When initiating and then implementing activities in these and other business areas, account is taken of the risks whose materialisation could contribute to a failure to achieve the intended strategic and operational objectives, including those affecting the organisation's ability to ensure continuous operation regarding both the National Power System and the company itself. Risk management in each of the areas consists in the systematic application of planned and coordinated actions, procedures and practices allowing to reduce or eliminate the possibility of risks materialising, and to minimise the negative effects of their occurrence or to capitalise on their positive consequences.

Risk management activities undertaken at the strategic and operational levels are superimposed by the process of identifying, assessing and monitoring risks. In accordance with PSE's Risk Management Policy, this process covers all areas of the company's operations.

The company uses the Risk Assessment Methodology at PSE S.A. and its subsidiaries, which is a fundamental document defining the conceptual base and methodological approach used to identify and assess the most significant risks for the company and/or NPS.

In 2022, an update of the Methodology was carried out, which expanded the method of assessing natural catastrophe risks, (i.e., risks with very low probability of occurrence and very large consequences), and explicitly included regional and national electricity crisis scenarios within the meaning of Regulation of the European Parliament and of the Council (EU) 2019/941 of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC. In addition, a method for using additional risk measures, particularly useful for assessing natural catastrophe risks and electricity crisis scenarios – value at risk (VAR) and expected shortfall has been determined.

The methodology and accompanying tool solutions support, among others:

• identification of key risks associated with the functioning of the organisation, including, in particular, those relating to operating, maintenance and investment activities,
• assessment of identified risks, their quantification and presentation in the form of ranking,
• determining the relationship between the identified risks,
• indicating natural catastrophe risk scenarios,
• conducting ongoing monitoring of risks, including monitoring of trends and providing synthetic management information on risks.

The process of identifying, assessing and monitoring of risks is supported by a risk monitoring system. It provides a knowledge base on the risks associated with the company's operations and the NPS.

At PSE, as part of continuous improvement of the organisational, process and technological solutions,initiatives are taken aimed at both increasing the efficiency and safety of the NPS and the company’s functioning, and at reducing or managing risks more effectively.

Company’s risk register – selected risks as of the end of 2022

The company’s risk register includes risks that are most important from the PSE's point of view, and are essential for the NPS functioning. According to the methodology adopted, for each identified risk, the potential causes and consequences of its materialisation are identified, the expected frequency of risk materialisation as well as the measures (expected value of effect, value at risk) and expected shortfall are estimated. And so, in particular:

• in relation to the cause, which is understood as a specific event or circumstance whose occurrence may lead to the risk materialisation, the frequency of occurrence and conditional probability of the risk materialisation of risk after the occurrence of the cause (susceptibility) are determined,
• effects, understood as all (negative and positive) consequences of the materialisation of risks are presented in 7 dimensions:
  • financial and material,
  • related to energy not served,
  • related to time of non-coverage of demand,
  • related to image,
  • legal,
  • related to impact on health and life,
  • related to environmental impact.

The company does not identify risks as social, environmental or climate risks. Factors of an environmental, social and climate nature can be considered as potential causes for the materialisation of specific risk scenarios. When identifying risks relevant to the company and NPS, it is determined in each case whether a negative impact on the natural or social environment is likely to be recorded as a consequence of the materialisation of a given risk. This negative impact is expressed directly, as an effect on human health and life and on the natural environment, or indirectly (as an effect on the image). Thus, at the stage of risk identification and definition of its parameters (defining causes and/or effects), social, environmental, climate impact factors are taken into account.

As from 2021, PSE's risk register also includes regional electricity crisis scenarios (SRKEE), as defined by ENTSO-E and deemed adequate in the case of Poland.

Some of these are directly determined by climate factors, including, in particular, extreme weather events being a consequence of climate change. They include: extremely low temperatures, severe storms and hurricanes, torrential rain and floods, heat waves, and droughts. Materialisation of this category of scenarios may affect the functioning of transmission and distribution grids. It may have a negative impact on the functioning of power plants and combined heat and power plants. As a result, they may lead to difficulties in supplying electricity to consumers.

