EXPRESS #3 - October 30, 2018
Worldwide nearly 1400 new coal power plants are planned or under development in 59 countries. If built, these plants would increase coal power capacity by 33%, adding more than 670,000 MW to the global coal plant fleet, reports Kathy Hipple of the Institute for Energy Economics and Financial Analysison the basis of a new database from German NGO Urgewald.
Urgewald notes that in Europe “There is a strong divide when it comes to coal. While Belgium has been coal free since 2016 and ten other EU countries (Austria, Denmark, Finland, France, Ireland, Italy, Netherlands, Portugal, Sweden and the UK – all of which are part of the Powering Past Coal Alliance) have announced or adopted laws to replace coal in their energy mix, the Balkans, Turkey and most Eastern European countries are still putting their chips on coal.”
In spite of the fact that renewables are now among the lowest cost power options, 13 European countries still have new coal power plants in the pipeline, notes Urgewald. The countries in which the largest coal capacity additions are planned are Turkey (37,569 MW), Poland (9,590 MW) and Bosnia-Herzegovina (4,080 MW).
“The question whether the EU will succeed or fail in meeting its commitments under the Paris Climate Agreement is largely dependent on two countries: Germany and Poland”, says Urgewald. Together they account for 53% of the emissions from coal power plants in the EU.
In Germany, as I am sure you will know, a fierce battle is currently raging over RWE’s lignite mining expansion plans.
In Poland, another battle is taking shape: Polish energy company Enea is facing “a world-first legal challenge for pushing ahead with a controversial coal power plant despite widespread market concern about its exposure to climate-related financial risks”, according to NGO ClientEarth.
“It is the first time a company will have to defend itself in court over a failure to manage material climate-related financial risk when making a major investment decision”, ClientEarth has announced.
ClientEarth, a shareholder in Enea, has filed a challenge against the company’s decision to greenlight the €1.2bn, 1GW Ostrołęka C coal power plant. The resolution authorising the contested plant passed at a shareholder meeting last month, despite sharp minority shareholder dissent.
The court action hinges on the “indefensible” financial risk the project poses to investors due to rising carbon prices, increased competition from cheaper renewables and the impact of EU energy reforms on state subsidies for coal power under the capacity market, notes ClientEarth.
“The legal challenge is an uncomfortable development as the country prepares to host the COP24 global climate conference in December”, the NGO adds.
ClientEarth lawyer Peter Barnett said: “This plant is a stranded asset in the making. The economic analysis is clear and there is widespread market concern about the plant. Companies and their directors are legally responsible for managing the financial risks and opportunities posed by climate change. Enea appears to be turning a blind eye to the well-documented risks threatening this project.”
“Shareholders cannot sit back as companies gamble their funds on expensive, outdated and polluting technologies – climate litigation is only going to pick up pace for companies that cling to fossil fuels.”
On top of multiple industry experts questioning the project’s profitability, the €1tn global asset manager Legal & General Investment Management last week pointed to the project’s “very high financial risks” and said Enea and its partner Energa should not proceed with the project until they provide evidence of its financial viability.
“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,” Head of Sustainability and Responsible Investment Strategy Meryam Omi said.
Analysts at Carbon Tracker have said Ostrołęka C is “destined to be a financial and economic disaster”, with its recent report finding the project could generate a negative net present value of up to €1.7bn over its lifetime if it does not secure capacity market payments – these payments are “far from guaranteed” and will not be allocated until December.
ClientEarth Head of Central and Eastern Europe Marcin Stoczkiewicz said: “The Polish government and Enea’s competitors are increasingly moving away from coal and towards renewables. This dogged commitment to build another coal plant undermines Poland’s clean energy aims and presents an indefensible threat to shareholders’ money in light of such strong market concerns.”
The action challenges the resolution consenting to construction of Ostrołęka C passed at Enea’s Extraordinary General Meeting (EGM) on 24 September 2018. It claims that the resolution harms the economic interests of the company and its shareholders.
The action is brought under Article 422 and other provisions of the Polish Commercial Companies Code. The case was filed at the Regional Court in Poznań (Sąd Okręgowy w Poznaniu). ClientEarth had put the company on notice of the increasing risk of legal action several weeks back.
