Management Board's report on activities of the Capital Group
of PGE Polska Grupa Energetyczna S.A. for the 6-month period
ended June 30, 2020
Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
KEY FINANCIAL RESULTS OF THE PGE CAPITAL GROUP
Key financial data | Unit | Period ended | Period ended | % | |||||||
June 30, 2020 | June 30, 2019 | change | |||||||||
Sales revenues | PLN | 22 776 | 18 236 | 25% | |||||||
million | |||||||||||
EBIT | PLN | 271 | 2 446 | -89% | |||||||
million | |||||||||||
PLN | |||||||||||
EBITDA | million | 2 805 | 4 395 | -36% | |||||||
EBITDA margin | % | 12% | 24% | ||||||||
Recurring EBITDA | PLN | 3 117 | 3 299 | -6% | |||||||
million | |||||||||||
Recurring EBITDA margin | % | 14% | 18% | ||||||||
PLN | |||||||||||
Net result | -637 | 1 765 | - | ||||||||
million | |||||||||||
Capital expenditures | PLN | 2 504 | 2 557 | -2% | |||||||
million | |||||||||||
Net cash from operating activities | PLN | 5 309 | 3 193 | 66% | |||||||
million | |||||||||||
PLN | |||||||||||
Net cash from investing activities | million | -3 449 | -3 186 | 8% | |||||||
Net cash from financial activities | PLN | -1 153 | 1 | - | |||||||
million | |||||||||||
Key financial data | As at June | As at December 31, 2019 | % change | ||||||||
30, 2020 | |||||||||||
Working capital | PLN | 1 157 | 767 | 51% | |||||||
million | |||||||||||
Net debt/ LTM EBITDA* | x | 1.75 | 1.60 | ||||||||
*LTM EBITDA - Last Twelve Months EBITDA. | |||||||||||
One-offs affecting EBITDA | As at June | As at June | % change | ||||||||
30, 2020 | 30, 2019 | ||||||||||
Change in reclamation provision
Change in actuarial provision
Release of the provision for the risk of returning the equivalent of the CO2 emission allowances received at ZEDO
LTC compensations
Additional CO2 emission rights
PLN | -434 | -246 | 76% | ||
million | |||||
PLN | -40 | -36 | 11% | ||
million | |||||
PLN | |||||
million | 121 | 0 | - | ||
PLN | 41 | -15 | - | ||
million | |||||
PLN | 0 | 1 393 | - | ||
million | |||||
Total | PLN | -312 | 1 096 | - | ||
million | ||||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
1. PGE Capital Group
Characteristics of activities
Capital Group of PGE Polska Grupa Energetyczna S.A. ("PGE Capital Group", the "Capital Group", "PGE Group", the "Group") is the largest vertically integrated producer of electricity and heat in Poland. With a mix of own fuel sources, generation assets and distribution network, PGE Group provides a safe and reliable supply of electricity to more than five million households, businesses and institutions. Moreover, PGE Group is the largest heat producer in the country.
The parent company of PGE Capital Group is PGE Polska Grupa Energetyczna S.A. (also "PGE S.A.", "PGE", the "Company", the "Issuer"). PGE Group organizes its activities in six business segments:
CONVENTIONAL GENERATION
Core business of the segment includes extraction of lignite, production of electricity and heat from conventional sources.
DISTRICT HEATING
Core business of the segment includes production of electricity and heat from conventional sources as well as transmission and distribution of heat.
RENEWABLES
Core business of the segment includes electricity generation from renewable sources and in pumped-storage power plants and provision of ancillary services.
SUPPLY
Core business of the segment includes wholesale trading of electricity on domestic and international market, sale of electricity to final off-takers, trading of CO2 allowances and energy certificates and fuels and provision of services of the Corporate Centre to companies from the PGE Group.
DISTRIBUTION
Core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.
OTHER OPERATIONS
Other operations include provision of services, through the subsidiaries, to PGE Group, which include organisation of capital raising in form of Eurobonds, provision of IT, payroll and HR services, transportation and car sharing services. Its activities also include subsidiaries formed to prepare and implement a project to build a nuclear power plant, to manage investment funds and to invest in start-ups.
The composition of the Capital Group is presented in note 1.3 to the consolidated financial statements.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
2. Risks in the Group's operations
PGE S.A., as the Corporate Centre managing the Group, creates and implements integrated risk management architecture at PGE Group. In particular, it shapes PGE Group's risk management policies, standards and practices, designs and develops internal IT tools to support these processes, specifies global risk appetite and adequate limits as well as monitors their levels.
PGE Capital Group companies, as well as other entities from the electrical and power sector, are exposed to a number of risks and threats resulting from the specific operating activities and operating in specific market and regulatory environment.
In PGE Group risk management process is pursued based on the GRC (Governance - Risk - Compliance) model. It allows adaptation and integration of each of the operational areas at all levels of management. Having established a top-level Risk Committee, which reports directly to the Management Board, supervision over the effectiveness of risk management in the Group is ensured. Function definition within corporate risk management allows an independent assessment of particular risks, their impact on PGE Group and limiting and controlling major risks using dedicated instruments. Formation of a separate compliance function within the Group guarantees that PGE Group's activities are in line with legal conditions and ensures observance of the adopted internal standards.
The PGE Capital Group has consequently developed a comprehensive risk management system. Risks in the key companies of the Group are measured and assessed. Mechanism allowing identification of areas exposed to risk and risk level measurement methods are constantly verified and developed. Thanks to that, the significant risks concerning various areas of operations are identified and kept within the assumed limits by reducing negative effects of such risks and by taking preventive or corrective measures, in accordance with the presented cycle.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
Risk factors and mitigating actions
The main risks and threats of PGE S.A. and the PGE Group are presented below along with their assessment and outlook in the horizon of the next 12 months.
Risk level | low | medium | high | Mitigating actions | |||||||||
and main tools used for the management of the risk | |||||||||||||
Risk outlook in the next | ↘ | ↗ | ↔ | ||||||||||
period | decrease | growth | stable | ||||||||||
Low level | Risk does not pose a threat and may be tolerated | ||||||||||||
Medium level | Risk which needs preparation of the proper reaction based on analysis of costs and benefits | ||||||||||||
High level | Intolerable risk, which needs immediate and active reaction, leading simultaneously to limitation of possible consequences and of probability of occurrence thereof | ||||||||||||
Market and | Gross margin on electricity from the production | Actions: | |||||||||||
product risks | assets of the PGE Capital Group and on trading | | Optimization of generation assets - definition of production scenarios for updated market parameters of electricity, | ||||||||||
in related products - its amount results from the | |||||||||||||
Related to prices and | CO2 and fuels. | ||||||||||||
uncertainty as to the future levels and volatility | |||||||||||||
volumes of offered | ↗ | | Using consistent guidance in respect of process organisation in the context of commercial strategy and mid-term | ||||||||||
of market prices (electricity prices and the prices | |||||||||||||
products and services | |||||||||||||
of key energy products - CO2, fuels, including in | planning (strategy for hedging key exposures in the area of electricity and related product trading that correspond | ||||||||||||
particular hard coal, gas and the prices of | to the adopted risk appetite in the mid-term). | ||||||||||||
certificates). | | Establishing position hedging levels with consideration given to the results of analysing pricing risk in respect of | |||||||||||
Electricity sales volumes - this risk derives from | electricity and related products, VaR-based. Target hedging levels are specified taking into consideration the | ||||||||||||
Group's financial standing, including in particular its strategic objectives. | |||||||||||||
uncertainty related to the development of | |||||||||||||
Research, monitoring and analysing the electricity markets and sector trends in order to optimally use generation | |||||||||||||
macroeconomic indicators affecting the demand | ↔ | ||||||||||||
for electricity and energy goods, including in the | and selling capacities. | ||||||||||||
context of the impact of the COVID-19 pandemic | Acquiring new customers - diversification of channels to reach final off-takers and diversification of target groups | ||||||||||||
and the remedial actions taken. | |||||||||||||
by maintaining an extensive product portfolio and adapting offering to market. | |||||||||||||
Current clients retention - a diversified portfolio of customer loyalty schemes and client-acquisition activities and | |||||||||||||
Tariffs (regulated prices) - resulting from the | special offers dedicated to former clients who moved over to the competitors. | ||||||||||||
Care for a high level of customer service by developing employees' competences and building relations with | |||||||||||||
requirement to approve rates for distribution | ↔ | ||||||||||||
business and retail clients. | |||||||||||||
services and electricity and heat prices for | |||||||||||||
Use of tools to supporting customer relations processes allows the Group better sales planning and organisation of | |||||||||||||
particular groups of entities. | |||||||||||||
sales. | |||||||||||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
Property risks | Failures and damage to property - connected | Actions: | ||||||
Related to development | with the operation and degradation over time of | Active pursuing of a strategy for building up and modernization of the production capacities. | ||||||
energy equipment and facilities and protection | Performing maintenance repairs in line with the highest sector standards. | |||||||
and maintenance of the | ||||||||
of energy equipment and facilities against | ↗ | Diversification of the current structure of the production sources due to energy generation technology. | ||||||
assets | ||||||||
destructive external factors ( including fire, | Insurance of the most important production assets in the event of breakdown and property damage. Assets are | |||||||
effects of weather phenomena, intentional | insured based on an analysis of insurance costs, capabilities of insurance markets for specified risks or for particular | |||||||
damage). | ||||||||
types of assets, costs related to asset replacement and potential lost revenue. | ||||||||
Investment and development - connected with | The reliability of the power supply to the end users has been systematically improved through modernization of the | |||||||
distribution grid. | ||||||||
strategic plans for expanding the generation, | ↔ | |||||||
distribution and sales potential as well as on- | ||||||||
going investments. | ||||||||
Operational risks | Actions: | |||||||
Electricity and heat production - connected | ||||||||
| Optimisation of equipment lifecycles and the availability of key assets. | |||||||
Related to pursuing of | with production planning and impact of the | ↗ | ||||||
Inspections, repairs and modernisation of the existing assets. | ||||||||
ongoing economic | factors that determine production capacities. | |||||||
Optimisation of costs inter alia through monitoring of fuel prices and reserves and securing supply through long-term | ||||||||
processes | ||||||||
contracts with suppliers and through price fixing formulas. | ||||||||
Fuel management - connected with | ||||||||
Monitoring of legal changes and changes in technical standards in the field of by-products. | ||||||||
uncertainty regarding the costs, quality, | ||||||||
Investments in improving the efficiency of the combustion process. | ||||||||
timeliness and volumes of fuel supply (mainly | ||||||||
↔ | | Constant monitoring of service availability. | ||||||
coal) and production raw material as well as the | ||||||||
Creating Business Continuity Plans for critical systems, developing and testing emergency procedures. | ||||||||
effectiveness of inventory management | ||||||||
processes. | Ongoing monitoring of changes in legal regulations. | |||||||
By-products and services - related to the | ↔ | Training in regulations preventing money laundering and terrorist financing. | ||||||
Requirement to read Best Procurement Practices and the Code of Conduct for Business Partners of PGE Group | ||||||||
management of production waste | ||||||||
Companies. | ||||||||
Cybersecurity - understood as intentional | | |||||||
The approval path and internal regulations concerning the purchasing process. | ||||||||
disruption of generation and distribution assets | ↗ | |||||||
Control of the work environment. | ||||||||
and IT systems used at PGE Group. | ||||||||
Training of employees in the field of occupational health and safety. | ||||||||
Procurement - related to the effectiveness and | ↘ | Informing about threats, restrictions and rules related to the COVID-19 pandemic (dedicated tab on the Intranet). | ||||||
correctness of the purchasing process. | | Conducting an intensive and effective dialogue in order to avoid escalation of potential disputes with the social | ||||||
Employee safety - related to ensuring safe | partners and to work out the most favourable solutions with regard to employment and employment costs within | |||||||
↘ | PGE Capital Group connected therewith. | |||||||
working conditions. | ||||||||
- PGE's active participation in internship programmes and cooperation with educational institutions in order to secure
Human Resources - pertaining to provision of | a pipeline of qualified personnel . | |||
personnel with the relevant experience, | ||||
↗ | Assessment and training of personnel in order to make optimal use of it within the Group's structures . | |||
competences and ability to perform specific | ||||
tasks. |
Social dialogue - related to the failure to reach an agreement between the Group's
↗
management and the social partners, which could lead to strikes / collective disputes.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna S.A. for the 6-month period ended June 30, 2020
Regulatory and legal | Legal changes in support systems - connected | Actions: | |||||
risks | with uncertainty as to the future shape of the | ↔ | Monitoring of the changes being introduced or proposed provides that our operations in key business segments are | ||||
Related to compliance | support system for production of certified | carried in compliance with the law and that PGE Capital Group has solutions which take into account potential | |||||
with external and | energy. | changes in the legal environment. | |||||
internal legal provisions | Environmental protection - resulting from | Active participation of PGE S.A. as the member of the Polish Electricity Committee that opened its office in Brussels. | |||||
industry regulations specifying which | Through the Committee's operations, the Company actively influences proceeding and shaping of EU law and | ||||||
"environmental" requirements energy | engages a dialogue with the EU institutions | ||||||
installations should meet and what the principles | | Adaptation of internal regulations and practices to make sure that the activities are in compliance with the power | |||||
for using the natural environment are. The future | |||||||
↗ | sector regulations and binding law. | ||||||
environmental regulations and uncertainty | |||||||
| Improvement of activities aimed at protecting and improving the state of the environment by implementing | ||||||
concerning their final shape (in particular with | |||||||
technological and organisational solutions ensuring efficient and effective management in this area. | |||||||
regard to the revision of BAT / BREF) may | |||||||
translate into a change in the level of capital | |||||||
expenditures of the PGE Group. | |||||||
Concessions - resulting from the statutory | |||||||
requirement to hold concessions with regard to | ↘ | ||||||
conducted operations. | |||||||
Taxes - related to uncertainty surrounding the | |||||||
future shape of tax regulations and their | ↔ | ||||||
interpretation. | |||||||
Financial risks | Credit risk - connected with the counterparty | Actions: | |||||
Related to finance | default, partial and/or late payment of | | Prior to executing a transaction, a counterparty assessment is carried out and forms a base for applying credit limits, | ||||
receivables or a different type of breach of | |||||||
management | ↗ | that are regularly updated and monitored. Exposures that exceed established limits are hedged in accordance with | |||||
contractual conditions (for example failure to | |||||||
the Group's credit risk management policy. The level of utilisation of limits is monitored on a regular basis, payment | |||||||
deliver/collect goods or failure to pay for any | |||||||
of receivables is monitored on an ongoing basis and early recovery procedures are in place. | |||||||
associated damages or contractual penalties). | |||||||
Applying a central financing model, which assumes - as a rule - that external capital is raised by PGE S.A. PGE Group | |||||||
Liquidity risk - connected with the possibility of | |||||||
subsidiaries use a variety of intra-group financing sources and liquidity risk is monitored using periodic planning for | |||||||
losing the ability to meet current liabilities and | ↔ | ||||||
operating, investing and financing activities. | |||||||
obtaining financing sources for business | |||||||
As regards currency risk and interest rate risk, PGE Group has implemented internal management procedures. PGE | |||||||
operations. | |||||||
Interest rate risk - resulting in particular from | Group companies execute derivative transactions involving interest rate- and/or currency-based instruments (IRS, | ||||||
CCIRS) only in order to hedge identified risk exposures. Regulations in force at the PGE Group do not allow, with | |||||||
the negative impact of changes in market | |||||||
regard to derivative transactions based on interest rates and currencies, to enter into speculative transactions, i.e. | |||||||
interest rates on PGE Group's cash flows | ↔ | ||||||
generated by floating-rate financial assets and | transactions which would be aimed at generating additional gains resulting from changes in the level of interest rates | ||||||
liabilities. | and/or changes in exchange rates, while exposing the company to the risk of incurring a potential loss on this account. | ||||||
Foreign exchange risk - understood in particular | |||||||
as risk that PGE Group's cash flows denominated | |||||||
in currencies other than the functional currency | ↗ | ||||||
are exposed to due to negative exchange rate | |||||||
movements. | |||||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
3. Electricity market and regulatory and business environment
Macroeconomic environment
PGE Group's main operating area is Poland, and the domestic macroeconomic backdrop has a substantial impact on Group's results. At the same time, the condition of Poland's economy remains largely tied to the situation across the European Union and in global markets. The Group's financial results are affected by both the situation in specific segments of the economy and the financial markets, which affect the terms of PGE Group's debt financing.
As a rule of thumb, there is a historical correlation between change in electricity demand and change in the rate of economic growth in Poland. Considering PGE Group's position on the Polish power generation market, as well as its substantial share in the electricity sales and distribution market, changes in power and heat demand may have a significant impact on the Group's results.
In the first half of 2020, a non-recurring event that significantly affected the global and domestic economic situation, and consequently the energy market, was the COVID-19 pandemic. To a large degree, the economic lock-down caused a drop in gross electricity consumption - 5.2% in the first half of 2020 y/y. The drop in electricity consumption in the first half of 2020 was higher than in the first half of 2019, when it stood at 0.7% y/y.
The economic trends in the first half of 2020 were driven by pandemic-related restraints affecting primarily the industrial and service sectors. The partial closure of the economy due to the COVID-19 pandemic continued the downward trend in GDP in the first and second quarter of 2020. According to Polish Central Statistical Office data, Polish GDP in the second quarter of 2020 decreased by 8.2% y/y and by 8.9% compared to the first quarter of 2020. Economists estimate that the total decline in GDP in the first half of 2020 was 9.3%. Further impact of the COVID-19 pandemic on GDP will depend on its duration and the pace at which businesses, especially in the services and industry sectors, will return to full-scale operation.
Diagram: Seasonally adjusted GDP change vs. change in domestic gross electricity consumption.
Source: Central Statistical Office of Poland, PSE S.A.
Purchasing Managers' Index ("PMI") reflects the challenges the economy is facing in connection with COVID-19 pandemics. At the beginning of the first quarter of 2020, PMI for industry in Poland indicated an upward trend for 2020. In January 2020, this index stood at 47.4 points and increased to 48.2 points in February 2020. The end of the first quarter of 2020 brought a decline in PMI readings for Polish industry, reaching 42.4 points in March 2020, reflecting concerns of the industry about the effects of COVID-19. The downward trend continued in April 2020, when PMI reached the lowest level in history and amounted to 31.9 points. The trend was reversed in May 2020, when the PMI index for industry in Poland increased to 40.6 points. The upward trend continued until the end of the first half of 2020 and in June 2020 the indicator amounted to 47.2 points. The average PMI for the industry in Poland in the first half of 2020 was 43.0 points, down by 11.4% y/y. A result below 50.0 points means that the questioned managers expect a deterioration in the sector's situation. Polish industry is determined by the condition of industry in the Eurozone, where the PMI index stood at 43.6 points on average in the first half of 2020, while in the previous year it stood at 48.4 points (a drop by 9.9% y/y).
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Diagram: Manufacturing PMI in Poland and Eurozone (in points).
Source: Markit Economics
Development in the Polish economy is reflected by inter alia dynamics in overall industrial production. In June 2020, industrial output sold increased by 0.5% as compared to June 2019, when 2.6% drop was recorded in comparison to the analogical period of a previous year, while in comparison with May 2020 it increased by 13.9%. In the first half of 2020 industrial output sold was by 6.3% lower than in the first half of 2019 when a rise of 5.1% was recorded.
