Energy 26 October, 2020 10:00 am   

PGE will spend more on its energy transition, than Poland on its nuclear power program

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On the 19 of October 2020 the board of Polska Grupa Energetyczna (PGE) adopted the company’s strategy until 2030 with prospects until 2050. It was approved by the PGE Supervisory Board. The total planned investments between 2021 and 2030 will reach PLN 75 bn, out of which 50 percent is to be spent on renewable energy sources. This is more than Poland’s entire nuclear power program, which is estimated at PLN 60-70 bn – Bartosz Sawicki, editor at, compares.

Goals of the strategy

PGE claims that the adopted strategy is an answer to the deep changes that are now happening in the energy sector, due to the altering EU climate policy, and the European Green Deal. The goal of the strategy is to express social expectations, which, in the opinion of the board, will determine the future of the company. Similarly to PKN Orlen, PGE also wants to be a leader of the transition and modernization of Poland’s energy sector. In response to the EU requirements to reduce GHG emissions by 55 percent by 2030, PGE wants to lower its own emissions by 85 percent. This translates into reducing CO2 emissions by 120 million tons. According to EU regulations, the participation of renewable energy sources (RES) in energy generation should reach 32 percent by 2030. PGE wants RES to participate in its portfolio at 50 percent, and have at its disposal a total of 90 TWh of generated renewable energy.

Climate neutrality will be achieved by:

• Evolution of the generation portfolio towards renewable energy sources;
• No investments in new mining or coal generation and coal assets separation;
• Conversion of CHP plants to gas fuel and biomass;
• Shut-down of production based on natural gas in the electrical power industry by 2042 at the latest;
• The use of new, zero-emission mature technologies, such as green hydrogen or small modular reactors (SMRs).

The PGE Group’s key areas of development will include offshore and onshore wind energy, PV, network infrastructure, low-emission heat generation and energy services. Disinvestment and limiting activities will impact coal generation, the nuclear energy program, bituminous coal trade and other areas outside of the basic activities of the company.

PGE has declared it would lower its impact on the environment by reaching climate neutrality in 2050. This will happen thanks to improved generation technology, expansion of the RES portfolio and other product offers. By 2030 the participation of low- and zero-emission sources in the generation assets will reach 85 percent, while renewable energy will constitute 50 percent of the generated energy. PGE wants to achieve climate neutrality by 2050, and provide its clients with energy generated only from renewable energy sources.
The expansion of the RES portfolio will be based on onshore and offshore wind farms and PV. In 2030 the capacity of wind farms on the Baltic will total at 2.5 GW, and thanks to other upcoming projects in new areas it will surpass 6.5 GW in 2040. Expanding the onshore wind farms and PV capacity, together with increasing the planned new capacity will add over 1 GW and 3 GW by 2030 respectively. The company wants to grant its clients access to services and market, which is why it is planning to offer 1 GW in market services. Finally, PGE wants to develop 800 MW of new energy storage in Poland by 2030, which will allow for systemic integration of new renewable energy sources.

The program to develop new energy sources is based on:

• Large-scale programs, such as construction of offshore wind farms, large PV farms and new onshore farms;
• Acquisitions, such as searching for market opportunities to accelerate the transition of the business profile;
• Installations for customers: using engineering and sales skills of the PGE Group to make it possible for the clients to participate in energy transition;
• International expansion, i.e. searching for opportunities to grow on European markets.


The investments of the PGE Group will focus on renewable energy, transition of district heating and network infrastructure. The company will not make any new investments in coal assets, both when it comes to generation and mining. Investment decisions on developing gas sources – mostly in heating – will be made in 2025 at the latest. The total planned investments between 2021 and 2030 will amount to PLN 75 bn, out of which about 50 percent will be spent on advancing renewable energy sources, as well as onshore and offshore wind farms, PV, and zero-emission cogeneration sources. Other spending will go to regulated activity that encompasses network infrastructure and low-emission cogeneration sources. The value of the investments that will be bankrolled is PLN 60 bn, and they will be sponsored with various sources, such as the Recovery and Resilience Facility, Just Transition Fund and the Modernization Fund. The Group will use the available funding sources from funds available to Poland with regard to energy transition. PGE wants the acquired subsidies to cover 25 percent of the Group’s investment needs.

