for the 3-month period ended March 31, 2024 MANAGEMENT BOARD'S REPORT

on activities of PGE Capital Group for the 3-month period

Management Board's report on activities of PGE Capital Group

ended March 31, 2024

1 of 87

1.4.1	Management Board 8
1.4.2	Supervisory Board 9
1.4.3	Committees of the Supervisory Board 10

1.5.1	Share capital of PGE S.A. and ownership structure11
1.5.2	Shares of the parent company and shares in the entities related to PGE S.A. owned by the members of management and supervisory authorities 12



2.2.1	Situation in the National Power System (NPS) 14
2.2.2	Electricity prices – domestic market15
2.2.3	Electricity prices - international market 17
2.2.4	Prices of certificates 20
2.2.5	Prices of CO2 emission rights 20


2.4.1	Domestic regulatory environment22
2.4.2	International regulatory environment26



3.2.1	Key results in business segments (in PLN million)1 37
3.2.2	Renewables 38
3.2.3 3.2.4	Gas-fired Generation43 Conventional Generation46
3.2.5	District Heating 52
3.2.6	Distribution59
3.2.7	Railway Energy Services 64
3.2.8	Supply 68
3.2.9	Circular economy71
3.2.10	Other Operations 73



4.1.1	Project of carve-out of coal generation assets 75
4.1.2 4.1.3	Regulatory changes76 Environmental decision on the Turów Lignite Mine 78
4.1.4	Impact of war in Ukraine on PGE Group's activities 79
4.1.5	Claims from the counterparties of ENESTA sp. z o.o. 79
4.1.6	Implementation by PGE Paliwa sp. z o.o. of the decision of the Prime Minister concerning the purchase of
	coal 79
4.1.7	Nuclear power plant construction project79
4.1.8	Signing of an annex to the syndicated loan80
4.1.9 4.1.10	Recommendation not to pay dividend for 202380 Changes in the Management Board and Supervisory Board 80

KEY FINANCIAL DATA

Key financial data	Unit	Q1 2024	Q1 2023	% change
Sales revenues	PLN m	16 841	27 208	-38%
EBIT	PLN m	1 408	2 343	-40%
EBITDA	PLN m	2 536	3 427	-26%
EBITDA margin	%	15%	13%
Recurring EBITDA	PLN m	2 532	3 346	-24%
Recurring EBITDA margin	%	15%	12%
Net profit	PLN m	951	1 811	-47%
Capital expenditures	PLN m	2 066	1 557	33%
Net cash from operating activities	PLN m	-2 339	-6 828	-66%
Net cash from investing activities	PLN m	-2 140	-1 645	30%
Net cash from financial activities	PLN m	2 769	5 347	-48%
Key financial data		March 31, 2024	December 31, 2023	% change
Working capital	PLN m	-6 598	-7 107	-7%
Net debt	PLN m	15 6861	11 121	41%

One offs affecting EBITDA		Q1 2024	Q1 2023	% change
LTC compensations	PLN m	4	0	-
Correction of estimated contribution to Price Difference Payment Fund for year 2022	PLN m	0	81	-100%
Total	PLN m	4	81	-95%

¹ Estimated level of economic financial net debt (taking into account future payments for CO² emission rights) amounts to PLN 21 227 m.

Net debt /LTM reported EBITDA² x 1.72 1.11 Net debt /LTM recurring EBITDA² x 1.58 1.04

² LTM EBITDA - Last Twelve Months EBITDA.

1.PGE Capital Group - organisation

Characteristics of activities

Capital Group of PGE Polska Grupa Energetyczna S.A. ("PGE Capital Group", the "Capital Group", "PGE Group", the "Group") is the largest vertically integrated producer of electricity and heat in Poland. With a mix of own fuel sources, generation assets and distribution network, PGE Group provides a safe and reliable supply of electricity to households, businesses and institutions. Moreover, PGE Group is the largest heat producer in the country.

The parent company of PGE Capital Group is PGE Polska Grupa Energetyczna S.A. (also "PGE S.A.", "PGE", the "Company"). PGE Group organizes its activities in nine operating segments:

The core business of the segment includes electricity generation from renewable sources and in pumped-storage power plants.

The core business of the segment includes electricity generation from gas-fired sources.

Within the segment there are companies responsible for construction of CCGT units in Gryfino (PGE Gryfino 2050 sp. z o.o.) and new low-emission unit in Rybnik (Rybnik 2050 sp. z o.o.).

Core business of the segment includes extraction of lignite, production of electricity and heat from conventional sources.

The core business of the segment includes production of electricity and heat in cogeneration sources as well as transmission and distribution of heat.

DISTRIBUTION

The core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.

The segment's main activities are the distribution and sale of electricity to railway operators and customers functioning within the railway system, the sale of fuels, as well as the maintenance and modernisation of overhead contact line network, together with other auxiliary services.

SUPPLY

The core business of the segment includes wholesale trading of electricity on domestic and international market, sale of electricity to final off-takers, trading of CO² allowances, energy certificates and fuels and provision of services of the Corporate Centre to companies from the PGE Group.

The activities of the segment include the provision of comprehensive services in the field of management of combustion by-products ("UPS"), provision of services in auxiliary areas for electricity and heat producers and the supply of materials based on UPS.

OTHER OPERATIONS

Other operations include provision of services, through the subsidiaries, to PGE Capital Group, which include organisation of capital raising in form of Eurobonds (PGE Sweden), provision of IT, transportation and investing in start-ups. Additionally, within the segment there are project companies of the Group.

Organisational structure

PGE Capital Group as at March 31, 2024 consisted of:

PGE S.A. the parent company,
⁷⁹ subsidiaries subject to full consolidation,
² joint operations,
⁶ associates and joint subsidiaries.

All of PGE Group's companies are organised in 9 operating segments indicated in the chart below.

The following diagram illustrates the Group's structure. A full composition of PGE Group, divided into segments as well as direct and indirect consolidated subsidiaries, is presented in note 1.3 to the consolidated financial statements.

Chart: Structure of PGE Capital Group¹

¹Simplified structure – includes key entities.

Significant changes in the organisation of the Capital Group

Significant changes which occurred in the PGE Capital Group's structure in the period from January 1, 2024 until the publication date of this report, are presented in note 1.3 to consolidated financial statements and described below.

ACQUISITION OR DISPOSAL OF SHARES BY THE COMPANIES

Segment	Shares of the company	Date of transaction/ registration in the National Court Register (NCR)	Comment
Other operations	PGE Inwest 12 sp. z o.o.– taking up shares by PGE S.A. and joining the PGE Inwest 12 sp. z o.o. and taking up new shares by National Fund for Environmental Protection and Water Management (NFOŚiGW)	October 24, 2023 / March 4, 2024	On October 16, 2023 PGE S.A. and NFOŚiGW signed an investment agreement regarding financing of PGE Inwest 12 sp. z o.o. in order to implement construction of the pumped-storage power plant in Młoty (commune Bystrzyca Kłodzka, Lower Silesia voivodship). As a result of performance of the above mentioned contract on October 17, 2023 Extraordinary Assembly of Partners of PGE Inwest 12 sp. z o.o. adopted a resolution on increase of the share capital and decided that the new shares in the increased share capital will be taken up respectively by PGE S.A. and NFOŚiGW in exchange for cash contributions. On October 24, 2023 PGE S.A. and NFOŚiGW took up new shares in PGE Inwest 12 sp. z o.o. PGE S.A. currently holds 51%, and NFOŚiGW 49% in the share capital of this company.
Supply	ENESTA sp. z o.o. in restructuring with seat in Stalowa Wola - increase of the share capital and subscription of all new shares by PGE Obrót S.A.	December 18, 2023 / Not yet registered in the NCR	On December 18, 2023 the Extraordinary Meeting of Partners of ENESTA sp. z o.o. in restructuring adopted a resolution on increasing the share capital of the company from PLN 82 402 000 to PLN 116 402 000 PLN, i.e. by PLN 34 000 000, by issue of new 34 000 shares of the company with a nominal value of PLN 1 000 per share. PGE Obrót S.A. as one of the company's shareholders, took up all the company's new shares in the increased share capital. As a result of the share capital increase and the subscription of all new shares of the company by PGE Obrót S.A., the share of PGE Obrót S.A. in the share capital of the company will increase from 92.25% to 94.51% as of the date of registration of the company's share capital increase in the National Court Register.

