Informacje

DMS
  January 7, 2014

  NEW LEGAL FRAMEWORK FOR THE ENERGY SECTOR EXPECTED IN 2014
 

Energy Policy 2030

The Ministry of the Economy is working on a paper for the Energy Policy 2030. It should be noted that the Strategy Department of the Prime Minister’s Office worked out a second version of the paper Energy Mix 2060 which was published 12 November, 2013. So the Energy Policy 2030 paper might be based on these findings, but also on the Greenpaper Energy Policy 2030 published by the EU Commission in May 2013. The Energy Policy 2030 should be published for public consultation in Q1 2014. 

A significant point related to the energy policy is the national program for nuclear power (PPEJ) with ongoing international consultations for almost 4 years. These consultations finished in 2013 but lead to an officially confirmed delay for the commissioning of the first Polish nuclear power plant to be expected in 2024. The consortium established between Polish state owned utilities PGE, Tauron, Enea and KGHM will continue its work in 2014, so the political decision to found the future of Polish base load partly on nuclear power has been made which has a major impact on the slowly phase out of lignite and black coal firing. Nevertheless a final decision about the Polish nuclear power plant haven’t been made yet, as approval for state aid is required. Recently the UK government granted a long-term feed-in tariff of 11 Eurocents per kWh with indexation for 45 years for an extension of an already existing nuclear power plant in Hinkley Point close to Bristol, so the Polish nuclear power plant will require substantially higher investment due to the lack of infrastructure. The approach of General Directorate for Competition in Brussels is still unclear, as an individual notification for granting state aid is required.  

 

Goodbye tri-pack, welcome RES Act

The (large) tri-pack is already history. Both the Energy Directive and the Gas Directive have been implemented sufficiently by the “small tri-pack” and just the RES Act remained. The Ministry of the Economy accelerated work and on 31 December, 2013 published a new version 4.1 of the RES Act draft published 12 November 2013. The Permanent Committee of the Council of Ministers (a representation of the Vice-Ministers) will deal with the draft most probably in the second half of January, but it seems that the recently published draft will still require some political decisions before the Council of Ministers will deal with a final resolution to send the RES Act draft to Parliament, mainly the change from a feed-in tariff as proposed by the Ministry of the Economy to a feed-in premium as recommended by the European Commission and the Prime Minister’s Office. Therefore, it might take a month to overcome this hurdle, but the most relevant political decision makers seem to be determined to push the RES Act forward. A more sophisticated part of the legislation process is the notification to the General Directorate for Competition in Brussels. The standpoint of the EU Commission that a certificate system to support green energy production means state aid is already known, as the notification of the prolongation of the support system for Combined Heat Power by yellow and red certificates until mid of 2015 has been ongoing for more than 9 months without any decision made yet. None of the Polish certificate systems supporting energy production has been ever notified, so the notification of the green certificate system will also take time. Unfortunately European Commission guidelines for state aid from 2008 haven’t been considered by the authorities when granting support, i.e. by green certificates and by EU structure funds, as non-budget related RES support systems haven’t been so far judged as state aid due to the decision “Preussen Elektra” by the EU Court of Justice from 2001. For measures not covered by a Block Exemption Regulation, according to the 2008 guidelines Member States must notify prior to their implementation of any individual aid, whether granted ad hoc or based on an aid scheme, where the aid satisfies e.g. the following conditions: investment aid, where the aid amount exceeds EUR 7.5 million for one undertaking, and operation aid for the production of renewable electricity and/or combined production of renewable heat, when the aid is granted to renewable electricity installations in sites where the resulting renewable electricity generation capacity exceeds 125 MW. Quite a few RES installations received investment aid exceeding EUR 7.5 million, and additionally co-firing installations in power plants or large CHP plants, the 205 MW “Green biomass block” in Polaniec and the Wloclawek hydropower plant exceed the generation capacity cap of 125 MW, but didn’t individually notify prior to achieving green certificates. So the first time notification of the green certificate system may raise time-consuming questions. Less problematic should be the notification of the new auction system, at least if Poland switches to a feed-in premium system (in the means of contracts for difference), as the EU Commission clearly finds favour with feed-in premiums and intends to phase out fee-in tariffs.

