Geothermal Energy Systems Assessment - A Strategic Assessment of Technical, Environmental, Institutional and Economic Potentials in Central and Eastern European Countries

1 Volume II.A: Country Profile - Poland

1.1 General Background Information
1.1.1 Map of Poland
1.2 The Energy Sector
1.2.1 Energy Supply and Consumption
1.2.1.1 Energy Supply and Consumption in Relation to GDP
1.2.1.2 Energy Supply and Consumption Based on Energy Source
1.2.1.3 Energy Consumption Based on Sectors
1.2.2 Energy Efficiency
1.2.3 Energy Sector Structure
1.2.4 State-Owned Energy Enterprises
1.2.5 Prices and Regulation
1.2.6 Environmental Issues
1.2.7 Renewable Energy
1.2.8 Energy Situation
1.3 Geothermal Energy in Poland
1.3.1 Provinces with Geothermal Energy and Projects
1.3.1.1 Carpathian Province
1.3.1.2 Fore-Carpathian Province
1.3.1.3 Lowland Province
1.3.2 National Institutional Factors Related to Geothermal Energy Development
1.3.2.1 Institutional Responsibility for Energy and Environmental Issues
1.3.2.2 National Funding Sources for GE in Poland
1.4 International Collaboration on GE Development in Poland
1.4.1 The European Union
1.4.2 EBRD
1.4.3 World Bank/GEF/IFC
1.4.4 Bilateral Donors
1.5 Summing Up
1.6 References
1.7 The Case of Zakopane, Podhale
1.8 The Case of Mszczonów

1.1 General Background Information

Through the 1990's, Poland experienced strong economic growth (table 1). In the period 1993-98 the average annual GDP growth rate was as high as 5.9 per cent. The growth remained strong, although it decrease to 4.1 per cent in 1999 and remained unchanged in 2000. The most direct impact came from the crisis in Russia and other Commonwealth of Independent States countries, which account for about 15 per cent of official Polish exports and a large share of unrecorded trade. Also, the relatively slow growth of the European Union (EU) economies, which account for almost three quarters of Polish exports, has recently limited the options for export growth.

Table 1
GDP Growth Rate (annual per cent) 1995-1999

1995

1996

1997

1998

1999

7

6

6.8

4.8

4.1

Source: www.worldbank.org

Poland joined OECD in 1996 and is a member of the Central European Free Trade Agreement (CEFTA). Poland is planning to enter the EU in the union's next expansion, and the country is in the midst of reforms necessary to meet membership criteria. Poland's Association Agreement with the EU came into effect in 1994 and the first round of EU Membership negotiations started in 1998.

Table 2
Energy Economic Key Figures for Poland

Country size in square kilometres

322 577 km2

Population size

38.654 millions (30.6.1999)

GDP per capita USD 95

4 061 (1999)

Annual energy use per capita (TPES toe)

2.42 toe/cap.(1999)

Average annual growth rate per cent of energy use (1990-1998)

-0.6 per cent (1990/1998)

Annual growth rate per cent of energy use per capita

-3.82 (98/99)

TPES/GDP

0.59 (1999)

TFC/GDP

0.39 (1999)

CO2 per tonne oil equivalent - (CO2/TPES toe)

0.879 (1999)

Annual emission of CO2 (million tonnes)

84.54 (1999)

TPES/TFC

1.51 (1999)

Net Import (Mtoe)

9.27 (1999)

Electricity Consumption (TWh)

122.62(1999)

Source: A combination of statistics from various sources1

Full membership of EU is a main foreign economic policy goal in Poland and progress on economic and social reforms, together with improvements in environmental quality and management, will be key to paving the way for Poland's accession to the EU. In recent years, Poland has become a leader among the CEEC in terms of the volume of foreign direct investment. Strong perspectives for the Polish economy, relatively low labour costs and a large labour pool, the size of domestic market, the prospect for EU accession and a general good business climate are all factors that have made Poland attractive to foreign investors.

1.1.1 Map of Poland

Source: www.countrywatch.com

1.2 The Energy Sector

In April 1997, the Polish parliament adopted a new Energy Law, defining principles for developing the national energy policy. The Law went into effect in December 1997 and intended to ensure an efficient and rational use of fossil fuels in the country, taking into consideration environmental protection requirements.

The Government Economic Committee was required to pass "Guidelines on Poland's Energy Policy Through 2020." This document was adopted in February 2000 and spells out long term energy forecasts and action plans for the Polish government. The key objectives include: Increased security of energy supplies; diversification of sources; increased competitiveness for Polish energy sources on domestic and international markets; environmental protection; improving energy efficiency; and reducing energyrelated emissions.

A strategy on renewable energy was endorsed by the Polish Council of Ministers in September 2000 and it sets a target of 7.5 per cent of primary energy to come from renewable sources by 2010, compared to a level of around 4 per cent today.

1.2.1 Energy Supply and Consumption

Energy use per capita is fluctuating through the 1990's with a peak 'period' in the years 1995-1997, which corresponds to a high level of GDP income during the same years. Despite impressive growth in GDP, Poland still has a relatively small energy use per capita compared to other CEECs.

Table 3
Annual Energy Use (toe per capita)

 

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

TPES/-
population

2.62

2.58

2.54

2.64

2.51

2.59

2.79

2.68

2.51

2.42

Source: IEA, International Energy Agency

Based on figures from table 4 it looks like Poland is moving toward a lower level of energy use per capita despite positive GDP growth.

Table 4
Annual Growth Rate of Energy Use per Capita

1990/1991

91/92

92/93

93/94

94/95

95/96

96/97

97/98

98/99

-1.69

-1.50

3.88

-4.68

3.15

7.50

-3.74

-6.32

-3.82

Source: IEA, International Energy Agency
Example: ((1991-1990)/1990) * 100 = per cent change
Average • (1990-1999) / 9 = -0.61 per cent

Poland is a net importer of energy (table 5). Imports increased during the 1990's by approx. 440 per cent, and by 1999 accounted for about 10 per cent of TPES (table 5). Poland's export and import of energy was more or less equal in 1994 and 1995, but since the import of energy has increased significantly more than the export.

Table 5
Net Imports (Mtoe), TPES (Mtoe) and Electricity Consumption (TWh)

Look here!

1.2.1.1 Energy Supply and Consumption in Relation to GDP

From 1990 to 1999, Poland experienced a 33 per cent decrease in energy dependency in relation to generation of GDP (table 6), indicating some success in decoupling generation of GDP and use of energy (TPES).

Table 6
TPES/GDP (toe per thousand 95 USD)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

0.88

0.93

0.89

0.90

0.82

0.79

0.80

0.72

0.64

0.59

Source: IEA, International Energy Agency

Table 7 (TFC/GDP) shows that energy consumption (TFC) in relation to GDP has been reduced, but not to the same degree as TPES. This means that Poland is improving its energy efficiency using less energy on extraction, production, generation and distribution of energy. See section 1.2.2 for further details on this matter.

Table 7
TFC/GDP (toe per thousand 95 USD)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

0.55

0.58

0.56

0.58

0.53

0.51

0.51

0.47

0.42

0.39

Source: IEA, International Energy Agency

1.2.1.2 Energy Supply and Consumption Based on Energy Source

Poland is the leading energy consumer among the CEECs when it comes to consumption of fossil energy. The energy structure is similar to that of other Eastern European Countries, relying heavily on fossil fuels to meet its energy needs. Coal represents around 2/3 of the total energy supply in Poland, oil another 1/5 and natural gas nearby 10 per cent (table 8).

