Warsaw, 20 March 2023

 

The new shape of the common energy market – the future of European energy

 

• The project of a new shape of the EU energy market (Electricity Market Design) was released in mid-March as announced earlier.
• The work on the document was preceded by public consultations conducted at the beginning of 2023.
• The aim of the regulation is to develop a better harmonized, more flexible, sustainable, and resilient energy market.
• The document emphasizes long-term mechanisms for stabilizing prices for consumers, combined with intensive development of RES (PPAs, CfDs).

Electricity Market Design, a document that was sent for review to many European energy-related organizations in January, is one of the most important initiatives planned by the EC for this year, demonstrating the determination to create a single energy market in Europe.

The price dynamics in the energy and gas markets have significantly increased in the last 4-5 years. Prices for energy and gas have shown hyperbolic increases and decreases since 2021, which has had far-reaching consequences for businesses and consumers in the EU, as well as for the global economy. To reduce the impact of these market dynamics, the European Commission proposed a range of extraordinary measures that most member states have implemented, targeting excessive energy costs.

In parallel with the intervention measures, the European Council called on the Commission to accelerate the structural reform of the electricity market to ensure energy sovereignty for Europe and achieve targeted climate neutrality by 2050. In her annual State of the Union address, President Ursula von der Leyen announced at the end of last year a proposed comprehensive overhaul of the energy market architecture, which is part of the Commission’s Work Programme for 2023. At the Energy Council meeting on December 19, 2022, Energy Commissioner Kadri Simson presented to ministers the project for a new energy market architecture. According to the adopted schedule, on January 23, 2023, the European Commission launched public consultations on the reform of the structure of the electricity market in the European Union. The proposed changes aim to protect consumers from unlimited price dynamics, promote access to energy from renewable sources, and make the market resilient to crisis situations.

The European Commission has identified several areas in which changes are possible, including the organization of the electricity market, demand management, the approach to renewable energy sources, and the method of setting the price of carbon emission allowances. The consultations ended on February 13th of this year and based on them, a draft legal act on the new shape of the electricity market was presented.

The previous structure of the electricity market in the European Union

The current structure of the electricity market in the European Union is regulated by the regulation on the internal market for electricity (EU) 2019/943 and the directive on common rules for the internal market in electricity (EU) 2019/944, adopted in May 2019 as part of the “Clean Energy for all Europeans” package. Both acts came into force in June 2019 and aimed to modernize the EU electricity market, increase competition, and accelerate the integration of renewable energy sources with national power systems.

These regulations introduced several key changes in the EU electricity market, including:

• Activating consumers: the regulations allowed consumers to have a more active role in the electricity market, for example by selling excess energy production to the grid or participating in demand response programs.
• Greater regional cooperation: the creation of regional coordination centers to facilitate cross-border trade and ensure supply security.
• Greater flexibility: allowing market participants to trade electricity in shorter intervals (15 minutes) instead of the previous hourly intervals.
• Greater support for the development of renewable energy sources: increasing the share of energy from renewable sources in the energy mix by introducing more market mechanisms to support their implementation, such as auctions and other forms of unrestricted tenders.

Although the shape of the electricity market in the European Union was established in 2019 and brought about several necessary changes, there were also criticisms raised, including a lack of harmonization of actions, insufficient support for renewable energy sources, management of energy storage, and inadequate emphasis on demand-side flexibility.

The idea of further reforms and modifications to the structure of the electricity market in the European Union was highlighted by the energy crisis, during which Europe needed a more harmonized, flexible, and sustainable energy market.

The reforms currently recommended by the European Commission aim to address the aforementioned shortcomings and build stable and well-integrated energy markets. Importantly, the achievement of the goals of the European Green Deal will not be possible without attracting private investment to support the transformation of the economy towards zero emissions. The new Electricity Market Design aims to create a market that is more flexible, competitive, and consumer-friendly, while also being able to better account for the growing share of renewable energy sources in the EU energy basket.

Increasing the independence of electricity bills from short-term prices of fossil fuels

The current structure of the electricity market is heavily reliant on short-term markets, which are susceptible to the instability of fossil fuel prices. This has resulted in significant price fluctuations for households and businesses. Energy consumers have often been deprived of choice and, due to a lack of access to cheaper electricity from renewable sources or the ability to install their own solar panels, have been subject to the volatility of the market. Short-term markets are important for integrating renewable energy sources and ensuring the appropriate balancing of electricity supply and demand. However, in times of energy crisis, this situation has exacerbated energy poverty while leading to a rapid increase in revenues and profits for low marginal cost producers such as renewable energy and nuclear power.

According to the European Commission, additional instruments and tools are necessary to address the instability of short-term electricity markets. This would create a “buffer” between consumers and short-term markets, providing more predictable electricity bills in the long term. Power purchase agreements (PPAs) are one type of long-term contract that allow the sale of electricity at an agreed price, which is less susceptible to short-term variability. PPAs aim to generate benefits for both energy consumers, by providing them with a competitively priced and stable electricity supply, and renewable energy producers, by providing them with a source of long-term income, as well as governments by providing an alternative to public funding for renewable energy implementation. However, the share of PPA contracts in the market remains limited mainly to large companies, and the entire segment is developing unevenly in individual EU member states.

The aim of the Commission’s regulation on EMD is to increase the share of power purchase agreements (PPAs) in the electricity market and create incentives for their use within the market structure. Additional legal measures are also planned, which could encourage industrial consumers and energy providers to enter the PPA market.

Another type of long-term contract that the European Commission believes could provide a boost to public-supported investment is the contract for difference (CfD). Such contracts also have less exposure to short-term price volatility, and their terms can be determined through a competitive tendering process. In the event of periodic high prices, CfDs can provide member states with additional funds to mitigate the impact on consumers.

The current reform of the electricity market presents an opportunity to include CfDs in the market structure. However, the rate of growth of CfDs should not have a negative impact on the growth of power purchase agreements (PPAs) in the EU, as both instruments are essential legal tools to meet the challenges of renewable energy dissemination. According to the Commission’s proposal, CfDs would be mandatory for new renewable energy sources and nuclear energy.

However, in the opinion of the European Commission, increasing the share of renewable energy and its use is crucial for ensuring the security of supply, and affordability, and achieving climate neutrality in Europe by 2050. The accelerated deployment of renewable energy, together with measures to improve energy efficiency, is expected to reduce demand for fossil fuels and ultimately lower energy prices across the EU. At the same time, any regulatory interventions in the structure of the electricity market should maintain and enhance investment incentives, ensuring investor confidence and predictability, while also addressing the economic and social problems associated with high energy prices in Europe. Otherwise, the Green Deal may begin to lose support.

There is also a certain risk associated with the proliferation of member-state particularism. The existence of national support systems for PPA agreements, national CfD contracts, national capacity-building mechanisms, and national flexibility support systems on the one hand allows for solutions to be adapted to local specificities. However, if requirements for coordination between member states are not defined, this may hinder the sustainable development of the common European market.

Alternatives to gas to maintain the balance of the power system

The uncertainty and high prices of gas have been blamed for the energy turmoil in Europe. As part of the new Electricity Market Design, the aim is to equip the market with flexible solutions such as demand management, energy storage, and participation in the market by independent, stable, renewable or low-emission sources. The consultation of the EMD project also aimed to gather information on how to guarantee supply security and self-sufficiency in unforeseen crisis situations while ensuring timely investment in new transmission and generation capacities. The consultation process also examined whether some aspects of exceptional interventions could be transformed into permanent elements of the energy market structure, which seems dangerous as it could introduce a greater culture of central market control that could harm investment incentives necessary for decarbonizing the electricity sector. On the other hand, the idea of a well-isolated exceptional regime, placed in the law a priori, could help regain trust in the markets. A known, formalized mechanism, triggered only in exceptional circumstances, could reassure market participants that there are no backward changes in stable times and that in exceptional situations, predictable measures can be applied. In this case, it seems that based on the new regulations, member states will have the freedom to apply regulated prices for individual and SME consumers in exceptional situations.

The energy crisis has led to increased energy costs for consumers and industry, resulting in a lowering of living standards and production capacity. It has also had an impact on professional energy companies and trading firms for whom the temporary legal solutions in force in 2023 are a significant burden. It is therefore difficult to determine whether the use of interventionist maximum prices and solidarity charges should be the preferred solution or whether it may be more effective to offer consumers greater opportunities to participate in energy markets (spot and forward) and access long-term contracts for the purchase of energy from renewable sources, coupled with universal education on ways to contract energy, control and plan consumption, and build energy efficiency.

