Integrated report 2021

Business segments

We are Poland’s largest vertically integrated producer and supplier of electricity and largest producer of heat. We operate across the entire value chain: we produce electricity and heat at our conventional and CHP plants, then we sell and supply these to our customers throughout Poland, including households, businesses, institutions and local governments.

Conventional
Generation
District Heating Renewables Distribution Supply
Key assets of the segment 5 conventional power plants 16 CHP plants 17 wind farms, 5 photovoltaic power plants, 29 run-of-river hydro power plants, 4 pumped-storage power plants, including 2 with natural flow 297,029 kms of distribution lines
Installed capacity electricity/heat 12,852 MWe / 844 MWt 2,608 MWe / 6 842 MWt 2,331 Mwe
Electricity volumes Net electricity generation  57.42 TWh Net electricity generation 8.76 TWh Net electricity generation 2.59 TWh Electricity distribution volume
37.74 TWh
Sales to final off-takers
37.48 TWh
Heat volumes Heat production (net) 5.13 PJ Heat production (net) 51.64 PJ
Market position PGE Group is the leader of lignite mining in Poland (91%) PGE Group is the largest electricity producer from RES with market share of approx. 10% (excluding co-combustion of biomass and bio-gas Second domestic electricity distributor with regard to number of customers Leader in wholesale and retail trading in Poland
PGE Group is also a national leader in electricity and district heat generation

Conventional Generation

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 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.

Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the NPS, constitutes a significant item in the segment’s revenue in 2021. PGE GiEK S.A.’s power plants receive fees for performing the capacity obligation (a Capacity Market entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat). Capacity Market revenue compensated for revenue from ancillary services. The cold intervention reserve and operational capacity reserve services were discontinued, while revenue from capacity reallocation remained.

Assets

In the segment of Conventional Generation of PGE Group operates the company PGE GiEK S.A. based   in Bełchatów. In the reporting period, i.e. as at December 31, 2021, the company consisted of 7 branches located on the area of five voivodships.

Conventional Generation segment consists of: 2 lignite mines (Bełchatów and Turów), 5 conventional power plants (Bełchatów, Turów, Opole, Rybnik, Dolna Odra complex). Conventional Generation is the leader of lignite mining (its share in the extraction market of this raw material accounting for approx. 90% of domestic extraction), it is also the largest generator of electricity as it generates approx. 40% of domestic gross electricity production.

Main assets of the Conventional Power segment

The Conventional Power segment includes: 2 lignite mines and 5 conventional power plants. Production is based on lignite coal, extracted from its own mines, and hard coal.

Installed capacity and production in Conventional Generation segment

Main fuel types Annual electricity generation
(TWh)
Annual heat generation
(PJ)
Installed capacity
(MWe)
Installed capacity
(MWt)
2021 20201 2021 2020 2021 2021
Hard coal 20.17 16.69 1.69 2.39 5 696 251
Lignite 37.12 29.72 2.82 2.66 7 156 593
Biomass 0.13 0.33 0.62 0.36
Total 57.42 46.74 5.13 5.41 12,852 844
1The data for 2020 have been adjusted to the current division of production into the indicated categories.

Lignite mining

In the table below are presented lignite resources data as at the end of 2021 and lignite output in 2021.

Table: Lignite resources data as at the end of 2021 and lignite output in 2021.

Deposit Resources – as at the end of
2021 (Mg million)
Output in 2021 (Mg million)
Bełchatów – Field Bełchatów Industrial 14.07 2.78
Bełchatów – Field Szczerców Industrial 552.10 35.60
Turów Industrial 270.81 8.80
Total Industrial 836.98 47.18

Key financial results

[PLN million] 2021 2020
Sales revenues 28,722 25,251
EBIT 1,998 -647
EBITDA 4,078 1,725
Capital expenditures 1,759 2,372

Key factors affecting segment performance

Key factors affecting the EBITDA result of Conventional Generation segment on y/y basis included:

  • Higher net electricity production volume in PGE GiEK by 10.7 TWh due to increased degree of use of units by PSE S.A. resulting from high demand and significantly lower net import (see p. 4.2 of this report).
  • Decrease in electricity prices due to falling energy prices on forward market (much of the contracting for 2021 took place in 2020, when prices were in decline due to the escalating pandemic).
  • Lower result on optimisation of electricity portfolio due to decreased volume of electricity trading by 20.2 TWh in view of the high demand resulting in a high load factor on the generating units, with lower margin realized on electricity trading.
  • Capacity Market, a mechanism, which was not present in the base period.
  • Lower result on sale of CO2, mainly as an effect of sale of allowances granted free of charge for Opole and Rybnik power plants in the comparable period.
  • Lower revenues from ancillary control services, mainly as a result of lack of revenues from the Operational Capacity Reserve.
  • Higher fuel consumption costs mainly hard coal, due to increased generation based on this fuel (see p. 4.2 of this report). Lower costs of biomass consumption result from the inclusion of the Szczecin CHP Plant in the District Heating segment’s structures from July 1, 2021. Main changes on different types of fuel are presented in the chart below.
  • Higher CO2 costs as a result of higher CO2 emissions volume by 10.0 million tons due to generation higher by 10.7 TWh and higher average cost of CO2 by PLN 15.6/t. Main changes are shown in the chart below.
  • Lower personnel expenses due to ongoing optimisation process.
  • The decrease in the item ‘other’ is mainly caused by the lack of capitalisation of costs at mines due to a lower amount of overburden removed in relation to coal extracted and a lower level of cost capitalisation for in-house implementation of investments due to the smaller scope of tasks performed. In addition, due to the higher volume of electricity generation, the costs of production materials, environmental charges and combustion by-product management services increased.

Capital expenditures

Capital expenditures incurred in Conventional Generation segment in 2021 and 2020.

PLN m  20211  2020 % change
nvestments in generating capacities, including: 1,678 2,114 -21%
  • Development
588 796 -26%
  • Modernisation and replacement
1,090 1,318 -17%
Other 81 113 -28%
Total 1,759 2,227 -21%
Capitalised costs of overburden removal in mines 0 145
Total with capitalized costs of overburden removal 1,759 2,372 -26%
1 The data for 2021 does not include the value of capital expenditure on the project to build two gas and steam units at the Dolna Odra Power Plant and a low-emission unit at the Rybnik Power Plant, which are shown in the Other Operations segment.

District Heating

Core business of the District Heating segment includes production of electricity and heat from cogeneration sources as well as distribution of heat.

 

* managerial perspective

As in the case of Conventional Generation, this segment’s significant revenues are 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. 

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, conditioned on average sales prices for heat generated in units with specific fuel other than cogeneration units. They are published each year by the ERO President.

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 (including fuels used) incurred by entities that are not co-generation entities for the year preceding the time of tariff setting.

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. The support mechanism in the form of certificates is in place also for biomass-fired generating assets.

Assets

District Heating within PGE Capital Group combines CHP plants separated from the EDF Polska assets acquired on November 14, 2017 and CHP plants separated from PGE GiEK. Since January 2, 2019 the following companies has been included in the segment.: PGE EC S.A., KOGENERACJA S.A., Elektrociepłownia Zielona Góra S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., PEC Zgierz sp. z o.o. oraz MEGAZEC sp. z o.o. In addition, from July 1, 2021, Szczecin CHP, Pomorzany CHP and the district heating network in Gryfino, recognised until June 30, 2021 as part of the Conventional Generation segment, were included in the structures of the District Heating segment.

District Heating segment is the largest heat producer in Poland with market share of over 20%. Generation is based mainly on hard coal and gas.

