This article is part of our special report Funding a just energy transition in Europe.
Financing climate change targets is currently a hot topic on the EU’s agenda, especially in the context of reaching climate neutrality by 2050.
The EU proposes two basic ways to finance its ambitious climate goals. The first is through the Multiannual Financial Framework (MFF) 2021-2027 which sets out the aims, rules, structure and financial means of the EU budget for that period. The second is through sustainable finance, which aims at directing financing from the private sector towards climate change targets.
How do these means compare to the needs of the energy transition in Poland?
To comply with the EU’s ambitious decarbonisation targets, Poland needs massive investment in low-carbon technologies – highly efficient gas-fired plants will gradually be replacing coal-fired generation plants; RES will play a more important role with an expansion of wind power and PVs; and the nuclear power programme could replace lignite-fired capacity in the long-term. In the case of Poland, gas-fired plants are a natural way to replace coal-fired generation plants as it emits about three times less CO2 in comparison to coal, while ensuring the stability of the system. Therefore, gas will help to transform the Polish energy mix in a climate-friendly direction without endangering the security of supply.
However the amount of CAPEX alone which is needed to finance the energy transition in Poland to comply with EU climate policy targets is estimated at ca. EUR 60 billion by 2030 and ca. EUR 140 billion by 2045 according to our recent analysis. This investment challenge is huge taking into account the size of the companies that will be responsible for delivering these investments. Estimates show that the investment potential of the four biggest polish power companies is currently ca. EUR 28 billion which can increase to ca. EUR 48 billion in 2030. This is way below what is needed to finance the energy transition.
One could argue that in such a case financial means for the energy transition could come from the financial markets. However, here the upcoming sustainable finance regulation could become a serious obstacle. One of the issues which will be introduced in the context of sustainable finance is the EU-wide taxonomy, picking which technologies can be regarded as sustainable from an environmental perspective and which cannot. Currently, the position of the European Parliament on taxonomy (also the view of the Technical Expert Group that is assisting the European Commission on this issue) both regard gas and nuclear technologies as not sustainable for different reasons.
Therefore, the energy transition poses a huge challenge for a country with GDP per capita among the lowest in the EU and a share of coal in power generation still close to 80%. That is why as much funding as possible from the MFF 2021-2027 and from the private sector for this transition is needed. These funds should especially be directed towards financing investment into gas-fired plants and into RES. However, the draft legislation on the MFF does not foresee any funds to be spent on crucial power generation technologies enabling Poland to transform its energy mix without endangering its security of supply at the same time.
This means that financing the energy transition in Poland will be very difficult as funds from the MFF for transitional technologies are either not accessible or limited, and funds from the financial markets for such technologies may turn out to be very expensive.
Therefore, the forthcoming EU regulations on the MFF and on sustainable finance should take into account the different starting points of Member States. Applying a “one size fits all approach” and moving directly from coal-fired power generation strictly to a RES-only environment is currently not possible as such an energy system will not be stable, especially given the lack of commercial deployment of storage technologies. This in turn means that we need the financial means for investment in predictable and stable thermal power generation – gas and nuclear – which will substitute coal in the long-term.