Participants of the energy market include in particular: electricity generators (system power plants, combined heat and power plants, renewable generation units), the entity in charge of transmission – Transmission System Operator – TSO (i.e. PSE), Distribution System Operators – DSO (e.g. TAURON Dystrybucja), electricity trading companies (e.g. TAURON Sprzedaż), and final customers (households, enterprises, institutions, etc.).

Electricity is generated on an arm’s length basis: the price is developed in competitive market conditions. For some technologies, mainly ones related to renewable sources, the so-called support mechanisms are applied. The generation cost depends mainly on a few key factors: investment costs, the applied technology, variable costs, which are based on the amount of the produced electricity and the cost of the consumed fuel, and fixed costs, which are incurred regardless of whether the power plant produces energy or not (i.e. the cost of employee remuneration, the cost of maintenance and overhaul, etc.). Production costs translate into the order in which units are included into the generation system, the so-called merit order.

The power transmission and distribution function in the circumstances of natural monopoly: the TSO and each DSO fulfill distribution functions in their area by providing services only to customers from this area. Customers cannot change the grid or distribution system operator. The cost of power transmission and distribution is regulated and the rates are determined by the Energy Regulatory Office.

The power trade and sales market was liberalized in 2007 as part of the Third Party Access (TPA) principle. This means that customers may select and sign sales agreements with any trade entity (seller) on their own. This results in fierce competition: sellers compete by offering buyers an increasingly broader range of products and additional services related to the electricity sold. Electricity prices are developed based on free market conditions, save the prices for households, which are regulated and accepted by the Energy Regulatory Office (ERO).

Electricity

The electricity price on the Day-Ahead Market (RDN) of the Polish Power Exchange (Towarowa Giełda Energii S.A., TGE) reached PLN 229.31 per MWh in 2019 and it was 2.82% (PLN +6.28 per MWh) higher as compared to 2018. The average settlement price on the Balancing Market (RB) came in at PLN 234.84 per MWh and it was 3.08% (PLN +7.01 per MWh) higher as compared to 2018.

The factors behind the rising prices on the Day-Ahead Market (RDN) and on the Balancing Market (RB) were the continued high CO2 emission allowance prices and the stable energy commodity (coal, oil) prices.

In connection with the commissioning of the new conventional generation units, e.g. the Opole Power Plant, the capacity balance in the national power system improved, rising by 1,800 MW.

Analyzing the average monthly prices on the Day-Ahead Market (RDN), it should be stated that the lowest prices were recorded in December 2019, with the average price of PLN 189.45 per MWh and the high generation from wind sources (1.66 TWh), while the highest prices occurred in August 2019, with the average price of PLN 267.22 per MWh and the lowest generation from wind sources (0.55 TWh).

The combination of a decrease in electricity consumption with a record-breaking volume of electricity imported into the Polish power system and an increase in electricity production by wind farms significantly contributed to a decline of the electricity production by conventional sources.

In 2019, a decrease in electricity production by hard coal fired power plants was recorded, down to 78.19 TWh (-4.19 TWh year on year and -5.08%). There was also a marked drop in the production by the lignite fired power plants down to 41.50 TWh, i.e. 7.57 TWh less than in 2018 (-15.43% year on year), mainly due to the permanent shutdown of the BEL 2-01 generating unit at the Bełchatów Power Plant with 370 MW of installed capacity and the overhaul of 3 generating units at the Turów Power Plant. The decline of the electricity production from hard coal and lignite was also the result of the higher generation by gas fired power plants, whose production increased by 2.51 TWh, to 12.10 TWh, on an annual basis. The electricity production by wind farms in 2019 also reached a record-breaking volume of 13.90 TWh (an increase by 19.05% year on year). The change in the structure of electricity production in Poland in 2019 caused a strong downward trend of the electricity prices on both the SPOT market and the Commodity Futures Market (RTT).

Figure Average monthly electricity prices on the SPOT and RB markets, as well as the average temperatures in 2019

The reference base load contract with the delivery in 2020 (BASE_Y-20) was trending sideways on the electricity futures market almost throughout 2019. At the end of 2019, due to the strong price pressure caused by the low prices on the SPOT market, there was a price breakdown and a fall below the important support level of PLN 250 per MWh. The BASE_Y-20 contract was range bound in 2019 with the high of PLN 285.02 per MWh (on 2 August 2019) and with the low of PLN 239.90 per MWh (on 9 December 2019).