Installed capacity and production in District Heating segment

Main fuel types Annual electricity generation (TWh) Annual heat generation (PJ) Annual heat generation
(MWe)
Installed capacity
(MWt)
2021 2020 2021 2020 2021 2021
Hard coal 4.17 3.51 39.47 33.82 1,580 5,003
Liginite 0.08 0.08 0.46 0.45 44 69
Gas 4.22 5.05 9.99 9.66 891 1,286
Biomass 0.26 0.05 1.34 0.48 83 176
Other 0.04 0.04 0.38 0.29 9 300
TOTAL 8.76 8.42 51.64 44.70 2,608 6,842

Key financial results

[PLN million] 2021 2020
Sales revenues 6,239 4,899
EBIT 104 304
EBITDA 805 947
Capital expenditures 610 671

Key factors for the results of the segment

Key factors affecting the EBITDA result of District Heating segment on y/y basis included:

  • Higher volume of net heat production in 2021 y/y is a result of lower outside temperatures compared to 2020. The average temperatures were by 1.8o C lower, what translated into increased heat production (by 6.9 PJ).
  • Increase of heat sale price is a result of increased tariffs for heat for the CHP plants following the publication by the ERO of new reference prices for heat production in units not being co-generation units.
  • Lower net electricity production volume in the segment as a result of lower electricity generation from gas, due to significantly higher gas prices on the wholesale market.
  • Decrease of electricity sale prices due to lower forward contracts with 2021 delivery as compared to the contracts with 2020 delivery.
  • Capacity Market, a mechanism, which was not present in the base period.
  • Higher fuel consumption costs wjich are caused by increased volume of hard coal consumption and higher gas prices. Additionally, due to the inclusion of CHP Pomorzany in the structures of the District Heating segment, the consumption of biomass increased. The details are shown in 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.

Capital expenditures

Capital expenditures incurred in District Heating segment in 2021 and 2020

PLN m 2021 2020 % change
Investments in generating capacities, including: 552 616 -10%
  • Development
289 253 14%
  • Modernisation and replacement
263 363 -28%
Other 58 55 5%
Total 610 671 -9%

Renewables

This segment is involved in the generation of electricity from renewable sources and in pumped storage power plant.

* managerial perspective

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. Additionally, some of the generating units receive revenue from the sale of energy certificates of origin (green certificates) obtained from the production of renewable energy. In addition, some generating units receive revenue from the sale of energy certificates of origin (green certificates) obtained for the renewable energy produced.

Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the National Power System, constitutes a significant item in the segment’s revenue, starting from 2021. Selected power plants in the Renewables segment receive fees for performing the capacity obligation (a Capacity Market Entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat).

Installed capacity and production in power plants of Renewables segment.

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 the 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 sp. z o.o. This company is responsible for all activities related to off-shore wind farms.

Assets in the segment include:

  • 17 wind farms,
  • 5 photovoltaic power plants,
  • 29 run-of-river hydro power plants,
  • 4 pumped-storage power plants, including 2 with natural flow

Installed capacity and production in power plants of Renewables segment.

Types of power plants Annual energy generation (GWh) Installed capacity (MWe)
2021 2020 2021
Run-of-river hydro power plants 290.32 261.14 95.76
Pumped-storage power plants 674.82 748.30 1,256.00
Pumped-storage power plants with natural flow1 171.67 161.32 286.64
Wind farms 1,448.27 1,489.07 688.16
PV 4.67 1.04 4.70
1including generation from pump-storage cycle of 16.2 GWh and generation from natural flow of 155.4 GWh. Total generation from pump-storage cycle in 2021 amounted to 691.0 GWh, and generation from water totalled 445.7 GWh.

Key financial results

[PLN million] 2021 2020
Sales revenues 1,672 1,091
EBIT 686 405
EBITDA 1,016 597
Capital expenditures 189 715

Key factors for the results of the segment

Key factors affecting the y/y results of Renewables included:

  • Increase in revenues from electricity sales results from: higher average electricity sale price by PLN 210/MWh y/y, what translated into increase of revenues by approx. PLN 567 million; lower sales volume by 138 GWh, what caused revenues decrease of approx. PLN 29 million.
  • Decreased revenues from sales of certificates resulting mainly from lower generation volume due to end of support for 12 small hydro power plants as from the end of September 2020.
  • Lower sales revenues from ancillary services result mainly from change in agreement for provision of services and withdrawal in 2021 of Readiness Interventional Reserve among others.
  • Capacity Market, a mechanism, which was not present in the base period.

