New strategy for new times: two objectives, five programs. Energa presents its action plan

• EBITDA – PLN 2.4 billion in 2020, PLN 3 billion in 2025
• Client focus – EBITDA generated by new products of PLN 100 million by 2020
• Investment Plan – PLN 20.6 billion till 2025
• Investments through strategic partnerships and regulated business
• Maintain its investment grade rating
• Debt ratio on safe levels

Energa will concentrate on two objectives: developing modern infrastructure as part of its regulated business and a new more comprehensive client offering. By expanding these two areas linked to Clients and Infrastructure the Group will generate stable revenues and grow its enterprise value.

The energy market is undergoing rapid changes. Utilities face pressure driven by soft demand, RES development, low wholesale prices and competitive sales pressure. The traditional power sector is evolving from centralized to distributed generation, from profitable distribution to energy independence, from traditional sales to a market featuring many new players and new technologies. Utilities must align their operating models to ongoing changes to retain their market position.

The Energa Group’s Strategy for 2016-2025 is its response to the challenges the Polish power sector is facing. The tasks to be executed in coming years include developing new and modernizing existing generation and grid infrastructure, climate-related obligations and diversification of supply.

“We have defined the market needs and we are therefore in the process of adapting the Group’s business model and its activities to accommodate them. The new growth strategy is predicated on two pillars: sophisticated services for clients and infrastructure development. The first objective will be achieved by providing clients a comprehensive multi-product offering. The second objective will be achieved through our regulated business. We perceive potential not only in distribution but also in generation – by having the Group participate in the capacity market and RES auctions. We will primarily achieve these objectives through innovation, strategic partnerships and financial security. The projects defined in our Strategy will drive the Group’s market growth as the market continues to expand and evolve, thereby delivering marked benefits to the company’s shareholders and entrenching its sustainable competitive advantage”, emphasizes Dariusz Kaśków, President of the Energa SA Management Board.

As it perceives new business opportunities in the transforming energy market, Energa has defined two areas in which it will pursue strategic objectives to ensure the Group’s long-term value growth:

Clients

Developing a client-oriented business model facilitating effective client value management based on a coherent product and service offering, developing new areas and a culture of innovation.

Infrastructure

Developing modern energy infrastructure accommodating the power sector’s future requirements and stabilizing the Group’s revenues. Energa intends to attain this objective through its regulated business, relying on strategic partnerships in investment projects to build shareholder value and a client-focused business.

The Energa Group’s objective is to generate EBITDA totaling PLN 2.4 billion in 2020 and PLN 3.0 billion in 2025 under stable market conditions. This objective will be achieved by continuing to leverage the Group’s assets efficiently and implementing 5 strategic programs:

1. Expanding its smart and reliable electricity distribution grid

• 100% of remotely operated metering systems (AMI meters): 75% by 2020 and 100% by 2025
• satisfaction of the requirements of the quality-based tariff: SAIDI, SAIFI, connection time

Energa is planning to expand its smart and reliable electricity distribution grid affording opportunities for market energy storage and local management services. The Strategy’s detailed plans pertaining to this sophisticated offering call for rolling out remotely operated metering systems (referred to as smart meters) across the board by 2020, satisfying the requirements inherent in the quality-based tariff in the form of the SAIDI (average interruption duration) and SAIFI (average interruption frequency per user) indices and requirements associated with client connection time.

2. Fiber optic infrastructure

• Providing broadband web access, mainly using existing assets

Energa has a broadband network in some of its operating areas. Its capacity is used only to a certain extent to handle the Group’s own needs. It is possible to commercialize existing infrastructure by developing it and thereby generating higher revenues. The company intends to devise an operating model for this purpose by the end of 2017.

3. Utilizing regulations to stabilize revenue

• new 1000 MWe Ostrołęka C power unit

- readiness for execution of the investment project by 2018

- commissioning by the end of 2023

- project to be profitable thanks to the capacity market and favorable coal supply agreement

- EBITDA/CAPEX – 5.5 % for the first 5 years of operations

• maintaining and developing a CHP

- construction of a biomass power unit in Kalisz, following a successful auction

- investments in existing assets, e.g. in Elbląg

- average capex for the CHP – PLN 50 million per annum

Energa’s new strategy in conventional energy responds to two challenges: first, security of electricity supply and, second, the opportunities offered by new capacity market regulations. New capacity will be rolled out in cooperation with strategic partners. Relying on the most efficient technologies, the ENERGA Group is also well positioned to build shareholder value.

4. Maintaining its strong position in RES

• Vistula project: environmental decision to carry out the second step dam on the Vistula River in 2017, execution permit by 2020
• installed capacity of other new RES projects – 50 MW by 2020 

Energa also assumes maintaining a solid position in RES by building a second step dam on the Vistula River. The Energa Group will underwrite the capex spend to build the power plant.

