Consistent value building of the Energa Group based on renewable energy sources and investments

The Energa Group’s posted financial results for the first three quarters of 2024 demonstrate stability of its operations and secure its capacity to continue to grow. The Distribution Business Line is again the pillar of the Group’s financial performance, showing an increase in the primary performance measure in the energy sector, that is EBITDA (operating profit before interest on interest-bearing liabilities, taxes and depreciation and amortization), by 91 percent year-on-year, and a nearly nine-fold increase in net profit. Over the nine months of this year, EBITDA of the Energa Group’s Distribution Line increased by 18 percent year-on-year, while net profit rose by 28 percent.

For the first three quarters of this year, nearly 60 percent of the energy produced in the Energa Group came from renewable energy sources (RES) - an increase by 12 percentage points compared to the same period of 2023. Photovoltaic sources saw the largest increase in energy production compared to the same period of the previous year and on a quarterly basis (up 35 percent and 24 percent, respectively). Nevertheless, hydroelectric and wind power sources continued to produce the largest volume of energy from among Energa Group's RES assets. Due to materialization of challenges resulting from the inevitable energy transition, capital expenditures increased, amounting to more than PLN 3 billion (+6 percent year y/y) in the first three quarters of this year.

The Group’s EBITDA for the first three quarters of 2024 totaled PLN 2.8 billion (-17 percent y/y), and net profit PLN 0.9 billion (-44 percent y/y). Revenue for the nine months of this year was PLN 16.8 billion (-14 percent y/y).

- We operate in a dynamically evolving economic and regulatory environment, including in respect of price volatility protection mechanisms for electricity consumers, which is not without impact on our financial performance. Nevertheless, despite the challenges faced by the entire energy sector and factors beyond our control, we have posted results that allow the Group's operations and investments to continue step by step. At the same time, studies are underway to identify areas for business optimization and for further strategic development, so that we see the ongoing energy transition not only as a challenge, but also as an opportunity to strengthen Energa's position on the business map of Poland, says Slawomir Staszak, CEO of Energa SA.

For the first three quarters of this year, the volume of electricity supplied amounted to 16.9 TWh - with slight increases in volumes collected by customers in tariff groups A and B, up 5 percent and 3 percent y/y, respectively. The Group also generated 2.0 TWh of electricity in the reporting period, including 1.2 TWh (59 percent) from renewable sources. At the end of the three quarters, the Group saw an increase in the installed capacity of its generation assets to 1.44 GWe, 45 percent of which is accounted for by RES. Retail sales of electricity in the nine-month period this year totaled 12.3 TWh.

Impact of external factors

The Group's financial performance in the reporting period was impacted by significant factors beyond its control, including the electricity sales price regulations extended through 2024 and the reduction in the ERO president's G tariff for H2 2024, which translated into lower margins on electricity sales. Compared to the first three quarters of the previous year, compensation from the Price Difference Payment Fund, which covers the loss of revenue from customers subject to electricity price regulation, dropped by 55%. Among others, that was due to the need for changes in tariff rates from the second half of the year onwards, which provided the basis for the calculation of that compensation.

- In Q3, lower market prices for electricity, which translated into lower selling prices, was an important factor with a bearing on financial results, explains Roman Szyszko, Vice President of the Management Board of Energa SA. - At the same time, however, lower energy purchasing prices in the nine months of this year to cover network losses, favorably affected EBITDA of the Distribution Business Line. External factors with an impact on the Energa Group's financial performance affected profit levels not only in the last quarter, but since the beginning of this year. Still, the posted financial results ensure our capacity to successfully implement further strategic activities. The business profile based on renewable energy sources and infrastructure-based electricity distribution services appears to justify a positive outlook with regard to the future growth of Energa Group's market value.

Factors significantly affecting the results of the Generation Business Line included lower electricity selling prices, smaller generation volume by the Ostrołęka B Power Plant as part of its must-run operation for the Transmission System Operator, and weather conditions.

