Climate Change

Why is it material?

Climate change affects our business activities, creating significant challenges and opportunities. As our main business is refining, we are both a producer of energy products and an energy consumer. Energy consumption is not only a significant operating cost but at the same time the main source of carbon dioxide emissions. We are therefore designing an energy transformation toward a low carbon economy in response to increasing demand for energy and in order to ensure energy sufficiency by taking measures and implementing projects to reduce emissions.

Since our activities are primarily in Greece, a country with a large coastal front, we have already started studying ways in order to adapt to and address the consequences of climate change.

Potential risks and opportunities for the Group’s operational activities include for instance participation cost management in the Emissions Trading System (EU ETS), feasibility studies for investments / activities with an emphasis on RES and other projects related to energy transformation.

Our approach

As energy consumption is a significant operation cost for our activities, but also a main source of carbon dioxide emissions, we invest in optimizing energy management, energy efficiency in the production process and administrative operation as well as in the use of Renewable Energy Sources. Concurrently, the scope for interventions – projects required to adapt our installations and critical energy infrastructures to climate change is studied. The implementation of the Group’s environmental policy related to energy and climate change is achieved by a series of tools, such as setting targets and key performance indicators. All environmental parameters are also monitored through European indicators and benchmarks are used to assess the Group’s position in relation to the European industry performance. Our staff’s and social partners’ continuous environmental education across a wide range of activities is an important part of our climate change management within the Group. In addition, the Group is actively involved in the development of energy and climate change policies at a national and European level, including the EU ETS, the Energy Efficiency Directive and others. Our approach and results so far have been positive, with significant progress made in achieving quantitative targets, (reduction in CO₂ emissions intensity index and continuous reduction of carbon footprint) as well as external evaluation from CDP (formerly the Carbon Disclosure Project) with a score of B- (in comparison to the sector’s average “C” rating).

Our ambition

We want to reduce our carbon footprint, specifically energy consumption and carbon dioxide emissions, in order to contribute in addressing the causes and impacts of climate change. We strive toward energy transformation and to become a company that provides low carbon emission energy solutions.

Why is it material?

These are key strategic development axes for the Group, since they contribute to value creation and risk management. RES, in particular, have competitive economic returns, they diversify the energy mix, they support short and long term risk hedging by reducing CO₂ emission costs and by substituting fossil fuels, they foster synergies between the Group’s business activities and contribute to addressing Climate Change.

The increased use of Natural Gas in the refinery sector, both as a fuel and as raw material, significantly reduces the environmental and carbon footprint of this activity.

Our Approach

Hellenic Petroleum Group’s long-term strategic goal is to significantly reduce the carbon footprint in all its activities and to achieve its critical vision of leading in the Energy Transition in the East Mediterranean area, maximizing returns from basic activities and developing a diversified energy portfolio.

In the RES sector, the development strategy is comprised of a combination of a mature diversified project portfolio (PV, wind, biomass) as well as targeted acquisitions of mature or in-operation projects.

In the Natural Gas sector, the focus is on commercial activities: investments in CNG (compressed natural gas) service stations in cooperation with the Public Gas Corporation, as well as supply and retail sale of natural gas through Elpedison (a joint venture with Edison).

Our Ambition

To develop significant activity in power production from RES aiming for 300 MW installed capacity by 2021 and 600 MW by 2025 with corresponding CO₂ emission reductions.

To strengthen our position in the natural gas sector with an emphasis on commercial activities.

The European legislative framework and goals for energy and climate change are a major challenge for the Hellenic Petroleum Group due to its core business being in the oil refining sector, which follows the accelerated path toward climate neutrality. At the same time, the Green Deal Agreement constitutes an opportunity for further development and a leading presence in the Renewable Energy Sources (RES) sector and natural gas, as a basic transition fuel. We are therefore planning and have already begun to implement our energy transformation toward a climate-neutral economy, responding to the continuous increase in energy demand and security of supply, contributing substantially in achieving UN’s Sustainable Development Goals (SDGs) 7 and 13.

Energy efficiency – savings & investments

Optimal energy efficiency and energy saving were and remain the basic tools for our contribution in addressing climate change. Although the continuously improved fuel standards (zero sulfur content) over the past decade contribute to improving air quality, at the same time energy consumption required for their production has increased. Despite this, the Group’s refineries, through investments in energy saving and increase in energy efficiency, have managed to produce clean fuels with high energy performance.

The use of cleaner fuel gases in the production process, such as natural gas and refinery gas, is maximized while the consumption of liquid fuels is minimized.

At the same time, in order to reduce its carbon footprint, the Group invests considerably in Renewable Energy Sources (RES), as well as in new energy and transportation technologies.

