TAURON Polska Energia S.A. (TPE) Earnings Call Transcript & Summary

For 2020, similar as in case of the previous 4 earnings conference calls due to the pandemic, however, conference is held a video conference format. Vice President for Finance, Mr. Marek Wadowski, will be the host of today's conference. And during the Q&A session, you will also have access to Mr. Dariusz Niemiec, the President of the Management Board of TAURON -- Management Board of TAURON Wytwarzanie; Mr. Roland Makiela, Executive Director for Controlling; remotely available is Sebastian Gola, the Executive Director for the Analysis at Polska Energia. My name is Marcin Lauer. I represent the Investor Relations team. As usual, the presentation will be conducted in Polish with simultaneous interpreting into English. After the broadcast, you can also listen in to today's meeting via teleconference. And you can also ask questions via a form that's available on the website of our broadcast. Mr. President, you have the floor.

Ladies and gentlemen, 2020 was a year of a pandemic. As we can see on the slide which presents the operating data. This year versus last year, volume of electricity distributed fell by 3%. It is for a situation that has happened for a number of years now, especially difficult was -- time was the second quarter where we drove so much larger. Over the end of the year, quarter 4, we will see distribution, we saw the recovery of volume of electricity distributed. EBITDA was higher at 17%. The main driver behind this, a one-off effect was the release of a provision for the equivalent for electricity in the total amount of PLN 235 million. The net debt-to-EBITDA ratio, 2.5, a safe level. Let me remind you that the maximum level that is included in the covenants with the finance institution is 3.5. 2020 is also a year of lower production from coal-fired units. We can see here, declined by 15% versus last year and the higher output from renewable energy sources by more than 40%. This year also, we produce more coal -- more hard coal 20% more than last year, whereas the supply came down, dropped 4% similar as the decline of electricity volume distributed. Quarter 4 alone looked a bit different than the entire year. It was better. You could see that economy is getting used or is adapting to the conditions related to the pandemic. The volume of electricity distributed went up by 3%. Production of electricity from renewable energy sources went up 35%, whereas also electricity production by hard coal-fired units went up by 6%. Let me remind you that the entire 2020 fell 15%. EBITDA in Q4 alone was significantly higher, materially higher, 82% versus the same period of last year -- or the previous year. When we look at the macroeconomic environment of TAURON Group, it's worth mentioning, that it was a special year. As you can see, looking at the graph showing the changes of the GDP rate in Poland. You could see that Q2 was a very difficult period of time. We could also conclude to that based on the volume of business. But in the subsequent quarters, business was better. The industrial production sold even though -- it was rising at the end of the year, but it's worth mentioning that the services suffered more from the pandemic. Manufacturing, not so much. That's why the data that we are presenting look the way they do. Consumption electricity throughout 2020 went down versus the previous year 2.3%. The imports went up by almost 25%. It was a record-breaking level, more than 13 terawatt hours. We are assuming that in the subsequent periods, the electricity imports will be slightly lower. Production of electricity in Poland went down by 4%, mainly in terms of lignite and hard coal-fired electricity generation. However, the production from renewable energy sources went up as well as the gas-fired units output went up. It's worth taking note of graph showing the CO2 emission allowance prices. In 2020, we were dealing with quite substantial volatility. In Q2, the prices went down to 15% -- EUR 15, which from the level of EUR 30 per ton. Later, prices rebounded very quickly. And now we can see that in Q1 2021, we are dealing with quite a substantial increase -- material increase of emission allowances prices, carbon prices, and we can see a very strong growth. The previous years were showing also upward trend of CO2 emission allowances prices. However, the latest quarter brings very fast growth, very high volatility, which had a major impact or material impact among the operations of some groups as TAURON Group. Briefly, a few words about the financial results 2020. I'd like to emphasize that the net profit that we are showing is, first of all, both in 2020 as well as in 2019, under the strong pressure of impairment charges to the current carrying amount of ties asset. If -- were it not been for the impairment charges, the net profit both in 2019 and 2020 would have been slightly more than PLN 1 billion positive. EBITDA adjusted, excluding one-off events. First of all, the provision -- release of the provision for equivalent for electricity went up year-over-year, 3%. In Q4 alone, EBITDA adjusted, excluding one-off events, went up 36%, a very significant increase of EBITDA. We will outline -- elaborate on the reasons for such a growth later on. The Distribution segment invariably in 2020 was the most important segment contributing to EBITDA. It is 72% contribution to EBITDA. The EBIT is -- you can see an important impact of impairment charges. In Q4 alone, you could also see the major role played by the Distribution segment. However, Q4 2019 was very special due, first of all, to one-off events. Therefore, the structure looks a bit different. Now let's talk about the reasons for EBITDA growth in 2020. When we compare EBITDA year-over-year, the segment that contributed to the increase, first of all, the Distribution segment, Mining and Supply segment. The segment had a negative impact upon the EBITDA was the Generation segment. And in Q4 alone, basically, one should say that all segments had a positive impact contribution to EBITDA, with the biggest contribution coming from the Supply segment, Mining and Generation segments. The Distribution segment in 2020 is, first of all, the release of a provision for the equivalent for electricity in the amount of PLN 425 million. The balance of that amount, PLN 535 million was released in other segment -- was taken into account in other