2013-12-08 16:00:04 - New Energy research report from Business Monitor International is now available from Fast Market Research
Our forecasts for electricity generation and consumption in Poland remain subdued this quarter - based largely on our anticipation of limited growth across the broader Polish economy as well as the cancellation of a number of large-scale capacity expansion projects. Poland is in a difficult position: the country is required to adhere to EU directives so as to reduce the amount of coal in its capacity mix, but is struggling to attract the investment needed to replace or modernise aging capacity as low electricity prices and weak demand sap interest in the power sector. As such, with 5GW of dirty coal-fired capacity due to come offline before 2016, Poland faces the prospect of an electricity deficit once demand picks up
again - a situation which has triggered calls for the introduction of a capacity mechanism.
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The major developments in Poland's power sector this quarter include:
* A report released by the country's Energy Ministry in July 2013 stated that the potential supply shortfall could be equivalent to 1,100MW of installed capacity during peak periods in 2017 (widening as demand for electricity rebounds). The ministry's projections are based on the fact that although the country is required to decommission around 4-5GW of aging (mainly hard coal-fired) capacity to meet the EU's green energy directives by 2015, no new large-scale power plants are due online over 2013 and 2014 - a symptom of the poor investment climate in Europe over the last few years.
* With the threat of blackouts looming, in October 2013, Poland's energy market watchdog, Urzad Regulacji Energetyki (URE), urged the Polish government to press ahead with the introduction of a capacity mechanism - whereby the government would guarantee operators a price for electricity generated to provide back-up power. Work on writing this capacity mechanism into law is expected to begin in Q114.
* In the meantime, short-term efforts to halt the idling of existing capacity and encourage upgrading (so as to align with environmental standards) are being pursued. To this end, PSE Operator, the country's grid operator, will be authorised to pay utilities a total of between PLN300mn to PLN500mn a year to keep capacity online - possibly beginning in January 2014.
* Indicative of the problems facing the power sector, in July 2013, Poland's second largest utility, Tauron, announced that the proposed 850MW Blachownia combined cycle gas-fired power plant would almost certainly be postponed. The project, which would cost an estimated PLN3.5bn (US$1.1bn), was scheduled to begin operations in Q217. Concerns had been raised about the feasibility of plans to provide power and heating to consumers - based on uncertainty about projected demand. However, in the same month, Tauron did reaffirm its commitment to building a new US$1.7bn coal-fired power plant in Jaworzno in the south of Poland
* Speaking at the opening of an international trade fair in the southern city of Katowice, Prime Minister Donald Tusk declared that Poland will not phase out its coal industry. Tusk said: 'Poland's economy will continue to be based on coal, but in a more modern way,' before adding that Warsaw would reduce emissions with the aid of new technology.
* Yet, at the same time, Tusk appears to have made the expansion of Opole a litmus test for his energy policy - with confrontation with Brussels growing more likely as Poland seeks to limit EU directives from damaging the country's coal-fired economy. As such, with Tusk claiming in September 2013 that 'the future of Polish energy is in brown and black coal, as well as shale gas', it is clear he intends to see the US$3.5bn project, which will include two 900MW coal-fired units, through to completion - putting him on collision course with the European Commission (EC).
* Opole has come under particular scrutiny because of Poland's failure to transpose an EU directive on carbon capture storage (CCS) technology into law. Under the directive, new coal-fired power plants must be assessed for CCS-readiness - with a site to be left vacant next to the power plant so that the technology can be installed in the future (once CCS becomes commercially viable). However, in Poland's case, this assessment has not be carried out, after the country's Supreme Court ruled the Opole's extension was legal without the assessment because the government had not written the CCS Directive into national statute. Unsurprisingly, the European Commission has disputed this ruling, with Members of the European Parliament and (MEPs) environmentalists urging legal action.
* Nevertheless, on August 2013, France's Alstom, was reported to be joining Polish construction firms Rafako, Polimex-Mostostal and Mostostal Warszawa to construct the facilities - with December 15 2013 announced as the date for the start of construction.
* The privatisation of Energa, the country's last remaining state-owned utility, might be derailed by indecision over the future of renewable energy subsidies. Energa is the Polish utility with the greatest exposure to renewables, but questions have been raised with regards to how Energa can be fairly valued in the run up to an IPO when there is so much regulatory uncertainty with regards to Poland's renewable energy laws.
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