Poland Energy & Utilities Infrastructure Forecast
|Fitch Solutions Sector Intelligence
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Poland Energy & Utilities Infrastructure Forecast
- 02 Aug 2022
Key View: Robust investment in Poland's energy and utilities sector will be sustained over the coming years, as the development of domestic and international electricity and gas networks accelerates in response to the curtailment of coal and gas supplies from neighbouring Russia. The government will slow decarbonisation objectives, leading to the rapid expansion of imported natural gas and coal, alongside expansion of the renewables sector.
- Poland's energy and utilities sector is forecast to see real growth of 2.3% y-o-y in 2022, marking a slight slowdown from an expansion of 2.4% y-o-y estimated in 2021.
- Over the decade, transmission and distribution network enhancement and interconnection between markets will accelerate due to policy action and a subsequent drive in renewables growth across Europe. Poland will be a particular beneficiary of this industry trend.
- Russia's decision to halt natural gas shipments to Poland on April 27 2022 will impact Poland's gas transmission network. This will lead to the rapid reorientation of Poland's gas supplies away from Russia and towards imported liquefied natural gas (LNG) cargoes and supplies from neighbouring European markets.
- In June 2022, Poland’s prime minister pledged to support higher production at the nation’s coal mines in order to bring down heating and energy prices, which have soared amid the war in Ukraine. Our Power team forecasts that Poland will support higher production in the market's coal mines in order to bring down heating and energy prices.
- Ørsted launched two tenders for major transport and installation works on the 1GW Baltica 3 and the 1.5GW Baltica 2 offshore wind projects in Poland in Q122. The first tender includes transport and installation of foundations and offshore substations. The second tender includes the installation of export and inter-array cables. Financial close is expected in 2023 and 2024, with commissioning scheduled in 2027 and 2028 respectively.
- At the beginning of 2022, Polskie Elektrownie Jadrowe (PEJ), the government-controlled company responsible for developing nuclear power, announced that it selected sites for six reactors to be developed up to 2040. PEJ submitted environmental impact assessments (EIA)s for the sites, with the aim to have the first reactor in operation by 2033. PEJ is now proceeding with the application process with development permits and approvals from local governments. In April 2022, PEJ submitted an EIA report to the General Director for Environmental Protection, seeking approval to build and operate a 3.8GW nuclear facility in the Pomerania province.
- Polish senators approved a bill to stimulate the development of offshore wind capacity in the country. The bill, effective from February 1 2021, envisages subsidising 10.9GW of projects in the Baltic Sea. Under the first phase of the support mechanism, Poland has allocated incentives for 5.9GW of new offshore wind projects, with power generation expected to begin in 2025. In the second phase, Poland will hold tenders for contracts for a further 5GW of capacity in 2025 and 2027.
- In January 2022, the Government of Poland announced that construction on the 750MW Mloty pumped storage hydroelectric power plant would resume. The overall cost of the project is estimated between PLN3.0bn and PLN4.0bn (USD753.0mn and USD1.0bn) by Polska Grupa Energetyczna (PGE)'s economic analysis.
- In August 2021, GAZ-SYSTEM opened consultations for the construction of a 5bn cubic meter (cu m) a year small-scale floating regasification terminal at the port of Gdansk. GAZ-SYSTEM expects to conclude the regasification agreements in 2022, with the floating storage and regasification unit (FSRU) expected to enter service by 2025.
- Construction of the Danish section of the Poland-Denmark-Norway gas interconnector, which will link the gas node in Niechorze-Pogorzelica with the Danish compressor station in Zealand, was delayed in May 2021. GAZ-SYSTEM and Denmark-based Energinet are jointly carrying out the sub-Baltic pipeline project. Towards Poland, the capacity will be 10bn cu m a year, and it will be 3bn cu m per year towards Denmark. The project will begin operations in October 2022, before ramping up to full capacity in January 2023.
