Informacje

DMS
  July 3, 2013

  DMS News. Congratulations to EBRD and the Energa Group on a major corporate finance project in Poland.
 

On June 26, 2013 EBRD, Energa S.A. and Energa-Operator S.A. concluded a PLN 800 million credit facility agreement (co-syndicated with PKO BP S.A. and ING Bank Śląski S.A.). Energa-Operator S.A. is a national leader in the implementation of smart distribution networks. It is the first to implement the program of (AMI) smart meters and smart grid in Poland on such a large scale.

The support given by EBRD to the Energa Group constitutes a material step in the direction of modernization of the national distribution network. It will have major positive impact on the process of boosting the reliability of the electricity distribution in Poland. An "ambitious investment program implemented by Energa-Operator will largely and advantageously influence the reliability of distribution of electric energy in Poland" - says Nandita Parshad, EBRD Energy Department Director. "We view the subsequent financing granted to the Energa Group by EBRD as proof of trust and positive evaluation of the investment strategy realized by us, with one of its main principles being the conservative level of indebtedness and low risk" - says Mirosław Bieliński, the president of the management board of Energa S.A.

DMS advised the EBRD on Polish law aspects of the transaction, including limited due diligence, Polish law comments to the loan agreement and attachments, and other matters as they arose.

On behalf of our law firm, C. David DeBenedetti was the project leader.


  DMS News. Intersolar 2013.
 

Dr Christian Schnell, Partner with DMS law firm, has recently spoken about Polish photovoltaic market prospects during "Intersolar", the largest photovoltaic fairs in Europe. The event was organized by the German Ministry of Economy.


  Energy Policy. The future energy mix of Poland.
 

Poland is many years behind as regards the development of an energy mix for the 21st century. The strong lobby for coal mining successfully blocked the future development of energy sector for many years. The Polish energy mix is still in close to 90% based on sources being dominant in the first half of the 20th century. The dominant source of energy production in the second half of the 20th century, nuclear energy, has not been introduced in Poland at all. And renewables, the dominant energy source of the 21st century, are still in their infancy. Even the EU 2020 goals have been interpreted so far in favor of coal by promoting large-scale co-firing, a technique which is not at all carbon dioxide neutral. Quite to the contrary, co-firing contributes to a faster abrasion of catalysts with coal power plants, which results in additional environmental pollution. The follow-up costs that Poland has to pay for its energy mix are enormous. Additional costs for healthcare system amount to between 3 to 8.5 bln Euro per year, i.e. 20% of the costs in EU-27, even though only 10% of EU-27 population lives in Poland. Direct and indirect subsidies for coal mining currently amount to at least PLN 3 million annually. In addition, the Polish energy mix leads to an increased dependence on imports, since black coal from Polish deposits, due to the EU requirements in terms of environmental protection and safety of workplace as well as due to the depth of the black coal layers, cannot compete with the imported coal, in particular from Eastern Europe. Market prices for hard coal at the European markets are 10 to 15% lower.

Also in Poland the ‘Energiewende’ knocks on the door and the strategic department of the prime ministers’ office is actually working on an expertise about the best energy mix until 2060. One of the versions has been recently published unofficially on a webpage by an unknown person, and the discussion has become public. A number of goals determine the transition of the energy sector. First of all, the consumer prices are to be kept as low as possible. Nevertheless, as in other countries, the energy intensive industry has a better lobby than the consumer, and due to the recent amendment to the energy law, the energy intensive industry is no longer obligated party within the RES incentive scheme. Furthermore, there is a will to retain net product in the country as much as possible, either by using local raw materials such as domestic hard coal and lignite, but also solid biomass, or by employment of local industry in production of new production facilities. In addition, the energy independence plays an important role. And finally, the domestic (state-owned) energy industry should still remain competitive, especially for the European internal energy market. Unfortunately, the basics of the expertise are misleading. Due to the expertise provided by Polish TSO PSE S.A. renewable energy, especially wind energy, has to be secured in total by conventional energy for balancing reasons, and import cannot be taken in account neither for base nor for the required peak load. For years PSE has been trying to make its own politics. If the strategic department gathers more information from independent sources, the fundamentals should be changed substantially soon, which will have a major impact on the results. However it is true, Polish decision makers do not question the European climate policy commitments as smaller MOE countries do.

