Poland’s biggest utility, PGE, should accelerate its plans to diversify away from coal and into renewable energy such as offshore wind, a leading think tank says
Analysis by experts at the Institute for Energy Economics and Financial Analysis (IEEFA) suggests that plans to get involved in renewable energy that have been deferred by PGE, such as moving into offshore wind until the mid- to late-2020s, and its ongoing investment in and dependence on coal put it at risk of rising European carbon prices and dependence on Poland’s new capacity market.
IEEFA analyst Gerard Wynn* and energy economist Paolo Coghe* said surging carbon prices underscore risks gathering around PGE’s US$5.6Bn coal power investment programme.
The IEEFA recently highlighted risks associated with coal power investments. Since publication of that report, European carbon prices have risen by one third, to €20 (US$23) per tonne of emissions (a more than doubling this year to date).
“These rising carbon prices will seriously threaten returns on PGE’s coal investment programme,” the IEEFA said, noting that Poland is one of Europe’s most coal-dependent economies, although efforts are under way to diversity into renewable energy.
Referencing these findings, and the IEEFA report, shareholders asked PGE a series of questions about PGE’s carbon exposure at the company’s annual general meeting in July.
“Two answers offered up by the company seem especially relevant,” said IEEFA. “First, the company seemed to misunderstand the size of its carbon exposure. Second, PGE was vague in how it spoke about the impact of rising carbon prices on investment returns.
“To date, investors seem not to be buying the PGE story,” the IEEFA said. “Over the past 12 months, shares in PGE have fallen 37%.”
IEEFA believes that higher carbon prices are all but inevitable, while the same cannot be said for Polish power prices.
“PGE is already planning some diversification of its energy mix over the next decade. By radically expanding and expediting that strategy, in part by cancelling some coal power upgrades, and accelerating investment into alternatives, it can reduce its exposure to rising carbon prices,” IEEA concluded, noting that the utility would do well to grab the chance to invest in more growth-oriented strategies.”
Poland’s premier event for business and policy leaders, the Krynica Economic Forum, recently addressed the prospects for developing offshore wind in the Baltic, with WindEurope highlighting the benefits.
Officials from WindEurope spoke at the event, with Vattenfall head of offshore wind Michael Simmelsgaard, and chair the offshore wind committee in Polish Parliament Zbigniew Gryglas, and representatives of the Lithuanian and Polish transmission system operators.
All insisted on the strong fundamentals that will drive the deployment of offshore wind in the Baltic. With its strong and steady winds, relatively shallow waters and less extreme sea conditions, the Baltic is expected to be the second European offshore wind basin, with 9 GW of offshore wind in 2030.
In June 2018, Poland amended its Renewable Energy Sources Act to make it easier to invest in offshore wind energy and other forms of clean energy.
The amendments to the act were signed into law by the president on 29 June 2018 and include a change to rules for offshore projects applying for and participating in auctions that law firm CMS said will help facilitate investment in the sector.
In May 2018, Reuters reported that PGE could not fund nuclear projects and was instead looking at offshore wind energy, where costs have fallen steeply.
“PGE cannot afford offshore wind and nuclear. The decision was taken to go for offshore,” a source told Reuters. A government source also said that PGE would focus on offshore wind.
*Gerard Wynn is a London-based IEEFA energy finance consultant; **Paolo Coghe is an energy economist based in Paris