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Thursday, July 30, 2015

Polish RES Law Acknowledges that Green Certificates are State Aid

While the Commission communicated to the Polish Government in 2013 that it considered the Polish Green Certificates to be state aid, requiring notification of the Commission and approval under the 2008 guidelines, the Polish Government has repeatedly denied this fact.

Now in the new law on RES, Article 39.2 requires that certificates and other forms of support be added together to determine if the state aid limits on support for an individual project would be exceeded. This reflects the fact that the Polish Government has known for years that the Green Certificates are state aid. The Commission has decided that green certificates are state aid in every case before it (earlier based on the substitution fees in various Member State laws and later on the certificate as a valuable asset itself). See DOUBLING DOWN ON A JUNK POKER HAND: THE POLISH GOVERNMENT APPARENTLY INTENDS TO IGNORE ITS TREATY OBLIGATIONS ON STATE AID, Mott's Blog, June 7, 2014 (detailed references and links included).

Since the certificates are state aid, they must be approved by the Commission under the 2008 guidelines. Those guidelines are very particular on the need to levelize the support across technologies based on the cost of production. Nothing in the new guidelines affects this legal obligation which runs from the date of the Polish law in 2005 to now. 


Failure to reauthorize the Green Certificates and adjust their value will require that the recipients refund the support. This is not a theory or a possible outcome, it is European law.[1] The same law requires that the government, being guilty of an unfair trade practice, reimburse those damaged by the unfair competition (those who receive diluted support due to over-compensation of co-firing and old hydro).[2]  Throw into this mix that fact that the auctions in Poland are still tied up in a legal and regulatory quagmire and you can safely predict that this will be a huge political issue. If it breaks before the election, due to a Commission announcement then we will see some real fireworks. If it breaks later, we can expect some folks in the new government whose knowledge of energy policy is limited to saying "coal" four times while waving their arms to be over-matched by the circumstances.   


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[1]Notice From The Commission, Towards An Effective Implementation Of Commission Decisions Ordering Member States To Recover Unlawful And Incompatible State Aid (2007/C 272/05).

[2] The Commission explains: “As part of their role under Article 88(3) of the Treaty, national courts may also be required to uphold claims for compensation for damage caused to competitors of the beneficiary and to other third parties by the unlawful State aid (70 ). Such damages actions are usually directed at the State aid granting authority. They can be particularly important for the claimant, since, contrary to actions aimed at mere recovery, a successful damages action provides the claimant with direct financial compensation for suffered loss.” 2.2.4. Damages claims, par. 43, supra, (2007/C 272/05).


Wednesday, July 22, 2015

The Impending Scandal Over "Capacity Markets"

Losing the ability to sell electricity much of the time to renewables, the coal-based energy sector has come up with a new mantra: capacity markets. This requires that consumers and/or taxpayers pay to have the old fossil fuel plants sit there and "be available" for peak needs. This will cost the German dearly, annually over ten billion more than assumed.

Using coal plants as "peakers" to meet the highest part of the demand cycle is very, very inefficient. As costly as energy storage is now according to its skeptics, it is still more cost effective than using fossil-fuel peaker plants! The Edison Electric Power Research Institute reported a benefit to cost ratio over one for nearly every technological scenario.  “Cost-Effectiveness of Energy Storage in California,” Application of the EPRI EnergyStorage Valuation Tool to Inform the California Public Utility Commission Proceeding R. 10-12-007 3002001162  (2014).

One has to speculate that the state aid guidelines exclusion of stored renewable energy from obtaining operating support was calculated to make energy storage less attractive (and to promote capacity markets). Pretty outrageous stuff! See THE NEW POLISH RES LAW NEEDS TO PROMOTE ENERGY STORAGE, Mott's Blog, July 15, 2014. DG Competition rolled the DG Energy on the support for eneergy storage directly contradicting an earlier Commission position: It is important to ensure that electricity from RES keeps its RES label, even if it has been stored before the final consumption. Possible feed in tariffs should not be affected by intermediate storage.” DG Energy Working Paper. 

No one is publicly talking about the scandal that is "capacity markets" and it is nothing but a new sleigh-of-hand to use state aid to keep large utilities that are heavily invested in old technology from getting hit with more financial losses. 