Market environment
SITUATION IN NPS
Table: Domestic electricity consumption (GWh).
H1 2020 | H1 2019 | % change | |
Domestic electricity consumption | 80 640 | 85 028 | -5% |
Wind farms | 7 859 | 7 343 | 7% |
Industrial thermal hard-coal fired power plants | 33 835 | 39 110 | -13% |
Industrial thermal lignite fired power plants | 18 669 | 21 431 | -13% |
Industrial gas-fired power plants | 6 633 | 5 673 | 17% |
International trading balance | 6 547 | 4 592 | 43% |
Other (industrial plants, hydro power plants, other RES) | 7 097 | 6 879 | 3% |
Source: PSE S.A.
H1 2020
In the first half of 2020, domestic demand for electricity decreased by 4.4 TWh y/y. Owing to stronger winds, particularly in February 2020, the wind-based generation increased by 0.5 TWh y/y. In addition, due to the price difference on cross-border connections and transmission capacity that has improved in 2019, net imports increased by approx. 2.0 TWh compared to the previous year. As a result, less energy produced in utility hard coal-fired power plants (-5.3 TWh) and lignite-fired power plants (-2.8 TWh) was needed to balance the power system.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: Energy balance in the NPS in the first half of 2020 y/y (TWh).
TWh
88 | National | ||||||||||||||||||||||||||
consumption | |||||||||||||||||||||||||||
of electricity | ∆ wind | ||||||||||||||||||||||||||
86 | HY 2019 | +0.52 | |||||||||||||||||||||||||
84 | 85.03 | ||||||||||||||||||||||||||
National | |||||||||||||||||||||||||||
consumption | |||||||||||||||||||||||||||
82 | ∆ crossborder | of electricity | |||||||||||||||||||||||||
HY 2020 | |||||||||||||||||||||||||||
trade balance | |||||||||||||||||||||||||||
80.64 | |||||||||||||||||||||||||||
+1.96 | |||||||||||||||||||||||||||
80 | ∆ other | ||||||||||||||||||||||||||
∆ hard coal fired | ∆ natural gas | ||||||||||||||||||||||||||
power plants | +0.21 | ||||||||||||||||||||||||||
+0.96 | |||||||||||||||||||||||||||
-5.28 | |||||||||||||||||||||||||||
78 | |||||||||||||||||||||||||||
∆ lignite fired | |||||||||||||||||||||||||||
power plants | |||||||||||||||||||||||||||
76 | -2.76 |
74
Source: own work based on data from PSE S.A.
ELECTRICITY PRICES - DOMESTIC MARKET
Day-ahead market (RDN)
Market/measure | Unit | H1 2020 | H1 2019 | % change |
RDN - average price | PLN/MWh | 179 | 229 | -22% |
RDN - trading volume | TWh | 14.4 | 14.3 | 1% |
Analysis - selected price factors affecting RDN quotations
Factor | Unit | H1 2020 | H1 2019 | % change |
CO2 emission rights | EUR/t | 21.71 | 23.60 | -8% |
Polish Steam Coal Market Index PSCMI-1 | PLN/GJ | 12.00 | 11.93 | 1% |
Wind generation NPS | TWh | 7.9 | 7.3 | 8% |
Ratio: wind generation/ NPS consumption | % | 10% | 9% | |
Ratio: international trading/ NPS consumption | % | 8% | 5% | |
In the first half of 2020, the average electricity price on the day-ahead market was PLN 179/MWh and was lower by 22% than average price (PLN 229/MWh) in same period in the preceding year. The decrease in energy prices was the result of two events - lower demand for electricity, resulting from the general decrease in the energy intensity of the Polish economy and the outbreak of the COVID-19 pandemic, as well as meeting the demand with generation from cheaper sources. Compared to the same period of the previous year, a decrease in demand for electricity by 4.4 TWh was observed, the balance of cross-border exchange higher by approx. 2.0 TWh and the level of generation from NPS wind sources was higher by 0.5 TWh.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: Average monthly prices at the day-ahead market in 2019-2020 (TGE).*
300 | 229 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
250 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
200 | 229 | 179 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PLN/MWh | 150 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
50 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Volume - fixing (right axis) | Day-Ahead Market (left axis) | HY average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
* Average monthly RDN prices calculated on the base of hourly quotations (fixing). |
TWh
Forward market
Market/measure | Unit | H1 2020 | H1 2019 | % change | ||||
BASE Y+1 | - average price | PLN/MWh | 233 | 266 | -12% | |||
BASE Y+1 | - trading volume | TWh | 69.77 | 49.37 | 41% | |||
PEAK5 Y+1 | - average price | PLN/MWh | 277 | 340 | -19% | |||
PEAK5 Y+1 | - trading volume | TWh | 6.45 | 5.66 | 14% | |||
Electricity prices on forward market are shaped by the similar fundamental factors, as the prices on the Day-Ahead Market described in the previous section. The observed forward market decrease (y/y) for BASE_Y+1 is related to the inclusion of the supply of cheaper energy from abroad into the domestic market and since mid-March 2020 - also to the expected drop in demand caused by the pandemic. The drop in PEAK5_Y+1 contract price indicates a flattening of the supply curve and less optimistic demand forecasts, after taking relatively high share of net imports into account.
Chart: Average monthly prices on the forward market in 2019-2020 (TGE).*
400 | ||||||||||||||||||
350 | 340 | |||||||||||||||||
315 | ||||||||||||||||||
PLN/MWh | 300 | |||||||||||||||||
266 | 277 | |||||||||||||||||
250 | 267 | |||||||||||||||||
233 | ||||||||||||||||||
200 | Base_Y+1 | |||||||||||||||||
Peak_Y+1 | ||||||||||||||||||
Base_Y+1 HY average | ||||||||||||||||||
Peak_Y+1 HY average | ||||||||||||||||||
150 | ||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |
2019 | 2020 |
- Monthly average index level for forward contracts for the next year (Y+1), baseload and peak, weighted by the trading volume.
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International market
Wholesale market (comparison of day-ahead markets)
Chart: Comparison of average electricity prices on Polish market and on European markets in the first half of 2020 (prices in PLN/MWh, average exchange rate EUR/PLN 4.40).
Source: TGE, EEX, Nordpool
Chart: Evolution of spot market prices.
300 | ||||||||||||||||||
250 | ||||||||||||||||||
PLN/MWh | 200 | |||||||||||||||||
150 | ||||||||||||||||||
100 | Poland | |||||||||||||||||
Sweden | ||||||||||||||||||
Germany | ||||||||||||||||||
50 | ||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |
2019 | 2020 |
Source: TGE, EEX, Nordpool
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In the first half of 2020, the y/y drop in prices on neighbouring markets ranged between PLN 56 and PLN 92/MWh (i.e. approx. 30-53%), whereas in Poland the average prices were higher by PLN 50/MWh y/y (approx. 22%). The price spread between Poland and neighbouring countries is largely due to differences in realized coal prices in the country and abroad as well as generation mix. The price of hard coal in ARA ports fell by 25% y/y, while the domestic pulverised coal price index, PSCMI-1, increased by 1% over the same period. Transmission capacities on cross-border connections that have been increased since the second half of 2019, caused the import of higher volumes of cheaper energy, which results in the observed correlation of wholesale energy prices in Poland and abroad. The reversal of the downward trend in the second quarter of 2020 is mainly due to the increases in prices of CO2 emission allowances in that period.
Chart: Hard coal indices ARA vs PSCMI-11.
13 | ||||||||||||||||||
12 | ||||||||||||||||||
11 | ||||||||||||||||||
PLN/GJ | 10 | |||||||||||||||||
9 | ||||||||||||||||||
8 | ||||||||||||||||||
7 | ARA Forward 1 Month | |||||||||||||||||
Polish Steam Coal Market Index (PSCMI-1) | ||||||||||||||||||
6 | ||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |
2019 | 2020 |
Source: ARP, Bloomberg (API21MON OECM Index), own work.
International trading
Chart: Monthly imports, exports and cross-border exchange balance in 2019-2020.
1750 | Import | |||||||||||||||||
1500 | Export | 1500 | ||||||||||||||||
Balance | ||||||||||||||||||
1250 | ||||||||||||||||||
1000 | 1000 | |||||||||||||||||
GWh | 750 | |||||||||||||||||
500 | 500 | |||||||||||||||||
250 | ||||||||||||||||||
0 | 0 | |||||||||||||||||
-250 | ||||||||||||||||||
-500 | -500 | |||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |
2019 | 2020 |
Source: own work based on PSE S.A. data.
1 The comparison is illustrative only. Methodologies of counting the ARA and PSCMI1 indexes are different. Among other things, the ARA index includes insurance and delivery costs. The PSCMI-1 is an ex-mine index without insurance and delivery costs. Standards for calculating the caloric values are also different (ARA - 25.12 GJ/t vs. PSCMI1 caloric value - range from 20 to 24 GJ/t). The aim is to compare the trend and not the absolute level. For illustration purposes ARA index is recalculated from USD/t to PLN/GJ.
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Chart: Quarterly trading volumes - import, export and international trading balance in years 2009-2020.
4 | Import | 4000 | |
3 | Export | 3000 | |
Balance (quarterly) | |||
2 | 2000 | ||
TWh | 1 | 1000 | |
0 | 0 | ||
-1 | -1000 | ||
-2 | -2000 |
Source: own work based on PSE S.A. data.
In the second quarter of 2020, Poland remained a net importer of electricity, and the trade balance was 3.7 TWh (import 4.0 TWh, export 0.4 TWh) was higher by 1.1 TWh y/y (i.e. by approx. 45% y/y). The international trading balance was impacted mostly by import from Germany (1.2 TWh), Sweden (1.0 TWh) and Czechia (0.9 TWh).
In the first half of 2020 the trade balance was 6.4 TWh (import 7.3 TWh, export 0.9 TWh) and was higher by 2.2 TWh y/y (i.e. by approx. 51% y/y). The international trading balance was impacted mostly by import from Sweden (1.9 TWh), Germany (1.8 TWh) and Czechia (1.4 TWh).
Diagram: Geographical structure of commercial exchange in the first half of 2020 (in GWh).
Source: own work based on PSE S.A. data.
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Chart: Parallel exchange2 balance: average vs. maximum hourly flow in particular months.
2 500 | ||||||||||||||||||
maximum (per hour) | ||||||||||||||||||
2 000 | average (per hour) | |||||||||||||||||
1 500 | ||||||||||||||||||
MW | 1 000 | |||||||||||||||||
500 | ||||||||||||||||||
0 | ||||||||||||||||||
-500 | ||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | |
2019 | 2020 |
Source: own work based on PSE S.A. data.
Retail market
The diversity of electricity prices for retail customers in the European Union depends both on the level of the wholesale prices of
electricity and fiscal system, regulatory mechanism and support schemes in particular. In Poland in the second half of 20193 an additional burden (over sale price and cost of electricity distribution) for individual customers accounted for 37% of the electricity price and in comparison to EU average of 41%. In Denmark and Germany the proportion of additional charges in the price of electricity exceeded 50%.
Chart: Comparison of average prices for individual customers in selected EU countries in the second half of 2019 (prices in PLN/MWh, average exchange rate EUR/PLN 4.30).
Source: own work based on Eurostat data.
- Parallel exchange - exchange between synchronised system on borders with Germany, Czechia and Slovakia
-
Eurostat data on retail market are published in semi-annual intervals. The last available update concerns the second half of 2019.
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Diagram: The share of additional charges in electricity prices for the individual customers in selected EU countries in the second half of 20194 (prices in PLN/MWh, average exchange rate EUR/PLN 4.30).
PLN/MWh
1400 | Taxes and fees | |||||||||||
1200 | Sale price and distribution cost | |||||||||||
1000 | ||||||||||||
669 | ||||||||||||
800 | 809 | |||||||||||
327 | ||||||||||||
600 | 250 | 221 | 213 | |||||||||
265 | ||||||||||||
165 | 219 | |||||||||||
132 | ||||||||||||
100 | ||||||||||||
400 | ||||||||||||
567 | 566 | 516 | 540 | 492 | ||||||||
200 | 448 | 417 | 442 | 373 | 407 | 372 | ||||||
0 | ||||||||||||
Denmark Germany Sweden Finland Czechia | Latvia | Slovakia Estonia | Poland Lithuania Hungary |
Source: own work based on Eurostat data. |
Prices of certificates
In the first half of 2020 the average price of green certificates (index TGEozea) reached PLN 138 PLN/MWh and was higher by 9% compared to the analogical period of the previous year. An obligation to redeem green certificates increased from 18.5% in 2019 to 19.5% in 2020 - as a result the demand for the certificates increased. On the other hand, the wind generation in NPS in the first quarter of 2020 was by 7% higher y/y. Moreover, the prices of certificates were affected by the awareness of limited supply thereof in future connected with the closure of a certification system for new units and the upcoming end of a 15-year support period for first installations that had entered the system in 2005.
Chart: Average quarterly prices of green certificates (TGEozea).
200 | Volume (right axis) | 3,0 | |||||||||||||||||
180 | Green certificates (PMOZE_A) | ||||||||||||||||||
160 | HY average | 2,5 | |||||||||||||||||
138 | |||||||||||||||||||
140 | 2,0 | ||||||||||||||||||
138 | |||||||||||||||||||
PLN/MWh | 120 | 126 | |||||||||||||||||
TWh | |||||||||||||||||||
100 | 1,5 | ||||||||||||||||||
80 | |||||||||||||||||||
60 | 1,0 | ||||||||||||||||||
40 | 0,5 | ||||||||||||||||||
20 | |||||||||||||||||||
0 | 0,0 | ||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 1 | 2 | 3 | 4 | 5 | 6 | ||
2019 | 2020 |
Source: Own work based on TGE quotations.
4 Eurostat data on retail market are published in semi-annual intervals. The last available update concerns the second half of 2019.
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Prices of CO2 emission rights
EUA (European Union Allowances) prices are one of the key factors determining wholesale energy prices and PGE Group's financial results. Installations emitting CO2 in the process of electricity or heat production bear the expenses for purchasing EUA allowances to cover the deficit (i.e. the difference between CO2 emissions at PGE Group's generating units and the free-of-charge allowances received under derogation in accordance with the National Investment Plan). Wherein, last allocations granted free of charge are planned for realisation of investment tasks for 2019. It means that the free allocations in accordance with the currently used method will end in 2020.
After significant increases in 2018, the prices of CO2 emission allowances stabilised and entered a lateral trend lasting until mid- March 2020, when a sudden slump was recorded, caused by the COVID-19 pandemic. Since then, a recovery in the price level has been observed. In the first half of 2020, the weighted average price of EUA DEC 20 reached EUR 21.71/t and was by 8% lower than the average price for EUA DEC 19 (EUR 23.60/t) in the similar period of the previous year.
Chart: Prices of CO2 emission rights.
EUR/t
35 | Volume (right axis) | 100 | ||||||||||||||||
30 | EUA_DEC (left axis) | 90 | volume | |||||||||||||||
HY average | ||||||||||||||||||
25 | 25.86 | 80 | ||||||||||||||||
70 | (thousand | |||||||||||||||||
23.60 | 50 | |||||||||||||||||
20 | 21.71 | 60 | ||||||||||||||||
tonnes) | ||||||||||||||||||
15 | 40 | |||||||||||||||||
10 | 30 | |||||||||||||||||
20 | ||||||||||||||||||
5 | 10 | |||||||||||||||||
0 | 0 | |||||||||||||||||
2019-01 | 2019-02 | 2019-03 | 2019-04 | 2019-05 | 2019-06 | 2019-07 | 2019-08 | 2019-09 | 2019-10 | 2019-11 | 2019-12 | 2020-01 | 2020-02 | 2020-03 | 2020-04 | 2020-05 | 2020-06 |
Source: own work based on ICE quotations.
CO2 EMISSION RIGHTS GRANTED FREE OF CHARGE FOR YEARS 2013-2020
PGE Group's installations accounts were credited with free allowances for heat for 2020 and energy for 2019, while free allowances for electricity for 2020 will be received by the Group by the end of April 2021, after verification of reports from investments submitted to the National Investment Plan.
In April 2020, 12 million tons of CO2 emission allowances were credited to the PGE installations' account in connection with the production of energy in 2019. This value is not shown in the table below, which applies to production in 2020.
At the same time, redemption of emission rights resulting from CO2 emissions in 2019 was completed in April 2020.
Table: Emission of CO2 in 2020 broken down into electricity and heat production compared to the allocation of CO2 emission allowances for 2020 (in tonnes).
Product | CO2 emissions in H1 2020* | Allocation of CO2 emission rights | ||
for 2020 | ||||
Electricity | 26 574 074 | - | ||
Heat | 2 731 068 | 1 034 097 | ||
TOTAL | 29 305 142 | 1 034 097 | ||
- Estimates, emissions not verified - the data will be settled and certified by the authorised verifier of CO2 emission on the ground of yearly reports of volume of CO2 emissions.
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Regulatory environment
DOMESTIC REGULATORY ENVIRONMENT
PGE Group operates in an environment with a significant impact of domestic and foreign regulations. Presented below is a summary of the most significant decisions, which took place in the first half of 2020 and which could have an impact on PGE's operations in the coming years.
Segments | Regulation | Regulation objectives | Latest conclusions | Next stage | Impact on PGE | |
Draft act on | The draft assumes : | The draft act was published on | Public consultations are | To the greatest extent, the draft | ||
compensation for the | | Introduction of compensation for the increase in | February 24, 2020 on the | being held. Upon | affects the operation of the Supply | |
increase in electricity | electricity prices in 2020 as compared to prices in 2019. | Government Legislation | completion of | segment. It entails additional | ||
prices in 2020. | | The compensation would be available to end customers | Center's (GLC) website. | consultations, the draft will | obligations imposed on trading | |
in households whose taxable income did not exceed the | be sent to the Standing | companies, such as: notifying | ||||
first tax bracket in 2019 and who will consume at least | Committee of the Council | customers of their right to | ||||
63kWh of electricity in 2020. | of Ministers . | compensation, accepting and | ||||
| The compensation would be paid in 2021 by trading | verifying requests, payment of | ||||
companies at the request of the customer, through | compensation, and inspection | |||||
appropriate corrections to the invoices. | activities in consultation with the | |||||
| The act provides for 4 compensation thresholds | competent head of the tax office. | ||||
depending on the amount of energy consumption. | The draft stipulates that electricity | |||||
| The costs of compensation payments (an amount equal | distribution companies qualify end | ||||
to the sum of the compensation paid to end customers) | customers to one of the four groups | |||||
are to be financed with funds from the sale of 25 million | eligible for compensation, and this | |||||
CO2 emission allowances which form part of the | compensation is to depend on the | |||||
national auction pool for the new EU ETS trading period | consumption of electricity at a given | |||||
starting on January 1, 2021. | power take-off point. | |||||
| Trading companies will be reimbursed upon an | |||||
application submitted to Zarządca Rozliczeń S.A. For | ||||||
applications involving more than 4 million power take- | ||||||
off points, reimbursement would be made within 6 | ||||||
months of the date of application. | ||||||
Parliamentary bill | The draft bill envisages liquidation of the Low-Carbon | The bill was passed by the | By amending the Act of December 8, | |||
amending the Act on | Transport Fund (Fundusz Niskoemisyjnego Transportu, FNT) | Sejm on July 24, 2020 and sent | 2017 on the capacity market and by | |||
biocomponents and | and transfer of the resulting funds to FNT to the National | to the Senate . | changing the capacity fee date, the | |||
liquid biofuels and | Fund for Environmental Protection and Water Management, | bill affects the Supply and Distribution | ||||
certain other acts . | which is to be in charge of supporting the tasks previously | segments to the extent that the | ||||
within the FNT's remit (production of biofuels, development | entities concerned are engaged in | |||||
of transport powered by alternative fuels). | collecting the capacity fee. | |||||
Furthermore, the bill will amend the Act of 8 December 2017 | ||||||
on the capacity market by setting the date for the |
commencement of levying the capacity charge to 1 January 2021.