segments. And an important change regarding both the volume of distributed as well as the structure of the volume. We are showing to you minus PLN 164 million was the impact of volume itself while the impact of the prices is very positive, almost PLN 400 million, almost, on EBITDA. But the impact of the price can be split into 2 major components. The first one being the impact of the price related to the fact that the distribution tariff in 2019 was approved or was enforced effectively starting from April 6 or first quarter of 2019, practically was based on the 2018 tariff. And as compared to 2020 tariff, the average price for that reason is higher in 2020. And additionally, the structure of the interest distribution has changed. Practically in all TAURON groups, the volume went down, except for 1 group, the G Group, namely the household. This is also has a major impact upon the total level of the average price. That's such a significant impact of the price on EBITDA. Also important is the impact of grid losses, PLN 106 million. It was into related to 2 factors. The first one being, of course, the price of electricity, which was higher in 2020 versus 2019. The price of electricity to cover grid losses and the other important element was also the higher level of those losses due to the change of the volume of electricity distributed. More volume with selling is applying to the low voltage segment, which, by nature, leads to an increase of grid losses. Q4 alone in Distribution segment, EBITDA, very similar versus the previous year, the price didn't have such a major impact as for the full 2020 because Q4 alone is the recovery of volume. You can see the volume had positive impact on the EBITDA, and we also had higher volume overall. So -- so best situation showing to us as our consumers adapted to the situation caused by the pandemic. Looking at the key parameters, one should note the improvement of duration -- interruption duration and frequency of interruptions and new grid connection installation time, very similar versus 2019. All of those parameters are, of course, the parameters at such a level, but is safe due to the regulations imposed by the President of Energy Regulatory Office. We do not expect any adjustment, correction of a tariff in the subsequent periods. The regulatory asset base of the assets is growing over time. And we're also expecting the increase of regulatory asset base in 2021. Moving on to the next segment, the renewable energy sources segment, one should note, first of all, that in 2019, we acquired wind farms with a total capacity of 180 megawatts. Those wind farms on the balance sheet of TAURON Group starting from beginning of September 2019. That's why when we compare the production output, we differentiated it between the output of wind farm micro energia. So we're up to now, the previous thus far wind farms held by the group and the newly acquired wind farms, in total, we were dealing with a significant increase of production output, which was mainly related to the acquisition of wind farms. Therefore, the production went up by more than 40%. Also the production from hydroelectric power plants was very good last year due to favorable hydrological conditions, not in the beginning of 2020, but further on, later in the year, those conditions improved significantly and which meant that we were able to produce more electricity from hydro power plants, which had a major impact upon components, margin electricity or property rights. Those 2 components are likely the fault to the increase of their production from the renewable energy sources. Q4 alone in the renewable energy sources doesn't show such substantial increases due to the fact that the new wind farms, the new acquired wind farms in 2019 were already in operation throughout Q4. You can see a clear improvement with respect to the output of the hydropower plants, almost double the production output, which was related to the favorable hydrological conditions in 2020. And very -- you can see also very comparable output -- similar output from the wind farms in Q4. In Generation segment, one should note, first of all, what I already brought up at the very beginning, the rising prices of CO2 emission allowances prices. If we compare the price of electricity, in 2020, obtained by Generation segment versus 2019. The price is a very small degree higher. It's about PLN 4 per megawatt hour. However, the price of carbon credits that we used to cover the obligation in 2019 was PLN 66 per megawatt hour, in 2020 is PLN 98 . So a very material increase by PLN 32 per megawatt hour, which has naturally an impact upon the deterioration of the margin. We are showing in the bar, but we are showing marginal electricity. This is the main reasons for the deterioration of the EBITDA in that segment. Simply, the price of electricity does not reflect the rising prices of CO2 emission allowances prices. Why it's not reflecting? For 2 reasons as a matter of fact. First of one being the fact that imports went up significantly. And the second one is the increasing share contribution of renewables to energy mix. I mean the regulation between electricity price and the CO2 emission allowance prices is getting weaker and weaker. And this naturally has an impact upon the earnings in that segment. In the case of the biomass-fired units, this margin is a bit better. But this is related to, first of all, to the market condition. And one should clearly say that the biomass-fired units are those units for which the most important thing is the relationship between the price obtained on the market and the biomass cost. If the biomass price goes up very strongly, then this production becomes unprofitable. And this relationship is not important. New in Jaworzno, Norway Jaworzno, where 900 megawatt unit has been in operations since November 2020. So partially, we are showing this result in regeneration segment in 2020. In 2020, we also swapped the contracts for CO2 emission allowances purchases. We sold it on the market. We purchased under contracts with financial institutions. Sales and purchase prices were a bit different. So overall, we showed -- recognized a loss in the transaction, but this loss will be accounted for, as the time goes by. In 2020, this loss is almost less than -- a little bit less than PLN 80 million. In Q4 alone, 2020 as I mentioned, the 910-megawatt unit is in operation. So that's why we are