The scale of expenditure seems to be unprecedented. As little as a year ago, the previous PGE board wanted to invest PLN 13 bn in decarbonization by 2030 in offshore wind farms, PV and the Dolna Odra gas power plant. Today 60 percent out of PLN 75 bn will be spent to a large degree on zero-emission and to a lesser degree on low-emission energy generation. It is worth reminding that the construction of nuclear power plants in Poland, whose capacity will be between 6 and 9 GW, will cost, according to varying estimates, between PLN 60 to 90 million. The investment expenditure of one company in the next decade may be higher than the value of Poland’s nuclear program, a key tool for achieving climate neutrality, according to Poland’s 2040 Energy Policy. While PGE will not build a nuclear power plant, the company’s CEO Wojciech Dąbrowski pointed out that according to the country’s energy transition strategy, the NPP will be the basis for Poland’s energy sector, which will guarantee energy supply. However, once the location is selected, the company will not continue the investment and the state will step into the investor’s shoes.

A farewell to coal in three acts

According to the strategy, PGE should carve out its coal assets as quickly as possible. Wojciech Dąbrowski the company’s CEO announced that the assets should be split by the end of 2021, but he also pointed out that did not depend on the company, but on the Ministry of State Assets. PGE’s job in the process will be to prepare the coal assets that are to be separated, and to get ready to acquire transition funds. This means the company will no longer make new investments in coal deposits and coal generation. After 2021 the key role in the entire process of phasing-out coal will be taken over from PGE by the state and the EU. A new mechanism will be launched to handle the separated coal assets. It will operate the coal reserve under the supervision of the State Treasury. According to PGE, the entity will “ensure Poland’s energy security”. Finally, the third act is the leading role of the new coal assets operator, which will handle the economic transition in regions, plan the shutdowns of generation units and rehabilitate post-mining areas.

Without new investments in coal, the Bełchatów power plant – Poland’s biggest coal unit – which covers 21 percent of the country’s energy demand, will cease to exist in about 10 years, because this is how much coal the deposits near Bełchatów have. The future of the lignite open pit mine in Złoczew, which supplies Bełchatów, will depend on the new institution that will take over coal assets. Mr Dąbrowski admitted that at this point expanding the open pit mine, would be an injury to the company, because it would be unprofitable. However, he also did not rule out the possibility that in the future new technologies could emerge, which would make it possible to mine coal in a climate friendly manner. Still, he believes that the Złoczew mine should play an important role in the country’s strategic energy reserve plans. He stressed that the lignite open pit mine in Turów can operate for another 20 years. The new unit at the Turów power plant, which will be launched soon will work until the early 2040s.

PGE wants to specialize in offshore

PGE’s goal is to specialize in building and managing offshore wind farms. By 2030 the company wants to complete two offshore wind farms – Baltica 2 and 3, as part of its strategic partnership. Currently, PGE is talking to Orsted about partnering to implement the projects. The implementation of other projects, which will already be part of the auction support system, will involve the 0.9 GW Baltica 1 venture and new locations, which will require the company to apply for licenses. This pertains to over 3 GW. By 2040, PGE wants to generate 6.5 GW of power this way. This accounts for 50 percent of what the government is planning in its 2040 Energy Strategy. PGE believes that after 2030, it will be able to handle the operation and maintenance (O&M) of offshore wind farms on its own. The company wants to specialize in offshore maintenance. Within the next 15-20 years PGE Baltica, the Group’s special purpose vehicle, will take over the role of PGE Górnictwo i Energetyka Konwencjonalna (PGE Mining and Conventional Energy Generation) when it comes to producing energy. Today the coal installed capacity is about 11 GW. By investing in offshore wind farms, PGE wants to create over 45 thousand new jobs. The added value that the farms may offer is about PLN 40 bn.

Gas will be axed in 20 years

At the conference, Mr Dąbrowski said that gas cogeneration sources will work until 2042 when their support system will run out. He also pointed that the planned units at the power plants in Rybnik and Ostrołęka will probably operate longer.

Building competencies in other sectors of renewable energy

When it comes to PV, the company wants to increase the installed capacity by 3 GW. It will be developed organically and the Group will use its competencies, acquire projects at the construction permit stage and finally build maintenance competencies. The second pillar is about expanding onshore capacity by 1 GW. This pertains to preparing a portfolio of new projects that will be compliant with spatial regulations, acquisitions of operational wind farms and projects that are at the building permit stage, as well as repowering of existing assets. When it comes to new wind power capacity, PGE is hoping that the proximity bill will be amended, as planned, at the end of this year. This would help to construct wind farms at a distance closer to a residential building than 10 times the height of the wind turbine, provided the local government agrees, and that an environmental impact assessment is conducted. The Ministry of Development is preparing the bill. The document is almost ready, so PGE is already taking it into account in its strategy. Interestingly, the legal changes will not impact repowering, which PGE is actually considering. Therefore, the company is hoping that in the coming years, the law will allow for modernizing the existing wind turbines and increasing their capacity, which is currently banned. Finally, PGE wants to ensure its clients have access to green energy by implementing long-term cooperation offers. The company wants to launch an installation program for for clients, prepare an offer to build RES installations for customers, installations for local governments and energy communities, develop an off-site PPA model (PPA – a corporate purchasing contract where energy transmission from an RES installation to the receiver’s installation takes place via the operator’s network) and finally, introduce balancing and storage services. PGE is hoping this will add another 800 MW into the system.

