Management Board report on the activity of ENEA S.A. and the ENEA Group in 2020

Poznań, date of approval and publication: 25 March 2021

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Dear Stakeholders,

we have the honor to present to you this periodic report of the ENEA Group, in which we have described the activities we carried out during all twelve months of 2020. In this period, the ENEA Group ran its business in a demanding market environment and in an economy fighting the effects of the pandemic.

We successfully reorganized our work at every level of operation to ensure the safety of our employees and customers and a stable supply of electricity to all recipients. During this special time, our employees performed their assigned tasks with responsibility and commitment. I wish to thank them very much for this outstanding effort.

With a great deal of commitment, we are actively supporting governmental and non-governmental endeavors aimed at counteracting the spread of the coronavirus. In 2020, the ENEA Group donated more than PLN 5.3 million through various channels, including the ENEA Foundation. This aid was provided to hospitals, treatment centers, hospices, sanitary and epidemiological stations and non-governmental organizations for the purchase of medical equipment and necessary sanitary and personal protection products. We know what responsibility means. For this reason, we care not only for our employees and customers, but also for the whole communities in the locations where we run our business.

Financial and operating performance

2020 was a tough period for the global economy. Also our domestic power sector experienced a major decline in the activity of large businesses, which triggered a decline in demand for electricity. The ENEA Group’s financial and operating performance was affected by the volatile and tough market environment. Despite this, we generated stable results with an increase in revenues by 11% y/y to PLN 18.2 billion and an EBITDA of PLN 3.3 billion.

In 2020, the volume of sales of electricity and gaseous fuel to retail customers reached 21.1 TWh, up by approx. 3.8%, or 774 GWh, compared to 2019. In the business customer segment, the sales volume was higher than the year before by 371 GWh, or approx. 2.5%. In the household segment, the sales volume increased by 133 GWh, or approx. 2.9%. The sales volume of gaseous fuel also increased compared to the corresponding period of the previous year (by 270 GWh, or approx. 25.5%). The total volume of energy generated from renewable sources reached almost 2.4 TWh and increased by 5%, or 112 GWh.

More than 43 thousand renewable sources, including micro-installations, got connected to ENEA Operator’s grid, and the total number of renewable energy sources connected by the distribution company was nearly 63 thousand at yearend 2020. The total capacity of the sources installed during this period was over 546 MW, owing to which the current total capacity of connected renewable energy sources, including micro-installations, surpassed 2,043 MW.

In 2020, the ENEA Group’s capital expenditures totaled PLN 2.4 billion and were completed largely in accordance with the previously adopted assumptions. PLN 273 million was allocated to capital expenditures related to the Group’s environmental protection endeavors, including commercial connection of wind farms to ENEA Operator’s grid and upgrades and projects adapting the Group’s power plants to the BAT conclusions.

Stable fuel source for power plants

The key supplier of the input commodity for two of our power plants is LW Bogdanka, a member of the Group. Last year, the Company recorded nearly 7.6 million tons of production, down by nearly 19.5% y/y. In the same period, sales of coal decreased by 18%. The company’s weaker operating performance in 2020 was driven down primarily by the reduced demand for steam coal from the commercial power and heat generation sectors. LW Bogdanka posted PLN 1,822 million in revenue from sales. EBITDA stood at PLN 466 million.

Before the end of 2020, LW Bogdanka presented a new strategy in response to the challenges presented by Poland’s Energy Policy until 2040. The Company focuses chiefly on preserving production capacity, upholding high profitability ratios, demonstrating respect for the natural environment and maintaining the position of the region’s economic and social stronghold. In accordance with its objectives, LW Bogdanka remains the performance leader in the mining industry attaining the highest standards of work safety, flexibly adjusting its operations to evolving environmental requirements and market conditions and involved in endeavors aimed at reaching the “green deal” through diversification of its business.

ENEA Group building the power sector of the future

The ENEA Group is also updating its Development Strategy, which will be aligned with the new external conditions and will enable an effective and successful transformation process. The commitment to implement the adopted development directions and objectives is very important, especially in the current period of an economic downturn caused by the pandemic. We strive to play

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We will intensify our investment endeavors in the area of renewable energy sources. We have given up our capital involvement in the project aimed at building a gas-fired unit at the Ostrołęka C Power Plant. We will execute any potential coal-to-gas conversion projects using our own generation assets.

