Market environment

Electricity

The below table presents the volumes of the electricity consumption, production and imports in Poland, as well as the average electricity prices on the SPOT market, both in Poland, as well as in the neighboring countries in 2022 and 2021.

Volumes of the electricity consumption, production and imports in Poland, as well as the average electricity prices on the SPOT market in Poland and in the neighboring countries in 2022 and in 2021

Volume Unit 2022 2021 Increase / Decrease
1. Electricity consumption GWh 173,479 174,402 -923 (-0.5 %)
2. Electricity production by domestic power plants GWh 175,157 173,583 1,574 (+0.9 %)
3. Electricity production by power plants fired with:
1. hard coal* GWh 87,761 93,037 -5,276 (-5.7 %)
2. lignite GWh 46,978 45,367 1,611 (+3.6 %)
3. gas GWh 10,002 13,366 -3,364 (-25.2 %)
4. Electricity production by wind farms GWh 18,305 14,234 4,071 (+28.6 %)
5. Cross-border exchange balance** GWh -1,679 820 -2,499 (-304.8 %)
6. Average electricity price on the SPOT market in:
1. Poland PLN/MWh 787.45 397.98 +389.47 (+97.9 %)
EUR/MWh 167.72 86.93 +80.79 (+92.9 %)
2. Neighboring countries (on the example of Germany) EUR/MWh 235.46 96.85 +138.61 (+143.1 %)
*Including the industrial power plants.
**A positive value of the balance denotes imports, while a negative value of the balance denotes exports.

The wholesale electricity price on the Day Ahead Market (RDN) of the Polish Power Exchange (TGE) reached 787.45 PLN/MWh in 2022 and it was higher by 389.47 PLN/MWh (+97.9%) as compared to 2021. The average settlement price on the Balancing Market (RB) came in at 756.51 PLN/MWh in 2022 and it was higher by 381.95 PLN/MWh (+102.0%) as compared to 2021.

The factors behind the rising prices on the Day Ahead Market (RDN) and on the Balancing Market (RB) included: the high prices of the raw materials, in particular the prices of the thermal coal and gas, as well as the continued high prices of the CO2 emission allowances. The higher, than in Poland, SPOT prices were reported in the countries in the Western and Southern Europe, which led to Poland being a net exporter of electricity to the neighboring countries in the first half of 2022. In the second half of the year, due to the large number of the overhauls and the shutdowns of the power generation units, Poland has significantly reduced the balance of its energy exports.

The continued rise in the demand for electricity and the positive exports’ balance in the cross-border exchange of electricity led to the higher electricity production by the lignite fired power generation sources in Poland in the first half of 2022. In the second half of 2022, however, the demand for electricity was lower than in the same period of the previous year, which, combined with a near-zero balance of the cross-border electricity exchange, also led to the reduction of the production from the lignite fired sources. The hard coal fired power plants, as well as the gas fired power generation units logged production declines in 2022 due to the continued high prices of gas and the lower inventory levels of the steam coal, as well as a result of the high volumes of the electricity production by the wind sources, as well as the photovoltaic farms. There was also a slight year on year decline in the electricity consumption.

The below figure presents the average monthly electricity prices on the SPOT and RB markets in 2022.

The benchmark base load contract with the delivery in 2023 (BASE_Y-23) had been in an upward trend on the futures market until August 2022, and then starting from September the price of the contract was plummeting and subsequently , until the end of 2022, the prices had been fluctuating in the range between 900 PLN/MWh and 1 300 PLN/MWh.

The price changes were in line with the trends with respect to the changes in the commodity prices, and in particular the prices of the thermal coal at the ARA ports, as well as the prices of gas in Europe and in Poland. The additional reasons behind the initial price rises included the problems with the balancing of Poland’s power system due to the persistent low supply of the steam coal, as well as the very high prices in the neighboring countries, both on the futures markets, as well as on the SPOT market.

The declines of the electricity prices in September 2022 were brought about, apart from the decreases of the prices of the raw materials and of the CO2 emission allowances, also by the announcements of the changes to the Regulation on the Detailed Conditions for Operation of the Power System, in which the introduction of the price caps for the balancing bids made by the electricity generators in the balancing market was proposed. The Regulation was published at the end of September 2022, and the first balancing bids submitted under the new rules were in effect as of October 1, 2022.

The volume weighted average price of the BASE_Y-23 contract recorded in 2022 came in at 1 111.69 PLN/MWh, and it was higher by 721.71 PLN/MWh (an increase by 185.1%) as compared to the average price of such a contract logged in 2021.

The PEAK5_Y-23 contract price was characterized by the elevated volatility, with its trading volume weighted average price reaching 1 451.71 PLN/MWh in 2022, and it was higher by 957.38 PLN/MWh (an increase by 193.7%) as compared to the average price of such a contract logged in 2021.