- In May 2021, Equinor and Polenergia received a contract-for-difference (CfD) for their Baltyk II and III wind projects. Each project will have a capacity of 720MW. Equinor will be responsible for the development, construction and operation phases, while Polenergia is responsible for securing all permits. Subject to a final investment decision, construction on the two projects is expected to start in 2024.
- In January 2021, Baltic Power signed a grid connection agreement with transmission system operator Polskie Sieci Elektroenergetyczne for an offshore wind farm of up to 1.2GW in Poland. The wind farm will come up 23km off the coast of Leba and Choczewo in the Baltic Sea. Baltic Power is currently carrying out preparatory works for the facility. The power from the wind farm will be exported via an underground cable connection, with construction expected to start in 2023.
- The EUR750bn Next Generation EU (NGEU) fund (which is the primary fiscal pillar of the EU's economic stimulus in light of the Covid-19 pandemic) demonstrates the scale of the EU's ambitions to align its short-term economic policy with its long-term decarbonisation efforts. Incorporating its existing European Green Deal into the recovery fund's investment process, this stimulus represents an acceleration of the bloc's decarbonisation efforts, which will directly benefit Poland's energy sector given the challenge it faces in decarbonising.
- After years of unrivalled dominance, the coal segment in the Polish power sector is yielding its share as the energy transition away from carbon-intensive energy slowly picks up pace. We expect to see growth in non-hydropower renewables capacity to accelerate, with an increase of support at commercial and political levels, which will sustain demand for grid infrastructure developments in the market.
- The preponderance of energy-intensive manufacturers in Poland's heavy industry sector will create significant opportunities for decarbonisation investment, as steelmakers investigate hydrogen injection and cement manufacturers study carbon capture technology. Immediate opportunities centre around the introduction of hydrogen mixtures (at concentrations of below 20%) into the country's natural gas pipelines.
Energy And Utilities Infrastructure Data (Poland 2021-2031)
|Indicator ||2021e ||2022f ||2023f ||2024f ||2025f ||2026f ||2027f ||2028f ||2029f ||2030f ||2031f |
|Energy and utilities infrastructure industry value real growth, % y-o-y ||2.4 ||2.3 ||2.2 ||1.4 ||2.1 ||2.0 ||1.6 ||1.5 ||1.3 ||1.1 ||0.9 |
|Power plants and transmission grids infrastructure industry value real growth, % y-o-y ||3.4 ||3.5 ||4.0 ||2.3 ||3.0 ||3.4 ||3.4 ||3.0 ||2.6 ||2.2 ||1.8 |
|Oil and gas pipelines infrastructure industry value real growth, % y-o-y ||5.0 ||4.5 ||1.5 ||1.5 ||2.1 ||1.3 ||0.6 ||0.6 ||0.6 ||0.6 ||0.6 |
|Water infrastructure industry value real growth, % y-o-y ||1.3 ||0.9 ||0.5 ||0.6 ||1.3 ||0.6 ||-0.1 ||-0.1 ||-0.1 ||-0.1 ||-0.1 |
|e/f = Fitch Solutions estimate/forecast. Source: Central Statistics of Poland, Fitch Solutions |
Decarbonisation will continue to drive investment across Europe into low-carbon energy sources, while coal developments will stall. Recent developments in Poland, currently among Europe's most reliant markets on coal power, lead us to expect that the development of large-scale renewable and nuclear projects coming online will coincide with the closure of the market's less-efficient power plants. For infrastructure, greater deployment of renewable energy assets will necessitate concurrent investment in grid infrastructure to ensure the effective utilisation of these energy sources. Over the short-to-medium term, natural gas will remain an important component of the country's energy mix. The expansion of the country's LNG import terminal and the introduction of an FSRU at the port of Gdansk, along with the opening of interconnectors with Lithuania, Slovakia and Norway, will help the country reorient its gas requirements away from Russian supplies.
The Polish government has announced that it intends to phase-out coal mining by 2049, while planning to spend EUR40bn on six nuclear reactors and EUR28bn on offshore wind in its updated energy strategy for 2040. The government also announced that coal's share of generation will fall from its 2021 levels of 76% to between 37% and 56%. Our outlook is more conservative, with an estimated reduction in generation for the sector, falling to 49% by 2031. Our Power team forecasts that Poland will support higher production at the nation’s coal mines in order to bring down heating and energy prices, which have soared amid the Russia-Ukraine war.