Stronger protection against market manipulation

Regulation 1227/2011 on wholesale market integrity and transparency (REMIT) aims to ensure the integrity of the electricity and natural gas energy markets, fair prices, and the prevention of market abuse. However, in times of high price volatility, market disruptions, and new trading behaviors, there is a risk of negative trading practices. Therefore, the Commission is also focusing on strengthening the safeguards described in REMIT, with a greater emphasis on transparency, monitoring capabilities, cross-border investigations, and enforcement of regulations, in order to support the new structure of the electricity market. It also appears crucial to protect internal markets, whether it be EU-ETS, electricity, or gas trading markets, from strictly speculative actions that are characteristic of financial markets.

What does EMD mean for Poland?

The Union of Entrepreneurs and Employers took advantage of the opportunity to express its opinions on both the policy goals and specific measures through participation in consultations. The official presentation of changes to the electricity market structure occurred in mid-March 2023, although a few days earlier, commentators’ references to a leaked draft document began to appear in the public domain.

Electricity Market Design certainly arouses emotions, as it is a document directing European policy towards integration in many other areas of life. And although the general organization and structure of the market remain unchanged (the so-called Merit order), we must realize what a unified energy market in Europe means. Given that the electrification of practically all areas of life is unavoidable, the electrification of transport and heating will have particular significance in shaping a different way of functioning of European economies and lifestyles of Europeans.

Common European energy management will be of crucial importance for the standard of living and the pace of development of EU member states. It is no wonder that cost-effective energy contracting has come to the fore. Customers will soon have wider access to products with dynamic and fixed prices (for energy/gas purchases). New guidelines on securing trading positions by trading companies will be introduced. The new regulations will also increase the flexibility of the system through demand management (peak shaving, DSR) and energy sharing.

A common energy market is a continuation of the process of unifying Europe, which now, in the face of the war in Ukraine, seems like an absolute necessity if we do not want to lead to a split in the EU. Today, some European countries have decided to merge the command of their armies, which clearly shows the path of functioning and development they have chosen – which just a few years ago would have seemed too bold a step.

A common energy market in Europe, if the project of its reform and unification succeeds, will certainly be characterized by a relatively high level of stability, despite the extremely different energy systems of individual countries.

French nuclear energy is a relatively cheap source of energy, especially since most power plants have been fully amortized, so after overcoming maintenance downtime and strikes in the atomic sector, it will again be able to afford stably low energy prices. Naturally, over time, the technical condition of some reactors and the costs of servicing them will become an issue. Therefore, in recent times, the French renewable energy market has become one of the most dynamically developing in Europe.

In German energy, the level of investment in renewable sources has allowed for a radical reduction in energy prices from these sources. The size of the German economy will not allow for full reliance on renewable sources for a long time. Hence the almost pan-European debate on the justification of phasing out some nuclear power plants. However, without coal-based energy, the German economy cannot function. Yet, after gas prices return to an acceptable level resulting from the real costs of extraction and stabilized supply (independent of Russia), German gas-based energy, along with renewable sources, can gradually replace coal-based energy.

It seems that the target level of 50-60 euros per megawatt-hour is a realistic, stable price level for the common European energy market. What do price levels in a sustainably energy-balanced Scandinavia portend for the rest?

In light of this, what might the future price of energy look like in our domestic market? It seems that by creating a proper mix of renewable, gas, and coal energy, supplemented in the future with nuclear and hydrogen energy, we should be able to meet the challenges in this area.

A major problem could be the flexibility level of our transmission lines. Given the connections between our economy and the European economy, being a part of the European energy market seems unquestionable. However, negotiating optimal conditions for participation in such a market will be extremely difficult for our energy sector.

The dynamics of change in our energy system over the past 30 years have been weak. We have also not achieved significant success in terms of social acceptance of changes in energy. A common energy market requires a complete change in mentality for both producers and consumers. It requires optimizing the work of distribution and transmission systems, operators, and traders. Finally, it requires developing the market for distributed energy and tangible constraints on the work of base sources.

EMD (European Market Design) is a clear signal in which direction European energy is heading. However, in Poland, sometimes problems arise with basic laws relating to the foundations of the common European energy market, such as the wind farm act, amendments to regulations on direct lines, or the introduction of a system of a common use of transmission lines by various sources of dispersed energy (cable pooling).

A common energy market will be created in Europe, and soon. The lack of the possibility to synchronize our energy system with the market-oriented European model may have serious negative consequences for the entire Polish economy and threaten the further development of the country.

The war in Ukraine and the energy problems associated with it throughout Europe have led to greater negotiating flexibility for the European Commission in the energy sector. This is an opportunity for our economy to develop favorable conditions for our country’s participation in the entire European energy and heat market.

 

See more: 20.03.2023 The new shape of the common energy market – the future of European energy

Warsaw, 27 March 2023

 

Memorandum ZPP – Challenges for the Polish Agricultural Sector

 

• Despite the negative impact of numerous economic crises in recent years, Polish agricultural enterprises continue to achieve spectacular successes both in the country and abroad.
• However, in the perspective of the coming years, the significant problem for the agro-sector firms operating in the Polish market may be the consequences of the European Green Deal, which may undermine the satisfactory production indicators today.
• For years, agricultural enterprises in the country have been facing a wave of attacks with ideological motives, particularly those functioning in the breeding sector. Numerous problems have recently been taking on the framework of legislative changes implemented at the EU and national levels.
• The development of modern economic and consumer patriotism should now be one of the main strategies for the agricultural sector in the country. Statistics show that Poles attach much less importance to the origin of products than citizens of Western European countries.
• One of the most important tasks for agro-sector firms operating under Polish law should be diversification of the directions of export of agri-food products.
• The recipe for still high fragmentation of domestic farms is to create incentives for joint management within cooperative structures or producer groups. The level of organization of farms in Poland is several times lower than in Western EU countries.
• The last years, starting from the period of the coronavirus pandemic, through the energy price crisis, to the ongoing war in Ukraine, have been characterized by a regular increase in the costs of running agricultural enterprises in Poland. The most significant price increases have been recorded in the areas of fertilizer prices, agricultural fuels, gas, and energy.

Polish agriculture has relatively coped well with the effects of the crisis that has been ongoing for several years. The coronavirus pandemic and its wide spectrum of economic consequences, the breakdown of supply chains, the energy price crisis, which has led to an increase in the prices of plant protection products and fertilizers, as well as the consequences of the war in Ukraine are factors that have nevertheless left their mark on domestic agricultural enterprises.

Polish agro-sector companies felt the effects of all the above-mentioned events, but the diversification of export directions that has been built up for years and the business professionalization of agricultural enterprises allowed them to achieve another record value of food exports from the Vistula River region. In 2022 alone, Polish food producers exported goods worth 26.1 percent more than in 2021, or 47.6 billion euros. Polish products remain competitive in price on international markets. The favorable exchange rate of the zloty against the euro also played a role in the past year’s exports. Domestic suppliers also properly prepared for the consequences of the pandemic and were able to respond to diverse consumer preferences by designing their product offerings appropriately. Surplus production indicators allowed for the full supply of the domestic food market, making agriculture one of the most important pillars of national security, alongside military and energy production.

 

However, the agricultural sector in Poland still struggles with numerous problems that effectively hinder the stabilization of the functioning of some entities on the one hand and their development on the other.

The European Green Deal

The European Green Deal is an EU economic strategy that places particular emphasis on shaping a communal economy while taking into account restrictive climate goals. In the context of the agricultural sector, the two main components of the Green Deal are the Biodiversity Strategies and From Farm to Fork. These strategies entail changes that will fundamentally impact the development of EU farms and a decisive shift towards ecological farming (based on EU guidelines). According to the European Commission’s assumptions announced in 2020, they include a 50 percent reduction in the use of plant protection products and a 20 percent reduction in the use of fertilizers by 2030, the mandatory allocation of 25 percent of the area for organic production, and a reduction in the number of antibiotics used in animal husbandry.

The European Commission maintains that the new strategy for agriculture will make this sector of the economy more modern and environmentally friendly, and should not result in significant production declines. However, units under the supervision of the Commission have not presented concrete calculations regarding the impact of the planned reforms on agricultural production indicators. Relevant research has been presented by USDA, HFFA Research, the Joint Research Centre (JRC), the University of Cologne, and the Wageningen University and Research Centre scientists. In their view, the new shape of EU agriculture could seriously threaten the EU’s position as a group of countries that are secure in terms of access to food. This is particularly important in light of the war in Ukraine and the uncertain financial situation of many EU farms, which, faced with significant increases in the cost of doing business, may limit production. Experts from the Wageningen University and Research Centre have calculated that EU agricultural production could be reduced by 10-20 percent after the full implementation of the regulations, and up to 30 percent in relation to certain specific crops. Difficulties may also arise in the livestock sector, where scientists point to potential production declines of around 20 percent for beef and about 17 percent for pork production. This will result from the limited use of certain veterinary medicines and the reduction in the production of feed crops (most of the grain grown in Poland is intended for the feed industry).

