TPA Poland provides advisory and compliance services to various sectors, including conventional power and renewable energy. The company is part of TPA Group present in 12 countries across Central and South-Eastern Europe and offers services in matters of investment, transactions, financial modeling and operational issues. TPA Poland and TPA Group belong to Baker Tilly International, one of the leading global consulting firm networks.
A large part of TPA’s work in Poland is focused on the power sector. What is driving your interest in this market?
For a long time Poland has been the cheapest power producer in Europe. Our generation mix is, however, very old fashioned. About 80% of it relies on coal and now that CO2 emission prices have increased (and there are no signs that things will be any different in the years to come) the scale of investments needed to stay competitive is immense.
We are now at a point where we need to accept that Polish economy will be affected unless we react to this change. We are noticing great appetite from private investors to venture into renewable energy, but there is also a need to restructure the conventional power generation blocks.
We at TPA Poland have experience in assisting both power generators, distributors and grid operators in various breakthroughs the industry went through in the past. I am sure the challenge the sector is facing now is of that kind, that our competences are going to be more and more needed.
What is more specifically the vision for these “old fashioned” capacities? Are there any plans to upgrade their technology for instance?
Until recently Poland was on its way to upgrade old coal-based generation blocks replacing the old ones with the most modern technology, but still based on coal. This did neither take into consideration the firm and increasing economical and political pressure on more radical reduction of CO2 emission, nor the exponential pace of production efficiency among renewable technologies.
Poland will surely have to open up more for renewables, but needs also to assure the maintenance of reasonable baseload generation. Hence, thee likely future approach is switching the part of the coal-based production to gas, the benefit being that coal generation units can be adapted with relative ease to gas. On the other hand there is an open discussion about nuclear energy.
Nuclear has been in the talks for quite a while now in Poland, with little actual progress. What changed that prompts these plans to move forward?
Developing nuclear capacities in a country that does not have them yet is a complex task, which requires huge investments, long term political vision and committed foreign technology partner. The last four years were essentially lost from this perspective, and now we have to deal with an issue that was not as stringent before - namely, state owned companies who are supposed to be sponsors of the project are not as well off financially as they used to be. There are question marks as to which extent they will be in a position to advance the project.
But it clearly is a reasonable way to go. Given the high proportion coal still plays in our mix, we cannot realistically assume that we will switch entirely to gas and renewables, it is just not possible. The coal-fired generation will have to remain the part of our production portfolio for decades, but the sooner alternative baseload plants will be in a position to replace parts of it, the better it will be for our economy (not mentioning the climate).
What is the situation of renewable energy at present, in terms of pace of development?
It should be developing much faster but there are aspects right now that generate optimism. For instance the government has changed its views on offshore wind generation, there seems to be now a green light for this sector. Two main projects are in an advanced stage of development and a few others are following suit. At least 2 GW should be up and running in the next six to eight years. Since there is no political obstacle we expect that the required legislation will also fall into place soon.
The generation costs for offshore wind are still high which means a public support scheme will need to be put forward. In the long term we should have between 6-9 GW on the sea as part of our generation mix, on top of what we will be producing onshore.
Do you expect onshore wind to see new developments, given the restrictions that are in place through the 10H rule?
Indeed, things do not look so good for onshore wind at this moment. The 10H rule is blocking the development of new capacities, but there are still a few projects that benefit from the old regime and that are expected to be auctioned in December 2019 and some perhaps also in the next year’s tender.
Since the beginning of the feed-in-premium system in Poland which started in 2016, the first volume auctioned for larger onshore wind installations was slightly above 900 MW in 2018. Now in 2019 we are expecting approx. 2,5 GW and some 300 MW in 2020. These will add to the 6 GW that have already been installed in the past which means less than 10 GW in total if nothing goes wrong.
Further development of onshore wind capacities will not be feasible without abandoning 10H rule, even though after 2020 no support scheme may further be needed for this technology due to decreasing levelized cost of generation. Polish generation mix can easily live with at least 20 GW installed wind capacity on land. What is more important, we will desperately need it as one of the cheapest energy sources in order to keep our economy competitive.
Can you walk us through the reasons that led to the implementation of the 10H rule?
It is the “not in my backyard syndrome” aka NIMBY that fueled the anti-wind-energy-hysteria before the parliament elections in 2015. This means that people are fine with it as long as the wind mill is not built next to their home. The party now governing Poland took advantage of the NIMBY effect and put the aversion to wind energy in the center of its long term power generation policy. Our current energy policy and legislation seems still to be the victim of the irrational promise made to conservative voters who were said that wind mills will no longer be built.
The problems related to wind turbine vicinity are a valid concern for sure, in particular when it comes to noise protection. But the 10H regulation (10 times the height of the wind turbine as minimum distance to housing residences) had nothing to do with it.
Modern turbines typically have a height of more than 200 m which means in Poland the distance to the nearest residence must be greater than 2 km. Given how densely the country is populated about 95% of the surface is simply excluded which effectively eliminates growth of new wind onshore capacities.
By comparison solar energy seems to be in a great position, recently having gained growing momentum?
Precisely, the PV market is truly vibrant. There has been an influx of investors, many are in fact wind developers that have switched gears. This is good news because they are often experienced professionals that can quickly provide high quality projects.
The reason this sector is so dynamic is primarily the grid parity phenomenon that is to appear much sooner than expected. Energy prices are rising (a trend that we expect will hold in the next 5-6 years) and PV generation costs per unit are rapidly decreasing, so in few years auctions will likely no longer be needed for PV.
A very attractive tool in the meantime are corporate PPAs. This is a global market, buyers are typically big international companies who want to cover their needs from green sources, regardless of where generation takes place.
And traders often look for jurisdictions where the support scheme is over or under stress, so they more and more often look for places like Poland. Typically a PPA allows the buyer to contract a delivery of 100% green energy for some 8-10 years at the fixed price expected to be not much higher than forecasted “black” energy benchmark. For producers the PPA replaces the contract for difference auctioned within feed-in-premium model and allows to finance and build projects out of public support scheme. As there are no restrictions currently for photovoltaics I trust these corporate PPAs will only become more attractive. And once 10H rule for wind onshore is abandoned, they will surely become a hot topic also for this technology.
