Warsaw, 14 November 2022
Opinion of the Chief Energy Technology Specialist at the Union of Entrepreneurs and Employers (ZPP) on the place of oil and natural gas in Europe’s modern hydrogen-renewable economy
On Wednesday, 3 November 2022, during the conference Energy security in times of war, co-organised by the Union of Entrepreneurs and Employers (ZPP), we had the opportunity to initiate a discussion aimed at demonstrating the role of conventional energy carriers in the future in which energy sources are expected to be converted into hydrogen and renewables. We attempted to show the future of oil and gas over time in the global and European economy and outline the future of fossil fuels in the Polish energy system.
The discussion was moderated by Włodzimierz Ehrenhalt, Chief Energy Technology Specialist at ZPP. The invited panellists were experienced practitioners specialising in the sector of renewable energy sources and oil and gas market experts. Maciej Bando, long-standing President of the Energy Regulatory Office and Chairman of the Advisory Board of the OZE POWER Congress, participated in the discussion. The Orlen Group was represented by Mr Tomasz Jarmicki, Director of the Research and Innovation Department of PKN Orlen, Central Branch of PGNiG in Warsaw, and the Polish Wind Energy Association was represented by Janusz Gajowiecki, President of the Association. Bogdan Pilch, General Director of the Polish Chamber of Power Industry and Environmental Protection, and Tomasz Surma, Regulatory Affairs and Public Relations Director of Veolia Energia Polska S.A., also took part in the panel.
In the context of predictions of what the future of natural gas and oil will be and whether hydrogen and RESs will be able to replace current energy carriers, all discussants agreed that this would vary around the world depending on the region. The rapid development of renewables in Europe will certainly lead to the gradual elimination of oil and gas as energy resources in the foreseeable future. Based on the statements of the European Commission and past experience, it can be predicted that renewables, together with hydrogen facilities, will replace gas and oil in transport and heating around 2045. In the energy industry, this will probably happen a little sooner.
The experience resulting from the war in Ukraine and Russia’s raw material policy has shown that only complete energy autonomy can save Europe from the crisis we are currently facing. Europe will certainly learn from the current extremely complex situation and will probably reduce its demand for gas and oil to the supply level guaranteed by European suppliers. This will, however, mean that both of these raw materials will be back-up and complementary sources for renewables and hydrogen. Of course, they will continue to remain basic raw materials for the purposes of the large-scale chemical industry.
Europe is likely to remain a leader in the zero-carbon electrification of economic life and industrial processes. Other parts of the world will, of course, develop green energy, but coal, oil and natural gas will play key roles in their economies for a long time to come. It is important to keep in mind that today China is a major investor in green energy; to secure its position as an export leader, it will be forced to move quickly from carbon to zero-emission energy, especially in the supply of energy to its industry.
During the discussion, the question was raised about the fate of petrochemical companies in the new electric and hydrogen economy in Europe and, in the future, globally. Extensive corporate investment programmes in renewable and hydrogen energy sources can already be observed. The scale of investment made by the largest companies in non-fossil energy sources is enormous and will enable their gradual business reorientation. There are many cases of mergers or equity investments between oil companies
and entities operating in the green energy sector.
The development of renewable energy sources and perhaps a return to modern nuclear power is likely to make Europe completely independent of fossil fuels. According to experts, the development of wind power in Poland and Europe is progressing, and it is now an irreversible process, not least because of the need to generate large supplies of green energy for green hydrogen production processes.
The Polish nuclear power plant is expected to be operational in 2033. The project involves the construction of three units with a capacity of 3 GW, which will reduce coal consumption in the national energy system by at least 15 to 20 per cent. If this happens, it will be a positive signal for the entire energy sector in Europe. Three gigawatts of energy from Poland’s first nuclear power plant equates to more than 25 terawatt-hours of clean energy, which is as much as we are now producing from all renewable sources.
However, while looking forward to the construction of the first nuclear power plant, we must not forget the current challenges facing the energy industry. As a country, we should focus on the short-term problems of our energy and heating industry. And, according to industry representatives, the situation is becoming dramatic. The blocking of the development of onshore wind energy by the so-called 10H Act has led to a slowdown in investment in the entire renewable energy industry in Poland, which prevents the dynamic growth of RESs, makes it impossible to sufficiently influence the reduction of energy prices and may lead to local power outages, especially in the areas where the existing infrastructure is outdated and overloaded. The speed at which the liberalisation of the “anti-wind” legislation is proceeding does not allow for rapid investment in modern generation sources and slows down the modernisation of transmission lines. Probably, already around 2025, we will be forced to import a lot of energy, especially green energy, for companies exporting products to European markets. And until we get our own offshore wind farms and nuclear power plant up and running, this is unavoidable. Perhaps the launching of the “Bloki 200+” (200+ Units) project, which is a programme of refurbishments to make the 200MW units more flexible and adapt them to work with renewable energy sources, could alleviate the energy shortage, but it has also been put on hold.
The situation of district heating in smaller centres is particularly difficult. We have approx. 400 district heating systems, mainly based on coal technologies. Converting these systems to gas appeared to be the simplest solution so far. But is this sensible in the current situation? Will gas price dynamics return to that observed before 24 February 2022? Although we do not know the answer, Poland seems to be prepared for increased gas needs related to the stabilisation of the operation of renewable energy sources, and in the future, once the gas market in Europe has stabilised, the share of gas in the Polish energy mix is likely to be significant despite the current problems. All the more so as some investors are already working on upgrading their gas systems using hydrogen. In the future, district heating equipment could be powered exclusively by hydrogen. Green combined heat and power plants are the future of the heat market in Europe. The experiences of countries such as Denmark, the Netherlands and Norway in this area are paving the way for other European countries to achieve this goal.
It is completely incomprehensible that, in the face of the energy crisis, legislative delays are holding up investments in wind energy of 10 GW, i.e. approx. 30 TWh of cheap green energy production. The wind energy sector is prepared for rapid investments and sees opportunities to reduce the green energy shortage and significantly lower energy prices in the Polish market. In general, in the opinion of the experts, gas and oil are still expected to be used in the energy industry as carriers complementing renewable sources. The use of these raw materials in chemical processes is also undeniable.
The state of the Polish energy industry and the problems facing the energy and gas market are cause for concern. Investment delays in virtually every sector of the energy industry may result in high prices, as well as insufficient supply of energy and heat. The short-term solution to this problem is import, at prices that are difficult to predict. Although transmission capacity is far from sufficient.
Only ad-hoc legislative and investment measures can reduce the threat of reduced power supply for industry and households.
We consider the following issues to be particularly important:
- Unblocking investment opportunities in onshore wind energy (Bill 10 H),
- Facilitating investments in renewable sources in post-industrial and post-mining areas,
- Intensifying investments in offshore wind farms – rational state support in this area,
- Accelerating works on the Act on Direct Lines,
- Implementing the programme concerning the regeneration of the most efficient 200 MW units (“Bloki 200+” programme),
- Launching the business prosumer programme – providing assistance and support to companies building their own energy sources,
- Commercialising low and medium voltage lines (local transmission grid).
The proposals presented above do not exhaust the catalogue of needs – the scope of necessary changes in legislation is much greater, and the lack of coordinated work in this area exposes the Polish economy to the loss of attractive export markets for the domestic industry.
Chief Energy Technology Specialist at ZPP