Coal to dominate Polish power supply to end of decade despite EU goals

More than half of Poland’s new major power generation projects to be built in the next four years will be coal-fired in spite of strict targets imposed by the EU on its member countries, capacity projections show.

However, to lessen exposure to volatile European carbon prices, the country is also building more gas-fired generation and new electricity interconnections to open up opportunities for further imports of cheaper power from neighbouring countries.

While most traders and analysts polled by ICIS admit Poland is slowly shifting away from its reliance on coal, they were at odds over what impact the new capacity might have on the wholesale electricity market.

Some said an increase in supply will push wholesale prices down while others argue any new investment would have to be priced in on the wholesale market so it could be recouped.

New capacity

According to data collected by ICIS, a total of 7.8GW will be added to the Polish electricity grid in the next four years, of which 4.6GW will be coal-fired power plants built by the country’s biggest state-owned utilities. The list only includes projects of 100MW or more in capacity.

In theory, more new supply will bring wholesale prices down as generation costs drop. Newly built power plants will be highly efficient and emissions will decrease by up to 40%, lowering demand for both coal supplies and carbon allowances.

To add to this bearish prediction, the European Commission approved Poland’s Temporary National Plan, under which implementation of the Industrial Emissions Directive has been delayed from 2016 to 2020.

This means that some 4.5GW of installed power generation capacity, originally planned to be decommissioned by 2015 to comply with an EU climate directive, will now remain online for another six years.

In total 73 installations, most of them power plants owned by Poland’s biggest electricity generators will have additional time to invest and modernise, or chose to either come offline or opt in to a scheme allowing them to operate as reserve capacity for winter and peak hours instead.

Meanwhile, as grid operator PSE data shows, only 1.3GW of capacity is set to be decommissioned in 2016.

Market impact

By the start of next year, a new 500MW electricity cable, LitPol, connecting Poland and Lithuania, should be operational.

Moreover new phase-shifters, designed to combat oversupply of generation from renewable sources which has flowed into the Polish system from Germany, are also said to enable Poland an extra 1,500MW of import capacity.

Although it is not confirmed when this capacity will be offered, should prices in Germany continue to trade at a significant discount to Polish equivalents which was the case both last year and so far this year, those imports could boost Polish supply and pull prices down.

However, some market sources countered that the cost of new investments will need to be priced into the market. One Polish analyst said wholesale energy prices will need to reach Zl 190.00/MWh [€47.10/MWh] after 2016 for the newly built power plants to make any money.

This is much higher than the wholesale price of the Calendar Year 2016 and 2017 contracts on the over-the-counter (OTC) market at Thursday’s close, when the products were assessed at Zl 166.45/MWh and Zl 169.37/MWh respectively by ICIS.

Gas-fired production

On top of LitPol, 910MW of gas-fired generation will be complete by the end of this year. A 450MW combined-cycle gas turbine (CCGT), built by Tauron, and a 463MW Wloclawek plant, built by supplier PKN Orlen, will both be operational by the end of this year.

And a further 3GW of gas-fired generation is planned to be added to the Polish grid between 2016 and 2019.

Demand for electricity in Poland has been rising steadily despite a weakening economy across most EU states. By despite that, by the end of 2013, Poland produced 3.9GWh of electricity from natural gas, constituting only 2% of its power generation mix. “Gas-fired power plants are out of money at the moment. It is not profitable to produce from them,” one Polish trader said.

Figures released by the Polish energy market association (ARE) said the average cost of generating power from gas-fired power plants totalled Zl 170.20/MWh last year, compared to only Zl 131.90/MWh for coal-fired plants.

But gas-fired investments are on the rise in response to volatility on the European carbon market which has had an unprecedented impact on Polish power prices because 90% of its energy generation comes from coal.

CCGTs are also more flexible to operate, easier to build and are able to supply power in case of shortages due to a lack of generation from renewable sources. Karolina Zagrodna