ENVIRONMENTAL IMPACT AND CLIMATE ACTION (E)Compliance with the EU classification of sustainable activities (Taxonomy)

The EU Taxonomy (Regulation 2020/852/EU of the European Parliament and of the Council) is a classification system that establishes a list of environmentally sustainable economic activities. Under the Taxonomy Regulation, the European Commission has developed a de facto list of environmentally sustainable activities, defining the technical eligibility criteria for each environmental objective through delegated acts. The EU Taxonomy is a system that enables a uniform classification of sustainability measures to support investors in their investment decisions

Information on the qualification of activities in accordance with the Taxonomy

Regulation (EU) No. 2020/852 of the European Parliament and of the Council of June 18, 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) No. 2019/2088 introduces an obligation to disclose in the statement on non-financial information, information on how and to what extent the activities performed qualify as environmentally sustainable. An environmentally sustainable activity according to Article 3 of Regulation No. 2020/852 is one that contributes substantially to one or more of the environmental objectives identified in the Regulation, does not significantly harm any of the environmental objectives, is carried out in compliance with the minimum safeguards, including human rights, and meets the requirements of the technical qualification criteria.

The obligation related to the disclosure of activities qualifying to the systematics in the statement on non-financial information is further clarified in the Commission Delegated Regulation (EU) No. 2021/2178 of July 6, 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation (i.e. Regulation No. 2021/2178).

Polskie Sieci Elektroenergetyczne is not subject to mandatory disclosure under the EU Regulation No. 2020/852. The disclosures were prepared and disclosed voluntarily.

TURNOVER KPI

Based on analysis of each business segment, PSE has analysed the revenues generated in 2021 and allocated a corresponding proportion thereof to Taxonomy-eligible activities. The sales revenue figures are taken from the financial and accounting records and are consistent with the figures in the Report.
The allocation of revenues and costs according to the Taxonomy was made possible by the new controlling model implemented in 2019, facilitating a multi-faceted analysis of financial performance.
The main product was a revised layout of the controlling objects, including cost locations. The new controlling objects reflect the functioning of our organisation in a better and more precise way, and therefore enable more precise analyses regarding the activities of each area of the company.

The analysis showed that 99.8 percent of the company's consolidated revenues are derived from business activities that are Taxonomy-eligible.

Share of non-Taxonomy eligible business activities in total turnover

Business Activity	Revenue in 2021 (in PLN thousands)	Revenue in 2021 (“other” activities) (in PLN thousands)	Share of turnover – eligible activities (%)	Share of turnover – ineligible activities (%)

Transmission and distribution of electricity	17,165,309.75	26,121.60	99.84805455	0.15194545

Total	17,165,309.75	26,121.60	99.84805455	0.15194545

Percentage share of Taxonomy-eligible business activities in total turnover				99.8

Share of non-Taxonomy eligible business activities in total turnover				0.2

Accounting Principles

On the basis of Commission Delegated Regulation (EU) No. 2021/2139 of June 4, 2021, one Taxonomy-eligible activity has been identified, from which PSE has generated revenue in 2021. It is:

4.9 Transmission and distribution of electricity

Then, based on the provisions of the Commission Delegated Regulation (EU) No. 2021/2139 of June 4, 2021 PSE analysed the individual business segments, which were assigned to two categories:

category I – bringing together business areas of the company that are eligible for the Taxonomy,
category II – bringing together business areas of the company that are not eligible for the Taxonomy.

Due to the fact that PSE is a Transmission System Operator (TSO) – defined in the Energy Law – as an energy company engaged in the transmission of electricity, the areas eligible for the Taxonomy include revenues as defined in the Electricity Tariff for 2021 for:

services of electricity transmission through the transmission grid (fixed and variable grid fee),
use of the Polish power system (quality fee),
provision of settlements for the exchange of electricity between the Polish power system and the electricity systems of the countries which are not members of the European Union (market fee),
the provision of access to the Polish power system (transitional fee),
ensuring the availability of electricity from renewable energy sources in the Polish power system (RES fee),
ensuring the availability of electricity from high-efficiency cogeneration (cogeneration fee),
being ready to supply electricity to the electricity system and delivering this electricity to the system in system stress events (capacity fee),
connection to the transmission grid (connection fee),
revenues from the sale of electricity on the Balancing Market as part of the physical performance of energy purchase/sale agreements concluded by the participants and the real-time balancing of electricity demand with generation in the Polish Power System (PPS),
obtained from the Inter-Transmission System Operator Compensation (ITC) mechanism,
obtained from the operational deliveries within the inter-operator cross-border electricity exchange,
making transmission capacity available on synchronous interconnections (interconnections with Germany, the Czech Republic and Slovakia) and on non-synchronous interconnections (interconnections with Sweden and Lithuania) and the interconnection with Ukraine.

PSE, as a Transmission System Operator, also carries out other activities, which are a marginal part of its business. It has adopted the principle of materiality, according to which events occurring in the company that do not significantly affect the asset and financial position of the entity will not be included in the Taxonomy. A percentage indicator was used to determine the materiality (significance) threshold. The determination of the materiality threshold percentage is based on the volume of total sales revenue. The materiality threshold was set at more than 1 per cent of the company’s total revenue. Revenues from other activities amounted to 0.15 percent of total revenues and were therefore included in category II, which gathers together the company’s areas of activity that do not qualify for the Taxonomy.

CAPEX KPI

Percentage share of Taxonomy-eligible economic activities in total capital expenditures

Type of expenditure	Expenditure in 2021 (in PLN thousand)	Which expenditures meet one of the following criteria:
				are related to activities that are eligible for the Taxonomy under the Turnover KPI:
				Yes/No:	name of the activity related to KPI Turnover:	Amount for YES

Expenditure on the construction, extension and modernisation of substations and power lines	815,776.40	YES	Transmission and distribution of electricity	815,776.40
Expenditure on ICT-related tasks	121,418.80	YES	Transmission and distribution of electricity	121,418.80
Expenditure on buildings and structures	19,352.50	YES	Transmission and distribution of electricity	19,352.50
Expenditure on purchases of finished capital goods	13,167.40	YES	Transmission and distribution of electricity	13,167.40
Expenditure on procurement of network facilities and clarification of the legal status of real properties	3.00	YES	Transmission and distribution of electricity	3.00

	969,718.10			969,718.10

Percentage share of Taxonomy-eligible economic activities in total capital expenditures				100

Share of non-Taxonomy-eligible economic activities in total capital expenditures				0

Accounting principles

Based on the provisions of Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021, PSE analysed the capital expenditures in 2021 and allocated them to Taxonomy-eligible activities.
To calculate the above indices, the value of capital expenditures consistent with the values reported in PSE's consolidated financial statements for 2021 was used, respectively, in the denominator. The value of the increase in tangible and intangible assets during the financial year before revaluation (including the calculation of impairment) and deduction of depreciation for the year was defined as the basic value of capital expenditures.
In the next step, the value of the numerator, i.e. capital expenditures related to assets or processes associated with Taxonomy-eligible business activities, was determined.
100% of the capital expenditures incurred by the company is related to Taxonomy-eligible business activities. These are capital expenditures incurred for investment tasks included in the 2021-2025 Investment Intentions Plan adopted by the company, resulting from the Transmission Network Development Plan.

Contextual information

Due to the transitional nature of the disclosures for 2021, including:

no period for comparison
no reports on the alignment of activities to the taxonomy – no qualitative information are disclosed on material modifications that occurred during the reporting period in relation to the implementation of capital expenditure plans, quantitative breakdown – at the aggregate business activities level – of the amounts included in the numerator and qualitative explanation of the key elements of changes in the capital expenditure KPIs during the reporting period.

