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Wednesday, November 30, 2016

New EU Rules Will Preclude Coal from Being Used as Reserve Electricity

The big plan to save coal energy in Poland - which is dying here as it is all over Europe - includes plans to allow coal plants to receive subsidies while they are not operating, just so they will be available when needed.

This is a terrible plan on many levels, i.e. coal plants have slow "ramp-up" times and cannot quickly respond to peak power demands. They also are very uneconomic to run at lower than 75-80% utilization rates. U.S. studies showed even at higher prices a few years ago, that energy storage was more cost-effective than fossil-fuel peak plants.

And now the EU seems poised to set a CO2 limit on plants used for reserve power that would preclude coal altogether. "Capacity mechanisms will not be used as a backdoor subsidy of high-polluting fossil fuels; that would go against our climate objectives," EU Commissioner for Climate Action and Energy Miguel Arias Canete told Reuters"It is necessary to include strict environmental criteria in such mechanisms to avoid giving wrong incentives that might lead to stranded assets as our emissions target gets more strict."

There is a five-year phase-in period contained in the proposal, but that is still problematic for Poland. First, many of the coal-plants that are operating now in Poland will close in 2020. Newer blocks will be more efficient and the operators will want to run them as much as possible. So where will the back-up coal-fired plants come from after 2020? New construction will take more than the next five years, so when they open they would be disqualified from being used as back-up. The myth is that there are enough coal-plants in Poland that meet the current emission limits to keep everything going after 2020 and also provide back-up capacity. 

This is also a form of state aid and must be notified and approved. Technically, the aid can only last ten years without re-approval. So the use of coal plants would be capped at ten years, since at the end of that period, they would be banned by the CO2 limit from continuing. That means construction of a new plant for this purpose would have to be profitable with ten years of part-time utilization. This will never be the case. That leaves us with existing plants in Poland to be potentially used. With many of those closing in 2020, the ones that remain - including newly constructed plants - will be slotted to provide the base load of demand.

It is hard to find a business model for a coal plant in Poland to be used as reserve power in light of this proposed rule.

Thursday, November 24, 2016

The Fallacy of RES Auctions: Locking Out Developed Capacity




As Poland approaches its first auctions for support for renewable energy, I am reminded of a serious criticism of this approach which I discussed earlier when the European Commission caved into the pressure from big utilities and adopted this as the preferred method of support. See Mott, "The European Commission's Mismanagement of State Aid Rules for Renewable Energy," PowerGen Europe 2015.  For there to be competition in the bids for support, which is the principal factor distinguishing the auction mechanism, that has to be a lot of losing bids. The EC suggests about 50% losing bids. Without losing bids, the auctions serve no purpose that could not be achieved by simply using the support caps directly as a feed-in tariff.

Why should we worry about losing bids?* Because each losing bid represents a project that could be built in the opinion of its developer and its equity and debt funding organizations. This is renewable energy capacity that is "shovel ready" and could be deployed within a relatively short time. It is actually more likely to be build than the winning bids because the developers did not apparently trim the price to such a marginal level that a large number of the winning bids never go further. Winning projects that are not built can range from 20 to 100% of the "successful" bids.

So the auction mechanism actually selects the projects least likely to be built and then excludes many projects that are ready to be built within the support caps of the auction rules.

Now that investment in renewable energy in Europe is declining and many Member States are having trouble meeting the 2020 target for renewable energy market shares, it seems ironic that the EC would find a systematic way to reject new renewable energy capacity that is ready to go to construction.

Since Poland is facing the closure of a very large amount of its coal-fired electricity production after 2020 due to its inability to meet EU emissions limitations (despite long extensions of extra time), any electricity capacity that is available to be built should be built. No politicians seem able to grasp this fact perhaps until there are black-outs.
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* Losing bids represent all of the front-end work to have a project approved and permitted. That means that the wind in the location in under contract, the biomass volumes are under contract, the biogas feed-stock is under contract, and the project potential represented by that location is basically "locked down." Losing the bid, therefore, take this capacity out of the mix and is many cases permanently.


The Fallacy of RES Auctions: Locking Out Developed Capacity




As Poland approaches its first auctions for support for renewable energy, I am reminded of a serious criticism of this approach which I discussed earlier when the European Commission caved into the pressure from big utilities and adopted this as the preferred method of support. See Mott, "The European Commission's Mismanagement of State Aid Rules for Renewable Energy," PowerGen Europe 2015.  For there to be competition in the bids for support, which is the principal factor distinguishing the auction mechanism, that has to be a lot of losing bids. The EC suggests about 50% losing bids. Without losing bids, the auctions serve no purpose that could not be achieved by simply using the support caps directly as a feed-in tariff.

