Poland’s green transition, fact or fiction?

The dominance of coal in Poland’s energy mix will come to an end – the question is by when and what will replace the dirty fuel. 

This week’s pod discusses the options open to the country and which form of power generation will expand at the fastest rate.

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests: 

• Arek Zielezny, Managing Director, Laconia Investments, 
• Marcin Czekanski, Poland Correspondent, Montel. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Montel Weekly Podcast, bring you Energy Matters in an informal setting. My name is Richard Sverrisson. Today we are focusing on Poland, and I'm joined by Arek Zielezny, if that's correct, Arek. That's correct. Okay. Arek, a warm welcome to you. And I'm also joined by Marcin Czekanski Montel's Poland Correspondent. So a warm welcome to you, Marcin. Thank you. Thank you, Charles. I thought I'd start today, Arek, by, by saying, you know, we are looking at the policy picture. Poland has a new government. Uh, what does this mean for energy? Is this a continuation of what we saw before or is there a change? How do you view this?

Arek Zielezny, Managing Director, Laconia Investments: 0:40

Thank you for the opportunity And yeah, it's actually very interesting question. However, the answer is not very obvious. The government was just installed. We are probably as a sector waiting to hear the details of the new arrangement. It looks like it will be a new opening. The past. Ministry of Energy has been splitted into two parts. A Ministry of Climate, which probably will be going more into the development and energy transition and renewables side and the other part of the former Ministry of Energy. Went to the Ministry of State assets. And here we still not see clearly which elements of the energy regulation went to, which ministry looks like that the future is somewhere in between the renewables. And the coal mines.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:37

Okay. So that's the balance, the two factors that are balancing each other out here.

Arek Zielezny, Managing Director, Laconia Investments: 1:42

Exactly.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:42

And of course it's very early days. The election was only a couple of weeks ago, but one of the key questions here is, as you highlighted. The potential for a coal exit, is that likely? And if so, by when? When would be a realistic end to coal fire generation in Poland? It's a very big question, but,

Arek Zielezny, Managing Director, Laconia Investments: 2:00

It's a, it's also very ambitious question. Because that's, something that even though it's economic beco behind that will be answered by the political decision as it was in Germany. It'll be the same one in Poland. The question is who will take the decision and when currently we do not know any exact date, but the market forces are showing to me that it should be rather earlier. Then previously politicians team seems to be declaring. So for Poland, it's much greater problem than for many other European countries. It's a big social and political topic. And it's something that is something that cannot be solved within the few years. But definitely we are coming to the very important point where no reverse will be possible,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:52

right? I mean, the country has, you know, 80% of the power generated pollen comes from coal, hard coal and ignites, if I'm not mistaken. But with the current carbon pricing scenario with the coal prices where they are. Are some of these plants already unprofitable these coal plants? So potentially if carbon prices could rise even further, it would render some of these maybe older units, more uneconomic.

Arek Zielezny, Managing Director, Laconia Investments: 3:19

I think it's already happening. We've seen it in 2018 and also 2019, that the merit order sequence have changed in the past is where the beginning of that. After, of course, renewables where the lignite fire power plants and then only hard coal power plants, and they swapped. Yeah. At the moment with the, with that high CO2 is already pushing the lignite fire power plants into difficult wars. Of course. For them, it's it's difficult to completely stop their operations because they have the coal mines integrated into the process and they have to keep them running. But percentage wise, changes in the generation are already showing that lignite, fire power plants. Are in retreat.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:12

Okay, sure. Like as in other parts of Europe as well, just across the border in Germany. But what I was gonna ask as well follow up, is there an issue here of the security supply? I mean, if some of these plants came off too quickly, could that threaten supply in in Poland?

Arek Zielezny, Managing Director, Laconia Investments: 4:26

So far I haven't seen that discussion to be taken to the table in Poland. Larger scale power plants. The malignant fuel is here, therefore, the coal fired power plants, the hot coal is also domestic one. In majority. So it's it's not a security of supply in the sense of missing power generation. It is just the question how big economic threat or in uncom competitiveness it is.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:55

Okay. So Poland does need to lower its carbon footprint. You've said there's a new ministry for the energy transition and for climate being set up. Where does this leave gas? I mean, gas plants, do they have, have a role to play in Poland's energy mix or is it gonna be, like you said, just coal and renewables?

Arek Zielezny, Managing Director, Laconia Investments: 5:12

I think there is a quite a space in between these two, and that's the gas which will occupy the middle point. We see currently that gas is getting more and more popular. Many industrial customers. Which are considering what to do if to install PV panels or something else to create them independent from the power perspective. They are very often looking into the cogen solutions. And. This cogen is almost in all the cases based on gas fuel.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:48

So coalfire generation, some form of biomass or coal with gas. Yeah.