Main risk causes

Failures of units / generating units or the infrastructure necessary for power output from these units caused by:

• Manufacturing defect
• Improperly conducted operation
• Human error
• Degradation of infrastructure related to its long-standing use
• Environmental factors
• Construction disaster

Risk description – basic information

As a result of the occurrence of one or more causes, a situation may arise in which dispatchable, controllable generating units lose their ability to generate or their ability to do so becomes significantly reduced. It is also possible that the ability of power output is disturbed. It becomes necessary to make appropriate adjustments in the operation of generating units, including their complete shutdown. This situation may overlap with a period when there is a need for scheduled maintenance of some units / generating units, shutting down their operation within the NPS for many weeks / months.

Main effects of risk materialization:

• Undelivered energy
• Unmet demand by manufacturers
• Increased cost of removing the congestions
• Physical injury / loss of life to third parties (of various magnitude) due to the occurrence of a blackout
• Negative impact on the balance of the natural environment of various magnitud
• Negative effects on the image of varying magnitude

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Monitoring of transmission grid elements when security levels are found to be at risk
• Changes in overhaul plans for generating units
• Change of the grid configuration
• Arrangement of supply or sale of power and energy from abroad within the framework of operator power exchange on the basis of inter-operator agreements
• Use of resources provided under the System Defense Plan
• Introduction of electricity supply and off-take curtailments

Main risk causes

Shortages of fossil fuels during times of high demand, low inventories and lack of / limited alternative supply routes, caused by:

• Long-term disruption of fossil fuel production
• Failure of the fuel transmission / transportation system
• Restrictions on supply for commercial or political reasons
• Weather conditions

Risk description – basic information

As a result of the cause, it may be necessary to: divert production to units using fuel that is not affected by the shortage, introduce fuel conservation, or, as a last resort, stop production. Electricity import may be limited or unavailable due to the existence of the aforementioned impediments in other countries as well. Reserve availability and voltage stability support may fall. The following are possible: increase and persistence of significantly increased electricity prices, suspension of industrial processes that depend on the fuel affected by the shortage, disruption of operation of some critical infrastructure.

Main effects of risk materialization:

• Increased cost of removing the congestions
• Undelivered energy
• Unmet demand by manufacturers
• Negative effects on the image of varying magnitude

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Arrangement of supply or sale of power and energy from abroad within the framework of operator power exchange on the basis of inter-operator agreements
• Monitoring of transmission grid elements when security levels are found to be at risk
• Change of the grid configuration
• Introduction of electricity supply and off-take curtailments

Main risk causes

• Technical failure of substation equipment / gear
• Loss of power supply for substation's auxiliaries
• Errors in readings / signals regarding the status of substation equipment / electricity parameters
• Human error
• Intentional action
• Events resulting from environmental factors
• Construction / land traffic / air traffic disaster

Risk description – basic information

As a result of the occurrence of one or more causes, substation protection may be activated, which would result in the unplanned shutdown of one or more key components of an EHV substation. Direct damage or automatic shutdown of one or more key components of an EHV substation may occur. As a result, the substation's ability to transform or distribute electricity may be prevented or significantly reduced.

Main effects of risk materialization:

• Cost of restoring the substation
• Negative impact on the balance of the natural environment
• Accident incident, including fatality
• Negative effects on the image of varying magnitude

Approach to risk management ─ key assumptions:

• Comprehensive approach to grid asset management, including periodic assessments of the technical condition of substation gear, replacement of the most worn-out and oldest elements / devices
• An experienced and knowledgeable team to ensure safe maintenance
• Application of physical security solutions and substation access restrictions (technical protection systems, fixed fire-fighting systems)
• Direct supervision of external companies carrying out work on the substation facilities