Renewable energy sources in the focus of the Group’s attention

In pursuit of the ENEA Group’s ambitious transformation, a company by the name of ENEA Nowa Energia was established in mid- 2020 to develop and manage projects based on renewable energy sources. The company went through the organization process successfully and in a timely manner. Today, it manages 26 RES facilities, including hydro power plants and wind farms across Poland.

Offshore energy generation from wind sources plays an important role in the ENEA Group’s growth plans. In order to boost our competitive edge on the demanding offshore market, we intend to collaborate with other partners active in the Polish energy sector in the execution of future offshore wind farm projects: PGE Polska Grupa Energetyczna and Tauron Polska Energia. We believe that the letter of intent between our companies on the establishment of this collaboration, signed in January 2021, will accelerate and solidify our activities in this business segment.

In addition to developing our own RES capacity, we are involved in endeavors aimed at ensuring the country’s energy transformation, supporting RES generators in fulfilling the reporting duty arising from European law (SOGL guidelines). ENEA Operator’s experts share their knowledge and experience, supporting entities generating electricity from renewable sources in providing data on electricity generated and introduced to the power grid.

Please read the following summary of activity of the ENEA Group in 2020. On behalf of the ENEA Management Board, I wish to thank all members of the Supervisory Board, the management boards of other Group companies and all employees of the ENEA Group for their professional and committed efforts, permitting us to jointly build and increase the Group’s value, making it an even more attractive asset for our investors and shareholders.

Respectfully,

Paweł Szczeszek

President of the Management Board of ENEA S.A. and CEO

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1. Operating summary 6

2. ENEA S.A. as the parent company in the Group 10

3. Organization and activity of the ENEA Group 11

4. Risk management 31

5. Headcount 34

6. Industry profile 36

7. Financial standing 40

8. Shares and shareholders 68

9. Governing bodies 69

10. Other information relevant to evaluation of the issuer’s standing 74

11. Representation on the application of corporate governance 97

12. Non-Financial Statement of ENEA Group for 2020 109

13. Appendices 142

14. Glossary of terms and abbreviations 150

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In 2020, the ENEA Group generated EBITDA of PLN 3,302 million (down by PLN 36 million y/y).

The highest EBITDA of PLN 1,530 million was earned in the Generation area (down by PLN 64 million y/y). A significant decrease in EBITDA was recorded in the System Power Plants Segment; the y/y decrease of approx. PLN 97 million, which resulted from: in 2019, the reversal of the provision for the acquisition of the Skoczykłody wind farm in the amount of PLN 129 million, a decrease in the generation margin (lower unit CDS due to the increase in coal costs with transport and CO 2 costs, partly covered by higher energy prices), with a simultaneous increase in the turnover margin and the Balancing Market (higher unit margins, volume growth). Higher EBITDA in the Heat and RES Segments by PLN 21 million y/y and PLN 12 million y/y, respectively.

The Mining area generated EBITDA of PLN 470 million (down by PLN 301 million y/y). The segment’s result is attributed mainly to a decrease in revenue from sales of coal (lower sales volume offset to a certain degree by the higher selling price), in connection with the unfavorable oversupply of coal in the market, with a simultaneous decrease in employee benefit costs due to the subsidy obtained from anti-crisis shield.

The Distribution area posted EBITDA of 1,313 million (up by PLN 221 million y/y). The increase was driven by higher margins on licensed activities (affected by, among others, a higher rate of the fixed and variable grid charge in the approved 2020 tariff and higher revenues from grid connection fees) as well as a better result on other operating activities (driven mainly by changes in the provisions for grid assets and higher revenue from contractual penalties and indemnities).

The Trading area posted EBITDA of -15 million (up by PLN 35 million y/y). The segment’s result was favorably affected by the increase in the average sales price of energy and the updated valuation of CO ₂ contracts. At the same time, the energy purchase prices increased (mainly due to the increase in the price of CO 2 emission allowances) and so did the costs of environmental obligations.