The volume-weighted average price of the BASE_Y-20 contract recorded in 2019, despite a marked decline at the end of 2019, was at a relatively high level of PLN 266.46 per MWh, and thus was higher by PLN 24.84 per MWh (+10.3%) as compared to the BASE_Y-19 contract prices in the same period of 2018. The total trading volume of the BASE_Y-20 contracts one year before delivery reached 115.68 TWh, i.e. almost 10 TWh less than the BASE_Y-19 contract volume a year before delivery in 2018.

The PEAK5_Y-20 contract price displayed similar volatility patterns, with its trading volume-weighted average price a year before delivery reaching PLN 323.94 per MWh, i.e. it and was lower by PLN 22.83 per MWh (-6.58%) than the average PEAK5_Y-19 contract price recorded last year. The lower average price of the PEAK5_Y-20 contract is the effect of low PEAK prices on the Day-Ahead Market (RDN) and a significant increase in the installed PV capacity.

 

Figure. BASE Y-20 contract performance

CO2 emission allowances

The CO2 emission allowances market was characterized by substantial price volatility in 2019. The CO2 emission allowances prices moved within the EUR 18.40–29.95 per ton range. In just a few days from the beginning of the year, the prices of the above allowances dropped from EUR 25 per ton to EUR 21.86 per ton despite the reduction in the supply at the primary auctions.

Important events that affected the EUA prices in January 2019 included, among others, a vote by the British Parliament to reject the agreement on BREXIT, which directly translated into increased market uncertainty and the German Coal Commission’s presentation of a preliminary plan specifying the deadline for the complete withdrawal of the coal in the energy sector in Germany.

Other significant events causing high price volatility on the market included, among others, the adoption by the European Commission of an updated list of sectors exposed to carbon leakage, which will become effective in the 4th trading (settlement) period of the EU ETS, the passing of the resolution on the EU’s long term low emission development path until 2050 by the European Parliament’s Environment Committee on 26 February 2019 and the information provided by the Minister of Energy and Green Growth of the United Kingdom on 27 February 2019 on the works underway aimed at creating a separate (dedicated exclusively to the United Kingdom) CO2 emissions trading scheme, which is to be ready in 2021 and connected to the EU ETS. The said action is a consequence of the fact that, after BREXIT, the United Kingdom will lose its decision-making power under the rules governing the functioning of the emissions trading scheme in Europe.

EUA prices ranged from EUR 21 per ton to EUR 27.85 per ton in April 2019. The reason for such high market volatility was the prolonged uncertainty regarding BREXIT as well as the date of the annual settlement of emissions in the system. Based on the data from the system settlement, on 15 May 2019, the European Commission announced the estimated value of the excess CO2 emission allowances in circulation in 2018, that stood at 1.65 billion of allowances.

Due to the forecast high temperatures in Europe for the summer period, an upward trend in EUA prices was observed in June 2019, while at the same time information about a decrease in the system’s emissions by 3.9% was published. On 12 June 2019, Poland announced the sale of additional auctions of allowances in the following year, with the volume set at 49.52 million CO2 emission allowances. In July 2019, the prices reached the level of EUR 29.95 per ton, which was historically the highest during the second and third phases of the EU ETS. An additional factor that particularly strongly fueled the growth of the prices in this period was the information about the possible cancellation of the allowances in Germany for the power plants that were to be shut down as part of the plan presented by the Coal Commission.

The standard auction volumes returned to the market in September 2019 and, as a result, the supply exceeded the demand and the prices continued their correction. In October 2019, the EUA prices were impacted by the information related to the United Kingdom. The EUA prices reached EUR 24.64 per ton in December 2019.

Figure. Impact of the political actions and the environment on the EUA SPOT product price in 2019.

