Informacje

DMS
  May 9, 2013

  International Solar Energy Conference on May 14 and 15, 2013 in Torun
 

On May 14 and 15 the Institute for Renewable Energy IEO is organizing an annual two-day international conference Solar Energy Industry Forum devoted to successful development of solar thermal installations and smaller PV installations in Poland. DMS partner Christian Schnell is moderator of the conference.

Click here to read more.


  New Energy Investor Summit May 21 and 22, 2013 in Zurich
 

The annual international New Energy Investor Summit will be held in Zurich on May 21 and 22, 2013. DMS partner Christian Schnell is one of the speakers and will present the Polish renewable energy market.

Click here to read more. 


  Workshop Sharing Experiences on Renewable Energy June 13, 2013 in Warsaw
 

On June 13 the Belgium Polish Chamber of Commerce is organizing a workshop about sharing experiences on renewable energy. DMS partner Christian Schnell is one of the speakers.

Click here to read more. 


  “Small Tri-Pack” shall be approved by the government before the summer break
 

The Ministry of Economy upheld that the “small tri-pack” [amendment to Energy Law to avoid penalty payments due to three EU infringement procedures] shall be approved by the Parliament before the summer break. The “small tri-pack” shall come into force at the end of summer this year. But the “small tri-pack” won’t have any impact on the renewable energy support system. 
The so-called “large tri-pack” [Energy Law, Gas Law, The Renewable Energy Sources Act and implementing act] will be approved by the Council of Ministers and immediately passed on to the Parliament after the “small tri-pack” is approved by the Parliament. The revised draft of the RES Act is very close to be finished, as the head of the department for renewable energy, Mr. Pilitowski, confirmed at a session of the Parliamentary Subcommittee for Energy on May 8. Since a change of leadership with the Ministry of Economy is possible before the summer break, this may have an impact on the schedule, so the Parliament will start the legislative process by September/October this year. Due to the notification obligations it is likely that the new RES Act will be in place mid of 2014, and partly by January 1, 2015.


  Prices for green certificates increase
 

In May the price of certificates of origin (so-called “green certificates”) on the Warsaw Power Exchange TGE increased to a level of 165 zloty. The average price on the OTC market increased to a level of 235 zloty (covering approx. 80% of the trade volume of green certificates). The average price for both indexes amounts to 200 zloty. In a week the prices increased by 5 - 10 percent. A further increase is possible since the amount of the oversupply of green certificates is on the decrease due to further reduction of co-firing. The oversupply of green certificates at an actual level of 5 TWh (which corresponds to 5/12 of the obligation for 2013) will decrease according to an appraisal presented by Ernst & Young on May 7, 2013 by an amount of approx. 1.5 TWh by the end of this year, and will continue to decrease even more in 2014.


