Ladies and gentlemen, we have 11:00 A.M. It means that we are starting the earnings conference call of TAURON Group for Q1 2025. I'd like to welcome you, ladies and gentlemen. The host of today's meeting will be Mr. Krzysztof Surma, the Vice President of Management for Finance, CFO; Piotr Gołębiowski, the Vice President of Management for Trading; and Mateusz Lewandowski, the Executive Director for Investments. Good morning. My name is Grzegorz Łaguna. Since recently, I've become a spokesman, press spokesman of TAURON Group. Today's Q1 earnings call is taking place online. It'll be a bit shorter than usually due to the fact that, as you know very well, we recently had a full-year earnings conference call during which the present board, management board, presented the full list of data and summed up the expectation of investors.
Today, in line with the expectation of investors and the journalists, the conference call will be a bit shorter, but in the data, in the presentation, you will find all the details about our ratios of our company. Via our website during the conference call, you can ask questions. This Q&A session will be held after the presentation. Now I'd like to hand over the floor to Mr. President Piotr Gołębiowski.
Thank you very much. Welcome, ladies and gentlemen. We are exactly five months from announcing our strategy. The first quarter that the earnings for which we'll be presenting today is starting the initial quarter. It's a pleasure for me to communicate that our strategy is being implemented at a very satisfactory pace, starting with the retail supply segment. We sold 180,000 of our product that is based on electricity generated from our renewables, renewable energy sources.
We also commenced the decarbonization, heat decarbonization project, namely departing from coal from the heat-producing technologies. We also have an undertaking related to an increase of the CapEx in the distribution and renewable segments. Already this year, we will have one giga, more than a giga growth of capacity in renewables of TAURON. Everything is moving in the right direction. Ladies and gentlemen, this quarter was exceptionally favorable for the conventional energy subsector, the production of heat and electricity using the conventional source. It was extremely unfavorable for the renewables. In a moment, I will give you a few facts that will justify the situation. Since Mr. Surma will be present, Surma will be speaking after me and will be presenting the earnings. I will limit myself now to present the environment we have been operating in Q1 2025. Let me start generally about the market environment.
Ladies and gentlemen, in Q1 2025, the consumption of electricity in Poland was flat versus the same period of last year: 44 more than terawatt hour , more than 24 TWh of electricity consumption, production 45 TWh , 700 TWh mainly. The growth of production was reported by the hard coal-fired power plants, 35.5 TWh . That was the production. The output, that was more than 8% more than in the same period of last year regarding the renewables. Due to the small winds, the production from wind farms went down. Our power plants, 25%, we reported a decline year-over-year. It was, however, offset by the commissioning of our new investment projects, putting them into operation. The Mierzyn, Warblewo, and Gamów wind farms started with a total capacity of 123 MW.
This meant that the decline in the production output was not so strong regarding the sources, hydropower sources, due to the low level of the hydrological situation, the low level of waters in the river. We also reported a decline of electricity by hydroelectric power plants. Also, some of our hydroelectric power plants are still shut down due to the flood last year. That is why the production was low. It was also reflected in the financial results of this subsegment. Regarding the indices, starting with electricity, all the indices now are going up. Regarding the price on the spot market, we saw more than PLN 103 per MWh , so more than 36% up versus Q1 2024.
This situation was caused by the lower production of wind power, wind energy, which led to a strong correlation in the production of electricity by the conventional sources and the gas-fired power plants, and an increase of price. This also took place in Central Europe markets. Regarding the price of coal 2026, it reached PLN 450 level. Generally speaking, throughout the first quarter of this year, the price was declining. However, it reached PLN 450 level, and this is a level that's very similar to the level reported last year. This is also, among others, an effect of the situation that despite the PSM1 index, the price of coal on the Polish market went down by PLN 6 per GJ. However, in parallel, the carbon credit prices went up.
The increase of the carbon credit prices was the result of the fact that there was a domination of the production by the conventional power plants. That is why in the first half of this quarter, the price of carbon credit went to more than EUR 80 per ton. Subsequently, as a result of the effect of a change of the situation in the U.S., the funds started to reduce their positions due to the declining sentiment in the economy, which led to a decline. The carbon credit price average was about EUR 75 per ton, which was 22% higher versus the same period of last year.
Regarding the CDS margin, the first-degree margin, which is visualized by the difference between the electricity price and the variable cost of production, this level went up, among others, due to the increase of prices on the spot market, and it was higher than the same period last year. Regarding the CDS on the futures market, this is at a similar level to the same period of last year. Regarding the issue of our assets, a few words on that. Regarding the distribution, we reported a 1% increase of electricity distributed up to 13.73 TWh . Regarding the production of electricity from our assets, we produced 3.5 TWh of electricity, including 14% coming from the renewables. In total, 0.48 TWh and more than 3 TWh coming from the conventional electricity, so 86% of the total output.
Regarding the supply of electricity, the level of supply reached 7 TWh , which translated into generally a situation where we had about 3.5 TWh on the market and 3.5 TWh in the simple balance we secured from our assets. Regarding what contributed to this 7 TWh, 2.6 TWh was consumed by the household segment, 0.5 TW SMEs, about 3 TWh was consumed by the business customer segment. The balances, the losses, the balancing difference. Ladies and gentlemen, regarding the prosumer segment, more than almost a 40% increase of production of electricity by the prosumers and feeding them into the grid, 25 GWh-60 GWh . Self-consumption, 38%. How our units utilized regarding the generation line of business, our most efficient units were supposed to be contracted: Nowe Jaworzno Grupa TAURON, and Łagisza.
