PGE Polska Grupa Energetyczna S.A. (PGE) Earnings Call Transcript & Summary

[indiscernible] Director of Finance division, Piotr Sudol; and Director of Investor Relationship Department and ESG, Piotr Osadczuk. I would like to welcome all those who arrived here to the headquarters of PGE and those who are following us online. In a moment, I will hand over to the CEO and directors and after the presentation, we'll have time for a Q&A session. Mr. President, the floor is yours.

Good morning, ladies and gentlemen. I would like to welcome you cordially. It is another occasion when I had the pleasure to participate in the presentation of our results. This time, these will be results for the first quarter 2024. Good morning again. And without further ado, we go to the presentation with an overview of the first quarter market situation as well as the financial situation of the group. Financial results of the group show that we continue to be a strong group that has experienced a strong pressure. As a result of the operating situation and coal energy generation, our EBITDA went down 25% compared with the previous quarter. But if we exclude the result on conventional energy, which last year generated over EUR 900 million EBITDA, now it is about EUR 500 million loss, our result would be a quarter higher than last year's results. In the context of the market situation, we can see that we are dealing with growing consumption of electricity. Unfortunately, based on significant imports, and this is not reflected in greater consumption of national resources that is linked to the additional pressure on domestic producers to deliver electricity for consumers, all that confirms that the future functioning of conventional assets is confirmed by the operating results of the segment and, consequently, the results of the entire group. This conventional part of our assets is unable to function based on market rules. It is necessary for functioning of the foundation of the electricity generation system but it cannot function under market rules because it is pushed out from the market, and the results are as they are. Therefore, I'm all the more satisfied to see the direction of activities that are undertaken together with the government. We are working very intensely on developing the concept of setting off coal assets from our ownership assets, and that will change the functioning of the foundation of the electricity system that is now based on conventional energy sources. As regards to the market situation and the electricity market, as I have said, we see an increase in both generation and consumption. Domestically, that is almost 3% up, more than 1 terawatt hour. And we can also see the delta, the results from imports. That is the difference between production and consumption, which represents imports of energy to Poland. In the first quarter, that accounted for almost 1.5 terawatt hours. We recorded a slight growth in production compared to the first quarter 2023, a slight growth just by 1%, but we can see dynamic change in the structure of its production. So if we have a look at the structure of energy production with regard to wind energy, we see an increase by 19% with good wind conditions in the first quarter, only 0.3 terawatt hour increase in production from those sources. Photovoltaics, over 17.5 gigawatts, which, in my opinion, brings about serious questions regarding the structure of electricity generation. I would like to remind you that in the plan for electricity generation by 2030, the share of this type of electricity generation was to be much higher. That leave some questions opened regarding the target structure of electricity generation with regards to renewable energy sources, in particular. And our offshore project wind energy on -- inland offshore wind generation and low gas prices lower than last year also caused 18% higher generation of gas units. So that is a simple consequence of low prices of gas and greater profitability of production from those sources. All those factors together, that is conventional energy situation and year-on-year decrease on coal production by 8% and 7% on lignite compared with the same percent the same period last year. Prices, the trend which started in 2022 of dropping prices of contracts for electricity contracts continues. The prices for 2025 dropped to about PLN 400 per megawatt hour. That was the drop we saw in February. Now it rebounded slightly as a result of change in the CO2 emission rights, and now it's about PLN 475. With lower prices of energy, this trend is due to the factors that I have mentioned, but is decrease in gas prices, quite significant drops in coal prices. And as far as coal's concerned, coal prices and our contracts dropped to about $110 per ton last year. That was about $170, which obviously translates into market prices. And gas prices dropped from levels of above PLN 400 last year to about PLN 180 per megawatt hour on the term contracts, so deliveries for next year. As a result, we see a continuing price pressure, which is very good for consumers, but not so much for producers. In fact, for us, it is a great market and operational challenge. CO2. In the first quarter last year, we're about EUR 85 per ton. Now the prices are fluctuating. In February, the prices were relatively low, about EUR 55 per ton. Now it is about EUR 70 per ton of -- that is for emission rights. So macroeconomic conditions continue to be a major challenge. The market situation is developing dynamically, especially with regard to renewable energy sources, and that is accompanied by growing pressure on conventional energy. And this confirms the need for restructuring -- ownership restructuring, asset structure -- restructuring. We need to transfer the segment of our activity tool, another owner, which should be the state treasury. Then we will talk about directions of investments, in particular, concerning generation aimed at an optimum structure of generation sources, large-scale offshore wind projects but also well-thought-through structure of other asset development that is wind on land and photovoltaics as well as everything around it. And that is related to the distribution network, which must be prepared for a completely different structure of generation sources and variability in the amount of electricity delivered to the system. And that is, again, something we can discuss later. This will also cause changes in the market related to projection or preparation of energy storage and the different functioning of the entire distribution network as well as the whole system, which must be capable of absorbing a surplus of energy generated from renewable sources, so when the conditions are very good. So for example, when we have a windy and sunny day, instead of turning off those renewable energy sources, we need to catch as much of the energy as possible because the prices are negative, and we can store this energy then and then flatten out the supply curve and then deliver this energy once the sun is down and there is no more wind. That will be it from me as regards to general background and macroeconomic situation. After the presentation, I will be at your disposal for any additional questions. Now over to Director Sudol, who will talk you through operational and investment activity of the group.