Distribution

“In 2021, we connected nearly 1 GW of RES capacity to the PGE Dystrybucja grid and doubled the number of our prosumers. Continued dynamic development of green energy requires an absolute modernisation of the transmission grid, for which the Company has secured massive financial resources for the coming years.”

Jarosław Kwasek President of the Management Board, PGE Dystrybucja

We are the second largest energy distributor in terms of the number of customers, with approx. 25 percent. share in the Polish energy distribution market. Our distribution area covers almost 40 percent. area of Poland. With the use of over 290 thousand. km of the power grid, we supply electricity to over 5.5 million customers.

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 allow costs related to the distribution system operator’s on-going activities 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 costs transferred in fees such as the RES fee, the transition fee, the co-generation fee and – from 2021 – the capacity fee.

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 36-month period preceding the tariff application submission, quoted on the Treasury BondSpot market. In addition, return on capital depends on the achievement of individual quality targets set by the ERO President for performance indicators including: interruption time, interruption frequency, connection time and (not yet included) time to provide metering and settlement data.

Key financial results

[mln PLN] 2021 2020
Sales revenues 6,492 6,396
EBIT 1,559 1,093
EBITDA 2,779 2,306
Capital expenditures 1,354 1,680

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.

Volume of distributed energy and number of customers in 2021 and 2020

Tariff Volume (TWh) Number of customers
according to power take-off points
2021 2020 2021 2020
A tariff group 5.40 5.16 118 111
B tariff group 14.96 13.99 13,029 12,504
C+R tariff groups 6.84 6.50 488,553 486,272
G tariff group 10.54 10.02 5,089,033 5,030,101
Total 37.74 35.67 5,590,733 5,528,988

Key operational data.

Operational data Unit 2021 2020 2019 2018 2017
Number of stations, including: pieces 95,987 95,603 95,014 94,203 93,488
number of transformer stations pieces 95,455 94,955 94,326 93,684 93,031
MVA power MVA 32,956 32,663 32,347 31,696 31,096
Total length of power lines km 297,029 295,613 293,825 291,002 287,992
HV lines km 10,383 10,336 10,317 10,284 10,281
MV lines km 115,049 114,539 113,856 112,418 111,568
LV lines km 171,597 170,738 169,652 168,300 166,143
Grid loss ratio % 4.7 5.2 4.8 5.1 5.4
SAIDI, including: minutes 368 251 261 299 557
Planned minutes 33 40 58 87 95
Unplanned with catastrophic minutes 334 211 203 212 462
SAIFI, including: per customer 4.28 3.67 3.88 3.92 5.48
Planned per customer 0.19 0.24 0.31 0.47 0.48
Unplanned with catastrophic per customer 4.09 3.43 3.57 3.45 5.00
Connection time days 267 206 199 211 215

Key factors for the results of the segment

Key factors affecting results of Distribution segment y/y included:

  • Increased volume of distributed energy by 2.1 TWh resulting mainly from higher demand.
  • Decrease in rates in tariff for 2021 by PLN 9.6/MWh compared to the tariff for the previous year, that translated into an decrease in revenues from the sale of distribution services. 
  • Lower costs of electricity purchases to cover network losses mainly as a result of a decrease in the electricity purchase price to cover the losses.
  • 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.
  • Decrease in personnel expenses due to ongoing process to optimise costs.

Capital expenditures

Capital expenditures incurred in Distribution segment in 2021 and 2020

PLNm 2021 20201 % change
Development investments 665 791 -16%
Modernisation and replacement investments 692 874 -21%
Other 1 15 -93%
Total 1,358 1,680 -19%
1Data for 2020 have been adjusted to the current division of capital expenditures into the indicated categories.

Supply

Supply segment activities include Group’s wholesale and retail trading of electricity.

Wholesale trading includes mainly electricity trading on behalf of and for Conventional Generation segment, District Heating segment and Renewables segment.

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.

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 incurs costs related to the Group’s corporate centre.

