Maciej Kowalski
Managing Director
Enefit

01 May 2020

Enefit is part of the Estonian state energy group Eesti Energia - the largest energy producer in the Baltic States. The company has been present in Poland since 2016, offering supply of electricity and gas as well as a suite of energy services.

What were the circumstances that motivated Enefit’s expansion into the Polish market?

In 2016, after securing a stable position at energy sales market in Estonia, Lithuania and Latvia, Eesti Energia decided to use this experience and expand into other countries from the region. It was a natural step for the company originating from the Baltics to look with priority at Nordic countries and Poland. We decided to tackle Poland first, though soon after we expanded our footprint in the Scandinavian markets as well, namely Finland and Sweden.

We ventured into the B2B retail market - B2C does not present much interest for us, because the energy price is still regulated for all households. There are plans to liberalize the gas market fully by 2024, but in the case of electricity the situation is much more complex: the market has been liberalized a few years ago, however, the state went back on its decision because it wanted to avoid price hikes. It is unclear at the moment when or if the market will return to a liberalized status.

You offer customers the possibility to opt for green energy packages. Do you notice a high appetite from consumers to use clean energy?

If we consider guarantees of origin, renewable energy has accounted for about a third of our portfolio in the past year, so it is safe to say that the interest is growing. Demand is coming primarily from international companies that are driving business here but Polish companies are starting to show a higher interest as well. 

 

A noteworthy development has been the evolution of Corporate PPAs, possibly the hottest commercial topic at present despite the fact that not many such transactions have been completed to date.

 

The Corporate PPA model has been implemented in 2018 and we are now essentially in a transition phase - there are initiatives from all stakeholders involved, from producers to associations, to fully implement this model and the industrial sector is also keeping close watch. We welcome this change particularly since this type of agreements will make it easier to finance new production units.

Enefit has in fact developed its own renewable energy production capabilities. What is driving your interest in this area?

Indeed, we have acquired around 20 MW in the PV segment through our sister company Enefit Green, and we are looking to acquire further units. Poland still relies on coal to a large degree, so companies that are looking to contribute to CO2 reduction have significant room for growth here. Add to this the fact that prices for renewable energy have become truly competitive with coal, as a consequence of increasing costs with CO2 allowances. We are starting to see a revolution, a transition that has already started and that I expect will gain even more momentum going forward.

What do you consider to be the main drivers for this momentum?

On the plus side there is the announcement of the two auctions for renewable energy - first one in December 2019, which has already been settled, and a second one that is scheduled for 2020. There are still challenges to be overcome though - the 10H rule for instance is hindering the development of wind power. The rule does not apply to projects that obtained their permits before this rule was passed, but even so the projects that will be developed this year could be the last ones for a while. If the legislation does not change soon, we could be looking at a three to five years gap until new wind parks will be up and running.

In the fairly diversified and segmented industry space Enefit is operating in, what other main challenges come to mind?

 

The main issue I see is the fact that we lack a central data hub. We have more than 170 DSOs in Poland and the system is not centralized, which means we have big issues with metering data.

When it comes to energy we know what we supply only if it is measured, but this is not easy to get clarity on in Poland  it takes about 15 months to get a proper understanding of the electricity volumes that we have supplied.

 

There are many initiatives to address this shortcoming but they are individual, whereas what is needed is a central body approach. There is an idea from the government to create a central data hub under a new entity, but no real progress has been made yet. This has many implications, from taxation, invoicing and so on, and even prevents the development of future oriented businesses. Take electric vehicles for instance - this business segment is not considered supply of electricity, rather it is seen as charging simply because we do not have a system to measure it.

Do you already have a sense of how the COVID-19 outbreak will be impacting your business/ the energy sector in the short term?

In general the epidemic has a negative impact on the industry. Although there is a slight increase in the demand for energy in the households, from our perspective, as a company focused on B2B clients, the main issue is a decrease in a demand from business customers in restricted sectors, such as gastronomy or hospitality. On the other hand, there are also companies that are now using more energy, which enables us to sell the volume that has so far been ordered by our customers in the directly affected sectors. 

What first measures did your organization set in place to manage the crisis?

The energy prices are now lower, which generates some loss in the short-term period. However, we have prepared optimal solutions for the customers who need electricity even though they are somehow affected by the pandemic. Dynamic spot market is a good solution for the clients looking for a way to optimize the cost of energy consumption. 

 

The market fluctuations are high, but we can see that there are clients who make decisions faster in order to take advantage of the low prices, which makes us optimistic about sales this year. We have already noted higher sales dynamic then last year and higher gas volume sales than expected.  

 

Do you have a message for investors eyeing the Polish market based on your own experience here?

Overall there is ample opportunity in Poland, and plenty of space for newcomers, especially since many large-scale investors have sold most of their assets. There is now room for a new wave of investors, who can take advantage of a novel energy world and business models. Renewables, cogeneration and distributed energy is where I see the greatest opportunity.

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