• The ENEA Group made capital expenditures of over PLN 2,441 million.

• Production of commercial coal was 7.6 million tons.

• Sales of commercial coal were 7.7 million tons.

• The Group produced over 22 TWh of electricity.

• Sales of heat in the Generation Segment reached 6,000 TJ.

• Sales of distribution services to end users were over 19 TWh.

• The volume of sales of electricity and gaseous fuel to retail customers was more than 21 TWh.

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First quarter

• On 3 February 2020, the Company received a statement from the Minister of State Assets that the Minister of State Assets has exercised its powers to appoint a member of the ENEA S.A. Supervisory Board pursuant to § 24 sec. 1 of the Company’s Articles of Association. Based on the aforementioned powers, Mr. Bartosz Nieścior was appointed to the Company's Supervisory Board as of 3 February 2020.

• On 6 February 2020, the Company received a resignation letter from the Supervisory Board Chairman, Stanisław Kazimierz Hebda, dated the same day.

• On 11 February 2020, ENEA Wytwarzanie Sp. z o.o. and GAZ-SYSTEM S.A. signed an agreement to design the connection of Kozienice Power Plant to the GAZ-SYSTEM transmission network. The agreement will open the process of designing a gas connection for the Kozienice Power Plant. Expansion of the transmission system by GAZ-SYSTEM will increase its capacity to supply higher volumes of natural gas throughout Poland. This will increase the capacity for connecting industrial plants as well as individual customers to the network.

• On 13 February 2020, ENEA S.A. and Energa S.A. concluded a Memorandum of understanding to suspend the financing of the Ostrołęka Power Plant C construction project. On 14 February 2020, Elektrownia Ostrołęka Sp. z o.o. submitted an order to suspend all the works related to the Contract to the general contractor of the Ostrołęka Power Plant C Construction Contract, with the suspension taking effect as of 14 February 2020.

• On 14 February 2020, the Company received information about the following:

− an order issued by Elektrownia Ostrołęka on 14 February 2020 to the contractor under the agreement to redevelop the railway infrastructure for the Ostrołęka C Power Plant to suspend the performance of the railway contract with the suspension coming into effect on 14 February 2020,

− an order issued by Elektrownia Ostrołęka on 14 February 2020 to the contractor under the agreement to redevelop the railway infrastructure for the Ostrołęka C Power Plant of 4 October 2019, to suspend the performance of the railway contract with the suspension coming into effect on 14 February 2020.

• On 14 February 2020, in connection with receipt of the audited financial statements of Polska Grupa Górnicza S.A. (PGG) for 2019, in which PGG recognized an impairment loss for PGG’s non-current assets as at 31 December 2019, the Company became aware of the possible need to recognize an impairment loss on the Company’s holding in PGG. The impairment loss was recognized in the consolidated financial statements of the ENEA Group for 2019 and in the standalone financial statements of ENEA S.A. for 2019.

• On 21 February 2020, the Company and Energa S.A. signed a memorandum of understanding on analyses to be conducted during the period of suspension of work on the Ostrołęka C Project. The memorandum sets out the detailed scope and schedule of analysis of the technical, technological, economic, organizational, legal and financial aspects of the project.

• On 21 February 2020, ENEA Wytwarzanie Sp. z o.o. concluded an out-of-court settlement with Fen Wind Farm B.V. based in Amsterdam and Wento Holdings S.à r.l. based in Luxembourg in connection with a court dispute concerning the acquisition by ENEA Wytwarzanie of shares in Eco-Power Sp. z o.o., which owns the Skoczykłody wind farm. By its power, the parties terminated the preliminary agreement for the purchase of shares in Eco-Power Sp. z o.o. by ENEA Wytwarzanie Sp. z o.o. with effect on the date of the settlement and unconditionally and irrevocably waived any claims against each other regarding rights to any shares directly or indirectly related to the intended sale of shares in Eco- Power Sp. z o.o. to ENEA Wytwarzanie Sp. z o.o. In this situation, the Group reversed the provision in the amount of PLN 129 million. The reversal of the provision was recognized in the consolidated financial statements of ENEA Group for 2019.