LIQUIDATION OF COMPANIES

Segment	Company in liquidation	Date of transaction/ registration in the National Court Register	Comment
-	PGE Trading GmbH in liquidation with seat in Berlin	March 1, 2021 As of March 31, 2024, the company has not been removed from the commercial register	On March 1, 2021 the Extraordinary Assembly of Partners of PGE Trading in liquidation, in which PGE holds 100% of the share capital, adopted resolution on dissolution of the company and appointment of a liquidator to carry out liquidation activities. The liquidation process of the company is currently underway.
-	PGE Nowa Energia sp. z o.o. in liquidation with seat in Warsaw	March 31, 2022 /On 16 February 2024, the register court decided to delete the company from the Register of Entrepreneurs of the NCR. On April 22, 2024, the deletion of the company	On March 31, 2022 the Extraordinary Assembly of Partners of PGE Nowa Energia sp. z o.o. in liquidation, in which PGE holds 100% of the share capital, adopted resolution on dissolution of the company and appointment of a liquidator to carry out liquidation activities.

		from the NCR became effective.
-	Railen GmbH in liquidation with seat in Berlin	January 31, 2023 / As of March 31, 2024, the company has not been removed from the commercial register	On January 26, 2023 the Extraordinary Assembly of Partners of Railen GmbH in liquidation, in which PGE Energetyka Kolejowa Holding sp. z o.o. holds 100% of the share capital, adopted resolution, effective January 31, 2023, resolution on dissolution of the company and appointment of a liquidator to carry out liquidation activities. The liquidation process of the company is currently underway.
-	Railen Baltics, UAB in liquidation with seat in Vilnius	October 3, 2023/ On January 31, 2024, the Administrator of the Lithuanian Register of Legal Entities reversed the liquidation of Railen Baltics, UAB, i.e. the company is not currently under liquidation	On October 3, 2023, the Administrator of the Lithuanian Register of Legal Entities initiated the liquidation of the company Railen Baltics, UAB in liquidation, in which PGE Energetyka Kolejowa Holding sp. z o.o. holds 100% of the share capital.

RESTRUCTURING OF THE COMPANIES

Segment	Company in liquidation	Date of transaction/ registration in the National Court Register	Comment
Supply	ENESTA sp. z o.o. in June 21, 2022 / No restructuring with seat in completion of restructuring Stalowa Wola proceedings as at March 31, 2024		On June 21, 2022, the District Court in Rzeszów, 5th Commercial Division, opened restructuring (recovery) proceedings of the company ENESTA sp. z o.o. in restructuring and appointed an Administrator as part of these restructuring proceedings. The restructuring process of the company is currently underway. PGE Obrót S.A. currently holds 92.25% share in the share capital of the company. The share of PGE Obrót S.A. in the share capital of the company will increase to 94.51% as of the date of registration of the company's share capital increase in the National Court Register.

Composition of the management and supervisory bodies

1.4.1 Management Board

MANAGEMENT BOARD MEMBERS

Table: Composition of the Company's Management Board as at January 1, 2024

Name and surname of the Management Board	Position	Period of office
Wojciech Dąbrowski	President of the Management Board	from February 20, 2020 to February 7, 2024
Wanda Buk	Vice-President for Regulatory Affairs	from September 1, 2020 to February 7, 2024
Przemysław Kołodziejak	Vice-President for Operations	from May 1, 2023
Lechosław Rojewski	Vice-President for Finance	from June 9, 2021 to February 28, 2024
Rafał Włodarski	Vice-President for Support and Development	from January 9, 2023 to February 7, 2024

CHANGES IN THE MANAGEMENT BOARD IN 2024

On February 7, 2024, the Supervisory Board adopted the following resolutions:

No. 287/XII/2024 on dismissal of Wojciech Dąbrowski, President of the Management Board, from the Management Board,
No. 288/XII/2024 on dismissal of Wanda Buk Vice-President of the Management Board for Regulations,
No. 289/XII/2024 on dismissal of Rafał Włodarski Vice-President of the Management Board for Support and Development.

Moreover, the Supervisory Board of the Company on February 7, 2024 adopted resolutions to delegate Supervisory Board Members:

No. 290/XII/2024 Eryk Kosiński to temporarily perform the duties of the Member of the Management Board of the Company for the 3-month period and to entrust him the duties of the President of the Management Board of the Company,
No. 291/XII/2024 Małgorzata Banasik to temporarily perform the duties of the Member of the Management Board of the Company for the 3-month period.

On February 28, 2024 the Supervisory Board of the Company has adopted a resolution No. 304/XII/2024 on dismissal of Lechosław Rojewski, Vice-President of the Management Board for Finance.

On March 6, 2024, following the qualification procedure, the Supervisory Board adopted the resolutions:

No. 312/XII/2024 on appointing Dariusz Marzec to the Management Board of PGE S.A., entrusting him the position of President of the Management Board as from March 18, 2024,
No. 313/XII/2024 on appointing Marcin Laskowski to the Management Board of PGE S.A., entrusting him the position of Vice-President of the Management Board for Regulations as from March 18, 2024.

Also on March 6, 2024 the Company's Supervisory Board adopted resolutions to:

No. 314/XII/2024 terminate as of March 17, 2024 delegation of Eryk Kosiński, Supervisory Board Member, to temporarily perform the duties of the Member of the Management Board of PGE acting as the President of the Management Board of PGE,
No. 315/XII/2024 terminate as of March 8, 2024 delegation of Małgorzata Banasik, Supervisory Board Member, to temporarily perform the duties of the Member of the Management Board of PGE.

On March 21, 2024, following the qualification procedure, the Supervisory Board adopted the resolution:

No. 326/XII/2024 on appointing Robert Kowalski to the Management Board of PGE S.A., entrusting him the position of Vice-President of the Management Board for Support and Development as from May 15, 2024.

On April 4, 2024, following the qualification procedure, the Supervisory Board adopted the resolution No. 336/XII/2024 on appointing Renata Czech to the Management Board of PGE S.A., entrusting her the position of Vice-President of the Management Board for Finance as from April 15, 2024.

Also on April 4, 2024 the Supervisory Board adopted the resolution No. 343/XII/2024 on dismissal of Przemysław Kołodziejak, Vice-President of the Management Board for Operations.

On April 5, 2024 the Supervisory Board received a statement of Renata Czech, appointed as the Vice-President of the Management Board for Finance, on resignation from this position due to personal reasons.

On May 20, 2024, following the qualification procedure, the Supervisory Board adopted the resolution No. 368/XII/2024 on appointing Maciej Górski to the Management Board of PGE S.A., entrusting him the position of Vice-President of the Management Board for Operations as from June 24, 2024.

THE CURRENT COMPOSITION OF THE COMPANY'S MANAGEMENT BOARD

Table: Composition of the Company's Management Board at the date of signing of this report

Name and surname of the Management Board	Position
Dariusz Marzec	President of the Management Board
Robert Kowalski	Vice-President for Support and Development
Marcin Laskowski	Vice-President for Regulations

1.4.2 Supervisory Board

Supervisory Board of PGE S.A. operates on the basis of the Act of September 15, 2000 - Code of Commercial Companies and the Company's Statute and Regulations of the Supervisory Board, the content of which is available on the Company's website: Regulations of the Supervisory Board.

Table: Composition of the Supervisory Board as at January 1, 2024

Name and surname of the Management Board	Position
Anna Kowalik	Chairman of the Supervisory Board
Artur Składanek	Vice-Chairman of the Supervisory Board – independent
Radosław Winiarski	Secretary of the Supervisory Board
Janina Goss	Supervisory Board Member - independent
Tomasz Hapunowicz	Supervisory Board Member - independent
Mieczysław Sawaryn	Supervisory Board Member - independent

CHANGES TO THE COMPOSITION OF THE COMPANY'S SUPERVISORY BOARD IN 2024

On January 25, 2024, the Minister of State Assets by a statement appointed Michał Domagała to the Supervisory Board.

On January 31, 2024 the Extraordinary General Meeting:

Dismissed from the Supervisory Board the following persons:
- Janina Goss
- Tomasz Hapunowicz
- Mieczysław Sawaryn
- Artur Składanek
- Radosław Winiarski
appointed to the Supervisory Board the following persons:
- Małgorzat^a Banasik
- Eryk Kosińskⁱ
- Andrzej Kozyra
- Elżbieta Niebisz
- Sławomir Patyr^a
- Andrzej Rzońc^a
- Andrzej Sadkowski

On February 7, 2024, a new Presidium of the Supervisory Board was elected. Also on February 7, 2024 the Supervisory Board adopted resolutions to delegate Supervisory Board Members:

^Eryk Kosiński to temporarily perform the duties of the Member of the Management Board of the Company for the 3-month period and to entrust him the duties of the President of the Management Board of the Company,
Małgorzata Banasik to temporarily perform the duties of the Member of the Management Board of the Company for the 3-month period.

On March 6, 2024, the Supervisory Board adopted resolutions concerning the termination of the delegation of Supervisory Board Members to temporarily perform the duties of Members of the Management Board of PGE S.A.

Table: Composition of the Company's Supervisory Board at the date of signing of the report

Name and surname of the Management Board	Position
Michał Domagała	Chairman of the Supervisory Board – independent
Andrzej Sadkowski	Vice-Chairman of the Supervisory Board – independent
Anna Kowalik	Secretary of the Supervisory Board
Małgorzata Banasik	Member of the Supervisory Board – independent
Eryk Kosiński	Member of the Supervisory Board – independent
Andrzej Kozyra	Member of the Supervisory Board – independent
Elżbieta Niebisz	Member of the Supervisory Board – independent
Sławomir Patyra	Member of the Supervisory Board – independent
Andrzej Rzońca	Member of the Supervisory Board – independent

1.4.3 Committees of the Supervisory Board

Table: Composition of the committees of the Supervisory Board as at January 1, 2024

Name and surname of the member of the Supervisory Board	Audit Committee	Corporate Governance Committee	Strategy and Development Committee	Appointment and Remuneration Committee
Janina Goss	Member			Member
Tomasz Hapunowicz		Chairman	Member
Anna Kowalik	Member	Member	Member	Member
Mieczysław Sawaryn	Member	Member	Member	Chairman
Artur Składanek	Chairman		Member
Radosław Winiarski	Member		Chairman

On January 31, 2024, the Extraordinary General Meeting dismissed the following from the Supervisory Board: Janina Goss, Tomasz Hapunowicz, Mieczysław Sawaryn, Artur Składanek, Radosław Winiarski.

