Here is a journal article I’ve written focused on the emerging academic area of energy justice. Energy justice stems from the environmental justice movement and has the potential to incorporate a wide variety of issues that are policy relevant in the energy sector. Energy poverty, including access to energy resources and political representation are the more common areas that have been examined to date by scholars. There is also the definition that the full costs of the energy system should be reflected in the end price. This would help expose those areas where there are subsidies. If you take just these two different perspectives, you can see that there are contradictory and also a wide area of justice questions that energy justice is engaged with.
My approach (as is the approach on this blog) is to consider the interaction of companies, government regulations and policies and how these either benefit or hurt consumers. Thus I push for full cost accounting of our energy system – and even where financial losses are being hid (such as in Hungary and Bulgaria). My presumption is that if financial losses are hidden, then the energy system itself is not built on a sustainable and stable platform that can finance and transition towards a low carbon energy system. In addition, there is an inability by market players and governments to invest in the latest technologies which can provide lower cost energy services to consumers, rather than just creating perpetual debt in the energy system.
This article (just submitted to a special issue of a journal – so it is under review), is more theoretical and even philosophical in understanding our energy system. I separate out different forms of energy justice. The first form is the ‘particular energy justice’ which is based in cultural and national norms. The second form is the ‘universal energy justice’ definition which argues everyone in the world has the right to access energy services and be able to afford them – otherwise they are denied other human rights, like a job and education. I then attach this discussion to the tumultuous experience in Bulgaria and the inability to make it financially sustainable. You can see this differentiation in the picture below.
Energy Justice provides a framework to perceive disparities in our energy system. The foundation of energy justice draws heavily from the environmental justice movement, grounded in larger socio-political issues of representation, economic relations between the state, firms and social groups, including a universal and local application of justice. This article extends this differentiation by exploring universal and particular forms of energy justice. 1) Universal energy justice holds to socio-historical values stemming from judicial and philosophical groundings based in procedural justice issues, including recourse through administrative or judicial means. 2) Particular energy justice relies on cultural and environmental factors influencing choices around energy technologies and policy preferences for the distribution of energy services. Empirically, this article examines tensions within the energy system in the European Union. It does this first, by examining how universal energy justice is spread through National Regulatory Authorities (NRAs) in energy to satisfy ‘universal energy justice’ standards. Second, particular energy justice is exemplified in Bulgaria’s use of historical socio-political relations to usurp institutionalized universal energy justice. The aim of the article is to show the pursuit of energy justice attempts to resolve tensions between groups and differing politics to both access and provide energy services.
What’s wrong with low energy prices? In this book chapter Atanas Georgiev and myself look at the mounting debts and political maneuvering in Bulgaria and Hungary. Countries where energy regulators were both sidestepped and politically maneuvered to ensure household consumers would pay low energy prices. The results? Unnecessary debts throughout the energy systems.
The chapter is written for the book, ‘Energy Law and Energy Infrastructure Development for a Low-Carbon World,’ edited by Raphael Heffron, Darren McCauley, Angus Johnston, and Stephen Tromans QC to be published by Cambridge University Press – early 2017
Assistant Professor, Central European University, CEU Business School and Department of Environmental Sciences and Policy
Corresponding author, Contact: email@example.com
Assistant Professor, Sofia University, Faculty of Economics and Business Administration
Energy regulation underpins the European Union’s efforts to establish competitive energy markets in each Member State. Since the 1990s a system of regulatory governance was established, shifting the oversight of the energy sector from a government and politically centric system to one based on independent national regulatory authorities (NRAs). In some Member States the movement towards market pricing and regulatory governance is prompting political action to reassert and challenge the EU’s institutional architecture. This chapter will look at the underlining concept of energy regulation and how it is implemented in two Eastern European countries, Bulgaria and Hungary. Intense efforts are made in both countries to keep energy prices low in an attempt to address energy poverty. These actions call into question the ability of these countries to modernize and decarbonize their energy systems. Political efforts to maintain low prices create a system of contested governance, marked by political efforts to undermine regulatory tools balancing long-term investments with short-term pricing pressures.
Prepared for ‘Energy Law and Energy Infrastructure Development for a Low-Carbon World,’ edited by Raphael Heffron, Darren McCauley, Angus Johnston, and Stephen Tromans QC to be published by Cambridge University Press
Here is my article I wrote for the Budapest Business Journal. The final version can be found in the BBJ . My description of the Iron Gates dam is from my bicycle trip down the Danube in the summer of 2015, when I also visited Paks NPP.
