DEVELOPMENT PLAN for purposes of meeting current and future electricity demand in the period EXCERPT

Transcription

1 Fot. Adam Wełnicki DEVELOPMENT PLAN for purposes of meeting current and future electricity demand in the period EXCERPT Konstancin Jeziorna, March 2010

2 Table of contents INTRODUCTION PROFILE OF THE ENERGY COMPANY PSE OPERATOR S.A OBJECTIVES AND CONDITIONS OF THE NATIONAL TRANSMISSION SYSTEM DEVELOPMENT Technical condition of the National Transmission Grid Macroeconomic indicators and the demand for electricity and capacity Macroeconomic indicators Electricity consumption Peak demand for electrical power Electricity generation (present state and development) Conventional sources Wind farms Cooperation with Distribution System Operators Development of conventional generation Development of wind power Short-circuit capacity new configuration for the 110 kv network Cooperation with electricity producers (issuance of connection terms and conditions) DEVELOPMENT OF THE NATIONAL TRANSMISSION SYSTEM BY NTS Development Plan for the period Connections Power evacuation Network operation security Cross-border interconnections Impact of the investments planned for implementation in the period Investment needs related to the development of cross-border interconnections Cross-border interconnections asynchronous Cross-border interconnections synchronous POSSIBILITIES FOR THE IMPLEMENTATION OF THE NTS DEVELOPMENT PLAN Cooperation with government and self-government authorities

3 List of abbreviations ATR Autotransformer CHP Utility combined heat and power plant NP Nuclear power PSP Pumped-storage power plants WF Wind farm CG Capital Group IT IT and Telecommunications Department of PSE Operator SA IPS/UPS Independent Power Systems of 12 countries / Unified Power System of Russia /equivalent of Polish TSO / CDGU Centrally Dispatched Generating Unit NSMC National Spatial Management Concept NPS National Power System NTS National Transmission System lsmp local spatial management plan EHV extra high voltages N-1; N-2 power grid sufficiency criteria in emergency situations DSO Distribution System Operator TSO Transmission System Operator RES renewable energy sources GDP Gross Domestic Product DP Development Plan TR Transformer UCTE Union of the Co-ordination of Transmission of Electricity URE Polish Energy Regulatory Office HV high voltage All information used for the analyses on which the Development Plan is based is correct and accurate to the best knowledge of as of June of

4 INTRODUCTION This excerpt has been prepared according to Section III.D of the Instruction of the Transmission System Operation and Maintenance (IRiESP) effective on 1 June This document has been prepared on the basis of the Development Plan for purposes of meeting the demand for electricity in the period and applies to the period in the scope of plans for the development of the National Transmission System. The Development Plan has been prepared for the purpose of meeting the obligation imposed on the transmission system operator under art. 16 of the Energy Law act. The purpose of the plan consists in the presentation of the investment ventures aimed at meeting the future demand for capacity and electricity. The present issue of the plan takes into account the new conditions of system operation as current on the date of finalizing the assumptions of conducted analyses. A series of events affecting the conducted analyses and planned transmission grid development by took place in 2008, including the following: 1. Decisions of the EU energy summit on 8 December 2008 as a result of which investors filed applications for the connection of conventional generation sources of an aggregate capacity of 23,000 MW; 2. Assumptions presented in the last drafts of the energy policy, inclusive of assumptions pertaining to the development of nuclear power in Poland; 3. Government policy related to the support of the development of renewable energy sources, which resulted in a dynamic influx of applications for connection terms and conditions for such sources; 4. Assigned goals of the Climate Package; 5. Observed fluctuations of macroeconomic and economic indicators as well as divergent future variance forecasts. The dynamics of the aforementioned events highly affected the analyses conducted and used by as well as their final outcome contained in this document. Furthermore, upon observing the increase of electricity demand, the change of character and structure of the demand and legal barriers hindering the development of the transmission grid, PSE Operator S.A. has undertaken a series of actions to eliminate these barriers. expects that as a result of these actions it will be possible to develop the transmission grid to respond to the national needs. Moreover, conducted negotiations with investors concerning the location and construction of new generation sources, and with distribution companies in respect of coordinating the development of transmission grids and distributions networks and as well as undertaking joint actions to acquire rights of way for new line investments. The aforementioned actions helped plan the structure and development of the transmission grid, including the following: 4