There can be no doubt in Poland that European and the global climate protection policy leads to a significant increase of costs of the carbon dioxide certificates. Polish energy policy thus faces a dilemma, whether to rely on inflexible energy production – coal and solid biomass-or whether a flexible energy mix is more profitable, i.e. the energy production is essentially based on non-dispatchable technologies too - onshore wind, possibly photovoltaic in case of further price reductions -with natural gas (and shale gas), agricultural biogas and maybe even renewable gas - produced by the conversion of power to hydrogen, so-called power to gas - as balancing energy source. The strategic department proposed an energy mix based on coal and solid biomass including natural gas as balancing energy, an energy mix which is highly under pressure on the German market. The question is how this should work out in Poland? Needless to say that it will not work out if the assumptions provided by the TSO are misleading. New large hydropower plants - also due to the geological conditions in Poland – are not competitive, and opinions regarding nuclear power tend to differ sharply. The construction of a new nuclear power plant is difficult to implement not only due to socio-political problems but it is also economically difficult to justify, as show the discussion about the expansion of the existing nuclear power plant in Temelin, Czech Republic, that have been pending since 2007.

In the meantime, the U.S. is also appearing on the scene. According to U.S. Environmental Protection Agency - EPA - carbon dioxide emissions should be limited to 1000 pounds per MWh for new generation units (corresponds to 0.45 tones carbon dioxide/MWh). This would practically exclude the energetic use of coal (except for CCS-technology). The recent announcement of President Obama to close coal-fired power plants resulted in global reaction, too. An indication of the Polish energy future may result in Levelized Costs of Energy Production ‘LCOE’ - value for 2018 (i.e. start of operation in 2018), on a yearly basis calculated by the U.S. Energy Information Administration – EIA (LCOE figures for the value for 2016 in brackets): standard coal power plants – 100.1 (94.8), advanced coal power plants – 123. (109.4), advanced coal power plants with CCS - 135.5 (136.2), conventional gas power plants - 67.1 (66.1), advanced gas power plants - 65.6 (63.1), advanced gas power plants with CCS - 93.4 (89.3), gas turbines - 130.3 (124.5 ) advanced gas turbines - 104.6 (103.5), nuclear power plants - 108.4 (113.9), biomass/biogas - 111 (112.5), onshore wind - 86.6 (97), offshore wind - 221.5 (243.2), photovoltaic - 144.3 (210.7), solar thermal power plants - 261.5 (311.8), hydroelectric power plants - 90.3 (86.4). Nevertheless, please note that costs of natural (shale) gas and black coal/lignite are substantially lower than in Europe. Generally, the figures show that onshore wind and photovoltaic have subsequently better LCOE value. Natural gas has a much better LCOE value than coal, with downgrading LCOE value for coal. Offshore wind and solar thermal power plants are still far away from competitiveness. Thus, the predictable losers with the U.S. energy policy are the coal-fired power plants, while gas power plants with a growing share of solar and wind energy are the winners. For this purpose the EIA has recently created its annual report published in April 2013 “Annual Energy outlook 2013 with projections to 2040”. Moreover, the EIA is considering introduction of a carbon dioxide emissions trading scheme. Under this condition, the share of renewable energy in the total electricity consumption would be as much as 23 to 31% in 2040. However, if the natural gas prices increase by 20%, according to the International Energy Agency lignite firing should be attractive again, unless additional legislative measures are implemented to limit the carbon dioxide emissions. It is therefore to be seen whether the influential shale gas industry will stand behind President Obama’s proposals to limit carbon dioxide emissions, which will lead to a comparative advantage for gas.

