During the European Economic Congress in Katowice a Polish ministry exchanged its ideas about the compromise on the common energy and climate policy with the European Commission. The discussion included proposals of solidarity mechanisms, but also poplars, volcanoes and Soviet Russia.
New EU ambassador to Russia: German diplomat who will protect Nord Stream 2?
A German diplomat will be appointed as EU ambassador to Russia. He will promote a reset with Moscow and may contribute to the success of Nord Stream 2, which is criticized in Poland and other EU countries – writes Wojciech Jakóbik.
Macron’s political victory and cyber defeat
France has a new president. However, we need to remember about another important issue. The state of emergency in the country has been put in place a long time ago. The streets of major cities are patrolled by the military and people are afraid of bomb attacks. Recently a new threat has been added to the list: cyber attacks.
Nord Stream 2: Who is paralyzing The Comission?
“Russian propaganda, regrettably followed by Western media, keeps reiterating that the fate of Nord Stream 2 has been sealed by the approval of Jean-Claude Juncker, President of the European Commission, and the opinion of the Commission’s lawyers, who claim that the controversial project need not be subject to the EU law. This is not true. The Commission is concealing documents on this issue” writes Wojciech Jakóbik, energy analyst from Poland.
The Nord Stream 2 project involves construction of another gas pipeline from Russia to Germany, under the Baltic, which will pose a threat to security of supply, internal energy market development and diversification in Central and Eastern Europe. This is why it is criticised by Poland, the Visegrád Group, Baltic states, Romania, and Croatia. Also, a clear legal assessment has been demanded by Denmark and Sweden, which in 2017 may have to make the decision on granting consent for the gas pipeline to run through their territorial waters.
The future of the project depends on whether Nord Stream 2 would be governed by the EU legislation. If Gazprom needs to bring it into compliance with the EU law, its completion scheduled for 2019 may at least be delayed. For critics, Poland included, this would mean time for putting forward an alternative solution, such as the Norwegian Corridor. In this scenario, however, the political and economic cost of Nord Stream 2 might exceed the willingness of Moscow and Berlin to push forward with the venture.
Unofficial information has been spread in the media by EurActiv.com, concerning Jean-Claude Juncker’s alleged support for the controversial gas pipeline. The éminence grise behind this described on the BiznesAlert.pl website is Martin Selmayr, the unofficial Berlin spokesperson in the EU Commission.
It is uncertain whether he exerted influence on Juncker and, if so, whether it was in the fulfilment of the declaration made by Sigmar Gabriel, German Vice-Chancellor, during his visit to Vladimir Putin, Russian President, in October 2015. On that occasion, the Vice-Chancellor assured Putin that he “would not allow the European Commission to interfere” with Nord Stream 2.
The Commission did interfere, but in fact it is struggling with an internal conflict between its fractions which represent diverging views on the project. It is carefully kept secret by Juncker. On Twitter, the leading role is played by the spokesperson of the Nord Stream 2 consortium, who is creating a reality trying to convince Polish commentators that the legal dispute over the project has already been resolved and all attempts to establish the truth aim at “politicising” it. This is not the case. It is the policy of the project advocates, who might have gained influence on the Commission, that prevents transparency of debate on the issue. Brussels has the goods on Nord Stream 2 but is not willing to reveal the facts. In this way, it defaults on its obligations as an institutional guardian of treaties and its inactivity is used by the constructors of Nord Stream 2 to pursue a policy of fait accomplis. Is it Germany that acts as the power behind?
Nord Stream 2 has to be governed by law …
On February 24th 2017, Dominique Ristori, Director General of the Directorate General for Energy (DG Energy) within the European Commission, sent a letter to the German energy market regulator, Bundesnetzagentur (BnetzA), in which he stated that the law of the European Union “clearly applies to any on-shore infrastructure”, and the Gas Directive, Security of Gas Supply (SoS) Regulation and the related Network Codes are applicable as well. The DG Energy’s lawyers and experts are involved in the development of EU regulations and draft documents in the area of energy.