5 1. satisfaction of the forecasted future demand for capacity and electricity; 2. connection of new conventional sources to the transmission grid; 3. planned nationwide locations for nuclear power plants; 4. integration of RES with capacities resulting from the climate targets; 5. structural changes in the provincial supply systems; 6. development of cross-border interconnections under international agreements. The development of the transmission grid presented in this document has been planned on the basis of the data and information acquired by the TSO that include, among others, the recovery and growth investment plans provided by the producers. Changes to these plans will have an effect on the overall development of the transmission grid. All the aforementioned factual circumstances in the external environment as related to the statutory obligations of result in the following: 1. reactive responses to facts that are not under control of ; 2. reactive actions resulting from effective provisions of law; 3. creative impact on drafted legislation and investor behaviour. All the above factual circumstances shall also affect the scale of the required development of the transmission grid and distribution networks as well as the costs of such development. The main part of the Development Plan has been divided into three analytical and planning periods, i.e , and The planned investment ventures in each period have been assigned to the following important categories having a considerable impact on the development of the NPS: 1. Connections; 2. Power evacuation; 3. Network operation security; 4. Cross-border interconnections. The spans the analytical and planning period The performance of tasks planned for the years is most important and decisive in respect to system operation security and potential for further reinforcement of the transmission grid. The tasks have been selected so as to provide a basis and starting point for the development of the power system in the following years. The feasibility of these tasks depends on the enforcement of legal regulations that would allow for and support the development of the power system. The Development Plan is the basic planning document in the hierarchical planning system adopted by and serves as the basis for the Seven-Year Investment Objective Plan, on which, in turn, the Annual Investment Plan is based. Both the Development Plan and the Investment Objective Plan (which is a rolling plan) are subject to periodical updating. It should be emphasized that the Development Plan and the Investment Objective Plan alike represent long-term planning documents and should not be directly identified with an investment implementation plan. 5

6 1. PROFILE OF THE ENERGY COMPANY PSE OPERATOR S.A. Polskie Sieci Elektroenergetyczne Operator Spółka Akcyjna, a joint stock company (referred to in abbreviated form as ) has been established under a notary deed of 17 February 2004 as a wholly owned company of Polskie Sieci Elektroenergetyczne S.A. (PSE SA). On 3 March 2004, the Company was entered into the National Court Register at the District Court for the capital city of Warszawa, XII Commercial Division, under entry has been issued a statistical number REGON Until 30 December 2006, the Company had only one shareholder holding 100% of the share stake, namely, Polskie Sieci Elektroenergetyczne SA. As of 31 December 2006, all shares in the Company were transferred as an in-kind dividend to the State Treasury. booked the transmission grid to its assets at the end of December As at 31 December 2008, the share capital of amounted to PLN 9,605,473,000 and was divided into registered shares of a nominal value of PLN 100 each. By virtue of Decision no. PEE/272/4988/W/2/2004/MS issued on 15 April 2004 by the President of URE, holds a license for electricity transmission and distribution within the territory of the Republic of Poland valid from 1 July 2004 to 1 July Pursuant to the Decision no. DPE-47-58(5)/4988/2007/BT from 24 December 2007, issued by the President of URE, was appointed Transmission System Operator within the territory of the Republic of Poland for the duration of the license validity. In 2008, through a decision of the District Court for the capital city of Warszawa in Warszawa, XII Commercial Division of the National Court Register, dated of 12 December 2008, the name of the company was changed from PSE-Operator Spółka Akcyjna to Polskie Sieci Elektroenergetyczne Operator Spółka Akcyjna (in short: ). The principal objectives of the activity of consist of the following: 1. provision of electricity transmission services and assurance of safe and cost-effective operation of the National Power System as part of the European power system, whilst meeting the requirements of synchronous operation and asynchronous connections; 2. ensuring the necessary development of the domestic transmission grid and cross-border interconnections; 3. making transmission capacity available on market-based methods for cross-border exchange purposes; 4. creating the technical and organizational infrastructure for the operation of the domestic wholesale electricity market; 5. maintaining the Company s financial stability, creating Company value and contributing to the value growth of the PSE Operator CG, in compliance with the principles of corporate governance and internal regulations. 6

7 provides transmission services to transmission system users in the internal and cross-border trade. Transmission services rendered domestically include the following, in particular: transmission of electricity defined as the transport of electricity via a transmission grid; assurance of continuity of electricity supply and consumption in the power system as well as the reliability of electricity supply and compliance with electricity quality parameters; clearing of accounts resulting from the reconciliation of imbalance of electricity supplied and received from the NPS. Transmission services rendered in the scope of cross-border trade include the following, in particular: allocation and provision of access to the cross-border transmission capacities; reservation of the transmission capacities for cross-border exchange; performance of cross-border exchange. Pursuant to the Council of Ministers Regulation of 30 September 2008, represents a company of strategic importance to public order and safety in respect to which the State Treasury holds particular rights. 7

