November 18, 2013

  RES Act presented by the Ministry of Economy on November 12, 2013

As expected, on November 12, 2013 the Ministry of Economy published the new RES Act draft to be implemented in 2014. Generally, the draft follows the solutions already described in our newsletter dated October 31, 2013. After public consultations which will last until November 26, 2013 for sector organizations and until December 11, 2013 for employers’ and employees’ associations respectively, the new draft is to be finally consulted between the ministries, approved by the government and should enter the parliamentarian legislation proceedings at the end of this year or at the beginning of the next year. Last year’s unsuccessful outcome should not be repeated since this time the RES Act draft is a joint undertaking by the Prime Minister’s Office and the Ministry of Economy.

The implementation of the RES Act by the end of 2014 seems likely, as the notification process required according to state aid law will start together with the parliamentarian legislation proceedings. The new RES Act enters into force 30 days after its publication, save for the new support system (chapter 4 of the RES Act) which will enter into force on the first day of the month following the month where a positive decision of the EU Commission (DG Competition) is issued. The support system will be in force until December 31, 2035, and any RES installation (existing or new) can benefit from the support for a maximum of 15 years.

Poland is going to introduce feed-in-tariffs to be distributed via an auction system. Poland, therefore, generally follows the recommendation of DG Energy to provide a more competitive support system between RES technologies. The FiT/Auction system will not implement any technology baskets, as the auction system should support the most efficient technologies. At least 25 percent of the yearly support for new projects goes to installations of up to 1 MW. The electric energy produced by RES installations permitted in an auction should be purchased by the so-called suppliers of last resort, whereas these suppliers sell the acquired electricity on the power exchange. With suppliers of last resort purchasing electric energy produced in RES installations for the bidden FiT the balancing obligation of RES producers will be disposed. The difference between the purchase price and the sale price form part of the compensation to be calculated as part of the distribution tariffs and redistributed to the suppliers of last resort. Therefore, the support system is not budget financed which is of major importance for its stability.

The recent quotation model supporting green energy by green certificates will be in force 15 years after the RES Act enters into force. This is of importance for the already concluded long-term CPA’s and the existing project finance schemes in the amount of approximately 2 bln Euro schemes laying behind. Although generally an obligation to trade up to 55 percent of the green certificates via Power Exchange will be introduced, CPA’s which serve the already concluded long-term obligations (one year according to Polish accounting law) with financing institutions will be excluded from the obligation to trade a certain percentage of green certificates on the Power Exchange. The exclusion will be based on a decision of the ERA. This solution should guarantee that the existing project finance schemes will remain unaffected. The sale of electric energy will be limited to 105 percent of the average price for the previous year, the so-called ERA price. Otherwise no green certificates will be granted for that part of green electric energy exceeding this limit. This solution was already anticipated in the previous draft of October 2012. As the whole support system changes and the existing installations can also switch to an auction system, this solution is less harmful.

The compensation fee and therefore the maximum price for green certificates will be frozen at the existing level of PLN 297.35 per MWh. The quotation obligation will not be published 10 years in advance according to the existing energy law but annually, two months in advance. Also the FiT will not be linked to an index. Also the amount of support to be distributed by auctions for new projects and the existing installations will be published every year, one month in advance.

To take part in an auction for new projects, an investor has to prequalify his project. Generally, a project has to be generally at a ready-to-build stage – master plan or building conditions (WZ), grid connection contract, and finally construction permit obtained. Additionally, a timeframe for the construction and financing of the project has to be presented. A capability proof is not required. Additionally, a financial proof (credibility statement) is required to take part in auctions, and finally a deposit of PLN 30 per kW installed capacity. After the auction, the investor will have 48 months to connect to the grid and start to produce electricity (resp. 24 months for PV installations and 72 months for offshore wind farms).

The bidder of a new project bids for a certain amount of electric energy within a 15 year period to be balanced every three years in equal parts. If the bidder is not able to produce the contracted amount within the three years’ period, it has to pay a penalty for the missing energy amounting to 50 percent of the contracted FiT.

The government introduces a FiT/Auction system on a voluntary basis for the existing installations as well. Nevertheless, according to the existing draft RES installations which start to produce electric energy after the new RES Act enters into force are not included there. This may still change and a transition period until the end of 2015 might be introduced. Generally, investors can switch from the green certificate system to the FiT/Auction system for the existing installations at any time.

Neither the auction system for new projects nor for the existing installations will implement a minimum bidding price. The bidding price cannot exceed a so-called reference price. The reference price for the existing projects corresponds to the average price for green certificates and the average price for electric energy (so-called ERA price) from 2011 to 2013 amounting to approximately PLN 460 per MWh. The bidding price for new projects has not been finally calculated yet. It will depend on not yet published yearly reference prices for each technology including the size of the RES installation. Although a LCOE (levelized costs of energy) calculation by the Institute for Renewable Energy IEO has been recently published by the Ministry of Economy, the calculation seems to be inaccurate and will be recalculated. Generally, the basis for the calculation of reference prices for new installations is very similar to the calculation of the correction coefficients published in the October 2012 version of the RES Act draft.

The support system will provide certain limits for a number of technologies. 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. So-called direct co-firing with an average share of less than 20% electric energy provided by biomass firing yearly will receive only half a certificate per MWh until 2020, which most likely will lead to its abolishment. Indirect co-firing with an average share of more than 20% electric energy provided by biomass firing yearly (i.e., a dozen of installations in Poland) still receives one certificate. Indirect co-firing up to 50 MW-e is, according to the recent wording, allowed to start in auctions for the existing installations, but this solution may probably change. According to the recent wording, direct co-firing installations can be switched into indirect co-firing installations, but this legal gap may be filled in the following draft. Support for new biomass installations is capped at a level of 50 MW-e of the installed capacity or 150 MW for CHP. With the 150 MW installed capacity limit for CHP a possibility to refurbish most of the Polish CHP plants into dedicated biomass installations is still given (i.e. for popular boilers type OP 230), but due to the required share of agricultural biomass after 2015 unlikely.

A new approach to so-called stable technologies has been chosen by the RES Act draft. The previous idea to implement a correction coefficient has been abolished. Instead of that, the ERA limits the amount and value of electric energy for technologies producing fewer than 3,500 hours per year (i.e. mostly onshore wind and PV) to be connected to an individual distribution grid operator or the TSO. This solution will have a large impact on the onshore wind farm projects – and indirectly on PV. The distribution grids of Energa Operator and (partly) Enea Operator are recently at its limits concerning wind farms. So, new projects generating fewer than 3,500 hours per year will be successful at auctions if they are located within the area of Tauron Dystrybucja and PGE Dystrybucja or smaller distribution grid operators – or alternatively PSE transmission grid. Additionally, this solution enables the ERA to end the blockade on issuance of the new grid connection conditions due to potential threat to the balancing system practiced by PSE since November 2012.

Excluding direct co-firing, the actual RES production capacities in Poland amount to approximately 13 TWh by the end of 2013 – including large hydropower and indirect co-firing. According to the National Action Plan, the 2020 target corresponds to 32 TWh. Therefore, approximately 20 TWh of RES has to be developed within the next seven years, which is quite an ambitious target taking into account the development of RES with 10 TWh installed capacity since 2005. Therefore, the outlook for the Polish market as a latecomer in RES is promising.

dr Christian Schnell
venture agreements


Awards and recommendations 

Legal 500 2013: energy and natural resources

IFLR 2012 and 2013: project finance

Corporate Intl Magazine 2012 and 2013: renewable energy and project finance


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