Polish renewables stand-off derails more energy investments

By bne IntelliNews January 22, 2013

bne -

Complaining that it's unable to plan the projects until the government finally agrees a new law on renewable energy, Fortum announced January 21 it's suspending PLN2.5bn (€600m) worth of investments in Poland's energy sector. The Finnish utility is just the latest to press pause on energy projects amid the uncertainty over the legislation that will govern not just support for renewable energy projects but also CO2 emissions permits, which will impact on all types of energy projects.

Fortum has delayed planned projects to build a 400-megawatt (MW) gas-fuelled unit in Wroclaw and a multi-fuel co-generation unit in Zabrze, reports Reuters. The move follows similar action from France's EDF, which froze work on a €1.8bn coal-fired unit in Rybnik due to continued uncertainty over CO2 emissions permits and support for co-firing.

"Before we take final decisions we have to know what the legal framework is. That is why we want to hold on with the decision until the final shape of the new renewables law is known. But it does not mean that we resign from the projects," Jacek Lawrecki, Fortum's spokesman in Poland, said.

The government has been struggling to draw up new support legislation for renewables for over a year as it seeks to reduce costs to the state while continuing to push for EU renewable production targets. However, with every suggestion for rebalancing the subsidies, Warsaw has been met with howls of fury from investors.

The latest draft, issued in October, is no exception, It proposes dropping annual support for renewables to just PLN2.3bn (€565m) by 2020 from the current PLN9.7bn, with total support to the end of the decade to now cost the state PLN62bn. However, it's the proposed distribution of that support to certain segments of the renewables industry that is causing the most fuss, with the lowered budget to favour solar power and offshore wind over biomass co-firing and onshore wind.

While investors have been bulking up Poland's onshore wind capacity, a tender for offshore wind farm licences last year saw all but one of the five issued go to state-controlled companies, despite applications from over 50 companies. Most of the fields were delayed due to the economy ministry's insistence that the country's shale gas drive should get a chance to survey them first.

It's the suggestion of lowering support to co-firing projects - pushed by the economy ministry - that has created the biggest headlines however, as it affects the largest projects to build new capacity. Such a move would also hit Poland's large state companies - including PGE, Tauron and Enea - which have invested heavily in the segment.

Therefore the treasury, which holds and manages those assets, is also pushing against the draft, and insists that removing state support would make co-firing unprofitable. GDF Suez was swift to threaten legal action against the latest plans. Insisting it will sue for "hundreds of millions of zloty" should the bill be passed, the CEO of the French state-owned giant's local unit said at the time: "The rules proposed for biomass co-firing, which is key for us, are significantly worse than those in the currently applicable energy law."

Representatives for the Finns made similar noises this week. "For investors, it is crucial to have clear and stable support mechanisms. The current situation with a lack of certainty over the principles under which the support mechanism will work means a high level of risk which does not support making investment decisions," Piotr Gornik, a director at Fortnum's Polish unit said, according to the Financial Times.

However, given the tangle of interests from different investors and government ministries, a solution remains extremely tricky. "A quick political resolution is needed to agree on the project and present it to parliament, but the government must take a unified position, just like parliament. Otherwise it will be a conflict not only between conventional and renewable energy, but also within renewables," recently-appointed Economy Minister Janusz Piechocinski, insisted, according to PAP.

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