Unlocking the potential for offshore wind in Poland's Baltic Sea zone

Poland has huge potential for offshore wind in the Baltic Sea, with 10GW of capacity envisaged by 2040. During an economic congress in mid-May, officials from the country's energy ministry presented ways to develop its renewable-energy sources, with offshore wind highlighted as a key component.

Supply chain… An ST3 offshore facility in Szczecin, designed for the production of transition pieces, jacket and monopile foundations
Supply chain… An ST3 offshore facility in Szczecin, designed for the production of transition pieces, jacket and monopile foundations

The government’s draft energy policy to 2040 identifies offshore wind as fundamental to Poland’s energy transformation. It signals a slight shift from lignite and hard coal-fired generation — which today accounts for almost 80% of electricity generation — towards a more diverse and lower-carbon mix. This will contribute towards the European Union’s Renewable Energy Directive of 2018 specifying that at least 32% of the EU’s energy consumption will be provided by renewable sources by 2030.

Coal’s share of electricity production is anticipated to drop to 60% by 2030, as other sources fulfil Poland’s growing demand for energy. Renewables’ share is scheduled to grow from 14.1% (2017 figure) to 21% by 2030, leading to a reduction of 30% in CO2 emissions from 1990 levels.

Thereafter, Poland has ambitious plans for nuclear energy, with its first plant due to start generating in 2033 and five more to follow over the next ten years for a total capacity of 6-9GW. But full exploitation of the offshore wind potential in the Baltic Sea, together with onshore solar PV expansion, could provide up to 30GW of capacity by 2040.

Transmission bottlenecks

The political and economic significance of coal-fired power in Poland — some 100,000 people work in the industry — will deter shutdowns and maintain dependence on coal over the next decade.

But new coal-fired plants are unlikely. In March, energy minister Krzysztof Tchórzewski confirmed that the Ostroleka C plant would be the country’s last such investment. However, its financing has not yet been completed, as most European banks are now steering clear of fossil-fuel developments.

Offshore-wind growth will depend on strengthening and modernising Poland’s transmission network, especially in the north. PSE, the transmission network operator, is capable of connecting 4GW of offshore wind capacity to its power grid by 2026-27, and aims to bring this up to 8GW in the longer term.

It is also necessary to increase the capacity of north-south connections. The issue is not so much whether power from offshore wind can be connected to the grid, but that the onshore grid needs reinforcing to transmit power from the north to the energy-hungry industrial heartlands in the south. PSE is working on a plan for a further 5GW of grid capacity.

In addition, Baltic Sea regional partners are exploring the potential of meshed offshore grids for the region. The Baltic InteGrid project aims to contribute to sustainable-energy generation, help integrate regional electricity markets and enhance security of supply. In order to integrate the Polish power systems with those of other Baltic states into the continental grid, a new offshore 700MW Poland-Lithuania interconnector, located by their respective offshore wind projects, is scheduled to be commissioned by 2025.

Falling costs

Wholesale power prices in Poland surged in 2018, mostly driven by rising coal prices and carbon-emission costs. The state-run utilities proposed a 30% hike in household bills to claw back revenue, but the government capped 2019 power prices at the level reached in June 2018, while providing €935 million in compensation for the utilities. This intervention illustrates how exposed the coal sector is becoming to changes in the energy market.

Wind power costs, meanwhile, have been falling rapidly. Investment costs of offshore wind in Europe have dropped from €4.41 million/MW in 2013 to €2.45 million/MW in 2018, due to the rise of competitive tendering, more powerful turbines and greater economies of scale as capacity grows.

The gap between the costs of electricity production from a conventional power plant and a wind project has been highlighted by Polish Wind Energy Association president Janusz Gajowiecki. "New wind-farm investors already expressed their readiness to produce below PLN 200/MWh (€46/MWh), which is less than on the wholesale market. In subsequent years, the price will decrease to around PLN 160/MWh. At the same time, electricity from conventional sources costs PLN 350/MWh," he said.

"The gap will grow to the advantage of renewables — first onshore wind and PV, and in five to ten years, offshore wind.

Ideal conditions

The Baltic Sea offers good conditions for offshore-wind development. The waters are relatively shallow, have lower salinity than the North Sea, are free from icing, with lower wave heights, less-pronounced tides and plenty of suitable sites close to shore, which means lower installation, operations and maintenance (O&M) and grid infrastructure costs.

The Maritime Office Gydnia’s offshore area development plan has earmarked around 2,340km² for offshore wind projects, which would allow for the construction of 8-10GW capacity.

Under the country’s Renewable Energy Act, offshore-wind projects compete for subsidies by auction in a technological basket with hydro, biofuels and geothermal projects above 1MW in capacity. No offshore-wind developments competed in the November 2018 auction on the grounds that they were not sufficiently advanced. Developers are also waiting for the government to provide a support mechanism dedicated to offshore wind as part of an offshore wind act.

A parliamentary offshore wind energy group is working on the bill. It is looking at three key issues: deciding what kind of support scheme should be put in place for the first round of offshore projects; how electricity produced by offshore wind will be connected to the grid, and how the onshore grid can be reinforced; and how the full potential of the country’s supply chain can best be exploited.

