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Poland to buy coal assets from utilities, create state energy company in 2022

Highlights

70 plants to be transferred to NABE

Coal CHP assets to remain with utilities

Clash with EU climate goals foreseen

Warsaw — Poland announced a plan late April 16 to separate coal assets from state-controlled utilities and transfer them to a state-owned National Energy Security Agency (NABE), freeing up power companies to access financing for future investments in natural gas and renewable energy.

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The state Treasury is to buy 70 coal units from three utilities, PGE, Enea and Tauron, and set up NABE next year, the Ministry of State Assets said in a statement.

PGE's conventional arm, PGE GiEK, is to be in charge of integrating the assets into NABE. Once it has done so, PGE GiEK will operate under the name of NABE.

The open pit mines associated with lignite-fired power stations would also be part of NABE, but no hard coal mining assets would be, the ministry said.

Coal-fired cogeneration plants would remain with the utilities with a view to them being modernized towards low and zero-emission sources.

NABE would only carry out investments to maintain the coal asset operations, it would not conduct growth investments nor be responsible for phasing out coal units. The plan would now be sent to the government for work and approval.

"The European Union's climate policy means that we cannot remain passive," Jacek Sasin, minister of state assets said in a statement.

"In order to relieve them (utilities) from this ballast and enable the acquisition of the capital required for the necessary investments, we are planning to separate PGE, Enea and Tauron's coal-fired power plants into a separate entity," he said.

Artificial life extension

Poland is home to the EU's largest hard coal reserves and to date the fuel is the main source of electricity generation, accounting for almost 80% of the total in March.

The EU Emissions Trading Scheme, which obliges generators to buy CO2 allowances for their emissions, has largely made coal plant unprofitable without heavy subsidies.

Sasin said carbon emission costs already exceeded the cost of purchasing coal. Another problem was that 70% of Poland's coal generation capacity was more than 30 years old.

ClientEarth, an environmental legal group, said the plan would not necessarily lead to faster decarbonization and would continue state aid to Polish coal plant.

"The transfer of coal assets to a new state-owned entity (NABE) risks artificially extending the life of unprofitable coal-fired power plants at the expense of taxpayers. Recapitalisation of energy companies by the state Treasury is state aid that must be approved by the European Commission. It is unrealistic in the face of the tightening EU policy, which puts the climate first," Wojciech Kukula, a senior lawyer at ClientEarth said.

Kukula said it would be better if government drew up a plan to phase out all coal plant by 2030, which might enable the European Commission to announce aid for Poland as it has done for Germany and the Netherlands.

The government has agreed with coal mining unions to shut all thermal coal mines by 2049 but it has yet to agree a social agreement with the unions of the country's largest state coal miner PGG, over severance and early retirement conditions nor a schedule for closing individual pits.

Incompatible with EU goals

Pawel Czyzak, an analyst for Instrat, said the European Commission would have problems approving the plan in its current form and a negative response would allow the government to shift the blame for rising energy prices and imports on to the EU.

"By announcing the creation of NABE, Poland is trying to shift the responsibility for its incompetence in the energy transition towards the European Union. The plan is incompatible with EU climate targets and aims only at a prolongation of financing coal capacity in Poland with EU money. It is obvious the European Commission will not agree to a proposal that would compromise the GHG-55% target," he said, a reference to the EU's 5% cut in carbon emissions goal by 2030.

"However a negative decision will give the government the arguments they need to blame someone for the rising electricity prices and imports. Sadly, the costs of this political intrigue will fall mainly on the workers of the utility companies who are already protesting against the planned merger," he said.