An operating segment is a component of the Group:
- that engages in business activities from which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the entity’s chief operating decision maker in the Group to make decisions about
- resources to be allocated to the segment and assess its performance,
- for which discrete financial information is available.
Due to the types of production processes as well as the current system of regulation within PGE Group, the following segments are distinguished:
- Conventional Generation,
- District Heating,
- Circular Economy,
- Other activities, which includes the activities of subsidiaries other than listed above, but not material enough to create separate segments.
Segment revenues are revenues, including both sales to external customers and inter-segment transfers within the Group that are presented in profit or loss of the Group and can be directly attributed to the segment together with a relevant portion of revenue that can be allocated on a reasonable basis to the segment. Segment costs are costs comprising the cost of sales to external customers and the cost of transactions with other segments within the Group that result from the segment’s operating activities and can be directly attributed to that segment along with an appropriate portion of the entity’s costs that can be allocated to the segment on a reasonable basis. Segment result is a difference between revenues and expenses of the segment.
Segment assets are those operating assets that are used by that segment in its operating activity and that can be directly attributed to the segment or can be allocated on a reasonable basis to the segment. Segment liabilities are those operating liabilities that result from operating activities of the segment and can be directly attributed to the segment or can be allocated on a reasonable basis to the segment. Segment assets and liabilities do not include settlements connected with income tax.
PGE Group companies conduct their business activities based on relevant concessions, including primarily concession on: production, trading and distribution of electricity, generation, transmission and distribution of heat, granted by the President of Energy Regulatory Office and concessions for the extraction of lignite deposits, granted by the Minister of the Environment. Concessions are generally issued for a period between 10 and 50 years. PGE Group’s key concessions expire in 2025-2044.
On April 28, 2021, the Minister of Climate and Environment, having taken into consideration the application of PGE GiEK S.A., changed the previously granted concession for the extraction of minerals from the „Turów” deposit by extending it until 2044, whereby the extraction of minerals will be carried out in accordance with a decision of the Regional Director for Environmental Protection in Wrocław of January 21, 2020, establishing the environmental conditions for the undertaking consisting of continued exploitation of the „Turów” lignite deposit, carried out in the municipality of Bogatynia.
Complaints and requests for reconsideration were filed with respect to the license renewal decisions.
Nevertheless, based on legal opinions, according to PGE Group, there is no major risk that the concession will not be extended until 2044.
Relevant assets are assigned to concessions for lignite mining and generation and distribution of electricity and heat, as presented in detailed information on operating segments. For its concessions concerning electricity and heat, the Group pays annual fees dependent on the level of turnover, while lignite mining operations under concessions are subject to extraction fees depending on the current rate and volume of output as well as mining use fees. In 2021, PGE Group’s concessions costs amounted to approx. PLN 16 million (PLN 17 million in 2020), exploitation charges and mining usufruct charges amount to PLN 135 million in 2021 and PLN 113 million in 2020.
PGE Group presents information on operating segments in the current and comparative reporting period in accordance with IFRS 8 Operating Segments. PGE Group’s segment reporting is based on the following business segments:
- Conventional Generation, comprising the exploration and production of lignite, conventional generation of electricity and ancillary services.
- District Heating, comprising the generation of electricity from cogeneration sources and the transmission and distribution of heating.
- Renewables, comprising the generation of electricity in pumped-storage power plants and from renewable sources.
- Supply includes sales and purchases of electricity and gas on the wholesale market, trading in emissions certificates and energy origin rights, sales and purchases of fuel, as well as sales of electricity and rendering services to end users,
- Distribution, comprising management over local distribution networks and transmission of electricity.
- Circular Economy, comprising management of the by-products of combustion.
- Other operations, comprising services provided by subsidiaries for the Group, e.g. capital raising, IT services, accounting and HR, and transport services and investments in startups.
Organisation and management over PGE Group is based on segment reporting separated by nature of the products and services provided. Each segment represents a strategic business unit that offers distinct goods and serves different markets. Entities assigned to operating segments are described in note 1.3 of these consolidated financial statements. As a rule, inter-segment transactions are disclosed as if they were concluded with third parties – under market conditions. When analysing the results of business segments the management of PGE Group focuses mainly on EBITDA.
Starting in 2021, PGE Group reports a new operating segment – Circular Economy – the assets and results of which were recognised and analysed within the following segments: Conventional Generation, District Heating and Other Operations. The data for the comparative period was not restated. The new presentation layout is intended to improve transparency and strengthen supervision over the implementation of the District Heating Strategy, which is one of the key areas of the Group’s development.
Seasonality of business segments
Key factors affecting the demand for electricity and heating are: weather conditions – air temperature, wind force, rainfall; socio-economic factors – number of energy consumers, prices of energy sources, GDP growth; and technological factors – technological progress, manufacturing technologies. Each of these factors has an impact on technical and economic conditions of production, distribution and transmission of energy carriers, thus influence the results obtained by PGE Group.
The level of electricity sales varies throughout the year, depending especially on weather conditions – air temperature, length of the day. Growth in electricity demand is particularly evident in winter periods, while lower demand is observed during the summer months. Moreover, seasonal changes are evident among selected groups of end users. Seasonality effects are more significant for households than for the industrial sector.
In the Renewables segment, electricity is generated from natural resources such as water, wind and sun. Weather conditions are an important factor affecting electricity generation in this segment.
The sale of heat depends in particular on air temperature and are higher in winter and lower in summer.