The Iron Gates Dam, the largest on the Danube, sits between Romania and Serbia. Each side has its own generator hall with an identical black and white tiled mural hanging above the whirling turbines. The white tiles are slightly raised on one side, representing the waves of the Danube, complimented by an interplay of semi-circles representing the interdependency of Romania and (former) Yugoslavia. Completed in 1972, the dam’s output is equivalent to Hungary’s Paks Nuclear Power Plant. Both facilities are products of the Soviet and Socialist industrial policy of cooperation and coordination on energy infrastructure.
The mural is important as a point of reference. This piece of art sits within a concrete structure that holds back the force of nature. It expresses social and political cooperation between two countries and the joint engineering expertise of both. Energy infrastructure is not simply highly engineered machinery, but reflects political forces working together for economic and social ends. In light of this dual purpose, costs associated with power production may be secondary to political and social goals.
Nuclear power in Europe appears to be gaining a new lease on life due to this necessity of politics over economics. The trend in the European Union, since the 1990s, was to establish a competitive market in electricity and gas, where types of generation would compete to promote lower prices for consumers. Interestingly, as the anti-EU rhetoric builds, so does the rejection of the idea of a single market in electricity and gas.
The governments of Hungary and the United Kingdom have now taken strong decisions to build more nuclear power, aligning more with political justifications rather than economic ones. The cost of new nuclear in both the UK and Hungary is between 75% and 100% more than current or projected power prices. Meanwhile, trends in energy technologies leads to a dropping of prices[BK1] . As both countries push to be politically and socially separated from the European project that brought Europe together after the Second World War, they seek external partnerships to reinforce their economic base.
In the UK, the expansion of the Hinkley Point Nuclear Power Plant, was placed on hold with the entrance of Prime Minister Therasa May into Downing Street. However, this pause lasted less than two months, as the realities of sidelining Chinese financing of the French designed plant became apparent. With the UK soon to be negotiating an exit from the EU, both trading partners will be important as UK industry is pushed towards a new trade reality.
The Hungarian government’s choice to extend Paks, even before the current reactors end their lifecycles, is also based on politics rather than economics. In 2014, Hungary signed an agreement with Russia to build two new reactors, more than doubling its current size. This agreement places an old trading relationship back in play. Nuclear power and the gas and electricity network in Eastern Europe was an explicit outcome of cooperation between the Soviet Union and COMECON countries in the former Eastern bloc.
This relationship dates back to 1958 when the Soviets made it an explicit strategy to shift countries away from self-sufficiency in energy production to an integrated approach. Just as the Hungarian government disparages the economic and social policies of the EU, it too must ensure good relations with countries outside of the member bloc. Functionally, nuclear power tethers generations of engineers and citizen taxpayers to Russia’s energy industry. Consequently, geopolitics trumps lower priced energy technologies.
The black and white mural sitting below the waterline between Romania and Serbia represents not just their interdependence, but the deliberate choice that once the facility is built, it cements decades of cooperation between the two countries. Nuclear power provides inter-generational cooperation and mutual dependency between states and societies; this needs to be recognized as the part of the cost of the technology. The choice of nuclear power in the twenty-first century is not based on lower cost electricity for society, but political and economic relationships.
I usually don’t do posting for conferences. But I’ve gotten a lot from attending this conference in past years. So those interested in a broad range of topics (see the list below) I suggest you attend the Energy Transitions conference at the University of Eastern Finland in Joensuu.
Notable (in my opinion) will be the energy justice sessions.
UEF Law School’s 5th annual ENERGY TRANSITIONS conference
UEF Law School, in cooperation with the UEF Centre for Climate Change, Energy and Environmental Law, (CCEEL) is pleased to announce the call for papers for its 2017 international and European energy law and policy conference “ENERGY TRANSITIONS”. The event will take place on 9 and 10 March 2017 in Joensuu, Finland.
The planned sessions include:
– Developments in the power sector
– Developments in the gas sector
– Nuclear relations
– Energy efficiency and energy storage
– Demand-side management and the role of consumers in the energy transition
– Energy sector disputes and dispute resolution
– Low carbon energy sources: regulation and policies
– Emerging issues in upstream oil
– Energy and carbon taxation
– Energy law and theory
– Energy justice
The above mentioned sessions serve only as examples, paper proposals on other related topics as well are welcomed.
An expression of interest should:
•take the form of a title and an abstract (100 – 200 words) and
•indicate the name, institutional affiliation and contact details of the author(s).
The deadline for expressions of interest is 16 December 2016.
•be in the range of 5 000 to 8 000 words;
•indicate the name, institutional affiliation and contact details of the author(s).
The deadline for submission of papers is 17 February 2017.
Both expressions of interest and the papers should be sent to: energytransitions (a) uef.fi.