Poland has only minor reserves of oil and natural gas and most of the oil and gas consumed in the country is imported from Russia. Currently the Polish Oil and Gas Company (POGC) is state owned, but it is planned to privatise the company. The 1997 Polish Energy Law contains a rule on third party access, which obliges POGC to make its pipelines available to transport of gas for other companies.

Coal is Poland's most important domestic energy source. Poland possesses significant resources of high quality coal and remains one of the most coal dependent countries in the world. Poland is an important exporter of coal, mainly to countries in Europe and ex-Soviet Republics.

Table 8
TPES2 / Energy Source

 

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Coal

75.41

75.28

73.91

74.36

68.88

70.34

75.74

71.30

64.68

60.90

Oil, including petroleum

13.24

13.30

13.72

14.37

15.24

16.13

18.29

18.80

19.22

19.83

Gas

8.94

7.94

7.76

8.16

8.22

8.99

9.44

9.36

9.21

8.94

Nuclear*

--

--

--

--

--

--

--

--

--

-

Hydro*

--

--

--

--

--

--

--

--

--

-

Geothermal, solar, wind*

--

--

--

--

--

--

--

--

--

-

Renewable and waste3

2.23

2.07

2.14

4.53

4.57

4.60

4.21

4.19

4.07

3.96

Source: IEA, International Energy Agency
*Energy source is not significant or not present

1.2.1.3 Energy Consumption Based on Sectors

The industry sector decreased energy consumption by approx. 25 per cent during the decade (table 9), while transport increased by approx. 10 per cent. Increase in energy used for transport began in the early 90's and continued throughout the decade. Other sectors remained, by large, at the same level.

Table 9
Annual Energy Use /TFC) / Sector

 

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Industry

26.32

23.57

21.55

22.68

22.19

24.18

25.70

25.23

22.64

19.73

Transport

7.59

7.80

7.89

7.82

8.14

8.44

9.46

9.85

9.72

10.80

Others*

27.09

29.67

30.31

34.30

32.15

31.47

32.53

31.31

29.50

29.80

Source: IEA, International Energy Agency
* Agriculture and residential sectors are main 'consumers'.

1.2.2 Energy Efficiency

Poland improved the efficiency ratio (TPES/TFC) from 1990-1999 by about 5.5 per cent (see table 10). Compared to the other CEECs, this place Poland in the middle of the European energy efficiency continuum. This indicates that Poland still has a significant potential for improving the energy infrastructure, but the energy sector (extraction, production, generation of electricity etc.) can also be improved in order to reduce losses from supplier to consumer.

Table 10
TPES/TFC

 

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

TPES (Mtoe)

99.85

98.49

97.32

101.34

96.82

99.98

107.56

103.63

97.12

93.38

TFC (Mtoe)

62.19

61.98

60.66

65.70

63.70

65.00

68.88

67.63

63.13

61.65

TPES/TFC

1.60

1.59

1.60

1.54

1.53

1.54

1.56

1.63

1.54

1.515

Source: IEA, International Energy Agency

1.2.3 Energy Sector Structure

Despite concerns over Polish energy dependency on Russia, it is planned to increase import of Russian natural gas through a transit gas pipeline from Russia to Western Europe currently under construction. It is expected that this project will be completed by 2010.

Recently, POGC has signed a contract with the Danish Oil and Natural Gas Company (DONG) to build a gas pipeline across the Baltic Sea. Poland has also integrated its natural gas system with Siberia4 and Germany and integration with more countries are planned for the future5.

1.2.4 State-Owned Energy Enterprises

Although ongoing, the process of restructuring, and/or privatisation of the Polish energy sector, has been slow due to political obstruction from trade unions and other groups. Some state-owned companies have been transformed into state-owned joint stock companies. Polish law does permit 100 per cent foreign ownership of most corporations. However, the Polish government has intended to maintain a key role in certain strategic sectors such as energy and transportation.

The government wants to complete the privatisation of the 17 power plants, 19 power and heating plants and 33 energy distribution firms by the end of 2002. By March 2001, two power plants and six power and heating plants were sold. Coal and steel industry restructuring is expected to be completed by the end of 2001, and the energy sector will be open to competition by about 2004.

1.2.5 Prices and Regulation

One of the objectives of the Energy Law was to free energy prices and make markets fully competitive. Currently, the Energy Regulation Agency controls energy prices and acts to protect consumers from excessive price rises until the market becomes fully competitive. This arrangement has been criticized from various sides, since it does not permit prices to rise to reflect real costs and thereby function as a subsidy for some (polluting) energy forms, such as coal.

1.2.6 Environmental Issues

Environmental impacts from energy production are of major concern in Poland. In particular, Poland faces serious problems from coal burning in power and heating plants and from coal mining. Coal use accounts for around 90 per cent of SO2-emissions, 79 per cent of NOx-emissions and over 98 per cent of particulate emissions. Around 78 per cent of the CO2-emission from fossil fuels comes from coal, 7 per cent from gas and around 15 per cent from oil.

Through the 1990's Poland has spent an increasing amount on environmental protection and the Polish government has passed legislation and introduced economic incentives to improve the country's environmental situation. Moreover, Poland has adopted the EU's "Integrated Pollution Prevention Directive" and implemented incentives for energy plants to be EU-compliant, as part of the policy aimed at encouraging early adoption of EU requirements.

Poland has developed one of the most sophisticated approaches to environmental management in the Central and Eastern European region. However, Poland still faces severe environmental problems, with major challenges in the fields of wastewater treatment and air pollution. The reasons for this include (a) the role heavy industry has historically played in the Polish economy, and (b) the country's energy culture and reliance on coal for power generation. Although pollution from power generation and industry has benefited from a large investment programme in environmental protection technology over the past decade, sectors such as coal mining and other heavy extract industries continue to produce considerable amounts of industrial waste, as well as polluting the atmosphere.

Table 11
Carbon Dioxide Emissions from the Consumption and Flaring of Fossil Fuels

 

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Million metric tonnes of Carbon equivalent

89.27

88.76

88.93

92.12

87.20

82.99

78.06

91.29

85.37

84.54

Source: EIA, Energy Information Administration

From 1990 to 1999, Poland managed to reduce CO2 emissions by approx. 5 per cent (see table 11). The main factor behind this relatively low figure is Poland's continued large dependence of fossil fuels, especially coal. Poland's CO2 emission per capita shows a similar performance (see table 12).

Table 12
CO2 (kg of Carbon Equivalent) per Capita

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2340

2320

2320

2400

2260

2150

2020

2360

2010

2190

Source: EIA, Energy Information Administration, IEA, International Energy Agency

The small improvement in CO2 emissions that Poland experienced is also illustrated by table 13. The table indicates that Poland reduced CO2 emission per TPES unit by about 3.8 per cent from 1992 to 1998, which is a small reduction compared to the other CEEC.

Table 13
CO2 (kg of Carbon Equivalent) / TPES (Mtoe)

1990

1991

1992

1993

1994

1995

1996

1997

1998

--

--

0.914

0.909

0.901

0.83

0.726

0.881

0.879

Source: EIA, Energy Information Administration, IEA, International Energy Agency

1.2.7 Renewable Energy

Poland increased its share of renewable energy by 2 per cent point from 1990 to 1999 (table 14). Hydro energy and energy produced from solid biomass accounts for the majority of this share. Other renewable energy sources are present in Poland, but they are not significant enough to be included in statistics.

