Field research constitutes an instrumental part of our work and we are thrilled to share some of our findings and insights with our readers. Without further ado, we introduce a new section of our blog drawing on the results of our work on various topics in the CEE region. The final Insights highlight points out potential risks, tying the whole spotlight together.
With energy being such a highly discussed topic, we begin our supply of current insights with a spotlight on the Polish energy market, infrastructure and policy, and the industry’s responses to the contemporary challenges it has been facing.
What we offer here is just a small glimpse of what there is to know; the tip of the iceberg. And should the article leave you wanting more, do not hesitate to contact us for bespoke risk intelligence services tailored to your needs.
After a pandemic-related recession in 2020, Poland’s energy consumption has returned to its previous levels with long-term trends pointing toward more growth. 40% of the total Polish energy supply relies on the burning of coal, making Poland the second largest coal consumer in the EU after Germany. The high reliance on fossil fuels and slow transition speed have been causing friction with the EU and its environmental policies and goals. Nevertheless, Poland is now also making plans to diversify its energy sources, namely as part of the “Energy Policy for Poland until 2040” strategy. According to this, the country is expecting to significantly lower its reliance on coal and instead emphasize the role of renewable and nuclear energy. Or at least it did before the outbreak of the war in Ukraine which threw a spanner in the works. So what happens now?
The plan to cut off all Russian supplies by the end of 2022 may be overly ambitious. While Russian gas may be replaced by the year’s end, coal and oil might prove more difficult to import in sufficient quantities.
The Polish economy is heavily dependent on coal usage, with around 80,000 people employed in the mining industry and another 500,000 in related sectors. The majority of Polish coal is located at just a few mining sites in the country, meaning these regions would be disproportionately affected by the phase-out. Striking a balance between protecting the workers in coal-related sectors and modernising the economy and energy infrastructure is going to be a difficult, not to mention expensive, task.
The plans for the Siarzewo dam have been labelled as detrimental to the environment by scientists, NGOs and even the Polish Ministry for Climate and Environment, making its construction a risk-filled affair.
While nuclear energy presents an instrumental part of the mix, it is considered controversial by the public – a sentiment the government may have difficulty overcoming.
Tensions between Poland and the EU remain a risk. Poland’s refusal to comply with tightening emission levels threatens to stop funding from the EU, in turn blocking much-needed infrastructure investments. The fund freeze has been temporarily suspended due to the Ukrainian refugee crisis, but relations remain tense.
Renewables hold the most potential in the long-term transition to greener energy. With investments into both new and established technologies growing, especially in light of the announced coal phase-out, returns will rank at one of the highest points in the CEE region.
The impacts of war
The war in Ukraine has had a profound effect on both the European and global energy markets, and Poland, too, has been forced to react to these developments and make necessary adjustments. On March 29, the country announced an embargo on all coal imports from Russia, threatening to respond to any breaches with financial sanctions, while also making the decision to move away from Russian oil and gas. Gaining independence from Russian oil by the end of 2022 will be especially difficult, landing Poland with the most ambitious plan for decoupling from Russian raw materials of all the EU members. Despite that the country remains firm in its position, even drafting a proposal to tax EU members who continue to import and rely on Russian energy.
As a result, Poland may have to place its climate targets on the back burner while it focuses on seeking out secure alternative supplies. The planned phase-out of coal is likely to be postponed and sources of transitional fossil fuels such as oil and liquefied natural gas (LNG) will be diversified.
The only LNG terminal currently operating in Poland (Świnoujście) is going to be supported by a new terminal to be built in Gdańsk and supplied from Germany through the Yamal, from Lithuania through the GIPL, from Slovakia (since July), and through the long-anticipated Baltic Pipe (since October), which will deliver gas from Norway. Poland has gas reserves capable of covering up to 16% of its annual consumption and robust diversification plans in place, meaning that even a more serious European disruption should not present a major threat. Concerning oil, a new oil terminal in Gdansk capable of loading the country’s yearly crude demand will be instrumental in cutting all energy ties with Russia.
Despite these provisions and a high focus on renewables, the introduction of nuclear into the mix will likely be instrumental to creating a secure energy supply in the 2030s, especially with coal gradually losing its importance. The current plan comprises two conventional nuclear power plants with three reactors each, the first of which is expected to become operational by 2033. This may however be a slightly too ambitious plan, especially in view of the delays experienced by EU countries which already had plenty of experience with nuclear energy. The key challenge now is also choosing the right provider – a highly political decision, currently among three contenders; Westinghouse Electric Company from the USA, the French EDF, and Korea Hydro & Nuclear Power.
The European Union has been responding to the increasing urgency of the climate crisis by setting still more ambitious climate and energy targets which Poland has been reluctant to comply with. In 2020, when EU institutions agreed to raise the target for reducing greenhouse gas emissions from 40% to 55% below 1990 levels by 2030, Polish compliance had to be secured by the offer of financial compensation from the EU. This would make Poland the largest beneficiary of the European Green Deal and FIT for 55 plans, expected to receive almost 220 billion euros in funds by 2030.
Funding was temporarily blocked, however, in response to Poland’s challenging of the supremacy of European law and refusal to pay fines imposed by the European Court of Justice, threatening the country’s capacity to deliver on transition goals. Furthermore, Poland remains the only EU member state which refuses to make a net zero pledge (as opposed to the broader EU commitment to reach net zero greenhouse gas emissions by 2050).
This is not to say, however, that Poland has no interest at all in changing its environmental footprint. The new energy policy published in February 2021 includes ambitious commitments to move in a more diverse and ecological direction; phasing out domestic coal mining by 2049, cutting coal’s share of power generation to 11% by 2040, raising the renewable energy share to 32% by 2030 (and around 50% by 2050), and the introduction of nuclear power in 2033 with the target of reaching 6-9 GW by 2040.
Wind energy is currently the strongest renewable in the mix, having experienced significant growth during the past decade and accounting for 7 GW of installed capacity, approximately 14% of the total, as of 2021. Having introduced a bill in 2016 which restricts the construction of onshore power plants (turbines can no longer be built within 2 km of other buildings or forests, ruling out the vast majority of land), with its amendment published in June 2021 still waiting to be passed (likely to be achieved by the end of 2022), the government instead shifted its attention to offshore projects. The latest government visions expect the installation of an additional 5.9 GW by 2030 with the support of several foreign investors.
On the other hand, hydropower appears to be lagging behind, in spite of apparent government support and planning. 2020 was supposed to mark the beginning of the construction of a new hydropower facility in Siarzewo approved in 2017, but thus far no news concerning the matter has been released. Another plant in Mloty is also meant to resume construction after a 30-year pause, though the country’s aforementioned track record allows for some doubts. And while the overall hydro capacity is expected to increase slightly, its overall share in gross domestic energy consumption will drop in the next decade.
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