties to the above mentioned companies.

Gas (domestic and foreign market)

TAURON Capital Group is sourcing fuel gas from the domestic market, via the exchanges.

The Company is an active participant of the gas market managed by TGE, it carries out transactions on the SPOT market, as well as on the RTT forward market products.

TAURON is also involved in the proprietary trading activity on an international gas exchange POWERNEXT Pegas (as of January 1, 2020, The European Energy Exchange) and is present in the following hubs: GASPOOL, New Connect Germany and Tittle Transfer Facility.

Furthermore, the Company is a participant of the Intercontinental Exchange (ICE) on the National Balancing Point. The volume of transactions concluded by the Company on the OTC market is also systematically growing.

By operating on the gas market the Company is securing gas supplies for TAURON Capital Group's entities.

In the financial years ended on December 31, 2020, and December 31, 2019, TAURON Capital Group did not identify single customers from outside TAURON Capital Group that would generate revenues from the sales of coal and gas exceeding the level of 10% of the total sales revenues of TAURON Capital Group.

2.3. Assessment of the factors and non-typical (one-off) events that have a significant impact on the financial result achieved

Internal factors

The operations and earnings of the Company and TAURON Capital Group in 2020 were impacted, among others, by the following internal factors:

• 1. update of the strategic directions and steadfast implementation of the Strategy as well as achieving of the assumed financial and non-financial effects,
• 1. actions with respect to optimizing processes taken by all of TAURON Capital Group's subsidiaries,
• 1. decisions with respect to the implementation of the key investment projects,
• 1. measures implemented at TAURON Capital Group's subsidiaries in connection with the COVID-19 pandemic, aimed at ensuring the safety of the employees and customers, as well as securing business continuity, including curbing the operating expenses,
• 1. implementing the 2018-2025 Strategic Asset Management Plan – one of the fundamental documents constituting the core of the integrated asset management system at TAURON Capital Group,
• 1. implementation of the investment projects with respect to adapting TAURON Capital Group's power plants to the BAT Conclusions by reducing, starting from 2021, the emissions of sulfur and nitrogen compounds as well as chlorine and mercury or obtaining of the derogations,
• 1. completion of the strategic investment project: the construction of a 910 MWe power generating unit in Jaworzno,
• 1. loyalty building measures aimed at retaining the existing customers and marketing activities with respect to acquiring new customers,
• 1. centralized TAURON Capital Group's financial management area, supported by the use of such tools as: central model of financing, financial liquidity (cash flow) management policy using the

cash pool mechanism, risk management policy in the financial area, insurance policy,

• 1. ability to obtain debt financing on the international markets,
• 1. Tax Capital Group's (Podatkowa Grupa Kapitałowa – PGK) operations, first and foremost aimed at optimizing the performance of the obligations associated with the payment of the corporate income tax by TAURON Capital Group's key subsidiaries,
• 1. TAURON's purchasing processes management, in particular, the management of fuel purchases for the needs of TAURON Capital Group's generation entities,
• 1. geological and mining conditions of hard coal extraction,
• 1. failures of TAURON Capital Group's equipment, installations and grids,
• 1. implementation of TAURON Wydobycie (Mining) Turnaround Program for 2020-2029
• 1. postponement of the date of the commissioning of Nowe Jaworzno Group TAURON's 910 MW unit and the operational problems occurring in the commissioning period, which resulted in a reduced consumption of hard coal in relation to the planned volumes.

The detailed information related to the impact of the above mentioned factors on the financial result achieved in 2020 is presented in sections 4. and 5. of this report. The effects of this impact are visible both in the short term as well as in the long term outlook.

No material, non-typical (one-off) internal events that would have a significant impact on the financial result achieved occurred in 2020. It should be emphasized, however, that due to the current epidemiological situation, in March 2020, TAURON Capital Group's subsidiaries introduced extraordinary preventive measures aimed at ensuring the safety of the employees and the customers, as well as at ensuring the security of the continuity of the critical infrastructure's operation.

The analyses completed as of December 31, 2020, and as of June 30, 2020, carried out as part of the impairment tests related to TAURON Capital Group's assets' carrying amount demonstrated changes with respect to the recoverable carrying value of the fixed assets in the Mining Segment and in the Generation Segment that were due, first and foremost, to the following factors:

• 1. net market value of TAURON Capital Group's assets remaining at a level below the net balance sheet value of the assets in the long term,
• 1. changes in the global prices of the energy related commodities, electricity and the prices of the CO² emission allowances,
• 1. high volatility of the electricity prices on the forward market and the persistent problems with the lack of liquidity,
• 1. decrease in the domestic electricity consumption due to an rise of the temperatures in winter and the impact of the COVID-19 pandemic,
• 1. regulatory actions aimed at curtailing the increase in the electricity prices for the end customers,
• 1. increased risks with respect to the production of commercial coal,
• 1. effects of the results of the RES auctions conducted thus far and the very fast growth of the prosumer and micro-installations subsector in connection with the support programs launched,
• 1. effects of introducing the provisions of the winter package, including the emissions standard, adversely affecting the possibility of participation in the capacity market by the coal fired units after July 1, 2025,
• 1. tightening of the emissions standards and persisting unfavorable market conditions from the point of view of the profitability of conventional energy,
• 1. a decline of the risk free rate

As a consequence, the booking of the impairment charges related to the loss of the carrying value of the tangible and intangible fixed assets in the amount of PLN 3 170 million was recognized in TAURON Capital Group's FY 2020 results in the Consolidated financial statements of TAURON Polska Energia S.A. Capital Group in accordance with the International Financial Reporting Standards approved by the European Union for the year ended on December 31, 2020 (Consolidated Financial Statements of TAURON Capital Group)

The analyses completed as part of the impairment tests demonstrated that, in the Financial statements of TAURON Polska Energia S.A. in accordance with the International Financial Reporting Standards approved by the European Union for the year ended on December 31, 2020 (Financial Statements of TAURON):

• 1. booking of the impairment charges related to the loss of the carrying value of the shares in TAURON Wytwarzanie in the amount of PLN 194 million had been justified,
• 1. booking of the impairment charges related to the loss of the carrying value of the shares in TAURON EKOENERGIA in the amount of PLN 376 million had been justified,
• 1. reducing of the carrying amount of the loans granted by the Company to TAURON Wydobycie in the amount of PLN 312 million had been justified,
• 1. reducing the carrying amount of the loans granted by the Company to Elektrociepłownia Stalowa Wola in the amount of PLN 236 million had been justified.

The amount of the booked write-downs related to the carrying value of the shares and the reduction of the carrying amount of the loans granted with respect to the financial statements of TAURON is PLN 1 118 million, and the total estimated impact on the decrease of the standalone net financial result will reach PLN 1 118 million. Furthermore, the estimate of the amount of the provision for the onerous contract, i.e. the multi-year agreement for the purchase by the Company of the electricity generated by the 910 MW unit in Jaworzno, was recognized in the standalone financial statements of TAURON. The conclusion of the Agreement was related to the transaction that TAURON disclosed in the current reports (regulatory filings) no. 11/2018 of March 28, 2018 and no. 24/2018 of July 26, 2018. The analyses completed demonstrated that setting up of the provision in the standalone financial statements of TAURON for 2020 in the amount of PLN 1.1 billion had been justified.

As of December 31, 2020, and as of June 30, 2020, the Company assessed that with respect to the operations of TAURON Ciepło, the conditions, stemming from IFRS 5 Fixed assets held for sale and discontinued operations, for classifying its operations as discontinued operations were met. Furthermore, as of the date the net assets of TAURON Ciepło were reclassified as a group for disposal (sale), classified as held for sale, TAURON Capital Group performed the valuation of the group for disposal (sale) at fair value (mark to market). The fair value, as of December 31, 2020, was estimated at PLN 1 342 000 000, based on the information collected in the course of the market process of selling the shares in TAURON Ciepło. Due to the fact that the fair value of the group for disposal (sale) is lower than its current book value, TAURON Capital Group took an impairment charge due to the loss of the carrying value of the non-financial fixed assets in the amount of PLN 825 798 000.

External factors

The operations and earnings of TAURON and TAURON Capital Group in 2020 were impacted by the following external factors:

• 1. macroeconomic environment,
• 1. market environment,
• 1. regulatory environment,
• 1. competitive environment (landscape)

Macroeconomic environment

TAURON Capital Group's core business operations are conducted on the Polish market and TAURON Capital Group takes advantage of the positive trends occurring thereupon as well as it is affected by the changes thereof. The macroeconomic situation, both in the individual sectors of the economy as well as on the financial markets, is a significant factor impacting the earnings generated by TAURON Capital Group.

The COVID-19 pandemic was the greatest challenge facing all of the world's economies in 2020. The introduced restrictions aimed at curtailing the increase in the number of cases had an impact upon the functioning of the world's economies and, as a consequence, they slowed down (contracted) by 4.3%. According to the forecasts of the World Bank, the growth rate of the global economy will come in at 4% in 2021. The eurozone experienced a recession of 7.5% in 2020. In the coming years the economic growth rate is expected to stand at 3.2% in 2021 and 4% in 2022.

The outbreak of the COVID-19 pandemic, the restrictions imposed and the persistent high uncertainty about how the situation will evolve in the future contributed to a reduction in economic activity and a slowdown of Poland's economic growth at the level of approx. 2.8% (according to data from the Central Statistics Office (GUS)). The National Bank of Poland (Narodowy Bank Polski - NBP) predicts a recovery of the economic growth in the second half of 2021. This will be driven by a gradual increase in private consumption, a moderate improvement of the labor market and the changes in consumer preferences. In its November 2020 forecast the NBP estimated Poland's GDP growth rate to reach 3.1% in 2021 and 5.7% in 2022. The World Bank, on the other hand, forecasts that Poland's GDP growth rate in 2021 will clock in at 3.5% in 2021, and at 4.3% in 2022.

A moderate increase in consumption is forecast over the next two years. Due to the deterioration of the consumers' income situation, private consumption will be characterized by a gradual improvement. The rise of consumption in the public sector will be affected by the increase in health care expenditures related to the COVID-19 pandemic

and the use of the tourist vouchers, while the freezing of wages in the state budget sector in 2021 will have a negative impact. The return to the neutral fiscal policy is not expected until the end of 2022.

There was a collapse of investment outlays in the enterprise sector in 2020, with spending falling by approx. 15%. Currently, one fourth of the enterprises assume that they will rebuild their investment activities later than in a year, while 50% believe that it is difficult to assume anything.

The inflation rate clocked in at approx. 3.5% in 2020, year over year. The increase of the inflation rate was, first and foremost, the result of the strong growth of the prices of services. Over the next two years the inflation rate is expected to come in at approx. 2.5%.

The registered unemployment rate in Poland stood at approx. 6.1% in 2020 (in 2019 it came in at 3%) and is likely to remain at this level in 2021.

The COVID-19 pandemic had a significant impact on the domestic electricity demand and prices on the global coal, electricity and CO² markets. The prices of energy related commodities and electricity prices for households are expected to rise faster in 2021.

Market environment

Electricity

The below table presents the volumes of Poland's electricity consumption, production and imports and the average electricity prices on the SPOT market, both in Poland as well as in the neighboring countries in 2020 and in 2019.

Table no. 14. Volumes of Poland's electricity consumption, production and imports and the average electricity prices on the SPOT market, both in Poland as well as in the neighboring countries in 2020 and in 2019

	Volume	Unit	2020	2019	Increase/Decrease
1.	Electricity consumption	GWh	165 533	169 390	-3 857 (-2.3%)
2.	Electricity production by domestic power plants	GWh	152 306	158 767	-6 461 (-4.1%)
3.	Electricity production by power plants fired with:
	1) hard coal	GWh	71 547	78 190	-6 643 (-8.5%)
	2) lignite	GWh	37 969	41 500	-3 531 (-8.5%)
	3) gas	GWh	13 924	12 104	1 820 (+15.0%)
4.	Electricity production by wind farms	GWh	14 175	13 903	272 (+2.0%)
5.	Electricity imports	GWh	13 224	10 623	2 601 (+24.5%)
6.	Average electricity price on the SPOT market in:
	1) Poland	PLN/MWh	208,68	229,31	-20.63 (-9.0%)
		EUR/MWh	47.12	53.48	-6.36 (-11.9%)
	2) Neighboring countries (on the example of German)	EUR/MWh	30.47	37.67	-7.20 (-19.1%)

Wholesale electricity price on the Day Ahead Market (RDN) of the Polish Power Exchange (Towarowa Giełda Energii S.A. - TGE) reached 208.68 PLN/MWh in 2020 and it was lower by 20.63 PLN/MWh (-9%) as compared to 2019. The average settlement price on the Balancing Market (RB) came in at 208.34 PLN/MWh in 2020 and it was lower by 26.66 PLN/MWh (-11.3%) as compared to 2019.

The factors behind the falling prices on the Day Ahead Market (RDN) and on the Balancing Market (RB) were: a warm beginning of the year as compared to the previous year, the higher generation from the wind sources and a decrease in the electricity demand, especially intensified in the period from March to June 2020 due to the restrictions imposed as a result of the COVID-19 pandemic.

The lowest spot prices were recorded in April 2020, while the highest prices were observed in December 2020, with the average price coming in at 151.56 PLN/MWh and 254.93 PLN/MWh, respectively. The high prices in December 2020 were driven by the low temperatures prevailing throughout Europe and the higher electricity demand, which also translated into the high spot prices in the neighboring countries.

The combination of a decrease in electricity consumption with the volume of electricity imported into the Polish power system (net electricity imports clocked in at 13.22 TWh in 2020) and an increase in electricity production by the wind farms, that came in at 14.18 TWh in 2020, significantly contributed to a curtailment of the electricity production by the conventional sources. In 2020, a decrease in electricity production by the hard coal fired power plants was recorded, down to 71.55 TWh, which led to a large overproduction of the hard coal used by the power plants. The production by the lignite fired power plants was also lower, coming in at 37.97 TWh. The lower electricity production by the above sources was also the result of the higher production of electricity by the gas fired power plants, whose production rose to 13.92 TWh on an annual basis.

The change in the structure of electricity production in Poland in 2020 and the factors described above caused a strong downward trend of the electricity prices both on the SPOT market as well as on the OTF futures market.

The below figure presents the average monthly electricity prices on the SPOT and RB markets, as well as the average temperatures in 2020.

Figure no. 18. Average monthly electricity prices on the SPOT and RB markets, as well as the average temperatures in 2020

The reference base load contract with the delivery in 2021 (BASE_Y-21) was trending sideways on the electricity futures market for the larger part of 2020. The price changes were in line with the changes in the commodity prices, in particular the prices of the CO² emission allowances, the valuation of which depended on the situation related to the COVID-19 pandemic. A particularly sharp drop in prices took place in March 2020, when the contract price reached the level of 211.65 PLN/MWh. There was a significant recovery in prices related to the increase of the prices of commodities, the CO² emission allowances and the sentiment improvement in the second quarter of 2020, due to the lifting of the restrictions introduced as a result of the COVID-19 pandemic. Since July 2020, due to the increase in the COVID-19 infections, the prices of the above mentioned contract were declining again. At the end of October 2020, there was an increase in prices due to the announcement by several pharmaceutical companies of the development of the vaccines against COVID-19, increased optimism on the financial markets, a strong surge of the CO² prices above the level of 30 EUR/Mg and the recovery of the demand for electricity in Poland and in the other EU countries.

The volume weighted average price of the BASE_Y-21 contract recorded in 2020 was at a level of 231.68 PLN/MWh, and it was lower by 34.78 PLN/MWh (-13.1%) as compared to the BASE_Y-20 contract prices a year ahead of the delivery. The total trading volume of the BASE_Y-21 contracts one year before delivery reached 116.43 TWh, i.e. approx. 0.75 TWh less than the BASE_Y-20 contract trading volume in 2019.

The PEAK5_Y-21 contract price displayed similar volatility patterns, with its trading volume weighted average price a year before delivery reaching 271.98 PLN/MWh, i.e. it and was lower by 51.96 PLN/MWh (-16%) than the average PEAK5_Y-20 contract price recorded in 2019. The lower average price of the PEAK5_Y-21 contract was a consequence of low PEAK prices on the Day Ahead Market (RDN) market and a significant increase in the photovoltaics' installed capacity.

The below figure presents the BASE Y-21 contract trading price performance.

Figure no. 19. BASE Y-21 contract trading price performance

Crude oil

The average price of Brent crude on the ICE exchange stood at 43.21 USD/bbl in 2020 and it was approx. 21 USD/bbl lower as compared to 2019 (-32.7%). The lowest price of oil was recorded in the second quarter of 2020, while the highest price was observed in the first quarter of 2020, with the average quarterly price coming in at 33.39 USD/bbl and 50.82 USD/bbl, respectively. The total Brent crude trading volume on the ICE exchange clocked in at approx. 60 billion barrels in 2020, while it reached more than 64 billion barrels (-7.2%) a year earlier.

The global events directly related to the COVID-19 pandemic were the main factors that had an impact on the demand and supply on the oil markets. The impact of the pandemic hit the oil industry, which caused - for the first time in history – the WTI oil prices to fall below zero in April 2020. The producers faced a large oversupply (glut) of the commodity and began looking for a place to store the surplus, paying the recipient additional costs for the storage of the commodity. In addition, the global demand for oil dropped sharply.

The price war between Saudi Arabia and Russia also indirectly contributed to the fall in oil prices, which started in March 2020. The dispute ended in April 2020, when OPEC and its allies agreed to reduce the total crude oil production by 9.7 million barrels per day, initially for a period of two months starting from May 2020, and then to limit (cap) its production cuts to 7.7 million barrels per day between July 1, 2020 and December 31, 2020. In November 2020, following the announcement by several pharmaceutical companies of the development of the vaccines against COVID-19, the prices of Brent crude rose on average to approx. 44 USD/barrel. In December 2020, OPEC and its allies announced that they would voluntarily cut production by 0.5 million barrels per day, i.e. from 7.7 million to 7.2 million barrels per day starting from January 2021.

Hard coal

The average price of the continued annual coal contract at ARA ports stood at 57.31 USD/t in 2020 and it was lower by 12.20 USD/t (-17.5%) as compared to the average price of such contract in 2019.

The beginning of 2020 was characterized by weak sentiment on the international coal market largely caused by the COVID-19 pandemic. The entire coal sector in the United States of America (USA) was in a difficult situation, as the restrictions imposed on the manufacturing industry, triggered by the COVID-19 pandemic, significantly reduced the demand for energy in the US and led to the lower volumes of purchase orders for that commodity from other parts of the world.

The Atlantic region was plunged into an increasing stagnation in the first half of 2020. Coal consumption in the West European countries decreased as a consequence of measures introduced to slow down the spread of the COVID-19 pandemic.

Important events that had an impact on the international coal markets in the second half of 2020 included in particular: the decision of the Chinese National Development and Reform Commission, which on several occasions prohibited state owned energy companies to import the Australian thermal coal, which was aimed at increasing the prices of the domestic commodity, the disruptions of the coal supplies from the north-western Russia, from the port of Murmansk, where the railway bridge used to transport the commodity collapsed, the depressed demand from India, the strike in the Cerrejón coal mine in Colombia, lasting 3 months, which led to a reduction in the supply of that commodity in the Atlantic region and the need to secure the hard coal supplies in the autumn before winter, both in Europe as well as in Asia.

At the end of 2020, the hard coal prices began to rise, which was the result of, among others: a decline in wind energy production in Germany, an improving margin on the generation for coal fired electricity production, the rising prices of natural gas and crude oil, as well as a prolonged deadlock regarding the resumption of the production in Colombia.

Natural gas

The volume weighted average price of gas on the Day Ahead Market (RDN) on the Polish Power Exchange (TGE) stood at 57.81 PLN/MWh in 2020 and it was approx. 16.57 PLN/MWh lower than in 2019. The lowest price of the contract with the delivery on the next day was recorded in June 2020, while the highest price was observed in December 2020, with the average volume weighted average monthly price coming in at 27.90 PLN/MWh and 81.29 PLN/MWh, respectively. The reason for the low prices was primarily the COVID-19 pandemic, which translated into the reduced demand for gas fuel as well as the oversupply (glut) prevailing on the global gas markets for most of the year. The lowest price, i.e. 20.09 PLN/MWh, was recorded on May 5, 2020.

The weighted average gas price on the Intraday Market (IDM), was lower by approx. 14.60 PLN/MWh than in 2019, and clocked in at 54.52 PLN/MWh. The lowest contract price on the Intraday Market (IDM) was recorded in June 2020, while the highest price was observed in December 2020, with the volume weighted average price coming in at 28.06 PLN/MWh and 81.59 PLN/MWh, respectively.

The lowest gas price on the OTF futures market was recorded in June 2020, while the highest price was observed in December 2020, with the monthly weighted average prices of some futures contracts coming in at below 30 PLN/MWh and more than 85 PLN/MWh, respectively. The reasons for the low prices were well-stocked storage facilities, the COVID-19 pandemic and the low prices of the related products, among others the prices of the Brent crude oil and the CO² emission allowances.

The lowest aggregate trading volume on the futures market was recorded in June 2020, clocking in at more than 7.4 TWh, while the highest trading volume was reported in September 2020, reaching 12.1 TWh.

The weighted average price of the reference one year GAS_BASE_Y-21 contract stood at 69.16 PLN/MWh in 2020. The lowest price of that contract was recorded at the beginning of June 2020, while the highest price was observed during the final session in 2020, coming in at 61.70 PLN/MWh and 87.50 PLN/MWh, respectively. The aggregate trading volume on the Polish Power Exchange (TGE) clocked in at more than 151.1 TWh in 2020, as compared to 146.1 TWh in 2019 (+3,4%).

The futures market had the largest share in gas trading in 2020, with a volume generated of more than 125 TWh. On the SPOT market, the total trade in the day ahead contracts came in at approx. 20.0 TWh (+17.6% year on year). The decline was also reported on the Intraday Market (IDM), where the turnover stood at almost 5.9 TWh, as compared to 5.7 TWh in 2019 (+3.3% year on year).

The key events on the gas market in 2020 included, among others, the imposing, by the Polish Office of Competition and Consumer Protection (UOKiK), of a USD 7.6 billion penalty on Gazprom and other investors in the disputed Nord Stream II project, the decision to build a 750 MWe gas fired generating unit in Ostrołęka instead of the construction of a hard coal fired unit, the commissioning of the CCGT unit in Stalowa Wola and the non-completion of the second line of the already mentioned Nord Stream II gas pipeline project.

The below figure presents the average monthly SPOT and Y-21 contract prices on TGE in 2020.

Figure no. 20. Average monthly SPOT and Y-21 contract prices on TGE in 2020

CO² emission allowances

The settlement prices of the CO² emission allowances for the reference contract with the December delivery (EUA-DEC) were moving within the range between 15.30 EUR/Mg and 33.44 EUR/Mg in 2020. The average settlement price came in at 24.77 EUR/Mg in 2020 and it was lower by 0.11 EUR/Mg as compared to 2019.

The reason for the lower average annual price of the CO² emission allowances in 2020 was the sharp correction of the prices in March. The drop in the prices was a consequence of the emergence of the first cases of the COVID-19 infection in Europe and in the US. Having been hit with the news of the shutdowns of international connections and the lockdowns of a number of economies, the investors feared that the supply chains would be broken and the economic slowdown would be severe, and, as a consequence, the demand for the EUA units would decline. Due to the need to maintain financial liquidity, a number of companies were selling off the EUA units to generate additional cash. The situation calmed down in April when the financial stimulus packages rescued many companies from the crisis and led to a sharp rebound of the stock market indices and a recovery of the CO² prices.

The increase in the demand was also impacted by the April purchases made in order to settle the CO² emissions for 2019. The European Parliament committees were intensely working in the second half of 2020 on the shape of the new European climate law, the goal of which will be to introduce a legally binding target of achieving zero greenhouse gas emissions at the level of the individual EU countries by 2050 - for this purpose, a high price of the CO² emission allowances and, ultimately, another revision of the EU ETS system will be necessary.

An important event affecting the CO² prices was the announcement in the European Parliament of the proposed new EU emissions reduction target by 2030 at a level of at least 55% as compared to 1990.

In early October 2020, the number of the COVID-19 infections began to rise again, which, as in March 2020, caused a sell-off on all of the financial markets. The turning point was the announcement of the invention of an effective vaccine against COVID-19, which brought the CO² prices again close to the level of 30 EUR/Mg.

At the end of 2020, the prices were also supported by the general approval of the proposal to raise the emissions reduction target to 55% in 2030 by the heads of state and governments of the EU Member States during the European Council Summit on 10-11 December, 2020. The COVID-19 pandemic also translated into problems with the allocation of the free allowances and the calculation of the auction volumes - therefore, the start of the distribution of the allowances through the auction system had to be postponed until January 29, 2021, which also, as a factor limiting the supply of the units, had a direct impact on a strong increase of the CO² prices at the end of 2020.

When calculating the price difference between the close of the trading on December 31, 2019 (24.74 EUR/Mg) and on December 31, 2020 (32.72 EUR/Mg), an increase by 33% (+ EUR 8.08 / Mg) was recorded. .

The below figure presents the impact of the political actions and the environment on the EUA SPOT product price in 2020.

Property rights

The lowest prices of the green certificates were recorded in the second quarter of 2020, while the highest prices were reported at the end of the first quarter 2020, coming in at 120.93 PLN/MWh and 151.47 PLN/MWh, respectively. The prices of the green certificates fluctuated within the range between 137.63 PLN/MWh and 143.58 PLN/MWh over the last five months of 2020. The weighted average price of the green certificates stood at 138.22 PLN/MWh in 2020 (an increase by approx. 4.6% year on year) and it was lower than the applicable substitution fee by less than 16.4%. The amount of the substitution fee stood at 165.24 PLN/MWh in 2020, with the obligation to submit PMOZE_A certificates for redemption at 19.5%. The trading volume in this period clocked in at 9 662 GWh and it was lower by almost 14% as compared to 2019. The balance of the PMOZE_A register reached a surplus of 30.2 TWh at the end of December 2020. Taking into account the certificates blocked for redemption, this balance decreased by more than 5.1 TWh, to the level of 25.1 TWh (an increase by 2.38% year on year).

The prices of the certificates confirming the production of electricity from agricultural biogas, PMOZE-BIO-2019 (blue certificates), for which the obligation was 0.5% in 2019, were consistently fluctuating around the substitution fee level, which stood at 300.03 PLN/MWh. The prices of the TGEozebio index fluctuated within the range from 299.62 PLN/MWh to 301.66 PLN/MWh. Ultimately, the weighted average value of the index stood at 300.15 PLN/MWh at the end of 2020 and it was slightly lower (by 0.02%) than the weighted average price for 2019. The total trading volume came in at 490.6 GWh (a drop by almost 4.4% year on year), and the PMOZE_BIO register balance reached the level of 394 GWh as of the end of 2020. Taking into account the certificates blocked for redemption (retirement), this level dropped to 371 GWh.

The white certificates prices were generally trending upward, however the prices of the PMEF contract recorded lower levels in the second half of 2020. The 2020 prices fluctuated between the minimum level of 1 735.61 PLN/toe recorded in January and the maximum price reported in mid-February at the level of 2 000.98 PLN/toe. The highest price levels were observed in May, with the weighted average monthly price coming in at 1 998.80 PLN/toe. The weighted average price for the contract in question for the entire 2020 stood at 1 841.33 PLN/toe and it was higher by almost 82% as compared to 2019. On average, the prices were more than 6% above the substitution fee, which stood at 1 736.44 PLN/toe for the whites certificates in 2020. In contrast to the increase in prices, the trading volume moved in the opposite direction, falling by almost 83% as compared to 2019. It clocked in at 59 001 toe (2019: 342 981 toe) in 2020.

The market performance of the PMEF_F register contracts as well as the PMEF-2020 register contracts was similar in 2020. Only the PMEF-2019 contract, which was traded in the first half of 2020, continued moving in a sideways trend.

The weighted average price of the PMEF_F contract in the year under review was higher by more than 12% as compared to the prices in the same period of 2019 and it came in at 1 824.79 PLN/toe. The weighted average price of the PMEF-2020 contract clocked in at the level of 1 811.66 PLN/toe (the contract was listed only in 2020), while the weighted average price of the PMEF-2019 contract came in at 1 837.40 PLN/toe in the first half of 2020.

The below figures present the property rights indices, the so-called green and blue certificates.

PMOZE-BIO-2020

Regulatory environment

TAURON Capital Group is monitoring changes and taking actions in the regulatory area, both on the national as well as on the EU level.

The below table presents the most important changes in the regulatory environment of TAURON Capital Group in 2020 in terms of the adopted and published legal acts that affect TAURON Capital Group.

Table no. 15. Most important changes in the regulatory environment of TAURON Capital Group in 2020 in terms of the adopted and published legal acts that affect TAURON Capital Group

Name of the regulation	Description of the regulation	Status as of 31.12.2020	Impact on TAURON Capital Group
National regulations
Regulations related to the so-called anti-crisis shield (including the	• Act of March 2, 2020, on special solutions related to preventing, countering and	The acts came into force in 2020	The said regulations: • exclude the possibility of the energy company stopping the supply of electricity or gas fuels to

Name of the regulation	Description of the regulation	Status as of Impact on TAURON Capital Group 31.12.2020
financial shield) constituting a collection of measures and solutions supporting entrepreneurs and the economy in connection with the negative effects of the COVID-19 pandemic:	combating COVID-19, other infectious diseases and the crisis situations caused thereby (as subsequently amended), • Act of March 31, 2020, on amending the act on special solutions related to preventing, countering and combating COVID-19, other infectious diseases and the crisis situations caused thereby, as well as certain other acts (as subsequently amended), • Act of April 16, 2020, on special support instruments in connection with the spreading of the SARS-CoV-2 virus, • Act of June 19, 2020, on the subsidies to the interest rate of the bank loans granted to the entrepreneurs (businesses) affected by the effects of COVID-19 and on the simplified proceedings aimed at obtaining an approval of the arrangement in connection with the occurrence of COVID-19.		a consumer in the event of illegal consumption of fuels or electricity or a delay in the payment for services by the consumer, in case such a consumer is: the final consumer in a household. • Introduce the possibility (option) of concluding transactions on the exchanges and trading platforms by the introduction of the possibility of posting non-cash collaterals to cover the margins securing such transactions in the form of the property rights stemming from the certificates of origin, emission allowances, bank guarantees, as well as sureties issued by the capital group's subsidiaries, • enable entities that have concluded grid connection agreements for the renewable energy source (RES) installations to extend the deadline for delivering electricity to the grid for the first time, provided that such a deadline falls prior to June 30, 2022,
Act amending the act on the proceedings in cases related to public (state) aid	The regulation introduces into the Polish legal order norms (standards) related to the situations when the Court of Justice of the European Union finds the decisions of the European Commission in cases related to public (state) aid to be null and void. The two main solutions implemented include the possibility of continuing to perform the obligation related to public (state) aid, excluding the payout of the funds, and also accumulating the funds due to the beneficiary in the period between the judgment of the Court of Justice of the European Union and the repeated decision of the European Commission.	Entry into force on January 12, 2021	The uncertainty with respect to using the aid funds, stemming from the potential proceedings pending before the Court of Justice of the European Union, has been reduced.
Regulation of the Minister of Climate and Environment of November 13, 2020, amending the regulation on the detailed rules of shaping and calculation of the tariffs and billing (settlements) in electricity trading	The goal of the Regulation is to: 4. enable energy companies (electric utilities), conducting business operations with respect to electricity distribution, to establish a tariff group for the consumers using electricity exclusively for the needs of the generally accessible charging stations and the provision of the charging services thereupon, 5. limit the negative effects of the COVID-19 pandemic for the DSOs and the TSOs, manifested in the reduction of electricity consumption by the consumers, by introducing a mechanism to equalize, based on the balance, the actual revenue and the planned regulated revenue,	Entry into force on December 4, 2020	A mechanism equalizing, based on the balance, the actual revenue and the planned revenue was introduced and the tariffs for the charging stations were established.
European Union (EU) regulations
European Green Deal including:	European Green Deal was published by the European Commission in December 2019 and is a plan of actions aimed at achieving climate neutrality by the EU states by 2050. In accordance with the above regulation the steps taken by the European Commission (EC) are to cover the entire economy, including the power, agriculture, transportation (land, sea, air) and manufacturing industry sectors. The European Commission (EC) has published a legislative works schedule covering the next several years.	In 2020, the EU institutions implemented some of the activities envisaged in the timetable, including conducting consultations and adopting some legislative proposals. Public	European Green Deal is a major challenge for all sectors of the economy. It will be possible to evaluate the detailed goals for the power sector after the legislative acts related to the sector have been published.
		consultations of the draft legal acts and the assessments of the effects of the regulations
Regulation (EU) 2020/852 of the European Parliament and of the Council of June 18, 2020 establishing a framework to facilitate sustainable investment and amending	The goal of the regulation is to establish a framework to facilitate sustainable investment projects, in order to introduce a classification system, the so-called EU Taxonomy, i.e. the green list for the sustainable economic activities. The European Union (EU), the Member States, financial market participants offering financial	Entry into force from July 12, 2020 The works of the European Commission on	The new principles of sustainable financing defined in the Taxonomy may affect the ability and conditions of obtaining capital for the implementation of the investment projects planned by TAURON Capital Group.

Name of the regulation	Description of the regulation	Status as of 31.12.2020	Impact on TAURON Capital Group
Regulation (EU) 2019/2088 (Regulation with respect to Taxonomy - sustainable financing)	products (through an obligation to disclose information on how and to what extent the investment projects underlying their financial product support an economic activity that meets all of the criteria for the sustainable environment development), financial and non-financial companies covered by the non-financial reporting will be obligated to apply the EU Taxonomy starting from December 2021.	the delegated acts
Commission Implementing Regulation (EU) 2020/1001 of July 9, 2020 (Regulation on the Modernization Fund)	Regulation laying down the detailed rules for the application of Directive 2003/87/EC of the European Parliament and of the Council as regards the operation of the Modernization Fund supporting investments to modernize the energy systems and to improve energy efficiency of certain Member States, aimed at defining the general rules for submitting project applications and the cooperation between the Member States and the EU institutions and the European Investment Bank (EIB).	Entry into force on July 30, 2020	The Modernization Fund may constitute significant support for the implementation of investment projects that are a part of the Green Turn of TAURON, and thus have a positive impact on TAURON Capital Group's transition process.
Commission Implementing Regulation (EU) 2020/1294 of September 15, 2020, on the European Union's renewable energy financing facility	The regulation sets out the provisions required for the implementation and operation of the EU's renewable energy financing facility, which will be in place as of January 1, 2021.	Entry into force on October 7, 2020	The facility may constitute support for reducing the cost of capital of the RES projects, achieving the RES target in the energy mix at the national level and tightening the regional cooperation with
	The goal of the facility is to create a framework and provide support for the new projects in the EU in the field of energy from the renewable sources. Under the facility the Member States will be able to pay voluntary financial contributions, that will be used to submit offers supporting the new RES projects.		other Member States.

In the period covered by this report, the legislative works were conducted on amending specific legal provisions, which, if adopted with the assumed content, will have an impact on the operations of TAURON Capital Group.

The below table below presents the most important legislative initiatives in the regulatory environment of TAURON Capital Group in 2020

Table no. 16. Most important legislative initiatives in the regulatory environment of TAURON Capital Group in 2020

Name of the regulation	Description of the regulation	Status as of 31.12.2020	Impact on TAURON Capital Group
National regulations
Draft act on promoting electricity generation in off-shore wind farms	The goal of the draft act is to create a dedicated support system for the generation of electricity in the off-shore wind farms and to facilitate applying for the documents required in the course of the investment related works conducted for the off shore wind farms.	The act has been forwarded to the Senate and the President of the Republic of Poland	The act will have an impact on the investment opportunities in the off-shore wind energy and may constitute the basis for further analyses of the investment potential of the electricity generation sector in the off shore wind farms.
Draft act on amending the act on the greenhouse gas emission allowances trading system and certain other acts	The goal of the draft act is to transpose Directive (EU) 2018/410 of the European Parliament and of the Council of March 14, 2018, amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814, in particular, to introduce the National Modernization Fund implementation system to be responsible for co-financing the implementation of investment projects modernizing the national power system and improving energy efficiency.	Past the Committee for European Affairs	The Act, and in particular the introduction of the National Modernization Fund implementation system, will affect the possibility of obtaining funds for investments that fall within the scope for which financing from the Modernization Fund's funds is possible.
Draft act on amending the act on the capacity market	The goal of the draft act is to adjust the content of the Act on the Capacity Market to Regulation (EU) 2019/943 of the European Parliament and of the Council of June 5, 2019, on the internal market for electricity, in particular with regard to limiting the participation in the capacity mechanisms of units emitting more than 550 g of CO2 from fossil fuels per kWh of electricity produced and an annual average of more than 350 kg of CO2 from fossil fuels per kW of installed capacity. In addition, it aims to introduce a mechanism supporting the implementation of investment projects, in particular in low emission units and mitigating the effects of delays resulting from the COVID-19 pandemic.	Public consultations have been completed	The act will ensure the proper implementation and functioning of the capacity market mechanism despite the negative impact of the COVID-19 pandemic on the investment processes.

Name of the regulation	Description of the regulation	Status as of 31.12.2020	Impact on TAURON Capital Group
Draft regulation of the Minister of Infrastructure on the evaluation of applications (motions) submitted in the resolution (decision-making) procedure	The goal of the draft regulation is to establish detailed criteria to be used to determine the method of selecting, in the resolution (decision making) procedure, an entity that will obtain a permit to build or use artificial islands, structures and devices in the Polish maritime areas.	Public consultations have been completed	The regulation is required for the initiatives aimed at the development of the maritime areas after the adoption of the spatial development (zoning) plan for the Polish maritime areas. It is particularly important from the point of view of making all decisions regarding investments in offshore wind energy by the entities that have not yet obtained a permit for the construction and use of artificial islands in the Polish exclusive economic zone of the Baltic Sea
European Union (EU) regulations
Just Transition Mechanism	The proposed regulation was published by the European Commission in January 2020 as part of implementing the European Green Deal, the Just Transition Mechanism consists of three pillars: • 1st pillar - Just Transition Fund, • 2nd pillar - InvestEU Program, • 3rd pillar - Loans for the public sector. In December 2020, the trilogue negotiations among the EU institutions were completed, according to which the Just Transition Fund's budget would total EUR 17.5 billion.	Works on the draft regulations in the European Parliament and the Council of the EU Works on establishing the Just Transition Fund and the InvestEU Program in the European Parliament and the Council of the EU	The regulation may provide support for TAURON Capital Group first and foremost in the following areas: • investments in renewable energy sources (RES) (including on the post-industrial or post-mining land), • raising and changing the qualifications of, first and foremost, the personnel employed in mining or hard coal based electricity generation, • research and development of the low emission technologies, • reclamation and management (utilization) of the post-mining and post-industrial land.
European Climate Law	The draft regulation was published by the European Commission in March 2020 and its goal is to establish the framework for achieving climate neutrality (European Climate Law). The draft includes, among others, a proposal of a new target for reducing the greenhouse gas emissions at the EU level by 2030 and the introduction of the EU level greenhouse gas emissions reduction trajectory for 2030 - 2050. In December 2020, the European Council approved a binding target assuming the reduction of the net greenhouse gas emissions in the EU by 2030 by at least 55% as compared to the level of 1990 and called on the European Commission, the European Parliament and the EU Council to take into account the new target and to swiftly adopt the petition related to the European Climate Law.	Works on the draft regulation in the European Parliament and the Council of the EU	Tightening of the target for reducing the greenhouse gas emissions by 2030 to at least 55% may have an impact on the costs of the CO2 emission allowances and thus on the costs of electricity generation by the conventional units of TAURON Capital Group (TAURON Wytwarzanie, TAURON Ciepło).

Competitive environment (landscape)

Apart from TAURON Capital Group, three large, vertically integrated energy groups are currently operating on the Polish market: PGE, Enea and ORLEN Group's Energa S.A. (Energa). Furthermore, innogy Polska is conducting its operations in Warsaw, managing Warsaw's power grid.

The below figure presents TAURON Capital Group's competitive environment (landscape) based on the available Q1-3 2020 data.

Figure no. 23. TAURON Capital Group's competitive environment (landscape) based on the available Q1-3 2020 data

According to Q1-3 2020 data, the consolidated energy groups (PGE, TAURON, Enea, Energa) held a 67% market share in the electricity generation sub-sector.

TAURON Capital Group is a fully vertically integrated energy enterprise (electric utility) that takes advantage of the synergies stemming from the size and scope (scale) of the operations conducted. TAURON Capital Group controls the value chain, from hard coal mining up to the delivery of electricity to the final consumers. TAURON Capital Group is conducting its operations in all of the key segments of the energy market (excluding electricity transmission), i.e. in hard coal mining, as well as electricity and heat generation, distribution, supply and trading.

The below figure presents information on the structure of EBITDA based on the main segments.

Generation

TAURON Capital Group is Poland's key electricity producer

TAURON Capital Group's share in the domestic electricity generation market, based on the gross electricity production output, stood at approx. 8% after the first three quarters of 2020. TAURON Capital Group is the third largest electricity producer on the Polish market. TAURON Capital Group's generation assets are concentrated in the south of Poland. The deposits of the hard coal used to fire TAURON Capital Group's power plants and combined heat and power plants are also located in that region. The location of the generating assets in the vicinity of the hard coal deposits allows for the optimization of the costs related to the transportation of this raw material

89% of TAURON Capital Group's generation assets are, as of the end of 2020, hard coal fired units, 25% of which are modern high efficiency generating units. TAURON Capital Group's total installed capacity reached almost 6.1 GW as of December 31, 2020, with the renewable energy sources accounting for almost 0.7 GW of that figure. Wind farms' installed capacity represents 6.3%, hydroelectric power plants' installed capacity accounts for 2.2% and biomass fired generating units' installed capacity constitutes 2.3% of TAURON Capital Group's total installed capacity.

TAURON Capital Group produced 12.5 TWh of electricity in 2020, with 1.9 TWh coming from RES.

Nationwide, after the first three quarters of 2020, TAURON Capital Group's hard coal fired units' installed capacity accounted for approx. 14% of the total installed capacity of all hard coal and lignite fired generating units in Poland. With respect to the installed capacity of the wind farms, biomass and biogas fired power plants as well as hydro power plants, the share of TAURON Capital Group came in at approx. 6%, 13% and 6%, respectively.

According to the data after the first three quarters of 2020, PGE Group is the largest electricity generator in Poland, with its share in the domestic electricity production market in the third quarter of 2020 standing at approx. 41%, and the installed capacity of 17.8 GW. ENEA is the second largest electricity producer in Poland, with a market share of approx. 16% and the installed capacity of 6.3 GW. Energa, on the other hand, has the largest share of electricity produced from the renewable energy sources (RES) on the Polish market and Energa's total installed capacity stands at approx. 1.4 GW. Energa produced 2.2 TWh of electricity in the first three quarters of 2020, with approx. 1.0 TWh (i.e. 47%) coming from RES.

The below figures present information on installed capacity and electricity generated in Q1-3 2020.

^* In order to make the segments presented comparable the Generation Segment includes also Mining, RES and Heat. Source: Companies' interim reports

Figure no. 25. Gross electricity production - estimated market shares in Q1-3 2020 Figure no. 26. Installed capacity - estimated market shares in Q1-3 2020

Source: Agencja Rynku Energii S.A. (ARE), information from the companies published on their websites

Distribution

TAURON Capital Group is the Polish market leader in terms of the number of distribution customers and volume of electricity distributed

TAURON Capital Group is Poland's largest electricity distributor. TAURON Dystrybucja's share in electricity distribution to the final consumers reached approx. 36% in the first three quarters of 2020. TAURON Capital Group's distribution grids cover more than 18% of Poland's territory. The volume of electricity delivered to the final consumers came in at approx. 50.3 TWh in 2020. TAURON Capital Group is Poland's largest electricity distributor also in terms of revenue from the distribution operations.

TAURON Capital Group's distribution operations, due to the natural monopoly in the designated area, are a source of a stable and predictable revenue, representing a material part of the consolidated revenue of the entire TAURON Capital Group. The electricity distribution's geographical area on which the Distribution Segment's and the Supply Segment's subsidiaries are historically operating is a heavily industrialized and densely populated area and therefore the distribution grid is very well utilized. The number of the Distribution Segment's customers reached approx. 5.7 million in 2020.

The below figure presents estimated market shares of the individual energy groups in terms of electricity distribution based on the Q1-3 2020 data.

Supply

TAURON Capital Group is Poland's second largest electricity supplier

TAURON Capital Group holds a 25% share in the electricity supply market to the final consumers in Poland. The volume of the retail electricity supply of TAURON Capital Group came in at 32.4 TWh in 2020. The number of customers served by TAURON Capital Group's Supply Segment is 5.6 million.

Source: ARE, information from the companies published on their websites

PGE is the largest retail electricity supplier with a 32% market share. The other two groups, Enea and Energa, hold a 15% and a 14% market share respectively.

In the segment of electricity supply to the households the individual energy groups are geographically linked, first of all, with the areas in which they are acting as an ex officio electricity supplier. The need to submit household tariffs for approval to the President of the Energy Regulatory Office leads to limited options for positioning prices in the product offerings, and what follows, it impacts their attractiveness for the customers. Such restrictions do not apply to the business and institutional customers. A broader and more open competition exists in those sectors.

The below figure presents estimated market shares of the individual energy groups in terms of electricity supply to the final consumers based on the Q1-3 2020 data.

Figure no. 28. Electricity supply to the final consumers - estimated market shares in Q1-3 2020

Source: ARE, information from the companies published on their websites

The below table presents information on the installed capacity and the volume of electricity generation, distribution and supply after the first three quarters of 2020, as well as the domestic market shares.

Table no. 17. Installed capacity, generation, distribution and supply of electricity by energy groups after the first three quarters of 2020

Group		Installed capacity		Generation*		Distribution		Supply
		Quantity (GW)	Share (%)	Volume (TWh)	Share (%)	Volume (TWh)	Share (%)	Volume (TWh)	Share (%)
1.	PGE	17.8	36.0	47.1	41.0	26.3	27.0	30.5	32.0
2.	TAURON	5.2	10.0	8.7	8.0	35.8	36.0	23.7	25.0
3.	Energa	1.4	3.0	2.2	2.0	16.1	16.0	13.9	14.0
4.	Enea	6.3	13.0	18.5	16.0	14.3	14.0	14.7	15.0
5.	Other	18.6	38.0	38.3	33.0	7.1	7.0	13.8	14.0
	Total	49.3	100.0	114.8	100.0	99.6	100.0	96.6	100.0

*Volume of gross electricity generated in the first three quarters of 2020

Source: ARE, information from the companies published on their websites, own estimates in case of the companies publishing the net production

The period under review was characterized by a decrease of the demand for electricity due to the outbreak of the COVID-19 pandemic. The decline of the demand contributed to a decrease of the electricity production in Poland, and thus to a lower level of the distribution and supply volumes.

The analysis of the largest energy groups operating on the domestic market points to various sources of competitiveness in the selected segments of the energy market, depending on the operations conducted thereby.

The below table presents the main sources of competitiveness of TAURON Capital Group in selected Lines of Business (Segments of Operations).

Table no. 18. Sources of competitiveness of TAURON Capital Group in selected Lines of Business (Segments of Operations)

Line of Business	Initiatives	Sources of competitiveness
1. Mining 2. Generation	1. Reducing the fuel price and supply risk 2. Investments in generating units 3. Operating expenses	1. Concluded capacity market contracts. 2. High efficiency generating units with a competitive unit production cost 3. Improvement of operational efficiency
3. RES 4. Heat	1. Operating expenses 2. Investments in district heating networks	1. Improvement of operational efficiency 2. Development of low and zero emission generation sources – Green Turn of TAURON 3. Expanding regulated operations
5. Distribution	1. Operating expenses 2. Investment project efficiency 3. Improvement of grid reliability indicators	1. Implementing the ultimate business model 2. Implemented IT systems, separate processes, clear (transparent) split of responsibilities
6. Supply	Operating expenses	Efficiently allocated operating expenses

2.4. Material factors impacting growth

The following factors will have the most material impact upon the results of TAURON Capital Group's operations over at least the next quarter:

• 1. macroeconomic situation in Poland at the EU and global economy level, including changes of interest rates, FX rates, etc., impacting valuation of assets and liabilities listed by the Company in the statement of financial position,
• 1. market situation in Poland and in the EU, as well as the global economy, including changes of the electricity prices, prices of the CO² emission allowances, prices of the raw materials (commodities), etc., affecting the revenues and the level of the costs generated,
• 1. introduction of the state of epidemic in Poland, as of March 20, 2020, effective until cancelled due to the COVID-19 virus infections which, as a consequence, leads to a decrease of the demand for electricity, and thus a decline of the volume of electricity distributed and supplied, as well as a curtailment of electricity production,
• 1. possibility of a further tightening of the constraints and trade restrictions as a result of an increase in the number of COVID-19 cases,
• 1. potential increase of the overdue accounts receivable caused by the deterioration of the financial condition of the counterparties (contractors),
• 1. extraordinary preventive measures implemented at TAURON Capital Group's subsidiaries due to the state of epidemic, aimed at ensuring the safety of the employees and customers and ensuring the security of the continuity of the operations of the critical infrastructure,
• 1. political environment in Poland and at the EU level, including the positions and decisions of the state administration institutions and offices, e.g.: UOKiK, URE (ERO) and the European Commission (EC),
• 1. result of the Court of Justice of the European Union (CJEU) proceedings conducted in connection with a complaint submitted by TEMPUS against the European Commission regarding the declaring the decision of the European Commission, deeming the Polish capacity market mechanism to be in line with the internal market, as null and void,
• 1. changes to the regulations related to the power sector, and also changes in the legal environment, including: tax law, commercial law, environment protection law,
• 1. changes to the regulations governing the operation of the PPX (TGE), in particular the possibility of abolishing the exchange obligation,
• 1. change in the policies of the financial institutions with respect to the financing of coal fired electricity generation,
• 1. possibility of using the European funds supporting the transition of the energy sector and mitigating the effects of the social changes
• 1. geological and mining factors, as well as the natural hazards that may affect the volume of fossil fuel extraction,
• 1. start of the functioning, from January 2021, of the generation capabilities compensation mechanism

(capacity market), under which the deliveries of electric capacity will be carried out by TAURON Capital Group subsidiaries' generating units and demand side reduction units. The deliveries will be carried out under capacity contracts concluded during the main and additional auctions for the years 2021-2025. The launch of the capacity market results in a simultaneous expiration of the operational capacity reserve and the cold intervention reserve,

• 1. support system for electricity generation from the dedicated sources (color certificates), resulting, on one hand, in the costs of redeeming (retiring) certificates for the suppliers of electricity to the final consumers, and on the other hand, in revenue from the sales of certificates for the generators of electricity,
• 1. RES support system, the so-called RES auctions,
• 1. competitive environment (landscape), including the activities and steps taken by the competition on the energy market,
• 1. further tightening of the EU climate policy, in particular, resulting in the energy transition focused on the RES, as well as in an increase of the prices of the CO² emission allowances,
• 1. ongoing works on the government's solution with respect to the shape of the mining and coal-based energy sector in Poland
• 1. growth of the prosumer market and its impact on the Supply, Distribution, as well as the Generation and Mining Lines of Business,
• 1. level of tariff for the electricity and heat supply to the households (tariff group G) approved by the President of ERO,
• 1. level of tariff for the electricity distribution approved by the President of ERO,
• 1. environment protection requirements as a consequence of changes to the Act of April 27, 2001, Environment Protection Law, the so-called anti-smog resolutions,
• 1. planned changes to the regulations related to the Act of August 25, 2006 on the system for monitoring and inspecting fuel quality, among others, with respect to the quality requirements for the solid fuels,
• 1. science (research) and technical progress,
• 1. demand for electricity and the other energy market products, taking into account changes due to seasonality and weather conditions
• 1. shaping of the personnel policy, including the results of the negotiations with the Social Council of TAURON Group,
• 1. changes to the schedules, budgets and scopes of the investment projects implemented by TAURON Capital Group,
• 1. impact of weather conditions (factors), including those of extreme nature, resulting in the impact on the failure rate of the assets of TAURON Capital Group and the seasonality of the revenue generated and the costs incurred,

• results of the ongoing analyses related to the Heat Line of Business, taking into account the forecast changes in the external environment, including the regulatory and the market environment, and taking into account the prospects of the Polish heating sector, which may affect further decisions regarding the sale of the shares in TAURON Ciepło or keeping TAURON Ciepło within TAURON Capital Group.

The impact of the above factors on the financial result achieved in 2020 is presented in section 5. of this report. The effects of this impact are visible in both the short term perspective, as well as in the long term outlook.

TAURON Capital Group's operations are characterized by seasonality that is applicable, in particular, to heat production, distribution and supply, electricity distribution and supply to the individual consumers, as well as the hard coal sales to the individual consumers for heating purposes. Heat supply depends on the weather conditions, in particular on outdoor temperature, and it is higher in the autumn and winter season. The volume of electricity supply to the individual consumers depends on the length of day which usually makes electricity supply to this group of consumers lower in the spring and summer season and higher in the autumn and winter season. Hard coal sales to the individual consumers are higher in the autumn and winter season. The seasonality of TAURON Capital Group's other lines of business is low.

2.5. Timeline

The timeline of selected highlights associated with the operations of TAURON and TAURON Capital Group that took place in 2020 is presented below.

JANUARY FEBRUARY	1. Conclusion, by TAURON Dystrybucja and Apator S.A., of the agreement for the supply of the static direct 3-phase electricity meters intended to be used to meter customers of the C1 tariff groups for the purpose of settling the capacity charge. 2. Signing of the agreement by TAURON and PSE, according to which, in case of increased demand for electricity in Poland, TAURON will reduce power consumption by 14 MW under the DSR mechanism. 3. Supplying of all TAURON electric car charging stations with electricity coming solely from RES. 4. Implementation, at TAURON Wydobycie, of a unique IT system enabling precise monitoring and reporting of equipment failures in the coal mines. 5. Conclusion by TAURON of the agreement for TAURON membership in the TGE (PPX) Organized Trading Platform.
MARCH APRIL	1. Signing by TAURON and the closed-end investment funds, a part of whose investment portfolio is managed by Polski Fundusz Rozwoju S.A. (Polish Development Fund) (PFR) of the memorandum of understanding on the preliminary terms of cooperation between with respect to investments in RES. 2. TAURON commences cooperation with six start-ups (entities operating in the fields of: HR, blockchain, smart city, customer service, non-destructive methods of material testing) selected in the second round of recruitment for the KPT ScaleUp accelerator managed by the Cracow Technology Park (Krakowski Park Technologiczny). 3. Conclusion of a 3-year contract by TAURON Sprzedaż and LOTTE Wedel for the supply of more than 51 GWh of electricity generated from RES as part of the offering addressed by TAURON Sprzedaż to the business customers, regarding the supply of electricity with the certificates. 4. Completion of the OCR application deployment project implemented by TAURON Obsługa Klienta. 5. TAURON Dystrybucja launches an educational channel for children and youth on the YouTube platform aimed at supporting teaching in the form of remote lessons, among others, during the ongoing COVID19 pandemic. 6. Commencement of works by TAURON EKOENERGIA on a system for ultra-fast forecasting of electricity production by the photovoltaic systems, taking into account sudden weather changes, using the Internet of Things technology and the advanced data processing algorithms based on artificial intelligence. 7. Publishing of the FY 2020 financial results of TAURON and TAURON Capital Group 8. Publishing of the multimedia Integrated Report for 2019.
MAY JUNE	1. Registration of the ash, slag and gypsum produced by Nowe Jaworzno Grupa TAURON in the REACH register of the chemical substances brought to the market, kept by the European Chemicals Agency and thus obtaining the possibility of selling such substances on the European market. 2. Publishing of the Q1 2020 financial results of TAURON and TAURON Capital Group. 3. Completion of the 1st stage of the modernization of the hydro power plant in Pilchowice by TAURON EKOENERGIA. 4. Introduction of a new functionality at TAURON Dystrybucja in the form using which TAURON customers report faults and power failures, which sends a text message (SMS) or an e-mail with the feedback indicating the status of the processing the given service request. 5. TAURON Dystrybucja commences the replacement of the meters with modern meters enabling remote reading of the metering data at businesses (entrepreneurs) served by TAURON. 6. TAURON prepares a free e-book on the photovoltaics for a house. 7. Announcing of the qualification procedure for the President and Vice Presidents of the Management Board of TAURON of the 6th common term of office. 8. Signing by TAURON Nowe Technologie and Górnośląskie Towarzystwo Lotnicze (the Upper Silesia Aviation Society) of a letter of intent with respect to the construction of the electric vehicle charging infrastructure. 9. Signing by TAURON and Fundusz Górnośląski (the Upper Silesia Fund) of a letter of intent on the cooperation with respect to: low emission and RES projects, R&D works related to the construction of innovative hybrid systems and the cogeneration projects related to the improvement of energy efficiency, including energy saving lighting systems. 10. Launching by TAURON Dystrybucja of the new Electricity Distribution Grid Browser, which is an application for the contractors who have signed an agreement with TAURON Dystrybucja for the implementation of the medium and low voltage grid connection investment tasks.

JULY AUGUST	1. Conclusion by TAURON of an Agreement with the financial institutions on the eligibility of financing acquired for green investments, under which the debt taken on by TAURON's special purpose vehicles for the implementation of the RES investments can be excluded from the calculation of the net debt to EBITDA ratio. 2. Launching by TAURON Sprzedaż of Cyfrowy Assystent Finansowy (Digital Financial Assistant), i.e. an online platform for the customers from the small and medium sized enterprise sector facilitating the handing of the company's finances. 3. Ordinary General Meeting (GM) of TAURON 4. Appointment of the Company's Management Board of the 6th common term in office. 5. Appointment of the Company's Supervisory Board of the 6th common term in office. 6. Conclusion of the contract by TAURON Sprzedaż and Grupa Santander Bank Polska for the supply of electricity generated from RES as part of the offering addressed by TAURON Sprzedaż to the business customers, regarding the supply of electricity with the certificates. 7. Commencement of operation of a new Water Demineralization Station at the Łagisza Power Plant in Będzin (TAURON Wytwarzanie), aimed at ensuring the continuity of the supplies of appropriate quality water for the operation of the power plant. 8. Publishing of the H1 2020 financial results of TAURON and TAURON Capital Group.
SEPTEMBER OCTOBER	1. TAURON joins the Polish Wind Energy Association (Polskie Stowarzyszenie Energetyki Wiatrowej). 2. Extension by TAURON Wytwarzanie and PSE of the contract for the provision of the cold intervention reserve service. 3. Launching by TAURON Dystrybucja of a new application to counteract electricity theft. 4. Launching of a new railway connection for the coal supplies from the Sobieski Coal Mine directly to the 910 MW unit in Jaworzno, which is the shortest connection of this type in Poland. 5. Conclusion by TAURON with PGE, Enea and KGHM Polska Miedź of a Letter of Intent regarding the sale to the State Treasury of 100% of the shares in PGE EJ 1. 6. Commissioning of the 449 MWe CCGT unit with a heating module with the capacity of 240 MWt in Stalowa Wola. 7. TAURON Obsługa Klienta obtains the approval (clearance) of the Office of Electronic Communications for the framework bid related to the construction of the optical fiber network built by the company. 8. ERO grants TAURON a license to conduct business operations involving trading in natural gas with foreign counterparties. 9. Launching by TAURON of the OPTI AI UNIT project aimed at developing and demonstrating a computer system for controlling the operational parameters of the critical industrial infrastructure devices, as well as building models allowing for the dynamic management of their availability and reliability. 10. TAURON is awarded The Best of The Best prize and an honorable mention for the integrated report in The Best Annual Report 2019 competition organized by the Institute of Accounting and Taxes (Instytut Rachunkowości i Podatków).
NOVEMBER DECEMBER	1. Launching by TAURON Obsługa Klienta, as part of its business operations, of a new subpage related to the telecommunications services. 2. Commissioning of the 910 MWe supercritical parameters power generating unit in Jaworzno. 3. Publishing of the Q3 2020 financial results of TAURON and TAURON Capital Group. 4. Modernization of the Document Circulation (Workflow) System by TAURON Obsługa Klienta by implementing a new system architecture, optimizing the current processes implemented in the system and extending the functionality with the use of the latest IBM Case Business Automation Workflow and IBM DataCap technologies in order to increase the standard of customer service in all contact channels. 5. Conclusion of a contract by TAURON Sprzedaż and Panasonic Energy Poland for the supply of electricity generated from RES as part of the offering addressed by TAURON Sprzedaż to the business customers, regarding the supply of electricity with the certificates. 6. Commissioning of one of the largest shaft cages in Poland at the Janina Coal Mine (TAURON Wydobycie). 7. Completion of the main phase of the 200 MW units modernization program at the Łaziska Power Plant. 8. Acquisition by TAURON of a wind farm project by acquiring the Wind T1 company, which conducted a construction project with the ultimate capacity of 30 MW on the territory of the Wolbórz and Moszczenica municipalities in the Piotrków county. 9. TAURON provides a new mobile application for electric car users, enabling, inter alia, searching for an available charging station in real time, mapping a route to a selected charging station, starting and ending the charging process and making a payment for the service. 10. Commissioning of a 5 MW photovoltaic farm in Jaworzno. 11. Signing by TAURON and OW OFFSHORE S.L. of the cooperation agreement with respect to the joint implementation

of offshore wind farm projects in the Polish Economic Zone.

2.6. Major events ha a significant impact on the operations in 2020 and after the balance sheet date, i.e. December 31, 2020

The more important events and accomplishments that had a significant impact on TAURON Capital Group's operations that occurred in 2020, as well as by the date of drawing up this report are listed below.

In addition, the above events should include concluding agreements significant for TAURON Capital Group's operations, presented in detail in section 12.2. of this report.

Major business events in 2020

Information on the construction of the power generating unit in Jaworzno

The detailed information on the implementation of the construction of the power unit in Jaworzno is presented in section 1.7. of this report.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 2/2020 of January 30, 2020, no. 4/2020 of February 13, 2020, no. 7/2020 of March 6, 2020, no. 19/2020 of May 4, 2020 and no. 53/2020 of November 13, 2020.

Signing of the memorandum of understanding on the preliminary terms of cooperation between TAURON and PFR with respect to investments in renewable energy sources (RES)

On March 23, 2020, TAURON signed a memorandum of understanding with the closed-end investment funds, a part of whose investment portfolio is managed by PFR (Polski Fundusz Rozwoju - Polish Development Fund).

The above memorandum of understanding sets out the preliminary terms of cooperation under consideration between TAURON and PFR with respect to investments in the renewable energy sources (RES). The Company and PFR have agreed that the potential investments in RES will be carried out as joint investments in assets in the RES segment, the so-called direct Investments, and have also allowed for investments in companies operating in the cleantech area. The Memorandum of Understanding sets out the general conditions for conducting direct investments, with the minimum level of each PFR investment in a company 100 percent owned by TAURON, which owns a portfolio of investment projects of a relevant size at the stage of readiness for construction, in terms of the total ultimate capital expenditures of such company, amounting to not less than PLN 50 million and will be implemented through successive capital injections for the purpose of implementing the capex projects. In addition, TAURON and PFR will be subject to a period of limitation in the disposal of the shares in the above mentioned company of between 5 and 7 years from the moment PFR acquires shares in the given company. The recapitalizations will each time take place in the form and proportions ensuring TAURON's ultimate share of at least 50 percent + 1 share, and PFR's share of no more than 50 percent - 1 share.

The primary goal of the investments will be on-shore wind farm projects and photovoltaic farm projects located in Poland. The parties envisage the possibility of acquiring an additional partner by selling shares thereto or have it join the company owned by TAURON.

The final terms of the cooperation between TAURON and PFR with respect to the direct investments will each time be agreed in the transaction documentation related to the specific investment projects.

The Memorandum of Understanding is intentional in its nature and does not constitute a binding commitment of the parties, does not give rise to financial obligations, does not oblige or guarantee any of the parties' exclusivity with respect to RES investments, nor does it preclude the possibility of their independent investments or cooperation with third parties.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 11/2020 of March 23, 2020.

Sale of the shares in TAURON Ciepło

In 2019 the Company launched a project aimed at performing the market verification of an option of selling the shares in TAURON Ciepło and the potential continuation of the sale process.

On June 16, 2020, the Management Board of TAURON took the decision to move to the next stage of the process of the sale of the shares in the TAURON Ciepło subsidiary and commence negotiations of the agreement on the sale of the shares in TAURON Ciepło with PGNiG on the condition of exclusivity for the period of six weeks.

The negotiations were aimed at defining the terms of the potential transaction of the sale by the Company of the entire stake held in TAURON Ciepło (i.e. 100% of the shares in that company). TAURON expected that the potential takeover of control over TAURON Ciepło by the investor would take place not earlier than as of January 1, 2021.

The conclusion of the potential transaction were yo require, in particular, obtaining the relevant corporate approvals and clearances from the institutions providing the financing for the business operations of TAURON Capital Group. The Company allowed for the possibility of canceling the process leading to the conclusion of the transaction.

On July 28, 2020, the Management Board of TAURON took the decision to extend by 8 weeks the exclusive negotiation period granted to PGNiG in the process of the sale of the shares in TAURON Ciepło.

On September 22, 2020, and on November 30, 2020, the Management Board of TAURON took the decision on further extensions, until November 30, 2020, and then until January 31, 2021, the above mentioned exclusivity period.

On January 29, 2021, (an event occurring after the balance sheet date) PGNiG expressed, in writing, the wish not to continue the negotiations aimed at the acquisition of the shares in TAURON Ciepło.

As the transaction did not materialize, the Management Board of TAURON made a decision to commence analyses related to the Heat Line of Business, taking into consideration the forecast changes in the external environment, including the regulatory and the market environment, and taking into account the prospects for the Polish heat sector, that may have an impact upon further decisions regarding the sale of the shares in TAURON Ciepło or keeping TAURON Ciepło within TAURON Capital Group.

On March 10, 2021, (an event occurring after the balance sheet date) the Management Board of TAURON took a decision to extend the analyses related to the Heat Line of Business to include the option of a potential acquisition of selected assets of ČEZ Group in Poland, with particular emphasis on ČEZ Chorzów.

As of the date of drawing up this report, the above mentioned analyses are continued and no binding decisions have been taken in this regard.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 24/2020 of June 16, 2020, no. 34/2020 of July 28, 2020, no. 42/2020 of September 22, 2020, no. 54/2020 of November 30, 2020, no. 2/2021 of January 29, 2021 and no. 7/2021 of March 10, 2021.

Sale of the shares in PGE EJ 1

On October 1, 2020, the Company signed, as one of the parties, the Letter of Intent with the State Treasury regarding the acquisition by the State Treasury of 100 percent of the shares in the company PGE EJ 1.

The Letter of Intent was signed by all of the entities holding shares in the company PGE EJ 1 (i.e. TAURON, PGE, Enea and KGHM Polska Miedź), an entity responsible for the preparation and implementation of the investment project that involves the construction and operation of Poland's first nuclear power plant. TAURON owns 10 percent of the shares in PGE EJ 1.

The entities signing the Letter of Intent undertook to carry out, in good faith, all of the activities required to prepare and complete a transaction involving the acquisition of the shares in PGE EJ 1 by the State Treasury. The Letter of Intent did not entail the obligation of the parties to follow through with the transaction and the decision to carry out the transaction was made dependent on the results of the negotiations in this regard and the fulfillment of other conditions specified in the legal regulations or corporate documents. The intention of the parties to the Letter of Intent was for the acquisition of the shares to take place by December 31, 2020, however, the parties did not specify the effective term of the Letter of Intent. The works aimed at completing the company's valuation and agreeing upon the content of the transaction documentation had been carried out until the end of 2020.

On March 26, 2021, (an event occurring after the balance sheet date), the Company signed an agreement with the State Treasury for the sale of the shares in PGE EJ 1.

The detailed information on the signing of the above mentioned agreement is provided in section 12.2. of this report.

TAURON disclosed the information on the above events in the regulatory filings (current reports) no. 45/2020 of October 1, 2020 and no. 10/2021 of March 26, 2021.

Major corporate events in 2020

Changes to the composition of TAURON's Management Board

There had been changes to the composition of the Company's Management Board in 2020 and by the date of drawing up this report, which are presented in section 9.11. of this report.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 28/2020 of July 14, 2020, no. 4/2021 of February 19, 2021, and no. 6/2021 of February 24, 2021.

Changes to the composition of TAURON's Supervisory Board

There had been changes to the composition of the Company's Supervisory Board in 2020 and by the date of drawing up this report, which are presented in section 9.11. of this report.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 12/2020 of March 24, 2020, no. 14/2020 of March 30, 2020, no. 16/2020 of April 20, 2020, no. 17/2020 of April 27, 2020, no. 22/2020 of May 25, 2020, no. 23/2020 of June 5, 2020, no. 25/2020 of June 16, 2020, no. 29/2020 of July 15, 2020, no. 35/2020 of August 3, 2020, and no. 3/2021 of February 12, 2020

Recommendation of the Management Board of TAURON Polska Energia S.A. on covering the net loss for 2019 from the supplementary capital and not paying out a dividend from the supplementary capital

On March 30, 2020, the Management Board of TAURON made the decision to recommend to the Ordinary General Meeting (GM) of the Company to cover the loss of PLN 462 830 170.74 for the financial year 2019 from the supplementary capital. In addition, the decision was also taken that the Management Board of TAURON would not recommend to the Ordinary General Meeting (GM) of the Company the payout of the dividend in 2020 from the supplementary capital.

At the same time, the Company confirmed that the dividend policy announced in the current report (regulatory filing) no. 35/2016 of September 2, 2016, with respect to the dividend amount and the conditions that must be met for its payout remained unchanged.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 15/2020 of March 30, 2020.

Signing of the Additional Protocols amending the company collective bargaining agreements at the subsidiaries

In the first half of 2020, the Management Boards of TAURON subsidiaries, i.e. TAURON Dystrybucja, TAURON Dystrybucja Pomiary, TAURON Obsługa Klienta, TAURON Sprzedaż, TAURON Sprzedaż GZE, TAURON Nowe Technologie, TAURON Ekoenergia, TAURON Ciepło and TAURON, reached agreements with the representative trade union organizations and signed the Additional Protocols amending the company collective bargaining agreements, and in case of TAURON, the relevant amendment to the compensation regulations.

Pursuant to the above mentioned agreements, amendments were introduced with respect to the payouts of the cash equivalent due to the discount for the consumption of electricity by the retirees, pensioners and other eligible persons who were no longer employees of the subsidiaries. The signing of the Additional Protocols and in case of TAURON, the relevant amendment to the compensation regulations, enabled the subsidiaries to dissolve the provisions in the total amount of approx. PLN 533 million, that had been set up for this purpose. The positive impact of the dissolving of the provisions on the EBITDA of TAURON Capital Group was recognized in the Interim abbreviated consolidated financial statements of TAURON Polska Energia S.A. Capital Group in accordance with the International Financial Reporting Standards (IFRS) approved by the European Union (EU) for the 6-month period ended on June 30, 2020.

The above mentioned Additional Protocols came into force upon the entry into the register of the company collective bargaining agreements maintained by the National Labor Inspectorate (Państwowa Inspekcja Pracy).

TAURON disclosed the information on the above events in the regulatory filings (current reports) no. 21/2020 of May 22, 2020, and no. 38/2020 of August 11, 2020.

Ordinary General Meeting of TAURON

The Ordinary General Meeting (GM) of the Company was held on July 15, 2020, and it adopted the resolutions related to, inter alia, the approval of the Financial Statements of TAURON Polska Energia S.A. for the year ended on December 31, 2019, in accordance with the International Financial Reporting Standards approved by the European Union, the Consolidated Financial Statements of TAURON Polska Energia S.A. Capital Group for the year ended on December 31, 2019, in accordance with the International Financial Reporting Standards approved by the European Union, the Report of the Management Board on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2019, the covering of the net loss for the financial year 2019, the acknowledgement of the fulfillment of duties by members of the Company's Management Board and Supervisory Board, amending the Articles of Association of TAURON Polska Energia S.A., adopting the Compensation Policy for the members of the Management Board and Supervisory Board at TAURON Polska Energia S.A., establishing the number of members of the Company's Supervisory Board and appointing the members of the Company's Supervisory Board of the 6th common term of office.

The decision was taken to cover the Company's net loss for the financial year 2019 in the amount of PLN 462 830 170.74 from the Company's spare (supplementary) capital.

TAURON disclosed the information on convening of the Ordinary General Meeting (GM) and on the content of the draft resolutions in the regulatory filings (current reports) no. 26/2020 of June 18, 2020, and no. 27/2020 of June 18, 2020. TAURON disclosed the information on the adopted resolutions of the Ordinary General Meeting (GM) in the regulatory filing (current report): no. 30/2020 of July 15, 2020.

Registration of amendments and adoption of the consolidated text of the Company's Articles of Association

On July 21, 2020, the District Court Katowice-Wschód in Katowice, the 8th Commercial Department of the National Court Register, registered the amendments to the Company's Articles of Association adopted by the Ordinary General Meeting (GM) of the Company on July 15, 2020.

On August 3, 2020, the Supervisory Board of the Company adopted the consolidated text of the Company's Articles of Association, taking into account the amendments adopted by the Ordinary General Meeting (GM) of the Company on July 15, 2020.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 32/2020 of July 21, 2020 and no. 36/2020 of August 3, 2020.

Other major events in 2020

Petitions of TAURON Sprzedaż for a change of the approved tariff

As of January 1, 2020, pursuant to the decision of the President of the Energy Regulatory Office (ERO) of December 17, 2019, the electricity tariff for the G tariff groups consumers entered into force, resulting in an increase in the payments for the household consumers by 19.9% as compared to the payments incurred in 2018/2019.

Due to the fact that the said decision prevented TAURON Sprzedaż from passing on the justified costs of the activities related to electricity trading, in a letter of January 7, 2020, it submitted to the President of the Energy Regulatory Office (ERO) a petition for a change of the tariff approved for 2020, thus initiating administrative proceedings.

Due to the particularly complex nature of the case and the COVID-19 pandemic, the deadline for resolving the case was set as July 29, 2020.

By way of the decision of July 8, 2020, the President of the Energy Regulatory Office (ERO) did not approve the above mentioned tariff change.

On July 30, 2020, TAURON Sprzedaż filed an appeal to the Court of Competition and Consumer Protection in Warsaw, against the decision of the President of the Energy Regulatory Office (ERO) of July 8, 2020.

On December 31, 2020, TAURON Sprzedaż received the information of the filing, by the President of the ERO, of a motion to the Court of Competition and Consumer Protection in Warsaw to dismiss the above appeal.

As of the date of drawing up this report, TAURON Sprzedaż is waiting for the setting of the date of the hearing.

Ruling of the Regional Court related to PEPKH

On March 6, 2020, the Regional Court in Gdańsk issued a partial and preliminary ruling in the lawsuit filed in 2015 against PEPKH by Talia sp. z o.o. (Talia), in which it determined that PEPKH's statements on the termination of the long term agreements, concluded between PEPKH and Talia, for the purchase of electricity and property rights arising from the certificates of origin had been ineffective and had not produced legal effects, such as the termination of both agreements, as a result of which these agreements, following the notice period, i.e. past April 30, 2015, shall continue to be in force with respect to all of the provisions and shall be binding for the parties, and determined that the demand for payment of damages for a failure to perform the agreement on the sale of the property rights arising from the certificates of origin had been justified in principle, however it did not determine the amount of the potential damages.

The decision was issued in the first instance and is not legally binding. PEPKH did not agree with the decision.

On March 12, 2020, PEPKH filed with the court its request that the court serve the decision, including the statement of reasons in writing, in order to analyze it and file an appeal.

On August 3, 2020, PEPKH filed an appeal against the above ruling to the court.

On September 8, 2020, the Regional Court in Gdańsk supplemented the above-mentioned partial and preliminary ruling in the form of another ruling in such a way that it determined that the demand for payment of the damages for a failure to perform a long term electricity sales contract concluded on December 23, 2009, between PKH and Talia, had been justified in principle, however the Court did not determine in any way the amount of the potential damages.

The supplementary ruling was issued in the first instance and is not legally binding. PEPKH does not agree with the supplementary ruling.

TAURON disclosed the information on the above event in the regulatory filings (current reports) no. 6/2020 of March 6, 2020, and no. 40/2020 of September 8, 2020.

On September 14, 2020, PEPKH filed with the court its request that the court serve the decision, including the statement of reasons in writing, in order to analyze it and file an appeal. The appeal was filed on March 8, 2021.

Abener Energia's lawsuit against EC Stalowa Wola

On March 20, 2020, EC Stalowa Wola submitted its response to the lawsuit filed on December 20, 2019 by Abener Energia to the Arbitration Court at the Polish Chamber of Commerce in Warsaw, petitioning that the claim be dismissed.

The subject of the claim is the payment by EC Stalowa Wola to Abener Energia of the total amount of PLN 156 446 842.98 and EUR 536 839.02 (which is equivalent to PLN 2 287 148.96 according to the NBP's exchange rate as of December 20, 2019), including the statutory interest for delay, as the compensation resulting from submitting the demand and obtaining by EC Stalowa Wola, at the expense of Abener Energia, of the payment under the contract performance bond or possibly the return of unjust enrichment obtained by EC Stalowa Wola at the expense of Abener Energia in connection with obtaining the payment under the contract performance bond. The bond was issued to EC Stalowa Wola by Abener Energia in accordance with the contract concluded between Abener Energia (general contractor) and EC Stalowa Wola (the ordering party) for the construction of a CCGT unit with a gross electric capacity of approx. 450 MW in Stalowa Wola.

The proceedings are pending.

Revision of the ratings granted by the Fitch Ratings agency

On May 21, 2020, Fitch Ratings agency revised the ratings granted to the Company in such a way that selected ratings were affirmed unchanged, while some ratings were downgraded.

The full list of rating actions:

1. long-term foreign and local currency IDRs were downgraded to "BBB-" from "BBB", stable outlook,

2. 1. short-term foreign and local currency IDRs were affirmed at "F3",
3. 1. national long-term rating was downgraded to "A(pol)" from "A+(pol)", stable outlook,
4. 1. foreign currency senior unsecured rating of EUR 500 million Eurobonds was downgraded to "BBB-" from "BBB",
5. 1. EUR 190 million hybrid bonds (European Investment Bank "EIB") rating was downgraded to "BB" from "BB+",
6. 1. PLN 750 million hybrid bonds (EIB) rating was downgraded to "BB" from "BB+",
7. 1. PLN 400 million hybrid bond program and hybrid bond issue Bank Gospodarstwa Krajowego S.A. (BGK) rating was downgraded to "BB" from "BB+", while the national rating of the same program and bonds was downgraded to "BBB(pol)" from "BBB+(pol)".

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 20/2020 of May 21, 2020.

Protective measures for the energy industry in connection with the epidemic

Due to the epidemic situation in the country the government of the Republic of Poland decided to take protective measures for the energy sector as part of the anti-crisis program. The new legal regulations included, inter alia, area of operation of the Warsaw Commodity Exchange Clearing House (IRGiT) that settles transactions concluded on Towarowa Giełda Energii S.A. (TGE – Polish Power Exchange). The scope of the possible forms of non-cash collaterals was expanded, including, in particular, collaterals based on the company's market rating. In addition, the concentration restrictions on the use of non-cash collaterals in the form of property rights stemming from RES production were lifted. These regulations significantly reduced TAURON's margin liabilities in cash.

Obtaining approvals from the financial institutions to change the method of calculating the net debt/EBITDA ratio

With respect to the financing agreements with a covenant in the form of the net debt/EBITDA ratio, TAURON obtained approvals from the financial institutions regarding the exclusion of the financing obtained by selected TAURON's special purpose vehicles (SPV) for the implementation of investments in RES. The changes make it possible to exclude from the calculation of the net debt/EBITDA ratio defined in the loan agreements, the debt financing obtained by the SPVs for the RES projects, while also symmetrically excluding EBITDA generated by such SPVs.

The SPV financing structure, based on the project finance formula, assumes obtaining debt financing on the financial market at the level achievable for this type of projects, without a recourse to TAURON. In case TAURON holds a controlling stake in the given SPV, then, from the accounting point of view, the data of such a company (including debt) will be fully included in the consolidated financial statements of TAURON Capital Group, while such data may be excluded from the calculation of the gearing ratio for the needs of the loan agreements.

The possibility of excluding the specific SPVs is at the discretion of an individual decision made by TAURON, i.e. TAURON will indicate the SPVs that will be excluded from the calculation of the net debt/EBITDA ratio at the end of the specific reporting periods. At the same time, a mechanism was implemented to enable TAURON to re-include the SPV in the calculation of the net debt/EBITDA ratio.

The implementation of the strategy described above and the approval of TAURON's financing banks for the exclusion of the SPV results from the calculation of the net debt/EBITDA ratio allows for a faster implementation of the green transition and the achievement of the assumed level of capacity in renewable energy sources (RES).

Calls for TAURON shareholders to submit share documents in order to dematerialize the shares

On August 26, 2020, September 10, 2020, September 25, 2020, October 12, 2020 (an event occurring after the balance sheet date) and October 27, 2020, in accordance with Art. 16 of the Act of August 30, 2019 amending the Act - Code of Commercial Companies and certain other acts (Journal of Laws of 2019, item 1798, as amended from Journal of Laws of 2020, item 875), the Management Board of TAURON called on the shareholders holding the Company's shares in the form of a document to submit their documents of the shares to the Company, in order to dematerialize the shares and register them with Krajowy Depozyt Papierów Wartościowych S.A. (The Central Securities Depository of Poland, KDPW S.A.).

Taking into account the current legal status the share documents issued by the Company expired by virtue of law as of March 1, 2021.

TAURON disclosed the information on the above events in the regulatory filings (current reports) no. 39/2020 of August 26, 2020, no. 41/2020 of September 10, 2020, no. 44/2020 of September 25, 2020, no. 47/2020 of October 12, 2020, and no. 50/2020 of October 27, 2020.

On November 10, 2020, the Company filed an application with KDPW (The Central Securities Depository of Poland) to register the Company's ordinary registered shares in the securities depository.

In a statement of December 28, 2020, KDPW (The Central Securities Depository of Poland) informed the Company of the registration of the above mentioned shares in the depository for securities, which were subsequently entered in the dematerialized form in the register of the issue sponsor.

Ruling of the Court of Appeal on the claims of Abener Energia against EC Stalowa Wola

On September 22, 2020, the Court of Appeal in Rzeszów issued a ruling in which the Court of Appeal dismissed the complaint of EC Stalowa Wola S.A. to overturn the ruling of the Court of Arbitration at the Polish Chamber of Commerce of April 25, 2019, pursuant to which EC Stalowa Wola was obliged to pay Abener Energia S.A. the amount of PLN 333 793 359.31. including the statutory interest for delay and the costs of the arbitration proceedings.

The proceedings before the Arbitration Court at the Polish Chamber of Commerce were related to the claim for payment, the petition to establish legal relationship and make the commitment to submit a statement of will (intent) in conjunction with the terminated contract, concluded between Abener Energia (general contractor) and EC Stalowa Wola (the ordering party), for the construction of the CCGT unit in Stalowa Wola.

TAURON declared that before the ruling of the Court of Arbitration is declared enforceable, EC Stalowa Wola will analyze and take measures, as well as exercise its rights in order to limit the negative impact of the above event on the financial position of EC Stalowa Wola.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 43/2020 of September 22, 2020.

On September 25, 2020, EC Stalowa Wola filed with the Court of Appeal in Rzeszów a petition to suspend the enforcement of the ruling until the cassation appeal is examined.

On November 20, 2020, the Court of Appeal in Rzeszów issued a decision to suspend the enforcement of the ruling until the cassation appeal is examined or the deadline for the filing of the cessation appeal has expired.

On December 21, 2020, EC Stalowa Wola filed a cessation appeal

Filing of a lawsuit against Abener Energia by EC Stalowa Wola

On October 19, 2020, EC Stalowa Wola filed a lawsuit with the Court of Arbitration at the Polish Chamber of Commerce in Warsaw against Abener Energia.

The proceedings before the Court of Arbitration at the Polish Chamber of Commerce will be conducted in connection with the contract concluded between Abener Energia (general contractor) and EC Stalowa Wola (the ordering party) for the construction of a CCGT unit with a heating section in Stalowa Wola which was terminated.

The subject of the claim is the payment by Abener Energia to EC Stalowa Wola of the amount of PLN 198 663 931.86 and EUR 461 207.21 (which is equivalent to PLN 2 098 400.56 according to the NBP's exchange rate as of October 19, 2020) including the interest, as the compensation for the damage corresponding to the costs of fixing defects, faults, malfunctions and shortcomings of the works, deliveries and services performed by Abener Energia during the performance of the above mentioned contract.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 48/2020 of October 19, 2020.

The proceedings are pending.

Major events after December 31, 2020

Signing of a Letter of Intent on the cooperation with respect to offshore wind energy in the area of the Polish Exclusive Economic Zone of the Baltic Sea

On January 18, 2021, PGE, TAURON and Enea signed a letter of intent on the cooperation in the field of offshore wind energy in the area of the Polish Exclusive Economic Zone of the Baltic Sea. The goal of the parties of the above letter is to define, as part of the future cooperation, the options, nature and details of the potential joint involvement in the implementation of investment projects in the above mentioned area. The parties see significant potential and an opportunity to achieve synergy when undertaking joint activities aimed at implementing investment projects in the field of offshore wind energy. Such activities will constitute the implementation of the climate goal and are in line with the assumptions of the so-called "green deal" and contribute to increasing the share of renewable energy sources in Poland's energy mix. The cooperation will be an expression of the responsibility of the Parties as the energy sector's entities actively supporting the energy transition process.

2.7. Prizes and accolades (honorable mentions)

TAURON and TAURON Capital Group's subsidiaries received the following awards and accolades (honorable mentions) in 2020:

TAURON awarded special The Best of The Best prize for the fourth time and the honorable mention for the continuous high quality integrated report in The Best Annual Report 2019 competition organized by the Institute of Accounting and Taxes.

TAURON is the only representative of the energy industry holding The Best of The Best title.

TAURON ranked, for the fourth time, no. 1 in Best investor relations in 2020 according to retail investors organized by the Stock Market and Investors newspaper Parkiet and the Brokerage Houses Chamber

TAURON awarded a spot in the top 50 of the best employers in the COVID-19 time, in the ranking published by the Wprost weekly.

TAURON ranked 14th among 150 companies surveyed in the ranking of Poland's most attractive employers conducted by Randstad Employer Brand.

Honorable mention for TAURON Capital Group in the Social Reports competition in the Integrated Reports category for the report presenting scenario analyses, and in particular for covering climate topics, including the TCFD guidelines, organized by the Responsible Business Forum and Deloitte.

TAURON Capital Group awarded the 1st prize in the Two Hours for Family competition for activities conducted as part of the Famiy MegaPower project granted by the Humanitas Institute.

TAURON Sprzedaż ranked 1st in the Konsumencki Lider Jakości 2020 program in the Dostawcy energii

Honorable mention for KW Czatkowice in the EKOkopalnia competition organized by BNP, publisher of Surowce i Maszyny Budowlane magazine under honorary patronage of Ministry Climate and Environment.

TAURON ranked 11th on Poland's Largest 500 Companies List published by the Rzeczpospolita daily.

TAURON awarded Trustworthy Brand 2020 title in the Energy Supplier for Business category in the survey conducted among Polish businessmen by Kantar Polska Research Institute, commissioned by the MyCompany Polska magazine.

Honorable mention of 25 best practices, implemented by TAURON in 2019 in the Responsible business in Poland 2019. Best practice report issued by the Responsible Business Forum.

TAURON awarded Highest Quality HR Certificate confirming the highest human resources management standards granted by the Polish Human Resources Management Association.

TAURON listed among TOP 100 brands in Poland, that provide best customer experience, published in Report CX main goal of business transformation published by KPMG Advisory sp. z o.o. sp. k.

Honorable mention for TAURON Obsługa Klienta for the most innovative implementation of Infoblox in the energy sector in CEE awarded as part of Infoblox Exchange 2020 Conference

TAURON Sprzedaż awarded Platinum Megawatts trophy for the biggest contribution to the guarantee of origin system development in Poland in 2019 granted by Towarowa Giełda Energii.

elektrycznej category, organized by Strefa Gospodarki. Honorable mention for ZG Brzeszcze in Safe Coal Mine competition for caring for observing the WHS regulations and rules organized as part of Szkoła Eksploatacji Podziemnej.

2.8. Information on the employment and employee related issues

Key headcount data

TAURON's average headcount reached 475 FTEs in 2020 which meant a decrease by 5 FTEs versus the headcount in 2019, when the average employment was 480 FTEs.

The below figure presents TAURON's average headcount in FTEs (rounded up to the full FTE) in 2019 - 2020.

TAURON Capital Group's average headcount reached 25 719 FTEs in 2020, which meant a decrease by 197 FTEs versus the headcount in 2019, when the average employment level was 25 916 FTEs. Changes in the level of employment at the individual operating Segments in 2020 as compared to 2019 are due to, among others, the implementation of the strategic initiatives and the Voluntary Redundancy Programs underway in the Generation Line of Business, as well as the employees leaving TAURON Capital Group. Due to allocating TAURON EKOENERGIA to the new RES Segment, the data related thereto was disclosed in that Segment for 2020 and 2019. In the previous reporting periods that data was disclosed in the Generation Line of Business.

The below figure presents TAURON Capital Group's average headcount in FTEs (rounded up to the full FTE) per operating Segment in 2019 - 2020.

The below table below presents the key data on employment at TAURON and TAURON Capital Group as of December 31, 2019 and December 31, 2020.

Table no. 19. Key data on employment at TAURON and TAURON Capital Group as of December 31, 2019 and December 31, 2020
-----------------------------------------------------------------------------------------------------------------------	--

Key employment data			TAURON		TAURON Capital Group
		unit	December 31, 2019	December 31, 2020	December 31, 2019	December 31, 20120
1.		Headcount by Segment of Operations, including:	persons	464	487	26 086	25 572*
	1)	Mining Segment	persons	-	-	6 811	6 458
	2)	Generation Segment	persons	-	-	4 601	4 426
	3)	Distribution Segment	persons	-	-	9 270	9 269
	4)	Supply Segment	persons	487	450	917**	896**
	5)	RES Segment	persons	-	-	179	179
	6)	Other operations	persons	-	-	4 308	4 344
2.		Headcount by education, including:	%	100	100	100	100
	1)	College graduates	%	97.5	98.2	33.8	34.8
	2)	High school graduates	%	2.5	1.8	43.3	43.5
	3)	Vocational school graduates	%	-	-	20.9	20.0
	4)	Elementary school graduates	%	-	-	1.9	1.7
3.		Headcount by age, including:	%	100	100	100	100
	1)	Up to 30 years	%	13.8	10.7	9.0	8.7
	2)	30 - 40 years	%	38.0	36.9	22.3	22.3
	3)	40 - 50 years	%	37.0	37.8	30.1	29.2
	4)	50 - 60 years	%	9.0	12.0	32.2	32.5
	5)	Above 60 years	%	2.3	2.7	6.4	7.2
4.		Headcount by gender, including:	%	100	100	100	100
	1)	Women	%	45.0	44.4	21.4	21.5
	2)	Men	%	55.0	55.6	78.6	78.5

*including 76 persons hired under a fixed term labor contract to replace an absent employee

**figure includes TAURON's headcount

TAURON Group's Human Capital Management Policy

TAURON Group's Human Capital Management Policy in place at TAURON Capital Group, updated in 2020, focuses on acquiring, developing and maintaining competences that are key for organizational efficiency and achieving TAURON Capital Group's strategic goals. The above Policy, along with the PRO values, is a signpost for the Management Team and the Employees to rise to the new challenges and implement measures aimed at improving efficiency.

TAURON Capital Group's overarching objective is to provide support for the Management Team and the Workforce in creating an environment conducive to dialogue, introducing changes and striving for the development of the organization, taking into account the business factors and the external factors - the environment. TAURON Capital Group provides flexible conditions for the development of knowledge and skills and creates a work environment based on the cooperation and partnership that provides support for the initiatives, independence and development of the personnel.

TAURON Group's Human Capital Management Policy defines the mission and vision in the area of human resource management (HR):

"With passion and commitment we are creating and implementing solutions shaping the organizational culture and work environment that provide support for the implementation of the goals defined in the Strategy"

"We are a partner for the Management Team and Workforce in building an efficient company, based on clear rules and modern solutions"

It also sets out TAURON Capital Group's strategic areas of activities that include: organization development, efficiency management, competences and development management.

The table below presents specific goals in the area of human capital management.

Table no. 20. Goals in the area of human capital management

Goal	Scope of activities
Organization development
	1. Strengthening employee engagement and creating a safe and inspiring work environment: 1)openness to communication with employees, 2)actively obtaining and providing feedback, 3)engaging employees in improving the work environment.
Implementing and promoting	2. Building the image of TAURON Capital Group as an attractive employer, both inside and outside the organization: 1) surveying the opinions (feedback) of employees, 2)creating tools that allow us to ensure easy and efficient communication with employees, 3)cooperation with universities and schools.
organizational culture that supports TAURON Capital Group's development (growth)	3. Ensuring an efficient flow of information and creating conditions for a partner dialogue with the workforce: 1) strengthening cooperation among areas and among generations: 2)creating an environment that is friendly to the exchange of knowledge and experience, 3)promoting knowledge sharing.
	4. Building relationships with customers and strengthening awareness with respect to environment protection, climate change, commitment to promoting the Green Turn of TAURON.
	5. Supporting TAURON Group in the process of changes through access to knowledge and market solutions: 1)designing development programs and providing knowledge, 2)monitoring market trends and solutions.
Organization efficiency management
	1. Clear and consistent defining of the roles, tasks and required authorizations at work positions.
	2. Creating clear compensation rules, based on market conditions, that motivate people to work efficiently: 1)supporting the implementation of tasks and goals that stem from the Strategy, 2) creating performance related employee compensation systems, 3)building a tool that supports management by objectives.
Focusing on efficiency management	3. Minimizing the risks associated with human capital management.
	4. Caring about compliance with the principles of ethics and diversity: 1) conducting educational activities, 2)caring for an environment free from mobbing and discrimination.
	5. Optimizing, standardizing and digitizing the Human Capital Management Area processes, and thus increasing the flexibility and efficiency of the organization.
Competences and development management
	1. Ensuring that employees' competences are aligned to the needs of the changing energy sector: 1)developing new competences, preparing for change management, 2)focusing on acquiring new qualifications and improving employees' competences.
	2. Creating a culture based on self-development, including supporting the employees through diversified individual development tools.
	3. Ensuring the continuity of competences for the energy sector by educating pupils and students.
Supporting the development of competences	4. Taking care of employee retention: 1) creating opportunities for development for employees and ensuring a motivating atmosphere at work, 2)implementing pro-employee solutions.
	5. Providing knowledge transfer between generations: 1)implementing development programs, 2)implementing internal training programs, 3) caring about the exchange of experiences between generations.
	6. Caring about the development of leadership competences of the Management Personnel.
	7. Creating and improving tools for the development, motivation and evaluation of the Employees' potential

The below figure presents the human capital management structure.

Figure no. 31. Human capital management structure

The most important initiatives implemented in 2020 in the area of human capital management

A family friendly company. A human friendly company

TAURON Capital Group has been pursuing a consistent policy with respect to human capital management for many years. The dialogue with the workforce, representing each line of business operations, is conducted on an ongoing basis. All of the decisions made are the result of extensive consultations. PRO values constitute the foundation that the strategy is based upon, which is to provide each employee with an opportunity for sustainable development, bringing satisfaction and broadly understood comfort. At TAURON Capital Group great importance is attached to the respect for traditional family values, maintaining ties, respect for the social roles of its employees and coresponsibility for the integration between generations. The company's operations are based on the unconditional compliance with the labor law and providing all of the employees with safe workplaces, both from the point of view of their stability as well as the absolute compliance with the work health and safety (WHS) regulations. Human and family oriented activities are also carried out through a series of campaigns dedicated to strengthening the family and human values.

Remote work

Due to the COVID-19 pandemic, the employees of TAURON Capital Group, in order to join the #stayhome campaign, used the remote work option in 2020, wherever it was possible. The equipment required and access to information was provided. The employees of the production plants of TAURON Capital Group have been provided with the required personal protective equipment. Throughout the year, all of the procedures were strictly followed in accordance with the guidelines related to the epidemic situation.

Development and training

Current market trends and technological development, changes taking place both globally as well as locally, a competitive market and increasing requirements force much faster pace and flexibility in terms of the development activities. Employee development and improvement is permanently inscribed in the Strategy, and the implementation of the development activities takes place based on the regulations for improving the qualifications of the employees, in place at TAURON Capital Group's individual subsidiaries. All of the development activities at TAURON Capital Group are implemented according to the 70-20-10 principle (effective learning principle), according to which:

• 70% of the development activities should be related to gaining experience in the position, among others by delegating new or additional tasks and empowerments to the employee, broadening the scope of his/her responsibility, participation in the task or project teams,
• 20% of the development activities are based on learning from others, including the ongoing support and regular feedback from your direct superior and colleagues,
• 10% of the development activities involve participation in various forms of educational and training activities (internal and external).

TAURON Capital Group's employees can choose from a wide range of external

development opportunities, among others, in the form of participation in industry conferences, seminars, workshops, specialist training, e-learning training or language courses, as well as the internal development opportunities, that are organized with the use of the knowledge and competences of TAURON Capital Group's personnel.

The below table presents the key data on employee training at TAURON and TAURON Capital Group as of December 31, 2018, and as of December 31, 2020.

Table no. 21. Key data on employee training at TAURON and TAURON Capital Group as of December 31, 2018, and as of December 31, 2020

			TAURON	TAURON Group
	Key data on employee training		December 31, 2019	December 31, 2020	December 31, 2019	December 31, 2020
1.		Average number of training hours per employee by job (position) group, including:	176	57	109	62
	1)	Management Board and Directors	88	10	45	26
	2)	Management positions	51	15	32	14
	3)	Administrative staff (white collar positions)	28	16	14	9
	4)	Blue collar positions	9	1	18	13
2.		Number of training hours per employee by gender, including:	16 766	6 801	477 618	294 945
	1)	Women	6 624	2 996	79 871	49 704
	2)	Men	10 142	3 806	397 747	245 240

Initiatives, development activities and development supporting activities

Development Conversation

Actions aimed at implementing a new human resources (HR) management process - Development Conversation, were initiated in 2019. The goal of the initiative is the development of the organization by building a culture of dialogue between the superior and the employee, and the ability to focus on the development of employees in accordance with their needs as well as the business capabilities and needs of the organization. The development conversation is based on TAURON Group's Competence Model and assumes the need for the continuous development of these competences in line with the changing business challenges. The essence of the Development Conversation is based on employee development in relation to the goals pursued thereby and may refer to the manner of fulfilling official duties, attitude, motivation, as well as mutual expectations.

TAURON Group Open University

TAURON Group's employees have continuously had the opportunity to participate in lectures conducted as part of the TAURON Group Open University since 2014. The goal of establishing and continuing the TAURON Group Open University concept is to provide employees with access to knowledge and information on the current topics, related to both business as well as personal development. In addition, this initiative allows for the creation of a platform enabling an exchange of views and experiences among the employees from various Subsidiaries and, as a result, increased integration among the workforce.

Due to the COVID-19 epidemic TAURON Group Open University's lectures were conducted in the remote mode in 2020. 5 lectures were carried out online and they were available online in the form of video files, thanks to which approx. 7 thousand people have been able to see the lectures so far.

Development Squared (Rozwój do Kwadratu)

A new initiative, called Development Squared, was launched in 2020 as a response to the difficult situation related to the COVID-19 pandemic that made it impossible to conduct training in a classic form. The initiative is based on a series of weekly webinars conducted by the HR area employees from TAURON Capital Group's selected subsidiaries in four thematic areas, i.e. development, knowledge sharing, cooperation, health. Thanks to Skype and

Office 365 technology, fully interactive meetings, that make participants more active, were possible. 24 webinars were held in 2020, on 14 different topics, conducted by 10 trainers. More than 950 of TAURON Group's employees took part in the initiative. The project will be continued and developed in the next year.

Manager's zone and "#wzMOCnij się" (power up yourself)

A space dedicated to managers was created on the company's intranet in 2020, using which the managerial staff can have constant access to specialist articles on the subject of management. Tools used to support team management, continuously updated interesting on-line events and recommended books are available as part of that zone. In addition, a special initiative "#wzMOCnij się" (power up yourself) was launched, webinars on change management, an on-line training platform and tools to support the development conversation process were made available.

Cooperation with the education sector

TAURON Capital Group has been undertaking a number of initiatives to promote the organization among pupils, students and university graduates for a number of years, and as part of such activities the Company organizes internship and apprenticeship programs as well as competitions on topics related to TAURON Capital Group, cooperates with faculty staff at schools and universities, student organizations, career offices and research clubs, and takes part in scientific symposia and conferences.

A number of initiatives aimed at promoting the organization and the energy industry among pupils, students and university graduates. As part of cooperation with the educational community in 2020, internship and apprenticeship programs were organized, cooperation with student organizations, career offices and research clubs was undertaken, numerous lectures and profession teaching lessons were organized.

The educational offer dedicated to the energy industry is supported by TAURON Capital Group through, among others:

• 1. scholarships for the best students of patronage classes,
• 1. modeling of the didactic processes, organization of training courses, educational meetings both for students of the school as well as its teaching staff,
• 1. participation of TAURON's Employees in conducting qualification exams, e.g. for the profession of a miner; exploitation of deposits and underground mining techniques,
• 1. possibility for students to participate in subject matter lectures/workshops conducted by TAURON's employees,
• 1. possibility of students to participate in lectures/workshops aimed at developing students' interpersonal skills,
• 1. organizing practical classes as well as apprenticeships and internships in real working conditions,
• 1. equipping laboratories with the equipment required to conduct experiments related to electricity.

As part of TAURON Capital Group's initiative to cooperate with the patronage schools, laboratories equipped with modern equipment were created. In the patronage classes, works are carried out based on the dual education model, focused on competences important for the power industry, but also those relevant in the area of modern IT technologies and related to the Green Turn of TAURON.

TAURON Capital Group is cooperating with 12 partner universities: Silesian University of Technology (Politechnika Śląska), Wrocław University of Technology (Politechnika Wrocławska), University of Silesia (Uniwersytet Śląski), Jagiellonian University (Uniwersytet Jagieloński), University of Economics in Katowice (Uniwersytet Ekonomiczny w Katowicach), University of Economics in Kraków (Uniwersytet Ekonomiczny w Krakowie), University of Economics in Wrocław (Uniwersytet Ekonomiczny we Wrocławiu), AGH University of Science and Technology (Akademia Górniczo – Hutnicza), Częstochowa University of Technology (Politechnika Częstochowska), Opole University of Technology (Politechnika Opolska), Warsaw University of Technology (Politechnika Warszawska) and the Cracow University of Technology (Politechnika Warszawska).

Social dialogue

The Management Board of TAURON is conducting a constructive and open dialogue with the social partners (workforce), with the main goal to maintain high quality and effectiveness of the mutual cooperation.

Social partners' representatives are, during regular meetings and consultations, informed about issues related to:

• 1. TAURON Capital Group's economic and financial situation,
• 1. implementation of the strategic initiatives,
• 1. Voluntary Redundancy Programs underway at TAURON Capital Group's subsidiaries,
• 1. issues related to employee matters at TAURON Capital Group.

In addition, steps geared towards increasing business awareness as well as promoting pro-efficiency and engaging attitudes are taken.

As part of the social dialogue conducted, the Management Board of TAURON has repeatedly replied to the correspondence of the trade union organizations and the Ministry of Energy The ongoing communication is carried out in parallel at TAURON Capital Group's subsidiaries between the management boards and the trade union

organizations operating at the given employer. TAURON is actively participating in meetings held at the national level with the representatives of the government, employees and employers (e.g. as part of the works of the Threeparty Team for the Energy Industry). TAURON Capital Group is also a member of the Polish Power Industry Employers' Union established on March 26, 2020, whose primary objective and task is to represent the interests of the associated members, in particular towards the representatives of state (government) administration, local government authorities, trade unions and other organizations, including non-government and business selfgovernment, both on the territory of the Republic of Poland as well as on the international arena.

2.9. Corporate Social Responsibility (CSR) Policy

Conducting business operations with the principles of social responsibility in mind is in line with the sustainable development goals for 2015-2030 adopted by the United Nations, including Poland. Furthermore, it is aligned with the CSR standards defined by the International Standardization Organization in the ISO 26000 Standard Guidance on social responsibility.

The main assumption of TAURON Capital Group's CSR (Corporate Social Responsibility) policy is to base the enterprise's success on its long term sustainable development. An indication of this approach is the integration, already at the strategic level, of the financial and non-financial factors, including aspects of environment protection, social impact and corporate governance. This stems from the conviction that for a business to exist and develop (grow, expand), it needs to be run in a manner taking into account both the economic aspects as well as the social and climate interest, while balance must be struck among all of them.

In view of the above, TAURON Capital Group's development (growth, expansion) goals are based on the 3P model, referring to the economic gains (Profit), the individuals associated with the company (People), and the care for the environmental aspect of the operations (Planet).

At TAURON Capital Group, the stipulation to strive for sustainable development is implemented by the Strategy and the Green Turn of TAURON, i.e. a series of steps carried out since 2019 the outcome of which is to complete the sustainable transition of TAURON Group towards Poland's leading low emission energy group.

In accordance with the above the growth of TAURON Capital Group's value is based primarily on the stable Distribution Segment, the development of low and zero emission sources in terms of greenhouse gas emissions, the sales of energy and energy related products and services tailored to customer needs. The implementation of the business goals is, in turn, supported by the modern management culture, friendly work environment based on the principles of diversity and compliance, as well as building long term relations with the local communities and developing initiatives in the area of social and business partnership.

Based on the above and in line with the Best Practice of WSE Listed Companies 2016 (Best Practice 2016), TAURON Capital Group is steadfastly conducting the CSR policy. As part thereof, numerous projects are implemented aimed at improving the organization management efficiency, taking into account the social interest, respect for the stakeholders and the ethical principles, while placing particular weight on transparency of actions taken and open communication in the spirit of dialogue and trust.

Impact on natural environment

Environment protection in the energy and mining industry is an area that is strictly controlled and regulated by the EU and national regulations as well as the local law. Therefore, the activities with respect to the environmental impact are strongly associated with the business operations of TAURON Capital Group, especially in the context of the contemporary challenges regarding minimizing the impact of the entire supply chain on the environment. Bearing in mind the principles of sustainable development, TAURON Capital Group's subsidiaries are optimizing the processes of managing their resources (water, raw materials and materials), and also conducting an active waste management policy.

TAURON Capital Group is taking responsibility for taking care of natural environment and the consequences of using natural resources for the benefit of the current and future generations and emphasizes that it is ready to take actions that go beyond legal obligations.

The confirmation of the above actions are: TAURON Group's Environmental Policy, adopted by the Company's Management Board in July 2017, and TAURON Group's Climate Policy adopted by the Company's Management Board in November 2019.

Some of TAURON Capital Group's subsidiaries have implemented a certified environmental management system according to ISO14001. TAURON Wytwarzanie, representing conventional electricity generation, has additionally received the EMAS Community Eco-Management and Audit Scheme, the EU's environmental certification system, used to create, at an organization, a sustainable development culture and efficient management of available resources and energy, operating based on the Regulation of the European Parliament and of the Council (EC) No. 1221/2009 of November 25, 2009 on the voluntary participation by organizations in a Community eco-management and audit scheme (EMAS).

Environmental Policy

TAURON Group's Environmental Policy (Environmental Policy), adopted by the Company's Management Board in July 2017, defines TAURON Capital Group's approach to the management of the issues related to the impact made by its operations on the natural environment, including the direction of its environmental activities and the principles it follows in environment related matters. The Environmental Policy is the benchmark for assessing all of the activities of TAURON Capital Group's subsidiaries with respect to environment protection and environmental management.

The Environmental Policy documents the values and the vision followed by TAURON Capital Group with respect to making an impact on the natural environment.

The key principle of the Environmental Policy is to limit both the direct, as well as the indirect impact on the environment and to conduct responsible communications, ensuring the understanding of the operations of TAURON Capital Group that may impact the environment.

TAURON Capital Group, in accordance with the regulations and administrative practices in force on the territory of its operations, takes into account the needs related to environmental protection and acts in way that contributes to accomplishing a broader objective, which is sustainable development, and in particular the implementation of the circular (closed circuit) economy.

Due to diverse production and service profiles of TAURON Capital Group's subsidiaries, their impact on the environment varies significantly, therefore the principles of the Environmental Policy are addressed in the individual internal documents of the individual subsidiaries in a way corresponding to their role in TAURON Capital Group's value system.

Minimizing the negative impacts on the environment is effectively implemented taking into account the specifics of the sector, technological development and access to environmentally friendly technologies.

TAURON Capital Group is monitoring, on an ongoing basis, the main aspects of the direct and indirect environmental impact of its business operations.

The below table presents the annual emissions of SO2, NOX, dust and CO2 from thermal combustion of fuel for 2020.

	Subsidiary name	Emission of SO2 (Mg)	Emission of NOX (Mg)	Emission of dust (Mg)	Emission of CO2 (Mg)
1.	TAURON Wytwarzanie including:	5 392,1	6 238,5	282,1	8 528 695
	1) Oddział (Branch) Jaworzno III	1 601.8	2 362.8	71.1	3 489 652
	2) Oddział (Branch) Łaziska	914.1	1 101.6	78.7	1 773 839
	3) Oddział (Branch) Łagisza	1 361.0	1 633.1	59.1	2 292 381
	4) Oddział (Branch) Siersza	649.6	504.8	16.9	751 495
	5) Oddział (Branch) Stalowa Wola	865.5	636.2	56.3	221 328
2.	TAURON Ciepło including:	1 538.2	1 102.3	82.4	1 324 397
	1) Zakład Wytwarzania (Generation Plant) Bielsko-Biała	585.5	224.9	15.2	362 828
	2) Zakład Wytwarzania (Generation Plant) Kamienna Góra	20.9	16.8	4.6	14 228
	3) Zakład Wytwarzania (Generation Plant) Katowice	354.2	431.9	28.0	597 102
	4) Zakład Wytwarzania (Generation Plant) Tychy	384.6	343.8	17.2	284 543
	5) Centralna Ciepłownia (Central Heating Plant) Olkusz	114.8	42.6	9.4	25 958
	6) Centralna Ciepłownia (Central Heating Plant) Zawiercie	65.8	31.9	6.8	30 993
	7) Other (local heating plants)	12.4	10.4	1.2	8745
3.	KW Czatkowice	0.03	0.7	6.5	5 291
	Total	6 930.3	7 341.5	371.0	9 858 383
	Decline versus 2019	33%	29%	37%	19%

Table no. 22. Annual emissions of SO2, NOx, dust and CO² from thermal combustion of fuel for 2020

The emissions of SO2, NOX, dust and CO² from TAURON Capital Group's fuel combustion are well below the levels set as the maximum permitted annual loads of substances released into the atmosphere according to permits. The above is due to the fact that all of the generating units of TAURON Wytwarzanie and TAURON Ciepło that are in operation achieve the SO2, NO2, and dust concentration levels below the permitted values, and the SO² and NO² concentration levels for the 200 MW units and the biomass fired boilers are already at a level close to the limits defined in the BAT Conclusions.

In 2020, despite the COVID 19 pandemic, almost all of the investment tasks related to the modernization of the air protection installation at Łaziska and Jaworzno III Power Plants, scheduled for this period, were completed, and thanks to that the unit emissions of the pollutants emitted will be additionally reduced in the subsequent years. All of the coal and biomass fired units planned for further operation, which are also the participants of the capacity market, will be prepared by August 2021 for the new environmental requirements that will then become effective.

TAURON Capital Group assumes responsibility for taking care of the natural environment and the consequences of using its resources. TAURON Capital Group's subsidiaries calculated fees in the total amount of approx. PLN 30.5 million in 2020 (less by approx. PLN 2.4 million than in 2019).

The below table presents the estimated charges for the business use of the environment and the water services at TAURON Capital Group's selected subsidiaries due for 2020.

Table no. 23. Estimated charges for the business use and the water services of the environment due for 2020

	Charges* for the business use of the environment and the water services due for 2020 (PLN '000)
TAURON Wytwarzanie	11 520
TAURON Wydobycie	14 973.5
TAURON Ciepło	2 393
TAURON Dystrybucja	199.9
KW Czatkowice	60.0
TAURON Nowe Technologie (formerly: TAURON Dystrybucja Serwis)	< 0.8***
TAURON Obsługa Klienta	2.2
TAURON EKOENERGIA	, 543.3 *
TAURON Sprzedaż	< 0.8***
Bioeko Grupa TAURON	4.4
Nowe Jaworzno Grupa TAURON	785****
Wsparcie Grupa TAURON	2.9
Total	30 484.2
	Subsidiary name

* partly estimated data, the annual settlement has not been completed

** the fee for water consumption by the hydropower plants, assessed at the rate of PLN 1.24 per 1 MWh of electricity produced by the hydropower facilities in 2020 is PLN 543.3 thousand.

*** the extent of the use of the environment does not generate fees, as their amount is below the threshold starting from which fees are due **** in total for 2020 from the start-up period and after commissioning

Circular economy

TAURON Capital Group is actively looking for solutions implementing the Circular Economy concept that is based on:

• 1. taking care of natural environment,
• 1. reducing the environmental burden (harm) stemming from the waste produced,
• 1. maximizing the use of the by-products of thermal combustion or hard coal mining,
• 1. minimizing the costs related to the neutralization of the environmentally harmful waste.

As part of TAURON Capital Group's operations, the cycles (circuits) of the use of the substances produced by TAURON Capital Group are getting closed and the reuse of the combustion and mining by-products in the economy and the manufacturing industry is becoming more widespread. The reuse of the substances is contributing to the protection of natural resources and the reduction of the amount of waste deposited at landfill sites.

The idea of reusing the combustion and mining by-products in the economy and the manufacturing industry is in line with the circular economy being implemented in the EU countries, with the concept assuming the closing of the life cycle of products and the minimizing of the environmental impact of products created through such a selection of the components (ingredients) and the design thereof that will enable their reuse.

4.3 million Mg of the process by-products, coming from thermal combustion and mining of coal, was generated in 2020, with as much as 65% of that quantity brought to the market as the full value products to be used, among others, in the construction, road building, mining or agricultural sector. This means that in 2020 the share of byproducts in waste increased by 14% as compared to 2019. The balance of the waste was handed over to further authorized recipients with whom TAURON Capital Group's subsidiaries have agreements in place that guarantee its further economic utilization, among others in land reclamation, macro-leveling and filling of the post-mining voids in mining.

The below figures present the structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2019 and in 2020.

It is planned that the maximum of generated process waste is used within TAURON Capital Group, consequently reducing the consumption of natural resources and the product's carbon footprint.

TAURON Wytwarzanie brought as much as 100% of fly ashes and boiler slag as by-products coming from 6 system (utility scale) power plants to the market in 2020, to be used in construction, road engineering (building), mining and agriculture. The fly ash and slag from the new 910 MW Jaworzno unit are of such good quality that they have been introduced to the market as by-products since the unit's commissioning in November 2020, thus obtaining the status of the full value, certified building materials.

TAURON Capital Group's power plants produced 132 thousand Mg of ashes in 2020 that was used as valuable raw material in fire prevention by the coal mines. The ashes from TAURON Capital Group's power plants and combined heat and power plants cover 100% of the demand for ashes to be used for fire prevention at TAURON Wydobycie's coal mines

100% of TAURON Ciepło's waste, i.e. 181 thousand Mg, was reused in various industries.

TAURON Wydobycie processes the post-mining waste, as a result of which full value construction and road aggregates are obtained. 772 thousand Mg of aggregates and materials produced from the post-mining waste were placed on the market in 2020. Very good quality parameters of the aggregates produced by the Brzeszcze Coal Mine (ZG Brzeszcze) allowed for changing the status thereof to by-products without the need to subject them to any additional processing.

The below figure presents the structure (composition) and the quantities of the combustion and mining by-products generated by TAURON Capital Group, brought to the market in 2020.

TAURON Capital Group focuses on local cooperation and the use of waste materials, using the waste stored in settling tanks and at waste dump (landfill) sites.

All of the above activities contribute to reducing the consumption of natural resources, e.g. sand or gravel.

Climate policy

TAURON Group's Climate Policy (Climate Policy) was adopted by the Company's Management Board in November 2019, with the goal to counteract climate change and promote the sustainable development of TAURON Capital Group's Lines of Business, through a just transition towards achieving climate neutrality in the future.

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

The Climate Policy constitutes the basis for TAURON Capital Group to manage its operations in such a way so as to mitigate the risks associated with the climate, reduce TAURON Capital Group's negative impact on the climate and maximize the positive effects of the climate change throughout the entire value chain.

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 Climate Policy refers to all kinds of activities and operations carried out as part of TAURON Capital 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 and measures with respect to TAURON Capital Group's adaptation to the climate changes underway

TAURON Capital 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 towards reducing the risk associated with the transition of the energy sector and taking advantage of the market expectations related to the climate.

In 2020, TAURON Wytwarzanie completed the first photovoltaic farm implementation project with the capacity of 5 MW in Jaworzno, built on the site where the Jaworzno I Power Plant (Elektrownia Jaworzno I) had formerly been located. The project is in lined with the expected transition of the energy sector.

Also in 2020, a new generating unit with a capacity of 910 MW was commissioned in Jaworzno that will ultimately replace 8 of the 120 MW units with a much higher unit emissions starting from 2021.

An example of the measures implemented, as part of the Climate Policy, at TAURON Capital Group's subsidiaries to curtail or not increase fuel and energy consumption were the initiatives related to the improvement of energy efficiency of the processes. As part of these activities, the PMEF property rights in a total amount corresponding to 715 toe were acquired in 2020.

The below figure presents the structure of certificates of origin for renewable energy (PMOZE) at TAURON Capital Group in 2020.

Figure no. 35. Structure of certificates of origin for renewable energy (PMOZE) at TAURON Capital Group in 2020 (MWh)

TAURON Capital Group's dependence on the natural capital varies for the individual Lines of Business of TAURON Capital Group. Mining, Generation and Heat Lines of Business are dependent on the fossil fuel resources, which are not very sensitive to the climate change, and their physical availability is not dependent on the pace of the global warming. The RES Line of Business, due to generating electricity in hydropower plants, is highly exposed to the risk of outages or curtailments of production as a result of prolonged droughts, which translate into a decrease in surface water resources in river basins, where hydropower plants are located. TAURON Ekoenergia is monitoring such developments on an ongoing basis and has an inventory list of assets most exposed to such restrictions.

