Investments and development

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

The investment program of KOGENERACJA S.A. focuses mainly on internal and external investments in fixed-assets.

Investments in fixed-assets are intended to boost growth, protect the national environment and ensure modernization and replacement of fixed assets. Modernization and replacement investments, such investments in the Company’s production assets increase their efficiency and availability, reduce the failure rate of production systems and improve work safety.

Table. Capital expenditures

Internal investments

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

The major investment projects completed in 2018 include:

• capitalized overhaul of TG1 turbine at EC Wrocław,
• capitalized overhaul of TG1 turbine at EC Czechnica,
• modernization of selected exhaust after-treatment systems at EC Wrocław,
• modernization of selected auxiliary facilities at EC Wrocław,
• modernization of G1 generator at EC Czechnica,
• capitalized overhaul of the mill installations EC Wrocław,
• capitalized overhaul of K-1 boiler at EC Czechnica,
• capitalized overhaul of K-3 boiler at EC Czechnica.

The investments executed in 2018 were financed mainly from the Company’s own funds.

The major investment projects scheduled for 2019 include:

• capitalized overhaul of TG3 turbine at EC Wrocław,
• capitalized overhaul of K-3 boiler at EC Czechnica,
• modernization of selected auxiliary facilities at EC Wrocław,
• alignment of water boilers at EC Wrocław with the requirements of BAT Conclusions for NOx using primary methods,
• modernization of network water pumps at EC Wrocław,
• capitalized overhaul of TG2 turbine at EC Czechnica,
• construction of the New Czechnica heat and power plant.

The investments planned to be executed in 2019 will be financed from the Company’s own funds.

External investments

New connections

Both KOGENERACJA S.A. and EC Zielona Góra S.A. carry out external investments to facilitate new connections to the municipal heat distribution network in Wrocław and Zielona Góra and to expand the heat market in conformance with the Company’s strategic objectives.

In 2018, consumers with a total contracted capacity of 24.6 MWt (vs. 15.7 MWt in 2017) were connected to the district heating network:

• 17.8 MWt - in Wrocław - 24 district heating substations with a capacity of 10.5 MWt, some of which were funded by the Company while other by customers, including 8 MWt on the primary market and 2.5 MWt on the secondary market. Additionally, in Siechnice and Święta Katarzyna 8 district heating substations with a total capacity of 7.3 MWt were built and connected to the Company’s network.
• 6.8 MWt in Zielona Góra.

The investment projects implemented in 2019 will be financed from the Company’s own funds and from external sources e.g. subsidies from the National Fund for Environmental Protection and Water Management.

• On 21 December 2017, the parent company signed two agreements with the National Fund for Environmental Protection and Water Management [NFOŚiGW] for the network system development projects. The value of the subsidy granted under the agreements is PLN 4,634,000 while the total expenditures amount to PLN 13 476 thousand. The timelines for the execution for the project are from 2017 to 2020.
• On 16 October 2017, EC Zielona Góra signed agreements with the National Fund for Environmental Protection and Water Management for a subsidy under the Integrated Territorial Investments program awarded to four district heating network development projects.
• On 19 December 2017, EC Zielona Góra signed three agreements with the National Fund for Environmental Protection and Water Management for the execution of network system development projects. The subsidy granted to the seven projects under the agreements amounts to PLN 29,158 thousand versus total expenditures amounting to PLN 63,538 thousand (the average co-funding rate of the investment is 46%). The timeline for the agreement implementation is from 2017 to 2021. The abovementioned grant agreements are secured with blank promissory notes.

Electromobility

EC Zielona Góra S.A. participates in the project called the ”Integrated system of low-emission public transport” in Zielona Góra implemented in partnership with the City Hall of Zielona Góra and the Municipal Transport Company (MZK). The development of electromobility in Zielona Góra creates an opportunity for the Company to launch a new business line of sales and distribution of electricity supplied to the electric bus charging station and in the future also to charging points distributed across the entire city.

The aim of the new area of activity will be to increase the security of electricity supply to public transport vehicles and in the future to gain new customers. On 9 November 2018, the President of the Energy Regulatory Office (URE) issued a license for the distribution of electric energy to residents of the areas adjacent to the Company via a network with the voltage of 6 kV and on the Company grounds via a low-voltage network. The next stage will be to appoint EC Zielona Góra the operator of its own electricity distribution network to obtain approval for the first Tariff which will apply to the distributed energy.

Quality and environmental protection

Integrated Management System

KOGENERACJA S.A. and EC Zielona Góra S.A. have individual Integrated Management System certificates which cover the following three systems:

• Quality Management System compliant with the requirements of PN-EN ISO 9001:2010,
• Environmental Management System compliant with the requirements of PN-EN ISO 14001:2005,
• Occupational Health and Safety Management System compliant with the requirement PN-N 18001:2004 and 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 for the Quality Management System and the Environmental Management System and until 5 May 2019 for the Occupational Health and Safety Management System.

