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Poland’s Top Power Company Will Cling to Coal for Decades

Poland’s Top Power Producer to Take 25 Years to Scrap Coal

(Bloomberg) -- Poland may take 25 years to scrap the most polluting fossil fuel, longer than the transition the European Union is seeking in its bid to zero out greenhouse-gas emissions.

The country’s top power producer PGE SA is unable to move faster because of technological constraints, job concerns and lack of financing, according to Chief Executive Officer Wojciech Dabrowski. The company expects the EU to help mobilize green investment, particularly at a time when the coronavirus pandemic leads the bloc into a deep recession.

“Coal exit is not realistic by 2030,” Dabrowski said, pointing to energy security requirements and the need to have backup power generation capacity when the wind doesn’t blow and the sun doesn’t shine. “But in 20 to 25 years it is. Of course we will still need the EU support. We do realize that we need to do it.”

State-controlled PGE generates about 40% of the east European country’s electricity. While the coal exit timeline set out by its CEO looks slow in the context of the EU’s bold climate plans, it’s still more ambitious than the government’s prediction for coal accounting for a quarter of the country’s energy mix in 2040.

Poland, which relies on coal for generating more than 70% of its electricity, is the only EU member not to abide by the EU’s mid-century deadline to eliminate greenhouse gas emissions, the cornerstone of the European Green Deal strategy.

Poland’s Top Power Company Will Cling to Coal for Decades

With the EU tightening its climate policies and the cost of emitting carbon dioxide forecast to rise, the company is planning to build a 2.5-gigawatt offshore wind farm this decade as part of the sustainable transition. It aims to unveil a new 2030 strategy in a couple of months.

“We want to be a leader in wind energy, offshore and onshore,” Dabrowski said. “We are and we want to remain the biggest player in district heating, where we will shift to natural gas, which is going to be a bridge fuel.”

Poland’s Top Power Company Will Cling to Coal for Decades

The clean overhaul of the company could get a boost under an economic recovery program, which the EU is drafting with a focus on the Green Deal. The European Commission, the bloc’s executive, should also take further steps to help Polish energy companies weather the viral crisis, which is already cutting into revenues as electricity usage dropped 10% in April, according to Dabrowski.

“We estimate that by 2030 Poland may have a 170 billion-zloty ($40 billion) gap between companies’ spending on emission permits and budget revenues from sales of CO2 allowances,” he said.

Poland’s Top Power Company Will Cling to Coal for Decades

While the “simplest” solution of suspending the bloc’s carbon market is politically unfeasible, PGE is calling on the commission to boost financing for energy modernization projects through increasing the size of a special fund under the EU Emissions Trading System.

Coal Haunts Poland Again as Virus Hits Mines and Power Plants

Support from the EU will also be necessary further down the road of reforming the Polish energy sector, according to Dabrowski. The overhaul will trigger consolidation of power producers into one big utility in Poland. Currently there are four, but with coal cutting valuations, their total market capitalization is almost three times smaller than that of the Czech rival CEZ AS. That’s even as the Polish economy is twice as big as the Czech one.

“If we want Polish companies to expand abroad, they need to be strong,” he said.

PGE shares gained as much as 3.9% in Warsaw on Thursday, making it the best performer out of four state-controlled power groups in the WIG Energy index Thursday. The company shed almost half of its market capitalization since the start of the year and is now valued at 7.78 billion zloty.

The ruling Law & Justice party has repeatedly encouraged mergers and acquisitions among its biggest companies to create so-called national champions. PGE, which also has a stake in the EU’s biggest coal producer PGG SA, also has a plan for its dirty assets: creating a separate, 100% government-controlled entity where all power groups’ stakes in coal-fired electricity plants could be moved.

“It’s definitely an interesting, sensible idea and one of the possible options,” said Dabrowski, a former regional representative of Law & Justice. “I think that talks about changes in this direction will start soon. Of course, the decision is not ours -- it has to be made by politicians.”

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