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Polska Grupa Energetyczna announced it would not extract coal in Złoczew. Despite that, the license procedure is currently underway, and the General Directorate for Environmental Protection is to issue its decision on the 30th of April. Whereas according to the Polish Energy Policy until 2040, the would-be coal mine in Złoczew will be a protected area. Does this mean the open pit mine will be actually built? – Bartłomiej Sawicki, editor at BiznesAlert.pl, asks.
Złoczew – why a new open pit mine is needed
The lignite from the Złoczew open pit mine in the łódzkie voivodship was supposed to replace the one extracted near the Bełchatów Power Plant. The Bełchatów coal mine has two deposits – Bełchatów and Szczerców. The lignite is extracted on the basis of two valid licenses: to exploit the Bełchatów field until 31 December 2026 and the Szczerców field until 17 September 2038. This means, in the next 18 years the Bełachtów power plant may experience lignite shortages. Whereas the size of the Złoczew field is estimated at over 600 million tons of coal, and the extraction potential of the Złoczew mine is at about 18 million tons of coal a year. The Bełchatów Power Plant has 13 blocks with a total capacity of 5300 MW. It uses about 43 million tons of lignite a year, and currently covers 20 percent of Poland’s power demand. If the new open pit mine is not developed, the power plant will be shut down. However, if it is built the first load of coal from that deposit may leave the mine in 2032 at the earliest. It will take about 6.5 years to build the open pit, and the development will end when a layer of coal is uncovered. This means the decisions about the mine need to be made as quickly as possible.
PGE will no longer seek to extract lignite
Polska Grupa Energetyczna (PGE Group) will see the Złoczew license procedure to its end, but it will not make new investments. Last fall, the Group’s CEO Wojciech Dąbrowski presented the Group’s new strategy until 2030. During that event he said that the he would leave the decision on the future of the new pit to its new owner – the National Agency for Energy Security (NABE). According to the government, the Agency will be established by the end of this year, or mid-2022 at the latest.
In October 2020 PGE announced its strategy until 2030. “It created a framework and directions for developing the Group and preparing it for the transition,” the company explained. According to the company, social expectations, climate policy and regulations push it into the direction of climate neutrality. “Considering this, PGE does not believe the new open pit could be developed. Today the development of the new mine is unprofitable. However, the Złoczew deposit will become part of Poland’s energy reserve,” the company stated and put an end to all speculation about the continuation of the project.
Reasons for abandoning Złoczew
PGE decided not to invest in the pit, because of the EU climate policy. In view of the EU climate policy becoming ever tighter, the costs of maintaining such a mine will be a lot higher than today. According to the calculations by The National Centre for Emissions Management (KOBiZE), the price of CO2 emissions may reach over EUR 70 per ton in 2030. Whereas, conventional generation, based on coal is already close to going bust. Also, there is the question about the costs of investments, considering the expenses. Whereas the profitability of the Złoczew pit will only be possible if it is operational for 38 years from the day of its opening, which is until about 2070, counting from early 2030s. Poland is to abandon lignite in 20 years and bituminous coal by the end of the 2040s. There are also numerous economic questions, because of the pit’s location, which is about 50 km away from the Bełchatów power plant in a straight line. The cost of coal transport to the power plant depends on the location of production and the kind of transport. Coal from an open pit is usually transported on conveyor belts to the power plant. However, the distance between the Złoczew mine and Bełchatów makes such a solution impossible. So the coal would have to be transported on railways, which means a new railway line would have to be built, which will increase the cost of power production. Additionally, extraction from an open pit would mean that together with the pit’s expansion, 33 villages would have to be either partially or totally claimed. The estimates in the Report on the environmental impact of lignite extraction from the Złoczew deposit say that about 3.041 residents would have to be removed. “It’s a very capital-intensive investment, on which no financial institutions will give PGE a credit. Whereas the increase in the costs of CO2 emissions make investments in coal and coal asset exploitation unprofitable. The costs of CO2 emissions settled at a price of over EUR 40 per ton. Additionally, if the Złoczew investment was developed, the łodzki region would be cut off from EU subsidies for energy transition. Also, the residents would have to answer whether they want another open pit, or whether they want the region to develop in a more environmentally friendly, clean way with green jobs,” Wojciech Dąbrowski said in an interview for Radio Łódź this March. All of this seals the deal on Złoczew as a PGE investment, but it does not determine the future of the license, or the project itself. Why? Even if PGE receives the license, NABE will get the right to use it, so the Agency will decide about the fate of the mine.
