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Nuclear energy – Ukrainian experience Poland can draw from

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 7th 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 24th 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 24th 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 19th 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 21st 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 19th 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 12th in terms of uranium resources and 11th 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

Working Lunch “Offshore Wind International Cooperation in the Baltic Sea”

Brussels, 27th March, 2023

 

Working Lunch “Offshore Wind International Cooperation in the Baltic Sea”

 

It is important to accelerate the development of offshore wind across the European Union, while ensuring enhanced manufacturing potential of EU-based components. Overcoming the current supply crunch linked to ambitious climate targets, as well as the skills and permitting hurdles, will be crucial for upcoming wind farm investments – was the conclusion of the Working Lunch titled “Offshore Wind International Cooperation in the Baltic Sea”, that took place on March 27th in Brussels.

The event co-hosted by Permanent Representation of the Republic of Poland to the European Union, the Mission of Canada to the European Union, and Union of Entrepreneurs and Employers event was supported by Baltic Power – which is developing one of Poland’s first offshore wind projects. The 1.2 GW project, to be operational by 2026, is a joint venture established by the Polish company PKN Orlen and the Canadian Northland Power.

The discussion was moderated by Matthew James, editor-in-chief of Energy Post, and featured a group of speakers that included the Ambassador of Canada to the European Union, Ailish Campbell; Arkadiusz Plucinski, Deputy Permament Representative of the Republic of Poland to the European Union; Mechthild Wörsdörfer, Deputy Director General at the European Commission’s DG Energy; Jarosław Broda, Board Member of Baltic Power; Malgosia Bartosik, Deputy Chief Executive Officer of Wind Europe; and Wadia Fruergaard, Head of Offshore & Supply Chain Policy at Vestas.

The event began with opening remarks from Ambassador Campbell who highlighted the Canadian government’s support for Europe’s energy transition and the role of Canadian industry in providing technology and expertise to the green energy transition in the European Union. She highlighted Northland Power’s capabilities in developing wind power projects in Europe and Canada, and emphasized the need to eliminate the energy dependence on Russia following its invasion of Ukraine, as well as the potential to expand secure and trusted renewable energy supply chains between the EU and Canada in manufacturing and operating green technologies.

Then, the Polish Ambassador, Mr. Arkadiusz Pluciński, took the floor highlighting the need to enhance Europe’s energy security in the midst of the ongoing war in Ukraine. And offshore wind development, particularly in the Polish part of the Baltic Sea area, is an important instrument to achieve this objective, as the natural conditions for its development are particularly favorable in Poland. Mr. Ambassador underlined that the timing to push for more offshore wind projects is now crucial as the EU Council is finishing negotiations of the revised Renewables Directive and is starting its work to form a position on the Electricity Market Design reform.

Mr. Jarosław Broda, the Board Member of Baltic Power, focused on the main challenges from the offshore wind farm developer’s perspective, highlighting the need to reflect the current economic situation – supply crunch and growing prices of components, and high inflation – in the levels of support for new offshore wind projects. He also stressed the need to speed up the permitting process and scaling up the volume of projects to come online by 2030 in order to meet the EU’s 2030 offshore wind energy objectives. Over 30 GW of new capacity is needed in only 7 years to achieve the targets. A particular challenge will be to maintain the EU-based supply chain with growing demand for projects and much lower prices of non-EU suppliers. Mr. Broda underlined that the project of Baltic Power will provide high local content, with Vestas announcing the construction of a turbine factory in Poland (in Szczecin). The factory will employ up to 700 people. Mr. Broda informed that the first phase of procurement for the Baltic Power project is finalized, with all key project components already secured. Moreover, the investment has recently obtained a positive notification decision from the European Commission with regard to its support via the contract for difference.

Mechthild Wörsdörfer, Deputy Director-General of DG Energy at the European Commission, discussed the Commission’s renewables objectives and underlined its support for the Baltic Power project as a contributor to the EU’s energy transition. Ms. Wörsdörfer focused on the importance of offshore wind development, as well as the Baltic Sea’s crucial role in it. She highlighted the role of faster permitting recently addressed by EU policy makers, as well as the push to enhance EU manufacturing capacity via the Net-Zero Industry Act announced by the Commission a few weeks ago. She also underlined the importance of the supply chain and skills as a priority for the European Commission. The Deputy Director-General emphasized the important contribution that Poland will make to developing offshore wind with its 6 GW of new projects coming online by 2030, and underlined that the Commission will be encouraging this process.

Wadia Fruergaard from Vestas addressed the current supply chain concerns and challenges, from the perspective of Baltic Power’s future wind turbine supplier. Project visibility remains the most important factor for the supply chain, as is the case for the Baltic region where the potential and volume have allowed Vestas to take initial investment decisions on local manufacturing. However, the supply chain in general is fundamentally challenged by offshore wind auctions. In her opinion, the so-called “race to the bottom” in tender systems that allow bids at 0 EUR/MWh or even at negative prices, should become a thing of the past. The entire supply chain becomes squeezed as a result, needing to either develop new technologies, or to significantly ‘cost out’ – neither option supports the real priority: scaling the industry to meet ambitions.

Małgosia Bartosik from WindEurope provided the EU perspective of the offshore wind sector, flagging the ambitious targets for 2030 and current supply chain issues. Mrs. Bartosik underlined that 2022 was the worst year for offshore wind in terms of investment decisions,  largely due to national market interventions and emergency market design changes implemented by different Member States – such as electricity price caps for renewables. She stressed the need for Members States and the EP to support the recently tabled European Commission’s Market Design proposal, in order to restore investor’s confidence and make Europe an attractive place to invest again. The Net-Zero Industrial Act proposed recently by the Commission in her opinion falls short of what is needed, as Europe only has 3 years to build new factories and scale up production to meet the 2030 targets with the European supply chain. Today, Europe can make 7 GW per year of offshore wind turbines. Government targets require the industry to be making 20 GW per year from 2026/27. She agreed that it is a pure volume, and not an innovation challenge for the EU wind industry. More concrete solutions and support measures for domestic investors, such as the ones introduced in the recent American Inflation Reduction Act, should be implemented in Europe.

The discussion then moved to follow-up questions on a range of priorities, including expanding on the Contract for Difference and faster permitting timelines, as well as discussing grid investment, supply chain problems, and opportunities for employees regarding skills and job creation.

The panelists also discussed the Marienborg Declaration, which was signed on August 30th, 2022, by eight Baltic Sea EU Member States: Denmark, Estonia, Germany, Finland, Latvia, Lithuania, Poland, and Sweden. The declaration committed these countries to achieving around 20 GW of installed capacity in offshore wind energy by 2030. To achieve this target, there is an urgent need to speed up the development of new offshore wind projects, as currently, the total offshore wind capacity on the Baltic Sea is only around 2.8 GW.

 

Baltic Power – Contribution of the 1.2 GW offshore wind project in Poland to EU’s energy transformation

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers: inflation and growth – what might take place in the months to come

Warsaw, 10th March 2023

 

Opinion of the Chief Economist of the Union of Entrepreneurs and Employers: inflation and growth – what might take place in the months to come

 

In January 2023, the consumer price index amounted to more than 17% year-on-year. This is in fact a very high inflation level; one that raises concerns with regard to inflation in the long term (I shall elaborate on that matter separately). This concern is further exacerbated by the fact that price increases in the euro area have clearly slowed down, whereas in Poland there are no signs of such trend. It seems, however, that in spite of negative signals, one should expect disinflation in the short term – judging from the seasonal price dynamics and a number of other factors.

There has been much talk of disinflation from the beginning of this year, ever since this term was used by FED Chair Jerome Powell. Disinflation is a process of price growth decrease; it is not tantamount to a price decrease though many consumers would surely welcome such a change in prices. In other words (and simpler terms), disinflation is the slowdown in the rate of inflation, as a result of which price growth decelerates or stops. The stabilisation on commodity markets (energy markets in particular), the risk-off or decrease in investment risks (for example related to the Russo-Ukrainian War) are named among the reasons for disinflation that might take place in upcoming months. The economic slowdown that has already been observed is also expected to contribute to disinflation, resulting in a decrease in consumer demand (and thus a decrease in the pressure on price increases).

