Integrated report 2021

26.4 Market (financial) risk – sensitivity analysis

PGE Group is mainly exposed to the EURPLN exchange rate risk and to the risk of changes in reference interest rates of PLN, EUR. It also has positions in US dollars, which are smaller in scale and therefore the risk associated with them for the Group is low. For the purpose of sensitivity analysis of changes in market risk factors, PGE Group uses the scenario analysis method, i.e. expert scenarios reflecting subjective assessment with respect to future development of market risk factors.

The scenario analysis presented in this point is intended to analyse the influence of changes in market risk factors on consolidated financial results. With regard to interest rate risk and currency risk, only those positions that meet the definition of financial instruments are covered.

In sensitivity analysis related to interest rate risk, PGE Group applies parallel shift of interest rate curve related to a potential possible change of referential interest rates during the following year.

In case of sensitivity analysis of interest rates’ fluctuations, the effect of risk factors’ changes could be recorded in the consolidated statement of comprehensive income as income or expenses or as revaluation of financial instruments measured at fair value.

The sensitivity analysis related to all types of market risks PGE Group is exposed to as at the reporting date, indicating the potential influence of changes of individual risk factors by class of financial assets and liabilities on profit before tax is presented below.

The value of exposure to currency risk for derivatives (forward instruments) is their nominal value together with interest accrued to the reporting date, translated into PLN at the closing rate as at December 31, 2021 and December 31, 2020 respectively, without taking into account the discount. The book value of these derivatives is the fair value measurement.

Sensitivity analysis for currency risk

The table below shows the sensitivity of financial instruments to reasonably possible changes in exchange rates, with all other risk factors held constant.

CLASS OF FINANCIAL INSTRUMENTS Value in the financial statements in PLN SENSITIVITY ANALYSIS FOR CURRENCY RISK AS AT DECEMBER 31, 2021
Value exposed to risk EUR/PLN DKK/PLN USD/PLN
impact on financial result / equity impact on financial result / equity impact on financial result / equity
+10% -10% +10% -10% +10% -10%
Trade and other financial receivables 7,931 1,718 172 (172)
Cash and cash equivalents 6,733 964 86 (86) 11 (11)
Derivatives measured at fair value 108 150 15 (15)
Hedging derivatives 801 819 66 (66)
Interest bearing loans and borrowings (7,856) (264) (13) 13 (14) 14
Bonds issued (2,046) (642) (64) 64
Lease liabilities (924) (8) (1) 1
Trade and other financial payables (5,118) (1,961) (192) 192 (1) 1 (3) 3
Derivatives measured at fair value (49) (365) 7 (7)
Impact on financial result 54 (54) 10 (10) 5 (5)
Hedging instruments 767 15,569 2,192 (2.192) 3 (3)
Impact on revaluation reserve 2,192 (2.192) 3 (3)

CLASS OF FINANCIAL INSTRUMENTS Value in the financial statements in PLN SENSITIVITY ANALYSIS FOR CURRENCY RISK AS AT DECEMBER 31, 2020
Value exposed to risk EUR/PLN USD/PLN
impact on financial result / equity impact on financial result / equity
+10% -10% +10% -10%
Trade and other financial receivables 5,003 724 72 (72)
Cash and cash equivalents 4,189 733 73 (73)
Derivatives measured at fair value 58 356 32 (32)
Hedging derivatives 445 872 66 (66)
Interest bearing loans and borrowings (8,423) 368 (22) 22 (15) 15
Bonds issued (2,045) 644 (64) 64
Trade and other financial payables (3,952) 939 (86) 86 (4) 4
Derivatives measured at fair value (40) 161 (16) 16
Impact on financial result 39 (39) (3) 3
Hedging instruments 36 12.838 1,228 (1,228) (11) 11
Trade and other financial receivables 1,228 (1,228) (11) 11

Sensitivity analysis for interest rate risk

The Group identifies exposure to interest rate risk related to WIBOR, EURIBOR. The table below presents the sensitivity of financial instruments to reasonably possible changes in interest rates, under assumption of stability of other risk factors.

FINANCIAL ASSETS AND LIABILITIES Value in the financial statements in PLN SENSITIVITY ANALYSIS FOR INTEREST RATE RISK AS AT DECEMBER 31, 2021
Value exposed to risk WIBOR EURIBOR
impact on financial result / equity impact on financial result / equity
+50pb -50pb +25pb -25pb
Derivatives measured at fair value through profit or loss – assets 108 61
Interest bearing loans and borrowings (7,856) (5,443) (26) 26
Bonds issued (2,045) (1,404) (7) 7
Derivatives (49) (48)
Impact on financial result (33) 33
Hedging instruments 767 313 87 (95) (14) 15
IMPACT ON REVALUATION RESERVE 87 (95) (14) 15

FINANCIAL ASSETS AND LIABILITIES Value in the financial statements in PLN SENSITIVITY ANALYSIS FOR INTEREST RATE RISK AS AT DECEMBER 31, 2020
Value exposed to risk WIBOR EURIBOR
impact on financial result / equity impact on financial result / equity
+50pb -50pb +25pb -25pb
Derivatives measured at fair value through profit or loss – assets 48 47
Interest bearing loans and borrowings (8,423) 6,261 (29) 29 (1) 1
Bonds issued (2,045) 1,401 (7) 7
Derivatives (40) 35
Impact on financial result (36) 36 (1) 1
Hedging instruments 36 36 178 (147) (17) 17
IMPACT ON REVALUATION RESERVE 178 (147) (17) 17

Sensitivity analysis for commodity price risk

The Group identifies exposure to the risk of changes in commodity prices, including raw materials for electricity generation.

The table below presents the sensitivity analysis to changes of the purchase cost of selected commodities by 10%:

COMMODITY AS AT DECEMBER 31, 2021 AS AT DECEMBER 31, 2020
Cost to purchase commodities Impact on financial result Cost to purchase commodities Impact on financial result
+10% -10% +10% -10%
Hard coal 2,932 293 (293) 2,993 299 (299)
CO2 emission allowances for captive use 14,024 1,402 (1,402) 6,629 663 (663)
Natural gas [000s m3] 980 98 (98) 774 77 (77)
Biomass 150 15 (15) 140 14 (14)
Fuel oil 160 16 (16) 74 7 (7)
TOTAL 18,246 1,824 (1,824) 10,610 1,060 (1,060)
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