showing the positive impact of the units on -- is all the profit of Generation segment. Here also the CO2 emission allowance prices are important, but if we compare the price of electricity in Q4 alone, it went up. It went up by PLN 20 per megawatt hour. The prices of CO2 emission allowances or cost of purchasing the carbon credits to produce electricity went up by PLN 26. So one may say that in Q4 alone, this correlation was better. In terms of what was happening on the electricity market, one should note another -- highlight another sector, namely in the case of the pandemic when the entire economy found itself facing the lockdown, which led to the unprecedented situation. It suddenly turned out that many market participants are simply overcontracted. Too much electricity was purchased. It was simply redundant due to what's happening in the economy. And the price of electricity went down in Q2 alone. Also margins went down. They recovered later -- later in the year due to the adjustment, adaptation of the economy to the pandemic situation. This also had an impact upon our situation -- our position. As you can see, clearly in Q4, in the Generation segment, we have a lesser impact of market-related sectors. In the Supply segment, one should note one very important element, namely the buyback, the repurchase of electricity because in 2020, for the majority part of the year, the 910, the new unit was not in operation. We contracted earlier the sale -- supply of electricity before we were buying back repurchasing electricity on the market. Also the Stalowa Wola was not also in operation for the majority of the year and also buying back electricity on the market. And this led to a positive impact in the total amount of PLN 335 million. And it's also worth noting that this is clearly a one-off event. Now both units are in operation and the EBITDA will be included except for Stalowa Wola because we are not including Stalowa Wola unit in EBITDA. That 910 result -- unit results will be included in the Generation segment. We are expecting generally that the 910-megawatt unit in Jaworzno will be generating EBITDA for full year at the consolidated level in the amount of between PLN 250 million and PLN 300 million. In the Supply segment, we also were dealing with slightly lower volume of electricity supplied as well as higher change of the structure. In this case, the positive change of the structure, the change of the composition. And in terms of margin volume, we are showing that the impact was positive. One more thing should be highlighted here, namely the issue related to onerous contracts. So we will show it on the next slide when we are showing Q4 alone. In Q4 alone in the Supply segment, we are showing quite a significant positive impact because in 2019, we set a provision for onerous contracts related to the costs that are not covered by the tariffs, approved by the President of Energy Regulator Office. In 2020, as we remind you, the tariff didn't cover full costs. In 2021, it covers the full cost, but in '22, it didn't cover. So that's why we set up the provision. In 2020, we didn't set up a provision, we set up a small provision for losses related to the prosumers. That's why quite a material impact was the factor of the lack of provision in 2020 set up while in 2019 such provisions had been set out. And moving on to the mining segment. Ladies and gentlemen, here, one can say we are dealing with a festival of positive factors that improved our earnings in the segment. That's true in 2020. The situation is much better, much better in terms of production. The unit costs, mining cash cost went down quite substantially, whereas 2020, first of all, the year, we were dealing with a high coal inventory levels, which is the consequence of what I mentioned before, namely it is the consequence of a general -- a decline nationwide, not only in TAURON Group but of a decline of hard coal-fired production, and this is reflected in the change of the inventory level, which we are showing here, one may say in demonstrating the cost of producing coal in the inventory level. Once the inventory is consumed, is used, sold, then this effect will be reversed. Of course, the scale of this effect is depending upon the price of the coal. And then we will have -- we'll see what's the impact of the sale of inventory on the EBITDA results. The other factors had a positive impact. Let me your draw attention to one, the financing and the anti-crisis of PLN 47 million. This was a consequence of the fact that for 3 months workforce of the segment of TAURON mining subsidiary had a reduced working time and reduced wages. And at the same time, we will see the financing under the anti-crisis shield and that led it to improvement of EBITDA, but of course at an unsatisfactory level, negative level, but it's quite a significant improvement versus 2019. In Q4 alone the situation is very similar. In the graph in the bar, other, we are showing the impact of one-off events that took place in 2019 but didn't occur in 2020. And ladies and gentlemen, the discontinued operations. This is the TAURON heat subsidiaries. It is being reported as discontinued operation because at the end of 2020, it was a company held for sale, subsidiary held for sale. Due to the fact that after the balance sheet date after the end of 2020, the bidder or the potential bidder, the company stepped back from the reaction. We took actions. So we are conducting now analysis of what to do next with this line of business. However, as of the end of 2020, this company, the subsidiary was held for sale. That's why we are placing it in the supporting as discontinued operations. Although, of course, these operations are continuing, in fact. Here, EBITDA is very similar year-over-year 2020 versus 2019 in spite of the fact that in 2020 the situation regarding the temperature -- the temperature was definitely less favorable than 2019. Nevertheless, here, the EBITDA was -- level was maintained. A little bit of attention to one element, margin on electricity here, of course, the increase of the prices of CO2 emission allowances. In this case, in the case of electricity generation by TAURON heat subsidiary, this increase is a bit smaller versus several dozen percent, of course, but this is why material -- has a material impact upon the reduction of unit margin. Q4 alone, at TAURON heat, we saw the earnings improved quite substantially, quite