Poland at the front lines of the gas war (ANALYSIS)

Poland at the front lines of the gas war (ANALYSIS)

The energy summit of the European Union and the United States is an occasion to talk about emergency gas supplies in the event of a new war in Ukraine. The gas war waged by Russia in Europe, in which Poland is already a front-line country, should once and for all free the Old Continent of its dependence on resources from the east – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.

Czytaj dalej„Poland at the front lines of the gas war (ANALYSIS)”

Gazprom’s new game

Gazprom’s new game

Gazprom skillfully uses market tools to play a game, which has a completely non-market character and business and political goals that are aligned with the Kremlin’s agenda – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

A new face of the gas crisis

The Russians have not turned off the gas tap, nor have they threatened with a new gas crisis. Hiding behind routine procedures, they are limiting the supply of this fuel to Europe, waiting for the other side to take certain steps. Gas reserves in European storage facilities, co-owned by Gazprom via the Astora company, are at a record low level. Russians did not replenish stocks in the summer of 2021 after they were at a high level after the 2020/21 heating season, when the demand on the market had been record low, due to the pandemic restrictions. Historical data from Astora’s storage facilities in Germany, dating back to January 2016, show a relatively regular process of gas replenishment in the summer, when the fuel is cheap and demand is low, and a draw in the heating season, when it becomes more expensive and demand increases. Because of the pandemic, 2020 was clearly different, as gas consumption during the heating season was at a record low. The graph depicting gas storage levels after a period of regular waves, shows reserves at a high level, which had persisted from the end of 2019 to the autumn of 2021. Contrary to the previous years, the stocks have not been used up, because the restrictions introduced due to the pandemic decreased economic activity, and consequently the demand for gas. Another anomaly was the onset of winter in early 2021, when gas consumption from storage facilities suddenly increased to a record level on the 4th of January 2021.

Gazprom’s gas storage facilities in Germany (Astora). Graph prepared by the author on the basis of AGSI + data.

It is worth recalling that in 2020 Gazprom transmitted to western Europe and Turkey 135.75 billion cubic meters, including 45.84 bcm to Germany, the biggest recipient. At the same time, it sold 39.14 bcm to Central and Eastern Europe, of which 9.67 bcm ended up in Poland. This gives a total of 174.89 bcm in 2020. Gazprom predicts that sales to western Europe, Central and Eastern Europe and Turkey, not counting the countries of the former Soviet Union, will reach 175-183 bcm in 2021. This means that gas export from Russia remains stable, despite record gas prices, which could suggest that the sale should go up as that would be in the economic interest of the company, regardless of the importers’ pleas for more deliveries. Interestingly, this topic appeared on one of Gazprom’s press conferences back in April 2021, and the head of Gazprom Export responsible for sales abroad Elena Mayorova, said that she would plan the export policy depending on the results of the first quarter of this year. The data in question revealed record-low stocks and high draw, as well as record sales to the so-called far abroad (the aforementioned Europe and Turkey without the former Soviet countries). Between January 1 and April 15, 2021 it went up by 28 percent year on year, to 60.5 bcm. After breaking these records, the Russians probably decided to limit sales to Europe.

As early as the summer of 2021, they continued to boast of a record increase in exports, but this record actually occurred only in relation to the record supply declines of 2020 caused by the pandemic restrictions. Gazprom Export reported sales of 115.3 bcm to countries outside the Commonwealth of Independent States in the first half of 2021. This is a year on year increase of 23.2 percent, or 21.7 bcm. However, deliveries in the first half of 2021 were actually lower than in January-June 2018, when there was an actual record of 117.1 bcm. At the same time, Gazprom transmitted 198.97 bcm to the Old Continent in 2019, and in 2020, which was affected by the pandemic, only 174.9 bcm. This means that Gazprom has reduced exports to Europe and Turkey in comparison to the figures from before the pandemic, despite the record prices during the energy crunch, and also expects significantly smaller deliveries in 2021 (the mentioned range of 175-183 bcm) than in the pre-pandemic 2019 (198,97 bcm). This went against the expectations in Europe, which presumed Gazprom would increase the sale and prices would drop. Gazprom acted contrary to market logic. However, the Russians follow their own way of thinking, that is a mix of business and politics.

Market game or political game?