Why should we worry about losing bids?* Because each losing bid represents a project that could be built in the opinion of its developer and its equity and debt funding organizations. This is renewable energy capacity that is "shovel ready" and could be deployed within a relatively short time. It is actually more likely to be build than the winning bids because the developers did not apparently trim the price to such a marginal level that a large number of the winning bids never go further. Winning projects that are not built can range from 20 to 100% of the "successful" bids.

So the auction mechanism actually selects the projects least likely to be built and then excludes many projects that are ready to be built within the support caps of the auction rules.

Now that investment in renewable energy in Europe is declining and many Member States are having trouble meeting the 2020 target for renewable energy market shares, it seems ironic that the EC would find a systematic way to reject new renewable energy capacity that is ready to go to construction.
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* Losing bids represent all of the front-end work to have a project approved and permitted. That means that the wind in the location in under contract, the biomass volumes are under contract, the biogas feed-stock is under contract, and the project potential represented by that location is basically "locked down." Losing the bid, therefore, take this capacity out of the mix and is many cases permanently.


Monday, October 24, 2016

Auctions Lead to Prices That Do Not Allow RES Projects to be Feasible

The latest news from Chile emphasizes the key fault of auctions of renewable energy support- artificially low prices in project bids that later cannot be actually built. Banks in Chile are reluctant now to finance projects that have unrealistically low prices for electricity as they are so risky.

"Auction systems as a mechanism to support investment in photovoltaics, which implement other countries, leads - as intended - to lower energy prices, which offer investors in auctions. Prices for the bid winners, however, are sometimes so low that the implementation of the projects may seem questionable."
Gramwzielone. October 24, 2016.

Typically, speculative bids are made with the hope that project costs will decline over the schedule to actually commit and build the projects. The penalties for under-bidding in this fashion can never be large enough to require the developer to actually build a project at his bid price if it will lose money for years. The basic problem described above, i.e. “threading the needle” between lowering the burden of bidding to encourage competition in bids and more restrictive pre-qualifications so that winning projects are actually built, has seldom been done successfully.  In a report prepared for the European Commission, EcoFys et al noted in January 2014: “…finding a compromise between encouraging high implementation rates without reducing the number of market participants too much proved to be a difficult task.” Design features of support schemes for renewable electricity, January 2014, p. 5.



Auctions have also notoriously failed to assure that projects actually get built. Firms bid the project to later find it is not economically possible to proceed or that they have failed to secure necessary steps that make completion impossible. At one point, only 8 % of biogas projects in the Netherlands that won bids were actually built.[1] Brazil had an auction where none of the winning projects were later built.[2] 

While auctions aim for a specific amount of electricity to be produced or capacity to be installed, empirical experience has shown that a shortfall of the auctioned amount is a rather common phenomenon. This is mainly due to ‘underbidding,’ which results in economically non-feasible projects.” EcoFys, supra,  page 45.

“A tender scheme creates competition between bidders and, thus, inherently encourages them to bid as low as possible. However, the evidence in France, Portugal, Nova Scotia, U.K., India, China and Brazil shows that they may overestimate their capacity factors, underestimate their costs (because, for example material costs turn out to be higher than they were expected to be) and follow strategic behavior in bidding (i.e., win the bid, then adjust).” Del Rio,“Back to the Future,” Renewable and Sustainable Energy Reviews 35 (2014).   page 51.

“Empirical evidence indicates that low implementation rates caused, e.g. by underbidding or the
existence of non-cost barriers, are one of the main drawbacks of auctions used for RES-support…..it remains to be seen whether auction schemes can eventually achieve the desired effectiveness.” EcoFys, supra, page 72 (emphasis added).

     This problem completely undermines the assertion that auctions allow countries to specify the amount of renewable energy they want and to specify a maximum price. The process more typically resembles a “wish-list” than a real “shopping cart.”  The period between auctions, given the need to publish in advance the reference prices and other terms, may actually not provide any advantage in adjusting the compensation to fit the investor’s expectations and the public’s limits. Other systems may, in fact, have quicker response times to adjust for the right fit in support levels.