Mr Ristori also emphasised that off-shore sections of new infrastructure “cannot” be, by way of an exception, built and operated under a third country’s law (the law of Russia in the case of Nord Stream 2) or in the “legal vacuum”. Director General Ristori recommends that a “specific legal regime” should be created for the subsea section of the Nord Stream 2 gas pipeline to remedy the problem.
In this context he expects that the transparency of the pipeline’s operation should be ensured, tariffs should be set in a non-discriminatory way (by an independent operator, definitely not Gazprom), appropriate third party access should be provided (Gazprom must not monopolise the transmission capacity), and the required unbundlingof ownership should be guaranteed (Gazprom must not be both a supplier and the operator). Dominique Ristori called on BnetzA toput in place appropriate regulatory framework for Nord Stream 2 in line with the guidelines described above.
Mr Ristori based his position on DG Energy lawyers’ opinion dated January 15th 2016, which was already discussed in Politico.eu. Nevertheless, the opinion remains undisclosed by the Commission. It follows from the opinion that “the general guarantees under the Third Energy Package would apply to that section of Nord Stream 2 which is subject to the EU territorial jurisdiction”. The document enumerates the issues referred to above: third party access, independent tariff regulation, and ownership unbundling.
Importantly, DG Energy assessed potential conformity of Nord Stream 2 with the EU law based on information which is currently available, and which the Commission believed to be insufficient, as stated by Maroš Šefčovič, Vice-President of the European Commission. In the opinion of DG Energy lawyers, the currently suggested structure of Nord Stream 2 would not guarantee third party access to the transmission capacity and gives Gazprom monopolistic position in exports over the pipeline, with the prospective tariff regime unknown as well. What is known is that the Nord Stream 2 consortium could be the operator of the pipeline only if Gazprom and its European partners, if any, reduce their equity interest from the current 100 percent (held by Russians) to an “entirely passive” minority interest, which would guarantee independence, though still might be objected to by the Polish Office of Competition and Consumer Protection.
…but Russia would have to create the law
To change this situation, Russia would have to amend its legislation to remove its inconsistencies with the EU regulations. DG Energy stresses that this is not a legal problem; however, from the political perspective, the demand that Russia should amend its law in order to respect the EU regulations “adds sensitivity to the issue”. Thus DG Energy admits that Russia may not be willing to subject itself to the EU legislation. “An international agreement between the EU and Russia would be the best solution” to establish the legal regime for Nord Stream 2.
However, the Directorate states that such agreement can be perceived as politically impossible. Therefore, a compromise is also suggested in the form of a treaty between Russia and the countries whose territorial waters would be crossed by the pipeline (Germany, Denmark, Sweden and Finland). It is emphasised that any compromise excluding the full application of the EU law would be legally disputable.
Importantly, DG Energy refutes Nord Stream 2 supporters’ argument that the project is just an extension of Nord Stream 1 and if the first gas pipeline connecting Russia with Germany is not subject to the Third Package, than its subsequent legs do not have to, either. In the case of Nord Stream 1 westward extension, the vertical integration model was used, under which an entity related to suppliers was able to remain the operator, with the competencies separated through a system solution rather than ownership unbundling. However, DG Energy points out that this solution was subsequently criticised by the European Commission, and BnetzA’s suggestion that a similar structure should be used for Nord Stream 2 is yet to be responded to by Brussels.
Germany: It is not possible to make Nord Stream 2 subject to the regulations
BNetzA responded to Dominique Ristori’s letter on March 3rd this year. It expressed an opinion that Nord Stream 2 would be governed by “German regulations of general application” and that it is not necessary to create a separate legal regime for the pipeline. Furthermore, the Germans stated they believed that Nord Stream 2 should not be subject to the Third Energy Package in whole because its onshore section is only a small, a few kilometres-long part of the project. In BNetzA’s opinion “offshore gas import pipelines are not subject to the Third Energy Package.” The authority cited Nord Stream 1, Green Stream and MEDGAZ as precedents, in the case of which the Third Energy Package regulations were not applied and referred to a relevant opinion given by lawyers from the European Commission’s Legal Service.
In practice, the Germans passed the buck to Brussels. According to BNetzA, the operator is not competent to develop the “quasi-regulation” and it is the responsibility of the European legislation. At the same time, BNetzA emphasised that it hoped to have legal clarity regarding Nord Stream 2 as soon as possible.