materially. We are showing here the most important element in the other segment. The other segment, first of all, this release of the provision with PLN 15 million, practically half of that amount is a one-off event, the release of the provision. And ladies and gentlemen, let me move on to the debt and financing topic. Now I'd like to mention that at the end of 2020, the company of TAURON group -- TAURON Capital Group had available financing of PLN 3.4 billion financing available. Let me remind you that the net debt-to-EBITDA ratio is 2.5. Looking at the maturity of our debt, you can clearly see that this year, 2021 there's not so much repayment of debt. However, in the subsequent year, we have to repay a large bond issue program originated in 2015. At this point in time, we are conducting works, we are making analysis. We are talking to financial institutions how to approach this. We are looking also for a good solution in terms of the timing when we were to take up some actions due to the fact that we know the situation is quite specific, so special. We have pandemic in the back of our minds all the time. So we are hoping that vaccination program will be conducted efficiently and the dates, the time line provided will enable us to approach the maturity, the bond issue maturity repayment date in 2022. Moving on and discussing briefly the CapEx and the structure of the capital expenditures. The Distribution has a larger share. Generation had also a large share in 2019 and '20. But once the 910-megawatt unit was commissioned, the CapEx in the Generation segment will be smaller than in the previous years from now on. We are also assuming that there will be more and more CapEx in the Renewable Energy Sources, but we must remember these are often products that require also time. And therefore, we don't have spectacular projects to show here in 2020. However, the works are underway all the time regarding this topic. Looking at the prospects, the outlook, 2021 outlook. In our 5 segments, 5 lines of business, it's worth noting the Distribution segment. If we adjust the earnings, excluding the one-off events of 2020, primarily the provision for [ PLN 30 million -- PLN 30 billion ], provision for electricity equivalent, we expect EBITDA to be flat. We are very happy with the fact that the President of Regulatory Office maintained the WACC at the level of 2020. Namely in this segment, we are dealing with a stable solution. Of course, this WACC, we would like this WACC to be higher. But I think that the risk that we were also raising a number of times that the WACC will drop, it did not materialize. So it's a positive piece of information. We expect the increase of the regulatory assets based also on the volume of electricity distribution should be higher. We can see it based on what we have been observing since the beginning of this year. So a slight decline of the distribution charge should not have an impact upon the EBITDA generated in the segment. In the Renewable Energy Sources segment, we are expecting a decline of electricity production, worse weather conditions in 2021 than in '20. The same was hydrological conditions. Therefore, we expect a decline of production, which should have an impact on the decline of EBITDA. But here was a chance that the weather conditions will be better, will be more favorable. Anyhow, some of our sources lost their support system due to the period of operation. And in this segment, we are expecting that in 2021, we will not be dealing with a large increase of installed capacity. Of course, over time and even recently, we were communicating the commissioning of Choszczno photovoltaic farm in Jaworzno in 2020, but these are amounts in the region of 5, 6 megawatts. In the Generation segment, we expect a potential increase mainly due to the operation of the 910-megawatt unit in Jaworzno that I mentioned. In 2020, we are buying back electricity on the market in 2021. We will be showing this result in the Generation segment because unit is in full operation. We are expecting PLN 680 million of revenue from the capacity market. However, one should remember that we don't have any more of operational capacity in cold intervention reserve mechanism. So the total impact on EBITDA is in the region of almost PLN 400 million. And we're expecting also difficult market situation of increase of the carbon credit prices. It doesn't make us optimistic regarding the hard coal-fired units. In the Supply segment, we expect adjusted EBITDA to be stable, to be flat after we exclude the EBITDA generated from the buyback of electricity, the total PLN 340 million of EBITDA coming from those buybacks of electricity in 2020. We assume a full coverage of costs by the G tariff will not lead to the differentiation. This is a positive piece of information for us. And we're also assuming that in 2021, we will be dealing with a substantial increase of capacity, power of prosumer installation. This has a negative impact upon the EBITDA generated by this segment. In conclusion, we expect EBITDA to be flat versus the previous year. In the mining segment, we also expect EBITDA to stay flat. Unfortunately, achieving a positive EBITDA would be the price -- first of all, on one hand, we are dealing with a higher hard coal volume that we produce, but we're also dealing with a lower price. The lower price is, first of all, related to the inventory levels that we have in Poland overall. There's a lot of coal, and reducing those inventory levels, taking account the market situation, the prices of CO2 emission allowances will take time. So therefore, this level of inventory increases the pressure on coal price reduction. And this will be the main challenge in the Mining segment. So the sales. Overall, the group's EBITDA should be comparable versus last year after excluding every one-off events. The consensus published by the Bloomberg indicates PLN 3.7 billion EBITDA. We feel comfortable with this level. We assume that the CapEx will be adapted -- adjusted to the EBITDA level. So it will be lower than in 2020. The debt and the leverage ratio, of course, here, we expect the situation to be stable. We cannot exclude the leverage ratio to be higher than at the end of 2020, but it will still be safe below the level that is allowed under the contracts with the financial position. So below 3.5. So ladies and gentlemen, that's all in terms of presentation part.

