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The decision concerning reactivation of the Ostrołęka C power plant project was assessed negatively by numerous experts within the power industry. Below we discuss tree reports analysing financial and regulatory environment of this investment. They clearly show that the project of building the ostrołęka C, 1'000 MW, is not profitable or reasonable in the context of the electric power system in Poland.

Ostrołęka C - next steps for Europe’s last coal power plant

Michał Hetmański, InstrAt Foundation

August 30, 2018

Major conclusions:

  • In our business valuation model, Ostrołęka C will never reach positive net present value. We conclude our calculation with NPV of PLN 2.3 bn (EUR 0.55 bn) and indicate it should be classified as a value desctructing project for shareholders and hence be rejected. This investment does not generate any positive NPV even under extremely unrealistic assumption of 24/7/356 exploitation.
  • The capacity market will not significantly improve the financial condition of the new coal fired power plants. In the best scenario, Ostrołęka C can get only 15% of its revenues from the capacity market.
  • Even under a very optimistic scenario of a very slow increase in the CO2 emission allowances prices and a rapid growth in electricity prices – the power plant still turns out to be unviable.
  • Due to administrative oversights of the investor, it is likely to happen that SPV will have to undergo environmental proceedings once again, which may significantly hamper and delay the whole investment process. This would force Ostrołęka C to meet more restrictive environmental standards (BAT conclusions for LCP). In order to avoid this, the investor “categorically excludes” the commencement of the environmental procedure by the constructing consortium (GE Power & Alstom Power Systems).
  • Levelized cost of electricity (LCOE) of Ostrołęka C will be higher than of renewable energy sources. Under base scenario, it could generate power at a price of 488 PLN/MWh – or even 505 in the worst-case scenario of a rapid CO2 emission allowances increase. This is much more than in the case of any wind farms: onshore (300 PLN/MWh), offshore (420) or even PV (440).

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Ostrołęka C – the investment rationale, and why is the project not rational at all

Michał Hetmański and Filip Piasecki, InstrAt Foundation

April 10, 2018

Major conclusions:

  • The actual costs of construction of Ostrołęka C are significantly underestimated and the history of construction of other blocs of 800+ MW of capacity shows that this is a high-risk investment. It is the strong integration of the power sector in Poland that is the reason of the unreal estimation and presumptions within the businessplan.
  • The power market for Ostrołęka C is not a certain source of funding. British experience shows that power mechanisms are the most profitable for existing units which support new and large investments. On one hand, this is a potential source of revenues, but also a threat - considering contractual penalties.
  • The analyses have shown that the difference between actual and estimated costs of exhaust fumes treatment installation exceeds half a billion PLN. Because of the investor's administrative negligence, the integrated permit for the investment expired and the whole process must be repeated, considering the strict BAT guidelines. This increases the investment costs, which are very high anyway. It may also delay the launch of the bloc.

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The risk analysis related to the Ostrołęka C Power Plant development

Jan Popczyk, Krzysztof Bodzek, Silesian University of Technology

April 10, 2018

Major conclusions:

  • The planned investment in Ostrołęka C power plant hampers or even blocks potential investment in renewable sources of energy and related services in Ostrołęka region.
  • Alternative investments in distributed renewable sources would contribute to new employment more than 45% higher than in the case of the total employment at operating the new bloc and coal mining for its purposes. If the coal is imported - employment related to renewable energy generation would be 1,200% higher.
  • Prices of power generated at Ostrołęka C power plant will be higher than prices of power from renewable sources. With the time passing, this proportion will change to the advantage of renewable sources with development of this sector (falling prices) and rising costs of CO2 emissions allowances (allowance cost).

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