The conflict of laws could be remedied by an EU-Russia arrangement
Germans of BNetzA made reference to an internal opinion by the European Commission’s Legal Service of December 2015 which for unknown reasons has not been revealed to the public by the office of the President of the European Commission. It remains unclear whether that was the effect of an action taken by Mr Juncker or Mr Selmayr, but there are concerns that attempts might have been made to hush up the dispute concerning Nord Stream 2 in order to push the project ahead by means of a policy of accomplished facts.
Employees of the Commission’s Legal Service are of a different opinion than those from DG Energy. From their point of view, Nord Stream 2 should be classified as a “transmission line”. Since its purpose is to connect the Russian and the German gas transmission systems, the lawyers say that the pipeline is an “interconnector” as defined in Article 2 item (17) of the Gas Directive. They note that according to DG Energy, Article 36 provides the basis for exempting new infrastructure from the regulations of the Third Energy Package (subject to a number of conditions), if the infrastructure comprises interconnectors.
However, in their opinion, failure to exempt Nord Stream 2 from the requirements of the EU law leaves it in a worse position compared with the gas pipelines connecting gas systems inside the European Union, and “there is no objective rationale” why this should be so. For this reason, advocates of Nord Stream 2 claim that any attempts to apply restrictions following from the EU law to the pipeline are designed to turn the dispute into a political issue.
Employees of the Commission emphasise that the Gas Directive contains no provisions which would impose an obligation on a national regulator (in the case at hand – BNetzA) to apply any specific legal regime to interconnectors. In accordance with Article 11 such regime should be introduced in a third country over which the “German authorities” have no jurisdiction. Authors of the opinion concede that in view of the fact that the Gas Directive does not include the requirement to implement the Third Energy Package with respect to gas pipelines connecting member states with third countries, the EU law does not provide any mechanism to achieve this goal in the analysed case. For this reason it will be difficult to impose the EU legal regime with respect to Nord Stream 2. In their opinion, we are dealing with a “conflict of laws”, which should be resolved by means of “international negotiations”. The document was signed by Luis Romero Requena, Director General of the European Commission’s Legal Service.
One-sided media coverage and Commission’s concealed documents
Ever since the article describing a dispute within the European Commission over possible application of EU laws to Nord Stream 2 was published in the Financial Times, the overwhelming majority of media reports suggest that the pipeline status has already been decided. Attempts are being made to convince the public that the project’s rationale is purely economic, but for unclear reasons it seems to paralyse the Commission and divide the European Union, which in itself proves its political underside. Critics of the project, on the other hand, are accused of politicising it merely by demanding information.
Meanwhile, the European Commission has not adopted any official stance on the issue, which remains a bone of contention, and the only information leaked to the public tends to support the Russian side of the story. However, the documents presented above do not admit of any straightforward conclusions. This lack of clarity provides a case for rigorous legal assessment of Nord Stream 2, as demanded by its critics.
Based on the European Commission’s documents, full application of EU law in relation to Nord Stream 2 is possible, but would require a political deal with Russia, which is hardly conceivable. This is an opportune moment to discuss with the European Commission the possibility of communicating such expectations to Moscow. Brussels could force it into compliance with EU laws, if it only wanted to.
The dispute can be resolved in favour of DG Energy and critics of Nord Stream 2, provided there is good will within the Commission. But there has been too little of that even to reveal the documents demonstrating its internal dispute over Nord Stream 2.
Facade concessions by Gazprom
Another source of concern is the attempt to amicably settle the antitrust battle between Gazprom and the European Commission, without imposing any specific obligations on the Russians. The currently tabled proposal is only a facade, albeit the media present it as a way to civilise Gazprom and an argument in favour of green-lighting Nord Stream 2.
The European Commission has unveiled the proposed terms of settlement agreed on with Gazprom in the course of the antitrust investigation. They offer no chance of improving the position of Poland, or other CEE countries. At the same time, they would not harm Gazprom, which would escape a penalty and would only formally confirm its readiness to behave more flexibly on the market, which it has in fact done for years.
