Offshore wind equipment being dispatched from the Baltic Sea port of Rostock in Germany. The sector could become a boon for Polish ports in the coming years, too.
➤ Partnership deal with Ørsted on track for completion, says state-owned utility PGE's head of offshore wind.
➤ For PGE's first projects, the European Investment Bank will be one of its "pillars of financing," alongside commercial banks.
➤ A negotiated subsidy, rather than an auction system, would ensure development capital is not wasted.
PGE Polska Grupa Energetyczna SA, Poland's largest power generator, with a long history in the coal sector, has its eyes on the country's untapped offshore wind potential. The state-owned utility secured its first permits in 2012, but the projects, like all the others in the Polish Baltic Sea, have been in limbo ever since, awaiting a final legislative framework that is expected in the coming months. Nonetheless, Poland is earmarked as Europe's next big offshore wind market, and the government's 8-GW target for 2040 has piqued the interest of international utilities and power companies, with RWE AG, Equinor ASA and Ørsted A/S eyeing partnerships with local developers. But it will still be several more years before the first offshore turbines start spinning.
Monika Morawiecka, CEO of PGE Baltica, PGE's offshore wind business, spoke with S&P Global Market Intelligence about its partnership with Ørsted and the financing environment for its first projects. The following is an edited transcript of the conversation.
S&P Global Market Intelligence: Why are you going down the partnership route for your first offshore wind projects in Poland?
Monika Morawiecka: Once we decided internally in PGE that offshore wind is something we want to do, we made a reality check and thought it would be wise for us to partner with somebody who's much more experienced and can speed us up on the learning curve, and lower risk on the construction side. We always said we want to learn from other people's mistakes, not from our own mistakes. After quite a lengthy process, [we ended up] with Ørsted now being selected for the final negotiation stage. We do hope to finalize the term sheet by the end of this year. And I think it's on track. I don't see anything in the negotiations that would stop us.
How will the responsibilities be split up between PGE and Ørsted in terms of developing projects?
Once we sign it, if we sign it, it will be a 50/50 partnership … We [PGE] do want to be in the loop on all aspects of the project. But of course, in terms of efficiency of development, both of us will capitalize on our strengths. So definitely, where we have our competencies on the local side, we will lead on these issues. First and foremost, the priority is to do the project on time, on budget, and minimize risk for all parties involved. The second thing is to learn as much as possible. So we do want to be hands-on on the project all the time on all the stages.
PGE Baltica CEO Monika Morawiecka.
Does the lack of a finalized legislative framework limit banks' willingness to lend to Polish offshore wind projects?
I think the lack of clarity on the regulatory side is a problem for everyone … The whole industry is waiting for the regulatory certainty. And I'm sure it will be given to us quite soon. On the part of the financing community, it is definitely logical to wait for that, and I don't ... blame them for that, and we are on the same side in it.
Do you have a view on the availability of finance in Poland from commercial banks? Do you expect a role to be played by the European Investment Bank, or EIB, in the first projects?
We are in constant dialogue with the EIB, and the EIB is definitely looking favorably at our plans in the offshore wind area. So I do believe that at this point, the EIB will definitely be one of our pillars of financing, hopefully. We are in preliminary discussions with some commercial banks. We see a general view of the banks that they want to move into the renewables space more, especially in Poland. Then there's the issue of depth of the Polish [financing] market. These are big projects with big [capital expenditures]. So we will most likely be moving outside [Poland] for financing, to some external banks. But we are not excluding any options; it will be a big consortium for this type of project.
While the regulatory framework is not complete yet, do you have an expectation of what it will look like and how subsidies will be structured?
Once you have [the grid connection in your] scope, that will mean that the [contract for difference, or CfD] price will be higher. But … from the societal point of view, it doesn't really matter. If the operator will internalize it in the grid fee, still the consumer will pay. It's the same thing, just shown differently. There was a working group set up by the Polish Wind Association [to give] recommendations to the Ministry of Energy working on the offshore legislation. These recommendations [presented] the view that, in order to not slow down the development of the offshore sector in Poland, [it would be a good idea] to award CfD contracts based on negotiated price and not auctions.
We have a different system than everybody else. Here, we own the sites, we develop them. We invest lots of money [in the] grids, [in] environmental geotech and all that … If you were to choose one project over the other, and the other will just not be realized, then you lose the potential that you already have. [If we had a system] where a country or state agencies pre-develop the site and offer it for an auction, that's a completely different story. [But right now in Poland] the governmental agencies don't have the competencies, don't have the budget for these quite costly site investigations.
Looking at the port infrastructure in Poland, do you see any need for further investments or upgrading?
I believe there will be some investment needed, and some of the ports are better suited than others … We've been talking to the ports, and I see a great interest ... in this new business. I'm quite optimistic that [any upgrades] will be done on time for our construction. [Offshore wind construction] can really be spaced. That really looks nice for a port that would be a dedicated offshore port. This asset would have clients for many years, not all the projects [would be using] the space at one time. Looking further down the road, Lithuania, being a market in the future, I could see that being serviced from Poland as well.