Perspectives of the Company

• Forecast of the European Commission for Eurozone assumes a 8.7% decline in GDP growth in 2020.
• Slump in industrial production in Eurozone (-20.9% y/y) in May.
• PMI for the industry in Eurozone: in June 2020: 47.4 points (in May 2020: 39.4 points) still points to economic slowdown.

The interest rates of central banks in most developed economies are at a very low or negative level. In the situation of a recession, the problem may be the lack of tools for further monetary stimulation. The risk of introducing barriers to international trade may translate into lower dynamics of global GDP.

• Reduced level of consumption may limit exports of goods from Poland, translating into lower demand for electricity in Poland.
• Recession in Eurozone means less demand for fossil fuels and, as a result, a fall in fuel prices for the PGE Group.
• Economic slowdown may also leads to lower emission of carbon dioxide, which may affect the reduction of the price of emission allowances in the EU ETS system.

The main growth drivers were domestic demand and investments. However, at the end of the year, the growth of private consumption and net exports decreased.

The forecasts of the National Bank of Poland assume a plunge in GDP growth in 2020 and recovery in 2021:

• 2020: -4.6%,
• 2021: 4.3%.

Among numerous warning signals, the following is indicated:

• Plunge of PMI index for industry as results of lockdown of the economy down to 31.9 points in April 2020 indicates a slowdown in industry. It is also its lowest historical level. In June 2020 PMI index recovered to 47.2 points, but still indicates economic slowdown.
• Negative growth dynamics in the Euro area.
• Expected slowdown in public investment and absorption of EU funds.

• In view of new efficient generation capacities to enter the power system, a lower demand growth may translate into a lower electricity price on the wholesale market.
• The increase in price indicators for construction and assembly works, as well as the cost pressure in the specialist construction segment may result in a real increase in investment outlays and costs of external services.
• Achieving GDP growth at the level of forecasts should translate into a further decrease in domestic energy demand (depending on weather conditions) and have a negative impact on the load on
• generation units, as well as distribution and sales volumes.

Growing import of energy results in lower demand for coal in Poland

At the same time, after the commissioning of new high-efficiency generating units, a decrease in the consumption of coal for the needs of electricity production is expected.

A systematic increase in natural gas demand in Poland and the region is expected in the perspective of new investments, in blocks fired with this fuel and the high-efficiency cogeneration unit, as well as a gradual change in the fuel mix in Germany.

Simultaneous development of gas supply possibilities to Poland (extension of LNG terminal, Baltic Pipe project, infrastructure projects of LNG exporters).

• Lower demand for coal from energy sector affects the coal prices in Poland. Lower prices of hard coal exert a downward pressure on electricity prices and margin achived by PGE on lignite generation.
• Currently, the low prices of natural gas and raising prices of CO2 make gas fuel competitive not only with hard coal but also with lignite.

• Increasing competitiveness of new renewable energy sources affects their development and limits the load factor of older conventional units.

• The falling cost of offshore technologies allows it to be used as an option for the PGE Group development.

• Commercialization of energy storage on an industrial scale will enable better use of renewable energy, supplementing conventional capacity as a balancing system.

• Along with the development of prosumer energy, the variability of grid working conditions on the local level increases, which means the need to invest in infrastructure (connections, upgrades), while limiting the volume of distributed electricity.
• The development of electromobility will increase the demand for electricity, especially in the night low period, however it requires investments in the development of network infrastructure and charging points.

• The idea of ​​zero-emission transport as an additional factor affecting the development of renewable energy.

• The possibility of local energy balancing between intelligent homes, electric vehicles and distributed installations, as well as optimization of consumption. Greater customer requirements for energy companies and the need to adapt the product offer to expectations.

• The increase in the amount of data to be processed. Greater precision in forecasting energy demand, new possibilities in the field of sales and production management. Costs related to the development of IT infrastructure and digital competences.

• The possibility of developing DSR services.
• The requirement of competitiveness of generating units not only on the domestic market, but more honestly – on the regional market.
• Automation is the opportunity to more fully utilize human potential and the chance to address the problem of intergenerational gap.