After the event, there is a possibility to spend the weekend (11 and 12 March) at a ski and spa resort at Koli. More information available at www.koli.fi/en/. Transportation provided by the organizer. Spouses welcome.
More information on the conference will be available at a later stage at www.uef.fi/cceel.
The organizers would also like to invite lawyers, members of the industry, academics, regulators, etc. to join us and follow the event in Joensuu. Thanks to the kind support of Academy of Finland (Impact of shale gas in EU energy law and policy; regulatory and institutional perspective, UEF Law School and EL-TRAN Consortium Transition towards a Resource Efficient and Climate Neutral Energy System, University of Tampere) the attendance is free of charge.
The Power of Policy Regimes: Explaining Shale Gas Policy Divergence in Bulgaria and Poland
Authors: Andreas Goldthau and Michael LaBelle
Shale gas policies vary significantly across Europe, notably in Russia-dependent Central Eastern Europe. Most strikingly, Bulgaria banned shale gas, whereas Poland remains firmly committed to fostering it despite its drawbacks. This article uses a policy regime approach to explain the shale gas puzzle. Drawing on a large set of interviews, the piece investigates regime strength as the causal factor that explains the adoption of specific shale gas laws (Poland) or a fracking ban (Bulgaria). It finds that the Polish shale gas policy regime was strong, based on a powerful political narrative and characterized by an institutional process ensuring the buy-in of actors from relevant policy levels and subsystems. In Bulgaria the policy regime was weak, failed to co–opt key stakeholders, and was institutionally ill-designed. The findings show how different degrees of policy regime strength translate into diverging policy trajectories in two countries that otherwise operate in similar environments.
The Energy Union is taking on many forms. Most popular is the idea that market integration will drive forward more energy security within the European Union. There also remains an elusive attempt to connect EU efforts at market integration with the citizens of Member States to demonstrate prices are dropping because of the common market. The Energy Union is now being used as a tool to collect efforts in innovation and new energy technologies to hoist under the joint Energy Union banner.
The release of the report, “Scaling up Innovation in the Energy Union to Meet New Climate, Competitiveness and Societal Goals,” does a good job of outlining this direction. The report is written by the consultants at Capgemini Consulting – and with a foreword by Pascal Lamy former Director of the World Trade Organization and Sir Philip Lowe, Former Director-General of the European Commission’s DG Energy and DG Competition. The focus in this report is on how to join up and ensure Europe innovates in the energy sector. The suggestions and insight are very good and it is worth a read.
I’m going to reframe the study in the context of Central Eastern Europe. And this is called for because the study holds a strong bias towards Western Europe and high achieving countries in the area of energy innovation. The bias of the study exists in the selection of the participants in the organized workshops (Appendix I), in the quantification of innovation (page 19) and in the case studies (Sweden, Denmark, USA) all meant to exemplify innovation in the EU’s energy sector. But since the Energy Union is meant to encompass all EU Member States, then this approach fails to appreciate the diversity and challenges to transition towards a more sustainable energy system.
In short, the study of innovation in the EU rests on prime examples from countries like Denmark, Germany and France. There is a failure to examine other Member States – particularly those in Eastern Europe, who not-so-coincidentally rank low on innovation scoreboards (below). Innovation is rooted in a countries institutional settings where private firms and public bodies (like education, energy and health care) interact to foster or prevent innovative technologies to be tried, revised and rolled-out. When ‘innovation’ is studied, it represents much deeper state relations and processes (one of the reasons I really like to study it).
In the report, there are four megatrends identified that are transforming the energy sector: A) Sustainability; B) Digital; C) Local Empowerment; and D) Integrated Services. The elements of these can be seen in the diagram below. Each of these areas represents transformation in the energy sector and even the democratization of power production, centralized systems – with centralized control, will no longer exists. Households will be ‘prosumers’ driving a radical systemic change within our energy system because of their technological choices and demands for different types of services and ‘smart’ homes able to interact in with the electrical grid. The internet will no longer be used only by humans. I don’t argue that this won’t occur in the CEE region, but I question both the pace of it and the affordability of the transformation.
There are two regional trends (as opposed to mega-trends) in the CEE region that fall under the first category of ‘sustainability’. The transformation to a clean energy ‘hegemony’. In the CEE region, there is a lack of support to encourage the roll-out of small scale solar, or rather the development of a class of prosumers. Both Poland and Hungary view inhibiting renewables as good policy. Hungary has a tax on solar cells and Poland’s energy minister – says solar systems destabilize the system. Poland will also launch a new scheme where the electricity generated by small scale solar are divided between the system operator (or the state) and the homeowner – rather than the owner receiving all the credit or electricity for the production (I’ll ignore the proposed re-licensing procedure for wind-farms, which includes jail terms). While these policies don’t stop the deployment of solar, they certainly don’t encourage it. But consumers in these countries are buying solar even without government support. In my experience speaking with people in different countries, there is growth in this area. Poland holds sufficient healthy numbers that future projections are hard to compute because of the growth of solar. And in Hungary, business is unexpectedly high for sellers of solar systems.
