This interview with TPA partner & Energy expert Wojciech Sztuba was published on Investment Reports.
A large part of TPA’s work in Poland is focused on the power sector. What is driving your interest in this market?
Wojciech Sztuba: For a long time Poland has been the cheapest power producer in Europe. Our generation mix is, however, very old fashioned. About 80% of it relies on coal and now that CO2 emission prices have increased (and there are no signs that things will be any different in the years to come) the scale of investments needed to stay competitive is immense.
We are now at a point where we need to accept that Polish economy will be affected unless we react to this change. We are noticing great appetite from private investors to venture into renewable energy, but there is also a need to restructure the conventional power generation blocks.
We at TPA Poland have experience in assisting both power generators, distributors and grid operators in various breakthroughs the industry went through in the past. I am sure the challenge the sector is facing now is of that kind, that our competences are going to be more and more needed.
What is more specifically the vision for these “old fashioned” capacities? Are there any plans to upgrade their technology for instance?
Until recently Poland was on its way to upgrade old coal-based generation blocks replacing the old ones with the most modern technology, but still based on coal. This did neither take into consideration the firm and increasing economical and political pressure on more radical reduction of CO2 emission, nor the exponential pace of production efficiency among renewable technologies. Poland will surely have to open up more for renewables, but needs also to assure the maintenance of reasonable baseload generation. Hence, thee likely future approach is switching the part of the coal-based production to gas, the benefit being that coal generation units can be adapted with relative ease to gas.
Given the high proportion coal still plays in our mix, we cannot realistically assume that we will switch entirely to gas and renewables, it is just not possible. The coal-fired generation will have to remain the part of our production portfolio for decades, but the sooner alternative baseload plants will be in a position to replace parts of it, the better it will be for our economy (not mentioning the climate).
What is the situation of renewable energy at present, in terms of pace of development?
It should be developing much faster but there are aspects right now that generate optimism. For instance the government has changed its views on offshore wind generation, there seems to be now a green light for this sector. Two main projects are in an advanced stage of development and a few others are following suit. At least 2 GW should be up and running in the next six to eight years.
Since there is no political obstacle we expect that the required legislation will also fall into place soon. The generation costs for offshore wind are still high which means a public support scheme will need to be put forward. In the long term we should have between 6-9 GW on the sea as part of our generation mix, on top of what we will be producing onshore.
By comparison solar energy seems to be in a great position, recently having gained growing momentum?
Precisely, the PV market is truly vibrant. There has been an influx of investors, many are in fact wind developers that have switched gears. This is good news because they are often experienced professionals that can quickly provide high quality projects.
The reason this sector is so dynamic is primarily the grid parity phenomenon that is to appear much sooner than expected. Energy prices are rising (a trend that we expect will hold in the next 5-6 years) and PV generation costs per unit are rapidly decreasing, so in few years auctions will likely no longer be needed for PV.
A very attractive tool in the meantime are corporate PPAs. This is a global market, buyers are typically big international companies who want to cover their needs from green sources, regardless of where generation takes place. And traders often look for jurisdictions where the support scheme is over or under stress, so they more and more often look for places like Poland. Typically a PPA allows the buyer to contract a delivery of 100% green energy for some 8-10 years at the fixed price expected to be not much higher than forecasted “black” energy benchmark. For producers the PPA replaces the contract for difference auctioned within feed-in-premium model and allows to finance and build projects out of public support scheme. As there are no restrictions currently for photovoltaics I trust these corporate PPAs will only become more attractive. And once 10H rule for wind onshore is abandoned, they will surely become a hot topic also for this technology.
|About TPA in Poland:
TPA Poland provides advisory and compliance services to various sectors, including conventional power and renewable energy. The company is part of TPA Group present in 12 countries across Central and South-Eastern Europe and offers services in matters of investment, transactions, financial modeling and operational issues. TPA Poland and TPA Group belong to Baker Tilly International, one of the leading global consulting firm networks.
- Read the entire interview on InvestmentReports
- Contact energy expert for Poland, Wojciech Sztuba from TPA Poland