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by Bob Schwieger and Giorgio Dodero

             
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IL PRESENTE ARTICOLO È STATO ESTRATTO
DALLA MONOGRAFIA
2012 EASTERN EUROPE
ENERGY HANDBOOK
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REALIZZATA DALL’EDITORE AMERICANO PSI MEDIA - CON CUI NUOVA ENERGIA COLLABORA ORMAI DA QUATTRO ANNI - LA PUBBLICAZIONE SCANDAGLIA LA COMPLESSA REALTÀ ENERGETICA DELL’EUROPA DELL’EST.

SUL NUMERO 3|2012 NUOVA ENERGIA HA
APPROFONDITO L'UNIVERSO RUSSIA, UN VERO
E PROPRIO ELEFANTE NEL SALOTTO DELL'EUROPA. SPAZIO, ORA, AD ALTRE REALTÀ: POLONIA, TURCHIA, ROMANIA E SLOVACCHIA.

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2012 EASTERN EUROPE ENERGY HANDBOOK
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Poland’s power sector needs substantial investment, and foreign investors could make an important contribution in meeting the need, says the European Bank for Reconstruction and Development (EBRD) in its 2010 Transition Report.
Poland has made significant progress in the transition to a modern market economy, and has been one of the most successful of the countries making the transition, the EBRD adds. A shock therapy program during the early 1990s enabled the country to transform its economy into one of the most robust in Central Europe, explains the CIA World Factbook.

The economy performed well in the mid-2000s, but privatization largely halted. The authorities did not use the exceptional 2003‑08 expansion to improve the fiscal position in a sustainable way, resulting in the need to use privatization receipts in the recent period of lower stock prices so as to meet fiscal targets says the EBRD.

Noting that Poland’s 2009 real GDP growth rate of 1.7% made the country the only one in Central Europe and the Baltic States to avoid recession, the EBRD adds, Poland is one of the European Union economies where the involvement of the state is most pervasive, notably in the power, natural resources and banking sectors. Its report cites an inefficient power sector for hindering both growth and Poland’s ability to meet European Union environmental standards. Additional in vestment is necessary to proceed with the restructuring and full privatization of the larger power groups.

The CIA Factbook cites lingering chal lenges of high unemployment, underde veloped and dilapidated infrastructure, and a poor rural underclass, while the EBRD report concludes: Reducing the influence of the state is an overriding priority, for which perseverance with implementing the privatization program is essential. In global management consultant AT Kearney’s 2010 FDI Confidence Index, senior executives at the world’s largest companies ranked Poland 6th as a des tination for investment, vaulting from 22nd in the 2007 Index. That move positions Poland with Germany as one of Europe’s new leaders where investors see large, relatively stable economies, says the report.

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Il settore energetico in Polonia? secondo la European Bank for Reconstruction and development ha un urgente bisogno di nuovi e robusti investimenti.
Nei quali, proprio gli stranieri potrebbero giocare un ruolo chiave. la situazione attuale parla da sola. l’87 per cento della potenza installata - circa 33 mila MW - è alimentata a carbone o lignite. Una ulteriore quota percentuale non trascurabile è garantita dal gas naturale, con un ruolo ancora marginale per le rinnovabili, idroelettrico compreso.
L’altro problema è l’età media del parco installato. la maggior parte delle centrali è stata realizzata tra gli anni Sessanta e Settanta e, quindi, la vita utile operativa sta di fatto esaurendosi. In altre parole - anzi, numeri - il 23 per cento del parco centrali ha superato i 40 anni e un ulteriore 48 per cento ha età compresa tra i 31 e i 40 anni.
“Nei prossimi 20 anni dobbiamo attenderci - assicurano gli esperti - il decommissioning di almeno 15 GW e un aumento della domanda di picco di circa 11 GW”. Il che significa dover costruire 30 GW di nuova potenza.
Quanta di questa domanda potrà essere assicurata dalle rinnovabili? A oggi, come detto, il loro ruolo è ancora marginale: circa il 10 per cento in termini di potenza installata, ma solo il 3 per cento considerando i kWh effettivamente immessi in rete.
L’obiettivo è di arrivare al 15,5 per cento della capacità di generazione al 2020 per salire al 20 per cento nel 2030. Per quelle date, dunque, i combustible fuel saranno ancora i padroni assoluti del campo.
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A glance at some measuring sticks dulls the lustre, however. The World Bank’s re port, Doing Business 2011, ranks Poland at 70th of 183 countries for Ease of doing business, 164th for Dealing with construction permits, 121st for Paying taxes, 77th for Enforcing contracts, and 44th for Protecting investors. Only its rank of 15th for Getting credit lifts Poland out of the crowded middle of the pack. Forbes magazine’s list of Best Countries for Business is a bit more favorable, rank ing Poland 38th in the world.
The tax burden’s rank of 106th is the harshest measurement, but a redtape rank of 87th hints at the potential for difficulty. Starting a company is still too costly and takes too long, says the OECD. Formalities to start up a business, get construction per mits and register properties are excessive, risking corruption to get around them.
Corruption, while not a stellar rank, is better than most, at 40th, says Forbes, closely tracking Transparency International’s rank of 41st in the world, with a Corruption Perception Index of 5.5 on a scale where 0-0.9 is Very Corrupt and 9.0-10 is Very Clean. Rankings for Trade Freedom (12th) and Personal Freedom (1st), however, point to Poland’s promising potential.



