Energy transition of the Polish economy to take at least 20 years
14 aug 2022
The ongoing war in Ukraine is forcing the energy transition of the Polish economy to be accelerated. There has been an increase in both the number and the value of projects in the pipeline observed in the last few months. The current value of the largest 180 projects, both underway and planned, has already exceeded PLN 300bn. However, it should be noted that the top 80 power and industrial construction companies operating in Poland have a combined production capacity of PLN 20bn per year. So, the limited production capacity of the construction industry will be a bottleneck for these projects that will take at least 20 years to work itself out.
The current value of 180 major industrial and power construction projects, both ongoing and planned, stands at PLN 305bn, which is PLN 50bn above the figure registered in the previous year, according to the findings presented in a report released by Spectis, entitled "Power and industrial construction in Poland 2022-2027". The value of projects already under construction is a mere PLN 28bn, while projects in the tender, planning or initial concept stages amount to PLN 278bn.
The aggregate annual revenue generated by top 80 power and industrial construction companies described in the report amounts to PLN 31bn, including nearly PLN 19bn (over 60% of total revenue) contributed by the segment of broadly-defined power and industrial projects, such as power-generation units, waste incinerators, CHP plants, boiler rooms, specialist industrial systems, renewable energy sources, and transmission networks.
The power and industrial construction sector is still moderately concentrated. Out of the 80 companies covered in the report, the five largest firms account for nearly 35% of the market, top 10 enterprises contribute half of its output, and the 20 largest companies have 66% market share.
Taking into consideration the value of projects underway, the power and industrial construction in Poland has been in stagnation for several years. After it nearly reached PLN 20bn in 2019 and dropped 6% in 2020, the value of projects completed by the top 80 power and industrial construction companies stood at around PLN 19.5bn in 2021. The standstill can also be seen in the level of employment in the industry, which is much lower than it was in 2016.
Low profit margins are a major challenge this branch of the construction industry has faced in the recent years. In 2017-2020, the average net profit margin reported by the 80 companies stood at a scant 1.5% as it was adversely affected by financial problems faced a number of major market players. An analysis of financial results posted by the major companies shows that the industry’s net profit margin improved significantly in 2021, rising to around 6%.
Renewables will play an increasingly significant role in the power sector in the coming years. There has been considerable interest in large-scale photovoltaic and wind energy projects, both from private investors and large companies, some of which are state-owned.
On top changes in terms of production capacity, Poland’s National Power System will also be undergoing massive structural changes in the next 20 years. The fact is that coal-fired power generation units will be much less significant a source as their contribution to net installed capacity is expected to fall to around 20% in 2040, while renewable energy sources will represent a much higher share in electricity generation, topping 30% in 2030 and reaching 40% in 2040. These developments will also require further major investment in power lines.
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