A greater significance for the Polish energy mix has the German ‘Energiewende’. Rapid development of renewable energy in Germany has led to an oversupply of electricity which depressed the wholesale prices over the last two years by 20% from 56 to 43 euro per MWh (for 1Y-forwards). Recently due to low prices for carbon dioxide certificates at the European level, lignite and hard coal experience their renaissance, although coal power plants emit 150 to 200% more carbon dioxide than natural gas. Due to the high natural gas prices in Europe gas power plants are not competitive with coal-fired power plants. But with the expected recovery of U.S. and EU climate policy an increase of wholesale prices for electricity is likely. Paradoxically, the increase in wholesale electricity prices leads to falling costs of the German renewables support system, as the gap between the feed-in-tariffs and the wholesale price for electricity becomes smaller again. This might be an additional incentive for the German policy makers.

Generally, Poland has to follow the development. As a strategic member of the single European market and the largest beneficiary of EU subsidies, Poland’s policy makers cannot resist to these constraints. Therefore, a change in the Polish energy mix seems to be a necessity, not only to avoid being the Trojan horse of the European climate policy, but also not to weaken the Polish utilities, which without investments in renewables will be exposed to import of cheap power from Germany and the Nordic market. Doubtless, for socio-political reasons, Poland must slowly phase out energy production based on black coal. The phase out of the combustion of lignite will, due to the climate policy constraints, takes place most probably faster than the phase out of the combustion of hard coal, as the strategic department of the Prime Ministers’ office assumed.


  Energy Policy. Who is the market maker for green certificates?
 

Actually, the certificate price at the Polish power exchange varies between PLN 140 and 180. What prices should be expected in the nearest future with an oversupply of 5 months green certificate production? Co-firing still seems to be the market maker. In case of solid biomass production, the introduction of general certification obligation is generally expected in order to control the unmonitored import of biomass, but also not to expose local biomass producers to Polish utilities as a single customer. This business strategy turned out to be disastrous in the first half of 2013 with bankruptcies of biomass producers. The certification obligation for solid biomass will increase the price of solid biomass further by approximately 10 % as it did on the German market. An accompanying limitation of uncontrolled biomass imports will lead to a situation (it already takes place), where co-firing in power plants competes for the same raw material with co-firing in CHP plants and biomass firing in dedicated biomass firing plants. Co-firing in power plants has actually marginal costs of PLN 120/MWh per green certificate, whereas co-firing in CHP plants has actually marginal costs of PLN 170 /MWh per green certificate. The marginal costs will increase significantly if the certification obligation leads to a further price increase of solid biomass. Utilities and political decision-makers may soon conclude that co-firing of solid biomass in power plants “cannibalizes” other more effective and favorable techniques of solid biomass firing in co-firing CHP plants and dedicated installations.

As long as co-firing of solid biomass in power plants competes with all other RES techniques (as it does under the recent support system), the prices of green certificates should stay at a level of PLN 150/MWh, with losses on the part of all other techniques. If co-firing of solid biomass in power plants is placed somehow outside of the support system, either by phasing out or by limiting co-firing capacity, the certificate price should increase to PLN 200 /MWh, as co-firing in CHP, biomass firing in dedicated installations and onshore wind should subsequently have a market maker function.


  Energy Policy. Possible withdrawal from “large RES tri-pack”.
 

The Prime Ministers’ Office is urging to replace the “large tri-pack” (including the RES Act) by another amendment to the Energy Law Act (similar to the “small tri-pack”). The Prime Ministers’ Office conducts talks with the Ministry of Economy regarding an amendment to the Energy Law Act concerning two issues: the introduction of smart meters for electricity and gas as well as changes in the renewable energy support system as provided by the RES Act. Both issues could be transformed into two separate amendments to the Energy Law, which would make the “large tri-pack” pointless. According to the Prime Ministers’ Office, the amendments could be introduced more efficiently and faster than the “large tri-pack”. However, the Deputy Prime Minister and the Minister of Economy Mr. Piechociński still announces that the “large energy tri-pack” is necessary. Nevertheless, it seems likely that the Prime Ministers’ Office will publish a draft version to be consulted with the public later this summer.


  Energy Policy. Ministry of Economy considers the withdrawal from the feed-in tariffs for micro-installations.
 