The data from the Oxford Institute for Energy Studies (OIES), a think-tank known for explaining the Russian point of view, show that the oversupply of gas in Europe in 2020 caused a record low price, an increase in LNG sales and a decline in Russia’s market share, as it lost out to competitors. The increase in LNG supply to Europe in the first half of 2020 was combined with a decrease in purchases from Gazprom. LNG supplies from the USA reached 9.3 bcm in the first half of 2020. Gazprom’s customers who signed long-term contracts must adhere to the take-or-pay (TOP), according to which a portion of the contracted gas volume has to be paid for, even if it is not collected. This means they have room to reduce purchases in Russia by the amount not impacted by the TOP clause, depending on whether they have an alternative, such as LNG, which served as a way out more often than not in 2020. Deliveries to Germany fell by 25 percent year on year in the first half of 2020. OIES acknowledges that Germany has optimized its portfolio by increasing LNG purchases and reducing purchases in Russia to the contractual minimum. An example illustrating this trend can be Poland’s PGNiG, whose contract with Gazprom stipulated that the TOP clause applies to 80 percent of the volume. In 2020 PGNiG brought in about 9 bcm of gas from Russia and almost 4 billion cubic meters of LNG. Deliveries of liquefied gas accounted for 25 percent of imports of this company, and those from Russia – a record low level of 60 percent. Imports through the European stock exchanges accounted for the remaining 15 percent. However, the data collected by the OIES show that the increase in demand in 2021 was significant, due to the aforementioned cold spell in January, among other things. LNG was not enough to cover the additional demand, and customers asked Gazprom for more. Data from the first half of 2021 show that PGNiG increased purchases from Russia by 17 percent, to 4.8 bcm, that is by about 700 million cubic meters, keeping the share of this gas supplier in the vicinity of 60 percent. Meanwhile, according to the latest available data, in the third quarter of 2021, gas import to Poland from the east was at 67 percent (a 1 percent decrease year on year), while 24 percent arrived in LNG tankers (increase by 4 percent). Deliveries from European stock exchanges accounted for 9 percent, which is a decrease of 6 percent. PGNiG’s attempts to maximize imports from outside Russia, while limiting purchases on exchanges hit by record prices, are therefore evident. However, there are reasons why the price on the exchanges was so high, and one of those was Russia limiting the supply. Moscow is not starting a price war to fight for clients, it is trying to maximize its market participation and number of long-term contracts. For this reason, Gazprom fulfils only the minimum contractual obligations, and only books the necessary gas transmission capacity. It pays for the transmission of 40 bcm annually via Ukraine under a temporary contract valid until the end of 2024. The remaining gas reaches Europe via Nord Stream 1, the Yamal pipeline and Turkish Stream. Deliveries via Nord Stream 1 and Yamal-Europa are carried out by auction without transmission contracts. Gazprom reserves their capacity in intraday, daily, monthly and quarterly auctions. The company did not book any capacity on the Yamal pipeline as part of a yearly auction. This does not mean it won’t meet its contractual obligations (PGNiG has reported it does meet them), but it may do it in a less predictable manner – through auctions for shorter periods, which will increase market uncertainty fuelled by emotions, and ultimately result in more price increases. According to IHS Markit, Gazprom’s average pipeline deliveries to Europe fell in October 2021, when the new gas year began, to 322 million cubic meters, compared to an average of 393 mcm per day between April and September 2021. Since the summer holidays, the volume has been dropping in comparison to the average from the 2015-2019 period.

Market shares of individual players. Graphics: OIES

Gazprom’s exchange is another tool used by the company to increase the pressure. While it operates in line with the law, the way it is utilized goes against market logic. Gas prices on Gazprom’s Electronic Sales Platform (ESP) broke records already in April 2021. At that time, they averaged at EUR 13,993 per megawatt-hour, compared with the lowest price recorded in August 2020 of EUR 6,744 per megawatt-hour. Thus, the Russians had a market rationale for increasing gas sales to Europe on exchanges via the ESP. However, they did so to an increasingly modest extent. In a record-breaking session at the ESP on April 15, 2021, they sold 1,323,504 MWh, or 124 million cubic meters. Meanwhile, on October 10, during the last session on the ESP in 2021, Gazprom sold 43 800 MWh, or 4 million cubic meters. The Russians sent to the electronic platform only so much gas, despite the record price of EUR 26,702 per megawatt-hour. Originally Gazprom planned four sales sessions, which were included in its e-schedule: in November – 8, 15, 22 and 29, and in December: 6, 13 and 20. The sessions are usually organized on Monday. However, this did not happen despite the record price and Putin’s promise to increase supply to Europe. The official explanation was that the domestic market had to be given the priority on the orders of President Vladimir Putin on the basis of Gazprom’s estimates, which suggest that the demand for gas in the Russian Federation will increase by 7.5 percent, or 18.6 bcm in 2021-25. Those who share Gazprom’s point of view argue that the pandemic caused a decline in gas production in Russia by 6.2 percent year on year, i.e. by 46 billion to 693 billion cubic meters, of which Gazprom reduced its output by 9.3 percent, or 47 billion to 455 bcm. Gazprom then reduced gas supply to storage facilities by 38 percent, i.e. by 20 billion to 33 bcm. The latest excuse made by the company is that it is not flexible, even though it had already planned to increase production in 2021 by 55 bcm to reach 510 bcm. That’s the most in over a decade. It can therefore be assumed that Gazprom has gas, but does not want to sell it other than on the basis of long-term contracts bypassing Ukraine, for example, with the help of Nord Stream 2 with a capacity of just 55 billion cubic meters annually. 

