Business Insider: “high energy prices”

High electricity prices. Causes

Where did the electricity increases come from? Since the beginning of 2018, there has been a strong increase in wholesale energy prices in Poland. The average price of a contract for next-day delivery (BASE) on the Polish Power Exchange (POLPX) in September was PLN 276.24/MWh (+60.2 percent year-on-year). On the other hand, the price of the contract with delivery for the next year (BASE_Y-19) was 285.53 PLN/MWh (+71.5 percent y/y).

Higher wholesale energy prices are due to two factors. The first is the increase in the price of CO2 emission rights, whose price on the European Energy Exchange (EEX) in September was €21. 42/ton, an increase of +215.3 percent year-on-year. – Credit Agricole economists explain.

– It is a result of the reform of the European emissions trading system, which will reduce the amount of CO2 allowances available for auction in 2019, they add.

The second factor, according to them, is the higher coal price, which in September reached $100.69/ton (+11.1 percent year-on-year, ARA coal price). – The above-mentioned factors have a particularly strong impact on energy prices in Poland, since approx. 80 percent of Poland’s electricity is generated in coal-fired power plants – economists point out.

Photo: press materials Average price of the contract for next-day delivery of energy (BASE, PLN/MWh)

Poland with the most expensive electricity in Europe? It’s possible – ZPP

Worst of all, according to ZPP, the problem at hand is not temporary:

However, according to the estimates of the Institute of Renewable Energy, after 2020 Poland, assuming an energy mix based half on coal and supplemented by nuclear energy and renewable sources, will have 
the highest wholesale energy prices and tariffs in Europe for all groups of consumers.

Such forecasts prove that the problem of rising energy prices in Poland is strategic and not just a temporary economic difficulty.

At the same time, as ZPP points out, the increasingly expensive electricity in Poland at the moment is only part of the problem, because in the long run we can expect even a gap in the supply of electricity.

According to estimates, our power demand could rise from 26 gigawatts to 33 gigawatts by 2030. At the same time, Poland lacks new power plants to meet the growing needs, and more than 60 percent of existing plants are so old that they will soon no longer be able to continue operating. Poland’s power grid therefore requires far-reaching and continuous modernization, which would cost the budget tens of billions of zlotys, ZPP points out.

And now the most important. According to the union, “within a few years we could have the most expensive electricity in Europe,” and already large consumers are paying significantly more per megawatt hour than countries in the region (about 69 euros in our country vs. 57 euros in the Czech Republic, or 38 euros in Germany).

– This, of course, translates into operating costs for companies, their competitive position vis-à-vis other European players, product prices, and, ultimately, household costs as well, the IPP stresses.

Credit Agricole economists are coming to similar conclusions. Higher electricity prices mean lower wage growth and more expensive products.

– We believe that the increase in electricity prices will have an impact in the direction of not only increasing the price of final products, but also reducing other costs by companies, including primarily labor costs. This is in line with our forecast of slowing wage growth in 2019. (6.6 percent vs. 6.9 percent in 2018). – analyze.

Jagiellonian Institute: Electricity prices will continue to rise until 2030.

Moreover, high electricity prices are expected to continue. An analysis by the Jagiellonian Institute shows that energy prices are likely to continue to rise in price until the end of the next decade. This will affect Polish companies.

Due to the consumption of electricity required for the production of final products, the currently observed increases in energy prices will be felt most strongly in the chemical sector (Grupa Azoty, Orlen, Lotos, 
Ciech, etc.), metallurgy in both steel and glass plants, electrical machinery industry including the manufacture of means of transportation, cement plants and mining, which further drives the cost of electricity generation.

According to the Institute’s analysts, a not insignificant increase in transportation costs due to rising energy prices for both passenger transport, but especially for freight transport, will be reflected in the costs of other producers, affecting the deterioration of the competitiveness of our economy and worsening inflation indicators.

– The increase in energy prices is a pro-cyclical element intensifying the economic downturn. It is possible that despite the relatively low cost of labor in our country, some producers of energy-intensive industries are relocating production to countries with lower energy costs, they argue.

High prices. How can we help ourselves?

However, the Jagiellonian Institute is finding some way out of this energy matrix.
– A way to optimize the cost of electricity for institutional consumers (businesses, local governments) can be so-called purchasing groups , in which entities with similar intake characteristics appear together as a party in commercial negotiations with trading companies, the Institute’s experts postulate.

However, they add at once that the functioning of purchasing groups as instruments to optimize the cost of energy “is not always fully effective.”

The Union of Entrepreneurs and Employers, on the other hand, suggests that the government should conduct countermeasures as part of the formulation of Poland’s energy policy.

Thus, we draw attention to the need to create a framework and stimulate the formation of energy clusters, i.e. agreements concluded through contracts between locally operating entities that deal 
with the generation, consumption, storage and sale of, among other things, electricity (but also heat, or fuels). 
Investing in distributed energy, as well as improving the regulatory framework for energy clusters (their definition was introduced into our legal order only in mid-2016, so it is - from a legal point of view - a relatively young formula), is becoming necessary for balancing future energy demand - as clusters bring together different energy sectors, and by strengthening 
decentralization of production, storage and supply, they significantly reduce the risk of blackout.  

– At the same time, strive to increase the share of “green” sources in the Polish energy mix, including primarily offshore wind farms, among others. This is a de facto necessity, resulting both from permanent and objective conditions, such as inefficient methods of mining the currently key resource for the Polish energy industry, which is coal, and the growing demand for electricity, with an insufficient number of units producing it, as well as political ones, resulting from the climate regulations adopted at the level of the European Union, says ZPP.

Finally, the Council of Ministers recently adopted a draft law amending the Energy Law. The draft provides for modification of the obligation of power companies to sell generated electricity through the Polish Power Exchange (POLPX). The threshold has been raised from 30 to 100 percent. This is intended to limit possible increases in the price of electricity on the wholesale market that are not due to factors affecting the cost of generation.