Investors welcome Poland's decision to freeze last coal-fueled plant project

WARSAW (Reuters) - Shares in Polish state-run utilities Energa and Enea gained on Friday after they froze financing of their joint project to build 1 a GW coal-fueled power unit, citing difficulties raising funds due to environmental concerns.

The ruling conservative Law and Justice Party (PiS) revived the long-dormant project in 2016 after winning an election the year before on a pledge to sustain Polish coal mining.

Construction of the plant in Ostroleka, north-east Poland has already started, but Energa and Enea have not secured full financing as banks have shied away from backing such projects for environmental and sustainability reasons.

On Thursday evening the companies said they suspended financing the project, which was valued at around 6 billion zlotys ($1.53 billion), citing the financing difficulties as well as EU climate policy and shifting European Investment Bank financing policies.

They also said a further analysis of technical and economic parameters is necessary.

By 1220 GMT shares in Energa and Enea rose by 1% and 1.7% respectively on a flat market, after jumping by 3% when the market opened.

“If the project is canceled this will be positive for both companies. What will happen to it? I think this will likely be changed into a gas-fueled one, although this would mean a few years’ delay,” said Bartlomiej Kubicki, analyst at Societe Generale.

PKN Orlen, a state-run refiner which plans to take over Energa, had signaled that it may opt to replace coal with less carbon-heavy gas as a fuel source for the plant, which had been expected to be Poland’s last coal-fuel plant project.

Kubicki said he would expect PKN to raise the price it offers for each Energa share from the 7 zlotys it proposed in a tender announced in December.

CLIMATE

Ostroleka, which was expected to be completed in 2023, has been opposed by environmentalists who say it would deepen Poland’s reliance on coal and is not economically justifiable.

“In Poland, coal power has been fiercely defended – but the economics are coming to bear and companies can no longer deny it,” Marcin Stoczkiewicz, the Head of Central and Eastern Europe at ClientEarth environmental group, said.

“It is only fair to workers, communities and the planet to embrace this shift now, not when it’s too late.”

The history of Ostroleka, which was 5% completed as of the end of January in terms of construction and financing, embodies Poland’s dilemmas regarding its future energy mix in light of changing global trends and market conditions.

The idea to build the plant dates back to before 2010 but in 2012, Energa’s then-management decided to suspend it, considering it unfeasible, before the now ruling PiS revived it in 2016.