However, the dynamics of inflation slowdown do not have to be sisgnificant. They will certainly be reinforced by a global economic slowdown with the still looming threat of recession in developed economies, but on the other hand, the situation on the energy commodity markets (and the energy crisis in Europe resulting from it) is far from stable. Last winter was quite mild. Moreover, we saw in Asia a decline in demand for liquefied natural gas due to China’s anti-pandemic policy, as well as due to the very high level of prices in the first half of the year, which limited the ability to purchase on the market by such countries as Pakistan. Nonetheless, these events were of a more or less one-off nature, and this year the availability of natural gas to meet European needs may be lower than a year ago. Should this happen, it might translate into another wave of price increases (natural gas, crude oil, and energy), which in turn could sustain the growth of consumer prices in Europe, including Poland.

Also, the geopolitical situation in Eastern Europe is far from stable. Recent reports speak of a growing risk of conflict escalation. Such an escalation will impact risk perception and, consequently, will probably stimulate growth of raw materials prices. The same goes for all subsequent operations aimed at limiting the export capacity of the aggressor, that is Russia. That country remains one of the main suppliers of crude oil and natural gas in global terms, in spite of sanctions imposed by Western countries which significantly reduced their scale of exports or their stream of revenue in particular.

Finally, it is worth recalling that, in recent years, the concept of deglobalisation, meaning the collapse of global supply chains and value creation, has become part of the glossary of economic experts, mainly due to the growing tension between the US and China, the increasing uncertainty concerning the geopolitical situation, and the collapse of the political and economic order under the leadership of the US after 1989. Deglobalisation will not be conducive to price drops, because part of the production may “come back home” from low-cost regions to places where labour costs more due to non-economic reasons.

Therefore, factors that may potentially lead to a slowdown in inflation, at least in the short term, might in an unfavourable scenario be offset by factors further driving it. This in turn would prolong the inflation phase of the current crisis. Furthermore, it is also possible for inflation to return after a relatively short period of disinflation. Historical experience supports this assumption: periods of increased inflation would often interweave with temporary periods of price slowdown preceding subsequent waves of increases. One can also expect that post-crisis economic recovery may be of an inflationary character, backed by yet another wave of fiscal expansion and equally expansive monetary policy, boosted by elections in a number of developed countries, including the US. Moreover, there are significant long-term conditions conducive to the inflationary environment looming on the horizon, including, in particular, unfavourable demographics in the entire developed world and beyond, but this is a topic for a separate discussion.

Should we then in this context expect 2023 to be a year of recovery from the crisis for the West and Poland, as indicated by the recently published macroeconomic forecasts? Possible, although not yet certain. To boot, I would expect the crisis to take shape of the one we had seen in the 1970s. A period of slow growth might be a long one, and between the waves of recession, moments of recovery can turn out to be rather shabby.

Growing uncertainty regarding the future, declining real income caused by inflation (not to be changed by disinflation) – these factors will not be conducive to the recovery of some sectors of the economy. Demand for cars has been decreasing astonishingly fast in Western Europe and the US in recent years. This year, that trend may continue. Consumers’ decreasing purchasing power will also reduce the demand for a number of services, such as tourism or HORECA. This will not always translate into a deterioration of the situation of Polish providers of such services: some consumers may resign from going abroad in favour of enjoying their holidays in Poland (although others will give up holidays altogether). The decline in demand also affects the real estate market. Unless the situation changes this year, we might observe a decline not only in real but also in nominal real estate prices.

Therefore, let us expect a fall in inflation, but let us not hope this is the end of our problems. With that same attitude, let us look forward to an economic recovery, but knowing it may be weak and short-term. Even though Poland may indeed benefit from the reallocation of production following deglobalisation. Let us hope this year there will be less economic turbulence than in previous years. However, the economic situation in Poland, Europe and around the world is such that unfortunately there is no guarantee whatsoever.

Piotr Koryś Ph.D.
Chief Economist of the Union of Entrepreneurs and Employers

 

See more: 10.03.2023 Opinion of the Chief Economist of the Union of Entrepreneurs and Employers inflation and growth – what might take place in the months to come

Direct lines – key to the development of modern power industry

Warsaw, 7th March 2023

 

Direct lines – key to the development of modern power industry

 

  • Direct lines and cPPAs are key to a new energy reality in the EU
  • The draft act to implement Directive 2019/944 into the Polish legislation fails to guarantee the expected investment freedom in the area of direct lines
  • Hampering the development of RES installations powering industry will have implications for the entire national economy

One of the most significant regulations currently in development, of key importance to the Polish energy transformation, concerns the principles of operation of direct lines, that is the possibility of direct transmission of energy from the producer to the consumer. This aspect is particularly important for the undisturbed functioning of enterprises exporting their products to countries where it is already necessary to document that green energy was used for manufacturing purposes. The supply of energy from RES, or rather the lack thereof, may therefore become a fundamental problem for the further functioning of enterprises.

In accordance with the definition contained in Art. 3 sec. 11 (f) of the Polish Energy Law: “direct line – a power line connecting an isolated generation site directly with a customer or a power line connecting an generation site of an energy company with installations belonging to that company or installations belonging to its subsidiaries”. This translates into an entrepreneur’s own investment or a partnership with a RES producer. This instrument is crucial for the development of the cPPA/vPPA sector, that is long-term B2B contracts for the purchase of green energy.

The currently processed amendment to the Energy Law and the Act on Renewable Energy Sources (UC74), which is planned to be adopted by the Council of Ministers in the first quarter of 2023, aims to implement into the Polish legal system, among others, the Directive 2019/944 on common rules for the internal market for electricity. It also covers the issue of direct lines.

As the legislators themselves have noted, current practices of the market regulator and the courts indicate that the provisions regarding direct lines, in their current wording, are insufficient to achieve the objectives provided for in Directive 2019/944. Thus far, the main problem has come down to the narrow interpretation of the direct line as an installation operating in an island system. For this reason, obtaining a permit for the construction of a direct line has so far only been possible, as a rule, when it was impossible to connect the recipient to the power grid. Meanwhile, direct lines should, on the one hand, be a substitute for the distribution network, and on the other hand, it is only when the coexistence of these two types of connections on a customer’s end (network and via a direct line) is enabled that the act has a chance to positively influence the development of the market in this area.

The Union of Entrepreneurs and Employers is of the opinion that this is an extremely important issue for the economic development of our country, due to the fact that, in the future, direct lines will become a fundamental element of market rules in energy trading. It is regrettable that this issue is one of several included in the UC74 draft act that negatively affect not only the clarity of legal provisions, but also the pace of their processing. A separate act would therefore be a preferred solution. All the more so, since any regulations concerning the development of distributed energy in Poland should in the future take into account the new rules regarding the operation of direct lines. It is, however, certainly good news for entrepreneurs that work on these regulations is still in progress.

One ought to clearly state in this place that direct lines will not be a threat to the national energy system or to the functioning of the traditional power industry, because due to their capacity, they will serve an entirely different segment of the economy. At the same time, they will in the future significantly improve the functioning of medium- and low-voltage lines, which in turn will have a positive impact on the operation of the power system as a whole.

The overarching objective of direct lines should become the key incentive for lawmakers with regard to this type of lines: direct supply of energy to industry as well as local, medium-sized enterprises, mainly manufacturing companies, which require cheap, green energy to develop.

The present model of network operation is incompatible with the provisions on direct lines contained in Directive 2019/944, which obliges member states, among others, to undertake all necessary measures to enable all producers and electricity supply undertakings operating in individual countries to supply their own premises and customers through direct lines, without being subject to disproportionate administrative procedures or costs.