Higher distribution expenditures

Capital expenditures in the Distribution Business Line in the first nine months of this year totaled PLN 1.6 billion (53 percent of the Group's total expenditures in the period). 2,100 km of distribution lines were built and upgraded using those funds, allowing 45,000 new customers and renewable sources with a capacity of 801 MW to be connected to the grid during the reporting period. Accordingly, after three quarters of 2024, the total number of customers connected to the Energa Operator's grid was 3.4 million, and the total RES capacity connected to the grid was 9,226 MW. Capital expenditures in this area were also 15 percent higher year-on-year.

RES capacity growth

Capital expenditures in the Generation Business Line also increased compared to the previous year, up 71% year-on-year through the end of September, and almost tenfold in the third quarter alone. A key investment project in this area is the Mitra PV photovoltaic farm, currently nearing completion, with a planned target capacity of about 65 MW. During the third quarter, inverter installation and cable line laying work was carried out at the site. With its nearly 100,000 high-efficiency, state-of-the-art panels, the Mitra PV farm will have the capacity to produce enough power for more than 30,000 households, according to estimates.

In Q3 this year, work was also underway on the Group's five new photovoltaic projects being developed by Energa Green Development: PV Barczewo and PV Działdowo (Warmińsko-Mazurskie Voivodeship, 9.4 and 5.9 MW of installed capacity, respectively), PV Płońsk 1 and 2 (Mazowieckie Voivodeship, 8.3 and 8.7 MW, respectively), and PV Wąbrzeźno (Kujawsko-Pomorskie Voivodeship, 10.1 MW). The Energa Group is also involved in the acquisition of renewable projects, the first 22 MW of which (the Opalenica photovoltaic farm cluster) are already online and handed over for management to Energa Generation from the end of August this year.

Stabilization sources for the National Power System

In parallel with the development of the RES capacity, work is also underway to build low-carbon, flexible gas-fired power plants in Ostrołęka and Grudziądz. In Q3 this year, intensive work continued at both sites, including the installation of the turbine units. In addition, installation of draft cooling tower and piping continued at Ostrołęka. In Grudziądz, installation of e.g. transformers, auxiliary equipment and subsequent switchgear sections ad their wiring was also under way. Outside the CCGT Grudziądz site, work continued on the water main, gas pipeline and power evacuation line.

The Energa Group’s low-emission sources, with total installed capacity in excess of 1 GW, will be of paramount importance for domestic energy security. As the share of renewables with difficult-to-predict generation volume increases in the National Power System, CCGT units will be very important on account of their capacity compensate for variable renewable generation. Gas-fired power plants have a much smaller environmental impact than their coal-fired counterparts. That results for instance from a lower emissions level and their smaller demand for water. At the same time, they demonstrate high flexibility, important in an electric power system with a rapidly growing share of renewable sources. For all those reasons, the combined cycle power plant projects will contribute to the achievement of decarbonization targets for Poland and the Energa Group alike.

District heating investments

The third quarter of this year was also a period of active work on the investment program for the Group's district heating assets in Elblag, Kalisz and Ostrołęka. The cogeneration bonus was awarded to the upgrade projects at the Elbląg Cogeneration plant, granted for 15 years from the date of the first generation, introduction to the grid and sale of electricity from a system of three gas engines with a total installed capacity of about 35 MWe, which allowed the launch of that investment project. The commissioning of the engine system is scheduled to take place in the last quarter of 2026.

In Kalisz, work was underway on a project to build a reserve-peak boiler plant (KRS) and a water conditioning plant. In Q3 this year, the operating permit was granted to its first 10 MWt gas-fired boiler, and acceptance inspection of additional two with a capacity of 20 MWt, and of the water conditioning plant, was underway. Further, a cogeneration gas engine system with a capacity of about 20.6 MWt was also under construction at the Kalisz Cogeneration Plant. The related work included, for instance, the installation of gas systems, engine chamber process systems, or switchgear electrical wiring.

A bidding process was also launched in the period for the selection of a general contractor for the 4x10 MWt reserve-peak boiler plant at Ostrołęka (2 gas-oil boilers and 2 electrode boilers, 10MWt each), scheduled to be completed by the end of 2026 to supply the city's district heating system. The Group is also to procure a designer for the cogeneration system in Ostrołęka (gas engines with 2x10 MWe electric power and 2x10 MWt thermal power).