October 17, 2018 / 11:54 AM / 2 months ago

Investor LGIM-lack of funds for Poland's planned Ostroleka coal plant a concern

WARSAW, Oct 17 (Reuters) - Legal & General Investment Management, Britain’s largest asset manager, said it is has serious concerns over Poland’s planned development of a new coal-fuelled power plant in Ostroleka due to unsecured financing for the 6 billion zlotys ($1.61 billion)project.

The plan to build the 1 gigawatt plant in north-east Poland was revived by state-run utility Energa in 2016 in response to a government policy to keep using coal as the basic source of energy over the longer term. It had earlier abandoned the project due to financing difficulties.

Another state-controlled energy group, Enea, joined the project at the end of 2016.

LGIM is invested in both Enea and Energa.

“We have serious concerns about the development of a new coal plant in Poland, Ostroleka C given that they have not yet secured capacity market payments or confirmed third-party financing,” said Meryam Omi, the head of sustainability and responsible investment strategy at LGIM.

“As an index manager, we are by default invested in Energa and Enea, and therefore our clients are exposed to very high financial risks due its uncertain policy support, rising carbon prices, unreliable capacity payments and threat of new technologies in energy generation,” she added.

The plant, which is expected to be completed in 2023, is opposed by environmentalists who say it only strengthens Poland’s reliance on coal and is not economically justifiable.

Shareholders in Energa and Enea approved the project, which the energy minister said will be Poland’s last coal-based power plant. But it still needs more corporate approvals for the notice proceed (NTP) to be issued and construction to start.

Enea and Energa will invest 1 billion zlotys each while FIZAN Energia fund will also contribute 1 billion zlotys. It is unclear where the remaining funds will come from.

The utilities’ managements expect Ostroleka power plant will benefit from the planned power capacity scheme, in which producers are paid for their readiness to produce electricity.

“We don’t believe the companies should proceed with this project until they can provide us with reassuring evidence of its financial viability and the role it will play in meeting the energy security and the carbon targets in Poland and Europe,” Meryam Omi said.

Carbon Tracker think tank has said the Ostroleka plant will be “permanently unprofitable without out-of-market revenues in the form of capacity market payments”.

Poland’s energy minister has said Ostroleka is necessary to secure stable power supplies, but critics say this is a political project promoted for its new job creation. ($1 = 3.7190 zlotys) (Reporting by Agnieszka Barteczko Editing by Alexandra Hudson)

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