Renewable energy: Is coal-fired Poland the right member state to lead the EU delegation at the COP-15 summit in Durban?

By Wojciech Słowiński, Director, Advisory Department, PwC

Renewable energy: Is coal-fired Poland the right member state to lead the EU delegation at the COP-15 summit in Durban?

Poland is perceived by many Europeans as a country with an old-fashioned coal-fired economy which generates huge amounts of CO2 and is a role-model “public enemy” for ecologists. As the Polish Presidency of the EU sheds more light on the country’s business, it’s worth noting just how huge Polish industry’s efforts have been to improve its energy efficiency over the past years. According to central statistical office (GUS) data, Poland’s economy improved its energy efficiency by 30% from 2000 to 2009 doing so in a more dynamic way than the ‘old EU’ member states. Coal’s share in final energy consumption decreased from 26% in 1999 to 18% in 2009. And in 2009 renewable energy capacity increased by 315 MW (19%) to 1,993 MW compared to 2008. All this should be taken into account when accusing Poland of being a black sheep in the EU flock!

How can Poland square the high costs of moving away from coal with its demand for economic growth?

Shifting towards a more energy-efficient economy is impossible without massive investment. According to a joint PwC-ING report published in May 2011, requirements resulting from EU regulations, as well as the technical condition of Poland’s production and distributive infrastructure, generate investment needs for the utilities sector, estimated at PLN 170 billion ($60 billion) over the next ten years.

Leading companies seem to be aware they need to made a huge effort to comply with the growing power demand as well as increasing environmental demand. For example, Poland’s biggest utility company, PGE, plans to invest PLN 39 billion between 2009 and 2012, of which PLN 9 billion will be spent on renewable energy resources. The second biggest company, Tauron, estimates its investment needs at PLN 49 billion by 2020, of which PLN 3 billion is designated for renewable energy. While the national champions – PGE, Tauron, ENEA and Energa – all seem to be aware they have to make a giant leap forward, smaller players (especially combined heat and power plants – CHPs – mostly owned by local authorities) might face serious challenges while meeting modernisation and climate package requirements. A serious debate on the power sector’s investment needs is pending, but there’s another issue, which is probably even hotter, and is currently attracting public opinion and business sector interest.

How will the shale gas fit into the low-carbon picture?

In April, Poland’s media were electrified by US Energy Information Administration estimates of Polish shale gas resources to be 5.3 trillion cubic meters. As this number is still to be verified – and is questioned by some experts – confirmation that even a few percentage points of that estimate is recoverable may have a huge impact on the local gas market. In the optimistic scenario, it can prove a pivotal point – completely turning around the current balance of gas supply powers in Europe.

In 2010 Poland consumed 14.3 billion cubic meters of natural gas, of which 70% had been imported. The main supplier is Russia’s Gazprom. Polish natural, conventional gas resources are estimated at almost 95 billion cubic metres. This makes the country highly vulnerable to an eventual tap turn-off.

As of 1 August 2011, Poland’s environment ministry had granted 97 concessions for companies interested in unconventional gas exploration. Among these are global giants (ExxonMobil, Chevron, Marathon Oil, Eni) as well as the local champions (PGNiG, PKN Orlen, LOTOS). The key players are currently investing huge resources, not wanting to miss the shale gas train lest it depart without them.

From the energy supply perspective, unconventional gas (which includes gas trapped in shale deposits as well as ‘tight’ gas which requires “fracking” or fracturing rock to get to it) offers huge potential. It can indeed become the main supply source for Poland’s growing needs for fuel for chemicals, heating plants, power plants, etc. In long-term perspective, it can make Poland a gas exporter, replacing coal as the main fuel.

From the environmental point of view this is also promising. Natural gas generates over 30% less emission than coal and even 50% less than lignite. That is why it is a serious opportunity for the country to achieve the EU’s emission-cutting goals, being part of the energy-climate package and confirmed in the Poland’s Energy Policy to 2030 adopted by the Council of Ministers in 2009. However, gas exploration and production companies must pay close attention to local communities’ needs if they avoid serious protests against drilling.

When Poland’s EU presidency finishes at the end of December, the economic challenges facing Poland will remain unresolved. The climate package and huge investment needs on one hand balanced by the shale gas opportunity on the other will shape the power and gas sector. For businesses not yet present on the market, it makes Poland an intriguing space to be discovered.