PBDI (part of ERBUD Group) started out in road construction but expanded step by step into renewable energy since 2007 - from construction of wind turbine foundations to whole wind farms. Over the past 13 years they constructed over 40 wind farms in Poland and set in place a team of 400 people.
The renewable energy sector in Poland has gone through many ups and downs and you were here to witness them all. How would you summarize the history of this sector?
Indeed, our first contract for the RES sector was in 2007. It only involved construction of wind turbine foundations, but we developed together with the market and acquired new competences quickly to the point where we could construct entire wind farms.
In 2015 we achieved record revenues from wind farm construction. It was a result of the government's announcement to put an end to the support scheme based on green certificates. In that period the goal of many investors was to commission their projects before the end of 2015; at that time we were simultaneously building 11 wind farms.
It is no secret that this thriving segment disappeared over night. Lack of support with green certificates put an end to new prospects and soon afterwards a new, unfavorable interpretation regarding property tax was applied. Grid operators started to terminate long-term power purchase contracts with investors, and the so-called Distance Act was adopted bringing the development of new wind projects to a complete halt. All this led to investors' confidence in RES projects in Poland virtually dropping to zero and there were no reasonable reasons to have any hopes for the market to recover.
So how did you manage to survive the investment gap after the abolition of the green certificate-based support scheme?
First of all, we continued to be active in our traditional road construction market segment. We also looked for orders in other sectors, including agriculture, where we were building infrastructure for agri-food processing, such as silo foundations. Over that period we were able to rely on Erbud Group's orders, participating as sub-contractor at Erbud's construction sites, carrying out earth and road works.
The RES market is characterized by large variability; it is similar to a sinusoid. Without diversification of orders from various sectors of the construction industry it would not be possible to stay in the market in the long term.
When did prospects for new orders in the RES segment reappear?
At some point it became obvious that Poland might not be able to meet the 15% target for renewable energy sources in 2020. This was the core reason why the auction scheme was introduced (the first one took place on December 30th, 2016).
There were essentially two big arguments against wind in the past: that it is expensive and not stable enough for the grid. But the sector has evolved in a way which makes both points obsolete.
First off, the recent auctions have shown that wind energy is cheaper than traditional fuels and secondly solar has kicked off in a massive way - with both segments running the grid is nicely balanced, which was never the case in the past. I guess these changes made our officials realize there is no other way forward.
Some of your peers mentioned that developers felt pressured to bid lower prices during auctions just to get their projects across or extend their connection agreements…
I do not actually think they were underbidding. I remember this was the case at some point in Italy, but in Poland developers are very cautious because they have to pay PLN 30,000 for every MW to participate in the auction. If you do not complete the project you lose the money. The market matured and inevitably when this happens prices go down, everybody becomes familiar with risks and can calculate costs better.
The price of wind energy is going down but the number of projects has not increased at the expected pace - in many countries this put pressure on the supply chain to lower their costs. Has this been the case in Poland?
Sure, there is some pressure for wind turbine suppliers and BOP contractors like us. One thing worth highlighting regarding the auction mechanism we have in place in Poland: the highest 20% of bids are automatically cut off, so if you want to win chances are you will lower the price. The way this plays out is that everybody tries to have super economic projects and cut CAPEX - solutions that work but are also cheap.
However, it has not affected us greatly because we are in contact with investors before the auction. They are well aware construction costs and the prices they put forward reflect them. The issues you are pointing to tend to happen when investors do not ask for quotations in advance and later realize their plan does not work.
You mentioned the issue of “trust” and one can easily tell that the crisis in 2016 shook many industry members. Are you concerned that history might repeat itself?
I am convinced in some degree it will, it is simply how things go in renewable energy. Even in Germany, a country that is very stable compared to others, the market stopped at some point. Things are really good now but I see it as a window of opportunity. At some point the market will slow down agai
Maybe the 10H rule will be amended but there will be a gap in the market nonetheless. Going forward the biggest risk I see is related to grid connections. There is a limit to the quantity that power lines can absorb, considerable investments are needed and frankly I do not see this being treated as a priority from a political point of view.
What then is the plan to make the best out of this window of opportunity?
In a nutshell, an open approach towards customers. When we start a project we are in the same boat: they want to generate power as soon as possible and we want to finish construction and move on, rather than create additional costs. Happy customers, in other words, are our best bet.