2.10. Key non-financial efficiency ratios (metrics, performance indicators)

In order to make the best use of the value levers (drivers) defined as part of the Strategy and the Update of the Strategic Directions, the key non-financial efficiency ratios (metrics, performance indicators) related to TAURON Capital Group's operations in the following areas defined in TAURON Group's Sustainable Development Strategy for the years 2017-2025, adopted by the Company's Management Board in 2017, were defined:

• 1. reliability and quality of supply of products and services for the customer,
• 1. orientation towards the customer and his/her needs,
• 1. environment protection,
• 1. work safety, ethical culture and employee engagement,
• 1. social and business partnership.

The below table presents the key non-financial efficiency ratios (metrics, performance indicators), related to TAURON Capital Group's operations in 2019-2020.

Table no. 24. Key non-financial efficiency ratios (metrics, performance indicators), related to TAURON Capital Group's operations in 2019- 2020

Efficiency ratio (metric, performance indicator)		Name of capital / Element related to	Ratio (metric, indicator)	unit	Value of the ratio (metric, performance indicator)
		capital	nature		2019	2020
	Reliability and quality of supply of products and services for the customer
1.	Number of Number of individual and business customers of TAURON Capital Group's Distribution Line of Business	Financial capital / Distribution Segment's Regulatory Asses Base (RAB), capital expenditures, cash flow from operating activities	Stimulant	number	221 335	216 551
2.	Number of cases of non-compliance and complaints related to products and services of TAURON Capital Group with respect to providing information	Financial capital / Cash flow from operating activities, net profit, long term rating	Destimulant	number	0	0
3.	Frequency of planned power outages - number of outages / consumer / year (SAIFI)	Financial capital / Cash flow from operating activities	Destimulant	minutes	0.28	0.19
	Orientation towards the customer and his / her needs
4.	Number of Number of individual and business customers of TAURON Capital Group's Supply Line of Business	Kapitał finansowy / przychody ze sprzedaży, EBITDA, marża EBITDA, zysk netto, długoterminowy rating	Stimulant	number	5 511 946	5 590 108
5.	Customer Satisfaction Index (CSI) for TAURON Capital Group's customers	Social capital / Implemented and applied TAURON Group's PROClient Social Policy	Stimulant	-	83	83
	Environment protection
6.	Percentage share of TAURON Capital Group's RES installed capacity in TAURON Capital Group's total installed capacity	Production capital / Installed capacity in hydro, wind, solar and biomass fired power plants and combined heat and power plants	Stimulant	%	12	10.5
7.	Percentage share of TAURON Capital Group's electricity production based on RES in TAURON Capital Group's total electricity production	Production capital / Electricity production by hydro, wind, solar and biomass fired power plants and combined heat and power plants	Stimulant	%	11	17
		Production capital / Heat production by biomass fired combined heat and power plants and power plants	Stimulant	%	6	9
8.	Direct greenhouse gas emissions by TAURON Capital Group - tCO2e	Natural capital / Direct greenhouse gas emissions	Destimulant	Mg	12 215 945	10 093 648
9.	Total weight of non-hazardous waste (including combustion and mining by-products) generated by TAURON Capital Group	Natural capital / Total amount of non hazardous waste	Destimulant	Mg	1 366 974	1 729 672
10.	Number of meetings with trade union organizations at TAURON Capital Group's subsidiaries	Intellectual capital, Social capital, Human capital / developing relationships based on dialogue, organizational culture based on PRO values	Stimulant	number	329	334
	Work safety, ethical culture and employee engagement
11.	Number of TAURON Capital Group's employees	Human capital / Number of employees, Number of trainings courses conducted by Internal Coaches (Trainers)	Nominant	number	26 086	25 572

Efficiency ratio (metric, performance indicator)		Name of capital / Element related to	Ratio (metric, indicator)	unit	Value of the ratio (metric, performance indicator)
		capital	nature		2019	2020
		Intellectual capital / Knowledge and competences of the Group's employees Social capital / Personnel education and development
12.	Accident rate at TAURON Capital Group	Social capital / Organizational culture based on the PRO values	Destimulant	-	7.8	8.3
13.	Share of women among TAURON Capital Group's workforce	Human capital / Share of women among the workforce Social capital / TAURON Group's Diversity Policy and TAURON Group's Respect for Human Rights Policy implemented and applied	Nominant	%	21.4	21.5
14.	Number of training session hours at TAURON Capital Group	Human capital / Number of training session hours	Stimulant	'000	478	295
	Social and business partnership
15.	Number of local and social initiatives that TAURON Foundation has joined	Social capital / Support for local initiatives through TAURON Foundation	Stimulant	number	158	144
16.	Number of projects with respect to corporate social responsibility implemented by TAURON Capital Group	Social capital / Implemented and	Stimulant	number	11	18
17.	Number of TAURON Capital Group's meetings with local communities held in order to provide information on the operations conducted and its impact on the residents	applied TAURON Group's PROClient Social Policy, developing lasting relationships and active dialogue with the stakeholders, support for local initiatives, including	Stimulant	number	Regular, in accordance with the ongoing operations	Regular, in accordance with the ongoing operations
18.	Number of initiatives implemented by TAURON Capital Group for the employees and communities, related to counteracting COVID-19	through TAURON Foundation	Stimulant	number	-	11

2.11. Sponsoring activities

TAURON Capital Group is a leader among Polish energy groups in terms of sponsoring activities. The projects implemented by TAURON demonstrate very high equivalence. Research conducted by specialized research companies indicates that each zloty spent generates a 10-fold return. TAURON Capital Group had contracts covering 10 sponsoring projects in place In 2020. The preliminary data on the advertising equivalents achieved for the activities completed in 2020 demonstrate that the best results were achieved by the activities undertaken by the Polish Volleyball League (Polska Liga Siatkówki).

The main objective of TAURON Capital Group's sponsoring activities is to support its business goals defined in the Strategy and the continuous strengthening of the brand's position as compared to the competition. TAURON Capital Group's sponsoring activities in 2020 were conducted based on TAURON Group's Plan of Conducting Sponsoring Activities in 2020 adopted by the Management Board of the Company and granted a positive opinion by the Supervisory Board of the Company.

The sponsoring activities were carried out in 2020 based on the negotiated agreements, containing standardized provisions. Each sponsoring agreement concluded includes provisions that obligate the contractors (counterparties) to pay special attention to the business effect (the so-called success fee rule).

In connection with the COVID-19 pandemic, there was a need to abandon some of the projects in 2020, amend the current contracts and thus reduce the value of projects, as well as introduce replacement services. Most of the events took place without the participation of the audience, based on the on-line formula, i.e. for example the successive edition of the TAURON Nowa Muzyka (New Music) music festival. A large number of the projects planned under the already concluded contracts were replaced with other proposals, while some of them were canceled, which led to the decision to reduce the value of some contracts, e.g. the contract related to the implementation of the TAURON Arena Kraków project.

The Company's sponsoring activities are monitored, analyzed and reported on an on-going basis to the Company's Management Board and Supervisory Board, among others based on the detailed reports on the implementation of the sponsoring contracts The surveys and analyses are conducted in quarterly, 6-month and annual cycles by the specialized external entities and the internal oversight. In accordance with the procedures implemented at TAURON Capital Group, the effectiveness of the activities conducted is assessed on a regular basis based on the opinion polls, by measuring the size and value of the brand's exposure in the media in the context of the activities conducted, as well as by measuring the impact on the pro-sales attitudes, including the reporting of the results achieved.

An independent research entity initially estimated, as a result of the measurement of the promotional effectiveness, the advertising equivalent achieved in relation to the activities completed in 2020. By comparing the summarized value obtained this way to the total of all expenditures arising from the relevant sponsoring contracts, the ROI ratio (understood here as a comparison of the advertising equivalent to the expenditures on the implementation of the contract) at a level of approximately 9.03 was obtained. This means that each zloty (PLN) spent for that purpose generated promotional benefits to TAURON Capital Group, the value of which was independently initially estimated at approximately PLN 9.

The confirmation of the financial effectiveness of the activities conducted is the high positioning of the TAURON brand in an independent research report, Sponsoring Monitor 2020, according to which TAURON is ranked 7th overall among the TOP 10 sponsors. Several hundred brands were classified in the ranking, which was the result of the opinion polls and TAURON's spot in the ranking was a very good result. Taking into consideration the relatively low level of sponsorship spending by TAURON Capital Group, the position in this ranking can be regarded as high.

3. TAURON CAPITAL GROUP'S RISK MANAGEMENT

3.1. Risk management objective and principles

At TAURON Capital Group risk is understood as an uncertain occurrence or a group of occurrences that, in case of materializing, will have an impact on achieving by TAURON Capital Group of its defined strategic goals, both negatively (threat), as well as positively (opportunity).

In line with its Strategy the Company is implementing the process of managing the risk related to the operations of TAURON Capital Group. The primary goals of risk management include ensuring the broadly understood security of TAURON Capital Group's operations. In particular, TAURON Capital Group's risk management is to ensure increased predictability of achieving its strategic goals, sustainable (stable) generation of its financial results, the protection of TAURON Capital Group's current economic value (preventive function), as well as support for the decision-making processes.

TAURON Capital Group's risk management:

• 1. is based on the risk management process that provides comprehensive and consistent rules for identifying, measuring and responding to risk,
• 1. covers all elements of the value chain,
• 1. provides centralized risk measurement, monitoring and control function, and also ability to evaluate the full risk profile in the organization and consistent risk management principles,
• 1. ensures independence of the risk taking function from its control and monitoring,
• 1. ensures a clear split of competences and responsibilities, in particular by introducing the risk ownership function, 6. is a pro-active process, focused on an appropriately early identification of threats, allowing for taking preventive
• measures, 7. is a systematic and continuously improved process which allows for aligning it on an ongoing basis to TAURON
• Capital Group's specifics and organizational structure, as well as to the changing environment,
• 1. places a strong emphasis on developing awareness, training and encouraging personnel to use the knowledge of risks in daily activities,
• 1. co-creates TAURON Capital Group's internal audit (control) system, constituting, along with the compliance and security management functions, an element of the Three Line Defense Model.

3.2. Risk management strategy

The enterprise risk management system (ERM System), implemented at TAURON Capital Group's level, constitutes a set of rules, standards and tools allowing for implementing the primary goal of risk management which is, broadly understood, ensuring safety (security) of TAURON Capital Group's operations. This system is governed by the document entitled TAURON Group's Enterprise Risk Management Strategy (ERM Strategy) that defines TAURON Capital Group's enterprise risk management framework and rules, and its objective is to ensure the consistency of managing the individual risk categories that are detailed in separate regulations, aligned to the specifics of the individual threat groups.

As part of the ERM System, the following specific risks are identified within TAURON Group, for which separate policies tailored to the nature and specifics of the given group of threats are defined:

• 1. Trading (commercial) risk,
• 1. Credit risk,
• 1. Financial risk,
• 1. Operational risk,
• 1. Regulatory risk,
• 1. Project risk.

The below figure presents the basic classification of the enterprise risk.

Figure no. 36. Basic classification of the enterprise risk

The core (central) element of the ERM System is a risk management process that includes continuous activities, i.e. risk identification, risk measurement as well as developing and implementing a response to risk. The architecture of the ERM system also includes elements that are to ensure the effective functioning of the process, including: organization of the ERM System, risk control and monitoring rules, risk model, risk management tools and the assessment of the adequacy and functioning of the ERM system.

The below figure presents the architecture of the ERM system in place at TAURON Capital Group.

Risk management process

The process of enterprise risk management ensures the comprehensive and consistent risk management rules linked with one another in terms of methodology and information. The process of enterprise risk management means taking continuous measures comprising risk identification, risk assessment, planning of risk response, implementation of the adopted risk response and communication among the risk management process participants.

The below figure presents the risk management process.

Risk identification consists in determining the potential events that may affect the implementation of business goals of TAURON Capital Group. The main purpose of this step is to create or update a list of risks that may affect the achievement of the business goals. The identified risks are described in accordance with the adopted methodology and have a specific context providing information on the impact of their materialization on the business goals.

Risk assessment consists in determining the potential financial and non-financial effects of the materialization of the risk affecting the implementation of specific goals and assigning the risk class thereto, defining the materiality of the risk from the point of view of its impact on the achievement of the goals.

Planning consists in the preparation of the dedicated responses to the risk identified in order to achieve the desirable results. The planned actions constituting the prepared risk response are dependent and adapted to the current level of the Key Risk Indicators (KRI), and in particular those among them that act as Early Warning Indicators (EWI).

Implementation of risk response consists in practical implementation of the response to the identified risk, prepared in the planning process. The defined set of actions as part of the risk response, specified in the planning process, is dependent on the current level of the EWI indicators. The implementation of the subsequent activities as part of the response to risk requires ongoing monitoring of risk indicators, which is to provide information on what set of activities should be implemented and, at the same time, inform whether the activities carried out thus far are effective and if risk management is bringing the assumed effect of maintaining the value of the EWI indicators within the acceptance range.

Communication consists in a continuous flow of information among the participants of the process, which is to ensure full knowledge on the current risk status and the effectiveness of the activities conducted as part of the response to risk. The periodical risk reporting is also an element of this process.

Organization of the risk management system (roles and responsibilities)

The key assumption of the risk management system is a clear and precise split of tasks and responsibilities, ensuring no conflict of interest. In particular, the system guarantees independence of the risk taking function from risk control and monitoring. This is achieved through the centralization of the control function at the parent Company level, while maintaining the organizational and functional separation of the risk taking function. The rules in place at TAURON Capital Group introduce the function of the risk owner, i.e. the person responsible for managing the given risk as well as developing and implementing an effective response to a threat. While the control function, process coordination, as well as the responsibility for the correct functioning of the risk management system was placed at the parent Company, in the Area of the Executive Director for Risk.

A special role, as part of the risk management process, is performed by the Risk Committee as an expert team that persistently and continuously initiates, analyzes, monitors, controls, supports and oversees the functioning of TAURON Capital Group's risk management system. The members of the Risk Committee include persons with appropriate knowledge of the Company and its environment as well as the required qualifications and empowerments. The task of the Risk Committee is to set norms and standards for risk management at TAURON Capital Group and oversight of the risk management process effectiveness. Within the Risk Committee two separate teams are set up, one for the trading (commercial) risk area and the other for the financial and credit risk area. Oversight of the enterprise risk management system is performed directly by the Risk Committee.

The below figure presents the links between the individual roles in the context of the ERM Strategy and the other documents regulating in detail TAURON Capital Group's ERM system.

Figure no. 39. Links between the individual roles in the context of the ERM Strategy and the documents regulating the ERM System

Within the ERM System the roles and responsibilities of all the participants of TAURON Capital Group's risk management system are defined in detail and they are provided in the below table.

Table no. 25. Description of the ERM System participants' roles and responsibilities

Participant		Participant's roles and responsibilities
1.	TAURON Supervisory Board	1. Assessment of the ERM System, especially of its adequacy and effectiveness. 2. Empowerment to audit the Company's operations with respect to enterprise risk management, in terms of compliance with the expectations of the shareholders, supervisory and regulatory authorities.
2.	Audit Committee of TAURON Supervisory Board	Monitoring the ERM System's effectiveness.
3.	TAURON Management Board	1. Assessment of the ERM System's adequacy, effectiveness and efficiency. 2. Taking formal decisions related to the key elements TAURON Capital Group's enterprise risk management, including approving the list of risks with respect to which the Company's Management Board will be performing the Risk Owner's function. 3. Approving TAURON Capital Group's risk appetite and risk tolerance, including the global limits for the specific risks. 4. Managing the risks of special importance for TAURON Capital Group's operations. 5. Providing adequate resources for the needs of the ERM System.
4.	Risk Committee	1. Overseeing the correct flow of TAURON Capital Group's risk management process. 2. Auditing (controlling) TAURON Capital Group's risk exposure. 3. Providing opinions and recommending to the Company's Management Board the shape of the individual elements of the risk management infrastructure. 4. Defining TAURON Capital Group's risk appetite and risk tolerance, including the global limits for the specific risks, and also applying to the Company's Management Board for the approval or change thereof. 5. Approving the operational limits constituting the allocation of the adopted risk tolerance. 6. Overseeing the preparation of the information for the Company's Management Board on all material issues related to TAURON Capital Group's risk
5	Executive Director for Risk	1. Coordinating the risk management process on all levels and in all areas (lines of business) of the organization's operations. 2. Responsibility for the development of the ERM System (risk identification, evaluation, monitoring and control methods, processes and procedures). 3. Support and oversight over the system's participants in the risk management implementation and evaluation of its efficiency. 4. Preparing and providing the risk reports to the authorized risk management process participants. 5. Activities aimed at developing organizational culture and raising awareness with respect to TAURON Capital Group's risk management.
6.	Executive Director for Audit and Control	Periodic review of the correctness of designing and implementing as well as the effects of actions taken within the ERM System.
7.	Management Board of a subsidiary	1. Responsibility for risk management efficiency within a subsidiary. 2. Promoting risk management culture in a subsidiary. 3. Responsibility for the adequate responses to risk and the effectiveness thereof. 4. Appointing Risk Owners at the given subsidiary. 5. Approving plans of response to risks and taking ongoing decisions related to dealing with risk in case the established risk values (escalation threshold) are exceeded.

Participant	Participant's roles and responsibilities
8. Risk Owner	1. Responsibility for actions related to the implementation of the risk management process as part of the entrusted area of responsibility, in the context of an impact on the ongoing operations as well as on the implementation of the strategic, operational and financial goals of the unit. 2. Responsibility for preparing a plan and for implementing a response to risk, and also for the communications and reporting within the risk management performed. 3. Responsibility for meeting (compliance with) the imposed operational limits.

The below figure below presents the flow of information within the key participants of the risk management process.

Risk control and monitoring rules

The purpose of the adopted risk control and monitoring rules is to limit TAURON Capital Group's exposure to factors that may have an adverse impact on its functioning. The basic risk control tool is the Risk Appetite, approved by the Company's Management Board, that defines the basic framework used by TAURON Capital Group for risk management. In accordance with the adopted approach, TAURON Capital Group's priority is to maintain the maximum security at the level allowing for the implementation of TAURON Capital Group's strategic goals.

Based on the Risk Appetite, the Risk Tolerance is approved, that specifies TAURON Capital Group's maximum permitted risk exposure value, in particular taking into account the specifics and scope of the operations thereof. The Risk Tolerance level is expressed in the form of a set of metrics and boundary conditions limiting the risk exposure. The Risk Tolerance is a practical translation of the Risk Appetite, in particular taking into account the division into key categories of the Specific Risks and the Global Limits related thereto.

Based on the adopted risk tolerance value as well as the approved global limits, the Risk Committee approves sets of operational limits dedicated to the individual risks or the groups thereof. The individual risk owners are responsible for meeting the operating limits, and the Executive Director for Risk is responsible for controlling the consumption thereof. The basic assumption is to guarantee the independence of risk taking from risk control, which guarantees the safety (security) of the functioning of the organization. Such independence is ensured in particular by the appropriate positioning of the Executive Director for Risk within the organizational structure of the Company in a way that eliminates the emergence of a conflict of interest, as well as by ensuring direct reporting lines to the Company's Management Board and the Company's Supervisory Board.

A supplementary tool used for risk monitoring and control comprises the Early Warning System based on the catalogue of Key Risk Indicators (KRI) and Early Warning Indicators (EWI).

The system functioning based on the said KRI and EWI indicators enables an adequately early identification of threats by measuring the causes of the individual threats. At the same time, that system allows for an adequately early taking of remedy actions, before the individual threats actually materialize.

Risk management tools

Risk management tools used by TAURON Capital Group allow for effective implementation of the individual stages of the process. TAURON Capital Group uses, in particular, the following tools:

• 1. Risk identification / review questionnaire a document in the form of a table, specifying the detailed information that should be collected in the risk identification or periodic review process,
• 1. Risk card a document containing the detailed information on the identified risk,
• 1. Risk register a document in the form of a table with a summary of the risks associated with the operations of TAURON Capital Group, containing, in particular, their descriptions, categories and valuations,
• 1. Risk response plans a document containing a prepared action plan, the early enough launching of which will allow for reducing exposure to a given risk to an acceptable level before it occurs, as well as for limiting the effects of the risk at the time of its materialization,
• 1. Risk assessment form a tabular summary of detailed information on risk measurement, including, among others, the determination of the impact and the probability associated therewith of risk materialization and the information on the current level of risk measurement parameters (KRI / EWI).

Risk Model

Risk model defines a consistent risk classification, enabling a consistent and comprehensive capturing of risk across TAURON Capital Group. Each risk identified is assigned to specific categories and sub-categories.

The below table presents the main risk categories and sub-categories, in accordance with the Risk Model in place.

Table no. 26. Main risk categories and sub-categories, in accordance with the Risk Model in place

Main risk categories		Main risk sub-categories	Description of the main risk sub-categories
1.	Trading risk		Risks related to the volatility of electricity and related products market prices to which the enterprise is exposed.
2.	Financial and credit risk		Risks related to the fluctuations in exchange rates and interest rates, as well as the risk of TAURON Group's contractors (counterparties) defaulting on contractual obligations.
3.	Operational risk	Environment (stakeholders)	Risks determining the impact of the external environment (stakeholders) on the implementation of TAURON Capital Group's goals, including in particular the macroeconomic and reputational risks.
		Technology, infrastructure and security	All events having an adverse effect on the security of employees, information as well as the generation, transmission, mining or IT infrastructure.
		Employees and organizational culture	Risks related to employee issues and organizational culture, including also the pandemic risk.
		Compliance	Risks related to the cases of non-compliance with the legal regulations, internal and intra corporate regulations, internal and external abuse as well as unethical behaviors and violations of the social norms (standards).
		Customers and contractors (counterparties)	Risks related to the volatility of the supplies / services market, a failure of the customer / contractor (counterparty) to meet contractual obligations and the adverse changes or terminations of commercial contracts by customers, affecting both volume as well as margin.
4.	Regulatory risk		Risks determining the adverse impact of changes in the legislation at the national and the European level having a direct impact on the operations of TAURON Capital Group.

The below figure presents the main risk categories defined by TAURON Capital Group, including the number of key threats.

Assessment of the adequacy and the functioning of the risk management system

TAURON Group's risk management is a systematic process subject to continuous improvement which allows for aligning it, on an ongoing basis, to TAURON Capital Group's specifics and organizational structure, as well as to the fast changing environment. That process is also subject to an internal and independent assessment of adequacy and reviews, in particular based on:

• 1. ongoing assessment by the Executive Director for Risk and the Risk Committee with respect to its adequacy and alignment with the changes to the structure and specifics of TAURON Capital Group's operations, as well as with the changing environment,
• 1. periodic evaluation conducted by the Executive Director for Risk who, not less seldom than once a year, prepares a report on the assessment of adequacy of the ERM System's architecture for the members of the Risk Committee,
• 1. periodic evaluation conducted by the Executive Director for Audit and Control, as part of performing the institutional (third line of defense), conducts an independent audit of TAURON Capital Group's risk management with respect to the appropriate implementation of the rules by the process participants, as well as its adequacy and effectiveness.

3.3.Key risks management

The Company is actively managing all risks, seeking to eliminate or to the maximum degree reduce their potential negative impact, in particular on TAURON Capital Group's financial results.

Trading risk management

In accordance with TAURON Group's Trading Risk Management Policy in place trading risk is understood as the possibility of incurring a loss or making a gain due to price fluctuations on the commodity and related products markets. The trading risk, due to the specifics of the operations conducted, constitutes one of TAURON Capital Group's key risks. TAURON Capital Group is made up of subsidiaries operating both in the Mining and the Generation Lines of Business, including also the RES Line of Business, as well as in the Supply Line of Business. Due to the opposing positions in the above Lines of Business the risk is, to a certain degree, naturally diversified, however, since the above mentioned Lines of Business do not fully offset each other, and due to the diverse nature of the exposures, TAURON Capital Group is displaying sensitivity to the volatility of the prices of electricity, gas and related products.

In order to efficiently manage that group of risks the trading risk management system was established, tied with respect to the organizational structure and information flow, to the trading position hedging strategy in place at TAURON Capital Group's level. In particular, TAURON Group's Trading Risk Management Policy introduces an early warning system and a system used to limit the risk exposure in the individual trading areas based on the Risk Tolerance approved by the Management Board.

The basic operating measure of TAURON Capital Group's market risk is Value at Risk (VaR), defining the maximum admissible change of the position's value over the given time horizon and at a specific probability level. Value at Risk (VaR) represents a dynamic risk measure which, in contrast to static measures, allows for determining potential negative effects before their factual occurrence. However, being aware of certain limitations of the statistical measures of this type, the Risk Area also uses a number of supplementary risk measures aimed at enabling a safe operation of the trading areas.

The strategic measurement of market risk is conducted based on the mechanism of Hedge Curves, which are to ensure the maximum level of security by optimizing open trading positions exposed to the volatility of price factors in the individual areas of TAURON Capital Group's operations.

The organizational structure of the trading risk management system envisages a strict division of competences, where the risk supervision (steering) and control are performed centrally at TAURON level. In particular, an element of the organizational structure of the trading risk management system is the split of TAURON Capital Group's trading operations into: Front Office, Middle Office and Back Office. The goal of such a split of tasks is to guarantee the independence of the operating functions carried out by the Front Office from the risk control function carried out by the Risk Area, and it ensures an appropriate level of operational flexibility. For the needs of the risk management process such a placement of responsibility is assumed in order to ensure an optimal approach to the given type of threat, in particular taking advantage of the economy of scale and the synergy effect. Such an approach ensures efficiency of the trading processes conducted and adequate supervision over one of the main business processes conducted by TAURON Capital Group.

The below figure presents a.

PARTICIPANT	ROLES AND RESPONSIBILITIES OF PARTICIPANTS
FRONT OFFICE	• Concludes transactions on commodity and related products markets • Manages the portfolio within TAURON Capital Group • Manages operationally the trading risk within the set risk limits
MIDDLE OFFICE	• Identifies, aggregates and measures trading risk exposure • Ensures independent risk evaluation and measurement of the result generated, • Conducts monitoring of trading operations in terms of their compliance with the adopted policy, operational procedures and market conditions. • Performs supervision over the structure of portfolios in terms of its alignment with the trading operations.
BACK OFFICE	• Responsible for confirming, settling and invoicing trade transaction, • Responsible for archiving data related to trade transactions, • Responsible for trading reporting.

Financial risk management

As part of the financial risk management, TAURON Capital Group is managing the FX risk and the interest rate risk, based on the developed and adopted for use TAURON Group's Financial Risk Management Policy and the Risk Tolerance approved by the Management Board, the Global Financial Risk Limit including the decomposition thereof into individual financial risk types. The main goal of managing such risks is to minimize the sensitivity of TAURON Capital Group's cash flows to the financial risk factors and to minimize the financial costs and the hedging costs as part of transactions with the use of the derivative instruments. In cases when it is possible and economically justified, TAURON uses the derivative instruments the characteristics of which allow for applying the hedging accounting.

With respect to the financial risks TAURON Capital Group also identifies and actively manages the liquidity risk understood as a potential loss or limitation of the ability to pay the current expenses, due to an inadequate value or structure of liquid assets in relation to the short term obligations or an insufficient level of the actual net inflows from the operating activities.

As part of the identified financial risks TAURON is also managing the risk of financing understood as a lack of the possibility to acquire the new funding, an increase of the cost of funding and the risk of the termination of the existing financing agreements. As part of efforts aimed at minimizing the financing risk, TAURON conducts a policy of acquiring the funding for TAURON Capital Group with an appropriate advance notice in relation to the planned date of its use, i.e. up to 24 months in advance of the planned funding requirement. This means that TAURON Capital Group should hold signed programs of guaranteed financing or hedging for such financing by accumulating the funds on TAURON Capital Group's accounts. Such a policy is first and foremost aimed at ensuring a flexible choice of the financing sources and taking advantage of favorable market conditions as well as reducing the risk of the need to take on new liabilities under unfavorable market conditions. TAURON"s policy also covers the standardizing of the covenants and the provisions of the financing agreements in the key elements of the documentation.

Credit risk management

In accordance with TAURON Group's Credit Risk Management Policy in place credit risk is understood as the possibility of incurring a loss or making a gain due to trading partners (counterparties) failing to fulfill their contractual obligations (default) as well as the occurrence of credit exposures at risk of impairment due to the deterioration of their financial position. TAURON Capital Group has a decentralized credit risk management system in place, however the control, limiting and reporting of this risk category is carried out centrally, on the parent Company level. TAURON Group's Credit Risk Management Policy put in place defines credit risk management principles on TAURON Capital Group's level, aimed at effectively minimizing the impact of that risk on achieving TAURON Capital Group's goals.

Credit risk management is carried out by controlling the credit exposure generated upon the conclusion of contracts by TAURON Capital Group's subsidiaries. The general rule is that prior to concluding a material contract every entity is subjected to an examination of its financial standing and receives a credit limit which caps the maximum exposure due to the given trade. Credit exposure is, in this context, understood as an amount that can be lost if a counterparty (business partner, contractor) fails to fulfill its obligations (defaults) within a certain time (taking into account the value of the collaterals submitted thereby). Credit exposure is calculated as of the current day and is split into exposure due to payment (payment exposure) and substitution exposure.

The below figure presents credit exposure components.

Figure no. 43. Credit exposure components

Based on the exposure value and the synthetic measure of evaluation of the financial standing of specific customers, the global credit value at risk that TAURON Capital Group is exposed to is calculated using the statistical methods according to which the exposure value is calculated based on the total loss probability distribution CVaR. This measure is the basic operational limit of credit risk, which represents the allocation of the Risk Tolerance approved by Management Board.

Operational risk management

Operational risk, in accordance with TAURON Group's Operational Risk Management Policy put in place, is understood as the possibility of incurring a loss or making a gain due to inappropriate or fallible internal procedures, human and system errors or as a consequence of external events. It also includes reputational risk and noncompliance risk. Operational risk, due to the specific nature of the threats and the ability to manage them, constitutes a separate group of risks affecting TAURON Capital Group's operations. The said risk is a complex issue, occurs in every process and type of operations, it is multi-dimensional and applies to various types of activities and operations. In particular, the exposure to the operational risk factors is related to the size and complexity of the organizational structure, the number and complexity of the IT systems and to the number of business processes conducted. Operational risk is characterized by the lack of the ability to totally eliminate its sources, and the analysis of its factors and parameters (among others, frequency and severity), and also the evaluation thereof requires the use of complex measurement and analysis methods.

In order to effectively manage the operational risk, TAURON Capital Group is using appropriate tools that, in particular, include: the global operational risk limit, the operational risk profile the early warning system functioning on a broad scale, operational events database, and the related operational limits system. In particular, based on the approved Risk Tolerance, operational limits are determined for the individual operational risks (or their groups)

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aimed at the pre-emptive control of TAURON Capital Group's vulnerability to the individual operational risk factors and the implementation of advance mitigation actions.

The below figure presents the risk management system tools.

Figure no. 44. Risk management system tools

Global operational risk limit is the basic tool for the operational risk control and represents the allocation of Risk Tolerance adopted by TAURON Capital Group. The global operational risk limit can be subsequently allocated to TAURON Capital Group's individual lines of business, the operational risk sub-categories as well as to the specific operational risks.

Operational risk profile is aimed at identifying areas, processes or activities with an excessive exposure to threats stemming from specific operational risk factors. It is expressed in particular in the structural dimension that includes types of operational events, TAURON Capital Group's organizational structure and processes, and in the scale dimension that includes estimated potential losses, taking into account in particular the historical values of actual losses, as well as the tools used to mitigate the threats. For the needs of measuring the operational risk and defining the Operational Risk Profile the individual types of the operational risk are broken down (due to the nature of the occurrence thereof) into continuous and one-off risks.

Early Warning System is defined in order to monitor the operational risk level for each identified threat. Early Warning Indicators (EWI) are selected from the Key Risk Indicators (KRI) set, as the ones that are subject to continuous control with respect to the cautionary thresholds set for them, i.e. acceptance, mitigation and escalation thresholds.

Operational events database is created for the needs of identifying new risk factors, and in parallel in order to define the risk profile for TAURON Capital Group. It allows for keeping the records of cases that are characterized by a potential or actual loss for the organization. The goal of maintaining the operational events database is to determine the frequency and severity of the individual operational risk factors, as well as the areas and processes they occur in.

Risk identification questionnaire is a document in the form of a tabular form that constitutes a tool supporting the performance of the risk management process with respect to risk identification, specifying the detailed information that should be collected in this process.

Regulatory risk management

Regulatory risk, in accordance with TAURON Group's Regulatory Risk Management Policy put in place, is understood as the possibility of incurring a loss or making a gain due to the planned or unplanned changes to the existing or the introduction of the new regulations that may affect the operations of TAURON Capital Group. Regulatory risk, due to the specific nature of threats and limited options to manage them, is a separate category of the enterprise risk to which TAURON Capital Group is exposed as part of its operations. Regulatory risk management is based on the Regulatory Risk Management Process and is a refinement of the Risk Management Process specified in the ERM Strategy.

The main causes of the regulatory risk include:

• 1. instability of the legal environment,
• 1. change in regulatory policy at national and European levels,
• 1. progressing integration of the European energy market,
• 1. uncertain political situation,
• 1. a significant increase in the requirements with respect to a specific regulation.

The main goal of the regulatory risk management at TAURON Capital Group is to minimize losses and maximize gains from the planned or unplanned changes to the existing regulations or the introduction of the new regulations that may affect the operations of the organization. As a result, it allows for reducing the potential threats to a level

that would be possibly favorable for achieving TAURON Capital Group's strategic goals. The regulatory risk management is also aimed at building culture and awareness among the employees of TAURON Capital Group regarding the risk taken, as well as at the continuous improvement of the process of managing such risk.

Regulatory risk occurs when there are indications of regulatory changes, for example an entry into force of the EU directive, which will be implemented into the Polish legal regime or the positions of the legislators declaring the regulatory changes. The regulatory risk management does not cease when a specific regulation which is frequently expected to provide executive regulations that specify its implementation method comes into force but from the moment the regulatory requirements take effect (the period from the entry of a legal act into force until the beginning of the regulatory requirements becoming effective is a transition period). At that time the regulatory risk management turns into the risk of non-compliance monitored as part of the non-compliance risk.

The below figure presents the regulatory risk life cycle.

In accordance with the classification of the regulatory risk, as part of TAURON Group's Regulatory Risk Management Policy, 13 areas of regulatory risk have been identified at TAURON Capital Group. The classification is based on the identification of homogeneous groups of regulations, based on their impact on the operations of TAURON Capital Group, taking into account the possibility of undertaking an effective response to the given risk. The regulatory risk areas are divided into 2 basic categories:

• 1. Sector regulatory risks regulatory risks that may affect the operations of TAURON Capital Group related to the generation and supply of electricity and heat. Within this category, independently, there are also risks related to the distribution of electricity and the extraction of raw materials.
• 1. Non-sector regulatory risks regulatory risks that may affect the operations of TAURON Capital Group related to, among others, the public procurement law, information security or compliance area, personal data protection, labor law, accounting and tax law, work (occupational) health and safety, environment protection and climate change as well as corporate management.

Project risk management

TAURON Capital Group is conducting a number of investment projects in many lines of its business operations. These projects, due to their scale and often very complicated nature of implementation, represent a source of threats (risk) that may have an impact on the schedule, budget or quality of the final products. Systematic application of the provisions of TAURON Group's Project Risk Management Policy is aimed at mitigating these risks, supporting at the same time the accomplishment of the organization's strategic goals. That regulation, in particular, defines the basic principles of project risk management, ensuring consistency, comprehensive approach and unequivocal understanding in that area. The goal of the actions taken is to achieve the required probability of the project's completion, while complying with the defined schedule, budget and quality of the products obtained. The overall objective is to obtain the expected benefits from the project's completion and to achieve TAURON Capital Group's strategic goals.

Project risk management is also applicable to managing the risk stemming from the projects and having an impact on the organization. The process of managing the risk stemming from the projects includes identification, valuation of such risks, defining and monitoring the early warning indicators as well as planning and implementing actions related to managing such risks. In case of the risks that have an impact on the organization, the risk valuation is made as the absolute value of the impact, including indicating the impact period broken down into the individual accounting periods, in reference to the assumed EBITDA or the assumptions made in the organization for the long term projections. In case of the most important risks that have an impact on the organization, Plans of Responses to the Risk and Back-up (Contingency) Plans are developed. The evaluation of the project risks and the risks stemming from the projects for the organization is taken into account when making the key decisions related to launching and implementing such projects.

The below figure presents the project risk management model.

3.4. Description of the most material risk categories

The below table presents the most material risk categories identified for TAURON Capital Group.

Table no. 27. Most material risk categories identified for TAURON Capital Group

Risk name		Risk description	Risk trend and materiality	Reaction to risk
Trading
1.	Market risk	The risk related to unfavorable changes in prices on the wholesale electricity market and the energy related product markets, which adversely affect the financial results.	 ▪	1. Daily measurement and reporting of portfolio positions. 2. Ongoing monitoring of the result level and the risk level (VaR, Stop Loss, open positions). 3. Use of tools that minimize the formation of open trading positions (position limits and the Hedge Curve tolerances) 4. Taking advantage of the synergy effect among TAURON Capital Group's individual lines of business (central trading risk management). 5. Adoption of an optimal trading strategy. 6. Implementing pre-emptive position hedging mechanisms. 7. Granting and control of the compliance with risk mandates with certain limits. 8. Preparation and periodic verification of the price forecasts in the short, medium and long term
	Finance and credit
2.	Interest rate risk	Risk related to an unfavorable impact of interest rates on TAURON Capital Group's financial results.	 ▪	1. Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the interest rates. 2. Transfer of risk through the use of derivative instruments.
3.	FX rate risk	Risk related to an unfavorable impact of FX rates on TAURON Capital Group's financial results.	 ▪	1. Ongoing monitoring of risk exposure vulnerable to the FX rate risk. 2. Use of risk limits for TAURON Capital Group's operational FX position (Value at Risk). 3. Transfer of the FX rate risk through the use of the hedging transactions in accordance with the adopted TAURON Group's Financial Risk Management Policy.
4.	Liquidity risk	Risk related to the lack of TAURON Capital Group's ability of to pay its liabilities on an ongoing basis and difficulties in accessing capital, changes in the conditions for obtaining and servicing the financing already contracted and planned (incl. due to the tightening of the EU climate policy).	 ▪	1. Diversification of the sources of financing including arranging guaranteed financing programs as well as securing alternative sources of financing. 2. Analyzing the market and the availability of the sources of financing. 3. Ongoing communications with the financial institutions. 4. Arranging financing agreements 12-24 months in advance of the date the funding is needed. 5. Monitoring of the financial liquidity and planning the use of the available sources of financing.

Risk name		Risk description	Risk trend and materiality	Reaction to risk
				6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company.
5.	Financing risk	Risk related to the difficulties in accessing capital, changes in the conditions for obtaining and servicing the financing already contracted and planned (incl. due to the tightening of the EU climate policy).	 ▪	1. Diversification of the use of the available sources of financing by using the financing instruments that reduce the risk of breaching the covenant in the form of the net debt / EBITDA ratio (e.g. hybrid bonds, factoring). 2. The use of instruments without financial covenants and limiting the number of conditions that breach such covenants. 3. Ongoing communications with the financial institutions. 4. Pre-emptive activities with respect to obtaining approvals from the financial institutions to carry out transactions or activities specified in the financing agreements. 5. Identification of events that may potentially affect the breach of the financial contracts and taking advance actions to mitigate the negative impact of the occurrence of such an event. 6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company. 7. Taking actions aimed at reducing the net debt and/or increasing EBITDA based on the decisions of the Risk Committee or the Management Board of the Company.
6.	Tax risk	Risk related to incorrect or untimely payment of the tax obligations.	 ▪	1. Activities in accordance with legal regulations (Corporate Income Tax Act). 2. Issuing opinions on the economic events by TAURON Capital Group's tax advisors. 3. Jointly agreed positions at TAURON level. 4. Applying uniform accounting principles for companies within the PGK (Tax Capital Group). 5. Preparation of tax documentation for transactions between PGK companies and related entities outside PGK, requiring such documentation in accordance with the CIT Act, and auditing other transactions to confirm that they are concluded at arm's length.
7.	Credit risk	Risk related to a potential occurrence of overdue accounts payable or a conclusion of a contract with a counterparty (business partner, contractor) that may turn out to be insolvent.	 ▪	1. Regular monitoring of the counterparties (business partners, contractors)' financial standing. 2. Periodic customer scoring, credit rating of each customer prior to submitting an offer / concluding a contract. 3. Use of protection mechanisms (hedging) in commercial agreements
	Environment (stakeholders)
8.	Reputational risk	Risk related to the current and future impact on the company's revenue and capital (equity) due to the negative public opinion backlash, including the risk related to not following the market trends related to the climate protection.	 ▪	1. Continuous monitoring of the Company's external and internal threats. 2. Media monitoring, developing contacts and relationships with the media within TAURON Capital Group. 3. Preparing procedures for the Company's communications with the external and internal environment (stakeholders). 4. Striving to change the business profile to zero and low emission (carbon). 5. Adoption and implementation of: TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, TAURON Group's Anti-corruption Policy, TAURON Group's Corporate Social Responsibility Code of Conduct, TAURON Group's Diversity Policy, TAURON Group's Respect for Human Rights Policy
9.	License risk	Risk related to the lack of the possibility to conduct operations as a result of a prolonged process of obtaining a license or amending the licenses held, as well as the unfavorable legal changes with respect to the licensed operations.	 ▪	1. Ongoing control of the correct performance of the licensing obligations. 2. Monitoring changes to the legal acts with respect to the licensing obligations. 3. Legal support for the license extension and obtaining process.
10.	Macroeconomic risk	Risk related to the changes in the economic situation of the country, instability of the financial markets resulting in a decrease of the demand for electricity.	 ▪	1. Diversification of the revenue sources. 2. Market analysis and the application of the pre-emptive actions for the anticipated crisis or a slowdown of the GDP growth rate.
11.	Climate change risk	Risk related to the tightening of the EU climate policy, as well as the environmental requirements resulting from the climate change, activities supporting energy efficiency (prosumer development, support for the thermal insulation, construction of in-house energy and heat sources, departure from coal as fuel), change in the conditions of TAURON Capital Group's operations (the	 ▪	1. Application of TAURON Group's Climate Policy. 2. Defining, updating and implementing the Strategy. 3. Update of TAURON Group's Strategic Research Agenda. 4. Adaptation of TAURON Group's Investment Strategy to the guidelines stemming from TAURON Group's Climate Policy and Investment Strategy. 5. Update and implementation of TAURON Group's sustainable development strategy.

Risk name	Risk description	Risk trend and materiality	Reaction to risk
	need to adapt the company to the challenges of change resulting from the climate change). The implications of the risk include: difficulties or increase in the cost of raising capital to finance operations based on the fossil fuels, the need to incur additional capital expenditures for adapting the assets to the environmental requirements, an increase of the price of the CO2 emission allowances, declining demand for the products offered by TAURON Capital Group's subsidiaries.
	Technology, infrastructure and security (safety)
Environmental 12. risk	Risk related to the impact of the business operations conducted on the natural environment and the use of its resources, including, in particular, the loss of control over the process that would enable the prevention of excessive pollution, damage, disruption or failures of the installations or equipment that would have a negative impact on the environment. The risk also related to the possibility of: lack of the validity of environmental decisions, depositing waste in places not intended for such purpose or not in accordance with the conditions of the use of the facilities intended for such a purpose, the occurrence of a crisis situation (e.g. fire, displacement of earth masses, extreme conditions), the use of the waste not in accordance with the authorized destination (intended use), the lack of the appropriate safeguards limiting the negative impact of TAURON Capital Group's operations on the environment, release of the hazardous substances into the environment, social protests. The implications of the risk include: degradation of the natural environment and penalties for a failure to comply with environmental requirements, the need to remove such substances, the curtailment of the production, delays in the implementation of the investment projects, pollution of water sources in a way that would prevent their use, destruction of a habitat, object or valuable natural area - environmental compensation, restrictions on a further expansion of the business operations, a loss of the image of TAURON Capital Group, limitation of the ability to use the financial assistance programs. The risk also includes an increase in the environmental requirements due to the tightening of the EU's climate policy.	 ▪	1. Adoption and implementation of TAURON Group's Environmental Policy. 2. Conducting business operations that affect the environment in accordance with the principles of the sustainable development. 3. Ongoing supervision over compliance with the conditions of the environmental decisions. 4. Maintaining the required efficiency of the devices reducing the emission of pollutants. 5. Frequent evaluation of the compliance of the activities with the legal requirements with respect to environment protection. 6. Implementing investment projects in the environment protection area in order to minimize the adverse impact of the mining and processing operations conducted on the environment and climate. 7. Active search for the technical and organizational solutions that would minimize the impact of TAURON Capital Group's operations on the climate change.
13. Weather risk	Risk related to the more frequent occurrence of the weather anomalies, including relatively high temperatures in winter, higher rainfall intensity that can cause floods at any time of the year, uneven precipitation, resulting in longer periods of no rainfall, intermittent abrupt rainfall, and the intensification of the evaporation processes, increased frequency and intensity of the hurricanes, strong winds incidentally accompanied by tornadoes and lightnings, more frequent occurrence of droughts and restrictions in access to water related thereto, as well as	 ▪	1. Upgrading (refurbishing) the hydroelectric structures aimed at optimizing the utilization of the water resources. 2. Preparing of the plans of overhauls, inspections and maintenance activities with flexible provisions on deadlines for completing the works. 3. Continuous monitoring of the wind conditions and icing on the wind farms' blades. 4. Continuous technical oversight over the operation of the individual wind farms, conducted by the companies operating the farms.

• operating the farms. 5. Monitoring and analyzing new technological solutions that reduce the impact of the adverse weather conditions on the volume of the electricity generated.
• 1. Gradual adaptation of the production assets to the consequences of the extreme weather conditions and the variability of the weather conditions, in particular in the Lines of Business sensitive to these factors.

access to water related thereto, as well as an increased risk of fires, a very high risk of weakening of the stands, making trees more susceptible to the damage caused

The implications of the risk include, in particular: a decrease of the volume of electricity and heat supply, a decline of the production volume, the deterioration of the quality indicators and an impact on

by the wind.

the regulated revenue.

	Risk name	Risk description	Risk trend and materiality	Reaction to risk
14.	Company asset failure risk	Risk related to the machinery and equipment failures, distribution grid failures (electricity, heat) caused, among others, by the operation thereof, but also by random events including those related to the extreme weather conditions (storms, floods, hurricane winds, heat waves, fires) as a consequence of, among others, the climate change. The materialization of the risk affects the availability of the assets and results in downtime related to the asset failures, increased costs of the rectification thereof. In addition, it may also be a failure to meet the capacity obligation, resulting in the need to conclude transactions on the secondary market or the payment of the financial penalties to the TSO (PSE).	 ▪	1. Optimizing capital expenditures on asset replacements, ongoing monitoring of the condition of the machines, devices and installations. 2. Raising professional qualifications and work culture of the personnel by organizing courses and training. 3. Responding to an emergency situation by the technical personnel and automatic process safety interlocks (safeguards). 4. Insuring assets against fortuitous events (excluding underground assets). 5. Introducing IT tools with respect to improving the monitoring and managing failure indicators (ratios). 6. Continuous monitoring of the availability (dispatchability) of the generation units and the demand reduction, as well as shifting the capacity obligations that require reserving to the dedicated intra-group reserve units or external entities. 7. Updating the activities related to the handling of the group reserve, with particular emphasis on the analyses of the functioning of the secondary market starting from January 2021. 8. Updating TAURON Capital Group's maintenance (overhaul) shutdowns (outages). 9. Gradual adaptation of the production assets to the consequences of the extreme weather phenomena and the variability of the weather conditions, in particular in the Distribution Line of Business.
15.	IT risk	Risks related to the IT infrastructure security, failures of the IT infrastructure.	 ▪	1. Developing and maintaining plans aimed at ensuring continuity of the IT infrastructure's operation. 2. Periodic identifying and categorizing of the IT resources based on the service restoration targets. 3. Use of the IT solutions with the appropriate technical parameters, providing an acceptable level of reliability and performance of the operation (including also UPS devices, GSM modem, mobile phones). 4. Planning and conducting training courses on the IT infrastructure's continuity of operation and security. 5. Storing and protecting the back-up data.
16.	Asset (property) security and protection risk	Risk related to compromising the integrity of machines / devices and to the security of information, including its improper processing and unauthorized disclosure.	 ▪	1. Monitoring the implementation of the developed plans to protect the facilities that are subject to mandatory protection. 2. Maintaining and updating contingency procedures / plans. 3. Oversight over compliance with the information security rules in force. 4. Regular personnel training with respect to the security procedures in force.
17.	Geological risk	Risk related to the impact of geological factors on the mining operations	 ▪	1. Making test drillings for the better intelligence on the positioning of the coal deposits. 2. Continuing to take preventive measures in areas under threat in order to improve the geological and mining conditions and to provide protection against natural threats (including, among others, long-drilled blasting hole shooting in order to break the rock mass)
	Workforce and organizational culture
18.	Social dispute risk	Risk related to collective disputes, strikes, social conflicts being the consequence of a lack of the personnel's satisfaction with the economic and social situation.	 ▪	1. Conducting public consultations regarding the planned changes. 2. Conducting a policy of dialogue with the social partners (workforce). 3. Preparing and implementing motivational solutions for the personnel. 4. Standardizing the tasks and requirements towards the personnel. 5. Developing organizational culture based on values. 6. Conducting active internal communications on personnel matters
19.	Human resources risk	Risk related to the employee issues, including also diversity, participation, employment and labor conditions, relations with the trade unions and respect for the right to freedom of association, human capital management, career path and recruitment management, training systems, health and safety at work as well as, in the long run, the need to restructure employment due to the climate change, forcing a change in the profile of the business operations. The materialization of the risk may result in interruptions or disruptions to the operations, employee complaints, collective disputes, strikes, loss of	 ▪	1. Adoption and implementation of TAURON Group's Subsidiaries Employee Recruitment, Selection and Adoption and implementation of Adaptation Policy. TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination. 2. Taking care of developing personnel competences through the participation in the training courses 3. Conducting consultations with the social organizations at TAURON Capital Group 4. Implementation of the human resources policy based on TAURON Group's Competence Model and the applicable remuneration and labor law regulations (Compensation Regulations, Company Collective Bargaining Agreement, Labor Regulations). 5. Adoption and implementation of TAURON Group's Diversity Policy and TAURON Group's Respect for Human Rights Policy.

Risk name		Risk description	Risk trend and materiality	Reaction to risk
		specialized staff and difficulties in recreating it.
20.	Risk of the lack of the employees' due diligence	Risk related to non-compliance with the procedures and the lack of the employees' due diligence in the performance of the official duties.	 ▪	1. Implementation of TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy, 2. Systematic periodic employee training, 3. Analysis of the recurring cases of errors and mistakes of the employees, taking systemic remedial actions. 4. Implementation of the Internal Control (Audit) System and the control (audit) mechanisms for the processes conducted in TAURON Capital Group.
21.	Pandemic risk	Risks related to the persistence of the pandemic disrupting Poland's economic system and administration and causing significant changes in the market environment, impacting the operating conditions of TAURON Capital Group's subsidiaries. The increase in the number of infection cases leads to the curtailment of the economic activity, affecting the level of demand for the products offered by TAURON Capital Group's subsidiaries, including, in particular, the electricity distribution and supply volumes.	 ▪	1. Monitoring the state (condition) of the epidemiological threat (risk) at TAURON Capital Group. 2. Collecting information on the threats and identification of the potential threats to the safety of the workforce of TAURON Capital Group's subsidiaries. 3. Developing and recommending solutions aimed at reducing the level of threat to the resources of TAURON Capital Group. 4. Ongoing monitoring of the risk related to the availability of the employees and services provided by TAURON Capital Group's subsidiaries. 5. Recommending solutions aimed at curbing the effects of the materialization of the threat to the resources of TAURON Capital Group. 6. Preparing and providing opinions (feedback) on the content of the messages to be disseminated at the level of TAURON Capital Group and the Company. 7. Use of the screening tests. 8. Preparing of the contingency plans in the event of the loss of key employees of TAURON Capital Group. 9. Developing backup business continuity plans. 10. Undertaking trading activities in order to balance the buy position on an ongoing basis in relation to the observed drops in the volume of electricity sales. 11. Taking advantage of market opportunities to hedge the position in the Generation Line of Business (buy-backs). 12. Taking advantage of the anti-crisis shield mechanisms 13. Increasing the frequency of monitoring the overdue accounts receivable. 14. Introducing additional guidelines with respect to taking credit risk and extending the scope of the customer financial condition examination (vetting). 15. Introduction of a mechanism for monitoring and curbing spending.
22.	Work Health and Safety (WHS) Risk	Risk related to ensuring health and safety at work. The materialization of the risk results in an employee injury, a loss of health or excessive exposure of an employee to factors harmful to health, the compensation paid out for personal injury.	 ▪	1. Prioritizing safety of the employees, customers, contractors and stakeholders in the business activities undertaken 2. Adoption and implementation of TAURON Group's WHS Policy, 3. Ensuring optimal labor conditions, 4. Conducting active monitoring of the working conditions and the correctness of its organization, 5. Raising the employees' qualifications with respect to improving work safety, 6. Conducting training courses, implementing and improving the WHS management system
23.	Communications risk	Risk related to providing inaccurate, untrue information or a lack of information disclosure at specific time.	 ▪	1. Building relationships with the social partners (workforce) of TAURON Capital Group and close cooperation with the Social Dialogue Ombudsman. 2. Use and development of the available communications tools to provide relevant information to the employees of TAURON Capital Group. 3. When providing the relevant information – organizing the direct meetings between the management and the employees. 4. Ongoing monitoring of the situation and events at TAURON Capital Group's subsidiaries that may cause social anxiety. 5. Regular periodic meetings with the representatives of the subsidiaries dealing with the internal communications in order to exchange information. 6. Developing the Communications Strategy for TAURON Capital Group
	Compliance
24.	Internal fraud risk	Risk related to the appropriation or use of the Company's assets, its devastation, theft, the use of the official position for personal gain resulting in the financial losses, criminal and administrative sanctions, criminal and civil law liability.	 ▪	1. Educational and training activities for the employees, including the mandatory e-learning training with respect to the TAURON Group's Compliance Management System. 2. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization. 3. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators.

Risk name	Risk description	Risk trend and materiality	Reaction to risk
			4. Building the organizational culture based on TAURON Capital Group's values and principles. 5. Adoption and implementation of TAURON Group's Anti Corruption Policy. 6. Adoption and implementation of TAURON Group's Corporate Social Responsibility Code of Conduct. 7. Adoption and implementation of TAURON Group's Rules for accepting and giving gifts.
External fraud 25. risk	Risk related to the occurrence of an external fraud (abuse) that affects the operations of TAURON Capital Group through: disclosure of information to unauthorized persons, loss of information, commercial espionage, terrorist attack and hacker attacks, tax fraud, theft, vandalism, counterfeiting, money laundering, terrorist attack.	 ▪	1. Raising the employees' awareness through training and information campaigns related to the existing threats of external fraud (abuse). 2. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries. 3. Introduction of the anti-corruption clauses to the contracts with the contractors (counterparties). 4. Adoption and implementation of TAURON Group's Anti Corruption Policy. 5. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization. 6. Monitoring of the cooperation with the contractors (counterparties) and testing their credibility at TAURON Capital Group. 7. Promoting of the best practices, improving the procedures, conducting training courses and applying TAURON Group's Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system. 8. Building the organizational culture based on TAURON Capital Group's values and principles.
Risk of unethical 26. behavior and mobbing	Risk related to the occurrence of unethical behavior resulting, in particular, in the lack of cooperation, bad atmosphere in the team, mobbing, harassment, insulting, discrimination of the employees.	 ▪	1. Adoption and implementation of TAURON Group's Respect for Human Rights Policy. 2. Adoption and implementation of TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination. 3. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization 4. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators with respect to the anonymous reports of mobbing and discrimination. 5. Reviewing of the reports of mobbing or discrimination by the Ethics Committee. 6. Promoting of the best practices, improving the procedures, conducting training courses and applying TAURON Group's Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system. 7. Building the organizational culture based on TAURON Capital Group's values and principles. 8. Adoption and implementation of TAURON Group's Anti Corruption Policy. 9. Adoption and implementation of TAURON Group's Rules for accepting and giving gifts.
Legal risk 27.	Risk related to non-compliance with the legal provisions, misinterpretation of the new laws and regulations, the requirements imposed by the regulator and the supervisory authorities. The materialization of the risk may result in the financial penalties, criminal and civil law liability, a loss of the image of TAURON Capital Group.	 ▪	1. Adoption and implementation of TAURON Group's Compliance Policy. 2. Continuous monitoring of the legal environment and changes to the legal regulations with respect to the non sector regulations related to information security or the area of compliance in order to minimize the risk of non compliance. 3. Monitoring of the implementation process or implementing of the changes to the internal regulations required by the law. 4. Setting up or participating in the working groups tasked with adapting the organizations to the changes stemming from the legal environment. 5. Consultations with the relevant organizational units with respect to the planned key regulations for the area of compliance. 6. Training of the personnel with respect to the changes to the legal regulations and the internal regulations.
Risk of a breach of the contractual 28. provisions (default)	Risk related to a breach of the contractual provisions with respect to the contract parameters or a failure to perform the contract (default).	 ▪	1. Updating and adapting the contract templates to the legal changes. 2. Monitoring of the complaints and proceedings of the Energy Regulatory Office (URE) / Office of Competition and Consumer Protection (UOKiK). 3. Process optimization.
Personal data 29. protection risk	Risk related to inadequate storing and processing of personal data resulting in an undesirable leak or violation of the rights of data subjects related to personal data protection	 ▪	1. Identifying and implementing the appropriate technical or organizational measures to ensure the adequate level of security of personal data. 2. Monitoring the compliance with the legal regulations related to personal data protection.

Risk name		Risk description	Risk trend and materiality	Reaction to risk
				3. Raising the level of awareness of the workforce with respect to personal data protection, in accordance with the applicable regulations. 4. Defining and implementing the process of handling the data subjects' requests in accordance with the regulations and process documentation in force at TAURON Capital Group. 5. Providing information and advice on personal data protection to the employees of the organization.
		Customers and counterparties (business partners, contractors)
30.	Customer service risk	Risk related to non-compliance with the customer service standards leading to customer dissatisfaction with the service, customer complaints, loss of customers.	 ▪	1. Monitoring and analyzing the external customer satisfaction indicators and the indicators related to the complaints. 2. Taking the additional measures, e.g. with respect to the internal regulations, defining standards of conduct as a result of the analysis of indicators. 3. Taking the additional measures, e.g. introducing new internal regulations, in order to improve the customer service standards. 4. Developing the key account managers' competences and skills. 5. Continuous raising of the customer service standards.
31.	Risk related to performance of agreements by contractors and subcontractors	Risk related to the improper performance by the contractors and subcontractors of the works commissioned, the termination of the agreement and delays, changes to the budget and scope related thereto.	 ▪	1. Concluding of the agreements with the contractors and subcontractors in accordance with TAURON Capital Group's standards. 2. Analyzing the performance of the subject of the agreement, examining the quality of services provided by the contractors and subcontractors. 3. Evaluating the financial standing and credibility of the contractors and the subcontractors.
32.	Volume and margin risk	Risk related to the decline in the volume of the sales of the products offered by TAURON Capital Group's subsidiaries, in particular as a result of the development of the energy efficiency solutions, building insulation, prosumer development (growth), the impact of the climate factors causing a significant temperature deviation from the planned values. The implications of the risk include, first of all, the loss of revenue in the individual operating segments of TAURON Capital Group due to the reduced demand.	 ▪	1. Ongoing updating of the offering, launching of the sales of the multi-package type products. 2. Conducting the marketing campaigns, acquiring new customers. 3. Taking actions focused on retaining the existing customers and recovering the lost ones.
33.	Purchasing process risk	Risk related to the purchasing proceedings conducted, their erroneous implementation, an unplanned increase of the purchase costs, including the methods used to prevent violations of the human rights by the business partners, counteracting corruption and abuse (fraud) in the purchasing process and compliance with the ethical and moral standards during the implementation thereof. The materialization of the risk results in unfavorable purchase agreements, the need to cancel the tender procedures, a loss of the image of TAURON Capital Group and its credibility with the stakeholders.	 ▪	1. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group's subsidiaries. 2. Adoption and implementation of TAURON Group's Anti Corruption Policy. 3. Adoption and implementation of TAURON Group's Respect for Human Rights Policy. 4. Standardization of the rules of conducting the proceedings in the purchasing process and the transparency thereof. 5. Building lasting relationships with the contractors (counterparties) based on trust and mutual respect. 6. Expecting the contractors (counterparties) to comply with the legal provisions, ethical standards and good commercial practices, including the work health and safety standards, the principles of countering discrimination and unequal treatment, respect for human rights and dignity of the employees, transparent personnel policy, environment protection, fair competition, preventing and combating fraud, and information security and protection. 7. Application of the contract forms (templates) and standard clauses in the contracts regarding compliance with the human rights by the business partners of TAURON Capital Group.
	Regulations
34.	Regulatory risk	Risk related to the change of the existing regulations or the introduction of the new regulations that affect the operations of TAURON Capital Group and the need to adapt to the regulatory changes, in particular those resulting from a significant increase in the requirements of a specific regulation, including the environmental requirements stemming from the climate change, the support for the pro-climate activities (prosumer development, thermal insulation, development of in-house production	 ▪	1. Ongoing analysis of the draft regulations and acts. 2. Active participation in the works of the teams providing opinions on the drafts and proposing optimal solutions. 3. Gradual adaptation of the generation assets and the energy mix of TAURON Capital Group to the production of renewable energy as well as to the zero and low-emission electricity generation technologies.

Risk name	Risk description		Risk trend and materiality	Reaction to risk
	individual	sources). The implications of the risk are primarily: the loss of revenues in the operating segments of TAURON Capital Group, the increase in the operating expenses as a result of the need to adapt to the legislative changes.
▪ Low materiality	▪ Moderate materiality	▪ ▪ Medium materiality	High materiality

3.5. Risk classification in the individual operating Segments

Mining Segment

The Mining segment, in particular with respect to the hard coal mining, is exposed to a number of risk factors, the materialization of which significantly hinders or completely reduces the mining capacity at the individual coal mines. The most material operational risks include:

• 1. risk of adverse geological and mining conditions characterized by, e.g. unfavorable positioning of the coal deposits in the coal seam, faults, or excessive presence of the rocks (stone),,
• 1. risk of the lack of the timely commissioning of the coal faces involving the lack of the preparation of the mining fronts (headings) adequately in advance,
• 1. risk of asset failures leading to the coal mining downtime, due to the occurrence of the machinery and equipment failures,
• 1. risk of the occurrence of natural geological and mining threats leading to the coal mining downtime, caused by the rock bursts, endogenous fires, presence of methane in the deposit, too much water inflow.

The material risks in the Mining Segment also include threats stemming from the regulatory environment, including the gradual introduction of the new environmental requirements tightening the emission standards for the coal fired power plants, which will result in a decline of the demand for coal with low quality parameters.

The Mining Segment will also be materially affected by the climate policy that assumes a departure from the coal based generation technology in order to reduce pollution and achieve climate neutrality in the EU in the long term, which will, in effect, lead to the need to gradually phase out coal production. The level of demand for hard coal is also impacted by the issues related to the volume of electricity imported to Poland, observed in recent years, as well as the situation associated with the COVID-19 pandemic and the decrease in demand in the Polish Power System (KSE). In addition, the withdrawal of the financial institutions from financing of the assets based on the fossil fuels has been intensifying recently, which results in the curtailment of the possibilities of financing the new investment projects in the Mining Segment.

Generation Segment

The Generation Segment is exposed, in particular, to the market risk, regulatory risk as well as the technical and organizational risks that will have a significant impact on the Segment's results in the coming years.

As part of the market risk, the material risk factors include: the gradually declining CDS margin and the plans to integrate the European electricity market (increase in the electricity imports). In addition, the development of renewable energy technologies and the ever growing share of RES in meeting the demand for electricity have a material impact on the Generation Line of Business, leading to the pushing of the conventional generating units out of the market. Also, the electricity imports and the introduction of the new coal fired capacity into the system, with the efficiency much higher than the efficiency of the 200 MW units, means that the use of such generating units in the Generation Segment will be declining. A decrease in electricity demand is also observed in 2020, as a result of the epidemic in Poland. The above factors, in turn, lead to the decrease in demand for hard coal, resulting in a reduction in its purchases from the external suppliers.

With respect to the operational factors, the most material threat is the risk of not achieving the planned availability (dispatchability) rate of the units, which is closely related to the individual units' failure rate, high variability of the units' loads and the higher frequency of start-ups or the use of inadequate quality fuel.

A failure to meet the planned availability rate of the units may also result in the inability to meet the capacity obligation, which, if it is not possible to reserve capacity, may result in the assessing of penalties on the Generation Segment's subsidiaries.

The Generation Segment's operations are also materially impacted by the climate factors, including the EU's climate policy, that assumes the ultimate departure from the coal fired generation technology in order to reduce pollution, which, as a consequence, will cause a drop in the profitability of this operating segment. In addition, the climate factors will lead to an increase of the average temperature during the year, causing, in turn, the reduction of the revenue from the heat supply. Furthermore, the withdrawal of the financial institutions from financing of the assets

based on the fossil fuels has been intensifying recently, which results in the curtailment of the possibilities of financing the new investments in the Generation Segment.

Currently the material risk factors include planned refurbishments of the units, with the goal to adapt the units to the new environmental requirements defined in the BAT Conclusions. The implementation of the refurbishments on the existing facilities leads to the rise of the project and organizational risks related to, among others, the potential increase of the costs of the refurbishments or the reduction of the units' availability (dispatchability) rates.

In the long term, the regulatory risks, including the further tightening of the environmental requirements, will lead to the need to carry out the transition of the Generation Segment, both in terms of the technical, as well as the social aspects.

RES Segment

The RES segment is exposed, in particular, to the market risks, risks related to the weather factors affecting the volume of electricity generation, in particular hydro, wind and solar based, and the regulatory risks, the impact of which significantly affects the results of the RES Segment and its expansion opportunities.

The volume of electricity produced by the hydropower plants is dependent on the hydrological conditions, including the quantity and frequency of rainfall both in winter as well as during the rest of the year. Warm winters are reported more and more often, without sufficient snowfall which melts in the spring and feeds watercourses where hydro power plants are located. In case of wind energy, we are observing greater predictability of the volume produced, and thus the stability of the planned production volumes. The market risk related to the high volatility of the prices of electricity and related products has an equally significant impact on the results of the RES Segment, which translates into the amount of margin obtained on the operations conducted.

It should be noted as well that the results of the RES Segment are also impacted by the efficiency rates of the assets and the risk of its failure related thereto, and thus the temporary outages of some assets from use.

Taking into account the RES Segment's expansion opportunities and expectations, including those stemming from the climate policy, the regulatory restrictions related, in particular, to the construction of the new wind farms, as well as uncertainty with respect to the taxation of the RES assets, should be noted.

Distribution Segment

One of the most important threats to the Distribution Segment is the distribution services sales volume risk related to the electricity supply volume decline, and, as a consequence, a drop of the revenue from the provision of the distribution services to the individual groups of consumers. The material reasons behind this risk include both the macroeconomic factors, i.e. a decline of the demand for electricity due to the economic slowdown, the epidemiological situation and the COVID-19 impact, as well as the factors stemming from the climate issues, i.e. an increase in the consumer awareness with respect to reducing energy consumption intensity and the rapid growth of the prosumer energy.

An equally material risk is associated with the occurrence of an unfavorable deviation of the operating expenses resulting in the costs of the operations, and in particular the operating expenses and the costs of purchasing electricity to cover the balancing difference, not being covered by the tariff during the tariff period.

With respect to the operational factors, a material risk for the Distribution Segment is the risk of an asset failure, i.e. the risk related to maintaining the availability of the transmission networks (systems) and the costs of fixing the failures resulting from, among others, the climate changes leading to an increase in the frequency and intensity of the hurricanes, strong winds incidentally accompanied by tornadoes and lightnings causing failures of the distribution grids.

In the medium and long term, the material risks for the Distribution Segment include the risk of an adverse change in the structure and parameters determining the tariff amount (the factors behind this risk include, among others, the WACC rate, the amount of the capital expenditures, the balancing difference indicators and the amount of the transmission fees), the issues related to the compliance with the distribution's quality indicators that have an impact on the regulated revenue and the planned change to the distribution tariff model.

Supply Segment

In the Supply Segment, TAURON Capital Group identifies and manages the risks related to the supply of electricity to the final consumers, including the key customers (volume risk per individual customer segment, margin risk, profile risk and the risk of non-balancing).

A material threat to the accomplishment of the Supply Segment's assumed goals is the volume risk related to the non-achievement of the assumed electricity supply volume. The reasons behind this risk stem from such factors as: the competitive environment, the macroeconomic factors, i.e. a drop of the demand for electricity caused by the economic slowdown, the restrictions due to COVID-19 and the volatility of the electricity prices. In addition, this risk is fueled by the increased customer awareness, the trend to strengthen consumer protection and the regulatory pressure to reduce the price hikes.

At the same time, the Supply Segment is facing the market risk due to the high volatility of the electricity, gas and related products prices. Such risk, as a consequence of the price fluctuations, as well as the observed liquidity of the electricity market, affects the margin obtained due to the steps required to hedge the cost of the electricity supply.

A material threat (risk) to the Supply Line of Business is also posed by the credit risk understood as a failure of the counterparties (contractors) to meet their obligations arising from the electricity and gas sales. In 2020, an increase in credit risk was observed, to a large degree as a result of the restrictions introduced due to the COVID-19 pandemic. This situation may cause a significant increase in the insolvency of the counterparties (contractors) of TAURON Capital Group. In order to cap (limit) the potential financial losses, stricter criteria of credit risk management are applied and the activities related to the monitoring of the accounts receivable and debt collection have been intensified.

The most important regulatory risks in the Supply Segment include the tariff risk, in particular related to the curbing of the Company's costs by the President of the Energy Regulatory Office to the level of the justified costs and the costs actually incurred not being covered by the tariff for the given year. The consequences of the materialization of such risk include the curtailment of the planned revenue, profitability and funds for the development of the company's potential. A material regulatory risk is also posed by the introduced and announced changes in the functioning of the balancing market, which may affect the costs of balancing changes in the supply volume to the customers of the Supply Segment's customers.

In the long run, the climate factors, and in particular the rapid expansion of the prosumer energy, pose a threat to the stability (predictability) of achieving the Supply Segment's goals. The risk of the prosumer market growth is associated with an increase in the electricity production from the micro-installations, resulting in an increase of the costs of serving the prosumers, as well as a loss of the supply volume and the planned margin on electricity supply.

Other operations

Other organizational units that are a part of TAURON Capital Group are primarily providing the support services for the above mentioned Segments. The main risks that are present in the Other operations segment are related to ensuring the availability and security of the IT services, the broadly understood compliance management, personal data protection, as well as security and protection of property.

At TAURON Capital Group's level, the material threats affecting the entire value chain of TAURON Capital Group include the risk of financing resulting from the gradual withdrawal of the financial institutions from financing of the activities based on the fossil fuels, the regulatory and political issues related in particular to the environment and climate protection issues, the risks associated with the human resources management and the workforce expectations with respect to the growth of wages, as well as the pending court litigations against TAURON.

With respect to the regulatory risk, attention should be paid to a recent trend that has emerged towards the tightening of the EU climate policy, related to a greater reduction of the CO² emissions and the support for the RES investments, which leads to an increase in the variability in terms of the national sector regulations, and this in turn translates into an increase in the number of regulatory risks of strategic importance for TAURON Capital Group.

Risk category map

The below table presents the classification of risks based on TAURON Capital Group's operating segments. The risk categories indicated below are consistent with the Risk Model adopted by TAURON Capital Group described in section 3.2. of this report.

	Term		Operating Segment*
Risk		Medium	Long	Mining Segment	Generation Segment	RES Segment	Distribution Segment	Supply Segment	Other operations
1. Market risk	x	x	x	3	5	5	3	5	0
2. Interest rate risk	x	x	x	2	2	2	4	2	3
3. FX rate risk	x	x	x	1	3	2	1	0	3
4. Liquidity risk	x	x	x	4	4	2	2	2	2
5. Financial risk	x	x	x	5	5	3	3	3	3
6. Tax risk	x			3	3	3	3	3	3

Table no. 28. Classification of risks based on TAURON Capital Group's operating segments

		Term		Operating Segment*
	Risk		Medium	Long	Mining Segment	Generation Segment	RES Segment	Distribution Segment	Supply Segment	Other operations
7.	Credit risk		x		1	1	1	3	4	1
8.	Reputational risk	x	x	x	1	1	1	2	2	1
9.	License risk	x	x	x	3	3	3	3	3	0
10.	Macroeconomic risk	x	x	x	4	4	3	4	4	2
11.	Climate change risk	x	x	x	5	5	4	4	4	4
12.	Environmental risk	x			2	2	2	1	0	0
13.	Weather risk	x			1	3	3	3	2	0
14.	Company asset failure risk	x			5	5	4	4	0	1
15.	IT risk	x			3	3	1	3	3	4
16.	Asset (property) security and protection risk	x			2	3	2	3	1	2
17.	Geological risk	x			5	0	0	0	0	0
18.	Social dispute risk	x			4	4	2	4	3	2
19.	Human resources risk	x	x		3	2	1	3	2	2
20.	Risk of the lack of the employees' due diligence	x			2	2	2	2	2	2
21.	Pandemic risk	x	x	x	4	5	3	5	2	3
22.	Work Health and Safety (WHS) Risk	x			3	3	2	3	1	1
23.	Communications risk	x			2	2	1	2	2	2
24.	Internal fraud risk	x			2	2	2	2	2	2
25.	External fraud risk	x			3	3	3	3	3	3
26.	Risk of unethical behavior and mobbing	x			2	2	2	2	2	2
27.	Legal risk	x			3	3	2	3	3	2
28.	Risk of a breach of the contractual provisions (default)	x			2	2	2	2	2	2
29.	Personal data protection risk	x			2	2	2	3	3	3
30.	Customer service risk	x			1	1	0	3	3	1
31.	Risk related to performance of agreements by contractors and subcontractors	x			2	2	2	2	1	2
32.	Volume and margin risk	x	x		5	4	4	5	5	2
33.	Purchasing process risk	x			2	2	2	3	1	2
34.	Regulatory risk	x	x	x	5	5	3	4	4	2

*values signifying the impact of the individual risks on TAURON Capital Group's operating segments: 0 - neutral, 1 – immaterial on the Company's level, 2 material on the Company's level, 3 - serious on the Company's level, 4 – material on TAURON Capital Group's level, 5 – serious on TAURON Capital Group's level

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4. ANALYSIS OF THE FINANCIAL POSITION AND ASSETS OF TAURON POLSKA ENERGIA S.A.

4.1. Overview of the economic and financial data disclosed in the annual financial statements

Statement of comprehensive income

The below table presents the annual standalone statement of comprehensive income in 2019-2020, drawn up in accordance with the IFRS.

Table no. 29. Annual standalone statement of comprehensive income in 2019-2020 drawn up in accordance with the IFRS

Statement of comprehensive income drawn up in accordance with the IFRS (PLN '000)	2019	2020	Change in % (2020 / 2019)
Sales revenue	10 680 577	11 340 464	106%
Own cost of goods, materials and services sold	(10 431 139)	(12 101 520)	116%
Gross profit (loss) from sales	249 438	(761 056)	-
Cost of sales	(24 036)	(20 829)	87%
Overheads	(121 636)	(117 509)	97%
Other operating revenues and costs	(2 664)	(10 509)	394%
Operating profit (loss)	101 102	(909 903)	-
Operating profit margin (%)	0.9%	(8.0)%	-
Financial revenue	1 490 670	1 407 278	94%
Costs of interest on debt	(407 866)	(409 623)	100%
Revaluation of stocks and shares	(94 920)	(589 010)	621%
Revaluation of bonds and loans	(1 394 812)	(1 453 476)	104%
Revaluation write-down to fair value of fixed assets classified as held for sale	0	(1 393 432)
Other financial revenues and costs	(40 381)	(179 464)	444%
Pre-tax profit (loss)	(346 207)	(3 527 630)	1019%
Pre-tax profit margin (%)	(3.2)%	(31.1)%	960%
Income tax	(116 623)	(62 025)	53%
Net profit (loss)	(462 830)	(3 589 655)	776%
Net profit margin (%)	(4.3)%	(31.7)%	730%
Other net comprehensive income	11 171	(95 367)	-
Total comprehensive income	(451 659)	(3 685 022)	816%
EBITDA	114 198	(894 391)	-
EBITDA margin (%)	1.1%	(7.9)%	-

The Company reported an operating loss of PLN (910) million in 2020, the result posted was lower than the result achieved in 2019, primarily as a consequence of the need to set up the provision for the onerous contract, i.e. the multi-year agreement for the purchase of the electricity generated by the 910 MW unit in Jaworzno in the amount of PLN 1 110 million.

In 2020, similar as in 2019, impairment charges related to the carrying value of the stocks and shares in the subsidiaries were recognized in the financial results, due to the completed impairment tests related to the loss of the carrying amount of the stocks and shares in the subsidiaries as well as the bonds and loans as of June 30, 2020 and as of December 31, 2020. The detailed information is provided further on in this report.

The Company disclosed the information on the above event in the regulatory filings (current reports): no. 37/2020 of August 5, 2020 and no. 5/2021 of February 23, 2021.

Revenue

The below table presents the Company's sales revenue in 2019-2020.

Table no. 30. Company's sales revenue in 2019-2020

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)
Total revenue	12 248 381	12 918 150	105%
Sales revenue	10 680 577	11 340 464	106%
Revenue from sales of goods and materials:	10 526 854	11 199 496	106%
Electricity (without excluding excise tax)	9 468 482	10 513 901	111%
Gas	347 631	333 414	96%
Greenhouse gas emission allowances	701 607	339 632	48%
Other	9 134	12 549	137%
Revenue from sales of services:	153 723	140 968	92%
Trading services sales	110 256	107 672	98%
Other	43 467	33 296	77%
Revenue from other operations	2 089	6 242	299%
Revenue from financial operations	1 565 715	1 571 444	100%
Revenue from dividend	1 100 861	1 082 031	98%
Revenue from bonds and loans interest	389 809	325 195	83%
Other financial revenue	75 045	164 218	219%

Revenue from the sales of goods and materials represents 87% of the total revenue, while financial revenue represents 12%, which is a consequence of the implemented Business Model and centralizing of the functions by TAURON.

The goal of the adopted solution is to hedge the buy and sell positions of TAURON Capital Group's entities, to perform the function of the Market Operator and the entity responsible for the trading balancing of TAURON Capital Group's subsidiaries and to optimally manage, among others, the property rights and the CO² emission allowances.

A relatively large share of revenue from bonds and loans interest is a consequence of the implemented central financing model and TAURON Group's Liquidity Management Policy, along with the cash pool mechanism put in place at TAURON Capital Group, which allows for efficient management of the finances of all of TAURON Capital Group's subsidiaries.

In the reporting period ended on December 31, 2020, the Company generated sales revenues that was 6% higher than the revenue posted in 2019, which is the result of the following factors:

• 1. higher revenue from the sales of electricity by 11% as a result of the higher electricity sales prices (6%), as compared to 2019 and the higher sales volume (5%),
• 1. decrease of revenue from the sales of the CO² emission allowances by 52% which is the result of the sale in 2019 of a larger volume of the allowances for the redemption needs of TAURON Wytwarzanie and TAURON Ciepło subsidiaries than in 2020. The above decrease is the result of a change in the Company's strategy with respect to securing the redemption needs related to the CO² emission allowances in the Generation line of business, therefore the sale of the CO² emission allowances due to the 2020 redemption obligation took place in part in 2020, but a significant volume will be sold in March 2021,
• 1. decrease by 28% in revenue due to the use of the trademark by TAURON Capital Group's subsidiaries,

The Company's operations are, to a large extent, conducted on the territory of Poland. Sales to the foreign customers came in at PLN 22 723 000 and PLN 35 974 000, , in the years ended on December 31, 2020 and December 31, 2019, respectively.

Due to its holding operations the Company is reporting material financial revenue. It stood at 1 571 million in 2020 and it was comparable to the level achieved in 2019. The financial revenue includes dividends (69%), interest on the bonds and loans (21%), other financial revenue (10%), including the valuation of the derivative instruments and the profit from the disposal (divestment) of entities.

Costs

The below table presents the level and structure of the costs incurred by the Company in 2019-2020.

Table no. 31. Level and structure of the costs incurred by the Company in 2019-2020

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)
Total costs	(12 594 588)	(16 445 777)	131%
Cost of goods, materials and services sold	(10 431 139)	(12 101 520)	116%
Costs of sales and overheads	(145 672)	(138 338)	95%
Costs of other operations	(4 753)	(16 749)	352%
Costs of financial operations	(2 013 024)	(4 189 170)	208%

The total costs of the Company's operations in 2020 represented 131% of the amount of its costs in 2019. The increase in the Company's costs was primarily affected by the recognition, in the financial costs in 2020, of the effects of booking the impairment charges related to the carrying amount of the subsidiaries' stocks and shares and the loans granted to the subsidiaries. The surplus of the impairment charges related to the carrying amount of the subsidiaries' stocks and shares and the revaluation of the loans granted to the subsidiaries in 2020 amounted to a total of PLN 2 042 million, as compared to PLN 1 520 million in 2019.

The cost of goods, materials and services sold came in at PLN 12 102 million and it was higher by 16% as compared to 2019 , with the setting up of the provision for the onerous contract, i.e. the multi-year agreement for the purchase of the electricity generated by the 910 MW unit in Jaworzno, in the amount of PLN 1 110 million, having the biggest impact thereupon. The analyses completed demonstrated that the setting up of the provision in the Company's financial statements had been justified. Moreover, higher electricity purchase costs were recorded in 2020, due to the increase in the volume, with higher electricity purchase prices. Another factor was the costs of the other operating activities, which amounted to PLN 17 million, as compared to PLN 5 million in 2019, and were mainly incurred for the donations, including for the fight against the COVID-19 pandemic, the construction of the temporary hospitals at the request of the Ministry of the State Assets, and the setting up of a balance sheet provision related to the claim from TAURON Capital Group against the Company with regard to the mandatory repurchase of the shares (squeeze).

The costs of sales and overheads in the amount of PLN 138 million were lower by 5% as compared to 2019, which was, to a large degree, due to the dissolving (release) of the provision related to the energy relief, the lower level of the implementation of the tasks related to promotion and marketing, as well as of the project activities, caused by the limitations stemming from the COVID-19 pandemic.

The costs of the financing activities came in at PLN 4 189 million and they were higher by 108% as compared to 2019, which was to, the largest extent, due to the following events:

• 1. recognition of the write-down, related to the revaluation to fair value (mark to market) of the fixed assets classified as held for sale, in the amount of PLN 1 394 million, in connection with classifying the above assets as held for sale.
• 1. recognition of the impairment charge related to the carrying amount of the stocks and shares in TAURON Wytwarzanie S.A. and TAURON Ekoenergia Sp. z o.o., which is a consequence of the impairment tests conducted as of December 31, 2020, in accordance with IAS 36 Impairment of assets, that demonstrated impairment of the carrying value of the stocks and shares in such companies (subsidiaries),
• 1. surplus of the negative FX exchange differences over the positive ones in the amount of PLN 303 million, which is related to the valuation of the Company's liabilities due to the debt denominated in EUR, i.e. a loan received from a subsidiary, subordinated bonds and the EURO bonds. The euro exchange rate went up from 4.2585 PLN/EUR to the level of 4.6148 PLN/EUR in the reporting period,. In the comparable period, the surplus of the positive FX exchange differences over the negative ones amounted to PLN 29 million.

In addition, the Company recognized the net cost of the revaluation of the loans in the amount of PLN 1 453 million, which is a slightly higher amount than the cost recognized in the income statement for 2019. The costs of this item resulted from:

• 1. valuation of the loans granted to the TAURON Wydobycie subsidiary, and as a consequence the financial result of the Company was charged with the negative valuation in the total amount of PLN 1 159 million,
• 1. valuation of the loans granted to the Elektrociepłownia Stalowa Wola S.A. joint venture in the total amount of PLN 222 million, resulting mainly from the credit risk analyses with respect to the loans granted, conducted as of the balance sheet date, which led to a decrease of their carrying amount in the total amount of PLN 235 million,

• recognition, in accordance with IFRS 9 Financial Instruments, of a loss due to the modification of financial instruments in the amount of PLN 62 million due to the change in the contractual provisions related to the intragroup loans.

Company's assets and financial position

The below table presents the Company's annual standalone statement of financial position, drawn up in accordance with the IFRS.

Table no. 32. Company's annual standalone statement of financial position, drawn up in accordance with the IFRS (material items)

Statement of financial position drawn up in accordance with the IFRS (PLN '000)	As of As of December 31, 2019 December 31, 2020		Change in % (2020 / 2019)
ASSETS
Fixed assets	27 010 590	24 498 483	91%
Stocks and shares	21 844 183	20 152 633	92%
Bonds and loans granted	5 047 552	4 233 601	84%
Current assets	3 474 539	4 209 659	121%
Inventory	149 364	394 031	264%
Accounts receivable due to deliveries and services	1 727 952	1 383 873	80%
Bonds and loans granted	265 202	1 147 350	433%
Cash and equivalents	923 728	643 134	70%
TOTAL ASSETS	30 485 129	28 708 142	94%
EQUITY AND LIABILITIES
Equity	14 808 177	11 123 155	75%
Long term liabilities	10 947 500	13 074 803	119%
Liabilities due to debt	10 909 597	12 117 294	111%
Short term liabilities	10 947 500	13 074 803	119%
Liabilities due to debt	3 607 266	2 772 339	77%
Liabilities towards suppliers and other liabilities	697 230	997 195	143%
TOTAL EQUITY AND LIABILITIES	30 485 129	28 708 142	94%

As of December 31, 2020, the fixed assets accounted for the biggest share of the total assets (85%), where the dominating item is the value of the stocks and shares (70% of the total assets) as well bonds as loans granted (15% of the total assets).

The following events had the biggest impact on a decrease of the value of the stocks and shares by 8% year on year:

• 1. reclassifying of the shares in TAURON Ciepło as assets held for sale PLN (1 760 million),
• 1. increasing of the share capital of Nowe Jaworzno Grupa TAURON in the amount of PLN 645 million,
• 1. increasing of the share capital of TAURON Nowe Technologie in the amount of PLN 9 million,
• 1. increasing of the share capital of EEC Magenta 2 ASI in the amount of PLN 12 million.

The additional factor that contributed to a change of this balance sheet item are the impairment charges related to the stocks and shares that were booked as a result of impairment tests conducted due to the loss of the carrying value of the stocks and shares in subsidiaries. The impairment tests conducted as of June 30 and December 31, 2020, demonstrated the legitimacy of booking or increasing the already booked write-downs in the following subsidiaries: TAURON Wytwarzanie in the amount of PLN (194) million and TAURON EKOENERGIA in the amount of PLN (376) million.

As of December 31, 2020 and as of December 31, 2019, the equity represented, respectively, 39% and 49% of total equity and liabilities.

The liabilities of the Company due to debt, as of December 31, 2020, were related to:

• 1. bonds issued under the bond issue program worth PLN 6 749.6 million, including the subordinated hybrid bonds in the amount of PLN 1 998.4 million,
• 1. loans obtained from the consortium of banks in the amount of PLN 3 162.8 million,
• 1. loans obtained from BGK in the amount of PLN 998.2 million,
• 1. loans from related entities drawn under the Agreement on the provision of the cash pool service in the amount of PLN 1 386.4 million,
• 1. loans obtained from the European Investment Bank (EIB) in the amount of PLN 540.3 million (along with the interest),
• 1. loans obtained from Intensa Sanpaolo S.p.A. in the amount of PLN 752.1 million (along with the interest),
• 1. loans obtained from SMBC Bank EU AG in the amount of PLN 498.9 million (along with the interest),
• 1. loan from a subsidiary in the amount of PLN 770.5 million,

In addition, pursuant to IFRS 16 Leases, the Company's liabilities due to debt also include a lease liability in the amount of PLN 30.7 million, related to the right of perpetual usufruct of land, leases of office premises and storage space, parking spaces and cars.

Statement of cash flows

The table below presents the statement of cash flows drawn up in accordance with the IFRS.

Table no. 33. Statement of cash flows drawn up in accordance with the IFRS (material items)

Statement of cash flows drawn up in accordance with the IFRS (PLN '000)	2019 2020		Change in % (2020 / 2019)
CASH FLOW FROM OPERATING ACTIVITIES
Pretax profit / (loss)	(346 207)	(3 527 630)	1019%
Adjustments	(152 063)	4 435 076	-
Net cash from operating activities	(498 270)	907 446	-
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of stocks and shares	(863 047)	(690 623)	80%
Purchase of bonds	(420 000)	-	0%
Loans granted	(1 281 444)	(1 933 932)	151%
Redemption of bonds	1 190 000	-	0%
Repayment of loans granted	15 600	216 558	1388%
Dividends received	1 100 861	1 082 031	98%
Interest received	335 316	226 638	68%
Net cash from investing activities	74 699	(1 088 538)	-
CASH FLOW FROM FINANCING ACTIVITIES
Redemption of debt securities	(2 420 000)	(60 400)	2%
Repayment of loans / credits	(862 318)	(4 401 918)	510%
Interest paid	(405 881)	(379 871)	94%
Issue of debt securities	500 000	1 000 000	200%
Loans taken	5 150 000	3 360 000	65%
Net cash from financing activities	1 934 525	(512 772)	-
Increase / (decrease) in net cash and equivalents	1 510 954	(693 864)	-
Net FX differences	(239)	2 803	-
Cash opening balance	(1 560 034)	(49 080)	3%
Cash closing balance	(49 080)	(742 944)	1514%

The balance of cash received from the operating, investing and financing activities of the Company for 2020, taking into account the opening cash balance, stood at PLN (742.9) million. In addition, the closing cash balance presented in the Company's balance sheet as of the end of the period in the amount of PLN 643.1 million stems from the adjustment of cash by the balance of loans granted and drawn under the cash pool transactions, due to the fact that they do not constitute cash flows from the investing or financing activities, as they are used mainly for the current liquidity management.

4.2. Differences between the financial results reported in the annual report and the forecasts of results for the given year published earlier

The Management Board of the Company did not publish any forecasts of the earnings of TAURON for 2020. This decision was due to the considerable volatility of the market and a substantial number of factors affecting its predictability.

4.3. Key financial ratios and the Alternative Performance Measures

The below table presents key financial ratios of TAURON, which may constitute an important source of information for investors about the financial and operational standing of the Company. The Alternative Performance Measures below as defined by the ESMA Guidelines on Alternative Performance Measures, in the opinion of the Management Board, present additional information regarding the Company's financial results. They constitute standard metrics commonly used in financial analysis, the usefulness of which has been analyzed in terms of the information provided to investors on the financial standing, financial efficiency and cash flows of the Company.

Item		Definition	2019	2020	Change in % (2020 / 2019)
1.	Gross Profitability	Gross profit / sales revenue	(3.2)%	(31.1)%	960%
2.	Net Profitability	Net profit / sales revenue	(4.3)%	(31.2)%	721%
3.	Return on equity	Net profit / equity as of the end of the period	(3.1)%	(31.9)%	1019%
4.	Return on assets	Net profit / total assets	(1.5)%	(12.3)%	813%
5.	EBIT (PLN '000)	Operating profit	101 102	(909 903)	-
6.	EBIT margin	(EBIT / sales revenue)	0.9%	(8.0)%	-
7.	EBITDA (PLN '000)	Operating profit before depreciation	114 198	(894 391)	-
8.	EBITDA margin	EBITDA / sales revenue	1.1%	(7.9)%	-
9.	Current liquidity ratio	Current assets / short term liabilities	0.73	0.93	127%

Table no. 34. Key financial ratios of TAURON

The lower EBIT achieved by the Company in 2020, as compared to 2019, is mainly due to the need to set up the provision for the onerous contract, i.e. the multi-year agreement for the purchase of the electricity generated by the 910 MW unit in Jaworzno, in the amount of PLN 1 110 million.

The 2020 pre-tax and net financial results were impacted by the booked and reversed impairment charges related to the stocks and shares in the subsidiaries, the revaluation of the loans granted and the write-downs related to the revaluation to fair value (mark to market) of the fixed assets classified as held for sale.

The amount of the operating profit is typical for a company conducting operations involving managing a holding entity (costs related to managing TAURON Capital Group are included in the operating activities while revenues gained from dividends are recognized under the financial activities).

The Company's ability to pay its accounts payable was not in jeopardy in 2020.

4.4. Principles of preparing annual financial statements

The Financial Statements of TAURON have been drawn up in accordance with the IFRS approved by the EU.

The IFRS comprise standards and interpretations approved by the International Accounting Standards (IAS) Board as well as the International Financial Reporting Standards Interpretation Committee.

The Financial Statements of TAURON have been drawn up with the assumption of the continuation of business operations by TAURON in the foreseeable future, i.e. over the time frame not shorter than 1 year from the balance sheet date. As of the date of the approval of the Financial statements of TAURON for publication, no circumstances have been detected, indicating any risk for business continuity by TAURON.

The accounting principles (policy) adopted for drawing up of the Financial Statements of TAURON are presented in note 6 to the Financial Statements of TAURON.

5. ANALYSIS OF TAURON CAPITAL GROUP'S FINANCIAL RESULTS

5.1. TAURON Capital Group's financial results

The below table presents TAURON Capital Group's EBITDA in 2012-2020.

Figure no. 47. TAURON Capital Group's EBITDA in 2012-2020

The below table presents TAURON Capital Group's 2019-2020 EBITDA broken down into individual lines of business (segments). Data for the individual segments do not include the consolidation exclusions.

EBITDA (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Mining	(499 865)	(157 321)	31%	342 544
Generation	438 114	172 145	39%	(265 969)
RES	368 213	296 852	81%	(71 361)
Distribution	2 605 808	3 023 006	116%	417 198
Supply	428 577	683 352	159%	254 775
Other operations	136 186	229 314	168%	93 128
Unassigned items	(55 792)	(195 741)	351%	(139 949)
EBITDA on continued operations	3 421 241	4 051 607	118%	630 366
Discontinued operations	178 126	171 119	96%	(7 007)
Total EBITDA	3 599 367	4 222 726	117%	623 359

Table no. 35. TAURON Capital Group's 2019-2020 EBITDA broken down into individual lines of business (segments)

The below figure presents TAURON Capital Group's 2019-2020 EBITDA structure (composition).

Figure no. 48. TAURON Capital Group's 2019-2020 EBITDA structure (composition)

Report of the Management Board on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020 This is a translation of the document originally issued and signed in Polish

113

The Distribution, Generation and Supply Segments are the biggest contributors to TAURON Capital Group's EBITDA.

The below figure presents the change in TAURON Capital Group's EBITDA in 2019-2020.

5.2. TAURON Capital Group's financial results by operating Segments (Lines of Business)

Mining Segment

The below table presents the Mining Segment's 2019-2020 results

Table no. 36. Mining Segment's 2019-2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Sales revenue	944 433	1 051 923	111%	107 490
coal - coarse and medium assortments	236 506	235 829	100%	-677
thermal coal	658 630	769 327	117%	110 697
other revenue	49 296	46 767	95%	-2 529
EBIT	-1 391 949	-886 665	-	505 284
Depreciation and write-downs	892 084	729 344	82%	-162 740
EBITDA	-499 865	-157 321	-	342 544

The Mining Segment's revenue was 11% higher in 2020, as compared to 2019, as a consequence of the higher coal volume sold, which was due to the higher production of the commercial coal by TAURON Wydobycie mining subsidiary's coal mines. Janina Coal Mine (ZG Janina) and Brzeszcze Coal Mine (ZG Brzeszcze) reported the biggest increase, which was due to the more favorable configuration of the longwall fronts than in 2019. The lower extraction output of the Sobieski Coal Mine (ZG Sobieski) was a consequence of a smaller number of the longwalls for mining.

The Mining Segment's 2020 EBITDA and EBIT were higher in 2020 as compared to the same period of 2019. The achieved results were impacted by the following factors:

• 1. an increase of the sales volumes of the large and medium size grain products by 8% and of the thermal coal by 10%,
• 1. an increase of average coal price by 7%, i.e. from 237,25 PLN/Mg to 247.60 PLN/Mg, which was mainly due to an increase of the price of the coal dust (fine grained product) from 221.35 PLN/Mg to 234.85 PLN/Mg,
• 1. a decline of the variable unit cost by 7%, i.e. from 47.31 PLN/Mg to 44.11 PLN/Mg, primarily due to the lower unit cost of the preparatory works,
• 1. receiving of the funding under the government's anti-crisis shield program,
• 1. others mainly due to the fact that some of the coal produced and not sold had been recognized as assets in the balance sheet in 2020 and one-off events affecting the 2019 result,

In addition, the Segment's higher EBIT was impacted by the lower impairment charge than in the same period of 2019.

TAURON Capital Group recognized, in the 2020 results, the booking of the impairment charges related to the loss of the carrying amount on the balance sheet of the Mining Segment's cash generating units (CGU), whose total impact on the charge to the Segment's operating profit reached PLN 560 million in 2020, which is a lower figure than the amount recorded in the same period of last year, i.e. PLN 694 million.

Figure no. 50. Mining Segment's 2019-2020 financial data

The below figure presents the Mining Segment's 2019-2020 financial data.

The below figure presents the Mining Segment's EBITDA, including the material factors affecting the change year on year.

Figure no. 51. Mining Segment's EBITDA

Major investments (CAPEX)

The Mining Segment's total capital expenditures came in at PLN 345 million in 2020, including the outlays on the following investment projects:

• 1. PLN 41 million on the construction of the 800 m level at Janina Coal Mine (ZG Janina),
• 1. PLN 38 million on the purchase/upgrade of the longwall mining system in the coal seam 301,
• 1. PLN 32 million on the Brzeszcze Coal Mine's (ZG Brzeszcze) capex program,
• 1. PLN 17 million on the construction of the "Grzegorz" shaft, including the construction of the infrastructure and the accompanying headings,
• 1. PLN 139 million of outlays on the preparation of future production.

The Mining Segment's other capital expenditures are spent on coal extraction preparations and operations (mainly the purchase of machines and equipment, drilling of headings, longwall preparation).

Generation Segment

The below table presents the Generation Segment's 2019–2020 results.

Table no. 37. Generation Segment's 2019–2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Sales revenue	3 428 637	3 493 387	102%	64 750
electricity	3 212 208	3 202 512	100%	(9 696)
heat	114 636	148 246	129%	33 610
property rights related to certificates of electricity origin	52 196	91 538	175%	39 342
other revenue	49 597	51 092	103%	1 495
EBIT	(509 635)	(2 712 856)	-	(2 203 221)
Depreciation and write-downs	947 749	2 885 001	304%	1 937 252
EBITDA	438 114	172 145	39%	(265 969)

The Generation Segment's sales revenue was higher by 2% in 2020, as compared to the same period of 2019, primarily due to the higher heat and RES property rights sales revenue (higher sales volume).

Generation Segment's 2020 EBITDA and EBIT were lower than the 2019 results. The following factors had an impact on the results achieved:

• 1. lower margin on electricity (coal fired units) mainly due to the lower CDS year on year and the decline of the electricity sales volume. The recognition of the provision set up in connection with the obligation to present the CO² emission allowances for redemption (retirement) related to (including) 883 thousand Certified Emission Reduction (CER) units, had a significant impact on the CDS in 2019,
• 1. commissioning of the 910 MWe in Jaworzno in November 2020,
• 1. higher margin on electricity (biomass fired units) due to the higher PMOZE prices, higher electricity prices as well as the higher production volume,
• 1. a swap of the CO² emission allowance purchase contracts, in the first quarter of 2020 TAURON Capital Group made a decision to change the hedging strategy related to securing the Generation Segment's retirement needs, involving a one-time swap of the exchange traded contracts with the delivery date in December 2020 to the OTC contracts with the delivery date in March 2021. All of the new transactions concluded on the OTC market will be used for the purpose of performing the retirement obligation by TAURON Capital Group's generation subsidiaries. The above transactions led to a charge to the Generation Segment's EBITDA result in the amount of PLN 111 million. At the same time, the completed purchase of the volume with the delivery date in March 2021 from the counterparties on the OTC market, taking into account the decrease of the CO² emission allowances prices at the time of the transaction, led to the reduction of the costs of TAURON Capital Group setting up a provision for the CO² emission liabilities for 2020,
• 1. receiving of the financing aid as part of the government anti-crisis shield package program,
• 1. other mainly: the lower TAMEH result, higher property insurance costs, higher result on the sale of nonfinancial fixed assets and changes in the provisions year on year.

In addition, the Segment's lower EBIT was impacted by the higher impairment charges year on year.

TAURON Capital Group recognized, in the 2019 and 2020 results, the booking and reversing of the impairment charges related to the loss of the carrying amount on the balance sheet of the Generation Segment's cash generating units (CGU), whose total impact on the charge to the Segment's operating profit reached PLN 635 million and PLN 2 618 million, respectively.

The below figure presents the Generation Segment's 2019–2020 financial data.

Figure no. 52. Generation Segment's 2019–2020 financial data

116

The below figure presents the Generation Segment's EBITDA, including the material factors impacting the change year on year.

Figure no. 53. Generation Segment's EBITDA

Major investments (CAPEX)

The Generation Segment's total capital expenditures came in at PLN 1 336 million in 2020, including the outlays on the following strategic investment projects:

• 1. PLN 688 million on the construction of the new 910 MWe unit in Jaworzno,
• 1. PLN 239 million on the adaptation of TAURON Wytwarzanie's generating units to the BAT conclusions,
• 1. PLN 187 million on the replacement expenditures and overhaul components at TAURON Wytwarzanie
• 1. PLN 18 million on the implementation of the heat unit at Łagisza Power Plant,

In addition, the financial costs account for approx. PLN 205 million of the segment's total capex.

Apart from the above capex the investment project in Stalowa Wola, with the participation of the strategic partner, PGNiG, was completed. TAURON and PGNiG hold a 50% stake each in the special purpose vehicle that implemented the project that included the construction of the 449 MWe CCGT unit, including the 240 MWt heat generation component. In January 2016, the contract with the general contractor Abener Energia S.A was terminated. In March 2017, thanks to the repayment of the institutions financing the project thus far, the signed amendments to the gas and electricity agreements as well as the agreement on the project's restructuring came into force. The agreement was reached and the decision was taken on the construction of the backup heat source. In March 2018, financing was obtained from Bank Gospodarstwa Krajowego S.A. (BGK) and PGNiG. As a result of completing a number of analyses, the contract manager formula (EPCM) was chosen. among others due to the project's advancement level. Energopomiar Gliwice - Energoprojekt Katowice consortium was selected to implement the EPCM project. The project's implementation was completed in September 2020 and since October 2020 Elektrociepłownia Stalowa Wola S.A. has been operating a CCGT unit with a heating unit and a back-up heat source. The capital expenditures incurred on the project (excluding the financial costs) amount to PLN 1.4 billion.

RES Segment

The below table presents the RES Segment's 2019–2020 results.

Table no. 38. RES Segment's 2019–2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Sales revenue	433 911	615 558	142%	181 647
electricity	253 058	305 505	121%	52 447
certificates of origin of electricity	177 906	309 971	174%	132 064
other	2 947	82	3%	(2 865)
EBIT	284 346	145 801	51%	(138 545)
Depreciation and write-downs	(83 867)	(151 051)	180%	(67 184)
EBITDA	368 213	296 852	81%	(71 361)

RES segment's EBITDA and EBIT were lower in 2020 than in the same period of 2019. The results posted were affected by the following factors:

• 1. recognition of the opportunistic acquisition of 5 wind farms from the in.ventus group in the 2020 result,
• 1. a higher margin on electricity sales mainly due to the electricity production by the wind farms acquired in September 2019,
• 1. higher revenues from the certificates of origin of electricity, which is a consequence of the higher prices and the certificates obtained as a result of the electricity production by the wind farms acquired in September 2019,
• 1. higher fixed costs as a result of setting up, in June 2020, of the provision for the real estate tax as a result of the judgement of the Constitutional Tribunal of July 2020 with respect to the constitutionality of the definition of a building structure and the costs of operating the wind farms acquired in September 2019.

In addition, the depreciation costs rose in 2020 in the RES Segment, as a result of an increase in the value of assets as a result of the wind farm acquisition transaction in September 2019.

The below figure presents the RES Segment's 2019-2020 financial data.

Figure no. 54. RES Segment's 2019-2020 financial data

The below figure presents the RES Segment's EBITDA, including the material factors impacting the change year on year.

Figure no. 55. RES Segment's EBITDA

Major investments (CAPEX)

The RES Segment's total capital expenditures came in at PLN 40 million in 2020, including the outlays on the following strategic investment projects:

1. PLN 16 million on the construction of the Choszczno PV farm,

2. PLN 15 million on the construction of the Jaworzno PV farm.

Distribution Segment

The below table presents the Distribution Segment's 2019-2020 results.

Table no. 39. Distribution Segment's 2019-2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Sales revenue	6 594 864	6 866 354	104%	271 490
distribution and trading services	6 299 847	6 577 492	104%	277 645
grid connection fees	80 885	83 319	103%	2 434
Revenue due for fixing power line collisions	45 058	37 446	83%	(7 612)
other revenue (rent, goods and materials, construction and assembly services)	169 074	168 097	99%	(977)
EBIT	1 443 741	1 857 009	129%	413 268
Depreciation and write-downs	1 162 067	1 165 997	100%	3 930
EBITDA	2 605 808	3 023 006	116%	417 198

The Distribution Segment reported a 4% sales revenue increase, while EBIT and EBITDA went up by, respectively, 29% and 16% in 2020, as compared to 2019. The changes to the results posted were affected by the following factors:

• 1. an increase of the average rate for the distribution service sales to the final consumers,
• 1. a decline of the total electricity delivery by 1 464 GWh, including to the final consumers by 1 381 GWh, first of all in the B and C tariff groups, as a result of the economic slowdown and the visible impact of the COVID-19 pandemic on the economy,
• 1. higher costs of purchasing the transmission and distribution services,
• 1. an increase of the other revenue from the distribution operations, i.e. due to the passive energy off-take exceeding the contractual connection capacity (power) and the grid connection fees,
• 1. an increase of the costs of purchasing electricity to cover the balancing difference as a result of the higher volume, the higher purchase price,
• 1. dissolution, in 2020, of the provision for the payment of the equivalent for electricity,
• 1. a rise of the other fixed costs, including the labor costs as a result of the wages agreements signed, as well as an increase in the benefits in connection with the applicable regulations and the costs of the taxes on the grid assets due to the increase of the value of the assets as a result of the investment projects conducted.

The below figure presents the Distribution Segment's 2019-2020 financial data.

Figure no. 56. Distribution Segment's 2019-2020 financial data

The below figure presents the Distribution Segment's EBITDA, including the material factors impacting the change year on year.

Major investments (CAPEX)

The Distribution Segment's total capital expenditures came in at PLN 1 908 million in 2020. The main capex directions included:

• 1. PLN 924 million on the investment projects related to connecting new consumers to the grid
• 1. PLN 827 million on the investment projects related to the grid upgrades (refurbishments) and replacements
• 1. PLN 52 million for the construction of a dispatcher communications system.

In addition, the expenditures in the total amount of approx. PLN 103 million were also incurred on: communications and IT, buildings and structures, means of transportation, in 2020.

Supply Segment

The below table presents the Supply Segment's 2019-2020 results.

Table no. 40. Supply Segment's 2019-2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Sales revenue	14 907 937	17 249 258	116%	2 341 321
electricity, including	9 488 091	11 685 519	123%	2 197 428
revenue from retail electricity supply	7 479 056	9 575 392	128%	2 096 336
greenhouse gas emission allowances	701 607	339 632	48%	(361 975)
fuel	1 396 300	1 754 270	126%	357 970
distribution service (transferred)	3 117 588	3 242 716	104%	125 128
other revenue, including trading services	204 351	227 121	111%	22 770
Compensations	952 650	66 448	7%	886 202
EBIT	382 185	641 648	168%	259 463
Depreciation and write-downs	46 392	41 704	90%	(4 688)
EBITDA	428 577	683 352	159%	254 775

The Supply Segment's sales revenue was 16% higher in 2020, as compared to the same period of 2019, mainly due to the higher electricity sales revenue (higher electricity sales price) and the higher fuel sales revenue (higher coal and gas fuel sales volumes).

The Supply Segment's EBITDA and EBIT were higher in 2020 than in the same period of 2019. The results posted were affected by the following factors:

• 1. electricity (buybacks) a positive impact on the result is brought about by the result generated on the electricity wholesale trading due to the performance of the buybacks of the volume contracted for the 910 MW unit in Jaworzno and the performance of the electricity buybacks for EC Stalowa Wola,
• 1. electricity volume and prices a positive impact on the result is mainly due to an increase of retail electricity sales prices (an increase of the tariff and price lists) and the purchase of electricity generated by the 910 MW generating unit commissioned in Jaworzno in November 2020 in accordance with the adopted multi-year purchase agreement by TAURON at a price calculated in accordance with the net transaction margin method,
• 1. property rights prices a negative impact on the result due to an increase of the prices of the green certificates (PMOZE),
• 1. obligation to retire the property rights a negative impact on the result is a consequence of an increase of the obligation related to the green certificates (PMOZE) from 18.5% to 19.5%,
• 1. other the recognized result on the sale of the other market (commercial) products, street lighting, the higher costs of sales and the balance of the other operations

The below figure presents the Supply Segment's 2019-2020 financial data.

Report of the Management Board on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020 This is a translation of the document originally issued and signed in Polish

120

The below figure presents the Supply Segment's EBITDA, including the material factors impacting the change year on year. Figure no. 59. Supply Segment's EBITDA

Major investments (CAPEX)

The Supply Segment's total capital expenditures came in at PLN 61 million in 2020, mainly by TAURON Nowe Technologie, for the activities related to the maintenance and expansion of the street lighting in the amount of PLN 43 million and PLN 10 million for the construction of the gas engines .

Other operations

The below table presents the Other Operations Segment's 2019-2020 results.

Table no. 41. Other Operations Segment's 2019-2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 / 2019)
Sales revenue	979 911	1 114 493	114%	134 582
customer service services	215 785	237 279	110%	21 494
support services	481 000	511 646	106%	30 646
biomass	118 546	156 472	132%	37 926
aggregates	106 573	104 173	98%	-2 400
other revenue	58 007	104 923	181%	46 916
EBIT	46 152	136 174	295%	90 022
Depreciation and write-downs	90 034	93 140	103%	3 106

The Other Operations Segment's subsidiaries revenue was 14% higher in 2020, as compared to 2018, which was primarily due to an increase of the revenue from the higher sales of biomass to TAURON Capital Group's subsidiaries and the sales of the other services, including, among others, the sales of the by-products of the combustion and extraction.

The below figure presents the Other Operations Segment subsidiaries' 2019-2020 financial data.

980 1 114 136 229 ^{46 136} 0 200 400 600 800 1 000 1 200 2019 2020 PLN m Sales revenue EBITDA EBIT

Figure no. 60. Other Operations Segment subsidiaries' 2019-2020 financial data

Major investments (CAPEX)

The Other Operations Segment subsidiaries' capital expenditures came in at PLN 248 million in total in 2020 and they included mainly outlays related to the IT systems, including PLN 101 million for the broadband internet construction project as part of the POPC III program.

Discontinued operations

The below table presents the results posted as part of the Discontinued operations in 2019-2020.

Table no. 42. Discontinued operations' 2019-2020 results

Item (PLN '000)	2019	2020	Change in % (2020 / 2019)	Change (2020 / 2019)
Sales revenue	445 957	482 608	108%	36 652
EBIT	96 406	(717 342)	-	(813 748)
Depreciation and write-downs	81 720	888 461	1087%	806 741
EBITDA	178 126	171 119	96%	(7 007)

The below figure presents the Discontinued operations' 2019-2020 financial data.

As of the date of placing TAURON Ciepło's net assets in the group for disposal, classified as held for sale, TAURON Capital Group performed a valuation of the group for disposal at fair value (mark to market). The fair value was, as of the balance sheet date, determined to stand at PLN 1 342 000 000. In connection with the fact that the fair value of the group for disposal is lower than its current book value (carrying amount), TAURON Capital Group took an impairment charge related to the loss of the carrying value of the non-financial fixed assets in the amount of PLN 822 009 000.

Major investments (CAPEX)

In terms of the discontinued operations, the main capital expenditures in 2020 are related to the outlays incurred by TAURON Ciepło subsidiary that clocked in at PLN 101 million, including spending on the following investment projects:

• 1. PLN 33 million on connecting of the new facilities to the grid,
• 1. PLN 16 million on the investment projects related to the development and maintenance of the district heating networks,
• 1. PLN 9 million on connecting of the facilities heated thus far from the low emission sources to the district heating networks.

5.3. Characteristics of the structure of assets and liabilities in the consolidated statement of financial position

The below table shows the structure of the annual consolidated statement of financial position.

Table no. 43. Structure of the annual consolidated statement of financial position

Consolidated statement of financial position	As of December 31, 2019	As of December 31, 2020
ASSETS
Fixed assets	83.6%	80.5%
Current assets	16.4%	19.5%

Consolidated statement of financial position	As of December 31, 2019	As of December 31, 2020
TOTAL ASSETS	100.0%	100.0%
EQUITY AND LIABILITIES
Equity attributable to shareholders of the parent entity	43.4%	39.4%
Non-controlling stakes	2.1%	2.3%
Total equity	45.5%	41.6%
Long term liabilities	35.7%	39.8%
Short term liabilities	18.8%	18.6%
Total liabilities	54.5%	58.4%
TOTAL EQUITY AND LIABILITIES	100.0%	100.0%
Financial liabilities	11 394 246	11 515 873
Net financial liabilities	10 129 572	10 594 528
Net debt / EBITDA ratio	2.8x	2.5x
Current liquidity ratio	0.87	1.05

The below figures present the structure of assets as well as equity and liabilities.

Figure no. 63. Structure of equity and liabilities

Figure no. 62. Structure of assets

As of December 31, 2020, similar as in 2019, the value of the fixed assets constitutes the largest share in the structure of assets: 80.5%, which is less by 3.1 pp than in 2019.

As of December 31, 2020, the liabilities represent the largest share in the structure of equity and liabilities: 54.5%, with their share rising by 3.9 pp, as compared to 2019.

The level of debt of TAURON Capital Group remains at a safe level, which is indicated by the value of the leverage ratio which is below the value agreed upon with the institutions financing TAURON Group's operations. The current liquidity ratio and the net debt to EBITDA ratio remain at a safe level.

Figure no. 64. Current liquidity ratio and the net debt to EBITDA ratio in 2019-2020

The below table presents the annual consolidated statement of financial position – assets.

Table no. 44. Annual consolidated statement of financial position - assets (material items)*

Statement of financial position (PLN '000)	As of December 31, 2019	As of December 31, 2020	Change in % (2019 / 2018)
ASSETS
Fixed assets	35 052 287	31 736 391	91%
Tangible fixed assets	31 099 071	27 926 615	90%
Current assets	6 865 478	7 674 673	111%
Cash and equivalents	1 237 952	909 453	73%
Fixed assets classified as held for sale	22 710	1 903 076	8 276%
TOTAL ASSETS	41 917 765	39 411 064	94%

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report

As of December 31, 2020, the statement of the financial position of TAURON Capital Group indicates the balance sheet total lower by 6%.

The below figures present the change in the level of assets and current assets.

In 2020, TAURON Capital Group, having taken into account the following factors:

• 1. long term (persistent) hovering of the net market value of Company's assets at a level below the net balance sheet carrying amount of the assets,
• 1. changes to the commodity, electricity and CO² emission allowances prices on the worldwide markets;
• 1. high volatility of electricity prices on the futures market and the continued problems with a lack of liquidity;
• 1. decline in domestic electricity consumption due to the rising winter temperatures and the impact of the COVID-19 pandemic,
• 1. regulatory actions aimed at curbing an increase of electricity prices for the final consumers,
• 1. rising risk related to the commercial coal production,
• 1. effects of the results of the RES auctions held thus far and the very fast growth of the prosumer and microinstallations subsector in connection with the support programs launched,
• 1. effects of the implementation of the winter package provisions, including the emissions standard, that have an adverse impact on the ability of the coal fired units to take part in the capacity market after July 1, 2025,
• 1. tightening of the emissions standards and continued adverse market conditions from the point of view of the conventional power generation's profitability,
• 1. decrease of the risk free rate,

recognized (booked) impairment charges in the Generation and Mining Segments for the total amount of PLN 3 170 million as a result of the impairment tests conducted as of December 31, 2020 and as of June 30, 2020, of which the Company disclosed information in the regulatory filings (current reports) no. 5/2021 of February 23, 2021, correction of no. 5/2020 of February 26, 2021, and no. 37/2020 of August 5, 2020. It should be mentioned that in 2019 TAURON Capital Group recognized the impairment charges in the Generation and Mining Segments and dissolved (reversed) in part the previously booked write-downs in the Generation segment, which is the result of the impairment tests carried out as of December 31, 2019, and June 30, 2019, in the total amount of PLN 1 305 million.

After excluding the impairment charges, the value of the fixed assets as of December 31, 2020, was lower by PLN 1 450 million, i.e. by 4%, which was a consequence of the changes in the following items of the Statement of the Financial Position:

• 1. tangible fixed assets (excluding the impact of the impairment charges related to the carrying amount of the fixed assets) - a decline by 4% as a consequence of:
  2. 1) classifying of TAURON Ciepło's net assets as held for sale and recognizing them in the financial statements under the current assets item,
  3. 2) investment projects implemented by TAURON Capital Group's subsidiaries,
  4. 3) depreciation charges related to TAURON Group's assets,
• 1. right to use the assets a drop by 2% as a consequence of depreciation charges,
• 1. certificates of origin of electricity and greenhouse gas emission allowances to be redeemed (retired) an increase by 7% which is the result of the reclassifying of the certificates of origin of electricity and the CO² emission allowances as the current assets in connection with the fulfilment of the conditions for the redemption (retirement) of the said assets and the purchase thereof towards the obligation in the subsequent years.
• 1. loans granted to the joint ventures a drop by 60% due to the update of the valuation of the loan valued at fair value (marked to market),
• 1. other intangible assets a rise by 15%,
• 1. other financial assets a drop by 12%,
• 1. other non-financial assets a drop by 58%,
• 1. deferred income tax assets an increase by 80%.

