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PGE Management Board's opinion on construction of units 5&6 at the Opole Power Plant

  • No. of the report: 42/2011
  • Report date: 08.11.2011
  • Report legal ground: Art. 56 section 1 p. 1 of Act on Public Offering – confidential information

Contents of the report

The Management Board of PGE Polska Grupa Energetyczna (“PGE”) informs that on November 8, 2011 formed a positive opinion on purposefulness of commencing investment realization phase of construction of two hard coal fired 900 MW supercritical power units at Opole Power Plant at the cost resulting from the prices presented in the offers submitted in the ongoing tender proceeding.

In PGE Management Board’s opinion, Opole units 5&6 project belongs to the most profitable conventional power generation construction projects currently considered in Poland. The abovementioned assessment is based on the following:

- Expected growth of demand for electricity followed by limited supply of new capacities, necessity of decommissioning and deteriorating quality of existing generation fleet will support growth of electricity prices in Poland at a rate exceeding expected inflation rate,

- Project will be commenced in the brown-field formula, with effective utilization of existing Opole power plant infrastructure. In PGE Management Board’s opinion, construction of traditional conventional units in Poland in green-field formula does not suffice for achieving a rate of return at a satisfactory level,

- Already advanced level of realization of the project allows for commencing construction works and commissioning of the units in a timeframe that leaves behind other considered competitive projects in Poland, which is crucial for successful investment completion bearing in mind limited maximum level of supply of construction and engineering services in Poland. PGE Management Board estimates that due to abovementioned services supply and the fact that simultaneous construction of two units incurs lower unitary cost per MW, construction of any other examined unit in Poland will not be feasible at a price level per MW compared to tender offers received for units 5 and 6 in Opole power plant,

- Expected full integration of new units’ operation processes with already installed capacities in Opole power plant will limit fixed costs growth at a minimum level and will provide for preservation of one of the lowest unitary production cost in Poland. Commissioning of units 5 and 6 will increase achievable capacity in Opole power plant by 117 per cent (currently 1,532 MW), followed by assumed fixed cost growth at the level not exceeding dozen per cent.

Technical assumptions of unit 5 and 6:

- Fuel: hard coal

- Power capacity: 2 x 900 MW

- Net efficiency: min. 45.5%

- CO2 emissions: ca. 745 kg/MWh

- Load factor: 80% (average, for the first 10 years after commissioning)

- Net electricity production: 11.1 TWh per annum (average, for the first 10 years after commissioning)

- Expected commissioning of the investment project (based on the assumption that agreement with General Contractor is concluded in 2011): unit 5 in Q4 2016, unit 6 in 2017.

Legal ground: Art. 56 section 1 point 1 of the Act on public offering, conditions governing the introduction of financial instruments to organised trading, and public companies (Dziennik Ustaw of 2009, no 185 item 1439).