Opinion: Poland’s false sense of energy security

Poland has canceled its ten-year gas supply deal with Russia six months earlier, a month after Gazprom halted flows following Warsaw’s refusal to pay in roubles. Poland has been preparing for this moment for many years. The country’s energy balances are expected to remain healthy through next winter, thanks to timely replenishment of gas storage and diversification of gas supply. Poland’s energy security seems well thought out.

The country’s ability to move away from Russian gas has been hailed as an example of the energy independence Eastern European countries can achieve by building new gas import infrastructure. Days before Russia invaded Ukraine, Polish Deputy Prime Minister Jacek Sasin warned that the threat of a cut was “absolutely real”, but assured that Poland was better prepared than “other countries which are heavily dependent on Russian gas, such as Germany”.

An aerial view of tall chimneys at the Kozienice coal power plant in Poland. (Photo by CameraCraft via Shutterstock)

His words turned out to be prescient. Since the invasion, Gazprom has turned off the taps to Finland, Bulgaria and Poland, and warned against cutting flows to Germany and others in a bid to force the issue over ruble payments . The impact on Poland could have been severe. Russian gas accounted for 45% of Poland’s gross gas imports in 2020, and another 17% came from reverse flows from Germany – which itself depends on Russia for more than half of its gas supply.

LNG to the rescue

As the rest of Europe struggled to prevent gas stocks from running down to critical levels, Poland increased imports of liquefied natural gas (LNG) through the Świnoujście LNG terminal to replenish gas stocks at 90% as of May 19, well above seasonal norms.

The country has an additional supply buffer from Norway’s Baltic Pipe, which will ship up to ten billion cubic meters (bcm) per year of North Sea gas to Poland when it comes online in October 2022. With slowing gas demand in the face of structurally high prices, Polish gas company PGNiG don’t even expect having to use the Baltic Pipe at full capacity.

Even without Russian gas flows, Poland is doing well and could enjoy a small gas surplus in 2023, according to consultancy firm Aurora Energy Research. This surplus of 0.2 billion cubic meters refers to Poland’s ability to meet demand through direct supply sources – LNG terminals, Baltic Pipe and domestic production.

However, the outlook will change rapidly as growing electricity demand and coal-fired plant shutdowns tip the balance towards a deficit as early as 2024. This could precipitate a power capacity deficit from 2026, ending the Poland’s energy security honeymoon, according to Aurora modelling.

Gas deficit

Poland is expected to shut down about half of its operational coal-fired capacity this decade, from the current 19.7 GW to 4.6 GW by 2030. Some of this capacity will be replaced by switching from coal to gas. Natural gas-fired power generation capacity is expected to increase from 4 GW today to 11 GW by 2030 with the commissioning of new combined heat and power (CHP) units, gas turbines combined cycle (CCGT) and smaller flexible units.

However, this will not be enough. The electricity sector’s peak demand for dispatchable capacity increases steadily from 27 GW to 29 GW during this decade. Poland’s capacity shortfall – the shortfall in dispatchable capacity needed to keep the lights on when demand is highest and renewables aren’t producing – will grow from 5 GW in 2027 to 11 GW in 2029, and possibly- be 17 GW in 2035.

Aurora expects gas plants to be the natural backstop for the capacity shortfall. However, its researchers see the potential that only an additional 7 GW of new-build gas capacity will be economically viable in this decade.

In addition, these factories must be powered by, yes, gas. Poland’s ‘comfortable’ gas supply buffer will quickly shrink if 18 GW of new capacity comes online.

Without Russian supplies or dependence on its neighbors, Poland’s gas balance will tip towards a deficit of 2.8 billion cubic meters in 2024, calculates Aurora. This will rise to 11.2 billion cubic meters in 2026 unless the second of two planned 6 billion cubic meter floating LNG import terminals is built in Gdansk. Without the second facility in Gdansk, the gas deficit could reach 12.9 billion m3 in 2030 and 14.5 billion m3 in 2035.

Unnecessary coal extensions

Warsaw plans to extend the operating life of old coal-fired power plants. A program of subsidies and plant renovations could keep total coal capacity at 12GW in 2030, Aurora says, but that won’t help Poland’s energy security much, as many aging 200MW units are so expensive to operate that they would be prohibitively expensive. .

Even if Russian gas flows to Europe are completely cut off by 2025 and gas prices remain structurally high in the EU, only modern lignite and coal-fired power plants would replace CCGTs in order of merit .