Stable Growth In Energy And Utilities Industry Value
Poland - Energy & Utilities Industry Value, PLBbn (2021-2031)
e/f = Fitch Solutions estimate/forecast. Source: Eurostat, Fitch Solutions
Solar To Continue Outperformance
Poland's renewables sector is set for continuous strong capacity growth over the decade, with the solar sector becoming increasingly attractive for developers. We forecast an additional 20.0GW of non-hydro renewables capacity will come online between 2022 and 2031. We expect to see increases in output, with the sector's share of total generation rising from 20.9% to 34.9% over the same time period. Our positive outlook is supported by robust momentum in both the solar and wind power sectors, with upside risks to both. In particular, solar growth in Poland has accelerated rapidly over the past few years, from less than 500MW in 2018, to what was set to be 6.3GW in 2021. Overall, we expect Poland to bring online more than 15GW of new solar between 2022 and 2031. That said, continuing developments in the market's nascent offshore wind sector pose upside risks to more capacity being included in our forecasts. We expect the non-hydropower renewables sector, including the solar industry, to get increasing levels of support amid the green energy transition policy drive, from both the national and EU levels. Across the EU, we expect to see a compounding of regulatory, policy and fiscal measures impact the power sector in the near term.
Offshore wind is poised to play a large role in the Polish power sector. We currently forecast an additional 7GW of wind capacity to come online between 2022 and 2031. This includes an additional but conservative 1.5GW of offshore wind capacity, with considerable upside risk mounting due to support for the sector and a growing project pipeline. In H220, new legislation sought to fast-track offshore wind projects already in planning; developers would be supported by similar mechanisms to those seen in the UK, with a two-stage contract for CfD model. 5GW of capacity was selected by Poland's energy regulators by the end of 2021, before a further 5GW of auctioned capacity across two tenders towards the end of the decade. In Q121, Polish senators approved the bill to stimulate development of offshore wind capacity in the country. The bill, which became effective on February 1 2021, envisages subsidising 10.9GW of projects in the Baltic Sea. The first phase of the support mechanism will see Poland allocating incentives for 5.9GW of new offshore wind projects, with power generation expected to begin in 2025. In the second phase, Poland will hold tenders for CfD for 5GW of capacity, unlocking USD35.2bn of investment. Ørsted launched two tenders for major transport and installation works on the 1GW Baltica 3 and the 1.5GW Baltica 2 offshore wind projects in Poland in Q122. The first tender includes transport and installation of foundations and offshore substations. The second tender includes the installation of export and inter-array cables. Financial close is expected in 2023 and 2024, with commissioning scheduled in 2027 and 2028 respectively.
EU Green Infrastructure Push To Characterise Developments In Sector
The NGEU fund, an unprecedented EUR750bn recovery fund, and the commitments for climate change-related investments that it entails, demonstrate the bloc's continuing commitment to its long-term decarbonisation efforts amid the short-term upheaval of the Covid-19 pandemic. Forming the basis for the bloc's collective fiscal stimulus in light of the pandemic, the NGEU plan comprises EUR500bn in grants and EUR250bn in loans, which would be wrapped together with the EU's next seven-year Multiannual Financial Framework. While the EU's aim is to ensure the broad economic recovery of its member markets, we view the plans as offering the potential to support, if not accelerate, the EU's long-term decarbonisation efforts. The plans demonstrate that the EU rightly views the necessary economic stimulus as an opportunity to further establish investment and support its path towards carbon neutrality. We share this assessment of the opportunities for green infrastructure investment amid the broad economic stimulus being deployed globally.
While the impetus for this development in EU policymaking was unforeseen, our Infrastructure Key Themes For 2020 noted our expectations for the EU to further cement its position as the leading region for policy-driven efforts for investment in green infrastructure. Following the onset of Covid-19, the EU's leading position in this area remains, with unveiled policies by the bloc further solidifying its lead in such policies.