Thank you, Mr. President. Ladies and gentlemen, let me start my part of the presentation with showing you the situation in our strategic investments that are underway or in the pipeline, some already being finalized. I will start with offshore wind farms. Now we have several percent share in this. But this is a project -- even that we only have about 50% stake there, that will be the biggest project completed by the PGE Group but any group in Poland -- any energy group in Poland. We have contracted all key contracts, both for offshore and for land, for transformer station, which will collect the energy and then distribute it further. We have a full set of permits including one obtained in the first quarter to build the offshore part. We are finalizing the elements that regard cooperation after the Final Investment Decision with our partner. We are updating the final version of the entire documentation regarding your diligence for the funding, and that is preparing us for the final financial decision to be made in the second half of this year. Other projects are on track. Importantly, we would like to communicate to you that we are preparing to develop a long-term strategy. Apart from Baltica 2, we also have 7 permits to build artificial islands. This is the project for over a decade. So we want to prepare well for running it, at which pace and what configuration and how we should fund those projects. Another element is also linked to renewable energy, but this time on land, regarding photovoltaic farms. In the first quarter, we handed over one farm in Augustynka with 25-megawatt capacity, also informed you about starting 15 projects for the total capacity of 180 megawatts. And a large part of that power, about 140, 150 megawatts, will be handed over still this year, just like the largest one-off project for 100 megawatts in Jeziorko. And as for the second element we plan to spend a lot of money is modernization of our water assets, that is, power plant in Debe. The project is to be completed this year. And Porabka-Zar power plant is a long-term project and large scale. And here, we are talking with the European Investment Bank about financial -- partial funding of this investment and repower EU facility. So we're trying to combine it so that it could be combined with PV farms. The next segment, district heating and decarbonization is progressing as planned. Recently, in April, a reserve peak boiler room with 90 megawatts thermal has been commissioned in Gdynia. Likewise, in Gorzów Wielkopolski, recently, we have 18 projects in 12 locations. The 3 closest to accomplishment are Kielce, Lublin, and importantly, for the Rozwój agglomeration, the next heating season will be powered by Nowa Czechnica, the new CHC. We're presenting -- when it comes to gas energy, we're presenting a new segment as part of which we have 2 major units powered by natural gas, delivering with 2 units with total capacity of 1.4 gigawatts. The current status of Unit 9, the first one out of 2, will be launched in -- was launched in February '24 and synchronized in March '24. Currently, we have -- it's already in operation, although it still reaches the balancing market. As regards to the deadlines, the contractual deadline of acceptance, we're talking about -- with the general contractor on the final commissioning of those 2 units. We assume it's going to happen this year. Importantly, that's the first power station 1.4 gigawatts, very flexible, 3x lower CO2 emissions than comparable units in lignite or hard coal and, importantly, very flexible from the economic point of view, a very flexible power station owing to the markets' conditions. The surplus of PV electricity such a unit can just fill it in when the sun is not shining and the wind's not blowing. And another project at the scope, almost 900 megawatts in Rybnik, the south of Poland, next to the current hard coal power station. We have a building permit. We're preparing to light the foundations. At the same time, on 3 continents, key components of that power station are being built: the turbine in Germany; in China, components of the boiler and some other components in the U.S. The unit should be commissioned at the end of 2024. Since -- as of 2027, this will be connected to the capacity market. And the last component, distribution over PLN 900 million worth. We're talking about 45% of CapEx incurred in Q1 2024. What I'd like to draw attention to is that it's near on 100 kilometers long power lines. Meters have been exchanged at 25% of what we are obliged to do into perspective of 4 or 5 years to replace the -- or install such meters with all the recipients. And the next component I'd like to draw attention to is that we're accelerating -- increasing the volume of CapEx supported by subsidies. We've concluded 90 million worth contract with the fund to support Eastern Poland, and we're closing the contract worth 36 million. We're trying to achieve it in 5 out of 7 branch offices. So there's still some leeway to obtain that financial support for the group. As regards the operating volumes in 4 areas. As you can see, 2 of them are showing a negative trend. That's the production generation of electricity as well as district heating correlated with the temperature Q1 '24 versus Q1 2023. The average temperature was 1 degree centigrade higher. Whatever you do, these are facts, temperatures are growing. So decarbonization is the direction that we should continue. As regards to the distribution of electricity and trade, we will still have some thermal. When it comes to comparability, owing to the segments