Table 14
Contribution from Renewable Energies and Energy from Waste6

 

1990

1992

1994

1995

1996

1997

1998

1999

TPES (Mtoe)

99.85

97.32

96.82

99.98

107.56

103.63

97.12

93.38

Per cent Contribution from renew. and waste

2.4

2.3

4.9

4.8

4.1

4.2

4.4

4.4

Hydro

122

130

149

162

166

169

199

185

Geothermal (transformation)

--

--

--

--

--

--

--

-

Geothermal (direct use)

--

--

--

--

--

--

--

-

Solid biomass

1 448

1 361

3 692

3 748

3 685

3 680

3 696

3 541

Wastes per cent contribution

0.8

0.8

0.9

0.8

0.5

0.5

0.4

0.4

Other*

--

--

--

--

--

--

--

-

Source: IEA, International Energy Agency
* Includes solar, wind, biogas and tidal energy etc.

1.2.8 Energy Situation

According to the European Commission's Progress Report 2000 for Poland, only little progress has recently been registered within the energy sector. When energy efficiency and promotion of renewable energy sources is concerned, it is stated that this area remains somewhat neglected. The importance of implementation and promotion of renewable energy projects is stated in several governmental development and action plans, but real progress still needs to be seen and this will require more direct financial involvement and targeting from the Polish government and should be foreseen in the national budget

On the administrative side, the Commission recognise that an administrative structure seems to be established. However, due to the complexity of energy sector issues, it is doubtful if the relatively small staff in the Ministry of Economy will be able to manage future development of the energy sector efficiently. Poland is by far the most fossil fuel consuming country in Europe and it needs to deal with this situation.

1.3 Geothermal Energy in Poland

Poland's geothermal potential has been well recognised at the national and regional levels, as well as in many particular parties, by Polish scientific and research institutions and geothermal companies in the past decades. The state of knowledge in this field creates a proven and solid base for project preparation and run for new geothermal plants.

According to the state, energy policy with respect to geothermal energy, is regarded as a local energy source along with other renewable energy sources. Their share of the energy market is projected to reach 6-8 per cent by 2020. Geothermal energy can become to play an important role in local energy markets, specially in the space heating sector.

Taking into account the present geothermal status, activities of national, international and foreign bodies should preferably concentrate on preparation and running of new projects. In order to go forward and make proper progress, availability of sufficient funds remains one of the key factors and main problems to be addressed.

Three geothermal space heating plants went into operation during the 1990s; in the Podhale region (South-Poland), in Pyrzyce town (North WestPoland) and in Mszczonów town (Central Poland). Several other projects await being started pending legal requirements to be fulfilled and/or financial sources made available.

1.3.1 Provinces with Geothermal Energy and Projects

Three main geothermal provinces built of sedimentary basins with numerous geothermal aquifer can be identified within the country.

Geothermal Utilisation Project

Geothermal Province

Area km2

Temp. °C

Drilling Depth (m)

The Banska-Bialy Dunajec Plant

Carpathian Province

12 000

35-100

2 000-3 500

(The Slomniki Plant)

Fore-Carpathian Province

17 000

25-50

150-600

The Pyrzyce Plant
The Mszczonów Plant

Lowland Province

222 000

30-130

1 000-3 000

1.3.1.1 Carpathian Province

The Carpathian Province consists of five sub-basins, whereof the most important is the Podhale sub-basin with an area of app. 475 km2. The water temperature in the Podhale sub-basin range from 36 to 86 °C and the mineralisation is very low (0.1-100 g/l). The main artesian aquifer occurs in a depth of 2-3.5 km. Geothermal water resources have been estimated at approx. 100 km3 with at thermal energy equal to 714 Mtoe.

The geothermal water occurs in the Eocene Epoch and Mesozoic Era geologic formations which are characterised by layers of carbonate wherein the water is contained. Fractures in the carbonates increases water circulation and conditions a high well production.

The Banska-Bialy Dunajec Plant (the Podhale Region) was built in 1987- 1990. After a 3-year trial exploitation period it was used in a geothermal heating network for Banska Nizna and Bialy Dunajec.

The Banska-Bialy Dunajec Plant has now been linked to the central peak heating plant in Zakopane (transmission pipeline - 14 km.) Heat supply will be based on geothermal energy and gas boilers in peak periods. About 30 per cent of the population of Zakopane is linked to this system.

Regions

Surface 103 km2

Water Resources km3 and Productivity m3/h

Thermal Energy in Waters 106toe*

Geological Formations (dominant)

Podhale region

12

100 and n.a.

714

Tertiary Period (Eocene) and Mesozoic Era, both characterised by carbonates (with fractured permeability)

*It is assumed that heat will be extracted at a depth of 3 km and a low-end temperature of 20°C and the waters will not be re-injected.

1.3.1.2 Fore-Carpathian Province

The Slomniki Plant is a relatively new project and situated 30 North of Cracow. Four wells has been drilled and they documented the existence of 2 water-bearing layers at a depth of 150-240 m. (Cenomanian horizon) and 600 m. (Dogger horizon). In both layers low temperature geothermal water (20 °C) occurs. The first layer has a thickness of 5m. and a productivity of around 100 m3/h. The other layer has an estimated temperature of 23 °C, which does not balance the extra drilling cost for reaching this layer, even though the layer is 14-60 m. thick. A newly made well is expected to give access to an aquifer with an estimated productivity of approx. 50-100 m3/h.

Regions

Surface 103 km2

Water Resources km3 and Productivity m3/h

Thermal Energy in Waters 106toe*

Geological Formations (dominant)

N.a.

17

361 and 10-60 (100)

1 555

Palaeozoic and Mesozoic Era and the Tertiary period

*It is assumed that heat will be extracted at a depth of 3 km and a low-end temperature of 20°C and the waters will not be re-injected.

1.3.1.3 Lowland Province

The Lowland Province (Central Europe) consists of seven regions and has two on-line geothermal plants, the Pyrzcyce plant and the Mszczonów plant. The Pyrzcyce plant is situated in the Szczecin-Lodz region in Pyrzcyce town and the Mszcznów plant is situated in the Gruziadz-Warsaw region.

The Pyrzcyce plant operates as an integrated system with both heat exchangers-absorbtion and heat pump gas-boilers. The plant supplies approx. 12 000 domestic customers, and replace 68 traditional heating plants (20 000 tonnes of coal/yr.). The geologic formations are primarily lower Jurassic sandstones and two wells are drilled at a depth of 1.5-1.6 km, which produces around 360 m3/h. The temperature is 61°C and the TDS is 120 g/l.

The Mszczonów geothermal plant lies at the central area of the Grudziadz Warsaw region. The plant is based on a single well construction with two purposes; extracting geothermal water for heating (40°C) and to produce drinking water. This is possible because the TDS is below 1 g/l. The well is extracting water from the lower Cretaceous layer.

In Stargard (75 000 inhabitants), a geothermal project is currently under implementation. Through the project, a geothermal base-load heating plant with a capacity of about 10 MW will be established in order to supply 310 TJ per year (or around 36 per cent of total annual heat demand in Stargard). The total budget for the project is USD 8.5 million, including a DEPA grant of USD 450 000. Other financial contributors will be the World Bank, GEF, NEFCO and, from Poland, National Fund and EcoFund.

A geothermal project in Kolo (20,000 inhabitants) is currently under consideration by DEPA for co-financing. The total project budget is USD 6.3 million and the remaining project funds are expected to be provided by national Polish funding and PCF/GEF grant.

