Integrated report 2021

33.6.2 Impact of war in Ukraine on PGE Group’s activities

PGE is the largest energy company in Poland. PGE’s units meet approx. 43% of the country’s electricity demand and serve over 5,5 million customers, while PGE’s distribution area covers over 40% of Poland’s territory, including areas on the border with Ukraine and Belarus. The Group’s activities are therefore of exceptional importance for the country’s energy security. It is crucial for PGE Group to secure the continuity of operation of power plants and CHPs and distribution infrastructure so as to ensure uninterrupted supplies of electricity and heat to residents, institutions and businesses.

In connection with the situation in Ukraine, a Crisis Team has been established at the central level of PGE Group to continuously monitor threats and identify potential risks. The Crisis Team’s work includes monitoring the security of energy generation and supply and the protection of critical and IT infrastructure. Its tasks also include undertaking actions minimising the risk of a crisis situation, preparing the Company in the event of a crisis situation and planning, organising and coordinating works ensuring continuity of the Company’s and PGE Group’s operations.

Crisis teams have also been formed at the Group’s key companies, operating 24 hours a day, carrying out continuous monitoring and identifying potential risks in order to minimise risk to electricity and heat supplies.

All key PGE Group companies have adopted guidelines for developing business continuity plans. On this basis, companies develop and then implement their own business continuity plans that take into account the specifics of the company. A key assumption of business continuity plans is the development of a catalogue of risks for critical processes, on the basis of which emergency scenarios (instructions, procedures) are developed and adopted. The emergency scenarios are periodically tested and continuously updated. In the current situation, companies have been tasked with both urgently updating and reviewing internal regulations and business continuity plans.

Cybersecurity is also particularly important in the current geopolitical situation. PGE Group has implemented special procedures for monitoring ICT networks due to increased activity of criminal groups aiming to attack ICT (Information and Communication Technologies) and OT (Operational Technology) systems. With the CHARLIE-CRP state of alert in force, the emergency plans have been reviewed. A significant change in the company’s operating context triggered the launch of a threat analysis and risk estimation for cybersecurity incidents. There is also an increased focus on protecting the supply chain against cyberattacks.

The security of the Group’s facilities has been strengthened. In order to protect key energy infrastructure, the Group cooperates with all services responsible for security in Poland, with a particular focus on the Internal Security Agency (ABW). In addition, PGE Dystrybucja is continuously supported by the Territorial Defence Forces (TDF).

Key areas in PGE Group affected by the war in Ukraine:

  • fuel availability and prices,
  • supply chain,
  • cybersecurity,
  • geopolitics,
  • macro-economy (including exchange rates and interest rates),
  • prices of CO2 emission allowances
  • foreign regulatory environment,
  • counterparties.

PGE’s key operating risks related to the war in Ukraine:

  • reduced availability of hard coal on the Polish market due to the planned embargo on supplies of this raw material from Russia,
  • increase in hard coal prices on the international market,
  • logistical disruptions due to the high utilisation of rolling stock and changes to current travel routes,
  • reduced availability of biomass on the Polish market due to the suspension of feedstock imports from Belarus,
  • logistical disruptions in road transport related to fuel prices and the availability of service providers’ employees.

Risks related to gas supplies:

  • CHP Gorzów and CHP Zielona Góra are supplied with field gas (so-called Ln nitrogenous gas). Due to the use of dedicated transmission infrastructure between the mine and the CHP plant, these generating assets are neutral to supply disruptions to Poland’s National Gas System.
  • CHP Toruń, CHP Zawidawie, CHP Lublin-Wrotków and CHP Rzeszów are supplied with high-methane gas (so-called gas E). Gas E drawn from the National Gas System is secured in the form of adequate storage, and in Poland this is at a relatively safer level than in Western Europe.

PGE Group has no influence on the directions of supply and management of fuel transmission therefore the risk of possible disruptions lies with PGNiG and the Transmission System Operator (Gaz-System). PGE has established communication channels with PGNiG and Gaz-System in commercial and operational management in cooperation with the respective PGE Group location. In accordance with national gas supply constraint management programs, securing supplies for electricity and heat generation is favoured over other customers.

Impact of fuel availability constraints on electricity generation:

  • In the case of gaseous fuel, due to the lack of stock-holding possibilities, reduced availability translates into an immediate disruption in electricity and heat production. However, if there are reserve coal-fuelled water boilers at a given CHP plant, heat production is possible until stocks are exhausted (concerns locations Branch Lublin-Wrotków, Branch Rzeszów, in the case of Branch Gorzów Wielkopolski the production reserve is the coal-fuelled OP-140 steam boiler). At the CHP Zielona Góra location, the reserve for heat production is constituted by oil boilers.
  • The main suppliers of hard coal for electricity and heat production are Polish mining companies. The generating units have reserves of hard coal to enable uninterrupted production of electricity and heat.

The electricity supply for PGE Dystrybucja and PGE Obrót is secured on a commercial basis. The physical supply of energy is conditioned by the current situation of balancing and operation of the National Power System. Disruptions in electricity generation will affect the energy supply depending on the location on the grid in the NPS. So far, PGE Group has not identified any risk associated with electricity or heat supply to residents, institutions and businesses.

Impact of war on commodity and financial markets:

The war in Ukraine has contributed to dynamic volatility in the commodity, CO2 and financial (e.g. currency) markets, affecting margin levels and capital raising possibilities (interest rates). At this point, it is difficult to estimate the scale of the impact of these factors on PGE Group. The markets are under exceptional pressure and, depending on how the situation develops, how long the war lasts, the direction it takes, an equilibrium will be sought. However, at this time it is difficult to discuss any scenario, and this is what will determine attempts to value the risks described. Nonetheless, PGE mitigates risks by continuing its policy of hedging electricity generation costs together with energy sales on the wholesale market, which is reflected both in hedging CO2 emission allowances and foreign currencies for transaction purposes. At the date on which these financial statements are approved, the Company has adequate liquidity to carry on its business without material disruption.

As a consequence, the aforementioned risks may have a material impact on individual areas of PGE Group’s operations and future financial performance. In particular, the recoverable amount of selected asset items, the level of expected credit losses and the measurement of financial instruments may change.

In view of the dynamic course of the war on the territory of Ukraine and its macroeconomic and market consequences, PGE Group will monitor its development on an ongoing basis and any events that occur will be reflected accordingly in future financial statements. No adjustments were made in these financial statements.

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