Integrated report 2021

26.1.1 Commodity risk

Commodity risk is related to the possibility of a deterioration in the financial result in the trading area due to changes in commodity prices.

PGE Group companies’ exposure to commodity risk relates to the following commodity markets:

  • electricity
  • CO2 emission allowances
  • property rights to electricity origin certificates;
  • hard coal;
  • natural gas;
  • biomass and other fuels.

PGE Group owns lignite mines that deliver production fuel to two power plants operating within the PGE Group. Due to this fact, the Group’s exposure to price risk in this area is not significant.

Selected key types of commodity risk (including currency) that PGE Group is exposed to (without taking account of the risk hedging strategies applied):

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Risk associated with Description Example of exposure source
Risk of changes in electricity prices
  • PGE Group has a natural long position due to its generation assets and a lack of possibility to place its production on the market at a pre-determined price.
  • The level of margin generated as a result of changes in electricity prices and electricity generation costs;
  • Price of electricity sale contracts to retail clients,
  • Price of transactions to buy/sell energy on the wholesale market,
Risk of changes in the prices of property rights to electricity origin certificates
  • PGE Group has a net short position resulting from the obligation to redeem property rights related to the sale of electricity to end users.
  • Price of transactions to buy/sell property rights on the wholesale market,
Risk of changes in the prices of CO2 emission allowances
  • Risk related to changes in the prices of CO2 emission allowances in EUR and risk of changes in EURPLN exchange rate;
  • PGE Group has a short position given its electricity generation at units participating in the EU-ETS scheme.
  • Use of generation sources not as planned due to their varying emission levels;
  • Price of transactions to buy/sell CO2 emission allowances on the wholesale market.
Risk of changes in prices of fuel for electricity generation (including hard coal, natural gas, biomass, heating oil)
  • Risk of commodity price changes, including commodities denominated in foreign currency (or indexed to foreign currency) and foreign currency risk;
  • PGE Group has a short position due to its need to purchase fuel on the market.
  • Price of transactions to buy/sell fuel on the wholesale market.
Long-term volume risk
  • Risk related to changes in demand for electricity in the National Power System.
  • Macroeconomic situation, especially in energy-intensive industries;
  • Technological changes, especially in energy efficiency and development of distributed energy;
  • Climate changes;
  • Regulations, including preferences for specific sectors of the energy industry;
  • Degree of integration with foreign power systems.
Short-term volume risk
  • Risks relating to changes in the planned volume of electricity sales as a result of changes in customers’ demand for electricity.
    • Trends among retail clients concerning changes in energy providers;
    • Regulations, including those pertaining to the opportunity to change energy providers;
    • Short-, mid-term weather changes;
  • Risk associated to the model for planning demand for energy and quality of source data used in planning.

PGE Group has a strategy for hedging key exposures in trading electricity and related commodities adequately to the level of risk appetite over a mid-term horizon. The level of hedging for an open position is set taking into account risk appetite, results of monitoring the risk of electricity and related product prices, liquidity of specific markets as well as the financial situation of the Group and the Group’s strategic objectives.

PGE Group’s exposure to commodity price risk (as regards raw materials) specifies the volume of external purchases of each raw material, as presented in the table below:

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COMMODITY Year ended December 31, 2021 Year ended December 31, 2020
Tonnage – external purchase (in thousand tonnes) Purchase costs (PLN million) Tonnage – external purchase (in thousand tonnes) Purchase costs (PLN million)
Hard coal 9,983 2,932 9,796 2,993
CO2 emission allowances for captive use 116,206 14,024 78,769 6,629
Natural gas [m3 000s] 1,173,366 980 1,305,773 774
Biomass 719 150 584 140
Fuel oil 66 160 49 74
TOTAL –  18,246  –  10,610 
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