Energy transformation as an opportunity for Poland’s development

In the view of the changing political and economic environment, sticking to the status quo would mean a defeat for Poland. We need to define our goals not only so that Poland emerges from the crisis unscathed, but also to catch up with long-term trends. The point of reference for the energy transformation should be looking for solutions that are not exposed to regulatory risk in the long run. That is why renewable energy based on wind, solar, and hydrogen power is the most promising for Poland in terms of finding niches in the energy sector. Paweł Łapiński talks to Aleksander Szpor, head of the energy and climate team of the Polish Economic Institute.

How realistic is it for Poland to achieve its goal of climate neutrality by 2050?

In short, achieving climate neutrality means reducing carbon dioxide emissions to the level that is entirely absorbed by the forests in a given country. Is this possible in Poland? Of course, but you should ask yourself what assumptions we base that on, and what methods we use in the attempt. So far, we have been reluctant to declare this goal. This is partly understandable due to our country’s particular starting position.

When comparing Poland to the most ambitious countries in terms of achieving the goal of climate neutrality, one should note that the advantage of these countries comes not only from their economic or technological advantage, but also from their starting point when it comes to the electricity mix itself. One of the determining factors is how mountainous the terrain is and the related potential for hydropower—a very cheap and zero-emission technology. In some countries it is as high as 30–40 per cent. If we add nuclear energy, whose life cycle is several dozen years, the current challenges of energy transformation concern less than half of the electricity sector in some countries.

As we know, there is no nuclear energy in Poland, and the share of hydropower is currently at 1.5%. In Eastern European countries, nuclear energy only exists as a legacy of having belonged to the Eastern Bloc, as these countries were not able to build such power plants on their own after the fall of communism, for both financial and technological reasons. In turn, due to the topography of Poland, it is impossible to significantly increase the scale of the hydropower sector.

Bearing these objective barriers in mind, one should note that Poland has been and still is benefiting from a large pool of European grants, e.g. to cover the costs of a low-carbon transition. We also have lower targets under the climate policy (e.g. 15% instead of 20% in RES by 2020, or lower targets in non-ETS sectors). Although we will continue to be privileged under the new plan, over time it will become less and less likely our European partners will offer understanding and acceptance of our scepticism towards zero emissions. It also seems that by delaying our economic ‘leap into the deep’, we will lose opportunities for developing modern technologies; after all, this is the primary goal of the European Green Deal and a large chunk of the European funds will be devoted to it.

Do you think it is possible to achieve climate neutrality in Poland without building a nuclear power plant?

I know simulations that showed that it is possible to achieve an ambitious reduction of around 70 per cent compared to current emissions without nuclear energy. The role of nuclear energy is then partially taken over by offshore wind energy, which produces relatively stable energy. However, there is the problem of power shortages in this scenario, and that gap has to be filled by additional energy efficiency investment or energy imports. Furthermore, this is not a scenario in which we could achieve full climate neutrality.

Then there is a scenario that can ensure Poland becomes climate neutral without nuclear energy. It is estimated that in the energy sector the reduction of emissions would be on the order of 90% compared to current emissions. It is primarily based on wind energy, but it includes the risky assumption of using CCUS in gas sources on a mass scale, i.e. technologies for capturing, using, and storing carbon dioxide. However, one drawback of this scenario is its limited credibility, as it is based on a ‘closed’ analytical tool for which the assumptions and the data cannot be verified. We have pointed this out in our paper with Michał Hetmański and Paweł Czyżak, stating that we badly need open models that would substantially improve the quality of the energy policy whilst civilising the consultation process of said policies. By the way, such models will also be a strong argument in negotiations with the EU.

However, nuclear energy has so far been planned as a stabilising element in energy production. This was already the case in the climate policy scenario under the previous Commission, which aimed for an 80% reduction in CO₂. With the plans for climate neutrality, i.e. with much higher ambitions, this element seems to be even more relevant. On the one hand, the development of nuclear energy is still uncertain, as the implementation of the PNE has already been delayed for a decade. On the other hand, we are not yet ready to answer the question of what to do if no nuclear power plants are built by 2033 (or ever).