The Commission and Gazprom have agreed that, to avoid a fine to the tune of 10% of its global revenue, Gazprom would have to answer three charges: unfair prices, dividing the markets and exerting unauthorised influence on infrastructure. To this end, it would have to indeterminately link its pricing formula with an unspecified European exchange, and allow free gas flows over the infrastructure it can influence (in the Baltics and Bulgaria). As such influence in the case of the Yamal Pipeline follows from an intergovernmental agreement between Poland and Russia, no decisions favourable to Poland could be made during the proceedings. This could be ensured by an amendment to IGA, allowing EC to review intergovernmental agreements.
Since the shale gas revolution, increase in global gas supply and improved access to alternative gas sources, Gazprom has been forced to offer more flexible terms to its customers. Pricing formulas have been revised in the case of Western European buyers, and re-export bans blocking free gas flows are gradually being scrapped (e.g. from the contract with PGNiG − five years ago, in 2012). Gazprom is selling out of its interests in gas transmission infrastructure in Lithuania and Latvia, in accordance with the Third Energy Package and its antitrust measure prohibiting simultaneous management and transmission of gas over a pipeline.
Gazprom’s commitments can thus be regarded as a not too costly facade. If they are accepted, following a market test in seven weeks’ time, the Russians would face no sanctions for their past anti-competitive behaviour. This would be a lenient approach compared with the tough treatment of Microsoft, which was made to pay fines. The settlement deal is being criticised by Poles from PGNiG, but also by the European Parliament Committee on Industry, Research and Energy (ITRE), which includes MEPs from various countries.
Who is paralysing the Commission?
For a year, the European Commission has withheld documents testifying to a disagreement over Nord Stream 2 among its very members. Furthermore, it has not made any categorical demands on Gazprom during the antitrust probe. You could add to that list the approval for increased use of existing infrastructure to support Gazprom’s further expansion in Central and Eastern Europe, i.e. the OPAL pipeline decision of October 28th 2016. Its implementation has been temporarily suspended pending claims filed by PGNiG and the Polish government to the Court of Justice of the European Union.
In the light of those facts it is not unreasonable to ask whether Brussels is in fact paralysed by German influences, which would fit in with the pledge given by Vice-Chancellor Sigmar Gabriel to Vladimir Putin, as stated in Kremlin records.
Polish energy policy is unpredictable (interview)
In an interview with BiznesAlert.pl, Beata Stelmach, CEO of GE Poland talks about innovations in the power sector and energy security in the context of EU’s ambitious climate policy.
BiznesAlert.pl: How does minister Morawiecki’s „Responsible development plan” create opportunities for GE in the area of innovation in Poland?
Beata Stelmach: We are currently celebrating 25 years of GE in Poland; our annual R&D expenses here amount to USD 100 m. This proves that together with Polish engineers, in Polish labs under the GE banner, we implement very advanced projects that are utilized for the corporation’s global needs. These mostly include initiatives in the aviation sector where our engineering center EDS employs almost 2 thousand engineers who participate in designing, testing and improving the latest aviation engines or their parts. However, innovative solutions are also created by the conveyor belts. In Poland, GE produces generators as well steam turbines. We respond to both, economic and environmental challenges. We are ready to introduce technologies that are currently indispensable. We do not assess which technologies are better, be it wind, natural gas or coal. Every state, every market has its own preferences, strategies and challenges. Today’s competition is about delivering advanced and innovative solutions that our clients expect. No turbine, generator, wind farm, aviation engine, or other advanced equipment functions without sophisticated software that allows to better and more effectively use a given technology, manage an entire fleet, forecast unplanned events, malfunctions, or prevent delays in repairs. This means producers are looking for solutions to improve the effectiveness of the delivered technology. In case of coal plants, an improvement in efficiency by 1% means a decrease in carbon dioxide emissions by 2%. In practice this means a new 1000 MW block uses over 100 thousand tons of coal a year less (and emits 180 tons of CO2 less) than an older generation block. GE’s technology allows an average power plant to improve its efficiency even by 1.5% through digitalization alone. And this means real savings.
Technology is just one side of the coin, we also need political decisions to point us in the right direction. Is it possible to advance energy security on the basis of EU’s climate policy?