8 2. OBJECTIVES AND CONDITIONS OF THE NATIONAL TRANSMISSION SYSTEM DEVELOPMENT The development of the NTS aims at ensuring the possibility of long-term provision of transmission services to electricity market participants, relevantly to their needs. Particular objectives include the following: 1. Objectives related to electricity demand: satisfaction of the growing end users demand for electricity, improvement of the reliability and quality of electricity supply to large agglomerations; 2. Objectives related to electricity supply: assurance of transmission grid operation reliability under conditions of unpredictable development of largest domestic generation sources, power evacuation from new generation sources, including wind farms; 3. Objectives related to the assurance of coherent development of the EHV transmission grid and the distribution network: meeting the needs of electricity distribution companies in the scope of new electricity consumption points in the EHV transmission grid, improvement of operation reliability of the entire NPS; 4. Objectives related to ensuring the correct operation of TSO s network infrastructure: replacement of TSO s fixed assets, assuring priority to the development of the 400 kv transmission grid, improvement of reactive power management; 5. Objectives related to the support of domestic electricity market operation: assurance or improvement of flexibility in power evacuation from the existing generation sources, reduction of transmission congestion in the EHV network; 6. Objectives related to the development of the international market: increase of the NPS ability to exchange electricity with neighboring power systems while assuring secure operation of such interconnections, assurance of active participation of the NPS in the EU internal power market. The individual investment and development ventures presented in the Development Plan may support performance of one or more of the above objectives. Development conditions include a diagnosis of the current status as well as an analysis of the adopted scenarios of future development. For the purpose of this Development Plan a cascade scheme of factors was adopted including the following order of areas: a broader environment of, electricity market participants and internal conditions. Component factors were identified for each area which represent the key determinants of directions, the material scope of long-term NPS development and the possibilities of its implementation. The most important factors affecting the correct performance of tasks implemented by the TSO in the long-term horizon include the following: macroeconomic assumptions and associated electricity demand variability, electricity supply capacities (current status and development), cooperation with DSOs, technical conditions of the National Transmission Grid, 8

9 support of electricity market operation, possible directions of cross-border interconnection development, financing sources of NTS development. The purpose of the NTS Development Plan is to specify the set of investment and growth ventures to be undertaken by the TSO in order to eliminate or substantially limit the impact of factors that may negatively affect the key tasks imposed on in the long-term time horizon. The main technical criterion assumed during the preparation of the NTS Development Plan was the compliance with the N-1 rule. Compliance with this rule means that in the case of a shutdown of a random single system component (e.g. one line circuit, transformer, bus bar section or power unit), the permissible load and voltage parameters of any system component shall not be exceeded and the system s operational stability shall not be exposed to risk. The EHV transmission grid developed in compliance with the N-1 rule is, on the one hand, operationally flexible and, on the other hand, resistant to the impact of external disturbances (the so-called backbone network). The decision related to transmission infrastructure development, with the exception of investments ensuring energy security, was based on the economic criterion assuming that the discounted development and operation costs of additional transmission capacities shall not exceed the profits gained from such ventures. The assumed benefits for alone consist of components of the fixed rate costs and return on invested capital which can be measured in PLN. Under present conditions, the NTS Development Plan ensures optimization of investment outlays and operation costs as well as the distribution of outlays over time in a way preventing the outlays and operating costs from causing, in the individual years, excessive increases of prices and fee rates for electricity transmission, whilst assuring supply continuity, reliability and quality Technical condition of the National Transmission Grid The Polish power grid of extra high voltage consists of network infrastructure (Drawing as at 2009) comprising the following facilities: 236 lines of a total length of 13,053 km, including one line with a voltage of 750 kv and a length of 114 km, 68 lines with a voltage of 400 kv and a total length of 5,031 km and 167 lines with a voltage of 220 kv and total length of 7,908 km, 106 extra high voltage substations, 174 transformers of EHV/110 and EHV/EHV kv of a total capacity of 38,450 MVA. 9

10 ZRC SLK GDA DUN GBL REC ZYD OLM ELK PLC OLS GLN MON GRU VIE KRA PKW BYD JAS TEL OST BIA NAR GOR PLE CZE PAT WLA PDE PLO MSK LSN ZGC ZUK POL LES PPD KON OSR ADA PAB ZGI JAN PIO SOC MOR WTO PIA MIL KOZ SDL HAG MIK CPC CRN KLE PAS SWI ZBK BOG DBN GRO BLA KED WIE TRE ANI HCZ WRZ ROK BEK TCN LAG KAT HAL JAM JOA ROG LOS KHK SIE KOP BYC BIR MOS CZT PRB ALB NOS KOM BUJ SKA LIS ZAP KIE LUA WAN KPK RAD KLA ROZ PEL OSC TAW ATA CHM PUL RZE BGC KRI ABR STW LSY CHS ZAM MKR DOB LAG LOS LEM JAM BLA KED HAL KAT KHK SIE WIE BYC KOP BIR MOS KOM CZT PRB BUJ ZAP LIS Drawing Scheme of the National Power Grid in 2009 The territorial reach of the power transmission system spans the entire territory of Poland. The highest network density can be found in the southern part of the country whereas the lowest density is in the northeast. The technical conditions of a large group of lines, facilities and equipment deteriorate gradually with age. The materials and technologies used for their construction also age, which affects their ability to perform their respective functions throughout the expected life cycle of these facilities. 10