Table: Composition of the committees of the Supervisory Board as at the signing date of the report

Name and surname of the member of the Supervisory Board	Audit Committee	Corporate Governance Committee	Strategy and Development Committee	Appointment and Remuneration Committee
Małgorzata Banasik			Chairwoman	Member
Michał Domagała	Member			Member
Eryk Kosiński		Member	Member
Anna Kowalik	Member	Member		Chairwoman
Andrzej Kozyra		Member		Member
Elżbieta Niebisz	Member		Member
Sławomir Patyra		Chairman		Member
Andrzej Rzońca	Chairman		Member
Andrzej Sadkowski			Member

Shares and shareholders

1.5.1 Share capital of PGE S.A. and ownership structure

SHARE CAPITAL

As at January 1, 2024, March 31, 2024 and the date of signing of this report, the share capital of PGE S.A. was PLN 19 183 746098.70 and split into 2 243 712 994 shares with a nominal value of PLN 8.55 each. There were no changes in share capital of PGE S.A. during the first quarter of 2024.

Series/ issue	Type of shares	Type of privilege	Number of shares	Value of series/issue at nominal value	Capital payment method
"A"	ordinary	n/a	1 470 576 500	12 573 429 075.00	contribution in kind/cash
"B"	ordinary	n/a	259 513 500	2 218 840 425.00	cash
"C"	ordinary	n/a	73 228 888	626 106 992.40	merger with PGE GiE S.A.
"D"	ordinary	n/a	66 441 941	568 078 595.55	merger with PGE Energia S.A.
"E"	ordinary	n/a	373 952 165	3 197 291 010.75	cash
Total			2 243 712 994	19 183 746 098.70

Table: Share capital of the Company.

SHAREHOLDERS WITH A SIGNIFICANT STAKE

According to the letter from the Ministry of the State Assets of May 20, 2022, the State Treasury held 1 365 601 493 ordinary shares of the Company, representing 60.86% of the Company's share capital and entitling to 1 365 601 493 votes on the General Meeting of the Company, constituting 60.86% of total votes.

In addition, The State Treasury informed about the subsidiary holding PGE shares and the total number of votes by both entities and its percentage share in the total number of votes. According to the notification, taking into account the number of shares (18 697 608) held by a subsidiary of the State Treasury, i.e. Towarzystwo Finansowe Silesia sp. z o.o.(TF Silesia), the State Treasury holds a total of 1 384 299 101 shares constituting 61.70% of the share capital of the Company and entitling to exercise 1 384 299 101 votes, which constitutes 61.70% of the total number of votes.

Table: Shareholding structure at January 1, 2024, March 31, 2024 and at the publication date of this report¹ .

State Treasury and its subsidiary		Other shareholders		Total
Nominal value of shares (PLN)	% in share capital and votes	Nominal value of shares (PLN)	% in share capital and votes	Nominal value of shares (PLN)	% in share capital and votes
11 835 757 313.55	61.70	7 347 988 785.15	38.30	19 183 746 098.70	100.00

¹ The ownership structure is presented on the basis of information available to the Company.

All of the Company shares have been paid.

Although the Company's shares are not privileged, the Statutes of the Company provide for special rights of the State Treasury until it remains a Shareholder of the Company.

Table: Shareholders holding directly or indirectly by subsidiaries at least 5% of the total votes at the General Meeting of PGE S.A. January 1, 2024, March 31, 2024 and at the signing date of this report

Shareholder	Number of shares	Number of votes	% in total votes on General Meeting
State Treasury	1 365 601 493	1 365 601 493	60.86%
State Treasury's subsidiary – TF Silesia	18 697 608	18 697 608	0.84%
State Treasury and its subsidiary - total	1 384 299 101	1 384 299 101	61.70%
Others	859 413 893	859 413 893	38.30%
Total	2 243 712 994	2 243 712 994	100.00%

During the first quarter of 2024, there were no changes in the shareholding structure of PGE S.A. Chart: Shareholding structure of PGE S.A.

1.5.2 Shares of the parent company and shares in the entities related to PGE S.A. owned by the members of management and supervisory authorities

According to the best knowledge of the Management Board of the Company, none of the members of management and supervisory authorities of the Company held shares of the parent company or shares in entities related to PGE S.A. as at March 31, 2024 and as at the date of signing of this report.

2. Electricity market and regulatory and business environment

Macroeconomic environment

PGE Group's main operating area is Poland, and the domestic macroeconomic backdrop has a substantial impact on Group's results. At the same time, the condition of Poland's economy remains largely tied to the situation across the European Union and in global markets. The Group's financial results are affected by both the situation in specific segments of the economy and the financial markets, which determine the terms of PGE Group's debt financing.

In Poland there is a dependence between change in electricity demand and change in the rate of economic growth. Considering PGE Group's position on the Polish power generation market, as well as its substantial share in the electricity sales and distribution market, changes in electricity and heat demand may have a significant impact on the Group's results.

In the first quarter of 2024, gross electricity consumption increased by 2.7% y/y. The increase was a result of low consumption last year as the economy slowed due to higher commodity prices caused by the war in Ukraine.

Source: Central Statistical Office of Poland, Polskie Sieci Elektroenergetyczne S.A. (PSE S.A.)

In March 2024, the manufacturing PMI for Poland stood at 48.0 points, up from 47.9 points in the previous month. This was the third month with a rising PMI, but also the twenty-third consecutive month with the index below the 50-point threshold. The industrial recession continues. This is influenced by continuing declines in the volumes of production and new orders. The slowdown in international trade and lower export sales – mainly to Germany – are also having a negative impact. Weak demand is affecting employment, which continues to see decline, but at a slower rate than in the last two years and some companies are starting to recruit. Lead times are increasing, which can be caused by delays in the transport of imported raw materials.

The PMI for the first quarter of 2024 was 47.7 points (48.1 points in the first quarter of 2023). Industrial sentiment is improving due to the expected rebound in consumption. The March 2024 PMI reading indicates a better situation for the Polish industry compared to that in the Eurozone. The PMI for abroad was 46.1 points in March 2024 (down from 46.5 points in February 2024) and 46.4 points in the first quarter of 2024 (48.2 points in the first quarter of 2023).

Chart: Manufacturing PMI in Poland and Eurozone (in points).

Source: Market Economics

In March 2024, industrial output sold was 6.0% lower than in March 2023. This is a worse result than forecast by experts. In contrast, industrial output sold was 0.7% lower year-on-year in the first quarter of 2024. The main reason for the lower result in March 2024 is the reduced output sold in the mining and quarrying sector. In this sector, the output sold in March 2024 fell by 4% in comparison with February 2024 and by 13.1% y/y in comparison to March 2023.

Among the selected industrial sectors, compared to March last year, the largest decreases were recorded in the production of electrical equipment (29.1%) in the mining of coal and lignite (25.9%), in the production of beverages (13.8%) and metals (12.5%).

Market environment

2.2.1 Situation in the National Power System (NPS)

Table: Domestic electricity consumption (TWh).

	Q1 2024	Q1 2023	% change
Domestic electricity consumption, including:	45.27	44.10	3%
Wind farms	7.96	6.67	19%
Industrial thermal hard-coal fired power plants	19.20	20.84	-8%
Industrial thermal lignite fired power plants	8.80	9.42	-7%
Industrial gas-fired power plants	4.62	3.93	18%
International exchange balance	1.36	0.63	116%
Other (hydro power plants, other RES)	3.33	2.61	28%

Source: PSE S.A. data.

Q1 2024

In the first quarter of 2024, domestic electricity consumption increased by 1.17 TWh y/y. The increase was the result of lower consumption last year as a result of the slowing economy due to higher commodity prices caused by the war in Ukraine. As a result of the increase in installed capacity and more favourable wind conditions, wind generation increased by 1.29 TWh compared to the same period last year. In the first quarter of 2024, as a year ago, Poland was a net importer of energy (change of +0.73 TWh). There was a decrease in generation in coal-fired power plants (- 1.64 TWh) and in lignite-fired power plants (-0.62 TWh) due to an increase in the level of generation from RES. Furthermore, the fall in natural gas prices led to an increase in power generation based on this type of fuel (+0.69 TWh). There was also an increase in generation from other electricity sources (+0.72 TWh), most notably photovoltaic plants, due to an increase in installed capacity.

Chart: Energy balance in the NPS (TWh).

1 2 3 4 5 6

Source: own work based on data from PSE S.A.