What should the ten-year delay in building a nuclear power plant teach us?

When the discussion about returning to the concept of building such a power plant began in Poland—around 2008—the nuclear energy landscape looked completely different. Two nuclear power plants were built in Europe, one in Finland, and one in France. These were new blocks added to existing installations, built by a French–German consortium. The prospects were good at the time, with both installations scheduled to be completed within the following few years. The idea seemed attractive at the time.

In 2011, we had to deal with the Fukushima disaster, which led to a freeze on this type of project globally, including in Europe. The aftermath of Fukushima for Germany was nuclear power getting shut down; the two units, in France and Finland, have not yet been completed. Although new blocks have been built in China, it’s worth remembering that the two fundamental problems related to the construction of nuclear power plants were absent there: sensitivity to social fears and political disputes.

In a country like Poland, a huge project involving the construction of a nuclear power plant reveals all the weaknesses in the state management system. This element is political in nature. In pluralistic systems, if the administration is not exceptionally efficient, social fears will prevail. One example is Lithuania’s withdrawal from the construction of a nuclear power plant following a referendum. This type of project is very sensitive to friction, both within the government and between the government and the opposition. The very high mistrust of nuclear energy in society will affect the activities of even the most efficient administration.

Moreover, Poland does not have the luxury of being a country that is developing nuclear energy as a side effect of its development of nuclear technology in the military. The level of expertise in this area is therefore relatively low. Additionally, there is the issue of financing such a huge project. It is clear that currently almost no investment in nuclear energy can be funded solely with private capital. In each case some sort of support or collateral from the state is necessary. Delays in nuclear projects are the norm, which further increases the necessary financial resources. The option of small modular SMR reactors be constitute an alternative, as the capital cost is significantly lower, despite producing less energy per unit. However, these technologies are still in the research stage and require further funding for development.

Investors hope for the fastest and highest profits from the sale of energy from power plants. The costs and risks associated with running the project are too high for private investors to be able to fund on their own. The conclusion is that the government’s role is essential, whilst its involvement can also be a drag on such projects.

The European Commission recently commissioned the Joint Research Centre to prepare a document to assess the arguments that have been appearing in public debate for years: do the benefits of near-zero emissions outweigh the risks associated with the management of nuclear waste? This discussion is not to be finalised until the end of the year. Perhaps this will clarify the situation as to whether (and in what form) the European Union will support the potential construction of our power plant and ultimately remove doubts regarding its construction.

And how do you assess our progress in developing distributed power? We have government programmes, and the industry is growing.

Photovoltaic modules, and in some regions heat pumps, are certainly areas that are currently developing very quickly in Poland. It’s good to see programmes like My Electricity and Clean Air. In my opinion, My Electricity lives up to expectations at the moment, though of course we would like to see even faster progress.

It is currently difficult to say how the coronavirus will affect these investments. Following the first wave of the epidemic, Poles’ savings increased, so they may be partially invested in solar energy. However, we will have to reflect on the next steps soon. At some point, this market will reach a certain maturity and perhaps subsidies will have to increase, e.g. for energy storage. These measures can already be combined with the Clean Air programme, so it creates openness to hybrid solutions for the simultaneous improvement of energy efficiency and electricity supply.

However, one should remember that at the moment these programmes are being used by the wealthier Poles. In the long run, however, we will be dealing with the problem of growing energy poverty. Freeing up energy prices will make them grow, especially in Poland and southern Europe. At some point, My Electricity and Clean Air may become social programmes. We will have to lower certain investment ceilings for farms that would qualify on more lenient terms, perhaps in cooperation with social assistance centres. This is a very interesting topic, so next year we will conduct an entrepreneurship study at our Institute [editor’s note: Polish Economic Institute] on the renewable energy sector in Silesia.