The following factors had an impact on the increase in the value of the current assets by PLN 809 million, i.e. by 12%:

• 1. recognition (booking) of the net assets of TAURON Ciepło classified as assets held for sale, which is related to the project conducted by TAURON Capital Group aimed at the market verification of the possibility of the sale of the shares in the TAURON Ciepło subsidiary and the potential continuation of the sale process,
• 1. balance of cash on hand and its equivalents a decline by 27%,
• 1. certificates of origin of electricity and the CO² emission allowances to be redeemed (retired) a drop by 22% which is the result of the postponement of the purchase of the CO² emission allowances to be redeemed (retired) in 2020 until March 2021,
• 1. inventory an increase by 14% mainly due to the rise of the hard coal inventory,
• 1. accounts receivable from the consumers a rise by 3%,
• 1. accounts receivable due to income tax a slump by 67% in connection with the inflow, received in 2020, due to the settlement of the corporate income tax for 2019 and the recognition, as of December 31, 2020, of the accounts receivable due to income tax, which is mainly due to the PGK's accounts receivable,
• 1. accounts receivable due to the other taxes and fees a fall by 27%, mainly due to the settlement of the VAT which was the result of the transaction to purchase the CO² emission allowances by the Generation Segment subsidiaries from the parent entity,
• 1. other financial assets a drop by 52%, which is the result of:
  2. 1) a decrease in the accounts receivable due to the compensations for the trading companies as a result of the settling by the Manager of the settlements of the accounts receivable recognized as of December 31, 2019, and the recognition, as of December 31, 2020, of the accounts receivable stemming from the applications for an adjustment, submitted on September 28, 2020, by the trading companies, of the amount of the difference between the price and the financial compensation for the entire 2019,
  3. 2) lower value of the tender deposits (margins), security deposits (margins, pledges) provided as a result of the lower value of the collaterals provided by the Generation segment's subsidiary to PSE S.A. as a collateral for the proper performance of the contract for the provision of the electricity transmission services and the collaterals provided by the Company as part of the system of guaranteeing the settlements with IRGiT (Warsaw Commodity Exchange Clearing House),
  4. 3) a decline of the initial margins which is mainly due to the Company's positions (exposures) on the exchange as of December 31, 2020, and the changes of the prices of the allowances,
  5. 4) a decrease in the value of the variation margins,
  6. 5) sale of the investment funds' participation units in 2020.
• 1. other non-financial assets a decrease by 22%, under which TAURON Capital Group recognizes accruals and prepayments, the advances towards the fixed assets under construction, the intangible assets and inventory that is not discounted as non-monetary assets, as well as the contract acquisition costs and the discount costs. The contract acquisition costs are capitalized, if TAURON Capital Group expects that they will be recovered.

The below table presents the annual consolidated statement of financial position – equity and liabilities.

Table no. 45. Annual consolidated statement of financial position – equity and liabilities (material items)*

Statement of financial position (PLN '000)	As of December 31, 2019	As of December 31, 2020	Change in % (2020 / 2019)
EQUITY AND LIABILITIES
Equity attributable to shareholders of the parent entity	18 192 226	15 518 642	85%
Non-controlling stakes	900 434	893 623	99%
Total equity	19 092 660	16 412 265	86%
Long term liabilities	14 963 274	15 687 376	105%
Liabilities due to debt	11 830 183	13 108 449	111%
Short term liabilities	7 861 831	7 311 423	93%
Liabilities due to debt	2 484 093	1 478 550	60%
Total liabilities	22 825 105	22 998 799	101%
TOTAL EQUITY AND LIABILITIES	41 917 765	39 411 064	94%

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report

The below figures present the change in the amount of liabilities and equity attributable to the majority shareholders.

Figure no. 67. Change in equity and liabilities

Equity was a material source of financing the assets in 2020 and its share in the total equity and liabilities stood at 41.6%.

The amount of TAURON Capital Group's long term liabilities went up by PLN 724 million, i.e. by 5%, 2020, which was a consequence of the following factors:

• 1. reclassifying of some liabilities as liabilities related to the assets classified as the net assets of TAURON Ciepło held for sale, which is related to the project conducted by TAURON Capital Group aimed at the market verification of the possibility of the sale of the shares in the TAURON Ciepło subsidiary and the potential continuation of the sale process,
• 1. liabilities due to debt an increase by 11% as a result of taking out loans worth PLN 3 369 million in 2020, an issue of the bonds worth PLN 1 billion, an update of the valuation of the bonds issued in a foreign currency as a result of a rise of the FX rate as of December 31, 2020, as compared to the FX rate as of December 31, 2019, as well as reclassifying of some liabilities as short term liabilities,
• 1. liabilities due to the deferred income tax a drop by 28%, which is mainly due to the reduction of the difference between the tax value and the balance sheet value (carrying amount) of the tangible fixed assets, intangible assets and the rights to use the assets,
• 1. provisions for the employee benefits a drop by 29% in connection with the dissolution (release) of the provisions for the employee tariff which is an effect of the agreement concluded in May 2020 and the signing of the additional protocols between the management boards of the subsidiaries and the workforce that amended the provisions of the corporate collective bargaining agreements of the subsidiaries with respect to the payout

of a cash equivalent due to the discount for the consumption of electricity by the retirees, pensioners and other eligible persons who were no longer employees of the above mentioned subsidiaries.

The amount of TAURON Capital Group's short term liabilities went down by PLN 550 million, i.e. by 7%, which was primarily a consequence of the following factors:

• 1. reclassifying of some long term liabilities as liabilities related to the assets classified as the net assets of TAURON Ciepło held for sale, which is related to the project conducted by TAURON Capital Group aimed at the market verification of the possibility of the sale of the shares in the TAURON Ciepło subsidiary and the potential continuation of the sale process,
• 1. liabilities due to debt a drop by 40%, which is related to the repayment of the loans received in the amount of PLN 4 407 million, reclassifying of some long term liabilities as short term liabilities and an update of the value of the bonds issued in a foreign currency as a result of a rise of the FX rate as of December 31, 2020, as compared to the FX rate as of December 31, 2019,
• 1. accounts payable towards the suppliers an increase by 14% and the investment commitments a rise by 11%,
• 1. provisions for the employee benefits a drop by 14% in connection with the dissolution of the provisions for the employee tariff,
• 1. provisions for the obligations due to the certificates of origin of electricity and the CO² emissions a rise by 18%, which is mainly due to an increase of the prices of the green certificates (PMOZE) and the prices of the CO² emission allowances in 2020, as compared to the prices in 2019, as well as an increase of the obligation related to the certificates of origin of electricity, the so-called green certificates (PMOZE) from 18.5% to 19.5%,
• 1. other provisions a decrease by 51%, which stems from the consumption of the provision for onerous contracts set up at the end of December 2019 by the Supply Segment's subsidiary, and which was mainly related to the households, including the customers who were using the tariff based prices approved by the President of the ERO ("G tariff") and the individual customers who were using the product based price lists offered by the Company ("GD price lists"). The need to set up the above provision for the G tariff stemmed from the adoption, for the calculation of the sales price for such consumers for 2020, of the parameters specified in the request (summons) of the President of the ERO, the approval of which in December 2019 results in the lack of the ability to generate revenue from the supply of electricity in the amount covering the justified costs of conducting the business operations in this regard. The price level approved by the decision of the President of the ERO for the G tariff group for 2020 was also a significant reason for the losses on the GD price lists, for which the provision was set up. Some of the product based contracts in the household segment link the rates for the electricity with the G tariff price, and therefore also make it impossible to generate sales revenue in the amount that would cover the full variable costs of the business operations conducted. At the same time, the TAURON Sprzedaż subsidiary submitted, on January 7, 2020, an application for the approval of a change of the electricity tariff for the G tariff groups' customers for 2020, which aims to pass on (cover) all of the justified costs that were not accepted in the application approved in December 2019. By way of the decision of July 8, 2020, the President of the ERO refused to approve the change in the electricity tariff for such customers. On July 31, 2020, the Management Board of TAURON Sprzedaż filed an appeal with the Competition and Consumer Protection Court against the Decision of the President of the ERO of July 8, 2020. At the same time, as of December 31, 2020, the Company updated the remaining part of the provision for onerous contracts. This provision is applicable, first and foremost, to the GD price lists. However, as of December 31, 2020, there was no need to set up a provision for onerous contracts in respect of the G tariff. On the basis of the tariff for the households for 2021 approved by the President of the ERO in December 2020, the Company will be generating revenue from the supply of electricity that will fully cover the justified costs of conducting the business operations in this regard,
• 1. accounts payable due to taxes and fees a drop by 33%, which is the result of the lower accounts payable due to the VAT tax, the accounts payable due to the social security and the personal income tax. The decrease of the accounts payable due to the VAT tax is primarily the result of the settlement, within the period of the six months ended on June 30, 2020, of the liability due to the VAT tax as of December 31, 2019, stemming from the transaction involving the sale by the Company of the CO2 emission allowances to the Generation Segment subsidiaries.

5.4. Discussion of the economic and financial figures disclosed in the annual consolidated financial statement

Consolidated statement of comprehensive income

The below table presents the annual consolidated statement of comprehensive income. Due to the changes in the segments and in order to maintain the comparability, the results are presented for 2 years

Table no. 46. Annual consolidated statement of comprehensive income for 2019-2020*

Statement of comprehensive income (PLN '000)	2019	2020	Change in % (2020 / 2019)
Sales revenue	19 112 336	20 367 400	107%
Compensations	952 650	66 448	7%
Own cost of sales	(20 059 039)	(21 802 547)	109%
Other operating revenues and costs	145 154	338 299	233%
Share in the profits of the joint ventures	47 947	15 765	33%
Operating profit	199 048	(1 014 635)	-
Cost of interest on debt	(248 781)	(283 456)	114%
Other financial revenue and costs	(63 011)	(357 577)	567%
Pre-tax profit (loss)	(112 744)	(1 655 668)	1 469%
Income tax	18 547	(77 882)	-
Net profit (loss) on the continued operations for the period	(94 197)	(1 733 550)	1 840%
Net profit (loss) from the discontinued operations for the period	82 514	(754 327)	-
Net profit (loss) for the period	(11 683)	(2 487 874)	21 295%
Total income for the period	(113 536)	(2 675 883)	2 357%
Net (profit) attributable to:
Shareholders of the parent entity	(10 908)	(2 485 115)	22 782%
Non-controlling stakes	(775)	(2 762)	356%
EBIT and EBITDA
EBIT	295 454	(1 731 977)	-
EBITDA	3 599 367	4 222 717	117%

* Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report

The below figure presents TAURON Capital Group's 2019-2020 financial results.

0 1 000 2 000 3 000 4 000 5 000 10 000 15 000 20 000 2019 2020 PLN m PLN m Revenue Costs EBITDA

Figure no. 71. TAURON Capital Group's 2019-2020 financial results

TAURON Capital Group generated PLN 20 367 million of revenue from the continued operations in 2020, i.e. higher by 7% as compared to the amount generated in 2019, which is the result of the following factors:

• 1. higher revenue from electricity sales by 9%, which is the result of obtaining the higher average electricity sales price as a consequence of an increase of the tariff and the higher electricity sales prices on the market as well as the decline of TAURON Capital Group's electricity supply volume,
• 1. higher revenue from the distribution and trading services sales by 4% as a consequence of the increase of the distribution service rate along with the simultaneous decline of the distribution service volume,
• 1. higher revenue from the heat supply by 29% due to the higher sales volume which is related to the implementation of the heat unit no. 10 at the Łagisza Power Plant,
• 1. lower revenue from the hard coal sales by 8% as a consequence of the lower coal sales volume and obtaining of the lower prices.

In addition, in 2020 TAURON Capital Group recognized the revenues from the compensation in the amount of PLN 66 million as a result of the submitted applications for the correction (adjustment) of the Amount of the Price Difference and the Financial Compensation for the entire 2019, which is a consequence of the recognition of the revenue from the compensations in 2019 in the amount of PLN 953 million based in part on the estimated data. Pursuant to Art. 9 of the amended Act on amending the Excise Duty Act and certain other acts, on September 28, 2020, TAURON Sprzedaż and TAURON Sprzedaż GZE submitted applications for the correction (adjustment) of the Amount of the Price Difference and the Financial Compensation for the entire 2019. The corrected (adjusted) Amount of the Price Difference and the Financial Compensation is based on the actual volumes and the prices used in the calculation thereof.

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report.

TAURON Capital Group's continued operations' operating expenses came in at PLN 21 803 million in 2020, i.e. they were higher by 9% than the costs incurred in 2019.

One of the reasons for the increase in the costs was the recognition (booking) of the impairment charges in the Generation and Mining Segments, related to the tangible fixed assets as a result of the impairment tests for the assets' carrying amount carried out as of December 31, 2020 and June 30, 2020, of which the Company disclosed information in the regulatory filings (current reports) no. 5/2021 of February 23, 2021, correction of no. 5/2020 of February 26, 2021, and no. 37/2020 of August 5, 2020. The total impact on the financial result of TAURON Capital Group in 2020 amounted to PLN 3 170 million, while the tests carried out in 2019 showed the legitimacy of recognizing the impairment charges in the amount of PLN 1 305 million (excess of impairment charges taken over the impairment charges reversed).

Apart from the above one-off events, the following factors had an impact upon the level of the costs of TAURON Capital Group in 2020:

• 1. an increase of the depreciation costs, mainly as a result of:
  2. 1) an increase in the value of the assets as a result of the transaction to acquire the wind farms in September 2019,
  3. 2) an increase in the value of the assets as a result of converting of the auxiliary systems of the 910 MW unit in Jaworzno into assets in March 2020,
  4. 3) an increase in the value of the assets as a result of the commissioning, in November 2020, of the 910 MW unit in Jaworzno,
  5. 4) updating of the depreciation rates as a result of the booked or updated impairment charges related to the carrying amount of the assets in connection with the impairment tests conducted in 2019 and as of June 30, 2020,
• 1. higher costs of electricity sold, as a consequence of an increase in the purchase price year on year and, at the same time, the lower volume of electricity purchased on the market,
• 1. charging the value of goods and materials sold item with the resale transactions of the futures positions with the delivery date in December 2020 held on the power exchange, while at the same time purchasing the same volume in contracts with the delivery date in March 2021 from the counterparties on the OTC market. The above action was a consequence of a change in the hedging strategy involving a change of the method used to secure the Generation Segment's retirement needs. As a result of the above, a one-time swap of the exchange traded contracts with the delivery date in December 2020 to the OTC contracts with the delivery date in March 2021 was made. The decision to change the strategy was made taking into account the current market circumstances, difficult to predict at the time of the transaction, including: the rising costs of maintaining a position on the exchange, significantly higher than at the time of concluding the contracts, which is related to, among others, to the need to make ongoing margin payments; a change of the legal and market circumstances in the area of trading in the CO² emission allowances related to Brexit and the COVID-19 virus pandemic. Implementing the above mentioned strategy change, all of the new transactions concluded on the OTC market will be used for the purpose of performing the retirement obligation by TAURON Capital Group's generation subsidiaries,
• 1. higher costs of the greenhouse gas emission allowances, which is the result of an increase in the price of the allowances and the lower CO² emissions by the generating units due to the lower production of electricity from the conventional sources. In addition, in the first quarter of 2019, TAURON Capital Group retired (settled), instead of the CO² emission allowances, the certified emission reduction (CER) units in the amount of 883 000, whose purchase price was much lower than the price of EUA,
• 1. lower labor costs, as a result of:
  2. 1) recognition in the current period of the effects of the dissolution (release) of the actuarial provisions by TAURON Capital Group's subsidiaries in connection with the amendment to the provisions of the corporate collective bargaining agreements of the subsidiaries with respect to the payout of a cash equivalent for the discounted use of electricity by the current employees of TAURON Capital Group who would acquire the rights to the tariff upon retirement or upon receiving a disability pension and other entitled persons,
  3. 2) lower headcount,
  4. 3) reduction of the working time in accordance with the signed agreement with the workforce, as a consequence of the COVID-19 pandemic,
  5. 4) change in the discount rate from 2.1% to 1.5%, which led to an increase of the actuarial provisions,
  6. 5) increase of the minimum wage,
  7. 6) higher costs of the contribution to the Company's Social Benefits Fund, which is related to a 22% increase of the basis for its assessment,
  8. 7) dissolution (release) in 2019 of the provision related to the Voluntary Redundancy Program,
• 1. higher costs of the distribution services, which is due to an increase in the tariff for the distribution services for PSE (TSO), that entered into force on April 6, 2019 and January 1, 2020,
• 1. lower overhaul costs mainly due to the lower number of the maintenance and support (overhaul) services purchased for the mining assets, which is related to the shorter length of the roadways bored,
• 1. higher costs of the other external services, which is the result of:
  2. 1) higher rates for the purchased postal services, courier services and the multimedia customer service, as well as an increase in the number of calls made as part of customer service,
  3. 2) lower costs of the transportation of the production related fuels due to the lower electricity production,
  4. 3) lower number of the mining services purchased, which is related to the shorter length of the roadways bored,
• 1. higher costs of taxes and fees, mainly due to the recognition of the real estate taxes assessed on the wind farms acquired in September 2019, the provision set up for the real estate tax in connection with the judgement of the Constitutional Tribunal of July 2020, an increase in the value of the grid assets as a basis for calculating the real estate tax and the higher real estate tax rates,
• 1. lower costs of the consumed materials and energy mainly as a result of a decrease in the costs of the consumed fuels, which is due to the lower electricity production in 2020 than in the same period of 2019 and the reduction of the share of the fuel purchased on the market. In addition, TAURON Capital Group booked in the current reporting period the costs of the hard coal used to start up the 910 MW unit in Jaworzno.
• 1. an increase in the hard coal inventory levels as well as in the prepayments and accruals mainly as a result of a rise of the value of the hard coal inventories at TAURON Wydobycie and the Generation Segment Subsidiaries as an effect of allocating the costs of the hard coal produced but not consumed to the balance sheet items which is related to the lower demand for the hard coal from the counterparties (contractors) from outside TAURON Capital Group and the lower electricity production due to the COVID-19 epidemic,
• 1. higher value of the costs of services for in-house needs, which is the result of the recognition of a part of the operating costs of the 910 MW unit in Jaworzno as a capital expenditure in connection with its start-up, and a lower value of the mining costs allocated to the balance sheet, which is the result of the smaller number of reinforced longwall coal faces and the smaller number of meters of the length of the investment and production mining workings completed.

The below figure presents TAURON Capital Group's financial results and the level of margins realized from the continued and discontinued operations.

Figure no. 73. TAURON Capital Group's financial results and the level of margins realized in 2019-2020*

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report.

The EBITDA margin generated in 2020 came in at 20.3% and it was higher by 1.9 pp than the margin posted in 2019. As a result of the impairment charges taken, the value of which in 2020 was higher than the impairment charges booked in 2019, the EBIT margin and the net profit margin were lower in the reporting period than the figures posted in the previous year and came in at (8.3)% and ( 11.9)%, respectively. Had the effects of the impairment charges not been taken into account, the EBIT margin and the net profit margin would have clocked in, respectively, at 6.9% and 0.4% in 2020, and, respectively, at 8.2% and 5.3% in 2019.

In accordance with the consolidated statement of comprehensive income presented, the total comprehensive income of TAURON Capital Group, taking into account the net profit increased or decreased by the change in the value of the hedging instruments, the FX differences arising from the conversion of a foreign unit and the other income, after tax, stood at PLN (2 675.9) million in 2020, as compared to PLN (113.5) million generated in 2019.

Statement of cash flows

The below table presents the statement of cash flows.

Table no. 47. Statement of cash flows (material items) in 2019-2020*

Statement of cash flows (PLN '000)	Year ended on December 31, 2019	Year ended on December 31, 2020	Change in % (2020 / 2019)
CASH FLOW FROM OPERATING ACTIVITIES
Pre-tax profit / (loss)	(15 368)	(2 374 123)	15 448%
Adjustments	2 050 943	6 416 102	313%
Net cash from operating activities	2 035 575	4 041 979	199%
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of tangible fixed assets and intangible assets	(4 035 132)	(3 907 608)	97%
Net cash from investing activities	(4 534 738)	(3 976 568)	88%
CASH FLOW FROM FINANCING ACTIVITIES
Redemption of debt securities	(2 420 000)	(60 400)	2%
Issue of debt securities and proceeds from taking out credits / loans	500 000	1 000 000	200%
Repayment of loans / credits	(867 360)	(4 406 813)	508%
Interest paid	(212 556)	(215 946)	102%
Net cash from financing activities	2 894 792	(373 635)	-13%
Increase / (decrease) in net cash and equivalents	395 629	(308 224)	-79%
Cash opening balance	807 972	1 203 601	149%
Cash closing balance	1 203 601	895 3770	74%

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report.

The below figure presents the 2019-2020 cash flows.

The realized positive value of cash flow from the operating activities in 2020 was higher by PLN 2 006 million than the cash flow realized in 2019. The following factors had an impact on the cash flow from operating activities:

• 1. EBITDA generated in the amount of PLN 4 223 million,
• 1. a negative change of the working capital in the amount of PLN 119 million, which is the result of:
  2. 1) a positive change of the balance of the accounts receivable in the amount of PLN 200 million, mainly due to the financial accounts receivable as a result of the settling of the margins related to the exchange settlements 2) a negative change of the inventory level, in the amount of PLN 181 million, mainly as a result of an increase
  3. in the coal inventories at the storage yards of the Generation and Mining segments' subsidiaries
  4. 3) a positive change of the balance of the accounts payable, except for the credits and loans, in the amount of PLN 5 million,
  5. 4) negative change in the balance of the provisions in the amount of PLN 456 million, which is the result of:
     • release (dissolving) of the provision for the employee tariff in the amount of PLN 533 million,
     • setting up and consumption of a provision for onerous contracts in the total amount of PLN 157 million,
     • release (dissolving) or use of the provision for the court litigations, claims from the counterparties and other claims in the total amount of PLN 169 million,
     • an increase by PLN 245 million of the amount of the provision for the obligations due to the CO² emissions and due to the obligation to present the certificates of origin of electricity, mainly as a result of a rise of the prices of the CO² emission allowances and the certificates of origin as well as an increase of the obligation related to the PMOZE certificates of origin from 18.5% to 19.5%,
     • a negative change in the other provisions in the total amount of PLN 156 million.
  6. 5) a positive change in the balance of the other long and short term assets in the amount of PLN 361 million, which stems from the postponement of the purchase of the CO² emission allowances as a result of a change of the strategy of securing the redemption (retirement) needs of the Generation Line of Business,
  7. 6) a negative change in the prepayments and accruals as well as the government subsidies in the amount of PLN 48 million,
• 1. payment of the income tax in the total amount of PLN 60 million,
• 1. other factors in the amount of PLN -2 million.

The expenditures related to the purchase of the tangible fixed assets have the biggest impact on the cash flow from investing activities and they came in at PLN 3 908 million in the reporting period and were lower by PLN 128 million than the outlays incurred in 2019. The largest expenditures were incurred by the Distribution Segment and the Generation Segment.

The negative value of cash flow from the financing activities is primarily due to the higher amount of the expenditures realized due to the repayments of the financial liabilities than the inflows received due to obtaining the financing. The amount of the repaid loans and credits as well as the redeemed bonds came in at PLN 4 467 million, while the loans and credits taken out at the same time clocked in at PLN 4 368 million in total. In addition, TAURON Capital Group paid back its liabilities due to leases worth PLN 102 million in 2020. The total amount of the interest paid by TAURON Capital Group, mainly on the financial liabilities, came in at PLN 216 million, while the subsidies and the compensations received amounted to PLN 68 million.

TAURON Capital Group is maintaining its market position. The current liquidity ratio and the net debt to EBITDA ratio continue to stand at a safe level.

The below figure presents TAURON Capital Group's 2020 cash flows.

Figure no. 75. TAURON Capital Group's 2020 cash flows

TAURON Capital Group is effectively managing its financial liquidity using the central financing model put in place and the central financial risk management policy. TAURON Capital Group is using the cash pool mechanism in order to minimize the potential cash flow disruptions and the risk of liquidity loss. TAURON Capital Group is using various sources of funding, such as, for example, overdrafts, bank loans, loans from the environmental funds, bond issues.

5.5. Material off-balance sheet items

Material off-balance sheet items of TAURON Capital Group, as of December 31, 2020, include:

• 1. lawsuits related to the termination of the long term contracts,
• 1. claims against PGE EJ1,
• 1. claim of Huta Łaziska S.A. (Huta Łaziska),
• 1. lawsuit brought by ENEA,
• 1. proceedings initiated by the President of ERO,
• 1. proceedings initiated by the President of UOKiK,
• 1. use of the real estate without a contract,
• 1. claim for the reimbursement of expenses for securing the facility against the effects of mining operations,
• 1. recognition (inclusion) of the Closed-End Investment Funds' (Fundusze Inwestycji Zamkniętych) involvement in Nowe Jaworzno Grupa TAURON,
• 1. claim regarding the amendment to the agreement for the construction of the Grzegorz shaft at TAURON Wydobycie.

The detailed information related to the off-balance sheet items both in the subjective and objective terms, as well in terms related to the value thereof is presented in notes 54 and 55 to the Consolidated financial statements of TAURON Capital Group.

5.6. Differences between the financial results reported in the annual report and the forecasts of results for the given year published earlier

The Management Board of the Company did not publish any forecasts of the earnings of TAURON Capital Group for 2020. This decision was due to the considerable volatility of the market and a substantial number of factors affecting its predictability.

5.7. Key financial ratios and the Alternative Performance Measures

The below table presents the key financial ratios of TAURON Capital Group, which may constitute an important source of information for the investors about the financial and operational standing of TAURON Capital Group. The Alternative Performance Measures presented below as defined by the ESMA Guidelines on the Alternative Performance Measures, in the opinion of the Management Board, present additional information regarding TAURON Capital Group's financial results. They constitute standard metrics commonly used in the financial analysis, the usefulness of which has been analyzed in terms of the information provided to the investors on the financial efficiency, cash flows and debt of TAURON Capital Group.

Table no. 48. Key financial ratios of TAURON Capital Group for the continued and discontinued operations*

Ratios	Definition	2019	2020
PROFITABILITY
EBIT Margin	Operating profit / Sales revenue	1.5%
EBITDA Margin	EBITDA / Sales revenue	18.4%	20.3%
Net Profitability	Net profit/ Sales revenue	(0.1)%	(11.9)%
Return on Equity (ROE)	Net profit/ Equity at the end of the period	(0.1)%	(15.2)%
LIQUIDITY
Current liquidity ratio	Current assets / Short-term liabilities	0.87	1.05
DEBT
Total debt ratio	Total obligations/ total liabilities	0.54	0.58
Net financial debt/ EBITDA	(Financial liabilities - Cash)/ EBITDA	2.8x	2.5x
OTHER RATIOS
Earnings per share (EPS)	Net result attributable to shareholders of the parent entity / Number of ordinary shares	(0.01)	(0.12)

*Due to the limited comparability of the earlier periods, the data is presented in a two-year time frame. The data comprising the earlier periods is presented in section no. 5.8 of this report.

TAURON Capital Group's net profitability ratio came in at the level of (11.9)% in 2020, as a consequence of recognizing of the balance of the impairment charges related to the carrying amount of the assets, in the 2020 results, in the amount higher than in 2019 and the higher costs of interest on debt.

The current liquidity ratio was higher as of December 31, 2020, than as of December 31, 2019, which demonstrates that the financial standing of TAURON Capital Group continued to be stable.

The total debt ratio and the net debt to EBITDA ratio illustrate the share of liabilities in financing TAURON Capital Group. The current level of these ratios enables TAURON Capital Group to obtain external financing required to carry out the planned investment (capex) projects. The levels of both ratios confirm the stable financial position of TAURON Capital Group.

The EPS ratio (calculated in relation to the net result attributable to the shareholders of the parent entity) is negative due to the negative net financial result, for the reasons described above.

The below table presents the reconciliation of the net financial debt, the amount of which, along with the EBITDA amount, is the basis for calculating the net debt to EBITDA ratio.

Table no. 49. Net financial debt reconciliation

Item (PLN m)	2019	2020
Cash and equivalents	1 265	921
Cash and equivalents – balance acc. to balance sheet	1 238	909
Short term investments with the maturity of up to 1 year	27	12
Long term financial debt	8 982	10 162
Long term credits and loans, and other	4 728	4 840
Long term liabilities due to bonds issued	4 255	5 323
Short term financial debt	2 412	1 354
Short term credits and loans, and other	2 323	1 474
Short term liabilities due to bonds issued	89	201
Total financial debt	11 394	11 516
Net financial debt	10 130	10 595

The below table presents the reconciliation of the result at the EBITDA level.

Table no. 50. Reconciliation of the result on the EBITDA level

Item (PLN m)	2019	2020
Net profit (loss)	(12)	(2 488)
Net profit (loss) on discontinued operations	(83)	754
Income tax charged to the financial result	(19)	78
Financial costs	(95)	(193)
Financial revenue	407	834
EBIT	199	(1 015)
EBIT on discontinued operations	96	(717)
Depreciation charged to the financial result	1 992	1 954

5.8. Most significant financial and operating data for the last 5 years

The below table presents the most significant financial data and operating data of TAURON Capital Group for the last 5 years, i.e. for the 2020 – 2016 period.

Table no. 51. Financial and operating data for 2020-2016*

Key information	unit	2016	2017	2018	2019	2020	Change in % (2020 / 2019)
STATEMENT OF COMPREHENSIVE INCOME
Sales revenue	PLN m	17 646	17 425	18 122	19 558	20 850	107%
Operating profit	PLN m	802	1 879	791	295	(1 732)	-
Financial revenue (total)	PLN m	125	191	83	95	193	203%
Financial expenses (total)	PLN m	(418)	(313)	(11)	(407)	(834)	205%
Pre-tax profit (loss)	PLN m	509	1 758	505	(113)	(1 656)	-
Income tax	PLN m	(139)	(375)	(298)	19	(78)	-
Net profit (loss) on continued operations	PLN m				(94)	(1 734)	-
Net profit	PLN m	370	1 383	207	(12)	(2 488)	-
attributable to shareholders of the parent entity	PLN m	367	1 381	205	(11)	(2 485)	-
attributable to non-controlling shares	PLN m	3	2	2	(1)	(3)	-
EBITDA	PLN m	3 337	3 618	3 492	3 599	4 223	117%
STATEMENT OF FINANCIAL POSITION
Fixed assets	PLN m	29 148	31 049	32 542	35 052	31 736	91%
Current assets	PLN m	4 309	4 786	4 556	6 865	7 675	112%
Total equity	PLN m	16 679	18 068	18 428	19 093	16 412	86%
Total liabilities	PLN m	16 778	17 767	18 669	22 825	22 999	101%
Long-term liabilities	PLN m	11 969	12 740	11 382	14 963	15 687	105%
Short-term liabilities	PLN m	4 809	5 027	7 287	7 862	7 311	93%
Net financial debt2	PLN m	7 704	8 047	8 572	10 130	10 595	105%
Capital expenditures	PLN m	3 817	3 474	3 838	4 128	4 039	98%
CASH FLOW ACCOUNT
Net cash from operating activities	PLN m	3 064	3 559	2 223	2 036	4 042	199%
Net cash from investing activities	PLN m	(3 627)	(3 872)	(3 387)	(4 535)	(3 977)	88%

Key information	unit	2016	2017	2018	2019	2020	Change in % (2020 / 2019)
Net cash from financing activities	PLN m	590	760	1 171	2 895	(374)	-
Cash closing balance	PLN m	355	801	808	1 204	895	74%
RATIOS
EBIT Margin	%	5%	11%	4%	2%	(8)%	-
EBITDA Margin	%	19%	21%	19%	18%	20%	110%
Net financial debt/ EBITDA	multiple	23x	2.2x	2.5x	2.8x	2.5x	89%
Net earnings per share	PLN / share	0.21	0.79	0.12	-0.01	-1.42	-
OPERATING DATA
Commercial coal production	Mg m	6.37	6.45	5.01	3.78	4.54	120%
Gross electricity production	TWh	16.8	18.41	16.21	13.88	12.5	90%
Electricity production from RES	TWh	1.32	1.3	0.97	1.38	1.94	141%
Heat production	PJ	11.52	12.2	11.29	10.85	11.63	107%
Retail electricity supply	TWh	32.04	34.94	34.52	33.73	32.43	96%
Distribution of electricity	TWh	49.68	51.37	51.97	51.73	50.26	97%
Number of customers (Distribution)	m	5.47	5.53	5.60	5.65	5.71	101%

*The values presented for the years 2016-2018 do not reflect the values compliant with the IFRS and are not directly comparable due to the changes in the presentation (organization) of the Segments that took place in 2020, i.e. the separation of the RES Segment from the Generation Segment and the presentation of the TAURON Ciepło data as part of the discontinued operations.

The below table presents TAURON Capital Group's EBITDA for the last 5 years, i.e. for the 2020 – 2016 period.

Table no. 52. TAURON Capital Group's EBITDA, broken down into Segments of Operations (Lines of Business) *

EBITDA (PLN m)	2016	2017	2018	2019	2020	Change in % (2020 / 2019)	Change (2020 - 2019)
Mining	(82)	(83)	(90)	(500)	(157)	-	343
Generation	545	537	731	438	172	39%	(266)
RES				368	297	81%	(71)
Distribution	2 395	2 283	2 466	2 606	3 023	116%	417
Supply	490	841	372	429	683	159%	255
Other operations	115	118	135	136	229	168%	93
Unallocated items	(126)	(78)	(122)	(56)	(196)	-	(139)
Discontinued operations				178	171	96%	(7)
Total EBITDA	3 337	3 618	3 492	3 599	4 223	117%	624

*The values presented for the years 2016-2018 do not reflect the values compliant with the IFRS and are not directly comparable due to the changes in the presentation (organization) of the Segments that took place in 2020, i.e. the separation of the RES Segment from the Generation Segment and the presentation of the TAURON Ciepło data as part of the discontinued operations

The below figure presents the structure of TAURON Capital Group's EBITDA in 2016-2020.

Figure no. 76. Structure of TAURON Capital Group's EBITDA in 2016-2020

Key information for 2016-2020 by Segments

The below figures present the 2016 - 2020 financial data by Segments of Operations (Lines of Business).

Figure no. 78. Generation Segment's, RES Segment's and Discontinued Operations Segment's 2016 - 2020 data

Figure no. 79. Distribution Segment's 2016 – 2020 data

Figure no. 80. Supply Segment's 2016 - 2020 data

Sales revenue EBITDA EBIT

Electricity distribution

5.9. What can we expect in 2021

According to the forecasts of the World Bank, published at the end of 2020, the world economies recorded a slowdown of 4.3% in 2020, as a consequence of the COVID-19 pandemic. It is assumed that the recovery from the crisis brought about by the COVID-19 pandemic will take place already in 2021. With respect to Poland the GDP growth rate is forecast to reach 3.6%. Poland's return to the moderate growth will be possible thanks to the easing of the restrictions related to the COVID-19 pandemic, the return to normality of a number of sectors of the economy, government aid programs, as well as a slow recovery of the major trade partners.

According to the forecasts of the NBP, published at the end of 2020, a 3.5% Poland's GDP growth rate decline was recorded in 2020, as a consequence of the COVID-19 pandemic. It is assumed that the GDP will grow at a 4.9% clip in 2021, while the elevated uncertainty and the restrictions on the activities of the companies related thereto will remain a factor hindering the recovery of the demand for investments over the time frame covered by the projection. In the opinion of the NBP believes that the economic recovery in 2021-2022 is conditional upon the assumed, slow normalization of the epidemic situation, the recovery of the economic activity abroad and an improvement in the prospects for the private sector's demand (consumption). The projection scenario assumes a relatively low rate of economic growth in the years 2021-2022, taking into account the significant scale of the decline in the economic activity in 2021. The projections indicate that the pace of the recovery in the domestic economic activity will be curbed by the probably recurring increases in the number of infections resulting in the reintroduction of the temporary constraints on the functioning of the economy and postponing of the lifting of the epidemic restrictions in force. Also, high uncertainty related to the further course of the COIVD-19 pandemic will remain a factor curtailing the growth in the household spending and the capital expenditures over the time frame covered by the projection.

The additional information on the forecasts for 2021 is presented in section 2.3. of this report.

5.10. Current and forecast financial and assets situation (financial and assets outlook)

Taking into account the current market situation, it is expected that the results of TAURON Capital Group in the coming years will be affected by both the internal factors as well as the external factors.

The results of the Mining Segment in the coming years will, to a large degree, be dependent on the work progress in the implementation of the investment projects and the technical and organizational changes introduced. The Company assumes the implementation of the restructuring initiatives that are aimed at increasing the productivity and efficiency of the production and optimizing the costs.

It is expected that the financial situation of the Generation Segment over the next few years will improve, as compared to the current situation, mainly due to the commissioning of the 910 MWe unit in 2020 and due to the revenue from the capacity market. The additional revenue from the capacity market starting from 2021 will allow for compensating the expenditures incurred for the required refurbishments of the generating units in order to adapt them to the BAT Conclusions. In order to improve the results of the segment the activities aimed at improving the cost efficiency thereof will be continued throughout the entire line of business. On the other hand, the demanding market situation and the continuing upward trend of the CO² emission allowances' prices carry the risk of the degradation of the 1st degree margin on electricity and heat.

It is expected that the financial results of the RES Segment will be stable in the coming years. In line with the analysts' forecasts, an increase in the domestic electricity production from the renewable energy sources is assumed, which is related to the observed fast development of the photovoltaics systems underway in Poland, associated, first and foremost, with the launch of the support programs, including the ones addressed to the prosumers. According to SolarPower Europe, Poland was ranked in the fourth place in the EU in 2020 in terms of the growth of the new photovoltaic capacity. It is also estimated that the wind farm and PV capacity will increase and the prosumer sector will grow in the coming years. The strong interest in the RES area will translate into the growth of investments in the renewable generation sources, this will also be applicable, apart from the PV, to the onshore wind farms, as well as, in the long term, to the offshore wind farms. An additional factor supporting the growth of the renewable energy sources (RES) is the possibility of obtaining funds for the investment projects from the dedicated funds envisaged for the years 2021-2030.

In the Distribution Segment, the level of remuneration (return) on the invested capital and the cost efficiency improvement measures undertaken will play a key role in impacting the operating result. The updating of the regulatory model will have a significant impact on the results in the coming years, and in particular the update of the parameters used to determine the weighted average cost of capital, the correction factor used to determine the justified operating expenses and the balancing difference factors used to determine the justified volume of the balancing difference. Undoubtedly, the financial situation of the enterprise will also be affected by the government actions related to supporting the development of the renewable sources and the local energy communities, curbing the emissions of harmful substances to the atmosphere and developing the infrastructure for charging electric vehicles.

Supply Segment - the need to curtail the expansion activities, while focusing on the goal of minimizing the number of customers leaving as well as recovering of the customers lost in the previous years, has to be kept in mind in the coming years, and also the threats (risks) related to the level of the electricity tariffs approved by the ERO. The challenges faced by the Supply Segment subsidiaries include the activities undertaken by the competitors, the growing awareness and expectations of the customers, as well as the growth of the prosumer market. The above factors will have an impact on the increase of the requirements in terms of both, the products offered, as well as the speed and quality of service.

Other operations: the main consumers of the shared services provided include, first and foremost, the Distribution and Supply Segments, for which the projects with respect to customer service are implemented and finalized, while at the same ensuring the highest quality of service. In addition, the services for TAURON Capital Group's subsidiaries are provided, with respect to, among others, financial and accounting services, human resources and payroll services, IT services, property security services, fleet management services and the real estate management services. Such activities enable achieving synergy effects across TAURON Capital Group and improve cost efficiency.

5.11. Principles of preparing annual consolidated financial statements

The Consolidated financial statements of TAURON Capital Group have been drawn up in accordance with the IFRS approved by the EU.

The IFRS comprise standards and interpretations approved by the International Accounting Standards Board as well as the International Financial Reporting Interpretation Committee.

TAURON Capital Group's subsidiaries and the parent entity keep their accounting books and prepare their financial statements in accordance with the IFRS, excluding TAURON Czech Energy that is preparing the financial statements in accordance with the accounting principles applicable in the Czech Republic and the companies TEC1, TEC2, TEC 3, AVAL-1, WIND T1 and the limited partnerships listed in section 1.3.1 of this report, that are keeping their books and preparing their financial statements in accordance with the Act of September 24, 1994, on accounting.

The consolidated financial statements contain adjustments which are not included in the ledgers of TAURON Capital Group's entities, introduced in order to bring the consolidated statements into compliance with IFRS.

The Consolidated financial statements of TAURON Capital Group have been drawn up with the assumption of the continuation of business operations by TAURON Capital Group's subsidiaries in the foreseeable future, i.e. over the time frame not shorter than 1 year from the balance sheet date. As of the date of approval of the Consolidated financial statements of TAURON Capital Group for publication, no circumstances have been detected, indicating any risk for business continuity by TAURON Capital Group's subsidiaries.

The accounting principles (policy) adopted for drawing up of the Consolidated financial statements of TAURON Capital Group are presented in note 6 to the Consolidated financial statements of TAURON Capital Group.

6. INFORMATION ON THE AUDIT FIRM

On November 23, 2018, the Supervisory Board, based on the recommendation of the Audit Committee, appointed the audit firm Ernst & Young Audyt Polska Spółka z ograniczoną odpowiedzialnością Spółka komandytowa (Limited Liability Company Limited Joint-Stock Partnership) (Ernst & Young Audyt Polska) to conduct an audit of the financial statements and consolidated financial statements of TAURON for the years 2019-2021. On January 11, 2019, TAURON concluded an agreement with Ernst & Young Audyt Polska with the subject of the agreement covering:

• 1. audit of the financial statements of the Company for the years 2019-2021, drawn up in accordance with the requirements of the IFRS,
• 1. audit of the financial statements of selected subsidiaries of TAURON Capital Group for the years 2019-2021, drawn up in accordance with the IFRS,
• 1. audit of theconsolidated financial statements for the years 2019-2021, drawn up in accordance with the IFRS,
• 1. review of the interim, half year financial statements of the Company, required by the WSE, for the periods ended on June 30, 2019, June 30, 2020 and June 30, 2021, drawn up in accordance with the requirements of the IFRS,
• 1. review of the interim, half year consolidated financial statements, required by the WSE, for the periods ended on June 30, 2019, June 30, 2020 and June 30, 2021, drawn up in accordance with the requirements of the IFRS.

In addition, in accordance with the agreement, TAURON may exercise the option to commission other permitted services including: verification of the interim, half-year and annual consolidation packages of selected subsidiaries of TAURON Capital Group for the years 2019-2021, required to prepare the consolidated financial statements and to carry out in 2020 and 2021 the agreed procedures regarding the verification of the subsidiary's report on the update of the Regulatory Asset Base (RAB) and the Regulatory Asset Base for the AMI System (AMI RAB) for the purpose of determining a justified return on capital employed by the President of the Energy Regulatory Office (ERO) for the years 2021 and 2022.

In connection with the changes in the organization of TAURON Capital Group that took place last year and were described in the report for the year 2019, resulting in the need to include additional subsidiaries in the consolidated financial statements, on December 5, 2019, TAURON concluded, with Ernst & Young Audyt Polska, Amendment No. 1 to the agreement of January 11, 2019, under which the option to commission other permitted services in the form of the verification of the annual and interim, half-year consolidation packages of selected subsidiaries of TAURON Capital Group for the years 2019-2021 was extended to include additional companies covered by the consolidated financial statements of TAURON Capital Group.

Prior to 2019 the services provided for the Company by Ernst & Young Audyt Polska had included the audit of the standalone financial statements and consolidated financial statements of the Company for the years from 2008 until 2012 and the years from 2017 to 2018 as well as the reviews of the interim, half year standalone financial statements and the consolidated financial statements of the Company for the periods ended on June 30 in the individual years from 2010 until 2012 and from 2017 to 2018. The Company had also used, prior to 2018, the advisory and training services provided by Ernst & Young Audyt Polska, to the extent in line with the legal regulations in force and not leading to the curtailment of the level of impartiality and independence of the auditor.

The compensation of the audit firm for the services provided for TAURON Capital Group's subsidiaries is presented in the below table.

Table no. 53. Compensation of the audit firm for the services provided for TAURON Capital Group's subsidiaries

Services provided for TAURON Capital Group's subsidiaries			Year ended on December 31, 2020 (PLN '000)	Year ended on December 31, 2019 (PLN '000)
1.	Mandatory audit, including:		1 323	1 318
	4)	consolidated financial statements	147	147
	5)	standalone financial statements of the parent entity		175
	6)	standalone financial statements of the subsidiaries	1 001	996
2.	of financial statements	Other certifying services provided to TAURON Capital Group, including reviews	937	967
3.	Tax advisory services		0	0
Other services (including training) provided for 4. TAURON Capital Group			0	0
	Total		2 260	2 285

7. FINANCIAL RESOURCES AND INSTRUMENTS

7.1. Proceeds from security issues

Series A bond issue

As part of the program Agreement of February 6, 2020, the Company issued, on October 30, 2020, the bonds with the total nominal value (par value) of PLN 1 billion with the redemption date falling on October 30, 2025.

The proceeds from the issue of the bonds are dedicated to finance the costs of developing / acquiring RES projects, finance the distribution operations, as well as TAURON Capital Group's general corporate operations related to RES or energy transition to zero emission, and to refinance TAURON Capital Group's debt taken on in order to finance the above undertakings. The proceeds from the bond issue will not be allowed to be used to finance the new and existing coal fired units, the operations of TAURON Wydobycie and the operations of TAURON Wytwarzanie (in case of other undertakings than the ones indicated above)

The detailed information on the bonds issued and unredeemed, as of December 31, 2020, by TAURON Capital Group is presented in note 39.2 to the Consolidated financial statements of TAURON Capital Group.

7.2. Financial instruments

Application of financial instruments in order to eliminate price changes, credit risk, material disruptions of cash flows and loss of financial liquidity

The financial risk at TAURON Capital Group is managed by TAURON. The centralizing of the financial risk management function is aimed at optimizing the process, including minimizing TAURON's and TAURON Capital Group's costs in the above mentioned respect. As part of the financial risk management in 2020 TAURON Capital Group continued to hedge the risk of volatility in cash flows resulting from its debt based on the WIBOR reference rate by entering into interest rate swap (IRS) hedging transactions.

Moreover, in 2020 TAURON hedged its FX exposure arising from the trading operations (mainly due to the purchase of the CO² emission allowances) by concluding the forward contracts. In 2020 TAURON was also continuing the strategy of hedging its foreign currency exposure generated by the interest payments on the financing obtained in EUR by concluding the forward contracts. The goal of such transactions was to hedge against the risk of cash flow volatility resulting from the FX rate fluctuations.

With respect to hedging the credit risk, TAURON Capital Group did not use any financial instruments.

As part of the efforts aimed at eliminating the price risk (loss of margin), the contracting of the electricity sales is followed by the contracting of the CO² emission allowances. Such a method of hedging the positions allows for minimizing the risk of the CO² costs not being covered by the contracted electricity price. The basis for determining the CO2 sales price for the emission allowances volume defined this way is the CO2 price on the exchange from the time when the CO² volume is contracted.

On the other hand, as part of the liquidity loss risk management, the instruments referred to in section 7.3 of this report are used.

Objectives and methods of financial risk management

The detailed information on the objectives and methods of the financial risk management at TAURON and TAURON Capital Group is presented in section 3.3 of this report.

7.3. Assessment of financial resources management

TAURON is conducting centralized financial management policy and as a result of that effective management of the finances of entire TAURON Capital Group is possible. The main tools enabling effective management include adequate internal corporate regulations as well as the cash pool service and the intra-Group loans. In addition, the adopted financial management model is supported by the central policy with respect to TAURON Capital Group's financial risk management and the central Insurance policy of TAURON Capital Group. In these areas the Company is performing the function of the management body (manager) and the decision maker with respect to the directions of the measures undertaken, enabling the setting of the relevant limits of the risk exposure.

In accordance with the adopted financing policy the Company is responsible for acquiring the financing for TAURON Capital Group's subsidiaries. The funds acquired both internally (from TAURON Capital Group's subsidiaries generating financial surpluses), as well as externally (from the financial market) are subsequently transferred to TAURON Capital Group's subsidiaries that are reporting the need for the financing.

The conducted policy of acquiring the funding sources enables, first of all, to increase the possibility of obtaining the financing for the general corporate purposes and capital expenditures (CAPEX), decrease the cost of the external capital, curtail the establishing of the number and form of the collaterals (pledges) on the assets of TAURON Capital Group as well as the covenants required by the financial institutions, and also leads to the reduction of the administrative (overhead) costs. The central corporate financing model also enables acquiring the funding sources that are not available for the individual subsidiaries. The Company is also considering implementing the method of acquiring funding using the project finance formula with respect to the RES projects. In 2020, the Company obtained approvals from the financial institutions regarding the exclusion of the financing obtained by TAURON's selected special purpose vehicles (SPV) for the implementation of the RES investment projects from the net debt / EBITDA ratio. In case of the project finance solutions, the funds will be obtained directly by the companies implementing the investment projects in the field of renewable energy sources (RES) in cooperation with TAURON - TAURON will be performing the arrangement (organizational) functions. The above action should enable greater use of debt financing as part of the green turn strategy implemented by TAURON.

Another key element impacting the financial management efficiency is the financial liquidity management policy, implemented, among others, through the determination of the liquidity position and implementation of the liquidity controlling processes. TAURON Capital Group manages cash flows efficiently, maintains adequate liquidity of TAURON Capital Group by optimizing the level of expenses and cash balances at the subsidiaries. The above activities lead to improving the selection of the moment of fund raising and determining the maturity date, as well as maintaining an adequate level of the liquidity reserve, and also cause the reduction of the financial costs.

In order to optimize TAURON Capital Group's financial liquidity management and the decision making processes, in particular with regard to the total working capital and approving the liquidity position of TAURON Capital Group's subsidiaries for the given year, as well as for the purpose of the ongoing monitoring and developing the management guidelines for the subsidiaries, the Liquidity Committee was set up at TAURON Group.

The liquidity management is supported by the implemented cash pool mechanism. Its overarching goal is to ensure TAURON Capital Group's ongoing financial liquidity, while at the same time curbing the costs of the short term external financing and minimizing the financial costs related to maintaining cash surpluses on the bank accounts. Owing to the functioning of the cash pool structure TAURON Capital Group's subsidiaries, facing short term funding deficits, may use the funds of the subsidiaries generating the financial surpluses, without the need to acquire the external financing.

Both, the financing policy, as well as TAURON Capital Group's liquidity management policy conducted by TAURON are aimed, apart from increasing the efficiency of managing TAURON Capital Group's finances, first of all, at eliminating threats of curtailment or loss of TAURON Capital Group's financial liquidity. The guaranteed sources of the financing, obtained with an appropriate lead time, effectively eliminate the risk of TAURON Capital Group losing its liquidity. The Company is pursuing a policy of diversifying the financing instruments, but, first and foremost, it is seeking to secure the financing and maintain the ability of TAURON Capital Group's subsidiaries to meet the current and future liabilities in the short and long term.

Moreover, TAURON Capital Group has dedicated agreements in place to provide the collateral for the liabilities towards IRGiT (Warsaw Commodity Exchange Clearing House) and the bank guarantee programs, under which it is possible to issue guarantees to provide the collateral for the liabilities of TAURON Capital Group's subsidiaries within the centralized bank limits. The above mentioned measure curtailed the costs of the guarantees acquired and curbed the total number of actions required to obtain a guarantee.

In 2020 the Company and TAURON Capital Group demonstrated full capacity to pay its accounts payable within the payment deadlines thereof.

8. SHARES AND SHAREHOLDERS OF TAURON POLSKA ENERGIA S.A.

8.1. Shareholding structure

As of December 31, 2020, and as of the date of drawing up this report the Company's share capital, in accordance with an entry in the National Court Register, stood at PLN 8 762 746 970 and was split into 1 752 549 394 shares with a nominal value of PLN 5 per share, including 1 589 438 762 ordinary AA series bearer shares and 163 110 632 registered ordinary BB series shares, which, as of March 1, 2021, were dematerialized under the Act of August 30, 2019, on amending the Act - Code of Commercial Companies and certain other acts (Journal of Laws of 2019, item 1798, as amended acc. to Journal of Laws of 2020, item 875).

The below figure presents the shareholding structure as of December 31, 2020 and as of the date of drawing up this report.

Figure no. 82. Shareholding structure as of December 31, 2020 and as of the date of drawing up this report

The detailed information regarding the shareholding structure (composition) is presented in section 9.4. of this report.

8.2. Dividend policy

As part of its Strategy adopted on September 2, 2016 the Company adopted its dividend policy. In the long term TAURON is planning to pay out a dividend of minimum 40 percent of the consolidated net profit. The Company's intention is to provide a dividend yield that would be competitive versus the yield offered by long term debt instruments issued on the Polish market by investment grade rated companies. The final recommendation on the dividend will be impacted by the additional factors, including in particular:

• 1. TAURON Capital Group's liquidity position,
• 1. market situation,
• 1. implementation of the investment policy,
• 1. cost and ability to obtain financing,
• 1. legal requirements and provisions of the financing agreements, in particular related to not breaching the defined level of the leverage ratio,
• 1. ensuring investment grade rating.

The dividend was last time paid out by the Company in 2015, in the amount of PLN 262 882 409.10 for the financial year 2014. As of 2015, the Company has not paid out any dividend.

On March 30, 2020, the Management Board of TAURON recommended to the Ordinary General Meeting (GM) of the Company to cover the loss for the financial year 2019 from the supplementary capital and did not recommend the payout of the dividend in 2020 from the supplementary capital.

8.3. Number and nominal value of TAURON Polska Energia S.A.'s shares, as well as of the shares in the related units, held by the Members of the Management Board and the Supervisory Board

As of December 31, 2020, and as of the date of drawing up this report, the Members of the Management Board and the Members of the Supervisory Board did not hold any TAURON shares, nor they held any shares in the units related to the Company.

From the date of disclosing the previous periodic report, i.e. from November 18, 2020, to the date of disclosing this report, there had been no changes in the ownership of TAURON shares or rights thereto by the Members of the Management Board of the Company and the Members of the Supervisory Board of the Company.

8.4. Agreements related to potential changes to the shareholding structure

The Company has no information on the existence of agreements (including also the agreements concluded past the balance sheet date), as a result of which changes in the proportions of shares held by the existing shareholders and bondholders may occur in the future.

8.5. Share buybacks

In 2020 and as of the date of drawing up this report, TAURON Dystrybucja held its own shares that had been purchased by the company in order to be redeemed (retired) under the procedure of the mandatory buy-back of the company's shares pursuant to Art. 418¹ Code of the Commercial Companies. In 2020 TAURON Dystrybucja purchased for redemption a total of 2 854 680 of its own shares with a total nominal value of PLN 57 093.60, that amounted to 0.01% of the share capital, which, as of December 31, 2020, stood at PLN 560 575 920.52.

The above 2 854 680 of the company's own shares were acquired at the gross price of PLN 0.45 per share, which gave the total payment of PLN 1 284 606. The company's own shares acquired in 2020 have not been redeemed and as of December 31, 2020, and as of the date of this report, they accounted for approx. 0.01% of TAURON Dystrybucja's share capital.

In 2020 and as of the date of drawing up this report, TAURON and the other subsidiaries did not hold their own shares.

8.6. Employee stock award programs

In 2020 no employee stock award programs were implemented by the Company.

8.7. Shares performance on the Warsaw Stock Exchange (WSE)

TAURON shares have been listed on the Main Market of the Warsaw Stock Exchange since June 30, 2010.

TAURON share price fluctuated between PLN 0.82 and PLN 3.26 (at the closing prices) in 2020. During the last session of 2020 the share price stood at PLN 2.72, while as of the end of 2019 the price reached PLN 1.64.

The investors' sentiment on the WSE in 2020 was influenced by the effects of the COVID-19 pandemic, which had a negative impact on most sectors of the economy. This translated into the GDP growth rate achieved by the Polish economy, which, according to the estimates of the Central Statistics Office (GUS), decreased (contracted) by 2.8%.

The WIG index fell by 1.4%, and the WIG20 index by 7.7% in 2020. The negative trend observed in 2020 on the Polish stock market was also a consequence of the external factors, such as the trade restrictions between the United States and China as well as the uncertainty related to the US presidential elections.

On the other hand, the investors had a positive view of the companies operating in the energy sector, which translated into a 4.3% rise of the WIG-Energia index. It should be noted that the rate of return on the investment in TAURON shares in 2020 clocked in at almost 66% (PGE: -18.34%, ENEA: -17.4%, ENERGA: + 11.3%).

The transition towards RES launched by the Company had a positive impact on the performance of TAURON shares' price in 2020. In line with the strategic assumptions, TAURON Capital Group is seeking to increase the share of RES in the generation mix and reduce the CO² emissions. As a consequence, by 2030, the reduction of the emissions should exceed 50%. By 2030 TAURON will be producing more than 65% of electricity based on RES.

In 2020, the prices of the energy sector companies were supported by the information about the commencement of the process of the transition of the energy sector and the hard coal mining industry, as part of which it is planned that the coal assets owned by the Polish energy groups will be transferred to a separate entity and a social agreement will be concluded, which would define, inter alia, the shutdown plan for the coal mines. The implementation of such measures would significantly facilitate the financing of the process of the transition of the Polish energy sector towards renewable energy sources (RES).

As of December 31, 2020, TAURON shares were included in the following stock exchange indices:

• 1. WIG an index that includes all companies listed on WSE's Main Market that meet the basic criteria for the inclusion in the indices. TAURON's share in WIG: 0.99 percent,
• 1. WIG-Poland a national index that groups solely shares of domestic companies listed on WSE's Main Market that meet the basic criteria for the inclusion in the indices. TAURON's share in WIG-Poland index: 1.01 percent,
• 1. WIG20 an index calculated on the basis of the value of the portfolio of the shares of 20 largest and most liquid companies listed on WSE's Main Market. TAURON's share in WIG20 index: 1.40 percent,
• 1. WIG30 an index that includes 30 of the largest and most liquid companies listed on WSE's Main Market. TAURON's share in WIG30 index: 1.29,
• 1. WIG-Energia a sector based index that comprises companies included in the WIG index and are also qualified to the energy sector. TAURON's share in WIG-Energia: 24.27 percent,

• WIG-ESG – an index that includes the shares of companies considered as socially responsible, i.e. those that comply with the principles of corporate social responsibility, in particular with respect to the environmental, social, economic and corporate governance issues. TAURON's share in WIG-ESG: 0.89 percent.

The below table presents the key data on the Company's shares in 2011-2020.

Table no. 54. Key data on the Company's shares in 2011-2020

Year	Share price high (PLN)	Share price low (PLN)	Last share price (PLN)	Market capitalization at the end of the period (PLN m)	Market capitalization at the end of the period (%)	Book value (PLN m)	Price / Earnings
2011	6.81	4.65	5.35	9 376	2,1	15 922	8.1
2012	5.61	4.08	4.75	8 325	1,59	16 839	5.5
2013	5.39	3.85	4.37	7 659	1,29	17 675	5.5
2014	5.69	4.04	5.05	8 850	1,5	18 107	7.8
2015	5.29	2.37	2.88	5 047	0,98	18 837	4.2
2016	3.19	2.31	2.85	4 995	0,9	16 349	-
2017	4.12	2.75	3.05	5 345	0,8	17 880	3.02
2018	3.28	1.67	2.19	3 838	0,66	18 967	3.7
2019	2.44	1.43	1.64	2 874	0,52	19 168	13.9
2020	3.26	0.82	2.72	4 770	0,89	18 071	-
Year	Price / Book Value	Rate of return ytd* (%)	Dividend yield (%)	Trading volume (PLN m)	Trading volume share (%)	Average volume per session (pcs)	Average number of transactions per session (pcs)
2011	0.59	-16.73	2.8	5 575	2.21	3 721 539	1 373
2012	0.49	-5.03	6.5	3 199	1.7	2 667 725	960
2013	0.43	-3.64	4.6	3 104	1.41	2 793 020	1 022
2014	0.49	20.07	3.8	3 135	1.53	2 489 329	1 106
2015	0.27	-40.78	5.2	3 063	1.5	3 190 195	1 431
2016	0.31	-1.04	-	3 199	1.69	4 662 087	1 465
2017	0.31	7.02	-	2 737	1.16	3 261 765	1 323
2018	0.2	-28.2	-	3 104	1.52	5 622 737	1 769
2019	0.15	-25.11	-	2 001	1.04	4 508 965	1 699
2020	0.26	65.98	-	3 233	1.09	6 807 622	2 523

*Rate of return calculated taking into account the investor's income from the dividend and assuming that the additional income realized is re-invested. Methodology in accordance with Biuletyn Statystyczny GPW (WSE Statistical Bulletin)

Source: Biuletyn Statystyczny GPW (WSE Statistical Bulletin)

The below graphs present the historical TAURON share price performance and trading volumes, including against the backdrop of the WIG20 and WIG-Energia indices.

Report of the Management Board on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020 This is a translation of the document originally issued and signed in Polish

147

Figure no. 85. TAURON share price (in PLN) versus WIG20 and WIG-Energia indices since the market debut until December 31, 2020 points

Recommendations for the shares of TAURON Polska Energia S.A.

Analysts from brokerage houses and investment banks issued, in total, 18 recommendations for TAURON shares in 2020, including:

12 2 4

"buy" recommendations "hold" recommendations "sell" recommendations

The below table presents a list of recommendations issued in 2020.

Table no. 55. Recommendations issued in 2020

Date of issuing recommendation	Institution issuing recommendation	Recommendation / target price
05.02.2020	Societe Generale	Hold / PLN 1.70
12.02.2020	Citi	Buy / PLN 1.70
12.02.2020	Dom Maklerski (Brokerage House) PKO BP	Sell / PLN 1.38
13.02.2020	Santander Biuro Maklerskie (Bokerage House)	Hold / PLN 1.60
04.03.2020	Santander Biuro Maklerskie (Bokerage House)	Buy / PLN 1.50
08.04.2020	Santander Biuro Maklerskie (Bokerage House)	Sell / PLN 1.00
06.05.2020	Societe Generale	Hold / PLN 1.20
15.05.2020	Erste	Hold / PLN 1.20
10.06.2020	Santander Biuro Maklerskie (Bokerage House)	Buy / PLN 4.30
25.06.2020	IPOPEMA	Buy / PLN 4.03

Date of issuing recommendation	Institution issuing recommendation	Recommendation / target price
08.07.2020	Erste	Buy / PLN 3.11
17.07.2020	TRIGON Dom Maklerski (Bokerage House)	Buy / PLN 3.10
29.07.2020	Santander Biuro Maklerskie (Bokerage House)	Buy / PLN 4.00
06.08.2020	Citi	Buy / PLN 3.20
01.10.2020	Dom Maklerski (Bokerage House) PKO BP	Buy / PLN 3.10
05.10.2020	Societe Generale	Buy / PLN 2.90
27.11.2020	Santander Biuro Maklerskie (Bokerage House)	Buy / PLN 4.20
14.12.2020	Santander Biuro Maklerskie (Bokerage House)	Buy / PLN 5.70

8.8. Investor relations

Transparent, accurate and regular communications is the foundation of TAURON's investor relations (IR) program. It is provided not only in the form of mandatory activities required by law, i.e. by disclosing information in the current and periodic regulatory filings (current reports), but it is also supplemented via many additional activities and tools addressed directly to all of the stakeholders. As a consequence, high quality communications leads to a higher level of trust among the investors, financing institutions and business partners. Building relationships with the investors is based on both implementing the best practices used around the world as well as setting the highest standards on the Polish capital market.

Analysts, journalists and shareholders had access to a wide spectrum of information about TAURON Capital Group in 2020, using various communication tools. Due to the epidemic related restrictions, the meetings with the journalists, investors and analysts were held online.

In connection with the publication of the periodic reports, the Company organized earnings conferences for investors and analysts, each time attended by several dozen representatives of the capital markets and media. Such events were simultaneously interpreted into English. It was also possible to follow (replay) them at a later date. As a result, all interested parties were guaranteed equal access to the information. Furthermore, the Company organized 4 chats with the representatives of the Management Board, dedicated to the individual investors.

Apart from the meetings accompanying the publication of the periodic reports, the Members of the Management Board and the representatives of the Investor Relations Team took part in more than a dozen conferences in 2020, during which several dozen meetings with investment fund managers and capital market analysts were held. During the meetings with the investors, the Members of TAURON's Management Board and the key managers were presenting TAURON Capital Group's strategy, discussing the key capex projects, the financial situation as well as the current standing and the outlook for the energy sector.

In 2020, similar as in the previous years, TAURON also participated in the events addressed to the individual investors. The Company was, inter alia, a strategic partner of the "WallStreet" conference organized by the Individual Investors Association (Stowarzyszenie Inwestorów Indywidualnych).

In connection with the growing importance of the online channels and the social media, the Company is placing a lot of weight on their development with respect to the communications with the investors. Broadcasts of events important for the investors were provided via the YouTube service, for example, earnings conferences or the GMs. TAURON also has a corporate profile on Twitter where entries related to, among others, the investor relations are posted. Being aware of the fact that the website is a significant source of information for the investors, in particular, the Investor Relations tab; the Company takes cares of its content and validity of the content provided therein. The Investor Relations section contains a lot of useful information on the current events, financial results or TAURON Capital Group's strategy. It also provides presentations and video broadcasts of the conferences summarizing the financial results.

The activities with respect to investor relations are regularly appreciated by the capital market participants and investors.

The detailed information on the awards and accolades (honorable mentions) received by TAURON and TAURON Capital Group's subsidiaries is presented in section 2.7. of this report.

The below table presents a timeline of the investor relations highlights and activities that took place in 2020.

Date	Highlight (event)
01.04.2020	Full year 2019 standalone and consolidated earnings reports published
02.04.2020	Meeting with analysts and fund managers to present FY 2019 earnings
02.04.2020	Chat for individual investors as part of cooperation with the Individual Investors Association.
13.05.2020	Q1 2020 consolidated earnings report published
14.05.2020	Meeting with analysts and fund managers to present Q1 2020 earnings
14.05.2020	Chat for individual investors as part of cooperation with the Individual Investors Association
15.07.2020	Company's Ordinary General Meeting.
19.08.2020	H1 2020 consolidated earnings report published.
20.08.2020	Meeting with analysts and fund managers to present H1 2020 earnings
20.08.2020	Chat for individual investors as part of cooperation with the Individual Investors Association
07.09.2020	Participation in the 17th Annual Emerging Europe Investment Conference, Pekao Investment Banking.
30.09.2020	Participation in the conference Metals & Energy, PKO BP Securities.
07.10.2020	Participation in the conference The Finest CEElection 2020, Erste Group.
08-09.10.2020	Roadshow related to the bonds.
18.11.2020	Q3 2020 consolidated earnings report published
19.11.2020	Meeting with analysts and fund managers to present Q3 2020 earnings
19.11.2020	Chat for individual investors as part of cooperation with the Individual Investors Association
03.12.2020	Participation in the WOOD's Winter Wonderland - Emerging Europe Conference, WOOD&Company.

9. STATEMENT ON APPLICATION OF CORPORATE GOVERNANCE

Pursuant to § 70, clause 6, sub-clause 5) of the Regulation of the Minister of Finance of March 29, 2018 on current and periodic information disclosed by issuers of securities and conditions to acknowledge as equivalent information required by legal regulations of a non-member state (i.e. Journal of Laws of 2018, item 757), the Company's Management Board presents the statement on the application of corporate governance in 2020.

9.1. Applied set of corporate governance rules

In 2020 the Company was subject to the corporate governance rules, described in the document Best Practice of WSE (GPW) Listed Companies 2016 (Best Practice 2016), adopted by the Supervisory Board of the WSE (GPW) in resolution no. 26/1413/2015 of October 13, 2015, which came into force on January 1, 2016.

The text of the Best Practice 2016 that the Company is subject to is published on the GPW website at the address: https://www.gpw.pl/dobre-praktyki.

9.2. Set of abandoned rules of corporate governance

In 2020 the Company did not apply the following detailed rules provided in the Best Practice 2016:

• 1. IV.Z.2. the rule concerning the provision of the publicly available real-time broadcasts of the GM. The Company is monitoring, on an ongoing basis, the shareholding structure (composition) and in case changes take place that would justify the need to provide the publicly available real-time broadcasts of the general meeting, the Company will take relevant actions in order to provide the broadcast,
• 1. VI.Z.1. the rule concerning the construction of incentive schemes in a way necessary, among others, to tie the level of compensation of members of the Company's management board and key managers to the actual long term financial standing of the Company and long term shareholder value creation as well as the Company's stability. That rule was not applied due to the compensation and bonus system applicable at TAURON in relation to members of the Management Board of the Company and its key managers that stipulates that the level of compensation will be tied to the financial situation of the Company within the annual perspective, in conjunction with the implementation of strategic objectives,
• 1. VI.Z.2. the rule concerning tying the compensation of members of the management board and key managers to the Company's long term business and financial goals. The period between the allocation of options or other instruments linked to the Company's shares under the incentive scheme and their exercisability should be no less than 2 years That rule was not applied due to the compensation and bonus system applicable in TAURON in relation to Members of the Management Board of the Company and its key managers that does not provide that compensation should be tied to instruments linked with the Company shares.

In 2020 the following rules provided in the Best Practice 2016 did not apply to the Company:

• 1. I.Z.1.10. concerning posting the financial projections on the Company website if the company has decided to publish them - published at least in the last 5 years, including information about the degree of their achievement. This principle did not apply to the Company due to the fact that the Company did not publish the financial forecasts,
• 1. III.Z.6. stating that where the Company has no separate internal audit function in its organization, the audit committee (or the supervisory board if it performs the functions of the audit committee) should review on an annual basis whether such function needs to be separated - That rule was not applied to the Company due to the fact that the Company had a separate internal audit unit within its organizational structure.

The detailed description of the manner of applying the above rules is provided in the Information on the status of applying by the Company of the recommendations and rules provided in Best Practice 2016, provided on the Company's website at the address: https://www.tauron.pl.

Information concerning abandonment of the recommendations provided in Best Practice 2016 for application

In 2020 the Company did not apply only the recommendation provided in Best Practice 2016, designated as IV.R.2 concerning ensuring a possibility to shareholders to participate in the GM using electronic communication means. The Company is monitoring, on an ongoing basis, changes in the shareholding structure (composition) that could affect the way the communication is conducted during the general meeting. In addition, if the Company receives requests from the shareholders to conduct a general meeting using the electronic means of communication, the Company will verify the technical possibilities that would ensure a safe conduct of the general meeting for the shareholders and the Company, and in the absence of any contraindications, the Company will take actions in accordance with this recommendation.

The other recommendations provided in the Best Practice 2016 were applied by the Company in 2020.

9.3. Main characteristics of internal controls and risk management systems in relation to the process of generating the financial statements and consolidated financial statements

The internal audit and risk management system with respect to the process of drawing up the financial statements and consolidated financial statements is implemented on 3 levels:

Pursuant to the adopted internal regulations TAURON Capital Group's subsidiaries operate based on the organizational regulations and have defined organizational structures where the applicable business units are assigned the responsibility for preparing the financial statements and the consolidated financial statements. Such units are obligated to perform ongoing control of the tasks vested and the functional control of their

activities. Based on TAURON Capital Group's Business Model put in place the Process Documentation of Megaprocess 3.4 Accounting was implemented, containing, among others, processes associated with the financial reporting of the Company and TAURON Capital Group. The process documentation defines the responsibilities of the business units within the reporting processes.

TAURON Capital Group has put the Risk Area in place, whose role is to oversee and establish TAURON Capital Group's risk management system. These functions are implemented within the Company by the Corporate and Transaction Risk, Market and Credit Risk Management Teams. The purpose of the risk management is to improve the predictability of attaining strategic objectives by TAURON Capital Group, including stable creation of the

financial result through early identification of threats allowing preventive activities to be undertaken. Risk management standards applicable at TAURON Capital Group have been defined in TAURON Group's Corporate Risk Management Strategy and in the policies for managing the specific risks. The ERM system encompasses all of TAURON Capital Group's lines of business and the business processes carried out within TAURON Capital Group, including the process of drawing up the financial statements. The risks associated with this process are managed, monitored and reported within the ERM System. The goal of the standardization is to ensure consistency in managing the individual risk categories, defining the general principles, standards and tools of the system's architecture. The oversight of the ERM system at TAURON Capital Group is performed by the Risk Committee, which as an expert team, on a permanent basis and continuously, initiates, analyzes, monitors, controls and supports the functioning of TAURON Capital Group's risk management system.

The detailed information on the risk management system is presented in section 3.2. of this report.

The Audit and Control Area is functioning within TAURON Capital Group, with the goal to plan and implement the audit tasks, including the advisory and opinion (feedback) providing activities as well as the performance of the control tasks, including the ad-hoc inspections commissioned. The audit and advisory activities are carried out by the Internal Audit Team carrying out the audit tasks both on the strategic level, covering TAURON Capital Group, as

well as the specialized operational tasks on the level of the individual subsidiaries and lines of business areas of TAURON Capital Group. The control activities are organized in a similar manner, carried out on the group level by the Internal Control Team and on the level of the subsidiaries by the inspectors employed by such subsidiaries. In addition, the Internal Control Team carries out specialist audits (controls) of the IT, OT and security systems. Such organization of the area is aimed at enabling the scope of audits and controls to cover the entire operations of the organization both from the point of view of the needs of TAURON Capital Group and those of the individual subsidiaries. In December 2020, the Audit and Control Area completed the design works aimed at building and developing a model for a periodic assessment of the Internal Control System functioning at the Company as well as at entire TAURON Capital Group. The results of the assessment of the Internal Control System are presented to the Company's Management Board and the Audit Committee of the Company's Supervisory Board.

Most important aspects related to internal audit and risk management with respect to the process of drawing up financial statements and consolidated financial statements

Supervision over application of consistent (uniform) accounting rules by TAURON Capital Group's subsidiaries when developing reporting packages for the purpose of drawing up TAURON Capital Group's consolidated financial statements

In order to ensure consistent accounting principles based on International Financial Reporting Standards (IFRS), approved by the European Union, the Accounting Policy of TAURON Polska Energia S.A. Capital Group (Accounting Policy) was developed and implemented by TAURON Capital Group. This document shall be accordingly updated in case there are changes to the regulations. The rules defined in the Accounting Policy shall be applicable to TAURON's standalone financial statements and TAURON Capital Group's consolidated financial statements. TAURON Capital Group's subsidiaries shall be obligated to apply the Accounting Policy when preparing the reporting packages that provide the basis for preparing TAURON Capital Group's consolidated financial statements.

Furthermore, TAURON Capital Group developed and implemented an intra-group regulation that comprehensively regulates issues related to the rules and deadlines for preparing the reporting packages for the purpose of consolidated financial statements. The reporting packages shall be validated by the holding company's Consolidation and Reporting Office and by an independent certified auditor during an audit or review of TAURON Capital Group's consolidated financial statements.

Procedures used to authorize and provide opinions on the Company's financial statements and TAURON Capital Group's consolidated financial statements

The Company has implemented financial statements' authorization procedures. Quarterly, half year and full year financial statements of the Company and TAURON Capital Group's consolidated financial statements shall be approved by the Company's Management Board before being published. Full year financial statements of TAURON and TAURON Capital Group's consolidated financial statements shall be additionally presented for evaluation to the Company's Supervisory Board before being published. Vice President of the Management Board for the Company's Finance (Chief Financial Officer) shall oversee the preparation of financial statements, while the Management Boards of the subsidiaries included in the consolidation shall be responsible for preparing the reporting packages for TAURON Capital Group's consolidated financial statements.

Supervisory Board's structure includes the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A.

The detailed information on the composition, competences and description of the operations of the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. is presented in section 9.11. of this report.

IT systems as well as financial and accounting processes

TAURON Capital Group's subsidiaries maintain accounting books (ledgers) which constitute the basis for preparing financial statements using ERP financial and accounting computer systems, enabling system audits of the correctness of the document flow and classifying of the business events. Consolidated financial statements are prepared using an IT tool used to consolidate financial statements, providing system control with respect to the consistency (integrity) and timeliness of preparing the consolidation data.

TAURON Capital Group's subsidiaries have implemented IT and organizational solutions that provide control of access to the financial and accounting system and ensure adequate protection and archiving of the accounting books. Access to IT systems is restricted based on applicable access rights assigned to authorized personnel. Control mechanisms are applied in the process of granting and changing access rights to the financial and accounting systems. The rights granted are also subject to periodic verification.

Due to the integration of the accounting functions and the transfer of TAURON Capital Group's material subsidiaries' financial and accounting services to CUW-R (Shared Cervices Center – Accounting) TAURON Capital Group's financial and accounting processes were gradually unified. The subsidiaries adjusted their own procedures to the flow of the financial and accounting processes, taking into account the specifics of the individual segments.

TAURON Capital Group's Business Model clearly distributes responsibilities with respect to the financial and accounting processes between the Company (indicated as the Corporate Centre) and the subsidiaries and CUW R, indicating that the Corporate Centre is the owner of processes associated with accounting and reporting of TAURON Capital Group. With respect to the tasks of the Corporate Centre, strategic functions associated with the development of the model of operations and standards of TAURON Capital Group were indicated in the area of accounting and supervision of the implementation of standards in the accounting area in the subsidiaries and CUW R. Moreover, it was indicated that the Company as the Corporate Centre is responsible for drawing up the Company's financial statements and the consolidated financial statements of TAURON Capital Group. A clear split of responsibilities and strong emphasis on the fulfillment of the supervisory functions by the Corporate Centre in relation to CUW R and the subsidiaries is, inter alia, aimed at improving the process of drawing up the financial statements.

Subjecting the Company's financial statements and TAURON Capital Group's consolidated financial statements to an audit and reviews by an independent certified auditor

The Company's full year financial statements and TAURON Capital Group's full year consolidated financial statements are subject to an audit by a certified auditor. In 2018, the Company selected an entity authorized to audit and review the financial statements of the Company and of TAURON Capital Group's material subsidiaries, as well as the consolidated financial statements. The contract with the entity authorized to audit financial statements was concluded for the audit of the financial statements and the consolidated financial statements for the years 2019-2021, as well as for the review (audit) of the interim financial statements and the interim consolidated financial statements for the 6- month periods ending on June 30, 2019, June 30, 2020 and June 30, 2021.

The rule related to changing the audit firm of the Company and TAURON Capital Group

In 2020, the Audit Committee of the Company's Supervisory Board updated, on October 5, 2020, the Policy for selecting an audit firm to conduct an audit and review of the financial statements and the consolidated financial statements of TAURON Polska Energia S.A., which included the following rule:

• 1. maximum duration of continuous audit engagements carried out by the same audit company or an entity related to that audit company or any member of the network operating in the EU countries that such audit companies are members of, shall not exceed 10 years,
• 1. after the 10-year duration of the mandate (engagement) neither the audit company, nor any member of its network operating within the European Union shall conduct an audit of the Company for the subsequent 4 years,
• 1. a key certified auditor shall not conduct an audit of the Company for a period longer than 5 years,
• 1. a key certified auditor may again conduct an audit of the Company after at least 3 years have elapsed from the completion of the last audit

Until October 5, 2020, the maximum continuous duration of audit engagements carried out by the same audit company or an entity related to that audit company or any member of the network operating in the EU countries that such audit companies are members of, could not have exceeded 5 years.

9.4. Shareholders holding substantial blocks of shares

The below table presents shareholders holding, as of December 31, 2010 and as of the date of drawing up this report, directly or indirectly via subsidiaries, substantial blocks of the Company's shares.

Table no. 57. Shareholders holding, directly or indirectly, substantial blocks of shares as of December 31, 2020 and as of the date of drawing up this report

Shareholders		Number of shares held	Percentage share in share capital	Number of votes held	Percentage share in the total number of votes
1.	State Treasury	526 848 384	30.06%	526 848 384	30.06%
2.	KGHM Polska Miedź (Polish Copper)	182 110 566	10.39%	182 110 566	10.39%
3.	Nationale-Nederlanden Otwarty Fundusz Emerytalny (Open Pension Fund)	88 742 929	5.06%	88 742 929	5.06%

Since the date of publishing the previous periodic report, i.e. since November 18, 2020, until the date of drawing up this report the Company had not received any notifications from its shareholders of any changes in the ownership structure of the substantial blocks of TAURON shares.

9.5. Holders of securities providing special control rights

The Company did not issue securities that would grant special control rights with respect to the Company.

9.6. Restrictions on exercising the voting right

Restrictions on exercising the right to vote are included in § 10 of the Company's Articles of Association which are available on the Company's website: https://www.tauron.pl.

The above restrictions on exercising the voting right are formulated in the following way:

• 1. The voting right of shareholders holding over 10% of total votes in the company shall be limited so that none of them can exercise more than 10% of the total votes in the company at the General Meeting of Shareholders.
• 1. The restriction on exercising the voting right mentioned in clause 1 above shall not apply to the State Treasury and entities controlled thereby in the period during which the State Treasury, together with entities controlled thereby, hold a number of the company's shares that entitle them to exercise at least 25% of the total votes in the company.
• 1. Votes of shareholders who have a parent / subsidiary relationship within the meaning of § 10 of the Articles of Association (Shareholder Cluster) shall be aggregated; in case the aggregate number of their votes exceeds 10% of total votes in the company it shall be subject to reduction. Rules of votes' aggregation and reduction are defined in clauses 6 and 7 below.
• 1. A shareholder, in the understanding of § 10 of the Articles of Associations, shall be any party (entity, person), including its parent and subsidiary company, entitled directly or indirectly to a voting right at the General Meeting of Shareholders on the basis of any legal title; it shall also be applicable to a party (entity, person) that does not hold the company's shares, and in particular to a user, lien holder, party (entity, person) entitled on the basis of a depositary receipt under regulations of the Act of July 29, 2005 on financial instruments trading, as well as a party (entity, person) entitled to take part in the General Meeting of Shareholders in spite of disposing of its shares after the date of establishing (registering) the right to take part in the General Meeting of Shareholders.
• 1. A parent company and subsidiary company, for the purposes of § 10 of the Company's Articles of Association, shall be understood, accordingly, as a party (entity, person):
  2. 1) with a status of a controlling undertaking, controlled undertaking or, at the same time, both the status of a controlling undertaking and controlled undertaking in the understanding of the Act of February 16, 2007 on the protection of competition and consumers, or
  3. 2) with a status of a parent company, higher level parent company, subsidiary company, lower level subsidiary company, co-controlled company or one that has both the status of a parent company (including a higher level parent company) and the status of a subsidiary (including a lower level subsidiary company and a cocontrolled company) in the understanding of the Act of September 29, 1994 on accounting, or
  4. 3) which has (parent company) or one which is under (subsidiary company) controlling influence in the understanding of the Act of September 22, 2006 on transparency of financial relationships between public bodies and public undertakings and on financial transparency of some undertakings, or
  5. 4) whose votes due to the company's shares owned directly or indirectly are subject to aggregation with votes of another party (entity, person) or other parties (entities, persons) on conditions defined in the Act of July 29, 2005 on a public offering and conditions of introducing financial instruments to an organized trading system and on public companies in connection with holding, disposing of or acquiring substantial blocks of the Company's shares.
• 1. Aggregation of votes is based on totaling the number of votes held by individual shareholders that are members of the Shareholders' Cluster.
• 1. Reduction of votes involves decreasing the total number of votes in the Company that shareholders that are members of the Shareholders' Cluster, are entitled to exercise at the General Meeting of Shareholders to the level of 10% of total votes in the Company. Reduction of the votes shall take place in accordance with the following rules:
  2. 1) number of votes of a shareholder who holds the largest number of votes in the company among all shareholders that are members of the Shareholders' Cluster shall be reduced by a number of votes equal to a surplus above 10% of total votes in the company held by all shareholders that are members of the Shareholders' Cluster,
  3. 2) if, despite the reduction mentioned in 1) above, the total number of votes that shareholders that are members of the Shareholders' Cluster are entitled to exceeds 10% of the total votes in the company, a further reduction of votes held by other shareholders that are members of the Shareholders' Cluster shall be made. The further reduction of individual shareholders' votes shall take place in an order established on the basis of the number of votes that individual shareholders that are members of the Shareholders' Cluster hold (from the highest to the lowest one). The further reduction shall take place until the total number of votes held by shareholders that are members of the Shareholders' Cluster does not exceed 10% of the total votes in the Company,
  4. 3) in any case a shareholder whose voting rights have been reduced shall have the right to exercise at least one vote,
  5. 4) restriction on exercising the voting right shall also apply to a shareholder absent at the General Meeting of Shareholders.
• 1. Each shareholder who is going to take part in the General Meeting of Shareholders, in person or through a proxy, shall be obliged to, without a separate notice mentioned in clause 9 below, notify the Management Board or the Chairperson of the General Meeting of Shareholders that she/he holds, directly or indirectly, more than 10% of the total votes in the Company.
• 1. Notwithstanding the provisions of clause 8 above, in order to establish the basis for aggregating and reducing the votes, a Company's shareholder, Management Board, Supervisory Board and individual members of such bodies shall have the right to demand that a shareholder of the Company provide information whether she/he is a party (entity, person) having the status of a parent or subsidiary company towards another shareholder in the understanding of § 10 of the Company's Articles of Association. The entitlement mentioned in the preceding sentence shall also include the right to demand the revealing of the number of votes that the company's shareholder holds on its own or jointly with other shareholders of the Company.
• 1. A party (entity, person) that has failed to fulfill or has fulfilled the information obligation mentioned in clauses 8 and 9 above improperly, shall, until the failure to fulfill the information obligation has been remedied, be able to exercise its voting right with respect to one share only; exercising voting rights with respect to other shares by such party (entity, person) shall be null and void.

9.7. Restrictions on transfer of the ownership right to securities

As of December 31, 2020, and as of the date of drawing up this report the Company's Articles of Association do not envisage restrictions on the transfer of the ownership right to the Company's securities.

However, in accordance with the Act of July 24, 2015 on the control of certain investments (Journal of Laws of 2020, item 117), an entity intending to purchase or achieve a material shareholding or purchase the dominating control over TAURON, which is, in accordance with the Regulation of the Council of Ministers of December 23, 2019, on the list of entities subject to protection and their competent control bodies (Journal of Laws of 2019, item 2501, as subsequently amended), an entity subject to protection, shall, each time, be obligated to submit a notification to the control body – the competent Minister of the State Assets of its intention to do so, unless such obligation rests on other entities.

9.8. Rules on appointing and dismissing the Members of the Management Board and the Supervisory Board of TAURON Polska Energia S.A., and the powers thereof

Management Board of TAURON Polska Energia S.A.

Rules on appointing and dismissing the Members of the Company's Management Board

Management Board of the Company shall be composed of 1 to 6 persons, including the President and Vice Presidents. Members of the Management Board shall be appointed and dismissed by the Company's Supervisory Board for a common term of office lasting 3 years, except for the 1st term that lasted 2 years. Each of the Members of the Management Board can be dismissed or suspended in office by the Company's Supervisory Board or the GM.

In order to recruit a person with whom an agreement on providing the management services at the Company, the Company's Supervisory Board announces a competition and conducts a qualification procedure for the position of the President or Vice President aimed at verifying and assessing the candidates' qualifications and selecting the best candidate. A candidate for a member of the Company's Management Board must meet the requirements set forth in § 16, clauses 3 and 4 of the Company's Articles of Association. The announcement of the qualification process is published on the Company's web site at the address: https://www.tauron.pl. and in the Public Information Bulletin of the Minister competent to exercise the rights related to the State Treasury's shares. The Company notifies the shareholders of the results of the qualification procedure.

Competence of the Company's Management Board

Management Board shall conduct the Company's affairs and represent the Company in all court and out of court proceedings. Any matters related to conducting the Company's affairs, not assigned, based on the legal regulations or the provisions of the Company's Articles of Association, to the scope of competence of the General Meeting (GM) of Shareholders or the Supervisory Board, shall be within the scope of competence of the Company's Management Board.

In accordance with the Company's Articles of Association, all issues which go beyond the regular scope of the Company's activities shall require a resolution of the Company's Management Board, in particular, the following issues listed in the below table, as of December 31, 2020, and as of the date of drawing up this report.

Table no. 58. Competence of the Company's Management Board as of December 31, 2020, and as of the date of drawing up this report

Matters that require a resolution of the Company's Management Board

• 1. Company's Management Board by-laws,
• 1. Company's enterprise organizational regulations,
• 1. establishment and liquidation of branches,
• 1. appointment of a proxy,
• 1. taking on credits and loans,
• 1. approving annual material and financial plans of the Company and of the Capital Group as well as the Capital Group's Corporate Strategy, 7. assuming contingent liabilities within the meaning of the Act of September 29, 1994 on accounting, including granting guaranties and sureties
• by the Company as well as issuing bills of exchange, subject to § 20 clause 2 items 3 and 4 of the Company's Articles of Association, 8. making donations, cancelling interest or releasing from debt, subject to § 20 clause 2 items 12 and 13 of the Company's Articles of
• Association, 9. purchase of real estate, perpetual usufruct or shares in real estate or in perpetual usufruct, subject to § 20 clause 2 item 1 of the Company's
• Articles of Association, 10. purchase of fixed assets excluding real estate, perpetual usufruct or share in real estate or perpetual usufruct with the value equal to or exceeding PLN 40 000, subject to the provisions of § 20 clause 2 item 1 of the Company's Articles of Association,
• 1. disposal (control) of fixed assets including real estate, perpetual usufruct or share in real estate or perpetual usufruct with the value equal to or exceeding PLN 40 000, subject to the provisions of § 20 clause 2 item 2 of the Company's Articles of Association,
• 1. defining the way the voting right will be exercised at the General Meeting of Shareholders or the Meeting of Shareholders of companies in which the company holds shares, on matters within the scope of competence of the General Meeting of Shareholders or the Meeting of Shareholders of such companies, subject to the provisions of § 20 clause 4 items 9 and 10 of the Company's Articles of Association,
• 1. rules of conducting sponsoring activities,
• 1. adoption of the annual plan of sponsoring activities,
• 1. matters which the Company's Management Board refers to the Company's Supervisory Board or the Company's General Meeting of Shareholders for review

Supervisory Board of TAURON Polska Energia S.A.

Rules on appointing and dismissing members of the Company's Supervisory Board

Supervisory Board of the Company shall be composed of 5 to 9 persons, appointed for a common term of office lasting 3 years, except for the first term that lasted 1 year. In accordance with the Company's Articles of Association members of the Company's Supervisory Board shall be appointed and dismissed by the General Meeting of Shareholders, subject to the following:

• 1. during the time when the State Treasury, together with the State Treasury controlled entities within the meaning of § 10 clause 5 of Company's Articles of Association, hold a number of the Company's shares that entitle them to exercise at least 25% of the total votes in the Company, the State Treasury shall be entitled to appoint and dismiss Members of the Company's Supervisory Board in the number equal to half of the maximum number of members of the Company's Supervisory Board defined in the Company's Articles of Association (in case such number is not integral it shall be rounded down to an integral number, for example 4.5 shall be rounded down to 4) and increased by 1, provided that the State Treasury:
  2. 1) shall be obliged to vote at the General Meeting of Shareholders on establishing the number of Members of the Company's Supervisory Board that would correspond to the maximum number of Members of the Company's Supervisory Board defined in the Company's Articles of Association in case such a motion is submitted to the Company's Management Board by a shareholder or shareholders who hold a number of votes that entitle them to exercise at least 5% of the total number of votes in the Company,
  3. 2) shall be excluded from the voting at the General Meeting of Shareholders on appointing and dismissing other members of the Company's Supervisory Board, including independent members of the Company's

Supervisory Board; this shall not, however, apply to the case when the Company's Supervisory Board cannot act due to its membership being smaller than required by the Company's Articles of Association, and the shareholders present at the General Meeting of Shareholders, other than the State Treasury, do not supplement the membership of the Company's Supervisory Board in accordance with the distribution of seats in the Company's Supervisory Board defined in this section,

• 1. during the time when the State Treasury, together with the State Treasury controlled entities within the meaning of § 10 clause 5 of the Company's Articles of Association, hold a number of the Company's shares that entitle them to exercise less than 25% of the total number of votes in the Company, the State Treasury, represented by the minister competent to exercise the rights related to the State Treasury's shares, shall be entitled to appoint and dismiss one member of the Company's Supervisory Board,
• 1. appointing and dismissing members of the Company's Supervisory Board by the State Treasury pursuant to the above mentioned clause 1) or 2) shall take place by means of a statement submitted to the Company.

In accordance with the Best Practice 2016 at least two members of the Company's Supervisory Board shall meet the criteria of independence.

Independent Members of the Company's Supervisory Board shall submit to the Company, prior to their appointment as members of the Company's Supervisory Board, a written statement on compliance with the independence criteria mentioned in the Best Practice 2016.

The detailed information on the independence of the Members of the Company's Supervisory Board is presented in section 9.11. of this report.

Competence of the Company's Supervisory Board

Supervisory Board of the Company shall continuously oversee the Company's activities in all areas of its operations.

In accordance with the Company's Articles of Association the Company's Supervisory Board's tasks and competences shall include in particular the matters listed in the below table, as of December 31, 2020, and as of the date of drawing up this report.

Table no. 59. Competence of the Company's Supervisory Board as of December 31, 2020, and as of the date of drawing up this report

Matters that require a resolution of the Company's Supervisory Board

Competences related to providing opinions

• 1. evaluate the Company's Management Board's report on the Company's operations (Directors' Report) as well as the financial statements for the last financial year with respect to their compliance with the books, documents as well as with the actual status. This shall also apply to the Capital Group's consolidated financial statements,
• 1. evaluate the Company's Management Board's recommendations on profit distribution or loss coverage,
• 1. submit a written report to the General Meeting of Shareholders on the outcome of the activities referred to in clauses 1 and 2 above,
• 1. prepare once a year and submit to the General Meeting:
  2. 1) evaluation of the Company's situation, including the assessment of the internal control, risk management systems, compliance and the internal audit functions, including all significant control mechanisms, in particular, those related to the financial reporting and operations
  3. 2) report on the activities of the Company's Supervisory Board comprising at least information concerning: the composition of the Company's Supervisory Board and its Committees, compliance with the independence criteria by the Members of the Company's Supervisory Board, the number of meetings of the Company's Supervisory Board and its Committees and the completed self-assessment of the Company's Supervisory Board's work,
  4. 3) assessment of the method of fulfilment of the information (disclosure) obligations by the Company, in relation to the application of the corporate governance principles defined in the Regulations of the Exchange and the provisions related to the current and periodic information (disclosures) filed by the issuers of securities,
  5. 4) assessment of the rationality of the sponsoring, charitable policy, or other similar policy pursued by the Company, or the information concerning the lack of such policy
  6. 1. prepare, along with the report on the results of the Company's annual financial statements' evaluation, the Company's Supervisory Board's opinion on the financial viability of the Company's capital (equity) investments in other commercial law entities made in the given financial year,
  7. 1. provide opinions on the Capital Group's Corporate Strategy,
  8. 1. provide opinions on the rules of conducting the sponsoring activities,
  9. 1. provide opinions on the annual plan of conducting the sponsoring activities as well as on the annual report on the implementation thereof,
  10. 1. provide opinions on the reports drawn up, by the Company's Management Board, on the entertainment expenses, the expenditures on legal services, marketing services, public relations and social communications services as well as advisory services related to management,
  11. 1. provide opinions on the Company's Management Board's motions regarding the matters referred to in § 35 of the Company's Articles of Association, excluding the motions regarding the members of the Company's Supervisory Board

• provide opinions on the changes of the rules of divesting fixed assets, defined in § 38¹ of the Company's Articles of Association.

Competences that include

• 1. selecting a certified auditor to carry out an audit of the Company's financial statements and the Capital Group's consolidated financial statements,
• 1. defining the scope and deadlines for submitting the Company's and the Capital Group's annual material and financial plan by the Company's Management Board,
• 1. approving the Company's and the Capital Group's material and financial plan by the Company's Management Board
• 1. adopting the consolidated text of the Company's Articles of Association, drawn up by the Company's Management Board,

Matters that require a resolution of the Company's Supervisory Board

• 1. approving the Company's Management Board's by-laws,
• 1. approving the organizational regulations of the Company's enterprise,
• 1. approving the capital group's compensation policy,
• 1. purchasing real estate asset components within the meaning of the Act of September 29, 1994, on accounting, with the value exceeding:

1) PLN 20 000 000 or 2) 5% of the total assets within the meaning of the Act of September 29, 1994, on accounting, determined on the basis of the last approved financial statements,

subject to the provisions of § 20, clause 6 of the Company's Articles of Association,

1. disposing of fixed asset components, within the meaning of the Act of September 29, 1994, on accounting, classified as intangible and legal assets, tangible fixed assets or long term investments, including making a contribution to a company or cooperative if the market value of such

components exceeds PLN 20 000 000 or 5% of the total assets within the meaning of the Act of September 29, 1994, on accounting, determined

on the basis of the last approved financial statements, subject to the provisions of § 20, clause 6 of the Company's Articles of Association, as well as handing over these components for use to another entity for a period longer than 180 days in a calendar year, based on a legal transaction, if the market value of the subject of the legal transaction exceeds PLN 500 000 or 5% of the total assets, where the handing over of such components for use in case of:

• 1) lease, tenancy and other contracts for the transfer of an asset for use by other entities for a fee market value of the subject of legal action shall be understood as the value of services for: one year - if the asset was transferred on the basis of an agreement concluded for an indefinite period, the entire duration of the agreement - in case of contracts concluded for a fixed period,
• 2) loan contracts and other free contracts for the handing over of an asset for use by other entities the market value of the subject of legal transaction shall be understood as the equivalent of benefits that would be due if the lease or tenancy agreement were concluded, for: one year - if the asset is handed over under the contract concluded for an indefinite period, the entire duration of the contract - in case of contracts concluded for a definite period,
• 1. assuming contingent liabilities, including granting guaranties and sureties by the Company with the value exceeding the equivalent of PLN 20 000 000,
• 1. issuing bills of exchange with the value exceeding the equivalent of PLN 20 000 000,
• 1. making an advance payment on account of the expected dividend,
• 1. taking up or purchasing shares in another company with the value exceeding:
  2. 1) PLN 20 000 000 or
     • 2) 5% of the total assets within the meaning of the Act of 29 September 29, 1994 on accounting, determined on the basis of the last approved financial statements,
• 1. selling shares in another company with the value exceeding:
  2. 1) PLN 20 000 000 or
     • 2) 10% of the total assets within the meaning of the Accounting Act of 29 September 1994, determined on the basis of the last approved financial statements,
• 1. concluding a material agreement with a shareholder holding at least 5% of the total number of votes in the Company or a related company, with a proviso, that this obligation shall not cover typical transactions and transactions concluded at arm's length as part of the business operations conducted by the Company with entities that are members of the Capital Group,
• 1. concluding an agreement on legal services, marketing services, public relations and social communications services as well as advisory services related to management, if the amount of the total net compensation for the services provided exceeds PLN 500 000, on a yearly basis,
• 1. amending an agreement on legal services, marketing services, public relations and social communications services as well as advisory services related to management, increasing the compensation above the amount mentioned in section 16 above,
• 1. concluding an agreement on legal services, marketing services, public relations and social communications services as well as advisory services related to management, under which the maximum compensation amount (cap) is not envisaged,
• 1. concluding a donation agreement or another agreement with similar consequences of the value exceeding PLN 20 000 or 0.1% of the total assets within the meaning of the Act of September 29, 1994, on accounting, determined on the basis of the last approved financial statements,
• 1. relieving from debt or from another agreement with similar consequences of the value exceeding PLN 50 000 or 0.1% of the total assets within the meaning of the Act of September 29, 1994, on accounting, determined on the basis of the last approved financial statements,
• 1. granting a permission to establish the Company's branches abroad,
• 1. defining the way of exercising the voting right at the General Meeting of Shareholders or at the Meeting of Shareholders (Partners) of companies in which the Company holds more than 50% of shares, with respect to the following matters:
  2. 1) selling and leasing out the company's enterprise or its organized part as well as establishing a limited pledge (property right) thereupon them if their value exceeds the PLN equivalent of EUR 5 000 000,
  3. 2) dissolving and liquidating the company
• 1. defining the manner of exercising the voting right by a representative of TAURON during the GMs of companies (subsidiaries) with respect to which the Company is a dominating entrepreneur within the meaning of art. 4 section 3 of the Act of February 16, 2007, on competition and consumer protection, with respect to the following issues:
  2. 1) company setting up another company,
  3. 2) change to the Articles of Association or the shareholders agreement and the subject of the company's operations,
  4. 3) merging, transforming, splitting, dissolving and liquidating the company,
  5. 4) increasing or decreasing the company's share capital,
  6. 5) selling and leasing out the company's enterprise or its organized part and establishing a limited pledge (property right) thereupon,
  7. 6) redeeming (retiring) of shares,
  8. 7) setting the compensation of members of the Management Boards and Supervisory Boards,
  9. 8) provision related to the claims for remedying damage inflicted when setting up the company or performing the management or supervision,
  10. 9) matters mentioned in art. 17 of the Act of December 16, 2016, on the principles of state assets management, subject to § 15, clause 4 of the Company's Articles of Association, with the exception of the matters relating to the legal transactions referred to in § 20. clause 6 of the Company's Articles of Association, and with the exception of matters regarding the acquisition or disposal of fixed assets constituting or intended to constitute assets necessary to conduct business operations with respect to the distribution of electricity by a company that is an operator of the power distribution system.

Competences related to the Management Board

• 1. appoint and dismiss members of the Company's Management Board,
• 1. establish the rules of compensation and the amounts of compensation for the Members of the Company's Management Board, subject to § 18 of the Company's Articles of Association,
• 1. suspend members of the Company's Management Board from office for important reasons,

Matters that require a resolution of the Company's Supervisory Board

• 1. delegate members of the Company's Supervisory Board to temporarily perform duties of the Members of the Company's Management Board who cannot perform their duties and establish their compensation subject to the provision that the total compensation of the delegated person as a Member of the Company's Supervisory Board's as well as on account of being delegated to temporarily perform duties of a Member of the Company's Management Board shall not exceed the compensation established for the Member of the Company's Management Board to replace whom the Member of the Company's Supervisory Board was delegated,
• 1. conduct a recruitment process for the position of a Member of the Company's Management Board,
• 1. conduct a competition in order to select a person with whom an agreement to perform the management board functions (services) in the Company shall be concluded and conclude such agreement to perform the management board functions (services) in the Company,
• 1. grant a permission to the Members of the Company's Management Board to take positions in governing bodies of other companies

Other competences of the Company's Supervisory Board

• 1. approve the Company's Management Board's annual report on the supervision over the implementation of investment projects
• 1. prepare reports on overseeing the implementation of investment projects by the Company's Management Board, including fixed asset purchases, and in particular provide opinions on the correctness and effectiveness of expenditures related thereto
• 1. approve the reports drawn up by the Company's Management Board on : 1)entertainment expenses, expenditures on legal services, marketing services, public relations and social communications service as well as advisory services related to management,
  2. 2)applying good practices defined by the Chairman of the Council of Ministers (Prime Minister) on the basis of art. 7, clause 3 of the Act on the principles of state assets management with respect to corporate governance, corporate social responsibility and sponsorship,
• 1. pass regulations describing in detail the Company's Supervisory Board's procedures.

Pursuant to the Act of July 29, 2005 on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies, the competences of the Supervisory Board of the Company include, in addition, the preparation of a report on the compensation received by the Members of the Management Board and the Supervisory Board of the Company in the last financial year. The report on the compensation of the Members of the Management Board and the Supervisory Board is subject to an assessment (opinion) by a certified auditor with respect to including therein of the information required under art. 90 g, clauses 1-5 and 8 of the above mentioned Act on the public offering and presented to the Ordinary General Meeting of the Company.

Report on the compensation of the Members of the Management Board and the Supervisory Board of TAURON Polska Energia S.A. for the years 2019-2020 will be published on the Company's website at the address: https://www.tauron.pl.

9.9. Procedure of amending TAURON Polska Energia S.A.'s Articles of Association

Amendments to the Company's Articles of Association shall be made in accordance with the provisions of the Code of Commercial Companies, in particular: an amendment to the Company's Articles of Association shall take place by way of a resolution of the GM, passed by the majority of 3/4 of the votes, and shall, subsequently, require issuing of a decision by a competent court on entering the amendment into the register of entrepreneurs (business register). The consolidated text of the Company's Articles of Association, including the amendments passed by the General Meeting, shall be adopted by the Supervisory Board by way of a resolution.

In accordance with the Company's Articles of Association, a material amendment to the subject of the operations requires 2/3 of the votes in the presence of persons representing at least half of the share capital.

9.10. General Meeting of TAURON Polska Energia S.A. and the shareholders' rights

General Meeting of TAURON Polska Energia S.A.

The Company's General Meeting of Shareholders' procedures and its empowerments are defined in the Company's Articles of Association and in the Regulations of the General Meeting of Shareholders of TAURON Polska Energia S.A. (GM Regulations) which are available on the Company's website at the address: http://www.tauron.pl/.

Procedures of the General Meeting of the Company

General Meeting (GM) shall be convened by a notice published on the Company's website and in a manner defined for providing the current information by the public companies. In case the General Meeting (GM) is convened by an entity or a body other than the Management Board on the basis of the regulations of the Code of Commercial Companies, as convening a General Meeting requires the Management Board's cooperation, the Management Board shall be obligated to perform any activities required by law in order to convene, organize and conduct the General Meetings that take place either at the Company's registered office or in Warsaw.

General Meeting shall be opened by the Chairperson of the Company's Supervisory Board, and in case he/she is absent, the following persons shall be entitled to open the General Meeting in the given order: Vice Chairperson of the Company's Supervisory Board, President of the Company's Management Board, a person designated by the Company's Management Board or the shareholder who registered at the General Meeting such a number of shares that grant the right to exercise the highest number of votes. Subsequently, the chairperson of the General Meeting shall be elected from among the persons entitled to participate in the General Meeting.

General Meeting shall pass resolutions irrespective of the number of shares represented at the Meeting, unless the regulations of the Code of Commercial Companies, as well as the provisions of the Company's Articles of Association state otherwise. A General Meeting may order a break in the meeting by the majority of two thirds of votes. Breaks shall not exceed 30 days in total.

A break in the GM session may take place only in exceptional situations indicated on a case-by-case basis in the justification to the resolution, prepared based on the reasons presented by a shareholder requesting the announcement of the break.

The GM resolution concerning a break shall clearly indicate the date of the resumption of the session, however, such a date must not create a barrier for participation of the majority of shareholders in the resumed meeting, including the minority shareholders.

Competence of the General Meeting of the Company

In accordance with the Company's Articles of Association the matters listed in the below table shall require a resolution of the General Meeting (GM) of the Company as of December 31, 2020, and as of the date of drawing up this report.

Table no. 60. Competence of the General Meeting of the Company as of December 31, 2020, and as of the date of drawing up this report

Matters that require a resolution of the General Meeting of the Company

• 1. reviewing and approving the financial statements of the Company and the consolidated financial statements of the Capital Group for the previous financial year as well as the Management Board's report on the Company's operations (Directors' Report) and the Management Board's report on the operations of the Capital Group
• 1. granting the acknowledgement of the fulfillment of duties to the members of the Company's corporate bodies,
• 1. profit distribution and coverage of loss,
• 1. appointing and dismissing members of the Company's Supervisory Board,
• 1. suspending members of the Company's Management Board in performance of their duties,
• 1. establishing the amount of compensation for the Members of the Company's Supervisory Board, subject to § 29, clause 4 of the Company's Articles of Association,
• 1. establishing the principles of determining compensation and the amount of compensation of the Members of the Company's Management Board taking into account the provisions of the Act of June 9, 2016, on the principles of determining compensation of the management personnel of certain companies,
• 1. adopting the compensation policy for the Members of the Management Board and the Supervisory Board of the Company, taking into account the requirements of the Act of July 29, 2005 on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies,
• 1. selling and leasing out the Company's enterprise or its organized part as well as establishing a limited pledge (property right) thereupon,
• 1. concluding a credit, loan, surety agreement or any other similar agreement by the Company with a member of the Management Board, Supervisory Board, proxy, liquidator or for the benefit of any such person. Concluding a credit, loan, surety or any other similar agreement by a subsidiary with a member of the Management Board, Supervisory Board, proxy, liquidator or for the benefit of any such person,
• 1. increasing and decreasing the Company's share capital,
• 1. issuing convertible bonds or senior bonds as well as registered securities or bearer securities entitling the holder thereof to subscribe or acquire the shares,
• 1. purchasing of own shares in cases required by the regulations of the Code of Commercial Companies,
• 1. mandatory buyback of shares (squeeze-out) in accordance with the provisions of art. 418 of the Code of Commercial Companies,
• 1. setting up, using and liquidating reserve capitals,
• 1. using supplementary capital,
• 1. provisions related to claims to repair damage caused while establishing the Company or performing the management or supervision functions,
• 1. merger, transformation and division of the Company,
• 1. redemptions (retirements) of shares,
• 1. amendment to the Company's Articles of Association and change of the subject of the Company's operations,
• 1. dissolving and liquidating the Company.

In accordance with the provisions of the Code of Commercial Companies the decision on the issue and repurchase of shares shall be included within the competence of the General Meeting.

Pursuant to the Act of July 29, 2005 on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies, the competences of the General Meeting of the Company include, in addition, the preparation of an opinion on the compensation received by the Members of the Management Board and the Supervisory Board of the Company in the last financial year,

Shareholders' rights and the manner of exercising thereof

The below table presents the description of the Company's shareholders' rights related to the General Meeting in accordance with the Company's Articles of Association, Code of Commercial Companies and the Regulations of the General Meeting.

Table no. 61. Description of the Company's shareholders' rights related to the General Meeting of the Company

Shareholders' rights		Description of shareholders' rights
1.	Convene a General Meeting (GM)	Shareholders representing at least 1/20 of the share capital, may request convening of an Extraordinary General Meeting. Such a request should include a concise justification. It may be submitted to the Company's Management Board in writing or in an electronic form, to the Company's e-mail address, provided by the Company on its website under the Investor Relations tab. Shareholders representing at least a half of the share capital or at least half of all of the votes in the Company may convene an Extraordinary General Meeting (GM) and appoint a chairperson of such General Meeting.
2.	Include matters (items) in the agenda of the General Meeting	Shareholders representing at least 1/20 of the share capital, may request that certain matters (items) be included in the agenda of the forthcoming General Meeting. Such a request, including a justification or a draft resolution related to the proposed item of the agenda, should be submitted to the Company's Management Board not later than 21 days prior to the set date of the General Meeting in electronic form to the Company's e-mail address or in writing to the Company's address.
3.	Become acquainted with the list of shareholders	Shareholders may become acquainted with the shareholders' list at the Company's Management Board's seat for 3 weekdays preceding directly the General Meeting's date. Shareholders may also request that the list of shareholders be sent to them free of charge by electronic mail, providing the address to which the list should be sent.
4.	Participate in the General Meeting	Only persons who are Shareholders 16 days before the date of the General Meeting (date of registering to participate in the General Meeting) shall have the right to take part in the General Meeting. In order to participate in the General Meeting shareholders should submit a request to issue a name bearing affidavit on the right to take part in the General Meeting to an investment (brokerage) company running their securities account. Such a request should be submitted not earlier than following the announcement on convening of the General Meeting and not later than on the first weekday following the day of registering to participate in the General Meeting.
5.	Represent a shareholder by a proxy (power of attorney)	Shareholders may take part in the General Meeting as well as exercise the voting right in person or through a proxy (power of attorney). Shares' co-owners may take part in the General Meeting and exercise the voting right only through a joint representative (proxy). A proxy (power of attorney) may represent more than one shareholder and vote differently based on shares of each shareholder.
6.	Elect the Chairperson of the General Meeting	Shareholders shall elect the Chairperson of the General Meeting from among the persons entitled to take part in the General Meeting. Each of the participants of the General Meeting shall have the right to propose one candidate. Chairperson shall be elected by a secret ballot, by an absolute majority of votes. In case there is just one candidate for the Chairperson, election can take place by acclamation.
7.	Elect the Returning Committee	Each shareholder may propose no more than 3 candidates for members of the Returning Committee to be elected by the General Meeting, and vote for maximum 3 candidates.
8.	Submit a draft resolution	During the General Meeting a shareholder shall have the right, until the discussion on a certain item of the agenda is closed, to submit a proposal of changes to the content of a draft resolution proposed for adoption by the General Meeting, as part of the given item of the agenda, or put forward his/her own draft of such resolution. Proposals of changes or draft resolutions, including justifications, may be submitted in writing to the Chairperson or verbally to be recorded in the minutes of the meeting.
9.	Raise an objection	Shareholders who voted against a resolution and, after the General Meeting has adopted it, want to raise their objection, should, immediately after the results of the voting have been announced, raise their objection and request it be included in the minutes of the meetings before proceeding to the next item of the agenda. In case such an objection is raised later, which however shall not take place later than by the time the General Meeting is closed, the shareholders shall indicate against which resolution passed by the General Meeting they are raising their objection. Shareholders raising their objection against a resolution of the General Meeting may request their concise justification of the objection be recorded in the minutes of the meeting.

9.11. Management Board and Supervisory Board of TAURON Polska Energia S.A. and the committees thereof

Management Board of TAURON Polska Energia S.A.

The current 6th term of office of the Company's Management Board began its run on July 15, 2020.

The Company's Supervisory Board dismissed all Members of the Company's Management Board of the 5th common term of office on July 14, 2020, effective as of the end of the day and appointed, as of July 15, 2020, the Members of the Company's Management Board of the 6th common term of office.

In accordance with the Company's Articles of Association the common term of office shall last 3 years.

The composition of the Company's Management Board as of December 31, 2020

• 1. Wojciech Ignacok President of the Management Board,
• 1. Jerzy Topolski Vice President of the Management Board for Asset Management,
• 1. Marek Wadowski Vice President of the Management Board for Finance.

The composition of the Company's Management Board as of the date of drawing up this report

• 1. Marek Wadowski acting as the President of the Management Board / Vice President of the Management Board for Finance,
• 1. Jerzy Topolski Vice President of the Management Board for Asset Management.

The changes to the composition of the Company's Management Board in 2020 and by the date of drawing up this report

As of January 1, 2020, the Management Board of the 5th common term of office was composed of the following persons: Filip Grzegorczyk (President of the Management Board), Jarosław Broda (Vice President of the Management Board for Asset Management and Development) and Marek Wadowski (Vice President of the Management Board for Finance).

The Company's Supervisory Board dismissed all Members of the Company's Management Board of the 5th common term of office on July 14, 2020, effective as of the end of the day and appointed, as of July 15, 2020, Wojciech Ignacok, Jerzy Topolski and Marek Wadowski to be the Members of the Company's Management Board of the 6th common term of office.

On February 19, 2021, Wojciech Ignacok submitted a statement of resignation, as of February 28, 2021, from the position of the President of the Company's Management Board of the 6th common term of office for health reasons.

On February 24, 2021, the Company's Supervisory Board entrusted Marek Wadowski with the duties of the President of the Company's Management Board from March 1, 2021, until the appointment of the Company's President of the Management Board.

There had been no other changes to the composition of the Company's Management Board by the date of drawing up this report.

Experience and competences of the Members of the Company's Management Board who continue to hold their positions in the Company's Management Board as of the date of drawing up this report

Marek Wadowski – acting as the President of the Management Board / Vice President of the Management Board for Finance

A graduate of the Faculty of Economics of the University of Economics in Katowice. He also completed post graduate studies at École Supérieure de Commerce Toulouse where he obtained Mastère Spécialisé en Banque et Ingéniere Financière diploma and the Executive MBA studies at the Kozminski University in Warsaw.

He has professional experience in the field of financial, controlling and accounting process management in industry (power sector, mining, steel industry), as well as in financing of investment projects and international commercial transactions.

Since January 29, 2016, he has been holding the position of the Vice President of the Management Board of TAURON Polska Energia S.A. and overseeing the operations of

the following business areas: finance management, controlling, accounting and tax policy, analytics, procurement and administration, IT, market operator and trading services, trading, fuel trading, portfolio management, as well as the Personal Data Protection Inspector.

In 2008 - 2015 he had been associated with Jastrzębska Spółka Węglowa S.A. capital group (JSW). In 2008 - 2009, as the Vice President of the Management Board – the Director for Finance of Polski Koks S.A. (a JSW subsidiary), he had been responsible for structuring commercial transactions, implementing the currency risk hedging policy, reducing financial costs, liquidity management. In 2009 - 2012, as the Vice President of the Management Board of JSW for Economic Affairs, he had been involved in the company's IPO (implementation of the International Accounting Standards, modification of the management information system, drafting of the IPO prospectus, talks with investors). In 2012 - 2015, as the Vice President of the Management Board - Director for Economic Affairs of Spółka Energetyczna Jastrzębie S.A. (a JSW subsidiary), he had been involved in the implementation of the Power Sector 2016 (Energetyka 2016) investment program, as part of which he has been dealing with the business plan development as well as structuring and acquisition of financing from the consortium of banks in the form of a bond issue program. He had also been implementing the risk management procedures related to interest rates, CO² and prices of certificates of origin, as well as developing and implementing the liquidity management policy.

In 2005 - 2008 he had worked at Huta Cynku Miasteczko Śląskie S.A., where he had held the positions of: the management board's plenipotentiary for restructuring, the Director for Economics and Finance, a Member of the Management Board - the Director for Economics and Finance, the President of the Management Board - General Manager.

In 1999 - 2005 he had worked as a consultant at BRE Corporate Finance S.A., responsible for the due diligence projects and enterprise valuations.

Jerzy Topolski - Vice President of the Management Board

A graduate of the Faculty of Electrical Engineering, Automatics and Electronics of the AGH University of Science and Technology in Cracow. He also completed the postgraduate studies in the field of energy enterprise management and new techniques in power engineering management.

He has professional experience with respect to the operations of the power sector, including management of the development of the distribution grid and the provision of electricity distribution services. He was involved in setting up the organization of the electricity market in Poland.

From the beginning of his professional career, he had been associated with the energy industry and TAURON Group or its legal predecessors, i.e. ENION S.A. and Zakład Energetyczny Kraków S.A.

Since 2016, he was the Vice President of the Management Board for Operator at TAURON Dystrybucja S.A. (Issuer's subsidiary), where he was responsible, among others, for the development of the distribution grid, provision of electricity distribution services, metering and grid operation management.

In addition to the above mentioned position, in 2016 he was the Director of TAURON Dystrybucja S.A. Cracow and Tarnów branches. In 2015-2016 he had worked as a coordinator and had been responsible, among others, for customer service quality. From 2013 to 2014 he had been the chief specialist, and in 2011-2012 he had been the head of the Office of Tariffs and the Energy Regulatory Office (URE) Relations.

In 2010 - 2011 he had been holding the position of the Director of the Tariff Department at ENION S.A. and had been responsible in particular for regulated revenue management. In 2007 - 2010 he had been the Director of the Distribution Services Department and had been responsible for ensuring profitability of the distribution services sales. From 2005 to 2007, he had been the President of the Management Board, in 2004 - 2005 - a Member of the Management Board for Trading, and until 2004 - a Member of the Management Board and the Director of Energy Trading.

In 1989 - 2000 he had been holding the following positions at Zakład Energetyczny Kraków S.A.: the director of the high voltage region; deputy head of the high voltage region for technical affairs as well as the grid foreman and engineer.

