UPDATE 1-Poland's PGE and Denmark's Orsted team up for Baltic wind projects

(Adds PGE CEO comments)

WARSAW, Feb 10 (Reuters) - Poland’s biggest power group PGE and Danish counterpart Orsted have struck a deal to jointly develop two offshore wind projects in the Baltic Sea that could generate enough electricity to power four million homes.

PGE, which currently produces most of its electricity from coal, has been discussing the projects with Orsted, the world’s biggest developer of offshore wind, since the end of 2019, PGE said.

Under the terms of the deal, Orsted will buy a 50% stake in each of the units developing the projects for a total of 657 million zlotys ($178 million), the firms said on Wednesday.

They will form a 50/50 joint venture to develop and build the facilities, which will have a combined capacity of 2.5 gigawatts (GW).

One project, with 1 GW capacity, will start production in 2026, and the other, with 1.5 GW capacity, in 2027, PGE said.

Based on current costs, PGE Chief Executive Wojciech Dabrowski told Reuters the total investment in the two projects was likely to be 35-40 billion zlotys.

PGE expects to have at least 6.5 GW in offshore wind capacity by 2040 as part of a shift towards clean energy sources.

It expects power from Baltic Sea wind farms to account for 40% of its generation in 2040, provided its coal assets are carved out as planned.

Poland was the only EU member not to commit to climate neutrality by 2050 when the bloc set the target in 2019, but it has encouraged more investment in clean energy under EU pressure to cut emissions.

($1 = 3.6984 zlotys)

Reporting by Agnieszka Barteczko. Additional reporting by Jacob Gronholt-Pedersen. Editing by Jan Harvey and Mark Potter