PGE Polska Grupa Energetyczna S.A.

Management Reports • Aug 29, 2023

Adoption of the update of the PGE Group's Strategy until 2030

The Management Board of PGE Polska Grupa Energetyczna S.A. (the"Company", "PGE") discloses that on August 29, 2023 the Management Boardof PGE adopted and the Supervisory Board approved the update of the PGEGroup's (the "Group") Strategy until 2030 (the "Strategy"). This reportspresents the most significant elements of the Strategy. At the same timethe Management Board of the company informs that the that thepresentation on the strategy will be published on PGE's website.

The Strategy confirms the Group's development direction chosen in 2020and published in the current report no. 29/2020 of October 19, 2020,setting new, more ambitious goals in decarbonisation and efficiencyenabling the implementation of the PGE Group's vision as the leader ofthe energy transition. The Strategy was prepared on the base of theGroup's operations in structure after sale of the ConventionalGeneration segment.

PGE's mission - providing energy for a safe future - is to be achievedon the strength of the Strategy built on three business-integratedpillars: (i) Modern Energy Services, based on (ii) Clean Energy,provided by and (iii) Efficient and Effective organisation. Realisationof the vision of the leader of the energy transition will be supportedby the integrated management of the environmental and social aspects, inline with the sustainable development principles.

As a result of the Strategy implementation, the PGE Group is to become aleader in clean energy generation, reach the highest customersatisfaction ratio in the power sector and become the employer andbusiness partner of the first choice. The key long-term aspirations ofthe Group are:

- 100% of clean energy for customers in 2040,

- carbon net zero in 2040,

- zero unused energy.

Modern Energy Services

The main objective of the pillar of the Strategy regarding customerrelations is development of the sale offer of the Group that will ensureachievement of the ultimate goal of 100% of clean energy for customersand will facilitate their participation in the energy transition. TheGroup will offer to customers devices and installations enabling fullutilisation of green electricity and heat potential. The goals for 2030in this area include providing customers with:

- 800 MW of PV installations,

- 200 MW in energy storages,

- 100,000 of heat pumps and other heating sources.

In addition, the Group will supports customers in obtaining financingfor own installations in order to broaden the accessibility of theenergy transition profits. The 2030 goal assumes support for 300,000customers with a call for applications in the co-financing programmes.

At the same time, decarbonisation of individual heating sector will beaccompanied by the electrification of the district heating, within whichPGE assumes construction of 1,000 MWt of electrode boilers and heatstorages and 500 MWt district heat pumps.

PGE intends to contribute in halting the growth of greenhouse gasesemissions from transport through providing solutions for its direct andindirect electrification. According to the Strategy, a goal of 85% ofgreen energy in railway contact lines will be reached in 2030 andcommencement of green hydrogen supplies for locomotives shall start in2035 perspective.

The Strategy of the Group emphasises significance of adaptation ofdistribution grid to the technological changes in the energy market. Themain goals in the grid infrastructure area assume:

- 750-1000 MW connection capacity of renewable sources per year by 2030,

- 100% grid observability in 2030,

- at least 20% share of contracted flexibility sources in 2040,

- 100% of grid operation automation in 2050.

Recognising the potential of new IT solutions and need to meet therequirements associated with the decentralisation of energy systems PGEGroup will focus more on providing stable energy supplies throughflexibility and automation of the infrastructure, realising investmentprogram which implements new grid operation model with an estimatedscale of PLN 500-800 million of capital expenditures per year.

Clean Energy

The Group's aspiration is absolute Net Zero of the operations in 2040achieved due to expansion of renewables portfolio, development ofzero-emission of electric utilities and decarbonisation of districtheating. At the same time the energy storages portfolio will increasethe electro energy system flexibility and the conversion of electricityinto green fuels will allow for decarbonisation of other economysectors, thus supporting the aspiration of zero unused energy.

