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Poland’s electricity prices rise to the highest level in history. CO2 price hit record high

The average electricity price on the Polish spot market in November was over PLN 550/MWh. The main reason is the price of CO2 – yesterday's closing price was the highest ever. Despite that, Poland remains one of the cheapest wholesale markets in Europe. The price of electricity with delivery in Great Britain was at over PLN 4,450/MWh tonight. The increases are also observed in America and Asia.

The average price of electricity with delivery traded on a day-ahead basis, i.e. in the same amount at all hours of the day, was PLN 552.40/MWh in November. This is twice as much as seen on the Polish exchange in the last 20 years, until spring this year.

The average price for energy supply at peak demand in November was as high as PLN 636.17/MWh. On the other hand, the average prices of the system load peaks –  5 pm and 6 pm – exceeded PLN 750/MWh last month. Never before has such a large discrepancy between night hours and peak hours been seen on the Polish exchange – in November they diverged by over PLN 205. For comparison, previously the differences ranged from PLN 20 to PLN 100.

The British are in for a very expensive evening

Compared to Europe, however, Polish wholesale rates are still among the lowest. On the Scandinavian Nordpool power exchange, energy with delivery today at 18:00 was priced for Germany and southern Scandinavia at EUR 138, for Poland at approx. EUR 152, for Lithuania, Latvia and Estonia at EUR 210, for the Netherlands at EUR 267, for Austria at EUR 293, for France as much as EUR 325 and for Great Britain at EUR 822 per megawatt hour, i.e. the equivalent of PLN 4,452/MWh. Tonight will be one of the most expensive evenings in the history of this country and it is very possible that it will contribute to further bankruptcies of electricity sellers in Britain. As Bloomberg calculates, 23 energy and gas suppliers have already gone bust in the UK since August.

Expensive fuels are driving electricity prices up in the northern hemisphere

Anyway, this problem is global. Current prices on the Japanese exchange are four times higher than a few months ago and also pose a risk of bankruptcy of suppliers. In China, it was not until recently that there was an administrative need to curtail industrial energy consumption. On the other hand, the South Korean government has been forced to introduce the first increase in retail energy prices for households in eight years (the market is monopolized by the state-owned Kepco) and has already announced that another increase in tariffs is possible in January.

The increase in gas prices has also affected electricity prices, including Texas, where the power consumption related to cryptocurrency mining is growing dynamically at the same time. It already accounts for 1 GW power demand there, and Texas-based operator ERCOT expects that computers “digging” cryptocurrencies will account for 5 GW of power consumption in the state within two years. For the time being, the increases omit Australia, where this year’s summer, due to the presence of La Niña, is quite cool.

CO2 at EUR 80 per tonne

While in Asia and America high energy prices result mainly from a surge in demand for raw materials, including energy (gas, coal and oil), which has pushed up their prices to levels not seen for years, in the European Union and the United Kingdom this has been compounded with the highest carbon prices in history.

Yesterday’s closing price for a tonne of CO2 was valued at almost EUR 80, i.e. nearly PLN 370/tCO2. Meanwhile, power generation in our country is already approaching the record levels of 27 GW (in November it was 13% higher year on year), although minus temperatures have not yet started for good. With such a high demand, it is necessary to operate the oldest and the least effective coal-fired units, which emit from about 1 tonne of CO2 when producing 1 MWh of electricity, such as the Dolna Odra Power Plant, to nearly 1.2 tonnes of CO2, such as the Pątnów I Power Plant. In total, there must be as many as 10 more old power units in operation in Poland today than a year or two years ago. That pushes up the prices in the market significantly.

Three times more for CO2 than for fuel

The costs of CO2 emissions alone in the oldest power units, which determine the price of electricity on the Polish exchange, have already reached PLN 370-440/MWh. They also include coal, with the cost of almost PLN 250/t, nearly half a tonne of which is needed to produce 1 MWh in such old units. These two cost components alone (PLN 125 /MWh of fuel costs and PLN 370 /MWh of emission costs) push the price of electricity up to around PLN 500 /MWh, and these costs have to be topped up with coal transport, auxiliary fuel, lubricant consumption and other variable costs, not to mention the costs of maintaining these power plants, which are currently covered by consumers as part of the energy surcharge, added separately to electricity bills (as of next year this will be close to 10% of an average family’s bill).

ESMA investigates CO2 and derivatives trading

As requested by the European Commission, the European Securities and Markets Authority (ESMA) is investigating whether the market for CO2 emission allowances and derivatives may have been manipulated resulting in such a drastic increase in the price of EU ETS units – from EUR 28 in December 2020 to EUR 80 today. For comparison, as recently as in June, in a document prepared for the European Commission, the price of CO2 emission allowances was expected to rise to between EUR 50 and EUR 85/t… by 2030. At that time, however, some hedge funds interviewed by Bloomberg were already predicting a price of EUR 100/t by the end of the year.

In its preliminary report, which has already been presented, ESMA has so far found no deviation from other markets. The European supervision found that the number of open positions on emission allowances held by investment funds is similar to energy exchanges and even twice as small as on the Dutch gas exchange. However, the Authority is yet to deepen its analysis and report back to the European Commission early next year.

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