Elements of Market Design for Poland
Both the European power sector at large and the Polish power sector in particular are at a pivotal moment. Power systems are in transition, driven by commitments to continuing emissions reductions, growing penetration of renewables, and the need to provide affordable and reliable power. The Polish power system 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).
This paper identifies the first steps that policymakers can take towards improving system reliability and flexibility through reforms to Poland’s energy market. These include increasing cross-border flows of energy along existing interconnectors, mobilizing demand response, and aligning retail price signals with wholesale markets. Addressing price distortions in the energy market by restoring a healthy balance between supply and demand, allowing for full scarcity pricing in the balancing market, and addressing the operating reserve will also be required to address the challenges facing Poland’s power system.