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Poland: Recent Developments on the Energy Market

Poland: Recent Developments on the Energy Market

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Recent global events, in particular the Russian aggression against Ukraine and subsequent restrictions on the supply of fuel (including coal, oil, and gas), have negatively impacted not only the Polish but the global energy market.

At the beginning of this year, all energy consumers in Poland experienced a price hike in energy and fuel tariffs. This was mainly the result of adjusting tariffs to the costs of production and distribution, as well as necessary investments. The increase in electricity tariffs for households was above 35%, while in gas tariffs, over 50%.

Additionally, the war in Ukraine affected the Polish energy market causing further price hikes. Since the beginning of the war (February 2022), the price of fuel at petrol stations has increased by more than 35% – the highest increase in Europe. The price of coal has increased even more, which negatively impacted power plants and electricity pricing. The average price of electricity for the first quarter of 2022, based on bilateral contracts, was over PLN 460 per megawatt-hour (i.e., EUR 100 per megawatt-hour). The current average electricity price since the beginning of 2022 is around PLN 700 per megawatt-hour (i.e., EUR 150 per megawatt-hour), with the most recent prices (as of May 2022) landing above PLN 1000 per megawatt-hour (i.e., EUR 220 per megawatt-hour). The above circumstances, combined with a rise in the price of the carbon dioxide allowance, will result in further increases of electricity prices – the forecast for 2023 is that the consumer tariff on electricity will rise by more than 50%.

These high prices of fuels and electricity most certainly impact the entire economy negatively, including production, logistics, and transportation and, thus, contribute to rising inflation.

The current energy crisis has once again demonstrated the need for the continuous development of the energy sector and its decarbonization and modernization. Breaking off the supply of energy resources by Russia, in response to the involvement of countries in the region in supporting Ukraine, has forced us to search for alternative sources of energy. New possibilities of importing energy resources are opening up – through, for instance, the Baltic Pipe – and attention has also been drawn to the importance of renewable energy sources, which will make it possible to achieve full energy independence.

The Baltic Pipe will constitute an alternative to Russian gas by connecting Scandinavian suppliers with Poland and other European markets. From 2023, it is expected that it will transport 1.1 million cubic meters of gas per hour. The role of the (recently expanded) LNG terminal in the coastal town of Swinoujscie may also significantly increase. The booked capacity for 2022 will reach 6.2 billion cubic meters, while from 2024 it will rise to 8.3 billion cubic meters.

In relation to renewable energy sources, the Polish government has launched a new tender for offshore wind projects. The energy sector also expects a reduction of certain restrictions, imposed some years ago, on the development of onshore wind farms by the so-called Distance Act, imposing restrictive distance requirements, eliminating the majority of pre-developed projects from the market, and blocking almost 97% of the potential area. In April 2022, the Polish government disclosed that it intended to accelerate work on the amendment to the Distance Act, to decrease distance requirements and, thus, support onshore wind project development. The draft of the amendment is expected to be submitted to the Polish parliament in June 2022, with the intention of being adopted and coming into force by the end of 2022.

The boom in the development of solar power plants will also continue. However, the main factor which might negatively affect the development of renewable energy is the limited grid capacity, alongside balancing issues. The electricity system and network require a huge investment to allow for the connection of new renewable installations. Since 2021, certain grid operators have started to reduce the number of granted grid connection conditions and reject the execution of final grid connection agreements, based on various unjustified reasons. Therefore, if the Polish government wants to effectively support the development of renewable energy sources, the issues relating to the improvement of the electricity network must be addressed.

The above factors will lead to a significant acceleration of the energy transition process in Poland and Europe. These processes overlap with legislative changes relating to RES, which may be important for the growing popularity of this form of energy generation. And they will also affect consumer behavior, including investments into more energy-efficient devices, cars, buildings, and other power-saving solutions.

By Agnieszka Koniewicz, Partner, Penteris

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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