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REPORT ON THE ELECTRICITY AND NATURAL GAS MARKET IN POLAND IN 2014

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RWE Polska

RWE Polska S.A.T 48 22 821 39 39F 48 22 821 33 [email protected]

RWE Polska

WHY RWE?

RWE is one of the five largest energy companies in Europe. It specializes in the

generation, transmission, distribution and sale of electricity and gas. RWE em-

ploys 66 thousand people, supplying over 16 million customers with electricity

and more than 7 million customers with gas.

RWE is the largest energy producer in Germany and the third largest in the UK.

It is also present in Central Europe, operating not only in Poland but also in the

Czech Republic, Slovakia and Hungary. The largest RWE owned companies in

Poland are RWE Polska, responsible together with RWE East for supporting the

Group’s development in Poland, selling energy to approx. 900 thousand custom-

ers, and RWE Stoen Operator managing the Warsaw power grid. In addition,

there is RWE Group Business Services Polska (RWE GBS Polska) responsible for

internal service processes of RWE in accounting, finance, other business process-

es and IT areas. RWE also possesses wind farms in Poland with a total capacity

of 197 MW.

REPORT ON THE ELECTRICITY AND NATURAL GAS MARKET IN POLAND IN 2014 3

RWE Polska

The publication we hand over to you is the next

edition of the report on the most crucial and

interesting issues that took place on the Polish

market of electricity and gas last year and will

affect its shape in the coming years.

Since 2010 we have been developing summaries

of the 12 months prior to the release of each

annual report in the form of a calendar where

RWE experts present in a concise form the most

important events influencing the condition of

the electricity and gas market in the country.

This year’s edition of the report has been prepa-

red for you in a new form.

Our experts have analyzed for you in detail the

2014 market trends in electricity and natural gas.

One of the most significant trends in the energy

market in the past year was surely the volatility

of prices both on the SPOT market and the futu-

res market. Due to these fluctuations, caused,

among other things, by the work of less stable

PRZEMYSŁAW MĘŻYŃSKIHead of Business Customers DivisionRWE Polska S.A.

sources of renewable energy, operating in the

market is and will be subject to the risk of chan-

ges in energy prices.

In addition, the implementation of the Operatio-

nal Power Reserve, an increase in the price of

CO2 emission allowances and the need to invest

in new generation capacity have led to an incre-

ase in electricity prices. Due to the fact that the

market in Poland is quite isolated from neighbo-

ring markets, there is no possibility of cheaper

energy imports from abroad. Ahead of us, there-

fore, is another challenge for the Polish market

integration, which will demand the development

of infrastructure and implementation of market

coupling mechanisms.

Other significant factors on the electricity mar-

ket in the country are also the lack of transparen-

cy in the area of certificates and restoring sup-

port for Combined Heat and Power sources

provided by the amendment to the energy law.

4 RWE Polska

RWE Polska

As to the natural gas market in 2014, in turn, the

most important event was the realization of the

exchange obligation, which noticeably affected

the increase in liquidity of the stock market.

Although the demand for and supply of natural

gas still remain highly centralized, new vendors

appear on the market. This will contribute to

further development of both the wholesale and

retail markets.

It should be remembered that the natural gas

market is subject to gradual deregulation and

a real challenge for its development will be the

existent legislative barriers. This problem relates

mainly to the fact that gas sold to end users still

needs to be priced according to tariffs.

In addition, 2014 was the next stage of develo-

ping transmission facilities (including a reverse

flow link available on the Yamal pipeline, which

allowed the import of gas from the west; plans

for the future include launching an LNG terminal

and the expansion of the connector in Cieszyn).

These activities will contribute to the security of

gas supplies and diversification of their direc-

tions. As a result, the changes will require the

Polish government to pass a regulation on the

minimum level of diversification of natural gas

supplies from abroad. Meanwhile, the barrier to

liberalization is the law on reserves, under which

there is an obligation to hold stocks of natural

gas, their size depending on the amount of

imported gas. Unfortunately, the complexity of

issues related to the development of the electri-

city and gas market in Poland and abroad poses

constant challenges for customers. Added to this

is the specificity of the industry in which the

recipients operate.

As a result, dealing with all the difficulties and

presenting all possible solutions for both the

purchase and efficient use of energy and natural

gas are hardly possible in the report.

Therefore, we encourage all those interested in

the development of the Polish market for electri-

city and natural gas, and struggling with the

challenges that the market creates, to contact

RWE experts, who are specialists in the purchase

and sale of electricity and gas.

I wish you an interesting reading!


RWE Polska

CONTENTS

GLOSSARY OF ABBREVIATIONS7 Glossary of abbreviations

1 ELECTRICITY MARKET IN POLAND10 Electricity market in Poland – SPOT14 Commodity Futures Market (RTT)

2 GAS MARKET IN POLAND22 Gas market in Poland

3 PROPERTY RIGHTS MARKET34 Property rights (PMOZE_A)40 Cogeneration property rights

(PMEC, PMGM, PMMET)43 Property rights of the energy efficiency

certificates (PMEF)44 Foundations

4 CALENDAR60 Electricity market62 Gas market

5 PRODUCTS BASED ON MARKET MECHANISMS66 Energy products69 Gas products

DISCLAIMER70 Disclaimer

RWE Polska


RWE Polska

DSO Distribution System Operator

EEX European Energy Exchange

EUA European Union Allowances, unit

of emission, represents the right

to emit 1 ton of CO2

KSE (Krajowy System Elektroenergetycz-

ny) National Power System

LNG Liquefied Natural Gas

OREO (Operator Rozliczeń Energii Odna-

wialnej) Renewable Energy Settle-

ment Operator

PMEC property rights to certificates of

origin for electricity produced in

the remaining cogeneration units

PMEF property rights to the energy

efficiency certificates

PMGM property rights to certificates of


gas-fired cogeneration process or

in units with a total installed capa-

city of 1 MW

PMMET property rights to certificates of


cogeneration fired with methane

released and captured during un-

derground mining works in active,

being liquidated or liquidated coal

mines or with gas obtained from

biomass processing

PMOZE property rights to certificates of

origin for electricity produced from

renewable sources, with the pro-

duction period specified in the

certificate of origin starting before

1 March 2009

GLOSSARY OF ABBREVIATIONS

PMOZE_A property rights to certificates of

origin for electricity produced from

renewable sources, with the pro-

duction period specified in the

certificate of origin starting

from 1 March 2009

RDB (Rynek Dnia Bieżącego) Intraday

Market

RDBg (Rynek Dnia Bieżącego gazu)

Intraday Market in gas

RDN (Rynek Dnia Następnego)

Day-Ahead Market, also called

SPOT

RDNg (Rynek Dnia Następnego gazu)

Day-Ahead Market in gas

RES Renewable Energy Sources

RTT (Rynek Towarowy Terminowy)

Commodity Futures Market

RTTg (Rynek Towarowy Terminowy gazu)

Commodity Futures Market in gas

TGE (Towarowa Giełda Energii)

Polish Power Exchange

toe ton oil equivalent

TSO Transmission System Operator

URE (Urząd Regulacji Energetyki)

Energy Regulatory Office

RWE Polska

RWE Polska


ELECTRICITY MARKET IN POLAND

1

10 RWE Polska

RWE PolskaRWE Polska

In 2014 electricity prices suddenly broke away from the low levels of the previous year and were characterized by a positive trend. This trend was accompanied by dynamics for change and very high hourly price fluctuations.

ELECTRICITY MARKET IN POLAND – SPOT

DAY-AHEAD MARKET

The average hourly price of the Day-Ahead Market

on the Polish Power Exchange (TGE) amounted to

179.86 PLN/MWh. This represents an increase by

17% year over year. The peak hours (on weekdays,

from 8 am to 10 pm, inclusively) were characterized

by even greater dynamics of change. The average

price for peak hours amounted to 232.17 PLN/

MWh, an increase by 31% compared to 2013.

The pace of growth in 2014 increased with each

successive quarter. The lowest price increase of

1.3%, compared to the same quarter of the previo-

us year, was observed in the first quarter, the price

amounting to 161.26 PLN/MWh. The second and

third quarter were characterized by a similar incre-

ase in the price, amounting to 18%, in which the

average prices reached the level of 175.97 PLN/

AIncrease in the price of electricity on the Day-Ahead Market (also called SPOT)

Source:Own, on the basis of www.tge.pl

+17%Average Hourly Price

+31%Average Hourly Price

in peak hours

TWh

PLN

/MW

h

2.4 2.0 2.1 2.0 1.9 1.7 2.0 1.8 1.7 2.1 2.0 2.1

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r157.0

0.0 130

140

150

160

170

180

190

200

210

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

163.0163.9

186.7

166.1 175.4

200.7

171.4

198.2

192.2

209.5

174.0

SPOT price in 2014 vs. trading volume

11

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+/-20%Price volatility

11

MWh in the second quarter and 190.02 PLN/

MWh in the third quarter. The fourth quarter

was characterized by the highest increase in

prices. The average price was 191.73 PLN/MWh

and it was an increase by 30.9% compared to

the fourth quarter of 2013.

The rise in prices on the Day-Ahead Market was

accompanied by significant variability, which exce-

eded even the level of 30 PLN/MWh when compa-

red to the average monthly prices. The market thus

became more adventurous and less predictable.

The increase in prices and their noticeable varia-

bility can significantly increase the cost of balan-

cing. As a result, contracting accurately asses-

sed volume of demand becomes extremely

important. Both in terms of total consumption

as well as hourly profiles.

Trading volume

+7%

The Intraday Market allows Members of the

Polish Power Exchange to correct contract posi-

tions during the day of energy delivery (three

hours before physical delivery). Over the years

the liquidity in this segment has been impro-

ving slightly. In 2014 the trading volume on

the Intraday Market was 85.4 GWh,higher by

62% in comparison to 2013. According to the

Polish Power Exchange, in 2014 the total volu-

me of electricity trading on the SPOT market

was 23.7 TWh, which is an increase by 7%

compared to the year 2013.

INTRADAY MARKET

Matching contracted energy to the actual energy

consumption profile is one of the most important

factors affecting the cost of energy supply. Knowledge

of the individual characteristics of the energy consump-

tion significantly reduces the impact of fluctuations in

the market price on the final cost of energy.

12 RWE Polska

RWE Polska

REASONS FOR THE ELECTRICITY PRICES INCREASE ON THE SPOT MARKET

The prices increases were largely influenced by the

fee for operational power reserve and unplanned

losses of available capacity in the National Power

System (KSE).

OPERATIONAL POWER RESERVE

Introduced at the beginning of 2014, the operatio-

nal power reserve mechanism, consisting in rewar-

ding generation entities with an appropriate pay-

ment for maintaining a certain level of available

power in the system, has reduced the amount of

energy available on the SPOT market. As a result,

it significantly influenced the increase in prices.

The introduction of such a mechanism was neces-

sary, however, to guarantee supply security.

AVAILABLE CAPACITY IN THE NATIONAL

POWER SYSTEM

The high prices on the Day-Ahead Market in 2014

also resulted from the losses of available capacity.

The first major surprise to many market partici-

pants was the level of prices recorded on 25 April.

At that day the average band price was 278.01

PLN/MWh, and the prices at peak hours would

reach levels of over 800 PLN/MWh. The reason for

such a price jump was the capacity loss in the

system at the level of 6.3 GW, of which approx.

1.5 GW had not been included in earlier plans.

Similar events occurred also in subsequent

months − in June, July, and August − with prices

exceeding higher and higher boundaries,

reaching at particular hours the levels of over

1000 PLN/MWh. Market participants slowly got

used to the new situation and tried to respond as

soon as possible in case of forecasts of possible

power shortages in the system. The SPOT market

prices became less and less predictable. The hi-

ghest price levels were reached in late November

To this level available capacity losses pushed up the price of energy at particular peak hours

and early December. On 3 December 2014 the

average daily price was 408.34 PLN/MWh and for

some peak hours brokers were willing to pay as

much as 1300 PLN/MWh. Prices reached such

high levels in the case of emerging information

on the switch-off of large units, belonging, inter

alia, to power plants in Bełchatów, Kozienice,

Łagisza and Pątnów.

WIND ENERGY

The price developments were also influenced by

wind energy generation. In annual terms, wind

energy generation increased by over 23% compa-

red to 2013, and amounted to over 7 TWh. In addi-

tion, the distribution of the amount of energy

produced by wind farms in particular months tur-

ned out to be different than that of 2013. Therefo-

re, dependent on weather conditions, wind energy

in conjunction with the new mechanism of opera-

tional power reserve and numerous shortages of

available capacity resulted in the fluctuations of

prices on the SPOT market on a regular basis.

Increase in wind energy

+23% YoY

1000 PLN/MWh

13

RWE Polska


FACTORS MITIGATING THE PRICES GROWTH

NO SIGNIFICANT PRICES GROWTH IMPULSE

FROM THE DEMAND SIDE

The demand for electricity in the National Power

System (KSE) remains at a similar level. According

to the KSE, the annual demand stood at 158.7

TWh and it was higher than in 2013 only by 0.49%.

The biggest differences between the years 2013

and 2014 were in March and May. In March 2014

the KSE energy consumption was by 3.3% lower

than in the previous year. The reason was much

milder weather conditions than the year before. The

average temperature for this month (data for Warsaw)

was higher by 8.8°C. An opposite situation occurred in

May. In 2014 energy consumption amounted to 12 645

GWh and it was higher by 406 GWh (an increase by

3.3%) than in 2013.

