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Coal Market in Poland

Coal is the primary fuel used for power generation in Poland. As evidenced by PSE’s data, total electricity output was 165,852 GWh in 2017, of which 79,868 GWh (48%) were produced by hard coal-fired power plants and 51,983 GWh (31%) by lignite power plants. The remaining 34,001 GWh (21%) were contributed by commercial power plants, wind farms, gas fired power plants and hydropower plants.
 

The structure of fuels used in electrical energy production in Poland in 2017 [GWh]

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Source: PSE SA, www.pse.pl

 

In 2017 domestic power plants generated 1.98% more electricity versus the same period in 2016. The highest increase in electricity output (24.2%) was achieved by gas-fired power plants. Production also rose for wind farms, by about 19.2%. The deepest decline, by 1.82%, was suffered by hard coal power plants.

 

Year-over-year change in fuel consumption for electricity generation in Poland in 2017

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Source: PSE SA, www.pse.pl

 

Despite growing electricity production in 2016-2017 (3.51%), the demand for coal decreased by approx. (2.5%), as a result of implementation of the climate & energy package, reduction of CO2 emissions and development of renewable energy. The climate change strategy of the European Union assumes the attainment of the “3 x 20” objectives, i.e. a reduction of greenhouse emissions versus the 1990-levels by 2020. This goal, imposed by the EU, has forced Poland to implement investment programmes to upgrade its energy-related infrastructure. Power efficiency may be improved by investments aimed at building new power plants or upgrading existing power units, investments in distribution networks and a reduction of consumption by end users, including peak consumption.
Another important factor affecting the share of coal in the fuel mix of power generation is also a decline in energy consumption rates, which is an outcome of both the transformation of the economy into a services-driven model and declining electricity consumption by households.


Average price of BASE contracts on TGE S.A. 2014 - 2017 [PLN/MWh]

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Source: TGE SA

 

Because of access to cheaper electricity from other European countries Poland became a net importer of electricity, for the first time since 2003. In 2017 the foreign trade balance was dominated by imports of electricity, totalling 2.29 TWh. Higher imports lead to a lower domestic production of electricity and, thus, a lower demand for fuels, including coal.

 

Production and Sale of Thermal Coal in Poland

 

Poland is a major producer of hard coal globally and the largest one in the European Union. However, a steep fall has been observed for several years. The declining trend of thermal coal production in Poland was triggered by the restructuring of the hard coal sector in 1998-2006. The objectives of that programme were to reduce the capacity of mines, to restructure their debts and to reduce the employment level in mining companies. The programme led to a decline in production and, over a longer time horizon, also in the demand for thermal coal, as a result of partial switch of the economy to other energy sources.
We have been observing the declining trend of coal sales since 2015. Also since 2015 the sales of thermal coal in Poland have exceeded its production. This was reflected in the increase of coal prices on the market.
In 2017, the production of thermal coal amounted to about 53.0 million tonnes, which represents a decline of 7.4% y/y.
Sales in 2017 amounted to about 54.1 million tonnes, including about 31.4 million tonnes of thermal fine coal sold to commercial power plants. Sales of thermal coal decreased by about 9.3% in comparison to 2016.
As at the end of 2017, coal inventories were 1.2 million tonnes, which represents a decrease of about 52.0% in comparison to the level recorded in December 2016.


Production, sales and inventories of thermal coal 2014-2017 [‘000 tonnes]

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Source: ARP SA

 

Thermal Coal Prices


Between 2014 and 2017 the average thermal coal price on the domestic market dropped by 11%. In 2014 and 2015, the price was in decline. In connection with an increase in the demand and a decrease in the supply and coal inventories, since 2016 thermal coal prices in Poland have been on an upward trend.
Another significant factor contributing to the growth in thermal coal prices in Poland since the beginning of 2016 has been an increase in international coal prices.
In October 2014 the Katowice Branch of the Industry Development Agency (Agencja Rozwoju Przemysłu) created Polish Steam Coal Market Index 1 (PSCMI 1). This index combines a group of model price rates for thermal coal produced by domestic producers and sold in Poland’s power generation market (PSCMI 1).It reflects the level of ex-mine prices of 20-23 MJ thermal coal dusts offered to commercial and industrial power plants. The index is calculated as the weighted average of monthly supplies which meet the qualitative criterion of the index, i.e. total sulphur content below 1%. The price of a monthly product is determined as weighted average price from transactions executed in Poland’s thermal coal market, invoiced in a given calendar month. Source data used for rate calculations include data provided by domestic producers of hard coal to the Katowice Branch of ARP S.A. in the course of the Public Statistics Programme “Hard and Lignite Coal Mining,” which is administered by the minister in charge of economy.
In 2017, the average price based on the PSCMI index was approx. PLN 9.22 per GJ, which compared to the average price in 2016 (PLN 8.77 per GJ) represents an increase by approx. 5.1%.

 

Average thermal coal price in Poland and PSCMI in 2014-2017 [PLN/GJ]

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Source: ARP SA



Thermal Coal Imports and Exports


Imports of coal are the main source of that fuel for EU Member States. By 2008 Poland was one of the largest coal exporters to Europe. However, since 2008, it has become a net importer, as a result of changes taking place in the coal market. The key reason was the restructuring of Poland’s coal mining sector, which resulted in a significant reduction of coal production, while internal demand remained stable. Coal is imported to Poland mainly from Russia (65% of total coal imports). Coal is mostly delivered by rail via terminals in Braniewo, Terespol, and Małaszewicze. In 2017 the largest importer of Polish coal were the Czech Republic and Germany, receiving nearly 47% of Polish coal exports.


Hard coal imports and exports in 2014-2017 [million tonnes]

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Source: ARP SA