The future of a major new Polish coal power plant is in doubt after a court ruled that corporate approval to build it was illegal.
A district court blocked consent for the plant, Ostrołęka C, following legal action by advocacy group ClientEarth, which sued as a minority shareholder in Polish energy company Enea.
The ruling marked the first time a company has been sued for failing to manage climate-related risks as part of a major investment decision. It was also the first time a non-governmental organization has used its position as shareholder to bring climate litigation in this way.
Enea officials did not respond to a request for comment on the ruling. But the company can appeal the decision to a higher court, try to submit another resolution or could theoretically build the plant anyway.
Enea had planned to build the 1GW coal-fired power station in northeast Poland as part of a joint venture with another Polish energy firm, Energa. The Polish state treasury has a controlling interest in both companies.
ClientEarth challenged Enea’s decision to approve the construction of Ostrołęka C on two main grounds: that it was an illegal instruction to the company’s board and that it posed an unjustifiable financial risk to shareholders because it did not take climate change properly into account.
The court found in favour of ClientEarth on the first ground, ruling that construction approval interfered with the management board’s exclusive competence to run the company. This breached the Polish Commercial Companies Code.
This success made it unnecessary for the court to consider whether the decision would also harm the company’s economic interests based on climate-related financial risks.
ClientEarth lawyer Peter Barnett described the ruling as an “excellent result” for the climate and for Enea’s shareholders.
“The plant is a stranded asset in the making, facing clear and well-documented financial risks,” he said. “Enea and Energa should lay this project to rest before it incurs any further costs to the companies and their shareholders.
“Even though the court didn’t reach its decision based on [climate risk grounds], I think it still demonstrates that large-scale investment in fossil fuel assets that are likely to become stranded will increasingly be challenged in court.”
Barnett said the ruling had another potential implication for liability if the company builds the plant anyway. “If the directors are later challenged on whether they discharged the duties of due diligence and to protect the interests of shareholders, they won’t be able to point to a shareholder resolution approving of their actions,” he said. “Notwithstanding the political pressure, the board members will be ultimately responsible for this decision and liable for any loss caused by breach of their duties.”
Ostrołęka C has proved controversial, with many analysts questioning its financial viability as the world transitions to lower carbon energy to combat climate change.
But there is concern about the project even within the companies planning to build the plant. At Energa’s latest general meeting in June, shareholders questioned the project’s economics. Despite maintaining that it is viable, Energa admitted that “the scale of the investment poses a significant challenge to the closure of its financing.”
The company also confirmed concerns about delays, indicating that Ostrołęka C will face at least eight months of financial penalties for failing to deliver electricity it has committed to under the Polish capacity market. The plant is expecting that market to produce much of its revenue.
Poland’s dependence on coal power has come under attack over the past few years. The country currently generates about 80 percent of its energy from coal, and is only planning to cut it to 50 percent by 2040, a rate far slower than needed to reduce the country’s emissions in line with the Paris Climate Agreement.
Greenpeace Poland has threatened to sue state-owned Polska Grupa Energetyczna (PGE) if it did not stop investing in new coal plants and develop a plan to completely cut its carbon dioxide emissions by 2030.
In June, Poland’s top administrative court blocked permission for another planned coal power plant, saying it had not allowed local communities to have a say on its environmental impacts. That case was also prompted by a complaint from ClientEarth.