Other projects of geothermal water utilization for heating purposes have been elaborated in Skierniewice and Zyrardow. In the Praga-Poludnie district, a preliminary project has been evaluated.

Regions

Surface 103 km2

Water Resources km3 and Productivity m3/h

Thermal Energy in Waters 106toe*

Geological Formations (dominant)

Gruziadz-Warsaw

70

2 766 and n.a.

9 835

Lower Cretaceous

Szczecin-Lodz

67

2 854 and 360

18 812

Mesozoic -Jurassic, characterised by sandstone

Fore Sudetic-North Holy Cross

39

155 and n.a.

995

Crystallinic rock

Pomorze

12

21 and n.a.

162

N.a.

Lublin

12

30 and n.a.

193

N.a.

Peribaltic

15

38 and n.a.

241

N.a.

Podlasie

7

17 and n.a.

113

N.a.

*It is assumed that heat will be extracted at a depth of 3 km and a low-end temperature of 20°C and the waters will not be reinjected.

1.3.2 National Institutional Factors Related to Geothermal Energy Development

1.3.2.1 Institutional Responsibility for Energy and Environmental Issues

In Poland, the energy sector falls administratively under the supervision of the Ministry of Economy while environmental responsibility is the issue of the Ministry of Environment. The task of creation and monitoring rules governing the energy sector, such as price and tariff control and development programmes has recently been turned over to the Energy Regulatory Authority (covering the electricity, gas and heat sub-sectors).

In May 1997, a new constitution was approved by a national referendum and it brought about the creation of 16 Voivodeships - regional policy bodies - reorganized from 49 former Voivodeships. The Voivodeship authorities are responsible for the civic, social and economic development of their respective region. Implementation of environmental policy is entrusted to the Voivodeships, counties and municipalities. The Voivodeships are responsible for activities, which are particularly harmful to the environment.

1.3.2.2 National Funding Sources for GE in Poland

The main sources of Polish government funding for environmental investments are the National Fund for Environmental Protection and Water Management (NFEP), the EcoFund and local and provincial environmental protection funds.

The NFEP (see below) and local and provincial environmental protection funds collect environmental taxes, fees and fines, levied on polluters. It is estimated the revenues of these funds combined will amount to USD 500 million annually until 2010. The EcoFund (see below) is expected to raise USD 571 million in the period 1992-2010.

1.3.2.2.1 The National Fund for Environmental Protection and Water Management

The National Fund for Environmental Protection and Water Management (NFEP) was established on the basis of an amended act concerning the shaping and protection of nature created in 1989. The Fund's objectives and scope of activities are defined by "The Protection and Shaping of the Environment Act", "The Water Act" and "The Geological and Mining Act". The main objective of the Fund is to provide subsidies and/or preferential loans for projects, which serve the protection of the environment. Special attention is given to ecological activities adapting Polish to European Union standards. The National Fund for Environmental Protection and Water Management is the largest institution financing environmental protection projects in Poland.

The Fund's Implementation is supervised by the Minister of Environmental Protection, Natural Resources and Forestry and controlled by a Supervisory Board, who decides on the direction of the Fund's development; approves the terms of granting financial assistance; receives reports on current activities; ratifies the budget and financial support for projects exceeding 300 000 EURO. The day-to-day operations are coordinated by a management board, which represents the Fund, decides on project financing priorities and manages co-operation with Voivodeship funds.

The most important sources of income for the Fund are fees and penalties for use of the environment. Fees are collected on the basis of the "Protection and Shaping of the Environment Act" for legal activities, while penalties are applicable for activities exceeding legal limits. Fees and penalties are imposed for the following: Draining sewage, air pollution; storage of waste; mining of minerals; cutting down trees and shrubbery; use of farm and forest areas for non-designated purposes. Fees for use of these environmental services are collected by Voivodeship Marshal Offices and penalties are collected by the Voivodeship Environmental Protection Inspection Office.

In the period 1995-1999 the National Fund granted loans and subsidies for an amount of approximately 1 000 million Zl per year (equivalent to around USD 250 million). Hereof, around 75 per cent were given as soft loans and 25 per cent as subsidies.

1.3.2.2.2 EcoFund

The Polish EcoFund is a foundation established in 1992 by the Minister of Finance for the purposes of effective management of funds obtained through the conversion of a part of Polish foreign debt with the aim of supporting environmental protection-related initiatives (so-called debt-forenvironment swaps). To date, the Polish debt-for-environment swap model has been implemented by the United States, France, Switzerland, Italy, Norway and Sweden; hence the EcoFund is managing funds provided by all the aforementioned countries (a total of USD 571 million to be spent in the years 1992- 2010).

The task of the foundation consists of providing of co-funding for environmental protection-related projects. These are not only of crucial importance on a regional or national scale, but also of major influence on the process of achieving environmental objectives, recognised as priorities by the international community on a global as well as European level. EcoFund specifics distinguishing the foundation from other funds providing support to environmental protection-related investment in Poland, in that they exclude the possibility of providing co-funding to target local problems only. Another task of the foundation is transferring best technologies from donor countries to the Polish market, as well as stimulation of development of the Polish environmental protection industry.

The EcoFund provides financial support in the form of preferential loans and/or non-refundable grants. Such grants may be provided exclusively to investments related directly to environmental protection (in the implementation phase), as well as to non-investment projects in the area of nature conservation. The following five sectors are listed as priorities in the EcoFund Statutes: Reducing the emission of gases causing global climate changes; limiting cross-border sulphur dioxide and nitrogen oxides transportation, and eliminating all low emission sources of the above gases; limiting the contamination flow into the Baltic Sea, and protecting drinking water resources; protecting biological diversity; waste management and contaminated soil reclamation.

To reduce the emission of gases causing global climate changes, such as carbon dioxide, methane or freons (CFCs), EcoFund promotes broader use of renewable sources of energy and supports implementation of projects related to energy saving and to improvements in energy use. In particular, these projects cover the following topics: Energy saving in urban district heating systems; use of waste energy from industrial processes and manufacturing (assembly) hall heating; conversion from coal to gas, gas being a fuel with a considerably lower rate of CO2 air emission; use of renewable sources of energy, such as biomass, geothermal energy, wind and solar energy; elimination of methane emission from hard coal mines, municipal landfills, and sewage treatment plants; elimination of halones and freons consumption in manufacturing processes and in finished goods. In the air protection area, EcoFund supports projects dealing with the reduction of sulphur dioxides and nitrogen oxides from power plants and district heating plants (including reduction of cross-border transportation of any such contamination).

1.4 International Collaboration on GE Development in Poland

The main financial international players in Poland are the World Bank, EBRD and the European Union. Also NEFCO and NIB are involved in Poland, with support to the Staargard Geothermal Project.

1.4.1 The European Union

Since January 2000 there are three instruments financed by the European Community to assist Poland in their pre-accession preparations:
The Phare programme;
SAPARD (agricultural and rural development);
ISPA (finance infrastructure projects in the fields of environment and transport)

In the period 2000-2002, total financial assistance to Poland will annually amount to 398 million EURO from Phare, 168.6 million EURO from SAPARD and between 312 and 385 million EURO from ISPA.

Within the environmental sector, the Phare programme focuses on institutional strengthening (for environmental impact assessment and pollution prevention and control at regional level) and air quality monitoring system.

Concerning the ISPA programme, the environmental main priorities in Poland is linked to drinking water, waste water and solid waste treatment for the major cities.

1.4.2 EBRD

The EBRD operational strategy for Poland is focused on key challenges for the transition to a market economy, and emphasises the requirement for a rapid response to new challenges as Poland's transition process moves forward.