Main risk causes

• Disruption in wholesale electricity markets
• Disruption in other markets, with impact on wholesale electricity markets
• Increase in the price of CO₂ allowances
• Reduced electricity demand

Risk description – basic information

As a result of the occurrence of one or more causes, a situation may arise in which a number of Balancing Market Participants (URB) adopt contracting strategies that deviate significantly from the assumptions made by the PSE as part of the design of market rules, in tariff applications or in financial planning. Either a gradual or sharp reduction in revenue from the quality fee is possible. The above may be correlated with an unexpected change in the level of market energy prices (RCE), as well as their volatility, increased beyond expectations. This translates into the need for PSE to incur Balancing Market Costs higher than those assumed in the financial plan and compensated by tariff revenue, including in some situations a concurred, reduced (compared to assumptions) level of tariff revenue.

Main effects of risk materialization:

• Negative result on quality fee
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Monitoring of the Company's financial exposure in the context of the rules of balancing market mechanisms
• A solution which provides for a possibility to submit a request for the Tariff adjustment to the ERO President during the year

Main risk causes

• Delays in conducting and awarding the tender
• Obstructions or omissions during planning work
• Prolonged process of obtaining administrative / environmental decisions
• Errors / delays in the preparation of project documentation
• Errors / delays of the contractor in carrying out construction and installation work (including on related projects)
• Defective / delayed deliveries of materials / equipment
• Restrictions / inability to obtain necessary exemptions
• Occurrence of extreme weather events
• Disputes / conflicts with the contractor
• Difficulties / delays in obtaining land titles
• Construction disaster / land traffic disaster / fire

Risk description – basic information

If one or more of these causes occur, delays in investment project implementation are possible. The remedial / corrective actions taken may not be effective or allow to remove only part of the impediments and resulting delays. Delays pile up and reach levels that exceed few / several months. They may additionally translate into noting / increasing delays relating to other project(s) (related projects).

Main effects of risk materialization:

• Costs associated with e.g. the need to extend the line route, increased time to engage staff resources, legal services
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Project schedule and budget management
• Contractor and subcontractor agreement management
• Supply management
• Outage planning
• Planning and managing changes to the project and agreement with the contractor
• Planning the technical elements of the investment process
• Monitoring of the process related to the course of investment projects inside the organization

Main risk causes

• Rising and prolonged high air temperatures of 30-35°C or higher

Risk description – basic information

If the cause occurs, there may be a gradual, also simultaneous: decrease in the efficiency of some generating units, especially those using open water circulation, reduced availability / lower efficiency of hydro power plants, reduced generation in wind farms (high temperatures are often accompanied by windless weather), reduced import and transmission capacity, shutdown / unavailability of some generating units (unscheduled outages due to failures), automatic shutdown of infrastructure components due to overloading, reduced generation capacity of PV sources due to overheating. Removal of the aforementioned restrictions may either be impossible or significantly hindered by the difficult conditions in which operation and maintenance services have to work.

Main effects of risk materialization:

• Increased cost of removing the congestions
• Negative effects on the image of varying magnitude
• Undelivered energy
• Unmet demand by manufacturers
• Loss of life to third parties due to local blackout occurrence

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. This include, but are not limited to:

• Monitoring the level and temperature of cooling water of open-cycle power plants
• Monitoring weather forecasts affecting demand, generation, transmission capacity and monitoring the occurrence of extreme weather conditions

Main risk causes

• Technical failure of equipment / components that make up an EHV line
• Human error
• Intentional action
• Events resulting from environmental factors
• Construction / land traffic / air traffic disaster

Risk description – basic information

As a result of the occurrence of one or more causes, protections may be activated, resulting in an unplanned shutdown of one or more EHV line current paths. There may also be a failure or spontaneous shutdown of one or more EHV line current paths. As a result, the ability to transmit electricity using the EHV grid may be prevented or significantly reduced. 

