How Poland Is Building a Renewable Power System - R.Power Renewables

I'm your host, Ed Porter. Welcome back to transmission. Poland has cut coal share of power generation almost in half in a decade. Renewables now make up a third of the country's supply, but coal plants can't switch off quickly. So when the sun and wind flood the grid, Poland can't use all of it and prices go negative. The result is a grid still catching up, but Poland is moving fast. My guest today is Tomasz Sęk, founder and COO of R.Power Renewables, responsible for a 1.7GW, 6.3GW storage portfolio, one of Poland's largest. We get into the capacity market, the power dynamics and just how quickly Poland's grid is changing. Modo Energy's Polish forecast tracks battery revenues on a project by project basis through to 2060, and Modo Energy users can also track current revenues using our Polish virtual assets. Sign up is free and take seconds. Let's jump in. Welcome to transmission. Pleasure to be here. And as ever, let's get straight into it. So what's one thing that people consistently get wrong about the Polish power market? Well, I think people don't understand how renewables became important in Polish power market. Historically, Poland has been 95% coal energy generation. That has changed over the last 5 to 10 years quite significantly now. Coal represents only 55%. Roughly 5,055% of the energy generation and renewables are. Last year actually generated more than 30%. So Poland very, very quickly is transitioning itself to a to to an energy system that is renewables dominated. And that's a massive change. And that's a massive investment that has been happening over the last roughly ten years. And actually quite interesting. You were saying before, like there's a little bit of, like, perception inside Poland. A perception from outside Poland, the outside Poland, people might think, oh, it's still coal dominated and it still is coal dominated, but much less so. And within Poland, do you think there's a much better understanding that the system is changing? It is. It is because we we had. Two. Waves. Of the investing into renewables in Poland over the last ten years. One is a utility scale, which is happening a little bit behind the scenes. So people do not necessarily see that and understand that which is which is understandable. But the other one was the prosumer investment, which is essentially small installation on your rooftops. And that really has taken Poland by a really, really became popular. I think it's roughly 1 million of the rooftops that have that have the PV installation. So definitely people understand that the renewables are there and they are helping the system. A lot of people are enthusiastic about it and they are using that they are having on their iPhones, on their smartphones, apps and just basically checking how much energy has been has been generated by their by their installations. So people do understand in Poland, I think outside of Poland, there's this still even in the business circles, still this, this, this notion that Poland is heavily dominated by the fossil fuels. And that's in a way is true because Poland is the most fossil fuel. Fossil fuels dominated one of the most fossil fuel dominated economies in Europe. However, there's been a lot of progress made, and that basically shows that the transition green transition even can happen even in a country that has been starting from the very, very scratch and can be going very fast, much faster than anyone predicted. So I, I think the just thinking about the future, the numbers are going to keep growing, keep growing and growing. And yeah, it just makes a lot of sense indeed. And as someone developing batteries, right. The the sort of coal dominance or not, not to the 95%, but to the 55% that you were talking about. Yeah. Is that a is that a good thing for you, or is that a is that a sort of bad part of the market. Well so for let's let's. Differentiate between batteries and the renewables. So for the renewables it's very tricky because coal dominated energy system is not very flexible. It's not very elastic. So that basically is the biggest challenge for the energy system because calls you coal generation is not very flexible generation. But at the same time that creates a big opportunity for the batteries because it it creates a swings in the prices, making the batteries quite attractive from financial side and also just very, very supportive of the stabilization of the energy system. So the the battery opportunity in Poland is massive and is going to be very helpful to support, uh, for the transition, uh, energy transition into the renewable denominated, uh, dominated system. Yeah. And I think from a sort of that non flexibility. Right. So we have uh I think for 2026 I think it's Spain that's sort of showing the the sort of most negative prices so far this year. But we're also seeing regions like France and Poland having quite good or quite high numbers of negative prices coming through. And that's because their fleets are quite inflexible. So the French nuclear have been not, not as flexible as, say, gas. And then it's also the polish. That's exactly the reason. That's exactly the reason you need to keep basically you cannot you cannot switch off all the coal plants when you have a lot of sun or you have a lot of wind. So basically you what you do, you, you curtail, you have too much energy. And when you have too much energy, then you can have really a negative prices, which is a very, very peculiar phenomenon because in most of the industries, it's impossible to have negative price for the good that you're delivering or for the service that you're delivering in energy system you can actually have if you have too much energy, then suddenly the prices can be negative, which incentivize you to switch off from the grid and stop producing for a for a certain certain period of time, typically a very short one, but a certain period of time. And I suppose as a battery developer, you'd kind of be seeing that opportunity where battery developers get competition from in other areas would be things like gas units coming through gas resets. Do