The longevity and position of coal mining in Poland is triumphantly displayed by the statues in front of the building of the Faculty of Geology, Geophysics and Environmental Protection at the AGH University of Science & Technology. The pair of miners and their prominence evoke the time when mining and natural resources extraction fueled the economic growth of the country. That dominance still attempts to hang on in the Polish power sector despite the global growth in renewable energy. Polish coal is becoming more challenging as the cost of greenhouse gas (GHG) emissions rise along with an overall decline of financially viable Polish coal reserves. Keeping away renewable energy is becoming harder.
In this first of two blog posts, I describe my impressions from a research trip I conducted between November 6th and 16th, 2018. I traveled to Gdansk, Warsaw and Krakow and met a wide variety of experts from academics, development and government officials, including current and former energy managers. The purpose of the trip was for a research project on the Eastern European energy sector. I’ll keep the more in-depth analysis for later publications. But here I just want to share my overall impressions of the Polish energy sector.
Can we NOT talk about coal?
I attempted to move around the coal topic and examine the role of innovation and new energy start-ups. But I kept running up against the role of state owned companies and the political intervention to sustain coal as a viable and long-term fuel source for heating and electricity production. This means blocking new wind-farm developments, being unsupportive of solar-farms or other alternative energy sources, such as biomass. Efforts at innovation seemed pushed to the demand side of the energy sector. Energy efficiency, demand side response, and the sharing economy, turned out to be a bright side that local municipalities and business could support. In Poland, technological and policy developments on the demand side of the energy sector show the most potential to take off in coming years.
I really enjoyed my discussions when people gave examples or were involved in companies working on the demand side. Here, real business progress was being made and changing how energy is consumed. The circular economy came up a few times and was seen as a new trend that could drive Polish businesses and communities into a more interlinked and sustainable direction. The future of the supply side of Polish energy is uncertain, the demand side is more easily engaged at the local level, and this is the bright spot.
In my previous blog posts on Polish energy I was urged by a Polish expert (see this blog post) to look below the surface and see the innovation occurring in Poland. In this trip I sought out innovative activities and I see there is extensive R&D occurring in private companies, start-ups, local governments and in universities. Efforts by the EU through Horizon 2020 programs and regional economic development funds were having an impact of fostering these relationships and making both policy making and entrepreneurship more professional. This area seemed the future for Poland, as one interviewee describe it, for entrepreneurs wanting to invest their lives into a product, they want both an environmentally sustainable technology and future market opportunities. Investing both time and money into new coal technology was a dead-end.
Poland is viewed in the early stages of awareness and skills around start-up thinking. The structure of the educational system and the necessity of failing (and losing money) in early stage investments in products, services and new business models was viewed as too risky for many of the state-owned firms. Nonetheless, change was apparent. Polish energy companies are beginning to set up funds and build partnerships to foster a more robust ecosystem for innovation in start-ups. I was positively impressed with these efforts. Spending entrepreneurial time on coal was seen as a dead-end.
Demand side businesses and technologies seemed the future for Poland; as one interviewee describe it, for entrepreneurs wanting to invest their lives into a product, they want both an environmentally sustainable technology and future market opportunities. The shorter development cycle for demand-side products were more appealing to funders and entrepreneurs than supply side developments.
My big takeaway from multiple meetings, was niche market development, for a product or service was viewed in a global context. The focus was on the technological niche within the global energy sector, not protected status within the Polish market. The idea among multiple people active in the start-up field was to take a Polish start-up not just to the European market but to the United States and other world regions. Using Poland as an incubator for a niche technology was viewed as too limited.
Now we need to talk about coal
My interests in Polish hydrocarbons extends back to about 2012 when shale gas emerged as an important (potential) part of the energy sector. Under the Tusk government, it seemed gas would emerge as the new fuel for Poland while the coal sector would just wilt away. Prosumers would be rising up under their own power to enable Poland to transition towards a green energy system. But then geology, the global economy put a halt to shale gas and politics intervened.