The below figure presents the trading volume and price performance of the BASE Y-23 contract in 2022.

The average price of the continued annual hard coal contract at the ARA ports stood at 8.94 USD/GJ in 2022 and it was higher by 5.15 USD/GJ as compared to the average price of such a contract 2021 (an increase by 136%). The price trends on the Polish market were similar, however the pace of the price increases was much slower. The average value of the PSCMI1 index came in at 19.77 PLN/GJ in 2022, and it was higher than the value of this index in 2021 by 8.35 PLN/GJ (an increase by 73.1%).

The year 2022 on the international hard coal market had begun with the continuation of the ban on the imports of the Australian coal introduced by China back in 2021 and the suspension of the exports by Indonesia for the full month of January. The growing tension between Russia and Ukraine since the beginning of 2022, and the subsequent aggression of the Russian Federation against Ukraine had brought about changes on the global markets, resulting in the sharp spikes of the prices of this raw material at all of the major transshipment ports around the world.

A number of countries had imposed the economic sanctions on Russia in the first half of 2022. The EU countries had decided to introduce a ban on the purchase of the Russian hard coal starting from August 10 , 2022. The impending imposition of this embargo caused the coal buying member states to begin an intensive search for the coal, which led to a significant rise of the coal prices on the European market. The coal price indexes in other parts of the world also began to reach their historical highs, which was helped by the low inventory levels at the world’s major coal terminals. This period also saw the changes in the coal flows by sea. The coal producers from Indonesia and Australia increased the share of their sales to Europe, while reducing the shipments to their traditional customers in Asia. The entire international coal market focused on the efforts aimed at diversifying the supply, while the individual producers were focused on rebuilding their own resource base.

In the second half of 2022 the world’s major producers had tried to increase the supply of the raw material, which had been prompted by the growing demand and the persistently high prices. The inventory levels at the major hard coal trading hubs had gone up as compared to the levels observed in the first half of 2021, while the inventory level at the ARA ports had been rising successively and in August 2022 reached the value not recorded since November 2019 (7.2 million tons).

Throughout 2022, the prices on the global coal markets had, to a significant degree, been supported by the situation on the European gas markets. The discovery of the gas leaks in the Nord Stream pipelines in September 2022 brought about an increase in the price of this fuel, which translated into a rebound in the coal prices in Europe, and the coal price topped the level of USD 300 per ton in the last week of September. It was not until the end of 2022 that the prices of these commodities had begun to fall. Significantly higher temperatures, the full gas storage facilities in Europe and the sizable stocks of coal, both at the transshipment terminals, as well as the power plants, calmed the situation on the European coal and gas markets.

In 2022, the European gas markets experienced unprecedented, never seen before, high prices of this commodity The main factor behind the sharp increases in the prices was the tense situation between Russia and Ukraine, followed by the invasion of the Russian Federation and the consequences resulting from this event.

In the first quarter of 2022, the EU member states imposed sanctions on the fuel imported from Russia and halted the certification of the Nord Stream II pipeline. Concerns arose in the European gas markets about a complete lack of blue fuel flows from Russia to the Old Continent, which led to an increase of the risk of price increases.

During the conflict in Ukraine, Russia announced that payments for the gas flowing from that country would be accepted only in rubles. A number of European countries did not agree to this condition, which, as a consequence, led to the suspension of the gas flows to these countries. In particular, there was a complete stoppage of the supplies to Poland via the Yamal pipeline. In spite of Russia’s actions, the European gas markets saw a downward trend in the second quarter of 2022 (this resulted in a temporary return of the prices to the pre-Ukraine levels), driven mainly by the filling of the demand gap in Europe through the increased volumes of the liquid natural gas (LNG) supplies from the US and Qatar and the rapid filling up of the gas storage facilities. However, due to a significant reduction in the gas supplies through Nord Stream I and concerns about the commodity transit during the winter, as well as the forecasts of an impending drought in Europe, prices in the European gas markets began to rise again in late June 2022, reaching the same levels as at the beginning of the Ukraine versus Russia conflict.

As early as mid-June 2022, the deliveries via Nord Stream I had already reached just 40% of the total capacity. In July 2022, first the flow on this pipeline had been completely halted due to the annual maintenance shutdown, and then, after the pipeline had resumed the operation, the deliveries on it were reduced to just 20% of the total capacity. At the end of September 2022, the physical damage occurred on both Nord Stream I and II pipelines, as a result of which the gas supplies were completely halted. The Russian gas was reaching Europe only through the Turk Stream pipeline and via Ukraine.

Russia has been gradually reducing gas supplies to Europe. This has led many countries to implement the contingency plans for the gas stocks, and the EU member states had agreed, in July 2022, on an initiative to voluntarily reduce the demand for gas by 15%. In spite of Russia’s actions, the European gas markets saw a downward trend in September 2022, driven by the filling of the demand gap in Europe through increased volumes of liquid gas supplies, temperatures well above the seasonal norm in the fall, and the rapid rebuilding of the inventory levels.