Wednesday, July 15, 2015

The Notion of Cheaper Fossil Fuels Has a Shelve Life

The arguments advanced in Poland in favor of the continued public investment in coal and lignite all center on their availability (which is an empty argument) and their relatively lower price.  The lower price of fossil fuels is a near-term fact in some ways (depending on where you are on-shore wind may already be cheaper than new coal plants). See U.S. EIA (2014). But the cost advantage of fossil fuel has a shelve life, It is a transitional notion that will disappear in the coming years.

Even China, which was rapidly expanding coal-fired capacity has slowed down now, and the future will belong to renewables.

                                                  Source: Bloomberg 2015.  

Generally in China, the "cross-over" point for on-shore wind is 2022 and the point for PV is 2027. In some other places it has already been hit. This is pretty dramatic stuff since the financial life for energy projects is 15-20 years. So a facility that goes into planning this year and is built, say in 2017-2018, will operate for half or more of its financial life in a market where RES will be cheaper.

This fact explains a lot of the market for new coal projects which have faced the proverbial brick wall. Older coal plants in operation are being closed at an increasing rate in Europe and the United States.

None of this is appreciated in the public discussion in Poland, where superficial platitudes and slogans substitute for real energy policy.[1] But eventually things have to land and when they do it is unlikely that the sight will be pretty.    

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[1] Even in today's news, ""The situation of Polish is special. Poland's economy is based on coal, the Polish energy sector is based on coal, coal plus blood is the Polish economy. Coal gives Poland the raw material for independence in power." Kazimierz Marcinkiewicz and Jaroslaw Kaczynski from PiS. I recommend the article for a long diatribe of delusional thinking that is so far out of the political and economic reality zone that you might think these guys are on another planet or in another century.


What Does Everyone in Europe Know that Poland Does Not? No Future in Coal

Now another company has made a business decision based on an objective view of the European energy market...... ENGI elected not to go forward with plans for a coal-fired electricity plant in Lublin,

Polish politicians try to sell their commitment to coal as an energy security issue. At least Poland has coal, so it goes. But if it is not economically feasible to use coal, especially most Polish coal, then how is this argument any different than saying that Poland has tides for wave power? ["... current demonstration projects suggest the levelised cost of energy (LCOE) [for tidal power]to be in the range of EUR 0.25-0.47/kWh."].

If an energy resource is not economically feasible, it ceases to be a realistic major part of energy security.


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Note: For the price of 0.17-0.23 EURO/kWh, Poland can have biogas that produces roughly twice the green energy accounting the heat utilization. Source: European Biogas Association 2011: Polish Biogas Association technical submission to Ministry of Economy, 2014.

Monday, July 06, 2015

The Possible New Government in Poland Seems to be Struck on Coal



While throughout Europe, the sun is setting on coal-fired power plants, Poland's likely new governing party seems eager to double down on "black" at the energy table. The Katowice convention of Law and Justice saw their key people repeat the plan to replace the coal-fired plants closing in Poland in the next few years with newer versions of the same thing. Of course, a pulverized coal plant meeting EU requirements on emissions has a levelized cost of production higher than onshore wind mills. See U.S. Energy Information Agency "Levelized Cost and Levelized Avoided Cost of New Generation Technologies,in the Annual Energy Outlook 2015. By the time all of these coal-induced dreams could actually be built, solar PV will also likely be near the same cost as well.

In the same vein, the coal that will be burnt in Poland in ten years is far more likely to be foreign than Polish. Polish coal production is half of what is was in 1990 and is dropping every year. The state-owned mines are not economical to operate and world coal prices are not expect to grow significantly to cover such inefficient producers. This is on top of the fact that CO2 penalties will be growing after 2020 to levels more than twice the current 7 Euro/ton and that free allowances generally will run out. No one else is  building new coal-fired plants in Europe and most of those still operating are in some plan to be divested from the parent utility or are being shut-down by the national government.

Where will the next 100 billion Euro to modernize energy come from? Not the national budget. Not the European Union that is on the path for decarbonization. Not the net revenue of the state-owned power companies which is far too small for the task. Not even their debt capacity in a world where more and more major lenders have opted out of coal. And last and least likely, not from foreign capital.

These are brutal facts that no one in Poland can change. The only discussion should be on how to transition to "next thing" and not how to fight an expensive and futile rearguard action against every trend in energy in Europe. Coal-fired plants will, of course, be around a long time in Poland. But they will decline in significance every year until they disappear altogether. No politician in Poland is willing to have an honest discussion based on the facts.

