Risks and Trends

Risks and Trends: how to change the energy policy

Preview 2022-10-19
At the Polityka Insight conference on 24 October, we will talk about how war is forcing the dismantling of the free energy market, which could affect European integration.

Preview

The crisis is forcing a shift of the transition paradigm. For the past 20 years, decarbonisation has been a key factor shaping the transformation of the European and global energy order. Moving away from fossil fuels has become a trend that went global after the 2015 Paris climate agreement. The Russian invasion of Ukraine shattered this order and highlighted how much European countries had based their development on Russian resources. This will be the topic of discussion during the Risks and Trends conference panel entitled "How to change climate and energy policy in the face of war". The war has caused a rise in the price of fuels and forced Europe to focus on ensuring energy security. The consequence of this change will be an indefinite halt to the liberalisation processes of the energy markets and a significant appreciation of state interventionism, whose main objective will be to stabilise energy price increases, and protect vulnerable consumers and jobs.

Europe is betting on interventionism. The rise in demand for energy carriers in winter will increase tolerance of increasingly radical state measures. A succession of European governments is already taking extraordinary steps. The UK has frozen energy prices for households, France wants to buy out EDF, the largest nuclear power producer facing a wave of reactor malfunctions, and Germany is preparing to take over Uniper, the country's most important gas supplier. Berlin has also prepared a EUR 200 billion package to freeze gas and electricity prices. The idea has already caused a lot of controversy in other EU countries. This is because its size could favour German business, and this would lead to a distortion of competition and the possible disintegration of the European energy market.

The dismantling of the energy market will continue. In the case of Poland, the energy crisis may strengthen the position of state capital in strategic sectors of the economy, especially in the energy sector. State-owned companies already control 88 per cent of the gas sales market and 77 per cent of electricity generation. The dismantling of the free energy market may be initiated by the abolition of the exchange obligation with the Polish Power Exchange. The obligation forced generators - mainly state-owned power plants - to sell the energy they produce through the exchange. Without it, electricity trading will be more likely to take place within state-owned groups, which will reduce market transparency and push private operators out of the market. The price of energy will be easier to control, and may consequently fall, but at the same time, it will cease to be a reliable indicator for the economy.

The energy sector may face a decline in decarbonisation. In the absence of sufficient gas supplies, domestic coal-fired power plants will have to operate much longer to avoid the risk of a blackout. Old coal-fired units (the average age of Polish power plants is 47 years) will have to be overhauled to extend their operating life. As a result, the state-owned companies - PGE, Tauron, and Enea - may not be able to complete their plans to transfer coal assets to a new entity, the National Energy Security Agency (NABE), by the end of 2022. Meanwhile, getting rid of the coal burden was supposed to accelerate investment in renewables.

There is a growing risk of defragmentation of the EU energy market. Overly radical action on the part of governments, without proper EU-wide coordination, could fragment the EU energy market. The temptation to micro-manage energy could also lead to an explosion of public debt, which has already increased during the pandemic. On the other hand, high electricity and gas prices force reduced consumption and energy efficiency measures. The state's expansion in the sector, in turn, can facilitate and accelerate projects that would be impossible under normal market and regulatory conditions. The loosening of EU state aid rules may, for instance, encourage states to expand capital-intensive energy infrastructure - transmission networks or new nuclear power plants.

the Panelists

The panel "How to change climate and energy policy in the face of war" will feature Georg Zachmann, senior fellow at Brussels-based think tank Bruegel, Jadwiga Emilewicz, PiS MP and former MinDev, Zuzanna Rudzińska-Bluszcz, President of ClientEarth Prawnicy dla Ziemi, and Marina Dubakina, CEO and CSO at IKEA Retail in Poland.

