What does German and Polish energy policy mean for ‘the Russian threat’?

Poland and Germany have taken separate paths towards an energy transition – that of ‘energy security’ for Poland, and ‘sustainability’/minimal environmental impact for Germany; both Germany and Poland’s transitions could threaten Russia’s own energy policy – which is partially reliant on exporting a large volume of extractives to EU states. It is important to investigate the extent of this. This will be done by first outlining and comparing the policies, prospects, and energy mixes of both Poland and Germany, and then assessing their  potential significance for Russia. With a likely British exit from the EU, the impact of these two countries will be even greater for the remaining states of the union. 

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“We are now in the process of shaping the energy mix in which coal will again find its place” – these were the words of Donald Tusk (the then Prime Minister of Poland) less than six months after his country hosted the United Nations Climate Change talks. He remarked further that “ … it is important that coal produces energy, that people have work, and that Poland has enough energy”. Poland is relatively carbon-intensive compared to the rest of the EU, and challenges EU norms on combating climate change and increasing the use of renewables. With Donald Tusk President of the European Council, this attitude is especially important, as his position holds influence on EU policy as a whole.

At the same time, Germany has its own distinct policy that can influence the member states of the European Union. The ‘energiewende’, roughly translated as ‘energy turn’, is a set of policies and aims. The energiewende envisions a German energy mix that is nuclear-free, sustainable, innovative, a model of best practice for change in other countries, and has both strong security of supply and demand. At the heart of European electricity grids and gas transit, and being the largest energy user and importer in the EU, Germany’s influence on EU policy is preeminent. Crucially, Germany intends to use its transition as a model for change in other countries – exporting best practice.

For Russia, the energy policies of Germany and Poland could have a strong impact on its own energy policy, economy, and diplomatic leverage. Whilst it may be too early to predict what might happen in the future, it is safe to say that the position of Russian gas on the continent will inevitably change – in the short term possibly to the benefit of the Russian economy but in the long term there will be a shift away. The primacy of energy security in Poland and sustainability in Germany means that there will be a need for different approaches to policymakers in these countries.

The Polish Energy Mix

After over 20 years of intense reform, privatisation, and change, the Polish energy mix (and sector) is at a crossroads, and decisions taken now will affect the country’s future energy mix over a long-term period. Vast swathes of infrastructure and productive capacity face replacement which means high costs that the government may have to take responsibility for, otherwise these might “lead to a permanent energy deficit”. Poland itself is one of the biggest energy producers in the EU, with the energy sector making over 20% of its Gross Domestic Product (GDP), yet the infrastructure is a threat to the stability of this role, and according to government estimates, 12% of domestic generation facilities will need replacing between 2014 and 2017.

Poland depends on coal for  over half of its energy needs, and is the largest producer of hard coal within the EU. This is followed by oil, which makes up around a quarter of the energy mix, gas which is between 10-15% of the energy mix, and renewables at under 10%.

However, the electricity market in Poland is balanced. Production in 2012 was around 152TWh, with consumption at 150TWh. Poland exported to neighbouring Slovakia, the Czech Republic, Sweden, and Germany. However, Poland also imported electricity from Germany, Sweden, Ukraine, and the Czech Republic.

Security of supply is a contentious issue in Poland, with fears about the security of Russian gas and oil imports – symbolised to some extent by the desire for coal independence. This fear of Russian supply was heightened with the launch of the Nord Stream gas pipeline between 2011 and 2012 – where Poland’s role as a transit state diminished, and along with it a stronger bargaining position and more favourable prices. Whilst oil is seen as a lesser geopolitical risk and is a more globalised commodity, it is still a solid fuel marred by price volatility and has high environmental costs. Russian imports supply 90% of oil, and 65% of gas demands, which creates a situation of dependency for Poland.

Security of demand and the need for investment in the long-run will be influenced by any GDP increase, public education on energy efficiency, the use of renewables, and any change in per capita consumption of energy. From a business standpoint, coal is projected to make up 40% of the Polish energy mix in 2030 – which is a clear divergence from EU norms and expectations. However, gas and renewables are projected to rise slightly, along with the introduction of nuclear power into the energy mix.

