Key events that may affect future results

Demand for energy

According to the forecasts included in "Update of the projection of demand for fuels and energy until 2030" the demand for electricity in the next years will grow in all the sectors of economy. Compliant with the aforementioned document the net production of electricity will increase until 2030 to 193.3 TWh. At the same time, pursuant to the document titled "Conclusions from forecast analyses for the needs of the Energy Policy of Poland until 2050" until 2050 the production of electricity will increase by ca. 40% - from 158 TWh in 2010 to 223 TWh in 2050. 1)

Exemption form the obligation to tariff households

Pursuant to Article 49 of the Energy law, the President of ERO may exempt an energy company from the obligation of submitting tariffs for approval, if he states that it operates competitively. A potential exemption from tariffing may positively affect the margin on sales of energy.

Quality tariff

The new model of the quality regulation came into force on 1 January 2016, yet it will have impact on the finances of Enea Operator (and other ODSs) as late as in 2018. The President of the Energy Regulatory Office made some portion of the regulated income dependant on the quality of services rendered by these entities. Service quality assessment will be performed by measuring numerous ratios, in particular of uninterrupted power supply and time of connecting to the power grid.

Growth in the number of energy sellers

The number of electricity sellers grows regularly. Appearing of a seller conducting an aggressive price policy may result in the pressure on the margin on sales of energy to retail Consumers.

Additionally, it must be noted that more and more Customers decide to change their energy seller. The number of TPA recipients (Third Party Access) among enterprises (tariff group sets A, B, C) as at the end of December 2016 amounted to 173,858, thus grew from the end of December 2015 by 15,262 (9.6%). And among households (tariff group set G) the TPA principle was used, as at the end of December 2016, by 462,630 entities, which means a growth by 71,279 (18.2 %) in relation to the end of December 2015.

Limits of allowances for emissions of CO2

A material element within costs, conditioning the profitability of electricity generation is the allocation of free allowances for emissions of CO2 and other gases and substances in a given settlement period. Obtaining a free allocation of CO2 emission is conditional on the implementation of dedicated investments in Enea CG notified in the National Investment Plan (NIP). The value of actual outlays is the base for obtaining allowances.

In 2017 intensified activities will be carried out with the objective to determine the principles of the 4th stage of EU ETS functioning starting from 2021. The major changes which may diametrically affect the market situation, include:

  • increasing the linear ratio to 2.2%
  • lack of free allowances for the sectors which are not exposed to the carbon leakage risk
  • doubling, during the first 4 years of MSR functioning, the number of allowances taken from the auction pool to the reserve to the level of 24% of the allowance surplus
  • permanent removal of 800 mln MSR allowances from the market

Limits of Proprietary Interests

The segment of PMOZE_A (certificates of origin for energy generated in renewable energy sources) characterises with a permanent surplus of allowances on the market, translating into low prices. The factor which may improve the situation is enabling the existing installations to convert to the auction system. As at the publication date of the report the announced auction volumes for the existing installations are small and have no significant impact on the improvement of the sectoral situation.

In the segment of PMOZE_BIO (certificates of origin for energy generated from agricultural biogas) a strong shortage is observable of allowances whose prices may be much higher than the compensatory payment in relation to the shortage of allowances on the market and enabling installations to convert to the auction system under favourable conditions. Due to the constructions of legal provisions these Proprietary Interests may be evaluated at even 130% of the value of unit compensatory payments.

For PMEF (energy efficiency) until the end of 2016 there was a shortage of PMEF on the market - on the last day of quotations the transaction prices were higher than the level of the unit compensatory payment.

The proprietary interest system presently in force for cogeneration is valid until the end of 2018.

Gas portfolio

In relation to the amendment to the Energy Law the gas market liberalisation commenced in Poland. As a consequence, as of 1 October 2017 the prices for the consumers other than households will be deregulated.

Situation in the national bituminous coal mining sector

The price path for electricity will be strongly dependant upon the costs of obtaining the production fuel. The necessity of restructuring the mining sector in mid-term will undoubtedly translate into the change in prices of supplied energetic materials. The direction of changes is not unambiguous, however as an essential element of the costs of generating domestic electricity it brings additional risks related to the process of futures contractation.

Continuation of the construction of the power unit

In 2012 Enea Wytwarzanie and Hitachi Power Europe GmbH (presently Mitsubishi Hitachi Power Systems Europe GmbH) and Polimex-Mostostal SA consortium signed an agreement totalling to PLN 5.1 bln net on the construction of 1,075 MWe gross supercritical bituminous coal fired power unit of the efficiency of 45.6% net.

On 22 August 2016 the consortium submitted a proposal to Enea Wytwarzanie of an updated schedule for the contract with the offer to postpone the date of the investment commissioning from 21 July 2017 to 19 December 2017, of which Enea SA informed in the current report No. 24/2016. On 23 December 2016 Enea Wytwarzanie signed a deadline amending annex relating to the construction of the unit No. 11, accepting the updated schedule (current report No. 45/2016). Extension of the investment completion date stems from objective reasons beyond the control of the contractual parties. The value of the agreement has not changed as a result of the annex execution.

