Energy is getting cheaper, but bills are not falling. The weakest will pay the most

• Despite the harmonisation of regulations and the increasing integration of energy markets in the European Union, the actual costs for end users still vary significantly.
• An honest discussion about the costs of energy transformation requires an analysis of the full costs borne by electricity consumers - and not just limited to stock exchange prices.
• The current cost-sharing structure is neither socially equitable nor economically efficient.

The energy transformation - its shape, pace and method of financing - will determine Poland's development for decades - we read in the report "A green examination of conscience; the real costs of energy transformation - the future of energy prices and our bills" by the Center for Development Strategies.

It is impossible to talk about a responsible energy transformation without looking at the entire system. Secondly, the current method of financing this transformation in Poland hits the weakest participants in economic life the hardest: small businesses, service points, restaurants, nursing homes. They are the ones who are currently bearing the greatest costs of changes that were supposed to be common, fair and future-oriented. But it is not only them - also large industry in Poland, despite reliefs and preferences, is currently paying more than its competitors from Western Europe.

- says Kamil Orzeł, President of the Management Board, Member of the Council of the Development Strategies Center Foundation.

He adds that this is a real threat to the competitiveness of the economy and a signal that the current model of cost sharing requires a fundamental rethink.

According to the CSR president, the transformation must continue - but it must also be rational. As he states, the cost system requires correction: so that on the one hand it does not weaken competitiveness, and on the other - it does not push responsibility onto those who have the least strength to bear it. Only an honest diagnosis gives a chance to develop optimal, realistic and fair solutions.

The report also shows that an honest discussion about the costs of energy transformation requires an analysis of the full costs borne by electricity consumers - and not just limited to stock exchange prices.

The final energy bill consists not only of the costs of its purchase and distribution, but also of a number of regulatory fees related to the financing of support systems for new sources, maintaining power reserves and the ongoing balancing of the national power system - including ensuring the balance between production and consumption and stable network operating parameters, such as frequency and voltage.

- we read.

The authors of the document state that despite the harmonization of regulations and the progressive integration of energy markets in the European Union, the actual costs for end users are still highly diversified. This results from local differences in the energy mix, the method of allocating system costs and the adopted principles of redistributing burdens.

During the energy crisis, most EU countries implemented temporary protective mechanisms - subsidies, tax cuts and regulated tariffs - which limited the growth of household bills. However, as emphasized - prices paid by individual customers do not reflect the full costs of the system and should not be treated as a measure of the efficiency of energy policy.

An analysis of institutional recipients' expenditures provides a better reflection of actual costs.

In recent years, it was the smallest companies - such as service, catering or trade entities - that incurred the highest unit energy costs, even several times higher than heavy industry. This is due to, among other things, the structure of distribution tariffs, lack of negotiating power and disproportionate burden of regulatory costs.

- writes CRS.

As noted in the report, in most EU countries, industrial customers are treated preferentially. Meanwhile, in Poland, this model is reversed - energy-intensive companies do not benefit from support on a scale similar to that enjoyed by their European competitors, which translates into a decrease in the competitiveness of the domestic industry. The current structure of cost allocation is neither socially just nor economically efficient.

The document also emphasized that for years Poland had benefited from a cost advantage resulting from two factors: low operating costs of depreciated infrastructure and delays in implementing renewable energy sources , which meant no burdens related to support systems - requiring significant expenditures at the initial stage of technology development. However, both of these advantages were lost. Investment expenditures on distribution networks increased from PLN 6.3 billion in 2020 to PLN 9.9 billion in 2023, and in subsequent years will exceed PLN 12 billion annually .

At the same time, liabilities resulting from the concluded renewable energy auctions, primarily from contracts for difference (CfD), as well as planned support payments for offshore wind energy are growing.

- we read.

The authors of the document estimate that the dynamic increase in installed capacity in renewable energy sources was possible thanks to a favourable combination of circumstances:

• availability of free connection capacities;
• falling investment costs;
• high energy prices on the market and attractive support systems that provided investors with a satisfactory return on capital.

Currently, however, most of these factors are losing their importance - investment costs have stopped falling, connecting new installations requires expensive network expansion, and growing competition between renewable sources leads to the so-called cannibalization effect, i.e. lowering prices obtained by producers (capture price). In the coming years, these prices may fall even below 50 percent of average SPOT prices. This means that we have used up simple transformation reserves.

The report also stated that further growth in installed capacity in renewable energy sources will lead to increasingly frequent periods of very low or even negative energy prices.

This phenomenon is largely due to the ineffectiveness of the existing support mechanisms. Renewable installations - especially those covered by net metering - continue to generate even when this involves the need to pay extra for energy fed into the grid, because they benefit from guaranteed legal privileges. Due to the constitutional protection of acquired rights, changing these rules for existing installations is impossible. Consequently, it should be expected that the phenomenon of negative energy prices will accompany the Polish power system for at least a dozen or so years.

The authors admit that it is not possible to unequivocally determine whether further development of RES will translate into lower average energy costs for end users - primarily due to rising system costs resulting from the changing market structure. The key factor here will be the increase in capacity market costs, related to the falling profitability of conventional generating units, which - despite operating less and less often - must remain ready in the event of periods of shortage of RES generation (so-called Dunkelflaute).

As the document shows, the costs of support systems for renewable energy sources will increase in parallel. This phenomenon will be the effect of three overlapping processes: the increasing volume of energy covered by support, inflationary indexation of guaranteed rates and a drop in market prices during periods of high generation from renewable sources - which results in a growing difference between the market price and the guaranteed price and generates higher subsidies.

The energy transformation is not a one-off modernization effort, but a continuous process - a cycle of infrastructure reconstruction and replacement that will accompany the economy for decades to come - the report emphasizes .

This applies to both generation sources and network infrastructure. Contrary to popular belief, completing one of the stages of transformation does not mean lasting savings - devices wear out, technologies age, and new challenges emerge in the area of ​​system security.

As CSR notes, despite numerous challenges, investments in new generation capacities are necessary - many currently operating units are over 40 years old and require expensive modernization or complete replacement. The shape of the future energy mix will largely depend on the direction of state policy and the adopted support mechanisms. Further transformation requires a reliable calculation of long-term costs - the document added.