11 Therefore, the key parameter in the synthetic evaluation of technical condition is the age of the line, facility or equipment and their ability to perform their respective functions. The majority of 400 kv transmission lines were built in the 1970s and 1980s. Part of the network aged above 40 years requires urgent modernization. The performance of the modernization is rendered difficult due to the impossibility of shutting down some of the lines for repair. The age structure of the 220 kv lines shows that their modernization is needed. The development and modernization programs prepared by are based on the concept of upgrading the already existing 220 kv lines to 400 kv. Following the upgrade, the total length of the 400 kv lines shall be increased, whereas the total length of the 220 kv lines will be reduced. Units aged 30 to 40 years represent a major part of the percentage structure of transformer age. In the past years, a staged program of transformer replacement was launched. The replacement plan shall be continued together with the program of construction of new transformer units and acquisition of new models of transformers. These actions are necessary to renew the transformer population, satisfy the electricity demand and increase customer supply reliability. The conducted analyses prove that most facilities may still be operated for ten-odd years. In the case of equipment, i.e. transformers, circuit-breakers and 400 kv line facilities this period is considered safe. However, in the case of 220 kv lines, the expected time of continued operation is beyond the safety limit. In light of the following: total length of the 220 kv lines of 7,800 km, plans to upgrade these lines to 400 kv, generally recognized legal constraints, it is necessary to undertake actions to accelerate the reconstruction and modernization of the 220 kv lines and simplify the formal and legal procedures of the investment process. These tasks have been included in this plan. The needs related to the development of the transmission grid stem from forecasts of increased customer demand for capacity and electricity as well as customers enhanced requirements for supply reliability and the investments necessary to integrate and evacuate power from new generation plants. The needs of transmission grid development are also directly related to the EU Renewables Directive defining the RES share in the total electricity mix and the requirements regarding the development of cross-border interconnections. Decisions taken today concerning the amount of outlays assigned to transmission system operation shall be crucial to the future costs of operation in market conditions. The goal should be to minimize the total costs of electricity generation and transmission. Difficulties in the development of the transmission grid resulted in the fact that network density in the northern part of Poland and internal connections between the northern and central part of the country are insufficient. The electricity market introduced at a later time based on the concept of theoretical trading model (the so-called copper plate ) had a negative effect on price competition and lacked incentives to enhance and diversify generation sources. For the purpose of remedying the effects of the above situation, the TSO initiates and conducts work aiming at the improvement and development of market mechanisms. Among them is the introduction of a new balancing energy settlement scheme including marginal prices, individual tariffs for the so-called forced generation and the settlement of commissioning costs of generation units. The implementation of 11

12 intraday trading is also planned. The most important development directions for market mechanisms, under domestic conditions, should include, in the long-term perspective, the provision of multicomponent economic signals to investors investing in generation sources and the implementation of electricity trading rules that are coherent with the actual physical nature of the power system. Conclusion: The technical condition of the existing transmission grid facilities allows for performance and fulfillment of assigned functions whereas the plans of guarantee the relevant actions of the company acting as transmission system operator. The most important effects of the activities of have been presented below. The key effects of activity conducted to ensure short-term security: 1. there was no case of the NPS being disconnected from the UCTE system, 2. there was no case of island operation within the NPS, 3. the requirements for secure NPS operation defined in the Operation Handbook for interconnected systems valid from July 2004 to the present have been met, with the exception of northeast Poland (a few hours on 24 June 2006), 4. functional efficiency of lines, substations and control systems, settlement systems and telecommunication systems was maintained, 5. the NTS facilities remain in an undamaged state, 6. the assets of are insured with three insurance policies, 7. the PSE Operator CG has a civil liability insurance policy, 8. the acid test ration for the TSO is satisfactory, 9. due to the changes in the balancing mechanism: o the efficiency of utilization of network infrastructure and generation resources was improved, o factors important to transmission system operation security were taken into account in a more adequate manner in the management of that system. The key effects of activity conducted to ensure long-term security: 1. the most important equipment and facilities have a safe long-term lifecycle reserve, 2. the Development Plan to 2025 has been prepared to provide the basis for initiated activities related to NTS development, 3. the TSO prepared and implemented an integrated and hierarchical planning process of which the investment plan represents a key element, 4. under the current conditions, the TSO secured funds for the implementation of the investment plan, 5. the TSO s financial condition is stable, 6. connection terms and conditions for five power units of a total capacity of 4 GW have been issued, 7. connection terms and conditions for the integration of wind farms into the transmission grid of a total capacity of 2,623 MW have been issued, 8. identification and agreement of terms and conditions for the integration of wind farms of a total capacity of 6,940 MW, 9. the TSO has undertaken preparatory actions for the purpose of integrating new units which have been issued connection terms and conditions and for the purpose of creating the requirements for the connection of units that are currently in the planning stage, 12

