Sustainable finance
The balance that we follow in our activities also guides us in the financial sphere. Our priority is to maintain a stable level of debt while implementing an ambitious transformation plan.
Assumptions for financing the investment program
Implementation of investments together with partners
Maximizing the utilisation of domestic and EU aid funds for the energy transition
Using the potential of green debt financing
Limited leverage increase while maintaining the rating
Investments in the project finance formula
Financing model and liquidity management
The PGE Capital Group’s liquidity management consists, among other things, in planning and monitoring operating cash flows in the short and long terms as well as taking measures to ensure funds for the conduct of the PGE Capital Group’s activities while minimising costs.
Long-term liquidity management allows for the determination of the PGE Capital Group’s ability to incur debt and supports decisions on financing long-term investments.
Periodic planning and monitoring of liquidity of the PGE Capital Group makes it possible to secure funds for any liquidity gaps by allocating funds among the PGE Group companies (cash pooling) as well as using external financing.
The PGE Capital Group uses a central financing model according to which, as a matter of principle, external financing agreements are entered into by PGE S.A. Long-term debt may also be incurred by PGE Sweden AB (a Swedish special purpose company issuing Eurobonds). PGE Capital Group companies have long-term debt under preferential financing from such entities as the National Environmental Protection and Water Management Fund or the Provincial Environmental Protection and Water Management Fund. Furthermore, subsidiaries within the PGE Capital Group use various sources of intragroup financing such as loans, bonds or bank account consolidation agreements and agreements for cash management in a group of accounts.
27 PGE Group companies participate in cash pooling.
The main objective of cash pooling is to ensure current liquidity in the Capital Group, while limiting the costs of external short-term financing and minimising the financial costs associated with maintaining surplus cash balances on bank accounts. Thanks to the functioning of the cash pooling structure, Group companies with short-term shortages of funds can use the funds of their sister companies with financial surpluses without the need to resort to external financing.
PGE Group’s existing financing model takes into account the use of funds from its core activities, debt financing in the form of commercial bank credit facilities and bond programmes, credit facilities from Bank Gospodarstwa Krajowego (“BGK”), credit facilities from multilateral institutions such as the European Investment Bank (“EIB”) or the European Bank for Reconstruction and Development (“EBRD”) as well as in the form of preferential financing.
Financing model in the PGE Group:
The most important available external financing sources for PGE Group at December 31, 2023 are as follows:
PLN 1.5 billion
total value of 2 credit facilities from BGK as part of the “Inwestycje polskie” (“Polish investments”) programme – amount withdrawn: PLN 0.8 billion.
PLN 2.5 billion
term loan from BGK – amount withdrawn: PLN 0 billion.
PLN 5.4 billion
total value of 4 credit facilities from the EIB – PLN 4.9 billion were used for projects related to distribution network modernisation and expansion, while PLN 0.5 billion for financing and re-financing of the construction of cogeneration units – amount withdrawn: PLN 5.1 billion.
PLN 0.3 billion
green facility loan of from EIB for financing of “green projects” – amount withdrawn: PLN 0.3 billion.
PLN 0.5 billion
credit facility from the EBRD to support implementation of a long-term programme for distribution network development and modernisation – amount withdrawn: PLN 0.3 billion.
PLN 2.3 billion
revolving syndicated loan – amount withdrawn: PLN 1.5 billion. As a result of the annex signed on February 6, 2024, the limit was increased to PLN 3.2 billion.
PLN 5.0 billion
domestic bond programme limit (not committed) – amount withdrawn: PLN 1.4 billion.
PLN 2.0 billion
Euro Medium Term Note (EMTN) bond programme limit (not committed) – amount withdrawn: EUR 138 million.
Preferential loans.
Current-account overdraft facilities.
In 2023, as part of its liquidity maintenance, the PGE Group also used factoring agreements which allowed it to raise additional funds during periods of temporary increased demand for cash.
During 2023, the PGE Group invested surplus cash in bank deposits. Decisions on bank deposits are based on maximising the rate of return with set concentration limits for each bank and the current assessment of the financial standing of the banks requiring a bank to have a short-term rating for deposits at an investment level. All entities with which the PGE Capital Group enters into deposit transactions operate in the financial sector. These are exclusively banks registered in Poland or operating in Poland in the form of branches of foreign banks.
Currently, the most significant bank deposit positions result from the share issue carried out in 2022. Part of PLN 3.2 billion raised has already been used for investments in the areas of renewable energy, decarbonisation of district heating and distribution.
The manner in which funds from the issue are spent is subject to detailed reporting and auditing. The PGE Group uses the funds in accordance with the investment agreement. Cash that will be spent at a later date in accordance with the agreement is invested in bank deposits.
In 2023, the Company and the Group were fully capable of settling their liabilities as they fall due.
1 In addition to regular repayments of loan installments, PGE Sweden AB’s EUR 138 million Eurobond and domestic bonds of about PLN 1 billion are set for 2029.