Energy
Coal and lignite together are Poland’s only significant indigenous conventional energy resource. Poland’s obligations, under the Kyoto Protocol and the regulations of the European Union, to achieve significant reductions in its carbon-dioxide emissions present a major challenge. Coal and lignite fuel 87% of the country’s powerplants and produce 92% of its electricity, and the paucity of other energy resources means that there are few inexpensive alternatives.
Poland now is following a threeyear action program that was defined in a policy titled Poland’s Energy Policy until 2030, adopted in 2009. The policy consists of the action program, which ran until 2012, and a long-term development strategy. With the overall goal of enhancing the country’s en ergy security by reducing dependence on imported energy resources, the strategy’s priority directions are:

1 Improve energy efficiency;
2 Security of fuel and energy supplies;
3 Introduce nuclear power;
4 Develop renewable energy sources;
5 Develop competitive fuel and energy markets;
6 Limit environmental impact.

In pursuing the first priority, energy efficiency, the Ministry of Economy will focus on the entire chain from genera tion through transmission and distribu tion to energy use. Powerplant efficiency throughout Poland is 36%, and energy loss by powerplants is estimated at 24 TWh per year, according to the Austrian Energy Agency. Transmission and distribution losses, at 9.36%, are among the highest in Europe. Altogether, generation and line losses constitute 25% of the country’s total energy production, says the agency.
To achieve security of fuel and energy supplies, the second goal, support will be given to develop technologies whereby it will be possible to acquire liquid and gaseous fuels from domestic resources, says the government’s Trade and Invest ment Website. The technology to derive synthesis gas and liquid fuel from coal is nearly a century old and well proved, but researchers differ on the CO2 emissions associated with it, and its competitiveness depends upon the prices of pe troleum and natural gas.
Oil prices are high enough in late spring 2011, but their volatil ity is such that the picture could change before a plant could be built to convert coal to liquid fuel. Thanks to vast shale-gas devel opment in the US recently, gas prices are low and expected to remain so for a long time.
Poland currently has no plants using the coal-conversion technology, but an estimated 3 trillion m3 of shale gas has been discovered. Hy draulic fracturing began in 2010, but analysts are not yet ready to call the project a success. If this resource could be developed, it might make a substantial contri bution to Poland’s energy security as well. Poland has planned since 2005 to build a nuclear powerplant because of its potential to generate a large quantity of power with minimal fuel imports and no CO2 emissions, and the government fast-tracked the plan after the 2009 gas cutoff by Russia over a price dispute with Ukraine. The Fukushima Dai-ichi nuclear disaster in Japan has not shaken that resolve. Plans are drawn up for two plants of 3,000 MW each, and a site is to be selected for the first by 2013. In February 2011, tenders with a total value of 477 million dollars were issued for early engineer ing services. A tender for technology is scheduled for July 2011.
Renewable-energy sources are a tiny part of the energy picture in Poland today, composing 10% of installed capacity but providing only 3% of the system’s supply, but they offer opportunities for growth. Poland’s goal is for renewable energy to compose 15.5% of the country’s generat ing capacity by 2020 and 20% by 2030.

