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The Warsaw Voice » Business » June 27, 2013
Central Europe Energy Partners
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Talking Coal
June 27, 2013   
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Coal accounts for about 60 percent of Poland’s energy mix and will remain the most important source of energy in this country in the years to come.

A key priority is to make sure that energy produced from coal continues to be cheaper than other sources of energy—according to those taking part in a debate on the role and future of coal entitled Coal: Black Gold Turning Green held May 20 in the southern Polish city of Katowice by the Dziennik Gazeta Prawna newspaper.

The debate, which focused on modern uses of coal and the prospects for the development of the energy market in Poland and abroad, featured participants including Joanna Strzelec-Łobodzińska, CEO of Kompania Węglowa, Poland’s largest coal company.

Strzelec-Łobodzińska said that Poland’s energy sector needs new investment projects as some power plant units built 30 years ago are out of date. Meanwhile, many energy producers, due to the ongoing economic crisis, have given up plans to expand their power plant units, Strzelec-Łobodzińska said.

“Modern coal-fired units are 30 percent more efficient than old installations, which automatically translates into lower costs and reduced carbon dioxide emissions,” said Strzelec-Łobodzińska, adding that this is one of the reasons that Kompania Węglowa plans to build a modern power plant at Wola near the town of Pszczyna in southern Poland. Bids submitted by six companies interested in handling the construction project will be examined at the beginning of July, Strzelec-Łobodzińska said.

According to Strzelec-Łobodzińska, at a time of crisis there is always a tendency to refocus on cheaper energy sources, including coal. “The competitiveness of coal at a time of crisis increases and prompts producers to keep a watchful eye on costs. This is a positive practice,” Strzelec-Łobodzińska said. She added that coal production would become unprofitable only if the costs of CO2 emissions allowances increased to $40 per unit or the price of gas dropped by half. “Fortunately, such a scenario seems impossible today,” she said. “We are looking for savings and paying attention to costs everywhere. Let us remember, however, that these days coal mines are forced to go deeper and deeper with extraction, and this means higher temperature and other natural risks.”

Kompania Węglowa is open to new coal technology, Strzelec-Łobodzińska said. However, this technology must first leave the research laboratory, she added. “You always have to look at the effectiveness of such projects,” she said.

Part of the discussion focused on EU regulations related to coal mining and energy production. According to Strzelec-Łobodzińska, the EU’s climate policy cannot be the same for new and old member states because countries differ in terms of raw material resources and energy-sector technological advancement.

“It is not true that all of Europe is moving away from coal. In Germany, the Netherlands or Italy new coal-fired power plant units are being launched,” Strzelec-Łobodzińska said.

Tomasz Tomczykiewicz, Poland’s deputy economy minister responsible for mining, said the government is working to update its long-term coal strategy. The new strategy will be until 2050 instead of 2030, he said, adding that coal will continue to play a significant role in electricity production in Poland in the decades to come.

“No one questions the fact that coal and lignite will form the basis of the energy sector in the coming decades,” Tomczykiewicz said. “Our job, however, is to bring about a situation in which this is mainly Polish coal rather than imports.”

Cost cutting and development

The future of coal in Poland was also discussed during a debate held May 15 as part of the European Economic Congress in Katowice. At the debate, Kompania Węglowa’s Strzelec-Łobodzińska said the company has no intention of closing down its coal mines, except those running low on deposits.

According to Strzelec-Łobodzińska, Kompania Węglowa is pressing ahead with optimization processes and working on a cost restructuring program that will cover all of the company’s mines, not just those with deteriorating financial results. “The 5-percent cost optimization target set this year by our owner [the government], will be achieved with a surplus,” Strzelec-Łobodzińska said.

She provided the latest data on Kompania Węglowa’s costs compared with those of other companies in the sector last year. The data show that the average cost per metric ton of coal extracted is zl.298 for Kompania Węglowa, compared with an average of zl.338 for all coal companies in Poland. “This means that we are about 10-12 percent cheaper than other companies in the mining sector,” Strzelec-Łobodzińska said.

As in the case of other coal companies, worker paychecks account for the largest proportion of Kompania Węglowa’s fixed costs, at roughly 50 percent, Strzelec-Łobodzińska said. She added that this indicator in itself is not disturbing. “What is worrying is that we have no way of flexibly adjusting these costs to the changing situation on the market,” she said.

The strength of Polish mining

The debate also addressed global trends in the mining industry, including the expansion of alternative fuels such as shale gas. Countries such as the United States, where shale gas is mined, are looking for new opportunities to export their coal, debate participants said. According to Marek Uszko, Vice President of Kompania Węglowa in charge of production, this spells a huge challenge for Poland’s coal companies including Kompania Węglowa.

“We are aware of the challenges we face, which is why we have implemented an intense recovery plan and are preparing to face the competition head on,” said Uszko. He added that Kompania Węglowa does not plan to lay off workers, and the employment reduction planned this year is solely due to retiring miners outnumbering those newly hired.

According to Uszko, those studying the mining sector should take into account not only its economic indicators, but also the fact that Polish coal mines work in difficult geological conditions. “Our mines cannot be compared with those in Australia or [North] America. Today we operate in areas and deal with risks that would’ve made other countries discontinue extraction long ago,” Uszko said.

Coal is cheap

During a panel discussion on investment in Poland’s energy sector, Strzelec-Łobodzińska said that a total of 1,199 coal- and lignite-fired power plants are currently under construction worldwide, most of them in India and China. In Europe, 51 coal-fired power plants are being built, Strzelec-Łobodzińska said. The plants under construction in Germany alone will contribute a combined 9,500 MW of new capacity, and the figures for the Netherlands and Italy are 3,500 MW and 4,100 MW respectively. It has become a standard practice that, at a time of economic downturn, solutions based on coal are sought, Strzelec-Łobodzińska said. This is because coal is the cheapest source of energy and will remain so in the years to come, she added.

Strzelec-Łobodzińska conceded that investment projects involving coal carry a risk related to the future value of CO2 emission allowances. However, coal remains competitive, at least as long as the price of these allowances stays below the 40-euro mark, she said. Today the price is just 3.73 euros per certified emission reduction (CER), Strzelec-Łobodzińska added. According to her, Kompania Węglowa’s plan to build a new power plant is proceeding according to schedule.

The panelists examined long-term forecasts for demand for energy. They also discussed factors and trends shaping demand for energy as well as the state of play in projects designed to create new generation capacity. An executive representing the Polish power grid company, Polskie Sieci Elektroenergetyczne (PSE SA), which distributes electricity, reflected on network projects in the context of changes on the energy market and the structure of energy generation.

Strzelec-Łobodzińska said that investment projects are burdened with considerable risk. “In the case of our project, the risk is limited by the fact that we have our own energy substrate,” she said, adding that she believes in the common sense of decision makers in terms of the agenda for cutting carbon dioxide emissions.


FACTFILE
Poland’s Kompania Węglowa is the largest coal producer in the European Union. It operates 15 coal mines and has about 60,000 employees. Kompania Węglowa is actively involved in the work of the Central Europe Energy Partners (CEEP), an association of energy and fuel companies that aims to encourage governments in EU countries to find a compromise between the exigencies of economic growth and the needs of society and environmental concerns. While addressing this challenge, CEEP says, governments should be aware that coal is the fastest developing source of energy, one that is indispensable amid the ever-growing demand for ele tricity worldwide and enables countries to maintain profitable production.
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