How are energy prices calculated?
According to the law, the electricity produced must be sold on the energy exchange. The Polish Power Exchange (TGE) has been operating in Poland since 1999. Its task is to enable effective trade for producers and sellers of electricity and gas, and to hedge the risk related to price fluctuations on the energy market.
The exchange price of energy is determined by the most expensive unit operating in the system, i.e. the so-called marginal price. Energy prices on TGE in annual contracts for 2024 are lower than a year ago. Does this mean reductions for consumers?
Lower stock market prices mean lower prices for consumers?
First of all, it is worth explaining what determines the final price of electricity for consumers. Tariffs for their customers are always calculated by a specific company selling or distributing energy. The Energy Regulatory Office, or URE, also participates in the process. The President of URE is responsible for balancing the two parties to the transaction: energy producers and sellers and end users. In practice, this means that the President of URE is the auditor of the costs presented in the applications for tariff approval submitted by companies. Before the office approves the tariff, it checks whether the costs presented by the company are justified, referring to bilateral contracts, prices set within capital groups, and settlement prices on the Polish Power Exchange. How does it look now?
The President of the Energy Regulatory Office confirms that the above costs are lower than in last year's contracts with delivery for the current year. Unfortunately, based solely on this data, it is not possible to clearly determine whether energy prices for consumers will be lower in 2024. In order to effectively forecast electricity prices, applications from companies are needed. And these do not exist yet.
The establishment of NABE and the energy pricing process
The merger of all coal-fired power plants into one structure – the National Energy Security Agency (NABE) – is the largest organizational reform in the Polish energy sector since 1989. The purpose of establishing NABE is to ensure Poland's energy security during the energy transformation, i.e. until nuclear power plants are built.
Will the establishment of NABE affect the energy pricing process? No. NABE will include energy producers, not its sellers. In turn, the President of URE will not ratify producers. There is no doubt, however, that the establishment of the agency will affect the Polish energy market. It is estimated, however, that we will not feel the changes until 2025. This is due to the fact that NABE has not yet been established, and energy contracting for next year is already underway.
Amendments to the Energy Law and the Renewable Energy Sources Act and other changes in the energy market
Recently, there have been many changes in energy regulations in Poland. One of them was the amendment to the Energy Law and the Renewable Energy Sources Act, which is a consequence of the EU directive "Clean Energy for All Europeans". One of the most important solutions introduced by the Energy Law is the so-called direct line connecting the energy producer and the energy recipient. This is a response to the expectations of large industrial recipients, for whom the possibility of producing renewable energy in the immediate vicinity of the plant and its self-consumption is important. The change is to contribute to the creation of local energy sources. The company will be able to use the energy produced on an ongoing basis, without having to connect to the national power grid. This, in turn, will translate into a reduction in the carbon footprint.
Another solution that will change the Polish energy market is cable pooling, or so-called network sharing. Cable pooling will allow for more efficient use of existing connection capacities.
The Polish energy market is constantly changing. Are we in for an energy revolution? Will prices finally start to fall? That remains to be seen.
