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.
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.
– The current actions of PGG in relations with the heating industry are nothing extraordinary, they are a consequence of the decisions and changes that took place last year concerning the mining industry in Poland – retorts Tomasz Głogowski, door -word of PGG.
He explains that once the coal company was included in the state budget support system, it ceased to be able to maintain long-term contracts, and PGG “is obliged to conclude contracts for shorter periods with market prices”.
– Currently, PGG is negotiating this deal with its business partners, details of these talks are to be kept under wraps at this time. PGG has the public interest in mind and will make every effort to ensure that the social effects of the changes described above are minimal.. For this reason, the company will provide raw material support – to the best of its ability – to entities that have so far used coal from the Russian Federation, which is subject to an import embargo – adds Głogowski.
Michał Kozak from Dom Maklerski Trigon points out that today there is a lot of uncertainty in the energy market across Europe. – There are concerns about whether it will be possible to balance the gas market in Europe in the coming months after Russia cut gas supplies to two countries. In turn, the domestic market has seen larger increases in steam coal prices since the start of the year. With such significant factors of political uncertainty in the market, information on the worsening risk of gas or coal shortages may result in further significant increases in energy prices on the stock market. If, however, nothing like this happens, I expect a price correction following the normalization of gas prices – emphasizes Kozak.
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At the same time, experts warn that these large increases in energy prices on the wholesale market will translate into higher energy bills for end users.
– If Polish coal prices really increase significantly and there is no political upheaval in Russia, I believe that high coal and energy prices could remain at very high levels even during several years. With such high prices on the wholesale market, the price of electricity, which is one component of the entire electricity bill, could hypothetically increase by almost 100%. Next year. Of course, this would have a direct impact on the industry as the regulator decides final prices for individual customers, Puchalski predicts.
Already this year, consumers have had to deal with rising electricity prices. The chairman of the Energy Regulatory Office has agreed to increase the prices of energy sold by energy companies by 37% for the whole of 2022. compared to 2021. The total average increase in the statistical electricity bill of a household, which also includes, among other things, energy distribution costs increased by 24%, or about 21 PLN net per month. After the entry into force of the so-called anti-inflationary shield, which frees energy for individual customers from excise duty, the regulator temporarily lowered tariffs by 5 PLN/MWh.