of railroad electricity, which became part of it only in Q2 2023, so Q1 is not comparable in that respect with '23. If we take off 1.1 terawatt hours of energy distributed, we will be showing a slight increase at the level of 100 gigawatt hours in terms of energy distributed, which has been contributed to by a group of recipients, such as households. When it comes to trade, if we subtract 800-megawatt hours sold by railroad energy, the trend is negative, and it has been shown in tariff A. That's the largest customer base. In terms of electricity, where that increase is visible from 1.6 terawatt hours in 2020 to 1 terawatt hour this year, and this has meant that our total volumes having subtracted railroad, electricity dropped by 600 megawatts hours. The next -- gigawatt hours. The comparison of Q1 '24 to the comparable result last year, the first component that made it the EBITDA lower, these are 5 components which most largely impact. The EBITDA. With regard to power generation, 4 of them are in green. These are not small amounts. We have not -- fuel prices lower by 2 billion prices, 160 million. And the fee -- revenue component, the drop in revenues with a negative surplus meant that EBITDA dropped by PLN 1 billion. We're talking both about the volumes as well as the drop in price by PLN 300 per megawatt hours as well as the dropping generation volume, almost 1 terawatt hours, which translated into the drop in revenues. Another component, which impacted the conventional generation, this is the drop in reallocation of power. That's what we already informed you about during the previous conference, that at the turn of Q4, the operator have changed the principles of remunerating. Due to that, which caused, on a quarter-to-quarter basis, a drop by PLN 480 million and above a dozen million less on to capacity market. In the sundry item, there's a group of smaller components that offset each other. But it may start -- the total drop is by 280 million and the drop in revenues owing to highly efficient coal generation. At the turn of '23, we had that already. And now by definition, it has been eliminated. The information is important for the analysis of the district heating analysis. And personnel costs, inflationary pressure, almost PLN 400 million increase in the costs, owing to that on a year-on-year basis. Next slide, please. CapEx the result of over PLN 2 billion incurred in Q1. We're continuing the process of decarbonization, and we're trying to implement green changes. As you can see, all the bars are in green, excepting conventional generation where the CapEx is lower by PLN 38 million and renewable energies, low emissions, that's gas-based that we call it here, distribution district heating, as mentioned before, Rzeszów, Nowa Czechnica, the second line, the second thermal processing line, international and railroad energy in Kolejowa. But this stems from a low base because in Q1 2023, it was not part of the group. In total, that's the increase by PLN 441 million in terms of CapEx incurred by the group in Q1 2024. When it comes to indebtedness, indebtedness at the end of Q1 increased versus December '24 by PLN 4.5 billions. On the slide, if we were to compare the first, second and third bullet, they actually net off each other, which means that the EBITDA enabled us to cover the CapEx, the CO2 provision and the income tax. But the provision, which is much lower than -- as the CEO mentioned, the CO2 prices dropped significantly by 30%, which means that the short-term working capital is shrinking and automatically translate into the increase in indebtedness. Because to take care of the payments, we had to amortize them for 2023. We had to incur debt with financial institutions based on the contracts in place. Hence, the increase mentioned. But if we take a look at economic indebtedness, which 'cleanses' the issues connected with the CO2 provisions, they dropped by PLN 400 million. So you could say that given the 20 billion, it's roughly stable and, hence, the goal to communicate with you in this respect to clean the situation when it comes to CO2 or the currency that we are buying it for. When it comes to the increase of Q1 '24 versus '23, on top of that, we had acquisitions performed in 2023. That was the acquisition of PKP Energetyka in Q2 and the purchase of wind farms, unless I'm mistaken, in Q3. Hence, the increase is so significant among the quarters. In the next quarters, it will be much flatter. The last slide of the presentation, we made 5 weeks ago, as we presented the annual results. By definition, the trends have not changed as well as the reasons behind those trends: conventional generation drop in the EBITDA versus 2023; drop in the regulatory system services volumes; district heating, as I mentioned, decreased; in terms of highly efficient cogeneration, lower prices causing lower margins, which are -- which were so significant that even the result generated will not be enough to level off the previous result; renewable energy, relatively stable lower prices but increase in capacity; trade, was presented here as provision, burdening the fourth quarter; distribution increased as a result of regulatory worth of the assets and significant return on capital at 11.75%; railway energy, we have an increase in WACC. And in 2023, we had a significant one-off increase as a result of connection fees, but we do not expect anything of that kind in 2024. Hence, the forecast for 2024 is lower. We recognized the 3 quarters of railway energy last year. This year, that will be for 12 months. That's it from me. Thank you.

