Business segments
We are the largest vertically integrated producer, distributor (in terms of area) and supplier of electricity in Poland and the largest producer of heat. We operate along the entire value chain: we produce electricity and heat at our power plants and CHP plants, and then supply and sell them to our customers throughout Poland, both households and businesses, institutions and local authorities.
PGE is also a leader in railway energy, transmitting and selling energy to the catenary network. In addition, the PGE Group has an area for the management of combustion by-products (‘UPS’) within the segment: (GOZ). The use of UPS allows for the reduction of the extraction of natural resources, the reduction of environmental impact and the reduction of CO2 emissions. In this way, the PGE Group is implementing measures to make energy generation waste-free, in line with the idea of the and focused on environmental protection.
Conventional Generation
This segment includes lignite mining and generation of electricity in conventional sources.
1Managerial perspective
2After adjusting for one-offs
The main source of revenue in the Conventional Generation segment is revenue from the sale of electricity on the wholesale market, based on electricity prices that are shaped by supply and demand mechanisms, taking into account the variable costs of generation.
At the same time, the segment’s key cost items, given their size and volatility, and thus their impact on operating results, are the fees for emissions and cost of production fuels, mainly hard coal. Lignite-based production, which is of key significance for the Group, is based on own mines, therefore its cost is relatively stable and reflected mainly in fixed-cost items, i.e. personnel costs, third-party services and depreciation.
Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the , constitutes a significant item in the segment’s revenue in 2021. PGE GiEK S.A.’s power plants receive fees for performing the capacity obligation (a Capacity Market entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat). Capacity Market revenue compensated for revenue from ancillary services. The cold intervention reserve and operational capacity reserve services were discontinued, while revenue from capacity reallocation remained.
In addition, this segment generates revenues from sales of heat produced at industrial plants. Under the provisions of the Emergency Measures Act in 2023, from December 2022, electricity generating entities are required to make a contribution to the Price Difference Payment Fund.
District Heating
Core business of the District Heating segment includes production of electricity and heat from sources as well as distribution of heat. The District Heating segment is the largest producer of heat in the country. Production is mainly based on hard coal and natural gas.
1Managerial perspective
2After adjusting for one-offs
The District Heating segment is the largest producer of heat in the country. Production is mainly based on hard coal and natural gas.
As in the case of Conventional Generation, this segment’s significant revenues are revenues from electricity sales, however, they are usually directly related to generation of heat which in turn depends on demand that is highly seasonal and depends on external temperatures. This is why, in contrast to industrial power plants in Conventional Generation, as a rule, CHP plants do not have any considerable impact on the development of prices for electricity on the wholesale market.
Revenues from the sale and distribution of heat are regulated revenues. Energy companies independently set tariffs and present them to the President of the Energy Regulatory Office (the “ President”) for pproval. Heat production at PGE Group takes place in units, which tariffs for heat are calculated using a simplified approach (compared to tariffs based on a full cost structure), based on reference prices, conditioned on average sales prices for heat generated in units with specific fuel other than units. They are published each year by the President. Tariffs for heat production for units in a given year thus reflect changes in the costs of heat-generation units (not co-generation units) in the previous calendar year. The cost approach is applied in the case of tariffs for heat distribution, which allows to cover justified costs (mainly the costs of heat losses and property tax) and a return on invested capital, in line with guidelines from the President. Distribution tariffs for heat are in place at branches in Gorzów and Zgierz, as well as by KOGENERACJA S.A., PGE Toruń and Zielona Góra CHP.
Generation of heat and electricity is directly related to key variable costs of the segment, i.e. the cost of production fuel used (in particular, hard coal and gas) and the cost of fees for emissions and contribution to PDP fund.
Electricity production in high-efficiency is additionally remunerated. CHP plants receive support at a level covering increased operating costs related to production. The support mechanism in the form of certificates is in place also for -fired generating assets. This type of production is additionally remunerated by awarding origin certificates, i.e. green certificates, the sale of which generates additional revenue. Within the segment such revenues is obtained at Szczecin CHP plant and unit in Kielce CHP.
Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the National Power System, constitutes a significant item in the segment’s revenue. CHP plants receive fees for performing the capacity obligation (a Capacity Market entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat).
Weather conditions substantially affect the segment’s results. Temperatures directly shape the level of heat demand. Simultaneously, the level of heat production determines the level of electricity production in co-generation, which is an additional source of revenues that decisively affects the CHP plant’s profitability.
