Polish Coal – Treading Water

Development of the Polish power sector is being driven by three main energy goals: reducing greenhouse emissions (20% reduction by 2020, 40% by 2030), increasing the share of renewables in the generating mix (20% by 2020) and increasing energy efficiencies to align with the EU Energy Efficiency Directive established in 2012 (20% reduction in primary energy consumption by 2020).
However, when compared with other EU nations, Poland continues to utilize a significant amount of coal-fired generation in its fuel mix (92% of 2011 electrical generation) despite the persistent low profitability of its coal industry.
This low profitability continues to be driven downward by the increasing costs of mining domestic coal, high wages and low world coal prices. Efforts to combat losses were made in the early 2000s with the creation of the Kompania Węglowa mining company. 23 coal mines from the Upper Silesia region were unified under one entity, with the Polish State hoping for a scaling effect. Unfortunately, eventual declines in world coal prices caught up with the Polish market, forcing Kompania Węglowa to close mines and/or sell them to smaller power and distribution groups despite several attempts to maintain profitability.
A potential solution has recently presented itself: by pooling non-profitable mines together, Poland created the Polska Grupa Górnicza (Polish Mining Group) on May 1, 2016. Through discussions and negotiations with labor unions, banks and power companies, the Polish government was able to restructure debts and obtain financing to make the mining of coal an attractive investment. To alleviate high costs, the agreement of the foundation includes further mine mergers, less cooperation with external contractors, simplification of the remuneration system, temporary suspension of additional wages (miners in Poland are still eligible for 13th and 14th end-of-year bonus salaries) and implementation of a voluntary retirement scheme.
Polska Grupa Górnicza is expected to be financially profitable in 2018, though there is no guarantee, but if coal prices remain low, and global trends toward other, low-emissions generation technologies continue, it will become increasingly difficult for Poland to rely on the limited profitability of coal development. Short-term coal mine profitability becomes even more questionable considering the age of Poland’s existing coal-fired generating fleet. Time will tell.
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Author: Velocity Suite Data Analyst
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