History behind the Złoczew license
BiznesAlert.pl asked the General Directorate for Environmental Protection (GDOŚ) about the process of acquiring the license. GDOŚ explained that all of the evidence has been collected, so on the 3rd of February 2021 the parties were informed that they could consult the files, assess the collected evidence and materials and voice demands. In March GDOŚ changed the deadline for the case to 30 April, and informed the parties new evidence was provided. At the same time the Directorate ensured it would make every effort to issue the decision on time.
So far, GDOŚ has pushed the deadline for the proceedings 12 times already. The Directorate explained this happened for a few reasons. First, the case is very complicated. Second, GDOŚ had to ask PGE a few times to complete the evidence, including the report on the investment’s impact on the environment. Third, it is the Directorate’s duty to make it possible for all the stakeholders to participate in the procedure.
There won’t be a mine, but the area will be protected
So, considering PGE’s plans, it would seem that the Złoczew open pit would stay only on paper, which would allow the district to develop the area in a different direction. However, the Polish Energy Policy by 2040, adopted by the government in February, says that the prospective deposits (Złoczew and Ościsłowo) would be protected, due to their strategic character, but their exploitation would hinge on the choices made by investors. We asked the Ministry of Climate and Environment how to interpret that decision. The ministry explained it had to be made to protect the deposits, as stipulated by the Act on Environmental Protection. According to the Act, deposits are under protection, which entails their rational management and a comprehensive usage of minerals, including associated minerals. Whereas in line with the Geological and mining law, to protect the documented deposits, they must be included in spatial development research and plans, as well as local and district spatial development plans. “Considering the above, it should be pointed out that the goal of the duty to reveal documented deposits in planning documents is to protect them and secure them from investments that would make it impossible to exploit them in the future,” the ministry explained. This regulation directly reduces the commune’s freedom to manage the future of such a large area, and inhibits the economic activity that can be pursued there. It also significantly limits the investment opportunities the commune can pursue in the area.
Importantly, the current regulations introduce the duty to include documented deposits in the spatial development conditions and directions study of a commune. According to the Geological and mining law, within 2 years of the approval of the geological documentation by the proper geological unit of administration, among others, the area of a documented deposit must be included in a commune’s spatial development conditions and directions study. Therefore, the regulations about the protection of deposits and documented resources force the mayor or town president to include documented deposits in the local spatial development plan.
The Climate Ministry explained that if a commune fails to meet this legal requirement, the voivode must enter the documented deposit into the the development conditions and directions study of the commune, and issue a provisional regulation, which is determined by the Geological and mining law. Therefore, the local authorities’ ability to omit this regulation is very limited.
If not Złoczew, then what?
GDOŚThe future of the new lignite open pit in Złoczewo will not be decided at the end of April, when GDOŚ will issue its decision about the license, it will be known in a year or a year and a half when NABE will make its judgement on whether to invest in it. When it comes to the area of the power plant and the lignite mine in Bełchatów, they will get a second life. The PGE Group is planning to build new wind and PV farms there. Two wind farms – Szczerców and Zwałowisko – with a total capacity of 100 MW are to be set up on the existing spoil dumps. The investment will cost about EUR 140 million. A 100 MW PV installation may also be established there, as well as a landfill. The CAPEX of these investments is about EUR 70 million. In the long term, the construction of a nuclear power plant in Bełchatów is planned, as part of the next stage of Poland’s nuclear program. The łódzkie voivodship is to receive support for areas impacted by the energy transition. Bełchatów has applied for the support as well, but Złoczew, which is located in the same voivodship, can do the same. The first PV installations that are being set up in the area of the potential license, show that the region may base its development on green, not coal, power generation. However, for Złoczew to receive the money, all works and analyses conducted by the investor, i.e. NABE which will take that mantle in the future, need to be suspended.
The never-ending story of the spatial development study
In 2017 the Złoczew commune council voted on a resolution to adopt a spatial development study. The resolution was taken to court by Greenpeace and the “No to the open pit” association. At the end of 2018, the Provincial Administrative Court decided that the commune’s development study, which includes the Złoczew mine, was invalid. In early 2019 the commune council lodged an appeal in cassation against that ruling to the Supreme Administrative Court. It took over a year for the court to make a decision. During that time the study where there was no open pit mine was in force. Then, in February 2021, the Supreme Administrative Court decided that the study with the open pit was valid, and sent back the case to the Provincial Court for review. “The administrative ping-pong has been going on for four years. The study with the pit is valid for some time, but then it no longer is. This may lead to a situation where I will issue a decision that will quickly turn invalid. What should I tell to the residents or investors who in the meantime receive positive localization decisions,” Dominik Drzazga, mayor of Złoczew, said in an interview with BiznesAlert.pl.