Green heating

By 2030 the participation of low-emission sources in heat generation will be at least 70 percent, the Group claims. The company also wants to enter the single housing heating segment. It wants to develop its services in the individual sector by, among others, providing services that improve air quality. How does PGE want to achieve this? By using thermal waste treatment units and RES as sources of district heating. Decisions on investments in natural gas for heating services are to be made by 2025. PGE has also stressed the need to commercialize zero-emission fuels (e.g. green hydrogen) and electrify heating. Perhaps the participation of small and medium reactors is also on the table. According to the strategy, decisions about investments in gas units in Zgierz are to be made this year, whereas decisions for Gdańsk, Gdynia, Cracow and Wrocław are to be reached by 2025. By 2030 the company should make up its mind about investing in zero-emission sources for those locations, as well as for Bydgoszcz. However, it is worth remembering that the gas units that are currently in construction, are technologically ready for hydrogen co-firing in the process of power generation. This may indicate what turn the Polish heating sector will take in 20 years, after the era of gas.

Employment to drop by half

In order to implement its investment strategy, the company will be forced to adapt to new challenges, which is why it will turn to automation and digitalization, as well as optimize its repair and maintenance services. In result, by 2025 the Group wants to lower its fixed operation costs (not including the impact in the conventional energy segment) by at least PLN 400 million and by PLN 800 million by 2030. Considering the demographic and technological trends, it is worth taking a look at employment. PGE stressed the importance of training its employees to facilitate their familiarity with renewable energy and state of the art energy services, which requires a new quality when it comes to management. Automation, digitalization, specialization and finally demography will lead to a situation where employment at PGE will drop by 15 percent in 10 years and by even 50 percent in 30 years. Today PGE employs over 41 thousand people.

PGE is expecting the power market to change

The company believes that it would be most advantageous to separate coal assets by the end of 2021. It is very open about that fact that it will be able to borrow PLN 30-35 billion without those assets, which will make it possible to successfully bankroll the transition. Moving the coal assets to another entity is necessary for the rest of the company to grow. It will be able to receive a PLN 30-35 billion loan. After presenting the company’s strategy, Mr Dąbrowski clearly stated that if PGE failed to carve out its coal assets, it would have to announce bankruptcy within 1.5 years. Additionally, the company also maintains it would make sense to merge three energy groups, but without their coal assets. Those groups are PGE, Tauron and Enea, but that decision belongs to the Ministry of State Assets. Moreover, the PGE strategy says that there will be market liberalization when it comes to access to measurement data, a new remuneration model and finally a liberalization of retail sales.

Amending the law will propel the strategy

The latest report prepared by the rating agency Fitch shows that the strategy may pay off, and that financial institutions will give PGE credit to invest. According to the report, the strategy confirms the company’s resolution to limit the participation of coal in energy generation by 2030 and to sell only green energy by 2050. “This has a positive impact on PGE’s business and credit profile,” Fitch claims. What remains uncertain, is the deadline and terms for the planned coal assets move to the separate entity. The agency has stressed that it remains unknown when the assets will be split and how this process will look. During the presentation of the new strategy, government representatives confirmed that the split will encompass the entire energy market, but the details were still being hammered out by the government. According to Fitch, it will be crucial how the debt will be split between PGE and the new entity, that will take over the coal assets, and whether their shares will overlap. The agency’s analysts also presume that the increase in debt could be limited by, e.g. partnerships for new projects, project finance or EU subsidies. Despite the plan to increase debt, the agency expects that PGE’s ability to borrow will increase over the current ratio of 3x net FFO leverage. This will reflect PGE’s new business structure as an integrated energy company that mostly generates green energy.

However, for the strategy to actually launch before the end of this year, amendments to the existing law are necessary. Those include a draft on separating the coal assets from energy companies, consolidation of the energy sector with a notification to the European Commission, adopting the act on offshore wind energy, liberalizing the proximity act, updating the act on energy law, and finally liberalizing the energy trade market. Without these legal changes PGE’s green strategy will remain on paper this and next year.