Under the provisions of the Emergency Measures in 2023 Act, from December 2022, electricity generating entities are required to make a contribution to the Price Difference Payment Fund.
Renewables
This segment is involved in the generation of electricity from renewable sources and in pumped storage power plants.
2After adjusting for one-offs
The Renewables segment is based mainly on revenues from the sale of electricity, however contrary to production at industrial plants within the Conventional Generation segment, this revenue is subject to a larger degree to changes in weather conditions and prices on the spot market due to the renewables sales model in place.
Electricity output volume translates into production of property rights (green certificates) and revenue from the sale of energy origin certificates obtained by the segment’s assets, excluding hydropower plants over 5 MWe.
Revenue from the Capacity Market, a mechanism introduced to prevent electricity shortages in the National Power System, constitutes a significant item in the segment’s revenue, starting from 2021. Selected power plants in the Renewables segment receive fees for performing the capacity obligation (a Capacity Market Entity being on standby to supply electricity to the system and the obligation to supply specified capacity to the system when the system is under threat). Capacity Market revenue compensated for revenue from ancillary services. The readiness intervention reserve service was discontinued.
On the cost side, the most important items include: use of energy to pump water at pumped-storage plants, depreciation of segment assets and third-party services, mainly the repair services. Property tax and employee wages also constitute a significant cost item in this segment. Under the provisions of the Emergency Measures in 2023 Act, from December 2022, electricity generating entities were required to make a contribution to the Price Difference Payment Fund.
Distribution
We are the second largest energy distributor in terms of number of customers, with approximately 25% share in the Polish energy distribution market. Our distribution area covers almost 40% of Poland. Using over 300,000 km of power grids, we supply electricity to approximately 5.7 million customers.
Core business of the segment includes supply of electricity to final off-takers through the grid and HV, MV and LV infrastructure.
1Managerial perspective
2After adjusting for one-offs
Segment revenue is based on a tariff for electricity distribution services, which is approved by the ERO President every year at company request what means that it is regulated.
The takes into account reasonable operating costs related to the distribution system operator’s activities, depreciation costs, costs of taxes on distribution assets, costs related to the necessity to cover network losses on electricity distribution or the purchase of transmission services from the TSO. At the same time, the reflects the costs transferred in fees such as the RES fee, the transition fee, the co-generation fee and the capacity fee.
The key element shaping the Distribution segment’s result is return on company’s invested capital. For this purpose, the so-called Regulatory Asset Base (RAB) is determined and calculated on the basis of incurred investment costs including depreciation of assets. The RAB is the basis for calculating the return on capital employed, using the weighted average cost of capital (WACC), which is determined by the President in the process. It is within the competence of the President to differentiate the remuneration from capital employed, taking into account the prioritisation of the DSO’s development objectives, so that priority investment projects can be remunerated using an additional reinvestment bonus mechanism. In addition, return on capital depends on the achievement of individual quality targets set by the President for performance indicators including: interruption time, interruption frequency and connection time.
As part of the government’s Solidarity Shield, a package of laws was adopted in 2022 to protect consumers, including with respect to the pricing of electricity distribution services. Under its terms, for some eligible customers, within certain limits, the prices of electricity distribution services in 2023 were frozen at the 2022 price level. DSOs are entitled to compensation to cover the application of reduced prices for distribution services. The compensation constitutes the difference between the amount of charges billed for electricity distribution services resulting from the 2023 rates for electricity distribution services and the amount of charges billed for electricity distribution services resulting from the 2022 rates for electricity distribution services up to the maximum limit. The entity responsible for the payment of compensation is the company Zarządca Rozliczeń S.A.
Railway Energy Services
The segment include activities by the PGE Capital Group in field of distribution and sale of electricity to railway operators and customers functioning within the railway system, the sale of fuels, as well as the maintenance and modernisation of overhead contact line network, together with other auxiliary services. The data presented below concerns period from April 3, to December 31, 2023.
2After adjusting for one-offs
One of the primary sources of revenue in the Railway Energy Services segment is the sale of electricity. This revenue is derived from the supply of energy to railway operators and entities connected to the segment’s distribution network. Rail operators are additionally the recipients of fuel sales services.