     The shift to this mechanism is a major reason why the total renewable energy investment on an annual basis in the European Union is falling now. The other major issue is the shift of the project ownership away from new market entrants to the major utility players (for whom the auctions are a major technique to preserve their market share of electricity). Auctions are fundamentally anti-competitive in this regard because they promote the concentration of market share in the largest utilities.[3] 

     The cheap prices may look attractive to governments, but the results are hardly consistent with an improved situation for energy customers.




[1] “The Dutch are having trouble simply getting stuff built. Only eight percent of the biogas projects awarded contracts since 2011 have been completed – and a whopping 98 percent of the PV projects that won auctions last year were apparently not built even though they had to be completed within a few weeks in compliance with auction rules.” Craig Morris, The Energie Wende Blog, June 25, 2014,

[2] Even in normal auctions in Brazil, “a large share of the selected projects are heavily delayed, thereby negatively affecting the effectiveness of the auctions” EcoFys, supra, page 53. In the Netherlands: “The realisation rate of projects so far amounts to roughly 40% of the projects that were committed in 2011…” EcoFys, supra¸page 57.

[3] “Unfriendly for small projects and actors. A major empirical lesson of tenders is that they are unsuitable for small installations and smaller actors.Competition may thus be affected. It has been argued that some of the afore mentioned factors and,namely, information failure and difficult access to finance,have a disproportionately negative impact on small actors and, thus, that the instrument is not suitable for small actors, suggesting that smaller projects should be promoted with a different instrument.” Del Rio, supra, page 52. Morris writes in The Energie Wende Blog, on June 23 2014: “In Germany, normal citizens and energy co-ops accounted for nearly half of the installed capacity in renewables and a third of the capital invested as of 2012. A switch to reverse auctions would therefore gradually revert ownership back to conventional utilities.” This may, in fact, be the real objective of the Commission’s new policy. Unfortunately, these theoretical advantages of auctions come at a cost. Due to the complexity of the bureaucratic procedures, and also to the planning required ahead, auctions have higher transaction costs which, together with uncertainties on the final price and the tendering schedule, deter participation by smaller firms, resulting in a low degree of competition and creating opportunities for market power. In turn, this may eliminate the higher theoretical efficiency of this instrument.” Del Rio, supra.

Friday, October 07, 2016

EU Set to Tighten Financial Support Allowed for New Coal Plants

The reform of the Emission Trading Scheme that basically taxes carbon dioxide emissions has been controversial. Now a compromise appears nearly certain to pass. It continues some free allowances (which have crippled the price support for allowances to date), but it tightens the rules on financial support for new coal projects. It will be interesting to see the effects on Poland. I doubt anything but major brownouts and the huge increase in imported electricity from our neighbors will move the government to look at reality.




Tuesday, July 26, 2016

European Renewable Energy Investment Flattening Out Despite Calls for More Capacity



     While the European Governments are pushing for ever higher renewable energy quotas, the total rate of renewable energy investment in Europe has flattened out.   "Experts said that investors did not have confidence in European policymakers’ support systems for renewables." EuroActive (2015). "Low-carbon energy" investment in Europe in 2015 dropped by more than half. The Guardian, March 23, 2016. European countries are in transition to support for renewable energy by reverse auctions. Renewable Energy Policy Network, "Global Stats Report: Renewable Energy 2016." Auctions in practice have always been problematic, producing an unpredictable amount of capacity due to limited bids and/or limited build-outs by winning bids. See Mott, "The European Commission's Mismanagementof State Aid Rules for Renewable Energy," PowerGen Europe 2015. A group monitoring the achievement of the Eu 2020 RES targets noted when the guidelines on support were released by the European Commission concern was already evident: “Since the announcement of new state aid guidelines, many potential investors fear less stable conditions. In case the guidelines are implemented as announced, investments will drop to a much lower level.” Keep on Track (2014)(website). This has predictably occurred in 2015-2016.

     Pressure from large utilities in Europe has been effective in pushing the EU towards a policy that rewards the big players in energy, whose cost of capital is lower and whose profit expectations are lower. Auctions for RES support have been a way to allow continued market  dominance of the traditional energy players. See Mott, supra.

     As levels of support go down in many cases in auctions, the percent of projects actually getting built goes down as well.  The "bid in" mechanism is common and precludes this process from creating a stable and predictable supply of RES capacity. This is showing up in the total EU investment results and will grow worse in my opinion until it is corrected.