The ‘C’ category of local empowerment is also important to consider. Both Hungary and Poland, perceive large scale deployment of renewables as disruptive for the political plans to renew their centralized systems. Hungary plans to expand Paks – and to such a scale that exporting electricity will be necessary, as production will exceed domestic demand for at least 10 years, while Paks I operates along side Paks II – with a near capacity of 4,000 MW. Renewables will further erode the cost assumptions of the Russian nuclear reactors. Poland, plans a wholesale renewal of its coal fired power plants. The efficiency of coal can be increased, according to the energy minister, by preventing renewables and their variable output, from entering the system. I’ll refrain from commenting on the state of democracy in Hungary – but decentralization is not an option for any topic – there is a only a trend towards centralization in the Prime Minister’s Office for everything.
The final two areas that change is most apparent is in the area of (B) Digitalization and (D) Integrated services. When it comes to dominant utilities, both Poland’s and Hungary’s state owned utilities can play a large role in maintaining their dominance and allowing certain technologies that can enhance synergies between utilities, like gas and electricity. In these companies like Hungary’s and Poland’s electricity distribution companies, management in firms like ENKSZ, E.ON, RWE, have a strong awareness for the potential in smart metering technologies and a smarter grid. While the executives of these companies are fully aware the financial investment into these new technologies must be recouped from rate payers – that is permission from the energy regulators must be given. And from this stand point, we enter the political efforts to keep costs low. So while the technology can change, there has to be a political allowance to invest in new technologies to continue to reduce the cost of energy services. Permission at this stage is marginal.
The authors of the study are not wrong to look to Western Europe for examples of innovation. The problem comes when innovation for the Energy Union is defined along these developed systemic lines in only a handful of countries. Innovation in the energy sector is diverse and reliant on the individual selection and social and political arrangements within each country. This doesn’t mean that Poland rejects the prosumers, it is apparent the technology and those consumers wealthy enough are opting for solar systems. But more study needs to be done on how countries ranked low on these innovation indices can participate in the vision established by the Energy Union. How can the centralized and government controlled systems of Bulgaria, Hungary or Poland become more innovative? That is the question that still needs answering.
In the history of this blog, under the Orban government, I have never been able to take seriously the official relationship between Hungary and Russia . This is despite both countries having significant areas for economic relationships, particularly in energy and other areas. The reason for my jilted attitude stems from the passing off of the relationship of one of equals that engage in mutually beneficial energy projects. When Hungary discusses energy with Russia it only means greater dependence on a country that plays politics with energy resources. So when it comes to official visits between the two countries, instead of just discussing Hungarian exports of salami and apples to Russia, we engage in this charade of energy equals.
Today Russia’s Foreign Minister, Sergey Lavrov is in Budapest to meet with his counterpart and with Prime Minister Viktor Orban. The expansion of Paks Nuclear Power Plant is on the agenda and how Budapest is spinning its ‘non-state’ aid and ‘transparency’ argument with the European Commission. There already is a very good study on the non-viability of Paks II, so my comments will focus more on the increasing disparity between government projections of the price of nuclear power and the decreasing cost of alternative energy technologies.
In the world of renewable technology, particularly in the area of solar and wind power, the set rate of the feed-in tariff is now out of fashion. Instead an auction based system is now in place. This provides the chance for project developers to line up their financing and bid on how much their project will cost in comparison to other projects along the same parameters. This gives us a good idea of what the cost is for particular projects and their associated technologies. And the latest projects (albeit in sunny locations) drives the price of Paks II into the ground. Particularly when the life span of Paks 2, from 2026 to 2085 is taken into consideration.
The cost of solar power fell 50% in the past 16 months. It is now at USD 3 cents per kWh in sunny Dubai for 800 MW of solar power, and with favorable financing from Abu Dhabi. In comparison, Paks II will have the capacity of 2400 MW at a cost of USD 9 – 12 cents per kilowatt hour (kWh) for the first 21 year period – when the loan to Russia will need to be paid, and with a cost of USD 3 – 4 cents per kWh afterwards (at today’s HUF/USD exchange rate). And this is with a ‘favorable’ Russian loan.