 

Combined heat power and energy efficiency – lacking implementation of EU law

No solution for combined heat power is visible yet. Since spring 2013 the support system for CHP (besides violet certificates for mine gas) has not been applied by the Energy Regulation Authority. As the notification turned out to be more problematic than the Ministry of the Economy expected, the Polish Parliament decided before Christmas to proceed further with the prolongation of the support system until 2015. Nevertheless, the stand-still clause of the EU treaty applies during notification procedure so the prolongation will not enter into force before a final decision of the EU Commission. There is an additional legal risk related to larger cogeneration installations with electricity capacity exceeding 200 MW with a requirement of notification of individual aid due to the above-mentioned guidelines for state aid from 2008. By 2015/2016 a new support system should replace the yellow and red (and violet) certificate system. The system was at a first glance presented by engineering company Energoprojekt Katowice at the Polish parliament in autumn this year. The proposed support system consists of a feed-in premium (might be in the means of contracts for difference) with a few variables, i.e. the electricity price, the fuel price, the CO2 certificates price and finally the heat price, which is quite often cross-sponsored by the electricity price for social reasons.

Near the end of November 2013, the European Committee of the Council of Ministers accepted the draft of the Sustainable Building act to implement the EU directive 2010/31. This draft law indicates that, from 2019 all new governmental buildings and from 2021 all remaining buildings must qualify as zero-emission buildings. The second energy efficiency directive 2012/27/EC  which must be implemented by June this year and has a major impact on sustainable buildings and CHP hasn’t been drafted yet.


Grid corridors and smart metering – two cost drivers requiring heavy investment

For almost five years, the Ministry of the Economy is working on a grid corridor act (in Polish: ustawa o korytarzach przesyłowych). Local governments are blocking this law as they will lose control in case of nationwide grid corridors to be implemented. For grid operators the law may provide additional costs of 18 billion zlotys, as in many cases the compensation for grid lines haven’t been paid out yet. Nevertheless political decision makers are still optimistic that the grid corridor act will proceed soon and that the compensation payments can be postponed by payments in installments.

Smart metering obligation should be introduced in 2014 into the Energy law as an EU requirement. A new institution, an operator for measuring information (OIP), might be launched to collect data from consumers in accordance with data protection law. Smart metering requires heavy investment but will help to avoid blackouts in the future due to facilitation of demand-response.  

 

Shale gas - reload

After replacement of the Minister for Environmental Protection and then the Chief Geologist Piotr Wozniak, the future of shale gas exploitation in Poland looks again more promising. The most harmful draft regulations concerning taxation and exploitation via an equity stake of a national operator (NOKE), should be weakened to attract foreign investment (again). Natural (shale) gas will likely play a more important role in the future especially with Combined heat power. But state owned utilities, beside PGNiG, will rather not engage themselves, as the consortium agreement between PGNiG, PGE, Tauron, Enea and KGHM was terminated by the end of 2013.

 

Landscape protection act – no common approach yet

The landscape protection act, which was initiated to stop chaotic advertising, turned out to be a major issue in blocking wind farm development. The future of this law initiated by the Polish President is still unclear as it may violate the Polish Constitution. Interested stakeholders, including wind energy associations, associations of local governments and policy makers recently worked on a common approach, but still no compromise acceptable to all has been identified yet.

 

Emissions trading Act – ongoing public consultation

On 17 December, 2013 the Ministry for Environmental Protection published a draft amendment to the Emissions Trading Act for public consultation until 10 January, 2013. Poland is already late with implementation of EU requirements for phase III from 2013 to 2020. A lack of implementation is harmful for energy producers risking free allocation of allowances i.e. for CHP plants, but also causes troubles for Poland which may affect the amount of allowances.


  NEW DRAFT VERSION 4.1 OF RES ACT PUBLISHED 2 JANUARY, 2014
 

When enacted, the RES Act will enter into force 30 days after publication not including the new support system (chapter 4 of the RES Act) which enters into force 12 months after a positive decision of the EU Commission is issued, i.e., at least until the end of 2015, new RES installations will connect under the green certificate system and may therefore take part at auctions for existing installations. The support system will last until December 31, 2035, and any RES installation (existing or new) can benefit for a maximum of 15 years from the support.

