Energy & Projects Group
CMS Cameron McKenna
It is estimated that the Polish installed power generation capacity exceeds peak demand by 25-30 per cent. However, this surplus will gradually decrease, as forecasts point to a rapid growth in power consumption over the coming years.
Despite its perceived over-capacity, the Polish energy sector requires urgent modernization. Over 38 per cent of plants are more than 25 years old, with over 22 per cent being more than 35 years old. Only a few of those plants have undergone modernization and lifetime extension investment. About 40 per cent of the plants can be described as relatively modern, less than 20 years old. The modernization problem apart, Polish power stations require significant efficiency improvements in order to achieve western European standards. Transmission and distribution losses amount to about 15 per cent (compared to eight per cent in Western Europe). According to various estimates, the Polish power system investment needs are usually determined to be in the range of $15-20 billion by 2010 or around $2 billion annually.
The guidelines for Polish energy policy through 2020 assume that energy consumption will nearly double in the next 20 years. The generation of electricity in Poland is currently based on coal (approximately 94 per cent), out of which 60 per cent represents hard coal, 2.7 per cent of the energy is generated by hydroelectric facilities and only about 0.5 per cent by gas fired plants.
It is anticipated that natural gas will play a bigger role than it has to date towards the end of the decade, both in the generation of peaking power and in cogeneration plants. According to some estimates, gas will ultimately account for approximately 15 per cent of the generation of electric energy in Poland. This increase in natural gas consumption is in line with one of the government’s primary strategic goals for the energy sector, i.e diversification of the use of fuel. Shifting from coal fired to gas fired power plants should also have a significant beneficial effect on the protection of the environment.
Recently, a 110 MW natural gas fired cogeneration plant was built by Enron in Nowa Sarzyna in southeast Poland. A consortium of French companies is planning to develop a similar plant in Zielona Góra. A major US company is developing a major gas-fired system plant in Northern Poland.
The biggest Polish power plants and the USA’s Hoover Dam power plant
The transmission system consists of approximately 5000 km of 400 kV high voltage lines and 8000 km of 220 kV lines, which are coupled with each other and supply the distribution network through over 90 large substations.
Transmission, security, reliability and balancing is currently carried out by PSE, but this set-up is likely to change
The distribution system in Poland consists of approximately 37 000 km of 110 kV lines and 270 000 km of 15 kV and 20 kV medium voltage lines. The 110 kV lines are linked to lower and medium voltage lines by more than 161 000 substations, which also directly supply large industrial customers, parts of the railway network and municipal customers.
Significant investment is planned in the coming years to upgrade and extend the transmission grid. This is to include the extension of the 400 kV grid, the development of extensions to the existing power plants and the reduction of system losses.
The Polish power sector is divided into three sub-sectors: generation; transmission; and distribution.
The generation subsector consists of 33 large system power plants and cogeneration plants which are dispatched by the central grid operator, as well as smaller cogeneration stations and autogenerators which are linked at the 110 kV level and not dispatched centrally. The power generation subsector represents around 50 per cent of all electricity sector assets. The biggest power plants are: lignite coal-fired Belchatów (installed capacity of 4320 MW), hard coal-fired Kozienice (2785 MW) and lignite coal-fired Turów (2000 MW).
The transmission sector is currently owned and administered by the Polish Power Grid Company (Polskie Sieci Elektroenergetyczne or PSE), which represents approximately ten per cent of the Polish electricity sector assets. PSE is a joint stock company wholly owned by the State Treasury of the Republic of Poland. PSE owns all transmission grid assets, and all shares in the Pumped Storage Power Plants Company (Elektrownie Szczytowo-Pompowe), which provides about 1600 MW of regulating power to the Polish power system. As the owner and operator of the transmission grid, PSE is responsible for the overall security, reliability, and the balancing of power volumes supplied to and from that grid. PSE is the only exporter and importer of electricity in the country.
PSE is also the major purchaser of electricity from generators and the major supplier to the local distribution companies. Approximately 70 per cent of Poland’s electric energy is sold under agreements that PSE signed with power plants during the 1994-1998 period, with the remaining 30 per cent sold competitively. It is expected that, as a part of the process of the nation-wide restructuring of the energy sector, PSE, from being the main electricity purchaser, will become solely a transmission company, and that a separate transmission system operating company will be created. It is also envisaged that electricity will be purchased by end users either directly from power generators, from local distribution companies, or through trading companies. This, however, requires the full implementation of the third party access (TPA) rules, which are due in 2005. At the moment, third party access theoretically covers customers with annual purchases of over 10 GWh per year. This includes 610 customers, who account for 51 per cent of all electricity consumption. Due to technical and other constraints, actual TPA coverage is substantially lower.
The distribution and supply sub-sector consists of 33 local power distribution companies, all of which are joint stock companies. They represent approximately 40 per cent of all Polish electricity sector assets. The distribution companies are divided into four groups, depending on the area of the country that they are servicing. Most companies are still owned by the State Treasury. Only Górnoslaski Zaklad Elektroenergetyczny, the company servicing the Upper Silesia region of Poland has been privatized so far. The process of privatizing eight distribution companies servicing the northern part of Poland the G8 group is continuing, and the privatization of Stoen, the Warsaw distribution company, has been announced.
