45.2. Provisions for onerous contracts

TAURON Capital Group carried out an analysis of the contracts concluded within the Generation segment as at 31 December 2022 and for individual contracts in relation to which it was identified that the contractual sales price did not exceed the estimated unavoidable costs of fulfilling these contracts, a provision was created for the onerous contract in the amount of PLN 91 million. The calculation of the provision was based on the price difference between the contracted sales price under the concluded forward market transactions and the unavoidable cost of generating energy from the Group’s generation sources. Energy generation costs comprised the unit cost of fuel used to produce electricity, CO2 emission allowances in accordance with the contracts concluded for their purchase and other costs incurred in connection with the production of electricity by the Group’s generating units used to perform the contracts, including depreciation of property, plant and equipment. The calculation takes into account revenues from the capacity market attributable to the generating units executing the contracts in question in relation to the total volume of energy contracted for sale. The provision created relates to the sale by the company in the Generation segment of a volume of 1.1 TWh of electricity on the forward market in 2023.

During the year ended 31 December 2022, in the Generation segment, the Group recognised the effects of the recognition and utilisation of a provision in the total amount of PLN 1006 million, in connection with contracts for the sale of electricity on the forward market, which matured in the period up to 31 December 2022. The provision referred to the sale of the volume of 3.04 TWh of electricity by the company of the Generation segment on the forward market during the second half of 2022.

Moreover, in the period ended 31 December 2022, in the Generation Segment, the Group recognised the effects of utilisation and reversal of the provision created in connection with the shutdown of the 910 MW unit in Jaworzno. The provision created as at 31 December 2021 was calculated based on the assumption that in the period of the estimated shutdown of the unit, i.e. by 29 April 2022, the Group will purchase the volume of 1.7 TWh of electricity which was not produced within own production due to the shutdown of the 910 MW unit. Due to the shutdown of the 910 MW unit and the need to fulfil contracted deliveriess to customers, the Group purchased electricity on the wholesale market at current prices and subsequently resold it through the companies of the Sales segment to the end customer. In the year ended 31 December 2022, the Group utilised the majority of the provision created and released the remaining part of the provision.

As at the balance sheet date of 31 December 2022, the Group recognises the provision for onerous contracts in the amount of PLN 109 million in the Sales segment. A provision was set up for electricity and gas sales contracts, where the sales revenues generated do not fully cover the costs incurred for either producing or purchasing the electricity required to fulfil these contracts. The provision created relates only to customers with GD (Households) price lists while the need for its creation resulted mainly from an increase in the cost of purchasing electricity to secure sales volumes for customers with fixed price lists. As at the balance sheet date, the Group carried out an analysis of the impact of changes in legislation, including in particular the entry into force of the Act of 7 October 2022 on special measures to protect electricity consumers in 2023 and the Act of 27 October 2022 on extraordinary measures to reduce electricity prices and support certain consumers in 2023, described in more detail in note 12 of consolidated financial statements, on its agreements concluded with customers. The analysis performed, taking into account both, the sale price of electricity to the customer and the Group’s receipt of compensation under the aforementioned legislation, did not indicate the need to recognise provisions for onerous contracts in respect of agreements other than the GD-priced agreements with customers described above. The Group estimates that it will receive the full amount of the estimated compensation included in the above analysis.