Polish utility PGE scrapped plans to build two 900-MW coal-fired power units worth $3.6 billion at a plant near the southwestern city of Opole, citing falling electricity prices and weak demand.

"Changes on the energy market and the macroeconomic environment have limited the economic effectiveness of this investment for PGE," the state-controlled company was reported by Reuters as saying in a statement.

The project at Opole, near Poland’s border with the Czech Republic, was considered a strategic investment, because Poland needs to replace its outdated capacity with new power plants to avoid blackouts.

Grid operator PSE expects that 6.6 GW of the current 37 GW of installed capacity will be taken off the grid by 2020 as outdated plants close.

Earlier this week, Poland’s deputy economy minister said the government plans to cut renewable energy subsidies after an economic slump boosted the budget deficit. Jerzy Pietrewicz, who was named to his post in February, said he’s updating proposals set out in a renewable energy draft law in October, according to Bloomberg. The revamped subsidies will be combined with a “more balanced economic approach” to energy, emphasizing wind and biomass plants while keeping a lid on solar photovoltaic, he said.

“We don’t plan a retreat from support, but we see that progress in technology allows us to reduce rates proposed earlier,” Pietrewicz told the news service.

Prime Minister Donald Tusk’s government is attempting to ease jumps in power prices while complying with European Union rules and a court decision requiring it to adopt incentives for renewables. Poland produces 90% of its electricity from coal and aims to expand the amount of energy it derives from cleaner sources to 15% by 2020 from about 2% now. Those cleaner sources include nuclear, though financing a planned 2023 plant is proving difficult.

Poland estimates that the cost of state support for renewables will rise to 10.8 billion zloty ($3.4 billion) in 2020 from 5.5 billion zloty in 2014. The government budget deficit in the first quarter widened to 25 billion zloty, the most in a decade.

Support for existing biomass co-firing projects, Poland’s most popular renewable energy source, reportedly will be maintained until 2017. Polish power plants doubled their biomass burning from 2006 to 2011, resulting in a jump in prices for the fuel, according to data from the Economy Ministry.

Wind power should become the “base” renewable source, weaning the nation away from its dependence on coal, Pietrewicz was quoted as saying. Wind capacity grew 55% last year to 2.5 GW, according to the Polish energy-market regulator and quoted by Bloomberg. For solar energy, the government plans to encourage smaller projects while limiting support to large plants.

This story was originally published Apr. 9.
Sources: POWERnews, Bloomberg, Reuters

David Wagman, Executive Editor (@EPContentDirect)