Goals

1. 50% reduction in total environmental footprint (in alignment with the target for a climate neutral economy by 2050)
2. 5% reduction of tn CO₂ emissions/tn crude oil feed index by 2020
3. Development of a Renewable Energy Sources portfolio of approximately 600 MW installed capacity by 2025

CO₂/tn of Crude feed Emission Index*

The tn CO₂ emissions / tn crude oil feed index for the three Group’s refineries, is monitored in relation to the 2014 base year, and its six year declining trend from 2014 to 2019 reaches a 19,6% decrease, exceeding the initial target set for a 5% reduction by 2020. Considering the change from one year to the next, 2019 in comparison to 2018, the index has slightly decreased by 0,4%. The reduction in the index reflects the significant energy saving activities – projects and other operation optimization interventions implemented at the Group’s refineries.

Performance

As far as monitoring and reporting of CO₂ emissions is concerned, the Group systematically monitors not only direct CO₂ emissions (Scope 1) but also indirect emissions (Scope 2 and 3) to the maximum extent of its activities.

Regarding direct emissions, the Group’s refineries have been participating in the European Union’s Emissions Trading System (EU ETS) since its inception, and follow all emission monitoring, calculation and verification procedures according to the Regulations for the 4th phase of EU ETS (2021-2030), whereby the rules are still very strict and the requirements of the System have been increased, contributing to the increase in compliance cost. The EU ETS is an important tool in this direction, but carries great economic risks in the event of a large increase in the price of CO₂ and reduction in free allowances, but also a reduction in European industry competitiveness compared to that outside the EU.

The following diagram shows the three refineries’ verified CO₂ emissions for 2018 (for comparison) and 2019 as well as the free emission allowances for 2019.

The Group’s total energy consumption, as shown in the following diagram, has slightly increased by 2% in comparison to 2018. This difference is mainly due to Aspropyrgos refinery’s operations related to marine fuels’ production new strict specification (IMO) in the last months of the year.

Investing in increasing energy efficiency, combined heat & power (CHP) units operate in all of the Group’s refineries. These CHP Units make the most out of the use of cleaner gases and other streams from the production process and thus contribute to avoiding a significant percentage of CO₂ emissions (diagram below), which would have been emitted if the self- generated electricity came from the national grid power supplier.

As shown in the diagram below, in 2019, the self-generated electricity comprised approximately 25% of the total electricity consumption.

The Group also monitors other indirect emissions from its activities. For example, estimates are made for CO₂ emissions from sea transport of raw materials and products as well as for the carbon footprint of all activities in the Group’s office buildings (headquarters and Aspropyrgos, Elefsina and Thessaloniki refineries – “My Climate” Certification).

In 2019, Hellenic Petroleum participated for the second time in the CDP (formerly the Carbon Disclosure Project) benchmarking process, the largest program requiring data collection of greenhouse gas emissions, power consumption and evaluation of companies’ response to climate change risks and opportunities on a global scale. Note that since 2018, CDP has integrated questions from the Task Force on Climate-related Financial Disclosure (TCFD), which focuses on the financial risks and opportunities of climate change.

Hellenic Petroleum (one of the 5 companies in Greece to participate in the evaluation in 2019 and at the same time, one of the two companies with industrial activity that participated) was rated again with “B-“, thus confirming the Group’s timeless commitment not only to managing climate change challenges, but also to long-term planning of business activities, based primarily on sustainable development but also on a low carbon footprint. It is a particularly important distinction since its rating was above average for the Oil and Gas Sector, which scored a “C” average (i.e. a grade lower).

The Group aims to stabilize its rating score in Management (even after the completion of the scenarios analysis) and through the implementation of its strategy and performance improvement to reach the CDP’s Leadership category in the future.

Climate change has been recognized as one of the greatest challenges facing humanity. Actions to adapt and mitigate its impacts have been legislated and are a priority at a global, European and national level. For the HELLENIC PETROLEUM Group, mitigation and adaptation to climate change are a key part of its strategy for sustainable development. In this context, the first step for effective planning of actions is to survey and manage the risks and opportunities that exist. For short but also long-term strategy planning, the potential risks and related financial implications are analyzed in detail, both in terms of climate change mitigation and strategic adaptation to the impacts of climate change (e.g. in the case of natural changes, which are estimated to be important for the installations close to the coastal front of Greece). These are examined and analyzed through various pillars such as existing and forthcoming legislation, new technologies and the markets in which the Group operates, while at the same time, international forecasts for the energy market and climate change are analyzed in order to map out the Group’s long-term strategy.

Thus, a number of impacts and risks arise, which are assessed, such as an increased costs for fuels and raw materials, a reduced demand for energy-intensive products as well as additional measures to control and limit Greenhouse Gas Emissions (GHGs) and from participation in the Emissions Trading System (EU ETS).