Law and Justice says that they will push Brussels into allowing a separate set of rules for Poland on these issues. Apparently they have been getting free lectures from the Tsipras School of European Negotiation Skills. Every other Member States should pay the freight for emissions reductions but Poland (who until recently claimed some special place by virtue of its adherence to Roman Catholic ideology). Oops, Roman Catholic ideology just went the other way!

Finally Law and Justice does not like large wind farms. I am not a huge fan either and I prefer distributed energy (for which new opportunities in Poland loom large) ....but to meet 2020 targets Poland needs about 4000 MW of wind energy. Breaking this wind number down into "friendly," small neighbor and backyard windmills as PiS hopes to do is economically and technically impossible. Where will PiS find its renewable energy?

Another election will pass in Poland with no serious discussion of the future of energy in this country. Locked into empty slogans, bankrupt coal mines, aging coal-fired power plants, economic ignorance and lost causes, Poland seems to be waiting for some hard lesson in life to bring everyone back to reality.
 


Wednesday, June 24, 2015

The Pope's Message and Poland: The Irresistible Force Means the Immovable Object?

The Pope's new encyclical "Laudato Si" contains a unmistakable repudiation of Polish energy policy devoted to long-term reliance on coal as a major source of electricity and heat in the country.[1]  The reference to reliance on coal could not be more explicit: ""We know that technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay."



The irony of this message is that Poland is at once the most devout Catholic nation and the most reliant on coal for energy. 

This new theological mandate to change the Polish system comes in the wake of many major economic and technological pressures in the same direction.  The huge Norwegian investment fund just announced an end to investment in coal-based assets. The large German utility companies have suffered enormous losses in the operation of their coal-fired plants and are divesting them. Virtually all of the international development assistance funds (the World Bank, EBRD, etc.) have suspended investment in new coal-based projects. China has stopped construction of new coal-fired plants and is now the world leader in new investment in renewable energy. The cost of burning coal in Europe is expected to sky-rocket as the carbon emission prices grow in 2020 and beyond. Except for Poland, the construction of new coal-fired power plants has virtually stopped throughout the world.

New studies are quite unequivocal on the health damage caused by coal emissions in Poland. We have the biggest problem in Europe in this regard. A majority of the ten largest polluting facilities in Europe are also located in Poland. Thousands of children are injured or even die every year because of this situation.

Simultaneously, the public-owned coal mines in Poland are bankrupt and only held up by the use of taxpayers' money. This itself is illegal under EU law and will be stopped by the European Commission in the near future.  Polish coal is only 50% of what it was in 1990 and is inevitably going to be less and less.

Up to now, the Polish Government and the major political parties have resisted all of the economic, technological, and legal pressure and tried to keep doing "business as usual." No serious person privately believes that this is a sustainable course or winning strategy, but it has been the predominate political response.   

But now, as the pro-Catholic party, Law and Justice, rises in the Polish polls, winning the Presidency and looking good for the Parliamentary elections, a new factor weighs in. How will the devout Catholics of Law and Justice and their voters react to this Encyclical?  A realistic dialogue about transitioning from coal to other energy would seem to be the minimum response. The Pope recognized that the shift away from coal would have to be "progressive," not immediate.  But apparently the need to make the transition is now a religious duty as well as a smart policy.

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[1] Excerpts of Laudato Si: "Regrettably, many efforts to seek concrete solutions to the environmental crisis have proved ineffective, not only because of powerful opposition but also because of a more general lack of interest. Obstructionist attitudes, even on the part of believers, can range from denial of the problem to indifference, nonchalant resignation or blind confidence in technical solutions. We require a new and universal solidarity. As the bishops of Southern Africa have stated: “Everyone’s talents and involvement are needed to redress the damage caused by human abuse of God’s creation”. SOUTHERN AFRICAN CATHOLIC BISHOPS’ CONFERENCE, Pastoral Statement on the Environmental Crisis (5 September 1999). All of us can cooperate as instruments of God for the care of creation, each according to his or her own culture, experience, involvements and talents.

"There is an urgent need to develop policies so that, in the next few years, the emission of carbon dioxide and other highly polluting gases can be drastically reduced, for example, substituting for fossil fuels and developing sources of renewable energy.

