Poland, the region’s economic leader, is also a leading emitter of carbon. In 2020, coal-fired power accounted for 70% of electricity produced, down from 74% the previous year. As coal mining employs around 80,000 people directly, with probably the same again indirectly dependent on the industry, closing the mines by 2049, as the Government has pledged to do, is a huge undertaking.
Support from the Just Transition Fund is clearly a help, but internal political pressure is changing the Government’s view of the need for transition. Domestic protests about local air quality have added to the climate change voices both at home and abroad, while a number of older coal-fired plants are nearing their end of life, so the Government is looking for alternatives.
Nuclear fuel is one option being examined, but the lead-in is long and costly, and it comes with its own environmental issues. Wind power, on the other hand, is relatively easier to install and increasingly popular with investors.
“A decade ago, people thought of renewables as inefficient, costing too much,” says Zielinski. “But renewable energy is now cost-competitive, particularly for EU countries and regions that are part of the EU Emissions Trading Scheme.”
Poland’s Baltic coastline offers great potential for offshore wind power, as it has strong steady winds over shallow waters with weak tides, making for ideal conditions. Since putting a contract for difference (CfD) system in place to guarantee stable income for investors, the Polish Government has seen huge interest from investors in its offshore wind industry. Northland Power, Equinor and Ørsted have, for example, all announced partnerships with Polish companies to build capacity in the Baltic Sea.
The pricing system is an essential element of implementing Poland’s, or any nation’s, shift to renewable energy, adds Zielinski. “A well-designed and well-introduced CfD system makes a great difference,” he says.
With more than a dozen wind farm projects under consideration in Poland’s Baltic Sea territory, it has the potential to generate a quarter of Poland’s energy needs by 2040. For that to happen, however, investors need to be confident that the Government’s commitment to renewable energy is reliable. One way for it to demonstrate that would be to smooth out regulatory obstacles to other green energy sectors, such as onshore wind. In 2016, for example, a regulation barring wind turbines from being placed within a certain distance of buildings put a significant damper on that sector. This restriction is now expected to be rolled back so that wind farms will be permitted as long as they have local community support, giving reassurance to investors that renewable energy is welcomed by the Polish Government.
Recent auctions for wind farms allow for 6GW of capacity, which should at least be doubled in the next round, bringing the total offshore wind capacity to 10GW–12GW by 2030. However, with pressure on the Polish Government to aim for carbon neutrality, future plans are likely to be subject to change.
“The transition pathway is still to be developed,” says Maciej Markiewicz, Senior Manager at Ernst & Young spółka z ograniczoną odpowiedzialnością Consulting, “but the direction is good.”
Despite this, it is not necessarily straightforward to gain exposure to this huge industry growth, especially for investors in public equities.
“The whole transition from 70% coal is a massive project,” says Eglé Fredriksson, Portfolio Advisor at East Capital, a Swedish asset manager specializing in emerging and frontier markets. “But our interest is connected to how liquid the sector is.”
Although the giant state-owned PGE is listed and a relatively liquid stock, Fredriksson is cautious. “It is responsible for the whole transition, so we have some concerns about protections for minority investors – who will pay for the costs of transition?”
Smaller energy companies exist, but are not traded frequently enough to be attractive to an asset manager intent on maintaining a flexible portfolio. So, for now, Poland is a “watch and wait” market for East Capital.