Coal capacity green-lighted by the government
Tuesday, June 23rd, 2020
The Polish government has admitted that in the face of the EU climate policy, coal assets are becoming a burden for energy companies, whose main job is to provide electricity. It seems that the PGE Group and PKN Orlen convinced their owner to transfer those assets to an entirely new company. .
Poles are setting the stage before talks in Brussels
Originally the European Council summit that started on 19 June was supposed to have been devoted to climate neutrality by 2050. However, in view of the challenges posed by the coronavirus epidemic, the meeting will be about the EC plan on repairing the EU economy. At the end of May the Commission presented a new plan called the Next Generation EU worth EUR 750 billion, which will increase the upcoming multiannual EU budget for 2021-2027 to a total of EUR 1.85 trillion. Thus, the EC has increased the budget of the Just Transition Fund to EUR 40 billion in total. Poland could receive EUR 8 billion from the Fund, which will aim at mitigating the social and economic impact of the energy transition on the most affected regions. According to the plan, Poland’s participation in the subsidies will be EUR 37.7 billion and EUR 26.1 billion in loans. This means the country will be the third biggest beneficiary of the plan to rebuild the EU economy.
Still, the EC proposal needs to be accepted by member states. Poland said it was satisfied with it. When visiting Silesia Poland’s Prime Minister Mateusz Morawiecki said the energy transition supported by funds from the European Union was “a difficult challenge, but also a huge opportunity.” “Tomorrow at the European Council summit we will be talking about subsidies, these funds will be good for the energy transition,” Morawiecki said on 18 of June.
So, what can be done to convince other countries to support this plan? A reliable transition plan needs to be presented. According to the latest declarations, the road map, i.e. Poland’s Energy policy by 2040 will be ready by the end of this year. However, state-owned companies and the government are already making specific declarations about the path of the transition. During a webinar with representatives of the EC, the PGE Group, which is the biggest power generating company in the country, presented a plan to construct wind farms of a total capacity of 100 MW and a PV farm of the same capacity on the premises of the biggest lignite mine and a coal-fired power plant in Poland.
A herald in Ostrołęka
From the point of view of the energy market, PKN Orlen’s latest conference on supporting the national food sector may turn out to be a game changer. However, this is not thanks to the domestic products sold at PKN Orlen’s gas stations, but the words and assurances of Jacek Sasin, Deputy Prime Minister and Minister of State Assets. He revealed that his ministry supported separating coal assets from energy companies. This is how one day before the Council meeting, Warsaw sent another message it was ready for an energy transition and for absorbing funds from the EU’s new budget.
This idea has been present in expert analyses and forecasts about the future of Poland’s energy sector in view of the EU climate policy, that is becoming increasingly more strict. Since the beginning of the year decision makers at state-owned energy companies talked about this idea, albeit very quietly. The first was PKN Orlen, which announced it would revise its investment in the Ostrołęka power plant, where a coal-fired bloc C was supposed to be built. Already in December last year, Orlen, which back then announced a tender offer to purchase Energa’s shares which was the co-owner of the Ostrołęka project, said that it preferred zero- and low-emission technologies such as natural gas. However, back then the company did not announce its plans as it had to fulfill the reporting obligations for companies listed on the stock exchange. However, in the end the decision on replacing coal with gas was announced. On 18 June, Daniel Obajtek CEO of Orlen said at the press conference that he wanted to sign an investment deal with a contractor who would build the gas bloc in Ostrołęka within a month and a half.
