Speculation on the Political Consequences of Polish Green Energy Controversies

Historically, no one in Poland much cared for the environment. It was simply very low on the list of concerns and basically off the radar. Changes in this attitude are now, however, really profound. February 2015 polling by CBOS showed 77% public support for expanding renewable energy in Poland (higher than any other energy source). These changes manifested themselves in the debate on the renewable energy bill, where every political party jumped on the green energy issues (the prosumer amendment), except Civic Platform (PO), known also as the political office of PGE.

Civic Platform has gotten itself painted into a corner that essentially assumes whatever it good for PGE is good for Poland. While taking care to avoid seriously disrupting a major part of the nation's electricity production and distribution is a reasonable plan, measuring every change in the energy landscape solely be its effects on PGE profits and dividends is, of course, over the top. PGE and other state-owned utilities provide valuable dividends to the state (often seemingly at the expense of necessary capital improvements and modernization). These state-owned firms also provide enormous opportunities for political appointments and various types of inside dealing.

PO in the renewable energy area has fought to keep state aid for co-firing in Brussels, while failing to seek notification and approval of its support as required by the European Treaty. PO has pushed an auction plan that for big projects will be very friendly to the big state-owned utilities due to their lower cost of capital and lower IRR expectations. Studies have demonstrated pretty conclusively that the form of auctions Poland has adopted will favor big domestic utilities. If there is renewable energy in Poland, PO wants it to be as locked to the big four state-owned firms as is traditional energy.

PO has resisted reforming Green Certificates, over the advice of the former head of UOKiK, the Polish Office of Competition and Consumer Protection (back when that agency was not political and ran as a professional regulator). The reform as UOKiK noted would require levelization of support and would encourage technologies thwarted by support for co-firing and old hydro (illegal aid that drove down the value of the certificates). PO has successfully, so far, delayed any changes to push existing certificate holders into the auction system. The delays were also designed to try to get through until the ten year period for recovery or return of the illegal aid had lapsed.[1]




 The delays and obfuscation on renewable energy may have so far kept the issue bottled up, but the dam is likely to burst at some point in the near future.





 PO has disingenuously promised the coal miners state support which it knows cannot be approved and will not be allowed by Brussels. There have already been clear decisions in Brussels that make aid to operating coal mines incompatible with the treaty. See Mott's Blog, "Polish Deal on Coal Mines: Reality Challenged," January 19, 2015.

All of these decisions have as their focus the support of the state-owned energy sector at the expense of consumers and tax payers. The overwhelming amount o the alleged savings coming from the new renewable energy law will come simply from stopping illegal aid to old hydro plants and cutting support for co-firing. These savings could be realized in any support scheme and would be required in any event when the European Commission decides state aid case  SA-37224 (DG Competition).

Despite having been told in 2012 by their own government regulator and expert that these changes had to be made, PO elected to kill the bill and try to delay the issue until the time for recovery of the illegal aid had lapsed by law (ten years from 2005). This was frustrated by the DG Competition inquiry in February 2014 (which tolls the ten year period under European law). [1]

Going into the 2015 elections, as a result of all of these bad decisions and some others as well, [2] PO will be the perceived sponsor of the illegal aid to the state-owned utilities, proposed illegal aid to the coal mines, and  against distributed energy (which is widely viewed as the future of energy by experts, banks and even other large utilities).[3] The Government will be liable for unfair competition claims that caused the price of Green Certificates to plummet. Somewhere between 5 and 7.5 billion PLN of state support will have to be refunded by the co-firers and old hydro projects. And all of these issues may break into public awareness before the elections.   

While PO enjoys a major lead in the pre-election polling, there is a real issue over whether it can achieve enough seats in a new Parliament to govern outright without a coalition. Misreading of the energy issues might contribute to Parliamentary election losses (especially among certain groups of voters). PO has been misreading the polls on these issues for several years.  It seems that any coalition will likely have to involve a party that is now on the other side of the renewable energy issues from PO. If the issue draws enough press before and during the election, this might finally push the new government to a more realistic and forward-looking energy policy. 

That is a lot of "ifs," but the real issue is how long before the dam bursts, not whether it will survive in perpetuity.  




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[1] "The hope of delaying the issue of illegal state aid and cost recovery beyond the ten year period of limitation is already crushed. The Commission inquiry in February 2014 tolls the limitations period for recovery of the aidSee Scott SA v. Commission, Case C-276/03 P,  October 6, 2005. See Marc Hansen, "Recent Developments in EC State Aid Law," IBC Advanced EC Competition Law, London, 29-30 April 2004. The issue remains looming and the only question now is can the government avoid the gun fight with Brussels until after the 2015 elections." Mott's Blog, February 6, 2015.

[2] Shale gas - one of the PO energy pillars - is collapsing as a prospect in Poland every month. Other the state-owned companies are being compelled to keep drilling and even Orlen announced it wants to cut back. See Mott's Blog, "Shale Gas in Poland: the Fading Dream," February 6, 2015; Mott's Blog, Shale Gas Fades, Nuclear Energy Remains Illusive and Coal Remains Problematic in Poland; Government Stays in DenialOctober 22, 2014. Nuclear energy, if it is built at all, will be the most expensive in Poland and will require more support than renewables. It also may not be ultimately approved by Brussels if it far exceeds normal commercial terms. 

[3] UBS, the largest private bank in the world, has declared the old electricity business model to be dying before our eyes. MIT predicts a complete turn-around in the energy business due to distributed energy, energy storage and smart grids. RWE, E.On and Vattenfall are unloading their big coal-fired plants. See remarks of Randy Mott and paper "The European Commission's Mismanagement of State Aid Rules for Renewable Energy," PowerGen 2015, Amsterdam, June 10, 2015 (publication pending). 
    

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