Due to the lack of availability of those units, due to the two failures in that Nowe Jaworzno Grupa TAURON, the flue gas fan was failed. There was a malfunction for a portion of Q1. There was an outage at this unit. At Łagisza, we had a problem with the untightening of boilers, which meant that those contracts were brought back on the market, and the 200 MW units took over some of the load. Also, a lot of forced commissionings, forced operations, 400 hours, so more than 2x higher the level of those forced operations periods. Nominally, the units that had the heating needs to satisfy, so one Łagisza unit and Jaworzno II, they were in addition to 200 MW units were put into operation. This meant also that the results, the earnings of TAURON Wytwarzanie segment were very good, were much higher than our expectations.
Regarding the TAURON heat segment, the increase was due to the weather conditions. The temperature was lower than last year by more than 2.2 centigrades . The increase of heat production by about 10%, which led to very good earnings. Regarding electricity production, all of the units nominally were contracted, including the biomass-fired unit. We were dealing also with a small failure of the generation unit, Bielsko-Biała 2, also due to the untightening of the boiler. Partly this contract was taken over by the biomass-fired unit, and partly it was bought back on the market, this electricity. Regarding the generation, the renewables, the PV units are operating in a very stable manner. What I already mentioned, the wind energy units, due to the smaller winds, weaker winds, the output of this segment was generally lower than expected by 12%, a decline versus 2024.
At this point, let me hand over the floor to my colleague. Krzysztof, please present the earnings.
Ladies and gentlemen, as Piotr mentioned, the financial results also confirm the fact that we are on the right track to implement our strategy. Let me remind you that we promised that we will achieve first in 2030 more than PLN 9 billion of EBITDA, in 2035 more than PLN 13 billion. The results of Q1 show proof that we can achieve that, we are able to achieve that. If we look at the detailed data, financial data regarding revenue, they are roughly flat quarter-over-quarter. Let us remember that the compensation payments are still very important.
If we stripped out the compensation payments from this revenue, we would face an increase of revenue quarter-over-quarter, mainly due to the sales of electricity by increased sales of electricity by TAURON generation segment, as well as increased revenue from this service. Regarding the EBITDA, that I will elaborate more during the presentation further on. The amount of this EBITDA is at a record high level, more than PLN 2.3 billion for the quarter, and this was more than 17% more than the analysts were expecting on the market analysts. It proves that we did quite well in this Q1. Regarding the net profit, this net profit was at a level of PLN 1 . 131 billion. It's worth emphasizing here that in this quarter, we didn't have any negative occurrence. As I said, negative impact on the net profit, which quite frequently happened in the past.
Regarding the CapEx level, it went up year-over-year by more than 27%. However, here in line with our strategy, the allocation of CapEx was 90% distribution and renewables. In full in line with our strategy. Regarding the net debt to EBITDA ratio, it's at a safe level. It came in at 1.6. This ratio also gives us certain options, and I will elaborate on that when I talk about the slide on the debt. Regarding the operating data, Piotr mainly presented, but let me just summarize that in distribution, we had a stable level quarter-over-quarter sequentially. Regarding the renewables, as Piotr mentioned, weaker results on the hydro and weaker in the wind energy. It's worth reminding that we commissioned new capacity, wind capacity, but it offset for the weaker winds.
It was not only for TAURON, but also all over Poland and Europe, all over Europe. The TAURON generation segment benefited from that due to the fact that there was not much wind, neither in Poland nor in Europe. The TAURON generation segment produced more as well. Emphasizing Poland versus contrary to the previous year, it was a net exporter of electricity due to the fact that the winds were weak, so other countries had more requirements for demand for electricity. Some of the electricity produced from coal went abroad. Regarding heat, as Piotr mentioned, better earnings, a great bigger output due to the fact that the quarter was colder than last year. Regarding supply, the weaker results year-over-year. Regarding volume, two aspects.
The first thing, especially in the context of the big customers, we pay a lot of attention to the profile risk, and here the contracts were changed. Some customers did not accept the change. We amended terms and conditions. We are talking about the big customers. Regarding the smaller customers, here is certain reallocation of the customers after the electricity prices had been unfrozen. The goal of our group will be to recover the volume, especially in the C tariff group. Definitely, a campaign will be conducted by a supply subsidiary in the near future. If we look at the comparable EBITDA year-over-year, it is also higher, about 20% up. Here, not many one-offs took place. Last year, we are dealing with a positive interpretation of a tax office. We described it a number of times.
It increased by slightly more than PLN 100 million, the earnings for last year. Regarding the previous quarter, one of this quarter two aspects I were noting. The first one is the damages due to a lot of apparently in the generation segment. This damage, this compensation was due to the outages that happened last year. After discussions with the insurance companies, finally, we managed to get the insurance payment. The more important factor is an increase of EBITDA in the supply segment. Here, it is worth saying that the tariff in 2024 in July was reduced. However, we are experiencing a non-typical situation, and the tariff was set for one and a half years. Here, we are dealing with an uneven spread or distribution of costs and revenue.
The revenue in the G tariff is evenly spread because the tariff in the second half of 2024 and the same as in 2025, at least until the end of Q3, this tariff will be in place. At the same time, we are dealing with two different contracting periods. Let us remember that we are basically contracting the G tariff for one year ahead of delivery. It means that the delivery for 2024 was contracted in 2023, and the electricity supply in 2025 was basically contracted in 2024. That's why the cost of electricity in 2024 was different, and the cost for 2025 is different.
This one-off effect, we are saying that in the second half of 2024, the tariff did not fully cover our cost of electricity purchase, and now we are compensating for it in 2025 because the tariff covers both the cost of electricity purchase for 2025 and the costs that were not covered in 2024. That is why we have this one-off effect in Q1. This effect will also be demonstrating in Q2 and Q3. If we now move on to the individual segments here, invariably, the distribution segment is our key EBITDA contributor, more than 50%. Similar as in Q1 2024, the supply segment comes in a second spot. Here, let me draw attention to the one-off that I mentioned before. The third spot was swapped here. The renewables were swapped with the generation segment.
