Polish electricity market Energy Regulatory Office Department for Promotion of Competition

Polish electricity market Energy Regulatory Office Electric power sector - main figures 2007 Average - consumer consumption kWh/capita - household consumption kWh/capita Gross output TWh Net export – 5,4 TWh Gross consumption TWh Net consumption TWh Total gross capacity installed - 35,8 GW Number of customers - 16 mln Capacity available for TSO - 26,9 GW

Polish electricity market Energy Regulatory Office Distribution 4 major power plants out of 10 have been privatised 20% of total installed capacity about half of major CHPs have been privatised 2 out of 14 DisCos have been privatised - Vattenfall Distribution (Silesian DisCo) and STOEN (Warsaw DisCo) about 16 % of sales Polish Power Sector – Ownership structure Generation

Polish electricity market Energy Regulatory Office Generation: more than 800 licensed companies 10 major, system power plants (or groups of PP) 18 major CHPs (or groups of CHPs) Transmission: PSE-Operator - TSO, dispatcher 400 and 220 kV networks PGE S.A. (Polish Energy Group) owner eastern coss-border lines, electricity wholesaler Distribution: 14 companies, 4 consolidated Trading: about 300 companies with a trading licence, about 20 active Power Sector

Polish electricity market Energy Regulatory Office Power Sector - generation (1) Structure of the production of electricity by primary energy source: Energy Market Agency (EMA)

Polish electricity market Energy Regulatory Office Power Sector - generation (2) source: Energy Market Agency (EMA) Installed capacity structure by primary energy

Polish electricity market Energy Regulatory Office PSE-Operator S.A. - TSO is responsible for: Power Sector - transmission transmission of electricity, operation of power system, balancing dispatching state owned company ownership unbundled from the mother company (PPGC), involved in trade in electricity and other business (e.g. telecom)

Polish electricity market Energy Regulatory Office Power Sector - distribution Consolidation of the Distribution Sector

Polish electricity market Energy Regulatory Office Power Sector - distribution Consolidation of the Distribution Sector

Polish electricity market Energy Regulatory Office Energy from RES in Poland total capacity installed 1307,5 MW Capacity installed

Polish electricity market Energy Regulatory Office Obligation to purchase energy from RES - scope and schedule The share of energy from RES in the entire annual sales of electricity by a generating or trading enterprise should be not lower than: 3,6% in ,8% in ,0% in ,5% in ,0% in ,0% in ,0% in ,0% in ,0% in 2014

Polish electricity market Energy Regulatory Office Development of RES in Poland Hydro: limited natural resources Wind: limited potential of new connections of wind turbines problems related to balancing of wind power plants and power reserves Biomass: co -firing in conventional installations Support scheme: green certificates Social acceptance and interest: still unsatisfactory

Polish electricity market Energy Regulatory Office TPA as the basis for competitive markets TPA means the obligation to render transport services for eligible customers by all network companies All costumers eligible - theoretical 100% market opening Few taking advantage of that opportunity 63 industrial customers and 541 households, about 8% of sales (including re-negotiated contracts) Electricity sub-sector - market opening

Polish electricity market Energy Regulatory Office Electricity market in Poland (1) Milestones  Before single buyer model  bilateral contracts market emerging  June opening of the Power Exchange  July partial removal of price control on the wholesale market (excluding LT PPAs covering 70 % of electricity sales at that time)  September the hourly balancing market put into operation  August 2007 – act recolving LT PPAs came into force  January 2008 – removal of price control over electricity delivered to non-household consumers  April 2008 – termination of LT PPAs

Polish electricity market Energy Regulatory Office Electricity market in Poland (2) Transactions at the Power Exchange - no legal requirement to trade electricity through the power exchange Balancing Market (including congestion management) day ahead market (gate closure at 12:00 n-1) Competitive purchases of capacity reserves (through tenders) and ancillary services as well as energy for network losses Structure Bilateral contracts between eligible customers (including DisCo) and generators (also other suppliers)

Polish electricity market Energy Regulatory Office Electricity market in Poland (3) Direction of sales by the system power plants

