The COVID-19 pandemic had a significant impact on the domestic electricity demand and prices on the global coal, electricity and CO2 markets. The prices of energy related commodities and electricity prices for households are expected to rise faster in 2021.
Volumes of Poland’s electricity consumption, production and imports and the average electricity prices on the SPOT market, both in Poland as well as in the neighboring countries in 2019 and 2020Export to Excel
|1. Electricity consumption||GWh||165,533||169,390||-3,857 (-2.3%)|
|2. Electricity production by domestic power plants||GWh||152,306||158,767||-6,461 (-4.1%)|
|3. Electricity production by power plants fired with:|
|1) hard coal||GWh||71,547||78,190||-6,643 (-8.5%)|
|2) lignite||GWh||37,969||41,500||-3,531 (-8.5%)|
|3) gas||GWh||13,924||12,104||1,820 (+15.0%)|
|4. Electricity production by wind farms||GWh||14,175||13,903||272 (+2.0%)|
|5. Electricity imports||GWh||13,224||10,623||2,601 (+24.5%)|
|6. Average electricity price on the SPOT market in:|
|2) Neighboring countries (on the example of German)||EUR/MWh||30.47||37.67||-7.20 (-19.1%)|
In 2020, wholesale electricity price on the Day Ahead Market (RDN) of the Polish Power Exchange (Towarowa Giełda Energii S.A. – TGE) reached 208.68 PLN/MWh and it was lower by 20.63 PLN/MWh (-9%) as compared to 2019. The average settlement price on the Balancing Market (RB) came in at 208.34 PLN/MWh in 2020 and it was lower by 26.66 PLN/MWh (-11.3%) as compared to 2019.
The factors behind the falling prices on the Day Ahead Market (RDN) and on the Balancing Market (RB) were: a warm beginning of the year as compared to the previous year, the higher generation from the wind sources and a decrease in the electricity demand, especially intensified in the period from March to June 2020 due to the restrictions imposed as a result of the COVID-19 pandemic.
The lowest SPOT prices were recorded in April 2020, while the highest prices were observed in December 2020, with the average price coming in at 151.56 PLN/MWh and 254.93 PLN/MWh, respectively. The high prices in December 2020 were driven by the low temperatures prevailing throughout Europe and the higher electricity demand, which also translated into the high SPOT prices in the neighboring countries.
The combination of a decrease in electricity consumption with the volume of electricity imported into the Polish power system (net electricity imports clocked in at 13.22 TWh in 2020) and an increase in electricity production by the wind farms, that came in at 14.18 TWh in 2020, significantly contributed to a curtailment of the electricity production by the conventional sources. In 2020, a decrease in electricity production by the hard coal fired power plants was recorded, down to 71.55 TWh, which led to a large overproduction of the hard coal used by the power plants. The production by the lignite fired power plants was also lower, coming in at 37.97 TWh. The lower electricity production by the above sources was also the result of the higher production of electricity by the gas fired power plants, whose production rose to 13.92 TWh on an annual basis.
The change in the structure of electricity production in Poland in 2020 and the factors described above caused a strong downward trend of the electricity prices both on the SPOT market as well as on the OTF futures market.
Average monthly electricity prices on the SPOT and RB markets, as well as the average temperatures in 2020
The reference base load contract with the delivery in 2021 (BASE_Y-21) was trending sideways on the electricity futures market for the larger part of 2020. The price changes were in line with the changes in the commodity prices, in particular the prices of the CO2 emission allowances, the valuation of which depended on the situation related to the COVID-19 pandemic. A particularly sharp drop in prices took place in March 2020, when the contract price reached the level of 211.65 PLN/MWh. There was a significant recovery in prices related to the increase of the prices of commodities, the CO2 emission allowances and the sentiment improvement in the second quarter of 2020, due to the lifting of the restrictions introduced as a result of the COVID-19 pandemic. Since July 2020, due to the increase in the COVID-19 infections, the prices of the above-mentioned contract were declining again. At the end of October 2020, there was an increase in prices due to the announcement by several pharmaceutical companies of the development of the vaccines against COVID-19, increased optimism on the financial markets, a strong surge of the CO2 prices above the level of 30 EUR/Mg and the recovery of the demand for electricity in Poland and in the other EU countries.
