Coal’s Swan Song. Systemic risks of delaying the restructuring of the mining and coal energy sectors in Poland
- Implementation of the social contract with the mining sector and the establishment of NABE will dismantle the competitive and market mechanisms, which currently enforce the rapid replacement of coal assets with lower emission sources. This will significantly postpone the departure from coal in Poland and it will delay the energy transformation in Poland at the cost of taxpayers and energy recipients, while simultaneously strengthening the pressure from these declining industries on political decision makers.
- The proposed transformation model brings with it the risk of the escalation of costs for the national stakeholders. It requires the public budget to provide for the constant subsidising of those companies, and as the market logic suggests, it would soon be shut down to cover the losses of the production units overtaken by NABE for more than a dozen or even several tens of years. The creation of NABE will lead to a considerable concentration of the production units within one company and competition weakening along with a high risk of an energy price increase (monopolistic power).
- The postulated aim of ensuring energy supply security does not require creating a consolidated entity and can be done with other means. One such means is support for the strategic reserve, provided on competitive principles, instead of the ownership restructuring. In the context of the EU laws concerning state aid, it will be easier to introduce a competitive mechanism open to different entities, instead of a solution directing the public aid to one company with a dominant market position.
- Moreover, the establishment of one consolidated entity is not necessary from the standpoint of the second declared NABE objective, that is, facilitating the access to means for investment and the management of the change in energy companies. Their difficulties in gaining access to capital do not stem from the sole fact of having coal assets, but rather from the concerns of the financial sector that those assets can be kept and subsidised contrary to the economic estimation. Therefore, the declared objective for establishing NABE can be obtained by assuming reliable transformation plans and the withdrawal of unprofitable coal assets within the existing companies.
- The creation of NABE will not solve the key problem of the excessively low supply of investment projects in the energy production sector because it does not concern its fundamental causes. These include weak market signals and regulatory barriers to the implementation ofnew investment projects (in the case of state-owned energy companies) as well as unambitious development strategies and competence shortages, including in the case of other entities – regulatory uncertainty and the lack of a clear state energy strategy.
- The implementation of the NABE concept carries a high risk of consolidating clientelistic relationships between political decision makers, energy companies and trade unions, due to which maintaining dependence on coal against rational economic assumptions may be perceived by politicians as a better option than reforms in the years to come. The preservation of these relationships will also slow down and encumber the creation of the zero emission economy, thereby exposing consumers to severe loss and the economy to a loss of competitiveness.
- The present crisis may either bring order to the situation in the Polish energy sector by leading to a rapid withdrawal of coal assets in line with the market signals and full use of new and existing just transformation instruments, or it will preserve Poland’s position as a country dependent on coal, incurring ever higher reputation and financial costs. In an extreme situation, it can be one of the causes for Polexit and thus a propaganda instrument used by the Eurosceptic circles for the (false) presentation of membership in the European Union as bringing more losses than benefits.
- Instead of striving for the establishment of NABE in the proposed form, Poland should utilise competitive support mechanisms adjusted to the actual challenges of the power sector transformation, transparency and acceleration of changes, and not their postponement. The selection of the optimum energy mix should be done by the private sector, which at the same time should be certain of the institutional and legal framework of the conducted business. Too big to fail and at the same time highly politicised, NABE will stand at odds with a competitive energy market based on private entities, embedding the state as a monopolist producer instead of a wise and impartial regulator treating the numerous competing private entities equally.
- The proper way of acting would be to identify and remove the causes of low private investments. The main causes include the aspirations of the government to weaken the market stimuli as well as the regulatory barriers encumbering the development of zero emission energy sources and other elements of the zero emission power system (warehouses, DSR, etc.) by private entities. The state-controlled energy companies are also facing problems to be solved with unambitious investment strategies, limited operational efficiency in the development of new projects and a lack of transformation plans in line with the market and regulatory realities, and on the side of other private entities, the issues are the concerns resulting from high regulatory risk.
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