The Polish power sector is at a pivotal moment. It faces a number of challenges stemming from the profile of its power system, rising demand for power during summer peaks, and increasing penetration of renewable resources on the system. Its largely homogenous fleet of inflexible, aging thermal plants struggles to meet system needs during times of highest system stress despite a high reserve margin (18 percent). European climate, environmental, and energy policies; the decreasing competitiveness of domestic coal; the need to retire a significant portion of the conventional power fleet; and the rising competitiveness of renewable resources are also driving major changes in the industry.
Significant investments are needed to replace aging power plants and to modernize old transmission and distribution infrastructure. The share of variable renewable resources, particularly wind, is expected to continue to rise, changing the profile of the power fleet. Significant potential exists to mobilize flexible alternatives to cost-effectively meet the needs of a more dynamic system.
To date, only 200 MW of demand response have been contracted by the transmission system operator—much less than is potentially available. In 2014, only about 20 percent of available interconnector capacity with neighboring countries was utilized. Yet there exists significant potential to increase the role of end-use energy efficiency, demand response, and cross-border interconnections in meeting Poland’s changing system needs.
The question of how Poland will transition from today’s power sector to a system capable of meeting climate and energy goals reliably and affordably in the next 10 to 20 years has several dimensions. Oftentimes, the question focuses on what the future fuel and technology mix should be in the power system; however, this question can only be answered alongside detailed consideration of the following:
- What are Poland’s reliability needs today and in the future, taking into account the role of interconnectors and demand response in securing reliable system operations?
- What is the role of end-use energy efficiency in shaping demand?
- What combination of supply- and demand- side resources, including resources available from neighbouring power systems, can ensure system adequacy at lowest overall cost to consumers?
- What combination of resource capabilities is needed to secure reliable system operation at all times of year, including during times of greatest system stress?
- How is legislation on air quality and greenhouse gas emissions likely to affect the relative competitiveness of different resources in the mix?
- How must the Polish power market evolve to secure a reliable, affordable energy mix, taking into account the evolving shape of the Internal Energy Market in Europe and the broader trends affecting the power sector?
RAP’s work, carried out in conjunction with the Forum for Energy Analysis (FAE), addresses these fundamental questions. RAP’s policy papers, briefing notes, and presentations address different aspects of resource adequacy, market design, and Polish and European dimensions of energy policy. The analyses draw on RAP’s broader expertise and experience with market design in Europe and the United States, and apply lessons learned and best practices to the Polish context.
Ensuring reliability of the Polish power system requires immediate action to address current problems, as well as a longer-term plan to secure reliable system operations over time. The most pressing need is to ensure the right mix of resources to respond to capacity constraints in summer, as illustrated by the emergency curtailment of power to 1,600 commercial and industrial customers in August 2015.
As the FAE analysis of the resource deficit explains, emergency measures were necessitated by insufficient capabilities to meet peak summer load under particularly hot, dry conditions, rather than a lack of pure “capacity.” Elements of Market Design for Poland (Elementy Nowej Organizacji Rynku Energii W Polsce) analyzes the physical and market conditions on the Polish power system, and provides options for a least-cost approach to securing system reliability both in the near term and over time through market reforms. Initial steps to put Poland on a path to fully competitive, interconnected markets that stimulate investment in the optimal mix of supply- and demand-side resources include:
- Remove market barriers to demand response, and enable its participation alongside supply resources in power markets;
- Complete market coupling with neighboring countries;
- Utilize phase shifters on the Polish-German border to expand commercial power flows;
- Develop a plan to enable old, uneconomic resources to exit the system while creating a competitive environment for development of new resources;
- Reassess the purpose and design of the operating reserve, which currently raises costs to consumers without ensuring reliable systems operations during summer peaks;
- Lift price caps in the energy and balancing markets to enable full scarcity pricing, which is essential to driving investment; and
- Eliminate the lower distribution fees in summer, which give affected consumers an incentive to use more (rather than less) energy during summer peaks.
As policymakers consider whether to introduce a capacity remuneration mechanism to address resource adequacy concerns in Poland, RAP developed lessons learned from the Great Britain capacity market to inform the debate. Capacity Market Arrangements in Great Britain concludes that when considering a capacity remuneration mechanism, Poland should ensure that it first assesses resource adequacy accurately. This means taking into account all available resources—demand-side resources, cross-border interconnections, and plant availability. Moreover, before deciding on a capacity mechanism, it is critical to identify the problem and select the least cost solution. If a capacity mechanism is introduced, it is important to treat demand-side resources on equal footing with supply-side resources.
RAP’s work on elements of market reform includes further analysis of the potential for demand response to meet system needs, and on the role of transparency in empowering consumers and stimulating demand-side participation in the power system. RAP continues to work on these and other fundamental aspects of markets and market design as Poland moves to develop a longer-term energy strategy and to comply with European rules on power market reform and energy, climate, and environmental policy.
RAP regularly leads discussions within the FAE’s Expert Panel, a gathering of prominent Polish experts representing the energy sector, including business, think tanks, government officials, and business and nongovernmental organisations.