ELECTRICITY MARKET BECOMES MORE

AND MORE DEMANDING

A very large range of prices and frequent price am-

plitudes on the SPOT market in 2014, testify to the

fact that the market is becoming increasingly com-

plex and difficult to analyze. Next years may be

characterized by similar situations. Among other

things, with the development of renewable energy

sources the market will become more and more

volatile. This is confirmed by the experience of

other European markets.

In addition, the role of managing energy demand

and supply in order to optimize its costs will increase.

This applies to any market participant. The risk of

imbalance costs – at the KSE, portfolios of energy

companies and individual clients levels – is growing.

End customers can reduce the risk of imbalance costs

Demand in the National Power System

Source: Own, on the basis of www.pse.pl

+0.49% YoYDemand has remained at a similar level

RWE POLSKA OFFERS A VARIETY OF PRODUCTS ALLOWING FOR A FLEXIBLE AND OPTIMAL MATCH OF THE ENERGY PURCHASE WITH THE CUSTOMER CONSUMPTION PROFILE.

(thereby optimizing the energy costs) through pur-

chasing products corresponding to the actual con-

sumption profile and choosing an appropriate strate-

gies tailored to their individual risk exposure.

20132014

GW

h

2200

2700

2450

2950

3200

3450

3700

0.49%

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

14 RWE Polska

COMMODITY FUTURES MARKET (RTT) B

In 2014 the Commodity Futures Market was characterized by an upward trend. A significant change in product prices on the Commodity Futures Market was the change of the price ratio of the PEAK product to the BASE product. The prices of the product encompassing peak hours grew more dynamically, reaching a wider price range between the minimum and the maximum value recorded on the market in 2014.

Source: Own, on the basis of www.tge.pl

BASE CONTRACTS

The Polish Power Exchange average price for an

annual BASE contract (i.e. supply of a constant

amount of energy for full 24 hours in a given

time period) with delivery for 2015 amounted to

168.12 PLN/MWh, increasing by 9.5% in compa-

rison with the price of the contracts concluded

on the Polish Power Exchange in 2014.

Average BASE price for 2015

+9.5% YoY

The highest price recorded for the BASE_Y-2015

product was 203.00 PLN/MWh. This is the price of

the first transaction for this type of product, com-

pleted on the Polish Power Exchange on 4 October

2012 (i.e. over two years prior to delivery).

The lowest price for the BASE_Y-2015 product

was 149.65 PLN/MWh. The transaction was

completed on 10 July 2013 (i.e. a year before

the start of deliveries). In this period all prices,

both on the SPOT and futures markets, reached

very low levels, not seen on the market for seve-

ral years. Such a wide price range may be attri-

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

Increases in prices for futures contracts for electricity

.

TWh

PLN

/MW

h

Turn

over

to th

e en

d of

201

3

160.86

158.04

164.52 164.86 165.29

165.06

167.77

173.57 172.94 173.22

170.42

173.82175.47

0.0 130

140

150

160

170

180

0.5

10.0

15.0

20.0

25.0

14.6 8.6 7.59.2 10.7 10.4

2.8

6.4 10.37.7 5.29.5 5.8

ForwardBASE_y-15 average annual prices vs trading volume

15

RWE Polska


PEAK CONTRACTS

Average peak price

+22.1% YoY

buted to a number of factors influencing the

market. The changing structure of generation,

regulatory risk, economic situation of the coun-

try, level of contracting applied by market par-

ticipants and the dynamics of fuel prices deter-

mine the price of electricity differently in

particular periods. During 2014 the prices for

the BASE product with delivery in 2015 moved

in an upward trend in the range from 156.15

PLN/MWh to 177.00 PLN/MWh. The rise in pri-

ces was affected by the operational power

reserve, CO2 emission permits and the need to

invest in new generation capacities (explained

later in this report).

WIDE PRICE RANGE

Minimum price

149.65PLN/MWh

Minimum price

178.50PLN/MWh

Maximum price

203.00 PLN/MWh

Maximum price

235.00PLN/MWh

In the case of annual PEAK contracts (from 8 am

to 10 pm, inclusively, on business days), the

average price on the Polish Power Exchange

amounted to 220.92 PLN/MWh and was 22.1%

higher than the price of PEAK contracts conclu-

ded for delivery in 2014.

PEAK_Y-2015 was recorded at the lowest level in

July 2013 and its price was 178.50 PLN/MWh

(i.e. one and a half year before delivery).

The price peaked on 28 July 2014

(i.e. half a year before delivery) and reached up

to 235.00 PLN/MWh.

In the period of 2014 PEAK products prices

moved in the range of 191.00 PLN/MWh to

235.00 PLN/MWh. Until the aforementioned

maximum a dynamic growing trend held. After

reaching the ceiling price, prices for the PEAK

product still showed considerable fluctuations,

falling to around 220.00 PLN/MWh, and then

returning to levels above 231.00 PLN/MWh.

16 RWE Polska

RWE Polska

The price ratio between the BASE product and PEAK product may

significantly influence the final energy price for end-consumers.

The PEAK price reflects the price of energy at times of the greatest

demand in the National Energy System. The BASE price is the price

of permanent energy reception at any hour of the day. Each custo-

mer has their own individual hourly energy consumption profile.

The energy consumption at peak hours will be thus more expensi-

ve, and the energy consumed at the off-peak hours – cheaper. The

final price paid by the customer is the result of both PEAK and BASE

prices.

Adjusting or changing the hourly demand profile, customers can

significantly affect the cost of energy supply. The PEAK price incre-

ase will, therefore, be particularly severe for customers that consu-

me energy at peak times.

SIGNIFICANT INCREASE OF THE PRICE RATIO BETWEEN THE BASE PRODUCT AND PEAK PRODUCT

Analyzing the price of BASE and PEAK con-

tracts, one may observe a significant change in

the relation of their prices. In the case of con-

tracts with delivery for 2014 the ratio averaged

1.17 (i.e. PEAK 17% more expensive than BASE),

while in the case of contracts with delivery for

2015 this ratio was as high as 1.31 (i.e. PEAK

31% more expensive than BASE).

The increase in prices at peak times was largely

due to the introduction of the operational po-

wer reserve mechanism.

The growing BASE product trading is an eviden-

ce of the ongoing development of the Polish

energy market.

We observe, however, the growing expectations

of market participants for greater liquidity and

availability of other listed products as well. This

is also confirmed by the experience and trends

visible on other European markets.

Electricity trading on the Polish Power Exchange

for the BASE_Y-2015 product amounted to

108.7 TWh, which represents an increase by

8.5% y/y compared to the same BASE_Y-2014

product.

This reflects the increasing liquidity of the mar-

ket for the BASE product, i.e. the availability of

this type of energy consumption profile.

The increase in trading is not recorded for all

products, however. For the PEAK_Y-2015 product

the turnover was 11.7 TWh and it was the same

as in the case of this type of contracts concluded

for delivery in 2014. In addition, the PEAK pro-

duct is sold with a delay in relation to the BASE

product. In this case, the market does not follow

the expectations of customers, who nowadays

generally want to contract energy in advance.

The experience of other European markets (e.g.

German or British) shows that liquidity and ava-

Increase in the BASE product trading

+8.5%

Significant increase of the BASE/PEAK price ratio

+14%

TRADING INDEX VS. DEMAND:POLAND 110%VS. GERMANY 300%COMPARISON: TGE VS. EEX

ilability of listed products even with distant

delivery times is one of the key drivers of com-

petitive energy market.

The energy trading on these markets is several

times higher the real domestic demand. This

means that energy is traded more than once

before it is finally consumed. This stems from

a desire to protect one’s position, also in longer

periods of time.

WHY THE PRICE RATIO BETWEEN THE BASE PRODUCT AND PEAK PRODUCT IS SO IMPORTANT?

17

RWE Polska


Liquidity and availability of products for a further period of

delivery are still at a relatively low level and are limited to the

annual BASE product. PEAK contracts are traded no earlier

than a year before delivery. The lack of liquidity poses parti-

cular problems if you want to contract energy four or five

years in advance.

Similar pricing trends accompanied the

contracts concluded for the coming years.

The first transactions for the BASE-type contract

with delivery for 2016 took place in May 2013,

and their price was approx. 156.00 PLN/MWh.

At the end of 2014 this product was priced at

the level of 181.00 PLN/MWh. On the market

there already appeared first contracts for the

delivery in 2017, their price on the Polish

Power Exchange in 2014 oscillating between

188.00 PLN/MWh.

FUTURES FOR NEXT YEARS

18 RWE Polska

RWE Polska

The reasons for the increase of prices include:

fee for the operational power reserve, increase

in CO2 prices and the need for investment in the

construction of new generation capacities.


The increase in prices on the Day-Ahead Mar-

ket, which was due to the introduction of subsi-

dies for producers for maintaining in the system

an adequate level of available power, also affec-

ted the trading of futures contracts. The dyna-

mic increases were characteristic primarily for

PEAK contracts, while influencing the increase

in the average BASE price.

CO2 EMISSION ALLOWANCES

Another important factor that contributed to the

growth of conventional energy trading on the

futures market, were the prices of CO2. In De-

cember 2013 the European Parliament introdu-

ced the so-called backloading involving suspen-

ding some permits for CO2 emissions. After this

decision CO2 price levels went up gradually from

REASONS FOR THE INCREASE OF PRICES

below 5 EUR/t gradually to approx. 7 EUR/t.

Poland – a country in which energy generation is

largely based on coal – feels the effects of such

a solution, and this increase in CO2 prices rebo-

unded on increasing electricity prices.

NEW GENERATION CAPACITIES

This is still a critical and widely discussed factor

in the rise in prices. The need of the Polish ener-

gy sector are associated with the necessity to

build new generating capacities to replace the

old and less profitable units that will be switched

off in the next few years. To maintain continuous

and safe operation of the system, new units

must be built in place of old ones. This involves

billions of financial outlays, which must be re-

flected in the prices of electricity.

In connection with the expected development

of distributed and less stable sources of energy,

the National Power System will require parallel

development of regulatory power. Conventional

power generation will have to meet increasingly

stringent emission reduction targets (which is

19

RWE Polska


one of the reasons the construction of a nuclear

power plant is planned).

The report on the investment plans for the years

2014 to 2028 conducted by the President of the

Energy Regulatory Office shows that generation

companies are planning to invest in more than

18GW of new generation capacity, which should

cover the estimated demand in the National

Power System.

The report, however, is based on planned invest-

ments of energy companies, the implementation

of which may not come to fruition.

The decline in energy prices on the wholesale

market in recent years forced energy companies

to reduce their investment plans by 11.5 GW in

relation to the plans of 2011.

Current prices on the wholesale market (despite

increases) are still at a level insufficient to finan-

ce new power plants. For this reason, the imple-

mentation of the capacity market in Poland is

still under preparation, where in addition to the

energy fee there would also be a fee for availa-

ble capacity.

HOW TO AVOID HIGH ENERGY PRICES?

CONTRACTING IN TRANCHES A WAY TO OBTAIN OPTIMUM PRICES FOR CUSTOMERS

The market is characterized by high volatility. It is

difficult to determine long-term trends. Each year,

there are new, previously unforeseen factors affecting

the larger or smaller increase or decrease in prices.

Customers following the energy market should consi-

der contracting for next years. Take advantage of

products enabling you to make a purchase in several

tranches. By using this option you avoid the risk of

buying at top prices.

The customers who chose the product in tranches

when contracting for 2015 had the opportunity to

purchase electricity at 150.00 PLN/MWh and above

170.00 PN/MWh for the BASE-type product. This way

the average price they obtained was much more favo-

rable than in the case of those customers who made

the decision to purchase at the end of 2014.

20 RWE Polska

RWE Polska

21

RWE Polska


GAS MARKET IN POLAND

22 RWE Polska


2014 was the second full year of trading in natural gas on the Polish Power Exchange. In a way, it had two very different faces. A very quiet first part of the year and a very dynamic second part.

GAS MARKET IN POLAND

On the one hand, it was a year of tremendous

turmoil in the political arena, on the other – Po-

land had undergone a number of important legi-

slative changes that were a step further towards

liberalization of the gas market and drove the

blue fuel trading on the Polish Power Exchange.

Let us underline that the gas market is governed

by different rules than the electricity market.

There are few gas producers, and therefore the

geopolitical situation plays an enormous role in

shaping the supply and prices of the raw mate-

rial, also on the Polish Power Exchange.

The total volume of all transactions concluded

in 2014 on all gas markets of the Polish Power

Exchange amounted to 111.6 TWh, compared

with 2.4 TWh in 2013. This means as much as

45-fold increase in a year. This is an absolute

record in the history of the power exchange.

It is worth noting that over 90% of this volume

was contracted in the second half of the year.

A

111.6 TWh 45-fold increase

Total turnover

23

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Settlement price and volume of Day-Ahead Market in gas

5.4 TWh

104.46 PLN/MWh

Turnover volume on the Day-Ahead Market

Average price of Day-Ahead Market in gas

During this period trading in gas on the

Day-Ahead Market including ˝Weekend”*

contracts was 5.4 TWh, and the rate calculated

as a weighted average of all transaction volume

amounted to 104.46 PLN/MWh. The highest

monthly turnover was in November, with a total

volume of delivery equal to 1.2 TWh. It is also

the largest monthly volume in the history of

trading on the Polish Power Exchange.

The minimum fell in February, with only

0.02 TWh contracted. For the Day-Ahead Mar-

ket in gas, the deal with the lowest price of only

64.70 PLN/MWh was concluded on 14 July.

The most expensive transaction was entered

into on 23 October: 120.00 PLN/MWh.