For 2019, the obvious financial implications for HELLENIC PETROLEUM were directly related to the cost of covering the emission allowance deficit, since all three of the Group’s refineries in Greece participate in the EU ETS. For the period of 2013-2020 (third phase of ETS) and according to the existing allocation rules, the compliance cost has substantially increased especially in 2019, due to the significant increase in the allowance price (60% increase in 2019 compared to 2018 levels), but also to the decreasing free allocations from one year to the next as a result of the increase of cross- sectoral correction factor (CSCF). Moreover, based on the latest European Commission decisions regarding the application of a Market Stability Reserve mechanism and the restructuring of EU ETS for the period 2021-2030 (4th phase EU ETS), a further increase in the allowances’ price (€/tn) is expected, which will directly affect future compliance costs. With the simultaneous reduction of free allowances in the 4th phase, the Group will be required to cover a large additional cost, despite its classification in the sectors at risk of carbon leakage (detrimental to its competitiveness). Due to its geographical location (EU borders), the Group is in a riskier position compared to Groups in other European countries due to competition from neighboring countries that do not belonging to the ETS and produce the same products at no additional operating cost as a result of the so-called carbon cost.

In addition, due to the fact that since 2013 power generation is not eligible for free allowance allocation, refineries are additionally burdened with the increased cost for purchasing electricity, since the cost of purchasing allowances for power production is passed on to the consumers.

The above risks (increased CO₂ costs, transition to a neutral carbon footprint economy, changes in demand and consumer preferences) are assessed by HELLENIC PETROLEUM management on a continuous basis, within each financial year, investment opportunities are identified (e.g. RES development, increase in energy efficiency, low-emission product development) in order to delineate the Group’s strategy. Its precise implementation has already contributed to reducing the carbon deficit and operating costs by increasing energy efficiency, while at the same time fuels of a lower carbon footprint are already a significant part of HELPE’s turnover.

The Group also recognizes new, low-carbon technologies developed to address climate change as an opportunity. Due to the immediate need for action, most new technologies are directly assessed in terms of their applicability and effectiveness to reduce potential risks and maximize benefits.

Finally, the evaluation of possible opportunities for further use of natural gas continues, since it is the transition fuel toward a low carbon economy, but also of advanced biofuels, through the implementation of various R&D programs. To a large extent, natural gas has already replaced liquid fuels in the Group’s refineries. The Group’s goal is to transform into an innovative energy group that provides a multitude of low carbon energy products, while maintaining its leading position in a climate- neutral economy.

Biofuels

Biofuels are the only direct substitute for fossil fuels currently available on a large scale as transport fuel. Their use contributes to a reduction in vehicles’ carbon dioxide (CO₂) emissions and to more environmentally friendly transport, without requiring significant modifications to vehicles or distribution networks.

To date, the term biofuel in the Greek market refers mainly to biodiesel, a fuel having similar properties to those of diesel, which is used as a substance (after being mixed with conventional diesel) in all diesel-powered vehicles according to European mixture specifications.

At the same time, in 2019 the new specification for adding biofuels to gasoline at 1% in energy content was implemented in the domestic market, which shall increase to 3.3% for 2020. In order to comply with the new legislation, the HELPE Group converted the existing Aspropyrgos refinery’s methyl ether production plants (MTBE and TAME) to the respective ethyl ether plants (ETBE/TAEE), using bioethanol as feed material in the etherization reaction. The upgrade was successfully completed and both units were operational within 2019.

Renewable Energy Sources (R.E.S)

Over the last eight years, RES plants with a total capacity of 26 MW have been developed and are already operating mainly on Group properties as well as other areas. Specifically, photovoltaic plants with a total capacity of 19 MW are operational in Attica, Thessaloniki, Kavala and Karditsa and a wind farm with a capacity of 7 MW in Messinian Pylos. Also in operation are 12 photovoltaic self-producing plants on a net metering program with a total nominal capacity of 150 kW at an equal number of EKO and BP petrol stations. At various stages of development are photovoltaic projects with a total nominal capacity of 796 MW, 70 MW wind farms as well as 2 power and heat generation plants from biomass combustion (derived from residual agriculture) with a total capacity of 9,7 MW.

Particularly in 2019, applications were submitted to acquire permits for photovoltaic and wind power production with a total capacity of 519 MW and 70 MW respectively. Furthermore, in cooperation with LARCO, a portfolio for a 73 MW photovoltaic project is under development. In addition to the above, in 2020 a contract was signed with juwi for the acquisition, construction and operation of a 204 MW photovoltaic project in Kozani, which is the largest in Greece and the 5th largest in Europe. According to the project schedule, construction is due to begin in the second half of 2020 and completion is expected by the end of 2021.

The total energy produced by the Group’s photovoltaic plants has exceeded 56 GWh from initial operation and production from Messinia’s wind farm has exceeded 93 GWh respectively.

The total avoided CO₂ emissions surpasses 149,000 tons.