3.1 Analysis of the circumstances relating to the Conventional Power Generation segment

In previous reporting periods, the PGE Capital Group made significant impairment write-downs on property, plant and equipment in the Conventional Power Generation segment. The key assumptions adopted for asset impairment tests performed as at June 30, 2020 are described in the interim consolidated financial statements of the PGE Capital Group for the 6 months’ period ended June 30, 2020.

In Q4 2020, the Company analysed the existing circumstances to verify whether a further write-down or a reversal of the earlier write-downs is necessary.

The key analysed factors included the following:

• the current market situation, including the impact of the COVID-19 pandemic on the energy market,
• a confirmation of the validity of long-term forecasts,
• a confirmation that the investment plan is up to date,
• regulations applicable to the forcing price,
• assumptions concerning the so-called capacity market.

The conducted analysis of the circumstances of the Conventional Power Generation segment indicated that demand for electricity was returning to stable levels after decreases at the beginning of the year related to the COVID-19 pandemic. In 2020, demand for electricity decreased by 3.9 TWh y/y (-2.3% y/y). The lower demand for power from NPS in the period was the result of the impact of the coronavirus pandemic on the economy and was fully deferred in the first half of the year. In contrast, the second half of the year saw a recovery of the economy, which resulted in a year-on-year increase in demand for electricity by 0.5 TWh. Long-term forecasts of electricity, coal and CO2 emission allowance prices available to the PGE Capital Group did not change significantly, thus they did not have a significant impact on the level of achieved margins. Forecasts regarding the level of support for the capacity market did not change significantly either, and are at a similar level. Furthermore, a change in regulatory conditions regarding the forcing price may result in an increase in forecast revenue from electricity. A significant change from the point of view of the Conventional Power Generation segment may be the change of the cost catalogue on the basis of which prices for the forced delivery and forced reception of electricity in generating units using lignite as the basic fuel are determined. For these units, the new regulation introduces a method for calculating the cost of the basic fuel based only on variable costs of fuel production. However, the long-term impact of changes will be possible to estimate after a minimum of one year of the functioning of these solutions. In view of the above, in the opinion of the PGE Capital Group, as at the reporting date there are no circumstances indicating the necessity to write down property, plant and equipment in the Conventional Power Generation segment, nor to reverse any write-downs recognised in the previous periods.