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PGE Says Power Investments Difficult to Plan at Current Prices

March 21 (Bloomberg) -- Poland’s record-low power prices are forcing utilities to reconsider their investments in new capacity, according to Monika Morawiecka, head of strategy at PGE SA, the country’s largest electricity company.

Power prices plunged 16 percent in 2012, more than any other EU country, as electricity demand fell for the first time in three years, according to the nation’s grid operator. The price of power for 2014 declined 9.3 percent this year and sank to a record 161.90 zloty a megawatt-hour yesterday.

The average cost of running a coal plant for 7,500 hours a year is about 200 zloty a megawatt-hour, and about 300 zloty if the station operates 5,000 hours a year, Morawiecka said today at a parliamentary hearing on Poland’s power industry. “This is something we have to face,” she said.

PGE is considering whether to build its 11.6 billion-zloty ($3.6 billion) 1,800-megawatt coal-fired plant in Opole as it reviews investments in the current market conditions, the Warsaw-based company said March 14. Falling prices pushed PGE to write down almost the entire value, or 1.49 billion zloty, of its 1.5 gigawatt Dolna Odra plant last month.

The utility halted 348 megawatts of natural gas-fired power capacity in two plants this week, due to high fuel costs and low electricity prices, PGE’s Morawiecka told reporters after the hearing.

Cold Reserve

As much as 6,600 megawatts of power capacity in Poland will be cut by 2020, according to grid manager PSE SA. While almost 6,500 megawatts of capacity will be built by that time, the pace of decommissioning old plants will be faster and the country faces the risk of a supply deficit in 2014 to 2016, Henryk Majchrzak, PSE’s chief executive, said at today’s hearing.

To cover the potential power deficit and contain utilities’ costs, the grid manager plans to compensate producers for keeping older, loss-making units on standby. A tender for the so-called “cold” reserve is expected to be announced in the first half of the year, PSE’s Majchrzak said.

“We’re considering two scenarios of about 1,000 megawatts and 1,400 megawatts of capacity that would otherwise be closed after 2015,” Majchrzak said.

Tauron Polska Energia SA, PGE’s biggest competitor, is also making losses on some of its facilities, Stanislaw Tokarski, the head of Tauron’s generation unit, said at the hearing.

Tauron would be interested in offering as much as six 120-megawatt units as “cold” reserve for the grid manager, Tokarski said.

“We have a surplus of electricity on the market but are faced with capacity shortfalls in the future,” he said.

To contact the reporters on this story: Marek Strzelecki in Warsaw at mstrzelecki1@bloomberg.net; Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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