DAY-AHEAD MARKET IN GAS

* GAS_WEEKEND contracts with a two-day delivery date on Saturday and Sunday were introduced into trading on the Power Exchange in August 2014, the listings are carried out in the continuous trading system, every Thursday and Friday.

WIDE RANGE OF PRICES ALSO ON THE GAS MARKET (IN PLN/MWH): MAXIMUM PRICE: 120.00; MINIMUM PRICE: 64.70

60

120

110

100

90

80

70

180 000

160 000

140 000

120 000

100 000

80 000

60 000

40 000

20 000

0

VolumePrice

Pric

e [P

LN/M

Wh]

Vol

ume

[MW

h]

01.0

2.20

14

01.0

3.20

14

01.0

4.20

14

01.0

5.20

14

01.0

6.20

14

01.0

7.20

14

01.0

8.20

14

01.0

9.20

14

01.1

0.20

14

01.1

1.20

14

01.1

2.20

14

01.0

1.20

14


24 RWE Polska

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PRICES AND TRADING DECREASE IN THE FIRST

HALF OF 2014

From the very beginning of the year the prices

on the SPOT market in gas in Europe declined

steadily. This trend also manifested itself on the

Day-Ahead Market in Poland. The unusually

mild winter strongly contributed to this, both in

Poland and in Western Europe. Gas storage

facilities, filled in 2013, were in readiness for

the coming winter weather and increased de-

mand for gas. In vain. The weather pushed the

price down.

The situation from last year, when the icy cold

March led to a sharp increase in gas consump-

tion and price, did not repeat itself. Then, the

price on the Polish Power Exchange reached

131.90 PLN/MWh. In 2014, however, a unique

situation extremely rare for gas markets, arose.

SPOT prices were lower than futures prices.

Companies which had signed take-or-pay con-

tracts (i.e. those with contractual provisions

obliging to receive gas) were thus almost forced

to sell the surplus gas at a price significantly

lower than the purchase price – the filled up sto-

rage facilities did not allow them to store the

unused fuel.

Unfortunately, this did not translate into an

increase in trading in Poland. Although in com-

DESPITE DECLINING PRICES IN THE FIRST HALF OF THE YEAR THE MARKET WAS NOT LIQUID AND DIFFERENCES IN PRICES WERE TO SMALL TO ALLOW IMPORT.

parison with 2013 it was growing month after

month, we still could not consider the market

liquid. The demand was low, and the prices,

even though they seemed attractive, were still

higher than at our western neighbors (which for

the Polish customers is a kind of benchmark).

Furthermore, the difference in prices was to

small to make gas imports profitable.

The factor inhibiting the prices decline was the

constant flow of news on a continuous escala-

tion of the conflict between Ukraine and Russia

and persistent uncertainty as to further deve-

lopments and the security of gas transmission

MILD WINTER WAS THE REASON FOR THE PRICE DECLINE ON THE SPOT MARKET IN THE FIRST HALF OF 2014.

25

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through the Ukrainian territory to other Europe-

an countries.

Every few days we saw the prices rebound. Gas

transmission took place, however, without any

disruptions, and continuous oversupply of raw

material meant that the fall in prices was bigger

and bigger.

INCREASE IN PRICES AND TRADING

IN THE SECOND HALF OF 2014

The situation on the Day-Ahead Market chan-

ged dramatically in the second half of the year.

The trading began to grow day after day. Hen-

ce, the prices also increased. From that moment

the listings of the Polish gas market „detached

themselves” from those observed on the neigh-

boring markets, for instance the German

GASPOOL or NCG.

At the same time, the emergence a big gas

buyer – PGNiG Obrót Detaliczny, separated from

PGNiG Capital Group on the Polish Power

Exchange was also significant.

6.5 million retail customers served by the newly

formed company creates a huge demand. The

liquidity of the market grew by leaps and bo-

unds, and the stock market beat new records in

terms of the turnover. The market prices were

also record in periods of greater demand due to

sudden drops in temperature, i.e. at the end of

October, in late November and early December,

and at the very end of the year.

THE EXCHANGE OBLIGATION ACCELERATED THE MARKET. THE TURNOVER WENT UP. HOWEVER, GREATER DEMAND CAUSED THE PRICES TO INCREASE.

THE UKRAINIAN CRISIS INHIBITED THE GAS PRICES DECLINE.

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INTRADAY MARKET IN GAS

106.98 PLN/MWh

1.2 TWhIntraday Market in gas trading volume

Intraday Market in gas average price

On 30 July 2014 the Polish Power Exchange

launched the Intraday Market in gas. The total

turnover volume was 1.2 TWh. The volume-we-

ighted average price of all transactions amoun-

ted to 106.98 PLN/MWh.

As opposed to the electricity market, gas is also

actively traded on the day of delivery. The highest

turnover volume on the Intraday Market in gas fell

in December 2014, and amounted to 0.42 TWh.

The price ranged from 62.75 PLN/MWh on 3 Au-

gust to 121.47 PLN/MWh on 27 December. It is

worth noticing that since the inception of the mar-

ket the trading has been held almost every day.

Despite the low turnover so far, the Intraday

Market in gas is a very important market. Since

its inception the Exchange participants can

manage the demand for fuel more flexibly, even

on the day of delivery. This allows them to avo-

id additional fees associated with imbalances of

their position, with higher or lower gas con-

sumption due to, among other things, changes

in weather conditions or altered production

plans of gas customers. Unlike other gas mar-

kets, trading on the Intraday Market is carried

out using hourly instruments.

COMMODITY FUTURES MARKET IN GAS

102.0 PLN/MWhCommodity Futures Market in gas trading volume

108.89 PLN/MWhCommodity Futures Market in gas average price

The trading volume on the Commodity Futures

Market in gas in 2014 amounted to 102.0 TWh,

and the rate calculated as a volume-weighted

average of all transactions amounted to 108.89

PLN/MWh. The highest monthly turnover fell in

August, when transactions with a total volume of

delivery amounting to 28.6 TWh were concluded.

It was also the largest in history monthly volume

of trading on the Polish Power Exchange. The

lowest level of trading was in February, when only

0.1 TWh was contracted. The lowest transaction

on the Commodity Futures Market was the sale of

THE INTRADAY MARKET ALLOWS BETTER DEMAND MANAGEMENT ON THE DAY OF DELIVERY.

27

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a band with delivery in August 2014

(GAS_BASE_M-08-14). It was concluded

on 10 July at a price of only 65.90 PLN/MWh.

The most expensive, in turn, proved to be trans-

actions concluded in late September and early

November for the seasonal product, the supply

of which falls in the winter 2015/2016

(GAS_BASE_S-W-15) – their price was

121.00 PLN/MWh. An idea to increase the num-

ber of transactions concluded on the futures

market was the opportunity to make transac-

tions in the auction mode. In 2014 53 auctions

were held, of which only 23 were finalized.

A total trading volume for all products reached

3.1 TWh, and the average price of 1 MWh

weighted by the volume of transactions amoun-

ted to PLN 95.89.

Lowest price

65.90 PLN/MWh

Highest price

121.00 PLN/MWh

Settlement price and volume for GAS_BASE_Y-15

The greatest interest on the gas market, in turn,

attracted a band with delivery for 2015

(GAS_BASE_Y-15). The total trading volume of

this instrument was 25.4 TWh at the average

price of transactions amounting to 110.47 PLN/

MWh. The lowest price for the transaction was

reached on 10 July and it was 100.85 PN/MWh.

Interestingly, the lowest sales offers of 100.00

PLN/MWh were submitted on 3 and 4 April.

Unfortunately, no transactions were concluded

– the best offer to purchase was 95.00 PLN/

MWh. The transaction with the highest price of

113,00 PLN/MWh was concluded on 2 Septem-

ber. The month with the highest turnover pro-

ved to be October, when the volume of transac-

tions was 9.8 TWh.

IN CONTRAST TO CONTINUOUS TRADING, AUCTIONS MAKE IT POSSIBLE TO CONTRACT A LARGE VOLUME WITH NO EFFECT ON PRICES.

95

115

110

105

100

1 400 000

1 200 000

1 000 000

800 000

600 000

400 000

200 000

0

VolumePrice

Pric

e [P

LN/M

Wh]

Vol

ume

[MW

h]

01.0

2.20

14

01.0

3.20

14

01.0

4.20

14

01.0

5.20

14

01.0

6.20

14

01.0

7.20

14

01.0

8.20

14

01.0

9.20

14

01.1

0.20

14

01.1

1.20

14

01.1

2.20

14

01.0

1.20

14


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EXCHANGE OBLIGATION – DIFFICULT BEGININGS

Introduced in 2013, the exchange obligation was

meant to activate the gas market in Poland on

a great scale. It was to be another milestone in

the liberalization of the domestic gas market.

However, the effects of its introduction could

hardly be seen before the second half of 2014.

Originally the supply appeared on the market,

but it did not translate into a number of transac-

tions. Despite falling prices, the problem was

demand. Although trading companies and bro-

kerage houses seemed well prepared to trade on

the Polish Power Exchange (judging by the incre-

asingly long list of gas market participants), in

practice there was no trading. In fact, new en-

trants were not able to start effectively, because

gas customers were still bound by long-term

contracts with the existing supplier. They sho-

wed no great willingness to switch the supplier.

Moreover, the price offered on the PPE often

exceeded the tariff price. Even if there were pe-

riods of favorable ratio of the wholesale price

and tariff price, the differences were too small to

attract more buyers.

In addition, a conflict in Ukraine started and

questions about the security of supply arose.

The market was stuck, and the spectre of failure

of realizing the 40 percent obligation became

bigger and bigger. This could mean severe penal-

ties for PGNiG. Therefore, in April the owners of

the company made a crucial decision aimed to

increase the demand, improve the liquidity of

the exchange and allow for the development of

market prices for the raw material, and thus – to

facilitate the fulfillment of the exchange obliga-

tion. The retail part of the business was separa-

ted from the PGNiG Group and the PGNiG Obrót

Detaliczny was formed. The new company

(responsible for supplying gas to customers con-

suming less than 25 million m3 of fuel per year,

i.e. to approx. 6.5 million customers) commen-

ced its operations on 1 August.

55%

30%

40%

2013

2014

from 2015

Exchange obligation

29

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Just as on other markets, also on the PPE the trading

began to break records. It is an unquestionable

success of the exchange, but the concentration of

supply and demand within the structure of a group

of companies led to higher prices. In August the

Futures Market indices have increased substantially.

The market price of the basic instrument of the Com-

modity Futures Market, or GAS_BASE_Y-15, incre-

ased from 105 PLN/MWh at the beginning to more

than 110 PLN/MWh at the end of the month. At this

level it fluctuated until the end of the year, being

subject to the fluctuations of ± 2.5 PLN/MWh.

HIGH SPREADS INFLUENCED PROFITABILITY OF GAS IMPORT.

THE CONCENTRATION OF SUPPLY AND DEMAND WITHIN THE STRUCTURE OF A GROUP OF COMPANIES LED TO HIGHER PRICES.

The relationships observed so far between chan-

ges in prices on the Polish Power Exchange and

the German market disappeared. Despite low

prices on developed markets, due to excess sup-

ply of commodity, the price on the Polish market

increased. The spreads between adjacent mar-

kets began to be as high as -20 PLN/MWh! Pre-

viously, importing gas to Poland was not profita-

ble, but now a unique opportunity arose. If a the

company had reserved the bandwidth and had

a partner on the other side of the border, it could

GAS_BASE_Y-15: the price of PPE and GASPOOL

90

105

110

115

100

95Pric

e [P

LN/M

Wh]

01.0

2.20

14

01.0

3.20

14

01.0

4.20

14

01.0

5.20

14

01.0

6.20

14

01.0

7.20

14

01.0

8.20

14

01.0

9.20

14

01.1

0.20

14

01.1

1.20

14

01.1

2.20

14

01.0

1.20

14

PPEGASPOOL


import gas and sell it with a substantial profit.

Even after taking into account all the costs asso-

ciated with having the bandwidth. At this point,

the capacity auctions got really crowded. While

previously they hardly attracted interest and one

could easily win the auction bidding „only” the

tariff price, without paying an additional pre-

mium, at that moment the number of applicants

increased and auctioned capacities were insuffi-

cient. The auctions lasted until the purchase of

the bandwidth exceeded the profitability limit.

30 RWE Polska

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The year 2014 was a year of progressive deve-

lopment of the gas market and its liberalization

became a reality. The market growth was ac-

companied by numerous legal and regulatory

changes, as well as those in the area of macro-

-economy, infrastructure, and politics.

Of great importance for the development of the

wholesale gas market was the introduction in

2013 of the exchange obligation, because it

resulted in the supply. But it was only the emer-

gence of the demand side in August 2014, thro-

ugh the spinning off PGNiG Obrót Detaliczny

from the structures of the PGNiG Group, that

truly revived the commodity market. This, in

turn, was possible thanks to the amendment to

the energy law and the so-called general suc-

cession, which facilitated the separation of the

new company from PGNiG Group without the

need of signing additional agreements with

existing customers.

With the oversupply of gas and the resulting

decline in prices on European markets

and in Poland, many new participants appe-

ared. Since the beginning of November 2014

the number of entities with a license to trade in

gaseous fuels had increased by 22 entities (to

139) compared to January 2014, and those with

a license to trade in natural gas – by 14 (up to

47). The data published by the Polish Energy

Regulatory Office also shows that by the end of

the third quarter of 2014 2,011 customers chan-

ged their gas supplier, compared to only 429 in

2013. The high dynamics of the emergence of

new entrants and switching to other suppliers is

a meaningful factor illustrating the develop-

ment of a competitive gas market in Poland.