13 10. the TSO has undertaken preliminary actions to initiate the project aimed at providing contingency capacity reserves ensuring safe operation of the NPS during the planned largescale development of the NTS, 11. the TSO has introduced new solutions aiming at the coordinated and integrated development of the NTS in cooperation with the DSOs and producers, 12. the TSO undertook actions aiming at the installation of reactive power sources to stabilize voltage in the NPS until the principal reconstruction of the transmission grid is completed, 13. work is underway to implement the domestic intraday market Macroeconomic indicators and the demand for electricity and capacity Macroeconomic indicators Domestic electricity consumption depends on the generally understood economic growth of the state, illustrated, among others, by gross domestic product (GDP) dynamics. Drawing presents the aforementioned factor. In the observed time interval of , two periods of GDP drop are visible: one at the beginning of the 1980s and the other at the turn of the 1980s and 1990s. The observed periods of reduced energy consumption in the periods of GDP drop prove a strong correlation between these indicators. During GDP growth, domestic energy consumption increased, which further confirms the aforementioned correlation Energy consumption 100 bn PLN ' GDP 80 TWh Year 2008 (preliminary data) 0 Source: ARE S.A Drawing Total electricity consumption and gross domestic product in the period The dependency between GDP growth and electricity consumption is used as a basis for the preparation of electricity demand forecasts. An electricity demand forecast has been prepared for the draft Energy Policy of Poland by 2030, which is currently under discussion. This forecast constitutes Appendix 2 to the draft Energy Policy of Poland by The forecasted increase of electricity demand presented in the Policy has been shown in the graph below (Drawing 2.2.2). The annual average indicator of electricity demand growth until 2025 stemming from the forecasted growth curve amounts to app. 1.28%. 1 1 Based on the draft Energy Policy of Poland by 2030 March

14 TWh Source: Appendix 2 to draft Energy Policy of Poland by 2030 MoE, March 2009 Drawing Forecasted electricity demand Lata Following a momentous drop of electricity demand caused by the latest economic crisis, the electricity demand continues to grow in the forecasted period. Conclusively, the forecasted electricity demand in 2025 is higher than the demand in 2007 by slightly over 26% and amounts to approximately 195 TWh. An important auxiliary indicator taken into account by in the forecasting process represents the energy consumption per capita in Poland as compared to the energy consumption per capita in the developed states of the European Union. It is estimated that this ratio amounts to 0.5. The demand growth forecast stemming from economic development should also include the additional increase of energy consumption caused by the closing gap between the indicator per capita in Poland and the indicator per capita in the EU. Conclusion: 1. The GDP growth rate shall be subject to economic cycles, however, when studied in longer time horizons, the variance tendency, as was the case this far, has always been positive. 2. Electricity consumption in Polish households is a parameter that exhibits an increasing tendency, which affects the general growth of electricity demand in total.* * (the percentage share of households in total energy consumption according to the EnergSys forecast in the effective variant for the period falls between 31 and 28 percent; Source: Poland Development Challenges, p. 173) Electricity consumption The dynamics of electricity consumption in the past years was positive. The electricity consumption growth curve from 2001 to 2007 is presented in Drawing In the period between 2001 and 14

15 2007, the total consumption growth was slightly below 12%. The highest annual increase of consumption was observed in 2006 and amounted to 4.2% in comparison to data from The annual average increase of consumption between 2001 and 2007 amounted to 1.7% and was much higher than the increase of 1.28% assumed in the draft Energy Policy of Poland by Electricity consumption [GWh] Increase 12% Years Source: ARE S.A. Drawing Electricity consumption growth curve for the years The structure of electricity consumption broken down into the individual provinces and its varying dynamics in the past years has been presented in Drawing GWh dolnośląskie kujawsko-pomorskie lubelskie lubuskie łódzkie małopolskie mazowieckie opolskie podkarpackie podlaskie pomorskie śląskie świętokrzyskie warmińsko-mazurskie wielkopolskie zachodniopomorskie Source: ARE S.A. Drawing Electricity consumption growth paths in the individual provinces from 2001 to 2007 The highest electricity consumption (more than 20 TWh/year) is observed in the provinces of Silesia and Mazovia. A characteristic feature of the consumption in Silesia is its relative stability through all the years. The electricity consumption in the Mazovia province is similar to that observed in province of Silesia. However, due to very high consumption growth dynamics in these 15