2.2.2 Electricity prices – domestic market

Table: Day-Ahead market (RDN, SPOT market) 1

Market/measure	Unit	Q1 2024	Q1 2023	% change
RDN – average price	PLN/MWh	366	642	-43%
RDN – trading volume	TWh	12.24	13.94	-12%

¹Data from TGE, include weighted average monthly BASE prices.

Table: Selected price factors affecting RDN quotations

Factor	Unit	Q1 2024	Q1 2023	% change
CO2 emission rights 1	EUR/t	61.00	90.31	-32%
Polish Steam Coal Market Index PSCMI-1	PLN/GJ	22.89	32.36	-29%
Wind generation NPS	TWh	7.96	6.67	19%
Ratio: wind generation/ NPS consumption	%	18%	15%
Ratio: international trading/ NPS consumption	%	3%	1%

¹Source: own work based on ICE quotations.

In the first quarter of 2024, the average electricity price on the day-ahead market was PLN 366/MWh and was lower by 43% than average price (PLN 642/MWh) in the analogical period of the previous year. Increased generation from RES sources and higher average daily temperatures y/y contributed to the price drop.

Average level of PSCMI-1 in the first quarter of 2024 was PLN 22.89/GJ, i.e. lower by 29% than in the base period.

Chart: Average monthly prices on the day-ahead market in 2023–2024 (TGE).¹

Data from TGE, include weighted average monthly BASE prices.

Table: Forward market (RTT)

Market/measure	Unit	Q1 2024	Q1 2023	% change
BASE Y+1 – average price	PLN/MWh	450	794	-43%
BASE Y+1 – trading volume	TWh	8.23	4.02	105%
PEAK5 Y+1 – average price	PLN/MWh	497	1 006	-51%
PEAK5 Y+1 – trading volume	TWh	1.24	0.90	38%

Energy prices on the forward market in the first quarter of 2024 fell significantly for both BASE and PEAK5 contracts in comparison to the analogical period of the previous year. The decrease was due to the high base of the previous year, when increases were influenced by the market situation related to the limited supply of hard coal and natural gas due to the ongoing conflict in Ukraine.

Chart: Average monthly prices on the forward market in 2023–2024 (TGE).¹

Monthly average index level for forward contracts for the next year (Y+1), baseload and peak, weighted by the trading volume.

2.2.3 Electricity prices - international market

WHOLESALE MARKET (COMPARISON OF SPOT MARKETS)

Chart: Comparison of average electricity prices on Polish market and on European markets in the first quarter of 2024 (prices in PLN/MWh, average exchange rate EUR/PLN 4.33).

Source: TGE - RDN price level calculated on the basis of hourly quotations (fixing), EEX, Nordpool Chart: Evolution of spot market prices.

Source: TGE, EEX, Nordpool

There was a year-on-year fall in prices in neighbouring markets in the first quarter of 2024. The largest y/y declines were recorded in Hungary (PLN -323/MWh), and the smallest in Finland (PLN -52/MWh). The differentiation of energy prices results from a different level of share of renewable energy sources in the technological mix and from the situation on the markets for related products. The price spread between Poland and its neighbouring countries is also due to differences in realised coal prices and also to prices of natural gas at home and abroad. The reason for the price drop was a change in the market situation – in the analogical period of the previous year the supply of hard coal and natural gas were limited due to the ongoing conflict in Ukraine.

-1 500,0 0 -1 250,0 0 -1 000,0 0 -750,00 -500,00 -250,00 0,0 0 250 ,00 500 ,00 750 ,00 1 00 0,00 1 25 0,00 1 50 0,00 1 75 0,00

Chart: Hard coal indices ARA vs PSCMI-1 1 .

Source: ARP, Bloomberg (API21MON OECM Index), own work.

INTERNATIONAL TRADING

Source: own work based on data from PSE S.A.

Global decline in fuel prices (which translate into a decrease in the costs of electricity production) translated into a decrease in energy prices in neighbouring countries, which in turn increased electricity import to Poland from neighbouring countries in the first quarter of 2024.

¹ The comparison is illustrative only. Methodologies of counting the ARA and PSCMI1 indexes are different. Among other things, the ARA index includes insurance and delivery costs. The PSCMI 1 is an ex-mine index without insurance and delivery costs. Standards for calculating the caloric values are also different (ARA – 25.12 GJ/t vs. PSCMI1 caloric value - range 20-24 GJ/t). The aim is to compare the trend and not the absolute level. For illustration purposes ARA index is recalculated from USD/t to PLN/GJ.

-4000 -3000 -2000 -1000 0 1000 2000 3000 4000 5000

Chart: Quarterly trading volumes – import, export and international trading balance in years 2013 - 2024.

Source: own work based on data from PSE S.A.

In the first quarter of 2024, Poland was a net importer of electricity, with a positive trade balance of +1.4 TWh (import 3.5 TWh, export 2.1 TWh) up y/y by 0.7 TWh. Imports from Germany (1.4 TWh), Sweden (0.8 TWh) and Czechia (0.5 TWh) had the greatest impact on the trade balance. At the same time, we exported the most electricity to Slovakia (0.8 TWh) and Lithuania (0.5 TWh).

RETAIL MARKET

The diversity of electricity prices for retail customers in the European Union depends mainly on the level of the wholesale prices of electricity, fiscal system (taxes and fees), regulatory mechanism and support schemes in particular countries. In Poland in the second half of 2023² an additional burden (over sale price and cost of electricity distribution) for individual customers accounted for 46% of the electricity price. The Germans paid the most for electricity, for whom additional charges also accounted for 28% of the final price.

Chart: The share of additional charges in electricity prices for the individual customers in selected EU countries in the second half of 2023 (prices in PLN/MWh, average exchange rate EUR/PLN 4.50).

Source: own work based on Eurostat data.

² Eurostat data on retail market are published in semi-annual intervals.

Chart: The share of additional charges in electricity prices for the individual customers in selected EU countries in the second half of 2023 (prices in PLN/MWh, average exchange rate EUR/PLN 4.50).

Source: own work based on Eurostat data.

2.2.4 Prices of certificates

In the first quarter of 2024 the average price of green certificates (index TGEozea) reached PLN 51/MWh and was lower by 77% compared to the analogical period of the previous year. An obligation to redeem green certificates changed as compared to 2023 (12%) and stands at 5% for 2024.

Chart: Average quarterly prices of green certificates (TGEozea).

Source: Own work based on TGE quotations.

2.2.5 Prices of CO² emission rights

EUA (European Union Allowances) prices are one of the key factors determining wholesale energy prices and PGE Group's financial results. Installations emitting CO² in the process of electricity or heat production bear the expenses for purchasing EUA allowances to cover the deficit (i.e. the difference between CO² emissions at PGE Group's generating units and the free-of-charge allowances received under derogation in accordance with the National Investment Plan). Wherein, last allocations granted free of charge were planned for realisation of investment tasks for 2019. It means that the free allocations for electricity generation, in accordance with the currently used method, ended when 2019 allowances were received.

In the first quarter of 2024 the weighted average price of EUA DEC was EUR 61.00/t and was lower (by approx. 32%) than the average price of EUR 90.31/t in the similar period of the previous year.

Chart: Prices of CO² emission rights.

Source: own work based on ICE exchange quotations

CO² emission rights granted free of charge

In accordance with Commission Implementing Regulation (EU) 2019/1842 of October 31, 2019 laying down rules for the application of Directive 2003/87/EC of the European Parliament and of the Council as regards further arrangements for adjustment of the allocation of free CO² emission allowances due to changes in activity levels, the competent authority may suspend the issuance of free emission allowances to an installation until it is determined that there is no need to adjust the allocation to that installation or the Commission has adopted a decision concerning adjustments to the allocation to that installation.

In national legislation, the Act on the Greenhouse Gas Emission Trading Scheme introduced an additional condition for the issuance of emission allowances to installations. Due to the amendment of Directive (EU) 2023/959 of the European Parliament and of the Council of May 10, 2023, amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Union, the deadline for issuing emission allowances has changed from February 28 to June 30 each year, following the publication of information in the Public Information Bulletin on the website of the office serving the Ministry of Climate and Environment (MKiŚ).

In accordance with legal requirements, activity level reports for individual installations have been submitted, with a deadline of March 31, 2024 for 2023. Due to the change in the deadline for issuing allowances, by the date of publication of the report, the final annual number of allowances had not been announced in the Public Information Bulletin of MKiŚ and had not been issued to the accounts of installations.

Table: Emission of CO2 vs allocations of allowances for 2024 (in tons).

Product	CO2 emissions in Q1 2024	Allocation of CO2 emission rights for 20241
Electricity	12 780 147	-
Heat	1 835 653	622 830
Total	14 615 800	622 830

1Allowances for heat production.

Regulatory environment

PGE Group operates in an environment with a significant impact of domestic and foreign regulations. Presented below is a summary of the most significant decisions, which could have an impact on PGE Group's operations in the coming years.

Legal regulations regarding the current rules for determining the prices of electricity and heat and the compensations due in this respect are described in chapter 4.1.2 of this report in the section Regulatory changes on the electricity market.