“For a few years now I have been following the discussion about the Złoczew deposit, and it looks like all parties are engaged, except for the Złoczew commune. I learn about the majority of the developments from the media. Nobody from the PGE Group as talked to us since I became the mayor, which was in 2019. The majority of residents, myself included, believe everything points to the fact that the lignite open pit will not be developed. I think that the topic of the mine will not return in the next few years. A few years back a large portion of residents were for the mine. Today this has changed, mostly because the investor has failed to make a decision in the past years. Let me add that the potential mine was to cover 50 percent of the commune’s area,” the mayor said.
PGE wants to meet
On the other hand, PGE has ensured that it made effort to meet with the authorities of the commune. The initiative to meet was undertaken in August 2020, but in the end it never happened. The company explained that in line with the current regulations, the commune’s study of conditions and spatial development was a planing document processed as part of the commune’s own tasks. “It is the commune’s individual decision and prerogative. We cooperated with the commune on the basis of general rules, within the lines and on the basis of the law – the mine applied for changing the study of conditions and spatial development. The commune made a positive decision. The appeal to the Provincial Court in Łódż was the commune’s choice, and it was the mayor who made this call,” the company explained. PGE has declared it still wanted to meet with the commune authorities.
Protected resource?
Mayor Drzazga believes that the stipulation about Złoczew included in the Polish Energy Policy until 2040 was made to protect this deposit. “It’s not my job to say whether this stipulation is right or not. It is in the interest of the country to have this provision. However, it is not beneficial for the residents of my commune. Nobody knows what will happen in 10, 15, 30 years. We do not know whether new, more environmentally friendly lignite extraction and combustion technologies will emerge. However, just because of that fact we cannot halt the development of our commune, or the Sieradz region,” he pointed out.
So, a question appears how the commune is to treat the stipulation made in the PEP 2040, and at the same time develop the area and region. “For over 12 years the Złoczew commune has been in a very difficult legal and administrative situation. At this point we do not know which spatial development study is binding. It’s taken to court every minute. We do not know which direction we should follow. Should we base our decision on the study that includes the open pit mine, or on the other one? At this point the study that includes the mine is binding. It puts limitations on the decisions of residents and potential investors,” he explained. Importantly, the Supreme Administrative Court again referred the complaint about the currently binding plan to the Provincial Administrative Court.
“Until the ruling is made, we need to make our decisions on the basis of the plan that includes the mine. This may last four months,” the mayor said in an interview with BiznesAlert.pl. “When I became the mayor in 2019, until 2020 I made my decisions on the basis of the study that did not include the mine. However, in February 2020 after the victory at the Supreme Court, the study from 2017, which includes the mine, came back into force. However, if in 4-6 months the Provincial Court will issue its own ruling, in which the current study will be made invalid, we will function in an administrative mess. This will halt the commune’s growth for a few years. Even if the Provincial Court approves the current study, it may still be taken to court by environmental organizations again. So, it is difficult to tell when, as a commune, we will get our of this legal mess,” he stressed.
In the mayor’s opinion, the investor has failed to made a decision about the mine in the past few years. “We wanted the mine to be built, because my predecessors drafted a study, which included it, and they helped with environmental decisions, and even appealed against the complaints made by environmental organizations. We suffered multi-million losses because of that. We had to refuse potential investors when we were waiting for the mine. The investors could not build or expand production plants. So we lost tax money,” Drzazga added.
PV farms instead of the mine?
BiznesAlert.pl asked the mayor of Złoczew about renewable energy resources in his commune. He said that the commune was currently in the process of issuing agreements to develop PV farms. “They are to be set up on the plots where the mine was supposed to have been developed. Of course, I am not talking about the entire area, just single plots. New investors that want to build PV farms are voicing their interest. I have been able to issue such decisions since March. Now I am again blocked by the upcoming decision by the court. We have no idea what will happen next. It’s possible that the town council will want to change the study and the commune development strategy by getting rid of the mine,” the mayor said.