London-based Frost & Sullivan says Poland will have to add 863-1,002 MW annually to achieve those goals. Wind and biomass are the most promising types. Geothermal energy resources are available in 80% of the country, but they are character ized by low enthalpy and used mainly for space heating, therapeutic purposes and industrial applications, according to a 2009 report by Black & Veatch for the EBRD.
Hydropower is the second-largest renewable energy source and is likely to remain there because of limited possibili ties for further growth, says the Black & Veatch report. Poland’s solarenergy po tential also is limited, but little-studied. It is obvious that a country‑wide extensive research on the technical and economi cal feasibility of solar energy is needed, the report says.


Electricity
Poland’s power-generation sector is the largest in Central and Eastern Europe, according to the Energy Report of the Economist Intelligence Unit of the British news magazine The Economist.
As noted above, 87% of the country’s 33,000 MW of installed capacity is fueled by coal or lignite, leaving only scraps for hydropower, non-hydro renewables and natural gas generation. Such dependence on a single fuel is undesirable in most countries because it exposes the system to large risks if problems arise with fuel supply. Poland doesn’t lack fuel supply, but the CO2 emissions profile is unacceptable, given the obligations of the various climate-change treaties and regulations.
Yet even with the energy policy announced in 2009, the EIU Energy Report forecasts that 77% of the generation fleet in 2020 will still use combustible fuels. Poland has followed a wind ing path to privatization. The program was launched in the early 1990s with the goal of privatizing all generation and distribution companies, leav ing only grid operation in state control. A number of genera tion and distribution companies were formed, and privatization of individual powerplants be of the obligations of long-term supply contracts.

When the center-right Law and Justice party won the national election in 2005, the new government reversed some of the fragmentation of the power sector and reorganized it into four independent parts: generation, transmission, distribu tion, and trade. The unbundled system was then reconsolidated into four large, integrated electricity groups – Polska Grupa Energetyczna (PGE), Enea, Energa, and Tauron – says a report by Raffeisen Cen trobank, Vienna. These companies now combine gen eration and regional distribution with ownership of some coal mines, while the transmission grid is owned and operated exclusively by stateowned PSE Operator SA. The Polish Power Exchange, POEE Platform and brokerage platforms are the markets for wholesale power trading, with the contract market handling some short and mid-term bilateral contracts and PSE Operator managing the balanc ing market.
Government plans call for the four inte grated utilities to be eventually privatized through sales of stock, and in 2009 PGE and in 2010 Tauron were successfully listed on the Warsaw Stock Exchange, raising a total of 2.68 billion dollars. Swedish energy company Vattenfall acquired 19% of Enea in a 2008 IPO. Privatization of Enea was expected to have been completed in 2011. The antimonopoly regulator UOKiK has blocked PGE’s bid to take over Energa despite the government’s backing it. The government still owns both companies.

Poland can’t afford much more delay. Most of the power generation capacities operated in Poland were constructed in the ’60s and ’70s, so their remaining economic useful life is about to end, says Raffeisen.
Of the capacity in place, 23% is more than 40 years old and 48% more is 31-40 years old, Raffeisen says. With planned decommission of 15 GW and the anticipated increase in peak load demand by 11 GW, up to 30 GW of capacity will have to be built over the next 20 years. Reserve capacity margin has declined to 3% at peak demand, while 5% is gener ally considered the safe margin, Raffeisen says. Poland thus is facing four to five years of potential power shortages until the expansion can catch up with demand growth.
Plans to construct around 10,000 MW of new capacity by 2015 have been announced, says the EIU, but it is estimated that around 12,000 MW will be required. At the same time, there will be continuing efforts to modernize the existing generat ing plants in order to make them more fuel‑efficient and less environmentally damaging. There is likely to be significant investment in clean coal technology and coal gasification.
The good news is that the expansion is beginning. New projects are underway, says Raffeisen, and already a construction of 21 GW has been started. Bloomberg Businessweek in April 2011 reported that PBG SA, Poland’s largest constructor by market value, now is bidding to build six powerplants in a country that built three new units in the last 10 years.