2.4.1 Domestic regulatory environment

Regulation	Regulation objectives	Latest conclusions and next stages	Impact on PGE Group
The bill on the amendment to the Energy Law and the Renewable Energy Sources Act.	The act includes proposals for provisions implementing into the Polish legal system Directive (EU) 2019/944 of the European Parliament and of the Council of June 5, 2019 on common rules for the internal market in electricity and amending Directive 2012/27/EU. In particular, the project provides implementation of civic institutions of energy communities, facilitation in the field of aggregation, contracts with dynamic electricity prices and other flexibility and demand response services, direct line changes.	The law entered into force on September 7, 2023.	The solutions have an impact on all of PGE Group's operating segments, especially the Supply and Distribution segments.
The act on amendment of the act on renewable energy sources and certain other acts.	The act introduces amendments to several acts, including: Energy Law, Environmental Protection Law, in connection with heating going green, and other changes related to the necessity to implement directive RED II (regarding the promotion of the use of energy from renewable sources). Moreover, the act introduces new support systems for biomethane, to modernise RES installations and for existing RES installations to cover operating expenses. The act also changes the definition of hybrid RES installations. It also defines the rules for sharing a connection by RES installations (cable pooling).	The law entered into force on October 1, 2023.	The act is of significance for the Renewables segment due to the new support systems and cable pooling, and for the District Heating segment in terms of increasing the use of heat generated from RES.
Draft Act amending the Act on the greenhouse gas emission allowance trading scheme and the Act - Environmental Protection Law.	The aim of the act is to establish national legislation governing the establishment and operation of the Energy Transition Fund. The Energy Transition Fund is to be used to finance investments in the energy and industrials sectors excluding coal assets area.	The draft act was still being processed at the governmental stage by the previous parliament. PGE S.A. submitted comments on the published draft law.	From 2025, ETF funding is available for investments in the area of: RES, grids, storage, etc.
Act amending the Act on the Management of Agricultural Property of the Treasury and certain other acts.	The act introduces regulations according under which agricultural properties belonging to the Agricultural Property Stock of the Treasury will be able to be leased for the purpose of obtaining electricity from RES.	The law entered into force on October 5, 2023.	The act is of significance for the Renewables segment.

Regulation	Regulation objectives	Latest conclusions and next stages	Impact on PGE Group
Act amending the Act on Spatial Planning and Development and certain other acts.	The act introduces the principle that photovoltaic (PV) investments above 1 MW will only be allowed on the basis of a Local Spatial Development Plan. In other case, it will not be possible to realise the investment in question on the basis of a decision on development conditions. The draft also provides for the possibility of applying a simplified procedure for the enactment or amendment to the Local Spatial Development Plan, including in the case of PV investments, but this does not apply to investments with significant impact on the environment.	The act entered into force on September 24, 2023.	The act may slow down PV investments in the Renewable segment due to necessity to embed such investment in the Local Spatial Development Plan what significantly prolongs implementation time.
The law under consideration pertains to modifications to the Act on the preparation and implementation of strategic investments in transmission networks and certain other Acts.	The law introduces new, essential transmission projects and broadens the scope of the distribution project legislation to include voltage equal to or greater than 110 kV, which is crucial for transmitting electric energy from the transmission network to distribution networks. This will make it possible for investors to streamline the process of obtaining public-law permits, as well as introduce a simplified approach to acquiring land for these investments. The recommendation is to restrict the list of distribution investments to those that are of utmost importance.	The act entered into force on September 3, 2023.	This regulation affects the Distribution segment. The implementation of regulations will simplify and accelerate investment activities with respect to distribution networks having voltage equal to or exceeding 110 kV and, to a lesser extent, networks at lower voltages than 110 kV.
Act on the preparation and execution of investments in the realm of hydroelectric pumped storage power plants.	The legislation introduces streamlining of the investment process for PSP plants3 - it regards both building new pumped-storage plants and refurbishing existing installations.	The act entered into force on June 30, 2023.	The act will make investments in the PSP plants – that are in Renewables segment's disposal more efficient and speedy.
The regulation amending the regulation on the method of shaping and calculating tariffs and the method of settlements in electricity trading.	The regulation reduces electricity bills for household customers by PLN 125.34 in 2023, provided that one of the listed conditions is met. Power utilities have been obliged to inform their customers of this solution within seven days of the entry into force of the regulation, i.e. by 26 September 20234	On September 19, 2023, the regulation came into force.	The regulation requires the Supply segment to update its settlements to households.
Act amending the Extraordinary Measures Act aimed at limiting electricity prices and providing support to certain consumers in 2023, introduced by an amendment to the Energy Law Act.	The Act changes the calculation of the WRC Fund allowance, in particular with regard to clarifying the coverage of PPAs5	The Act came into force on September 1, 2023.	The Act affects the power utilities' financial result from the sale of electricity.

³ PSP plant – pumped storage power plant.

⁴ For a detailed description of the objectives of the regulation and the impact on the PGE CG, see p. 8.1.6 Regulatory changes on the electricity market. ⁵ See above.

Regulation	Regulation objectives	Latest conclusions and next stages	Impact on PGE Group
The Act on amending the Act on special solutions to protect electricity consumers in 2023 in connection with the situation on the electricity market and certain other Acts.	The Act increases electricity consumption limits for households whose electricity prices have been frozen at last year's levels6	The Act came into force on September 19, 2023.	The Act changes the scope of the Trading segment companies' obligations concerning settlements with household electricity consumers and the resulting level of compensation.
The draft regulation on substances particularly harmful to the aquatic environment and conditions to be met when discharging waste water into waters or into the ground, and when discharging rainwater or snowmelt into waters or into water facilities.	The aim of the draft is to bring the regulation into line with the changes introduced through the Oder River Revitalisation Act, with regard to the monitoring of industrial waste water (chlorides and sulphates).	Work on the draft regulation is in progress. On December 21 2023, the project developer published a consultation report.	The regulation introduces new obligations for operators of facilities in the area of water and waste water management, which applies to the Conventional Generation and District Heating segments.
The regulation of the Council of Ministers on the provision of information and data necessary for the implementation of an investment project relating to the construction of a nuclear power facility and accompanying investment projects.	The regulation constitutes an executive document to the Act amending the Act on the preparation and implementation of an investment project relating to nuclear power facilities and accompanying investment projects. It defines the scope of information and data, registers, records, lists and archives from which necessary data will be made available to the project owner for the purposes of performing its tasks related to the implementation of an investment project relating to the construction of a nuclear power facility.	Publication in the Journal of Laws on November 6, 2023.	The regulation affects the level of available sources of data and information necessary for the implementation of nuclear power investment projects, currently assigned to the Other Operations segment of the PGE Capital Group.
The regulation of the Minister of Climate and Environment on the requirements for calculating, measuring and recording the amount of electricity, heat and cold generated in renewable energy source installations.	The regulation is an executive act to the Renewable Energy Sources Act. It sets out the requirements concerning the manner of calculating, measuring and registering the amount of electricity, heat and cold generated in renewable energy source installations, the manner of measuring the amount of electricity for the purpose of determining the actual fulfilment of the producer's obligation to generate electricity from renewable energy sources, the manner of converting the amount of heat or cold generated into an amount of energy expressed in MWh, as well as the place and manner of measuring the amount of heat or cold for the purpose of issuing a guarantee of origin.	The regulation came into force on March 30, 2024.	The regulation provides the basis for the producer to measure the amount of electricity for the purpose of determining the actual fulfilment of the producer's obligation to generate electricity from renewable energy sources, and thus enable it to benefit from the support provided for such generation.
The draft regulation of the Council of Ministers on the detailed scope of a preliminary assessment of the site intended for the location of a nuclear power generation facility which is also a nuclear installation, the cases excluding the possibility of	The draft regulation sets out the criteria that should be assessed at each type of a nuclear power generation facility, although the way in which they should be assessed may vary depending on the type of a facility. The purpose of the initial site assessment process is to create a catalogue of external events for the selected site, which are reflected in the detailed site assessment process for the location of a nuclear power generation facility and its design, as well as throughout the	Public consultations on the project were held and opinions on it were commissioned. PGE S.A. submitted its comments during the course of the public	The regulation requires potential investors to prepare a preliminary assessment of the site to be used for the location of a nuclear power generation facility which is a nuclear installation, and a preliminary location report.

Segments	Regulation	Regulation objectives	Latest conclusions Impact on PGE Group and next stages
	considering the site as suitable for the location of a nuclear power generation facility which is also a nuclear installation and the detailed scope of a preliminary location report for such a facility.	lifetime of a facility (crisis management plans, planning and spatial development, etc.).	consultations on the project.
	The Act on temporary price caps for electricity, natural gas and system heat and on energy vouchers.	Among other things, the Act regulates electricity prices from July 1, 2024 to December 31, 2024. With regard to electricity, the Act imposed an obligation on electricity traders in the form of submitting an application for a change in the existing tariff for 2024 within seven days of the date of entry into force of the Act, or at the request of the ERO President. The revised tariff, according to the bill, is to be effective from July 1, 2024 to December 31, 2025. The bill also provides for an extension of the maximum price mechanism for electricity. This price will be in effect in the second half of 2024, and is to be set at PLN 500/MWh for household consumers and at PLN 693/MWh for local government units and public utilities (including schools, hospitals, social welfare units), as well as micro, small and medium-sized entrepreneurs. In addition, according to the law, an energy voucher has been introduced, which will be a one-time cash benefit intended for lower income households, to be paid in the second half of 2024. The amount of the voucher will depend on the number of people in the household. In addition, the Law provides for a temporary exemption from the power fee for households. The new legislation also refers to limiting the increase in the cost of heat, but with a gradual increase in maximum prices and rates.	The Act affects the financial results On April 29, 2024 the of power utilities with respect to draft was accepted by their settlement with electricity the Standing consumers and the resulting level Committee of the of compensation. It also provides Council of Ministers for the application of heat prices and recommended to and tariffs at a level not higher the Council of than that indicated in the Act in Ministers. return for compensation. On May 7, 2024, the bill was brought to the Sejm and then referred to the Senate. On May 23, 2024, the Sejm adopted the Senate's amendments. The bill was referred to the President for signature.