Arek Zielezny, Managing Director, Laconia Investments: 5:52

No, cogen in the sense of production of

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:56

power and heat. Okay. Power and heat in that sense. So the CHP kind of exactly the CMP variant. Okay. Very interesting. So, but you also. Say that maybe with Poland's capacity mechanism you could see some gas fire generation being built as a result of their ways of trying to back up the system.

Arek Zielezny, Managing Director, Laconia Investments: 6:13

Sure. It's also happening the capacity mechanism was introduced in one way to encourage a new capacity adds. To the system after few larger scale coal mine investments I've seen last year. This year I would say that quite a few new gas fired units might be auction. And the auction is in a few days, beginning of December. So after the result of the auction, we should, we should. See some announcements.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:44

Okay. So we'll wait eagerly for the results of that auction and then we'll see it, have some picture of the, uh, of Poland's future energy mix. Interesting.

Marcin Czekanski, Poland Correspondent, Montel: 6:51

Thank you. So you mentioned there are like two decision centers within the government now regarding the. Energy policy and the picture is not clear who will take responsibility eventually. So does it reflect, like a split in the government between Pro Paul part and let's say pro rules?

Arek Zielezny, Managing Director, Laconia Investments: 7:10

I would say it's very difficult to answer. I wouldn't take the position into such a discussion. I would rather address it in a way that. Furman have to balance out the social demand of the coal mining sector with the political demands of the voters which which are concerned about the climate change.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:33

Listeners who aren't familiar with Poland and the setup here, I think. You know, coal is a huge part of, you know, people's jobs and livelihoods in certain parts, especially in, is it Upper Ali Asia, isn't it? Exactly. Yeah, yeah.

Marcin Czekanski, Poland Correspondent, Montel: 7:45

South of the country also in the east in the Rubin region, PO has set some very ambitious goals for Bels in by 2040, like 20 TZ of water hikes compared to one gigawatt now. And also more than 10 gigawatts of offshore wind. So do you think we can achieve it? I'm referring to the dikes mainly because it's it seems like an enormous growth from what we have now.

Arek Zielezny, Managing Director, Laconia Investments: 8:12

I would say it logs from today's perspective as very aggressive. However, at the same time, it has to be noted. That the first year of real development of the solar in Poland brought probably roughly around a thousand megawatts installed capacity. So if you multiply it by 10 years, kind of doesn't make that, uh, that prediction, that target so impossible. So I would say very ambitious. Hopefully we get there. Looks like there might be chances to get there, but if we reach 90% or 80% of that, it would be always also a big success.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:55

I mean, that's a phenomenal number in a sense. Do you think, does this come mainly from utility scale farms or from household to combination of both. I mean, how, where is the biggest growth area?

Arek Zielezny, Managing Director, Laconia Investments: 9:07

Probably the 20 gigawatt that needs to be installed. Would have to come from the industrial scale or commercial installations 2019 capacities that were added. Surprisingly they're coming in vast majority from the small installation. Households, small business installations and so on. So this is this is very intriguing how the bottom up movement is is creating the energy transition in that field.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:38

That's very interesting. I mean, you've seen it happen in other countries, for example, in Germany especially, but others besides, but. How are the big utilities in Poland dealing with this change? I mean, do they see it as a threat? As in, you know, it could threaten some of the bottom line, uh, certainly some of the retailers.'cause if, you know, it'd befalling demand for their products or do they see it as an opportunity and a growth area to develop their renewable portfolio?

Arek Zielezny, Managing Director, Laconia Investments: 10:03

I see a very positive change in that respect. If we would look few years ago. Quite a lot of utilities were treat it as a threat. Probably a year ago, maybe this year there was a fundamental change in the perception and in the. In the way they communicate their plans into the energy transition. And more and more of them are very optimistically looking into renewable generations looking to purchase of wind energy portfolio plans of PGE on the offshore. And also. Probably all of the utilities, they are having some larger scale projects on solar, somewhere in the development pipeline. So from that point of view, I see it as a very positive change.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:52

Absolutely. I mean, and in some ways you could also almost say that they're being forced to make that change because of the environment around them. Couldn't you? I mean,

Arek Zielezny, Managing Director, Laconia Investments: 10:59

but I prefer if they're being forced by the environment around them, not by the political decision.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:05

Absolutely. And the market forces that are driving that change. What about offshore wind? Is this a growth area as well? I mean. You've mentioned, uh, some companies are expanding domestic firms within Poland. Do you see a role here for outside investors from outside the country?

Arek Zielezny, Managing Director, Laconia Investments: 11:22

There will be a role for outside investors. I would say at the moment, I. I don't think so. Any Polish company declared to develop offshore installation without participation of any more experienced partner. It is it's Ecuador who is in Poland. The host is in Poland. Recently, RWE announced purchase of the portfolio of the one offshore project. So I think this will be. Probably the biggest role for the foreign investors in the Polish power industry

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:56

at the moment. And that they have a lot of expertise. Of course, they're building projects all over and over Europe. Exactly. Are there any hurdles or obstacles re restricting renewables growth in Poland? I mean, there is this rule for onshore. Onshore wind which is also holding back growth maybe.