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Draft act on amendments | The updated energy law contains a number of changes, | |||
to the Energy Law. | including : | |||
| comprehensive regulation for energy storage; | |||
| introduction of mandatory remote readings at metering | |||
installations ; | ||||
| establishment of an energy market information | |||
operator, responsible for establishing and developing a | ||||
central market information system. |
Public consultations on the draft act ended in November 2018.
Another modified draft act of June 19, 2020 was submitted to Standing Committee of the Council of Ministers.
The draft is scheduled to be adopted by the Council of Ministers in the second half of 2020.
The proposed solutions will affect all segments of the PGE Group's operations, especially the Supply and Distribution segments .
The bill amending the Act | The bill promoter's intention is to align the Act on the |
on the capacity market. | capacity market to the provisions of Regulation (EU) |
2019/943 of the European Parliament and of the Council of | |
June 5, 2019 on the internal market for electricity and to |
improve the capacity mechanism taking into account lessons learned from organisation of capacity auctions to date and the associated processes (promulgation of regulations and rules, definition of auction parameters, certification processes).
The bill was published on July 28, 2020 on the website of the Government Legislation Centre and referred for public consultations, arrangements and review.
After the public consultation report has been prepared, the bill shall be referred to the Standing Committee of the Council of Ministers.
The amendment is of key importance for PGE Group, the holder of a significant stake in the capacity market.
Draft act on promoting | The draft act provides for enabling the development of | The bill, modified after the | In the next stage, the draft | The draft act is of key importance for | |
electricity generation in | offshore wind power generation. Offshore wind farms are | public consultations, was | will be sent to the Standing | the development of offshore wind | |
offshore wind farms. | important for the fulfilment of international commitments in | referred for inter-ministerial | Committee of the Council | farms and thus for PGE Baltica, a | |
the field of renewable energy in the long term. The key to | arrangements and review on | of Ministers. | company responsible for the | ||
these is to create legal regulations that will stimulate the | July 7, 2020. | implementation of the Offshore | |||
growth of this sector. | Programme at the PGE Group and | ||||
The draft provides for: | coordinating preparations for the | ||||
| A support system for the offshore technology, adjusted | construction of three wind farms. | |||
to its technical and economic conditions, consisting in | |||||
granting the so-called right to cover the negative | |||||
balance to be calculated on the basis of the offshore | |||||
installation's LCOE. | |||||
| modifications of administrative procedures related to | ||||
the investment process, taking into account the | |||||
specificity of the project to construct offshore wind | |||||
farms. | |||||
The bill amending the Act | The bill envisages in particular: | The bill was published on | The bill regards mainly the RES | ||
on renewable energy | | abolishing the concession obligation for facilities below | August 5, 2020 on the | segment, extending the period within | |
sources and certain other | 1MW, | Government Legislation Centre | which new RES projects may apply for | ||
acts. | | extending the life of the discount/FIT/FIP support | website. Public consultations | support. It also facilitates planning the | |
system by 5 years (possibility to enter the system while | were completed. The adoption | development of this segment by | |||
retaining a 15 years' period of support), | of the act is planned by the | introducing the obligation for the | |||
| introducing the obligation for the Minister of Climate to | end of 2020. | Minister of Climate to publish the | ||
publish, in advance, RES energy volumes to be subject | schedule and capacity volumes for | ||||
to support over the next 4 years, |
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- increasing the PV capacity threshold for PV above which it is required to include facilities and protection zones around them in local zoning plans.
RES which may apply for support in the next 4 years.
The bill amending the Act on the greenhouse gas emissions trading scheme and certain other acts.
The bill is meant to transpose Directive (EU) 2018/410 of the | The bill was published on July |
European Parliament and of the Council of March 14, 2018 | 14, 2020 on the Government |
amending Directive 2003/87/EC to enhance cost-effective | Legislation Centre website. |
emission reductions and low-carbon investments, and | Public consultations are in |
Decision (EU) 2015/1814 ("Directive 2018/410"), which | progress. |
establishes the so-called Modernisation Fund to operate in | |
2021-2030 and finance the modernisation of large power | |
facilities as well as smaller-scale projects (insulation of single- | |
family dwellings, modernisation of district heating sources | |
and systems, development of low-carbon dispersed | |
generation). | |
Although the bill does not prejudge what projects will receive | |
financing, it provides that the function of the national | |
operator of the Modernisation Fund will be held by the | |
National Fund for Environmental Protection and Water | |
Management (Narodowy Fundusz Ochrony Środowiska i | |
Gospodarki Wodnej, NFOŚiGW). In consequence, the Fund | |
will provide project financing within the framework of the | |
NFOŚiGW's priority programmes. |
Depending on the final reading of the regulation, it can open the way to apply for financing for PGE Capital Group projects.
Ordinance of the Minister of Climate on the reference price of electricity from renewable energy sources in 2020, and periods for producers who won the auction in 2020.
According to the draft, the proposed reference price values, except for those concerning installations with a total installed electrical capacity of not more than 1 MW which use only onshore wind energy to generate electricity, as well as installations with a total installed electrical capacity of no more than 1 MW and with a total installed electrical capacity of more than 1 MW, using only solar radiation energy to generate electricity - which were reduced - are the same as the reference price values set for 2019.
Reference price for installations:
- with a total installed electrical capacity of more than 1 MW, using only onshore wind energy to generate electricity, is PLN 250/MWh (the price in 2019 was PLN 285/MWh);
- with a total installed electrical capacity of no more than 1 MW, using only solar radiation energy to generate electricity, is PLN 360 /MWh (the price in 2019 was PLN 385/MWh);
- with a total installed electrical capacity of more than 1 MW, using only solar radiation energy to generate
Ordinance of the Minister of Climate issued on April 24, 2020 entered into force on
May 19, 2020.
The ordinance intoroduces changes in prices for wind and solar installations, i.e. technologies that have been most popular in previous auctions and that should account for most of this year's auction budget. The ordinance may affect the prices of energy produced by wind and photovoltaic installations of PGE Group that will participate in auctions in 2020.
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electricity, is PLN 340/MWh (the price in 2019 was PLN 365/MWh).
Ordinance of the | The amendment to the ordinance refers, among other things, | The ordinance entered into | The ordinance has a positive impact | |
Minister of Climate of | to: | force on May 8, 2020. | on the District Heating segment, in | |
April 7, 2020 on detailed | | adapting the cost method of determining the tariff for heat | particular on the generation of power | |
rules for the | generation in cogeneration units to the new support | in cogeneration. It allows to increase | ||
determination and | mechanism for cogeneration, | revenues from these activities and | ||
calculation of tariffs and | | streamlining and automating the adjustment of tariffs in | makes the tariff approval process | |
for settlements heat | case of unforeseen and significant changes in external | more flexible. | ||
supply. | factors - for the cost method, | |||
| making the process of revising tariffs drawn up using the | |||
simplified method more flexible in the event of publication | ||||
of new reference prices by the President of ERO or | ||||
modification of licences, | ||||
| introducing a mechanism allowing for a one-off transfer | |||
in the tariff of purchase costs of CO2 emission rights | ||||
incurred in 2018, which so far have not been covered by | ||||
the tariffs calculated using the simplified method. |
The draft Regulation of the Minister of Climate on the main auction parameters for the delivery year 2025 and additional auction parameters for the delivery year 2022.
The draft regulation proposes the following main auction parameters for the delivery year 2025:
- demand for power is set at 2 526 MW,
- the market entry price for a new unit in the main auction is to be 361 PLN/kW,
- the proposed prise increase factor is 1.3,
- the parameter determining the capacity below the capacity demand in the main auction - 84.37%,
- the parameter determining the capacity above the capacity demand in the main auction - 52.07%,
- the maximum price for the price-taker-179 PLN/kW,
- the maximum number of rounds in the main auction - 12,
- the unit level of net capital expenditures referenced to the net attainable capacity, entitling to offer capacity obligations in the main auction for the delivery period relevant for the year 2025 for no more than: 15 delivery periods by a new generating capacity market unit - amounts to 2 400 PLN/kW; 5 delivery periods by a new and refurbished generating capacity market unit or a demand-side response capacity market unit - amounts to 400 PLN/kW.
The draft regulation sets the parameters for additional auctions for the delivery year 2022.
The draft regulation was referred for public consultations, review and arrangements on July 21, 2020.
After the public consultation report has been prepared, the draft shall be referred to the Standing Committee of the Council of Ministers.
The regulation is to set the key parameters for main and additional auctions on the capacity market. It will determine the conditions under which generating and response units and energy storage facilities may participate in the capacity market.
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Management Board's report on activities of the Capital Group of
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Draft Act amending the | The draft act aims to transpose the EIA Directive as regards |
Act on disclosure of | Article 11(1) and (3), i.e. regulations concerning public access |
information about the | to justice in the area of the environment by granting |
environment and its | environmental organisations new powers affecting the |
protection, public | possibility to use decisions on environmental conditions of |
involvement in | projects significantly affecting the environment and to obtain |
environmental | further investment decisions in the investment and |
protection and | construction process. |
environmental impact | |
studies and certain other | |
acts. |
The bill, modified as compared to the version subjected to inter-departmental arrangements on January 24, 2020, was published on May 19, 2020 on the Government Legislation Centre website and referred for public consultations.
It is planned to refer the bill to the Council of Ministers for acceptance.
The Act affects all business segments of the PGE Group that implement infrastructural investments.
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INTERNATIONAL REGULATORY ENVIRONMENT
Segments | Regulation | Regulation objectives | Latest conclusions | Next stage | Impact on PGE |
European Green Deal
Regulation of the | Enshrining the | The EC submitted a legislative proposal on March 4, 2020. |
European Parliament | 2050 climate- | The key solutions proposed include: |
and of the Council | neutrality | enshrining the legally binding 2050 climate- |
establishing the | objective in EU | neutrality objective in EU law, |
framework for | law, definition of | by September 2020 The EC will present an |
achieving climate | the 2030 emission | assessment of the increase in the emission |
neutrality (European | reduction target of | reduction target from the current 40% in 2030 |
Climate Law). | 50-55% reduction | relative to 1990 to 50-55% in 2030 relative to the |
compared with | same base year, | |
1990. | by June 30, 2021, the EC will present relevant | |
legislative proposals, inter alia, on the revision of the | ||
ETS Directive and related legislation, including the | ||
Directive on the promotion of the use of energy | ||
from renewable sources and the Directive on energy | ||
efficiency and Energy Taxation Directive. | ||
On 4 May 2020, Jytte Guteland, the MEP rapporteur for the | ||
leading committee ENVI in the European Parliament, | ||
presented a draft of her report in which she calls for inter | ||
alia: | ||
|
The preliminary negotiating position of the European Parliament is expected to be adopted by October 2020 The Council's position will be developed no sooner than during the German Presidency (lasting from July 2020). The content of the draft regulation is expected to be arranged by the end of 2020.
Improved competitiveness of renewable sources and, in the short term, of gas units, at the expense of high-carbonfuel-based generation units.
Increase in operating costs of conventional electricity generation.
Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Segments | Regulation | Regulation objectives | Latest conclusions | Next stage | Impact on PGE | |||
Directive 2003/87/EC | Combating climate | The legislative proposal presented on March 4, 2020 by the | A comprehensive plan to | Improvement in the competitiveness of | ||||
establishing a scheme | change and | EC, concerning the European Climate Law provides that, | increase the EU climate target | renewable sources and - in short-term- | ||||
for greenhouse gas | performance of | among other things: | for 2030 to 50-55% is to be | gas units to the detriment of generation | ||||
emission allowance | obligations | | by September 2020, the EC will review the EU's | presented in September 2020, | assets using high-emission fuels. | |||
trading within the EU | resulting from the | 2030 climate target in the light of the climate | whereas proposals for the next | Increase in operating costs for | ||||
(ETS Directive) as well | Paris Agreement. | neutrality objective and examine options for | revision of the EU ETS inter alia | |||||
conventional generation of electricity. | ||||||||
as implementing and | Development of | introducing a new 2030 target of 50-55 % emission | the ETS directive and potentially | |||||
delegated acts, | investment | reductions compared to 1990 levels. | MSR decision are expected in | Option to obtain direct investment | ||||
Decision (EU) | incentives through a | | by June 30, 2021 The Commission will assess how | June 2021. | ||||
support from 2021 from the | ||||||||
2015/1814 of the | CO2 price signal to | the EU legislation implementing the Union's 2030 | ||||||
Modernisation Fund. | ||||||||
European Parliament | develop low- | target should be amended to achieve emission | ||||||
and of the Council | emission sources. | reductions of 50-55% compared to 1990 and to | Another revision of the ETS Directive and | |||||
concerning the | achieve the climate neutrality objective. | MSR decision is likely to cause a further | ||||||
establishment and | This means that the EC is planning to carry out another | increase in prices of emission allowances. | ||||||
operation of a market | revision of the ETS Directive and, potentially, the MSR | |||||||
stability reserve for the | decision over the next year. | |||||||
Union greenhouse gas | Pursuant to the European Commission's Decision of March | |||||||
emission trading | 25, 2020, the management of the Innovation Fund was | |||||||
scheme (MSR Decision). | given to the European Investment Bank. Under its decision | |||||||
of July ,2 2020, the European Commission announced the |
first call for projects under the Innovation Fund.
On July 10, 2020, the Official Journal of the EU published Commission Implementing Regulation No 2020/1001 laying down detailed rules for the functioning of the modernisation fund.
Market regulations
Regulation (EU) | Establishment of | On May 4, 2020, the European Network of Transmission |
2019/943 of the | legal framework for | System Operators for Electricity (ENTSO-E) submitted to the |
European Parliament | further integration | Agency for the Cooperation of Energy Regulators (ACER) |
and of the Council on | of internal | draft methodologies regarding: |
the internal market for | electricity market. | European resource adequacy assessment (ERAA), |
electricity (EMR | cost of new entry (CoNE), reliability standard and | |
regulation). | value of lost load (VoLL). | |
Consultations regarding the aforementioned draft | ||
methodologies ended on May 27, 2020. | ||
On July 3, 2020, ENTSO-E submitted the following to ACER: |
In accordance with the EMR provisiosn, ACER should either approve or amend the ERAA, CoNE, reliability standard and VoLL methodologies.
After completing the public consultations, ACER should either approve or amend the other draft methodologies submitted by ENTSO-E by October 5, 2020.
Existing units that exceed the emissions standard 550 g CO2/kWh (EPS 550 and emit 350 kg CO2/kW/year (CB 350) will not be entitled to capacity payments from July 1, 2025.
A potential drop in volume of and price for electricity sold on the wholesale market by domestic units due to increased import, gradual replacement of existing generation units by new, ones, which meet emission requirements.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Segments | Regulation | Regulation objectives | Latest conclusions | Next stage | Impact on PGE |
- a methodology for calculating the maximum entry capacity for cross-border participation in capacity mechanisms,
- a methodology for sharing the TSO revenues,
- common rules for the carrying out of availability checks,
- common rules for determining when a non-availability payment is due,
- terms of the operation of the registry of interested capacity providers,
- common rules for identifying capacity eligible to participate in the capacity mechanism.
The methodology for common rules regarding cross-border participation in capacity mechanisms was subject to public consultations held by ACER by August 9, 2020.
The regulations concerning the financial perspective 2021-2027 and financing for sustainable economic growth
The Regulation of the European Parliament and of the Council establishing the Just Transition Fund (JTF).
Provision of the financial framework for regional
transition towards climate neutrality at the EU level.
On January 14, 2020, the European Commission presented a proposal for a regulation establishing the Just Transition Fund. The objective of the Fund is to support areas facing significant social and economic challenges due to the process of transition to climate-neutral economy by 2050.
On May 28, 2020, the European Commission presented a proposal for amendments to the regulation establishing the JTF. The amendments provided for increasing the JTF budget to EUR 40 billion, of which EUR 10 billion was to come from the 2021-2027 Multiannual Financial Framework (2021-2027 MFF) and EUR 30 billion from the EU's next generation instrument. According to the proposal, Poland would receive EUR 8 billion from the JTF.
On June 24, 2020, the Council adopted the initial mandate for the negotiations with the European Parliament and the European Commission, which was only slightly different from the European Commission's proposal made in May. Issues related to the size of the JTF budget were excluded from the negotiation mandate until their determination by the European Council.
On July 6, 2020, the EP's REGI committee (the Committee on Regional Development) adopted an initial position of the European Parliament regarding the regulation establishing the JTF.
On 17-21July 2020, an extraordinary meeting of the European Council was held and agreed that inter alia:
The legislative process regarding the regulation establishing the Just Transition Fund involving the European Parliament and the Council is to be completed during the German Presidency by the end of 2020.
The impact of the Just Transition Fund regulation on the availability of financial resources that can be obtained by PGE Capital Croup companies.
Potential financing of actions and investments in coal regions eligible for support from the JTF.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Segments | Regulation | Regulation objectives | Latest conclusions | Next stage | Impact on PGE |
- the size of the JTF budget would amount to EUR 17.5 billion, of which EUR 7.5 billion would come from the 2021-2027 MFF and EUR 10 billion from the EU's Next Generation instrument;
- access to the JTF would be limited to 50% of the allocation for a given Member State if that Member State did not undertake to achieve the target of the EU climate neutrality by 2050. The remaining 50% of the funds will be made available after such undertaking is made.
The Regulation of the | Facilitation of |
European Parliament | funding for |
and of the Council on | sustainable |
the establishment of a | economic growth in |
framework to facilitate | EU. |
sustainable investment | |
(the Taxonomy | |
Regulation). |
On April 15, 2020, the EU Council adopted a regulation concerning the criteria for assessing economic activities in order to determine whether they are environmentally sustainable. Then, on June 18, 2020, the Regulation was adopted by the European Parliament. The Taxonomy Regulation was published in the Official Journal of the European Union on June 22, 2020 and entered into force on July 12, 2020.
In March 2020 the Technical Expert Group published a final report.
In the report, the Technical Experts Group:
- did not recommend, at this stage, that nuclear energy should be considered sustainable because it did not meet the criterion of "causing no significant damage", while recommending further work on this issue in the future by a group with in-depth technical knowledge on this subject;
- indicates in the case of gas-based generation sources that those activities where life cycle emissions are below 100g CO2e/kWh are considered sustainable, this threshold is to be reduced to 0g CO2e/kWh by 2050.
Preparation by the EC of delegated acts laying down detailed technical and screening criteria for assessing economic activities in order to determine whether a given activity is environmentally sustainable - as regards gas - by the end of 2020, and as regards nuclear power - by the end of 2021.
Possible impact of regulation on availability and cost of funding obtained by PGE Group companies for investments. The matter of recognising nuclear power and gas as environmentally sustainable will be resolved under the future delegated acts.
