7. Impairment test (property, plant and equipment)

In the fourth quarter of 2015, due to the information and analyses possessed and regarding, among others, a variation in the market prices of electricity, energy origin certificates, and a modification of forecasts of macroeconomic ratios, the Group carried out impairment tests on shares in a subsidiary producing energy. As a result of the tests, the Group recognize an impairment loss on assets in cach generating units (CGU) tested.

The recoverable amount of shares was determined as a sum of values in use of particular CGU comprising ENEA Wytwarzanie Sp. z o.o. less financial debt. CGU’ values in use were determined based on the discounted cash flows resulting from financial projections prepared for periods longer than 5 years. Such periods are justified by the fact that economic useful lives of particular CGUs and long-term impact of anticipated regulatory changes. For production units, for which the assumed economic useful lives exceeds the projection time, residual value was determined.

Periods of projection for the cash generating units:

• CGU Białystok – till 2025,
• CGU Major Power Plant – till 2038,
• CGU Wind – till 2035,
• CGU Water – till 2035.

According to the Group, the key assumptions are in line with the general premises from external sources of information, considering the specific product offer of the Group, the current experiences and actual events and business activities.

The main assumptions adopted in value loss tests are presented below:

- assets were tested as four cash generating units (CGU) in ENEA Wytwarzanie Sp. z o.o. – i.e. CGU Białystok, CGU Major Power Plant, CGU Wind and CGU Water,

- price paths, based on the Group forecasts prepared by an independent expert company, considering the specific product offer and knowledge of concluded contracts:

- wholesale electricity prices for 2016-2038, which are anticipated to drop in the next years and rise beginning with 2020,

- prices of energy origin certificates from renewable sources and cogeneration, the existence of a support system for RES after 2025 as well was assumed along with the existence of a support system for high-efficiency cogeneration in the entire forecast period,

- prices of rights to CO₂ emission rights,

- coal prices,

- adoption of free-of-charge rights to CO₂ emissions received for 2015-2020 according to the application for the grant of free-of-charge emission rights (pursuant to art 10c sec. 5 of Directive 2003/87/EC of the European Parliament and of the Council),

- consideration of the commenced capital investment regarding the construction of block No. 11 at the Kozienice Power Plant,

- consideration of regulatory changes in terms of revenues related to maintaining production powers as of 2019, since, as of the date of the financial statements, there were no specific projects and plans for the Polish market regarding the aforementioned regulations, hence the Group performed an analysis and accepted the above specified according to the best knowledge. Adoption of such assumptions seems justified due to the anticipated fluctuation of electricity prices and the necessary changes in the regulatory environment. It is therefore justified that there is a risk that the final effective term and regulatory mechanism can prove significantly different to those adopted by the Group,

- adoption of assumptions regarding inflation, considering the NBP inflation target at maximum level of 2.5%.

- discount rate and growth rate in residual period for particular CGUs:

In the comparative period (2014) the following discount rates and growth rates in the residual period were assumed:

The results of the tests carried out were as follows:

Impairment losses recognized as a result of impairments tests for given CGU were allocated first to reduce the carrying amount of goodwill allocated to the cash generating units and then to other non-current assets of the unit.

Goodwill

As a result of the impairments tests performed, the following goodwill was fully written off:

- CGU Water – PLN 667 thousand,

- CGU Wind - PLN 121 120 thousand,

- CGU Białystok – PLN 79 414 thousand.

The amounts below presents goowill amounts before and after impairment loss allocation:

Sensitivity analysis

The sensitivity analysis performed indicates that the key assumptions affecting the determination of value in use of cash generating units include, among others: discount rates, inflation and levels of electricity prices. Future financial results and, consequently, the value in use of cash generating units will be also affected by the levels of prices of energy origin certificates, CO₂ emissions rights and coal prices, as well as the anticipated effective dates of regulations regarding revenues related to maintenance of production powers.

The impact of key assumptions on recoverable amount of shares in ENEA Wytwarzanie Sp. z o.o. is presented below:

Imact of discount rate change

Impact of inflation change from 2019 (basic level 2.5%)

Impact of energy prices changes