Hitting Reality: Polish Energy Policy Meets the Facts

     At some point, facts matter. In the end, reality has a way of asserting itself. Senator Everett Dirksen (for whom a US Senate office building is now named) was asked on one election night to comment on his early lead in the voting. He told the story of two Irishmen working on a fifteen story building. O'Malley falls off the top floor and his colleague O'Reilly starts running down the stairwell to try to help him. O'Reilly sticks his head out and yells to O'Malley, "how is it going?" O'Malley says "so far, so good...." as his sails to the ground below.

   Many political myths employed by politicians in Poland on national energy policy are about to hit the ground as well. Because the Economic Summit is in Katowice this week, we will hear all about the importance of coal to Poland. An historical fact, for sure. But a ever-diminishing premise at this point. Less Polish coal is mined every year. Polish coal costs more to mine and is of poorer quality that imported coal, which is growing every year in its importance. The national coal company is losing so much money that it may face bankruptcy in the near term. Some government bail-out is inevitable for political reasons, but it will fail miserably due to the economic reality. See my earlier post.  Coal-fired power plants will remain the major power source in Poland for at least the next two decades, but they will increasingly continue to burn foreign coal. Energy security? Not by any normal definitions.

   Private investment will be essential to build more Polish generation capacity from any source. Yet you do not see private investment in coal in Poland in mining or power generation. Brand new coal plants around Europe are even closing due to the problems of competing with renewable energy (which admittedly receives a priority position in meeting demand). Since this is largely the result of EU policies and directives, will Poland be an exception and drawn billions of new investment to rebuild the coal sector? I have not met a rational person who entertains that idea.

   So nuclear power is the answer? Maybe in a normal country whose energy policies reflected the need for stability to attract investment. But in Poland, only state-owned companies pushed by the Warsaw Government are looking to invest in nuclear power. In turns out, in the end, that they financially cannot cover the investment. The years of talking about Polish nuclear plants apparently never gave rise to a serious occasion to discuss how they would be paid for and how much the energy would actually cost. Hint: it is more expensive than many renewables.

   Shale gas? Another energy political story. Many big players left. The number of exploratory wells is tiny compared to the United States. And there is no such thing as owning mineral rights in Poland. Add to the mix that Polish deposits are very deep and the red tape the worst in Europe and you have a fading dream. Even if some of these hurdles could be addressed, the contribution to actual substantial energy production is more than a decade away.

   Countries that are not blessed with high levels of energy-related natural resources have been turning to renewable energy. It is expensive, but in Europe the price of electricity production is much higher than the United States. Many of the renewable energy technology curves are reducing the cost. I am not a crazy tree-hugger and do not expect Poland can match Denmark's move to 100% renewables in the next twenty years. But the EU target number of 19% for RES electricity here is clearly possible and could be increased without a major burden on consumers. A key factor here is that renewable energy has the shortest development cycle of any electricity generation plant, except natural gas (which here is mostly from Russia).

   Opposition to renewable energy in Poland is based almost entirely on the fact that the government owns most of the generation capacity and that it is from coal. Every twist and turn in the Government's policies and legislative proposals on renewable energy can be explained by the impact of the state owning the coal-fired plants. No other hypothesis can account for some of the strange positions taken. Since Poland has to comply with EU mandates on renewable energy, the conflict with Brussels seems both inevitable in timing and outcome.

   When does reality set in? I expect that when the 6000 MWs of old coal-fired plants close next year (due to one of those inconvenient EU regulatory realities) and there is no significant new capacity, except some more wind farms. Some experts have predicted local electricity blackouts...sadly it may take that to force the public to look beyond the phony energy theories of the government.

UPDATE: The RES policy continues in limbo, possibly through the Parliamentary election in Poland. This leavers Polish politicians free to keep avoiding reality and promising to resurrect the dying coal industry. Replacement of closing coal-fired plants is slated to barely keep up the same capacity and all growth in electricity production has to come from somewhere else. It will be RES in the end as the alternatives look even grimmer than they did when I wrote the original post. The nuclear plants are entirely predicated on a cost of the difference price scheme, that will have to represent the higher rates in Poland to cover the investment, assuming it comes together. Shale gas, if it emerges in actual use in Poland will likely come from the United States. Politicians missed that green energy is more popular than all of the alternatives and now are offering lip service in lieu of support. That will have to change when the state aid investigation leads to another crisis here in 2015. A new RES law with levelized support will be required for the state utilities to avoid paying a 130% fine for not meeting the green quota obligation. Check out my other posts for the latest!


Randy Mott said…
The post is four years old, but was prophetic. The nuclear plant in Poland has no funding and will likely die. Shale gas has been abandoned. Coal energy prices are going up. Except for the discrimination against wind farms, the new law may get things going, but too late. Biogas is very well treated in the new law, but will always be a small part of any solution due to physical limitations in feed stock.

Randy Mott

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