By Lidia Gawlik
Mineral and Energy Economy Research Institute,
Polish Academy of Sciences
Mineral and Energy Economy Research Institute,
Polish Academy of Sciences
The modern economy and the development of civilization are closely related to energy consumption. Fossil fuels (hard coal, lignite, oil, and natural gas) account globally for about 80% of the demand for primary energy sources.1 The dynamics of changes in the structure of the global fuel and energy balance in the past, present, and foreseeable future indicates continuing dependence on fossil fuels as a primary energy source. The share of coal in primary energy supply of the world has increased in recent years, influenced primarily by increased consumption in China, reaching its highest level since 1971: 29% in 2013 and 2014.1 Despite these facts, its role as a fuel of the future is often questioned. This is mainly due to climate change and emissions generated from the use of coal.
In Europe, the trend is toward closing coal mines and switching to alternative energy sources. Only a few member-states of the European Union (EU) are still producing coal. The EU produced 99.9 million tonnes of coal in 2015, of which 72% (72.2 million tonnes) was from Poland.2 Other EU countries produced small quantities of coal (see Table 1).
A downward trend in production is occurring in most European countries. However, the volume of coal imports to the EU remains high. In 2014, the total imports of hard coal amounted to 204.9 million tonnes, decreasing to 190.6 million tonnes in 2015.
STATUS OF THE POLISH ENERGY SECTOR
In contrast to other EU countries, the Polish energy and heating sector is reliant on coal. Figure 1 depicts the energy mix in 2015. The hard coal and lignite shares in electricity generation in the energy sector totaled 53.9% and 35.2%, respectively. Meanwhile, wind power accounted for 6.6% of electricity, natural gas provided 2.8%, hydropower 1.5%, and the remainder came from other renewable energy sources.3 Electricity production from hard coal has decreased in recent years from 61.6% in 2007 to 53.9% in 2015. This decrease is a result of increased lignite usage (which is less expensive than hard coal) and the development of wind energy.
In 2014, installed capacity for power generation was 39.4 GW, of which 22.2 GW were hard coal-fired units and 9.2 GW were lignite-fired units. The total capacity installed for units based on solid fuels is 80%. There are additionally 0.9 GW of gas-fired units, 2.2 GW in hydropower plants, and 4.2 GW utilizing other renewable energy sources.4
The modernization of the Polish coal fleet has resulted in improvements in efficiency. SO2 and NOx emissions have also been reduced with the installation of flue gas cleaning. However, older power units still operate at a lower efficiency. There are plans to decommission older plants, with 18 GW of existing coal-fired power station units to be closed by 2050.5 Several existing coal-fired stations have also been replaced with modern, high-performance boilers and turbines with supercritical parameters (i.e., temperature of 600/620°C and pressure of 25–30 MPa). Supercritical lignite-fired power plants are operating at Pątnów (460 MW) and Bełchatów (858 MW), as is a hard coal-fired power plant at Łagisza (460 MW). Poland is also constructing new supercritical plants in Kozienice (1075 MW), Opole (2 × 900 MW), Jaworzno (910 MW), and Turów (lignite-fired, 496 MW).
COAL IN SUSTAINABLE ENERGY DEVELOPMENT
Coal plays a major role in Poland’s energy security, providing the secure, reliable, and affordable energy supply that is fundamental to Poland’s economic stability and ongoing development. Throughout the economy, coal is used for not only electricity but also heating and industrial activities. It is a key driver for multidimensional government initiatives, among which the most important are those related to: raw materials, infrastructure, and political and international affairs.
The energy policy of a country must ensure a balance between the three elements of sustainable development: energy security, energy affordability, and limiting the impact of energy on the environment.6 There are no simple solutions in the quest to achieve sustainable development. The interests of the private and public sectors, governments and regulators, international pressures, economic, social, and environmental factors, and the behavior of individual consumers are mutually intertwined.
Energy security and independence in meeting energy demand are important elements in creating Poland’s energy policy. Energy imports to Poland contribute only 25.8% of the energy consumed,7 well below the EU average of around 53%.