Description of the procedures of the Company's Management Board

Management Board of the Company shall act on the basis of the Code of Commercial Companies and other legal regulations, the provisions of the Company's Articles of Association and the provisions of the By-laws of the Management Board of TAURON Polska Energia Spółka Akcyjna with its registered office in Katowice which are available on the Company's website at the address: https://www.tauron.pl. When performing their duties the Members of the Company's Management Board shall be acting in accordance with the principles provided in the Best Practice 2016.

Two Members of the Management Board or one member of the Management Board together with a proxy shall be entitled to make valid statements on behalf of the Company. In case the Management Board includes one person, one Member of the Management Board or a proxy shall be entitled to make valid statements on behalf of the Company.

The meetings of the Management Board shall be convened by the President of the Management Board or a Vice President of the Management Board designated thereby. The meetings of the Management Board shall also be convened on the motion of the majority of Vice Presidents of the Management Board as well as on the motion of the Chairperson of the Supervisory Board. The meetings shall be held at the Company's registered office on the date set by the person that convened the meeting. In justified cases the meetings of the Management Board may be held outside the Company's registered office. The President of the Management Board or a Vice President of the Management Board designated thereby shall chair the meetings of the Management Board

The Management Board shall vote in an open ballot. The result of the ballot shall be recorded in the minutes of the meeting. President of the Management Board shall order a secret ballot at the request of any Member of the Management Board.

The resolutions of the Management Board shall be passed by an absolute majority of votes in the presence of 3/5 of the Members of the Management Board. In case of an equal number of votes the President of the Management Board shall have a casting vote. The Management Board may pass resolutions by voting in writing or using means of direct remote communications. Voting in accordance with the above procedures shall be ordered by the President of the Management Board or a Vice President of the Management Board designated thereby, including setting the deadline for casting votes by the Members of the Management Board. Submission of a dissenting opinion shall be allowed. Such dissenting opinion shall be recorded in the minutes of the meeting, including the justification thereof. The decisions of the Management Board related to ongoing issues that do not require passing of a resolution shall be recorded solely in the minutes of the meeting.

The internal division, among the Members of the Management Board, of the tasks and responsibilities for the individual areas of the Company's operations, as defined in the Organizational Regulations of TAURON Polska Energia S.A. and including the independent work positions as well as the organizational units reporting directly to the Executive Directors, whose work is managed (supervised) by the Members of the Company's Management Board, is defined by the Company's Management Board Resolution No. 351/V/2020 of November 3, 2020 regarding the assignment of individual business areas of the Company and independent work positions directly reporting to the Members of the Management Board of TAURON Polska Energia S.A. that replaced the Company's Management Board Resolution No. 397/V/2019 of November 13, 2019 regarding the assignment of individual business areas of the Company and independent work positions directly reporting to the Members of the Management Board of TAURON Polska Energia S.A.

The structure of the Company's business areas reporting to the individual Members of the Company's Management Board is presented on the diagram (flowchart) showing the split of responsibilities of the members of the Company's Management Board, described in section 1.10. of this report and posted on the Company's web site at the address: https://www.tauron.pl.

Supervisory Board of TAURON Polska Energia S.A.

The current, 6th term of office of the Company's Supervisory Board, began on July 15, 2020, i.e. on the day of holding the Ordinary GM of the Company approving the financial statements for the last full financial year of the tenure of the Members of the Company's Supervisory Board of the 5th term, i.e. for the financial year 2019.

In accordance with the Company's Articles of Association it shall be a common term of office and it shall last for 3 years

The composition of the Company's Supervisory Board as of December 31, 2020

• 1. Andrzej Kania Chair of the Supervisory Board,
• 1. Teresa Famulska Vice Chair of the Supervisory Board,
• 1. Katarzyna Taczanowska Secretary of the Supervisory Board,
• 1. Ryszard Madziar Member of the Supervisory Board,
• 1. Grzegorz Peczkis Member of the Supervisory Board,
• 1. Barbara Piontek Member of the Supervisory Board.

The composition of the Company's Supervisory Board as of the date of drawing up this report

• 1. Andrzej Kania Chair of the Supervisory Board,
• 1. Teresa Famulska Vice Chair of the Supervisory Board,
• 1. Katarzyna Taczanowska Secretary of the Supervisory Board,
• 1. Ryszard Madziar Member of the Supervisory Board, 5. Grzegorz Peczkis - Member of the Supervisory Board.

The changes to the composition of the Company's Supervisory Board in 2020 and by the date of drawing up this report

As of January 1, 2020, the Company's Supervisory Board of the 5th common term of office was composed of the following members: Beata Chłodzińska (Chair of the Supervisory Board), Teresa Famulska (Vice Chair of the Supervisory Board), Jacek Szyke (Secretary of the Supervisory Board), Barbara Łasak – Jarszak (Member of the Supervisory Board), Grzegorz Peczkis (Member of the Supervisory Board), Jan Płudowski (Member of the Supervisory Board), Marcin Szlenk (Member of the Supervisory Board), Katarzyna Taczanowska (Member of the Supervisory Board) and Agnieszka Woźniak (Member of the Supervisory Board).

On March 24, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, dismissed Agnieszka Woźniak from the Company's Supervisory Board of the 5th common term of office and appointed Andrzej Śliwka to be a member of the Company's Supervisory Board of the 5th common term of office.

On April 20, 2020, Jacek Szyke and Marcin Szlenk submitted statements on their resignations from the membership of the Company's Supervisory Board of the 5th common term of office, without providing the reasons for their resignations.

On April 27, 2020, Beata Chłodzińska submitted a statement on her resignation from the membership of the Company's Supervisory Board of the 5th common term of office, without providing the reasons for her resignation.

On May 22, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, appointed Andrzej Kania to be a member of the Company's Supervisory Board of the 5th common term of office.

On May 25, 2020, the Company's Supervisory Board appointed Andrzej Kania to be the Chair of the Company's Supervisory Board of the 5th common term of office and Katarzyna Taczanowska to be the Secretary of the Company's Supervisory Board of the 5th common term of office.

On June 5, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, dismissed Jan Płudowski from the Company's Supervisory Board of the 5th common term of office and appointed Barbara Piontek to be a member of the Company's Supervisory Board of the 5th common term of office.

On June 16, 2020, Andrzej Śliwka submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office, without providing the reasons for his resignation.

On July 15, 2020, i.e. on the date of the Ordinary General Meeting (GM) of the Company approving the financial statements for the last full financial year of performing the function of the Members of the Company's Supervisory Board of the 5th common term of office, i.e. for the financial year 2019, the mandates of all Members of the Company's Supervisory Board of the 5th common term of office expired.

On July 15, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, appointed Andrzej Kania, Ryszard Madziar and Barbara Piontek to be Members of the Company's Supervisory Board of the 6th common term of office.

On July 15, 2020, the Ordinary General Meeting (GM) of the Company, acting pursuant to § 22, section 1) of the Company Articles of Association, appointed Grzegorz Peczkis and Katarzyna Taczanowską to be Members of the Company's Supervisory Board of the 6th common term of office.

On August 3, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, appointed Teresa Famulska to be a Member of the Company's Supervisory Board of the 6th common term of office.

On August 3, 2020, the Company's Supervisory Board of the 6th common term of office elected Andrzej Kania to be the Chair of the Company's Supervisory Board of the 6th common term of office, Teresa Famulska to be the Vice-Chair of the Company's Supervisory Board of the 6th common term of office and Katarzyna Taczanowska as the Secretary of the Company's Supervisory Board of the 6th common term of office.

On February 12, 2021, Barbara Piontek submitted a statement on her resignation, as of February 28, 2021, from the membership of the Company's Supervisory Board of the 6th common term of office, in connection with assuming the position of the President of the Management Board of Jastrzębska Spółka Węglowa S.A. from 1 March 2021.

No other changes to the composition of the Company's Supervisory Board had taken place by the date of drawing up this report.

Information on the independence of the Members of the Supervisory Board

In accordance with the Best Practice 2016 at least two members of the Company's Supervisory Board shall meet the criteria of independence.

The phrase "an independent member of the supervisory board" denotes independence of a member of the supervisory board within the meaning of Appendix II to the Recommendation of the European Commission of February 15, 2005, on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC) and the additional criteria indicated in the Best Practice 2016.

Independent Members of the Company's Supervisory Board shall submit to the Company, prior to their appointment as members of the Company's Supervisory Board, a written statement on compliance with the independence criteria mentioned in the Best Practice 2016. In case a situation occurs where the independence criteria are not complied with, a Member of the Supervisory Board shall be obligated to inform the Company promptly thereof.

Information on the fulfillment by the Members of the Supervisory Board of the independence criteria is posted on the Company's website at the address: https://www.tauron.pl.

The table below presents the information on the fulfillment by the Members of the Company's Supervisory Board of the independence requirements specified in the above mentioned Recommendation and the Best Practice 2016 as of December 31, 2019 and as of the date of drawing up this report.

Table no. 62. Fulfillment by the Members of the Company's Supervisory Board of the independence requirements, as of December 31, 2020 and as of the date of drawing up this report

First and last name		Fulfillment of the independence requirements
		as of December 31, 2020	as of the date of drawing up this report
1.	Andrzeja Kania	Does not meet independence requirements Does not meet independence requirements
2.	Teresa Famulska	Meets independence requirements	Meets independence requirements
3.	Katarzyna Taczanowska	Does not meet independence requirements Does not meet independence requirements
4.	Ryszard Madziar	Does not meet independence requirements	Does not meet independence requirements

First and last name		Fulfillment of the independence requirements
		as of December 31, 2020	as of the date of drawing up this report
5.	Grzegorz Peczkis	Meets independence requirements Meets independence requirements
6.	Barbara Piontek	Meets independence requirements -

Experience and competences of the Members of the Supervisory Board who continue to hold their seats on the Company's Supervisory Board as of the date of drawing up this report

Andrzej Kania - Chair of the Supervisory Board

A graduate of the Rzeszów University of Technology (Politechnika Rzeszowska), where he completed his studies in 1991. Andrzej Kania is also a graduate of the National School of Public Administration in Warsaw (Krajowa Szkoła Administracji Publicznej) and the doctoral studies that he completed at the Warsaw School of Economics (Szkoła Główna Handlowa)

He has held important postions at public institutions. He was a Department Head at the Energy Regulatory Office and the Director of the Energy Department at the Ministry of Economy. He also held the position of the Office Director of the Polish Electricity Association.

Andrzej Kania has extensive experience with respect to investment project evaluation and implementation based on measurable results in the management of large scale and high risk investment projects.

He also served as a Member of the Supervisory Board at six companies operating in the energy and infrastructure sector. He was a Member of the Supervisory Board of Polimex Mostostal S.A. from November 30, 2017, until March 15, 2020.

He is currently holding the position of the Director of the Department of Security and Crisis Management at the Ministry of State Assets.

He has been a Member of the Supervisory Board of TAURON Polska Energia S.A. since May 22, 2020.

In the Company's Supervisory Board of the 6th common term of office he is the Chair of the Company's Supervisory Board and the Head of the Nominations and Compensation Committee of the Company's Supervisory Board and a Member of the Strategy Committee of the Company's Supervisory Board.

Teresa Famulska - Vice Chair of the Supervisory Board

A graduate of the University of Economics in Katowice (currently the University of Economics in Katowice). She holds a title of a Professor of economics appointed by the President of the Republic of Poland at the request of the Board of the Faculty of Finance and Insurance of the University of Economics in Katowice. She is a professional tax advisor.

Since graduation she has been associated with the University of Economics in Katowice. She is currently the Head of the Public Finance Department holding the full Professor's position. In 1998 - 2013 she had been working at the School of Banking and Finance, recently as a dean, holding the full Professor's position.

An author of more than 150 domestic and foreign publications in the field of finance, mainly public finance and corporate finance. Apart from academic work she is continuously involved in business practice, participating, among others, in several dozen science and research projects. She conducted numerous lectures and training courses for the finance and management personnel of enterprises and for the tax authorities staff. In 2007 - 2018 she had worked for three consecutive terms at the State Examination Commission on Tax Advisory Services, where, since 2010, for two consecutive terms based on the Minister of Finance's appointment, she was the Head of the Commission. In 2007 - 2019 a member of the Financial Education Committee of the Polish Academy of Science, where, in 2011 - 2015, she was a member of the Board of the Committee. Furthermore, she is a member of the Polish Finance and Banking Association (since 2004, a member of the Board), International Fiscal Association, Center for Information and Organization of Public Finance and Tax Law Research of Central and Eastern European Countries and Polish Economic Society.

In the period from May 29, 2017, until July 14, 2020, she had been a member of the Supervisory Board of TAURON Polska Energia S.A., holding the position of the Vice Chair of the Supervisory Board and the Head of the Audit Committee of the Supervisory Board.

She was awarded the following orders and accolades: Silver Cross of Merit, Silver Medal for Long Term Service, Medal of the Commission of National Education, awards of the Minister of National Education and of the President of the University of Economics in Katowice.

In the Company's Supervisory Board of the 6th common term of office she is the Vice Chair of the Company's Supervisory Board and the Head of the Audit Committee of the Company's Supervisory Board.

She has been a Member of the Supervisory Board of TAURON Polska Energia S.A. of the 6th common term of office since August 3, 2020, holding the position of the Vice Chair of the Company's Supervisory Board and the Head of the Audit Committee of the Company's Supervisory Board.

Katarzyna Taczanowska - Secretary of the Supervisory Board

A graduate of the Faculty of Law of the University of Warsaw, registered on the list of attorneys-at-law of the Warsaw Bar Association (Okręgowa Izba Radców Prawnych w Warszawie).

Katarzyna Taczanowska has many years of professional experience in providing legal services for business entities that she has been offering since 2003. She was a partner at the GWW Woźny and Partners (GWW Woźny i Wspólnicy) law firm, since 2009 until now she has been a partner at the Kudlak, Taczanowska-Wileńska sp.k. law firm. In 2009 - 2012 she had been the Director of the Legal Office at Towarzystwo Funduszy Inwestycyjnych PZU S.A. (PZU S.A. Investment Funds Company). She was a member of the Supervisory Boards of PZU Życie S.A., LOT Aircraft Maintenance Services sp. z o.o. and IDA Management sp. z o.o.

Since July 2018 Katarzyna Taczanowska has been holding the position of the General Director for Corporate and Legal Affairs at KGHM Polska Miedź S.A.

She has been a Member of the Supervisory Board of TAURON Polska Energia S.A. since May 8, 2019.

In the Company's Supervisory Board of the 6th common term of office she is the Secretary of the Company's Supervisory Board and a member of the Audit Committee of the Company's Supervisory Board.

Ryszard Madziar - Member of the Supervisory Board

A graduate of the faculty of political science of the University of Warsaw. He holds an MBA degree obtained at the Warsaw Management University (Wyższa Szkoła Menedżerska w Warszawie).

He has an extensive experience in public administration. He has held the following positions: the Mayor of Wołomin, the Head of the Political Cabinet of the Vice Chairman of the Council of Ministers, and prior to that, the Deputy Director of the Mazovian Regional Office of the Agency for Restructuring and Modernization of Agriculture (Agencja Restrukturyzacji i Modernizacji Rolnictwa).

He is a member of the Supervisory Board of, among others, Totalizator Sportowy.

Currently, he is the Head of the Political Cabinet of the Vice Chair of the Council of Ministers (Deputy Prime Minister) in the Chancellery of the Prime Minister.

He has been a Member of the Supervisory Board of TAURON Polska Energia S.A. since July 15, 2020.

In the Company's Supervisory Board of the 6th common term of office he is a Member of the Nominations and Compensation Committee of the Company's Supervisory Board and a Member of the Strategy Committee of the Company's Supervisory Board.

Grzegorz Peczkis - Member of the Supervisory Board

A graduate of the Faculty of Environment and Energy Engineering of the Silesian University of Technology, specializing in Machine Mechanics and Design. He holds a PhD degree in technical science in the field of machine design and operation. He also completed post-graduate studies in enterprise (business) management and pedagogical professional development studies for university lecturers.

Grzegorz Peczkis gained experience both in business, as a proxy at the Diapom sp. z o.o. company, as well as at academic institutions as an Assistant Lecturer and then an Assistant Professor at the Silesian University of Technology.

He is holding the position of the Vice Chair of the Supervisory Board of Grupa Azoty Zakłady Azotowe Kędzierzyn S.A.

He is an author of several dozen scientific (research) and popular (journalistic) publications. He holds rights under ten patents granted by the Patent Office of the Republic of Poland.

He has been a Member of the Supervisory Board of TAURON Polska Energia S.A. since December 6, 2019.

In the Company's Supervisory Board of the 6th common term of office he is the Head of the Strategy Committee of the Company's Supervisory Board and a Member of the Audit Committee of the Company's Supervisory Board and a Member of the Nominations and Compensation Committee of the Company's Supervisory Board.

Description of the procedures of the Company's Supervisory Board

Supervisory Board of the Company shall act on the basis of the Code of Commercial Companies and other legal regulations, the provisions of the Company's Articles of Association and the provisions of the Regulations of the Supervisory Board of TAURON Polska Energia S.A. with its registered office in Katowice which are available on the Company's website at the address: https://www.tauron.pl. When performing their duties the Members of the Company's Management Board shall be acting in accordance with the principles provided in the Best Practice 2016.

The main form of the Supervisory Board overseeing the Company's operations shall be the meetings of the Supervisory Board. The Supervisory Board shall perform its obligations collectively. The meetings of the Company's Supervisory Board shall be convened by the Chairperson of the Supervisory Board or the Vice Chairperson of the Supervisory Board by presenting a detailed agenda:

• 1. in accordance with the decisions taken by the Supervisory Board,
• 1. of his/her own initiative,
• 1. at a written request of each Member of the Supervisory Board,
• 1. at a written request of the Management Board.

The meetings of the Supervisory Board shall be held at the Company's registered office. In justified cases a meeting may be convened at a different venue.

In order to convene a meeting all Members of the Company's Supervisory Board must be invited in writing at least 7 days before the date of the Supervisory Board's meeting. For important reasons the Chairperson of the Supervisory Board may shorten this period to 2 days, defining the way the invitations should be distributed. Notifications of the Supervisory Board's meeting shall be sent by fax or electronic mail. In the notification of the Supervisory Board's meeting the Chairperson shall define the date of the meeting, venue of the meeting and the detailed draft agenda. The Supervisory Board of the Company shall meet on as needed basis, however not less frequently than once every 2 months. The Supervisory Board may hold meetings without convening a formal meeting if all Members of the Supervisory Board are present and nobody objects against the fact of holding the meeting or against the agenda.

A change of the proposed agenda may occur when all Members of the Company's Supervisory Board are present at the meeting and no one raises an objection against the agenda. An issue not included in the agenda should be included in the agenda of the next meeting.

Participation in a meeting of the Supervisory Board shall be a Supervisory Board Member's duty. A Member of the Supervisory Board shall provide information on the reason for his/her absence in writing. Excusing an absence of a Member of the Supervisory Board shall require a resolution of the Company's Supervisory Board. Members of the Company's Management Board may take part in the Supervisory Board's meetings unless the Supervisory Board raises an objection. Participation of the Company's Management Board's members in the Supervisory Board meetings shall be mandatory if they have been invited by the Chairperson of the Supervisory Board. Other persons may also take part in the meetings if they have been invited in the above mentioned way.

The Supervisory Board may seek opinions of legal counsels who provide regular legal advice for the Company, as well as, in justified cases, it may appoint and invite to meetings of the Supervisory Board appropriate experts in order to seek their opinion and make the right decision. In the above mentioned cases the Supervisory Board shall pass a resolution on commissioning the selected expert to carry out the work, obligating the Company's Management Board to conclude an applicable agreement.

The meetings of the Supervisory Board shall be chaired by the Chairperson of the Supervisory Board, and in case of his/her absence by the Vice Chairperson of the Supervisory Board. For important reasons, with the consent of the majority of the Members of the Supervisory Board present at the meeting, the person chairing the meeting shall be obligated to subject to a vote a motion to interrupt the meeting and set the date of resuming the meeting of the Company's Supervisory Board. The Supervisory Board shall make decisions in the form of resolutions. The Supervisory Board's resolutions shall be passed mainly during the meetings thereof. The Supervisory Board shall pass resolutions if at least half of its members are present at the meeting and all of its members have been invited in the appropriate manner defined in the Regulations of the Supervisory Board. Subject to the mandatory legal regulations in force, including the Code of Commercial Companies and the provisions of the Company's Articles of Association, the Supervisory Board shall pass resolutions by an absolute majority of votes of the persons present at the meeting where the absolute majority of votes shall be understood as more votes cast "for" than "against" and "abstain". Resolutions shall not be passed on matters not included in the agenda unless all Members of the Supervisory Board are present and nobody raises an objection. This shall not apply to the resolutions on excusing a Supervisory Board's member's absence at the meeting. Resolutions shall be voted on in an open ballot. A secret ballot shall be ordered:

• 1. at the request of at least one member of the Supervisory Board,
• 1. in personnel related matters.

In accordance with the Company's Articles of Association the Supervisory Board may pass resolutions in writing or using means of direct remote communications. Passing a resolution in such a way shall require a prior notification of all Members of the Supervisory Board of the content of the draft resolution and the participation of at least half of the Members of the Supervisory Board in passing the resolution. The Supervisory Board may pass resolutions this way in the personnel related matters, as well as in other matters the resolution of which requires a secret ballot vote

as long as no Member of the Supervisory Board raises an objection. When voting on a resolution in the above mentioned way a Member of the Supervisory Board shall indicate his/her vote, i.e. "for", "against" or "abstain". A resolution with a note that it has been passed in writing or by voting using the means of direct remote communications shall be signed by the Chairperson of the Supervisory Board. Resolutions passed this way shall be presented at the forthcoming meeting of the Supervisory Board along with the result of the voting.

Participation in a meeting of the Company's Supervisory Board using the means of direct remote communications, i.e. a conference call or a video conference, shall be allowed. In case the Members of the Company's Supervisory Board take part in a meeting of the Company's Supervisory Board using the means of direct remote communications, the resolutions shall be passed if at least half of the Members of the Company's Supervisory Board participate in the vote.

The Members of the Supervisory Board shall take part in the meetings and exercise their rights and responsibilities in person, and while performing their duties they shall be obliged to act with due diligence. The Members of the Supervisory Board shall be obliged to keep confidential information related to the Company's activities that they have acquired in connection with holding their seat or on another occasion.

The Supervisory Board may, for important reasons, delegate its individual members to perform certain supervision actions on their own for a defined period of time. The Supervisory Board may delegate its members, for a period not longer than three months, to temporarily perform the duties of the Members of the Management Board who have been dismissed, submitted their resignation or if for other reasons they cannot perform their functions. The above mentioned delegation shall require obtaining a consent of the Member of the Supervisory Board who is to be delegated.

The detailed description of the activities of the Supervisory Board in the last financial year is provided in the Report on the Activities of the Company's Supervisory Board, submitted on an annual basis to the General Meeting (GM) and published on the Company's website at the address: http://www.tauron.pl.

The Company's Supervisory Board may appoint from among its members permanent or temporary (ad hoc) working groups, committees to perform specific actions. The standing committees of the Company's Supervisory Board shall be:

• 1. Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. (Audit Committee),
• 1. Nominations and Compensation Committee of the Supervisory Board of TAURON Polska Energia S.A. (Nominations and Compensation Committee),
• 1. Strategy Committee of the Supervisory Board of TAURON Polska Energia S.A. (Strategy Committee).

The composition, tasks and rules (procedures) of operation of the above mentioned committees shall be defined in the regulations thereof passed by the Supervisory Board.

Audit Committee of the Supervisory Board of TAURON Polska Energia S.A.

The members of the Audit Committee were appointed for the current term on August 3, 2020 by the Supervisory Board of the 6th common term of office from among its members.

In 2020 the Audit Committee was composed of 3 to 5 members.

Due to the changes to the membership of the Supervisory Board of the Company introduced in 2020, the Company's Supervisory Board also made changes to the membership of the Audit Committee.

Composition of the Audit Committee as of December 31, 2020 and as of the date of drawing up this report

• 1. Teresa Famulska Head of the Audit Committee,
• 1. Grzegorz Peczkis Member of the Audit Committee,
• 1. Katarzyna Taczanowska Member of the Audit Committee.

The changes to the composition of the Audit Committee in 2020 and by the date of drawing up this report

As of January 1, 2020, the Audit Committee was composed of the following members: Teresa Famulska (Head of the Audit Committee), Jan Płudowski, Marcin Szlenk, Jacek Szyke and Katarzyna Taczanowska.

On April 20, 2020, Jacek Szyke and Marcin Szlenk submitted statements on their resignations from the membership of the Company's Supervisory Board of the 5th common term of office. This way, they ceased to be the members of the Audit Committee.

On May 25, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Audit Committee by appointing Grzegorz Peczkis and Andrzej Śliwka to be the members thereof.

On June 5, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, dismissed Jan Płudowski from the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Audit Committee.

On June 16, 2020, Andrzej Śliwka submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Audit Committee.

On July 15, 2020, i.e. on the date of the Ordinary General Meeting (GM) of the Company approving the financial statements for the last full financial year of performing the function of the Members of the Company's Supervisory Board of the 5th common term of office, i.e. for the financial year 2019, the mandates of all Members of the Company's Supervisory Board of the 5th common term of office expired. This way, Teresa Famulska, Katarzyna Taczanowska and Grzegorz Peczkis ceased to be the members of the Audit Committee.

On August 3, 2020, in connection with the appointment of the Members of the Company's Supervisory Board of the 6th common term of office, the Company's Supervisory Board appointed, from the members thereof, Teresa Famulska, Grzegorz Peczkis and Katarzyna Taczanowska to be the members of the Audit Committee.

On August 3, 2020, the Audit Committee elected Teresa Famulska to hold the position of the Head of the Audit Committee.

No other changes to the composition of the Audit Committee had taken place by the date of drawing up this report.

Information on the independence of the members of the Audit Committee

Pursuant to the Act of May 11, 2017, on certified auditors, audit companies and public oversight, the majority the members of the audit committee, including its head, should be independent and at least one member of the audit committee should have knowledge and skills with respect to accounting or auditing financial statements and at least one member of the audit committee should have knowledge and skills in the industry that the company operating in.

In 2020 the membership (composition) of the Audit Committee was in compliance with the requirements defined in the above mentioned act. The evaluation of the independence and the statutory requirements with respect to the knowledge and skills of the individual members of the Audit Committee was made by the Company's Supervisory Board based on the relevant statements submitted by the members of the Audit Committee.

The below table presents the information on the fulfillment, in 2020, by the Members of the Audit Committee of the independence requirements and the requirements with respect to the knowledge and skills held.

Table no. 63. Fulfillment, in 2020, by the Members of the Audit Committee of the independence requirements and the requirements with respect to the knowledge and skills held

First and last name		Period of performing the function (tenure) in the Audit Committee	Fulfillment of the independence requirements and the requirements with respect to the knowledge and skills held
1.	Teresa Famulska	01.01.2020 - 15.07.2020 03.08.2020 - 31.12.2020	• Meets independence requirements • Has knowledge and skills in the field of accounting and auditing of financial statements
2.	Grzegorz Peczkis	25.05.2020 - 15.07.2020 03.08.2020 - 31.12.2020	• Meets independence requirements • Has knowledge of the industry that the Company is operating in
3.	Katarzyna Taczanowska	01.01.2020 - 15.07.2020 03.08.2020 - 31.12.2020	• Does not meet independence requirements
4.	Jan Płudowski	01.01.2020 - 05.06.2020	• Meets independence requirements • Has knowledge of the industry that the Company is operating in
5.	Marcin Szlenk	01.01.2020 - 20.04.2020	• Meets independence requirements • Has knowledge and skills in the field of accounting and auditing of financial statements
6.	Jacek Szyke	01.01.2020 - 20.04.2020	• Meets independence requirements • Has knowledge of the industry that the Company is operating in
7.	Andrzej Śliwka	25.05.2020 - 16.06.2020	• Does not meet independence requirements

The detailed information on the way the Members of the Audit Committee, that continue to hold their seats in the Audit Committee, as of the date of drawing up this report, have gained the knowledge and skills to the extent defined in the Act of May 11, 2017, on certified auditors, audit firms and public oversight is presented in section 9.11. of this report.

Tasks and competences of the Audit Committee

In 2020 the Audit Committee was performing the tasks and competences defined in the currently applicable legal regulations and in the Regulations of the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. adopted by the Supervisory Board.

The Audit Committee held 9 meetings in total during the period covered by this report.

The tasks and competences of the Audit Committee as of December 31, 2020, and as of the date of drawing up this report, are presented in the below table.

Table no. 64. Competences of the Audit Committee as of December 31, 2020, and as of the date of drawing up this report

Competences of the Audit Committee

1. monitoring:

2. 1) Company's financial reporting process,

3. 2) effectiveness of the internal control, risk management, compliance and internal audit systems, including with respect to the financial reporting
4. 3) performing of financial revisions, in particular performing of an audit by an audit company, taking into account any conclusions (motions) and findings of the Audit Supervision Committee stemming from an audit (inspection) performed at an audit company
5. 1. controlling and monitoring of the independence and impartiality of the chartered accountant (certified auditor) and the audit company, in particular in case other services than an audit are provided for the benefit of the Company by the audit company,
6. 1. performing the evaluation of the independence of the certified auditor and expressing consent for the performance thereby of the permitted services that do not constitute an audit within the Company,
7. 1. developing the policy for selecting the audit company to perform the audit,
8. 1. developing the policy for performing by the audit company conducting the audit, entities related to such audit company and the members of the audit company's corporate network, of the permitted services that do not constitute an audit,
9. 1. defining the procedure for selecting the audit company by the Company,
10. 7. presenting to the Supervisory Board, for the purpose of selecting the audit company responsible for performing the statutory audit or review of financial statements, of the recommendation, referred to in Art. 130, clauses 2 and 3 of the Act of May 11, 2017 on certified auditors, auditing companies and public oversight and in Art. 16, clause 2 of the Regulation (EU) No 537/2014 of the European Parliament and of the Council of April 16, 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC, in line with the policies referred to above in items 4 and 5,
11. 1. informing the Supervisory Board of the audit results and explaining how the audit contributed to the accuracy (fairness) of the Company's financial reporting, and also what the role of the Audit Committee in the audit process was,
12. 1. presenting the recommendations aimed at ensuring accuracy (fairness, reliability) of the Company's financial reporting process,
13. 1. performing other activities vested with the audit committees pursuant to the Act of May 11, 2017, on certified auditors, auditing companies and public oversight, Regulation (EU) No 537/2014 of the European Parliament and of the Council of April 16, 2014 on specific requirements regarding statutory audit of public-interest entities, repealing the Commission Decision 2005/909/EC and the Act of September 29, 1994, on accounting.

Permitted non-audit services provided by an audit company

The following permitted non-audit services were provided for TAURON and TAURON Capital Group's subsidiaries in 2020 by an audit firm auditing the financial statements:

• 1. confirmed in writing verification of the annual and interim standalone consolidation packages of selected TAURON Capital Group's subsidiaries required to prepare the annual and interim consolidated financial statements,
• 1. completing the agreed procedures for the verification of the report of TAURON Dystrybucja subsidiary in connection with the requirement to estimate the Regulatory Asset Base (RAB) and the Regulatory Asset Base (RAB) for the AMI System for the needs of determining the justified return on capital employed by the President of ERO.

In connection with the provision of the above services, the Audit Committee performed an evaluation of the threast to and the safeguards of the independence of the audit company Ernst & Young Audyt Polska and expressed its consent for the provision of the above services.

Main assumptions of the policy for appointing an audit company to conduct the audit and the policy of providing the permitted non-audit services by entities related to such audit company and by a member of the audit company's network

The Audit Committee adopted the following regulations on October 16, 2017, prepared in connection with the coming into force of the Act of May 11, 2017, on certified auditors, auditing companies and public oversight:

• 1. Policy for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A.,
• 2. Procedure for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A.
• 1. Policy for the provision of the permitted non-audit services at TAURON Group by the audit firm conducting the audit of the annual financial statements and consolidated financial statements of TAURON Polska Energia S.A., entities related to such audit firm and by a member of the audit firm's network.

On October 5, 2020, the Audit Committee adopted the new version of the Policy for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A., as well as the Procedure for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A.

Policy for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A. is aimed at ensuring the compliance of the selection of the audit firm to conduct the audit and review of the Company's financial statements with the legal regulations. The policy defines, in a clear manner, the principles and rules of the process for the appointment of the audit firm to audit the reports of TAURON as a public interest unit (entity), principles of the procedure for the appointment of the audit firm, principles of preparing the recommendations of the Audit Committee related to the appointment of the audit firm, as well as the principles of the rotation of the audit firm conducting the audit and review of the financial statements and consolidated financial statements of TAURON. The most important assumptions adopted in the policy include the fact that the process for the appointment of the auditor shall be based on the applicable legal regulations, ensuring the transparency and objectivity of the process for the appointment of the auditor and including in the process of the requirements necessary for the timely and correct performance of the audit services for the Company.

Procedure for the appointment of the audit firm to conduct the audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A. is aimed at ensuring the compliance of the process for the appointment of the audit firm with the legal regulations, as well as ensuring that the audit and review of the financial statements are conducted at a high quality level, within a specified time frame, while ensuring independence, objectivity, transparency and credibility of the audit firm and the certified auditors. The procedure defines in detail and accurately the individual stages of the process to select the audit firm, including indicating the corporate authorities (bodies) and organizational units responsible for such stages. Furthermore, the procedure defines the general conditions for the participation in the proceedings and the criteria for the selection of the audit firm as well as the time frame of the auditor selection process. The most important assumptions made in the procedure include adopting a clear and transparent, based on the legal regulations, split of the responsibilities in the process for the appointment of the auditor, as well as defining transparent and non-discriminatory conditions for the participation in the tender procedure and criteria for the appointment of the audit firm that the company may apply.

Policy for the provision of the allowed non-audit services at TAURON Group by the audit firm conducting the audit of the annual financial statements and consolidated financial statements of TAURON Polska Energia S.A., entities related to such audit firm and by a member of the audit firm's network is aimed at defining clear rules aimed at meeting the requirement of the independence of the audit firm conducting the audit of the Company, in case such firm or entities that are members of its network are providing non-audit services. This policy defines the principles related to the provision for the benefit of TAURON Capital Group's entities, by the audit firm conducting the audit at TAURON, entities related to the audit firm and a member of the audit firm's network, of additional non-audit services or non-review services, in particular the conditions for the admissibility of the provision of the permitted services, the principles of the Audit Committee conducting an assessment of the threats to and safeguards of the independence of the audit firm, as well as the control mechanisms with respect to observing the principles of the independence of the certified auditor at TAURON Capital Group. The most important assumptions adopted in the policy include defining clear rules for the Audit Committee to conduct an assessment of the threats to and safeguards of the independence of the audit firm and expressing consent for the provision of the non-audit services, based on the compliance with the legal regulations and the purposefulness of the provision of such services.

Recommendations of the Audit Committee related to the appointment (selection) of the audit firm

The Audit Committee did not recommend an appointment of the audit firm to the Supervisory Board of TAURON in 2020.

In 2018, the audit firm was selected to audit and review the financial statements and consolidated financial statements of TAURON for the years 2019-2021. The Supervisory Board selected the audit company based on the recommendation of the Audit Committee which met the applicable conditions and was made as a result of the Company's public procurement proceedings, in accordance with the applicable criteria, including an indication of a second alternative entity to perform such activities and providing the justification for the preferences behind the selection of the recommended audit firm.

The detailed description of the activities of the Audit Committee is provided in the Report on the activities of the Supervisory Board submitted on an annual basis to the General Meeting (GM) and published on the Company's website at the address: http://www.tauron.pl.

Nominations and Compensation Committee of the Supervisory Board of TAURON Polska Energia S.A.

The members of the Nominations and Compensation Committee were appointed for the current term on August 3, 2020 by the Supervisory Board of the 6th common term of office from among its members.

In 2020 the Nominations and Compensation Committee was composed of 2 to 4 members.

Due to the changes to the membership of the Supervisory Board of the Company introduced in 2020, the Company's Supervisory Board also made changes to the membership of the Nominations and Compensation Committee.

Composition of the Nominations and Compensation Committee as of December 31, 2020

• 1. Andrzej Kania Head of the Nominations and Compensation Committee,
• 1. Ryszard Madziar Member of the Nominations and Compensation Committee,
• 1. Barbara Piontek Member of the Nominations and Compensation Committee.

Composition of the Nominations and Compensation Committee as of the date of drawing up this report

• 1. Andrzej Kania Head of the Nominations and Compensation Committee,
• 1. Ryszard Madziar Member of the Nominations and Compensation Committee,
• 1. Grzegorz Peczkis Member of the Nominations and Compensation Committee.

The changes to the composition of the Nominations and Compensation Committee in 2020 and by the date of drawing up this report

As of January 1, 2020, the Nominations and Compensation Committee was composed of the following members: Beata Chłodzińska (Head of the Nominations and Compensation Committee), Barbara Łasak - Jarszak and Agnieszka Woźniak.

On March 24, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1 and 3 of the Company's Articles of Association, dismissed Ms. Agnieszka Woźniak from the Company's Supervisory Board of the 5th common term of office. This way, she ceased to be the member of the Nominations and Compensation Committee.

On April 20, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Nominations and Compensation Committee by appointing Andrzej Śliwka to be a member thereof.

On April 27, 2020, Beata Chłodzińska submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office. This way, she ceased to be the member of the Nominations and Compensation Committee

On May 25, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Nominations and Compensation Committee by appointing Andrzej Kania and Jan Płudowski to be the members thereof.

On May 25, 2020, the Nominations and Compensation Committee elected Andrzej Śliwka to hold the position of the Head of the Nominations and Compensation Committee.

On June 5, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, dismissed Jan Płudowski from the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Nominations and Compensation Committee.

On June 16, 2020, Andrzej Śliwka submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Nominations and Compensation Committee.

On June 18, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Nominations and Compensation Committee by appointing Teresa Famulska to be a member thereof.

On June 18, 2020, the Company's Supervisory Board of the 5th common term of office elected Andrzej Kania to hold the position of the Head of the Nominations and Compensation Committee.

On July 15, 2020, i.e. on the date of the Ordinary General Meeting (GM) of the Company approving the financial statements for the last full financial year of performing the function of the Members of the Company's Supervisory Board of the 5th common term of office, i.e. for the financial year 2019, the mandates of all Members of the Company's Supervisory Board of the 5th common term of office expired. This way, Barbara Łasak-Jarszak, Andrzej Kania and Teresa Famulska ceased to be the members of the Nominations and Compensation Committee.

On August 3, 2020, in connection with the appointment of the Members of the Company's Supervisory Board of the 6th common term of office, the Company's Supervisory Board appointed, from the members thereof, Andrzej Kania, Ryszard Madziar and Barbara Piontek to be the members of the Nominations and Compensation Committee.

On August 3, 2020, the Audit Nominations and Compensation Committee elected Andrzej Kania to hold the position of the Head of the Nominations and Compensation Committee.

On February 12, 2020, Barbara Piontek submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 6th common term of office. This way, he ceased to be the member of the Nominations and Compensation Committee.

On February 19, 2020, the Company's Supervisory Board of the 6th common term of office supplemented the composition of the Nominations and Compensation Committee by appointing Grzegorz Peczkis to be a member thereof.

No other changes to the composition of the Nominations and Compensation Committee had taken place by the date of drawing up this report.

Tasks and competences of the Nominations and Compensation Committee

The tasks and competences of the Nominations and Compensation Committee did not change in 2019.

The tasks and competences of the Nominations and Compensation Committee, as of December 31, 2020 and as of the date of drawing up this report, are presented in the below table.

Table no. 65. Competences of the Nominations and Compensation Committee, as of December 31, 2020 and as of the date of drawing up this report

Competences of the Nominations and Compensation Committee

• 1. recommending to the Supervisory Board a recruitment procedure for the positions of the Members of the Company's Management Board,
• 1. evaluating candidates for the Members of the Management Board and providing the Supervisory Board with opinions in this respect,
• 1. recommending to the Supervisory Board a form and content of the agreements to be concluded with the members of the Management Board,
• 1. recommending to the Supervisory Board a compensation and bonus system for the members of the Management Board, 5. recommending to the Supervisory Board the need to suspend a member of the Management Board for important reasons,
• 1. recommending to the Supervisory Board the need to delegate a member of the Supervisory Board to temporarily perform the duties of the
• Members of the Management Board who cannot perform their duties, along with a compensation proposal

The detailed description of the activities of the Nominations and Compensation Committee in the last financial year is provided in the Report on the activities of the Supervisory Board submitted on an annual basis to the General Meeting (GM) and published on the Company's website at the address: http://www.tauron.pl.

Strategy Committee of the Supervisory Board of TAURON Polska Energia S.A.

The members of the Strategy Committee were appointed for the current term on August 3, 2020 by the Supervisory Board of the 6th common term of office from among its members.

In 2020 the Strategy Committee was composed of 2 to 5 members.

Due to the changes to the membership of the Supervisory Board of the Company, introduced in 2020, the Company's Supervisory Board also made changes to the membership of the Strategy Committee.

Composition of the Strategy Committee as of December 31, 2020

• 1. Grzegorz Peczkis Head of the Strategy Committee,
• 1. Ryszard Madziar Member of the Strategy Committee,
• 1. Barbara Piontek Member of the Strategy Committee.

Composition of the Strategy Committee as of the date of drawing up this report

• 1. Grzegorz Peczkis Head of the Strategy Committee,
• 1. Andrzej Kania Member of the Strategy Committee,
• 1. Ryszard Madziar Member of the Strategy Committee.

The changes to the composition of the Strategy Committee in 2020 and by the date of drawing up this report

As of January 1, 2020, the Strategy Committee was composed of the following members: Jacek Szyke (Head of the Strategy Committee), Beata Chłodzińska, Grzegorz Peczkis, Jan Płudowski and Agnieszka Woźniak.

On March 24, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1 and 3 of the Company's Articles of Association, dismissed Ms. Agnieszka Woźniak from the Company's Supervisory Board of the 5th common term of office. This way, she ceased to be the member of the Strategy Committee.

On April 20, 2020, Jacek Szyke submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Strategy Committee.

On April 27, 2020, Beata Chłodzińska submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 5th common term of office. This way, she ceased to be the member of the Strategy Committee

On May 25, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Strategy Committee by appointing Andrzej Kania to be a member thereof.

On May 25, 2020, the Strategy Committee elected Jan Płudowski to hold the position of the Head of the Strategy Committee.

On June 5, 2020, the Minister of State Assets, acting pursuant to § 23, section 1, clauses 1) and 3) of the Company's Articles of Association, dismissed Jan Płudowski from the Company's Supervisory Board of the 5th common term of office. This way, he ceased to be the member of the Strategy Committee.

On June 19, 2020, the Company's Supervisory Board of the 5th common term of office supplemented the composition of the Strategy Committee by appointing Barbara Łasak-Jarszak to be a member thereof.

On June 26, 2020, the Strategy Committee elected Grzegorz Peczkis to hold the position of the Head of the Strategy Committee.

On July 15, 2020, i.e. on the date of the Ordinary General Meeting (GM) of the Company approving the financial statements for the last full financial year of performing the function of the Members of the Company's Supervisory Board of the 5th common term of office, i.e. for the financial year 2019, the mandates of all Members of the Company's Supervisory Board of the 5th common term of office expired. This way, Grzegorz Peczkis, Andrzej Kania and Barbara Łasak-Jarszak ceased to be the members of the Strategy Committee.

On August 3, 2020, in connection with the appointment of the Members of the Company's Supervisory Board of the 6th common term of office, the Company's Supervisory Board appointed, from the members thereof, Ryszard Madziar, Grzegorza Peczkis and Barbara Piontek to be the members of the Strategy Committee.

On August 3, 2020, the Strategy Committee elected Grzegorza Peczkis to hold the position of the Head of the Strategy Committee.

On February 12, 2020, Barbara Piontek submitted a statement on his resignation from the membership of the Company's Supervisory Board of the 6th common term of office. This way, he ceased to be the member of the Strategy Committee.

On March 1, 2020, the Company's Supervisory Board of the 6th common term of office supplemented the composition of the Strategy Committee by appointing Andrzej Kania to be a member thereof.

No other changes to the composition of the Strategy Committee had taken place by the date of drawing up this report.

Tasks and competences of the Strategy Committee

The tasks and competences of the Strategy Committee did not change in 2020.

The tasks and competences of the Strategy Committee as of December 31, 2020 and as of the date of drawing up this report are presented in the below table.

Table no. 66. Competences of the Strategy Committee as of December 31, 2020 and as of the date of drawing up this report

Competences of the Strategy Committee

• 1. evaluating the Company's and TAURON Capital Group's Strategy and presenting the results of such evaluation to the Supervisory Board,
• 1. recommending to the Supervisory Board the scope and deadlines for submitting the long term strategic plans by the Management Board,
• 1. evaluating the impact of the planned and currently undertaken strategic investment projects on the Company's assets' position,
• 1. monitoring the implementation of the strategic investment tasks, 5. evaluating activities related to the use of the Company's material assets,
• 1. providing opinions on the strategic documents submitted to the Supervisory Board by the Management Board

The detailed description of the activities of the Strategy Committee in the last financial year is provided in the report on the activities of the Supervisory Board submitted on an annual basis to the General Meeting (GM) and published on the Company's website at the address: http://www.tauron.pl.

Description of the activities of the Committees of the Supervisory Board of TAURON Polska Energia S.A.

The detailed description of the activities of the Committees of the Supervisory Board is provided in the Regulations of the individual Committees of the Supervisory Board.

The Committees of the Supervisory Board are advisory and opinion making bodies acting collectively as a part of the Company's Supervisory Board structure and perform the support and advisory functions for the Supervisory Board. The tasks of the Committees of the Supervisory Board are carried out by submitting motions, recommendations, opinions and statements related to the scope of their tasks to the Supervisory Board, by way of the resolutions passed. The Committees of the Supervisory Board are independent of the Management Board of the Company.

The Audit Committee and the Nominations and Compensation Committee of the Supervisory Board are composed of 3 to 5 members, while the Strategy Committee is composed of 3 to 7 members. The activities of the individual Committees are managed by their Chairpersons (Heads).

The meetings of the Committees of the Supervisory Board are convened by the Chairperson (Head) of the specific Committee on his / her own initiative or upon the motion of a member of the Committee or Chairperson of the Supervisory Board and they are held on as needed basis. In case of the Audit Committee the meetings are convened at least on a quarterly basis. The Head of the given Committee may invite the Members of the Company's Supervisory Board, who are not members of the specific Committee, the members of the Management Board and the employees of the Company as well as other persons working or cooperating with the Company to take part in the meetings of the Committees. The Head of the specific Committee or a person appointed by him / her submits motions, recommendations and reports to the Supervisory Board .

The Committees of the Supervisory Board pass resolutions if at least half of their members are present at the meeting and all of the members have been duly invited. The resolutions of the Committees of the Supervisory Board are adopted by an absolute majority of votes present at the meeting, where the absolute majority of votes is understood as more votes given "for" than "against" and "abstain". The Committees of the Supervisory Board may pass resolutions in writing or by using the means of direct remote communication.

The Members of the Committees of the Supervisory Board may also participate in the meetings of the Committees and vote on the resolutions being passed by using the means of direct remote communication, i.e. tele- or videoconferences.

The Company's Management Board shall be informed of the recommendations and assessments submitted to the Supervisory Board by the given Committee of the Supervisory Board. Every year, the Committees of the Supervisory Board provide public record information, via the Company, on their memberships, the number of meetings held and the participation in the meetings during the year, as well as on their main activities.

The Company's Management Board provides the individual Committees with possibility of using the services of the external advisers to the extent required to perform the obligations of the Committees.

9.12. TAURON Group's Diversity Policy

TAURON Group's Diversity Policy (Diversity Policy), put in place in 2017, was in force at the Company and TAURON Capital Group in 2020, with its goal to strengthen the awareness and organizational culture open to diversity.

In accordance with the above Diversity Policy the diversity and openness are an integral part of TAURON Capital Group's business operations. TAURON Capital Group applies the policy of equal treatment and seeks to ensure diversity in terms of gender, educational background, age and professional experience with respect to all employees, and in particular to the management bodies and its key managers. Also, actions have been undertaken to prevent discrimination by fostering appropriate work atmosphere as well as building and strengthening positive relationships among the personnel and developing organizational culture open to diversity, based on the corporate values: Partnership, Development and Boldness (PRO),

The diversity policy is also applied with respect to the cooperation (relationships) with the external partners of TAURON Capital Group, i.e. companies, universities, schools or other business entities.

As part of employee related issues supporting the implementation of the directions set by the Diversity Policy, the following regulations are put in place at TAURON Capital Group.

• 1. TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination,
• 1. Policy of Respect for Human Rights defining the principles of respect for human rights and actions taken to prevent the violation thereof and to support the atmosphere of dignity and mutual respect,
• 1. Training and competence development programs conducive to and supporting the creation of an atmosphere fostering the development of each employee,
• 1. Regulations ensuring fairness and objectivity with respect to work organization and compensation, including among others:
  2. 1) TAURON Group's Compensation Principles,
  3. 2) TAURON Group's Human Resources Management Policy,
  4. 3) regulations with respect to benefits (entitlements),
  5. 4) flexible forms of work time and ability to work remotely.
• 1. Programs and regulations dedicated to women, ensuring equal opportunities for them and support in combining professional life with private life, e.g.:
  2. 1) reduced working time for pregnant women,
  3. 2) Mum works (Mama pracuje) program put in place in the distribution line of business, with the goal to build a friendly work environment for mothers,
  4. 3) Magenta meetings (Magentowe spotkania) program as part of the Women's Power (Kobieca Moc) campaign dedicated to women students of the electrical engineering faculties, whose goal is to provide support for girls, among others in selecting a career path.
• 1. TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy,
• 1. TAURON Group's Competence Model.

The detailed data and indicators related to diversity in terms of age, gender and the activities undertaken, as well as the results stemming from the implementation of the Diversity Policy are provided in section 2.8 of this report.

With respect to the members of the corporate authorities of TAURON, i.e. the Management Board and the Supervisory Board, persons acting as the Members of the Company's Management Board are appointed by the Company's Supervisory Board, while the Members of the Company's Supervisory Board are appointed by the Company's GM and the Minister competent to exercise the rights related to the State Treasury's shares, acting within the statutory powers of the State Treasury.

The Members of the Company's Management Board are appointed by the Company's Supervisory Board after conducting a qualification procedure designed to verify and assess their qualifications and select the best candidate. The notice of the qualification process is published on the Company's website at the address: https://www.tauron.pl and in the Public Information Bulletin (Biuletyn Informacji Publicznej) of the Minister competent to exercise the rights related to the State Treasury's shares. The competition is open to any person that meets the requirements provided in § 16 clauses 3 and 4 of the Company's Articles of Association. As there are no special requirements related to, among others, gender, education profile, age and professional experience, the Company's Supervisory Board is able to ensure comprehensive and diverse approach when assessing and selecting the candidates for Members of the Company's Management Board.

As of December 31, 2020, the Company's Management Board was composed of 3 men, and the Company's Supervisory Board included 3 women and 3 men. The age structure of the Members of the Company's Management Board was as follows: over 40-50 years - 2 persons, over 50-60 years - 1 person, while in case of the Company's Supervisory Board: over 40-50 years - 4 persons, over 50-60 years - 1 person, above 60 years - 1 person.

Information on the qualifications and professional experience of persons appointed as members of the Management Board and the Supervisory Board of TAURON is published in the applicable securities filings (current reports) and on the Company's website at the address: https://www.tauron.pl.

10. STATEMENT ON NON-FINANCIAL INFORMATION

Pursuant to art. 49b, clause 9 and art. 55, clause 2c of the Act of September 29, 1994, on accounting (Journal of Laws of 2021, item 217), instead of the statement on non-financial information, the Company drew up a Nonfinancial Report of TAURON Capital Group for 2020, in the form of a separate document posted on the Company's website at the address: https://www.tauron.pl.

The above Report was drawn up in accordance with:

• 1. Article 49b, clauses 1-8 and art. 55, clauses 2b-e of the Act of September 29, 1994, on accounting (Journal of Laws of 2021, item 217), which implements the guidelines of the Directive of the European Parliament and of the Council 2014/95 / EU of October 22, 2014, as regards disclosure of non-financial information, along with the additional, subsequent guidelines, including the European Commission Communication 2019 / C 209/01 of June 20, 2019, with the guidelines on non-financial reporting: Supplement on reporting climate related information,
• 1. Global Reporting Index guidelines GRI Standards (core level).

11. MANAGEMENT AND SUPERVISORY PERSONNEL COMPENSATION POLICY

11.1. Compensation system for the Members of the Management Board and the key managers

General information on the adopted compensation system for the Members of the Management Board of TAURON Polska Energia S.A.

The principles of compensation for the Members of the Company's Management Board in force at TAURON are in line with the regulation of the Act of June 9, 2016, on the principles of determining the compensation of persons managing certain companies (Journal of Laws of 2020, item 1907).

The principles of compensation for the Members of the Company's Management Board defined in the Resolution of the Extraordinary GM of TAURON November 21, 2019, on the principles of determining the compensation of the Members of the Management Board and waiving resolution no. 5 of the Extraordinary General Meeting of the Company under the name: TAURON Polska Energia S.A. of December 15, 2016, on the principles of determining the compensation of the Members of the Management Board and waiving resolution no. 36 of the Ordinary General Meeting of the Company under the name: TAURON Polska Energia S.A. of May 29, 2017, on the amendment of resolution no. 5 of the Extraordinary General Meeting of December 15, 2016 and waiving resolution no. 26 of the Ordinary General Meeting of the Company under the name: TAURON Polska Energia S.A. of May 8, 2019 on the amendment of resolution no. 5 of the Extraordinary General Meeting of December 15, 2016, were in force at the Company in 2020.

The principles of determining the compensation were specified in detail in the resolution of the Company's Supervisory Board of December 19, 2016 on determining the compensation of the Members of the Management Board of TAURON Polska Energia S.A., as subsequently amended

The Policy of compensation for the members of the supervisory and management authorities, including the description of the principles for determining such policy at TAURON Polska Energia S.A., adopted by the Company's Supervisory Board on October 23, 2017, had been in force at TAURON until July 14, 2020.

With a view to complying with the provisions of the Act of October 16, 2019, on amending the Act on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies and certain other acts, the General Meeting of the Company adopted a resolution on July 15, 2020, on the adoption of the " Policy of Compensation for Members of the Management Board and Supervisory Board of TAURON Polska Energia S.A." (Compensation Policy).

The Compensation Policy, along with the resolution of the General Meeting of the Company on the adoption thereof has been published on the Company's website at the address: https://www.tauron.pl.

The overarching objectives of the Compensation Policy include:

• 1. ensuring a consistent and motivational compensation system for the Members of the Company's Management Board,
• 1. linking the compensation rules with the monitoring of the implementation of the adopted strategic plans, long term interests of the Company and the implementation of the financial plans,
• 1. setting the level of compensation for the Members of the Company's Management Board in connection with the implementation of the management objectives set,
• 1. increasing the Company's value through the development of the most senior management staff,
• 1. improving the compensation system translating into the implementation of the Company's business strategy and the directions of its expansion,
• 1. ensuring the stable growth of the Company.

The model of compensation covered by the Compensation Policy assumes a two-component system for determining the compensation of the Members of the Company's Management Board, where the total compensation of a Member of the Company's Management Board is composed of a fixed part constituting the monthly base compensation and a variable part constituting the supplementary compensation for the Company's financial year, dependent on achieving specific management objectives (KPI).

The system of compensating the Members of the Company's Management Board assumes linking the variable part of the compensation with the outstanding management objectives stemming from the provisions of the act of June 9, 2016 on the principles for determining compensation of the management personnel of certain companies, as subsequently amended, and set, based upon these provisions, by the GM and the Supervisory Board of the Company. The goal of adopting, in the compensation system, of the dependence of the compensation's variable part on achieving the management goals set to be accomplished is aimed, in particular, at implementing the adopted Strategy, the directions of the Company's expansion and the financial plans taking into account the Company's long term interests. Furthermore, it shapes a new organizational culture of the Company.

Taking into account the applicable regulations, the level of compensation of the Members of the Company's Management Board is determined by the Company's Supervisory Board within the range determined by the Company's GM.

The variable compensation of the Members of the Company's Management Board constitutes up to 60% of the fixed compensation for the financial year, assuming the management objectives, set by the GM and detailed by the Supervisory Board for the given financial year, have been achieved.

Th variable compensation for achieving the financial management objectives is granted based on the data from the audited consolidated financial statements of the Company for the given financial year. The variable compensation for achieving the non-financial management objectives is due in connection with achieving specific goals in the given financial year based on the assessment of their achievement by the Company's Supervisory Board.

The overall management objectives set by the GM include:

• 1. achieving EBITDA at the level approved in the Material and Financial Plan for the given financial year,
• 1. achieving the Net debt/EBITDA ratio at the level approved in the Material and Financial Plan for the given financial year,
• 1. maintaining the rating of TAURON Polska Energia S.A. at an investment grade level,
• 1. achieving of the effects of the implemented restructuring programs or programs aimed at improving the efficiency of TAURON Capital Group,
• 1. implementation of the Strategy, investment projects in accordance with the optimal schedule and budget from the point of view of project profitability and the condition of TAURON Capital Group,
• 1. implementation of the key investment projects for energy security, in particular with respect to electricity generation and distribution, including the investment projects related to BAT in 2020-2021,
• 1. sales of the new products (sales of products that include electricity and products that are synergic with electricity and gas),
• 1. improving the quality indicators related to customer service or other operational indicators,
• 1. increase in TAURON Capital Group's innovations through the implementation of research and development works, pilot projects as well as deployments, taking into account the effective use of the funds allocated for this purpose.

The Members of the Management Board of the Company are neither covered by the bonus program based on the capital (equity) of the Company (stock awards), nor do they receive any compensation or bonuses due to the performance of their functions in the governing bodies (authorities) of TAURON Capital Group's subsidiaries.

General information on the adopted System of Compensation for the Members of the Management Board of TAURON Capital Group's Subsidiaries

At all of TAURON Capital Group's subsidiaries for which TAURON is a parent company within the meaning of art. 4, clause 3 of the Act of February 16, 2017, on the protection of competition and consumers, (Journal of Laws of 2020, item 1076, as subsequently amended), the principles of compensation for the members of the management authorities (bodies) are applied in accordance with the Act of June 9, 2016, on the principles of determining compensation of the management personnel of certain companies (Journal of Laws of 2020, item 1907). The above was defined in the Policy for determining the compensation for the members of the authorities of the Subsidiaries adopted by the Management Board of TAURON, and in the Principles of the compensation for the members of the corporate authorities of the Subsidiaries.

The principles of compensation for the members of the management bodies (authorities) of the subsidiaries are, similar as at TAURON, based on a two-component system for determining compensation, where the total compensation is composed of a fixed part and a variable part dependent on fulfilling specific, results based criteria, i.e. achieving the management objectives. Linking of the compensation's variable part to achieving the management objectives set to be accomplished is of major importance in TAURON Capital Group's management process and is aimed at prioritizing the directions of the expansion of the individual subsidiaries.

The management objectives that the variable compensation is linked to may, in particular, include:

• 1. increase of the net profit or EBITDA or a positive change of the growth rate of one of those results;
• 1. achieving or changing the production or sales volume;
• 1. amount of the revenue, in particular revenue from sales, from the operating activities, from the other operating or financing activities;
• 1. cutting down losses, reducing the overhead costs or the costs of the business operations conducted (operating expenses);
• 1. implementation of the strategy or the restructuring plan;
• 1. achieving or changing certain indicators, in particular profitability, financial liquidity, management efficiency or solvency;
• 1. implementing investment projects, taking into account in particular the scale, rate of return, innovations, ontime implementation (delivery);
• 1. change of the company's market position, calculated as market share or according to other criteria or relationships with the counterparties (business partners, contractors) designated as the key counterparties (business partners, contractors) according to the defined criteria;
• 1. implementation of the personnel policy conducted and an increase of the workforce commitment.

General information on the adopted System of Compensation for the Key Managers

The principles related to the compensation and bonus system for the key managers and other employees are defined in the Regulations of the Compensation for the Employees of TAURON Polska Energia S.A., adopted for application by the Management Board of the Company.

Principles of Compensation at TAURON Group were in force at TAURON Capital Group in 2020, constituting the guidelines for TAURON Capital Group's subsidiaries with respect to the personnel compensation systems, particularly taking into account the bonus system for the key managers based on the management by objectives system, consistent throughout TAURON Capital Group, representing a combination of the planning process, efficiency (performance) measurement process and assessment process.

The compensation and bonus system for the key managers in force envisages that the level of compensation should be tied to the financial condition of TAURON Capital Group and the Company over a year's time frame, in connection with the achievement (implementation) of the strategic goals.

The overarching assumption of the compensation system in force is to ensure the optimal and motivating compensation level, based on the value and type of work in the given position as well as the quality of work and effects achieved by the employees.

The structure of the compensation is composed of the following elements:

• 1. fixed part constituting the base compensation (salary) determined in accordance with the table of level (tier) categories applicable at the Company and the monthly rates of the personal level (tier). The allocated level of the basic compensation (salary) reflects the value and type of work as well as the quality of the employee's work, defined based on the assessment of the employee's competence level,
• 1. variable part which is dependent on the work performance results, defined based on the level of accomplishing the targets and tasks within the MBO bonus system,
• 1. benefits which are defined in the internal regulations of the Company..

The MBO bonus system based on the market principles of awarding bonuses ensures focusing of the activities of the key managers on attaining the objectives aimed at implementing the Strategy, as well as the strategic objectives and expansion directions of TAURON Capital Group's individual subsidiaries. Such a system allows for cascading of the objectives defined by the Company's Management Board at TAURON Capital Group level and at the Company level, down to the concrete, parameterized tasks vested with the employees positioned at the lower levels of the organization. In addition, the MBO bonus system has been linked with the process based management system implemented at TAURON Capital Group, inter alia by linking the objectives with the Mega-processes defined within TAURON Capital Group. Therefore, the Management by Objectives culture introduced reflects the specific features of the individual functions implemented by the Company and allows for the use of the mechanisms enabling dialogue between the superior and the subordinate during the process of setting and assessing the objectives, that translate into attaining the overall efficiency throughout the entire organization.

At the same time, this tool enables precise correlating of the KPIs defined for the Members of the Company's Management Board with the objectives set for the given year for the key managers of the Company. An initial assessment of the accomplishment of the objectives takes place after the elapse of the first 6 months, while the Members of the Company's Management Board make the final assessment of the accomplishment of the objectives by the key managers after the year has ended.

In addition, there is a bonus system for the trading area (and the units directly cooperating therewith), the purpose of which is to motivate to achieve higher revenues for TAURON Capital Group. The trading bonus covers the key managers from the trading area, where the bonus mechanism awards them an additional bonus only after exceeding their designated annual trading plans.

11.2. Principles, conditions and amount of compensation for the Members of the Management Board of TAURON Polska Energia S.A. and the entities that are a part of TAURON Capital Group

Compensation of the Members of the Management Board of TAURON Polska Energia S.A.

The compensation of the Members of the Company's Management Board is determined by the Company's Supervisory Board. The total amount of compensation understood as the value of the salaries, bonuses and benefits received in cash, in kind or in any other form, due or paid by the Company to the Members of the Company's Management Board in 2020 reached the gross amount of PLN 2 834 000.

The compensation of the Members of the Company's Management Board in 2020, broken down into components, is presented in the below table.

#	First and last name	Period of holding the position in 2020	Compensation* (PLN '000)	Variable compensation* (PLN '000)	Other benefits1 (PLN '000)	Total (PLN '000)
1.	Wojciech Ignacok	15.07.2020 - 31.12.2020	361	0	12	373
2.	Jerzy Topolski	15.07.2020 - 31.12.2020	343	0	12	355
3.	Marek Wadowski	01.01.2020 - 31.12.2020	742	443	56	1 241
4.	Filip Grzegorczyk	01.01.2020 - 14.07.2020	399	0	19	418
5.	Jarosław Broda	01.01.2020 - 14.07.2020	427	0	20	447
	Total		2 272	443	119	2 834

Table no. 67. Compensation of the Members of the Company's Management Board in 2020, broken down into components

*excluding markups (surcharges)

At the same time, it is indicated that, because of the Company's obligations towards the former Members of TAURON's Management Board, the total amount of PLN 1 320 000 was paid out in 2020 due to the payment of the compensation for refraining from performing competing activities (the non-compete clauses), variable compensation and the other benefits. In addition, the amount of the severance payments came in at PLN 383 000 in 2020.

The Members of TAURON's Management Board did not receive compensation or bonuses for performing the functions in the corporate bodies (authorities) of TAURON Capital Group's subsidiaries in 2020.

All Members of the Company's Management Board received compensation in 2020, in accordance with the applicable contract for the provision of the management services in accordance with the Act of June 9, 2016, on the principles of determining compensation of the management personnel of certain companies (Journal of Laws of 2020, item 1907) and the Compensation Policy.

The detailed information on the compensation model for the Members of the Company's Management Board and the Compensation Policy is presented in section 11.1. of this report.

Information on the obligations towards the former Members of the Company's Management Board due to pensions or benefits of similar nature

The Company does not have any obligations towards the former Members of the Company's Management Board due to pensions or benefits of similar nature.

Compensation of the Members of the Management Boards of TAURON Capital Group's subsidiaries

The compensation of the Members of the Management Boards of TAURON Capital Group's subsidiaries is determined taking into account the scale of the given subsidiary's operations, in particular:

• 1. average annual headcount,
• 1. annual net revenue (turnover) from the sales of goods, products and services as well as the financial operations,
• 1. total assets on the balance sheet at the end of the year..

Based on the above criteria, the categories of subsidiaries are defined, which determine the amount of the fixed compensation of the members of the subsidiaries' management authorities (bodies).

The principles of compensation for the Members of the Management Boards of TAURON Capital Group's subsidiaries are published on the website at the address: https://www.tauron.pl.

11.3. Agreements concluded with the management personnel that envisage compensation in case of their resignation or dismissal from the position held, with no important reason, or if their dismissal or resignation takes place as a consequence of the merger of the Company as a result of a takeover

The agreements (contracts) on the provision of the management services concluded both with the Members of TAURON's Management Board as well as with the Members of the Management Boards of TAURON Capital Group's individual subsidiaries, envisage, in case of the termination or renouncement of the agreement by the Company for reasons other than defined therein, a payout of the severance payment in the amount of three times the fixed part of the compensation, on the condition they have performed their function over a period of at least 12 months prior to the termination of the agreement.

Furthermore, due to the Members of TAURON's Management Board, as well as the Members of the Management Boards of TAURON Capital Group's individual subsidiaries having access to confidential information the disclosure of which could expose the Company and TAURON Capital Group's subsidiaries to losses, the agreements on the provision of the management services include the non-compete clauses applicable after the expiry of the term of office. Under the above mentioned agreements the Members of the Management Board are obligated to refrain from conducting competitive activities for a specified period in return for the compensation due thereto.

The Members of the Company's Management Board had not held the positions of the Members of the Management Boards of TAURON Capital Group's subsidiaries prior to being appointed as the Members of the Company's Management Board, except for Jerzy Topolski who had held the position of the Vice President of the Management Board for the Operator's affairs at TAURON Dystrybucja.

11.4. Non-financial components of the compensation due to the Members of the Management Board of TAURON Polska Energia S.A. and the key managers

Non-financial components of the compensation of the Members of the Company's Management Board

Members of the Company's Management Board, in accordance with the agreements on the provision of the management services, are entitled to the reimbursement by the Company of the cost of training up to the net amount of PLN 15 000 in a calendar year.

Starting from February 1, 2020, the Members of the Company's Management Board have been covered by the Employee Pension Program in accordance with the rules applicable to all the Employees of TAURON.

In addition, in the event of the permanent residence at a considerable distance from the registered office of the Company, a Member of the Management Board of the Company is entitled to a housing allowance in the gross amount of PLN 2 500.00 per month, that constitutes an additional benefit.

Non-financial components of the compensation of the key managers

The personnel employed at the key positions by the Company are entitled to take advantage of the following benefits and non-financial components of the compensation offered by the Company:

• 1. Employee Pension Program operated by the employer (under the condition of being employed by the Company or one of TAURON Capital Group's subsidiaries over a period of at least 1 year),
• 1. medical package financed with the Company's funds,
• 1. company car allocated for their exclusive use,
• 1. housing allowance in the gross amount of PLN 2 500.00 per month in case the availability of the employee is required due to the nature of his / her work and scope of responsibilities.

11.5. Information on the changes to the compensation policy during the last financial year

With a view to complying with the provisions of the Act of October 16, 2019, on amending the Act on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies and certain other acts, the General Meeting of the Company adopted a resolution on July 15, 2020, on the adoption of the " Policy of Compensation for Members of the Management Board and Supervisory Board of TAURON Polska Energia S.A.".

The description of the Compensation Policy is presented in section 11. of this report.

11.6. Assessment of the functioning of the compensation policy in terms of the fulfilment of its objectives, in particular the long term growth in shareholder value and stability of the company's performance

The applied compensation system for the members of the Management Board is in accordance with the Act of June 9, 2016 on the principles for determining compensation of the management personnel of certain companies. The motivational and consistent system is provided, linked with the monitoring of the annual financial plans and the adopted Strategy and the expansion directions.

Policy of compensation for members of the supervisory and management authorities, including the description of the principles for determining such policy at TAURON Polska Energia S.A. in force at the Company is in line with the Best Practice 2016 principles and defines, in particular, the form, structure and the manner of determining the compensation of the Members of the Company's Management Board.

The form, structure and level of the compensations correspond to the market conditions and are oriented towards enabling the recruitment and retaining individuals fulfilling the criteria required to manage the Company in a manner that would take into account the shareholders' interests (building the Company's value for the shareholders), as well as prevent arising of conflicts of interest among the Members of the Company's Management Board and the shareholders. At the same time, they are structured in a manner that is transparent for the investors so as to build their confidence in the Company and provide the motivational function for the Company's Management Board.

The disbursement of the variable components of the compensation is linked to the pre-defined, measurable results based criteria that support the long term stability of the Company and TAURON Capital Group and they also include the non-financial criteria, related to the generation of long term value of the Company and TAURON Capital Group.

The criteria the fulfilment of which determines obtaining of the variable components of the compensation and the level thereof are defined in accordance with the SMART methodology, i.e. they display such features as: precision, measurability, achievability, materiality and timing references.

The compensation and bonus system for both the Members of the Management Board of the Company as well as the key managers in force at TAURON supports the accomplishment (implementation) of the strategic goals and takes into account the determination of the compensation depending on the financial condition of the Company and TAURON Capital Group over one year period.

11.7. System of Compensation for the Members of the Supervisory Board

The system of compensation for the Members of the Supervisory Board of the Company defined in the Resolution of the Extraordinary GM of TAURON of December 15, 2016, on determining compensation for the Members of the Supervisory Board, as subsequently amended, was in force, adopted as the implementation of the provisions of the Act of June 9, 2016, on the principles for determining compensation of the management personnel of certain companies, was in force in 2020.

Policy of compensation for the members of the supervisory and management authorities, including the description of the principles for determining such policy at TAURON Polska Energia S.A., adopted by the Company's Supervisory Board on October 23, 2017, had been in force at TAURON until July 14, 2020.

With a view to complying with the provisions of the Act of October 16, 2019, on amending the Act on the public offering and the conditions for introducing financial instruments to an organized trading system and on public companies and certain other acts, the General Meeting of the Company adopted a resolution on July 15, 2020, on the adoption of the " Policy of Compensation for Members of the Management Board and Supervisory Board of TAURON Polska Energia S.A." (Compensation Policy).

The Compensation Policy, along with the resolution of the General Meeting of the Company on the adoption thereof has been published on the Company's website at the address: https://www.tauron.pl.

In accordance with the above mentioned Resolution of the Extraordinary GM the monthly compensation of members of the Supervisory Board is determined as a product of multiplying the assessment base mentioned in art. 1, clause 3, item 11 of the Act of 9 June 2016 on the principles for determining compensation of the management personnel of certain companies, and the multiplier:

• 1. for the chairperson of the Supervisory Board 1.7
• 1. for the other members of the Supervisory Board 1.5

Members of the Supervisory Board are entitled to receive the compensation irrespective of the frequency of the meetings convened.

The compensation is not due for a month in which a member of the Supervisory Board was not present at any of the formally convened meetings, and the absence was not excused. The decision on excusing or a failure to excuse the absence of a Member of the Company's Supervisory Board at its meeting is taken by the Company's Supervisory Board by way of a resolution.

The Company covers the costs incurred in connection with the performance of the functions entrusted with the Members of the Supervisory Board, in particular: the costs of the round trip between the place of residence and the venue of the Supervisory Board's meeting or a meeting of the Supervisory Board's Committee, the costs of the individual supervision and the costs of accommodation and board.

11.8. Compensation of the Members of the Supervisory Board of TAURON Polska Energia S.A.

The total amount of compensation understood as the value of the compensations due or paid by the Company to the Members of the Company's Supervisory Board in 2020 reached the gross amount of PLN 565 000.

The compensation of the Members of the Company's Supervisory Board in 2020 is presented in the below table.

Table no. 68. Compensation of the members of the Company's Supervisory Board in 2020.

First and last name		Period of holding the position in 2020	Compensation (PLN '000)
1.	Andrzej Kania	22.05.2020 - 31.12.2020	54
2.	Teresa Famulska	01.01.2020 - 15.07.2020 03.08.2020 - 31.12.2020	78
3.	Katarzyna Taczanowska	01.01.2020 - 31.12.2020	82
5.	Ryszard Madziar	15.07.2020 - 31.12.2020	37
5.	Grzegorz Peczkis	01.01.2020 - 31.12.2020	82
6.	Barbara Piontek	05.06.2020 - 31.12.2020	45
7.	Beata Chłodzińska	01.01.2020 - 27.04.2020	32
8.	Jacek Szyke	01.01.2020 - 20.04.2020	27
9.	Barbara Łasak - Jarszak	01.01.2020. - 15.07.2020	46
10.	Jan Płudowski	01.01.2020 - 05.06.2020	37
11.	Marcin Szlenk	01.01.2020 - 20.04.2020	27
12.	Andrzej Śliwka	24.03.2020 - 16.06.2020	18
13.	Agnieszka Woźniak	01.01.2020 - 24.03.2020	21
	Total		565

The Members of the Company's Supervisory Board do not perform functions (hold positions) in the authorities of the subordinated units.

Information on the obligations towards the former Members of the Company's Supervisory Board due to pensions or benefits of similar nature

The Company does not have any obligations towards the former Members of the Company's Supervisory Board due to pensions or benefits of similar nature

12. OTHER MATERIAL INFORMATION AND EVENTS

12.1. Material proceedings pending before the court, competent arbitration authority or public administration authority

The below table presents material proceedings pending before the court, competent arbitration authority or public administration authority in 2020.

Table no. 69. Summary of material proceedings pending before the court, competent arbitration authority or public administration authority in 2020

Parties to the proceedings		Description of the proceedings including the value of the object of litigation and the Company's position
	Proceedings involving TAURON
		Object of litigation: a lawsuit for the payment of compensation for alleged damage caused by non performance by GZE of the decision of the President of ERO of October 12, 2001 related to the resumption of electricity supply to the plaintiff.
	Plaintiff: Huta Łaziska S.A. Defendants: TAURON (as a legal successor to GZE) and State Treasury represented by the President of ERO	Value of the object of litigation: PLN 182 060 000.00
		Initiation of the proceeding: the lawsuit of March 12, 2007
1.		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		On May 28, 2019, the Regional Court in Warsaw issued a ruling on the dismissal of Huta Łaziska S.A.'s lawsuit in whole and ruled that Huta Łaziska S.A. shall refund each defendant the costs of the proceedings. The ruling is not legally binding.
		Huta Łaziska S.A. filed an appeal complaint on July 25, 2019, appealing against the above mentioned ruling in whole.
		Object of litigation: examining the accuracy of the tax base amounts declared by TAURON and the correctness of calculations and payments of the VAT tax for the period from April 2013 until September 2014. The main subject of the three investigations carried out by the Head of the Mazovian Customs and Tax Office are TAURON's deductions of the VAT assessed due to the purchase of electricity by TAURON on the German and Austrian electricity market from the following entities: Castor Energy sp. z o.o. and Virtuse Energy sp. z o.o.
		Value of the object of litigation (deducted VAT amount): PLN 54 371 306.92, including: Castor Energy sp. z o.o.– PLN 52 494 671.92, Virtuse Energy sp. z o.o. – PLN 1 876 635.00
		Date of initiating the proceeding: October 2014, August 2016, December 2016
2.	Authority conducting the investigation: Head of the Mazovian Customs and Tax Office Party: TAURON	Company's position: in the Company's opinion during the verification of both counterparties (business partners, contractors), due diligence was adhered to, the Company acted in good faith and should have the right to deduct the tax assessed on the invoices documenting the electricity purchase from the counterparties (business partners, contractors) Castor Energy sp. z o.o. and Virtuse Energy sp. z o.o.
		On October 7, 2020, the Company received the decision of the Head of the Mazovian Customs and Tax Office as the final result of one of the audit proceedings, specifying the amount of its VAT tax liability for the following months: October, November, December 2013 and the first quarter of 2014, which resulted in the obligation for the Company to pay additional VAT for that period in the total amount of PLN 51 818 354, along with the interest on the tax arrears. The Company filed an appeal against the decision on October 20, 2020.
		On November 12, 2020, as part of the second audit proceedings, a protocol from the audit of the books was drafted, in which the authority stated that the Company had not been eligible for the deduction of the tax assessed in the invoice issued by Castor Energy sp. z o.o. in April 2014, and thus overestimated the amount of the tax assessed by PLN 677 815.39. On December 10, 2020, the Company submitted its objections to the protocol. On January 15, 2021, a decision was issued in which the Authority stated that the Company had not been eligible to deduct the VAT assessed from the invoice issued by Castor Energia Sp. z o.o. in April 2014, and thus the Company overstated the amount of VAT assessed recognized in the tax statement filing for the second quarter of 2014 by the amount of PLN 677 815.39. On February 12, 2021, the Company filed an appeal against the decision.
		The third audit proceedings in which the transactions with Virtuse Energy sp. z o.o. were scrutinized. ended on October 27, 2020, with a positive outcome for the Company, i.e. the Authority found no irregularities as a result of the audit.
3.		Object of litigation: a lawsuit for the payment due to the Company's alleged unjust enrichment (benefit) in connection with the settlements related to the imbalance of the Balancing Market with PSE between January and December 2012
	Plaintiff: Enea	Value of the object of litigation: PLN 17 085 846.49
	Defendant: TAURON	Initiation of the proceeding: the lawsuit of December 10, 2015
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		On March 22, 2021, the Regional Court in Katowice dismissed Enea's lawsuit in full and ruled on Enea's obligation to reimburse the Company for the costs of the proceedings. The ruling is not final (legally binding).
	from the certificates of origin	Lawsuits pertaining to the termination, by the PEPKH subsidiary, of the agreements related to the sales of electricity and property rights arising

	Parties to the proceedings	Description of the proceedings including the value of the object of litigation and the Company's position
		Object of litigation: lawsuit for payment of damages and determination of liability for the future.
4.		Value of the object of litigation: PLN 72 217 997.00
	Plaintiff: Dobiesław Wind	Initiation of the proceeding: the lawsuit of June 30, 2017
	Invest sp. z o.o. Defendant: TAURON	In February 2021, the Company's power of attorney representatives received the plaintiff's pleading (submission) extending the claim, the Plaintiff, apart from the existing claims, brought new claims: for the payment of PLN 37 471 305.05 or (a potential claim) PLN 35 969 662.07.
		Company's position: the Company considers the claims covered by the lawsuit as being without merit
		Object of litigation: lawsuit for payment of damages and determination of TAURON's liability for the losses that may arise in the future due to tort, including acts of unfair competition.
	Plaintiff: Gorzyca Wind	Value of the object of litigation: PLN 97 651 840.00
5.	Invest sp. z o.o.	Initiation of the proceeding: the lawsuit of June 29, 2017
	Defendant: TAURON	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		In February 2021, the Company's power of attorney representatives received the plaintiff's pleading (submission) extending the claim, the Plaintiff, apart from the existing claims, brought new claims: for the payment of PLN 57 933 516.55 or (a potential claim) PLN 62 666 188.65.
		Object of litigation: lawsuit for payment of damages and determination of TAURON's liability for the losses that may arise in the future due to tort, including acts of unfair competition.
	Plaintiff: Pękanino Wind	Value of the object of litigation: PLN 44 817 060.00
6.	Invest sp. z o.o.	Initiation of the proceeding: the lawsuit of June 29, 2017
	Defendant: TAURON	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		In February 2021, the Company's power of attorney representatives received the plaintiff's pleading (submission) extending the claim, the Plaintiff, apart from the existing claims, brought new claims: for the payment of PLN 16 347 985.20 or (a potential claim) PLN 11 894 096.96.
		Object of litigation: lawsuit for payment of damages and determination of TAURON's liability for the losses that may arise in the future due to tort, including acts of unfair competition.
	Plaintiff: Nowy Jarosław Wind Invest sp. z o.o.	Value of the object of litigation: PLN 57 763 340.00
7.		Initiation of the proceeding: the lawsuit of June 29, 2017
	Defendant: TAURON	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		In February 2021, the Company's power of attorney representatives received the plaintiff's pleading (submission) extending the claim, the Plaintiff, apart from the existing claims, brought new claims: for the payment of PLN 30 755 239.47 or (a potential claim) PLN 32 175 239.15.
		Object of litigation: lawsuit for payment of damages and determination of TAURON's liability for the losses that may arise in the future due to tort, including acts of unfair competition.
		Value of the object of litigation: EUR 12 286 229.70 (i.e. PLN 53 587 619.46 at NBP's average exchange rate of June 29, 2018).
		Initiation of the proceeding: the lawsuit of June 29, 2018
8.	Plaintiff: in.ventus sp. z o.o. Mogilno I sp. k.	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
	Defendant: TAURON	The proceeding was suspended by the court as a result of the joint petition filed by the parties to suspend the proceeding pursuant to art.178 of the Code of Civil Procedure, indicating that on September 3, 2019, the transaction had been finalized under which TAURON's subsidiaries had acquired all rights and obligations of the partners in the plaintiff company and due to the ownership changes that had occurred the parties intended to work out a solution that would enable ending of the court dispute. By way of the letter of June 5, 2020, the Plaintiff withdrew the lawsuit and waived the claim. In connection with the withdrawal of the lawsuit, by way of the decision of August 6, 2020, the court discontinued the proceedings in the above mentioned case. The court's ruling is legally binding (final).
		Object of litigation: lawsuit for payment of damages and determination of TAURON's liability for the losses that may arise in the future due to tort, including acts of unfair competition.
	Co-participation on the plaintiff's side: Amon and	Value of the object of litigation: Amon – PLN 47 556 025.51; Talia – PLN 31 299 182.52
9.	Talia	Initiation of the proceeding: the lawsuit of April 30, 2018
	Defendant: TAURON	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		Proceedings involving TAURON Capital Group's subsidiaries related to the termination, by a subsidiary, of the agreements related to
		the sale of electricity and property rights arising from the certificates of origin
	Plaintiff: Gorzyca Wind Invest sp. z o.o., Pękanino Wind Invest sp. z o.o., Dobiesław Wind Invest sp. z	Object of litigation: plea to declare the termination, by PEPKH, of the agreements related to the purchase of electricity and property rights arising from the certificates of origin null and void, and to award damages.
10.		Value of the object of litigation: Gorzyca Wind Invest sp. z o.o.– PLN 112 353 945.05; Pękanino Wind Invest sp. z o.o. PLN 64 116 908.85
	o.o. Defendant: PEPKH	Initiation of the proceeding: Gorzyca Wind Invest sp. z o.o. – May 18, 2015, Pękanino Wind Invest sp. z o.o. – May 20, 2018, Dobiesław Wind Invest sp. z o.o. – May 18, 2015
		Company's position: the Company considers the claims covered by the lawsuit as being without merit. Object of litigation: plea to award damages and liquidated damages.
11.	Plaintiff: Dobiesław Wind Invest sp. z o.o.	Value of the object of litigation: PLN 76 559 461.18

	Parties to the proceedings	Description of the proceedings including the value of the object of litigation and the Company's position
	Defendant: PEPKH	Initiation of the proceeding: the lawsuit of June 14, 2017
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
	Plaintiff: Nowy Jarosław Wind Invest sp. z o.o.	Object of litigation: plea to declare the termination, by PEPKH, of the agreements related to the sale of electricity and property rights arising from the certificates of origin null and void, and to award damages.
12.		Value of the object of litigation: PLN 69 282 649.20
	Defendant: PEPKH	Initiation of the proceeding: the lawsuit of June 3, 2015
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
	Plaintiff: Amon Defendant: PEPKH	Object of litigation: plea to declare the termination, by PEPKH, of the agreements related to the purchase of electricity and property rights arising from the certificates of origin null and void, and to award damages.
		Value of the object of litigation: PLN 40 478 983.22
		Initiation of the proceeding: the lawsuit of May 22, 2015
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		On July 25, 2019 the Regional Court in Gdańsk issued a partial and preliminary ruling in the case in which the Court:
13.		1. determined that PEPKH's statements on the termination of long term agreements, concluded between PKH and Amon, for the purchase of electricity and property rights arising from certificates of origin had been ineffective and had not produced legal effects, such as the termination of both agreements, as a result of which these agreements, following the notice period, i.e. past April 30, 2015, shall continue to be in force with respect to all provisions and shall be binding for the parties, 2. determined that Amon's demand for payment of damages for a failure to perform the agreement had been justified in principle, however the Court did not determine the amount of the potential damages.
		The ruling is not legally binding. PEPKH disagrees with the ruling and filed an appeal complaint on October 25, 2019. Proceedings regarding the procedural issues are ongoing. The case is pending. Object of litigation: plea to determine awarding of damages due to a failure to perform, by PEPKH, of the
		agreements related to the purchase of electricity and property rights arising from the certificates of origin
	Plaintiff: Amon	Value of the object of litigation: PLN 29 009 189.38
14.	Defendant: PEPKH	Initiation of the proceeding: September 2, 2019
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		The case was suspended by a court decision until the Regional Court in Gdańsk has reviewed an appeal against the judgment in the lawsuit brought by Amon against PEPKH, referred to in item 4 above. The court's decision is not legally binding (final).
		Object of litigation: plea to declare the termination, by PEPKH, of the agreements related to the purchase of electricity and property rights arising from the certificates of origin null and void, and to award damages.
		Value of the object of litigation: PLN 46 078 047.43
	Plaintiff: Talia Defendant: PEPKH	Initiation of the proceeding: the lawsuit of May 21, 2015
		Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		On March 6, 2020 the Regional Court in Gdańsk issued a partial and preliminary ruling, supplemented by the court on September 8, 2020, in the case in which the Court:
15.		1. determined that PKH's statements on the termination of long term agreements, concluded between PEPKH and Talia, for the purchase of electricity and property rights arising from certificates of origin had been ineffective and had not produced legal effects, such as the termination of both agreements, as a result of which these agreements, following the notice period, i.e. past April 30, 2015, shall continue to be in force with respect to all provisions and shall be binding for the parties, 2. determined that Talia's demand for payment of damages for a failure to perform the agreement had been justified in principle, however the Court did not determine the amount of the potential damages.
		The ruling is not legally binding (final).
		PEPKH disagrees with the ruling. PEPKH filed an appeal against the ruling with the court.
		Object of litigation: plea to declare the termination, by PEPKH, of the agreements related to the purchase of electricity null and void, and to award damages.
16.		Value of the object of litigation: Mogilno III – equivalent of EUR 3 651 402.56; Mogilno IV – equivalent of EUR 3 765 458.12 EUR; Mogilno V – equivalent of EUR 3 505 331.82; Mogilno VI – equivalent of EUR 2 231 812.61
	Plaintiff: Mogilno III, Mogilno	Initiation of the proceeding: the lawsuit of May 25, 2015
	IV, Mogilno V, Mogilno VI Defendant: PEPKH	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
		The proceeding suspended by the court as a result of the joint petition filed by the parties to suspend the proceeding under art.178 of the Code of Civil Procedure, indicating that on September 3, 2019, the transaction had been finalized under which TAURON's subsidiaries had acquired all rights and obligations of the partners in the plaintiff company and due to the ownership changes that had occurred the parties intended to work out a solution that would enable ending of the court dispute. The parties filed a motion for the resumption of the proceedings in order for the plaintiff to withdraw the lawsuit along with the waiver of the claim. By way of the decision of July 3, 2020, the court discontinued the proceedings in the above mentioned cases. The court's decision is legally binding (final).

Parties to the proceedings		Description of the proceedings including the value of the object of litigation and the Company's position
		Object of litigation: lawsuit for payment of damages for the losses arisen as a result of a failure to perform agreements for the sale of property rights by PEPKH.
		Value of the object of litigation: Mogilno I – equivalent of EUR 3 583 336.19 EUR; Mogilno II – equivalent of EUR 3 659 538.72
		Initiation of the proceeding: the lawsuits of November 7, 2018
17.	Plaintiff: Mogilno I, Mogilno II	Company's position: the Company considers the claims covered by the lawsuit as being without merit.
	Defendant: PEPKH	The proceeding suspended by the court as a result of the joint petition filed by the parties to suspend the proceeding under art.178 of the Code of Civil Procedure, indicating that on September 3, 2019, the transaction had been finalized under which TAURON's subsidiaries had acquired all rights and obligations of the partners in the plaintiff company and due to the ownership changes that had occurred the parties intended to work out a solution that would enable ending of the court dispute. The parties filed a motion for the resumption of the proceedings in order for the plaintiff to withdraw the lawsuit along with the waiver of the claim. By way of the decision of July 3, 2020, the court discontinued the proceedings in the above mentioned cases. The court's decision is legally binding (final).

12.2. Agreements that are material for TAURON Capital Group's operations

Agreements that are material for the operations of TAURON Capital Group in 2020 and by the date of drawing up this report are listed below.

Series A bond issue program established

On February 6, 2020, TAURON concluded, with Santander Bank Polska S.A., a program agreement, pursuant to which a bond issue program was established, under which TAURON has an option to issue bonds up to the maximum amount of PLN 2 000 000 000.

The proceeds from the bond issue are to support the implementation of TAURON Capital Group's energy transition, including increasing the share of the low and zero emission sources in its generation mix, in particular, the proceeds from the bond issue will be used to:

• 1. finance the costs of developing / acquiring renewable energy sources (RES) projects,
• 1. finance the distribution, as well as TAURON Capital Group's general corporate operations related to RES or the energy transition to zero emission,
• 1. finance the costs of developing or acquiring projects where biomass or gas is used as fuel,
• 1. refinance TAURON Capital Group's debt taken on in order to finance the above undertakings.

The terms of the bond issue, including the purpose of the issue, the maturity date, as well as the amount and manner of paying out interest, will be defined for the specific series of the bonds being issued.

On October 30, 2020, as part of the program agreement TAURON issued series A bearer bonds with the total nominal value (par value) of PLN 1 000 000 000 with the maturity date of October 30, 2025. The bonds were introduced to the alternative trading system operated by the WSE.

TAURON disclosed the information on the above events in the regulatory filings (current reports): no. 3/2020 of February 6, 2020, no. 46/2020 of October 5, 2020, no. 49/2020 of October 23, 2020 and no. 51/2020 of October 30, 2020.

Signing of the loan agreement with SMBC BANK EU AG

On March 16, 2020, TAURON concluded a loan agreement with SMBC BANK EU AG worth PLN 500 000 000, the proceeds from which may be used to fund the Company's general corporate purposes, excluding the construction, acquisition, extension of any coal fired power plants and refinancing any financial debt or expenditures incurred for such purposes.

The interest will be calculated based on a fixed interest rate.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 8/2020 of March 16, 2020.

The loan was disbursed in the full amount in March 2020, and its repayment falls in March 2025.

Signing of the syndicated loan agreement

On March 25, 2020, TAURON concluded a syndicated loan agreement worth PLN 500 000 000 with Banca IMI S.P.A., London Branch, Banca IMI S.P.A., Intesa Sanpaolo S.P.A. acting through Intesa Sanpaolo S.P.A. S.A. Oddział w Polsce (Polish Branch), and China Construction Bank (Europe) S.A. acting through China Construction Bank (Europe) S.A. (Spółka Akcyjna) (Joint Stock Company) Oddział w Polsce (Polish Branch).

In accordance with the above agreement the funds obtained may be used to finance the Company's and TAURON Capital Group's general corporate purposes, excluding the financing of any new projects related to the coal assets

The interest rate is calculated based on the variable WIBOR interest rate, applicable to the given interest period, increased by a margin depending, among others, on the degree of loan utilization and the fulfillment of the proecological contractual conditions, i.e. the reduction of emissions and an increase of the share of renewable energy sources (RES) in TAURON Capital Group's generation mix.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 13/2020 of March 25, 2020.

The loan was disbursed in the amount of PLN 160 000 000 in September 2020. The availability of the loan and its repayment date is March 2025, with an option to extend the agreement term, twice, each time by a year, i.e. up to 2027 maximum, agreed between the parties.

Termination of the coal supply agreement

On December 22, 2020, TAURON served the company PGG a notice of the termination of the hard coal sale agreement concluded on January 18, 2018, by TAURON as the buyer and PGG as the seller, with a six month notice, effective as of the end of the calendar month, i.e. as of June 30, 2021.

Pursuant to the above agreement PGG delivers thermal (steam) coal to TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa TAURON.

PGG is a strategic partner of TAURON with respect to hard coal supply. TAURON purchased 2.52 million tons of hard coal from PGG in 2019, which accounted for 38 percent of the total purchases of that fuel made by the Company while 44 percent of the supply of hard coal used to produce electricity and heat by TAURON Capital Group was met with the hard coal coming from the coal mines that are part of TAURON Capital Group.

The economic conditions that have a direct impact on TAURON's business operations have undergone a material change. The Company has experienced excessive difficulties with the ongoing receiving of the hard coal deliveries as a consequence of curtailed electricity production and sales stemming from both the market situation as well as the prevailing weather conditions.

The above circumstances and the lack of an agreement between TAURON and PGG with respect to the changes to the terms and conditions of the cooperation, in particular regarding the hard coal unit prices and the annual coal supply quantities, that TAURON had been requesting since December 2019, led to TAURON submitting the above statement

The statement includes a caveat that in case the Company's notice of the termination of the agreement with the six month notice period is ineffective, that statement should be considered as the termination of the agreement submitted with a two year notice period, effective as of the end of the calendar year in which the notice period has expired, i.e. as of December 31, 2022. The action indicated above will enable the Company to avoid the negative financial consequences resulting from the further implementation of the agreement.

In spite of the termination of the agreement, TAURON expressed its intention to continue the long term cooperation with PGG on the jointly defined new terms and conditions, adapted to the current market conditions on the coal contracting market.

The termination of the Agreement should not disturb the business operations of TAURON Capital Group. Any potential additional demand for the coal fuel will be met in particular by the production of the hard coal by the coal mines that are part of TAURON Capital Group.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 55/2020 of December 22, 2020.

Signing of a cooperation agreement with respect to the joint implementation of offshore wind farm projects in the Polish Exclusive Economic Zone on the Baltic Sea

On December 29, 2020, a cooperation agreement was concluded between TAURON and OW OFFSHORE S.L. with its registered office in Madrid, Spain. (OW OFFSHORE), regarding the development of offshore wind farm construction projects in the Polish Exclusive Economic Zone on the Baltic Sea. The above agreement covers the following solutions:

• 1. TAURON's intention is to acquire 50 percent of the shares in the companies whose sole owner is OW OFFSHORE. The agreement is related to the projects that do not have a permit for the erection and use of artificial islands, structures and devices in the Polish Exclusive Economic Zone, issued by the Minister of Maritime Economy and Inland Navigation, provided that OW OFFSHORE is the only applicant for the permits for the areas where the implementation of the projects referred to above is planned,
• 1. the intention of OW OFFSHORE is to acquire 50 percent of the shares in special purpose vehicles to which TAURON Capital Group will, having acquired the permits, contribute projects that involve the construction of offshore wind farms in the Polish Exclusive Economic Zone. As of the date of concluding the agreement, TAURON Capital Group does not hold any permits, however, it has filed appropriate applications in order to obtain the permits as a result of the conclusive procedure, i.e. for an area in case of which an application was also filed by another entity (other entities).,
• 1. TAURON and OW OFFSHORE have undertaken to conduct, in good faith, negotiations of the agreements for the sale of the shares in the special purpose vehicles referred to above, along with the investment agreement regulating the obligations of the parties as partners (shareholders). The duration of these negotiations should, as a principle, not exceed six months from the date of concluding the agreement,
• 1. with respect to the above items 1. and 2., TAURON and OW OFFSHORE have undertaken to act on an exclusive basis. The exclusive cooperation can be expanded to additional areas under the condition that the share purchase agreement and the investment agreement is concluded.

The term of the agreement is 2 years.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 56/2020 of December 29, 2020.

Signing of the subordinated bond issue program agreements with BGK

On March 11, 2021 (an event occurring after the balance sheet date), the documentation of the program of the subordinated bond issue up to the amount of PLN 450 000 000 was signed between the Company and BGK.

The issue of the subordinated bonds may be carried out by the Company in several series, within 24 months from the date of signing the documentation. The period of financing is 12 years from the issue date, and in accordance with the characteristics of the hybrid financing, the first period of financing was defined as 7 years (the so-called non-call period), during which TAURON will not be able to redeem the subordinated bonds early and BGK will not be able to sell them earlier to third parties (in both cases subject to the exceptions specified in the documentation). The agreement also provides for an option to defer the payment of interest on the bonds, until the date of the redemption thereof at the latest. Due to the subordinated nature of the hybrid bonds, in the event of bankruptcy or liquidation of TAURON, the liabilities under the bonds will have priority to be satisfied only over the liabilities of TAURON shareholders. A potential issue of the subordinated bonds will have a positive impact on TAURON's financial stability, as they are excluded from the calculation of the leverage ratio, which is a covenant used in some of TAURON's financing programs.

The Company had not issued any bonds as part of this program by the date of drawing up this report.

Signing of an agreement for the sale of the shares in PGE EJ 1 to the State Treasury.

On March 26, 2021, (an event occurring after the balance sheet date), the Company signed an agreement with the State Treasury for the sale of the shares in PGE EJ 1.

The agreement was signed by all of the entities holding shares in PGE EJ 1, i.e. TAURON, PGE, Enea and KGHM Polska Miedź.

Pursuant to the above agreement, the Company sells to the State Treasury 532 523 shares of PGE EJ 1, constituting 10% of the share capital and representing 10% of the votes at the General Meeting of the shareholders (partners) of PGE EJ 1. After the transaction is closed, TAURON will not be holding any shares in PGE EJ 1.

The sale price for 100% of the shares is PLN 531 362 000, of which PLN 53 136 200 is attributable to the Company. The payment for the shares in PGE EJ 1 will take place no later than on March 31, 2021. The sales price will be subject to an adjustment based on the PGE EJ1 valuation updated as of the transaction closing date. In the opinion of the Company, a potential adjustment will not have a significant impact on the final sale price.

The sale of the shares in PGE EJ 1 is the implementation of one of the strategic directions announced by TAURON on May 27, 2019.

TAURON disclosed the information on the above event in the regulatory filing (current report) no. 10/2021 of March 26, 2021.

12.3. Transactions with related entities on terms other than at arm's length

All transactions with related entities are concluded at arm's length.

The detailed information on the transactions with related entities is provided in note 56 to the Consolidated financial statements of TAURON Capital Group.

12.4. Concluded and terminated credit and loan agreements

TAURON concluded 2 loan agreements for the total amount of up to PLN 1 000 000 000 in 2020.

The detailed information related to the above agreement is provided in section 12.2. of this report.

In 2020, as part of financing its ongoing operations, the Company concluded an amendment to the overdraft agreement for the amount of up to EUR 45 000 000, concluded with BGK in 2015, extending it by 12 months. The term of the above agreement was extended until December 31, 2021. The loan is intended to be used for financing the margin deposit and the transactions related to the purchase/ sale/ exchange of the CO² emission allowances, trading in electricity and gas made on the European exchanges,

The following financial agreements were concluded within TAURON Capital Group in 2020:

• 1. intra-Group loans, which is described more broadly in section 12.5. of this report,
• 1. loan agreement between TAURON Wytwarzanie and WFOŚiGW for the amount of up to PLN 11 318 000 for the purpose of co-financing the construction of a photovoltaic farm in Jaworzno. The interest rate on the loan is based on a fixed rate and the debt repayment date is November 30, 2025.

The detailed information on the credit and loan agreements is provided in note 39.1 to the Consolidated financial statements of TAURON Capital Group.

TAURON Capital Group's subsidiaries did not terminate any credit and loan agreements in 2020.

12.5. Loans and sureties granted as well as sureties and guarantees received

Loans granted

TAURON granted financing to the related companies in the form of the intra-Group bonds in the total amount of PLN 4 102 346 000 in 2020. In addition, as part of the intra-group financing, TAURON extended the maturity dates of the existing loans in the total amount of PLN 1 915 000 000. As of December 31, 2020, the total nominal amount of the intra-group loans granted was PLN 7 907 654 000.

In 2020, TAURON continued the financing, in the form of loans, of the co-subsidiary EC Stalowa Wola and PGE EJ 1. The loans granted to PGE EJ 1 were repaid on November 25, 2020, as a result of a netting agreement and TAURON's acquisition of the newly created shares in PGE EJ 1.

The below table presents a summary of the loans extended to the jointly controlled subsidiaries and associated companies granted by TAURON in 2020 and the level of debt due to such loans as of December 31, 2020.

Table no. 70. Summary of the loans extended to the jointly controlled subsidiaries and associated companies granted by TAURON in 2020 and the level of debt due to such loans as of December 31, 2020 (listed in the order according to the maturity date)

Parties to the agreement	Interest rate	Date of agreement	Repayment date	Loan principal amount as of December 31, 2020 (PLN '000)
1. PGE EJ 1 - TAURON	Fixed rate	30.01.2020	25.11.2020	0
2. PGE EJ 1 - TAURON	Fixed rate	03.09.2020	25.11.2020	0
EC Stalowa Wola - 3. TAURON	Fixed rate	20.02.2020	30.06.2033	59 175
EC Stalowa Wola - 4. TAURON	Fixed rate	16.10.2020	30.06.2033	22 000

As of December 31, 2020, the total nominal amount of the loans extended to the jointly controlled subsidiaries and associated companies came in at PLN 415 186 000.

Apart from the loans mentioned above, the Company did not grant any other loans in 2020.

After the balance sheet date, the intra-group loans for the total amount of PLN 820 000 000 were launched within TAURON Capital Group

Sureties and guarantees granted

TAURON Ekoenergia granted a corporate guarantee (bond) for the trade liabilities of the Wind T1 company towards a third party in the amount of EUR 24 600 000 in 2020, effective until July 2022. After the balance sheet date, the guarantee amount was increased to EUR 30 258 000.

In addition, in 2020 TAURON extended the effective terms of:

• 1. surety granted to TAURON Sprzedaż for the trade liabilities up to the amount of PLN 20 000 000, until November 30, 2021,
• 1. surety granted to EC Stalowa Wola up to the amount of USD 3 664 until October 31, 2020, for the financial liabilities that had expired on October 27, 2020.

As of December 31, 2020, the total nominal amount of the sureties and corporate guarantees (bonds) granted came in at PLN 888 031 000.

On January 28, 2021, (an event occurring after the balance sheet date), a guarantee agreement was concluded by the Company, PGNiG and EC Stalowa Wola, under which the Company granted a corporate guarantee of up to PLN 6 750 000 for the liabilities of EC Stalowa Wola under the contracts for the sale of electricity, electricity transmission or distribution services. The guarantee is effective until February 15, 2022.

As part of the framework (master) agreements in force, at the instruction of the Company, bank guarantees were issued in 2020 for the liabilities of TAURON Capital Group's subsidiaries, which, as of December 31, 2020, amounted to PLN 741 808 000.

The detailed information on the sureties and guarantees (bonds) granted is provided in note 55 to the Consolidated financial statements of TAURON Capital Group and in note 43 to the Financial statements of TAURON.

Sureties and guarantees received

As of December 31, 2020, the Company and its subsidiaries held the transaction collaterals received from the counterparties (contractors) in the form of guarantees granted to TAURON Capital Group's subsidiaries, bills of exchange issued by the counterparties (contractors), pledges on mortgage and freezes (blocks) of the funds on bank accounts. The most important guarantees granted to TAURON Capital Group's subsidiaries were concerned Nowe Jaworzno Grupa TAURON and were related to the construction of the 910 MW unit in Jaworzno.

12.6. The impact of the COVID-19 pandemic on the operations of TAURON Capital Group in 2020

An increase in the number of COVID-19 infection cases was observed in Poland in 2020. Therefore, a number of restrictions aimed at preventing the spread of the SARS-CoV-2 virus causing the COVID-19 infections were introduced in the country. This situation led to the disruptions in the economic and administrative system in Poland and worldwide. As a result, the epidemic significantly curbed the economic activity, affecting the operations of the manufacturing plants and the small and medium sized enterprise segment companies. As a consequence, in the medium and long term it should be expected that the epidemic will continue to affect the condition of the national, the European, as well as the global economy, making a negative impact on the economic growth in Poland in 2021 and in the subsequent years.

The COVID-19 related situation had a material impact upon the level of demand for electricity in the Polish Power System (KSE) and, as a consequence, on TAURON Capital Group's electricity distribution and supply volumes. In the second half of 2020, the impact of the COVID-19 pandemic on the domestic demand was milder than in the first half of 2020. The steepest decline in electricity consumption in Poland took place in the second quarter of 2020, clocking in at as much as 8.5%, while the annual consumption of electricity in the country decreased by approx. 2.3%, as compared to the corresponding period of 2019. The changes in the demand for electricity resulted in a drop of the revenues, mainly in the electricity distribution and supply lines of business. TAURON Capital Group estimates that in the Distribution Segment the negative impact of the pandemic on EBITDA stood at PLN 47 876 000, which was due to the loss of a part of the sales volume to the consumers other than the households. With respect to the Supply Segment, the estimated negative impact of the pandemic on EBITDA came in at PLN 77 179 000, which was due to the loss of margin related to the decline in electricity supply and the need to balance the buy position. The pandemic situation observed also led to a fall of the production volume in the conventional generation line of business and, consequently, to a drop of the demand for hard coal and an increase in its inventory levels. Because of such developments the negotiations with the coal suppliers were undertaken in order to renegotiate the coal purchase contract terms related to the pricing and quantities. In order to curtail the negative impact of the pandemic on TAURON Capital Group, at TAURON Wydobycie subsidiary an agreement was signed between the Management Board of the company and the social partners (workforce) limiting the working time and reducing the compensation of the Management Board and the employees of the company by 20% for the period of three months, starting from May 1, 2020. On the other hand, at TAURON Wytwarzanie subsidiary an agreement signed between the Management Board of the company and the social partners (workforce) reduced the working time and the compensation of the Management Board and the employees of the company by 10% in the same period of time. The above agreements made it possible to cut down the costs and obtain funds under the solutions provided under the anti-crisis shield due to the reduced working time of the employees.

The customers of TAURON Capital Group, i.e. private individuals, small and medium sized enterprises, as well as large entities, can be expected to experience financial disturbances in connection with the effects of the pandemic, which may lead to problems with the payment of their current accounts payable for electricity, heat and gas. In particular, an increase in the number of customer requests for an extension of the payment or splitting the payment into installments can be observed. Also an increase in the overdue accounts receivable is visible, resulting from the introduction of the restrictions in the operations of the businesses in the period from March to May. In order to reduce the above risk, the credit risk management criteria have been tightened and the soft debt collection activities have been intensified.

Disruptions in the economic activity in Poland brought about financial difficulties for the customers and contractors (counterparties, business partners) of TAURON Capital Group. The situation was mitigated by the regulatory actions taken with respect to the introduction of the successive anti-crisis shields, which were aimed at maintaining liquidity and protecting jobs at Polish businesses. In the period from March to December 2020, the changes in the balance of the overdue accounts receivable were observed in the first weeks of the pandemic's spread. Later in the year, the balance of the overdue accounts remained basically constant, with an increased migration of the balance of the accounts receivable to the successive overdue by time frames observed. In order to limit potential credit losses, the

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extended credit risk management criteria are applied, the monitoring of the accounts receivables has been enhanced and the debt collection activities have been intensified. The impact of the COVID-19 pandemic on the write down (charge) related to the accounts receivable in 2020 clocked in at 19 628 000. The COVID-19 pandemic also resulted in the need to book additional impairment charges related to the expected losses on the credit related financial instruments and to change the fair value of the loans granted. This led to a rise in the operating expenses of the Company by PLN 5 020 000 and in the financial costs by the amount of 50 526 000.

In terms of the market environment, increased volatility of the prices of the commodity related instruments was observed, in particular with respect to electricity and the CO² emission allowances, which translated into an increase in the required margins and, consequently, the level of funds allocated for that purpose. In order to improve its liquidity position, the Company concluded agreements on the guarantee limits allowing it to provide to IRGiT (Warsaw Commodity Exchange Clearing House) the required collateral in a non-cash form instead of cash. The Company also took advantage of the anti-crisis shield package by filing a declaration of voluntary submission to debt recovery with IRGiT (Warsaw Commodity Exchange Clearing House), thus reducing the level of the margins to be deposited, both in the form of cash, as well as the bank guarantees set up (this solution, in accordance with the Act, expired on September 30, 2020). In order to further reduce the liquidity risk, the Company aligned the delivery dates for the concluded futures contracts for the CO² emission allowances with the dates of their redemption and decided to conclude new contracts only on the OTC market. A system of capping (curtailing) the expenses of TAURON Capital Group was also introduced,

With respect to the financial instruments, a weakening of the Polish zloty and a decline of the interest rates was observed, including an emergency lowering of the NBP's reference (prime) interest rate.

The change in the FX rates affects the costs of purchasing the CO² emission allowances, as well as the valuation of the Company's debt denominated in the foreign currencies. On the other hand, the changes in interest rates may affect the costs resulting from the financing agreements concluded based on a floating (variable) interest rate.

As a result of the outbreak of the COVID-19 pandemic, also certain difficulties in the implementation of the strategic investment projects carried out by TAURON Capital Group have taken place. In case of the 910 MW power generating unit construction project in Jaworzno and the EC Stalowa Wola unit construction project, such disruptions occurred in the initial period of the pandemic as a result of the introduction of strict access control to the infrastructure and the additional security procedures. With regard to the construction of the 910 MW unit, the COVID-19 pandemic was one of the reasons for the amendment of the agreement with the Rafako S.A. and Mostostal Warszawa S.A. Consortium, as well as the contractor's claims related to the additional works, which is also presented in note 59 to the Consolidated financial statements of TAURON Capital Group. In order to minimize the consequences of the disruptions to the projects that have occurred, all of the contractors implementing the investment projects have been cooperating, closely and on an ongoing basis, with TAURON Capital Group's subsidiaries responsible for the investment projects who are monitoring the status of the projects and reacting adequately to the situation, using the tools available.

The situation related to the COVID-19 pandemic has also had an impact upon the operational activities of the lines of business due to the increased employee absenteeism and an increase in the operating costs resulting from the need to meet the epidemiological conditions. In this regard, TAURON Capital Group has taken a number of preventive measures with respect to the organizational and material (tangible) solutions aimed at protecting the employees of TAURON Capital Group's individual subsidiaries and maintaining the continuity of the critical infrastructure operations. In order to coordinate the efforts related to ensuring safety related to the risk (threat) of falling ill with COVID-19, the dedicated Crisis Teams have been established at the level of both the parent company as well as the individual Subsidiaries.

TAURON Capital Group is estimating that the negative impact of the above risk factors on the full year 2020 EBITDA clocked in at approx. PLN 144 683 000.

TAURON Capital Group, being aware of the threats related to the epidemiological situation, was undertaking in 2020 and continues to undertake active measures aimed at minimizing the impact of the current and the expected economic situation, as well as providing protection against the extreme events. It should be emphasized, however, that that the situation related to the COVID-19 pandemic is highly volatile and the future effects and the scale of the pandemic are currently difficult to precisely estimate. The duration of the pandemic, its severity and scope, as well as the impact on the economic growth in Poland in the short, medium and long term will be important. The Management Board of the Company, being aware of the threats stemming from the pandemic, is monitoring the impact on an ongoing basis and will be taking all possible steps in order to mitigate any negative effects of the COVID-19 pandemic on TAURON Capital Group.

12.7. Other information that could be material for the evaluation of TAURON Capital Group's personnel, assets, financial position, financial result and changes thereof, as well as the information that could be material for the evaluation of the ability of TAURON Capital Group to meet its obligations

On July 15, 2020, the TSO commenced the consultation process related to the changes to the Balancing Conditions. After the consultation process had been completed on September 9, 2020, the TSO sent the proposed changes for approval by the President of ERO, who finally approved them on December 1, 2020. As part of the changes introduced, starting from January 1, 2021, the services Intervention Cold Reserve and Operational Capacity Reserve were removed from the system services catalog, which was required by the provisions contained in the pre-notification decision of the European Commission of February 7, 2018, allowing the setting up of the Capacity Market in Poland, provided that other mechanisms considered to be the "capacity" mechanisms and the Operational Capacity Reserve are removed from the system services catalog. In addition, changes aimed at supporting the development of the IDM (Intraday Market) were introduced, requiring the adaptation of the Market Operator's activities in the IT and organizational area.

Apart from the events indicated in this report, no other events occurred in 2020 that were material for the evaluation of the personnel, assets, financial position and the financial result of TAURON Capital Group and the changes thereof, as well as for the evaluation of the ability of TAURON Capital Group to meet its obligations.

Katowice, March 29, 2021

Marek Wadowski - acting as the President of the Management Board / Vice President of the Management Board

Jerzy Topolski - Vice President of the Management Board

Appendix A: GLOSSARY OF TERMS AND LIST OF ABBREVIATIONS

The glossary of trade terms and the list of abbreviations and acronyms most commonly used in this report is presented below.

Table no. 71. Explanation of abbreviations and acronyms as well as trade terms used in the report
---------------------------------------------------------------------------------------------------

Abbreviation and trade term		Full name / explanation
1.	Abener Energia	Abener Energia S.A. (Joint Stock Company) with its registered office in Campus Palmas Altas (Sevilla).
2.	Update of the Strategic Directions	Document entitled the Update of the Strategic Directions in TAURON Group's Strategy for 2016-2025 adopted by TAURON's Management Board on May 27, 2019, constituting a supplement to the document entitled TAURON Group's Strategy for 2016-2025 adopted by TAURON's Management Board on September 2, 2016.
3.	Amon	Amon sp. z o.o. (Ltd.) with its registered office in Łebcz.
4.	ARA	Dollar based carbon price index in the EU. Loco Amsterdam - Rotterdam - Antwerp ports
5.	ARE	Agencja Rynku Energii S.A. (Energy Market Agency) with its registered office in Warsaw.
6.	AVAL-1	AVAL-1 sp. z o. o. (Ltd.) with its registered office in Szczecin.
7.	BASE (BASE Contract)	A baseload contract for the supply of electricity at all hours of the period, e.g. the BASE contract for March 2020 is related to the supply of the same amount of electricity during all hours of the month of March 2020.
8.	BGK	Bank Gospodarstwa Krajowego with its registered office in Warsaw.
9.	Bioeko Grupa TAURON	Bioeko Grupa TAURON Sp. z o.o. (Ltd.) with its registered office in Stalowa Wola.
10.	B+R	Research and Development (R&D).
11.	B+R+I	Research, Development and Innovations.
12.	CAPEX	Capital Expenditures.

	Abbreviation and trade term	Full name / explanation
13.	Cash pool	True real time (online) cash pool structure, implemented under the cash management agreement, is based on the daily limits. As a result of the implementation of the cash pool mechanism, cash transfers are made between the accounts of the service participants and the Pool Leader's account.
14.	CDS	Clean Dark Spread - margin ratio used to calculate the profitability of electricity production, taking into account the revenues from the sale of electricity and the cost of fuel and CO2 emission allowances.
15.	CER	Certified Emission Reduction
16.	Color certificates	Property rights based on the certificates of origin of electricity generated in the way that is subject to support, the so-called color certificates: green - certificates of origin of electricity from RES, blue - certificates of origin of electricity generated from agricultural biogas. white - energy efficiency certificates (mechanism stimulating and forcing pro-savings behaviors) yellow - certificates of origin of electricity generated in co-generation from gas-fired sources or with the total installed capacity below 1 MW, red - certificates of origin of electricity from co-generation (CHP certificates - Combined Heat and Power), violet - certificates of origin of electricity generated in co-generation fired using methane released and captured during underground mining works in active, in liquidation or liquidated hard coal mines, or using gas obtained from biomass processing,
17.	COVID-19	Coronavirus Disease 2019 - acute respiratory system contagious disease caused by the SARS-CoV-2 virus infection. The disease was first diagnosed and described in November 2019 in central China in the city of Wuhan, Hubei Province.
18.	CRO	Deviation Settlement Price (Cena Rozliczeniowa Odchylenia) - the price at which PSE (transmission system operator) accounts for deviations in the production or consumption of electricity by the electricity balancing market (RB) participants.
19.	CSI	Customer Satisfaction Index
20.	CSR	Corporate Social Responsibility
21.	CUW	Shared Services Center (Centrum Usług Wspólnych - CUW) - separate organizational units responsible for providing a specific range of support services (CUW R – accounting services, CUW HR – human resources services, CUW IT – IT services, CUW Insurance, CUW Protection).
22.	CVaR	Credit Value at Risk – a measure of risk determining the maximum potential loss due to credit risk with the given probability and within a specified time horizon.
23.	CVC	Corporate Venture Capital - Venture Capital (VC) investments carried out by VC funds with the intention of achieving not only financial goals, but also strategic (industry) goals set by a large company (corporation) which is the capital donor for this fund. VC are capital investments made on the OTC market in business ventures that are in the early stages of development. CVC is a development of VC as a way of investing capital and is to have a positive impact on the industry objectives of TAURON Capital Group.
24.	DMS	Distribution Management System
25.	Best Practices 2016	Best Practices of WSE Listed Companies 2016, in force as of January 1, 2016
26.	DSM	Demand Side Management
27.	DSR	Demand Side Response). A mechanism that involves a temporary reduction of electricity consumption by the consumers or a postponement of its consumption at the request of the transmission system operator.
28.	EIB	European Investment Bank with its registered office in Luxembourg.
29.	EBIT	Earnings Before Interest and Taxes.
30.	EBITDA	Earnings Before Interest, Taxes, Depreciation and Amortization.
31.	EC Stalowa Wola	Elektrociepłownia Stalowa Wola S.A. with its registered office in Stalowa Wola.
32.	EEC Magenta ASI	EEC Magenta limited liability company ASI limited joint stock partnership with its registered office in Warsaw.
33.	EEC Magenta 2 ASI	EEC Magenta limited liability company 2 ASI limited joint stock partnership with its registered office in Warsaw
34.	EEC Ventures	EEC Ventures limited liability company limited joint stock partnership with its registered office in Warsaw
35.	EEC Ventures 2	EEC Ventures limited liability company 2 limited joint stock partnership with its registered office in Warsaw
36.	EEX (EEX exchange)	European Energy Exchange) - European energy exchange in Leipzig, where contracts and derivatives for electricity for various European countries are traded, as well as primary auctions of CO2 emission allowances are conducted.
37.	ElectroMobility Poland	ElectroMobility Poland S.A. with its registered office in Warsaw.
38.	EMAS	EcoManagement and Audit Scheme.
39.	ENEA	ENEA S.A. with its registered office in Poznań.