According to the EBRD "Investment Profile 2001" for Poland, the Bank has maintained its responsiveness to progress in transition and also its "additionality" through a wide range of initiatives. This has been achieved by moving across market segments and by developing new approaches as the economic transition in Poland advances. The EBRD has been adjusting to the transforming Polish market by switching from debt to equity, from Warsaw to the provinces, from foreign-backed joint ventures to Polish companies without foreign shareholders, and from classical bank lending to capital market transactions. The EBRD is actively working in the fields of infrastructure, industrial restructuring, and support for small and medium-sized enterprises (SMEs).

In the power sector the EBRD focuses on providing lending to power and heat companies undergoing privatisation processes. Environmental investments are concentrated in water supply, waste-water collection and treatment, and solid waste management. The EBRD also supports projects involving public-private partnerships for provision of municipal services, and is developing wholesale financial structures, which will enable it to finance groups of projects. The EBRD cooperates closely with the European Union with regard to environmental investments.

The EBRD will continue to promote the implementation of energysaving investments in the private and public sectors by investing in, and providing loans to, energy service companies. In addition, support will be given to upgrade of district heating networks by promoting privatisation and restructuring in the sector. The EBRD also seeks to provide finance to industrial companies with the implementation of comprehensive investment programmes aimed at reducing excessive energy consumption.

1.4.3 World Bank/GEF/IFC

With respect to IFC's work in Poland, IFC is expected to become increasingly selective in identifying projects that will support Poland's EU accession approaches. IFC is expected to continue to look for projects where its additionality is significant, including support for privatisation of heavy industry and projects, which are developed by locally owned and managed companies and which are commercially sound, but lack major sponsors. Three specific areas for future development can be highlighted: i) Further support for private health care development; ii) financing of basic infrastructure, especially in the power sector, energy efficiency and municipal infrastructure; and iii) continued support for financial markets development through investment financing and technical assistance support for specialised financial services, such as security, housing finance, and leasing.

1.4.4 Bilateral Donors

The USAID office in Warsaw closed in September 2000, after having provided nearly one billion dollars in support to Poland since 1989. In the latter half of the 1990s, USAID's activities concentrated on three strategic areas: Stimulating the private sector at the firm level, building a competitive, market-oriented financial sector and encouraging effective, responsive, and accountable local government.

1.5 Summing Up

Opposite most other CEECs, Poland experienced a period characterized by a positive economic development process and restructuring of the national political and economic system throughout the 1990's. The fast "pick-up" and the introduction of a market based and liberalized economy in Poland has gone hand in hand with substantial financial support from the EU as well as from international financial institutions and bilateral donors. However, within the energy and environmental sector, Poland still needs to complete and operationalise a list of reforms and initiatives.

Poland possesses important geothermal resources, which could be used as heating sources to replace some of the highly polluting, coal-based heating systems currently used in many Polish cities and towns. Through the implementation of geothermal projects in Poland from the early 1990's, important project experience is now available. This draws a general picture of a country highly suitable for these kinds of project implementations. In this overall positive picture, the existence of important national project funding mechanisms should also be noted, since it is seen as important factors in the attraction of substantial external project funding.

Following the successful implementation of individual projects, it is now the impression that Poland could shortly be in a position to simultaneously develop several potential geothermal project sites with own sources of finance and project planning. In that respect, it is interesting to notice the interest and involvement of the Voivodeships (regions) in supporting and formulating plans for regional renewable energy development, including geothermal.

This opens up for a rethinking of how acceleration of geothermal development programmes in Poland could most efficiently be supported through regional programmes. In order to promote such simultaneous project implementations, two main obstacles can be identified: 1) The risks related to the first drilling (financial obstacle) and 2) Lack of institutional experience/capacity by regional/local authorities to manage and operate geothermal programmes (institutional problem).

Of particular importance for future geothermal project implementation in Poland, will therefore be the creation of a risk insurance system to cover financial risks concerning the first drilling. This is currently the main technical/financial barrier for further project implementation in the country.

Furthermore, emphasize should be put on how to support existing institutional capacity at regional and local levels in order to coordinate and support implementation of regional geothermal development policies. This may include elaboration of financial plans and institutional support mechanisms as well as further analysis of different ways to encourage the use of environmental friendly energy sources such as geothermal.

Therefore, in addition to considering the promising project proposals, which have already been prepared for implementation in Poland, it is recommended that initiatives will be taken to support the two issues raised above, namely risk insurance and institutional strengthening.

1.6 References

Barbacki A.P. 2000. The use of abandoned oil and gas wells in Poland for recovering geothermal heat.

Bujakowski W. 2000. The cascaded system of utilising lowtemperature geothermal waters for heating and consumptive purposes.

EU Commission. 2000. Poland Regular Report 2000 - Progress towards accession.

Houe & Olsen. Various geothermal project reports from Poland.

Kepinska B. 2000. The Podhale low-enthalpy system: Geothermal characteristics.

Kepinska B. 2001. Geothermal Energy in Poland: State and prospects of utilization.

Kepinska B. and Bujakowski W. 2000. Geothermal Energy Update from Poland. Proceedings from World Geothermal Congress 2000.

Malopolskie Voivodeship. 2000. Development Strategy - Malopolskie Voivodeship.

PLS Consult. 1998. Project Evaluation of the Danish Environmental Support for Eastern Europe. Case-study: The Geothermal plant in Pyrzyce.

World Bank. 2000. The Podhale Geothermal District Heating and Environmental Project (Project Appraisal (PA), Environmental Assessment (EA), Project Information Document (PID)).

1.7 The Case of Zakopane, Podhale

Project title: Podhale Geothermal District Heating and Environmental Project

Country/locality: Podhale/Poland

Date of start: 1995

Date of closure: 31/12/04 (World Bank, Closing Date)

People met during mission to Podhale (Zakopane), 5-6 June, 2001:

Geotermia Podhalanska S.A.:
Piotr Dlugosh, Managing Director
Wojciech Stankiewicz, Manager, Planning, Monitoring and Marketing Department
Technical staff

Geotermal Laboratory PAS MEERI:
Wieslaw Bujakowski, Head of Laboratory
Beata Kepinska, Geologist

Malopolskie Voivodeship (Govenor's Administration), Krakow:
Marcin Pawlak, Governor a.i.

I. Project Background

In the early 1980s, the Polish Academy of Science (PAS) in Krakow initiated efforts to find geothermal resources in the Podhale Valley. The work was based on data collected by oil exploration.

In 1992 the first project grant was approved from the DEPA for preparation of a feasibility study for geothermal heat supply to the Valley. The study had active participation in all phases from the five local municipalities involved, and concluded that geothermal energy is economic and technical feasible in major parts of the Podhale Valley.

It was therefore decided to establish a geothermal shareholder company, Geothermia Podhalanska S.A., with participation of the five local municipalities, the National Fund for Environmental Protection (Polish) and other minor shareholders. Geothermia Podhalanska S.A. should be responsible for the overall realisation and management of the geothermal project in the Podhale Valley, including funds allocation and budget. During this phase, another DEPA grant was approved for support for technical and organisational development of the project.

In 1995 a small geothermal demonstration plant and related distribution network for 170 houses in the village of Banska Nizna was finished and the first geothermal heat could be supplied to the consumers. Based on the positive experiences and prospects, the EU Phare and the Polish EcoFund decided to support the geothermal project for the Valley by providing equipment.

