February 22, 2017 / 3:44 PM / 7 months ago

Fitch: Nuclear Plant Delay Neutral to Polish Utilities

(The following statement was released by the rating agency) WARSAW/LONDON, February 22 (Fitch) Fitch Ratings says that the ratings of Polish state-controlled integrated utilities PGE Polska Grupa Energetyczna S.A. (PGE, BBB+/Stable), TAURON Polska Energia S.A. (Tauron, BBB/Stable) and ENEA S.A. (BBB/Stable) will not be impacted by the recent announcement of the Polish government to postpone its decision regarding the construction of the first nuclear power plant in Poland. Rating pressure may re-emerge once the nuclear plant proceeds, although the long-term nature of core nuclear-related capex would be outside our five-year rating horizon for Polish utilities. The rating impact will depend on the nuclear project's size and a probable support scheme for the project's cash flows. According to the government's programme for Polish nuclear energy, a 3GW nuclear power plant would cost between PLN40 billion - 60 billion. Such spending could be equivalent to about 8GW of new coal-fired capacity. Another obstacle, political and social in nature, is that nuclear generation would partly push out the existing coal-fired generation fleet from the merit order and negatively impact the coal mining sector in Poland, for which power generation is the main coal off-taker. This would, however, happen only when the nuclear power plant becomes operational, which we expect no earlier than in a decade. Decision regarding the nuclear programme will define the structure of the generation fuel mix in Poland in the long term. We currently do not include construction of a nuclear plant in our rating cases for Polish utilities apart from the already started preparatory works for the postponed nuclear plant which will cost about PLN1 billion over several years, split among PGE (70%), Tauron, ENEA and copper mining company KGHM (10% each). However, the final decision to commence the nuclear programme, if taken, may provide for a different programme structure or different parties involved. It could also focus on small scale units rather than large scale ones. Implementation of the nuclear project without a cash flow support scheme, such as capacity payments or contracts for differences, or state guarantees for debt could put negative pressure on the ratings given the companies' existing large capex plans and also a low electricity price environment. Our current base case assumes a slow decrease in the share of coal and lignite-fired generation in the Polish fuel mix driven by commissioning of new renewable and gas-fired sources. Renewable capacity, historically wind and biomass, will under the new auctioning system include photovoltaics and biogas. Gas will be used by some newly built industrial power plants and combined heat and power plants. We expect that the new coal-fired blocks under construction or development (Opole, Kozienice, Jaworzno, Ostroleka) would replace the oldest blocks rather than reverse the trend of a gradual decline in the importance of coal in the fuel mix. Nuclear generation is among potential initiatives being considered by the Polish government to remain compliant with the tightening EU regulations on climate due to its zero carbon dioxide emissions. Nuclear generation should also provide stability to the power system due to its baseload production as well as helping to address the capacity gap, which could otherwise emerge with the gradual decommissioning of the aging coal-fired blocks. Contact: Artur Galbarczyk Associate Director +48 22 338 6291 Fitch Polska S.A. 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