The Russians use coercion and persuasion to acquire new long-term contracts, and more often than not threaten with stopping the supply altogether, like in the case of Moldova, which was forced to sign a new contract, as it didn’t have any alternatives. Sometimes they also explain away the reduced deliveries to Europe with fewer orders from clients in France and Germany, an excuse recently used by President Vladimir Putin during his annual end-of-year speech. However, this is only half-true, because some European customers do not really want to enter into new long-term contracts and prefer to buy gas outside Russia, for example, on the exchange, but there is not enough gas on it, because of Gazprom’s deliberate actions resulting from its original market policy. In this way, the Russians gain long-term security of sale and bypass Ukraine, as long as their customers stay with them longer and agree to a certain supply route. An example of Gazprom’s victory is the deal with Hungary’s MOL, which was signed in 2021 for 10 years, and which can be prolonged by another 5 years until September 2036, and include a volume of 4.5 bcm annually and deliveries via the Turkish Stream, bypassing Ukraine. Moldova is another case. It signed a 5-year contract until 2026, and in return agreed to delay reforms that would make energy integration with Europe as part of the Energy Community possible. Gazprom is also in talks with the German VNG to extend the contract and increase the volume of deliveries started in November 2021, during peak price. Thus, the Russians are using the record gas prices to conclude long-term contracts that will cement their position on the market long after the crisis is over. “Long-term contracts offer prices that are three, four and even seven -times lower,” assured Putin when talking about contracts with Russia’s Gazprom which, in his opinion, are cheaper than the offer on the European exchanges. “The European spot market merely reflects the current state of supply and demand, but is not a valuation tool that can offer equilibrium in the long-term,” the head of Gazprom Export Yelena Burmistrov said. “Those who signed long-term contracts with us, are now happy with their prices,” she added. The current energy crisis will eventually end, prices on the exchanges will again be more attractive than the Russian offer, but the agreements with the Russians will remain.

A gas trap

Gazprom’s game in the Old Continent market is not traditionally market-oriented, because this company sees the market differently from its customers in the European Union. The tycoon from St. Petersburg is playing to increase market share, even limiting today’s revenues to earn more in the future from maintaining its position on the European Union market. The Russians are using available market tools. However, it is not certain that they are acting in accordance with the laws of the market, especially with regard to the antitrust law of the European Union. Gazprom is acting like the OPEC oil cartel, which restricts sales to drive up prices in the hope of regaining market shares lost to shale oil competition. Gazprom is doing the same, seeking to push out the growing LNG competition from around the world, albeit increasingly from the US shale gas sector. This behavior may also be partly explained by the fact that Gazprom remains an instrument of the Kremlin’s foreign policy, which uses long-term gas contracts to achieve certain long-term effects in relations with countries dependant on Russian gas, even at the expense of short-term loss of profit. Moldova is the most glaring example of Gazprom seeking to maintain this dependence, but this problem affects all of Europe, which, by abandoning diversification and becoming dependent on gas during the transition period of climate policy, may increase and extend this dependence for decades, including through hydrogen. I call this phenomenon russification of the climate policy, and falling into dependence on gas from Russia on this route – a gas trap. The energy crisis is another opportunity for Gazprom to play a game that is formally based on market rules, but may also hide substantial political risk, which all Europeans should understand. This is an argument for a second anti-trust investigation that the EC should launch. Arguments in this case have been presented by Poland, Ukraine and other critics of Gazprom, and the Commission is looking into them, having already sent a survey to the Russians on this issue, according to information obtained by BiznesAlert.pl. Moscow is also trying to use the current situation in the short term, to force the start of gas supplies through the disputed Nord Stream 2 pipeline, which, however, will launch only after certification in Germany, which is not expected to occur before the second half of 2022. Russian Deputy Prime Minister Alexander Novak admitted in the fall that there were two ways to reducing the record gas prices in Europe. It’s either selling more gas on Gazprom’s platform, or agreeing to start deliveries via Nord Stream 2. It can therefore be concluded that the Russians are deliberately limiting supply, in order to persuade the Europeans to unblock the disputed pipe.

Revenge of Catherine the Great

Gazprom’s scheme is an argument for avoiding new long-term contracts with the Russians, despite the seemingly attractive offer that is tempting more customers. Poland may also face this temptation in 2022, when high gas prices may still be here. Gazprom predicts that the average price of gas in Europe in the fourth quarter of 2021 will be USD 550 per 1000 cubic meters and the same will happen in 2022, mainly due to record low stocks, which – as we have already established – are so low mainly due to Russia’s Gazprom, because the German storage facilities of this company (Etzel, Jemgum and Rehden) are filled at 16 percent, the Austrian Heidach at 39 percent, and the Dutch Bergemeer at 23 percent. At the same time, the European average is 60 percent. IHS Markit predicts that reserves in European storage will reach less than 15 bcm by the end of March. For this reason, it predicts that prices on the TTF stock exchange in the summer of 2022 will be 25 percent higher than the forecast, and will reach EUR 44 per megawatt-hour in the first quarter and EUR 34 per megawatt-hour in the second and third quarters. This is more than the highest price on Gazprom’s electronic platform in 2021. Next year, Russians may have an argument for long-term contracts, whose price may be lower than the record breaking quotes on the exchange.

