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25.1.2 Interest rate risk

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25.1 Market risk

25.1.1 Commodity risk

Commodity risk is related to the possibility of deterioration in the financial result in the commercial area due to changes in commodity prices.

The exposure of the PGE Capital Group to the commodity price risk concerns first of all the following commodities:

  • electricity;
  • CO2 emission allowances;
  • origin rights related to certificates of origin for electricity;
  • guarantees of origin;
  • hard coal;
  • natural gas;
  • biomass and other fuels.

The PGE Capital Group owns lignite mines that supply 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 (exclusive of applied risk hedging strategies)

Risk Description Example of exposure source
Risk of changes in electricity prices
  • The 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.
  • The level of margin generated
    as a result of changes in electricity prices and electricity generation costs;Price of electricity sale
    contracts to retail customers;Price of transactions
    to buy
Risk of changes in the prices of origin energy rights arising from certificates of origin for electricity
  • The PGE Group has a
    net short position resulting from the obligation to surrender origin energy
    rights arising from certificates of origin for electricity related to the sale of electricity to end users.
  • Price of transactions
    to buy/sell origin energy 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 the EUR/PLN exchange rate;
    The PGE Group has a short position given its electricity generation at units participating in the EU-ETS scheme.
  • Use of generation sources not as planned due to their varying emission levels;
    Price of transactions to buy/sell CO2 emission allowances on the wholesale market.
Risk of electricity production fuel price changes (including hard coal, natural gas, biomass, heating oil)
  • Risk of commodity price changes, including commodities denominated in foreign currencies (or indexed to foreign currencies) and foreign currency risk;The 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 relating to changes in demand for electricity in the National Power System and the long-term risk of PGE CG generating units being replaced, with respect to meeting this demand, by generating units with lower generation costs (in particular renewable energy sources).
  • Macroeconomic situation, especially in energy-intensive industries;Technological changes, particularly in energy efficiency and the development of distributed power generation (renewable energy sources);Climate changes;Regulations concerning the ESG area, including preferences for specific sectors of the power generation industry;Degree of integration with foreign energy systems.
Short-term volume risk
  • Risk relating to changes in the planned volume of electricity sales as a result of changes in customers’ demand for electricity or short- and medium-term substitution of the PGE Capital Group’s generating units by generating units with lower generation costs (in particular renewable energy sources) in meeting this demand.
  • Trends among retail clients concerning changes in energy suppliers;Regulations, including those pertaining to the opportunity to change energy suppliers;Short-, mid-term weather changes;Short-term changes in the availability of supply from renewable energy sourcesRisk related to the model for planning demand for energy and quality of source data used in planning.

The PGE Group follows a strategy of securing its key exposures in the area of electricity and related products trading; it corresponds to appetite for risk in a mid-term perspective. The level of hedging for an open position is set taking into account the variability of prices of electricity and related products, the liquidity of specific markets, the financial position of the Group, as well as the Group’s strategic objectives.

The PGE Capital Group’s exposure to the commodity price risk (in respect of raw materials) is determined by the volumes of external purchases of individual raw materials. These volumes are presented in the table below:

COMMODITY Year ended 31 December 2023 Year ended 31 December 2022
Tonnage – external purchase
(thousand tonnes)		 Purchase costs
(PLN million)		 Tonnage – external purchase
(thousand tonnes)		 Purchase costs
(PLN million)
Coal 10,656 8,942 11,348 8,085
CO2 emission allowances for captive use 81,305 28,605 48,343 11,765
Natural gas [thousand m3] 1,142,362 2,584 832,945 1,570
Biomass 789 386 491 196
Heating oil 64 188 72 272
TOTAL – 40,705 – 21,888