From millions to billions… everything requires subsidies. This energy transition is not going well.
Something strange is happening to the energy industry – or we’re just getting older faster than we understand the new realities. It used to be that profitability counted straightforwardly, power plants were built, and energy companies made steady money. Half a century ago, they were the favourite investments of American pension funds – the returns may have been modest, but they were sure. Today, we have new times and new concepts, but above all… there is always a need to pay extra. Regardless of the technology chosen, an additional stream of money is necessary. And these, as we know, come from government budgets, “from votes and legislation.” In this episode of the Satirical Review, there is something for everyone.
Petty millions for electric drivers to start…
New information for potential beneficiaries of the My Electrician program: if anyone would like a subsidy, they will have to wait, as the National Environmental Protection and Water Management Fund has announced that the pool of 660 million zlotys has been exhausted, and additional funds are needed. The following subsidies will not be available until 2025. As an ardent supporter of the energy transition and electric cars, however, I cannot understand why we are subsidizing electric vehicles, which are often the second or third car in the family or the management limousine in companies, especially if they are supposed to be so cheap and competitive. It also puzzles me why we subsidize cars but need more street chargers. It may be better to focus on subsidizing the charging infrastructure, and electric vehicles will find buyers anyway.
More and more (and more) for offshore wind farms…
Phase II of offshore wind farms is starting, which is very positive news. A key element for the realization of these investments is the introduction of guarantees for investors. The Ministry of Climate and Environment proposed a maximum price of PLN 471.83 per MWh in the auctions to support the second phase of construction of offshore wind farms. However, wind industry chambers have protested this price as being too low and is likely to be raised slightly. As a reminder, in 2021, during Phase I of the construction of offshore wind farms (almost 5.9 GW, currently in a critical implementation stage), the maximum price, the so-called negative balance coverage, was PLN 319.6/MWh with inflation indexation. While everything seems fine, something is amiss. Technologies were supposed to be cheap and competitive, but offshore wind power is becoming more expensive.
Support for hydrogen: without subsidies, not a move (currently probably €4/kg) …
According to information from the deputy minister of the Environment (response to an MP’s interpellation), work is underway on a differential contract program for hydrogen, which will support companies in investing in the hydrogen economy. Simply put, subsidies are planned for the price of 1 kg of renewable hydrogen produced and used, which is more expensive than ‘dirty’ hydrogen (which emits CO2). Currently, ‘grey hydrogen’ (derived from CH4 reforming) is much cheaper than ‘green’ hydrogen (produced by electrolysis using RES energy), even taking into account the cost of CO2 emissions (about 10 kg of CO2 per 1 kg of ‘grey’ hydrogen). So you can see that the subsidies will be significant (although the data is disparate, grey hydrogen costs about €1.5-2.5/kg, while green costs €5-8/kg). Hydrogen was supposed to revolutionize Europe’s energy sector by 2030, but as you can see – without subsidies, no go.
Mining unchanged: 7 billion for 2024. What awaits us in 2025?
The fossil fuel sector is stable, and subsidies are going according to plan. After more subsidies, or rather, the transfer of bonds for the capital increase (PLN 2 billion in May/June), we are looking forward to the post-holiday and pre-holiday period for more financial support. Total subsidies are expected to exceed PLN 7 billion this year (although forecasts are as high as PLN 10 billion) but are still awaiting EU notification. From a legal point of view, the subsidies are currently being transferred illegally as an advance payment, pending confirmation of compliance with EU regulations.
Given current prices in the markets – RA hard coal costs about $115/ton, and CO2 emission allowances (EUAs) cost about €71/ton – there is no prospect of a reduction in mining subsidies in 2025, nor costs in coal-fired power generation falling below PLN 700/MWh. Despite cheaper fuel, production costs are rising due to high CO2 emission fees, leading to a problematic situation for both mining and coal generation – hence the need for record subsidies in 2025. It can already be forecasted that mining will require at least PLN 12 billion in support. Mathematically, the solution is simple – it is known that the deficit will be more significant, although it is unclear how quickly it will worsen.
Heavyweight: Nuclear power is an old budget deficit.
Specific information has emerged regarding the financing of Poland’s nuclear program. The government is planning direct public support for PEJ (a Polish investor), and relevant regulations are expected to be introduced as part of legislative work in the coming quarter. It is still being determined how everything will work – whether it will again be a subsidy in the form of bonds (as for mines), some form of loan guarantee, or some other support mechanism. It still needs to be determined how these measures relate to state aid notification by the EU (it may be worth starting the procedure already, as it takes at least a year).
One thing is sure: state aid will be PLN 60 billion. For comparison, in 2021, the Polish budget deficit was about PLN 22 billion. Still, the last few years have been a real rollercoaster – according to the 2024 budget, the deficit could reach as much as PLN 184 billion (we are on track, reaching PLN 84 billion after July). At first, I was concerned about the PLN 60 billion figure, but after checking additional data, one can see that while this is not a small amount, it is not that huge in the context of nuclear power support (about PLN 4,300 per family).