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.
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.
The legal challenge, in brief
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.
The legal challenge is an uncomfortable development as the country prepares to host the COP24 global climate conference in December.
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“Shareholders cannot sit back as companies gamble their funds on expensive, outdated and polluting technologies – climate litigation is only going to pick up the pace for companies that cling to fossil fuels.”
Financial risks abound
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.
EuroRating downgraded Enea’s joint venture partner Energa in July, citing the main reason as Energa’s signing the construction contract for Ostrołęka C.
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.
Still time to withdraw
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.
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 Polish government has a key opportunity to show a clean energy ambition before the climate conference in December. Financial reality and legal action are closing in on this plant – and on the wider coal industry. Enea needs to withdraw from Ostrołęka C, not lock investors in.”
The EGM saw Enea fail to gain minority shareholder support for Ostrołęka C, with 58% of minority shareholders participating in the general meeting abstaining from voting and 22% voting against the plant. The resolution passed as a result of the Polish State Treasury’s controlling interest, meaning that construction is now a decision for the companies’ boards.
International litigation firm Boies Schiller Flexner is representing ClientEarth pro bono in the dispute. Karasek & Wejman are representing ClientEarth in the Polish court proceedings