In July 1995, a third grant was approved from the DEPA to support progress in the project and to prepare implementation of a new project phase, which should include World Bank/GEF financing. In May 2000, the World Bank and GEF finally approved a loan and grant for the Podhale geothermal project that within the end of 2004 should connect a total of 80 000 to100 000 inhabitants in the valley to the geothermal plant, including the town of Zakopane (35 000 inhabitants).

II. Project Description

Main Project Objectives

- To reduce air pollution from local coal-fired space-heating boilers in the Podhale Valley through increased utilisation of geothermal energy resources and natural gas (peak).

- To reduce CO2-emissions in order to help Poland meet its international obligations.

Project Financing

Total project budget: 99.3 mill USD
World Bank, IBRD (38.2 mill USD)
European Union (18.2 mill USD)
GEF (5.4 mill USD)
National Fund for Environmental Protection/Water Management (Poland) (12.7 mill USD)
EcoFund (Poland) (1.3 mill USD)
Other Local Contribution (20.4 mill USD)
USAID (2.5 mill USD)
DEPA (0.6 mill USD)

Further to the direct project financing DEPA has financed a major part of the initial study and feasibility work for the project. Totally, DEPA has contributed with around 23 mill DKK to the project process since 1993. The Danish TAC has been provided by Houe & Olsen.

Feasibility (Economic/Financial)

Prior to project implementation, financial analysis on geothermal heat supply in Podhale were carried out in order to estimate the economic fundament for Geothermal Podhalanska S.A. The analysis showed adequate rates of return for the company and, consequently, the project was recommended from an economic/financial perspective.

As part of the financial analysis, a market survey was done in Zakopane. The heat consumer "market" can be divided into three main groups: Cooperatives, hotels/restaurants and private clients, each one composing around 1/3 of the market. Since the district heating company in Zakopane only provided heat to around 20 per cent of the consumers in the town, (mainly from the cooperatives), the remaining 80 per cent of the consumers were consulted in order to determine their willingness to connect to the geothermal heat plant. The consumers, who would decide to use geothermal energy, were offered "soft loans" for installation of heat exchangers in their houses.

Based on the market survey in Zakopane, it was estimated that around 45 per cent of the consumers would connect to geothermal heat from September 2001. Furthermore, it was anticipated that around 70-80 per cent of the market would be covered by geothermal heat by the en of 2004 (100 per cent of the cooperatives, 80 per cent of hotels/restaurants and 60 per cent of private clients).

Environmental Benefits

The heating system in the Podhale Valley has traditionally been based on individual, coal-fired heat. The environmental benefits from the project are therefore expected to be significant, when coal is substituted by a combination of geothermal energy and gas (peak-load).

Annual Estimated Reductions in Emissions when Coal is Substituted with Geothermal Energy/Gas, in Podhale

 

CO2

SO2

NOx

Particles

Annual Reduction (tonnes)

210 000

1 200

800

400

Source: DEPA

Technology and Transfer of "Know How"

The project, in its complete form, will provide district heat to the majority of the consumers in the Podhale valley (80 000-100 000 inhabitants). The service area will extend from about 14 km from the production wells to the city of Zakopane and about 7 km in the opposite direction to the town of Nowy Targ.

When in operation, the geothermal plant will cover the entire heat demand during 8 months a year, while a peak-load plant (gas-fired) will assist in covering heat demand during the coldest months of the year. Seven geothermal wells have been drilled (three wells for production and four for reinjection). The production wells will extract low-enthalpy geothermal water (85-85°C).

The capacity of the geothermal base load plant will be approximately 45 MW and the plant will deliver 1 000 TJ/y of geothermal heat. Additional capacity will be provided by a 33 MW absorption heat pump plant together with a central peak-load, natural gas plant (capacity: 48 MW) in Zakopane. A peakload plant will also be constructed in Novy Targ (capacity: 14 MW).

III. Project Effectiveness

Financially Geothermia Podhalanska S.A. has succeeded in attracting the funding required for the project, approximately 100 million USD, from different donors and institutions, national as well as international. This is definitely an important outcome and has now prepared the ground for largescale implementation of geothermal heat to the Podhale Valley.

However, the way to finally obtaining funding has been long and at times quite difficult and complicated. Inflexibility of the World Bank and EU-funds is considered by the recipients as an obstacle to smooth project implementation. For instance, if small adjustments had to be made to equipment specifications, it proved difficult to obtain acceptance of these minor changes from the financing institutions. In this process, the DEPA support, although being relatively small compared to the total budget, has been of crucial importance to the geothermal company due to its generally more flexible and complementary character.

Due to delays in the process of financial assignment (World Bank/GEF) the connection of the inhabitants in Zakopane to the geothermal plant was postponed until September 2001. The delay resulted in complains from the new consumers and some of them have even decided to change back to their private, coal-fired heat. The number of clients changing back is not a significant portion though, and will not affect the economic foundation of the project. However, it is deemed very important to have the Zakopaneconnection ready and implemented prior to the coming heating season in order not to create a general negative attitude regarding geothermal heat supply in the valley.

The data collected through the Zakopane-market survey has, further to estimate the economic foundation for the project, also been used to develop a unique tariff model that can be adjusted according to market development. Moreover, sales and marketing functions have been established within Geothermia Podhalanska S.A. as well as tools for financial analysis.

Environmental

Since consumers until recently were still not connected to the geothermal plant, the environmental effects so far come from conversion from coal to natural gas in the old district heating system (from 1998).

Technology and Transfer of "Know How"

Although connection from the geothermal plant to Zakopane is still pending construction of the last part of the pipe system, important technical and institutional results from the project can be observed already.

Technical equipment for the geothermal plant has been installed and tested, and no major problems have been detected so far. The small geothermal demonstration plant in Banska Nizna, operational since 1995, has been wellfunctioning and demonstrating the technical feasibility of geothermal heat supply in the Podhale Valley.

The demonstration plant has also successfully demonstrated the technical feasibilities of cascade systems (fish breeding and vegetables), which extract more heat from the geothermal water. The DEPA's project support has focused mainly on institutional strengthening of Geotermia Podhalaska S.A. for the project management role and training of personnel in order to build up local organisational/institutional capacity to manage the geothermal project. In mid-1998 Geotermia Podhalanska S.A. merged with the local district heating company in Zakopane and the company staff has since gradually been cut down from 130 to 56 employees and further rationalisation is expected.

It is the consultants' impression from the visit that Geothermal Podhalanska S.A. has turned into a well-managed and structured company with a competent staff where management is further focussed on improving the efficiency of the company. Staff visits to the Danish geothermal plant in Thisted have been arranged in order to study practical, technical working processes. By both management and staff, these visits was characterised by being very beneficial for the participants. This way the participants also experienced how the Danish working methods are carried out.

IV. Project Impact

Economic/Financial

Due to considerable income from tourism in Southern Poland, there is no significant unemployment in the region and the negative employment effects from the geothermal project have therefore not been considered as a major social problem. Moreover, the improvement of the local environment through conversion to geothermal heat is expected to attract more tourism to the region and thereby create positive economic and employment potentials for the region.

The geothermal project in Podhale is widely expected to be a catalyst for further investment in geothermal energy projects in Poland. Through the experience from the municipality/private geothermal company, involving provision of financing for large infrastructure projects, the company can be expected to use the experience also for smaller geothermal projects.

The small geothermal demonstration plant in Banska Nizna has successfully demonstrated potentials to increase the economic impacts of the geothermal projects if a cascade system is implemented and more heat is extracted from the return heating water. The experiences from Podhale could easily be duplicated to other geothermal projects.