2.4.2 International regulatory environment

Regulation	Regulation objectives	Latest conclusions and next stages	Impact on PGE Group
Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the EU (ETS Directive ). Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve.	Combating climate change. Development of investment incentives through a CO2 price signal to develop low-emission sources.	The EC is currently implementing the reform of the ETS system On April 4, 2024 an amendment to the Delegated Regulation on the rules for free allocation of allowances was published. In the following months, the EC will be working on a revision of the regulation on the adaptation of free allocation of emission allowances, with its publication expected in Q4 2024.	Increased competitiveness of renewable sources compared to generation assets using high-emission fuels. Increase in operating costs for conventional generation of electricity and heat. Option to obtain investment support from the Modernisation Fund and Innovation Fund and additional free allocation of allowances to district heating.
EC Communication (COM(2024)63) - Europe's 2040 climate target and the pathway to climate neutrality by 2050 (2040 target)	Setting an intermediate target on the pathway to climate neutrality in 2050 (as required by Regulation 2021/1119 of the European Parliament and of the Council on establishing the framework for achieving climate neutrality – the European climate law).	On February 6, 2024, the European Commission published a communication on the 2040 target of a 90% reduction in emissions compared to 1990. The implementation of the 2040 target into the European Climate Law and the alignment of other climate and energy legislation with this target will be handled by the next European Commission, to be appointed after the European Parliament elections.	Faster decarbonisation and RES development in the run-up to 2040.
Directive 2010/31/EU on the energy performance of buildings (EPBD).	Alignment of legislation related to improving the energy performance of buildings with respect to the 2050 climate neutrality target and the new higher 2030 EU GHG reduction target.	On April 12, 2024, the Council of the EU approved the agreement reached in the trilogues. The wording of the directive implies, among other things, that system heat from an energy-efficient district heating system, as defined by the EED, will be able to supply energy to buildings that have zero-emission status. On May 8, 2024, Directive (EU) 2024/1275 was published in the Official Journal of the EU. It will enter into force on the twentieth day after publication and thereafter Member States will have 24 months to transpose it into their national legal systems.	Greater competitiveness of renewable energy sources as a heat source in buildings. Reduction in the heat demand of buildings due to improved energy performance. Faster pace of displacement of fossil fuels in the heating sectors, including district heating.
Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control – IED).	Introduction of new requirements determining emission levels in the integrated permit, the rules for obtaining derogations from BAT requirements and giving new competences to the EC. Public	On November 29, 2023, the EP and the Council reached a preliminary agreement on amendments to the IED. On March 12, 2024, it was adopted by the EP, and on April 12, 2024 by the Council. The revised Directive has yet to be published in the Official Journal of the EU and will enter into force on the twentieth day after publication. Member States	The entry into force of the agreed solutions involves additional administrative costs due to the need to adapt the environmental management system (including in relation to the need to prepare a transformation plan). The role of the public in permitting and in monitoring the implementation of IED

participation in appeal proceedings will be increased. will then have 22 months to transpose its provisions into national law. obligations by operators of installations will be enhanced.

Directive of the European Parliament and of the Council on corporate sustainability due diligence (CSDD). To establish a framework that encourages companies to contribute to the pursuit of respect for human rights and environmental legislation in their operations and through their value chains. On December 14, 2023, a political agreement was reached within the trilogies. On March 15, 2024 the agreement was approved by the Permanent Representatives Committee in the Council and on March 19, 2024 the agreement was approved in the JURI Committee in the European Parliament Subsequently, on April 24, 2024, this agreement was approved at the plenary session of the EP. The Directive, after its expected formal approval by the Council, is expected to enter into force in the second half of 2024. Increasing reporting obligations for PGE Group's value chain in terms of environmental impact and respect for human rights. Incorporating the due diligence policy on sustainability in the activities of the PGE Group.

Regulation of the Guaranteeing the protection of On April 11, 2024, the plenary session of the European	The agreed content of the reform introduces a
European consumers against excessive Parliament adopted the final versions of the Regulation and	number of changes concerning the shape of
Parliament and of changes in electricity prices, Directive. A formal approval of the Directive and Regulation	contracts for difference (and analogous
the Council providing access to clean and by the Council took place on May 21, 2024. Publication	solutions), which could potentially have a
amending secure energy, and enhancing in the Official Journal of the EU is expected in Q2 2024.	positive impact on the development of
Regulations (EU) the market's ability to withstand The transposition deadline for the amendments to the	investments in RES and new nuclear units. The
2019/943 and (EU) variations in natural gas prices. Directives was set at 6 months from their entry into force as	changes introduced may also result in the
2019/942 to Encouraging the adoption of PPA a basic rule (20 days after publication) and 24 months from	gradual popularisation of PPAs.
improve the Union's contracts; empowering end the entry into force of a few selected articles.	Significant regulatory changes will affect
electricity market consumers in the market,	companies in the Supply segment
design. simplifying the implementation	(strengthening the position of consumers vis
of CFD agreements7	à-vis energy suppliers, changes regarding
	tariffs and offers) and the Distribution segment
Directives (EU)	(a new way of shaping tariffs, flexibility
amending directives	incentives). In the context of challenges to the
2018/2001 and (EU)	stability of the Polish electricity system, the
2019/944 to	introduction of the possibility (with the EC's
improve the Union's	consent) of a temporary derogation for coal
electricity market	sources in the Capacity Market should be
design.	assessed positively.

The EU draft regulation seeks to improve protection against manipulation in the wholesale energy market by Increase market transparency and monitoring capacity and ensure more effective investigation and enforcement of cross-border breaches in the EU so that consumers and market participants have confidence in On November 16, 2023, a political agreement was reached within the trilogues. On December 22, 2023, the agreement was approved by the Committee of Permanent Representatives in the Council and voted through at the session of the ITRE committee on January 15, 2024. A vote at an EP plenary session took place on February 29, 2024. The Council approved the agreement on March 18, Increased reporting obligations concerning inside information, as well as obligations related to the management, recording and monitoring of such information.

⁷ CFD - Contract for difference; a contract for difference, defining a support model in which the supporting party and the supported party agree on a certain reference price. In the event that market energy prices are below the reference price, the supported party receives the positive difference; however, if energy prices exceed the reference price, the supporting party is entitled to that difference.

amending regulations 1227/2011 2019/942.	the integrity of energy markets, 2024. On April 17, 2024, Regulation (EU) 2024/1106 was (EU) prices reflect a fair and published in the Official Journal of the EU and entered into and competitive supply-demand force on the twentieth day after publication. relationship and no profits can be
	made from market abuse.

3.Activities of PGE Capital Group and operational segments

Basic operational data of PGE Capital Group	Renewables	Gas-fired Generation	Conventional Generation	District Heating	Distribution	Railway Energy Services	Supply
Key assets of the segment	21 wind farms 33 photovoltaic power plants 29 run-of-river hydro power plants 4 pumped-storage power plants, including 2 with natural flow	1 gas-fired power plant1	5 conventional power plants 2 lignite mines	16 CHP plants	301.7 km th of distribution lines	18.4 km th of distribution lines	-
Installed capacity electricity/heat	2 513 MWe/-	1 683 MWe/-	12392 MWe/958 MWt	2580 MWe/6 193 MWt	-	-	-
Electricity volumes	Net electricity generation 1.09 TWh	Net electricity generation 0.03 TWh1	Net electricity generation 10.72 TWh	Net electricity generation 2.75 TWh	Electricity distribution volume 9.55 TWh2	Electricity distribution volume 1.13 TWh; Sales to final off-takers 0.78 TWh	Sales to final off-takers 8.32 TWh3
Heat volumes	-	-	Heat production (net) 1.11 PJ	Heat production (net) 19.19 PJ	-	-	-
Market position	PGE Group is the largest electricity producer from RES with market share of approx. 6% (excluding co-combustion of biomass and bio-gas)	-	PGE Group is the leader of lignite mining in Poland (96%) PGE Group is a national leader in electricity and district heat generation	-	Second domestic electricity distributor with regard to number of customers	Leader of energy services for railway infrastructure and the largest distributor and seller of electricity to the traction grid	Leader in wholesale and retail trading in Poland

¹ The unit has not yet been commissioned; on April 13, 2024, the adjustment operation of the power unit began.

