Poles are challenging the hydrogen rainbow in a battle for access to EU coffers

Poland has revealed a draft of its hydrogen strategy. It wants to utilize various technologies, even though Europe puts preference on green hydrogen, which is generated from renewable energy sources. In a move to maintain their access to the EU coffers, Poles have proposed a more neutral classification in comparison to the popular hydrogen rainbow – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

Hydrogen road map

The draft, titled “Poland’s hydrogen strategy by 2030 with a perspective until 2040” has been submitted for public consultations. “Poland has the opportunity to use the scientific potential and expert experience in hydrogen technologies based on its own innovative technologies,” the authors of the report claim. “The strategy’s vision and overarching goal is to grow a hydrocarbon industry in Poland by, among others, developing domestic patents and hydrocarbon technologies, as well as using them to achieve climate neutrality and maintain the competitiveness of the Polish economy.

The strategic goals include, among others, bringing into use a 1 MW power to gas installation based on Polish technologies, opening a facility where hydrogen is produced using, among others, electrolysis from biomethane, waste gases, natural gas with the usage of CCS/CCU, or using pirolysis and other alternate technologies of hydrogen production, owning electrolyzers with 2GW capacity that run on renewables in 2030.

A legal framework is necessary to achieve this. “It is of utmost importance to create a legislative framework for hydrogen as an alternative transport fuel, draft regulations for the functioning of a hydrogen market and, later on, prepare a legislative hydrogen package – regulations which will define the details on how the market should function, and which will implement the relevant EU regulations, as well as introduce a system of incentives to produce low-emission hydrogen,” the strategy says.

The document includes a thorough description of the actual situation in the EU hydrogen industry, hydrogen strategies of selected EU states, as well as of Japan and Australia. These last two sates are especially pertinent examples, because they reach for solutions other than green hydrogen. Poland wants to follow a similar approach. “The ability to use the potential of renewable energy sources (RES) is limited by technical and weather conditions. It will be possible to generate economically competitive hydrogen from nuclear sources once the first nuclear block is opened, which according to the plan is to take place in 2033. For years Poland has been researching technological solutions for the hydrogen industry. Hence, today the country already has solutions of high technological readiness. In order to commercialize them, the industry needs to receive support to develop in a dynamic and stable way by 2030,” the document states. This is why the value chain described by the strategy authors includes, among others, hydrocarbon steam reforming, coal gasification, separating coke-oven gas as well as HTR (high temperature reactor technology).

Replacing the hydrogen rainbow with an emission criterion

Poles have a proposition that stands in contrast to the European Commission’s rainbow terminology, as it allows hydrogen to be generated from various sources. So far, hydrogen has been classified on the basis of the source from which it was produced: green hydrogen is produced from renewables, blue and turquoise from gas, violet from nuclear power, grey from refining and black from coal. Poles prefer an approach, which in their opinion will be less discriminatory.

Enter the term “conventional hydrogen”, i.e. one that is generated from fossil fuels. Thanks to it, today Poland ranks 5th on the European ranking of hydrogen production. The annual hydrogen production in Poland is about one million tons. The gas is produced by, among others, the following companies: Azoty – 420 thousand tons, Lotos – 145 thousand tons, Orlen – 145 thousand tons, Jastrzębska Spółka Węglowa – 75 thousand tons. Conventional hydrogen is the cheapest, but also generates the highest amounts of emissions, which is why it goes against the EU climate policy and is under pressure from new regulations. The second new term is “low-emission hydrogen”, which is generated from non-renewable sources, or renewable sources with a small carbon footprint suggested at a level lower than 5.8 KG CO2/kg H2. “We should replace the arbitrary process of assigning a ‘color’ to hydrogen depending on how it was generated, with a precise, numerical definition of hydrogen’s emissions level. The amount of CO2 generated per one kilogram of hydrogen in the entire production chain should be the criterion. Such an indicator would allow producers to adjust their technology to meet the desired standards,” the strategy proposes. “A cost-effective solution would be to use the hydrogen generated as a byproduct of chemical processes (the so-called waste hydrogen), which was qualified as low-emission, because the emissions were generated during different processes, in which they were inevitable,” the authors add, suggesting that grey hydrogen from refineries should be utilized. The third kind of hydrogen is “renewable”. It is generated in the process of electrolysis thanks to energy from renewable sources and an emission level under one kilogram of CO2 per one kg of hydrogen. “Today Poland’s ability to use the potential of renewables to generate hydrogen is limited, because of the lack of adequate facilities, and low commercialization of the existing technologies. The system solutions dedicated to managing the surplus of energy from renewables where hydrogen is generated in the process of electrolysis when demand for power drops, does not work either. The main reason for this is the high cost of installing electrolyzers and the high demand in the system for power from renewables,” the authors admit. Together with the development of renewable energy in Poland the potential of renewable hydrogen will expand, but changing the definition will make it possible for H2 to grow also thanks to nuclear energy, because violet hydrogen (from nuclear power) is to become equal to the green one (from renewables). “The competitive advantage of hydrogen generated in nuclear power plants is based not only on the lack of emissions, but also on the possibly of large-scale production (economies of scale). It is one of the cheapest ways to generate hydrogen. “Producing hydrogen in nuclear power plants makes the most sense during the so-called night valleys, when NPPs may be forced to lower their capacity, which has a negative impact on their efficiency,” the strategy authors explain. They also add that the plan includes HTR technology, which is to be developed in cooperation with Japan, which was included in the report as an example in the review of existing hydrogen strategies for a reason.

“It is also pertinent to incorporate the strategies of Polish companies that may be based on other ways of hydrogen generation. It was important to include a rule that widens the possibilities of using hydrogen from electrolysis, but also one that depends on the emission levels of grey hydrogen. This will be an important change, one that we will fight for on the EU level in line with the European principle of technological neutrality, so that as big a number of entities as possible could take this opportunity,” Michał Kurtyka, the Minister of Climate and the Environment, said in an answer to BiznesAlert.pl during a conference on which the hydrogen strategy was presented.

The game to tap into the EU coffers

In response to questions from BiznesAlert.pl, the Ministry of Climate and Environment explained that on the 9th of December the representatives of ministers for climate, energy and the environment – COREPER, met to negotiate how the EU hydrogen strategy should look. Poland’s proposition to support hydrogen technologies depending on their emissions level was adopted. The conclusions on this topic were adopted during the meeting of ministers for energy of the Council of the European Union. “Those technologies that generate no or low emissions and thus will bring Europe closer to climate neutrality will be promoted. Green projects will have the biggest support, but thanks to this classification we are not excluding the HTR technologies,” Ireneusz Zyska the Deputy Minister for Climate and Environment told us. “We are just starting. We will speed up after 2030. In the current decade we will develop the market and prepare the framework for further growth. The entry threshold, prices and availability of technologies force us to first clear the trails. In the next decade hydrogen technologies are to become common and cheaper,” he argued.

“The EU bankrolling low-emission technologies, not just green hydrogen, offers an opportunity to Poland, as well as other states with large industries, such as Germany. It also makes it possible to develop competencies and a hydrogen market with the existing assets, and enables a gradual move to hydrogen that causes less emissions, as well as H2 generated with power from large renewable facilities, such as offshore wind farms,” Zyska summed up.

This means that if the EU maintains its support for various kinds of hydrogen, the EU funds, e.g. the Connecting Europe Facility, which was used to bankroll innumerable projects that were important for Poland’s energy security (e.g. the LNG terminal and Baltic Pipe), could be used for hydrogen projects, for instance as part of the EU goal to adapt the gas infrastructure to transport hydrogen and other renewable gases, such as biomethane. Thus, Poland could keep its access to EU money for energy transition, despite the fact that it wants to use gas and other transition technologies (apparently in the hydrogen sector as well), which are increasingly more often penalized in Europe, like in the high-profile decision of the European Investment Bank, which decided to stop supporting gas projects. Polska Hydrogen Ready wants to keep on receiving funds from the EU despite the peculiarities in its energy and hydrogen strategies, by marking individual projects (e.g. Baltic Pipe) as endeavors that facilitate the transition.

However, the success during the COREPER meeting should not be treated as the final battle. “This position was adopted by the Council and it determines how hydrogen should be handled in the EU legislation. It will impact the Council’s position with regard to drafting specific regualations. It should also have some effect on the approach of the European Commission. It refers mostly to what is included in the plan determined by the EU hydrogen strategy from July 2020,” Paweł Wróbel, CEO of Gate Brussels explained. “We should remember we are in the midst of building a hydrogen market, which has been stressed by the EC as well. This is why at this stage there is room not only for green hydrogen, even though this kind of hydrogen is to be the target one as it is generated with RES. When analyzing how the future legal and financial EU framework will handle various hydrogen technologies, one should also take into consideration the position of the European Parliament. I expect that it will argue for limiting hydrogen other than green as much as possible. The document adopted by the EU Council in December las year is not a legal act, it’s only a conclusion. The future of hydrogen will be determined during the negotiations on specific regulations and directives, so it is still an open question,” the experts argued.