The currently proposed version of the UC74 draft act obliges the recipient to include the trading company even if the producer of electricity and the recipient thereof are the same entity and they only partially use the power line. Such an approach on the part of the legislator will have a significant impact on the prices of electricity supplied through direct lines.

And reducing the cost of energy supply is the main objective of direct lines, especially for large consumers, energy-intensive entities in particular.

Then again, the regulations regarding the need to enter direct lines for production units with a capacity of more than 2 MW to a registry kept by the Energy Regulatory Office (Urząd Regulacji Energetyki) significantly limit the possibility of free investments. This in turn will slow down the investment processes related to generation of distributed energy. It will also significantly limit the use of direct contracts between the producer and the recipient (cPPA/vPPA).

The proposed shape of the regulation is unacceptable, as it limits the possibility of increasing supply of green energy to the industry, which may in the end hamper the development of the entire economy.

The form of the so-called solidarity fee (a surcharge to be paid by recipients connected to the power grid in spite of the fact that most of their energy supplies will be sent through direct lines) also changed in the latest proposal of the regulations. The introduction of the solidarity fee is in its essence understandable, because the operator is legally obliged to bear the maintenance costs of the energy network to which the recipients are connected, despite the decreasing supply of energy through these lines. However, according to the draft, the fee is to be related to the amount of energy transmitted through a direct line and will be paid to the trading company. In the opinion of the Union of Entrepreneurs and Employers, the fee payment mechanism should be covered by a transitional period and fully regulated later in the future, when both producers and consumers already have more experience in this new energy trading model at the local level, based on direct lines.

The number of rejected motions to connect new RES installations to the distribution and supply network is constantly growing, which impedes the development of investments and threatens the Polish economy. Investment opportunities in direct lines are supposed to remedy such barriers and the emphasis here should be on expanding the rights of producers and recipients followed by reducing administrative costs and obligations.

One ought to keep in mind the determination of the European Commission in establishing a common energy market, where direct lines and cPPAs are key elements in creating a new energy reality. A reality based on a different business model in the power industry than before, where relations between producers and recipients are not burdened with unjustified additional costs.

It might be worth considering how such a new business model is going to affect the competitiveness of the economies of countries that will actively participate in it.

The Union of Entrepreneurs and Employers calls for the abolition of all legislative restrictions on investment processes related to the construction of direct lines.

 

See more: 07.03.2023 Direct lines – key to the development of the modern power industry

Barriers to running a business in Poland – a constant, unchanging problem

Warsaw, 13th March 2023

 

Barriers to running a business in Poland – a constant, unchanging problem

 

High taxes, legal instability, and high labour costs have been the “TOP 3” barriers to doing business according to Polish entrepreneurs since 2019. Legal instability has since then become a much more severe barrier (36% of respondents in 2019, and 51% in 2023), and entrepreneurs in Poland similarly perceive barriers to the development of business activity. Ambiguous, overcomplicated, and unfavourable provisions of the law as well as extensive administrative procedures certainly make the “TOP 3”.

“The instability of the law as a whole is a major problem, but what is even more important is the complexity of economic and tax law. For seven out of ten entrepreneurs from the trade sector, this constitutes a serious barrier to running a business,” said Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers.

According to Polish entrepreneurs, the chief reason SMEs do not employ more people is the excessive cost associated with it. Since 2019, more than 60% of Polish entrepreneurs regardless of their sector have been of this opinion. Whereas when it comes to the main obstacles to investing capital by SMEs, Polish entrepreneurs claim the following: insufficient profits – 46% of respondents, fear of capital loss – 45%, and declining demand for services and/or products provided by the company – 41%.

“These results are confirmed by the findings of our latest Busometr survey for 1Q23. The vast majority of entrepreneurs said they were reluctant to invest and found employment costs problematic,” continued Kaźmierczak.

As many as 51% of Polish entrepreneurs said the largest barrier to starting a business in Poland was the lack of free funds to begin with, 46% of them were reluctant to take responsibility for the possible failure of their company (38% in 2019), and 36% had no vision for their business operations (46% in 2020).

According to 55% of respondents, non-refundable financial aid would be one of the best incentives to start one’s own business offered by the state along with an extended period of preferential social security (54%). Entrepreneurs also answered “lowering social security contributions or other taxes” to the question about “other” driving forces that would encourage them to start their own business.

“This proves Polish entrepreneurs support our actions and demands related to, for instance, the memorandum on the package for small businesses, which included an extended period of preferential social security or reduced disability pension contribution paid by micro-enterprises. What I find most pessimistic in this study is that basically nothing has changed in years,” he concluded.

 

METHODOLOGY

In January 2023, the Union of Entrepreneurs and Employers together with Maison Research House conducted a survey entitled “Barriers to running a business in Poland”. It is a cyclical survey conducted since 2019, using the CAWI technique with a sample of 534 companies from the SME sector.

 

See more: 13.03.2023 Barriers of performing business activity in Poland

Memorandum of the Union of Entrepreneurs and Employers: in light of the dramatic increase in operating costs, we need a set of laws for micro-enterprises

Warsaw, 9th February 2023

 

Memorandum of the Union of Entrepreneurs and Employers:
in light of the dramatic increase in operating costs, we need a set of laws for micro-enterprises

 

Overview:

  • Polish entrepreneurs have been struggling with numerous crises and skyrocketing operating costs since 2020. This impacts directly their financial situation. In 1Q 2022, 161 thousand companies suspended business activity, while 104.3 thousand shut it down.
  • This year, Polish companies await further increases in energy prices and other operating costs, as well as a further, second in a row, minimum wage increase.
  • The smallest companies run by micro-entrepreneurs have found themselves in a particularly difficult situation. If we want to avoid a wave of bankruptcies, we need a package of solutions to improve the financial situation of micro-enterprises.
  • The problem of flat-rate social security premiums excessively burdening the smallest of companies can be solved by eliminating the time restrictions on the so -called “little ZUS plus”. Indexation of the income threshold entitling to take advantage of preferential conditions should also be taken into consideration (presently it amounts to PLN 120,000).
  • In order to reduce non-wage labour costs for micro-enterprises, we suggest exempting them from the obligation to pay premiums to the Labour Fund, as well as a reduction by half of the amount of pension premiums paid by micro-enterprises for their employees.
  • Further changes in the regulations introduced with the “Polish Deal” ought to be considered. We suggest the health premium micro-enterprises be reduced from 9% to 6%, while the limits and amounts of deductible contributions from income in the case of taxpayers settling with flat tax and a lump sum on registered revenues be increased.
  • We also suggest that in the case of employees employed by micro-enterprises, the sick leave be paid from the first day the employee’s inability to work.

Introduction – a hard time for Polish companies

Recent years have not been easy for Polish entrepreneurs, the smallest companies of the SME sector in particular. The COVID-19 pandemic was first to pose a serious threat, along with the restrictions that followed. It led to numerous enterprises being shut down, while those that survived oftentimes struggled with financial liquidity. The situation was further aggravated with the largest tax law amendment in years: the new Polish Deal. The provisions therein were ill-considered and harmful, and thus led to immense chaos among entrepreneurs, accountants, and the tax authorities alike. Despite the fact they were largely improved over the fiscal year, 1Q 2022 was a period of high uncertainty for Polish businesses, and even now plenty of tax norms raise questions – and for good reason. Moreover, 2022 was a time of skyrocketing gas, electricity, and fuel prices. In many cases, there were multiple increases for entrepreneurs. This, of course, was associated with considerable inflation, especially after the Russian invasion of Ukraine in February 2022. The war was also meant disrupted supply chains (a problem already since the pandemic). The inflationary spiral also translated into an increase in wages, and thus in 2023 we are dealing with a record-high increase in minimum wages and social security premiums for entrepreneurs. All this converts into a substantial increase in operating costs. Recent years have undoubtedly been extremely difficult for Polish entrepreneurs, for SMEs in particular.

