Investment in the energy sector as a remedy for the crisis
After a few weeks of the pandemic in Poland, we know for sure that the virus will infect the economy, even as we finally get rid of it ourselves. We need to act decisively right now. But we also need to think about economic recovery, in which the low-carbon transformation of energy has to take a central place. This is the time for bold decisions, so far postponed. A strategic rebuilding of the sector must be announced today to help society emerge from the crisis and provide long-term benefits.
Strict health policies containment measures, which are necessary, are the blow to Poland’s economy. In forecasts made by Credit Agricole, released on March 30, bank is expecting that GDP growth will fall to minus 2% this year. But economists estimate that the longer the lock-down is, the worse the effects of the pandemic will be. Sales of industrial production will fall, unemployment will rise.
Coronavirus and energy
Behind economic figures there are, however, real problems and human dramas: redundancies, bankruptcies, difficult situation of small and medium-sized enterprises, restrictions in supply chains. We already know that the effects of epidemic do materialise in energy sector: electricity demand is falling (by more than 7% on average), in a moment statistics will record reduced fuel consumption. The average price of electricity on the spot market is already one quarter lower. CO2 price dropped to levels not recorded for nearly two years. Although energy is cheaper, there are already problems with the insolvency of consumers. Problems may spill over to small, independent electricity sellers. Energy companies already signal problems with the continuation of investments ― be it conventional or renewable energy projects. All this is happening in a situation where the Polish power industry requires urgent reconstruction of production capacity, network development, significant investments in RES, but most of all, reduction of greenhouse gas emissions. We did not modernise the Poland’s power industry when the conditions were favourable. We did not switch it to low-emission tracks. Now the pressure is increasing, and we are facing repairing the roof during a solid storm.
Time for strategic decisions
Economic policy is a strong tool to defend against the crisis. Therefore, the governments of all countries, including Poland, will pump significant public funds into national economies. But it won’t be the infamous helicopter money. Therefore, in addition to saving the economy right here and right now, strategic decisions on where to direct special support are necessary. Health security and social policy (education!), digitisation and innovation of the economy and modern infrastructure, including energy ― these are the areas where investment support will be necessary. Yes, we believe it is time to support energy sector, but only when it means a leap forward ― a creation of digitised, decentralised and decarbonised system. Then it can become a flywheel of the economy and a tool for equalisation of opportunities. Therefore we propose the following actions:
- In order to stabilise the situation and set directions for business and financial sector, the government should announce that the EU energy and climate targets will be met by Poland. It is necessary to continue the recovery in the onshore solar and wind energy industries, which are currently the fastest growing sources of RES.
- Support for key industries may require specific actions, so the government should consult with entrepreneurs about their condition, problems and needs.
- The support programmes for prosumers (such as “Mój Prąd”) must not only be continued, but also strengthened. Demand for prosumer facilities and other renewable energy sources must be maintained. Poland is among top five EU countries with the highest number of jobs in the RES sector―at the end of 2018 it was already 86 thousand (EuObserver), but now there are probably more of them thanks to the acceleration of domestic photovoltaic development. Let us recall―there are 80 thousand miners in Poland. What is more, these industries provide an opportunity for other Polish companies to rebuild their supply chains, and potentially gain a larger share on the EU market.
- Offshore wind energy may become Poland’s speciality. It can be a source of cheap, clean energy and contribute to improving energy security. For this to happen, it is necessary to accelerate the development of this technology, including reducing investment costs. What is important, offshore wind can support other industries, e.g. shipbuilding. It is expected―in the draft offshore act―that around 34 thousand can be created just in the investment phase. Moreover, experts calculated that the installation of 6 GW offshore wind farms is an opportunity to create 77 thousand jobs throughout Poland, generate about 60 billion PLN in value added to GDP and 15 billion PLN in taxes by 2030. (PWEA, McKinsey&Company).
- It is necessary to continue the fight against the smog. That is why the programmes of home insulation and replacement of old heat sources with new ones cannot be stopped. By 2030, in individually heated buildings alone, a total of over PLN 400 billion will have to be spent on these purposes (Forum Energii). These are not only investments allowing for improvement of air quality but also permanently reducing bills. It should be remembered that it is also an opportunity for Polish companies producing materials and equipment, or providing assembling and servicing services.
- It is high time for a support program for vulnerable customers. Today, energy supplements do not reach those in need due to the link with housing supplements. It is time to reform this program, link it to energy efficiency and, above all, withdraw the drat act on electricity price compensation. If instead of ordinary subsidies, which will not be needed by everyone because electricity prices are falling, the government would subsidise, for example, the replacement of lighting with energy-efficient ones, consumption could be reduced by about 10-20%. The is an example of structural answer and not an ad hoc action.
- Poland should get back to already announced last year concept of a green fund, which can be financed with revenues from the sale of CO2 emission allowances. Last year, the Polish government earned a record PLN 11 billion from the sale of these allowances. This was due to, among others, high CO2 prices. In February this year alone, the government collected over PLN 1 billion. This money is lost in state budget, although at least half of it should be spent on low-emission transformation. It is time for these funds to actually go there. This money can finance the development of networks, including district heating, improvement of energy efficiency (including insulation), RES, electromobility, energy storage.
- The program of development and modernization of the transmission network, and above all the distribution networks. The state of the latter leaves much to be desired, and the scale of the necessary investments will be enormous, especially when we consider the development of decentralised energy and electrification of transport and heating. Realising the potential of the coupled sectors will also require smart grids.
Conclusions―tomorrow becomes today
Fighting the spiral of economic downturn will require great mobilization, both regulatory and financial. The priority is, of course, to maintain jobs, stop bankruptcy of companies or maintain liquidity, also in the energy sector. However, it is already necessary to think about the place Poland and the energy sector want to take in the post-crisis world. Megatrends will not be stopped by the crisis ― coal will be less and less available, expensive and highly-emitting, RES technologies will be cheaper and cheaper, and storage will finally reach market maturity. The climate crisis will also not be wiped out by the coronavirus pandemic, and the EU's ambitions will at most be postponed for a few months. There is no longer any doubt that the recovery of the entire EU economy will be strongly linked to the goals of climate neutrality. Poland can prepare for this earlier and strive for it, so that it would have a chance to become a serious beneficiary not only of funds for the transformation, but also for post-crisis reconstruction.
Bold decisions on the energy transformation and a broad investment programme ― supported by the state and EU funds ― can benefit the whole economy. This cannot be achieved by further subsidies for mining or coal-fired power plants.
Author: Aleksandra Gawlikowska-Fyk PhD, Head of the Power Project, Forum Energii
Cooperation: Joanna Maćkowiak-Pandera PhD, Marcin Ścigan
Date of publication: 1 April 2020
 This is also because the government sold additional allowances which were not issued to power installations under the derogation (KOBiZE).