As I mentioned, much weaker winds in Q1 when declining prices meant that the generation segment in Q1 had generated a better EBITDA than the renewables segment. Now, if we move on to the details of a breakdown of EBITDA individual segments and which segments, as a matter of fact, contributed to the increase of EBITDA, we had three of them: Distribution, Generation, and Supply. The two segments reduced EBITDA year-over-year, namely Renewables and Heat. Moving on to the individual factors in those segments regarding the distribution, here we're dealing with a higher margin on the distribution service. We also discussed that, presented that in the forecast for this year that we presented during the presentation of the full year earnings. We are dealing with an increase of the regulatory asset base.
We are dealing with an increase of weighted average cost of capital, WACC, that determined the increase of EBITDA. Here I was showing this effect as PLN 120 million. In addition, we have a positive impact of the regulatory account. This year, the regulatory account is positive. Last year, it was negative. It is balanced. Here, a few words of my comments. Let us remember the regulatory account, the amount of this balance of this account is a result of a difference in the actual volume of electricity distributed and the one that was defined in the tariff. If the actual volume is lower than the volume included in the tariff, then a positive balance of the regulatory account is being built up, and it was settled in the year N+2 . This year, we are having settlements of this account for 2023.
The second segment to EBITDA in Q1 was the generation segment. Here, some arguments I've already outlined why it happened. First of all, much better volume, quarter-over-quarter. Secondly, in this quarter, we are dealing already with a new balancing market and the revenue from that market. Let us remember that this market was implemented in June last year. In Q1 last year, we did not have at all these types of services. There were, let us say, historic regulatory system services that were replaced by the new balancing market, and this led to a positive effect on EBITDA of the generation segment. In addition, let us remember that the capacity contracts that we have concluded, they are also indexed by inflation rates. We also had a positive contribution to EBITDA, about a one-off regarding the payout of the insurance payments.
I already mentioned when I talked about the comparable EBITDA. In addition, as Piotr already mentioned, we are dealing with a decline of hard coal prices, which had a positive impact upon the margin achieved on heat. This tariff was practically, or the price of heat sold was, flat year-over-year, but the hard coal prices went down substantially, which led to a positive effect for the heat supply, and it increased the earnings of the generation segment. The third segment that reported better earnings quarter-over-quarter sequentially is the supply segment. Here, the one-off and the G tariff I already mentioned. The second factor that is of similar nature and provides support for the segment is a lower cost of purchasing electricity on the unhedged position.
This is, first of all, applicable to tariff A, B, C, where we are saying that we have a relatively fixed price for consumers who did not hedge it fully in the previous periods, and that is why we are benefiting from it, buying electricity that is a bit cheaper on the market. What reduced on the earnings of this segment quarter-over-quarter was a one-off related to the positive information regarding the VAT tax settlement. With respect to the segments, a negative impact upon the earnings quarter-over-quarter sequentially. First of all, the Renewable segment already was mentioned. Weaker volume, first of all, in the Hydro segment, winds weaker fully made up by the new capacity commissioned and the declining price of electricity on the market.
These were the factors that caused the weaker EBITDA in the Renewables segment and a slightly weaker earnings result of the Heat segment. We had a few opposite, moving in the opposite direction, factors. The first one, the positive impact, was the tariff of the transmission, a positive impact year on year. In addition, the declining hard coal prices and the better volume of heat sales in this segment meant that we had better earnings year-over-year. However, the negative factors included the declining margin on the electricity market and the weaker result generated by the TAMEH subsidiary where we are co-shareholder along with the ArcelorMittal Group. If we move on now to the slide regarding the debt and financing, here also a good piece of information. The debt, economic gross economic debt, went down. The net debt reported to the banks also declined.
Regarding the individual aspects of that, here I'd like to indicate a few factors at least. Regarding the carbon credits, CO2 emission allowances, here we are not dealing with a decline. We have a slight increase, but it's worth mentioning that this is due to the shift in the dates of purchasing, at least of a portion of carbon credits for the redemption obligation for 2024. Last year, some carbon credits we already purchased in March. This year, it was shifted to the early days, early April. This automatically led to a higher cash balance because we are preparing ourselves to buy those carbon credits, and therefore we had to accumulate the cash on the account. That's why you can see that the level of cash is much higher as of the end of the quarter this year versus the previous one.
This is our preparation for the purchase of the carbon credits. Subsequently, we are dealing with a factor that also had an impact upon the level that, on one hand, we were dealing with an increasing level of leases. According to IFRS 16, according to the loan agreements of banks, we are dealing with the leases according to the previous financial standards, so typical financial lease. Here, according to the extended IFRS 16 definition, this includes the easement agreements, the lease agreements. In case of renewables, we are dealing with the lease of land of size. According to IFRS 16, the value of the lease amounts goes up. In addition, in the similar situation, if we add the indexing and the fees for operation of land and additional easement fees, this leads to an increase of the lease balance, lease amounts.
We'll be dealing with that in the subsequent quarters as well. The second thing that I already mentioned in the previous conference, we are gradually departing from the subordinated debt, the hybrid bonds. Let us remember that the stable good level of a leverage ratio, which allows us to depart from this, is beneficial for the ratio of financing, but it was a bit more expensive than the senior level debt. We are departing from it, and we'll be observing that same thing in the subsequent quarters. In general, the improvement of this debt level is a result of the improvement of our operating profits. Let us remember that the EBITDA of the operating results we are calculating on the rolling basis. The ratio is calculated for the last 12 months, so we are talking about the EBITDA for the trailing 12 months.
