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Current Report No.: 36/2019

Title: Approval of ENEA Capital Group's Development Strategy until 2030 with the perspective towards 2035
Date: 2019.12.12
Report no.:  Current Report No.: 36/2019

Current Report No.: 36/2019

Date of preparation: 12 December 2019

Short name of issuer: ENEA S.A.

Subject: Approval of ENEA Capital Group's Development Strategy until 2030 with the perspective towards 2035

Legal basis: Article 17 item 1 of MAR - confidential information

Content of report:

The Management Board of ENEA S.A. ("Company", "ENEA") hereby informs that pursuant to the resolution of ENEA S.A. Supervisory Board of 12 December 2019 regarding the approval of the document "ENEA Capital Group's Development Strategy until 2030 with the perspective towards 2035" ("Strategy"), the Company adopted the Strategy for implementation on the same day.

As a responsible resources and energy conglomerate, ENEA Capital Group, in order to meet global challenges, assumes to conduct its operations in a sustainable manner while at the same time minimising its environmental impact.

Pursuant to the new mission: "ENEA provides reliable products and services to its Customers by building lasting relationships based on respect for the environment and shared values"

Given: (i) significant changes in the environment closer to and further away from the company and the fuel and energy sector, both in terms of regulation and the market; (ii) swift technological progress in all areas of the value chain, mainly solutions for renewable and dispersed energy sources; (iii) respect for the natural environment and support for the climate objectives of the European Union, ENEA Capital Group has updated its development directions. The key development directions are:

1) Transformation of generation assets towards zero- and low-carbon sources;

2) Innovative services for ENEA Customers;

3) Modern communication and models of cooperation with the Customer;

4) Electromobility, hydrogen technologies;

5) Smart Grid - smart solutions for Customers;

6) Automation, robotization and digitisation of processes;

7) Internet of Things, Artificial Intelligence, Blockchain;

8) Energy storage;

9) Fuel sourced in accordance with best practice and with respect for the environment.

ENEA assumes its transformation towards an innovative low-emission conglomerate, offering not only electricity but also comprehensive packages of products and services required by Customers.

Development directions are the foundation for defining strategic objectives for the Group. ENEA identifies five key strategic objectives supporting the transformation of ENEA Capital Group into a low-emission conglomerate:

1) Diversification of ENEA Capital Group's generation portfolio;

2) Reliability and continuity of electricity supply;

3) Responsible partner in sustainable management of relations with local communities, the environment and Customers;

4) Maintaining the financial security of ENEA Capital Group;

5) Innovation in all aspects of ENEA Capital Group's activities.

At the same time, the Company has decided that, within the overarching objective of the Group, the Group's sustainable development will also be essential. Therefore, the overarching objective of ENEA Capital Group is "Steady and continuous growth of ENEA Capital Group's value while ensuring the Group's sustainable development".

In addition to the aforementioned overarching objective, the map of objectives also includes the following objectives:

From the Owner's Perspective:

- Lasting relations with Customers, steadily decreasing costs of obtaining and retaining Customers;

- Maintaining the financial security of ENEA Capital Group;

- High, controlled share in selected market segments;

- Reliability and continuity of electricity supply;

- High margin of packaged services and products;

- Innovation in all aspects of ENEA Capital Group's activities;

- Diversification of ENEA Capital Group's generation portfolio.

From the Customer's Perspective:

- Ability to meet complex needs;

- Timely delivery of whatever is needed;

- Favourable price-to-quality ratio (value for money) of product and service packages;

- Low overall cost of purchase, support in financing purchases from ENEA Capital Group's offer;

- Ethical, reliable and innovative supplier;

- Responsible partner in sustainable management of relations with local communities, the environment and Customers.

From the Processes' Perspective:

- Generation of an optimal and balanced mix of products and services for well-identified Customers in cooperation with business and social Partners;

- Efficient outreach to Customers and delivering promised values on time, at the right price and quality, including responsible and ethical marketing and reliable information;

- Efficient, integrated and balanced management of flexible, open competence groups in clearly defined business lines, in the preferred role of Business Operators on the entrusted assets.

From Development's Perspective:

- Modern, transparent and ethical Corporate Governance at all levels throughout ENEA Capital Group;

- Sustainable investments in intangible and tangible assets.

ENEA assumes that, as a result of the implementation of the Strategy, it will achieve:

1. reduction of the unit CO2 emission ratio value to 550 kg CO2/MWh in 2030, with the aim to achieve the ratio value of 434 kg CO2/MWh by 2035;

2. RES share in electricity generation at the level of 22% by 2025 and 33% in 2030;

3. the share of zero- and low-emission generation sources at the level of 22% in 2025 and 41% in 2030 in ENEA Capital Group's total electricity generation, with the aim of achieving the value of 60% by 2035;

4. the volume of electricity sales at the level of 24.8 TWh in 2030;

5. ENEA's share in the electricity sales market at the level of 14% in 2025 and 15% in 2030;

6. the installed capacity of 7,447 MW in 2025 and 8,287 MW in 2030, with the aim to achieve the value of 9,672 MW by 2035;

7. the value of SAIDI at the level of 105 minutes in 2025 and 100 minutes in 2030;

8. the value of SAIFI at the level of 2.14 in 2025 and 2.03 in 2030;

9. the value of the distribution grid losses index at the level of 5.4% in 2025 and 5.3% in 2030;

10. increased market share in coal sales to the commercial power industry to 25% in 2025 and to 30% in 2030;

11. ROE at the level of 10% in 2025 and 2030;

12. ROA at the level of 5% in 2025 and 2030;

13. EBITDA growth on 2018 by 35% in 2025 and 39% in 2030;

14. share of EBITDA from New Business Lines at the level of 7-12% in 2030;

15. the value of EBITDA from New Business Lines in the amount of PLN 360 million in 2030;

16. share of R&D&I expenditures in ENEA Capital Group's total capital expenditures at the level of 2% in 2030.

The strategic objectives to be achieved in the perspective of 2035, referred to in points 3 to 6 above, have been estimated assuming the replacement of 200 MW units 1-8 in Kozienice Power Plant with low-emission power units and upgrade of 200 MW units 2-7 in Połaniec Power Plant.

The Group estimates its capital expenditures on maintaining business continuity and on new generation capacities at over PLN 64 billion in the perspective of 2035, including:

1. Distribution Area - PLN 26.9 billion;

2. Mining Area - PLN 9.2 billion;

3. Generation Area - PLN 12.5 billion;

4. Renewable Energy Sources - PLN 14.7 billion;

5. Other activities - PLN 1.2 billion.

Capital expenditures for the implementation of investments in new generation capacities, supporting ENEA's transformation towards a low-emission conglomerate, have been estimated at approximately PLN 22 billion.

Having in mind the diverse and international nature of Enea SA's shareholding, and also the provisions of the Best Practices of WSE Listed Companies, Enea SA guarantees the availability of its website also in English. In case of any interpretation doubts and discrepancies between the Polish and English versions, the Polish version shall prevail.