To be continued

The game for access to the EU treasury with hydrogen as leverage will be continued. Poland wants to stick to its specificity, similarly to the energy sector. This approach is balanced and I have called for it in my other articles. According to the hydrogen strategy, at the turn of 2021 and 2022, a legislative package for the gas is to be drafted. It will include regulations that will implement the EU legislation, regulate the mechanics of the hydrogen market, and provide a system of incentives to produce the gas. Whether Poland will be able to use the full potential of its hydrogen economy depends on the administration in Warsaw. The government will either use the upcoming opportunities to develop new industries and reach for the potential of RES and green hydrogen, or sit on its laurels and use a diversified hydrogen mix to protect the status quo in the energy sector. If the various hydrogen technologies are approved, Poland will have to face changes that are not as revolutionary, but it should not be an excuse to perpetuate the status quo, which does not strengthen the competitiveness of Poland’s economy.

The return of the Baltic rail. Offshore – diversify first, liberalize second

“Diversification first, liberalization second,” is an old principle from the gas sector, which is now finding its way into the power sector, due to the big game surrounding the Baltic rail, which will connect offshore wind farms in the Baltic, but for now, without Poland’s involvement. Warsaw’s objections and plans to integrate the offshore farms with nuclear power may stand in the way – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

The Baltic rail without Poland for now

We wrote on BiznesAlert.pl about the memorandum of the Baltic Sea power grid operators on the joint development of offshore wind farms with emphasis on transmission networks. The document mostly pertains to drafting a joint plan to construct a grid that will make it possible to deliver the power generated offshore to the land around the Baltic Sea. In theory this endeavor is beneficial and seems to strengthen the energy cooperation in the region. It is accompanied by the declaration of Denmark, Germany and Holland on the construction of energy islands, e.g. on Bornholm. However, Poland’s power grid operator Polskie Sieci Elektroenergetyczne (PSE) has reservations. BiznesAlert.pl asked PSE about this. According to the company, the initiative to cooperate on expanding offshore wind energy and developing a grid in the Baltic is premature when it comes to PSE. This is because the operator’s actual plans to develop offshore wind energy in the Baltic are at a stage, which does not allow to plan for creating an offshore grid.

One could suspect that Poles would like to start with connecting their own offshore farms, so as not to increase energy imports from foreign wind farms, even if Denmark’s Orsted would be the provider, a company that is important from the point of view of cooperation with Denmark with regard to the Baltic Pipe. Surely, it is no coincidence that PGNiG bought from Orsted gas that is extracted in the Danish area of the North Sea. The PGE Group wants to cooperate with this company, when it comes to two offshore wind farms in the Baltic. Perhaps this wide energy cooperation, that goes far beyond the Baltic Pipe, will assuage the Dutch about the fact that at this point Poles do not want to participate in the construction of the the so-called Baltic rail. Instead, they want to first connect with the land grid the offshore wind farms built with the participation of Polish companies. Those farms are to receive first contracts for difference during auctions that will start in 2025. Only once that has been completed, will they allow foreign competitors to enter their market and trade power across borders. Otherwise, they would open their market to imported energy earlier, and Poland’s offshore would have to compete against foreign players with a delay of at least a few years. If that happened, Poland’s market would develop in a way that would make the country dependant on energy imports from Germany and other states with access to the Baltic Sea.

Diversification first, liberalization second?

The Baltic rail was promoted by Polskie Siecie Morskie (Polish Maritime Networks, PMN) already in 2012, and presented as an idea where offshore power grids would be connected to integrate markets and lower offshore costs in Poland and its neighbors. The initiative was supposed to have received EU support. “According to the concept of Polskie Sieci Morskie, the grid would start in the existing connection point to the national grid in Żarnowiec, go through the wind farms and then reenter the shore in the connection point in Dunowo. An additional cable would enter the shore in the town of Słupsk. The rail should also connect to other systems, including the planned grid that will link Germany’s offshore farms and the Swedish grid, together with the planned underwater cable NordBalt Sweden-Lithuania,” the Polish Press Agency informed.

However, it may turn out that issues related to the security of national supply may be more important, which is visible in the PSE position on this issue. This approach is analogous to the one Poland is taking about the liberalization of the domestic gas market. The principle that is applied, especially by Piotr Naimski the Government Plenipotentiary for Strategic Energy Infrastructure, says that first there needs to be an infrastructure that offers supply security. Only then can the gas market be liberalized. That is how the market will not be dominated by foreign companies. It is worth stressing that a similar scepticism about the Baltic Rail was visible in PSE Operator’s statements already in 2012. “The investors will have to build a cable that will connect the wind farm with a power substation for which grid connection requirements were issued. Of course, the construction of an international offshore grid is a separate issue, which is the subject of an analysis co-sponsored by the European Commission. However, these projects are more pertinent to the 2030 perspective than to today,” Henryk Majchrzak, the then CEO of PSE Operator, said postponing the discussion about the rail. So, this is another example of the consistency of Poland’s energy policy, which is similar to the push for diversification before liberalization of the gas market.

It’s gonna get busy

It seems that this principle will continue to guide Poland on how to approach the Baltic rail, and we should expect that a tense discussion on this topic to erupt, just like in the case of the debate on the liberalization of the gas market. If we combine this with the plans for offshore integration with nuclear power thanks to power connections, we get a formula which shows Poland’s distinct, but perhaps justified, approach in the region. The draft regulation on maritime spatial planning does take into consideration nuclear energy with regard to the rail by “ensuring there exists the possibility of connecting the wind farms to the national grid and the possible Baltic rail; and taking into consideration the construction of a nuclear power plant on the coast.”

Hydrogen from the Baltic Pipe, or Poland’s key to EU treasury

EU documents confirm that gas infrastructure capable of transporting hydrogen and biogas will be eligible to receive EU support. It’s time to start building a Hydrogen Ready Poland – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

Hydrogen is a key to the EU treasury

After the 10-11 December summit, during which the member states reached a budget compromise with Poland, the European Council adopted conclusions titled Towards a hydrogen market for Europe. The Council called on investigating the potential of using the existing gas transmission infrastructure in a decarbonized power system to transport hydrogen, especially from renewable sources (i.e. green hydrogen). The Council stressed the importance of renewable hydrogen, which will play a “key role for the achievement of the decarbonisation objective”, which entails the planning for additional renewable capacity to generate it. The European Commission is to come up with support mechanisms for the technology to create an EU hydrogen market with the help from the European Investment Bank, the Connecting Europe Facility, and others. This is why the Polish Power Exchange provides for hydrogen trade in the future.

At first the so-called hydrogen valleys are to be created, i.e. energy clusters where hydrogen is generated. They will drive the economy based on that fuel at a national a regional scale in the European Union. The hydrogen from the valleys will reach various places on the map thanks to transmission infrastructure. Developing the hydrogen market will involve “various models for growth”, as well as the import of that fuel if necessary. This is why the transmission infrastructure that will be built, should carry hydrogen from various sources, but all of them should be labeled as meeting a “European standard”, so that the clients will be able to pick fuel from “clean” sources. This label would be similar to the guarantee of origin on the energy market, which makes it possible to buy this commodity produced from green sources. The new infrastructure will be used by the member states to buy and sell hydrogen to reduce the dependence on import. Wherever possible, gas transmission infrastructure should be upgraded to accommodate hydrogen. The Council advises that the Trans-European Energy Network should be revised to support hydrogen infrastructure development where justified, especially in places where that solution is most profitable. The Council also stipulates that “this does not preempt potential repurposing of gas infrastructure which is under development or planning, including those projects having been granted a PCI status”.

The European Commission announced it adopted on the 16th of December a proposal to review the EU regulations on the trans-European energy networks (TEN-E regulation), in order to better support the modernization of the trans-European energy infrastructure and to achieve the European Green Deal targets. The TEN-E policy supports the transition through Projects of Common Interest, which have to contribute to achieving the EU emission reduction targets by 2030 (at least 55 percent) and the 2050 climate neutrality target. The updated regulation will ensure that new projects will be aligned with the targets in relation to market integration, competitiveness and security of supply. “But our ambitious climate targets demand a stronger focus on sustainability and new clean technologies. This is why our proposal prioritises electricity grids, offshore energy and renewable gases, while oil and natural gas infrastructure will no longer be eligible for support,” Commissioner for Energy Kadri Simson said. The EC wants to move away from financing gas infrastructure, but the European Parliament and the Council need to agree on that idea. The latter institution does not want to exclude gas infrastructure as long as it contributes to decarbonization. This is where Poland and other states that want to keep on using gas need to act.

How to maximize EU support?

