External costs of power plants in Poland

1. External costs of power plants in Poland Mariusz KUDELKO Wojciech SUWALA Jacek KAMINSKI Mineral and Energy Economy Research Institute Krakow, Poland

2. Polish energy sector – energy production • 97% of electricity produced from fossil fuels • Domestic sources of primary energy dominate the total supply • All consumed oil and half of natural gas are imported • Hard coal and lignite arethe main primary energy sources • Renewables still have a small share in the energy balance

3. Polish energy sector – structure • Electricity generation sector consists of about 15 large public power plants and 30 public CHP plants • District heat sector is more decentralized and is characterized by companies owned by local authorities • Coal mining sector is organized in four hard coal companies (42 mines) and 5 lignite mines

4. Polish energy sector – emissions • The highest reduction of SO2in the energy sector is due to FGD investments progress • The level of NOx emissions from the energy sector is stabilized owing to the technological constrains • Decrease ofTSP emissions is caused by the relatively low cost of equipment applied within the industry SO2 NOx PM

5. Polish energy sector – CO2 emissions • Kyoto target = 94% of 1988 level • CO2 emissions stabilized in the mid nineties at the level of 360-370 Mtons in total • The energy sector, which is the main consumer of solid fuels, is responsible for 56% of CO2 emissions

6. Plant characteristics

7. Location of selected power plants Russia Gdansk Belarus PP Dolna Odra CHP Ostroleka Germany Lignite PP Patnow Warszawa Poznan Lodz CHP Siekierki Lignite PP Adamow Lignite PP Belchatow Ukraine PP Kozienice PP Lagisza Katowice PP Polaniec Total number: hard coal - 65 lignite - 5 Czech Republic Slovakia

8. Energy production, 2002, GWh Russia Gdansk Belarus 4524 PP Dolna Odra 1805 CHP Ostroleka Lignite PP Patnow Germany 5982 Warszawa Poznan 3999 3311 Lodz CHP Siekierki 25422 Lignite PP Adamow Lignite PP Belchatow 8327 Ukraine PP Kozienice 2810 6278 PP Lagisza Katowice Total energy production, TWh: hard coal - 83 lignite - 50 PP Polaniec Czech Republic Slovakia

9. SO2 emissions, 2002, mg/Nm3 Russia Gdansk Belarus 1239 PP Dolna Odra 2130 CHP Ostroleka Lignite PP Patnow 3211 Germany Warszawa Poznan 1425 916 Lodz CHP Siekierki Lignite PP Adamow 1777 Lignite PP Belchatow Ukraine 1884 PP Kozienice 1245 PP Lagisza Katowice 1551 Total emissions, 000 t: SO2 - 780 NOX - 242 PM10 - 58 PP Polaniec Czech Republic Slovakia

10. Stack height, m Russia Gdansk 200 Belarus PP Dolna Odra 120 150 CHP Ostroleka Lignite PP Patnow Germany Warszawa Poznan 150 200 300 Lodz CHP Siekierki Lignite PP Adamow Lignite PP Belchatow 200 Ukraine 180 PP Kozienice 250 PP Lagisza Katowice PP Polaniec Typical stack height, m: hard coal - 120 lignite - 160 Czech Republic Slovakia

11. Results (EcoSense 2.0)

12. Results (EcoSense 2.0) average lignite power plant (mid value) = 3,56 average hard coal power plant (mid value) = 2,48

13. Results (EcoSense 2.0) average NOx (mid value) = 1206 average SO2 (mid value) = 3942 average PM10 (mid value) = 5685

14. Results (EcoSense 2.0) Total external costs of power plants

15. Results, external costs, Euro cents/kWh 6,19 9,43 3,58 4,68 Russia 2,68 Gdansk 3,00 3,41 Belarus 3,48 4,38 PP Dolna Odra 2,44 1.88 CHP Ostroleka 3,08 Germany Warszawa Lignite PP Patnow Poznan CHP Siekierki Lodz 2,50 2,19 4,45 Lignite PP Adamow Lignite PP Belchatow Ukraine 2,70 3,19 4,52 PP Kozienice PP Lagisza Katowice PP Polaniec Czech Republic v. 2.0 v. 4.0 Slovakia

