The Energa Group reports its results: Higher revenues and stronger distribution
In H1 2015 sales revenues were PLN 5.4 billion while EBITDA surpassed PLN 1.2 billion. The Energa Group is focusing on constantly enhancing the quality of business and continuing to optimize operations. The effects are visible in the Group’s key Distribution Segment which has posted stable growth once again. The Company has announced its intention to continue pursuing the same directions of strategic growth.
In H1 2015 the Energa Group generated revenues of PLN 5.4 billion, signifying 3% growth compared to last year. EBITDA was PLN 1,216 million compared to PLN 1,281 million in H1 2014, interim net profit for the first 6 months of 2015 was PLN 535 million, down 12% from the same period in 2014.
“Considering that market factors are less conducive than last year when the results were supported, among others, by a broader scope of services provided by the Ostrołęka Power Plant to the PSE Polish Power Grid as well as by higher green certificate prices, this year’s interim results may be assessed positively. The strengthening of the Distribution Segment and the continued improvement in return on assets and return on equity please us. In the Energa Group we are focusing more on the quality of business and the benefits we may derive not just from organizational and cost-related optimization but also from intersegmental synergies”, says Andrzej Tersa – President of the ENERGA SA Management Board.
The Management Board has announced that the directions of the Group’s strategic growth will be sustained. The Company will concentrate on stable regulated business in the Distribution Segment and utilizing opportunities in the renewable energy space.
Energa intends to perfect its business model to be more oriented on clients and modern infrastructure corresponding to the future requirements of the electrical energy system, the market and the environment. To this end, projects are being pursued to enhance operational efficiency related in particular to the following:
- managing the trading position for the energy generated (Operator of Generators),
- optimizing the Group’s procurement processes,
- enhancing the quality of client service,
- implementing IT systems to support sales service,
- developing the electricity consumption smart metering project.
“In our opinion, the Energa Group’s asset portfolio is well adjusted to the changes taking place in the environment, though we do perceive certain obstacles to further development and generating higher earnings. That is why we see need to update the Energa Group’s strategy to be able to respond effectively to challenges as they appear. Although work on specific solutions is still underway, I would like to reiterate that there will not be any revolutionary changes: the directions of strategic growth, including the investment program focusing on the distribution of electricity and renewable sources will be maintained”, emphasizes President Tersa.
Under the long-term investment program totaling more than PLN 18 billion, projects are being pursued to reduce NOx emissions in boilers and modernize electrostatic precipitators to adapt the Ostrołęka Power Plant B to meet environmental conditions. Projects are being run to grow RES generation capacities: building the Parsówek wind farm (26 MW) and the Czernikowo photovoltaic power plant (4 MW). Preparations are also underway for more investments: the Przykona and Manowo-Bonin wind farms and the biomass unit in Kalisz. These installations will utilize support under the auction system.
H1 results by segment
The Group’s key Distribution Segment exerted a positive influence on the Group’s H1 results – EBITDA growth of 18% accrued PLN 934 million while net profit of PLN 408 million represents 31% growth. This is a result of the higher volume of sold energy and the higher average rates charged for selling distribution services. Profit also grew on account of curtailing network losses. The effect of switching from six-month to two-month meter readings continues to resound positively in terms of profit. The revenues on connection fees were also materially higher, which ensued chiefly from the higher number of wind farms connected.
The Generation Segment recorded deterioration in its results. This is in particular an effect of the market’s operation, namely the material decline in green certificate prices. As a result, at the end of H1 2015 the green certificate inventory had to be revalued mark-to-market on the balance sheet date. In addition, a lower volume of production was recorded in the Ostrołęka Power Plant and in the hydro power plants coupled with the ERO President’s simultaneous price cut for electricity from renewable energy sources. The Generation Segment’s results last year were higher on account of selling the inventory of property rights from 2013 at prices higher than the prices on the date of generation and the reversal of the provisions for the CO2 emission allowances received free of charge with delay.
The Sales Segment generated stable revenues, though the margin did become thinner. The growth in costs related to discharging the function of “ex officio seller” exerted the primary impact on profitability. At the same time, the costs of redeeming property rights rose in connection with the obligation introduced in Q2 2014 to redeem ‘yellow’ and ‘red’ certificates, which was partially offset by the decline in the market prices of green certificates.
More energy from renewable sources
At the end of H1 2015, the total installed generation capacity in the Energa Group was 1.4 GWe, with RES accounting for 0.56 GWe. The Group generated 2.3 TWh of gross electrical energy, compared to 2.5 TWh generated in the same period last year. This decline was primarily driven by lower co-fired production in the Ostrołęka Power Plant associated with the lower demand for operation of that power plant for the Transmission System Operator and lower production in run-of-river power plants caused by hydrologic conditions.
As a result of higher winds and additional production from the new Myślino wind farm, the production of energy in wind farms increased by 23% and energy generated from renewable sources was 2% higher than in H1 of the previous year. Energy generated in the photovoltaic farm built last year is included in 2015 production.
The volume of electricity transmitted by Energa-Operator was almost 11 TWh, which was 3% higher than in the previous year.
The sales of electricity to end-users increased by 2% to 8.3 TWh while the volume of energy sold on the wholesale market fell by 4% to 4.7 TWh.
Investments in connections and environmental compliance
In H1 2005, capital expenditures were PLN 619 million, of which PLN 449 million in the Distribution Segment. This was 41% more than in the same period of 2014, in particular:
- 8 thousand new customers were connected,
- 1,230 km of medium voltage and low voltage lines were built and modernized,
- 304 MW of new sources were connected to the grid.
In the Generation Segment, capital expenditures were PLN 158 million and were related mainly to tasks related to adapting equipment in the Ostrołęka Power Plant B to meet environmental requirements. Other capital expenditures were also made for increasing the RES generation capacity, mainly for the construction of the Czernikowo photovoltaic plant with nearly 4 MW of capacity – this project is currently in progress and is awaiting a use permit to be issued.
Smart grids will reduce length and number of failures
In a recent report entitled “Summary of work on the roadmap to implement a smart grid by 2020”, Energa Operator prioritized capital expenditures for the coming years. The Company made a decision that, among the broad range of available smart grid solutions, in the current development stage of the Polish market, the key technologies for the Company are those that will contribute the most to improving the reliability of energy supply. The operator estimates that implementing smart grid solutions will allow it to reduce the average duration of interruptions in energy supply by about 80 minutes. This means that the SAIDI measure would be cut to below 3 hours per user (4 hours and 22 minutes in 2014). The Company intends to implement the selected smart grid solutions across its operations and the improvement in reliability figures by developing smart solutions will be most obvious when added to the traditional grid modernization expenditures.
Smart systems not only in electricity transmission
In H1 2015, Energa completed modernization efforts to heat grids in Kalisz and Ostrołęka, the most extensive ones in the history of these cities that required high record-breaking expenditures. A smart management system is implemented to collect and analyze all the grid-related data in a single venue to repair outages more quickly, to enhance the reliability of heat supplies and to curtail transmission losses. The total cost of the projects launched several years ago exceeds more than PLN 58 million, with PLN 35 million from EU funds.
In addition to heat distribution the Energa Group is investing in modern heat production. Last year an elderly combined heat and power plant in Ostrołęka was replaced with a new heat source outfitted with a battery. This means that Ostrołęka has not just a new heat grid but also one of the most modern heat sources, thereby contributing to the city’s heat and energy security and its residents’ comfort but also to more effective environmental protection.