December 16, 2018

December 14, 2018

Subscribe to Latest Legal News and Analysis

Poland’s New Energy Policy Until 2040 Goes Nuclear

Last Friday, the Ministry of Energy published its draft Polish Energy Policy until 2040 (PEP2040). This long-awaited document is significant for both the energy sector and the entire economy; however, it is subject to social consultations until January 15, 2019, and its assumptions may (but do not have to) evolve.

A Generational Structural Change

A key principle of PEP2040 is the declaration to alter the structure of fuels used to generate electricity. This is the first official statement by the government declaring a marked reduction in dependency on coal (virtually by 50%) and in favor of nuclear power plants.

While it is forecast that in 2020 Poland will need 165TWh of electricity, of which 128.8TWh will be generated from coal (lignite and bituminous) – i.e. approximately 78%, with 0% from nuclear power plants – as early as 2035, the demand for energy is anticipated to be 215.6TWh, of which 46% would be generated from coal and approximately 10% from nuclear sources. In 2040, it is estimated that the demand for energy will amount to 231.8TWh, of which 32% would be generated from coal and approximately 18% from nuclear sources.

Regarding Poland’s energy policy, this is a groundbreaking change. Coal energy would constitute less than a third of the energy mix, while nuclear power plants would generate a fifth of the output volume.

Why Is a State Dependent on Coal Striving to Become Dependent on the Atom?

To date, Polish energy policy has largely relied on using coal to generate electricity, which – given the rising costs of coal mining and CO2 emission authorizations – has rendered electricity in Poland some of the most expensive in Europe. As the profile of the Polish economy is significantly dependent on manufacturing, it is thought that this policy may be ineffective in the long run – notwithstanding the substantial environmental issues. Relying on gas as the fuel for producing electricity is out of the question, because Poland relies on imports (78%, mostly from the Russian Federation) for this resource.

Introducing nuclear power plants to the Polish energy mix will help reach three objectives: (i) generation stability at 0% CO2 emissions; (ii) diversification of the generation structure; and (iii) nuclear power plant utilization safety, including access to different fuel sources.

Moreover, Poland expects Polish entities to execute 60% of the project value in constructing the new nuclear plants, which would be truly impressive.

Concept Work Already Underway

Many years ago, Poland’s energy groups established a special purpose company to execute the first Polish nuclear power plant. Research was undertaken, a world-class advisory firm was selected, and target locations were specified. The location was by the Baltic Sea – Kopalino or Żarnowiec (where construction of a nuclear power station began but was abandoned in the 1980s) – or in Central Poland, in Bełchatów (which has the largest systemic lignite-burning power plant in the world, with an output capacity of 5.47GW).

Six Nuclear Reactors, the First One in 2033

The Ministry of Energy, as set forth in PEP2040, plans to launch operations of the first 1-1.5GW reactor in 2035. The remaining five reactors are expected to be live by 2043. Poland plans for the total nuclear power plant output capacity to reach 6-9GW.

This tight schedule is required because so many coal sources built in the previous century are being abandoned and there is a need to balance power in the national electro-energy system. Additionally, it will make it possible to easily reduce greenhouse gas emissions in line with the increasingly restrictive EU climate policy.

The Roadmap Outlined in PEP2040

The Minister of Energy suggests the following schedule:
2018 – Develop a financing model (in our opinion, this is a very ambitious deadline).
2019 – Enact legislative changes to enable the execution of nuclear power plants and organize nuclear supervision technical support.
2020 – Select the final location of the first Kopalino/Żarnowiec reactor.
2021 – Select the technology and the general contractor.
2024 – Begin to construct the first reactor, and then the remaining reactors.
2027 – Launch a new landfill site for low- and medium-radioactivity waste.
2033 – Launch the first nuclear reactor.
Then, every two years until 2043 – Launch the remaining five nuclear reactors.

Evidently, the timeframe for launching the first reactor is 15 years and, looking at projects recently completed in Europe, it should be realistic.

Outcome

The Ministry’s objective is rather ambitious from the point of view of Polish energy policy and transforming the structure of electricity generation from coal to (i) coal, (ii) renewables and (iii) nuclear. Technologically, this would be a quantum leap for Polish industry and the economy.

