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Monday, October 05, 2015

The Hand Writing in on the Wall: Nuclear and Shale Gas in Poland are Going Nowhere

I wrote in a blog post some months ago that Polish energy policy is hitting reality. The plans for a nuclear plant have been naive and overlooked the simple fact that it will cost a lot of money and provide electricity as expensive as any other source. It is also likely to be illegal aid under EU competition rules [see pending European court challenge). The shale gas potential of Poland has been lost on the legal problem of no ownership of mineral rights, excessive government demands for payments, taxes, and red tape.

Coal is...well, coal. It is dying everywhere else and the economics in Poland are especially unfavorable (deep mining, high sulfur content and high ash content). It cost more to mine generally than it can be sold for for the foreseeable future. The power plants that burn it are aging dinosaurs that are inefficient, enormously polluting, and threatened with near-term extinction by the carbon emission penalties.

Now the shale gas wells are clearly an illusion at best. The nuclear plant is problematic and less likely to be built with every passing day. The state-owned utilities are being compelled to write down their coal-fired assets. New coal-fired capacity makes no economic sense and has been pushed by the government to the point of likely threatening the long-term bankruptcy of its owners. By politically compelling the utilities with some significant state-ownership to look at bailing out the bankrupt state-owned coal mines, the government is hastening the day when the whole electricity infrastructure collapses from economic duress.

Slowly the politicians are getting more vocal about renewable energy, because frankly it is about the only thing left on the plate.  Clearly no other energy sector has investors lined up waiting to invest on the day that the government cleans up the rules.

The hand-writing is on the wall - the facts are clear to anyone looking for them. But like anyone in big trouble, Poland still is struggling with the "denial" phase.

Thursday, September 24, 2015

Comments of the Polish Biogas Association on the Ministry's Proposed Biogas Auction Reference Prices

September 2015
     The proposed reference prices released by the Ministry of Economy for the first auctions under the new law significantly understate the support necessary for anaerobic digestion plants. The numbers proposed are as follows:
1) agricultural biogas plants with a capacity of 1 MW - 450 zł / MWh
2) agricultural biogas plants with a capacity exceeding 1 MW - 435 zł / MWh
3) biogas plants using biogas from landfills - 210 zł / MWh
4) biogas plants using biogas from wastewater treatment plants - 400 zł / MWh
5) biogas plants using biogas other than in paragraphs 3 and 4 - 340 zł / MWh


     There is no data from any source that we are aware of to support the price set in the proposal for agricultural biogas under items 1 and 2. Basic biogas costs for agricultural plants of various sizes were set out by the European Biogas Association in 2010. See graphic below.  Recent studies show that these costs have not gone down and are slightly increasing. See below.

     The cost of producing biogas energy is also well-documented in other reports.  The Fraunhofer Institute in Germany reported German prices for all types of biogas to be between 14 and 21 Euro cents/kWhr.  “Levelized Cost of Electricity Renewable Energy Sources,” November 2013.  A Club of Bologna study in 2012 also reported a similar range of prices:

"The electricity generating costs decrease with increasing plant size and amount from about 15 to 25 Ct/kWhel." Id.  This is very consistent with both the EBA and Fraunhofer numbers. Somewhat higher figures were reported in a study for the Oxford University Institute for Energy Studies – 18 to 34 Euro cents/kWhr. Floris van Foreest, “Perspectives for Biogas in Europe ,”  NG 70, December 2012.
      The published proposal is inconsistent with the data and analyses supplied by the Institute for Renewable Energy that studied the subject in detail in 2013.  IEO expressed the cost of production by a coefficient for green certificate values added to the price of electricity.

RES installation to support with "green certificates" system
Technology code

agriculture biogas 200-500 kW
agriculture biogas 500-1000 kW
agriculture biogas >1000 kW
landfill biogas > 200 kW

water treatment plant biogas >200 kW
Source: IEO, “Analiza Dotycząca Możliwości Określenia Niezbędnej Wysokości Wsparcia Dla Poszczególnych Technologii Oze W Kontekście Realizacji „Krajowego Planu Działania W Zakresie Energii Ze Źródeł Odnawialnych,” 2013.

     These figures range from 27 to 21 Euro cents/kWhr for agricultural biogas and are based on Polish data, somewhat higher than the other reported data using 2013 real cases.
     There is also no indication that the cost of biogas energy production is going down as it is with other technologies. Despite the increase in the efficiency of biogas production, rising costs of the manufacturing of plant components and the substrates (biomass) further cost reductions are not expected anymore.” Döhler and Paterson , supra.

“Improvement of the technical, economic and ecological efficiency of biogas production -future challenges for the agricultural engineering sector,” Helmut Döhler and Mark Paterson( 2012).

     None of the published data supports the 450 PLN/MWhr figure (only 10.7 Euro cents/kWhr).

     The methodology used by the Ministry seems to be fatally flawed in several ways. The operating costs are inordinately low and are inconsistent with IEO and every other study we have seen. See table below.  The assumption that projects will always to able to sell heat is inconsistent with the experience on farm-based plants, which are at the heart of the policy of the Council of Ministers.  The IEO, OSR and UPEBI results are comparable to the published data cited above, while the Ministry’s proposed reference price is seriously at odds with all published reports.

