Polish power prices are predicted to push up next year amid political talks aimed at merging the country’s biggest energy companies with its coal mines.
But if prices continue to rise, competition on the market will suffer if smaller companies find themselves in short positions, Polish power market participants have claimed.
The warnings come in the wake of recent remarks from the country’s treasury minister Wlodzimierz Karpinski regarding the potential role that energy companies have to play in the coal-mining sector’s recovery.
Although the ministry had not revealed details of how it intends to tackle the problems facing coal miners at the time of writing, the option of merging the country’s biggest utilities with its mines was considered the most likely scenario by Polish power traders.
With a final decision on the measures expected from the government before the end of this year, several market sources told ICIS such a move would have a bullish impact on wholesale electricity prices in the country, because any investment from the energy sector would have to be priced in on the wholesale market so it could be recouped.
Poland’s coal mining sector has been rocked by shifting energy market dynamics this year, which culminated in industrial action. But with a general election looming next year, one trader said the government would not allow more strikes from coal miners and would take any measures possible to avoid them.
But the market participant added that if energy firms invest in coal mines or merge with them, they will need to find profit elsewhere, by pushing up offered prices on the wholesale energy market.
Throughout this year, the Polish electricity market has experienced frequent price spikes on the prompt that had an unprecedented bullish impact on contracts further down the forward curve.
Traders linked a near-doubling of prompt prices in April this year to maintenance at a large coal-fired power plant, with some raising suspicions over the length of an outage. Several sources on central and eastern European markets said the extension of maintenance at the 853MW Belchatow unit was intended to boost wholesale prices. Some went as far as suggesting this was needed to justify the expansion of PGE’s 1.8GW Opole coal-fired plant ( see EDEM 28 April 2014 ).
One local trader said if forward curve prices are now determined in the New Year by generators with a need to raise additional capital to pump into the mining sector, competition from other trading companies will diminish.
“With price volatility and price spikes, firms that did not secure the volumes they need and cannot get a stable price might now struggle. This can be detrimental to their profits,” the local source said.
Neither PGE or Tauron, Poland’s two biggest power generators, had commented on the issue at the time of writing.
The struggles of domestic coal miners were highlighted by Kompania Weglowa, Europe’s largest coal miner, in May this year, when it had to stop production for nine days to tackle financial losses.
The company was forced to reduce extraction of coal by 400,000 tonnes. But a surplus of some 5m tonnes remained in the market, contributing to the 9m tonnes of total oversupply across the country.
Despite this, Poland still imports 11.2m tonnes of coal from abroad each year, with 63% coming from Russia. And this rate continued despite the domestic oversupply.
This prompted around 200 Polish miners to block trains carrying Russian coal at a border crossing in northern Poland in protest against the influx of cheap Russian fuel into Poland in September ( see sister publication CSD 24 September 2014 ).
These struggles triggered talks among Polish politicians over a potential embargo of any imports of coal that are seen as a threat to the domestic mining sector – an area vital to the Polish economy ( see EDEM 24 September 2014 ). Karolina Zagrodna