Russian foreign minister visits Budapest and ‘sells’ expensive nuclear

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.

Good friends, with expensive energy taste (source: MTI, http://dailynewshungary.com/russian-foreign-minister-hold-talks-in-budapest-photos/)

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.”

Even if we put Hungary in the ‘average solar’ category, Paks II electricity will be more expensive. (Source: http://rameznaam.com/wp-content/uploads/2015/08/Future-Solar-Cost-Projections-PPA-LCOE.jpg)

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.

Paks NPP 1 and 2 capacity by year (source: Aszodi, Attila. “A Paks2 projekt energiapolitikai értékelése és a szakember utánpótlás kérdései.” Budapest, March 20, 2014. http://nuklearis.hu/sites/default/files/docs/Aszodi_MNT_20140320.pdf.)
Paks NPP 1 and 2 capacity by year (source: Aszodi, Attila. “A Paks2 projekt energiapolitikai értékelése és a szakember utánpótlás kérdései.” Budapest, March 20, 2014. http://nuklearis.hu/sites/default/files/docs/Aszodi_MNT_20140320.pdf.)

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.

Sources:

“MVM Hungarowind Invests HUF 4.9 Bln in Solar Power Plant | The Budapest Business Journal on the Web | Bbj.hu.” Accessed May 25, 2016. http://bbj.hu/business/mvm-hungarowind-invests-huf-49-bln-in-solar-power-plant_112171.

Naam, Ramez. “How Cheap Can Solar Get? Very Cheap Indeed.” Ramez Naam, August 10, 2015. http://rameznaam.com/2015/08/10/how-cheap-can-solar-get-very-cheap-indeed/.

“Russian Foreign Minister: Hungary ‘important, Reliable Partner’ | The Budapest Business Journal on the Web | Bbj.hu.” Accessed May 25, 2016. http://bbj.hu/politics/russian-foreign-minister-hungary-important-reliable-partner_116608.

Naam, Ramez. “How Cheap Can Solar Get? Very Cheap Indeed.” Ramez Naam, August 10, 2015. http://rameznaam.com/2015/08/10/how-cheap-can-solar-get-very-cheap-indeed/.

“Steven Chu: Mexico’s Energy Auction Reveals True Price Of U.S. Renewables – Forbes.” Accessed May 25, 2016. http://www.forbes.com/sites/jeffmcmahon/2016/05/08/steven-chu-mexicos-energy-auction-reveals-true-price-of-u-s-renewables/#1a94bf3575d2.

“The Price of Solar Power Just Fell 50% in 16 Months – Dubai at $.0299/kWh! | Electrek.” Accessed May 25, 2016. http://electrek.co/2016/05/02/price-solar-power-fell-50-16-months-dubai-0299kwh/.

Felsmann, Balazs. “Can the Paks-2 Nuclear Power Plant Operate without State Aid? A Business Economics Analysis.” Energiaklub, June 23, 2015. http://www.energiaklub.hu/sites/default/files/study_can_paks-2_operate_without_state_aid_energiaklub_2015.pdf.

Aszodi, Attila. “A Paks2 projekt energiapolitikai értékelése és a szakember utánpótlás kérdései.” Budapest, March 20, 2014. http://nuklearis.hu/sites/default/files/docs/Aszodi_MNT_20140320.pdf.

 

Poland’s disjointed path to innovation in energy technology

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.

Polish Energy Minister Krzysztof Tchórzewski, “We are rejecting that,” zero emissions by 2050 in the power sector.
Polish Energy Minister Krzysztof Tchórzewski, “We are rejecting that,” zero emissions by 2050 in the power sector. (Source: Patryk Rocicki)

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.

(Source: European Commission. “Innovation Union Scoreboard 2015.” European Commission, 2015. http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards/files/ius-2015_en.pdf
(Source: European Commission. “Innovation Union Scoreboard 2015.” European Commission, 2015. http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards/files/ius-2015_en.pdf

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.

Source: International Renewable Energy Agency. “Remap 2030: Renewable Energy Prospects for Poland.” International Renewable Energy Agency, October 2015. http://www.irena.org/DocumentDownloads/Publications/IRENA_REmap_Poland_paper_2015_EN.pdf.
Source: International Renewable Energy Agency. “Remap 2030: Renewable Energy Prospects for Poland.” International Renewable Energy Agency, October 2015. http://www.irena.org/DocumentDownloads/Publications/IRENA_REmap_Poland_paper_2015_EN.pdf.

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

Moderator: Dorota Dębińska-Pokorska (Moderator) – PwC

  1. Maciej Burny – Dyrektor Biura Regulacji, Biuro Regulacji, PGE Polska Grupa Energetyczna S.A.
  2. Artur Stawiarski – Dyrektor Departamentu Rozwoju Przedsiębiorstwa / M&A w RWE Polska S.A.
  3. Marek Woszczyk – Dyrektor Generalny PGNiG Upstream International
  4. prof. dr hab. inż. Tadeusz Skoczkowski – Zakład Racjonalnego Użytkowania Energii, Instytut Techniki Cieplnej Politechniki Warszawskiej
  5. Dr Michael Carnegie LaBelle – Assistant Professor at Central European University Business School and CEU Department of Environmental Sciences and Policy

 

Poland’s Innovative Revolution in Coal: Reflections on Energy21 conference

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.

Polish Energy Minister Krzysztof Tchórzewski, “We are rejecting that,” zero emissions by 2050 in the power sector.

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

Speakers:
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