Thank you, Director. Thank you, President for your presentations. As promised, we can move on to the Q&A session. If you allow me, I will start with a question that we received online. And then I will hand over to those present in the room. The first question we received was how the new regulations approved in the act on energy coupon will affect prices?

The new regulations, which are not binding yet, that needs to be stressed here, we know they went through the parliament. But there are 2 elements. One is maximum price of PLN 500, and here, I do not expect any positive or negative impact on the results because a possibly higher price will be offset as in the past year. So we consider this element to be neutral. And the second element, which is related to the change in tariff. The currently valid tariff has been effective since January this year. And according to the proposed legislation, the next tariff is to remain valid for at least 18 months. So that will start in mid this year, beginning of July, and will continue til the end of next year. So we are now waiting for the final decision. We will either engage in talks with the regulator regarding those G tariff costs. If the entire volume is not closed for next year, then we will act accordingly. But today, we are unable to say to what extent the new tariff will affect our results. If it turns out that in the second half of this year, when the energy had already been contracted and we can see even more negative impact, we will consider establishing additional provision at the end of the second quarter 2024.

Thank you. Maybe one more question. What might be the CapEx on offshore this year? And what was it in the first quarter 2024 within the renewable segment?

For the time being, those expenditures are not significant. The amount that we spent in the first quarter 2024 is slightly over 100 million, so 5%, 6% of the total CapEx of the group. But those expenditures will indeed go up. I'm unable to tell you right now any precise -- to give you a precise amount because the relevant investment decision has not been made yet. And this decision will in turn determine the dynamics of CapEx spending. However, the dynamics of CapEx will be greater than what we saw in 2023 or in the first quarter. Taking into account the date of handing over this farm and the first delivery of electricity in 2027, the expenditures are likely to grow very high very soon. It will be very significant growth as a consequence of the need to pay in advance for maintenance for all things related to the project. From the perspective of the scale of the group's operations, as of now, those capital expenditures are not very significant, but they will grow very fast in the upcoming years.

