The contribution of the Polish energy sector to the implementation of global climate policy

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The Polish power sector's contribution to global climate policy. [PKEE]

This article is part of our special report After the COP: Where next for climate action?.

The PKEE’s report presents the contribution of the Polish electric power industry to the implementation of the global climate policy. One of its main conclusions points out that despite unfavourable circumstances, including the historical dominance of coal-based technologies, the electric power sector is effectively taking measures aimed at the reduction of CO2 emissions.

PKEE is the Polish Electricity Association.

Poland is an active party to the UN Climate Convention. It implements commitments to reduce CO2 emissions and supports processes of global and international agreements. For the third time, Poland organizes the Conference of the Parties to the Convention – the first UNFCC Climate Summit in Poland was held in 2008 in Poznań, the second in 2013 in Warsaw.

In Poland, since 1990, CO2 emissions have been reduced by around 30%, and the energy sector has the largest share in this reduction. The sector is aware of the challenges of climate protection and is diligently preparing for the further implementation of reduction targets in a way that ensures the balance in needs of those involved or affected by transformation.

Since the beginning of the 1990s, the Polish energy sector is constantly transforming, striving to minimize its impact on the environment. The high share of coal in the structure of electricity and heat generation results in significantly higher costs of transition towards a low-emission economy as compared to other EU countries where the generation structure has been developed in a sustainable manner.

Forecast of the electricity generation structure in selected countries based on EU Reference Scenario 2016 [TWh]

In response to these challenges, energy sector is seeking for additional ways to reduce expenditure and to improve efficiency through the development of innovative technologies. Implementation of a deep transformation of the sector will be a big challenge in the economic and social dimensions, which is why it is important to conduct it in a reasonable and sustainable manner.

The implementation of climate targets for 2030 (at least 40% reduction of CO2 emissions) will require significant efforts with estimated expenditures of about 70 EURbn, with a majority share of investments in the generation sector. It is necessary to seek cost reduction through innovation and investment. Bearing in mind the significance of the issue, Poland aims to actively participate in the formulation of a long-term strategy for the global climate policy, which should allow the implementation of pro-climate measures taking into account global reduction potential in the next decades.

According to Eurelectric’s study results, placing the Polish electricity sector on a pathway towards full carbon neutrality by 2045 would require at least EUR 20bn of additional investments in generation assets alone on top of EUR 128bn required by a close-to carbon neutrality scenario. As the costs of the full carbon neutrality scenario result in EUR 147bn of total investments in generation assets alone, they overlook the costs of stranded assets that would certainly further increase the overall system costs further.

CO2 and pollution emission levels in electricity and heat generation in Poland in relation to 1990 with a forecast up to 2050 in scenarios of 50% and 80% reduction of CO2 emissions in comparison with 2005 [%]

Polish energy sector has been undergoing a transformation for thirty years now. Organizational structures have changed to more effective, market conditions in the sector have been implemented, significant modernizations have been carried out and generation technologies have changed to be more environmentally friendly. As a result, CO2 and pollutant emissions were significantly reduced.

The energy sector has had a key impact on the implementation of Polish climate objectives resulting from the Kyoto Protocol. Effects of further actions will depend on the pace of economic development and the final reduction targets for the next decades. In following years, the energy sector will still have a key role in achieving reduction targets. The sector is aware of the challenges it faces and is diligently preparing for the further implementation of the transformation in a way that ensures the balance of interests of those involved or affected by transformation.

Estimated investment potential of energy companies in Poland taking into account the introduction of a capacity market and limited dividend policy in comparison to the investment needs of the sector (assuming 40% CO2 emission reduction target in 2030), indicates that the gap can reach at least 20 EURbn. This gap will have to be covered by investors from outside of the sector and through support from aid funds, including support from European Union funds.

At the same time, Polish energy sector will maintain the efforts to reduce energy and power shortages by innovative solution, investment process optimization and investment risk reduction, which may result in the reduction of necessary spending or generation of additional investment capacity.

In this context, effective planning and a reliable approach of the sector to the problem of energy transformation is crucial, as the implementation of such broad measures will require significant efforts which will have a long-term impact both on the sector and the entire economy.

The “Contribution of the Polish energy sector to the implementation of global climate policy” report was developed by the PKEE in collaboration with Ernst & Young Business Advisory.

Full report available for download here.

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