7.3.2.1. Commodity price risk
The Group’s exposure to commodity price risk arises mainly in connection with its gas fuel purchase and sale 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.
In 2016 and 2015, the Group applied cash flow hedge accounting to hedge against fluctuations in natural gas prices. 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 2016 and 2015.
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| 2016 | Carrying amount | TTF, EE, GO, FO price change: | |||
|---|---|---|---|---|---|
| 25% | -25% | ||||
| Profit/(loss) | Other comprehensive income | Profit/(loss) | Other comprehensive income | ||
| Energy commodity derivative assets | 389 | 31 | 248 | 2 | – |
| Energy commodity derivative liabilities | 299 | (7) | – | (34) | (164) |
| Effect of TTF, EE, GO, FO* price changes | 24 | 248 | (32) | (164) | |
| 2015 | Carrying amount | TTF,EE, GO, FO – zmiana ceny o: | |||
| 30% | -30% | ||||
| Profit/(loss) | Other comprehensive income | Profit/(loss) | Other comprehensive income | ||
| Energy commodity derivative assets | 382 | 5 | 402 | 13 | 4 |
| Energy commodity derivative liabilities | 1,081 | (12) | (3) | (1) | (320) |
| Effect of TTF, EE, GO, FO* price changes | (7) | 399 | 12 | (316) | |
* The abbreviations TTF, EE, GO and FO are explained in Note 7.2.