Representatives of the Polish agricultural sector also point out that some of the EU regulations have a much greater impact on domestic companies than on those in the western part of the Community. Concerns include the mandatory transfer of land for organic production, which, as representatives of the agricultural sector rightly point out, is usually low-yielding. According to data from the Supreme Audit Office, between 2012 and 2019, when the average area of organic crops in the EU increased by 25 percent, it decreased by the same value in Poland. This puts our country in a more difficult starting position compared to Germany, France, and a number of other countries in the western part of the continent.

Similar doubts arise regarding the restriction of the use of plant protection products under the EU directive on the sustainable use of plant protection products (SUD). The European Commission’s requirement concerns a 50 percent reduction in the use of PPPs, based on their current levels of use. In practice, this means that Poland will be a country disadvantaged compared to other Western European countries. In 2022, Poland used 2.1 kg of PPPs/ha, while the EU average was around 3.1 kg/ha, with significantly lower levels of use in countries on the southeastern flank of the Community. For comparison, the average use of PPPs in the Netherlands in 2022 was about 8 kg/ha. After the planned reduction by the European Commission, Poland will be able to use a maximum average of 1.05 kg of plant protection products/ha, while Dutch farmers will be allowed to use 4 kg of PPPs/ha – twice as much as Poland uses today, before the full implementation of the SUD.

According to numerous experts, the planned reduction may lead to the uncontrolled spread of agricultural pests. Restrictions, as emphasized by sector representatives, can effectively prevent the proper protection of crop plants in Poland.

The Union of Entrepreneurs and Employers believes that regulations shaping the EU agricultural economy should be based on solidarity, meaning fair, and favoring a certain group of countries at the expense of others is absolutely unacceptable. The government side should make every effort to ensure that Polish agricultural enterprises are not disadvantaged as a result of the implementation of EU regulations.

Winning against hate

Poland is one of the leaders in food production among the countries of the European Union, particularly in the livestock sector. According to data from the National Center for Agricultural Support, meat, meat products, and livestock accounted for the largest group of goods in national exports (20% of the total value of agricultural and food exports from Poland). In the last year alone, the foreign sales of this category amounted to a value of 9.6 billion euros, representing a year-on-year growth of 37%. Additionally, the dairy production sector exported goods worth over 3.6 billion euros (+37% YoY) in the previous year, which indicates the dynamic development of animal production in the country. Poland is now an EU leader in the poultry market, one of the top egg producers, an important player in the dairy market, a significant supplier of pork and beef, and a world champion in fur animal breeding.

The livestock sector is now a kind of pearl in the crown of Polish agriculture. The high standards that Polish farms operate under, combined with the competitive price of our products, make Polish meat, milk, cheese, and eggs sought-after goods in many regions of the world.

However, it is difficult not to notice that the growing position of domestic producers on foreign markets has made their companies the target of numerous attacks by organizations unfriendly to the animal husbandry sector. Campaigns such as “The End of the Cage Era,” “The End of the Slaughter Era,” “Meat Tax,” “Ban on Fur Animal Farming,” “Elimination of the Possibility of Slaughtering for Religious Communities,” campaigns against popular “3” eggs, and other similar initiatives have effectively absorbed the attention of producers in recent years, significantly hindering their business development. It should be noted, however, that the possible consequence of actions such as the introduction of a ban on the use of cages in the breeding and rearing of poultry, additional taxation of meat products, regulation of meat under the C40 agenda, or the departure from “3” eggs by successive retail chains (based on arguments that have been repeatedly refuted by scientific communities) may translate into a significant reduction in agricultural production indicators in the country. It should also be noted that many campaigns against animal husbandry are inspired by purely ideological motives. However, while we fully respect the decision to give up consuming animal products, we believe that this should always be a choice, not a compulsion.

According to the Union of Entrepreneurs and Employers, every effort should be made to ensure that animal welfare in Poland is at the highest possible level, but any moves in this regard should be made with the utmost caution so as not to undermine the position of domestic firms. Raising production standards is a global trend today, which is scientifically justified. However, revolutionary movements towards the organization of breeding, advocated by activists from some non-governmental organizations, may lead to a situation in which Chinese or MERCOSUR companies, i.e. locations far from the breeding standards prevailing in Europe, replace Polish or broader European producers. The market does not tolerate a vacuum, and sudden restrictions on the production of animal-derived food in Europe will not lead to a long-term decrease in its consumption on a global scale.

Meat consumption in the EU amounted to 69.8 kg per capita in 2020, which was more than twice the global average. Limiting meat production in the EU – as is the case with dairy or eggs – will not result in a decrease in consumption, but will only increase the scale of importing these products to the European Union, limiting the position of European companies and reducing the quality of food.

Building a strong brand “Poland”

The idea of modern consumer patriotism should guide the national agricultural economy. In Poland, numerous campaigns have been carried out for years to awaken consumer patriotism among the citizens. However, the results of these campaigns are far from ideal. Although the share of domestic products in the market is still increasing, the average Pole purchases fewer domestically-produced products than in Western European countries. According to a survey conducted by “Polish Countryside and Agriculture,” only 56% of non-farmer Poles consider the country of origin of a product to be important. It’s not surprising since real actions to raise awareness of what truly constitutes a Polish product and what is just a simulation have only been implemented in the last decade. The majority of Poles still do not know how to differentiate Polish products from those representing foreign capital.

Certifications, galas, campaigns, conferences, or even whole congresses have not fulfilled the expectations placed on them. Neither symbols supposedly indicating the Polish origin of a product nor even a barcode starting with the number 590 provide consumers with certainty that the purchased goods were actually produced by a company representing Polish capital. This does not mean that the domestic market should be closed to products delivered by foreign companies – Poland is not self-sufficient in the food market and does not have such aspirations today. The key issue should be building knowledge that allows consumers to make informed choices between foreign and Polish products.

A modern approach to consumer patriotism requires a focus not only on the consumer aspect but also on institutional support for domestic companies that comply with EU law. Building a strong position for Polish brands both domestically and internationally should become one of the main goals of the Ministry of Agriculture, as well as the Ministry of Development and Technology, the Ministry of Foreign Affairs, and institutions subordinate to the Minister of Agriculture and Rural Development, with particular emphasis on the National Centre for Agricultural Support.

The agricultural sector in Poland has a wide range of opportunities to enable Polish products to gain a reputation comparable to world-renowned “French cheeses” or “Italian wines”. Consumer and economic patriotism should be nurtured as it ensures proper circulation of capital in the economic cycle. If supported by an appropriate legislative environment, it can be a real driving force of the Polish agricultural economy. This idea is not new – the importance of building a strong “Poland” brand was emphasized by the government as early as 2015, during the announcement of the Plan for Responsible Development.

 

Diversify exports

For almost a decade, one of the main goals set by the Ministry of Agriculture and Rural Development has been to diversify the export destinations of agri-food products produced in Poland. The importance of expanding markets beyond the country’s borders was highlighted by the coronavirus pandemic and the war in Ukraine, which disrupted supply chains and affected demand for food products in the European Union market.

Poland has been steadily increasing its share of non-EU countries as recipients of domestic products. In 2022, Polish agricultural companies sold goods worth a total of EUR 12.3 billion to non-EU countries. This is 20 percent more than in 2021. Outside the European Union, we mainly sold milk (EUR 1 billion), poultry (EUR 990 million), wheat (EUR 776 million), chocolate and chocolate products (EUR 773 million), bread and bakery products (EUR 731 million), and tobacco products (EUR 612 million).

In 2022, Polish goods were mainly exported to the United Kingdom (EUR 3.7 billion), Ukraine (EUR 945 million), the United States (EUR 770 million), Saudi Arabia (EUR 521 million), Israel (EUR 439 million), Norway (EUR 296 million), and Algeria (EUR 242 million). For each of these countries, there was a significant increase in the value of exports, with the UK seeing a 25 percent increase, Ukraine a 16 percent increase, and the US a 16 percent increase.

It should be emphasized that such significant increases in foreign sales values were largely caused by increases in production costs, which resulted in price increases for products. Nevertheless, the upward trend in foreign trade of agricultural and food products to non-EU countries was already noted before the coronavirus pandemic, and positive trade balances indicate proper planning of the global trade exchange.

However, despite undeniable successes, Polish food exports outside the European Union accounted for only about 26 percent of the total export of agricultural and food products from Poland. One should not deceive themselves that non-EU markets will replace the position of the EU market, but the intensification of trade exchange with three key areas should be demanded: Ukraine, China, and countries in the northern part of Africa. Today, the presence of Polish companies in these regions of the world is mainly the result of entrepreneurs’ efforts. Increasing the state’s involvement in supporting negotiations on trade exchange conditions – in relation to these three groups of countries – is crucial.

