Poland's PGE plans share issue to fund coal-to-gas switches, solar, wind development

Polish utility PGE is planning to raise Zloty 3.2 billion ($800 million) through a share issue to partially finance coal-to-gas switching and the development of its onshore wind and solar PV portfolio, as well as modernize its distribution network, it said Jan. 19.

"The funding raised will be used to develop capital-intensive investment projects, including grid cabling, new photovoltaic projects, acquisitions of onshore wind farms and PV farms and low-carbon gas sources," PGE's CEO Wojciech Dabrowski said in a statement.

Dabrowski said some of the funds would be spent on building 2.5 GW of offshore wind capacity that the company is developing with Denmark's Orsted.

The largest portion of funds raised, however, would be spent developing state-controlled PGE's coal-to-gas switching plans. Polish government officials have welcomed the European Commission's proposal to label natural gas and nuclear as sustainable in taxonomy guidelines.

The most expensive project is an 800-900 MW combined cycle gas turbine investment to replace coal-fired capacity at its 1.8 GW Rybnik plant, which will cost an estimated Zloty 2.95 billion in total, of which Zloty 880 million will be raised under the share issue.

The block will have net efficiency of 62% with emissions estimated at 313 kg/MWh. Rybnik's coal units emit around 900 kg/MWh. PGE plans to secure a 17-year capacity market contract for the unit at auction in December. A final investment decision will be taken after the auction to enable commissioning in 2027.

The company is already building a 1.4 GW CCGT investment to replace coal capacity at its Dolna Odra plant, which is due to be commissioned by the end of 2023.

PGE also plans to spend Zloty 460 million, half of which will be funded from the share issue, switching its combined heat and power plants in Zgierz, Kielce and Bydgoszcz from coal to gas in the period 2023-25.

Around Zloty 350 million of the funds will be used to fund acquisitions. PGE plans to spend Zloty 1.2 billion acquiring 170 MW of solar PV and onshore wind capacity by 2023.

The company has also earmarked Zloty 120 million from the share issue to help finance a Zloty 390 million project to develop 150 MW of PV projects by the end of next year. PGE currently has just 4.7 MW of PV capacity.

In distribution, PGE plans expenditure of Zloty 1.22 billion installing medium voltage lines by the end of next year and Zloty 1.49 billion to roll out smart meters in 2022-25.

Shareholders are to decide whether to approve the share issue plan during a meeting March 7.

Taxonomy draft details

Over new year the European Commission's draft taxonomy delegated act was leaked, revealing proposals for a temporary "green label" for gas plant investments that replace coal.

Gas plants would need construction permits by 2030 and have plans to switch to renewable or low-carbon gases, in line with an overall CO2 emissions threshold of 270g/kWh or annual emissions not exceeding an average of 550 kg/kW over 20 years, according to the draft.

The 550 kg/kW "budget" allowed for gas projects to proceed, an industry source told S&P Global Platts, but only for limited operating hours of around 1,000 hours per year.

This was perhaps sufficient for flexible back-up purposes when using gas reciprocating engines, but nowhere near enough for CCGT projects aimed at replacing coal running at baseload, he said.

The source also doubted the ability of operators to meet the draft requirement that gas plants blend at least 30% low carbon or renewable gas in feedstock by 2026, as well as the wisdom of directing the use of alternative fuels to power generation rather than other, less easy to abate industrial sectors.