The main goals of the pillar include:

- Offshore wind farms - construction of 2.5 GW capacity until 2030 andat least 7.0 GW by 2040, including the participation of partners,

- Onshore wind farms - reaching 1.5 GW capacity by 2030,

- Photovoltaic farms - reaching 3.0 GW capacity by 2030,

- Gas-fired power plants - construction of 2.2 GW capacity in CCGT units(Gryfino and Rybnik) by 2030 and further refurbishment of units to befired with green hydrogen or equipped with carbon capture facilities.

- Nuclear power plants - construction of 2.8 GW capacity by 2040,including the participation of partners.

- Battery energy storage - construction of 1.2 GWe capacity by 2030,

- Pumped storage power plants - reaching 2.5 GWe capacity by 2035,

- Heat storages and electrode boilers - reaching 1.0 GWt capacity by2035,

- Installations for electrolysis - construction of 300 MW inelectrolysers by 2035 and reaching 10-15 thousand tonnes of greenhydrogen production.

- District heating - reaching 40-50% share of renewable and electricsources by 2030 along with decommissioning of coal-fired installationsby 2030 and 80% share of renewable and electric sources by 2040.

The Group assumes implementation of the investment programmes with theparticipation of strategic and technological partners and withmaximisation of seizing opportunities for co-financing from the publicaid programmes.

Efficient and Effective Organisation

Operational efficiency as a requirement to maintain competitiveness andpotential for further development is a primary assumption of theEfficient and Effective Organisation pillar. The strategic goals includeincreasing cost efficiency, shorter time to market and low financingcosts. Ensuring financial predictability of the business model willenable conduct of the capital-intensive investment programmes andimplementation of the new services.

The main goal of the pillar include:

- 7-10% reduction of fixed costs by 2030 in real terms with reference to2022 cost base exclusive of, among others, Conventional Generationsegment what is to bring annual savings of PLN 350-450 million,

- Time to market shorter by 20%,

- 100% of own costs covered in tariff mechanisms,

- Process cost efficiency maintained among 25% of best practices,

- Maintenance or upgrade of the credit rating.

The Group's Strategy assumes that the modernised ICT systems will form abasis for construction of digital platform combining all Company'soperations what will enable creation of values based on data, adaptationof new technologies improvement of customer experience.

Sustainable development strategy

Integrated management of environmental and social aspects is an integralelement of the Strategy.

Key goals in environmental area:

- Net Zero in 2040, reached through reduction of gross emission ofgreenhouse gases by 95% in Scope 1, by 90% in Scope 2 and 90% in Scope3, with covering other emissions through capture and offset.

- Reduction of NOx emissions by 90% by 2040.

- Reduction in water use in conventional district heating and gas-firedpower plants by 50% by 2040,

- Reaching percentage of suppliers holding environmental statements at80% in 2040,

- Reaching energy efficiency of building ration below 100 kWh/m2/year in2040.

Key goals in social area:

- Striving for zero accidents among employees,

- Maintaining gender pay gap rate at the level below 5%,

- Maintaining a rate of training hours at level of more than 30 hoursper year.

Key goals in governance area:

- 25% of remuneration directly linked to sustainability targets,

- At least 25% of quarterly and annual targets directly related to ESGgoals.

Financial dimension of the Strategy

The investments realised within the Strategy are to focus ondecarbonisation and electrification. Total capital expenditures in years2024-2030 will amount to more than PLN 125 billion.

The investments will be implemented jointly with partners and with themaximal utilisation of national and EU aid funds for energy transition.The Strategy assumes that 25% of capital expenditures will be coveredfrom preferential sources.

As a result of the implementation of the Strategy the expected cumulatedPGE Group's EBITDA in 2024-2030 will amount to more than PLN 90 billionand will amount to more than PLN 15 billion in 2030.

The Strategy assumes that the PGE Group's revenues will be based onstable, regulated business models that limit exposure to market changes.Long-term revenue hedging is predominantly based on bilateral contractsfor difference, regulated return on assets and tariff mechanisms.

Exposure to price fluctuations of CO2 emission rights and importedfossil fuels will systematically decrease.

Alternative Performance Measures used in the Strategy:

EBITDA - Earnings before interest, taxes, depreciation and amortisation.