Another important source of revenue is the revenue form the distribution of electricity. Similarly to the Distribution segment, this revenue is subject to applicable regulations and based on a approved by the . In principle, this ensures a transfer of reasonable costs and a return on the capital invested in the distribution network. The activities of the Railway Energy Services segment as a distribution network operator are limited to the areas along railway lines throughout the country.
The most significant cost items of the segment include the purchase of the distribution service, as well as the purchase of electricity and fuels.
The scope of the Railway Energy Services segment’s activities comprises works related to the maintenance of the overhead contact line network and the performance of local modernisation works on this network. The segment also provides power engineering services outside the ranges of the overhead contact line network, such as equipment maintenance, as well as the construction and maintenance of railway traffic control systems. In this type of activity, the most significant costs are personnel costs.
Furthermore, under the provisions of the Act on Extraordinary Measures in 2023, a system of compensating trading companies for the application of maximum prices and discounts was introduced from December 2022. At the same time, electricity trading companies are required to make contributions to the PDP Fund.
Supply
Supply segment activities include Group’s wholesale and retail trading of electricity. Wholesale trading includes mainly electricity trading on behalf of and for Conventional Generation segment, District Heating segment and Renewables segment.
1Managerial perspective
2After adjusting for one-offs
5Data for PGE Obrót S.A.
As part of retail-market activities, the key source of segment’s revenue is sale of electricity to final customers.
This is sale to business and institutional clients, which constitutes more than 70% of the sales volume, and to retail clients. The segment’s revenue also includes the sale of natural gas and fuels, mainly: pulverised coal and coarse coal, which is sold by PGE Paliwa sp. z o.o.
Additionally, based on the provisions of the Act on Emergency Measures in 2023, a system of compensation for trading companies for maximum prices and discounts was introduced from December 2022. At the same time, electricity trading companies are required to make a contribution to the Price Difference Payment Fund.
Electricity sales are matched by the costs to purchase electricity on the wholesale market and costs to redeem certificates as part of the support system for renewable sources and energy efficiency.
As part of the activities on the wholesale market, purchases are made for the needs of the Conventional Generation and District Heating segments, which is reflected both in terms of costs and revenues. At the same time, a significant revenue item is the provision of services to the Group’s companies related to the management of purchases and sales of electricity and related products.
The Supply segment also incurs costs related to the operations of the Group’s corporate centre.
Circular economy
The activities of the segment include the provision of comprehensive services in the field of management of combustion by-products (“UPS”), provision of services in auxiliary areas for electricity and heat producers and the supply of materials based on UPS.
The management of by-products of combustion (UPS) in the PGE Group, leads to the use of waste as full-value substances managed in other branches of the economy (cement industry, construction, road building, mining), and consequently to a reduction in the amount of final waste generated.
2After adjusting for one-offs
The main revenue source in the Circular Economy segment is revenue from the economic use of combustion by-products, which includes revenue from the sale of products manufactured on the basis of combustion by-products in internal production
processes and the sale of services related to the management of combustion by-products.
The level of revenue depends on multiple factors, including commercial potential for selling combustion by-products, in processed and unprocessed form, seasonality of industries purchasing combustion by-products, seasonality of suppliers of combustion by-products (power plants, combined heat-and-power plants), volumes collected, efficiency of production infrastructure, capabilities for storing combustion by-products as materials inventories intended for production, as well as market conditions..
Revenue from other services includes revenue from the sale of continuous and ad hoc services provided to electricity and heat producers, including the operation of ash handling systems and equipment, operation of technological lines, operation of mill facilities and operation of fuel and combustion by-product storage sites.
| Mg thousand | 2023 | 2022 |
|---|---|---|
| Volume of combustion by-products received | 3,508 | 3,629 |
Other Operations
The segment’s activities include the provision of services to the PGE Capital Group, such as organising the raising of financing in the form of Eurobonds (PGE Sweden), the provision of IT, accounting and HR services, transport services and investments in start-ups (PGE Ventures sp. z o.o.).
In addition, the segment’s structures include two companies responsible for the construction of new, low-emission generation units. PGE Gryfino 2050 sp. z o.o. is responsible for construction of gas and steam units in Dolna Odra power plant and Rybnik 2050 sp. z o.o. is responsible for construction of low-emission unit on the premises separated from Rybnik power plant. This is the reason for the significant capital expenditure reported by the segment. Starting with the report for the first quarter of 2024, low-carbon generation units are presented in the separate segment Low-carbon Energy.
2After adjusting for one-offs.