Summary of power and gas industry activities in 2021-2022 and future development recommendations – new report from the President of URE
The President of the Energy Regulatory Office has published the latest report on the conditions for undertaking and carrying out business activities in the Polish power and gas sectors and the current status of development plans implemented by operators in both sectors[1]. The report is published on a biennial basis and the latest, seventh edition covers the years 2021 and 2022.
According to the provisions of the Energy Law[2], every two years the President of URE prepares and publishes a report summarising the operating conditions in the Polish electricity and gas sector, as well as the level of security of electricity and gas supply. The study also includes information on investments made by power and gas network operators.
As a vital element, the document also contains the recommendations of the President of URE for changes in the regulatory environment, which aim to increase the stability of the electricity and gas system and further improve the market balance between producers, network operators, and energy and gas consumers.
Exponential rise in the number of network connection refusals
The first part of the report summarises the operation of the Polish power and gas industry over the past two years, with the most notable phenomenon being the unusually high increase in network connection refusals both for electricity and gas. The URE's field branches received a total of nearly 11,000 notifications of refusals to connect facilities to the electricity grid during this period, which is almost a ninefold increase in the number of refusals compared to 2019-2020. The gas network also saw a 145 per cent increase in refusals, with a total of nearly 57,000.
In this context, the section of the report devoted to the current condition of the electricity and gas networks and the plans for their modernisation, as well as the actions taken by the President of URE under the Charter for the Efficient Transformation of Distribution Networks, seems particularly relevant. It is worth noting that in the power sector, investment expenditure by the five largest distribution network operators and the transmission system operator, Polskie Sieci Elektroenergetyczne (PGE), increased from PLN 7.2 billion in 2021 to nearly PLN 9.4 billion in 2022. Despite this, the Polish power grid still requires comprehensive modernisation.
The President of URE and the top five power distributors in Poland responded to the above challenges with an agreement executed in November 2022 known as the Charter for the Efficient Transformation of the Distribution Networks of the Polish Power Sector, which provides for, among other things, the comprehensive digitalisation of the electricity grid and its adaptation to the rapidly growing number of renewable energy sources. The implementation of the Charter will result in the increase of RES installed capacity to 50 GW by 2030, i.e. by around 230 per cent, and a 50 per cent share of renewables in the energy mix.
Figure 1. TSO networks – age structure.
The section dedicated to the gas industry provides a detailed list of investment projects undertaken in the years 2021 and 2022 by the transmission system operator Gaz-System as well as the distribution system operator PSG. Investment plans of both companies, as agreed with the President of URE were also presented.
Figure 2. Gaz-System’s strategic investment projects, as at 31 December 2022.
The first part of the report also presents the aggregated volumes of cross-border trade in both electricity and gas between Poland and its neighbours in 2021-2022, and the overview of the operation of the balancing systems in the national power and gas systems.
The report also contains detailed update on security of supply which highlights the increases in both the installed capacity of the National Electricity System (by 12.65 per cent) and the maximum generation capacity (by 9.55 per cent) over the past two years, with the largest leap in installed capacity (by 43 per cent) and achievable capacity (by 34 per cent) observed in renewable sources. Also worth noting is the fact that electricity production covered domestic energy consumption.
Obstacles to RES development – business perspectives
The second part of the report includes a highly relevant compilation of the legal and procedural issues most frequently identified by the RES industry as obstacles to the development of the sector. In this regard, the legal instability resulting from frequently changing regulations comes to the fore, as well as difficulties in connecting for new energy sources to the power grid due to the condition of power infrastructure and the resulting policies of distribution network operators.
Also worth reading are the comments made over the past two years by the rapidly growing group of prosumers regarding, among other things, problems with not meeting electricity quality specifications, replacing meters with two-way meters or contract settlements.
Recommendations for changes in the regulatory environment
The last part of the report presents almost thirty recommendations of the President of URE for changes to the legal environment, which are intended, among other things, to resolve the growing problem of disputes between network operators and consumers related to connection refusals, and to increase the effectiveness of the regulator’s supervision of the energy and gas market. It is worth noting at this point that some of the changes proposed by the regulator have already been implemented or are underway at various stages of the legislative process[3].
As an example, a new obligation has been introduced whereby the distribution network operator is required to indicate, in the event of a refusal to connect to the network, the cost of a so-called commercial network connection[4]. The question of vesting new powers in the President of URE to define guidelines indicating the direction of network development and priority investments is also debated by the parliament[5] .
The Recommendations also include a crucial demand that the regulator's control over the issued licences be increased so as to permit licence modification without an application of the company or revocation in case when the holder does not perform its activities properly. Another proposal of the President of URE concern the expanded list of situations in which, for reasons of public interest, the regulator would be authorised to order an energy company to continue the activity under the licence despite circumstances leading to its termination. The proposal relates to a situation where the company in question has been sold to a new owner. All these demands have been included in the latest amendment to the Energy Law, which is currently processed by the parliament.
With regard to the gas market, the President of URE proposed, among other things, regulating hydrogen, biomethane and syngas in the Energy Law[6], and including companies involved in the distribution, storage and liquefaction and gasification of gaseous fuels among the users of settlement accounts.
The study also includes proposed amendments to the Act of 14 December 2018 on the promotion of electricity from high-efficiency cogeneration[7], which are intended to allow CHP plants to adapt more easily to the dynamically changing market situation. For example, generators would be given the right to update once their winning bid in the co-gen premium auction.
The Report is available on the Regulator’s BIP website.
[1] Full title of the report: “Conditions for undertaking and pursuing the business of generating, transmitting or distributing electricity and gaseous fuels, and the implementation of development plans by electricity and gas system operators with a view to meeting current and future demand for electricity and gaseous fuels.”
[2] Article 23(2a) the Energy Law Act of 10 April 1997 (Dz.U.2022.1385, as amended).
[3] e.g. in the government's bill to amend the Energy Law and certain other laws, forms nos. 3237 and 3237-A.
[4] Conclusion of a connection agreement pursuant to Article 7(9) of the Energy Law.
[5] Draft UC74 (Senate form 1010).
[6] Synthesis gas (syngas) is a combustible gas formed when coal, natural gas or light hydrocarbons react with water vapour in the presence of suitable catalysts. It is a mixture of carbon monoxide (CO) and hydrogen (H2) and may contain significant amounts of nitrogen.
[7] Act on the promotion of electricity from high-efficiency cogeneration of 14 December 2018 (Dz.U.2022.553).