	Abbreviation and trade term	Full name / explanation
40.	ENERGA	ENERGA S.A. with its registered office in Gdańsk.
41.	EPCM	Engineering Procurement Construction Management - construction, engineering and procurement management service (Contract Manager).
42.	ERM	Enterprise Risk Management.
43.	ESG	Environmental, Social and Governance - environmental, social and corporate governance factors used in the investment decision making process.
44.	ESS	Energy Store System.
45.	EU ETS	European Union Emission Trading System.
46.	EUA	European Union Allowance - an allowance to introduce the carbon dioxide (CO2) equivalent to the air, within the meaning of Article 2 section 4 of the act of July 17, 2009 on the management system of emissions of greenhouse gases and other substances, which is used for settlements of emission level within the system and which can be managed under the rules provided in the Act of April 28, 2011 on the system of greenhouse gases emission allowances trading
47.	EUR	Euro - a common European currency introduced in some EU member states
48.	EWI	Early Warning Indicator.
49.	Finanse Grupa TAURON	Finanse Grupa TAURON sp. z o.o. (Ltd.) with its registered office in Katowice.
50.	FIIK	Fundusz Inwestycji Infrastrukturalnych – Kapitałowy (Infrastructure Investment Fund – Equity).
51.	FIP	Feed-in premium - system of subsidies to the market price, which is a form of support for the generation of electricity from renewable energy sources
52.	FIT	Feed-in tariff - guaranteed tariff system, which is a form of support for the generation of electricity from renewable energy sources
53.	FIZ	Fundusz Inwestycyjny Zamknięty (Closed-end investment fund)
54.	FIZAN	Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (Closed-end private equity investment fund)
55.	GAZ-SYSTEM	Transmission Pipelines Operator (Operator Gazociągów Przesyłowych) GAZ-SYSTEM S.A. with its registered office in Warsaw.
56.	GPW	Warsaw Stock Exchange (WSE) (Giełda Papierów Wartościowych w Warszawie S.A.) with its registered office in Warsaw.
57.	TAURON Capital Group	TAURON Capital Group Polska Energia S.A.
58.	GUS	Central Statistical Office (Główny Urząd Statystyczny) (Statistics Poland)
59.	GZE	Górnośląski Zakład Elektroenergetyczny S.A. with its registered office in Gliwice.
60.	HEMS	Home Energy Management System.
61.	HVAC	Heating, Ventilation, Air Conditioning.
62.	ICE (ICE exchange)	InterContinental Exchange - commodity and financial exchange, where, among others, contracts for oil, coal, natural gas and CO2 emission allowances are traded.
63.	IOS	Flue gas desulphurization installation
64.	IRGiT	Izba Rozliczeniowa Giełd Towarowych S.A. (Warsaw Commodity Exchange Clearing House) with its registered office in Warsaw.
65.	IRS	Interest Rate Swap - interest payment swap contract, one of the main derivatives that is traded on the interbank market
66.	KGHM Polska Miedź (Polish Copper)	KGHM Polska Miedź S.A. (Polish Copper Mining Company) with its registered office in Lubin.
67.	Audit Committee	Audit Committee of the Supervisory Board of TAURON Polska Energia S.A
68.	Nominations and Compensation Committee	Nominations and Compensation Committee of the Supervisory Board of TAURON Polska Energia S.A.
69.	Strategy Committee	Strategy Committee of the Supervisory Board of TAURON Polska Energia S.A.
70.	BAT Conclusions	Best Available Techniques with respect to large combustion plants (LCP), introduced by way of the Executive Decision of the European Commission (EU) no. 2017/1442of July 31, 2017 (
71.	KPI	Key Performance Indicators – key financial and non-financial indicators used as ways to measure progress of achieving goals of an organization.
72.	KRI	Key Risk Indicators.
73.	KSE	National Power System (Krajowy System Elektroenergetyczny)

	Abbreviation and trade term	Full name / explanation
74.	Ksh	Act of September 15, 2000, Code of Commercial Companies
75.	KW Czatkowice	Kopalnia Wapienia (Limestone Mine) "Czatkowice" sp. z o.o. (Ltd.) with its registered office in Krzeszowice.
76.	Magenta Grupa TAURON	Magenta Grupa TAURON sp. z o.o. (Ltd.) with its registered office in Katowice.
77.	Marselwind	Marselwind sp. z o.o. (Ltd.) with its registered office in Katowice.
78.	Ministry of State Assets	Ministry of State Assets with its registered office in Warsaw.
79.	Mg	Mega gram - million grams (1 000 000 g), i.e. a ton.
80.	Business Model	Document entitled TAURON Group's Business and Operational Model (which is an update of TAURON Group's Business Model adopted by the Management Board on May 4, 2016).
81.	IFRS	International Financial Reporting Standards.
82.	NBP	National Bank of Poland (Narodowy Bank Polski) with its registered office in Warsaw.
83.	NCBR	National Research and Development Center (Narodowe Centrum Badań i Rozwoju) with its registered office in Warsaw.
84.	Nowe Jaworzno Grupa TAURON	Nowe Jaworzno Grupa TAURON sp. z o.o. (Ltd.) with its registered office in Jaworzno.
85.	NOx	Nitrogen oxides.
86.	Line of Business (Segment)	Seven areas (segments ) of TAURON Capital Group's core operations set up by the Company: Trading, Mining, Generation, RES, Heat, Distribution and Supply
87.	OCR	Optical Character Recognition - software for recognizing characters and entire texts in a scanned paper or electronic document.
88.	OPEC	Organization of the Petroleum Exporting Countries with its registered office in Vienna.
89.	DSO (OSD)	Distribution System Operator (Operator Systemu Dystrybucyjnego - OSD)
90.	TSO (OSP)	Transmission System Operator (Operator Systemu Przesyłowego - OSP)
91.	OTC (OTC market)	Over The Counter Market – European OTC market.
92.	OTF (OTF market)	Organized Trading Facility.
93.	OW OFFSHORE	OW OFFSHORE S.L. with its registered office in Madrid, Spain - a joint venture in which EDP Renovaveis SA with its registered office in Lisbon, Portugal, and ENGIE SA based in Paris, France, each hold 50% of the shares.
94.	RES (OZE)	Renewable Energy Sources (Odnawialne Źródła Energii - OZE)
95.	PEAK (PEAK contract)	Peak contract for the supply of electricity during business hours (8-22) on business days, e.g. the PEAK contract for March 2020 is related to the supply of the same amount of electricity on all business days in March 2020 between 8 and 22.
96.	PEC Tychy	Przedsiębiorstwo Energetyki Cieplnej sp. z o.o. (Ltd.) with its registered office in Tychy.
97.	PEPKH	Polska Energia - Pierwsza Kompania Handlowa sp. z o.o. (Ltd.) with its registered office in Warsaw.
98.	PFR	Polski Fundusz Rozwoju S.A. (Polish Development Fund) with its registered office in Warsaw.
99.	PFR IFIZ	PFR Inwestycje Fundusz Inwestycyjny Zamknięty (PFR Investments Closed-end Investment Fund)
100.	PGG	Polska Grupa Górnicza S.A. (Polish Mining Group) with its registered office in Katowice
101.	PGE	PGE Polska Grupa Energetyczna S.A. with its registered office in Warsaw.
102.	PGE EJ 1	PGE EJ 1 sp. z o.o. (Ltd.) with its registered office in Warsaw.
103.	PGK	Tax Capital Group (Podatkowa Grupa Kapitałowa – PGK).
104.	PGNiG	Polskie Górnictwo Naftowe i Gazownictwo S.A. (Polish Oil and Gas Company) with its registered office in Warsaw.
105.	GDP (PKB)	Gross Domestic Product (Produkt Krajowy Brutto)
106.	PLN	Polish zloty currency symbol - zł
107.	PMEF	Property rights related to the energy efficiency certificates
108.	PMOZE	Property rights related to the certificates of origin confirming generation of electricity in RES before March 1, 2009

	Abbreviation and trade term	Full name / explanation
109.	PMOZE_A	Property rights related to the certificates of origin confirming generation of electricity in RES after March 1, 2009
110.	PMOZE-BIO	Property rights related to the certificates of origin confirming generation of electricity from agricultural biogas from July 1, 2016
111.	POPC	Digital Poland Operational Program.(Program Operacyjny Polska Cyfrowa – POPC).
112.	PRO	Partnership, Development, Boldness (Partnerstwo Rozwój Odwaga – PRO) - key corporate values reflecting the way TAURON Capital Group wants to achieve its business goals.
113.	PSE	Polskie Sieci Elektroenergetyczne S.A. with its registered office in Konstancin-Jeziorna .
114.	RB	Balancing Market (Rynek Bilansujący) - technical market on which the demand for and supply of electricity in the National Power System (KSE) is balanced.
115.	RDB	Intraday Market - a market operating on the POLPX TGE), where trading is carried out in a continuous trading formula, 24 hours a day. Instruments with delivery on the next day are traded, with their trading starting at 14:00 the day before the delivery and gradually exiting the market one hour before the start of the delivery.
116.	RDN	Day Ahead Market - a market operating on the POLPX (TGE), where trading is carried out one and two days ahead of the delivery.
117.	RDNg	Day Ahead Gas Market - a market operating on the POLPX (TGE), where trading is carried out every day and is conducted in the continuous trading system
118.	REACH	Registration, Evaluation and Authorization of Chemicals - register of chemical substances placed on the market. Regulation of the European Parliament and of the Council governing the use of chemicals through the registration and evaluation thereof and, in some cases, the granting of authorizations and imposing trading restrictions.
119.	ROI	Return on Investment - profitability ratio used to measure efficiency.
120.	RTT	Futures Commodity Market (Rynek Terminowy Towarowy – RTT) - market operating on the POLPX (TGE), where trading in contracts is carried out in the continuous trading system and in the auction system.
121.	SAIFI	System Average Interruption Frequency Index
122.	SARS-CoV-2	Severe Acute Respiratory Syndrome - virus that causes the COVID-19 disease.
123.	SCE Jaworzno III	Spółka Ciepłowniczo Energetyczna Jaworzno III sp. z o.o. (Ltd.) with its registered office in Jaworzno.
124.	SCR	Selective Catalytic Reduction - flue gas denitrification system.
125.	Segment, Segments of Operations (Operating Segments)	TAURON Capital Group's segments of operations used in the statutory reporting process. TAURON Capital Group's results from operations are allocated to the following 5 main Segments: Mining, Generation, RES, Distribution and Supply, as well as, additionally, Other Operations.
126.	SLA	Service Level Agreement
127.	SOx	Sulfur oxides.
128.	Consolidated Financial Statements of TAURON Capital Group	Document under the title Consolidated financial statements of TAURON Polska Energia S.A. Capital Group in accordance with the International Financial Reporting Standards approved by the European Union for the year ended on December 31, 2020.
129.	Financial Statements of TAURON	Document under the title Financial statements of TAURON Polska Energia S.A. in accordance with the International Financial Reporting Standards approved by the European Union for the year ended on December 31, 2020.
130.	SPOT (SPOT market)	With respect to electricity, it is the place where trade transactions for electricity are concluded with delivery not later than 3 days after the date of the transaction's conclusion (most often it is one day before the date of delivery). The operation of the SPOT market for electricity is strongly tied to the operation of the Balancing Market run by the TSO.
131.	Company	TAURON Polska Energia S.A. with its registered office in Katowice.
132.	Company's Articles of Association	Document entitled Articles of Association of TAURON Polska Energia S.A.
133.	Strategy	Document entitled TAURON Group's Strategy for 2016-2025 adopted by the Management Board on September 2, 2016, which is supplemented by the Update of Strategic Directions in the TAURON Group's Strategy for 2016-2025, adopted by the TAURON Management Board on May 27, 2019.
134.	Sustainable Development Strategy	Document entitled TAURON Group's Sustainable development strategy for 2017-2025, adopted by the Management Board on August 1, 2017, which is an update of the document entitled TAURON Group's Sustainable development strategy for 2016-2018 with an outlook until 2020.
135.	TAMEH HOLDING	TAMEH HOLDING sp. z o.o. (Ltd.) with its registered office in Dąbrowa Górnicza.
136.	TAMEH POLSKA	TAMEH POLSKA sp. z o.o. (Ltd.) with its registered office in Dąbrowa Górnicza.

	Abbreviation and trade term	Full name / explanation
138.	TAURON	TAURON Polska Energia S.A. with its registered office in Katowice.
139.	TAURON Ciepło	TAURON Ciepło sp. z o.o. (Ltd.) with its registered office in Katowice.
140.	TAURON Czech Energy	TAURON Czech Energy s.r.o. with its registered office in Ostrava (Czech Republic).
141.	TAURON Dystrybucja	TAURON Dystrybucja S.A. with its registered office in Cracow.
142.	TAURON Dystrybucja Pomiary	TAURON Dystrybucja Pomiary sp. z o.o. (Ltd.) with its registered office in Tarnów.
143.	TAURON EKOENERGIA	TAURON EKOENERGIA sp. z o.o. (Ltd.) with its registered office in Jelenia Góra.
144.	TAURON Nowe Technologie	TAURON Nowe Technologie S.A. (formerly: TAURON Dystrybucja Serwis S.A.) with its registered office in Wrocław.
145.	TAURON Obsługa Klienta	TAURON Obsługa Klienta sp. z o.o. (Ltd.) with its registered office in Wrocław.
146.	TAURON Serwis	TAURON Serwis sp. z o.o. (Ltd.) with its registered office in Katowice.
147.	TAURON Sprzedaż	TAURON Sprzedaż sp. z o.o. (Ltd.) with its registered office in Cracow.
148.	TAURON Sprzedaż GZE	TAURON Sprzedaż GZE sp. z o.o. (Ltd.) with its registered office in Gliwice.
149.	TAURON Ubezpieczenia	TAURON Ubezpieczenia sp. z o.o. (Ltd.) with its registered office in Katowice.
150.	TAURON Wydobycie	TAURON Wydobycie S.A. with its registered office in Jaworzno.
151.	TAURON Wytwarzanie	TAURON Wytwarzanie S.A. with its registered office in Jaworzno.
152.	TCFD (TCFD Guidelines)	Task Force on Climate-related Financial Disclosures - A Task Force on Climate-Related Disclosures established by the G20 Financial Stability Board, which issued recommendations in June 2017 to encourage financial institutions and non-financial companies to disclose information on the climate related risks and opportunities. These recommendations are considered to be the authoritative (credible) guidance on the financial reporting of the climate related information.
153.	TEC1	TEC1 sp. z o.o. (Ltd.) with its registered office in Katowice.
154.	TEC2	TEC2 sp. z o.o. (Ltd.) with its registered office in Katowice.
155.	TEC3	TEC3 sp. z o.o. (Ltd.) with its registered office in Katowice.
156.	TGE (POLPX)	Towarowa Giełda Energii S.A. (Polish Power Exchange – POLPX) with its registered office in Warsaw.
157.	TGEozebio	Property rights that confirm the production of electricity from renewable energy sources using agricultural biogas.
158.	TU	Towarzystwo Ubezpieczeń (Insurance Company)
159.	EU (UE)	European Union (Unia Europejska - UE)
160.	UOKiK	Office of Competition and Consumer Protection (Urząd Ochrony Konkurencji i Konsumentów – UOKiK))
161.	Unbundling	Separation of the operations with respect to transmission or distribution of electricity from the operations that involve the production and delivery (supply) of this electricity to the final consumers.
162.	ERO (URE)	Energy Regulatory Office (Urząd Regulacji Energetyki - URE)
163.	USA	United States of America.
164.	USD	United States Dollar - US dollar's international acronym
165.	VaR	Value at Risk - a measure of risk that determines the maximum possible change in the value of the Portfolio with the given probability and within a specified time frame.
166.	WACC	Weighted Average Cost of Capital - the weighted average cost of capital of the company, weighted respectively by the share of debt and equity in the company's capital structure.
167.	WFOŚiGW	Regional Environment Protection and Water Management Fund (Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej) in Katowice or in Cracow .
168.	Wind T1	Wind T1 sp. z o. o. . z o.o. with its registered office in Pieńków.
169.	Wsparcie Grupa TAURON	Wsparcie Grupa TAURON sp. z o.o. (Ltd.) with its registered office in Tarnów.
170.	GM (WZ/ZW)	General Meeting (GM) / Shareholders' (Partners') Meeting (Walne Zgromadzenie – WZ / Zgromadzenie Wspólników - ZW)
171.	ZG	Coal Mine (Zakład Górniczy - ZG) (Janina Coal Maine in Libiąż, Sobieski Coal Mine in Jaworzno, Brzeszcze Coal Mine in Brzeszcze).

Appendix B: INDEX OF TABLES AND FIGURES

The list of tables and figures presented in this report is provided below.

Index of tables

Table no. 1.	List of material joint subsidiaries as of December 31, 2020 9
Table no. 2.	Summary of equity increases in TAURON Capital Group's subsidiaries in 2020 and by the date of
	drawing up this report 9
Table no. 3.	Summary of equity increases in the other companies in which TAURON holds an equity stake in
	2020 and by the date of drawing up this report 11
Table no. 4.	Strategic goals and growth prospects in the individual operating Segments 14
Table no. 5.	Opportunities and threats to TAURON Capital Group's operations 16
Table no. 6.	TAURON Capital Group's strategic goals realized in 2019 18
Table no. 7.	Key strategic investment (CAPEX) projects' work progress in 2020 and by the date of drawing up
	this report 22
Table no. 8.	The highest by value capital expenditures incurred by TAURON Capital Group's Lines of Business
	in 2020 28
Table no. 9.	Selected R&D projects implemented in 2020 by TAURON Capital Group's subsidiaries, co-financed
	from the external sources 29
Table no. 10.	Projects with the startups carried out in 2020 32
Table no. 11.	2019 - 2020 production and sales volumes 40
Table no. 12.	Categories of TAURON Capital Group's final customers 44
Table no. 13.	Volume of retail electricity supplied and the number of customers in 2020 45
Table no. 14.	Volumes of Poland's electricity consumption, production and imports and the average electricity
	prices on the SPOT market, both in Poland as well as in the neighboring countries in 2020 and in
	2019 49
Table no. 15.	Most important changes in the regulatory environment of TAURON Capital Group in 2020 in terms
	of the adopted and published legal acts that affect TAURON Capital Group 54
Table no. 16.	Most important legislative initiatives in the regulatory environment of TAURON Capital Group in
	2020 56
Table no. 17.	Installed capacity, generation, distribution and supply of electricity by energy groups after the first
	three quarters of 2020 60
Table no. 18.	Sources of competitiveness of TAURON Capital Group in selected Lines of Business (Segments of
	Operations) 60
Table no. 19.	Key data on employment at TAURON and TAURON Capital Group as of December 31, 2019 and
	December 31, 2020 72
Table no. 20.	Goals in the area of human capital management 73
Table no. 21.	Key data on employee training at TAURON and TAURON Capital Group as of December 31, 2018,
	and as of December 31, 2020 75
Table no. 22.	Annual emissions of SO2, NOx, dust and CO2 from thermal combustion of fuel for 2020 78
Table no. 23.	Estimated charges for the business use and the water services of the environment due for 2020
	79
Table no. 24.	Key non-financial efficiency ratios (metrics, performance indicators), related to TAURON Capital
	Group's operations in 2019-2020 82
Table no. 25.	Description of the ERM System participants' roles and responsibilities 88
Table no. 26.	Main risk categories and sub-categories, in accordance with the Risk Model in place 90
Table no. 27.	Most material risk categories identified for TAURON Capital Group 96
Table no. 28.	Classification of risks based on TAURON Capital Group's operating segments 105
Table no. 29.	Annual standalone statement of comprehensive income in 2019-2020 drawn up in accordance with
	the IFRS 107
Table no. 30.	Company's sales revenue in 2019-2020 108
Table no. 31.	Level and structure of the costs incurred by the Company in 2019-2020 109
Table no. 32.	Company's annual standalone statement of financial position, drawn up in accordance with the
	IFRS (material items) 110
Table no. 33.	Statement of cash flows drawn up in accordance with the IFRS (material items) 111
Table no. 34.	Key financial ratios of TAURON 112
Table no. 35.	TAURON Capital Group's 2019-2020 EBITDA broken down into individual lines of business
	(segments) 113
Table no. 36.	Mining Segment's 2019-2020 results 114
Table no. 37.	Generation Segment's 2019–2020 results 116
Table no. 38.	RES Segment's 2019–2020 results 117
Table no. 39.	Distribution Segment's 2019-2020 results 119
Table no. 40.	Supply Segment's 2019-2020 results 120
Table no. 41.	Other Operations Segment's 2019-2020 results 121
Table no. 42.	Discontinued operations' 2019-2020 results 122
Table no. 43.	Structure of the annual consolidated statement of financial position 122
Table no. 44.	Annual consolidated statement of financial position - assets (material items)* 124
Table no. 45.	Annual consolidated statement of financial position – equity and liabilities (material items)* 126

Table no. 46.	Annual consolidated statement of comprehensive income for 2019-2020* 129
Table no. 47.	Statement of cash flows (material items) in 2019-2020* 132
Table no. 48.	Key financial ratios of TAURON Capital Group for the continued and discontinued operations* 136
Table no. 49.	Net financial debt reconciliation 136
Table no. 50. Table no. 51.	Reconciliation of the result on the EBITDA level 137 Financial and operating data for 2020-2016* 137
Table no. 52.	TAURON Capital Group's EBITDA, broken down into Segments of Operations (Lines of Business)
Table no. 53.	* 138 Compensation of the audit firm for the services provided for TAURON Capital Group's subsidiaries 142
Table no. 54.	Key data on the Company's shares in 2011-2020 147
Table no. 55.	Recommendations issued in 2020 148
Table no. 56.	Timeline of the investor relations highlights and activities that took place in 2020 150
Table no. 57.	Shareholders holding, directly or indirectly, substantial blocks of shares as of December 31, 2020 and as of the date of drawing up this report 154
Table no. 58.	Competence of the Company's Management Board as of December 31, 2020, and as of the date of drawing up this report 156
Table no. 59.	Competence of the Company's Supervisory Board as of December 31, 2020, and as of the date of drawing up this report 157
Table no. 60.	Competence of the General Meeting of the Company as of December 31, 2020, and as of the date of drawing up this report 160
Table no. 61.	Description of the Company's shareholders' rights related to the General Meeting of the Company
Table no. 62.	161 Fulfillment by the Members of the Company's Supervisory Board of the independence
Table no. 63.	requirements, as of December 31, 2020 and as of the date of drawing up this report 165 Fulfillment, in 2020, by the Members of the Audit Committee of the independence requirements and
Table no. 64.	the requirements with respect to the knowledge and skills held 170 Competences of the Audit Committee as of December 31, 2020, and as of the date of drawing up
Table no. 65.	this report 171 Competences of the Nominations and Compensation Committee, as of December 31, 2020 and as
Table no. 66.	of the date of drawing up this report 174 Competences of the Strategy Committee as of December 31, 2020 and as of the date of drawing
Table no. 67.	up this report 175 Compensation of the Members of the Company's Management Board in 2020, broken down into
	components 182
Table no. 68. Table no. 69.	Compensation of the members of the Company's Supervisory Board in 2020. 185 Summary of material proceedings pending before the court, competent arbitration authority or
Table no. 70.	public administration authority in 2020 186 Summary of the loans extended to the jointly controlled subsidiaries and associated companies
	granted by TAURON in 2020 and the level of debt due to such loans as of December 31, 2020 (listed in the order according to the maturity date) 192
Table no. 71.	Explanation of abbreviations and acronyms as well as trade terms used in the report 195
Index of figures
Figure no. 1.	TAURON Capital Group TAURON 4
Figure no. 2.	TAURON Capital Group's key assets 6
Figure no. 3.	TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2020 7
Figure no. 4.	Foundations for the growth of TAURON Capital Group's value 13
Figure no. 5.	TAURON Capital Group's ultimate energy transition 17
Figure no. 6.	TAURON Capital Group's ultimate unit emissions level 18
Figure no. 7.
Figure no. 8.	Assumptions of the Strategic Initiatives and the CAPEX rationalization in the years 2017-2020 . 19
Figure no. 9.	Implementation of the Strategic Initiatives in the years 2017-2020 (cumulatively) 20
	TAURON Capital Group's adopted strategic options 22
Figure no. 11.	Figure no. 10. Structure of TAURON Capital Group's Lines of Business 34 Organizational diagram of TAURON as of December 31, 2020, and as of the date of drawing up
	this report 35 Figure no. 12. Diagram of the division of responsibilities of the Members of the Company's Management Board
	as of the date of drawing up this report 36
	Figure no. 13. Structure of TAURON Capital Group's processes (mega-processes) 37
	Figure no. 14. Summary of the Company's 2020 coal shipments (Mg m) 41
	Figure no. 15. Structure of the Generation Segment's installed capacity as of December 31, 2020 42
	Figure no. 16. Structure of electricity distribution by tariff groups in 2020 43
	Figure no. 17. Coal and coal sludge purchased in 2020 (in Mg m) 46 Figure no. 18. Average monthly electricity prices on the SPOT and RB markets, as well as the average
	temperatures in 2020 50
	Figure no. 19. BASE Y-21 contract trading price performance 50 Figure no. 20. Average monthly SPOT and Y-21 contract prices on TGE in 2020 52

	Figure no. 22. Property rights indices 54
	Figure no. 23. TAURON Capital Group's competitive environment (landscape) based on the available Q1-3 2020 data 57
Figure no. 24.	EBITDA – estimated structure based on the main segments in 2019* 58
Figure no. 25.	Gross electricity production - estimated market shares in Q1-3 2020 59
Figure no. 26.	Installed capacity - estimated market shares in Q1-3 2020 59
Figure no. 27.	Electricity distribution - estimated market shares in Q1-3 2020 59
	Figure no. 28. Electricity supply to the final consumers - estimated market shares in Q1-3 2020 60
	Figure no. 29. TAURON's average headcount in FTEs in 2019 - 2020 71
	Figure no. 30. TAURON Capital Group's average headcount in FTEs per Segment in 2019 - 2020 71
	Figure no. 31. Human capital management structure 74
	Figure no. 32. Structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2019 80
	Figure no. 33. Structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital
	Group, brought to the market in 2020 80
	Figure no. 34. Structure (composition) and the quantities of the combustion and mining by-products generated by
	TAURON Capital Group, brought to the market in 2020 80
	Figure no. 35. Structure of certificates of origin for renewable energy (PMOZE) at TAURON Capital Group in 2020
	(MWh) 81
	Figure no. 36. Basic classification of the enterprise risk 86
	Figure no. 37. Architecture of the ERM system in place at TAURON Capital Group 86
	Figure no. 38. Risk management process 87
	Figure no. 39. Links between the individual roles in the context of the ERM Strategy and the documents regulating the ERM System 88
	Figure no. 40. Flow of information within the key participants of the risk management process 89
	Figure no. 41. Number of risks monitored, broken down into sub-categories and their impact on TAURON Capital
	Group 91
	Figure no. 42. Breakdown of TAURON Capital Group's trading operations 92
	Figure no. 43. Credit exposure components 93
	Figure no. 44. Risk management system tools 94
	Figure no. 45. Regulatory risk life cycle 95
	Figure no. 46. Project risk management model 96
	Figure no. 47. TAURON Capital Group's EBITDA in 2012-2020 113
	Figure no. 48. TAURON Capital Group's 2019-2020 EBITDA structure (composition) 113 Figure no. 49. Change in TAURON Capital Group's EBITDA in 2019-2020 114
	Figure no. 50. Mining Segment's 2019-2020 financial data 115
	Figure no. 51. Mining Segment's EBITDA 115
	Figure no. 52. Generation Segment's 2019–2020 financial data 116
	Figure no. 53. Generation Segment's EBITDA 117
	Figure no. 54. RES Segment's 2019-2020 financial data 118
	Figure no. 55. RES Segment's EBITDA 118
	Figure no. 56. Distribution Segment's 2019-2020 financial data 119
	Figure no. 57. Distribution Segment's EBITDA 119
	Figure no. 58. Supply Segment's 2019-2020 financial data 120 Figure no. 59. Supply Segment's EBITDA 121
	Figure no. 60. Other Operations Segment subsidiaries' 2019-2020 financial data 121
	Figure no. 61. Discontinued operations' 2019-2020 financial data 122
	Figure no. 62. Structure of assets 123
	Figure no. 63. Structure of equity and liabilities 123
	Figure no. 64. Current liquidity ratio and the net debt to EBITDA ratio in 2019-2020 124
	Figure no. 65. Change in assets 124
	Figure no. 66. Change in current assets 124
	Figure no. 67. Change in equity and liabilities 126
	Figure no. 68. Change in equity attributable to majority shareholders 127
	Figure no. 69. Change in long term liabilities 127 Figure no. 70. Change in short term liabilities 127
	Figure no. 71. TAURON Capital Group's 2019-2020 financial results 129
	Figure no. 72. TAURON Capital Group's sales revenue (except for the compensation) in 2019-2020* 130
	Figure no. 73. TAURON Capital Group's financial results and the level of margins realized in 2019-2020* 132
	Figure no. 74. 2019-2020 cash flows 133
	Figure no. 75. TAURON Capital Group's 2020 cash flows 134
	Figure no. 76. Structure of TAURON Capital Group's EBITDA in 2016-2020 138
	Figure no. 77. Mining Segment's 2016 - 2020 data 139
	Figure no. 78. Generation Segment's, RES Segment's and Discontinued Operations Segment's 2016 - 2020 data
	139 Figure no. 79. Distribution Segment's 2016 – 2020 data 139
	Figure no. 80. Supply Segment's 2016 - 2020 data 139
	Figure no. 81. Other Operations Segment's 2016 - 2020 data 140
	Figure no. 82. Shareholding structure as of December 31, 2020 and as of the date of drawing up this report . 145

Figure no. 83. TAURON share price performance and trading volumes in 2020 147
Figure no. 84. TAURON share price and trading volumes since the market debut until December 31, 2020 148
Figure no. 85. TAURON share price (in PLN) versus WIG20 and WIG-Energia indices since the market debut until
December 31, 2020 148

Non-financial Report of TAURON Capital Group. This is a translation of the document originally issued and signed in Polish.

NON-FINANCIAL REPORT

of TAURON Capital Group for the financial year 2020

1

	LETTER OF THE PRESIDENT OF THE MANAGEMENT BOARD 5
	1. INFORMATION ON THE REPORT AND LEGAL BASIS6
1.1.	Information on the principles, structure and methodology of the Report6
1.2.	Reporting methodology6
1.3.	Reporting standard7
1.4.	Stakeholder mapping7
1.5.	Material aspects of the reporting9
1.6.	GRI indices described in this chapter12
	2. TAURON CAPITAL GROUP'S VALUE CHAIN AND ITS BUSINESS AND OPERATIONAL MODEL13 2.1. Our capitals and relationships among them14
	2.1.1. TAURON Group's financial capital14
	2.1.2. TAURON Group's natural capital 15
	2.1.3. TAURON Group's production capital 17
	2.1.4. TAURON Group's human capital19
	2.1.5. TAURON Group's intellectual capital 21
	2.1.6. TAURON Group's social capital23
	2.1.7. Value creation model and relations among capitals24
	2.2. TAURON Group's value levers (drivers)25
	2.2.1. Customer-centricity26
	2.2.2. New businesses26
	2.2.3. Modern infrastructure27
	2.2.4. Ability to access and use the natural capital 27
	2.2.5. Investment and restructuring potential 28
	2.2.6. Personnel and organizational culture28
	2.3. TAURON Capital Group's values29
	2.3.1. Mission, vision29
	2.3.2. Corporate values30
	2.3.3. Corporate Social Responsibility Code of Conduct30
	2.4. TAURON Group's Business Model 33
	2.5. Principles of TAURON Polska Energia S.A.'s management35
	2.5.1. Management Board of TAURON Polska Energia S.A36
	2.5.2. Supervisory Board of TAURON Polska Energia S.A. 37
	2.5.3. General Meeting of TAURON Polska Energia S.A41
	2.5.4. Description of the principles applied to amend the Articles of Association of TAURON Polska Energia
	S.A41
	2.6. Principles of TAURON Group's management41
	2.6.1. Code of TAURON Group42

2.6.2. TAURON Group Business and Operational Model document assumptions 42
2.7. TAURON Capital Group's organization43
2.7.1. Process based organization43
2.7.2. Organization by Lines of Business44
2.7.3. Formal and legal organizational structure45
2.8. Changes to the principles of TAURON Polska Energia S.A. and TAURON Capital Group's management .46
2.9. TAURON Capital Group's strategy and business model in the context of climate protection requirements 49
2.10. GRI indicators described in this chapter53
3. ENVIRONMENT CONDITIONS DETERMINING THE CHOICE OF TAURON CAPITAL GROUP'S STRATEGY AND THE ASSUMPTIONS THEREOF55 3.1. Conditions of the environment determining the choice of TAURON Group's strategy in the long, medium and short term and the assumptions of such strategy55
3.1.1. TAURON Group against the backdrop of the world's greatest challenges – coronavirus pandemic 55
3.1.2. TAURON Group against the backdrop of the world's greatest challenges –climate changes and
insufficient resources 56
3.1.3. TAURON Group against the market backdrop in the short, medium and long term – Europe57
3.1.4. TAURON Group against the market backdrop in the short, medium and long term – Poland60
3.2. TAURON Capital Group's strategic determinants related to the external environment62
3.3. TAURON Capital Group's Strategy and the Green Turn of TAURON68
3.4. Key non-financial capital efficiency ratios (metrics, performance indicators) of TAURON Group with respect to the capitals70
3.5. GRI indices described in this section 73
4. TAURON CAPITAL GROUP'S POLICIES AND DUE DILIGENCE PROCESSES AND THE PRESENTATION OF THE RESULTS OF THEIR APPLICATION74
4.1. TAURON Group's PROClient Social Policy74
4.2. TAURON Group's Diversity Policy89
4.3. TAURON Group's Environmental Policy 93
4.4. TAURON Group's Climate Policy 109
4.5. TAURON Group's Human Rights Respect Policy 134
4.6. TAURON Group's Human Capital Management Policy 135
4.7. TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy146
4.8. TAURON Group's Anti-corruption Policy148
4.9. TAURON Group's WHS Policy152
4.10. Strategic Research Agenda (SAB)156
4.11. TAURON Group's Corporate Purchasing Policy 161
4.12. TAURON Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries 161
4.13. Personal data protection policy for TAURON Group's entities162
4.14. TAURON Capital Group's Policy of compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination164
4.15. TAURON Group's due diligence procedures 165
4.15.1. Internal control and audit procedure165

4.15.2. Most important aspects of internal control and risk management with respect to the process of drawing
up financial statements and consolidated financial statements 166
4.16. GRI indices described in this section 167
4. TAURON CAPITAL GROUP'S MAIN RISKS169
AND THE MANAGEMENT THEREOF169
5.1. What TAURON Group expects as a result of the regulatory and market changes 169
5.2. Three line defense model 169
5.3. TAURON Capital Group's risk management objective and principles 170
5.4. TAURON Group's risk management strategy170
5.4.1. Risk management system architecture171
5.4.2. Risk management process 172
5.4.3. Roles and responsibilities of the risk management system's participants 173
5.4.4. Risk control and monitoring rules174
5.4.5. Risk management tools175
5.4.6. Risk model 175
5.4.7. Assessment of the adequacy and the functioning of the risk management system 175
5.5. Risks related to TAURON Group's sustainable development176
5.5.1. Social Risk 176
5.5.2. Risk related to climate change177
5.5.2.1. Physical Risk177
5.5.2.1. Climate Risk related to the transition179
5.5.3. Human Capital Management Risk180
5.5.4. WHS Risk 181
5.5.5. Internal Communication Risk 182
5.5.6. Environmental Risk183
5.5.7. Purchasing Process Risk 183
5.5.8. Legal Risk184
5.5.9. Compliance Risk185
5.6. GRI profile indices described in this section186
6. GRI INDEX187

LETTER OF THE PRESIDENT OF THE MANAGEMENT BOARD

Ladies and Gentlemen,

the past year was extremely intense, important and rich in experiences for us. The recent months have been a time of a number of challenges and changes, but also an opportunity to implement specific goals that we can confidently call today a joint success. We adapted to the new realities quickly and efficiently, and the introduced procedures related to the functioning of companies operating in the conditions of the Covid-19 pandemic allowed us to ensure continuity of production and supply of electricity to our customers.

The development of renewable energy sources has invariably remained our priority. We completed the implementation of the first photovoltaic farm located on the Group's post-industrial land in Jaworzno in December 2020. The electricity generated by this installation will power more than two thousand households.

We are also operating nine onshore wind farms with the total capacity of 381 MW, and by 2025 we want to increase this potential to more than 1000 MW of installed capacity. In line with international trends, we have connected almost 100 000 RES micro-installations with the total capacity of 658 MW to our distribution grid, as a result of our activities with respect to prosumer energy development

Last year, we also completed the construction of our final projects in the conventional energy field - a 910 MW coalfired unit in Jaworzno and a 450 MW CCGT unit in Stalowa Wola. They are efficient, modern generation units, adapted to meet demanding environmental protection standards, that will constitute an important element of Poland's energy security.

As in previous years, also in 2020 we undertook a number of initiatives aimed at guaranteeing the financial resources required to ensure TAURON Group's sustainable development. At this point, it is worth to mention Poland's first issue of sustainable development bonds, as part of which we issued five-year bonds worth PLN 1 billion, with the proceeds to be spent on the Group's energy transition.

We want the Report that we are submitting to you to be a comprehensive and transparent document presenting the relationships between the Group's business model and the Strategy described by the non-financial indicators as well as the due diligence policies and procedures required for the implementation thereof. The discussion of the risks and methods how to manage them is an important part of the Report.

The layout and content of the publication are based on the structure and guidelines of the international reporting standard GRI (Global Reporting Initiative). The goal of this comprehensive presentation of our operations is to make the stakeholders, especially investors, financial institutions, insurers and customers familiar with TAURON Capital Group's activities and directions of expansion.

Despite the numerous challenges facing the Polish energy sector, I am convinced that that the consistent implementation of the assumptions of the Green Turn of TAURON initiated in May 2019 will have a positive impact upon the TAURON Group's market position and prospects.

In 2021, we are focusing on further expansion and modern solutions, while not forgetting our previous accomplishments. We will strive to maintain financial stability, take into account the interests of stakeholders, provide employees with a sense of security and tangible benefits for investors.

During the past year, I was able to find out multiple times that TAURON's success depends primarily on the people who make up the company - their ability to cope with adverse circumstances, the ability to respond flexibly and make the right decisions. They are the ones who deserve special thanks.

On behalf of the Management Board of TAURON Polska Energia S.A. I would also like to thank all external stakeholders for the trust they place in us and commitment to building TAURON Group's value.

Yours respectfully,

acting as the President of the Management Board / Vice President of the Management Board of TAURON Polska Energia S.A.

1. INFORMATION ON THE REPORT AND LEGAL BASIS

1.1. Information on the principles, structure and methodology of the Report

The 2019 Non-financial Report presented contains data and indicators regarding TAURON Capital Group (hereinafter alternatively referred to as the Group, TAURON Group and TAURON) as well as TAURON Polska Energia S.A., which is the parent company in TAURON Capital Group. (hereinafter referred to as TAURON Polska Energia, Company).

The report was prepared in accordance with:

• Article 49b, clause 1-8 and art. 55, clause 2b-e of the Accounting Act of September 29, 1994, as subsequently amended, which implements the guidelines of the Directive of the European Parliament and of the Council 2014/95 / EU of October 22, 2014, as regards disclosure of non-financial information, along with the additional, subsequent guidelines, including the European Commission Communication 2019 / C 209/01 of 20.06.2019 with guidelines on non-financial reporting: Supplement on reporting climate-related information;
• Global Reporting Index guidelines GRI Standards (core level).

Non-financial data was compiled on the basis of a dialogue with the stakeholders carried out according to the AA1000SES standard.

The business model, key non-financial performance indicators, policies and the due diligence procedures applied, as well as the potential risks and the risk management system, are provided in this Report from the point of view of the entire TAURON Capital Group and are presented on a consolidated basis.

The subject matter scope of the Report has not changed significantly as compared to 2019, however it has been extended by adding content related to TAURON Capital in the light of the world' greatest challenges that include the coronavirus pandemic as well as climate change and insufficiency of resources. The Report covers those subsidiaries that are responsible for generating 98% of the Group's revenue. As a result the following subsidiaries are included: TAURON Polska Energia, TAURON Wydobycie, TAURON Wytwarzanie, Nowe Jaworzno Grupa TAURON, TAURON Ciepło, TAURON Ekoenergia, TAURON Dystrybucja, TAURON Nowe Technologie, TAURON Dystrybucja Pomiary, Bioeko Grupa TAURON, TAURON Sprzedaż, TAURON Sprzedaż GZE, TAURON Obsługa Klienta, Kopalnia Wapienia "Czatkowice", Spółka Usług Górniczych, TAURON Serwis, the special purpose vehicles set up to manage the wind assets, TAURON Czech Energy, TAURON Ubezpieczenia and Wsparcie Grupa TAURON. This set of companies, also included in the Financial Statements, is representative for all of the Group's lines of business. This approach enables understanding the way they are operated, but also their impact on the environment.

TAURON Capital Group's reporting process takes place on an annual basis (the Non-financial Report of TAURON Capital Group for 2019 was published on April 1, 2020).

Due to the growing importance of non-financial data, the Non-financial Report has been prepared for the second time in the history of TAURON Group, constituting an independent, autonomous document. Earlier the Group had conducted this reporting using a Statement on non-financial data, as a part of the Management Board's Report on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the ended financial year.

As part of the process of drawing up the Report, documents, policies, due diligence procedures, risk management principles and other information materials related to the operations of TAURON Capital Group were analyzed.

An external consultant representing the Institute of Accounting and Taxes (Instytut Rachunkowości i Podatków) participated in drawing up the document. All content published in the Report has also been subjected to an internal audit.

1.2. Reporting methodology

The preparation of the content of this Report was performed in the following stages:

• Confirming the map of stakeholders and defining the material aspects of the reporting;
• Conducting a materiality analysis of issues to be covered in the Report;
• Collecting the data illustrating the implementation of the policies with respect the business model, Strategy and the corporate social responsibility goals, as well as the due diligence and risk management principles and the way they are managed at TAURON Capital Group
• Drawing up his Report based on the collected data in accordance with the Accounting Act of September 29, 1994, as subsequently amended, the European Commission Communication 2019/C 209/01 of 20.06.2019 with guidelines on non-financial reporting: Supplement on reporting climate-related information and based on the reporting standard Global Reporting Index - GRI Standards (core level).

1.3. Reporting standard

Seeing growing interest in non-financial data that allows for understanding of the organization in a broader context, this Report presents the content that can be used by the stakeholders interested in the value creation process by TAURON Capital Group, including, in particular, the investors, analysts and bondholders, employees, customers, suppliers, business partners, local communities, legislators, regulators and decision makers.

This Report is based on the Global Reporting Index standard - GRI Standards (core level). The Report presents indices from the categories of the basic description (Foundation, GRI 101), profile indices (General Disclosures, GRI 102), management approach (Management Approach, GRI 103) and selected topic specific Standards, coming from the economic (Economic, GRI 200), environmental (Environmental, GRI 300) and social (Social, GRI 400) series.

The indices described in this Report are presented in the final part of the document. They are also provided at the end of each of the topic specific parts.

When selecting the materials, we were guided by the principle of materiality and care that the message addressed to our stakeholders should be credible and comprehensive. When drafting the texts we applied the principle of brevity and the principle of linking the information presented. The reporting activities also used the principle of taking into account relations with stakeholders.

1.4. Stakeholder mapping

Each of the Group's stakeholder groups has different expectations and requirements with respect to the Group, and also impacts its operations in a different way. Also, with respect to each of them TAURON has for many years been pursuing a policy of social responsibility, both at the level of the entire Group as well as that of the individual subsidiaries. All these activities are aimed at building the so-called sustainable (balanced) value by combining the shareholder value with the value for the other stakeholders.

Partnership relations, based on mutual understanding and trust, are of key importance for TAURON Capital Group, as an organization exerting a significant impact on its environment, due to the scale of its operations, turnover volume and profile, as well as having full awareness of it and taking full responsibility for it. Therefore, the cooperation with the stakeholders constitutes the foundation for the Group to achieve success in both business operations as well as social activities. For this reason, TAURON is, in a partnership like, fully transparent manner, developing relations with the stakeholders, being aware of their importance for the long term strategy and the sustainable (balanced) approach to the business operations. The basis of this process is a dialogue aimed at getting to know the mutual expectations and possibilities as well as implementing the agreements reached.

With the above purpose as the starting point, the process of identifying and mapping TAURON Capital Group's stakeholders was carried out in December 2019 in cooperation with the experts from the AGH University of Science and Technology and the Institute of Accounting and Taxes. It was considered as the initial and basic stage of developing functionalities related to sustainable development as well as the basis for conducting a comprehensive materiality analysis for the purpose of this Report. Johnson & Scholes methodology was used as part of this step.

Based on that, the following groups of TAURON Capital Group's stakeholders were identified:

• local communities,
• public administration,
• investors, shareholders, analysts,
• suppliers,
• industry organizations
• local government,
• media,
• customers,
• employees,
• banks, capital providers,
• regulators.

The second stage of the stakeholder mapping process, carried out in accordance with the Johnson & Scholes methodology, involved an assessment of the degree of interest - orientation of the stakeholders towards the organization and the degree of the organization's interest - orientation towards the stakeholders, as well as the degree of the impact of the stakeholders on the organization and the degree of the organization's impact on the stakeholders. This way, TAURON Capital Group's internal determinants related to the relations with the stakeholders (the organization's interest in the stakeholders and the impact of the stakeholders on the organization and the impact of the organization on the stakeholders) and the external determinants related to these relations (level and type of the interest of the stakeholders in TAURON Group) were analyzed. The obtained results confirmed the existence of the above identified groups of TAURON Capital Group's stakeholders. As it turned out that, among the responses to the Group's posts or messages, no stakeholders outside the previously identified groups had been found.

Completing the above activities allowed for preparing the final map of TAURON Capital Group's stakeholders. Johnson & Scholes stakeholder matrix was created this way, as shown in Figure no. 1.

Figure no. 1. Johnson & Scholes matrix illustrating the map of TAURON Capital Group's stakeholders in 2019

When conducting the above mapping process at the end of 2019, it was concluded that the map of stakeholders presented in Figure 1 is also valid for 2020.

1.5. Material aspects of the reporting

The starting point for the process of selecting material aspects of reporting in this Report are:

• Johnson & Scholes matrix (section 1.4) developed as a result of stakeholder mapping, prepared at the end of 2019;
• AA1000 Stakeholder Engagement Standard 2015 Edition (the co-called AA1000 SES standard).

Based on the above assumptions, in cooperation with the experts from the AGH University of Science and Technology and the Institute of Accounting and Taxes, the process of selecting important reporting aspects was carried out, with the involvement of key stakeholders, identified in the Johnson & Scholes matrix, in the December 2020 - January 2021 time frame.

In accordance with the principles of market analysis and the AA1000 SES standard, the process of defining material reporting aspects was composed of:

• quantitative research surveys,
• qualitative research workshops and interviews.

They were implemented in two groups of stakeholders from the key categories:

• internal stakeholders developing the perspective of TAURON Group,
• external stakeholders developing the perspective of TAURON Group's environment.

The quantitative research was used for the initial, statistical determination of the importance (weight) of the issues to be reported. Qualitative research, on the other hand, was to obtain the confirmation by stakeholder representatives from key groups of the importance (weight) of the issues identified as a result of the quantitative research.

Due to the epidemic limitations, both types of research were conducted on-line. The quantitative research was based on online surveys, while the qualitative research was based on individual interviews with experts conducted using electronic applications, as well as on-line workshops carried out with the use of Internet platforms. Their preparation and implementation was undertaken by an independent research and development unit - the AGH University of Science and Technology.

In case of the internal stakeholders, the quantitative and qualitative research covered the managerial staff and employees of TAURON Capital Group. The perspective developed this way takes into account the opinions of the entire Group. Therefore, separate points of view of the individual subsidiaries are not specified, as the Group is treated as a whole. Within its framework, however, it is possible to the identify individual areas (Mining, Generation, Heat, RES, Distribution, Customer Service and Sales) for which the indicators that are the most important from the point of view of their operations have been selected and reported.

Almost 600 responses from internal stakeholders were collected based on the on-line questionnaire. As part of the qualitative research, on December 18, 2020, several-hour-long workshops with the Group's management were held. The meeting was attended by managers, among others, dealing with strategy, customer, environment, risk, human resource management, compliance and communications.

With respect to external stakeholders, the research process covered the following groups of key stakeholders: public administration, banks and capital providers, suppliers, investors, shareholders and analysts, customers, media, industry organizations (including the ones related to corporate social responsibility and environmental organizations), regulators as well as the local government. The quantitative study was conducted between December 15, 2020 and January 6, 2021. As a result, more than 450 stakeholder responses were obtained. The above was the basis for the stakeholder panel conducted on January 8, 2021, with the representatives of all the above-mentioned key stakeholder groups participating therein, additionally also representatives of the universities (AGH).

The results of the identification by the external and internal stakeholders of the materiality level of nonfinancial issues for 2020 to be reported by TAURON Capital Group are presented in the materiality matrix, presented in Figure 2.

Figure no. 2. The level of significance of the individual non-financial issues for TAURON Capital Group and its environment (stakeholders)

Based on the results of stakeholder indications, material non-financial issues (with a weight of 4 (important) and higher (very important)) to be reported by TAURON Capital Group for 2020 were summarized. They are presented in table no. 1.

Table no. 1. Non-financial issues selected by stakeholders during the materiality analysis to be reported by TAURON Capital Group

The number in the group of issues considered	Issues selected during the materiality analysis	SUSTAINABLE DEVELOPMENT AREA
1	Ensuring energy security - efficient provision of access to electricity and heat	MARKET
2	Investment projects aimed at increasing customer access to electricity supply (capital expenditures on new generation capacity, the refurbishment of the existing assets and the expansion of the RES-based generation capacity portfolio)	MARKET
3	Transparency of the offering and a responsible sales process (access to the information on the products and services, comprehensible sales language, clear bill / invoice, security of customer data)	MARKET

5	Ethics in marketing, adherence to high ethical standards in communications	MARKET
7	Customer service standards, implementation of new customer service channels and significant technological solutions, complaint handling system, consumer service	MARKET
8	Security of customer data	MARKET
9	Introduction of the European Green Deal	MARKET
11	The company's policy towards prosumers	MARKET
14	The role of coal-based energy in the energy mix and in creating added value	MARKET
15	Climate change, progressive global warming and weather anomalies related thereto	ENVIRONMENT
16	Investments aimed at increasing the share of energy produced from renewable sources and energy storage technologies, as well as supporting sustainable development	ENVIRONMENT
17	Minimizing the negative impact of the company on the natural environment (through the investment projects undertaken, energy and water saving (efficiency) solutions, reduction of the emissions; waste management, etc.)	ENVIRONMENT
18	Environmental management strategy, environmental management systems and risk management - a comprehensive, integrated approach of the company to the analysis of environmental impact at each stage of the company's operations (adopted policies, strategies, norms, standards, setting environmental targets)	ENVIRONMENT
20	Investing in environmental protection projects, financing research projects, with respect to reducing the negative impact on the environment, investments to increase the share of energy from renewable sources	ENVIRONMENT
21	Efficient management of water resources (measuring consumption, reducing consumption, water and sewage management, impacting water reservoirs) and sewage	ENVIRONMENT
22	Efficient management of the consumption of the raw materials used in the electricity production process	ENVIRONMENT
23	Efficient management of energy consumption (metering, targets, reduction/optimization of consumption)	ENVIRONMENT
24	Emissions to the atmosphere (types and quantity of substances emitted - measurements, targets)	ENVIRONMENT
25	Waste management	ENVIRONMENT
28	Educational activities for employees, suppliers, customers and local communities, engaging customers in environment protection	ENVIRONMENT
29	Research and development initiatives as well as innovative solutions related to the natural environment protection and energy saving (efficiency)	ENVIRONMENT
30	The use of innovative technologies, products and services that are environmentally friendly	ENVIRONMENT
34	Promotion of occupational health and safety (OHS) rules	WORK PLACE

37	Education and development of the employees at various levels in the organization	WORK PLACE
38	Internal communication with the employees	WORK PLACE
40	Maintaining equal opportunities in the workplace, diversity management policy, workforce age and knowledge management, family-friendly company and work-life balance	WORK PLACE
43	Support for the society in the fight against the SARS CoV-2 virus	SOCIETY
44	Supporting the local community, developing a good neighborhood policy; activities at the level of individual subsidiaries	SOCIETY
49	Conducting a dialogue with the stakeholders	SOCIETY

1.6. GRI indices described in this chapter

• GRI 101 Reporting principles and basics
• GRI 102-14 Statement from senior decision maker
• GRI 102-40 List of stakeholder groups
• GRI 102-42 Identifying and selecting stakeholders
• GRI 102-43 Approach to stakeholder engagement including the frequency of engagement by type and stakeholder group
• GRI 102-44 Key topics and concerns raised by stakeholders and the response from the organization also by reporting them
• GRI 102-45 Entities included in the consolidated financial statements
• GRI 102-46 Defining report content and topic boundaries
• GRI 102-47 List of material topics
• GRI 102-49 Changes in reporting (significant changes from previous periods covered by the report regarding material topics and topic boundaries)
• GRI 102-50 Reporting period
• GRI 102-51 Date of most recent report (if published)
• GRI 102-52 Reporting cycle
• GRI 102-54 Claims of reporting in accordance with the GRI Standards using Core or Comprehensive option
• GRI 102-56 External assurance (Confirmation of credibility)
• GRI 103-1 Explanation of the material topic and its boundary
• GRI 102-55 GRI Index

2. TAURON CAPITAL GROUP'S VALUE CHAIN AND ITS BUSINESS AND OPERATIONAL MODEL

TAURON Capital Group is a fully integrated energy group with its operations encompassing all elements of the electricity and heat value chain: from mining and procuring raw materials, through generation, distribution and supply to the final consumers,

The Group is made up of autonomous commercial law companies. The Group is led by TAURON Polska Energia S.A. (with its registered office in Katowice) as the parent entity (hereinafter called alternately the Company). TAURON Capital Group is one of Poland's largest electric utilities.

The Group's business model overlaps with the value chain: from mining and procuring thermal fuel, through generation, electricity and heat trading and distribution, up to the supply to the final consumers. In response to the current and future challenges, the value chain has been expanded by adding the innovations ecosystem and the so-called new businesses that are set up at the interface between the innovations ecosystem and the core operations segments (lines of business). They also cover the gradual transition from the operations linear cycle to the closed cycle (circle) operations, which contributes to implementation of the circular economy assumptions. Figure no. 3 presents lines of business as part of the value chain in terms of their contribution to TAURON Group's EBITDA.

Figure no. 3. EBITDA's share in TAURON Capital Group's value chain in 2020

TAURON Capital Group is Poland's largest electricity distributor. Using its more than 241 000 km long distribution grids, it delivers electricity to more than 5.7 million consumers, in the area that covers approx. 57 900 km2, which constitutes more than 18,5 percent of Poland's territory. TAURON's electricity distribution volume came in at 50.26 TWh in 2020. In terms of electricity supply to the final consumers TAURON Group is number two, with its supply volume of approximately 28.5 TWh per annum. On the other hand, in terms of production volume TAURON Group is the third largest electricity generator on the Polish market, with the annual net production of 11.4 TWh and installed capacity of 6.1 GW. To produce electricity the Group's conventional installations are using hard coal and biomass, renewable energy source units are utilizing the energy of wind and the kinetic energy of falling water. TAURON Capital Group is managing 9 wind power plants and 34 hydroelectric power plants, and it is operating 1 180 km of district heating networks. The construction of a 5 MW photovoltaic power plant on TAURON Group's post-industrial land in Jaworzno was completed in 2020 and the construction of solar farms with a total capacity of 6 MW in Choszczno is in the final stage.

The business model is an element of the implementation of the Group's Strategy and through the structuring of the operations, organizing them into logical, interworking business processes, it allows for optimizing the building of the value of TAURON Group as a whole, taking advantage of the economies of scale of the business conducted and the synergies resulting from the collaboration of the individual links of the value chain.

TAURON Group's value is built based on the processes of capital processing and transformation, while taking into account the levers of TAURON Group's value that are discussed in sections 2.1 and 2.2 of this Report, respectively. The implementation of processes based on capital is carried out with strict observance and compliance with the

Group's values, which are presented in sub-chapter 2.3, and with the use of an effective business model, presented in sub-chapter 2.4, and the management principles presented in sub-chapter 2.5. The business model and management principles are, in turn, the starting point for the implementation of the Group's Strategy. By structuring the activities and arranging them into logical, cooperating business processes, it is possible to build the value of TAURON Group as a whole in an optimum manner, taking advantage of the economy of scale of the business operations conducted and synergies resulting from the cooperation among the individual links of the value chain.

2.1. Our capitals and relationships among them

TAURON Group creates value for shareholders, inter alia, by investing in modern energy and shoring up the financial position. Value creation is possible thanks to the processing and transformation of TAURON Group's capitals - financial, natural, production, human, intellectual and social.

2.1.1. TAURON Group's financial capital

Financial capital is extremely important, both for the current operations of TAURON Group, as well as its expansion in the future. The sources of financing are: the Company's equity, funds generated from business operations conducted and liabilities. Currently, the Group is implementing a number of capital-intensive investment projects, mainly in the electricity distribution line of business. The capital expenditures came in at more than PLN 4 billion in 2020.

Investments in the electricity sector and activities aimed at the transition towards a low-emission economy are and will be supported by the EU funds. It is imperative that the support received should enable the development of zeroemission production technologies while maintaining competitiveness. The financial sector is increasingly reducing its involvement in financing activities related to greenhouse gas emissions. This is the result of new regulations supporting the financing of environmentally sustainable activities.

TAURON Group is using external financing in the form of loans and bond issues, as well as special-purpose funds and other instruments supporting modern, environmentally friendly investment projects.

TAURON Group issued bonds worth PLN 1 billion in 2020, with the proceeds to be used for the Group's energy transition. It was the first Sustainable Development bonds issue in Poland. The funds obtained from this operation will be allocated to the implementation of the Green Turn of TAURON.

TAURON is generating financial results that enable its further expansion and implementation of strategic projects. In spite of changes in the business environment, the growing revenues and cost optimization allow the Company to continue to continue generating a stable result and maintain the net debt to EBITDA ratio at a safe level.

Key data on TAURON Group's financial capital in 2018-2020 is presented in Table no. 2.

Table no. 2. Key data on TAURON Group's financial capital in 2018-2020

Key capital data	2020	2019	2018
Equity [PLN m]	16 412	19 093	18 428
Fixed assets [PLN m]	31 736	35 052	32 596
Distribution segment's RAB [PLN m]	18 255	17 470	16 940
Net debt [multiple]	2,5x	2,8x	2,5x
Capital expenditures [PLN m]	4 039	4 128	3 838

TAURON Group's management of financial capital is performed as follows:

• maintaining financial stability thanks to activities aimed at optimizing expenses and the structure of assets,
• implementation of the investment program and rationalizing the capital expenditures incurred,
• steadfast implementation of the financing optimization plan,
• developing capital (equity) partnership as part of the Corporate Venture Capital initiatives,
• increasing the share of revenue from the regulated market (capacity market),
• cooperation with banks and financial institutions,
• searching for optimal sources of financing,
• preferential loans to finance environmental investment projects,
• financial risk hedging,
• efficient liquidity management through the cash pooling service.

The results achieved as part of TAURON Group's management of financial capital are presented in table no. 3.

Table no. 3. Results achieved by TAURON Capital Group in 2018-2020 as part of the management of financial capital

Results achieved:	2020	2019	2018
Sales revenue [PLN m]	20 850	19 558	18 122
EBITDA [PLN m]	4 223	3 599	3 492
EBITDA margin [%]	20,3%	18,4%	19,3%
	4 042	2 036	2 223
Cash flow from operating activities [PLN m]
Net debt/EBITDA ratio [multiple]	2,5x	2,8x	2.5x
Net profit (loss) [PLN m]	(2 488)	(12)	207
Long term rating*	BBB-	BBB	BBB

* On May 21, 2020, Fitch ratings agency affirmed TAURON Polska Energia's long term foreign and local currency ratings of "BBB-" with a stable outlook

2.1.2. TAURON Group's natural capital

Natural capitals defined by TAURON Group that the Company uses and has an impact upon - minerals (coal, oil, gas, limestone), air, water, solar energy, biomass - are used in the entire chain of its operations. The Group's goal is to use natural capitals while minimizing the negative impact upon the environment and climate. The confirmation of this approach is the continuation of the activities that stem from the Update of the Strategic Directions adopted by the Management Board in 2019, thanks to which the weight of the individual natural capitals used in business processes will be gradually changing in TAURON Group's value chain. The turn towards renewable energy sources will lead to the successive increase in the use of wind energy and solar radiation, while reducing the consumption of non-renewable resources, i.e. solid fossil fuels or limestone.

The changes in the use of natural capital will be implemented gradually, so as to ensure the supply of electricity to the customers.

Currently, TAURON Group has a stable base of raw materials ensuring the supply for the conventional production assets and for the external consumers. The base in the form of fossil fuels is also a guarantee of stable electricity production in periods of intermittent or extreme weather conditions that have a negative impact on the security of the power system.

TAURON Group's natural capital includes renewable and non-renewable natural resources. Non-renewable resources deposits are exploited in a responsible, rational, regulated, systematic and sustainable manner.

The resources and raw materials used by TAURON Group are presented in tables no. 4 and 5.

Table no. 4. Non-renewable resources deposits exploited by TAURON Capital Group in 2020

	Number of deposits	Mineral	Number of coal mines	Total mining area	Recoverable reserves
				km2	ton m
8	Main mineral	hard coal	3	218.77	340.3*
1		limestone	1	1.34	68.2
1	Accompanying mineral	methane	1

* In case of both TAURON Wydobycie and Kopalnia Wapienia "Czatkowice", the resources have been determined on the basis of the status as of 31/12/2019, less production for 2020. The level of operable resources as of 31/12/2020 will be known in March this year. after the inventory taking of resources has been completed, which takes into account not only losses related to extraction, but also changes in the deposit resources due to more accurate resource data, losses and resource reclassifications made.

Table no. 5. GRI 301-1. Raw materials used by TAURON Capital Group in 2018, 2019 and 2020

TOTAL	2020	2019	2018
NON-RENEWABLE RESOURCES *
Net coal [tons]	4 888 015	6 082 657	7 271 605
Net coal production [tons]	4 541 216	3 784 980	Not reported
Sludge [tons]	249 980	315 247	311 511
Natural gas [m3 ]	12 067 032	8 220 614	8 413 515
Heating oil [tons]	26 324	26 575	30 642
Diesel oil [m3 ]	6 289	6 857	9 942
Limestone [tons]	197 288	252 865	316 793
Limestone production [tons]	1 722 376	1 717 980	1 561 433
RENEWABLE RESOURCES
Agro biomass [tons]	124 203	88 220	71 189
Forest biomass [tons]	553 537	332 592	238 742

* Includes the consumption and production by the Group's subsidiaries.

With respect to the basic raw materials used in the Group, the principle of proximity is applied, which reduces the carbon footprint associated with transportation.

The renewable natural resources used by the Group include:

• biomass,
• water used by 34 diversion (run-of-river) and impoundment hydroelectric power plants as well as in conventional power generation technological processes,
• wind powering 9 wind power plants,
• solar energy (the construction of a 5 MW photovoltaic power plant on TAURON Group's post-industrial land in Jaworzno was completed in 2020, the construction of photovoltaic farms with a total capacity of 6 MW in Choszczno is in the final stage. Both PV farm locations will be fully reported starting from 2021).

The climate changes observed, including the intensifying hydrological drought in recent years, have a direct impact upon the availability of the resources considered as renewable, such as water. Sustainable use of these resources is carried out in the energy industry, among others, based on the operational limits on the quantity of water taken directly from the environment (surface and groundwater intakes). The results achieved by TAURON Group as part of the above activities in 2020 are presented in Table no. 6.

Table no. 6. Maximum daily limits for direct water intake from the environment in force in 2020

Source	Maximum daily value m3/d
	Water from coal mines drainage	Underground	Surface water
	(incl. underground water to be used for coal	water
	mines' needs)
	137 348
TAURON Wydobycie	(11 330)
TAURON Wytwarzanie		14 376	555 667**
TAURON Ciepło			7 209,6
TAURON Dystrybucja		13
TAURON Ekoenergia		3.8
Kopalnia Wapienia Czatkowice		3.5	240

* The above table does not include the limits of the so-called reverse intakes of water for energy purposes in hydropower plants, or limits stemming from the civil law contracts concluded with external suppliers .

** The value includes the so-called reverse water intake in an open cooling system.

The tools supporting responsible management of the resources that constitute the natural capital of TAURON Group, going beyond the mandatory conditions of administrative decisions, include: TAURON Group's Environmental Policy and TAURON Group's Climate Policy. The policies comprehensively address all types of activities carried out within the Group, related to the impact on the environment and the use of its resources in accordance with the principles of sustainable development.

One of the Group's key expansion directions adopted is to seek to achieve the complete utilization of its waste, which in almost 100% is converted into products and can be used for commercial purposes. The achievement of this goal is implemented, among others, by minimizing the stream of waste generated thanks to product innovation, supply chain management and a conscious process of decommissioning some of the assets from service, as well as by promoting the use of waste generated during the product's life cycle and thus reducing the amount of waste deposited in the environment by placing it on the market for use as substitutes for natural materials.

The results achieved by TAURON Group in 2019-2020 as a result of the above actions are presented in Table no. 7.

Table no. 7. Results achieved by TAURON Capital Group in 2018, 2019 and 2020 as part of the management of natural capital

Results achieved:	2020	2019	2018
Direct greenhouse gas emissions – CO2 (tons)	10 093 648	12 215 945	16 604 240
Nitrogen oxides – NOX (tons)	7 491	10 709	16 105
Sulfur dioxide – SO2 (tons)	7 051	10 386	16 911
Total dust (tony)	435	636	1 001
Other (tons) (such as: HCl, HF, carbon monoxide, ammonia, methane, metals)	34 882	33 522	37 000
Total quantity of non-hazardous waste (including combustion waste and mineral extraction waste) (tons)	1 729 672	1 366 974	3 540 064
Dumpsite waste (tons)	8 958	5 539	4 639

2.1.3. TAURON Group's production capital

The carrying amount of all of TAURON Group's assets is more than PLN 35 billion. TAURON Group's assets are very diverse, which is due to both the characteristics of the individual segments, as well as the significant differences in the age of the individual machines and devices.

The development of the Group's operations is in line with the European and global trends, and the coming years will be a period of the generation segment's transition. The plan is to retire inefficient coal-fired units and develop new low and zero emission sources. It is assumed that by 2025 their share in the installed capacity will stand at around 30%, and in 2030 reach over 65%. Such actions will allow for reducing the emission of all pollutants by 2030, including CO² emissions by more than half. As of the end of 2020, almost all of 120 MW units were shut down, except for two at the Stalowa Wola Branch, whose shutdown date was postponed until February 2021 (970 MW in total). Further units with a total capacity of 2.5 GW, mainly the 200 MW units, will be decommissioned in the years 2026-2030, while at the same time the development of low and zero-emission generation sources will be continued. Two high-efficiency conventional units were commissioned in 2020: a 910 MW coal-fired unit in Jaworzno and a 450 MW CCGT unit in Stalowa Wola. These units have contracts in place as part of the Capacity Market and in the coming years they will play an important role in the functioning of the National Power System. Additionally, the construction of a 5 MW photovoltaic power plant on TAURON Group's post-industrial land in Jaworzno was completed in 2020, and the construction of photovoltaic farms with a total capacity of 6 MW in Choszczno is in the final stage

The largest contribution to TAURON Group's financial result is made by the Distribution Line of Business, in which the largest capital expenditures are also incurred - the region of PLN 2 billion per annum. The changing environment, in particular the development of renewable energy sources, also of the prosumer type, has a large impact on the need to upgrade and expand, as well as adapt the existing grid infrastructure. In addition, the growing expectations of customers and the approach of the Energy Regulatory Office have an impact on the need to improve the quality and reliability of electricity supply. In view of the above, TAURON Dystrybucja in implementing a cable grid construction program, increasing the share of cable lines in the distribution grid and thus improving the quality indicators, security of electricity supply and resistance against weather conditions, including the ever more frequently occurring sudden (freakish) weather conditions associated with climate change.

In 2020, the largest capital expenditures in the Generation line of business were incurred to finalize the construction of a 910 MW power generating unit in Jaworzno and to adapt the generating units to the new environmental standards.

The key data on TAURON Group's production capital in 2018-2020 is presented in Table no. 8.

Table no. 8. Key data on TAURON Group's production capital in 2018-2020

Key data on the capital	2020*	2019	2018
Hard coal extracting coal mines	3	3	3
Hard coal fired power plants (quantity)	6	5	5
Hard coal fired power plants (installed capacity)	5.2 GWe; 1,3 GWt	4.3 GWe; 1.35 GWt	4.3 GWe; 1.2 GWt
Combined heat and power plants (quantity)	4	4	4
Combined heat and power plants (installed capacity)	0.35 GWe; 1.2 GWt	0.35 GWe; 1.2 GWt	0.35 GWe; 1.2 GWt
Proprietary district heating networks - TAURON Ciepło (length)	888 km	857 km	844 km
Heat supply	11.6 PJ	12.0 PJ	12.4 PJ
Hydroelectric power plants (quantity)	34	34	34
Hydroelectric power plants (installed capacity)	133 MW	133 MW	133 MW
Wind power plants (quantity)	9	9	4
Wind power plants (installed capacity)	381 MW	381 MW	201 MW
Electricity distribution lines (length)	241 600 km	237 000 km	235 000 km
Transformers (distribution)	60 900	58 900	58 800
MV/LV stations	59 100	60 900	59 800
HV/MV stations HV/MV	493	491	490
Capital expenditures (PLN billion)	4 039	4 128	3 838
Depreciation (PLN billion)	1 954	1 992	1 839

* As of 31.12.2020

TAURON Group's management of the production capital is performed, first and foremost, through efficient operations, as well as growth and modernization investments, among others:

• connecting new consumers (and producers) to the distribution grid, expanding and upgrading the grid in order to improve the quality and reliability of the power supply for electricity consumers;
• new capacity in renewable technologies and improving the productivity of the existing assets;
• new modern generation capacity, key for energy security;
• adapting the generating units to the operational conditions in force beyond 2021, resulting from the introduction of the BAT conclusions
• expanding and upgrading the district heating network;
• investments aimed at improving the efficiency of coal mining.

The results achieved in 2018-2020 as part of TAURON Group's management of production capital is presented in Table no. 9.

Table no. 9. GRI 301-1, EU2. Results achieved by TAURON Capital Group in 2018-2020 as part of TAURON Group's management of production capital

Results achieved	2020	2019	2018
Commercial coal production by segment groups: coal dust, medium size lump coal, large size lump coal, eco-pea coal	4.54 million Mg	3.78 million Mg	5.01 million Mg
Net electricity production	11.4 TWh	12.7 TWh	14.9 TWh
including electricity production from RES	2.0 TWh	1.4 TWh	0.97 TWh
Heat distribution	8.44 PJ	8.51 PJ	8. 78 PJ
Heat generated	11.63 PJ	10.85 PJ	11.29 PJ
Electricity distribution	50.26 TWh	51.73 TWh	51.97 TWh

2.1.4. TAURON Group's human capital

Human capital of TAURON Group includes employees: their knowledge, experience, skills, attitudes and motivation. The future of the Group will depend on many factors, but the employees will have the greatest impact thereupon.

The range of the Group's business operations, both in terms of geography as well as competence areas, employing more than 25 500 employees, has a significant impact upon the complexity of the human capital management process. Depending on the employee's workplace in the Group's value chain, human capital management and organization of personnel policy are adapted accordingly in terms of training and development, improvement of information flow, career development opportunities and ensuring competitive working conditions. Employee satisfaction surveys are conducted periodically and their results are the basis for developing and implementing action plans that aim to increase engagement and create an attractive workplace. It is also extremely important to maintain standards with respect to compliance with the principles of ethics, respect for diversity and counteracting mobbing and discrimination at all of TAURON Group's subsidiaries.

All activities for employees are also important due to projected demographic changes and a falling number of professionally active people. Creating jobs, TAURON Group strives to attract the best employees. In order to achieve that goal patronage classes are created with an offer tailored to the future HR needs of the Group's subsidiaries. A number of initiatives are also undertaken that strengthen the image of TAURON Capital Group as a good and desired employer.

The key data on TAURON Group's human capital is presented in Table no. 10.

Table no. 10. Key data on TAURON Group's human capital in 2019-2020

Key data	2020	2019	2018
Number of employees (in persons as of 31.12)	25 572	26 086	25 829
Share of women among the workforce	21.5%	21.4%	21.5%
Share of men among the workforce	78.5%	78.6%	78.5%
Share of college graduates among the workforce	34.8%	33.8%	33.2%
Share of high school graduates among the workforce	43.5%	43.3%	43.1%
Share of vocational and elementary school graduates among the workforce	21.7%	22.9%	23.7%

Rotation rate	6.67%	6.51%	6.45%

TAURON Capital Group's human capital management is performed, first and foremost, through:

• management of employee competences in accordance with TAURON Group's Competence Model,
• career development conversations as a tool supporting the process of Management by Objectives, with the main assumption aimed at developing employee competences through dialogue between the superior and the employee,
• periodic surveys of TAURON Group's employees satisfaction level, the results of which are the starting point for undertaking initiatives aimed at improving job satisfaction and comfort, and thus increasing business efficiency,
• actions aimed at eliminating the risk of a generation gap through active cooperation with the schools,
• implementation of a project under the Knowledge, Education, Development Operational Program (PO WER) entitled: Developing a model of vocational and practical training program in the power sector, and TAURON Group's actively joining the strategy for responsible development in the field of dual education,
• active involvement in shaping academic education paths,
• cooperation with numerous educational institutions and adapting the offering of apprenticeships and internships by the Group's subsidiaries,
• supporting the idea of sharing knowledge and competences through the implementation of such programs as the Internal Coaches or Development Squared,
• activities aimed at developing employees' awareness of cybersecurity in the context of remote work,
• promoting a culture of learning and knowledge sharing through proprietary and innovative development and training programs,
• development of leadership competences through dedicated development programs and post-graduate studies,
• access to the latest expert knowledge and current market trends in various areas of life as part of periodic lectures by TAURON Group Open University,
• Talent Management program, with the goal to support the employee development process and the utilization of the personnel's potential within TAURON Group,
• active use of the e-learning platform to implement training aimed at developing industry knowledge and interpersonal skills,
• taking care of employees' well-being, by undertaking a series of actions promoting a healthy and active lifestyle and making work time more flexible,
• programs for young parents and women returning to work after having a child,
• workshops for employees at pre-retirement age,
• improving efficiency by optimizing the utilization of competences within the Group,
• ensuring the competitiveness of remuneration systems by implementing transparent, motivational (incentive-based) and market-based rules,
• employee benefit packages taking into account the needs of the personnel,
• increasing work efficiency by introducing digital solutions.

Through active management of human capital TAURON Group achieved in 2020-2020 the results presented in Table no. 11.

Table no. 11. Results achieved by TAURON Capital Group in 2018-2020 as part of TAURON Group's management of human capital

Results achieved	2020	2019	2018
Number of training course hours	295 000	478 000	449 000
Number of the participants of TAURON Group Open University (in 2020 the number of Tauronet views)	7 000	2 700	785
Number of training courses conducted by Internal Coaches	84	167	215
Number of Internal Coaches	86	83	76
Number of persons trained by Internal Coaches	1 100	1 800	2 100

263	655	748
53	47	44
1 000	1 300	no data
950	no data	no data

2.1.5. TAURON Group's intellectual capital

Using its business experience and employees' competences TAURON Group is developing to meet the challenges of the future energy sector. The key to maintaining competitiveness is modern management, the use of new technologies, digitization, corporate governance and relationships with the stakeholders, with all these elements jointly forming a compatible and consistent system that allows to efficiently conduct operations at every link in the value chain. Fast changing environment also implies the need to focus on innovation as well as research and development activities.

The potential of intellectual capital covers workforce capital, internal structural capital and external structural capital. It is worth emphasizing that the main component of TAURON Group's intellectual capital is the employees' knowledge and their aggregate competences. Internal structural capital is another important component of intellectual capital. This capital includes technologies, methods and processes that enable the Group to function. Furthermore, research, development and innovation activities are carried out as part of internal projects and including the participation of business partners and the academic community. The last component, external structural capital, is related to intangible market factors. This capital includes the company's brand and reputation, the network of associates and relations with the stakeholders, with a particular emphasis on relationships with suppliers and customers. TAURON Group strives to deepen cooperation with the suppliers of technology and knowhow, represented both by large industrial conglomerates, as well as by small companies - mainly startups.

Effective intellectual capital management provides a chance to increase adaptive flexibility and carry out transformational activities aligned to changes in the market environment. TAURON Group adopted the Intellectual Property Policy in 2019, which was a set of rules and standards of conduct with respect to intellectual property management and a description of good practices that are expected from counterparties (contractors) and associates, as well as TAURON Group's Regulations of Intellectual Property Management that constitutes internal corporate documentation, superior in relation to the individual processes associated with intellectual property management.

As a result of the adopted documentation, processes related to employee originated technical improvement ideas as well as filing utility models, industrial designs and patents were regulated and implemented.

In 2020 TAURON Wytwarzanie obtained 5 patents (including one jointly with Kopalnia Wapienia "Czatkowice"), and TAURON Dystrybucja obtained a protection right for a utility model. The said solutions are the result of research and development works carried out within the Group and provide the exclusive use of the given solution for commercial or professional purposes on the territory of Poland.

Intangible and legal value, being an important aspect of the enterprise value, translates into building its competitive advantage. TAURON Group, apart from the formal regulation of the said scope of matters, also attaches importance to promoting the idea of employee originated technical improvements among employees, communicates and provides information related to intellectual property rights through contests, webinars and press articles.

The key data on TAURON Group's intellectual capital in 2018-2020 is presented in Table no. 12.

Table no. 12. Key data on TAURON Group's intellectual capital in 2018-2020

Key data on capital – main components of TAURON Group's intellectual capital

• The Group's strategy focused on creating innovations;
• Strategic Research Agenda a road map for the Group's research and development as well as innovative activities;
• Knowledge and competences of the Group's employees;
• Catalogue of best practices related to the implemented management systems and internal procedures;
• A developed model of cooperation with universities and vocational schools.

TAURON Group's management of the intellectual capital is performed, first and foremost, through:

• implementation of projects with respect to research, development and innovations in the following portfolios: the customer and his/her needs, intelligent grid services, distributed energy, low-emission production technologies,
• use of dedicated NCBiR programs, Horizon 2020, KIC InnoEnergy, the Research Fund for Coal and Steel RFCS
• cooperation with start-ups: accelerator programs (Pilot Maker Elektro ScaleUp, KPT ScaleUp, TAURON PROGRES), CVC EEC Magenta,
• TAURON's participation in the Govtech Program,
• cooperation with the Electric Power Research Institute (EPRI),
• development of the platform called Innovation Zone,
• workshops with the representatives of universities and research institutes,
• cooperation with the leading universities, research units and technology companies from Poland and the EU,
• organization of competitions for the Group's employees aimed at supporting innovation,
• development of IT systems, digitization and robotic automation of selected processes.

The results achieved as part of TAURON Group's management of intellectual capital in 2018-2020 is presented in Table no. 13.

Table no. 13. Results achieved as part of TAURON Group's management of intellectual capital in 2018-2020

Results achieved	2020	2019	2018
The number of new research and development projects launched in all of the Group's lines of business	10 (including 8 projects conducted in cooperation with start-ups)	18 (including 9 projects conducted in cooperation with start-ups)	16
Number of projects underway in the R&D Area	52	67	57
Total value of projects underway	PLN 109 million	PLN 178 million	PLN 261 million
Co-financing obtained from external sources for the implementation of the R&D projects	PLN 42 million	PLN 48 million	PLN 45 million

In 2018, a Corporate Venture Capital (CVC) type fund - EEC Magenta, was established jointly with the Polish Ventures Development Fund, the National Center for Research and Development and EEC Ventures.

In 2019, EEC Magenta's first investment projects were carried out – a PLN 13 million investment in the company Reliability Solutions (RS), specializing in predicting and minimizing the effects of failures. This is the fund's first investment project. Continuing to build the strategic position of TAURON Capital Group with respect to startups, EEC Magenta carried out further investments in 2020, expanding its investment portfolio and currently it has 6 innovative startups therein.

The cooperation with several startups was continued, as part of the ScaleUp acceleration programs, in 2019. TAURON became involved in the government acceleration program dedicated to electromobility (Elektro ScaleUp). As a result of its implementation, 6 pilots were carried out with the involvement of 5 of TAURON Group's subsidiaries.

In 2020, TAURON continued working on projects with startups also as part of the KPT ScaleUp program, which in the second round of recruitment provided 6 innovative solutions, including Nanobots (a platform for collecting and standardizing data from IoT devices (sensors located in urban space) using various protocols, analyzing the collected data using artificial intelligence or machine learning, and sharing data in real time).

As part of the TAURON PROGRES proprietary acceleration program launched in 2019, two pilot projects were implemented in 2020, including one with respect to digitization of service processes.

In 2018, the cooperation with the EPRI Institute (USA) was established.

In 2019 and 2020, as part of the cooperation with EPRI, TAURON participated in two research programs: with respect to energy storage and identifying the needs of electricity consumers.

Patents, inventions, know-how developed as part of R&D projects, increasing the potential to improve the Group's financial result in the coming years - 13 inventions with patent protection in place and another 7 being under registration.

TAURON brand's strong market position and recognition.

Modern IT systems supporting the core operations and customer service.

Licenses for the core operations: coal mining, electricity and heat production, distribution and trading.

2.1.6. TAURON Group's social capital

TAURON Group's social capital is based on developing mutual relations both within the organization as well as towards the external environment (stakeholders). The foundation for developing such relationships is TAURON Group's Strategy, and the main principles are described in TAURON Group's Corporate Social Responsibility Code of Conduct (more on that topic in sub-chapter 2.3.3. of the Report).

Social dialogue, that is related to both the existing production assets as well as the implementation of new investment projects, plays an important role in developing social capital. TAURON Group is conducting a good neighbor policy, under which it aims to improve the living conditions of local communities and cooperates with local government authorities. The Group is also involved in a number of undertakings for the benefit of the stakeholders, such as charity and education activities, cooperation with academic centers, employee volunteering and providing support for many important sports and cultural events.

The Group's involvement in climate protection and counteracting climate change is playing an increasingly important role in the development of social capital. The response to social challenges in this respect is TAURON Group's Climate Policy and TAURON Group's Environmental Policy adopted to be implemented (more on that topic in subchapters 4.3 and 4,4 of the Report). at the end of 2019.

An important element shaping the social capital of TAURON Group in the coronavirus era were activities aimed at developing the safety culture - understood as the continuous engraining of knowledge, shaping attitudes and teaching how to behave in practice in a given situation. The Group was involved in a number of educational campaigns addressed to both employees as well as local communities. In 2020, there were also projects aimed at minimizing the social effects of the coronavirus pandemic and supporting the fight against it.

The key data on TAURON Group's social capital is presented in Table no. 14.

Table no. 14. Key data on TAURON Capital Group's social capital in 2020

Key data
	TAURON Group's Corporate Social Responsibility Code of Conduct
	Developing ethical culture and compliance management among employees
	Building lasting relationships and active dialogue with the stakeholders
	Cooperation with responsible suppliers in accordance with the principles of the Code of Conduct for Contractors

• Implemented and applied: TAURON Group's Diversity Policy and Respect for Human Rights Policy
• Continuous promotion of an occupational safety culture

(Counterparties) of TAURON Group's Subsidiaries

• Engaging employees in the company's development through special events
• Personnel education and development
• Implemented and applied TAURON Group's PROCustomer Social Policy
• Implemented and applied Personal Data Protection Policy for TAURON Group's entities
• Support for local initiatives through TAURON Foundation
• Initiatives related to counteracting COVID-19

TAURON Group's management of return on the capital is performed, first and foremost, through:

• promoting the compliance culture, which in combination with TAURON Group's Competence Model, motivates employees to achieve business goals in accordance with the law, internal and intra-corporate regulations, and ethics,
• shaping the work environment based on respect, openness, integrity and justice, and respect for human work through the implementation and application of specific principles of conduct (including, inter alia, Diversity Policy, TAURON Group's Policy of compliance with the Principles of Ethics and counteracting Mobbing and Discrimination, Policy of Respect for Human Rights),
• developing a Work Health and Safety (WHS) culture at all of TAURON Group's subsidiaries
• developing the Purchasing Organization Support System called TAURON Group's Purchasing Platform,
• active cooperation with trade unions,
• Social Dialogue Ombudsman's activities,
• developing procedures for the protection of personal data,
• activities seeking to achieve total transparency of the practices applied in relations with customers implemented as part of PROCustomer Social Policy;
• undertaking initiatives aimed at combating the spread of the COVID-19 pandemic.

The results achieved as part of TAURON Capital Group's management of social capital in 2018-2020 are presented in the below table.

	Table no. 15. Results achieved as part of TAURON Capital Group's management of social capital in 2018-2020

Results achieved	2020	2019	2018
Number of meetings with trade union organizations functioning at the Group's subsidiaries	334	329	249
Percentage of employees covered by collective bargaining agreements	95.6 %	95.7%	93.9%
Occupational accident frequency rate	8.3	7.8	7.7
New key and consolidated categories, in which particular importance is attached to financial optimization of the purchasing	As part of the business operations conducted, as required	As part of the business operations conducted, as required	As part of the business operations conducted, as required
Regular meetings with local communities to provide information on the business operations conducted and its impact on the residents	As part of the business operations conducted	As part of the business operations conducted	As part of the business operations conducted
Number of local and pro-social initiatives that TAURON Foundation has joined	144	158	147
Number of corporate social responsibility projects implemented	18	11	9
Number of cases of non-compliance and complaints regarding products and services of TAURON Capital Group with respect to providing information	0	0
Number of COVID-19 counteracting initiatives implemented for employees and communities	11	-	-

2.1.7. Value creation model and relations among capitals

Capitals as well as their mutual relations are constantly changing due to a number of factors, including. among others, changes in the market and regulatory environment. The implementation of the actions envisaged in the strategy allows for a sustainable transition of the Group and increases the investment potential for the development of renewable energy sources. The effects of such activities are and will be visible in all capitals. The transition towards the zero and low emissions will also have an impact on each segment of the Group's operations.

Financial capital is the basis for the efficient use and development of TAURON Group's other capitals, the production capital in particular, it supports the development of intellectual capital and human capital and improves the efficiency of the use of natural capital. Through the implementation of investment projects, TAURON Group is constantly increasing the potential of its production capital. The development of this capital is carried out using the best available technologies and reduces the impact of the Group's business operations on climate and environment.

The use of modern technological and technical solutions improves and develops new competences in the intellectual capital, which also contributes to the development of the human capital, improves the use of the production capital and strengthens TAURON Group's competitive position. The Group's business operations, primarily coal mining as well as electricity and heat production using conventional sources, consume natural resources. The overall business operations of TAURON Group, the provision of safe and stable electricity and heat supplies for its customers, continuously develops relations with the external environment (stakeholders), including the social stakeholders, which leads to an increase of the Group's value.

The relationships among the capitals as well as the value creation model at TAURON Capital Group in 2020 is presented in Figure no. 4.

Figure no. 4. Value creation model and relationships among capitals at TAURON Capital Group in 2020

2.2. TAURON Group's value levers (drivers)

TAURON Group's Strategy for 2016-2025 currently in place and the Update of Strategic Directions, defined as the Green Turn of TAURON, adopted in May 2019, takes into account changes in the market and regulatory environment in order to use the resources available in the optimum manner. The activities implemented as part of TAURON Group's Strategy focus on building lasting relationships with the consumers of the products and services and they constitute the basis for the Group's growth, treating customer-centricity as one of the most important value levers.

TAURON Capital Group is operating in all key areas of the energy market, and therefore it is managing each successive element of the energy chain: starting from extraction and acquisition of the thermal fuel, through generation, trading and distribution of electricity and heat, up to the supply thereof to the final consumers. Modern infrastructure is a significant lever of value in order to ensure stable electricity supply at a competitive price, meet stringent environmental standards and reduce the negative impact on the climate. TAURON Group's value chain has also been extended to include the innovation ecosystem, thanks to which one of TAURON Group's value levers include new businesses that are developed at the interface between innovation and key business segments.

As part of the Green Turn of TAURON the Group attaches great importance to investments in renewable energy sources and to replacing exhausted conventional sources with modern solutions. In this respect, significant value levers include natural capital as well as the investment and restructuring potential, which, on one hand, allow for achieving the greatest possible independence from external suppliers, and, on the other hand, provide the potential to respond to changes and adapt thereto.

In order to achieve the goals outlined in TAURON Group's Strategy in the best possible way and to follow the Green Turn of TAURON, it is also necessary to develop competences and strengthen the commitment of the workforce. Organizational culture and employees are therefore an important value lever. Organizational culture and employees enable implementing current as well as future business goals that will constitute a source of competitive advantage.

Analyzing its value levers, the Group is highlighting the market and regulatory changes, progressing climate changes, and is analyzing and implementing preventive measures that would allow for continuing its business operations in the long run. It is assumed that the transition of TAURON's value levers will be taking place in an evolutionary manner, through the implementation of the Group's Strategy.

2.2.1. Customer-centricity

According to TAURON Group's Strategy and the Update of Strategic Directions, defined as the Green Turn of TAURON, the customer is always at the center of attention. In all of its activities TAURON focuses on developing lasting relationships with the consumer of its products and services, and the strengthening of the customer relations is the basis for the Group's assumed growth. The number of customers - both those who are connected to the distribution grid, as well as those who have chosen the products and services offered by TAURON Group - continues to grow.

In the short and medium term, TAURON Group's priority is to improve its products and services in response to customer needs, also by shaping the offering in accordance with the sustainable development principles. Over the past year, there has been a significant acceleration in the construction of individual, prosumer photovoltaic installations. This is a trend which, in the opinion of TAURON Group, will be continued and should result in expanding the scope of cooperation with the customers. In this aspect, the Group is becoming a partner and the supplier-consumer relationship will evolve towards services sharing.

The next goal is to simplify and optimize the communications processes between the customer and TAURON Group, as well as to continuously improve electronic communications channels. TAURON Group wants to continue activities aimed at improving the quality of the services provided, and an example of this is the launched online platform for the exchange of information with the customer called the Opinion Zone, which is promoting the slogan: "Your voice has power! We will hear. We will improve". This platform enables conducting systematic and extensive research, which is the starting point for introducing improvements in customer service and developing useful products and services.

TAURON Group is offering customers modern products and services to meet the customized expectations of selected groups. For this reason, an innovation ecosystem has been created, which, apart from issues related to continuous improvement of technology and reduction of negative impact on the environment, is equally focused on the tailoring the offering to the needs of the current and future customers in the best possible manner. It is assumed that electricity cost increases are likely to translate into increased interest in the activities aimed at improving energy efficiency, which will amplify the demand for products and services related to the improvement of energy efficiency, This will allow TAURON Group to enrich the range of products and services offered. The improvement of energy efficiency will result, in addition to the financial aspects, also from the growing public awareness of the need to reduce the negative impact on the climate.

In the long run, TAURON Group's priorities with respect to customer centricity will remain unchanged, and the issues related to providing high quality products and services as well as an easy, interactive communications platform will be key to achieving success on the market. The tools of mutual communications will be subject to change, shifting towards an increasing role of interactivity, shortening of the processes and increasing the transparency. It is assumed that a further development of individual power generation installations and the expected digitization of the metering (smart metering) will increase competition on the energy and energy related services market, while deepening TAURON Group's partnership relations with customers.

The topic of customer-centricity is discussed in detail in section 4.1 TAURON Group's PRO Customer Social Policy.

2.2.2. New businesses

In the current model, electricity is produced centrally and distributed to meet the demand of the final consumers. However, this model is undergoing some changes as a result of the growing importance of the prosumer market, the development of renewable energy sources, the evolution of artificial intelligence and the Internet of Things. TAURON Group's new businesses focus on various areas of activity (e.g. e-mobility program, Internet program, energy efficiency, distributed cogeneration, energy storage, smart home, smart city). To this end, in the short term, TAURON Group, using its competences, human, technical and organizational resources as well as customer relations, is conducting extensive research and development as well as innovative activities to pave the way to new revenues.

TAURON Group's new businesses are associated both with the research and development ecosystem, but also with the mergers and acquisitions process. Such an approach not only allows for developing proprietary ideas, but also for taking advantage of the experience of external entities. Income based on the traditional power sector model has limited growth potential, therefore it is necessary to develop new activities.

In the medium and longer run, it is assumed that changes to the operating model of the energy industry will take place as it will be extending its offering by adding new products and services, reducing the share of the traditional product, which is the production of electricity from conventional sources. Technologies related to the use of green hydrogen for electricity storage are raising high hopes. The new businesses and innovations will prepare TAURON Group for the market challenges.

It is assumed that the share of income from the new businesses will not be of key importance for many years to come, due to the very high value of the core operations related to the fuel-energy-distribution chain, but this value will be gradually rising. TAURON Group's aspiration is for new businesses to bring the Group maximum possible benefits arising from the already appearing and coming changes.

2.2.3. Modern infrastructure

The development of modern infrastructure is extremely important due to the increasing decarbonization and the EU energy and climate policy, the increase in the prices of the CO2 emission allowances, the progressing process of reducing the financing of the coal investments or changes in the behavior of individual and business customers. As part of the Green Turn of TAURON, the Group's assets are being optimized by potentially making the portfolio of the mining and heating assets more flexible or by shutting down all old coal-fired units (keeping only modern conventional units: Łagisza 460 MW and Jaworzno 910 MW). In 2020, TAURON Group, despite the coronavirus pandemic, completed major investments, such as the construction of a 910 MW unit in Jaworzno and a 450 MW CCGT unit in Stalowa Wola. The resulting infrastructure uses the latest electricity production technology and environment protection installations, allowing it to meet the most stringent standards.

TAURON Group is also continuing an expansion and modernization of its electricity distribution grid. Thanks to the modern infrastructure, TAURON will provide reliable electricity supply and ability to connect distributed energy sources.

In accordance with the Update of the Strategic Directions that assumes an increase in the share of the low- and zero-emission sources in TAURON Group's generation mix to more than 65% in 2030, TAURON Group's subsidiaries are steadfastly developing projects related to new RES capacities. In 2020, TAURON Group completed the construction of a 5 MW photovoltaic farm on the post-industrial land of the decommissioned coal-fired power plant in Jaworzno. In accordance with the assumptions of the Green Turn of TAURON, by 2025 the Group is planning to have approx. 300 MW in photovoltaic farms and approx. 1100 MW in onshore wind energy. Moreover, TAURON Group's ambition is to use offshore wind, which is a large and inexhaustible resource of clean energy, however, any involvement in this type of infrastructure will depend on public support for such projects and the Group's financial capabilities.

2.2.4. Ability to access and use the natural capital

All aspects of TAURON Group's operations take into account the impact on the local environment, as well as the quality and price of the products and services that it is offering to the customers. TAURON Group's customers are also the beneficiaries of the Group's efforts related to protecting the quality of the natural environment and the way its resources are managed. The Group's great assets include its natural resources that constitute a part of the natural capital that it uses to provide customers with its products and services. Water, land and air are resources that are impacted by TAURON Group's business operations. With these resources in mind every effort is made to reduce this impact. TAURON Group strives to convert 100% of its combustion and mining waste into products.

TAURON Group's coal mining assets play an important role in the value chain. They are its first link, and thanks to the investment projects underway, they are to guarantee the supply of suitable quality coal to TAURON Group's generating units. Currently, the Group is taking steps to transition its energy mix, which is associated with the reduction of the share of conventional energy based on coal in favor of the development of renewable energy sources.

Beside the important role of coal, water is an important natural resource for TAURON Group, as it is, among others, widely used in the electricity production processes. By using closed cooling water circuits at TAURON Group's power plants, the consumption of this resource is limited to the necessary minimum. TAURON Group has also taken steps to recover this resource through mine drainage processes and reuse the water recovered from the mines in its technological processes.

In addition to the conventional coal-fired generating units, TAURON Group also uses dropping water's energy and wind energy to produce electricity. TAURON Group is operating 34 hydroelectric power plants located in the south of Poland and 9 wind farms, located mainly in the northern part of the country.

Solar radiation is also an important natural resource. TAURON PV program is being implemented at TAURON Group, under which further installations will be built, among others on land that has been rehabilitated or requires rehabilitation as a result of long-term industrial activity (mainly at the sites of former power plants or furnace waste landfills).

TAURON Group also has a limestone mine in its asset portfolio, where it acquires, among others, sorbent for flue gas desulphurization at conventional power plants. The raw material obtained is also widely used outside the energy sector - it is used in agriculture, steel making, construction, lime, cement, sugar and road building industries.

In the long term, the impact of TAURON Group's business operations on natural resources will be declining, both due to the need to meet the expected tightening of the environmental standards and climate policy, investments in new, low- and zero-emission energy sources, and due to the permanent shutdown of inefficient conventional units.

2.2.5. Investment and restructuring potential

The Group allocates around PLN 3-4 billion per annum for capital expenditures, most of which are investments in the distribution grids. The detailed data on capital expenditures is presented in section 2.1.1 TAURON Group's financial capital.

In 2020, investments in new generation units were completed: the CCGT unit in Stalowa Wola with a capacity of 450 MW and a 910 MW unit in Jaworzno. As part of the Update of the Strategic Directions, new shutdown schedules for 120 MW and 200 MW units were developed and adopted. As of the end of 2020, all 120 MW units were shut down, except for two units at the Stalowa Wola Branch, whose shutdown date was postponed to February 1, 2021 (970 MW in total). Further units with a total capacity of 2.5 GW will be decommissioned, in the years 2026-2030, mainly the 200 MW units,. At the same time, involvement in the development of offshore wind farms is assumed. Apart from investment projects, TAURON Group is also implementing initiatives aimed at optimizing the Group's costs.

Both in the short and medium as well as long term, TAURON Group is planning to increase its capital expenditures related to a change of its energy mix. Successive tightening of the environmental and pro-climatic requirements, combined with the obsolete generation fleet, provides room for the construction of new generating units in renewable and low-emission technologies, as well as for significant changes to the distribution grids, including the ones related to the development of distributed (dispersed) power generation. TAURON Group will be performing its activities in this respect in accordance with the definition of environmentally sustainable investments, based on the provisions of the European Green Deal.

2.2.6. Personnel and organizational culture

TAURON Group's human resources management model allows for efficient and appropriate use of employees' knowledge and skills. TAURON strives to be a responsible employer and one that is creating an organizational culture that takes into account the expectations of various social groups in the creation and implementation of the business strategy. The TAURON Group's business model is based on three key values: Partnership, Development and Boldness (PRO values), on which the organizational culture has been based.

The defined values of TAURON Group are a recommendation of attitudes and rules of behavior when performing everyday work. Values constitute the basis of the organizational culture and are guideposts on the path to the implementation of the Group's Strategy, as well as in relations with colleagues, customers, partners and the environment (stakeholders). For this reason, one of the Group's priorities is to care for safety and increase the professional potential of the workforce, as well as support the employees in developing career paths. TAURON Group has been recognized by the Polish Association of Human Resources Management and received the Highest HR Quality Certificate. This certificate is awarded to companies that apply the best practices and tools for human capital management.

Generational changes visible on the macro scale have also affected the energy industry. The young generation expects not only stable earnings from the place of employment, but also development opportunities in a modern organization. The generational gap is becoming more and more apparent today and steps are being taken to provide the best possible staff for TAURON Group's subsidiaries in the medium and long term. Due to the workforce age and the need to provide appropriate staff in the medium and long term, a number of activities aimed at acquiring suitable, qualified employees in the future are already carried out, which is taking place, for example, through cooperation with schools and launching of classes under patronage.

Value lever (driver) prospects

Some of TAURON Group's value levers are particularly important in the near term, while others will become more and more important as changes expected in the environment materialize and new challenges appear. Regardless, all value levers are complementary and make up TAURON Capital Group's entire business operations. They complement one another and shape the Group's presence and future. We have no doubt, however, that both today as well as in the near and more distant future, TAURON's most important asset will be the customers. Over time, through changes to the energy model, it is assumed that customers will also become partners and, as prosumers, will use natural resources and shape the image of the future power sector.

In the long run, the key capitals, in addition to the social capital of the customer relations - on which TAURON Group will focus, will be the intellectual capital and the natural capital. The ability to offer innovative solutions, ensuring the development of young employees and respect for the environment, including climate, are the most important success factors that will determine TAURON Group's growth in the future.

The prospects of value levers as well as the significance and impact of the individual elements on TAURON Capital Group is presented in Figure no. 5.

VALUE LEVER (DRIVER)	VALUE LEVER IMPACT/MATERIALITY
	Short term outlook	Medum term outlook	Long term outlook
Customer centricity	(	<	<
New businesses	>	<	<
Modern infrastructure	<	<	<
Access to natural resources	<	>	>
Investment and restructuring potential	<	>	<
Employees and organizational culture	<	<	<

Figure no. 5. Prospects of value levers as well as the significance and impact of the individual elements on TAURON Capital Group

2.3. TAURON Capital Group's values

2.3.1. Mission, vision

Mission

We deliver state-of-the art solutions with passion and commitment to produce energy in a constantly changing world.

Vision

We are the company that responds best to customer needs in the Polish power sector.

The mission and vision of TAURON Capital Group are derived directly from the profile of its operations the basis of which is the efficient functioning in order to ensure security of energy supply for Poland's residents and companies operating in Poland. In the era of intense changes in the market environment, progressing digitization, social mobility and the negative impact of human activities on the environment and climate, there is a visible change customer expectations. They are becoming more and more active and aware of the quality of services provided, and expect a broad and comprehensive offering as well as modern customer service channels, while the highest standards of environmental protection are maintained and the climate impact is minimized.

Providing modern solutions in a constantly changing world and stable conditions for the development of the offering in line with customer expectations has become not only the basis for creating TAURON Capital Group's strategic directions, but also an expression of our social responsibility, including with respect to the environment and climate.

2.3.2. Corporate values

TAURON Capital Group's corporate values are a signpost on the road to the implementation of the assumptions of the Strategy, as well as in relations with employees, customers, business partners and the other stakeholders.

Values are also symbols and determinants of the Group's organizational culture. It is important for us not only what we are doing, but also the way in which we are achieving the set goals together.

TAURON Capital Group's values are described by the acronym PRO (Partnerstwo (Partnership), Rozwój (Development), Odwaga (Boldness):

PARTNERSHIP

• We are partners for customers and each other in achieving shared goals.
• We are building lasting relationships based on trust and mutual respect.
• We are getting involved in what is important to our customers and the Group.

DEVELOPMENT

• We are innovative we break down barriers, set trends and create change.
• We are constantly developing competences, skills and knowledge.
• We are looking for better and better solutions we meet the current and future needs of customers, continuously improving the quality of our services.

BOLDNESS

• We talk boldly and openly about problems and the most daring ideas.
• We are determined to implement what we believe in, to achieve shared goals.
• We face the challenges of a changing environment with commitment and passion.

2.3.3. Corporate Social Responsibility Code of Conduct

Since 2017 TAURON Capital Group has been applying the principles of the Corporate Social Responsibility Code of Conduct (hereinafter the Code) - a key document on TAURON Capital Group's ethical culture. This set of principles and values, which is an impulse to create our own organizational culture, serves us as the foundation for the functioning of the organization and the implementation of strategic goals.

The document was based on the mission, vision and corporate values of TAURON Capital Group.

The Code defines the most important values and principles of conduct that should be followed by employees and stakeholders of the Group in the areas related to:

• workplace,
• natural environment,
• stakeholders.

It also describes the Fraud Reporting System in place at TAURON Capital Group.

The adoption of the Code by the Management Board of TAURON Polska Energia on April 4, 2017, was related to the Compliance Management System being developed by the Group. Since then, we have been constantly improving the culture of compliance, understood as a set of specific principles of conduct in compliance with the law, internal and intra-corporate regulations, and ethical standards, which, combined with our values, support the achievement of business goals.

Each employee of TAURON Group - regardless of the type of employment contract, seniority, position or function performed - is obliged to comply with the provisions of TAURON Group's Corporate Social Responsibility Code of Conduct.

Due diligence procedures

Due diligence procedures in place under the Corporate Social Responsibility Code of Conduct include a compliance management reporting system, as well as rules related to counteracting conflict of interest and other irregularities (deficiencies).

After the end of every quarter the Compliance Officer (Power of Attorney) prepares a written report for the Audit Committee with respect to the tasks completed, and after the end of each half-year, he/she draws up a written report for the Supervisory Board of TAURON Polska Energia S.A. with respect to the tasks completed.

In addition, after the end of every calendar year, by January 31, the Compliance Officer (Power of Attorney) prepares a written Compliance Report on the functioning of the Compliance Management System at TAURON Group. The report includes, among others, an assessment of the adequacy and effectiveness of the Compliance Management System adopted in the period covered by the report, the degree of the Compliance Plan implementation, indication of measures taken or proposed in cases of non-compliance or the risk of non-compliance.

Document update

The graphic design of TAURON Group's Corporate Social Responsibility Code of Conduct was updated in 2020, in line with the new Visual Identification System.

Conflict of interest

TAURON Group is operating in a transparent manner, respecting the provisions of law, the provisions of internal and intra-corporate regulations as well as the highest ethical standards, which translates into actions aimed at eliminating situations that may lead to a conflict of interest.

The basis for preventing conflicts of interest at TAURON Group is the principle set out in TAURON Group's Corporate Social Responsibility Code of Conduct, according to which: "We avoid situations that could potentially cause a conflict of interest." A conflict of interest in case of an employee of TAURON Group occurs when, acting in his/her own interest or in the interest of any entity, the employee simultaneously carries out activities against the interest of TAURON Group. We openly communicate (in accordance with the rules in force at TAURON Group in this respect) cases that constitute or may constitute a source of conflict of interest, and we take actions aimed at eliminating the adverse consequences of such situations."

In 2020, the Rules for Counteracting Conflict of Interest at TAURON Group were adopted. Their purpose is to: identify circumstances that constitute a conflict of interest or may cause it, define the rules for preventing, identifying and managing a conflict of interest, and increasing the level of awareness among employees in terms of identifying, avoiding and disclosing a conflict of interest.

In the event of receiving a notification of a conflict of interest, the Compliance Officer conducts a fact finding investigation and also answers employee questions based on specific factual status.

Conflict of interest registers are kept in order to document circumstances or events that may result or result in the emergence of a conflict of interest at the subsidiaries.

In addition, it should be noted that a practical manifestation of counteracting conflicts of interest at TAURON Group is the submission by the members of the tender committees and experts, for the needs of the given purchasing procedure, of statements on not having a legal or factual relationship with a contractor, that could raise reasonable doubts as to their impartiality.

What's more, in accordance with the Labor Regulations in force at TAURON Polska Energia S.A., one of the employee's basic obligations is to inform the superior about taking up additional employment, commencing business operations or performing specific jobs (orders), the scope of which may lead to a conflict of interest between him/her and the employer.

Information campaign with respect to counteracting a conflict of interest at TAURON Group

In 2020, after the entry into force of the detailed Rules for counteracting a conflict of interest at TAURON Group, an information campaign was carried out via the internal intranet, the purpose of which was to explain the issue of a conflict of interest to employees of TAURON Group's subsidiaries in an understandable manner.

As part of the information campaign, mailing was sent to employees, a message was published and a dedicated tab was created on the intranet. Additionally, the information was published on the official website www.tauron.pl.

Actions taken and results obtained

The year 2020 was characterized by a further growth with respect to building a comprehensive Compliance Management System at TAURON Group. The current epidemiological situation in connection with the SARS-COV-2 virus had a significant impact on the tasks performed. Some of the tasks planned to be performed according to TAURON Group's Compliance Plan for 2020 had to be adapted to the changing environment or postponed to be implemented at another time. The above mentioned the situation had an impact, in particular, on the tasks that required in person meetings with employees, such as training sessions or conducting investigative (fact finding) proceedings. Due to the restrictions on gatherings in place, the role of online media has increased significantly (e.g. Skype, Teams). The tasks performed so far in the classic for have been almost completely replaced by the electronic form. For this purpose, among others, electronic registers (e.g. database of credibility ratings) have been developed.

Due to an increase in the efficiency of the work performed, the above mentioned changes should be viewed as positive.

One of the main tasks of the Compliance Officer and Compliance Coordinators at TAURON Capital Group is to periodically organize and conduct training courses on compliance issues. The above activities are aimed at increasing employee awareness with respect to, among others, preventing fraud, reporting irregularities, rules on accepting and giving gifts, procedures for verifying contractors preventing conflict of interest.

Due to the prevailing pandemic, in addition to e-learning training, TAURON Capital Group conducted a number of online meetings and training sessions in 2020, with approx. 5 300 employees taking part therein.

129 messages related to the operations of TAURON Group's Compliance Area were sent in 2020, via the Group's intranet and mailing sent to the employees, regarding, e.g. the introduction of the Procedure for counteracting money laundering and financing of terrorism at TAURON Group, the introduction of the intra-corporate regulation on counteracting conflict of interest at TAURON Group, the adoption and application of the Rules of conduct during inspections (audits) at TAURON Group and the invitations to this year's Virtual Compliance Day

It should be mentioned that two e-learning training courses on compliance issues have been posted on the elearning platform dedicated for TAURON Group's personnel, i.e.:

• 1. training on TAURON Group's Corporate Social Responsibility Code of Conduct,
• 1. training on TAURON Group's Compliance Management System, covering the following topics:
  2. verification of contractors presentation why the issue of verification of contractors is so important for the security of the Group and when to apply for an assessment of the contractor's credibility,
  3. evaluation of external entities when organizing joint undertakings presentation of the procedure for establishing cooperation with an external entity with respect to, for example, promotion or sponsorship and to whom the application for an external entity evaluation should be submitted,
  4. reporting irregularities presenting the available channels for reporting fraud at TAURON Capital Group and building awareness regarding warning signals about the possibility of a potential fraud being committed,
  5. rules on accepting and giving gifts building awareness about the type of gifts that can be received or given and defining the conditions in which their acceptance or giving is unacceptable,
  6. counteracting corruption showing what corrupt activities and unethical behaviors are, and who TAURON Group's Anti-Corruption Policy is applicable to.

76.16% of employees with access to the e-learning platform were trained on the Corporate Social Responsibility Code of Conduct at TAURON Group as of December 31, 2020, and 75.97% of eligible persons completed the training with a positive result.

79.69% of employees with access to the e-learning platform were trained on the Compliance Management System at TAURON Group as of December 31, 2020. 79.25% of eligible persons completed the training with a positive result.

Virtual Compliance Day 2020

On November 30, 2020, the second edition of the Compliance Day took place at TAURON Polska Energia, this time conducted online. The purpose of this undertaking was to promote knowledge among TAURON Group employees with respect to compliance management.

As part of Virtual Compliance Day 2020, 5 training sessions on the subject of compliance, mobbing and counteracting money laundering and terrorist financing were conducted. In total, 550 employees of TAURON Group's subsidiaries were trained.

As part of the event, 5 panel sessions on specific topics were carried out:

• 1. "Integrity and changes to the rules of liability of members of corporate authorities (officers) following the amendment to the Code of Commercial Companies" – the panel was dedicated for the Members of the Management Boards of TAURON Group's subsidiaries,
• 1. "Mobbing the legal and psychological aspects" the panel was dedicated for the Members of the Ethics Committee of TAURON Group and the personnel of TPE S.A. Human Resources Area,
• 1. "News from the compliance industry. Integrated implementation of ISO 37301 (Compliance), 37001 (Anti-Bribery) and 37002 (Whistleblowing) standards in response to the need for a holistic approach to compliance management "- the panel dedicated to TAURON Group's Compliance Coordinators,
• 1. "Get to know Compliance at TAURON Group ... and find out what we do?" the panel dedicated for the employees hired by TAURON Group in 2020 as well as for all interested parties.
• 1. "AML vs. the obligations of TAURON Group's Subsidiaries "- the panel dedicated for the personnel of CUW - R TAURON Obsługa Klienta sp. o.o. and TAURON Ubezpieczenia sp. z o.o.

2.4. TAURON Group's Business Model

TAURON Group's business operations aimed at implementing its mission and vision based on its values and the Corporate Social Responsibility Code of Conduct are conducted based on seven Lines of Business, defined in accordance with the Group's value chain links: Mining, Generation, Heat, Renewable Energy Sources (RES), Trading, Distribution and Supply. Within the structure of TAURON Group, which is a vertically integrated enterprise, the Distribution System Operator (hereinafter DSO) is functioning in the Distribution Line of Business. The Business and Operating Model has been developed taking into account the requirements related to unbundling (i.e. separating the electricity distribution operations from the operations with respect to electricity production and supply of such electricity to the final consumers), set out in the Compliance Program and the generally applicable legal regulations, taking into account the DSO's legal, functional and organizational separation within the structure of TAURON Group.

Additionally, there are other subsidiaries operating as part of the Group, whose operations are focused on providing support services for the Group's other subsidiaries, such as, for example, accounting and human resources services, IT services, security services, insurance services. Customer service is provided by one of the Group's subsidiaries for the Supply Line of Business and, taking into account the independence of the DSO and other unbundling rules, for the Distribution Line of Business.

TAURON Group's business model is presented in figure no. 6.

Figure no. 6. TAURON Group's business model in 2020

Mining

It comprises mainly hard coal mining, processing and sales to the utility scale power plants, heating industry and individual customers. Apart from hard coal mining, other mining operations are also conducted, involving open pit extraction of limestone, as well as its processing and sales within the Group and outside the Group.

The operations of this Line of Business are conducted by the following subsidiaries: TAURON Wydobycie S.A., Kopalnia Wapienia "Czatkowice" sp. z o.o. and Spółka Usług Górniczych sp. z o.o.

The current structure of TAURON Wydobycie S.A. is based on the model composed of the Center (Centrum), with its seat in Jaworzno, and three production plants (coal mines): Zakład Górniczy Sobieski (Sobieski Coal Mine) in Jaworzno, Zakład Górniczy Janina (Janina Coal Mine) in Libiąż and Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine) in Brzeszcze. The Center's operations include, among other, shared functions management, planning and sales. The production facilities are mainly dealing with hard coal mining and processing. This Line of Business also includes a subsidiary that provides mining works services – Spółka Usług Górniczych sp. z o.o.

Kopalnia Wapienia "Czatkowice" sp. z o.o. is an open pit mine, extracting high quality carbonate limestone deposits, located in the Krzeszowice municipality.

The limestone from the Czatkowice deposit is used in the power generation, steel making, construction, lime, cement, sugar, road building industries, as well as in agriculture.

Generation

It comprises electricity generation using conventional sources and renewable energy sources, including the biomass burning process. The operations are conducted by TAURON Wytwarzanie S.A. subsidiaries and Nowe Jaworzno Grupa TAURON sp. z o.o., the company responsible for the construction and operation of the new power generation unit in Jaworzno with the capacity of 910 MW. Electricity generation by the conventional units is carried out by 6 power plants with the total capacity of approx. 5.2 GWe and 1.3 GWt and by two biomass-fired generating units with the total capacity of 105 MWe. The total capacity of approx. 5.2 GWe is made up of 5.1 GWe in coal fired units and 0.1 GWe in biomass units. The power plants are located in the following cities: Łaziska Górne, Będzin, Trzebinia, Stalowa Wola and Jaworzno. This Line of Business also includes the TAURON Serwis sp. z o.o. subsidiary that provides technical maintenance (support) services. In addition, a project to build a 5 MW photovoltaic farm was completed in 2020, built on the site of a former coal-fired power plant.

Heat

It comprises heat generation, transmission and distribution as well as supply, using co-generation sources. Heat generation is carried out by 4 combined heat and power plants, with the total capacity of approx. 0.35 GWe and 1,2 GWt, located in the following cities: Katowice, Tychy and Bielsko-Biała, as well as by local boiler houses. The generating units are using hard coal and biomass for their production. The heat operations are conducted by TAURON Ciepło sp. z o.o. and SCE Jaworzno III sp. z o.o. subsidiaries, that are, in total, operating approx. 1 180 km of the distribution heating networks on the territory of, among others, Bielsko-Biała, Czechowice-Dziedzice, Katowice, Dąbrowa Górnicza, Sosnowiec, Chorzów, Siemianowice Śląskie, Jaworzno, Zawiercie and Mysłowice, with 888 km of TAURON Ciepło's own networks, and 121 km of SCE Jaworzno III's networks.

Renewable Energy Sources

It comprises electricity generation using renewable energy sources, except for biomass burning, which, according to the Business Model, is carried out within the Generation and Heat Lines of Business. Electricity production from biomass is also classified as renewable energy at TAURON Group.

This line of business is managing 34 hydroelectric power plants with the total capacity of 133 MW, located primarily in the south of Poland, and 9 wind based power plants with the total capacity of 381 MW, located primarily in the north of Poland. The segment's operations are conducted by TAURON Ekoenergia sp. z o.o., TAURON Ekoserwis sp. z o.o. subsidiaries and the group of special purpose vehicles set up to manage the RES assets.

Distribution

It comprises electricity distribution using the distribution grid located in the south of Poland. TAURON Capital Group distributes electricity on the territory of the following regions: Małopolska, Lower Silesia, Opole and Silesia, and partly also Świętokrzyskie, Podkarpackie, Łódzkie, Wielkopolska and Lubuskie.

The operations are conducted by TAURON Dystrybucja S.A. subsidiary that performs the function of the DSO, including guaranteeing independence and compliance with the unbundling requirements.

The operational functions (activities) are carried out by 11 branches located in Będzin, Bielsko-Biała, Częstochowa, Gliwice, Jelenia Góra, Cracow, Legnica, Opole, Tarnów, Wałbrzych and Wrocław. The operations of TAURON Dystrybucja are supported by the TAURON Dystrybucja Pomiary sp. z o.o. subsidiary.

Trading

It comprises electricity wholesale trading, as well as trading and management of the CO² emission allowances and property rights arising from the certificates of origin of electricity, as well as fuels.