Effective use of available funding sources
The ongoing transformation of the Polish energy sector, including PGE, will be an extremely capital-intensive undertaking. The PGE Group’s capital expenditures by 2030 will reach even PLN 75 billion. Therefore, skilful use of financing sources will be very important in this process – funds available for Poland from funds under the Cohesion Policy, the Recovery and Resilience Facility, the Just Transition Fund, React EU or the Modernization Fund may exceed EUR 45 billion, and the funds available directly from the European Commission (guarantees from Invest EU, Innovation Fund, Horizon Europe, CEF) is another EUR 120 billion.
In the case of the power sector, financing can be obtained in areas such as:
Renewable energy sources
District and individual heating
Energy and heating infrastructure
Energetic efficiency
Employees training
The PGE Group intends to use the available sources of financing from the assistance funds available to Poland in the field of energy transformation. PGE’s ambition is that the share of obtained financing should cover at least 25%. the Group’s investment needs.
In addition, we will consider other external sources of financing that may support PGE’s transformation towards achieving climate neutrality in 2050 – such as „green” bonds or ESG financing.
Limiting exposure to market changes and a stable return on investments based on dedicated support mechanisms, as well as the use of off-balance sheet financing will have a positive impact on the company’s risk profile and will support building shareholder value.
Management of counterparty credit risk
Counterparty credit risk management in the PGE Group in relation to trading activities translates into the area of working capital management and is carried out, among others, on the basis of adopted procedures in the area of counterparty financial standing assessment and setting limits (for trade credits).
In the process of granting a trade credit, the creditworthiness of counterparties is assessed (on the basis of a financial analysis carried out, taking into account the previous history of cooperation), as a result of which a credit limit is set.
In justified cases, collateral is established with respect to a counterparty, which mitigates the risk of default in payment. In addition, periodic verification of counterparties’ financial standing and the amount of credit limits granted and adequacy of collaterals accepted is carried out.
Additional information on credit risk management is described in note 25.3 to the consolidated financial statements.
Management of the debt collection process
In the Group, debt collection is managed on the basis of the Act on Prevention of Excessive Late Payment in Commercial Transactions and the General Procedure for Management of Trade Receivables in the PGE Group. Group companies monitor the payment of receivables on an ongoing basis, apply early debt collection and use the services of Economic Information Offices and business intelligence agencies.
PGE’s ratings
PGE S.A. holds ratings assigned by two rating agencies: Fitch Ratings Ltd. (“Fitch”) and Moody’s Investors Service Limited (“Moody’s”).
| Details | Moody’s | Fitch Ratings |
|---|---|---|
| Long-term company rating | Baa1 | BBB+ |
| Rating outlook | stable | stable |
| Date of rating assignment | September 2, 2009 | September 2, 2009 |
| Date of the latest rating confirmation | January 13, 2023 | January 16, 2024 |
| Poland long-term rating | A2 | A- |
| Rating outlook | stable | stable |
At the beginning of 2024 Fitch Ratings affirmed its long-term rating of PGE S.A. at the investment grade level of BBB+, with stable outlook.
In its January 2024 announcement, Fitch highlights that the rating reflects the business profile of the PGE Group, which is Poland’s largest integrated energy group, based largely on stable regulated revenues from electricity distribution and the capacity market.
PGE Group’s business profile was further positively influenced by the acquisition of the PKP Energetyka S.A. (currently PGE Energetyka Kolejowa S.A.) in April 2023. In Fitch’s assessment, ongoing investments in new generation sources based on gas (Gryfino 2050 and new unit in Rybnik power plant) thanks to 17-year capacity contracts will also improve the future results of the PGE Group.
The rating level and its outlook are also supported by the projected maintenance of limited debt levels in the coming years despite planned large capital expenditure. PGE Group’s electricity generation profile, currently based on coal-fired power plants, for which Fitch expects a significant deterioration in profitability in the medium term, is cited as a potential risk.
Moody’s analysts confirmed the rating of PGE S.A. in January 2023.
According to the opinion issued by this agency, the confirmation of the assigned rating takes into account the leading position on the energy market in Poland, the strategy assuming concentration on the Renewables and Distribution segments after the separation of conventional coal assets and the low leverage ratios.
These factors are offset by uncertainty regarding the implementation of the government’s plan to take over PGE Group’s coal assets, challenges related to revenues resulting from regulations introducing maximum retail prices for electricity, the group’s high exposure to price volatility on fuel markets and large planned capital expenditures absorbing operating cash flow and carrying the risk of timely completion of the investment.
Moody’s also emphasizes the stable revenues from regulated activities (Distribution and District Heating segments), which are responsible for significant share of EBITDA and low leverage ratios.
Both agencies underline affirmation results from strong market position of PGE in the Polish electricity sector. Ratings assigned by both agencies confirm PGE’s long-term credibility on the capital and credit market.
PGE’s rating vs other Polish utilities (as at July 23, 2024)
| Company | Fitch rating and its outlook | Moody’s rating and its outlook | S&P rating |
|---|---|---|---|
| PGE | BBB+ stable | Baa1 stable | n/a |
| Orlen | BBB+ stable | A3 stable | n/a |
| Enea | BBB stable | n/d | n/a |
| Energa | BBB+ stable* | Baa1 stable | n/a |
| Tauron | BBB- stable | n/a | n/a |
| Polska | A- stable | A2 stable | A- stable |
* The issuer rating of Energa was aligned with the rating of the parent company, i.e. ORLEN S.A.