Currently, the distribution companies purchase most of their power from PSE and distribute power to final customers. It is expected that in the near future the distribution companies will increasingly be purchasing power from various sources on a competitive basis, and that local energy markets will gradually develop. At the same time, it is expected that local distribution companies will take over the current role of PSE in executing power delivery agreements with power generators.
In December 1999, Gielda Energii was established to set up the energy exchange in Poland. It is a consortium of several energy companies, including Endesa of Spain. The Polish Ministry of State Treasury holds a 30 per cent stake. The energy exchange started operation on July 1, 2000. The goal of the exchange is to eventually sell 30 per cent of the electricity in future years
The hourly Balancing Market was introduced by PSE with effect from August 1, 2001. Imbalances on that market are settled hourly, at a price resulting from the balancing offers submitted by the generators and offtakers for a given hour of a given day.
As a future member of the European Union, Poland is expected to meet very strict environmental standards. The implementation of these standards will entail high investment costs in the decade to come. It is estimated that the costs may approximate €30 billion. A significant part of the burden is to be covered by the energy sector. It is obvious that the Polish energy sector cannot satisfy such investment needs without a significant influx of foreign financing. Two principal avenues exist for significant investments in the Polish energy sector privatization and debt financing.
In July 1998, the Economic Committee of the Council of Ministers (the Polish government) adopted a programme of privatizing the energy sector, which was subsequently amended in September 1999. According to the programme, the privatization of the energy sector was to be completed by 2002, with four to five power plants and three to five combined heat and power plants being privatized each year from 2000 to 2002. The privatization of PSE was to commence in 2002. However, significant delays occurred in the implementation of the programme. In March 2001, new rules were established with respect to the amount of shares that would be offered to investors. It was decided that at the first stage of privatization, investors would be able to buy up to 45 per cent of shares in system power plants and heat and power plants, and up to 25 per cent of shares in distribution companies. It was also agreed that, in individual cases, the sale of majority stakes in generation companies was not to be ruled out.
The privatization of the generation sub-sector began in 1999, when 20 per cent of shares in Zespól Elektrowni PAK (with an installed electric capacity of 2340 MW) were bought by the Polish company Elektrim. Recently its stake in this company has risen to almost 40 per cent.
The transformation in the Polish energy sector has attracted many foreign investors. Belgium’s Tractebel acquired a 25 per cent stake of the 1800 MW Elektrownia Polaniec power plant. The consortium of Electricité de France (EDF) and Gas de France bought 45 per cent of shares of Gdansk’s heat and power producer Zespól Elektrocieplowni Wybrzeze (340 MW electric and 1420 MW heat capacity). EDF also holds a 55 per cent share of Elektrocieplownia Kraków (460 MW power and 1460 MW heat capacity), 33 per cent of Elektrownia Rybnik (1760 MW) and 15 per cent of Zespól Elektrocieplowni Wroclaw Kogeneracja in Wroclaw (360 MW electric and 1380 MW heat capacity).
Coal could see its share in generation reduced as natural gas takes a bigger share in the power market
Another French company, Societe Nationale d’Electricite et de Thermique, purchased a 45 per cent stake in Elektrocieplownia Bialystok (173 MW electric and 520 MW heat capacity). German EnBW Energie has a 17 per cent stake in Elektrownia Rybnik.
The US firm PSEG has invested in Elektrownia Skawina (550 MW) and the Germany’s MEAG in Elektrocieplownia Bedzin (82 MW electric and 153 MW heat capacity). Sweden’s Vattenfall is another serious investor in Poland’s energy market with a 55 per cent stake in the largest Polish combined heat and power producer Elektrocieplownie Warszawskie (930 MW electric and 5370 MW heat capacity). The consortium of French Dalkia Termika and Elektrocieplownia Kogeneracja acquired a 45 per cent share in Elektrocieplownia Zielona Góra. Only one distribution company, Górnoslaski Zaklad
Elektroenergetyczny, the company which serves over 1 million industrial, business and household customers in the upper Silesia region of Poland was privatized. About one third of the shares in the company were purchased by Vattenfall. The privatization process of eight distribution companies servicing the area of northern Poland (the G8 group, consisting of eight distribution companies from Gdansk, Torun, Slupsk, Plock, Elblag, Olsztyn, Kalisz and Koszalin) is continuing. The privatization of STOEN, the Warsaw distribution company, has already began.
Polski Koncern Energetyczny, a power concern that accounts for one fifth of the market, is to become a counterbalance for foreign investors. The outfit consists of six power plants (Blachwonia, Laziska, Kolemba, Lagisza, Jaworzno III and Siersza) and two combined heat and power plants (Katowice and Bielsko-Biala).
The process of consolidation is still not finished and new generation companies as well as coal companies are expected to join the concern in the future.
Due to Poland’s government change in October 2001, it is expected that an amended programme of the privatization of the national energy sector will be issued shortly. The ability of the Polish power sector to attract the required level of investment, either through privatization or other means, will depend, in particular on ensuring the efficient operation of the third party access principle and on the creation of a transparent policy with respect to energy prices.