• On 19 March 2020, the Fitch Ratings agency issued a press release, in which it affirmed the Company’s long-term foreign- and local-currency issuer default ratings at ‘BBB’ with stable outlook.

• On 19 March 2020, the Extraordinary General Meeting of the Company adopted resolutions, by the power of which Ms. Izabela Felczak-Poturnicka and Mr. Mariusz Fistek were appointed to the Supervisory Board of ENEA S.A. of the 10th term, effective on the same date (where Ms. Izabela Felczak-Poturnicka was at the same time appointed Chairwoman of the Company’s Supervisory Board).

• On 31 March 2020, a decision was made to recognize impairments on the carrying amount of assets in the Generation Area, Renewable Energy Sources Area, the Biogas CGU and in the Heat Area; on the same date, a decision was made to recognize an impairment loss on PGG shares.

Second quarter

• On 19 May 2020, the Company received information from Elektrownia Ostrołęka Sp. z o.o., the company currently executing the Ostrołęka C power plant construction project, about the recognition of impairment losses on non-current assets in Elektrownia Ostrołęka in the amount of PLN 1,027.3 million. According to information received from Elektrownia Ostrołęka, these impairment losses were recognized as a result of an impairment test for non-current assets carried out in connection with an update of the business assumptions for the coal-based project. Accordingly, on the same date the Management Board of the Company made a decision to recognize an impairment loss on Elektrownia Ostrołęka shares and to write off the loans granted to Elektrownia Ostrołęka along with interest. The impairment losses were recognized in the consolidated financial statements of the ENEA Group for 2019 and in the standalone financial statements of ENEA S.A. for 2019. On 27 May 2020, the Company received a statement from the Minister of State Assets that the Minister of State Assets has exercised its powers to appoint and dismiss a member of the ENEA S.A. Supervisory Board pursuant to § 24 sec. 1 of the Company’s Articles of Association. According to the said statements, the Minister of State Assets, in

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exercise of the powers conferred on him, dismissed, effective as of 27 May 2020, Mr. Bartosz Nieścior from the Company’s Supervisory Board and, at the same time, appointed Mr. Paweł Szczeszek to the Company’s Supervisory Board.

• On 2 June 2020, the Company accepted the final report on analyses conducted in cooperation with Energa S.A. (Energa) regarding technical, technological, economic, organizational and legal aspects and potential continuation of funding for the project involving the construction of a new coal-fired unit in the form of the planned Ostrołęka C power plant in Ostrołęka with a capacity of approx. 1,000 MW (Project). The conclusions drawn from the analyses do not justify the continuation of the project in its current form, i.e. as a construction project of a power plant generating electricity through combustion of bituminous coal. At the same time, the technical analysis confirmed feasibility of the scenario of building a power plant generating electricity in a natural gas combustion process (Gas-Fired Project) at the current site of the coal- fired unit being built. Consequently, the Company’s Management Board made a decision to continue the construction of the generating unit in Ostrołęka based on the assumption of changing the power source from coal-based to gas-based. On 2 June 2020, a trilateral agreement was also signed between the Company, Energa and PKN ORLEN, whereby the following key principles of cooperation in the Gas-Fired Project were defined.

• On 3 June 2020, the Company signed a letter of intent (Letter of Intent) with Iberdrola Eólica Marina S.A. (Iberdrola) regarding the Company’s potential investment in offshore wind farm projects to be developed in the Polish exclusive economic zone of the Baltic Sea. In connection with the signing of the Letter of Intent, the parties will enter into exclusive negotiations aimed at assessing the feasibility of execution of a joint capital expenditure project by the Company and Iberdrola in the said wind farm projects with a total capacity of up to approx. 3.3 GW and their shared preparation, construction and operation.

• On 4 June 2020, Mr. Mirosław Kowalik tendered his resignation from the position of President of the ENEA S.A. Management Board and from membership in the Company’s Management Board effective as of 5 June 2020. On the same date, the Company’s Supervisory Board adopted a resolution to second, starting 6 June 2020, Mr. Paweł Szczeszek, Supervisory Board Member, to temporarily perform the duties of the President of the ENEA S.A. Management Board until the appointment of a new President of the Company’s Management Board, but no longer than for a period of three months from the date of his secondment.

