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November 29, 2018

Weeks before COP24, Poland allocates significant coal-based capacity

Poland, which is the host for the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change summit, has recently completed its first auction for the capacity mechanism.

By GlobalData Energy

Poland, which is the host for the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change summit, has recently completed its first auction for the capacity mechanism. The auction is meant to ensure the country has enough capacity to provide back-up power by 2021. Based on the initial allocation, at least 80% of 22.4GW of capacity is reported to have been allocated to coal and lignite. This has led industry watchers to believe that the domination of coal in the country’s power mix is expected to stay. Poland meets 90% of its electricity requirement from coal plants, most of which are outdated and will need to shut down in the coming years.

The government of Poland believes that retiring its old power plants would put the country’s energy security at risk. Hence, it is of the opinion that the capacity mechanism will ensure long term electricity supply and will be a cost effective way to ensure stable power supply.

Supporting coal

The auction ended in the fifth round with a closing price at PLN240.32/kW/year (EUR55/kW/year). This price is around six times more than that of the recently completed UK auctions which was cleared at a record low price of EUR9.43/kW securing 50.4GW of capacity for delivery in 2021-22. The contracts in Poland are being offered for up to 15 years starting from 2021.

Industry experts believe that the taxpayers’ money is being used to provide additional profit for utilities, which provide uneconomical, inefficient and heavily polluting power. In a way, the Polish government is subsidising coal-based power capacity in the country. The subsidies are a source of additional profit for the utilities on top of their regular revenues from the actual supply of electricity. The country’s Energy Ministry had recently issued a statement in favour of coal-based generation.

Under the capacity mechanism, 3.6GW of coal plants will receive subsidies, some till 2035. These include four new units currently under construction and an additional unit that has been operational for a year now. The cost for subsidising these is estimated at EUR3 billion which is equivalent to half the construction cost of these plants.

Renewable energy: the new kid of the block

Earlier this month, Poland had held mixed energy auctions for wind and solar projects greater than 1 MW. A total of 31 wind projects were awarded, with a capacity of nearly 1 GW which would generate 41.996 TWh over 15 years. The prices ranged between $41.98/MWh to $57.73/MWh, with average price being $52.19/MWh. The auction was dominated by wind power while solar power became noncompetitive at the prices were realised. These low prices mean that the government can award another 850 MW of capacity with the savings in budget.

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In a recent article, the Energy Minister of Poland has also emphasised on the use of nuclear energy for the country to attain a stable supply of electricity. The article talks about the challenges faced in using renewable energy, such as intermittency and inability to store the energy. In the summer months of 2018, the country witnessed an extreme heat wave, which led to record electricity demand. The lack of wind led to very low generation from wind power plants. In July, wind farms provided just 4% of the energy consumed; and for a number of days it contributed nothing. The usage of all the installed wind power capacity was just 14% on an average during this time.

So, the use of nuclear power is strongly advocated as it is considered as a stable and safe source of power. The Ministry has prepared an amendment to the Polish Nuclear Energy Programme, which will be submitted to the Council of Ministers by the end of 2018.

The EU has been the key advocate of climate change mitigation policies and measures to reduce greenhouse gas emissions. In the upcoming COP24, it will be interesting to see how the EU leaders will influence the subsidisation of coal-based power. This will be a major platform for the EU to take its stand on Poland capacity mechanism and take it clean energy transition forward.

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