Statistics reflect the problems signalled above. The Ministry of Development and Technology stated that 161 thousand companies suspended business activity in 1Q 2022, whereas 104.3 thousand shut it down (nearly 29% more than in the same period in 2021). Furthermore, as many as 69% of entrepreneurs believe that the conditions for doing business deteriorated in 1Q 2022 [1]. The data also indicate a highly disturbing fact: presently close to one in seven companies, one in six among micro-enterprises, have suspended operations[2]. Many companies will never return to the market and will be removed “ex officio” from the registry of CEIDG (the Polish Central Registration and Information on Business).

Other data suggest that from the beginning of January 2022 until the end of October last year, CEIDG received 157.7 thousand motions to terminate sole proprietorship – 17.1% more than in the same period in 2021[3]. At the same time, CEIDG received 278.1 thousand motions to suspend sole proprietorship – 31.1% more than in the same period a year before[4]. Polish companies are ever more often forced to shut down operations and urgently need help, not through direct subsidies, but systemic changes that will help reduce the costs incurred by the smallest entities operating on the market.

An aid package for the Polish SME sector

  1. “Relief to start” & “Small ZUS”

Among benefits for new enterprises, there are three of major importance: “Relief to start”, “Small ZUS” and “Small ZUS+”. New entrepreneurs (or resuming operations after 60 calendar months from their last suspension or shutdown) can benefit from a relief for starting the company for 6 full calendar months. During this period, they do not pay social security contributions (however, they still have to pay health insurance).

The second solution is called “Small ZUS”. It allows new entrepreneurs in a full period of 24 months from starting their business or making use of the “Relief to start” to pay social security contributions in a preferential amount. By default, contributions are paid from a declared base not lower than 60% of the forecast average gross salary, whereas in the case of “Small ZUS”, the basis may be an amount not lower than 30% of the minimum remuneration. The amount of the premium for individual insurance is an appropriate percentage of the declared basis, for instance: pension insurance in the case of “Small ZUS” in the lowest amount will amount to 19.52% multiplied by 30% of the minimum wage.

It is possible to make use of preferential ZUS contributions as part of the “Small ZUS+” programme aimed at companies that obtained revenues maximum PLN 120,000 the year before. They can make use of the same benefits as in the case of “Small ZUS” for a maximum of 36 months in the next 60 calendar months of conducting business activity. Importantly, the time of using the small ZUS is also included in this period. Therefore, in most cases, this program allows you to extend the small ZUS by an additional year.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to eliminate time restrictions for the possibility of taking advantage of the “Small ZUS” programme.

JUSTIFICATION

The “Small ZUS” programme helps new companies in their initial period of operations, when most of them try to scale up, build a customer base and capital necessary for further functioning. This is a very beneficial solution that facilitates difficult beginnings. Nevertheless, there is a very large group of companies on the market that even at a later stage do not get high revenues. These are usually sole proprietorships, craftsmen or small commercial companies. Many of these people value independence and do not want to work “full-time”. They are devoted to their passions, making them their profession. Moreover, many companies that usually obtain higher revenue have temporary financial difficulties, caused, for example, by a decrease in the number of projects. Unfortunately, these entities can only benefit from preferential conditions for a limited time according to the rules of “Small ZUS” and “Small ZUS+”. When they have to start paying insurance contributions in full, it often turns out to be impossible, because after paying fees and taxes from the revenues obtained, only a small amount remains, which does not allow them to support themselves and their families.

This problem has become particularly evident in recent years. Initially, the COVID-19 pandemic was a considerable blow in a major way to the smallest entrepreneurs, who had no sufficient capital to survive trying times, let alone pay public levies and taxes. The previous year, on the other hand, was characterised by inflation and massive increases in operating costs in the form of prices of gas and electricity or rental costs to name a few. In 2023, there has also been a record increase in social security premiums, which are, after all, related to average salaries and wages. Therefore, in order to enable economic activity also for these entities, we propose that the “Small ZUS” programme have no time constrictions. We postulate that entrepreneurs ought to be able to decide each month whether they can afford to pay premiums only from the base amounting to 30% of the minimum wage, or whether they can afford to pay a higher contribution.

  1. Reduction of the disability pension paid by micro-enterprises

One of the social insurances that is a heavy burden for employers is disability insurance. The premium amounts to a total of 8% of the base and is paid by employees in the amount of 1.5% and by employers in the amount of as much as 6.5%.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to reduce the disability pension premium paid by micro-entrepreneurs for themselves and for their employees by half (to the level of 3.25%). The other half of this premium could be reimbursed from public funds.

JUSTIFICATION

Employers pay 6.5% of the disability pension premium on behalf of their employees. For the smallest companies, this is a very large amount, which considerably increases labour costs. Considering the amount of the minimum salary in February 2023, a monthly premium per single employee amounts to approx. PLN 225. In the case of the average salary in the enterprise sector in December 2022 (PLN 7,329.96), the disability pension premium paid by entrepreneurs for their employees comes up to as much as PLN 475. Lowering the disability pension premium will significantly reduce employment costs. Especially since in the case of even the lowest salary, which currently amounts to PLN 3,490, the employee receives a net amount slightly above PLN 2,700, while the employer’s total cost exceeds PLN 4,200. Therefore, in the case of even the minimum wage, the state receives approx. PLN 1,500 per month in the form of various premiums and taxes.

  1. Premiums to the Labour Fund and the Solidarity Fund

In recent years, operating costs have been growing drastically. In 2023, entrepreneurs’ social security contributions increased at a record-breaking level, payments for utilities, such as gas and electricity, are rising as well, as are rental costs. Both the minimum and the average wage are on the rise. All this translates into ever larger difficulties with maintaining financial liquidity by the smallest entities. A solution partially mitigating the increase in costs may be to waive the collection of premiums to the Labour Fund and the Solidarity Fund from micro-enterprises.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to abolish the obligation to contribute to the Labour Fund and the Solidarity Fund for micro-enterprises.

JUSTIFICATION

Operating costs, which are growing year-to-year, make it impossible for many of the smallest enterprises to stay on the market. Others require capital so that they can carry out further investments and consequently develop. Relieving entrepreneurs of costs related to premiums to the Labour Fund and the Solidarity Fund will allow the smallest companies to develop and, as a result, will stimulate the Polish economy. We emphasise that this proposal of ours applies solely to the smallest micro-enterprises. This solution is therefore designed with the most vulnerable entities in our economy in mind. One should also stress that contributions to the aforementioned funds are paid only by entrepreneurs, and not the employees.

  1. Lowering the health insurance premium for the self-employed and micro-enterprises

One of the most controversial changes introduced in the Polish Deal regarded health insurance regulations. The new solutions do not allow companies to deduct health insurance premiums according to the same rules as in 2021. Therefore, a significant part of the benefits resulting from the introduction of a higher tax-free amount or the increased tax threshold is squandered.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes that in the case of micro-enterprises and people who are self-employed, the health insurance premium be reduced from 9% to 6% if using tax scale. We also propose to increase the limit of reducing the tax base in the registered lump sum to 75% and to increase the amount that can be deducted from the tax base (income) to PLN 14,000 of the value of paid health insurance premiums in the case of flat-rate tax.

JUSTIFICATION

Costs related to health insurance for the self-employed and the smallest enterprises constitute often a rather large part of their budgets. During times of very high inflation and operating costs going up, it seems reasonable to enable the smallest entrepreneurs to reduce these costs.

  1. A change in the rules for paying sickness benefits

Employees who are unable to work are entitled for the first 33 days to a so-called “sick pay” paid by their employers. It is only from the 34th day onwards that “sickness benefits” are covered by the Social Insurance Institution (ZUS).

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes that from the very first day of inability to work, people employed in a micro-enterprise be entitled to sickness benefits.