It's better versus the EBITDA for the previous 12 months calculated as of the end of Q1 2024. Regarding the availability itself of the financing, we have about PLN 4.8 billion of financing available. It clearly indicates we are ready. We are prepared to finance our CapEx project that we outlined in our strategy. We see no risk here. We're mentioning here that the distribution of repayment days, maturity days for the debt is evenly spread. We don't have a one-year, but with a balloon large repayment, roughly less than PLN 3 billion over the next five years. It's evenly spread over each individual year. It's quite a safe level, and it's fully possible to be refinanced. So much about the debt. Let me hand over the floor to Piotr and Mateusz, who will describe the CapEx and the individual investment projects.
In Q1 2025, the CapEx of the group came in at PLN 1. 72 billion, but were higher by 27% versus the quarter of 2024. At that time, it was PLN 847 million, mainly due to the large increase of CapEx in the distribution segment, the renewable segment. I mentioned in my directory statement that it was part of the commencement of a rapid implementation of our strategy regarding the renewable segment. The total CapEx in Q1 2024 was PLN 191 million, more than twice as high as last year. We are conducting, regarding the largest piece, what this money is spent on. We are conducting four large wind farm construction and PV farm construction projects, which this is what this high CapEx is spent on. Regarding additional data regarding those investment projects, Director Mateusz Lewandowski is at your service.
If you have any need to ask additional questions, please send them via email. Regarding the distribution segment, the CapEx level was in total PLN 768 million. This is a 17% increase versus last year. This represents 72% of the total CapEx of the group. This is mainly the outlays on connecting new consumers to the grid, PLN 384 million and PLN 219 million to replace and upgrade the grid assets. The other spending is the renewables, modern upgrades and modernization of the distribution segment, among others. We are implementation of a program to replace the meters with the remote readout meters regarding the generation and heat segment. This is the modernization of the generating units regarding the supply and other segments, mainly investments in the IT area regarding the improvement and development of the customer service and the sales channels, as well as the expansion of street lighting.
That's all from me regarding this topic. Let me ask Mateusz to present the details regarding the investment projects underway.
Okay, ladies and gentlemen, let me briefly present the current status of renewables projects underway, starting with the wind farms and the most advanced project in this area, namely the Nowa Brzeźnica wind farm, with an installed capacity of 20 MW. At this point in time, it's close to 90% is the work progress regarding the scope of works completed. We completed the connection, grid connection point, the power supply connection point. Now we are launching the turbines. Also, we are cleaning the temporary structures. The commissioning date is the end of Q2 2025. The second wind project, the Sieradz wind farm, close to 24 MW installed capacity. As of today, practically close to 60% of work progress achieved.
We completed the works related to the construction of the power supply connection point. Completion works, finishing works are underway. We are preparing for the installation of wind turbines. The installation should be completed in Q3 this year. Following the tests, we should be ready in Q4 to commission this wind farm. The Miejska Górka wind farm, our last year's acquisition, let me remind you, this is the second largest investment project of this type in Poland. As of today, the work progress is about 20%. Practically, we have completed the works related to the preparation of roadways, access roads, the site in general. Also, in parallel, the foundations are being laid. 23 out of 50 foundations have been completed. The anchors were delivered, supplied to the construction site. Due to the scale of this project, the works are conducted in parallel on a number of construction fronts.
In the overall aggregate summary, we can say that we are a bit ahead of the schedule, and Q2 2027 is definitely still on the commissioning date. Moving on to the photovoltaic investment project, let me start with Bałków PV Farm. It's our largest in-house development based on the central inverters. As of now, 65% is the work progress level. We assembled the structure and the panels. The acceptances are underway. These works are underway. In parallel, we are conducting works in the electrical branch. The commissioning date is Q4 2025. The PV Postomino project, this is the project carried out under the cable pooling formula. 90 MW total capacity split into two stages, 80 MW and 10 MW. In the first stage, we have completed the installation, the mounting of structure and panels, and we have completed the acceptance of the first stage.
We are completing the works for stage two. We are finalizing the works on the electrical side. We foresee the commissioning also by the end of Q4 2025.
Thank you. Thank you very much. Here, I would like to complete the presentation part of today's conference regarding Q1 2025. Of course, we are moving on to the Q&A session, to the questions coming from the analysts and journalists. Let me read now the first question that was sent by Mr. Editor Mateusz Sawicki from Parkiet Daily. A question about the plans of the company regarding the units and capacity for the supplemental auctions gas for 2026 and the main auctions, old coal. Please, I would like to ask the host of today's meeting to answer this question.
Let's start with the issue related to the supplemental auction.
You know that we, as part of the overall general certification, we registered seven projects of ours, gas-fired units, to take part in the auction for 2030. However, regarding the supplementary auction, the work progress of this project did not allow us to be able to take part in this supplementary auction. Regarding the supplementary auctions for 2026, you know the date of this auction, 11th of September, was announced. Relatively late, I would say, but we have to face it. We have to deal with that. We do not know yet when the certification for the auction will take place. We know that, and we are analyzing all the time the auction strategy for our units. You know that regarding what's in play, these are the units that do not have the capacity market contracts beyond 2025. We are talking about all of the Jaworzno units.
We're talking about Łagisza, we're talking about Siersza, we're talking about the sum of the generating units of Łaziska, because two units have the capacity contract until the end of 2028. Time will tell. First of all, how the strategy that we developed will work in practice and we will be looking at attentively what will be happening in the coming months. Regarding the second part of this question, namely the key question related to the. I haven't read it. I haven't read it yet. No, sorry. Excuse me. I haven't. The idea of the Polish Committee of Electricity related to the power plants that work up to [350 grams per kW] a year will be excluded. The idea is very interesting. We will change your investment plans. This is an interesting idea because of the chance to get additional support for the units.
