Polish Utility Scraps $3.6 Billion Coal Power Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Poland's largest power company, Polska Grupa Energetyczna or PGE (PW:PGE)(Warsaw, Poland) cancelled plans to add coal-fired power units at a plant in Opole, worth $3.6 billion, due to decreasing electricity prices and weak demand. "Changes on the energy market and the macro-economic environment have limited the economic effectiveness of this investment for PGE," the company said in a statement.

The project at Opole, near Poland's border with the Czech Republic, was considered a strategic investment, because of Poland's need to replace aging power plants to avoid blackouts.

Grid operator company PSE expects that 6.6 gigawatts of the current 37 gigawatts of installed capacity will be taken off the grid by 2020 as out dated plants close. Polish output from more expensive hard coal-fired plants declined 7% in 2012, while lignite-fired units produced 3.7% more energy, according to the national grid operator. The country's electricity demand fell by nearly 0.6% on the year -for the first time in three years - to just over 157TWh in 2012.

Continuing with the Opole II project, which would involve building two new units--numbered 5 and 6 at PGE's power plant in Opole--wouldn't create value for shareholders, PGE said in a statement.

State-controlled PGE plans to refocus on its core business of generating and selling power from burning lignite, as well as other investment projects, it said. "Margins from coal generation are not high enough to cover fixed costs," PGE chief executive Krzysztof Kilian said on March 14. The company needs to adjust its expansion to changing market conditions and "better use of capital," it said on March 14, adding that its lignite-fired power plants are "best positioned" to keep higher profitability. The company's current strategy, announced a year ago, called for investment spending of $2.84 billion a year by 2020.

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