|More coal-fired power units will soon be built in Poland|
“Poland is going back to coal as an energy source,” said Polish Prime Minister Donald Tusk when commenting on the expansion of the Opole power plant in July of 2013. Taken at face value, the statement seems shocking. After all, the European Union is trying to curb carbon emissions and has set a target of cutting them from 1990 levels by 20 percent by 2020. But after a closer look at Poland’s energy mix, it shouldn’t surprise anyone that Poland is looking to coal to meet its energy needs.
Until recently Poland had hoped that shale gas would be a relatively clean and cheap energy source the country could turn to. However, exploration for shale gas has faced a number of challenges, from the lack of a legal framework to hugely varied estimates of how much shale gas actually lies beneath Poland’s surface. For these and other reasons, not a single company has yet begun extracting shale gas commercially and a few (Exxon Mobil, Marathon Oil and Talisman Energy) have quit Poland altogether.
There has been a notable lack of progress when it comes to nuclear energy in Poland as well. The planned date for the first of two Polish nuclear power plants to become operational has been set for 2024, but neither the location nor the partner responsible for supplying technology for the plant and constructing the facility has been chosen.
And renewables? In 2012 only 4,400 MW of energy came from renewable energy sources such as wind and solar power – 10.55 percent of Poland’s total energy use.
Cheap and plentiful
No wonder then that in order to meet its growing energy needs, Poland is turning to much-cheaper coal and especially its cheapest form, lignite. With Poland boasting lignite deposits estimated at 13 billion metric tons, only 14 percent of which are being mined, and some 90 percent of Polish energy derived from coal, it’s a match made in heaven.
In 2012 Poland produced 140 million tons of coal
According to Central Statistics Office data, in 2011 80 percent of Poland’s energy came form coal (hard coal – 62 percent, lignite – 18 percent). Energy derived from gas amounted to 6 percent of the country’s energy mix, while oil was used to produce 1 percent. The remaining 13 percent came from other (mostly renewable) energy sources.
According to the Statistical Review of World Energy 2012, published by British Petroleum, Poland produces nearly 140 million metric tons of coal (including both lignite and hard coal) a year, making it the second-biggest producer in the EU, behind Germany (188.6 million tons).
With all those factors in place – cheap, easily accessible deposits and already-established power facilities, the demand for coal is expected to rise in Poland, with many power plants currently being expanded or built from scratch. This trend is expected to continue, especially after a recent report from the Economy Ministry stating that Poland faces a risk of power shortages in 2016-2017. The ministry said that Poland’s power capacity deficit in peak periods could amount to as much as 1,100 MW in the winter of 2017.
According to the report, the lack of significant growth in power generation capacity in Poland, combined with increasing demand for power means that in real terms the capacity is falling. The ministry also points out that 4.4 GW of existing capacity will have to be shut down by the end of 2017.
Source: Energy Market Agency ARE SA
State power grid operator PSE plans to use measures such as raising the amount of available reserve capacity, speeding up unit maintenance and boosting imports to raise the power available in the transmission system by 1,500 MW. Despite that, the risk of shortages is still realistic, the ministry said.
To prevent those scenarios from becoming reality, there are several investments being carried out in Poland. The Opole power plant expansion mentioned above will see two new coal-fired power generation units installed, each with the capacity of 900 MW. Two new steam-gas powered blocks are being built in Stalowa Wola (450 MW) and Włocławek (460 MW). Enea is developing a coal-fired block in Kozienice, which will have a capacity of 1,075 MW. There are also power plants either already being constructed or in the development phase in Puławy (steam-gas, 840 MW) and Jaworzno (coal-fired, 910 MW).
Whether these investments will be enough to solve the future power shortage issue is a different matter. Still, experts say, Poland will need more power to quench its increasing thirst for energy. Estimates have found that when a country’s GDP grows by 1 percent, the demand for electricity rises by 0.7 percent.
With the Polish economy slowing down in recent years, the need for cheap energy is on the rise. One gigajoule (GJ) of lignite costs some zł.6.50, while the same amount of hard-coal energy can amount to zł.10-11. Therefore, according to data collected by PSE, power production in lignite plants rose by 3.7 percent in 2012 over the previous year, while hard coal-fired plants lowered their output by nearly 7 percent.
Dirty, but cheap
All this sounds logical: Poland has resources and facilities for coal-powered energy. And since coal is cheap, it can be produced in larger quantities. Everyone is happy – everyone, that is, except those concerned about the environment.
Coal-based energy (especially that derived from lignite) is the dirtiest kind. The huge Bełchatów lignite power plant in central Poland was named the biggest carbon polluter in the European Union by the Sandbag Climate Campaign in 2009.
And though the European Union has tried to force members to curb carbon emissions, it has not been particularly successful. EU carbon permits have lost over half their value during the past year and have fallen below €3 per ton.
Under current EU regulations, energy producers have to buy a permit for each ton of carbon dioxide they emit. But these permits would have to cost around €45 to make burning natural gas more profitable for them than hard coal. Lignite coal sourced domestically would require an even higher carbon price.
The EU has tried to force through the so-called “backloading” scheme, which would delay the auction of 900 million emissions permits and as a result raise their price. After huge amount of lobbying by the EU’s biggest polluters, including Poland, the first attempt to pass the regulations failed in the European Parliament. However, a second attempt was successful. Still, the measure lacks sufficient support to become law, since it has to be accepted by the governments of all EU states, a highly unlikely scenario given the current political and economic situation, especially in Poland.
Still, moves have been made to at least curb Poland’s “dirty” energy production. According to Eurostat, Poland reduced its CO2 emissions by 5 percent last year. In February, PGE and Energa purchased wind farms operations in Poland from Spain’s Iberdrola and Denmark’s Dong Energy for nearly zł.2 billion combined.
Source: Energy Regulatory Office (URE)
Renewable energy firm Polish Energy Partners has a portfolio of wind farm projects and wind farms under construction with a total capacity of 1,000 MW. They are scheduled to be completed in 2013-2016.
Also, Poland’s energy policy is currently being adjusted by the government. The new policy will extend to 2050 and is currently being re-developed. It is expected to be published at the end of 2013. But the process of expanding the role of clean energy in the country’s energy mix is still a long and rocky road. And for the foreseeable future, coal will remain king in Poland’s energy mix.
Coal – a lifeline for state-owned firms
There is another key reason why Poland’s government wants to continue its involvement with coal. Most state-owned mining companies, such as Kompania Węglowa (KW), are facing tough times. Even though coal is used in the majority of Poland’s power plants, demand for it has been declining. As a result, prices have fallen (by over 10 percent in H1 of 2013) and the unsold coal has begun piling up. After the first five months of 2013, KW had 6 million metric tons of unsold coal and was forced to export it at low prices. During the period the company recorded a loss of about zł.130 million.
The power plant extension projects are therefore a lifeline for Kompania Węglowa and other miners. KW has recently signed a letter of intent with PGE to help expand the power plant in Opole and plans to build its own coal-based energy plant in Silesia. These three investments would guarantee the company a market for some 7.5-10.5 million tons of coal a year – and would easily keep it profitable.
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