24.3 Fair value hierarchy
Derivative instruments
The Group valuates derivatives at fair value, using valuation models for financial instruments based on publicly available exchange rates, interest rates, discount curves in particular currencies (applicable also for commodities whose prices are denominated in these currencies) obtained from information platforms and active markets. The fair value of derivative instruments is determined based on discounted future cash flows resulting from concluded transactions, calculated on the basis of the difference between the forward price and the transaction price. The valuation of IRS transactions is the difference in the discounted interest flows of a fixed rate stream and a floating rate stream. The valuation of CCIRS transactions is the difference in the discounted flows paid and received in two different currencies. Forward exchange rates are not modelled as a separate risk factor, but are derived from the spot rate and the corresponding forward interest rate for the foreign currency in relation to PLN.
Future developments in interest rates, exchange rates or EUA price levels other than those projected by the Group will have an impact on future financial statements.
In the category of financial assets and liabilities measured at fair value through profit or loss, the Group recognises financial instruments related to trade in emission allowances – currency and commodity forwards, coal purchase and sales contracts, and commodity SWAPs (Level 2). Additionally, the Group presents the CCIRS derivative hedging instrument for foreign exchange and interest rate and the IRS transactions hedging replacing a floating rate in PLN with a fixed rate in PLN (Level 2).
| Assets as at 31 December 2023 |
Liabilities as at 31 December 2023 |
|||
| FAIR VALUE HIERARCHY | Level 1 | Level 2 | Level 1 | Level 2 |
| CO2 emission allowances in trading activities | 1 | – | – | – |
| Hard coal in trading activities | 343 | – | – | – |
| INVENTORIES | 344 | – | – | – |
| Currency forwards | – | 3 | – | 25 |
| Commodity SWAP | – | 65 | – | 14 |
| Contracts for purchase/sale of coal | – | 78 | – | 19 |
| Derivatives embedded in commercial contracts | – | 410 | ||
| Options | – | 13 | – | – |
| DERIVATIVES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | – | 159 | – | 468 |
| CCIRS hedging transactions | – | 4 | – | – |
| IRS hedging transactions | – | 193 | – | – |
| Currency forward – EUR | – | 7 | – | 1,565 |
| HEDGING DERIVATIVES | – | 204 | – | 1,565 |
| Investment fund participation units | – | 31 | – | – |
| OTHER ASSETS / LIABILITIES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS |
– | 31 | – | – |
| Assets as at 31 December 2022 |
Liabilities as at 31 December 2022 |
|||
| FAIR VALUE HIERARCHY | Level 1 | Level 2 | Level 1 | Level 2 |
| CO2 emission allowances in trading activities | 1 | – | – | – |
| Hard coal in trading activities | 1,497 | – | – | – |
| INVENTORIES | 1,498 | – | – | – |
| Currency forwards | – | 3 | – | 111 |
| Commodity forwards | – | 5 | – | 1 |
| Commodity SWAP | – | 95 | – | 71 |
| Contracts for purchase/sale of coal | – | 650 | – | 650 |
| Derivatives embedded in commercial contracts | – | 397 | ||
| Options | – | 18 | – | – |
| DERIVATIVES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | – | 771 | – | 1,230 |
| CCIRS hedging transactions | – | 104 | – | – |
| IRS hedging transactions | – | 459 | – | – |
| Currency forward – USD | – | – | – | 13 |
| Currency forward – EUR | – | 173 | – | 691 |
| HEDGING DERIVATIVES | – | 736 | – | 704 |
| Investment fund participation units | – | 28 | – | – |
| OTHER ASSETS / LIABILITIES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS |
– | 28 | – | – |
Derivatives are presented in note 25.1.2 to these financial statements. During the current and comparative reporting periods, there were no transfers of financial instruments between level 1 and level 2 of the fair value hierarchy.
The terms and conditions of the particular derivatives and other receivables measured at fair value through profit or loss are set out below.
| As at 31 December 2023 | As at 31 December 2022 | Maturity as at | |||
| Value in financial statement in PLN | Par value in original currency |
Value in financial statement in PLN | Par value in original currency |
31 December 2023 | |
| CCIRS – EUR to PLN | 4 | 144 | 104 | 144 | July 2029 |
| Options | 13 | 4 | 18 | 4 | November 2026 |
| Investment fund participation units | 31 | 23 | 28 | 23 | n/d |
| Currency forward, purchase of EUR | 7 | 330 | 173 | 1,961 | December 2025 |
| Currency forward, sale of EUR | 4 | 91 | December 2024 | ||
| Commodity forward, sale of PLN | – | – | 5 | 40 | – |
| Commodity forward, purchase of PLN | – | 35 | – | ||
| IRS – interest rate PLN | 193 | 500 | 459 | 625 | December 2027 |
| 313 | 375 | June 2028 | |||
| 312 | 375 | December 2028 | |||
| – | 1,452 | – | |||
| 1,000 | 1,000 | May 2029 | |||
| 400 | 400 | May 2026 | |||
| Commodity SWAP, purchase of USD | 65 | 11 | 95 | 4 | March 2024 |
| Commodity SWAP, sale of USD | 83 | 114 | March 2025 | ||
| Contracts for purchase – USD | 78 | – | 650 | 10 | – |
| Contracts for sales – USD | 271 | 201 | December 2025 | ||
| Currency forward, purchase of USD | 3 | 2 | 3 | 5 | January 2024 |
| Currency forward, sale of USD | 14 | 48 | June 2024 | ||
| Financial assets | 394 | – | 1,535 | – | |
| Currency forward, purchase of EUR | 1,565 | 5,184 | 691 | 3,899 | December 2026 |
| Currency forward, sale of EUR | – | 28 | – | ||
| Commodity forward – PLN | – | – | 1 | 28 | – |
| – | 29 | ||||
| Commodity SWAP, purchase of USD | 14 | 41 | 71 | 82 | April 2024 |
| Commodity SWAP, sale of USD | 1 | 6 | March 2024 | ||
| Currency forward, purchase of USD | 9 | 33 | 72 | 747 | June 2024 |
| – | 14 | ||||
| Currency forward – USD | – | – | 13 | 105 | – |
| Currency forward, purchase of USD | – | – | 39 | 297 | – |
| Contracts for purchase – USD | 19 | 795 | 650 | 816 | December 2024 |
| Contracts for sales – USD | 94 | – | December 2024 | ||
| Derivatives embedded in commercial contracts | 410 | 337 | 397 | 397 | December 2030 |
| Currency forward, purchase of EUR | 10 | 20 | – | – | October 2025 |
| Currency forward, purchase of EUR | 2 | 11 | October 2026 | ||
| Currency forward, purchase of USD | 2 | 8 | – | – | July 2026 |
| Currency forward, purchase of EUR | 1 | 13 | – | – | November 2026 |
| Currency forward, purchase of EUR | 1 | 3 | – | – | October 2026 |
| Financial liabilities | 2,033 | 1,934 | |||