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U-turn for Poland’s renewables policy

Christian Schnell

Poland is to implement a Feed-In tariff alongside auctions, explains Christian Schnell of law firm DSM Legal.

Background to the changes

Since the end of 2011 the Polish Ministry of Economy has been trying to improve the existing quotation system, based on the trade in green certificates. The last official version of the RES Act was published in October 2012, but the Ministry of Economy could not pass the RES ACT through the Committee of the Ministers’ Council. 

Unexpectedly, at the end of November 2012 the Minister of Economy, Waldemar Pawlak, a dinosaur of Polish politics, was replaced by Janusz Piechocinski, a relative newcomer and new head of the smaller coalition partner PSL, a rural party. This movement influenced the political enforcement of the RES Act draft.

The green certificate market struggled at the beginning of 2013, and the RES support system became a major political issue. As a result, the Economics Council and the Strategic Department of the Prime Ministers’ Office started to analyse the situation on the ground. 

Analysts worked on a cost-effective energy mix for 2060 from scratch. The first interim results were surprising – black coal was mooted as the cheapest energy source until 2060. Poland therefore needs to revise its strategy for the energy sector.

As renewables are part of a bigger system, the decision makers also began to increase their interested in the RES support system. At the end of spring an informal working group started to meet regularly at the Prime Ministers’ Office to discuss the pros and cons of future support system.

Auction for tariffs

Poland is to introduce Feed-In tariffs - a support system cheaper and easier to handle than a quotation system - and the tariffs will be distributed via an auction system. This is a similar approach to that which Italy has recently taken.

Analysts at the Ministry of Economy first analysed the Dutch experience, where the auction system has been in place for a longer period of time. The Dutch system had experienced downturns over the past few years with less than 10 per cent of successfully-tendered projects realised. However, recently the system seems to be accelerating, and real investments and project finance schemes are being introduced.

The Polish legislator is therefore convinced that Poland can learn from this experience.

Thus far, no details of the support system have been announced, but some elements are already clear. The auction system is to support the most efficient technologies, which favours larger onshore wind projects with large rotor blades and relatively low CAPEX costs.

Another important factor is the achievement of grid stability. Biomass burning installations, biogas installations and (small) hydropower plants are able to provide electric energy on a more frequent basis than wind and PV do. So, it is possible that the auction system will treat wind and PV in a different way than biomass, biogas and hydropower. 

The next important factor involves new investments. Poland needs to support new investments; however, co-firing and large hydropower plants are anything but new; as a result, these technologies will be phased out from the tariff auction system. 

Finally, Poland wants to avoid unreasonable profits, for which the consumer will have to pay. So any offer above a certain CAPEX/OPEX calculation (already being the basis for the calculation of the so-called correction coefficient in the RES Act published in October 2012 - i.e. an average reference price for a given technology) will not be allowed at auction. 

Fair play to participants

The question of who is going to organise the auctions is still undecided. From a political point of view, the Energy Regulation Authority (ERA) should be a guarantor of a fair play of all participants. But the ERA is completely unprepared and needs a budget increase to create new workplaces, so maybe ERA should delegate this obligation to the Power Exchange?

Another important question is timing. It is likely that the Government will consult only on the fundamentals of the new RES Act, rather than the whole draft. The Government seems to be quite determined to push the RES Act through, so the first presentation of the fundamentals by the end of September is realistic. A draft could therefore enter Parliament even before the end of this year. But as Poland is struggling to fully implement the RES directive 28/2009/EU, fines for the lack of full implementation after Q1 of next year are still possible.

In the case of Italy, it took two years to implement an auction system, which started at the beginning of January 2013. Under a similar timeline, an auction system in Poland could be introduced by 1 January 2016.

However, for existing projects, the situation is tricky. The Government unofficially claims that investors who connected before 31 December 2012 should have been aware that the quotation regulation in force since 2008 only covered the period ending in 2017. Generally speaking, from 2018 there are no so-called acquired rights (according to bilateral investment treaties) that a certificate system will still work.

Nevertheless, according to the energy law, the Government is obliged to publish a quotation for the next 10 years. It did so at the end of 2012 and published a quotation valid until 2021. Therefore, the situation is unclear, and a compromise will need to be found. It seems unreasonable to keep the certificate system alive after 2017, similarly to eliminating all support by the end of 2017 as well. 

After 2018, a separate Feed-In tariff will most probably be the cheapest solution, based on the 2013 to 2017 average. With a limited amount of co-firing at the moment of implementation of the new RES Act, and with the lack of support for large hydropower plants, the development of the certificate price might be promising and exceed PLN 200 considerably, so the Government might be tempted to offer investors a flat rate of eg 380 PLN/MWh in total to achieve a cheaper solution.

Among important stakeholders who need to agree to a compromise in the near future are the Polish Wind Energy Association and the owners of large biomass installations, such as GDF Suez or PGE. Another unknown element constitutes the development of the average price for electric energy, the ERA-price published every year and guaranteed for green energy producers.

About the author: Christian Schnell is a partner at law firm DMS Legal.

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Bioenergy  •  Policy, investment and markets  •  Wind power