EU Just Transition Fund: Lignite in Poland

Overview

The European Union’s Just Transition Fund supports the energy transition in regions of the bloc that are economically reliant on carbon-intensive activities. The fund has €17.5 billion ($21.1 billion in 2022 real US dollars) to distribute over 2021-27 and is part of the broader Just Transition Mechanism, which is the EU’s primary tool in managing the socio-economic impact of the transition.

The Just Transition Fund supports the reskilling of workers and aims to help regions diversify their economies beyond fossil fuels while emphasizing social inclusion. To receive funding, applicants must present a Territorial Just Transition Plan (TJTP), which must be in line with the EU’s climate neutrality goals.

Impact

Given its focus on areas of Europe that are economically dependent on carbon-intensive activities, the Just Transition Fund has drawn attention to coal-heavy markets. Poland remains heavily reliant on domestically mined coal in its power sector, but, as of 2023, lacks a concrete timeline for closing its coal fleet. The EU adopted a six-year partnership agreement with Poland in June 2022, stating that five coal-mining regions could receive up to €3.85 billion of Just Transition Funding provided each region submits and qualifies with a TJTP.

The local government of the region of Lodz, Poland, published its TJTP in June 2021, which set an official timeline for ceasing or significantly scaling down fossil-fuel extraction and use. Lodz is home to Europe’s largest coal power plant, Belchatow. With an installed capacity of 5.1 gigawatts (GW), Belchatow accounted for 17% of Poland’s power supply in 2021. It also produced 33.2 million metric tons of CO2 emissions, equivalent to 10% of the national total.

Declining output from Belchatow over time presents a risk to Lodz’s local economy, since the plant employs 7,500 people, or 13% of the city. It also poses challenges to Poland’s energy security. The TJTP stipulated how Lodz planned to replace jobs in the lignite complex with a range of other possible industries, such as solar, wind and battery storage.

The EU approved Lodz’s TJTP at the end of 2022, allocating €369.5 million to the region, despite the exact closure timeline of Belchatow not being fully determined. The money is available for investment in new small-sized businesses, energy efficiency and renewable energy deployment, which will include new skills development. Funds can be distributed to local initiatives that meet the criteria but must be used by the end of 2027. Meeting the timeline could be a challenge, since actual utilization of the funding therefore depends on the number and quality of local initiatives. However, BloombergNEF expects a second phase of the funding to be implemented after 2027.

Opportunity

BNEF research published in 2023, Energy in Belchatow After Lignite, found that the majority of Belchatow’s output in Poland could be replaced with alternative sources of electricity generation. While Just Transition Funding is available to many low-carbon industries, Belchatow has opportunities to invest in new, clean power capacity due to its unique position on Poland’s grid. Investing in increased renewable energy and storage capacity at Belchatow could ease the country’s transition away from lignite by ensuring security of supply and supporting the creation of new jobs.

Three potential scenarios for replacing lignite generation at Belchatow with alternative fuels/technologies

Source: BloombergNEF, PGE, Polish ministry. Note: BNEF’s report, Energy in Belchatow After Lignite, outlines the opportunities for reusing the existing grid connection and continuing to generate power after coal is phased out. BNEF mapped three potential renewables scenarios: 1) The optimal renewables scenario where wind, solar and storage are maximized, generating the highest economic value 2) Land-constrained renewables where low-carbon thermal, combined heat and power (CHP) is utilized 3) Renewables and nuclear if small modular reactors (SMR) become a proven technology. These scenarios map potential capacity mixes that could maximize the use of the grid connection. All scenarios can replace 80% of Belchatow’s 2021 generation.

The wider area surrounding Belchatow (around 3,400 square kilometers) could accommodate a combination of 5-15GW of onshore wind and 3.6-5.0GW of solar, with BNEF estimating an optimal combination for the current 5.1GW grid connection is 5.7GW of onshore wind and 5GW of solar.

Batteries are well suited for increasing grid stability when renewables experience lower generation. Installing 1GW of battery storage could help wind and solar replace nearly 80% of Beltchatow’s 2021 lignite generation by 2036. The region could also explore the deployment of firm capacity, such energy from waste or, in the longer term, hydrogen-fired or small-scale nuclear plants.

Any combination of renewables generation at Belchatow will require a significant transition in resources and skills. The EU funds will assist Lodz with targeted reskilling efforts and new economic development opportunities, and reduce the impact of lost jobs once lignite mining and generation drops. New clean energy projects could boost the local economy and enable the region to continue playing a key role in Polish power production and in the country’s economy.

Measures like the EU’s Just Transition Fund help bolster local workforce development and accelerate the energy transition in a targeted way, focusing on regions that are particularly dependent on income generated by carbon-intensive activities.