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ClientEarth Communications

20th December 2018

Rule of law
Climate finance
State Aid
Fossil fuels
Clean energy

Ostroleka C owners ‘on a financial tightrope’ ahead of capacity market auction

ClientEarth has issued a further legal warning to Polish energy companies Enea and Energa as they prepare to bid for state subsidies for controversial coal power plant Ostroleka C.

The lawyers say proceeding with the project risks “irreparable damage” to the companies - whether the plant secures capacity contracts in Friday’s auction or not.

ClientEarth is already taking legal action against Enea over the Ostroleka C project, saying it poses unjustifiable financial risks to shareholders.

ClientEarth’s Head of Central and Eastern Europe Marcin Stoczkiewicz said: “The regulatory and economic context has fundamentally changed since this project was relaunched - Ostroleka C is now, from all perspectives, unviable.

“Enea and Energa must withdraw from the project before committing the companies, shareholders and consumers to high-cost, polluting and unprofitable coal power generation. It is time for common sense to prevail.”

Financing for the project remains unclear, with the most recent financing structure having expired at the end of last month. There are fears that the companies may have to contribute more than the earlier announced PLN 1bn each - which ratings agency Fitch has warned “could lead to negative rating action”.

Meanwhile, participating in the capacity market auction, which the companies intend to do this week, also carries risks.

On the current 56-month construction schedule, the plant will not be built in time to provide capacity when due, if a contract is won. This would result both in foregone payments and repeat financial penalties. Its contract would also face termination in the event of further delays or failure to meet what Energa described as a “very challenging” financial milestone. Energa itself has acknowledged that the capacity market “is not perfectly suited for Ostroleka C”.

But without capacity payments, it is extremely hard to understand how the plant could possibly proceed.

ClientEarth companies lawyer Peter Barnett said: “Company directors have a legal duty to act with due diligence and not to take excessive and unnecessary risks against the company’s interest.

“Ostroleka C’s participation in the capacity market, particularly given the ongoing uncertainty as to its financing, is a dangerous game - Enea and Energa are walking a financial tightrope. The companies must exercise their ability to withdraw from the project to avoid irreparable damage to the companies and their shareholders.”