Annual and Sustainability Report HEP Group CONTENTS RESPONSIBLE, SUSTAINABLE AND SUSTAINABLE MARKET APPROACH QUALITY EMPLOYER 8 Stability and security of generation and Working conditions and collective bargaining 141 distribution of energy and energy sources 76 STRATEGIC APPROACH Education and professional development 143 Modernization and overhaul of power plants 78 TO SUSTAINABILITY Diversity and equal opportunities 146 6 Distribution network development 81 INTRODUCTION BY THE Performance appraisal and feedback 148 Sustainable construction and development Material topics 32 Health and safety in the workplace 149 PRESIDENT OF THE of energy system 87 Material topics management HEP people in numbers 152 MANAGEMENT BOARD 6 4 HEP’s projects for the construction of and stakeholders’ opinions 34 renewable sources of energy and 1 Materiality matrix 42 high-efficiency cogeneration 88 Stakeholder engagement 44 Market development and competitiveness 92 HEP Group stakeholders 45 Customer oriented business 92 STAKEHOLDER DIALOGUE, Stakeholders’ opinions on Projects for customers and the community 97 ON HEP GROUP HEP Group progress in TRANSPARENT Responsible procurement management 99 sustainable development COMMUNICATION, HEP Group and recommendations for companies 12 improvements 46 AND EDUCATION Key data 15 Materiality in the context of sustainable development Awarding excellence 162 goals 48 Green projects for green communities 165 9 Support for culture, health 2 and humanitarian projects 166 INVESTING IN SUSTAINABLE ENVIRONMENTAL PROTECTION Engagement and informing stakeholders about HEP projects 167 AND RESPONSIBLE IMPACT Award-winning progress MANAGEMENT of our sustainability reports 171 HEP GROUP BUSINESS CORPORATE AND OPERATIONS IN 2019 7Management systems according to ETHICAL GOVERNANCE ISO norms in HEP Group 104 Business environment Environmental permits 106 and operations 54 The management structure Energy 107 of HEP d.d. during 2019 22 Financial results 59 Emissions into air in HEP Group 115 3 Corporate governance 24 Results by sectors 64 Water management in HEP Group 121 ABOUT THIS Responsible 5 Financial position 69 Biodiversity protection 126 REPORT and ethical operations 27 Credit rating 71 Hazardous and non-hazardous waste HEP Group memberships 29 Investments 72 management in HEP Group 132 10 GRI Index 175 INTRODUCTION by the President of the Management Board 1 President of the Management Board Frane Barbarić The business year 2019 in HEP Group was marked by the start of a significant investment cycle in renewable energy sources and a continuation of good business results. The Group generated profit of HRK 1.4 billion and increased its electricity share on the Croatian market to 91%. Our generation facilities produced 12.3 TWh of electricity. HEP group | Introduction n late November 2019, Standard & Poor’s up- a green, sustainable, advanced and climate neu- by the graded the stand-alone credit profile of Hr- tral economy. In its development strategy for the vatska elektroprivreda from bb to bb+ and period until 2030, HEP Group has already opted affirmed the company’s baseline rating (BB+) for a sustainable development scenario comple- Istating that HEP had improved its hydrology mentary to the European Green Deal. President and fuel price volatility exposure management. As part of our renewable scenario, our first acqui- Annual and Sustainability Report Annual Moody’s affirmed HEP’s long-term credit rating (Ba2) in 2019 and boosted the outlook from sta- sition carried out in 2019 was a purchase of an 6 ble to positive. operating solar plant. Solar plant Kaštelir in Istria 7 of the is the first large non-integrated solar power plant In order to achieve efficient financial position in our system. We also commenced the erection management in view of the characteristics of of HEP’s first windfarm, VE Korlat (58 MW), which HEP’s existing generation capacities, it is impor- is the first new wind power plant in Croatia to pro- tant to open a new development direction aimed Management duce electricity without a contract with HROTE at building a diverse and flexible production port- folio which can respond to demands set by the (Croatian Energy Market Operator) on guaranteed energy-climate policy of both Croatia and EU. In takeoff at an incentivized price. The solar power Board late 2019, the European Commission adopted the plant on the island of Vis was also undergoing Green Deal for making Europe the first climate construction in 2019, and the erection of Cres and neutral continent until 2050. With this in mind, Vrlika solar power plants was prepared. Develop- HEP Group as one of the biggest energy compa- ment of several other solar power plant projects nies in South East Europe sees its opportunity for was launched or continued, some in cooperation strengthening its energy sector position based on with local self-government units. Projects of large conventional power plants were uefied natural gas terminal, which commenced in also developed in 2019. At the end of the year, April 2019. As a new gas supply