What opportunities can a low-carbon economy bring for Poland? We often hear that it can be an impulse for economic development, but there are rarely specific niches we could develop in. Do we have any structural predispositions with which to take advantage of certain opportunities better than others?

In my opinion, we have three promising areas related to low-carbon technologies. First of all, we have potential in solar energy, both in photovoltaic cells and solar collectors. Unlike wind energy, these are technologies with great potential for small, incremental innovations that are achievable in small and medium-sized enterprises. And it is precisely such solutions that are particularly important in the process of a fair transformation. Various studies have shown us that a great potential in the energy transformation lies in the synergy of various solutions.

The second important area is offshore wind energy. It is known that so far our chances of participating in the production of turbines have been rather slim, but it is a promising technology and Polish companies have some potential within the supply chains for wind energy. This is a global market and Polish entrepreneurs are already taking part in it, e.g. in the production of cables, towers, or foundations. It is a way of building competitive advantages in the renewable energy sector, even if (unfortunately) the production of turbines remains beyond our reach for a long time.

The third area of promise is hydrogen. Poland’s opportunity lies in the fact that we are already a significant producer of hydrogen in Europe. So far, this mainly involves ‘grey hydrogen’, which is made from natural gas—mainly in the chemical industry, but also in the refining industry. Therefore, it is possible to scale production for new recipients, at least as long as the prices of emission allowances from these processes do not push grey hydrogen below the profitability threshold. In addition to production, this technology also has potential in the existing gas infrastructure, which, to some extent, can support the transfer and distribution of hydrogen. Going further, we can use offshore wind energy to produce hydrogen, although the rapidly growing demand for energy will probably be a big challenge here and at the same time we lack sufficient generation capacity in the system, forcing us to import.

These three areas are, in my opinion, crucial for fitting into a low- or zero-emission transition trend. The benefit they have in common is that the technologies they are based on are all being developed by technologically advanced EU countries (and not only), so there is no regulatory risk here.

So what about fair transition mechanisms? Let’s assume that we shut down the Bełchatów Power Plant a few years from now. Do we have instruments in place to prevent its employees from being put out of work and the city from suffering an economic collapse?

It seems to me that Bełchatów has every reason to follow in the footsteps of Konin. Konin, currently an area for lignite mining and combustion in power plants, are taking the hydrogen (using biomass) and wind/solar path in post-mining areas. This mix of different, proven solutions, which are tailored to the local specifics, is assessed positively by the Mining Regions Support Platform. Bełchatów is in a similar position, but has an advantage over other regions in the form of power connections. Even in the event that the coal blocks are decommissioned, the existing infrastructure will remain. Adding new sources to the existing and planned RES farms requires considerable expenditure, but represents a significant potential.

What comes after coal will be up to municipalities, cities, and regions. We can use the aforementioned NFEPWM programmes and EU subsidies for modernising the heating of buildings to create jobs for people who change industries. For Kleszczów—currently one of the richest municipalities in Poland—now is the time to reflect on how to use its resources to adapt to the future economy.

The experiences of other mining regions show that local authorities do not always find solutions immediately, but it is possible. In some regions, such as in Lusatia in eastern Germany, the shift away from coal has led to depopulation and deurbanisation. This is a personal tragedy for the local people. On the other hand, there are also opportunities: infrastructural and recreational investments may increase the value of real estate, which can be considered a form of compensation for the losses caused by the loss of the mining sector. There is no point in deluding ourselves that Konin or Bełchatów would have it easy, seeing how far away from the big cities they are. They will struggle with the issue of looking for new drivers of economic development. Perhaps some of these regions will decline demographically. However, this does not necessarily lead to a deterioration in circumstances, particularly in the case of towns that, like Bełchatów, have the means to invest.

The interview was conducted in the early July of 2020, i.e. before the European Council’s budget summit and the consent of the European Commission to the merger of Orlen and Lotos.

Polish version is available here.