Presentation on theme: "External costs of power plants in Poland"— Presentation transcript:
1 External costs of power plants in Poland Mariusz KUDELKOWojciech SUWALAJacek KAMINSKIMineral and Energy Economy Research InstituteKrakow, Poland
2 Polish energy sector – energy production 97% of electricity produced from fossil fuelsDomestic sources of primary energy dominate the total supplyAll consumed oil and half of natural gas are importedHard coal and lignite are the main primary energy sourcesRenewables still have a small share in the energy balanceThe accession to EU and adjustment to the directives creates new conditions and challenges that the Polish energy sector. These challenges are likely to be very hard to meet due to the fact that 97% of electricity in Poland is produced from fossil fuels. Despite the sharp downward shift of hard coal production over the past 8 years it is by no means a main primary energy source in Poland.
3 Polish energy sector – structure Electricity generation sector consists of about 15 large public power plants and 30 public CHP plantsDistrict heat sector is more decentralized and is characterized by companies owned by local authoritiesCoal mining sector is organized in four hard coal companies (42 mines) and 5 lignite mines
4 Polish energy sector – emissions The highest reduction of SO2 in the energy sector is due to FGD investments progressThe level of NOx emissions from the energy sector is stabilized owing to the technological constrainsDecrease of TSP emissions is caused by the relatively low cost of equipment applied within the industrySO2NOxA transformation of the Polish economy had a positive effect on environment and air quality. Practically in case of all air pollutants we see a serious downward trend, also attributed to the energy sector. But it still generates 70% of SO2, 38% of NOx and 61% of PM.PM
5 Polish energy sector – CO2 emissions Kyoto target = 94% of 1988 levelCO2 emissions stabilized in the mid nineties at the level of Mtons in totalThe energy sector, which is the main consumer of solid fuels, is responsible for 56% of CO2 emissionsFuels combustion remains the major source of CO2 emissions. Nearly 97% of CO2 came from these processes. Poland will probably meet the Kyoto emission target simply by continuing the current energy and environmental policy. Moreover, different studies demonstrate that by 2010 GHG emissions could be below the Kyoto limit by up to approximately 70 Mtons of CO2.
21 National, as% of total costs Russia45%BelarusPP Dolna Odra50%34%CHP OstrolekaLignite PP PatnowPoznan49%48%GermanyCHP Siekierki45%Lignite PP BelchatowLignite PP Adamow39%Ukraine47%PP KozienicePP Lagisza35%PP PolaniecCzech RepublicTotal external costs, mln Euro:All countries 5892Poland (43%)Slovakia
22 The model of power sector development Key issues:A mid-term planning of development of the Polish energy system based on the criterion of effective allocation of resourcesExternal costs of emissions from energy technologies internalisedThe tool presented here is the dynamic partial equilibrium model of a mid-term development of the Polish power sector.The model focuses on detailed issues related to the energy production capabilities, the electricity and heat markets, without capturing other macroeconomic links.It equilibrates prices and volumes of electricity and heat production taking into account external costs related to the emissions generated by energy technologies.
23 Criteria of resources allocation Cost-effective allocation, which means a cost minimization for objective function to achieve a specific environmental objective – the desired emissions levelMaximization of social welfare defined as a sum of producers’ and consumers’ surplus minus external costsThe first criterion of the model uses simple least-cost approach. The second one uses the maximization of social welfare as an objective function that is defined as a sum of producers‘ and consumers’ surplus minus the environmental damages.
24 Main assumptions - 1Supply side: public power plants, public CHP plants, industry CHP plants and municipal heat plants aggregated as energy generation technologies divided into three groups: existing, modernized and new plantsDemand side: industry and construction, transport, agriculture, trade and services, individual consumers and exportThe supply side considers possibilities to deliver energy carriers from the domestic and import sources and their conversion through the energy processes.The demand side is represented by the main electricity and heat consumers.
25 Main assumptions - 2Demand curves estimated by price and income elasticity coefficients, both for electricity and heat marketsDamages related to energy technologies and derived from the ExternE estimationsImplementation – GAMS package, solvers – CPLEX and CONOPTThe supply side considers possibilities to deliver energy carriers from the domestic and import sources and their conversion through the energy processes.The demand side is represented by the main electricity and heat consumers.
27 Private costs Social welfare Type of fuel.Fuel costsInvestment costs of technol. prod.Fixed and variable costs of technol. prod.Investment costs of abatement technol.Fixed and variable costs of abatement technol.Balance of Import and export costsExternal costsConsumers and producers surplusSource of supplyTechnology efficiencyFuel consump. rateDemand sectorsLoad periodsDomesticImportCapacity of supplyExisting technologiesElectricity/heat ratioTransport lossesDemands ratio in load periodsBalance of fuels suppliesFuels suppliesEnergy balance of productionEnergy productionBalance of production and demand for final energyConsumers demandModernization of technologiesImportEnergy priceProduction investmentsBalance of production investmentsCapacityBalance of production capacityNew technologiesAvailability factorTechnology efficiencyExportDemand functionsAbatement technologiesEnviron. investmentsBalance of environ. investmentsCapacityBalance of abatement capacityEmissions factorPrice elasticityIncome elasticityThe model framework presented in this figure indicates the main equations, variables, parameters and objective functions within the model.The most important equations are: balance of fuels supplies, balance of energy production and balance of demand for final energy. The remaining relationships regard technological constrains (balances of production investments and capacity, balances of environmental investments and capacity) and emissions equations (balances of emissions and capacity reduction).The major variables in the model refer to fuels supplies, electricity and heat production, consumers demand, energy prices, capacity of production and environmental investments and emissions level.The cost components incorporated in the objective function are fuel cost, investments, fixed and variable cost of production and emissions abatement technologies, all create the private costs of energy production.Emissions reductionBalance of emissionsBalance of emissions reductionEmissionsUnit external costsLegend:BalancesVariablesParametersCosts componentEfficiency of abatement technologies
28 ScenariosScenarios applied in the model reflect possible results in terms of type of the model used, the objective function, demand specification, emissions of main air pollutants and the volume of external costs estimates.It must be stressed that the results of the reference scenario are more or less consistent with the official forecasts of the Polish energy policy.Three scenarios included in variant 2 differ according to the range of externalities considered in the decision-making process.