Such operations are conducted by TAURON Polska Energia S.A. and TAURON Czech Energy s.r.o. subsidiaries. The Trading Line of Business also includes the procurement of biomass, as well as the utilization of the mining and burning by-products carried out by Bioeko Grupa TAURON sp. z o.o. subsidiary.

Supply

It comprises the supply of electricity and natural gas, as well as related products, to the final consumers. The operations are conducted by TAURON Sprzedaż sp. z o.o. and TAURON Sprzedaż GZE sp. z o.o. subsidiaries. The supply operations are conducted nationwide and, on a smaller scale, on the Czech and Slovak markets. This Line of Business also includes services related to street lighting, as well as energy efficiency and smart technologies services carried out primarily by TAURON Nowe Technologie S.A. subsidiary. The company is managing approx. 745 thousand street lamps.

The other operations are a part of a separate line of business called Shared Services Centers. It includes such services, provided for TAURON Group's subsidiaries as, among others, accounting and human resources services, as well as IT services, carried out by TAURON Obsługa Klienta sp. z o.o. subsidiary, managing insurance policies for all of the Group's subsidiaries – TAURON Ubezpieczenia sp. z o.o. subsidiary, security and order keeping services – Wsparcie Grupa TAURON sp. z o.o. subsidiary. The goal of such a division of competences is to relieve the Lines of Business from the obligation to carry out the processes that are not directly associated with their core business operations (non-core operations related processes), and also to reduce the costs of performing such processes thanks to the economies of scale and the improvement of operational efficiency. As part of the operations of TAURON Obsługa Klienta sp. z o.o., customer service is also provided for the TAURON Sprzedaż Sp. z o.o. and TAURON Sprzedaż GZE Sp. z o.o. subsidiaries and, taking into account the independence of the DSO and compliance with other unbundling rules, for TAURON Dystrybucja S.A.

Figure no. 7 presents the structure of TAURON Capital Group's Line of Business.

Figure no. 7. TAURON Capital Group's Lines of Business in 2020

2.5. Principles of TAURON Polska Energia S.A.'s management

In accordance with the provisions of the By-laws of the Management Board of TAURON Polska Energia S. A., the Management Board conducts the affairs of the Company and represents it in all judicial and extra-judicial proceedings. All issues connected with managing the Company, which are not restricted by the legal regulations and the provisions of the Articles of Association of TAURON Polska Energia S.A. to the competence of the General Meeting or the Supervisory Board shall be within the competence of the Company's Management Board. Cooperation of two members of the Management Board or one member of the Management Board together with a proxy is required for making statements on behalf of the Company.

In accordance with the Organizational Regulations of TAURON Polska Energia S.A., the Company is managed directly by the Management Board of the Company, as well as through proxies (power of attorneys), Executive Directors or persons holding other positions reporting directly to the Members of the Management Board.

The Company carries out its tasks through:

• 1. separate organizational units (business units):
  2. Business areas, comprising independent work positions and organizational units (business units) reporting directly to the Executive Directors. The work of the Executive Directors is managed (supervised) by members of the Company's Management Board directly,
  3. Teams, constituting organizational units (business units) reporting to the Executive Directors. The activities of the team are managed by the Team Leader (Manager).
• 1. independent work positions:
  2. Executive Directors who manage and lead the work of the subordinate Teams or independent work positions constituting the given business area of the Company,
• other independent work positions that may be entrusted to, in particular, Power of Attorneys, Inspectors, Spokespersons,
• 1. temporary organizations Project Teams set up with the goal to implement tasks and projects of the Company.

2.5.1. Management Board of TAURON Polska Energia S.A.

The current sixth term of office of the Management Board of TAURON Polska Energia S.A. began its run on July 15, 2020.

The Supervisory Board of TAURON Polska Energia S.A. dismissed all Members of the Management Board of TAURON Polska Energia S.A. of the 5th joint term of office, on July 14, 2020, effective as of the end of the day and appointed, as of July 15, 2020, the Members of the Management Board of TAURON Polska Energia S.A. of the 6th joint term.

In accordance with the Articles of Association of TAURON Polska Energia S.A. the common term of office shall last 3 years.

The composition of the Management Board of TAURON Polska Energia S.A. as of December 31, 2020 is as follows:

• 1. Wojciech Ignacok President of the Management Board,
• 1. Jerzy Topolski Vice President of the Management Board for Asset Management,
• 1. Marek Wadowski Vice President of the Management Board for Finance.

The composition of the Management Board TAURON Polska Energia S.A. as of the day of drawing up this Report is as follows:

• 1. Marek Wadowski acting as the President of the Management Board / Vice President of the Management Board for Finance,
• 1. Jerzy Topolski Vice President of the Management Board for Asset Management.

The changes to the composition of the Management Board of TAURON Polska Energia S.A. that took place in 2020 and by the day of drawing up this Report, as well as the descriptions of the experience and competences of the Members of the Management Board of TAURON Polska Energia S.A are described in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

Competence and description of the procedures of the Management Board of TAURON Polska Energia S.A.

Management Board shall conduct the Company's affairs and represent the Company in all court and out of court proceedings. Any matters related to conducting the Company's affairs, not assigned, based on the legal regulations or the provisions of the Articles of Association of TAURON Polska Energia S.A., to the competence of the General Meeting of Shareholders or the Supervisory Board, shall be within the competence of the Company's Management Board.

The competences of the Management Board of TAURON Polska Energia S.A. are described in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

The Management Board of TAURON Polska Energia S.A. is acting pursuant to the Code of Commercial Companies and other legal regulations, the provisions of the Articles of Association of TAURON Polska Energia S.A. and the provisions of the By-laws of the Management Board of TAURON Polska Energia S.A., which is available on the website of TAURON Polska Energia S.A.: http://www.tauron.pl. When performing their duties the members of the Management Board of TAURON Polska Energia S.A. are acting in accordance with the principles provided in the Best Practice of WSE Listed Companies 2016.

Two members of the Management Board or one member of the Management Board together with a proxy shall be entitled to make valid statements on behalf of TAURON Polska Energia S.A. In case the Management Board includes one person, one member of the Management Board or a proxy shall be entitled to make valid statements on behalf of TAURON Polska Energia S.A.

Meetings of the Management Board of TAURON Polska Energia S.A. are convened by the President of the Management Board or a Vice President of the Management Board designated by the President of the Management Board. Meetings of the Management Board are also convened at the request of the majority of Vice Presidents of the Management Board, as well as the Chairperson of the Supervisory Board. Meetings are held at the Company's headquarters, on the date set by the person that convened the meeting. In justified cases, meetings of the Management Board may take place outside the registered office of the Company. The President of the Management Board or a Vice President of the Management Board designated thereby shall chair meetings of the Management Board.

The Management Board votes in an open ballot. The result of the ballot is recorded in the minutes of the meeting. The President of the Management Board orders a secret ballot at the request of any member of the Management Board.

Resolutions of the Management Board are passed by an absolute majority of votes in the presence of 3/5 of the members of the Management Board. In the event of an equal number of votes (a tie), the President of the Management Board has the casting vote. The Management Board may pass resolutions by voting in writing or using means of direct remote communications. Voting in accordance with the above mentioned procedures is ordered by the President of the Management Board or a member of the Management Board designated by the President of the Management Board, along with the setting of the deadline for casting votes by members of the Management Board. A dissenting opinion may be submitted. Such dissenting opinion is recorded in the minutes of the meeting including the justification thereof. The decisions of the Management Board related to ongoing issues that do not require passing of a resolution are recorded solely in the minutes of the meeting.

In accordance with the Articles of Association of TAURON Polska Energia S.A., all issues which go beyond the regular scope of the Company's activities shall require a resolution of the Management Board of TAURON Polska Energia S.A.

The internal split, among members of the Management Board of TAURON Polska Energia S.A., of the tasks and responsibilities for the Company's individual lines of business, as defined in the Organizational Regulations of TAURON Polska Energia S.A. and covering independent work positions and organizational (business) units reporting directly to the Executive Directors whose work is managed (supervised) by the Members of the Management Board, is defined in the Resolution of the Company's Management Board no. 351/VI/2020 of November 3, 2020, on the assignment of the Company's individual lines of business and independent work positions directly reporting to the Members of the Management Board of TAURON Polska Energia S.A. which replaced the Resolution of the Company's Management Board no. 397/V/2019 of November 13, 2019 on the assignment of the Company's individual lines of business and independent work positions directly reporting to the Members of the Management Board of TAURON Polska Energia S.A.

The structure of the lines of business of TAURON Polska Energia S.A. reporting to the individual members of the Management Board of TAURON Polska Energia S.A. is defined in the diagram presenting the split of responsibilities of the members of the Management Board of TAURON Polska Energia S.A., discussed in section 2.8 of this Report and published on the Company's website: https://www.tauron.pl.

Rules on appointing and dismissing Members of the Management Board of TAURON Polska Energia S.A.

The Management Board of TAURON Polska Energia S.A. shall be composed of 1 to 6 persons, including the President and Vice Presidents. Members of the Management Board shall be appointed and dismissed by the Supervisory Board of TAURON Polska Energia S.A. for a common term of office lasting 3 years, except for the 1st term that lasted 2 years. In accordance with the Articles of Association of TAURON Polska Energia S.A., each of the Members of the Management Board can be dismissed or suspended in office by the Supervisory Board or the General Meeting.

In order to recruit a person with whom an agreement on providing the management services at TAURON Polska Energia S.A., the Company's Supervisory Board announces a competition and conducts a qualification procedure for the position of the President or Vice President aimed at verifying and assessing the candidates' qualifications and selecting the best candidate. A candidate for a member of the Company's Management Board must meet the requirements set forth in § 16, clauses 3 and 4 of the Articles of Association of TAURON Polska Energia S.A. The announcement of the qualification process is published on the Company's web site at the address: https://www.tauron.pl. and in the Public Information Bulletin of the Minister competent to exercise the rights related to the State Treasury's shares. The Company notifies the shareholders of the results of the qualification procedure.

2.5.2. Supervisory Board of TAURON Polska Energia S.A.

The current, sixth term of office of the Supervisory Board, began its run on July 15, 2020, i.e. on the date of holding the Ordinary General Meeting of TAURON Polska Energia S.A. approving the financial statements for the last full financial year of the tenure of the members of the Supervisory Board of the fifth term, i.e. for the financial year 2019. In accordance with the Company's Articles of Association it is a common term of office and it lasts 3 years.

In accordance with the Articles of Association of TAURON Polska Energia S.A. it is a common term of office and it shall last 3 years.

The composition of the Supervisory Board of TAURON Polska Energia S.A. as of December 31, 2020 is as follows:

• 1. Andrzej Kania Chair of the Supervisory Board,
• 1. Teresa Famulska Vice Chair of the Supervisory Board,
• 1. Katarzyna Taczanowska Secretary of the Supervisory Board,
• 1. Ryszard Madziar Member of the Supervisory Board,
• 1. Grzegorz Peczkis Member of the Supervisory Board,
• 1. Barbara Piontek Member of the Supervisory Board.

The composition of the Supervisory Board TAURON Polska Energia S.A. as of the day of drawing up this Report is as follows

• 1. Andrzej Kania Chair of the Supervisory Board, 2. Teresa Famulska - Vice Chair of the Supervisory Board, 3. Katarzyna Taczanowska - Secretary of the Supervisory Board, 4. Ryszard Madziar - Member of the Supervisory Board,
• 1. Grzegorz Peczkis Member of the Supervisory Board

The changes to the composition of the Supervisory Board of TAURON Polska Energia S.A. that took place in 2020, as well as the descriptions of the experience and competences of the Members of the Supervisory Board of TAURON Polska Energia S.A are described in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

Competence and description of the procedures of the Supervisory Board of TAURON Polska Energia S.A.

Supervisory Board shall perform continuous oversight over the Company's activities in all areas of its operations.

The competences of the Supervisory Board of TAURON Polska Energia S.A. are described in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

The Company's Management Board of TAURON Polska Energia S.A. is acting pursuant to the Code of Commercial Companies and other legal regulations, the provisions of the Articles of Association of TAURON Polska Energia S.A. and the provisions of the By-laws of the Supervisory Board of TAURON Polska Energia S.A., which is available on the website of TAURON Polska Energia S.A.: http://www.tauron.pl. When performing their duties the members of the Supervisory Board of TAURON Polska Energia S.A. are acting in accordance with the principles provided in the Best Practice of WSE Listed Companies 2016.

The main form of the Supervisory Board of TAURON Polska Energia S.A. overseeing the Company's operations are the meetings of the Supervisory Board. The Supervisory Board is performing its duties collectively. The meetings of the Supervisory Board of TAURON Polska Energia S.A. shall be convened by the Chairperson of the Supervisory Board or a Vice Chairperson of the Supervisory Board, presenting the detailed agenda:

• 1. in accordance with the decisions taken by the Supervisory Board,
• 1. of his/her own initiative,
• 1. at a written request of each member of the Supervisory Board,
• 1. at a written request of the Management Board.

The meetings of the Supervisory Board of TAURON Polska Energia S.A. are held at the Company's registered office. In justified cases a meeting may be convened at a different venue.

In order to convene a meeting all members of the Company's Supervisory Board must be invited in writing at least 7 days before the date of the Supervisory Board's meeting. For important reasons the Chairperson of the Supervisory Board may shorten this period to 2 days, defining the way the invitations should be distributed. Notifications of the Company's Supervisory Board's meeting shall be sent by fax or electronic mail. In the notification of the Company's Supervisory Board's meeting the Chairperson shall define the date of the meeting, venue of the meeting and the detailed draft agenda. The Company's Supervisory Board shall meet on as needed basis, however not less frequently than once every 2 months. Supervisory Board may hold meetings without convening a formal meeting if all members of the Supervisory Board are present and nobody objects against the fact of holding the meeting or against the agenda.

A change of the proposed agenda may occur when all members of the Company's Supervisory Board are present at the meeting and no one raises an objection against the agenda. An issue not included in the agenda should be included in the agenda of the next meeting.

Participation in a meeting of the Supervisory Board shall be a Supervisory Board member's duty. A member of the Supervisory Board shall provide information on the reason for his/her absence in writing. Excusing an absence of a member of the Supervisory Board shall require a resolution of the Supervisory Board. Members of the company's Management Board may take part in the Supervisory Board's meetings unless the Supervisory Board raises an objection. Participation of the Management Board's members in the Supervisory Board meetings shall be mandatory if they have been invited by the Chairperson of the Supervisory Board. Other persons may also take part in the meetings if they have been invited in the above mentioned way.

Supervisory Board may seek opinions of legal counsels who provide regular legal advice for the Company, as well as, in justified cases, it may appoint and invite to meetings of the Supervisory Board appropriate experts in order to seek their opinion and make the right decision. In the above mentioned cases the Supervisory Board shall pass a resolution on commissioning the selected expert to carry out the work, obligating the Company's Management Board to conclude an applicable agreement.

Meetings of the Supervisory Board shall be chaired by the Chairperson of the Supervisory Board, and in case of his/her absence by the Vice Chairperson. For important reasons, with the consent of the majority of members of the Supervisory Board present at the meeting, the chairperson chairing the meeting shall be obligated to subject to a vote a motion to interrupt the meeting and set the date of resuming the meeting of the Company's Supervisory Board. Supervisory Board shall make decisions in the form of resolutions. Supervisory Board's resolutions shall be passed mainly at its meetings. Supervisory Board shall pass resolutions if at least half of its members are present at the meeting and all of its members have been invited in the appropriate way defined in the By-laws of the Supervisory Board of TAURON Polska Energia S.A. Subject to the mandatory legal regulations in force, including the Code of Commercial Companies and the provisions of the Articles of Association of TAURON Polska Energia S.A., the Supervisory Board shall pass resolutions by an absolute majority of votes of the persons present at the meeting where the absolute majority of votes shall be understood as more votes cast "for" than "against" and "abstain". Resolutions shall not be passed on matters not included in the agenda unless all members of the Supervisory Board are present and nobody raises an objection. This shall not apply to resolutions on excusing a Supervisory Board's member's absence at the meeting. Resolutions shall be voted on in an open ballot. A secret ballot shall be ordered:

• at the request of at least one member of the Supervisory Board,
• in personnel related matters.

In accordance with the Articles of Association of Polska Energia S.A., the Supervisory Board may pass resolutions in writing or using means of direct remote communications. Passing a resolution in such way shall require a prior notification of all members of the Supervisory Board of the content of the draft resolution and the participation of at least half of the members of the Supervisory Board in passing the resolution. The Supervisory Board may pass resolutions this way in personnel related matters as well as in other matters the resolutions of which require a secret ballot vote, unless none of the Members of the Company's Supervisory Board raises an objection. When voting on a resolution in the aforementioned way a member of the Company's Supervisory Board shall indicate his/her vote, i.e. "for", "against" or "abstain". A resolution, with a note that it has been passed in writing or by voting using means of direct remote communications, shall be signed by the Chairperson of the Supervisory Board. Resolutions passed this way shall be presented at the forthcoming meeting of the Supervisory Board along with the result of the voting.

Members of the Company's Supervisory Board may take part in a meeting of the Company's Supervisory Board using means of direct remote communications, i.e. a conference call or a video conference. In case Members of the Company's Supervisory Board take part in a meeting of the Company's Supervisory Board using means of direct remote communications, resolutions shall be passed if at least half of the Members of the Company's Supervisory Board members take part in the vote,

Members of the Supervisory Board shall take part in meetings and exercise their rights and responsibilities in person, and while performing their duties they shall be obliged to act with due diligence. Members of the Supervisory Board shall be obliged to keep confidential information related to the Company's activities that they have acquired in connection with performing their duty or on another occasion.

Supervisory Board may, for important reasons, delegate its individual members to perform certain supervision actions on their own for a defined period of time. Supervisory Board may delegate its members, for a period not longer than three months, to temporarily perform duties of members of the Management Board who have been dismissed, submitted their resignation or if for other reasons they cannot perform their functions. The above mentioned delegation shall require obtaining a consent of the member of the Supervisory Board who is to be delegated.

The detailed description of the activities of the Supervisory Board in the last financial year is provided in the Report on the Activities of the Supervisory Board, submitted on annual basis to the General Meeting of Shareholders and published on the Company's website at the address: http://www.tauron.pl.

The Supervisory Board of TAURON Polska Energia S.A. may appoint from among its members permanent or temporary (ad-hoc) working groups, committees to perform specific actions. The standing committees of the Supervisory Board of TAURON Polska Energia S.A. shall be:

• 1. Audit Committee of the Supervisory Board of TAURON Polska Energia S.A.,
• 1. Nominations and Compensation Committee of the Supervisory Board of TAURON Polska Energia S.A.,
• 1. Strategy Committee of the Supervisory Board of TAURON Polska Energia S.A.

The composition, tasks and principles of operation of the above mentioned committees shall be defined in the regulations thereof passed by the Supervisory Board.

The information the composition of the committees of the Supervisory Board of TAURON Polska Energia S.A. and the changes thereof that took place in 2020, as well as the descriptions of their competences and activities are provided in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

Rules on appointing and dismissing Members of the Supervisory Board of TAURON Polska Energia S.A.

Supervisory Board shall be composed of 5 to 9 persons, appointed for a common term of office lasting 3 years, except for the first term that lasted 1 year. In accordance with the Company's Articles of Association of TAURON Polska Energia S.A., the Members of the Supervisory Board of TAURON Polska Energia S.A. shall be appointed and dismissed by the General Meeting of Shareholders, subject to the following:

• 1. during the time when the State Treasury, together with the State Treasury controlled entities within the meaning of § 10, clause 5 of the Company's Articles of Association, hold a number of the Company's shares that entitle them to exercise at least 25% of the total votes in the Company, the State Treasury shall be entitled to appoint and dismiss members of the Company's Supervisory Board in the number equal to half of the maximum number of members of the Company's Supervisory Board defined in the Articles of Association of TAURON Polska Energia S.A. (in case such number is not integral it shall be rounded down to an integral number, for example 4.5 shall be rounded down to 4) and increased by 1, provided that the State Treasury:
  2. 1) shall be obliged to vote at the General Meeting of Shareholders on establishing the number of members of the Company's Supervisory Board that would correspond to the maximum number of members of the Company's Supervisory Board defined in the Articles of Association of TAURON Polska Energia S.A. in case such a motion is submitted to the Company's Management Board by a shareholder or shareholders who hold a number of votes that entitle them to exercise at least 5% of the total number of votes in the Company,
  3. 2) shall be excluded from the right to vote at the General Meeting of Shareholders on appointing and dismissing the other Members of the Company's Supervisory Board, including the independent Members of the Company's Supervisory Board; this shall not, however, apply to the case when the Company's Supervisory Board cannot act due to its membership being smaller than required by the Articles of Association of TAURON Polska Energia S.A., and the shareholders present at the General Meeting of Shareholders, other than the State Treasury, do not supplement the membership of the Company's Supervisory Board in accordance with the distribution of seats in the Supervisory Board defined in this section,
• 1. during the time when the State Treasury, together with the State Treasury controlled entities within the meaning of § 10, clause 5 of the Articles of Association of TAURON Polska Energia S.A., hold a number of the company's shares that entitle them to exercise less than 25% of the total number of votes in the Company, the State Treasury, represented by the minister competent to exercise the rights related to the State Treasury's shares, shall be entitled to appoint and dismiss one member of the Company's Supervisory Board,
• 1. appointing and dismissing members of the Company's Supervisory Board by the State Treasury pursuant to the above mentioned clause 1 or 2 shall take place by means of a statement submitted to the Company.

In accordance with the Best Practice of WSE Listed Companies 2016 at least two members of the Company's Supervisory Board should meet the criteria of independence. A phrase an "independent member of the Supervisory Board" shall denote an independent member of the Supervisory Board within the meaning of Appendix II to the European Commission's Recommendation of February 15, 2005, related to the role of non-executive directors or members of a supervisory board of publicly listed companies and supervisory board's committees (2005/162/EC) and the additional criteria indicated in the Best Practice of WSE Listed Companies 2016.

In accordance with the Best Practice of WSE Listed Companies 2016 at least two members of the Supervisory Board of TAURON Polska Energia S.A. meet the criteria of independence within the meaning of the above mentioned Recommendation.

Members of the Supervisory Board of TAURON Polska Energia S.A. shall submit to the Company, prior to their appointment as members of the Supervisory Board, a written statement on compliance with the independence criteria mentioned in the Best Practice of WSE Listed Companies 2016. In case a situation occurs where the independence criteria are not complied with a member of the Supervisory Board shall be obligated to inform the Company promptly thereof.

Information on the fulfillment by the Members of the Supervisory Board of TAURON Polska Energia S.A. the independence criteria specified in the above-mentioned Recommendation and in the Best Practice of WSE Listed Companies 2016 is posted on the Company's website at: https://www.tauron.pl, and is presented in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

2.5.3. General Meeting of TAURON Polska Energia S.A.

Competence and description of the procedures of the Supervisory Board of TAURON Polska Energia S.A.

The procedures and empowerments of the General Meeting of TAURON Polska Energia S.A. are defined in the Articles of Association of TAURON Polska Energia S.A. and in the Regulations of the General Meeting of Shareholders of TAURON Polska Energia S.A. which are available on the website of TAURON Polska Energia S.A. at the address: http://www.tauron.pl/.

The competences of the General Meeting of TAURON Polska Energia S.A. are described in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

General Meeting of Shareholders shall be convened by a notice published on the website of TAURON Polska Energia S.A. at the address: http://www.tauron.pl/, and in a manner defined for providing the current information by public companies. In case the General Meeting is convened by an entity or a body other than the Management Board on the basis of the regulations of the Code of Commercial Companies, as convening a General Meeting of Shareholders requires the Management Board's cooperation, the Management Board shall be obligated to perform any activities defined by law in order to convene, organize and conduct a General Meeting of Shareholders that take place either at the Company's registered office or in Warsaw.

General Meeting of Shareholders shall be opened by the Chairperson of the Supervisory Board of TAURON Polska Energia S.A., and in case he/she is absent the following persons shall be entitled to open the General Meeting of Shareholders in the given order: Vice Chairperson of the Company's Supervisory Board, President of the Company's Management Board, a person designated by the Company's Management Board or a shareholder who registered at the General Meeting of Shareholders such a number of shares that entitle him/her to exercise the highest number of votes. Subsequently, the chairperson of the General Meeting of Shareholders shall be elected from among the persons entitled to participate in the General Meeting of Shareholders.

General Meeting of Shareholders shall pass resolutions irrespective of the number of shares represented at the Meeting, unless the regulations of the Code of Commercial Companies, as well as the provisions of the Articles of Association of TAURON Polska Energia S.A. state otherwise. General Meeting of Shareholders may order a break in the meeting by the majority of two thirds of the votes. Breaks shall not exceed 30 days in total.

A break in the General Meeting's session may take place only in exceptional situations indicated each time in the justification of the resolution, prepared based on the reasons presented by a shareholder requesting the ordering of a break.

The resolution of the General Meeting on ordering a break shall clearly indicate the date of the session's resumption, however, such a date shall not create a barrier for the participation of the majority of shareholders in the resumed meeting, including the minority shareholders.

Description of the shareholders' rights and the way they are exercised

The description of the shareholders' rights and the way they are exercised is provided in detail in section 9 of the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

2.5.4. Description of the principles applied to amend the Articles of Association of TAURON Polska Energia S.A.

Amendments to the Articles of Association of TAURON Polska Energia S.A. are made in accordance with the provisions of the Code of Commercial Companies, in particular: an amendment to the Articles of Association of TAURON Polska Energia S.A. takes place by way of a resolution of the General Meeting, passed by the majority of three fourths of the votes, and then requires issuing of a decision by a competent court on entering the amendment into the register of entrepreneurs (business register). The consolidated text of the Articles of Association of TAURON Polska Energia S.A., including amendments passed by the General Meeting, shall be adopted by the Supervisory Board by way of a resolution.

In accordance with the Articles of Association of TAURON Polska Energia S.A., a material change to the subject of the operations of TAURON Polska Energia S.A requires two thirds of the votes in the presence of persons representing at least half of the share capital.

2.6. Principles of TAURON Group's management

The management of TAURON Group is carried out based on two internal documents: the Code of the Group and TAURON Group's Business and Operational Model.

2.6.1. Code of TAURON Group

The management of TAURON Group is based on the leading role of the corporate center, i.e. the parent company - TAURON Polska Energia S.A., which manages the subsidiaries that are a part of the Lines of Business and the shared service centers. The relations with respect to making decisions are regulated by the Code of the Group, which is the core regulatory act of TAURON Group. The Code of the Group regulates its operations, ensuring the accomplishment of the goals through tailored solutions with respect to the management of TAURON Group's entities, including, enabling achieving of the effects assumed in the Strategy.

2.6.2. TAURON Group Business and Operational Model document assumptions

TAURON Group's Business and Operational Model in force in 2020 was adopted by the Company's Management Board on January 23, 2018. In recent years, changes taking place in the external and internal environment of TAURON Group resulted in the need to undertake works on updating the document in order to take into account the changes that have occurred. The result of the review completed is the adoption by the Management Board of the Company on February 23, 2021 of the updated Business and Operating Model of TAURON Group.

This document defines the high-level architecture of processes, as well as the functions and tasks of the Corporate Center, Lines of Business and other units. Moreover, in order to provide flexibility, resilience and adaptation of TAURON Group to the changes in the environment, in particular those resulting from climate change, the current Business and Operational Model of TAURON Group takes into account the role of ESG (Environmental, Social Responsibility, Corporate Governance) as an increasingly important tool of the communication with the environment (stakeholders). The Business and Operational Model was developed taking into account the requirements related to the unbundling.

The foundations of the Business and Operational Model include:

• building the value of TAURON Group as a whole (priority of the economic interest of the Group, which does not always have to coincide with the economic interest of individual subsidiaries or Lines of Business),
• environment protection and adaptation to the challenges stemming from climate change,
• focus on customers (internal and external),
• adhering to the Group's values (PRO values),
• accelerating and simplifying the decision making processes,
• taking advantage of TAURON Group's personnel knowledge and qualifications.

To ensure efficient management, the division of the roles and responsibilities was implemented in accordance with the business model (described in sub-chapter 2.4) in force, based on assigning process competences to the Corporate Center, the Lines of Business and the Shared Services Centers. This division is presented in figure no. 8.

Figure no. 8. The division of obligations (duties) and responsibilities under TAURON Capital Group's business model in 2020

2.7. TAURON Capital Group's organization

TAURON Capital Group's organization, that implements the Group's business model described in sub-chapter 2.4, should be viewed according to three aspects:

• process (business) related aspect based on the process structure that clearly defines responsibilities and how processes are implemented. The advantages stemming from the way key business processes are conducted build value and impact the competitive position of TAURON Group,
• line of business related aspect related to the profile of the operations conducted and the place within the Group's value chain,
• equity related aspect the structure of the formal and legal domination of the Group's subsidiaries.

2.7.1. Process based organization

The regulations implemented in 2018, along with the Business Model, introduced the management by processes within TAURON Capital Group. During the 2020 works on the update of the Business and Operational Model, the functions and tasks performed as part of process management were reviewed.

The process documentation describes the split of competences and recurring actions performed, operational processes, including the descriptions of exchanged products and services. Processes are the superior organization in relation to the organizational structure of the individual subsidiaries and run horizontally across entire TAURON Group.

Based on the main products, TAURON Capital Group's processes were divided into three groups: management, operational and support processes.

The chart presented in figure no. 9 presents mega-processes identified at TAURON Group (the highest process level).

Figure no. 9. TAURON Capital Group's mega-processes in 2020

The owners of the mega-processes (the highest process level) are the indicated TAURON Polska Energia S.A. directors. The process documentation (maps, diagrams and process sheets) defines and describes decision making powers (competences) and actions to be undertaken by the individual organizational units within TAURON Capital Group's various companies. The owners of the mega-processes decompose these into lower level processes and appoint their owners. Each process has its owner and process metrics defined by the higher level process owner. The process documentation defines the course of action (interdependencies) and decision competences for the recurring processes.

The goal of the process based management model implemented was to benefit from the operating synergies among TAURON Capital Group's various companies, share and use best practices, standardize and automate processes, and also to ensure coherence of actions taken within TAURON Capital Group's subsidiaries to support the implementation of the Strategy.

The essence of the management by processes lies in the continuous search for and implementation of efficiencies along with the clear and transparent division of competences and responsibilities. Processes are modified accordingly to improve their efficiencies. The process documentation is published in the intranet and available to all employees of the Group.

The competences and process interdependencies described in the process documentation supplement the competences stemming from the organizational structure of the individual subsidiaries and support the operations of the Group's subsidiaries as a single entity.

2.7.2. Organization by Lines of Business

TAURON Capital Group's operations are implemented, as described in the sub-chapter on the Business model, based on seven Lines of Business (Mining, Generation, Heat, Renewable Energy Sources (RES), Trading, Distribution and Supply.

A Line of Business is a company, several companies or a separate part of a company owned by TAURON Group, responsible for the implementation of specific tasks related to the Group's core business. Lines of Business are responsible for implementing the core processes and support at the Line of Business level and they participate in management processes and support processes implemented at the Group level. They are presented, including the assignment of the individual subsidiaries of TAURON Group thereto, in figure no. 10.

Figure no. 10. Assignment of TAURON Capital Group's subsidiaries to Lines of Business and Shared Services Center (CUW) in 2020

2.7.3. Formal and legal organizational structure

As of December 31, 2020, TAURON Capital Group's subsidiaries, besides the TAURON Polska Energia S.A. parent company, included 34 subsidiaries subject to consolidation and 4 jointly controlled entities (co-subsidiaries) included in the consolidated financial statements as of December 31, 2020 of TAURON Polska Energia S.A. based on the equity method, i.e. Elektrociepłownia Stalowa Wola S.A., TAMEH HOLDING Sp. z o.o., TAMEH POLSKA Sp. z o.o., TAMEH Czech s.r.o.

TAURON Capital Group's structure is presented in figure no. 11.

*As of the balance sheet date, TAURON Capital Group assessed that in relation to the net assets of the TAURON Ciepło subsidiary, the conditions for classifying the above assets as a group for disposal, classified as held for sale were met. **The shares in TAURON Dystrybucja Pomiary and Wsparcie Grupa TAURON are held by TAURON Polska Energia S.A. indirectly via TAURON Dystrybucja subsidiary, TAURON Polska Energia S.A. is a user of the shares of TAURON Dystrybucja Pomiary. ***The shares in Aval-1 and Wind T1 is held by TAURON indirectly via TAURON Ekoenergia subsidiary. ****In the following limited partnerships: TEC1 is the General Partner, TEC3 is the Limited Partner.

Figure no. 11. Core TAURON Capital Group's subsidiaries in 2020, including the parent company's shareholding therein

Parent company's organizational structure

TAURON Polska Energia S.A is TAURON Capital Group's parent company, performing the role of the corporate center. The company's operations are managed by the Management Board within which the competences for managing the business units were split among the President of the Management Board and the Vice Presidents of the Management Board. Figure no. 13 in section 2.8 presents the current split of competences within the Management Board of TAURON Polska Energia S.A.

2.8. Changes to the principles of TAURON Polska Energia S.A. and TAURON Capital Group's management

Changes to the principles of the Company's management

As a result of the progressing transition of the energy sector, which poses new challenges for the entity operating on this market, the gradual change in the situation in the energy sector, mainly due to the broadly understood policy of decarbonizing the economies of the European Union and the changes taking place in the Company's business environment, on October 20, 2020, the Management Board of TAURON Polska Energia SA adopted the new version of the Organizational Regulations of TAURON Polska Energia S.A., which was approved by the Company's Supervisory Board on October 23, 2020.

The organizational structure of TAURON Polska Energia as of December 31, 2020, and as of the day of drawing up this Report is presented in Figure no. 12.

Figure no. 12. Organizational diagram of TAURON Polska Energia S.A. as of December 31, 2020, and as of the day of drawing up this Report.

In connection with the new Organizational Regulations, the required modifications of the scopes of functions of the individual Lines of Business in the Company's organizational structure were also made.

As of November 3, 2020, the Management Board of TAURON Polska Energia S.A., by way of a resolution, assigned to the Members of the Management Board of TAURON Polska Energia S.A., directly, the individual lines of business and the independent work positions.

The diagram showing the division of responsibilities of the Members of the Management Board of TAURON Polska Energia S.A. as of the day of drawing up this Report is presented in Figure no. 13.

Figure no. 13. The diagram showing the division of responsibilities of the Members of the Management Board of TAURON Polska Energia S. A. as of the day of drawing up this Report

Changes to the principles of TAURON Capital Group's management

In 2020, works were carried out on updating TAURON Group's Business and Operational Model in place thus far, which defines TAURON Capital Group's management model. In order to provide flexibility, resilience and adaptation of TAURON Capital Group to the changes in the environment, in particular those resulting from climate change, the updated Business and Operational Model of TAURON Group emphasizes the role of ESG (Environmental, Social Responsibility, Corporate Governance) as an increasingly important communication tool with the environment (stakeholders).

The updated Business and Operational Model of TAURON Group was developed taking into account the requirements related to the unbundling (i.e. separation of the operations with respect to electricity distribution from the operations involving the generation and supply of such electricity to the final consumers), established in the Compliance Program and generally applicable legal regulations, taking into account the legal, functional and organizational separation of the DSO within the structure of TAURON Capital Group.

Furthermore, the functions and tasks performed within all of TAURON Capital Group's mega-processes were reviewed, which was done jointly with their owners, and the provisions were updated or the required additional functions and tasks were formulated, appropriately assigning competences to the Corporate Center, Lines of Business and Shared Services Centers.

The process maturity of selected processes of TAURON Capital Group was assessed, using TAURON Capital Group's Process Maturity Model, in 2020. 555 processes were assessed, which represented 21% of TAURON Capital Group's processes in place. As a result of the assessment completed, TAURON Capital Group achieved, on average, level IV-V of process maturity on an eight-level scale. The maturity assessment will be continued in 2021, based on the plans defined by TAURON Capital Group's subsidiaries.

2.9. TAURON Capital Group's strategy and business model in the context of climate protection requirements

Being aware of the progressing climate changes and their effects, as well as of the important role and tasks of the power sector in the broadly understood transition to a low emission economy, TAURON Group is taking actions aimed at reducing the negative impact of TAURON Group on climate and the environment and taking the greatest possible advantage of the opportunities associated therewith. The Group was organized in a long chain of operations covering virtually all of the value building stages: from acquiring fuel, up to supplying the product to the final consumer. Such organization allows to impact the quality of the processes implemented at each stage of value creation, and thus optimize and, if required, change the way of doing business so as to respond to the current and future challenges. TAURON Group is changing towards the implementation of the assumptions of the European Green Deal, which is reflected, inter alia, in the Green Turn of TAURON. For the energy industry, the climate impact includes both, weather related occurrences, as well as regulatory changes and changes in customer attitudes. All of this is not without significance for the business model and Strategy,

In line with the European Green Deal, the transition of the European economy towards a sustainable future takes place on many levels. TAURON Group recognizes the risk of significant changes in the regulatory area, both at the European, as well as the national level, aimed at minimizing the negative impact on the climate by introducing further restrictions for coal based power generation, mainly tightening of the climate regulations and the departure of the financial institutions and insurers from the cooperation with entities operating coal assets. The above is the main determinant for the development of RES at TAURON Group, as well as for the implementation of the principles of the so-called circular economy. However, one should be aware of Poland's current energy mix, including that of TAURON Group, based on fossil fuels, historically associated with the large coal resources held, ensuring energy security. The departure of the energy industry from that model will be a process that must be spread over time and for which funds will be required to provide investment opportunities and activities mitigating the social implications of the changes taking place.

In order to standardize the approach to financing environmentally sustainable investments a framework for financial market participants was created at the European Union level that allows for classifying economic activity as environmentally sustainable. Such an approach, presented mainly in the European Commission Communication 2019/C 209/01 and in the Taxonomy document of June 2019, as well as in the Regulations of the European Parliament and of the Council no. 2019/2088 and 2020/852, allows for a uniform indication which investments and consequently, the revenues, can be qualified as sustainable and thus contribute to the achievement of the environmental objectives. Contributions to mitigating climate change include, among others: generation and distribution of electricity from renewable sources. In this respect, TAURON is gradually increasing the share of production from renewable sources thanks to investments in wind and photovoltaic power plants and the modernization of hydropower plants. TAURON is also implementing a distribution grid modernization and expansion program, thanks to which it is possible to connect more renewable sources, including the prosumer ones. In 2020, nearly 100 thousand prosumer installations were connected to TAURON Dystrybucja's grid with a total capacity of more than 650 MW, the cumulative capacity of prosumer installations connected to TAURON Dystrybucja's grid is more than 970 MW. The use of the best available technologies can also be considered as a contribution to mitigating climate change - such a solution is the 910 MW unit in Jaworzno, commissioned in 2020, which is a unit with a supercritical parameters boiler providing the highest possible efficiency, which will replace the old generation assets with higher emissions.

In accordance with the Update of the Strategic Directions, adopted in May 2019, TAURON Group will reduce its emissions by more than 50% by 2030, as shown in Figure no. 14.

Figure no. 14. Planned CO² emissions by TAURON Capital Group in 2018-2030

With respect to the protection of water resources, TAURON places great emphasis on saving water in technological processes, e.g. by using closed cooling circuits in conventional power plants. In case of hydroelectric power plants, environmental requirements are met, e.g. by building and maintaining systems that enable fish migration (the socalled fish passes).

Due to the adopted business model, it is important for TAURON Group is to implement the assumptions of the circular economy. This applies in particular to the initial links of the value chain. In the mining line of business, gangue (barren rock) is mined as a by-product, while ash and slag are produced in the conventional generation segment. TAURON Group strives to convert 100% of its furnace (combustion) and mining waste into products. Thanks to the actions taken, they become products used, for example, in road building, construction industry, or as a material used for the construction of flood embankments.

Another activity related to the achievement of environmental targets, implemented within TAURON Group, is pollution prevention. It is achieved mainly through investment and modernization activities, involving the construction and operation of the technological lines that treat flue gases (e.g. electrostatic precipitators, flue gas desulphurization and denitrification) and wastewater (sewage treatment plants), as well as organizing processes in a manner that minimizes waste generation. Actions taken and results achieved, related to environment protection, including those associated with water consumption and waste management, are presented in chapter 4.3. TAURON Group's Environmental Policy.

Due to the technologies used, business operations in the energy sector may generate a number of negative impacts on the climate, in particular emissions from fossil fuel combustion sources, or drainage and degradation of the land as a result of mining activities. TAURON Group reduces its negative impact on the environment and climate thanks to the continuous modernization of conventional generating units, expansion of capacity in renewable energy sources, capturing and economic use of methane from coal deposits, limiting losses in electricity and heat distribution or retiring ineffective coal-fired units.

Positive effects can also be indicated, such as water damming and its accumulation during periods of heavy rainfall and the release during periods of drought, which not only allows for reducing the effects of drought, but also reduces the risk of inundation or flooding. The expansion of the heating infrastructure makes it possible to replace nonecological individual coal-fired boilers with district heating. Modernization and expansion of the electricity distribution grid improves the reliability of electricity supply and enables connecting an ever increasing number of distributed electricity producers using renewable sources, including prosumers. As a result of its investment activities TAURON Group's production of electricity from renewable sources is gradually increasing, contributing to the mitigation of climate change. TAURON Capital Group's 2020 electricity production from renewable sources, broken down into generation technologies and from other sources, is presented in subchapter 4.4.

The Group's current Strategy responds to the current market, regulatory, technological and customer relationship challenges. The business model employed by TAURON Group allows for the implementation of strategic assumptions and thus supports the achievement of strategic goals. Referring to the terms of the Paris Accord (COP 21), which included an action plan assuming limiting global warming to a value below 2⁰C, it should be indicated

that the currently implemented Strategy and the business model of TAURON Group are in line with the implementation of this goal. In case the expected limitation of the temperature increase does not materialize, the measures and actions taken will have to be more radical, and their implementation will have to be significantly accelerated. Table 16 presents our understanding of the current situation and activities with respect to regarding shoring up the resilience of the business model to climate change.

temperature rise scenario	Short term (until 2025)	Medium term (until 2035) Check point 2030		Long term (until 2050)
		Up to the check point	Past the check point
< 2 OC	We have solutions ready – we are implementing TAURON Group's Strategy: • Shutdown of obsolete 120 MW coal fired units (approx. 1 GW). • Participation in implementing system solutions for the coal-fired units, conducted at the government level (NABE). • Prepared plan to change the fuel mix including a plan to invest in low and zero emission sources (approx. 900 MW in wind power plants + 300 MW in solar power plants). The completion of the above activities will allow for increasing the RES share to approx. 28% of the installed capacity. • New high efficiency and lower emission 910 MW unit in Jaworzno has been	• Shutdown of the 200 MW coal fired units • Participation in the off-shore wind farm construction project • Service and product offering for the prosumers • Construction of successive large RES installations. It is assumed that low and zero emissions capacity will increase by further 1.4 GW. The completion of the above activities will allow for increasing the RES share to approx. 66% of the Group's capacity.	 Maintaining profitable coal fired units as regulating and intervention sources.  Significant role of the distribution in the local balancing  Building installations that use "green hydrogen"	* Preparation of the development assumptions for the years 2030+
> 2OC	commissioned • Option to sell the Heat Line of Business – including the coal fired generating units. • Option to sell a coal mine / mining company – government works underway on the system wide solution for the coal mining assets. • Growing role of the distribution and increasing expenditures on adapting the grid to the rapid growth of the RES mini- and micro installations	Adapting the mining operations to the demand of the Group's coal fired generating units	Limiting the mining operations to the level based on the Group's generating units regulating and intervention operation  Maintaining the leading role of the distribution, including the need to commence building energy storage facilities for the local balancing	*Preparation of the development assumptions for the years 2030+

Table no. 16. Changes to TAURON Capital Group's business model in the short, medium and long term

* The main determining factors (drivers) for formulating the applicable provisions are: 1) Passing of Poland's Energy Policy; 2) Results of the government works on the system-wide solutions for the coal mining and conventional power generation.

Based on the scenario assuming warming at a maximum level of 2⁰C, changes in the external environment will be rather evolutionary, as a result of the growing awareness of the society and businesses and the ever increasing availability of the new technologies. If the evolutionary activities cannot stop the temperature rise and the forecasts will be clearly indicating that there is a high probability of exceeding the average temperature rise by more than 2 °C above the value from the pre-industrial era, changes in the external environment, in particular with respect to the regulations, organization of the power (energy) system and the power (energy) production model, as well as the customer awareness and behaviors will be very deep and fast. As of today, we can plan counteracting climate change taking into account the available technologies and the best knowledge as well as, very importantly, the availability of financial resources. The potential emergence of modern and breakthrough technological solutions and their commercialization may lead to fundamental changes in the entire energy sector's functioning model.

The growing energy awareness, combined with the rising energy cost, will lead to the ever higher and rising interest in energy efficiency, energy saving and electricity production from the renewable energy sources (RES). More and more customers will accept higher electricity costs as long as it is produced without the negative impact on the climate. Social pressure and the EU regulations are causing Poland to introduce increasingly more stringent environmental standards and a rising taxation of the CO² emissions (fees for the CO² emissions). The continuous increase in the CO² emission allowances prices is also associated with the use of the regulatory mechanisms leading to the reduced supply of the emission allowances, the EU's commitments to reduce the emissions by 55% in 2030 will be implemented through the supply controls – that is why the development of low- and zero-emission energy sources is so important. The next version of the BAT conclusions is expected to be released in the second half of the decade. The adaptation of the coal fired units to the more stringent emission standards may prove to be impossible technologically or very expensive and ultimately economically unjustified for the older generation sources. In response to the above, TAURON Group is already today assuming a gradual decommissioning of the old coal-fired units. The first of such steps was the permanent shutdown of the coal-fired units with a total capacity of 970 MW at the turn of 2020 and 2021. In accordance with the Strategy, further coal-fired units will gradually be retired by 2030.

The improvement of energy efficiency and the levels of greenhouse gas emissions in 2020 are presented in section 4.4 TAURON Group's Climate Policy.

The EU's new requirements imposed on the financial institutions practically cut off the coal technologies from the European funding sources. At the same time, investors and financial institutions are eager to participate in the RES projects. We assume that no European aid funds will be available for the development of the coal-based electricity generation sector, and for the gas fired generation sources such access will be limited. With respect to the power and heat generation sector, aid funds will be allocated solely to the restructuring and mitigation of the social effects as well as the transition of the energy towards electricity generation from RES. TAURON Group acquires financing to support the Green Turn of TAURON, allocating funds for investments that contribute to the implementation of the environmental goals - mainly with respect to electricity distribution and renewable generation sources. The list of funds obtained for pro-climate investments is presented in section 4.4 of this Report.

With respect to renewable energy sources, offshore wind energy is a technology that could play an important role in the current decade. It is assumed that in the first phase support will be granted to projects with a total capacity of approx. 5.9 GW, in the second phase, beyond 2025, as a result of an auction, this capacity may be increased by another approx. 5 GW. It should be mentioned that at the EU level the offshore strategy assumes the construction of more than 300 GW of capacity by 2050 as part of the development of offshore wind energy. In order to take full advantage of this potential, it is necessary to develop technologies that enable energy storage. One of such solutions is the production of hydrogen using electricity from renewable sources. The European hydrogen strategy envisages the construction of approx. 40 MW of capacity in electrolyzers interworking with renewable sources by 2030 and a further development of this technology by 2050. Work is underway in Poland on the "Polish Hydrogen Strategy until 2030". The draft document assumes that these activities will cover both the energy sector, as well as transportation and manufacturing industry. TAURON, acting in line with the indicated trends, both develops energy storage technologies (more about the projects in section 4.10 Strategic Research Agenda), but also carries out activities aimed at developing offshore wind energy – among others, an agreement was signed in 2020 on the cooperation in the joint implementation of offshore wind farm projects in the Polish economic zone. TAURON informed investors of this event in the current report (regulatory filling) no. 56/2020 of December 29, 2020. In January 2021, PGE, Enea and TAURON also concluded a letter of intent regarding cooperation with respect to offshore wind energy.

The rising share of the wind farms in the production mix will lead to the higher price volatility. A similar situation occurs with respect to the PV sources. Prosumer installations and large-scale installations operating today and forecast to be launched cause and will cause a still higher price volatility. Electricity during the peak hours of renewable energy production will be cheap, therefore it is likely to worsen the economic efficiency of such installations. The solution to this issue is technology diversification. TAURON Group does not focus on one renewable energy technology. Another solution to this problem can be energy storage technologies - both using storage facilities based on electrochemical cells as well as based on the production and storage of hydrogen using redundant, cheap electricity. As of today, both of these energy storage technologies are being developed by TAURON Group.

The rising number of the intermittent (non-controllable) renewable energy sources, as well as the growing number of prosumer installations are ever increasingly affecting the power system from the technical and commercial point of view. Rising energy efficiency of the customers and growing production from the prosumer installations lead to a drop of the demand for the electricity generated by the system (utility scale) sources. This trend, combined with the rising prices of the fossil fuels and/or the increase in the environmental and climate costs (CO² emission and the costs of the other emissions) related thereto, causes a shift in the role of the system (utility scale) power plants (in particular, the coal fired ones) from the position of primary sources to that of complementary and stabilizing ones.

TAURON Group's Strategy places a strong emphasis on the development of renewable energy sources. The modern 910 MW coal-fired unit in Jaworzno, commissioned in 2020, is the last coal-based generation unit, and the investment plans envisage the expansion of capacity in onshore and offshore wind technologies and the construction of photovoltaic farms. The first effects of implementing such strategy included doubling of the wind farms capacity in 2019.

The nature of the transmission systems and distribution grids is changing. This is mainly due to the development of distributed energy and requires the allocation of significant investment outlays for the expansion and adaptation of the grid to bi-directional flows. The technical solutions and network topologies are also significantly affected by the extreme weather conditions. Their increasing number and intensity makes it necessary to use the solutions resilient against, in particular, strong winds. This leads to the need to build cable and insulated networks (for the medium and low voltage grids) and upgrade the overhead networks, especially in the built-up and forest areas. TAURON Dystrybucja, as the Distribution System Operator, has, for years, been, implementing investment tasks to improve the quality and reliability of electricity supplies, mainly through automation, modernization of the existing grid and its expansion. Such activities improve network management, allow for a faster response to the grid disruptions, enable connecting further renewable energy sources and, inter alia, thanks to cabling, they reduce the possibility of a negative impact of weather and climate phenomena on the grid.

Climate changes observed in recent years do not significantly affect the way TAURON Group uses its natural capitals. Temperature rise associated with climate change has a negative impact on the production from hydroelectric power plants (due to the hydrological drought), but thanks to the development of photovoltaic and wind generation, including off-shore, the Group will be able to use such renewable generation sources even to a larger degree. In the long run, TAURON Group's impact on natural resources will be decreasing, both due to the need to meet the expected tightening of environmental requirements and climate policy, as a result of investments into new, low- and zero-emission energy sources, but also thanks to the permanent shutdown of obsolete conventional units.

Climate change, in particular the rise in temperature, mainly in the winter months, reduces the need for heat and electricity for the heating purposes. When planning the consumption of natural resources, the Group will have to take into account such changes. Being aware of the non-renewable nature of the hard coal sources consumed, the Group uses them in a responsible and efficient manner. The Group's transition towards low- and zero-emission energy will impact the business model, shifting revenue generation place within the value chain. In turn, the implementation of this scenario will have an impact on human capital, causing the need to change the qualifications of some employees and hire people with new skills. Thanks to the transition being implemented, there is also a chance that dedicated and qualified persons might become interested in working at TAURON Group, as they would be offered an opportunity to build career paths in the new renewable technology fields. The challenges associated with therewith and the opportunity to work in a stable industry will become one of the factors changing the perception of the energy sector by young generations, as an industry viewed as modern and climate neutral. More on TAURON Group's capitals in section 2.1 Our capitals and relations among them.

TAURON Group has no significant impact on climate change through deforestation, forest degradation or changes to land use. More information on this topic can be found in section 4.3 and 4.4, describing TAURON Group's Environmental Policy and Climate Policy.

Taking into account the above-mentioned scenarios and TAURON Group's potential responses, the Management Board of TAURON Polska Energia adopted, in May 2019, the Update of the Strategic Directions, supplementing TAURON Group's Strategy for 2016-2025. More on TAURON Group's Strategy in section 3.3 TAURON Capital Group's Strategy and the Green Turn of TAURON.

2.10. GRI indicators described in this chapter

• GRI 102-1 Organization name
• GRI 102-2 Activities, brands, products and services
• GRI 102-3 Location of headquarters
• GRI 102-4 Location of operations including the number of countries in which the organization operates, along with the names of those countries, where the main operations of the organization are located, or which are particularly important in relation to topics related to sustainable development discussed in the report
• GRI 102-5 Ownership and legal form
• GRI 102-6 Markets served
• GRI 102-7 Scale of the organization
• GRI 102-10 Significant changes during the reporting period regarding size, structure, ownership form or value chain
• GRI 102-11 Precautionary principle
• GRI 102-16 Values, ethics code, principles, standards, and norms of behavior
• GRI 102-17 Internal and external mechanisms enabling obtaining advice on behavior in ethical and legal issues as well as matters related to the integrity of the organization
• GRI 102-18 Governance structure
• GRI 102-22 Composition of the top management authority
• GRI 102-23 Top management authority
• GRI 102-24 Method of selecting the top management authorities
• GRI 102-26 Role of the top management body in the environment, purpose, values and strategy
• GRI 102-28 Evaluation of the results of the top management body
• GRI 102-32 Role of the top management body in reporting
• GRI 102-25 Conflict of interest
• GRI 201-2 Financial implications and other risks and opportunities associated with climate change
• GRI 203-1 Supported infrastructure investments and services for society through commercial activities, transfer of goods and pro-bono activities. Impact of these activities on society,
• GRI 103-2 The management approach and its components in the areas: environment, social, human rights, anti-corruption, HR, including indicating material topics within the given area with indication of material topics within the given area
• GRI 102-2 Activities, brands, products, and services
• GRI 102-7 Scale of the organization
• GRI 102-9 Supply chain
• GRI 102-10 Significant changes to the organization and its supply chain in the reported period
• GRI 102-12 External initiatives
• GRI 102-15 Key impact, risks and opportunities
• GRI 102-16 Key areas of impact, risks and opportunities
• GRI 102-45 Entities included in the consolidated financial statements
• GRI 102-25 Conflict of interests
• GRI 201-2 Financial implications and other risks and opportunities related to climate change
• GRI 203-1 Supported infrastructure investments and services for the benefit of society through commercial activities, transfer of goods and pro-bono activities. The impact of these activities on society
• GRI 103-2 The management approach and its components in the areas: environmental, social, human rights, anti-corruption, HR, including indicating material topics in the given area

3. ENVIRONMENT CONDITIONS DETERMINING THE CHOICE OF TAURON CAPITAL GROUP'S STRATEGY AND THE ASSUMPTIONS THEREOF

3.1. Conditions of the environment determining the choice of TAURON Group's strategy in the long, medium and short term and the assumptions of such strategy

3.1.1. TAURON Group against the backdrop of the world's greatest challenges – coronavirus pandemic

The greatest challenge of 2020 for all of the world's economies was the emergence of the infectious disease COVID-19. The pandemic led to a series of social and economic disruptions and, as a consequence, to a global recession. At the end of 2019, the World Bank forecast a slowdown in the economic growth of the world economy from approx. 3% to 2.8% in 2020. After the outbreak of the infection, the forecasts for 2020 changed and in 2020 the global economy not only failed to grow, but it even contracted by 4.3%.

The Polish economy has been one of the world's fastest growing economies in recent years. The country's economic growth rate averaged 4.2% in 2019. The rise of COVID -19 infections and the government actions aimed at minimizing the risk of an increase in the number of infections led to a freeze of the national economy. Ultimately, Poland's GDP growth rate came in at -2.8% in 2020.

A decline in production, a halt or delays of investments, a decrease of private consumption, a drop in exports and imports are the effects of a pandemic that affect the functioning of the economy. The outbreak of the coronavirus also resulted in an increase in the prices of goods and services. Poland's inflation rate was approx. 3.4% yoy in 2020. The index was mainly influenced by the observed increase in food prices and health related costs. The registered unemployment rate at the end of the second quarter of 2020 was approx. 6.1% and continued at this level until the end of the year.

ARA spot coal prices in the first half of the year fell from 55 USD/t at the beginning of the year to approx. 40 USD/t and in the second half of the year they gradually returned to the level observed at the beginning of the year. The difficult situation on the coal market in Poland has been observed for a long time and the hard coal production volume has been gradually decreasing year by year. Hard coal extraction in Poland fell by 13% in the January-November 2020 timeframe - more than 7 million Mg less coal was extracted during the 11 months of 2020 than in the previous year.

The coronavirus pandemic has had a significant impact on the country's electricity demand. Lock-down caused that many energy-consuming enterprises shortened their working time, and some companies closed their operations for economic reasons. In the first half of the year, domestic electricity production decreased by about 8%. Throughout 2020, a 4% decrease in production was observed, and a 2.3% decrease in electricity demand. Electricity prices in annual contracts were highly volatile, with a visible downward trend in the first two quarters of the year. The average annual BASE electricity price amounted to approx. PLN 233 / MWh and was almost 13% lower than the average price in 2019.

The coronavirus pandemic has had a significant impact on Poland's electricity demand. Lock-down meant that many energy-consuming enterprises shortened their working time, and some companies shut down their operations for economic reasons. Domestic electricity production decreased by approx. 8% in the first half of the year. For the full 2020, a 4% decline in production was observed, while demand for electricity dropped by 2.3%. Electricity prices under annual contracts were highly volatile, with a visible downward trend in the first two quarters of the year. The average annual BASE electricity price amounted to approx. 233 PLN/MWh and was almost 13% lower than the average price in 2019.

The prices on the CO² emission allowances market in the first two months of 2020 were more or less stable, at approx. 26 EUR/Mg. In March, the CO² prices dropped sharply, to approx. 15 EUR/Mg. The freezing of the economies resulted in a decrease of industrial production, which in turn led to a drop in demand for the EUA allowances. In the second half of the year, despite the COVID-19 pandemic underway, the prices of the emission allowances rose significantly. In December, the average price stood at 31 EUR/Mg.

3.1.2. TAURON Group against the backdrop of the world's greatest challenges – climate changes and insufficient resources

There is no doubt that humans impact the climate system, and this fact is evidenced by the increase in the concentration of greenhouse gases in the atmosphere and the observed warming. There is also no doubt regarding the relationship between this rise and the increase in the temperature on Earth. The concentration of carbon dioxide in the atmosphere has reached very high value over the recent decades. We are observing successive, shameful records: the highest temperature, the hottest summer, the smallest area of the Arctic ice cover in the history of satellite measurements, etc. Extreme weather conditions are becoming more and more common.

It should be emphasized that energy and climate change issues are closely related, as the manufacturing industry, transportation and energy sectors are responsible for the majority of the EU's greenhouse gas emissions. The assumption is that a reduction of emissions in the energy sector is easier to achieve in a shorter timeframe than in the other sectors mentioned above, due to the focus on solid fossil fuels and the possibility of providing substitution using renewable sources. As a result, transforming electricity generation is of essential importance for tackling climate change. Satisfying energy needs while reducing greenhouse gas emissions is the main challenge for the EU, and especially for Poland.

Climate change and progressing environment degradation pose a threat for Europe and the rest of the world and require an urgent response. To meet these challenges, the European Council called for more efforts to combat climate change and asked the European Commission to accelerate the works on the EU's climate neutrality, in line with the EU's international commitments under the Paris Accord.

As a result, the European Green Deal strategy was announced in December 2019, and the 2050 climate neutrality target was approved. The European Green Deal is a newly proposed EU growth strategy that aims to transform the European Union into a climate-neutral, fair and prosperous society with a sustainable, resource-efficient and competitive economy. The European Green Deal requires a holistic approach, i.e. the participation of all of the EU actions and policies in achieving its goals; all of the current policies related to climate neutrality will be subjected to a review and, if required, revised in line with the greater climate ambitions. It is assumed that reforms will be implemented, first and foremost, in those sectors of the economy that have the greatest impact on climate change and the environment, including the mining and energy sectors.

In addition, the European Council approved a new binding EU target in December 2020, assuming the reduction of the national net greenhouse gas emissions by at least 55% by 2030, as compared to the 1990 levels.

It should be emphasized that achieving climate neutrality by 2050, as a result of the social and economic transition, will be a great challenge for Poland and the Polish energy sector. The regulations stemming from the European Green Deal will have a significant impact on the operations of TAURON Group in the short and long term. More information on the Group's impact on the climate and adaptation to climate change is provided in section 4.4 of TAURON Group's Climate Policy.

Dependence on fossil fuels, in addition to a significant impact on the climate, means that the industrial sector based thereupon must take into account their supply limitations, deterioration of the availability conditions and finally exhaustion, which in the long run leads to the worsening conditions for economic growth. Insufficiency of the resources in the energy sector is controlled using operational limits stemming from the legal mechanisms, e.g. licenses specifying the allowed scope of extraction of a hard coal or limestone deposit, or water law permits specifying limits for the use of water resources in case of activities related thereto. The quantities of water taken directly from the environment (surface and groundwater intakes), as well as the quantities and quality of wastewater that can be discharged into the environment are limited. For these reasons, whenever possible, technical solutions allowing for the so-called closing of the circuits, i.e. reusing water within technology process circuits with lower quality requirements. Also, the use of water to produce electricity in hydropower plants is limited by additional conditions specified individually for each power plant, such as the water damming level or the minimum flow due to the biological requirements

Insufficiency of resources can also constitute an opportunity for the energy and mining industries, as these sectors can be a source of materials that can replace the increasingly limited natural aggregates. The ashes, slag, gypsum from desulphurization processes, produced as by-products for years, or post-mining aggregates that accompany coal processing, are becoming more and more sought after on the market, due to the fact that such substances, produced as integral parts of the energy production process, as a result of burning solid fuels and processing of extracted minerals, can be used without any further processing in an environmentally safe manner as substitutes for natural aggregates.

More information on the Group's use of the environment and the circular economy in section Environmental Policy (4.3) and sub-section Natural capital (2.1.2).

3.1.3. TAURON Group against the market backdrop in the short, medium and long term – Europe

All of the energy groups in Europe are seeing changes taking place in their environment. Currently the main trend is the broadly understood development of renewable energy sources. This is accompanied by decarbonization, electrification of the transportation, energy efficiency or decentralization of electricity generation as well as the improvement of the quality and security of electricity supply. This is reflected in the European energy groups' generation mixes and installed capacity.

Figure no. 15 presents a comparison of the generation mix and installed capacity among selected largest energy groups in Europe.

*RWE's installed capacity as of 31.12.2018 is the installed capacity including innogy (capacity excluding innogy stood at 36.6 GW, including 0.3 GW in RES)

Figure no. 15. Comparison of the generation mix and installed capacity among selected largest energy groups in Europe.

Source: Proprietary compilation based on the annual reports of the European energy groups presented

As compared to the European market, Polish energy groups are characterized by a large share of coal technologies in their generation capacity. Electricity production among the European energy groups presented is much more diversified. Generating units based on coal do not have a majority share in their fuel mix.

Analyzing the installed capacity over the years 2019/2018, the trend of investing in renewable energy sources and departing from coal is clearly visible. An example of this is Endesa or Iberdrola, whose installed capacity based on RES went up. In 2018 declined as compared to the previous year and, additionally, an increase in RES capacity was observed. Structural changes took place on the German market among the main energy companies in 2019, as a result of which the E.On group became a distribution and supply company.

The growing trends associated with capital expenditures in renewable energy sources and a greater focus on the customer and his/her needs are visible in the plans and strategic directions of the energy companies presented, as illustrated in Table no. 17.

Table no. 17. Summary of the plans and strategic directions of selected sixteen of the largest energy groups in Europe

Environment protection 17 Grup	Development of low and zero emission assets Carbon footprint reduction 15 Grup	Climate neutrality 10 Grup
Generation assets restructuring 15 Grup	Customer and his/her needs 11 Grup	Electromobility 11 Grup
Digitization, smart metering 14 Grup	Smart activities/products 14 Grup	Energy storage 11 Grup
Development of hydrogen technology 5 Grup	Efficiency improvement/ financial stability 7 Grup	Use of drones, artificial intelligence, robotization 4 Grupy

Source: Proprietary compilation based on the annual reports of the European energy groups presented

The main strategic directions of the European groups presented (for 2018) should be supplemented with those that were strongly emphasized in the reports for 2019, namely: environment protection, development of low- and zeroemission assets and a departure from electricity generation based on the coal fuel (carbon footprint reduction) towards achieving climate neutrality.

In Europe, out of 17 analyzed energy groups, 10 of them declare climate neutrality. Vattenfall plans to achieve full decarbonization in 2030, Uniper in 2035, CEZ, RWE and E.On plan to achieve this goal in 2040. The latter company wants to achieve climate neutrality by offering its customers green energy. Further energy groups: Enel, Endesa, EDF, Iberdrola and PGE declare climate neutrality in 2050.

In addition to the development of renewable energy sources, the activities related to the modernization of energy infrastructure through digitization and smart metering are gaining momentum. Currently, a common practice is to link investments in RES with PPAs (i.e. Power Purchase Agreements). The operations of the companies will focus on the customer and his/her needs, as well as electromobility. Along with the increase in the supply of renewable energy sources, including also small prosumer installations, the activity related to electricity storage is becoming more important.

TAURON Group is taking note of the trends in the power sector and taking active efforts in all of the areas presented, making changes and focusing on the challenges of the so-called energy of tomorrow, which was already reflected in the update of the strategic directions announced in May 2019, referred to as the Green Turn of TAURON.

Expansion of Renewable Energy Sources - declarations of energy companies

As the environment is changing, energy companies are updating their plans and strategic goals. Figure 16 presents the declarations of the European power companies regarding capital expenditures and expansion of the RES assets.

Figure no. 16. Declarations of the European power companies regarding capital expenditures and expansion, in the coming years, with respect to new generation capacity based on the RES assets

Source: Proprietary compilation based on the annual reports of the European energy groups presented

In 2018, an Italian company Enel had the highest installed RES capacity among the energy companies presented with 39.2 GW. In its strategic plans, it assumes allocating 38% of its capital expenditures in the years 2019-2021 for investments in renewable energy sources (it is approx. EUR 10.6 billion). The second group, whose installed RES capacity was 32.6 GW in 2018, is French EDF, that is planning to increase the installed capacity of its green assets to 50 GW by 2030. ENGiE Group, the second company operating in France, is planning to increase its capacity by 9 GW in 2019-2021 (from 24.8 GW in 2018 to 33.8 GW in 2021) and ultimately the expansion of RES to approx. 48 GW of installed capacity in 2025. Iberdrola, an energy company operating mainly in Spain, is planning to expand RES capacity from 29 GW in 2018 to approx. 38 GW in 2022. Swedish Vattenfall declares another 2.3 GW of installed RES capacity by 2020. Endesa, a Spanish energy group, had 6.5 GW of installed capacity in renewable energy sources in 2018. Its plans include an increase in capacity in wind and solar assets to 10 GW in 2022. By 2050, the group would like to produce 100% of its electricity volume from renewable energy sources. RWE, a company operating on the German market, after the acquisition of new RES assets, which took place in 2019, updated its strategic directions. It is aspiring to be the third company in Europe in terms of RES installed capacity. Therefore, they declared an expansion of their renewable energy generation fleet by 2-3 GW of installed capacity per year. Taking into account the declarations, it is estimated that in 2030 RWE will have at least 26 GW of capacity in green assets. Innogy is planning an additional 7 GW of RES capacity by 2025. Another German energy group, EnBW, has declared an increase to approx. 7.2 GW of capacity in renewable assets by 2025. In 2018, Uniper had 3.6 GW of installed capacity in renewable energy sources and is one of the companies that are not directly declaring an increase in the renewable sources capacity, but it has announced a gradual departure from coal and a reduction of the carbon footprint, and ultimately climate neutrality in 2035. A Czech company CEZ is planning to increase its assets to 2.1 GW by 2025, from 1.7 GW in 2018 to 2.1 GW of installed capacity. FORTUM Group is assuming an increase of the installed capacity in wind energy and photovoltaics in its plans.

On the domestic market, PGE Group had the largest installed capacity in RES in 2018, i.e. 2.2 GW. The Group is seeking to reduce the impact on the natural environment and reduce the emissions of its production by, inter alia, the expansion of the RES portfolio. The Group's activities with respect to RES are mainly focused on the construction of offshore wind farms, photovoltaic farms and onshore wind farms. PGE's ambition is to achieve approx. 8 GW of installed RES capacity, including 2.5 GW of offshore wind capacity by 2030. In 2035, the group is already planning approx. 10 GW of renewable energy capacity, and by 2050 it plans to achieve climate neutrality. According to the new 2019 strategic plan, Enea intends to increase its RES installed capacity to 2.5 GW in 2030 and 3.5 GW by 2035. Energa Group was incorporated into the structure of the PKN ORLEN fuel and energy group

in the first half of 2020. The strategic investment of ORLEN Group in the energy sector is the construction of offshore wind farms on the Baltic Sea with a capacity of approx. 1.7 GW by 2030. With respect to onshore wind farms and photovoltaic installations, ORLEN Group plans to achieve a total installed capacity of 0.8 GW in 2030. By 2030, the total capacity of ORLEN Group's RES assets will top 2.5 GW. The Group assumes achieving emission neutrality by 2050.

In the Update of the Strategic Directions TAURON Group declared an increase of its low and zero emission installed capacity to approx. 1.6 GW by 2025, and to approx. 3 GW by 2030. The Group is also considering its involvement in developing off-shore wind assets.

CO² emission reductions – declarations of energy companies

Power sector companies are adapting generating units to the requirements related to decarbonization and the transition to zero-emission electricity generation in their strategic declarations. Figure no. 17 illustrates the declarations of the power companies related to the CO² emission reduction targets by 2035.

Figure no. 17. CO² emission reduction targets of the European energy companies

Source: Proprietary compilation based on the annual reports and presentations of the European energy groups

Endesa Group has the most ambitious plans among the European energy groups, and its goal is to achieve 100% production of electricity with zero emissions by 2050. Pursuing this goal, the group is planning a reduction of CO² emissions by 67% (as compared to the 2018 level) by the end of 2030. Another group planning a large reduction of emissions is Enel – a reduction by 66% in 2030.

RWE is planning a 54% reduction in emissions in 2030, and a full decarbonization of its generation assets portfolio in 2040. EDF Group has set itself the goal of achieving a zero-emission level by 2050, planning to reduce emissions. by 47% in 2030

Among the Polish energy groups, TAURON Group is planning to reduce emissions by approx. 50% by 2030. PGE has declared a reduction of specific CO² emissions by 68% by 2030, and Enea by 30%. ORLEN Group assumes a drop of emission in its energy line of business by 33% by 2030 (versus 2020).

3.1.4. TAURON Group against the market backdrop in the short, medium and long term – Poland

In addition to TAURON Capital Group, 3 large, vertically integrated energy groups: PGE, ENEA and ENERGA as part of Orlen Group, are currently operating on the energy market in Poland, The consolidated energy groups (PGE, TAURON, ENEA, ENERGA) had a 67% market share in the electricity generation sub-sector.

Generation

TAURON Group is one of the main producers of electricity in Poland. The Group's share in the domestic electricity generation market, measured by gross electricity production, came in at approx. 8% after 9 months of 2020. The Group is the third largest electricity generator on the Polish market. The Group's gross electricity production stood at 12.5 TWh in 2019.

Figures 18 and 19 present information on electricity generated in Poland during 9 months of 2020 and installed capacity as of September 30, 2020.

Figure no. 18. Gross electricity production - estimated market shares after 9 months of 2020.

Figure no. 19. Installed capacity - estimated market shares after 9 months of 2020

Source: ARE, information from the energy companies published on their websites

Distribution

TAURON Group is a leader on the Polish market in terms of the number of distribution customers and the volume of electricity distributed. The Group's share in the distribution of electricity to the final consumers stood at approx. 36% (taking into account 5 largest distributors) in the first three quarters of 2020. TAURON Capital Group's distribution grids cover more than 18% of the country's territory. Figure no. 20 presents the estimated market shares of the individual energy groups in the distribution of electricity according to the data for the first three quarters of 2020. TAURON Group's electricity distribution volume came in at 50.26 TWh in 2020.

Figure no. 20. Electricity distribution - estimated market shares after 9 months of 2020

Source: ARE, information from the energy companies published on their websites

Supply

When comparing the data after the first three quarters of 2020, TAURON Group was the second, after PGE, largest supplier of electricity in Poland. TAURON Group's retail electricity supply reached 32.4 TWh for the full year 2020. The number of the Supply Segment's customers stood at approx. 5.6 million in 2020.

Figure no. 21 presents the estimated market shares of the individual energy groups in the supply of electricity to the final consumers, according to the data for the first three quarters of 2020.

Figure no. 21. Electricity supply to the final consumers - estimated market shares after 9 months of 2020

Source: ARE, information from the energy companies published on their websites

3.2. TAURON Capital Group's strategic determinants related to the external environment

Recent years have brought, and the subsequent years will, as shown in sub-section 3.1 of this Report, bring a lot of significant changes in the external environment of TAURON Capital Group. The most important of them, from the point of view of the Group's business operations, are the climate and environment related regulatory changes. The global warming, increase of the pollution and a serious smog problem in Poland that have been observed for years, are forcing specific actions to minimize the negative impact of business operations on the environment.

Short term outlook

It is assumed that the power sector will focus its efforts on the development of renewable sources. On one hand, this will be the result of an increase in prices on the wholesale electricity market, and on the other hand, it will also be the consequence of the strong support for the development of renewable energy sources and the growing cost competitiveness of such technology as compared to the ever more expensive conventional electricity generation. The noticeable fast growth of photovoltaics in Poland is primarily associated with the cost competitiveness of the technology and the launch of extensive support programs that significantly reduce investment costs. The possibility of achieving at least partial independence of rising electricity prices is also important. Binding national RES targets for 2020 prompted Poland to introduce a system of incentives, among others for the prosumers, that result in increased interest in this technology. The development of prosumer photovoltaics installations is possible, among others, thanks to the funding from the government programs. According to the Polish Energy Policy (PEP), it is assumed that the achievable capacity in PV technologies will reach 4.9 GW in 2025. In the short term, the installed capacity in onshore wind technology will also increase - according to the assumptions of the PEP, the estimated onshore wind power in Poland will stand at approx. 9.6 GW in 2025. The amendment to the distance act (the socalled 10H) can be an impulse spurring further development of wind energy. Offshore wind farms are a new and promising investment direction. According to investors' declarations, the production of electricity from the first wind farm in the Polish zone of the Baltic Sea will start as early as 2025. The most advanced works are carried out by PGE, PKN Orlen and Polenergia, and the grid connection conditions were issued for approx. 10.6 GW of capacity. According to the PEP 2040, offshore capacity will stand at approx. 0.7 GW by 2025.

The pressure to decarbonize the energy sector, observed in recent years, is gaining momentum, which is reflected in the regulations aimed at increasing environmental requirements for the coal-fired units, deepening the decline of their economic profitability, and in many cases resulting in a permanent lack of profitability. The effects of the pandemic lead to a faster loss of competitiveness of the conventional sources than previously assumed and the need to intensify activities allowing for a faster development of renewable electricity generation technologies. Additionally, a change of the approach of the financial sector leading to lending only to environmentally sustainable investments will accelerate the transition of the energy sector. The estimates included in the PEP indicate that approx. 2.6 GW of capacity will be retired from the national system in 2021-2025. Hence, the share of the individual sources in Poland's generation mix will change. It should be emphasized, however, that despite the growing number of renewable energy installations, coal will continue to be the basic fuel in the domestic energy sector until 2025.

Based on the changes observed on the European energy market and the situation of the domestic energy groups, it can be concluded that the energy business model will be modified. The mergers underway and planned - both the domestic as well as the European deals – indicate that fuel companies (e.g. Equinor-Statoil, ORLEN-Energa, PGNiG) are making investments in the energy sector. Efforts are also made to transform the business models of

energy groups, place conventional energy into separate entities and focus activities on RES, distribution and supply of electricity and new products. Changes should also be expected with respect to the functioning of the energy sector on the Polish market, in this regard work is underway on the government programs for mining and coal-based energy.

In terms of the macroeconomics, in the coming years, it is assumed that the growth in demand for electricity will be continued. Despite the expected decline in the energy intensity of the Polish economy, stabilization of the economic growth rate and the improvement of energy efficiency, there will be an increase in electricity consumption per capital. This will be the consequence of the development of electromobility and the wider spreading of the use of electricity, for example, for heating purposes in connection with counteracting low emissions. The electrification of heating (combined with an increase of the importance of district heating) will be rising along with a growth of environmental awareness and the intensification of activities related to smog reduction. In the coming years, the development of new energy storage technologies to a level that would enable their cost efficient implementation on a system-wide scale should not be expected. Significant regulatory restrictions on the use of fossil fuels for electricity production and energy price volatility due to the large share of uncontrollable (intermittent) sources can be an impulse for the wider spreading and use of energy storage facilities for system purposes. The nature of transmission systems and distribution grids is changing from the traditional direction of energy flow from the power plant to the transmission system, and further to the distribution grid and customers, to increasing flows in the opposite direction, i.e. from the low voltage grids to the higher voltage grids. This forces undertaking investment activities aimed at grid metering, including data transmission and IT systems supporting network management in order to maintain stability through flow control (load capacity of network elements), voltage and short-circuit power control. The low and medium voltage networks require large expenditures on modernization, so that they can absorb the avalanche of distributed generation installations. Distribution grids, especially in areas with low electricity consumption density, become a guarantee of stability and security, as well as a kind of "energy storage" for the prosumer sources and the other renewable energy sources.

According to TAURON Group, the most important issues that will affect the energy sector until 2025 include:

• European and national regulations: further reduction of CO2 emissions resulting in increased prices of emission allowances, increased obligation with respect to the share of electricity from renewable energy sources and increased energy efficiency; implementation of Poland's Energy Policy until 2040,
• limitation of financing possibilities for investments in coal assets by the financial sector,
• decommissioning of some conventional generating units due to the high costs of adaptation to the more stringent environmental requirements and their deteriorating competitive position versus other energy sources,
• integration of the European energy market and the reduction of the importance of the local markets in favor of the regional markets related thereto, rising capabilities for physical cross-border flows,
• ability to separate self-balancing areas, e.g. energy clusters, and the ability to provide additional services for them (balancing, aggregation, DSM, capacity reservation, etc.),
• development of technology related to energy storage,
• fast growth of the prosumers and the need to provide services at an appropriate quality level timely implementation of the PV installation grid connection.

Medium term outlook

In terms of electricity generation, the fast development of renewable energy sources is forecast to continue in the 2025-2030 time frame. A further decrease in the costs of installing renewable energy sources and the development of electricity storage facilities will be of significant importance. Technological changes for wind farms, with favorable regulations, will translate into the repowering of installations, thus increasing the capacity and improving the efficiency of their utilization. The development of energy storage will have a positive effect on the stability of electricity supply. The EU level regulations will continue to support the development of renewable energy sources and at the same time impose the ever higher costs and restrictions on conventional energy, making it permanently unprofitable.

It is estimated that intensive expansion of photovoltaic installations in Poland will continue further. According to the forecasts provided in the PEP 2040, an increase in capacity in PV installations up to more than 7 GW is expected in 2030. As regards the development of wind capacity until 2030, the PEP 2040 indicates an increase in offshore wind installations' capacity to approx. 3.8 GW, and in onshore wind installations' capacity - approx. 9.6 GW. By 2030, further shutdowns of unprofitable coal-fired units will take place. However, there is a chance for large, modern conventional power generating units, the main role of which will be to stabilize the national power system. However, it is assumed that their functioning will be directly dependent on the condition of climate and environment at the end of the third decade of the century. The expansion of flexible gas-fired units is also considered. It is estimated in the PEP that approx. 4 GW of generation capacity will be retired in the 2026-2030 time frame. As a consequence it is forecast that the share of coal in the national energy mix will decrease significantly.

The most important factors affecting the level of electricity demand include a further improvement of energy efficiency and, at the same time, still large potential for electricity consumption growth. Consumer awareness will be increasing further in connection with the digitization processes, access to the prosumer installations and smart grid solutions. An ever broader range of services based on the smart grid infrastructure, in particular smart meters, is assumed. The role of the demand side management services (DSR/DSM) will also increase, which will largely result from the development of smart technologies and market mechanisms. Due to the avalanche growth of prosumer installations, there will be a need to further develop transmission systems and distribution grids in order to adapt them to greater load variability, as well as to support bi-directional flows. A great opportunity is the growing awareness of threats to air quality resulting from low emissions and transportation. The generation sector, with the introduction of appropriate regulations, may become the greatest beneficiary of changes in the way energy is used for heating and transportation. At the same time, it will be a challenge for distribution grids and district heating networks, which will have to take into account an increase in loads. Growing energy awareness in combination with increasing energy costs will cause more and more interest in energy efficiency, energy saving and in-house production of energy from RES. Economic incentives and better technologies will result in the intensification of thermo-modernization activities and increased purchases of less and less energy-consuming devices (including in households). Additionally, the popularity of pro-ecological behavior will grow. More and more customers will accept the higher cost of electricity, provided it comes from ecological generation sources.

Long term outlook

According to available forecasts, the role of the renewable sources will be steadfastly growing at the expense of the conventional ones in the long term. Renewable energy sources are gaining their share in the global energy system faster than any other fuel in history. The British conglomerate BP, in its Annual Energy Outlook 2020, estimates that by 2040 renewable energy sources will be the main source of energy in the world, and in addition, the production of electricity from the wind and PV sources will dominate in all of 3 scenarios for the development of the electricity production market (Rapid, Net Zero, Business-as-usual). Renewable energy will be pushing out coal-based energy over the next two decades and will replace coal as the main source of electricity generation in 2040. In the longer term, there will also be a significant transition of our national energy mix by increasing the share of renewable energy sources to more than 60% by 2040, as well as potentially nuclear energy and a simultaneous further decline in the share of carbon sources. Taking into account the rising costs of coal-based energy as a result of the climate policy, its importance will be marginalized. In the time frame up to 2050, the greatest challenge for Poland will be to ensure stable electricity supplies to support the country's economic growth with increasing wealth levels, with the simultaneous need for energy transition through investments in low-emission technologies. The future of the energy sector will depend not only on its environmental impact, but also on the required adaptations to climate change. Changes in climatic conditions will have an impact on the conditions of electricity distribution or changes in the demand for electricity and heat. Infrastructure will require preparation for the effects of extreme weather and climate related events, which may cause direct damage (e.g. hurricanes, intense storms, hail, rime and snowfall may damage transmission and distribution lines), as well as indirect damage, being the long-term consequences of extreme weather and climate related events (e.g. droughts or floods) ). In the long term, the possibility of the emergence of breakthrough technologies on the market that can significantly affect the energy business, e.g. fuel cells, should be taken into account. It is forecast that hydrogen technologies will be spreading widely in energy, manufacturing industry and transportation, ammonia will be used on a large scale as one of the hydrogen fuels, energy storage technologies will be significantly developed and new energy transmission technologies will be developed. In the scenario with no breakthrough technologies, the energy sector will most likely expand in an evolutionary manner, based on the already known and commercialized technologies.

It is also possible that the years 2030-2040 will be a period during which a deep review of economic development scenarios, depending on the intensity of climate change, will be required. If the ultimate temperature increase estimated for that time frame exceeds 2 C, then we are forecasting a further tightening of environmental standards towards a substantial reduction of the CO² emissions and extremely stringent emission standards for nitrogen and sulfur oxides as well as mercury and dust. Tightening climate policy will result in a reduction in the supply of the CO² emission allowances under the ETS, which will lead to a significant increase in the prices of these allowances. In the event that global temperature forecasts indicate an increase below 2 C, a scenario where high-efficiency profitable coal assets will be maintained is possible, with a simultaneous reduction of emissions through the development of low and zero-emission generation sources and limited expansion of coal fired assets, conditioned on the demand for coal fuel and the possibility of obtaining it at competitive costs.

With the responsible development of the world in mind, the 2030 Sustainable Development Goals were adopted by all UN member states (193 countries in total, including Poland) in September 2015, setting the framework for an action strategy based on the concept of sustainable development. The agenda presents 17 sustainable development goals, and 169 detailed tasks related thereto, to be achieved by 2030. The following UN goals provide the framework for the formulation of policies for the sustainable development (growth) of economies worldwide:

• 1. No Poverty
• 1. Zero Hunger
• 1. Good Health and Well-being
• 1. Quality Education
• 1. Gender Equality
• 1. Clean Water and Sanitation
• 1. Clean and Affordable Energy
• 1. Economic Growth and Decent Work
• 1. Innovation, Industry, Infrastructure
• 1. Reducing Inequality
• 1. Sustainable Cities and Communities
• 1. Responsible Consumption and Production
• 1. Climate Action
• 1. Life Below Water
• 1. Life on Land
• 1. Peace, Justice and Strong Institution
• 1. Partnership for the Goals

Figure no. 22 presents the UN Sustainable Development Goals.

Figure no. 22. UN Sustainable Development Goals 2030 (the so-called Agenda 2030)

Source: website

European energy companies place a great weight on the implementation of the UN Sustainable Development Goals, as they emphasize it in their reports and stock market publications. Figure 23 presents the Goals on which selected European energy companies focus most in their activities. They are primarily:

Goal 7 – Providing everyone with access to sources of stable, sustainable and modern energy at an affordable price

Goal 9 – Build resilient (stable) infrastructure, promote sustainable industrialization and foster innovations

Goal 11 – Make cities and residential settlements safe, resilient (stable), sustainable and supporting social inclusion

Goal 13 – Take urgent actions to combat climate change and its consequences

Figure no. 23. Implementation of the UN Sustainable Development Goals by selected European energy companies

Source: Proprietary compilation based on the annual reports and presentations of the European energy groups

TAURON Group also wants to contribute and contributes to the implementation of the UN Sustainable Development Goals in its operations, through the activities indicated below, presented in Figure 24.

Figure no. 24. 2030 UN Sustainable Development Goals at TAURON Capital Group

Source: Proprietary compilation

TAURON Group is also supporting other UN goals in its operations, through activities for the benefit of the local community, among others, in the fight against low emissions, educational and information campaigns, engagements in natural environment protection projects, by planting trees in forest areas or caring for the life of animals. The Group also attends national and European discussions as well as projects with respect to climate related energy transition. TAURON Group also cares about the highest standards in relations with customers and stakeholders, based on a two-way dialogue, and in its actions meets the needs of disadvantaged customers and sensitive consumer groups. The Group is guided by the principle of equal treatment of employees, respect for human rights and anti-discrimination

Table no. 18. Main external factors that impact the selection and implementation of TAURON Capital Group's strategic directions

Political and regulatory Environmental	Economic and market related Social	Technological
 European Green Deal – EU climate neutrality by 2050 Increase in average global temperature as a project result of greenhouse gas emissions  Further tightening of environmental standards (related High level of dust air pollution in Poland (smog) to emissions of pollutants, use of water, waste  High level of greenhouse gas emissions - Poland management, etc.), emits 18% more greenhouse gas per capita into Need to adapt generating units to the BAT conclusions the atmosphere and over 3 x more in relation to GDP than the EU average Winter package and limitation of support systems for  conventional energy (EPS 550) Increasingly frequent occurrence of extreme weather conditions - droughts, hurricanes, severe EU taxonomy and its impact on the possibilities of heat waves, heavy rains and floods (causing not financing investment projects in the energy sector only the destruction of households, but also of the RES and energy efficiency directives, EU ETS transportation and energy infrastructure) emissions trading system  Further rising of sea levels; irreversible changes Operation of the capacity market, support for in river ecosystems and the Baltic Sea individual RES technologies (eutrophication, loss of water biodiversity) Funds for the energy transition and post-covid  Depletion of natural resources stimulation of the economy (Just Transition  Increased importance of the circular economy and Mechanism, Modernization Fund, EU Recovery Fund minimizing of waste generation and others)  Increase in the importance of limiting the effects Poland's Energy Policy Draft, National Plan for Energy of sewage, biogenic waste, municipal waste and and Climate fuels in seas and oceans Risk of introducing regulations in the banking sector leading to an increase in capital allocation ratios for loans dedicated to financing coal assets Work on government programs for the mining industry and conventional energy	  Rising electricity generation costs Increase in anti-carbon (high prices of CO2 emission sentiment among the allowances), decreasing economic public profitability of coal units  Increase in the society's  Reduction or lack of financing for ecological awareness conventional energy, preferential  Willingness to incur higher financing for RES costs of electricity, if it  Rising RES generation due to comes from RES continuously increasing RES cost  Improvement of the image competitiveness and higher electricity of companies using energy prices, from RES  Increase in costs of materials,  Increased customer services and labor awareness and customer  Limited possibilities of thermal coal requirements in terms of mining (deposits getting more and the quality of services more difficult to access, lack of coal provided and customer with appropriate parameters), increase service, changing of coal imports for power generation customer needs purposes  Change in the customer's  Thermal modernization activities, approach to the way increase of energy efficiency electricity is consumed   Generational and competence gap Negative perception of problem waste storage  Threat to stability of production and supply of electricity, risk of power shortage in the system	 Falling prices for renewable and distributed technologies  Fast development of prosumer energy, island, off-grid installations  Need to adapt the grid to the two-way electricity flow  Development of electromobility  Development of energy storage facilities  Digitization of the energy sector, development of smart metering  Technology development with respect to the circular economy  Emergence of energy self sufficient buildings - Near Zero Emission Buildings

3.3. TAURON Capital Group's Strategy and the Green Turn of TAURON

In accordance with the current Strategy in place and the Update of the Strategic Directions adopted, the increase in the value of the Group will be based primarily on

• regulated and stable Distribution segment,
• development of low and zero emission sources in terms of greenhouse gas emissions,
• conventional generation assets eligible for support,
• sales of energy and energy related products and services tailored to customer need.

In accordance with the Strategy TAURON Group is and will be investing in the development of low emission and zero emission power generation, primarily through investments in renewable energy sources and grid infrastructure. By 2025 the Group is planning to invest in on-shore wind farms, photovoltaic farms and commence the process of engaging in the construction of off-shore wind farms. With respect to conventional power generation, permanent decommissioning of the highest emitting 120 MW units and, after 2025 – the 200 MW units, is planned. As of the end of 2020, all 120 MW power generating units were shut down, except for the two units at the Stalowa Wola Branch, whose shutdown date was postponed until February 1, 2021 (970 MW in total)., TAURON Group will have installed capacity of approx. 5.7 GW in 2025, of which approx. 28% will be low and zero-emission sources (onshore wind approx. 1.1 GW; PV approx. 0.3 GW; hydro approx. 0.1 GW). 5 wind farms with a total installed capacity of 180 MW were acquired in 2019, and as a consequence TAURON Group doubled its installed capacity in wind technology.

Further investments will allow the Group to achieve an approx. 66% share of low and zero-emission capacity by 2030 (additional 1.2 GW in offshore wind and 200 MW in PV). Thus, at the end of 2030, TAURON Group will have a capacity of approx. 4.6 GW, with nearly 2.3 GW in wind technologies and 0.5 GW in PV.

As part of the update of the strategic directions, the implementation of strategic options was assumed, among others, enhancing the flexibility of the Group's asset portfolio by aligning the mining assets with the Group's planned, declining demand for fuel, divesting the heat assets, reorganizing the Generation segment and equity investments portfolio.

More information on the implementation of TAURON Capital Group's strategy and the update of the strategic directions is provided in the Management Board's Report on the Operations of TAURON Capital Group for 2020, Chapter 1.4. TAURON's Strategy and Priorities.

TAURON Group participates in the works on the systemic solutions that would enable the transition of the hard coal and lignite mining sector, conducted at the government level and has high hopes for such works. The solutions developed should provide the possibility to transform and limit mining operations, while ensuring social acceptance for such process.

Works are underway at the government level on the system that would provide demand for the capacity of the conventional units, which, due to their inability to participate in the capacity market (high emissions level) and low production volume, should be retired for economic reasons. TAURON Group's representatives are participating in these works.

The progressing climate change and its projected effects call for fundamental changes to the role and directions of the energy companies' expansion. In view of the most important trend, which is the transition to a low-emission economy, TAURON Group takes into account, in its activities and strategic plans, the fact that long-term success depends on sustainable development and corporate social responsibility. A manifestation of that is the integration, already at the strategic level, of the financial and non-financial factors, including the environmental and climate related aspects, social impact and governance. It stems from the conviction that in order to exist and grow, a business should be run in a way that takes into account both economic aspects as well as the social or environmental interests, and a balance must be struck among them. Business goals, sustainable development and transition of TAURON Group towards Poland's leading low-emission energy group are implemented in accordance with TAURON Group's Strategy for the years 2016-2025 and the Update of the Strategic Directions - the so-called Green Turn of TAURON.

The implementation of business goals is supported by building and continuously improving the management culture, friendly work environment based on the principles of diversity and compliance, as well as maintaining lasting relations with local communities and developing initiatives with respect to social and business partnership. This approach maximizes benefits for both economic as well as social growth. The activities carried out as part of TAURON Group's sustainable development are based on the 3P model - relating to both economic gain (profit), people associated with the company (people) and care for the ecological aspect of the operations (planet). They are in line with the sustainable development goals for 2015-2030 adopted by the United Nations and comply with the CSR standards defined by the International Standardization Organization in the ISO 26000 standard "Guidance on social responsibility". TAURON Group's priority is customer orientation and ensuring the security of energy supply, as well as developing a product and service offering that will fully reflect customer expectations. As part of its business activities the Group cares about maintaining good relations with customers by striving for the highest customer service standards, comprehensiveness and quality of the offering. This translates into improved efficiency, increased customer loyalty and satisfaction, or a decrease in the number of complaints. TAURON Group has been undertaking a number of initiatives aimed at minimizing the negative impact of its operations on the natural environment for years. The Green Turn of TAURON, i.e. investments in RES and the transition of the Group's energy mix are among the Group's most important strategic activities in this respect. In the environment protection area TAURON Group sets itself goals that include efficient management, recovery and re-use of the resources, implementing environment management systems (ISO, EMAS), investing in modern technologies, continuous modernization of production assets, optimization of production processes, increasing resource utilization efficiency, educating the society and defining requirements for the suppliers. TAURON Group's employees constitute a key group of stakeholders. The aspects related to building long-term relationships based on diversity, ensuring safety in the workplace, creating development opportunities and an appropriate level of ethical culture and values are important in this regard. TAURON Group also attaches importance to establishing long-term relationships with the company's immediate environment, through activities for the benefit of local communities, cooperation with academic centers and promoting the sustainable development subject among stakeholders and encouraging them to be responsible, as well as conducting a transparent policy of communication with the stakeholders.

The Group's strategic activities in three perspectives are presented below.

TAURON Group's Strategy, along with the Update of the Strategic Directions, is in line with the market and regulatory trends identified in the time frame up to 2025. Until 2025 TAURON Group will focus on ensuring financial stability by increasing operational efficiency and optimizing processes as well as on a sustainable transition related to the change of the Group's energy mix towards reducing emissions. This plan will be implemented through the gradual shutdown of obsolete coal-fired units and the development of low- and zero-emission sources. The main result of the Group's activities will be a change in the energy mix so that low and zero emission sources will constitute approximately 28% of the installed capacity in 2025. At the same time, TAURON will work on improving the quality of distribution services and developing the sales offering.

In the medium term TAURON Group will focus on further reductions of emissions through investments in low- and zero-emission sources, while keeping only modern coal-fired units in the production portfolio. The modernization and expansion of the grid will continue to be an important investment area. TAURON Group is planning to gradually shut down 200 MW coal-fired units in the years 2025-2030. In line with the Group's Strategy the electricity generation segment's main expansion area will be investments in low- and zero-emission sources, including involvement in the development of offshore wind energy. Thanks to the investments in new generation installations and a reduction in the number of coal fired units, the Group's generation mix will change in 2030, when more than 65% of assets will be low- and zero-emission installations, which is in line with the climate policy aimed at reducing emissions. Investments in the modernization and development of a modern distribution grid aimed at maintaining the high level of electricity deliveries will be continued. Being aware of the increase in ecological awareness among the public, TAURON Group is also planning activities related to offering products and services in line with this market trend.

In its long-term planning TAURON Group takes into account the major importance of environment and climate protection related issues. We are currently working on the assumptions for developing a new strategy. The main guideline is to prepare development scenarios that will ensure long-term profitable business operations immune to climate change and, at the same time, minimize the impact of the Group's operations on the environment by reducing the emissions of the generation sources. The scenarios taken into account will depend on the intensity of changes taking place in the environment, in particular on the assumptions of Poland's Energy Policy, the decisions taken by the government as part of the climate initiatives and regulatory directions shaped during the global climate summits. The implementation of the European strategy of climate neutrality by 2050 will determine the shape of the Polish energy sector in the long term, which will also be reflected in the strategic decisions of TAURON Group, whose directional goals and actions should be a consistent response to the European and national guidelines regarding the shape and model of the sector's functioning. TAURON Group will be steadfastly striving to further diversify its generation sources in terms of the fuel used and to modernize its generation capacity.

As a summary, Figure 25 illustrates the response of TAURON Capital Group to the changes in the external environment.

Figure no. 25. TAURON Capital Group's responses to the changes taking place in the external environment

3.4. Key non-financial capital efficiency ratios (metrics, performance indicators) of TAURON Group with respect to the capitals

In order to make the best use of the value levers (drivers) set as part of TAURON Group's Strategy for 2016-2025 (along with the Update of the Strategic Directions of 27 May 2019), as well as to ensure efficient (from the point of view of the individual capitals) implementation of TAURON Capital Group's Sustainable Development Strategy, key non-financial efficiency ratios (metrics, performance indicators) related to the Group's operations are defined.

They are presented in Table no. 19, including their values obtained in 2019 and 2020.

Table no. 19. TAURON Capital Group's key non-financial efficiency ratios (metrics, performance indicators), including their values obtained in 2019 and 2020

Area of activity defined in TAURON Capital Group's Sustainable Development Strategy	Key non-financial efficiency ratio (performance indicator)	Name of capital / Element related to capital	Ratio (indicator) nature	GRI reference	performance indicator) in the year	Value of the ratio (metric,
					2019	2020
Reliability and quality of supply of products and services for the customer	Number of customers of TAURON Capital Group's Distribution Line of Business	Financial capital / Distribution Segment's RAB Financial capital / Capital expenditures Financial capital / Cash flow from operating activities	Stimulant	EU3	221 335	216 551

	Number of cases of non compliance and complaints related to products and services of TAURON Capital Group with respect to providing information	Financial capital / Cash flow from operating activities Financial capital / Net profit Financial capital / Long term rating	Destimulant	417-2	0	0
	Frequency of planned power outages - number of outages / consumer / year	Financial capital / Cash flow from operating activities (minutes) SAIFI	Destimulant	EU 28	0.28	0.19
		Financial capital / Sales revenue Financial capital / EBITDA
Orientation towards the	Number of individual and business customers of TAURON Capital Group's Supply Line of Business	Financial capital / EBITDA margin Financial capital / EBITDA margin	Stimulant	102-6 102-40	5 511 946	5 590 108
customer and his/her needs		Financial capital / Net profit Financial capital / Long term rating
	Value of the Customer Satisfaction Index (CSI) for TAURON Capital Group's customers	Social capital / Implemented and applied TAURON Group's PROClient Social Policy	Stimulant		83	83
	Percentage share of TAURON Capital Group's RES installed capacity in the Group's total installed capacity	Production capital / Installed capacity in hydro, wind, solar and biomass fired power plants and combined heat and power plants	Stimulant		12%	10.5%
Environment protection	Percentage share of TAURON Capital Group's electricity production based on RES in the Group's total electricity production	Production capital / Electricity production by hydro, wind, solar and biomass fired power plants and combined heat and power plants Production capital / Heat production by biomass fired combined heat and power plants	Stimulant	EU2	11%	17%
					6%	9%
	Direct greenhouse gas emissions by TAURON Capital Group – (tCO2e)	Natural capital / Direct greenhouse gas emissions – CO2 (tons)	Destimulant	305-1	12 215 945	10 093 648
	Total weight of non hazardous waste (including UPS and UPW) generated by TAURON Capital Group	Natural capital / Total amount of non hazardous waste (including UPS and UPW) (tons)	Destimulant	306-2	1 366 974	1 729 672

		Intellectual capital /
	Number of meetings with trade union organizations at the Group's subsidiaries	Social capital / Human capital Developing relationships based on dialogue / Organizational culture based on PRO values	Stimulant		329	334
Work safety, ethical culture and employee engagement	Number of employees at TAURON Capital Group	Human capital / Number of employees Human capital / Number of trainings courses conducted by Internal Coaches (Trainers) Intellectual capital / Knowledge and competences of the Group's employees Social capital / Personnel education and development	Nominant	102-8	26 086	25 572
	Accident rate at TAURON Capital Group	Social capital / Organizational culture based on Partnership, Development, Boldness values	Destimulant	403-9	7.8	8.3
	Share of women among TAURON Capital Group's workforce	Human capital / Share of women among the workforce Social capital / Diversity Policy and Respect for Human Rights Policy implemented and applied	Nominant	405-1	21.4%	21.5%
	Number of training session hours at TAURON Capital Group	Human capital / Number of training session hours	Stimulant	404-1	478 000	295 000
	Number of local and social initiatives that TAURON Foundation has joined	Social capital / Support for local initiatives through TAURON Foundation	Stimulant		158	144
Social and business partnership	Number of projects with respect to corporate social responsibility implemented by TAURON Capital Group	Social capital / Implemented and applied TAURON Group's PROClient Social Policy Social capital / Developing lasting relationships and active dialogue with the stakeholders Social capital / Support for local initiatives	Stimulant		11	18

Number of TAURON Capital Group's meetings with local communities held in order to provide information on the operations conducted and its impact on the residents	Social capital / Implemented and applied TAURON Group's PROClient Social Policy Social capital / Developing lasting relationships and active dialogue with the stakeholders Social capital / Support for local initiatives through TAURON Foundation	Stimulant	Continuously, in line with the ongoing operations	Continuously, in line with the ongoing operations
Number of initiatives implemented by for the employees and communities, related to counteracting COVID-19	Social capital / Developing lasting relationships and active dialogue with the stakeholders Social capital / Support for local initiatives	Stimulant	-	11

3.5. GRI indices described in this section

• GRI 102-2 Activities, brands, products, and services
• GRI 102-6 Markets served
• GRI 102-7 Scale of the organization
• GRI 102-9 Supply chain
• GRI 102-10 Significant changes in the organization in the supply chain during the reporting period
• GRI 102-12 External initiatives
• GRI 102-15 Key impact, risks and opportunities
• GRI 102-16 Key areas of impact, risks and opportunities
• GRI 103-1 Explanation of the material topic and its boundary
• GRI 201-1 Value added generated and distributed
• GRI 201-4 Government support state ownership
• GRI 203-1 Investments w products and services

4. TAURON CAPITAL GROUP'S POLICIES AND DUE DILIGENCE PROCESSES AND THE PRESENTATION OF THE RESULTS OF THEIR APPLICATION

In order to systematize the activities conducted, as well as to precisely define the objectives and periodically monitor the degree of their implementation, the Management Board of TAURON Polska Energia adopted the following Policies for use at TAURON Capital Group:

• TAURON Group's Customer Oriented (PRO-customer) Social Policy (PROClient Social Policy),
• TAURON Group's Diversity Policy,
• TAURON Group's Environmental Policy,
• TAURON Group's Climate Policy,
• TAURON Group's Human Rights Respect Policy,
• TAURON Group's Human Resources Policy,
• TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy,
• TAURON Group's Anticorruption Policy,
• TAURON Group's Work Health and Safety (WHS) Policy,
• Strategic Research Agenda,
• TAURON Group's Corporate Purchasing Policy,
• TAURON Group's Subsidiaries Contractors (Counterparties) Code of Conduct Policy,
• Personal Data Protection Policy for TAURON Group entities,
• TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.

The above mentioned documents ensure compliance of TAURON Capital Group's operations with the requirements specified in art. 49 b, clause 2 and 3 of the Accounting Act. They also represent an important part of conducting a transparent communication policy with the numerous stakeholders of TAURON Capital Group, who may familiarize themselves with the annually published reports on their implementation.

Each of the above documents contains an exhaustive description of actions taken by TAURON Capital Group's subsidiaries to achieve the intended goals in the given area. The following sub-sections present the main principles, methods and tools implemented by TAURON Capital Group under the individual policies and the results of their application in 2020.

4.1. TAURON Group's PROClient Social Policy

Pursuant to TAURON Group's Strategy for 2016-2025 adopted in 2016, the vision according to which TAURON strives to be a company that is best responding to customer needs in the Polish energy industry was defined. Based on the above, in 2017 the Management Board of TAURON Polska Energia S.A. adopted TAURON Group's PRO Client Social Policy for use.

The document is aimed at developing appropriate organizational and business conditions required to achieve the strategic goals of TAURON Capital Group with respect to customer and market environment relations.

The policy is a collection of main assumptions applied in the customer sales and service process. It also defines measures taken by TAURON Capital Group as part of a dialogue with the customers, highlights the importance of developing long lasting relations both with the customers as well as with the market environment, and it also defines the responsibilities lying on the company's side with respect to this very large (the number of TAURON Capital Group's employees is presented in Table no. 20) and extremely significant group of stakeholders.

Table no. 20. GRI EU 3. Number of TAURON Capital Group's individual and business customers as of December 31, 2020

Supply group type	Supply Line of Business	Transmission and Distribution
Individual	5 164 732	17 401
Business (including institutions)	425 376	199 150
Total	5 590 108	216 551

Due diligence procedures and internal regulations

By implementing the assumptions of the PRO Customer Social Policy TAURON Capital Group is responding in the best possible manner to customer needs, focusing its efforts on the following principal issues:

• making sure the highest standards are met in the relationships with the customers, based on transparency, mutual respect and trust,
• continuous bi-directional communications, based on a dialogue,
• surveying customer opinions (feedback), experiences and expectations,
• responding to customer needs through a clear offering, satisfying their needs and meeting expectations.

Marketing research

Due diligence procedures implemented as part of the PRO Customer Social Policy include primarily periodic surveys. It is important for us to get to know our customers as much as we can and, based on that, to be able to even more fully respond to their needs. The monitoring of the marketing communications is done in cooperation with market analysts. The summary of such surveys conducted in 2020 is presented in Table no. 21.

Table no. 21. Surveys carried out by TAURON Capital Group in 2020 as part of the due diligence procedures

Subject of the survey	Time when the survey was conducted
Surveys on products / services:
Service survey: thermal comfort management	03.2020
Gas potential survey	03.2020
MOBISTYLE product survey	03.2020
SME e-invoice service survey	03.2020
Renewal offering survey	04.2020
Eco-pea coal survey, purchasing attitudes	09.2020
Household segment assistance service survey	09.2020
SME assistance service survey	10.2020
SME segment CashDirector service survey	11.2020
Energy storage purchase customer satisfaction survey	12.2020
Monitoring of coherence and transparency of the marketing communications, including in particular the communications related to the new products and offerings, including:
Survey on effectiveness of the campaign and campaign spots "Service ace from TAURON" ("As serwisowy od TAURONA")	09-12.2020
Mystery shopper research at Customer Service Centers and Partner Outlets (2 waves)	Q3, Q4.2020
Survey on awareness of assistance product possession by customers – household segment	09.2020
Survey on familiarity with TAURON offering	12.2020

Meeting the needs of disadvantaged customers and sensitive consumer groups

As part of the due diligence procedures also educational activities addressed to the disadvantaged groups, first of all customers sensitive to energy pricing and seniors, were conducted. The summary of such surveys and their quantity conducted in 2019 is presented in Table no. 22.

Table no. 22. Educational activities carried out by TAURON Capital Group in 2020 as part of the due diligence procedures

Information campaigns	Activities conducted as part of the campaign
	4.7 thousand ebook downloads from the My TAURON (Mój TAURON) service
E-book "BezpieczeństWWWo pod kontrolą z TAURONEM" (Safety under	Promotion on industry and local portals
control with TAURON)	Promotion in social media
campaign promoting good practices of safe use of the Internet. The e book was addressed to TAURON's customers, with particular emphasis on the elderly, who are most exposed to cybercrime. The campaign was	2.3 thousand completed quizzes on safety.
also to familiarize customers with the new requirements for login passwords to TAURON websites, explaining where the need for this type	Quiz available on local web portals.
of security comes from	more than 27 thousand unique viewings of article on safety on local web portals
	Information printed on payment forms sent to customers
	Wide-ranging online campaign
E-book "Fotowoltaika dla domu" (Photovoltaics for a house)	Dedicated landing page – www.tauron.pl/ebook
It is a comprehensive source of information on photovoltaics for individual customers. The publication was aimed at increasing the	Promotion of the publication in industry and national media (online and press)
knowledge and awareness of photovoltaics among household owners. In addition, the guide aimed to highlight the benefits (ecological and economic) of photovoltaic installations for individual customers.	Promotion in social media
	More than 30 publications in the media
	Approx. 15 000 e-book downloads
	Creative mailing to 30 editors
REPORT "Naprawiamy czy wyrzucamy" (We repair or throw away) TAURON Sprzedaż published the report "We repair or throw away" in 2020. The document is a compilation of information in a nutshell on Poles' attitudes regarding the purchase of new home electronics/household	Promotion in social media
	Promotion on industry portals
appliances, repair of devices in the event of a failure, as well as dealing with old devices suitable for disposal. The report was prepared on the basis of a study commissioned by TAURON. 1000 respondents from all over the country took part in it. The report was divided into three areas:	Paid online campaign
Purchase of new equipment, Failures, repairs and Electro-waste. The main purpose of the publication of the report was to educate the company's customers in terms of care for the natural environment. Promoting ecological attitudes among customers.	60 mentions in the media (press, internet TV)
	Paid online campaign
E-book "Naprawiamy" (We repair) The "We repair" guide is one of the elements of TAURON's campaign promoting ecological attitudes - encouraging to repair broken home electronics/household appliances. The guide includes, among others practical advice on the profitability of repairing various types of devices, as well as information on the global scale of the problem of electro waste and tips on how everyone can contribute to combating this problem.	Promotion among TAURON's customers (My TAURON service, mailing)
	Promotion of the publication in the industry online services
The guide was available to TAURON customers who have an account in the My TAURON service, as well as to those who visited the tauron.pl/serwisanci website.	More than 3 000 e-book downloads

Information campaigns	Activities conducted as part of the campaign
Competition "Świąteczna moc dEKOrowania" (Christmas power of dECOrating)	Information campaign on YT (3 training videos)
In December 2020, TAURON organized a nationwide competition called "Christmas power of dECOrating". The competition's task was to make	Promotional video shown in the VOD service
Christmas decorations from waste - waste paper, plastic or metal. Any technique of performing the work was allowed, it was important that the materials used should be given a second life.	Almost 4 000 participants
	Almost 12 thousand photographs sent
The ecological competition was aimed at promoting ecological attitudes -
drawing attention to the fact that every person, by changing their habits, can contribute to the fight against the global problem of excess waste and its disposal. The competition is primarily aimed at providing education with respect to recycling, upcycling and appropriate waste management.	40 laureates

Customer service through the highest quality sales and service channels

Seniors, pregnant women, persons with young children and the disabled are treated as privileged persons in TAURON Capital Group's stationary contact channel,.

In 2020, for privileged persons, at Customer Service Centers (Punkty Obsługi Klienta - POK):

• 1. Provision of priority service was continued;
• 1. Priority service marking was maintained:
  2. in the form of internal marking in waiting rooms for customers,
  3. in the form of marking on queuing machines at POKs with a queuing system,
  4. in the form of marking parking spaces for the disabled, at POKs' parking areas.

In the telephone contact channel for the disabled people and seniors the following services were provided::

• 1. Telephone support with the filling of the Application to conclude a contract after the death of a party to the contract. A courier was added to the process, who would deliver the completed application to be signed by the new consumer.
• 1. The number of customer contact numbers was optimized and a new IVR was implemented for the service hotline.

In the online channel:

• 1. Handover and Acceptance Protocol (PZO) and the Application to conclude or amend a contract (WOZ) were digitized – a customer can conclude / assign the contract without the need to visit the Customer Service Center, as well as without having to download the application from www.tauron.pl, print, scan and ship it.
• 1. Functionality of the website: www.tauron.pl, on which it is possible to increase the contrast and font size was maintained.

Responsibility towards the customer at the time of the SARS-CoV-2 pandemic

In connection with the COVID-19 pandemic, pro-customer solutions that make it possible to resolve issues without leaving home have been introduced and promoted:

• 1. Virtual POK has been launched https://www.tauron.pl/dla-domu/obsluga-i-pomoc/wirtualny-pok, where all issues that can be resolved by the customers without leaving home are accessible.
• 1. TAURON's automatic assistant, chats and chatbots, that demonstrate customers how they can resolve their issue, have been implemented.
• 1. Tools have been implemented that allow the customer to perform, in the self-service mode, popular processes with respect to settlements, such as changing the forecast amount or changing the tariff group.
• 1. Documents digitized in 2019 have been promoted among customers:
  2. Handover and Acceptance Protocol (PZO),
  3. Application to conclude or amend a contract (WOZ),

thanks to them, the customer can conclude/transfer the contract without the need to visit a Customer Service Center (POK), as well as without the need to download an application from the website www.tauron.pl, print, scan and send it.

1. The customer service and My TAURON (Mój TAURON) mobile application have been promoted, using which the customer independently resolves issues related to electricity and gas.

In 2020, TAURON Dystrybucja improved the quality of service in the process of accepting micro-installation applications by introducing an online form for submitting micro-installation grid connection applications - ZM forms. The service of sending the grid connection conditions to customers' e-mail addresses was launched, in compliance with the sensitive information protection rules. The forms of applications used in the process of connecting to the grid contain information encouraging to use the possibility of submitting such applications in the electronic version on the website tauron-dystrybucja.pl. New content was published on the tauron-dystrybucja.pl website, describing the connection process, prepared by the language consultant involved in the TAURON speaks the way humans do project (TMPL).

To ensure the safety of its employees and customers, TAURON Group decided to temporarily close its Customer Service Centers (POK). During this time, customer traffic was rerouted to the other customer service channels:

• telephone,
• online (website tauron.pl, customer service channel and mobile application Mój TAURON) and TAURON Dystrybucja website www.tauron-dystrybucja.pl).

After their re-opening the stationary facilities were adapted to all sanitary requirements. Also the requirement to make an appointment by phone via the hotline for the customers with combined contracts 32 606 0 606 and the TAURON Dystrybucja hotline 32 606 0 616 was introduced.

Due to the COVID-19 pandemic, in accordance with the legal regulations introduced TAURON Dystrybucja ceased to suspend electricity supply to customers. The restoration of the right to suspend electricity supply to households and entities for which restrictions on operations or temporary restrictions on the scope of operations were established, took place after 6 months had elapsed from the date of the announcement of the epidemic state or the state of epidemic, i.e. after September 20, 2020.

Temporary restrictions were introduced on the performance of works on the metering systems inside customers' premises (meter readings and maintenance works). The works on the metering systems and related to the rectification of failures that required entry to the premises were carried out with the consent of the customer and with the use of the required personal protective equipment by the relevant personnel.

In order to provide protection against Covid-19, the employees used personal protective equipment, i.e. face masks or face shields covering the mouth and nose, disposable gloves and disinfectants.

When taking readings of the metering systems inside the premises, the representatives of the company first asked for the meter reading without going inside the premises.

In case of premises or persons subject to isolation, quarantine or epidemiological supervision, customers were asked to provide such information upon contact with a TAURON Dystrybucja representative before starting any works. The relevant tasks were carried out at a later, agreed upon date.

Actions taken and results achieved

Among the activities implemented as part of the PRO Client Social Policy, making sure that we provide clear and transparent communication with clients is of key importance. In order to implement this stipulation, we are conducting the "TAURON speaks the way humans do" project, as well as numerous social campaigns.

TAURON speaks the way humans do

"TAURON speaks the way humans do" (TAURON mówi po ludzku - TMPL) is a project implemented for several years, that involves simplifying formal and legal documents, messages and letters addressed to the customers. In 2017, we started cooperation with Tomasz Piekot's Language Workshop, which trained several hundred people, who are in direct contact with customer service, with respect to simplifying the official language used. Language consultants have also been selected who act as ambassadors of simple communication at TAURON Obsługa Klienta, TAURON Sprzedaż and at TAURON Dystrybucja.

As part of the TMPL project in 2020:

• 38 new language consultants were trained two editions of the online course and the Certification exam conducted by Prof. Piekot,
• requirement to agree upon all documents, messages, and marketing materials with plain language consultants before sending them out to customers or publishing was introduced,
• a website dedicated to the project was updated on the Group's intranet, where users will find: writing style handbook (stylobuk - a handbook of effective communication with customers), information on the consultants and language tips written by the consultants,
• TOK and TS trainers participated in 9-hour workshops: Train the trainer: How to conduct on-line training,

• a two-hour workshop was held - how to use the Teams capabilities in on-line training.

Additionally at TAURON Dystrybucja S.A.:

• 2 training courses for the management personnel were conducted by Prof. Piekot,
• a webinar, preceded by the opportunity to submit questions, was conducted by Prof. Piekot,
• Language Clinic was developed language consultants write short articles on various aspects of simple language that are published once a month in the TAURON Dystrybucja intranet
• simple language trainers were prepared for online training (train the trainers online),
• 4 stationary training sessions were complete, during which 52 employees were trained,
• 140 templates of letters to customers were linguistically and graphically simplified,
• process of simplifying the content posted on the website www.tauron-dystrybucja.pl has been started

In 2020, TAURON Group also worked on simplifying further letters addressed to customers - nearly 70% of them were changed. Their quantities are shown in Figure no. 26.

Figure no. 26. Number of simplified letters addressed by TAURON Capital Group to its customers in 2020

The above activities are conducive to the development of processes of reliable and comprehensible information on the products and services offered.

As a result, in 2020, similar as in the previous year, no cases of non-compliance of products and services with respect to the information and labeling thereof, as well as no cases of non-compliance regarding marketing communications were reported in the entire TAURON Capital Group.

In accordance with the principles arising from the PRO Client Social Policy, we are making sure that the marketing message sent by us and our partners should always be not only in line with the law, but also with good practices. The above is illustrated in tables no. 23 and no. 24.

Table no. 23. GRI 417-2. Cases of non-compliance of TAURON Capital Group's products and services with respect to the information and labeling thereof in 2020

Number of cases of non compliance with:	TAURON Dystrybucja	TAURON Sprzedaż	TAURON Nowe Technologie	Kopalnia Wapienia "Czatkowice"	Bioeko Grupa TAURON	TOTAL NUMBER OF CASES
Regulations - resulting in a fine or penalty	0	0	0	0	0	0
Regulations - resulting in a warning	0	0	0	0	0	0
Internal codes of conduct	0	0	0	0	0	0
TOTAL NUMBER OF CASES	0	0	0	0	0	0

Table no. 24. GRI 417-3. Cases of TAURON Capital Group's non-compliance regarding marketing communications in 2020

|--|

Regulations - resulting in a fine or penalty	0	0	0	0	0	0
Regulations - resulting in a warning	0	0	0	0	0	0
Internal codes of conduct	0	0	0	0	0	0
TOTAL NUMBER OF CASES	0	0	0	0	0	0

Handling of complaints

Complaint handling processes are an effective way of obtaining information on the quality of services provided. Thanks to efficient management, they could be used to improve customer service mechanisms and impact customer satisfaction level.