These include the country’s largest powerplant project, an 1,800 MW coal-fired plant for PGE; a 1,000-MW coal plant for Enea, 900 MW for Tauron, and a 460 MW unit for PGE. Also on its target list are a 400 MW gas-turbine plant and a 500 MW plant for oil refiner PKN Orlen SA. PBG is bidding jointly with Alstom SA for all but one of the projects. The company is pursuing 1-2.6 billion dollars of contracts with an astonishing gross margin of 20%. Poland hasn’t yet seen an energy boom like this, CEO Jerzy Wisniewski told Businessweek.
Poland’s dependence on coal is scaring off some investment, however. In October 2010, Vattenfall canceled plans to build up to 3,000 MW of new coal-fired generation capacity in Poland in favor of concentrating on its core markets in Germany, the Neth erlands, and Sweden, and said it may sell its Polish holdings in three years. The announcement followed ac tions by RWE and CEZ to freeze investment plans. Analysts attribute the hesitancy at least in part to uncertainty over how many free CO2 emission allowances Poland will receive up to 2020.

As noted earlier, Poland has persisted with plans to build two nuclear powerplants. PGE will build and operate the plants, the first of which is to be commis sioned in 2022 and the second in 2030. Marcin Cieplinski, CEO of PGE’s nuclear power subsidiary, has estimated the cost of the first plant at 14 billion dollars, but PGE plans to hold just 51%, with the rest owned by a foreign partner in the consortium. The site has not yet been confirmed, but most sources say it will be in Zarnow iec, on the Baltic coast 40 km west of Gdansk. Locating the plant there could complicate the project. Construction of a nuclear plant in Zarnowiec was halted in 1990 after nearly 10 years of work because of protests from the local people.
A July 2010 report titled Investment Opportunities in the Wind Energy Sector in Europe, by Frost & Sullivan, London, named Poland as the largest wind energy market in Central and Eastern Eu rope. Although there are many challenges to surmount within the market, the country has seen the most expansion in the region, due to great wind potential and government support, Frost & Sullivan reported.

Several Polish companies also manufacture wind turbines, notes a 2009 report by Black & Veatch for the EBRD. Foreign investors already are developing wind farms. Germany-based RWE has built a portfolio of 108 MW in three wind farms, and in October 2010, E.ON opened a 52.5 MW wind farm near Poznan, and both companies intend to invest more. Poland is a particularly at tractive market for us when it comes to operating onshore wind power plants, explains Paul Coffey, Chief Operating Of ficer at RWE Innogy. This is because of the remarkable wind resources, the large growth potential and the cooperation op portunities with our sister company RWE Polska. This is why we intend to go ahead with the development of additional Polish wind farms in the next few years.
Biomass is the most promising source of renewable energy in Poland, says the Black & Veatch report. Most biomass plants burn fuel wood, forestry residues, and agricultural residues and surpluses for individual and industrial heating, district heating and combined heat and power. Biogas from landfills and municipal waste also contributes a share. Plants gener ally are small. There were 30 landfill-gas power stations with a total capacity of 11 MW in 2009 and 40 sewage digester stations totaling 40 MW capacity. But GDF Suez is constructing a 190 MW biomass power plant, the world’s largest, at a cost of 321 million dollars in southeastern Poland. It is scheduled to begin commercial opera tion in 2012.

Most of Poland’s large-scale hydroelectric potential has been developed, and much of it is in pumped-storage powerplants. The main opportunity for investment in this sector would be modernization, which could increase power output by 20-30%, according to Black & Veatch’s report.
Powerplants are only as productive as the transmission grid that connects them to the load centers, and the grid network in Poland is quite aged and in bad techni cal condition, says Raffeisen Centrobank. Most of its 220‑kV lines were built in the years 1952‑1972 leading to substantial network losses and inefficiencies. (…) It is estimated that around 20% of medium voltage and 50% of low volt age require modernization, at a cost of more than 22 billion dollars, the bank estimates. In October 2010, PSE Op erator announced plans to invest 2.95 billion dollars by 2015 to expand and modernize the transmission system, but complained that existing laws made permitting too difficult to meet that deadline. The company called for legislative reform to clarify the process.
In addition to modernizing Poland’s own grid, interconnections with its neighbors, especially those that are in the EU, must be expanded. Po land is quite an isolated place on the electricity transmission map in Europe, says Raffeisen. The available transfer capaci ties for market participants are forecast to stand only at 200 MW for export and 700 MW for import. Poland has ex ported power for many years, mostly to the Czech Republic, but analysts expect the country to require imports for several years now until its new power plants can be built. The energy policy adopted in 2009 set the goal of building interconnec tions that will allow Poland to import 25% of its power needs by 2030.


