33.5 Regulatory changes on the electricity market

Due to the crisis in the energy market, the government has decided to introduce legal regulations that temporarily introduce exceptional measures for electricity prices and electricity tariffs in 2023. The Act of October 7, 2022 on special measures for the protection of electricity consumers in 2023 due to the situation on the electricity market (hereinafter the „Household Act”) entered into force on October 18, 2022, and the Act of October 27, 2022 on emergency measures to limit the level of electricity prices and support certain consumers in 2023 (hereinafter the „Emergency Measures Act”) entered into force on November 4, 2022.

According to the Household Act, an energy company carrying out commercial activities in the field of electricity trading is required to apply to household customers prices equal to those contained in the tariff in force on January 1, 2022 for individual tariff groups up to specified consumption limits. Once the consumption limits dedicated to household customers have been exceeded, a maximum price of 693 PLN/MWh (price excluding VAT and excise duty) will be used for billing household customers in accordance with the Emergency Measures Act in 2023. This means that electricity prices have been fixed by law and, therefore, in 2023, tariffs approved by the URE President will not directly affect electricity prices for households.

In addition, in accordance with the Emergency Measures Act 2023, the maximum electricity price for other eligible customers has been set at 785 PLN/MWh (price excluding VAT and excise duty). This price will, in principle, apply from 1 December 2022 to 31 December 2023. The indicated limit of the maximum price for eligible customers also applies to electricity sales contracts concluded or amended after February 23, 2022 and in cases where the maximum price will also apply to settlements for the period from the date of conclusion or amendment of these contracts until November 30, 2022. Energy companies have been required to successively make refunds resulting from the application of capped prices by the end of 2023.

Electricity trading companies, in accordance with the implemented regulations, shall be entitled to compensation for applying the same electricity prices in their settlements with household customers as on January 1, 2022. The compensation is the product of the electricity consumed at the point of consumption, up to the maximum consumption limits entitling customers to apply the 2022 prices to them, and the difference between the electricity price resulting from the electricity tariff approved by the URE President for 2023 and the electricity prices approved in the 2022 tariff. In turn, for the application of the maximum price of 693 PLN/MWh to household customers, trading companies will be entitled to compensation in the amount of the product of the volume of electricity consumed in a given month and the difference between the reference price and the maximum price, for each energy point. The reference price will be the electricity price resulting from the electricity tariff approved by the President of the Energy Regulatory Office for 2023. Compensation will also be due for the use of capped prices in settlements with other eligible parties. In this case, as a rule, the reference price for compensation payments will be calculated on the basis of the price of electricity in exchange contracts and the price of electricity purchased for sale to an eligible customer, plus the cost of redemption of certificates of origin and a margin.

Nonetheless the mechanisms introduced in the Household Act and the 2023 Emergency Measures Act should in principle compensate trading companies for the price reduction.

The financial position of the PGE Group from December 1, 2022 to December 31, 2023 is also affected by the provisions of the Emergency Measures Act in 2023, which introduced the obligation for electricity generators and power companies performing electricity trading activities to make monthly contributions to the account of the Price Difference Payment Fund („Fund”). Contributions to the Fund are the product of the volume of electricity sold and the positive difference between the volume-weighted average market price of electricity sold and the volume-weighted average price cap of electricity sold, as regulated in the Decree of the Council of Ministers of November 8, 2022 on the manner of calculating the price cap.

A different way of calculating the price cap has been specified for individual generation sources:

  • for lignite- and hard coal-fired generating units, the price cap takes into account, among other things, the unit cost of fuel consumed, the cost of CO2 emission allowances, the efficiency of the generating units, the margin and a certain level of investment and fixed cost allowance of PLN 50/MWh.
  • for units producing energy from renewable sources, the price cap is set in reference to a reference price, as referred to in art. 77 sec. 3 point 1 of the Act on Renewable Energy Sources, with the stipulation that for hydropower plants the price cap will be 40% of this preferential price.

For electricity trading companies:

  • for energy sold to final consumers, the price limit is the product of the volume-weighted average price of electricity purchased on the day in question and a margin set as 1.035 or 1.03 (plus the unit cost of redemption of certificates of origin)
  • for energy sold to customers other than final consumers, the price limit shall be constituted by multiplying the volume-weighted average price of energy purchased on the day in question by the margin defined as 1.015 or 1.01.

From January 1, 2023 onwards, trading companies will calculate the amount of the contribution to the Fund for the calendar month to which the settlement relates, taking into account the volume of electricity sales, the market price and the price cap for periods of 3 decades of that month, i.e. from the 1st to the 10th, from the 11th to the 20th and from the 21st to the last day of the month. Until December 31, 2022, the Fund contributions were calculated separately for each day of the month.

The above regulations had the following impact on the values reported in these financial statements for PGE Group companies:

  • Fund contribution for December 2022 amounted to PLN 351 million (reduction of financial result).
  • The reduction in revenue for 2022 under the Emergency Appropriations Act in 2023 amounted to PLN 808 million.
  • The estimate of compensation due for 2022 was PLN 543 million.

The above figures for the reduction in revenue and compensation payable are estimates determined to the best knowledge available to PGE Group at the date of these financial statements.

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