For instance, the peaking units, gas-fired peaking units that we plan to implement, I think roughly, I calculated, made a quick calculation, it may mean for us about PLN 20 million-PLN 30 million in savings regarding such a project as the production using those units.
Another question. Are there any reasons for EBITDA in distribution in the subsequent quarters of this year should be similar to the result in Q1, which was very good, as we know?
I do not want to give you a precise answer that the EBITDA will be the same in the subsequent quarters. First of all, we are not providing the precise forecast. Please let us remember also that it is usually that the Q1 is very good.
What I can confirm definitely is that those factors that we showed during today's presentation had a positive impact upon the result of this year in the distribution segment in this quarter and will also have a positive impact on the results in the subsequent quarters. We increased the regulatory asset base, we increased the weighted average cost of capital, as well as the settlement of the regulatory account. All these factors will have a positive impact on the next quarter, subsequent quarters of this year.
Next question. What increase of regulatory base can we expect in year 2026? Can it be a PLN 1.8 billion increase as it happened in 2025, or could it be a higher increase year-over-year?
Again, we are moving into the forecasting area, forecasting topics.
However, the increase of the regulatory asset base is dependent to a large extent on the CapEx program that we are implementing. We are not giving exact data here, but we can estimate a similar increase year-over-year.
Another question. Due to Enea's announcement of a quicker return to the dividend payouts, are you forecasting a quicker return to dividend payouts in 2029? It seems like we're going to have a very good earning this year. Is there any chance that for 2025 we will get a dividend payout to the shareholders?
Of course, this is the question that we could expect because we saw Enea paid out, hasn't paid out yet, but recommended payout of a dividend for the current year.
We, in contrary to Enea, we did not recommend the payout of a dividend for this year, especially due to the fact that we want to supplement the reserve capital. After we have done that in the subsequent years, assuming the positive financial results, there will be no limitations, no constraints for the payout of a dividend. Regarding our strategy, the one that was announced December last year, it clearly stated that the dividend will be paid out not later than for 2028, so in 2029, in fact. Of course, we are looking at the earnings. The financial results that we mentioned are very good, as we communicated already. If the very good financial results are continued and maintained, it will open the discussion about the possibility of a quicker payout of a dividend, of a sooner payout.
Today, we just completed Q1, so we did not take any decision that the dividend for 2025 will be recommended or not. We will be looking at the subsequent quarter, and of course, we will be internally discussing this issue. We understand the expectations of investors because we heard also the position of the main shareholder, controlling shareholders. Definitely, this issue will be the subject of further discussions in the subsequent quarters.
Are there any reasons to assume in the distribution segment in 2026 significant elements of earnings outside of the RAB, weighted average cost of capital, and the depreciation of the EBITDA level?
Ladies and gentlemen, you know very well that apart from the factors that you already mentioned, there are factors that are changing year-over-year. There is the regulatory account that we are, as we discussed this year, it is positive. Last year, it was negative.
Next year, it's probably going to be negative as well. It depends upon the volumes achieved year-over-year. In addition, we have factors that are a bit less dependent upon us, namely the connection fees. This is also outside the settlement formula with the President of the Energy Regulator Office. The second part is the liquidation of the collisions. It's also an issue that is beyond our control. Of course, we can expect that over the next few months what the situation will be, but in longer term, it's more difficult to evaluate. It's probably safe to assume that these issues will be comparable year-over-year. We also have a factor of a passive energy, but it's also partly included in the tariff. It's dependent. Let us remember that we have the matter of the settlement of the price that's also delayed, so N +2 .
That is saying that the cost of this passive energy is dependent upon the cost of electricity on the competitive market. Let us remember that the price on the competitive market is gradually declining. This may also have an impact upon the results of the distribution segment outside of obvious factors such as an increase over the baseline increase of weighted average cost of capital, WACC.
Thank you very much. Another question. How probable is it that you will not shut down any 200 MW units by 2028 due to the supplementary auctions with a PLN 9 billion budget? At what stage are the talks with the European Commission related to the extending of support for the hard coal-fired units following 2028?
Unfortunately, the microphone, I can't hear anything. I can't hear. There's no microphone. Speaker is not here. Excuse me. I didn't switch on the microphone.
Let's sum up again what will be happening in the time frame between now, today, and the end of 2028.
On the 11th of September, as I mentioned, there's an auction, a supplementary auction for 2026. We are planning to have an individualized strategy, bidding strategy for this auction. All of the units will be included in those strategies. We are talking about strategy. Of course, I'm noting one thing. It doesn't mean that if a unit is not taking part in the auction, it doesn't mean it's not going to be operated because we have a full sphere of reserve operation for the units that have a capacity market agreement and also the units that are performing the backup role.
Next year, I assume at a similar point in time, there will be an auction held, supplementary auction for 2027, and so on sequentially in 2027 for the year 2028. Therefore, the results of the auction, we are familiar with the initial parameters of the capacity gap, and they indicate that each year will be getting more and more difficult. This year, this capacity gap is at such a level that seems to us that there's a big chance that the units taking part in the auction will have the capacity market, they will win the auction, and the time of operation will be extended by one year. Regarding 2027, that capacity gap, in my opinion, seems a bigger challenge. We may be dealing with a situation where not all of the units will get the support from the capacity market.
I'm not just talking about our TAURON units, but also about other units. Let me remind you that there's about 40 such units available on the Polish markets. Therefore, there's a risk that a portion of the units operating in the Polish market will be liquidated because they will not be getting any more of a support mechanism, the second leg of support. As you know, the existing market and the margins earned on this market for the less efficient, the so-called 35 units, are negative and are very much in the red. Therefore, I do not expect that any breakthrough change on the market will take place, that all of a sudden those units might start earning money on the electricity production or sales of electricity. Regarding the final stage of the auction for 2027, this capacity gap also is a lot to be desired.