Regarding Ukraine, which is potentially a very important partner for Polish food producers, the trade balance in the last “measurable” period, i.e., in 2021, was unfavorable for Poland. Polish companies exported agricultural and food products worth 811 million EUR to our eastern neighbor while importing food worth over 919 million EUR at the same time. In recent years, the growth dynamics of imports from Ukraine have also been higher than in relation to exports. Only in the period 2020-2021 did the import of goods from Ukraine to Poland increase by 27 percent.

Poland mainly exports milk and dairy products to Ukraine. They accounted for 15% of all agricultural exports to this country. Cheeses, curd cheese, butter, and milk fat also occupy an important place in the export structure. Poles also export significant quantities of yogurt, cream, fruits, confectionery, and animal feed products. However, considering the significantly surplus character of domestic agricultural production, this is still too little. The revival of foreign trade in food products with Ukraine, with particular emphasis on reversing the unfavorable balance of foreign trade, should become one of the main challenges in the export of domestic products. Inevitable production declines in Ukraine caused by the Russian invasion now create an opportunity for Polish exporters who have gained the possibility of establishing themselves in the market of their eastern neighbor. Increasing exports from Poland is also desirable for the Ukrainian side, which must quickly deal with the supply gap caused by massive aggressor attacks on agricultural infrastructure.

The increased role in the export map of the Polish agri-food sector should be played by China, the world’s largest consumer market. The only significant product sent to the Middle Kingdom for years has been dairy products. In 2021, Polish companies from this sector sold products worth about 1.76 billion euros to the Asian hegemon market. However, this is still a drop in the ocean of needs. The export of agri-food products from the largest EU economies to China exceeds today’s Polish indicators many times over. The success of the dairy industry should give other leading sectors in the country food for thought. An increase in exports to China could be realistically achieved, for example, by the poultry industry, which is crucial for the Polish agricultural economy. However, there is a significant need for institutional support, which has so far been ad hoc and often only illusory. Meanwhile, the dynamic development of successive retail chains in China and the thriving online trade make it easier to reach consumers with new product categories every day.

The natural direction for expanding exports should also be Arab countries and Israel. Poland is already strongly present in these markets, but the potential has remained untapped for years. The most desired Polish products there are grains and meat products from halal and kosher slaughter systems. Especially the latter two categories are exceptionally lucrative, and Poland – thanks to competitive prices and high-quality deliveries – can increase its engagement in exporting these products to countries in the region.

Increase in costs

The recent years – starting from the period of the coronavirus pandemic, through the energy price crisis, to the ongoing war in Ukraine – have seen a regular increase in the costs of running agricultural businesses in Poland. One of the most important factors here is the increase in fertilizer prices, which are necessary to maintain high yields and soil quality. Another factor influencing the rise in costs of running agricultural businesses is the increase in gas prices. Gas is used to heat buildings and equipment, but it also constitutes a major component of the final price of fertilizers.

According to data published by the European Statistical Office, in the last year, the costs of agricultural businesses in the European Union countries increased by nearly 40 percent, which is a huge challenge for farmers. At the same time, it was pointed out that agricultural product prices in the EU increased on average by about 30 percent, which does not allow for “catching up” with the high production costs. However, it is worth noting the huge disparities between EU countries. The cost of agricultural production in Lithuania increased by 65 percent in the last year, while in Denmark the increase was only 7 percent.

Eurostat has also analyzed the costs of agricultural production such as the cost of fertilizers and soil improvers, which have increased by an average of 116 percent in the European Union. In addition, energy and fuel costs have increased by 61 percent.

According to Eurostat data, Poland ranked 7th last year in terms of the growth of agricultural production costs in EU countries and 5th in terms of the growth of agricultural product prices. The data indicates the complexity of the situation in the agri-food market in Europe and the need to implement measures to protect the interests of agricultural entrepreneurs.

Immediate institutional financial aid, while in many cases beneficial for food producers, should not be a permanent mechanism. According to the Union of Entrepreneurs and Employers, schemes should be implemented to maximally relieve entrepreneurs by rationally reducing the level of contributions, taxes, and other costs that effectively tie the hands of domestic companies in the agricultural production sector.

Problematic fragmentation of farms

The problematic fragmentation of farms in Poland, resulting from the shaping of the agricultural policy during the communist era, has remained a significant issue for the national agricultural sector. This has a decidedly negative impact on the negotiating power of Polish farmers. The average land ownership per person employed in Polish agriculture, as indicated by Eurostat, is only 8.7 ha/person. Meanwhile, the EU average in this regard is 19.2 ha/person. Poland is also well below the average for the region. For example, in Hungary, the land ownership rate is 11.9 ha/person, in the Czech Republic, it is 33.5 ha/person, and in Slovakia, it is as much as 40.5 ha/person. The average size of a Polish farm in 2022, according to GUS data, was only 11.32 ha, which is not much when considering Eurostat’s 2020 data indicating that the average size of a farm in the EU was 17.4 ha. Poland is particularly behind compared to the largest agricultural economies in the European Union. In France, it is around 45 ha, in the Netherlands just over 22 ha, and in Germany over 53 ha.

An additional advantage of smaller farms in Western Europe is their high rate of the organization into cooperative structures or groups of agricultural producers. This allows small entities to compete on equal terms with the largest companies in the industry. This opens up a path for negotiations with the largest points of sale for goods and significantly increases their ability to conduct exports, which requires the accumulation of significant amounts of homogeneous goods. Achieving this goal is only possible with proper production planning, which is the responsibility of cooperatives or other forms of farmer association.

The organization rate of farms in Poland is around 15%, while in France, Germany, Belgium, the Netherlands, and Scandinavian countries, it is over 90%. This means that 85 out of 100 farmers in Poland remain with their problems without real support. The fact that agricultural cooperatives payoff is evidenced by the fact that French cooperatives generate annual revenues of EUR 85 billion, Denmark – EUR 30 billion, and in the Netherlands – EUR 25 billion. In Poland, however, a high percentage of farm organizations is only recorded within the dairy production and fruit growing sectors.

An additional advantage of the special organization of farms in Western European countries, i.e., Agricultural Commodity Exchanges, is their presence at all levels of the agricultural production and food trade chain.

Poland, even before the communist period, laid the foundations for the development of agricultural cooperatives in Europe. However, the times of the People’s Republic of Poland distorted this form of common management, discouraging Polish farms from it for years. Today, the only chance for the development of cooperatives is to create regulatory incentives. In this context, recent changes in the Corporate Income Tax Act should be pointed out, which introduced “tax exemptions for the trade in products for the production of which the cooperative was established” for cooperatives functioning as micro-enterprises. Under these provisions, cooperatives were removed from the group of taxpayers for property tax on “buildings and structures or their parts and land occupied under them that are owned or in perpetual usufruct of the agricultural cooperative or its association conducting activities as a micro-enterprise.” However, Polish law still provides cooperatives with meager benefits compared to the West for joint management.

Summary

Polish agriculture – despite numerous successes achieved both domestically and abroad – still remains an area of untapped potential. Apart from the discussed challenges, the focus will have to be on, for example, freeing Polish farms from direct EU subsidies, a real fight against epidemics of ASF and avian flu, development of water retention, which can protect us from effects of drought, and a number of other pressing issues.

Companies in the domestic agricultural sector, synergistically cooperating with public administration, have all the arguments to continue the process of professionalization of their activities. Every year, new agricultural enterprises emerge from the group of previously small entities in Poland, which quickly begin to become noticed on the domestic or international market. The Association of Entrepreneurs and Employers believes that the group of over 1.3 million farms in the country is a potential source of future success for the national economy. Many agricultural sector companies are already leading the way in the region, building a positive perception of Polish business in markets around the world.

 

See more: 27.03.2023Memorandum ZPP – Challenges for the Polish Agricultural Sector

Warsaw, 1st March 2023

 

Nuclear energy – Ukrainian experience Poland can draw from

 

A memorandum summarising the discussion dedicated to the Ukrainian power industry that took place during the second roundtable of the Energy and Climate Forum of the Union of Entrepreneurs and Employers.

• In pre-war Ukraine, there were four nuclear power plants with a total capacity of nearly 14 GW,
• In January 2023, a decision was made to build two new AP 1000 reactors, and Ukraine plans to build a total of 9 new blocks,
• Technically, it is possible to replace Russian nuclear fuel with alternative sources, and would take approx. 4-5 years, therefore the discussion concerning sanctions for Rosatom should primarily be seen as political,
• Ukraine has developed competencies and advanced infrastructure enabling it to transfer its know-how to Poland, where the nuclear industry is currently picking up momentum.

On 7^th February 2023, the second debate in the “Energy in the context of Ukraine’s reconstruction” series took place as part of the Union’s project “Europe-Poland-Ukraine. Rebuild Together. 2023”. The discussion titled “Nuclear energy – Ukrainian experience Poland can draw from” was chaired by Dominika Taranko, Director of the Energy and Climate Forum of the Union of Entrepreneurs and Employers.

