Poland has seen relatively low electricity prices in recent years. While prices have been growing for our neighbours (e.g. Germany), Poland has managed to keep them fairly flat. However, all the signs are that this state of affairs is about to end, writes Michał Olszewski.
The days of cheap electricity in Poland are coming to an end (Public Domain)
Recent weeks have brought a series of signs that electricity prices in Poland are going to rise. Wholesale market prices for energy have increased by about 25% on last year prices.
Wholesale power prices could rise up to 70 percent
For the time being, the alarms are primarily being sounded by local government officials negotiating contracts for the supply of electricity as summer turns to autumn. The Town Hall in the city of Olsztyn stated that the prices being tendered by suppliers are 35% higher than last year. Janusz Malinowski, the president of the Łódź Metropolitan Railway, told “Puls Biznesu” that one supplier suggested a rate 70% above last year’s. “A shock and an omen of horrors in the budgets of rail carriers,” Malinowski commented on Twitter. And not without reason: such a large increase in prices would inevitably entail a rise in ticket prices.
And what about households? The energy minister Krzysztof Tchórzewski reassures us that there is no question of price increases for private consumers. Energy prices in that sector are regulated, meaning that dramatic year-on-year price increase won’t happen. But in contrast, the head of the Energy Regulatory Office warns that with the current hikes in wholesale prices, a lack of increases for individual consumers would mean a loss of about PLN 3 billion for energy companies.
The most important question is: why the price hike? In recent years, Polish energy policy has focused on preserving the status quo with regard to coal. Independent energy market analysts have for years been warning that the cost of CO2 emissions allowances would increase. And that is precisely what happened this year. The response of the Polish energy minister was to visit Brussels and intimate that this was collusion against Poland.
Trouble trifecta: coal, no renewables, and poor infrastructure
But it doesn’t end there: Polish coal prices have risen by about 14% since the beginning of the year. For the Polish power industry, which is still built on coal, that is another problem. And paradoxically the raw material supposed to guarantee Poland’s energy independence is being imported in ever-increasing quantities from Russia.
The past three years have seen the archaic model of the energy system preserved: the Law and Justice government has inhibited the development renewable energy through regulations to keep private investors from developing renewables or becoming prosumers (both producers and consumers). This means that the anticipated increases in coal prices and emissions allowances cannot be dampened to any notable degree by renewable production.
And another issue: the Polish power industry needs serious amounts of money for investments and a refit of transmission lines, some of which are in terrible condition. Instead, the government has chosen to invest in even more coal power plants. One of the present government’s flagship investments is to be a new coal-fired power plant in Ostrołęka. Presented as low-emission, it will be key to the energy security of north-eastern Poland, which is devoid of major energy power plants. It is also a symbolic investment – the Law and Justice government has announced that it will be the last investment in a new coal-fired power generator. This symbol comes at a price – the construction cost for the power plant is estimated at over PLN 6 billion (about 1.4 billion Euros).
Expensive coal, no renewable energy, and no infrastructure investments mean that the days of cheap electricity in Poland are coming to an end. It is doubtful that this state of affairs will have been changed by the energy minister visiting Brussels and suggesting that this is a conspiracy by the energy companies.
Some analysts warn that after 2020 Poland may become the country with the most expensive electricity prices. It would be a sad punch line to the joke of inaction and years wasted by the Polish energy sector.