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Modernisation of the power sector in Poland – tough challenges for investors

02-18-2010 10:28 AM CET | Industry, Real Estate & Construction

Press release from: PMR Publications

Age profile of power generating assets in Poland by years of service, 2009

Age profile of power generating assets in Poland by years of service, 2009

Due to long-standing underinvestment, the Polish power sector is facing a genuine need of finding up to €50bn on investments in new power-production capacity and transmission systems in the coming years. However, only part of the projects initially announced by investors will be actually implemented. Thus, the amount of around €25bn earmarked for capital investments in the power sector in 2010-2020 seems to be a more realistic figure.

As stated in research and consulting company PMR’s report entitled “Power Sector Construction in Poland 2010 – Development forecasts and planned investments”, the most substantial growth in new power generation capacity is expected in 2014-2016 when power generating units of 8,000-10,000 MW will be commissioned. What’s interesting, in addition to the plans of Poland’s four largest power groups, including PGE, Tauron, Energa and Enea, major investments are also planned by foreign investors present in the Polish market (Vattenfall, RWE, GDF SUEZ, CEZ, EDF and Fortum); moreover, investments in the power sector are also planned by many companies which have not been directly involved in the power sector to date, including PGNiG, PKN Orlen, Lotos, KGHM and Kulczyk Holding. Also, large projects are planned in the renewable energy sources sector.
As far as investments within the renewable energy sources sector are concerned, the wind power segment has by far the best prospects. In the next decade, Poland will be among the fastest growing markets in terms of new wind power projects with the average annual growth in installed capacity in the range of 800-900 MW. The wind power market offers highly promising prospects, as it was only recently that it has started to grow. However, this branch of the power sector can face numerous barriers, including the lack of a unified and common strategy of the government and inconsistency in the approach to wind power of individual ministries, long time taken to complete wind power projects (four to seven years), long time waiting for delivery of wind turbines (even up to two years), no coordination of network extension planning between individual distributors and the policy of “booking” connection capacity, which creates an informal market for trading in connection rights.
PMR analysts estimate that the biggest market players will plan to obtain up to half of the funds necessary for project financing from external sources. Due to the required volume of capital expenditure related to power sector projects, there are several potential external sources of project financing. The major of them include loans and borrowings from domestic lenders, bonds, issues of shares on the Warsaw Stock Exchange, financial commitment of a strategic investor and loans from the European Investment Bank and the European Bank for Reconstruction and Development (in the case of the EIB and the EBRD funding, Poland is the largest borrower in Central and Eastern Europe). However, raising funds for all the projects planned in the power sector will be by no means a simple task. Consequently, part of the projects will be financed with the funds coming from energy price increases.
When analysing the planned projects, it should be borne in mind that the power sector is operating in a highly volatile economic and legal environment where political decisions have an increasingly strong impact on projects’ profitability. Therefore, implementation of long-term projects in the power sectors must take into account the laws and regulations which will come into force in the future. However, there is little certainty about the future regulations concerning the power sector or environmental issues. Thus, any specific investment decisions in the power sector are exposed to a considerable risk. Hence, some of the power projects initially announced by investors will not actually materialise. They can be potentially substituted by new projects which have not yet been disclosed or are in the early preparation stage. Despite the anticipated difficulties in securing the funding for all the planned projects, well-prepared projects which have a sales market and a convenient location and use an appropriate technology are bound to secure the necessary funding and they will be put into practice.

This press release is based on information contained in the latest PMR report entitled “Power Sector Construction in Poland 2010 – Development forecasts and planned investments”.

PMR Publications ( is a division of PMR, a company providing market information, advice and services to international businesses interested in Central and Eastern European countries and other emerging markets. PMR key areas of operation include market research (through PMR Research), consultancy (through PMR Consulting) and business publications (through PMR Publications). Being present on the market since 1995, employing highly skilled staff, offering high international standards in projects and publications and providing one of most frequently visited websites, PMR is one of the largest companies of its type in the region.

For more information on the report please contact:
Marketing Department:
tel. /48/ 12 618 90 00

ul. Supniewskiego 9, 31-527 Krakow, Poland
tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08

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