The Ministry of Economy has not yet finally decided to keep the feed-in tariffs system for RES-installations up to 100 kW. The Ministry of Economy is considering the possibility to conveniently combine feed-in tariffs and energy efficiency measures. The reason behind the resignation from the support offered to the smallest energy producers in the form of feed-in tariffs is the reduction of costs for RES support. Serious talks between the Ministry of Economy and the Prime Minsters’ Office took place, as the Prime Ministers’ Office is skeptical about the extensive volume of support for micro-installations beside expected EU funding for installations. Yesterdays’ introduction of a guaranteed price for micro-installations amounting to 80% of the so-called URE price (average price for electricity for the previous year) to the small “tri-pack”, which was surprisingly enacted by the Senate, is an obvious sign, that the future of feed-in tariffs is uncertain.


  Legal Insight. Important provisions of the “small tri-pack” to be enacted soon.
 

The “small tri-pack” will be in force soon, as the debate at the Senate on July 2 shows. The most important amendments to the Energy Law include: greater independence of the President of the Energy Regulatory Office (ERO), release from the obligation to purchase green certificates for large industrial consumers and a guaranteed price for micro-installations amounting to 80% of the so-called URE price.

Settlement of disputes with customers concerning electricity and gas

According to the Amended Act on Trade Inspection, disputes with customers being consumers resulting from the interconnection agreement and the provision of services by energy companies will be finally settled by consumer arbitration courts at the voivodeship Inspectorate of Trade Inspection.

Greater independence of the President of the Energy Regulatory Office

According to the amendment to the Law on Government Administration, supervision over the Energy Regulatory Office will move from the Ministry of Economy to the Prime Minister. The Prime Minister, as before, will appoint the President of the Energy Regulatory Office in a competition organized by the Head of the Office. The ERO will be again an officer appointed for five years with the possibility to be reelected for the second term of office.

New technologies in the definition of renewable energy

The definition of renewable energy sources was extended by two energy resources: aerothermal, hydrothermal. Both energy resources may be used for example by a heat pump.

Micro and small RES installations

The Law has created two new types of production installations:
    1) micro-installations – RES with a total installed capacity up to 40 kW power (connected to the grid below 110 kV) or 120 kW thermal,
    2) small-installations – RES with a total installed capacity of 40 kW to 200 kW power (connected to the grid below 110 kV) or 120 kW to 600 kW thermal.
The proposal provides preferential connection conditions to the network for micro installations. Under the proposed regulations they will be exempt from payment for network connection (now half of the fee is charged for connection of renewable energy systems of up to 5 MW). The owners applying for connection conditions for micro-installations will also have to provide the legal title to the property on which they are planned and title to the device itself. The Act also introduced the obligation to obtain a certificate for installers of the smallest RES devices.

Building permit for some renewable energy installations

The Act will amend the Construction Law. New regulations explicitly state that the installation of heat pumps, solar photovoltaic (up to 40 kW) and free-standing solar panels will not require a planning permit. The provisions on the one hand release the smallest installations from the requirement to obtain a building permit, while on the other hand they must be interpreted quite to the contrary, as an obligation for other installations, especially larger photovoltaic installations.

Industrial customers

The largest electricity customers will be exempt from the obligation of redemption of certificates of origin - the so-called green, yellow, red and purple certificates. Discounts will be given to companies from the following industries: coal mining and non-ferrous metals, paper, glass, ceramic, electrical carbon and graphite products, and food. The Ministry of Economy has informed that the demand for green certificates will be reduced by 730 GWh, and by approx. 1920 GWh for CHP certificates (yellow, red and purple together). Nevertheless, the data do not yet provide for a relief in the last two sectors mentioned above. The Ministry of Economy will have to increase the obligations for all energy consumers by at least these volumes. Most probably the amended regulation will be additionally used as a tool to deal with the oversupply on the green certificates market. Industrial customers also obtained the right to independent assessment of the obligation to present certificates for redemption or pay the replacement fee.


  Legal Insight. More difficulties for investments on agricultural land consisting of soil classes I-III.
 

On May 26, 2013 amendments to the Act on Agricultural and Forestry Land Protection entered into force. Under the amended provisions, change of purpose of agricultural land with soil classes I-III – irrespective of its size (i.e. as well below 0.5 hectare) - will require a consent of the Minister for Agricultural Development. This amendment will have a significant impact on all investments planned in the rural areas, including wind energy investments.