Thank you. I would like to give the floor to those present in the room. Please raise your hand, introduce yourself and use the microphone.

[indiscernible] I have 3 questions. The first is about distribution. Have you counted the average increase on a bill as a result of defreezing distribution tariffs in the second half of the year? When the tariff has been approved, so it's just conversion calculation, what will be the impact on household bills. the second question is about the dividend. Will there be any? And if so, in what amount? And the third question regards the power market and its expiry in 2025. Have you checked the financial gap? Unless this power market is not extended on the new regulation, if there is a delay in legislation, so what will be the financial gap for the second half 2025?

As for distribution, I cannot really show you the impact on individual electricity bill but distribution increase was already experienced in 2023 in the first quarter. This did not affect individual municipality consumers, but 55% is the average increase in the rate, take into account the distribution rate growth in '23 and '24. I do not remember the starting point but we can find this piece of information or you can check that in the tariff. Too many components, we will try to clarify this after the conference. As for the dividend on distribution, for the time being no decision has been made. PGE still has the time until the general meeting is held, and that is still the end of the second quarter. The priority of distribution remains investments. So for sure, no profit generated by distribution segment will affect operating results and investments planned there. This is one of our key segments and one of the major beneficiaries of CapEx that is needed for modernization of the network and that we are doing on a regular basis. We have ambitious investment plans. And for sure, these will be secured financially as well the capacity. Power market, I would like to tell you that, basically, we have the overheads that are covered by -- from this segment. But if there is no income here, we will have additional burden. But that will be discussed with the new...

Any other questions, please.

Pawel Puchalski, Santander. Let me start with the major issue that is setting off some assets. We had a few communications from the minister. They changed from 1 month to another. Allegedly, certain governmental committee is working on this. I would like to find out if there are any preliminary meetings. At which stage are we right now? This is a very essential project of PGE at the present. And the second auxiliary question, has PGE considered the possibility of select units remaining within the group? That was the suggestion of Mr. [ Nihimovski ] voiced back in October 2023. So let's start with this segment.

Of course, it is rather complicated and complex process. We had a series of meetings in which we outlined the concept and the project. We have already selected advisers who will develop the financial model as well as proposed regulatory solutions related to the offsetting of the assets. So organizationally, our conventional segment is prepared for this operation. You referred to this interministerial team for state assets. This body of this team will work with us in designing those solutions. We will together elaborate final solutions in this regard. We would very much like this transaction to be finalized no later than next year. And this year, the upcoming months, we'll see proprietary works that consists mainly in developing the financial model. As you can see, the market situation exist fairly dynamic. Everything has to be translated into financial forecast. So we have to address some public financial aid issues or stand-alone functioning of this segment. We plan to finalize all those works by the end of this year, including the development of regulatory proposals that the physical setting of those assets should take place next year. I reiterate this in all situations where I have a chance to talk about it, would very much like this to happen in 2025. But it has to be noted that we are not the final decision maker, and it all has to be done in dialogue with the government. We need to take into account the position of the government, the position of the Minister. We are working on those solutions, and I hope that we will devise a formula that will allow us to achieve our goals by next year. At present, we don't want to adjust the existing plans. All there are, are various comments on the topic because the concept is the work in progress. So various options are being tested as -- for its visibility. But the general direction is clear and defined. From my perspective, it should be feasible. For the group, it is absolutely vital that we strive to achieve this solution by next year. That is linked to the ambitious investment plan. The development projects cannot wait. And that has to be the sequence of events. First, the ownership restructuring that will release the potential of the group, the capacity for individual projects, especially regarding investments in distribution and, in particular, in offshore projects.

[indiscernible] I have 2 questions. The first one relates to the information contained in your report on the PGE GiEK assets value, and it's estimated by less than PLN 1.979 billion. I'd like to ask you whether it means that the value of the power station, after all the write-downs we've witnessed, is that amount, if that amount represents that or the write-downs for the Opole power station, 5.6,, have already been made when it comes to the valuation of that entity. And the second question I wanted to ask, Mr. President, the last time when we talked -- the last time we talked at the Press Conference, you talked about the project in Konin. I'm talking about the nuclear project that is contained in the calendar defined by the previous board. I'd like to ask you when that timeline defined by the previous board ends and when you'll be starting making your ultimate decisions as for the further pursuit of the project in Konin or its discontinuation.

