Poland: Energy policy U-turn

Since the end of 2011 the Ministry of Economy has been trying to improve the existing quotation system based on the trade in green certificates. The last official version of the RES Act was published in October 2012, but the Ministry of Economy could not pass the RES ACT through the Steady Committee of the Ministers’ Council. Unexpectedly, at the end of November 2012 the Minister of Economy Waldemar Pawlak, a dinosaur of Polish politics, was replaced by Janusz Piechocinski, a relatively newcomer and new head of the smaller coalition partner PSL, a rural party. This movement logically affected the political enforcement of the RES Act draft. Then the green certificate market struggled at the beginning of 2013, and the RES support system became a major political issue.

Logically, the Economics Council and the Strategic Department of the Prime Ministers’ Office started to analyze the actual situation. First, they started to work on an energy mix for 2060 from scratch, mainly based on the analysis of figures and presented the cheapest mix for Poland for the next decades. The first results were somehow astonishing – black coal is supposed to be the cheapest energy source until 2060, but the document is far from final.

Nevertheless, Poland should revise its strategy for the energy sector until the end of this year. As renewables are part of a bigger system, the decision makers started to be interested in the RES support system as well. At the end of spring an informal working group started to meet regularly at the Prime Ministers’ Office to discuss pros and cons of the future support system. At first, it looked like an open discussion, even an implementation of a quick solution seemed to be possible for the time being. But now the fog has lifted.

The outcome

The outcome is as follows: Poland is going to introduce feed-in-tariffs, a support system cheaper and easier to handle than a quotation system. Mr. Piechocinski confirmed this officially on August 23, 2013. And the second part of the news is: the FiT will be distributed via an auction system. Thus, Poland will generally take the same way as Italy has recently done.

Nevertheless, the experts with the Ministry of Economy first analyzed the Dutch experience, where the auction system has been in place for a longer period of time. The Dutch system had its downturns in the last years with less than 10% of the successfully tendered projects realized, but recently the system seems to be speeding up the real investments and project finance schemes are being introduced. The Polish legislator is convinced that Poland can learn from this experience.

Thus far, no details of the support system have been known, but some elements are already clear. The auction system should support the most efficient technologies, which favors larger onshore wind projects with large rotor blades and relatively low CAPEX costs. There is no cheaper way of producing green energy with new investments.

Another important factor is the achievement of grid stability. Biomass burning installations, biogas installations and (small) hydropowers are able to provide electric energy on a more frequent basis than wind and PV do. So, it is possible that the auction system will treat wind and PV in different way than biomass, biogas and hydropower.

The next important factor constitute new investments. Poland needs to support new investments. Co-firing and depreciated large hydropower plants are anything but a new investment. So these technologies will be phased out from the FiT/Auction system.

And finally Poland wants to avoid unreasonable profits, for which the consumer has to pay. So 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. an average reference price for a given technology) should not be allowed to take part at the auction. But who is going to organize auctions? From the political point of view the ERA (Energy Regulation Authority) should be a guarantor of a fair play of all participants. But the ERA is completely unprepared and needs a budget increase to create new workplaces, so maybe ERA delegates this obligation to the Power Exchange?

What comes next?

Another important question is timing. It is likely that the government will consult only the fundamentals of the new RES Act, rather than the whole draft as such. The government seems to be quite determined to push the RES Act through, so the first presentation of the fundamentals by the end of September is realistic. A draft could therefore enter the parliament even before the end of this year. As Poland finds it difficult to fully implement the RES directive 28/2009/EU by the already passed small tri-pack, fines for the lack of full implementation after Q1 of the next year are still possible.

Like always one of the most actual questions relates to the transition period. Italy needed two years to implement an auction system. The auction system started in January 1, 2013.

According to this experience, an auction system could be introduced by January 1, 2016. For the existing projects, the situation is somehow tricky. The government unofficially claims that investors who connected before December 31, 2012 should have been aware that the quotation regulation in force since 2008 published a quotation only for a period ending in 2017.

Generally speaking, from 2018 there are no so-called acquired rights (according to bilateral investment treaties) that a certificate system will still work. Nevertheless, 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 situation is unclear, and a compromise should have been found.

It seems unreasonable to keep the certificate system alive after 2017, similarly to eliminating all support by the end of 2017 as well. After 2018, a separate feed-in-tariff will most probably be the cheapest solution, for example, based on the 2013 to 2017 average. With limited amount of co-firing at the moment of implementation of the new RES Act and with the lack of support for large hydropower plants the development of the certificate price might be quite promising and exceed PLN 200 (€46.76) considerably, so the government might at a certain moment start to offer investors a flat rate of 380 PLN/MWh (€88.84) for example in total to achieve a cheaper solution.

Among the important stakeholders to agree to a compromise in the nearest future are the Polish Wind Energy Association and the owners of large biomass installations such as GDF Suez or PGE. Another unknown element constitutes the development of the average price for electric energy, the ERA-price published every year and guaranteed for green energy producers.

About the author

Dr. Christian Schnell advises on a range of projects and transaction matters, including project development and finance, mergers & acquisitions and investment funds. After 13 years of working in German, Polish, Austrian and English law firms, he joined DeBenedetti Majewski Szcze?niak at the beginning of 2012. Schnell is an expert of the RES Council of the Polish Confederation of Private Employers "Lewiatan" – a member of Business Europe, and coordinator of the "econet Poland" Council of the Polish German Chamber of Industry and Commerce.