Not without significance is the issue of the do-

mestic energy security. Thanks to numerous

investment spending in infrastructure, expan-

sion of the grid, and virtual reverse service on

the Yamal pipeline, our technical capabilities of

gas imports from the west and the south are

now higher than 90% of our import needs (via

Mallnow, Lasów and Cieszyn). In 2011 it was

just 9%. What is more, if we include the LNG

gas terminal in Świnoujście, its opening being

scheduled for 2015, in practice it turns out that

we have overcapacity. In the context of tensions

between Russia-Ukraine-EU, concerns relating

to the stability of the flow of gas through the

territory of Ukraine or the opportunities inclu-

ded in the negotiation provisions of the Yamal

contract, it is very good news for Poland.

Although the gas market is growing day by day,

there are still many barriers that inhibit the

liberalization process. In our opinion, the unmi-

stakable impediment to the development of the

market are legislative barriers, in particular the

lack of an exemption from the tariffing of gas

sold to end users. Up to now, the President of

the Energy Regulatory Office has not taken

a decision on the release of gas prices, which is

why the companies trading natural gas continue

to submit tariffs for approval, in which they

represent the price having the character of the

maximum price. This creates a significant busi-

ness risk associated with the uncertainty as to

the principles of contracting gas.

The government regulation, which entered into

force on 24 October 2000, on the minimum

GAS MARKET LIBERALISATION AND PROSPECTS FOR DEVELOPMENT

Market development factors

Development of infrastructure

New participants

Obligation

31

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level of diversification of gas supplies from

abroad needs to be changed, or perhaps even

removed, as it does not work in the current

market reality. The law applies to energy com-

panies that trade natural gas with foreign coun-

tries. At the time of the regulation’s entry into

force, Poland obviously had very important

reasons to diversify supplies. Then it was al-

most exclusively possible to import gas from

the East, but thanks to extensive investments in

the development of transmission infrastructure

for cross-border connections, currently import

capabilities have improved considerably. The

regulation also causes some interpretation do-

ubts as to the proper understanding of the con-

cepts of import and the country of origin of

gas, contained therein, because it has not been

adjusted after Poland joined the European

Union, and its current wording makes opera-

tions of trading companies difficult, forcing

them to purchase expensive fuel from inaccessi-

ble directions.

Another barrier to the liberalization of the gas

market is the act on reserves of crude oil, petro-

leum products and natural gas and the rules of

conduct in emergency situations regarding the

fuel security of the State and disruptions on the

oil market, in which the obligation to hold

stocks depends on the amount of gas imported

from abroad and sold in Poland by trading com-

panies. Currently, access to the storage infra-

structure for new entrants is very limited and very

expensive. It is true that the Act provides for an

exemption from the obligation to store gas in the

IN A NUTSHELL

Despite the still existing barriers, the Polish gas market

is deregulating gradually. Changes introduced in 2014

seem beneficial to the further deepening of the liberaliza-

tion process and the development of the gas market. Let

us underline that the process of transformation of the

market is extremely complicated, expensive, time-consu-

ming and demands simultaneous changes on many levels.

We will soon see the effects of the undertaken actions as

well as areas for further changes. Building the electricity

market took a couple of years, and the gas market is still

extremely young – the first trading session took place on

20 December 2012. Despite such a short period of time,

the development is gaining momentum and it seems that

in 2015 it will still grow. Thanks to upsizing Polish import

opportunities, Poland will increase its energy security.

There will be more players on the market, both wholesale

and retail. The companies trading gas on the market

know that this it is full of potential and proper use of the

opportunities lies in their hands.

And there will be a plethora of opportunities in the co-

ming year. As a result, natural gas prices in Poland should

be market-oriented and thus, there will be more consu-

mers willing to switch their supplier.

case where no more than 100 million m3 of fuel

per year is imported and the number of custo-

mers does not exceed 100 thousand, but from

the perspective of business entities trading gas,

this limit is so low that many of them do not

attempt to expand their import business.

Regulatory barriers

2

31Tariffs

Diversification of supplies

Storage obligation

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PROPERTY RIGHTS MARKET

3

34 RWE Polska


The dominant theme of 2014 was certainly the Draft Act on Renewable Energy Sources (RES), its subsequent versions being watched closely and analyzed by market participants.

PROPERTY RIGHTS (PMOZE_A)

NEW ACT ON RENEWABLE SOURCES KEY TO THE RES MARKET

Until the end of the year, however, the Act did

not materialize, although in December the

works clearly accelerated, which was probably

due to the entitlement of the European Union

to impose a financial penalty against Poland for

failure to implement the Directive on Renewa-

ble Energy Sources. The Act was signed by the

Polish President only on 11 March 2015.

Therefore, 2014 marked another year of uncer-

tainty for the renewable energy industry, both

for manufacturers and retailers, who had to

assess additional risk in their contracts. Inve-

stors generally were in favour of staying in the

current system, which is already known, and, in

addition to the guaranteed price for energy,

gives them support in the form of certificates.

A

CO-FIRING AND HYDROENERGY WILL RECEIVE LESS SUPPORT.

35

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Works on the new Act accelerated at the end

of the year. Deputy Prime Minister Janusz Pie-

chociński announced in December that the

Ministry of Economy wanted the Act to come

into force in February 2015, but the industry

showed disbelief. The accelerating of works

was associated with rumours related to the

potential penalty for Poland in the amount of

EUR61 thousand per day of delay. It was to be

imposed by the European Commission by way

of a lawsuit against Poland.

Ultimately, the Act was passed by the Polish

Parliament on 20 February 2015. The biggest

change introduced in the final stage of voting on

legislative works was the guaranteed repurchase

price of energy produced in domestic micro-in-

stallations. On 11 March 2015 the Act was signed

by the President.

THE THREAT OF BEING DISCIPLINED BY THE EUROPEAN COMMISSION ACCELERATED LEGISLATIVE WORKS ON THE RES ACT.

Installed capacity [MW] as of 31.12.2014

Type of RES 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Biogas power stations 32 37 46 55 71 83 103 131 162 189

Biomass power stations

190 239 255 232 252 356 410 821 987 1008

Solar power stations

- - - - 0 0 1 1 2 21

Wind power stations 83 153 288 451 725 1180 1616 2497 3390 3834

Hydroelectric power stations

852 934 935 941 945 937 951 966 970 977

Total 1158 1362 1524 1678 1993 2556 3082 4416 5511 6029

Increase y/y - 205 162 154 315 563 526 1334 1095 518

Increase y/y % - 17.7% 11.9% 10.1% 18.8% 28.3% 20.6% 43.3% 24.8% 9.4%

The new Act on Renewable Energy Sources

introduces the auction system, and thus a form

of competition. Legislative uncertainty as to the

final form of the Act affected the decisions of

investors, which manifested itself in withhol-

ding investments until the Act approval. Inve-

stors feared that they would not be able to

complete the investments before the entry into

force of the new Act and would, therefore, au-

tomatically fall into the new system, whose final

shape they did not know when deciding on the

investment implementation.

This uncertainty regarding the final shape of

the system also made it difficult for investors to

acquire external financing because it was hard

to find a partner with whom they would sign

a long-term contract for the supply of energy or

provision of certificates.

Subsequent drafts of the Act also assumed the

reduction in support for biomass co-firing. Each

unit of energy produced from biomass is to be

supported with a half of the certificate, with full

certificates only granted for dedicated co-firing.

An important issue was also the final determi-

nation of the level of support for co-firing. The

Act introduces a reduction in support to the

average volume of production from 2011-2013.

The support will be disabled for hydro power

units with capacity exceeding 5 MW.

Source: www.ure.gov.pl

36 RWE Polska

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The legislative uncertainty caused significant

slowdown in the growth of installed capacity.

According to the Energy Regulatory Office, at the

end of December 2014 the installed capacity of

renewable energy sources amounted to 6029 MW,

which means an increase by 518 MW y/y, whereas

in the two previous years the increase amounted

to 1095 MW (2013) and 1334 MW (2012). Even if

444 MW (representing 85.8% of a total increase in

new capacity) is due to new wind turbines, in com-

parison to previous years this means approx.

a two-fold decrease in the segment.

TRANSPARENCY IS MISSING

The green certificates market is highly volatile. Its

participants agree that it is one of the least trans-

parent markets. While the demand for certificates

is relatively easy to estimate, the consumption of

end users being stable, any attempt to determine

the size of the supply meets the essential difficul-

ty resulting from the fact that the certificates are

issued by the Energy Regulatory Office.

It is, therefore, difficult to determine when and

how many certificates would appear on the mar-

ket. The issuance of certificates for the produc-

tion of biomass from previous years still awaits

the decision of URE, and it is unclear when they

will be released. Delays in issuing such certifica-

tes may be due to purely factual issues, i.e. in

the case of the energy generation from bio-

mass, which is hedged around with different

formal requirements, or simply some restric-

tions inside UREURE.

As a result, market participants closely track we-

ekly reports published on the PPE, including state-

ments on the amount of issued certificates, and

listen to what URE representatives say publicly.

The influx of new certificates will augment the

existing surplus, putting pressure on prices to fall

further, so any information in this respect is parti-

cularly valuable and results in quick responses

from the market. It is worth noticing that the

supply also depends on the participants with the

surplus certificates.

With continued low prices, this volume, howe-

ver, does not appear on the market. Probably

these are certificates purchased under con-

tracts indexed to the replacement fee, which

means high price levels. Market participants are

probably waiting with their sale until the price

rebounds significantly, or they intend to use

them to carry out the statutory obligation con-

sisting in their redemption.

MARKET STATE

The beginning and end of 2014 brought dynamic

changes in prices on the market of green certifica-

tes. In February PMOZE_A index reached its maxi-

mum level, exceeding 250 PLN/MWh. Such price

levels were recorded on the market for the last time

in June 2012. On the other hand, in the last four

sessions in December declines to the minimum

level of 153-154 PLN/MWh were recorded. The

middle of the year was characterized by a unique

stabilization – unique in comparison with the pe-

riod January–February and the entire previous year.

The decline in prices to a level of approx. 50% of

the replacement fee was mainly due to the surplus

of certificates. In addition, during the year the

surplus still increased, reaching a level close

to 13 TWh at the end of the year.

The first two sessions of the beginning of the year,

being at the level of the end of the previous year,

i.e. below 200 PLN/MWh, did not portend the co-

ming earthquake. Subsequent sessions exceeded

the level of 200 PLN /MWh, and on 11 February

reached 250.47 PLN /MWh. It was clear that some

market participants began to buy up certificates,

just before the date of redemption at the end of

March, in order to fulfill the obligation of 2013.

UNPREDICTABLE SUPPLY OF CERTIFICATES UNDERMINES THE MARKET.

Green certificates price volatility during the year reached 100 PLN/MWh.

100 PLN/MWh

37

RWE Polska


Source: Own, on the basis of the data available at www.tge.pl

It is unclear what caused this situation. It is possi-

ble, however, that in the situation of emerging

information that URE failed to grant a large number

of certificates for the production of biomass, certi-

fication providers could not live up to the previo-

usly concluded futures with buyers.

Therefore, only generation companies threatened

with default on their contracts, and/or buyers, not

provided with these certificates by the generation

companies, were the only ones who purchased

certificates. There were probably also such market

participants who bought at the last possible mo-

ment before the date of redemption, which would

mean that they applied purchase strategies with

a high exposure to risk.

The situation was also unusual, as at the same time

in the futures transactions certificates were offered

at prices much lower than on the SPOT market,

although they are usually priced a little higher than

SPOT, i.e. taking into account the time value of

money. After March (i.e. after the date of redemp-

tion of certificates for the previous year) the prices

reached the level below 200 PLN /MWh, with a

slight downward trend. At the same time, there

was a period when the price during many sessions

remained almost unchanged, e.g. for 19 consecuti-

ve sessions between 15 May and 22 July, when the

price ranged 178-179 PLN /MWh.

No organized futures market for certificates,

large fluctuations in prices and unstable sup-

ply of the SPOT market increase significantly

the risk for energy sellers. Thus, they constitute

a factor inhibiting the development of competi-

tion on the retail market. From the point of view

of the customer, the valuation of offers beco-

mes less stable and transparent – and often

more expensive.

0

60

80

100

120

140

160

40

20

PMOZE_A price in 2014 vs. trading volume

Pric

e [P

LN/M

Wh]

Vol

ume

[GW

h]

200210220230240250260

190180170160150

VolumePrice

17.0

1.20

14

01.0

2.20

14

16.0

2.20

14

03.0

3.20

14

18.0

3.20

14

02.0

4.20

14

01.0

7.20

14

17.0

4.20

14

16.0

7.20

14

29.0

9.20

14

02.0

5.20

14

31.0

7.20

14

14.1

0.20

14

17.0

5.20

14

15.0

8.20

14

29.1

0.20

14

01.0

6.20

14

30.0

8.20

14

13.1

1.20

14

13.1

2.20

14

16.0

6.20

14

14.0

9.20

14

28.1

1.20

14

28.1

2.20

14

02.0

1.20

14

ON THE MARKET DIFFERENT STRATEGIES OF CERTIFICATES PURCHASE MAY BE TRACED:PURCHASE EXTENDED IN TIME, I.E. MINIMIZING THE RISK OF PRICE GROWTH, ANDCONCENTRATED PURCHASE, E.G. JUST BEFORE REMISSION I.E. WITH MORE EXPOSURE TO PRICE RISK.

