Katowice, a city that has thrived thanks to coal mining since 1865, will welcome in November the movers and shakers of global climate policy. But a recent government strategy has named coal a guarantee for Poland’s energy independence. This tactic promises to bring a long and desperate defence of the country’s economic dependence on coal by Poland’s conservative nationalist government.
Known as the heartland of Poland’s coal country, Katowice is now facing a challenge of transitioning away from the “black gold” that made it. The annual meeting of the United Nations’ Framework Convention on Climate Change (UNFCCC), which Katowice is hosting, will lay the foundation to what – in years, maybe decades – will irreversibly change the city. But less than a year ahead of the COP, Krzysztof Tchórzewski, Poland’s minister of energy, declared that the Polish economy is, and will remain, reliant on coal in the years to come.
Tchórzewski has a valid point. No one in their right mind would expect Poland to reduce the role of coal in the country’s energy mix overnight. Poland sources 82% of its power from burning hard coal and lignite – with a 50% and 32% share in the energy mix for 2016, respectively.
Not only is coal Poland’s staple energy source, but the livelihoods of hundreds of thousands of people also depend on a functioning coal industry.
What happens when hasty decisions are made to shut down coal mines – although it was not because of environment or climate policy – is seen to this day in the south-western town of Wałbrzych and its vicinity. There, Poland’s other coal mining hub collapsed in the early 1990s as market reforms swept Poland, plunging the region into poverty, a situation from which it has yet to recover more than two decades later.
Today, because of coal’s rising prices, Poland’s mining is on track to make a profit, the government claims. Coal prices for the energy sector increased 5.6% on annual basis in Poland in the third quarter of last year to nearly PLN205 (€49.4) per tonne. The price index of coal for heating grew 6% year-on-year to PLN9.3 per gigajoule. That helps sales figures even if actual production is hardly increasing.
Production of hard coal fell 6.5% in 2017 to 65.8 million tonnes, according to Poland’s statistical office GUS, which presented the data in late January. The fall must have been due to Poland’s chief mining company, PGG, which was created in 2016 to replace the near-bankrupt Kompania Węglowa, missing its production target of 32 million tonnes by approximately four to five million tonnes.
Meanwhile, production of lignite inched up 1.5% to 61.2mn tonnes. Poland’s lignite reserves are declining rapidly, however, and new mines are long in development as well as facing opposition from local communities and environmental groups.
The clean coal dream
So Poland is hooked on coal. And it also plans for coal to be the country’s strategic energy source until at least 2030.
The current government’s most recent iteration of a strategy for the hard coal mining sector assumes the creation of “favourable conditions for a profitable, effective and modern hard coal mining sector,” which would ensure “high energy independence of Poland and support the competitiveness of the national economy.”
However, under pressure from ever more alarming reports that climate change caused by burning fossil fuels is accelerating, the international climate policy is stepping up.
Poland is hooked on coal.
As the UN’s climate summit in Bonn, Germany – though organised by Fiji – was nearing conclusion in the second half of November 2017, an international alliance to phase out coal was announced by Canada and the UK and was quickly joined by EU members France, Italy, and Finland as well as Mexico, New Zealand and the US states of Washington and Oregon.
The alliance clearly positions itself against the US President Donald Trump’s idea of “clean coal” – an idea that Poland is finding attractive as well. It is no coincidence that Poland is hosting the next climate summit in Katowice, clearly a plan to show that mitigation of global warming with continued use of coal is possible.
But recent developments in energy and climate policy in the EU should have the Polish decision makers, energy companies and end users thinking about the current set-up as nothing more than a thing of the past.
For all the talk of how blackouts are looming because old coal-fired power cannot be sustained as climate policy is getting stricter, there is the reality of perpetual fixes and exceptions that Poland has won for its power generation sector every time the issue of balancing energy production with environment and climate policy has come down to the wire. This has had everybody convinced that there will always be a way out.
However, room for manoeuvring has gotten ever smaller of late. By Poland’s own doing – as the country is at odds with the EU over a number of issues, not just the transformation of the energy sector – the room is even less. After years of dodging the issue, there are three major developments that look as if they are going to finally lead to a reduced role of coal-fired power generation in Poland.
Jumping to conclusions
First is the approval of the so-called BAT conclusions that occurred back in August, 2017. The conclusions concern the use of best available techniques (BAT) of reducing pollution from large power installations.
Poland has fought tooth and nail against the adoption of the conclusions, which set caps on emissions of sulphur dioxide, nitrous oxides, and particulate matter at levels at least 50% stricter than currently. But Poland failed, and the conclusions now have to be implemented in a mere four years in order for the installations to retain their operating permits.
