Poland Pushes Coal on Europe as Putin Wields Gas Weapon - Bloomberg

By Ladka BauerovaApril 24, 2014 7:33 AM EDT

Digging Operations At Belchatow

Polish Prime Minister Donald Tusk says the country’s giant coal fields should become a cornerstone in Europe’s defense against a newly aggressive Russia.

Because the fossil fuel supplies 90 percent of Poland’s power it has less need of Russian natural gas than other Eastern European nations, burning half as much per capita as the neighboring Czech Republic, for example. As politicians wrestle with how to respond to the crisis in Ukraine, Tusk argues Europe needs to “rehabilitate” coal’s dirty image and use it to break Russia’s grip on energy supply.

“In the context of the Russian-Ukrainian conflict, the overriding objective is to lessen the dependence on Russia,” said Mujtaba Rahman, an analyst at Eurasia Group in London. “Climate objectives will be absolutely secondary to that.”

Coal, a cheaper source of power than gas, nuclear, wind or solar at today’s prices, is already a key part of Poland’s economy, keeping factories competitive and guaranteeing hundreds of thousands of manufacturing jobs. It’s even a tourist attraction.

At Belchatow in central Poland, where Europe’s largest mine produces more than twice as much coal as the whole of the U.K., visitors stand on an observation platform looking into a 310 meter-deep pit that supplies the giant power station visible on the horizon. On a recent April afternoon, the entire junior Polish national soccer team arrived for a look.

Soviet Troops

Poland burns over 50 million tons of coal a year, more than any European nation other than Germany, while having the lowest reliance on natural gas among the EU’s 10 largest economies, according to International Energy Agency data. That’s a popular position in a nation where Soviet troops were stationed for four decades until the early 1990s.

“Poland should definitely continue using its coal to benefit from its own resources rather than increase the country’s dependency on external energy supplies,” said Lukasz Chodkowski, 33, a Warsaw resident who works as a project co-ordinator in the capital city.

That doesn’t mean Poland is completely independent of Russia. While less vulnerable than some of its neighbors, it remains a gas importer and any disruption in supply would raise energy costs by forcing it to seek more expensive imports from elsewhere.

President Vladimir Putin said last week that unless Ukraine pays for gas it’s already bought, Russia may have to stop shipments, threatening supplies across Europe. OAO Gazprom, Russia’s gas export monopoly, said today Ukraine owes $11.4 billion for shipments already received.

Guarantee Security

“We want the whole of Europe to acknowledge coal as a legitimate energy source,” Prime Minister Tusk said on TV on March 29. “Poland has been consistently proving that it can guarantee energy security.”

Tusk’s office didn’t respond to an e-mail comment seeking further comments.

In boosting coal, Poland has the backing of other post-Communist EU members such as the Czech Republic and Slovakia, which also have large deposits and a high concentration of heavy industry that depends on the fuel.

“Poland’s industry relies on lower energy costs to remain competitive,” said Pawel Swieboda, president of the Warsaw-based Center for European Strategy. “It’s our main strength.”

Polish industry paid 23 percent less for power than competitors in Germany in 2012 and 21 percent less than in the Czech Republic, according to data compiled by the U.K. government.

Unified Strategy

Government support for coal in eastern Europe has prevented the EU from coming up with a unified strategy to meet its climate goals. The 28-nation bloc failed to reach a consensus on climate and energy strategy for 2030 in March and postponed the decision on emissions targets until the end of the year.

Even Germany, which is driving the continent’s switch to clean energy, has found it hard to give up on coal. Utilities like RWE AG (RWE) are turning back to the fuel as the most economical commodity for power production. The combination of record-low electricity prices, generation overcapacity and low prices of carbon credits have made coal more profitable than gas.

In Poland, the coal industry is a sensitive topic for the government because it provides jobs for over 100,000 people. About a fifth of Belchatow’s wage-earning population works in the mine, according to Iwona Paziak, a spokeswoman for Poland’s largest utility, state-controlled PGE SA, which operates the Belchatow mine and power plant.

Wind Capacity

Poland has made an effort to diversify its energy industry: the country’s wind-power capacity almost doubled in the last two years. But the government is preparing a new law on renewables that will cut subsidies for new projects in order to protect the economy and taxpayers, Prime Minister Tusk said.

To limit carbon-dioxide emissions, Polish government plans instead to build at least 1,000 megawatts of nuclear capacity in the next 10 years and have as much as 6,000 megawatts by 2035, it said in January. That, again, is pitting it against Germany, which decided to shutter all 17 of its nuclear power stations by 2022.

The trouble is nuclear construction presents a huge expense the government can hardly afford, especially as the power prices hover near record low. Coal therefore remains the country’s most affordable source of energy that also provides relative independence from Russia.

To contact the reporter on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.netTodd White