Bad as the price of energy is high, but as cheap… it’s even worse.

Politicians are used to making us worry about energy prices. This is a standard topic of dispute and discussion, and every government necessarily takes protective measures for the public – most recently another “energy price freeze” on our bills (actually, its part – the component for energy consumption) – until the middle of the year and at a level of about 414 PLN/MWh. In subsequent speeches by politicians, you can already see the anxiety – what needs to be done in post-June 2024 (probably to continue helping the poorest).

Meanwhile, most people are escaping the downward trend in energy and commodity prices, which has been observed for weeks and months. Global and European industry does not want to grow (economic stagnation), outside the window a warm winter, and gas storage facilities in Europe are complete – the war in Ukraine is stagnant from which gas suppliers benefit, pushing Russia out of world markets (all producers have maximized production, in the gas market the Americans are slowly mastering the demand for LNG supplies). Prices are plummeting – energy, which not long ago (more than a year ago) cost as much as 1500 PLN/MWh during peaks (in Europe on wholesale markets, there were temporary occurrences of as much as 500 Euro/MWh) is now relatively very cheap – on the Warsaw exchange TGE – 300 PLN/MWh (so adding the sellers’ margins – the final price on our bills should soon be lower than the one “frozen” by the government – I wonder if suppliers will do so). Raw materials, of course, are in a downward trend – gas is getting cheaper (the reference price in Europe is from the Dutch TTF gas hub is about 30 Euro/MWh – and it was almost 13 times more – that’s why there are further reductions on our household bills from PGNiG), coal is getting cheaper just as fast (here the reference ARA price of Dutch ports) below $100 per ton. The price of emission allowances (and therefore the energy burden of coal and gas) is also falling – the EUA certificate (1 ton of CO2), which not long ago already cost as much as 100 Euro/ton – is now at around 60 Euro/ton.

What is still invisible (to politicians) instead of rejoicing – should already be worrying them because it is a harbinger of significant energy troubles. It may be lighter on consumers’ bills (which means less subsidies from the budget), but the problem of energy investments begins. We need more wholesale prices to prepare for investment financing. To put it in perspective – today, offshore wind farms are built with a guaranteed price contract of at least PLN 319/MWh indexed for inflation – so approx. 400 PLN/MWh, while the British nuclear Hinkley Point C development had a price of £92.5/MWh. With inflation indexing, it’s about £580/MWh today – and even so, the project is currently struggling with cash for construction.

With low market prices, investors will not build – no one will pay for a new wind farm, and there will certainly already be a massive problem with the financial model of a nuclear power plant (here, the price should be 700-1000 PLN/MWh). European energy investments will temporarily halt, and suppliers will rapidly seek savings – which means the widespread use of Chinese components and, ultimately, the European PV and windmill industry crash. The low price of coal on the market is, of course, a catastrophe for the Polish mining industry (which mines at average prices of about PLN 900/ton – and is therefore more expensive than the external competition). Thus, too low prices paradoxically do not please anyone (energy suppliers will not lower the frozen price on their bills anyway). Energy investment markets are trembling in the foundations. European factories – are looking anxiously at Chinese supplies. Poland will have big problems with the launch of Phase II of offshore construction (offshore wind) and the nuclear power plant financing model. Long-term – nothing will improve because lack of investment means there will be no zero-carbon energy in the future and worse competitiveness of the Polish industry. So let’s keep our fingers crossed for economic growth and, paradoxically, rejoice as energy… gets more expensive.

The new Ministry (of Industry) and new headquarters (Katowice) are conveniently located for mining protests and tyre burning.

In the new government’s hands, there is a new Ministry (Industry) whose main task is to solve the problems of “heavy energy and raw materials” – coal, oil, gas and nuclear power plants. What should be noted as new is not the Ministry itself and its structure (there have been various solutions already in this country), but the location itself – it will be Katowice and, in addition, the same building as the headquarters of the largest coal company (PGG). This should be evaluated as a bold and innovative solution (although right after World War II, the headquarters of the Ministry of Mining and Industry was already there). This time, we have the industry (which deals with mining) and a return to a location that will be very convenient for all mining unions. Until now, if protests broke out, the miners had to organise buses and then drive 3-4 hours one way to Warsaw and only there to hold pickets and loud demonstrations with the use of vuvuzelas, fire sirens and visual effects with burning car tyres (and then still return home in the evening). Now it will be much more convenient – no need to drive far and waste time in buses, and the protest can be rotated and round-the-clock, not to mention the convenience of transporting tyres for burning. The venue will also be suitable for the government side; there will be no need when going to work (e.g. the Prime Minister’s Office or the Ministry) to wade through a rather aggressive crowd and see the protests – now they will be held remotely, so to speak. The fact that there will be protests is evident given the economic situation of the coal mining sector (planned losses that will soon exceed the so-called planned loss) and the twilight of the industry due to the technological revolution. Coal mining is coming to an end as in other European countries, and the coal power industry itself is reducing production faster than planned and without some more profound interference from the state, and the cost of production itself (the current 500 PLN/MWh) is at the moment the marginal cost (the most expensive source) for determining the exchange price of energy in the wholesale market. The so-called mining agreement assuming the end of mining in 2049 is, in practice, untenable – and, in fact, is not being implemented (I refer those interested to Appendix 2, which specified what investments in “clean coal” should be made (including gasification), but of course nothing happened. Anyway, it’s not the key of the social contract (nor the mining levels), but the subsidy (currently 7 billion in 2024), which is supposed to save the liquidity of the mining companies operations, and which the new Ministry has to notify the EU. So it can be assumed that there is no change, mining with a gigantic problem (it mines at 900 zlotys/ton and sells at 500 to the energy industry), the Ministry fights, the budget subsidizes the money, and there will surely be protests and tire burning – only that everyone will be more comfortable. Perhaps such a concept (locations) should be extended to other Ministries. So you can expect an outbound location of the Ministry of Agriculture on the border with Ukraine (there will undoubtedly be protests over the import of cheap production) as well as coastal branches of the Ministry of Infrastructure (related to the Maritime Economy), which will make the task (protest) easier for fishermen and workers of the remnants of the shipbuilding industry.

We know the energetic questions, but the answers remain masterfully vague….

The changes have also affected the media communications of energy decision-makers. More and more interviews are appearing (Ministers and Deputy Ministers), and the obvious questions are being asked – the energy mix, wind power, nuclear – timing and financing, price freezes, energy costs, and details of the energy transition. While the questions are getting more specific, the answers are mostly the same – except perhaps in the form, volume and independence of the interviews themselves. Meanwhile, in the specifics, it’s rather dingy. Some sentences can be quoted from memory – “detailed assumptions will appear soon”, “we will continue the program as soon as possible”, “we need to change”, and “Work is underway on the next version of the regulations”, and “the result will be in the next quarter”. You probably really have to wait another month (it’s customary to always have the first 100 days of each office for organization and detailed plans – and I’m surprised this has yet to be used). Around the first weeks of March, we’ll know specific answers (I encourage journalists to prepare a table with questions and a box for the result – YES/NO options, a particular date or specific money (at least that’s how I try to get answers from students instead of the usual long sentences with the result of “high”, “will increase” or “in the coming period”). Or alternatively… You should ask ChatGPT already – here, the answers are almost as accurate as the political ones.