Aggressive investment is needed to ensure security of energy supply, particularly in the electrical infrastructure, and combined heating and power generation. Yet this faces complex planning procedures and lack of public support for budget expenditures. Taking into consideration the scope of planned investments in the energy sector, Poland may be affected by shortage of power supply, as in 2011 nearly half of the country’s electricity capacity was over 30 years old and in dire need of replacement. The country’s electricity networks have been facing similar issues, and a majority of power lines are over 20 years old and will not be able to face current projections of demand.

In terms of potential, Poland has significant domestic coal extraction – yet this is becoming increasingly more expensive and supplanted by imports. Whilst there is good potential for renewables, offshore wind production in particular has issues with infrastructure, although as a whole the startup costs are high these will reduce in time. Nuclear is a difficult option, as Poland has little history with nuclear power, no domestic sources of uranium, and would face large startup costs that the energy sector could not provide by itself.

In summary, Poland has an energy mix that is by design dependent on coal, and there is a strong fear of creating further import dependency on Russia for energy sources such as natural gas. Whilst Poland has been taking a move to reduce the proportion of coal in the energy mix – the fall being accompanied by a rise in the use of renewable and nuclear energy as well as natural gas – this is at a slow pace.

The German Energy Mix

German consumption is in a period of transformation, though still dependent on fossil fuels, and experiencing a rise in the use of coal in recent years. However, numerous political incentives (especially the Renewable Energy Sources Act) have spurred the rise of renewable energy sources – increasing around sixfold in primary energy consumption.

Whilst the level of consumption has remained much the same over the last 40 years, the ‘mix’ of different fuels has changed significantly. In 1973, before the first oil price crisis, there was a ‘watershed’ moment for fossil fuels. ‘Cheap’ oil accounted for 47% of primary energy consumption and together with and coal covered nearly 90% of Germany’s needs. With gas this figure came to 97% – renewables and nuclear energy making up a meagre 3%. Issues with reunification, changing global markets, and the oil price crisis, would transform the German energy mix in the long term and lay the groundwork for the ‘energiewende’. In 1997, oil made up less than 40% of primary energy consumption, while gas and nuclear made large jumps – 9% to 21% and 1% to 13% respectively. Renewable energy came to just 2%, however.

In 2011/12, oil made up approximately 34% of the energy mix, with coal at 24%, natural gas at 20%, nuclear energy at 9%, and renewables at 11%. However, this has changed in recent years, for example in electricity generation as gas, renewables, and even coal, have gained at the expense of nuclear energy – the majority of which being shut down for political reasons.

Whilst the aggressive shift to a different energy mix has concerned Germany’s neighbours who may import power from Germany during times of peak demand , Germany has shown that it is able to cope with peaks in demand at home whilst exporting a surplus to other countries that need it.

In summary, Germany’s energy mix is at a crossroads, despite having already experienced dramatic change over the past several decades. Coal and nuclear use are likely to be phased out relatively quickly in favour of renewable energy (and to some extent natural gas) – in stark contrast with neighbouring Poland. Germany’s energy policies have a clear relationship with its energy mix, as renewables have and will see the most growth in the coming years.

The Polish Energy Project

Fearing energy insecurity, the Polish energy transition (and ongoing project) is defined by energy security. The Polish government recently outlined a short term energy strategy that would increase the energy share of renewable energy sources, natural gas, and nuclear energy in the energy mix – a clear affront to coal. In the long term Poland hopes to enhance the security of its energy supply and fuels, improve energy efficiency, diversify the energy mix (mainly by introducing nuclear energy), develop renewable sources of energy, to liberalise energy markets in compliance with EU norms, and to reduce the overall impact that Poland’s energy consumption has on the environment. However, Polish efforts must be taken with the context of EU common policy, as the national government “thinks very little of an energy transformation to renewable energy”.

Poland has pursued a more independent energy policy than the EU would prefer, and is currently subject to three infringement proceedings on common energy policy – the Renewable Energy Directive, Energy Performance of Buildings Directive, and EU ETS Directive. Having only recently adopted legislation in line with the Third Energy Package, this demonstrates that Poland is not entirely against pushing the boundaries of its EU commitments in energy policy.