JUSTIFICATION

Since the vast majority of employees’ absence from work takes place due to illnesses that last less than 33 days, the costs of sickness benefits are mostly charged to entrepreneurs, and not the Social Insurance Institution. This is despite the fact that employees pay appropriate sickness insurance amounting to as much as 2.45% of the contribution assessment base. Many of them will never take advantage of sickness benefits throughout their professional careers, but only of sick pay.

Summary

The Union of Entrepreneurs and Employers presents these proposals in the hope of starting a broad public debate on the current social and health insurance system, which inhibits entrepreneurship and impacts the smallest companies on our market. The economic situation of our country, which has been struggling with constant crises over the past three years, significantly affects the SME sector, micro-enterprises in particular. Countless statistical data confirm this argument indicating that growing numbers of entrepreneurs are forced to suspend or shut down business operations. The total cost of implementing all the postulates listed in this document is estimated at approx. PLN 20-25 billion annually. This would be real help for the smallest companies in Poland. We fear that the lack of decisive action may result in streets full of empty shop windows and abandoned premises, and thus a serious crisis in Polish micro-entrepreneurship.

***

[1] https://www.money.pl/gospodarka/firmy-zwijaja-zagiel-dramatyczne-dane-6835208485485248a.html (accessed on 1st February 2023)

[2] https://forsal.pl/biznes/firma/artykuly/8641001,jednoosobowa-dzialalnosc-gospodarcza-koszty-prowadzenia-w-polsce-raport.html (accessed on 1st February 2023)

[3] https://www.money.pl/gospodarka/kryzys-uderzyl-w-male-firmy-masowo-sie-zamykaja-z-miesiaca-na-miesiac-jest-gorzej-6850203369155392a.html (accessed on 1st February 2023)

[4] https://www.infor.pl/prawo/gmina/dzialalnosc-gospodarcza/5638794,jednoosobowe-firmy-likwidacja-2022-prognozy-2023.html (accessed on 1st February 2023)

 

See more: 09.02.2023 Memorandum of the Union of Entrepreneurs and Employers in light of the dramatic increase in operating costs, we need a set of laws for micro-enterprises

Appeal of the Union of Entrepreneurs and Employers to Senators of the Republic of Poland with regard to the “10H Act”

Warsaw, 14th February 2023

 

Appeal of the Union of Entrepreneurs and Employers to Senators of the Republic of Poland
with regard to the “10H Act”

 

Considering the high demand for green energy in Poland, the Union believes that any and all decisions limiting the development of RES constitute a squandered opportunity for our country for numerous new investments, jobs, and a competitive advantage in the CEE region.

The change of wording in the amendment to the act on investments in wind farms and some other acts of the minimum distance of wind farms from buildings from 500 to 700 metres considerably limits the potential of onshore wind energy in the decade to come.

The Union of Entrepreneurs and Employers closely monitors the legislative process with regard to the amendment of the act on investments in wind farms, which is intended to restore investment opportunities in this field. Time and again, we have indicated the rising green energy deficit in Poland, threatening the functioning of companies exporting their products to EU markets. Onshore wind farms are nowadays the cheapest source of electricity, as well as an investment-effective source of green energy. In our view, the several years long delay in amending the act that would allow for renewed investments in onshore wind energy in Poland to be highly unfavourable for the entire Polish economy.

As part of the first reading of the draft amendment, during a joint meeting of the Sejm Committee for Energy, Climate and State Assets and the Sejm Committee for Local Government and Regional Policy, a significant change was introduced to it, aimed at increasing the minimum distance at which a wind farm may be located in relation to the residential development from 500 to 700 metres.

One ought to emphasise that the presented draft is a long-awaited legislative initiative, and the solutions included in it are the result of many years of cooperation and consultations with the involvement of a wide range of stakeholders, among them representatives of local governments, NGOs, the manufacturing sector, representatives industry, local communities etc. The solutions developed in the course of said legislative process lasting almost two years constitute a broad compromise, optimally reconciling the interests of various parties.

Ensuring green energy availability in the years to come will directly determine how competitive Polish economy is going to, while being a condition for future investments in Poland.

A large part of enterprises running their operations in Poland export their products, among others, to European markets. In the case of the furniture and automotive industries, it is approx. 80%. It is expected that all exports, including from the above-mentioned sectors, will have to be produced using low-carbon energy sources by 2026. Considering the current industrial consumption of electricity by the industry at the level of approx. 55 TWh annually, it will be necessary to provide 35-40 TWh of green energy a year for export needs. This, owing to investment opportunities and time required to develop manufacturing projects, can only be executed through the development of onshore wind energy and large-scale photovoltaic installations.

Increasing the distance from 500 to 700 metres also negatively impacts the functioning of communes themselves, limiting their ability to build residential facilities in the vicinity of existing wind farms. Hampering the development of wind energy also means limiting revenue streams for municipalities from property tax or other public levies related to investments carried out in the area of onshore wind farms. Local communities are also among the first potential groups to benefit from lower energy prices.

The above conditions were remarked on by the draft’s initiators as part of the Regulatory Impact Assessment (hereinafter referred to as “RIA”), wherein numerous benefits resulting from the entry into force of the new regulations were elaborated on in detail, such as:

  • significant impact on the finances of enterprises in the following sectors: construction, consulting, and design (revenues of enterprises, according to the RIA, would amount to PLN 12.5-20.9 billion), new jobs (the removal of the above-mentioned administrative barriers would allow for development of onshore wind energy to 22-24 GW by 2040 with up to 42,000 jobs may be created related to the sector),
  • additional revenues from property tax (in a cautious scenario, communes where wind farms will be located may obtain a total of over PLN 670 million from property tax alone, while in an optimistic scenario this amount may exceed PLN 1.1 billion),
  • lower electricity prices on the wholesale market (in a scenario assuming a total installed capacity in Poland at the level of approx. 22 GW, total annual savings in energy costs may amount up to PLN 22 billion),
  • providing cheap, zero-emission energy to energy-intensive companies (from the perspective of large enterprises, onshore wind energy in particular shows potential for development in direct long-term corporate power purchase agreements from RES (known as cPPAs), indicated, among others, in the Polish Energy Policy 2040, concluded directly between RES suppliers and recipients of large amounts of energy)[1].

In the RIA, it was clearly emphasised that positive effects of regulatory changes elaborated on in detail in this document were based on specific parameters contained in the draft act. The most important of them is the mechanism for determining the minimum distance from residential buildings for locating onshore wind farms. Any and all modifications to this mechanism, in particular affecting its essential parameter, which is the permissible minimum distance, will considerably impact the effects of said regulations and thus make the benefits referred to in the RIA unattainable.

The change in question, that is, a minimum distance of 700 instead of 500 metres, will significantly reduce the generation potential of the RES sector. Considering the high productivity and cost-effectiveness of energy generation, as well as the relatively short period required to execute projects, it is the optimal answer to the energy crisis and is of fundamental importance from the point of view of industry operating in Poland.

From the analyses of the Union of Entrepreneurs and Employers and many industry organisations, it is clear that in the case of planned projects in areas with the type of residential development that is dominant in Poland, increasing the minimum distance to 700 metres will lead to a reduction in the original assumptions regarding the number of turbines and thus the installed capacity of projects, ranging from 60 to 85%. As a consequence, the vast majority of new wind projects will not be built at all or will be greatly reduced.

One should also note that the change increasing the distance from wind turbines from 500 to 700 metres will significantly limit the investment potential in rural areas.

Considering the data presented in the RIA, limiting the development potential of the onshore wind energy sector will clearly be unfavourable for local governments, entities in the supply chain for the sector, the construction industry, and the Polish energy-intensive industry, which, due to the limited availability of cheap zero-emission energy, is already facing the need to reduce employment.

Regardless of the above, it must be emphasised that this change, apart from the obvious reduction of the benefits described above, will also be negatively perceived by locally communities living in areas where investments in the field of wind farms are being planned.