The volume weighted average price of the BASE_Y-21 contract recorded in 2020 was at a level of 231.68 PLN/MWh, and it was lower by 34.78 PLN/MWh (-13.1%) as compared to the BASE_Y-20 contract prices a year ahead of the delivery. The total trading volume of the BASE_Y-21 contracts one year before delivery reached 116.43 TWh, i.e. approx. 0.75 TWh less than the BASE_Y-20 contract trading volume in 2019.
The PEAK5_Y-21 contract price displayed similar volatility patterns, with its trading volume weighted average price a year before delivery reaching 271.98 PLN/MWh, i.e. it and was lower by 51.96 PLN/MWh (-16%) than the average PEAK5_Y-20 contract price recorded in 2019. The lower average price of the PEAK5_Y-21 contract was a consequence of low PEAK prices on the Day Ahead Market (RDN) market and a significant increase in the photovoltaics’ installed capacity.
BASE Y-21 contract trading price performance
In 2020, the average price of Brent crude on the ICE exchange stood at 43.21 USD/bbl and it was approx. 21 USD/bbl lower as compared to 2019 (-32.7%). The lowest price of oil was recorded in the second quarter of 2020, while the highest price was observed in the first quarter of 2020, with the average quarterly price coming in at 33.39 USD/bbl and 50.82 USD/bbl, respectively. The total Brent crude trading volume on the ICE exchange clocked in at approx. 60 billion barrels in 2020, while it reached more than 64 billion barrels (-7.2%) a year earlier.
The global events directly related to the COVID-19 pandemic were the main factors that had an impact on the demand and supply on the oil markets. The impact of the pandemic hit the oil industry, which caused – for the first time in history – the WTI oil prices to fall below zero in April 2020. The producers faced a large oversupply (glut) of the commodity and began looking for a place to store the surplus, paying the recipient additional costs for the storage of the commodity. In addition, the global demand for oil dropped sharply.
The price war between Saudi Arabia and Russia also indirectly contributed to the fall in oil prices, which started in March 2020. The dispute ended in April 2020, when OPEC and its allies agreed to reduce the total crude oil production by 9.7 million barrels per day, initially for a period of two months starting from May 2020, and then to limit (cap) its production cuts to 7.7 million barrels per day between July 1, 2020 and December 31, 2020. In November 2020, following the announcement by several pharmaceutical companies of the development of the vaccines against COVID-19, the prices of Brent crude rose on average to approx. 44 USD/barrel. In December 2020, OPEC and its allies announced that they would voluntarily cut production by 0.5 million barrels per day, i.e. from 7.7 million to 7.2 million barrels per day starting from January 2021.
In 2020, the average price of the continued annual coal contract at ARA ports stood at 57.31 USD/t and it was lower by 12.20 USD/t (-17.5%) as compared to the average price of such contract in 2019.
The beginning of 2020 was characterized by weak sentiment on the international coal market largely caused by the COVID-19 pandemic. The entire coal sector in the United States of America (USA) was in a difficult situation, as the restrictions imposed on the manufacturing industry, triggered by the COVID-19 pandemic, significantly reduced the demand for energy in the US and led to the lower volumes of purchase orders for that commodity from other parts of the world.
In the first half of 2020, the Atlantic region was plunged into an increasing stagnation. Coal consumption in the West European countries decreased as a consequence of measures introduced to slow down the spread of the COVID-19 pandemic.
Important events that had an impact on the international coal markets in the second half of 2020 included in particular:
- the decision of the Chinese National Development and Reform Commission, which on several occasions prohibited state owned energy companies to import the Australian thermal coal, which was aimed at increasing the prices of the domestic commodity,
- the disruptions of the coal supplies from the north-western Russia, from the port of Murmansk, where the railway bridge used to transport the commodity collapsed,
- the depressed demand from India,
- the strike in the Cerrejón coal mine in Colombia, lasting 3 months, which led to a reduction in the supply of that commodity in the Atlantic region and the need to secure the hard coal supplies in the autumn before winter, both in Europe as well as in Asia.
At the end of 2020, the hard coal prices began to rise, which was the result of, among others: a decline in wind energy production in Germany, an improving margin on the generation for coal fired electricity production, the rising prices of natural gas and crude oil, as well as a prolonged deadlock regarding the resumption of the production in Colombia.
In 2020, the volume weighted average price of gas on the Day Ahead Market (RDN) on the Polish Power Exchange (TGE) stood at 57.81 PLN/MWh and it was approx. 16.57 PLN/MWh lower than in 2019. The lowest price of the contract with the delivery on the next day was recorded in June 2020, while the highest price was observed in December 2020, with the average volume weighted average monthly price coming in at 27.90 PLN/MWh and 81.29 PLN/MWh, respectively.
