Wholesale energy prices hit new records. Here’s how our electricity bills can go up

The European commodity market turmoil is in full swing. This has a direct impact on energy prices on the Warsaw Power Exchange (TGE), which breaks new barriers. Last Friday, only 0.30 PLN was below the magic limit of 1000 PLN per megawatt hour (MWh) of energy in contracts with delivery for next year. On Monday, the price reached 995.80 PLN / MWh. This is significantly more than in 2021, when the average tariff for annual contracts was 384.16 PLN / MWh. Quotes began a strong rally on April 27, that is, from the moment Russia fulfilled its threat and turned off the gas tap in Poland.

TGE prices follow trends visible throughout Europe, where annual contracts exceed 220 EUR / MWh – notes Kamil Kliszcz, analyst at BM mBank. He explains that the recent increases are a consequence of the return of coal price increases in European ports from less than 200 USD/t in March to 250 USD/t currently, more expensive gas of around 70 EUR/MWh in March at 85 EUR/t MWh now, and also the increase in the quotations of CO2 emission quotas to 90 EUR/t.

Announcements of new sanctions against Russia increase the risk for prices in the upcoming heating season, and so far there are no signs of easing current tensions, as evidenced by, among other things, the suspension of Russian gas deliveries to Poland and Bulgaria or Germany’s decision to accelerate the construction of LNG terminals, adds Kliszcz.

Polish coal in the spotlight

According to Santander BM analyst Paweł Puchalski, the market is mainly concerned about further increases in coal prices. Especially since the largest national producer of this raw material – Polska Grupa Energetyczna – is now renegotiating contracts with the largest customers and offering them much higher prices than before.

– In my opinion current energy prices on TGE show that the market is very uncertain about the prices of energy resources in the years to come. These concerns relate mainly to coal, the basic fuel in Poland, as the increases of more than ten percent in the PSCMI1 index (coal price index for power plants – editor’s note) in the first quarter of 2022 are reinforced by the announcement of the renegotiation of the contract by Polska Grupa Górnicza. Let us also take into account that the prices of European coal remain very high and that the increase in production of Polish mines in the short term is, in my opinion, very uncertain. High coal prices in Europe, inflationary pressure on local mining company costs and the need to invest in new coal seams all have the potential to accelerate coal price increases. Meanwhile, CO2 certificate prices have also jumped from 70 to 90 euros/t over the past month, which has further weighed on Polish electricity prices, says Puchalski.


Price of CO2 emission allowances on the spot market (EUR / t)


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According to him, CO2 prices could change significantly in the short term, potentially affecting energy prices in Poland in the years 2022-2024. – However, the high price of electricity in Poland results, in my opinion, mainly from expectations of a sharp increase in the price of coal supplied by Polish mines. Currently, on TGE, we can observe power purchase agreements for 2025 at a price of 900 PLN/MWh, which shows how uncertain the market is and how much industrial customers are ready to pay today to secure energy supply for several years to come – underlines the Santander BM analyst.

Jacek Szymczak, president of the Polish Heating Chamber of Commerce, spoke about the expected gigantic increases in Polish coal prices in a recent interview with Business Insider Polska. – Polska Grupa Górnicza terminated long-term contracts with heating companies and offered new ones with raw material prices up to twice as high – revealed Szymczak.

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