Pipeline deliveries from Russia. Graphics: IHS Markit.

Some customers might be tempted, like the Hungarians. One can also imagine that Gazprom’s customers will want to become supply agents in Europe. For example, in Poland, the aforementioned VNG from Germany may someday want to sell more gas through the companies already present there – Handen and Gaz Energia, for example, at the Gaz-System/Ontras interconnection point. The operator there is Ontras, which is part of the EnBW group to which VNG belongs. The reverse flow on the Yamal pipeline in Mallnow may be used by VNG or another provider related to Russia. It is operated by GASCADE, which is equally owned by Gazprom Germania and Wintershall DEA. If the energy crisis continues into 2022, when the Yamal PGNiG-Gazprom contract ends, the Russians will be able to use the “market game” described above to tempt Poland to sign a new long-term contract, instead of continuing spot purchases, to which access is already restricted. Poland will be interested in additional gas, because calculations even before the crisis suggest that it may need an additional 2.1-3.8 bcm annually from 2023 onwards. If the Poles agreed, for example, after early parliamentary elections in 2022, resulting in a coalition with the Polish People’s Party and Waldemar Pawlak, known for extending the Yamal contract in 2010, a new long-term agreement could be concluded, limiting the possibility of further diversification of gas supplies to Poland. It would be similar to the one signed by Moldova or Hungary. It’s not difficult to imagine that such a deal could mean gas will flow via NS2 to Germany and then to Poland, bypassing Ukraine, winning another client for Gazprom and making it possible for the Russian giant to defend its market share. All completely in line with the Kremlin’s foreign policy goals. This would be the second Yamal contract, but probably because of the supply route, it would be called a Baltic deal. The Act on reserves limits this risk. This law allowed Poles, contrary to European trends, to replenish gas reserves for this heating season at almost one hundred percent, which means Warsaw’s gas reserves are the highest in Europe. Otherwise, it could turn out that they would have to replenish their stocks in 2022 from the Katharina storage facility in Brandenburg, which is being expanded by VNG with Gazprom’s help, provided it would even have gas.

Interestingly, the Katharina gas storage facility enjoys the highest reserves in Germany with a level exceeding 70 percent throughput and the largest fuel injection, as if waiting for additional orders. Gas delivered via Nord Stream 2 and stored at a facility named to honor Catherine the Great and sold to Poland would be history laughing in our faces and Gazprom’s success, which is just about business only on the surface. For this reason, Poland should continue the course of reducing dependence on gas from Russia, despite the energy crisis and at all costs avoid reverting its gas policy in 2022. A drastic increase in the cost of gas imports forced PGNiG to borrow PLN 2.7 billion. It is worth considering whether to subsidize this company in 2022, so as not to run out of gas or risk a return to dependence on Gazprom in 2023. One of the tools for achieving this goal is the polonisation of the capacity of the Yamal gas pipeline, which can be used for physical imports of gas from the Baltic Pipe and LNG, but also for spot purchases from Germany. The Poles continue the course allowing not to sign any contract with the Russians, and to supplement the supply from LNG and the Baltic Pipe with spot contracts on the German stock exchange. Despite the fact that in the coming months it will be an expensive option, in the long-term it is more competitive than political deals with Gazprom, and once the crisis is over, it will again be cheaper. 

A classified Nord Stream 2 protocol with Baltic Pipe in the background

A classified Nord Stream 2 protocol with Baltic Pipe in the background

Does the US-Germany agreement on Nord Stream 2 contain a secret protocol? Is Poland concerned mainly about Ukraine, because it is calm about the Baltic Pipe, which in the best case scenario will move faster than the pipe from Russia? – asks Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Czytaj dalej„A classified Nord Stream 2 protocol with Baltic Pipe in the background”

The nuclear in the taxonomy, or how not to fall into Putin’s gas trap (ANALYSIS)

The nuclear in the taxonomy, or how not to fall into Putin’s gas trap (ANALYSIS)

It is possible that the EU will bankroll nuclear power through its taxonomy scheme, just like gas, but new nuclear power plants and regulations on the security of supply of this fuel are necessary to avoid replacing the dependence on Gazprom with over-reliance on hydrogen. The Russians are already building a hydrogen valley in East Germany – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Czytaj dalej„The nuclear in the taxonomy, or how not to fall into Putin’s gas trap (ANALYSIS)”

