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Appeal on rising energy prices for the railway industry

On behalf of the Center for Railway Energy Efficiency (CEEK), which brings together entities responsible for 95% of energy consumption in the railway, the Pro Kolej Foundation and the Railway Business Forum (RBF), we are calling for taking measures aimed at mitigating the adverse effects of rising energy prices. The railway, as the foundation of the whole economic system, should be placed under a protective umbrella which will allow to maintain the continuity and necessary scale of freight and passenger transport.
At a recent Program Council meeting held in Warsaw on August 31, the representatives of rail carriers, infrastructure managers and operators, and railway and energy industry experts brought together with CEEK discussed possible directions for supporting the sector in the current situation.
As a result of the debate and consultations with the organizations signed on to this letter, we came to a clear conclusion regarding the need to build an aid shield for the railway sector. Dear Minister, below please find for your consideration the directions for possible measures, which in our opinion are essential in the light of the extremely difficult situation we face as an industry.
  1. Suspension of the so-called capacity fee for entities operating in the railway market
The capacity fee, which came into force at the beginning of the last year as a support instrument for conventional power generation, places an additional burden on rail carriers as end users of electricity. According to our estimates, the capacity fee burdens the railway industry with the amount of PLN 100 million a year. What is more, the nature of services provided by rail carriers makes them provide their transport services during certain hours and, consequently, consume significant amounts of energy during peak consumption hours. This means that railway industry entities are only passive payers of the capacity fee and are unable to act proactively to reduce it. Eliminating the capacity fee on electricity used for railway passenger transport is also possible in the light of the EU legislation – there are EU countries that received the European Commission’s approval for such a solution. Demands to suspend the functioning of the capacity fee have also already been presented by the Association of Local Government Rail Carriers, confirming that this is an important demand for all entities operating in the Polish railway market.
  1. Actions with regard to the costs of purchase of CO2 emission allowances
In Poland, the largest share of energy generated (about 70%) comes from coal-fired power plants, as a result of which the cost of purchase of CO2 emission allowances is a significant component of the total cost of electricity. The more that, as the Polish Economic Institute calculated, the cost of CO2 emissions in the production of one megawatt-hour of energy in Poland is three times higher than the EU average. Emission certificates are now reaching record levels of about EUR 80 per ton (not so long ago, it was about EUR 20), which has a significant adverse impact on the price of traction energy supplied to rail carriers.  Abandonment of burdening the railway sector, which performs important social functions, with the costs of CO2 emission allowances will allow to reduce the price of electricity by about 11%. In the current market situation, it is necessary to intervene so as to reduce the cost of purchase of CO2 emission allowances or to provide compensation to end users so that the profitability of transport can be maintained.
  1. Reduction in track access rates/reduction in the access fee
Another element that, in our opinion, should be part of the Aid Shield for the railway sector is the reduction in the access fee. It constitutes a significant cost-consuming element for rail carriers and the need for reliefs in this regard has been demanded by, among others, the European Commission. A special team appointed by the President of the Office of Rail Transport, with the active participation of representatives of the Ministry of Infrastructure, is also conducting work in this regard. This action could offset a significant part of the cost increase resulting from high energy prices.
To compensate the infrastructure manager for the reduction in this fee, CEEK demands to transfer for this purpose additional toll proceeds from sections not currently covered by the e-toll system. This action will not only reduce the adverse impact of rising energy prices, but will also support the development of competitiveness of the railway as the least carbon-intensive means of transport. Currently, transferring freight and passenger flows to the railway is particularly important in view of the need to eliminate Russian energy resources.
Actions taken by CEEK
We would also like to stress that in order to reduce the demand for electricity for the railway sector, the industry associated in CEEK has been proactively seeking energy-efficient solutions and implementing them actively for the past three years. The flagship Green Railway® program assumes the transition of the railway industry to being powered by renewable energy in 85% – by 2030. Ultimately, the program assumes the total, i.e. 100 percent, use of RES energy in the railway sector. As of today, 10 entities have already declared their participation in the program – they provide 22% of freight and 34% of passenger transport services in our country. We are also implementing projects related to eco-driving by stimulating drivers to drive locomotives in an economical way, or popularizing the use of recuperation, which makes it possible to recover part of energy during braking of a rail vehicle. By creating a coherent system for eco-driving in the railway, within 10 years we will generate electricity savings of 400 GWh, and recuperation will allow to save another 600 GWh.
Independently, carriers, together with PKP Energetyka, are looking for optimal power purchase models for 2023. Currently, as part of long-term contracts a model of setting the price in quarterly cycles is considered so as to minimize the risk of purchasing electricity at a high price for the whole year 2023. This approach may allow to reduce the operating costs, should there be a decrease in the price in the following quarters of 2023. The choice of a specific model is an individual decision for each carrier.
Unfortunately, the above initiatives will not be sufficient to maintain the profitability and competitiveness of the railway in the face of a drastic increase in the cost of pursuing activity due to rising energy prices, therefore, we are making this appeal.
To sum up, in recent months, including due to rising fuel prices, the railway has become an increasingly attractive alternative to road transport. The number of passengers has already returned for good to the levels recorded before the COVID-19 pandemic, and is even higher in many carriers. In the face of special market circumstances, systemic support for the railway sector is required to maintain its competitiveness. Therefore, we are calling for, among others, the suspension of the capacity fee for 2023, lifting of the costs of CO2 emission allowances or a reduction in track access rates. Taking urgent actions is necessary to provide real assistance to the railway sector during the ongoing energy crisis and not lead to a rise in ticket prices or a reduction in the network of connections being operated.
Record-high and ever-growing electricity prices will result in increasing carriers’ costs by about PLN 3.6 billion, i.e. even by 146%, in 2023 (estimate made on the basis of quotation of the annual contract for 2023 at the level of PLN 1,970/MWh). Our proposed actions would effectively prevent this, and their scale is within the range of public interventions undertaken by the government in recent years. Covering the cost of energy price rises with budget funds would be 2.5 times cheaper than the cost of the so-called “Electricity Act” introduced in 2018, and would account for 80% of the cost of the Anti-Inflation Shield 2.0 on motor fuels, which was introduced this year.
We are convinced that the railway carrying out the tasks of public transport and being at the same time the most economical and environment-friendly means of transport, needs to be covered by dedicated state support. The role of efficient, safe and environment-friendly railway transport is also particularly important in terms of the need to reduce the use of Russian hydrocarbons.
We are asking for considering the adoption of the proposed solutions to mitigating the adverse effects of rising energy prices on the railway sector and, consequently, all its users. Dear Minister, we remain at your disposal, should you wish to meet and personally discuss the details of potential assumptions of the Aid Shield for the railway.
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