The obligation to include information on the share in the trade, CAPEX and OPEX of environmentally sustainable activities in the statement on non-financial information or consolidated statement on non-financial information.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
ADDITIONAL INFORMATION WITH REGARD TO INTERNATIONAL REGULATORY ENVIRONMENT
ACTION BROUGHT AGAINST THE EUROPEAN COMMISSION'S DECISION NOT TO RAISE OBJECTIONS TO THE POLISH CAPACITY MARKET
Segments | Proceeding | Objective of the action | Key events | Next stage | Impact on PGE Group |
brought | |||||
Action brought against the European Commission's decision not to raise objections to the Polish capacity market (SA. 46100), case file no. T-167/19
Proceedings | The objective of the |
brought by Tempus | action is to annul the |
Energy Germany | European |
and T Energy | Commission's Decision |
Sweden against the | not to raise objections |
European | to the Polish capacity |
Commission (case | market (SA. 46100) |
file no. T-167/19). | issued as part of the |
aid procedure. |
On March 14, 2019 Tempus Energy Germany and T Energy Sweden brought an action against the EC decision concerning the Polish capacity market (case T-167/19). The summary of main reproaches and arguments brought up in the complaint was published in the EU Official Journal on May 6, 2019. From the published abstract it results, that in their action brought they argue that the EC failed, in particular, to initiate formal investigation proceedings (the second stage of the capacity evaluation mechanism) and that the demand side response (DSR) suffered alleged discriminatory treatment within the Polish capacity market.
The proceedings pending before the European Court of Justice concerning the appeal in the case Tempus Energy and Tempus Energy Technology versus the EC (case file no. C-57/19 P) may have an impact on the action brought.
Depending on the outcome of the dispute, the case may have an impact on the conditions for the performance of and entering into the capacity contracts within Polish capacity market.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
4. Activities of PGE Capital Group
Business segments
Key assets of the
segment
Electricity volumes
Heat volumes
Market position
Conventional | District |
Generation | Heating |
5 conventional power plants | |
2 CHP plants | 14 CHP plants |
2 lignite mines | |
Net electricity generation | Net electricity generation |
22.62 TWh | 4.56 TWh |
Heat production | Heat production |
3.00 PJ | 25.58 PJ |
PGE Group is the leader of lignite | |
mining in Poland (87%) | - |
PGE Group is also a national leader in electricity and heat generation
Renewables | ||
Distribution | Supply | |
16 wind farms5 | ||
1 photovoltaic power plant6 | 294 519 kms | - |
29 run-of-river hydro power plants | ||
of distribution lines | ||
4 pumped-storage power plants, | ||
including 2 with natural flow | ||
Net electricity generation | Electricity distribution | Sales to final off-takers |
1.40 TWh | 17.29 TWh | 19.87 TWh |
- | - | - |
PGE Group is the largest electricity | Leader in wholesale and retail trading | |
producer from RES with market share | Second domestic electricity distributor | |
in Poland | ||
of approx. 10% (excluding biomass co- | with regard to number of customers | |
combustion and bio-gas) |
- In July 2020 PGE acquired operating wind farm Skoczykłody with a capacity of 36MW, thus increasing the number of wind farms to 17, which will be presented in the next report.
- In August 2020, a new 1 MW PV Lesko photovoltaic plant was commissioned, thus increasing the number of photovoltaic plants to 2, which will be presented in the next report.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
PGE Group's key financial results
The best way to measure the profitability of energy companies is EBITDA. This is a result before depreciation, amortization, income tax and financial activities, including interest from drawn debt. It approximately reflects cash flows from operating activities and makes it possible to compare the results of companies regardless of the value of their assets, level of debt and existing income tax rates.
PGE Group's consolidated results are composed of the financial results of each of its operating segments. The Distribution segment and Conventional Generation segment made the largest contribution to the Group's result, participating respectively in 40% and 28% of the Group's EBITDA. District Heating segments accounts for 18% of EBITDA, while Renewables segment generated 11% of the EBITDA and Supply segment contributed 7% to the Group's EBITDA.
EBITDA of the Capital Group by segments (PLN million)
Change y/y → | -36% | -63% | -36% | -3% | -7% | -60% |
4 395
H1 2020 | ||||||||
2 805 | H1 2019 | |||||||
2 106 | ||||||||
1 127 1 211 | ||||||||
774 | 772 | |||||||
493 | 301 | 310 | 473 | |||||
187 | ||||||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: Key factors affecting EBITDA in PGE Capital Group (in PLN million).
4 500 | |||||||||
915 | |||||||||
4 000 | |||||||||
1 096 | |||||||||
3 500 | |||||||||
75 | 20 | ||||||||
63 | 37 | ||||||||
3 000 | -1 047 | ||||||||
312 | |||||||||
-152
-93
2 500
3 299
2 805
- 000
- 500
Result on the | Result on the | Revenues | Revenues | |||||||||||||||||||||
EBITDA | sale of | CO2 emission | Personnel | sale of electricity | from | Result on | EBITDA | |||||||||||||||||
from | Other*** | |||||||||||||||||||||||
H1 2019 | electricity at | rights** | costs*** | to final | agreement | distribution | H1 2020 | |||||||||||||||||
certificates | ||||||||||||||||||||||||
producers* | customers**** | with TSO | ||||||||||||||||||||||
Change | 915 | -1 047 | -152 | -93 | 63 | 37 | 75 | 20 | ||||||||||||||||
Reported EBITDA | 4 395 | |||||||||||||||||||||||
H1 2019 | ||||||||||||||||||||||||
One-offs H1 2019 | 1 096 | |||||||||||||||||||||||
Recurring EBITDA | 3 299 | 7 248 | 1 793 | 2 643 | 39 | 121 | 208 | 2 255 | ||||||||||||||||
H1 2019 | ||||||||||||||||||||||||
Recurring EBITDA | 8 163 | 2 840 | 2 795 | -54 | 184 | 245 | 2 330 | 3 117 | ||||||||||||||||
H1 2020 | ||||||||||||||||||||||||
One-offs H1 2020 | -312 | |||||||||||||||||||||||
Reported EBITDA |
H1 2020 | 2 805 |
- Revenue from the sale of electricity reduced by the purchase cost of electricity.
- Item adjusted for the effect of a one-off event, taking into account the resale of the surplus of CO2 emission allowances from the previous year.
- Items adjusted for the impact of one-off events.
- Including margin adjustments on certificates at the Capital Group.
Reversal of impact of total one-offs reducing the reported result.
Reversal of impact of total one-offs increasing the reported result.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Chart: Structure of assets and equity and liabilities (in PLN million).
75 125 | 77 650 | 75 125 | 77 650 | ||
14% | 12% | 15% | |||
16% | |||||
32% | 29% | ||||
86% | 84% | ||||
56% | 56% | ||||
As at | As at | ||||
As at | As at | ||||
June 30, | December 31, | June 30, | December 31, | ||
2020 | 2019 | 2020 | 2019 | ||
Total equity | |||||
Non-current assets | Non-current liabilities | |||
Current assets | ||||
Current liabilities | ||||
CONSOLIDATED STATEMENT OF CASH FLOWS | ||||
Chart: Net change in cash (in PLN million).
7 000 | 5 309 | ||||||||||||||||
6 000 | |||||||||||||||||
5 000 | |||||||||||||||||
4 000 | |||||||||||||||||
3 000 | |||||||||||||||||
-3 441 | |||||||||||||||||
2 000 | |||||||||||||||||
-968 | |||||||||||||||||
-186 | -7 | ||||||||||||||||
2 018 | |||||||||||||||||
1 000 | 1 311 | ||||||||||||||||
0 | |||||||||||||||||
Cash | Balance of | Interest paid | Cash | ||||||||||||||
and cash | Purchase of | repayments/ | loans, | ||||||||||||||
Net cash from | and cash | ||||||||||||||||
equivalents | property, plant and | inflows of loans, | borrowings, | ||||||||||||||
operating | Other | equivalents | |||||||||||||||
at | equipment and | borrowings, | bonds and | ||||||||||||||
activities | at June | ||||||||||||||||
January 1, | intangible assets | bonds and | financial | ||||||||||||||
30, 2020 | |||||||||||||||||
2020 | finance lease | instruments | |||||||||||||||
Impact on level of | 5 309 | -3 441 | -968 | -186 | -7 | ||||||||||||
cash | |||||||||||||||||
Cash and cash | 1 311 | 2 018 | |||||||||||||||
equivalents | |||||||||||||||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: Net debt (in PLN million).
5 500 | |||||||||||||||||
3 441 | |||||||||||||||||
6 500 | |||||||||||||||||
7 500 | |||||||||||||||||
8 500 | |||||||||||||||||
271 | 9 728 | ||||||||||||||||
9 500 | |||||||||||||||||
-90 | |||||||||||||||||
10 500 | 11 415 | ||||||||||||||||
11 500 | |||||||||||||||||
-5 309 | |||||||||||||||||
12 500 | |||||||||||||||||
Net financial debt | Net cash from | Purchase of property, | Net financial | |||
Change in | debt | |||||
December 31, | operating | plant and equipment | Other | |||
restricted cash | June 30, | |||||
2019 | activities | and intangible assets | ||||
2020 | ||||||
Impact on level of | -5 309 | 3 441 | -90 | 271 | ||
net debt | ||||||
Financial net debt | 11 415 | 9 728 | ||||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
KEY RESULTS IN BUSINESS SEGMENTS (IN PLN MILLION)
Conventional | District Heating | Renewables | ||||
Generation | ||||||
22 776 | Sales revenues | |||||
18 236 | ||||||
12 567 | ||||||
9 298 | ||||||
2 617 | 3 101 | 521 | 558 | |||
25% y/y | 35% y/y | -16% y/y | -7% y/y | |||
4 395 | EBITDA | |||||
2 805 | ||||||
2 106 | ||||||
774 | 493 | 772 | 301 | 310 | ||
-36% y/y | -63% y/y | -36% y/y | -3% y/y | |||
2 446 | EBIT | |||||
1 216 | ||||||
271 | 193 | 481 | 152 | 180 | ||
-667 | ||||||
-89% y/y | - | -60% y/y | -16% y/y | |||
2 504 | 2 557 | |||||
Capital expenditures | ||||||
1 581 | ||||||
813 | 649 | |||||
178 | 111 | 32 | ||||
DistributionSupply
H1 2020 | |||||
H1 2019 | 15 686 | ||||
9 142 | |||||
3 135 | 3 028 |
4% y/y | 72% y/y |
H1 2020
H1 2019
1 127 | 1 211 | 473 | |||||
187 | |||||||
-7% y/y | -60% y/y | ||||||
H1 2020 | |||||||
H1 2019 | |||||||
502 | 609 | 457 | |||||
169 | |||||||
-18% y/y | -63% y/y |
H1 2020
H1 2019
825 820
6 9
-2% y/y | -49% y/y | 60% y/y | 1 928% y/y | 1% y/y | -33% y/y |
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Balance of energy of PGE Capital Group
Table: Sales, purchase, production and consumption of electricity in the PGE Capital Group (in TWh).
Volume | H1 2020 | H1 2019 | % change | ||
A. Sales of electricity outside the PGE Capital Group: | 57.51 | 50.63 | 14% | ||
Sales to end-users * | 20.12 | 21.89 | -8% | ||
Sales on the wholesale and balancing market | 37.39 | 28.74 | 30% | ||
B. Purchases of electricity from outside of PGE Group (wholesale and | 31.19 | 23.40 | 33% | ||
balancing market) | |||||
C. Net production of electricity in units of PGE Capital Group | 28.58 | 29.50 | -3% | ||
D. Own consumption DSO, lignite mines, pumped-storage power | 2.26 | 2.27 | 0% | ||
plants (D=C+B-A) | |||||
* Sale mainly by PGE Obrót S.A. and PGE Energia Ciepła S.A.
The total volume of purchased and generated electricity is higher than the volume of electricity sold. The difference presented in point D results from the necessity to cover grid losses in the distribution business (Distribution System Operator), consumption of energy at lignite mines and consumption of energy at pumped-storage power plants.
The increase in sales and purchase of energy on the wholesale and balancing market is related to the fulfillment of 100% of the obligation by the Producers, greater reductions than in previous years, and thus lower production of electricity, and securing sales to end users by purchases on the power exchange market.
Decrease in volume of sales to end-users in the first half of 2020 is a consequence of high base recorded in the first half of 2019. At the beginning of 2019, the retail companies of the PGE Group recorded an increased volume of electricity sales in connection with the takeover of final off-takers from bankrupt trading companies and the PGE Group companies acting as reserve suppliers.
Production of electricity
Table: Electricity production (TWh).
Electricity production volume | H1 2020 | H1 2019 | % change | |
ELECTRICITY PRODUCTION IN TWh, including: | 28.58 | 29.50 | -3% | |
Lignite-fired power plants | 14.68 | 17.01 | -14% | |
Coal-fired power plants | 7.42 | 6.39 | 16% | |
including co-combustion of biomass | 0.01 | 0.02 | -50% | |
Coal-fired CHP plants | 2.46 | 2.40 | 3% | |
Gas-fired CHP plants | 2.39 | 2.26 | 6% | |
Biomass-fired CHP plants | 0.21 | 0.14 | 50% | |
Communal waste-fired CHP plants | 0.02 | 0.02 | 0% | |
Pumped-storage power plants | 0.37 | 0.33 | 12% | |
Hydroelectric plants | 0.25 | 0.27 | -7% | |
Wind power plants | 0.78 | 0.68 | 15% | |
including RES generation | 1.27 | 1.13 | 12% | |
Lower generation volume in the first half of 2020 mainly results from lower NPS demand and higher wind generation and energy import, what translated into lower generation at coal-fired power plants. Above effect was partly offset by production of new units 5 and 6 at Opole power plant.
Lower generation at lignite-fired power plants (decrease by 2.3 TWh) results from lower average load factors at the Bełchatów power plant at units 2-14 (by 21 MW, i.e. by 7%) and at Turów power plant (by 9 MW, i.e. by 6%). As a result of lower use by PSE S.A., Bełchatów Power Plant units were in the reserve longer by 2 426 h, and Turów Power Plant units longer by 1 266 h. Furthermore, lower generation results from the decommissioning of unit no. 1 in Bełchatów power plant at the end of May 2019.
Higher production in coal-fired power plants (up by 1.0 TWh) results from increased generation in Opole power plant, what is mainly due to operation of units no. 5 and 6, which generated 3.3 TWh of electricity in the first half of 2020 compared to 0.7 TWh in the first half of 2019. Above effect was lowered by the longer by 3 565 h reserve downtime of units 1-4 due to lower use of units by PSE S.A. Lower production in Dolna Odra power plant is a consequence of repair-related downtime of by 4 778 h (unit no. has
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Management Board's report on activities of the Capital Group of
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been in overhaul since September 30, 2019 till June 30, 2020 while unit no. 7 has been in overhaul since May 2020). Lower generation at Rybnik power plant is a result of longer (by 6 900 h) reserve downtime of units 3-8 and lower load factor (by 10 MW).
Higher production in gas-fired CHP plants is a consequence of higher electricity production in Lublin Wrotków CHP and Rzeszów CHP as a result of higher profitability of production due to market conditions.
Higher generation from biomass CHP plants is a consequence of technical conditions in Szczecin CHP Plant, where with lower heat production (due to higher outside temperatures) a higher generation of electricity was necessary to maintain the technical minimum of boiler.
Production at coal-fired CHP plants, hydro power plants and waste-to-energy plants remained at similar level as in the base period.
Higher generation at wind farms results from better wind conditions in the first half of 2020. Load factor at wind farms in the first half of 2020 was higher by more than 3 p.p. on average.
Higher production in pumped-storage power plants results from the nature of these generation units which were used more extensively by PSE S.A. in the first half of 2020.
Table: Production of heat (PJ).
Heat production volume | H1 2020 | H1 2019 | % change | |
Heat production in PJ, including: | 28.58 | 29.40 | -3% | |
Lignite-fired power plants | 1.50 | 1.51 | -1% | |
0.50 | -32% | |||
Coal-fired power plants | 0.34 | |||
Coal-fired CHP plants | 20.75 | 21.22 | -2% | |
Gas-fired CHP plants | 5.47 | 5.48 | 0% | |
0.53 | -30% | |||
Biomass-fired CHP plants | 0.37 | |||
CHP plants fuelled by municipal waste | 0.07 | 0.06 | 17% | |
Other CHP plants | 0.08 | 0.10 | -20% | |
External temperatures contributed more than any other factor to lower generation of heat in the first half of 2020 (y/y). W As compared to 2019, the average temperatures for 2020 were by 2.1°C higher, which translated into lower production of heat.
Sales of heat
In the first half of 2020 the heat sales volume in PGE Capital Group totalled 27.75 PJ and was lower by 0.82 PJ y/y. The above result was caused mainly by lower demand for heat due to the higher average outside temperatures in 2020.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Operational segments
CONVENTIONAL GENERATION
Segment description and its business model
This segment includes lignite mining and generation of electricity in conventional sources.
* managerial perspective.
The main source of revenue in the Conventional Generation segment is revenue from the sale of electricity on the wholesale market, based on electricity prices that are shaped by supply and demand mechanisms, taking into account the variable costs of generation. At the same time, the segment's key cost items, given their size and volatility, and thus their impact on operating results, are the cost of production fuels, mainly hard coal and natural gas, as well as fees for CO2 emissions. Lignite-based production, which is of key significance for the Group, is based on own mines, therefore its cost is relatively stable and reflected mainly in fixed-cost items, i.e. personnel costs, third-party services and depreciation.
A significant item in the segment's revenue constitutes revenues from the provision of regulatory system services based on an agreement with the Polish Transmission Operator, i.e. PSE S.A. This revenue is in parallel to revenue generated on the electricity market and is related to the need to ensure stable operations for the NPS. Regulatory system services are provided by power plants of PGE GiEK.
In addition, this segment generates revenues from sales of heat produced both at industrial plants and at the Szczecin CHP plant and Pomorzany CHP plant which form part of ZEDO.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
ASSETS
Conventional Generation segment consists of: 2 lignite mines, 5 conventional power plants and 2 CHP plants.
Conventional Generation is the leader of lignite mining (its share in the extraction market of this raw material accounting for 87%7 of domestic extraction), it is also the largest generator of electricity as it generates approx. 33%8 of domestic gross electricity production. The generation is based on lignite extracted from mines owned by the company as well as hard coal and biomass.
Diagram: Main assets of the Conventional Generation segment with their installed capacity.
Ec. Szczecin 76 MWe
Ec. Pomorzany 134 MWe
El. Dolna Odra 1 362 MWe
El. Bełchatów 4 928 MWe
El. Turów 1 499 MWe
El. Opole 3 408 MWe
El. Rybnik 1 840 MWe
El. power plant | |||
Ec. CHP plant | Hard coal | Lignite | Biomass |
- Own calculations based on data from Central Statistical Office of Poland
- Own calculations based on data from ARE
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
KEY FACTORS FOR THE RESULTS OF THE SEGMENT
Chart: Key changes of EBITDA in Conventional Generation (in PLN million) - managerial perspective.