To address the question on the assets of PGE GiEK, PLN 1 billion are net assets, i.e., equity. So this is not asset value because we have assets versus equity and liabilities. So the assets after the write-downs, we're talking about PLN 20 billion plus. If I remember, Units 5 and 6 have not been subject to impairment yet. But you always have to -- it's on a -- it's not on a net basis. So here, we have net assets, and we still have a significant liability level. The asset value lowered from PLN 1.8 billion to PLN 1 billion, owing to the loss realized. Yes, there were loss realized. The assets were higher, but the loss realized in Q1 lower than but we're talking about net assets rather than fixed assets, which are at the level of 25. And the second question, the time line for the nuclear power project. I would avoid the personalization of the timeline. That was the timeline for the project developed by the previous board, but it's still the timeline of the project that the group is involved in. It's very preliminary. You talked about the final decisions. It's still very long way for such a complex project as nuclear energy. We're at the stage of very preliminary analyses of applying this technology in this location, and preparatory work is underway. Recently, we made the decision to install the meteorological mast, which is involved in tests, weather tests, and connected with the environmental decision. So currently, the project is at a very preliminary analysis stage, the analyses of the feasibility of using that technology, and we're very remote from the decision to be made. This is a project distributed over years, and we are still at a very preliminary stage. Yes. Yes, please.

[ Tomas Brzezinski, Clean Energy GreenHub ]. I have a question on strategy. There was a hard decision presented that you are making the decisions on -- that you are pursuing your work on the strategy. When can we expect the document? And will this document contain a clear declaration on the nuclear energy? Because I can see that the CEO has not decided. And what sort of nuclear projects, large nuclear units or small nuclear units, and whether it'll be a significant allocation when it comes to energy storage? Because you mentioned that there should be more of them to stabilize the grid, and currently, the strategy currently in place issued some CapEx level and power reserve in this segment.

Ladies and gentlemen, let me just say -- address it on a one-by-one basis. We are analyzing large-scale nuclear energy projects. We're not involved in small nuclear projects. Such projects are being analyzed in different entities. We don't have such projects in place. As regards to the strategy, in my opinion, well -- perhaps we haven't had an opportunity to interact on many occasions. Some are very specific person, unlike things that have a specific dimension. I will very much like that the new opening of the group, the new group strategy should be the moment once we've closed the conceptual and regulatory work connected with the separation of our coal -- of coal-based assets because that will be the new opening of the structure, the asset structure. So that's my dream. So we could prepare the strategy where the large opening of the most important component will be the change of the ownership structure, new structure of generating assets and based on RES, without conventional generation assets. So that's the moment I'd like to announce the new strategy, announcing the new direction and new strategy of the group. So hopefully, this will happen as soon as possible. Yes, I confirm what you said, can now confirm your observation. The components connected with energy storage facilities will have a significant share in the new strategy because it will stem from the new power generation market and generating assets. In the next decade, they will be characterized by high variability stemming from the RES nature -- the nature of the RES. And as regards the supply in the market and the amount of energy in the market requires flattening. The amount of strategy has to be the same on windy and sunny days and at night -- as well as at night or on cloudy days. And energy storage facilities will play an important role, and this will be one of the most important components to the group's development and the development of new components of the group. That will be a component of the new strategy. So as part of the RES, development in the group will also be developed. We are at the stage of preparing the most -- the largest project connected with energy storage funded from the -- or co-funded by the REPowerEU project, the national project of it. And that's an energy storage with the power of 200 megawatts that will be performed in Zarnowiec, along with the fund for environmental protection. So this defines the direction. We're talking about 2 billion worth in CapEx to be allocated in that. We're also assuming several dozen smaller energy storage facilities, both commercial working on a market basis as well as those that are not connected with investments in the grid because they have to be prepared by the grid operator. They are more directed at the stabilization of the grid, so to provide energy stability in those areas where it will not be economically feasible to provide energy on an ongoing basis to recipients. So we are pursuing several dozen such minor projects. So yes, this is a component which will be playing an important role in the ultimate projects. We are pursuing the largest project when it comes to the largest energy storage facilities -- facility, 200 megawatts in terms of its capacity in Zarnowiec. And we -- I'd like the new strategy to be showing a new group, a new opening of the group that will be based on the new generating asset structure or the key developmental projects. Today, we can say -- we can be modifying the dates. We can say that we'd like to separate the generating assets. We'd like to separate conventional energy. I think it will be much weaker and less specific than what we'll be able, hopefully, to communicate soon, once we've reached the solutions and we've coordinated the regulatory and statutory solutions that will involve a change in the conventional assets ownership structure. This will be a new opening, perfect opening for the PGE Group that will be pursuing its strategy in the new energy sector, which at the Polish and European level, we are trying to build. That's my plan. That would be my plan. And the recommendation, of course, if the situation gets extended and if the situation -- those projects are extended, then perhaps the best solution will be to perform a minor energy update or adjustment. But I'd like us to meet in the large event and a large meeting where we'll be showing the group's new future, new start of a group which will be substantially changed -- with a substantially changed structure and the developmental plans that you are aware of today. We're talking about investments in distribution stemming from the change in the electro energy system, the generation sources, changeability, seasonality, greater flexibility. This is the percent of large-scale offshore energy generation. That should be the baseload for the years to come at the district heating and its decarbonization. And that's roughly the directions that we'll be working on.

