25.1.3 Currency risk
Currency risk is related to the possibility of deterioration in the financial result due to changes in currency exchange rates.
The main sources of the exposure of the PGE Capital Group to the currency risk are set out below:
- capital expenditure denominated in or indexed to foreign currencies;
- debt denominated in foreign currencies;
- purchase and sales of electricity denominated in foreign currencies (if applicable);
- fees denominated in or indexed to foreign currency exchange rates on account of purchase of transmission capacities (if applicable);
- sales and purchase of CO2 emission allowances and gas as well as purchase of hard coal and other fuels denominated in or indexed to foreign currencies;
- expenditure related to current operation of generation assets denominated in or indexed to foreign currencies;
- investment financial assets denominated in foreign currencies;
- other operating cash flows denominated in or indexed to foreign currencies.
The PGE Capital Group controls the currency risk through a system of limits relating to the maximum potential loss due to changes in exchange rates with respect to the consolidated currency risk exposure of the Group’s companies. The currency risk measure is based on the value-at-risk methodology understood as a product of the amount of the absolute currency position and the value of a potential change in exchange rates.
Moreover, the PGE Capital Group establishes hedging strategies with respect to its exposure to the currency risk in the form of hedging ratios subject to approval of the Risk Committee and the Management Board. The implementation of hedging strategies and the level of currency risk are subject to monitoring and are reported regularly to the Risk Committee.
PGE Capital Group companies enter into currency exchange rate derivative transactions only for the purpose of hedging identified risk exposures.
The regulations in force in the PGE Capital Group do not allow, with regard to currency exchange rate derivative transactions, entering into speculative transactions, i.e. transactions which would be aimed at generating additional profit resulting from changes in the level of foreign currency exchange rates, while exposing the Group to the risk of incurring a potential loss on this account.
In view of the adopted currency risk management strategy based on minimising and hedging currency risk exposures, the cost of servicing liabilities in foreign currencies, in the medium and long term, under conditions of escalating risks related to Russia’s aggression in Ukraine, did not change significantly, as a result of hedging activities implemented in accordance with the previously adopted hedging strategies.
The Group’s exposure to currency risk by class of financial instruments
| Total value in statements in PLN | CURRENCY POSITION AS AT 31 DECEMBER 2023 | ||||||
|---|---|---|---|---|---|---|---|
| EUR | DKK | USD | |||||
| currency | PLN | currency | PLN | currency | PLN | ||
| Trade receivables and other financial receivables: | 10,770 | 184 | 802 | – | – | – | – |
| Cash and cash equivalents | 6,033 | 283 | 1,229 | 108 | 63 | – | – |
| Derivatives, including: | 394 | 478 | 2,078 | – | – | 355 | 1,396 |
| Measured at fair value through profit or loss | 159 | – | – | – | – | 355 | 1,396 |
| Hedging instruments | 204 | 478 | 2.078 | – | – | – | – |
| Other assets measured at fair value through profit or loss | 31 | – | – | – | – | – | – |
| FINANCIAL ASSETS | – | 945 | 4,109 | 108 | 63 | 355 | 1,396 |
| Bank credits, loans, bonds and leases | 14,897 | 140 | 608 | – | – | 38 | 151 |
| Trade and other payables measured at amortised cost | 8,133 | 64 | 278 | – | – | – | – |
| Derivatives, including: | 2,033 | 5,231 | 22,745 | – | – | 782 | 3,076 |
| Measured at fair value through profit or loss | 468 | 47 | 205 | – | – | 782 | 3,076 |
| Hedging instruments | 1,565 | 5,184 | 22,540 | – | – | – | – |
| FINANCIAL LIABILITIES | 5,435 | 23,631 | – | – | 820 | 3,227 | |
The book value of derivative instruments is the result of valuation to fair value. The value of exposure to currency risk for forwards represents their nominal amount in a given currency. The value of exposure to currency risk for CCIRSs represents the value of discounted cash flows of the currency leg in a given currency.
| Total value in statements in PLN | CURRENCY POSITION AS AT 31 DECEMBER 2022 | ||||||
|---|---|---|---|---|---|---|---|
| EUR | DKK | USD | |||||
| currency | PLN | currency | PLN | currency | PLN | ||
| Trade receivables and other financial receivables: | 9,306 | 284 | 1,329 | – | – | – | – |
| Cash and cash equivalents | 11,887 | 397 | 1,864 | 90 | 57 | 2 | 5 |
| Derivatives, including: | 1,573 | 2,015 | 9,450 | – | – | 344 | 1,514 |
| Measured at fair value through profit or loss | 771 | – | – | – | – | 344 | 1,514 |
| Hedging instruments | 736 | 2,015 | 9,450 | – | – | – | – |
| Other assets measured at fair value through profit or loss | 28 | – | – | – | – | – | – |
| FINANCIAL ASSETS | – |
2,696 |
12,643 | 90 | 57 | 345 | 1,519 |
| Bank credits, loans, bonds and leases | 8,936 | 141 | 661 | – | – | 9 | 40 |
| Trade and other payables measured at amortised cost | 7,185 | 381 | 1,784 | – | – | 117 | 514 |
| Derivatives, including: | 1,934 | 3,871 | 18,155 | – | – | 1,164 | 5,124 |
| Measured at fair value through profit or loss | 1,230 | – | – | – | – | 1,164 | 5,124 |
| Hedging instruments | 704 | 3,871 | 18,155 | – | – | – | – |
| FINANCIAL LIABILITIES | 4,393 | 20,600 | – | – | 1,290 | 5,678 | |
The book value of derivative instruments is the result of valuation to fair value. The value of exposure to currency risk for forwards represents their nominal amount in a given currency. The value of exposure to currency risk for CCIRSs represents the value of discounted cash flows of the currency leg in a given currency.