← All news

Soaring carbon prices proves problematic in Poland

Monday, 13 September 2021

The carbon price in Europe has been on the rise this year which according to Polish utilities and the Polish government has proved to be problematic amid fears of its impact on already rising power prices. 

The EU Emissions Trading Scheme (EU ETS) works on a "cap-and-trade" principle whereby it sets a cap on the total amount of Greenhouse Gas (GHGs) emissions that can be emitted annually by entities covered under the system.  The system also aims at putting a price on carbon emissions to encourage a faster energy transition within the bloc that aims to reach carbon neutrality by 2050.  

Rising electricity prices

Greenfact recently published how the carbon price set a new record soaring above €60 which is double than the prices witnessed at the beginning of this year. The EUA futures price was at €60.92 last week on 10 September 2021. This sharp increase in carbon price has been becoming increasingly difficult for carbon reliant countries like Poland who generates about 70% of their electricity from carbon-intensive coal. 

Additionally, these rising carbon prices combined with tight gas supplies in Europe and rising coal prices due to increasing demand in Asia have all made it uneconomical for operators to switch to gas instead of coal, leading to higher power prices.

In an interview with RMF FM, Prime Minister Mateusz Morawiecki when asked about rising electricity prices in Poland said "We have a very expensive climate policy of the European Union here" 

"Today, the prices of CO2 emission allowances oscillate around EUR 50, they are very expensive. It is the cost of the European Union policy, the cost of the climate policy will be in the clients' bills. Then energy companies take this cost of the European Union, submit tariff proposals to an independent regulator and if we do interference with this regulator would be a violation of the provisions," further explained Morawiecki.

This isn't the first time that Poland has experienced this problem. In 2019, skyrocketing coal prices prompted the government to freeze electricity prices at 2018 levels. That freeze ended in 2020, with the government promising to refund customers for any price increase; a pledge that still hasn't been fulfilled.

Power utilities are now reportedly planning on asking for a price increase of as much as 40% of which Morawiecki responded saying that this was a "scare tactic" that would not be approved.  However, it is clear that prices will still rise and the Polish energy market regulator estimates that they have already risen by about 10% this year with further increases likely next year.

Poland isn't the only country to voice its concerns over rising prices as Spain has also expressed its worries over escalating carbon prices and mounting pressure from citizens to control power prices. Similar tensions are also experienced in Portugal and many other countries within the bloc.

High pressure on Polish utilities to accelerate the energy transition

Poland's largest energy company, the state-owned PGE, spent about 2 billion złoty (€440 million) to cover the cost of CO2 permits in Q1 2021, this increased by 22% compared to the same period in 2020 according to the company's financial statements. 

"In the longer run, PGE and other Polish state-run power companies have little choice but to invest more in low-carbon electricity generation," said Lidia Wojtal, climate, and energy policy expert at Berlin-based think tank Agora Energiewende and a former Polish negotiator at U.N. climate summits.

Last year PGE announced its plans to expand its renewable capacity by 50% by 2030 and to reach carbon neutrality by 2050 with plans of spending 75 billion złoty for going low-carbon by the end of this decade.

 “Judging by the plans of Poland’s biggest energy companies and their willingness to get rid of their coal assets and invest in renewable energy the EU ETS has worked as expected,” Wojtal said. “However, most of these decisions came only last year, when they should have been taken at least a decade ago. This means that this inevitable transformation not only needs to now accelerate at a greater pace but will also be more complex and expensive than necessary.”

In 2020, Poland cancelled a project to build a coal-fired power plant due to it becoming impossible to finance. The Polish government's current coal phase-out plan aims to reduce coal to between 37-56%  of generation by 2030 depending on the EU ETS price. By 2040, coal is supposed to account for between 11-28% of power generation. 

Steadily increasing carbon prices, as well as soaring international gas prices, also spell trouble for gas-fired electricity, which Poland assumes will generate between 17 percent and 33 percent of the country's power by 2030.

“This could be an incentive to hasten the energy transformation toward a zero-emission economy. This price, however, means that even gas-powered electricity generation may not be economically viable,” said Marcin Kowalczyk, head of climate at WWF Poland, an environmental NGO.

Greenfact covers the green certificate markets in Europe, offering pricing data as well as industry/legislative updates. Get in contact with us to find out more!