“Adapting to the BAT conclusions is an expenditure of the order of PLN10 billion”, said Christian Schnell, the head of the ZEPP lobby group advocating for faster transformation of the energy sector. “In addition, it is important to note that the European Commission will soon publish guidelines on when deviations from emission limits are acceptable – (but) it is already known that for the vast majority of installations, the derogation will not be allowed”, he added.
The reality of the market environment post-BAT conclusions is dawning on the Polish energy sector already.
“We will have to modernise our installations, but we will also need to make decisions on which ones it will make sense to meet the new requirements”, an executive of one of Poland’s state-controlled utilities told BlueLink on condition of anonymity because, he said, the issue is “delicate for a listed company as we are.”
However, Poland has not given up yet and is challenging the conclusions in the Court of Justice of the European Union for being drawn upon flawed data. The outcome of this case is highly uncertain for Poland, even if there are more like-minded countries. Germany, the Czech Republic, Bulgaria, Romania, Hungary, Finland and Slovakia all supported Poland in criticism of the conclusions, but they were not strong enough to build a blocking minority.
Secondly, the November agreement between the Council and the European Parliament on reforming the EU’s emissions trading system (EU ETS) had Poland and its coal-fired power generation industry sidelined on a number of key points.
One of the cornerstones of the reformed EU ETS is the Modernisation Fund. It is a tool, financed by the wealthier member states, to help the lower-income countries in the eastern part of the bloc modernise their power sector.
Country-level emissions cap is a no-go.
In the negotiations, Poland wanted to increase the pool of money available in the fund from the current 2% of CO2 emissions allowances available in the ETS to at least 3%, with a hope of bulking it up to 4% if possible. Warsaw also wanted the money from the Modernisation Fund to finance the upgrading of its coal-fired power plants and even tabled a proposal allowing highly-polluting power installations to take advantage of the fund’s money.
The EU ETS deal is not final yet, but following the November agreement between the Council and the EP, it appears that Poland has suffered a defeat in the negotiations. The fund will not be increased, and, while no emissions cap per kWh was set for the modernisation of power installations, the EU member states forced a blanket ban on financing modernisations for any installations running on “solid fossil fuels” – coal, in other words.
There is an exception: thermal power plants running on coal in Bulgaria and Romania – the two poorest members of the EU – will be eligible to use the means from the Modernisation Fund.
“That was a classic move targeting the weakest parts of the countries opposing the reform,” a source close to the negotiations told Poland’s renowned energy analysis portal wysokienapiecie.pl.
Sky is (not) the limit
Thirdly, Poland is still facing the requirements that the EU would like to see introduced in its key power capacity law that the Polish parliament passed in December, 2017. The law will allow paying companies to keep installations ready to fire up in case there is a demand for more power.
Apart from improving energy security, the new law should also provide an incentive for power companies to invest in new capacity, something that the companies are currently finding problematic because of low energy prices regardless of the government’s arguments that new capacity is a must when the country’s power generation fleet is ageing fast.
However, the final rules concerning which installations will be eligible for support via the capacity mechanism and which ones will not is yet to be hammered out between the European Commission, the European Parliament and the Council. The procedure is known as the trialogue.
One of main points of contention is how to apply the so-called “rule 550” – a requirement that installations to receive support must not exceed the cap of 550 grams of CO2 per every kWh produced. The problem is that no coal-fired installation – including ones under construction now – could meet that requirement.
“I don’t get it why there would be a cap per installation, which we won’t be able to meet, instead of a country cap. It’s all about emissions countrywide, is it not?” asked the state-controlled utility executive.
A source close to the negotiations tells BlueLink that Poland hopes to win the ability to slowly comply with the “550 rule” over a long transition period. “Country-level emissions cap is a no-go”, the source said.
Until the matter is settled in the trialogue and the EU gives a final nod to the use of capacity law – which is considered state aid and must meet the EU’s state aid rules – the new regulation remains on stand-by.
Time is up
On top of the challenges that the Polish industry is facing because of tightening regulations, there is the issue of time. Or lack of it, rather.
Averting a huge (3 to 4 GW) gap in power generation capacity, which will appear as early as 2024, will be impossible unless Poland wins huge concessions from the EU. That is not a given, however, if one looks at Warsaw’s inability to water down the BAT conclusions and having very few of its points accepted in the EU ETS reform.
A report by the ZEPP lobby group that calls for speeding up the transformation of the energy sector to avoid a collapse in power generation capacity, states that investment decisions must be made in no more than a year’s time and at least some of them should see completion by the end of 2021.
“That would take a miracle”, said ZEPP’s Schnell.