3.4 Description of assumptions for the gas and steam unit construction project in Nowy Czarnów being implemented by PGE Gryfino 2050 sp. z o.o.
Impairment tests were conducted on December 31, 2022, on cash generating unit basis by establishing their recoverable amounts. Determining fair value for very large groups of assets for which there is no active market and there are few comparable transactions is very difficult in practice. In the case of complete power plants for which a value on the local market should be determined there are no observable fair values. Given the above, the recoverable amount of the assets under review was determined based on an estimate of their value in use using the discounted net cash flow method on the basis of financial projections prepared for the period from January 2023 to the end of their useful life. According to the Group, financial projections longer than five years are justified due to significant and long-term effects of projected changes in the regulatory environment. Using longer projections, recoverable amounts may be determined more reliably.
Presented below are the key assumptions having impact on estimates of the useful value of the assets being tested:
- Nominal power and average efficiency of units assumed in accordance with the parameters guaranteed in the Contract with the Contractor;
- Operating period: 25 (benchmark life of CCGT units);
- Capital expenditure: for 2023-2024 is assumed in accordance with PGE Group’s Investment Plan and concluded contracts for the implementation of the unit;
- Adoption of a weighted average after-tax cost of capital differentiated for each CGU, according to the individually assessed level of risk and varying over time at an annual average of 8.12%.
As at December 31, 2022, the value of tested property, plant and equipment at PGE Gryfino 2050 Sp. z o.o. amounted to PLN 2,961 million. As a result of an asset impairment test, the Group concluded that that no impairment losses needed to be recognised for these assets.
Sensitivity analysis
In accordance with IAS 36 Impairment, the Group carried out a sensitivity analysis for PGE Gryfino 2050 sp. z o.o.
The impact of a change in key assumptions using the ceteris paribus principle on the value in use of assets as at December 31, 2022 for assets owned by PGE Gryfino 2050 Sp. z o.o. is shown below.
| (in PLNm) | |||
| Parameter | Change | Impact on useful value in PLNm | |
|---|---|---|---|
| Increase | Decrease | ||
| Change in electricity prices throughout the forecast period | 1% | 296 | – |
| -1% | – | 296 | |
A decline in electricity price by 1% would have caused a PLN 0.3 billion decrease in useful value.
| (in PLNm) | |||
| Parameter | Change | Impact on useful value in PLNm | |
|---|---|---|---|
| Increase | Decrease | ||
| Change in WACC | + 0,5 p.p. | – | 306 |
| – 0,5 p.p | 287 | – | |
An increase in WACC by 0.5 percentage points would have caused a PLN 0.3 billion decrease in the useful value of assets.
PGE Group’s business environment is characterised by high volatility and is dependent on macroeconomic, market and regulatory conditions, and any changes thereto may have a substantial impact on PGE Group’s financial situation and financial results. This is why the aforementioned assumptions and others used in estimating the useful value of assets are periodically analysed and verified. Any changes will be recognised in future financial statements.