2 800 | 716 | 39 | ||||||||||||||||||||||||||||||
2 300 | ||||||||||||||||||||||||||||||||
-103 | ||||||||||||||||||||||||||||||||
1 800 | 785 | |||||||||||||||||||||||||||||||
475 | ||||||||||||||||||||||||||||||||
1 300 | 47 | |||||||||||||||||||||||||||||||
-255 | -1 080 | -63 | 323 | |||||||||||||||||||||||||||||
800 | 1 321 | |||||||||||||||||||||||||||||||
774 | ||||||||||||||||||||||||||||||||
300 | ||||||||||||||||||||||||||||||||
Electricity | Electricity | Result on the | Revenues | |||||||||||||||||||||||||||||
EBITDA | production production | optimization of | from | Costs | Costs of | Personnel | Other* | EBITDA | ||||||||||||||||||||||||
H1 2019 | difference | difference in | the electricity | agreement | of fuel | CO2* | expenses* | H1 2020 | ||||||||||||||||||||||||
in volume | price | trade | with TSO | |||||||||||||||||||||||||||||
Change | -255 | 475 | 716 | 39 | -103 | -1 080 | -63 | 47 | ||||||||||||||||||||||||
Reported EBITDA H1 2019 | 2 106 | |||||||||||||||||||||||||||||||
One-offs H1 2019 | 785 | |||||||||||||||||||||||||||||||
Recurring EBITDA H1 2019 | 1 321 | 5 733 | 189 | 182 | 1 063 | 1 608 | 1 411 | |||||||||||||||||||||||||
Recurring EBITDA H1 2020 | 5 953 | 905 | 221 | 1 166 | 2 688 | 1 474 | 1 097 | |||||||||||||||||||||||||
One-offs H1 2020 | -323 | |||||||||||||||||||||||||||||||
Reported EBITDA H1 2020 | 774 |
*Adjusted for impact of one-offs.
Reversal of the impact of the sum of one-off events reducing the reported result.
Reversal of the impact of the sum of one-off events improving the reported result.
Key factors affecting the EBITDA result of Conventional Generation segment on y/y basis included:
- Lower electricity production volume in PGE GiEK by 1.1 TWh due to lower degree of use of units by PSE S.A. resulting from decreased demand in NPS and higher wind generation (see p. 3.2 of this report).
- Increase in electricity sales prices on the forward market (see p. 3.2 of this report).
- Higher result on optimisation of electricity portfolio due to higher volume of electricity trading by 5.0 TWh, with higher margin realized on electricity trading.
- Higher revenues from ancillary control services, mainly from the Operational Capacity Reserve ("ORM") due to lower utilization of generating units as well as higher revenues from the number of the commissioning of units after putting them into reserve at Bełchatów and Opole power plants.
- Higher fuel consumption costs, mainly hard coal, due to higher production from this fuel (see p. 3.2 of this report). Main changes on different types of fuel are presented on the chart below.
- Higher CO2 costs as a result of higher price of allowances and lower allocation of allowances granted free of charge. The above effect was reduced as a result of lower emissions of CO2 due to lower electricity production and commissioning of less emissive units no. 5 and 6 in Opole power plant. Main changes are shown in the chart below.
- Higher personnel expenses due to ongoing process to optimise salaries.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: Costs of production fuels consumption in Conventional Generation (in PLN million).
1 300 | + 7.10 | - 0.03 | + 0.39 | - 1.82 | + 0.13 | -8.78 |
1 200 | GJ m | PLN/GJ | GJ m | PLN/GJ | GJ m | PLN/GJ |
1 100 | ||||||
1 000 | ||||||
900 | ||||||
800 | ||||||
700 | 1 166 | |||||
1 063 | ||||||
600 | ||||||
500 | ||||||
400 | ||||||
300 |
Cost of fuels | Hard coal | Hard coal price | Biomass | Biomass | Light and heavy | Light and heavy | Cost of fuels | |
H1 2019 | volume | volume | price | oil volume | oil price | H12020 | ||
Change | 100 | -2 | 11 | -4 | 7 | -9 | ||
Cost of fuels H1 2019 | 1 063 | 975 | 54 | 34 | ||||
Cost of fuels H1 2020 | 1 073 | 61 | 32 | 1 166 | ||||
Table: Data on use of production fuels consumption in Conventional Generation.
H1 2020 | H1 2019 | |||
Fuel type | Volume | Cost | Volume | Cost |
(tons ths) | (PLN million) | (tons ths) | (PLN million) | |
Hard coal | 3 345 | 1 073 | 3 158 | 975 |
Biomass | 247 | 61 | 213 | 54 |
Fuel oil - light and heavy | 22 | 32 | 18 | 34 |
TOTAL | 1 166 | 1 063 | ||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Chart: CO2 costs in Conventional Generation segment (in PLN million).
3 300 | ||
+ 35.59 | ||
2 800 | PLN/ t CO2 | |
2 300 | - 4.23 | - 1.53 |
mln t CO2 | mln t CO2 | |
1 800 | ||
2 688 | ||
1 300 | ||
1 608 | ||
800 | ||
300 |
CO2 costs | Allocation of free | Average | CO2 costs | ||
allowances for CO2 | CO2 emission | ||||
H1 2019 | CO2 costs | H1 2020 | |||
emissions | |||||
Change | 307 | -111 | 884 | ||
CO2 costs H1 2019 | 1 608 | ||||
CO2 costs H1 2020 | 2 688 | ||||
CAPITAL ENPENDITURES
Table: Capital expenditures incurred in Conventional Generation segment in the first half of 2020 and 2019.
PLN million | H1 2020 | H1 2019 | % change | |
Investments in generating capacities, including: | 691 | 1 368 | -49% | |
| Development | 183 | 787 | -77% |
| Modernisation and replacement | 508 | 581 | -13% |
Other | 35 | 32 | 9% | |
TOTAL | 726 | 1 400 | -48% | |
Capitalised costs of overburden removal in mines | 87 | 181 | -52% | |
TOTAL with capitalized costs of overburden removal | 813 | 1 581 | -49% |
KEY DEVELOPMENTS IN THE CONVENTIONAL GENERATION SEGMENT
Key development investments:
- On January 3, 2020, a decision was made to accept the offer of the consortium consisting of General Electric Global Services GmbH (Consortium leader), Polimex Mostostal S.A. and General Electric International Inc. submitted in the proceeding "Construction of two CCGT units in PGE GiEK S.A. Branch ZEDO". The planned CCGT units were among the generating units that obtained a 17-year contract in the main capacity market auction, which will come into effect in 2024.
- On January 30, 2020 a contract was signed for construction of two CCGT units with a capacity of approx. 1 400 MW in Dolna Odra power plant.
- On March 10, 2020 a contract was signed with Gaz-System S.A. for the connection of gas devices and installations of units 9 and 10 in the Dolna Odra power plant to the natural gas transmission grid (OGP).
- On March 20, 2020, the Minister of Climate signed a decision extending the license for lignite mining from the Turów lignite deposit for another six years.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
- On March 30, 2020, an agreement was signed with PSE S.A. to connect units 9 and 10 at the Dolna Odra Power Plant to the NPS transmission network.
- On May 31, 2020, the 1-year warranty period for unit 5 at the Opole Power Plant ended. At that time, unit 5 operated in accordance with the needs of the NPS without significant problems. The availability of unit 5 in the above-mentioned period meets the terms of the agreement.
- On June 17, 2020, an agreement was concluded with ELBIS sp. z o.o. with its registered office in Rogowiec for the provision of services as a Contract Engineer for the implementation of the project "Construction of units 9 and 10 at Dolna Odra Power Plant" for PGE GiEK S.A. Dolna Odra Power Plant Branch.
-
On July 10, 2020, an agreement was concluded with SPIE Elbud Gdańsk S.A. entitled "Construction of a power evacuation system to the power network with a backup power supply system for two gas and steam units for PGE GiEK S.A. Dolna Odra Power Plant
Branch".
Key modernisation investments related to emission reductions:
- On February 2, 2020, unit no. 2 in the Bełchatów Power Plant was synchronised after its upgrade.
-
On February 3, 2020, an agreement was concluded for the construction of a mercury reduction system for units no. 2-12 and no.
14 in the Bełchatów Power Plant. - On February 28, 2020, the Flue Gas Desulphurisation unit for Units A and B in Pomorzany CHP plant was commissioned.
- On March 3, 2020, a hydraulic test of the boiler in unit no. 3 of the Turów Power Plant was completed with positive results.
- On March 27, 2020 the trial run of unit no. 1 was completed. In April 2020, unit no. 1 was commissioned.
- On April 23, 2020, a decision was obtained from the Marshal of the West Pomeranian Voivodeship to run two sewage treatment plant installations: mechanical-biological and mechanical industrial-rainwater treatment plant located in the Dolna Odra Power Plant Branch.
- On May 6, 2020, Annex No. 3 was concluded with SBB Energy S.A. (consortium leader) and Polimex and Polimex-Mostostal S.A. to the Agreement entitled "Delivery and assembly of the flue gas catalytic denitrification system for OP-650 boilers in units 5, 6, 7, 8 at Dolna Odra Power Plant."
- On June 1, 2020, final decisions were obtained for the construction of the photovoltaic installation "Dolna Odra PV1 and PV2" with a capacity of 999.6 kWp each, at the Dolna Odra Power Plant Branch, along with the necessary technical infrastructure.
- On June 23, 2020, an agreement was concluded for the development of continuous measurement systems for Hg, NH3 and HCl air emissions at the Rybnik Power Plant.
- On July 3, 2020, unit 6 (after renovation) at the Dolna Odra Power Plant was synchronized with the NPS, which allowed for the completion of works on the regulatory operation of the catalytic flue gas denitrification ("SCR") installation of unit 6 and the transition to optimization operation.
- On July 15, 2020, after the modernization, the flue gas desulphurisation ("FGD") installation of 7-8 was subjected to a 72-hour Test Run. On July 18, 2020, the 72-hour FGD Test Run was completed.
- On July 23, 2020, a commissioning protocol was signed after the modernization of unit 2 at the Bełchatów Power Plant.
- On July 26, 2020, unit 3 at Turów Power Plant was synchronized with the National Power System.
- On July 31, 2020, an agreement was concluded for the modernization of electrostatic precipitators for units 4-8 at the Rybnik Power Plant.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
KEY PROJECTS IN CONVENTIONAL GENERATION SEGMENT
Capital | Capital | ||||||
Budget (net, | expenditures | expenditures | |||||
incurred so far | in Q1 2020 | Fuel/ Net | Expected date of | ||||
Aim of the project | without costs | Contractor | Status | ||||
(net, without | (net, without | efficiency | completion | ||||
of financing) | |||||||
costs of | costs of | ||||||
financing) | financing) |
Construction of new unit in Turów power plant
Construction of | PLN 4.3 billion | PLN 3.2 billion | PLN 120.2 | Lignite / | Syndicate of companies: |
power unit with a | million | 43.1% | MHPSE, Budimex | ||
capacity of 490 MW | and Tecnicas Reunidas |
Contractual term: October 2020
The General Contractor presented a proposal to change the completion date of the investment for the construction of a new unit and postpone the commissioning date to April 2021. This proposal is being analysed at PGE.
At the end of H1 2020 the overall work progress on the project was 97%.
On the construction site, commissioning works are carried out on individual devices of the new unit. The power from the 400 kV power line was applied. Chemical cleaning of the boiler was completed. The first light-oil boiler start-up has also been accomplished.
Construction of new units in Dolna Odra power plant
Construction of | PLN 4.3 billion | PLN 6.3 million PLN 2 million* | Natural gas/ | Syndicate of companies: | December 2023 | On January 30, 2020 a contract was signed for construction of two |
two CCGT units no. | 63% | General Electric | CCGT units with a capacity of approx. 1 400 MWe in Dolna Odra | |||
9 and 10 in Dolna | (consortium leader) and | power plant. | ||||
Odra power plant | Polimex Mostostal | The investment is at the design stage. Preparatory work is | ||||
underway to hand over the construction site to the General | ||||||
Contractor. |
* Expenditures incurred do not include expenses in the form of advances paid to the General Contractor for the Project.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
DISTRICT HEATING
Segment description and its business model
Core business of the segment includes production of heat and electricity from conventional sources as well as distribution of heat.
* managerial perspective.
As in the case of Conventional Generation, this segment's revenues are primarily revenues from electricity sales, however, they are usually directly related to generation of heat which in turn depends on demand that is highly seasonal and depends on external temperatures. This is why, in contrast to industrial power plants in Conventional Generation, as a rule, CHP plants do not have any considerable impact on the development of prices for electricity on the wholesale market.
Revenues from the sale and distribution of heat are regulated revenues. Energy companies independently set tariffs and present them to the President of the Energy Regulatory Office (the "ERO President") for approval. Heat production at PGE Group takes place in cogeneration units, which tariffs for heat are calculated using a simplified approach (compared to tariffs based on a full cost structure), based on reference prices, which are mainly conditioned by average sales prices for heat generated in units with specific fuel other than cogeneration units. They are published each year by the ERO President. Tariffs for heat production for cogeneration units in a given tariff year thus reflect changes in the costs of heat-generation units (not co-generation units) in the previous calendar year. The cost approach is applied in the case of tariffs for heat distribution, which allows to cover justified costs (mainly the costs of heat losses and property tax) and a return on invested capital, in line with guidelines from the ERO President. Distribution tariffs for heat are in place at branches in Gorzów and Zgierz, as well as by Kogeneracja S.A., PGE Toruń and Zielona Góra CHP.
Generation of heat and electricity is directly related to key variable costs of the segment, i.e. the cost of production fuel used (in particular, hard coal and gas) and the cost of fees for CO2 emissions.
Electricity production in high-efficiency cogeneration is additionally remunerated. Until 2018, CHPs generated revenue from the sale of energy origin certificates, i.e. cogeneration certificates (yellow and red). From 2019, due to a change in support model, they receive support at a level covering increased operating costs related to production. For large units, this are set on an individual basis. The support mechanism in the form of certificates is in place also for biomass-fired generating assets. This type of production is additionally remunerated by awarding origin certificates, i.e. green certificates, the sale of which generates additional revenue, within the segment obtained in biomass unit in Kielce CHP.
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Management Board's report on activities of the Capital Group of
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ASSETS
District Heating within PGE Capital Group combines CHP plants separated from the EDF assets acquired on November 14, 2017 and CHP plants separated from PGE GiEK S.A. Since January 2, 2019 the segment's composition has been as follows: PGE EC S.A., Kogeneracja S.A., Elektrociepłownia Zielona Góra S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., Ekoserwis sp. z o.o., PEC Zgierz sp. z o.o. oraz Megazec sp. z o.o.
District Heating is the largest heat producer in Poland. Generation is based mainly on hard coal and gas.
Diagram: Main assets of the District Heating segment and their installed capacity.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
TARIFFS IN DISTRICT HEATING
Description of tariffs in the segment
Due to the fact that the income on heat sales for CHP plant are tariffed as part of the so-called simplified method, they are characterised by a relative delay in the transfer of costs (annual or two-year). They are based on the year-to-year dynamics of average costs (taking into consideration the fuels used) incurred by entities that are not co-generation entities for the year preceding the time of tariff establishment.
Charts: Changes in the reference price of heat for hard coal and natural gas (PLN/GJ).
Price of heat from coal | Price of heat from gas | |||||||||||||
48 | 46.67 | 80 | ||||||||||||
46 | +11% | 75.24 | ||||||||||||
75 | ||||||||||||||
71.94 | ||||||||||||||
71.47 | -6% | |||||||||||||
44 | +13% | |||||||||||||
70 | -5% | |||||||||||||
41.52 | -1% | +6% | 41.89 | 66.87 | ||||||||||
42 | ||||||||||||||
40.23 | 63.55 | |||||||||||||
39.65 | 65 | |||||||||||||
40 | ||||||||||||||
38 | 60 | |||||||||||||
36 | 55 | |||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | 2015 | 2016 | 2017 | 2018 | 2019 |
Source: ERO.
Charts: Changes in costs of fuels - hard coal (PLN/GJ) and gas (PLN/MWh).
PSCMI2 | +3% | Gas price on TGE | ||||||||||||||||||||||||||
14 | +5% | 12.87 | 13.30 | 120 | +8% | |||||||||||||||||||||||
+22% | 12.26 | 102.64 | +15% | 100.34 | -17% | |||||||||||||||||||||||
12 | 10.05 | 100 | 86.03 | 92.99 | ||||||||||||||||||||||||
10.03 | 83.06 | |||||||||||||||||||||||||||
81.00 | ||||||||||||||||||||||||||||
10 | 8.34 | 80 | ||||||||||||||||||||||||||
8 | 60 | |||||||||||||||||||||||||||
6 | ||||||||||||||||||||||||||||
4 | 40 | |||||||||||||||||||||||||||
2 | 20 | |||||||||||||||||||||||||||
0 | 0 | |||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 HY 2020 | 2015 | 2016 | 2017 | 2018 | 2019 | HY 2020 |
Source: ARP, TGE.
Chart: Changes in price of CO2 emission rights (PLN/t).
Price of CO2 emission rights | |||||||
120,00 | 106.68 | -10% | |||||
100,00 | +52% | 96.77 | |||||
80,00 | 70. | ||||||
60,00 | +177%% | ||||||
40,00 | 32.05 | 23.69 | 25.42 | ||||
20,00 | |||||||
0,00 | |||||||
2015 | 2016 | 2017 | 2018 | 2019 | HY 2020 |
Source: ICE; average EUR/PLN rate 4.40.
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Management Board's report on activities of the Capital Group of
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Reflecting previous cost increases, the reference price of heat produced from hard coal increased by 11% in 2019. It is a base to the increase in heat prices for co-generation entities establishing the tariff during 2020. At the same time, in the first half of 2020 the average market price of coal increased further by 3%, while the average price of CO2 emission rights decreased by 9%.
Aside from the time delay in costs transfer, it is also important that the CO2 cost is only partially transferred in the reference unit price. This is related to the fact that approx. 45% of heating entities in Poland is part of the EU ETS system (capacity above 20 MW), i.e. is obliged to redeem the carbon dioxide emission allowances. The reference price also transfers approx. 45% of the real CO2 consumption costs at the average heat sales price.
Tariffs for the production of heat from gas in 2020 are set based on an increase in the reference price (13%), whereas in the first half of 2020 gas prices are already lower than in previous periods. Prices stand at PLN 83/MWh and are largely due to forward contracts.
Weather conditions also substantially affect the segment's results. Temperatures directly shape the level of heat demand. Simultaneously, the level of heat production determines the level of electricity production in co-generation, which is an additional source of revenues that decisively affects the CHP plant's profitability.
KEY FACTORS FOR THE RESULTS OF THE SEGMENT
Chart: Key changes of EBITDA in District Heating (in PLN million) - managerial perspective.
850 | ||||||||||||||||||||||||||||
750 | 94 | |||||||||||||||||||||||||||
650 | ||||||||||||||||||||||||||||
255 | 7 | 9 | ||||||||||||||||||||||||||
54 | ||||||||||||||||||||||||||||
550 | 8 | 7 | ||||||||||||||||||||||||||
450 | 31 | |||||||||||||||||||||||||||
-25 | ||||||||||||||||||||||||||||
-209 | ||||||||||||||||||||||||||||
517 | 462 | |||||||||||||||||||||||||||
350 | ||||||||||||||||||||||||||||
250 | ||||||||||||||||||||||||||||
EBITDA | Heat | Heat | Electricity | Electricity | Costs | Costs of | Personnel | EBITDA | |||||||||||||||
production - | production - | production | production | Other ** | |||||||||||||||||||
H1 2019 | of fuel | CO2** | expenses** | H1. 2020 | |||||||||||||||||||
volume | price | - volume | - price* | ||||||||||||||||||||
Change | -25 | 54 | 7 | 9 | 94 | -209 | 8 | 7 | |||||||||||||||
Reported EBITDA H1 | 772 | ||||||||||||||||||||||
2019 | |||||||||||||||||||||||
One-offs H1 2019 | 255 | ||||||||||||||||||||||
Recurring EBITDA H1 2019 | 517 | 1 037 | 1 111 | 1 027 | 215 | 269 | |||||||||||||||||
Recurring EBITDA H1 2020 | 1 066 | 1 127 | 933 | 424 | 261 | 462 | |||||||||||||||||
One-offs H1 2020 | 31 | ||||||||||||||||||||||
Reported EBITDA H1 | 493 | ||||||||||||||||||||||
2020 | |||||||||||||||||||||||
- Includes costs of certificates redemption regarding electricity sales to final off-takers.