In the opinion of Attila Aszódi et al., power prices of HUF 28.74-35.56/kWh, depending on the various scenarios, would have to be attained in the 21-year period of the repayment of the Russian loan taken out in relation to the investment, for the power plant to be able to cope without any further financial support. The authors firmly believe, on the other hand, that the project might be a good investment despite the above as, after repayment of the loan, the power plant would generate power at a price of HUF 8.05-11.09/kWh, which will result in a good average price over its entire lifetime (Source: Felsmann, Balazs, 2015).
If we look at the US, then we can see that the price of 5 cents per kWh is achievable now without government subsidies. No doubt the price for solar will continue to drop, so much so, that in ~2026 when Paks II (if it is ever built) will open in a electricity market, which takes no stretch of the imagination, will have the cost of solar even lower than the price of nuclear (Southern Hungary is actually pretty sunny). According to the author of the chart below, southern an central Europe will have solar prices at 6.5 cents/kWh by 2020/2021. Even Steven Chu, the former US energy secretary and supporter of nuclear power stated, “Clean energy is actually getting much cheaper than even I, as a perennial technical optimist, thought it was going to be.”
Some might say I’m comparing apples and oranges, that is baseload power to ‘unreliable’ variable solar power. But when we take into account the developments in energy storage technology and other renewable energy sources, combined with the longer term operation of Paks I (with near 2000 MW), then it can be confidently stated that by 2026 – in just 10 years, storage technology, that is already being deployed around the world, will be even more competitive.
In addition, solar should be seen as a ‘bridging’ fuel in Hungary’s nuclear transition. That is, as Paks I units are decommissioned, solar and other renewables can begin to replace them from (earliest) 2036 and onwards. That is right, the current plant and all its units operates until 2036. It is projected between 2024/2026 and 2036 the output of Paks will be over 4000 MW – Hungary will need to dump this electricity outside of its own borders. Solar can easily be a cost effective source of bridging while either newer nuclear power technology is developed or alternative sources are integrated. In any case, the cost will need to be less than the current Russian offering.
Hungary’s energy relations with Russia is not one of equals. The country is being saddled with an outdated and expensive technology that even today (the day when Russia’s foreign minister is in the country), that is more expensive than alternative technologies. This summer Budapest takes delivery of the refurbished Soviet era metro carriages from Russia (as part of the Paks II deal, us citizens of Budapest had to accept these outdated models), let’s hope that Paks II is not delivered on the citizens of Hungary, the bill is already too high, in 2026 it will be astronomical.
Innovation in the energy sector relies on a coherent national framework of cooperation and competition. Poland’s pursuit of universal low prices stunts energy innovation. First, it short changes innovation by preventing companies deploying practices and technologies to lower energy costs and second rewards static and established generation technologies due to the lack of competition. These were my main points in the panel discussion, ‘The climate policy, innovations and the RES – strategy of the future of energy utilities’ at the Energy21, Energy Futures Week, in Poznan, Poland, May 10 – 13, 2016. Very simply, innovation is not maintaining and investing in coal fired power plants that operate beyond 2050.
My pointed comments came after a morning focused on efforts in Poland to continue and renew Poland’s fleet of coal fired power plants. Gasification and liquefaction of coal were viewed positively, while integrating renewable energy into the grid was viewed as a threat to the energy system. In opening up my remarks, I appealed to the Hungarian and Polish friendship – allowing me – as a resident of Hungary, to speak directly to Poland’s perceived direction towards more coal in the energy mix. (If you don’t know about this special Hungarian-Polish friendship, we’ll just say it is a brotherhood of eastern Europeans, influenced by the Russians, Germans and Turks – so still relevant today).
The Polish government perspectives, as expressed in the morning by the Energy Minister Krzysztof Tchórzewski, as I previously wrote about, holds coal as an innovative energy source. Labeling technological advances in coal as innovative and propelling the Polish energy system forward, as I stated, only ends with continuation of an old technology that does not match with global changes in both the environment and social change. This is important because if Poland wants to keep coal as the main component of electricity and heat production then it will crowd out other technologies that offer wider spread economic and social benefits. It also goes against the technological trend of dropping prices and wider uses for renewable technologies – it’s hard to see that coal is still more competitive than renewable technologies in 30 years-time (for a similar view with price comparisons see this report). The larger companies, like PGNiG, made a point to state they needed to realize the full investment lifetime of their coal fleet. But as I pointed out, it was not regulation that phased out the steam locomotive, but the superiority of the diesel engine that created the transition away from coal powered trains.
