July 17, 2012

  RES - Back to black?

The RES Act being part of the so called “Three-Pack” of Energy related laws to be implemented jointly is blocked within the Ministry of the Economy due to delay in drafting the new gas law. At that moment Mr. Czerwinski’s Parliamentary sub-committee launched a draft improving the Energy Law Act to abandon fines for delay in implementing the RES EU-directive 28/2009. By the way the draft was consulted with the state-owned utilities, which took advantage of the opportunity to stop the unloved RES Act which aims to abolish existing royalty scheme in favor of co-firing – “only” for the time being until the new RES Act will be in place. By implementing proposed changes to the Energy Law Act, a new RES Act seems not necessary anymore. For the second time in Polish politics - after the Ministry of Environment failed to implement an RES Act in 2004 - the RES industry won’t succeed in implementing their own law. For the state-owned Polish Energy sector the plans of the RES department at the Ministry of the Economy have been “too ambitious”.

The draft from Mr. Czerwinski does not have an impact on the existing royalty scheme at all. It implements a definition of micro-installations, but without larger legal impact. For applying for technical grid connections, a master plan will still be necessary, and not just a study as planned by the RES Act. The obligation to purchase a certain amount of certificates according to the quotation obligation will be extended to final consumers using 400 GWh annually with at least 15% of overall production costs stating costs for use of electric energy – not just large consumers buying electric energy from the power stock exchange, but also those buying electric energy on the balancing market. Other changes regard unbundling, strengthening the independence of the regulatory office URE – implementing of EU-directives 72 and 73/2009, implementing guarantees of origin for energy import, and implementing 5, 10, and 15 year plans. The profession of a specialist for installing micro-installations will be introduced according to the 28/2009 directive.

Who will win and who will lose if the Energy law Act will just be modified?

The existing major players, e.g. biomass including co-firing and onshore wind will, at first glance, win, as the existing royalty scheme will be postponed until 2021 by extending the quotation obligation, which will be in place after summer break. The oversupply of certificates which was recognizable in May and June will remain as a serious danger to the system as it may destabilize the Spot-market price for green certificates. A “headroom solution” in case of oversupply of certificates, which should have been introduced by the new RES Act (if, through a period of two consecutive quarters, the average price for certificates on the stock exchange will amount to less than 80% of the compensation fee, the Ministry of the Economy will increase the percentage obligation to purchase green energy to an appropriate value) is not to be implemented in Mr. Czerwinski’s draft. With the new RES Act, co-firing responsible for 40% of “green” energy production would be taken out of the certificate system, thus avoiding oversupply. As the 2012 quotation of 10.4% is almost fulfilled – leading to a destabilization of the certificate system providing to a price drop from PLN 285 end of 2011 for MWh to PLN 230 for MWh beginning in July 2012 – even an increase of the quotation to 12% in 2013 could be not enough. However, large consumers will have a broader obligation to purchase certificates according to Mr. Czerwinski’s draft, which will stabilize the system within the next 12 months or so.

Due to legal reasons, quite a few large biomass installations will be connected to the grid by the end of 2012. The increase in installed capacity from onshore wind farms is accelerating. And last but not least, the actual stabilization of the certificate price is not caused by lack of oversupply, but by keeping certificates to be traded in better market conditions. Whether the certificate system will survive without greater damage under the existing royalty scheme is therefore unclear, and financing banks will take this into account. For the Onshore Wind sector the question is: Is it better to have a stable correction co-efficient of 0.9 or an unstable system with a co-efficient of 1.0? The Polish co-firing sector achieving a remuneration under the existing Royalty scheme of almost 11 Eurocent/kwh - compared to countries like UK or Sweden, with a similar certificate system and a similar political approach promoting biomass firing in place, granting remuneration of 6 Eurocent/kwh taking the limited amount of investments to gain “green” energy by co-firing into account – care less about destabilizing certificate prices, as they still gain high profit even if the certificate price at the spot market destabilizes further.

By “postponing” the RES Act, micro sources and small power and heat producing units will definitively lose, as an unmodified certificate system won’t stimulate this market segment. Also more cost-intensive RE production by biogas-installations and photovoltaic power plants won’t pay off. Poland still awaits a breakthrough for a decentralized energy production, although necessary for the country’s future of energy supply. But hopefully a breakthrough will be only postponed for a short period. As the Ministry of Economy already started seriously thinking about a feed-in tariff-system for RE micro sources and small sources, the RES Act will hopefully get a second chance. As the UK Royalty scheme proves a certificate system for larger RE sources and a feed-in-tariff-system for micro sources and small sources can co-exist in peace.

  Does Minister Korolec really have a clue how to influence the future of EU climate policy?

Minister Korolec is afraid that, due to EU climate policy, jobs will be created outside EU. He says that EU should have an individual approach to each country and best available technologies for each type of energy production, whether coal, oil or gas, instead of concentrating just on a benchmarking related to CO2 emissions. Another idea is to point to energy savings instead of CO2 emissions. Although these arguments are important complementary remarks to EU policy, it is still unlikely that the EU Commission will stop concentrating mainly on lowering CO2 emissions.