The EC provided details on what investments should be given the TEN-E support. One could imagine that all hydrogen-related projects will be added to the PCI list, similarly to the LNG terminal and the Baltic Pipe. This means as much as half of the cost of those investments will be covered by the EU. It’s worth sharing a few thoughts about some of the proposals in the EC document, which includes, among others:

• an update of the infrastructure categories eligible for support through the TEN-E policy, ending support for oil and natural gas infrastructure
This means, gas and oil infrastructure will not receive any EU funds, unless it contributes to decarbonization. Therefore, any planned projects of this type should include this target to maximize EU support. This is not just about redesigning the existing gas pipelines to accommodate hydrogen, but also about designing new pipes capable of carrying hydrogen, that would be generated in, e.g., future gas-fired power plants and nuclear power plants. In such cases, EU support will be granted, which will make companies such as Poland’s Gaz-System or Polska Spółka Gazownictwa that are planning to expand the gas transmission network in Poland, happy.

• a new focus on offshore electricity grids with provisions facilitating more integrated onshore and offshore infrastructure planning and implementation through the introduction of offshore one-stop-shops

Provided that offshore electricity grids will make it possible to develop the first hydrogen cluster that will generate that fuel from the surplus of renewable energy, we could already start planning new accompanying infrastructure that will be in line with the EU targets, because this is the way to acquire funds for an installation port, connections for offshore wind farms, and perhaps even infrastructure that will integrate the offshore farm with nuclear power plants that will stabilize the RES source.
• a new focus on hydrogen infrastructure including transport and certain types of electrolysers

The electrolyzers that will be used to generate hydrogen, which will one day be installed near the above-mentioned mega projects in Poland, will be eligible for EU support as well. The companies that want to produce them should submit their projects to the European Commission as soon as possible, so that they are included on the list.

• continued attention to the modernisation of electricity grids and storage and carbon transportation networks

It is worth mentioning that gas pipelines can also be used to transport CO2, captured at different stages of the energy and hydrogen generation process, to then store it (the CCS technology) in and outside of the European Union. This is especially important in the context of cooperation with Norway, with which Poland will be connected thanks to the Baltic Pipe, which in the future may transmit in both directions hydrogen, biogas, as well as CO2 to the storage facilities Norway is planning to develop. Importing hydrogen to Poland may cover any shortages caused by the insufficient availability of RES in Poland’s energy mix. CCS will make it possible to decarbonize the blue hydrogen produced from gas, which means it will make it possible to produce hydrogen other than green, which is currently being favored. It should be stressed that thanks to Poland and other states that are hoping to generate hydrogen from gas, stipulations about the various kinds of hydrogen were added to the European energy mix regulations.

• new provisions on support for projects connecting the EU with third countries (Projects of Mutual Interest or PMIs) that demonstrate their mutual benefit and contribution to the Union’s overall energy and climate objectives in terms of security of supply and decarbonisation

Ukraine’s gas transmission operator OGTSU has already informed that in the future Ukraine will be able to deliver hydrogen and gas to the EU; and that the country will adapt its gas infrastructure to do that. So, it may turn out that the gas cooperation between Poland and Ukraine, may develop into trading renewable gases bankrolled with EU subsidies. This may mean that the subsidies that the Poland-Ukraine gas pipeline needs, may be granted if the project is hydrogen ready.

The beginning of hydrogen is not the end of natural gas

Yet again, it looks like the the history won’t end for the gas market, but instead it may change its image. Renewable gases, such as hydrogen and biogas, will appear more frequently on the agenda, but the interest in natural gas will wane. Adopting the gas sector decarbonization target will keep the EU subsidies coming and prolong the lifespan of such gas projects as the Baltic Pipe and the LNG terminal in Świnoujście, which without the money would not be able to operate for decades in the decarbonization era, despite the fact they were originally designed to work that long. If they contribute to the growth of the hydrogen market and other renewable gases, they will not turn into stranded costs, and instead will become valuable tools of Poland’s and the EU’s energy and climate policy. They will again become an alternative to Russian projects, such as the Nord Stream 2, via which hydrogen could be transported to Europe, but for energy security reasons it would not be the best choice. EU strategists are already drawing hydrogen transmission pipes that will constitute the new market, and hydrogen lobbyists are publishing reports on the topic, such as Hydrogen Europe. Poland should add as many of its own projects to this map as possible.

The hydrogen game. A new chapter in Poland’s energy policy and an old trilemma

Poland needs to engage in the discussion on the EU hydrogen economy as soon as possible. Otherwise it may become part of the menu and replace its dependence on Russian gas with reliance on power from Germany. Even though this is a new chapter in Poland’s energy policy, it still has the old trilemma – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

Europe will need imported hydrogen. However, it will be difficult to make sure it will be truly green hydrogen, as some countries may generate GHGs in the process, or exploit their resources in an unsustainable way to produce the gas. Whereas, hydrogen that is not green: purple, blue, turquoise, may cause concerns about the security of supply and diversification. Poland may contribute to the discussion on this topic by cooperating with Germany, and fighting for money for our own projects, such as nuclear power, which will decrease dependence on imports and mitigate the negative impact of the hydrogen economy on the environment in Europe and outside. Poland may use the discussion on the future of hydrogen in Europe to acquire additional subsidies to bankroll nuclear energy, offshore and other huge projects in the new European budget. It should engage in talks on this topic as soon as possible, after the budget deadlock in the EU is over, so as not to replace its dependence on gas from Russia with a dependence on energy from Germany.

New fuel, old trilemma

Europe is not capable of generating enough green hydrogen to run its economy on this fuel only. So, to a large degree the goal is to use hydrogen as a storage mechanism for energy generated from renewable energy sources (RES). This would allow it to become one of the tools for ensuring the security of power supply. However, this means, importing hydrogen from third countries will be inevitable. Germany’s Fraunhofer Institute for Solar Energy Systems (ISE)suggested, without getting into much detail, that out of concern for supply security and diversification, Europe should choose democratic and politically and economically stable partners to avoid the same mistakes it had made with fossil fuels, i.e. gas, oil and coal, on whose import it is now dependant. ISE also explained that the options on the table were the same as with fossil fuels: Australia, North Africa, Norway and Russia. This means, using hydrogen in the power generation sector and outside of it, creates the same old challenges known from the hydrocarbon sector.

First, we should ensure the security and diversification of hydrogen supply. Importing from unstable states is always less safe, than from stable ones. However, the problem is that apart from Norway, the majority of potential hydrogen export states are unstable. Countries such as Libya or Russia are not democratic. This is yet another argument against the Nord Stream 2 project, which is expected to operate for 50 years, provided that after the EU decarbonization, it will replace natural gas with hydrogen, and thus will continue to serve the Kremlin and ensnare Germany. From the point of view of the security of supply, the choice should be Australia and Norway. However, if that happens another problem will appear – how to ensure the supply of green hydrogen, which is deemed by RES supporters “clean”. The solution is a new deal where European states will support stabilizing and democratizing the states from which they will import the green hydrogen. It seems that Germany is already coming up with soft power solutions of this type, by engaging in developing RES and hydrogen in African states. However, this creates new challenges when it comes to sustainable impact on the environment, an issue that the supporters of stricter climate policy fight for. This conclusion leads us to another hypothesis.

Secondly, it should be ensured that the hydrogen supply chain’s impact on the environment is sustainable. It is not enough to analyze whether the hydrogen that reaches Europe is green, i.e. whether it was generated with RES. Producing green hydrogen in African states may, for instance, involve unsustainable water management; or redirecting money from investments that add to the economic growth of a given country, to hydrogen export, which would make it a kind of a “hydrostate”. I introduce this term as an analogy to petrostates that depend on oil exports. Therefore, it may turn out that the chase after a zero-emission hydrogen economy will turn into a never-ending quest, during which a problem will appear at some stage of the supply chain, which will be unsustainable from the point of view of climate protection.

Third, in its pursuit of as much hydrogen as possible, Europe may be at risk of “hydrogen daltonism” as it may lose sight of the source of the hydrogen it imports. Therefore, the EU hydrogen strategy, which currently includes a simplification called by Gazprom a form of “racism” as the fuel is chosen on the basis of color, should be updated with guidelines on which sources of hydrogen are acceptable, and which are not. Still, Gazprom, Rosneft and Rosatom will be on the list of the less desired suppliers, because the EU prioritizes diversification and safety of supply. It is true that the green hydrogen may not be necessarily sustainable from the point of view of the climate. Therefore, this fuel should come from different sources: blue hydrogen produced with the carbon capture and storage technology in Norway; violet hydrogen produced from European nuclear energy, but not from Russia’s due to the lack of political stability and undemocratic character of that state. The cooperation in hydrogen supply should be linked with an agenda on stabilizing a given exporter, and supporting its economic development instead of halting it. This is how the EU can connect importing hydrogen and exporting its soft power. This is probably how Germany sees the future, but it has chosen to focus on green hydrogen only, as it is a leader in that sector. “After 15 years, the subsidies for the first wave of wind turbines in Germany are drawing to an end, so a new source of support has to be found,” a sceptic about this kind of approach from the Polish energy sector told us.