The volume weighted average price of gas on the Day Ahead Market (RDN) on the Polish Power Exchange TGE stood at 557.25 PLN/MWh in 2022 and it was higher by 331.88 PLN/MWh than in 2021. The lowest price of the contract on the SPOT market was recorded in November of 2022, while the highest price was logged in August of 2022, with the volume weighted average monthly prices coming in at 478.61 PLN/MWh and 1 110.29 PLN/MWh, respectively.

The highest price on the Intraday Market (IDM – RDB), i.e. 1 480.81 PLN/MWh, was reported on August 26, 2022, while the weighted average gas price on the Intraday Market (IDM – RDB) for August of 2022 clocked in at 1 085.44 PLN/MWh and it was higher by 874.56 PLN/MWh than such a price in the same period of 2021. The lowest contract price on the Intraday Market (IDM), i.e. 130.65 PLN/MWh, was recorded on November 1, 2022, while the volume weighted average price for that month came in at 496.14 PLN/MWh and it was higher by 106.37 PLN/MWh than such a price in the same period of 2021.

The lowest aggregate trading volume on the futures market was recorded in July of 2022, clocking in at approx. 6 TWh, while the highest trading volume was reported in January of 2022, coming in at approx. 15.6 TWh. The volume weighted average price of the benchmark one year GAS_BASE_Y-23 contract stood at 546.55 PLN/MWh in 2022. The lowest price of that contract was recorded in January of 2022, while the highest price was observed in August of 2022, coming in at 216.17 PLN/MWh and 1 468.17 PLN/MWh, respectively.

The aggregate trading volume on the Polish Power Exchange (TGE) clocked in at approx. 140 TWh in 2022 as compared to approx. 177.7 TWh in 2021 (a decrease by 26.9% year on year). The futures market had the largest share in the overall gas trading in 2022, with a volume generated of approx. 117.3 TWh. On the SPOT market, the total trading volume in the day ahead contracts came in at approx. 18 TWh (a drop by 21.1%). The decline was also reported on the Intraday Market (IDM) for gas, where the trading volume clocked in at approx. 4.7 TWh, as compared to 6.8 TWh in 2021 (a decline by 44.7% year on year).

According to the Gas Infrastructure Europe association’s data, as of December 31, 2022, the Polish storage facilities with the total capacity of approx. 3.2 billion m3 were 96.55% filled, while a year earlier they had been 84.41% filled (an increase by 12.14 pp). In Europe, this level, as of the end of 2022, stood at 83.35%, while a year earlier it had clocked in at 55.93% (an increase by 27.42 pp).

The below figure presents the average monthly SPOT market and BASE _Y-23 contract gas prices on TGE (PPX) a year prior to the physical delivery.

CO₂ emission allowances

The settlement prices for the CO2 emission allowances under the benchmark contract with the delivery in December 2022 (EUA DEC-22) on the ICE Endex exchange were fluctuating within the range between 58.30 EUR/Mg and 98.01 EUR/Mg in 2022.

The average clearing price in 2022 stood at 81.24 EUR/Mg and it was higher by 27.59 EUR/Mg (+54.1%) as compared to the average price logged in 2021.

In spite of the higher average price, the upward trend that has been ongoing since 2017 has been halted. The lowest closing price in 2022 clicked in at the above mentioned level of 58.30 EUR/Mg on March 7, 2022. On that day, also due to a sharp sell-off, the CO2 price temporarily fell to 55 EUR/Mg.

Apart from a period of high volatility in August/September of 2022, the CO2 allowance prices were relatively stable in 2022 – but remained high despite the ongoing war in Europe, due to the impact of the high gas prices favoring contracting of the generation from more carbon intensive sources and the further discounting of the EU's ambitious climate and energy policy called Fit for 55.

According to the communication issued by the European Commission, the war will have an impact on the acceleration of the transition towards climate neutrality. The publication of the „RePowerEU” package in May 2022, designed to make Europe as independent as possible from the raw materials from Russia, brought about a short-term correction in the CO2 prices due to the proposal to release approx. 200-250 million EUAs from the MSR reserve to finance Europe’s accelerated energy transition.

The highest prices of the CO2 allowances in 2022 were recorded in August 2022. A prolonged heat wave in Europe, along with the low generation output by the French nuclear power plants, as well as the seasonally reduced supply on the primary market (emission allowance auctions) brought about a strong upward pressure. The closing prices had been coming in at the record breaking levels for most of the month of August, clocking in at the level of nearly 100 EUR/Mg during the trading session on August 19, 2022. The end of the summer brought a worsening of the market sentiment and a drop in the prices.