- Items adjusted for one-offs.
Reversal of the impact of the sum of one-off events improving the reported result .
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Key factors affecting the EBITDA result of District Heating segment on y/y basis included:
- Lower volume of heat production in the first half of 2020 is a result of higher outside temperatures - as compared to 2019 the average temperatures were by 2.1oC higher, what translated into lower production (by 1.6 PJ).
- Increase of heat sale price is a result of publication by the ERO of new reference prices for heat production in co-generation.
- Higher electricity production volume in the segment by 0.2 TWh as a result of higher generation at Lublin Wrotków CHP and Rzeszów CHP caused by high margins due to low natural gas prices
- Increase in electricity sale prices (see p. 3.2 of this report).
- Lower fuel consumption costs reflect lower natural gas prices in the wholesale market and lower heat production. For details, see the chart below.
- Higher CO2 costs are mainly a result of higher price of allowances and lower allocation of allowances granted free of charge. The details are shown in the chart below.
- Lower personnel expenses result mainly from decreased employment y/y.
Chart: Consumption costs of production fuels in District Heating (in PLN million). 1 150
+ 0.90 | - 7.58 | |||
1 100 | + 1.50 | GJ m | PLN/GJ | |
PLN/GJ | ||||
1 050 | - 1.44 | |||
GJ m | ||||
1 000 | + 0.10 | |||
GJ m | ||||
950 | ||||
1 027 | ||||
900 | ||||
850 | ||||
- 3.98 | |
PLN/GJ | - 0.03 GJ m |
933
800
Costs of fuel | Hard coal | Hard coal | Gas | Gas | Biomass | Light and | Light and | Other raw | Costs of | ||
Biomass price | heavy oil | heavy oil | fuel H1 | ||||||||
H1 2019 | volume | price | volume | price | volume | materials | |||||
volume | price | 2020 | |||||||||
Change | -19 | 52 | 25 | -146 | 3 | -3 | -2 | 0 | -4 | ||
Costs of fuel H1 | 1 027 | 481 | 509 | 16 | 9 | 12 | |||||
2019 | |||||||||||
Costs of fuel H1 | 514 | 388 | 16 | 7 | 8 | 933 | |||||
2020 | |||||||||||
Table: Data on use of production fuels consumption in District Heating.
H1 2020 | H1 2019 | ||||
Rodzaj paliwa | Volume | Cost | Volume | Cost | |
(tons ths) | (PLN million) | (tons ths) | (PLN million) | ||
Hard coal | 1 547 | 514 | 1 598 | 481 | |
Gas (cubic metres ths) | 632 977 | 388 | 600 798 | 509 | |
Biomass | 74 | 16 | 71 | 16 | |
Fuel oil and other raw materials | - | 15 | - | 21 | |
TOTAL | 933 | 1 | 027 | ||
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Management Board's report on activities of the Capital Group of
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Chart: CO2 costs in District Heating segment (in PLN million).
450 | + 46,7 | |
PLN/t CO2 | ||
400 | ||
350 | ||
300 | - 0,55 | -0,11 |
250 | mln t CO2 | mln t CO2 |
200 | 424 | |
150 | ||
100 | 215 | |
50 | ||
0 |
Allocation of free | Average | CO2 costs H1 | |||
CO2 costs H1 2019 | allowances for CO2 | CO2 emission | |||
CO2 costs | 2020 | ||||
emissions | |||||
Change | 34 | -7 | 182 | ||
CO2 costs H1 2019 | 215 | ||||
CO2 costs H1 2020 | 424 | ||||
CAPITAL EXPENDITURES
Table: Capital expenditures incurred in District Heating segment in the first half of 2020 and 2019.
PLN million | H1 2020 | H1 2019 | % change | |||
Investments in generating capacities, including: | 160 | 98 | 63% | |||
| Development | 55 | 12 | 358% | ||
| Modernisation and replacement | 105 | 86 | 22% | ||
Other | 18 | 13 | 38% | |||
TOTAL | 178 | 111 | 60% | |||
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
RENEWABLES
Segment description and its business model
This segment is involved in the generation of electricity from renewable sources and in pumped storage power plants.
- Accounting perspective.
- Includes start-up production from Starza/Rybice and Karnice II wind farms.
The Renewables segment is based mainly on revenues from the sale of electricity, however contrary to production at industrial plants within the Conventional Generation segment, this revenue is subject to a larger degree to changes in weather conditions and prices on the spot market due to the renewables sales model in place. Electricity output volume translates into property rights (green) and revenue from the sale of energy origin certificates obtained by the segment's assets, excluding hydropower plants over 5 MWe.
A stable part of the segment's results is related to the provision of ancillary services using pumped-storage plants, which is performed on the basis of an agreement with the transmission system operator, PSE S.A
On the cost side, the most important items include: depreciation of segment assets, use of energy to pump water at pumped- storage plants and third-party services, mainly in the form of repair services. Property tax and employee wages also constitute a significant cost item in this segment.
Assets
The PGE Capital Group's operations in renewable energy are managed by the PGE Energia Odnawialna S.A. Due to the profile of operations, the segment includes PGE Baltica, which is recognized for presentation purposes. This company is responsible for all activities related to offshore wind farms.
In the second quarter of 2020, newly built wind farms: Starza/Rybice oraz Karnice II were commissioned. These farms consist in total of 43 turbines with a total installed capacity of 98 MW. The investment was carried out in the West Pomeranian Voivodeship, in the area of Kamień Pomorski and Gryfice counties.
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Management Board's report on activities of the Capital Group of
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Assets in the segment include:
- 16 wind farms 9,
- 1 photovoltaic power plant10,
- 29 run-of-river hydro power plants,
- 4 pumped-storage power plants, including 2 with natural flow.
Diagram: Main assets of the Renewables segment and their installed capacity.
- In July 2020 PGE acquired operating wind farm Skoczykłody with a capacity of 36MW, thus increasing the number of wind farms to 17, which will be presented in the next report.
- In August 2020, a new 1 MW PV Lesko photovoltaic plant was commissioned, thus increasing the number of photovoltaic plants to 2, which will be presented in the next report.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
KEY FACTORS FOR THE RESULTS OF THE SEGMENT
Chart: Key changes of EBITDA in Renewables (in PLN million) - managerial perspective.
320 | ||||||
310 | 29 | 4 | ||||
300 | ||||||
290 | -8 | |||||
280 | ||||||
270 | -34 | |||||
310 | ||||||
260 | 302 | |||||
250 | ||||||
240 | ||||||
230 | ||||||
220 | ||||||
EBITDA | Electricity | Certificates | Personnel | Other | EBITDA | |
H1 2019 | revenues* | revenues | expenses** | H1 2020 | ||
Change | -34 | 29 | -8 | 4 | ||
Reported EBITDA H1 2019 | 310 | |||||
One-offs H1 2019 | -1 | |||||
Recurring EBITDA H1 2019 | 311 | 204 | 91 | 44 | ||
Recurring EBITDA H1 2020 | 170 | 120 | 52 | 302 | ||
One-offs H1 2020 | -1 | |||||
Reported EBITDA H1 2020 | 301 |
- The sum of electricity revenues includes revenues from main generation technologies (wind, water, PV), including cost of electricity purchased for pumping.
- Item adjusted for impact of one-off.
Reversal of the impact of the sum of one-off events reducing the reported result.
Key factors affecting the y/y results of Renewables included:
- Decrease in revenues from electricity sales results from: lower average electricity sale price by PLN 44/MWh y/y, what translated into drop in revenues by approx. PLN 45 million; partly compensated by higher sales volume by 58 GWh, what resulted in increase of revenues by approx. PLN 11 million.
- Higher revenues from sales of certificates result from: higher average certificate sale price by PLN 29/MWh y/y, what translated into growth of revenues by approx. PLN 23 million; increased production volume by 49 GWh, what translated into growth of revenues by approx. PLN 6 million.
- Increase of personnel expenses mainly resulting from increased employment level due to switching to proprietary maintenance of wind farms and development of new company - PGE Baltica, which deals with the offshore wind farms program.
- Increase in other results mainly from lower operating costs and income from compensation for damages on wind turbines.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
CAPITAL EXPENDITURES
Table: Capital expenditures incurred in Renewables segment in the first half of 2020 and 2019.
PLN million | H1 2020 | H1 2019 | % change | |||
Investments in generating capacities, including: | 643 | 30 | 2 043% | |||
| Development | 630 | 7 | 8 900% | ||
| Modernisation and replacement | 13 | 23 | -43% | ||
Other | 6 | 2 | 300% | |||
TOTAL | 649 | 32 | 1 994% | |||
KEY DEVELOPMENTS IN H1 2020 IN THE RENEWABLES SEGMENT
Operating Permits and concessions for electricity generation were obtained for implemented wind farms with a total installed capacity of 98 MW - for FW Karnice II (February 27, 2020; April 3, 2020), FW Starza (April 3, 2020; May 18, 2020) and FW Rybice (April 20, 2020; May 18, 2020).
The wind farms were commissioned on June 17, 2020.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
DISTRIBUTION
Segment description and its business model
Core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.
* Managerial perspective.
Segment revenue is based on a tariff for electricity distribution services, which is approved by the ERO President every year at company request and is regulated. The tariff allows costs related to the distribution system operator's on-goingactivities to be transferred. These are both justified operating costs, depreciation as well as costs related to the necessity to cover grid losses on electricity distribution or the purchase of transmission services from the TSO. At the same time, the tariff reflects the transferred costs in fees such as the RES fee, transition fee or - starting from 2019 - co-generationfee.
The key element shaping the Distribution segment's result is return on company's invested capital. This is based on the Regulatory Asset Base ("RAB"), which is established on the basis of completed investments and taking into account asset depreciation. The Regulatory Asset Base serves as the basis for calculating return on capital, using weighted average cost of capital, which is published by the ERO President in accordance with a set formula and using as the risk free rate the average yield on 10-year State Treasury bonds with the longest maturity during the 18-month period preceding the tariff application submission, quoted on Treasury BondSpot market. Moreover, the level of return on capital depends on achievement of individual quality targets set by the ERO President for efficiency indicators that cover: interruption time, interruption frequency, connection time and (not yet included) time to provide metering and settlement data.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
VOLUME, CUSTOMERS AND OPERATING DATA
PGE Dystrybucja S.A. operates in the area of 129 829 sq. km and delivers electricity to approximately 5.5 million customers.
Diagram: Area of PGE distribution grid.
Table: Volume of distributed energy and number of customers in the first half of 2020 and 2019.
Number of customers | |||||||
Tariff | Volume (TWh)* | according to power take-off points | |||||
H1 2020 | H1 2019 | H1 2020 | H1 2019 | ||||
A tariff group | 2.54 | 2.74 | 109 | 109 | |||
B tariff group | 6.65 | 7.09 | 12 287 | 11 890 | |||
C+R tariff groups | 3.16 | 3.49 | 486 087 | 483 069 | |||
G tariff group | 4.94 | 4.81 | 4 999 745 | 4 937 432 | |||
TOTAL | 17.29 | 18.13 | 5 498 228 | 5 432 500 | |||
* with additional estimation of sales.
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Management Board's report on activities of the Capital Group of
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KEY FACTORS FOR THE RESULTS OF THE SEGMENT
Chart: Key changes of EBITDA in Distribution (in PLN million) - managerial perspective.
1 400 | |||||||||
164 | |||||||||
1 300 | |||||||||
1 200 | -73 | ||||||||
-15 | |||||||||
1 100 | -45 | ||||||||
-101 | -12 | ||||||||
1 000 | |||||||||
900 | 1 226 | 1 231 | 1 216 | ||||||
1 140 | 1 140 | 1 171 | 1 159 | 1 144 | |||||
800 | |||||||||
700 | |||||||||
600 | |||||||||
500 | |||||||||
EBITDA H1 | Electricity | Change of | Network | Personnel | EBITDA | ||||
distribution | distribution | Property tax | Other | ||||||
2019 | losses** | expenses*** | H1. 2020 | ||||||
volume | tariff* | ||||||||
Change | -101 | 164 | -73 | -15 | -45 | -12 |
Reported EBITDA H1 2019 | 1 211 | |||||
One-offs H1 2019 | -15 | |||||
Recurring EBITDA H1 2019 | 1 226 | 2 179 | 219 | 203 | 604 | |
Recurring EBITDA H1 2020 | 2 242 | 292 | 218 | 649 | 1 144 | |
One-offs H1 2020 | -17 | |||||
Reported EBITDA H1 2020 | 1 127 | |||||
- Excluding cost of transmission services from PSE S.A.
- Adjusted for revenues from the Balancing market.
- Personnel expenses without taking into account the impact of the change in the actuarial provision (one-off).
Reversal of the impact of the sum of one-off events reducing the reported result.
Key factors affecting results of Distribution segment y/y included:
- Decreased volume of distributed energy by 1.0 TWh, resulting from lower general demand for electricity in the NPS, mainly caused by impact of COVID-19 pandemic.
- Increase in rates in tariff for 2020 by PLN 9.5/MWh compared to the tariff for the corresponding period of the previous year, that translated into an increase in revenues from the sale of distribution services. Due to delays in the approval of the distribution tariff (it became effective as of April 6, 2019), revenues from distribution services in the first quarter of 2019 were calculated based on the rates set out in the tariff for 2018, whereas in the current period the rates in force take into account the cumulative increase from the approved tariffs for the previous and current year.
- Higher costs of energy to cover network losses mainly as a result of the low base of the previous year, when the "non-cash" impact of the electricity purchase estimate in connection with a significant change in the electricity purchase price was included.
- Increase of costs of tax on real estate in connection with an increase of grid assets value as a result of investments; tax rates on land and buildings.
- Increase in personnel expenses due to ongoing process to optimise salaries.
- Change in other resulting mainly from higher costs of external services related to maintenance and repairs of assets.
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Management Board's report on activities of the Capital Group of
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CAPITAL EXPENDITURES
Table: Capital expenditures incurred in Distribution segment in the first half of 2020 and 2019.
PLN million | H1 2020 | H1 2019 | % change |
Development investments | 367 | 352 | 4% |
Modernisation and replacement | 400 | 431 | -7% |
Other | 58 | 37 | 57% |
TOTAL | 825 | 820 | 1% |
KEY DEVELOPMENTS IN H1 2020 IN THE DISTRIBUTION SEGMENT
In the first half of 2020 the largest expenditures in amount of PLN 350 million were incurred for connection of new off-takers.
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Management Board's report on activities of the Capital Group of
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SUPPLY
Segment description and its business model
Supply segment activities include Group's wholesale and retail trading of electricity. Wholesale trading include mainly electricity trading on behalf of and for Conventional Generation segment, District Heating segment and Renewables segment.
- Data for PGE Obrót S.A.
As part of retail-market activities, the key source of segment's revenue is sale of electricity to final customers. This is sale to business and institutional clients, which constitutes more than 75% of the sales volume, and to retail clients. The segment's revenue also includes the sale of fuels, mainly: pulverised coal and fat coal, which is sold by PGE Paliwa sp. z o.o., and sale of gas.
Electricity sales are matched by the costs to purchase electricity on the wholesale market and costs to redeem certificates as part of the support system for renewable sources and energy efficiency.
The Supply segment also covers costs related to the Group's corporate centre.
VOLUME, CUSTOMERS AND OPERATING DATA
Table: Volume of electricity sales to final off-takers and number of customers in the first half of 2020 and 2019.
Tariff | Volume (TWh)* | Number of customers according to power take-off | ||||||
points* | ||||||||
H1 2020 | H1 2019 | H1 2020 | H1 2019 | |||||
A tariff group | 4.60 | 4.77 | 145 | 163 | ||||
B tariff group | 7.08 | 7.73 | 12 533 | 12 653 | ||||
C+R tariff groups | 3.31 | 3.82 | 447 684 | 453 970 | ||||
G tariff group | 4.88 | 5.02 | 4 913 860 | 4 835 987 | ||||
TOTAL | 19.87 | 21.34 | 5 374 222 | 5 302 773 |
*PGE Obrót S.A.
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Management Board's report on activities of the Capital Group of
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KEY FACTORS FOR THE RESULTS OF THE SEGMENT
Chart: Key changes of EBITDA in Supply (in PLN million) - managerial perspective.
500 | |||||||
450 | 72 | ||||||
2 | |||||||
400 | |||||||
350 | |||||||
51 | |||||||
300 | |||||||
250 | -36 | ||||||
-151 | -16 | ||||||
200 | -2 | ||||||
401 | 400 | ||||||
-50 | -12 | ||||||
150 | |||||||
266 | |||||||
251 | 251 | 249 | |||||
100 | 199 | 189 | 189 | ||||
50 | |||||||
0 |
Revenues from | ||||||||||||||||||
Result on | Result on | services | Balance of | |||||||||||||||
EBITDA | provided to | Result on sale of | Personnel | provisions | EBITDA | |||||||||||||
electricity - | electricity - | Other | ||||||||||||||||
H1 2019 | other segments | fuels | expenses* | for onerous | H1 2020 | |||||||||||||
volume | margin | |||||||||||||||||
of the PGE | contracts | |||||||||||||||||
Group | ||||||||||||||||||
Change | 2 | -151 | 51 | -36 | -16 | -50 | -12 | |||||||||||
Reported EBITDA H1 2019 | 473 | 111 | ||||||||||||||||
One-offs H1 2019 | 72 | |||||||||||||||||
Recurring EBITDA H1 2019 | 401 | 26 | 395 | 46 | 172 | 224 | 127 | |||||||||||
Recurring EBITDA H1 2020 | -123 | 446 | 10 | 188 | 174 | 189 | ||||||||||||
One-offs H1 2020 | -2 | |||||||||||||||||
Reported EBITDA H1 2020 | 187 | |||||||||||||||||
* Item adjusted for impact of one-off.
Reversal of the impact of the sum of one-off events improving the reported result.
Reversal of the impact of the sum of one-off events reducing the reported result.
Key factors affecting EBITDA of Supply segment y/y included:
- Lower result on electricity sales, mainly due to lower demand and resale in spot transactions below the purchase price in forward transactions.
- Increase of revenues from services performed within the Group resulting mainly from increased revenues from the Agreement for Commercial Management of Generation Capacities ("ZHZW") as a consequence of higher sale and purchase prices of electricity under management and covering new assets under ZHZW agreement.
- Valuation of financial instruments, i.e. forward contracts related to trading in CO2 emission allowances
- Increased personnel expenses in connection with ongoing process to optimise salaries.
