A new age dawns for Poland’s energy sector

Poland’s story differs from that of its EU peers. It remains the only one of the 28-member bloc to have escaped a recession in the aftermath of the European debt crisis. Once a communist nation brimming with government corruption and mismanagement, the country’s successes in the years since stem from an agonising transition to a free market economy and the many reforms introduced in the years thereafter. With this, international investors have been quick to pounce on a hotbed of opportunity, with a view to staking a claim in what is Eastern Europe’s most accommodating business climate. Fast-forward to today and the coal-dependent economy is about to undergo a major transformation, bringing with it a breadth of new challenges and opportunities for business and investment.

Bolstered by improved capital markets, social and political reforms, generous government incentives, tax planning opportunities and a growing pool of talent, the country is also known for its unwillingness to comply with EU targets. Looking at the country’s economic performance from an objective perspective, it’s clear Poland has succeeded where so many in the region have not. So it’s no surprise the country’s leaders are sceptical of EU ambitions that appear to conflict with their own.

The country’s hesitance to comply with EU obligations is best seen in its criticism of climate change policy, particularly last year, when the European Commission set out a plan that stipulated member states must slash their 1990 emissions by 40 percent before 2030. The union’s larger members warmly received the measures, but Poland was less than enamoured. Fearing the proposals could inflate domestic energy prices by as much as 120 percent, some have asserted that, in drafting the plan, the EU has failed to take into account Poland’s runaway coal industry.

Good coal/bad coal
Sources in Poland have already blocked a series of milestone targets set by the EU, on the basis that the measures could triple or even quadruple energy prices after 2020, according to the Polish Chamber of Commerce. Given that such a large proportion of the national economy rests on coal, the expectation that Poland can reach the same targets as those in Western Europe, and without consequences, is unrealistic. “Some things in the last EU Climate Summit conclusions have to be cleared,” says Dominik Smyrgała, PhD at the Collegium Civitas and Head of the Postgraduate Programme in Energy Security. “If the benchmark year remains 2005 and GDP level for free allowances is anything different than 2013 in market prices denominated in euros, I seriously doubt that we will be able to meet the objectives.”

The country could struggle to reduce its reliance on an industry that provides approximately 90 percent of its electricity and employs over 100,000 people. In fact, the scale of the industry is so vast that Poland is in the world’s top 10 producers, according to the World Coal Association, with only Russia and Germany ranking ahead of it in Europe.

By the end of October, EU leaders finally clinched a deal, albeit with a number of concessions thrown Poland’s way. With leaders having warned the country would oppose any measures that might inflate energy prices, Poland was dealt 200 million carbon emission credits and two percent worth of emissions permits from the European Emission Trading System. Smyrgała says the EU’s climate changes might bring new opportunities for those looking to invest in Poland: “And from another perspective, maybe some external pressure will eventually force the Polish energy sector to modernise.”

Necessary diversification
“Energy balance constitutes a vital part of countries’ energy safety policy and strategy,” wrote Wojciech Opioła and Grzegorz Omelan of Opole University in a study titled Poland’s Energy Balance and its Future. “This factor, if well-developed, may serve as one of the sources of the countries’ high stand on the international arena, and may become the basis for people’s well-being and the fast development of economies.”

As it stands, Poland is so heavily dependent on coal that natural gas and clean energy alternatives are afterthoughts in terms of development and investment. Yet these are the two sectors that harbour the greatest opportunities. “We have a lot of energy investment in the pipeline”, says Marcin Korolec, State Secretary of the Government Plenipotentiary for Climate Policy. “Next year we will finalise an LNG terminal, and two new coal plants are at early stage of investment. There is a nuclear development programme on the way and new draft legislation on renewables support. At this stage, all things are in motion and I don’t see new climate and energy framework merits radical changes to what we are already doing or a direction in which we are moving.”

Crucially, in 2014 the Polish government laid out a number of long-term subsidies for renewable energy in a bid to attract more consumers to the fold and meet EU emissions targets. “In my own opinion – and the opinion Polish Climate Coalition, of which I am an expert on European climate policy goals – there are tremendous opportunities for the Polish economy”, says Zbigniew Karaczun, President of the Board for the Mazovian branch of the Polish Ecological Club. “Let’s not forget that the Polish energy sector is the main source of the highest health costs in Europe. So the change of an energy sector creates a chance to improve the quality of life of millions of Poles. To sum up – in my opinion, as well as in assessment of the organisation I am representing – the implementation of the EU climate policy objectives will support the further economic growth and civilisational development of our country.”

The greater half of the promise, however, lies in the natural gas sector. Poland is home to some of the largest reserves in Europe and could conceivably upset the geographical balance of power. Estimates of the country’s recoverable reserves have come in as high as 4.1 trillion cubic metres, and, provided the country is quick to instrument the necessary infrastructural improvements, Poland could soon emerge as the next frontier for a European shale gas explosion. With the “Golden Age of Gas” upon us, according to the International Energy Agency, the fastest growing economy in Europe will likely have a vital hand in leading the charge.

Nevertheless, coal will remain the country’s primary energy source at least up until 2060, according to the Department of Strategic Analysis, though the addition of alternative energy sources to the mix will create a more diversified investment climate. “The Polish energy sector is a huge construction site with plenty of investment opportunities”, says Korolec. Karazun, meanwhile, insists: “To unlock this potential, we need an adequate legal basis and long-term development strategy, pointing to the need for low-carbon development.”

Some might look at the challenges facing the country’s coal industry and say the opportunities for investment are less. But that is to neglect the benefits waiting in the wings, as a diversified energy sector will surely create a more balanced economy.