The capacity market in Poland―more expensive than ever

Poland has already held six power auctions. Analysis of their results shows that this mechanism in its current form is not an optimum solution for the country. The capacity market has proved more expensive than anticipated, has failed to curb the increase in electricity prices and, in addition, has contributed to the petrification of the outdated and coal-based generation structure. The arduous task of plugging the coal gap has only just begun, which is why decisions on modernisation and on methods for supporting capacity up to 2030 must be taken urgently.



In December, the power market auction for the supply year 2026 was held. It resulted[1] in contracting 7.2 GW capacity and for the first time ever there was no coal capacity. This is the implication of EU regulations adopted in 2019 limiting the possibility to support power plants emitting more than 550 g CO2/kWh. The winners of the auction are gas units, new and existing ones, hydroelectric power plants, demand side response (DSR) and units where biomass will be co-fired with coal.  For the first time ever, the power suppliers will be foreign generating units (owned by Fortum Sveirge AB). DSR has concluded contracts for nearly 1.5 GW in the current auction. This is the highest volume contracted for demand reduction to date. Despite expectations and passing the certification process for the current auction, there are no energy storage facilities among the winners.

It should be remembered that despite the fact that only low-carbon capacity could take part in the December auction, in 2026 over half of the capacity will still be provided by coal units which have already obtained longer contracts. Some of them will still be in force in 2026, and it should be reminded that Poland will support new coal units until 2035.

Dash for gas?

Although diversification and the construction of new low-emission capacity should be the overriding aim of the Polish energy sector, the capacity market auctions held so far have not supported this. So far, the mechanism has provided financial support for existing or already built capacities, which in Poland are mainly coal-fired. The first auction (in which capacities we contracted for the past year) featured PGNiG's Żerań gas-fired CHP plant, which was already under construction at the time but was not commissioned until late 2021. The only major new gas-fired unit in the power market so far was Dolna Odra, an investment by PGE, which won the contract in the fourth auction. It is expected to be built by 2024.

The current auction has brought more gas projects. These include Orlen's investments in Grudziądz and ZE PAK's in Adamów. Again, after the relevant amendment of the Power Market Act was carried out, the auction was won by Elektrownia Ostrołęka, this time already as a gas project. New investments will also be made by PGE Energia Ciepła and Veolia. In all likelihood, these are gas-fired cogeneration units, although the results of the auction unfortunately do not provide information on the fuel.

New capacities are needed and expected. They come at a time when the threat to security of supply is growing, as we face a coal-capacity crunch. However, this is also a time when it will be increasingly difficult to invest in gas, and there will be fewer and fewer people willing to finance it. The possibility of considering gas projects as economically sustainable activities will soon be significantly reduced when the EU taxonomy rules come into force. The need to build expensive dispatchable capacity can be reduced by modifying the entry criteria for DSR and storage.

Our expensive power

The availability of capacity in the system costs money, as previous auctions demonstrated. So far, the price has ranged from PLN 172.85/kW/year or EUR 38 (auction for 2025, in which only 2.4 GW were contracted) to PLN 259.87/kW/year or EUR 57 (auction for 2024). However, it has never been as expensive as it is now―the auction ended already in the first round and the price was set at a level only one grosz lower than the maximum price, i.e. PLN 400.39/kW/year or EUR 88. Taking into account the volume of capacity obligations contracted as a result of previous deliveries (11.6 GW), Poland will pay PLN 5.8 billion or EUR 1.3 billion for the "standstill" of 18.8 GW of capacity in 2026[2].

In a context where necessary modernisation decisions have been put off for many years, the high pressure to modernise Poland's power and heat sector is driving up transformation costs. New capacities are necessary and the market prices them very high, especially when competition is scarce. It is worth noting that with such a high price, the remuneration that companies will receive in this auction over the next 17 years for new gas capacities far exceeds the amount of investment outlays.


The sixth power market auction, for 2026, brought long-awaited new investment projects. During the first five auctions, i.e. in fact half of the period for which the European Commission gave its consent for the mechanism to operate, Poland supported mainly existing or already constructed coal-fired power plants. It was not until the emission allowance limit excluded them from participation in the December auction that the process of diversifying the Polish energy sector was unblocked.  However, the new capacities come at a time when investing in gas is becoming increasingly difficult and expensive. Amid rising electricity prices, record gas and CO2 prices and the need to reduce emissions and replace generating units even more quickly, we need to look for solutions on how to support the construction of new capacities by modifying the existing support mechanisms. There is no single solution, but there are several ways out: modification of the capacity market in the direction of a clean mechanism, priority treatment of the construction of renewable sources within the framework of auctions and their integration into the system, revision of the existing support mechanisms for cogeneration. It is also necessary to open a discussion on how to support the construction of dispatchable capacity by 2030, setting ourselves specific objectives to be achieved.

The support mechanisms, however, require above all political will and strategy―moving away from coal and replacing it with gas, but in such a way as to clearly define the scope for using gas in the energy sector―and consciously minimising its role.

[1] The results of capacity auctions do not include the category of "fuel", so the assignment of technologies to individual units is based, inter alia, on press releases of companies and sometimes also on media reports. The lack of such important information in the official results is a serious shortcoming, especially in a situation where Poland is beginning to diversify its power mix.

[2] Without taking into account indexation of long-term contracts.

Date of publication:: 13 January 2022