Poland Faces Harsh EU Reality in Push for Coal Exemptions

(Bloomberg) -- The Polish government’s hopes to get special treatment from the European Union for its coal-dependent economy may be quashed by the bloc’s strict approach to limiting the dirty fuel.

The EU’s largest eastern economy needs to build more coal-fired power plants to avoid blackouts and an economic slump, Poland’s energy minister said last week in the southern city of Katowice. That puts him on a collision course with the EU’s representative for Energy Union, who reiterated at the same event that the regulator won’t allow subsidies for coal-fired plants.

Poland Faces Harsh EU Reality in Push for Coal Exemptions

Krzysztof Tchorzewski

Photographer: Olivier Hoslet/EPA

Poland has ignored EU calls to quickly walk away from the highly polluting energy source, saying its economy is too dependent on coal. Energy Minister Krzysztof Tchorzewski claimed western Europe is partly to blame for the nation’s reliance on coal, when it allowed the Soviet Union to take control over Poland after World War II.

“Nobody is plotting against Poland,” Maros Sefcovic, the European Commission’s vice president for Energy Union, said in Katowice, the capital of the nation’s coal region. “It’s not the Commission which wants to have 100 percent of renewables when dealing with a country: but it’s Google, it’s Ikea, it’s Tesco.”

Poland generates more than 80 percent of electricity from coal, mainly from its own deposits. The government says reducing that to 50 percent by 2050, the maximum achievable level, will cost 200 billion zloty ($52 billion).

Black Versus Green

For the time being, the plan is for the state-controlled utilities to add 10 gigawatts of coal-fired capacity by 2025 at a cost of as much as 60 billion zloty. The government is also seeking to introduce a capacity market mechanism that will pay power producers for keeping their plants available, shielding them from potential losses on the new projects. It estimates the solution will bring the utilities 26 billion zloty in additional payments by 2027.

“The Polish view on the energy policy is completely different to that of the EU’s,” said Pawel Puchalski, head of research at BZ WBK SA in Warsaw. “It’s difficult to marry the two. They are rather green and we are definitely black.”

He doesn’t see the capacity market being backed by the bloc as Poland “can’t expect to get free gifts” and count on the EU to agree to yearly payments of 3 billion zloty to utilities. However, Puchalski said the government will somehow find a way to build new plants. The cabinet of the ruling Law & Justice party has made rescuing coal producers its priority and providing stable demand for the fuel is crucial for the miners’ existence.

Reality Check

Poland’s plan may fall on deaf ears as the EU is strongly insisting on slashing greenhouse gases. The government is already locking horns with the bloc after it started a procedure against Brussels, known as the yellow card. It argues that proposals for new carbon dioxide limits rule out the construction of coal-fired plants and deny the nation its right to shape its energy mix.

The Polish government has some crucial questions to answer regarding its approach to coal, according to the EU’s Sefcovic. “Are we investing in the right technology, are we investing in something that will be relevant in 15 to 30 years? Or do we have a risk of stranded assets and the loss on investments?”

Even as Poland is swimming against the tide, it’s not “running away from the reality,” Deputy Energy Minister Grzegorz Tobiszowski said in Katowice. “But if we rely for more than 80 percent on coal for electricity generation, how can we change that? Not to say what for.”

The WIG-Energy Index, which includes the nation’s biggest utilities such as state-controlled PGE SA and Tauron Polska Energia SA that would benefit from the mulled capacity market mechanism, dropped 0.8 percent, heading for a five-week low as of 9:08 a.m. in Warsaw.

There’s no alternative to building new coal-fired plants because Poland can’t risk power shortages, according to Krzysztof Kubiszewski, an analyst at Trigon Dom Maklerski SA. “Any attempt by the EU to impose its own solutions in the energy policy won’t end with a compromise from the Polish side,” he said.