The EU's existing European Green Deal is providing the thematic framework with which the EU will seek to channel its recovery funding to ensure that this bout of economic stimulus works to support the EU's long-term ambitions to realise carbon neutrality. We highlight renewable energy, transport infrastructure supportive of low-emission travel and energy efficiency initiatives as the primary areas for financing, as each would offer sustained support for the EU's decarbonisation ambitions. Member markets' respective National Energy and Climate Plans will steer financing towards projects that address specific challenges in energy infrastructure, for example.
We have previously highlighted that while the overall European Green Deal Investment Plan focuses primarily on green infrastructure and projects conducive to decarbonisation, the Just Transition Fund (JTF) represents an additional tranche of funding to create investment opportunities in regions set to experience the most acute disruption from decarbonisation. Its proposed national allocations remain broadly consistent with those outlined in its initial unveiling, with Poland set to receive the largest individual allocation. These are calculated with consideration of a range of economic and social factors, including gross national income per capita, greenhouse gas emissions from industry and the level of employment in carbon-intensive industries.
The agreement has reduced the NGEU's initial commitments to ramp-up direct investment in infrastructure, power and renewables, primarily via the JTF that seeks to channel financing to regions facing the greatest challenges in the bloc's route to carbon neutrality. First announced as a EUR7bn financing package under the EU's European Green Deal, the JTF saw its funding increase to EUR40bn under initial NGEU proposals; however, this latest agreement has seen this figure reduced to EUR10bn. Although this cutback will dishearten proponents of green infrastructure across the EU, the EU's commitment to the bloc's wholesale decarbonisation remains robust, both in terms of rhetoric and financing provisions to this end. EU efforts to decarbonise remain a guiding principle in the overall deployment of the NGEU in that its investment must not directly hinder the bloc's climate change-related policy ambitions.
EIB To Shift Away From Financing Of Carbon-Intensive Projects Despite Caution From Central And Eastern Europe
The European Investment Bank (EIB) has now finalised its Energy Lending Policy, which outlines its intentions to cease the funding of projects that do not meet a low-emissions performance standard of 250g of CO2/kWh. The EIB will now seek to increase the share of its financing for climate change-related projects to reach 50% of its operations from 2025, a move that it claims will enable EUR1trn of climate change-related investment within the next 10 years to 2031. Ultimately, these efforts will aim to achieve a renewable energy share of over 33% in the EU by 2031. The lending policy update largely remains intact from its draft form, for which we highlighted the implications for infrastructure investment amid intensifying efforts from EU institutions for climate action policy. We have highlighted the eligibility of gas infrastructure that would enable the supply of low-carbon gases in the draft as a tacit acknowledgement of the role for gas in easing Europe's transition to a low-emission future.
The EIB has lent EUR13.4bn to fossil fuel infrastructure projects since 2013, demonstrating the financial capacity that this move will free up for climate change-related investments. The institution also features heavily across our Key Projects Database, highlighting its significant role in the provision of project financing through the EU. More broadly, the EIB emphasises the need to increase the financing of decentralised energy production, indicating that projects entailing energy storage solutions and low-emission transport can expect to receive greater financing support in future.
This move by the EIB will bolster the EU's firepower in its efforts to combat climate change and realise carbon neutrality within the bloc by 2050. Crucially, it leaves open the potential for natural gas to ease the transition of carbon-intensive member markets towards a state in which renewable energy assets account for the bulk of power generation. The 2021 cut-off for the funding of fossil-fuel projects also comes a year later than originally proposed by the EIB and has likely been pushed back following unease among EU member markets. Even with this compromise, this outcome was insufficient for Poland, Romania and Hungary to offer their support, primarily due to their concerns regarding their transition away from a reliance on the firm power of coal to reliance on intermittent renewable energy sources.
Shift Away From Coal Required For Poland To Decarbonise
Poland - Electricity Generation, TWh (2021-2031)
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