It is true that the costs of climate policy in Poland are high, because it remains dependent on coal. Gas won’t change much, because it’s on notice, too. This means we are left with the atom-RES duo, backed up with hydrogen and energy storage. The other side of the coin is the fact that the problems with providing new generation capacities in the 2020s may force Poland to put the 200 MW coal-fired almost-corpses from the 1970s on life support – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
Energy, you had all the time in the world
Poland still generates about 70 percent of its energy from coal. This means up to 60 percent of the cost of power generation at Polish power plants may be caused by the obligation to purchase CO2 emission allowances as part of the EU ETS. In this sense, Greenpeace is right to point out that the high costs of climate policy stem from this neglect. Activists pasted their message over one of the billboards of the Polish Power Plants Association (TGPE) campaign with an EU light bulb, to draw attention to this problem. The campaign says climate policy equals high prices. Greenpeace reminded that this policy could be replaced with coal in the equation, and we would arrive at the root cause of the problem. “We spend 60 percent of our costs on this and we are annoyed that about PLN 13 billion leaked from Poland, and another PLN 250 billion may leak,” Ryszard Wasiłek, president of the TGPE, said at a meeting with journalists, as reported by BiznesAlert.pl. “If this money comes back to Poland, I will be satisfied. If it was in a dedicated fund for wind turbines, PV and gas temporarily, I will be satisfied. This is our money, but it goes to someone else’s budget,” he said. It is worth recalling that money from the EU ETS does return to Poland and for years not enough of it has been spent on the energy transition. This is one of the reasons behind the persistent dependence on coal. On the other hand, the need to ensure security of supply in the absence of new, non-coal-fired generation capacities may condemn Poland to a longer dependence on this fuel and, consequently, to higher costs of climate protection in the longer term.
In fact, the price of CO2 emissions, driven by record gas prices in Europe (i.e. the hostile actions of Gazprom), increased by 150 percent last year and hoovers around EUR 90 per ton. The TGPE proposes three solutions: increasing the supply of CO2 emission allowances in accordance with article 29A of the EU ETS directive, creating a price corridor with an upper and lower limit, or limiting the period of validity of purchased CO2 emission allowances. “If the European Commission realizes that Polish power plants bear 60 percent of the cost of CO2, and even 70 percent, then I think it will be easier for us to convince them to implement one these variants of the reform. I allow various conditions, but let’s not cause a situation, which had already happened, because this is not how the EU ETS should work. If I emit, then I suffer the consequences, but the funds should be accumulated in the country,” said the president of the TGPE. That answers the question from BiznesAlert.pl on the reception of the campaign that, in the opinion of some participants of the public debate, can be perceived as anti-EU. The demands made by the TGPE had been made by the Polish electricity sector in the past and may find allies in Europe, provided there is an appropriate coalition capability. It remains to be seen how this ability will be affected by the information campaign aimed at the Polish market, but which is perceived by the European Commission as directed against it.
The TGPE was supposed to prepare a position on this issue, but the time to comment on the amendments to the EU ETS directive has run out. Fortunately, the Polish Electricity Association, which has been in operation for several years, has been making similar demands for many years. A change in the EU ETS system is possible thanks to Poland’s active negotiating strategy. The very announcement of the reform by the man in charge of it in the European Parliament has already caused the price of the allowances to plummet by several percent. The work is expected to continue until the summer, so it is time for Poland to campaign for the changes. However, even a concession in the EU ETS will not change energy policy priorities, which include the provision of new generation capacity to reduce CO2 emissions while ensuring security of supply: the duet between the atom and RES, as well as gas in the transition period.
Meanwhile, Poland pays a lot for dependence on coal and does not do enough to get rid of it. It plans new gas blocks to be built in the 2020s. However, these sources are also set to be pilloried by European Union’s climate regulations. Poland plans to build five new gas power plants with a total capacity of 3.7 GW. Switching from coal to gas may be dangerous for political reasons, as increased imports may drive up the risk of dependence on supplies from Russia, which will result the so-called gas trap I described elsewhere. This is also a problem from the point of view of climate policy, according to which the European Union must reach climate neutrality in 2050, and the introduction of regulations from the Fit for 55 package, which will be a blow to not only coal, but also to gas.