16 provinces, satisfaction of future electricity demand will necessitate expansion of the transmission grid and distribution networks. In the second group of four provinces (consumption above 10 TWh/year), all provinces have high electricity consumption growth dynamics. Satisfaction of the electricity demand in the future requires urgent and effective actions to develop the transmission grid and distribution networks. In the third group of provinces (consumption below 10 TWh/year), the Kujawy-Pomerania, Lublin, Podkarpacie and Świętokrzyskie provinces also exhibit high dynamics of electricity consumption growth. Stability of demand can be observed in other provinces of this group (the Lubuskie, Opole and West Pomerania provinces). According to preliminary data from ARE S.A., the total electricity consumption in 2008 in Poland amounted to TWh and was lower than the consumption noted in 2007 by approximately 0.4%. The drop of electricity consumption in 2008 was caused by the dawn of the global financial crisis. Conclusion: 1. The annual average increase of electricity demand until 2025 proposed in the draft Energy Policy of Poland by 2030 in the amount of 1.28% is much lower than the indicator of 1.7% noted in the period between 2001 and The dynamics of the domestic increase of electricity demand represent the average of the dynamics of demand in the provinces (Drawing 2.2.4). The varying dynamics of electricity demand in the provinces will require a diversification of the plans of in the category of Grid Operation Security Demand Growth, inclusive of high demand from endusers in urban areas of the planned supply systems). 3. The increase of electricity demand assumed by in the transmission grid development plan is higher than the increase forecasted in the draft Energy Policy of Poland by The following assumptions serve as the basis of adopting a higher demand forecast: 3.1. the transmission grid facilities proposed in the transmission grid development plan will operate for a longer period of time than the time horizon of the current issue of the development plan, 3.2. low electricity consumption per capita in Poland as compared to the corresponding indicators in EU states to which Poland aspires, 3.3. minimizing of the risk of underestimating the forecast by adopting a positive sensitivity margin stemming from the low indicator described above in Item 1. Taking into account the aforementioned assumptions, the following forecast of electricity demand was adopted for the purpose of preparing the transmission grid Development Plan (Table 2.2.1). 16

17 Table Electricity forecast assumed for the preparation of the transmission grid Development Plan Year Forecasted scenario TWh A comparison of electricity demand forecasts has been presented in Drawing TWh Development Plan 09, expected scenario Energy Policy_III_ Years Source: Development Plan 2009, Appendix 2 to the draft Energy Policy of Poland by 2030 MoE, March 2009 Drawing Comparison of electricity demand growth paths Peak demand for electrical power Peak capacity demand is one of the main physical values and the parameter that is used for designing transmission grid facilities. The dynamics of peak capacity changes in the past years were positive. In 2007, the maximum demand for electrical power was recorded on 18 December at 4:30PM and amounted to 24,611 MW. In the following year 2008, the maximum demand was noted on 4 January and amounted to 25,120 MW. This value was higher than the value obtained in 2007 by 2.1% and represented the highest historical value of annual peak recorded until the end of The peak capacity growth path in the period has been presented in Drawing

18 Capacity [GW] Increase 6.9% Years Source: ARE S.A. Drawing Increase of peak capacity volume from 2005 to 2008 Between 2005 and 2008, the aggregate increase of consumption amounted to 6.9%. The highest annual increase in consumption was noted in 2007 and stood at 4.7% in comparison to the year The annual average increase of consumption between 2001 and 2007 amounted to slightly less than 1.7% and was much higher than the annual average indicator of 1.5% assumed in the draft Energy Policy of Poland by Conclusion: 1. The annual average increase of demand for peak capacity until 2030 adopted in the draft Energy Policy of Poland by 2030 amounting to 1.5% is much lower than the indicator of 1.7% achieved in the period from 2005 to The increase of peak capacity assumed by in the transmission grid development plan is higher than the increase forecasted in the draft Energy Policy of Poland by The following assumptions serve as the basis of adopting a higher forecast: 2.1. the facilities proposed in the transmission grid development plan will operate for a longer period of time than the time horizon of the current issue of the development plan. Therefore, the reasons presented in this item and above in Item 1 necessitate adoption of a positive sensitivity margin for the development plan assumptions to eliminate the possible underestimation of the forecast adopted in the draft Energy Policy of Poland by 2030 ; 2.2. the networks are built according to quantified requirements for technical and structural parameters; 2.3. low electricity consumption per capita in Poland as compared to the corresponding indicators in EU states to which Poland aspires shall also translate into an increase of capacity demand, including demand for peak capacity; 2.4. minimizing of the risk of underestimating the forecast by adopting a positive sensitivity margin stemming from the low indicator described above in Item 1; 2.5. the increase in demand for capacity and electricity observed in the past years was satisfied by the existing networks. Network development in this period was practically impossible due to legal constraints. Arrears in the past years need to be compensated in the nearest future. 18