One more question, but it's off the mic. Please wait for the mic. Otherwise, the listeners can't listen -- can't hear it.

Sorry, the last part of the presentation mentioned several segments. I'm interested in gas-based energy. This is quite modest 22 million in revenues after Q1. Why the conservative approach when it comes to that? It's quite large when it comes to the energy installed.

I'm not sure I understand the question.

Well, you said that you don't -- you didn't know, but you were expecting that the issue with the general contractor.

That's a different thing. The closure -- the formal closure of the project. But I was saying that we were pursuing work the start-up work, but it's still a part of the CapEx process pursued. So the energy is reaching the balancing market.

When can you expect this project to be fully operational? Do you know where it will be launched in full swing?

Given that we're at the end of May, if you look at -- look for the full operational capacity, the full results, we're talking about 2025. So we'll be talking about a whole of 12 months after the launch. If we're talking about the impact on the annual results, yes, I mean, the full year will be next year. But the operating -- operational capacity will be this year. But we're talking about Q3 or Q4.

When is it going to be operational in full swing?

It will be on a sequential basis, Unit 6, Unit 9. I mentioned that. Unit 9 was synchronized in Q1 and Unit 10 was synchronized 5 days ago, roughly.

Pawel Puchalski, Santander. I'd like to ask you about the offshore segment. The first question is, as part of the project pursued at the beginning, will all your expenditures funded from equity? Or will the debt-based funding -- debt funding will kick in at the same time? That's question number one. And question two on your further licenses. Whether you'll be able to present the first project for the auction in 2025?

To answer your first question, by the time the Final Investment Decision has been made, we provide funding from our own sources. And afterwards, we will provide funding in such share as pro rata will be established in the structure of the total funding. As for the auction, we plan to participate in 2025. We are now reviewing how individual areas are attractive to us, and we arrange them in a queue in our pipeline in terms of the best potential contribution to the overall result of the group. The market situation of offshore investment is extremely dynamic. The costs have been growing significantly in recent years. So we need to have a careful look at our portfolio to identify those projects which represent the highest potential in terms of the contribution to the overall profit of the group and start with those projects, which do represent its highest potential. We are now at the stage of carrying out those analyses. The whole idea is to arrange them in line, which is optimum for the group.

[indiscernible] Director Sudol said, or maybe the President said, that you had an advisory company helping you to develop the strategy of setting off the coal assets. And who is your adviser? That is my question. Which company advises you on this? And the second question is related to the information about the final decision on offshore, that this final decision is going to be made about Baltica 2. And what about Baltica 3? When do you expect a similar decision with regard to Baltica 3? And then a negative EBITDA in coal. Did you also record a loss on operations there? And do you expect negative EBITDA in this segment for whole year?

