The market leader is placing clients and the environment at the centre of its district heating strategy
Good neighbour and district heating company of first choice
The key benefits stemming from PGE’s District Heating Strategy are a) formulating a successful response to new opportunities and challenges, b) increasing management concentration in the district heating business by separating a new business line, c) maximising value-creation potential on local markets and d) increasing the share of EBITDA from stable regulated activity.
Thanks to the acquisition of EDF’s Polish assets, most of which are already branded as PGE Energia Ciepła, PGE Group is becoming the leader of the district heating market, at the same time solidifying its position on the electricity market. The Group intends to maximally capitalise on this potential and, being the best-managed district heating business, initiate changes in the entire segment by adapting its products and services to the needs of both its existing and future clients.
“The acquisition of EDF’s assets by PGE is one of the largest transactions on the mergers and acquisitions market in Europe in recent time. This decision is beneficial for the entire power system and it also increases the company’s potential. It is also very significant in terms of enhancing Poland’s energy security,” said Andrzej Piotrowski, deputy energy minister.
“Creating the conditions for the development of district heating is also one of the priorities of the Ministry of Energy. The involvement and presence of large corporates – also those controlled by the state treasury – is an important element of the development of this sector, which is facing considerable and new challenges,” added Andrzej Piotrowski.
In the social dimension, PGE Group is basing its Strategy on four pillars: energy security, i.e. the reliability of supply of competitively priced district heating and electricity, the environment, understood as smog reduction, local communities, with which PGE wants to engage in active dialogue, and jobs, i.e. supporting social and economic development.
“In our latitude, the supply of district heating is no less important than the supply of electricity, and we have the privilege of being the leader in both of these segments today. This is an honour but also a huge challenge. We are not only taking care of energy security but also the uninterrupted supply of heating to millions of Polish homes. We want to develop while meeting the strictest environmental requirements and we want to capitalise on the fact that the heat coming from district heating networks is one of the ways to fight for clean air in Polish cities,” said Henryk Baranowski, CEO of PGE Polska Grupa Energetyczna.
According to the mission set out in the District Heating Strategy, PGE Group wants to stimulate the transformation and development of district heating in Poland while contributing to improvements in the quality of the environment, competitiveness of the economy, the level of social welfare and energy security at both local and national level.
PGE’s vision, which is inscribed in this mission, sees it become a district heating company of first choice, a leader of innovative development of district heating, focused on clients, effectiveness and work with local government. The Strategy will be implemented in line with PGE Group’s values – partnership, growth and responsibility.
Introducing the District Heating Strategy results directly from PGE Group’s Strategy, which includes the carve-out of a cogeneration-based business line intended to capitalise on the development of the district heating market. PGE Group intends to successively introduce its existing cogeneration assets to PGE Energia Ciepła, which was created on the basis of the acquired assets.
Thanks to this, most of the assets in this segment will be in one company, which will enhance management efficiency and create new growth perspectives. At the foundation of PGE’s planned development of district heating are 16 CHP plants already operating within the Group, which have a total installed capacity of 6.7 GWt and 2.5 GWe, as well as approx. 500 km of district heating networks.
“The acquisition of EDF’s assets by PGE was a very good decision both for the Group, because it increases its growth potential, and for the entire energy system, because it substantially increases its security. The District Heating Strategy unveiled by PGE Group is an excellent fit with the Ministry of Energy key objective, which is to develop this segment of the energy sector. Such involvement and presence of large companies, including those controlled by the state treasury, will make it possible to successfully meet the challenges that district heating is facing and to use the opportunities that it presents,” said Andrzej Piotrowski, deputy energy minister.
“Poland is one of the largest district heating markets in Europe, and we intend to maximally use this potential. We want to be perceived as a credible and responsible partner for local governments, which already know that investing in district heating is a sign of our times – caring for the comfort of residents by both ensuring uninterrupted heat supplies and by battling for clean air,” said Henryk Baranowski, PGE’s CEO.
“As the largest company in the sector, we can be a good neighbour and we can support local governments in achieving their objectives, which they would not be able to reach otherwise. Our programme for the development of the district heating segment will support economic growth regionally and thus have a positive impact on the economy’s competitiveness and increasing the level of social welfare. Our plans are in line with, and support, the government’s Strategy for Responsible Development,” added PGE’s CEO.
Ambitious investment programme and sustainable development
According to the District Heating Strategy’s assumptions, PGE Group intends to invest in 1000 MW of new cogeneration capacities by 2030. It also intends to develop and acquire district heating networks in cities where it already has generation assets and to undertake discussions with local governments regarding cooperation in cities where it is not yet present.
One of the Strategy’s key performance indicators will also be the reduction of overhaul expenditures related to generation sources by 10% by 2023, comparing to 2017. PGE expects the development of the district heating segment to eventually generate PLN 1 billion in EBITDA, starting from 2030. Moreover, an additional stream of EBITDA will come from a comprehensive and innovative product and service offering, tailored to the needs of various client groups. Activities in this area will be carried out in cooperation with other PGE Group entities, including PGE Obrót.
“Our goal is to use the potential of local, low-emission fuels such as gas from local deposits, waste or biomass, so that low-emission energy sources account for 50% of PGE Energia Ciepła’s fuel mix by 2030. We are embarking on an ambitious investment programme, which will be based on a stable rate of return,” said Ryszard Wasiłek, vice-president of PGE’s management board, responsible for operations.
“In the first stage, until 2023, we want to focus on expanding the value chain, mainly concentrating on acquisitions of district heating networks and adapting the existing assets to environmental requirements, and later on developing generation assets and district heating networks by 2030. We intend to spend approx. PLN 17 billion on this, overall,” said Ryszard Wasiłek.
These investments will be financed in a corporate and project model, optimally taking into account EU financial instruments, preferential domestic funds and, after 2020, financing under the ETS directive (free CO2 allowances and the Modernisation Fund).
The planned investments concern regulated activity with a relatively low operational risk. Investments in cogeneration assets based on low- and zero-emission sources are a significant step towards diversifying PGE Group’s fuel mix.
“PGE Group’s District Heating Strategy is an excellent fit with the top-priority directions for the Polish energy industry, in the social and environmental aspects. The Strategy will make it possible for us to not only ensure energy security at local level but also to optimally support the battle for clean air in Polish cities and to be a strategic partner in the sustainable development of the regions in which PGE Energia Ciepła is present,” said Wojciech Dąbrowski, CEO of PGE Energia Ciepła.
Acknowledging the increasing awareness and growing requirements of clients, PGE wants to set out the directions for the sector’s development in Poland based on innovative solutions, including digitalisation, development of smart grids and the smart city concept. The Group is counting on cogeneration and trigeneration as well as on minimising its impact on the surroundings by placing emphasis on the circular economy concept, i.e. ensuring the maximum use of by-products from electricity and heat production processes. To this end, PGE intends to develop wide-scale cooperation with start-ups, what will be carried out through PGE Group’s fund PGE Ventures.
According to the Group, implementation of the Strategy will be dependent on several external factors, the most important of which will be domestic regulatory conditions, with particular emphasis on Poland’s energy policy, support systems for cogeneration and renewable energy sources, the Capacity Market as well as the EU’s energy and climate policies.