The reason for the low prices was primarily the COVID-19 pandemic, which translated into the reduced demand for gas fuel as well as the oversupply (glut) prevailing on the global gas markets for most of the year. The lowest price, i.e. 20.09 PLN/MWh, was recorded on May 5, 2020.
The weighted average gas price on the Intraday Market (IDM), was lower by approx. 14.60 PLN/MWh than in 2019, and clocked in at 54.52 PLN/MWh. The lowest contract price on the Intraday Market (IDM) was recorded in June 2020, while the highest price was observed in December 2020, with the volume weighted average price coming in at 28.06 PLN/MWh and 81.59 PLN/MWh, respectively.
The lowest gas price on the OTF futures market was recorded in June 2020, while the highest price was observed in December 2020, with the monthly weighted average prices of some futures contracts coming in at below 30 PLN/MWh and more than 85 PLN/MWh, respectively. The reasons for the low prices were well-stocked storage facilities, the COVID-19 pandemic and the low prices of the related products, among others the prices of the Brent crude oil and the CO2 emission allowances.
The lowest aggregate trading volume on the futures market was recorded in June 2020, clocking in at more than 7.4 TWh, while the highest trading volume was reported in September 2020, reaching 12.1 TWh.
The weighted average price of the reference one year GAS_BASE_Y-21 contract stood at 69.16 PLN/MWh in 2020. The lowest price of that contract was recorded at the beginning of June 2020, while the highest price was observed during the final session in 2020, coming in at 61.70 PLN/MWh and 87.50 PLN/MWh, respectively. The aggregate trading volume on the Polish Power Exchange (TGE) clocked in at more than 151.1 TWh in 2020, as compared to 146.1 TWh in 2019 (+3,4%).
The futures market had the largest share in gas trading in 2020, with a volume generated of more than 125 TWh. On the SPOT market, the total trade in the day ahead contracts came in at approx. 20.0 TWh (+17.6% year on year). The decline was also reported on the Intraday Market (IDM), where the turnover stood at almost 5.9 TWh, as compared to 5.7 TWh in 2019 (+3.3% year on year).
The key events on the gas market in 2020 included, among others:
- the imposing, by the Polish Office of Competition and Consumer Protection (UOKiK), of a USD 7.6 billion penalty on Gazprom and other investors in the disputed Nord Stream II project,
- the decision to build a 750 MWe gas fired generating unit in Ostrołęka instead of the construction of a hard coal fired unit,
- the commissioning of the CCGT unit in Stalowa Wola and the non-completion of the second line of the already mentioned Nord Stream II gas pipeline project.
Average monthly SPOT and Y-21 contract prices on TGE in 2020
CO2 EMISSION ALLOWANCES
In 2020, the settlement prices of the CO2 emission allowances for the reference contract with the December delivery (EUA-DEC) were moving within the range between 15.30 EUR/Mg and 33.44 EUR/Mg. The average settlement price came in at 24.77 EUR/Mg in 2020 and it was lower by 0.11 EUR/Mg as compared to 2019.
The reason for the lower average annual price of the CO2 emission allowances in 2020 was the sharp correction of the prices in March. The drop in the prices was a consequence of the emergence of the first cases of the COVID-19 infection in Europe and in the US. Having been hit with the news of the shutdowns of international connections and the lockdowns of a number of economies, the investors feared that the supply chains would be broken and the economic slowdown would be severe, and, as a consequence, the demand for the EUA units would decline. Due to the need to maintain financial liquidity, a number of companies were selling off the EUA units to generate additional cash. The situation calmed down in April when the financial stimulus packages rescued many companies from the crisis and led to a sharp rebound of the stock market indices and a recovery of the CO2 prices.
The increase in the demand was also impacted by the April purchases made in order to settle the CO2 emissions for 2019. The European Parliament committees were intensely working in the second half of 2020 on the shape of the new European climate law, the goal of which will be to introduce a legally binding target of achieving zero greenhouse gas emissions at the level of the individual EU countries by 2050 – for this purpose, a high price of the CO2 emission allowances and, ultimately, another revision of the EU ETS system will be necessary.
An important event affecting the CO2 prices was the announcement in the European Parliament of the proposed new EU emissions reduction target by 2030 at a level of at least 55% as compared to 1990.