5. Client:

• shifting from electricity seller to provider of utilities and integrated solutions for home, business and local governments
• extensive product offering to generate an EBITDA of PLN 100 million in 2020 and PLN 300 million in 2025.
• new sales channels and new IT solutions
• new organization for processes in sales, service and billing

By the end of 2017 the company plans to provide customer service in a single IT environment and design and build an analytical data warehouse playing the role of a central data repository. By rolling out a new client-oriented business model and developing new business areas, the company will strengthen its market presence. Energa’s rich offering for retail customers, businesses and local governments will use Energa’s innovative solutions in which it has gathered extensive experience.

The Group is the leader in the installation of electricity meters (AMI) – more than 800 thousand Energa customers are using them already. These meters make it possible to adapt solutions for management and conscious consumption of electricity using state-of-the-art technologies.

As a leader in demand-side response (DSR), Energa offers its business customers commercial capacity consumption reductions, awarding them for scaling back energy consumption on demand. The first energy warehouse in Poland, with a capacity of 0.75 MW and a volume of 1.5 MWh, combined with the planned photovoltaic farm and existing wind sources, biogas plant and off-takers, has made it possible for the Group to create a Local Balancing Area where system and regulation services will be tested.

The offer for local governments will be based on the experience it has gathered in the Smart Toruń project that combines a number of elements – network modernization, energy generation and smart street lighting facilitating energy demand management. In addition, Energa is running an R&D project e-Mobility. It is the first Polish company that is conducting comprehensive research into the preferences of Polish users of electric cars. In the Tri-City it has built a network of electric car charge stations and is planning to expand it.

“The strategy for the next 5 years reflects our approach to the rapid changes transpiring in the power sector and precisely defines the objectives and the methods for attaining them. Business stability is rooted in appropriate regulations in distribution and generation. We perceive market opportunities in our new business offering which, by 2020, will contribute approx. PLN 100 million to EBITDA. Our huge potential to innovate will be channeled into real projects based on our experience and the expertise of our partners. The solutions and products we propose are modern and sometimes we are the precursor”, explains Przemysław Piesiewicz, vice-president responsible for development strategy. “The solutions we proposed today are based on a client-focused approach to deliver added value through cooperation with us. In the near future we will offer approx. 100 products in 38 product ecosystems. Optimum service will be provided through a new organizational structure. We actively engage in developing modern Internet networks in Poland. Today we have approx. 600 fiber optic cables with a total length of 5.3 thousand kilometers with spare capacity. Together with our partners, we would like to develop models tapping into this infrastructure to expand the range of client services.

Investment Plan

The projects, strengthening the Energa Group’s market position, will be executed under the “Long-term Strategic Investment Program of the ENERGA Group for 2016-2025”, adopted together with the Strategy. The total value of Energa Group’s planned capital expenditures in 3 segments: Distribution, Generation and Sales in 2016-2025 is expected to reach PLN 20.6 billion. In accordance with the assumptions, 65% of the pool of core expenditures will be incurred in the Distribution Segment to build the regulatory value of assets and satisfy the quality requirements of DSO performance. The Generation Segment will run investment projects to modernize assets and build new capacities by allocating approx. 30% of the resources. The potential of the Group’s generation infrastructure will be strengthened in particular through development of the modern, highly efficient Ostrołęka C power plant with a capacity of approx. 1000 MWe, and a building a second step dam on the Vistula River with a capacity of approx. 80 MWe. The remaining capital expenditures will be earmarked for the operations of the Sales Segment associated with customer service, development of new business activity areas and supporting the Group’s basic operating processes.

The Group’s strategy calls for execution of projects to maintain the Group’s financial security, such as maintaining its investment grade rating and the net financial debt/EBITDA ratio below the covenant of 3.5. This will be possible thanks to a balanced capital expenditure schedule, strategic partnerships in key investment projects, such as Ostrołęka C and the Vistula project, which will be additionally supported by the state regulatory policy.

“The funding burden will be spread over time, with the highest expenditures in 2021-2023. In the case of Ostrołęka C, the base scenario assumes that the capital burden will be shared equally by Energa and Enea. We do not rule out that at a later project stage, e.g. after the first capacity auction, we will be joined by a financial partner who will take up a minority stake. The terms and conditions of cooperation with PGG as regards supply of hard coal guarantee stable supplies at a price optimizing the power plant’s operational expenses. The price formula based on a specific margin ensures the profitability of the Ostrołęka C project. We will also rely on partnership to execute the Vistula project – Energa intends to finance only the part related to power generation”, says Mariusz Rędaszka, vice-president responsible for finance.

Dividend policy

The dividend policy will be adapted to the financial needs of the investment process which assumes the cessation of key spending items by 2023.

Mission, vision and values

We based our strategy and operations on the mission:

We grow by delivering the best solutions to our clients.

The direction of our development is defined by the ENERGA Group’s vision for the upcoming years:

We endeavor to accomplish the objectives of our shareholders, clients, employees and the environment in a sustainable manner based on reliable and modern infrastructure, a tailor-made offering and service while conserving the environment and adhering to the principles of corporate social responsibility.