• On 30 June 2020, the Company’s Supervisory Board adopted a resolution to appoint Mr. Paweł Szczeszek to the position of President of the ENEA S.A. Management Board for the joint term of office commenced on the date of holding the Company’s Ordinary General Meeting which approved the financial statements for 2018. The resolution came into force upon adoption. Upon his appointment to the position of President of the Management Board, Mr. Paweł Szczeszek’s mandate of a Member of the Company's Supervisory Board expired.

Third quarter

• On 8 July 2020, the Company received information that, on the same date, the Court of Appeal in Poznań announced a judgment, in which the Court of Appeal dismissed the Company’s appeal against a Regional Court judgment declaring the annulment of Resolution No. 3 of the Extraordinary General Meeting of ENEA S.A. of 24 September 2018 to express a directional consent to proceed with the Construction Stage under the Ostrołęka C project. As a result, as of 8 July 2020, the judgment of the Regional Court in Poznań declaring annulment of the Resolution became final.

• On 22 July 2020, Mr. Zbigniew Piętka tendered his resignation from the function of ENEA S.A. Management Board Member for Corporate Matters, effective as of 24 July 2020.

• On 23 July 2020, Mr. Piotr Adamczak tendered his resignation from the function of ENEA S.A. Management Board Member for Commercial Matters, effective as of 10 August 2020.

• On 7 August 2020, the Company’s Supervisory Board adopted resolutions in the matter of: appointing Mr. Tomasz Szczegielniak to the position of the ENEA S.A. Management Board Member for Corporate Matters, effective as of the resolution adoption date and appointing Mr. Tomasz Siwak to the position of ENEA S.A. Management Board Member for Commercial Matters effective as of 17 August 2020 for the joint term of office commenced on the date of holding the Company’s Ordinary General Meeting which approved the financial statements for 2018.

• On 11 August 2020, the Company reported on its intention to include non-recurring operations of an accounting nature in the financial statements for H1 2020. The Company identified the need to recognize an impairment loss on the value of shares in ENEA Wytwarzanie sp. z o.o. (ENEA Wytwarzanie) in the standalone financial statements for H1 2020 and an impairment loss on the value of generation assets of its subsidiary ENEA Wytwarzanie in the consolidated financial statements for H1 2020, as a result of the completion, on 11 August 2020, of tests for the impairment of fixed assets, including shares in ENEA Wytwarzanie. Moreover, following its assessment, carried out on 11 August 2020, of the impact exerted by the decision to continue the construction of the generating unit in the form of the Ostrołęka C Power Plant, based on a change from a coal-fired power source to a gas-fired power source, the Company has identified the need to:

− recognize impairment losses on a granted loan and ENEA’s S.A. liability towards ENERGA S.A. to return half the loans with interest granted by the latter to Elektrownia Ostrołęka sp. z o.o. under the loan agreements of 30 September 2019 and 23 December 2019, which the Issuer disclosed, among others, in its annual consolidated financial statements for 2019. The impairment loss covered the remaining part, which was not included in the impairment loss disclosed in Current Report No. 18/2020, of the value of loans with interest granted to Elektrownia Ostrołęka sp. z o.o. in the standalone and consolidated financial statements for H1 2020,

• establish, in the standalone and consolidated financial statements for H1 2020, a provision for future investment commitments towards Elektrownia Ostrołęka sp. z o.o. and ENERGA S.A., the level of which reflects the possible, estimated as at the date of establishment of the provision, funding amounts for Elektrownia Ostrołęka sp. z o.o. earmarked for the settlement of the project execution carried out to date by Elektrownia Ostrołęka sp. z o.o., On 8 September 2020, the parties to the Letter of Intent announced on 3 June 2020 on the potential investment in offshore wind farm projects made a decision to terminate their exclusive talks on the potential investment in the projects in question without preparing the

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term sheet. Accordingly, on the same date, the parties to the Letter of Intent confirmed that it would no longer be binding on them.