The investment in the construction of the new power unit is one of the key undertakings in order to increase generating capacities of Enea Group for a long-term satisfaction of the demand for electricity of all the Group's Customers. The new power unit in Kozienice Power Plant will be the most modern unit fired with bituminous coal in Poland and Europe. The completion of the investment will allow for increasing generating capacities of the power plant in Kozienice by ca. 30%.

Structure of generating portfolio

Notwithstanding the start-up of 1,075 MW unit in Kozienice Power Plant, Enea plans its engagement in the construction of new sources or acquisitions of the already existing ones on the level of additional 1,500-2,000 MW until 2025. Some of these activities will be implemented via partnerships with other energy groups. The implementation of the strategy will mean a significant growth in Enea’s importance in electricity generation for the needs of the Public Power System. The total installed capacity of conventional sources is to increase from the current level of 3.2 GW to 5.8-6.3 GW in 2025. It will allow the Group to generate 20.7-22.8 TWh electricity from own sources, which will mean electricity generation and sales balance.

Long-term development of energy market

On 16 February 2016 the Government of Poland adopted "Plan for Responsible Development of Poland"3). The document specifies the key directions of the state functioning and new impulses which will ensure its stable development in the future.

The plan foresees that the development of the Polish economy will be based on five pillars: reindustrialisation, innovations, capital, foreign expansion and social and regional development.

Pursuant to the provisions of the document relating to the energy market, in order to increase energy efficiency and unlock the investment after 2020 (including avoidance of blackout and becoming independent from energy imports) the state intends to e.g. support the development of energy infrastructure (energy bridges, power storing technologies), liberalise market areas and introduce capacity market mechanism which would be an impulse for investments in the segment of conventional power engineering.

The process was commenced of implementing a dual-commodity market on which, apart from electricity, also capacity will be traded. The Ministry of Energy, in the document titled "Functional solutions of the capacity market" published on 30 September 2016 justifies the necessity of introducing a new market. At the beginning of December 2016 the Ministry of Energy presented a draft act on the capacity market.

As mentioned in the justification, the introduction of the mechanism is to prevent shortages of generation capacity, create economic incentives for construction, maintenance and modernisation of generating units and managing energy consumption at customers’.

New projections for energy price paths

Long-term financial projections of Enea Group based on the forecast electricity price paths, expectations as regards the changes of market prices of certificates of origin for energy, allowances for emissions of CO2 and coal prices demonstrate a more and more demanding situation of the area of Generation. Due to the maintaining of energy prices on exceptionally low levels, resulting in the imbalance between generated revenue and costs of energy generation, the Group foresees the necessity of a quick entry into force of the announced support mechanisms for system power engineering (e.g. through the implementation of the capacity market mentioned above). Difficulties in generating good financial results by generating sources will exclude a possibility of incurring expenditures on development investments which during the coming years seem inevitable.

Variability and liquidity on the wholesale market

Since the very beginning of 2016 we faced a decreased liquidity in electricity trade on the Electricity Futures Market managed by the Polish Power Exchange. The situation has not improved in 2017 - according to PPE the trading volume on the futures market in January 2017 dropped by 45.8% in relation to the same period of 2016. A drop in RDN market (spot) was insignificant, however such the turn of events forces to look in the future with some anxiety related to the possibilities of hedging the trading positions. A positive fact here is a growing trade on the natural gas futures market, which allows for the diversification in the trading operations.


Maintaining on 30 November 2016 by Fitch Ratings agency of a long-term rating of Enea SA in national and foreign currency on the level of "BBB" and a long-term national rating on the level of "A(pol)" in relation to LW Bogdanka acquisition is of a key importance as to the realisation of the investment intentions of the Group. On 3 August 2016, due to methodological changes, Enea’s rating was raised to "A+(pol)", which is a result of decreasing the long-term rating of Poland in national currency to "-A" from "A" (resulting also from methodological changes). The outlook of Enea’s ratings is stable. Fitch Ratings has performed the Company’s credit rating since 2011.

In 2016, EuroRating, in 2016, affirmed Enea’s rating four times - on 19 January, 26 April, 8 July and 30 September. On 11 January 2017 the agency reaffirmed Enea’s credit rating on the level of BBB. What was changed was the outlook of the rating - it changed from stable to negative.

EuroRating agency awards ratings to companies listed on WIG20 on its own initiative, in reply to the information needs of market participants, and the credit risk assessment process is based on the publicly available information.

Due to Enea SA’s leaving WIG20 index EuroRating stopped, as of 17 March 2017, assessing the Company’s credit risk, withdrawing at the same time the rating it awarded to the company.