The leaked, classified document on Nord Stream 2 tests Germany’s credibility

The leaked, classified document on Nord Stream 2 tests Germany’s credibility

If the new German government continues its policy of protecting Nord Stream 2 at all costs, it will pay for it on both sides of the Atlantic, and only Vladimir Putin will come on top. Here’s what the confidential document says – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Czytaj dalej„The leaked, classified document on Nord Stream 2 tests Germany’s credibility”

The border crisis is another argument against Nord Stream 2

The border crisis is another argument against Nord Stream 2

It is still unclear when gas will start flowing via the contentious Nord Stream 2 pipeline. The crisis on the Polish border should be another argument against giving Russia new leverage in the form of a gas pipeline, but the energy crisis may lead to a deal. In the meantime, however, we should tighten our belts to survive the high gas prices and monitor the certification process in Germany – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Czytaj dalej„The border crisis is another argument against Nord Stream 2”

Russia used gas as a weapon against Moldova. This recidivism requires a European response

The homeopathic gas supply organized by Poles and Ukrainians to Moldova, which is suffering from shortages, is only a band-aid solution. Putin used Gazprom as a weapon against that country. It’s time for Europe to respond – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.

Czytaj dalej„Russia used gas as a weapon against Moldova. This recidivism requires a European response”

A solar counterrevolution in the Sejm

The transmission system operator complains that the boom in PV panels in Poland threatens the stability of the power grid. However, prosumers are installing them by the dozen, because they want to protect themselves against the hikes in energy prices that may reach over 10 percent. Perhaps a compromise solution would be to subsidize energy storage that would stabilize PVs? – writes Wojciech Jakóbik, editor-in-chief BiznesAlert.pl.

The photovoltaic revolution continues

At the end of July 2021, the installed capacity of solar energy in Poland reached 5.6 GW, according to the Agencja Rynku Energii think tank. In July almost 31 thousand new PV installations were added to the system, which is an almost 100 percent increase in new renewable energy sources in our country. Onshore wind farms could be one of the alternatives, but this sector cannot develop because of the distance law, which is still waiting to be liberalized.

The new renewable sources may help to achieve the 31 percent EU target for Poland in 2030, and to increase energy supply in a situation where conventional energy is increasingly unreliable due to the advanced age of coal-fired power units, whose life span will end around 2025. Meanwhile Poles want to achieve the RES share target of 15 percent in 2021, although they had until 2020 to do so. However, in fact the surge in new PV installations results from the fact that households as well as companies want to cushion themselves from the hikes in power prices in the coming years, and from the news that energy companies will apply to the Energy Regulatory Office for an approval to increase the electricity prices by several percent. It has been speculated that the prices may surge by 40 percent, but that guess is probably way off the mark, as it doesn’t take into account the inevitable political pressure on the state-owned companies that generate power.

“Poles have fallen in love with generating energy for their own needs, and this generation contributes, as I said at the beginning, to improving the energy mix in Poland. It also gives rise to some problems and this is one of the reasons behind this amendment proposal, which I would like to discuss at this moment,” said Jadwiga Emilewicz, former Minister of Development, on July 20 in the Polish Sejm, when presenting a parliamentary bill on this issue. “What is the purpose of the proposed changes? Firstly, we would like, and this is my intention, to introduce some modification into the existing system of support for the presumption of individual recipients, because after almost 2 years, we have identified some shortcomings, problems in how the system operates, ” she explained.

“The parliamentary bill introduces a 1:1 system of settlements for prosumers throughout the year. The Ministry of Climate and the Environment accepts this solution as a transitional one, and proposes that it be valid until 31 December 2023. This is linked to the mandatory entry into force of the market directive. This is a Directive of the European Parliament and of the Council, no. 2019/944, which in article 1, point 4 requires the implementation in the above deadline of a separate system to settle the energy fed into and received from the electricity grid,” said Deputy Minister of Climate and Environment Ireneusz Zyska in response to Emilewicz’s demands. “Therefore, the Minister of Climate and Environment proposes to include in the draft law a solution consisting in the implementation of a new system of prosumer settlements in accordance with the market directive, known as net-billing, from 1 January 2024. It is based on separate billing of the energy input into the distribution network and the energy input from the electricity grid, based on the value of a unit of energy fixed at the quoted market price, the current price, and now you can even say the hourly price,” the deputy minister explained.

The prospect of lowering energy bills has convinced Poles to invest in photovoltaic panels, and the solutions presented above serve this purpose. However, other stakeholders have a different point of view.

The solar counterrevolution

The transmission operator, supervised by the minister, is concerned about safety. There is a conflict of interest between these priorities.