It should also be stressed that the change in question stands in clear contradiction to the main goal of liberalising the rules for wind farm location, in process since mid-2021, which from the very beginning was to ensure the greatest possible authority of local governments and communities in the planning process, in the spirit of the principle of subsidiarity of power. Increasing the minimum distance significantly reduces the possibility of real influence of local communities on this process, imposing a rigidly defined framework for the development of the onshore wind energy sector.

With all the above in mind, we appeal to the Senators of the Republic of Poland to introduce provisions aimed at restoring the original assumptions of the project, that is, the possibility of locating wind turbines no less than 500 metres from residential buildings in order to avoid a number of the described negative effects resulting from undermining the compromise developed in a long-term process, carried out among a wide group of stakeholders. One must stress that the mentioned minimum distance of 500 metres was recommended in the 2022 report by the Environmental Engineering Committee of the Polish Academy of Sciences “Wind power plants in the human environment”, co-authored by 37 scientists, members of the Polish Academy of Sciences. As part of their work, thorough field measurements of the impact of wind farms on the environment were carried out.

***

[1] All and all data provided in this paragraph are obtained from the Regulatory Impact Assessment presented in the Sejm Paper No. 2938

 

See more: 14.02.2023 Appeal of the Union of Entrepreneurs and Employers to Senators of the Republic of Poland with regard to the “10H Act”

Opinion of the Chief Economist of ZPP – summary of 2022 and prospects for 2023

Warsaw, 7 February 2023

 

Opinion of the Chief Economist of ZPP – summary of 2022 and prospects for 2023

 

The year 2022 could be called interesting, in the sense in which the Chinese use the curse “may you live in interesting times”.  The beginning of the year brought concerns about inflation (although even pessimists predicted a peak in consumer inflation of approximately 10% year-on-year).  It was supposed to be influenced by the rising prices of energy raw materials and the rebound in the Polish and global economies after the pandemic.  This rebound started in 2021, but many forecasts, especially those from 2021, indicated its continuation in the following months. This, in turn, was expected to affect prices.

Even before the aggression against Ukraine, Russia began to apply a policy of a limited supply of energy resources to Europe. This was possible due to the dependence of European countries on Russian gas (supplied via pipelines, which meant that there were not many stimuli to change the supplier; in fact, Europe’s dependence on Russian gas has been deepening, not weakening, as a result of German policy in recent decades), oil ( flowing through the Przyjaźń oil pipeline – again, there is no cheaper and easier form of import, hence Central European countries, in particular, were dependent on Russian supplies) and its distillates (especially diesel oil was imported to Europe in significant quantities). The beginning of the year also brought the last significant wave of COVID, during which the government still tried to apply restrictions limiting mobility. 

At the same time, hopes for the sustainability of a post-COVID economic rebound in the conditions of logistical issues (due to COVID, or rather anti-COVID policies) made us think with concern about the length of the aforementioned inflation impulse.  It was supposed to be caused primarily by excessive demand in relation to the production capacity of companies struggling with rising costs and supply disruptions.  Optimists; however, expected another year of stable economic growth and a slowdown in inflation after the expiry of the pandemic state aid.

The Winter Olympics in Beijing, which took place in February, were supposed to be a symbol of the success of China’s “zero COVID” policy and the effectiveness and agility of Chinese foreign policy.  The Olympics venues were often closed to spectators, who were few in number anyway – foreigners had virtually no chance to enter China for health and hygiene reasons.  Despite this, the following months showed that the Chinese pandemic was an even greater failure than the European one. Subsequent lockdowns slowed down the recovery of the economy, and the end of the year brought a relaxation of that policy (probably due to the economic situation and growing internal unrest) and a rapidly growing wave of the pandemic. Its scale is difficult to assess due to the censorship of information by the Chinese authorities. China’s efforts to organise the Olympics in times of peace were only partially successful – it may have postponed the date of Russia’s invasion of Ukraine – but only by 2 or 3 weeks … The year of the Chinese Olympics will not be remembered as a year of peace, at least in the West.  However, China and its policy must be remembered because, as it turned out at the end of the year, the Chinese accidentally threw a life belt to Europe in the middle of an energy crisis.

And this crisis began at the turn of February and March, when, as a result of Russia’s invasion on Ukraine, the EU launched a policy of sanctions limiting imports of energy resources. A similar policy of limiting exports by Russia became an offset to the above. Later on, the size of future supplies was affected by the explosion of the Nord Stream gas pipeline: since it was temporarily closed anyway, its impact was negligible; however, it called into question the possibility of a rapid return to a business-as-usual policy with Russia.  The concerns about supplying Europe with energy resources, which are crucial especially in winter (when RES efficiency is often negligible), led to an increase in the prices of natural gas and oil on regional and global markets. This, in turn, translated into an increase in the prices of fuel and energy – one of the two drivers of inflation, which turned out to be much higher than anyone had expected, not only in Poland but almost everywhere in Europe and, more broadly, in the world. Europe’s energy problems; however, were largely resolved thanks to the supplies of liquefied natural gas. At the end of the year, it turned out that the increase in those supplies was made possible mainly by the collapse in demand in China. There were two reasons for that collapse – the aforementioned policy of shutting down the economy and, to some extent, the increase in supplies from Russia (which was trying to find buyers for its hydrocarbons).  In 2022, the driver of inflation was also the fiscal policy of the previous years. Thee successive measures to support citizens and businesses resulted in an increase in debt in European countries and also in excessive money issuance.

The increase in energy prices in Europe affected the condition of some manufacturing industries, especially energy-intensive ones,  e.g.,  BASF moved most of its chemical production from Europe to the USA. It also affected the situation of households, which had to and still have to face a sharp increase in energy and fuel prices. On top of that, rising prices fueled inflation and, consequently, consumer prices in Europe are 15-25% higher than two years ago.

The following months brought an increase in tension in Ukraine: the Russian offensive, which collapsed, Ukraine’s counter-offensive in the autumn, and finally, the new tactics of Russian attacks on civilian critical infrastructure facilities. It was not until late autumn that the situation stabilised. It is worth mentioning that the assistance of NATO countries played a key role in terms of Ukraine’s combat capability and ability to wage the war against Russia.  Poland remained one of the leaders of that assistance throughout the year.

The war also triggered a massive wave of emigration from Ukraine, which I have already written about. Approximately 1.5 million new emigrants from Ukraine stayed in Poland, either for a shorter or longer period of time.  Some of them decided to bind their fate to the Republic for a while, taking up work here, setting up businesses and sending their children to school.  This is almost 1 million people who still remain in Poland, have valid PESELs, and will potentially rejuvenate the population and replenish the labour force.

At the same time, after the summer price rallies, fuel and energy prices stabilised. With storage facilities full and supplies secured, prices began to fall back to the pre-war levels towards the end of the year.  The falling prices further fueled growing fears of a recession, possibly global in scope.  Especially since strained supply chains, risks related to the uncertainty associated with the course of the conflict and the carelessness of economic policies during the COVID period are also conducive to that.

Inflation triggered a response from other central banks; therefore, a cycle of solid increases in interest rates, not seen for a long time, was noticeable both globally and in Poland this year – the time of zero cost of capital is over, at least for now.  This, in turn, began to translate into the cost of servicing debts, private ones – such as housing loans in Poland – and public ones.  In the autumn, the increase in UK bond yields (meaning a drop in market valuation) threatened the stability of the market and the UK pension system so much that it prompted a multi-billion dollar liquidity intervention by the Bank of England. During the same period, the Polish government refrained from issuing PLN bonds due to the compensation expected by the market for borrowing capital. It was replaced by issuing dollar-denominated debt – much cheaper but exposed to currency market turbulence.

And those turbulences were serious.  On the main EUR-USD currency pair, annual volatility reached several dozen per cent. EUR fell 20% against USD in the period from January to September, and then strengthened by 10%.  The volatility of peripheral currencies, such as PLN, was even greater.  This volatility, as many times before, protected Polish exporters but, at the same time, had a negative impact on energy prices and the situation of not only importers but also foreign currency borrowers.

