Risk management
As the Corporate Centre, PGE S.A. creates and implements solutions in the area of integrated risk management architecture. PGE S.A. develops risk management policies, standards and practices. It is at the central level that the company designs and develops internal IT tools supporting processes, the level of risk that the PGE Capital Group is prepared to accept in the pursuit of its business objectives is determined, adequate risk limits are set and their utilisation levels are monitored.
In the PGE Capital Group, risk management is carried out on the basis of the GRC
(Governance – Risk – Compliance) model, i.e. the concept of three lines of defence (Business – Risk – Audit).
It makes it possible to adjust and integrate the process at all management levels in the particular operating areas.
The Risk Committee operates at the highest management level. It is responsible for controlling risk exposures and reducing the scope of incurred risks to an acceptable level in relation to the implementation of the PGE Group’s strategy and the achievement of its business objectives. The Risk and Insurance Department integrates risk management processes in the PGE Group, measures and reports market and corporate risks, as well as manages credit risks and insurance. The recipients of information and reports on risk are primarily the Management Board of PGE S.A. and the Management Boards of PGE Group companies. The principles of managing these issues in the PGE Group are described in the following procedures: insurance management, market risk management in trading activities, corporate risk management, internal rating determination, credit risk management as well as in the Risk Committee Regulations and the policy of corporate risk management in the PGE Capital Group.
PGE does not focus only on the negative aspects of the analysed risks. It treats them as challenges and takes advantage of the opportunities presented by the dynamically changing environment in which the PGE Group operates.
This approach allows the company to build its position in the market and grow. Effective implementation of solutions developed in the PGE Group translates into more efficient management of the Group’s resources across the entire value chain and affects the quality of energy services provided.
Risk identification covers the full spectrum of the Group’s activities. The scope and complexity of the analysis is determined by the significance of a given risk with respect to both a particular company and the entire PGE Group. The higher a given risk is ranked, the more thorough its analysis and the more complex and rigorous reporting rules apply. On the one hand, such an approach guarantees the acquisition of full knowledge of the most important risks and the applied mitigating tools, and, on the other hand, it ensures that no stakeholder is overlooked in the reporting process.
The division of the types of risk assessment determines the time horizon over which risks are located:
Current perspective
the assessment of risks for the next year
Medium-term perspective
2 to 5 years, risks related to investment initiatives
Long-term perspective
more than 5 years, the impact of technological, economic and social trends on the PGE Group’s operations
As a separate category, climate risk, defined as the impact of the awareness of the irreversible consequences of climate change and associated regulatory policies on business operations is assessed over similar time horizons.
Current perspective
The most important objective of risk assessment is to support decision-making processes carried out at the level of both the Corporate Centre and the subsidiaries of the PGE Group. Assessments are made with a time horizon of the following year. Due to the wide range of issues subject to assessment, the process is carried out in three stages:
Risk map drawn for each identified risk of the current activity: from A1 to E5 – low/medium/high risk
Stage 1
An initial assessment and analysis of all identified risks, where each risk is assessed against two aspects: frequency (probability) of materialisation and consequences of potential materialisation. The highest rated risks are moved to the next stage of assessment.
Stage 2
A quantitative assessment and an additional risk analysis to estimate the impact of each risk on financial performance and to determine the significance of the impact of individual factors that could cause a given risk to materialise. In the next step, mitigating tools and their effectiveness are identified and a method for dealing with the risk is defined.
Stage 3
From the risks qualified for stage 2, the most significant risks for the PGE Group are selected, for which a separate report containing an in-depth risk analysis is prepared.
With respect to the year 2024, the pool of the following risks was qualified for an in-depth analysis in the third stage, i.e. the most significant risks for the PGE Group:
- the risk of G tariff for regulated customers at PGE Obrót,
- the risk of the gross margin on electricity from the generation assets operated by PGE Górnictwo i Energetyka Konwencjonalna,
- the risk of the gross margin in electricity and the impact of variable costs on heat generation at PGE Energia Ciepła,
- the risk of ineffective hedging of electricity for sales contracts at PGE Obrót,
- the risk of settlements in PGE Obrót,
- the risk of the abandonment of the NABE project at PGE Górnictwo i Energetyka Konwencjonalna,
- the risk of the gross margin on electricity from the generation assets operated by PGE Energia Odnawialna,
- the risk of environmental protection at PGE S.A.,
- the risk of financial liquidity at PGE S.A.,
- the risk of settlements at PGE Dystrybucja.
Medium-term perspective – investment risks
A description of risks, threats and constraints in the medium term relates to the most significant investment initiatives underway in the PGE Group, which have a major impact on the direction of the Group’s development. The main obstacles to their implementation and the potential consequences of delays are indicated. The time horizon of the projects varies, depending on specific tasks. It ranges from about two years for projects to about five years for offshore wind farms.
Long-term perspective
The subject of an assessment is the challenges and threats that the PGE Group may face over the next decade. Each long-term risk is assessed in terms of its impact on the achievement of business objectives, as well as influence on the company’s image and business continuity. The shown result is the modal value (the value most frequently occurring in results) of these three aspects.
Areas of long-term risks
Development directions
the risk that the PGE Group will not be able to maintain its leading position if the NESA is not established
Access to financing
the risk that the PGE Group will not obtain financing necessary to realise planned investments
Disinformation and artificial competition
the risk that the use of “fake news” and artificial intelligence creating an alternative reality will threaten the functioning of the PGE Group
Geopolitics
the risk of changing geopolitical factors (EU policy, divergence of interests, political conflicts, wars) resulting in limited access to raw materials used by the PGE Group
Climate change
the physical climate risk associated with the frequency of extreme weather conditions that may result in damage to the PGE Group’s assets and climate change affecting demand for electricity and heat
Generation sources
the risk that new energy sources will not deliver the expected energy volumes and expected EBITDA levels
Law and regulations
the risk related to changes in the legal system and uncertainty in the regulatory environment, including the future shape of support schemes and regulatory burdens resulting from environmental requirements affecting the PGE Group
Technological evolution
the risk that technological changes will be so significant that the energy market will be adjusted (e.g. ways of generating energy).
Social preferences
the risk that social preferences in terms of mass customer expectations, employer attractiveness ratings and public opinion will have a negative impact on the PGE Group
Security/cybersecurity
the risk that the international situation will negatively affect the physical security and cybersecurity of the PGE Group’s assets
Map of long-term risks: Own elaboration.
The aggregation of the result on the map is the dominant – the value most frequently occurring in the sample.
The positioning of the risks on the risk map, based on an assessment of the level of materiality, represents the impact of a given risk on the three aspects of operations:
- the achievement of business objectives,
- the company’s image,
- business continuity.
The map of long-term risks was created based on the elements dominating the responses, according to the subjective assessments of these risks by PGE S.A.’s top management (Board Members and Division Directors) formulated during a strategy workshop held on 30 January 2024.