In 2015, came the Law and Justice party (PiS). Coal mines and coal fired generation was placed in the middle of the energy system. Renewables, were viewed as causing problems for coal generation and were reducing the efficiency of the power plants. Thus, to increase efficiency of coal generation, renewables needed to be stopped. Coal would continue to provide a majority of power for both heat and electricity. The rising onshore windfarms in the north were halted and the coal sector was re-organized to attempt to increase efficiency of mines and generation. As I wrote in 2016:
The EU is pursuing zero carbon emissions in the power sector by 2050, and the Minister Tchórzewski stated the Polish government, “we reject that, clearly unacceptable” the sacrifices for Poland would be too great to move away from coal. The path for Poland is higher efficiency power plants, so more power output can be gained by more efficient burning of coal. Renewables, in the view of Tchórzewski are expensive and require 100% reserves by other power sources – making them very expensive to run, and making them unreliable, whereas if coal fired power plants are only operated, then they are more efficient, due to better predictability of demand and operations.
So the future of Polish coal is bright? Not necessarily. In a very useful report, the Polish think tank, Forum Energii provides a plan with four scenarios. However, there’s only one scenario that works. In the chart below, I’ve crossed out three. I suggest to read the report to gain a fuller understanding of each scenario. The most likely scenario emerges as an overall diminishing of coal and continued growth of renewable and gas fired generation – with little state support (as was the case before the PiS government). My justification: it is unlikely the Polish state will embark on a building spree of new hard coal and lignite (soft/brown coal) mines and power plants. There are some plants currently under construction, but it seems these are not financially viable over the long term, so it will become harder to finance and justify further power plants. Combine the high cost of new generation with the import of coal or high cost of domestic coal, then the economics of coal begin to shift.
Despite these political steps, the days for Polish coal are numbered. Both the cost are increasing for mining and for emissions. In addition, reserves of Polish hard coal are diminishing, already historically high imports will need to increase to meet domestic power consumption.
Due to the decline of hard coal, two of three justifications for the use of coal (discussed in part II) of energy security and affordability, are undermined. If domestic coal is expensive and imported coal is used in coal power plants, then there is a decline in mining jobs and the use of Polish mining technologies. The second scenario developed by Forum Energii, with nuclear power, is unrealistic due to the high cost of building a new facility and operating it. As one expert stated, the age of nuclear in North America and Europe is over. I agree. The fourth scenario of only RES in the future is unrealistic, because we are dealing with the politics of energy, and in Poland the expertise exists to continue a niche coal industry.
The most likely scenario, according to the Forum Energii plan, is the diversified scenario, which looks more like the global energy mix in 2050. This scenario results in lower GHG emissions, less state actions and more grassroots efforts to succeed – essentially it can occur through decentralized decision making. Verbal support for coal will remain, while there is implicit support for a more distributed energy system with RES and gas. The only likely large-scale generation project will be offshore wind.
This mixed scenario means the government can retain its supportive discourse on coal, while renewables and gas slowly rise-up and replace aging coal power plants and meet growing energy demand. Importantly, supporting this scenario is the current energy strategy being developed by the Polish government. Both offshore wind and solar are expected to hold prominent positions in the future mix. This scenario enables the government to support coal, but in a narrow manner with less projects which could be more economically viable in the market niche of baseload generation and district heating.
Poland holds a wide variety of natural resources. From good wind, gas, oil to hard coal. and lignite. The challenge in Poland is not of natural resources but one of innovative thinking. In both private and state owned companies and institutions there needs a continual development of human and institutional resources for investigating, trying and producing new energy technologies and services. Sufficient progress needs to occur over the long-term to replace Polish expertise in coal with expertise in demand side and small-scale generation, over large centralized coal fields and power plants.
As will be discussed in part 2 of this series on Polish energy, there remains a strong tradition and investment in fossil fuel technologies, from extraction to generation. New technologies, business models and ways to fully develop world class technologies need to rise to be competitive on a global scale – equal to Polish coal technology. Investments are now taking hold in the area of start-ups and energy management. In an optimistic scenario, the future of the Polish energy is not with coal, but with its diverse expertise in state and private institutions who are engaged in driving down energy costs through demand side management and addressing the environmental damage from coal, in both air pollution policies and environmental remediation – this is where Poland can globally compete. Expertise in Polish coal could continue to exist as a niche technology meeting a smaller domestic demand while also participating globally in the coal sector. But a realization of this new specialized role needs to be acknowledged to build the necessary support mechanisms.
Forum Energii. “Polish Energy Sector by 2050: 4 Scenarios,” October 2017. http://forum-energii.eu/en/analizy/polska-energetyka-2050-4-scenariusze.
Forum Energii. “Energy Transition in Poland 2017,” 2017. http://forum-energii.eu/public/upload/articles/files/Energy%20transition%20in%20Poland%202017%20final.pdf.