Dienstag, 16. Februar 2016

Update Renewables Poland: RES Act V.02

● By Legal Counsel Dr. Christian Schnell, Warsaw ● 

In our January update we mentioned that a number of regulatory changes would take place in the near future. For the moment it was not yet clear whether those changes will be implemented prior to first auction in 2016. Finally, according to an interview published on 13 February at the webportal www.wnp.pl the Minister of Energy, Mr Tchorzewski, decided not to follow the draft dated 24 August 2015, although it was already scheduled for governmental decision mid of January. This amendment mainly concerned several amendments regarding the FiT microinstallations support system amendment to be in line with EU State aid law. However, Mr Tchorzewski decided also to revise the auction support system prior to first auction.

Dr. Christian Schnell
From the beginning of March this year, a working group in the Ministry of Energy will start adopting the RES Act. According to current timing, the amendment should be sent to government in May, so that parliamentary legislation proceedings may start by the end of May 2016. Recently, it has been proven that the new government is determined to speed up legislation proceedings, however, in this case the ongoing notification procedure will also have an impact on the timeline. So, it is unlikely that the RES Act will enter into force by 1 July 2016. Generally, two approaches are possible: postpone the enforceability of the RES Act for another few months, or make enforceability dependent on successful notification.

Nevertheless, we do not expect any major changes. The EU-Guidelines on State aid for environmental protection and energy 2014-2020 (“EEAG”) set out the framework for possible changes, as operative support for RES generators are qualified as State aid. Firstly, aid for all generators from 500kW installed capacity has to be granted as a premium, and generators will sell their energy directly in the market. Beneficiaries are subject to standard balancing responsibilities. And RES generators shall not have an incentive to generate electricity under negative prices. Secondly, from 1 January 2017, aid must be granted in a competitive bidding tender for all generators with at least 1MW installed capacity. The bidding tender can be limited to specific technologies, where a process open to all RES generators would lead to a suboptimal result, e.g. due to the need to achieve diversification, network constraints and grid stability and system integration costs, but also due to the need to avoid distortions on the raw material markets from biomass support. It seems that the above mentioned constraints, especially the need to achieve diversification will have an influence on the re-design of the support system.

The Minister of Energy has already provided guidance as to which amendments to the RES Act are likely. Generally, technologies with a higher capacity factor should be promoted, and a mix of different RES technologies is intended. This includes biogas installations, so that due to the size of Polish farms feed-in tariffs for biogas installations with up to 499kW installed capacity may be introduced. Usually in Poland, larger 1MW biogas installations have to purchase substrates from third parties, and therefore have a problem with a stable 15-year substrate delivery of the same quality. So, biogas installations are generally not feasible for the auction system, and a feed-in tariff for installations below 500kW installed capacity fits better to the Polish environment. Nevertheless, because of environmental impact assessments new projects will not be constructed before 2018/2019.

Additionally, flexible dedicated (CHP) co-firing installations for burning biomass and municipal waste, i.e. brownfield installations using existing infrastructure where construction of a new boiler is required, will most likely become an additional technology to start at the auction system. Although due to permitting procedures, i.e. environmental impact assessments and building permit procedure, these installations will not take part in the auction before 2018. This approach seems to be necessary to modernize the 4 GW fleet of Polish CHP plants to comply with 2020 BREF emission standards, and an energy share of biomass of at least 30 percent (which corresponds to a share of material 60/40 biomass hard coal) is required to fulfil those standards.

However, the Minister of Energy has confirmed that Poland will not return to support ordinary co-firing, and the support system shall not promote biomass imports from third countries. So, this strategy is somewhat limited by the amount of available forest and agricultural biomass, as well as biodegradable waste in Poland. In particular, forest biomass production is almost all absorbed by existing biomass firing and dedicated co-firing installations.

In general, Mr Tchorzewski confirmed that Poland aims to achieve the binding 2020 targets, although it is not planned to exceed those targets. However, according to most experts, it is unlikely that Poland will meet the 2020 targets – currently yearly RES production amounts to 20 TWh and shall increase to 32 TWh by 2020 -, so this declaration should be evaluated as room to negotiate the 2030 targets. Last year the investment boom for wind energy with more than 1GW installed capacity and phase out of ordinary co-firing by the end of 2015 provided according to Mr Tchorzewski a more unbalanced mix of renewable energy production, and the current design of the auction system would confirm this tendency. So, he has declared his objections against current regulations, especially technology reference prices for 2016 with a relatively high reference price for onshore wind and the amount of energy to be auctioned, whereas according to the summer 2015 regulation of the amount of energy to be auctioned the Ministry of Economy itself has assumed that the lion’s share of RES projects winning the auction will be taken over by onshore wind. In Mr Tchorzewski’s opinion other RES technologies are less competitive in the auction system, although they provide further value. Therefore, a re-design of the auction support system is necessary to provide a more balanced RES mix. This is good news not only for biogas and biomass, but also for PV, which recently gained attractiveness for major Polish utilities, such as PGE or ENEA. Consequently, it should be expected that the reference price for onshore wind will most likely decrease substantially. Additionally, the implementation of distance rules – similar to most European countries - will make the life of wind farm developers less pleasant.

Furthermore, Mr Tchorzewski has declared to size down feed-in tariffs for microinstallations. Although at the beginning of 2015 the PiS parliamentarian group promoted the introduction of feed-in tariffs for microinstallations against the recommendation of the government, by taking over the government the perspective has changed substantially. Mainly State-owned distribution grid operators benefit from the approach to hinder the development of micro-installations. Generally, due to the fact that the Ministry of Treasury which will be liquidated soon and the Ministry of Energy takes over the supervision of the State-owned utilities, State-owned utilities will again gain influence on Poland’s energy policy. This is somewhat good news as it makes the Polish energy policy more predictable. The opinion of Mr Tchorzewski shows that Polish government tends to follow State-owned utilities’ recommendation, so for the time being Poland will take steps to consolidate the market, and prior to the implementation of the next generation of EU regulations and directives in 2018/2019 the Polish government will try to protect the market share of State-owned utilities. However, State-owned utilities also cannot change worldwide megatrends in the energy sector, and are fully aware of those trends. They may use their time now to perform their best efforts to have the highest market share as possible with low-emission decentralized energy production.

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