Ostroleka C – Poland’s last new coal plant makes no economic sense and is caught in the middle of a fight between a Prime Minister and Energy Minister in a country hosting COP24 in December. It is a joint venture between two Polish state-controlled companies, Energa SA and Enea SA – with Polish taxpayers on the hook for future losses.

Commenting for Carbon Tracker: Senior Analyst Utilities and Power Matthew Gray said:

“This could well be the last coal plant constructed in Poland and if it gets built it is destined to be a financial and economic disaster.”

“Given the proposed project is almost entirely dependent on capacity market payments, which appear far from guaranteed, we believe Ostrołęka C risks destroying shareholder value unnecessarily.”

The key findings of the report are:

  • Ostroleka C has a projected negative net-present-value (NPV) of €1.7b. Our model projects the plant will be permanently unprofitable, without out-of-market revenues in the form of capacity market payments to offset operational losses.
  • As detailed in our 2017 report Lignite of the Living Dead, coal generation across the EU looks economically unviable, making both existing and new capacity reliant on capacity market payments which the European Commission wants to ban by 2025.
  • Ostrołęka C will get the same 15-year price as the 1-year price of existing capacity. It will not be able to control the price that is set. The experience of recent UK capacity market auctions has been for new-build projects to struggle to bid low enough to beat out existing capacity.
  • Ostrołęka C presents a clear and obvious financial risk for investors in Polish state-controlled Companies Energa and Enea. As an illustration, each company’s 50% share of the overnight capital cost of Ostrołęka C represents around 70% and 65% of the market capitalisation of Energa and Enea, respectively.
  • Credit ratings agencies EuroRating and Fitch have expressed a similar view, with EuroRating downgrading Energa by reason of the Ostrołęka C construction contract and Fitch describing Ostrołęka C as “credit-negative” – with Polish taxpayers ultimately on the hook for future losses.

Additional Background

  1. Energa has called an EGM for 3 September 2018 (announcement here) at which the sole question is a shareholder vote on commencing construction of Ostrołęka C (resolution here).
  2. There has been significant recent turnover of Energa’s management board. On 31 July 2018, Energa dismissed its President Arkadiusz Siwko (announcement here) after only 29 days in office (announcement of appointment here). Acting President Alicja Barbara Klimiuk is Energa’s sixth president in two years and ninth president in 40 months. Energa has not yet found a permanent replacement, with media speculation that this is due to concerns about Ostrołęka C’s economic viability (e.g. here in Polish).