Thank you very much for the presentation. As I expect, one should -- associated with the fact that we made public the full year earnings, so the broadest information that we disclosed, so that's why we got such an unprecedented high number of questions that we received. We will try to answer maximum possible a number of those questions. But in case -- if within the time frame of our earnings conference we are not successful, I will ask you to get in touch with our Investor Relations team, and we will try to get back to you with the answers to your question. But without any further ado, let us move on to the questions themselves.

Mr. Michal Kozak from the brokerage house Trigon is asking about the most probable scenario of a bank's approach to the spinoff of mining assets, whether the mining net debt will be taken off the balance sheet of TAURON.

Let me answer this question. Of course, we would like that to happen, of course, to materialize the situation. The concept of spinning off the coal assets is a concept that the Ministry of State Assets are working on. It is not yet completed. Of course, we are counting on the positive approach of the financial institutions to such a concept. However, we do realize the fact that there's definitely the challenge. I think that we need to wait a little bit longer to finally find out what could be the scenario for spinning off coal assets, the mining assets. But definitely, this is in our interest for this debt to be taken off the balance sheet of TAURON. Of course, the question is in what amount.

Thank you very much. The question about the volume of coal extraction plan for 2021.

For 2021, our planned coal exceptional volume is slightly more than 5 million tonnes.

A more detailed question regarding the gas -- what -- the gas units and whether -- I'd like to ask -- answer this question -- Mr. Director Sebastian Gola to answer this question.