Considering this, the price of hydrogen is only one of the many factors that impacts the choice of the supplier, and it is again becoming part of the energy security triangle, aka the trilemma: affordability, stability of supply, environmental protection. In other words, while hydrogen is a new fuel, it actually poses the same old challenges known from the fossil fuel sector. A hydrogen economy is not an escape from the three aspects of the energy security dilemma.

The never-ending chase after the Holy Grail

Poland should tone down Germany’s optimism and add supply safety and diversification to the discussion. I wrote about this in the past. Warsaw should also remind Berlin about the necessity to take stock of the entire supply chain, which will reveal that internal supply in the EU from local sources of this fuel from RES, nuclear power, gas and oil, do not look as unfavorably. Former employees of the European Commission, scientists and engineers wrote a letter that cooled down the enthusiasm of those who believe green hydrogen is the Holy Grail of the power industry. Argyraki Vicky, Caruso Ettore, Crutzen Serge, De Jesus Ferreira João, De Sá José, de Sampaio Nunes, Pedro, Deffrennes Marc, Demine Olga, Furfari Samuele, Henningsen Jorgen, Neves João, Pauwels Henri, von Scholz Hans-Eike and Woeldgen Jacques argued in the letter that the existing physical and technological barriers constitute an argument against green hydrogen and for conventional energy sources, such as nuclear energy. The signatories reminded that hydrogen generation had appeared in the European Community’s strategic document for the first time in 1969 when the Joint Research Centre started researching the topic. Whereas, during the negotiations of the Kioto protocol, which was the precursor to the Paris Agreement, the EU declared it wanted to cooperate with the U.S. on developing a hydrogen economy. Today hydrogen has yet again resurfaced in the European Green Deal proposed by the Commission. However, the authors of the letter also stressed many issues still persisted, and that they made it impossible to implement this optimistic vision. In their opinion, Germany’s pivot to RES has made little impact. Even though the country has spent EUR 25 bn annually in subsidies for 20 years, which is about EUR 1000 per household annually, the participation of wind and solar in the generation of primary energy in Germany is now only 4.3 percent. During that time, the country decided to shut down its nuclear power plants, which increased its dependence on domestic coal and imported Russian gas. It also generated surpluses from RES, which undermine the profitability of power plants in other states, such as Poland, because the additional power cannot be stored. The signatories of the document also stated that today the efficiency of storing power generated from RES in hydrogen was at 28 percent, which means 70 percent of the energy is wasted. The supply of energy provided by RES is unstable, which lowers the efficiency of electrolyzers, which would be used at only 20 percent of their capability. Therefore, the authors of the letter concluded that this policy was unsustainable and that there was an analogy between the “green revolution” in the power industry and green hydrogen. In theory they are to decrease GHG emissions, but in reality they do not achieve this, because of an approach that is deemed dogmatic by some, and calculating by others, because it promotes renewable technologies from Germany. The signatories argued that the quest for the Holy Grail of the energy sector, i.e. the creation of a power system that runs on RES at 100 percent and is stabilized with hydrogen, could lead to a 10-fold increase in RES capacity in Europe, which would have both positive and negative impacts on the system. The positives include higher energy supply and the consequent drop in prices and imports of both power itself and energy sources. The negatives would involve pushing out of the market conventional energy sources, which during the transition period leading to achieving the 100 percent RES generation, would have to be subsidized by member states, or a new EU mechanism. This means a bigger market for renewable technologies from Germany, but also a dependence of other states on energy from those sources. The authors proposed an alternative in the form of European nuclear power, which would stabilize RES, generate no GHGs, and produce hydrogen, which, even though it would not cause any emissions, would not be green, but purple, which is a less desirable variant, because of dogmatic or calculating reasons – depending on the interpretation.

“Without a technological breakthrough in energy storage, a stable functioning of a power system with a very high participation of RES is impossible. This will not change before 2030,” Eryk Kłossowski, CEO of PSE, stated in a presentation. He also commented on the potential of hydrogen in this context. “The flexibility of the system is a very precious resource, but it is not a source of power,” he warned. Earlier he also reminded about the phenomenon mentioned in the letter I summarized above. In his opinion, an uncontrolled development of RES will lead to a situation in 2030, where there will be “a lot of hours during which the demand for energy other than the one from RES (off/onshore, PV) will decrease below the level of safety for the national power system”.The CEO also stated that “a system that will function in such circumstances, will create a situation where low energy prices (negative) will be present during a large number of hours, and will push unsubsidized facilities from the market. But without these plants it will be impossible to ensure the security of the national power system,” Kłossowski explained. Therefore, maybe it would be advisable to not be dogmatic about the sources of hydrogen and stop promoting only its green incarnation. Italy’s Saipem, which wants to cooperate with Poland in the energy sector, pointed out that at this point only four percent of world’s hydrogen was generated through hydrolysis, and 18 percent was produced in the oil sector, 30 in the coal sector and 48 in the gas sector. These figures will change, as they will increase in the low- and zero-emission sectors. The end goal of the energy sector transition is RES technology, by analogy the end goal of the hydrogen sector is electrolysis, but the process of achieving this goal should be sustainable and it should consider all of the issues enumerated above. It is worth investing in lowering the costs of electrolysis, which at this point is the most expensive way of generating hydrogen. However, one should not go all the way to the other side of the spectrum and ban all the other methods, as it would undermine supply security.

Poland has to act

Poland may use the above arguments when talking about the EU hydrogen strategy to acquire support for domestic projects that develop the hydrogen economy, as a tool that strengthens the security of hydrogen supply to Europe understood as a whole. Poland should be active in its discussions with Germany and other member states on adding the mentioned components to the hydrogen strategy, as they will improve the security of hydrogen supply and its sustainable production. At the same time, it will also allow for the new subsidies to bankroll projects important for Poland’s and other member states’ climate and energy policy. This is how Poland could use the new, large EU funds necessary to rebuild the economy and pay for the energy transition. It could sponsor its offshore wind farms, which would ensure diversification opposite the same energy sources in Denmark, Germany and the Baltic States. It could pay for its Polish Nuclear Power Programme, which while it could be sponsored by the state budget and the project’s technological partner (probably the US) as part of the financing model that is in the works, could be cheaper thanks to EU support, especially considering the numerous infrastructural projects that would accompany the development of nuclear energy in Poland, which could also contribute to economic development. Poland’s offshore and nuclear energy are interconnected as they make it possible to avoid dependence on energy from Germany and gas from Russia. They may also help to ensure that the European hydrogen economy will be safe and sustainable. Poland should take a noticeable part in the discussions on this topic.

Invent from scratch or copy from the Germans? How to spend funds on energy transformation wisely?

The energy transition goes beyond the energy sector and cannot be perceived solely in terms of the concerns of the coal mining and energy sector. Poland will be able to look for its own path only to a certain extent, largely responding to megatrends dictated by stronger players.

Money in exchange for change

The energy transition is a gradual shift from fossil fuel technologies to renewable sources in order to reduce CO2 emissions. It is one of the target points of the European Union’s energy and climate policy, described in EU legislation with the help of Community goals, such as 20% share of renewable energy sources (RES) in the energy mix by 2020. The plan of the European Green Deal submitted by the European Commission assumes that the climate goals will be included in the entire economic policy of the Community: reducing CO2 emissions, increasing the share of RES and energy efficiency are to become the priorities of all economic activity. One-third of the EU budget for 2021–2027 is to be allocated in the pursuit of climate goals.

July’s budget agreement of the European Council assumes that the value of the entire EU budget in 2021–2027 will amount to EUR 1.074 trillion, and the Reconstruction Fund worth EUR 750 billion will consist of: EUR 390 billion in the form of subsidies and EUR 360 billion in the form of loans. Poland will receive from it almost EUR 160 billion (EUR 125 billion in subsidies and almost EUR 35 billion in loans), and at current prices – nearly EUR 174 billion – the ministry’s memo states. Funds for the energy transformation of the European Union may come from three sources: the Just Transition Fund, the Reconstruction Fund and the cohesion policy under the Multiannual Financial Framework. This money can be spent for various purposes, but cannot be in contradiction with climate policy. It is recommended that these funds support it.

Will there be enough money to reform mining?

The Just Transition Fund is intended to support the transformation of regions most at risk of its negative effects. Poland can count on 3.5 out of 10 billion euros in its budget instead of the initially planned 8 billion. Half of these funds will be provided only in exchange for Poland’s support for the European Union’s climate neutrality goal by 2050. Although Poles accept it verbally, they have not yet signed the obligation.

EUR 3.5 billion from the FST may go to regions dependent on the coal economy in Silesia, Lower Silesia and Greater Poland. They should be allocated to protective programmes for miners, such as voluntary leave programmes, severance pay, or change of trades.

This means that 3.5 billion euros would be enough for thrice as ambitious a programme, without national funding. This is a considerable amount that theoretically would alleviate the social unrest related to Poland’s gradual withdrawal from coal. This, however, requires a plan and a suitable platform to discuss it with stakeholders in the reform.

