PUMPED STORAGE HYDRO POWER PLANT MODERNISATION

Rehabilitation and modernisation of 500MW pumped storage hydropower plant located in southern Poland. Works concern a major overhaul of the electro-mechanical and control equipment as well as the renovation of the upper artificial reservoir's sealing, water conveyance tunnels and hydraulic steelworks. This is an allocation under the framework loan (FL) 2023-0621 - PGE REPOWEREU FRAMEWORK LOAN.

The modernisation and refurbishment of a pumped storage hydropower plant supports national and European targets related to renewable energy production, and thus contributes to combatting climate change and security of energy supply objectives of the EU. The project is therefore eligible under Article 309 (c) common interest in energy (renewable energy) and also contributes to the environmental protection (tackling climate change). The project is in line with the Bank's priority objectives for energy sector lending in the EU related to renewable energy sources and climate action.

Investment in the project will finance the modernisation, and therefore the long-term deployment of pumped storage hydropower capacity in Poland, supporting the EU's goal of meeting net-zero by 2050. The steep increase in intermittent RES, mainly wind energy and photovoltaic (PV), which started 10 to 15 years ago, requires a strong increase of flexibility in the grid, including storage capacity, frequency and voltage regulation, which can be provided by pumped storage hydropower plants.

Storage technologies act as enabling infrastructure in the energy transition and contribute towards increasing security of fuel supply by reducing dependency on energy imports and ensuring price stability. Security of supply can be considered as a public good, which is not always effectively reflected in market prices.

The financing of this project is in line with the Bank's energy lending policy by supporting the energy transformation as enabling infrastructure (networks, storage) for the integration of renewable energy sources. Thereby also transversal objectives on Climate Action (mitigation) are met by the project.

By enabling the increased deployment of intermittent RES the project also addresses negative climate and environmental externalities, a market failure, through the reduction of carbon and air pollution, compared to generation and provision of grid system services based on fossil fuels.

In terms of project results, the Project is expected to have a positive economic rate of return, considering the economic value of the electricity generated. Therefore, the project is expected to generate a positive broader social benefit by generating clean and renewable electricity at a cost (LCOE) reasonably below the cost alternatives in Poland.

The project is supported by adequate governance and capabilities of the promoter.

The Promoter appreciates the terms provided by the EIB. The long tenor of the EIB loan (18) is well in line with the economic life of the underlying electricity assets and it is perfectly suited to finance investments with long payback period such as the Project. The funding of similar maturities is not available on the Polish market. Customised terms such as flexible drawdown over the long availability period and possibility to fix/covert interest rate are of value to the Promoter because of the multiannual Project's implementation period. The EIB involvement will send a strong signalling effect to other financiers that EIB is standing by to support the decarbonisation of the Polish energy sector.

The projects may include components that fall under Annex II of the EIA Directive (2011/92/EU) as amended by Directive 2014/52/EU, thus required a review by the competent authorities at the planning/consent stage with due regard to the necessity for environmental and biodiversity impact and appropriate assessments. The Regional Director for Environmental Protection in Katowice, as the Competent Authority, approved the project on 12.10.2023 with the comment that no environmental impact assessment (EIA) is required. The project is expected to contribute to climate action and environmental sustainability (CA&ES) objectives.

Contracts for implementation of the works were tendered in three lots in accordance with the applicable EU procurement legislation Directive 2014/25/EU, with publication of tender notices in the EU Official Journal, as required.