Write to author
Robert Tomaszewski
Head of Energy Sector Desk
Robert Tomaszewski
PI Alert
10:00
28.06.2024

EU summit: Member States launch discussion on financing joint defence initiatives

State of play

Leaders approved appointments to top posts. At the EU summit that ended on Thursday night, they nominated Ursula von der Leyen for a second term as head of EurCom, former Portuguese Prime Minister António Costa as head of EurCou and Estonian Prime Minister Kaja Kallas as head of EU diplomacy. Italian Prime Minister Giorgia Meloni abstained from voting for von der Leyen and voted against Costa and Kallas. This means that Meloni is preparing for tough negotiations and may demand a high political price in return for his party's support for von der Leyen in her approval in the EurParl. Prime Minister Viktor Orbán voted against von der Leyen and abstained on Kallas.

They adopted the Union's strategic agenda for 2024-2029. Over the next five years, the Union's goals include a successful digital and green transformation by "pragmatically" pursuing the path to climate neutrality by 2050. Another objective is to strengthen the EU's security and defence capabilities.

Von der Leyen spoke of EUR 500 billion for defence over a decade. This was the EurCom estimate of needed EU investment presented by its head at the EurCou meeting. Poland and France were among the countries that expected the EurCom to present possible options for financing defence investments before the summit, such as EU financing of common expenditure from a common borrowing. This idea was strongly opposed by Germany and the Netherlands, among others. In the end, von der Leyen decided to postpone the debate until after the constitution of the new EurCom, i.e. in the autumn. And the summit - after von der Leyen's oral presentation - only launched a preliminary debate on possible joint financing of defence projects.

Poland has submitted two defence projects. These might be co-financed by EU funds. On the eve of the summit, Poland and Greece presented in writing a detailed concept for an air defence system for the Union (Shield and Spear), which Prime Ministers Donald Tusk and Kyriakos Mitostakis had put forward - in a more general form - in May. In addition, Poland, Lithuania, Latvia and Estonia presented the idea of jointly strengthening the defence infrastructure along the EU's borders with Russia and Belarus. Poland is pushing for the EU to go significantly beyond its current plans to support the defence industry with EU funds and agree to spend money on defence projects similar to the two proposals. But EU states are far from a consensus on the issue.

Zelensky signed a security agreement with the Union. The document, signed by President Volodymyr Zelensky in Brussels, commits all member states and the EU as a whole to "help Ukraine defend itself, resist efforts to destabilise it and deter future acts of aggression". The document recalls the EUR 5 billion the EU intends to allocate for military aid and training in 2024 (in addition to bilateral aid from EU countries to Kyiv). It says that "further comparable annual increases could be envisaged until 2027, based on Ukrainian needs" i.e. it could amount to up to EUR 20 billion. Ukraine's agreement with the EU comes on top of the bilateral security "guarantees" Ukraine has already signed with a dozen countries (including the US, UK, Germany, France, Italy). As Prime Minister Donald Tusk confirmed in Brussels, talks are also underway between Ukraine and Poland on the text of mutual commitments on security issues.

PI Alert
21:00
09.06.2024

KO wins elections to the European Parliament

KO received 38.2 per cent of the vote and PiS 33.9 per cent, according to an exit poll by IPSOS. Konfederacja came in third with 11.9 per cent, followed by Trzecia Droga with 8.2 per cent, Lewica with 6.6 per cent, Bezpartyjni Samorządowcy with 0.8 per cent and Polexit with 0.3 per cent. According to the exit poll, KO gained 21 seats, PiS 19, Konfederacja 6, Trzecia Droga 4 and Lewica gained 3. The turnout was 39.7 per cent.

According to the European Parliament's first projection, the centre-right European People's Party (EPP), which includes, among others, PO and PSL, will remain the largest force with 181 MEPs in the 720-seat Parliament. The centre-left Socialists and Democrats (S&D), whose members include the Polish Lewica, should have 135 seats, whereas the liberal Renew Europe club (including Polska 2050) will have 82 seats. This gives a total of 398 seats to the coalition of these three centrist factions (EPP, S&D and Renew Europe) on which the European Commission under Ursula von der Leyen has relied on so far. The Green faction wins 53 seats according to the same projection, the European Conservatives and Reformists faction (including PiS) 71 seats and the radical right-wing Identity and Democracy 62 seats.

Publications
Publications
Publications