The Inept Transformation of the Polish Energy Industry

16. 2. 2022

The Polish government is caught between its own illusions about the richness of Poland’s coal reserves and pressure from the European Union to move away from coal as quickly as possible.

The energy industry in Poland is going through a difficult period. Wholesale electricity prices, which are settled on the Polish Power Exchange in Warsaw, are inexorably increasing. In November 2021, the weighted average BASE price of the day-ahead market was PLN 552.40 per MWh (approx. €120) compared to PLN 467.12 per MWh in October and PLN 251.66 per MWh in November 2020. 

Although energy prices are increasing across Europe, they are rising faster in Poland than in other countries. One of the reasons is the growing prices of ETS—CO2 emission allowances. Within a year, they increased almost threefold and exceeded €80 per 1 ton. The Polish power industry has the largest share of power plants fired with hard coal or lignite in the whole European Union. With the average emissivity of the Polish energy sector of 719 g per 1 KWh, an increase in allowance prices by 10 euro translates into an increase in energy price by 7.2 euro per 1 KWh.

In May 2021, there was an emergency shutdown of 10 power units in the Bełchatów Power Plant with a total capacity of about 3,900 MW. Bełchatów Power Plant is the largest supplier of electricity in Poland. It produces more than 20% of the domestic energy. At the same time, Bełchatów Power Plant is one of the largest polluters in Europe. 

In June, the 910 MW unit of Jaworzno Power Plant, commissioned in November 2020, was shut down due to faults. It will take until 2024 to fix them. 

The Polish-Czech dispute

The problems have been overshadowed by the Polish-Czech dispute over a lignite mine in Bogatynia that supplies fuel to Turów Power Plant, owned by the Polish Energy Group (PGE SA). On 21 May 2021, an interim order was issued by the Court of Justice of the EU ordering Poland to immediately stop lignite mining there. This would mean the closure of the power plant, as the open-pit mine forms a single production line with the power plant. There is no way to supply fuel from outside the mine. The Polish government decided that the mine and the power plant would not be shut down, so the CJEU imposed a fine of €500,000 a day as a precautionary measure against the Czech side’s claim that the mine was causing a significant drop in groundwater. In the Žitava area, groundwater levels have already dropped by 100 meters, and the collapsing ground threatens houses. The first hearing before the Court of Justice was held in November 2021. The next one will be held in 2022.

The Turów Power Plant is Poland’s fourth largest coal-fired thermal power plant. Its first unit was commissioned in 1962. The plant is located in Bogatynia, at the junction of the Polish, Czech and German borders. It reaches a gross capacity of over 2000 MW. In 2019, it produced 5,597.5 GWh of gross electricity, accounting for 3.5% of Poland’s power generation. In 2020, it produced 5,709.4 GWh of gross electricity—3.7% of domestic production. 

These are significant figures, but Turow’s shutdown would not cause an energy shortage in the national system. The capacity of Poland’s conventional power plants is over 37,000 MW, with an average power demand of about 23,000 MW and a maximum of about 28,000 MW. Conventional power plants, mainly based on coal, are supplemented by renewable energy facilities, with a capacity already over 14,000 MW. In 2020, they supplied 28,800 GWh of energy, i.e. 5 times more than Turów Power Plant. Renewable energy power plants show double-digit production increases.  

The comprehensive modernization of the Turów Power Plant was completed in 2005; its management claims that it has become the most modern lignite-fired power plant in the country. In June 2016, the cornerstone for the 496 MW Unit 11 was built. The unit was commissioned in May 2021 and again in July after a temporary shutdown. Construction was carried out by a consortium of Mitsubishi Hitachi Power System GmbH (leader), Tecnicas Reunidas and Budimex. The investment cost was over 4 billion PLN (around €1 billion euro). It was one of several investments in coal-fired power generation that state-owned companies have made in recent years, spending nearly 30 billion zlotys (about €6.5 billion). These investments, if finally implemented, will increase the installed capacity in the national power system by nearly 4,300 MW. In April 2021, the Minister of Climate and Environment issued a license for the expansion of the company’s open-pit lignite mine, which will enable coal extraction until 2044.

The impact of closing the mine, and consequently the power plant, would be severe for the local community and PGE itself, which estimates potential losses at €2 billion.

The complex employs about 3,500 people (data from 2021), and when subsidiaries are added, it is about 5,000 people. Bogatynia’s residents, in line with EU climate policy, no longer have furnaces in their own homes, they are all connected to heat from the CHP plant and it would be difficult to find another source quickly. The heat provided by the power plant is also used by the local hospital which would have to cease operations for some time. 

According to the management of PGE SA, a realistic date that would allow the mine to be closed without harming the Polish energy system is 2035. However, regardless of whether the CJEU ultimately orders the closure of the mine and the power plant, continuing operations would be in conflict with EU climate policy, which Poland has accepted. 

Energy policy of Poland

As recently as September 2017, Minister Piotr Naimski, one of the creators of the current government’s energy policy, declared at the Economic Forum in Krynica that Poland would, at least for the next few decades, base electricity production largely on coal. “We want to build new power plants in Poland. We have it in our plan and we are building them,” said the Minister. It is important to remember that most of the power companies in Poland, despite being listed on the stock exchange, belong to the state; their investment policy is decided by the government, which is responsible for the functioning of the energy sector as the regulator of the industry and the main owner. 

According to the government document “Energy Policy of Poland until 2040”, adopted in February 2021, the energy transition will require capital expenditures between 2021 and 2040 of about PLN 1,600 billion, or €360 billion. Poland will have to build thermal power plants based on renewable energy sources, possibly nuclear power plants, and in the interim period, natural gas-fired thermal power plants in place of thermal power plants fuelled by coal or lignite. By 2030, the government estimates spending on the energy and climate transformation at 260 billion zlotys (about €60 billion), or about 1% of GDP per year, which in light of analyses by international institutions seems an understatement.