Innovation in Poland’s energy sector
Polish efforts to foster technological innovation belie an active sphere of researchers and even politicians set on moving Poland forward. This is very good news. While the main political party in power pushes coal, Poland researchers, progressive policy makers pursue Poland 2.0. I was very impressed by the words, and the understanding of Michal Kurtyka, Deputy Minister of Energy, as he outlined the relationship of regulation and innovation. He stated a new regulatory framework needs to spur innovation and renewable energy sources, with an eye on global and EU innovation efforts, regulation and innovation are interlinked.
In other presentations at the four day conference, I became more familiar with the companies and researchers who are actively working on projects like energy storage in Poland. The technical progress, and even investment by Polish companies all demonstrate the latest trends in energy research and technologies – there are some who are ‘doing’ the innovative research. The country has a clear choice; it can pursue innovative clean technologies, it does not have to transform itself into an innovative powerhouse for coal technologies, as outlined by Minister Tchórzewski.
Unfortunately, it is this disconnect that keeps Poland ranked fifth from the bottom in the European Commission’s Innovation Scoreboard. Despite deployed research projects in innovative spaces of energy, pursuit of the wrong macro-energy strategy can prevent the wider use of Polish created technologies. There were consistent complaints against Germany and Danish wind and solar power – crowding out Polish coal. It is these countries , condemned by the politicians and business managers who are the most innovative. If Poland could unify its macro-energy strategy with its own R&D and industrial base – outside of coal – a lower cost transformation could occur.
The Polish government pursues a low cost energy policy to justify the continued use and renewal of the coal power sector. However, it over accounts for how much a transition towards a more environmentally sustainable energy system would cost. This division can be seen in the differing cost assumptions published by the International Renewable Energy Agency in the country report, “Remap 2030: Renewable Energy Prospects for Poland.” The projected costs by the Polish government are over twice the amount IRENA estimates. In particular, the doubling of the cost is assessed in industry and buildings.
Let the Innovation Out!
Regulation is best used to open up spaces for innovation. This was my concluding comment on the panel. There was a decidedly slanted view of Brussels regulations as a punishment mechanism against Poland, I took the opposite view. I stated, instead of seeing regulation as punishing and a source of uncertainty, EU Directives and the price drop in renewable technologies should be viewed as inevitable. I controversially stated, the idea that a coal fired power plant can get a 30-year price guarantee is simply impossible in today’s market environment (an assumption supported by this report). Regulatory targets in Poland should be used to spur Polish companies to innovate for the Polish and EU market. From the companies and people I met at the conference, I’m convinced holding onto coal only deprives a more innovative country from emerging.
Panel IIIA – The climate policy, innovations and the RES – strategy of the future of energy utilities
Poland is looking for a revolution in coal. The renewal of Poland’s coal fleet of highly and inefficient power plants is now seen by the Polish government as drivers of Poland’s economy. Cheap electricity for consumers and industry is the mainstay of economic growth in the country. In addition, coal gasification and turning coal into liquid fuels offers opportunities in innovation for industry and for researchers. This is the viewed given by Poland’s Energy Minister Krzysztof Tchórzewski, it was also reflected in the views of other Polish energy executives speaking on the opening panel of the Energy Futures Week, in Poznan, Poland on May 10, 2016 – focused on innovation in the energy sector.
Poland’s pursuit of a coal revolution – and innovation in the sector, comes after the failure of the country to launch a shale gas revolution. So I’m very grateful to the organizers of the conference to invite me to this event to continue my observations and grow my knowledge of the Polish energy sector. So my comments below – and around the conference – are not directed at the forum, because without such a place where ideas are aired, I – and others – would have less access to the views of the leaders of the Polish government and energy companies. So I’m immensely grateful to have literately a front seat on the reformulation of Polish energy policy.
With that said, not once during the day was ‘shale gas’ or ‘carbon capture and storage’ mentioned – until I brought it up in the final session of the day (I’ll write a separate post later). I felt like I was breaking the china at a party. I wasn’t that the people in my panel were against or forgot about these things, but rather the previous speakers, particularly from state owned companies were fighting for maintaining coal as a central element of Poland’s energy mix – at the lowest cost, i.e. without high emission pricing. The panelists in this session, including representatives from RWE, PGE, and PGNiG – also put forward a more technology and consumer orientated energy system, than heavy coal. So some moderation needs to be expressed about continuation of centrally supply orientated energy sector – that participants are aware runs counter to international trends. To understand developments in Poland it becomes understanding the heavy coal driven supply model, with utilities awareness of changing consumer and technology preferences and opportunities.
