Coal news and updates

Polish utility PGE to diversify fuel mix, seeks more efficiency from coal

Polska Grupa Energetyczna, Poland's largest power company, said Tuesday stricter environmental regulations meant it would try to make its coal-fired plants more efficient and accelerate the diversification of its generation assets, including by adding offshore wind to its portfolio.

Rising CO2 emissions allowance prices had caused PGE to write down the value of its lignite-fired generation assets and start revising its long-term strategy, CEO Marek Woszczyk said Tuesday.

"In particular, it is necessary to implement a profound restructuring and far-reaching efficiency improvements," Woszczyk said at a news conference.

While lignite-fired generation remained PGE's most profitable business, Woszczyk said those assets will be hardest hit by the EU's climate policy, which has caused the company to review its outlook for the segment.

Spot baseload wholesale electricity prices down 15% year on year in the second quarter caused PGE to book recently Zloty 8.8 billion ($2.3 billion) in non-cash charges for the period.

The largest single impairment, of Zloty 5.1 billion, was booked on its lignite-fired Turow plant, with the company writing off 92% of its book value.

PGE also wrote off 18% of the value of its 5.3 GW lignite-fired Belchatow plant, incurring a Zloty 3.1 billion impairment charge.

The impairments were based on a range of assumptions including that wholesale electricity prices would increase by 20% by 2020, CO2 emission allowance prices would see a 2.5-fold rise by 2020, and that hard coal prices would remain flat until 2018, with mild growth thereafter.

"We will concentrate on cost efficiency in lignite in order to stay competitive but it is a higher carbon emission technology and that is the challenge for us. So far, in terms of Belchatow we are successful. We have to do something about Turow. This is under strict review," Woszczyk said.

The strategic review could be completed by the end of the year, Woszczyk said, adding the company has decided to target an additional Zloty 1 billion in expenditure cuts after 2016, on top of the Zloty 1.5 billion announced in May last year.

Woszczyk said PGE had no intention of abandoning its major generation investments in Opole and Turow but would cut some modernization investments.

Woszczyk said PGE may divesting non-core assets, including its telecoms unit, but would also look at its combined heat and power plants.

From April-June, PGE generated 13.1 TWh of electricity, flat year on year. Lignite-fired production rose 3% to 9.38 TWh due to the return of Belchatow's Unit 11 following modernization.

Lignite accounted for 72% of PGE's output. Hard coal-fired production fell 17% to 2.69 TWh due to the outage of Opole's unit 4 from October to February and lower demand for Opole and Dolna Odra from the transmission system operator PSE.

Hard coal-fired generation accounted for 21% of PGE's total generation.

Gas-fired generation increased 31% year on year to 0.33 TWh due to reinstated state subsidies for cogeneration plants. Biomass-fired generation fell 3% to 0.33 TWh but wind output rose 14% to 0.16 TWh due to better weather conditions.

Hydro generation fell 7% to 0.13 TWh due to the worse hydrological conditions and and lower demand from the TSO caused pumped storage output to fall 11% to 0.08 TWh.

The availability of PGE's generation assets from January-June improved year on year, with lignite reaching 85.9% from 80.9% and hard coal at 90.5% from 85.2%. Their load factor fell, with lignite dropping to 85.3% from 85.7% and hard coal down to 65.6% from 69.7% due to lower demand from the TSO.

PGE supplied 9.41 TWh of electricity in the second quarter, down 2.6% year on year as a 3.6% fall in supplies to business customers offset a 1.4% rise to households.

The company spent Zloty 3.3 billion in capex in January-June, up 49% year on year due largely to the ongoing construction of two 900 MW units at the hard coal-fired Opole plant, which are now 20% completed.

PGE commissioned the 40 MW Karwice wind farm in July and expects the 90 MW Lotnisko, 76 MW Reszko II and 12 MW Kisielice II wind investments to be commissioned by the year end.

PGE recorded a net loss of Zloty 6.15 billion ($1.6 billion) in the second quarter because of the impairment charges on its lignite assets.

Excluding those impairments, it made a net profit of Zloty 1.1 billion.