CEO’s letter

CEO’s letter

Dear Stakeholders,

It is with great satisfaction that we are presenting the Impact Report of Polskie Sieci Elektroenergetyczne - the first publication of this kind in the history of our organization. The paper, which is also the first impact report issued in the history of the entire Polish power system, presents the benefits stemming from PSE’s operations, enjoyed both by the Polish economy and by the future generations.

Relying on 68 years of tradition of dispatch services, PSE is responsible for the operational safety of the national power system and ensures reliable operation of the electricity market. As a socially responsible organization, we are consciously managing the impact that our organization exerts on the economic, environmental and social growth of our country. We are proud of the results we have managed to achieve. The direct added value created by PSE in 2017 in the electricity generation and transmission sector equaled PLN 4.42 billion. The total added value we have generated for the national economy, in turn, amounted to as much as PLN 6.81 billion. In 2017, the activity of PSE contributed also to maintaining 15,630 jobs throughout Poland. We paid PLN 1.31 billion in taxes, fees and contributions collected by central and local government authorities, therefore boosting the development of individual regions of our country.

The power system and the energy market should enhance sustainable growth of the society, not only as far as the protection of the environment is concerned, but also with the social and economic aspects taken into consideration. Therefore, it is the duty of PSE, acting in the capacity of the transmission system operator, not only to ensure stable operation of the system and reliable supply of electricity, but also to seek solutions that contribute to boosting the effectiveness of the entire energy market. In 2018 we commenced discussions focusing on the need to change the architecture of the European electricity market model. The zonal model that is currently in effect in the European Union fails to ensure optimized utilization of generation and network resources. It also contributes to increased CO2 emissions. With that taken into consideration, it has to be noted that the model that was working well at the preliminary stages of the European market’s liberalization phase and at the early stages of development of renewable energy sources, is currently suffering from numerous drawbacks. We are convinced that the European power sector should adopt an open-minded approach to new concepts and should seek effective solutions, also outside Europe. Therefore, we have commenced work aiming to implement the LMP (locational marginal pricing) model that is based on node-specific pricing. Such an approach has already been introduced, inter alia, in some areas of the United States of America. The solution takes into consideration not only the cost of generating energy, but also of transmitting it, and allows to more accurately reflect the physical conditions in which the system is operating. This, in turn, contributes to better utilization of the generation and grid resources available, enables to save costs incurred at the electricity generation stage and reduces CO2 emissions. Therefore, we plan to implement this particular solution, over the course of the next few years, on the Polish market as well - initially as a pilot scheme only. LMP offers a solid foundation for solutions that will enable us to face market-related challenges in the future.

As far as the environmental dimension is concerned, 2017 was a year in which we managed to integrate our environmental and OHS management systems. All investment projects are pursued in a manner which allows us to minimize the key threats faced by nature and to avoid the risk of adversely impacting biodiversity. The environmental use fees and compensatory expenses paid in 2015-2107 amounted to the total of PLN 432,000.

We are also analyzing, on an on-going basis, the impact that our investment projects exert on local communities. We are striving to establish good relations with our neighbors and to ensure comfortable living environments. Information meetings are held with the residents of areas in which we are investing. Between 2014 and 2017 as many as 2,631 such meetings were held, with over 700 of them taking place in 2017. We intend to continue this form of dialog in the years to come.

According to our projections that are based on data provided by the Ministry of Finance and the Organization for Economic Cooperation and Development, domestic demand for electricity will increase from 159.2 TWh to 177.5 TWh in 2027, if the growth is stable, or even to 184.4 TWh pursuant to high forecasts. In order to be able to face such a challenge in the future, we have already commenced the process of building the grid of tomorrow. We have successfully implemented project-related structures and have restructured the investment process. We are also pursuing, based on new project implementation models, programs which positively impact the stability and the safe operation of the national system. Increased effectiveness of the process of implementing grid-related investment projects reduces the financial burden of end customers, which is of crucial significance from the point of view of the living conditions of the population and boosts the competitiveness of Poland’s industry. We spent over PLN 1.46 billion on infrastructural projects in 2017. Our plans assume that the total of PLN 10.5 billion will be earmarked for infrastructural investment by the end of 2021.

We are also building a safety system and culture within our organization, focusing on the working environment - both in the area of the company’s core activity and in the course of the investment process. We have established the “Health, Safety, Environment, Quality” standard that lays down specific regulations applicable to employees, environment protection, equipment safety and working infrastructure. All these, and many other developments taking place at PSE are described in the newly amended, interactive version of our report.

The paper you are reading is the fourth edition of our company’s social report - and the second edition that has been fully integrated and is available in an interactive version as well. We aim to set the bar higher every single year, considering the report to be an important element of the dialog with our Stakeholders. Intending to meet the challenges of contemporary times, we are systematically introducing new functionalities that are available vie the report’s website, and take every effort to ensure that the publication remains user-friendly and that it offers high quality content. In order to ensure a high level of credibility of the data we publish, the report has been verified - for the second year in a row - by independent auditors.

The fact that the publication defines our current position and sets the way forward offers added value as well, as these two factors play a very important role in conducting any type of activity, especially if that activity is of strategic importance. I hope you find the read interesting.

Eryk Kłossowski

President of the Management Board
Polskich Sieci Elektroenergetycznych S.A.

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