In terms of answer to this question, I would -- product related to the gas engine products was split in those 2 sections. The first one is the construction of about 5-megawatt capacity gas-fired engines in [ Gestra ]. They were submitted to the capacity auction for 2021. We managed to get additional bonus due to the low emissions. And the total revenue for a 17-year contract that we concluded under this auction was about between PLN 17 billion and PLN 19 billion depending upon -- million, how this will be. Another stage was another 5 megawatt. This product will be completed in 2021. So we took part in the main auction, additional auction for 2021. We were planning to take part in the additional auctions after 2024. We also conducted those units for a period of 15 years under the 25 auctions. So we have several years under contract. The prices that the material is under those auctions, this is the revenue of another PLN 15 million. So with an estimated total revenue from the 10-megawatt investment in entire capacity market period is about PLN 30-plus million and more depending upon how the price of the capacity market will be indexed by the President of Energy Regulatory Office. Thank you very much.

Thank you. Next question is regarding the need to set up the provision in the renewables segment. What are the current plans regarding the TAURON Heat? The CapEx plans for 2021? What about the Green Turn of TAURON strategy versus the plans for the potential purchase of some assets of CEZ in Poland and no sale of TAURON Heat subsidiary?

So several topics under these questions. So let me go one by one. Okay. The provisions in the renewables segment, we set up, of course, if -- I don't know if I give you a full answer to the question because I assume that this is a provision you are referring to. In 2020, we set up a provision due to real estate tax. This is related to the ruling of Constitutional Tribunal of July 2020 regarding inconsistency with regard to regulations, backdated regulations coming back to -- considering the structures, in particular, part of wind farm plans within 2020. But generally, this is a matter of, let's say, tax on the structure which was clear in 2020. But this is related to the fact that during the tax year, we changed the tax regulations and the ruling of Constitutional Tribunal determines that this is not in compliance and you cannot backdate the tax provision. The total provision amount is PLN 17 million. Of course, now there is an exchange of correspondence underway with the municipalities. However, the tax situation is practically clear. It's a one-off event related to the ruling of Constitutional Tribunal. Plans regarding the TAURON Heat subsidiary, at this point in time, we are reviewing those plans because if we are not able to finalize the deal due to the lack of interest of potential bidders, we are thinking what's next, what to do with the Heat segment. Here, a very important element is, of course, the emissions levels of the sources. TAURON Heat is mainly based on the hard coal-fired sources. So therefore, it's not possible not to assume in the future the upgrade, the amortization of those sources to turn them into low-emission sources. The natural choice would be here, the natural gas, which could, over time, be replaced with hydrogen. And that's why we are looking into various options and the amount of required CapEx regarding this project -- these such products. It might be of the fact that generally, the heating segment in Poland face sort of challenges. It's a big question mark how it will be financed, not to bring about substantial increase of heat prices in Poland. This is the situation today. We are analyzing the situation. We haven't taken a decision yet. The CapEx plan for 2021, as I mentioned already, we do not assume -- we assume it's not going to be more -- higher than the EBITDA level. And I think the Bloomberg consensus level is a level that we feel comfortable with. Of course, we will see yet how the implementation will be progressing. We don't have all the investment, product-related tender as a result. But this is, I think, the order of magnitude. So generally, it will be lower. Our CapEx will be lower than 2020. And now the CEZ assets that we are interested in are the assets that are located in the neighborhood of TAURON Heat assets. Therefore, we assume in case of this heating network, we might be dealing with a lot of synergies. We are not interested in Skawina. This is an asset that's located in Krakow. And this is -- we don't have a plan to expand outside the market that we are already serving. So I'm talking about the TAURON Heat subsidiary's market. If it turns out the terms that we could acquire those assets could be profitable and attractive for TAURON, of course, we'll provide this information. As of today, we haven't made a decision yet. We are conducting an analysis, a review how TAURON Heat subsidiary could operate in an optimum manner in the future, taking account the challenges that the company is facing.

Thank you very much. Next question regarding the shrinking of margin in the Generation segment due to the increase of the carbon credit prices in 2021. Will the revenue from the capacity market cover the decline of clean dark spread in the Generation segment? I'd like to ask Mr. Sebastian Gola to answer this question, please.