After losing part of its status as a major gas transit state, Poland has focused on improving gas supply security – building an LNG terminal, expanding storage, and increasing production domestically and its stakes in other European gas fields. Furthermore, the government aims to increase the role of nuclear power, a more integrated EU gas network, and cross-border electricity trade. Additionally, Poland does not intend to move away from coal entirely, as it use is preferable to what it perceives as potential over-reliance on Russian oil and gas.

The most ‘promising’ areas for development, from a business perspective, are gas power plants (which will require low cost to set up and are a key component of government policy), wind power and biogas, the retrofitting of ‘clean’ coal or carbon capture technologies, and expertise or consultancy in energy efficiency or demand reduction. This shows what business interests in Poland think will be the direction that energy policy takes in Poland. However, domestic companies do not have sufficient capabilities to finance capital-intensive investments in the energy market, and it would take either foreign investors or state financing to make the above projects possible.

The price of electricity in Poland has dropped by around 25% over the past five years, but is due to rise in the near future – this is in stark contrast with Germany where prices have risen over a long period but have now been decreasing.

To sum up, Poland has strong fears about its energy security which translate into divergence from EU norms. Whilst government policies have often shown attempts to curb excessive coal consumption, implement environmental reforms, and explore renewable energy sources, this has been formed to some extent by the EU, rather than Poland itself.

The German ‘Energiewende’ Project

‘Energiewende’, the name of Germany’s well-branded transition to a low-carbon energy mix, was based on three main pillars – the phaseout of nuclear power, an unprecedented expansion of renewables energy sources, and a strong increase in energy efficiency (. Morris justifies the energiewende on six factors – fighting climate change, reducing energy imports, stimulating innovation and a ‘green economy’, eliminating risks associated with nuclear power, the strengthening of local economies and social justice, and also energy security.

A large body of research, mainstream scientific consensus, the German public and business interests, believe that climate change is a serious issue that needs to be addressed and with this in mind the German government used the desire for a low-carbon energy mix as a foundation for energiewende.

Germany’s dependence on imports was a cause for concern too, as Germany imports over 70% of its energy – transitioning to a lower-carbon economy would mitigate this, as renewable energy saved the economy 6.7 billion euros worth of energy imports in 2010. In the same vein, energy efficiency is desired as it can lower import dependency.

The country’s position as an export-based economy is key to understanding why the government thinks that the energiewende could create jobs and boost growth. Germany currently has a labour force of around 380,000 in the renewables sector, and projects this to rise further. The market for energy efficient and ‘green’ technologies is on a steep rise and policymakers are seeking to benefit from this.

Nuclear energy for Germany still has major unsolved issues with cost, risks, and waste; the German public also is against nuclear power, and public support for energy transition may have had its roots in anti-nuclear protest. Nuclear energy has not enjoyed a privileged position in Germany’s energy project.

To a smaller extent, the need for energy security is a rationale for the energiewende. However, this is more a concern about the affordability of energy as the rise of less developed countries (and their growing energy demand) may outstrip supply and damage the economy of Germany – a country historically dependent on imports. However, there are concerns across the EU that Russian gas (of which Germany is a major importer) is not reliable, and this has played a part in policy discourse.

Lastly, Germany envisions renewables playing a part in promoting localism and reducing fuel poverty:

“Germans can switch power providers. In fact, they are not only free as power consumers, but also free to become “prosumers” – simultaneously producers and consumers. They can even sell the power they make at a profit. Germany’s Renewable Energy Act stipulates that the little guy’s power has priority over corporations. German feed-in tariffs have helped produce all of this com- munity ownership, thereby simultaneously reducing NIMBYism (not in my backyard)” 

It would be wrong to say that the German energiewende is not multifaceted, or has not come about for a myriad of reasons. However, environmentalism and sustainability can be summarised as the main aims of the energiewende. Whilst the policy is in line with common EU aims (and converges with both British and Danish policy), it is also conceived as a new ‘industrial revolution’ that can increase competitiveness for Germany.

To recapitulate,  Germany has formed its own independent energy policy to such an extent that it has brand value and holds ambitious aims that go beyond EU policy and the lesser priority of energy security. Energiewende is about creating a new sustainable, innovative, and environmentally-conscious society.

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