Integrated report 2021

3.1 Analysis of indications for the Conventional Generation segment

In previous reporting periods, PGE Group recognised substantial impairment losses on property, plant and equipment in the Conventional Generation segment. The key assumptions used in the impairment tests carried out as at June 30, 2021 are described in PGE Group’s interim consolidated financial statements for the 6-month period ended June 30, 2021.

In the fourth quarter of 2021, the Group performed an analysis of indications in order to determine whether these assets are impaired or the earlier impairment losses may be reversed.

The most important factors analysed include:

  • analysis of the 2021 financial plan implementation,
  • analysis of the current market situation,
  • confirmation that the long-term forecasts are up-to-date,
  • confirmation that the investment plan is up-to-date,
  • analysis of assumptions regarding the capacity market.

An analysis of assumptions for the Conventional Generation segment showed that the financial plan was implemented beyond the assumed values, which is mainly related to an increase in electricity prices and margins obtained on sales of electricity on the derivative and SPOT markets. The increase in electricity prices in the fourth quarter of 2021 was largely due to higher energy prices in neighbouring countries resulting from high gas and coal prices in Europe and globally. This translated into additional export demand on the Polish market, which in itself raised price levels and also contributed to lower hard coal inventories, which further raised the valuation of marginal unit energy sales offers on hard coal. According to the Group, these increases will not be permanent and therefore they do not constitute grounds for impairment tests. In addition, no significant changes are expected in the levels of planned capital expenditures or in the level of revenue from the capacity market. The price and volume assumptions are also consistent with those used in the asset impairment tests performed as of June 30, 2021.

Accordingly, the Group came to the conclusion that there are no grounds for impairment testing of generation assets at the balance sheet date of December 31, 2021.

Climate considerations

The future of the Polish energy market is determined by the European Union’s climate policy, and developments in the electricity market through 2050 will be influenced by the European Green Deal („EGD”), which aims to achieve EU climate neutrality by 2050. One of the most important steps towards achieving climate neutrality was the European Council’s acceptance in December 2020 of a new binding EU target to reduce net greenhouse gas emissions by at least 55% by 2030 relative to 1990 levels. The consequence of a higher CO2 emission reduction target is the growing cost of CO2 emission allowances, which may have a negative impact on the results of the Conventional Generation segment and the PGE Group. The macroeconomic assumptions adopted for the rationale analysis take into account the new higher CO2 emission reduction target in 2030 and, as a result, the increasing level of CO2 emission allowance prices, and in the long term are consistent with the assumptions adopted for the impairment tests performed as at June 30, 2021.

PGE Group’s business environment is characterised by high volatility and is dependent on macroeconomic, market and regulatory conditions, and any changes thereto may have a substantial impact on PGE Group’s financial situation and financial results. This is why the aforementioned assumptions and others used in estimating the useful value of assets are periodically analysed and verified. Any changes will be recognised in future financial statements.

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