Poland racing to establish capacity market

By bne IntelliNews July 4, 2016

Wary of its thin reserve margins in the event of demand spikes such as were seen last summer, Poland hopes to pass legislation establishing a power capacity market by the end of 2016, the energy minister said on July 4.

In the face of an aging generation fleet, Polish utilities have struggled to keep up the pace of new investment. The current environment of low energy prices has only exasperated the situation, as have state demands for capital to be pumped into other parts of the energy sector, such as shale gas and coal.

A capacity market, in which the power system operator would pay utilities to maintain older power plants that can switch on production as needed could solve the problem of covering sudden jumps in demand, says Warsaw.

"We would like the draft bill on the capacity market to be prepared as soon as possible. . . to be past discussions in Q4 and, if all goes well, it could be adopted this year," Energy Minister Krzysztof Tchorzewski told PAP. He assessed the cost of the capacity market at PLN2bn-3bn (€450mn-680mn) annually.

The minister added the capacity market would aim at supporting conventional coal-fired generation, which produces around 80% of Polish power. Meanwhile, Warsaw recently passed legislation that is likely to pull back development of renewable energy. The move was criticised by Moody’s, which said curbing renewables will lead to a reduction in the country's level of capacity above anticipated peak demand.

The power system came dangerously close to collapse during a heat wave last August, as capacity struggled to serve demand. Around 19GW - or half of the current generation fleet - will have to be retired in 2020-2035. Power utilities have declared plans for just 10.5GW of new capacity - most of it coal-fired - by 2028, at a cost of PLN54bn (€13.45).

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