“If I were to say in general what I think about this parliamentary project, it comes down to the fact that if it were to be introduced in the form it is at the moment, it would be a source of great problems for the National Power System and for the distribution systems. This is my first point, ” Piotr Naimski, the Government Plenipotentiary for Strategic Energy Infrastructure, replied to Jadwiga Emilewicz. “It is worth saying that the electricity system here is treated physically as a virtual warehouse. In other words, the energy produced by prosumers is stored in networks. The capacity of the network is limited. It’s not a bottomless pit. You can’t stretch it too far. I can tell you what the outcome will be. This will result in the need to deny or limit connections. If the high chamber at the Sejm and the Senate, decides that this should be mandatory, then the national power manager will have to limit the energy production in these units, which means they will have to get paid for this. The fee that will be associated with this will be paid by all other users of the electricity system. It’s worth considering, because that’s what this system looks like. Having said that, it seems to me that it is worth considering this whole project from this side, from the context of developing the prosumer electric power industry. If we consider it in this way, it will turn out that it requires very significant modifications, ” he warned.

Tomasz Sikowski represented Polskie Sieci Elektroenergetyczne, the transmission grid operator, in the debate and spoke about the challenges posed by PVs. “After exceeding a certain level of installed capacity in photovoltaic sources, negative side effects appear. This applies both to the operation of the system and to the operation of conventional power plants, which are still needed to meet the demand and will continue to be. As far as the electricity system is concerned, we are in the process of achieving this level. At the moment, photovoltaics are helping us a lot with the demand that we have, but if they continue to grow at this rate, we will reach the limit of absorbing energy from energy sources, which will result in what minister Naimski was talking about: we will have to reduce renewables. This is not in the interest of national consumers, as there will be sources of generation that have benefited from substantial support schemes, and these sources will not produce energy. In such circumstances, further development of renewable sources must be based on economic considerations reflecting the benefits and technical conditions of the operation of these sources in the system,” Sikorski said.

He also argued that photovoltaics should now be developed on market-based rules, and that the discount system that causes a spike in demand should be abandoned. “For this reason, such stimulation is a very dangerous stimulation, as it can lead to energy deficits,” he stated. He also criticized the idea of a virtual prosumer. “This type of solution is completely inadequate for the functioning of the electricity market for the simple reason that it interferes with the mechanism of concluding commercial transactions on the electricity market,” he said in the Sejm. He also opposed the exemption from distribution fees. “In our opinion, this is unacceptable, because it violates the rights and interests of those recipients who are not prosumers. This simply leads to subsidies, ” he added. “The bill needs to be updated in the areas I mentioned, plus a few smaller ones. These changes are necessary so that the new regulations create the conditions for the development of renewable energy prosumers that take into account the interests of all consumers. On the other hand, I wanted to emphasize that the implementation of this amendment is urgent, because the current system already has a flaw and can no longer be continued, because it will create the same problems as the proposed amendment, ” Sikorski concluded.

“While appreciating all the challenges associated with the technical difficulties, with the distribution of energy, it seems that this project mitigates risks and limitations, democratizes, as I said, and above all gives the opportunity to supply and receive cheap and clean electricity in a way that is not overcapacited and where it is needed,” Emilewicz answered.

Compromise to facilitate energy security?

We are therefore faced with a classic dispute over the two tips of the energy security triangle. Those are: safety, affordable price and environment. Minister Naimski focuses on the security, while Minister Emilewicz focuses on the price. It is worth reconciling these two points of view.

One solution would be to link support for photovoltaics with the obligation and support for energy storage to stabilize such sources. Such a solution would mean doubling the cost of support, because a PV installation can cost PLN 15-50 thousand and the cheapest energy storage costs roughly the same. However, it may also be worth investing in a stable development of sources that provide the energy price reductions needed by households and companies in Poland.

The basic conditions are sound investments in PVs that will not be overcapacitated and badly adapted to the capacity of the system. On the other hand, further investments are needed to expand the distribution system, which has not prepared for the renewable revolution yet, as Katarzyna Szwed-Lipińska, head of the Renewable Sources Department at the Energy Regulatory Office, stated at the European Economic Congress in Katowice. The Poles missed this revolution and now have to catch up in a way that ensures complete energy security, according to the three tips of the triangle in its definition.

Work is under way on the fourth increase of the budget of the Mój Prąd program. The National Fund for Environmental Protection and Water Management is again increasing the pool, allowing to subsidize more than 20 thousand installations currently on waiting lists. Poles are investing in the sun, and the war between politicians over how to respond to this need should end with a constructive solution. This revolution can no longer be overlooked, we have to learn to live with it.

Chamber of tor-Turów

“Poles are going through the torture of negotiating with the Czechs on the dispute over the Turów mine. In reality and despite the emotional frenzy, the talks are nearing the end, and an agreement is within reach,” writes Wojciech Jakóbik, editor-in-chief BiznesAlert.pl.

Poland and the Czech Republic agree that the compromise is close, and its draft is soon to be presented to the prime ministers of these countries for a final decision. However, another round of talks in Prague ended on the last day of September without a breakthrough. Still, a watershed moment should finally arrive in October, especially in view of the fact that the parliamentary election in the Czech Republic is scheduled for October 8-9. However, we warned on BiznesAlert.pl that the hard-line prime minister Andrej Babiš could be replaced by the even more intransigent Pirate Party politicians if they gain sufficient influence over government policy.

