How much is 550 g after the end of the European negotiations?

Insights

Negotiations on the EU regulation on the electricity market were concluded on  December 19, 2018. For Poland it was the last and most controversial element of the Winter Package. Since 2017, the European Parliament and the Council discussed how to formulate regulations introducing a CO2 emission limit of 550 g/kWh of electricity produced. They are to apply to the capacity markets.

For Poland, which produces 78% of its energy from coal, this is crucial, as it means less chance of supporting conventional capacities. On the other hand, it is clear that the Polish power industry still needs diversification of production sources, so the importance of this provision was overestimated.

Publication of the final version of the regulation can only be expected at the beginning of 2019.  However, unofficial information indicates that:

  • Power markets for coal-fired power plants will be significantly reduced after 2025. Coal-fired power plants will be able to continue to operate, but in a competitive energy market.
  • It will be possible to move the coal-fired units to a supplemental contingency reserve (outside the market), but the maximum annual emissions from 1 kW must not exceed 350 kg.
  • All new coal-fired units that start production after the date of entry into force of the regulation will not be able to receive support under the capacity market. It is not known exactly when this will happen. Probably after approval by the Council and Parliament - not later than 1 January 2020.
  • Contracts signed until the end of 2019 will be considered valid. This means that the negotiations took into account the special situation of Poland, which has a high share of coal in the energy sector. However, in the case of new units, it is important to bear in mind the provision that makes support dependent on the date of the start of energy production.

Conclusions

  • The new regulations will not affect long-term contracts for Opole, Jaworzno, Kozienice and Turow. From 2021, they will receive support for another 15 years as they won the November auction.
  • The block in Ostroleka is still under question mark. Even if it wins the auction on 21 December, its implementation is not certain. Failure to comply with the power production obligation within the specified period will have financial consequences. The provisions after the trilogue are ambiguous and additional legal uncertainties related to the new EU energy market regulation may arise at later stages (on the one hand, recognition of all contracts concluded by the end of 2019, and on the other hand, the condition to start operating the power plants until the regulation enters into force). 
  • Short-term support for existing coal-fired power plants will be possible until 1 July 2025.
  • There are doubts about the sense of modernization of coal-fired power units - those that have already received contracts. Since support for coal-fired power plants will be very limited after 2025, power generators will have to answer the question of whether the units will earn money from each other in the future energy market model.
  • The Polish Power Market Act will require an amendment to bring it into line with new European energy market regulations. The need to adapt Polish legislation is one of the conditions of the European Commission in the notification of the capacity market.

To sum up, it seems that 550 g is quite a lot. Knowing the final shape of the EU regulation of the capacity market, we should now start working on a profound reform of the electricity market. The reform should focus on increasing the flexibility of the energy system, competitiveness and the development of low-carbon sources.

 

Author: dr Joanna Maćkowiak-Pandera 
Date of publication: 21 December 2019 

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