Polish electricity market Energy Regulatory Office Programme for the power sector vertical consolidation (1) GROUP 1 – PGE Power plants Installed capacity [MWe] Sales [TWh] BOT Górnictwo i Energetyka SA Zespół Elektrowni Dolna Odra SA ESP SA small hydro (DisCos)+CHPs TOTAL ,257,2 Distribution companies Number of customers [mln] Sales [TWh] Łódzki Zakład Energetyczny SA, Zakład Energetyczny Łódź Teren SA Grupa L-6 (WGE) TOTAL4,9732,87

Polish electricity market Energy Regulatory Office Programme for the power sector vertical consolidation (2) GROUP 2 - TAURON Power plants Installed capacity [MWe] Sales [TWh] PKE SA Elektrownia Stalowa Wola SA small hydro (DisCos)+CHPs TOTAL ,722,7 Distribution companies Number of customers [mln] Sales [TWh] EnergiaPro ENION SA TOTAL4,014,0123,523,5

Polish electricity market Energy Regulatory Office Programme for the power sector vertical consolidation (3) GROUP 4 - ENERGA Power plants Installed capacity [MWe] Sales [TWh] Elektrownia Ostrołęka SA small hydro (DisCos)+CHPs TOTAL ,8 Distribution companies Number of customers [mln] Sales [TWh] ENERGA SA2,7721,8 GROUP 3 - ENEA Power plants Installed capacity [MWe] Sales [TWh] Elektrownia Kozienice SA small hydro (DisCos)+CHPs TOTAL ,213,2 Distribution companies Number of customers [mln] Sales [TWh] ENEA SA2,3018,56

Polish electricity market Energy Regulatory Office Programme for the power sector vertical consolidation (4) Market concentration* Year Number of generators with market share > 5% in net installed capacities Number of generators with market share > 5% in net generation volume Net installed capacities of three biggest generators [in %] Share of three largest generation companies by net generation volume [in %] HHI indicators by net installed capacity by net generati on volume ,252,41 002,91 366, ,958,01 312,71 710,0 * For all entities in generation sector under statistical obligation. Source: ERO.

Polish electricity market Energy Regulatory Office Programme for the power sector vertical consolidation (5) Polska Grupa Energetyczna Generation Power Plants: BOT (Belchatow, Opole, Torow), Dolna Odra Storage - Pumped Power Plants CHP: Rzeszow, Wrotkow, Gorzow, Bydgoszcz Capacity: MW Generation: 58.6 TWh/a Suppliers ŁZE, ZEŁT, RZE, Lubzel, ZEORK, Białystok, ZKE, ZEWT Sale: 32.9 TWh/a ENERGA Generation Power Plant: Ostroleka Capacity: 1105 MWe Generation: 4.1 TWh/a Supplier ENERGA Sale: 21.8 TWh/a ENEA Generation Power Plant: Kozienice Capacity: 2876 MW Generation: 14.2 TWh/a Supplier ENEA Sale: 18.6 TWh/a Tauron Polska Energia Generation Power Plants: PKE (Lagisza, Jaworzno III, Siersza, Laziska, Halemba, Blachownia), Stalowa Wola CHP: PKE (Katowice, Bielsko-Biała, Tychy) Capacity: MW Generation: 24.1 TWh/a Suppliers Energia Pro, Enion Sale: 23.5 TWh/a PKE PGE (BOT) Enion Energia Pro Ł - 2 ŁZE Łódź Teren L - 5 (WGE) RZE Energetyka Podkarpacka RWE STOEN VATTENFALL PGE - ENEA ENERGA TAURON

Polish electricity market Energy Regulatory Office Termination of LT PPAs did not improve market liquidity Lack of ownership unbundling of DSOs: No secondary legislation providing for switching terms and preventing incumbents from discriminating newcomers, obstacles to change supplier Barriers to competition and problems to be solved Low level of wholesale market liquidity Vertical and horizontal integration of power sector Psychological barriers among customers to take market risks Unsatisfactory level of investment of the power industry Problems to cover demand for capacity Problems to cover 3x20% targets Higher level of generation capacity withdrawals than in previous years

Polish electricity market Past and Future Thank you! Energy Regulatory Office