Carbon Tracker has calculated the cost of capacity contracts for these five gas-fired power plants, four of which have already received this form of support and the fifth, Rybnik, has not yet been approved. “These contracts are more generous than GBP 19 (EUR 22) per kilowatt hour in the UK, EUR 75 per kilowatt hour in Italy, and yet these support mechanisms have also been criticised for their high costs. The price at the last auction in Poland is EUR 87.18 per kilowatt-hour. The costs included in these contracts should be reviewed,” urged Lorenzo Sani from Carbon Tracker in an interview with BiznesAlert.pl. According to this organization, the costs of investments in new gas in Poland will be higher than in renewable sources, and the rising costs of natural gas only aggravate the situation. “Increasing competition from renewable sources will reduce the use of gas energy, and in the meantime, the cost of CO2 emissions will go up,” warned Sani. The record price of gas has driven the price of CO2 emissions as well. They are now at record high and hover at around EUR 90 per ton. “If the Polish government decides to adopt the EU goal of climate neutrality in 2050 and introduce an appropriate policy, the life cycle of gas power plants we are talking about may be only seven years, as mentioned in the report,” warned Jonathan Sims from Carbon Tracker in a comment for BiznesAlert.pl. Accelerating the development of RES would require, among others, the liberalisation of the distance law restricting onshore wind energy. PV and energy storage can count on state support through programs like “Mój Prąd” (My Electricity – ed.) and other solutions. However, the leap to RES and energy storage proposed by Carbon Tracker is also fraught with risks, as storage technologies are just entering the market. “Of course there are risks. Our analysis is based on a cost comparison. We assumed that energy storage costs would fall and gas prices would rise,” Lorenzo Sani said. If the development of energy storage is slower than expected, for example due to supply chain failures identified after the coronavirus pandemic, they may not be sufficient to secure intermittent renewable energy production.
We only have the 200+ left
The alternatives to stabilizing RES are gas, which will have problems from the point of view of climate policy, nuclear power, which is supposed to be available only in the 2030s, or…reanimation of old coal blocks, which for technological reasons are supposed to go into retirement in the coming years. “If the current situation ends, the price of energy will fall, but not CO2. Then our high-emission class 200 units will be at a great disadvantage, but energy security must be ensured. Hence comes the idea of the The National Agency for Energy Security (NABE), which will guide the state policy in this area,” warned Ryszard Wasiłek. “If someone expects we will close these power plants, they are mistaken,” he added. By the way, there is still no definite legislative proposal that would define NABE, which is to create a coal reserve to ensure energy security at the expense of subsidies from the pockets of Poles. That’s where the 200 MW blocks would go. The NABE reform was to be presented at the end of 2020, then at the end of 2021. The general assumptions exist, but a legislative proposal doesn’t yet. However, it seems that the NABE would become a kind of a carbon reserve. First the reanimated 200 MW power plants would be moved there, so that they could close the increasing electricity supply gap.
“The 200 MW class units are an important part of the machinery park at Polish power plants. From the perspective of the transmission system operator responsible for balancing the national electricity system, each available generation unit is relevant to the system. Any permanent shutdown of existing generation units, which could operate in accordance with the law in a longer time horizon, should be carried out only in the case of commissioning of equivalent available capacity in stable generating sources other than those currently under construction,” explained the Press Office of Polskie Sieci Elektroenergetyczne (PSE), the operator of the Polish power grid. “Given the long time and risks to investment processes, it is necessary to start and rapidly build new, stable sources of electricity generation that will fill the balance gap in the period up to 2035 and beyond.
If new capacity isn’t available, the old one will have to do. This is already clear. Power shortages are another factor driving up energy prices in Poland and this trend may not change. The figures on this topic were presented in an interesting way by the Jagiellonian Institute. The lower availability of capacity reserves creates the need to use more expensive balancing offers, which translates into an increase in energy prices on an hourly and monthly average basis. “To simplify – the highest balancing bids are usually made by water and coal units, which are used to balance the national electricity system, especially in the event of low reserve levels and high demand,” analysts from the Jagiellonian Institute wrote. This means that even now the shortage of power in Poland is mainly replenished by coal, and the cost of using it for this purpose is high and translates into more expensive energy on the bill.
If there are no new alternative units, or they are not built in time, we will only have at our disposal the “living dead” in the form of 200 MW blocks still in reserve. It is no coincidence that the National Centre for Research and Development (NCBR) is implementing a program to reanimate them. “The aim of the program is to develop new technical, organizational and legal solutions that will allow adapting power units to changing operating conditions and new challenges associated with the work of the national electricity system,” the NCBR ambiguously informed. The name of the project, which is part of the Intelligent Development Operational Programme 2014-2020, says more. It is about “raising the level of innovation in coal power by developing a set of solutions for the modernization, reconstruction or operation of 200 MWe-class units”, that is, resuscitating the 200 MW power plants to serve longer in the face of “the challenges associated with the work of the national electricity system”, i.e., the generation gap estimated by the Energy Regulatory Office at 4.6 GW in 2034, and which will climb as high and as quickly as the demand for power in Poland. This surge will also be exacerbated by the delays the new power plants will face, be it those that run on gas, RES, nuclear or any other. The never-ending discussions on Poland’s energy policy led to a situation where from a wide range of possibilities we didn’t really choose any, so now we may have to use what we have left – resuscitating that, which is supposed to be buried in a few years. Poland’s energy industry could’ve had it all, but is left with 200+ MW plants. It may turn out that Poland, while waiting for nuclear power in the 2030s, will stay longer with coal slowly replaced by gas in the 2020s. The rate of RES development will depend on the regulations, which are being changed slowly.