That's why probably another portion of units will not be eligible for support.
What will the world look like and the balance of units that will continue to operate in the market, will continue to operate beyond 2028?
I'm not able to answer that question. For a year or so, we are talking, we are saying that this is a critical component for us. We are analyzing various concepts, including the concept of liquidating the units that will, decommissioning the units that will not get eligible for support mechanism.
The second part of the question, at what stage are discussions regarding extending beyond 2028 support for the hardcore coal-fired power generation units? We talked with the European Union.
This side of the consultations with the European Commission is the domain of the public administration, state administration, and they are conducting these talks.
I am not able to give you our opinion and any information about at what stage they are at now. Let me just say that we are also hoping that these talks will lead to some beneficial solution regarding what may happen regarding the support mechanism beyond 2028. We know that the challenges are even bigger regarding the expectation regarding the stability of the system, power system, and the energy security.
Another question related to question number seven, at what stage the consultations with the European Union are related regarding the support for the cold reserve, capacity reserve?
Let me add that the initial proposal regarding the cold reserve or the strategic reserve was compiled by the sector under the auspices of the TGP as early as 2024 yet. However, the final shape of this market will be dependent upon the agreements reached with the European Commission.
For us, what's important now is how the new solutions will be correlated with the supplementary auctions dedicated to the hardcore coal-fired units. It seems that this idea of a strategic reserve is interesting, an interesting one. However, I get the impression it may be difficult to process, taking into account the fact of what solutions have been applied so far, and the ones that have been notified. It seems that the more realistic, in my opinion, would be the idea to extend the derogations for the subsequent years. I'm talking about the derogations related to the emissions levels and the sources.
Another question from Editor Chojnowski from WNP. First one, has TAURON contracted any capacity on the 15th of May for supplementary auctions for the second half of 2025? If so, how much?
Second question, which hardcore fire units with what total capacity is TAURON planning to submit for the full supplementary auction for 2026? What will happen to the units that will not win that auction and will not be covered by the contract?
On May 15, the supplementary auction was held for the second half of 2025. We submitted one unit, Jaworzno III. We contracted 188 MW. Initially, the contracted level of revenue is PLN 41 million. Let me remind you that the results of the auction have not been published yet. The auction was completed in round one, so the auction price is between PLN 391,000-PLN 411,000 per MW. It seems that I already answered the second part of the question. Let me re-emphasize that the assumption is simple.
The units that will not win the auction must take into account the fact that they'll be gradually phased out because they do not meet the technical, the economic conditions, excuse me, or maintaining them longer.
Another question, when the decision can be taken regarding the construction of the first gas-fired units with the open systems? What is the planned capacity and the level of production during the year?
As I already communicated to you, we are preparing a portfolio of this type of investment project. We are treating this at this point in time as our certain option. Last year, we submitted a petition for the grid connection conditions for two sites, Jaworzno and Łaziska, including 1 GW installed capacity for this type of technology. The potential investment decisions are closely related to the availability of the adequate support mechanism for this technology.
However, we cannot exclude that the first decision might appear at the main auction for the capacity market this year, of course, assuming good effects of such an auction. Second part of the question, what is the planned capacity and level of production over a year time frame regarding the capacity of the portfolio itself? Here, roughly already outlined what level of portfolio we're talking about regarding the capacity of single individual units. We are still at the stage of calibrating ourselves regarding the technology selection. We are considering various options still. As of now, it's a bit premature to speak about the capacity of individual units regarding the level of production. From my point of view, the economics of the operation of such units, as we look at it, is, let's say, not so strongly correlated to the planned production output.
However, the units of this type, from my point of view, are to represent the capacity reserve for the entire power system. For that reason, this is the reason why it should be compensated for. Probably those units will probably not be operated for more than 300 hours during the year.
Thank you very much for this answer. The next question, what is the potential purchasing position potential of renewables in megawatts this year?
Again, the situation varies depending upon the type of technology we are talking about. Regarding the PV farms market, this is not much different from what historically we communicated. We have a lot of projects at this point in time available, very stable in the market. Also, the transaction prices are coming down, as we can see.
Regarding the PV projects, we invariably try to place our bet on our own in-house development at this point in time, close to 150 MW versus the ready-to-build projects. Status regarding which investment decisions will probably be taken in the near future, I think, from today. Regarding various projects, we also try to apply for the support mechanisms available for this type of investments in order to improve the cost of capital calculations. After these issues have been resolved, we'll be then facing the investment, final investment decisions regarding the wind energy, regarding our in-house development. The first project will be available around 2027-2028 time frame. What we are talking about now is, realistically, the acquisition market where the purchasing potential of an acquisition potential as of now, as of days, is moderate, I would say.
Of course, we are trying to carefully review each project that's available. Each project we subject to evaluation regarding the acquisition activities. It is difficult to plan the megawatts here. I don't want to mention the specific number of megawatt that could be subject to investment decision this year.
Thank you. What was the margin on the electricity buyback and revenue from balancing market in Q1?
We are talking about two segments, of course, here, about Generation and Heat. Regarding the margin on electricity buybacks, it was about PLN 90 million. However, regarding the revenue from the balancing market, it came in at PLN 70 million, so around PLN 70 million. What we're mentioning here is the margin on buybacks quarter-over-quarter sequentially is weaker. However, regarding the revenue from the balancing market, as I mentioned, it's a new service.
Just remember that in the previous quarter, we had the regulatory system services. The comparison quarter-over-quarter, you would have to strip out the value of the amount of regulatory system services that we were getting revenue in Q1 2024.