19 In light of the above, the following peak capacity demand forecast was assumed for purposes of preparing the transmission grid development plan Table Table Forecast of peak capacity growth assumed for the transmission grid Development Plan Year MW Forecasted scenario 23,477 24,611 26,150 28,360 31,220 36,020 It should be emphasized that the demand forecasts will have a lesser effect, as compared to the past years, on the structure of the network resulting from the development plan. In the present issue of the transmission grid development plan the main reasons affecting the structure of the network shall stem from the following factors: 1. integration of new conventional sources into the transmission grid, including new locations, 2. increase of the individual capacity of units integrated with the transmission grid (integration with the 400 kv network), 3. planned nationwide locations of nuclear power plants, 4. connection locations and volume of RES power capacity integrated into the transmission grid and distribution networks (with capacities assumed in the climate package), 5. structural changes of the electricity supply systems of the individual provinces aiming at the improvement of supply reliability, including the particular needs of urban areas, 6. variability of RES and the need to enhance transmission grid flexibility to deal with multidirectional power flows, 7. need to develop the grid components related to contingency capacity reserves, 8. establishment of cross-border interconnections under the concluded agreements Electricity generation (present state and development) Conventional sources The total generating capacities of individual generation sources in 2008 (preliminary data) were as follows: 1. Utility power plants 23,799 MW 2. Combined heat and power plants 6,376 MW 3. Renewable energy sources 1,532 MW a. Hydropower plants 852 MW b. Wind farms 306 MW c. Other 74 MW 4. Pumped-storage plants 1,406 MW 5. Industrial power generation and distributed sources 2,433 MW According to the data provided above, the total generating capacity at the end of 2008 amounted to 35,546 MW. 19

20 The following changes in the size and structure of electricity generation sources have occurred and are forecasted in the time horizon included in the transmission grid development plan: 1. In 2008, the 464 MW unit in Pątnów was connected to the NPS. Another generation unit in the Łagisza power plant is currently being tested and subject to a trial run following the first synchronization with the transmission system. The commissioning of the 850 MW generation unit, largest to date in Poland, in the Bełchatów power plant, is planned for Planned decommissioning of existing units for environmental or technical reasons: in the period , the main reason for decommissioning shall be related to stricter SO 2 emission standards, whereas in the period , decommissioning shall intensify as a result of stricter NO x emissions standards. Furthermore, a decommissioning process related to natural aging of generation units is also expected in both of the above periods. In conclusion, baseload plants shall suffer losses of about 9 GW of generating capacity in the period The structure of decommissioning of generating capacity has been presented in Table Table Forecasted decommissioning of generating capacity in baseload plants for the period Years Capacity losses caused by technical issues [MW] Capacity losses caused by environmental issues [MW] Total capacity loss [MW] By the end of 2008, received applications for the integration of generation units of a total capacity of app. 23 GW. The applications were filed by most of the large companies present in the Polish market and a few foreign entities. The above results from the decisions adopted during the EU energy summit in December 2008 related to the physically ongoing investments in the construction of generation sources and the planned ventures of investors in the electricity generation industry. The huge number of applications resulted from the decisions taken during the EU summit related to the energy and climate package that took place in Brussels in December Under one of the adopted decisions, from 2013 power plants will not have to buy all the CO2 emission allowances that they need and will receive 70% of the allowances for free. The allocation of free allowances was extended only to the currently operating power plants and plants, the construction of which was physically started before the end of Drawing illustrates the potential structure of generation sources available in the NPS to meet the demand in the time horizon of (in comparison to data from the statistical period ). 20

21 Capacity [MW] Existing utility plants Existing CHPs Hydropower plants PSPs Industrial CHPs and distributed generation Wind power plants Other RES New baseload sources determined New baseload sources existing locations New baseload sources new locations Year Source: Drawing Potential structure of generation sources by 2025 Furthermore, in light of information presented in the draft Energy Policy of Poland by 2030, which undertakes the initiative of building a nuclear power plant in Poland, included the commissioning of a nuclear power plant in modeling of the transmission grid structure in the draft Development Plan. The capacity margins in the system for extreme WF operation variants were defined on the basis of the forecasted peak demand and the generating capacity of domestic sources (Table 2.3.2). Table Amount of capacity margin in individual WF operation variants divided into years YEARS Peak demand for capacity [MW] Generating capacity of domestic sources [MW], wherein: Balance of cross-border exchange Transmission grid [MW]