- Negative impact of balance of provisions for onerous contracts in retail sale companies resulting from different assumptions adopted to calculate the level of provisions in the analogical period of the previous year. At the end of the first half of 2019 the result on provisions was a consequence of legislative changes, introducing the obligation to maintain the prices for customers as of June 30, 2018. In the first half of 2020 the provision for onerous contracts relates mainly to failure to cover part of the justified operation cost in the area of electricity sales to households - the ERO President refused to approve changes in G tariff.
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Management Board's report on activities of the Capital Group of
PGE Polska Grupa Energetyczna for the 6-month period ended June 30, 2020
Significant events of the reporting period and subsequent events
SIGNING OF THE AGREEMENT FOR THE CONSTRUCTION OF POWER UNITS IN DOLNA ODRA POWER PLANT
On January 30, 2020 PGE GiEK concluded an agreement with syndicate of companies: General Electric Global Services GmbH, Polimex Mostostal S.A. and General Electric International Inc.
Subject matter of the agreement is realisation by the contractor of turn-key construction of two gas-steam units with a gross capacity of 683 MWe each at PGE GiEK S.A. Branch Zespół Elektrowni Dolna Odra (unit 9 and unit 10). The units will be in CCGT technology.
In accordance with the provisions of the agreement, the commissioning of both units is to take place by December 11, 2023.
The value of the Agreement for construction of units, including autostart option, amounts to PLN 3 701 million net. In connection with the agreement, a LTSA (Long-Term Service Agreement) was also signed with regard to service of two gas turbines during 12- year period from the commissioning date of the units. The value of the LTSA amounts to PLN 1 030 million net. Total value of all concluded agreements amounts to PLN 4 731 million net (PLN 5 819 million gross).
Current report of PGE S.A.:
- Signing of the agreement for the construction of power units in Dolna Odra power plant >>
UPDATE OF PGE GROUP STRATEGY
As at the publication date of the report, advanced works are underway to develop a new Group strategy until 2030. The strategy is to adapt the PGE Group to the changing reality and environment, with particular emphasis on the conditions of the energy sector, including the decarbonisation policy of the European Union. The publication of the strategy is planned for autumn 2020.
TESTS FOR IMPAIRMENT OF TANGIBLE FIXED ASSETS, INTANGIBLE ASSETS AND GOODWILL
Due to the changing macroeconomic and regulatory environment, the PGE Capital Group periodically verifies the premises that may indicate impairment of its assets' recoverable amount. In the current reporting period, the Group analysed the premises and identified the factors that significantly contributed to the change in the value of the assets held. As a result of the performed tests, impairment of assets was recognised. The tests results are described in Note 3 to the consolidated financial statements and in the current report of PGE S.A.:
- Information on results of impairment tests
IMPACT OF THE COVID-19 PANDEMIC ON PGE GROUP'S OPERATIONS
PGE Group identifies, on an ongoing basis, the risk factors that affect the Group's performance in connection with the COVID-19 pandemic. As at June 30, 2020, the impact on financial performance remained limited. Nevertheless, further effects of the pandemic may become apparent in subsequent periods. The nature and scale of possible further effects are difficult to estimate. What will be important is the duration of the epidemic, its potential increased severity and extent, as well as its impact on economic growth in Poland. At the same time, the accuracy of estimates remains difficult in view of a number of other factors affecting the power market, including the level of demand for electricity.
The outbreak of the pandemic has led to expectations of economic slowdown in 2020 in the global economy and in Poland. These are reflected, among others, in the revision of market projections for GDP, industrial output and investments.
Due to the reduced level of economic activity, PGE Group identifies the risk that the lower level of domestic electricity consumption will continue. This affects the decrease in revenues and margins from energy generation, distribution and sales in the Distribution, Supply, Conventional Generation and District Heating segments.
A decline in demand for electricity affects the utilisation of generation units. A part of the PGE Group's generation units is held in the so-called spinning reserve and secures potential shortages of supplies from renewable sources, imports or those that result from failures of other commercial power plants in Poland. The majority of production was contracted in previous periods, therefore in the short term the negative impact of lower production volumes on the Conventional Generation segment should be significantly
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Management Board's report on activities of the Capital Group of
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limited. The negative effect should be related to potential reductions on the part of the Transmission System Operator, resulting in lower production from lignite, which is characterized by a relatively stable cost structure. The PGE Group expects, however, an impact on contracting volumes and prices for subsequent periods, but at this stage this impact cannot be estimated.
For the Supply segment, the decrease in demand volume affected the past period and the negative impact was associated with a lower level of sales to final off-takers and higher cost of balancing electricity. Also in the Distribution segment, a lower volume of deliveries made to final off-takes directly translates into lower revenues earned on this account.
As at June 30, 2020, the impact of the expected increase in payment congestion, especially regarding receivables from small and medium-sized enterprises, was not significant. On the other hand, depending on the further epidemiological and economic situation, the risk of deteriorated liquidity of PGE Group and increased impairment losses on overdue receivables still exists and is monitored on an ongoing basis.
PGE Group's plants are of strategic importance for maintaining undisturbed production and supply of electricity and heat in Poland. The COVID-19 pandemic has affected the change of work organisation, especially with respect to PGE Group's generation units. In many cases, this involves additional costs resulting from, for example, the purchase of protective materials for employees. Since the beginning of the pandemic, the Group has introduced work rules that aim to reduce, as much as possible, the health risk for employees. As one of the largest employers in Poland, with 42 thousand employees, PGE Group takes a number of measures to protect the health and life of its employees, including the implementation of teleworking, raising awareness of, in particular, the basic principles of protection against coronavirus, prevention, quarantine, as well as those related to the organisation of the company and work to ensure business continuity. PGE has established a Crisis Team to collect information from all Group companies, monitor the situation in individual companies on an ongoing basis and take appropriate steps.
The production branches also have plans for operation with non-standard absenteeism that are developed and verified on an ongoing basis, and as plants of strategic importance from the point of view of maintaining undisturbed production and supply of electricity and heat, they are in constant contact with local authorities responsible for monitoring the situation in the country and in all locations of PGE Group entities.
Along with the outbreak of the pandemic, Customer Service Offices were closed, and all communication with PGE customers was routed through remote channels. The Group has also stopped sending collectors to customers' houses. As of May 18, along with further stages of unfreezing the Polish economy, PGE Group has been gradually returning to serving its customers in office, while observing special safety rules. From an operational point of view, owing to the introduction of appropriate countermeasures at the early stage of the pandemic, PGE has been continuously producing electricity and heat and ensuring their uninterrupted supply.
PGE Group has been monitoring the further impact of the COVID-19 pandemic on the financial condition of the PGE Group and is preparing for various scenarios. The pandemic has accelerated the introduction of measures to prepare the entire organisation to changes in order to tackle the decarbonisation challenges faced by energy companies. This will require considerable financial expenditure. All potential savings scenarios for both capital expenditures and operating costs were analysed in order to focus on the most important development projects related to the core business of PGE Group.
INTRODUCTION OF THE OPTIMISATION PROGRAMME
At the end of April 2020, the Management Board of PGE announced its decision to terminate projects with unsatisfactory rate of return, in particular those that are not directly related to the core business of the Group, and all PGE Group companies were obliged to optimise and rationalise their operations.
Tasks, projects and programmes in the areas of R&D, ICT and investments worth more than PLN 1 billion in total, scheduled for 2020-2024, have been closed or limited. These include AI-based projects, some coal projects and low-margin cogeneration projects. The Sponsorship budgets have also been revised. Analyses of contracts have shown that due to the COVID-19 pandemic, the existing partners of the PGE Group are unable to provide services. Therefore, the Management Board of PGE decided to cut sponsorship expenses by approx. 50%.
Moreover, decisions were taken on verification of selected investment activities of the Group, including ceasing Operations of FIZAN Eko-Inwestycje and FIZAN PGE Ventures, as projects unrelated to the Group's core business. As at the date of approval of this report, the payments made by PGE Group companies to the above funds amounted to approx. PLN 31 million. The Management Board of PGE assumes that the funds will be liquidated before the end of 2020.
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In addition, on August 3, 2020, the Management Board of the Company announced a decision related to the sale of PGE Paliwa sp.z
- and start negotiations with potential buyers. Due to the ongoing negotiation process, PGE does not disclose the details of the talks. This decision is aimed at simplifying the structure and operating processes of the PGE Group, and is also consistent with the expectations of the Ministry of State Assets towards companies in the energy sector with State Treasury shareholding.
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Management Board's report on activities of the Capital Group of
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CHANGES IN THE MANAGEMENT BOARD AND SUPERVISORY BOARD
Management Board members
From January 1, 2020 till February 19, 2020 the Management Board of the tenth term of office had worked in following composition:
Name and surname of the | Position | ||
Management Board | |||
Henryk Baranowski | President of the Management Board | ||
Wojciech Kowalczyk | Vice-President for Capital Investments | ||
Marek Pastuszko | Vice-President for Corporate Affairs | ||
Paweł Śliwa | Vice-President for Innovations | ||
Ryszard Wasiłek | Vice-President for Operations | ||
Emil Wojtowicz | Vice-President for Finance | ||
On February 19, 2020, in connection with the end of the 10th term of office, the Supervisory Board dismissed the above mentioned Management Board members and adopted resolutions which appointed the Management Board of the 11th term of office.
As at June 30, 2020 the Management Board worked in following composition:
Name and surname of the
Management Board
Position
Wojciech Dąbrowski | President of the Management Board | |
Paweł Cioch | Vice-President for Corporate Affairs | |
Paweł Strączyński | Vice-President for Finance | |
Paweł Śliwa | Vice-President for Innovations | |
Ryszard Wasiłek | Vice-President for Operations |
from February 20, 2020 from February 24, 2020 from February 24, 2020 from February 20, 2020 from February 20, 2020
On August 18, 2020, as a result of the competitive procedure, the Supervisory Board adopted a resolution on the appointment of a new member of the Management Board and appointed Mrs. Wanda Buk as the Vice-President of the Management Board for Regulations from September 1, 2020.
At the publication date of this report, the Management Board worked in following composition:
Name and surname of the
Management Board
Position
Wojciech Dąbrowski | President of the Management Board | |
Wanda Buk | Vice-President for Regulations | |
Paweł Cioch | Vice-President for Corporate Affairs | |
Paweł Strączyński | Vice-President for Finance | |
Paweł Śliwa | Vice-President for Innovations | |
Ryszard Wasiłek | Vice-President for Operations |
from February 20, 2020 from September 1, 2020 from February 24, 2020 from February 24, 2020 from February 20, 2020 from February 20, 2020
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Supervisory Board members
As at June 30, 2020 and as the publication date of this report, the Supervisory Board worked in following composition:
Name and surname | Position |
Anna Kowalik | Chairman of the Supervisory Board |
Artur Składanek | Vice-Chairman of the Supervisory Board - independent |
Grzegorz Kuczyński | Secretary of the Supervisory Board - independent |
Janina Goss | Supervisory Board Member - independent |
Tomasz Hapunowicz | Supervisory Board Member - independent |
Mieczysław Sawaryn | Supervisory Board Member - independent |
Jerzy Sawicki | Supervisory Board Member - independent |
Radosław Winiarski | Supervisory Board Member |
As at June 30, 2020 and as the publication date of this report the committees worked in following compositions:
Name and surname of | Corporate Governance | Strategy and | Appointment and | ||||||||
the member of the | Audit Committee | Development | Remuneration | ||||||||
Committee | |||||||||||
Supervisory Board | Committee | Committee | |||||||||
Janina Goss | Member | Member | |||||||||
Tomasz Hapunowicz | Member | Member | |||||||||
Chairman | |||||||||||
Anna Kowalik | Member | Member | Member | ||||||||
Grzegorz Kuczyński | Member | Member | |||||||||
Chairman | |||||||||||
Mieczysław Sawaryn | Member | Member | |||||||||
Chairman | |||||||||||
Jerzy Sawicki | Member | Member | Member | ||||||||
Artur Składanek | Member | Member | |||||||||
Chairman | |||||||||||
Radosław Winiarski | Member | Member | |||||||||
ACTIVITIES RELATED TO NUCLEAR ENERGY
Business partnership and prospects for the project implementation and financing capabilities
PGE EJ1 is PGE Group's entity, which was established in 2010. In 2014, a shareholder agreement was signed, pursuant to which Enea S.A., KGHM Polska Miedź S.A. and TAURON Polska Energia S.A. each purchased from PGE a 10% stake in PGE EJ1 (30% in total).
Decisions with regard to the continuation of the Programme will be made based on decisions by the government administration concerning a role of nuclear energy in Polish fuel mix, mode for the procurement of nuclear power plant technology, investment financing model and an updated Programme for Poland's Nuclear Power.
On August 6, 2020, the Ministry of Climate sent for public consultations a draft resolution of the Council of Ministers on the update of the multi-annual Polish Nuclear Power Program, which provides for the acquisition by the State Treasury of 100% shares in the special purpose vehicle PGE EJ1 Sp. z o. o. The program is to be adopted in the fourth quarter of 2020.
Site characterisation and environmental surveys
Current scope of Program conducted by PGE EJ 1 assumes location and environmental surveys at two potential Lubiatowo-Kopalino, Żarnowiec and preparing an Environmental Impact Assessment Report and Site Report.
Selecting an appropriate location is one of the key aspects in ensuring nuclear safety and the efficient and reliable operation of a nuclear power plant. The results of these works are necessary in order to develop solutions that ensure the power plant's safe operation and minimise its impact on the natural environment and the everyday life of local residents.
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Social acceptance
With a view toward ensuring social acceptance for the project to build the first Polish nuclear power plant, PGE Group is conducting activities aiming to maintain a high level of community support at the planned nuclear plant sites and to deliver knowledge about nuclear power. In the first half of 2020, works were continued within the Site Municipality Development Support Programme intended to reinforce partner relations with the local communities and authorities of the municipalities by providing support to initiatives that are of significance to the residents and development of the region.
Compensations from WorleyParsons
WorleyParsons initiated a lawsuit for payment of PLN 59 million for due remuneration, according to the claimant, and return of an amount unduly collected, according to the claimant, by PGE EJ1 from a bank guarantee, and subsequently expanded its claim to PLN 104 million (i.e. by PLN 45 million). On March 31, 2018, the company filed a response to WorleyParsons' expanded claim. PGE Group does not accept the claim and regards its possible admission by the court as unlikely.
LEGAL ASPECTS
The issue of compensation regarding the conversion of shares
Information on the issue of compensation regarding the conversion of shares are described in note 22.4 to the consolidated financial statements.
INFORMATION CONCERNING PROCEEDINGS IN FRONT OF COURT, BODY APPROPRIATE FOR ARBITRATION PROCEEDINGS OR IN FRONT OF PUBLIC ADMINISTRATION AUTHORITIES
Significant proceedings pending in front of courts, competent arbitration authority or public administration authority are described in note 22.4 to the consolidated financial statements.
Termination by Enea S.A. of agreements for sale of certificates
Information on termination by Enea S.A. of agreements for sale of certificates are described in note 22.4 to the consolidated financial statements.
INFORMATION CONCERNING THE GUARANTEES FOR LOANS GRANTED BY THE COMPANY OR A SUBSIDIARY
Within the Group, as at June 30, 2020 PGE S.A. and subsidiaries did not grant guarantees to other entities or to a subsidiary, where a value of guarantees constitutes at least 10% of the Company's equity.
INFORMATION ON ISSUE, REDEMPTION AND REPAYMENT OF DEBT SECURITIES AND OTHER SECURITIES
Information on issue, redemption and repayment of debt securities and other securities is described in p. 5.1 of the foregoing report and in note 1.3 to the consolidated financial statements.
TRANSACTIONS WITH RELATED ENTITIES
Information about transactions with related entities is presented in note 24.2 to the consolidated financial statements.
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5. Other elements of the report
Significant changes in organisation of the Capital Group
Changes which occurred in the PGE Capital Group's structure in the period from January 1, 2020 until the publication date of this report, are presented in note 1.3 to consolidated financial statements and described below.
ACQUSITION OR DISPOSAL OF SHARES BY THE COMPANIES
Segment | Shares ofthe company | Date of | Comment |
transaction/ | |||
registration in the | |||
National Court | |||
Register | |||
Other operations | PIMERGE S.A.withitsseatin | March 11, 2020/ | On October 14, 2020 the Extraordinary Assembly of Partners of the PIMERGE adopted resolution on a share capital increase |
Wrocław ("PIMERGE")-acquisition | July1, 2020increaseof | from PLN 298 424 to PLN 1 698 424 PLN, i.e. by PLN 1 400 000, under private subscription through the issue of 1 400 000 new | |
byPGE Venturesofsharesinthe | thesharecapital | prescribed preferred shares of the company with a nominal value of PLN 1 each. The share capital increase was taken up PGE | |
increasedsharecapitalofPIMERGE | registeredinthe | Ventures as a result of the agreement for the acquisition of PIMERGE shares concluded on March 11, 2020 by PIMERGE and | |
NationalCourtRegister | PGE Ventures. Pursuant to the provisions of the above-mentioned share subscription agreement, the coverage of PIMERGE | ||
shares acquired by PGE Ventures took place as a result of a contractual set-off of mutual claims between PIMERGE and PGE | |||
Ventures, made as a result of a set-off agreement concluded on March 12, 2020 between these companies, i.e. PGE Ventures' | |||
receivables under the loan in cash in the amount of PLN 1 400 000 granted to PIMERGE and claims to PIMERGE for the obligation | |||
of PGE Ventures to pay a cash contribution in connection with the acquisition of new shares in the company. As a result of the | |||
share capital increase and the acquisition of new shares, PGE Ventures' share in the company's share capital increased from | |||
42.4% to 89.9%, which made the company a part of the PGE Capital Group. | |||
Other operations | EPORE sp. zo.o.withitsseat | June18, 2020 | On May 29, 2020 PGE GiEK S.A. as a buyer and J.H. Duda Baustoffe Entsorgung Logistik GmbH with its seat in Bad Honnef |
inBogatynia("EPORE")-acquisition | (Germany) concluded a contract for sale of all owned by J.H. Duda Baustoffe Entsorgung Logistik GmbH shares in EPORE, ie a | ||
byPGE GiEK S.A. ofsharesinEPORE | total of 9 350 shares of this company with a total nominal value of PLN 4 675 000, representing 14.6% of the share capital. | ||
(thesharepurchaseagreement) | Transfer of ownership of shares to PGE GiEK S.A. took place on June 18, 2020. As a result of the above transaction, PGE GiEK | ||
S.A. became the sole shareholder of the company, holding 100% of the company's share capital. | |||
Renewables | Eco-Powersp. zo.o. withitsseat | July31,2020 | On July 30, 2020 PGE Energia Odnawialna S.A. as a buyer and FEN Wind Farm B.V. based in Amsterdam (the Netherlands) as |
inWarsaw ("Eco-Power")- | the seller concluded an agreement for the sale of all owned by FEN Wind Farm B.V. shares in Eco-Power, i.e. 1 150 shares of | ||
acquisitionbyPGEEnergia | this company, with a total nominal value of PLN 345 000, constituting 100% of the share capital. Transfer of ownership of shares | ||
OdnawialnaS.A. ofsharesinEco- | to PGE Energia Odnawialna S.A. took place on July 31, 2020. As a result of the above transaction, Eco-Power became part of | ||
Power(thesharepurchase | the PGE Capital Group. | ||
agreement) |
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INCREASE OF SHARE CAPITAL OF SUBSIDIARIES
Date of registration | |||
Segment | Entity | in the National | Comment |
Court Register | |||
Supply | PGE Centrum sp. z o.o. | February26,2020 | On January 9, 2020 the Extraordinary Assembly of Partners of the company adopted resolution on a share capital increase from |
PLN 39 120 000 to PLN 47 920 000, i.e. by PLN 8 800 000. The share capital increase was taken up and paid by PGE S.A. in cash. | |||
PGE S.A. holds 100% in the share capital. | |||
Other operations | PGE Ventures sp. z o.o. | February27,2020 | On January 22, 2020 the Extraordinary Assembly of Partners of the company adopted resolution on a share capital increase |
from PLN 67 900 000 to PLN 77 000 000, i.e. by PLN 9 100 000. The share capital increase was taken up and paid by PGE S.A. in | |||
cash. PGE S.A. holds 100% in the share capital. |
DE-MERGERS
Date of | ||||||||
Spun off company /acquiring | transaction/ | |||||||
Segment | registration in the | Comment | ||||||
company | ||||||||
National Court | ||||||||
Register | ||||||||
District Heating | PGE Energia Ciepła S.A. / | October10,2019/ | On October 10, 2019 the Extraordinary General Meetings of PGE EC and PGE GiEK adopted resolutions on the division of PGE | |||||
PGE GiEK S.A. | January2, 2020 | EC (divided company) through a carve out, pursuant to art. 529 § 1 point 4 of the Polish Commercial Companies Code, by way | ||||||
of transfer to PGE GiEK (acquiring company) of part of assets of the divided company in the form of an organised part of the | ||||||||
enterprise covering the activities carried out by PGE EC Branch in Rybniku ("Rybnik Branch") related to production of electricity |
and heat, as well as distribution of electricity and heat. The transfer of the Rybnik Branch to PGE GiEK was carried out by lowering PGE EC's reserve capital and increase of the share capital of PGE GiEK from PLN 6 530 018 520 to PLN 6 583 137 600 i.e. by PLN 53 119 080 PLN as a result of issue of 5 311 908 inscribed shares of the acquiring company with nominal value of PLN 10 each. As the sole shareholder of PGE EC, PGE S.A. acquired all new shares in the increased share capital of the acquiringcompany.