Thursday, July 21, 2016

EU WILL BLOCK POLISH EFFORT TO DILUTE CO2 REDUCTIONS



Poland has brought a lawsuit to try to get the EU to make the emissions policies subject to the unanimous consent provisions of the European Treaty. No one outside of Poland gives this lawsuit much chance. The new Polish Government also has pushed for loopholes in the climate provisions for EU CO2 reductions by 2030.

The creative use of the forestry provisions threatened to allow Member States to create paper credits for CO2 reduction that basically scammed the system. The use of planting trees to create credits under the Kyoto Protocol was widely criticized by the Left. LINK. New EU earlier proposals have also drawn criticism: "But Kyoto’s accounting rules and its use of a ‘business as usual’ baseline have left it open to abuse. By overstating their “business as usual” logging, governments can scoop up millions of euros worth of carbon credits by simply not hitting their timber-felling targets." EuroActiv.com. Studies have also shown that, for Poland, the cost of re-forestation is likely to be higher that the cost of switching the energy production to cleaner technologies.

The latest proposal from the European Commission, however, seems to have caught the game in advance and may frustrate this effort, by both the terms of the provisions defining when forests can count and by a cap on the use of this form of credits to mean 2030 numbers. "The Commission will introduce tougher accounting rules and will not allow forest management to be taken into account in a bid to head off abuse." EuroActiv, supra.

The lack of a clear understanding of the economics of energy as well as a certain naivety about its leverage in Brussels has continued to plague the new government's initiatives.

Thursday, July 07, 2016

Poland Posed to Have Major Water Problem

The Polish coal sector uses an astounding 70% of all of the water annually used in Poland, according to a new report.  Massive amounts of water are used for cooling at coal-fired energy plants. So when there is a period of low water levels in our rivers and lakes, as we have experienced for the last two summers, there is a huge risk of power outages. Polish electricity is "down" about ten times more each year than Germany (where Polish politicians love to assert that the system is unreliable).



The level of water consumption by energy in Poland is five times the average level in Europe and ten times the global number. Id. This is a very unsustainable situation:

"Water absorption coal-based energy is one of its biggest drawbacks. In terms of the abundance of water, we are in the European Union on the fifth place from the end, before the Czech Republic, Denmark, Cyprus and Malta. Moreover, Poland has one of the lowest of renewable water resources in the world per capita. They are smaller even than some countries in desert zones ... such as Niger, Chad and Sudan," according to Dr. Sylwester Kraśnicki, hydrogeologist with the University of Jan Wyżykowskiego in Polkowice.

Many experts have been cautioning of global water problems in the coming decades. As it now stands, Poland - besides having an unreliable energy system that is starting to cost more than all of our neighbors using a more diverse energy mix - may now face a serious water crisis in the coming years.

Tuesday, July 05, 2016

Poland: It is Not Your Atmosphere.


The last two governments in Poland have echoed a nationalistic theme on energy policy to the effect that Poland should be free to make its own choices on its energy mix. Coal is historically the overwhelmingly dominant source of power and should remain so as a national prerogative. If all of our neighbors want to have green energy as a big part of their mix, that is their choice, but not Poland's.  This is basically and fundamentally flawed logic.

A new NGO study by HEAL, however, brings all of this rhetoric into focus: Poland does not own the atmosphere and has no legal, moral and philosophical right to poison its neighbors. If the shoe was on the other foot and Poland's neighbors were doing this to Poland, we can imagine the outrage of the more nationalistic Polish political voices.

Unfortunately, the Polish power plants excel in emissions to the whole of Europe, causing each year more than 5,800 premature deaths, including 4690 overseas. The deterioration of health caused by breathing polluted air also generates health costs charged to the whole of society - says Veronica Piestrzyńska of the Polish branch of the Health and Environment Alliance (HEAL Poland).

Lignite-fired power plant in Belchatow (PGE) emits far the most polluting of all classified plants, causing annually approx. 1,270 premature deaths. The top five most poisonous plants were also plants in Kozienice (Enea) and Rybnik (EDF), causing each year respectively 650 and 480 premature deaths.

- The transformation towards cleaner sources of energy should be a joint effort of all European countries, but the specific task of standing here in front of Polish, which is the largest in the energy emitter of pollutants - says Marek Józefiak the Polish Green Network.


