H1 2019 Financial results od Energa Group
In the first six months of 2019, the Energa Group generated over PLN 1.25 billion in EBITDA. Thus, it improved its results by eight per cent year on year.
For the Energa Group, the first six months of 2019 was a period of steady development of new generation capacities in the segment of green energy and new technologies. Renewable energy sources already account for 41 per cent of the Group’s total energy production. Energa is building a new Przykona Wind Farm with an installed capacity of 31 MW and an average annual electricity production of 75 GWh. The nine wind turbines and the necessary infrastructure are being built in an area of 250 ha of reclaimed lignite mining sites. The Energa Group is also building an advanced electricity storage facility with a target output of 6 MW and the ability to store 27 MWh. The facility built using a hybrid technology is being built near the Bystra Wind Farm, not far from Pruszcz Gdański. Thanks to the funds from the Infrastructure and Environment Operational Programme and regional operational programmes, the Group also continues to implement the Smart Grid programme, i.e. the construction of a smart power grid.
"Our energy mix, which is part of the Group's development strategy and prefers generation assets in the area of renewable energy sources and advanced technologies implemented in the distribution segment, has turned out to be a solution matching exactly the current and future conditions in the company's environment. By increasing the share of green energy in generation, we can adapt even more effectively to environmental regulations and effectively reduce CO2 costs. As part of the development of the energy security system in Poland, we also continue to invest in a smart distribution grid. Today we have every reason to be satisfied, because Energa Operator, a Group company, is the first distribution company in Poland to implement such advanced Smart Grid solutions in the entire area of its operations," says Grzegorz Ksepko, Head of the Energy Group.
In the first half of 2019, the capital expenditure of the Energa Group amounted to PLN 776m. It was higher by PLN 152m, i.e. 24 per cent, than in the corresponding period of the prior year. Nearly PLN 648m were spent on the capital expenditure in the Distribution Business Line. The capex projects involved upgrades of the power grid to further improve the reliability of electricity supply, and expansion of the grid to accommodate the connecting of new customers and producers. Moreover, a part of the expenditure was spent on innovative technologies and solutions. Also, thanks to these activities, in the first six months of 2019, 27.4 thousand new customers were connected, 1,939 km of high-, medium-, and low-voltage lines were constructed or upgraded, and 77 MW from new renewable energy sources were connected to the grid.
"After the first six months of the year, we maintain a stable level of financial resources enabling us to continue to pursue our capex plans in the second half of the year. Despite the concerns of some analysts, the short-term reduction in revenues resulting from the freezing of electricity prices for consumers will be offset as a result of the application of the provisions in the regulation implementing the Act of 28 December 2018, and further when the compensation system is launched. And this can already be seen in the favourable results of the Sales Business Line in the first half of the year. Thanks to the optimization of the Group's operations, we use our own funds more effectively for the implementation of pro-development projects and raise new funds on very favourable terms. The EBITDA of PLN 1.258 billion for the first six months of the year clearly shows that we are able to effectively build the value of the Group in the demanding market and regulatory environment," stresses Jacek Kościelniak, Vice-President, Finance, Energa SA.
The financial performance of the Energa Group was influenced by changes in the regulatory environment in recent months, involving, among others, electricity prices for end users. In June 2019, the amended Act of 28 December 2018 took effect. These regulations were used as the basis for reducing electricity prices for customers in H1 2019 to the level existing as at 30 June 2018. In July 2019, the Energy Minister issued a Regulation on the calculation of the price difference and financial compensation for trading companies, and on the setting of reference prices. The Company – on the basis of the mechanisms presented – appropriately recognized the electricity price difference for the entire first half of the year. Moreover, it derecognized a part of the provision recognized in 2018. As a result, the EBITDA of the Sales Business Line totalled PLN 140m, up PLN 83m compared with the corresponding period of 2018. This also contributed to the results of operations of the entire Energa Group for the first half of the year.
Performance of the Business Lines
The EBITDA in the area which continues to contribute to the core value of the Energa Group, i.e. the Distribution Business Line, amounted to PLN 976m in the first six months of 2019 and was at a level comparable to that in the corresponding period of the prior year. The Line achieved this profit despite an increase in electricity prices to cover grid losses, and higher operating expenses, e.g. in the area of employee benefits. However, the results of the Line were affected by the postponement of the introduction of the new tariff for 2019, which reclassified the company’s own costs calculated for the current year only effective from April 2019.
The EBITDA of the Generation Business Line for the first six months of 2019 increased by PLN 4m year on year. This period saw an increase in electricity sales revenues by PLN 95m (primarily as a result of higher selling prices at the Ostrołęka Power Plant and at the hydro power plants, and a higher production volume at CHP entities). This was accompanied by a rise in revenues from sales of green certificates by PLN 24m. As far as expenses are concerned, the cost of fuel consumption for production, the cost of purchase of emission allowances, and the fixed costs of the Line were significant items.
The EBITDA of the Sales Business Line for the first six months of 2019 totalled PLN 140m, up PLN 83m compared with the corresponding period of 2018. The growth of EBITDA was also attributable to the prior year's low base effect and the derecognition of a part of the 2018 provision for contracts for the sale of electricity to G tariff customers. The results were also affected by, among others, the recognition of the effect of the Act of 28 December 2018. The final recognition of the selling and distribution expenses for energy in the first half of the year contributed to a clear increase in the results of operations of this Line compared with those in the first half of the prior year.