In early October 2020, the number of the COVID-19 infections began to rise again, which, as in March 2020, caused a sell-off on all of the financial markets. The turning point was the announcement of the invention of an effective vaccine against COVID-19, which brought the CO2 prices again close to the level of 30 EUR/Mg.
At the end of 2020, the prices were also supported by the general approval of the proposal to raise the emissions reduction target to 55% in 2030 by the heads of state and governments of the EU Member States during the European Council Summit on 10-11 December, 2020. The COVID-19 pandemic also translated into problems with the allocation of the free allowances and the calculation of the auction volumes – therefore, the start of the distribution of the allowances through the auction system had to be postponed until January 29, 2021, which also, as a factor limiting the supply of the units, had a direct impact on a strong increase of the CO2 prices at the end of 2020.
When calculating the price difference between the close of the trading on December 31, 2019 (24.74 EUR/Mg) and on December 31, 2020 (32.72 EUR/Mg), an increase by 33% (+ EUR 8.08/Mg) was recorded.
Impact of the political actions and the environment on the EUA SPOT product price in 2020
The lowest prices of the green certificates were recorded in the second quarter of 2020, while the highest prices were reported at the end of the first quarter 2020, coming in at 120.93 PLN/MWh and 151.47 PLN/MWh, respectively. The prices of the green certificates fluctuated within the range between 137.63 PLN/MWh and 143.58 PLN/MWh over the last five months of 2020. The weighted average price of the green certificates stood at 138.22 PLN/MWh in 2020 (an increase by approx. 4.6% year on year) and it was lower than the applicable substitution fee by less than 16.4%. The amount of the substitution fee stood at 165.24 PLN/MWh in 2020, with the obligation to submit PMOZE_A certificates for redemption at 19.5%. The trading volume in this period clocked in at 9,662 GWh and it was lower by almost 14% as compared to 2019. The balance of the PMOZE_A register reached a surplus of 30.2 TWh at the end of December 2020. Taking into account the certificates blocked for redemption, this balance decreased by more than 5.1 TWh, to the level of 25.1 TWh (an increase by 2.38% year on year).
The prices of the certificates confirming the production of electricity from agricultural biogas, PMOZE-BIO-2019 (blue certificates), for which the obligation was 0.5% in 2019, were consistently fluctuating around the substitution fee level, which stood at 300.03 PLN/MWh. The prices of the TGEozebio index fluctuated within the range from 299.62 PLN/MWh to 301.66 PLN/MWh. Ultimately, the weighted average value of the index stood at 300.15 PLN/MWh at the end of 2020 and it was slightly lower (by 0.02%) than the weighted average price for 2019. The total trading volume came in at 490.6 GWh (a drop by almost 4.4% year on year), and the PMOZE-BIO register balance reached the level of 394 GWh as of the end of 2020. Taking into account the certificates blocked for redemption (retirement), this level dropped to 371 GWh.
The white certificates prices were generally trending upward, however the prices of the PMEF contract recorded lower levels in the second half of 2020. The 2020 prices fluctuated between the minimum level of 1,735.61 PLN/toe recorded in January and the maximum price reported in mid-February at the level of 2,000.98 PLN/toe. The highest price levels were observed in May, with the weighted average monthly price coming in at 1,998.80 PLN/toe. The weighted average price for the contract in question for the entire 2020 stood at 1,841.33 PLN/toe and it was higher by almost 82% as compared to 2019. On average, the prices were more than 6% above the substitution fee, which stood at 1,736.44 PLN/toe for the white certificates in 2020. In contrast to the increase in prices, the trading volume moved in the opposite direction, falling by almost 83% as compared to 2019. It clocked in at 59,001 toe (2019: 342,981 toe) in 2020.
The market performance of the PMEF_F register contracts as well as the PMEF-2020 register contracts was similar in 2020. Only the PMEF-2019 contract, which was traded in the first half of 2020, continued moving in a sideways trend.
The weighted average price of the PMEF_F contract in the year under review was higher by more than 12% as compared to the prices in the same period of 2019 and it came in at 1,824.79 PLN/toe. The weighted average price of the PMEF-2020 contract clocked in at the level of 1,811.66 PLN/toe (the contract was listed only in 2020), while the weighted average price of the PMEF-2019 contract came in at 1,837.40 PLN/toe in the first half of 2020.
Property rights (green and blue certificates) indices