May 29, 2012

  Let’s welcome the correction co-efficients!


YEAR On-Shore Wind Biomass over 10 MW Co-Firing
2013 0.9 1.15 0.3
2014 0.9 1.15 0.3
2015 0.875 1.125 0.25
2016 0.85 1.10 0.2
2017 0.825 1.075 0.15


In total the Ministry of Economy expects to spend another 4 billion Zlotys for Renewable Energy Sources from 2013. The tendency to abolish Co-Firing is clearly visible – see as well the next article - and the future is with wind energy and large biomass units, both of which were made better than expected. Generally small units get a higher correction co-efficient than large energy production units, with one remarkable exception. Large water power plants will be promoted especially, which is kind of a special act for the expansion of the Vistula water power plant owned by Energa, who recently threatened via public opinion to stop their 3 billion Zloty investment into a 70 MW production unit, as it would not otherwise pay for itself. Prof. Maciej Nowicki, former Minister of the Environment criticized this solution today as ineffective. Poland already low water supply, and the enormous amount to be invested could be spent in far better ways. 

  Is a two-year transition period 2013/2014 for already operating renewable energy sources under existing royalty schemes really a victory?

Currently, there is already an oversupply of green certificates on the market. The price of green certificates on the stock market slightly decreased in recent months, although the compensation fee for 2012 increased compared to the compensation fee for 2011. Although there are no official figures of green certificates to be held back by energy producers due to unstable pricing on the stock market, especially by energy producers using co-firing – 51 out of 55 coal power plants stating the so-called system power plants -, the number of unsold green certificates seems to increase. Co-Firing is responsible for 80 percent of the share in biomass firing, which is more than 50 percent of renewable energy production in Poland. Co-Firing is promoted in Poland like in no other country in the European Union. All five other EU-Countries who promote Co-Firing, for example UK or Sweden with similar royalty schemes like Poland, capped their remuneration at a level of 6 Eurocents, which is less than 60 percent of the existing Polish promotion scheme. This is the reason why Co-Firing is booming in Poland. Under the new Royalty scheme, Co-Firing should have a correction coefficient of 0.2 to reach a comparable remuneration as in other EU Countries. But according to the new draft RES Act for all already licensed renewable energy source production units, the level of promotion stays at the existing level – including Co-Firing. This is not the only worrisome development to destabilize the certificate system. The share of biomass in Renewable Energy production will most probably increase by the end of 2012, when new large biomass production units for legal reasons will be connected to the grid, e.g. the Polaniec investment of GDF Suez next to their existing coal-firing CHP plant. As well as the amount of wind farms connected to the grid increases dramatically – in Q1 this year more wind farms have been connected than in all of 2011. Therefore, the amount of green certificates will increase sharply until the end of 2014.

According to the new draft RES Act, a “headroom” solution in case of oversupply of certificates will be introduced. If, in a period of two consecutive quarters, the average price for certificates at the stock exchange will amount to less than 80% of the compensation fee, which will be reported by the Energy regulatory authorities URE, the Ministry of Economy will increase the percentage obligation to purchase green energy to an appropriate value. It may happen that the first test, whether this solution really works, will happen soon - during the first two quarters of 2013. Are politicians ready to increase the targets that easily at the very beginning of the new RES Act? Is this solution really bankable? Does this solution give necessary security for investors? From the legal point of view, there are a lot of uncertainties as to what an “increase to an appropriate value” might mean, and how to make this solution really enforceable for investors or financing banks. But even if the politicians would be ready to increase the quotas sharply in the 2nd half of 2013 – personally a lot of market participants doubt that - the consultation of a new regulation with increased quotas with Brussels takes months, as shown by the experience with the new draft regulations slightly increasing and extending quotations published by the Ministry of Economy in February this year. The whole process of certificates amounting to less than 80 percent of the compensation fee, issuing a report by URE, internal decision making process with the Government and consultation with Brussels may take all together up to two years.

During this time period, utilities are still forced to keep back their increasing number of unsold certificates so as to not lose too much on the stock exchange, and the amount of unsold certificates will rise enormously until the end of 2014. But this positive scenario will happen only if the increasing number of market participants behave very reasonably and financing banks and financial investors will stay cool, even if the cash-flow from the sale of electric energy won’t be capable to serve all existing external debt. But is this a realistic scenario for such a long period? The worst case scenario, where green certificates without any control are offered on the stock exchange, just to generate cash for financing banks, and the price will decrease rapidly, seems to be very close. At a critical moment the whole certificate system may implode, investors and financing banks decide to retire, and the “victory” of all green energy producers, who fought for a two-year-transition period, will turn into a mess.

Therefore more and more market participants emphasize the position that with the existing green certificate oversupply only a rapid cut at the beginning of 2013 may lead to a more healthy situation, and for the more experienced of them the certificate system seems to be already so much overstressed, so that only the implementation of feed-in-tariffs may Poland lead back on the track to increase their share in renewable energy in a controlled way. But for the time being there might be a light at the end of the horizon: according to recent information from the Ministry of Economy regarding co-firing units, only a four-year-period under the new royalty scheme will be granted, but not from the moment the new draft RES act will be in place, but from the moment the given unit has been licensed under the existing royalty scheme. Most of the existing co-firing units were licensed in 2008 and 2009, and automatically won’t be promoted under the new royalty system. 


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

DeBenedetti Majewski Szcześniak has been chosen
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”

“Investment Funds Law, Firm of the Year in Poland”




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