Main effects of risk materialization:

• Negative impact on the balance of the natural environment
• Negative effects on the image of varying magnitude
• Accidents
• Costs of replacing or repairing damaged line elements

Approach to risk management ─ key assumptions:

• Comprehensive approach to grid asset management, including periodic assessments of the technical condition of the grid asset, replacement of the most worn-out and oldest elements
• Direct supervision of external companies carrying out work on the line facilities

Main risk causes

• Limitation of the contractor's ability to carry out the work through loss of key personnel, equipment shortages or organizational and planning problems
• Loss of a key subcontractor by the contractor

Risk description – basic information

As a result of the occurrence of one or more causes, also simultaneously, PSE may immediately note implementation difficulties, a reduction in the magnitude of commitment on the part of the contractor, failure to meet established deadlines. In extreme cases, it can occur immediately or after a few days / weeks for the contractor to completely stop carrying out the tasks assigned to them. Withholding of payments by the contractor to subcontractors may occur. The investment (one or many) may remain on hold for many weeks, which may also affect the implementation of related tasks (carried out so far without disruption). Disturbances in investment processes can extend to the entire portfolio of PSE grid investments.

Main effects of risk materialization:

• Cost of PSE's action on contractor's cessation of work of various magnitude
• Increased cost of carrying out part of the work within one or more key projects due to the need to select a new contractor for only part of the work
• Negative effects on the image

Approach to risk management ─ key assumptions:

• Monitoring risks relevant to project implementation, including those related to: financial situation of contractors, human resources (key personnel) and equipment resources on the contractor's side, ability to carry out work smoothly
• Carrying out supervision / monitoring of the work within various investment tasks, including but not limited to: management of the project schedule and budget, management of the agreement with the Contractor and with subcontractors, tracking deviations from the contractual schedule and the reasons for their occurrence, analysis of the status and evaluation of deviations, identification of intermediate risks

Main risk causes

• PSE's violation of subsidy requirements
• Violation of laws / subsidy requirements by the contractor
• Lack of EC approval to grant investment support

Risk description – basic information

As a result of one or more causes, PSE takes action to clarify the situation. However, these actions may fail to achieve the expected result, as a result of which PSE may lose the opportunity to obtain a certain amount of subsidy or become obliged to return it (in whole / in part) with interest. Consequently, part of the capital expenditures (which were financed / were to be financed by the subsidy) must be financed from own funds or other sources.

Main effects of risk materialization:

• Negative effects on the image of varying magnitude
• Repayment of the amount of the subsidy with interest or non-award of the subsidy

Approach to risk management ─ key assumptions:

• Ongoing supervision of the implementation of work by contractors, due diligence at the stage of investment project preparation, monitoring of delays and their causes, as well as taking actions to ensure timely implementation of the investment project, verification / supervisory activities in terms of compliance by the Company with the requirements / obligations under the funding agreement and the provisions of national and EU law
• Maintaining provisions in agreements with contractors regarding requirements under the subsidy agreement and the contractor's responsibility to comply with subsidy requirements
• Ongoing cooperation, during inspections, with controlling institutions
• Support of specialized advisors in the preparation of solutions in accordance with applicable regulations with formal and legal justification of the planned activities

Risk causes

• Decline and prolonged low air temperatures below minus 10°C

Risk description – basic information

As a result of such weather conditions, there may be a gradual or rapid, also simultaneous: increase in energy demand, restrictions on the operation of utility power plants cooled by water from rivers / lakes, increased failure rates of conventional units and difficulties associated with restrictions in the supply of raw material (coal), reduced availability of selected lines due to their icing, and increased failure rates of selected equipment (decreased reliability). Removal of the aforementioned restrictions may either be impossible or significantly hindered by the difficult conditions in which operation and maintenance services have to work.

