REPORT: Technology neutral capacity mechanism in Poland is needed to provide stable energy supplies

According to a recently issued report by Compass Lexecon, the security of electricity supply in Poland in the long run can only be guaranteed by implementation of the capacity mechanism (CM). This solution would be the most efficient form of intervention and the most beneficial one for both electricity producers and for the end consumers.

The report by Compass Lexecon highlights the fact that, in cases of a lack of any regulatory intervention, by introducing the capacity market from 2020 onwards, the standard of reliability and security of supply will not be met in Poland. Without the implementation of a capacity market mechanism, there will be no economic viability of keeping some power plants operational and there will also be no investment signal to replace the missing capacity. Furthermore, the deficit of capacity will persist throughout the entire analyzed period, from 2017 to 2040.

The results of the analysis make clear that with the capacity market, the costs of electricity for end consumers in 2040 will be lowered by ca. EUR 7 billion when compared to the energy only market scenario. The additional cost related to the implementation of the capacity market is well compensated by the lower cost of non-delivery of energy and lower wholesale prices. It will also stabilize the energy prices and lower the cost of capital for the new investments, specifically for peak-load capacity.

The report also analyzed the potential impact of the emission performance standard set at the level of 550 g CO2/kWh (the so-called EPS 550) to be implemented in capacity mechanisms. According to the analysts, the proposal of the European Commission could lead to:

- drastic increase of gas consumption by 70%.

- Cost increase for end consumers - of circa EUR 240 million throughout the 2017-2040 and decrease of social welfare by ca. EUR 1 billion between 2017 and 2040.

- Increase in the cost of CO2 reduction of about 5 EUR/t – which is double the current market price of CO2. EPS 550 is furthermore unlikely to reduce CO2 emissions at the EU level as reduced emissions in the power sector are offset by increased emissions in others.