The Polish government originally wanted to present the finished plan to the trade unions but withdrew from this idea at the end of July. The new proposal is to be developed in dialogue with trade unions. The German experience shows that it is worth expanding the talks to include other entities. The coal commission in Germany has prepared a plan to abandon coal in the energy sector by 2035 or at the latest by 2038 after several months of consultations with the participation not only of trade unions, but also industry, trade and non-governmental organisations. Thanks to broad representation, the social consensus reached by the commission regarding the mining and coal energy reform, signed by the most important players, gained strong legitimacy. The authorities should consider a more transparent and inclusive nature of talks about changes in the coal sector. Following the example of the coal commission in Germany, the talks about the future of post-mining regions should include representatives of NGOs (not only trade unions), industry organisations, representatives of the entire political scene and experts. This will be the best guarantee of legitimacy of the consensus reached.

It is worth highlighting that Silesia is a politically sensitive region due to the historical subsidisation of mining, which maintains the belief that a miner’s work is unique, but also due to the search for political autonomy by some regional organisations, which makes them cautious of ideas that would destabilise society in the region. These are additional arguments for the authorities to be cautious, but at the same time, they emphasise the need for a more transparent process of shaping the programme of changes. The programme should be developed under the conditions of far-reaching consultation of changes, presenting assumptions supported by discussions in working groups dealing with specific issues.

Economic transformation

It is worth highlighting that the energy transition goes beyond the energy sector and cannot be viewed solely from the point of view of the concerns in the coal mining and energy sector. The case is similar for funds from the European Reconstruction Funds, which should be used to co-finance projects for energy transformation. This will go beyond the power sector; it will involve heating and individual heating sources. Well-thought-out projects will be able to obtain these funds by integrating them into the EU’s decarbonisation plan.

An example may be supplementing planned investments, for example, gas-fired ones, with renewable elements, for example, by entering the production and transport of hydrogen or biogas into the assumptions of power plant and gas pipeline projects. These are the so-called emission-free renewable gases, which one day may have the goal of participating in the energy mix like RES today. It is worth considering a scenario in which the new gas infrastructure would be designed as hydrogen ready or biogas ready. Its profitability would receive a boost because, even in the event of a faster shift away from gas, EU climate policy will apply to it in the coming decades. New gas pipelines, such as the Baltic Pipe or the so-called floating gas terminal, i.e. the FSRU storage and regasification unit, which is to be erected in the Bay of Gdańsk, should take this possibility into account.

The more comprehensive and integrated the projects submitted for co-financing are, the greater the chances of obtaining funding. In creating the National Reconstruction Plan, the Ministry of Funds and Regional Policy has entered the next stage of works on the submitted proposals of ministries and regions. The representatives of the ministry mentioned that these funds are to be allocated to entities for the modernisation of transmission and distribution networks in order to prepare the national network for distributed energy, as well as for deriving power from offshore wind farms and thermal modernisation of buildings in Poland.

It is worth emphasising that the changes imposed by the EU’s green agenda follow the prevailing technological trends – they reward renewable energy and hydrogen, i.e. the specialties of the most developed EU countries, led by Germany. These megatrends dictated by the stronger actors may, in turn, be a part of European specificity allowing the Old Continent to compete more effectively with innovations from the USA or the Middle Kingdom.

Poland can search for its own path only to a certain extent, claiming the right to nuclear or clean coal technologies. However, it will thus disperse the means necessary to effectively use the shrinking and greening EU funds. It should be calculated which scenario will benefit the Polish economy more. Poles must answer the question whether, in the face of the inevitable technological change (supported by regulation!) and the replacement of conventional energy with renewable energy, it is better to follow the path trodden by the avant-garde of these changes or to look for its own path to protect the status quo in the energy sector, while slowing down the pace of changes.

The time is running out!

Poland doesn’t have much time for reflection. The timeframe for spending funds on the energy transition until 2027 is relevant. The draft of the Polish Energy Policy until 2040 assumes that coal will remain in the energy mix until then. Effective spending of funds for transformation, however, would require dealing with it before 2050, when Europe is to be climate neutral, because after 2027 it may be increasingly difficult to find measures supporting change unless Poland takes care of them at the EU level.

Poland supports the functioning of the coal energy sector due to unfavourable market and regulatory conditions by means of the capacity market mechanism, which makes coal-fired power stations profitable with the help of a power fee added to energy bills, but reduces the competitiveness of the economy paying more for electricity. This, however, is necessary from the point of view of a country that wants to maintain the stability of energy supplies in the transition period, when there is no alternative in the form of nuclear energy or a mix of gas and RES. This solution may function for up to two decades, but it will be advisable to create an agency that will collect coal assets from the market, which, with the consent of the European Commission, could safeguard Poland’s energy security with the use of coal in exchange for the fact that the rest of the energy sector will transform faster and without the burden from this type of assets in the portfolio. Such plans are being considered by the Polish government and should be consolidated as soon as possible. In such an agency, coal assets would be purchased and subsidised by the state regardless of the market conditions. Without their burden, companies could operate more effectively in the existing market and regulatory realities.

The Polish administration admits that it is following the example of solutions from Germany, which created the so-called cold reserve. This means a group of conventional assets that will be subsidised by the state to ensure energy security regardless of market and regulatory conditions. The said agency would be made up of conventional power plants which would remain available regardless of further developments on the market and in the European Union’s climate policy. They will guarantee the continuity of energy supplies.

Without black assets, the big four, i.e. Polska Grupa Energetyczna, Tauron, Enea and Energa, could develop based on a growing portfolio of low- (nuclear, gas?) and zero-emission sources (RES). It is possible that they would then have to be reorganised into new companies of the State Treasury dealing separately, for example, with the production and distribution of energy. Creating the concept of change is an arduous effort, but the decision-makers will not be able to deviate far from the solutions proven beyond the Oder; not unless they opt for rebelling against the European machine driven by the avant-garde from the western part of the continent.

Poles want to go their own way, but which way is that?

The current European budget is probably the last one in which Poland can count on such significant support. Even now one can informally hear that Poland will become a net payer of the EU budget in around 2027, i.e. almost a quarter of a century after joining the Community.

Moreover, if the political trends in favour of green political parties persist in Europe, the further greening of the European budget is to be expected. This means that an increasing part of the EU funds can be spent on purposes in support of sustainable economic development with respect for the environment.

It should therefore be recognised that the better Poles plan their energy transformation, the more effectively they will use this money. The direction will be defined by the entire package of EU regulations, which Poland may have an impact on, although not a decisive one. This means that it will be able to seek its own path only to a certain extent, largely responding to megatrends dictated by stronger players.

Therefore, we must continue our efforts to develop EU regulations allowing Poland to implement energy transformation projects, which are already considered undesirable in the most advanced countries on this path. It is about energy and gas infrastructure, which are to be used to stabilise the development of renewable energy sources in the Polish reality that still require a conventional reserve, with the proviso that dependence on coal should not be replaced with dependence on blue fuel, even if it comes from various sources. Gas, on the other hand, will be less emissive than coal. The use of EU funds to build a Polish nuclear power plant, which would have an obvious environmental effect in the form of a sudden drop in CO2 emissions from the Polish energy sector, remains to be considered. This argument should therefore end with the well-known conclusion that Poland will be able to use the funds for the energy transformation optimally when it officially defines its direction in the Energy Policy until 2040. So far, Poles do not formally know how they intend to spend EU energy transformation funds. They have pledged that they would go their own way, but have not set it yet. The new PEP 2040 project, presented in September 2020, assumes the share of coal at the level of 11-28% in 2040 (previously 56%) and thus arouses resistance from trade unions. Endless debates in the government are ongoing, time is running out, and things will not get better in the next budget. It’s time for Polish government to make up its mind!

Source: Klubjagiellonski.pl

The fight for gas for the Baltic Pipe in the time of crisis

PGNiG admitted that the target share of the company’s own gas output in its booked capacity for the Baltic Pipe will be achieved later than previously expected. This may be caused by the difficult economic situation in the sector. The missing amount is to be delivered thanks to new gas contracts, which reportedly there will be a few.

Less own gas production, and more gas contracts instead?

On the 21st of September, PGNiG CEO announced the company’s new acquisitions on the Norwegian Continental Shelf. The state giant bought shares in the Kvitebjørn and Valemon fields, operated by Norway’s Equinor and owned by Norske Shell. The purchase will increase PGNiG’s production in Norway from the current 0.7 to 0.9 bcm of gas a year in 2021. PGNiG explained to BiznesAlert.pl why the company wanted to add its own gas to the capacity of the planned Baltic Pipe gas pipeline. The state of the existing deposits indicates that PGNiG can expect to extract 2.2 bcm between 2026 and 2027. The previous board declared it wanted to produce 2.5 bcm a year in 2022, but already during its term that deadline had to be revised and updated to after 2022. The company refused to reveal to us its output estimates for 2022, when the new gas pipeline between Poland and Norway is to be ready. Future purchases may increase the share of own gas, which is desirable for economic reasons, as gas from own production is cheaper.

