The mining industry is demanding another PLN 7 billion bailout by threatening bankruptcy, despite record coal prices in the last two years. The PiS-led government’s strategy was based on avoiding decisions, despite clear market signals about the worsening prospects for coal, and aligning itself with the expectations of trade unions at the expense of citizens and stakeholders. A ‘social contract’ agreed upon in 2021 was introduced without an impact assessment and would have burdened the entire Polish society with the cost of supporting the sector for the next 25 years. However, it is impossible to implement due to limited coal resources and conflict with EU regulations related to state aid, which do not allow public support for mining (although the sector can still operate on market principles). This poorly constructed social contract will only increase unrest in the mining industry and the investments will not happen anyway. Above all, however, it will negatively affect the energy sector as the maintenance of coal units becomes more and more expensive and the risk of imbalance in the national energy system grows. Renewed subsidies to the mining industry not only do not bring Poland closer to solving its systemic problems but actually move it farther from the goal.

How can Poland resolve the Gordian knot of coal?

Investments in technologies that are available and known need to be accelerated and scaled up. Poland has the human and financial resources to launch them, as well as competent companies to carry out investments on time, within an agreed budget. Efforts should be focused on projects that can realistically replace coal-fired power plants. Poland also needs to move the path away from coal and closer to market realities, preventing the waste of public funds. It is also clear that the Polish mining industry cannot be put at risk of sudden collapse. The reduction in mining should be correlated with the decreasing demand for coal in the Polish economy.

The strategy should focus on 3 key steps:

• Setting a realistic date to move away from coal by 2035 and addressing the energy generation gap through investments that can realistically replace coal.
• Define the role of SOEs in the transition.
• Unlocking distribution networks and improving transmission planning.

Moving away from coal by 2035 and the investment gap

Coal-fired power plants require financial support because they are unable to earn for themselves from the energy market. There are many reasons for this condition, which has been the subject of numerous analyses by Forum Energii. Until 2028, these power plants will benefit from support from the so-called capacity market, and after that they will generate losses. This is one of the main reasons why power companies want to get rid of them—to spin them off to the so-called NABE , that is, to shift the assets onto the shoulders of the state. The system operator will not set these units aside before at least 2028, as they are needed for now. However, it must define a realistic framework for their operation that takes into account technical capabilities and costs. This framework was not prepared by the PiS government: the operational model of NABE was not specified, which, among other things, contributed to the failure of this project. The previous government also made it difficult to negotiate the extension of the power market in Brussels (i.e., support for coal-fired generation) as part of the EU’s energy market reform. It was agreed that coal power generation could be supported with public funds until 2028 if no other technologies could secure the system under the capacity market. If purely economic criteria were to decide, coal from the power and heating sector would disappear in Poland by 2030. The operating strategy in Poland in recent years has been based on the assumption that ‘somehow it will happen’, but from the perspective of security of supply, this is an extremely irresponsible approach. Therefore, the deadlines for the operation of coal units need to be more realistic.  

Outlining a path away from coal is necessary for a number of reasons, not least is that coal regions must be treated fairly and given time to prepare for the change.

Given the length of investment in the power industry, it is necessary to adopt a plan to move away from coal in the Polish electric power industry with a 2035 horizon, consisting of:

• Determining the level of the investment gap, the capacity needed to balance the NPS at that time, and adopting strategies that will mobilise these investments;
• Determining whether and how many coal units will be needed in the coming years, for how long, and providing what services;
• Planning the schedule for shutting down coal-fired units and releasing connection capacities and auctions for these capacities, while aligning maintenance plans with this schedule.

The 2035 date can be modified if it turns out that the adopted plan requires it. However, setting it is necessary for the country’s energy security and rationalising the spending of public finances, as well as determining electricity price paths, which are crucial for consumers, especially industrial ones.  

Defining the role of state-owned companies in the transformation

The previous government adopted the concept of privileging the role of state-owned energy companies. It is clear that key projects and infrastructure for energy security must remain in the hands of the state. However, the scale of investments needed by Poland is very large, the next few years will see investments exceeding PLN 1 trillion. On the other hand, analysis by Forum Energii shows that Poland has EU funds of various origins, and ETS revenues of PLN 530 billion by 2030. Retaining as much of these funds as possible in the country and building the innovation potential of companies in Poland should be the priority. However, this will be difficult to achieve without clear long-term goals and with significant politicisation of SOEs and ad hoc actions taken without a framework as a compass. Human and financial capital in Poland’s SOEs—especially for modern energy projects—is limited, as evidenced by Poland’s largest energy projects. In the case of nuclear power, the PiS government fully opened up to non-Polish companies, and in the offshore power industry, domestic companies also rely on experienced foreign partners.

Therefore, the new government should make it a priority to apply business criteria and rebuild competent teams in energy companies. On the other hand, it should encourage reliable and professional investors to enter the Polish market. Competition in this area will translate into lower transition costs for consumers.

Polish energy companies are financially weak, and their investment capacity depends on their ability to obtain financing on the international financial market. Financial institutions agree to a very limited extent to finance projects in companies with coal assets, due to carbon footprint reporting rules and business risks. This is why Polish companies, following the example of other foreign companies, want to spin off coal assets, hence, the NABE project. If the new government abandons the asset-unbundling project or starts it from scratch, it must expect a slowdown in investment in new capacity, which will hinder the much-needed modernisation of the sector.

To maintain pace, it is necessary to:

• Identify the role of state/foreign energy companies in implementing transformation projects.
• Deciding on the unbundling of coal assets, which will have practical consequences: without unbundling, SSP's investment potential will decline and mean the need for more foreign investment.  

Unlocking the network

In the short term, renewable energy sources (RES) have the best prospects for development due to costs, conditions for obtaining financing, and the number of competent companies that are ready to enter the market and successfully implement projects. One of the biggest challenges to their development is networks, mainly distribution networks, which are underinvested and unprepared for the rapid development of RES. In 2022 alone, operators refused to issue connection conditions for 50 GW of new capacity. To compare and give scale: total capacities of RES in the entire electricity system are just 60 GW. Accelerating investments in the grid should be a priority. The separation of distribution companies announced by the new government without rapid implementation of the changes could slow down investment, just as the announcement of the creation of NABE paralysed the renovation and construction of new capacity.

The priority for unblocking the network should be to:

• Require DSOs to update their development plans to allow for the integration of RES, so that in 2030 they account for 65% of generated energy;
• Use all available sources of financing for grid development, not only tariffs, but also ETS, NIP and EU funds, instead of subsidising profitable photovoltaic or onshore wind projects;
• Implement of a digital twin to better reflect the operation and simulation of DSOs to improve planning and reduce connection refusals;
• Prepare an auction mechanism for connection capacity, increasing the transparency of the connection process;
• Implement internal regulations at power companies for the development of distribution company revenues exclusively for network investments.

New government—new opportunities

The situation in the energy industry has never been as difficult as it is today. Fortunately, this may be the most favourable political environment in many years. However, the slate of action must be taken one step at a time. Since subsequent governments have for years pursued a policy of conjuring reality to save coal mining, the priority should be to address this elephant in the room. However, simply ‘moving away from coal’ is not enough. What is needed is a different management philosophy for power companies and a viable plan to fill the post-coal gap based not only on new generation capacity but also, and necessarily, on grid modernisation.