Poland’s Russian gas exit speeds progress on renewable power

Poland foresees using a "diverse" mix of renewable, nuclear, and coal-fired power sources to soften energy price spikes after Russia cut off natural gas exports to the country last week.

Poland's pipeline gas imports from Russia ended on 27 April after state-controlled gas company PGNiG refused to make a payment in rubles to its Russian counterpart, Gazprom Export.

The move drove up European wholesale gas prices at the Dutch TTF gas hub by 28% on the same day to €125/MWh ($131.77/MWh), according to data from exchange operator ICE.

Poland lost about half of its total imported gas supply, or 27 million cubic meters per day, according to S&P Global Commodity Insights Executive Director for EMEA Gas Power and Renewables Laurent Ruseckas.

While Poland does not expect a shortage of gas, it is extending price protection for consumers and adopting a range of measures to combat inflation in a policy called the Government Anti-Inflation Shield.

On 5 May, the National Bank of Poland (NBP) held monetary policy sessions to raise interest rates.

Polish inflation is projected to remain high due to soaring commodity prices, strong wage growth, and expansionary fiscal policy, according to a report by S&P Global Director, Emerging Europe, Sharon Fisher.

On 2 May, an extraordinary Council of EU Energy Ministers met to take stock of actions to shore up gas supply, amid rapid negotiations on the European Commission's forthcoming proposal for gas storage regulation. The regulation is intended to defend against gas shortages and price spikes.

Clusters of renewables, hydrogen storage, and more

On 29 March, Poland's executive Council of Ministers adopted a proposal to update its Energy Policy until 2040 (PEP2040) to reflect energy security concerns.

PEP2040, initially adopted in 2021, enforced Poland's EU-mandated National Energy and Climate Plan (NECP) for the years 2021-2030, which aims to get countries to align with the EU's pledge under the Paris Agreement.

The energy policy is being revised to help Poland cut dependency on imported coal, crude, and natural gas and their derivatives (LPG, diesel oil, gasoline, and kerosene).

"The current international situation affects many aspects related to energy policy and makes it necessary to change the approach to ensuring energy security towards greater diversification and independence," the executive body said.

Under the revised PEP2040, Poland will meet more of its energy needs from domestic sources and add a target of reaching 50% of all power demand from renewables in 2040.

A previous version of PEP2040 targeted at least 23% of electricity consumed to be from renewable sources by 2030, before hitting at least 28.5% in 2040, according to law firm Dentons.

Poland is not there yet. It produced just 10.75% of its electricity from renewables in 2020, according to the US Department of Commerce, and the update would aim to increase this fivefold.

Poland held its first auction for offshore wind farm subsidies last year after passing key legislation enabling the country to target 11 GW of capacity in 2040.

The revised PEP2040 targets using even more wind and solar power, as well as the use of biomass, biogas, or geothermal.

It suggests using several technologies together in hybrid "energy clusters and energy cooperatives."

The update will also "strive to replace" natural gas with decarbonized gases, such as hydrogen, and use biomethane, hydrogen, low-emission synthetic fuels, or electricity in the mobility sector.

Faster development of hydrogen, so-called "prosumer" energy storage facilities, and hydroelectric plants will also play a role in storing power to prevent blackouts, while small nuclear reactors and energy efficiency secure domestic power supplies.

Coal use may increase despite targets

Counterbalancing some of its green measures, Poland may keep coal-fired power plants and coal mines in operation for longer.

While the prior PEP2040 included the EU-aligned goal to potentially cease coal-fired power generation in 2049 and limit coal use to a 56% share of power generation by 2030, down from 70.8% last year, think tank Ember criticized its failure to set a 2030 deadline to end coal use.

This slow pace of the phase-out may deteriorate further due to current energy security concerns. For example, shifting coal-fired district heating to gas could be shelved.

Poland plans to continue to produce coal from its mines, having transferred ownership of the mines between state-controlled entities in April, but it wants to do so using more "clean coal technologies."

While Poland may increase the use of coal-fired generating units in the medium term, it may modernize the units to decrease emissions, also enabling the plants to provide improved backstop generation for variable renewable sources.

"An element of the new document will be a plan for the use of the existing generating units," taking into account carbon prices for coal emissions, according to a 29 March government statement on the PEP2040 update.

Polish utilities PGE and ENEA are the second- and fourth-largest European utility producers of emissions from coal, according to Ember. Its 2021 power generation carbon intensity ranking of EU countries puts Poland dead last.

Other European countries like Germany, which aims to phase-out coal generation by the 2030s, may also potentially to turn to coal in the short term, according to a paper by consultancy Aurora Energy Research.

Alternative gas supplies

While gas pipelines connect Poland to supplies in the Czech Republic and Germany, importing all of its demand from Germany could push up spot prices on the German THE hub and across Northwest European spot markets, said Ruseckas.

Poland will have the ability to replace the remaining Russian gas imports with Norwegian supplies when connections between the Polish, Danish, and Norwegian gas networks come online in October.

Poland has also increased LNG imports, which now make up 20% of total imported natural gas, according to Moskwa.

In addition, Poland's construction of a floating LNG regasification terminal in the Gulf of Gdańsk will be accelerated under the updated PEP2040, enabling it to import even more LNG.

Posted 06 May 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.