Over a billion people around the world don’t have access to electricity at all, so the first thing we need to do is level out this disproportion. We are present on 180 world markets, so we always have to follow a strategy that is implemented in a given place. As a technology provider we respect the local political and legal situation. As much as 40% of world energy is generated from coal and considering the existing deposits of this raw material, it does not seem likely we will stop using it in the nearest future. Our goal is to propose solutions that are safe, have an acceptable price and limit negative impact on the environment. After all, the modern technologies in coal power plants are completely different from those from 20-30 years ago. Poland’s problem is that a large portion of its power infrastructure in outdated and needs to be either modernized or replaced. The new solutions offer greater efficiency, and thus respond to calls made by regulators and environmentalists to protect the environment. When it comes to the decisions about investments that are being made in Poland today, I think that as long as they are about choosing smartly the latest available solutions, they will be justified. It would be wrong if investors chose solutions from older generations at the expense of quality. This would mean Poland is investing in something that is old from the get-go. I call it the benefit of late entry: today we can introduce state of the art technology into our economy.
At the EuroPOWER conference you mentioned that the Polish power sector is running out of time. This is because according to different estimates, in 2019 we will be already at risk of energy blackouts. On the other hand, it is difficult not to talk about the cancelled tender for the construction of the power plant in Puławy. Suddenly it turns out that instead of a gas block, a coal one will be built. How does GE see this investment? Will you participate in the new tender, but this time for constructing a coal block?
As a provider of world class technology, we always respond to the existing demands. We are interested in projects that can contribute to better quality energy, including new generation coal blocks. What you are asking about is the consequences of protracted decision processes. It is true that energy demand in Poland is on the rise and simultaneously we will not avoid the need to shut down outdated blocks. Therefore, there is no time to delay investments. However, the array of solutions is very wide and even the „Responsible development plan” talks about, e.g. distributed power generation. The construction and project preparation cycles differ and depend on whether the investment is about huge conventional blocks or distributed power generation with small centers. So, I think that this is a question especially to our energy companies and investors who are responsible for power supply. All of these decisions need to be coherent. Naturally this is costly because such projects are not cheap. All Polish concerns are on the stock exchange, so investors are interested in rational investment decisions. It is not good when an ongoing tender that is about to close is abruptly called off. At that point, the participants – both the tender organizers and the bidders have already incurred certain costs.
So can we say that GE was surprised by the Puławy Power Plant’s decision? Are you expecting a similar change when it comes to the expansion of the Żerań Heat and Power Station?
As long as the game is on, we believe we can participate in it. We are sure that our experience as well as our verified, state of the art and innovative technology, which is produced in Poland to a high degree, can also benefit the Polish economy. Naturally we have to face our competitors and respect the free market rules. So, we will see what projects will crop up in the nearest future. We are ready to face each and every one of them today.
Interview by Piotr Stępiński
Winter package. An opportunity for Polish energy
The winter package, i.e. the EU energy market reform, has been submitted to Prime Minister Beata Szydło. Prior to that, it was discussed at a European Council meeting on 15 December 2016. The debate focused on the widely covered article 23, paragraph 4, included in the draft of the „Regulation (…) on the internal market for electricity” (IME). The article restricts public support offered through capacity market mechanisms for new installations, i.e. generation capacities for which an investment decision, namely a closed construction tender, has been made before the regulation enters into force on 1 January 2020, and which emit less than 550g CO2/kWh. This excludes coal power plants – writes Christian Schnell, Jagiellonian Institute expert.
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
Polish energy industry must evolve (interview)
Jarosław Broda, TAURON’s Vice-President of the Management Board, talks about how Poland is tackling the new regulations that threaten its coal industry. Will Poles keep their energy independence?
BiznesAlert.pl: What are the chances and risks posed by the so-called winter package?
Jarosław Broda: The winter package is one of many proposals presented by the European Commission. In comparison to other European countries, Poland’s energy mix is quite unique, which is why the package constitutes a certain challenge. It is worth to take an in-depth look at this proposal. In my opinion, we should pay attention not only to what is so visibly present in the debate, which is emission limits for power plants on the capacity market. We should also examine the propositions on how the Energy Union should be governed.