Separate from the Energy Policy document, the National Energy and Climate Plan for 2021-2030 was created and sent to the European Commission as the Polish government’s official position on the energy transition. 

The Polish government seems surprised by the EU’s climate policy, which is forcing a much faster transition and move away from fossil fuels, especially coal and lignite.

The Polish government has opposed the most radical ideas of the European Union, but ultimately accepted them. In December 2019, the European Commission presented the Green Deal—a strategy to achieve zero greenhouse gas emissions by 2050. Poland did not stop the strategy at the European Council summit, but recognized that it would not be able to meet its obligations on its own. As a result, Poland may lose several billion euros from the Just Transition Fund, which is supposed to help less wealthy countries move away from high-emission energy. 

In July 2021, the Commission proposed the ‘Fit for 55’ package, which aims to reduce emissions by at least 55 percent by 2030. For now, it is only a proposal, but if it is accepted by the majority of countries, Poland will have to adapt to it. 

At the COP26 climate summit held in Glasgow in November 2021, the Polish government, along with forty others, pledged to phase out coal-fired power over the next decade. The Polish authorities later stated that they had meant the 2040s. The government’s agreement with the miners’ unions stipulates that the last mine will close by 2049.

The Polish government is caught between its own illusions about the richness of Poland’s coal reserves and pressure from the European Union, as well as many other governments and organizations, to move away from coal as quickly as possible. Between 1990 and 2020, hard coal production in European Union countries declined by 80%. The number of countries with active hard coal mines has also decreased, from 13 in 1990 to two in 2020. These two countries are Poland, which accounts for 96% of coal production in the European Union, and the Czech Republic.

The government would prefer to continue investing in the construction of coal-fired power plants and to subsidise hard coal mining, which is poorly managed by government nominees and subject to constant pressure from trade unions. In addition, the geological conditions of Polish mines mean that they have little chance of returning to profitability. The Solidarna Polska party, a coalition partner of Law and Justice, is a strong opponent of the energy transition and is demanding a veto on all climate proposals in the European Council.

The government is at a loss as to how to get out of this trap, especially since coal mining and power sector trade unionists are strongly linked to the ruling party. 

Ideas for the energy transition are born in the Ministry of Climate and the Ministry of State Assets. In the “National Energy and Climate Plan 2021-2030”, the government commits to reducing the share of coal in electricity generation from the current level of about 77% to 56-60% in 2030. This is not an ambitious commitment and falls short of the targets set by the European Union. 

According to government projections, the share of renewables in power generation will increase to about 32%. The government hampered the development of land-based wind farms, whose construction was unpopular in rural areas, which are the political base of the Law and Justice party. Instead, it has opted for solar energy and offshore wind farms. The cost of obtaining a unit of energy from offshore windmills is higher than from onshore windmills, but they do not cause conflicts with local residents. 

In order to guarantee the stability of the energy system, especially during peak energy consumption, it is planned to develop thermal power plants, fuelled by natural gas.

The government document also talks about alternative sources to natural gas, such as methane from mines, biogas, hydrogen. But this is pure fantasizing for now. 

Polish nuclear power

The real problem which the government has to face is the nuclear power industry. Poland is one of the few countries of the former Soviet bloc where no nuclear power plant has been built. The government plans to build nuclear units with a total capacity of 6,000-9,000 MW over the next 20 years. According to the government, the first nuclear unit would be commissioned as early as 2033 and would cost PLN 20-30 billion, while the overall program is estimated at PLN 120 billion. Experts estimate that the cost will be at least twice as high. The construction and start-up period will also be longer, if only due to the lack of experience of Polish power engineers in this field. 

Launching nuclear power plants was already planned by previous governments. The largest power company PGE established two companies to implement this idea, but apart from numerous documents showing the profitability of the investment and possible locations of power plants, no decision was made. Nor does it appear that the current government has made a final decision from whom to buy technology, where to build, and how to finance investments in nuclear power plants. Obstacles include the instability of the government, which has only a slight majority in the Sejm, and the fear that construction will spark public protests. 

Private companies are trying to replace the government and state-owned companies that are subject to government pressure. One of the richest Poles, Zygmunt Solorz-Żak, had the idea of buying shares in the Baltic Nuclear Power Plant project near Kaliningrad. The Russian Rosatom is the owner of the project. The idea was quickly torpedoed by politicians, but Solorz, who in addition to a TV station and a telephone network is also the owner of the power company ZE PAK, is planning together with another Polish businessman, Michał Solowow, to build a power plant using the very modern technology of small modular reactors (SMR). ZE PAK plans to invest in 4 to 6 SMR-type reactors with a capacity of 300 MW each. SMRs will not replace large-scale state power generation, but they can complement it and gradually replace some of the power generated from fossil fuels. 

ZE PAK has also built Poland’s largest photovoltaic farm, plans to harness wind energy, and is developing a hydrogen infrastructure. 

Without allowing private capital and private projects, the government will not manage the energy transition.

Witold Gadomski

is an economic commentator for Gazeta Wyborcza. He specializes in economic matters. Earlier, he was the editor-in-chief of Cash weekly and of Nowa Europa daily. In the 1980s, he collaborated with opposition papers. At the beginning of the 1990s, he was a co-founder of the Liberal Democratic Congress party, headed by Donald Tusk. He is the author of the book “Leszek Balcerowicz”, and co-author of “Capitalism. Facts and Illusions”.

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