you see gas coming into Poland, or do you think it will kind of leapfrog gas and go sort of straight from coal into renewables and battery? No, no. There's going to be a gas. And and there are two technologies in will to simplify. There are two types of installations in gas technologies. The installations that typically produce a much a lot of energy throughout the year. And this these installations these are coined. These are called combined cycle gas turbines. And these installations are important when you transition from the from the coal into the renewables. But you still don't have enough renewables and supported by the batteries because they can actually deliver quite a lot of energy in a quite stable way at a relatively, uh, efficient cost. And the other, the other type of installations are open cycle gas turbines, which are basically gas pickers. So these ones are supposed to only work when there is no wind and no sun. So from that perspective, the gas has important role in any energy system in Poland, including there is quite a lot of investments happening right now, especially in the first category and the second category, which is these. These speakers also will become important and will become important in the renewable dominated energy system, because renewables will be able to deliver roughly 80% of the energy and the 20% remaining 20%. I'm simplifying obviously, the numbers, the remaining 20% will have to be delivered from other sources, and gas speakers will be important for that. Okay. And moving on from sort of the the mix of generation, let's go into the players within the market. So Poland is sort of unusually vertically integrated in comparison to the rest of Europe. You have a sort of dominant TSO and then you have state generators. Does that change your sort of view of the market? Because obviously you're active in sort of other regions your Germanys, your Italy's, your Spains. But but Poland is a little bit different. No, that doesn't really because transmission and distribution is separated from the generation and separated from the retail. So even though a lot of these players are the same capital groups, they are behaving a little bit like a separate, separate entities, even within the same capital groups. So from that perspective, obviously, well, it does not. It does not. I mean, it's behaving it is behaving very similar to other markets. I don't see that as a big of an issue from the renewables and the storage perspective at least. Okay, maybe this is a bit of a tradie type question, but we are perhaps a little bit behind the scenes at Modo. So we've been obviously working a lot on our Polish forecast recently. Yeah. Which is which is now out. And one of the questions we were really asking ourselves, which is like where does the volume go in terms of trading? Does it go into the day ahead market? Is it going to the intraday market? And what we were kind of seeing was the sort of relatively low intraday market today in Poland. Yeah. But we're sort of thinking well will that grow and be more similar to other regions. Yeah. Do you do you sort of have a view on that. Well so obviously as you have more more storage I think in the market there's going to be opportunity to use intraday market and there's going to be more flexibility in the system. So obviously the head market is a better type of the market for the regulator and for the grid operators to manage the energy system and balance the energy system. But as you have more flexibility in the system brought by the by the by the batteries, I think there might be an opportunity for that. But really from our perspective, from our perspective, from our perspective, we are not a trader. Obviously we are. We are infra player who which builds, among other things, batteries. So the more opportunity and intraday for the for the for using the batteries, the more attractive it's going to be. The this opportunity. Maybe sort of like a follow up question on this. As someone who owns the assets and you're looking for third parties to optimize those assets. Yeah. Like who's the best third party to go to is are you best to go to sort of the legacy player who's been optimizing assets in Poland for, you know, for decades? Or are you best to go to a small, nimble startup that's looking at batteries? That's a great question. I would love to know the the answer, I think the the the the response is basically diversify. So, you know, you don't put all the eggs in the same basket. You go to a different guys. From our perspective, obviously it's always important to to have a reputable and a large player because we build we build large, large assets. So, you know, our typical battery is between 200 and 300MW, 1000 megawatt hours. So we cannot go to a very, very small player unless this particular player is partnered with a large utility or large trader, and the small, nimble. Seem to be a little bit better prepared and moving a little bit faster in terms of in terms of the putting infrastructure in place, IT infrastructure in place and just getting ready with the certification. The larger players are lagging a little bit behind. But what they have, they have massive financial power, which basically means that they can guarantee provide the security for us with those assets. And we typically sign with those with those types of companies, very long term contracts. And we need the security just to make sure that, you know, that we are we are safe. That's useful. Then if you want to say bring debt into projects and. Get which we always. Do. There you go. I mean, that's typical. A lot of companies in our industry always bring depth. It's infrastructure. So the capital expenditure is massive. You spend a lot of money. Energy transition costs billions and billions of euros in any market. And in a market like Poland, with almost 40 million people, that's been heavily dominated by by Cole. The spending level is just insanely big. So obviously that is a very important factor in making these things happen. So you mentioned that one of your assets was a four hour system. So getting towards almost a gigawatt hour or exactly a given hour. Yes. And