Finally, the Podhale geothermal project is a positive lesson on cooperation between different bilateral and multinational financial sources in order to finance large-scale investment projects. The experience gained from this exercise can be very useful for future similar projects in the CEEC.

Environmental

The potential environmental impact of the Podhale project is very large due to the rich potential for geothermal energy in Poland and the current energy structure in Poland, based on coal-fired, private heating systems.

Technology and Transfer of "Know How"

The impact of the projects technical, but in particular institutional/organisational, experience has already been very encouraging since Polish experts from Geothermia Podhalanska S.A. has shown capacity to also support geothermal project development in Slovakia. First, in Ziar Nad Hronum, as sub-advisors on technical and organisational issues, and currently in the town of Tvardosin, near the Slovakian-Polish border, where Polish experts provided their support to the development of a new geothermal project.

In Poland, the experience from the Podhale project is also used broadly in relation to planning of new geothermal projects.

V. Project Sustainability

Financial/Economic

According to the project plan, Geothermal Podhalanska S.A. should be in a position to operate on a commercial basis after connection of the geothermal plant.

However, solidifying the consumer base will be essential for economic sustainability. Considering that by September 2001, 45 per cent of the consumers in Zakopane will be connected to the geothermal heat plant, it is anticipated that the project will have significant market penetration effect in the coming years (70-80 per cent market coverage is predicted for 2004). Therefore, consumers once converted to geothermal energy is highly expected to continue to use this source of heat (the consumers that have received heat exchangers, through "soft-loans" from the project are required to continue geothermal heat for 10 years or pay the full remaining balance of the heat exchanger, if they exit the system).

Furthermore, the economic sustainability of the geothermal energy will largely dependent on the development in relative energy prices in Poland. Currently, coal-prices are highly subsidized in Poland. In spite of the current liberalisation process in Poland and the country's up-coming accession to the European Union it is, however, widely anticipated that the remaining coal subsidies will be gradually eliminated and thereby make geothermal energy relatively more competitive.

Environmental

See under Project Impact IV.

Organisational/Institutional

Right from the initiation of project activities, the institutional/organisational component has been paid much attention in the Podhale project.

It is the impression of Kvistgaard Consult (KC), that the Podhale project is very efficiently anchored institutionally through Geothermal Podhalanska S.A. The company must be characterised as a modern, competitive company, focused on further development and efficiency. Through training and practical experience, the company seems highly capacitated and well prepared for future challenges.

During the visit to Southern-Poland, the KC consultant also met with the Marschal of the Malopolskie Voivodeship (the Governor of the Southern Poland region) and was here presented the recently approved Development Strategy for the region, 2000-2006. The strategy is highly focussed on environmental concerns, and development of the geothermal energy potential is defined as a priority. The Voivodeship is already directly involved in one small geothermal project (in the town of Smolinsk) and close working relations have been established with the Geothermal Laboratory in Podhale in order to prepare a more strategic regional approach to geothermal energy.

In conclusion, it is the consultants conviction that geothermal heat, through the experience so far, has gained institutional and political acceptance in the region and is considered an important sustainable energy source for the coming decades.

Technology

The technical analysis and tests of the project are all very promising to date. However, there is still the risk that technical inconveniences can occur when the geothermal plant start its full operation.

Dissemination

The Podhale project has been widely presented in medias in Poland and in international conferences and journals (including in Denmark).

VI. Lessons Learned (Consultants findings based on visit to the Podhale Geothermal Project, including the Demonstration Plant in Banska Nizna):

  1. The local conditions in the Podhale Valley represent opportunities that make the area highly suitable for geothermal energy projects, compared to other countries/regions:
The income-level in the Podahle Valley is relatively higher than in other CEEC regions, mainly due to a significant income from tourism.
The location (valley), combined with the potential income from increased tourism as a result of a cleaner environment, have been important (and visible) arguments for implementation of cleaner energy in the area.
The local presence of the very active Geothermal Laboratory
  1. The careful and step-by-step development of the geothermal project has been central for obtaining funding and local support. The project has from the beginning been carefully developed, involving international institutions/donors as well as local stakeholders - also financially; It must also be highlighted that the construction and functioning of the small demonstration plant in Banska Nizna has been important in order to demonstrate the feasibility of geothermal heat.
            
  2. Local involvement has been strong from early project planning phases and is definitely crucial in order to ensure sustainability of the project.
           
  3. Substantial national and local financial contribution (commitment) is seen as an important factor in order to attract external project financing.
           
  4. The geothermal 'Cascade system' (fish and vegetable breeding) run by the Geothermal Laboratory in Podhale, shows that improved economic efficiency of the geothermal plants can be obtained through installation of such systems. The experience with the cascade system in Podhale could be used not only in Poland, but also in other CEECs.
             
  5. Even though the Podhale project has succeeded in attracting significant financing from main financial sources, the financing process has been "heavy going" and would probably not have been possible without considerable local capacity and external (DEPA) institutional support.
           
  6. In Poland, a lot of data collection and analysis has already been done and geothermal project proposals have been prepared. Remaining barriers to implementation of the projects are mainly of an institutional and financial character. Potential donors (including DEPA) should therefore focus more directly on concrete project implementation on selected sites in the country, including financing arrangements as opposed to more general issues.
            
  7. Geothermal energy is considered an important future energy source in Polish regional development planning. Donors (DEPA) may want to consider supporting geothermal project implementation at regional levels, in areas where technical conditions and regional development plans invite geothermal exploitation. In that way, several local, small-scale projects could be implemented simultaneously. The donor support could consist of institutional support to make the regional plan for geothermal energy operational and to create regional, institutional capacity to advice and support local towns in project preparation and implementation.

1.8 The Case of Mszczonów

Project title: Mszczonów, Geothermal Project

Country/locality: Mszczonów/Poland

Date of start: 1996

Date of closure: 1999

People met during mission to Mszczonów, 7-8 June 2001:

Geothermia Mazowiecka S.A.:
Marek Balser, Managing Director
Technical Staff

Geotermal Laboratory PAS MEERI:
Wieslaw Bujakowski, Head of Laboratory
Beata Kepinska, Geologist

Mszczonów Municipality
Józef Grzegorz Kurek, Mayor

I. Project Background

Mszczonów is a small town, located around 40 km Southwest of Warsaw, and has a population of around 6 000 people. Traditionally, the town has been heated by three coal-fired district heating plants. However, recently initiatives have been taken to promote a green, environmental profile in the town.

In August 1996, research and development was started in order to investigate the scope for development of a geothermal project plant in Mszczonów by reconstructing of an existing old closed well. The investigation further build on data and research made by the Geothermal Laboratory under the Polish Academy of Science, Mineral and Energy Economy Research Institute (MEERI) and was carried out according to an agreement between the State Committee of Scientific Research and Mzsczonów Urban District.

In Poland, thousands of existing wells have been closed down or excluded from oil or gas exploitation by now. However, the closed wells have become the possible subjects of water or geothermal heat exploitation. Research results from Mszczonów confirmed the value of such existing well and served as a base for further elaboration of a geothermal project plant in the town, which became the first such well reconstruction in Poland.

II. Project Description

Project Financing

Total budget: 11 mill Zl (around 3 mill USD)
Geothermia Mazowiecka S.A. (shareholder company consisting of Mszczonów Municipality, National Fund for Environmental Protection/Water Management (Polish) and some smaller Funds (7 mill. Zl.)
EcoFund (Poland) (2 mill. Zl.)
Loan from Polish Banks (2 mill. Zl.)

