What role will energy storage play in the energy transition? An interview with Szymon Kowalski

Electricity storage facilities are a key enabler of an effective energy transition. In the years ahead, they will play an important role in stabilising the national power system and supporting the operation of renewable energy sources. 

A system increasingly based on renewable energy requires solutions capable of responding quickly and flexibly to changing grid conditions and fluctuations in customer demand. While renewables offer a significant advantage in the form of lower generation costs compared with conventional sources, their weather-dependent nature results in considerable variability in output. 

For this reason, it is essential to deploy technologies and generation assets that can mitigate the risks arising from such variability. This role in the system may be fulfilled both by gas-fired units and battery energy storage systems (BESS). However, the former come with several significant drawbacks, including high generation costs, carbon intensity, and Poland’s strong dependence on imported gas. As a result, this solution should play only a limited role in the energy system. Compared with gas-fired units, battery energy storage systems represent an efficient and forward-looking solution, supporting system stability while reducing costs and enhancing energy security. 

At the same time, given the still relatively novel nature of these solutions in the Polish market – and the fact that such systems have not yet been deployed on a large scale within the National Power System (KSE) – storage projects continue to face significant challenges in securing financing. The limited scale of implementation to date means that financing institutions still approach these investments with considerable caution. In addition, BESS revenues are expected to come from at least several different sources, which makes their accurate forecasting particularly complex. 

As part of our cooperation between BES Energy and TPA / Baker Tilly TPA, we carry out advanced analyses aimed at forecasting these potential revenue streams with a high degree of precision. This is one of the areas where we combine market, analytical and implementation expertise with our teams’ experience in financing, business models, tax and regulatory requirements. As a result, we are able to state with confidence that these technologies are not only a crucial element in stabilising the power system, but – when supported by an appropriate operating strategy – can also generate stable and attractive revenues for their owners. 

Does the decarbonisation of district heating create growth potential for renewables? 

The energy transition is a much broader process than changes in the power sector alone. It also encompasses the gas sector – including the development of biomethane and green hydrogen – as well as the heating sector. 

It is the district heating sector, outside the power sector, that is currently facing some of the greatest transformation challenges. The sector remains largely dependent on coal-based generation, and a significant proportion of the existing generation assets have already been fully depreciated. However, the need to modernise them creates a unique opportunity for a deep structural transformation of the sector. 

In this context, the integration of the power and heating sectors – the so-called sector coupling – becomes particularly important, as it enables the development of a coherent, efficient and better-balanced energy and heating system. A key element of this process is the electrification of heating, implemented through the deployment of technologies such as electrode boilers, heat pumps, thermal storage and other solutions using electricity to produce heat. 

These solutions enable the effective utilisation of significant volumes of electricity generated from renewable sources. It is estimated that the Polish heating sector could currently absorb from several to even several dozen terawatt-hours of renewable electricity annually. 

The integration of both sectors brings tangible benefits on both sides. On the one hand, it enables the production of relatively inexpensive and low-emission heat. On the other, it provides renewable energy sources with a stable and flexible offtaker capable of mitigating risks associated with unstable generation, including curtailment and negative pricing. 

As a result, the convergence of the power and heating sectors creates a mutually reinforcing system that can be seen as a closed-loop model of the energy transition – increasing efficiency, security and the overall economic viability of the transformation. 

To what extent do the planned investments in transmission and distribution network expansion address the challenge of growing renewable capacity, and when will visible results emerge? 

Power grids – and grid connection capacity in particular – have been one of the main constraints on the energy transition in Poland in recent years. Significant difficulties in connecting new generation assets, especially renewables, have raised serious concerns about the pace and scale of the transition process. 

At present, however, the situation is clearly improving. We are seeing a significant increase in the number of issued grid connection conditions, with their total capacity now exceedingly approximately 240 GW. 

It should be noted, however, that a substantial proportion of these projects will not be implemented, due both to project and financing constraints and to the lack of actual system demand for such large volumes of capacity. 

Even so, the scale of the issued grid connection conditions clearly demonstrates that the grid situation is gradually improving from the perspective of generators. Regulatory changes are also contributing to this shift, including the introduction of so-called cable pooling, which enables more efficient use of existing connection infrastructure. 

Another important step towards improving the situation is the Effective Transformation Charter, a grid modernisation and development plan prepared by distribution system operators in cooperation with the regulator. The document envisages more than PLN 130 billion in network development expenditure by 2030, sending a strong signal of support for further energy transition. 

It is also worth highlighting two issues that are often confused in discussions about grid connection: the grid’s connection capacity and its ability to balance energy within the power system. While the availability of grid connections is improving, it is system balancing – that is, the ability to manage variable generation and demand – that is becoming, and will continue to be, the key challenge in integrating renewables. 

For this reason, the development of solutions such as energy storage and sector coupling is of crucial importance, as they enable the efficient management of energy surpluses and support overall system stability. 

Could any potential easing of climate policy – at either EU or national level – affect investor decisions in the energy sector? 

The European Union’s climate policy and the EU ETS operate as a system of interconnected vessels. The purpose of the ETS mechanism is to incentivise Member States to reduce CO₂ emissions, primarily by gradually phasing out fossil fuels in the energy sector. In practice, this means the need to invest in low-emission generation sources, particularly renewables. 

The ETS system has now been in place for more than two decades, and its impact on the energy transition is clearly visible. Poland is a good example: the share of renewables in electricity generation has increased from just a few per cent to more than 30 per cent, despite growing energy demand. This suggests that the core objectives of the mechanism have largely been achieved. 

Any changes to the ETS system could, however, affect investment decisions and investor perceptions of the transition in the short term by increasing the level of uncertainty. It should nevertheless be emphasised that the transition process itself can no longer be stopped. From Poland’s perspective, it is in fact essential to accelerate it, as a lack of investment may in future lead to problems in securing sufficient capacity within the power system. 

A return to coal-based energy generation appears highly unrealistic today. Poland’s available coal resources have been largely depleted, while the remaining deposits are located at significant depths, substantially increasing extraction costs and undermining their economic viability. 

Similarly, further development of gas-based power generation does not represent an optimal solution – either in terms of cost or energy security. Gas means higher energy prices and continued dependence on imported fuel. 

In summary, while a possible reform of the ETS system could temporarily slow investment decisions, it should not halt the long-term development of renewable energy sources, which remain the key direction of the energy transition. 

What are currently the biggest regulatory, business or technological risks that investors should consider when planning energy projects in Poland over the next five years? 

From the perspective of an investor allocating capital to renewable energy sources, several key risks can be identified that materially affect investment decision-making. 

In the regulatory area, one of the most significant challenges remains the permitting process – that is, the investment preparation stage involving the need to obtain a range of administrative decisions. In Poland, this process is currently highly formalised and complex, significantly extending project timelines. In the case of onshore wind, project preparation may take up to eight years, while offshore projects can take more than ten years. The average development period for onshore wind farms currently stands at around five years. 

An additional source of uncertainty is the ongoing spatial planning reform, including the introduction of so-called general plans. The lack of clear and final decisions regarding their shape is currently creating significant difficulties for planning new investments and increasing investment risk. 

Another important factor is operational risk linked to the functioning of the electricity market, in particular curtailment and the occurrence of negative prices. These phenomena directly affect project revenues and must be considered in investment analyses. 

In response to these challenges, technological and systemic solutions such as energy storage and sector coupling are becoming increasingly important. They make it possible to significantly mitigate the risks in question, improving both system flexibility and the stability of investor revenues.