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Poland is in an energy bind

Heavily reliant on coal, Poland is facing pressure to switch to renewables while its facilities already need an upgrade.

Even Jerzy Buzek, a former Polish prime minister who is now head of the European Parliament, admits that the dirty fuel will continue to play a key role. “No one in the EU doubts that coal will continue to be a fundamental source of energy for decades to come,” he said during a recent visit to Poland.

Poland is Europe’s largest coal producer — digging up 84 million tons last year in an industry that employs 120,000 people and is very powerful politically.

Switching to other sources of energy is problematic both economically and politically.

Poland needs to import about 90 percent of its oil and 70 percent of its natural gas — and the source of both of those fuels is Russia. Poland is already twitchy about its level of dependence on an increasingly unpredictable Russia, and it would be politically impossible to import much more.

Although Poland is hugely dependent on coal, the industry has been underinvested for years. Jerzy Markowski a former minister and now a coal consultant, estimates that Poland would need to invest about $7 billion to upgrade it coal mines, plus an additional $45 billion to build new power plants.

Poland has the lowest electricity use per capita in the EU, and energy demand is expected to rise by about 50 percent by 2030, meaning that the country faces the possibility of blackouts unless enormous funds are invested now in energy.

“If not for the economic crisis we would already have a deficit,” said Markowski.

Although the country is much more energy efficient than it was under communism, when enormous amounts were wasted, it still uses about twice as much per unit of output than the EU average.

At the moment the coal sector invests about $350 million annually in mines, which is enough for running maintenance but not enough to expand production.

“I have to admit that investments should be higher than they currently are,” said Miroslaw Kugiel, CEO of Kompania Weglowa, Europe’s largest coal company.

The problem for the coal companies is that banks are reluctant to lend to them because the sector has had huge difficulties in turning a steady profit in the past. The government is also constricted by EU rules that limit state help for industries. One option would be privatization, which is already under way in the power generating sector, but is still considered anathema in coal.