Main effects of risk materialization:

• Increased cost of removing the congestions
• The cost of repairing / maintaining the equipment that makes up the transmission infrastructure
• Undelivered energy
• Unmet demand by manufacturers
• Accident incident, including fatality
• Negative effects on the image

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Monitoring the level and temperature of cooling water of open-cycle power plants
• Monitoring weather forecasts affecting demand, generation, transmission capacity and monitoring the occurrence of extreme weather conditions
• Monitoring of fuel stocks available to power plants

Risk causes

Large-scale occurrence of one or more cases:

• Icing
• Snow cornices
• Catastrophic rime

Risk description – basic information

The occurrence of such weather phenomena may cause, throughout the area of their impact, damage to line facilities (including conductors and pole structures) and emergency, also spontaneous, shutdowns of transmission lines. Due to the prevailing weather conditions, troubleshooting and restoring linear facilities to service may be prolonged. Under such conditions, lines that are still in operation can become overloaded. There may be violations of the n-1 rule.

Main effects of risk materialization:

• Negative impact on the balance of the natural environment
• Accident incident, including fatality
• Increased cost of removing the congestions
• Undelivered energy
• Unmet demand by manufacturers
• High costs of restoring the substation / line to its original state, including restoration / replacement of its essential components
• Negative effects on the image of varying magnitude

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Monitoring weather forecasts affecting demand, generation, transmission capacity
• Monitoring the occurrence of extreme weather conditions
• Preventive actions in the planning and operation of NPS traffic

Risk causes

• Violent thunderstorm phenomena (heavy lightning strikes) for up to 3 days, which may be accompanied by strong/gusty winds and heavy rainfall
• Hurricanes (average speeds above 120 km/h, with gusts up to 200 km/h)
• Tornadoes

Risk description – basic information

The occurrence of such weather phenomena can lead to the sudden / simultaneous recording of unplanned outages of many EHV lines. There may be impediments to the operation of more key components of EHV substations. This situation may concern sensitive elements of the transmission grid. They can be physically damaged or shut down spontaneously due to the tripping of safety devices. This can lead to violations of the N-1 rule, accompanied by overloading of other grid elements. This condition may persist for up to several days, also due to difficulties in making repairs to damaged transmission infrastructure components.

Main effects of risk materialization:

• Accidental event / loss of life to third parties due to the occurrence of a blackout of various magnitude
• Negative impact on the balance of the natural environment
• Increased cost of removing the congestions
• Costs of restoring the substation / line to its original state, including restoration / replacement of its essential components
• Negative effects on the image
• Undelivered energy
• Unmet demand by manufacturers

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Maintaining operational services prepared to deal with grid facility failures
• Monitoring weather forecasts for the occurrence / magnitude of extreme weather events
• Installation of lightning protection infrastructure components in accordance with relevant standards
• Use of technical solutions that drain rainwater effectively
• Conducting periodic inspections of the substation grounds and the immediate surroundings of facilities
• Preventive action in the planning and operation of NPS traffic

Risk causes

• Rapid temperature increase in spring after snowy winter
• Heavy rainfall

Risk description – basic information

The occurrence of such weather phenomena can lead to flooding in many areas of the country, including potentially the breaking of floodbanks. This situation may affect, among others: power plant sites, transmission / distribution infrastructure elements, open pit lignite mines. Consequently, difficulties may persist for an extended period of time, also because of restrictions on the part of operating services to make repairs. The availability of some generating units and/or the ability of power output may be limited.

Main effects of risk materialization:

• Costs of replacing / repairing damaged components / substation / line equipment
• Increased cost of removing the congestions
• Negative effects on the image of varying magnitude
• Undelivered energy
• Unmet demand by manufacturers

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Maintaining operational services prepared to deal with grid facility failures
• Monitoring weather forecasts for the occurrence / magnitude of extreme weather events
• Use of technical solutions that drain rainwater effectively, reducing the possibility of flooding of substations / washing away of poles
• Conducting periodic inspections of the substation grounds and the immediate surroundings of transmission infrastructure facilities to verify the proper status of established securities
• Building stations and erecting poles in areas not prone to frequent flooding
• Preventive planning activities

