Poland is the largest electricity producer and consumer in the Central and Eastern European region, with demand for electricity forecasted to increase from the gross level of 154 TWh in 2008 to 217 TWh in 2030. As a result of the abundance of coal, the power generation fuel mix in Poland has been dominated by thermal (hard coal and lignite) energy sources, which currently accounts for 94% of the total electricity production and is the highest in the EU. Despite the current slowdown (which resulted in a 5.4% reduction in electricity demand in the first eight months of 2009 in comparison to 2008 figures), the Polish power generation market is expected to witness strong growth in the medium to long run.

At the outset, the country’s power system has to comply with the EU energy and climate legislation. Despite significant concessions to the initial version of the European climate package, the Polish coal-intensive electricity power generation sector has been exempted from the full auctioning of carbon dioxide emission rights until 2020, the country’s power generation system base has to undergo major changes. The vast majority of existing power generation capacity, along with the accompanying transmission systems, is extremely old and outdated. Over 60% of all the power plants are in the 2nd half of their life cycle and extensive de-commissioning of coal-fired stations in the next 10 years is expected to create a significant capacity gap. Moreover, network losses in the Polish system amount to 10.1%, whereas in the EU-15 it is around 6.3%. Importantly, roughly only 6% of electricity in the country is generated by renewable energy sources. This has to change considerably, since the country has to achieve a 15% share of renewable energy sources in the final energy consumption mix by 2020. Therefore, green energy (especially wind energy) is expected to be the front-runner in the changing power generation mix. On the whole, it implies that the country’s installed capacity requires a huge injection of capital expenditure.

Against this backdrop, it is clear that Poland is one of the most interesting markets for energy companies to explore. Consequently, a noteworthy investment programme is taking place in the country, and all energy groups, domestic and foreign, are interested in investing in the refurbishment of existing capacity as well as setting up new plants. PGE, the largest state-owned energy company, wants to inject PLN 38 billion into the market up to 2012, in new capacity as well as refurbishment and electricity trading. In 2010, a new unit (858MW) at PGE’s Bełchatów power plant will come online and there are confirmed development plans to set up 2 units (900MW combined capacity) at the Opole power plant and one unit at the Turów power plant. Moreover, PGE has proposed to construct two nuclear plants (6,000 MW) with the first unit to be operational by 2020 (most likely in Zarnowiec, the northern part of Poland or in Klempicz, near Poznan). Interestingly, PGE is expected to go public shortly. On 14th September, the largest energy group submitted its share issue prospectus to the Polish Financial Supervision Authority. The company plans to issue 15% in shares in the fourth quarter of 2009, which has been estimated at a value of almost PLN 5 billion. Furthermore, on June 2009, Tauron, the second largest energy company in Poland, got a new unit online (460MW) at the Lagisza power plant.

Apart from domestic companies, foreign players are also greatly interested to taking advantage of the changing power generation market in Poland. In 2009, RWE entered into a JV with the leading Polish coal producer Kompania Weglowa. The new entity will be responsible for the construction of a coal power plant with a capacity of 800 MW. The project is estimated to cost EUR 1.5 billion and is due to be completed by 2015. RWE is also targeting the wind energy sector and its plan represents 300MW of wind power by the end of 2015.

In conclusion, the power generation market in Poland is to continue its dependency on coal and lignite-based capacity, primarily due to security of supply. On the other hand, the overall system is undergoing significant changes in terms of new capacity, green energy development, improvement of the T&D system as well as new rules governing the public trading of electricity, which are opening new opportunities for various vendors interested in this market.

Details:

Maciej Jeziorski

Research Analyst

Energy and Power Supply Group

Frost & Sullivan International

E-mail: maciej.jeziorski@frost.com

URL: www.frost.com