All utilities are announcing an increase of volumes in the supply segment, and the margins are higher. Can we expect a more competitive fight in this market, in the segment? What would be the risk for margins?
This is a difficult question, ladies and gentlemen. Let's start with the fact that I don't know whether margins are attractive. I will not confirm, not deny it. Definitely, we are expecting a very strong increase of competition.
Let us remind you that our market here, where the distribution area of TAURON is a very attractive piece of market for small competitive markets, companies that are operating in our territory, this is a challenge. We are, of course, all the time in the process of various defensive actions. We have various trading strategies, commercial strategies that increase the attractiveness of our products but enable us to expand this market. During the strategy presentation, we said that we are planning to operate nationwide, highly profitable ones. Therefore, it's not the goal in itself to increase the market share. The goal is to increase the market share of good margin-generating products, good margin-generating contracts. A good example would be the situation in the B2B segment. Quarter -over -quarter, we lost several customers from the large business subsector.
However, in that sector, the margin went up by more than PLN 100 million. The low margin-generating contracts that are burdened with the high risk, such elimination of such contracts is not something that we will stop ourselves from doing. Please refer to the twice as high work level in the distribution versus the European competition.
What is the opinion, position regarding that of the European Commission?
I would start with the fact that for a long time, the weighted average cost of capital work in distribution was relatively low. You could see that the level of investment in this segment was relatively low. We did not encourage the distributors for a long time to increase, expand our CapEx, increased level of work. That is the bonus for investments, to encourage us to bring about a quicker transition.
With the level of CapEx and the level of investment, delays or backwardness could be made up in future years. This is very important regarding when you look at the increased work and the level of CapEx in the current period and the future period. It's difficult for me to say what the position of the European Commission is about. It's not up to the European Commission to approve the work. As I remember, what's also important, distribution is a natural monopoly of a certain type. By the same token, as you can see from the financing getting from the National Recovery Plan, that's why the European Commission agreed to the much lower interest rates under this program than the ones that are in place for other loans on preferential terms for the renewables segment, for instance.
The European Commission is looking differently at something that's happening locally in the given country versus what's competing all over Europe. Naturally, we are not competing directly with the grid that are operated in other European countries. The free cash flow level in Q1 2025 in the distribution segment can be maintained in the subsequent quarters. Of course, we are moving now into the details of the financial results of the subsequent quarters. The cash flow depends, on one hand, on EBITDA. Secondly, on the CapEx in the distribution line of business. Here, as we mentioned, the CapEx, as during the full year conference, the leverage will go up by about 20%. It would be good to look at what the trajectory in the distribution segment last year, for instance, and to re-announce the increase of the EBITDA in this segment.
I confirmed earlier that the factors that had a positive impact upon the bid down in Q1 will have a positive impact upon the bid down in the subsequent quarters. If you put together these two components, it should have a positive impact on the free cash flow.
Another question, please give us an update about the profitability of energy storage facilities in remote areas. This is profitable in what? What's the current CapEx in million PLN per megawatt or megawatt hour? When can higher spending come in this area? Are there competitive more auctions necessary to get the net positive current value, positive net current value, net present value?
Let's start selectively from the CapEx level. What we're observing now in the market is the levels of CapEx unit below PLN 800,000 per MWh . This decline versus the previous years is noticeable.
Regarding the economics of this type of investment projects, regarding this part of the question related to whether capacity auctions are necessary for achieving the positive NPV, this to a large extent depends upon the point of view of a given investor regarding the volatility of the prices on the electricity market. In this respect, the answer is not easy. I can answer the following way. This type of cash flow streams, such as capacity auctions and additional support mechanisms, are required due to the support for the allocation of capital into this type of investment project, which is characterized by a bit higher risk profile than other standard investment projects carried out by companies like us. This is one thing, one aspect. The second aspect is that such stable revenue streams also support this type of projects.
Looking at the absorbability of this technology in the European market, you can see that in the first few years of the presence of battery storage, energy storage facilities, a major portion of the revenue stream was made by this type of mechanism, such as the capacity market or the system services. Regarding our energy storage facility portfolio, you know that last year we won a capacity market auction for 270 MW in storage. Successively, we will be trying to implement the investment decisions regarding expansion of this portfolio. Of course, we take part also in the competitions for the available support mechanism for this type of technologies that are practically underway now. Therefore, only after such competitions have been resolved, we will be successively approaching these decisions.
With first investments of a smaller scale, it seems that we are closer to the final decisions regarding such projects. Regarding the profitability of the second portion of this question, we can see that the profitability of this type of investments in the energy storage facility is both in standalone and co-location configuration along with renewables and the PV. It functions in both configurations, economic configuration. Let me add something because maybe that is the punchline for the profitability discussion. Our investments in large-scale storage facilities are not conditional upon the participation in the auctions and having the capacity contracts. These are extras that we can generate.
Another question, why the change of the way the balancing costs are, the way calculation was made, had a positive impact upon the earnings in Distribution and Supply.
Let me start with the fact that looking at the comparable quarter-over-quarter sequential earnings, that's why we are not showing it as a one-off. They were converted to make them comparable. I'm not sure the question is applicable to the current quarter compared to the previous quarter, the one that was presented during the presentation. Because the data has been standardized and the data has been adjusted in the context of earnings published for the previous years. Maybe this question is related to comparing what was presented or reported in Q1 last year and not what we showed today. To answer such question, what we are showing today in the presentation has a comparable result.
