The electricity market in Poland is made up of about 16.6 million users, of which some 13.6 million are households. Customers on the electricity market fall into two groups:
The enactment of the Energy Law (Act of 10 April 1997) is considered to mark the beginning of the process of creating the electricity market. Closely interconnected processes contributed to this, namely the demonopolization of the power industry (entailing its division into the subsectors of generation, transmission and distribution and supply), market liberalization involving the successive extension of areas in which competition is in play and privatization – transformation of state-owned enterprises into companies fully-owned by the State Treasury, and then selling shares in them to Polish or international investors. The major objective of starting market mechanisms in the power industry is to ensure reasonable energy prices for its buyers and, at the same time, to guarantee security of supply.
Other important aspects are to enhance the efficiency of energy use, simultaneously minimizing its environmental impact (mainly cutting emissions of CO2, sulphur and nitrogen oxides). The concept of a competitive electricity market assumes that production and sale of electricity are not natural monopolies. Market mechanisms, including competition, cause a pressure decreasing energy prices and improving service quality for customers.
Participants of the electricity market are the producers, entities involved in transmission, distributors and companies trading in electricity.
Electricity transmission and distribution operate as a natural monopoly – the customer has no choice of a grid. Prices for transmission and distribution of electricity are regulated by the Energy Regulatory Office (URE).
It is possible to purchase electricity from a different seller than the present supplier owing to the Third Party Access (TPA) rule. According to it, a local supplier is obligated to distribute energy purchased by a customer located in the supplier’s area from any seller (naturally provided that it is technically feasible).
Every year, there are more customers taking advantage of the rule. According to it, each seller of electricity has the right to offer it for sale to end-uses based on an agreement on the sale of electricity or a comprehensive agreement. The prerequisite for performing a sale agreement is for the seller to enter into a distribution services provision agreement, namely a general distribution agreement (GUD) with the distribution system operator to whose grid a given end-user is connected. The total quantity of electricity sold in 2016 to end-users on market terms and conditions, i.e. following the TPA rule, was nearly 65 TWh, which is 48% of the total energy delivered to end-users. It worth noting that for 2015, the above data are 59 TWh and 45.6% respectively. This shows the growth rate of competition development on the electricity market in Poland.
In the segment of institutions and business entities, where there is a strong competition and clients have taken advantage of deregulation of electricity prices, the progress of liberalization made increasingly aware business clients to expect very competitive solutions. An increased sales activity of energy companies exerts an increasingly stronger pressure on prices. There have also appeared new entities competing for customers, and transparency of offers is already necessary, since business clients more and more frequently take advantage of the possibility of changing the seller. A large potential is seen in the segment of households, where a small percentage of customers decide to change the seller.
In 2016, over 86 thousand electricity users switched sellers (approx. 15 thousand institutional clients and about 71 thousand households). The growth rate for households and institutional clients was 69% and 43% respectively.
Wholesale energy prices in Poland slightly increased in 2016 as compared to 2015. The average price on the Day-Ahead Market (DAM) on Towarowa Giełda Energii S.A. [(Energy Exchange, TGE)] was PLN 159.22 per MWh (+ PLN +2.27 vs. 2015), while the settlement price on the Balancing Market (CRO price) was PLN 164.19 per MWh (+ PLN +6.88 on an annual basis). The major cause of the inconsiderable price growths on the market in 2016 was an increased system demand for capacity, which on an annual basis translated into an increase in the use of electricity by over 3 TWh, up to 164.6 TWh (+2% y/y). The impact of the increased electricity use on the growth of its prices was not off-set even by relatively low coal prices, which fell by PLN 0.99 per GJ on an annual basis, down to PLN 8.79 per GJ. The increase of spot prices was also caused by a change of the structure of electricity production.
Launching about 730 MW of new capacity in wind power plants in 2016 contributed to the growth in the production of energy from these sources by 1.6 TWh. At the same time, also in 2016, a considerable decrease in production was recorded in lignite-fired power plants, by as much as 4.4%. This had to be compensated by increased production in more expensive power plants, e.g. gas plants, where production rose by 37.8% on an annual basis, up to 5.8 TWh. The increase in production from gas is also the result of launching a project by Orlen in Włocławek. In addition, the National Power System (KSE) was supported by the import balance of energy exchange with the neighboring countries in the amount of nearly 2 TWh.
