3.3 Description of assumptions for the Renewables segment

The impairment tests were performed as at December 31, 2019 with respect to cash-generating units by determining their recoverable amount. The recoverable amount of the analysed assets was determined based on value in use estimated using the discounted net cash flow method, based on financial projections prepared for the assumed useful life of the particular CGU for wind farms or the period from 2020 to 2030 for other CGUs. For CGUs with expected periods of economic useful lives beyond 2030, a residual value was determined for the remaining service time. According to the Group, financial projections longer than five years are justified because the property, plant and equipment items used by the Group have significantly longer useful lives and also due to significant and long-term effects of projected changes in the regulatory environment, taken into account in the detailed projection.

Detailed assumptions regarding the segment

Presented below are the key assumptions having impact on estimates of the value in use of the tested CGUs:

• recognition of the following branches as separate CGUs:
• pumped-storage power plants (a single CGU for individual power plants due to their common economic character);
• other hydro power plants (a single CGU for individual power plants due to their common economic character);
• individual wind farms (separate CGUs for individual power plants due to different period of operation);
• production of electricity and energy origin rights was estimated based on historic data, taking into the availability of individual units;
• unit availability was estimated based on repair plans, taking into account statistical failure rates;
• revenue from regulatory system services was based on existing bilateral agreements with PSE S.A.;
• recognition of cash flows related to contracts covered by the dispute with Enea S.A. and Energa Obrót S.A., in the amount resulting from the contract;
• maintaining production capacities as a result of replacement-type investments;
• assumption of the weighted average cost of capital after tax (WACC) over the projection period of 7.0%.

Based on the impairment test of non-current assets, the Group found it necessary to reverse impairment allowances on wind farm assets as at the reporting date.

The table below shows the value of reversals of impairment losses as at the end of 2019 with respect to wind farms.

Sensitivity analysis

The sensitivity analysis indicated that the estimated value in use is significantly affected by factors such as WACC, prices of electricity and prices of energy origin rights.

The effect of changes in factors having a material impact throughout the projection period on the projected cash flows, and therefore on the estimated value in use, is presented below.

A 1% decrease in electricity price would decrease the value in use by PLN 49.3 million.

A 0.5 p.p. increase WACC would decrease the value in use by PLN 0.8 billion.

A 1% decrease in prices of energy origin rights would decrease the value in use by PLN 9.2 billion.