SOLIVAN was founded in 2014 and provides comprehensive legal services to clients from the energy and commercial real estate sector. The law firm’s success relies on their constant observation of business trends and planned legislative amendments across their areas of specialization, including energy and environment. SOLIVAN is part of PONTES, an integrated network of CEE law firms.
For decades, coal has dominated the power sector in Poland. How is the country progressing towards its clean energy goals?
Poland after a standstill since 2015 will experience strong growth in renewable energy from 2020 but not enough to meet the targets for 2020. It is clear at this point that we will miss the 15% mark agreed in 2009 with the EU - as of now RES sits at 11,13% of our energy mix.
Technology wise, renewable energy comes mostly from wind and solid biomass - though a large part of the latter is generated by wood in coal furnaces that do not qualify under ECO Design Directive and generate smog.
The auction system that was implemented a few years back with test auctions for small scale solar was certainly useful, but looking at the volumes for larger RES generators auctioned in 2018 and 2019 we can tell that there are still significant amounts of RES to be constructed which have not yet been contracted. No doubt Poland must continue measures to promote RES especially RES electricity.
What are the key reasons for which Poland is behind the target set for 2020? And what consequences can we expect in this situation?
The problem is that coal has been protected until now and not enough incentives and efforts went towards the development of RES. State owned utilities are still very much reliant on coal which guards their market share of nearly 80%. Naturally, this is a circumstance they wish to maintain.
If the goal is not reached in 2020 we have a chance to try again in 2021. After that, however, costly statistical transfers become obligatory.
Given the circumstances, what can Poland rely on to increase its share of clean energy?
Wind power is still a growing source of electricity here. In December 2019 the government auctioned over 2 GW, on top of the 1 GW set forth in 2018. Also in 2020 auctions will continue to bring the total capacity of installed wind energy in Poland to almost 10 GW. However, the distance rule implemented in 2016 stopped new development.
Even in case the distance rule will be abolished as announced by the Minister for Development and Infrastructure there are still challenges that hold back the pace, such as community support and permitting timelines.
I expect we will see a gap in development: re-permitting takes more than two years which means that if you start in 2021, you will only reach fully permitted status not earlier than 2023/2024.
PV on the other hand is developing nicely, although at the auctions so far only small scale solar until 1 MW has been awarded. In 2019 we had a record number of new installations installed and contracted and by 2021 I expect Poland will have more than 2 GW of solar installed. But auctions in 2020 - hopefully to be continued in 2021 - will boost large scale solar by another 2-3 GW by end of 2023. This energy is urgently required at the summer peaks to avoid blackouts due to shutdowns of old coal power plants.
What about offshore wind farms? The general expectation is that the first ones will start production in 2025.
In my view a more realistic expectation to start production is 2028. The support scheme included in the draft Offshore Act to avoid auctions for the first 5 GW of projects – beside Polenergia controlled by state-owned utilities - should not be accepted under EU regulation, so it will need to be worked on further. Also the sea area plan has not been established yet which generally stops new permitting.
I do agree, however, that Poland can become a hub in the Baltics for offshore wind. There are 13 projects considered in total, with a potentially installed capacity of 9-12 GW. Overall the ambition for offshore wind is to generate 25% of Poland’s energy by 2040.
The capacity market was introduced in 2018 - can you briefly explain the mechanism and how Poland plans to back up its energy system?
The capacity market establishes a price for back-up power through auctions, and the operator of the power plant gets paid for guaranteeing security of supply to the grid. After 2018 and 2019 auctions for delivery years 2021 – 2024 it becomes clear, that the capacity market is highly expensive with yearly costs of 5.5 billion zloty and awarded by 90% state-owned utilities.
As a result of the capacity market auctions, investment decisions for a 1 GW coal power plant and a 1.4 GW CCGT plant have been made. However, all experts doubt that the awarded coal power plant will be ever constructed. As of this year, coal can no longer participate in capacity market auctions and the awarded plants will exit the mechanism completely by 2034.
My vision for 2050 is that Poland’s energy needs will be entirely covered by renewable sources, working in tandem with really smart infrastructure and technology in a decentralized system.
Already we are seeing more concern for energy efficiency measures and eventually storage will come into play at a wide scale. These together should be enough to maintain a healthy system.
There is no mention of nuclear energy in your calculations - does this mean you do not believe in it coming to fruition?
To start from zero with nuclear is unlikely nowadays, especially in a democratic country. In case of Poland there are also huge limitations related to infrastructure, financing and timing to fill the gap left by decommissioned coal power plans - I doubt strongly that third generation nuclear will become part of our energy mix.
Do you already have a sense of how the COVID-19 outbreak will be impacting your business/ the energy sector in the short term?
We have noticed decreasing wholesale prices also in Poland, from PLN 210/MWh in February to PLN 150/MWh in April. Unfortunately, due to sunny and less windy weather the power mix didn’t change as installed solar power capacity is very low in Poland. Those days still 75% of electricity is produced by coal power plants.
We have also seen a weakening local currency which has an impact on pre-construction projects which order wind turbines or solar modules abroad. However, nobody expects that those developments will last for a longer period.
Investors are still bullish as Polish auction support system offers stable longterm returns guaranteed by the Polish state for RES investments.
What first measures did your organization set in place to manage the crisis?
We keep our clients updated about the special measurements implemented by the Polish government. However, for the RES projects those measurements are positive, as projects awarded at 2018 and 2019 RES auctions have granted 12 months more to connect to the grid to enter into the support system.
Other thoughts you would like to share regarding this topic?
We are confident that the European Green Deal will keep on track and Poland will be one of the first movers to adopt green technology and prosumer solutions on an impressive scale.
The interview was updated on 30 April 2020 to include observations about COVID-19 outbreak.