The new draft implements some important changes compared to the version 4.0: (1) the RES Act and its support system applies as well to thermal treatment of biodegradable waste, (2) the definition of round-wood not to be used as biomass now excludes wood classes S2 a/c, i.e., mid-sized round-wood often used by the furniture and paper industry, (3) the share of biomass firing in dedicated co-firing installations (which have been operating by 30 June, 2014) has to exceed 20% of the total energetic value during the calculation period (e.g. monthly) instead during yearly average (for these installations a participation at auctions is capped to 50 MWe for power plants resp. 150 MWt for CHP plants), (4) biomass will not be defined anymore in a special regulation but will follow the approach of the Renewables directive 2009/28/EC, (5) the operational support by the RES Act and additional investment aid will be capped in total to avoid over-support so that any RES installation cannot achieve higher support than the so-called reference price as an upper limit allows, (6) the RES Act does not refer anymore to telemetering as smart metering soon should be introduced in 2014 into the Energy law as an EU requirement, (7) the obligation to trade certain percentage of green certificates at the Power Exchange (so called “obligo gieldowe”) has been deleted, (8) the maximum cap of 105% of the average price for which electric energy can be sold at the Power Exchange is deleted, (9) the payment of the compensation fee is no longer a qualified cost for calculation of tariffs (similar to the Swedish RES support system), (10) the quotation of RES-e production amounts to 20% (slightly higher as in the National Action Plan) and might be decreased year by year in advance which is a new approach of calculating the yearly quotation obligation supposed to provide more market stability, (11) the National Funds for Environment has to publish compensation fee payments every quarter which supposed to provide to better market transparency, (12) to qualify for auctions a credibility letter by a financing bank is no longer required, (13) the reference price for auctions concerning existing installations refers to the average price of green certificates at the Power Exchange from 2011 to 2013 and therefore does not reflect OTC transactions which provides to a slightly lower reference price at a level of PLN 430/MWh, (14) ERA can limit for every auction the amount and value of electric energy for technologies providing to less than 4,000 hours production per year (i.e. 45% capacity factor) to be connected to an individual distribution grid operator or the TSO according to their development plans published in accordance with sec. 16 Energy law (and not based on special – presumable negative - opinions by grid operators), (15) offshore wind energy is fully reflected in the auction process, and last but not least (16) the strike price (for winning bidders) will be indexed on a yearly basis by the consumer price index.

Most likely the general legal framework of the support system will not change anymore. Poland is going to introduce feed-in-tariffs respectively a feed-in premium system (in the means of contracts for difference) to be distributed via an auction system. The auction system will not implement any technology baskets. 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 year period he has to pay a penalty for the missing energy amounting to 50 percent of the contracted strike price. An amount of 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 must be purchased by obliged suppliers (or suppliers of last resort in case of contracts for difference), whereas these suppliers sell the acquired electricity on the power exchange and are refunded by the difference between the strike price and the average quarterly price for electric energy. The difference is calculated as part of the grid tariffs and redistributed to the obliged suppliers by a new established public entity named OREO.

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. Additionally, a timeframe for the construction and financing of the project has to be presented. A capability proof is not required. Additionally, a deposit of PLN 30 per kW installed capacity is required. 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). Neither the auction system for new projects nor for the existing installations will implement a minimum bidding price. The bidding price can’t exceed a so-called reference price. The reference price for existing projects corresponds to the average price for green certificates at the Power Exchange and the average price for electric energy (so-called ERA price) from 2011 to 2013. 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 size of the RES installation. The government introduces a FiT/Auction system on a voluntary basis as well for the existing installations, if the connect to the grid before the new support system will enter into force, i.e., 12 months after a positive decision of the EU Commission regarding notification of the RES Act will be issued.

The recent quotation model supporting green energy by green certificates will last for 15 years after the new support system enters into force. 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 (respectively its reduction from the 20 percent target value) will be published from year to year two months in advance. Also, the amount of support to be distributed by auctions for new projects and existing installations will be published every year one month in advance.


 

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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