On the forward market, contracts for 2017 were subject to quite dynamic changes as early as in the first months of 2016. The increasingly cheaper emission combined with low coal prices on global markets caused low prices on the Forward Commodity Market (FCM), further supported by stable spot prices, until the end of March. Large price fluctuations in April transformed the decreases in the BASE_Y-17 contract price into an upward trend, which persisted until June when contract prices hit PLN 165.50 per MWh.
Low prices of emission allowances recorded in the summer reached minimum levels in the 1st half of September, when they were approx. EUR 4-4.2 per Mg. These low prices, together with very cheap energy on the spot market, where in July the price of electricity was as low as PLN 155 per MWh, and in September dropped to the minimum average monthly level of PLN 140 per MWh, caused BASE_Y-17 contract prices to fall to approx. PLN 155.5 per MWh.
The last quarter of 2016 saw prices increase. Persistently high coal prices through the summer (about USD 58-60 per Mg) in connection with a dynamic rise of prices of CO2 emission allowances whose quotations moved in a direction indicating the possibility of returning to the price of EUR 6 per Mg, caused BASE_Y-17 contract prices to increase to about PLN 160 per MWh. Furthermore, increased spot prices in October, as a result of the failure in Turów and lower temperatures than forecasted, made it possible to break the resistance line and for the prices to increase up to approx. PLN 161-161.50 per MWh. At the end of 2016, electricity prices in BASE_Y-17 contract reached PL 162 per MWh.
The average volume weighted price of BASE-Y-17 product was at a level of PLN 160.27 per MWh, with a total of over 76.7 TWh sold within the product. Compared to the trading in the BASE_Y-16 product, the turnover was nearly twice as lower. The average price on the TGE exchange was PLN 159.77/MWh, with the volume of 51.5 TWh, while outside the TGE, the price was higher and amounted to PLN 161.29/MWh for the volume of 25.2 TWh.
For Peak Y-17 contract, quotations were at a similar level to those of the base contract. The maximum level of quotations in 2016 occurred on 18 January and was PLN 227.85 per MWh, and the minimum was listed on 16 February at PLN 202 per MWh. The total trade in the product was 7.3 TWh, of which 70% (5.1 TWh) fell to the exchange segment at the average price of PLN 209.94 per MWh, and 30% (2.2 TWh) was accounted by the participation of brokers at the average price of PLN 209.98 per MWh. In the entire period of trading the Peak Y-17 product, the total volume of electricity sold was 7.75 TWh at an average price of PLN 209.93 per MWh.
The CO2 emission allowance market featured exceptionally high price volatility in 2016. The price dip in January from EUR 8.30 per Mg to EUR 4.90 per Mg resulted from a combination of several overlapping factors unfavorable to the EU ETS market. The first was the unusually warm winter, which caused significant decreases in electricity contract prices in Germany, France and the United Kingdom. Another factor was data showing an economic slowdown in China. A low demand for coal contributed to record-low decreases in its prices in the ARA ports at the beginning of the previous year (down to USD 37 per Mg, the lowest level since 2003). The downward trend continued in spite of withdrawing, through the back-loading mechanism, the last 200 of 900 million units in the full year of 2016. A temporary reversal of the trend occurred only after three months, in April, and resulted merely from the increased demand for EUAs in connection with the need to settle emissions for 2015.
