Polish power system without Turów

Executive summary

  • The CJEU’s (Court of Justice of the European Union) decision to halt lignite mining in Turów will not compromise the Polish power system, even if the Turów power plant is closed
  • Turów generates only 3.3% of Poland’s electricity, with just 40% utilitzation and the production having decreased by 28% in the last 5 years
  • Shutting down the Turów power plant would not endanger Poland’s energy security – the system could still be balanced even with no imports allowed
  • In the most likely scenario, closing Turów results in a minor price increase of 1.8%, a 11.5% increase in imports and a 0.6% reduction in yearly CO2 emissions
  • If ETS prices reach 60 EUR/t, the short-run marginal costs for even the newly opened Turów unit 11 will be higher than for new hard coal units

The European Union is sending a clear signal that Poland’s disrespect for both national law and international relations, as well as the unwillingness to propose just transition scenarios for coal regions, will have dire consequences. It is not true (as claimed by PGE and the Polish government), that shutting down Turów will pose a threat to the country’s energy security. It will however have a dramatic impact on the local job market. A responsible coal phaseout path is therefore needed asap.

The methodology behind the power system modelling is described in Instrat’s recent report.

Background

On May 21st, 2021, the Court of Justice of the European Union ordered Poland to halt lignite mining in the Turów mine operated by state-run PGE. This also means the likely closure of the Turów power plant. The decision constitutes an interm measure in a lawsuit filed by the Czech Republic against the extension of Turów’s mining permit until 2026. With complete denial of the lawsuit proceedings and raising doubts about the incomplete environmental impact assessment, on April 29th, Poland’s Ministry of Climate and Environment prolonged the permit even further – until 2044. This not only triggered the CJEU to call for interim measures, but also received negative feedback from the European Commission – the region will most likely not receive money from the Just Transition Fund. The incompetence of the Polish government and PGE could lead to a complete collapse of the local economy, with no transformation plans prepared, no green investments possible, and jobs decreasing quickly in the coal plant and mine.

The incompetence goes far beyond that. Knowing about the declining economics of coal and the issues with the mining permit, just a week before CJEU’s ruling, PGE opened a new 496 MW unit in the Turów power plant. The unit cost PLN 4.3 billion, EUR 0.96 billion, and will likely run at an operating loss from day one, existing only thanks to state aid (via the capacity mechanism).

Finally, PGE is aggressively campaigning to continue burning coal in Turów until 2044 while planning to transfer the coal plant and mine to a state-run agency (NABE) already in 2022. This means that the negative financial and social impacts of Turów will be taken over by the state – the taxpayers.

Turów’s role in the energy mix

Despite the bold claims by PGE and government officials, Turów’s role in the Polish power mix is minor. Turów produced 3.3% of the country’s electricity in 2020. Production in the power plant decreased by 28% in the last 5 years and the plant runs at only 40% utilization. Turów emitted 5.5 millon tons of CO2 in 2019, with the emissivity of 890-1016 kgCO2/MWh depending on unit.

Energy security impacts of Turów’s closure

With the capacity increased to 2 GW, Turów is still a small piece of Poland’s installed capacity. Taking into account the closures planned for 2021 (Dolna Odra, Łagisza, Łaziska, Pątnów, Siersza, Stalowa Wola), the dispatchable capacity of hard coal, lignite, biomass, biogas and hydro run-of-river units is 26.2 GW (excluding Turów). On top of that, the TSO has access to 8.1 GW of combined heat-and-power plants (with limited utilization in the summer), 1.7 GW of hydro pumped storage, 0.8 GW of demand-side-response, around 4.6 GW of imports and finally, 10.9 GW of constantly increasing wind and solar capacity. With peak load values in the summer reaching a maximum of 23-24 GW, even taking into account the availability of certain units and generation technologies, the system is perfectly capable of handling Turów’s absence. Any claims about this causing blackouts are nonsense.

This is not to say that the Polish electricity system is in good shape – just a couple days ago (May 17th), 3.6 GW of capacity were lost due to a failure of a transformer station near Bełchatów. Later that week, a failure in the power plant itself caused the 858 MW unit to shut down. In June 2020, another failure in Bełchatów almost led to a blackout. This shows that any potential issues with electricity supply are caused by the Polish government’s flawed policies and the energy utility’s unwillingness to invest in renewables, certainly not the CJEU’s ruling.

Using the PyPSA-PL model described in Instrat’s recent report, an assessment of the impacts of Turów’s closure on the power system was performed. Two scenarios were evaluated – one with electricity imports and one without. In the latter (which is impossible in the EU’s shared electricity market), the system was still able to balance itself after Turów’s closure without a substantial price increase. However, the results show a massive spike in CO2 emissions (by 10%) due to the inclusion of old and highly-emissive coal and lignite units.

The most probable scenario with imports shows that Turów’s closure will not lead to a revolution in the power system. Prices increase by just 1.8%. Imports increase by 11.5% (1.9 TWh). A slight reduction of CO2 emissions is achieved (0.6%) thanks to the replacement of Turów with imports from countries with lower average emissivity.

It is worth noting, that a long term solution for Turów with an expected decommissioning date in 2026 was already proposed by Instrat. This solution is also compatible with the EU GHG-55% targets for 2030.

Financial considerations

The low impact of Turów’s closure on electricity prices might come at a surprise. However, with Poland’s wholesale energy prices being the highest in the EU, the increase in imports caused by Turów’s shutdown is generally economically beneficial to energy consumers.

Historically, lignite power plants, specifically Turów, were the cheapest conventional generation units in Poland. However, with ETS prices over 50 EUR/t, this is starting to change. At 60 EUR/tCO2, the newly built unit 11 in Turów becomes more expensive that the hard coal units in Jaworzno, Kozienice, Opole. In the future, the economics of lignite electricity will keep declining due to the higher average emissivity and their utilization will keep dropping.

In April 2021, the yearly BASE contracts for 2022 traded at 308 PLN/MWh. The SRMC for Turów unit 11 is around 280 PLN/MWh at ETS 50 EUR/t, but as high as 319 PLN/MWh at ETS 60 EUR/t. This means that even the newly opened Turów unit is struggling to generate positive operating margins in the current ETS situation, with units 1-5 substantially more expensive to run. Turów receives capacity payments that cover the fixed costs with a premium (240 PLN/kW capacity payments, around 200 PLN/kW of fixed costs) but with such a tight operating margin, even this might not be enough to ensure long term profitability (assuming consumer prices are not increased dramatically).

It is hard to comprehend the number of bad decisions made by the Polish government in the Turów case. The potential shut down of the mine and power plant in response to the CJEU’s ruling will however not affect energy security nor energy consumers negatively. Of course, the effects on the local job market are a different discussion and should be adressed, also through the declaration of a coal phaseout date to allow the region’s participation in the just transition process.

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