Poland uses coal for 83% of its energy. It has successfully applied for extra time to meet all EU obligations to reduce emissions from coal-fired power plants. Polish politicians have extracted billions of Euro of EU funding to transition away from a coal-based economy, close mines, and promote renewable energy. But this money has almost entirely been spent to sustain the old energy infrastructure, extending the life of old-fashioned and obsolete coal mines and power plants past their useful life. 

Poland has so far successfully used other people's money to keep its ancient and uneconomic energy infrastructure on life support, while simultaneously dumping the pollutants into the air shared by all of its neighbors. This is done in the name of providing cheap energy, but Polish electricity is more expensive than most of our neighbors, despite the EU and Polish subsidies.  

Obviously Poland cannot continue to defy the laws of economics, even if it can avoid any moral accountability for its energy policies. The time is finally running out for the old obsolete coal-fired plants built in the Soviet era. Modernizing them is prohibitively expensive and financing new coal-fired plants is quite problematic in Europe at this point. Polish politicians can coerce the state-owned companies to stay the course, but this source of financial support is now waning.

Unfortunately at the moment, most Poles want ever more control over their national destiny, seemingly preferring an energy catastrophic failure as long as it is driven off the cliff by a Polish driver. 

From "Thelma and Louise."                             LINK to full report.

Friday, June 24, 2016

Lack of Energy Diversity Cripples Polish Electricity Supply

With 85% of the electricity in Poland supplied by coal, the country is in a unique position of vulnerability in Europe. While the use of coal throughout Europe is declining sharply, it is not changing significantly in Poland. Couple this fact with the steady decline in the profitability of operating coal plants,(1) and you can see nothing to suggest a very bright energy future in Poland under this policy. Recent changes in Poland also seem to clearly have stopped major new wind and PV energy capacity.


What we now see in the interim in Poland are the consequences of a lack of energy diversity in the supply.  For the second summer in a row, the coal plants are struggling due to schedule maintenance in the warm weather but also due to low water levels. While the wind can also be lower in these hot and dry months, our neighbors with extensive PV capacity are seeing a nice natural balancing with the hot and clear weather. Poland does not have that asset.

Even the long-term strategy of meeting the EU renewable energy targets in 2020 and 2030 is linked now strongly to co-firing biomass in coal plants. This could be as much as 75% of the total RES in 2020 planned by the new government.  Except if the coal plants themselves fail, then the co-firing as a RES source fails as well. Given so many old coal plants must be closed by the final deadline for meeting EU emission requirements, this is a very poor long-term gamble for RES capacity. In the short-term, it also means that disruption of the coal-fired plants like we have seen due to water problems, will also stop production of co-fired biomass energy. New coal plants hoped for construction in the near-term are also having difficulty securing financing from private equity and all forms of debt funding.

The surest way to drown in the ocean is to try to consistently swim against the current. The force of nature is just bigger than you are and it is a contest that you cannot win.

In the same way, fighting against the long-term economic and technological trends in energy seems like a likely way to end up dead in the water.

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(1) The UBS study in 2015 pointed to massive closures of coal-fired plants in Europe and very limited profitability of plants still operating. Bloomberg has reported a general trend to phase out coal plants in Europe.


UPDATE: Monday, June 27, 2016: The peak power load was even greater on Friday. The cooling water problem limited coal-fired power plants operations. All of Poland's neighbors did not have the problem and their prices were much lower, since they all have much higher penetration of PV in their energy mix.








Wednesday, June 15, 2016

Poland Used Up Its Energy Transformation Funding to Prolong Dependence on Coal

A new report from the very credible Client Earth group answers the question "why can't Poland get money from the EU to fund the transition away from coal to cleaner technologies?"

"As many as 70 per cent. projects implemented by energy companies in exchange for the free allocation of emission of greenhouse gases include carbon infrastructure, and only 10 percent.investments in renewable energy sources.However, the purpose negotiated by the Polish government called "derogation" .... was to be the modernization of the outdated energy sector and diversification of sources of supply. Investment in the coal could be affected by serious problems after 2020, when the price of allowances will begin to grow - comments by ClientEarth Foundation, Lawyers for the Earth."

The total funding up to 2020 was 4.5 billion EURO! Instead of spending the support, as intended by the EU, on de-carbonization, Poland spent it mostly on projects to support the existing coal energy infrastructure. Poland is still left with a bunch of very old coal-fired power plants (30 years old plus) that cannot produce economical electricity or meet EU mandatory emissions standards. No intelligent business would have made the same decisions.




