PSE to start compensation scheme for power plants
By : Greg Goodale
The Polish Power Grid (PSE) intends to introduce the first three power stations into the compensation payment system this October. But there is concern that the system could soon force less-competitive generators out of business.
The PSE announced last week it had completed legal formalities adapting the long-term contracts of three major Polish power stations, allowing them to operate under the compensation payment system. The three power stations Opole, Jaworzno III and Dolna Odra were due to become part of the system in July, but the Finance Ministry has yet to decide if the payments will qualify for value added tax.
Compensation payments will balance the production costs of power plants currently tied into long-term contracts, which guarantee that the PSE buys energy at above-market prices for a fixed period. Under the new system prices will be freed, while Compensation Payment System (SOK), a subsidiary of PSE, will issue compensation to plants with higher costs. The new system will allow generators to compete for contracts directly with large buyers that consume more than 100 Gwh a year, without using the PSE as an intermediary.
According to PSE spokesman Regina Wegnerowska, the state operator has 12 long-term contracts with combined heat and power plants and 21 with power plants that must be transformed into compensation payment schemes. "Every contract has to be renegotiated with banks and power stations, and we have thus far managed to negotiate this with these three," Wegnerowska said. "We have annexes added to their long-term contracts which transform the material contracts into financial contracts." She added that preliminary talks are already underway with further power stations, but declined to comment further.
There is concern that the compensation system may not suffice to protect smaller power generators crippled by repayments on modernization loans taken out in the 1990s. Miroslaw Soltysiak, associate director at BRE Corporate Finance, said big generating plants will be better able to offer cut-price energy to large buyers, but will need to grab market share to stay in profit.
"I think that the only way they can level off their revenues is to increase their production and sales. If they increase their sales, they will have to eliminate someone from the market," Soltysiak said. "This process could be faster than anyone would expect."