is that I think that's driven a little bit by the capacity market that's been in. Absolutely. So what's the story of the capacity market in Poland so far. And, and and how is it changing. So capacity margins. Let me start with explaining a little bit of the capacity market. Capacity market is the service that is being procured by the grid operator, transmission operator. Uh, in order to have a flexibility in energy system. And it's a great tool to allow owners of the assets to have some of the revenues secured, because inherently batteries are a very, um, let's say, a very unstable from the revenue revenue perspective type of installations. Because what you do, you do the arbitrage. So basically you buy energy at low prices, you sell them, you sell the energy at the high prices. So in order to provide a little bit of financial security for the for the asset owners, what the and also incentivize building those assets, what the what the transmission operators do throughout the Europe. They introduce the capacity market which is providing a typically a fixed fixed fee or some types of guaranteed fee for building and having these assets, these batteries ready in the energy system. And that's a very important, very important tool to incentivize building, uh, building those those assets. We were fortunate to we are fortunate to have the largest portfolio that's been that secured the capacity market in Poland, almost 1.7GW, 6.3GWh, which we which we are deploying, we started deploying last year, and we'll be building for the next three years or three and a half years. So yeah, so it's super important element. And it incentivize a lot of investors to, to, to um, to present the projects to the market and to start deploying capital to these projects. And it's changing quite quickly. It is the early rounds of the capacity market were quite good in terms of they they were quite generous in terms of the de-rating. So those projects have got a good chunk of capacity market revenue. Now it seems like the rating is coming down, and it's perhaps getting closer to where other capacity market ratings are across Europe. Yeah. Yeah. So so the rating meaning basically that that how much of the fee or how much of the support this. These, these. These assets get yet. So basically if you look at the last 3 or 4 years, those assets the support level has been falling quite significantly. But that's fine because CapEx has been falling quite significantly. So that was the one one driver behind that. The other driver was that capacity market in Poland was technology agnostic, meaning that we had all types of technologies participating in competing in this in competitive process, competitive auction and the batteries because of the fall of the CapEx. So how much it costs to, to to build them became so competitive that they pushed, uh, pushed away from this process or basically priced out of this process. Gas speakers and gas, gas, gas installations, about which I was, I was mentioning earlier. And that's also fundamentally not. A. Healthy thing for the energy system because you need both. So what the grid operator was trying to do was trying to kind of make both of the technologies be close in terms of competition and succeed at that, because quite a lot of the gas installation also managed to to enter into the capacity market, but still batteries. Because of the fall of the all the improvements in the CapEx all managed to compete even at this lower rating factors. So slower. Lower support. Levels. We could still see more rounds of batteries coming through in future capacity markets. Uh, yes. And I think the idea is to, to, um, to, to transform the capacity market so that it reflects that the batteries and the gas installations are fundamentally both required and a little bit different play a little bit different role in the in energy system. And that hasn't been in the original design of the capacity market has not been the case. Yeah. And now as far as I understand, there are there are works on the system that would take this into account, hopefully allowing both of the installations to compete in parallel for the most optimal projects for the most efficient projects not compete against each other, because having too much of any of those things, or squeezing one at the expense of another, is not correct for the and appropriate for the energy system. So if you need ten days of continuous generation in the middle of winter. Good idea to have gas if you need flexibility in the middle of a summer day. It's pretty bad idea to use gas for that. You should probably be using some batteries. That's exactly the case. If you have a lot of renewable energy, you should start it and push it to the evening, or you should push it to the next day. If you have so-called Dunkelflaute, which is basically no sun, no wind for, for, for for a few days, typically in November, December or January, then. Yes. Then you need those gas pickers to, to switch on and produce the energy. Okay. Let's move on then from the capacity market and let's go to the route to market. So as you said you're an asset owner. So you rely on these kind of route to market contracts to get projects built. Um, you've recently announced a deal with Axpo looking at a floor plus a profit share. Yeah. Um, as people who listen to this podcast regularly will know, there's lots of flavors of these agreements. Um, and sort of the most sort of contracted is probably a full toll or a complete toll where you lock in a very fixed revenue for your assets. Why did you go for a floor plus profit share rather than a toll? Well, so you try to build a portfolio of the assets. I've mentioned that we have quite a few assets that we are planning to deploy, and we're doing both. So we're doing the full tolling and we're doing the floor with the revenue share. Um, however, even those with the with the floor and revenue share that the floors are quite, quite high in a way that they provide a lot of security to the as financial security assets. So I know that in UK. You would. You could have a very low floor and a high revenue sharing. That's not what we are doing with our floor revenue