font_preload
PL / EN
Environment Winter Package 5 May, 2017 10:03 am   

Risks and opportunities posed by the winter package (ANALYSIS)

The winter package released at the end of November 2016, creates opportunities, as well as risks for Poland. It depends on us whether we will be able to use those opportunities while avoiding the risks – writes professor Władysław Mielczarski from the Łódź University of Technology.

Integrated Plans

The EU’s Climate Package requires the member states to draft “integrated national energy and climate plans”. This is a huge chance for Poland to not only think through the directions of development, which so far have been chaotic, but also to use these plans as a starting point for a discussion with the European Commission and the European Parliament on where we are and what investments and time are needed to change it.

In his article for CIRE, Wojciech Dąbrowski, President of the Management Board of PGNiG Termika, was right to point out that “in order not to be reactive, we should first design and then present to the Commission our comprehensive position in the form of a Polish energy doctrine that would be based on proper analyses”. So far our energy decisions, which were often made on an ad-hoc basis, have been questionable, this pertains to such issues like, for example the simultaneous construction of large coal energy blocks in Kozienice, Opole, Jaworzno and Ostrołęka, despite the fact that we need completely different blocks and we are running out of coal. The Baltic Pipe is a similar story – if the project is completed, Poland would have to consume 7 bcm of natural gas from this pipeline and the cost could be even twice as high as the gas from competition, not to mention the fact that west-European companies are offering gas from freed Yamal capacities at a price of USD 150/1000cm in Poland.

Integrated Plans will make us analyze our energy mix to verify whether we can ensure fuel supply for various technologies and finance the construction of new capacities or fuel sources.

Maybe this would force the nuclear power plant project to leave its fantasy stage and be subjected to professional investment analyses, which would put it back on the shelf where it belongs. We also need to ask ourselves to what degree we should base power generation on national hard coal, which is starting to run out, instead of looking for power consumers where they don’t exist like, e.g. electric cars.

When in June 2016,during a conference organized by the Ministry of Energy, I said that the national hard coal reserves would soon end, I was met with vehement denial. My fears were confirmed in a matter of months. There have been numerous press reports about the possibility of Polish coal running out. I do not see anything wrong with producing electricity from hard or brown coal, after all even our Western neighbors produce three times as much electricity from brown coal as Poland while promoting a “green revolution”. However, if we decide to choose coal, we will need to say what kind of coal when we draft an Integrated plan. If it is brown coal it will be possible to increase our capacity by 12000-15000MW, this is equivalent to building new brown coal mines. However, if we decide that hard coal will be our basic fuel, considering its dwindling national supply, we will need to verify import and price options.

If we want to increase natural gas participation in electricity production, we will need to rethink our energy mix and figure out where to buy the gas, in what quantities and at what price. The LNG that we will buy in the US at USD 90-100/1000cm, will actually cost USD 120/1000cm more after liquefaction, transport and regasification. Therefore, we should examine whether this is a competitive price in comparison to the Nord Stream 2 gas our neighbors will offer in Poland. Are we able to legally block competitive fuel? The benefit of Integrated plans is that they force us to seek for answers to questions that we all know, but are not very eager to find solutions to.

Grid operators

Setting up regional grid operators constitutes both a risk and an opportunity. In my opinion the risk is not big because it is the national operator that is responsible for the continuity of power supply in a given area. This means a regional operator cannot force actions that would threaten the security of power supply. If their actions are well coordinated, grid operators and standardized network codes will create opportunities for all grid operators. After all, it was the Agency for the Cooperation of Energy Regulators (ACER) that forced national operators to take into account the limits of electricity flows across Germany and Austria, a problem that both countries ignored for many years causing the so-called loop flows.
Standardized network codes and operators duties will benefit the customers, producers and operators themselves. In the previous political system, which ended in 1989, there were complaints about the so-called “copier laws”. This term defined a common practice where, despite acts and regulations, the energy industry was governed by officials who created their own rules, copied them on photocopiers and then posted them to relevant plants. There was no internet, or e-mail at that time.
Are we sure so much has changed since? Today we have the Energy law and a number of

regulations introduced by different ministers. Nevertheless, 50 to 70% of what is happening in

the industry is governed by various operating and maintenance manuals written by operators

and only partially approved by the Energy Regulatory Office. Is it not a continuation of the “copier laws” in some sense? Therefore, perhaps it would be better if we had standardized grid codes whose goal will be to provide uninterrupted power supply.