Property rights

Due to the ongoing work on the amendment to the Act of 15 February 2015 on Renewable Energy Sources, in 2019, the prices of PMOZE_A certificates (green certificates) were sensitive to any emerging information regarding the existing RES support system. In Q1 2019, following the appearance in the draft amendment of the proposal of a new way to calculate the substitution fee, the prices of the green certificates fell by 50%. The TGEozea index has fallen from PLN 152.50 per MWh to PLN 80.82 per MWh since the beginning of 2019. In Q2 and Q3 2019, after the above proposal had been suspended, the prices of the green certificates ranged from PLN 124.15 per MWh to PLN 135.99 per MWh. Q4 2019 saw an upward movement of the prices of the green certificates, with the prices ranging from PLN 134.60 per MWh to PLN 150.27 per MWh. The weighted average price of the green certificatescame in at PLN 132.19 per MWh in 2019 (an increase by more than 27% as compared to 2018) and it was higher than the applicable substitution fee by less than 2%. The value of the substitution fee was PLN 129.78 per MWh in 2018, with the obligation to submit PMOZE_A certificates for redemption at 18.5%. The trading volume came in at 11,226 GWh in this period and it was lower by more than 23% as compared to 2018. The balance of the PMOZE_A register reached a surplus of 32.16 TWh at the end of December 2019. Taking into account the certificates blocked for redemption, this balance drops by more than 7.67 TWh, to the level of 24.49 TWh (an increase by 10.2% year on year).

The prices of the certificates confirming the production of electricity from agricultural biogas, PMOZE-BIO-2019 (blue certificates), for which the obligation was 0.5% in 2019, were consistently fluctuating around the substitution fee level, which was PLN 300.03 per MWh. In the first 5 months of 2019, the prices of these certificates were stable and fluctuated within the range from PLN 300.01 per MWh to PLN 302.44 per MWh. In Q3 2019, higher price volatility was noticeable. The prices began to fall from the end of June 2019, they reached PLN 285.45 per MWh in July 2019, and the prices of the TGEozebio index remained in an upward trend and returned to the level around the substitution fee from August 2019. Finally, the weighted average value of the TGEozebio index stood at PLN 300.11 per MWh at the end of 2019 and it was lower by almost 4% than the weighted average price for 2018. The total trading volume came in at 513.11 GWh, and the PMOZE_BIO register balance reached the level of 440 GWh as of the end of 2019. Taking into account the certificates blocked for redemption, this level dropped to 397 GWh.

The weighted average price of the property rights confirming the production of electricity in high efficiency gas cogeneration in 2018, PMGM-2018 (yellow certificates), in H1 2019, stood at PLN 110.48 per MWh. The prices for this contract ranged from PLN 99.27 per MWh in June 2019 to PLN 114.38 per MWh in May 2019. The applicable substitution fee stood at PLN 115 per MWh.

The prices for the coal fired cogeneration certificates, PMEC-2018 (red certificates), fluctuated slightly below the substitution fee, which stood at PLN 9 per MWh, and the prices dropped to PLN 3.96 per MWh only starting from the second half of June 2019. The weighted average price came in at PLN 8.58 per MWh.

The prices of the certificates for electricity production as a result of burning methane, PMMET-2018 (violet certificates), were moving within the price range from PLN 55 per MWh to PLN 58.05 per MWh, until the end of June 2019, remaining stable. The weighted average price for H1 2019 came in at PLN 55.22 per MWh, with the applicable substitution fee of PLN 56 per MWh.

The prices of the PMEF certificates (white certificates) remained in a downward trend throughout H1 2019. The prices of the above certificates dropped by as much as 94.2%, from PLN 440.47 per toe to PLN 25.56 per toe, in June 2019, while in December 2019, due to the Act of 13 June 2019 Amending the Act on the Amendment to the Act on the Excise Tax and Certain Other Acts, the Act on the Energy Efficiency and the Act on the Biocomponents and Liquid Biofuels, which extended the validity of the white certificates, the prices of the white certificates rose to PLN 1,740.00 per toe. The weighted average price of the PMEF certificates for 2019 finally came in at PLN 1,012.39 per toe (an increase by 57.4% year on year). This level was much lower than the applicable substitution fee which stood at PLN 1,653.75 per toe last year.

The prices for the PMEF-2019 and PMEF_F registers remained high, around the substitution fee level. However, due to the regulatory changes in June 2019, the prices fell to PLN 1,300 per toe for the PMEF-2019 contract and PLN 1,359.14 per toe for the PMEF_F contract. However, after the regulatory changes have been introduced, the prices of both contracts returned to the substitution fee level. The weighted average prices of the PMEF-2019 and PMEF_F contracts came in at PLN 1,565.86 per toe and PLN 1,628.09 per toe, respectively, in 2019.

Figure Property rights indices

PMOZE_A-2019

PMOZE-BIO-2019

PMGM-2018

PMEC-2018

PMMET-2018

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