16. Results

17. Results

18. Results

19. Results

20. Results

21. National, as% of total costs Russia 45% Belarus PP Dolna Odra 34% 50% CHP Ostroleka Lignite PP Patnow 48% 49% Poznan Germany CHP Siekierki 45% Lignite PP Belchatow Lignite PP Adamow 39% Ukraine 47% PP Kozienice PP Lagisza 35% PP Polaniec Czech Republic Total external costs, mln Euro: All countries 5892 Poland 2546 (43%) Slovakia

22. The model of power sector development Key issues: A mid-term planning of development of the Polish energy system based on the criterion of effective allocation of resources External costs of emissions from energy technologies internalised

23. Criteria of resources allocation • Cost-effective allocation, which means a cost minimization for objective function to achieve a specific environmental objective – the desired emissions level • Maximization of social welfare defined as a sum of producers’ and consumers’ surplus minus external costs

24. Main assumptions - 1 • Supply side:public power plants, public CHP plants, industry CHP plants and municipal heat plants aggregated as energy generation technologies divided into three groups: existing, modernized and new plants • Demand side:industry and construction, transport, agriculture, trade and services, individual consumers and export

25. Main assumptions - 2 • Demand curves estimated by price and income elasticity coefficients, both for electricity and heat markets • Damages related to energy technologies and derived from the ExternE estimations • Implementation – GAMS package, solvers – CPLEX and CONOPT

26. General structure of the model

27. Private costs Social welfare Fuel costs Investment costs of technol. prod. Fixed and variable costs of technol. prod. Investment costs of abatement technol. Fixed and variable costs of abatement technol. Balance of Import and export costs External costs Consumers and producers surplus Type of fuel. Source of supply Technology efficiency Fuel consump. rate Demand sectors Load periods Domestic Import Capacity of supply Existing technologies Electricity/heat ratio Transport losses Demands ratio in load periods Balance of production and demand for final energy Fuels supplies Energy production Consumers demand Energy balance of production Balance of fuels supplies Modernization of technologies Energy price Import Production investments Balance of production investments Balance of production capacity Capacity New technologies Availability factor Technology efficiency Demand functions Export Balance of environ. investments Balance of abatement capacity Emissions factor Price elasticity Income elasticity Environ. investments Capacity Abatement technologies Balance of emissions Emissions reduction Emissions Balance of emissions reduction Unit external costs Legend: Costs component Balances Parameters Variables Efficiency of abatement technologies

28. Scenarios

29. Results, variant 1

30. Results, variant 2, scenario 3

31. Results, private and social welfare bln zl Variants Variant 1 Variant 2 scenario 1 scenario 2 scenario 3 Consumers’ surplus - 547 478 442 Producers’ surplus - 109 121 134 Private costs 358 311 318 325 External costs, including: 265 285 139 114 SO 97 115 44 37 2 NO 33 33 15 12 X CO 63 64 54 48 2 TSP 72 73 26 17 Private welfare - 656 599 576 Social welfare - 37 1 46 0 462 % Consumers’ surplus - 0 - 13 - 19 Producers’ surplus - 0 11 23 Private costs - 0 2 5 External costs, including: - 0 - 51 - 60 SO - 0 - 62 - 68 2 NO - 0 - 55 - 64 X CO - 0 - 16 - 25 2 TSP - 0 - 64 - 77 Private welfa re - 0 - 9 - 12 Social welfare - 0 24 25

32. Conclusions - 1 • The structure of energy production in the cost-effective allocation scenario is dominated by the low-cost energy conversion technologies that are generally based on solid fuels – hard coal and lignite • In the partial equilibrium model with external costs internalised the dominant position of solid fuels decreases in favour of gas and renewables

33. Conclusions - 2 • Projected long-term increase of energy prices amounts to about 100% comparing with their present level. Decrease of energy production is predicted on 20-30% of the total • Existing abatement technologies are economically efficient strategies to lower emissions • From a social point of view a full internalisation of external costs by the energy price implies that this scenario is the most advantageous