The concerns associated with giving too much power to regional operators the laws of physics that govern electricity flows. The direction in which electricity flows when transmitted via alternating current (AC) depends on a number of factors: network configuration, its parameters, amount of power delivery and generation at certain grids. A regional operator can make decisions only on the basis of network models provided by the national grid operator, so everything stays under national control. Also, despite the fact that the regional and European markets offer a number of advantages, their practical implementation will not be determined by directives and regulations. It will depend on the ability to transmit electricity in desired directions and amounts. This means that without high voltage direct current connections, the European market will never increase its transnational exchange over 10-15%.

Pic. 1 shows an example of flows on AC connectors (without phase shifters) with Germany, Czechia and Slovakia and on DC connectors with Sweden, AC with Lithuania, but with a back-to-back station in Alytus, as well as an islanding at the Dobrotvir power plant in Ukraine. The picture shows that the DC connections are under full control and real flows are close to the planned ones.

Picture 1. Example of planned and real energy flows based on Energy Regulatory Office and grid operator data.

Some operators are getting the hang of this and are starting to expand DC connections, e.g. a newly constructed connection between Germany and Belgium, as displayed in pictures 2 and 3. If it is windy in Germany and electricity prices drop, Belgians will buy cheaper energy, but only as much as they want because the DC link ensures full control over the flow. By buying cheap power, Belgians will also save their neighbor from blackouts.

 

Picture 2. DC connection between Germany and Belgium. Source: http://www.elia.be/en/projects/grid-projects/alegro/alegro-content

 

Picture 3. Germany-Belgium electric grid overlay. Source: http://www.elia.be/en/projects/grid-projects/alegro/alegro-content

Improving efficiency and renewable energy sources

While the proposed improvements to energy efficiency are extremely beneficial to Poland, upping renewable energy targets brings about high costs and transfers 50-60% of subsidies abroad, even if the target is achieved through co-incineration. There is a lot of potential in Poland to decrease energy consumption especially in the utilities sector and households.

More than 70% of buildings in Poland are either incorrectly insulated, or not at all. This is usually caused by poverty. Six out of ten most polluted cities in Europe are in Poland, the remaining four are in Bulgaria. Additionally, we have hundreds of outdated heating plants, some of which can be rebuilt as highly efficient co-generation.

On the other hand, according to data from 2015, we spend PLN 5 billion on subsidies for renewable energy sources each year. The majority of this money it transferred to foreign companies as Poland does not manufacture renewable energy installations. This created about 30 thousand jobs in the renewable energy sector, so it can be easily calculated that each such position is subsidized at the level of PLN 13 000 a month.

The Polish diplomacy should be very active, not reactive, when it comes to this issue. We should suggest settling joint emission reductions, e.g. improved efficiency, decreasing low emissions and green energy generation targets. The UE adopted an ambitious plan to increase the share of renewables to at least 27% of energy production by 2030. In Poland that will be about 25%. It is a lot. Achieving this target will require a major overhaul of the energy system and the way it functions.

Bidding zones

Bidding zones are perceived as an attempt at exporting the surplus of energy produced in wind farms to other countries. The developing offshore wind power and the location of a substantial number of wind farms in northern Germany put the country’s grid in a very difficult place, see picture 4.

 

Picture 4. Energy balances in Germany in early 2017.

