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Energy Environment 25 May, 2017 9:00 am   
COMMENTS: Magdalena Kuffel

Polonisation of the Cogeneration Sector

“During a press conference on May 19, the Polish Minister of Energy, Krzysztof Tchórzewski, announced the purchase of EDF assets by PGE. The conditional contract is worth PLN 4.5 bn and should be finalized at the beginning of 2018,” writes Magdalena Kuffel, BiznesAlert.com’s author.

The purchase of 8 heat and electricity cogeneration plants from EDF will definitely strengthen PGE’s market position, but it will have its price and it won’t be small. Despite earlier consultations no other major energy company decided to take part in the purchase, after which PGE chose to finance the transaction on its own. Gazeta Wyborcza daily reported that when last week, PGE announced it would suspend dividend payouts for three years, its stocks dropped immediately.

Thomson Reuters pointed out that except for covering the cost of the transaction, PGE will also need to spend about PLN 600/700 million on modernizing the purchased plants. This is necessary due to the EU requirements regarding clean air, which have been recently made more strict. Despite the high price, in the long run this is a necessary investment, not a cost, related to the plants’ exploitation. The purchased assets will be running for a long time, and thus ensure constant yields of profit, which will allow PGE to strengthen its market position.

International experts are commenting on the Polish-French transaction especially in the context of energy policy changes in France after the recent elections, as well as the Hinkley Point nuclear power plant in Great Britain. The plant’s construction is currently in question and it is speculated that the sales of the assets in Poland was made to partially fund the British project. After last year’s issues that plagued the French nuclear sector and caused “one of the biggest crises in the industry”, EDF has to think about its financial fluidity more cautiously than before.

In 2016/2017, 20 out of 58 nuclear reactors were temporarily shut down. This caused black outs and increased electricity price (France produces 76% of its energy in nuclear power plants), because it had to be imported from France’s neighbors. To cover its loses, in 2016 EDF changed its dividend payout plan and thus saved up to EUR 1.8 million (dividends will be paid out in stocks instead of cash). Selling the Polish assets may be a cash injection and, thus may help to cover the increased costs of France’s energy security. At the same time, as previously stated, the sale may also support the nuclear project in Great Britain. The British EDF branch is doing far better than its “mother company”

This is yet another sales of energy assets made by foreign companies in Poland. In December 2016, ENEA signed an agreement to buy the Połaniec Power Plant (7 coal units and one biomass power plant, total capacity 1.9 GW) from France’s ENGIE.

Certainly, this course of events is welcomed by the Polish government, especially when it comes to the engagement of the French energy companies on our market. Macron, back when he was the minister of economy, was known for his environmentally friendly views, which have not changed after he became president. France’s new leader wants the country to invest in renewable energy, fight global warming and limit coal consumption. Coal assets of France’s biggest energy company EDF (where the government has the majority of shares – 83%) do not fit into this picture in the least.

The Polish government talks about the transaction with consideration to the increasing demand for electricity in the country, and the strategic significance of purchasing the heat and electricity cogeneration plants for the Polish energy sector (some sources are even talking about the “repolonization of the energy sector”). From my point of view, the situation looks a little different. The purchased heat and electricity cogeneration plants were an integral part of the system even before the transaction. Therefore, I don’t see how the PGE purchase increased energy security. However, I appreciate that potential investments as well as asset management will become easier from the moment they will be owned by the Polish company whose 57% belongs to the state.



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