²Data for PGE Dystrybucja S.A.

3Data for PGE Obrót S.A.

KEY OPERATING RESULTS OF PGE GROUP

Table: Key operating results.

Key operating results	Unit	Q1 2024	Q1 2023	% change
Electricity generation, net	TWh	14,60	15,72	-7%
including RES generation	TWh	0,89	0,85	5%
Sales of electricity outside the PGE Capital Group	TWh	17,25	20,48	-16%
Sales of electricity to final off-takers1	TWh	9,12	8,87	3%
Heat production	PJ	20,30	20,70	-2%
Heat sales	PJ	19,93	20,22	-1%
Electricity distribution	TWh	10,68	9,47	13%

¹ After eliminating sales within the PGE Group, sales carried out mainly by PGE Obrót S.A. and in Q1 2024 additionally by the Railway Energy Services segment

BALANCE OF ENERGY OF PGE CAPITAL GROUP

Table: Sales, purchase, production and consumption of electricity in the PGE Capital Group (TWh).

Sales volume	Q1 2024	Q1 2023	% change
A. Sales of electricity outside the PGE Capital Group:	17.25	20.48	-16%
 Sales to end-users1	9.12	8.87	3%
 Sales on the wholesale and balancing market	8.13	11.61	-30%
B. Purchases of electricity from outside of PGE Group (wholesale and balancing market)	3.96	6.31	-37%
C. Net production of electricity in units of PGE Capital Group	14.60	15.72	-7%
D. Own consumption DSO, lignite mines, pumped storage power plants (D=C+B-A)	1.31	1.55	-15%

¹ sales carried out mainly by PGE Obrót S.A. and in Q1 2024 additionally by the Railway Energy Services segment

The total volume of purchased and generated electricity is higher than the volume of electricity sold. The difference presented in point D results from the necessity to cover grid losses in the distribution business (DSO), consumption of energy at lignite mines and consumption of energy at pumped-storage power plants.

Lower energy sales on the wholesale market, including the balancing market, result from lower demand for electricity, a higher share of electricity imports and a higher share of RES production. The lower purchase on the wholesale market is mainly the result of PGE Obrót's lower sales to end customers in the corporate client and large business segments, who tend to diversify energy sources, mainly with greater use of RES. At the same time, an increase was recorded in sales to the end customers as an effect of the recognition of electricity sales realised by Railway Energy Services segment in the first quarter of 2024 that did not occur in the similar period of the previous year.

Table: Net production of electricity (TWh).

Production volume	Q1 2024	Q1 2023	% change
NET ELECTRICITY PRODUCTION IN TWh, including:	14.60	15.72	-7%
Lignite-fired power plants	7.63	8.15	-6%
Coal-fired power plants	3.09	3.43	-10%
Including co-combustion of biomass	0.01	0.00	-
Gas-fired power plants	0.03	0.00	-
Coal-fired CHP plants	1.24	1.52	-18%
Gas-fired CHP plants	1.41	1.48	-5%
Biomass-fired CHP plants	0.10	0.12	-17%
Communal waste-fired CHP plants	0.01	0.00	-
Pumped-storage power plants	0.32	0.29	10%
Hydroelectric plants	0.17	0.16	6%
Wind power plants	0.59	0.57	4%
PV plants	0.01	0.00	-
including RES generation	0.89	0.85	5%

The level of electricity production in the first quarter of 2024 was 7% lower compared to the first quarter of 2023.

The lower level of electricity generation in the PGE Group is mainly due mainly due to high coverage of domestic demand by renewables and gas and effect of higher imports in meeting demand.

Lower generation at lignite-fired power plants (decline by 0.5 TWh) is due to lower use by PSE S.A. - reserve downtime of units in Bełchatów power plant and Turów power plant were longer by: 1 964 hours in Bełchatów power plant and 388hours in Turów power plant. At the same time average load factor of units at Turów power plant was lower by 23 MW. In addition, units at Turów power plant were in current overhaul longer by 1 417 hours, mainly as a result of the overhaul of unit no. 4 in February 2024.

Lower production in hard coal-fired power plants took place at the Opole Power Plant, Rybnik Power Plant and the Dolna Odra Power Plant (a total decrease of 0.3 TWh) as a result of lower average load factor of units at the Opole Power Plant (by 30 MW) and Dolna Odra Power Plant (by 8 MW). In addition, units at Rybnik power plant were in overhauls longer by 1 997 hours, mainly as a result of the medium overhaul of unit no. 7 lasting from January till March 2024.

At the beginning of March 2024, production began at the Gryfino Power Plant (gas unit No. 9) as part of the implementation of the investment process.

Lower production in coal-fired CHP plants and gas-fired CHP Plants (a total decrease of 0.4 TWh) Is the effect of lower combined heat and power production due to weather conditions (higher average temperatures).

Production in biomass CHP plants, pumped storage power plants, hydro power plants, wind farms and PV plants remained at the level of the comparable period.

HEAT PRODUCTION

Table: Net production of heat (PJ).

Heat production volume	Q1 2024	Q1 2023	% change
Net production of heat in PJ	20.30	20.70	-2%
Lignite-fired power plants	0.88	0.90	-2%
Coal-fired power plants	0.24	0.24	0%
Coal-fired CHP plants	14.65	15.79	-7%
Gas-fired CHP plants	3.41	3.08	11%
Biomass-fired CHP plants	0.81	0.48	69%
CHP plants fuelled by municipal waste	0.03	0.05	-40%
Other CHP plants	0.28	0.16	75%

External temperatures contributed more than any other factor to lower net generation of heat in the first quarter of 2024 (y/y). The average temperatures in the first quarter of 2024 were by 1.0°C higher y/y, which translated into decreased production of heat.

HEAT SALES

In the first quarter of 2024 the heat sales volume in PGE Capital Group totalled 19.9 PJ and was lower by 0.3 PJ y/y. The above result was caused mainly by lower demand for heat due to the higher average outside temperatures than in the first quarter of 2023.

PGE Group's key financial results

The best way to measure the profitability of energy companies is recurring EBITDA. This is a result before depreciation, amortization, income tax and financial activities, including interest from drawn debt. EBITDA makes it possible to compare the results of companies regardless of the value of their assets, level of debt and existing income tax rates. Additionally, recurring EBITDA is adjusted for one-offs.

PGE Group's consolidated EBITDA is composed of the financial results of each of its operating segments. The following segments have the largest share in the Group's recurring EBITDA for Q1 2024: Distribution (39%), Supply (36%) District Heating (20%), Renewables (15%) and Railway Energy Services (11%). Conventional Generation segment negatively affects the Group's recurring EBITDA result, while other segments have an insignificant share in recurring EBITDA.

Chart: Recurring EBITDA of PGE Capital Group (PLN million)

Chart: Reported EBITDA of PGE Capital Group (PLN million)

Chart: Key factors affecting EBITDA in PGE Capital Group (in PLN million).

	EBITDA Q1 2023	Contribution to PDP fund 1	Result on the sale of electricity at producers2	CO2 emission rights	Fuel costs, other production materials, electricity for pumping	Revenues from support of highly efficient co generation	Revenues from ancillary services and Capacity Market	Result on the sale of electricity to final customers3	Revenues from heat sales4	Margin on distribution services5	Personnel expenses	Capitalised costs	Costs of materials and repair and maintenance services and external services	Margin on distribution services and on electricity to final customers Railway Energy Services	Other6	EBITDA Q1 2024
Change		2 322	-5 582	889	1 238	-270	-496	388	160	542	-371	159	-18	365	-140
Q1 Reported EBITDA 2023	3 427
One-offs Q1 2023	81
Recurring EBITDA Q1 2023	3 346	2 317	14 044	6 636	4 214	293	1 332	-205	1 730	1 228	1 624	210	467	0	28
Recurring EBITDA Q1 2024		-5	8 462	5 747	2 976	23	836	183	1 890	1 770	1 995	369	485	365	168	2 532
One-offs Q1 2024																4
Q1 Reported EBITDA 2024																2 536

¹Without impact of correction of estimated contribution to the fund for 2022 (one-off).

²Revenue from the sale of electricity reduced by the purchase cost of electricity.

3 Including compensation, margin adjustment on certificates at PGE Group; without additional estimation of the cost of the balancing difference.

4 Including compensations.

5 Including revenues from distribution services, compensations, transmission services (PSE), balance of transferred fees and costs of electricity purchased to cover balancing difference; without additional estimation of the cost of the balancing difference.

⁶Other without LTC compensations (one-offs).

Chart: Net change in cash (in PLN million).

Chart: Net financial debt (in PLN million).

¹ Estimated level of net economic debt (taking into account forward payment for CO2 emission rights) amounts to PLN 21 227 million.

Financial net debt 11 121 15 686

Characteristics of business segments

3.2.1 Key results in business segments (in PLN million)¹

From Q1 2024 a Gas-fired Generation segment was established and the data of the Other Operations segment for the first quarter of 2023, which in previous reporting periods included companies transferred to the newly created segment, were adjusted for comparability.

3.2.2 Renewables

This segment is involved in the generation of electricity from renewable sources and in pumped storage power plants.