38 RWE Polska

RWE Polska

biomass with parameters, which would confirm

the fulfillment of the criteria to be considered

full-fledged biomass, in order to treat the pro-

duced energy as renewable energy. At the end

of September the surplus was 7.3 TWh. This

means that by the end of the year URE issued

3.04 TWh, which is nearly half of the outstan-

ding certificates. According to the figures publi-

shed by URE, it follows that the energy produc-

tion from biomass increased slightly compared

to the previous year. The sum of the amount of

energy produced from biomass (confirmed by

certificates and notified for certification) tota-

led 4.33 TWh, compared to 4.04 TWh in the

previous year.

TILL THE END OF THE YEAR BACKLOG IN THE ISSUANCE OF BIOMASSCERTIFICATES HAD BEEN REDUCED BY 3 TWH. BUT 4.3 TWH ARE STILL WAITING TO BE ISSUED.

The increase in prices to a level close to

190 PLN/MW took place in mid-August, follo-

wed by a gradual drop in prices with the excep-

tion of a few sessions, during which, however,

there were some rebounds. Another stabilizing

of prices at around 170 PLN/MWh lasted for

17 sessions from mid-September to mid-Novem-

ber, followed by a collapse in prices, which in

December reached 153 PLN/MWh.

The fall in prices coincided with the issuance by

URE of a large volume of certificates, which in

the first week of December reached as high as

706 GWh. It was probably meant to meet the

September announcement of President of URE,

who declared that the majority of outstanding

requests for green certificates for energy from

biomass produced in previous years would have

been dealt with by the end of November.

According to the publication of URE, at the end

of December outstanding biomass certificates

amounted to 4.3 TWh:

0.06 TWh for 2012,

1.38 TWh for 2013,

2.83 TWh for 2014.

These were the applications in the case of

which URE called for the submission of docu-

ments confirming compliance of the burned

0.06 TWh2012

1.38 TWh2013

2.83 TWh2014

According to the publication of URE, at the end of December outstanding biomass certificates amounted to 4.3 TWh.

39

RWE Polska


The growth of the trading volume by 46% was caused by the appearance of industrial customers on the market and the purchase of certificates for subsequent periods.

Amount of electricity generated from renewable sources, confirmed by certificates of origin

Type of RES 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Biogas power stations

104 465 116 692 161 768 220 883 300 850 363 596 430 537 529 384 665 143 630 423

Biomass power stations

467 976 503 846 545 765 560 967 601 088 635 635 1 101 189 2 208 508 2 663 545 1 504 199

Solar power stations

– – – – 1 2 178 1178 1419 2231

Wind power stations

135 292 257 037 472 116 806 319 1 045 166 1 823 297 3 128 673 4 612 894 6 077 358 6 035 946

Hydroelectric power sta-tions

2 175 559 2 029 636 2 252 659 2 152 943 2 375 767 2 922 052 2 316 833 2 031 725 2 438 723 1 900 244

Co-firing 877 009 1 314 337 1 797 217 2 751 954 4 281 615 5 243 251 5 999 582 6 711 318 3 717 534 3 215 219

Total 3 760 301 4 221 548 5 229 526 6 493 066 8 604 488 10 987 832 12 976 992 16 095 006 15 563 722 13 288 264

Refusal to issue a certificate of origin

Applications pending on 31.12.2014,

including applications for biomass units only

487 719 48 979 5798

58 585 1 402 731 3 259 572

57 787 1 375 924 2 829 370

Another noteworthy parameter was a record

volume of the Polish Power Exchange sessions.

Without a doubt, one of the reasons for this

state of affairs was the demand from large indu-

strial customers, who were given the opportuni-

ty to obtain certificates and present them for

redemption on their own.

Pursuant to the provisions of the Energy Law, the

duty volume to eligible customers decreased,

but this provision will come into force only after

is has been approved by the European Commis-

sion. Still, these companies probably filled the

existing obligation by purchasing certificates in

SPOT transactions, generating increased de-

mand, whereas in previous years certificates for

these customers were purchased by trading com-

panies, primarily in futures contracts carried out

later as OTC transactions and, therefore, not

appearing on the SPOT market.

Without a doubt, the turnover of certificates was

favoured by their attractive price well below the

replacement fee. It is also possible that some

certificates were purchased in advance in order

to fulfill the obligation in subsequent years.

RECORD VOLUME IN THE PPE SESSIONS

The maximum trading volume of nearly

150 GWh was recorded on the session of

16 January. It was probably due to perturbations

associated with the failure of generation compa-

nies to deliver biomass certificates under the

obligation of 2013. The second largest turnover

was the session of 18 December. The transac-

tions concluded amounted to over 145 GWh,

which is approx. twice as much as the average

turnover of the whole year in the amount of

70 GWh. The end of December was characterized

by the lowest prices of the year, which certainly

encouraged buyers to enter into transactions.*

+46%

* Source: Own, on the basis of the data available at www.tge.pl

Source: www.ure.gov.pl

40 RWE Polska

RWE Polska

COGENERATION PROPERTY RIGHTS (PMEC, PMGM, PMMET)B

SUPPORT FOR COGENERATION RESTORED

The main theme that dominated 2014 was re-

storing the support for the production of ener-

gy in highly efficient coal-fired cogeneration

(red certificates) and gas-fired cogeneration

(yellow certificates).

The previous support system expired at the end

of 2012, then, due to issues related to public

aid, virtually throughout the following year the

European Commission’s agreement to extend

the aid to 2015 was expected. Finally, the Com-

mission did not consider the provisions of

extending the aid, announcing that it was inte-

rested in the assessment of the entire system

operating since 2007. As a result, works on the

Act accelerated only in December 2013. Finally,

the Act restoring the support till 2018 came

into force on 30 April.

There is a serious risk, however, that the coge-

neration support system may be challenged as

unlawful aid. In the worst case scenario, the

producers will have to reimburse the support

and will most probably seek compensation from

the state.

An important change in relation to the princi-

ples in force until the end of 2012 is the provi-

sion stating that for the purpose of performan-

ce of the yearly obligation, one will be able to

redeem only certificates issued for electricity

generated that year.

Thus, the fate of certificates issued in previous

years, which were still recorded on the accounts

of the system participants in the register of

certificates of origin, was sealed. These certifi-

cates lost their value because from that time

they could not be used to meet the statutory

obligation.

The new rules limit significantly the supply of

certificates and in practice prevent the oversup-

ply, which was visible in previous years. This

should influence the producers, who can make

certificates more attractive financially than the

replacement fee by lowering their price.

Of interest for the market participants will be

the last trading sessions, when the producers

should be aware of the fact that after the termi-

nation of trading the remaining certificates lose

value. At the same time, in the case of the obli-

gation for the year 2014, the number of certifi-

cates on the market is limited by the fact that

the Act came into force on 30 April, which de-

creased the supply significantly.

The production volume of the first months of

2014, being the winter months, when the pro-

duction of energy in cogeneration is the gre-

atest, was exempt from certification. In addi-

tion, the end of the year was exceptionally

warm, which should also help to reduce the sup-

ply. At the end of trading, that is, only in May/

June 2015, it will show, how the lack of possibi-

THE SUPPORT FOR COGENERATION RESTORED FROM 30 APRIL, IT MAY BE CONSIDERED ILLEGAL AID.

41

RWE Polska


The assignment of certificate to the production

year and simultaneous lack of organized futures

market for this type of instruments, will significan-

tly impede the valuation of energy supply offers

for customers in the coming years. This represents

an additional risk for sellers and buyers, and there-

fore will hardly contribute to the development of

the retail market. It will, however, prevent the

formation of surplus on the market.

lity to use certificates in the following years

affects their evaluation.

Another change introduced by the Act relates

to extending the period of performance of the

obligation from 31 March to 30 June, so that

the manufacturers have time to acquire, and

then sell certificates. This means that, in practi-

ce, certificates will appear on the market in the

first quarter of the year, and their quotations

will continue by mid-June the following year.

In terms of support for co-generation sources

fired with methane from coal platforms or bio-

gas (purple certificates) the last year did not

bring any changes, since support for these sour-

ces has been guaranteed by the end of 2018.

SHIFTING THE DUTY OF CERTIFICATES REDEMPTION FROM 31 MARCH TO 30 JUNE OF A GIVEN YEAR FOR THE PREVIOUS YEAR.

The analysis of the price curve shows that the price

stands at the level of discounted replacement fee,

i.e. taking into account the time value of money.

The only anomaly is the listing of 4 November,

when the price exceeded the replacement fee

(110.00 PLN/MWh) amounting to 111.58 PLN/MWh

in the case of yellow certificates, which was caused

by two erroneous orders at 174.25 PLN/MWh for

a total volume of 536 214 certificates.

Apparently, it was commissioned for the green

certificates market, and erroneously landed on the

PMGM market, overstating the price index.

MARKET STATE

STABLE SITUATION – PRICE CURVE NEAR EPLACEMENT FEE.

42 RWE Polska

RWE Polska

Source: Own, on the basis of data available at www.tge.pl


PMMET-2014 price in 2014 vs. the trading volume

0

3

54

6789

10

21

Pric

e [P

LN/M

Wh]

Vol

ume

[GW

h]

57

61

58

62

59

63

60

56555453

VolumePrice

13.0

6.20

14

23.0

6.20

14

03.0

7.20

14

13.0

7.20

14

23.0

7.20

14

11.0

9.20

14

02.0

8.20

14

21.0

9.20

14

10.1

1.20

14

12.0

8.20

14

01.1

0.20

14

22.0

8.20

14

11.1

0.20

14

20.1

1.20

14

21.1

0.20

14

30.1

1.20

14

20.1

2.20

14

01.0

9.20

14

31.1

0.20

14

10.1

2.20

14

30.1

2.20

14

03.0

6.20

14


PMEC-2014 price in 2014 vs. the trading volume

0

30

5040

60708090

100

2010

Pric

e [P

LN/M

Wh]

Vol

ume

[GW

h]

10.45

10.50

10.55

10.60

10.65

10.40

10.35

10.30

10.25

VolumePrice

13.0

6.20

14

23.0

6.20

14

03.0

7.20

14

13.0

7.20

14

23.0

7.20

14

11.0

9.20

14

02.0

8.20

14

21.0

9.20

14

10.1

1.20

14

12.0

8.20

14

01.1

0.20

14

22.0

8.20

14

11.1

0.20

14

20.1

1.20

14

21.1

0.20

14

30.1

1.20

14

20.1

2.20

14

01.0

9.20

14

31.1

0.20

14

10.1

2.20

14

30.1

2.20

14

03.0

6.20

14

0

3

54

6789

10

21

PMGM-2014 price in 2014 vs. the trading volume

Pric

e [P

LN/M

Wh]

Vol

ume

[GW

h]

105

109

106

110

107

111

108

112

104103102101

VolumePrice

13.0

6.20

14

23.0

6.20

14

03.0

7.20

14

13.0

7.20

14

23.0

7.20

14

11.0

9.20

14

02.0

8.20

14

21.0

9.20

14

10.1

1.20

14

12.0

8.20

14

01.1

0.20

14

22.0

8.20

14

11.1

0.20

14

20.1

1.20

14

21.1

0.20

14

30.1

1.20

14

20.1

2.20

14

01.0

9.20

14

31.1

0.20

14

10.1

2.20

14

30.1

2.20

14

03.0

6.20

14

43

RWE Polska


PROPERTY RIGHTS OF THE ENERGY EFFICIENCYY CERTIFICATE (PMEF)

ANNUAL TENDERS RESULT IN MARGINAL TRADING VOLUME

CEnergy performance certificates (white certifi-

cates) confirm the performance of activities as

a result of which savings in energy consumption

have occurred.

To obtain such a certificate, one must take part

in a tender, which is carried out by President of

URE at least once a year. So far, only two such

tenders have been held, one in each year, and

another was announced in December 2014 with

the date of submitting offers in January of the

following year. As practice shows, the results of

the tender are to be expected in the second half

of 2015.

The first tender was settled in over eight mon-

ths, showing the system inefficiency. URE rece-

ived 212 bids of which 102 were selected.

The second tender lasted two months longer.

487 offers were submitted of which 302 we-

re selected. The value of certificates provided

amounted to a total of 1.367 million tons of oil

equivalent.

Given the existing savings opportunities in Po-

land, the interest is low. This is reflected in the

negligible volume of the PPE sessions – only

2755 items throughout 2014.

The companies which are obliged to rede-

em certificates comply with their obligation

by paying the replacement fee. This is a

marginal market, and there is no sign that it

is about to change.

WHITE CERTIFICATES MARKET REMAINS MARGINAL.

44 RWE Polska

RWE Polska

FOUNDATIONS

STRUCTURE OF ELECTRICITY PRODUCTION

D

Wind power stations

Gas power stations

Hydroelectric power stations

Utility power stations

Renewable energy power stations

45

RWE Polska


Structure of electricity production and foreign trade



0

20 000

–20 000 2013 2014

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

Vol

ume

[GW

h]

Utility power stations (hard coal)Utility power stations (lignite)Wind power stations

Industrial power stationsGas power stationsUtility hydroelectric power stations and other renewable energy power stationsForeign trade balance

In 2014 in Poland there was a 3.65% decrease

in electricity generation in comparison to the

year 2013.

The domestic electricity consumption in this

period increased by nearly 0.5% and reached

158 734 GWh.

The difference between the increase in con-

sumption and the fall in production was mainly

covered by increased imports of electricity

from Sweden. While back in 2013 the foreign

trade balance amounted to – 4,521 GWh (we

exported more than we imported), in 2014

it was +2,167 GWh (imports greater than

exports).

DECLINE IN A TOTAL ELECTRICITY GENERATION.