Permitting process

The first stage is obtaining and paying for the location decision. Currently, the decision-issuing process has been halted until the approval of the new offshore area development plan, expected in September. The next stage is obtaining a permit to lay undersea cabling within the exclusive Polish economic zone, followed by an environmental impact study. Irrespective of the decision from the study, the investor must enter into a grid-access agreement with the transmission operator. The last stage is seeking a building permit for an offshore wind project.

Poland’s largest utility, Polska Grupa Energetyczna (PGE), and privately owned utility Polenergia, in cooperation with Norway’s Equinor (formerly Statoil) and PKN Orlen —Poland’s largest refiner, are developing investments to build the country’s first offshore wind capacity.

These projects can be classified into three broad categories. The first consists of the leading precursor projects — those with location decisions, permission to build and use artificial islands, connections conditions, and legally valid or finalised environmental decisions.

The second category consists of projects with only a location decision for the artificial islands that gives a legal title to dispose of the area. Some of these are in the process of preliminary environmental studies, or have already initiated an environmental impact assessment.

The third category is "greenfield" projects based on complex, but suspended, applications for the artificial islands, the first milestone in the permitting procedure.

Developer plans

PGE generates around 90% of its electricity from lignite and hard coal, but rising carbon cost and dwindling lignite resources has prompted it to explore offshore wind. In December 2018, the utility invited companies for talks to build two offshore wind farms totalling 2,545MW. It received 13 initial proposals from foreign partners.

PGE also announced plans to sell 50% stakes in two special-purpose vehicles created to build the projects — the 1,500MW Baltica-2 and 1,045MW Baltica-3, located 35km off Poland’s northern Baltic Sea coast — to an experienced foreign partner this year.

PGE has reportedly signed a contract with Irish engineering consultancy Gavin & Doherty Geosolutions to conduct geotechnical surveys on the two projects. Latest estimates put the total combined cost at around $7.8 billion (€6.86 billion). A final investment decision is expected in Q3 2023, with commercial operation of the first 1GW of capacity starting in Q2 2026. PGE said an additional 1-2GW could be developed for Baltica-1 after 2030.

Polenergia concluded a deal in May 2018 to sell half its stake in two projects — Baltic-II and Baltic-III with a combined capacity of 1,200MW — to Equinor. Both projects — located 27km and 40km respectively from the port of Leba, and in water depths of 20-40 metres, already have positive environmental decisions issued by the Regional Directorate for Environmental Protection for the construction of offshore transmission infrastructure connecting them with the national grid. The total capacity that can be derived using the infrastructure detailed in the environmental decision is up to 1,440MW. Polenergia estimates average wind speeds of 9-10m/s for both projects.

In December 2018, Equinor exercised an option to acquire a 50% interest in Baltyk I. The site, located around 80km from Leba, with water depths ranging from 25 metres to 35 metres, allows for the development of up to 1,560MW of capacity.

PKN Orlen, plans to start investment in offshore wind in 2024. In January 2018, it confirmed that an Orlen group company, Baltic Power, was about to start surveys to assess the environmental impact of building offshore projects and gather data about wind resources at its licence area.

To that end, an agreement has been signed with a consortium comprising MEWO SA and the Maritime Institute of Gdasnk to obtain an environmental

permit for the development and determining its production potential. PKN Orlen first assembled a team to plan an offshore wind project with a potential of up to 1.2GW in 2018.

Supply chain

In addition to being able to piggyback on cost reductions, technological advances and best practices developed in the North Sea, Poland has already developed a sizeable supply chain for offshore wind. Its extensive port system is also seen as offering significant growth opportunities for O&M suppliers. Manufacturing of offshore wind components, particularly foundations, and construction vessels to install and service the projects, are driving the process of modernisation and growth in Poland’s maritime industry. Some companies are already benefiting.

The Crist SA shipyard in Gdynia is building advanced jack-up vessels for turbine installation. A new ST3 offshore facility was built in Szczecin, specifically designed for the production of transition pieces, jacket and monopile foundations. It houses Europe’s highest gantry crane and unique welding technologies. Other companies have started specialising in steel structures and components for substations for North Sea offshore projects. TF Kable, a domestic cable manufacturer, has acquired JDR Cable Systems, thus becoming a major supplier of submarine bus and power cables for offshore wind.

Investor confidence

New investors are applying for permits to build offshore wind projects in the Polish Baltic Sea zone. To date, seven are under consideration by PSE (see map, below) — two of which have connection agreements.

PGE, Polenergia, PKN Orlen and Baltic Trade and Invest all have location permits. The total area made available so far is around 2,000km², sufficient for 8-10GW according to think tank Forum Energii, with development in stages that would allow domestic companies to build their experience, facilitate integration into the Polish network and help cut the levelised cost of energy.

While the Baltic Sea has huge offshore wind potential, this must be matched with the correct legal framework. The much-awaited offshore wind act and clarity on support arrangements will be key milestone in realising that potential.

A clear regulatory framework and a stable long-term outlook will bring down prices and raise investor confidence. The experience of markets with developed wind capacity should be taken into account to drive Poland’s offshore development and build local expertise and capacity with a long-term view.

Henry Davey is legal director, Rob Broom is an associate, and Igor Hanas is Of counsel, at international law firm Squire Patton Boggs

This article was first published in WindMax (incorporating WindStats)

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