This briefing presents analysis from Ember’s September EU monthly data release.
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Most expensive electricity in Europe
Poland’s wholesale electricity prices become the most expensive in Europe
Poland’s wholesale electricity prices are now the most expensive in the EU, leading the ranking for several months in a row.
In April 2020, Poland’s wholesale electricity prices exceeded Greece’s and since then have continued to be the most expensive. Between April and September 2020, Polish electricity prices have averaged 46 Euro/MWh, almost 50% higher than the average for the rest of the EU-27 (31 Euro/MWh). 
Even amid the lower demand seen in April-June during the Covid-19 outbreak, Poland’s electricity prices were barely different compared to last year, even as they fell in most other countries.
The Polish Government’s commitment to coal while the rest of the EU steps up climate action will only widen this gap in the long-term, leading to increased import dependency and rising prices for end-consumers.
Senior Electricity Analyst, EmberPoland’s reliance on costly domestic coal means it now has the most expensive electricity in Europe. With the Polish government set to bankroll uneconomic coal mines and take on PGE’s loss-making lignite plants, the public will pay dearly for Poland’s coal addiction. New solar installations have taken the sting out of very high electricity prices this summer, but that’s only touching the surface. Poland needs to step up to make a rapid transition away from coal to clean electricity.
Three causes of high prices
Three factors have contributed to high Polish electricity prices – expensive Polish coal, low renewables generation, and falling gas prices.
#1 Electricity prices outside Poland decreased as electricity production switched into unused gas capacity, taking advantage of cheaper gas prices.
Looking at the cost of running gas and coal power plants (including the EU-ETS allowance price), it can be seen that since April 2019, it has been cheaper to generate electricity from gas than from hard coal. The graph below shows data for mid-range power plant efficiencies which assumes a coal plant efficiency of 40% and a gas plant efficiency of 55%. Whereas many countries have legacy gas plants which historically have run a low utilisation, Poland does not.
Our calculations also show that as Poland started leading the ranking of wholesale electricity prices in Europe (April-2020) even the least efficient gas plants became cheaper to run than the most efficient coal plants.
There are two primary reasons behind the relative positions of gas and coal generation prices.
- Gas prices fell significantly between Q4-2019 and Q2-2020 due to a reduction in demand caused by a mild winter and the implementation of lockdown measures.
- Despite a drop in international coal prices (see graph 4), the cost of generating electricity from coal has remained relatively stable since Q2-2019 due to an increase in EU-ETS allowance prices.
#2 Polish coal is now more expensive than imported coal
Hard coal accounted for two-thirds of the coal share in electricity generation in 2019 and most often hard coal electricity generation sets Poland’s wholesale electricity price.
In May 2019, Polish coal became more expensive than imported coal, and has been getting more expensive relatively ever since. Polish hard coal was €18 per tonne more expensive than imported coal in August 2020, the latest data available; whereas throughout 2017 and 2018 Polish coal was on average €24 per tonne cheaper than imported coal. So as power plants outside Poland that rely on imported coal have been paying less as international coal prices have fallen, Poland’s power plants have actually been paying more for domestic hard coal.
Decreasing profitability of polish thermal coal mining means diminishing budgetary room for technological investments which could help to lower mining costs. This, in addition to the miners’ pressure to retain employment in the sector, leaves little prospects for the fall of domestic coal beyond international coal prices.
#3 Poland continues to lag on wind and solar deployment
Throughout Europe, for over a decade, in hours when there is plentiful wind or solar generation, wholesale prices fall, as the most expensive generation is undercut, letting cheaper plants set the wholesale electricity price.
Poland has one of the lowest zero marginal cost renewables share in Europe, at only 13%, so there are almost no hours throughout the year in Poland set by zero-priced renewables.
That means that in most hours in Poland, the wholesale electricity price is set by expensive inefficient coal power plants, which keeps prices elevated to such a level that Poland now has the most expensive wholesale electricity prices in Europe.
Given the reduction of the cost of wind and solar over recent years and the projected increase in carbon prices, it is now (or very soon will be) cheaper to build new renewable electricity than to operate existing coal fired power stations [Carbon Tracker], [Bloomberg].
Two outcomes of high prices
Poland’s electricity imports are increasing, while its industrial competitiveness is decreasing.
1. Electricity imports are increasing
Because of Poland’s higher prices, Poland imported 8% of its electricity in the first nine months of 2020. 80% of these imports (8.6 terawatt hours out of 10.4 terawatt hours) were from Germany, where wind and solar leads to hours of very cheap electricity prices. The rise in imports from 7.2 terawatt hours to 10.4 terawatt hours was caused as exports to Czechia and Slovakia almost ceased, and cheap Nordic electricity increased flows from Sweden.
Poland needs to build new interconnectors, but this does not mean necessarily that imports will rise. Interconnectors are designed to help bring flexibility to the electricity system. If Poland builds sufficient wind and solar to bring down prices, then the new interconnectors will help balance the system without increasing imports.
2. Poland’s industrial competitiveness is decreasing
Increasing wholesale electricity prices exert a profound effect on Poland’s industrial competitiveness. Recently, ArcelorMittal announced that it will permanently close one of its steel plants citing high electricity prices as one of the reasons for its decision. However, this is not an isolated case – the threat of investment outflow from energy-demanding sectors puts Poland in a position where public money will be necessary to preserve the competitiveness of Polish manufacturing.
Coal to clean transition required
The cheapest, fastest, and future-proofed solution for Poland to decrease its wholesale electricity prices is to deploy as much wind and solar power as soon as possible.
Poland’s reliance on costly domestic coal means it now has the most expensive electricity in Europe.
With the Polish government set to bankroll uneconomic coal mines and take on PGE’s loss-making lignite plants, the public will pay dearly for Poland’s coal addiction.
New solar installations have taken the sting out of very high electricity prices this summer, but that’s only touching the surface.
Poland needs to step up to make a rapid transition away from coal to clean electricity.
 This is somewhat counter-intuitive for a country with one of the cheapest electricity prices for household consumers in Europe. Minimal taxes and levies on household and non-household electricity will soon put Poland in a vicious cycle where it is most likely to struggle to find money to invest in RES and modernize existing infrastructure.
 Power plant efficiency can be defined as the electrical energy produced divided by the total energy content of the fuel consumed. The most typical efficiency range for coal-fired power plants is 35-45%. In Poland, the current range is ~35-49%. Gas plants’ efficiencies are higher, generally between 50-60%.
 Both efficiencies are quoted at Lower Heating Value (LHV)
 The Polish coal monthly “PSCMI1” price index is of standard hard coal energy produced by domestic manufacturers and sold on the domestic energy market to industrial users. The imported “ARA” coal price is a daily price for imported coal arriving into Rotterdam. In addition, Polish coal has a lower calorific value, so more tonnes of Polish coal is needed compared to imported coal, for the same unit of electricity produced.
Thanks to Bartłomiej Derski, Chief Editor of Wysokienapiecie.pl and Paweł Czyżak, Head of Energy Modelling at Instrat Foundation for reviewing this analysis ahead of publication.