During his latest visit to Poland, the US Secretary of State signed a new agreement on developing a civil nuclear power program with Warsaw. Even though no final decision was made, new arguments for nuclear power emerge, including the contention that without nuclear energy Poland may have to start importing gas via Nord Stream 2 – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
A nuclear deal
The Polish government announced that during Mike Pompeo’s visit to Warsaw, the Government Plenipotentiary for Strategic Energy Infrastructure, Piotr Naimski, initialled an agreement between Poland and the US to cooperate for the development of a civil nuclear power program.
“The agreement will allow Poland to use the experience of the US government as well as the know-how of American companies, to develop the Polish Nuclear Power Programme,” the government informed. This news is important in view of the amendments to the Polish Nuclear Power Programme (PNPP), which say that only one technological partner should be selected to construct all of the units. Unofficially Americans are most likely to become that partner. In June 2019 Poland and the US signed a memorandum on cooperation with regard to nuclear energy. The latest agreement is another step at developing nuclear energy in Poland with help from the US.
The document signed by Minister Naimski decreases the probability that a technological tender for the PNPP will be announced. This procedure should actually start after the update to the PNPP, which is currently in public consultations, is adopted. This suggests that it will be Americans who will be chosen to deliver all of the reactors to Poland, as the PNPP update says that to lower the costs and speed up the transfer of technologies only one provider will be selected. BiznesAlert.pl has already written about the updated PNPP, which includes a timetable for the works that need to be conducted, as well as a financial model. According to the document, the decarbonization of Poland’s energy mix without nuclear power is the most expensive option from the point of view of external costs, especially the EU climate policy, which penalizes CO2 emissions. An energy mix without nuclear energy would generate 30 percent more emissions than one with nuclear power plants (NPP), because the backup capacity for renewable energy would have to run on fossil fuels (in this case natural gas).
Arguments for nuclear energy
The PNPP offers another justification for developing nuclear energy in Poland, which probably guides the decisions of Minister Naimski and other proponents of this technology in the government.
- The amendment to the PNPP says that nuclear energy would allow Poland to keep its currently low dependence on gas imports in check. Today the energy and heating sector needs about 4 bcm of gas a year out of the 17 bcm that are annually consumed in Poland. According to the PNPP, gas consumption in the energy and heating sector will increase to 18 bcm after 2040.
- If nuclear energy is not in the mix “there will be a significant increase in gas usage to produce electricity”. The Ministry of Climate, which is responsible for updating the PNPP, expects the consumption will increase from 20 to 34 percent in 2035, from 25 to 43 percent in 2040 and from 21 to 38 percent in 2045. Government analysts believe this kind of dependence would put Poland at risk of variations in gas costs. “The cost of the entire nuclear fuel cycle constitutes between 10 and 15 percent of the total cost of energy production at an NPP. For instance, a 50 percent price increase in nuclear fuel will cause a jump in energy production costs at an NPP by only about 6 percent. This relationship is inverse when it comes to gas, where 70 to 80 percent of the energy production cost is the price of fuel. This means all major variations in gas prices on the world market will have a significant impact on the costs of producing energy in power plants that run on gas,” the authors of the document explain.
- A scenario where the participation of renewable energy sources (RES) goes up in the energy mix, and where gas power plants work as backup in the transitional period, puts Poland at another risk. “Such a turn of events increases the peak demand for gas between 2035 and 2040. It also significantly limits the usage of the newly build combined cycle gas turbine plants (CCGT) creating the risk of overinvestment and lack of full depreciation of transmission infrastructure and generation capacity,” the update to the PNPP claims.
To sum up, decarbonization without nuclear energy will deepen Poland’s dependence on natural gas by increasing its reliance on the import of this fuel, because Poland is not able to significantly boost domestic extraction, which is at 4-5 bcm a year. A bigger dependence on gas imports will put Poland at a higher risk of variation in prices of this fuel. LNG is said to maintain an attractive price in the coming years, but there is no guarantee that this will continue into the middle of the decade when Poland will need gas to backup RES. Thus, a scenario without nuclear energy would necessitate the development of additional import infrastructure that would guarantee the diversification of supply.
Baltic Pipe 2 or Nord Stream 2?
Today the plan is to build the Baltic Pipe (10 bcm a year), expand the LNG terminal (8.3 bcm a year) and to bring a Floating Storage Regasification Unit (FSRU) to the Gulf of Gdańsk (4.5 bcm a year). In total that is almost 23 bcm annually, which together with the domestic production of 5 bcm gives a total of 28 bcm of gas supply a year. Currently Poland needs 17 bcm a year, out of which 4 bcm is bought by the CCGT sector. Once the demand in this sector increases to 18 bcm a year, Poland will need 27 bcm annually. However, this scenario is based on the unrealistic assumption that the demand outside of these areas will not go up. Thus, new infrastructure for imports, such as Baltic Pipe 2, about which BiznesAlert.pl has already written, or new LNG import capacity will have to be considered.
This plan is doable, but it would face another risk mentioned in the PNPP update, which involves issues with the depreciation of gas power plants in mid-21st century, due to the phase-out of fossil fuels across the European Union. It is doubtful that the entire natural gas in this infrastructure could be replaced with the so-called renewable gases, such as biogas or hydrogen. One of the reasons is technology – the most conservative estimates claim that such gases could be mixed in at 10 percent of the transmission capacity, while the most optimistic calculations top that figure at 70 percent. This may not be enough from the point of view of the infrastructure. It also remains unclear whether in the middle of the 21st century, Poland will need so much gas. The analysts from the Ministry of Climate repeat the arguments of proponents of the EU’s ambitious climate policy, who warn that gas infrastructure cannot be overinvested, because it will only be used in the transitional period. This risk is also visible in the debate on new EU regulations, which will probably lower subsidies awarded to new gas infrastructure in the European Union.
Time for final decisions
Therefore, there is a risk that Poland will have limited possibilities and arguments for the construction of new diversification infrastructure, and will bear additional costs to maintain it without EU support, or it will use the available alternatives. Those include gas supplies from Germany, i.e. the already existing Nord Stream and Nord Stream 2 (provided it is completed). Thus, it may turn out that the gas necessary to conduct the transition in a scenario without nuclear energy may come from Nord Stream 2, which would in the future increase Poland’s dependence on Russian gas again. If the government really wants to avoid this, it should implement the PNPP in line with the schedule, which says that by 2043 Poland will be able to generate 6-9 GW of nuclear power.