Poland Electricity Market: Will Coal Last Forever?



Author: EPM EMEA Advisors, ABB

Introduction:

The drivers of the Polish electricity market are the EU climate and energy goals: reducing greenhouse emissions at EU level (20% reduction by 2020 and 40% by 2030); increasing the share of renewables in final energy at EU level (20% by 2020) and increasing energy efficiency at EU level (20% in 2020 and 27 to 30% by 2030).

The detailed goals of Poland’s energy policy focus on increasing the share of renewable sources of energy in the final consumption of energy to 15.5% in 2020 (19.3% for electricity). Concessions are granted to Poland to allow it to modernize coal-fired power plants.

Current and Future Generation Mix:

Poland is one of the bright spot in Europe in terms of electricity consumption growth. European commission expects for Poland an average GDP growth between 2014-2016 of 3.3% compared to 1.8% for Germany and 1.07% for France. ABB’s consumption forecast of Poland expects an annual growth of 1.5% between 2015 and 2030 and 0.75% thereafter until 2040. This is compared to ABB’s assumption of only 0.25% average yearly consumption growth in France between 2015-2040 and in Germany average yearly demand destruction of -0.03% in the same timeframe due to energy efficiency measures and lack of manufacturing demand growth.

Electricity prices in Poland are largely set by hard coal and lignite generation fleet (80% of the total generation in 2016). The neighbor Germany also has a large influence on Polish prices, especially during the hours of high renewable in feed. Coal‘s generation share is expected to decrease from 80% in 2016 to 40% in 2040 and stabilize after that.

Polish Generation
Source: ABB

Poland is subjected to relaxed environment legislations whereby, instead by of the end of 2015, Polish power plants have time until July 2020 to implement stricter emission regulations defined by LCPD and IED directives. This has led to recent closures and higher maintenance due to upgrades. The Polish energy market is bracing itself for a 10 GW of capacity loss between 2015 and 2020, around 25% of its total installed capacity. Around 6 GW of new capacity is under construction and another 1.5 GW of planned capacity to become operational, Polish market keeps well balanced until late 2020s.

Can Poland Abolish Coal and Go Green Like Germany?

ABB’s assumes rising CO2 prices between 2016-2040. For a country like Poland which is heavily geared to power generation from coal, higher emission prices are a blessing in disguise leading to an economic environment of greener generation. Biomass burning (fuel mix along with coal) has already picked up in the recent years despite low CO2 prices with an aim to reduce the total emissions and their intensity.

Due to increasing efficiency of the power plants and further introduction of carbon free technologies, CO2 intensity in Poland decreases from 840 tonnes of CO2/GWh in 2016 to 424 tonnes of CO2/GWh in 2040.

Recent changes to the EU ETS introduced new mechanism – Modernization Fund, which aims to support investment into low-carbon and energy efficiency technologies in poorer EU member states throughout EU ETS Phase IV. Poland is expected to receive around 43% of this fund worth up to €3.4bn. Poland has already received a lot of free allowances for its ageing power sector to enable investment into modernizing existing coal, lignite and gas power plants. Although Modernization Fund prioritises investment into small-scale projects Poland is seeking greater control on how it spends the cash. If given enough autonomy Poland might stay on the route of supporting big-scale coal and lignite power industry.

ABB believes a lot will depend on the energy policy within Poland and EU for the future energy mix. Nuclear will provide a good replacement for coal plants however without state backing no power producer is likely to enter that risk. Renewables like Wind and Solar are likely to deliver only intermittent peaking power and not the base load. Gas to power is the best option but will the market support it? Especially learning from the German experience of closing state-of-the-art new gas power plants due to lack of profitability!

Since coal is the cheapest base load fuel available and is found in abundance in Poland, it will be a next to impossible scenario to come completely away from coal and will likely be a stable part of the generation mix also in the future.

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