Energy 6 August, 2020 10:00 am   

The reorganization plan for the energy sector is ready. Not everyone likes it

Seven – that’s how many pages the presentation on the future of the energy sector has, this includes the merger of PGE, Tauron and Enea and the end of exploiting coal deposits in 2040. In contrast to the plan for the coal sector that the Ministry of State Assets withdrew, this document is actually on paper – writes Karolina Baca-Pogorzelska, contributor to

PGE 3.0 and other plans

Looking at the dates in the proposal (previous year) it is easy to notice that it has a lot in common with the plans that this author already detailed in… February 2018 in the Dziennik Gazeta Prawna daily. Many of its assumptions converge with the propositions of Henryk Baranowski, the previous CEO of Polska Grupa Energetyczna (PGE). But let’s start from the beginning – what is in the presentation, which, according to our sources, was found wanting by the energy companies it concerns?

Regarding the market structure for 2020-2021 the plan is to create PGE 2.0, which means merging PGE with Tauron and Enea, restructuring and deconcentrating. At the same time the National Agency for Energy Security (NABE, Robert Tomaszewski wrote about it first on Polityka Insight) is to be established with an HQ in Łódź, where coal assets will be transferred. According to the plans for the capacity market, coal extraction will be discontinued in 2040. The authors of the presentation (we did not manage to ascertain who they were) claim that these decisions would lower the costs of implementing Poland’s Energy Policy by 2040 (a document that is yet to be adopted), and the balance of the performed transactions would not burden the State Treasury.

These plans have been already partially implemented because Orlen had taken over Energa. The rest is to be taken under PGE’s wing, but with some exceptions. First, Tauron’s power generation branch is to land with PGNiG Termika (the talks on taking over Tauron Ciepło by PGNiG have already begun). Second, PGNiG is to also take over retail from today’s PGE. Third, NABE is to receive not only coal power generation from three companies, but also PGE’s lignite mines (the decisions about black coal mines are contradictory, but we do know that the Bogdanka mine, which is part of Enea, is to keep its independence).

Therefore, in the target model, PGE 3.0 (according to the final version it is to be up and running before 2026), would manage renewable energy from three companies, heat generation from two companies that exist today, distribution from three companies and retail from two. This would translate into 77 percent share in the distribution market (today PGE has 26 percent), 39 percent in the retail market (32 percent today), 24 percent in the renewable energy market and 10 in generation market as of 2026.

What does the presentation say about the schedule of consolidating these companies? PGE’s stocks need to be split, whereas the companies and the Ministry of State Assets have to prepare for the mergers (including drafting valuations), NABE would need to be established and – IMPORTANTLY!- the notification process would need to be commenced. The preparations should wrap up at the end of this year, the PGE stock split will take place in the second or third quarter of 2021, NABE will he here in the second half of the next year. Then the presentation talks about “implementing synergy” and what PGE 3.0 will be doing as of 2026. It says this will be “a strong entity focused on the energy sector of the future and international competition with abundant possibilities for preferential financing for businesses from the Green Deal”.

Whereas in the second version of the document, the authors assumed that the NABE-PGE transaction would be cashless and that the Council of Ministers would have to agree to it. NABE would purchase only selected assets owned today by PGE GiEK and at the same time would buy a part of GiEK’s obligations by paying with Tauron’s (30.6 percent) and Enea’s (32.99) stocks. PGE would announce a tender offer for 33 percent of Enea’s stocks and 66 percent Tauron’s – all of this should be completed by mid 2021. On the basis of a special purpose act, the Ministry of State Assets would set up NABE by contributing State Treasury stocks of energy companies and by taking ownership of the notification process. Naturally all actions related to PGE 2.0 will need to receive a permit from the Office of Competition and Consumer Protection (UOKiK) . After completing the notification process, separating the assets, signing the agreements and ending the tenders, etc., PGE 2.0 would be ready at the turn of 2022/23. Whereas similarly to the original version, PGE 3.0 would be completed in 2026.

The EDM (Early Decomissioning Mechanism) would play an important role with regard to regulations. This is a mechanism, which will gather generation facilities owned by a one-person state-owned company, which will gradually purchase assets – power plants running on coal and lignite mines – from NABE. EDM works on the basis of the act that regulates the rules for awarding public help, but its set-up needs to be accepted by the European Commission (directorate for competition and directorate for energy). The goal is to ensure the availability of resources during the transition period. The presentation also says that thanks to direct grants and tax exemptions between 2024 and 2045, the budget will be at around PLN 32 billion. Between 2024 and 2040 the money will go to 14.82 GW of coal-fired power plants and between 2028-2048 it will go to lignite mines. The support also encompasses the reclamation of the Bełchatów and Turów open-pit mines. The money would come from the Just Transition Fund, CO2 emissions trade and possibly the tariffs from the transmission system operator. As part of EDM, the expected capacity that will be shut own is 2.8 GW by the end of 2025, 4.5 GW by the end of 2029, 6.7 GW by the end of 2034 and 3.66 GW by the end of 2040.

Is there a counterproposal?

Before being taken over by NABE all assets will be under the control of PGE. It is also worth mentioning that EDM’s maximum capacity for 2025-2040 is 15 GW, which means there is no room for the 1000 MW Ostrołęka C power plant (the investment is no longer pursued in this form) or for new facilities running on coal of the 1000 MW class. We have learned that a counterproposal to this power jigsaw may turn up, as this one has not been able to gather wide support.