Despite the prospect of the lignite dispute at the Turów mine ending, the conflict over the duration of the agreement persists. The Ministry of Foreign Affairs has warned that the attitude of the Czechs was “irrational”, because they demanded that the agreement be valid indefinitely. Deputy Minister for Foreign Affairs Paweł Jabłoński compared this provision with the controversial clauses in the Yamal gas pipeline contracts with Gazprom and the Russian Federation. The Czech Environment Minister Richard Brabec argued that this provision was nothing new and it was the Poles who wanted to negotiate anew a long-established issue.

The leverage the Czechs can use, possible thanks to the irregularities that occurred when Poles decided to prolong Turów’s mining license (Lex Turów – worth reading about), was handed to them by the CJEU in the form of a EUR 500 thousand per day penalty starting on 21 May, when the court decided that Poland had to stop extraction at the mine until the legal dispute is solved. Of course, the Turów complex should not be shut down for two reasons: the agreement with the Czech Republic may take into account the absence of the CJEU penalty, its cost will still be lower that the price of shutting the mine overnight.

The media are turning the heat up, and the dispute over Turów has turned into yet another opportunity to throw bricks at European institutions, which sometimes make controversial decisions, such as the one to shut down the Turów mine. The ruling can be challenged by lawyers, but they will not necessarily be forced to do so if Warsaw manages to reach an agreement with Prague. However, the Court of Justice of the European Union has often defended Poland’s interests, for example by standing up for energy solidarity in disputes with Gazprom over Nord Stream 1, Nord Stream 2 and their onshore legs.

The biggest loser in this dispute is European integration, called out by the same people who do not want to criticize the achievements of the Polish negotiators. The biggest winners will be the Czechs, who use the circumstances and the available political and legal tools to pursue their interests. Warsaw can limit losses on the one hand, and use the Turów precedent to start a regional discussion on lignite mines in the Czech Republic and Germany, and additional funds for the energy transition in those countries and Poland.
It is worth noting, however, that the Turów agreement is only the beginning. Greenpeace is already challenging the license process of nine coal mines, and unofficially the German city of Zittau is considering suing Turów. Lignite mining in the three countries in question used to be a common asset during the prosperity of the industry, but is becoming a common burden in an era of accelerating climate policy. The Poles can show that the Czechs and Germans should also take political and financial responsibility for shutting down open pit mines. However, this requires that the fighting mood in our capital cities be replaced with cooperation. It would be enough to withstand the psychological torture resulting from the pressure of negotiation. The finish line is on the horizon. It is worth turning failure into success for the benefit of the whole region.

The fitness trail begins with Turów. Poland is on the offensive

The legal dispute over the Turów mine is only the beginning of a fitness trail that coal may have to face, because of critics from Germany, Czechia and organizations like Greenpeace. Despite coming under fire, the Polish government has launched a counteroffensive and is calling the bluff – writes Wojciech Jakóbik, editor-in-chief BiznesAlert.pl.

The fitness trail begins

Poles are being dragged through the courts by the Czechs on a technicality that does not comply with EU law. No agreement could be reached, which prompted the Czech side to refer the case to the Court of Justice of the European Union (CJEU). The licence to extract lignite in Turów was extended on the basis of the so-called Lex Turów, which was against the EU regulations. Poland prolonged this concession by six years without an environmental impact assessment, in breach of directives 2011/92 and 2000/60. The environmental conditions for the extension of this document were issued by the Regional Director of Environmental Protection in Wrocław. The flawed provision adopted back in 2018 has already been removed from the mining law by the climate ministry.

The dispute is now focused on remedies to address Czechs’ concerns about the impact of the open pit mine in Turów on their environment, including water levels. Polska Grupa Energetyczna (state-owned company, owner of the open pit and the adjacent power plant – ed.) has declared that it will complete the construction of an anti-filtration screen to protect the Czech waters. An objective look at the case reveals that any open pit mine can affect the environment, and there are many of those in the area – in Czechia, Germany and Poland, Turów being one of the smaller ones.

Until recently, Prague and Warsaw agreed that the mine does not affect the Quaternary geological layer in which groundwater is located. The screen was supposed to protect the Tertiary layer, on which the impact has not been proven, and the Czechs do not use water from that layer anyway. Despite the fact that the environment ministers of both countries did not meet in February, about which I wrote, the foreign affairs ministries did meet. The Minister of Climate and Environment of the Republic of Poland Michał Kurtyka had learned about the meeting plan proposed by his Czech counterpart Richard Brabec too late, and could not see him because of other commitments. Brabec did not respond to the proposal to reschedule the meeting. Meanwhile, the screen built by the Poles is now to be monitored to determine whether it helps protect groundwater as the Czechs expect it to. It is worth noting that in 2019 the Czech side had accepted the plan on this issue, and only after a while began to question it. The total cost was estimated at more than PLN 80 million.
Anyway, there was no amicable end to the dispute, for which there had been still hopes back in February when our ministries responsible for the environment were still in a dialogue. Then the case went to the Court of Justice of the European Union. It’s been suggested that Brandenburg may join the Czechs as a plaintiff, and that the court dispute will drag. Meanwhile, Greenpeace raised objections to the work of nine coal mines in Poland. Environmental arguments will be used to stigmatize the extraction of this fossil fuel, against which there is growing public resentment fueled by active climate policy and the activities of organizations such as Greenpeace. It seems that this particular fitness trail begins with Turów and may turn out to be long.

