7.3.2.1 Commodity price risk

Commodity price risk is defined as the risk of the Group’s financial results being adversely affected by changes in commodity prices.

The Group’s exposure to commodity price risk arises mainly in connection with its gas fuel buy and sell contracts entered into as part of daily trading activities on the PPX. It stems from volatility of prices of gas and oil products quoted on global markets. Under some of the contracts for gas fuel supply, the pricing formula relies on a weighted average of the prices recorded in previous months, which mitigates the volatility risk. 

Commodity risk is also related to electricity trading, certificates of origin, and carbon credits. Trade in electricity is carried out on regulated exchange markets in Poland and abroad. The Group also executes transactions outside of regulated markets, under framework agreements. Commodity risk exposure is managed by mechanisms for identifying, calculating and monitoring exposure levels, as well as by valuation of open positions, value-at-risk measurement, and market risk limits. 

The Group applies cash flow hedge accounting with respect to future, highly probable cash flows associated with the purchase/sale of gas and petroleum products. As for projected purchases and sales at prices resulting from PPX future indices, the Group hedges against a covert risk component being the value of the TTF DA index. 

Based on analyses of historical data performed for the last three years, the Group determined that in the past the change in the TTF index accounted for approximately 120% of the volatility of the price of gas purchased/sold at the intra-day price on the PPX. The Group also determined that there is a negative correlation between the TTF index and the currency exchange rate. 

For details on hedge accounting, see Note 7.2.  

For prices of electricity, carbon credits and certificates of origin, the Group applies economic hedges, but does not apply hedge accounting. For more information on derivatives not designated for hedge accounting, see Note 7.2. 

The tables below present an analysis of sensitivity of material energy commodity derivatives (TTF) to price changes in 2021 and 2020.