route, the LNG main works on the construction of the high-ef- terminal will increase the security of supply for ficiency combined-cycle unit in EL-TO Zagreb HEP and Croatia as a whole. HEP d.d. continued CCPP (150 MWe, 114 MWt) commenced. Also, to operate as a wholesale gas supplier in 2019, a development project of upgrading the existing the obligation which will expire on 31 March 2021 Senj hydropower system by increasing its ca- pursuant to the Regulator’s decision (HERA). A pacity by more than 400 MW also continued by significant step forward in gas business develop- preparing project documentation and obtaining ment was made by the acquisition of Plin Vtc from permits. Such many generation-related projects Virovitica, a gas distribution and supply company. were made possible by a very clear stance of the Introduction Business results and success we achieved in 2019 Croatian Government towards Croatia’s transition to the low-carbon energy, and the creation of con- would not have been possible without quality and ditions for investments in renewable energy sec- motivated employees. We would like to express our satisfaction with constructive negotiations we tor and energy in general. of the Management Board the President by had with trade unions which resulted in the signing In addition to business activities aimed at increas- of the new Collective Agreement for HEP Group. In HEP group ing capacities and production from low carbon addition, education programs continued in 2019 | energy sources, the implementation of measures though HEP Academy as an in-house training and the preparation of energy efficiency increase center for the education of HEP Group workers. projects was intensified under the renewable sce- As one of the biggest and most desirable employ- nario. In late 2019, the EU Grant Agreement was ers in Croatia and for the purpose of long term signed for the project of replacing the connection sustainability of employment for individual work hot-water pipeline in Osijek, while the European places, we have continued to provide scholarships Commission approved the grant of EUR 57 million to high school and university students at an in- for the Zagreb hot-water network revitalization creased rate than in the previous period. project. Business activities within Croatia’s tran- sition to the low-carbon economy include an ac- HEP aims at becoming a center of excellence and Annual and Sustainability Report Annual celerated continuation of the eMobility program a regional leader in development and implemen- implementation resulting in the installation of tation of advanced technological solutions to 8 64 public charging stations adding to a total in- successfully respond to all market, environment, 9 stalled number of 117 EV charging stations from and social challenges. Relying on rich experience the project started until end 2019. and knowledge of our experts, we will continue to build Hrvatska elektroprivreda as a key Croatian Among other business activities, gas business is energy company of strategic importance for na- becoming more prominent. Pursuant to the deci- tional economy and the entire Republic of Croatia. sion passed by the Croatian Government in Feb- ruary 2019, HEP d.d. recapitalized LNG Hrvatska President of the Management Board d.o.o. responsible for the construction of the liq- Frane Barbarić ON HEP GROUP 2 The Group consists of Hrvatska elektroprivreda d.d. as the parent company and its dependent companies listed here. Ownership Dependent companies Country Core activity share (%) HEP Proizvodnja d.o.o. Croatia 100 Production of electricity and heat Hrvatski operator prijenosnog sustava d.o.o.1 Croatia 100 Electricity transmission HEP Operator distribucijskog sustava d.o.o. Croatia 100 Electricity distribution Electricity supply of customers as a public HEP ELEKTRA d.o.o. Croatia 100 service HEP Opskrba d.o.o. Croatia 100 Electricity supply Heat production, distribution, supply, HEP TOPLINARSTVO d.o.o. Croatia 100 and purchase of heat HEP PLIN d.o.o. Croatia 100 Gas distribution and supply Electricity and emissions trading and HEP Trgovina d.o.o. Croatia 100 optimization of power plant operations Implementation and funding of energy HEP ESCO d.o.o. Croatia 100 efficiency projects Development of local infrastructure Plomin Holding d.o.o. Croatia 100 in the vicinity of Plomin TPP Bosnia and CS Buško Blato d.o.o. 100 Hydro equipment maintenance Herzegovina Management of non-operating assets HEP group HEP Upravljanje imovinom d.o.o. Croatia 100 | and tourism Training, professional improvement HEP NOC Croatia 100 HEP and accommodation services Design and construction of multi-purpose HEP VHS Zaprešić d.o.o. Croatia 100 hydrotechnical system Gas distribution and supply PLIN VTC d.o.o.2 Croatia 100 in Virovitica-Podravina County Group On HEP HEP Energija d.o.o. Serbia 100 Electricity trading HEP Energija d.o.o. Ljubljana Slovenia 100 Electricity trading Bosnia and Group HEP Energija d.o.o. 100 Electricity trading companies Herzegovina Annual and Sustainability Report Annual HEP Energjia d.o.o.