The discussion aimed to illustrate the current state of Ukrainian nuclear energy and the country’s plans in this area for the coming years. During the meeting, participants elaborated on such issues as:

• What kind of cooperation can we plan between Poland and Ukraine in the field of nuclear energy?
• Can the nuclear energy developed in Ukraine over decades be an example for Poland?
• How was the atomic energy sector organised prior to the war and what changes have the military operations brought about?
• In spite of military threats, is this infrastructure still operational and to what extent?
• Is it realistic to export Ukrainian atomic energy as of today and in the future, including its imports to Poland and other EU member states?
• Should we expect a transfer of knowledge from Ukraine to Poland, which is currently working on nuclear projects? Which experiences will investors benefit from?

The following guests were invited to the debate:

• Andrzej Chmielewski, Professor at the Warsaw University of Technology, Director of the Institute of Nuclear Chemistry and Technology, Vice-Chairman of the Programme Council for Nuclear Safety and Radiation Protection at the National Atomic Energy Agency
• Robert Jankowski, President of the Board at the Polish Climate Forum
• Adam Juszczak, Advisor in the Climate and Energy Department at the Polish Economic Institute
• Oleh Kazanishchev, Counsellor at the Embassy of Ukraine in Poland
• Olga Kosharna, Independent Expert on Nuclear Energy and Safety
• Bogdan Pilch, General Director at the Polish Chamber of Power Industry and Environmental Protection
• Hennadii Radchenko, Advisor at the Ukraine Business Center
• Ivan Grygoruk, Vice President at the Energy Club, who submitted his position in writing due to internet disruptions during the debate.

Ivan Hryhoruk who spoke on behalf of the Energy Club presented the current state of Ukrainian energy. Prior to the full-scale military aggression in Ukraine, there was a surplus of generated power, including that from renewable energy sources. Energy demand in recent years reached 19-20 GWh, with close to 15,5 GWh during the pandemic.

As for the energy balance, before the war, nuclear power production accounted for 50-60% of the electricity generated in Ukraine. There were four nuclear power plants (NPPs) in Ukraine, producing electricity in as many as 13 PWR-1000 nuclear reactors and two PWR-440 reactors with a total capacity of 13.8 GW. The nuclear industry in Ukraine also includes nuclear waste storage facilities, research reactors, uranium production facilities, and the Chernobyl Nuclear Power Plant Zone of Alienation. The remaining 40% of pre-war electricity produced in Ukraine was generated by hydroelectric, thermal, and pumped-storage power plants, and wind farms

Currently, electricity production and consumption have significantly decreased as a result of the Russian aggression. The damage to the energy infrastructure is enormous, and Ukrainian power plants, including the Zaporizhzhia NPP, are also occupied by Russian terrorists. The exploitation of seized power plants violates all safety standards, which could lead to a global nuclear disaster and serious consequences for the entire region.

In Europe on the other hand, on average, 25% of energy consumption comes from nuclear power. Some countries, like Poland, are only at the beginning of their journey towards nuclear energy, and Ukraine’s experience and resources can play a significant role in the region.

Olga Kosharna and Ivan Grygoruk discussed the history of Ukraine’s nuclear energy and the industry’s current state of affairs. After the collapse of the Soviet Union, Ukraine inherited 12 nuclear power blocks, significant mechanical infrastructure, and the ability to construct technical equipment. During Ukraine’s independence, all reactors were modernized, and three new blocks were added: No. 6 in the Zaporizhzhia NPP, No. 2 in the Khmelnytskyi NPP, and No. 4 in the Rivne NPP.

Understanding the need for full independence from Russia in the nuclear industry and the associated significant risks, Ukraine had already negotiated with American companies General Atomics and Westinghouse in 1992 and 1993, respectively. As a result, in 1994, a decision was made to enter into a protocol of cooperation with Westinghouse – a considerable event that in fact gave rise to the programme for nuclear power plants transition from old Russian nuclear fuel to a new fuel produced with Westinghouse technology.

In 2005, Westinghouse’s nuclear fuel was loaded into power blocks at the South Ukraine NPP and partially in the Zaporizhzhia NPP, whose block No. 5 became the second in Ukraine to operate solely on Westinghouse nuclear fuel in 2019.

Beginning in 2014, when the threat of a full-scale war with Russia first arose, Ukraine would systematically reduce the supply of goods and services from the Russian Federation. Before the invasion a year ago, Ukraine was already receiving almost 50% of its nuclear fuel from a non-Russian producer, the US-based company Westinghouse. Therefore, while Ukraine remains partially dependent on fresh nuclear fuel supplies from the Russian Federation, Westinghouse according to their contract with Ukraine is able to compensate for losses in the Russian market by producing fuel for PWR-1000 and PWR-440 reactors in No. 1 and No. 2 power blocks of the Rivne NPP.

Incidentally, Ukraine in 2019 became the first country in the world to successfully implement a nuclear fuel diversification project for PWR-1000 reactors. In 2020, the Rivne NPP was also in line to use Westinghouse nuclear fuel for PWR-440 reactors. At the same time, accompanying programs were being developed and implemented to introduce spent fuel management technology and build a central repository for spent nuclear fuel.

Ukraine has unique enterprises that have modernised all of its nuclear power plant blocks through their own efforts. A prominent example of such a company is “Impuls” from Sievierodonetsk, which produces automatic systems for controlling technological processes as well as devices controlling the flow of neutrons inside a reactor. Other enterprises producing IT-and-control systems include “Radii” from Kropyvnytskyi, and Kharkiv-based “Vestron”, a Ukrainian company cooperating with Westinghouse, and “Khartron”. This means that all control panels in every Ukrainian NPP are currently Ukrainian-made.

Ukraine has competitive enterprises that produce dosimetric instruments and radiation control systems, such as “Ekotest”, the scientific and production enterprise “AtomKompleksPrylad”, the joint enterprise “Atomprylad Design Bureau”, and the “Ukrainian Devices and Atomic Systems” corporation. Everyone knows “Turboatom” from Kharkiv, which has just merged with the Kharkiv Machine-Building Plant and “Elektrovazhmash”. Ukraine has enormous potential when it comes to production of goods and services for the development of its own nuclear power industry, including new construction projects. Even as much as 70% of goods and services, excluding ready-made nuclear fuel, can be provided independently by Ukraine.

Due to the Russian invasion, “Impuls” relocated to Kiev. Sievierodonetsk, where the company had been founded, was completely destroyed following the second occupation of the city since 2014. “Radii” from Kropyvnytskyi is operating as usual, along with all other enterprises. However, the war is still raging, and Kharkiv-based “Turboatom” came under fire – its facilities were partially damaged, but the company remains operational.

Prof. Andrzej Chmielewski reflected on his Ukrainian professional relationships and personal memories: “On one of my early projects, I was involved with IBOGEM, a company from Kharkiv. Currently, my colleagues who worked with me had to move to Germany because of the war and destruction of the city. We signed an agreement with Mrs. Olga Kosharna and her institute, and we hosted Ukrainian professors for lectures, while our students from Warsaw University of Technology visited Chernobyl to see the devil’s not so black as he is painted on the one hand, and on the other to see the well-organised radioactive waste processing and storage facility located there. Polish-Ukrainian cooperation has solid foundations. Later, the pandemic interrupted these academic trips, but virtual conferences were held in their stead.”

The Institute of Nuclear Chemistry and Technology, headed by Professor Chmielewski, offers support to Ukrainian doctoral students. More specifically, it has funds at its disposal allowing it to host doctoral students for a half-year period. The students need not to change their research topic and can continue their doctoral studies in a peaceful environment in Poland. Given the shortage of personnel for planned nuclear investments in Poland, strengthening scientific cooperation can be valuable for both sides.

Uranium and sanctions

According to data from 2021, Russia supplied around 20% of uranium to the European Union for use in nuclear power plants. Kazakhstan supplied even more, approx. 23%, whereas Niger came in the first place with deliveries in the ballpark of 24%. Even the French, with their developed nuclear industry, imported 20% of their uranium from Russia.

This year, due to Russia’s unacceptable policies, a discussion regarding the import of nuclear fuel from Russia began at the European Parliament, where several countries, including Poland, Lithuania, Latvia and Estonia, called in September of last year for a complete severance of all contacts with Russia in the field of nuclear technology. Germany came in support of this this cause. However, unanimous agreement was required for sanctions to be put in place, and two countries, Bulgaria and Hungary, refused to agree to them. Especially since the Hungarians had already begun the construction of two new nuclear blocks using Russian loans. Making these commitments null and void would be difficult for them.