Economic/Financial Feasibility

The energy market in Mszczonów is composed of a mix of flats, public buildings and industry, including a significant tax-free industrial zone. Prior to project implementation, consultations were held with consumer groups and support was given to the project idea.

The district heating network in Mszczonów covered around 60 per cent of the area of potential consumers in the town, including approximately 1 200 flats and public buildings (schools, medical centre etc). Based on calculations and consultations with consumer groups, it was decided to dimension the geothermal/gas plant for the whole area, including also consumers who are currently using other heating sources (coal).

Technical Data

A 4.1 km well, drilled in the 1970s, was adopted for exploitation purposes. The geothermal aquifer is located in the Lower Cretaceous sandstone, which contains high quality drinking water (Total Dissolved Solids (TDS) are less than 1g/l).

The capacity of the geothermal/gas plant was dimensioned to 7.5 MW, including 2.3 MW from the geothermal plant, the rest would be absorbed from the heat pump and gas. The geothermal plant use 40°C water discharged by a single well both for heating purposes and drinking water production.

III. Project Assessment (Results, Impacts and Sustainability)

Economic/Financial

Currently, Geothermia Mazowiecka S.A. does face some economic difficulties. This is due to limited funding potential and unfavourable development in relative energy prices, which has prevented an extension of the consumer base to more than the 60 per cent originally covered. Moreover, new pipes in the town have been financed and installed by Geothermia Mazowiecka S.A. and this has put additional pressure on the company's financial resources.

The economically important local industrial zone (tax-free production area) where some big energy consuming industries are located, has still not converted to geothermal heat. And for the time being, there is not much economic incentive for these industries to do so, since recent price development has made coal favourable compared to gas/geothermal. Currently, energy prices in Mszczonów are 42 Zl/GJ for coal and 53 Zl/GJ for geothermal/gas. Furthermore, the relative increase in geothermal/gas prices has resulted in complaints from private consumers and some has changed back to coal-based heat.

Nevertheless, Geothermia Mazowiecka S.A. has positive outlook, since it is widely expected that future price development will be in favour of heat from geothermal/gas. Moreover, in order to improve efficiency and income potential from geothermal heat, it has been planned to build a recreation centre in Mszczonów.

The geothermal company considers the income from drinking water production as being relatively insignificant. However, increased prices on water consumption could make it a good business in the future.

The implementation of a geothermal heat plant has had drastic consequences for employment at the local level since the staff of 30 persons formerly employed by the district heating company has now been reduced to only 3 persons working on the geothermal plant. Since the area is severely affected by unemployment this has naturally caused some social dissatisfaction at the local level.

Environmental

The thermal energy provided by the district heating company in Mszczonów is 37,000 GJ a year, including 40 per cent geothermal and 60 per cent gas. The change of heat source from coal to gas/geothermal has had significant environmental effects. CO2 has been reduced by 74.8 per cent, SO2 by 100 per cent and NOx by 82.9 per cent.

The urban environment of Mszczonów has also been improved by the geothermal project. Green areas have been created in the town with water posts and with drinkable geothermal water in the centre. The environmental impact of the Mszczonów project is very large since the potential for reconstruction of wells in Poland for geothermal energy use is considerable.

Organisational/Institutional

Compared to the geothermal project in Podhale where five municipalities have to co-operate, the institutional set-up is simpler in the case of the Mszczonów project, as only one municipality is involved.

From the early stages of project development, the Mszczonów Municipality has played an active role, also financially. The Mayor is personally very involved in the project and is linking other municipal activities to the geothermal energy use.

Moreover, it is the KC consultant's impression from the visit and meetings at the municipality that strong efforts, which also involves the Voivodeship, are concentrated on local environmental development. In conclusion, the institutional anchoring of the geothermal project seems to be strong and sustainable.

Technology and Transfer of "Know How"

The geothermal/gas heating plant in Mszczonów is fully completed and has been operational from May 2000. The project has successfully demonstrated how to convert an old abandoned well into a well-functioning geothermal production well. This is a very important experience, taking into consideration that Poland has thousands of these abandoned wells and that some of them could represent interesting potentials for geothermal energy.

Since new well constructions are costly, and generally represent a significant financial barrier for geothermal project implementation, use of old wells will make geothermal projects possible also without heavy investment needs. Therefore, Poland definitely has a prospect for moderate-scale geothermal plants based on abandoned wells adapted for exploitation, working as cascaded and/or integrated systems.

From Denmark equipment (mainly economisers and controlling/electrical equipment) and training (on project site) has been provided. The total value of the Danish component is 1.6 mill. Zl. Locally, there is great satisfaction with the performance of the Danish companies involved in this project.

IV: Lessons Learned (Consultants findings, based on visit to Mszczonów)

  1. Through the Mszczonów project is has been successfully demonstrated how existing, but closed wells can be converted into geothermal production wells within a relatively short time frame. Taking into consideration the numerous existing wells in Poland, this experience is important and should be considered for possible replication in other Polish towns.
             
  2. Due to the relatively small size of the geothermal plant and since it has not been necessary to construct new wells for this project, the investment needs have been relatively limited compared to other geothermal projects.
                
  3. The project proved it possible to cover project costs through national (Polish) funding that in turn has made the project more smooth and flexible, and has facilitated a more rapid project implementation.
               
  4. In small-scale geothermal projects, as the one in Mszczonów, the economy of the geothermal companies is sensible to changes in the consumer base.
              
  5. The economic foundation of the project is currently affected by recent development in energy prices (coal, gas) that has not been in favour of geothermal energy. However, the prospects (EU integration, market liberalising) give positive perspectives for future price development.
             
  6. Given that socio-economic conditions in Mszczonów are different from those in Southern Poland, local project impacts (including employment effects and changes in energy prices) are felt relatively stronger here.
             
  7. The institutional set-up of the geothermal company (with only one municipality involved, but as major shareholder) gives the project a strong local anchoring and the Mszczonów Municipality the possibility to plan independently in relation to the geothermal plant and how to make use of the heating water.
1 Energy Statistics of OECD Countries 1998-1999, IEA International Energy Agency, http://www.stat.gov.pl, OECD 2000, www.worldbank.org, www.eia.doe.gov (Energy Information Administration)
               
2 Energy sources other than that of coal, oil and gas are based on 'production' numbers and not 'primary supply'.
          
3 These data are not 100 per cent reliable since stock changes and import/export of energy are not included.
           
4 The Yamal pipeline connecting Poland to Siberian gas sources began operations in September 1999. The USD 35-billion pipeline was intended to carry natural gas supplies from the Yamal (West Siberia) field in Russia to Germany and other Western European countries through Belarus and Poland. Under a 25-year contract signed in October 1996, annual throughput of the pipeline is slated to increase to 14 billion cubic metres (about 494 Bcf).
            
5 In July 2000, the prime ministers of Poland and Norway signed a declaration to begin Norwegian gas exports to Poland. A new pipeline will be built connecting Scandinavia to Poland under the Baltic Sea, and construction should be complete within the next four years. Until the pipeline comes on-stream, the Norwegian gas will be transported through German pipelines into Poland. There had been some controversy regarding the higher price of Norwegian gas as compared to Russian gas, but the president of the Polish Oil and Gas Company declared that the price of Norwegian gas was sufficiently competitive with Russian gas. Norwegian gas also helps the Poles in their goal to diversify energy sources.
            
6 Data other than per cent contribution and TPES is worked out in ktoe (kilo tonnes oil equivalent)