The remaining amount of the blue fuel will be delivered by external suppliers, mostly Equinor and Shell. PGNiG is silent about the negotiations on this topic, which is why it may turn out that we will learn about their results right before October 2022, when Baltic Pipe will be launched. This is caused by the market character of the gas trade on the Norwegian Continental Shelf, and by the probable form of cooperation. Poles should sign a number of various, medium-term gas agreements. There is very little chance that one, large, long-term contract will be signed that would be akin to the Yamal deal with Gazprom, a contract that will not be extended. Having relations with various suppliers (Equinor, Shell, etc.) improves Poland’s negotiation position, while shorter contracts will make it possible to adjust the Baltic Pipe supply portfolio to the fluctuating market situation. Today, that situation is not conducive to increasing output.

We won’t run low on gas, there is too much of it

The oversupply of LNG, the economic slowdown in Europe and warm winter are causing record-low drops in prices in Norway and changes to extraction plans. Last May, Equinor announced it was planning to start extraction from some of its deposits later than originally planned, because of the unfavorable economic circumstances. The company expects that the extraction from the Troll deposit will be lower than the planned 36 bcm a year, and a lot lower than the 38 bcm a year, which is in the permit. The dropping exports from Norway are caused by the Western European market, which needed less gas. Therefore, it is worth questioning the argument, popular in the Russian media, that in the future Norway would not have enough gas to supply the Baltic Pipe and Europe as such. “We are always able to find something,” Jerzy Kwieciński, PGNiG CEO, replied to BiznesAlert.pl’s question after his press conference.

The situation in the market today is that there is too much gas from the perspective of market needs. At the same time, new deposits are still discovered. For instance, in November 2019 Equinor found a deposit near the Troll area, which is estimated at being equivalent to 38-100 million oil barrels. There is also PGNiG’s discovery from October 2019 near the Skarv deposit, estimated at 19-38 million barrels and found on the basis of the PL838 license. It was the first independent exploration well drilled by Poles on the Norwegian Shelf. Perhaps the same economic issues forced PGNiG to postpone achieving the target pertaining to the amount of own gas, that will be delivered via the Baltic Pipe. PGNiG has declared it wanted to “approach 2.5 bcm a year in 2026”, which would then end up in the Baltic Pipe. The previous board had announced it wanted to achieve that level already in 2022. The higher the volume of own gas, the better. It may increase even further, thanks to new acquisitions and discoveries. The CEE market and Poland especially, need gas to facilitate the energy transition. This means the region will require more gas, which gives reason to believe that acquiring new shares and upping output is the way to go. Therefore, the appeal of this market may attract such suppliers as Equinor (the company confirmed this back in 2016, when it was still called Statoil), and encourage the companies from the Norwegian Shelf to sell shares to Poland.

To be continued

“If there are any other interesting deposits, licenses to take over, we are not excluding them,” Kwieciński ensured during the press conference. After the event he clarified to BiznesAlert.pl that the specificity of the Norwegian Shelf market allows PGNiG to acquire gas only by either purchasing shares from other companies, that already had control over the local deposits, or by buying exploration licenses. “Earlier we talked about our plans included in the strategy. Now we are talking about 2.5 bcm in 2026. Now we know we will have 2.2 bcm at that time, but some of that are exploration licenses. We are exploring the area, which means we might discover a deposit, which would increase production. A lot is happening around the world and on the hydrocarbon market, which has recently suffered a great deal. This is why we are looking for opportunities to acquire new assets,” the CEO ensured.


Źródło: BiznesAlert.com

Will Poland’s electric-vehicle revolution stall before it starts?

Will Poland's electric-vehicle revolution stall before it starts?


State-owned Polish company EMP has recently unveiled Poland’s first electric car, the Izera, which is set to start rolling off production lines in 2023. But some believe it might not happen at all.

Poland’s state-owned firmElectroMobility Poland (EMP) unveiled plans in late July to open an electric-vehicle production line in the southwestern region of Silesia in the middle of next year. Poland has had no national carmaker since the closure of FSO Polonez in 2002, which went under after state subsidies from the communist era were pulled.

When EMP was founded in 2016, Poland’s Prime Minister Mateusz Morawiecki announced that his government was planning to bring one million electric vehicles (EVs) on Polish roads by 2025, saying „this is our moment, this is our time.”

At the same time, Morawiecki was quite aware of the challenge ahead for Poland to follow in the footsteps of Turkey, Vietnam and Russia, who all said they wanted to create a national electric-car brand of their own. „Are we able to leap and surf on this fourth wave of the economic revolution which is before us?” he asked rethorically.

‚Golden opportunity’

Malgorzata Krolak, director of the EMP project agency, hopes the Polish carmaker will be ready to roll its first Izera cars off production lines in 2023, with the car coming in two models: a hatchback and an SUV. Their prices would be „affordable for the average Polish driver,” and technical parameters would be similar to other electric cars, she said.

According to EMP, the cars will have a range of 400 kilometers (240 miles) on a full battery, acceleration from 0 to 100 km/h in eight seconds, and the battery will recharge up to 80% in 30 minutes. EMP enlisted the help of German firm EDAG and Italian stylistic studio Torino Design.

„This is a golden opportunity to create a specialized Polish field based on our own solutions that will be able to compete with other players in the global market,” Malgorzata Krolak said, adding she expects the project to create 3,500 jobs initially, and a further 3,000 at a later stage. Moreover, the government hopes for a boost to Poland’s domestic electricity, Information Communications Technology (ICT) and mechanical engineering sectors from EV production.

Poland is already home to one of the largest battery plants in Europe and Mercedes-brand owner Daimler said in January it will open its own battery plant in Poland. Meanwhile, two European banks are promoting the electric car industry with an investment in the new plant in central Poland.

Political interest waning already?

„It is great that Poland is trying to embrace e-mobility and use it as a way to escape the middle income trap and move up in the international value chain,” says Rafal Bajczuk, senior policy expert at the Electric Vehicles Promotion Association (FPPE). „However, when you look closer at the development in e-mobility in Poland, you realize that no real actions are following the bold rhetoric,” he told DW.

Bajczuk believes this was a political decision, not a business one and that the governing Law and Justice (PiS) party is far less enthusiastic about it than it was in 2016. He notes that no system of monetary incentives has been put in place. „Basically only enthusiasts of e-mobility are buying these vehicles.”

The Polish government has so far launched only a small program for car subsidies that were available only in the month of July this year. It was targeted primarily at private consumers, but Bajczuk says, about 80% of the new cars were sold to companies.

Financing on shaky ground

Financing for the new e-car project hasn’t been budgeted by the government yet, but industry sources have floated a figure of €1 billion ($1.1 billion) needed to get it off the ground.

„There are some issues that may delay the development of this undertaking. The key issue in this respect is financing,” Piotr Ciolkowski, a partner in the Energy Projects Department in CMS Warsaw told DW.

The largest financial backing comes from four state energy companies PGE Polska Grupa Energetyczna, Energa, Enea, and Tauron Polska Energia, each holding 25% of EMP shares. But the financial condition of these electric utilities has deteriorated, as they are heavily reliant on coal, which is getting less economically viable.

Construction of the manufacturing facility will cost about 4 billion zlotys (€920 million, $1.08 billion). EMP shareholders are expected to finance at least 3 billion zlotys of the total investment, and no banks have yet stepped in to help with financing.

Manufacturing issues

Bajczuk thinks that despite the commitments, financing is still rather uncertain, and likely to be not the only problem facing the project. „There are more unknowns than knowns about the project. We don’t know anything about the technological part of the car: what platform, what batteries, engine etc. and who will actually construct the car and build the factory.”

EMP hasn’t decided yet on what platform it wants to manufacture the car’s chassis and motor. The company said it’s currently in talks with Volkswagen over its MEB platform, as well as with Toyota and Hyundai, offering their e-TNGA and E-GMP platforms respectively.

Wojciech Jakobik, editor of Biznesalert, thinks the problems surrounding the e-car project are also the result of changing government policy.

„There is a lot of confusion around Izera coming from the fact that the priorities of Polish economic policy are different: energy sector reorganization, fuel-sector fusion between Orlen and Lotos, building a nuclear power plant, he told DW, adding: „There is a question if there is enough policy will or money to support Izera efficiently in the meantime.”

Other analysts say the timing of the Izera car could also be a problem, as it would be entering a much more competitive market in 2023. German car-making giant Volkswagen is already building an EV factory in the Polish town of Wrzesnia, while BMW plans a new factory in neighboring Hungary.

Is Poland ready?

Charging stations for electric cars are still few and far between in Poland, because the number of battery-powered vehicles is still small. In addition, investors shun the high costs of building and operating charging stations.

Charging an EV outside one’s home is expensive and the market is limited to homeowners. „About 45% of people in Poland live in flats and don’t own a parking spot,” says Bajczuk.