Poland will continue to use its large coal reserves for the foreseeable future in meeting energy demand and ensuring security of supply. The challenge lies in maintaining low energy costs while meeting sustainable development and environmental protection goals despite the high cost of producing domestic coal per tonne at US$76 compared to US$50–52 for imported coal.8
HARD COAL RESOURCES IN POLAND
Poland’s hard coal resources are located in the Upper Silesian Coal Basin and the Lublin Coal Basin. The size of the resource base of hard coal changes annually as a result of exploitation and new exploration. It is also a consequence of changes in the definition of proved reserves due to fluctuating economic and operating conditions.
The documented balance resources of hard coal deposits at the end of 2015 totaled 56 billion tonnes. Steam coal represents 71.6% of the total resources base, that is, over 40 billion tonnes, while the remainder (16 billion tonnes) is coking coal.9
The recoverable reserves are estimated at 1.8 billion tonnes, of which 1.3 billion tonnes are in existing coal mines possessing valid licenses for exploitation. Operating mines may extend and expand the areas with new production licenses. This would result in an additional 5.4 billion tonnes of balance resources, which translates to an additional 1.6 billion tonnes of recoverable reserves in already-developed areas.
The potential lifespan of the currently active mines, determined by dividing the volume of recoverable reserves as of the end of 2015 by the average annual coal production in 2013–2015, varies from a few years to several decades. The potential lifespan of mines depends on the output volume and numerous other factors, including economic conditions, which can result in significant changes. However, it can be stated that the reserves of hard coal in existing coal mines will last for many years.
Documented balance resources in undeveloped deposits (58 deposits) amount to 31.2 billion tonnes.9 The ratio between the balance resources and recoverable reserves is around 0.17, which means 170,000 tonnes of extracted coal per one million tonnes of documented balance resources. Extrapolating this ratio to the total balance resources in undeveloped deposits means a possible 5.3 billion tonnes of coal production. However, it would be expensive to develop them. The major challenge to utilize these coal resources is finding sufficient investment.
THE STATE OF HARD COAL MINING
The end of the communist era in Poland in 1989 and the introduction of market rules were quite difficult for the country’s entire economy, and especially for the coal mining sector. Previously, the most important function for coal mining was to produce as much coal as possible regardless of costs. Under the new economic criteria and with competition, rules introduced into the Polish economy and coal mining sector made the previous model uneconomic.
However, efforts have been undertaken to restructure coal mines to work more efficiently. One of the most difficult tasks was to reduce the number of miners employed in coal mining. In 1989, 415,900 people employed in the industry produced 177.4 million tonnes of coal, whereas by 2011 the number of people employed had dropped to 114,200 and the output decreased to 75.7 million tonnes. This has resulted in some success, with a profit of more than 3 billion PLN (about US$1 billion) reported by the sector in 2011.
In 2011 steam coal prices began to trend downward. The demand for Polish coal also diminished and contributed to the deterioration of the mining industry. In 2007, the mining industry sold 86.9 million tonnes compared to 73.6 million tonnes in 2015 (i.e., 13.3 million tonnes less). Domestically, 64.6 million tonnes were sold and 9 million tonnes exported. The main customers are in the power industry sector, with 36.6 million tonnes sold, totaling almost half (49.7%) of sales. Other domestic sales include coking plants (10.7 million tonnes), heating plants (4.3 million tonnes), other industrial customers (0.4 million tonnes), and households and small recipients outside industry (12.5 million tonnes).
Due to adverse economic and market conditions, the coal mining sector has been incurring large financial losses since 2012. The consumption of coal in the Polish energy sector is also trending downward. Among the factors impacting the coal sector is the energy and climate policy of the European Union, namely, the European Union Emissions Trading System (EU ETS) and limitations on SOx and NOx emissions as well as the obligatory use of Renewable Energy Sources (RES). Poland is unique among EU countries in its reliance on large domestic resources of coal and the scarcity of other primary energy sources for production of electricity and heat. The country will therefore use coal in the long term.
