38.4. Currency risk

Exposure to currency risk	Risk management
Currency risk is associated with potential changes in exchange rates that may in turn lead to changes in the Group’s cash flows. The Group’s exposure to currency risk stems from the obligation to comply with the requirement to purchase and submit for redemption emission allowances, as well as investment expenditures and performance of service contracts with counterparties whose remuneration is denominated in foreign currencies.	Hedging is performed on the basis of „ENEA Group’s currency risk and interest rate risk management policy.” Currency risk is mainly hedged using FX forwards. Currency hedges are intended to ensure a fixed value of cash flows in domestic currency that are generated in connection with operating and investing activities. In order to secure maximum effectiveness of hedging, FX forwards are executed for periods and amounts that correspond to currency exposure. This results in an economic link between the underlying items and the hedging derivatives. With a close link between the hedged item and the hedging instrument, the main source of ineffectiveness of such links is improper performance of contracts by counterparties or adjustment of payment deadlines through annexes to contracts with counterparties. In accordance with ’ENEA Group’s currency risk and interest rate risk management policy,' hedging is each time based on a hedging strategy dedicated to the specific exposure and approved by ENEA Group’s Risk Committee. In accordance with its rules, the Group hedges all of its currency exposure that it considers as material, i.e. which exceeds the exposure limit. The Group does not apply hedge accounting in this area.

Exposure to currency risk

Risk management

Currency risk is associated with potential changes in exchange rates that may in turn lead to changes in the Group’s cash flows.

The Group’s exposure to currency risk stems from the obligation to comply with the requirement to purchase and submit for redemption emission allowances, as well as investment expenditures and performance of service contracts with counterparties whose remuneration is denominated in foreign currencies.

Hedging is performed on the basis of „ENEA Group’s currency risk and interest rate risk management policy.”

Currency risk is mainly hedged using FX forwards. Currency hedges are intended to ensure a fixed value of cash flows in domestic currency that are generated in connection with operating and investing activities.

In order to secure maximum effectiveness of hedging, FX forwards are executed for periods and amounts that correspond to currency exposure. This results in an economic link between the underlying items and the hedging derivatives. With a close link between the hedged item and the hedging instrument, the main source of ineffectiveness of such links is improper performance of contracts by counterparties or adjustment of payment deadlines through annexes to contracts with counterparties.

In accordance with ’ENEA Group’s currency risk and interest rate risk management policy,' hedging is each time based on a hedging strategy dedicated to the specific exposure and approved by ENEA Group’s Risk Committee. In accordance with its rules, the Group hedges all of its currency exposure that it considers as material, i.e. which exceeds the exposure limit. The Group does not apply hedge accounting in this area.

FX forwards

In the 12-month period ending 31 December 2020 ENEA S.A. executed eight FX forward transactions for a total volume of EUR 1 071 thousand. Measurement of these instruments as at 31 December 2020 was PLN 0 thousand (PLN 0 thousand as at 31 December 2019).

In 2020, ENEA Trading Sp. z o.o. executed 24 FX Forward transactions. Measurement of these instruments as at 31 December 2020 was PLN 6 093 thousand (PLN 0 thousand as at 31 December 2019). The value of these transactions was EUR 1 320 thousand.

In 2020, ENEA Wytwarzanie Sp. z o.o. executed 4 FX Forward transactions. Measurement of these instruments as at 31 December 2020 was PLN 0 thousand (PLN 0 thousand as at 31 December 2019). The value of these transactions was EUR 1 544 thousand.

In 2020, ENEA Elektrownia Połaniec S.A. executed 10 FX Forward transactions. Measurement of these instruments as at 31 December 2020 was PLN 0 thousand (PLN 0 thousand as at 31 December 2019). The value of these transactions was EUR 854 thousand.

In 2020, ENEA Centrum Sp. z o.o. executed 1 FX Forward transaction. Measurement of these instruments as at 31 December 2020 was PLN 0 thousand (PLN 0 thousand as at 31 December 2019). The value of this transaction was EUR 2 182 thousand.

The following table shows the Group’s exposure to currency risk:

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	As at 31 December 2020				As at 31 December 2019
	Financial result				Financial result
	Book value	including value in EUR expressed in functional currency (PLN)	Exchange rate up +1%	Exchange rate down -1%	Book value	including value in EUR expressed in functional currency (PLN)	Exchange rate up +1%	Exchange rate down -1%
Financial assets
Cash and cash equivalents	1 941 554	500 960	5 010	(5 010)	3 761 947	170 922	1 709	(1 709)
Trade and other receivables	1 648 562	305 850	3 059	(3 059)	1 561 518	314 462	3 145	(3 145)
Financial assets measured at fair value	139 851	42 279	423	(423)	47 228	−	−	−
Financial liabilities
Trade and other payables	(1 680 850)	(303)	(3)	3	(1 599 278)	(42 767)	(428)	428
Financial liabilities measured at fair value	(146 118)	−	−	−	(60 934)	(35 617)	(356)	356
Net exposure	1 902 999	848 786			3 710 481	407 000
Impact on result before tax			8 489	(8 489)			4 070	(4 070)
19% tax			(1 613)	1 613			(773)	773
Net exposure after tax			6 876	(6 876)			3 297	(3 297)

38.3. Commodity risk

38.5. Interest rate risk

38.4. Currency risk

FX forwards

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