Invenergy fight shows why investors should avoid Poland

This week, US developer Invenergy launched legal action against Poland. The firm is claiming damages of $700m following the government’s damaging treatment of the wind sector. This is on top of $325m damages Invenergy claims it is owed by state utility Tauron Polska. We can sum up our reaction in one word: good.

Now for the longer version. We think the Polish government and its utilities deserve to face international fury for the way they are treating wind businesses. They are destroying a promising market, and its investors, because of their ideological love of coal.

Regular Wind Watch readers will not be surprised. We have written repeatedly about the harm visited on wind ever since the right-wing Law & Justice Party took power in Poland two years ago, almost to the day, with an agenda to promote growth in the coal industry.

Shortly after, it delayed and then cancelled the introduction of a tendering system to support wind; brought in a law that increased the distance wind farms had to be built from homes, and ruled out huge areas from new developments; and brought in higher tax rates. These contributed to a fall in total installations from 1.3GW in 2015 to 682MW in 2016, and 62.5MW in the first quarter of 2017.

Fellow coal-lovers President Trump and Australia’s Tony Abbott can only dream of having such an impact.

We can blithely use the word ‘good’, but none of this is good for Invenergy. It has been in Poland since 2005 and built 11 wind farms, in which it invested an estimated $595m. In 2010, it signed a long-term deal with Tauron and subsidiary PE-PKH but, shortly after, it says the pair tried to back out of these agreements.

This came to a head in 2014 when Tauron liquidated PE-PKH, which effectively scrapped the contracts the firms had in place. As a result, Invenergy filed four lawsuits in the Polish courts in July that said Tauron had committed “unlawful and unethical acts” leading to the termination of the deals. We wrote this in July.

But Tauron was not the only one. Invenergy has also won a legal action against the state-owned utility Energa-Obrot, which has attempted to terminate wind deals, and still is.

If that looks coordinated then, according to Invenergy, it is. The company this week told Poland's leaders that it is lodging a claim against the government for $700m under the terms of the US-Poland Bilateral Investment Treaty and Energy Charter Treaty for encouraging this behaviour. If the dispute is not settled within six months, the case would go to international arbitration.

The developer alleges that Poland has taken unlawful and coordinated acts that are “tantamount to an expropriation”, and the country has destroyed the financial viability of several of its investments. It says the government has directed its state-controlled utilities to scrap deals with Invenergy “under various pretexts”, and has driven prices for renewable energy to unsustainably low levels, which has damaged investors.

Michael Blazer, the firm’s chief legal officer, said the “Polish Government’s disregard for the rule of law continues to escalate” and so Invenergy must “secure [its] rights”. He has a point. Poland is facing 11 international arbitration proceedings, and Polish media has predicted that the nation could face a surge of international disputes over the way it has treated international investors.

And the European Commission has raised “grave concerns” that the Polish government is undermining the rule of law.

Are there lessons for investors? Well, clearly avoid Poland like the plague. It does not have the stable legal environment that enshrines respect for companies’ rights. Just last month, Energa-Obrot decided to halt the execution of 22 green certificates and started arbitration proceedings to show the deals are invalid.

This would weaken a renewables support system that has been in place since 2005 and puts many investors at risk of bankruptcy, particularly Polish firms that are solely reliant on their local market and cannot go to international courts. The Polish Wind Energy Association says it is “anxiously watching” Energa’s actions.

We may cheer Invenergy fighting for its rights, but we can still rue the fact that the once-promising Polish market is in an endless downward spiral that only a change of government can reverse.