3. Impairment test for property, plant and equipment, intangible assets and goodwill

Property, plant and equipment constitute the most important part of the PGE Capital Group’s assets. In view of its changing macroeconomic environment, the PGE Capital Group periodically reviews circumstances indicating a loss of the recoverable value of its property. In its evaluation of the market situation, the PGE Capital Group uses both its own analytical tools and support provided by independent consulting entities. In previous reporting periods, the PGE Capital Group made significant impairment write-downs on property, plant and equipment in the Conventional Power Generation segment and the Renewable Power Generation segment.  The impairment write-down relating to the Renewable Power Generation segment was also to a considerable extent reversed in previous periods.

In the first half of 2020, the Group analysed the circumstances and identified the factors that could materially contribute to changes in the value of its assets. The tests carried out made it necessary to recognise impairment write-downs on property, plant and equipment of the Conventional Power Generation segment in the amount of PLN 530 million. The analyses of the circumstances relating to property, plant and equipment of the Renewable Power Generation and Heat Generation segments did not indicate any need to carry out impairment tests.

In the fourth quarter of 2020, the Group analysed the circumstances and did not identify any significant factors that may have contributed to a change in the value of property, plant and equipment held in the segments indicated above.

In accordance with IAS 36, the Group conducted impairment concerning goodwill allocated to Heat Generation segment. Moreover, in respect of PGE Klaster Sp. z o.o., which is a subsidiary of PGE Energia Odnawialna S.A., an impairment test was performed due to commissioning of new wind farms.

Macroeconomic assumptions

The main price-related assumptions, i.e. those concerning the prices of electricity, CO2 emission allowances, coal, and natural gas, as well as the assumptions concerning the volumes of generation in the majority of plants operated by the Group came from a report prepared by an independent expert, taking into consideration the Company’s own assessments made on the basis of the current situation in the market for the firsts 2 years of the forecast period.

Electricity price forecasts assume a fall in prices in 2021 relative to 2020 prices, followed by increases in subsequent years at an average annual rate of around 5% over the period until 2030.

CO2 emission allowance price forecasts provide for a dynamic growth of market prices in the subsequent years.

Hard coal price forecasts indicate price declines until 2026 in relation to 2020 prices, to be followed by increases of up to a few percentage points in the subsequent years.

Natural gas price forecasts indicate an increase in prices in 2021 compared to those of 2020, with an average annual growth rate of approximately 16% and continued gas price increases of around 3,5% per year in the subsequent years.

Price forecasts for energy origin property rights indicate an increase in the first two years of the period to be followed by an average annual decrease of about 7% between 2023 and 2031, which is related to the gradually decreasing redemption obligation.

Forecasts of revenue from the capacity market in the years 2021-2025 are based on the results of completed major auctions for these years of supply, taking into account the mechanisms of the agreement for the reallocation of revenue among the companies belonging to the PGE Capital Group. The forecast for the period from the year 2025 was prepared by a team of experts from PGE S.A. on the basis of assumptions concerning future cash flows for power generation units based, among other things, on the results of already completed auctions and forecasts prepared by an external expert. As of July 1, 2025 power generation units failing to meet the emission criterion of 550 g CO2/kWh will be excluded from the capacity market, with the exception of units holding long-term contracts entered into within the scope of major auctions for the years 2021-2025.

The availability of power generation units was estimated on the basis of overhaul plans and failure frequency statistics.

On February 2, 2021, the Council of Ministers approved “The Energy Policy of Poland until 2040”. This document provides a vision for Poland’s energy transition, showing, among other things, a planned structure of power generation units. According to the Policy, the share of zero-carbon units is to be increased and the share of coal-fired units is to be reduced. Before the date of this information, the whole text of the Policy had not yet been published. Based on publicly available information, in the opinion of the PGE Group, the assumptions adopted in the assessment of the recoverable value of generation assets are consistent with the Policy. Nevertheless, future changes in the electricity market may diverge from the adopted assumptions. Possible future differences between factual circumstances and the adopted assumptions may lead to significant changes in the financial position and results of the PGE Group and will be recognised in future financial statements.

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