After we stripped out the estimation issues, as we indicated during the full year earnings conference call, as we mentioned before, we stripped out the big impact of the settlement of the balancing difference as of the end of the year and its impact upon the Q1 of a subsequent year. Of course, historically, the impact came first of all from a big price difference. Let us remember we are starting from 2020 to 2024. The price leaps on the electricity market were very big. The price for the balancing difference electricity was very different strongly between individual years. It had a very big impact upon the distribution segment results. We declared that we will strip out this negative impact. We will strip out the settlement between December and January, at least from the accounting point of view. Having stripped it out, those results are comparable.
There is definitely no major impact upon the earnings of distribution or supply segments in relation to Q1 regarding the result that we presented today.
The loss on the derivatives is minus PLN 215 million in Q1 2025, as it is also visible with the reverse sign on the bid level.
It is not a one-to-one relationship. That is what I would start with. What is the reason behind it? As a matter of fact, in the generation segment and in the heat segment, we are purchasing carbon credits. Those carbon credits are, of course, related to electricity produced from coal. Once we sell electricity from those units, at the same time, we are securing the carbon credits. We are also securing, hedging ourselves against the FX risk. Regarding the carbon credits themselves, they are included in the operational part.
PLN strengthening versus the reserve for the given year is taken into account in the operational part. However, in the financial part, in the earning financial results, we can see the effect of that hedging. However, the effect of this hedging is related to the entire portfolio, both the portfolio related to the redemption for the previous year that is not in the operational reserve in the operational segment, and the part that is related to the hedging of the carbon credits for the subsequent years that are not yet included in the operational part, in the reserve. That is why the difference between the cash flow or between the result in the financial part and the bid part is not one-to-one. That is the first part of my answer. Why is this happening like that? Because as of now, we do not have accounting of hedging included yet, implemented yet.
We do not have direct ties or links between the hedged item, hedged position related to the FX rates with the hedging instrument, the forward instrument, which is included, valuation of which is included in the financial part. We are working on that this year so that these items could be interrelated and potentially we could implement the accounting for the hedging instrument so the full effect could be included in the operational part in the future.
What was the bid in the trading segment in Q1 2025 broken down into individual consumers, groups of consumers?
We do not publish such detailed data, so I will not be giving you broken down per individual groups of consumers. We showed in the comparable part this one related to the G tariff and this segment. However, we are not publishing a bid per individual business segment.
What is the outlook for the regulatory account in distribution in 2026?
As I mentioned before, this account is dependent upon the difference in volumes for this year and for 2026. It seems it looks that this account will be negative. The settlement, as a matter of fact, will be negative.
What is the bonus for investment in WACC dependent upon what bonus can be expected? What's the premium it can be expected in futures?
You partly answered that the premium, the bonus for investment is depending upon the magnitude of your CapEx and what will the level be.
Of course, a very good question, but it comes up regularly during each conference. What is promised in promise as of today by the President of the Energy Regulatory Office, the minimum premium for investment is one percentage point.
We are saying the WACC until 2028, at least 7.5%, around 7.5%, and you can add to that at least one percentage point for reinvestments. Based on what we have seen and we can observe, the level of this premium for reinvestment is going up as the level of your CapEx goes up. However, I cannot tell you whether there is a fixed formula saying that PLN 1 million means as much as much proportion of a percentage point of an increase.
How much national recovery plan at the cost of 0.5% can be taken advantage of in this year and in subsequent year in millions of PLN?
Here we have a small time difference, time gap up to one month or two months in the context of spending in cash and the loans received, funds received from the loans. First, we have to spend that.
We can ask for refinancing from the national recovery plan loans. As of now, I cannot give you specific numbers because, as I said, it's a one or two-month shift may lead to the fact that it may mean several hundred million difference. But we can assume it's going to be roughly PLN 1.5 billion this year and not to give you subsequent years, but we promise that our best assumption would be to take full advantage of the funds that have been allocated. So PLN 11 billion over the four-year timeframe.
How much is the planned CapEx for 2025?
Here we also didn't give the exact data, but during the annual conference, the full year conference, we gave an estimate that we expect our CapEx to be going up in the region of 20%-20+% per annum. I think this estimate is correct.
The prices in the supplementary auctions in the subsequent years could be higher than for the second half of 2025. I suppose that this picture will not be so optimistic anymore. This is a function of what is the capacity gap, how many units take part in the auction. This second half of 2025 of this auction, practically all units were eligible. I said a few minutes ago, the results have not been published. The initial PLN 431,000, that's the maximum price of that initial assessment. The capacity gap in 2026 is roughly 6.9 GW, 2027, 6.5 GW, 2028, roughly 4.5 GW, which would mean that the auction will not be completely taken account of the number of units that we expect to take part will not be completed in the first round. There could be 12 rounds max.
What's important, what I didn't mention before, all of the units, according to the given legislature, taking part in the supplementary auctions have a price taker status. The level of the price defined for each auction individually for the price taker sets the price at which the price taker can exit the auction, which means that if, in a simple explanation, if the limit price defined by the given source is lower than the price taker's price, then theoretically that unit can take part freely in this auction. However, the boundary price, limit price is higher, which would mean that when you take part in the auction, you're not able to exit it. It means directly that such a unit, in fact, taking part in the auction would be burdened with a higher risk. Probably might not even take part in that auction.
Thank you very much, Mr. President, for this answer. This was the last question in our Q&A session. Thank you very much for participating in this hour conference. First of all, to the host of our meeting, Mr. Krzysztof Surma, Vice President of Management for Finance, CFO, Piotr Gołębiowski, Vice President for Trading Management Board, and Mateusz Lewandowski, the Executive Director for Investments. Thank you very much. Thank you very much, Mr. Ziemel, for taking part in our meeting, for asking all the questions. Invariably, we ask you to encourage you to ask questions via email, and we always try to answer those questions. Of course, I'd like to invite you to our next conferences, not only the earnings conference calls. Thank you very much for your attention. See you next time.