Poland’s PGE writes down lignite assets on rising CO2 prices, H1 generation up 4%

Published 18:08 on September 1, 2015  /  Last updated at 18:15 on September 1, 2015  /  EMEA, EU ETS

Polish state-owned utility PGE Group on Tuesday announced it was writing down the value of its lignite generation assets due in part to rising European carbon prices and more restrictive EU climate policy.

Polish state-owned utility PGE Group on Tuesday announced it was writing down the value of its lignite generation assets due in part to rising European carbon prices and more restrictive EU climate policy.

In its earnings for H1 2015, PGE applied an 8.84 billion zloty (€2.09 bln, $2.35 bln) impairment charge to its assets, some 8.25 billion zloty of which was deducted from the book value of the company’s Belchatow and Turow facilities – two of the biggest emitting power plants in the EU ETS.

The write-down also stems from lower hard coal prices, which are hurting the competitiveness of PGE’s lignite plants, as well as from falling wholesale power prices in Poland and abroad.

“Increasingly stringent” EU climate policy, in part from the creation of the MSR, is resulting in higher carbon prices and the loss of competitiveness for lignite-fuelled power plants, PGE said in its earnings report for the six months ending June 30.

“At the same time, such a change improves the competitiveness of newly-built, high-performance power units based on hard coal. In addition, the introduction of solutions stemming from climate policy to support (renewable energy) installations in Poland will result in increasing pressure on margins generated in all types of conventional generation units,” it added.

PGE said it had also reduced its forecasts for future expected cash flows

The company said it assumed EUA prices would increase by 250% from current levels by 2020, followed by smaller increases in the following years to 2030.

In a sensitivity analysis, PGE estimated that for every 1% rise in EU carbon prices above its forecast over the 2015-2020 period, it would translate into a 400-million zloty increase in the impairment charge applied to its plants. Similarly, if the realised carbon price is 1% below the company’s estimate, it would mean the write-down amount is reduced by 400 million zloty.

PGE’s Belchatow plant, the largest emitting installation in the EU ETS, had its book value cut by 18.2%, while Turow’s book value was slashed by a massive 92%.

PGE also said it had assumed wholesale electricity prices in its markets would rise by 20% between now and 2020, while hard coal costs would remain constant to 2018, then increase before stabilising after 2020.


PGE produced 27.63 TWh of electricity in H1 2015, up 4% from the same period last year. Of that, 19.61 TWh or 71% was generated by lignite-fired power plants, which was up by 5% y/y due to additional capacity at Belchatow.

A further 5.14 TWh or 18.6% came from its hard coal-fired plants, which was down by 14% on H1 2014 due to an outage at PGE’s Opole facility.

The utility’s remaining output, worth 2.88 TWh or a 10.4% share of total output, was split between coal-, gas- and biomass-fired combined heat and power (CHP) plants, pumped storage power plants, and hydro and wind installations. That was up from 1.96 TWh or a 7.4% share in the first half of 2014.

The company did not breakdown its forward power sales data, nor did it report hedging figures, as do some utilities in Western Europe.

PGE estimated that it had emitted 28.97 million tonnes of CO2e across all of its installations in the first half of 2015, compared to the 26.08 million EUAs that it predicted it would receive for free to cover that period.

The company said it had bought 3 million EUAs in the first half of 2015, while receiving 30 million EUAs for free from the government. After handing in 59 million allowances in H1 for 2014 compliance, the firm was left with 42 million EUAs worth a total 975 million zloty as of June 30.

In contrast, the company bought 33 million EUAs in full-year 2014, some 11 times more than H1 2015, plus another 3 million Kyoto Protocol offsets that appear to have been converted into EUAs before the end of last year. It also for 2014 received 34 million free EUAs and surrendered some 61 million, leaving it with an end-of-year inventory of 68 million units worth 1.55 billion zloty.

“Free allowances for electricity for 2015 in amount of circa 25 million tonnes will be received by the Group by the end of April 2016” after its investments in cutting CO2 output are verified, as required under Article 10c of the EU’s ETS Directive.

By Mike Szabo – mike@carbon-pulse.com