At the end of the year, the situation in the world and in Poland became stable.  However, the last 12 months led to a deterioration of the situation of Polish entrepreneurs (inflation, the wage-price spiral and especially rising energy prices played a key role here) and even more serious problems for consumers. For the first time in a very long time, real wages fell due to inflation, while the cost of living skyrocketed.  The reduction in consumption (also evident through the fall in lending) is more and more painfully felt by entrepreneurs. One can only hope that the worst is over, although this is not certain.

With regard to Polish politics, which is worth mentioning at the end, the most important issue in the field of economy, apart from disputes over inflation and interest rates, was the matter of the National Recovery Plan – the EU funds allocated for the post-COVID recovery of the economy, the transfer of which the European Commission made conditional on the Polish government achieving a number of milestones.

The year 2022 was so interesting that it remains only to wish that the upcoming 11 months of 2023 will be at least as peaceful as January.



Dr hab. Piotr Koryś
Chief Economist of ZPP

 

See: 07.02.2023 Opinion of the Chief Economist of ZPP – summary of 2022 and prospects for 2023

Slightly better business sentiment – The Busometer ZPP for the first half of 2023

Warsaw, 9 February 2023 

 

SLIGHTLY BETTER BUSINESS SENTIMENT
 The Busometer ZPP for the first half of 2023

 

Business sentiment for the next six months has improved slightly; however, it remains significantly pessimistic. The overall value of the BUSOMETER sentiment index in companies was 36.4, while the index was 32.4 in the previous research period.

As Cezary Kaźmierczak, the President of the Union of Entrepreneurs and Employers, noticed: “Entrepreneurs are reacting cautiously to the signals coming from the market.” So far, the gloomy scenarios forecasted last year have not materialised; however, there are still no clear signs of recovery.  The result is a more optimistic mood, compared to that from the last few readings; however, it is still far from enthusiasm.”

As it was the case in the second quarter of 2022,  entrepreneurs positively assess the situation on the labour market (currently 53.1 compared to the previous 51.6).

“This confirms that the labour market in Poland is in a stable and good condition at the moment – there is low unemployment and employers are unlikely to consider downsizing” – noticed Cezary Kaźmierczak commenting on the results of the study.

The value of the sentiment index in the context of the economic situation increased quite significantly (from 27.9 to 35.1). The index can still be described as a “crisis”; however, its increase shows that some entities see prospects of an economic rebound on the horizon in the perspective of the next six months. However, the fact that as many as 58% of entrepreneurs believe that the economic situation will deteriorate further in the coming months cannot be ignored.

The only component of the index that has not increased from the previous study is the investor sentiment index (it is 24.1, as it was six months ago).

As the ZPP President clearly noticed: “There is a certain risk that we will be stuck in persistent and long-term inflation, which will prolong the period of slowdown, and the lack of prospects for recovery from that phase will block investment attempts in the corporate sector.”

METHODOLOGY AND DESCRIPTION OF THE STUDY

The Busometer ZPP – the SME Economic Sentiment Index, is an indicator showing the degree of optimism of small and medium-sized enterprises and their planned activities in the perspective of the next six months. The Busometer has been published by the Union of Entrepreneurs and Employers in cooperation with Maison Research House every six mothn since 2011.

The Busometer Index value is influenced by three components:

  • the economic situation,
  • the labour market (remuneration and employment),
  • investment. 

The value of each component ranges from 0 to 100.  The Busometer scores below 50  indicate pessimistic business sentiment, while scores above 50 indicate optimism.


See:
9.02.2023 Busometr: Prognosis for the first half of 2023

 

Summary of 2022 in the energy industry as a year of changes and challenges

Warsaw, 20 January 2023

 

Summary of 2022 in the energy industry as a year of changes and challenges

 

  • Although the energy crisis did not bring the predicted catastrophe to Europe, it did lead to a significant turnaround in resource and raw material policies.
  • Accelerating distributed energy development in the EU today is a race against time and other markets – a race for stable and lower energy prices on the Old Continent.
  • In the face of new challenges, the energy transition all the more needs to be implemented in a smooth, rational and economically efficient manner.

With Russia’s attack on Ukraine on 24 February 2022, the old order to which the European continent had been accustomed to for more than 20 years, was gone. Until that day, fluctuations in energy commodity prices were stabilized by the steady supply from Russia. As it turned out, however – and this had already been noted by Polish policymakers, among others – Russia’s raw materials policy not only pursued economic goals, but also served as an effective weapon in the struggle against the more broadly defined Western world. Last year was thus a sad lesson on the consequences of years of naiveté in assessing the Kremlin’s intentions. Despite everything, however, we entered 2023 as a winning continent. Thanks to widespread mobilization in the face of the energy crisis, for the time being we have avoided a wave of blackouts in Europe. And while it is possible that without the support of mother nature (high temperatures + wind), the image would be less optimistic – it should also be acknowledged that so far, the darkest scenarios have not come true.

At the same time, there is no doubt that, under the influence of events beyond our eastern border, the 2022 energy policy of countries based solely on economic analysis, has been undermined. Nowadays, the strategic perception of energy, its independence, diversification of sources, stability of supply, stockpiles of raw materials, dispersion or, finally, resilience to threats, are equally important. This is not to say that such thinking has not existed in Europe before, but it has definitely been in the vanguard. Today’s overhaul of European countries’ energy systems is beyond economic.

With the above in mind, it is necessary to consider whether Poland’s energy industry is stable, secure, efficient, and whether the existing concepts of its development are defensible when confronted with new challenges. For example – further dispersal of energy generation sources has almost become the raison d’etre of most countries in Europe, but it is the state generation and transmission system that is supposed to guarantee the necessary energy supply to maintain production in times of emergency (e.g. war).

It is therefore worth analyzing in more depth whether accelerating the implementation of the FitFor55 package, under the provisions of RePowerEU in response to Russian aggression, is an effective response to the challenges that have arisen. In our view – no. The move away from Russian hydrocarbons should, of course, be accompanied by the development of renewable-based generating units (and the accompanying infrastructure), but also by a rational approach to the energy resources at the disposal of European countries – coal units powered by domestic raw materials, or nuclear units. Strong acceleration and radical increase in climate targets will be a counter-effective strategy, leading to the impoverishment of European consumers.  We should base plans and decisions on precise calculations and analysis. The loop made of exorbitant climate targets must not take oxygen away from the European economy and elevate energy prices, or we will irretrievably lose the industries we absolutely need to fuel the future. So, while reducing CO2 emissions and building energy efficiency are crucial, the path to zero-carbon should be smooth, economically sound and take into account the use of available sources, including assuming the rational use of coal resources.

The details will be insanely important here, because as the example of Poland has shown, mere access to a raw material such as coal, without proper safety mechanisms and regulations, will not stabilize energy prices. Besides, no EU country has passed the test of community solidarity, as egoistic interests in securing energy resources for their own local market have come to the fore in times of uncertainty.

In our view, the experience of this war should reset some opinions about the future of Poland’s energy architecture, centered around large-scale energy projects currently located mainly in northern Poland. More attention should be paid to dispersing energy sources and relying mainly on renewable sources, stabilized in the future by nuclear, hydrogen, biogas and energy storage facilities. In doing so, it is important to consider what role natural gas facilities will play and what will flow through them in the future. In contrast, coal power generation should remain within the system, as a complementary and stabilizing source, supporting us in a smooth transition, but also guaranteeing energy security for as long as it is necessary.

In 2022, there was a reversal in polarization in the energy industry in 3 areas:

  1. Gas and nuclear power were included in the EU taxonomy,
  2. Poland concentrated on energy from nuclear and offshore wind farms,
  3. In the perspective of two decades, there will be a shift of electricity production from the south to the north of Poland.

