Competitive environment

The PGE Group is the undisputed market leader in the electricity generation segment with a 41% share. The Group generates more electricity than all other significant participants of the consolidated market combined, having the highest achievable capacities, both conventional and renewable. Apart from integrated power groups, the most important producers in the market include Zespół Elektrowni Pątnów Adamów Konin S.A. („ZE PAK”) and PGNiG TERMIKA S.A. („PGNiG”). The production of ZE PAK is based on system power plants, and PGNiG on combined heat and power plants, the production of which depends primarily on the demand for useful heat. After the acquisition of EDF Polska assets, PGE Group strengthened its position in the generation segment and is the undisputed leader, with a 43% market share. The Group produces more electricity than all of the competitors on the consolidated market combined, whilst having the largest achievable capacities, both conventional and renewable. Aside from integrated energy groups, significant producers on the market include Zespół Elektrowni Pątnów Adamów Konin S.A. („ZE PAK”), PKN Orlen S.A. („Orlen”) and PGNiG TERMIKA S.A. („PGNiG”). Nearly half of the electricity produced in the country is hard coal-based – and this is a key fuel for PGE Group’s competitors. Approx. 25% of the electricity produced in Poland is lignite-based. Aside from PGE Group, ZE PAK also bases its electricity production on lignite. The share of wind farms and gas sources in energy production is approx. 9% each. The use of other fuels is of relatively low significance from the viewpoint of the national power system.Energy production from renewable sources is much more dispersed than the conventional generation market. Energy from biomass is produced at both dedicated installations and in a co-firing process with other energy sources across the country. Last year, photovoltaics developed the most dynamically in Poland, but wind energy still has the largest installed capacity, with the leading role of the PGE Group. After commissioning new wind projects in 2020, the PGE Group remains the entity with the highest installed wind capacity – currently 683 MWe (through PGE EO S.A.).  PGE Group has approximately over 10% share of total wind capacity in Poland, which came to approx. 6.6 GW. Other major wind farm operators are EDP Renewables Polska sp. Z oo, innogy Renewables Polska sp. Z oo, Vortex Energy Polska sp. Z oo, Polenergia SA, TAURON Ekoenergia sp. Z oo, Energa Wytwarzanie SA, E.ON Energie Renewable sp. z oo, ENGIE Zielona Góra sp. z oo. Competition among the existing wind assets covers competition on the electricity market (given that as of January 1, 2018 the obligation to purchase electricity from renewable energy sources of 500 kW or more was cancelled) and competition related to participation in green certificates scheme. They are subject of free market trade, however, due to significant oversupply this are administrative decisions with regard to the level of obligation to redeem that essentially influence the prices. Competition under the new support scheme for RES takes place during an auction – with a lower amount of support offered.

Source: own work based on information published by the companies and Agencja Rynku Energii S.A. (”ARE”).

The heat production market in Poland is highly dispersed, with the four leading producers accounting for less than 40% of production countrywide, and thanks to the acquisition of EDF’s cogeneration assets, PGE Group became the undisputed leader of this market, too with a share reaching above 21% . This market is of a local nature and bears the traits of a natural monopoly, with heating prices being set in an administrative procedure – tariffs approved by the President of the Energy Regulatory Office. The dominant producers focus their production activities in different urban areas therefore sector competition is limited. Besides PGE Group, the key producers of heat are PGNiG (focused on production mainly in the Warsaw agglomeration) and Veolia Group (Poznań agglomeration, Łódź).

In the distribution area, the country is divided into regions, with five large distribution system operators (the “DSO”) on the market, who are required to carve out distribution activities from their other business.

Aside from the above-mentioned energy groups, another significant entity is innogy Stoen Operator sp. z o.o. (formerly RWE Stoen Operator sp. z o.o.), an RWE Group company responsible for electricity distribution in Warsaw, as well as PKP Energetyka S.A. managing the railway electric network throughout the country.

A historical division of the distribution areas has substantial impact on the operating conditions of the business, and this specific situation is reflected in the distribution tariffs approved by the URE president. PGE Group operates in an area that is less urbanised and industrialised, meaning that it has 5.5 million clients throughout an area of approx.. 130 ths km². For comparison, TAURON has a similar number of clients in an area nearly twice smaller and distributes a larger amount of energy.

Source: own work based on information published by the companies and ERO

In the retail segment, which covers sales to end customers – individual, small and medium enterprises as well as large industrial customers – most of the sales are conducted by the four largest energy groups and innogy Polska S.A. (formerly RWE Polska S.A.). PGE Group and TAURON remain the leaders, having in total close to 60% of the market. Both PGE and TAURON sell electricity to over five million clients. Despite a growing number of competitors in the segment, including companies for which electricity is not a core product, the share of companies from outside the four largest Polish groups is still small. Leaders gather over 90% of the market. Apart from them, an important role is played by innogy Polska S.A., based on sales related to the role of a distributor in Warsaw, as well as PKP Energetyka S.A.

Source: own work based on information published by the companies and ERO