Among other things, the EC proposed a few ideas whose goal is to regionalize the management of transmission networks and introduce binding rules for state energy policies. An entire array of tools will, at a different degree and time, lead to the centralization of energy management at the European level and will deprive member states of influence on their own energy mix.
It is important for Poland to spell our expectations when it comes to energy independence and our mix. We should also decide how to assess the package. It is also pertinent to outline positive propositions with regard to energy governance at the European level. Certainly, there exist economic synergies between energy systems of various states.
On the other hand, we need to ask what is the „energy independence” you mentioned. Should the Polish power industry rely on its own resources at all cost, or can it rely on the development of new technologies?
The decision about the mix and the doctrine is political and has been quite clearly articulated by the Polish government, which believes our security should be guaranteed by local resources. Today this is mostly coal and I think that it will stay this way for years to come. This is partly caused by the fact that it is impossible to quickly construct new energy blocks, which would boast a technology and scale that would change the energy mix.
However, in the long term it is worth thinking more openly about such resources as water, wind, the sun and biomass that may one day become a foundation of stable power production.
We should take into account two paradigms when thinking about development. In the first one we should not exclude any technologies and ensure open competition between them. The second one should make sure the market decides which technology is the best.
The decision that will determine how to coordinate the mix to ensure stable power supply should be made at the highest level. This responsibility belongs, most of all, to the Polish Transmission System Operator and to the Ministry of Energy. However, to a certain degree, which would be determined by the technical aspects of the Polish grid, I would encourage competition between those technologies.
Still, we cannot forget about the emission limit set at 550gr/kWh. Provided the winter package will actually enter into force, how will we increase our capacity using local resources if we do not have funding precisely because the new investments will not meet the required limit?
The emission limit proposal at 550 gr CO2/kWh is one of the elements of the winter package and stems from article 23 of the „Regulation on the internal market for electricity. The Polish government opposed this quite vehemently. Let’s not forget that the limit is about participation in the capacity mechanism and applies to new units, as well as all other units 5 years after the regulation enters into force.
Three scenarios are possible. The first one, which is the least likely, is that this rule will be introduced without any changes.
A more likely scenario is that a certain derogation will be available. Units that have been already planned, are under construction or received a construction permit will be able to use a derogation from the regulation.
Finally, the third scenario, which is also very unlikely, says that the rule will be scrapped altogether. We need to take into consideration these negotiation variants.
Let’s wait for the final version of the package. Then we will come back to this discussion. Once again I would like to encourage everybody to look at the package holistically. Perhaps it is not the emission limit that causes the biggest consequences for our future decisions on the energy sector.
Maybe a discussion on an ambitious EU climate policy is the right way to go, as it creates a chance for low-emission technologies and innovations to develop? Would the Tauron Group. which put its money on innovations in its strategy, be able to find its foot in a low-emission world?
Tauron, just like any other utility makes an effort to fit into the policy of a given state. This is an unquestionable paradigm. Additionally, we should perceive energy security in a short-, medium- and long-term perspective. There is no technology that would ensure energy security on a short-term basis. This is why we need to think about modernizing 200 MW blocks and completing the big blocks that Tauron is constructing in Jaworzno, PGE in Opole and Enea in Kozienice.
When a long-term decision to change the energy mix is made, new technologies and innovations will appear on the horizon.
Tauron’s strategy and actions clearly show that we want to open up to different, new solutions. The Pilot Maker program is an example, as it encompasses 15 startups that operate in various areas, e.g. customer, distribution and production.
The companies have interesting proposals that can complement the traditional mix. We are also hoping that they will have a competitive price.
Since we are talking about technologies, what is Tauron’s opinion on coal gasification?
Coal gasification is a known technology across the world. There exist several hundred installations of this type.
It’s a pity it is not used in Poland. Such a technology could increase diversification of supply for the chemical industry. It would decrease gas imports for this sector of the economy.
As Tauron we are interested in such cooperation. We would like to learn to use this technology to ensure safer, from the point of view of EU regulations, sales market for our coal production. Developing coal gasification technology is beneficial in areas where it is economically viable.
Interview by Piotr Stępiński