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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.




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......