September 17, 2013

  DMS News. Osborne Clarke, Dauerkraft and DMS inform about perspectives for onshore wind in Poland.

International law firm Osborne Clarke, Dauerkraft Renewable Energies consultancy and DMS organize a seminar about the perspectives for the onshore wind under the new RES support system in Hamburg, on October 16, 2013 in the premises of Osborne Clarke. Practical experience is provided also by Nordex and Commerzbank AG/BRE Bank. The seminar constitutes a part of the Renewable Energy Hamburg Cluster initiative.
For more information please click here.

  BREAKING NEWS. New RES support system presented by the Ministry of Economy.

Today the Ministry of Economy has for the first time officially presented the support system to be implemented in 2014. Poland is going to introduce feed-in-tariffs to be distributed via an auction system. Poland, therefore, follows the recommendation of DG Competition, which intends to harmonize the national support system on a European level to improve the inner market for electricity. DG Competition strongly recommends the FiT/Auction system without technology baskets as the best practice. The recent quotation model supporting green energy by a certificate model will be phased-out by 2021. The government will introduce a FiT/Auction system for the existing installations on a voluntary basis too. Investors will have 24 months to choose between the systems. Depreciated large hydropower plants with more than 1 MW installed capacity will be phased out from the existing support system and naturally will not form part of the FiT/Auction system. Co-firing will receive one certificate per 2 MWh (instead of one certificate per 1 MWh as all other operating RES installations) and is not allowed to exceed an amount of a total of 6.5 TWh per year.

The auction system for RES (electric energy) should support the most efficient technologies. Thus, generally the best offer wins, i.e., the cheapest FiT for a certain amount of MWh. Technology baskets are not planned to be implemented similarly to Italy. Poland follows rather the Dutch approach – however without thermal energy in the auction system. The bidder will receive the offered FiT for 15 years after grid connection, i.e., the first sale of electric energy. As biomass burning installations, biogas installations and (small) hydropowers are able to provide electric energy on a more frequent basis than wind and PV do, they receive a correction coefficient, not published yet though. Intentionally, the correction coefficient amounts to 1.15. Therefore, the auction system will treat wind and PV in a different way than biomass, biogas and hydropower. One quarter of the yearly support goes to installations of up to 1 MWh, which should enable PV to compete successfully at this scale. As regards larger projects, onshore wind seems to be the most favorable technique. Support for biomass installations is capped at a level of 50 MW of installed capacity, so utilities will not be allowed to refurbish their depreciated 120 MW coal-fired blocks as dedicated biomass blocks to receive support. To avoid unreasonable profits, 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. a reference price for a given technology) should not be allowed to take part in the auction. An offer below 70 percent of the reference price is not to be allowed to take part at the auction too to avoid the “Dutch disease” with not realized projects winning auctions with an unreasonable FiT.

To take part in an auction, an investor has to prequalify his project. Generally, a project has to be fully permitted – master plan or building conditions, environmental permit, grid connection conditions, but no construction permit (yet, but changes are likely). Additionally, a timeframe for the construction of the project has to be presented, and finally a financial proof (bank statement) and capability proof that the investor is able to realize the project within the declared time frame. The investor has 4 years to connect to the grid and start to produce electricity.

The electric energy produced by RES installations permitted in an auction will be purchased by a so-called state-owned “large seller” Sprzedawca Energii Odnawialnej S.A. SEO will sell the acquired electricity on the power exchange, while the difference between the purchase price and the sale price will form part of the compensation to be calculated as part of the distribution tariffs.

The government will consult only the fundamentals of the new RES Act, rather than the whole draft as such. The government is determined to push the RES Act through, so a draft should enter the parliament before the end of this year, as the Vice Minister Mr. Pietrewicz confirmed. The mid 2014 implementation seems likely. Since Poland follows the recommendation of DG Competition, the notification process should be nothing more but a formality.

Another important question is the phase out of the existing support system. Generally, the system will continue the trade in green certificates and the sale of electricity for a guaranteed price separately, the so-called ERA-price. The government intends to implement an obligation to trade 30 percent of green certificates on the Stock Exchange until the end of 2015, and 50 percent starting from 2016. Additionally the system is valid only until 2021. 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 government presents a standpoint that the acquired rights are protected. Nevertheless, this solution is dangerous for the existing project finance schemes, which are based on 15-year CPA’s. The offtakers have already tried to cancel the existing CPA agreements in the recent months, but without legal bases. An obligation to trade 30 or 50 percent on the stock exchange may open a discussion again, and after 2021 long term CPA’s will definitively disappear. Additionally, certificates will be valid only for 24 months and have to be traded within this timeframe. Therefore, a number of investors will try to convert on a “voluntary” basis to the FiT/Auction system within the first two years after the new law is in force to receive 15 years of support even at a lower level. The FiT agreed during the auctions for the existing RES installations should not in any case exceed the average price for green certificates in 2012/2013, which will most probably amount to 220 to 230 PLN/MWh. The existing co-firing installations are not allowed to convert to the FiT/Auction system and have to stay in the green certificate system until 2021. There is a certain political risk that coal burning units might be obliged to 6.5 TWh of co-firing in 2020 to meet the targets, and to switch these installations off again in 2021. The next years will show whether the Commission will close this “window of opportunity” for member states not fulfilling their obligations as intended by the “real” RES installations.

According to the Ministry of Economy the anticipated annual costs of the support system in 2020 – then still supporting the existing and the new system at the same time – will amount to PLN 1 bln. According to the experts, this amount should be significantly higher and amount to PLN 1.5 bln.

dr Christian Schnell
venture agreements


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Legal 500 2013: energy and natural resources

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