As for conventional energy, indeed, the results are negative. If the same trend continued, naturally, the result can be negative unless there is snowfall. Energy prices rebounded, but there's no [indiscernible] right now. Let's say, in mid-July, no later than mid-July, no later than 22nd of July, that would be a new celebration. But the prices are growing. In the spot market, we came to the level of below PLN 300. But then as CO2 prices increased, the overall energy prices also increased. That's all driven by volumes. If there is no -- volumes will go up .and otherwise, we will have a negative impact.

In the first quarter, you had an operational loss, negative CDS.

CDS was positive. But GiEK is a different company from Enea, for example, because we still carry the cost of lignite. The share of fixed cost per unit of lignite is growing; CDS, a positive. The margin -- the first margin is positive. But then if we include...

So in other words, you have a loss on operations?

Yes, negative EBITDA. We are transparent about this. First margin was positive.

And what about this advisory company and FID?

Final Investment Decision, well, we talked about the third -- we are planning to make a decision in the second half of this year. Baltica 3 is undergoing the process of reconfiguration analysis and seeking of solutions that will boost economic attractiveness of the project. I cannot give you any prediction on when the investment decision will be made. We have just bound by the Offshore Act with regard to the funding provided. And in CapEx, we have the market situation as it is. We know by when we need to generate this energy. That is the timeframe that we have.

Then one more question related to gas. You mentioned the expected date pending over the unit in Gryfino. And what about Nowa Czechnica? When is it going to be handed over for operations?

For winter 2024, 2025, so sometime in autumn, yes, unless winter start early.

Pawel Puchalski, Santander. Please just one question. You and I have also -- lady here and Mr. [indiscernible]. Distribution costs of capital, this year, we have a 3% premium, and that is absolutely key. The amount of this premium is absolutely essential for the following years. When an analyst works on a model, should such an analyst also include the 3%, assuming you -- high CapEx for this segment? Or can anything change either in plus or minus? Because we know the basic level of weighted cost of capital, the premium becomes essential. So what should an analyst put in their model for the following 3, 5 years professional judgment?

It's hard to discuss this level. There was also a discussion of the distribution rate. Accumulated growth was 50%. But on the other hand, we have other requirements and then -- actually, I'm not able to say whether you can add or remove the 3%. Anyway, we are happy that we can assume a 0.5% return. So far, we have functioned without this, only taking an annual perspective.

Okay. So now additional question. What timeline do you have for PwC? By when they supposed to finish their analysis? Will PwC value those assets for you?

Yes. If we want those things to be finalized next year, they need to finish this year. They should be done in the third quarter. I hope we will do all this in a dialogue, so we do not expect a concept to be put on the table in the third quarter and this concept turns out to be unacceptable to us. So both with regard to regulations and with this interministerial team and the adviser, we want to do that together so that the concept that is elaborated by them is final and viable. So we are now preparing for this dialogue, but we want the work to be -- likely to function. We don't want to come up with a solution that will later need to be discussed for another 6 months. So we want, on a working basis, to develop the concept that will be prepared together with other stakeholders.

But the financial model regulations, valuation and offshore, do you plan to take part in this auction?

And the second part of the offshore project, we are now elaborating our approach and developing our pipeline and defining the formula in which we want to participate. We are now working on a solution on our approach. We are currently working on it. And I hope -- well, now we are focused on FID for Baltica, but the key element will be in the developing of the formula of cooperation because there can be various types of cooperation, potential partners and then the approach to sequencing the projects that we want to pursue in terms of the positive or maximum optimal contribution to the group value. But it will be premature to suggest semi-concrete solutions. There can be various approaches.

Thank you. Thank you very much, Mr. President. Thanks to directors, and thanks to all those who have come to visit us here as well as those who have watched us online. And for those of you who are here with us behind this gray door, there's a small treat, beverages. So you're all invited to take advantage of them. Thank you.