Investments and development

The purpose of investments undertaken by the Company is to drive up its market value.

The investment programme of KOGENERACJA S.A. is focused mainly on both internal and external fixed-asset investments.

Fixed-asset investments are intended to be the drivers of the development, including pro-environmental initiatives. It is also used for modernisation and replacement of fixed assets. The aim of modernisation and replacement investments, i.e. investments in the Company’s production assets, is to increase the efficiency and availability, decrease the failure rate of production system operations and to improve occupational safety.

Capital expenditures

INTERNAL INVESTMENTS

Internal projects are intended to gradually replace and upgrade depreciated production assets.

In 2016, significant part of the overall expenditure was allocated for the continuation of investments concerning the adaptation of boilers at the Wrocław Power Plant to meet new SO_x and NO_x emission standards: adaptation of boilers at the Wrocław Power Plant to meet new SO_x emission standards (PLN 25 855 thousand) and adaptation of boilers at the Wrocław Heat and Power Plant to meet new NO_x emission standards (PLN 6 492 thousand).

The major projects implemented in 2017 include:

• modernisation of the compressor facility in EC Wrocław,
• modernisation of selected auxiliary facilities at EC Wrocław,
• capitalised overhaul of the mill installations at EC Czechnica
• demolition of the H-120 chimney at EC Wrocław.

Investment tasks carried out in 2017 were financed mainly by the Company’s own funds and partly by external financing within cash pooling.

Other major projects planned in 2018 include the following:

• capitalised overhaul of the TG1 turbine at EC Wrocław,
• capitalised overhaul of the TG1 turbine at EC Czechnica,
• capitalised overhaul of the mill installations at EC Wrocław,
• modernisation of selected systems of emission purification at EC Wrocław,
• putting of protective coatings in K-1 at EC Wrocław,
• capitalised overhaul of K-1 boiler at EC Czechnica.

The investments to be delivered in 2018 will be financed by the Company’s own funds.

EXTERNAL INVESTMENTS

In 2017, consumers with a total contracted capacity of 15.7 MWt (vs. 19.16 MWt in 2016) were connected to the district heating network:

• 15.7 MWt – in Wrocław – 35 district heating substations with a capacity of 12.3 MWt, including the construction of company-funded and customer-funded substations and of 8.9 MWt in the primary market and of 3.4 MWt in the secondary market. Whereas in Siechnice and in Święta Katarzyna 26 district heating substations with the total capacity of 3.4 MWt were constructed and connected to the Company’s own network.
• 8.3 MWt in Zielona Góra.

On 21 December 2017 KOGENERACJA signed two agreements with National Fund for Environmental Protection [NFOŚiGW] for the network system development projects. The subsidy within the agreements is of PLN 4 634 thousand with the expenditures of PLN 13 476 thousand. The time for agreement implementation is from 2017 till 2020.

On 16 October 2017 EC Zielona Góra signed the agreements with National Fund for Environmental Protection for the subsidy, within Integrated Territorial Investments, of four district heating network development projects.

On 19 December 2017 EC Zielona Góra signed three agreements with National Fund for Environmental Protection for the for network system development projects. The subsidy for 7 projects within the agreements is of PLN 29 158 thousand with the expenditures of PLN 63 538 thousand (average subsidy of investment is of 46%). The time for agreement implementation is from 2017 till 2021. The blank promissory notes were used as collateral for the above-mentioned subsidy agreements.

QUALITY AND ENVIRONMENTAL PROTECTION

Integrated Management System

KOGENERACJA S.A. has an Integrated Management System certificate, comprising the following three systems:

• Quality Management System compliant with PN-EN ISO 9001:2010
• Environmental Management System compliant with PN-EN ISO 14001:2005
• Occupational Health and Safety Management System compliant with PN-N 18001:2004 and with OHSAS 18001:2007

The Integrated Management System Certificate has been issued by the Polish Centre for Testing and Certification (PCBC) in Warsaw and is valid until 15 September 2018 as for the Quality Management System and the Environmental Management System and until 5 May 2019 as for the Health and Safety Management System.

EC Zielona Góra S.A. has an Integrated Management System certificate, comprising the following three systems:

• Quality Management System compliant with PN-EN ISO 9001:2009,
• Environmental Management System compliant with PN-EN ISO 14001:2005,
• Occupational Health and Safety Management System compliant with PN-N 18001:2004 standard and with OHSAS 18001:2007.

