Risks

Market and product risks

Impact: Revenue and product and service offerings

Measures: PGE Group has rules for managing market risk (price- and volume-related), which include a global risk appetite measure, VaR-based position limits and management of consolidated exposure to commodity pricing risk through mechanisms for protection against risk exceeding acceptable levels. Those rules provide consistent guidance in respect of process organisation in the context of commercial strategy and mid-term planning. PGE Group follows rules pertaining to a strategy for hedging key exposures in the area of electricity and related product trading that correspond to the adopted risk appetite in the mid-term. Position hedging levels are established with consideration given to the results of analysing pricing risk in respect of electricity and related products. Target hedging levels are specified taking into consideration the Group’s financial standing, including in particular its strategic objectives.

PGE Group researches, monitors and analyses the electricity and related products markets in order to optimally use its generation and selling capacities.

New products are introduced on the retail market and actively promoted through nationwide marketing campaigns. Maintaining a diverse product portfolio and focusing efforts on tailoring its offering to the market, the Group diversifies channels used to reach the end-customers and diversifies target groups with account take to client’s volume potential. Efforts aimed at current client retention are based on a model consisting of a diversified portfolio of customer loyalty schemes and client-acquisition activities. The portfolio also includes special offers dedicated to former clients who moved over to the competitors, as well as industry offerings dedicated to specific types of economic activity. PGE Group also introduces bundled offers. Particular attention is paid to ensuring a high level of customer service by developing employees’ competences and building relations with business and retail clients. Having implemented tools to support these processes, the Group effectively manages information flows, which directly translates into comfortable client relations as well as better sales planning and organisation.

Operational risks

Impact: costs

Measures: PGE Group's results are to a large extent dependent on the costs incurred in the course of operations. The Group optimises costs inter alia by monitoring fuel prices and reserves and securing supply through long-term contracts with suppliers and through price fixing formulas. Inspections, repairs and modernisations of the existing assets optimise equipment lifecycles and the required availability of key components of those assets. Cost levels are affected by securing CO₂ emission allowances partly free of charge and purchase of lacking allowances with the assumption of securing sales margins.

Intensive and effective dialogue is also carried out in order to avoid escalation of potential disputes with social partners and to work out the most favourable solutions with regard to the associated employment and employment costs within PGE Group.

Property risks

Impact: assets

Measures: PGE Group actively pursues a strategy for building up and modernising its production capacities. The Group diversifies its current structure of production sources due to energy generation technology. Currently PGE Group is running two key investments (Opole, Turów) alongside a number of grid investments, RES investments as well as modernisation and replacement projects. We are continuously carrying out maintenance and repair work. Our main generation assets are insured against failure and damage to property. The reliability of power supply to end users is systematically improving.

Regulatory and legal risks

Impact: compliance with regulations

Measures: PGE Group's operations are subject to a host of national and international laws and regulations. Monitoring legal changes that are being introduced or proposed ensures that the activities conducted in key business segments are in compliance with the law and that PGE Group has solutions that take into account the potential changes in its legal environment. PGE S.A. is one of the members of the Polish Electricity Association, which opened an office in Brussels. Through the Association’s operations, PGE S.A. actively influences the proceeding and shaping of EU law and engages in dialogue with EU institutions.

The Group adapts its internal regulations and practices to make sure that its activities are in compliance with power sector regulations and the binding law. 

The extraction of fossil fuels as well as the production and distribution of electricity and heat have impact on the environment therefore the Group continuously improves its activities aimed at protecting and improving the state of the environment by implementing technological and organisational solutions ensuring efficient and effective management in this area.

Financial risks

Impact: financial management

Measures: PGE Group manages credit risk stemming from commercial transactions. Prior to executing a transaction, a counterparty assessment is carried out and forms the basis for applying credit limits, which are regularly updated and monitored. Exposures that exceed established limits are hedged in accordance with the Group’s credit risk management policy. 

PGE Group applies a central financing model, which is generally used by PGE S.A. when raising external capital. PGE Group subsidiaries use a variety of intra-group financing sources such as: loans, bonds, bank account consolidation agreements (cash pooling). Liquidity risk is monitored using periodic liquidity planning concerning operating, investing and financing activities. As regards currency risk and interest rate risk, PGE Group has implemented internal management procedures. PGE Group companies execute derivative transactions involving interest rate- and/or currency-based instruments (IRS, CCIRS) only in order to hedge identified risk exposures.