First published in The Energy Industry Times -

Poland is amongst the least carbon efficient member states of the EU due to its extraordinary dependence on coal. Hard coal and lignite-fired power plants produce around 85 per cent of Poland’s electricity and currently renewables meet around 10 per cent of the country’s energy needs, compared with the average of around 20 per cent in EU member countries.

Poland’s conservative Law and Justice Party (PiS), which came into power in October has pledged to save the loss-making, state subsidised coal sector. However, fulfilling this promise to the electorate and adhering to its legal obligations under the Industrial Emissions Directive (Directive 2010/75/EU) and the Renewable Energy Directive (Directive 2009/28/EC) will present a challenge, especially when the message is clear – the future of Europe lies in renewables and investing in coal technologies, which are harmful to the environment, may prove unprofitable in the long term.

Perhaps an obvious point therefore but nonetheless worth making, is that Poland should diversify its energy mix from coal and step-up the pace of developing nuclear and renewable energy rather than prioritising the replacement of old coal plants with new more efficient coal plant that produce less greenhouse gas emissions.

Poland’s coal mining sector is affected by the plummeting coal prices caused by global oversupply, decreasing demand and high productions costs. In 2015 the sector made a net loss of Zloty1.67 billion ($420.7 million) and lost Zloty21.98 on every metric tonne of coal sold in the first three quarters of that year.

This drop in profitability in the coal mining sector has forced foreign utilities to exit the Polish market. In mid-2015, Engie (formerly GDF Suez) confirmed it would abandon its plants to build a 500 MW coal fired plant in Łęczna in southeast Poland. Similarly, French utility, EDF (which holds a 15 per cent share of the heating market) last January launched a sale of its Polish coal fired heating and power plants, worth up to Zloty2 billion ($498 million). The sale includes EDF’s 1.7 GW coal fired power station located in Rybnik, which generates about 7 per cent of the electricity consumed in Poland.

In a bid to maintain around 100000 jobs (the majority of which are located in Upper Silesia) the Polish government has spent billions of Zlotys in subsidies. From 1990 to 2012 this totalled Zloty170 billion. Poland’s (and the EU’s) biggest miner Kompania Węglowa (‘KW’) is currently seeking an injection of Zloty1.5 billion to assist with a restructuring project, which involves transferring 11 of KW’s mines to a new single entity, in a bid to lower the average cost of coal production to Zloty 214 per metric tonne by 2017. In December last year, PiS approved a bill that allows the coal sector to continue functioning until 2019 without closing any mines.

Currently, Poland is building around 14 new coal fired power plants all at various stages of planning and construction, although not all may be completed. It is anticipated that four new coal fired power plants are expected to come on line by 2019, as the country faces a deficit of around 8 GW of capacity starting in 2020, once the EU’s Industrial Emissions Directive kicks in. The regulations will force dirty generation units to shut down and Poland is desperately seeking to replace them.

New coal power production will therefore require expensive carbon capture and storage so as not to fall foul of EU emissions quotas. Even if the plants produce less emissions, the use of coal in household heating has created high levels of potentially cancerous and life threatening dust particles. In Krakow, Poland’s second city, local authorities approved a ban for citizens (effective from August 1, 2019) from heating their homes with coal and wood after figures showed the town’s atmosphere is among the worst polluted in Europe.

Progress to develop nuclear capacity has been rather slow. In 2009, the Polish government made Poland’s largest utility, Polska Grupa Energetyczna SA (PGE) responsible for leading an investment to build the country’s first two nuclear power plants with a combined capacity of 6 GW. PGE (which supplies 42 per cent of Poland’s electricity) hopes that by 2035, 36 per cent of its electricity generated will be from these two plants, the rest will be from gas (11 per cent), renewables (14 per cent), lignite (33 per cent) and coal 5 per cent.

PGE and Polish state-controlled utilities Tauron Polska Energia SA, Enea SA and copper miner KGHM are likely to be co-investors in the first 3 GW plant. Progress has been slow and plans to build the first 3 GW plant by 2024 have been pushed back to 2027. Perhaps consolidation in Poland’s power industry through the merger of PGE, Taruon, Energa and Enea into two groups, a plan initiated by PiS and which will be subject to competition approval by the EU Commission, could speed up the process.

PGE EJ1, the nuclear power subsidiary of PGE is looking for strategic partners, this is believed to have been one of the main goals behind President Duda’s visit to Beijing last November, where a Chinese-Polish memorandum for the construction of a nuclear plant in Poland was signed. However even with a strategic partner signed up (and this is not clear), generating by 2027 remains an ambitious target given the delays besetting other nuclear new build programmes across the globe.

Despite PiS’ pursuit to save the coal sector, it will need to comply with the 15 per cent renewable energy target for final energy consumption by 2020. This target is encompassed in Poland’s National Renewable Energy Action commissioned by Directive 2009/28/EC. According to the Polish Goelogical Institute, the resources of renewable energy in Poland is estimated as follows: (i) hydropower – 12-15 TWh/year, (ii) biomass resources – approximately 750 PJ/year and (iii) wind energy, which could cover 12 per cent of Poland’s electricity requirements – gross demand for domestic electricity in 2015 was 152.8 TWh.

Clearly, the theoretical potential for wind is substantial in Poland. However, in June 2015, PiS contemplated raising the minimum distance between wind turbines and dwellings to 3 km due to concerns over the impact wind turbines would have on the Polish landscape, this measure could have severely impacted the onshore wind industry.

Full utilisation of the wind potential has not been reached. In 2015 wind generation accounted for 6.2per cent of Poland’s total electricity generation. In addition, the Polish Renewable Energy Act which is designed to incentivise renewable energy investment by providing a feedin- tariff (FiT) for micro-generation (up to 10 kW) and replacing the green certificate system with auctions was due to take effect on January 1, 2016. However, a recent amendment by the PiS adopted on December 29, 2015 delayed the Act’s implementation until 30 June 2016.

Signing the COP21 deal in December, Poland obtained the best agreement it could have hoped for. Rather than rule out the use of coal, the deal set out a framework for more sustainable development, including achieving balance between emissions and absorptions, e.g. by forests.

There is no doubt coal has a place in Poland’s energy mix, but diversification through nuclear and the full utilisation of renewables potential will be the real answer to complying with international obligations.