A breakthrough in Bełchatów
PKN Orlen’s decision to change the fuel in Ostrołęka started a chain reaction. CEO of the PGE Group Wojciech Dąbrowski said in May that his company supported the idea to separate coal assets from energy assets and moving them to a different company. In his view this would ensure coal was used to provide the security of power supply, and at the same time would release the investment potential of energy companies, which are listed on the stock exchange. It was the first declaration of this type made by a CEO of a state-owned energy company. A few days ago he told the Parkiet daily that the government was working on this idea. He also added he hoped that by the fall decisions on this matter would be made. In autumn the PGE Group will announce its 10-year strategy, which may depend to a large degree on the government’s decision on separating the coal assets and on the final version of Poland’s Energy Policy by 2040. Dąbrowski also argued that without the coal assets, the Group would gain access to cheaper European financing mechanisms and would be able to lower investment costs and energy prices.
Orlen’s decision with regard to Ostrołęka and PGE’s declarations caused the stock market to soar. Share prices of four energy groups spiked at the market yesterday – PGE’s by 14%, Enea’s by 8.5, Tauron’s by 16% and Energa’s by 3.7%. In June, the second largest energy group in the country – Enea, located in the city of Poznań, welcomed the idea.
One energy conglomerate?
The only piece this jigsaw is missing is the third player on the power market – the Tauron Group, which is currently quietly undergoing decarbonization with PGNiG’s help and in Orlen’s and PGE’s shadow. Tauron is in talks with Poland’s biggest gas company on selling its heating assets. This is another example of a merger across different sectors. PGNiG has capital and access to gas, which allows it to modernize Tauron’s assets and replace coal generation with gas. Whereas Tauron, whose headquarters is in the city of Katowice, wants to dart forward and use the money earned on selling Tauron Heat to invest in on- and off-shore wind farms as well as PV.
PGNiG’s involvement is interesting as Jacek Sasin repeated after Daniel Obajtek at a press conference on 18 June that in Poland there was enough room for one energy conglomerate. “I fully agree with the statement that in Poland there is room for one energy conglomerate,” the minister told journalists. When asked if that meant that PKN Orlen will want to take over PGNiG next year, the deputy prime minister said he didn’t “exclude any possibility.”
The owner decided
Going back to the issue of separating coal assets, PKN Orlen and PGE in a way asked their owner about such a possibility. And the owner did respond via Jacek Sasin, who informed that his ministry was working on a program to introduce such a change in the span of a few decades. He wanted the energy sector to be based on two pillars: the energy of the future based on renewables and that, which for many years to come will be the basis of Poland’s energy generation – coal. “Such power plants will be working for several years and it would be good if they were part of a different entity that would be focused on coal only,” Sasin explained. However, he did not reveal how this idea would be put into practice claiming the analyses and details were still in the making.
What would the coal capacity look like?
In 2006 the energy sector was consolidated. Before that there had been 33 distribution companies and 16 power plants. As part of the merger four energy companies were established. The new idea is to separate coal assets from power companies and use them to create the country’s strategic coal capacity that would ensure energy security. Distribution and low- and zero-emission production assets could then stay with the power companies.
The separated assets could be split into two parts: power plants that were built before the year 2000, and those which have been already build or will be built after that date. The assets constructed before 2000 should be gradually shut down in accordance with a decarbonization plan by 2040. Whereas new units, completed after 2000, should be exploited until mid-century. For instance, the PGE Group is planning to phase out coal by 2045. Separating the coal assets would ensure energy supply and system stability, while power generation from those sources could be subsidized by the state. They would be used until energy supply security was ensured by zero- or low-emission sources and would be subsidized by the state. Without coal the energy companies could acquire loans on a lot better terms to invest in their distribution networks or zero-emission sources, on- and off-shore wind farms, PV or hydrogen.
A plan after the elections?
However, we should not expect that the decision itself and the idea behind it will be quickly revealed. The works on separating the coal assets from energy companies will take a long time, probably many months. The government will find it especially difficult to convince the regions of Silesia and Greater Poland as well as the łódzkie voivodship, where the biggest deposits of lignite and hard coal in Poland are located. Miners’ trade unions are against all decisions that limit the role of coal in Poland’s energy sector and the idea discussed will do precisely that. This is why we should expect the plans to be presented in the fall, after the presidential elections.