"If the simple fact of being human moves people to care for the environment of which they are a part, Christians in their turn “realize that their responsibility within creation, and their duty towards nature and the Creator, are an essential part of their faith.” JOHN PAUL II, Message for the 1990 World Day of Peace, 15: AAS 82 (1990), 156 [also condemning the burning of fossil fuels due to its ecological and health effects].

"We know that technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay."




NOTE: The MPs from PiS are consistently upset at the potential noise levels from windmills that maybe affect ten thousand people in minor ways in all of Poland. Millions of Poles are sick from air pollution from coal and thousands actually die every year. Where are the PiS Christians on this issue? I think I know where Jesus would be......

Friday, June 19, 2015

Another Study Demonstrates the Futility of Polish Policy on Coal Mining


Every year less and less of the Polish demand for coal is met by domestic production. Only about half of the amount of coal mined in 1990 in Poland is mined today. The cost of mining Polish coal from the state-owned companies is much more than the market value of the product. Successive "bail outs" have failed because the money has always been used to perpetuate the old mining system and not to truly restructure it.



Now another report, this one from the Warsaw Institute for economic studies, looks an the reality of the economics of Polish coal and finds that it will continue to decline in the future. Without radical restructuring and closing unprofitable mines, the whole sector might collapse by 2020.

The fight to keep economically unjustified coal mines operating has cost the Polish taxpayer a lot of money and offered no great benefits to the Polish economy. See WISE report.


One problem that will not go away, even with restructuring, is the inherently higher cost of underground mining versus surface mining. Surface mined coal is much more competitively priced and with global transportation costs now much lower, it is impossible for Polish deep mined coal to compete even in the domestic market. No Polish politicians seem inclined to be truthful about the reality of Polish coal.
So a sort of collective delusion will likely be inevitable until the sector simply collapses of its own dead-weight.

The problem is amplified by the aging Polish lignite and coal-fired power plant infrastructure. As old plants must close, the Polish Government is using its clout as a shareholder to push construction of new coal blocks. This effort is quite remarkable, since Poland is alone in the world in pursuing this approach. See plenary panel discussion, POWER GEN Europe 2015, Amsterdam, June 11, 2015. Certainly in the EU, with the coming of higher CO2 prices, this plan is foolish and extremely ill-advised. In the not to distant future, even if these new Polish coal plants can keep operating, unlike modern coal plants in Western Europe which are closing, it is likely that they will not be mainly burning Polish coal.

Adding to this dilemma, the emerging Polish political party on top in the polls (PiS), of course, maintains its unqualified support for all things coal as well as proposing to obstruct Polish wind farm development.  As cross-border grid interconnections grow in Poland, this will mean that German imported wind energy will receive the "green preference" in the order of merit in Poland, further shutting out the market for Polish coal and lignite supplied electricity. There does not seem to be a rational Polish politician on these issues with any hope of even causing an open dialogue about the subject.

The best that can be said is that the inevitable and harsh consequences of  vacuous policies will create a new situation in which the issues cannot be avoided.                

Friday, June 12, 2015

EC State Aid Guidelines Bias in Favor of Big Conventional Utilities?



My speech at PowerGen 2015 in Amsterdam has gotten some substantial press here and here.

My thesis is that the large conventional utilities prevailed on the Commission to restrict renewable and distributed energy in important ways that favor their interests. This includes the requirement that everything above 500 kW be connected to the grid (restricting distributed energy on many types). The requirement that every project over 1 MW compete in an auction, where large utilities have shown historical dominance and market power (replacing guaranteed support systems that have nurtured a decentralized power model in Europe). And finally an incomprehensible provision that takes away the renewable energy classification for green energy that is stored and used later (potentially devastating to efforts to encourage the critical development of energy storage in Europe).

The auction system is proven to be a "box of lose gears" that does not produce a predictable amount of renewable energy at a predictable price. A European Commission-funded study concluded just months before the new state aid guidelines that require auctions were proposed:
“…finding a compromise between encouraging high implementation rates without reducing the number of market participants too much proved to be a difficult task.…it remains to be seen whether auction schemes can eventually achieve the desired effectiveness.” 
EcoFys, “Design features of support schemes for renewable electricity,” January 2014.

Some of these issues addressed to the EuroLectric representative in the plenary session produced no cogent answer. 
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