Global energy consumption in 2010−2030 is currently expected to rise at an annual rate of 1.8-1.9%.
At present, more than 80% of the world’s energy demand is met by the three main fossil fuels: crude oil, natural gas and coal. While coal still remains the cheapest source of energy, it will be gradually replaced with natural gas by 2050. It is expected that as soon as within the next decade gas-based power generation will start to play the key role in the development of the European market. Without a doubt, falling crude prices will put a pressure on the prices of gas. On top of that, shale gas, which has evolved into a cheap source of energy in the US and Canada, may become an alternative to coal – all the more so in that it offers a substantial reduction of carbon emissions.
Electricity consumption in the European Union in 2012 [MWh/person]1)
1) Luxembourg has been removed from the EU list due to lack of representative data.
Source: In-house analysis based on Eurostat data and other publicly-available information.
In Poland, electricity consumption per capita is significantly below the EU average.
Electricity demand in Poland is projected to increase in 2015−2030, driven by the country’s economic growth.
Electricity demand in Poland in 2010−2030 [TWh]1)
1) End demand for electricity, i.e. excluding transmission losses and own needs of power plants.
Source: In-house analysis based on CERA and ARE data.
In 2010−2013, global demand for energy rose at an average rate of 1.4% per annum, which is expected to increase slightly in 2013−2020 (according to CERA, to approximately 1.6%). Given their age and emission intensity, a significant portion of existing generation assets is in need of upgrades and/or replacement. It is estimated that some 5 GW in generation capacities should be phased out from the market by 2020.
Electricity prices grew at a stable rate until 2011. A slump occurred in 2012−2013, with prices going down from approximately PLN 180/MWh at the end of 2011 to approximately PLN 140/MWh at the end of 2013. During 2014 a gradual rise in wholesale prices has been seen to approximately PLN 173 MWh at the end of year.
Poland is the key market for the power generation business of the ORLEN Group’s downstream segment. The domestic market offers good growth prospects due to lower energy consumption compared with most of other European countries.
The Czech Republic is also an attractive energy market, albeit with significant entry barriers for the ORLEN Group, with the leader’s position occupied by electricity provider CEZ (České Energetické Závody). In 2010−2012, energy demand was stable in the Czech Republic, and is expected to increase to approximately 1.7% in 2013−2020 according to CERA. There is a strong correlation between changes in electricity prices in the Czech Republic and Germany.
At 4.0 GW, the installed capacities of Lithuanian power plants exceed domestic demand more than two times, which is why the ORLEN Group does not plan to expand into the country’s energy market. In 2010−2013, energy consumption by end users in Lithuania was relatively stable. CERA predicts the country’s energy demand to grow dynamically in 2013−2020, at an average rate of ca. 3.5%.
Dynamic global growth is also envisaged for renewable energy sources (RES). It will be supported by regulations designed to limit CO2 emissions and give preferential treatment to RES. In 2014, the EU set targets for reducing CO2 emissions and ensuring an appropriate share of RES in energy consumption until 2030. The target for the reduction of carbon emissions was set at 40% (in relation to 1990), while the target share of renewables is 27%. Furthermore, an agreement on reducing greenhouse gas emissions signed between the US and China, two largest carbon dioxide emitters, is a major step towards reaching a global consensus on this issue.
In Poland, more than 80% of electricity production is still based on coal, but the share of renewables is gradually increasing: from 2.4% in 2005 to 10.3% in 2013.
Operations in 2014
PKN ORLEN consistently pursues the objectives identified in the ORLEN Group's Strategy for 2014−2017, which provides for modernisation of the existing assets, and building new power generation capacities based on high-efficiency cogeneration.
The ORLEN Group is a major producer of electricity and heat in Poland, largely used by the Group to meet its own needs. We are also one of the largest consumers of natural gas in Poland and an active participant in the natural gas market deregulation process. We consistently pursue the objectives identified in the ORLEN Group’s Strategy for 2014−2017, which provides for modernisation of the existing assets and building new power generation capacities based on high-efficiency cogeneration.
Under the ORLEN Group’s Strategy for 2014−2017, which assumes higher electricity generation volumes, the Company has been upgrading existing power generation infrastructure and implementing new investments (CCGT units).
The new CCGT projects in Włocławek and Płock are industrial power generation investments, designed to meet the needs of the ORLEN Group. Both units will offer exceptionally high efficiency of electricity generation, low environmental impacts, and high utilisation rates throughout the year. Electricity produced by the Włocławek and Płock units in the high-efficiency heat and power cogeneration process will be used for the ORLEN Group’s in-house purposes and sold in the domestic market.
As regards the 463 MWe CCGT project in Włocławek, which is technologically closely linked to the ANWIL Production Plant, most of the construction work and deliveries of all key components were completed in 2014, and the plant is expected to go on stream in the fourth quarter of 2015.
In the fourth quarter of 2014, the Company signed a contract for the construction of a 596 MWe CCGT unit in Płock. At the same time, we took steps to prepare the infrastructure necessary to connect the new unit, as well as to set up the construction site for the project. The CCGT unit in Płock is scheduled for completion in the fourth quarter 2017.
Installation of flue gas denitrification and dust removal units in CHP boilers in Płock is also in progress, with completion planned for 2016. The Company is also building a wet lime and gypsum flue gas desulfurisation unit for all boilers, which is expected to be placed in service in 2015.
In 2014, the Company opened a tender for the upgrade of the CHP plant at Rafineria Trzebinia. The upgraded plant will have a total electrical and thermal capacity of approximately 14 MWe and 96 MWt, respectively. The project is to be launched in the third quarter of 2015 and completed in the fourth quarter of 2017.
In connection with the planned entry of PKN ORLEN into the electricity trading market, in 2014 the Company signed General Distribution Agreements providing for the access to the power grids of each Distribution System Operator and the balancing of customers. A Central Trading System has also been put in place for the wholesale business. On top of that, the Company signed a contract with PSE for electricity transmission services, which made PKN ORLEN a direct participant in the Balancing Market.
Poland is seeing the development of renewable energy, especially wind power. In 2014, work on the draft law on renewable energy sources was under way, which will enable further sustainable development of RES. After the legislative process is completed, the ORLEN Group will decide on the viability of RES projects.
The Power Generation Office took steps to develop micro generation capabilities for PKN ORLEN S.A.’s service stations and office buildings. The viability of installing distributed generation facilities (photovoltaic cells and micro wind turbines) at approximately 100 CODO stations was analysed. A procurement process is currently in progress to find a supplier of photovoltaic systems to be fitted at the pilot group of service stations, which will start to be co-powered by renewable energy in 2015. If the pilot programme is successful, it will be extended to other facilities.
At the same time, steps are being taken to assess the possibility of developing some of PKN ORLEN’s land into a solar farm (photovoltaic power plant).