  Global Corporate Renewable Energy Index 2011 (CREX)

Global investment in clean energy surged to a record $243bn in 2010 – a 30% jump from 2009 levels of $186bn despite the lingering impacts of the worldwide recession. Much of the growth in clean energy investment in 2010 was mandated as developers and utilities sought to comply with targets or emission reduction requirements. However, there was also another driver: motivated by corporate sustainability efforts, companies around the world have sought to purchase clean energy to power their facilities and to reduce their environmental impact. Renewable energy accounted for 8.2% of respondents’ annual electricity consumption in 2009 and 12.1% in 2010. 74% increased their procurement from one year to the next. The percentage of electricity consumption sourced from renewables ranged from zero to more than 100%, but more than 40% of companies met less than 5% of their power consumption with renewables. Generally, the more electricity a company consumes, the smaller the percentage of renewable energy it buys voluntarily – most likely due to the price premium of renewable power. Wind is by far the most popular renewable energy source: Companies regularly purchase renewable energy voluntarily to publicize their corporate social responsibility, but 30% of respondents did not know or did not disclose which technology (wind, solar, biomass, etc.) was responsible for the renewable energy they consumed in 2010.

Overall, Europe appears to favor renewable electricity more than other regions, but the top companies are distributed evenly between Europe and North America. Although most respondents to the Bloomberg New Energy Finance survey came from the US, those based in Europe sourced on average the largest amount of their electricity from renewable sources. European respondents met 40% of their electricity needs through voluntary purchases of renewable energy. The US companies said they met 22% of their needs with renewables and those from Japan averaged a 3% renewable energy purchase rate.

The predominant method of procuring renewable energy is through renewable electricity certificates. More than 80% of all renewable electricity purchased in 2009 was done via renewable electricity credits (RECs), either via the market or directly from renewable projects. RECs are popular as they are generally in sufficient supply and available at reasonable prices. Contracting renewable electricity through a green pricing program offered by a power supplier was the second most popular method. Only a very limited amount of renewable energy was purchased from projects that were directly financed by the company (1% in 2009 and 0.6% in 2010). Direct project finance is relatively time-intensive and costly when compared to other forms of renewable energy procurement.

  The cost of meeting a 30% emission reduction target in Europe

In the simplest scenario, a change from a 20% to a 30% emissions reduction target for the EU as a whole would result in an additional cost of €3.5bn per year up to 2020. This figure represents the additional cost over and above existing policies that are in place, for example renewable energy targets and building standards, and assumes that both the Emissions Trading Scheme (ETS) and Non-Traded Sector (NTS) make maximum use of their allowances to import CERs under the 30% target. Costs vary significantly between Member States but remain a small proportion of GDP at only 0.03% for the EU-27. Including the cost of meeting the renewable energy target, the average annual cost of meeting the 20% target is €23.3bn and €26.7bn for a 30% target. In general, the wealthiest fifteen Member States pay the vast majority of the costs of meeting targets. By selling emissions allowances, several of the lowest-income Member States are able to generate net profits. Under the burden sharing assumption proposed by the European Commission (COM (2010) 265) which assumes some 65% of the burden of moving to a 30% target is placed on the ETS sector, abatement costs in the ETS increase more than those in the non-traded sectors NTS.

Emissions caps in addition to the renewable energy target cause the power sector to switch from carbon-intensive coal to efficient gas power, whose higher operating costs increase wholesale electricity prices. Countries with established and carbon-intensive power sectors will have to spend the most in order to meet the emissions target – in particular Germany, Italy, Spain and the UK. Higher electricity prices then cause abatement in other sectors, such as buildings, and a slight shift away from electrically powered vehicles. Without additional policy frameworks, vehicles and heating systems will remain largely dependent on fossil fuels until 2020, though a modest rise in fuel efficiency is projected.

  Polish ghost power plants applying for free carbon allowances

A Polish government official told EurActiv that the Łęczna coal plant fell into a category of sites for which “construction is in progress”, even if the work was not completed. But a 20 -kilometer drive around the backwaters of Łęczna’s Stara Wieś-Stasin site on 5 July revealed a rural landscape of green fields, crop allotments, and country paths. No buildings, installations or other power plant-related activity were evident at the coordinates for the installation submitted by the GDF Suez group to the regional authorities in June 2011.

EurActiv has also seen photos of the Północ installation, for which Poland is claiming €98.3 million of free carbon allowances, taken in November 2010. They too show empty fields with no apparent installations or other construction works. One well-placed source at the Polish Ministry of the Environment said that the government could not check all 187 '10c' installation venues, and that if the European Commission ruled that some companies had breached the application rules, Warsaw would accept it.


For more information please contact:



dr Christian Schnell
venture agreements
C. David DeBenedetti J.D.
project finance
Joanna Świostek
project development/planning
and building law/commercial

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by Corporate Intl Magazine 2012 as the:

“Renewable Energy Law, Firm of the Year in Poland”

“Project Finance Law, Firm of the Year in Poland”

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