Currency risk is related to the possibility of changes in the financial result due to changes in exchange rates.
The main sources of PGE Group’s exposure to currency risk are presented below:
- capital expenditures denominated in or indexed to foreign currencies;
- loans and borrowings denominated in foreign currencies;
- sales and purchases of electricity denominated in foreign currencies;
- fees denominated in or indexed to foreign currency relevant to purchase of transmission capacities;
- sales and purchases of CO2 emission allowances and gas as well as purchases of hard coal denominated in or indexed to foreign currencies;
- expenses related to current use of production goods denominated in or indexed to foreign currencies;
- financial assets with deposit characteristics denominated in foreign currencies.
- other operating flows denominated in or indexed to foreign currencies.
PGE Group controls currency risk through a system of limits relating to the maximum potential loss due to changes in exchange rates in related to consolidated exposure to currency risk by PGE Group companies. The currency risk measure is based on the size-at-risk methodology, understood as the product of the absolute size of the net foreign exchange position and the value of a potential change in the exchange rate.
Moreover, PGE Group sets out hedging strategies for the Group’s currency risk using hedging ratios subject to approval by the Company’s Risk Committee and Management Board. The hedging strategy and level of currency risk are subject to monitoring and are regularly reported to the Risk Committee.
PGE Group companies enter into derivative transactions in currency-based instruments only to hedge identified risk exposures.
The regulations in place at PGE Group do not allow, with respect to currency derivative transactions, to enter into speculative transactions, i.e. transactions aimed at generating additional profits resulting from changes in exchange rates, while exposing the Group to the risk of possible loss from such transactions.
In view of the currency risk management strategy adopted based on minimising and hedging risk exposures, the cost of servicing liabilities in foreign currencies in the medium and long term did not change significantly as a result of the hedging measures that were taken prior to the outbreak of the COVID-19 pandemic.
The Group's exposure to currency risk broken down into classes of financial instruments:
| Total value in the financial statements in PLN |
CURRENCY POSITION AT DECEMBER 31, 2021 | ||||||
| EUR | DKK | USD | |||||
| currency | PLN | currency | PLN | currency | PLN | ||
| Trade and other financial receivables: | 7,931 | 374 | 1,718 | – | – | ||
| Cash and cash equivalents | 6,733 | 186 | 856 | 174 | 108 | – | – |
| Derivatives, including: | 939 | 4,144 | 19,060 | – | – | 45 | 182 |
| Carried at fair value through profit or loss | 108 | – | – | – | – | 37 | 150 |
| Hedging instruments | 801 | 4,144 | 19,060 | – | – | 8 | 32 |
| Other assets at fair value through profit or loss | 30 | – | – | – | – | – | – |
| FINANCIAL ASSETS | 15,603 | 4,704 | 21,634 | 174 | 108 | 45 | 182 |
| Loans, borrowings, bonds and leases | 10,826 | 170 | 779 | – | – | 33 | 135 |
| Trade and other financial liabilities measured at amortised cost | 5,118 | 417 | 1,918 | 16 |
10 |
8 |
33 |
| Derivatives, including: | 83 | 766 | 3,523 | – | – | 90 | 365 |
| Carried at fair value through profit or loss | 49 | – | – | 90 | 365 | ||
| Hedging instruments | 34 | 766 | 3,523 | – | – | – | – |
| FINANCIAL LIABILITIES | 16,027 | 1,353 | 6,220 | 16 | 10 | 131 | 533 |
| Total value in the financial statements in PLN |
CURRENCY POSITION AT DECEMBER 31, 2020 | ||||
| EUR | USD | ||||
| currency | in PLN | currency | in PLN | ||
| Trade and other financial receivables: | 5,003 | 156 | 720 | 1 | 4 |
| Cash and cash equivalents | 4,189 | 158 | 729 | 1 | 4 |
| Derivatives, including: | 555 | 2,924 | 13,493 | 90 | 356 |
| Carried at fair value through profit or loss | 58 | – | – | 90 | 356 |
| Hedging instruments | 445 | 2,924 | 13,493 | – | – |
| Other assets at fair value through profit or loss | 52 | – | – | – | – |
| FINANCIAL ASSETS | 9,747 | 3,238 | 14,942 | 92 | 364 |
| Loans, borrowings, bonds and leases | 11,409 | 187 | 863 | 40 | 149 |
| Trade and other financial liabilities measured at amortised cost | 3,952 | 196 | 902 | 10 | 37 |
| Derivatives, including: | 448 | 120 | 554 | 70 | 262 |
| Carried at fair value through profit or loss | 40 | – | – | 66 | 247 |
| Hedging instruments | 408 | 120 | 554 | 4 | 15 |
| FINANCIAL LIABILITIES | 15,809 | 503 | 2,319 | 120 | 448 |