Currently, the ministerial consent is required only if a closed area of land planned for non-agricultural use exceeds the area of 0.5 ha. Therefore – while preparing master plans for wind farms - many municipalities did not apply for the consent based on the assumption that no single area of land designated for foundations of the wind turbine together with the manoeuvring sites exceeds 0.5 hectare. Such an interpretation of the term “closed area of land” has also been shared by the Supreme Administrative Court in 2012.

Pursuant to the new amendments, any RES investment on agricultural land consisting of soil classes I-III will require a prior ministerial consent, and subsequently adoption of a respective master plan to be accepted by the Ministry for Agriculture, even if a very small part of it will constitute soil classes I-III.

Under the said amendments it has also been statutorily determined that a party to an administrative procedure related to obtaining a ministerial consent is the head of a commune, a mayor or a president of a city. Thus, it has been determined that the owners of properties that are to be affected by the change of use are not parties to such proceedings. Under the regulations currently in force, this issue raised doubts and was a source of discrepant views in judicial decisions of administrative courts. The owners of properties, if displeased with the planned changes, will be authorized to nothing more than legal remedies available to them under the Act on Spatial Planning, such as filing motions and remarks to a draft of a master plan or lodging a complaint against the adopted master plan with the administrative court. But they will have no impact on the course of the proceedings concerning the granting of the consent. Nevertheless, there is still a last exit concerning soil classes III: according to a regulation from 1956 soil class can be changed by one class under certain circumstances, i.e. soil class III can be changed to soil class IV.


  Legal Insight. Tenancy or lease agreement – which option is preferable in case of compulsory auction of real estate?
 

In the Polish legal system one can chose between two types of agreements guarantying the right to use real estate for their purposes, namely tenancy and lease agreement. These two agreement types are similar, but give their parties different rights. The most fundamental difference between these two agreements consists in the right to derive benefits from the real estate, which is a typical feature of the tenancy agreement.

Since the change of Civil Procedure Code in May 2012, tenancy agreements have been subject to cancellation notice in case of ownership change during compulsory auction. As an additional protection against such risk the property might be subject to a transmission easement to the greatest possible extent, i.e. covering entire transmission installation on the property including whole renewable energy installation, as transmission easements do not expire in case of ownership change during compulsory auction.

The relevant provisions of the Civil Procedure Code do not stipulate any special solution as regards the lease of property - including the so–called direct lease which is often used by wind farm developers. Therefore, it is assumed that real estate lease agreements expire automatically on the moment of change of ownership in a compulsory auction, i.e. court decision. Quite to the contrary under a tenancy agreement the buyer enters into rights and obligations of the debtor – owner of the property - arising from tenancy and rental agreements in accordance with relevant regulations governing this matter. If according to the relevant provisions a rental or tenancy agreement is signed for more than two years, the buyer may terminate the contract with a one-month notice from the moment the court decision granting the ownership is enforceable, with one year's termination (unless the agreement provides for a shorter period).

Therefore a lessee seems to be protected in a better way, as a change of ownership does not automatically lead to termination of the relevant agreement.


  Legal Insight. Possible new restrictions on wind farms locations.
 

Poland’s President Bronislaw Komorowski sent an act amending certain acts to strengthen the landscape protection to the Parliament. The purpose of the act is to impose restrictions about localization of so-called dominant landscape objects, i.e. objects with a significant visual impact on the landscape as wind turbine generators. Voivodship parliament will decide on the rules regarding the dominant landscape objects, contrary to the present procedure whereby it was the power of local councils. Voivodeship government is to be obliged to conduct landscape audits and to choose places being subject to landscape protection. The act creates so-called planning rules of landscape protection, which will be established on voivodeship level for particular priority landscape territories, and will have the same legal status as master plans overruling them. The planning rules of landscape protection will define rules such as for example impassable parameters for development (e.g. maximum height of development). The planning rules of landscape protection will be binding for a study and a master plan as well as for decision on location public purpose investments, zoning decisions, building permits. The limitation of autonomy of local councils raises serious concerns concerning the constitutional law. 


 

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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