DECISION ON SUSTAINING THE APPLICATIONS FOR GRANTING THE RIGHT TO COVER THE NEGATIVE BALANCE, SUBMITTED BY PROJECT COMPANIES IMPLEMENTING OFFSHORE WIND FARM PROJECTS

The Management Board of Polenergia S.A. (“Issuer”), in reference to the current report No. 15/2021 of 5 March 2021, hereby informs that on 16 April 2021, the Issuer, which is a shareholder in project companies MFW Bałtyk II Sp. z o.o. and MFW Bałtyk III Sp. z o.o. (jointly “Project Companies”), holding 50% shares in the Project Companies, together with Wind Power AS (Equinor Group), which is a shareholder holding the remaining 50% shares in the Project Companies, adopted the resolutions of shareholders of the Project Companies on giving consent to sustain the applications submitted by the Project Companies on 5 March 2021 to the President of the Energy Regulatory Office (the “ERO President”) under the provisions of the Act of 17 December 2020 on promoting generation of electricity in offshore wind farms (the “Offshore Wind Farm Act”) for granting, by decision of the ERO President, the right to cover the negative balance for electricity generated in an offshore wind farm and feed into the grid (the “Support”) (the “Applications”). The Issuer was informed that following the resolutions adopted by the shareholders, the Project Companies decided to sustain the Application.

The aforementioned resolutions of the shareholders were adopted and decisions of the Project Companies were made in connection with the issuing, by the Minister for Climate and Environment (the “Minister”), of regulation of 30 March 2021 on the maximum price for electricity generated in an offshore wind farm and feed into the grid in PLN per 1 MWh, which is the basis for calculating the coverage of the negative balance, where the Minister set the maximum price for electricity generated in an offshore wind farm and feed into the grid at the level of PLN 319.6 per 1 MWh (the “Maximum Price”). Taking into consideration the provided level of the Maximum Price, the Issuer and Wind Power AS, as the shareholders of the Project Companies, decided that the companies should apply for the Support.

Obtaining of the Support depends firstly on obtaining appropriate individual decisions of the ERO President, granting each Project Company the right to cover the negative balance in accordance with the Applications. In case the installed electric capacity of the offshore wind farms for which the ERO President issues a decision on granting the Support reaches the maximum total capacity specified in the Offshore Wind Farm Act (i.e. 5.9 GW), the Project Companies may be summoned to limit the installed electric capacity of a given offshore wind farm (wind farms) covered by the Application, otherwise the Support may not be granted (the sequence of completed applications for the Support submitted by the investors will be decisive). At a further stage, granting the Support will be subject to the approval by the European Commission (the “EC”). After receiving the EC standpoint, the ERO President will determine, by means of an administrative decision, the individual price which will be the basis for settling the negative balance for every Project Company (the “Support Price”). The Support Price may be determined by the ERO President on a level equal to or lower than the Maximum Price. In case the Support Price is lower than the Maximum Price, the Project Companies will be entitled to waive their right to cover the negative balance awarded to them. Should such situation arise, the Issuer and Wind Power AS, as the shareholders of the Project Companies, will analyse the appropriateness of exercising the right to waive the right granted to the Project Companies to cover the negative balance in order to express the relevant corporate approvals in this respect.

As provided in the current report No. 15/2021 of 5 March 2021, obtaining of the Support results with the obligation, on the part of the Project Companies, to generate and feed into the grid for the first time, electricity generated in their offshore wind farms or their part after the receipt of licence, within 7 years from the date when the ERO President issues a decision determining the Support Price.

The implementation of the above obligation requires significant capital expenditures. The total estimated capital expenditures to be incurred by the Project Companies after obtaining the Support, related to the preparation of both projects in the period until the final investment decision and commencement of the construction works scheduled for 2023, range from PLN 307 to PLN 385 million. In addition to the amounts referred to above, the estimated expenditures on the construction range from PLN 16,130 million to PLN 18,220 million, of which the predominant part will be borne once the final investment decision has been made and the construction phase commences. The Issuer, as the shareholder of Project Companies will be required to cover a part of the investment expenditures corresponding to its share in the Project Companies, including credit facility for the financing of expenditures during the construction period, which the Project Companies plan to obtain.

Furthermore, the Issuer informs that if the Support is granted to the Project Companies, the Issuer will be authorised to receive additional payments as provided in the contract regarding, among others, sale of shares in the Project Companies concluded on 5 March 2018 with Statoil Holding Netherlands B.V. (currently operating under the business name of Equinor Holding Netherlands B.V.) (the “Share Purchase Agreement”) (about which the Issuer informed in the current report No. 4/2018 of 5 March 2018) (the “Additional Payments”).

The payment of the Additional Payments and their final amount depends on a number of factors, including the date of granting the Support and the volume of the planned installed electric capacity covered by the Support. The payment of the Additional Payments should take place after the ERO President issues a decision on granting of Support for every Project Company under Art. 16.1 of the Offshore Wind Farm Act. The amount of the Additional Payment assessed by the Issuer amounts to EUR 35,000 for every MW of the installed capacity in reference to the offshore wind farm project performed by MFW Bałtyk II Sp. z o.o. and ranges from EUR 33,452 to EUR 36,071 for every MW of the installed capacity in reference to the offshore wind farm project performed by MFW Bałtyk III Sp. z o.o. The Issuer’s Management Board assumes that the Additional Payments will be used to finance the investment expenditures related to the preparation of both projects until the final investment decision and the commencement of the construction scheduled for 2023.

The Issuer notes that in specific cases provided in the Share Purchase Agreement, the obligation to pay the Additional Payments – in reference to one or both Project Companies – may expire, or paid amount of the Additional Payment – in reference to one or both Project Companies – may be subject to reimbursement by the Issuer. In particular, this refers to the situation when a given decision on granting the Support has been revoked, it has been deemed invalid or due to other reasons it will expire.

The Issuer will publish further information pertaining to the Support and the Additional Payments in the form of current reports.

Legal basis: Art. 17(1) of Regulation of the European Parliament and Council (EU) No. 596/2014 on market abuse and repealing Directive 2003/6/EC of the European Parliament and Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Journal of Laws of the European Union L of 2014, No. 173, p. 1 as amended).