22 Distribution network [MW] Total capacity to cover peak demand - with 5% share of wind farms [MW] without wind farms [MW] Capacity margin - with 5% share of wind farms [%] without wind farms [%] Wind farms At present, wind farm capacity is continuously increasing with growing numbers of applications for their connection to the transmission grid and distribution network submitted by investors. As at June 2009, connection terms and conditions for wind farms have been issued for app GW of connection capacity (including 2.6 GW to EHV, 6.9 GW to HV and 2.6 GW to MV). For the purpose of power evacuation from the nodes to which WFs are connected, it is necessary to provide adequate network infrastructure. Wind farms are characterized by high instability of operation. WF integration introduces new requirements for network development, particularly related to the interconnections between the areas in which WFs are located and baseload sources. New challenges also appear in the scope of shaping the volume of spinning reserves in conventional baseload sources and its availability to meet the demand in the event of a lack of generation in areas of high wind power penetration. The development of renewable energy generation is a result of the planned path of compliance with the climate targets. Due to the obligatory share of renewable energy sources in the total electricity mix, it shall be necessary to integrate renewables into the transmission grid and distribution networks. Taking into account: the forecasted domestic electricity consumption, the forecasted energy generation by RES other than wind farms, and the forecasted average operation time of WFs during the year, it is expected that compliance with the aforementioned conditions shall require the initiation of WF generating capacity at a level presented in Table

23 Table Estimated WF generating capacity by 2025 Years Wind farm capacity [GW] defined the network areas in which WF integration is planned on the basis of issued grid connection terms and conditions, register of applications for the issue of connection terms and conditions and applications for the specification of the scope of analyses necessary to define connection terms and conditions. The current status of the connection terms and conditions that have been issued and defined by the TSO and DSOs has been presented in Drawing (in light blue), whereas the scale of the defined assumptions for studies related to the connection of wind farms to NPS has been presented in black figures. Drawing presents the areas of WF locations until 2015, divided respectively into individual years. The scheme of the transmission grid presented on the aforementioned drawings refers to the status of the grid as of The wind farm generation volumes presented in this scheme have been included in different variants within the scope of technical analyses providing the analytical basis for the development plan. 23

24 Drawing Current status in the scope of connection terms and conditions that have been issued and defined by the DSO and TSO and the specified assumptions for the wind farm integration studies (presented on the map of the transmission grid valid as of 2009) 24

25 Drawing Areas of wind farm locations by 2015 (presented on the map of the transmission grid valid as of 2009) 25

26 In order to evacuated the forecasted volume of power from wind farms, it is necessary to build approximately 660 km of 400 kv lines in the NTS by Further development of wind power in the successive years requires extensive development of the 400 kv network Cooperation with Distribution System Operators Network development plans prepared by the DSOs are an important element in the transmission grid planning process. Coordination between the development of the transmission grid and the development of the distribution network allows for an economically and technically optimal assessment of the investment needs of both parties. The integrated planning of the development of the transmission grid and the 110 kv distribution network provides insight on the necessary locations of new energy delivery points, reinforcement of the existing ones and construction of new EHV/HV substations as well as the initiation of new EHV/HV transformations. The integration of closed network development plans is a new element of the transmission grid planning. Access to new technologies simplifies the construction process whereas growing demands, particularly related to the environmental issues, shall entail the need of a broader integration of activities in network planning, construction of multi-circuit and multi-voltage lines and the use, in justified cases, of cable connections. Between March and April of 2009, held a series of meetings with DSOs to discuss the development objectives within the transmission grid and the distribution networks in the areas of the individual DSOs. During the meetings, the TSO informed the DSOs of his investment plans related to substations and lines as well as of the intentions of electricity producers in the DSO areas. The meetings resulted in the specification of cooperation principles for the preparation of successive issues of the Development Plan. The need to exchange development-related information between the DSOs and the TSO was also emphasized as well as the need to reinforce the existing and build new nodes of the transmission and distribution grids. The need to provide new couplings between the 220 and the 400 kv networks was also underlined in order to improve supply reliability in the DSO areas. The Operators placed special emphasis on the problem related to the large number of applications for the connection of new wind power sources to the NPS. They also underlined the need to optimally develop the transmission grid and the 110 kv distribution network to accommodate power evacuation from those sources. In relation to the connection terms and conditions issued for sources with a capacity exceeding 10 GW (capacity complying with the requirements of the climate package until 2025), the Operators emphasized the need to limit the issuance of terms and conditions for the connection to the transmission grid. The Operators expressed their will to cooperate during the introduction of the investment objectives stemming from the coordinated development plans of the DSOs and TSO to the provincial spatial development plans. The DSOs cooperates with the TSO by providing the investment objectives related to their networks resulting from the improvement of supply reliability and from the connection of new WFs, which are taken into account during the preparation of the DP by the TSO. 26