29 Results, variant 1Results of the model reveal that the type of criterion used in the calculations has a significant influence on the energy production in Poland.It is not surprising that the structure of the energy production in the cost-effective allocation scenario should be dominated by relatively cheap energy conversion technologies that are generally based on domestic solid fuels – hard coal and lignite.Existing coal fired power plants and their modernization options are economically competitive options to cover a slightly increasing demand for electricity.As a result of diminishing of domestic coal reserves, stricter emissions standards, possible increase of gas use by industry and municipal heat plants and a promotion of renewable sources a slight decrease of hard coal use should be observed after But in fact hard coal and lignite seem to be still preferred as cheep energy sources for public power and CHP plants.As demand for electricity grows, new natural gas-fired plants and renewables will come into operation after 2015.It is characteristic that the level of external costs in this scenario is at the same order of magnitude as private costs of energy production.
30 Results, variant 2, scenario 3 A change of the objective function in the model forces serious technological and economic adjustments. Here is presented only one scenario with external cost fully included in the objective function. For this scenarios we can observe a significant drop of the energy production in amount of 20-30% comparing to variant 1.A significant changes are also seen in the structure of the energy production. A dominant position of solid fuels is expected to decrease in favour of gas and renewables. Renewables are virtually used at the maximum of capacity. The use of hard coal, the primary energy fuel in the Polish energy balance, declines about 30-50% in comparison with variant 1. gas should be perceived as the main fuel source for electricity generation in 2020.All abatement options are economically efficient with respect to the unit external costs estimates employed in the model.The predicted increase of the energy prices is about twice higher comparing with their present level due to inclusion of externalities in decision-making process.
31 Results, private and social welfare bln zlVariantsVariant 1Variant 2scenario 1scenario 2scenario 3Consumers’ surplus-547478442Producers’ surplus-109121134Private costs358311318325External costs, including:265285139114SO9711544372NO33331512XCO636454482TSP72732617Private welfare-656599576Social welfare-37146462%Consumers’ surplus--13-19Producers’ surplus-1123Theory suggest that from a social point of view a full internalisation of external costs by the energy prices increase makes that this scenario is the most desired among others.The summary results of the model are illustrated here where the volumes of private and social welfare in discounted terms are shown. Private welfare is defined as a sum of consumers’ and producers’ surpluses. Social welfare is calculated as a difference between private welfare and external costs generated by the main air pollutants. Variant 1 with least-cost approach is also shown.Social welfare increases significantly due to internalisation of external costs. Moreover, the greater range of externalities considered the greater is social welfare.Private costs-25External costs, including:--51-60SO--62-682NO--55-64XCO--16-252TSP--64-77Private welfare--9-12Social welfare-2425
32 Conclusions - 1The structure of energy production in the cost-effective allocation scenario is dominated by the low-cost energy conversion technologies that are generally based on solid fuels – hard coal and ligniteIn the partial equilibrium model with external costs internalised the dominant position of solid fuels decreases in favour of gas and renewablesThis research seems to be one of the first such extensive attempt to examine the impact of external costs generated by air emissions on the whole energy sector in Poland.Here are the most important conclusions that can be drawn.But these conclusions should be carefully considered.First, it would be better to use CGE model to include all inter-linkages existed between the energy sector and the rest of the economy. Low experience with this kind of simulations and – what is the most important – the lack of reliable data for model calibration are the crucial barriers to employ such approach for Poland as yet.Second, technological and economical assumptions employed in the model might be crucial for the results. Discount rate, price and income elasticities, values of externalities caused by air pollutants, future fuel prices, the growth rate of economy etc. appear to be crucial for the analysis.
33 Conclusions - 2Projected long-term increase of energy prices amounts to about 100% comparing with their present level. Decrease of energy production is predicted on 20-30% of the totalExisting abatement technologies are economically efficient strategies to lower emissionsFrom a social point of view a full internalisation of external costs by the energy price implies that this scenario is the most advantageousThis research seems to be one of the first such extensive attempt to examine the impact of external costs generated by air emissions on the whole energy sector in Poland.Here are the most important conclusions that can be drawn.But these conclusions should be carefully considered.First, it would be better to use CGE model to include all inter-linkages existed between the energy sector and the rest of the economy. Low experience with this kind of simulations and – what is the most important – the lack of reliable data for model calibration are the crucial barriers to employ such approach for Poland as yet.Second, technological and economical assumptions employed in the model might be crucial for the results. Discount rate, price and income elasticities, values of externalities caused by air pollutants, future fuel prices, the growth rate of economy etc. appear to be crucial for the analysis.