In Europe, there are 18 Russian-made reactors in operation, mainly in CEE, including the Czech Republic, Hungary, Bulgaria, Slovenia and Slovakia. In the event of sanctions being imposed on Russian uranium, these countries would need to switch to alternative fuel sources. Romania, however, does not have this problem, as it produces its own fuel for CANDU reactors, which run on natural uranium. Westinghouse already supplies fuel to eight different blocks in Ukraine, and this will eventually be possible for all 15 blocks. Finland no longer imports fuel from Russia, and Vattenfall in Sweden stopped importing Russian fuel on 24^th January. Canada and Australia also previously relied on Russian fuel, but are determined to cut these ties.

In Poland, the Maria research reactor, located in Świerk – more or less 25-30 km from Warsaw, initially used highly enriched fuel, with a concentration of 60%. The reactor was built by Poles, which proves that Poland is capable of working with nuclear technologies. The first fuel was of Russian origin. Later, when the United States imposed restrictions on the level of uranium enrichment, it was gradually reduced in the Polish reactor to 28%, then to 22%, and now it is at 19%. As of now due to economic factors, Poland still uses Russian fuel. For many years, Poland was also a member of the Joint Institute for Nuclear Research in Dubna, but withdrew last year in the fall.

The reactor in Świerk has already switched to the French fuel supply. It is decidedly more difficult to develop a transition to a different fuel for smaller reactors than for larger ones, where certain standards apply. In Świerk, a neutron flux is used, meaning a flow of neutrons on the order of 10¹⁴. It is used to irradiate uranium for molybdenum plates in order to obtain technetium-99m, which is then used for thyroid and other organ scans. When one of the Canadian reactors was temporarily shut down, Świerk provided approx. 18% of the total global supply of these plates. However, the plates were not processed locally and were sent further to Belgium.

Currently, it seems that from a technical point of view, switching nuclear installations to fuels other than Russian is not a major problem. However, it remains unknown whether all the factories that produce enriched uranium are prepared for this change. They would have to supply larger quantities of fuel to the market at a rapid pace.

As Professor Andrzej Chmielewski emphasised: “When it comes to fuel, the Warsaw Institute, which was founded in 1956, was mainly established to process nuclear fuel, including to obtain uranium oxide or metallic uranium. When I saw the nuclear fuel factory in Wilmington, USA, it was not in fact a huge facility, like a petrochemical or a large power plant. Some of these facilities are not much bigger than what we have had in the research hall at the Institute. Nonetheless, the enrichment process is difficult, very expensive, and characterised by high energy consumption. For example, the French have two enrichment stations, and their two nuclear power plants basically work solely for this enrichment system.”

The competences to restore the nuclear industry in Europe, including uranium enrichment, exist because modern technologies are already available. These are cascade installations. The enrichment ratios are very low, so the process must be repeated multiple times. Therefore, it is quite a complex installation. And in order to make a decision to build a uranium enrichment facility, someone must want to buy such a product later on. In other words, enrichment stations are built in response to specific demand, and such installations are not built speculatively.

Technology is constantly evolving, for example in the direction of laser processing. In the United States, there is already a system for uranium enrichment using laser methods. This involves “hitting” uranium using a laser in a precise manner, ionising it, which then makes it very easy to separate uranium isotopes. It is possible, therefore, that we will be taking this direction in terms of uranium enrichment.

On the other hand, some nuclear power plants are already worn out and close to being shut down. In light of the collective departure from Russian fuel, it would be worthwhile to assess which atomic units will still be used and how long. Perhaps natural replacement of old nuclear blocks with new ones would also smoothly introduce change in fuel in power plants.

Increasingly often, it is said that the uranium enrichment stage is the bottleneck, because obtaining hydrogen and uranium is not a complicated process. However, the problem of political influence from Russia remains actual. Production in Kazakhstan is largely controlled by Rosatom. Currently, the Western world is looking for new ways of transporting uranium, as previously about 40% of fuel passed through St. Petersburg. Recently, a connection was established over the Caspian Sea, which could transport materials to Europe by planes. China is considered an alternative, but would de facto bypass enforced sanctions.

The time horizon for moving away from Russian fuel is estimated to be circa 5 years. This is more or less how long power plants can store fuel. This is possible thanks to the efficiency of nuclear fuel. From one gram of uranium, we obtain roughly the same amount of energy as from 2-3 tonnes of coal. So, for a 1000-megawatt power plant, such as APE1000, approx. 25 tonnes of fuel are needed annually. A coal-fired power plant would require 3 million tonnes of coal for that same amount of power. In this case, storing fuel would not be possible. But in the case of nuclear power, it is a customary practice.

Ukraine has long been building nuclear independence

In 2005, Ukraine began a project to replace Russian nuclear fuel with fuel from another producer. The fuel exchange occurs in cycles, taking four years for the entire reactor core to be loaded with fuel from a single supplier, in this case, Westinghouse. This process was started by Ukraine many years ago, and considering the current 4-year cycle, now is a good time to exclude Rosatom from the process of delivering fresh nuclear fuel to 18 reactors in Central Europe. If this were to happen, almost all of Europe could use uranium from other sources in 4-5 years.

Regarding the expected operating period of Ukrainian nuclear power plants, there is an inspection of these facilities every ten years, and a safety analysis report is then prepared, based on which the operating term is extended for another 10 years.

In the United States, the operating term of nuclear power blocks has been extended to 80 years. In Europe, countries that have nuclear power today are also planning to extend it (with the exception of Germany). Currently undergoing the aforementioned analyses in Ukraine are blocks No. 1 and No. 2 of the Rivne NPP, and it is likely that their operation will be extended for another ten years, until the mid-2030s. Therefore, nuclear fuel for Soviet-designed reactors will still be needed until around the 2050s.

Before the full-scale invasion in 2022, Ukraine had reserves of nuclear fuel produced by the Russian company “TVEL”. However, since 2014, Ukraine has had a contract with Westinghouse, which includes a provision that if Russia refuses to supply nuclear fuel (which was a real risk), Westinghouse would try to fill that gap by using an additional assembly line for fuel rods constructed using technology that is suitable for PWR-1000 reactors. In Sweden, there are possibilities for producing fuel for PWR-1000 units currently present in Europe. Moreover, until 2007, the Czech Republic was receiving fuel from Westinghouse for their PWR-440 post-Soviet reactors, and the Temelin Nuclear Power Station launched its operations with nuclear fuel produced by Westinghouse. However, Rosatom used corrupt mechanisms and unfair competition to push Westinghouse out of the market in the Czech Republic and Finland.

In spite of these experiences, the licensing process for Westinghouse’s improved fuel (for Ukrainian Soviet-era reactors) is expected to be most efficient and fastest in the Czech Republic and Finland, as these countries already have experience in using American nuclear fuel.

To summarise, from a technical perspective, there are no obstacles to imposing sanctions on Rosatom. It is a political and partly economic issue. Entities like Rosatom or Gazprom should be perceived as directly supporting military actions. Until 2022, many decision-makers believed that we could not survive without Russian gas or oil. However, Europe survived the winter quite smoothly. Today, we must understand that even if Russian nuclear fuel or services for the nuclear industry are cheaper, it is a price paid in blood. The Russians, by occupying Ukrainian NPPs, behaved with their staff in a barbaric manner. Attempts by Russians to take over installations that will not operate according to their schemes, on their fuel, are less likely in the future. Hence, the consistent pursuit of establishing sanctions for Rosatom seems to be the only right direction.

The Polish-Ukrainian Cooperation

During the discussion, Oleh Kazanishchev, Counsellor at the Ukrainian Embassy in Poland, informed that while there is no special unit for nuclear affairs at the embassy, there is a commercial department that operates with professionals representing various industries, including nuclear energy as part of the broad energy sector. Currently, there are no plans to create a dedicated position responsible solely for the nuclear affairs.

However, the Embassy in Poland is the largest Ukrainian diplomatic mission in the world, which proves how a significant partner Poland it to its eastern neighbour. Particularly after 24^th February of last year, Poland has become a partner of strategic importance. Ukrainian employees are very grateful to the Polish government and people of Poland for their support and assistance to Ukraine.

In the area of energy cooperation and plans in this field, everything changed after the start of the war. As a diplomatic mission, the Embassy is responsible for developing cooperation in various areas, including the energy sector. The Embassy is involved in several joint projects in different segments of this industry, such as gas, oil, and nuclear energy. Its employees participate in conferences and monitor the development of the nuclear industry in Poland. The Embassy is open to further cooperation, including combining the competencies of Ukrainian and Polish companies.