The prolonged war and the high commodity prices translated into lower energy consumption and at the same time lower demand for the EUA units. A potential signal of increased supply on the CO2 allowance market, coupled with the escalation of the energy crisis in Europe (the Nord Stream I and II pipeline explosions) and the increasing risk of a recession led to a marked drop in the EUA unit prices to around 66 EUR/Mg as of the end of the third quarter of 2022. In the fourth quarter of 2022, the works were under way on the individual elements of the Fit for 55 package (among other things, the idea of blocking the participation by the financial institutions in the market was abandoned, and a higher than expected reduction target in the EU ETS scheme of 62% by 2030 was negotiated).

The below figure presents the impact of the political actions and the environment (stakeholders) on the EUA SPOT product price performance in 2022.

Property rights

The year 2022 for the renewable energy sources market was characterized by a high volatility of the green certificate prices, in particular in the first half of 2022, when the legislative process related to the Regulation of the Minister of Climate and Environment on changing the volume share of the total electricity stemming from the redeemed guarantees of origin, confirming the generation of the electricity by the renewable energy sources in 2023, was under way.

The prices on the green certificates market had continued their downward trend in the first three quarters of 2022, and the index did not change the direction of its movement until the fourth quarter of 2022. The TGEozea index had reached its maximum price, which stood at 266.85 PLN/MWh, at the beginning of January of 2022, while the minimum price for the above mentioned index was recorded in the middle of September of 2022, at the level of 89.19 PLN/MWh. The weighted average price of PMOZE_A in 2022 came in at 191.80 PLN/MWh and it was slightly lower, i.e. by 0.05%, than the weighted average price in 2021 (a decrease by 0.09 PLN/MWh).

The volume of the trading was much lower than the level observed in 2021, falling by almost 21%, from the level of 8 277.4 GWh to 6 540.6 GWh. The balance of the PMOZE_A register as of the end of September 2022 reached a surplus of 18.32 TWh. Taking into account the certificates that are blocked for the redemption, this balance drops by 5.82 TWh, to the level of 12.50 TWh (a decrease by 17.6% year on year). The substitution fee set for 2022 comes in at the level of 239.86 PLN/MWh, while the obligation to present the green certificates for the redemption in 2022 stands at 18.5% in accordance with the Regulation of the Minister of Climate and Environment of August 4, 2021, on changing the quantitative share of the total of electricity resulting from the redeemed guarantees of origin of energy (energy certificates) confirming the production of electricity from renewable energy sources in 2022. For 2023, the above mentioned obligation, according to the similar regulation of July 13, 2022, fell by 6.5 pp, to the level of 12%.

The prices of the certificates confirming the generation of electricity from the agricultural biogas PMOZE-BIO (blue certificates), for which the level of the obligation in 2022 stood at 0.5% (for 2023 the obligation has been kept at the same level) were invariably stable. The TGEozebio index traded close to the substitution fee, which for 2022 stood at 300.03 PLN/MWh. In 2022, the prices fluctuated between a price minimum of 299.26 PLN/MWh and the maximum level of 306.05 PLN/MWh. The weighted average price of the TGEozebio index for 2022 came in at 301.55 PLN/MWh, while the trading volume clocked in at 329.9 GWh, and it was lower by 12.6% than the volume reported in 2021. The balance of the PMOZE-BIO register, as of the end of December 2022, stood at 348.8 GWh. Taking into account the certificates blocked for the redemption, this balance drops by almost 47.6 GWh to the level of 301.27 GWh (a 3.2% increase as compared to 2021).

The prices of the PMEF_F white certificates were fluctuating in 2022 between the minimum level of 2 000.44 PLN/toe reached in the middle of September of 2022 and the maximum price, obtained at the middle of January of 2022, standing at the level of 2 774.26 PLN/toe. The weighted average price in 2022 came in at 2 284.23 PLN/toe and it was lower by 3.8% as compared to 2021. On average the prices were clocking in at 19.3% above the substitution fee set at the level of 1 914.42 PLN/toe for 2022. The trading volume went up by 17.2% as compared to the same period of 2021, and it came in at 95 494 toe (81 514 toe in 2021).

In the case of the PMEF-2022 register the prices were moving within the price range between the minimum of 2 110.93 PLN/toe, reached in July of 2022, and the maximum price at the level of 2 600.00 PLN/toe, obtained at the beginning of October of 2022, while the weighted average price of the PMEF-2022 contract in 2022 came in at the level of 2 287.43 PLN/toe.

During the first half of 2022, the TGEef21 index (PMEF-2021 register) was also traded. The prices ranged between the low of 1 914.43 PLN/toe, obtained in June 2022, and the maximum price of 2 799.00 PLN/toe, obtained in January 2022. The weighted average price of the PMEF-2021 contract during the period under review was 2 400.47 PLN/toe.

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