THE COMPANY’S DEPENDENCE ON CUSTOMERS, PLANS TO BUILD A COMPETITIVE HEAT AND POWER PLANT
The Company relies primarily on Fortum Power and Heat Polska Sp. z o.o. (a district heating operator) for conducting its heat sales business. The project planned by Fortum Power and Heat Polska Sp. z o.o. to build:
- a combined cycle heat and power plant with combined cycle gas turbine (CCGT) with a capacity of 400 MW in Wrocław at Obornicka Street 195 (as first option),
- an alternative fuel, coal and biomass-fired installation for energy production with heat capacity of 225 MWt in Wrocław at Obornicka Street 195 (as second option)
The Management Board of KOGENERACJA S.A. conducted an information campaign addressed to the authorities of the Municipality of Wrocław and the Energy Regulatory Office to raise awareness of the consequences of such a decision, namely an excess of installed capacity in the system and a potential increase in district heat prices.
In 2017, the Regional Director of Environment Protection did not issued the decision for incineration plant construction at Obornicka Street as the documents which were presented were not in line with the Voivodship Waste Management Plan.
On 7 August 2017, Wrocław Mayor Rafał Dutkiewicz has made a statement, addressed to inhabitants representatives (Social Committee OUR HOUSING ESTATE „STOP Incineration Plant”), informing that no investment of waste incineration plant will be erected in Wrocław in Obornicka street. The Mayor declared that any investment of that kind must be preceded by binding social consultations.
AMENDMENTS TO THE ENERGY LAW
The Energy Law and its implementing regulations govern the national energy policy, set out the rules and conditions for the supply and use of fuels and energy and designate the authorities responsible for fuel and energy management.
In 2017, the Energy Law Act was amended several times:
- Amendments of 1 January 2017 – arising from the Act of 16 December 2016 – Legal provisions introducing the Act on managing state-owned assets
- Amendments of 10 January 2017 – arising from the Act of 23 September 2016 on out-of-court resolution of consumer disputes
- Amendments of 1 March 2017 – arising from the Act of 16 November 2016 – Legal provisions introducing the Act on National Tax Administration
- Amendments of 29 April 2017 – arising from the Act of 9 March 2017 on amendments to the Act on trading in financial instruments and certain other acts
- Amendments of 21 June 2017 – arising from the Act of 11 May 2017 on statutory auditors, audit firms and public oversight
- Amendments of 2 August 2017 – arising from the Act of 7 July 2017 on the amendment of the Act on crude oil, petroleum and natural gas reserves and the rules of conduct in the event of a threat to fuel security of the state and disruptions in the oil market, and certain other acts.
Carbon dioxide emissions
The risk associated with CO2 emissions and the need to use an appropriate amount of emission allowances was not so severe in the previous years, as the actual CO2 emissions were lower than the limits allocated to the Company under the National Plan of Distribution of Allowances (KPRU). The low amount of emission allowances granted under KPRU III for 2013-2020 means:
- changes in the method of distribution of allowances into an auction system according to the new Directive on emission allowances
- only a part of the allowances will be received by the Company free-of-charge - under the National Implementing Measures and the National Investment Plan, the allocations for heat and electricity, respectively, will need to be evidenced with completed projects
- starting from 2020, all the allowances will be acquired through auctions.
All this will lead to an increase in the production costs as emission allowances will need to be purchased or extra investments will be needed to increase the generation efficiency. The instability of prices of CO2 emission allowances is seen as another risk.
FACTORS ASSOCIATED WITH CHANGES IN CONSUMER DEMAND FOR HEAT
The decrease in demand for heat, which was due to, among other things, upgraded insulation of houses and apartments, reduced heat losses during transmission and installation of weather sensors in the central heat stations, has been stopped in the recent years.
The active steps taken by KOGENERACJA S.A. to acquire new buyers, especially its co-operation with the Wrocław Municipality with regard to connection of new and existing buildings to the network compensate for the reduced demand and help stabilise the sale of heat.
Last year, the sale of contracted heat power increased by 13.76 MWt, i.e. by 1.35%.
FACTORS ASSOCIATED WITH FLUCTUATIONS IN HEAT AND POWER SALES
The sale of the Company’s products is subject to significant seasonal fluctuations. In the period from October to April the demand for heat is much higher than in other months. This means that the possibility to generate electricity in the combined system is also seasonal.
The Company does have the technological capacity to generate electricity also in the period of a lower demand for heat (through the so called "pseudo-condensation") but this has been significantly limited since 1 July 2007, i.e. after ratification of another revision of the Energy Law, due to the requirement to keep the minimum gross efficiency of transformation of chemical energy into electricity and heat in the cogenerated system at 75%.
In 2017, EC Wrocław achieved the efficiency of 84.9%, (82.5% in 2016), while EC Czechnica achieved 76.2% (78.0% in 2016).