PGE Polska Grupa Energetyczna starts construction of the Opole II project

The construction of two coal-fired power generation units with a combined capacity of 1800 MW in the Opole Power Plant (Opole II, units no. 5 and 6), at a gross price PLN 11.6bn is to commence on 1 February 2014.

In the opinion of the Management Board of PGE Polska Grupa Energetyczna S.A., the evolution of the energy market’s regulatory environment changes the perception of investments in the conventional energy sources. The Company’s catalogue of rational justifications for a re-assessment of its long-term investment decisions includes the implementation of capacity mechanisms, the rationalization of support for the renewable energy sources (RES), and changes in the EU emission trading scheme.

These factors allow us to look with more optimism at cash flows determining the profitability of conventional power plants such as the one in Opole, says the company in a press release.

“These factors also reduce the Company’s exposure to the risk of the insufficient utilization of the new units’ capacity. Additionally, we believe in our Capital Group’s long-term competitive advantage resulting from investments in the most efficient technologies based on the domestic energy sources”, says Marek Woszczyk, President of the Management Board of PGE Polska Grupa Energetyczna S.A.

The Company emphasizes that the current market model, which does not generate incentives for new investments, has started to change. The mechanisms of the so-called capacity market have been implemented in such EU countries as Ireland, Spain, Portugal, Italy, Greece, and Poland. Already implemented in Poland, the Operational Reserve Mechanism, as well as further similar solutions, should increase the profitability of new conventional power generation units.

Besides the already visible regulatory trends favourable for the investements in conventional energy sources, we expect stability in the macro-economic situation in the short-term perspective, and a slight increase in the long-term perspective, says Dariusz Marzec, Vice President for Development in PGE Polska Grupa Energetyczna S.A.

Construction starts now and plants will be ready in 2018 and 2019

According to the arrangement of 6 December 2013 to the General Contractor Agreement executed on 15 February 2012, the Management Board of PGE Polska Grupa Energetyczna S.A. maintains intention to issue the Notice to Proceed on 31 January 2014, what will allow the commencement of construction works on 1 February 2014.

The agreement for the construction of two hard coal-fired power generation units entered into with the consortium of the companies Rafako, Polimex-Mostostal and Mostostal Warszawa together with Alstom Power provides for the commissioning of unit no. 5 in the third quarter of 2018 and unit no. 6 in the first quarter of 2019.

Key macroeconomic assumptions:

•    Prices of coal
Compound annual growth rate (CAGR) in the years 2016-2030 at a level of approximately 1.5% The fuel prices for the Opole Power Plant are based on a long-term coal supply agreement with Kompania Węglowa S.A.

•    Climate policy
The price of emission allowances corresponds to that included in the European Commission’s Impact Assessment of October 2013 (EUR 10 per 1 ton in 2020, EUR 35 per 1 ton in 2035). The share of renewable energy sources in the total volume of sold energy – at a stable level in the years 2020-2030.

•    Demand for energy
Forecasts for Poland’s economic growth until 2018 justify an expectation of an average annual growth in demand for energy of 1.5%. For the period after 2018 we assume an average annual growth of 0.9% (in the years 2005-2013 CAGR of energy consumption in Poland equalled approx. 1%).

•    Prices of electricity
We expect CAGR of nominal electricity prices in the years 2016-2030 at a level of 4.7%. This number is based on the forecast increases in the prices of coal and emission allowances as well as the assumption that the nominal electricity prices will reach the 2012 levels after 2020.

Technical parameters of the Opole II investment project

  • Capacity: 2×900 MWe
  • Fuel: hard coal
  • Net efficiency: approx. 45.5% gross
  • Annual electricity output: 12 – 13.4 TWh
  • Annual consumption of coal: approx. 4.1 million tons
  • Gross emission of CO2: 745 kg/MWh
  • Emission of SO2: ≤ 100 mg/Nm3
  • Emission of NOx: ≤ 80 mg/Nm3
  • Emission of dust: ≤ 10 mg/Nm3
  • Technology: supercritical parameters, CCS ready