However, the nuclear energy program has been pursued seriously by Poland’s governments since 2009. So far, as per the Supreme Audit Office report of 2018, expenditures on this program amount to US$200 million, with the effects of those actions still being rather negligible.

Reverse trends can be observed in the EU: nuclear energy is being abandoned, while there is increased use of RES in the energy mix. Truth be told, the fundamentals of the nuclear program remain at the government’s discretion, as the State Treasury controls the energy sector.

By determining the financing model, it will be possible to single out parties that are interested in constructing the first nuclear power plant. For now, Poland does not have the means to see the investment through. With energy prices decreasing in adjacent countries, a question arises as to the profitability of the investment (even if the price takes into account the reasonable costs of Poland’s energy security). Making legislative adjustments in Poland to accommodate nuclear energy is another large unknown.

A great opportunity will present itself for the domestic industry and EPC contractors. Such contractors would need to gear up to meet the quality and staffing requirements so that 60% of the manufacturing and construction costs could remain in Poland, as expected in the PEP2040.

PEP2040 is subject to social consultations. We hope to find out what the final shape of PEP2040 will be in the first quarter of 2019.

© Copyright 2018 Squire Patton Boggs (US) LLP

TRENDING LEGAL ANALYSIS


About this Author

Peter Swiecicki, Warsaw, Squire Patton Boggs, Infrastructure Financing Lawyer, Privatization Matters Attorney
Partner

Peter Swiecicki is the Managing Partner of our Warsaw office and his practice includes some of the largest infrastructure financings and privatizations in Central and Eastern Europe. His experience includes financings of the largest and most complex toll motorway project in Poland, as well as the main gas pipeline and the tallest office building in Central Europe.

Peter has served as an advisor to the Government of Kuwait on PPP projects, and advised on the financing of the Żywiec Hospital PPP project.

He has...

48 22 395 55 08
Igor G. Hanas International Investment Lawyer Squire Patton Boggs Warsaw
Senior Associate

Igor Hanas’ practice focuses on the energy and industrial construction sectors, and infrastructure projects, including the PPP model. Igor advises foreign and domestic investors, general contractors and service providers on all aspects of turnkey projects, starting from procurement and negotiations, through financing, performance, corporate and contractual issues and cross border technology import to handover of the investment.

Igor advises clients in regulatory matters including license (concession) issues in relation energy, chemical and natural resources sectors.

Additionally, Igor advises clients in the energy sector with respect to PPA and CPA, O&M agreements and other commercial contracts related to day-to-day operations.

He also represents clients before public administration authorities, common courts and the National Appeal Chamber in projects of the above-listed types.

Prior to joining the firm, Igor was an associate at the Warsaw office of an international law firm for a number of years and worked at a financial institution which is part of an international financial group.

Experience

  • Representing a global energy engineering construction firm in public procurement proceedings, negotiations with investors concerning the construction of a new power station of a capacity of 1,000 MW in Elektrownia Ostrołęka S.A. worth US$1.7 billion.

  • Representing a global energy engineering construction firm in public procurement proceedings, negotiations with investors, including representation before the National Appeal Chamber and district courts, concerning the construction of two new power stations of a capacity of 1,000 MW and 910 MW respectively, worth US$1.7 billion and US$1.3 billion, respectively and a combined cycle power plant in Warsaw Żerań (PGNiG Termika project) worth US$700 million.

  • Advising European and Asian EPC companies applying to the Polish Stage Grid for a public bid in Poland to design and construct high voltage electricity transmission lines and transformers, including the Poland - Lithuania energy bridge.

  • Advising international group of EPC contractors (Energy Service and Water Process Divisions) in turnkey retrofit/modernization/fuel conversion projects in Polish energy groups: PGE Energy Group, Tauron Energy Group, Energa Energy Group, ZE PAK Group, Dalkia and EDF. Legal assistance at all stages of proceedings: from public procurement and private proceedings stage, through performance of the project, cross border matters and technology transfer until the handover of the investments.

  • Negotiating commercial contracts for global chemical company subsidiaries operating in Poland with the oil & refinery industry and the copper mining industry.

48-22-395-5537