    Source: UPEBI (September 2015).

     PBA also questions the use of a 5% return, especially since Poland agreed to a 15% return[1] in evaluating Joint Implementation projects under the Kyoto Protocol. See CDM Methodology for Additionality. No one is compelled to make these investments and the equity markets move funding to the areas of highest return.  The history of biogas in Poland is instructive, from 2005 to 2011, with electricity and Green Certificates, biogas plants could receive about the same 450 PLN/MWhr as proposed now. Only a small number have been built and those have largely relied upon government grants for a substantial part of their capital costs.[2]  History has proven that more support than this level is necessary to drive investment in this sector.[3] The uncertainty of the auction also makes the incentives worse.

     The final category of “other biogas” – item 5 – includes anaerobic digestion of substrates within the definition of biogas in the new law, including some material not listed in “agricultural biogas.” There is no basis for setting “other biogas” lower than agricultural biogas, because this category also involves having to construct anaerobic digesters to produce methane. The material handling issues for these more complex plants are larger and more costly than farm plants. These AD plants use organic wastes and biodegradable material from a broader range of sources. However, the cost of these AD plants is higher than “agricultural plants” since they must normally provide pre-treatment of substrates, operate at higher temperatures, and provide a higher degree of environmental protection and odor control. Their reference price should be at least the same as “agricultural plants.”[4]    

     Biogas plays a vital role in the plans to meet the 2020 target in Poland. The current National Action plan approved by the European Commission calls for 980 MW of biogas by 2020. The draft Energy Plan for 2050 lowers that number, but calls for 1800 MW of biogas by 2050 in Poland.  These are ambitious goals given the very low level of market development of biogas in Poland in 2015.
     The statutory criteria require that the differences in support be based on objective factors, principally the cost of production. Biogas has the further advantage under these criteria providing more reliable and stable electricity than most other sources as well as meeting other important policy objectives.
     There appears to be no objective and factual basis for the low reference price levels proposed for biogas. There is also no hope whatsoever of achieving the policy goals for biogas at this level of support.
     PBA urges the Ministry to review the actual cost of production and to re-formulate biogas reference prices based on actual data.[1] We have provided numerous European sources on the subject as attachments to these comments.

Respectfully submitted,

Polish Biogas Association
Randy M. Mott, Vice president                                         September  2015

[1]  The availability of co-generation support (now uncertain) as well as grants obviously may provide more support in some cases. But neither of these support mechanisms is assured or adequate to provide for the level of biogas development in the approved government policies on biogas.

[1]  The IRR used is a pro forma figure, which often makes assumptions that do not turn out as beneficial in reality. But without an attractive estimate of the return at the beginning of the investment assessment, there will be no funding.
[2]  There will never be enough government grant funding to create a significant part of the 1800 MW of biogas described in the Government’s draft Energy Plan for 2050. Nor will grants constitute a significant fraction of the 980 MW target for biogas in 2020 (or the lower 2020 figure in the 2050 document). If grants are used, a project will automatically have a lower reference price under the state aid intensity test in any event.
[3]  German biogas development, often cited as the model by Polish officials, provided much higher levels of support than now proposed in Poland. See Spath,”The Success Factors Of The Development Of Biogas Within Germany - A Case Study,”  University of Twente, 2013 (thesis). German CAPEX and OPEX during this period actually slightly lower than what we face today. See Döhler and  Paterson, supra, graphic above.
[4]  PBA also has requested that “other biogas” plants be allowed to take 20% sewage sludge by volume and not be classified “sewage treatment plants.”  This is the rule applied in Denmark and it provides many benefits to local communities. The only rationale for a lower reference price is lower cost of production of energy. This occurs at sewage treatment plants where methane collection is simply added to existing, required waste water treatment structures. AD plants using small volumes of sewage sludge have the same or higher costs than farm plants and cannot be fairly classify in this other distinct category.

Tuesday, September 15, 2015

Please Help

Please help my blog by linking it on other sites. Even your public pages on Facebook. This help search engines find me and builds traffic.

I would like to obviously reach more people with unfiltered news about energy and the environment in Poland. Thanks for any assistance!

Tuesday, September 08, 2015

Rumors that the Treasury Ministry Thinks the Small Auction Will be Pointless and Expensive

There are rumors in Warsaw that the Polish Treasury Ministry thinks that the small auction for renewable energy support (below 1 MW) will be waste of time and resources. Because 25% of all of the support provided from 2016 and beyond must go to small sources, and small sources will not be sufficient to meet the target, anyone who bids in an auction within the maximum price will win. At the same time, the cost of setting up the auction is pretty much the same whether 250 kW a project are being bid or 150 MW.

The Ministry of Economy conceded in the Parliamentary debate on the RES bill that there will be more support offered small sources than there will be projects. This means that there will really be no competition for support and no real pressure on the prices sought. All bids will win.... causing us to ask earlier why have an auction at all?