-3.65%

Major changes in the production structure and foreign trade

In GWh Hard coal power stations

Lignite power stations

Wind power stations

Foreign exchange

2013 84 566 56 959 5823 -4521 (export)

2014 80 284 54 212 7184 2167 (import)

Delta -4282 -2747 +1361 +6688

POLAND BECAME THE IMPORTER OF ENERGY.

46 RWE Polska

RWE Polska

The size and direction of the electricity exchange

with foreign countries was influenced by the

relationship between prices on the Polish market

and those on the neighboring markets. the sim-

ple reason is that electricity in Poland is expensi-

ve and its imports are becoming more and more

profitable. In 2014 the balance of exchange only

via the connection with a DC cable with Sweden

was 2984 GWh (import). The technical capabili-

ties of this connection include the transfer of

600 MW in both directions.

Our trade opportunities with Germany are signi-

ficantly reduced by forced physical flows of

REASONS FOR CHANGE

energy generated in windmills in north Germany,

which flows through Poland, the Czech Republic

and Austria to return to south Germany.

If technical capabilities were better, the Polish

energy imports would certainly increase even

more. The decrease in generation while incre-

asing consumption thus results from the relative

prices on the Scandinavian, German and Polish

markets. In our neighborhood, prices are lower,

among other things, due to oversupply (persi-

stent low demand) and a significant share of sub-

sidized (thus cheaper) energy from renewable

sources.

Relatively low prices on

the wholesale market do not

encourage energy generation

by companies with conventional

sources.

The decrease in electricity generation was recor-

ded mainly in conventional sources, such as hard

coal and lignite (a decrease of approx. 5%).

In turn, the generation of renewable energy in

wind turbines increased significantly (an increase

of approx. 23%).

2014 was another year in which despite the rela-

tively good GDP growth in Poland (approx.

3.3% y/y), taking into account the current

economic situation in Europe, the national ener-

gy consumption increased only slightly. The

increase occurred despite the decline in the

number of working days per year (by one day)

and average minimum temperature increase

(for Warsaw + 0.9°C). The increase in electricity

consumption is no longer, as it used to be, stron-

gly dependent on the GDP growth. We are able

to produce more and more with less energy con-

sumption, as we improve energy efficiency.

THE SUPPORT SYSTEM RESULTS IN THE DYNAMIC DEVELOPMENT OF RENEWABLE ENERGY SOURCES (RES).

+23%Increase in generation

from wind sources

Decrease in generation from conventional

sources

-5%

47

RWE Polska


Electricity generated from conventional energy

sources constitutes the highest share in total ener-

gy generation. In the utility power industry ap-

prox. 86% of energy is generated. Increasing im-

ports of cheap energy have led to a reduction of

generation in the country. This affected conventio-

nal power plants: -5.06% for plants using hard coal

and -4.82% for plants using lignite.

CONVENTIONAL ENERGY SOURCES

Compared with conventional sources, RES sources, such as

wind farms or photovoltaic panels, have negligible variable

costs. Therefore, for these sources there is no market price that

would be too low. Once connected to the network they will pro-

duce energy regardless of the market price. This ˝phenomenon”

is responsible for the decline in prices at our western neighbors.

The price of energy from conventional sources is

largely dependent on fuel prices. Coal purchase is

responsible for approx. 50% of the cost. Because

of its specificity, there is no market for lignite. It is

extracted directly at lignite-fired power plants and

consumed locally. The price of hard coal for power

generation in Poland and in the world is presented

in the diagram below.

Source: Own, on the basis of www.tge.pl, www.eex.com

220

240

250

260

270

280

230

Polish Energy Market Coal Index and CIF ARA quotations

CIF

AR

A [

USD

/t]

Polis

h in

dex

[PLN

/t]

75

80

85

90

70

65

60

20142014 CIF ARA20132013 CIF ARA

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sept

embe

r

Oct

ober

Nov

embe

r

Dec

embe

r

48 RWE Polska

RWE Polska

Coal prices in Poland must follow international

prices. When comparing Polish and global mar-

kets, one should take into account the PLN/USD

rate, shipping costs and calorific value (for CIF

ARA the calorific value is approx. 25 000 kJ/kg.

For quotations of the Polish Energy Coal Market

Index it is 20-23 000 kJ/kg).

Assuming that the price of coal for the power

industry is approx. 230 PLN/t, taking into acco-

unt the efficiency of conversion, the price of

electricity generated from hard coal should be

above 210 PLN/MWh.

Generation of electricity in Poland is mainly

based on carbon sources. About 51% of electri-

city is generated from hard coal, and approx.

34% from lignite. Each MWh produced from

coal means the energy industry’s demand for

coal in the amount of approx. 0.5 t and the

emission of approx. 1 t of CO2.

Prices of CO2 emissions are therefore important

for sources with high levels of emissions released

in generation, using carbonaceous fuels. Curren-

tly one ton of emission costs approx. EUR7. Howe-

ver, according to some predictions the price will

increase to reach approx. 40 EUR/t in 2030

(˝Impact Assessment” by European Commission).

Adopted in October 2014 by the Europe-

an Union, the climate package for the

years 2021-2030 envisages by 2030:

reducing CO2 emissions by 40% (compa-

red to the base year 2005); binding obli-

gation for all countries,

increasing the share of renewable ener-

gy sources to 27%; commitment at the

EU level,

increasing the energy efficiency by 27%

in 2020 and 30% in 2030; commitment

at the EU level,

continuing by Poland the free allocation

of emission permits for the power sec-

tor by 2030 in order to reduce the rise

in energy prices. It will be a pool of 282

million EUA emission certificates that

can be used when the GDP per capita is

less than 60% of the average in the EU.

general pool of permits for Poland

reaching 984 million EUA (with the pool

earmarked for auctions) and 135 million

EUA from the pool of the 2% fund for

countries with a GDP per capita less

than 60% of the average in the EU.

The increase in the cost of electricity will

depend on the price of EUA emission per-

mits. According to experts, with the use of

free allowances by the energy sector and

EUA price of approx. 40 EUR/t, the price

may increase by approx. 25%.

THE POLISH POWER INDUSTRY IS SENSITIVE TO THE PRICES OF COAL AND CO2 EMISSIONS ALLOWANCES.

49

RWE Polska


Source: On the basis of www.sendeco2.com/index-uk.asp


In the face of threats to reduce the existing excess

of generation capacity of conventional sources

with the approval of the Energy Regulatory Offi-

ce, from January 2014 the operational power rese-

rve mechanism was introduced by the Transmis-

sion System Operator (TSO).

The aim of the implementation of this mechanism

was to increase the safety of the electric power

system by providing surplus power available bey-

ond demand. The surplus is a reserve power ava-

ilable in the event of loss of power generation.

In support of its decision TSO said that there was

a risk of decommissioning of conventional genera-

tion sources due to the steady decline in energy

prices – low prices did not cover fixed costs on the

part of manufacturers. The reason for this state of

affairs on the market include the development of

renewable energy sources, which, thanks to very

low variable costs, can sell cheap energy, as well

as persistent overcapacity (manufacturers compe-

te for energy sales by offering prices at the level

of variable costs).

New solutions providing additional revenue to

generation companies for the operational power

reserve were introduced to the Manual of Trans-

mission Grid Code. The mechanism ensured,

among other things:

operational power reserve purchase by the PSE

at 37.13PLN/MWh (to the level required by the

operational power reserve system), i.e. the

purchase of production capacities constituting

excess capacity over power sales agreements,

change of the method of calculation of the

required operational power reserve (calculated

as 18% of the demand being the average of

maximum hourly demand values of each

month in the previous year).

The price for the operational power reserve was

designated as the average technical fixed cost of

generation companies (excluding depreciation)

allocated to the peak hours, i.e. period from 7.00

a.m. to 10.00 p.m. for all working days.

This price shall be indexed with inflation in the

coming years.

CO2 quotations in 2013–2014

1

3

4

5

6

7

8

2

[EU

R/t

]

Janu

ary

201

3

Janu

ary

201

4

Mar

ch 2

013

Mar

ch 2

014

Febr

uary

201

3

Febr

uary

201

4

May

201

3

May

201

4

Apr

il 2

013

Apr

il 2

014

July

201

3

July

201

4

Aug

ust

2013

Aug

ust

2014

Sept

embe

r 20

13

Sept

embe

r 20

14

June

201

3

June

201

4

Oct

ober

201

3

Oct

ober

201

4

Nov

embe

r 20

13

Nov

embe

r 20

14

Dec

embe

r 20

13

Dec

embe

r 20

14

4.99

2.7

4.65

5.51

4.42 4.33

6.98

5.54

6.35

7.037.25

50 RWE Polska

RWE Polska

For 2014 URE decided that the reasonable level of

costs adopted in the Transmission System Opera-

tor tariff to cover the costs of the operational po-

wer reserve would amount to PLN400 million. At

the end of 2014 it appeared that the actual costs

of the new mechanism would exceed the planned

budget. Therefore, starting from 2015 a modifica-

tion regarding the method of calculating the price

adjustment for the operational power reserve

service was introduced. The new formula provides

stability of implementation of the budget for the

RENEWABLE ENERGY SOURCES

The increase in electricity generation in wind

turbines at the level of 23.4% seems significant.

However, it is two times lower than the increase

in the previous period, i.e. 2014/2013. It was up

to 47.2%. Lack of a final adoption of the RES Act

slowed the growth of this new capacity.

Wind sources are driving the renewable energy

industry development. This technology has been

growing at the fastest pace in recent years.

A significant decrease in the growth of new

capacities in relation to previous periods is due

to an increase in the RES investment risk.

The legislative process of the new Act on

renewable energy continued throughout 2014.

Proposed solutions resulting from the Draft Act

caused many risky situations for investors.

In this situation some of them apparently deci-

ded to suspend new investment decisions.

The operational power reserve undoubtedly increases

the safety of the National Power System. It has given the

PSE a tool to react to changes in demand. It has encoura-

ged generation companies to maintain their operational

readiness (and thus postponed the threat of switching off

units). It was achieved, however, at the expense of PLN400

million, and resulted in higher SPOT prices and higher

BASE/PEAK price relationship.

duration of the TSO tariffs. An hourly budget was

also determined. For 2015, allowing for the infla-

tion index and new data to the model, the opera-

tional power reserve price was calculated at 37.28

PLN/MWh.

After the introduction of the operational power

reserve, generation companies with capacities not

covered by sales agreements, who have reported

their reserves to the TSO, receive, not generating

energy, remuneration equal to the operational

power reserve price (or less, so that the TSO does

not exceed the hourly budget). Alternatively, they

may try to sell the energy on the market. In this

case, the variable costs of production must be

taken into account, so the sales offer must be

correspondingly higher to cover the sum of fixed

and variable costs of the generation company.

The operational power reserve mechanism has led

to an increase in energy prices in peak hours (from

7.00 a.m. to 10.00 p.m.). The relationships of BA-

SE/PEAK product prices oscillate currently at 1.32.

Before the introduction of the compensation me-

chanism for the operational power reserve they

were at approx. 1.15.

WIND SOURCES ARE THE DRIVER OF THE DEVELOPMENT OF RES INDUSTRY.

51

RWE Polska


CROSS-BORDER EXCHANGE VS. MARKET COUPLING

CROSS-BORDER CONNECTIONS

Poland has physical connections with:

Germany, the Czech Republic, Slovakia,

Sweden and Ukraine. The connections with

Germany, the Czech Republic and Slovakia

are parallel cross-border exchange connec-

tions (synchronous), while the connections

with Sweden and Ukraine are non-parallel

cross-border exchange connections (asyn-

chronous).

The connection with Sweden is a DC con-

nection enabling the transmission of power

in both directions, depending on the ne-

eds. The connection with Ukraine is a sepa-

rated connection, unsynchronized with the

Ukrainian grid.

The flows for parallel connections (synchro-

nous) are forced by the laws of physics. The

Transmission System Operator agreed with

the operators of neighboring countries the

principle of availability for the transmission

capacity on the basis of coordinated auc-

tions. The capacities are available at annu-

al, monthly and daily auctions.

In the case of these connections technical

sections and commercial sections may be

distinguished, reflecting the nature of

these connections. Technical sections

arising from mutual interconnections defi-

ne a common limit for commercial transac-

tions to be carried out by an interconnec-

tion of two neighboring regulatory areas.

Available capacities for technical sections

are individually determined by the local

operators.

Next, they are published by the office

of tenders (run by the Central Alloca-

tion Office GmbH). Market participants

wishing to take part in the cross-border

exchange bid for reservation of the trans-

mission capacity on a given commercial

section. The decision to accept or reject

the reservation of transmission capacity

is taken after completing the calculation

(offers with the highest price to the limits

of capacity on technical sections are

accepted).

MARKET COUPLING

In the case of the connection with Sweden

there has been a different mechanism of

connecting markets called market co-

upling. It involves the use of a common

algorithm of the calculation of prices for

the combined areas of the operation of po-

wer exchanges (in this case, the Polish and

Swedish), with regard to the transmission

capacity provided by the transmission

system operators. As a result of the ˝Impli-

cit” auctions the lowest resultant price on

the common market and possible power

flows are determined. This mechanism

forces energy flows from areas of lower

prices to areas of higher prices, making full

use of the power transmission (transmis-

sion capacity auction is included in the

energy auction process). Market coupling

therefore allows for the outline of the

optimal flow of energy between the con-

nected markets.

Sweden

Germany

Czech Republic

Slovakia

Ukraine

52 RWE Polska

RWE Polska

PRICES OF ENERGY IN THE CROSS-BORDER SYSTEM

Electricity prices (EUR/MWh) in Germany, the

Czech Republic and Slovakia are at a similar

level, and their variability is almost identical.