Now that Poland is getting into a corner on carbon emissions, the EU Industrial Emissions Directive, and the Renewable energy Directive (all of which now involve billions of Euro is penalties and costs to the Polish economy due to the continued heavy use of coal), Poles are screaming to change the rules. The morality and equity of this position is very dubious after taking billions of Euro to make the changes and blowing the money. Poland's behavior toward coal is pretty much that of an alcoholic.... a substance abuser that cannot stop and will use everything around them to feed the habit.


Monday, June 13, 2016

RES Market in Poland: Biomass and Biogas New Favorites - Wind and PV Seem Doomed

The biggest development in the renewable energy prospective market in Poland is the new amendment in the Sejm, which has passed the committee and appears to be sailing for rapid rubber-stamping by the rest of the government in Warsaw.

The single biggest characteristic of the law is the emergence of separate technology "baskets" for renewable energy auctions. The Polish Government figured out that it can control the mix of technologies by setting the size of the baskets as well as the reference prices (maximum allowed support in the form of a contract for the difference). Regardless of any other developments, it appears that this procedure will be used to skew the support away from PV and wind to biogas and biomass.

The characteristic being used to "make the cut" is the stability and reliability of the renewable energy source. The intermittent nature of PV and wind have led the Polish Government to put them into a less desirable category in baskets which can be limited by size and level of support in any future auctions. The amended bill is not available yet as this is written, but the basic approach is set out in the draft proposal introduced a few weeks ago. The net reason has been referred to by Grzegorz Wiśniewski from the Polish Institute for Renewable Energy as the end of PV and wind energy in Poland ("ustawa o OZE i ustawa „antywiatrakowa” zamykają możliwości realizacji programów inwestycyjnych w fotowoltaice i energetykę wiatrową"). 

While there are objectionable provision to the new laws that will likely be reversed by the European Commission if they are not taken out in subsequent proceedings in Poland, the basic matrix of using separate technology baskets and references prices has been approved by the Commission for auctions in other countries. I do not believe that this mechanism really does anything to satisfy the competition provisions of the European Treaty, but the Commission has pushed it, 

In Poland, the effects will be widespread. Wind and PV investors that have been quite active are starting to fold up their tents. The under current here is that these are mainly foreign firms and the new government has made no secret of its skepticism about encouraging foreign investment in Polish energy. The allegations that a 15% or even 25% RES share of electricity that relied mainly upon wind and PV will introduce really serious grid instability has been taken as a truism and not critically evaluated. Even the experience in Germany where the share is over 40% does not necessarily provide support for this assumption. 



We nevertheless are where we are. Until 2020 arrives and the RES target is missed, it is unlikely that there will be a major change in the support for new projects. The existing system will inevitably see changes with the EC decision in SA 37244, the pending state aid case on green certificates. But that system will cut off July 1, 2016, unless a dramatic political change occurs and it is extended. The extension of that law is probably the only viable means to assure Poland meets its 2020 commitment. The auctions will be delay construction until the last minute and seem to clearly not portend enough RES capacity to satisfy the requirement.

Biogas will do well under the new rules and will remain one of the few technologies that has enough support to justify new projects. The auction mechanism itself will restrict biogas development to some extent, knocking out the smaller developers and speculators. Small farm projects will also struggle with the proposed reference price (550 PLN/MWhr), especially with their limited co-generation potential. Biogas will also become more critical as the Circular Economy package gets approved and implemented, pushing organic wastes into biogas and away from landfills and incinerators. See presentations from Waste Management in the Circular Economy 2016, European Academy Conference, May 12-13, 2016, Berlin.

UPDATE: As of June 23, 2016, the new amendments are headed to the President of Poland for signature. I still expect something from the European Commission on green certificates. The net results will be a sharp decline in interest in wind and PV in Poland. Some complicated issues on co-firing including, not only the state aid issue, but the technically costs of going to higher biomass percentages of fuel as well as legal issues on burning waste. I am speculating that the inclusion of waste wood by the government may be a sign that they got feedback from the Commission that the reference price for co-firing in an auction will be lower than they wanted. I have no doubt whatsoever that the Polish Government is trying to push as much co-firing as possible, but there are limits that may impede this from going the way they want. Among other items mentioned above, some of the old plants that have been the biggest co-firers will be closed after 2020. The local biomass rule will likely be challenged by someone and could continue uncertainty over co-firing well past 2020.




