Implementation
of the strategy in 2015

The implementation of the Corporate Strategy in 2015 allowed for achieving EBITDA above PLN 3.5 billion.

In the implementation of investment tasks, activities to execute the following strategic projects were continued in 2015:

  • construction of a 910 MW unit at the Jaworzno III Power Plant,
  • construction of a CCGT unit with 449 MWe capacity, including the heat generation component with 240 MWt heating capacity at Stalowa Wola,
  • preparation for the commencement of construction of the CCGT unit with 413 MWe capacity at Elektrownia Łagisza,
  • construction of „Grzegorz” shaft, including infrastructure and construction of the 800 m level, at Zakład Górniczy Janina (ZG Janina),
  • construction of a new 50 MW capacity unit at ZW Tychy,
  • construction of the 18 MW Marszewo Wind Farm, constituting the 2nd stage of construction of the wind farm with a total capacity of 100 MW in Marszewo.

Moreover, in 2015, works were continued to run the joint investment project by PGE Polska Grupa Energetyczna S.A. (PGE), TAURON, KGHM Polska Miedź S.A. (KGHM) and ENEA S.A. (ENEA), comprising the construction and exploitation of the first Polish nuclear power plant with a capacity of approximately 3 thousand MWe.

 

The implementation of the Corporate Strategy in 2015 allowed for achieving EBITDA above PLN 3.5 billion.

Main strategic goals

Growth will focus on operations offering the highest potential for achieving high rates of return on investments. In the Generation, Heat and RES Areas, restoring and growing installed generation capacity up to approximately 6 GW in 2023 is planned. Distribution and Sales Segments represent important growth areas.

In the investment projects launched, the generation capacity of approximately 2,150 MW will be commissioned. At present, 92% of the generation capacity installed comes from coal-based technology. The Corporate Strategy assumes that by 2023 the share of capacity based on coal technology will drop to approximately 74%, including 25% to come from modern, high efficiency coal-fired units. The share of low emission technologies, i.e. gas, wind, hydro and biomass, will be approximately 26%.

In view of the need to develop a diversified generation portfolio stemming from more stringent restrictions related to CO2 emissions, the TAURON Group is participating in a project to build Poland’s first nuclear power plant.

The planned growth is also associated with the development of smart grid infrastructure in its Distribution Area, where investment projects will mainly comprise connecting of new consumers and new sources and the associated grid development as well as modernisation and replacement of the existing assets.

The development of a model for research and development management in the TAURON Group is a priority. The effective management of research and development activities in Group companies aims at intensifying innovation activities and maximising the benefits derived from access to knowledge and experience gained while implementing such undertakings.

While implementing the Strategy stipulating further improvement of operational and investment effectiveness, restructuring activities were continued in 2015 through the improvement of governance processes and integration of support functions. It also comprises limiting of non-core activities, outsourcing of areas not directly associated with the Group’s core business, as well as pursuing of the common procurement policy for consolidated and strategic purchases.

Treating budgetary discipline as a priority in capital expenditure and operating expenses applies in each Business Area.

In 2015 the implementation of the Effectiveness Improvement Programme for 2013 – 2015 was continued. It was developed and implemented taking into account the goal, i.e. growing the TAURON Group’s value.

The targets for improving cost effectiveness have been achieved, mainly through restructuring programmes conducted in the Generation, Heat and Distribution Areas. The TAURON Group undertook measures to enhance organisational effectiveness, by continuing the process of building the target business model and integrating TAURON Group companies.

Consolidation and restructuring projects were prepared and their execution cut costs by approximately PLN 1.2 billion (the total for 3 years), versus the initially planned savings of PLN 864 million. According to the Company, achieving these targets will bolster its competitive position by containing the TAURON Group’s cost base. The Effectiveness Improvement Programme (EIP) is one of the pillars for maintaining the Group’s high competitive position.

 

Chart: EIP 2013-2015 (distribution of the total by segment)

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Value (PLN million)
EIP 2013-2015 (distribution of the total by segment)
Mining28
Generation640
Distribution474
Other Segments56
Total1198

 

In March 2016, a new effectiveness improvement programme was announced, calling for total savings of approximately PLN 1.3 billion.

