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Energy 3 September, 2020 1:00 pm   

Exchange obligation – a scapegoat of Poland’s coal sector issues

We are in the mids of a dispute on importing energy to Poland. Trade unions want it to be limited, because in their opinion it decreases demand for coal. The government is considering the removal of the exchange obligation, but market participants are afraid of destabilization – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

War over the exchange obligation

Unofficially, in a move to decrease energy imports to Poland, the government is working on cancelling the exchange obligation. This has been widely criticized, including by the President of the Management Board of the Polish Power Exchange (TGE). “It was a huge success when after a very tense discussion, a 30 percent exchange obligation, i.e. energy volume sold on the exchange, was adopted. After six months, the Minister of Energy, Krzysztof Tchórzewski said that the obligation would be upped to 100 percent. Not even two years have passed, and we are back at the table to talk about the obligation because of the energy prices, and at the same time, we want to regulate those prices,” Piotr Zawistowski pointed out. “We are talking about the so-called market coupling. Currently this mechanism is applied with regard to the power links with Sweden and Lithuania. The energy is transferred from areas with lower prices to places with higher prices with consideration to internal mechanisms, market contracts and limitations on energy transmission. Does this mean changing the exchange obligation may curb imports? Actually no, because the regulations on the obligation do not deactivate this mechanism,” he explained at the Forum Gospodarki Energetycznej 2020 conference held under the patronage of BiznesAletrt.pl.

Professor Władysław Mielczarski, who frequently contributes to BiznesAlert.pl, and is an expert on energy, is all for limiting energy imports to Poland. He published an online report, which was drafted at the request of the Solidarity trade union in the Silesian-Dąbrowski region. Professor Mielczarski wrote the report with Dawid Chudy, MA, from the Łódź University of Technology. The document was presented at, among others, the meeting of the Taskforce for the Coal Sector Transformation on 28 August 2020. The authors argue that importing energy, decreases the exploitation of coal-fired power generation, and thus lowers its revenue and undermines the stability of supply. “Offering a significant portion of capacity available on the cross-border links to trade energy, hurts energy security, because it does not leave enough of a safety margin for replacing the operator in case of unplanned events,” the report authors claim. “The significant capacity of cross-border links creates an environment in which subsidized energy is entering into Poland, and energy generation is subsidized in virtually all countries with which Poland has a cross-border link,” they argue in the document given to BiznesAlert.pl. “Imported electricity does not lower the energy price in Poland, but it has a negative impact on the energy sector, because it makes it necessary to subsidize it. This pertains to power plants and coal mines alike, which are bankrolled by domestic energy customers,” Chudy i Mielczarski conclude. Their report was used by coal trade unions to argue for abandoning the exchange obligation. In their opinion, this is the remedy for improving the profitability of the coal sector, because it will decrease energy imports. However, TGE disagrees. At the same time, there are actually arguments supporting the thesis that energy imports improve Poland’s energy security.

The report on the import caused a reaction from Polskie Sieci Energetyczne (PSE), a company that operates Poland’s power grid. It stated that the document included “incorrect or imprecise information, which could mislead entities that operate on the electricity market.” PSE also reminded that “the available capacity can be used by market participants for cross-border exchange of energy, and especially for imports by companies that trade electricity.” In the company’s view, energy import improves instead of harming Poland’s energy security. “The data published on the functioning of the Polish Power System clearly show that currently a guaranteed, uninterrupted supply to domestic customers is possible thanks to the capacities that were made available to import energy,” PSE wrote in the statement. “Apart from compensating the shortages in the capacity of domestic power producers to meet the demand of domestic customers, imported energy also ensures a continuous power supply to those areas in Poland, where there is not enough domestic generation, or where the grid has not been properly developed yet, to make sure those places have access to energy at all times. This pertains to northern Poland, where the continuity of energy supply to customers is aided by links with Sweden (the SwePol connection) and Lithuania (LitPol), as well as the areas near the towns of Zamość and Chełm, where continuity is provided thanks to the link with Ukraine (Zamość-Dobrotwór grid),” PSE added.

According to PSE, “from the perspective of the grid, when it to comes to meeting the needs of domestic customers, import has no negative impact. On the contrary, the power imported by market participants currently facilitates the guarantee of continuity of supply.” PSE also explained that “in relation to the work of the major power plants, the import of power may impact their load, which, in certain circumstances, could impair their technical parameters. However, power producers may eliminate this issue by using available market tools. They can acquire a portfolio of power purchase agreements for their generation capacity with domestic clients, which should be in line with the technical requirements of the said capacity, that need to be met by the power plant and the power grid.”

Despite that professor Mielczarski remains critical of the growing import. “In 2020 energy importers will earn over PLN 500 million. Maybe it would be good to know who they are and how much energy they buy. Is the exchange hiding some secrets? If everything is OK, why the secrecy? There is something wrong with the exchange,” his post on LinkedIn said. The trade unions already have an answer. Dominik Kolorz, who leads the Silesia-Dąbrowski region of the Solidarity trade union, stated that abandoning the exchange obligation will make it possible to limit energy imports to Poland. He declared that on the meeting from 28 August a binding decision on the matter was made.

In order for Poland to become an energy island, which only uses electricity from power plants that run on coal and thus guarantees demand for coal, the country would have to shut down its cross-border connections. Removing the exchange obligation will undermine the liquidity of TGE, which is the maker of Poland’s free energy market. However, even a theoretical ban on importing energy does not mean that Polish coal will be actually used, because in the end it loses to imported coal. This means that a ban on importing energy should be followed by a ban on importing coal to Poland. Isolating Poland from external sources of energy and fuel certainly guarantees that the coal sector and coal-powered power plants will survive. However, it is unknown whether this type of energy generation will be able to ensure low prices, that make the economy more competitive and the household budgets less strained. To sum up, the market participants are of the opinion that removing the exchange obligation will not limit the import of energy. At the same time, decreasing import will not improve Poland’s energy security, on the contrary, it will put it at risk.

To be continued… in Katowice?

The decision to abandon the exchange obligation seems to have been made, at least according to coal trade unions. However, perhaps the government will take into consideration the compelling arguments of TGE and PSE and change its mind? The opportunity for that to happen will come soon enough – on the 2nd of September when the European Economic Congress will launch in Katowice.



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