“The 200 MW units are a class of units that were built in the 1970s and are units in power plants such as Rybnik, Polaniec, Kozienice,” says Filip Piasecki, senior partner Poland at Aurora. “We have shown the short-run marginal cost of the most efficient of them; the others would have even higher costs. Instead, we say that the best 200 MW units are more expensive than the different technology classes.

“Extension of the old coal-fired power stations [the power mix] is not effective in displacing gas production due to unfavorable economic conditions. In addition, long-lived OCGTs [open-cycle gas turbines] can ensure security of supply at lower cost, even with a supposed conversion to hydrogen.

Renewable energy is not a silver bullet

Increased ambition for renewable energy is the most effective way to reduce gas consumption and could reduce the gas deficit but not eliminate it. In the central case of Aurora, Poland’s renewable energy production will reach 117 terawatt hours (TWh) in 2035, representing 59% of the energy mix. Accelerating deployment to reach 164 TWh, or 77%, by the same date would reduce electricity sector gas consumption by 29 TWh, or 36%. This equates to a gas saving of more than 5 billion cm3.

This amount of renewable energy penetration would cause onshore wind farms to shrink by as much as 10%, so going beyond 77% market share would have little effect without “additional system flexibility,” Aurora says. This includes the mass deployment of batteries, electric vehicles (EVs) and electrolyzers to produce green hydrogen from excess renewable energy.

The Green Hydrogen Compromise

Poland currently consumes 50 TWh of gas to produce 43 TWh of gray hydrogen, the carbon-intensive variety derived from relentless steam methane reforming (SMR). Electrolyzers could be particularly useful as they both enable renewable energy and displace gas consumption in the industrial sector.

Each gigawatt of electrolyzer capacity could reduce Poland’s annual gas demand by 0.4 billion cubic meters at a 34% load factor, according to Aurora. “The electrolysers operate flexibly when prices are low, better integrating renewables rather than increasing gas production,” says Piasecki.

Poland aims to reach 2 GW of ‘low-emission’, technology-neutral hydrogen production capacity by 2030, but simply decarbonising existing production with carbon capture (blue hydrogen) does not would do anything to reduce the gas deficit.

The downside is that electrolysis adds to Poland’s electricity demand because it uses grid power, effectively shifting hydrogen energy demand from gas for SMR to electricity. Although this is positive for reducing the gas deficit, it requires more electricity production to avoid widening the capacity deficit.

Warsaw’s nuclear dreams

In the longer term, Poland is counting on the commissioning of its first conventional nuclear power plant in 2033, with a nuclear capacity of up to 6 to 9 GW by 2043 and representing 10% of production. The nuclear industry is prone to decades-long delays and exorbitant cost overruns, but even if those schedules are met, it will not help close the impending gas shortfall.

It is possible that a 924 MW small modular reactor (SMR) of American design will be deployed in a Polish copper and silver production facility as early as 2029. SMRs are not commercially proven, they therefore carry their own risks, although the concept holds promise as a quick fix. -to deploy a zero-emission power source.

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Accelerated SMRs and conventional nuclear are among the measures Warsaw is pursuing in its “all of the above” approach to wartime energy security. Poland was already aiming for a 30% reduction in greenhouse gas emissions by 2030 through nuclear construction and the deployment of offshore wind power.

Renewable energy ambitions are now increased to 50% of electricity production by 2040 – significant, but still well below the 59% penetration by 2035 in the central case of Aurora – lawmakers considering raising an existing offshore wind target of 11 GW and considering measures to facilitate the development of onshore wind.

Don’t forget about energy efficiency

Other initiatives aimed at bolstering Poland’s energy security include greater LNG import capacity, green hydrogen and – perhaps most importantly – a push to reduce demand via fuel efficiency improvements. energetic efficiency.

“Energy efficiency measures will be a key source of demand reduction in industry and the residential sector,” Aurora’s Piasecki says. “Alongside the energy sector, a shift from coal-fired to gas-fired generation is expected in district heating, where around half of the heat demand is met by heat-only boilers. This will make it particularly important to reduce residential heating demand through energy efficiency measures.

Unlike most EU countries, Poland gave itself time to implement its energy security strategy by taking seriously the risk of a Russian cutoff in the years following the annexation of Crimea in 2014. Much of the EU is in a more precarious energy situation and will be watching Poland’s progress closely. If Poland fails to make up the shortfall and ends up buying spot gas volumes from Russia to keep the lights on in a few years, there is little hope that Germany, Italy or other major European economies are doing better.

Edward N. Arrington