As we already mentioned in the previous part of the presentation, the main sector, the degrade of the profitability the Generation segment starting from this year is primarily the increase of the carbon credits but also well liquidation, such mechanism as the operational capacity reserve of cold interventional reserve mechanism. The market factor that shows the decline of the margins generated by the coal-fired units, mainly about 100-megawatt unit, this has been observed since 2019. In 2020, we were dealing with the decline of those prices, mainly due to the COVID pandemic and the record-breaking winter. This year, the margins are still not very good if you look at the unit -- per unit result. But looking from the group-wide perspective, you should look at the first-degree margin generated by our emission units, the total margin. And just like the capacity market was to play the role that involved compensating the lost revenue from capacity markets with the capacity payment, how it works in TAURON town, we can say that a large portion may be in the whole, the capacity market provides the compensation due to the decrease of production output and the margins.

Thank you. The next question is related to the impact of the sale to TPE for -- the sale agreement on the segment results. I'd like to ask Mr. Roland Makiela to answer this question, please.

The purchase of electricity on the 910-megawatt units on the TAURON Polska Energia earnings in Q4, this result was PLN 61 million in Q4.

Thank you very much. Next question is related to the participation of TAURON Polska Energia in the nuclear program. Other any details relative to this issue? Let me just brief you, inform and -- or remind you that recently, over the last few days, the shareholders of PGE EJ1, both TAURON Polska Energia, PGE, KGHM and ENEA, the shareholders sold those shares to the state treasury. So as of today, one may say that the role, the participation of utilities actually in this project has been completed. Next question is related to the guidance regarding the net debt-to-EBITDA ratio. Why should it go up if the adjusted EBITDA is to be flat and the CapEx should be lower?

Well, here, first of all, one very important element should be taken into account, namely the release in 2020 of the provision for the electricity equivalent in the total amount of PLN 537 million is now. We make such an assumption that the net debt-to-EBITDA ratio at the end of -- at the end of June, we calculated compared -- versus the EBITDA in the last 12 months. So at the end of March, it will not go up. The ratio will not go up due to the fact that we will be still including that, recognizing this one-off event because it occurred in Q2. However, as of the end of the year 2021, this one-off event will not be included, will not be recognized anymore. I think very briefly that's how you could summarize that.

Next question is related to the negative impact of expiration of the support of power plants and wind farms for 2021 year-over-year.

I'm not able to tell you for 2021, but I can answer as follows. In 2020, the support expires starting from September, and the impact was a decline of EBITDA by PLN 7 million. So maybe you could maybe extrapolate it for the entire 2021 based on these numbers.

Thank you. Next question is what is the adjusted EBITDA in the Mining segment for 2020.

In the Mining segment, this EBITDA, in fact, we should adjust by -- including PLN 60 million, these were one-off events. Of course, we can adjust it in different ways. For instance, by changing the -- taking into account the change of inventory level. But we're showing it in the presentation of the impact of that sector. But as a matter of fact, the one-off event is that PLN 60 million. This is the write-down in 2019, the costs incurred when you're working on the mining -- in headings, it's 2019, [ compared to ] 2019. But for this reason, we are showing the improvement of EBITDA in 2020. However, in 2020 alone, if you look formally at EBITDA amount, then as such one-off events practically are not included, so one can approach, look at this EBITDA as being the adjusted EBITDA.

We have a question regarding the impact in 2020 related to ensuring providing the distribution and storage of electricity for consumers and is asking where is it shown in the results -- in the earnings. I'd like to ask Mr. Director Roland Makiela this question.

In terms of the impact of a prosumer market with faster growth, let me remind you here that the number of the capacity of the power based on solar installation at the end of '19, it was 1 gigawatt. At the end of 2020, it was as much as 3 gigawatts. So we are talking about a 2-gigawatt increase within 1 year. So the impact of -- the value of that impact in Q4 accelerated even more. It was PLN 13 million. And for the entire 2020, it was the amount equal to PLN 31 million.

Thank you. A question about the cooperation with Polish Mining Group, PGG. What is the level -- the amount of coal not picked up in 2020? Will TAURON have to buy back the coal that it didn't pick up in 2020?

In this case, all the time, we are conducting an exchange of correspondence with the Polish Mining Group regarding this topic. In our opinion, the entire call for 2020 was picked up actually by TAURON Capital Group because at the end of the year, also at the end of January, we made the positive purchase of this coal in order to settle -- to make settlements and reconciliations for 2020 and to bring about a situation where we don't have any claims regarding those reconciliations. Unfortunately, the exchange of correspondence is still underway because the position of the Polish Mining Group is here. It's a bit different in this regard. However, due to the deposit type, the contractual revenue volumes amounts for 2020 were fully picked up by TAURON Group.