  Future perspectives of project finance for renewables in Poland
 

Project finance was based on 15-years PPA/CPA agreements with a (combined) floor, but recently offtakers and merchant traders are not willing to take the market risk with green certificates. Even after stabilization of the price for green certificates in connection with the expected regulations, long term PPA/CPA agreements won’t be as attractive as they used to be. Additionally by the end of 2013 the Warsaw Power Exchange is going to implement futures for power and green certificates as a new instrument for long-term financing. So what the project finance in the next years may look like?  
To understand the future of project finance in Poland, please have a look at the Baltic Sea. The Polish certificate system and its recent price development is similar to the Swedish certificate system, which has had serious problems with oversupply of certificates for two- three years. 
The 203MW Jadraas project in Sweden, the largest wind financing in the Nordic region, has successfully closed financing in October 2011 and was notable for sidestepping the banks’ aversion to merchant risk, although in 2011 the prices of certificates started to drop substantially. At that moment most observers were still convinced that the government would be able to handle the immanent uncertainty with the certificate system. But actually project finance in Sweden dried out, and only the size of the projects, the strong currency and the very good wind conditions still enable project finance.
The green energy market in Sweden generally can’t be compared with the Polish market. Sweden has generally good wind resources, around 7mps to 7.5mps. Wind energy projects are larger as the density of population is lower. The forest biomass capacities are three times bigger. And finally, about 50% of power production is based on hydropower, which is a perfect source to balance wind power.
Nevertheless, project finance of wind farms has been developed slowly. The main disadvantage is that Sweden is a relatively immature market for green energy development. There is no active market for green certificates beyond three years (3Y CPAs or futures) and contracts for electricity do not trade frequently beyond five years (5Y PPAs or futures). Project finance, in general terms, is underdeveloped in Sweden. Banks are reluctant to take the merchant risk, with two-thirds of the project’s revenue coming through the green certificate market.
Although for Jadraas project a 10 to 15-year PPA/CPA could have been sought, this would entail locking the revenues at a very low price. As with any project finance deal, the financing banks required hedges, but hedging the illiquid Swedish certificate market was difficult. The investor of Jadraas project worked with the banks to establish a five-year rolling hedge for power and certificates. With green certificates prices already at a low level in 2011, this hedge started from a minimum point but was then built-up during construction. With the banks comfortable with the project’s hedging, the investor planned to fund the full €250m debt requirement through a 15-year bank debt, with half covered by an export credit agency (due to the use of Danish turbines) and the other half uncovered. The investor found the funding solutions restrictive, however, with a fixed coupon combined with a drawdown and prepayment similar to a bond. So the investor looked for another solution and turned to a pension fund which was willing to provide half of the deal’s debt, fully wrapped to AAA rating by the export credit agency. The pension fund accepted the profile risk and the drawdown risk although still with full risk guarantees from the export credit agency. The next step was the pension fund to take the bank’s risk and finally to fully fund the project.
This funding structure was possible only due to the large engagement of an export credit agency when the downturn of the Swedish certificate market still looked like a short-term problem. Actually it is already a mid-term problem and most of the renewable energy investments in Sweden are stopped. Nevertheless, the quotation increasing faster than it was initially expected will contribute to the undersupply of green certificates within the next two years, and the investment cycle may start again. But this time investors and financing banks will be smarter and will calculate higher margins due to the high risk factor. So a mid-term self-stabilizing system like the Swedish system after the first crash provides for a few years of lack of new investments and for higher margins which have to be paid by the consumer afterwards.
Polish certificate market seems to develop in a similar way, but the discussed price stabilization funds may contribute to a proper market development, which is needed for 20-year long term investment security.


  Complaints against the enacted master plans
 

Opponents of renewable energy projects undertake any possible actions to stop the unwanted projects. They even challenge the enacted master plans in the administrative courts. The complaints filed concern, among other things, the discrepancies between master plans and municipal studies. According to Polish spatial development and planning law, if devices generating energy from renewable energy sources of a total capacity exceeding 100 kW and their protection zones causing limitations in development and use of the area are to be located within the municipal areas, they should be provided for in the study of conditions and directions of spatial management.   
If necessary, a master plan should specify the borders of the areas for construction of devices referred to above, while the existence of significant impact of such devices on the environment should be determined. However, many municipal studies – in particular those adopted before September 2010, which is when the above-mentioned regulations entered into force - do not explicitly designate any areas for the renewable energy projects. Some of the studies include only very general provisions indicating that renewable energy sources in a municipality should be developed as directions of spatial management. Based on such general provisions, some municipalities adopt master plans allowing for location of renewable energy projects on areas which the studies designate for agricultural or other purposes, rather than to introduce respective amendments to the studies as well. Certain municipalities adopt master plans, in which no areas for renewable energy projects are explicitly designated and – which is equally important - no protection zones are marked. Under such master plans, it is generally allowed to locate certain renewable energy projects within the whole area covered by a master plan or covered by an amendment thereto (e.g. whole territory of one or more villages), although particular areas covered by such masters plans are designated explicitly for some other purposes (e.g. agricultural). Due to the fact that a complaint against a local legal act can be filed with an administrative court at any time (even after the entry of the master plan into force), it is recommendable to take care that amendments to the studies and master plans be very specific because too general provisions may be detrimental to the interests of an investor.


  More details concerning the revised draft of the RES Act announced by the Ministry of Economy
 

At a session of the Parliamentary Subcommittee for Energy held on May 8, the head of department for renewable energy, Mr. Pilitowski announced more details of the revised RES Act draft. Most of our assumptions made earlier this year have been confirmed.  

