3.3 Description of assumptions for the Renewables segment

Impairment tests were conducted on December 31, 2022, on cash generating units basis by establishing their recoverable amounts. The recoverable value of the analysed assets was estimated on the basis of discounted net cash flow method which relied on the financial projections prepared for the assumed useful life of the particular CGU in the case of wind farms or for 2023-2030 in the case of other CGUs. For those CGUs whose assumed economic life extends beyond 2030, a residual value was determined after the detailed forecast period. According to the Group, financial projections longer than five years are justified because the property, plant and equipment used by the Group have significantly longer useful lives and also due to considerable and long-term effects of projected changes in the regulatory environment included in the detailed forecast.

Presented below are the key assumptions having impact on estimates of the useful value of CGUs:

• classification as a separate CGU of the following:
  • pumped-storage plants (one CGU for all plants due to their shared economic nature);
  • other hydropower plants (one CGU for all plants due to their shared economic nature);
  • individual wind farms (separate CGU for each wind farm due to different operational periods);
• production of electricity and energy origin rights were estimated based on historic data, adjusted by the availability of units;
• unit availability was estimated based on repair plans, taking into account statistical failure rates;
• revenue from regulatory system services until mid-2025 were estimated based on the currently functioning system of remuneration for these services, from mid-2025 it is expected that the market mechanism for contracting regulatory services will start functioning, the revenues from which have been estimated based on PGE Group’s internal analyses;
• maintain production capacities as a result of replacement-type investments;
• adopt WACC after tax for the projection period at different levels:
  • for 2023-2025: average annual level of 8.30%
  • for 2026-2030: average level of 6.73%

As at December 31, 2022, the value of tested property, plant and equipment in the Renewables segment was PLN 2,417 million. As at December 31, 2022, the estimated value of the tested tangible assets of the wind farms acquired on June 21, 2022 was PLN 640 million. The total value of property, plant and equipment tested amounted to PLN 3,057 million. As a result of an asset impairment test, the Group concluded that there is no need to recognise or reverse impairment losses on these assets.

A sensitivity analysis showed that factors such as WACC and electricity prices have a considerable impact on estimated useful value. The results of this sensitivity analysis concern all CGUs owned by PGE EO S.A.

The impact of changes in factors using the ceteris paribus principle having a significant impact throughout the projection period on the projected cash flows and therefore also on the estimated value in use is presented below.

A decline in electricity price by 1% would have caused a PLN 0.1 billion decrease in useful value.

A 0.5 percentage point increase in the WACC over the entire forecast period would result in a reduction in the value in use of assets of around PLN 1.3 billion.

• production of electricity is assumed on the basis of assumptions for the investment model,
• include the settlement with Zarządca Rozliczeń for the volume of electricity production covered by the auction system up to 2035,
• adopt WACC after tax for the projection period at different levels:
  • adopt WACC in the period of support in the form of auction price for 2023-2027 at 6.22% and for 2028-2035 at 5.16%.
  • over the remaining projection period, after the end of the support period, at 5.56%.

As at December 31, 2022, the value of tested property, plant and equipment and intangible assets at PGE Klaster Sp. z o.o. amounted to PLN 677 million. As a result of an asset impairment test, the Group concluded that there is no need to recognise impairment losses on these assets.

In accordance with IAS 36, the Group performed a sensitivity analysis for PGE Klaster sp. z o.o.’s wind farms. The impact of a change in the WACC using the ceteris paribus principle on the value in use of assets at December 31, 2022, is shown below:

An increase in WACC by 0.5 percentage point throughout the forecast period would have caused a PLN 21 million decrease in the useful value of assets.