The Certificates are valid until 6 August 2018.

Integrated Permits

In 2017, there were no changes to the existing integrated permits.

Trading system for CO₂ emissions allowances

The free allocation of emission allowances is based on the National Allocation Plan in accordance with the Regulation of the Council of Ministers of 13 April 2015 on the list of power generating installations and with the Regulation of the Council of Ministers of 10 April 2015 on the list of installations other than power generating installations.

The allocation of free allowances is primarily dependent on the completion of investment projects set out in the National Investment Plan and the use of investment outlays for the settlement of allocated allowances.

Based on the Regulations applicable to the period of 2013–2020, the granted a limit for free CO₂ emission allowances is getting lower.

Taking into account the value of capital expenditure that pre-conditions the receipt of the allowances, the estimated free allowances are of 304 997 Mg:

• for Electricity generation amount to 11,775 Mg
• for Heat generation amount to 293,222 Mg

(limit for 2016: 665 993 Mg; limit for 2015: 882 819 Mg; limit for 2014: 1 091 947 Mg, limit for 2013: 1 280 830 Mg; limit for 2012: 1 626 966 Mg)

In accordance with the Company’s accounting policy, the Company set up a provision for the shortage of CO₂ allowances of PLN 35 583 thousand (PLN 31 604 thousand in 2016).

Quality, Environment and Health & Safety Management Policy of KOGENERACJA S.A.

KOGENERACJA S.A. is a subsidiary company of PGE Energia Ciepła S.A., specialising in the combined generation of heat and power, a technology that contributes to more efficient utilisation of the chemical energy of fuel and thereby to reduced environmental pollution.

The Company pursues its core business in compliance with the principles of sustainable development, an approach that ensures satisfactory economic performance without compromising its social and environmental responsibilities.

Through its adherence to strict safety standards and the professional conduct of its personnel, KOGENERACJA S.A. aspires to be perceived as a reliable company that earns the trust of its customers and shareholders and is accepted by the local community.

Being fully aware of the types and gravity of risks to the natural and workplace environment, the Company undertakes to perform as follows:

• Supply customers with heat and power in conformity with applicable quality parameters and in a safe and cost-effective manner,
• Comply with the law and with the regulations, with the PGE Capital Group requirements and other, relating to its core business,
• Develop the qualifications, professional skills and awareness of employees and actively support all initiatives to improve quality, occupational health and safety and environmental protection as well as motivate the employees to achieve the objectives,
• Systematically identify and evaluate hazards and opportunities related to production process and sales of electricity and heat and services performance as well as undertake the necessary actions in this area,
• Collaborate with all stakeholders, in particular local authorities and communities,
• Managers commitment in culture of quality management,
• Take actions to mitigate the Company’s adverse impacts on the environment and to maintain its bio-diversity,
• Meet the requirements of and continuously improve the Integrated Management System compliant with PN-EN ISO 9001, PN-EN ISO 14001 and OHSAS 18001.

Aware of the provisions of this Policy, all employees of KOGENERACJA S.A. warrant that they will act to ensure that the services they provide are of high quality and are rendered in a manner which is safe for human health and the environment. They will also oblige guests and employees of other companies operating on the Company’s premises to do the same.

In order to fully achieve the objectives set out in this Policy, the Company undertakes to improve continuously the Integrated Management System and to ensure the resources necessary for its implementation.

Safety issues within this Policy are further addressed in the OHS Policy of KOGENERACJA S.A., which is related to the OHS Policy of PGE Energia Ciepła S.A.

The status of the electricity sector

The situation of electricity suppliers in 2017 was determined by the following external factors:

Demand for electricity

The demand for electricity in the National Energy System (KSE) was stable and comparable to the previous year.

In 1Q2017 external temperatures lower than in previous years.

December 2017 was a special month as it saw an oversupply of electricity due to high generation from wind farms (a period of high windiness) coupled with a limited demand from buyers during the Christmas period.

Prices of electricity

The period of low electricity prices has continued, driven by:

• Low valuation of CO₂ certificates,
• Growing power generation from the renewable energy sources (an increase in installed capacity of wind farms)
• Increased possibilities of electricity imports

Prices of green and red certificates

• In 2017, the prices of green certificates continued to decrease, mainly due to an oversupply of certificates on the market from previous years and an increased supply of certificates of energy from wind farms.