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published on 1 April 2020 | reading time approx. 3 minutes
The steady growth in electricity prices has encouraged renewable energy producers to look with confidence to free-market energy trade models. But observing the most recent electricity price changes triggered by coronavirus we are making a bold prediction: the auction system may become a safe harbour where renewable energy producers will survive the economic maelstrom awaiting the European markets.
The Minister of Health announced the first confirmed coronavirus case in Poland on 4 March 2020. Although there had been earlier rumours about the disease, this date marks the true start of the Polish battle against the virus. Let us first take a look at the prices on the Polish Commodity Forward Instruments Market (CFIM), the largest commodity stock exchange in terms of traded energy volume.
On 4 March, the daily clearing price under the Base Y-21 contract was PLN 244.56/MWh. The first significant slump was recorded on 9 March, when the price plunged to PLN 240.43/MWh to be followed by slight price rises up to around PLN 242.00/MWh.
Another landmark in the development of electricity prices was the government's decision of 11 March to close down schools, kindergartens and other educational facilities. It seems that it was this event that crucially affected the electricity prices on the days to follow. In response to the government’s decision, the Base Y-21 contract price levelled at PLN 238.50/MWh. This was only a prelude to further price drops. On 16 March, the electricity price was PLN 225.83/MWh, on 17 March it was PLN 219.00/MWh and the latest figures show a decline to PLN 213/MWh.
A chart on the website of the Polish Power Exchange (Towarowa Giełda Energii, TGE) shows how energy prices have changed since the beginning of February.
The Day-Ahead Market, a spot market for electricity in Poland, records a still stronger downward trend in electricity prices. On the day of announcing the first coronavirus case in Poland the TGeBase index was PLN 221.56/MWh to fall to PLN 175.89/MWh on 17 March. To give you a better idea of the scale of the decline, we just add that according to the information of the President of the Energy Regulatory Office the average quarterly electricity price paid on the competitive market in Poland at the end of the third quarter of 2019 was PLN 252.65/MWh.
Most probably not. First, because the epidemic trend in Poland has not been reversed yet. On the contrary, the number of infected people is still on the rise. At the moment, the government has announced maintaining restrictions to prevent the spread of the epidemic, e.g. by extending the period of closure of schools and other educational institutions. At the same time, manufacturing processes in energy-intensive industry sectors, such as automotive or metallurgy industry, are being temporarily limited or suspended. There will also be a reduction in energy consumption on the rail market due to the curtailed number of train connections. This leads to the conclusion that the virus-related measures will considerably curb the demand factor shaping electricity prices in Poland.
Considering the Polish power industry’s dependence on coal, also the cost of purchase of CO2 emissions significantly affects the energy prices. Also here dramatic declines are being reported due to, among other things, the reduction in CO2 emissions by over 100 million tonnes in China. CO2 emission prices reached EUR 30 only half a year ago, whereas they fell under EUR 20 on Monday and currently stay at around EUR 18. This means billions of zlotys in savings for Polish coal power plants.
The main advantage is the stability of prices for the sale of renewable electricity. Auction winners may cover the negative difference between the electricity sales price offered on the market and the price offered in auction. In last year’s auction for photovoltaic plants with an output of up to 1 MW, the maximum price offered by the winning bidders was PLN 327.00/MWh and the minimum price was PLN 269.00/MWh. Thus, even the most cautious bidders secured a price freeze at a level significantly above the prices pushed down by coronavirus. Interesting are also the results of the auction held for large wind farms and photovoltaic power plants (i.e. those with an output over 1 MW). The maximum price achieved in that auction was PLN 233.00/MWh, which means that the winners will keep energy sale prices on a par with the value of the Base Y-21 contract of 13 March 2020, that is, from the beginning of the coronavirus crisis.
The Ministry for State Assets has announced two renewable energy auction sessions to be held in 2020. The sessions are slated for mid-year and the end of year. According to the Regulation on the Maximum Amount and Value of Electricity from Renewable Energy Sources which may be sold by auction in 2020, wind farms and photovoltaic plants with an output of up to 1 MW will be able to contract 11,760,000 MWh of energy for PLN 4,527,600,000 in the auction, whereas plants with an output over 1 MW will be able to offer 46,290,000 MWh for PLN 14,015,850,000. The explanatory memorandum to the regulation says that the state budget will help to launch small photovoltaic projects (up to 1 MW) with a total output of about 800 MW. As for large photovoltaic and wind projects (above 1 MW), the government estimates that state aid may be granted to wind farms with a total output of about 800 MW and solar plants with a total output of about 700 MW.
The above-mentioned renewable energy auctions are designed to let Poland achieve the 15% share of renewable energy in the country’s gross final energy consumption in 2020, which is a strict requirement under Directive 2009/28/EC on the promotion of the use of energy from renewable sources.
Coronavirus: What you need to know
Piotr Mrowiec, LL.M.
Associate Partner
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