Complaints addressed to TAURON are coming in by traditional mail, e-mail, telephone, using the forms available on the website www.tauron.pl and via eBOK / My TAURON (Mój TAURON). Subsequently, they are registered in the electronic documentation circulation system (SOD). The complaint handling system in place at TAURON Capital Group in 2019 is shown in Figure no. 27.

All comments and complaints are reviewed. The time and manner of response are determined by precise and stringent internal procedures. According to them, each complaint coming from the customer is thoroughly analyzed in order to correctly and effectively identify the causes of non-compliance and determine their place of origin. The fact of an occurrence of irregularities is reported to the owner of the business process who is responsible for implementing corrective actions, for the purpose of an ad hoc review of the complaint and providing an answer. The end result is the introduction of preventive actions in order to eliminate the identified non-compliance in the future. The diagnosed cases, corrective and preventive actions taken are included in the periodically verified, with respect to the repeatability of complaints, Cards of Diagnosis related to the causes of complaints

Establishing of uniform complaint management rules ensures their reliable and timely review, as well as allows to define the principles of cooperation between the Complaint Center and business process owners. The complaint handling system in place at TAURON Dystrybucja since 2019 is shown on Figure no. 28.

Figure no. 28. Customer complaint handling system in place at TAURON Dystrybucja

In order to best understand the customer's point of view, TAURON Dystrybucja and TAURON Obsługa Klienta (Customer Service) have been conducting periodic workshops, prepared based on the complaints, since 2013. Together with the personnel of the lines of business that the given complaint is applicable to, the causes and potential alternative solutions are analyzed.

This practice contributes to the implementation of a self-learning organization concept.

Customer Satisfaction Index

Customer experience in TAURON Capital Group is understood as the sum of interactions with the customer, not only during customer service, but also at all other points of contact with the company. Experience research in 2020 was carried out each month via online and telephone surveys, and quarterly via the hotline.

They focused primarily on collecting information on the level of customer loyalty (NPS) after going through a given process and on what effort (CES) they put into solving their issue at TAURON.

Customer experience surveys are carried out by TAURON Group in two ways:

Customer experience in areas where the customer is most often dealing with the company directly, i.e. in the process of discussing connections, contracts (agreements), settlements (billing), debt collection and filing a complaint is tested.

The charts presented on Figures no. 29 and no. 30 show the loyalty level (NPS) of customers following the given process that they have participated in and what effort they put into solving their issue at TAURON (CES).

The results obtained indicate what improvements and changes should be introduced to meet the customers' expectations regarding the customer service provided. The complaint area has been covered by the research since August 2020, hence there is no reference to the previous year.

Figure no. 29. Results of the customer loyalty level (NPS) survey among customers from TAURON Capital Group's household segment in 2020, as compared to 2019

Figure no. 30. Results of the customer effort (CES) survey among customers from TAURON Capital Group's household segment in 2020, as compared to 2019

Once a year, through an independent research agency, we also analyze customer satisfaction level in the following segments: households, small and medium enterprises, business. As part of this study, it is also important for us to find out how TAURON Group ranks against the competition

Each time a randomly selected group of TAURON's customers and a group of customers of other energy companies - Enea, PGE, Innogy and Energa, take part in the survey. In accordance with the schedule, the study was conducted in August and September 2020 by PBS sp. z o.o. agency.

Figure no. 31 presents the results of the customer satisfaction survey conducted in the household segment, as compared to the previous years.

Figure no. 31. Results of the customer satisfaction survey conducted among customers from TAURON Capital Group's household segment in 2020, as compared to the previous years.

In the household segment, the overall customer satisfaction level and the loyalty level are relatively stable. TAURON obtained at least the same high marks as in the previous edition of the survey in almost all of the surveyed areas. The exception is customer service, where a slight drop was recorded, mainly due to the slightly lower results of satisfaction with customer service over the online channels. The image of TAURON has not changed significantly, as compared to the previous edition of the survey, except for the aspect related to taking care of the environment, which, after the decline in 2019, is now attributed slightly more often to TAURON Group. Small positive fluctuations in other image aspects are not statistically significant, but indicate the stabilizing of TAURON's image among the customers.

Customer satisfaction indices among business customers

Stabilization of the main indicator for business customers: satisfaction and loyalty, can be observed for another year in a row. All aspects are assessed at a similar level as in the previous edition of the survey. After last year's drop, there was a slight increase in the satisfaction of business customers with respect to prices, primarily in terms of the offering's price to quality ratio and the solutions offered. Noticeable improvements were also observed with respect to failures and outages, mainly in the context of providing information on the failures.

On the other hand, a decline in the survey results can be observed with respect to contracts, which is first and foremost caused by a worse assessment of the aspect related to TAURON's willingness to negotiate non-price terms of the contract, as well as with respect to products. Customers, slightly less frequently than in the previous edition of the survey, are able to spontaneously, or with assistance, indicate specific TAURON products.

TAURON's image has not changed significantly as compared to the previous edition of the survey. TAURON is perceived primarily as a company that is easy to cooperate with, it is trustworthy, keeps its promises and sticks to its declarations and treats customers with respect. Still the lowest rated image aspect is the one regarding the appreciation of regular customers.

Figure no. 32 presents the results of the customer satisfaction survey conducted among TAURON Capital Group's business customers in 2020.

Figure no. 32. Results of the customer satisfaction survey conducted among TAURON Capital Group's business customers in 2020, as compared to the previous years

Customer satisfaction index among small and medium size enterprises (SME)

A slight decrease in the level of general satisfaction and loyalty of TAURON group's customers can be observed in this edition of the survey,. The level of these two main indicators this year is average as compared to the competition. However, it should be remembered that the samples of the competing companies' customers surveyed in the research project were small. Invariably, the most important areas for customers that affect their overall satisfaction and loyalty (directly or indirectly) are failures and outages, prices and tariffs, image and customer service. Prices have the biggest impact on the satisfaction of the SME segment customers and in this edition of the survey they were rated at a similar level as in the previous edition of the survey. The prices that in this wave of the survey were assessed similarly to the previous wave of the survey have the greatest impact on customer satisfaction in the case of SME customers. Another important aspect - according to the analyses - is customer service, including, in particular, telephone contact. This aspect is also rated, another year in a row, higher as compared to the previous edition of the survey. At the same time, the overall customer service satisfaction is slightly lower. Invariably, very important from the point of view of the impact on general satisfaction is also the company's image, which has stabilized at a relatively good level since the previous edition of the survey. Failures are the aspects that have a smaller (but still significant and greater than last year) impact on the overall rating and customer loyalty. With respect to failures the company is assessed by the SME customers at a similar level as in the previous year. At the same time, customers from this segment have most likely experienced unplanned outages less frequently in the last 12 months. The results of the SME customer satisfaction survey are presented in Figure no. 33.

Figure no. 33. Results of the customer satisfaction survey conducted among TAURON Capital Group's customers in the small and medium size enterprises segment in 2020, as compared to the previous years.

4.2. TAURON Group's Diversity Policy

In accordance with TAURON Group's Diversity Policy (hereinafter: Diversity Policy) adopted in 2017, diversity and openness are an integral part of business operations. The Group applies the policy of equal treatment and seeks to ensure diversity in terms of gender, educational background, age and professional experience in relation to all employees. The Diversity Policy is also applied in the cooperation with the external partners of the Group, i.e. companies, universities, schools or other business entities.

Due diligence procedures and internal regulations

The due diligence procedures in place under the Diversity Policy include first and foremost activities aimed at:

• developing the work environment based on respect, openness, reliability and fairness (justice),
• ensuring versatility and diversity, in particular with respect to gender, education, age and professional experience,
• building organizational culture open to diversity, based on the corporate values: Partnership, Development and Boldness (PRO),
• preventing discrimination by fostering appropriate work atmosphere as well as building and strengthening positive relationships among the personnel

As part of employee related issues supporting the implementation of the directions set by the Diversity Policy, in combination with the strengthening of the culture of equal treatment regardless of age, gender, appearance, disability, views or beliefs and ensuring equal opportunities in terms of remuneration or professional development, there are regulations ensuring fairness and objectivity with respect to work organization and remuneration, e.g.

• TAURON Group's Compensation Principles,
• applied regulations with respect to benefits (entitlements),
• implemented flexible forms of work time and ability to work remotely,

and solutions dedicated for women, ensuring equal opportunities for them and support in combining professional life with private life, e.g.

• reduced working time for pregnant women.

Actions taken and results achieved

By implementing the Diversity Policy TAURON Capital Group is seeking to provide the work environment based on respect and fairness (justice), within which each employee may fully realize his/her individual potential. The work on the Knowledge and Age Management project began in 2020. It is a process involving intellectual capital management and supporting an organizational culture based on knowledge sharing.

We are accomplishing this goal through the implementation of numerous training programs, supporting the development of the competences of each employee.

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The most important among them include:

• Purchasing management in business a project aimed at improving purchasing, negotiating and commercial qualifications. 32 employees of the Group participated in the project;
• TAURON Group Open University the goal of creating and continuing the idea of the University is to provide employees with constant access to knowledge and information on current topics, related to both business as well as personal development or the individual passions of employees
• Talent Management Program in place at TAURON Polska Energia S.A., aimed at supporting the employee development process and taking advantage of their potential;
• TAURON Group's Internal Trainers Academy is a form of activities supporting development of competences within TAURON Group;
• Development Squared is a series of weekly webinars conducted by the HR personnel from selected subsidiaries of TAURON Group. Webinars are conducted in four thematic areas: development, knowledge sharing, cooperation, health
• mentoring program "Magenta meetings" at TAURON Dystrybucja as part of the KobiecaMoc (WomenPower) campaign - for women students of electrical engineering faculties. The program's goal is to provide support for women, among others in selecting a career path;
• "Mum works" program the program is targeted at women employed at TAURON Group, whose children are under six years of age, and pregnant women. Persons joining the program have the opportunity to perform their job duties outside the place of employment (remotely) as part of a telework arrangement, or take advantage of the individual (customized) scheduling of the working time, depending on the nature of the tasks carried out at a given position. Those mums who are still on a parental or child care leave receive a newsletter containing information on the life of the company, allowing them to keep in touch with the workplace. Pregnant women can take advantage of the individual (customized) scheduling of the working time or telework, and in addition reduce the working time by two hours a day during the period of pregnancy, while maintaining the amount of remuneration. The goal of the "Mum works" program is to increase the comfort of work for future and current mothers. The program is to increase the number of women returning to work after having a child, allowing more flexible adaptation of working time to their needs. It is also to ensure that women do not lose contact with the organization during their absence caused by the maternity or child care leave. The percentage of returns to work after parental leave, as well as the retention rate are presented in Table no. 25;
• Parenting webinars the goal of the initiative is to provide support for the employees in reconciling various life roles - professional and parental. The topics of the webinars were related to motivation, independence, authenticity, creativity, building self-confidence, or how to support a child in remote learning, balancing screen time with other activities;
• Continuation of activities with respect to creating intergenerational brigades experienced employees share their professional knowledge, passing on the secrets of the art of mining to younger employees;
• Disseminating knowledge of diversity among employees using the available information channels, i.e.: work health and safety training, management personnel meetings, giant screens, notice boards.

Activities aimed at implementing a new HR process - Development Conversation, have been conducted at TAURON Group since 2019. The goal of the initiative is the development of the organization by building a culture of dialogue between the supervisor and the employee and the possibility of focusing on the employee's development in accordance with his/her needs, as well as the organization's business capabilities and needs. The development conversation is based on TAURON Group's existing Competency Model and assumes the need for continuous development of these competences in relation to changing business challenges. The activities carried out at the Group's selected subsidiaries in 2020 demonstrated a number of benefits brought by open communication and individual approach to the needs of employees, taking into account the directions of development of the organization. As the conversations may concern both the manner of fulfilling professional duties, attitude, motivation, as well as mutual expectations - they can be an opportunity to introduce positive changes in diverse teams.

One of the important activities undertaken as part of the Diversity Policy is also cooperation with the educational community, which translates into the creation of patronage classes in which students have the opportunity to gain practical experience related to the potential future job. The internship and apprenticeship programs support the development of skills of young people, and mentors have the opportunity to share their knowledge and experience, which translates into managing knowledge within the organization. By the end of 2020, TAURON had covered 53 classes with its patronage, including 9 new ones.

TAURON Group organizes numerous apprenticeships and internships. 2020 was different in comparison to the previous years due to the epidemic, which reduced the number of apprenticeships and internships in the Group. 263 people took part in the apprenticeships and internships programs at TAURON Group in 2020. As part of the implementation of the Diversity Policy, there were several foreigners among the interns. The detailed description of the above activities and projects is provided in the section regarding Human Resources Management Policy.

Risks that may have an adverse impact on the application of the Diversity Policy related to the Group's operations

The risk areas related to non-compliance with the principles of the Diversity Policy include:

• occurrence of mobbing and discrimination, in particular due to age, sex, education, origin, race, in particular in terms of equality of the rules of remuneration and promotion, and equal opportunities with respect to access to training
• increase in social unrest related to unequal treatment,
• increasing employee turnover,
• occurrence of a competence gap,
• loss of the external image and confidence in the TAURON brand.

Table no. 25. GRI 401-3. Parental leave at TAURON Capital Group in 2019

	TAURON Group's total	Women	Men
Percentage of returns to work	80%	56%	90%
Retention rate following a parental leave	94%	82%	97%

Being aware of the positive impact of a diverse work environment on the knowledge and experience sharing processes, the breakdown of the workforce and the management board of TAURON Group by age and gender is presented in tables no. 26 and 27.

		MANAGEMENT BOARD AND DIRECTORS			HIGHER AND LOWER LEVEL MANAGEMENT PERSONNEL			OTHER ADMINISTRATIVE STAFF (WHITE COLLAR POSITIONS)			BLUE COLLAR POSITIONS			TAURON Group
	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	years < above 50	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	above 50 years <	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	above 50 years <	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	above 50 years <	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	above 50 years <
		174			2 721			9 109			13 568			25 572
Number of employees	0	82	92	22	1 446	1 253	774	4 929	3 406	1 444	6 686	5 438	2 236	13 183	10 153
women	0	24	10	2	318	164	368	2 390	1 531	28	291	377	396	3 009	2 069
men	0	58	82	20	1 128	1 089	406	2 539	1 875	1 416	6 395	5 061	1 800	10 002	7 854
SHARE IN PERCENTAGE (in reference to all of the company's employees)		1%			11%			35%			53%			100%
	Share in percentage (in reference to the number of employees in the given employment category)
TOTAL	-	47%	53%	1%	53%	46%	8%	54%	37%	11%	49%	40%	9%	52%	40%
women	-	14%	6%	0%	12%	6%	4%	26%	17%	0%	2%	3%	2%	12%	8%
men	-	33%	47%	1%	41%	40%	4%	28%	21%	10%	47%	37%	7%	39%	31%

Table no. 26. GRI 405-1. Composition of TAURON Capital Group's workforce broken down by age and gender as of 31.12.2020

89% 113%

Table no. 27. Composition of the Management Boards of TAURON Capital Group's subsidiaries as of December 31, 2020, broken down by gender and age

	TAURON Group
	≤ 30 i.e. up to 30 years (inclusive)	above 30 up to 50 years (inclusive)	above 50 years <
Number of Management Board employees		41
TOTAL	0	20	21
women	0	2	1
men	0	18	20
Composition of the Management Board in percentages broken down by age and gender [%]
(percentage share versus entire Management Board) TOTAL	-	49%	51%
(percentage share versus all women in the Management Board) women	-	67%	33%
(percentage share versus all men in the Management Board) men	-	47%	53%

4.3. TAURON Group's Environmental Policy

Environment protection is a strictly controlled and regulated area in the energy and mining industry. Notwithstanding the applicable general provisions, TAURON Group, taking responsibility for the consequences of using natural resources and adopting in July 2017 a document entitled TAURON Group's Environmental Policy, and TAURON Group's Climate Policy in November 2019, emphasized that it was ready to take actions that went beyond legal obligations.

TAURON Group's Environmental Policy (Environmental Policy) adopted by the Management Board in 2017, defines TAURON Capital Group's approach to the management of the issues related to the impact made by its operations on the natural environment, including the direction of its environmental activities and the principles it will follow in environment related matters. The Environmental Policy is the benchmark for assessing all of the activities of TAURON Capital Group's subsidiaries in the area of environment protection and environmental management.

The Environmental Policy documents the values and the vision followed by TAURON Capital Group with respect to making an impact on the natural environment. The main principle of the Environmental Policy is to limit both the direct, as well as the indirect impact on the environment and to conduct responsible communications, ensuring the understanding of the operations of TAURON Capital Group that may impact the environment.

TAURON Capital Group, in accordance with the regulations and administrative practices in force on the territory of its operations, takes into account the needs related to environment protection and acts in a way that contributes to accomplishing a broader objective, which is sustainable development, and in particular the implementation of the closed circuit economy (the so-called circular economy).

Due diligence procedures and internal regulations

Due to diverse production and service profiles of TAURON Capital Group's subsidiaries, their impact on the environment varies significantly, therefore the principles of Environmental Policy are addressed in the individual internal documents of the individual subsidiaries in a way corresponding to their role in TAURON Capital Group's value system.

Minimizing negative impacts on the environment is effectively implemented taking into account the specifics of the sector, technological development and access to environmentally friendly technologies. Some of TAURON Capital Group's subsidiaries have implemented a certified environment management system in accordance with the ISO14001 standard. TAURON Wytwarzanie, representing conventional electricity generation, has additionally received the European Community's Eco-Management and Audit Scheme (EMAS), the EU's environmental certification system, aimed at creating a sustainable development culture in an organization and efficient management of available resources and energy, operating pursuant to Regulation (EC) No 1221/2009 of the European Parliament and of the Council of 25 November 2009 on voluntary participation by organizations in the European Community's Eco-Management and Audit Scheme.

Nowe Jaworzno Grupa TAURON facility commissioned in November 2020 is characterized by the highest environment management quality standards, high efficiency of fuel energy conversion into electricity and is equipped with the most modern environment protection devices with respect to flue gases treatment, water conditioning and sewage treatment. The fuel for the new unit is one of the best quality fuels on the market.

TAURON Capital Group is monitoring the main aspects of the direct and indirect environment impact of its operations on an ongoing basis. Such types of measures include, for example, monitoring the emissions of NOx, SOx compounds and dusts into the atmosphere presented in Table no. 28, 28-a and 28-b.

Table no. 28. GRI 305-7. Emissions of the NOx, SOx compounds and other significant compounds into the atmosphere by TAURON Capital Group in 2019 and 2020

TOTAL
	2020	2019
NOx	7 490 740	10 708 789
SOx	7 050 794	10 385 711
Total dust	435 182	636 538
Other (including methane)	34 881 760	33 521 927
Total aggregate emissions into the atmosphere [kg]	49 858 476	55 252 966

Table no. 28-a. GRI 305-7. Emissions of NOx, SOx compounds and other significant compounds into the atmosphere by TAURON Capital Group in 2019 and 2020, per individual subsidiaries

	Kopalnia Wapienia "Czatkowice"		TAURON Wytwarzanie		TAURON Ciepło		TAURON Wydobycie		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
NOx	684	770	6 238 530	9 394 343	1 102 230	1 275 974	37 668	37 701	111 628	-	7 490 740	10 708 789
SOx	27	32	5 392 053	8 312 491	1 537 689	2 017 940	55 188	55 248	65 837	-	7 050 794	10 385 711
Total dust	6 507	8 440	282 085	438 670	82 311	139 994	44 372	49 434	19 907	-	435 182	636 538
Other	0	0	4 551 863	6 121 356	1 366 787	1 755 165	28 956 862	25 645 406	6 248	-	34 881 760	33 521 927
Total aggregate emissions into the atmosphere [kg]	7 218	9 242	16 464 532	24 266 861	4 089 017	5 189 074	29 094 090	25 787 789	203 620	-	49 858 476	55 252 966

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

Table no 28-b. GRI 305-7. Operating limits of emissions of significant compounds into the air at TAURON Capital Group's individual subsidiaries, applicable in 2020

SOURCE	Maximum annual number of tons
	NOx	SO2	Dust
TAURON Wytwarzanie	31 198.7	43 872.9	4 136.0
TAURON Ciepło	3 037.6	4 234.2	469.4
Nowe Jaworzno Grupa TAURON	3 380.6	3 380.6	227.8
TAURON Wydobycie	37.8	55.6	63.3
Kopalnia Wapienia Czatkowice	Not determined*	Not determined*	36.2

* Emissions are not determined for the substance, the emission of which does not exceed 10% of the reference value (benchmark) or 10% of the permitted levels in the air averaged for the hour.

TAURON Group's 2020 emissions are well below the levels set as maximum permitted annual loads of substances released into the atmosphere according to the permits. The above is due to the fact that all working generating units of TAURON Wytwarzanie and TAURON Ciepło achieve the sulfur dioxide, nitrogen dioxide and dust concentration levels below the current permitted values, and the SO² and NO² concentration levels for the 200 MW units and biomass fired boilers (RES) reach a similar level to the new lower limits set out in the BAT conclusions that will apply from 2021.

In 2020, despite the COVID 19 pandemic, almost all of the investment tasks related to the modernization of the air protection installation at Łaziska and Jaworzno III Power Plants, scheduled for this period, were completed, and thanks to that the coal units planned for further operation, which are also the participants of the capacity market, will be prepared by August 2021 for the new environmental requirements specified in the BAT conclusions, which will then become effective. TAURON Group's costs and expenditures for projects related to environment protection are presented in Table 29.

Table no. 29. TAURON Group's costs and expenditures for projects related to environment protection (excluding climate-related expenditures)

TAURON Group's total costs of environment protection
including investment outlays related to environment protection
Share of investment outlays in environment protection costs	approx. 91 %
Share of environment protection investments in the Group's total capital expenditures of the Group	approx. 7 %

TAURON Group's total capital expenditures on projects directly related to environment protection in 2020 came in at nearly PLN 280 million, which represented approx. 91% of TAURON Capital Group's total outlays on environment protection and approx. 7% of expenditures, thus increasing the value of fixed assets used for the protection of the environment.

Actions bringing environmental effects taken and results achieved

The coal power units, modernized ecologically, will meet the requirements of the "BAT conclusions" and, at the same time, will contribute to a further reduction of the emissions of sulfur dioxide, nitrogen oxides and dust to the atmosphere, and to the additional reduction of emissions of other air pollutants, such as hydrogen chloride and hydrogen fluoride as well as mercury.

The program aimed at adapting TAURON Group's generating units to comply with the operational conditions in force beyond 2021 included TAURON Wytwarzanie's following ecological investments:

• Jaworzno III Power Plant, units no. 1, 3, 5 the construction of the selective catalytic reduction (SCR) installations,
• Łaziska Power Plant, units no. 9, 10, 11, 12 the refurbishment of the existing selective catalytic reduction (SCR) installations,
• Łaziska Power Plant, units no. 9 and 10 the refurbishment of the wet flue gas desulfurization (FGD) installation, including erecting the additional desulfurization level, connecting the flue gas ducting and construction of the new plastic flue gas ducting in the stack,
• Łaziska Power Plant the refurbishment of the flue gas desulfurization (FGD) installation's sewage treatment plant.

The total budget of the Program, based on the concluded contracts for the implementation of the above projects, is currently (due to the occurrence of COVID-19 a budget increase is possible) approx. PLN 270 million, of which approximately PLN 234.5 million was spent in 2020.

The program of adapting to the "BAT conclusions", in terms of the pro-ecological investment projects, was mostly completed in December 2020, and its closing is expected, among others due to the COVID-19 impact, in the second half of 2021, after a series of the performance tests, during which the emission limit values compliant with or stricter than the requirements of the "BAT conclusions" will be verified.

TAURON Group's other production units, which will be operated in the subsequent years from 2021 onwards and to which the requirements of the "BAT conclusions" will apply, will also meet them, because they have either been modernized in previous years in such a way that they meet the requirements of the "BAT conclusions" or have obtained appropriate derogations.

The expected ecological effects for the environment stemming from the implementation of the BAT Program and specified solely for TAURON Group's modernized generation units (Łaziska Power Plant and Jaworzno III Power Plant units) will allow, in the coming years, to reduce the emissions of sulfur oxides and nitrogen oxides into the air, as compared to 2019, by the following amounts:

SO2 emissions reduction – reduction of emissions by a total of approx. 153 tons/year,

(Łaziska Power Plant units no. 9 and 10)

NOx emissions reduction – reduction of emissions by a total of approx. 697 tons/year,

(Jaworzno III Power Plant, units no. 1, 3, 5 andŁaziska Power Plant, units no. 9-12)

TAURON Ciepło is currently implementing an investment project in Kamienna Góra that involves the construction of a gas-fired cogeneration system with a capacity of approx. 3 MW, which is the next stage of abandoning solid fuels in the process of generating district heat.

As part of the investment and sustainable development program, the tasks related to connecting new facilities to TAURON Ciepło's district heating networks were carried out and the Low Emission Elimination Program was continued by successive connecting of the individual facilities, previously heated using solid fuels.

TAURON Ciepło modernized the water management system at Zakład Wytwarzania Tychy.

TAURON Dystrybucja, by implementing the modernization and replacement of the existing assets on an ongoing basis, especially the tasks related to the alteration of the switchgear switchrooms or transformer/switch substations, directly contributes to the improvement of the soil and groundwater safety.

TAURON Group assumes responsibility for taking care of the natural environment and the consequences of using its resources. The Group's subsidiaries estimate that the amount of charges to be paid for the business use of the environment in 2020 is approximately PLN 30.43 million, which is illustrated in Table no. 30.

Table no. 30. Estimated charges for the business use of the environment by TAURON Capital Group due for 2020

#	Subsidiary name	Charges1 for the business use of the environment due for 2020 (PLN '000)
1.	TAURON Wytwarzanie	11 520
2.	TAURON Wydobycie	14 973.5
3	TAURON Ciepło	2 393
4.	TAURON Dystrybucja	199.9
5.	KW Czatkowice	60.0
6.	TAURON Nowe Technologie	< 0.8**
7.	TAURON Obsługa Klienta	2.2
8.	TAURON Ekoenergia	543.3, *
9.	TAURON Sprzedaż	< 0.8**

#	Subsidiary name	Charges1 for the business use of the environment due for 2020 (PLN '000)
10.	Bioeko Grupa TAURON	4.4
11.	Nowe Jaworzno Grupa TAURON	785 ***
12.	Wsparcie Grupa TAURON	2.9
	Total	30 484.2

¹Partly estimated data, the annual settlement has not been completed.

* Charge for water consumption for the purpose of running hydropower plants, assessed at the rate of PLN 1.24 per 1 MWh of electricity produced by the hydro power facilities in 2020 is PLN 543.3 thousand.

** extent of using the environment does not generate charges, as their amount is below the threshold starting from which fees are paid.

*** in total for 2020 from the start-up period and after the commissioning.

Following the principle of resource efficiency, TAURON Group is monitoring and optimizing also the consumption of water used for technological process purposes on an ongoing basis. This is done by closing the water circuits and by recirculating water with relatively good parameters to other production processes, with lesser requirements, for reuse.

The Group's energy production facilities with the highest generation efficiency (NJGT's 910 MW unit and TAURON Wytwarzanie's Łagisza Power Plant in Będzin) and the highest quality requirements for the steam and water (combined) cycles, were equipped with water conditioning (treatment) installations based on modern membrane techniques. This means the minimum use of chemicals in the treatment process, which makes the entire process safe for the natural environment. In some water treatment processes, electrolysis processes are used instead of chemicals.

The consumption of water used in the production processes by TAURON Capital Group in 2020 is shown in Tables no. 31 and no. 31-a.

	TOTAL
[m3 /year]	2020	2019
rivers	117 712 190	143 447 469
wetlands	0	0
ground water	46 458 181	45 969 125
rain water picked up directly and stored	318 988	163 701
water from the city network	3 613 660	5 359 483
Other	15 941 437	17 752 749
Total volume of water consumed from all sources taken into account	184 044 456	212 692 527

Table no. 31. GRI 303-3. TAURON Capital Group's total water consumption per source in 2019 and 2020

[m3/year]		TAURON Wydobycie		Kopalnia Wapienia "Czatkowice"		TAURON Wytwarzanie	TAURON Ciepło		TAURON Ekoenergia			Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Surface water (rivers, lakes) including water from wetlands
rivers	0	0	48 465		42 556 117 350 726 142 955 276		312 999	449 637	0	0	0		- 117 712 190 143 447 469
wetlands	0	0	0	0	0	0	0	0	0	0	0	-	0	0
Other:
ground water	45 471 280	44 883 908	92	89	986 281	1 084 646	0	0	528	482	0	-	46 458 181	45 969 125
rain water picked up directly and stored	0	0	0	0	318 988	163 701	0	0	0	0	0	-	318 988	163 701
water from the city network	792 963	159 789*	22 688	13 563	1 680 253	4 053 940	1 116 587	1 130 698	1 169	1 494	0	-	3 613 660	5 359 483
Other	0	0	0	0	14 565 846	16 736 118	759 936	1 016 631	0	0	615 655	-	15 941 437	17 752 749
Total volume of water consumed from all sources taken into account	46 264 243	45 043 697	71 245		56 208 134 902 094 164 993 681		2 189 522	2 596 966	1 697	1 976	615 655		- 184 044 456 212 692 527

Table no. 31-a. GRI 303-3. TAURON Capital Group's total water consumption per source broken down by subsidiaries in 2019 and 2020

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

* Zakład Górniczy Janina (Janina Coal Mine) – Initiative "Increase of the consumption of water from own sources in the technological processes". The objective achieved is the reduction of water purchased from Wodociągi Chrzanowskie sp z. o.o.

TAURON Group is continuously optimizing waste water treatment processes. Wastewater treatment methods are also modernized to improve the efficiency of these processes. The quality and quantity of wastewater is subject to ongoing monitoring. The total volume of waste water generated as a result of TAURON Capital Group's operations in 2020, including its utilization method (destination), is shown in Table no. 32 and no. 32-a.

Table no. 32. GRI 306-1. Total volume of TAURON Capital Group's waste water [m3] in 2019 and 2020 by quality and utilization method (destination)

Waste water dump site taking into account emergency heat dumps		TOTAL m3
	2020	2019
Waste water discharged into the sewage system (municipal companies)	815 147	842 750
Waste water discharged by means of transportation to the waste water treatment plant	524	515
Waste water discharged to the surface water:
Rivers	128 817 551	166 320 385
Other	153 285	0
Total waste water volume	129 786 507	167 163 649

100

Table no. 32-a. GRI 306-1. Total volume of TAURON Capital Group's waste water [m3] in 2019 and 2020 by quality and utilization method (destination), per subsidiary

	Waste water volume [m3 ]
Waste water dump site taking into account emergency heat dumps	Kopalnia Wapienia "Czatkowice"		TAURON Wytwarzanie		TAURON Wydobycie		TAURON Ciepło		TAURON Ekoenergia		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Waste water discharged into the sewage system (municipal companies)	0	0	114 400	109 395	287 587	291 774	412 367	440 460	793	1 121	0	-	815 147	842 750
Waste water discharged by means of transportation to the waste water treatment plant	0	0	0	0	385	372	0	0	139	143	0	-	524	515
Waste water discharged to the surface water:
Rivers	33 605	28 672		85 205 063 123 329 315	43 455 515	42 801 956	122 855	159 966	513	476	0	-	128 817 551	166 320 385
Other	0	0	0	0	0	0	0	0	0	0	153 285 *	-	153 285	0
Total waste water volume	33 605	28 672		85 319 463 123 438 710	43 743 487	43 094 102	535 222	600 426	1 445	1 740	153 285	-	129 786 507	167 163 649

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

* Discharge of sewage through the company's sewage system to the sewage treatment plant of TAURON Wytwarzanie (civil law agreement) and further after treatment, discharge of sewage to surface waters.

Circular economy - Actions taken and results achieved

TAURON Capital Group is undertaking numerous actions aimed at minimizing the negative impact on the environment. Regarding this aspect it is also actively looking for new directions and areas of activity in order to reuse the by-products of its operations. To this end, in accordance with the principles of the circular economy, it is implementing the combustion and mining by-products management (utilization) processes.

Tables no. 33 and 33-a as well as 34 and 34-a present the total weight of waste by type and utilization (handling) method.

Table no. 33. GRI 306-2. Total weight of hazardous waste [t] in 2019 and 2020, by waste type and waste utilization (handling) method

	2020	2019
Reuse	101.6	6,1
Recycling	541.4	137.7
Recovery (including energy recovery)	103.0	1 086.3
Neutralization	148.8	186.6
Storage	5.1	45.5
Other *	52.4	141.0
TOTAL WASTE WEIGHT	952	1 603

* The Group does not generate nuclear waste.

	weight of hazardous waste [tons]
	Kopalnia Wapienia "Czatkowice"		TAURON Wytwarzanie		TAURON Wydobycie			TAURON Ciepło		TAURON Ekoenergia		TAURON Dystrybucja		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Reuse	0.0	0.0	9.3	6.1	0.0	0.0	0.0	0.0	0.0	0.0	92.3	0.0	0.0	-	101.6	6.1
Recycling	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	541.4	137.7	0.0	-	541	138
Recovery (including energy recovery)	0.0	0.0	76.6	51.9	0.0	0.0	8.0	1.1	0.0	0.0	18.4	1 033.4	0.0	-	103	1 086
Neutralization	0.0	0.0	10.1	5.1	0.0	0.0	3.0	7.9	0.0	0.0	135.7	173.6	0.0	-	149	187
Storage	0.0	0.0	0.5	12.0	3.4	1.9	1.0	1.3	0.0	0.0	0.2	30.3	0.0	-	5	46
Other	26.2	27.2	0.0	0.0	26.2	38.5	0.0	0.0	0.0	75.35	0.0	0.0	0.0*	-	52	141
TOTAL WASTE WEIGHT	26.2	27.2	96.5	75.1	29.6	40.4	12.0	10.3	0.0	75.4	788.0	1 375.0	0.0*	-	952	1 603

Table no. 33-a. GRI 306-2. Total weight of hazardous waste [t] in 2019 and 2020, by waste type and waste utilization (handling) method, per subsidiary

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

* Due to the short period of operation of the unit after commissioning, the operational waste that could be a source of hazardous waste was not subject to balancing. This type of waste from the maintenance services is managed by specialized external entities.

Table no. 34. GRI 306-2. Total weight of non-hazardous waste [t] in 2019 and 2020, by waste type and waste utilization (handling) method

	2020	2019
Reuse	0	0.0
Recycling	3 606	2 200.1
Recovery (including energy recovery)	1 434 488	1 249 574.6
Neutralization	274	1 360.3
Dump (landfill)	8 958	5 539.5
Storage	30 701	104 375.6
Composting	0	0.0
Other	251 644	3 924,2
TOTAL WASTE WEIGHT	1 729 672	1 366 974

	weight of non-hazardous waste [tons]
		Kopalnia Wapienia "Czatkowice"		TAURON Wytwarzanie		TAURON Wydobycie		TAURON Ciepło		TAURON Ekoenergia		TAURON Dystrybucja	Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Reuse	0	0	0	0	0	0	0	0	0	0	0	0	0	-	0	0,0
Recycling	0	0	872	168	0	0	0	0	0	0	2 734	2 032	4 672	-	3 606	2 200
Recovery (including energy recovery)	0	0	166 308	184 172	1 231 386	846 401	36 304	218 022	0	0	490	979	1 374	-	1 434 488	1 249 575
Neutralization	0	0	14	169	0	0	9	8	0	0	251	1 183	1 241	-	274	1 360
Dump (landfill)	0	0	8 958	5 540	0	0	0	0	0	0	0	0	0	-	8 958	5 540
Storage	0	0	893	436	28 485	103 463	1 323	422	0	0	0	55	0	-	30 701	104 376
Composting	0	0	0	0	0	0	0	0	0	0	0	0	0	-	0	0
Other	286	178	2 005	3 065	248 883	554	0	0	200	127	0	0	269	-	251 644	3 924
TOTAL WASTE WEIGHT	286	178	179 050	193 550	1 508 754	950 418	37 636	218 452	200	127	3 475	4 249	269	-	1 729 672	1 366 974

Table no. 34-a. GRI 306-2. Total weight of non-hazardous waste [t] in 2019 and 2020 by quality and utilization method (destination), per subsidiary

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

4.3 million Mg of the process by-products, coming from thermal combustion and mining of coal, was generated in 2020, with as much as 65% of that quantity brought to the market as full value products to be used, among others, in the construction, road building, mining or agricultural sector. This means that in 2020 the share of by-products in waste increased by 14% as compared to 2019. The balance of the waste was handed over to further authorized recipients with whom TAURON Capital Group's subsidiaries have agreements in place that guarantee its further economic utilization, among others in land reclamation, macro-leveling and filling of the post-mining voids in mining.

Figure no. 34 presents the structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2019.

Figure no. 34. Structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2019.

Figure no. 35 presents the structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2020.

Figure no. 35. Structure (composition) of ashes, sludge, gypsum and aggregates generated by TAURON Capital Group, brought to the market in 2020

TAURON Capital Group is seeking to implement the model of circular economy. It is planned that the maximum quantity of the process waste generated should be used within TAURON Capital Group, thus reducing the consumption of natural resources and the carbon footprint.

TAURON Wytwarzanie brought as much as 100% of ashes and boiler slag coming from 6 system power plants to the market as by-products in 2020. They were used in construction, road engineering (building), mining and agriculture. Fly ash and slag from Nowe Jaworzno Grupa TAURON's new 910 MW unit are of such good quality that they have been introduced to the market as by-products since the unit's commissioning in November 2020, thus obtaining the status of full-value, certified building materials.

TAURON Capital Group's power plants produced 132 thousand Mg of ashes in 2020 that was used as valuable raw material in fire prevention by the coal mines. Ashes from TAURON Capital Group's power plants and combined heat and power plants cover 100% of the demand for ashes to be used for fire prevention at TAURON Wydobycie's coal mines.

100% of TAURON Ciepło's by-products of the combustion of fuels for the energy generation purpose, i.e. 181 000 Mg, is reused in various industries.

Figure no. 36 presents the structure (composition) of the combustion and mining by-products generated by TAURON Capital Group, brought to the market in 2020.

Figure no. 36. Structure (composition) and quantities of the combustion and mining by-products generated by TAURON Capital Group, brought to the market in 2020

TAURON Wydobycie processes post-mining waste, as a result of which high-quality construction and road aggregates are obtained. 772 thousand Mg of aggregates and materials produced from the post-mining waste were placed on the market in 2020. Very good quality parameters of the aggregates produced from the Brzeszcze Mine allowed for changing the status thereof to by-products without the need to subject them to any additional processing.

The Group focuses on local cooperation and the use of waste materials, using the waste stored in settling tanks and at waste dump (landfill) sites. More than 800 000 tons of ash and slags were delivered to the construction of the S19 expressway near the Stalowa Wola power plant.

All of the above activities contribute to reducing the consumption of natural resources, e.g. sand or gravel.

The reclamation of the energy waste landfill in Kędzierzyn-Koźle, after the former Blachownia Power Plant, was completed in 2020. Accepting of the waste for landfill at this site was discontinued in January 2014, and its final closure process began in 2019. The furnace waste landfill is an above the ground landfill and covers a total area of approx. 74 ha. The reclamation is carried out in two stages: as the technical and biological reclamation.

Biodiversity

The Group has knowledge of the areas that are valuable from the nature point of view, whose locations are subject to the Group's impact, including the NATURA 2000 network areas. One of such areas is even created as part of the industrial infrastructure of Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine), which was established in order to provide the hydrotechnical protection of the Upper Vistula against saline underground waters coming from the drainage of hard coal mines. The "Brzeszcze" underground water retention and dosing reservoir, as well as the place of discharge, is located in the Natura 2000 protected area: Special Bird Protection Area "Stawy w Brzeszcze" (Brzeszcze Ponds) PLB 120009, with an area of 3 065.9 ha. This area covers the breeding pond complexes in the upper Vistula valley, located on both sides of the river. The Vistula river, meandering in its valley, creates small oxbow lakes. There are about 14 species of birds from Annex I of the Birds Directive (out of 180 contained in the directive) and 5 species from the Polish Red Book (PCK) in the nature refuge. During the breeding season, the area is inhabited by at least 1% of the national population of the following bird species from the Polish Red Book: Little bittern, Purple heron, Whiskered tern, Black-crowned night heron, Common moorhen, Gadwall, Common redshank, Black-headed gull, Black-necked grebe. A relatively high numbers are reached by: Eurasian bittern, Black tern and Great crested grebe.

In addition, Kopalnia Wapienia "Czatkowice" is also conducting environmental monitoring pursuant to the legal provisions.

Actions taken and results achieved

Ekoenergia has completed the three-year post-implementation monitoring with respect to avifauna and chiropterofauna, carried out for the Marszewo wind farm (18 MW - Nosalin), located in the vicinity of Nosalin and Pałowo in the Postomino municipality. In February 2020, the results of the post-implementation monitoring, indicating a minor scale collision of the fauna with the turbines of the said wind farm, were approved by the Regional Director for Environmental Protection in Szczecin, who accepted them in full and thus did not raise any objections to the continued operation of the facility.

The main conclusions from the monitoring carried out by Kopalnia Wapienia "Czatkowice" in 2020 are as follows:

• from the chiropterofauna monitoring:

In 2020, as part of the chiropterofauna monitoring, research was carried out in the winter shelters of bats and in their feeding grounds. It was determined that 578 bats from 8 species hibernated in the winter shelters penetrated. The condition of the population of the Horseshoe bat and the Geoffroy's bat (bats from Annex II of the Habitats Directive) in the winter shelters is suitable (FV assessment). In case of the lesser horseshoe bat, the large bed and the crested bed a gradual increase in numbers is observed in the largest winter shelters of the Bat Cave (Jaskinia Nietoperzowa) and the Racławicka Cave (Jaskinia Racławicka). In case of the other objects and bats, no negative changes are observed as compared to the previous years, both in terms of the assessment of the number of bats population and the condition of their habitats. The assessment of the habitat conditions at the Racławicka Cave (Jaskinia Racławicka), one of the key winter shelters of the Kraków Upland, has not changed as compared to the previous years. Two colonies of breeding bats of the Horseshoe bat and the Geoffroy's bat were found in the monastery in Czerna. In case of both species, the number of colonies was higher than in the previous years. The hunting and field listening activities completed indicate that in the areas where trees were planted, the activity of bats was slightly higher than the activity observed in the previous years.

• from the assessment of the conservation status of the natural habitats and the degree of damage to the trees in the vicinity of the mine:

The field studies conducted did not show any changes in the condition of the natural habitats and stands of trees in the Eliaszówka nature reserve, in the Natura 2000 "Czerna" and "Dolinki Jurajskie" areas. Although the monitoring of the conservation status of the natural habitats has shown that the condition of the natural habitats in this area is unsatisfactory, but it is a confirmation of the previous assessments made as part of the State Environmental Monitoring.

The lower ratings of the conservation status of the natural habitats are mainly related to the disturbed composition as well as the vertical and spatial structure of the stands of trees, which in turn stems from the earlier forest management. The expansion of Impatiens parviflora may also have a significant impact on the deterioration of the condition of the natural habitats. However, these indicators are not related to the exploitation of limestone at Kopalnia "Czatkowice".

The observed damage to the tree trunks and the degree of defoliation do not differ significantly from the values typical for similar stands of trees in this geographical region. The degree of damage increases with the age of trees and is not significantly dependent on the distance from the mine. The combination of the botanical studies and the data from the measurements of suspended dust also did not show any significant correlations that could result from the negative impact of the concentration of suspended dust on the studied vegetation.

• from the ornithological monitoring in the protection zone (forested by the mine):

A very large biodiversity of birds continued to be observed - 32 species in total, which is comparable to the observations from the previous years. This diversity can be explained by the immaturity (different stages of succession) of the described ecosystem and the impact of the ecotone factor, which is a sharply marked transition zone between different biocenoses. In this case, the area covered by the study is surrounded by arable fields, meadows and forests, which noticeably affect the monitored area.

2 species from Annex 1 of the Birds Directive were found in 2020 - red-backed chrysanthemum and rowan. These species are currently finding optimal conditions for growth in the area covered by the study.

The Kopalnia Wapienia "Czatkowice" protection zone (strip) covered by the study is a very attractive breeding ground for many species of birds, including those that are scarce or endangered in Poland and Europe. Thanks to proper management, the described area provides a shelter and enables breeding of a number of bird species, including many of those that are deprived of breeding habitats year by year.

Due to the protection and restoration of biodiversity, in 2020 TAURON Ekoenergia commenced investment tasks aimed at restoring routes for the migratory fish species in the Bóbr River within the Olszna and Kraszewice hydrojunctions. Salmonids will be taken into account when designing fish passes. It should be noted that the Olszna site is located within the borders of the Natura 2000 area - bird areas (PLB020005), while the following protected species: Amur bitterling, Common barbel, Common nase, Common dace, Vimba, Crucian carp, Stone loach, Spined loach, Misgurnus fossilis, Brown trout, Sea trout, Thymallus thymallus, Burbot, European bullhead, European river lamprey, Brook lamprey and European eel, currently inhabit the waters of the Bóbr river.

4.4. TAURON Group's Climate Policy

TAURON Group's pro-climatic activities had begun before the announcement of the Communication 2019/C 209/01 and the attachments related thereto (the first documents announcing pro-climate legislation for enterprises in the European Union). The Group introduced the Update of the Strategic Directions in May 2019, as part of which the so-called Green Turn of TAURON is being implemented. With respect to the above the Management Board of TAURON Polska Energia S.A. also adopted to be applied the document entitled: TAURON Group's Climate Policy, in November 2019.

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

The goal of the 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 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 TAURON Group's generation sources (presented in tables no. 35 and 35a as well as 36 and 36a).

Table no. 35. GRI EU1. TAURON Capital Group's installed capacity, broken down into main types of the raw material and the regulatory requirements in 2019 and 2020

	TOTAL
Installed capacity in MW by the type of fuel used	2020	2019
Hard coal	7 157 *	6 361
Natural gas and coke oven gas	165	165
Biomass	381	381
Heating oil	269	129
Wind based electricity	381	381
Hydroelectricity	133	133

* The increase in the installed capacity in coal is related to the commissioning of a high-efficiency 910 MWe unit in 2020, which ultimately is to replace the "old" 120 MWe coal-fired units, which, due to the methodology of disclosing the installed capacity as of December 31, 2020, are still included in the licenses and administrative decisions, however, the actual production from these units is already being replaced by the production from the new unit.

The Group also has photovoltaic micro-installations operated for in-house needs. TAURON Ekoenergia has panels with the capacity of 12.26 kW installed on the roofs of its buildings, operated for the company's in-house needs, while TAURON Dystrybucja has 120 kW of such capacity.

Table no. 35-a. GRI EU1. TAURON Capital Group's installed capacity, broken down into main types of the raw material and the regulatory requirements, per subsidiary in 2019 and 2020

Installed capacity in MW by the type of fuel used	TAURON Wytwarzanie		TAURON Ciepło		TAURON Ekoenergia			Kopalnia Wapienia "Czatkowice"		New wind based assets Total for 10 companies		Nowe Jaworzno Grupa TAURON 1)	TOTAL
	2020	2019	2020	2019	2020	2020	2019	2019	2020	2019	2020	2019	2020	2019
Hard coal	4186 MWe 953 MWt	4186 MWe 1071 MWt	307 MWe 796 MWt	307 MWe 797 MWt	-	-	-	-	-	-	914.6 MWe	-	7 157	6 361
Natural gas and coke oven gas	-	-	164 MWt	164 MWt	-	-	1 MWt	1 MWt	-	-	-	-	165	165
Biomass	105 MWe 166 MWt	105 MWe 166 MWt	40 MWe 70 MWt	40 MWe 70 MWt	-	-	-	-	-	-	-	-	381	381
Heating oil	140 MWt	-	129 MWt	129 MWt	-	-	-	-	-	-	-	-	269	129
Wind based electricity	-	-	-	-	201	201	-	-	180	180	-	-	381	381
Hydroelectricity	-	-	-	-	133	133	-	-	-	-	-	-	133	133

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary according to the license as of December 31, 2020.

Table no. 36. GRI EU1. TAURON Capital Group's installed capacity, broken down into types of generation units in 2019 and 2020

Installed capacity in MW by the type of generation unit:	TOTAL
	2020	2019
Power plants (MWe)	5 720	4 805
Power plants (MWt)	1 259	1 237
Combined heat and power plants (MWe)	347	347
Combined heat and power plants (MWt)	1 014	1 014
Heat plants (MWt)	146	147

					Table no. 36–a. GRI EU1. TAURON Capital Group's installed capacity, broken down into types of generation units, per subsidiary in 2019 and 2020
--	--	--	--	--	-------------------------------------------------------------------------------------------------------------------------------------------------	--	--	--	--

Installed capacity in MW by the type of generation unit:	TAURON Wytwarzanie		TAURON Ciepło		TAURON Ekoenergia		Kopalnia Wapienia "Czatkowice"		New wind based assets Total for 10 companies		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Power plants (MWe)	4 291	4 291	-	-	334	334	-	-	180	180	914.6	-	5 720	4 805
Power plants (MWt)	1 259	1 237	-	-	-	-	-	-	-	-	-	-	1 259	1 237
Combined heat and power plants (MWe)	-	-	347	347	-	-	-	-	-	-	-	-	347	347
Combined heat and power plants (MWt)	-	-	1 014	1 014	-	-	-	-	-	-	-	-	1 014	1 014
Heat plants (MWt)	-	-	145	146	-	-	1*	1*	-	-	-	-	146	147

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary according to the license as of December 31, 2020.

* Kopalnia Wapienia "Czatkowice" plant boiler room / heat plant.

One of the most important commitments with respect to climate change 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.

TAURON Group's Climate Policy refers to all types of activities and operations carried out within TAURON Group's value chain, the effects of which have an impact upon climate change or constitute the implication thereof, including in particular:

• measures that enable reducing the global warming,
• measures with respect to 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.

Due diligence procedures and internal regulations

TAURON's Climate Policy is in accordance with the provisions of the EC Communication 2019/C209/01 and the TCFD Report for the energy sector appended thereto and fulfills the provisions thereof.

The due diligence procedures that accommodate the climate sensitive issues, implemented gradually in 2020, have been included in:

• 1) Risk management process based management of climate risk in the short, medium and long term (2020 2025 - 2030) wis implemented starting from 2020.
• 2) Asset management adaptation to the climate change, aimed at reducing the impact of the physical risks related to the climate, has been included in TAURON Group's asset management policy since 2020.
• 3) 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 the near future 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 three subsidiaries, TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa TAURON, are covered by the obligation to participate in the so-called European Emissions Trading System (ETS), the climate related issues are included in the operational decision making processes at such subsidiaries. In 2020, the organizational regulations of TAURON Polska Energia S.A. changes took place as a result of which the Climate Area was established. Changes were introduced to the organizational regulations of TAURON Polska Energia S.A. in 2020, as a result of which the Climate Area was established.

Adaptation to climate change

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, is implemented as part of the system-wide approach to Asset Management.

Also with respect to 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) new investment projects.

Based on the document Poland's Environmental (Ecological) Policy 2030 and the ISOK (National IT Protection System) portal, regions were identified that were more exposed to the physical risk related to climate, in order to prioritize the adaptation of the assets to climate change in the regions potentially more exposed to acute or longterm 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 (Ecological) Policy 2030 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, TAURON Group's conventional power plants are much less exposed to the need to reduce 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. The number of days on which the electricity production at TAURON Ekoenergia did not take place due to the low water level in the rivers, is presented in Table no. 37.

		The number of days in the month with no production
River	Power Plant	January	February	March	April	May	June	July	August	September	October	November	December	Total
	Brzeg						10	12	2	6	27	14		71
	Janowice						5							5
Odra	Kopin						4	1			10			15
	Wały Śląskie						3				14			17
	Bobrowice IV		5						2	6	4			17
Bóbr	Bobrowice II		4						2	9	2			17
	Opolnica				20	11	1	3	15	17	4			71
	Bystrzyca				4			16	5	5	7			37
Nysa Kłodzka	Ławica					1	1				6			8
	Nysa						1				9			10
	Dąbie						4				7			11
Wisła	Przewóz										5			5
Kamienna	Szklarska Poręba II								3	24				27

Table no. 37. The number of days on which the electricity production at TAURON Ekoenergia did not take place in 2020 due to the low water levels in the rivers

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 as a consequence, breaking of the power lines, as well as periodic and local flooding. The percentage of this type of failures at TAURON Dystrybucja in 2020 is illustrated in Table no. 38.

Table no. 36. Share of mass failures in total failures at TAURON Dystrybucja in 2020

Share of mass failures in total failures	Number of mass failures
9.7%	2

Failures often result in interruptions in the supply of electricity, the frequency and duration of which are illustrated in tables no. 39 and 40.

Table no. 39. GRI EU 28. Frequency of the interruptions in the supply of electricity to the consumers of TAURON Dystrybucja in 2020

Interruption type	SAIFI * (number of interruptions / consumer / year)
Scheduled	0.19
Unscheduled, excluding the disaster type interruptions	2.00
Unscheduled, including the disaster type interruptions	2.00
Total	2.19

* SAIFI (System Average Interruption Frequency Index) – the indicator of the average system frequency of long and very long interruptions, representing the number of consumers exposed to the effects of all these interruptions during the year divided by the total number of consumers served

Table no. 40. GRI EU 29. Average duration of the interruptions in the supply of electricity distributed by TAURON Dystrybucja in 2020

Interruption type	SAIDI* (minutes / consumer / year)
Scheduled	26.60
Unscheduled, excluding the disaster type interruptions	98.02
Unscheduled, including the disaster type interruptions	98.42
Total	125.02

* SAIDI (System Average Interruption Duration Index) - the indicator of the average system duration of a long and very long interruption, expressed in minutes per consumer per year, which is the sum of the products of its duration multiplied by the number of consumers exposed to the effects of this interruption during the year divided by the total number of consumers served.

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. 41).

Table no. 41. Targets and implementations regarding the adaptation of the distribution assets to climate change by increasing the share of MV cable lines in relation to the total length of the MV lines (%), cables / overhead lines

Target measure	MV cable length share in relation to the total length of the MV lines (%), unit
Year	Target	Implementation
2019	-	38.4
2020	38.65%*	38.73%
2025	41.00%*	-
2030	45.00%	-

* Targets for 2020 and 2025 have been recalculated taking into account the specificity of new connections to the MV grid and the pace of RES development, and in accordance with the forecast of the specificity of the grid load.

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 have been much milder in the area served by TAURON Ciepło (Silesia-Dąbrowa metropolitan area, and Zawiercie and Olkusz) over the last few years. This fact, of course, 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 Figures no. 37 and 38.

Figure no. 37. Chart of the weighted average air temperature in Poland during the heating season - trend of changes in 2011-2020 [^oC].

In the same period of 2002 to 2020, the length of the heating season was extended by 20 days, which somewhat mitigated the difference resulting from an increase in the season temperature. However, this does not make up for an increase in outside temperatures.

Figure no. 38. Length of the heating season in the years 2002 - 2020. The data is applicable to PEC Katowice in the years 2002-2011 and TAURON Ciepło in the years 2011-2020 [days].

Comparing the 2020 data to the 2019 data, the heat production as well as the demand for heat supplies at TAURON Ciepło, during the heating period were at a very similar level, with a very small difference in heat production (decline) amounting to approximately 0.5%. The length of the season and the average temperature of the heating season were at a very similar level in 2020 and 2019, and the situation related to the coronavirus did not change the preferences of the district heating users.

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 smaller ongoing reduction measures, adequate to the line of business, and such reductions made in 2020 are reflected in Table No. 42.

	Initiative	Nature of the initiative mandatory (stemming from legal provisions) / voluntary	Reduction of greenhouse gas emissions [tCO2]
TAURON Wytwarzanie	conversion of types of fuels used - conversion of a biomass-only boiler (Stalowa Wola, Jaworzno II),	voluntary	535 885
TAURON Ciepło	Change in the type of fuels used	voluntary	199 243
KW "Czatkowice"	Modernization of the plant's technological process system and liquidation of the 6 MWt coal fired boiler house	voluntary	2116
TAURON Dystrybucja	Jelenia Góra Branch at ul. W. Pola 47 carried out an investment project consisting in the construction of renewable energy sources in the form of ground source heat pumps interworking with the lower source in the form of vertical wells. In connection with the implementation of the above investment project, the existing boiler house was shut down	voluntary	248,2
TAURON Dystrybucja	Thermo-modernization was implemented at 5 locations (Opole Branch - 3, Częstochowa Branch - 1 and Jelenia Góra Branch - 1). The coal-fired boiler house in Opole was shut down.	voluntary	123,7*
		TOTAL REDUCTIONS	737 616

Table no. 42. GRI 305-5. Reduction of greenhouse gas emissions by TAURON Capital Group in 2020

* Due to the change of the boiler room and the transfer of the heat supply service, the GHG emission from Scope 1 became Scope 2

Actions taken and results achieved

Cooperation with partners to counter climate change

TAURON Group engages in the public discussion on energy transition concerning climate-related issues on an ongoing basis. Despite the COVID-19 pandemic, it also began cooperation with non-business partners in 2020.

A webinar devoted to the Group's Climate Policy was held for TAURON Polska Energia employees in May 2020, as part of the so-called internal trainers program, attended by nearly 40 employees from various organizational units.

TAURON cooperated in the works of the working group on energy as part of the project Zero-emission Polska 2050. A chance for the economy and climate, established of the initiative of WWF Poland. The project ended in September 2020 with the publication of a report, and its aim was to create a different perspective on the issue of climate neutrality in Poland among the representatives of the public sector, business and non-government organizations, outlining the main directions of intervention in the area of construction, energy, agriculture and forestry, as well as transportation.

Matters related to energy transition were also discussed on an ongoing basis during such working groups as the "Regional Energy Council" at the Silesian Union of Municipalities and Counties or the "Regional Team for the Initiative of Mining Regions at the Marshal of Silesia". In 2020, TAURON was also operationally involved in the work on the Regional Just Transition Plans.

TAURON also supported in November 2020 the organization of an event dedicated to climate change, which was the Metropolitan Climathon 2020. This marathon of creativity on climate protection was held on-line in 2020, and was devoted to the issue of drought in the city. The concept of Climathon is to jointly develop solutions responding to specific climate challenges at the given place, during 24-hour events that take place simultaneously in more than 100 cities around the world in 47 countries. This year's metropolitan edition was organized under the slogan: Metropolis in the era of global warming - water retention and drought prevention.

Improving the efficiency of the production processes that have an impact on the climate change

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, TAURON Ciepło and Nowe Jaworzno Grupa TAURON, as well as unorganized emissions of methane into the atmosphere from Zakład Górniczy Brzeszcze (Brzeszcze Coal Mine), owned by TAURON Wydobycie, are important sources of greenhouse gas emissions. Methane emissions come from the mine ventilation, over which the company has no direct influence and cannot control it in a technically justified manner. The emissions constitute the so-called offbalance sheet methane emissions, which are calculated and included in the charges for the use of the environment for the business purposes.

In addition, ZG Brzeszcze is equipped with a mine methane extraction (drainage) plant, in which, in 2020, 100% of methane was obtained and utilized (sold) in the quantity of approx. 40 million Nm3 of methane, thus it was not a source of direct methane emissions to the atmosphere and was used in the combustion processes by external entities as an energy source.

Direct greenhouse gas emissions due to the secondary operations of TAURON Wytwarzanie, TAURON Ciepło, Nowe Jaworzno Grupa TAURON, as well as the Group's other subsidiaries do not account for 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 TAURON Capital Group in 2020 are presented in tables 41 and 41-a.

Table no. 43. GRI 305-1. Direct greenhouse gas emissions [tCO2] by TAURON Capital Group in 2019 and 2020

	TOTAL AGGREGATE
	2020	2019
Emission related to electricity generation	8 848 777	11 080 519
Emission related to heat generation	1 227 458	1 114 956
Emissions from gas leaks, including those associated with accidents	460	623
Emissions related to the transportation of materials, products and waste	16 954	19 847

Total direct emissions	10 093 648	12 215 945
Biogenic emission	754 122	471 242

119

	Greenhouse gas emissions [tCO2]
	Kopalnia Wapienia "Czatkowice"									TAURON Wytwarzanie		TAURON Ciepło		TAURON Wydobycie		TAURON Dystrybucja		Nowe Jaworzno Grupa TAURON 1)		TOTAL AGGREGATE
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Emissions related to electricity generation	0	0	8 007 159	10 232 576	624 146	847 943	-	-	0	0	380	-	8 848 777	11 080 519
Emissions related to heat generation	5 291	8 449	521 536	329 447	700 251	776 801	-	-	380	258	87	-	1 227 458	1 114 956
Emissions from gas leaks, including those associated with accidents	0	0	373,0	500,5	0	0	0	0	87	123	3 319	-	460	623
Emissions related to the transportation of materials, products and waste	3 704	3 139	1 231	2 636	1 246	0	1 876	1 370	8 884	12 701	3 786	-	16 954	19 847
Total direct emissions	8 995	11 588	8 530 086	10 565 160	1 325 643	1 624 745	1 876	1 370	9 351	13 082	0	-	10 093 648	12 215 945
Biogenic emissions	-	-	535 361	413 089	218 761	58 152	0	-	0	-	0	-	754 122	471 242

Table no. 43-a. GRI 305-1. Direct greenhouse gas emissions [tCO2] by TAURON Capital Group in 2019 and 2020, per subsidiary

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

Indirect greenhouse gas emissions [tCO2e]
	2020	Explanations
Indirect emissions related to the use of electricity purchased and transmission losses related to electricity distribution	427 118	It includes all electricity purchased by the Group's subsidiaries and the volume of electricity related to transmission losses in connection with the operations conducted by TAURON Dystrybucja S.A.1)
Indirect emissions related to the transportation of fuels (including biomass)	8 346	It includes the transportation of hard coal and biomass to the following subsidiaries2): TAURON Wytwarzanie, TAURON Ciepło and Nowe Jaworzno Grupa TAURON3)
Total indirect emissions	435 464	-

1) The indicators (metrics) used to calculate indirect GHG emissions related to the use of the electricity purchased and transmission losses is assumed based on the underlying data: https://www.tauron.pl/tauron/o-tauronie/spolki-grupy/tauron-sprzedaz-gze/struktura-paliw, i.e. in the same value equal to 0.733664 Mg CO2e / MWh.

2) The indicators (metrics) used to calculate indirect GHG emissions for the related to the transportation of materials are assumed in accordance with the underlying data: "Guidelines for Measuring and Managing CO² Emission from Freight Transport Operations. A. McKinnon (UK)" respectively:

• transportation of fuel by trucks on the roads - 62 g CO2e / ton-km (the mean value for two data sources) and 68 140 298 tkm as the total number of ton kilometers calculated based of the actual weights of fuel loads and the average length of the road routes,
• transportation of fuel by rail - 22 g CO2e/ton-km and 187 341 015 tkm as the total number of ton-kilometers calculated on the basis of the actual weights of fuel loads and the average length of the railway routes taking into account the routes for the transportation of the coal fuels.

Ton-kilometers take into account the weight of the materials transported from the place of initial fuel loading to the destination (Group's subsidiaries). Ton-kilometers for the transportation of biomass take into account a rational averaged distance of 70 km for the entire volume of biomass from the producer to the destination and withing the maximum radius of 100 km for at least 90% of the deliveries.

Transports commenced at the end of 2019 were not taken into account.

3) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020).

Actions taken for the climate are also reflected in various types of investment projects carried out by TAURON Capital Group's subsidiaries in 2020 and in the previous years, which have a direct and indirect impact on reducing fuel and energy consumption as well as reducing or avoiding gas emissions to the atmosphere.

The Group's subsidiaries are undertaking a number of activities aimed at improving energy efficiency, which is reflected in the acquisition of energy efficiency property rights in the quantity of 715 toe in 2020. The Group's subsidiaries with the highest primary energy savings potential are getting ready to implement an energy management system.

The number of electric vehicle charging stations connected to the power grid of the Group's subsidiary went up by another 64 stations in 2020.

TAURON Nowe Technologie, a subsidiary dedicated to the operation and maintenance of street lighting in the area of the Group's operations, continued in 2020 the program of replacing the street lights with the energy-saving lighting (approx. 28.4 thousand units), which will allow for annual savings in the final electricity consumption by the consumers (21 municipalities) in the estimated amount of approx. 8 267 MWh/year.

At the end of 2020, TAURON Wytwarzanie completed the construction of a photovoltaic farm in Jaworzno (5 MWe), and the effects of the production from that renewable energy source will be accounted for starting from 2021.

Preparation and adaptation of the infrastructure taking into account the need to adapt to climate change is one of the significant items of TAURON Capital Group's capital expenditures. As part of these activities, among others, the alteration and replacement of the grid (including adaptation to the RES grid connections), modernization of stations in order to increase their efficiency, replacement of lighting with the energy-saving solutions, construction of "e-mobility" and "e-grid" infrastructure were carried out. The expenditures on the projects related to climate change adaptation are presented in Table no. 44.

Table no. 44. Expenditures on the projects related to climate change adaptation

Total capital expenditures related to TG's climate change adaptation projects PLN 197 million

Share of the capital expenditures related to climate change adaptation projects in the Group's total investment outlays approx. 4.9 %

TAURON Group's total capital expenditures on the projects directly related to climate change measures and the adaptation to climate change came in at nearly PLN 197 million in 2020, which represented approx. 4.9% of the Group's total investment outlays.

The operations of TAURON Ekoenergia, which are based entirely on the production of electricity from renewable sources, have a positive impact on the climate. As a result of the optimization of the wind farms' production assets

and favorable conditions at the locations thereof, very good results were achieved, both in the form of a significant reduction of the in-house needs ratio (efficiency) as well as an increase in the electricity produced from RES. Tables no. 45 and 45-a present the volume of electricity produced by TAURON Group's generation units in 2020, broken down by the main energy sources.

Table no. 45. GRI EU2. Volume of net electricity and heat generated by TAURON Capital Group, broken down into main energy sources in 2019 and 2020

		Electricity [GWh]	Heat [GJ]
	2020	2019	2020	2019
Hard coal	9 179	10 921	8 261 963	7 899 203
Sludge	163	193	342 560	337 304
Natural gas and coke oven gas	2,22	5,53	287 507	128 768
Biomass	628	394	940 709	572 312
Wind	936	644	0	0
Hydro	395	356	0	0
Liquid fuels	74	92	211 557	91 319
TOTAL	11 377	12 604	10 044 296	9 028 906

122

	TAURON Wytwarzanie				TAURON Ciepło				TAURON Ekoenergia			New wind based assets Total for 10 companies			Nowe Jaworzno Grupa TAURON 1)			TOTAL
		Electricity [GWh]	Heat [GJ]			Electricity [GWh]	Heat [GJ]			Electricity [GWh]		Heat [GJ]	Electricity [GWh]		Heat [GJ]		Electricity [GWh]		Heat [GJ]		Electricity [GWh]			Heat [GJ]
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Hard coal	8 100	9 812	3 032 232	2 384 473	848	1 108	5 229 731	5 514 730	0	0	-	-	0	0	-	-	230	-	-	-	9 179	10 921	8 261 963	7 899 203
Sludge	108	123	168 483	156 756	55	71	174 076	180 548	0	0	-	-	0	0	-	-	0	-	-	-	163	193	342 560	337 304
Natural gas and coke oven gas	2	6	3 940	5 077	0	0	283 567	123 691	0	0	-	-	0	0	-	-	0	-	-	-	2.22	5.53	287 507	128 768
Biomass	473	370	669 275	409 379	154	24	271 434	162 933	0	0	-	-	0	0	-	-	0	-	-	-	628	394	940 709	572 312
Wind	0	0	0	0	0	0	0	0	472	462	-	-	464	182	-	-	0	-	-	-	936	644	0	0
Hydro	0	0	0	0	0	0	0	0	395	356	-	-	0	0	-	-	0	-	-	-	395	356	0	0
Liquid fuels	73	91	102 868	35 797	1	1	108 689	55 522	0	0	-	-	0	0	-	-	0	-	-	-	74	92	211 557	91 319
TOTAL	8 757	10 401	3 976 799	2 991 481	1 058	1 203	6 067 497	6 037 425	867	818	-	-	464	182	-	-	230	-	-	-	11 377	12 604	10 044 296	9 028 906

Table no. 45-a. GRI EU2. Volume of net energy generated by TAURON Capital Group, broken down into main energy sources, per subsidiary in 2019 and 2020

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

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 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 Table no. 46) and the Emission Reduction Index (shown in Table no. 47).

Table no. 46. Targets for the minimum declared average annual increase in RES capacity planned by TAURON Capital Group in 2020-2030

Sustainable Development Index in the given calendar year
Sustainable Development Index	2020 target	2025 target	2027 target	2030 target
RES Capacity Growth Index	8%	8%	8%	8%
Result achieved	27 %	-	-	-

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

$$JWZM_{OZE\_r} = \frac{WM_{OZE\_r}}{(r - 2018)}$$

where:

JWZMOZE_r [%] denotes the unit index of increasing RES capacity in year r;

WMOZE_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 the year 2019 as defined by the emissions trading scheme).

The installed capacity change index is calculated as follows:

$$WM_{OZE\_r} = \frac{M_{OZE\_r} - M_{OZE\_2018}}{M_{OZE\_2018}}$$

where:

WMOZE_r [%] denotes the installed capacity change index;

MOZE_r [MWe] denotes the installed capacity of RES units in year r, excluding biomass fired units, and the units of TAURON Ciepło Sp. z o.o.

MOZE_2018 [MWe] 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.

Table no. 47. The minimum declared CO² emission reduction rate for gross electricity production planned by TAURON Capital Group in 2018-2030 [Mg CO2/MWh]

	Sustainable Development Index in the given calendar year
Sustainable Development Index	2020	2025	2027	2030
Emission Reduction Index	2%	2%	2%	2%
Result achieved	6%

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

$$JWRE_r = \frac{WE_{CO2\_2018} - WE_{CO2\_r}}{WE_{CO2\_2018} \times (r - 2018)}$$

where:

JWREr [%] denotes the average annual CO² emission reduction index in year r;

WECO2_r [MgCO2/MWh] denotes the CO² emission index in year r, accounted for under the Community Emission Trading Scheme;

WECO2_2018 [MgCO2/MWh] denotes the CO² emission index in the base year, accounted for under the Community Emission Trading Scheme;

r denotes a 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:

$$WE_{CO2\_r} = \frac{E_{CO2\text{(ee)}r}}{P_{ee\text{(brutto)}r}}$$

where:

WECO2_r [MgCO2/MWh] denotes the CO² emission index for gross electricity production

ECO2(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

Pee(brutto)r [MWh] denotes gross electricity production from fossil fuels and biomass as well as RES in year r.

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. As their physical availability is not dependent on the rate of the global warming. TAURON Group's dependence on the individual types of the natural capital in 2019 and 2020 is presented in tables no. 48-52.

[GJ]	TAURON Wytwarzanie		TAURON Ciepło		TAURON Wydobycie		TAURON Ekoenergia		Kopalnia Wapienia "Czatkowice"		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
hard coal		87 111 351 107 648 968	12 732 980	15 729 478	0	0	0	0	0	0	2 172 985		- 102 017 316 123 378 446
natural gas and coke oven gas	27 807	65 524	351 523	159 493	0	0	0	0	59 962	71 295	0	-	439 292	296 313
Sludge	1 326 569	1 510 651	662 881	853 802	0	0	0	0	0	0	0	-	1 989 451	2 364 453
heating oil	882 855	1 014 513	144 724	78 864	0	0	0	0	0	0	65 839	-	1 093 417	1 093 377
liquid fuels	16 606	22 209	16 822	162 316	25 315	18 493	1 344	1 960	49 990	42 355	194	-	110 270	247 333
TOTAL		89 365 188 110 261 866	13 908 930	16 983 953	25 315	18 493	1 344	1 960	109 952	113 650	2 239 017		- 105 649 746 127 379 922

Table no. 48. GRI 302-1. Total consumption of energy from non-renewable sources (in-house and acquired) in GJ (gross chemical energy of fuels) at TAURON Capital Group in 2019 and 2020

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

Table no. 49. GRI 302-1. Total consumption of energy from renewable sources in GJ (gross chemical energy of fuels) at TAURON Capital Group in 2019 and 2020, per subsidiary

[GJ]	TAURON Wytwarzanie		TAURON Ciepło		TAURON Wydobycie		TAURON Ekoenergia		Kopalnia Wapienia "Czatkowice"		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
biomass	5 712 043	4 478 060	2 072 414	546 983	0	0	0	0	0	0	0	-	7 784 457	5 025 044
wind	0	0	0	0	0	0	120 625	120 341	0	0	0	-	120 625	120 341
hydro	0	0	0	0	0	0	20 383	20 155	0	0	0	-	20 383	20 155
TOTAL	5 712 043	4 478 060	2 072 414	546 983	0	0	141 008	140 496	0	0	0	-	7 925 465	5 165 540

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

Non-financial Report of TAURON Capital Group. This is a translation of the document originally issued and signed in Polish.

Table no. 50. GRI 302-1. Total energy consumption (purchased and in-house) by type in GJ (Electricity purchased and generated used for the needs of the organization - heating, cooling, electricity, steam) at TAURON Capital Group in 2019 and 2020, per subsidiary

[GJ]		TAURON Wytwarzanie		TAURON Ciepło	TAURON Wydobycie		TAURON Ekoenergia			Kopalnia Wapienia "Czatkowice"		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
electricity	3 744 271	4 441 849	743 907	817 554	1 271 330	1 283 312	145 292	152 277	71 820	82 302	109 144	-	6 085 764	6 777 294
heat	772 116	744 191	194 107	200 250	240 356	253 551	956	984	4 962	0	77 068	-	1 289 565	1 198 976
TOTAL	4 516 388	5 186 040	938 014	1 017 804	1 511 686	1 536 863	146 248	153 261	76 782	82 302	186 212	-	7 375 329	7 976 270

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

Table no. 51. GRI 302-1. Energy supply in GJ (net less in-house needs) at TAURON Capital Group in 2019 and 2020, per subsidiary

[GJ]		TAURON Wytwarzanie		TAURON Ciepło		TAURON Wydobycie		TAURON Ekoenergia		Kopalnia Wapienia "Czatkowice"		Nowe Jaworzno Grupa TAURON 1)		TOTAL
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
electricity	30 821 153	36 654 304	3 809 911	4 331 014	0	0	3 120 101	2 944 537	0	0	0	-	38 579 789	43 929 855
heat	3 976 799	2 991 481	6 067 497	6 037 425	0	0	0	0	0	0	0	-	10 044 296	9 028 906
TOTAL	34 797 952	39 645 785	9 877 408	10 368 439	0	0	3 120 101	2 944 537	0	0	0	-	48 624 086	52 958 760

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

[GJ]	TAURON Wytwarzanie		TAURON Ciepło			TAURON Wydobycie		TAURON Ekoenergia		Kopalnia Wapienia "Czatkowice"		Nowe Jaworzno Grupa TAURON 1)		ŁĄCZNIE
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
total energy consumption by the organization	60 262 672	80 280 182	7 041 950	8 180 302	1 511 686	1 555 356	-2 831 501	-2 648 820	131 782	195 952	1 596 605	-	67 713 194	87 562 971

1) Data for the Nowe Jaworzno Grupa TAURON subsidiary covers the period after commissioning (from November 13, 2020 to December 31, 2020)

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

The Group is also monitoring the rate of energy consumption related to its operations on an ongoing basis, as shown in the indices in Table no. 53.

Table no. 53.GRI 302-3. Energy consumption at TAURON Capital Group in 2020, per subsidiary

	TAURON Wytwarzanie		TAURON Ciepło			TAURON Ekoenergia		TAURON Ekoenergia Nowe Aktywa Wiatrowe		Nowe Jaworzno Grupa TAURON 1)
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Energy consumption rate [%] (energy consumption for in-house needs / gross energy production)	11.51%	11.60%	8.13% *	8.24% *	4.48%	4.97%	0.68%	2.19%	11.64% **	-
Energy consumption rate - electricity [%] (electricity consumption for in-house needs / gross electricity production)	11.41%	11.18%	16.71%	16.22%	4.48%	4.97%	0.68%	2.19%	11.64% **	-
Energy consumption rate - heat [%] (heat consumption for in-house needs / gross heat production)	12.31%	16.51%	2.74% *	2.74% *	-	-	-	-	-	-

* Does not take into account the replenishment of the heat carrier losses in district heating networks.

** It does not take into account the consumption of process steam for the unit's start-up needs. Due to the relatively short period of operation from the unit's commissioning and due to the still ongoing works related to the optimization of the individual systems and installations, the energy consumption index will systematically improve until the value declared at the design stage is reached.

TAURON Group has inventoried, during inventory energy audits, potential tasks related to reducing energy consumption. The targets related to energy consumption were set based on such measures, as shown in Tables no. 54, 54-a and 54-b.

Table no. 54. Targets, and results achieved, with respect to energy consumption set to be achieved by TAURON Capital Group by 2030

Subsidiary	Target	2019	2020	2025 Target	2030 Target
Kopalnia Wapienia "Czatkowice"	Electricity consumption rate [kWh/t]	22.7	22.7	21.1	20.0
	Result achieved		22.6
TAURON Wydobycie	Electricity consumption rate* [kWh/t]	70.9	60.0	50.8	48.3
	Result achieved		60.0

* excluding the additional consumption due to the construction of the Grzegorz Shaft.

Table no. 54 - a. Targets, and results achieved, with respect to energy consumption set to be achieved by TAURON Capital Group by 2030, per subsidiary

	TAURON Wytwarzanie			TAURON Ciepło			Nowe Jaworzno Grupa TAURON
	2020	2025	2030	2020	2025	2030	2025	2030
Energy consumption rate [%] (energy consumption for in-house needs / gross energy production)	10.9 %	11.1%	8.73%*	8.88% *	8.44% *	9.1% *	8.63%**	8.16%**
Result achieved	11.5 %		8.13%*
Energy consumption rate - electricity [%] (electricity consumption for own needs / gross electricity production)	10.7%	10.8%	15.05%	15.61%	17.09%	10.5%	8.63%**	16%**
Result achieved	11.4%		16.71%
Energy consumption rate - heat [%] (heat consumption for own needs / gross heat production)	12.6%	13.9%	2.77%	2.98% *	2.89% *	9.2% *
Result achieved	12.3%		2.74%*

* Does not take into account the replenishment of the heat carrier losses in district heating networks. The fluctuations of the rate for TAURON Ciepło in the 2025 and 2030 time frame result from a change in: planned increase in heat demand by approx. 1.6 TJ and commissioning of the new gas fired heat generation sources that will complement the existing infrastructure of high-efficiency coal fired cogeneration (unit emission indices will be reduced).

** The target set assuming the average annual load of the generating unit above 70% of the nominal rated power

The 2020 targets in terms of energy consumption indicators for TAURON Wytwarzanie and TAURON Ciepło subsidiaries reached values higher than those assumed in terms of energy consumption for electricity production. The reasons for this can be as follows:

• need to operate TAURON Wytwarzanie units as centrally controlled (dispatched) generation units that stabilized the power system in the south of Poland in highly volatile energy flow conditions, also with respect to international trade (imports/exports). This resulted in the operation of the units at sub-optimal operating points (high volatility of the efficiency of the individual generating units);
• much more frequent than assumed number of start-ups and shutdowns of TAURON Wytwarzanie generation units;
• high heat production combined with the reduction of the operation in the condensation mode at TAURON Ciepło translated into a slightly better result of the energy consumption index for heat production and worse than assumed for electricity production.

Table no. 54- b. Target, and result achieved, for transmission losses set to be achieved by TAURON Dystrybucja by 2030

	Result achieved	4.45 %
TAURON Dystrybucja	Value of the balancing difference index *	4.14 %	3.96 %	3.90 %
Subsidiary	Index name	2020 Target	2025 Target	2030 Target

* Index calculated as of 31.12 for the last 12 months, as the quotient of energy lost in the grid to the value of energy fed into the grid

Climate related opportunities

The Group can turn the climate related risk into opportunities by offering products and services that contribute to mitigating climate change or adapting thereto. TAURON Group is observing a clear trend underway that involves a redirection of the consumers' and business customers' choices towards products and services that are less harmful to the climate. This is a key factor leading to the development of the so-called ECO line. Such an offering increases the resilience of the product portfolio against climate change,

EKO product lines (business and individual customers) are products that allow, among others, for the conscious purchase by the Group's customers of electricity produced by renewable energy installations or by low-emission generation sources and confirmed by the applicable certificates from independent institutions (Polish Energy Certification Society, TUV Sud). The EKO products sales results are presented in Table no. 55.

Table no. 55. Increase in 2020 vs. 2019 of the sales of TAURON Capital Group's products aimed at achieving the climate neutrality target

Sales of selected EKO Line products and service		Metric type	Increase
	EKO Premium
EKO product line	EKO Biznes	Increase in the value of issued Certificates of Origin issued	51.3 %
	EKO Standard
EKO electricity for an individual customer		Change in the number of customers choosing the product at the end of the period - y/y	162.2 %
Photovoltaics		Change in the quantity of installations sold	567 %
Passive Power Compensation		Change in the quantity of services sold	81.8 %
Enterprise Energy Audit		Change in the quantity of services sold	16.7 %
Implementation of the replacement of street lighting with low energy lighting		pcs.	28 414

As a principle, TAURON does not take on targeted financing, with funds dedicated directly to the given investment task, as it obtains funds that enable financing of TAURON Group's corporate and investment activities. Pursuant to the terms of some of the agreements, TAURON is obliged to implement the indicated investment projects, comply with specific sustainable development indicators, as well as act in accordance with the principles of environmental and social policy, the implementation of which is confirmed by relevant reports submitted to the financial institutions. Additionally, in some financing agreements, TAURON undertakes not to allocate funds from the given financing to finance activities related to the operations of the generation and mining lines of business.

Table no. 56 presents the allocation of funds from TAURON Group's individual sources of financing for investment purposes aimed at minimizing the negative impact of the Group's operations on the climate.

Financing entity	financing instrument	loan amount under the contract		debt as of 31.12.2020 r.	financing purpose
European Investment Bank	subordinate bonds	190 000 000.00 EUR		190 000 000.00 EUR	financing of investment projects aimed at expanding and upgrading the power grid infrastructure in Poland in 2016-2020 in accordance with its strategic investment plan
European Investment Bank	subordinate bonds	350 000 000.00 PLN		350 000 000.00 PLN	financing of investment projects in the electricity distribution grid in southern and southwestern Poland in 2018-2020
European Investment Bank	subordinate bonds	400 000 000.00 PLN		400 000 000.00 PLN	financing of investment projects in the electricity distribution grid in southern and southwestern Poland in 2018-2020
European Investment Bank	loan	295 000 000.00 PLN		191 750 000.00 PLN	financing of an investment project composed of two Components with respect to expanding the electricity distribution grid, implementing a smart metering program as well as modernization and repairs of the existing small hydropower plants
European Investment Bank	loan	900 000 000.00 PLN		306 818 181.95 PLN	financing of the implementation of a 5-year investment program (2011-2015), aimed at strengthening, modernizing and expanding the electrical grids of Tauron Dystrybucja S.A.
European Investment Bank	loan	300 000 000.00 PLN		30 000 000.00 PLN	financing of the implementation of the project involving the construction and commissioning of a high-efficiency coal fired cogeneration unit of the latest generation (CHP, combined heat and power plant), including the associated infrastructure, located on the site of the existing power plant in Bielsko-Biała in southern Poland
		210 000 000.00
European Investment Bank	loan		PLN	21 000 000.00 PLN	financing of the construction of a new biomass fired circulation fluidized-bed boiler (150 MWt) to replace one of the existing coal-fired boilers that will be decommissioned as obsolete, as well as the overhaul of the existing steam turbine (50 MWe), including the auxiliary infrastructure on the site of Power Plant Jaworzno III (Unit II) in southern Poland

				covering the expenses related to the implementation of investment projects or groups
Intesa Sanpaolo S.P.A. operating via Intesa Sanpaolo S.P.A. Spółka Akcyjna Oddział w Polsce	loan	750 000 000.00 PLN	750 000 000,00 PLN	of investment tasks of TAURON Group covering (i) broadly understood power generation based on renewable energy sources and (ii) distribution of electricity, among others the expansion and upgrade of the grid and connecting new customers, as well as refinancing of the existing Financial Debt
A series bond issue (TPE1025)		1 000 000 000 PLN	1 000 000 000 PLN	The proceeds from the Bond issue may be used to: (i) finance the RES projects construction/acquisition costs, (ii) finance the Group's distribution operations as well as the general corporate activities related to RES or the zero-emission energy transition, and (iii) refinance the Group's debt taken on to finance the above projects. The proceeds from the Bond issue cannot be
				used to finance new and existing coal-fired units, the operations of TAURON Wydobycie S.A. and the operations of TAURON Wytwarzanie S.A. (in case of projects other than those indicated in the paragraph above)
WFOŚiGW (Regional Protection and Water Management Fund)	Environment KWC loan	914 000.00 PLN	229 476.60 PLN	Reduction of limestone dust emissions at the raw material landfill at Kopalnia Wapienia "Czatkowice" sp. z o.o.
WFOŚiGW (Regional Protection and Water Management Fund)	Environment TW loan	40 000 000.00 PLN	8 000 000.00 PLN	Construction of a RES Production Unit at PKE S.A. Jaworzno III Power Plant - Power Plant II
WFOŚiGW (Regional Protection and Water Management Fund)	Environment TW loan	11 318 300.00 PLN	8 546 430 PLN	Construction of a photovoltaic farm in Jaworzno
WFOŚiGW (Regional Protection and Water Management Fund)	Environment KWC loan	292 955.60 PLN	170 880.60 PLN	Thermo-modernization of the Car Service Station at Kopalnia Wapienia "Czatkowice" sp. z o.o.

4.5. TAURON Group's Human Rights Respect Policy

TAURON Group's Corporate Social Responsibility Code of Conduct indicates that TAURON Capital Group is guided by the principle of equal treatment of employees and does not tolerate discrimination on any basis, in particular due to age, gender, race, nationality, religion, sexual orientation, appearance, fitness or different views. The aim of the Policy of Respect for Human Rights is to present the principles of TAURON Capital Group regarding respect for human rights and actions taken to prevent their violation and to support the atmosphere of dignity and mutual respect in the workplace.

The policy defines the principles of TAURON Capital Group dedicated to respecting and protecting human rights, including, among others:

• prohibition of mobbing and discrimination,
• prohibition of slavery and forced labor,
• ban on employing children and minors,
• freedom of association,
• observing employment and remuneration conditions,
• work health and safety (WHS),
• employee engagement (commitment),
• countering cases that involve violations of human rights.

Furthermore, the regulation also defines TAURON Capital Group's rules dedicated to the human rights respect and protection with respect to interacting with the stakeholders, in particular counterparties (contractors) and business partners, as well as with respect to local communities.

Due diligence procedures and internal regulations

The basic regulations related to the Policy of Respect for Human Rights at TAURON Capital Group are TAURON Group's Corporate Social Responsibility Code of Conduct and TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.

In accordance with the provisions of the Policy of Respect for Human Rights, every employee, counterparty (contractor) and an external entity/business partner is required to:

• respect and promote respect for human rights and ensure their protection,
• refuse to participate in any situations that may involve a violation of human rights, mobbing and discrimination, and unequal treatment.

Each employee should pay attention to signals and circumstances that may potentially suggest the possibility of unequal treatment. If such doubts arise, employees should report them via communications channels defined in TAURON Capital Group's procedures, in particular in the above mentioned TAURON Group's Corporate Social Responsibility Code of Conduct and TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.

Actions taken and results achieved

The Ethics Committee is operating at TAURON Group in order to consider potential violations of the rules. "Mobbing - legal and psychological aspects" training for its members, the personnel of the Human Resource Area of TPE S.A. and the Compliance Team was conducted as part of the Virtual Compliance Day 2020. As part of the event a "Get to know Compliance at TAURON Group ... and find out what we do" panel was also held. All of TAURON Group's employees could participate in it.

Anonymous reports of violations submitted by employees to the Ethics Committee are forwarded to the Compliance Officer for investigation. As part of periodic risk monitoring, the Compliance Team verifies the number of notifications received by the Ethics Committee in matters falling within its competence area.

The communications channel enabling employees to provide information in a confidential and anonymous way is the Abuse Reporting Form, available on the website https://www.tauron.pl/tauron/o-tauronie/formularzzgloszenianaduzycia.

In addition, issues regarding violations of the principles set out in the Corporate Social Responsibility Code of Conduct can be reported to the Compliance Officer in person or in writing, by phone: +48 32 774 22 22, or to the e-mail address: compliance@tauron.pl.

Several dozen trade union organizations that associate about 71% of employees are operating within TAURON Capital Group. Additionally, in order to ensure proper dialogue and exchange of experience, the Social Council of TAURON Capital Group was established, which represents the trade union organizations

The introduction of the Policy of Respect for Human Rights at TAURON Capital Group contributes to raising awareness of respect for human rights and promoting their protection.

4.6. TAURON Group's Human Capital Management Policy

Due to numerous changes in the environment, both internal as well as external, in 2020 TAURON Group's Human Capital Management Policy was updated. The document focuses on acquiring, developing and maintaining competencies that are key to organizational efficiency and achieving the Group's strategic goals in a specific reality.

The goal of the regulations contained in this policy is the broadly understood support of employees and managers in creating an environment conducive to dialogue, introducing changes and striving for the development of the organization. Among the priorities set by the Policy, there are also issues such as creating an organizational culture based on cooperation and partnership, supporting bottom-up initiatives, independence and development of the personnel.

The policy defines the mission and vision of TAURON Group's human capital management, which are presented in Figure 39.

Figure no. 39. TAURON Capital Group's human capital management Mission and Vision

The document also sets out strategic areas of activities related to employee issues. They include:

• organization development,
• efficiency management,
• competences and development management.

In each area, specific goals were set and activities aimed at achieving them were identified. Their comprehensive description is presented in Table no. 57.

Table no. 57. Strategic areas of activities defined by TAURON Capital Group's human capital management

Area: Organization development
Goal: We implement and promote organizational culture that supports TAURON Group's development.	Process
We strengthen employee engagement and create a safe and inspiring work environment;	Employee Opinion Survey
 We are open to communication with employees,	Employee communication
 We actively obtain and provide feedback, 	Employer Branding Management by objectives
We engage employees in improving the work environment. We are building the image of TAURON Group as an attractive employer - both inside and outside the
organization:	Employee Opinion Survey
 We survey the opinion of employees,	Employee communication
 We create tools that allow us to ensure easy and efficient communication	Employer Branding
with employees,	Management by objectives
 We cooperate with universities and schools.
We ensure an efficient flow of information and create conditions for a partner dialogue with the workforce:	Social dialogue
 We strengthen cooperation among areas and among generations:	Development initiatives
 We create an environment that is friendly to the exchange of knowledge and experience,	Knowledge and age management
 We promote knowledge sharing
We build relationships with customers and strengthen awareness with respect to environment	Employer Branding
protection, climate change and we are committed to promoting the Green Turn of TAURON
We support TAURON Group in the process of changes through access to knowledge and market
solutions:	Development initiatives
 We design development programs and provide knowledge,  We monitor market trends and solutions.
Area: Organization efficiency management
	Process
Goal: We focus on efficiency management.
We clearly and consistently define roles, tasks and required authorizations at work positions.	Position evaluation system Job description book

We define clear compensation rules, based on market conditions, that motivate people to work efficiently:  We support the implementation of tasks and goals that stem from the Strategy,  We create performance related employee compensation systems,  We build tools that support management by objectives.	Employment, wages and benefits management Management by objectives Social dialogue
We minimize the risks associated with human capital management.	TAURON Group's risk management system
We care about compliance with the principles of ethics and diversity:  We conduct educational activities,  We care for an environment free from mobbing and discrimination.	Regulations related to diversity, ethics and counteracting mobbing and discrimination
We optimize, standardize and digitize the Human Capital Management Area processes. Owing to this, we increase the flexibility and efficiency of the organization.	Human Capital Management Mega-process
Area: Competences and development management Goal: We support the development of competences	Process
We ensure that employees' competences are aligned to the needs of the changing energy sector:  We develop new competences and prepare for change management,  We focus on acquiring new qualifications and improving employees' competences.	Development initiatives Recruitment
We create a culture based on self-development:  We support employees through various individual development tools.	Employee Opinion Survey Employee communication Employer Branding Management by objectives
We ensure the continuity of competences for the energy sector by educating pupils and students.	Recruitment
We take care of employee retention:  We create opportunities for development for employees and ensure a motivating atmosphere at work,  We implement pro-employee solutions.	Development initiatives Employee induction
We provide knowledge transfer between generations:  We implement development programs,  We implement internal training programs,  We care about the exchange of experiences between generations.	Knowledge and age management Development initiatives
We care about the development of leadership competences of the Management Personnel.	Competence model Development conversation
We create and improve tools for the development, motivation and evaluation of the Employees' potential.	Development conversation

Tables no. 58-61 present the key data with respect to the area of human resource management, including the number of employees by gender, age and type of labor contract, as well as the percentage of employees covered by the collective bargaining agreements.

NUMBER OF EMPLOYEES	Polska Energia TAURON	Wydobycie TAURON	Wytwarzanie TAURON	Ekoenergia TAURON	Dystrybucja TAURON	Nowe Technologie TAURON	Dystrybucja Pomiary TAURON	TAURON Sprzedaż	Sprzedaż GZE TAURON	Czech Energy TAURON		Obsługa Klienta TAURON	TAURON Ciepło	Wapienia Czatkowice Kopalnia	Polska Energia Pierwsza Kompania Handlowa	Bioeko Grupa TAURON		Wsparcie Grupa TAURON	TAURON Serwis	Grupa TAURON Nowe Jaworzno	TOTAL
LABOR CONTRACTS
TOTAL NUMBER OF EMPLOYEES UNDER LABOR CONTRACTS, INCLUDING:	450	6 458	2 375	179	7 810	105	1 459	317		9	15	2 582	1 440	293		3	148	1 318	442	169	25 572
women	200	566	389	40	1 180	36	258	167		6	8	1 856	251	44		3	28	428	29	14	5 503
Men	250	5 892	1 986	139	6 630	69	1 201	150		3	7	726	1 189	249		0	120	890	413	155	20 069
INCLUDING:
FOR A DEFINITE PERIOD OF TIME (including for a trial period and as a substitute):	33	46	33	17	321	5	10	65		0	0	408	22	36		0	69	372	44	1	1 482
women	16		6 2	4	62	1	5	27		0	0	299	5	5		0	7	118	6	1	564
men	17	40	31	13	259	4	5	38		0	0	109	17	31		0	62	254	38	0	918
FOR AN INDEFINITE PERIOD OF TIME:	417	6 412	2 342	162	7 489	100	1 449	252		9	15	2 174	1 418	257		3	79	946	398	168	24 090
women	184	560	387	36	1 118	35	253	140		6	8	1 557	246	39		3	21	310	23	13	4 939
men	233	5 852	1 955	126	6 371	65	1 196	112		3	7	617	1 172	218		0	58	636	375	155	19 151

Table no. 58. GRI 102-8-a. Number of TAURON Capital Group's employees by type of labor contract and gender as of 31.12.2020, per subsidiary

NUMBER OF EMPLOYEES	Polska Energia TAURON	Wydobycie TAURON	TAURON	Wytwarzanie	Ekoenergia TAURON	Dystrybucja TAURON	Nowe Technologie TAURON	TAURON	Dystrybucja Pomiary	TAURON Sprzedaż	Sprzedaż GZE TAURON		Czech Energy TAURON	Obsługa Klienta TAURON		TAURON Ciepło	Wapienia Kopalnia	Czatkowice	Polska Energia Pierwsza Kompania Handlowa	Bioeko Grupa TAURON		Wsparcie Grupa TAURON	TAURON Serwis	Grupa TAURON Nowe Jaworzno		TOTAL
	EMPLOYEES EMPLOYED UNDER CONTRACTS OTHER THAN A LABOR CONTRACT
TOTAL NUMBER OF EMPLOYEES EMPLOYED UNDER CONTRACTS OTHER THAN A LABOR CONTRACT:		11	193	68		9	33	7	19	20		0		1	128		9	16	6		5	847	47		7	1 426
women		5	12	16		3	9	1	10	7		0		1	105		1	7	1		1	219	3		0	401
men		6	181	52		6	24	6	9	13		0		0	23		8	9	5		4	628	44		7	1 025
PERSONS UNDER MANAGEMENT CONTRACTS:		3	3	3		2	5	2	2	4		0		0	3		3	2	1		2	2	0		2	39
women		0	0	0		0	0	0	0	1		0	0		1		0	0	0		0	1	0		0	3
men		3	3	3		2	5	2	2	3		0	0		2		3	2	1		2	1	0		2	36
SELF EMPLOYED PERSONS:		0	0	0		0	2	0	0	7		0		0	0		0	0	0		0	0	0		0	9
women		0	0	0		0	1	0	0	1		0		0	0		0	0	0		0	0	0		0	2
men		0	0	0		0	1	0	0	6		0		0	0		0	0	0		0	0	0		0	7

Table no 59. GRI 102-8-d. Number of TAURON Capital Group's employees under other contracts than a labor contract by gender and type of labor contract as of 31.12.2020, per subsidiary

EMPLOYEES UNDER THE GROUP'S SUPERVISION:	0	0	0	0	0	0	13	0	0	0	121	0	0	0	0	0	0	1	135
women	0	0	0	0	0	0	10	0	0	0	101	0	0	0	0	0	0	0	111
men	0	0	0	0	0	0	3	0	0	0	20	0	0	0	0	0	0	0	24
PERSONS ON POSTGRADUATE INTERNSHIPS:	0	16	1	0	6	0	0	0	0	0	0	0	0	0	0	0	0	0	23
women	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0	0
men	0	16	1	0	6	0	0	0	0	0	0	0	0	0	0	0	0	0	23
PERSONS PROVIDING SERVICES UNDER A CIVIL LAW AGREEMENT	2	170	61	3	18	2	0	5	0	0	0	2	10	5	2	842	43	0	1 165
women	2	12	16	1	8	0	0	5	0	0	0	0	6	1	1	216	3	0	271
men	0	158	45	2	10	2	0	0	0	0	0	2	4	4	1	626	40	0	894
EMPLOYEES OF THE SUPERVISORY BOARD	6	4	3	4	2	3	4	4	0	1	4	4	4	0	1	3	4	4	55
women	3	0	0	2	0	1	0	0	0	1	3	1	1	0	0	2	0	0	14
men	3	4	3	2	2	2	4	4	0	0	1	3	3	0	1	1	4	4	41

NUMBER OF EMPLOYEES		Polska Energia TAURON	Wydobycie TAURON	Wytwarzanie TAURON	Ekoenergia TAURON	Dystrybucja TAURON	Nowe Technologie TAURON	Dystrybucja Pomiary TAURON	TAURON Sprzedaż	Sprzedaż GZE TAURON	Czech Energy TAURON		Obsługa Klienta TAURON	TAURON Ciepło	Wapienia Czatkowice Kopalnia	Polska Energia Pierwsza Kompania Handlowa	Bioeko Grupa TAURON		Wsparcie Grupa TAURON	TAURON Serwis	Grupa TAURON Nowe Jaworzno	TOTAL
WORKING UNDER A LABOR CONTRACT, INCLUDING:
FULL TIME:		440	6 456	2 361	177	7 785	105	1 457	315		6	14	2 567	1 438	292		3	146	1 282	439	169	25 452
	women	192	565	385	40	1 164	36	257	166		4	7	1 846	250	44		3	28	400	28	14	5 429
	men	248	5 891	1 976	137	6 621	69	1 200	149		2	7	721	1 188	248		0	118	882	411	155	20 023
PART TIME:		10	2	14	2	25	0	2	2		3	1	15	2	1		0	2	36	3	0	120
	women	8	1	4	0	16	0	1	1		2	1	10	1	0		0	0	28	1	0	74
	men	2	1	10	2	9	0	1	1		1	0	5	1	1		0	2	8	2	0	46

Table no. 60. GRI 102-8-c. Employment of employees at TAURON Capital Group based on a permanent labor contract type by gender as of 31.12.2020, per subsidiary

Non-financial Report of TAURON Capital Group. This is a translation of the document originally issued and signed in Polish.

	Polska Energia TAURON	Wydobycie TAURON	Wytwarzanie TAURON	Ekoenergia TAURON	Dystrybucja TAURON	Nowe Technologie TAURON	Dystrybucja Pomiary TAURON	TAURON Sprzedaż	Sprzedaż GZE TAURON	Czech Energy TAURON	Obsługa Klienta TAURON	TAURON Ciepło	Wapienia Czatkowice Kopalnia	Polska Energia Pierwsza Kompania Handlowa	Bioeko Grupa TAURON		Wsparcie Grupa TAURON	TAURON Serwis	Grupa TAURON Nowe Jaworzno	TOTAL
Total number of persons employed (from table 102-8-a)	450	6 458	2 375	179	7 810	105	1 459	317	9	15	2 582	1 440	293	3		148	1 318	442	169	25 572
Total number of employees covered by collective bargaining agreements	0	6 444	2 375	177	7 795	92	1 455	317	9	0	2 582	1 421	292	0		0	1 318	0	169	24 446
Percentage of employees covered by collective bargaining agreements	0%	99.8%	100%	98.9%	99.8%	87.6%	99.7%	100%	100%	0%	100%	98.7%	99.7%	0%		0%	100%	0%	100%	95.6%

Table no. 61. GRI 102-41. Percentage of TAURON Capital Group's employees covered by collective bargaining agreements as of 31.12.2020, per subsidiary

Due diligence procedures and internal regulations

The documents supporting the implementation of the goals of TAURON Capital Group's Human Capital Management Policy include:

• TAURON Group's compensation principles;
• Policy of Recruitment, Selection and Adaptation of Employees of TAURON Group's Subsidiaries
• Regulations for improving the qualifications of the employees, in place at TAURON Group's individual subsidiaries;
• TAURON Group's competency model;
• TAURON Group's regulations of the Internal Trainers Academy;
• Regulations of the Investment Project Management Academy Program TAURON Group's PM Academy;
• TAURON Group's Principles of Cooperation with Schools and Universities as well as Internships and Apprenticeships Program;
• Regulations of the "Join" Program TAURON's internship PROgram;
• Regulations of TAURON Group's Ambassador Program.

Actions taken and results achieved

Initiatives undertaken with respect to the human resources management at TAURON Group focus on the continuous improvement of the processes in order to adapt them to the changing business environment. A permanent element of the above changes is developing and strengthening such attitudes among employees that are in line with the values of TAURON Group. This basic premise allows for building an organizational culture that enables the employees to take on and implement new challenges, search for innovation, increase efficiency as part of their daily tasks and increase the level of job satisfaction.

In 2020, TAURON Group faced the challenge of quickly identifying potential problems, to which it had to respond equally quickly. Remote work using online tools, virtual meetings and teleconferences has become a necessity today, and not, as before, a choice that was given to employees. All this entailed not only the need to redefine the ways of functioning in the new reality, but above all to define the crisis management system, which is aimed at taking appropriate steps to limit or minimize the negative effects of the epidemic

One of the due diligence procedures implemented as part of the Human Capital Management Policy is the ongoing monitoring of the metrics related to the human resources management area at all of TAURON Group's subsidiaries. Particular emphasis was placed on constructive and open dialogue with the workforce. TAURON Group's subsidiaries held 334 meetings of the employers with the trade union organizations in 2020. In total, the trade union organizations had about 18.1 thousand members among TAURON Group's employees (i.e. 71% of the total number of employees) at the end of 2020.

During regular meetings and consultations the representatives of the workforce are informed about issues related to:

• TAURON Group's economic and financial situation,
• implementation of the strategic initiatives,
• Voluntary Redundancy Programs implemented at TAURON Group's Subsidiaries,
• issues related to employee matters at the Group.

In addition, steps are taken to raise business awareness and promote pro-efficiency and engaging attitudes.

Employee satisfaction surveys

The due diligence procedures also include employee satisfaction surveys conducted every two years. In the second edition of the survey, conducted at the Group's key subsidiaries in April 2019, each of more than 26 000 employees had an opportunity to express his/her opinion on how they assess the individual aspects of work at the subsidiary and at TAURON Group, answering 39 questions in an anonymous survey. In 2020, the activities of the Capital Group focused on the implementation of initiatives stemming from the analysis of the research results. They include:

• periodic meetings summarizing the implementation of current tasks and future tasks carried out by the Team/Area;
• training in the development of soft skills, with particular emphasis on the area of efficient communication and coping with stress;
• verification of the procedures functioning in the Area in terms of supporting efficient implementation of tasks;
• communication of the Group/Company strategy along with its translation into individual areas of the Company.

Moreover, in 2019, as a result of updating the strategic directions of TAURON Capital Group and introducing the Green Turn of TAURON program, the challenges and objectives of the human resource management area were verified. At that time, priority areas were designated for the development of the Capital Group's organization and human capital:

• recruitment and onboarding,
• training, age and knowledge management,
• development conversation,
• potential management,
• cooperation with the education sector,
• outplacement and employer branding;

As the next step the tasks were assigned to these priorities, aimed at improving the most important processes and strengthen the organization's ability to create and respond quickly to the business changes by ensuring the optimal number and quality of the competences. The direction to the activities planned for 2020-2023 was also given.

Highest Quality HR Certificate for TAURON Polska Energia

TAURON Polska Energia participated in 2020 in the study organized by the Polish Association of Human Resources Management entitled Top Quality HR. As part of the study, the Association verified and gave the highest marks to the individual areas of human capital management, among others: motivation and compensation systems, employee development, recruitment and competence management, employee communication and building the employer's brand. The Group's new initiative - Development Squared (Rozwój do Kwadratu), under which more than 960 employees took part in various types of webinars, was particularly appreciated. The positive result of the study led to obtaining the Highest Quality HR Certificate.

Development and training

Current market trends and technological development, changes taking place both globally as well as locally, a competitive market and increasing requirements force much faster pace and flexibility in terms of development activities. Employee development and improvement is permanently inscribed in TAURON Group's strategy, and the implementation of the development activities takes place on the basis of the Regulations for improving the qualifications of the employees, in place at the Group's individual subsidiaries. All the development activities at TAURON Capital Group are implemented according to the 70-20-10 principle (effective learning principle), according to which:

• 70% of the development activities should be related to gaining experience in the position, among others by delegating new or additional tasks and empowerments to the employee, broadening the scope of his/her responsibility, participation in the task or project teams,
• 20% of the development activities are based on learning from others, including the ongoing support and regular feedback from your direct superior and colleagues,
• 10% of the development activities involve participation in various forms of educational and training activities (internal and external).

TAURON Capital Group's employees can choose from a wide range of internal training and external development opportunities, among others, in the form of participation in industry conferences, seminars, workshops, specialist training, e-learning training or language courses.

Table no. 62 presents the key data on employee training at TAURON Capital Group as of December 31 in 2018- 2020.

Table no. 62. Key data on employee training at TAURON Polska Energia and TAURON Capital Group as of December 31, 2018, December 31, 2019, December 31, 2020.

			TAURON Polska Energia		TAURON Capital Group
#	Key data on employee training	December 31,	December 31,	December 31,	December 31,	December 31,	December 31,
		2018	2019	2020	2018	2019	2020
1.	Average number of training hours per employee by job (position) group, including:	177	176	57	125	109	62
	Management Board and Directors	85	88	10	63	45	26
	Management positions	53	51	15	33	32	14
	Administrative staff (white collar positions)	30	28	16	12	14	9
	Blue collar positions	9	9	1	17	18	13
2.	Number of training hours per employee by gender, including:	16 771	16 766	6 801	456 179	477 618	294 945
	Women	6 961	6 624	2 996	77 305	79 871	49 704
	Men	9 810	10 142	3 806	378 874	397 747	245 240

Key statistics on the training carried out at TAURON Group in 2020 are presented in figure no. 40.

Development Conversation

One of the more important projects carried out as part of TAURON Group's human capital management is the Development Conversation process. Based on the Group's Competence Model in place, the initiative assumes the need for the continuous development of the employees' competences in line with the changing business challenges. Development Conversations carried out in 2020 at the Group's selected subsidiaries demonstrated a number of benefits that open communication and individual approach to the employees' needs, in combination with the directions of the organization's development, bring.

Purchasing Studies

The successive, third edition of the postgraduate studies, organized in cooperation with the Jagiellonian University, entitled Purchasing management in business, was continued in 2020. The main assumption of the program is to improve the purchasing, negotiating and commercial (trading) qualifications of the Purchasing Area staff. Participation in the dedicated studies is an offering addressed to the outstanding employees of TAURON Group. 32 participants took part in the completed edition.

TAURON Group Open University

TAURON Group's employees have continuously had the opportunity to participate in lectures conducted as part of

the TAURON Group Open University since 2014. The initiative constitutes a platform enabling an exchange of views and experiences, it also gives the opportunity to gain knowledge and additional competences.

Due to the epidemic situation the initiative was moved online in 2020. 5 lectures were carried out online, attended by almost 7 thousand employees.

Internal Trainers (Coaches) Academy

The goal of the initiative is to provide support for the development of employees using the internal resources. An Internal Trainer is an employee of TAURON Capital Group who willingly shares expert knowledge with others, and at the same time develops his/her coaching potential. TAURON supports activities aimed at facilitating appropriate selection and didactic (pedagogical) preparation of the internal trainers to conduct training courses. The trainer is personally involved in the study of the training needs, designs the training and supports the process of implementing the new competences in the organization. 86 internal trainers completed a total of 84 training sessions for more than 1 100 of TAURON Group's employees in 2020.

Activities undertaken in response to the epidemic situation

Development Squared

A new initiative, launched in June 2020, is Development Squared - a series of weekly webinars conducted in four thematic areas: development, knowledge sharing, cooperation, health. The project was developed as a response to the difficult situation related to the COVID-19 pandemic that made it impossible to conduct training in a classic form. Thanks to Skype and Office 365 technology, fully interactive meetings are possible, that make participants more active.

The project's participants include all of TAURON Group's employees with access to the intranet (approximately 17 000 persons).

24 webinars were held in 2020, on 14 different topics, conducted by 10 trainers. More than 950 of TAURON Group's employees took part in the initiative.

E-learning

In addition to the training courses carried out using the traditional method, TAURON Capital Group provides its employees with continuous access to training on the elearning platform, which is particularly important during the pandemic and the restrictions related thereto, The undisputed

advantages of this form of education include the flexibility of its implementation and the ability to adjust it to the individual pace of knowledge absorption of the given employee. The e-learning training formula also significantly reduces the costs of the training courses, while at the same allowing them to be attended by a larger number of employees. On a daily basis, TAURON Group's employees have constant, unlimited access to training available on the special e-learning platform. It includes both training courses on the group-wide regulations, specialist training courses on IT systems, as well as training courses developing leadership and interpersonal competences.

In 2020, TAURON Group's employees, thanks to the e-learning training courses, got to know, inter alia, the latest rules related to cybersecurity, details of the anti-money laundering and terrorist financing prevention procedures. In total, nearly 16 000 employees participated in 41 000 e-learning training courses in 2020.

Manager's zone and "#wzMOCnij się" (power up yourself)

A space dedicated to managers was created on the TAURON Group intranet in 2020. The managerial staff can constantly read specialist articles on the subject of broadly understood management. Tools to support team management, interesting on-line events (Mediateka) and recommended books are available.

As part of the zone, a special initiative "#wzMOCnij się" (power up yourself) was launched and webinars on change management, an on-line training platform and tools to support the development conversation process were made available.

Articles were published on issues particularly important for team management while working remotely or in a hybrid mode, for example:

• Remote reality how to overcome the distance how to break the barrier of distance in a team that works online,
• How to keep employees engaged in a remote work situation,
• VUCA how to cope in the changing reality,
• Manager=Mentor,
• Return to the office practical advice related to the gradual return of employees to the office after a period of long-term remote work,
• Appreciation as a tool for motivating employees.

Support for the employees

TAURON Group's employees were able to use a dedicated telephone support line and talk to an external advisor in 2020. What's more, the Group's selected subsidiaries held training sessions with respect to mental resistance, among others, entitled "Effective action in a stressful time of a pandemic", "Stress, how to deal with it", which were developed to identify the psychological mechanisms responsible for the emergence and persistence of negative consequences of stress and the techniques to deal with them

Quick Tips

Communication and constant contact with the employee became extremely important during the pandemic. The entire Capital Group undertook preventive and informational activities aimed at raising awareness and understanding of the current regulations and the applicable rules of counteracting COVID - 19. Quick tips is a series of weekly short cards on the homepage of TAURON Group's intranet - Tauronet for employees of the entire Capital Group. In 2020, 32 cards were posted in 2020. The advice pieces included those concerning: micro breaks during work or building relationships when working remotely. Information campaigns were also carried out at individual companies, such as "Safe at work - remember about the new habits", "Quarantine or isolation", "Take care of yourself and others", "Support children during the pandemic".

Two hours for the Family

Also this year, TAURON Group organized the Family Week for its workforce. Due to the pandemic, it was run under the slogan "Rodzinna MegaMoc. Trzymajmy się razem!" (Family MegaPower. Let us stick together!" All events were held virtually and were primarily aimed at providing support for TAURON employees during the difficult lockdown period.

Almost 15 000 employees with access to the intranet, were able to actively participate in all the events.

This way company was reducing the feeling of isolation and alienation, and emphasizing the importance of staying at home so that others would be safe and healthy. As part of the campaign, among others, competitions, on-line workshops on recording, directing and editing videos, and an on-line lecture on strengthening immunity were held.

4.7. TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy

TAURON Group's Subsidiaries Employee Recruitment, Selection and Adaptation Policy regulates the standards of the process of recruitment and induction (onboarding, orientation) of TAURON Group's new employees.

The policy also specifies the rules related to filling both vacant as well as the newly created jobs with people with the desired professional qualifications and competences. The policy sets out assumptions regarding the selection of employees, understood as all actions taken to fill the vacancy: from the moment of defining the staffing needs until the moment of completing the adaptation of a newly recruited employee. 938 employees were hired by TAURON Group in 2020. The detailed data on TAURON Group's employment structure is provided in section 4.6 of this Report. TAURON Group's human resources management policy.

Due diligence procedures and internal regulations

Due diligence procedures employed under the Policy include, first of all, the following structured forms of recruitment:

• open internal recruitment (announcements in TAURON Group's intranet, recommendations (referrals) by employees of other employees as potential candidates, e-mail to all employees),
• closed internal recruitment closed (recommendations (referrals) by employees of other employees as potential candidates, employees with a development potential),
• external recruitment (advertisements in the press, online, at universities, recommendations (referrals) by employees of persons from outside TAURON Group's subsidiaries as potential candidates, recruitment agencies).

Priority is given to internal recruitment at TAURON Group, which has a positive effect on the development of human resources within the Group, creates opportunities for promotion or taking an equivalent position in another business unit, and creates natural career paths and encourages employees to further their improvement and development.

Every employee selection process requires an individual approach, depending on the specifics of the given position. The selection of the given recruitment method is preceded by the examination of the internal or external labor market (depending on the selected recruitment form), as well as the analysis of the budget allocated to the given recruitment process.

In order to achieve the best recruitment results with the most optimal cost approach possible, an efficient selection of employees at TAURON Group is based on the following assumptions and principles:

• selecting employees based on the long-term employment and staff development plans, taking into account planned personnel changes (promotions, transfers, layoffs, etc.),
• integration with TAURON Group's Human Resources Management Policy in place,
• focus on creating choice opportunities through searching for at least several candidates for one job position to be filled,
• standardization of the criteria used in the selection of employees for specific positions and the application of methods, principles and procedures allowing for an objective comparison of individual candidates within one recruitment process,
• reliability, impartiality and professionalism applicable to all participants in the selection process without any exceptions;
• every time maintaining high standards of contact and communication with the candidates (specific rules, among other with respect to inviting the candidates for interviews, forms and scope of providing feedback),
• maintaining standards related to the use of the selection tools, • ethical behavior towards the candidates, including, for example, meeting deadlines, providing information on the results of the recruitment process,
• ensuring the confidentiality of the recruitment process for the candidates at all the stages thereof.

Due to the COVID-19 pandemic underway in 2020, the processes of recruitment as well as induction and adaptation of new employees were carried out online, in accordance with the highest standards and with the use of modern technologies.

Actions taken and results achieved

In order to adapt to the changes taking place on the labor market, a number of initiatives that enhance the image of TAURON Capital Group as a good and desirable employer are undertaken at TAURON Group.

Job (Carreer) Fairs

Participation in Job (Career) Fairs organized by the universities is a regular element of the activities promoting TAURON Group in the academic community. TAURON Capital Group promoted its job offers during the 22nd edition of the Engineering Job and Entrepreneurship Fair in Gliwice and the 4th Dual Education Conference - EDUAL in 2020. Participation in the above initiatives enabled promoting the current job offers, apprenticeships and internships coming from all of the Group's subsidiaries. This form of the employer branding activities also provides an opportunity to conduct an initial interview with the potential candidates, as well as to promote the organizational culture, attitudes and values that the Group follows.

Employee Referral Program

The Employee Referral Program was continued at TAURON Group in 2020. This is an additional recruitment activity that allows for reaching more candidates through the involvement of the Group's employees in the search process. The goal of the program is to acquire candidates with the required potential, i.e. with the desired professional qualifications and competences, based on the referrals of the people who are already employed by the organization.

The document regulating the implementation of the activities in this area are the Rules for making employee referrals in the recruitment process at TAURON Group. The main benefits of implementing the Program include, among others, the optimization of the recruitment costs, shortening of the duration of the recruitment, as well as strengthening of the involvement of the Group's employees and of the awareness of their impact on shaping the human resources at TAURON Group.

Cooperation with the education sector

The cooperation of TAURON Capital Group with the education sector focuses primarily on the process of joint practical (hands-on) training of future professionals. The projects undertaken with schools, universities (TAURON Group cooperates with 12 partner universities) or local governments are also aimed at promoting TAURON Group and the energy industry among pupils, students and graduates. As part of cooperation with the educational community in 2020, internship and apprenticeship programs were organized, cooperation with student organizations, career offices and research clubs was undertaken, numerous lectures and profession teaching lessons were organized.

