EU climate change action may lower PPC lignite unit prices

A European Commission proposal for tougher CO2 emission limits on units qualifying for CAT remuneration, which, if followed through, could stop older lignite-fired facilities from receiving CAT payments for output, threatens to impact the market price of main power utility PPC lignite units included in a bailout-required sale package.

The level of any new CO2 emission limits that may be imposed will be crucial in determining the CAT cut-off point for lignite units.

According to sources, prospective investors considering the PPC lignite unit sale raised questions, during a recent market test, as to whether the units being offered (Meliti, Megalopoli III & IV) will remain eligible for CATs.

A European movement campaigning against the use of coal is growing. This drive includes powerhouse nations and players. In recent comments delivered at the Davos summit, French president Emmanuel Macron said France is determined to lead the way against the use of coal. France, as well as Italy, the UK and the Netherlands have all decided to gradually withdraw lignite-fired units from their respective energy mixes over the next few years.

In Germany, climate change and commitments concerning the withdrawal of lignite units from the country’s grid have developed into key negotiation issues between the CDU and SPD parties in their effort to establish a coalition.

At present, Poland, besides Greece, remains the only firm supporter of lignite use in Europe.

These developments are expected to negatively impact the level of investor interest in PPC’s sale package of lignite units as well as sale prices.

This was exemplified in a sale of lignite units last year by Vattenfal to Czech fund EPH, carried out at a loss for the Swedish company, which was determined to reduce its portfolio’s exposure to coal and lignite.

Based on the old CAT mechanism, PPC received approximately 400 million euros per year. The Meliti unit, part of the sale package, received 13.95 million euros, annually, while the yearly CATs for Megalopoli III and IV amounted to 11.51 million euros and 12.91 million euros, respectively, under the old system.