Power is still an important resource

The European power system is facing a serious adequacy challenge. This issue cannot be marginalised if constant access to electricity is to remain guaranteed. 

Member States are closing power plants…

The European power sector is changing very fast. The energy sector has become a greenhouse gas reduction leader in order to enable the achievement of the EU climate goals. However, its main responsibility is still the same – delivering electricity to customers in an uninterrupted and safe way, and at acceptable and reasonable prices. This is why adequate capacity of the power system is so important. The threat of inadequacy is a result of decommissioning of significant amounts of capacity from the European power system. For instance, Germany and Belgium are closing nuclear power plants, while many Member States are phasing out coal. In consequence, many EU countries may face threats to their security of supply.

Phasing coal out is an enormous challenge for Poland as coal-fired power plants still account for more than 70% of the energy mix. The transition process should be carried out gradually and cost-effectively in order to ensure security of supply to end-users.

…so new adequacy resources are needed

In Poland, the biggest energy companies are developing wind and photovoltaic projects on a large scale. Nonetheless, due to the current technical limitations, weather-dependent sources cannot resolve all problems with adequacy during demand peaks. A modern power system needs flexible, complementary solutions such as electricity storage, demand-side response or hydrogen. The role of these measures will continue to increase.

Nevertheless, technologies such as large-scale electricity storage and using surplus volumes of electricity to produce green hydrogen are currently at a too early stage to be able to underpin the important issue of ensuring generation adequacy. If it turns out that they do not live up to the expectations, many Member States may be threatened with power shortages. To keep an appropriate level of security of supply, capacity which is removed from the system must be simultaneously replaced by new, stable, flexible and efficient low-emission sources.

Without natural gas and nuclear power, the transformation of the energy sector will be impossible. These facilities play a key role in the Polish energy strategy. Natural gas is a transitional fuel, especially important in the short and medium term, while nuclear power units may provide zero-emission electricity in the long term.

Fit for adequacy issues

The “Fit for 55” legislative package has been proposed to achieve EU climate goals, but it is also a great opportunity to help resolve adequacy issues. To enable this, some improvements are necessary. 

Firstly, the EU ETS. Extremely high prices of ETS allowances not only increase electricity prices, but are also burdensome for energy companies and result in a lack of money for new green investments. A market speculation of financial institutions on the EU ETS market, leading to the surge in the allowances price, must be properly analysed and addressed in the ongoing EU ETS revision.

Also, problems with the imbalance between CO2 emission allowances allocated to a Member State and allowances that installations operating in that country must acquire, should be resolved in a fair way. The entire system also needs to be more predictable. As investment processes in the energy sector are cost-intensive and lengthy, it is necessary to avoid sharp increases in the price of allowances. To facilitate the uptake of new low-emission sources natural gas investments need to continue to be eligible for funding under the Modernisation Fund and at the same time, the Fund should be increased proportionally to new climate ambition.

Secondly, combined heat and power plants (CHPs). CHPs play a crucial role in the Polish heating system – they are responsible for almost two-thirds of total heat production. CHPs are also very important for the Polish National Power System – currently around 16% of electricity supplied to the system comes from these units thus improving security of supply. Many analyses indicate that it is necessary to deploy new gas-fired CHP plants in Poland in order to avoid adequacy problems.

However, new very strict rules for CHPs and efficient district heating systems proposed in the Energy Efficiency Directive recast, might in practice impede the development of these installations or replacement of existing carbon sources with low-emission ones. Additional burden is imposed by the increased taxation of natural gas proposed in the revision of the Energy Taxation Directive.

Lack of capacity in the European power system is a real threat, so decision makers should not miss the chance to support measures which are essential for ensuring the appropriate level of security of supply.