International litigation firm Boies Schiller Flexner is representing ClientEarth pro bono in the dispute. Karasek & Weiman are representing ClientEarth in the Polish court proceedings.
Enea and Energa remain bullishly committed to the planned plant, with Energa’s CFO stating earlier this month that there is “no turning back”. But Enea and Energa’s investment agreement provides that either party can withdraw before the construction stage (which has not yet formally commenced) if the project proves unprofitable.
Poland this month strengthened its aim to cut the share of coal-fired power generation in its energy mix, aiming to reduce it from 80% to 50% by 2040, notes ClientEarth. “Key figures in industry are signalling a decisive move away from fossil fuels and towards cleaner energy production.”
According to ClientEarth, “A new study suggests Poland’s continued dependence on coal is driving power prices up for the consumer – in contrast to renewables. A study on Ostrołęka C specifically showed equivalent investment in renewables would result in 20% lower energy costs.”
Enea’s competitors PGE and Tauron are indicating a move away from coal and towards renewables, says ClientEarth.
Poland’s largest utility PGE came out with bold wind power targets earlier this year, citing competitive costs compared to carbon-intensive energy production.
Meanwhile, “state-run utility Tauron, previously coal-dominated, has said that it will veer towards green energy – triggered by pressure from banks, rising carbon prices and by new EU pollution laws that will force it to upgrade its coal plants. And Poland is about to become home to a new battery storage project by a Swedish start-up.”
Enea argues the plant is required for Polish energy security. But Polish energy industry experts have repeatedly stated that Ostrołęka C is not necessary for Polish energy security, with one recently stating there are “no documents of any kind” that support Enea’s position, according to ClientEarth.
Interestingly, Kosovo has turned to the Trump administration for help to build a coal-fired power plant after losing the backing of the World Bank, Climate Change News reports.
Earlier in October, the World Bank withdrew a loan guarantee offer for the Kosova e Re lignite burner – “the last new coal plant it was considering support for – on the grounds that it was uncompetitive with renewable energy.”
But after waiting more than a decade, the Kosovan government is intent on finding a new partner, notes Climate Change News. “On 28 September the government took that search to Washington DC. Kosovo’s prime minister Ramush Haradinaj and economic development minister Valdrin Lluka met with top officials from the US Overseas Private Investment Corporation (Opic).”
An agenda for Haradinaj’s trip, posted on the Ekonomia Online news site, listed the meeting and its subject: financing for the planned Kosova e Re plant, its “positive environmental impact” and plans for the nearby lignite mine.
Neither Opic nor the Kosovan government disputed the description posted online. Both refused to comment on the outcome of the meeting.
Climate Change News writes that in July, James Jay Carafano, a foreign policy vice-president at the conservative Heritage Foundation travelled to Kosovo and met with Lluka. He also hosted prime minister Haradinaj and Lluka at the foundation headquarters in Washington on the same day they met with Opic.”
“They are banking on [Opic] for some of the funding for the power plant,” Carafano told Climate Home News.
The company building the Kosovo plant is a London-listed energy company ContourGlobal, which is mostly owned by US investment fund Reservoir Capital Group. CountourGlobal has received financing from Opic for previous projects.
Among several consortia bidding for contracts on the Kosovo plant is US company General Electric, notes Climate Change News. Other bidders include Chinese, Korean and Japanese companies, indicating other public finances could support the plant.
“We expect the financing package to come from a mix of the Overseas Private Investment Corporation and export credit agencies,” ContourGlobal CEO Joe Brandt told Reuters this month. The company says construction will begin in early 2019, although no financial backer has so far been confirmed.
Coal, burned in two Tito-era plants, is the source of 98% of the country’s electricity. The country has enormous reserves of lignite, the most polluting form of coal.
The new Kosova e Re plant has been central to the tiny country’s planning since before its independence in 2008, writes Climate Change News. “Leaked US diplomatic cables describe a 2006 meeting at which a World Bank official and government minister celebrated the bank’s willingness to help build the plant with champagne.”
Now, however, the World Bank is in the other camp. And while the U.S. coal power sector continues to shrink, despite Donald Trump’s election promises, the U.S. government could now export its pro-coal policy to Europe.