Polish utilities too tied up in coal to invest in gas

The financial commitments of some Polish utilities to domestic coal-fired plants are limiting their ability to finance other types of generation, including gas-fired and renewables, despite a recently approved capacity market mechanism.

State-controlled utilities Tauron and Energa said this week that they are unlikely to start significant investment in gas-fired generation in the mid-term because of their financial stakes in initiated or planned coal-fired projects. The two firm's comments were in contrast to those by Poland's largest electricity producer, state-owned PGE, which said earlier this month that it plans to focus on gas and renewables in order to diversify its fuel mix, arguing that it had become too coal-dependent.

Tauron, which is Poland's third-largest generator and operates a mainly coal-fired fleet, admitted this week that its ability to finance anything other than its already underway 910MW coal-fired Jaworzno project is limited. "Investment in Jaworzno is quite a burden for us," Tauron chief financial officer Marek Wadowski said this week. "We need to concentrate on it."

Tauron is keeping the possibility of building the 413MW Lagisza gas-fired plant open, which will be located on the site of the existing coal-fired unit. But the project is still in the analysis phase and is unlikely to be given a green light in the near future.

Tauron is expecting help from the Polish government to continue construction of its Jaworzno plant. The firm hopes to sign an agreement "very soon" with state-owned investment fund PFR for 880mn zlotys ($260mn) to finance the facility. PFR in exchange will become a minority shareholder in Jaworzno.

The funding from PFR will allow Tauron to complete Jaworzno on schedule by the end of 2019, the firm said. And Tauron also plans to complete a long-delayed 450MW Stalowa Wola gas-fired plant developed jointly with Polish state-controlled oil and gas company PGNiG.

Energa, the smallest of the Polish state-controlled generators, said it had a limited appetite for investment in new facilities, apart from its planned 1GW Ostroleka coal-fired plant that it is developing alongside state-owned utility Enea.

Energa plans to enter Ostroleka in the November-December capacity market auction in hope of securing capacity payments from 2023. The company acknowledged that the schedule for this project is tight, particularly as it is yet to select and hire a general contractor for the project, not to mention start construction.

Jaworzno and Ostroleka have had been strongly promoted by the Polish government, which is supporting the construction of new coal-fired plants because of the country's coal mining sector. But utilities have become concerned about the future stability of coal supplies following cost-cutting and a reduction in mining capacity.

This has prompted the government to look more favourably again at other generation sources, including renewables and gas. Warsaw has also intensified its attempts to build Poland's first nuclear power plant, trying to rally large Polish companies — not just utilities but also oil refiners — behind the plans.

Energa's focus on the Ostroleka facility is likely to push back its planned 450MW gas-fired plant in Grudziadz, the company said. The plant has already completed all permitting but Energa is now "analysing how to improve its feasibility" before a decision is made into whether to include it in the capacity market auction this year. Apart from Ostroleka, Energa may only develop a small 30MW wind farm in the mid-term future, the firm said, assuming that it successfully participates in the auction for renewable premiums.

Poland has recently approved a capacity market mechanism that, as the government and grid operator PSE argued, was needed to make sure utilities keep investing to replace Poland's ageing coal-fired capacity. But PSE admitted last year that the Polish capacity mechanism would focus on addressing "missing money" issue than "missing capacity" in its first phase.

Poland plans to hold first three auctions in November-December this year, with capacity payments starting in 2021, 2022 and 2023. In April, utilities will certify their units to make them eligible for participation in the capacity auctions. Utilities expect to include both existing and planned plants in the auctions.