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Will the Coronavirus Slow Down or Speed Up the Low Carbon Energy Transition in Poland?

by Joanna Maćkowiak-Pandera, Forum Energii

Joanna Pandera

Joanna Maćkowiak-Pandera, Director of Forum Energii

The world is in chaos. The priority is to stop the spread of the virus and contain the crisis. A stable energy supply is crucial – it’s hard to imagine what would happen if there was no power or heat supply now. The million dollar question however, how will the current crisis affect the energy transformation in the long term?

We do not know many of the effects of the coronavirus epidemic, as the end of the crisis is not yet in sight. We hope that long-term thinking, science, new technologies, concern for the climate and future generations will win. However, it is not obvious, politically and economically different interest groups will start to clash harder.

We know for sure: electricity demand, wholesale electricity prices and CO2 prices will fall at least for some period of time. Fuel prices will fall temporarily, but after a while supply probably will adapt to demand and prices should stabilise. The pressure on energy sector will increase, and consumers will benefit. This will therefore increase interest in the energy transition.
Metro station Warsaw

Falling Demand for Energy

In Poland, after a week of fighting the coronavirus, the demand for energy decreased by 5%. For comparison, in Italy the decreases are greater and reach 18%. There are already quite a lot of RES in the European power systems, also in Poland. According to the right construction of the electricity market, priority is given to sources with the lowest variable costs (i.e. mainly wind and solar power plants). Reduced demand for energy will push the most expensive generation units out of the market. Very well, as this will reduce the wholesale price and be for benefit of the consumers (except households with an regulated tariff). We are already experiencing a decline in Poland in the day-ahead market from 200 to 170 PLN/MWh, i.e. by 14% since early March.

Coal Power Plants will Lose

This means that the oldest and least efficient and more emitting coal-fired units, i.e. 200 MW units, will suffer most from the crisis. Some of them will be pushed out of the market. At the same time, the number of operating hours of other units will decrease due to increase in the share of renewable variable sources. Conventional power plants will generate losses. There will increase the pressure to make their work more flexible and adapt to the model of generation of variable renewable sources.

Support for Energy Sector

The power sector pressed against the longwall not only by the mining industry, but additionally by the coronavirus will demand support. This will come in a few months’ time in the form of the so-called capacity market. It will be a large injection of cash for generators in the form of 5 billion zlotys a year. The money will come from the pockets of consumers. Any other forms of public support are out of the question because they will contribute to the increase in energy prices and the Polish economy may not be able to bear it.

Krakow Old Town

In addition, state aid for the energy sector is subject to significant limitations. The government will have to direct public funds where necessary to fight the economic crisis – the priority will be to save jobs, health care and industry. The anti-crisis shield annouced recently by the Polish government is a package worth according to the government over PLN 200 billion. The money will be taken from somewhere else.

Modernisation Challenge

In return for the capacity market, generators must, among other things, upgrade the units and ensure their uninterrupted operation. However, this can be difficult because global supply chains are being disrupted now and the availability of repair units is being reduced. Modernisation contracts are under question. If the modernization plan is not completed, penalties may arise under the capacity market contracts. In addition, unexpected generation unit failures may now become the real challenge. Therefore, within the framework of intangible support for the energy sector, governmental efforts should focus on ensuring continuity of supplies and modernization processes.

CO2 Emission Allowances Should Stimulate a Low-Emission Economy

The decline in energy demand has already translated into a sharp drop in the cost of CO2 emission prices – during the week from € 25 to € 16 per tonne- which is more than 35% during the week. The cost of CO2 in 1 MWh is no longer 90 PLN, but about 55 PLN. The unwise proposals to leave the ETS system not only deepen the chaos. They are placing anti-crisis resources on the wrong front. Last year, the state budget received over 11 billion zloty from the emission trading scheme. And in February 2020 alone, it was over 1 billion zloty. Even the state budget will receive 35% less money this year from the ETS, every zloty now counts. This is the money that will have to be invested in low-carbon investments ie. in the small and medium-sized enterprises, energy and industry. This should be part of the anti-crisis economic package.

Slesia Tram

Prosumer and Decentralized Energy

After coronavirus it will take a while for us to rebuild the trust in large complex systems and global markets. Unexpected fluctuations in the prices of oil, coal and gas are stressful and destabilizing for market participants. Consumers will look for solutions to reduce unexpected risks. Such a solution will be to generate energy for their own needs. Therefore, interest in this form of energy production will increase. Due to coronavirus, temporary problems with components of RES installations may occur.

However, support programmes for prosumer energy, e.g. Mój prąd (My electricity) must be maintained, because they are not only an effective tool for fighting the economic crisis and creating jobs in this prospective sector, which has just started to develop in Poland. They allow to keep electricity prices at a rational level. Solar energy allows to reduce the problems of balancing the power system in summer, with which is our biggest energy security problem at the moment.

Conclusions

“I know that I know nothing” – these words of Socrates have a special meaning today. They were not a sign of stupidity, but of respect for one’s own limitations of knowledge, which pave the way for creating wise solutions. The impact of the pandemic on climate and energy has a broad dimension. It will affect not only the energy markets, but certainly also production and prices of the fossil fuels which is not mentioned here.

The pressure from the European Union to act on climate will weaken for some time. But it will certainly not disappear. The coronavirus pandemic shows even more clearly how much the global economy and environment are interlinked. The ambitions for 2050 will certainly not be put on the shelf – quite the contrary.

This article was first published by Forum Energii. (C) Forum Energii

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EUKI Secretariat, Samuel Held