It’s all hands on deck at the state treasury to develop an offshore wind farm program. Poland wants to unlock its own potential to increase leverage during talks with foreign partners without whom it won’t be able to pursue its plans. Those negotiations will determine the shape of the country’s energy sector after the reform, and the level of participation of foreign companies – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
Special purpose vehicle
On the 22nd of January the Polish President Andrzej Duda signed the offshore act that guarantees support for offshore wind farms. The works are to begin in a flash and state-owned companies do not want to stay behind. “The development of offshore wind energy constitutes one of the pillars of Poland’s energy transition and of the PGE Capital Group’s new strategy, according to which 2.5 GW of new offshore capacity will go live by 2030 with a perspective of over 6 GW by 2040. Importantly the solutions will contribute to rebuilding Poland’s economy after the pandemic, as they will involve a substantial investment project worth up to PLN 160 bn,” Wojciech Dąbrowski PGE CEO said. “After the bill on supporting offshore energy was unanimously adopted by the Senate and signed by the president, we are now counting on the European Commission to accept the Polish support system for offshore power.
BiznesAlert.pl has reported that the CEOs of PGE, Tauron and Enea signed on the 18th of January a letter of intent on the cooperation with regard to offshore wind farm projects. The new special purpose vehicle (SPV) will, among others, build artificial islands. Wojciech Dąbrowski, Wojciech Ignacok and Paweł Szczeszek respectively, signed the letter and made a declaration of will to jointly implement offshore projects in Poland. “The letter means our three energy companies will together pursue projects that will utilize their potential, so that we seize this opportunity as best we can,” the Government Plenipotentiary for Energy Transition and Coal Mining said. The companies are to strive to use the potential of Polish firms with state-owned entities leading the way to maximize the participation of Polish capital in offshore wind farm construction. PGE, Tauron and Enea founded the SPV to start new projects apart from the ones that are already being pursued. The vehicle will, for instance, build artificial islands to set up larger offshore wind farms. PGE’s CEO revealed that the SPV’s new investments could provide energy in the “2030s”.
The special purpose vehicle established by PGE, Enea and Tauron will build new wind farms. PGE is open to cooperation with Orlen as the company believes synergy between their respective programs is possible. “Investments in offshore wind farms are PGE’s priority and we are doing everything so that they benefit the Polish economy as much as possible. They are also enabling Polish power companies to go through an efficient and effective transition,” the PGE CEO explained in a conversation with BiznesAlert.pl.
However, this is not the only change on the table. We asked PGE’s press office about the possibility of expanding this business with Orlen. “We are open to cooperation. The letter of intent proves that state-owned companies know how to and want to cooperate. PKN Orlen is pursing its own projects in parallel to what we are doing. PGE’s endeavors are more advanced, but their similarity is conducive to a potential operational synergy,” the company wrote in an answer to our questions. Orlen did not comment.
It is worth reminding that PGE Baltica and PKN Orlen signed an offshore cooperation agreement back in September 2019 during the Economic Forum in Krynica. They want to cooperate on, among others, “designing and building connection infrastructure with PSE, the transmission system operator, and jointly pursue or coordinate activities that will maximize the presence of Polish components in the supply chain for offshore wind energy”.
The plans for the Baltic correspond with the proposed reform of the energy sector, the decision to create a strategic reserve of coal and the establishment of a new company or energy companies that are free of high-emission assets. The division of power in Poland’s offshore wind farms will also indirectly hinge on the power and coal mining sector reform, which is delayed due to the negotiations on the social contract with miners, an issue we have written about on BiznesAlert.pl. Once the coal assets are separated, one or more companies, depending on who wins the political and business power struggle, will become the state’s tool for offshore policies. The winner will be able to take over new locations to build wind farms. The new special purpose vehicle will also acquire funds outside of its mother companies, some of which may fall in deep waters during the energy transition. It will be possible to give a portion of the shares in the new company to a partner that will offer a bigger contribution.
However, it remains to be seen how foreign partners, who may be interested in implementing their own projects, licenses and access to offshore auctions, will react to such a big presence of the state treasury. It may turn out that everything will be taken over by Polish companies that will invite external partners to cooperate only. The 25-year long period during which state support will be available was split into two phases: 2020-2022 and post-2023. During the second stage the companies will have to compete for support by bidding on the auctions, which are to start in 2023 up to a volume that has been limited by law. One or more Polish companies that have offshore wind power in their portfolios and sufficient potential would be more competent at cooperating with foreign companies eager to build new farms.
It takes three
PGE Baltica was established in January 2019. Its offshore projects are the most advanced at this point. Currently the company is preparing three such projects on the Baltic. According to PGE’s data, in June 2020 Baltica-1 received grid connection conditions for 896 MW, in December 2020 Baltica-2 signed an agreement on connecting to the grid a offshore wind farm with a capacity of up to 1498 MW, while Baltica-3 already has a connection agreement for a maximum of 1045 MW. We wrote extensively about the portfolio of that company on BiznesAlert.pl. The level at which PGE Baltica’s projects are ready today, potentially offers the company a leading role in the offshore SPV.
However, the other companies may also contribute. “Offshore is especially important in the investment plans of the Enea Capital Group, which has been recently confirmed by the letter of intent signed with PGE and Tauron. I am convinced that the cooperation between these three strategic energy powerhouses will make it possible to create a huge number of synergies between our companies. Our ambition is to ensure Enea has a strong position on the zero-emission energy sources market and strengthen its credibility as a company that is co-responsible for the state’s energy security,” Paweł Szczeszek Enea CEO said in a commentary for BiznesAlert.pl. Enea wants to publish its updated strategy in the first quarter of 2021 and it should be expected that it will “green it up” just like PGE and Orlen. The company is hoping to improve its negotiation position on the market and increase its chances in the battle for location permits and offshore financing thanks to its participation in the new special purpose vehicle.
Tauron wants to engage in offshore as well. “Offshore wind power is an important part of Poland’s and Europe’s energy transition strategy. It also plays a crucial role in our offshore plans when it comes to developing zero-emission sources after 2025,” Wojciech Ignacok, Tauron CEO, said during the signing of the cooperation agreement with OW Offshore that is owned by EDP Renovaveis and Engie. Tauron is to take up half of the shares of the company that already has wind farm projects on the Baltic. This is why the Polish giant will have it easier at achieving the 65 percent target of zero-emission sources by 2030 included in its portfolio. “We find ourselves at a turning point. We are transforming our energy sector, and offshore wind farms on the Baltic Sea have big role to play in this process. The Baltic is the perfect place for offshore investments. It offers good wind conditions and it is not very deep. The potential of the Polish section may reach even 20 GW,” Ignacok said in a commentary for BiznesAlert.pl. “However, using the Baltic to generate power is a huge endeavor that will challenge our abilities and wallets, which is why sectoral cooperation and synergies available thanks to joint efforts are so important,” the Tauron CEO added.
All hands on deck
Poles are putting all hands on deck when it comes to offshore wind farms on the Baltic Sea and are mustering up the potential necessary to be successful at competing with foreign companies. It remains to be seen how these decisions will impact the market. “So far the applications for the mergers you wrote about have not been submitted. If we do receive such applications, we will verify the impact of those transactions on competition,” the Office of Competition and Consumer Protection wrote in a reply to our questions.