Offshore wind rising to challenge king coal in Polish energy market

Offshore wind rising to challenge king coal in Polish energy market

First published here.

Poland's energy and electricity markets are undergoing major changes. As costs fall in the offshore wind industry, so it is becoming price-competitive with more carbon-intensive forms of energy that have long dominated in the country.

Turning to offshore wind is not without political risk in a country like Poland in which coal has long played such an important role, but Polish prime minister Mateusz Morawiecki now appears to be an advocate of wind power and Poland has emerged as one of several northern and east European countries in which offshore wind looks set to play a much larger role in future. Supporting the move towards renewable energy, Poland has taken the first steps to introduce greater flexibility into its energy system but ageing grid infrastructure will require modernisation.

Speaking to OWJ in early May, MAKE offshore analyst Søren Lassen and his colleagues see Poland as a prime example of an emerging northern and eastern European offshore wind market where significant potential has been created by the steep fall in the cost of offshore wind energy in recent years.

Mr Lassen said that MAKE anticipated that selected emerging offshore wind markets in northern east Europe - of which Poland is an example - will surpass 4 GW of installed capacity by 2027.

In an analysis of these markets, Mr Lassen and colleagues said plummeting strike prices have made offshore wind emerge as an attractive substitute across markets in northern east Europe, especially those looking to curb greenhouse gas emissions, enhance energy security, and avert the risk of a generation deficit.

"Low strike prices in established offshore markets in Europe and the growing competition in emerging markets such as Taiwan and the US have increased the attractiveness of the emerging offshore markets in northern east Europe for offshore developers," MAKE said in a recent research note.

Until recently Poland has probably not been among those countries focusing on reducing emissions, its domestic energy market being heavily skewed towards coal, but it is having to import more and more coal from neighbouring countries and the Polish Government has begun to align its energy policy more closely with the European Union and with the latter's targets for growing use of renewable energy. As the 'energy climate' in the country has begun to change so companies active in the offshore wind market in Europe - and at least one Polish company - have signalled their willingness to develop offshore wind, if the policy can be developed that would provide reliable support for renewables. This change in the outlook for renewables is significant given that until recently the Polish onshore wind sector had been adversely affected by legislation.

The move away from coal to renewables has implications for employment in the coal sector but Poland also has manufacturers and heavy industry that could benefit significantly from the development of an offshore wind supply chain.

"We have to change and be really responsive to mega-trends and also to keep power prices on reasonable levels," Joanna Mackowiak-Pandera, the head of Warsaw-based Forum Energii, which consults with companies and authorities on the wind industry, told Bloomberg. "What we see now in the power sector is that finally we have to meet some targets."

"Offshore wind has the potential to lead to significant job creation in Poland," Mr Lassen told OWJ, a sentiment backed up by a McKinsey report from 2016.

Mr Lassen also highlighted the fact that, although offshore wind has primarily been developed in the North Sea, there is now growing experience of offshore wind in other countries in the Baltic, such as Germany. Poland could take benefit from synergies, technical expertise and experience in these countries as it moves into offshore wind energy.

"Germany will install more than 1 GW by the end of 2019 and recently awarded an addtional 750 MW of offshore wind in the Baltic, experience from which will play into the Polish market as it develops," he told OWJ.

However, as he also noted, developing offshore wind in the Polish Baltic will not be without its challenges: these include grid connection. Above all, he said, the right kind of enabling policy from the Polish Government is essential.

Bloomberg New Energy Finance associate, Dr Tom Harries agreed that policy - or the lack of a coherent, supportive policy - is what has been holding the Polish market back, but this is changing. BVG Associates director Giles Hundleby agreed that the Polish market was suddenly showing significant potential. He cited a recent agreement between Norwegian energy major Statoil and Polenergia, the largest privately-owned energy group in Poland, to collaborate on the construction of offshore windfarms in the Baltic. This had galvanised Polish players such as PKN Orlen to push for the development of offshore wind projects.

• Mr Hundleby said although the Polish Government has yet to propose an auction process for offshore wind, he anticipated that once policy has been developed industrial players could be in a position to proceed with final investment decisions in the early 2020s, with construction getting under way in the mid-2020s. "First of all, the state needs to define the process," he said.
• State-owned Polish transmission system operator PSE said as much as 8 GW of offshore wind capacity could be installed in Poland. PSE president Eryk Klosowski said 4 GW of offshore wind could be installed in the Polish sector of the Baltic by 2026/27 with up to 8 GW in the longer term.
• WindEurope chief executive Giles Dickson said Poland has become a major player in the offshore wind supply chain in recent years with large investments in the manufacturing of turbine foundations and the cranes and jack-up vessels used in installation and maintenance. The Polish wind industry now supports 12,000 jobs. This number would grow significantly with the development of a domestic offshore wind market.
• Mr Dickson said that, after a period of stagnation in onshore wind, Poland had an opportunity to put itself back on the European wind energy map, help diversify the country's energy mix and support further growth and job creation in the offshore wind supply chain.

"The skills and industrial expertise needed to meet these volumes is in place. It is great that the transmission system operator has confirmed that the Polish electricity grid can support them too. The Baltic offers enormous growth potential for offshore wind and it's very good to see that Poland is gearing up to play its part in fulfilling that."

• Polish Wind Energy Association (PWEA) president Janusz Gajowiecki said Polish companies could deliver up to 50% of the components required to build offshore windfarms. The PWEA has identified almost 80 companies that could deliver the necessary products and services, starting from offshore windfarm design and planning; production and installation of turbine components and connection infrastructure; to offshore windfarm operation and maintenance.

Statoil signed its agreement with Polenergia in March 2018. The company initialled an agreement with Polenergia to acquire a 50% interest in two early phase offshore wind development projects in Poland, Baltyk Srodkowy III (BSIII) and Baltyk Srodkowy II (BSII). The projects have a combined capacity of 1.2 GW. Statoil is also entering into a 50/50 joint venture with Polenergia to mature the projects with Statoil managing the development, construction and operational phases.

• Statoil executive vice president of new energy solutions Irene Rummelhoff highlighted that Polenergia is an experienced energy company with a growing renewable portfolio and indepth knowledge of the Polish electricity market. She said Statoil has an ambition to grow significantly in the renewable energy industry, investing up to €10Bn (US$12Bn) by 2030. "This acquisition strengthens our presence in the Baltic, providing opportunities for scale and synergies in the long term," she said.

The Baltyk Srodkowy II and III windfarm areas are in the Baltic approximately 27 km and 40 km from the port of Leba in water depths of 20-40 m.

Shortly after Statoil's announcement, PKN Orlen announced a tender to develop a preliminary technical concept to determine options for implementing an offshore wind project in the Baltic. The company holds a licence for a 1.2 GW windfarm.

"Embarking on a windfarm project is in line with our strategic objectives and plans for Poland's transition to a low-carbon economy. We hope the tender attracts strong interest from domestic firms," said PKN Orlen executive director Marcin Wasilewski.

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Offshore Wind Journal is produced by Riviera Maritime Media, Europe’s leading publisher of marine and offshore journals and a leading organiser of events for these markets. The Jorunal uniquely brings together all the stakeholders in the industry under one umbrella and projects these as a whole to its readership.