Exit polls showing that Poland’s liberal opposition party is on track to form the next government have raised hopes among climate trackers that Europe’s most coal-reliant power producer may be primed for a sharp shift towards cleaner energy policies.

But even if the pro-European Union Civic Coalition, led by former European Council president Donald Tusk, wins big in Sunday’s election, supporters of a speedy energy transition away from fossil fuels may be disappointed by Poland’s pace of change over the coming years.

Indeed, the pace of Poland’s clean energy supply growth may more often undershoot expectations than exceed them over the near term, even with a significant swing in political power.

POWER SYSTEM CHANGES ALREADY UNDERWAY
A major reason for climate trackers to expect only modest shifts in clean energy policies and momentum going forward is that Poland’s energy system has already substantially cleaned up its electricity generation mix in recent years.

Between 2018 and 2022, Poland’s electricity producers boosted clean electricity supply capacity by over 150% so that clean sources now account for roughly 40% of total electricity capacity, up from 20% in 2018, data from think tank Ember shows.

A 20-fold increase in solar supply capacity from 0.56 gigawatts (GW) in 2018 to 11.17 GW in 2022 has been the main driver of the clean capacity expansion, while wind power capacity has climbed by just under 40% to 8 GW.

Those clean capacity increases dwarf the gains seen in solar and wind supply capacity in Germany over the same period (up 48% and 13% respectively), and indicate that Poland’s power system has already been one of Europe’s most aggressive energy transition drivers even under the current conservative regime.

In addition, further boosts to clean generation capacity are already planned in Poland over the coming years, including increases in solar photovoltaic capacity of 6,000 megawatts (MW) in 2023, 4,392 MW in 2024 and 4,000 MW in 2025, according to Poland’s Institute of Renewable energy (IEO).

Such strong clean energy generation momentum will limit the scope for further eye-catching overhauls to Poland’s power production system over the coming years, even with broad societal and political support for the further greening of electricity and power production.

BACKLOGS BREWING
Emerging problems linking new clean generation assets with Poland’s electric grid are a key reason why clean power growth may slow going forward.

Stalled connections are delaying revenue flows to project developers just as production costs are rising due to higher interest rates.
Alongside rising costs for key clean energy generation assets – including solar panels, racking systems and power inverters – the connection delays and higher interest rates are eating into project developer profit margins, and curbing the appetites of those developers to expand onto new sites.

Grid operators are also struggling to complete the transmission system upgrades needed so that the intermittent flows of power from solar and wind sites can be fed through to consumers, and may push back against any acceleration in capacity connections until the grid improvements are completed.

This combination of connection delays and grid congestion may in turn dim the overall enthusiasm for further clean power capacity development in Poland over the coming years, regardless of which political party may be in power.

COST COMPETITIVENESS
Poland’s relatively high wholesale power costs are a further factor that may slow its energy transition.

Despite the rapid growth in solar and wind generation in recent years, more than 70% of Poland’s electricity still comes from fossil fuels, primarily coal.

That high dependence on coal has historically helped Poland’s power producers generate electricity at relatively low prices, in turn providing Poland-based industry with a key competitive advantage.

In 2022, Poland’s average power costs were 28.5% below the average in Germany, where power costs surged following Russia’s invasion of Ukraine and the subsequent severing of natural gas flows to Europe.

So far in 2023, however, Poland’s wholesale power costs have averaged 18.5% more than Germany’s, and are among the most expensive in the entire Eurozone, according to data from LSEG.

A key driver behind this dislocation in power prices has been a fall in the price of natural gas-fired electricity to below that of coal-fired electricity, due in part to steep climbs in gas inventories across Western Europe.

But equally important has been the high cost of Polish coal compared to imports, and the fact that Poland’s coal market is priced off a mix of domestic and imported coal which leaves Polish utilities paying more than the international average.

Polish coal costs have also been elevated by a “solidarity fee” imposed by the ruling government on coal mining companies to help shoulder the costs of electricity price caps for households that were introduced in the run up to the election.

This solidarity fee has helped shield households somewhat from Poland’s higher wholesale power prices, but prevents coal miners from lowering costs for utilities who remain on the hook to generate power for all consumers.

In turn, this has resulted in a run-up in energy costs for businesses and heavy industry, which have struggled to absorb those rising costs alongside rising interest rates and weakening global consumer demand for the products they make.

For the winner of the upcoming election, helping to reduce power costs for business will be a key priority, as industry remains the dominant employer and taxpayer in the country, and the chief driver of future economic growth.

Pushing power costs lower may even trump plans to further clean up the power generation system, which may only add to power generation costs over the near term despite resulting in lower emissions in the long run.

So while Donald Tusk’s party may have campaigned on a clean-power agenda during the election season, once in government cheap power may become even more important, even if it delays the energy transition.
Source: Reuters (Reporting By Gavin Maguire; Editing by Sonali Paul)