 

Chart: Planned EIP effects 2016-2018 (breakdown by segment)

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SegmentsPlan (PLN million)
Planned EIP effects 2016-2018 (breakdown by segment)
Mining255
Generation367
Distribution309
Other Segments291

Table: Major EIP initiatives 2016-2018

Segment Plan (PLN million) Major initiatives
Mining 255
  • Headcount restructuring, downsizing and increasing the flexibility of labour costs, reorganisation measures
  • Use of electronic auctions in the procurement process
  • Investment plan optimisation
Generation 367
  • Optimisation of renovations and other costs of asset maintenance
  • Headcount restructuring
  • Improvement of procurement effectiveness
  • Optimisation of maintenance services of carburisation and ash removal system
  • Optimisation of costs of external services
  • Investment plan optimisation
Distribution 390
  • Reorganisation, headcount restructuring
  • Limiting asset maintenance expenses
  • Improvement of procurement effectiveness
  • Outsourcing of warehousing services
  • Sales of redundant real property
Other Segments 291
  • Headcount restructuring
  • Limiting the scope of IT services
  • Change in the process of handling printouts and debt collection notices
  • Limiting of customer service costs
  • Optimisation of costs of promotion, sponsoring activities
  • Limiting administrative costs
Total 1303

Due to the specific nature of the TAURON Group’s operations and its extensive exposure to any amendments to regulations in the national and European Union (EU) law, the management of market and regulatory risk is one of the key elements of the Corporate Strategy implementation based, among others, on the continuous monitoring of the legislative activity related to the energy market at the EU level and in Poland. Market risk management takes place in all Business Areas (in particular, in regulated areas, such as Distribution and Heat), and it is coordinated by TAURON. In the scope of market risk, it focuses mainly on energy trading.

In order to optimise market and regulatory risk and maximise rates of return on equity, the TAURON Group diversifies its generation portfolio by appropriate adjustment of individual types of technology (limitation of long-term risk arising from investment decisions) and it crafts an effective hedging policy, also to secure energy supplies (limitation of medium- and short-term risk resulting from trading activity). This policy makes it possible to reduce the volatility of the TAURON Group’s result through asset portfolio management and control of risk limits.

The effective strategy of securities will cover the overall measures within the TAURON Group’s value chain, starting from securing the assumed volume of fuel supply from its own sources, ending with covering the specific volume of electricity sold to end customers from its own generation units. This policy guarantees the secure functioning of assets in the Generation Area through provision of fuel supplies and maintaining prices at an acceptable level.

In 2015 the Company continued its activity to promote and develop strategic energy technology and prepare nuclear energy development. In this area, activities took place in research and development projects, co-financed both from national sources (e.g. through the National Centre for Research and Development (NCBiR)) and from international sources (e.g. the Community of Knowledge and Innovation – KIC InnoEnergy (KIC InnoEnergy) and Horizon 2020).

To implement this goal, the TAURON Group has focused its activities on the organisation of effectiveness improvement in each Business Area, including raising the quality of services offered as well as on centralisation of the support function and providing tools for human capital management. Building an effective organisation is associated with ensuring the appropriate headcount structure, raising employee skills level by pursuing the relevant processes to develop human capital, including managing by objectives, to build a client focused organisation, covering both internal and external clients.

The activities performed in 2015 comprised, inter alia, finalising the centralisation of billing systems for mass clients, where migration of client data was completed by the end of 2015, thereby facilitating improvement in the quality of service and standardisation of business processes as well as enhancement in the effectiveness of these processes. The integration of the accounting function was finalised, to foster higher effectiveness and optimisation. The project to consolidate data processing centres was completed, to increase the security of data processes in IT systems in the context of their availability and confidentiality as well as cut costs of the IT infrastructure used for business applications. In areas responsible for sales and customer service, numerous activities were carried out to improve quality and drive up the client satisfaction level.