The educational offer dedicated to the energy industry is supported by TAURON Group through, among others:

• scholarships for the best students of patronage classes;
• modeling of the didactic processes, organization of training courses, educational meetings both for students of the school as well as its teaching staff
• participation of TAURON's Employees in conducting qualification exams, e.g. for the profession of a miner; exploitation of deposits and underground mining techniques;
• possibility for students to participate in subject matter lectures/workshops conducted by TAURON's employees;
• possibility of students to participate in lectures/workshops aimed at developing students' interpersonal skills;
• organizing practical classes as well as apprenticeships and internships in real working conditions;
• equipping laboratories with the equipment required to conduct experiments related to electricity.
• establishing, in cooperation with secondary schools, of the project entitled TAURON Laboratories. As part of that project, classrooms for teaching science and vocational subjects at schools covered by the Group's patronage are furnished in a comprehensive manner.

GrEnFin Project

TAURON Polska Energia is taking part in an international project entitled GrEnFin - Greening Energy Market and Finance, which was prepared by the University of Bologna. The project was financed by the European Commission as part of the Erasmus + program, KA2 - Knowledge Alliances. Its goal is to provide energy sector stakeholders (electricity suppliers, private companies, research institutes, etc.) with the training of a sustainable energy specialist on the labor market. The result of the project will be the development of a master's degree program for EU students in green energy and finance, as well as the development of a training program for the employees from the energy sector already active on the labor market. The academy made up of students and professionals will be conducting summer schools together to test the pilot training module. Additionally, a university pilot class will be launched to test the new path of the master's degree program studies. Thanks to the participation in the project, TAURON Group will be able to contribute to the process of sustainable transition of the European Union's economy by investing in knowledge and competences with respect to higher education and vocational training.

As part of the project the following activities were carried out:

• 10 educational visits to TAURON Group's facilities, attended by nearly 300 persons;
• 8 workshops on interpersonal skills, conducted by TAURON Group's employees for pupils and students (330 persons);
• 7 innovative projects, conducted both with the universities as well as other companies.

4.8. TAURON Group's Anti-corruption Policy

The basic document regulating the area of preventing corruption at TAURON Capital Group is TAURON Group's Anti-corruption Policy. The overriding goal that guided the creation and implementation of the Policy was to define uniform rules and standards of conduct that allow for the identification, countering and mitigation of the risk of corruption activities as well as other fraud (abuse) at the subsidiaries.

The implementation and compliance with the Anti-corruption Policy is to ensure the compliance of the operations of TAURON Capital Group's subsidiaries with the applicable law, the internal and intra-corporate regulations, as well as the ethical principles, thus ensuring proper protection of the interests, reputation and image of the subsidiaries and TAURON Capital Group, as well as the transparency of actions towards the external entities.

The Policy applies to all of the employees, members of the management board and supervisory bodies of the subsidiaries, as well as the proxies and the powers of attorney. The Group also requires compliance with the standards of behavior set out in the Policy by the external entities.

The goal of the Policy is to counteract not only corruption activities, but also other abuse (fraud), which include, for example:

• theft or misappropriation of company assets (cash, materials, products, tools, equipment) or the property of external entities with which the employee has business relations,
• deliberate falsifying of company documents or entering false information and data into their content,
• managing the company's documentation in an unreliable (inaccurate) or untruthful manner, in particular destroying, deleting, concealing, altering or falsifying documents regarding the company's operations,
• deliberate disclosing of information inconsistent with the facts in the financial statements,
• using the company's resources for private purposes.

The areas susceptible to the risk of corruption or other fraud related to the operations of TAURON Capital Group include in particular:

• purchasing (procurement) proceedings,
• cooperation with the external entities,
• implementation of the investment processes,
• transactions with related entities,
• expenses related to business trips or entertainment,
• representation and advertising expenses, including invitations and gifts,
• expenditures on the marketing and consulting services,
• cash transactions
• donations and sponsorship agreements.

The following ways of implementing the Anti-corruption Policy by TAURON Capital Group are defined:

• 1. The Group exercises due diligence to ensure that contacts with the external entities are open and transparent, so as to exclude the possibility of corruption and other abuse.
• 1. The Group undertakes to take appropriate (in particular lawful), adequate and proportionate actions in relation to the occurrences of corruption activities and other abuse. In particular, the company shall notify law enforcement authorities of any potential violations of the legal regulations in the event of a justified suspicion of such violations.
• 1. Employees and external entities are encouraged to provide information on the violations of the Policy as well as other irregular behaviors.
• 1. Raising of the employees' awareness with respect to the possibility of identifying corrupt activities and other abuses is ensured through information activities, training, initiatives related to the elimination of corruption events, enabling proper understanding of the Policy and the application of its principles by employees in their daily work.
• 1. Cooperation with the external entities in order to eliminate corruption activities and other abuse (fraud).

Due diligence procedures and internal regulations

The standards recommended for the compliance management system with respect to counteracting corruption and protecting whistleblowers at the companies listed on the Warsaw Stock Exchange of 08.10.2018 contain the recommendations on how to shape the Compliance function at an organization, as well as on the introduction of solutions that minimize the risk of the emergence of unethical behavior, conducive to corruption and conflict of interest. In addition, these standards indicate what actions exhaust the features of the concept of due diligence with respect to shaping the organization's procedures and processes aimed at preventing corruption.

The activities of the Compliance Officer and the Compliance Coordinators at TAURON Capital Group are based on the guidelines presented in the standards set out by the Best Practice of WSE Listed Companies.

TAURON Capital Group's due diligence can be demonstrated based on, among others:

• adoption and application of TAURON Group's Corporate Social Responsibility Code of Conduct,
• adoption and application of TAURON Group's Compliance Policy,
• regulating the compliance management function at TAURON Group,
• adoption and application of TAURON Group's Anti-Corruption Policy,
• adaptation to the recommendations regarding the ban on creating mechanisms to finance property and personal gains,
• conducting compliance training,
• starting the process of implementing anti-corruption clauses to be included in the contracts,
• adoption and application of the TAURON Group's Rules for accepting and giving gifts,
• regulating of the sponsorship issues,
• regulating and implementing of TAURON Group's Fraud (Abuse) Reporting System and conducting of the fact finding investigations,
• implementation and application of TAURON Group's Contractors (Counterparties) Credibility Assessment (Vetting) Procedure,
• implementation and application of the Principles (Code) of Conduct for controls at TAURON Group's subsidiaries.
• implementation and application of the TAURON Group's Procedure for counteracting money laundering (anti-money laundering) and financing of terrorism.

The intra-corporate regulations in force at TAURON Group regarding standard clauses and contract templates (draft contracts) were reviewed in 2020, in particular aiming to introduce the so-called anti-corruption clauses and other compliance clauses. Anti-corruption clause samples, prepared together with the Legal Area of TAURON Polska Energia S.A., were inserted into TAURON Group's contract templates (draft contracts).

In addition, the compliance risks were monitored on an ongoing basis. As part of the monthly risk monitoring, the risk of internal fraud, the risk of external abuse, the risk of unethical behavior, the risk of non-compliance due to a breach of the law and the risk of corruption are reported.

Actions taken and results achieved

Among the activities undertaken as part of TAURON Group's Anti-corruption Policy, the functioning of the system for reporting, investigating and probing corruption activities and other abuse (fraud) is of key importance.

Each employee is obliged to study the provisions of the Policy, to strictly comply with its content and to sign an appropriate statement on having familiarized himself/herself with the Policy. Such statements, in a hard copy, are stored in the employee's personal files.

Newly hired employees are also familiarized with the Policy. They confirm this fact by signing the statement.

In addition, at the beginning of 2020, the staff of the compliance departments//areas at Spółka Usług Górniczych and TAURON Wydobycie took steps aimed at extending the scope of the periodic WHS training in order to include the topics related to compliance and GDPR. From September 2020, as part of the mandatory work health and safety (WHS) training, the personnel of the above subsidiaries are familiarized with the following compliance issues:

• TAURON Group's Compliance System,
• Basic concepts of compliance at TAURON,
• TAURON Group's Anti-Corruption Policy,
• Counteracting mobbing and discrimination at TAURON Group.

Employees are also required to promptly provide information on any justified suspicion of corruption or other fraud (abuse). To this end, TAURON Capital Group provides:

• appropriate communication channels allowing employees and external entities to securely (including anonymously) report potential violations,
• confidentiality of the data of the reporting person and the information provided,
• protection against all forms of retaliation for the individuals who report corrupt activities and other abuse (fraud) in good faith.

The following communication channels have been identified at TAURON Group, through which any type of irregularity can be reported:

• in person: to the immediate superior or the Compliance Officer or the Compliance Coordinator,
• in writing, to the following address: Compliance Officer, ul. Ks. Piotra Ściegiennego 3, 40 -114 Katowice,
• by phone: + 48 32 774 22 22,
• via e-mail: compliance@tauron.pl,
• using Abuse (Fraud) Report form available at:
  • https://www.tauron.pl/tauron/o-tauronie/formularz-zgloszenia-naduzycia/

used to report behavior inconsistent with the applicable law, internal or intra-corporate regulations of TAURON Capital Group or ethical standards set out in TAURON Group's Corporate Social Responsibility Code of Conduct.

External entities, in particular the contractors (counterparties) and other stakeholders of TAURON Group's Subsidiaries, in case of identifying irregularities within the operations of TAURON Group, also have the option of using the Abuse (Fraud) Report Form.

In special cases, notifications can be sent in writing directly to the Company's Supervisory Board.

Specific notification channels comply with the requirements set out in the Public Offering Act.

Superiors who receive reports of potential corrupt activities or other abuse (fraud) should immediately inform the Compliance Officer of this fact, and in case of a company (subsidiary) other than TAURON Polska Energia - the Compliance Coordinator.

Upon receipt of the notification, the Compliance Officer, and in a company (subsidiary) other than TAURON Polska Energia S.A. the Compliance Coordinator, confirms its receipt to the person submitting the report, with the exception of anonymous reports, and he/she verifies its accuracy and undertakes, with due diligence, follow-up actions to investigate the circumstances indicated in the report in accordance with TAURON Capital Group's procedures in force in this respect.

The Compliance Officer, and in a company (subsidiary) other than TAURON Polska Energia S.A. the Compliance Coordinator informs the person submitting the report about the final result of the fact finding investigation or about its extension due to the ongoing analysis of the factual situation described in the notification.

All the reports received are subject to entry in the Fraud Register, and an explanatory protocol is drawn up for each fact finding investigation.

In the event corruption actions or other abuse (fraud) have been confirmed, the subsidiaries take corrective actions aimed at preventing similar events in the future. The Compliance Officer, and at companies (subsidiaries) other than TAURON Polska Energia S.A. the Compliance Coordinators undertake educational and information activities in order to provide understandable and easily available information on the rules of reporting corrupt activities or other abuse (fraud) at TAURON Capital Group.

TAURON Polska Energia S.A. provides monitoring of the procedures as well as the internal and intra-corporate regulations in force at TAURON Capital Group, also with a view to make improvements and develop a system of counteracting corruption and other abuse (fraud).

A total of 63 potential cases of abuse (fraud) were reported at TAURON Group in 2020, including 33 notifications via the Abuse (Fraud) Report Form.

Due diligence procedures functioning as part of the Anti-Corruption Policy also include TAURON Group's Rules of accepting and giving gifts introduced in January 2019. The rules supplement the applicable TAURON Group's Corporate Social Responsibility Code of Conduct and TAURON Group's Anti-Corruption Policy with respect to giving and accepting gifts by persons performing work for TAURON Capital Group's subsidiaries.

The purpose of the described document is to develop awareness among the employees of TAURON Capital Group's subsidiaries regarding the type of gifts (including invitations) that can be received or handed in connection with the performance of official duties, and to define the conditions in which their acceptance or handing is unacceptable. The implementation and compliance with the Rules is to eliminate situations where accepting gifts could affect the business decisions taken by the Group's subsidiaries.

The general rule obligates all of the employees to refrain from accepting gifts from customers or other employees that could result in exerting an influence on the recipient or could give rise to the obligation to take or forego a specific action with respect to the official duties entrusted thereto, or affect current or future business decisions of TAURON Capital Group's subsidiaries.

An employee of TAURON Capital Group may accept a gift only if the criteria specified in the above-mentioned Rules are collectively met. Any doubts regarding the appropriateness of accepting a gift should be consulted with an immediate superior or the Compliance Officer at TAURON Polska Energia.

TAURON Group's Rules for accepting and giving gifts are adapted to the requirements set out in the "Standards recommended for the compliance management system with respect to countering corruption and the whistleblower protection system in place at companies listed on the markets organized by the Warsaw Stock Exchange" adopted on October 8, 2018 by the Warsaw Stock Exchange.

Anti-trust activities

TAURON Capital Group implemented TAURON Group's Procedure for Countering Bid Collusion in July 2018. The purpose of the document is to define uniform rules of conduct to be applied during the purchase order (contract) award procedure, which will allow for the detection, notification and prevention of bid collusion among contractors entering into procedures organized by the contracting authority (employer).

TAURON Capital Group's purchasing cells are required to take part in training sessions on bid collusion and detection of cartels organized in cooperation with entities dealing with anti-trust protection at least once a year.

Verification (vetting) of contractors (counterparties)

In order to ensure protection against the risk of establishing cooperation with entities operating not in accordance with the provisions of law, good customs and commercial practices, and in particular to reduce the risk of participation in the tax fraud and money laundering schemes, TAURON Capital Group has introduced TAURON Group's Contractors (Counterparties) Credibility Assessment (Vetting) Procedure.

The contractor's credibility is assessed (vetted) by TAURON Capital Group based on the following information:

• legal and financial characteristics,
• thus far operations,
• contract terms,
• equity (capital) and personal ties.

In addition, TAURON Group has been applying the co-called split payment mechanism since July 2018. It is one of the methods used to combat VAT fraud and scams. The application of the split payment mechanism has been indicated by the Ministry of Finance as one of the prerequisites of the due diligence process to be applied by the buyers of goods in domestic transactions.

1230 contractor (counterparty) credibility (vetting) reports were issued throughout TAURON Group in 2020.

In addition, the process of assessing (vetting) external entities with which TAURON Group's subsidiaries were planning to implement projects with respect to communication, promotion, sponsorship, marketing, HR or other types of financial involvement that could give rise to reputation risk, was conducted in 2020. A total of 203 external entities were verified (vetted) by TAURON Group.

Counteracting money laundering and financing of terrorism

TAURON Group adopted TAURON Group's Procedure for counteracting money laundering and financing of terrorism.

The purpose of the document is to ensure TAURON Capital Group's compliance with the requirements of the Act of March 1, 2018, on counteracting money laundering and financing of terrorism. The procedure regulates issues related to the exchange and protection of information within the Group and covers with its scope all of the Group's subsidiaries.

The internal procedure regulates, inter alia, issues related to customer identification, transaction registration, risk assessment, financial security measures, ongoing monitoring of customer business relations, rules for providing information to the General Inspector of Financial Information and training.

In a situation where the company also acts as an obligated institution (specified in Article 2, clause 2 of the abovementioned Act), it is obligated to introduce an internal procedure for counteracting money laundering and financing of terrorism.

It should be emphasized that TAURON Group does not accept any business relations with entities involved in money laundering or financing of terrorism, including those subject to financial sanctions or specific restrictive measures in force on the territory of Poland.

4.9. TAURON Group's WHS Policy

TAURON Group's Work Health and Safety (WHS) Policy is a set of regulations aimed at continued improvement of work (occupational) health and safety standards. By applying the provisions provided therein TAURON Capital Group steadfastly seeks to eliminate work related accidents as well as minimize the occurrence of occupational diseases and the number of potentially accident prone incidents.

The safety of employees, customers, contractors, guests and the other stakeholders is an absolute priority that has a significant impact on the decisions and actions taken by TAURON Capital Group's subsidiaries.

The policy defines the principles of operation, as well as the rules of conduct that serve the implementation of TAURON Capital Group's four basic goals with respect to work health and safety (WHS), i.e.:

• eliminating accidents at work of all persons employed by and working for the benefit of TAURON Capital Group's subsidiaries and any other persons in the area where the subsidiaries are conducting their operations,
• ensuring optimal working conditions for all persons employed by and working for TAURON Capital Group
• raising the qualifications of the employees of TAURON Capital Group, aimed at increasing competences with respect to improving their safety and the safety of other employees as well as persons who find themselves in the area of their work,
• improving an effective work health and safety (WHS) management system.

Due diligence procedures and internal regulations

Work Health and Safety (WHS) Policy is the overarching, binding for all entities present on TAURON Capital Group's sites, document describing the Group's uniform system of occupational health and safety.

As part of the Group's Work Health and Safety (WHS) Policy, each of the subsidiaries, due to the specifics of its operations, has its own regulations in this area, which are fully compliant with the requirements and applicable laws. In addition, the work health and safety (WHS) regulations are adapted to the nature of the work and tasks performed. At the subsidiaries whose operations profile involves production and distribution, i.e. TAURON Wydobycie, TAURON Wytwarzanie, TAURON Ciepło, Kopalnia Wapienia "Czatkowice", TAURON EKOENERGIA and TAURON Dystrybucja – the issues related to the protection of the health and life of employees are of particular importance, which is expressed in extensive safety systems, as well as inspections of working conditions, compliance with the work health and safety regulations and rules at the individual work stations.

The most important documents regulating the work health and safety (WHS) issues include TAURON Wydobycie's Integrated Work (Occupational) Safety and Health Management System, TAURON Ciepło's Work (Occupational) Health and Safety Management Procedures or TAURON Wytwarzanie's Quality, Environment Protection and Work Safety Policy.

External entities that carry out work at the Group's subsidiaries are also obliged to comply with the applicable procedures, including with respect to health and safety of employees. The employees of external companies (contractors and subcontractors) are also required to have up-to-date medical examinations (clearances) as well as appropriate qualifications and authorizations for the works performed. Some of TAURON Capital Group's subsidiaries (especially those where working conditions are particularly dangerous) also introduce additional requirements and training for external entities.

Actions taken and results achieved

Due to the steadfast pursuit of an improvement of work safety, information and educational activities are intensified at TAURON Group. They include the campaigns conducted in 2020:

• "TWOJE bezpieczeństwo w TWOICH rękach" ("YOUR safety in YOUR hands")(TAURON Ciepło): During the project, the employees repeated appropriate behaviors and correct rules of conduct at a given position multiple times. All of the actions undertaken as part of the Campaign were to lead to the elimination of the threats at source, developing safe work habits in employees and shaping a safety culture at the company,
• "Wróćmy szczęśliwi do domu" ("Let us come back home happy") (TAURON Serwis) information campaign,
• Work Health and Safety Knowledge Competition conducted on-line (at Tauron Ciepło),
• Modular training for people managing employees with respect to safe work organization and fire safety (TAURON Ciepło),
• Implementation of the Work Health and Safety (WHS) Improvement (TAURON Ciepło, TAURON Wytwarzanie, TAURON Ekoenergia, TAURON Obsługa Klienta, TAURON Wydobycie, Wsparcie Grupa TAURON),
• Thematic campaigns (TAURON Obsługa Klienta) related to:
  • Ergonomics Day,
  • Road Traffic Safety Day,
  • World Day without a mobile phone,
  • World Safety Day,
  • World Eyesight Day,
  • World Diabetes Combating Day,
• 10 main rules of work health and safety (WHS) (TAURON Wytwarzanie),
• Continuation of activities undertaken as part of the "4Z" program raising the employees' awareness of safety when operating belt conveyors, expanding knowledge with respect to threats occurring at work stations and developing the ability to identify them, along with the introduction of elements aimed at improving the safety culture of the employees (TAURON Wydobycie);
• "5 minut dla bezpieczeństwa" ("5 minutes for safety") (TAURON Wydobycie),
• Launching the "1 Minuta na BHP" ("1 Minute for WHS") series (TAURON Polska Energia);
• Promoting the "Zero wypadków" ("Zero accidents") idea (Wsparcie Grupa TAURON),
• Searching for and implementing new technologies and working methods in terms of work health and safety (WHS) (Wsparcie Grupa TAURON).

An important element in promoting the work health and safety (WHS) rules is continued raising of the awareness of the employees and subcontractors, mainly through dedicated training courses, which in 2020 were conducted in the form of online meetings and workshops, as well as via an interactive e-learning platform.

Accident frequency rates

214 accidents occurred at TAURON Group's subsidiaries in 2020, leading to the total of 218 persons getting injured. There was 1 fatal accident among them. The total number of accidents increased by 12 incidents in 2020 as compared to 2019. The number of the most tragic accidents, i.e. fatalities, decreased from 2 incidents in 2019 to one case in 2020. However, the number of minor accidents increased from 200 in 2019 to 211 accidents in 2020. As compared to 2019, when 4 larger scale (group) accidents were recorded, in which the number of persons injured was 8, in 2020, there were 2 such accidents in which 4 persons were injured. As compared to the previous year, no major (severe) accidents were recorded in 2020. The accident frequency rate was 8.3 in 2020. The accident frequency rate was 7.8 in 2019. The employee accident rate (accident frequency rate) broken down by gender (Injury rate - IR) is presented in Table no. 63.

Table no. 63. GRI 403-9. Employee accident rate (accident frequency rate) broken down by gender at TAURON Capital Group in 2020

TOTAL NUMBER OF ALL ACCIDENTS	214
Women	12
Men	206
NUMBER OF FATAL ACCIDENTS AT WORK	1
Women	-
Men	1
NUMBER OF MINOR ACCIDENTS AT WORK	211
Women	12
Men	201
NUMBER OF MAJOR ACCIDENTS AT WORK	-
Women	-
Men	-
NUMBER OF GROUP ACCIDENTS	2
Women	-
Men	4
ACCIDENT FREQUENCY RATE	8.3
Accident frequency rate = (number of accidents at work x 1000) / average employment in 2020
Women	0.5
Men	8.0
ACCIDENT SEVERITY RATE
Accident severity rate = Total number of days of inability to work of victims of accidents at work / Number of persons injured in accidents at work (excluding fatalities)	64.0
Women	53.3

Due to the steadfast pursuit of a decrease in the number of accidents, activities promoting safe behavior at the workplace are continuously intensified. They include numerous training courses, covering both the employees as well as external entities performing work for TAURON Capital Group's subsidiaries. The percentage of TAURON Group's employees trained in 2020 is presented in Table no. 64.

Table no. 64. GRI EU18. Percentage of TAURON Capital Group's employees, contractors and subcontractors that have undergone WHS training in 2020

2020	Nowe Jaworzno Grupa TAURON	TAURON Ciepło	TAURON Wydobycie	TAURON Wytwarzanie	TAURON Dystrybucja Pomiary	TAURON Serwis
Percentage of employees employed by contractors who underwent the above WHS training	100%	51%	100%	16%	70%	100%

TAURON Wytwarzanie has in place an applicable internal normative act regarding the hiring of external companies, with respect to the application of the provisions and rules of Work Health and Safety, which includes, inter alia, the requirements for training the employees of external companies. Pursuant to those provisions TAURON Wytwarzanie conducts training for the supervision personnel of the external companies with respect to threats to safety and health occurring at workplace, as well as aimed at familiarizing them with the internal regulations in force at the company, with regard to work health and safety as well as fire safety.

Contractors, on the other hand, are obliged to train persons performing the subject of the contract/order with respect to threats to safety and health occurring at workplace and during the performance of the works, as well as familiarize themselves with the internal normative acts in force at TAURON Wytwarzanie, with regard to work health and safety as well as fire safety, in accordance with the scope of work. Every time in case of subcontractors, the Contractor is obliged to fulfill the obligations described above. Conducting the above mentioned trainings is confirmed in writing.

At TAURON Wydobycie all employees of external companies, i.e. contractors and subcontractors, attend additional WHS training under the Geological and Mining Law Act, before starting work at the company's coal mines. The above-mentioned trainings are conducted with respect to work health and safety, running coal mine operations as well as fire safety, occurring threats, work order and discipline, rescue plan, communication and alerting rules, knowledge of the work area, as well as reporting accidents and threats.

Procedures for counteracting SARS-CoV-2

TAURON Group's obligation to ensure safe and hygienic work conditions during the SARS-CoV-2 virus pandemic led to the establishment on March 11, 2020, of the Team for monitoring the impact of the epidemiological situation on TAURON Group's operations. Similar dedicated crisis management teams were set up at the Group's individual subsidiaries. Their main tasks included and include:

• monitoring of the state of the epidemiological threat and the ongoing monitoring of the availability of the employees and services provided by TAURON Group's subsidiaries,
• developing and recommending solutions aimed at reducing the risk and their effects on TAURON Group's resources,
• keeping the employees informed on an ongoing basis by means of adequate messages distributed throughout the organization or at the individual subsidiaries.

Preventive actions - SARS-CoV-2

TAURON Capital Group has undertaken a number of preventive organizational and tangible actions aimed at protecting the employees of the individual subsidiaries and maintaining the continuity of the operations of the critical infrastructure. Due to the emergence of the epidemic threat, all of TAURON Group's subsidiaries have introduced new solutions, depending on the specifics of their operations. The most important of them include:

• introducing lists of key and critical employees for the operations of the given subsidiary and the ongoing monitoring of their availability,
• preparatory actions in the event of the need to lodge (accommodate) the employees operating the critical infrastructure on site;
• broader (frequently even unlimited) introduction of remote work opportunities based on providing adequate security and the development of the IT infrastructure and VPN connections,
• restricting the movement of the employees to the necessary minimum, as well as face to face (direct) meetings with the customers and contractors (counterparties), and recommending the use of videoconferencing (also by restricting the use of company cars),
• providing the employees with personal protective equipment such as masks, disposable gloves and hand disinfectants, and additionally at the entrances to TAURON Group's facilities, an obligation to measure the body temperature of people entering was introduced,
• from the beginning of the epidemic, where possible, multiple disinfections of premises and offices,
• introduction of the rules of conduct (procedures) at all of TAURON Group's subsidiaries in the event of the appearance of infected people or persons required to quarantine.

4.10. Strategic Research Agenda (SAB)

TAURON Capital Group is carefully analyzing changes in the environment that affect its entire value chain. Its individual elements determine or are likely to have a significant impact on that chain in the foreseeable future. We see an intense development and potential importance of distributed power generation sources, advancing digitization of the distribution grids and the change in the role of the electricity consumer, who, from being a passive market participant, is turning into its active player or even the so-called prosumer. We do not perceive the technological progress as a threat, but as an opportunity to become the sector's leader of innovation.

Due diligence procedures and internal regulations

R&D and innovation activities that TAURON Capital Group is placing a strong emphasis on in its Strategy, are reflected in the Strategic Research Agenda (SAB) adopted in 2018 and steadfastly implemented in 2020. Portfolio based management of research and development projects has been introduced by TAURON Capital Group as part of the Research and Development Area, in line with the priority directions of innovative as well as research and development activities.

SAB is a document that precisely describes the directions for the development of innovations and provides a more detailed elaboration of the Strategy. A separate project portfolio has been created for each direction, in which key challenges, development goals and research areas have been identified. Such a structure of the SAB supports the selection of specific projects and rejection of others, as well as allows for an optimal allocation of the financial resources. SAB includes the following portfolios:

• Customer and His/Her Needs;
• Intelligent Grid Services;
• Distributed Power Generation;
• Low Emission Generation Technologies.

This way TAURON Capital Group's research and development as well as innovation activities are implemented and expanded based on the complete and detailed strategic assumptions - with the clearly defined goals and results set on the time horizon.

SAB is consistent with and complementary to the other strategic documents, developed or adopted by TAURON Capital Group, including, first and foremost, with respect to the investment (capex) projects or asset management.

Actions taken and results achieved

The implementation of SAB takes place on several levels, forming the so-called innovation ecosystem, including in the pro-climate context. In addition to the traditionally understood research and development activities (research and development projects, cooperation with the scientific units and innovative business partners), the cooperation with start-ups, implemented through the accelerator programs and the Corporate Venture Capital (CVC) - EEC Magenta fund, has also gained significant importance at TAURON Capital Group.

Research and investment projects aimed at ensuring the reliability of electricity supply and promoting sustainable development within the Group and by TAURON Group are illustrated in Table no. 65.

Table no. 65. GRI EU DMA. Research and investment projects in 2020 aimed at ensuring the reliability of electricity supply and promoting sustainable development within the Group and by TAURON Capital Group

INVESTMENT PROJECT CATEGORIES	Investment project type – investment project name (broken down into categories in the table)	Investment project description	Costs (incurred in conjunction with the implementation of the investment project) PLN
Renewable energy technologies	Developing a platform that aggregates the generation and control (adjustment) potential of the distributed renewable energy sources and energy storage facilities (units) as well as selected categories of consumers whose demand can be controlled (managed)	The implementation works related to an innovative Virtual Power Plant platform (hereinafter referred to as "VPP"), developed in 2017-2021, - allowing for the aggregation of the generation and control (adjustment) potential of the distributed renewable energy sources, energy storage facilities (units) and selected categories of controllable loads. Adaptation of the Lubachów Hydroelectric Power Plant (Elektrownia Wodna Lubachów) infrastructure to operate in the Virtual Power Plant mode.	2 581 652.72
TOTAL COSTS IN THE CATEGORY			2 581 652.72
Electricity distribution	Distributed energy 2.0 operating model - self-balancing power grid areas	The goal of the Project is to verify the technologies that would enable setting up of local power sub grids, called micro grids. As part of the Project, a pilot micro grid installation will be built and tested in terms of: maintaining the balance and continuity of power supply, quality of electricity, operational safety from the perspective of the consumers, devices and networks, as well as economic aspects of the entire solution. Based on that, guidelines will be developed enabling the interoperation of microgrids with the electricity distribution grid. The result of the Project will be a fully functional and tested pilot installation (operating in the actual conditions) as well as the detailed technical documentation of the solution, that would allow for its implementation both on the Polish as well as the foreign market.	516 397.96
	MV/LV station monitoring system with a functionality enabling detecting events in the medium voltage grid	The goal of the project is to verify the technical assumptions and evaluate the business usefulness of the metering system provided by the company iGrid, selected as part of the startup support accelerator program: Pilot Maker. The system allows for a faster detection of some events occurring in the medium voltage grid, based on the measurements on the 0.4 kV side, as compared to the solution based on the balancing meters, as a result of which it is possible to locate faults in the MV distribution grid faster.	32 823.78
	System for assessing the propagation and improving the electricity quality parameters in the distribution grids (SOPJEE)	The project's goal is to develop a system for assessing the propagation and improving the electricity quality parameters (SOPJEE) in the distribution grids. TAURON Dystrybucja's existing metering infrastructure (more than 220 stationary and more than 200 mobile measurement points) will be used for this purpose, as well as a new, extended system for the monitoring and evaluation of the propagation of electricity quality parameters (JEE) will be built.	141 819.60

TOTAL COSTS IN THE CATEGORY

691 041.34
------------

Transmission and distribution technologies
	Distribution grid operation automation	Development of an innovative system for effective monitoring and support of the protection devices that meet the DMS (Distribution Management System) assumptions, along with the development of the protection controller prototype (including sirens) in the MV network.	861 333.27
	Integrated Grid Diagnostics System	The goal of the project is to conduct R&D works aimed at developing a prototype of an IT system supporting the process of managing the population of HV/MV transformers based on the multi parameter analysis of the measurement results (ZSDS for short).	1 367 442.27
TOTAL COSTS IN THE CATEGORY			2 228 775.54
Advanced technologies (storage, recovery, etc.)	Hybrid system for reducing the emissions of acid components and fly ash in the flue gases	The goal of the project is to test, in the conditions of a demonstration installation, a hybrid filter installed to replace an electrostatic precipitator. The hybrid filter responds to the market demand for a universal and flexible solution enabling the modernization of the existing dust removal and treatment systems or the construction of the new ones. In addition, the compactness of the solution allows for the installation of the device in places where the local conditions or the existing infrastructure prevents expansion or modernization.	115 641.20
	Flexibility of the existing power generating units with limited capital expenditures	The project focuses on developing an improved flexibility control and monitoring system (IFCAMS) that impacts the flexible use of the coal-fired generating units. It is expected that the technology developed will allow the power plants to be operated efficiently, taking into account the new requirements for power ramp up/ramp down. The use of IFCAMS will shorten the power ramp up/ramp down time and will reduce the operating costs related to numerous unit failures (thanks to the reduction of the current technical minimum).	165 468.64
	Development of the industrial design of carbonate fuel cells and ceramic electrolyzers enabling the integration with the power-to-gas installations	The goal of the project is to improve the chemical energy storage process (a substitute for natural gas, SNG), mainly based on the higher efficiency of the high temperature electrolysis and the use of the carbonate fuel cells for CO2 capture from the flue gases, which does not require the supply of electricity from the power plant to the capture system. In addition, both of the innovations introduced enable their integration on the heat and electricity generation side.	1 354 135.05
	Energy storage systems for the DSO needs	Demonstration project involving the use of the stationary energy storage system as the grid operation stabilization element, Smart Grid element (ESS Cieszanowice),	6 263 305.49

	Development and implementation of a technological process for reducing the HCl emissions in the flue gas from the fluidized bed boilers	The goal of the project is to adapt TAURON Wytwarzanie's Generating Units in an optimal manner to the new environmental and market requirements, in force beyond 2021, related to the Commission Implementing Decision (EU) 2017/1442 of July 31, 2017 establishing the best available techniques (BAT) conclusions for large combustion plants. The works were carried out at the Siersza power plant.	69 863.36
	Developing and testing an adaptive electricity storage system based on the second life of the batteries coming from electric vehicles	The goal of the project is to develop a prototype of a battery storage in two capacity variants, based on the reuse of the lithium-ion batteries from the electric transportation, and to test it, in 3 use cases, including the preliminary definition of the model of the production accompanying processes related to the transformation of the batteries for a new application and supply chain model.	158 229.69
	Development and implementation of a technological process for the processing of waste from the fluidized bed boilers, using CO2 for the production of a cement substitute	The goal of the project is the construction and commissioning of a demonstration installation for the processing of waste from the fluidized bed boilers, using CO2 in the production process of the composites for applications in the construction industry and/or in the geo-engineering applications, to fill the post-mining voids in hard coal mining. The project is in line with the assumptions of the Circular Economy.	415 003.57
TOTAL COSTS IN THE CATEGORY			8 541 647.00
	Development of advanced technology for the monitoring and predictive analysis of the technical condition of the boiler to increase the reliability of the boiler unit	The origin of the project is associated with the need to improve the availability (dispatchability) of the 460MWe unit. The technologies being developed should definitely increase the efficiency and reduce the costs of the diagnostics of the heat exchange surface inside the boiler, improving its availability and increasing the economic efficiency of its operation. The goal of the project is to develop two complementary technologies/tools for the advanced diagnostics of the wear of the heat exchange elements inside the boiler. The first solution would be used for the precise (detailed) monitoring of the technical condition of the heat exchange elements inside the boiler, which could operate at high temperatures, the second solution would be used for the analysis and interpretation of the results obtained in the context of the prediction of the erosive wear of the heating surfaces of the boiler's furnace chamber and the required repairs (overhauls).	938 333.84
Innovative related services (e.g. remote meters)	Development and demonstration of a computer system for operation control and management of the availability (dispatchability) and reliability of the industrial infrastructure based on artificial intelligence algorithms	The goal of the project is to create a prototype modular computer system based on artificial intelligence algorithms to increase the reliability of Tauron Group's generation infrastructure. The goal will be achieved through the creation of a hybrid IT infrastructure, which will include adaptive predictive/prescription models interoperating with the control systems, optimization algorithms, numerical models, databases, and algorithms controlling the health of the energy devices.	4 008 000.00
	Internet of Things (IOT)	Developing the Internet of Things technology in cooperation with the city of Wrocław. The project's goal is to develop and implement an IT architecture for collecting and managing data from the selected areas of a smart city, the deployed solution assumes scaling up with respect to the number of sensor devices and the functional areas supported. In the first phase, the project focuses on air quality monitoring, waste management, smart street lighting and parking areas management, subsequently the city road traffic monitoring functionality was added. The IT environment developed, along with the recommendations, will be the basis for creating and offering the ultimate product to the cities and municipalities.	1 116 700.00

	HEMS (Home Energy Management System)	The goal of the Program, addressed to a retail customer, is to prepare TAURON Group to acquire a new revenue stream for the Group's subsidiaries, by developing a strategy, organization and model for the provision of the services and selling products under HEMS, based on the existing as well as the new products and services. Activities related to HEMS focus on maximizing the energy potential of houses and devices, customer convenience and smart use of ecological products. To achieve these goals, modern solutions are used, i.e. artificial intelligence, smart home technology, etc.	115 163.20
TOTAL COSTS IN THE CATEGORY			6 178 197.04
TOTAL AGGREGATE COSTS			20 221 313.60

4.11. TAURON Group's Corporate Purchasing Policy

TAURON Group's Corporate Purchasing Policy, which has been in force since 2010, implements the priorities set out in the Group's Strategy regarding ensuring financial stability.

The main goal of implementing the Corporate Purchasing Policy was the need to create a transparent, competitive and efficient purchasing organization operating within the entire TAURON Capital Group.

TAURON Group's Corporate Purchasing Policy enables the implementation of strategic goals of the Purchasing Area, in particular with respect to:

• improving the efficiency of purchasing processes by implementing efficiency metrics,
• increasing the use of electronic tools in the purchasing, by developing and implementing the assumptions for the functioning and further development of the Purchasing Organization Support System,
• further centralization of the purchasing processes by defining, in the Corporate Purchasing Policy, the rules for determining the consolidated categories as well as the key competences and responsibilities of the purchasing category manager, the rules for developing and creating the Purchase Strategy and accounting for the achievement of the purchase objectives.

Due diligence procedures and internal regulations

Due diligence procedures with respect to the Corporate Purchasing Policy include all actions aimed at the continuous improvement of the purchasing processes, both with regard to acquiring goods as well as the operational purchase order processing. To be able to more fully achieve the above objective, the Purchase Order (Contract) Award Regulations and Purchase Strategies have been implemented.

Purchase Order (Contract) Award Regulations

A single common purchasing regulation was implemented for all of the Group's Subsidiaries in 2015,, along with the tender documentation templates. Regulations define the principles of planning, preparation and the manner of proceeding and awarding Purchase Orders. As a result, the purchasing process in the entire Capital Group is transparent and uncomplicated from the point of view of potential contractors.

Purchasing Strategies

Thanks to the prepared Purchasing Strategies, it is possible to develop a Knowledge Base in the Purchasing Organization Support System (SWOZ) with respect to purchasing optimizations used for the given purchasing category.

The above actions are primarily aimed at reducing the risk in the supply chain area and gaining access to solutions and innovations used by the suppliers.

The management of categories is inseparably connected with the centralization of purchases, which allows, among others, for strengthening of the purchasing position of the ordering (contracting) party, the ability to directly communicate with the suppliers at the strategic level, standardization of the purchasing processes throughout the organization, unifying the conditions of cooperation with the suppliers across the individual subsidiaries and efficient planning of the needs.

Purchasing strategies also facilitate an exchange of knowledge in the event of a potential rotation of the purchase category managers and enable long-term collection of knowledge and experience among them.

Actions taken and results achieved

All of the above activities are aimed at simplifying and standardizing the purchasing process. Increasing competitiveness is a key task for the purchasing area. Competitiveness is a guarantee of the cost reduction, risk reduction in the area of supply chain and gaining access to the best solutions on the market. Higher competitiveness of offers (bids) is also projecting a positive image of the ordering (contracting) party on the market as a transparent and professional entity.

4.12. TAURON Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries

An important initiative implemented at TAURON Capital Group as part of a responsible supply chain is the inclusion of the sustainability criteria into the purchasing process management standard. TAURON Group promotes the idea of social responsibility among its suppliers. It expects cooperation with the contractors (counterparties) who respect human rights and act in accordance with the legal regulations, ensure safe and dignified working conditions and apply not only the highest ethical standards, but also take care of the environment and the climate.

The criteria regarding corporate social responsibility with respect to TAURON Group's contractors (counterparties) were defined and collected in a single document, i.e. the Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries. It has been a mandatory criterion used in the process of qualifying contractors (counterparties) since December 2017. The Code is an applicable standard in the Capital Group, promoting responsibility among stakeholders and encouraging the implementation of responsible practices among the suppliers.

Due diligence procedures and internal regulations

The goal of the Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries is to define uniform standards and transparent rules of conduct as part of the business operations conducted by the subsidiaries, in particular with respect to the contractors (counterparties). The Code also includes the rules related to the employee (among others work health and safety, discrimination, personnel policy, forced labor, hiring children and minors), the natural environment (environment protection, responsible resource management, taking care of the climate), interactions with the stakeholders (among others, fair competition, combating fraud (abuse), security and protection of information, investor relations).

The Code is applied in relations with the contractors (counterparties) of TAURON Group's subsidiaries and is applicable to all employees, members of the management board and supervisory bodies of the subsidiaries, as well as proxies and powers of attorney.

The Code is associated with TAURON Capital Group's other policy documents:

• TAURON Group's Corporate Social Responsibility Code of Conduct,
• TAURON Group's Policy of Respect for Human Rights,
• TAURON Group's Anti-Corruption Policy,
• The procedure for assessing (vetting) the credibility of TAURON Polska Energia S.A.'s contractors,
• TAURON Group's rules for organizing ventures in cooperation with external entities,
• TAURON Group's Purchase Order (Contract) Award Regulations.

Actions taken and results achieved

A contractor (counterparty) who takes part in the proceedings organized by TAURON Capital Group's subsidiaries is obliged to submit a statement confirming that he has studied TAURON Group's Corporate Social Responsibility Code of Conduct and compliance with its provisions. The above statement was posted on the Company's website at:

https://swoz.tauron.pl/swoz2/platform/application?MP\_action=publicFilesList&folder=000f0003&MP\_module=main

4.13. Personal data protection policy for TAURON Group's entities

General Data Protection Regulation (GDPR) has been applicable in the European Union since May 25, 2018. The entry into force of this regulation changed the approach to the protection of personal data, imposing a number of new obligations on data controllers, such as the introduction of new data security procedures or informing the Polish supervisory authority (PUODO) and GDPR rights entities (e.g. TAURON Group's customers) of personal data breaches. As part of the GDPR (RODO) project, TAURON Group has undertaken a number of actions aimed at implementing the requirements of the Regulation due to the need to:

• ensure the protection of personal data regardless of the place of its processing,
• appoint a Personal Data Protection Officer at TAURON Group's subsidiaries (IOD),
• ensure mandatory notification of personal data breaches,
• ensure the default protection of personal data and the protection of privacy at the design stage (privacy by design),
• implement the rights of the customers and contractors (counterparties) that the data is applicable to (e.g. "the right to be forgotten"),
• update the content of the information clauses and consents regarding the processing of personal data,
• adapt the IT systems to the new security requirements for personal data processing.

The following principles are enforced at TAURON Capital Group:

• Legality (lawfulness) of personal data processing: we process personal data in accordance with the generally applicable law, based on an established legal basis;
• Reliability: personal data is processed in a fair, adequate, appropriate and required manner for the purposes of its processing;
• Purposefulness: personal data is processed for specific purposes;
• Accountability: TAURON Group effectively documents the handling of the given data in order to be fully accountable and prove the fulfillment of the legal obligations regarding its processing;
• Minimization: TAURON Group minimizes the processing of personal data, we disclose it only for the required purposes, of which we inform in advance;
• Correctness: we take care of the correctness of data with the utmost diligence, verifying it and enabling its owners (entities subject to GDPR), for example, to update the data;
• Security: we place particular emphasis on the security of personal data processing using IT systems, implementing tools and procedures aimed at increasing cyber security. We implement and update procedures, optimizing the security of personal data, and train staff in this regard.

TAURON Capital Group applies the Personal Data Protection Policy for TAURON Group's entities. Taking into account the processing of personal data, the document sets out the principles and obligations related to the security and confidentiality of such data, as well as regarding access to the information on its processing for the data subjects (persons that the given personal data is applicable to). In the event that, despite the security measures applied, a breach of personal data protection (e.g. data leakage or loss) has occurred, the Data Protection Controllers (Administrators) at TAURON Group, using the specially prepared forms, inform persons that the given personal data is applicable to (data subjects), of such an occurrence, doing it in manner in accordance with the legal regulations.

Due diligence procedures and internal regulations

Due diligence procedures provided in the described Policy include in particular:

• 1. General principles for the processing of personal data specified in art. 5 of GDPR. 2. Rules ensuring that data is processed in accordance with the law - art. 6-11 of GDPR. 3.
• 1. Obligations of the Data Controllers (Administrators) to comply with the rights of persons whose data is processed - art. 12-23 of GDPR.
• 1. Regulations on the fulfillment of the general obligations with respect to the data processing entrusted with the Data Controller (Administrator) and the Processing Entity (e.g. a template of the agreement for entrusting the processing of personal data) - art. 24-31 of GDPR.
• 1. The necessary security measures for data processing, taking into account the nature of the scope, context and purposes of data processing - Art. 32- 36 of GDPR.
• 1. Control mechanisms over data processing in the form of monitoring the compliance with the regulations and the accepted processing procedures by the Data Protection Officer - art. 27-43.
• 1. Requirements for the transfer of data to third countries and international institutions Art. 44 49 of GDPR.

In the Policy, in accordance with art. 24 and art. 32 of the GDPR, while performing the above mentioned obligations with respect to ensuring the compliance, measures taking into account the state of technical knowledge, costs, nature, scope, context, purposes of processing, as well as the risks to which the processed data is exposed, have been implemented.

Actions taken and results achieved

TAURON Capital Group undertook further intensive activities in 2020 to demonstrate its care for the security of the personal data processed, by:

• 1. Ensuring the update of the internal regulations, including the Policy, to the extent related to the changing environment.
• 1. Keeping the inventory of equipment and software used for processing the information, including their type and configuration, up to date.
• 1. Performing periodic analyses of the risk of a loss of integrity, availability (accessibility) or confidentiality of the information and taking measures to minimize this risk, pursuant to the results of the analysis completed.
• 1. Undertaking actions to ensure that the persons involved in the information processing process hold the applicable authorizations and participate in this process to an extent adequate to the tasks and duties carried out by them to ensure the information security.
• 1. Promptly changing the authorizations in the event of a change in the tasks of the persons referred to in item 4.
• 1. Providing training for the people involved in the information processing process, with particular regard to such issues as:
  2. threats to information security,
  3. consequences of violating information security rules, including the legal liability,
  4. using measures to ensure information security, including devices and software that minimizes the risk of human errors.
• 1. Ensuring the protection of the information processed against theft, unauthorized access, damage or interference, by:
  2. monitoring access to the information,
  3. activities aimed at detecting unauthorized information processing activities,
• providing measures to prevent unauthorized access at the level of operating systems, network services and applications.
• 1. Establishment of and compliance with the basic principles guaranteeing security of work in case of mobile processing and remote work.
• 1. Securing the information in a manner that prevents its unauthorized disclosure, modification, deletion or destruction.
• 1. Including, in the support services contracts signed with third parties, provisions guaranteeing an appropriate level of information security.
• 1. Setting the rules for dealing with the information that minimize the risk of a theft of information and the information processing means, including mobile devices.
• 1. Implementation of an appropriate level of security in the ICT systems, involving, in particular:
  2. taking care of software updates,
  3. minimizing the risk of information loss as a result of a failure,
  4. protection against errors, loss, unauthorized modification,
  5. using cryptographic mechanisms in a manner adequate to the threats or the requirements of a legal provision,
  6. ensuring the security of system files,
  7. reducing the risks arising from the use of the published technical vulnerabilities of the ICT systems,
  8. taking prompt action after noticing the undisclosed vulnerabilities of IT systems to the possibility of security breaches,
  9. checking the compliance of ICT systems with the relevant security standards and policies, including the data retention implementation.
• 1. Implementation of a system for promptly reporting incidents of the information security breaches in a specific and pre-defined manner, enabling taking of corrective (remedial) actions quickly.
• 1. Internal audit with respect to the information security, including in particular the audit of IT systems in which personal data is processed.

The increase in the total number of identified leaks, thefts or cases of loss of customer data (+ 39.2%) is due to the increase in the scale of processing personal data of customers in 2020 during the pandemic time. The number of substantiated (justified) complaints regarding breaches of customer privacy received from the regulatory authorities fell (by 250%).

Table No. 66 presents material complaints regarding breaches of customer privacy and loss of customer data at TAURON Group in 2020.

Table no. 66. GRI 418-1. Material complaints regarding breaches of customer privacy and loss of customer data at TAURON Group in 2020

Total number of data leakage, theft or loss of customer data cases found	341
Number of substantiated (justified) complaints regarding breaches of customer privacy received from third parties and recognized by the organization	63
Number of substantiated (justified) complaints regarding breaches of customer privacy received from the regulatory authorities	1
Total number of substantiated (justified) complaints regarding breaches of customer privacy	64

TAURON Sprzedaż, TAURON Sprzedaż GZE and TAURON Dystrybucja S.A., are the centers for the arising of material complaints regarding breaches of customer privacy and loss of customer data in 2020, they account for 100% of all the detected data leaks, complaints at TAURON Group.

A detailed analysis of the subject structure and growth factors of the said indicators (rates) will be completed in 2021, along with the recommendations on how to arrest the growth thereof.

4.14. TAURON Capital Group's Policy of compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination

TAURON Capital Group's Policy of compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination was implemented in May 2019, replacing TAURON Group's Policy of Counteracting Mobbing and Discrimination in place since 2017. This Policy defines the rules for reporting the violations of the Ethics, Mobbing and Discrimination Rules as well as the tasks, empowerments and obligations of the Ethics Committee. Additionally, in 2020, due to the epidemic situation, the provisions governing the functioning of the Ethics Committee were changed by introducing the possibility of remote (on-line) processing of reports submitted thereto. The introduction of such a solution allowed for ensuring the proper functioning of the Ethics Committee at TAURON Group's individual subsidiaries and the provided the possibility of reviewing the reports on an ongoing basis.

There are two sub-committees within TAURON Group's Ethics Committee:

• Internal Sub-committee, whose members are appointed and dismissed by the Management Board of the given subsidiary, that at the same time appoints the Chair of the Subcommittee;
• Group's Sub-committee, composed of eight members, appointed from among the representatives of the trade unions operating at TAURON Group and eight representatives of the employers, appointed by the Management Board of TAURON Polska Energia S.A.

An employee is given a choice of which Subcommittee he/she would like to turn to in order to have his/her notification (report) reviewed.

Due diligence procedures and internal regulations

The main assumptions used as part of TAURON Group's Policy of compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination include:

• ensuring compliance with the Principles of Ethics with respect to preventing employee rights violations and conflicts among employees,
• defining the principles of counteracting mobbing and discrimination cases at the workplace and in connection with the performance of work, ensuring the implementation of the labor law provisions,
• undertaking intervention measures and mitigating the effects of identified cases of violations of the Principles of Ethics, in particular the cases of mobbing and discrimination,
• taking disciplinary measures against persons committing violations of the Principles of Ethics, in particular regarding mobbing or discrimination,
• strengthening positive relations among employees.

TAURON Group's Corporate Social Responsibility Code of Conduct is a regulation supporting the Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, and it includes the Group's corporate values and the principles of conduct in three areas: employee, natural environment and stakeholders. They provide a guidepost on conduct for all employees.

Actions taken and results achieved

TAURON Group's Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discriminatio is implemented through the e-learning training courses aimed at developing and strengthening positive relations among the employees and preventing the cases of mobbing or discrimination, as well as educating the employees. The e-learning training dedicated to these topics is a mandatory training for all of the newly hired employees. The other employees are reminded of the Policy rules through information campaigns and content available on the Group's intranet website.

In 2020, training was conducted for all members of TAURON Group's Ethics Committee (both the internal Subcommittees of the individual subsidiaries as well as the Group's Subcommittee) and the personnel of the human resources management area and the compliance area. The purpose of that training, entitled "Mobbing - legal and psychological aspects", was to expand and update the knowledge of the employees involved in the activities aimed at counteracting mobbing and discrimination at TAURON Group.

4.15. TAURON Group's due diligence procedures

4.15.1. Internal control and audit procedure

TAURON Capital Group's internal audit and internal control process is organized in such a way as to ensure broadly understood security of the Group's operations, while supporting the implementation of the Strategy's objectives. As part of its control and audit activities, the Group strives to increase the predictability of achieving strategic goals including stable achievement of the assumed financial result - by also focusing on the potential risks that may threaten the value levers (drivers) that are key for the implementation of the Strategy.

The main goals of the Audit and Control Area at TAURON Polska Energia S.A. include: planning and implementation of the audit tasks, including the advisory and opinion forming activities, as well as the control tasks, including the performance of the ad hoc controls commissioned. As part of the audit activities, the correctness of the audited processes and the effectiveness of the control mechanisms are also verified. If any irregularities are

identified, the auditors recommend taking appropriate corrective (remedy) actions. The implementation of the recommendations is the responsibility of the management of the audited entities, and the degree of the implementation of the audit recommendations is monitored on an ongoing basis. The above tasks are implemented by the Internal Audit Team, performing the audit tasks both in the strategic area, covering the Capital Group with its scope, as well as specialized operational tasks at the level of TAURON Capital Group's individual subsidiaries and its lines of business.

The control (inspection) activities are organized similarly at the Group level - carried out by the Internal Control Team, and at the level of the subsidiaries – carried out by the controllers employed by such subsidiaries. In addition, the Internal Control Team carries out the specialized controls (audits) of the area of IT, OT and security systems. The tasks carried out by these units include both the scheduled controls (audits) as well as the ad hoc controls (audits) commissioned on an ongoing basis.

The goal of the Area's organization is to enable covering the entire operations of the organization with the scope of the audits and controls, both from the point of view of the needs of TAURON Capital Group as well as those of the individual subsidiaries. The direct reporting to the President of the Management Board allows the Audit Area to maintain the required independence and objectivity.

The Audit and Control Area conducted 36 scheduled and ad hoc tasks in 2020. In addition, works were carried out aimed at building and developing a model for the periodic assessment of the Internal Control System in place at TAURON Polska Energia S.A. as well within entire TAURON Capital Group. The project works were completed in December 2020. The results of the assessment of the Internal Control System are presented to the Management Board and the Audit Committee of the Company's Supervisory Board.

4.15.2. Most important aspects of internal control and risk management with respect to the process of drawing up financial statements and consolidated financial statements

Supervision over application of consistent (uniform) accounting rules by TAURON Capital Group's subsidiaries when developing reporting packages for the purpose of drawing up TAURON Capital Group's consolidated financial statement

In order to ensure consistent accounting principles based on International Financial Reporting Standards (IFRS), approved by the European Union, the Accounting Policy of TAURON Polska Energia S.A. Capital Group (Accounting Policy) was developed and implemented by TAURON Capital Group. This document shall be accordingly updated in case there are changes to the regulations. The rules defined in the Accounting Policy shall be applicable to TAURON's standalone financial statements and TAURON Capital Group's consolidated financial statements. TAURON Capital Group's subsidiaries shall be obligated to apply the Accounting Policy when preparing the reporting packages that provide the basis for preparing TAURON Capital Group's consolidated financial statements.

Furthermore, TAURON Capital Group developed and implemented an intra-group regulation that comprehensively regulates issues related to the rules and deadlines for preparing the reporting packages for the purpose of consolidated financial statements. The reporting packages shall be validated by the holding company's Consolidation and Reporting Office and by an independent certified auditor during an audit or review of TAURON Capital Group's consolidated financial statements.

Procedures used to authorize and provide opinions on TAURON Polska Energia's financial statements and TAURON Capital Group's consolidated financial statements

The Company has implemented financial statements' authorization procedures. Quarterly, half year and full year financial statements of the Company and TAURON Capital Group's consolidated financial statements shall be approved by the Company's Management Board before being published. Full year financial statements of TAURON and TAURON Capital Group's consolidated financial statements shall be additionally presented for evaluation to the Company's Supervisory Board before being published. Vice President of the Management Board for the Company's Finance (Chief Financial Officer) shall oversee the preparation of financial statements, while the Management Boards of the subsidiaries included in the consolidation shall be responsible for preparing the reporting packages for TAURON Capital Group's consolidated financial statements.

Supervisory Board's structure includes the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. The detailed information on the composition, competences and description of the operations of the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. is presented in section 9. of the Management Board's Report on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for the financial year 2020.

IT systems as well as financial and accounting processes

TAURON Capital Group's subsidiaries maintain accounting books (ledgers) which constitute the basis for preparing financial statements using ERP financial and accounting computer systems, enabling system audits of the correctness of the document flow and classifying of the business events. Consolidated financial statements are prepared using an IT tool used to consolidate financial statements, providing system control with respect to the coherence (integrity) and timeliness of preparing the consolidation data.

TAURON Capital Group's subsidiaries have implemented IT and organizational solutions that provide control of access to the financial and accounting system and ensure adequate protection and archiving of the accounting books. Access to IT systems is restricted based on applicable access rights assigned to authorized personnel. Control mechanisms are applied in the process of granting and changing access rights to the financial and accounting systems. The rights granted are also subject to periodic verification.

Due to the integration of the accounting functions and the transfer of TAURON Capital Group's material subsidiaries' financial and accounting services to CUW-R (Shared Cervices Center – Accounting) TAURON Capital Group's financial and accounting processes were gradually unified. The subsidiaries adjusted their own procedures to the flow of the financial and accounting processes, taking into account the specifics of the individual segments. TAURON Capital Group's Business Model clearly distributes responsibilities with respect to the financial and accounting processes between the Company (indicated as the Corporate Centre) and the subsidiaries and CUW R, indicating that the Corporate Centre is the owner of processes associated with accounting and reporting of TAURON Capital Group. With respect to the tasks of the Corporate Centre, strategic functions associated with the development of the model of operations and standards of TAURON Capital Group were indicated in the area of accounting and supervision of the implementation of standards in the accounting area in the subsidiaries and CUW R. Moreover, it was indicated that the Company as the Corporate Centre is responsible for drawing up the Company's financial statements and the consolidated financial statements of TAURON Capital Group. A clear split of responsibilities and strong emphasis on the fulfillment of the supervisory functions by the Corporate Centre in relation to CUW R and the subsidiaries is, inter alia, aimed at improving the process of preparing the financial statements.

Subjecting TAURON Polska Energia's financial statements and TAURON Capital Group's consolidated financial statements to an audit and reviews by an independent certified auditor

The Company's full year financial statements and TAURON Capital Group's full year consolidated financial statements are subject to a review by a certified auditor. In 2018, the Company selected an entity authorized to audit and review the financial statements of the Company and of TAURON Capital Group's material subsidiaries, as well as the consolidated financial statements. The contract with the entity authorized to audit financial statements was concluded for the audit of the financial statements and the consolidated financial statements for the years 2019-2021, as well as for the review (audit) of the interim financial statements and the interim consolidated financial statements for the 6- month periods ending on June 30, 2019, June 30, 2020 and June 30, 2021.

The rule related to changing the audit firm of the Company and TAURON Capital Group

In the year ended on December 31, 2020, the Audit Committee of the Company's Supervisory Board updated, on October 5, 2020, the Policy for selecting an audit firm to conduct an audit and review of the financial statements and the consolidated financial statements of TAURON Polska Energia S.A., which included the following rule:

• 1. maximum duration of continuous audit engagements carried out by the same audit company or an entity related to that audit company or any member of the network operating in the EU countries that such audit companies are members of, shall not exceed 10 years,
• 1. after the 5-year duration of the mandate (engagement) neither the audit company, nor any member of its network operating within the European Union shall conduct an audit of the Company for the subsequent 4 years,
• 1. a key certified auditor shall not conduct an audit of the Company for a period longer than 5 years,
• 1. a key certified auditor may again conduct an audit of the Company after at least 3 years have elapsed from the completion of the last audit.

Until 5 October 2020, the maximum continuous duration of audit engagements carried out by the same audit company or an entity related to that audit company or any member of the network operating in the EU countries that such audit companies are members of, could not have exceeded 5 years.

4.16. GRI indices described in this section

• GRI 203-1 Supported infrastructure investments and services for society through commercial activities, transfer of goods and pro-bono activities. The impact of these activities on society
• GRI 103-2 The management approach and its components in the areas: environmental, social, human rights, anti-corruption, HR, including indicating material topics within the given area
• GRI 102-17 Internal and external mechanisms enabling advice on behavior in ethical and legal issues as well as matters related to the integrity of the organization
• GRI 102-32 Role of the top management authority in reporting
• GRI 205-1 Operations assessed for risks related to corruption
• GRI 205-2 Communication and training about anti-corruption policies and procedures
• GRI 205-3 Confirmed incidents of corruption
• GRI 403 Occupational health and safety management system
• GRI 403-9 Rates of injury, occupational diseases, lost days and absenteeism, and the number of workrelated fatalities by region and gender
• GRI 416-1 Number of accidents
• GRI EU18 Percentage of employees, contractors and subcontractors who underwent health and safety training
• GRI 417 The management approach in marketing and labeling
• GRI 417-2 Cases of non-compliance of products and services regarding information and labeling
• GRI 417-3 Cases of non-compliance regarding marketing communications
• GRI EU 3 Number of individual and business customers
• GRI 418 The management approach to customer privacy
• GRI 418-1 Material complaints regarding breaches of customer privacy and loss of customer data
• GRI EU-DMA The management approach in research and development
• GRI EU DMA Research and investment to ensure reliability of energy supply and promote sustainable development
• GRI 405 The management approach to equality and diversity
• GRI 406-1 Incidents related to discrimination and corrective actions
• GRI 203-1 Investments in products and services
• GRI 206-1 Legal actions for anti-competitive (anti-trust) behavior
• GRI 401 The management approach to employment
• GRI 102-8 Information on employees and other workers
• GRI 405-1 Composition of staff broken down by age and gender and minority
• GRI 401-3 Parental leave
• GRI 102-41 Collective bargaining agreements
• GRI 404-1 Number of training hours per employee
• GRI 404-2 Competence enhancement programs
• GRI 403-1 Number of employees associated in trade unions
• GRI 305-1 Direct greenhouse gas emissions
• GRI 302-1 Total consumption or production of energy from renewable and non-renewable sources
• GRI EU2 Net volume of energy produced, broken down into main energy sources
• GRI 305-7 NOx, SOx and other significant air emissions
• GRI 303-1 Total water consumption by source
• GRI 306-1 Total sewage volume by quality and destination
• GRI 306-2 Total weight of waste by type of waste and methods of waste management
• GRI EU-DMA The management approach in waste management
• GRI 302-3 Energy consumption
• GRI EU18 Percentage of employees, contractors and subcontractors of TAURON Capital Group who underwent work health and safety training
• GRI 305-5 Greenhouse gas emissions reduction
• GRI EU1 Installed generation capacity broken down into main types of raw material and regulatory requirements
• GRI EU 28 Frequency of interruptions in the energy supply to customers
• GRI EU 29 Average duration of interruptions in the supply of distributed energy

4. TAURON CAPITAL GROUP'S MAIN RISKS AND THE MANAGEMENT THEREOF

5.1. What TAURON Group expects as a result of the regulatory and market changes

Due to the changes taking place in the European climate policy as well as social and economic transformations (including in terms of resource efficiency), the energy sector is experiencing a fast rise in the impact of the broadly understood environment on its results and operations. The most important factors affecting the functioning of TAURON Group include regulatory transformations taking place at both the European as well as the national law levels.

Intense legislative processes on the part of the European Union bodies have been observed in recent years. The energy and the natural environment sectors are among the competence areas that are shared between the European Union and the Member States. Therefore, the majority of the EU's activities in this area will have a significant impact on the operations of TAURON Group.

Recent years have demonstrated a very rapid pace of changes taking place not only in the regulatory environment, but also in the Group's economic, macroeconomic or market environment. In particular, the following factors are observed:

• introducing further and tightening the existing regulations and requirements with respect to the environment protection and counteracting climate change (among others, Winter Package, Grid Codes, ETS Directive, BAT conclusions, European Green Deal, European Commission guidelines on climate impact reporting),
• increase in the volatility of the prices of electricity and related products,
• steadfast change of the energy mix towards low or zero emission electricity generation sources,
• development of the distributed and prosumer energy sector model,
• advancing integration of the European electricity markets,
• increase of the awareness of TAURON Group's stakeholders regarding the environment protection and climate impact.

TAURON Group assumes that the above mentioned trends will continue, aiming at a further transition towards an innovative and low-emission economy, and achieving, in the long run, climate neutrality as well as implementing circular economy in the European Union.

Due to the above, TAURON Group is actively monitoring both the regulatory environment, as well as the market environment, in order to prepare an action plan corresponding to the changing conditions for conducting market operations. In particular, the risk management system functioning in this respect at TAURON Group is geared towards implementing adequate and effective responses to possible threats, as well as towards the possibility of taking advantage of emerging market opportunities.

5.2. Three line defense model

In order to ensure safe functioning of the organization, the so-called three line defense model is in place at TAURON Capital Group and it constitutes an internal control system. It includes:

as part of the first line of defense - functional control performed by:

• lower and middle level management,
• the Group's other personnel,

as part of the second line of defense - independent control performed by the following functions:

• risk management,
• compliance assurance
• safety assurance,

as part of the third line of defense: institutional control performed by the internal audit.

The results of the Internal Audit Team's activities are reported directly to the senior management and the Audit Committee/Board. The way the so-called Three Line Defense Model is organized is illustrated in Figure no. 41.

Figure no. 41. TAURON Capital Group's three line defense model

5.3. TAURON Capital Group's risk management objective and principles

At TAURON Capital Group risk is understood as an uncertain occurrence or a group of occurrences that, in case of materializing, will have an impact on achieving by TAURON Capital Group of its defined strategic goals, both negatively (threat), as well as positively (opportunity).

In line with its Strategy TAURON Polska Energia is implementing the process of managing the risk related to the operations of TAURON Capital Group. The primary goals of risk management include ensuring the broadly understood security of TAURON Capital Group's operations. In particular, risk management is to ensure increased predictability of TAURON Capital Group achieving its strategic goals, including sustainable generation of its financial results and protection of the Group's current economic value (preventive function), as well as supporting decisionmaking processes.

TAURON Capital Group's risk management:

• 1. It is based on the risk management process that provides comprehensive and consistent rules for identifying, measuring and responding to risk.
• 1. Covers all elements of the value chain.
• 1. Provides centralized risk measurement, monitoring and control function, and also ability to evaluate the full risk profile in the organization and consistent risk management principles.
• 1. Ensures independence of the risk taking function from its control and monitoring.
• 1. Ensures a clear split of competences and responsibilities, in particular by introducing the risk ownership function.
• 1. Is an active process, focused on an appropriately early identification of threats, allowing for taking preventive measures.
• 1. Is a systematic and continuously improved process which allows for aligning it on an ongoing basis to TAURON Capital Group's specifics and organizational structure, as well as to the changing environment.
• 1. Places a strong emphasis on developing awareness, training and encouraging personnel to use the knowledge of risks in daily activities.
• 1. Co-creates TAURON Capital Group's internal audit system, constituting, along with the compliance and security management functions, an element of the Three Line Defense Model.

5.4. TAURON Group's risk management strategy

The enterprise risk management system (ERM System), implemented at TAURON Capital Group's level, constitutes a set of rules, standards and tools allowing for implementing the primary goal of risk management which is, broadly understood, ensuring safety (security) of TAURON Capital Group's operations. This system is governed by the document entitled Enterprise Risk Management Strategy at TAURON Group (ERM Strategy) that defines TAURON Capital Group's enterprise risk management framework and rules. The objective of the ERM Strategy is to ensure the consistency of managing the individual risk categories that were detailed in separate regulations, aligned to the specifics of the individual threat groups.

As part of the ERM System, the following Specific Risks are identified within TAURON Group, for which separate Policies tailored to the nature and specifics of the given group of threats are defined:

• trading (commercial) risk,
• credit risk,
• financial risk,
• operational risk,
• regulatory risk,
• project risk.

The description of TAURON Capital Group's specific risks in the ERM system is presented in Figure no. 42.

ERM Strategy
Commercial (trade) risk	possibility of incurring a loss or making a gain due to a change of prices on commodity and related product markets.
Financial risk	possibility of incurring a loss or making a gain due to a change of FX rates, interest rates, including also lack of liquidity risk.
Credit risk	possibility of incurring a loss or making a gain due to TAURON Group's counterparties defaulting on their contractual obligations as well as the occurrence of credit exposures in jeopardy of a loss of value as a result of the deterioration of their financial position.
Operational risk	possibility of incurring a loss or making a gain due to inappropriate or fallible internal procedures, human and system errors, failures of devices as well as external events.
Regulatory risk	possibility of incurring a loss or making a gain due to planned or unplanned changes to the existing or introducing new Regulations that can have an impact on TAURON Group's operations.
Project risk	possibility of incurring a loss or making a gain due to unexpected events the occurrence of which impacts schedule, budget, quality or benefits of the project

Figure no. 42. Description of TAURON Capital Group's specific risks in the ERM system

The detailed rules for managing TAURON Capital Group's specific risks are described in the Report of the Management Board on the Operations of TAURON Capital Group for 2020.

5.4.1. Risk management system architecture

The center of the ERM System is a risk management process that includes ongoing activities such as risk identification, risk measurement, and developing and implementing a response to risk. The architecture of the ERM system also includes elements that are to ensure the effective functioning of the process, including

• 1) Organization of the ERM System.
• 2) Risk control and monitoring rules.
• 3) Risk model.
• 4) Risk management tools.
• 5) Assessment of the adequacy and functioning of the ERM system.

Figure no. 43 presents TAURON Capital Group's ERM System Architecture. The detailed description of its individual elements is provided in the Report of the Management Board on the Operations of TAURON Capital Group for 2020.

Figure no. 43. TAURON Capital Group's ERM System Architecture

The rest of the section provides brief descriptions of the elements of the risk management system architecture. The extended descriptions are provided in the Report of the Management Board on the operations of TAURON Polska Energia S.A. and the operations of TAURON Capital Group for 2020.

5.4.2. Risk management process

The process of enterprise risk management ensures the comprehensive and consistent risk management rules linked with one another in terms of methodology and information. The process of enterprise risk management means taking continuous measures comprising risk identification, risk assessment, planning of risk response, implementation of the adopted risk response and communication among the risk management process participants.

Figure no. 44 presents TAURON Capital Group's risk management process.

Figure no. 44. TAURON Capital Group's risk management process

Risk identification consists in determining the potential events that may affect the implementation of business goals of TAURON Capital Group. The main purpose of this step is to create or update a list of risks that may affect the achievement of the business goals. The identified risks are described in accordance with the adopted methodology and have a specific context providing information on the impact of their materialization on the business goals.

Risk assessment consists in determining the potential financial and non-financial effects of the materialization of the risk affecting the implementation of specific goals and assigning the risk class thereto, defining the materiality of the risk from the point of view of its impact on the achievement of the goals.

Planning consists in the preparation of the dedicated responses to the risk identified in order to achieve the desirable results. The planned actions constituting the prepared risk response are dependent and adapted to the current level of the Key Risk Indicators (KRI), and in particular those among them that act as Early Warning Indicators (EWI).

Implementation of risk response consists in practical implementation of the response to the identified risk, prepared in the planning process. The defined set of actions as part of the risk response, specified in the planning process, is dependent on the current level of the EWI indicators. The implementation of the subsequent activities as part of the response to risk requires ongoing monitoring of risk indicators, which is to provide information on what set of activities should be implemented and, at the same time, inform whether the activities carried out thus far are effective and if risk management is bringing the assumed effect of maintaining the value of the EWI indicators within the acceptance range.

Communication consists in a continuous flow of information among the participants of the process, which is to ensure full knowledge on the current risk status and the effectiveness of the activities conducted as part of the response to risk. The periodical risk reporting is also an element of this process.

5.4.3. Roles and responsibilities of the risk management system's participants

The key assumption of TAURON Group's risk management system is a clear and precise split of tasks and responsibilities, ensuring no conflict of interest. In particular, the system guarantees independence of the risk taking function from risk control and monitoring. This is achieved through the centralization of the control function at TAURON Polska Energia S.A. level, while maintaining the organizational and functional separation of the risk taking function. The rules in place at TAURON Capital Group introduce the function of the Risk Owner, i.e. the person responsible for managing the given risk as well as developing and implementing an effective response to a threat. While the control function, process coordination, as well as the responsibility for the correct functioning of the risk management system is placed at TAURON Polska Energia S.A., in the Area of the Executive Director for Risk.

A special role, as part of the risk management process, is performed by the Risk Committee, as an expert team that persistently and continuously initiates, analyzes, monitors, controls, supports and oversees the functioning of TAURON Capital Group's risk management system. The members of the Risk Committee include persons with appropriate knowledge of the Company and its environment as well as the required qualifications and empowerments. The task of the Risk Committee is to set norms and standards for risk management at TAURON Capital Group and oversight of the risk management process effectiveness. Within the Risk Committee two separate teams are set up, one for the trading (commercial) risk area and the other for the financial and credit risk area. Oversight of the enterprise (corporate) risk management system is performed directly by the Risk Committee.

Within the ERM System the roles and responsibilities of all the participants of TAURON Capital Group's risk management system are defined in detail. The detailed description of the roles and responsibilities is provided in table no. 67.

PARTICIPANT	PARTICIPANT'S ROLES AND RESPONSIBILITIES
TAURON Supervisory Board	1) Assessment of the ERM System, especially of its adequacy and effectiveness. 2) Empowerment to audit the Company's operations with respect to enterprise risk management, in terms of compliance with the expectations of the shareholders, supervisory and regulatory authorities.
TAURON Supervisory Board's Audit Committee	Monitoring the ERM System's effectiveness.

Table no. 67. Description of TAURON Capital Group's ERM System participants' roles and responsibilities

TAURON Management Board	1) 2) 3) 4) 5)	Assessment of the ERM System's adequacy, effectiveness and efficiency. Taking formal decisions related to the key elements TAURON Capital Group's enterprise risk management, including approving the list of risks with respect to which the Management Board will be performing the Risk Owner's function. Approving TAURON Capital Group's Risk Appetite and Risk Tolerance, including the global limits for the specific risks. Managing the risks of special importance for TAURON Capital Group's operations. Providing adequate resources for the needs of the ERM System.
	1)	Overseeing the correctness of TAURON Capital Group's risk management process flow.
	2)	Control of (auditing) TAURON Capital Group's risk exposure.
	3)	Providing opinions and recommending to the Management Board the shape of the individual elements of the risk management infrastructure.
Risk Committee	4)	Defining TAURON Capital Group's Risk Appetite and Risk Tolerance, including the global limits for the specific risks, and also applying to the Management Board for the approval or change thereof.
	5)	Overseeing the preparation of the information for the Management Board on all important issues related to TAURON Capital Group's risk.
	1)	Coordinating the risk management process on all levels and in all areas (lines of business) of
		the organization's operations.
	2)	Responsibility for the development of the ERM System (risk identification methods, processes
		and procedures, evaluation, monitoring and control).
	3)	Support and oversight of the system's participants in the risk management implementation
Executive Director for Risk		and evaluation of its efficiency.
	4)	Risk monitoring and control at TAURON Group level, including control of the consumption of
		the Operating Limits, Global Limits and Risk Tolerance.
	5)	Preparing and providing the risk reports to authorized risk management process participants.
	6)	Actions aimed at developing supportive organizational culture and raising awareness with respect to TAURON Capital Group's risk management.
Executive Director for Internal		Periodic review of the correctness of designing and implementing as well as the effects of
Audit		actions taken within the ERM System.
	1)	Responsibility for risk management within a subsidiary.
	2)	Promoting risk management culture at a subsidiary.
Management Board of a	3)	Responsibility for the adequate reactions to risks and the effectiveness thereof.
subsidiary	4)	Appointing Risk Owners at the given subsidiary.
	5)	Approving, in justified cases, plans of response to risks and taking ongoing decisions related to dealing with risk in case the established risk values (escalation threshold) are exceeded).
	6)	Taking ongoing decisions related to dealing with risk in case the established risk values are
		exceeded.
	1)	Responsibility for actions related to the implementation of the risk management process as
Risk Owner		part of the entrusted area of responsibility, in the context of an impact on the ongoing operations, as well as on the implementation of the strategic, operational and financial goals
		of the unit.
	2)	Responsibility for preparing a plan and for implementing a reaction to risk, and also for the communication and reporting within the risk management implemented.
	3)	Responsibility for adherence to the imposed Operating Limits.

5.4.4. Risk control and monitoring rules

The purpose of the adopted risk control and monitoring rules is to limit TAURON Capital Group's exposure to factors that may have an adverse impact on its functioning. The basic risk control tool is the Risk Appetite, approved by the Company's Management Board, that defines the basic framework used by TAURON Capital Group for risk management. In accordance with the adopted approach, TAURON Capital Group's priority is to maintain the maximum security at the level allowing for the implementation of TAURON Capital Group's strategic goals.

Based on the Risk Appetite, the Risk Tolerance is approved, that specifies TAURON Capital Group's maximum permitted risk exposure value, in particular taking into account the specifics and scope of the operations thereof. The Risk Tolerance is expressed in the form of a set of metrics and boundary conditions limiting the risk exposure. The Risk Tolerance is a practical translation of the Risk Appetite, in particular taking into account the division into key categories of the Specific Risks and the Global Limits related thereto.

A supplementary tool used for risk monitoring and control comprises the Early Warning System based on the catalogue of Key Risk Indicators (KRI) and Early Warning Indicators (EWI). The system functioning based on the KRI and EWI indicators enables an adequately early identification of threats by measuring the causes of the individual threats. At the same time, that system allows for an adequately early taking of remedy actions, before the individual threats actually materialize.

5.4.5. Risk management tools

Risk management tools used by TAURON Capital Group allow for effective implementation of the individual stages of the process. TAURON Capital Group uses, in particular, the following tools:

• 1) Risk identification/review questionnaire, i.e. a document in the form of a table, specifying the detailed information that should be collected in the risk identification or periodic review process,
• 2) Risk card, i.e. a document containing the detailed information on the identified risk.
• 3) Risk register, i.e. a document in the form of a table with a summary of the risks associated with the operations of TAURON Capital Group, containing, in particular, their descriptions, categories and valuations.
• 4) Risk response plan, i.e. a document containing a prepared action plan, the early enough launching of which will allow for reducing exposure to a given risk to an acceptable level before it occurs, as well as for limiting the effects of the risk at the time of its materialization
• 5) Risk assessment form, which is a tabular summary of detailed information on risk measurement, including, among others, the determination of the impact and the probability associated therewith of risk materialization and the information on the current level of risk measurement parameters (KRI / EWI).

5.4.6. Risk model

Risk model defines a consistent risk classification, enabling a consistent and comprehensive capturing of risk across TAURON Capital Group. Each risk identified is assigned to specific categories and sub-categories. The main risk categories and sub-categories, in accordance with TAURON Capital Group's Risk Model in place, include:

• 1) Operational risk, within which the following risks are identified:
  • Environment risks determining the impact of the external environment (stakeholders) on the implementation of TAURON Group's goals,
  • Technology, infrastructure and security all events having an adverse effect on the security of employees, information as well as the generation, transmission, mining or IT infrastructure,
  • Employees and organizational culture risks related to employee issues and organizational culture as well as the pandemic risk,
  • Compliance Risk risks related to non-compliance, internal and external abuse (fraud), as well as unethical behavior,
  • Customers and contractors (counterparties) risks related to the volatility of the supplies/services market, failure of the customer/contractor (counterparty) to meet contractual obligations and the adverse changes or terminations of commercial contracts by customers, affecting both volume as well as margin.
• 2) Financial and credit risk, within which the following risks are identified:
  • Finance and credit risks related to changes in exchange rates and interest rates, as well as the risk of TAURON Group's contractors (counterparties) defaulting on contractual obligations.
• 3) Trading (commercial) risk, within which the following risks are identified:
  • Trading risks determining the market volatility of electricity and related products market prices to which the enterprise is exposed.
• 4) Regulatory risk, within which the following risks are identified:
  • Regulations risks determining the adverse impact of changes in the legislation at the national and the European level having a direct impact on the operations of TAURON Group

5.4.7. Assessment of the adequacy and the functioning of the risk management system

TAURON Group's risk management is a systematic process subject to continuous improvement which allows for aligning it, on an ongoing basis, to TAURON Capital Group's specifics and organizational structure, as well as to the fast changing environment. That process is also subject to a periodic, internal and independent assessment of adequacy and reviews, in particular based on:

• ongoing assessment by the Executive Director for Risk and the Risk Committee with respect to its adequacy and alignment with the changes to the structure and specifics of TAURON Capital Group's operations, as well as with the changing environment,
• periodic evaluation conducted by the Executive Director for Risk who, not less seldom than once a year, prepares a report on the assessment of adequacy of the ERM System's architecture for the members of the Risk Committee,
• periodic evaluation conducted by the Executive Director for Audit and Control, as part of performing the institutional (third line of defense), conducts an independent audit of TAURON Capital Group's risk management with respect to the appropriate implementation of the rules by the process participants, as well as its adequacy and effectiveness.

5.5. Risks related to TAURON Group's sustainable development

Risks related to TAURON Group's sustainable development are classified in accordance with the Risk Model described in section 5.4.6. The following categories of risks related to the development of TAURON Group have been identified:

• 1) Social risk
• 2) Risk related to climate change
• 3) Human capital management risk
• 4) Work Health and Safety (WHS) risk
• 5) Internal communication risk
• 6) Environmental risk
• 7) Purchasing process risk
• 8) Legal risk
• 9) Compliance risk

Each of the risks is also assigned a trend and a materiality level, as indicated below:

5.5.1. Social Risk

Table no. 68 presents Social Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Social Risk is classified in the category: Operational risk/Employees and organizational culture

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Social risk	The risk includes the risk of non-compliance with customer service standards, implementation of sales contracts, external communications and marketing activities, as well as the risk related to the protection of personal data. The risk materialization results in a loss of reputation and the customers' trust, disputes with customers, a failure to achieve goals, including sales goals, and possible penalties for non-compliance with the legal requirements regarding personal data protection.		• Adoption and implementation of the PRO Client Social Policy. • Conducting of the dialogue with customers, including customer satisfaction surveys, tailoring the product offering to their needs, ensuring high quality of customer service. • Developing relationships with customers and the market environment. • Responsibility for the product, including for the quality and security of supply, tailoring the product offering to customer expectations. • Protection of privacy and security of the customers' personal data. • Deploying tools supporting the implementation of the client social policy.

Table no. 68. Social Risk identified at TAURON Capital Group
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			• Standardization of the draft contracts (contract templates) with customers and their adaptation to the changes in legal regulations as well as the optimization of the sales and service processes. • Implementation of the promotional activities in accordance with the adopted TAURON Brand Strategy and TAURON Group's Sponsorship Strategy for 2018-2025, including respect for human rights and conducting responsible marketing activities.
2.	Corporate social responsibility area management risk	Risk related to the involvement of TAURON Capital Group in activities that do not respond to the needs of stakeholders resulting in a loss of confidence on the part of various stakeholder groups, loss of credibility and messages generated by the company in society.	• Implementation and performance of the CSR project plan, which specifies all activities, including the justification thereof. • Implementation and application of the document entitled TAURON Group's Principles of Conducting Corporate Social Responsibility (CSR) projects. • Approval of the key activities by authorized areas.
3.	Risk of reputation management by shaping the brand image	The risk associated with the use of the TAURON brand in combination with adverse, controversial activities that have a negative impact on the Group's image, which in effect projects an inadequate image of the company.	• Supervising the process of establishing the methodology for conducting promotional and sponsorship campaigns, approving of the key activities by authorized areas. • Implementing the Visual Identification System, appointing a Team responsible for assessing and approving the image building projects.

5.5.2. Risk related to climate change

Effective fight against climate change and sustainable development are one of the main assumptions implemented as part of the Green Turn of TAURON concept. Taking the above into account and being aware of climate change underway, the risks associated with climate change have also been identified as part of the Risk Model. They include:

• physical risk resulting from the physical effects of climate change adversely affecting the operations of TAURON Group's subsidiaries, in particular as a consequence of specific weather related events (storms, floods, heat waves), climate changes leading to temperature changes or hydrological drought,
• risk related to the transition including risks resulting from the transition to the low emission economy, resilient against climate change; for example, regulatory, financial, social, technological.

5.5.2.1. Physical Risk

Table no. 69 presents the Physical Risk related to climate change identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Physical Risk related to climate change is classified in the category: Operational Risk/Environment; Operational Risk/Technology and infrastructure; Operational Risk/ customers and contractors (counterparties); Trading (commercial) Risk/Trading.

Table no. 69. Physical Risk related to climate change identified at TAURON Capital

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Short-term physical risk (acute risk)	The risk is related to: - frequent occurrence of extreme temperatures, greater rainfall intensity that can cause floods at any time of the year, uneven rainfall resulting in longer periods of no rainfall, intermittent abrupt rainfall (torrential rain), - increase in the frequency and intensity of hurricanes, strong winds, incidentally accompanied by tornadoes and lightnings causing machinery and equipment failures, distribution grid failures (electricity, heat), more frequent drought occurrences and water restrictions related thereto, as well as an increased risk of fires. The risk materialization also results in: - increased costs of maintaining transmission systems resulting from the costs of fixing failures, a decrease in the volume of electricity and heat supply, a decrease in the volume of production, a deterioration of the electricity distribution quality indicators affecting the regulated revenue, - sharp fluctuations of market prices due to the occurrence of extreme temperatures affecting the levels of demand and the ability to satisfy such demand by the supply side. - the need to shut down individual power generating units due to the too low water level in rivers, the water from which is used to cool the units, The risk includes the risks identified and managed by TAURON Group: environmental risk (in the context of excessive impact on the climate), weather risk, company assets related risk and market risk.		• Adoption and implementation of TAURON Group's Climate Policy. • Conducting business operations that affect the climate in accordance with the sustainable development principles. • Maintaining the required level of the pollution reduction devices' efficiency (performance). • Frequent assessment of compliance of the activities with the legal requirements regarding climate impact. • Active search for the technical and organizational solutions that would minimize the impact of TAURON Group's activities on climate change, gradual adaptation of the production assets to the consequences of extreme weather occurrences and the volatility of weather conditions, in particular in the lines of business sensitive to these factors. • Optimization of investment outlays allocated for asset replacement, active monitoring of the condition of the machinery, equipment and installations. • Increasing of the professional qualifications and work culture of employees by organizing courses and training sessions. • Responding to an emergency situation by the technical operational personnel and the automated protection systems. • Property insurance against fortuitous events (excluding the underground assets). • Introduction of IT tools with respect to improving the monitoring and management of failure rates. • Gradual adaptation of the production assets to the consequences of extreme weather occurrences and volatility of weather conditions, in particular in the Distribution Line of Business.
2.	Long-term physical risk	The risk is related to: - decrease in the volume of sales of the products offered by TAURON Group's subsidiaries, in particular as a result of a temperature deviation from the planned values, resulting primarily in a loss of revenues in the individual segments of TAURON Group's operations as a consequence of reduced demand, - reduction, especially in summer, of the water levels in rivers and water reservoirs, and an increase in their temperature, which generates a decrease in the efficiency of the generating units and a decline in the dispatchability of the units during the peak electricity demand periods. The above may lead to a blackout in an extreme scenario, - change of the market conditions for the operations of TAURON Group's subsidiaries, in particular as a result of changes in the weather		• Ongoing offering updates, launching of the multi-packet products for sale. • Conducting marketing activities, acquiring new customers. • Activities focused on retaining current customers and recovering the lost ones. • Daily measuring and reporting of the portfolio positions. • Trading (commercial) risk management through a system for assigning and controlling the risk limits (e.g. VaR and stop loss). • Adoption of an optimal trading strategy and implementation of mechanisms used to hedge the trading

of the revenues, warming, for example.	conditions resulting in a drop of the margin in the Generation Line of Business (CDS / volume) and, in general, an increase of the costs and a decrease - increased failure rate of the machines and devices constituting the assets of TAURON Group's subsidiaries due to permanent climate changes - such as prolonged droughts, global The risk includes risks identified and managed by TAURON Group: volume and margin risk, company assets related risk and market risk.	position. • Optimization of investment outlays for asset replacements, active monitoring of the condition of the machinery, equipment and installations. • Gradual adaptation of the production assets to the climate change.

5.5.2.1. Climate Risk related to the transition

Table no. 70 presents the Climate Risk related to the transition identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Climate Risk related to the transition is classified in the category: Operational Risk/Environment; Regulatory Risk/Regulations; Operational Risk/Customers and Contractors (Counterparties); Trading (commercial) risk/Trading; Financial and Credit Risk/Finance and Credit.

	Table no. 70. Risk related to the transition identified at TAURON Capital Group
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#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Risk related to the transition	Risk related to the tightening of the European Union's climate policy, the tightening of the environmental requirements resulting from the climate change, the growing awareness of the customers with respect to the climate change, the activities supporting energy efficiency (growth of prosumers, support for thermal insulation, construction of in-house electricity and heat sources, departure from the coal use as fuel), a change in the conditions of TAURON Group's operations (the need to adapt the company to the challenges of changes resulting from the climate change, including the technological adaptation to the global low-emission solutions). The consequences of the risk include the reputation, technology, policy and regulatory issues, as well as the market issues. In particular, the effects of the risk may include: - decrease in the volume of sales of the products offered by TAURON Group's subsidiaries, in particular as a result of the development of energy efficiency, insulation of buildings, growth of prosumers, resulting primarily in a loss of revenue in the individual segments of TAURON Group's business operations resulting from the reduced demand, - change of the market conditions for the operations of TAURON Group's subsidiaries, in particular as a result of the tightening of the European Union's climate policy, the growing ecological awareness of the public, the activities supporting energy efficiency (departure from the use of coal as fuel, growth of prosumers, support for thermal insulation, construction of in-house electricity and heat sources) resulting in a drop of the margin in the Generation Line of Business (CDS/volume) and, in general, an increase of the costs and a decrease of the revenues, - difficulties or an increase in the cost of raising capital to finance operations based on fossil fuels, - loss of reputation due to involvement in fossil fuels, - the need to transform the assets and, as a consequence, the need to incur additional expenses as a result of the climate change,		• Applying of TAURON Group's Climate Policy. • Defining and updating as well as implementing of TAURON Group's Strategy. • Update of TAURON Group's Strategic Research Agenda. • Adaptation of TAURON Group's Investment Strategy to the guidelines stemming from the Climate Policy and the Investment Strategy. • Ongoing analysis of the draft ordinances (regulations) and acts. • Active participation in the work of teams providing opinions on projects and proposing optimal solutions. • Gradual adaptation of TAURON Group's production assets and energy mix to the production of renewable energy and zero and low-emission electricity generation technologies. • Gradual withdrawal of the anthropogenic sources of greenhouse gas emissions coming from fossil fuels through the development of renewable energy and zero and low-emission electricity generation technologies. • Active search for the technical and organizational solutions that would minimize the impact of TAURON Group's operations on the climate change.

	- difficulty or an increase in the insurance costs for the assets based on fossil fuels,
	- an increase in the costs of the environmental fees and the need to incur additional investment outlays to adapt the assets to the environmental requirements,
	- an increase in the price of the CO2 emission allowances and, as a consequence, a decrease in the margin in the conventional electricity segment,
	- a decrease in demand for electricity as a result of energy efficiency and growth of the prosumers segment,
	- a decrease of the demand for the products offered thus far by TAURON Group's subsidiaries,
	- limiting or discontinuing the operations based on fossil fuels and carbonates,
	- the need to restructure employment resulting from a change in the business operations profile,
	- impediments to administrative procedures involving the public by non-government organizations,
	- a decline in the company value,
	- inability to meet market expectations due to the lack of the expected products in the portfolio.
	The risk includes risks identified and managed by TAURON Group: climate change, reputation, regulatory, volume and margin, market, obtaining of the financing, company assets, human resources related risks.

5.5.3. Human Capital Management Risk

Table no. 71 presents the Human Capital Management Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Human capital management risk is classified in the category: Operational Risk/Employees and organizational culture.

Table no. 71. Human Capital Management Risk identified at TAURON Capital Group

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Human Capital Management Risk	Risk related to the employee issues, including diversity, participation, employment and working conditions, relations with the trade unions and respect for the right of freedom of association, human capital management, career path and recruitment management, training systems, health and safety at work as well as, in the long run, the need to restructure employment due to climate change, forcing a change of the business operations profile. The materialization of the risk may result in the interruptions or disruptions in the operational work, employee complaints, collective labor disputes, strikes, loss of specialized staff and difficulties in reproducing it.		*Adoption and implementation of the Employee Recruitment, Selection and Adaptation Policy. • Adoption and implementation of the Policy of Compliance with Ethics Principles and Counteracting Mobbing and Discrimination. • Care for the development of the employees' competences, including through the participation in training courses. • Conducting consultations with social organizations operating at TAURON Capital Group. • Implementation of the HR policy based on the Competence Model and the applicable compensation and labor law regulations (Compensation Regulations, ZUZP, Labor Regulations). • Adoption and implementation of the Diversity Policy.

		• Adoption and implementation of the Human Rights Respect Policy.

5.5.4. WHS Risk

Table no. 72 presents the WHS risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the WHS Risk is classified in the category: Operational Risk/Employees and organizational culture.

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	WHS Risk	Risk related to ensuring health and safety at work. The materialization of the risk results in an employee injury, loss of health or excessive exposure of an employee to factors harmful to health, compensation paid out for damage to health.		• Prioritizing the safety of employees, customers, contractors and stakeholders in the business operations undertaken. • Adoption and implementation of TAURON Group's Work Health and Safety Policy. • Ensuring optimal working conditions. • Conducting active monitoring of the working conditions and the correctness of work organization. • Raising employees' qualifications with respect to improving work safety. • Conducting training courses, implementing and improving the WHS management system.
2.	Pandemic risk	Risk related to the persistence of the pandemic causing disruptions to Poland's economic and administration and bringing about material changes in the market environment, impacting the operating conditions of TAURON Group's subsidiaries. The increase in the number of infection cases leads to a reduction of the business activity, which affects the level of demand for the products offered by TAURON Group's subsidiaries, including, in particular, the electricity distribution and supply volumes.		• Monitoring of the epidemiological threat at TAURON Group. • Collecting information on threats and identifying potential threats to the safety of employees of TAURON Group's subsidiaries. • Developing and recommending solutions aimed at reducing the level of threat to TAURON Group's resources. • Ongoing monitoring of the risk of the availability of employees and services provided by TAURON Group's subsidiaries. • Recommending solutions aimed at reducing the effects of the materialization of the threat on TAURON Group's resources. • Preparing and providing feedback on the content of messages disseminated at the level of TAURON Group level and TAURON Polska Energia S.A. • Use of screening tests. • Preparing contingency plans in the event of a loss of the Group's key employees.

Table no. 72. WHS Risk identified at TAURON Capital Group

• Development of backup business continuity plans.
• Undertaking trading activities in order to balance, on an ongoing basis, the buy position versus the observed drops in the volume of electricity sales.
• Taking advantage of market opportunities to secure the position in the Generation line of business (buy backs).
• Use of the anti-crisis shield mechanisms (facilities).
• Increasing the frequency of monitoring overdue accounts receivable.
• Introducing additional credit risk taking guidelines and extending the scope of testing (vetting) customer financial condition.
• Introduction of a mechanism to monitor and cap (limit) spending.

5.5.5. Internal Communication Risk

Table no. 73 presents the Internal Communication Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Internal Communication Risk is classified in the category: Operational Risk/Employees and organizational culture.

				Table no. 73. Internal Communication Risk identified at TAURON Capital Group
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#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Internal Communication Risk	Risk related to providing incorrect or unverified information within the organization, formulating an unclear / incomplete message, a failure to provide employees with the information of significant importance, resulting in misleading the recipients of the information or a failure to comply with the disclosure obligations resulting in the wrong business decisions being made as a result of a lack of reliable (accurate) information, a loss of trust in the employer or administrative penalties (fines).		• Developing relationships with TAURON Capital Group's workforce and close cooperation with the Social Dialogue Ombudsman. • The use and development of the available communication tools to provide relevant information to the employees of TAURON Capital Group. • When providing relevant information - organizing face to face (direct) meetings of the management team with the workforce. • Ongoing monitoring of the situation and events taking place at TAURON Capital Group's subsidiaries that may cause social concerns. • Regular periodic meetings with the representatives of the subsidiaries, that deal with the internal communication, in order to exchange information • Development of a communication strategy for TAURON Group.

5.5.6. Environmental Risk

Table no. 74 presents the Environmental Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Environmental Risk is classified in the category: Operational Risk/Technology and infrastructure.

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Environmental Risk	Risk related to the impact of the business operations conducted on the natural environment and the use of its resources, including, in particular, the loss of control over the process that would make it impossible to prevent excessive (above the applicable standards) pollution, damage, disruptions or failures of installations or equipment that would have a negative impact on the environment. The risk also involves the possibility of: - a lack of valid environmental decisions, - depositing waste in places not intended for this purpose or not in accordance with the operating conditions of the facilities designated for such purpose, - occurrence of a crisis situation: e.g. fire, displacement of earth masses, extreme weather events, - use of waste not in accordance with the authorized intended purpose, - a lack of adequate safeguards reducing the negative impact of TAURON Group's operations on the environment, - release of hazardous substances to the environment, - social protests. The consequence of the materialization of the risk is the degradation of the natural environment and penalties for a failure to comply with the environmental requirements, the need to fix the deficiencies, curtailment of the production, delays	 ▪	• Adoption and implementation of TAURON Group's Environmental Policy. • Conducting business operations that affect the environment in accordance with the sustainable development principles. • Conducting and intensifying activities aimed at increasing the utilization of the UPS/UPW waste. • Striving to maximize the management (utilization) of the post-production waste generated at all of TAURON Group's coal mines. • Striving for the optimum management of water resources. • Ongoing supervision over compliance with the conditions of the environmental decisions. • Maintaining the required level of the pollution reduction devices' efficiency (performance). • Frequent assessment of compliance of the activities with the legal requirements with respect to the environment protection. • Implementation of the investment projects with respect to the environment protection in order to minimize the consequences of an adverse impact of mining and processing operations on the
		in the implementation of the investment projects, pollution of water sources in a way that prevents their use, destruction of a valuable natural habitat, site or area - environmental compensation, restrictions on further business development, damage to TAURON Group's image, limitation of the use of financial assistance programs. The risk also includes an increase in the environmental requirements stemming from the tightening of the European Union's climate policy.		environment and climate. • Active search for the technical and organizational solutions that would minimize the impact of TAURON Group's operations on climate change.

5.5.7. Purchasing Process Risk

Table no. 75 presents the Purchasing Process Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Purchasing Process Risk is classified in the category: Operational Risk/ Customer and contractors.

Table no. 75. Purchasing Process Risk identified at TAURON Capital Group

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Purchasing Process Risk	Risk related to the procurement proceedings conducted, their erroneous implementation, unplanned increase in the purchase costs, taking into account methods employed to prevent violation of human rights by business partners, counteract corruption and abuse in the purchasing process as well as ensure compliance with the ethical and moral standards during the implementation thereof. The consequences of the materialization of the risk include unfavorable purchase agreements, the need to cancel the tender procedures, damage to the image of TAURON Capital Group and a loss of credibility with the stakeholders.		• Adoption and implementation of the Code of Conduct for the Contractors (Counterparties) of TAURON Group. • Adoption and implementation of TAURON Group's Anti-Corruption Policy. • Adoption and implementation of the Policy of Respect for Human Rights. • Standardization of the rules of conducting proceedings in the purchasing process and the transparency thereof. • Developing lasting relationships with the contractors (counterparties) based on trust and mutual respect. • Expecting the contractors (counterparties) to comply with the legal regulations, ethical standards and good commercial practices, including work health and safety rules, principles of discrimination and unequal treatment, respect for human rights and dignity of employees, transparent personnel policy, environment protection, fair competition, prevention and countering of fraud, as well as information security and protection. • Applying of the standard contract forms (drafts, templates) and standard clauses in the contracts regarding compliance with human rights by TAURON Capital Group's business partners.

5.5.8. Legal Risk

Table no. 76 presents the Legal Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Legal Risk is classified in the category: Operational Risk/Environment.

Table no. 76. Legal Risk identified at TAURON Capital Group

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Legal Risk	Risk related to the non-compliance with the legal regulations, wrong interpretation of the new laws and regulations, requirements imposed by the regulator and the oversight authorities. The consequences of the materialization of risk may result in financial penalties, criminal and civil law liability, damage to the Group's image.		• Continuous monitoring of the legal environment and changes to the legal regulations, including social issues, respect for human rights, anti corruption, environment protection and employee issues. • Implementation of the required changes to the internal regulations. • Establishing working groups to prepare and implement the changes required due to the legal environment. • Continuous cooperation with the authorities performing oversight of the energy market and the capital market. • Consultations with the organizational units with respect to the planned key regulations for the area of compliance.

	• Employee training with respect to the knowledge of the legal regulations and the internal regulations.
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5.5.9. Compliance Risk

Table no. 77 presents the Compliance Risk identified at TAURON Capital Group. In accordance with the Risk Model described in section 5.4.6, the Compliance risk is classified in the category: Operational Risk/Compliance risk.

Table no. 77. Compliance Risk identified at TAURON Capital Group

#	Risk name	Risk description	Trend and risk materiality	Response to risk
1.	Internal abuse (fraud) risk	Risk related to the appropriation or use of the Company's assets, its devastation, theft, use of official position for personal gain resulting in financial losses, penal and administrative sanctions, criminal and civil law liability.		• Education and training activities among employees, including mandatory e-learning training with respect to TAURON Group's Compliance Management System. • Effective use of the whistleblowing system in the organization, enabling TAURON Group's employees to report potential cases of abuse to their immediate superior, the Ethics Committee, the Compliance Officer/Compliance Coordinator, or via the abuse (fraud) notification (reporting form at http://www.tauron.pl/. • Conducting fact finding investigations by the Compliance Officer or Compliance Coordinators. • Building an organizational culture based on TAURON Group's values and policies (principles). • Adoption and implementation of TAURON Group's Anti-Corruption Policy. • Adoption and implementation of TAURON Group's Corporate Social Responsibility Code of Conduct. • Adoption and implementation of TAURON Group's Rules for accepting and giving gifts.
2.	External abuse (fraud) risk	Risk related to an occurrence of external abuse (fraud) that affects the operations of TAURON Group through: disclosure of information to unauthorized persons, loss of information, commercial espionage, terrorist attempt and hacker attacks, tax fraud, theft, vandalism, counterfeiting, dirty money laundering, terrorist attack.		• Raising employee awareness through training and information campaigns on the existing threats of external abuse (fraud). • Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries. • Implementation of anti-corruption clauses in the contracts with the contractors (counterparties). • Adoption and implementation of TAURON Group's Anti-Corruption Policy. • Effective use of a whistleblowing system in the organization, enabling reporting of the potential cases of abuse, the system also allows for reporting of abuse (fraud) by the

			external entities through the abuse (fraud) reporting form at http://www.tauron.pl/. • Monitoring the cooperation with the contractors (counterparties) and testing (vetting) their credibility at TAURON Group. • Promoting best practices, improving procedures, conducting training courses and applying TAURON Group's Corporate Social Responsibility Code of Conduct, Code of Ethics and functioning of the abuse (fraud) reporting system. • Building an organizational culture based on TAURON Group's values and policies (principles).
3.	Unethical behavior and mobbing risk	The risk includes an occurrence of unethical behavior resulting, in particular, in a lack of cooperation, bad atmosphere in the team, mobbing, harassment, insulting, discrimination of employees.	• Raising employee awareness through training and information campaigns on the existing threats of external abuse (fraud). • Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group's Subsidiaries. • Implementation of anti-corruption clauses in the contracts with the contractors (counterparties). • Adoption and implementation of TAURON Group's Anti-Corruption Policy. • Effective use of a whistleblowing system in the organization, enabling reporting of potential cases of abuse (fraud), the system also allows for reporting of abuse (fraud) by the external entities through the abuse (fraud) reporting form at http://www.tauron.pl/. • Monitoring the cooperation with the contractors (counterparties) and testing (vetting) their credibility at TAURON Group. • Promoting best practices, improving procedures, conducting training courses and applying TAURON Group's Corporate Social Responsibility Code of Conduct, Code of Ethics and functioning of the abuse (fraud) reporting system.

5.6. GRI profile indices described in this section

• GRI 102-15Key impact, risks and opportunities
• GRI 103-2 The management approach and its components in the areas: environment, social, human rights, anti-corruption, HR, including indicating material topics within the given area

6. GRI INDEX

• GRI 101 Reporting principles and basics
• GRI 102-14 Statement from senior decision maker
• GRI 102-40 List of stakeholder groups
• GRI 102-42 Identifying and selecting stakeholders
• GRI 102-43 Approach to stakeholder engagement including the frequency of engagement by type and stakeholder group
• GRI 102-44 Key topics and concerns raised by stakeholders and the response from the organization also by reporting them
• GRI 102-45 Entities included in the consolidated financial statements
• GRI 102-46 Defining report content and topic boundaries
• GRI 102-47 List of material topics
• GRI 102-49 Changes in reporting (significant changes from previous periods covered by the report regarding material topics and topic boundaries)
• GRI 102-50 Reporting period
• GRI 102-51 Date of most recent report (if published)
• GRI 102-52 Reporting cycle
• GRI 102-54 Claims of reporting in accordance with the GRI Standards using Core or Comprehensive option
• GRI 102-56 External assurance (Confirmation of credibility)
• GRI 103-1 Explanation of the material topic and its boundary
• GRI 102-55 GRI Index
• GRI 102-1 Organization name
• GRI 102-2 Activities, brands, products and services
• GRI 102-3 Location of headquarters
• GRI 102-4 Location of operations including the number of countries in which the organization operates, along with the names of those countries, where the main operations of the organization are located, or which are particularly important in relation to topics related to sustainable development discussed in the report
• GRI 102-5 Ownership and legal form
• GRI 102-6 Markets served
• GRI 102-7 Scale of the organization
• GRI 102-10 Significant changes during the reporting period regarding size, structure, ownership form or value chain
• GRI 102-11 Precautionary principle
• GRI 102-16 Values, ethics code, principles, standards, and norms of behavior
• GRI 102-17 Internal and external mechanisms enabling obtaining advice on behavior in ethical and legal issues as well as matters related to the integrity of the organization
• GRI 102-18 Governance structure
• GRI 102-22 Composition of the top management authority
• GRI 102-23 Top management authority
• GRI 102-24 Method of selecting the top management authorities
• GRI 102-26 Role of the top management body in the environment, purpose, values and strategy
• GRI 102-28 Evaluation of the results of the top management body
• GRI 102-32 Role of the top management body in reporting
• GRI 102-25 Conflict of interest
• GRI 201-2 Financial implications and other risks and opportunities associated with climate change
• GRI 203-1 Supported infrastructure investments and services for society through commercial activities, transfer of goods and pro-bono activities. Impact of these activities on society,
• GRI 103-2 The management approach and its components in the areas: environment, social, human rights, anti-corruption, HR, including indicating material topics within the given area
• GRI 102-2 Activities, brands, products, and services
• GRI 102-7 Scale of the organization
• GRI 102-9 Supply chain
• GRI 102-10 Significant changes to the organization and its supply chain in the reported period
• GRI 102-12 External initiatives
• GRI 102-15 Key impact, risks and opportunities
• GRI 102-16 Key areas of impact, risks and opportunities
• GRI 103-1 Explanation of the material topic and its boundary
• GRI 201-1 Value added generated and distributed
• GRI 201-4 Government support state ownership
• GRI 203-1 Investments in products and services
• GRI 205-1 Operations assessed for risks related to corruption
• GRI 205-2 Communication and training about anti-corruption policies and procedures
• GRI 205-3 Confirmed incidents of corruption
• GRI 403 Occupational health and safety management system
• GRI 403-9 Rates of injury, occupational diseases, lost days and absenteeism, and the number of workrelated fatalities by region and gender
• GRI 416-1 Number of accidents
• GRI EU18 Percentage of employees, contractors and subcontractors who underwent work health and safety training
• GRI 417 The management approach in marketing and labeling
• GRI 417-2 Cases of non-compliance of products and services regarding information and labeling
• GRI 417-3 Cases of non-compliance regarding marketing communications
• GRI EU 3 Number of individual and business customers
• GRI 418 The management approach to customer privacy
• GRI 418-1 Material complaints regarding breaches of customer privacy and loss of customer data
• GRI EU-DMA The management approach in research and development
• GRI EU DMA Research and investments to ensure reliability of energy supply and promote sustainable development
• GRI 405 The management approach to equality and diversity
• GRI 406-1 Incidents related to discrimination and corrective actions
• GRI 206-1 Legal actions for anti-competitive behavior
• GRI 401 The management approach to employment
• GRI 102-8 Information on employees and other workers
• GRI 405-1 Composition of staff broken down by age and gender and minority
• GRI 401-3 Parental leave
• GRI 102-41 Collective bargaining agreements
• GRI 404-1 Number of training hours per employee
• GRI 404-2 Competence enhancement programs
• GRI 403-1 Number of employees associated in trade unions
• GRI 305-1 Direct greenhouse gas emissions
• GRI 302-1 Total energy consumption or production from renewable and non-renewable sources
• GRI EU2 Net volume of energy produced, broken down into main energy sources
• GRI 305-7 NOx, SOx and other significant air emissions
• GRI 303-3 Total water consumption by source
• GRI 306-1 Total sewage volume by quality and destination
• GRI 306-2 Total weight of waste by type of waste and methods of waste management
• GRI EU-DMA The management approach in waste management
• GRI 302-3 Energy intensity (consumption)
• GRI EU18 Percentage of TAURON Capital Group's employees, contractors and subcontractors who underwent work health and safety training
• GRI 305-5 Direct greenhouse gas emissions
• GRI EU1 Installed generation capacity broken down into main types of raw material and regulatory requirements

Marek Wadowski - acting as the President of the Management Board Vice President of the Management Board

Jerzy Topolski - Vice President of the Management Board

189

<-- PDF CHUNK SEPARATOR -->

REPRESENTATIONS OF THE MANAGEMENT

BOARD

of TAURON Polska Energia S.A.

TAURON.PL

R E P R E S E N T A T I O N

of the Management Board of TAURON Polska Energia S.A. on the accuracy of the annual financial statements of TAURON Polska Energia S.A. and of the Management Board's report on the operations of TAURON Polska Energia S.A. and TAURON Capital Group

Management Board of TAURON Polska Energia S.A. represents that, to the best of its knowledge, the annual financial statements of TAURON Polska Energia S.A. and comparable figures were prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of TAURON Polska Energia S.A.

Management Board of TAURON Polska Energia S.A. also certifies that the Management Board's annual report on the operations of TAURON Polska Energia S.A and TAURON Capital Group includes a fair review of the development and performance of the business and the position of TAURON Polska Energia S.A and TAURON Capital Group, together with a description of the principal risks and uncertainties that TAURON Polska Energia S.A and TAURON Capital Group face.

Members of the Management Board:

• 1. Marek Wadowski acting President of the Management Board / Vice President of the Management Board
• 1. Jerzy Topolski Vice President of the Management Board

March 29, 2021 date

INFORMATION

of the Management Board of TAURON Polska Energia S.A. on the appointment of the audit firm to conduct the audit of the annual financial statements of TAURON Polska Energia S.A. in accordance with the applicable regulations

Management Board of TAURON Polska Energia S.A., pursuant to the representation of the Supervisory Board, informs of the appointment of the audit firm to conduct the audit of the annual financial statements of TAURON Polska Energia S.A. in accordance with the applicable regulations, including the regulations related to the appointment and the procedure for appointment of auditor and indicates that:

• a) the audit firm and members of the team performing the audit met the conditions for preparing an impartial and independent report (opinion) on the audit of the annual financial statements of TAURON Polska Energia S.A. in accordance with the applicable regulations, professional standards and professional code of ethics,
• b) applicable regulations related to the rotation of the audit firm and the key certified auditor as well as the mandatory rotation periods (engagement term limits) are complied with,
• c) TAURON Polska Energia S.A. has a policy in place with respect to the appointment of auditor and a policy with respect to the provision, for the benefit of TAURON Polska Energia S.A., by the audit firm, an entity related to the audit firm or a member of its network, of additional non-audit services, including services that are conditionally exempt from the ban on the provision of non-audit services by the audit firm.

Members of the Management Board:

• 1. Marek Wadowski acting President of the Management Board / Vice President of the Management Board
• 1. Jerzy Topolski Vice President of the Management Board

March 29, 2021 Date

REPRESENTATION OF THE SUPERVISORY BOARD BOARD

of TAURON Polska Energia S.A.

TAURON.PL

REPRESENTATION

of the Supervisory Board of TAURON Polska Energia S.A. on the Audit Committee

Supervisory Board of TAURON Polska Energia S.A. represents that the regulations related to the appointment, composition and operations of the Audit Committee are complied with, including the regulations related to the fulfillment by the members thereof of the independence criteria and of the requirements with respect to the knowledge and skills (qualifications) related to the industry TAURON Polska Energia S.A. is operating in, as well as in the field of accounting or auditing financial statements.

Supervisory Board of TAURON Polska Energia S.A. also certifies that the Audit Committee performed the tasks of an audit committee as set forth in the applicable regulations.

Members of the Supervisory Board:

1.	Andrzej Kania	- Chair of the Supervisory Board
2.	Teresa Famulska	- Vice Chair of the Supervisory Board
3.	Katarzyna Taczanowska	- Secretary of the Supervisory Board
4.	Ryszard Madziar	- Member of the Supervisory Board
5.	Grzegorz Peczkis	- Member of the Supervisory Board

March 30, 2021 Date

This is a translation of the document originally issued and signed in Polish

ASSESMENT BY THE SUPERVISORY BOARD

of TAURON Polska Energia S.A.

TAURON.PL

Assessment by the Supervisory Board of TAURON Polska Energia S.A., including the justification thereof, of the financial statements and the Management Board's report on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020

The Supervisory Board of TAURON Polska Energia S.A., pursuant to the requirement of art. 382 § 3 of the Code of Commercial Companies and § 70, clause 1, sub-clause 14 and § 71, clause 1, sub-clause 12 of the Ordinance of the Minister of Finance of March 29, 2018 on the current and periodic information to be disclosed by security issuers and the conditions of recognizing as equivalent the information required by the legal regulations of a nonmember state, issued a positive assessment of the following documents presented by the Company's Management Board and determined that they were in compliance with the books, documents and the actual status of:

• 1) Financial statements of TAURON Polska Energia S.A. for the year ended on December 31, 2020, prepared in accordance with the International Financial Reporting Standards approved by the European Union,
• 2) Consolidated financial statements of TAURON Polska Energia S.A. Capital Group for the year ended on December 31, 2020, prepared in accordance with the International Financial Reporting Standards approved by the European Union,
• 3) Management Board's report on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020.

The Supervisory Board of TAURON Polska Energia S.A. made an assessment of the financial statements of TAURON Polska Energia S.A. for the year ended on December 31, 2020, including: the statement of comprehensive income, the statement of financial position, the statement of the changes in equity, the statement of cash flows and the principles (policy) of accounting and the additional explanatory notes.

The Supervisory Board of TAURON Polska Energia S.A. made an assessment of the consolidated financial statements of TAURON Capital Group for the year ended on December 31, 2020, including: the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of the changes in equity, the consolidated statement of cash flows and the principles (policy) of accounting and the additional explanatory notes.

The Supervisory Board of TAURON Polska Energia S.A. made an assessment of the Management Board's report on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020, that was prepared in accordance with the applicable regulations of the act of September 29, 1994 on accounting and of the Ordinance of the Minister of Finance of March 29, 2018 on the current and periodic information disclosed by security issuers and the conditions of recognizing as equivalent the information required by the legal regulations of a non-member state.

The above statements were the subject of verification, analysis and evaluation by the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. that recommended to the Supervisory Board of TAURON Polska Energia S.A. issuing of a positive assessment (opinion).

Pursuant to art. 49b, clause 9 and art. 55, clause 2c of the act of September 29, 1994 on accounting, TAURON Polska Energia S.A. drew up a Non-financial Report of TAURON Capital Group for 2020 in the form of a separate document.

The above Report was drawn up in accordance with Article 49b, clause 1 and art. 55, clause 2b-e of the accounting act of September 29, 1994, as subsequently amended, which implements the guidelines of the Directive of the European Parliament and of the Council 2014/95/EU of October 22, 2014, as regards disclosure of non-financial information, along with the additional, subsequent guidelines, including the European Commission Communication 2019/C 209/01 of June 20, 2019, including the guidelines on non-financial reporting: Supplement on reporting climate-related information and the Global Reporting Index guidelines - GRI Standards (core level).

The Audit Committee, performing its statutory obligations defined in the act of May 11, 2017, on certified auditors,

audit companies and public oversight, oversaw the process of financial reporting, of the effectiveness of the internal control systems and the risk management systems as well as of the internal audit, including performing tasks aimed at ensuring the accuracy of the financial reporting process.

As part of the process related to auditing the financial statements the Audit Committee was attending regular meetings with the representatives of the audit firm conducting the audit of the financial statements of the Company and TAURON Capital Group, monitoring and discussing the course of the audit processes. Furthermore, the Audit Committee studied the reports (opinions) presented by the audit firm on the audits of the financial statements and the additional report for the financial year 2020 prepared for the Audit Committee and the Company's management, in accordance with the regulations of Ordinance 537/2014, and also of the Act of May 11, 2017 on certified auditors.

The basis for the issuing by the Supervisory Board of a positive assessment (opinion) of the Financial statements of TAURON Polska Energia S.A. and the Consolidated financial statements of TAURON Capital Group for the financial year 2018 were the reports (opinions) of the independent certified auditor on the audit of the above statements according to which:

• 1) financial statements give a true and fair view of the assets, liabilities and the financial position of TAURON Polska Energia S.A. and TAURON Capital Group as of December 31, 2020, and their financial results for the financial year from January 1, 2020 until December 31, 2020, in accordance with the International Accounting Standards, International Financial Reporting Standards and the interpretations related thereto, published in the form of the regulations of the European Commission and the adopted principles (policy) of accounting,
• 2) financial statements of TAURON Polska Energia S.A. for the year ended on December 31, 2020, were prepared based on the properly kept accounting records (ledgers),
• 3) financial statements are in compliance, with respect to their form and content, with the legal regulations applicable to TAURON Polska Energia S.A. and TAURON Capital Group, as well as with the Articles of Association of TAURON Polska Energia S.A.

Furthermore, in the opinion of the certified auditor the Management Board's Report on the operations of TAURON Polska Energia S.A. and TAURON Capital Group for the financial year 2020 was prepared in accordance with the applicable legal regulations and is in compliance with the financial statements of TAURON Polska Energia S.A. for the year ended on December 31, 2020, and with the consolidated financial statements of TAURON Capital Group for the year ended on December 31, 2020.

The above mentioned financial statements were prepared by the deadline specified in the regulations and they are in line with the International Financial Reporting Standards that were approved by the European Union. The accuracy of the said financial statements, with respect to their compliance with the accounting records (ledgers), documents and the actual status, does not give rise to any objections and is confirmed by the information included in the Report of the independent certified auditor on the audit of the above statements.

Members of the Supervisory Board:

1.	Andrzej Kania	- Chair of the Supervisory Board
2.	Teresa Famulska	- Vice Chair of the Supervisory Board
3.	Katarzyna Taczanowska	- Secretary of the Supervisory Board
4.	Ryszard Madziar	- Member of the Supervisory Board
5.	Grzegorz Peczkis	- Member of the Supervisory Board

March 30, 2021 date