The prices on the Hungarian market differ in

an interesting way: they follow the changes on

these markets, but at a higher level by approx.

10 EUR/MWh. Hungary is a country with a lar-

ge deficit, in need of significant energy im-

ports.

The most interesting, however, are the prices

on the Polish market. We can see that until

October 2013 the prices in Poland were consi-

stent with the prices of our western and so-

uthern neighbors.

Later on, we see a gradual detachment of pri-

ces in Poland from the price levels in Germany,

Slovakia and the Czech Republic. The begin-

ning of this trend coincides with the informa-

tion about the decision to build new blocks at

the Opole Power Station and the project of the

operational power reserve.

The fall in prices in Germany is mainly the re-

sult of a significant share of energy from rene-

wable sources, supported with public subsi-

dies. Visible changes in prices over short time

horizons are primarily the effects of the emer-

ging information about changes (restrictions)

on the market of CO2 emissions.

Electricity prices in Poland, Germany, the Czech Republic, Slovakia and Hungary

30

35

45

45

50

55

[Eur

o/M

Wh]

01.0

2.20

13

01.0

2.20

14

01.0

3.20

13

01.0

3.20

14

01.0

5.20

13

01.0

5.20

14

01.0

4.20

13

01.0

4.20

14

01.0

6.20

13

01.0

6.20

14

01.0

7.20

13

01.0

7.20

14

01.0

8.20

13

01.0

8.20

14

01.0

9.20

13

01.0

9.20

14

01.1

0.20

13

01.1

0.20

14

01.1

1.20

13

01.1

1.20

14

01.1

2.20

13

01.1

2.20

14

01.0

1.20

13

01.0

1.20

15

01.0

1.20

14

BASE product 2015 – quotations from the period 1.01.2013 – 31.12.2014PolandGermanyCzech RepublicSlovakiaHungary

Source: Own, on the basis of Tradition Financial Services Ltd.

53

RWE Polska


A small interconnection capacity limits the influx of cheap energy to Poland. Cheap

energy from abroad is a benefit for consumers, but a threat for national generation

companies and the mining industry.

Constant increase in the production of energy from renewable sources reduces the area

of the market for conventional sources. RES have very low variable costs and force out

much more expensive conventional sources, for which the cost of fuel and CO2 emission

permits are a major cost factor.

Renewable energy industry is interested in stable conditions for development in the long

term, i.e. guarantees of support.

The European Union’s objectives are clearly defined. These are:

reduction of CO2 emissions,

development of RES,

increase of efficiency,

creation of a pan-European energy market.

Reconciling the EU’s objectives with the priorities of various sectors of the energy market

will be a major challenge. Especially since the objectives of the EU mean moving away

from coal. This raises the question of the role of the Polish mining industry in the future.

The attempt to rescue it by its combining it with the energy industry, previously consoli-

dated into two large groups, will probably not solve the problems. It seems that the re-

duction of the production capacity and extraction costs of mining is inevitable.

The entire structure of the national electricity generation, however, will have to be redefi-

ned, not only in terms of the role of domestic raw materials in the long term. A decision

concerning nuclear energy will also be important.

From today’s point of view, the future wholesale prices may be not sufficient to justify the

place of nuclear power plants in the energy mix. Therefore, for such a power plant to be

developed, differential contracts and/or power market may be necessary.

However, the situation may change with increasing CO2 prices and the lack of opportuni-

ties to reduce emissions by 40% as assumed in the climate package.

The role of gas as a fuel with a twice lower CO2 emission from coal will increase gradually.

However, it will not be cheap energy, since the current generation costs for this type of

source are at a level above 300 PLN/MWh.

54 RWE Polska

RWE Polska

POWER MARKET

The introduction of the power market in Poland is

planned for 2020, when due to the large number

of switching off of old blocks, problems with the

balance of power may arise.

Currently, the market is functioning as an energy

market. Electricity prices do not cover all costs of

maintaining power installed in generating sources.

The power market is an additional mechanism for

ensuring the profitability of investment in genera-

tion capacity and keeping it at the required level

of reserves. Low energy prices make the invest-

ment in generation capacity unprofitable. The

problem increases with the growing share of subsi-

dized energy from renewable sources, which

thanks to very low variable costs, are forcing out

conventional sources.

Shorter work of conventional blocks means smaller

income and problems with operating costs recovery.

In theory the problem would not exist if we could

store large amounts of energy cheaply. At the mo-

ment, there are no such solutions, therefore the

power market is discussed more and more often.

Together with the power market, mechanism of

differential contracts may work. This mechanism

would support selected technologies (e.g. guaran-

tees to purchase energy at a fixed price in the long

term from nuclear power plants; when the market

price is lower, the plant receives payment to the

guaranteed price level; when the price is higher,

the plant returns the difference).

Before the introduction of power market, ad

hoc actions such as the implementation of the

operational power reserve by the TSO and pur-

chase of the non-spinning contingency reserve

were undertaken.

WHAT’S AHEAD

WHAT TYPE OF THE POWER MARKET

FOR POLAND

There are several possible solutions to be im-

plemented, but the most likely is adopting the

centralized model. In this model, TSO, as the

sole buyer, makes the purchase of capacity (pro-

duction capacity) on an auction in annual and

perennial contracts from power generators. The

transmission system operator certifies the availa-

ble capacity to manufacturers (TSO must be sure

that the offered capacity will be available). The

power purchase costs of TSO are accepted by the

ERO in TSO tariffs, and then transferred into

tariffs to customers (new payment for power).

The power market operates independently of the

energy market.

HOW THE POWER MARKET WILL AFFECT

ENERGY PRICES

Manufacturers participating in the power market

will receive revenues for the dispositional power

and electricity sold independently of the market.

For this reason, theoretically, after the launching

of the power market the price of electricity sho-

uld decrease by the fixed costs component. This

component, however, is not at present fully

conveyed in the price of energy, so one can

expect an increase in prices.

WITH THE POWER MARKET DIFFERENTIAL CONTRACTS MAY APPEAR ON THE MARKET.

55

RWE Polska


POWER MARKET IS MEANT TO STIMULATE INVESTMENT IN NEW GENERATION CAPACITY. APART FROM ENERGY THE MANUFACTURERS WILL ALSO SELL POWER.

LAW ON RENEWABLE ENERGY SOURCES

(RES)

We have been waiting for several years on the

RES Act. 2014 brought no breakthrough in this

regard. The Act was finally passed by the Polish

Parliament in February 2015, and on 11 March

2015 it was signed by the President.

The Act introduces a number of significant

changes that will affect the future shape of the

energy market. The evaluation of introduced

innovations, however, is not conclusive, and

some provisions are controversial. The divisions

in the assessment of individual provisions were

evident not only in the energy sector (RES pro-

ducers vs. System Energy/Conventional Energy

industry), but also on the part of the govern-

ment, law makers and non-governmental orga-

nizations. The Act, however, is necessary for

Poland to live up to the objectives of the EU

energy policy. The effectiveness of the Act will

be tested in practice. Basic assumptions of the

Act on Renewable Energy Sources are:

– New support system of renewable energy

sources based on Auctions

The Act introduces an auction system of elec-

tricity sales from renewable energy sources.

New installations launched after the entry into

force of the RES Act must participate in it.

In turn, old systems that have started before

the Act entry into force may remain in the old

system of certificates of origin or move to the

new auction system.

Auctions are organized by the URE President

at least once a year.

Auctions are conducted separately for rene-

wable energy sources with a capacity of less

than 1 MWs, and larger than 1 MW, divided

into different technologies.

Polish Government determines the maximum

amount and values of energy that can be

purchased. The Minister of Economy announ-

ces reference prices (maximum prices for

each RES technology).

Tender is won by the producers who declared

the lowest prices. They receive for the energy

sold the auction price indexed in the follo-

wing years by the rate of inflation. Energy is

bought by liable retailers (for renewable

energy sources up to 500 kW) or sold inde-

pendently by the manufacturers. In this case,

the manufacturers shall be compensated for

the price they achieved in the tender. Com-

pensation is paid by the Renewable Energy

Settlement Operator.

Renewable Energy Settlement Operator also

pays compensation to liable manufacturers

(covering the costs of the difference between

56 RWE Polska

RWE Polska

the price paid to renewable energy producers

and the market price). Appropriations for

negative balances are derived from RES fees

collected from customers of RES in distribu-

tion fees (a new rate on invoices).

New system provides support for renewable

energy sources up to 15 years, but no longer

than by 31 December 2035.

SOURCE TYPE OLD SOURCES (WHICH STARTED GENE-RATING ELECTRICITY BEFORE THE ACT ENTEREDINTO FORCE)

NEW SOURCES (WHICH STARTED GENERATING ELECTRICITY AFTER THE ACT FOURTH CHAPTER ENTERED INTO FORCE – EXPECTED DATE IN JANUARY 2016)

RES SOURCES WITH A CAPACITY ABOVE 500 KW Remaining in the old system, i.e. revenue

from sales of energy and certificates or converting into the new system (right column).For multi-fuel installations (dedicated) the volume of certificates no larger than the average output of 2011-2013.

Chosen in the auction. Producers sell energy on the market, they receive compensation to the auction price level from the RESO.

RES SOURCES WITH A CAPACITY BELOW 500 KW

Chosen in the auction. Energy is bought by the liable seller at the auction price. Liable sellers receive com-pensation from the RESO to the market price level.

MULTI-FUEL INSTALLATIONS (DEDICATED)

Chosen in the auction. Only new dedicated sources with a capacity of 50 MW of electric capacity and to 150 MW in cogeneration.

MULTI-FUEL INSTALLATIONS (NON-DEDICATED)

Remaining in the old system, i.e. revenue from sales of energy and certificates. They receive only 0.5% certificate for MWh to 2020.

Lack of support.

HYDROSOURCES WITH A CAPACITY ABOVE 5 MW

Lack of support (they receive no certificates of origin; no obligation to buy energy by the liable seller).

MICROSOURCES WITH A CAPACITY OF 10-40 KW

Obligation to buy energy produced by the liable seller at the average selling price of energy on the market in the previous quarter (announced by ERO). Entrepreneurs having micro-sources may also receive certificates and may convert into the new auction system.

Obligation to buy energy produced by the liable seller at the average price of energy sale on the market in the previous quarter (announced by the ERO)orentrepreneurs having micro-sources may convert into the new auction system (i.e. RES sources with a capacity below 500 kW).

MICROSOURCES WITH A CAPACITY TO 3 KW AND BETWEEN 3 AND 10 KW Fixed tariff price depending on the technology

and capacity.

In the case of micro-sources the Act introdu-

ces net metering. This means that the settle-

ment of the energy coming from the grid and

returned o it is held semi-annually. This is

a positive provision for prosumers, as they

are billed only with the difference between

consumption and production.

– Simultaneously, the Certificates of Origin

Mechanism will still be binding

Old system of support, i.e. the mechanism of

certificates of origin, will remain available

only to old sources, which operated prior to

the entry into force of the Act on Renewable

Energy Sources. These sources will be able to

decide whether to remain in the system of

certificates, or transfer to the new auction

system.

Energy suppliers will be still obliged to pur-

chase and redeem certificates of origin.

The Minister of Economy may reduce the size

of the requirement for the coming years by

31 August each year. In the Act the obliga-

tion was set at 20%, with the provision that

for the years 2015 and 2016 it remains on the

currently accepted level, i.e. 14 and 15%

respectively.

Industrial customers consuming more than

100 GWh/year, for which the energy intensity

factor is greater than 3%, have a reduced

duty of certificates of origin redemption

(from 15 to 80%).

57

RWE Polska


ENERGY EFFICIENCY

The current Act on the Energy Efficiency of 15 April 2011 will be re-

placed by a new one. The new law has already been published. The

main provisions of the Act:

public sector entities will be required to improve their energy effi-

ciency (efficiency projects implementation);

public authorities will acquire and utilize energy efficient products

and buildings;

liable entities (energy companies selling electricity, gas and heat),

end users, brokerage houses are required to implement projects to

improve the energy efficiency or redeem of energy performance

certificates;

obligation will amount to 1.5% of final energy (consumed by the end

user), expressed in toe;

energy performance certificates will be issued by URE at the request

of the entity implementing an efficiency project (audit must be inclu-

ded);

entities liable on the settlement of the obligation for the previous

year will redeem the energy performance certificates by 31 March

every three years; settlement may be made after a year or two;

there is no mechanism of the replacement fee (you cannot perform

the obligation by paying the fee);

companies (except for micro-, small and medium-sized entrepre-

neurs) are required to conduct an energy audit every four years. This

does not apply to companies with an energy/environment manage-

ment system;

companies planning to build generation units above 20 MW are obli-

ged to prepare a cost analysis (selection of the most effective solu-

tions);

property rights resulting from certificates issued under the

current Act of 15 April 2011 will expire on 1 April 2016.

58 RWE Polska

RWE Polska

59

RWE Polska


CALENDAR

4

60 RWE Polska

RWE Polska

EVENT KEYWORD MEANING

JANUARY

PSE signs a contract for the non--spinning contingency reserve.

Non-spinning contin-gency reserve

Sustaining the larger capacity of the KSE reserves.

FEBRUARY

PSE signs an agreement on laun-ching of phase shifters.

Cross-system exchange

Greater control of PSE over energy flows from the west.

Launch of the Exchange Information Platform (GPI).

Stocks, REMIT Greater market transparency and easier access to information.

MARCH

PSE extends the non-spinning con-tingency reserve by further blocks.

Non-spinning contin-gency reserves.

Sustaining bigger generation capacities in the KSE reserve.

Launching of construction of the power line reaching the border with Lithuania

Cross-system exchange

Ensuring the safety of the NES operation. Market coupling.

