Poland’s energy sector is entering a period of major turbulence. The immediate question is the continued operation of the Turów power station since the EU Court of Justice recently ordered the suspension of lignite mining there. This is just the beginning of the problems. After 2025, when public support ends, the first 8 GW of coal capacity may leave the Polish system, and a little later, another 6 GW. The power plants will be shut down due to age and costs. Observing the government’s actions, one can get the impression that all hope lies in the proposed National Agency for Energy Security . Yet, this is a side discussion because no change in ownership structure will improve the situation of the failing coal power industry. Instead, difficult decisions must be made, and the possibilities of supporting the operation of coal-fired power plants with public money are already very limited.
The end of power-market support is the end of coal
As of 2025, public support for coal will not be allowed. According to the regulation on the internal market for electricity,[1] from 1 July 2025 at the latest, power plants emitting more than 550 g CO2/kWh (and 350 g/kW/year) will not be allowed any support under the capacity market or other similar mechanism. The reduction of support will reduce the cost of subsidising coal-fired power and will be good for consumers, but for generators it means large losses due to unprofitable operations.
Our analyses indicate[2] that the share of coal in the generation mix will soon start to fall. In the coming years, we can expect the withdrawal of coal units, with some already announced. The culminating wave will occur after 2025 when up to 8 GW may disappear from the market as capacity contracts end and cannot be renewed. The next big wave of capacity withdrawals will occur in 2029-2030 when 5-year contracts concluded at the fourth capacity auction (i.e., allowing support for modernised units in 2024-2028) expire. Nearly 6 GW of coal-fired capacity will disappear from the market at that time. The third wave will occur at the latest at the end of 2035 when the longest, 15-year contracts for new coal units will expire. This will be the end of coal in Poland.
Coal-fired power plants will sink into oblivion
There are many reasons for the retirement of coal-fired capacity and they are not necessarily due to climate pressure. The first is age. The second is the technical condition of the power stations. Third is the falling revenues as the units operate fewer and fewer hours. Fourth, there is the flat and inflexible energy market, which does not allow generators to absorb losses at times when power stations are most needed, for example, when it is not windy or sunny. The high price of CO2 emissions further exacerbates the economics of generation. Many power plants do not meet technical or environmental standards, and while they theoretically can be further modernised, companies lack money for these very costly investments. Further, financial institutions do not want to commit funds to coal projects, seeing them as high risk.
Without support from public money, coal-fired generation becomes highly unprofitable. The end of support coincides with limits on emissions in the power market, which, combined with the record high price of CO2 (over EUR 50 per tonne), will cause a further decline in the economic viability of coal-fired generation. Then, coal plants will have little chance of surviving on the market. The coming years are when coal will leave the power system in waves—not in the year 2049 as enshrined in the social contract with miners—that will determine the actual phase-out of coal in Poland.
Talking around the problem
In Poland, discussions about the transformation of the electricity industry are taking place in many places. In some, there is a debate about the nuclear power plant; in others, talks about an attempt to extend support for coal-fired power plants; and in others still, there is interest in ownership and organisational changes. However, the impression is that in none of these places is there any discussion about the most important challenge—how to fill the coal gap after 2025. We believe that it is necessary to take a systemic approach to the topic and move to action because while there is no single simple solution, a whole package of them is available.
We therefore propose three primary actions:
- Define the coal phase-out within theNational Agency for Energy Security (NABE)
First of all, NABE by itself is not a solution to the coal gap, which has been proven by the concept paper on power sector transformation prepared by the Ministry of National Assets. We can see that changes in the sector are necessary to allow energy companies to free themselves from loss-inducing coal. For NABE to become operational, it is necessary to define the process of phasing-out mines and converting power mix to low carbon. Only this will enable possible public support for the agency.
- Power market reform to tap into available low-carbon resources
What is needed is reform of the power market towards a mechanism that supports not only new gas units but also storage, interconnectors, DSR, and RES. The energy system needs stabilisation, and only these resources will realistically emerge in the next few years. In this respect, we can learn a lot from the British power market. Analysis of the British experience and conclusions for Poland will soon be published by Forum Energii.
- Strategy for RES
Given that key investments are made with a 2030 perspective, we know that the range of options available is not wide. In such a short term, a viable solution is to unlock the potential of RES. Forum Energii in its 43% analysis shows that it is possible to fill the coal gap mainly with renewables, with a small increase in the share of new gas investments not yet planned. However, future RES auctions need to be adapted to the situation resulting from coal phase-outs in order to quickly stimulate the creation of new capacity.
Summary
The problem for the Polish energy system is that while coal-fired capacity will inevitably disappear, there is no plan for how to fill this gap in reality. It is necessary to speed up action to support the creation of new generation sources or else the Polish energy sector will face a tsunami of unpreparedness for changes in the market. The next decade will be crucial, as will the changes that can realistically be achieved in that time. A viable action plan is critical to support new sources. Without it, electricity prices in Poland will rise dramatically, and we will become even more dependent on energy imports or risk power shortages in the system.
[1] Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market in electricity (recast), OJ EU L 158/54, 14.6.2019.
[2] In the analysis, we have taken into account the generation unit retirements already announced by energy companies and the results of modelling carried out by the consultancy Aurora Energy Research. The modelling assumes that coal units will be shut down when production is not profitable. The main factors influencing the lack of profitability will be the end of support from the capacity market and rising CO2 prices. In 2030, a price per tonne of CO2 of EUR 59.7 was assumed, so that it reflects the adopted emission reduction target of 55%.