Impairment of non-financial assets

assets were tested in four CGUs (CGU Elektrownie Systemowe Kozienice, CGU Elektrownie Systemowe Połaniec, CGU Zielony Blok and CGU Białystok), 

• the main price paths, based on forecasts prepared by ENEA Trading (a company operating as ENEA Group’s competence centre for wholesale trade of electricity, emission allowances and fuels), taking into account the specific nature of products and knowledge about existing contracts: 
  • wholesale „base” prices for electricity: for 2022-2047: prices are expected to grow from 350.98 PLN/MWh in 2022 to 406.36 PLN/MWh in 2026, followed by a gradual decline at an average of 0.5% in the period 2027-2047 [fixed prices 2021], 
  • CO2 emission allowances: the forecast expects an increase in the prices of CO2 allowances by an average of 6.3%, from 50.93 EUR/t win 2022 to 2026. Between 2026 and 2040, prices are expected to grow further, by approx. 1.5%. From 2041, further growth at approx. 0.1% is expected [fixed prices 2021], 
  • coal: the prices of coal are expected to decline by an average of 0.8%, from 11.41 PLN/GJ until 2047 [fixed prices 2021],
  • biomass: the average price of biomass for the Group is expected to raise from 24.75 PLN/GJ in 2022 to 29.43 PLN/GJ in 2023. A 6.5% decline is forecast for 2024, in comparison with 2023, followed by 0.7% average annual growth until 2044 [fixed prices 2021],
  • heating: an average annual increase of approx. 1.7% is forecast until 2044, from the average price level of 72.8 PLN/GJ in 2022 [fixed prices 2021],
  • natural gas: prices are expected to decline until 2023, by approx. 3.9%, from 108.6 PLN/MWh in 2022, followed by price growth until 2047 at an average annual rate of approx. 0.7% [fixed prices 2021],
• quantity of CO2 emission allowances received for free for 2021-2025 in accordance with a derogation application (pursuant to art. 10c sec. 5 Directive 2003/87/EC of the European Parliament and of the Council),
• revenue related to maintaining generation capacities from 2021 pursuant to the Act on the Capacity Market, based on previously won auctions,
• inflation, taking into account the inflation target, at a maximum level of 2.5%,
• nominal discount rate – 5.41% [discount rate before tax is 6.21%]. The Group used a risk premium for the following CGUs: 

1. CGU Zielony Blok – 2%. Discount rate taking into account company-specific risk premium was 6.06% [discount rate taking into account company-specific risk premium before tax is 6.86%],
2. CGU Elektrownie Systemowe Kozienice and Elektrownie Systemowe Połaniec – 4%. Discount rate taking into account company-specific risk premium was 6.71% [discount rate taking into account company-specific risk premium before tax is 7.51%], 
3. CGU Białystok – 2.5%. Discount rate taking into account company-specific risk premium was 6.22% [discount rate taking into account company-specific risk premium before tax is 7.02%], 

• growth rate in residual period – 0%. 

• given the links between the various divisions and the mine’s organisational scheme, all of LWB’s assets were considered as one CGU;
• average annual volume of coal production and sale in 2022-2030 was set at 9.2mt. The production of type-34 coal will begin in 2025 (according to the current mining plan);
• forecast period from 2022 to 2051 – was estimated on the basis of the company’s extractable coal resources as of the balance sheet date (available to be mined using the existing infrastructure as of the balance sheet date, mainly concerning shafts). From 2044, the average annual level of extraction declines as a result of the depletion of the Bogdanka deposit and the assumption that only infrastructure that is currently available is to be used);
• in comparison to the previous year, available extractable resources of coal increased by approx. 17mt; this results from additional walls being included in the model, including level 377 in field Bogdanka being taken into account in the production plan, expansion of extractive activities in the K6, K7 and Ostrów areas, which are available with the use of the existing infrastructure, and areas located in the vicinity of mining shafts being taken into account;
• coal prices in 2022-2027 were based on studies prepared for LWB S.A.’s own purposes; the average coal sale price in the period was estimated at 11.45 PLN/GJ, assuming a sideways trend in the range of +/-3%; in 2028-2049 the price of coal was based on the weighted average sales price in 2022-2027;
• the entire model is inflation-free;
• real wage growth was assumed for the entire forecast period at a level that reflects the Group’s best possible estimate as at the test date;
• the discount rate was the weighted average cost of capital (WACC) of 6.57% throughout the entire forecast period, estimated based on the latest economic data (using a risk-free rate of 3.31% and a beta of 1.16);
• an average annual level of investment expenditures in the entire forecast period of PLN 351 094 thousand, including on average PLN 465 256 thousand in 2022-2035;
• the model used in the impairment test (including the cash flows and value of the tested assets resulting from the model) was prepared as of 30 September 2021; the existing models were prepared by LWB as of 31 December, however this period was changed in order to ensure a consistent approach across all levels of consolidation within LWB Group and ENEA Group.