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

• Quality Management System compliant with the requirements of PN-EN ISO 9001:2015,
• Environmental Management System compliant with the requirements of PN-EN ISO 14001:2015,
• Occupational Health and Safety Management System compliant with the requirements of PN-N 18001:2004 standard and with OHSAS 18001:2007.

Between 23 and 24 May 2018, auditors from the Polish Centre for Testing and Certification (PCBC) carried out the second supervisory audit of the Integrated Quality Management System, the Environmental Management System and the Occupational Health and Safety Management System in KOGENERACJA S.A. The Integrated Management System certificate issued by PCBC in Warsaw is valid until 5 May 2019 for the Integrated Quality Management System, the Environmental Management System and the Occupational Health and Safety Management System.

In June 2018, auditors from the Polish Centre for Testing and Certification (PCBC) carried out a certificate renewal audit for the Integrated Quality Management System, the Environmental Management System and the Occupational Health and Safety Management System at EC Zielona Góra S.A. All the certificates shall remain valid for three years.

Integrated permits and environmental decisions

In 2018, the Parent Entity requested for changes in the integrated permits issued to EC Czechnica and EC Wrocław. The purpose of changes in the administrative decisions was to align them with the provisions of the so called BAT Conclusions which will take effect as of 17 August 2021.

Following entry into force on 5 September 2018 of a revised Waste Act, new obligations were imposed on waste management companies, such as monitoring waste storage and disposal facilities and a requirement to draw up a fire safety plan which has to be appended to the application for changes in the integrated permit.

In particular, significant changes (restrictions) were introduced with regard to air emissions, especially SO2, NOx and dust emissions. Another novelty is the introduction of emission limits for concentrations of such pollutants as hydrogen chloride, hydrogen fluoride and mercury. Additionally, new requirements have been laid down regarding the monitoring and measurement of emissions. In the case of emissions to water bodies, the number of analyses required to be performed at the discharge of wastewater from the exhaust treatment system (IMOS).

Additionally, work commenced on alignment of the system with the expected changes related to the modernization of the sulfur removal system, nitrogen removal system, wastewater treatment plant and mounting additional continuous measurements, etc. At present, technical specifications for the planned modernizations are being finalized. Moreover, 2018 was the first year in which the revised Water Law was in effect. The first agreements were concluded with Wody Polskie regarding the calculation of fixed and variable charges for water use.

In 2018, there were no changes in the valid integrated permits of EC Zielona Góra S.A.

CO₂ emission allowances trading system

The free allocation of CO₂ 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.

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

Taking into account the value of capital expenditures required to receive the allowances, the estimated volume of free allowances is 477,859 Mg, of which:

• for electricity generation: 233,253 Mg
• for heat generation: 244,606 Mg

(limit for 2017: 585,956 Mg of which free allowances for disposal granted to the Company amounted to 304 997 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; and limit for 2012: 1,626,966 Mg, according to KPRU II)

actual CO₂ emission in 2018: 1,591,231 Mg

annual allowance allocation: 477,859 Mg

2018 balance following full settlement (shortage): 1,113,372 Mg

forwards (net) contracted for March 2019: 1,110,213 Mg

opening balance in 2018 (surplus over 2017): 43,858 Mg

In accordance with the Company’s accounting policy, the Company set up a provision for the shortage of CO₂ allowances of PLN 29,199,000 (PLN 35,583,000 in 2017).

Quality, environment and occupational health and safety policy of KOGENERACJA S.A.

KOGENERACJA S.A. is a subsidiary company of PGE Energia Ciepła S.A. specializing in the combined generation of heat and power, a technology that contributes to more efficient utilization 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:

• Supply customers with heat and power and provide services meeting the applicable quality standards in a safe and cost-effective manner,
• Comply with the law and regulations in force, with the PGE Capital Group requirements and other requirements applicable 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 planned objectives,
• Identify and evaluate risks and opportunities related to the production processes, the sales of electricity and heat and the provided services and take all necessary actions in this area,
• Collaborate with all stakeholders, in particular with the local authorities and communities,
• Engage its managers in building the culture of quality management,
• Take actions required to mitigate the Company’s adverse impact on the environment and to preserve biodiversity, and
• Meet the requirements of and continuously improve the Integrated Management System compliant with PN-EN ISO 9001, PN-EN ISO 14001 and OHSAS 18001.

All employees of KOGENERACJA S.A. know the provisions of this policy and shall do their best to ensure high quality of the provided services, perform the services in a manner which is safe for human health and the environment and make sure that all visitors and employees of other companies operating on the Company’s premises or acting on behalf of PGE Energia Ciepła S.A. comply with same obligations.

In order to achieve all 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 consistent with the OHS Policy of PGE Energia Ciepła S.A.