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Polish PGE pulls out of Visaginas and Kaliningrad nuclear power plant projects

09 Dec 2011 18:10:13 | edem

Poland's largest utility PGE has withdrawn its involvement in the Lithuanian Visaginas power plant and abandoned plans to buy electricity from the Kaliningrad power plant, PGE confirmed on Friday.

Based on a thorough analysis of the information provided by project stakeholder Visagino Atominė Elektrinė (VAE), PGE has decided to pull out of the Lithuanian project, the company said. "Taking into consideration the current conditions, which at this stage have appeared to be unacceptable for PGE, and also the PGE Group's other key projects, we have decided to suspend our participation in the project before assuming any formal obligations," Tomasz Zadroga, president of the management board of PGE, said in a written statement.

Lithuania has been looking for strategic investors for its 3.4GW Visaginas nuclear power plant, and last year, PGE stated that it would be interested in submitting a binding bid (see EDEM 24 November 2010), but ICIS Heren understands that no concrete action followed.

Furthermore, PGE has decided against buying power from the 1.16GW Kaliningrad nuclear power plant, which is also yet to be built.

Piotr Zielonka, a Citigroup analyst following PGE, noted that PGE's decision not to buy power from Kaliningrad was politically motivated. "Poland does not want to be dependent on Russian power," he commented. According to Zielonka, Russia was aiming to build the nuclear plant before Lithuania, thus eliminating a need for the second power plant in the region.

The decision to pull out from the Lithuanian power plant, however, was taken in a bid to reduce PGE's capital expenditure. "Other Polish utilities are expecting local power prices to go up, but they fail to take into account the fact that marginal costs increase as well," Zielonka said. He forecasted that power prices in 2013 should be around Zloty (Zl) 240.00/MWh (€53.20/MWh), roughly Zl25.00/MWh higher than current estimates for the Calendar Year 2013 Baseload power contract. Yet, marginal costs would also increase. Zielonka expected that Polish coal prices, which are currently approximately 40% lower than those in the CIF ARA region will rise significantly, in line with inflation. In addition to that, Polish utilities would have to pay extra for the cost of carbon credits from 2013, which they currently receive for free. "PGE is trying to keep their CAPEX costs to minimum," the analyst commented.

The company is currently planning to build a new 1.8GW coal-fired plant in Opole and a 460MW lignite unit in Turow. PGE is also making headway with its own nuclear plans and announced choosing three potential sites two weeks ago, and the company is also still planning to take over its smaller sibling ENERGA, which would also mean significant expenditure for PGE.

PGE refused to make any further comments on Friday. SR

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