Global Green Guide: Poland’s long journey towards a green transition

David Koehne investigates the positive developments Poland is taking to embrace esg policies.

Poland has been slow off the mark in its green transition. It has a historically powerful coal industry, which has brought with it a large degree of scepticism towards environmentalism. This began to change when Poland joined the EU with its environmental politics and regulation. However, larger scale changes are afoot, and lawyers I spoke to believe that corporates and even state-owned energy companies are beginning to really buy into the so-far alien concept of ESG.

While there are still a number of challenges, Poland’s renewable energy market is developing quickly, from a miniscule base, while the country’s prominent manufacturing sector is also starting to rise to the challenge.

I spoke two Polish lawyers to find out more: CMS’ Agnieszka Skorupińska, who leads the firm’s environmental law practice in the CEE region, and head of the energy practice at Rymarz Zdort, Marek Durski.

The historical challenge of coal

According to Skorupińska, ‘there are massive social issues associated with coal extraction and a coal-based energy generation. So, this is something that cannot be thrown into the bin easily’. The region of Upper Silesia is home to a large number of Poland’s mining communities that have formed a politically influential bloc backed up by a strong mining union.

Coal is also a large part of the country’s energy mix (coal-fired plants produced roughly 70% of the nation’s electricity in 2020 according to the IEA) and it is a major exporter of the material. There are geopolitical implications for Poland’s coal-dependence.

Marek Durski | Head of the energy and natural resources practice | Rymarz Zdort

Durski observes that while the rest of Europe is struggling with high natural gas prices, electricity remains relatively cheap in Poland, which has remained wary of gas imports from Russia. ‘The starting point for Poland is definitely different than you would have in the UK or Germany or France with nuclear power’, he adds, ‘you have to invest a lot of money to actually switch’.

Coal consumption has fallen in recent years, and the slack has mainly been taken up by bio-fuel and natural gas electricity production. Durski sees this as a more positive move, because ‘in a country that has to switch from coal to cleaner energy, natural gas is treated as a fuel that will be used for quite a long time to allow for the transition to a fully, carbon-free economy’.

The Polish government has shown signs that it recognises the need to decarbonise the economy and its long-term plan (known as Polish Energy Policy 2040) aims for coal to make up no more that 56% of the energy mix by 2030, with coal being phased out completely by 2049. Skorupińska notes, ‘it’s good that there is a declaration that we won’t cross this level. But on the other hand, still, this is very high.’

The state of renewables

So where does that leave the green transition? Wind and solar have proved to be the most viable renewable energy sources for the Polish market.

Skorupińska notes that onshore wind initially ‘flourished’, however that market was stalled in 2016 when the Polish government imposed a distance requirement banning projects near settlements; it is thought the law will be amended in the near future to allow for more onshore development permits.

Agnieszka Skorupińska | Head of the environmental law practice, CEE | CMS

Offshore wind has been more successful, and there are a number of Baltic Sea wind projects in development, attracting significant foreign investment, including from Orsted and Equinor. The offshore projects are particularly symbolic, as they are a visible reminder of Poland’s energy independence and its intentions in the green transition.

There have also been positive moves in relation to solar energy. The Polish government has encouraged the micro installation of photovoltaic panels by property owners. According to official figures, in 2018, there were 490 MW of installations in Poland, of which 340 MW were micro installations. In 2021, this figure rose to 6126 MW, with private capacity accounting for 4757 MW.

Durski points out that there are also favourable conditions for industrial photovoltaic projects, under the contracts for difference mechanism, which provides a guaranteed energy price for 15 years, although these projects are slowing down as it is necessary to update the grid’s interconnection capacity.

These are, of course, positive developments, but renewable energy remains an infinitely small part of Poland’s energy mix. Despite this, there is reason to believe that economics will ultimately drive change, aided by European green policy and the burgeoning adoption of ESG.

The global change in attitudes and policy

Durski sees economics as having had a significant impact on Poland’s green transition. ‘All of the utilities that were very slow progressing transition projects to invest in natural gas sources or renewables, suddenly they realised that they could go bankrupt if they don’t do that’. As part of the EU, Poland is subject to its emissions trading scheme, which is becoming more costly every year.

Additionally, foreign investors are adopting ESG strategies that prevent them from investing in non-renewable energy generation. This is perhaps a game-changer. As the majority of power generators in Poland are state-owned, the government is working to transfer its coal-fired power plants to a “bad bank” until they reach the end of their operational lifetime.

Explaining the concept, Durski points out that ‘the idea is that all of those utilities are facing problems with securing new financing for as long as they are operating coal assets.’

Skorupińska has noticed that ESG is becoming more important outside of the energy industry, albeit among large Polish companies rather than smaller businesses. Polish chemical companies are adopting decarbonisation policies, on the back of the European Green Deal.

Citing the example of one client’s development of chemical recycling technology, she states that ‘this is something that the biggest players have built teams to deal exclusively with, in order to develop something that will probably change their business model as a company’.

Durski also identified a media industry client that had invested in an operating solar installation to hedge themselves against increasing energy costs.

Finally, at the COP26 summit in Glasgow in 2021, the Polish government signed a declaration committing to phase out coal power generation in the 2030s and transition away from coal entirely by the 2040s. Following the summit, the ministry of climate and environment clarified that Poland will phase out coal in the mid-2040s. Exemplifying the political balancing act, these promises contradict a contract signed with the mining union before the summit that the transition is scheduled for 2049.


Author

David Koehne

David Koehne is a senior researcher at The Legal 500