Dark day for Polish coal

Dark day for Polish coal

Green worries force two utilities to pull financing for a huge coal-fired power plant.

By PAOLA TAMMA 2/14/20, 3:56 PM CET Updated 2/17/20, 9:47 AM CET

https://www.politico.eu/article/dark-day-for-polish-coal-ostroleka-c-power-plant/

WARSAW — Ostrołęka C was supposed to be Europe's last new big coal-fired power plant.

It likely won't be after the two utilities developing the power plant announced late Thursday that they've suspended financing for the project due to "important factors in the market as well as the difficulty of obtaining external financing."

Ostrołęka C is due to add 1 gigawatt in capacity to the grid from 2023, and faces fines if it doesn't go online in time.

But the 6 billion złoty (€1.4 billion) project has long struggled to find backers. Since it was announced in 2016, the Enea and Energa utilities — both controlled by the Polish state — have been unable to secure financing in a market increasingly skeptical of new coal builds. Insurance was also an issue, with many providers turning down the project, which forced the developers to turn to state-controlled insurer PZU.

“There was strong political pressure [to move ahead], but there have long been questions about the financing,” said Aleksandra Gawlikowska-Fyk, an analyst with Forum Energii, a Warsaw-based think tank, calling the decision to halt financing "a symbolic step."

“We can see that there is political permission to switch fuels from coal to gas.” — Aleksandra Gawlikowska-Fyk, analyst with Forum Energii

The developers cited the decision by the European Investment Bank in November to cease financing for fossil fuel projects after 2021, as well as European Commission's Green Deal vision under which Europe would reach zero net greenhouse gas emissions by 2050, as reasons for suspending the financing.

Poland opposed the EIB's new lending policy and has carved itself out of the bloc-wide goal of climate-neutrality, saying instead it will reach it "at its own pace."

The rise of CO2 prices under the bloc's Emissions Trading System, which more than tripled over the last three years to around €25 per ton, and which are due to rise even further under the fourth phase of the cap-and-trade carbon market starting next year, have also undercut the argument for coal-fired power.

According to some analysts' estimates, the project would face a €1.7 billion loss over its lifetime, with credit rating agencies EuroRating and Fitch expressing similar views.

“It was clear from the start that this plant was a stranded asset in the making and would destroy value for shareholders," said Marcin Stoczkiewicz, the head of legal NGO ClientEarth for Central and Eastern Europe. The group has filed a series of lawsuits against Ostrołęka C.

Environmental campaigners celebrated the announcement. "The reality that there is no future for old coal, let alone new coal,” said Zala Primc, a campaigner with Europe Beyond Coal, adding, "It’s been clear for years that Ostrołęka C is a losing bet financially."

Coal to gas

However, Enea and Energa said that the suspension "does not affect the validity of existing agreements on financing the project" and  "does not automatically mean a change in the date of completion the companies."

The companies may now opt to switch the project from coal to gas. Piotr Naimski, the energy infrastructure minister, said last week that a decision on whether to convert to gas would be made "soon."

Polish governments have long supported domestic coal production and coal-fired power — which generates more than 70 percent of the country's electricity. But that position is increasingly difficult as local mines find it harder to compete with cheaper imported coal, and utilities are under increasing pressure to cut emissions. Coal plants are also less well-suited to acting as backup power for renewable energy than gas-fired stations, said Gawlikowska-Fyk.

“We can see that there is political permission to switch fuels from coal to gas,” she said.

Any decision to convert Ostrołęka to gas would be strengthened if state-controlled refiner PKN-Orlen goes ahead with buying Energa, Poland's third-largest power utility.

Daniel Obajtek, Orlen's CEO, tweeted Friday that the two utilities had "made a good decision." He added that as his company has issued a call to buy Energa's shares "we are certain that the investment in Ostrołęka will happen. We are analyzing different possibilities so that they fit with Orlen's strategy."

Gas accounts for only 6 percent of Poland's installed power capacity. Although it is cleaner than coal, the EIB and other lenders are also becoming increasingly wary of financing gas projects.

“In Poland we know that coal has no future but we haven’t yet realized that in the long run gas doesn’t have a future either,” said Gawlikowska-Fyk.

Jan Cienski contributed reporting.

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