In June, continuing the high price volatility, the EU ETS market responded with another big sale to the result of the United Kingdom EU membership referendum – the price fell from EUR 6.00 to 4.40 per Mg. Such low prices continued for the entire summer holidays and then, as a response to the energy (atomic) crisis in France in the fall and winter, returned to the level of EUR 6.60 per Mg. After detecting irregularities in nuclear power stations, ASN (the French Nuclear Safety Authority) ordered immediately to stop the operation of 12-13 out of 58 reactors. France obtained the required power by importing it from the United Kingdom, Austria, Germany and Belgium. The situation resulted in an increase in electricity prices and greater generation from conventional sources (coal and gas), which translated directly into an increase in prices of raw materials and CO2 emission allowances. The situation improved only in December, when ASN, fearing that the French electric power system would not be able to meet an increased demand for energy in winter, issued permission for restoring conditionally the operation of several reactors. The last important event affecting the prices of EUAs was the December vote in the European Parliament Committee on the Environment, Public Health and Food Safety (ENVI), on the proposed shape of phase IV of EU ETS and the operation of the Market Stability Reserve mechanism. The ENVI Committee proposed that the Reserve mechanism should withdraw twice as many allowances for the first 3 years of its operation (24% instead of the original 12%). In addition, to achieve a 43-percent emission reduction, it is proposed that a higher linear reduction rate of 2.4% should be adopted. In spite of such strict proposals, clearly aiming to increase the prices of EUAs, these still cost below the opening level – EUR 6.57 per Mg at the end of 2016.
2016 was also a year of decreases in the prices of “green” certificates, caused mainly by information about a new system for supporting RES. Its implementation was to start at the beginning of 2016 but, pursuant to the Act of 29 December 2015, the date was postponed to 1 July 2016. The final shape of the RES support system was described in the Act of 22 June 2016 to Amend the Renewable Energy Sources Act and Certain Other Acts. As a result of the market uncertainty and a still very high surplus in the system of certificates, the prices of property rights confirming energy production from renewable sources PMOZE_A fell in 2016. The OZEX-A index reached at the October session the lowest price in history: PLN 32.57 per MWh.
The average weighted session price was PLN 73.63 per MWh, or PLN 49.98 per MWh lower than in 2015. The balance of PMOZE_A, as of the beginning of the register at the end of December, was 29.1 TWh, and the surplus rose by 2.04 TWh compared to the previous year. Taking into account the allowances blocked for redemption, the surplus at the end of 2016 was 19.8 TWh.
The amount of the replacement fee set for 2016 was PLN 300.03 per MWh, and the rate of the PMOZE_A certificates that must be presented for redemption, which in H1 was 15%, fell to 14.35%. With a reduction of the amount of required “green” certificates, as of H2, a new type of certificates was introduced to confirm production of energy from agricultural biogas – “blue” certificates, for which the required amount was 0.65% (i.e. equal to the reduced required amount of “green” certificates). The average weighted session price of PMOZE-BIO in 2016 was very close to the replacement fee of PLN 300.03 per MWh, amounting to PLN 295.52 per MWh. The balance of this instrument’s register at the end of the year was 48.01 GWh.
According to the Energy Law as amended in 2016, by 30 June of a given calendar year, it is possible to redeem property rights issued to co-generation units for production in the previous year. Therefore, cogeneration rights from 2015 were quoted until the end of H1 2016. As of July, only property rights confirming energy generation in 2016 were quoted.
The average price of property rights confirming energy production in a high-efficiency coal co-generation PMEC-2015 (“red” certificates) in 2016 was PLN 10.76 per MWh, while the average price of property rights PMEC-2016 was PLN 10.68 per MWh at the end of 2016. The KECX index was very stable, hovering around the replacement fee of PLN 11 per MWh.
Similarly, the average price for gas co-generation PMGM-2015 was PLN 118.85 per MWh, with the replacement fee of PLN 121.63 per Mwh, while the average price of “yellow” certificates PMGM-2016 also fluctuated around the replacement fee of PLN 125 per MWh, amounting to PLN 121.13 per MWh at the end of 2016.
“Purple” certificates, which are co-generation rights confirming production of electricity in 2016 during methane removal from mines, achieved prices in H1 at a level around the replacement fee of PLN 63.26 per MWh, while their average weighted price PMMET-2015 was PLN 62.24 per MWh. On the other hand, PMMET-2016 was sold at the end of December at the average price of PLN 61.73 per MWh, with the replacement fee of PLN 63 per MWh.
Prices of the property rights following from the energy efficiency certificates PMEF, or “white” certificates, were also characterized by low volatility. With the replacement fee of PLN 1,000 per toe, the average weighted price of the EFX index was PLN 977.35 per toe. The prices fluctuated between PLN 958.30 and 1,001.76 per toe.