sharing. There are still. Relatively high floors. So we do the the mix of those. And the reason we're doing a mix of those because obviously you there is an upside. Well the risk and ups and upside to having revenue share and especially those assets that are early in the market when the market is not such saturated in theory, should benefit from this upside. So that's why our first agreements are our our floor revenue share. But our subsequent agreements are going to be full toll. So there's going to be. Mix of those. And you look at Poland as a market. It's it's the sort of inflexibility of the coal. The spreads are very good. Yes. You've got this sort of domestic enthusiasm for solar on rooftops. You said a million earlier and like all of those things add up to generally a market that might have quite, quite large spreads, quite a lot of need for flexibility. And so from where I'm sitting, unless that toll is a really good offer, like I kind of want the profit share, I want the upside. Yes, exactly. But at the same time, if you if you are an infrastructure player, you want to balance your overall risk sum. So I know I'm leaving some of the value on the on the table. Yeah, because of that. But at the same time I'm managing the risk profile of the of the entire portfolio. So there is a, there is a fine balance that you need to strike. And depending on your appetite for the risk, you can basically go more towards revenue share. But in our case we prefer a little bit more, uh, a little bit less aggressive structures. I hear you. Okay. Let's and we've talked a lot about batteries so far. Let's talk a little bit about solar as well. Um, you've recently signed some some big deals. Yes. So 15 year solar deals with groups like Amazon for example, or Cisco. Um, but we across Europe more broadly, I don't think we're seeing that many of these sort of single technology deals being signed. Um, because people are starting to see negative prices coming through and the off takers are getting concerned about those negative prices and whether it's sort of good value. So do you think that sort of vanilla solar PPA will carry on getting signed? Or do you think that it's kind of. That's where the batteries are starting to come in. And you're going to start to see sort of multi technology PPAs. Yeah I think they're going to morph into the or transform into the Hybrid PPAs more and more. And we're having we're already seeing that actually we're seeing more and more discussions. So we're having more and more discussions on the modified profile type of power purchase agreements, which is essentially a bilateral agreement with a large corporation that wants to buy energy for many, many years. And historically, it was just one technology. And for example. For example, solar, now it's two technologies combined. So basically a solar combined with the battery storage, which makes the profile of the energy that we are delivering to the, to the, to this, this corporates, uh, much more attractive for them and also much more flexible for them. So pick shifting I mean I'm getting into the more technical stuff, but basically peak shifting, which is basically putting some power from the middle of a day into the battery and then, um, discharging this power in the evening. That's the type of the deals that we are starting to to see interest. There are more complicated. So I have to be honest that these discussions are only beginning to to happen and transition from the plain vanilla into the hybrid. People will take a little bit of time, but but definitely that's the that's the road that we're going to go. But but it makes sense right. If you're a hyperscale and you're getting very cheap solar in the middle of the day, but then you're getting hit with like a high fee at the at the end of the day, because you're having to rely on thermal units like, okay, well, that's the problem you need to solve. So so you kind of need both texts. That's that's I think the exact logic that they're going to be driving this. Okay. And let's let's say you I'm going to quote you now 1.7GW, 6.3GWh of BESS coming live in Poland. With capacity markets. We have more. But that's what we have with the capacity market. With capacity market okay. And what is the what's the what's the thing that stops you getting all of that online tomorrow? Um, is is it sort of regulation? Is it availability of grid connections? Why is it slow? Or is there something slowing you down? We think we're running. Okay. Um, the reality is it's a lot of the investments. It's a lot of a lot of construction. So obviously the the procurement takes time. So basically you need to have a transmission station built. You need to order cables, you need to order the storage systems. So that's one thing. The other thing, which is probably the most frequent answer that you would hear during this type of conversations is the connection availability. So typically throughout the Europe Poland is not exception. If anything is more acute, you have a grid that is congested. And in the grid operators need to do the their own investment in grid reinforcements in order to be able to connect and bring online different generation and storage sources. So obviously whenever we get the grid conditions. We. We get a certain date by which these grid conditions will be. Will enable us to connect the the asset. But in our case, in case of those particular assets that we've mentioned, we have quite, uh, immediate bias standards and infrastructure, energy sector conditions is just simply the construction process. And the financing process takes a little bit of time. I think we were doing it very fast. I mean, having this much of the capacity build within the next 18 to 24 months, that's, that's that's quite rapid. That's really good. That's that's really good. Yeah. So people listening who aren't in energy, that sounds like it's really slow. But for people who are listening, who are seeing the grid queues in other countries, 18 to 24. It's almost insanely, insanely, insanely fast. We almost are in the kind of the, um, war room type of mode, basically for those particular assets, because we see this