In the fourth quarter of 2016, due to the information and analyses possessed regarding, among others, change in the market prices of electricity, energy origin certificates, and a modification of forecasts of macroeconomic ratios, the Group carried out impairment tests on non-current assets in energy production. As a result of the tests, the Group recognized an impairment loss on assets in cash generating units (CGU) tested. The Group performed impairment tests on the following CGUs: Major Power Plant (production assets of Enea Wytwarzanie Sp. z o.o. located in Świerże Górne), Białystok (production assets of Enea Wytwarzanie Sp. z o.o. located in Białystok including assets of its subsidiaries: MPEC and PEC Zachód, in the same location, determined as one CGU due to close economic relations), Wind (wind farms of Enea Wytwarzanie Sp. z o.o.), Water (hydroelectric power plants of Enea Wytwarzanie Sp. z o.o.) and Biogas (biogas plants of Enea Wytwarzanie Sp. z o.o.).
The recoverable amount of individual CGUs was determined at the value in use based on the discounted cash flows resulting from financial projections. Periods of projection for each cash generating unit:
- CGU Major Power Plant – till 2039,
- CGU Białystok – till 2039,
- CGU Wind:
- Wind Farm Darżyno till 2035,
- Wind Farm Bardy till 2036,
- Wind Farm Baczyna till 2039,
- CGU Water – till 2039,
- CGU Biogas – till 2023.
According to the Group, the key assumptions are consistent with the general indicators from external sources of information, considering the specific product offer of the Group, the current experiences and actual events and business activities.
The main assumptions adopted for impairment tests are presented below:
- assets were tested as five cash generating units (i.e. CGU Major Power Plant , CGU Białystok, CGU Wind, CGU Water and CGU Biogas),
- price trends, based on forecasts prepared by Enea Trading (the company acting as a competence center in Enea Group in wholesale of electricity and fuels), considering the specific product offer and knowledge of concluded contracts:
- wholesale electricity prices for 2017-2039, which are anticipated to rise,
- prices of energy origin certificates from renewable sources and cogeneration, the existence of a support system for RES beyond 2025 as well as the existence of a support system for high-efficiency cogeneration till 2018,
- prices of CO2 emission rights, which are anticipated to rise,
- coal prices, which are anticipated to rise in the entire period of forecast,
- adoption of free-of-charge rights to CO2 emissions received for 2015-2020 according to the application for the grant of free-of-charge emission rights (pursuant to art 10c sec. 5 of Directive 2003/87/EC of the European Parliament and of the Council),
- consideration of the capital investment regarding the construction of power unit No. 11 at the CGU Major Power Plant,
- consideration of regulatory changes in terms of revenues related to introduction of capacity market as of 2022. As of the date of the financial statements, work on a Capacity Market in Poland is underway, traders performed an analysis and adopted the above assumptions according to the best knowledge. Adoption of such assumption seems justified due to its electricity prices and the necessary changes in the regulatory environment. There is a risk that the final effective term and regulatory mechanism can be significantly different from that assumed by the Group,
- consideration of a specific risk premium for the CGU Major Power Plant at 1.5% (risk associated with the estimates of Capacity Market), for CGU Białystok at 1.5% (in relation to the assumptions regarding the support for new units replacing existing ones),
- adoption of assumptions regarding inflation, considering the inflation target at maximum level of 2.5%.
| Białystok | Biogas | Wind | Water | Major Power Plant | |
|---|---|---|---|---|---|
| Financal projections | Nominal | Nominal | Nominal | Nominal | Nominal |
| Discount rate(after tax) | 6.82% | 6.09% | 6.09% | 6.09% | 6.82% |
| Growth rate in residual period | 00.0% | 0.0% | 0.0% | 00.0% | 00.0% |
In the comparative period (2015) the following discount rates and growth rates in the residual period were assumed:
| Białystok | Wind | Water | Major Power Plant | |
|---|---|---|---|---|
| Financal projections | Real | Real | Real | Nominal |
| Discount rate(after tax) | 7.2% | 6.8% | 6.4% | 7.1% |
| Growth rate in residual period | 00.0% | 00.0% | 00.0% | 2.0% |
The results of the tests carried out were as follows:
| CGU [PLN thousand] | Recoverable amount | Impairment loss |
|---|---|---|
| CGU Major Power Plant | 6 139 896 | none |
| CGU Białystok | 671 627 | none |
| CGU Wind | 274 353 | (48 985) |
| CGU Water | 176 184 | none |
| CGU Biogas | 0 | none* |
* due to non-material value of this CGUs assets (PLN 1 134 thousand) and taking under consideration restructuring the impairment loss has not to been recognized
Sensitivity analysis
The sensitivity analysis performed indicates that the key assumptions affecting the determination of value in use of cash generating units include, among others: discount rates, inflation, electricity prices and Capacity Market. Future financial results and, consequently, the value in use of cash generating units will be also affected by the levels of prices of energy origin certificates, CO2 emissions rights and coal prices.
The impact of key assumptions on recoverable amount is presented below:
Impact of change in discount rate
| Change in assumptions | 0 -0.5 p.p. | Initial amount | 0 +0.5 p.p. | |
|---|---|---|---|---|
| Change in recoverable amount | 625 190 | 7 262 060 | (479 881) |
Impact of change in inflation from 2020 (initial 2.5%)
| Change in assumptions | 0 -0.5 p.p. | Initial amount | 0 +0.5 p.p. |
|---|---|---|---|
| Change in recoverable amount | (551 494) | 7 262 060 | 671 483 |
Impact of change in energy prices
| Change in assumptions | -1.0 p.p. | Initial amount | +1.0 p.p. | |
|---|---|---|---|---|
| Change in recoverable amount | (515 721) | 7 262 060 | 589 964 |
The impact of changes revenue from Capacity Market
| Change in assumptions | -10.0 p.p. | Initial amount | +10.0 p.p. | ||
|---|---|---|---|---|---|
| Change in recoverable amount | (401 604) | 7 262 060 | 407 081 |
