Energy prices in Poland are 2.5 times higher than in Norway, and a quarter higher than in Germany, Switzerland and Denmark. They are the highest in Europe and probably the highest in the world. With such baggage, the Polish economy is losing its competitiveness, and investors see it. Why is energy so expensive here? The reason is that Poland produces more than half of it from coal. Energy companies do not make money on this type of energy production at all, and in fact produce at a loss.
The spot price of electricity on TGE for the following day (Friday) set on Thursday was 555.48 zlotys (€128) per megawatt-hour (MWh). On the exchange, you can also buy contracts that guarantee full-year prices for 2025 at 424.94 zlotys per MWh. Is it expensive or cheap? Much more expensive than before the pandemic and the war in Ukraine.
Just five years ago, in October 2019, the average spot price of electricity on TGE was 226.30 zlotys. The issue, however, is not only that it has become more expensive, but also whether we are competitive with other, neighboring countries and whether the price of energy can be an argument, for example, for investors choosing an investment location outside of Poland. The answer here is that Poland is faring very poorly in comparison.
Polish electricity is the most expensive in Europe
Converted into the common currency, our average daily price of €129.70 per MWh is the highest in Europe, according to data from the European Network of Transmission Operators. The next countries are Estonia, Latvia and Lithuania (each €126.30) and Great Britain (€125.10). What consequences does this bring?
Energy-intensive companies such as cement plants, producers of fertilizers, chemicals, steel, aluminum, or even paper will be much more willing to build and produce in Sweden or Norway, where prices are lower than €40, than in Poland, and even in Finland and France, where they do not exceed €70.
Why is it so expensive? The price is set according to the most expensive source that balances the system, and it so happens that in Poland, this is energy from coal-fired power plants. This energy is not expensive by its nature, even at current coal prices. After all, China and India rely on energy from coal, and these are countries that are looking for the lowest prices for raw materials and the lowest prices for energy to maintain price competitiveness so that the cost of transport to the other end of the world will not significantly affect it.
According to data from the International Energy Agency, in July this year, China had 56 percent of electricity from coal, and India 67 percent. The Polish high prices are not about coal, but about taxes, and specifically, in addition to VAT and excise duty, the need for power plants to purchase CO2 emission rights.
The prices of allowances have indeed fallen recently, but the issue is that their percentage share in the lower energy prices than a year ago is high. According to the Polish auction on the EEX market in Leipzig on Oct. 23, the price of a ton of CO2 was €63.75. A year ago it cost €80, and in February last year it even approached €100. However, this still adds about 93 zlotys to the price of a megawatt-hour of electricity, which is over 18 percent of the price of electricity.
And Poland, although it is transforming its energy sector, must still use coal-fired power plants built years ago for billions of zlotys.
More than half of the energy produced with losses
In October, up to the 25th day of the month, 20.1 percent of energy was produced from brown coal, and 32 percent from hard coal, so the total will be 52.1 percent. September was historic here because coal dropped below 50 percent for the first time in history. For comparison, a year ago in September, it was 66.9 percent, and in October 62.2 percent. So the changes are very rapid.
The share of renewable energy sources (RES) in the Polish energy sector reached 32.3 percent in September, of which wind turbines contributed 17.5 percent and photovoltaics 13.5 percent. The energy mix was supplemented by gas (11.9 percent) and biomass (1.9 percent), including biogas plants. A year ago, RES contributed less than 26 percent in September.
However, at the moment, Poland has no choice, and in connection with the implementation of the EU Green Deal, we have to use coal energy burdened with high taxes. And if energy companies operated on economic calculations and were not under state control, they would be closing coal-fired power plants because they incur losses on them.
The largest energy producer in Poland, the PGE group, spent 203 million zlotys on maintenance investments in the coal energy segment, and the EBITDA loss (operating result plus depreciation) of this segment amounted to 272 million zlotys. A year ago, with higher energy prices, there was a profit of 1.01 billion zlotys.
Tauron values its coal-fired power plants in its books at almost zero after a write-off of 1.5 billion zlotys in the first half of the year, and yet it had to spend 400 million zlotys on maintaining them. The positive EBITDA of these power plants amounted to 156 million zlotys in the first half of the year, of which in the second quarter of this year there was a loss of 9 million zlotys, but the operating loss (EBIT) for the first half of this year was as much as 1.4 billion zlotys.
Enea does not provide separate data on coal-fired power plants in its reports, but informs that it “will take actions aimed at separating from its structures assets related to electricity generation in conventional coal-fired units.”
Negative value of coal-fired power plants
By the end of 2025, the Rybnik and Dolna Odra power plants from the PGE group are to be closed. PGE, like Tauron, values its coal-fired power plants at zero in its financial books. In practice, they currently have a negative value because hundreds of millions have to be spent on maintaining them so that they do not pose a threat.
Hence, on the stock exchange, shares of energy companies are still valued much below their book value. The entire PGE has a market value of 15 billion zlotys, with a book value of 49.3 billion zlotys. And that’s after the write-off for coal-fired power plants. Tauron has a capitalization of 6.3 billion zlotys, with 17.1 billion zlotys in its books. Enea is valued at 5.9 billion zlotys, with a book value of 16.2 billion zlotys. It is similar to ZE PAK — 839 million zlotys versus 2.1 billion zlotys. Getting rid of coal assets would immediately increase these valuations, but the state does not want to take them at the moment.