Returning to the discussion in the opening session, the theme was built on the need for low cost energy in Poland. socially and economically Poland cannot afford ‘high’ priced renewables in the energy mix. The EU is pursuing zero carbon emissions in the power sector by 2050, and the Minister Tchórzewski stated the Polish government, “we reject that, clearly unacceptable” the sacrifices for Poland would be too great to move away from coal. The path for Poland is higher efficiency power plants, so more power output can be gained by more efficient burning of coal. Renewables, in the view of Tchórzewski are expensive and require 100% reserves by other power sources – making them very expensive to run, and making them unreliable, whereas if coal fired power plants are only operated, then they are more efficient, due to better predictability of demand and operations. Finally, the grid itself can only support 10% of renewables, and so renewable must be constrained for security of supply reasons.
Overall, the panelist seemed to agree that Poland has an image problem when it comes to their efforts to reduce carbon emissions. Poland, as was stated, added renewables to the grid at twice the rate of other European countries last year. And emission reductions, as was mentioned by the PGNiG representative have dropped 30% since 1989 while the Polish economy has expanded seven fold. Billions have already been spent modernizing coal power plants but the EU regulatory requirements are constantly changing, make past improvements irrelevant, thus costing end-consumers even more money. Echoed by many on the panel, was this demand for a stable and predictable regulatory environment, investments into the power sector are being devalued by the instability in EU regulations.
The common position of the panelists was the end-user price of household consumers and Polish industry. Energy prices cannot go higher than what they are now, this justifies the pursuit of coal and maintaining Poland’s fleet of coal fired power plants, while keeping out both German renewable electricity from the Polish grid, and restraining the growth of on-shore wind and solar in Poland.
Panel I – Opening panel – The energy sector: between security, innovativeness and competitiveness
Moderator: dr hab. Mariusz Swora
1. Prof. dr hab. inż. Maciej Chorowski – Dyrektor, Narodowe Centrum Badań i Rozwoju NCBR
2. Krzysztof Tchórzewski – Minister Energii
3. Dr Ted Kury – Director of Energy Studies for the Public Utility Research Center PURC, University of Florida
4. Mirosław Kowalik – Prezes Zarządu Enei
5. Remigiusz Nowakowski – Prezes Zarządu TAURON Polska Energia
6. Hans ten Berge – Sekretarz Generalny Eurelectric
The global fall in oil prices and the shaking foundation of Russia’s economy has analysts and the media questioning Russia’s commitment to financing and building Hungary’s expanded Paks II nuclear plant. On February 17, Hungary’s Prime Minister will be in Moscow for a meeting with Putin – almost a year to the date Putin visited Hungary. Top of the agenda is energy. In this short analysis, I’ll simply be stating the importance of energy projects and the historical commitment both Russia and Hungary hold to supply side economics of energy resources. Their common energy policy is: Immediate cash is more important than long-term energy reduction methods. This is in contrast to more advanced countries which are moving to tackle demand side inefficiencies and rolling out low cost distributed generation technologies.
The autocratic habits of Putin and Orban make them susceptible to stick with supply side economics. Pushing out natural resources and producing more and more energy to grow an economy is straight from the Politburo playbook. Or more accurately, Gosplan’s book.
To frame my discussion on supply side history of energy resources let’s go back to the 1980s, when the Soviet Union’s organization of Gosplan set the five-year plans. And let’s frame this discussion within the general economic difficulties the Soviet Union found itself in the 1980s. Energy investments were planned to increase 50% between 1981 and 1985. More broadly, this “implied that energy was to absorb fully two-thirds of all new Soviet investment during the coming five-year plan…. [With] the share of energy in the planned increment of industrial investment came to a whopping 85.6 percent.” This means, almost all of the money meant to build the Soviet economy was going towards energy projects. Much of this was down to the increasing costs of extraction and expanding the energy network from Siberia (Gustafeson 1989, 36). We can also insert gas pipelines to Eastern and Western Europe. In short, the energy sector was the primary recipient of financial resources for the Soviet Union. The sector held both domestic and foreign political-economic dimensions.
Just to bring us back to the era of Soviet energy policy and the Politburo
Wrapped in the Soviet energy strategy was rolling out nuclear reactors across the Eastern bloc. Hungary was a recipient of this push with the building of Paks in the 1970 and early 1980s. But Hungary pursued Paks only after it became clear that oil was going to be very expensive over the long term for producing electricity. Paks II represents the continued economic investment abroad for political-economic influence, and this supply side ideology.
There was a moment of rationality, by 1983, Gorbachev recognized the need to re-orientate, at a significant scale, capital onto energy conservation measures. Nonetheless, by 1985, global oil prices plummeted along with the dollars fall against other currencies. Oil profits were wiped out in the Soviet Union (Gustafeson 1989, 36, 46 -48).
