Why Paris is important?
The final phase of negotiations aimed at counteracting climate change has commenced in Paris. For the first time in 8 years there is a real chance to sign a global agreement. Two countries which have been the most sceptical till now and, at the same time, responsible for the biggest greenhouse gas emissions - the USA and China, have decided to limit the emissions and, among others, to develop renewable energy resources.
Vast majority of the countries of the UN Convention on Climate Change have declared their involvement in the emission reduction. The change in the attitude to the climate and energy policy is accelerated by decreasing costs of energy generation from renewable resources, necessity to modernize power sector and coal market collapse which resulted in 70% of mines around the world being unprofitable, as stated by Moody's rating agency. Not only the climate change is a problem but also the air quality in cities. Whereas, in Poland voices have been raised calling the government to hold the global agreement on climate change. Should the agreement hold be possible, what does it mean for the power sector?
Assumptions of the climate and energy policy
The climate and energy policy of the European Union is based on three objectives: emission reduction, improvement of energy efficiency and development of renewable energy resources, However, the scope of the global agreement is wider. Apart from environmental issues, it relates to, among others, development assistance and technology transfer. During last years the climate and energy policy of the EU has become one of the biggest problems which Poland has to stand up to. For many the policy means the decrease of competitiveness of the Polish economy. The issues of who is guilty and who is to convince the world, or at least Europe, to change the direction are under the debate, instead of holding a discussion over the ways to improve cost efficiency of power and mining sector, ways to diversify energy mix with the profit for the economy and society.
Impact of regulations on the power sector
Power sector, like no other sector, needs regulatory stability. Investments are prepared for years, electric power cannot be stored and the economy cannot develop without electricity. The Ministry of Energy is responsible for maintaining the complex balance between regulations and the market. The Ministry should create the legal environment that makes it profitable to implement investment projects in power sector and generate power - which is the foundation of the safe power sector. Such balance in the Polish power sector is more and more disturbed. Over 30% of systems has been operated for 50 years and should be replaced. However, for years it has been unsettled which sources should replace decommissioned power units - hard coal, renewable energy resources, nuclear or gas sources? Polish law and EU law are combined with each other. The Polish and EU power sectors share many regulations relating to the principles of competitiveness, granting state aid and limiting impact on the environment - it relates not only to CO2 emission reduction, but also limiting air pollution - which is the problem faced by the majority of Polish cities. The direction of the power sector to limit emissions and pollution was adopted in the second half of 1990s when the Kyoto Protocol entered into force. The opt-out, which means excluding Poland from some regulations, as some people propose, is impossible not only due to the fact that the opt-out cannot be applied to adopted and binding regulations, but also the cancellation of the significant part of regulations would mean in practice constant blockade of the power sector development. Questioning the direction of the power sector transformation results in the paralysis of the national power sector which just waits for the government to fulfill its promises of EU solution re-negotiations. And so, we have been waiting for years and at the same time we observe deepening of the power crisis. Mining industry has been falling down, shortages of electricity occur at times but it lacks courage to revise the existing attitude. A lot has happened for the last 10 years: the new EU power objectives by 2030 have been adopted, the hope for shale gas has emerged and dispersed in Poland, costs of the power generation from different sources have been still changing, coal market has collapsed. Only the attitude of decision makers has not changed.
Climate and energy policy may be a tool to transform the power sector. Under the Kyoto Protocol, Poland undertook to limit the emissions by 6% and managed to reduce it by 28%, and all that was achieved in the period of intense development of the Polish economy. The Emissions Trading System (ETS) was introduced in 2005 with the aim to stimulate investments in the low-emission power sector and funds from the sales of CO2 emission allowances supported investments, innovations and energy efficiency. In Poland, despite the urgent need to modernize the power sector, funds from the ETS are directed to the budget, allowances are treated as quasi-fiscal charge, which constitutes no added value for energy consumers and energy undertakings. The decisions how to allocate funds from the ETS are made at the national level and the scope of the Emissions Trading Systems after 2020 is now under the negotiations so it is still possible to change this attitude. It is worth discussing whether all solutions under the climate policy are reasonable and effective. Costs have to be discussed. However, this policy cannot be ignored or treated as counter-irritant. It is difficult to get involved in creating specific solutions if, generally, we do not agree with them. Irrespective of the current direction of the energy policy, generation sources and transmission infrastructure are aging and require to be modernized and updated. The power sector requires investments and any new sources - nuclear, coal, renewable energy resources and gas - mean increase of costs. According to the power sector, it will be necessary to invest PLN 200 bln till 2030 in modernization and construction of new power plants to maintain the functionality of the system. How to invest these funds and make the spot-on investments that will be a flywheel for the economy? Mining industry and power sector are in crisis. After the elections, the new government has a unique chance - with the perspective of 4 years of governing, majority in parliament and favorable president, it has all power to propose the new plan to modernize the power sector. It will be very difficult to prepare the realistic strategy of the sector development without arriving at a compromise between the Polish and EU vision of the power sector.
Author: dr Joanna Maćkowiak-Pandera
Date of publication: 4 December 2015