Wednesday, June 08, 2016

Major German Grid Operator Shoots Down Argument that Renewables Cannot be Integrated into the Grid


This is heresy in the utility business and they are supposed to keep exaggerating the adverse effects of renewable energy on the grid. But Boris Schucht, CEO of 50Hertz Transmission GmbH since 2010, is remarkably candid in his interview this week: "There are a certain number of myths in the energy industry. One of them is that we need more flexibility in the system to integrate renewables, like energy storage, interruptible loads or backup power plants. That’s a myth. We have a lot more flexibility than we need and a huge amount of potential."

He advocates some changes but is not repeating the doomsday scenarios echoed by Eurolectric's lobbyists. On days of excess energy, he says Germany can just export to Poland. If Poland is below the renewable energy target in 2020, it will have no choice but to take German wind electricity, even if that means replacing Polish coal plant electricity output. The decision for Poland is not whether we have renewable energy or not, but whether it will be Polish or German.  Few politicians here understand this.

Tuesday, June 07, 2016

Where is that Reliable Coal Energy When We Need it? Poland faces Energy Shortage

We are constantly lectured in Poland about how reliable the conventional energy system is and how unreliable renewable energy is.  Reality, however, suggests that our neighboring countries with diversified energy supplies are much more secure, much more reliable and now actually cheaper.


While Poland struggles with a 30-year old energy infrastructure, built by the communists who seemed incapable of building a reliable automobile, our neighbors have shifted to a large mix of renewable energy technologies that add alternative sources of power that generally compliment each other.

As energy storage is also deployed all around us, the future of electricity supply seems to be alluding Poland. The government seems locked into 1960s thinking about these issues.

Now a new report indicates that energy shortages may again appear in Poland in the late summer. Because, guess what, coal is unreliable under certain weather conditions (hot weather, high demand, and low water levels).

Not only are we seeing the cost of new coal plants grow larger than onshore wind, but without the line of investors and banks willing to fund them, but now we seem to be experiencing the negative side of a lack of energy diversification.


Tuesday, May 31, 2016

"Market power": Capacity Markets Are Not Cost Effective

We are often told in Poland by advocates of coal that renewable energy is too expensive. They ignore the fact that onshore wind is cheaper than new coal plants right now and that PV will be cheaper during the investment life of any new coal plant planned today.

The cost of renewable energy support in Poland is about 7 PLN per month on an average consumer bill of 153 PLN. Most of this has gone to electricity producers who would have generated the electricity without support (old hydro and co-firing). Had new capacity in RES been supported, the impact on consumers is normally cut in half by pressure of prices due to increased supply.

Now we are told that consumers must pay to have old coal-plants standing by on the few days a year when extra power is needed. Studies in the United States have demonstrated that this is the most expensive way possible to meet peak demand. See U.S. Electric Power Research Institute (2013).*

Now, however, the cost impact on consumers is being finally discussed in Poland. Consumers will face an increase in bills of 18-50% to allow the big utilities to keep old coal plants on stand-by for peak demand. This is many times the impact of RES support on consumers and one would have hoped that the government would have carefully evaluated alternative schemes to deal with peak demand.  But I cannot seem to find the studies or reports or references generated during this major policy development.

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* Germany is reporting to have saved billions of Euro on electricity transmission costs by its moves into energy storage. This savings is not even factored into most analysis of energy storage vs "peaker" plants.


UPDATE: The cost of storage in 2015 is generally quoted as $.20 per kWhr. This price is falling rapidly (about 15% a year). The comparison should be between the peak rate of electricity and the lowest demand period. Poland has already hit this level last summer for a period. The next comparison should be the cost of the peak energy  from a "capacity market" system. I believe that this will exceed the storage cost in the near term. See Energy Strategies paper. It is hard to find data that is transparent, i.e. it is mostly reported as a surcharge on the rate per kWhr in monthly bills. The impact on monthly bills is huge! The DG Competition will require that all technologies compete in "capacity markets." This includes energy storage which competed unsuccessfully in the UK auction last year.  By next year, I expect that energy storage in many places will be competitive in this auctions, which is why Eurolectric successfully lobbied to get stored energy to lose its renewable energy support under the guidelines from the European Commission. This is not a law and will likely be challenged - most Member States have not adopted this stupid rule.

UPDATE 2: In the UK, about one billion GB a year will be passed on to consumers by 2019 for a "capacity market."  Despite the real need for a peak power reserve, only 1% of the capacity market will be linked to demand response.   This is an outrageous waste of the public's money!