Independent analysis questions economic viability of TES 6

Ljubljana – An independent analysis commissioned by Bankwatch and Focus published today reveals a number of unsubstantiated claims and methodological mistakes in the investment plan for the TEŠ 6 lignite plant in Slovenia [1]. Correct calculations show that the internal rate of return is in reality lower than estimated by the project promoter, state-owned TES. Had the rate of return been calculated properly, the project would not have qualified for the EIB loan of 440 million euros it is set to receive.

The report, entitled ‘A critical examination of the investment proposal for Unit 6 of the Sostanj power plant’ [2], is a review of assumptions and calculations in the investment plan for the new block at Šoštanj lignite-fired power plant prepared by Dutch consultancy CE Delft [3].

The report highlights several methodological mistakes in the calculations from the investment plan. Lignite prices, lignite consumption at TES 6 after 2028 and CO2 costs have all been underestimated in the calculations made by project promoter TES, while the expected demand for the electricity produced by the plant is overestimated. All of these elements have made it possible for promoter TES to present the Slovenian government and potential foreign investors with a higher expected rate of return for the new block than it is in fact realistically possible.

“Our government conditioned a state guarantee for TES 6 on a rate of return at 9 percent, but this analysis shows that the plant is unlikely to yield even 7%, therefore under Slovenian conditions this project should not be granted state support in the form of a state guarantee,” says Lidija Živčič from Focus. “This also means that the European Investment Bank should not be lending money for this plant, as their loan is conditioned on the state guarantee.”

“With such flaws revealed in the economic fundament of the TES 6 project, the European Investment Bank and the European Bank for Reconstruction and Development now have the opportunity to recognise their initial error and withdraw from a very bad project while they still can,” says Bankwatch’s Piotr Trzaskowski. “There is already a complaint sitting with the European Commission regarding the illegality of tender procedures at TES 6 [4]. Now we are showing that not only this project should be denied public support because it will prevent Slovenia from reaching EU climate goals but also because it does not meet the Slovene government’s conditions for economic viability of this kind of investment. What reason is there left for the EIB and EBRD to stick to a project that can cause serious damage to the reputation of these institutions?”

For more information, contact:

Piotr Trzaskowski
Energy and climate coordinator, CEE Bankwatch Network
Tel: +48509162988
piotr.trzaskowski AT bankwatch.org

Lidija Zivcic
Senior expert, FOCUS association for sustainable development
Tel: +386 15154080
lidija AT focus.si

Notes for the editors:

1. Read more about TES 6 and European public banks’ support for this project: https://bankwatch.org/our-work/projects/sostanj-lignite-thermal-power-plant-unit-6-slovenia

2. The report is available at https://bankwatch.org/sites/default/files/Sostanj-TES6-economics.pdf. The report was commissioned by CEE Bankwatch Network and Focus, Association for Sustainable Development and was prepared with the financial support of the European Climate Foundation.

3. CE Delft is an independent research and consultancy organisation specialised in developing innovative solutions to environmental problems.

Established in 1978 as a not-for-profit organisation, CE Delft remains financially independent and unsubsidised to this day. A wide range of clients – government, industry and NGOs, Dutch as well as international – have already found their way to CE Delft. They recognise the organisation’s expertise and experience and prize its independent attitude. http://www.cedelft.eu

4. Read the complaint submitted by Focus to the European Commission in November 2011: https://bankwatch.org/sites/default/files/Complaint-EC-SostanjPublicProcurement-02Nov2011.pdf