Poland in the crosshairs

The latest news suggests that during the latest round of talks, the Czech Republic and Poland have again failed to reach an agreement. It must be assumed in advance that the legal technicality on which we were caught red handed would be best handled outside of court. The Polish-Czech agreement is within reach, but our negotiators must overcome the pressure of the Czech side by responding positively to legitimate demands and rejecting those that lack justification. The negotiations are difficult due to many factors, but at this point they boil down to how much Poles are ready to pay for their legal errors.

It still needs to be decided who will receive the money. Unofficially, according to several sources, Warsaw is ready to accept the penalty of the Court of Justice of the European Union and transfer the money to the EU budget instead of bankrolling the expectations of the Czech local governments as part of a settlement agreement. If Prague was ready to settle, the money paid by Poland would go into the coffers of the Liberec Region. The money transferred to the Court in the event of a judgment without an out-of-court agreement will go to the EU budget. The heat surrounding the dispute has been turned up by a leak of documents suggesting that the Czech prime minister, who may lose his post after the election, may have bought himself an estate in France with shady money.

Poles have started revealing facts about the talks, thus suggesting a willingness to accept the judgment of the Court of Justice of the European Union, whatever it may be. The penalty of EUR 500 thousand per day may reach the amount similar to the EUR 50 million, Poles will have to pay the Czechs if their claims are recognized. The Poles want to demonstrate their determination and uncover the game the Czechs are playing.

Deputy Foreign Minister Paweł Jabłoński decided to reveal what has been talked about. “We are not in the habit of revealing the content of negotiations, but since the Czech foreign minister has departed from the truth, we are forced to do so. Public opinion in both our countries has the right to know who is responsible for the failure of the talks and the deterioration of relations, ” he tweeted. “We didn’t offer a “two-year deal”. We are offering a contract that will be valid until the mining ends, and that can be terminated in case either of the parties abuses the conditions of the agreement. This is the basic standard in international agreements concluded on a partnership basis. Moreover, we have proposed that the most important provisions, chosen and indicated to us by the Czech side, continue to operate until 2049 – even if the agreement is terminated. Those provisions pertained to, among others, monitoring the level of groundwater. The Czech government claimed that this was a key issue. Our offer guaranteed EUR 50 million for water projects in the Liberec region, above – standard rules for monitoring water, pollution, noise, regular reporting of information – and even a ban on the mine approaching the Czech border, until all of the listed conditions are met,” Jabloński enumerated.

“All this would be done in the first months of the contract. However, this proposal was rejected, because the Czech government demanded an agreement that Poland could never terminate – even if it was abused in the future. Partners do not enter into agreements on such terms. A responsible negotiator cannot bind their country to a 30-year no-exit agreement without knowing whether the other party will behave unfairly in the future. The result of the actions of the Czech government: the inhabitants of Liberec will not receive any money for water projects, no additional monitoring of groundwater, which is not required by law; the mine will be able to approach the border without any additional conditions,” the minister summed up.

“In the last hours, at the finish line, in response to our proposal, the Czech side began to escalate their demands in such a way as if their goal was to break off the talks,” the Polish Minister of Climate and Environment Michał Kurtyka explained. “We cannot transfer these funds to the inhabitants of the Liberec Region on behalf of the Czech government, even though this would guarantee an amicable settlement of the matter. If there is no will to reach an agreement, then we must take note of this situation. We want to talk with a partner who has the will to reach an agreement and if it is not there, we will not sign the agreement with ourselves, so we left the table, ” he added.

Chance for a deal after the election?

Perhaps after the election in the Czech Republic there will be a better political atmosphere for the resumption of talks with Poland. However, it is not certain, because the Pirate Party may have influence over the new government. The group is believed to be even more radical about the environment than the team of Andrej Babiš. “We will use all available legal provisions to show that the imposed temporary measures are a direct threat to the residents of our country, but also neighboring countries. We will submit additional requests for the withdrawal of the provisional measures in response to the new circumstances,” assured minister Kurtyka in the Rzeczpospolita daily. “At this stage, we would need to see a noticeable change in attitude on the part of our partner to return to the negotiating table. At present this has not happened, ” he added. So, there is a chance the parties will go back to the negotiation table if the Czechs make their position more flexible.