In Poland in 2022, it was not possible to notice a particular legislative acceleration enabling increased diversification of energy sources, guaranteeing energy security. Quite the contrary – there was the will to further concentrate the sector. The protracted discussions on the windmill law and direct lines have delayed the passage of these laws, which are extremely important for the development of distributed sources. Meanwhile, wind power should be expanded on a par with photovoltaics to complement each other in the future. The availability of clean and cheap energy should not be held hostage to political struggle. These issues require consensus spanning the divisions.

The scapegoat of the 2022 energy crisis was also the long-developed Commodity Power Exchange. The abolition of the exchange obligation and legal interference in market mechanisms, which was supposed to guarantee a reduction in price fluctuations, in retrospect will not change the market to provide greater flexibility and lower prices, but will strain its transparency.

In 2023 – as in the previous year – the bottleneck for the energy industry will be the distribution network, which cannot accept and distribute the amount of energy we are able to produce at peak times. The associated connection problems basically prevent work on new projects, which in the coming years will exacerbate the deficit of green energy which is badly needed by Polish industry. The PSE company, which manages the grid, sees solutions in expanding existing connections and increasing their capacity, without leaning toward promoting to potential producers the construction of new sources, energy storage, or direct lines that would relieve pressure on the grid. There is also a lack of simplified procedures for entrepreneurs to build their own energy sources. These issues will hopefully be addressed in the updated Energy Policy of Poland 2040 strategy.

The 2022 summary should not overlook positive signs, showing that policymakers are slowly realizing the threat to the overall economy from the green energy deficit in the Polish market. The power of prosumer energy, which is becoming a significant shareholder in the energy market, supporting the green transition, indicates that taking part of the market out of institutional oversight serves a common cause. It is also noticeable that the legal foundation is being laid for the construction of local energy communities planning to invest in renewable energy sources. Local initiatives are an extremely important source of modern energy development, and any state assistance in this regard is most welcome. In doing so, it is important to emphasize the need to relieve the pressure on the high- and medium-voltage power grid, for production and direct distribution of energy locally.

What is also positive is the idea of sharing the profits with surrounding communities for locally produced energy from RES. This leads us to think more deeply about the advantages of renewable energy, especially windmills, which have long since ceased to be associated in the minds of the society with negative environmental effects, and have even become a positive part of the non-urban landscape. The government’s amendment to the windmill law in the form of a mandatory contribution of 10% of the energy generated for local consumers is, in this case, perhaps not the best way to build an investor-community coalition. However, the initiative itself seems to have had a positive reception and, most importantly, has subjected long-held views in this area to critical thinking.

The Union of Entrepreneurs and Employers also welcomes the amendment to the Renewable Energy Sources Law and the extension of the time for the first sale of PV energy in support schemes from 24 to 33 months, putting the technology on a par with wind farms. The basis for these changes was to mitigate the effects of broken supply chains during the pandemic, intended to give PV power generators additional time to adjust to the new market situation and ease price pressures.

We are very happy about the doubling of the auction volume for investments in offshore wind farms (RES Act UC 99). This is an important initiative for investment in this type of RES and, in the future, the basis of the hydrogen industry.

We are closely and optimistically following the preparatory process for a law on so-called cable pooling, i.e. making already owned connection power available to other types of renewable sources, within the framework of the existing connection agreement. The law will allow more flexible use of existing transmission lines, which could translate into additional investment in RES and a rapid increase in the supply of green energy for the Polish economy.

On the other hand, the Law on Emergency Measures to Curb Electricity Prices and Support Certain Consumers in 2023 and its secondary legislation are, in our opinion, inaccurate, and in the opinion of market participants, changes have been introduced that are unfavorable to the entire energy system, which in turn may result in a reduction in energy production in Poland. The rules for calculating the price cap introduced by this regulation pose a threat to the profitability of RES investments. Seeing what role RES played during the summer and autumn months, where the use of renewable energy gave the conventional power industry the time it needed to replenish gas and coal storage, these decisions that are hard to understand.

From the point of view of the entire Polish economy, today the passing of the windmill and direct line laws is an absolute legislative priority, as is the cable pooling law. Investments related to these laws could result in an increased supply of green energy by at least 10 terawatt hours per year, starting in 2026. And this is without any visible contribution from the State, including without a particularly intensive support system.

In this context, there is also a need to rearrange dependencies in the energy industry. The current completely vertical system promotes concentration practices that deviate from the principles of a market economy.

Moving distribution into the realm of market energy would be a revolutionary move, but if it is done with the participation of a Distribution Network Operator, the existing distribution system operators will largely control the process. Such an impulse is already being felt, but the role of the state in this area is to shape it in such a way that the restriction of market principles is minimal and dictated only by Poland’s energy security.

Invariably, the launch of the program of revitalization of multi-dwelling units 200+ (which awaits the concentration of coal assets under the National Energy Security Agency (NABE)) along with passing the wind law, remain important. This would clearly show the direction of Poland’s transition and gradual move away from coal, as well as provide more room for negotiations with the European Commission on Poland’s energy transition path, taking into account the temporarily important role of conventional power generation.

Poland should push the concept of maintaining coal mines and coal power in Europe at a level that allows the economies of European countries to function under the threat of war. In view of the military situation, maintaining only the profit criterion in the European energy industry would be a big mistake, and our country is particularly vulnerable to the consequences of a military conflict with Russia. The wealth of European countries allows the creation and maintenance of an energy reserve base based on fossil fuels.

Poland, as well as Europe, has large coal and lignite deposits that allow to maintain energy independence in special cases, and this should not be abandoned prematurely. Likewise for nuclear sources, for which the plans to extinguish in some EU countries, were a bit too hasty. It is worthwhile to make parallel efforts to develop emission-free technologies for the use of fossil resources. Such an energy policy is in no way at odds with the energy Green Deal and the need to decarbonize the power and heating industry based on carbon-free sources. On the contrary, it can inspire the development of such sources as long as it is coordinated with a program to make the operation of coal blocks more flexible.

The program of revitalization of multi-dwelling units 200+ fits perfectly into such a coordinated policy. We should present the results of this program to the decision-makers in the European Commission and try to get it approved both formally and financially.

The concept outlined above could be integrated into Poland’s overall energy transition and form the basis for optimal development of both renewables and nuclear power.

The most important tasks in 2023 for policy-makers in the Polish energy sector:

  • Passing a law eliminating investment barriers in onshore wind power.
  • Passing a law on direct lines and cable pooling.
  • Refining and passing the law on effective support for energy communities.
  • Promptly developing and passing a law on investment facilitation for renewables on brownfield and post-mining sites.
  • Maximum removal of barriers to development of solar power.
  • Launching a program of revitalization of multi-dwelling units 200+.
  • Strong presence at the European Union level – consistent opposition to ideologically motivated programs to accelerate the energy transition and tighten climate policy;
  • Building a strategy for the use and development of transmission and distribution networks
  • Consistent, planned construction of nuclear power plant(s)
  • Changing the state’s raw materials policy and the creation of permanent stocks to make Poland independent of price fluctuations

Those of the above tasks that are regulatory in nature should be implemented in the first half of 2023, so that their effects on the economy will begin to be felt as early as 2025. This means, as mentioned earlier, an increase in the supply of green energy by at least 10 terawatt hours per year.

Despite the impediments associated with the election year in our country, we are counting on constructive legislative momentum in the energy-related area and the passing of basic and necessary laws to enable the development of modern energy based on distributed sources.

According to ZPP, we could have expected a bit more legislative activity in the energy area in 2022, but the year should definitely not be counted as a lost year in terms of progress in Poland’s energy transition. At the same time, it is worth remembering the consultation-based formula of cooperation between lawmakers and the society, which guarantees far better final results.

From the perspective of the EU energy market, Poland could be one of the few countries secure in terms of energy. However, the lack of crisis solutions and late legislative initiatives have only allowed ad hoc relief, without redefining the energy system. 2023 is the year of another opportunity for those in power to ensure our country’s competitiveness and energy stability.

 

See: 20.01.2023 Summary of 2022 in the energy industry as a year of changes and challenges

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