Arek Zielezny, Managing Director, Laconia Investments: 12:13

Yes, exactly. I would say for the offshore it looks like that the regulations are being prepared and I would say the biggest obstacle is lack of regulations, but I. Hope it will be changing soon. For the solar, I do not see that many of problems but for the onshore wind, definitely the distance regulation that prohibits to build new onshore wind installation closer that 10 times hype of the installation is is making it very difficult or almost impossible to find new projects. And. Hopefully what some gossips are saying the regulation will not be abolished, but will be probably relaxed a bit. Which can add few additional projects. To the wind on shared capacity,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:04

we see that power prices in Poland are about 10 to 15 euros higher than in, in certainly in Germany. Do you expect this spread to continue? I mean, there is talk of, once Germany exits nuclear plants, you know, there would be a little bit of capacity squeeze there and it starts to exit coal. Do you see then maybe German prices coming up or Polish falling or you know what? What are your views here, Eric?

Arek Zielezny, Managing Director, Laconia Investments: 13:29

In principle, considering the status quo? On the emissions market because this is the key for the future prices. Currently, I would say that the Polish prices have potential to go down. Right? With the new additions of renewable capacities, probably unsustainable in the long term coal costs and also relatively high clean, dark spread at the moment. So there is a room to go down. The German prices on the contrary, where we see recently are under pressure to grow. There was a longer period of time where German prices or German curve was backwardation there the price of every sec following year. Was cheaper than than the current one. This has gone already. We see that it inverted and and we have typical contango in Germany. So from my point of view the prices will rather converge and it will be for both of them moving towards each other.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:30

It'll be interesting to see that developer, how it pans out. In the next, in the next few years,

Marcin Czekanski, Poland Correspondent, Montel: 14:35

we see more import capacity available for the market in po. So this year, how do you see. This change the market, has this had any substantial impact on sport prices or still to few megawatts to see any substantial change?

Arek Zielezny, Managing Director, Laconia Investments: 14:50

I think after many years where there was very limited or almost no capacity given by the TSO to the market, the increase that we observed recently is very welcomed by the market participants. Also the expert implementation. Which linked Poland to European markets with the use of cross border capacities. Had brilliantly.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:15

This is in, this is the intraday intraday market. Exactly. Po Yeah. The cross border intraday market

Arek Zielezny, Managing Director, Laconia Investments: 15:20

has, has substantially increased the liquidity on the intraday market in Poland. So these are all the good developments that, that we see. It would be also interesting to see if, uh, either TSOs. Or some market participants are able to generate some long term. Capacity arrangement for the import or exporter based on the cross border capacity. Some, I don't know, other physical rights or financial rights. This would be very interesting development. And also the cross border activity brings a bit of volatility and new approach to the Polish market, which, recently is not very, I would say, not very liquid and not very rich in terms of number of participants.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:09

So this would maybe, one would hope boost the amount of participants, then boost liquidity further a sort of virtuous circle. Exactly. Yeah. So we've been touching mainly Arik on, on, on power, but there's an interesting, I mean, the gas market, I, I wish we had more time to talk about gas market issues, but just leave it with one question really. The gas, Polish gas monopoly, P-G-N-I-G, uh, recently canceled a or didn't prolong. Its, um, extend a 10 year deal with Gas Pro for gas through the Yamal pipeline. What's the implication of this, you and will the gas from the Amal be made available to market participants within Poland?

Arek Zielezny, Managing Director, Laconia Investments: 16:48

I would say I'm grateful that I'm not the one that has to decide on that. Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:52

sure. Yeah.

Arek Zielezny, Managing Director, Laconia Investments: 16:52

On one hand. The relations between Poland and gastro and gas market development in Poland are quite complicated. And difficult. But on the other hand I would say it would be a shame probably if the additional supplier. Of the gas or additional supply or way of supplying the gas to polish market would not be given to market participants in the future. So I think, and this is how I read declarations of ping and polish authorities that they do not want to prolong. The contract. But they are not excluding, contracting or off taking the gas on the different frameworks than the long-term deal.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:40

I noticed maybe some of the listeners also discovered that I didn't actually say what your role was or what your position is, but you are managing director of Laconia Investments, so you're not, and and you have been active in the Polish market for many, many years. So you're, you're a veteran of this market. So Eric thank you very much for joining the Monte podcast this week. Thank you and thank you Marcin for joining as well. That's about all we've got time for this week. Listeners, please remember to follow all the latest news on Monte online and you can follow us on social media, Twitter, LinkedIn, and subscribe to this podcast on Apple Podcasts and on Spotify. Thank you very much and goodbye. Thank you.