Apparently the Treasury thinks the same thing. The European Commission must accept the "GBER notification" from the Polish Government on the new law and there has been at least one objection to the small auction as not meeting the GBER criteria because it is not a competitive procedure. The Commission defines competitive procedures as those where twice the amount to be awarded is bid.

No one needs more uncertainty in the Polish renewable energy market right now. But it is a fact of life. The best solution, of course, would be to go up to sources up to 2 MW or even 5 MW and announce fixed tariffs. The amounts should vary with technology to avoid market distortion.

Alternatively, the government could use the coefficients developed under the earlier proposed law and adjust green certificate prices accordingly. The Commission will void the old hydro and at least half of the value of co-firing certificates to reduce the market glut. The new state aid guidelines allow this approach and Poland will have to do it anyway to meet the state aid rules applicable from 2005 to 2017.

Some re-visitation of the RES legislation seems inevitable. The "dead zone" created by the end of green certificates in 2015 and the delay in the auction construction starts until 2017 or 2018 will be one major problem pushing for a new legislative fix. The Commission decision on green certificates as state aid and the GBER decision will also likely raise the need for new legislation. Fortunately, the 2013 law substantially meets the needs likely to emerge and should be dusted off and enacted.

Wednesday, September 02, 2015

Health Effects of Coal in Poland Dwarf Concerns About Windmiils

The party leading the polls to take charge of the Polish Parliament (Law and Justice) has a campaign to fight wind farms in Poland. They complain about their aesthetics and possible noise issues for immediate neighbors. Law and Justice wants to ban wind farms in most of Poland by placing restrictions on their siting.

This is an amazingly hypocritical viewpoint all things considered. Wind energy is gradually replacing coal in most of Europe. It could reduce coal burning in Poland as well. Even the Pope has weighed in on the need for a "rapid transition" away fro coal energy.

The observed effects of burning coal in Poland are not in dispute:

The World Health Organization (WHO) estimates that poor air quality resulting from low emissions in Poland is the reason why an average of 48 thousand. premature deaths a year and shorten life by an average of 10 months. Link.

Law and Justice proclaims that it is the Christian party and is comprised of many devote Catholics. I have enormous difficulty justifying their position on coal in Poland with their professed faith.

Besides the economic disaster that coal-fired power plants are becoming, there is a compelling case of their rapid phase-out. No one is listening in Poland.

Thursday, August 13, 2015

How Will Injection of Politics into Tauron Affect Shareholders?

The verdict is still undecided, but the initial view is not encouraging. The Treasury Ministry is using its leverage as the major shareholder to put in new directors who are more friendly toward the idea of bailing out a bankrupt state-owned coal mine. The initial Tauron proposal based on a real business case was dismissed by the unions and the government.

The Polish Government wants to use Tauron's economic muscle to bail out a mining company that is not economical to operate.

Why would private investors have any confidence that such companies manipulated by the government are actually operating in a manner designed to benefit their other shareholders?

See source, August 13, 2015.

Note: August 26, 2015: All the state-owned electricity companies have been hit hard by falling stock prices. The Government has also pushed the other company boards to use their company resources to bail out coal (on very unrealistic terms due to union pressure). If successful, the Government will only succeed in also destroying the electricity companies as well as the mines.

Tuesday, August 11, 2015

Will Electricity Shortages in Poland Change Any Policies?

Poland is stumbling over a cliff on its energy future. Poland's energy future has been the subject of hundreds of ages of "plans" written by out of touch bureaucrats beholden  to the invested interest of the state in its coal-fired utilities. Not surprisingly, these plans have little to do with reality. See "Hitting Reality: Polish Energy Policy Meets the Facts," May 2014. Now electricity shortages and threatened brown-outs may compel Polish politicians to start at least trying to consider technological and economic realities.

Alone in Europe, Poland is building new coal-fired capacity while its coal and lignite fired current plants are relics of a past age. New coal plants will cost more than wind energy and during their useful life they will also be more expensive than PV. But they will only be profitable if they can operate at high rates of utilization. On average, Poland uses about 55% of its electricity capacity and renewable energy gets a priority in the order of merit which has lowered fossil fuel plant utilization rates throughout Europe. Such plants will remain profitable only be state aid in the form of "capacity markets" where owners get paid to simply have the plants available whether they are used or not. This is the most expensive option for "reserve" power and makes no sense. It is of course part of the Polish plan, since it benefits state-owned utilities. See  Electric Power Research Institute California Study.

While Polish politicians echo the coal industry mantra about the unreliability of renewables, all of our neighboring countries seem to have surpluses using much higher rates of renewable energy. As cross border connections grow, Poland will be compelled to buy this green energy in lieu of its domestic coal-based electricity, even when there is no shortage.

No major political party in Poland has embraced a modern and realistic energy policy that is based on the new technological and economic realities. The pain of brown-outs, lost jobs, higher prices for the wrong bets on technology, and other adverse consequences will force a re-thinking of energy policy here. We can cedrtainly re-double our efforts to force a real debate.