Elements of new market design for Poland

Report

Both the European power sector at large and the Polish power sector in particular find themselves at a pivotal moment. Power systems are in transition, driven by commitments to continuing emissions reductions, growing penetration of renewables, and the need to provide affordable and reliable power. 

Addressing these challenges is essential to securing system reliability and will require a close look at how the Polish market incentivizes, or deters, investment in the portfolio of resources needed to secure reliable system operations.

Key messages

  • Both the European power sector at large and the Polish power sector in particular find themselves at a pivotal moment. Power systems are in transition, driven by commitments to continuing emissions reductions, growing penetration of renewables, and the need to provide affordable and reliable power.
  • The European Commission’s Energy Union Package has closely linked European goals for climate and energy policy. Renewed commitments to emissions reductions are accompanied by the recognition that decarbonizing the power sector will require greater commitment to timely realization of the internal energy market (IEM).
  • The Polish power system faces a number of challenges, stemming from the profile of its power system, rising demand for power during summer peaks, and increasing penetration of renewable resources on the system. Its largely homogenous fleet of inflexible, aging thermal plants struggles to secure system adequacy despite a high reserve margin (18 percent), particularly during summer peaks, night valleys, and as the share of renewables grows.
  • Addressing these challenges is essential to securing system reliability and will require a close look at how the Polish market incentivizes, or deters, investment in the portfolio of resources needed to secure reliable system operations.
  • Poland needs a more diverse, flexible portfolio of resources to secure system reliability. Barriers to resource diversification include delays in market coupling, barriers to demand response, distortions in the energy market, and a continued focus on investment in more of the same, rather than in resources with the operational profiles needed to serve the system.
  • The Polish market is largely isolated from its neighbors. Expanding beyond a national footprint in power sector operations and reliability planning can increase the system’s reliability and flexibility at lower cost than relying on resources within national borders alone.
  • Experience in other jurisdictions demonstrates that demand response is a reliable, low-cost, flexible resource that can help balance the system and can meet up to ten percent or more of peak demand. Poland must remove barriers that currently limit the participation of demand response in markets and system operations.
  • Efficient markets are essential for delivering system reliability in real time and stimulating investment in the longer term. One key challenge, not only for Poland but also many other European Union (EU) Member States, is to remove distortions from energy markets. In Poland, two essential steps toward accomplishing this are: (1) allowing excess capacity to retire when it is no longer economically viable, thereby restoring a healthy balance between supply and demand; and (2) revisiting the purpose and design of the operating reserve, which currently distorts market prices without providing additional security to the system.

 

Title of analysis: "Elements of new market design for Poland"
Date of publication: December 2015 
Author: Edith Bayer, dr Jan Rączka, Phil Baker

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