The cost of mining has also increased due to the following factors:
- Deteriorating operating conditions in most mines
- Insufficient financial resources for investments to ensure the continuance of mining
- Failure to adapt the size and quality of production to sales opportunities
- Trade unions’ salary negotiations
- No flexible wage model linked to performance
- Lack of modern solutions for continuous operation, which would contribute to more efficient use of machinery
As a result, the average cost of producing one tonne of coal in 2014 was about 33.46 PLN higher than the average selling price, leading to the collapse of the mining industry.
THE FUTURE OF THE POLISH COAL MINING SECTOR
Coal mining in Poland is expensive due to difficult geological conditions. It costs approximately 285 PLN (US$76) to produce one tonne of coal. The World Bank forecasts that, for the next few years, the price of steam coal internationally will be around US$50–52 per tonne.8 Low coal prices and too much production will challenge the economic viability of Polish mining companies. Therefore, adaptation to the changing conditions is a major task for the mining industry. The key is to maintain competitiveness, especially with the low price of imported coal.
Coal companies are undergoing restructuring. The program aims to reduce extraction costs, increase production efficiency, improve organizational measures, and identify sales opportunities. A key priority is innovation and continuous improvement and to apply more efficient management methods in how miners are employed, such as subcontracting, number of shifts per day, and the type of training and skills required.
Coal will remain a significant contributor to power generation in Poland up to at least 2050. Factors such as its low cost, ongoing investment in new coal-fired power plants, and maintaining existing and new coal mines will ensure its future.10 Even if Polish coal mines reduced production, the new coal-fired power stations would still operate with imported coal.
The power sector’s demand for coal will determine the size of the mining industry in Poland and that will also be influenced by EU climate policy. The government is currently developing a new future energy policy (as yet unfinished and unpublished), based on coal, that will be called “Energy Policy of Poland by 2050”. Hard coal mining currently employs nearly 100,000 miners. The end of the mining industry would be a potential source of social unrest arising from mine closures, unemployment, and lack of alternative employment options. Therefore, the government is expected to adopt policies to assist coal companies.
Coal mining is also a significant source of income for the state and local budgets. The mining enterprises’ obligatory payments required by Polish law have a direct impact on the net profit of mining companies. The payments are elements of the costs of coal production. These are both general taxes (the same as for any other enterprises) and special taxes connected with mining, such as royalties, environmental fees, and other special charges resulting from exploitation deposits, which are very high. One-third of the total revenues from coal sales are allocated in state and local budgets in the form of public payments. It is therefore expected that the government could support mining activity by lowering the level of those payments.
In order to allow the future use of coal in the energy sector and the wider economy, the government aims to accelerate the implementation and further development of clean coal technologies and is currently funding several research initiatives, including:
- Development of coal gasification technology for highly efficient production of fuels and electricity
- Production of hydrogen-rich gas in a process of chemical looping combustion of coal
- Coal gasification processes with CO2 absorption
Currently no cost-effective alternative for coal-based electricity production exists in Poland. The country possesses large domestic reserves of hard coal and lignite, and other energy sources are limited. Gas might become an option in the case of the development of shale gas reserves currently undergoing exploration. Outside of this scenario, expensive imports would limit the expansion of gas power plants. The deployment of nuclear power has been delayed due to various obstacles. A recent study11 shows that building new nuclear power plants is not a cost-effective option before 2040, as it has higher CO2 abatement costs than coal with CCS, wind, or hydro. Development of renewables also encounters greater difficulties in Poland than in other European countries, as the potential for exploiting renewables is lower due to less favorable climatic and geographical conditions. It is therefore planned to continue to use coal and to build high-efficiency coal-fired power stations to reduce CO2 emissions.
Coal companies face many challenges with low coal prices and an oversupply of coal. The closure of unprofitable mines, where capital expenditures are limited, is inevitable. Mining requires more prior preparation to identify production capacity in the future, even for those mines where efficient production is expected.