OPEX KPI

Percentage of Taxonomy-eligible business activities in total operational expenses

Type of expenditure	Expenditure in 2021 (as defined by Opex) (in PLN thousand)	Which expenditure meets one of the following criteria:
				are related to activities that are eligible for the Taxonomy under the Turnover KPI:				relate to the purchase of the products of taxonomy-eligible activities and individual measures enabling the target activity to become low-carbon or to reduce its greenhouse gas emissions:
				Yes/No	name of the activity related to KPI Turnover:	Amount for YES	Amount for NO	Yes/No:

Technical materials	1,441.36	YES	Transmission and distribution of electricity	1,400.73	40.63	NO
Consumables	4,186.42	YES	Transmission and distribution of electricity	4,186.42	0.00	NO
Transmission grid rehabilitation services	26,288.83	YES	Transmission and distribution of electricity	26,288.83	0.00	NO
Transmission grid maintenance services	76,518.35	YES	Transmission and distribution of electricity	75,753.49	764.85	NO
Other operating services	9,566.83	YES	Transmission and distribution of electricity	8,964.42	602.42	NO
Other refurbishment	1,819.00	YES	Transmission and distribution of electricity	1,434.11	384.89	NO
Research and development works	3,037.15	YES	Transmission and distribution of electricity	3,037.15	0.00	NO
Cleaning services	5,625.17	YES	Transmission and distribution of electricity	5,130.98	494.19	NO
Property security	12,827.69	YES	Transmission and distribution of electricity	11,565.94	1,261.75	NO
Training	3,962.30	YES	Transmission and distribution of electricity	3,929.54	32.75	NO

	145,273.10			141,691.61	3,581.48

Percentage of Taxonomy-eligible business activities in total operational expenses						97.5

Share of non-Taxonomy-eligible business activities in total operational expenses						2.5

This indicator was determined by dividing the total operational expenses related to activities eligible for the Taxonomy systematics by the total expenses allocated the aforementioned cost categories.
According to the calculation carried out in the reporting year, 97.5 percent of total operational expenses are Taxonomy-eligible expenses.
The percentage of operating costs related to activities that are not eligible for the Taxonomy systematics is 2.5 percent.

The accounting policies

Based on the provisions of Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021, the Company analysed its operational expenses in 2021 and allocated a corresponding portion thereof to Taxonomy-eligible activities.

Operational expenses and operating costs are understood in the same way.
The figures for the operating costs incurred are taken from the financial and accounting records and are consistent with the Financial Statements.

According to the Regulation, only costs directly related to the maintenance of fixed assets and infrastructure are the denominator, and they include costs related to:

research and development,
building renovation activities,
short-term leases, maintenance and repairs, and any other direct expenses related to day-to-day running of the property, plant and equipment by the company or a third party outsourced to perform the activities necessary to ensure continuous and efficient operation of those assets.

The company conducted a cost structure analysis and identified the costs given below.

Due to the impossibility of assigning a single cost item within a cost type, the Company included in the denominator only those cost types which were attributable in whole or in their majority to the denominator.

The following cost categories were adopted in accordance with the guidelines described in the Regulation:

Technical materials	Technical materials consumed for the operation of buildings and structures and equipment installed in buildings and structures.
Consumables	Materials purchased for maintenance work or taken from the warehouse of reserve apparatus equipment worn out in maintenance work.
Transmission grid rehabilitation services	Costs of rehabilitation work carried out on transmission grid facilities (lines and substations).
Transmission grid maintenance services	Costs of work related to the provision of maintenance of substation power equipment by external contractors.
Other operating services	Costs of work related to the operation and inspections of other assets used by the Company.
Other refurbishment	Costs of refurbishment of fixed assets not directly used in energy generation and distribution (buildings and structures, machinery and equipment).
Research and development works	Costs of research, development, innovation works.
Cleaning services	Costs of cleaning services on transmission grid facilities (lines and substations) and at the Company's head offices.
Property security	Costs of property security services, supervision of transmission grid facilities (lines and substations) and the Company's head offices.
Training	Specialised training necessary for employees to do their jobs.

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ENVIRONMENTAL IMPACT AND CLIMATE ACTION (E)Compliance with the EU classification of sustainable activities (Taxonomy)

Information on the qualification of activities in accordance with the Taxonomy

TURNOVER KPI

CAPEX KPI

Contextual information

OPEX KPI

Carbon footprint

IMPACT ON SOCIETY AND EMPLOYEES (S)

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