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Shortly after the results of Polish capacity market auctions were released, an updated version of the viability study of Ostrołęka C once again showed that burning coal is economic nonsense. Despite a vast subsidy of 2.7 bn PLN (0.6 bn EUR) and 15-year long contract, the unit would still bring no profit at all for the investors.

An updated version of the report “Capacity market and the failed rescue. Updated report: Ostrołęka C - next steps for Europe’s last coal power plant” by Michał Hetmański from Instrat Foundation embeds latest events and data into the model: capacity market auctions results, reform of the ETS framework and the recently published Polish Energy Policy 2040. Results of the study clearly show deep unviability of the Ostrołęka C project.

Key conclusions:

  1. Ostrołęka C investment project would bring investors a negative net present value (NPV) of ca. -6.2 bn PLN (-1.5 bn EUR), compared to -2,3 bn PLN as the previous report showed. This exceeds the investment budget of ca. 6 bn PLN (1.4 bn EUR);
  2. Ostrołęka C has won a 15-year long capacity agreement worth ca. 170 mln PLN yearly or 2.7 bn PLN totally - nevertheless, the study shows that over its whole lifecycle this power plant still would not be profitable and hence inviable;
  3. Even if the fuel fell from sky i.e. coal was free-of-charge, just as wind and solar are, this unit would still be unviable. What is striking, the fewer hours it works, the lower the financial loss will be incurred.
  4. The price (LCOE) of electricity generated from Ostrołęka C will be higher than the one from renewable energy sources (RES). It might generate power at a price of 500-513 PLN/MWh, whereas studies show that onshore and offshore wind parks cost as much as 300 and 420 PLN/MWh, and photovoltaics around 440 PLN/MWh.
  5. Despite numerous and serious doubts about economic viability of this coal power plant, the investors and the Ministry of Energy still push for construction and avoid answering questions asked by experts and NGOs. It has still not been decided whether Enea will act as a co-investor, since it has been sued by its own labour union and its shareholder.

- When we analyzed the viability of Ostrołęka C last time, we used fairly optimistic assumptions, which resulted in reaching a still negative NPV (net present value) of minus 2.3 bn PLN (0.5 bn EUR) - says Michał Hetmański, expert and author of two previous reports on Ostrołęka C. - This time we’re getting closer to the reality and hence use assumptions of Ministry of Energy itself, which has recently issued Polish Energy Policy (PEP2040) that yields an interesting update of our model. Our base scenario suggests a negative NPV of minus 6.18 bn PLN. It’s much more than the construction budget itself.

The recent reform of the CO2 allowances trading system (ETS) is another strong argument against construction - according to the model built by Instrat, even if coal was to be totally for free, the power plant would still be unviable because of the rising carbon tax burden. Emission of one tonne of CO2, which used to cost around 5-7 EUR over last years, is now around 25 EUR, whereas banks and think--tanks forecast its increase to as much as 40 EUR in the years to come. The price of emitting CO2 makes up for ca. ⅓ of the price for every megawatt hour.

Compared to coal, renewable energy sources are cheap in operations & maintenance cost, but still a bit more expensive in construction. This might have held true for old, but not for new coal power plants like Ostrołęka C. Levelized cost of electricity might reach around 500-513 PLN/MWh (155-120 EUR/MWh) for Ostrołęka C, whereas the stock price is now more than 200 PLN/MWh. Recent official forecasts of Ministry of Energy yield a long-term energy price of 340-350 PLN/MWh. And this is particularly interesting, as the Ministry contradicts itself, stating on one hand that Ostrołęka C is an economically justifiable project, but on the other not under their own assumption of electricity prices - explains Hetmański from the Instrat Foundation.

There are still numerous obstacles and doubts concerning this project - the most serious ones include the expired integrated permit and the willingness of the co-investor Enea to still support the project. Due to its engagement in Ostrołeka C, Enea has recently been sued by two important parties - Client Earth as their shareholder and one of its labour unions - Synergia. Lastly, the acquired capacity agreement and obligation to provide power to the grid from 2023 onwards will definitely pose a threat of penalties for missing this obligation. It is more than sure, that the commissioning won’t take place in the first half of 2023.

- Electricity generators will face in the upcoming future a reality far from the bright one they enjoyed in the last years. According to the model, for projects like Ostrołęka C, it would be better to run for as little hours as possible to minimize the losses. The same might hold for Opole II, Kozienice or Jaworzno, the other newhard coal projects in Poland - summarizes the author of an updated study.

- Because of Ostrołęka C, state-owned companies are facing billions of losses. The serious risks of its construction will probably be taken by state banks, that hold our savings. The PLN 2.7 billion guaranteed by the power market will also be paid by all of us - in higher electricity bills. It is madness that in the era of cheaper, innovative renewable energy we are forced to cover the gigantic costs of construction and operation of a deeply unviable and unprofitable, socially and environmentally harmful investment, which will bring the least losses, if it does not work at all. Do we really need more arguments to withdraw from the Ostrołęka C construction plans? - asks Diana Maciąga, Climate Coordinator at the Association Workshop for All Beings Association.

Full Report available in Polish, with executive summary in English.

Contact:
Campaign leader - Diana Maciąga,
diana@pracownia.org.pl,
Author of the report - Michał Hetmański,
michal.hetmanski@instrat.pl s, +48 513 748 019, +49 157 5699 3045

Resources
Website: Stop Ostrołęka C Power Plant
Profiles: Ostrołęka C project, Operator Enea, Operator Energa
Reports:
Capacity market and the failed rescue. Updated report: Ostrołęka C - next steps for Europe’s last coal power plant (December 2018)
Ostrołęka C: Burning More Money Than Coal (Carbon Tracker) August 2018
Previous reports:
Ostrołęka C - next steps for the last Europe’s coal power plant (Instrat Foundation - Exec summary in English) August 2018
The risk analysis related to the Ostrołęka C power plant development & Ostrołęka C – the investment rationale, and why is the project not rational at all (Popczyk and Bodzek, Instrat Foundation) April 2018

More on the story:
The last coal power plant in Poland may be only wishful thinking (Wysokienapiecie)
Poland’s ‘last coal power plant’ faces €1.7 billion loss, analysts say (Euractiv)
'Last Coal Plant In Poland' Shows How Carbon Restrictions Can Clean Up Power Sector (Forbes)
Energy minister: Ostrołęka power plant will be the last coal-powered energy source in Poland (TVN24)
Ostroleka C owners ‘on a financial tightrope’ ahead of capacity market auction (ClientEarth)
Poland's PGE in talks to part finance 1 GW coal plant (Forbes)
Polen setzt weiter auf Kohle (MDR.de) January 2019