Energa S.A.

Management Reports • Nov 15, 2016

Date of preparation: 15 November 2016

Subject: Adoption of the Strategy for 2016-2025 of the ENERGA Group

Legal basis: Article 17 Section 1 of the Market Abuse Regulation -confidential information

The Management Board of ENERGA SA ("Company") hereby reports that on 15November 2016 the Company's Supervisory Board adopted a resolution toapprove the following documents: "Strategy of the ENERGA Group for2016-2025" ("Strategy") and "Long-Term Strategic Investments Plan of theENERGA Group for 2016-2025".

Grounds for updating the Group's Strategy

The recent decline in profitability throughout the power sector hasforced leading European and Polish utility groups to revise theirstrategies. The conduct of business activity based on the currentbusiness model would result, in the medium term, in deterioratedfinancial performance and lower valuation of utility companies. Effortsaimed at maintaining or improving the financial results will requireadaptation to new trends: development of distributed generation andrenewable energy sources (RES), attempts at improving energy efficiencyand emergence of new technologies, players and business models in themarket. Market trends observed throughout Europe and in Poland will bereflected in the ENERGA Group's financial results. Accordingly, it isnecessary to adjust the ENERGA Group's business model to the newchallenges.

Strategic objectives and programs

In order to solidify the position of the ENERGA Group as an innovativecustomer-oriented utility group and taking into account a stablebusiness foundation based on predictable regulations, the Strategyassumes two areas of business development and value creation, namelyInfrastructure and Customer, within which the following strategicobjectives and programs of the ENERGA Group have been identified:

Objective 1. Developing modern energy infrastructure in a way that makesit possible to have a stable revenue base, dependent mainly on thequality of services provided rather than on typical market drivers. Theinfrastructure will respond to the future requirements of the Polishelectrical power system, and its development will enable to keep abalance between the interests of all stakeholders of the ENERGA Group.

Program 1 / Expansion of a smart and reliable electricity distributiongrid affording opportunities to market energy storage and localmanagement services

Program 2 / Development of infrastructure for broadband web access

Program 3 / Utilizing regulations to stabilize revenues in the CapacityMarket and tariffs on heat

Program 4 / Maintaining a solid position in the RES area through theexecution of (1) a hydro power plant construction project as part of thedevelopment of the second step dam on the Vistula River and (2) otherRES-related projects

Objective 2. Customer-focused business model facilitating effectivecustomer value management based on a coherent product and serviceoffering.

Program 5 / Rolling out a new customer-oriented business model anddeveloping new business areas - the program will result in the creationof approx. 100 new products dedicated to three customer segments:individual customers, business customers and local government and publicadministration units.

The EBITDA target is an increase to PLN 2.4 billion in 2020 and to PLN3.0 billion in 2025. The target value of the ENERGA Group's EBITDA willbe driven in large by PLN 100 million in revenues from new products andservices in 2020 and PLN 300 million in 2025 and by the efficiencyimprovement program expected to generate PLN 130 million in 2020 and PLN150 million in 2025.

The detailed programs will be adopted by the Energa SA Management Boardand will be monitored on an ongoing basis for the effectiveness ofachievement of the strategic objectives. Specific targets will be set aspart of the preparation of implementation plans. Oversight will beexercised by way of strategic controlling using the ENERGA Group'sManagement by Objectives system.

Dividend

Dividend policy will be adapted to the financial needs of the investmentprocess which assumes the cessation of key spending items by 2023. Atthe same time, the provisions included in the Company's Prospectusapproved by the Polish Financial Supervision Authority on 15 November2013 regarding declarative dividend payments have gone out of date.

Investment plan

Total expenditures on core and non-core investments of the ENERGA Groupplanned for 2016-2025 as part of the implementation the Strategy areapprox. PLN 20.6 billion*, of which PLN 9.5 billion is expected to bespent in 2016-2020.

In the Distribution Segment, expenditures of approx. PLN 13.0 billionwill be incurred in the period of 2016-2025. The investments will focuspredominantly on the construction and modernization of the grid inconnection with: improving the reliability of supply (PLN 5.0 million),connecting customers (PLN 4.5 million) and increasing flows in thehigh-voltage grid and connecting new electricity sources (PLN 1.2billion). Moreover, expenditures on smart metering and other elements ofthe roll-out of smart grids will amount to PLN 1.2 billion. Otherexpenditures in the Distribution Segment will reach PLN 1.1 billion. Theexpected result of the implementation of the investment program is toachieve 100% of remotely operated metering systems (AMI meters) by 2025and to meet the requirements of the quality tariff in terms of SAIDI,SAIFI and connection times.

Earmarked for the Generation Segment is approx. PLN 6.1 billion for2016-2025, including the following amounts in each subsegment: PLN 4.1billion for must-run power plants, PLN 1.5 billion for RES and PLN 0.5billion for CHP. The primary investment is the construction of a modernOstrołęka C power plant with a capacity of approx. 1,000 MWe. Thebaseline scenario assumes that the ENERGA Group will cover 50% ofexpenditures and that the remaining expenditures will be incurred by apartner or several partners. The ENERGA Group also intends to takeadvantage of the opportunities offered by the planned Capacity Market.In the RES area, the main long-term investment is the construction of ahydro power plant with a capacity of approx. 80 MWe as part of thesecond step dam on the Vistula River, assuming that the constructionpermit will be obtained by 2020. The planned expenditures pertainexclusively to the power generation part of the facility. Other RESprojects are expected to contribute to an increase in capacity by 50 MWein 2020.

To the Sales Segment, expenditures in the amount of PLN 0.7 billion havebeen allocated. They entail predominantly investments in developing ITtools and investments in street lighting.

Additionally included are expenditures on investments associated withthe development of new areas and activities, ancillary activitiessupporting primary processes and additional development investments inthe total amount of PLN 0.7 billion.

It may be impossible to achieve the set objectives exclusively by meansof organic growth. Accordingly, the successful implementation of theStrategy will depend on the achievements in the mergers and acquisitionsarea. In this context, the Group will focus its activities on Poland butallows the possibility of cross-border investments in order to gainaccess to specific know-how (also in respect of business models).Moreover, the Group will constantly monitor the market to identifypotential acquisition targets in the area of the ENERGA Group's valuechain.

All of the ENERGA Group's investment endeavors must meet the minimuminvestment attractiveness criterion, hence the Group will focus mainlyon profitable investments that will help ensure its financial stability.An important indicator to keep in mind for the Energa SA ManagementBoard during the implementation of the actions set out in the Strategywill be the maximum assumed level of net debt/EBITDA assumed at 3.5 andthe maintenance of the current investment rating. The ENERGA Groupintends to acquire strategic partners for the execution of its largestprojects.*Minor difference in the total due to rounding.