It is important to pause here, I’m spending time on this, as it reflects our world today – in 2016, low oil prices and external conflicts (even down the the Syria/Afghanistan comparison). The push for conservation was a watered down for the five-year plan starting in 1985, investment into energy supply would continue at a high pace – the money was needed, while energy conservation was given lip-service (Gustafeson 1989, 36, 46 -48).
Russia is built on an export hand-to-mouth energy system. Political influence and immediate cash needs supersede long-term planning for efficiency and effectiveness of energy resources. Putin is lucky to find a friend like Hungary’s Orban who also understands the benefits of supply side energy for political and economic purposes. Cash generated from consumers helps to finance government expenses.
Hungary holds no ambition to reduce its raw energy needs. The solution of the Orban government since 2010 is to take money from foreign and domestic energy companies to reduce household’s energy bills by 25 percent. I’ve outlined how unsustainable this is before. The drop in oil and gas prices over the past few months, has seen households in Bulgaria pay less for their gas, but the same has not happened to Hungarian households. Essentially, either the financial losses in the system are being paid off, or the money goes into the ether.
Under the Orban government, over the long-term, Hungarian households are no better off than the foreign energy companies. The dramatic reduction in investments into the energy sector means fixing things as they break will cost more money. In addition, there is almost no money to invest into energy efficiency. If a large number of Hungarian households have trouble paying their energy bills – and this is the rational used for nationalization and reducing bills 25 percent – then they don’t have money to invest in energy efficiency which will reduce their bills more than 25 percent. Thus over the long term, Hungarian households will pay more for an energy system with spot repairs and for leaky windows and walls.
Demonstrating the common perception in Hungary of corruption at the highest levels, the government is reallocating EU funds of HUF 309 billion meant for energy efficiency measures in 50,000 homes. The money will now be used only in public buildings. In my opinion this is an attempt to satisfy the EU’s energy efficiency directive. This stipulates that governments must renovate three percent of the buildings they own per year. Just like other large scale projects in Hungary (notably LED street lighting by Orban’s son-in-law), these government controlled projects are susceptible to corrupt tendering practices. Or in the eyes of the government, they can meet the EU energy efficiency directive while also channeling money to selected companies. They also do not need to finance this three percent goal from the state budget.
Just like the government of the Soviet Union, both Russia and Hungary place supply side energy economics ahead of demand side efficiency measures. Even if these measures cripple and stunt the economic growth of each country. Supply side measures are only short term building projects pumping out more and more natural and financial resources. Only the companies and individuals vested into building the infrastructure and selling energy resources make money. The financial resources of households are degraded over the long term because they must pay more for emergency repairs and inefficient homes.
Hungarian gas bills represent a simple wealth transfer to Gazprom and both the Russian and Hungarian governments: Twenty-percent of every gas bills goes to pay Hungarian VAT (this is higher than in 2008 – and even higher than Norway’s VAT), around 70% of householders bill payments go to the (mostly) Russian entities that sell the gas, including Gazprom Export. Thus, Hungarian households do a wealth transfer to Russia and to Hungarian government approved entities involved in the gas business. Only a small percentage of the bill actually covers the network costs – which the government waged the war against foreign utilities over. The increase in corruption in Hungary and the endemic corruption levels in Russia means Hungarian households are forced to pay for energy services that may also be involved in corruption. The costly expansion of Paks II, also fits into this narrative. If investments into energy efficiency (both electricity and gas) were carried out households could reduce this wealth transfer to Russia and the Hungarian government.
The original push for energy conservation by Gorbachev in the mid-1980’s was also a push for increase resources to benefit consumer goods and the lifestyles of Soviet citizens. In the end, the financial resources went into expanding the energy sector to underpin an inefficient industrial sector. Immediate cash was the main concern. This is the same concern that underpins the operations of Hungary and Russia – thus they maintain a supply side energy system with high taxes. It would be useful if Putin and Orban spoke together about improving the lives of their citizens through energy efficiency efforts – and not expanding the profits of Gazprom and intermediaries involved in the gas business or large government projects meant expand energy production (Paks) or steering energy efficiency contracts to approved companies. Hungarian household should not subsidize the supply side energy interests in Russia and Hungary. It would also help if Putin and Orban stopped acting like members of the Politburo in 1985.
European Commission. “Energy Prices and Costs in Europe,” 2014. https://ec.europa.eu/energy/en/publications/energy-prices-and-costs-europe.
Gustafson, Thane. Crisis amid Plenty: The Politics of Soviet Energy under Brezhnev and Gorbachev. A Rand Corporation Research Study. Princeton, N.J: Princeton University Press, 1989.