Even before the announcement of the construction of the third nuclear power plant in Poland, a report by the Polish Economic Institute authored by Adam Juszczak was published, which addressed the economic aspects of nuclear investments in Poland, their impact on business, the labour market, and local communities. Even then, it was evident that the economic and social potential of building a nuclear power plant was significant. The first two nuclear power plants planned in the Polish nuclear energy programme will require about PLN 200 billion in total. This is the average cost estimate for both units combined. This means that really big money is at stake in Poland, and businesses will compete for it. Participation of “local content”, according to announcements and examples from other countries, can reach between 50 and 70%. The money that can go to domestic businesses from these two investments might come up to PLN 130-140 billion.

Despite the fact that there has thus far been no market for nuclear energy in Poland, there are companies interested in nuclear activities. Some of them have until now provided their services outside Poland. However, there are of course also certain areas to catch up on, because some competencies could not be developed without such investments in Poland. And this is a potentially good opportunity for cooperation between the Polish and Ukrainian communities.

According to the catalogue created by the Ministry of Climate and Environment in Poland, over 300 companies in Poland are interested in nuclear energy. Only a small fraction of them have experience in previous nuclear investments anywhere in the world. The reason is simple – these are not easy investment projects. A number of different certificates are required. Some companies, despite their interest in the nuclear industry, will certainly be concerned about whether they will be able to meet these requirements. Therefore, it would be necessary to build an appropriate climate around these investments, enable cooperation with qualified entities, and encourage the entire community to develop.

And there is much to strive for. Just take a look at France, for example, which has a developed nuclear industry. The nuclear sector, both energy production and companies offering services for nuclear power plants or manufacturing components for NPPs, employs approx. 400,000 people. It is a really big piece of cake to share. If we were to look at individual sectors where development is most likely, these would be the machine industry and services related to the machine industry, as well as electrical and automation engineering, and metalworking. There is potential there. There are companies in Poland that have already worked on foreign investments, so this transfer of know-how is very much possible.

In the context of cooperation with Ukraine, it should be noted that there is currently a shortage and will be a long-term shortage of personnel in the nuclear energy sector in Poland. The personnel gap results from the fact that such investments could not start for a long time, and some qualified specialists were unable to find employment in the country. So they went abroad, and only a few remained in scientific research institutions. Today, most students choose to specialise in RES, as it is already an existing market with potential for development. In the case of nuclear energy, there is still a lot of uncertainty, which may discourage young people from choosing such a career path. Ukrainian personnel, on the other hand, exist and have broad experience, and their involvement in the construction of Polish nuclear power plants would certainly be of high value. Polish-Ukrainian cooperation could then lead to Ukrainian investments: asset modernisation, reconstruction, and construction. Over the next few decades, a lot of new investments will be made in Ukraine. Circa 90% of Ukrainian wind turbines and as many as 50% of photovoltaic panels were destroyed as a result of military operations, and all this infrastructure will need to be restored.

The presence of the atom in Ukraine’s recovery

Currently, experts and officials at the Ukrainian Ministry of Energy and the National Regulation Commission for the Ukrenergo system are discussing what kind of energy system should be Ukraine built after the war has been won. As Ukraine is a party to the Paris Agreement on climate action, and nuclear power, along with renewable energy, is low-emission and – above all else – something that Ukraine already has, its role in the post-war energy mix should be significant. Many voices advocate for the development of decentralised energy generation, including the use of small and medium modular nuclear reactors. Ukraine also declares that it will pay more attention to wind power than before.

Before the war, the breakdown of renewable energy generation amounted to more or less 75% photovoltaic energy and 25% wind farms. Experts argue that these proportions should be reversed and supplemented by biogas. The symbiosis between stable nuclear power generation and emerging decentralised RES could prove very effective. According to Olga Kosharna, one of the Union’s roundtable discussion panellists, even the construction of additional 1000 MW blocks in the Khmelnytskyi NPP using Westinghouse technology may not be as good a solution as building small and medium-sized modular reactors. This opinion is shared by the private Ukrainian business. DETEK, one of the interested companies, is currently looking into the construction of small and medium modular reactors. From the perspective of reconstruction of the energy sector and point of view of achieving a complementary energy system in Ukraine, this direction seems highly desirable.

The business and the Atom

The Polish Chamber of Power Industry and Environmental Protection, chaired by Bogdan Pilch, brings together over 100 entities from the universally understood energy sector. The Chamber represents both large energy groups and construction companies, and representatives of foreign companies in Poland along with construction companies. The organisation covers the entire Polish sector – from conventional energy through RES and hydrogen industry to nuclear power. In the field of nuclear investments, we focus on maximising the participation of the Polish industry, the so-called “local content”. In the Chamber’s opinion, this participation might potentially reach 50%, up to even 60%. However, the path to achieving this goal is long, as obtaining the qualifications to become a certified contractor or subcontractor is a very lengthy and costly process. Currently, there are about 80 companies in Poland that have any experience whatsoever in building or operating nuclear facilities.

Following the thread of Polish-Ukrainian cooperation, the Chamber’s General Director drew attention to the issues of fuel and its disposal as potential areas for joint action. Then again, during the construction phase, the experience of seasoned professional from Ukraine might come in handy. However, since this will be an American technology, and Ukrainians are experienced in Russian technology, knowledge transfer will naturally not be 1:1. However, some processes are very convergent, so the participation of Ukrainian companies or professionals is highly likely. If the Ukrainian-Polish nuclear marriage succeeds, then these entities would not only have the potential to build one power plant, but also the potential to export their services. Since last year, we have been observing a kind of renaissance in nuclear energy. MMR and SMR are compatible technologies. They complement each other next to full-scale atom facilities, rather than compete.

Interest of Polish companies in cooperation with Ukraine in the energy sector is increasing, as reported by the Chamber, which receives inquiries from numerous entities. Previously, those that approached the Chamber were directed to the Ministry of State Assets, which has already created a database of around a thousand companies. Unfortunately, little is heard on this topic whether it is actively pursued or not. A business approach to this cooperation would be optimal to take advantage of this opportunity, meaning entrepreneurs instead of politicians would take the initiative. The Polish-Ukrainian Chamber of Commerce is also ready to provide support.

The Polish Chamber of Power Industry and Environmental Protection also provides training for companies with regard to execution of nuclear projects, and participates in various industry meetings and conferences, prepares field study trips, and has a good relationship with active technology suppliers on the Polish market, such as Westinghouse, as well as EDF and KHNP. In its activities, the Chamber tries above all to make those interested aware that the process of becoming a subcontractor is very difficult, complex, lengthy and costly. It does not of course go equally for everyone, as each company is at a different stage of development. In 2022, under a ministerial grant, the Chamber conducted an intensive training programme, providing 60 hours of training per participant. Around 180 people from approx. 150 companies were trained, and technologies and requirements related to becoming a subcontractor, sub-supplier, or supplier in the field of technology were presented during this training. Technologies from the US-based Westinghouse as well as those from EDF and KHMP were discussed. The trainings will continue in 2023. It is also possible to organise “supplier days”, during which technology suppliers would show a clear roadmap on how to become a part of the nuclear investment supply chain.

Until now, not many people believed in the success of the nuclear project, and this scepticism among companies was a consequence of so many failed attempts to implement such a project in Poland that few believed that these investments would eventually pick up pace. The choice of a technological partner does not yet determine the success of the project, but it greatly increases its likelihood. Today, it seems already certain that nuclear power plants will be constructed in Poland. However, whether this will be done on time and within budget is a completely different issue and requires a separate discussion. Nuclear energy as the basis and renewable energy sources as a supplement, and in the future also the use of hydrogen – this is currently recognised as a certain standard, a model to which it is worth striving for in many countries.

Energy cooperatives and SMRs

According to Robert Jankowski, another round table panellist, the old energy system that was invented in the 19^th century and established in Poland in the 1950s has expired. The new technical means and modern technologies that have appeared are causing the decomposition of the old system right before our eyes. Therefore, the Union guest believes we should now work on creating an entirely new system that reflects the energy industry worthy of the 21^st century.

It would be a system of autonomous areas the size of a municipality or two municipalities, or a parish, which balance energy consumption internally. The concept would be based on a cooperative system. After all, it was the cooperative system that won the great war against the Prussians in Greater Poland in the 19^th century. According to Robert Jankowski, the best way to reduce corruption (for instance, Ukrainian oligarchs) would be to build a system where the cooperatives themselves are the owners of what they have.

Within this system of autonomous areas, we should from the very beginning integrate electricity with heat and electromobility. Lately, there has also been talk of adding healthy food and local individual construction to the system. An essential element of such a system is a stabiliser, that is, a source of electricity generating between 15 and 25% of energy. The Polish Climate Forum estimates that there is room in Poland for about a thousand SMRs that would operate as such a stabiliser. The remaining energy needs would be secured by biogas plants, geothermal energy, hydroelectric power, or thermal biomass processing facilities. Energy supply security and low prices are the overriding goal.