The Renewables segment is based mainly on revenues from the sale of electricity, however contrary to production at industrial plants within the Conventional Generation segment, this revenue is subject to a larger degree to changes in weather conditions and prices on the spot market due to the renewables sales model in place. Electricity output volume translates into production of property rights (green certificates) and revenue from the sale of energy origin certificates obtained by the segment's assets, excluding hydropower plants over 5 MWe.

Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the National Power System, constitutes a significant item in the segment's revenue, starting from 2021. Selected power plants in the Renewables segment receive fees for performing the capacity obligation (a Capacity Market Entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat). Capacity Market revenue compensated for revenue from ancillary services. The readiness intervention reserve service was discontinued.

On the cost side, the most important items include: use of energy to pump water at pumped-storage plants, depreciation of segment assets and third-party services, mainly the repair services. Property tax and employee wages also constitute a significant cost item in this segment. Under the provisions of the Emergency Measures in 2023 Act, electricity generating entities were required to make a contribution to the Price Difference Payment Fund.

ASSETS AND OPERATIONAL DATA

The PGE Capital Group's operations in renewable energy are managed by the PGE Energia Odnawialna S.A. Due to the profile of operations, the segment also includes companies from the Offshore area, which are responsible for all activities related to offshore wind energy.

Assets in the segment include:

²¹ wind farms,
³³ photovoltaic power plants,
29 run-of-river hydro power plants,
⁴ pumped-storage power plants, including 2 with natural flow.

Diagram: Main assets of the Renewables segment and their installed capacity.

Table: Energy production (GWh).

Rodzaje Elektrowni	Q1 2024	Q1 2023	% change
Pumped-storage power plants	317	291	9%
Run-of-river hydro power plants	174	163	7%
Wind farms	588	574	2%
PV	10	2	400%
Total	1 089	1 030	6%

KEY FINANCIAL FIGURES IN THE SEGMENT

Chart: Key changes of EBITDA in Renewables (in PLN million) – managerial perspective.

¹ Electricity revenues include revenues from main generation technologies (wind, water, PV, pumped storage).

Key factors affecting the y/y results of Renewables:

Lower revenues from electricity sales results from: lower average electricity sale price by PLN 316 /MWh y/y, what translated into decrease of revenues by PLN 432 million, higher sales volume by 269 GWh, what caused revenues increase of PLN 205 million.
Decreased revenues from sales of certificates resulting from lower average electricity sale price by PLN 83/MWh y/y, as a result revenues decreased by PLN 42 million, lower sales volume by 7 GWh, what caused revenues decrease of PLN 2 million.
The decrease in electricity purchase costs for pumping in pumped storage power plants results from: lower average electricity purchase price by PLN 249/MWh y/y, what translated into a decrease in costs by PLN 147 million and higher purchase volume by 154 GWh, contributing to an increase in costs by PLN 82 million.
Higher revenues from the Capacity Market and ancillary services result mainly from higher utilization of production units in the power system.

The increase in personnel costs is mainly a result of higher employment due to the development of the Offshore Energy and Renewable Energy areas and concluded wage agreements.
Lack of contribution to PDP Fund, which occurred in 2023.
Value change in item Other results mainly from postponement of operating costs of the Offshore Energy and Renewable Energy areas.

CAPITAL EXPENDITURES

Table: Capital expenditures incurred in Renewables segment.

PLN million	Q1 2024	Q1 2023	% change
Investments in generating capacities, including:	255	162	57%
 Development	219	132	66%
 Modernisation and replacement	36	30	20%
Other	3	3	0%
Total	258	165	56%

KEY EVENTS IN RENEWABLES

Offshore wind farms construction program

The group has 8 location permits for an offshore wind farms in the Baltic Sea. 5 proceedings (with a total capacity potential of 3.9 GW) were resolved in favour of the PGE Group in 2023 and 3 location permits were obtained by the Gruop in 2012, based on which it is preparing investments in the Baltic Sea with a total capacity of approx. 3.5 GW (including 2.5 GW in JO with Ørsted). The launch of both stages of the project carried out jointly with Ørsted, i.e. Baltica 2 with a capacity of up to 1.5 GW and Baltica 3 with a capacity of up to 1.0 GW, is planned by 2030, while the Baltica 1 project after 2030.

On January 18, 2024, an agreement was signed with GE Vernova – a company represented in Poland by GE Power sp. z o.o. – and Polimex Mostostal S.A., which, as a consortium, will build the onshore infrastructure necessary to evacuate power from the Baltica 2 project, one of the two phases of the Baltica offshore wind farm. The onshore connection infrastructure for the Baltica 2 project will be built in Pomerania in the vicinity of the village of Osieki Lęborskie in the commune of Choczewo, in the district of Wejherowo. The general contractor will build it on a so-called "turnkey" basis. The task of constructing the onshore connection includes the building of an extra-high voltage substation and onshore export lines necessary for the evacuation of power to the NPS. Construction works will begin in May 2024. The testing and commissioning of the onshore station is planned for 2026-2027.

In February 2024, PGE Group and Ørsted contracted vessels to transport and install foundations and wind turbines for the Baltica 2 project.

On February 16, 2024, the Pomeranian Governor issued construction permits for the offshore part of the Baltica 2 wind farm project. They concern the construction of wind turbines and offshore substations. These are the final permits necessary to start construction operations.

The PGE Group and Ørsted have already contracted all the necessary components for the Baltica 2 offshore wind farm and have signed contracts for the installation of foundations, turbines, cables and onshore connection infrastructure. They have also obtained all the necessary permits to start construction works. The final step before construction works begin will be for the investors to make a final investment decision.

The strategic goal of the PGE Group in the offshore energy area is to build at least 6.5 GW of capacity by 2040.

PGE Group PV Development Program

So far, projects with a total capacity of approx. 83 MW have been commissioned under the programme, including 35 MW in farms commissioned in the first quarter of 2024 (inter alia two large projects like PV Augustynka of 25 MW and Pasterzowice – 8 MW).

Projects with a capacity of approx. 320 MW are under development, including PV Jeziórko (100 MW), PV Pokrzywnica (7 MW) and PV Krotoszyn (5 MW), where commissioning is planned at the turn of the first and second half of 2024.

In the first quarter of 2024, activities for the development of further PV farm projects continued, including the acquisition of land rights and the required administrative decisions aimed at obtaining construction permits.

Modernisation of technological equipment at the Dębe hydro power plant

To date, the modernisation of three of the four hydro-sets of the Dębe Hydroelectric Power Plant has been completed. In the first quarter of 2024, the dismantling works were completed and the modernisation works were being continued on the last (fourth) hydrosystem. The modernisation works are scheduled for completion in the second half of 2024.

Comprehensive modernisation program of Porąbka-Żar pumped-storage power plant

A coating plant was installed at Mount Żar, necessary for the preparation of the asphalt and concrete mix for the replacement of the asphalt layer on the upper reservoir. At the beginning of May 2024, the complete shutdown of the power plant began and is scheduled to last until the end of September 2024. The shutdown of the power plant will enable those modernisation works on the facility that are possible with a complete drainage of the power plant, namely the works on the waterway and in the power plant chamber. Works on the technological part (modernisation of the hydrosystems) are scheduled for Q4 2024. Design works are underway for this part of the scope of works.

3.2.3 Gas-fired Generation

The segment's business is the generation of electricity in gas-fired sources.

¹ Managerial perspective

In the first quarter of 2024, commissioning works were underway at unit no. 9 at the Gryfino Power Plant. Thus, the segment received revenue from the sale of electricity to the Balancing Market and incurred the costs of natural gas consumption. At the same time, in accordance with the Greenhouse Gas Emission Trading Scheme Act of June 12, 2015, the segment does not incur any CO2 emission charges until the unit is eventually commissioned.

Ultimately, the primary source of revenue for the Gas-Fired Generation segment will be revenue from the sale of electricity on the wholesale market based on the price of electricity determined by supply and demand balancing mechanisms, taking into account the variable costs of generation. At the same time, the most significant cost items of the segment, by virtue of their size and volatility, and therefore impact on the operating result, will be the costs of CO² emission charges and the costs of natural gas consumption.

A significant item in the segment's revenue will be revenue fromthe Capacity Market, a mechanism introduced to prevent a shortage of electricity in the NPS. The segment's power plants will be remunerated for the fulfilment of the capacity obligation (the Capacity Market unit's remaining ready to supply electricity to the system and its commitment to supply a certain capacity to the system during an emergency period). An additional item in the segment's revenue will be revenue from for the provision of ancillary services.

ASSETS

The Gas-fired Generation segment will comprise 2 gas-fired power plants: the Gryfino Power Plant (2 units, each with an installed capacity of 683 MW) and the Rybnik Power Plant (1 unit with a capacity of 882 MW).

In March 2024, unit no. 9 at the Gryfino Power Plant was synchronised with the NPS and commissioning works were underway as at March 31, 2024. On April 13, 2024, the adjustment operations began.

Diagram: Main assets of the Gas-fired Generation segment and their installed capacity.

¹ The unit has not yet been commissioned; on April 13, 2024, the adjustment operation of the power unit began.