• On 17 September 2020 the Company received a statement from the Minister of State Assets that on 16 September 2020 the Minister exercised his powers to appoint a Member of the ENEA S.A. Supervisory Board pursuant to § 24 sec. 1 of the Company’s Articles of Association. In accordance with these powers, Mr. Rafał Włodarski was appointed to the Company's Supervisory Board as of 16 September 2020.

Fourth quarter

• On 1 October 2020, the Company signed a Letter of Intent with the State Treasury on the acquisition by the State Treasury of a 100% equity stake in PGE EJ 1 sp. z o.o. The Letter of Intent was signed by all shareholders of PGE EJ 1 sp. z o.o. (besides ENEA, these are KGHM Polska Miedź S.A., PGE Polska Grupa Energetyczna S.A. and TAURON Polska Energia S.A.). The company is responsible for the preparation and execution of an investment project involving the construction and operation of Poland’s first nuclear power plant. The signatories of the Letter of Intent have committed themselves to taking, in good faith, all steps necessary to prepare and make a transaction involving the acquisition by the State Treasury of an equity stake in PGE EJ 1 sp. z o.o. The State Treasury’s intent expressed in the Letter of Intent is to purchase shares in PGE EJ 1 sp. z o.o. by 31 December 2020, although the parties have not set any end date of the LoI’s term of validity. The Letter of Intent does not require the parties to execute the Transaction eventually. The decision as to whether or not to execute the Transaction is contingent on the outcome of the negotiations between the parties and the fulfillment of other conditions provided for in the applicable laws or corporate documents.

• On 21 October 2020, the Połaniec Power Plant signed with PSE and annex to the electricity transmission service agreement, on the basis of which warranty testing and measurements were carried out. As of 21 October, the maximum available capacity of Unit 5 was officially increased to 242 MW and of the whole Połaniec Power Plant to 1,899 MW. The modernization of Unit 5 was the last part of a major project entitled “Phoenix” carried out in the Połaniec Power Plant in the 2013-2020 period. It served the purpose of boosting the economics and reliability of the power plant’s operations by carrying out a through modernization of six out of seven conventional power units, extension of their life span and modification of the power plant’s emission parameters to the current, more strict standards.

• On 23 October 2020 the Company’s Supervisory Board adopted a resolution to appoint Mr. Marcin Pawlicki, effective as of 29 October 2020, to the position of the ENEA S.A. Management Board Member for Operational Matters for the joint term of office commenced on the date of holding the Company’s Ordinary General Meeting which approved the financial statements for 2018.

• On 27 October 2020, the Company identified the need to recognize an impairment loss on the block of shares held by the Company in Polska Grupa Górnicza S.A. estimated at approx. PLN 254 million in the standalone financial statements for Q3 2020 and approx. PON 129 million in the consolidated financial statements for Q3 2020.

• On 17 November 2020 the Company’s Supervisory Board adopted a resolution to dismiss Mr. Jarosław Ołowski, ENEA S.A. Management Board Member for Financial Matters, from the ENEA S.A. Management Board.

• On 9 December 2020, the Company’s Supervisory Board adopted a resolution to appoint, as of 21 December 2020, Mr. Rafał Marek Mucha to the position of Member of the ENEA S.A. Management Board for Financial Matters for the joint term of office commenced on the date of holding the Company’s Ordinary General Meeting which approved the financial statements for 2018.

• On 22 December 2020, the Issuer’s Supervisory Board made the following decisions: for the Issuer to opt out of its capital involvement in the construction of a gas-fired unit under the Ostrołęka C Project, and to agree with Energa S.A. on the principles to be applied to the settlement of expenses incurred on the execution of the project to build a coal-fired unit under the Ostrołęka C Project.

• On 22 December 2020, the following agreements were signed: an agreement between the Company, Energa S.A. and Elektrownia Ostrołęka Sp. z o.o. (the special purpose vehicle executing the construction of the Ostrołęka C Power Plant) on cooperation in the SPV’s split-up, and an agreement between the Company and Energa on cooperation in the settlement of the Coal-Fired Project.