When there is no wind a significant negative energy balance appears, e.g. on 22 January 2017 it amounted to 26% of the entire demand, while a few days later, on 1 February, the production surplus was at almost 50% (47%) of the entire demand.

It is difficult to manage the grid in such conditions and black-outs that may have a negative impact on entire Europe may occur. Improving the balances would be possible if Germany built a few north-south power lines. However, such projects are not likely, not least because of ownership interests in the German grid.

A bidding zone between Poland and northern Germany does not have to be bad for us. Everything depends on the details. When the wind is strong in Germany and the energy price is falling (even to negative values), we can purchase that electricity. When there is no wind, we can export electricity to Germany at reasonably low prices. It is no secret in Europe that the Dutch and Belgians are keen to implement such solutions in their area. Can it have a negative impact on the Polish energy system? It seems unlikely. We are starting to run out of coal anyway. Our 200 MW blocks after a light lifting may work during peak demand and off peak demand. This is why we should not reject any solution and make sure what is beneficial for us.

Capacity market

The winter package spurred controversy in Poland because it includes a rule, which says that generation capacities emitting more than 550gr/kWh will not be eligible to receive public financing through the capacity market. It is believed that this rule is especially detrimental to Poland. This lamenting clouded the fact that the regulation pertained only to new units, while we want a capacity market for old units only, which means the rule applies to a very limited number of cases here, or not at all. The capacity project that the power plants prepared together with PSE SA and is currently being presented by the Ministry of Energy is a disposable attempt at reinventing the wheel. We are increasing funding for the Operating Reserve up to PLN 1-1.5 billion annually and the capacity market is unnecessary. This is even more true because it needs to be notified by the European Commission, which will take at least two years and by then when the new units in Kozienice and Opole will have been opened and no capacity market will be needed.

The discussion was restricted to the subject of the capacity market. However, the problem is much more complicated. How should the electric power industry function with huge stranded costs, which are not only becoming a permanent part of the system, but are also growing?

A few years ago two phenomena were noticed and defined: missing money and missing capacity. The first one is about the existing generation capacities, which because of their short term working period are not able to cover all the costs from market profits. This short working period is caused by subsidized renewables which also have a priority entry into the grid. Missing money is part of stranded costs that cannot be covered as part of a normally functioning system. This is similar to missing capacity.

Stranded costs increase every year. This problem impacts the maintenance costs of the grid, which is used less frequently because facilitated distributed generation on the level of the distribution network, contributes to the declining use of the grid. A similar development is visible in distribution networks. Generation, eg. prosumers or creation of real clusters that have physical balancing, causes a situation where networks with higher voltage at 30kV and 110kV are not used, while network costs are mostly fixed. Whether we use the network at 1% or 20%, the cost is more or less the same. The losses might vary a little, in the transmission system losses are at 2.1%, whereas in the distribution networks they are at 7-8%, provided there are no substantial thefts.

If the new paradigm in the electric power industry is all about distributed generation and active distribution or pro-consumer systems, we need to think on how to include energy security in it. Most of all, we need to ensure the continuity of power supply and costs that need to be incurred and will be growing each year. See picture 5.

If we optimistically assume that distributed generation will provide for itself energy at 90% and for 90% of the year, for the remaining 10% of the energy and 10% of the time, we still will need to sustain throughout the year (8760h), a transmission system and ready to go energy system generators.

 

Picture 5. Development of distributed generation.

For the next 20-30 years, we will be paying twice: for the development and usage of the distributed generation assets and for the stranded costs in the large-scale energy industry, because the existing system will not change quickly.

These are the basic problems the electric power industry will need to face in the nearest future and they should be solved by energy producers, transmission and distribution network operators as well as state institutions, including the Economic Committee of the Cabinet. These problems are difficult. However, we should make an effort to understand them because without a continuous supply of electricity, neither the society nor the economy will be able to function, least of all start-ups.

Source: CIRE.PL

 

See also