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.