Risk causes

• Lack of rainfall for at least 3-5 weeks associated with a significant drop in surface water and groundwater levels

Risk description – basic information

The occurrence of such weather conditions may lead to a gradual, also simultaneous: decrease in the efficiency of a large part of the generating units that use surface water for cooling purposes, as well as limiting the availability / lower efficiency of hydro power plants due to very low water levels. Removal of the aforementioned restrictions may either be impossible or significantly hindered, also due to the inability of the operating services of the generating units to take effective action. There may be a reduction in generation levels. In the absence of a decline in electricity demand, this could affect the difficulty of ensuring balancing of the NPS.

Main effects of risk materialization:

• Increased cost of removing the congestions
• Negative effects on the image of varying magnitude
• Undelivered energy
• Unmet demand by manufacturers

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Monitoring the level of cooling water of open-cycle power plants
• Monitoring weather forecasts affecting demand, generation, transmission capacity and monitoring the occurrence of extreme weather conditions 

Risk causes

The occurrence and spread of fires in forest areas due to:

• Persistent drought
• High air temperatures
• Strong winds

Risk description – basic information

The fire may spread to the area adjacent to the line or substation, and then also cover the strip of land directly under the line or occupied by the substation. There may be: automatic shutdowns of some EHV lines (in some cases, including substations) or reduction of their transmission capacity, damage to EHV line / substation facilities. It may be necessary to shut down the EHV lines / substations so that the fire department can safely extinguish the fire and other services can conduct operations. The scale of negative impacts may be amplified by the fact that a large part of the transmission lines are located in forested areas.

Main effects of risk materialization:

• Costs of replacing / repairing damaged components / substation / line equipment
• Increased cost of removing the congestions
• Accidental event / loss of life to third parties due to the occurrence of a blackout of various magnitude
• Negative effects on the image of varying magnitude
• Undelivered energy
• Unmet demand by manufacturers

Approach to risk management ─ key assumptions:

Actions provided for in the TGC and SO GL, aimed at ensuring an uninterrupted energy supply to consumers, including the application of measures and procedures provided for in the defense and restoration plans. These include, but are not limited to:

• Monitoring the weather forecast
• Maintaining adequate distance between poles / lines and substations and forested areas, including (as part of operational activities) systematic cutting of vegetation / trees growing in the area of the strip within which the transmission line is routed

Risk causes

• Multiple simultaneous or short-period failures caused by extreme weather conditions – heat wave

Risk description – basic information

The occurrence of numerous simultaneous failures due to extreme weather conditions can then lead to the failure of further components of the transmission grid or installations that do not belong to the TSO, but support the operation of the NPS (e.g., generators, compensators). They may be accompanied by a lack of or limited ability of operational services to deal with multiple simultaneous failures. Critical system components are lost, cascading shutdowns are possible, compromising the stability of system operation. There may be limitations or loss of availability of support services.

Main effects of risk materialization:

• Negative impact on the balance of the natural environment
• Accidental event / loss of life to third parties due to the occurrence of a blackout of various magnitude
• Increased cost of removing the congestions
• Costs of restoring transmission infrastructure to its original state, including restoration / replacement of its essential elements
• Negative effects on the image
• Undelivered energy
• Unmet demand by manufacturers

Approach to risk management ─ key assumptions:

• Periodic diagnostics and evaluation of results, including summaries in the form of a technical condition assessment
• Preventive replacement of the most worn-out and oldest grid assets
• Experienced staff operating the substations
• Contracts with specialized external companies providing support in case of emergency events
• Introduction of electricity supply and off-take curtailments (normal / by order of the TSO)
• Monitoring of transmission grid elements when security levels are found to be at risk
• Change of the grid configuration
• Arrangement of supply or sale of power and energy from abroad within the framework of operator power exchange on the basis of inter-operator agreements
• Monitoring weather forecasts affecting demand, generation, transmission capacity and the occurrence of extreme weather conditions