Thank you. As you can hear, the scope of questions is very extensive. The questions are dealing with all the lines of business of our group. The next question is related to the volume produced by the 910-megawatt units that has been produced since the commissioning of that unit. I'd like to ask Mr. President Dariusz Niemiec to answer this question.

In terms of the production output by the 910-megawatt units, since the commissioning date by -- as of the end of March, it produced about 1.25 terawatt hours. But one has to know, it's still infancy period. So during that time, a number of test, adjustments were carried out, scaling as well as troubleshooting. So this production was a result of our sales plans as well as clearances, the development that I already mentioned. Thank you very much.

Thank you. The next question is related to the hedging of electricity prices for 2021. And CO2 as well, what is the level of hedging for 2022? I'd like to ask this -- to answer this question -- Mr. Sebastian Gola to answer this question.

Regarding 2021, then in accordance with the contracting strategy, one may say the generation assets are contracted to almost 100% before the year of the delivery or the production of electricity. So the answer is yes, we have full 100% hedging for prices. Practically the result is already secured. Of course, on the spot market, depending upon the situation and the demand, there are times where we can additionally contract certain units. And we are also taking advantage of circumstances regarding the subsequent year, 2022 here. The level of contracting is dependent upon our strategy. I don't want to speak about detailed numbers because this is the plan -- this is our planned approach to the contracting of those assets that we have to follow. So the scheme regarding, first of all, the highest to the lowest variable cost units are contracted. So as I mentioned [ on this entity ], it is accounting the 100% hedging. But due to the [ CBS ] and the prices that we observe today, we have -- the units are progressively contracted, and this progress is strongly dependent upon the strategy that we have based upon the market conditions.

Thank you very much. The question, more of a general nature. What does TAURON expect from restructuring of mining sector? Does the company assume that at least 2 coal mines will be handed over? And the question regarding a plan of exception for 2021 was already addressed. However, we have another question related to that regarding the merger with the coal mines. And can the company reduce the headcount?

Well, let me answer this question. The work is underway regarding the final shape of social contracts regarding the mining, TAURON mining sector. Of course, TAURON has a big share. TAURON Mining subsidiary is a company that's involved in those works. And as part of those works, we are making following assumptions, that Janina and Sobieski Coal Mines will be merged together. We assume that, that may take place in 2021. We expect that such a merger will help us optimize the operations of those coal mines, thanks to a possibility to reduce the asset, improving the production levels. So a number of factors in place. Also geographically, those coal mines are allocated close to each other. These mining areas are located close to each other, and that's why this merger makes sense. Can we reduce the headcount? Let me remind you that TAURON Mining subsidiary is continuously reducing its headcount. Of course, not in a kind of step way. The way that we were doing a few years back, thanks to certain legislative solution. But over time, through the lack of new recruitment, the retirements, the requalifying, of course, the question of this process will be possible, of course, provided that it's enabled by the social agreement. So as far as what it will look like in the future, we still need some time. Wait for that. But what's important is the fact that the concept of restructuring the entire sector was presented to the social partners. And that concept includes an assumption that most probably, the mining assets will be excluded from this panel out of TAURON Group into another entity and that other entity will be able to take advantage of a notified public aid. This is the concept as of today. We will see whether this concept is defended at the European Commission level because, remember, it's not a simple thing to develop the work -- the final -- the ultimate concept to be agreed upon with the European Commission. We do believe -- we do hope that this process can be conducted efficiently and that the European Commission looks favorably at what is happening in Poland. It looks in a favorable way at our ways to change the shape of the sector. So that, on one hand, could decarbonize the energy sector and, on the other hand, to ensure the energy security. It was the process that's very important. This energy security must be, first of all, a very important element because in such cases as we were dealing with this year, the lack or shortage of electricity would have had very major consequences with a multi-faceted process. So therefore, we will be working on it. And we are definitely in favor of such restructuring of the mining sector, that it happens, that we can speak afterwards about the stable, good situation of the mining sector in Poland.

Ladies and gentlemen, thank you very much for all the questions that you sent. We also thank you for -- we will try to get back to you with information regarding certain details that's due to the time constraints of our earnings conference call we'll not be able to provide here today. I'd like to invite you to the conference after the Q1 report is presented. Taking advantage of this opportunity, let me also, on behalf of the entire team, to wish you Happy Easter, as much as possible health. And please stay in touch in your daily work with our Investor Relations team. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]