Polish utility sued over financial risk of €1.2bn coal plant [GGP]

Activist shareholders filed a climate lawsuit against utility Enea on Monday*, over a planned €1.2 billion coal plant in north-east Poland.

Plaintiff Client Earth argues the 1GW Ostrołęka C power station poses an “indefensible” financial risk, as rising EU carbon prices and cheap renewables threaten the project’s profitability. The NGO bought a small number of shares in the company to give itself a legal avenue to challenge the project.

The lawsuit puts the Polish government’s support for coal under the spotlight, weeks before the country is due to host UN climate talks.

Poland’s government recently brought forward its timeline for reducing reliance on coal, anticipating it will fall from around 80% of electricity production today to 50% of the mix by 2040.

Ostrołęka C “sits oddly” with this trajectory, said Peter Barnett, a litigation lawyer with Client Earth. “It is a little unclear to us why there is so much momentum in favour of a plant that seems to be undermining clean energy aims and risking shareholder value.”

Client Earth uses a range of legal strategies to hold companies and governments to account for their environmental impacts. “This plant is particularly interesting because there is very widespread market concern about it,” said Barnett, adding that similar arguments could apply elsewhere: “These are the sorts of climate-related risks and opportunities that boards of directors around the world are required by their duties to shareholders to take into account.”

Poland’s treasury has a controlling stake in Enea. Energy minister Krzysztof Tchórzewski attended a “first shovel” ceremony at Ostrołęka on 16 October, saying the plant was of “significant importance for the energy security of this region”.

Minority shareholders are not convinced, however, with 58% abstaining from a special vote called last month on starting construction and 22% opposing the motion. Opposition was even higher at project partner Energa, where 37% of non-government investors voted against going ahead.

Legal & General, a major European investor, has “serious concerns” about the project, Reuters reported. It does not have the option to simply sell its shares, as it is passively invested through an index-linked fund, said the company’s head of sustainability Meryam Omi.

“We don’t believe the companies should proceed with this project until they can provide us with reassuring evidence of its financial viability and the role it will play in meeting the energy security and the carbon targets in Poland and Europe,” said Omi.

Enea and Energa have reiterated their commitment to the project, but have a provision in their agreement to pull out before construction starts if it looks unprofitable.

The project depends heavily on government subsidies to turn a profit, which Brussels may block, according to think-tank Carbon Tracker.

“This could well be the last coal plant constructed in Poland and if it gets built, it is destined to be a financial and economic disaster,” said senior analyst Matthew Gray.

Coal miners are politically influential in Poland. But the energy mix is changing fast: the country has installed 6GW of wind power, overtaking Denmark.

Other Polish utilities including PGE and Tauron are pivoting towards renewable energy, as EU carbon costs rise and clean technology costs fall.

The case against Enea, lodged with a regional court in Poznań, is expected to take about a year to process. It is part of a wave of climate litigation with a broad spectrum of arguments, scales and targets.

New York last week launched a landmark suit against Exxon Mobil, following a three-year investigation, alleging it lied to shareholders about the risks climate action posed to the oil major’s value.

Meanwhile the controversial inauguration of conservative judge Brett Kavanaugh at the US Supreme Court dealt a blow to 21 young plaintiffs suing the federal government for stronger climate action.

The Supreme Court hit pause on their case, which was due to be heard in an Oregon district court on Monday. The government is calling for the top court in the land to use a rare legal device to quash the case entirely.

 *This article originally appeared on "Climate Home News” October 29, 2018

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