According to the Act on Energy Law, Energy Security is defined as the state of the economy that enables the coverage of the current and future demand of consumers for fuels and energy in a technically and economically justified manner, while maintaining environmental protection requirements. Given the volatility of gas prices, as well as the low prices of power generation from renewables, there is unlikely to be long term economic justification for the proposed new gas projects.
3. Regulatory risks
As a fossil fuel with significant associated greenhouse gas emissions, an increased, long term reliance on gas is in conflict with the EU’s plans for reducing emissions. Pursuing these plans would open up Poland to a series of challenges and roadblocks from regulations designed to meet the EU’s emissions targets and ramp up climate ambition.
Methane strategy
Gas’s climate warming impact goes beyond carbon dioxide emissions from gas-fired power stations. Additional methane emissions caused by gas leakages along the supply chain are currently not addressed by carbon pricing or EU legislation, but with increasing attention on methane’s impact on climate change this is likely to change. This adds to the threat that gas projects will be more expensive to operate in the future. The EU’s ambition to legislate gas associated methane emissions through the EU Methane Strategy signals this likely trajectory. Although the scale and shape of future regulation is yet to be seen, satellite images of methane leaking from operation sites and gas pipes leave no doubt of the scale of the unaccounted-for emissions. The EU will likely aim to use legislative tools to curb methane emissions along the entire supply chain, which would drive up the costs of installing and operating gas plants in Poland.
EU taxonomy
There is also uncertainty around the classification of gas investments as environmentally sustainable or harmful within the EU taxonomy. The final shape of the document is not yet confirmed for gas. However, the Commission’s suggestion to limit financing to projects fulfilling emissions criteria of 270 g CO2/kWh will effectively block support for non-CHP projects. As highlighted above, 70% of proposed gas capacity additions in Poland are electricity-only, and so this would create unfavourable conditions for project finance.
‘Fit for 55’
The EU Emissions Trading System (EU-ETS) reform proposed by the European Commission in July under the ‘Fit for 55’ package ensures that emission allowance prices will remain high, as the volume available is reduced, and now at an even faster rate. Higher EU-ETS prices mean higher operational costs for the gas plants. The reform proposal also includes a requirement that the Modernisation Fund money must not be spent on fossil fuel activities. For Poland, which currently qualifies for 43.4% of the Modernisation Fund, this would mean significantly less funding for the planned gas additions.
The direction of the proposed revisions to the EU-ETS directive also threatens Poland’s plans to establish the Energy Transformation Fund (ETF). Powered by EU-ETS money, Poland’s ETF is expected to support aims outlined by PEP2040 and Poland’s National Energy and Climate Plan. However, if the EU-ETS excludes or restricts financing of fossil fuel projects, Poland might find itself in a position where money for suggested gas projects will be scarce.
4. Modelling shows that much less gas is needed
Poland’s plans to expand its electricity-only gas fleet are disappointingly out of step with robust modelling scenarios that show Poland can transition away from fossil fuels and still meet electricity demand. Instrat’s modelling, which is compatible with a 2035 coal exit, shows that the maximum total gas capacity could be just 6 GW (from 2025 to 2030). The analysis also accommodates the role of gas as a transitional fuel, with gas generation peaking in 2025 (30 TWh) and then gradually decreasing until reaching 9 TWh in 2040. Poland’s gas plans far outstrip these moderate gas capacity additions, signaling that gas is being thought of as a long term investment.
Plant-by-plant and policy analysis highlights a stunning lack of future-proofing.This is reflected in the lack of any reference to a gas phase-out or pathway to a fossil-free future, and the absence of details about corresponding requirements for the new projects; e.g. full hydrogen compatibility. Given the lack of evidence on the transition plan for the planned projects, Poland’s track record with fossil fuel phase-out, and likely delays in the investments, we stress that the current trajectory might lock in gas dependency beyond 2050, failing to achieve net-zero.