Re-calculation of correction coefficients

Although the Minister of Economy has recently announced a tender for re-calculation of correction coefficients, no service provider has been chosen yet. Presumably, only onshore wind will notice a slight decrease, all other techniques will rather note a decrease.

Correction coefficients will be published only for two years

Most probably correction coefficients will be published only for two years, and published one year in advance. This would enable every technique to finance and construct a project with investment security.

PV under pressure

PV plants will be supported only up to 2 MWp – to connect to medium voltage grid, or maybe even only up to 1 MWp. A distance of one or two kilometers between each installation which is connected within the next 24 months is under discussion, but it is likely that this legal requirement won’t enter into force.

Caps for onshore wind and PV

A general cap for onshore wind at a level of 7 GW total installed capacity and for PV at a level of 500 MWp total installed capacity is also under discussion.


Increasing the quotation obligation

The Ministry of Economy plans to issue a revised regulation "on detailed scope of obligations to be met to receive and present certificates of origin for redemption..." dated October 18, 2012 increasing the limit of green certificates which in a given year should be acquired by utilities and energy trading companies. This will be necessary among other things because large energy consumers will not be obliged to acquire green certificates in the future, which provides for a lower amount of the calculation basis for the quotation obligation. The quotation obligation in 2014 will therefore amount to 14% (instead of 13%), in 2015 to 15%, in 2016 to 16%, in 2017 to 17%, and then accelerate to 25% in 2020.

Price stabilization fund

A fund to stabilize the price on the Warsaw Power Exchange at a certain level is still subject to ongoing discussion. It seems reasonable as it can contribute to more long-term investments due to better investment security, but many decision makers still believe in the invisible hand of the (artificial) market.

Trade limitations with green certificates

The idea to limit the validity of green certificates to a period of 24 to avoid “certificate stashing” is still promoted by the Ministry of Environment, although many investors are against it. Additionally, an obligation to trade at least 70 percent of green certificates on the power exchange from 2016 is being promoted by the Ministry of Economy. Furthermore, payment of compensation fees under certain circumstances will be prohibited, e.g. if the price of green certificates on the Power Exchange amounts to less than 75 percent of the compensation fee.

Compensation fee might be replaced by a penalty

The compensation fee may disappear to be replaced by a penalty fee amounting to the twofold amount of the average power price (at the very moment about 200 zloty). The certificate price might be therefore subject to higher amplitudes increasing the price risk.

Limitation of co-firing

In the draft of the RES Act and the act implementing the so-called tri-pack of October 9, 2012 the legislator proposed to exclude the co-firing installations from the system five years after a given installation receives its concession as a RES installation. A significant majority of the operating co-firing installations were granted concessions in 2008 and 2009. Hence, exclusion from the system would take place shortly after the entry of the RES Act into force. Due to the intervention of the Ministry of the State Treasury this solution did not win governmental support. Actually, a limitation of so-called direct co-firing [burning of coal and biomass in the same boiler] at the level achieved in 2012 (6 to 7 TWh) for the already licensed installations is getting common sense. After 2017 co-firing (at least in power plants) won’t be supported anymore. The fact that co-firing will not have its market maker function in the future is of the greatest importance for the stabilization of the system.

No support for large depreciated hydropower plants

Large hydropower plants with more than 0.3 MW installed capacity will disappear from the support system (approx. 2 TWh yearly), thus decreasing the risk of oversupply.

… and oversupply?

The experts believe, that thanks to increasing the quotation obligation, the recent market development of co-firing and its future limitation, the disappearance of large hydropower plants from the support system, the recent oversupply will most probably disappear in the years 2013 - 2014.


 

For more information please contact: 

       

dr Christian Schnell
coordination/transactions/
venture agreements
cschnell@dms.net.pl
 
C. David DeBenedetti J.D.
project finance
ddebenedetti@dms.net.pl
 
Joanna Świostek
project development/planning
and building law/commercial
jswiostek@dms.net.pl


DeBenedetti Majewski Szcześniak has been chosen
by Corporate Intl Magazine 2012 and 2013 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”

   


 
 

The aim of this Newsletter is to provide a summary of the subject matter. No part of this Newsletter constitutes legal advice or can replace expert legal advice in specific circumstances. If you would like any further information, contact us.

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