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Publication of financial forecasts
PGE S.A. did not publish financial forecasts.
Information about shares and other securities
SHAREHOLDERS WITH A SIGNIFICANT STAKE
According to the best knowledge, on the ground of the letter from the Ministry of the State Treasury of April 27, 2016, the State Treasury holds 1 072 984 098 ordinary shares of the Company, representing 57.39% of the Company's share capital and entitling to 1 072 984 098 votes on the General Meeting of the Company, constituting 57.39% of total votes.
Table: Shareholders holding directly or indirectly by subsidiaries at least 5% of the total votes at the General Meeting of PGE S.A.
Shareholder | Number of shares | Number of votes | % in total votes on General | |||
Meeting | ||||||
State Treasury | 1 072 984 098 | 1 072 984 098 | 57.39% | |||
Others | 796 776 731 | 796 776 731 | 42.61% | |||
Total | 1 869 760 829 | 1 869 760 829 | 100.00% | |||
Shares of the parent company owned by the members of management and supervisory authorities
Table: Shares of PGE S.A. held and managed directly by the managers of the Company.
Shareholder | Position | Number of shares at | Nominal value of shares at June | |||||
June 30, 2020 | 30, 2020 | |||||||
Management Board of PGE S.A. | 300 | 3 075 | ||||||
Paweł Strączyński | Vice-President of the | 300 | 3 075 | |||||
Management Board | ||||||||
6. Statement on the reliable preparation of the financial statements
STATEMENT ON THE RELIABLE PREPARATION OF THE FINANCIAL STATEMENTS
To the best knowledge of the Management Board of PGE S.A., the half-yearly financial report, containing interim condensed consolidated financial statements of PGE Capital Group, interim condensed standalone financial statements for PGE S.A. and comparative data were prepared in accordance with the governing accounting principles, present a fair, true and reliable view of the material and financial situation of PGE Capital Group and its financial result.
The report of the Management Board on the activities of PGE Capital Group presents a true view of the development, achievements and situation of the Capital Group.
STATEMENT ON THE ENTITY AUTHORISED TO AUDIT THE FINANCIAL STATEMENTS
The Management Board of PGE S.A. declares that the entity authorised to audit the financial statements, which reviews the interim consolidated financial statements and interim condensed standalone financial statements for PGE S.A., has been appointed in accordance with provisions of the law. The entity and the statutory auditors, who performed the review, fulfilled all the requirements for issuing an unbiased and independent report on the review, in accordance with the governing provisions and professional standards.
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7. Approval of the Management Board's Report
The foregoing Management Board's Report on activities of PGE Capital Group was approved for publication by the Management Board of the parent company on September 15, 2020.
Warsaw, September 15, 2020
Signatures of members of the Management Board of PGE Polska Grupa Energetyczna S.A.
President
of the Management Board
Vice-
President
of the Management Board
Vice-
President
of the Management Board
Vice-
President
of the Management Board
Vice-
President
of the Management Board
Vice-
President
of the Management Board
Wojciech
Dąbrowski
Wanda
Buk
Paweł Cioch
Paweł
Strączyński
Paweł
Śliwa
Ryszard
Wasiłek
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Glossary
AKPiA | Control, measurement and automation apparatus area |
Ancillary | services provided to the transmission system operator, which are indispensable for the proper |
control | functioning of the National Power System and ensure the keeping of required reliability and quality |
services (ACS) | standards. |
Achievable | the maximum sustained capacity of a generating unit or generator, maintained continuously by a |
capacity | thermal generator for at least 15 hours or by a hydroelectric generator for at least five hours, at |
standardized operating conditions, as confirmed by tests. | |
ARA | USD hard coal price index in EU. Loco in harbours Amsterdam-Rotterdam-Antwerp |
Balancing | a technical platform for balancing electricity supply and demand on the market. The differences between |
market | the planned (announced supply schedules) and the actually delivered/off-taken volumes of electricity are |
settled here. The purpose of the balancing market is to balance transactions concluded between | |
individual market participants and actual electricity demand. The participants of the balancing market | |
can be the generators, customers for electricity understood as entities connected to a network located in | |
the balancing market area (including off-takers and network customers), trading companies, electricity | |
exchanges and the TSO as the balancing company. | |
Base, | standard product on the electricity market: a constant hourly power supply per day in a given period, for |
baseload | example week, month, quarter or year. |
BAT | Best Available Technology |
Best Practices | Document "Best Practice for GPW Listed Companies 2016" adopted by the resolution of the GPW |
Supervisory Board of October 13, 2015 and effective from January 1, 2016. | |
Biomass | solid or liquid substances of plant or animal origin, subject to biodegradation, obtained from agricultural |
or forestry products, waste and remains or industries processing their products as well as certain other | |
biodegradable waste in particular agricultural raw materials. | |
Black energy | popular name for energy generated as a result of combustion of black coal or lignite. |
CCGT | Combined Cycle Gas Turbine |
Circular | system that minimises the consumption of resources and the level of waste as well as emissions and |
economy | energy losses by creating a closed loop of processes in which waste from one process is used as |
resources in other processes so as to maximally reduce the quantity of production waste | |
Co- | the generation of electricity or heat based on a process of combined, simultaneous combustion in one |
combustion | device of biomass or biogas together with other fuels; part of the energy thus generated can be deemed |
to be energy generated with the use of renewable sources. | |
Co-generation | the simultaneous generation of heat and electricity or mechanical energy in the course of one and the |
same technological process. | |
Constrained | the generation of electricity to ensure the quality and reliability of the national power system; this |
generation | applies to generating units in which generation must continue due to the technical limitations of the |
operation of the power system and the necessity of ensuring its adequate reliability. | |
CVC fund | Corporate Venture Capital; in the CVC model, portfolio companies, aside from financial support, receive |
the opportunity to verify their ideas in a corporate setting | |
Distribution | transport of energy through distribution grid of high (110 kV), medium (15kV) and low (400V) voltage in |
order to supply the customers. | |
Distribution | a power company engaging in the distribution of gaseous fuels or electricity, responsible for traffic in the |
System | gas or electricity distribution systems, current and long-term security of operation of the system, the |
Operator | operation, maintenance, repairs and indispensable expansion of the distribution network, including |
(DSO) | connections to other gas or power systems. |
Energy cluster | civil-law arrangement that may include natural persons, legal entities, scientific units, research institutes |
or local government units, concerning the generation, distribution or trade in energy and energy demand | |
balancing, with this energy being from renewable sources or other sources or fuels, within a distribution | |
grid with nominal voltage below 110 kV, within the operational area of the given cluster, not exceeding | |
the area of one district (powiat) in the meaning of the act on district authorities) or 5 municipalities | |
(gmina) in the meaning of the act on municipal authorities; an energy cluster is represented by a | |
coordinator, which is a cooperative, association, foundation appointed for this purpose or any member | |
of the energy cluster indicated in the civil-law arrangement | |
ERO | Energy Regulatory Office (pol. URE). |
EUA | European Union Allowances: transferable CO2 emission allowances; one EUA allows an operator to |
release one tonne of CO2. | |
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EU ETS | European Union Greenhouse Gas Emission Trading Scheme) EU emission trading scheme. Its operating |
rules are set out in the ETS Directive, amended by the Directive 2009/29/EC of the European Parliament | |
and of the Council of April 23, 2009 (OJ EU L. of 2009, No. 140, p. 63-87). | |
EV | Electric vehicle |
FIT/FIP | Feed-in-Tariff (FIT) and Feed-in-Premium (FIP): system of subsidies to the market price of electricity |
performed by Zarządca Rozliczeń S.A. | |
Generating | a technically and commercially defined set of equipment belonging to a power company and used to |
unit | generate electricity or heat and to transmit power. |
GJ | Gigajoule, a unit of work/heat in the SI system, 1 GJ = 1000/3.6 kWh = approximately 278 kWh. |
GPZ | main power supply point, a type of transformer station used for the processing or distribution of |
electricity or solely for the distribution of electricity. | |
Green | popular name for energy generated from renewable energy sources. |
certificate | |
GW | gigawatt, a unit of capacity in the SI system, 1 GW = 109 W. |
GWe | one gigawatt of electric capacity. |
GWt | one gigawatt of heat capacity. |
HCl | hydrogen chloride. |
Hg | mercury. |
HICP | Harmonised Index of Consumer Prices |
High Voltage | a network with a nominal voltage of 110 kV. |
Network (HV) | |
IED | Industrial Emissions Directive |
IGCC | Integrated Gasification Combined Cycle. |
Installed | the formal value of active power recorded in the design documentation of a generating system as being |
capacity | the maximum achievable capacity of that system, confirmed by the acceptance protocols of that system |
(a historical value, it does not change over time. | |
IRiESP | the Transmission Network Operation and Maintenance Manual required to be prepared by a |
transmission system operator pursuant to the Energy Law; instructions prepared for power networks | |
that specify in detail the terms and conditions of using these networks by system users as well as terms | |
and conditions for traffic handling, operation and planning the development of these networks; sections | |
on transmission system balancing and system limitation management, including information on | |
comments received from system users and their consideration, are submitted to the ERO President for | |
approval by way of a decision. | |
IRZ | Cold Intervention Reserve Service - service consisting of maintaining power units ready for energy |
production. Energy is produced on request of PSE S.A. | |
KRI | Key Risk Indicator |
KSE | the National Power System, a set of equipment for the distribution, transmission and generation of |
electricity, forming a system to allow the supply of electricity in the territory of Poland. | |
KSP | the National Transmission System, a set of equipment for the transmission of electricity in the territory |
of Poland. | |
kV | kilo volt, an SI unit of electric potential difference, current and electromotive force; 1kV= 103 V. |
kWh | kilowatt-hour, a unit of electric energy in the SI system defined as the volume of electricity used by the 1 |
kW equipment over one hour. 1 kWh = 3,600,000 J = 3.6 MJ. | |
kWp | a power unit dedicated to determining the power of photovoltaic panels, means the amount of |
electricity in the peak of production. | |
Low Voltage | a network with a nominal voltage not exceeding 1 kV. |
Network (LV) | |
LTC | long-term contracts on the purchase of capacity and electricity entered into between Polskie Sieci |
Elektroenergetyczne S.A. and electricity generators in the years 1994-2001. | |
Medium- | |
voltage | an energy network with a nominal voltage higher than 1 kV but lower than 110 kV. |
network (MV) | |
MEV | Minimum Energy Volumes. |
MSR | Market Stability Reserve (relating to CO2) |
MW | a unit of capacity in the SI system, 1 MW = 106 W. |
Mwe | one megawatt of electric power. |
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MWt | one megawatt of heat power. | ||||||
NAP | National emissions Allocation Plan, prepared separately for the national emission trading system and for | ||||||
the EU emission trading system by the National Administrator of the Emission Trading System. | |||||||
NAP II | National CO2 emissions Allocation Plan for the years 2008-2012 prepared for the EU emission trading | ||||||
system adopted by the Ordinance of the Council of Ministers of July 1, 2008 (Dz. U. of 2008, No. 202, | |||||||
item 1248). | |||||||
NH3 | ammonia | ||||||
Nm3 | normal cubic meter; a unit of volume from outside the SI system signifying the quantity of dry gas in 1 | ||||||
m3 of space at a pressure of 101.325 Pa and a temperature of 0°C. | |||||||
NOx | nitrogen oxides. | ||||||
N:W ratio | Ration of volume of overburden removed in m3 to the mass of extracted coal in tons | ||||||
OTF | Organised Trading Facilities | ||||||
Operational | ORM constitutes of generation capacities of active Production Schedular Units (JGWa) in operation or | ||||||
Capacity | layover, representing excess capacity over electricity demand available to the TSO under the Energy Sale | ||||||
Reserve | Agreements and on the Balancing Market in unforced generation | ||||||
(ORM) | |||||||
Peak, peakload | a standard product on the electricity market; a constant power supply from Monday to Friday, each hour | ||||||
between 7:00 a.m. and 10:00 p.m. (15-hour standard for the Polish market) or between 8:00 a.m. and | |||||||
8:00 p.m. (12-hour standard for the German market) in a given period, for example week, month, | |||||||
quarter or year. | |||||||
Peak power | special type of hydro-power plant allowing for electricity storage. It uses the upper reservoir, to which | ||||||
pumped | water is pumped from the lower reservoir using electricity (usually excessive in system). The pumped | ||||||
storage plants | storage facilities provide ancillary control services for the national power system. In periods of increased | ||||||
demand for electricity, water from the upper reservoir is released through the turbine. This way, | |||||||
electricity is produced. | |||||||
PJ | Petajoule, a unit of work/heat in the SI system, 1 PJ = approx. 278 GWh | ||||||
Property rights | negotiable exchange-traded rights under green and co-generation certificates | ||||||
Prosumer | end customer who purchases electricity under a comprehensive agreement and generates electricity | ||||||
only from renewable sources at a micro-installations for own purposes, unrelated to economic activities | |||||||
PSCMI1 | Polish Steam Coal Market Index 1 - average level of prices of coal dust sold to industrial-scale power | ||||||
plants in Poland | |||||||
RAB | Regulatory Asset Base. | ||||||
Red certificate | a certificate confirming generation of electricity in co-generation with heat. | ||||||
Red energy | popular name for electricity co-generated with heat. | ||||||
Regulator | the President of ERO, fulfilling the tasks assigned to him in the energy law. The regulator is responsible | ||||||
for, among others, giving out licenses for energy companies, approval of energy tariffs, appointing | |||||||
Transmission System Operators and Distribution System Operators. | |||||||
Renewable | a source of generation using wind power, solar radiation, geothermal energy, waves, sea currents and | ||||||
Energy Source | tides, flow of rivers and energy obtained from biomass, landfill biogas as well as biogas generated in | ||||||
(RES) | sewage collection or treatment processes or the disintegration of stored plant or animal remains. | ||||||
SAIDI | System Average Interruption Duration Index - index of average system interruption time (long, very long | ||||||
and disastrous), expressed in minutes per customer per year, which is the sum of the interruption | |||||||
duration multiplied by the number of consumers exposed to the effects of this interruption during the | |||||||
year, divided by the total number of off-takers. SAIDI does not include interruptions lasting less than | |||||||
three minutes and is determined separately for planned and unplanned interruptions. It applies to | |||||||
breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein SAIDI in quality tariff does not | |||||||
include interruptions on low voltage. | |||||||
SAIFI | System Average Interruption Frequency Index - index of average system amount of interruptions ( long, | ||||||
very long and disastrous ), determined as number of off-takers exposed to the effects of all such | |||||||
interruptions during the year divided by the total number of off-takers. SAIFI does not include | |||||||
interruptions lasting less than three minutes and is determined separately for planned and unplanned | |||||||
interruptions. It applies to breakdowns in the low (LV), medium (MV) and high voltage (HV), wherein | |||||||
SAIFI in quality tariff does not include interruptions on low voltage . | |||||||
SCR | Selective catalytic reduction | ||||||
SNCR | Selective non-catalytic reduction | ||||||
Start-up | early-stage company established in order to build new products or services and characterised by a high | ||||||
level of uncertainty. The most common features of start-ups are: short operational history (up to 10 | |||||||
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years), innovativeness, scalability, higher risk than in the case of traditional businesses but also potential | |
higher returns on investment | |
Tariff | the list of prices and rates and terms of application of the same, devised by an energy enterprise and |
introduced as binding on the customers specified therein in the manner defined by an act of parliament. | |
Tariff group | a group of customers off-taking electricity or heat or using services related to electricity or heat supply to |
whom a single set of prices or charges and terms are applied. | |
TGE | Towarowa Giełda Energii S.A. (Polish Power Exchange), a commodity exchange on which trading can take |
place in electricity, liquid or gas fuels, extraction gas, emission allowances and property rights whose | |
price depends directly or indirectly on electric energy, liquid or gas fuels and emission allowances, | |
admitted to commodity exchange trading. | |
TPA, TPA rule | Third Party Access, the owner or operator of the network infrastructure to third parties in order to |
supply goods/services to third party customers. | |
Transmission | transport of electricity through high voltage (220 and 400 kV) transmission network from generators to |
distributors. | |
Transmission | a power company engaging in the transmission of gaseous fuels or electric energy, responsible for traffic |
System | in a gas or power transmission system, current and long-term security of operation of that system, the |
Operator (TSO) | operation, maintenance, repair and indispensable expansion of the transmission system, including |
connections with other gas or power systems. In Poland, for the period from July 2, 2014 till December | |
31, 2030 Polskie Sieci Elektroenergetyczne S.A. was chosen as a TSO in the field of electricity | |
transmission. | |
TWh | terawatt hour, a multiple unit for measuring of electricity unit in the system SI. 1 TWh is 109 kWh. |
Ultra-high- | an energy network with a voltage equal to 220 kV or higher. |
voltage network | |
(UHV) | |
V (volt) | electrical potential unit, electric voltage and electromotive force in the International System of Units (SI), |
1 V= 1J/1C = (1 kg x m2) / (A x s3). | |
W (watt) | a unit of power in the International Systems of Units (SI), 1 W = 1J/1s = 1 kg x m2 x s-3. |
Yellow | a certificate confirming generation of energy in gas-fired power plants and CCGT power plants. |
certificate | |
Yellow energy | popular name for energy generated in gas-fired power plants and CCGT power plants. |
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PGE - Polska Grupa Energetyczna SA published this content on 15 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 September 2020 07:49:04 UTC