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Polish approval for offshore wind farms aids coal transition

18 March 2021 Cristina Brooks

The competition authority in Poland has authorized 3.7 GW of offshore wind capacity following the roll out of subsidies for its attractive emerging offshore wind market.

The authority approved the three projects for two joint ventures involving international developers and companies part-owned by the Polish Treasury on 12 March.

The joint venture of Danish offshore wind developer Ørsted and state-backed Polish utility Polska Grupa Energetyczna (PGE) won approval to develop a pair of wind farms with a total capacity of 2.5 GW. PGE and its subsidiaries already operate 17 onshore wind farms in Poland in addition to hydropower, solar PV, gas-fired and coal-fired power.

PGE Group exemplifies the country's energy transition as an operator of coal power plants aspiring to decarbonize. PGE Group's current generation fleet is comprised of over 80% hard coal and lignite, and the group sources 60% of the fuel from its own lignite mines, the group said in its transition plan. It is also the third-biggest carbon dioxide polluter in the EU, according to the campaign group Europe Beyond Coal.

PGE Group has announced plans to separate its coal assets from its other activities as well as a program to spend zł75 billion (US$19 billion) to become climate neutral and supply 100% renewable energy by 2050. PGE also plans to increase the proportion of renewables in its mix from 9% to 25% in 2030. To do this, the company envisions acquiring offshore and onshore wind farms and PV assets, while converting its coal district heating network units to run on low-carbon gas.

The government's offshore wind approval also marks the entry of the global developer Ørsted into Poland's offshore wind market. "Poland, like many countries around the North and Baltic seas, has the benefit of good wind conditions and relatively shallow waters. The fundamentals are good for offshore wind and with the strong public support for the technology, Poland is a very interesting market for us," Ørsted's Head of Group Press Relations, Offshore Wind, Tom Christiansen told IHS Markit.

The government approved a separate 1.2-GW offshore wind farm to be developed by state-backed Polish oil refiner PKN Orlen and a Netherlands-based affiliate of Canadian renewable generator Northland Power, NP Baltic Windpower.

The first subsidies for offshore wind in Poland have been eagerly anticipated by the market. "This is really great news for the offshore wind energy sector in Poland. According to our outlook, the sector will exceed 16 GW of installed capacity by 2050," said IHS Markit Principal Research Analyst Andrei Utkin.

All three winning projects are expected to secure 25-year Contracts for Difference (CfD) offtake agreements, the developers said. The timespan covered by the subsidy is longer than those seen in other European markets as well as being less risky for developers, said Utkin.

The first 5.9 GW of offshore wind CfDs are set to be awarded through a non-competitive arrangement with the country's energy regulator by 30 June, and CfD auction rounds will take place in 2025 and 2027, with 2.5 GW to be awarded in each round.

Poland's renewable targets

The national government approved its revised Polish Energy Policy through 2040 in February, targeting a move into renewables and away from coal-fired power. The plan will see the country reducing coal's share of electricity production to 37%-56% by 2030 from 75%. Poland also has proposed investing zł150 billion ($39 billion) in nuclear energy.

The government has also set an objective of reaching 32% renewables in its energy mix by 2030, but it will not be easy to transition from coal-fired power. Poland has subsidized coal-fired power generation through Capacity Market auctions since 2018. It last year announced the exclusion of coal from auction payments starting in 2025.

However, Poland's power sector is currently burdened by financial woes. Its utilities must pay for EU emissions allowances to run coal-fired plants alongside a legislated duty to keep retail prices low.

"This situation has sparked ongoing disagreements between the government, the power sector, and the coal mining unions over policy," wrote IHS Markit Senior Analyst Zoe Grainge in a recent profile of the country's renewables market.

EU pressure

Despite Poland's recent targets, it was the only EU member state not to commit to climate neutrality by 2050 when the bloc set the target in 2019.

But in recent months the country has regulated its way onto an energy transition path. The government passed the Offshore Wind Act in February, setting out a plan to meet a 2050 goal for 28 GW of offshore wind.

The European Commission is aiming to make the EU the first climate-neutral region by 2050 in part through a massive scale-up in offshore wind projects. It has planned for a 25-fold increase by 2050 to reach approximately 300 GW, according to a communication on offshore wind published in November.

Posted 18 March 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

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