Industry Trend Analysis - Wind Sector Slowdown In Play - MAR 2018

BMI View: We expect slow wind sector expansion to be the new norm in Poland, as stringent government regulations and the limited capacity on offer in auctions will end the growth momentum registered prior to 2017.

The rate of expansion in Poland's wind power sector slowed substantially over 2017 - in line with our expectations that punitive policy would sap growth momentum from the market. In fact, the 41MW added over 2017 means that the market went into a near standstill. This is in stark contrast to 2016, when the market added 1,255MW of wind capacity and was one of the fastest expanding markets in Europe.

We stress that the investment environment for wind power was hit adversely upon the formation of a Law and Justice (PiS) government in 2015 (see 'PiS Victory would Halt Wind Power', October 5 2015). This is due to the party's implementation of the Wind Farm Act which included tough location requirements, the introduction of rolling two-year power generation permits and stringent repairs and modernisation requirements (see 'Punitive Requirements To Suppress Wind Sector', March 10 2016).

Growth Momentum Ended
Poland - Wind Capacity And Coal Share Of Total Generation
e/f = estimate/forecast. Sources: EIA, EWEA, BMI.

As such, wind capacity installed over 2016 was largely facilities that started their development prior to the PiS taking power - and were finalised over the first half of H116. This was due to the green certificate scheme closing in H216. After the closure of the scheme, there has been little progress in getting new-builds online in Poland. We believe the transition to an auction-based system will do little to restart growth in the sector given the lack of government ambition - particularly as only 150MW of capacity was procured over 2017 ( see 'Auction Mechanisms Unlikely To Offset Wind Slowdown', January 12 2017). We also note that wind power facilities will struggle to compete in broader auctions, due to strict capacity factor requirements and tough fines should a successful wind farm operator fail to meet output requirements in the future.

This feeds into our downbeat outlook for the Polish wind power sector; we expect capacity to expand by an annualised average of 2% between 2018 and 2027. Over 2015 and 2016 the equivalent growth rate was almost 29%. This means the sector will comprise about 6.8% of total power generation in 2027, up from about 6.5% over 2017.

Coal Focus To Hit Wind Sector Opportunities

Poland's continued focus on coal-fired power will be one of the key reasons we see limited scope for continued robust growth under the PiS government. Coal-fired power is of great socio-economic importance in the country, with thousands employed in coal mining activities. We also note that the Polish government orchestrated a bailout of loss-making miners in 2016, illustrating PiS' strong backing of the sector. Furthermore, there are a number of coal-fired power plants slated to come online, in order to replace aging capacity that has closed down due to European emissions directives ( see 'Coal Dominant, But EC Likely To Curb Long-Term Expansion, January 17).

This leads us to expect that Poland will continue to curb the domestic renewables expansion, with the aim of supporting these new coal facilities as they come online. This is largely because intermittent renewable energy drives down electricity wholesale prices in Poland, which hits the profitability of baseload coal generation.