Mott's Blog

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 Governme...

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...

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...

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 gui...

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 i...

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. __________________________________ 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 Bi...

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 sta...

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. Vi...

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 c...

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 renewa...

Some really bad things will start to happen as the auction in Poland for renewable energy support gets closer. Despite the long discussion over the new law and the guidelines from Brussels (which were relatively rushed through without full consideration of their consequences), there are some real problems looming. First, the auctions to be competitive under EC policy should have at least as many losers as winners. This allegedly allows for competition in the bids for support. The reality is that the small auction (below 1 MW) will have much larger support offered than will be covered by bids. There will be no serious competition and the reference prices will set the limits. That, of course, could be done without an auction and would achieve a much higher rate of quality projects. But the large auction (over 1 MW) is likely to have many more bids than awards. Thus, the EC rule of thumb of 50% losers may occur. That means that 50% of the projects ready to go in Poland will not procee...

In the opinion of many, Civic Platform (PO) has grown a bit arrogant and very non-transparent in its model of governing. Pundits will have a dozen explanations for the election of Andrzej Duda yesterday, but wide-spread support for his party, Law and Justice (PiS), is not one of them. Voters signaled their concern about PO and wanted something else....just about anything else. If this trend continues into the Parliamentary elections, as I think it will to a lesser degree, expect PiS gains but no majority. A weaker coalition government with PO, PSL and possibly SLD is the most likely outcome. It is important to remember that all of the political parties are publicly pro-coal and none of them have a real program to address the growing economic and technological challenge in Polish energy to shift to the "next thing."  PiS is more likely to make foreign energy investors nervous, however, with their more xenophobic rhetoric. PiS is widely described as anti-wind energy and w...

My Republican colleagues typically comment on renewable energy, that if it is viable it would survive without subsidies. They point to fossil fuels and claim that green energy should receive the same treatment, i.e. only market-based revenue and investment. But this myth is wholly at odds with the reality around the world. Fossil fuels have been one of the most heavily subsidized human endeavors in the history of the world. The International Monetary Fund report , just released, notes that globally fossil fuels receive approximately $600 million a HOUR in government support. See PL article.  The basis of this huge cost figure is the externalities of fossil fuel burning (mainly coal). There are several new reports of the huge external cost of burning coal in Poland (which leads Europe in air pollution for fossil fuels). But even the narrow definition of subsidies for internal costs results in a big figure for support. Over 10 billion Euro a year in Europe (where the policy is ...

The Polish Wind Energy Association just conducted a mock auction for renewable energy support using the system included in the new Polish law. The results foretell the problems we can expect in the actual auction and are not surprising. The main take-away by the association was the under-bidding in the large auction (over 1 MW projects) and less than 4000 MWhr/MW. The prices were unrealistically low. This phenomenon is very common in RES auctions. Bids are speculative and below the real costs of doing the projects in the hope of snagging the support. This is a very common - maybe unavoidable  - problem with reverse auctions: “ 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,  Design features of support schemes for renew...

I have done a full analysis with detailed references on the problems with the new EU State Aid Guidelines for Renewable Energy. The paper will be published in the May edition of the European Energy Journal .  It is also being presented at the PowerGen 201 5 conference in Amsterdam on June 10, 2015. My take is that the guidelines are an effort to try to mitigate threats to power energy utilities. They push support into auctions, a mechanism proven to be bias in favor of large established utility bidders. They will hurt smaller investors and equity investment funds. They bungle the support for energy storage (electricity stored from renewable sources is not considered green after it is stored!). They hurt distributed energy by requiring sources over 500 kW to feed to the grid. The create massive uncertainty over 2020 targets by changing all the rules in the last lap of the race. They tie up renewable energy efforts by restricting what is financially feasible and enviro...

There are still some issues to be decided on the shape of the new law on renewable energy. The biggest one for us in the biogas sector is the reference prices, since it is widely expected that the under 1 MW small auction for projects with more than 4000 MWhr/MW a year will be under-subscribed. The Deputy Minister of Economy gave a 500-600 PLN/MWhr cost estimate in the Parliamentary debates, but this is lower than the Institute for Renewable Energy estimates of the cost of production in their 2013 report commissioned by the same Ministry. He also predicted that all small projects that pre-qualify and bid within the maximum reference price should receive support. This would mean a base price of 190 PLN/MWhr plus the factor times 300 PLN. Since the final law only provides for under 1 MW in practice, the figures would be: 200-500 kW = well over 1000 PLN; 500-1000 kW = 970 PLN. These figures are consistent with numerous studies of the costs of production and are much higher tha...

The new state aid rules require that electricity over 500 kW be sold to the grid. See 3.3.2.1. par. 125 . This, of course, is designed to frustrate distributed energy, which is emerging as the development that will change the whole utility industry. But in the fine print, the new Guidelines also seriously impede energy storage. Electricity coming from energy storage that was renewable going into storage is no longer renewable coming out of storage. Definitions 1.3(19)(11) . No operating support is possible if the guidelines are followed. This means that the RES producer must own his storage device to get any credit for the energy he produces and stores. Operators owning storage devices (charged by third-parties) will not have any green support apparently since what they sell coming out of storage does not qualify for support under the guidelines. But there is another catch, the guidelines also require that the electricity be sold to the grid to receive operating support, except ...

Here are some graphics on what it costs to produce electricity by technology. This does not count the cost of distribution, which heavily favors renewable energy that is locally produced and can be used locally without major distribution costs. EdF is seeking a price for UK nuclear energy at 90 GB/MWhr (500 PLN) which is more than the average RES price projected under the new Polish law. Wind and PV will both be much, much lower by the time the UK opens a nuclear plant (if ever). The UK capex cost is 14 billion GB or 78 billion PLN. Both the energy price and the capex keep going up (these are from EdF in October 2014). There is no real dispute that RES will be the cheapest energy available (especially with lower distribution costs) in the relatively near term future.

The UK just went from 4 percent renewable energy in 2013 to 19% in 2014 . This is the pre-auction surge under their old system. But it illustrrates that RES projects can be rapidly developed in a system that is stable (aid to co-firing in the UK is restricted). Wind and PV have development schedules that are quite short compared to other electricity production. Auctions will delay projects, since they cannot be put online as they are prepared. The dilemma of auctions is always that strict penalties deter bids and lower pre-qualificatgion requirements and lower penalties encourage bidders to under-bid and under-build. See EcoFys (2014). An additional problem that I have suggested (I never saw this mentioned by anyone else) is that projects to be eligible  to bid must have all of the legal means of producing energy tied up in legal agreements and a substantial percent of these will lose the auction or not even be bid in the end. So, using the European Commission suggestion that t...

Checking out the law in detail to ask questions to URE..... there appear to be some good provisions for biogas in Poland if they are implemented intelligently. The scope of biogas is changed to include all of the biomass allowed by the EU definition in the RES Directive. A change we (the Polish Biogas Association) urged them to make. There is a question of how the reference price will be set for this category (other biogas), but they will have to be guided by cost of production under state aid rules. The cost is the same or higher than agricultural plants. We would like additives like glycerin and enzymes added to the possible feed-stocks allowed by the law with a 2 % volumetric limit. This reflects the same rule the European Commission worked on for the End-of-Waste criteria for biowaste. The 4000 hour "basket" [a set-aside for projects producing over 4000 MWhr per 1  MW of capacity] should allow biogas plants to win support up to the reference price level. So the bi...