Key financial results

[PLN million] 2021 2020
Sales revenues 38,223 29,017
EBIT 794 609
EBITDA 827 644
Capital expenditures 8 15

Volume, customers and operating data

Volume of electricity sales to final off-takers and number of customers in 2021 and 2020

Tariff Volume (TWh)1 Number of customers
according to power take-off points1
2021 2020 2021 2020
A tariff group 7.29 9.35 139 142
B tariff group 13.68 14.79 11,877 12,575
C+R tariff groups 6.31 6.75 421,164 446,253
G tariff group 10.04 9.75 5,021,702 4,954,863
Total 37.32 40.64 5,454,882 5,413,833
1Data for PGE Obrót Obrót S.A.

Key factors for the results of the segment

Key factors affecting EBITDA of Supply segment y/y included:

  • Higher result on electricity, due to lowered base in the sale of tariffed products in previous year – the ERO President set the prices for households at a level which did not cover actual costs of electricity purchase. The last year’s low base was also an effect of lower demand due to COVID-19, what resulted  in re-selling certain volumes on the spot market below purchase prices in forward transactions.
  • Increase of revenues from services performed within the Group resulting mainly from higher revenues from the  Agreement  for  Commercial  Management  of  Generation  Capacities as a consequence of increased trading value of electricity under management. 
  • Lower result on gas sales, as a result of higher portfolio balancing costs in connection with a significant increase in prices on the wholesale market.
  • Higher personel expenses as a result of organisational changes and due to ongoing proces of salaries optimisation.
  • Negative impact of balance of provisions for onerous contracts and potential claims from customers resulting from reversal of provision for onerous contracts in 2020, that mainly related to lack of coverage of part of justified operating costs in the tariff for households approved by the ERO President. In turn, in 2021 a provision was created for potential claims from customers in connection with the termination of unfavorable contracts for the supply of electricity and natural gas.

Circural economy

From the beginning of 2021, PGE Group reports a new operating segment – Circular Economy, which includes the following companies: PGE Ekoserwis S.A., EPORE S.A., ZOWER sp. z o.o. The management of combustion by-products at PGE Group turns waste into high-value substances that are used in other branches of economy (cement industry, construction, road-building, mining) and thus reduces the volume of ultimate waste generated.

The activities of the segment include the provision of comprehensive services in the field of management of combustion by-products („UPS”), provision of services in auxiliary areas for electricity and heat producers and the supply of materials based on UPS.

The main revenue source in the Circular Economy segment is revenue from the economic use of combustion by-products, which includes revenue from the sale of products manufactured on the basis of combustion by-products in internal production processes and the sale of services related to the management of combustion by-products. The level of revenue depends on multiple factors, including commercial potential for selling combustion by-products, in processed and unprocessed form, seasonality of industries purchasing combustion by-products, seasonality of suppliers of combustion by-products (power plants, combined heat-and-power plants), volumes collected, efficiency of production infrastructure, capabilities for storing combustion by-products as materials inventories intended for production, as well as market conditions.

At PGE Ekoserwis, we have over 200 specialised products and technologies based on the use of combustion by-products, the use of which brings significant environmental benefits through reducing CO2 emissions, saving natural resources or minimising landfill. Our product portfolio is an attractive and competitive offering for many sectors, and our products are safe for people and the environment. We are currently focusing on the development and designation of pro-environmental, efficient and cost-effective solutions towards the recovery of raw materials from decommissioned installations, such as photovoltaic panels, energy storage or wind turbines

Paweł Wieczorek Director of Development and Marketing at PGE Ekoserwis

Key financial results

[PLN m] 2021 2020
Sales revenues 311
EBIT 36
EBITDA 45
Capital expenditures 9

 

Key factors affecting EBITDA of Circular Economy segment included:

  • Revenue from sale of combustion by-products: ash, slag, gypsum obtained in the process of hard coal and lignite combustion.
  • Revenue from sale of services, concerning services in the field of coal storage site operations and heavy equipment rentals, mainly to PGE Group companies.
  • Personnel costs necessary for the proper functioning of the segment.
  • Third-party service costs, mainly concerning services in the field of transporting waste from production units.
  • Others, including material and energy costs.
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