And although these goals are also a priority throughout the European Union, particularly at the level of the European Commission and the Parliament, there are also many conflicting interests at play. To limit the influence of various interest groups, it is necessary to build local citizen energy initiatives. Neither Poles nor Ukrainians have any social objections to nuclear power. From a climate neutrality perspective, this is a very clean, zero-emission energy source.

The aspect of communication is also important, reaching directly to communities with the message about the European “Green Deal”. It is not possible to join the European Union if a candidate state does not have a clear plan to achieve climate neutrality. Polish companies could certainly help in developing the energy transformation concept in Ukraine. On the other hand, there are many nuclear energy specialists in Ukraine and, above all, there is infrastructure in place. Despite the ongoing conflict, there are still factories developing equipment. If we were to develop SMR systems on a large scale in Poland, there is also potential for cooperation in this area.

Educating nuclear energy personnel

In Ukraine, even some high schools specialise in nuclear energy. In Poland, there used to be a nuclear technical school in Otwock. However, to train personnel for the entire industry, a comprehensive approach is needed. On the other hand, the nuclear sector is a highly regulated field. Every gram of uranium or plutonium must be reported to the European Union, even when it is transferred from one laboratory to another. In Poland, we have research universities, but there are only 10 of them. Without research and practice, we cannot teach or guarantee development. Our students must learn from practitioners. Simply sending an intern to the United States for a month is not enough. A comprehensive educational programme is necessary.

Participation in European projects is must-have, such as cooperation with renowned universities and the French EDF. It is worth taking advantage of experiences and training in other countries. In the context of Polish-Ukrainian cooperation in the field of nuclear energy, the most important thing is that nuclear energy has been operating in Ukraine for many years. Combining the efforts of both Ukrainian universities, Polish research institutes, and industrial training organisations would be highly desirable. For example, one of the first accelerators in the world was built in Kharkiv. Ukraine has very good physicists, including those involved in the work of the International Atomic Energy Agency.

We also have a well-organised National Atomic Energy Agency in Poland, which also cooperates closely with the IAEA as well as nuclear energy centres in Europe and North America. Many trainings are taking place, and we can hear Polish names among the world’s nuclear industry personnel.

Safety

Politically, we observe today in Poland the unification of both the government and opposition parties, all of whom are in favour of nuclear energy, including green parties. Local authorities are counting on job creation, a boost of funds from investments, and the development of local entrepreneurship. However, the safety rules in the nuclear industry have changed dramatically.

Nuclear energy has become so expensive because many installations, even chemical ones, must now be secured like nuclear power plants. The more modern generation 3+ systems have passive safety systems. The problem with the Fukushima disaster was that the reactor defended itself for 8 hours during cooling. However, after 8 hours, in case cooling is not restored, the fuel may melt. In Fukushima, there were also hydrogen explosions. Hydrogen and oxygen are an explosive mixture. Today, most power plants have different safety systems. In the mentioned 3+ system, even if there is no electricity supply, the safety systems are still active. In the American Westinghouse AP 1000, when water boils, it takes heat away and there is also a metal shield that condenses the water. Unfortunately, in Fukushima, the generators were located in the basement, and the tsunami wave was thirteen metres high. Another power plant also had a similar safety system problem, but a power cable was pulled to the power plant in time to restore cooling.

It is important for nuclear investment supervision to have a national “technical support organisation” with a panel of experts in construction, steel, chemistry, and other relevant fields. Finland has a system called STUK, which is the equivalent of Poland’s National Atomic Energy Agency, and has various institutions at its disposal to conduct research at STUK’s request. Meanwhile, Hungary has a strong Institute and 32 specialised units that perform tasks within the nuclear sector. Poland must develop such a system. The National Atomic Energy Agency has already established an authorisation certificate that can be applied for not only by Polish companies, but also those from Ukraine. Any and all authorised entities will have the right to participate in nuclear safety projects, research, development, and consulting. It is crucial not to allow entities without the necessary qualifications, know-how, or personnel to participate. All of this must be refined to ensure the safety of Poland’s nuclear sector. The experience of Ukrainian nuclear supervision and how it was organised could be very interesting.

An impulse for the economy

According to OECD calculations, only 2 nuclear power plants in Poland would create up to 40,000 direct and indirect jobs, as well as jobs in the surrounding area. The benefits are also enormous for local communities, who must of course be informed about the plans. There is often a question in the public space about the cannibalisation of RES and nuclear power, competition of power generation – what if we end up with excess power? Nothing like that will happen. The reason is simple: we will be decarbonising the Polish economy for decades to come. To achieve EU climate goals, we will need significantly more electricity than before. Whether we want to electrify transport or use hydrogen, whether it is purple energy from nuclear sources or green from renewables, it will require more electricity production. Heat pumps and a range of other innovations within households and industry will increase our demand for electricity. There is no reason to suspect that the Ukrainian economy, especially considering that a large part of their RES were destroyed during the war, will not need energy or new generating capacity during recovery and reconstruction.

Especially since we are considering the gradual decommissioning of coal units or limiting gas units. We should plan for enough reactors to meet our future demand in both Poland and Ukraine, of course in the right synergy with RES. Therefore, SMR projects should not be presented as competition for large NPPs. SMRs can become additional sources and they have several very interesting applications, such as district heating systems, particularly in smaller regions, or energy production facilities for large industrial plants. However, they will not in any way constitute major competition for full-scale NPPs, which primarily must power the national power system.

Rebuilding the Ukrainian economy and the future of nuclear power

The war is still raging, but discussions on the post-war reconstruction of Ukraine’s energy infrastructure, which is a major component of the economy of a country that strives for EU membership, take place at the very same time. There is a predicted possibility of a significant increase in demand for electricity by various industries.

Just as the price of gas, oil, refining products, and therefore electricity has significantly skyrocketed globally due to the pandemic in the years 2020-2022 and the Russo-Ukrainian war, production in the EU industry has become very costly due to the significant increase in costs and ecological requirements.

The modernisation of production facilities in existing plants always involves a temporary limitation of production or even a halt in production, which carries the risks of significant loss of a competitive position on the global market and financial losses.

The phenomenon of relocating businesses to Poland, Romania, Hungary, and even Balkan countries or Ukraine is not out of the question. These countries offer predictable conditions for business operations and offer a skilled workforce. In Ukraine, migration of industry can be observed: in times of war, many state-owned enterprises have already moved their production to central or western regions of Ukraine, and in the post-war period, this trend might only increase. According to Ivan Grygoruk, electricity consumption after the war will not only return to pre-war levels, but will increase by at least 30%. However, there will be a certain shift in the generation and consumption of energy – the entire infrastructure will physically and technologically move closer to Europe.

In January of this year, the Cabinet of Ministers of Ukraine approved the construction of two new AP 1000 reactors. The blocks will be installed in the Khmelnytskyi NPP, with Westinghouse as the supplier. Ukraine has ambitious plans for the development of its nuclear industry, with the construction of as many as nine new AP 1000 blocks across the country in the pipeline.

The first reason for the construction of new reactors is of a more political nature. It is a strategy for building independence through diversification of nuclear supplies and technologies in Ukraine.

The second reason is to increase the level of safety and security in the operation of existing nuclear reactors by using new nuclear fuel, building new third- and, in the future, fourth-generation reactors with the ultimate goal to further decommission outdated AES power blocks and introduce technology to manage spent nuclear fuel.

The oldest working nuclear reactor in Ukraine was put into operation in 1980, and the newest two power blocks in 2004, with the end of the term of operation of the newest scheduled for 2035. Ukrainian reactors, both PWR-440 and PWR-1000, belong to the second generation, which has long been considered outdated worldwide.

It is worth noting that AP 1000 nuclear reactors differ significantly from PWR-1000 in the following basic characteristics:

• reduction in overall costs and shorter construction time;
• higher utilisation rate and longer operating period;
• more reliable design that is simpler to operate during the exploitation process and less prone to operational risks;
• low probability of accidents related to the melting of the active zone;
• increased fuel burn-up providing higher efficiency and reduces the amount of waste;
• use of burnable absorbers to extend the life of fuel cells;
• smaller environmental impact.

Ukraine has everything except peace that is necessary for further development of its nuclear industry. It has scientific potential, almost 50 years of experience in operating NPPs, developed material and technical infrastructure. Ukraine ranks 12^th in terms of uranium resources and 11^th in uranium production in the world. It has organised logistics for nuclear fuel supply and actively introduces strategies related to the safe handling of spent nuclear fuel from power reactors. It is also characterised by a huge capital of talents within the nuclear industry.

For the past 30 years, Ukraine has been fighting for the possibility to construct modern nuclear reactors. It is a very difficult, but well justified path. This way, it gains invaluable experience which it will gladly share with such partners as Poland.

 

See more: 01.03.2023 Nuclear energy – Ukrainian experience Poland can draw from