Oil and Gas
Poland’s petroleum endowment is negligible, and its gas production meets only about a quarter of Polish demand. Pipelines built during the Cold War deliver oil and natural gas from Russia to Poland and beyond to Germany, but they served an economic and political order that has been upended by the collapse of the Soviet Union and the expansion of the European Union to include Poland as well as its neighbors in the old East Bloc.
The bulk of oil imports – 400,000 bar rels per day – for Poland’s two refineries comes via the 4,000-km-long Druzhba (Friendship) North Pipeline was built be tween 1960 and 1962 to deliver oil from deep within Russia to Poland and East Germany. But Russia has built the Baltic Pipeline System to ship oil from Primorsk and soon Ust-Luga on the Gulf of Finland, thus avoiding potential difficulties transiting Ukraine and Belarus to the EU market. Po land is concerned that Russia’s new export route threatens its own oil supplies, so is considering construction of a pipeline to connect its premier refinery at Plock to Brody in Ukraine, where it can connect to oil being shipped from the Caspian region. Poland also hopes to develop Naftoport at Gdansk to increase its capacity to import oil via the sea.

PKN Orlen operates the 373,000-bpd Plock refinery and Lotos Group the 120,000-bpd refinery in Gdansk. Both are slated for privatization, and the state now owns only 28% of PKN, but 90% of Lotos. PKN has plans to increase efficiency in its operations to meet the growing competi tive challenge of the liberalized European market.
At present, foreign companies operate mostly in the downstream market, in distribution of fuels, liquefied petroleum gas and lubricants. Poland imports 70-75% of its natural gas supply, and, as with oil, almost all of it comes from Russia, via the Yamal pipeline to Europe. Russia is developing export routes for gas that bypass Ukraine and Belarus as well, and Poles are sensi tive to the fact that the Nord Stream gas pipeline, which runs under the Baltic from St. Petersburg to Greifswald, Germany, also bypasses Poland. Now, plans to build a liquefied natural gas terminal at Swinoujscie in northwest Poland have progressed to construction, aiming for operation by mid-2014.
This terminal will supply 5 billion m3 per year, about a third of the country’s gas demand. International and domestic investors already are getting involved in plans to build the pipelines, pumping stations and storage required by this huge new in-flux. Gaz-System, Poland’s state-owned gas transmission operator, intends to build more than 1,000 km of pipelines by 2014.

These LNG terminals constitute the northern tip of the EU-designated North-South Gas Interconnections and Oil Supply Corridor. The strategic concept of the North‑South natural gas interconnection is to link the Baltic Sea area (including Poland) to the Adriatic and Aegean Seas and further to the Black Sea... to create a robust, well‑functioning internal market and promote competition, says the European Commis sion’s Energy 2020 plan.
At the southern end of the Corridor, Croatia plans to build an LNG terminal on the island of Krk in the northern Adriatic Sea. Together, these terminals will add a north-south axis to the east-west direction that now characterizes natural-gas flow in Central and Eastern Europe, reducing the region’s dependence on Russia for its supplies and increasing its ability to respond to any future gas-supply disruptions.
A pipeline linking Szeged, Hungary, and Arad, Romania, half-funded by the EU and inaugurated in October 2010, is the first of several that are planned to create the Corridor. Others, partially funded by the EU, will include connections between Hungary and Slovakia, Hungary and Slovenia, Roma nia and Bulgaria, and Bulgaria and Greece. In March 2011, Jan Chadam, president of Gaz-System, told the European Parliament that an interconnector between Poland and the Czech Republic and another between Poland and Germany would be completed by the end of the year. And in January 2011, Gaz-System and Eustream, Slovakia’s gas transmission operator, agreed on a feasibility study for a gas interconnec tor between their countries. The decision on whether to proceed with the project is scheduled for 2012.

Poland may also have a gas ace up its sleeve, one that is entirely its own. The country is home to two of the five largest shale-gas plays in Europe outside Russia, according to the Oil & Gas Financial Journal. Many foreign oil and gas companies have obtained some of the 58 exploration permits Poland has issued for the resource. Exploration began in 2010, but some analysts fear that European regulations may make the development so onerous that operators will abandon the effort, says O&GFJ. Even the Polish environment ministry foresees a decade of labor before production takes off.

 
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