According to latest figures published by the Polish Automotive Industry Association (PZPM) in February, there were 9,803 electric cars registered in Poland. Other types of battery vehicles are also rare, and include 606 electric trucks and vans, over 7,300 mopeds and motorbikes, and nearly 300 electric buses. At the end of February, there were 1,093 charging stations in Poland, compared with 27,000 in Germany.

Julia Poliscanova, a senior director at the think tank Transport & Environment’s (T&E), is also skeptical that Poland’s electric-car project will ever get off the ground. „From a wider EV perspective, I’d only say that it’s clear there are huge questions over the ability to manufacture Izera on time and deliver the actual product on the market,” she says, and points to the struggles US e-car pioneer Tesla had to mass produce its cars.

Still, she’s not entirely giving up hope for Poland to „establish itself in the future-proof e-mobility field,” even though „competition will be fierce.”



From bad to worse – US and EU response to Nord Stream 2

From bad to worse – US and EU response to Nord Stream 2

Americans no longer coordinate their sanctions policy with the European Union; and thus, increase the popularity of Nord Stream 2 supporters in Europe. However, only a unilateral approach to this matter stands a chance at stopping this contentious project. This discussion should also be about Germany’s schizophrenic policy.

EC keeps to the letter of the law

So far the European Commission’s policy was based on the assumption that it could not block Nord Stream 2, which is formally an initiative led by a Russian company and bankrolled by companies from Western Europe. This approach is questioned by Poland’s Office of Competition and Consumer Protection. Previously the office decided that the parties involved could not form a consortium, as it was against the competition law. Now it is investigating whether the companies’ current form of cooperation is just a scheme to get the same result without establishing a consortium. Moreover, we should acknowledge the fact that the European Commission is inconsistent, as it managed to stop the South Stream gas pipeline, which was to land in Bulgaria, by questioning the legality of tenders. It is unclear whether the EC would be able to stop Nord Stream 2 if it had political support, like it did in the case of its southern twin.

Still, the Commission did take measures to protect Europe against the negative consequences of Nord Stream 2. In 2019 Brussels proposed to review the EU law, specifically the Gas Directive, so that it could be applied to the contentious gas pipeline from Russia to Germany after it will be completed. This would ensure the protection of European clients against possible abuse by Russia. Poland together with other countries supported this initiative, which yielded initial success. Germany has to implement the Gas Directive’s regulations with regard to Nord Stream 2, which will at least delay the project, which originally made Gazprom the sole provider and owner of the pipe through a company Nord Stream 2 AG. That was in line with Russian law, which gave the company a monopoly on export via gas pipelines, but it was against the Gas Directive, which imposes ownership unbundling. As long as Nord Stream 2 is not adapted to the EU law and the EC does not approve its application, the gas will not be allowed to flow, even if the pipe is completed.

The US is continuing its old policy in Trump’s era

Americans took a step further and want to stop the construction of Nord Stream 2. They do not agree with the EC’s assumption that the project cannot be legally stopped. So, they introduced sanctions against companies that are building the contentious gas pipeline, which forced Switzerland’s Allseas to abandon the construction site. They are also planning to widen the sanctions to encompass all entities, including European companies, that support Nord Stream 2. US senators sent a letter to the harbor in Germany’s Sassnitz warning that the new restrictions would financially destroy it. The US administration started a dialogue with German businesses warning against the negative consequences of the impending restrictions. This policy has not been consulted with the European Commission, which potentially could stop Nord Stream 2 provided Russians are not be able to finish the pipe on their own, or transmit gas right after it will be completed. Germany’s Uniper, which is the first financial partner of Nord Stream 2, admitted it was concerned about the future of the contentious gas pipeline, and it was considering lowering its contribution in case the project was delayed further or even stopped. It happened on the day Germany’s Foreign Minister Heiko Maas was visiting Moscow, where he maintained, together with his Russian counterpart – Sergey Lavrov, that in the end Nord Stream 2 will deliver gas to Europe.

The case of Nord Stream 2 shows how Brussels and Washington changed their approach to sanctions against Russia after the illegal annexation of Crimea. Until then they coordinated their efforts very well. However, Americans created a precedence when in 2015 they introduced sanctions against Gazprom’s project on the Yuzhno-Kirinskoye field on Sakhalin without coordinating this decision with the EC . This was before president Donald Trump, who is criticized for pursuing policies that go against the expectations of Western Europe, assumed office. Back then the EC was silent and did not comment on what the Americans were doing. The introduction of US sanctions at the end of 2019 and plans to widen them in 2020 are an analogous situation to this case, but this time the EC decided to stand up for European companies that might be impacted by the new restrictions. The difference in Brussels’s reaction in these two instances is apparent, as the EU did not intervene on Shell’s behalf despite the fact that the company was engaged in the project in Sakhalin.

Americans want to stop Nord Stream 2 and to that end they are organizing an alliance across the political aisle, which goes back to Ronald Reagan’s foreign and security policy, whose goal was to limit Russian influence over Europe, also by taking action in the energy sector. The European Commission is acting in a principled way and in line with its own interpretation of the letter of the law, believing that what Americans are doing is an example of unilateralism that goes against the international law. Brussels’s position is winning more support among the proponents of NS2, who in turn are getting more support across Europe, which is increasingly disappointed in Donald Trump who based his policy on giving instructions to Europeans. Perhaps a policy more akin to Barack Obama’s coordinated efforts would be more understandable on the Old Continent, but – and it is worth stressing – it could make it impossible to introduce such radical solutions, as the current widening of sanctions, which could block NS2.

This means the policy of the European Commission fails at delivering the results expected by those opponents of the pipeline, who are seeking to block the project. Whereas, the decisions made by Washington make it possible, but at the same time because of the US President’s clumsy diplomacy, they fuel anti-American sentiment in Europe, giving more support to the proponents of the contentious investment. A coordinated, transatlantic policy against NS2 would be less radical, but more legitimate on the continent. Perhaps this would make it impossible for Russia to play off Europe against the US. However, as the case may be it would not undermine the project itself. A unilateral policy pursued by the US could stop NS2, but it creates a growing chasm between Brussels and Washington. When the West coordinates its sanctions against Russia in the energy sector, it is bad (ineffective). Yet, things may be even worse when done separately, as it may deepen the transatlantic disputes with the entire administration, which are visible in a number of subjects over which Donald Trump was successful at antagonizing Europe.

Germany’s true schizophrenia

eThis is a contribution to a reflection on the most schizophrenic policy on Nord Stream 2, which is pursued by Germany. On the one hand, Berlin wants to maintain gas transit via Ukraine; but on the other, it wants to continue doing business with Russians. This is because of its unilateral economic policy, that goes against the principles of supply security and diversification professed by the European Commission. We should continue talking about Trump’s policies, but we cannot overlook Germany’s. If Germany recognized the EC’s position that Nord Stream 2 goes against European interests, Berlin could stop the pipe’s construction overnight by withdrawing its support for the project. Instead, Germany prefers to coordinate its policies on this issue with Russia.

A hydrogen ready Poland, or how to pursue a strategy without a strategy

The Polish hydrogen strategy and Poland’s 2040 Energy Policy are being drafted by the Ministry of Climate. The second document will determine the shape of the energy industry in the future and the dominant hydrogen generation technology. Irregardless, gas infrastructure for transporting this fuel can be prepared today.

Preparation is prevention

Poland’s Energy Policy by 2040 is being updated and it still has not been adopted by the government. Thus, there are no fundamental decisions on the fate of Poland’s energy sector including the kind of decarbonization path the country wants to choose. The conflicts within the government over nuclear and renewable energy undermine the trust in declarations made to the public opinion. It has been announced that a government reshuffle will take place in the fall. Because of that, it will be necessary to wait for a new division of duties, which may include the shutting down of ministries and establishing news ones, as well as transferring responsibilities between existing ministries. However, the Polish energy sector cannot wait and has to make strategic decisions. The German administration is a model of decisive action. It has already adopted a hydrogen strategy that puts more emphasis on the so-called green hydrogen, which is produced from surplus energy generated by renewable energy sources (RES). Germans can afford to take such resolute steps, because their commission on coal drafted a decarbonization plan for the energy sector. Moreover, for years they have been developing RES, which gives hopes that significant amounts of hydrogen will be produced from it. However, this doesn’t mean Poles should copy German solutions. It is worth following the pace with which Germany is moving, but Poland’s specific characteristics should be taken into consideration.