opportunity as a very, very beneficial for energy system and obviously for us financially. And that's why we we decided to put all hands on deck and basically just focus on those particular assets in other markets as well. So we have a few assets in other markets, but in Poland in particular, they are especially needed. And that's why the approach is more of a kind of war room, just all hands on deck and try to, to to bring those online as well as soon as possible. Okay. I think the only market that's maybe quicker is Texas. That might be the only way. Well, yeah, of course in the US. Yeah. I mean I would imagine China would be even. Oh yeah. Yeah, it would be. Faster. But yeah for Europe that that that that's pretty fast. Yeah. Absolutely. Okay. Um, let's then go back to the big picture on Poland. So if you could just change one thing about how the Polish system is designed or regulated. Uh, let's say you're in charge tomorrow. What would it be? Oh, my God, that's a that's a very loaded question. I think there is a there is no one single unfortunately, there is no one single answer to that because I would love to this to be because then you can basically try to convince and try to try to propagate that particular idea. There's plenty of other, other things, I think. The one thing that I would love to see is basically faster. Faster and faster regulatory process. Uh, quicker. Quicker from. Agreeing that something makes sense. On the on the legislative side to bringing it to the. To actual fluctuation in a way of a new act or new new or new laws happening. So that takes a lot of time. Even though there is a common understanding, there is agreement that certain things need to. Uh, that need to happen, for example, the auctioning system in Poland needs certain certain corrections. Uh, there has been an understanding about that and an agreement about that for the past two and a half or three years. This still hasn't happened. So basically. So basically, I would love to see that happen. This this process is happening much, much, much faster. Okay. And then that auctioning process. What is that auctioning? Sorry. So this is a renewable auction. So when you have renewable assets like wind. Wind, onshore wind and photovoltaics, participating options and securing the price. And there are some technical, technical technicalities which make this a little bit inefficient right now. Uh, and not working properly as it was intended. So these are technical solutions that make a lot of pain for us, but really are not important from the kind of grand scheme of things. But, uh, we would love to see those solved much faster. And consumers don't care, right? They don't know the technical part of it. They just want to get it done. Yeah. Move on, get it, get it, get it in place as quickly as possible. Okay. Um, then a final question. So what is a view that you hold about the Polish power market that most people in industry wouldn't agree with? Well, I don't know about, depending how you count most people in the industry because in particular in Poland you have two groups of people. You have the people that are fossil fuel based energy generation, and there are renewable generation people. I think the renewable a lot of renewable generation people would tend to agree with me. I think the fossil fuel people that might find that statement or claim controversial, but I think the Poland can became very quickly renewable, renewable dominated energy system with 70 or even more percent of the energy produced to the from the renewables. And as long as it's supported by the by the large deployment of the batteries. And the controversial part is it's going to be much, much cheaper than, than any fossil fuel or any other technology in order to produce the energy. So I think we can be Poland can be competitive from the energy cost production. Uh, despite that, it's a relatively northern country. But we can be very, very, very competitive. We can have a cheap energy based on the renewable renewables supported by the large batteries, I think. I think a lot of people don't don't believe in that. Hasn't done the modeling required to do that and claim that there are some hidden costs that. That are associated only with renewables and they are not associated with the fossil fuels. So how so this this might be the sort of million of billion dollar question or the secret sauce. So how does Poland keep its transition cheap. Like what? Do you have a feeling of like what makes Poland a great place to put those renewable assets or those battery assets and do it in a cheap way. So we can do it cheaper? We I think we're doing it a cost efficient. And I don't want to use the word cheap because it's a, it's a it's a loaded word. But we are doing it cost efficient. Now we can do it even more cost efficient if the cost and time required for preparing the projects, what we call developing the projects, doing all the permitting would be would be shorter and it would be easier to do that. And now it's super complicated. Takes a lot of time. Years in case of the onshore wind projects. It takes seven years even to develop the projects. In some other markets it takes a fraction of that, and obviously that creates a lot of risk. Systemic risks in the system and simply costs a lot of money. So that needs to be built into the, uh, into the cost of energy later on, because no one will do it for free. So that would be a one thing that would help help Poland even further. But other than that, there is a lot of companies, a lot of developers developing the projects. Poles are very entrepreneurial. This sector is super entrepreneurial as well, and a lot of good quality projects are being prepared. So I think from that perspective, it's just a there's no avoid people seeing the opportunity, the understanding, the need, and they're seeing the need and they're acting on that. Yeah Tomasz I love it. It's a great it's a great contrarian view. I think it will be well received by our listeners. And just to say. Hopefully. Hopefully, hopefully just say thank you very much for coming on. You've been a wonderful guest. Thank you very much. Thank you for having me.