No Turning Back for Utility Building Poland's Last Coal Plant

(Bloomberg) -- Poland’s Energa SA will not abandon a contested 6 billion zloty ($1.6 billion) Ostroleka power plant project as the country needs to replace its aging facilities to meet rising demand for electricity, according to its chief financial officer.

The 1-gigawatt project is slated to be the nation’s last coal-fired unit when it starts operating in 2023. Despite concerns about the soaring cost of carbon emissions and objections by environmental groups and the industry regulator, Energa CFO Jacek Koscielniak remains optimistic. The plant is set to generate more than 300 million zloty in earnings before interest, tax, depreciation and amortization annually in “every scenario,” he said.

“There’s no turning back from the investment, especially when you take into account the huge determination from all the involved parties and the estimate of higher demand for electricity,” Koscielniak said in an interview last week.

Warsaw-listed Energa is carrying out the project with Enea SA. The two state-run companies are now securing funding and obtaining last approvals to begin the construction in northeastern Poland. The country, a stalwart defender of coal in the European Union, is increasingly feeling the pinch from rising carbon dioxide prices. It plans to lower its reliance on the dirty fuel with investments in offshore wind farms and perhaps nuclear energy.

Funding Risks

Poland has brought forward its plan to cut the share of coal in electricity generation to 50 percent from 80 percent now by a decade to 2040. After investing in 4.2 gigawatts of additional coal power this decade, the current government made a pledge to the EU to make the Ostroleka project its last coal plant, while boosting investments in green energy to meet the bloc’s climate goals.

Carbon Tracker, a U.K.-based environmental research group, said Ostroleka is set to lose money when selling power on the wholesale electricity market as emissions prices surge.

Despite some adjustments to its energy policy, Poland is still set to start so-called power capacity payments this year aimed at keeping coal-fired plants running. Ostroleka may also benefit from capacity auctions scheduled for December.

“The capacity market is of course important, but it’s not like Ostroleka won’t be built without it,” according to the CFO. “What’s key is rising electricity consumption and phaseout of the old units, which will ensure a higher usage ratio of the plant.”

The utility also plans to build a gas-fired plant in Grudziadz, which it wants to auction in the next year’s capacity market, he said.

Energa and Enea, as well as a mystery financial investor, are preparing to finance about half of the Ostroleka project. Obtaining bank loans for the rest may be “challenging” as financial institutions are scaling down their support for coal investments due to the greener policies, Energy Minister Krzysztof Tchorzewski said last week. The two utilities need to take that into account when deciding when to issue the so-called notice-to-proceed and start construction.

“On one hand, every day counts, and the sooner we issue the NTP, the higher the probability we finish the construction on time,” Koscielniak said. “On the other, also from the financing point of view, we would be in a more comfortable situation if we knew the auction results before we issue the NTP.”

To contact the reporter on this story: Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net, Piotr Bujnicki

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