Poles find it impossible to decide whether and to what degree nuclear energy will complement the existing energy mi, in which coal plays the major role, but where the RES and gas tandem is taking up increasingly more space. They also do not know where they will acquire domestic hydrogen. However, they do know they will need it to fully decarbonize their economy, including heavy industry, which needs this fuel to satisfy its high energy needs. Therefore, one could say that regardless of Poland’s 2040 energy strategy and the strategic choices included in that document, Poland will need infrastructure able to distribute hydrogen. This is why the plan on building transmission networks for this fuel can be actually made today. It should also include the adaptation of the existing gas pipelines and entry points to the gas grid to hydrogen transmission. If a given transmission infrastructure is ready to transmit hydrogen it means it is “hydrogen ready”. According to the declarations made by the operator of the controversial Nord Stream 2 project, the gas pipeline will be able to transmit hydrogen. Hydrogen Europe claims that it is safe to pump up to 10 percent of hydrogen into the existing gas pipelines. Whereas Russians responsible for Nord Stream 2 talk about even 70 percent. Despite the fact that Poles will probably not be interested in importing hydrogen via that route, they still need to own gas pipelines capable of transporting this fuel from various directions: national and foreign sources, irregardless of its color, whether it will be the already mentioned green hydrogen or the blue one (from gas), or turquoise (from nuclear energy). In 2019 GAZ-SYSTEM, Poland’s GTSO, joined Hydrogen Europe, an organization that promotes hydrogen. It is also analyzing whether hydrogen can be pumped into the gas grid as part of the Hyready project, which was mentioned in a 2019 report on GAZ-SYSTEM’s sustainable development. However, these plans are no match for what Poland’s western neighbors are doing and this is another point we should take into consideration when it comes to copying our neighbors. Germany’s Uniper wants to present in 2021 a plan to decarbonize gas grids and gas storage, which will include pumping in hydrogen (as well as other renewable gases that do not emit CO2, such as biogas). Whereas, Siemens decided that Siemens Energy would withdraw from the legacy power sector and completely focus on developing the Power-To-X technology, which allows using electrolizers powered by RES to produce hydrogen.

Poles will follow their 2040 energy plan, which will determine their hydrogen strategy. If they were to be guided by the currently binding project, the capacity at their disposal to produce hydrogen would come from various sources. These don’t have to be renewables only. Already the 2017 Responsible Development Strategy, adopted by the government, proposed investing in high-temperature reactors (HTR), which use pyrolysis to generate hydrogen. If Poles decide to formally introduce nuclear energy, they will be able to use the violet hydrogen. Similarly to blue hydrogen produced from gas, domestic hydrogen will be better than gas from Russia, especially considering Rosatom’s export plans, which follow Gazprom’s footsteps to a hydrogen economy.

To sum up, whatever the future of the two strategic documents – the hydrogen strategy and the energy policy strategy, Polish companies, with GAZ-SYSTEM leading the way, can already create a map of hydrogen ready gas pipes. Perhaps it would be worth taking into consideration plans on hydrogen in the next National Ten Year Development Plans for the Transmission Network, which detail the development of the gas grid of various kinds, but are yet to mention this fuel. On 7 July 2020 GAZ-SYSTEM signed the Climate Ministry’s Polish Hydrogen Memorandum, which is a letter of intent on establishing a partnership to build a hydrogen economy. The agreement’s other signatories are PGNiG, Grupa Azoty, PKN Orlen and Grupa Lotos. They all declared they would cooperate with regard to research and development on hydrogen technologies in Poland.

Poland’s Hydrogen Ready Map

Drafting a map with potential transmission networks for hydrogen, could be a good starting point to prepare a hydrogen strategy, which should also talk about producing this fuel and the kind of technology used for this, depending on the content of the energy strategy. Poland’s gas transmission infrastructure should be as much hydrogen ready as possible for one more reason. This will make it easier to acquire funding for investments, because those where renewable gases are used are treated as “green” by EU and private financial institutions. In this context, it is worth reminding the words of Poland’s ambassador to Denmark, Henryka Mościcka-Dendys, who admitted that in the future Baltic Pipe may transmit hydrogen.

How to keep LNG flowing? Guide for importers with Anna Mikulska

Prices of natural gas have fallen precipitously in recent months as the global COVID-19 pandemic deepened the already existing misalignment between growing supply and relatively sluggish demand. Post-COVID-19 recovery should increase the demand through 2022, but a soft market is expected to continue through 2025. These conditions could provide an unprecedented opportunity for natural gas buyers/importers. However, while enjoying the benefits of a buyer’s market, they should consider the deleterious effects that ultra-low gas prices can have on gas producers/exporters and the natural gas market as a whole.

According to BP, in 2019 global natural gas production grew by 132 bcm (3.4 percent). Of that, the U.S. accounted for 85 bcm, Australia for 23 bcm, China for 16 bcm, and Russia 10 bcm. The U.S. also led in LNG supply growth with 19 bcm of new capacity. Russia followed with an additional 14 bcm and Australia with 13 bcm. Qatar remained the world’s largest LNG exporter with 107.1 bcm of gas exported in 2019.

A higher share of trade in LNG should support the trend that we have seen in the recent years: an increasingly global, flexible, deeper, and more liquid natural gas market that relies more on shorter-term contracts and spot purchases and where pricing is inferred from market conditions (indexed to hub prices) rather than indexed to prices of oil. The trend is most likely to continue as, according to BP, LNG trade should overtake inter-regional pipeline shipments in late 2020s. As per McKinsey, over half of the new LNG capacity is expected to come from the U.S. while according to the recent IEA report, the U.S. could become the largest LNG seller already in 2025, surpassing Qatar. This is significant since U.S. LNG has been the driving force in the increase in flexibility of the current natural market by modeling hub-base, short-term, and flexible contracts.

According to multiple accounts and models (for example hereherehere, and here), the expected growth in gas/LNG production in the next few years would not be immediately met with a demand strong enough to significantly raise the price. In addition, in the next year or so, the effects of the COVID-19 pandemic are likely to weaken global demand for natural gas beyond what has been generally expected. The market should tighten and prices may go up, however, after 2025. In fact, natural gas seems to be the only fossil fuel that would experience significant growth over the next two decades. This growth is expected to come mainly from the developing world, most predominantly from China but also India and other countries in Southeast Asia. We could also see some growth in places such as Eastern Europe where lots of natural gas infrastructure has been recently completed, under construction or planned and where we expect an increase in coal-to-gas switching based on the European Union’s goal to decarbonize.

How can these importing countries make the most of the next five years of relatively cheap and flexible gas supply?

While significant in terms of potential benefits, five years of relatively cheap natural gas is still a short-term focus. And, if not accompanied by a longer-term strategy, the short-term benefits for importers may result in a set of long-term unintended, negative consequences:

1)    Export capacity unable to match growing demand, i.e. if some of the currently planned LNG capacity gets either cancelled or postponed due to short-term factors such as the COVID-19 pandemic, less interest by stretched investors, and/or consecutive warm winters. Meanwhile meeting additional LNG demand in 2027-28 could require more than $400 billions of investment across the LNG value chain, as reported by McKinsey. The mismatch can result in significant price hike affecting growing economies.

2)    Lower than otherwise expected liquidity, flexibility, and diversification of the global natural gas market: Coming into 2020 projects relying on market fundamentals have been expected to deliver over half of the new LNG supply into 2035. The same projects, however, are more likely to be cancelled or delayed based on inauspicious conditions such as those related to the COVID-19 pandemic. Less likely to be affected are projects that are policy/government driven, such as in Qatar or Russia. Hence, not only the next few years may be disproportionately affecting some suppliers but also negative effects are likely to be systematic, i.e. more likely to impact market-oriented additions to LNG export capacity that have provided the most flexible contracting terms such as those offered by the U.S. suppliers.

3)    Lower energy securitya. delayed and/or cancelled infrastructure can render markets less diversified, less interconnected, and less likely to balance supply and demand; b. potential spikes in prices of natural gas in the future can have negative effect on gas-importing economies, especially if they become more reliant on natural gas due to current low pricing; c. in least developed/diversified natural gas markets, dominant suppliers could use their position for economic (high prices) and/or geopolitical ends.

Current low natural gas prices can and should encourage countries to consider natural gas as part of their energy portfolio. This includes in particular coal-to-gas switching as a strategy to support emission reductions and climate goals. However, such decisions need to be strategic so they can support those countries’ goals and economies further into the future than the next five years of what looks like a buyer-friendly natural gas market. While enjoying low spot pricing and even lower contract prices (as these are related to hub and, currently very low-priced oil) importing countries should think long-term. One way to do so, is to commit to future long-term contracts that consider current and future market conditions (e.g., global balance of export and import capacity). Given the difficult situation many LNG exporters are currently in, such commitment could not only be welcomed but also provide very beneficial contract terms long into the future. From a market perspective, it could also help with:

–       Preserving competition: with contract commitments, new and planned infrastructure is more likely to attract investment and getting financed. This is particularly important for market-driven projects like those in the U.S. or Australia.

–       Moderating the long-term pricing: as more projects from variety of competing producers can be completed on time to balance expected demand growth and ensure less volatile price environment.

Surely, change in economic conditions and growth in natural gas demand should see another investment rush as higher prices will likely encourage expansion of LNG capacity. However, such expansion will not be immediate and may take five years or more to come online. And for importing economies, that would mean several years of expensive gas that could negatively impact their growth trajectory.


Źródło: Forbes