Commodity risk is related to the possibility that financial results deteriorate as a result of changes in commodity prices.
PGE Group’s exposure to commodity risk concerns the following commodity markets:
- electricity;
- CO2 emission allowances;
- property rights arising from certificates of origin for electricity;
- hard coal;
- natural gas;
-
biomass and other fuels.
PGE Group owns lignite mines that deliver production fuel to two power plants operating within the PGE Group. Due to this fact, the Group’s exposure to price risk in this area is not significant.
Selected types of commodity risk (including currency risk) to which PGE Group is exposed:
| Risks |
Description |
Example of exposure source |
| Risk of changes in electricity prices |
- PGE Group has a natural long position due to its generation assets and a lack of possibility to place its production on the market at a pre-determined price.
|
- Cost to generate electricity;
- Price of electricity sale contracts to retail clients;
- Price of transactions to buy/sell energy on the wholesale market;
|
| Risk of changes in the prices of property rights arising from certificates of origin for electricity |
- PGE Group has a net short position resulting from the obligation to surrender property rights arising from certificates of origin for electricity related to the sale of electricity to end users.
|
- Price of transactions to buy/sell property rights on the wholesale market.
|
| Risk of changes in prices of CO2 emission allowances |
- Risk related to changes in the prices of CO2 emission allowances in EUR and risk of changes in EUR/PLN exchange rate;
- PGE Group has a short position given its electricity generation at units participating in the scheme.
|
- Use of generation sources not as planned due to their varying emission levels;
- Uncertainty with regard to volume of free allowances received in scheme;
- Price of transactions to buy/sell CO2 emission allowances on the wholesale market;
|
| Risk of fuel price changes (including hard coal, natural gas, biomass, heating oil) |
- Risk of commodity price changes, including commodities denominated in foreign currency (or indexed to foreign currency) and foreign currency risk;
- PGE Group has a short position due to its need to purchase fuel on the market.
|
- Price of transactions to buy/sell fuel on the wholesale market;
|
| Long-term volume risk |
- Risk related to changes in demand for electricity in the National Power System.
|
- Macroeconomic situation, especially in energy-intensive industries;
- Technological changes, especially in energy efficiency;
- Climate changes;
- Regulations, including preferences for specific sectors of the energy industry;
- Degree of integration with foreign power systems.
|
| Short-term volume risk |
- Risk related to changes in planned electricity sales volumes as a result of changes in end users’ demand for electricity.
|
- Trends among retail clients concerning changes in energy providers;
- Regulations, including those pertaining to the opportunity to change energy providers;
- Short-, mid-term weather changes;
- Risk associated to the model for planning demand for energy and quality of source data used in planning.
|
PGE Group has a strategy for hedging key exposures in trading electricity and related products adequately to the level of risk appetite over a mid-term horizon. The level of hedging for an open position is set taking into account fluctuations in electricity and related product prices, liquidity of specific markets as well as the financial situation of the Group and the Group’s strategic objectives.
PGE Group’s exposure to commodity price risk (as regards raw materials) reflects the volume of external purchases of each raw material, as presented in the table below:
| COMMODITY |
Year ended December 31, 2019 |
Year ended December 31, 2018 |
Tonnage – external purchase (in thousand tonnes)
|
Purchase costs (PLN million)
|
Tonnage – external purchase (in thousand tonnes)
|
Purchase costs (PLN million)
|
| Hard coal |
11,105 |
3,465 |
12,127 |
3,051 |
| CO2 emission allowances for captive use |
39,539 |
1,477 |
38,835 |
1,714 |
| Natural gas [m3 000s] |
1,203,724 |
918 |
1,131,074 |
826 |
| Biomass |
560 |
144 |
467 |
107 |
| Fuel oil |
61 |
111 |
60 |
117 |
| TOTAL |
|
6,115 |
|
5,815 |