Investment in the development of new coal mines is being considered despite difficult geological and mining conditions in several mines. There are several projects at different stages of development, indicating that coal remains an integral part of the Polish energy mix. Those projects include:
- Kopex, a manufacturer of mining machinery and equipment, wants to build a coal mine in Przeciszów. The investment will reach 1.7 billion PLN. The mine’s lifespan is expected to be 30 years.
- The Coal Holding Sp. z o. o., part of the Australian Balamara Resources Limited group, is planning to invest in some mining projects in Poland, including opening a coking coal mine near Nowa Ruda.
- The PDCo Sp. z o.o., subsidiary of the Australian company Prairie Downs Metals, wants to build a mine in the Lublin Coal Basin.
- The Silesian Coal Company (Jan Kulczyk) is planning to build coal mines in Orzesze and Suszec.
The future of coal mining in Poland will strongly depend on adjusting production to meet demand. Improvements in mining production are key, as is closure of unprofitable mines.
Poland’s 20 GW of coal-fired power plants and the additional 2.8 GW under construction will create the future demand for coal. Although diversification of the energy mix is planned, including commissioning nuclear power plants, coal will continue to play the leading role in Poland’s energy mix up to 2050.
A final decision on future energy policy is urgently needed to speed the recovery process of the coal mining industry. Governmental promises to support the process should be confirmed by legal acts, which would create stable conditions for economic restructuring of the sector.
- International Energy Agency. (2016). Key world energy trends. Excerpt from World energy balances, www.iea.org/publications/freepublications/publication/world-energy-balances—2016-edition—excerpt—key-world-energy-trends.html
- EURACOAL. (2016, May). Market report 2016 no. 1, euracoal.eu/library/coal-market-reports/
- Polish Grid Company (PSE). (2016). Monthly reports on the functioning of the National Power System and Balancing Market
[in Polish], www.pse.pl/index.php?modul=8&y=2015&m=12&id_rap=212
- Agencja Rynku Energii (ARE). (2016). Sytuacja w elektroenergetyce (Situation in the power sector) [in Polish]. Warsaw: Agencja Rynku Energii SA.
- Gawlik, L., Szurlej, A., & Wyrwa, A. (2015). The impact of the long-term EU target for renewables on the structure of electricity production in Poland. Energy, 92, 172–178.
- World Energy Council (WEC). (2015). 2015 Trillema Index: Benchmarking the sustainability of national energy systems. London: WEC, www.worldenergy.org/publications/2015/2015-energy-trilemma-index-benchmarking-the-sustainability-of-national-energy-systems-2/
- Eurostat, European Commission. (2015). Energy, transport and environmental indicators. Luxembourg: Eurostat Statistical Books, European Union, www.ec.europa.eu/eurostat/en/web/products-statistical-books/-/KS-DK-15-001
- World Bank Group. (2016). Commodity markets outlook, p. 39. www.pubdocs.worldbank.org/en/677121461693540498/CMO-April-2016-Full-Report.pdf
- Polish Geological Institute–National Research Institute (PIG-PIB). (2016). Bilans zasobów złóż kopalin w Polsce według stanu na 31. XII. 2015 (Balance of mineral deposits in Poland as of 31 XII 2015 r.) Warszawa [in Polish], www.pgi.gov.pl/docman-dokumenty-pig-pib/docman/publikacje-2/bilans-zasobow/3845-bilans-zasobow-2015/file.html
- Gawlik, L. (Ed.). (2013). Węgiel dla polskiej energetyki w perspektywie 2050 roku – analizy scenariuszowe (Coal for the Polish energy sector in 2050 perspective – scenario analyses) [in Polish]. Katowice: Górnicza Izba Przemysłowo-Handlowa, www.giph.com.pl/giph/attachments/article/278/Wegiel_dla_polskiej_energetyki_2050_GIPH_MINPAN.pdf
- Lehtveer, M., & Hedenus, F. (2015). How much can nuclear power reduce climate mitigation cost? – Critical parameters and sensitivity. Energy Strategy Reviews, 6, 12–19.
The content in Cornerstone does not necessarily reflect the views of the World Coal Association or its members.
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