APRIL

The amendment to the Energy Law. Law, cogeneration Among other things, the extension of support for cogeneration till the end of 2018.

Signing of a contract for the con-struction of a 910 MW coal power unit Jaworzno III.

New capacities Replacement of old power in the National Power System.

RWE Polska signs the declaration ˝Best Practices of Electricity Sup-pliers”.

˝Best Practices of Electricity Suppliers”, Association of Energy Trading

RWE Polska as one of the five leading energy groups in Poland sup-ported the campaign of TOE ˝Check who sells you energy”.

MAY

TGE asks PFSA for permission to launch a financial market.

Exchange New financial instruments based on electricity.

Announcement by RWE Stoen Ope-rator of investments in the deve-lopment of the Warsaw electricity network.

AMI, Smart Metering Implementation in the years 2014-2019 of the investments in smart grid infrastructure in Warsaw electricity grid amounting to 1.6 billion PLN.

JUNE

Tender for the reduction in demand commissioned by TSO.

Negawatts Ability of the TSO to reduce the demand. Operational safety in the National Power System.

ELECTRICITY MARKET A

61

RWE Polska


JULY

Research by the German Federal Association of the Energy and Water Industry BDEW.

Cross-border exchange

Increase in flow to Poland due to wind generation.

AUGUST

URE proposes the introduction of a maximum price for electricity.

Tariffs Law-regulated possibility for sellers of last resort to compete with independent suppliers in their area.

SEPTEMBER

PSE temporarily reduces the fee for the operational power reserve.

Operational power reserve.

Decrease due to the exhaustion of the budget. Reallocation of gene-ration companies to the SPOT market.

Government examines the consoli-dation in the energy sector.

Consolidation in the energy sector

Among other things, stronger linking of energy and mining.

RWE Polska presents in the Polish Parliament the study ˝Technology Scenarios for the Polish Energy Market by 2050”.

Energy market in Poland 2050

Commitment of RWE Polska in the debate on the future of the Polish energy market.

OCTOBER

Rescheduling of trading on the stock exchange.

Exchange Reduction of the number of fixings from 3 to 2. The decision is bound with the preparation for the launch of the financial market and the planned joining of the common market (Price Coupling of Regions).

RWE Stoen Operator will install 100 thousand smart meters in the War-saw district Praga Południe.

AMI, Smart Metering Implementation of the intelligent network infrastructure begins in the Warsaw power grid.

NOVEMBER

PPE allows for the exchange of the Polish Guarantees of Origin

Exchange New instrument for RES support – information for the final customer about the amount of energy produced from the renewable sources.

URE reveals the planned value of investments in capacity extension in the years 2014-2028.

New capacity Current investment plans and new mechanisms by URE according to TSO are sufficient protection against possible black-out.

DECEMBER

Next tender for the reduction in demand commissioned by the TSO.

Negawatts Ability of the TSO to reduce the demand. Operational safety in the National Power System.

URE publishes data on the potential of renewable energy sources.

New capacity, RES Further development of renewable energy capacity to 6 GW.

RWE plans to continue the develop-ment of RES.

New capacity, RES Planned total capacity of RWE wind power plants is expected to amount to 242 MW.

62 RWE Polska

RWE Polska

EVENT KEYWORD MEANING

JANUARY

PGNiG does not fulfil its gas obligation for 2013 to sell 30% of gas on the power exchange.

PGNiG, gas obligation No further development of the retail and wholesale markets

FEBRUARY

Gas prices on the SPOT market lower than on the futures market.

Gas prices Weather conditions (warm winter) cause high supply vs. low demand.

MARCH

In Brussels Prime Minister Donald Tusk presents the project of the Energy Union.

Energy Union Among other things, joint purchases of gas by the EU.

APRIL

Physical reverse flow on the Yamal pipeline. Diversification and security of supply Gas supplies to Poland may now also flow from the west.

New instruments on the futures market. Exchange Development of the power exchange and available products, i.e. seasonal products.

Gazprom raises prices for Ukraine. Supplies for Ukraine Gazprom explains price increases as a re-sult of existing discounts withdrawal and the introduction of additional increases. In consequence, this means a twofold increase in prices.

RWE Supply & Trading supplies gas to Ukraine.

Supplies for Ukraine RWE uses the reverse flow to deliver gas at market prices.

MAY

Gaz-System member of PPE Gaz-System Fulfilment of the European Code of Balan-cing (NC Bal). The ability to purchase gas for the means of balancing.

Gazprom signs a contract with the Chinese corporation CNPC.

Gazprom Contract covers the construction of a new gas pipeline from Siberia to China. Gaz-prom diversifies its portfolio of customers – it may have an impact on price negotia-tions in Europe.

GAS MARKETB

63

RWE Polska


JUNE

Gazprom halts gas supplies to Ukraine. Supplies to Ukraine Due to the rising debt Gazprom introdu-ces a system of pre-payment.

JULY

Launch of a Gaz-System platform. Cross-border flow capacity Auction platform becomes an essential tool for allocating cross-border flow.

AUGUST

Retail business separates itself from PGNiG. PGNiG, gas obligation Separation aims to accelerate the deve-lopment of the market, i.e. to improve the liquidity of the stock exchange and to introduce the market price mechanism.

New Transmission Grid Code (TGC). TGC TGC, includes: change of volume units to energy units, regulates the offers of given capacity and introduces balancing group. Furthermore, it introduces the possibility of transferring data during the delivery day.

PPE launches the Intra Day Market. Exchange The possibility for balancing of the de-mand during the delivery day.

SEPTEMBER

Gazprom cuts gas supplies to Europe. Gazprom The level of supply is maintained at a reduced level.

URE certifies TSO. Gaz-System Gaz-System meets the independence criteria of the Energy Law, i.e. it is inde-pendent.

Reverse flow from Slovakia to Ukraine. Supplies to Ukraine EU reacts to the suspending of the sup-plies by Russia. Deliveries may reach 20% of Ukraine needs.

DECEMBER

Agreement of PGNiG and Quatargas. LNG terminal in Świnoujście Regulations for the rules of supply to the LNG terminal.

Talks with Gazprom on the Yamal contract begin.

Yamal contract Negotiating through take-or-pay, i.e. marketization of the contract.

URE approves new lower tariffs of PGNiG. Tarrifs Wholesale tariffs: a decrease of 4%. Retail tariffs: decline of 0.8-1.8%.

64 RWE Polska

RWE Polska

65

RWE Polska


PRODUCTS BASED ON MARKET MECHANISMS

5

66 RWE Polska

RWE Polska

ENERGYPRODUCTSA

FULL SUPPLY

The product guarantees a fixed price for the du-

ration of the contract, regardless of changes in

prices on the wholesale market. The offer ensu-

res the Customers’ control over their expenses,

as well as long-term planning of their budget.

ENERGY PURCHASE IN TRANCHES

A solution that allows the Customers to minimize

the price risk associated with the volatility

of market energy prices on the commodity exchan-

ge. The success of the purchase of energy is deter-

mined by the timing of the decision to contract

supplies, which means purchasing in the moment

when energy prices reach lower levels.

As part of the tranche model the Customers make

their orders before the period of actual supply (e.g.

purchases for delivery in 2016 are realized in 2015)

by dividing their annual consumption volume into

smaller tranches, and spreading the decisions to

order in time. As a result, they reduce the risk of

buying energy at the highest prices. The average

price of contracted purchases is fixed and valid

throughout the delivery period.

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RWE Polska


FLEX ENERGY

For customers who anticipate changing the

profile of energy demand even before the year

of delivery of the commodity we have prepared

the Flex Energy product. The model allows the

purchase on the Futures Market and the Intra-

day Market, in line with our SPOT Energy Pur-

chase product, except that the Customers anti-

cipating changes in their consumption profile

before the period of supply may correct the

forecast consumption by adjusting the previo-

usly ordered annual tranche.

SPOT ENERGY PURCHASE

This product is particularly directed to Customers

consuming more than 50 GWh per year, who anti-

cipate variability in their energy demand profile

during the contract. The model allows the Custo-

mers to purchase on the Futures Market before the

delivery period, in line with the assumptions of the

product Energy Purchase in Tranches, as well as

through daily schedules implemented with delive-

ry in the coming days. The purchase costs are

based on quotations of energy on the commodity

exchange. This solution allows the Customers to

adjust the purchase of energy to their actual con-

sumption. Furthermore, the energy price is trans-

parent and shaped by the market.

68 RWE Polska

RWE Polska

CALCULATION OF PROPERTY RIGHTS

With this solution the Customer may optimize not

only the cost of purchasing energy, but also the

cost of certificates (green, yellow, red, purple),

which is included in the final price. In this model

the cost of a certificate is calculated on the basis

of current market quotations of property rights

(and not on the basis of the replacement fee),

which generates actual energy savings of up to

20 PLN/MWh. The calculation of the Property

Rights may be used in conjunction with Full Sup-

ply, Energy Purchase in Tranches, SPOT Energy

Purchase and Flex Energy products.

ECO PRESTIGE

Designed for Customers who want to grow their

business with the help of green solutions. Pur-

chased electricity can come from on- or off-sho-

re wind farms, hydroelectric plants, solar panels

or geothermal sources. The purchase of Eco

Prestige is confirmed by a certificate issued

by RWE Polska SA or TÜV Rheinland Polska.

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RWE Polska


GASPRODUCTSB

TARGET PRICE

A product for Customers who want to make their

own decisions about the price of natural gas. Tar-

get Price allows the Customers to indicate the ma-

ximum price at which they would like to buy natural

gas. RWE is committed to purchasing gas at the

price expected by the Customer, which will be

guaranteed for the term of contract. If the market

situation does not allow for the purchase at the

expected price level, the contract between RWE

Polska and the Customer will be terminated, witho-

ut consequences to either party.

For all Customers who wish to introduce gas

supply customized solutions, in order to opti-

mize purchase prices of the fuel, the following

Gas Optimum products were introduced:

FIXED PRICE

The security of supply of natural gas, and at

the same time protection against the effects

of possible increase in prices. The product

guarantees a fixed price during the term of

the contract, together with the provision of

full balancing of gas supplies.

70 RWE Polska

RWE Polska

DISCLAIMER

RWE Poland S.A. informs and reserves that the

data ontained in this report do not constitute

a binding offer for electricity, natural gas or any

other services delivery. The data provided se-

rves only as general information.

This report expresses the knowledge and views

of the authors at the date of its preparation.

The report was prepared with diligence and

care, while maintaining the principles of metho-

dological correctness, based on public informa-

tion considered by RWE Polska S.A. to be relia-

ble. RWE Polska S.A. does not guarantee,

however, its completeness or accuracy.

Using the study, one should not resign from

independent assessment and consideration of

factors, other than those outlined, affecting the

prices of electricity, natural gas, CO2 emission

rights, property rights, raw materials and deri-

vatives.

The prices of electricity, natural gas, CO2 emis-

sion rights, property rights, raw materials and

derivatives are subject to a number of risk fac-

tors, among other things, related to the coun-

try’s and international macroeconomic situ-

ation, defined legal status and its possible

changes, as well as trends taking place in other

segments of goods and financial markets (inclu-

ding foreign exchange markets and interest

rates).

RWE Polska S.A. will not be responsible for any

decisions taken on the basis of this report or for

any damages incurred as a result of purchase

decisions, and other investment decisions. The

entire risk of any use of the information provi-

ded remains with the user – the reader of the

report ˝Report on the Electricity and Natural Gas

Market in Poland in 2014”.

All rights to the entire contents of the “Report

on the Electricity and Natural Gas Market in Po-

land in 2014” are reserved. Website users have

the right to download and print whole pages or

parts thereof, provided non-infringement of

copyright or rights arising from the registration

of trademarks owned by RWE Polska S.A. takes

place. No part of this report may be used for

commercial purposes by copying it in whole or in

part, transmitting it electronically or otherwise,

modified, linked or used without the prior writ-

ten consent of RWE Polska S.A.

The information contained in the present document ˝Report on the Electricity and Natural Gas Market in Poland in 2014” prepared by RWE Polska S.A. does not constitute a recommendation within the meaning of the Regulation of the Minister of Finance of 19 October 2005 on the information constituting recommendations concerning financial instruments or their issuers.

RAPORT O RYNKU ENERGII ELEKTRYCZNEJ I GAZU ZIEMNEGO W POLSCE W 2014 ROKU 71

RWE Polska

ŁUKASZ MUSIAŁ[email protected] ManagerEnergy Purchase Strategy and Sales Portfolio Management

PIOTR GRZEJSZCZAK [email protected] ManagerEnergy Purchase Operating Management

SŁAWOMIR SKOCZEK Business AnalystEnergy Purchase Strategy

KAROL KOSIARSKI Energy and Gas Purchase Management Specialist

PIOTR MICHALCZYK Energy and Gas Purchase Management Specialist

KRZYSZTOF MICHALAK Energy and Gas Purchase Management Specialist

AUTHORS OF THE REPORT

Other members of RWE Polska S.A. team who contributed to the report: Stefan Doroszewski, Jarosław Gąsiorowski,Aleksandra Kolczyńska and Aleksandra Smolarska-Fis.

Edition, design and production: Mediapolis Sp. z o.o., ul. Anny German 15, 01-794 Warszawa, www.mediapolis.com.pl.Managing Director: Zbigniew Ukleja, Art Director: Marzena Dąbrowska, Editorial Director: Aleksandra Sachanowicz,Design and realization: Marzena Lipińska.


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RWE Polska

RWE Polska S.A.T 48 22 821 39 39F 48 22 821 33 [email protected]

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