While the coronavirus pandemic did not substantially impact Polish utility PGE Polska Grupa Energetyczna SA's financial performance in the first quarter of 2020, executives expect earnings across all divisions to be squeezed by falling power demand. But the crisis also provides further motivation for the company to ramp up its investment in renewables and modernization projects, they said.
Power demand in Poland was down just 2% year over year in the quarter, CFO Pawel Straczynski said on the company's May 27 earnings call. "Unfortunately, in April, we are observing much more significant drops. The consumption was about 10% lower, 1.3 TWh, and the generation was lower by 12%, i.e., 1.5 TWh," he told analysts. Power prices in Poland, like in other European nations, also fell during the quarter and offset upsides from lower CO2 emissions costs, the CFO said.
"There are huge challenges ahead," PGE CEO Wojciech Dabrowski added. "We're accumulating capital. And after the stabilization of the economy, we will be investing it reasonably to increase our competitive edge."
One focus area will be the company's renewables fleet. PGE is currently developing some of the first offshore wind farms in the Polish Baltic Sea together with Danish utility Ørsted A/S, with the final scope of the companies' collaboration still to be announced.
PGE has obtained environmental permits for the Baltica 2 and 3 offshore wind projects and concluded wind speed assessments in the region, Dabrowski said. A shortlist of 10 geotechnical contractors has been drawn up after workshop last week, while a tender for geological studies of the seabed will launch soon.
The company is also making offers to acquire new wind projects, he said. The renewables plants currently under development, which beyond the offshore wind also includes energy storage capacity in Opole, are not facing delays due to the pandemic, Dabrowski said.
Meanwhile, construction of a new unit at PGE's Turów coal-fired power plant is facing delays due to the travel restrictions imposed by the government, as the contractors are not Polish nationals.
Staying on even keel
Executives said investments in renewables, gas and coal modernization projects will help build value for the company in the future. PGE has put forward a plan to spin off its coal assets into a separate state-owned company to facilitate easier financing for renewables projects.
"As you will know, the fact that we have hard coal assets on our portfolio … limits the possibilities of obtaining funding. Hence, the idea presented seems to be sensible," Dabrowski said on the call.
"The devil is in the details. But it seems that this is the only idea to obtain cheaper funding for us as PGE and to ensure energy supplies for Poland and secure jobs for our employees," the CEO added.
The company hopes that decision makers at national and EU level will approve the move, he said. At the same time, he noted that the electricity system will continue to need coal assets, and modernization efforts will help lower the climate impact until their winding down in about 25 years.
Meanwhile, the company's board will make the final decision about whether it would pay a dividend this year.