European renewable energy incentive guide - Poland
January 2013

Key drivers

Under the Renewable Energy Directive (Directive 2009/28/EC), Poland has committed to a legally binding target of sourcing 15 per cent of its final energy consumption from renewable sources. EU legislation, which imposes an obligation on member states to implement measures to ensure priority access to the grid for renewable energy projects, is in the process of being implemented in Poland.

Notwithstanding its legally binding EU targets, investment in, and the development of, renewable energy in Poland is also being supported by the State as it tries to diversify and modernise the Polish energy mix. As a relatively new market for renewable energy investment there are still a number of opportunities for developers in all RES sectors.

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Policy and regulatory framework and incentives

Currently, the Polish RES support system provides for two main statutory incentives promoting production of green energy: the duty imposed on the so-called “suppliers of last resort” to purchase all electricity generated by RES and the duty of specified entities to obtain and submit a set annual quota of green certificates (or pay a buy-out price) to the President of the Energy Regulatory Authority (ERA).

These incentives give green energy generators access to two income streams through two markets: a market where they can sell the electricity generated from RES and a market where they can trade the certificates of origin through the power exchange.

The duty to buy green energy

The “supplier of last resort” (an electricity trading company that services the area in which a renewable electricity generator is located) is obliged to purchase energy generated by RES connected to the grid in their area. The suppliers of last resort were to be selected by the President of the ERA by way of a tendering process. At this stage, the date of this tendering process remains unknown. Therefore, energy trading companies that sold electricity to end customers prior to 1 July 2007 or energy companies that have been created from the unbundling of distribution companies (such as PGE, Tauron, Energa, ENEA, RWE STOEN) and which sell electricity to end customers, are acting as suppliers of last resort.

Pursuant to EU Law and the Polish Energy Law, the transmission system operator (TSO) and distribution system operators (DSOs) must be legally and functionally independent from other operations associated with the transmission or distribution of electricity. Pursuant to the above requirements, PSE Operator was designated as the TSO on 1 July 2004. As of 1 July 2007, DSOs in Poland operate as separate companies not engaged in the generation or trading of electricity.

The price for the energy from RES to be paid by suppliers of last resort is set each year by the ERA on the basis of the average sale price of electric (brown) energy for the previous calendar year in the so-called competitive market. The price of RES energy for 2012 is PLN 198.9/ 1MWh.

Certificates of origin (green certificates)

Certificates of origin confirm that a given amount of electric energy has been generated from a renewable source and they enable generators to be compensated for the higher costs of production of that RES. The property rights arising from the certificates of origin (green certificates) can be traded on Towarowa Giełda Energii S.A. (a Polish power exchange). The majority of the transactions are executed on the OTC market but every transaction has to be registered with Towarowa Giełda Energii S.A.

A property right under a certificate of origin arises once the certificate is registered with the special register operated by the Towarowa Giełda Energii S.A.. The property right is recorded on the account of a given renewable energy generator, and as such represents a tradable commodity. Electricity generated from a renewable source is also exempt from excise tax (which amounts to PLN 20 /MWh) when sold to end customers. The excise tax is refunded when the electricity supplier provides evidence of its redemption of certificates of origin.

In 2012, the obligation on power companies to supply renewables energy (or pay the buy-out price) was set at 10.4 per cent of the total volume of energy supplied to end users for that year. The quota for 2013 will increase to 12 per cent and will rise, year on year, to 20 per cent in 2021. Energy suppliers that are the subject of the obligation may choose to make a substitute payment instead of redeeming green certificates. The value of the substitute payment in 2012 was equal to PLN 286.74 for each MWh which was not covered by green certificates.

New legislative proposal for the Polish renewable energy support scheme

The Polish RES support scheme is about to be significantly reformed. Legislative works started in December 2011, when the Ministry of Economy presented the first version of the Draft RES Act. Since then, after several rounds of consultations, several drafts have been circulated. The most recent version is dated 9 October 2012. The draft is now being discussed in the Standing Committee of the Council of Ministers. As soon it is agreed and accepted by the Council of Ministers (the full cabinet) it will be passed on to Parliament for approval. According to the latest declarations from Ministry of Economy officials, this should happen at the end of the first quarter of 2013.

The RES Draft Act is part of a larger bundle of legislation, incorporating also a new Energy Law and a new Gas Law. All three acts are debated together and will most probably be handled by a special parliamentary subcommittee.

We outline below the most significant amendments proposals to the RES support scheme, based on the latest Draft RES Act. We are however at a very early stage of the legislative procedure and the final shape of the RES support scheme is difficult to predict. The fundamental principles of (i) mandatory offtake of electricity and (ii) tradable green certificates should not be amended by the Draft RES Act. However, there is a significant amount of changes which aim to alter the support scheme as we currently know it.

The substitution fee

The Draft RES Act maintains the principle of tradable green certificates as one of the pillars of the support scheme. It is however proposed that the level of the substitution fee will be fixed at PLN 286.74, i.e. the level applicable in 2012. This substitution fee will no longer be indexed each year by CPI.

Large scale RES - mandatory purchase of power

According to the Draft RES Act, the obligation to purchase all electricity generated by RES will be maintained. The calculation of the purchase price will be amended and will be the lower of (i) PLN 198.9 (indexed on an annual basis) or (ii) the average wholesale market price from the previous calendar year (which was PLN 198.90 in 2011).

Generators will lose their entitlement to green certificates for any electricity sold for more than 105 per cent of the mandatory purchase price (up to 5 per cent upside on the electricity price would be allowed). The drafting of this clause remains vague, and it is still unclear if this penalty mechanism will apply only to sales of electricity to mandatory offtakers or to sales to any offtaker.

Term of the support

The Draft RES Act will limit the eligibility period for support to 15 years from the moment the installation goes into operation. It also introduces coefficient factors to determine the number of green certificates an installation qualifies for that vary depending on technology. Coefficient factors will be fixed for the entire period of 15 years (long stop date is 31 December 2035), with the exception of co-firing of biomass, where the certificates will be available only for 5 years. The green certificates will be also issued for the commissioning period but will be limited to a period of 90 days. Mandatory offtake of power shall also be limited to 15 years.

Correction coefficients

The coefficients for the years 2013 - 2017 are to be set in the introductory act to the RES Law. As a general trend, levels of support decrease with time, except for offshore wind which will be applied a 1.80 coefficient throughout to 2017 (please see the attached Table 1 for examples). For the next periods they will be set by the Minister of the Economy every 3 years for the next 5 years, however, the coefficients for the overlapping 2 years cannot be changed in the next ordinance issued by the Minister.

Correction coefficients for existing projects

Installations in operation before the law comes into force will not be affected by the introduction of banding and their coefficient factor will be fixed at 1. The duration of support will however be limited to 15 years from operation (except for co-firing of biomass which will receive green certificates for a period of 5 years). At this stage no special rules are provided for the projects that will be in construction when the new RES law comes into force.

Monitoring of the prices of the green certificates

Prices of green certificates are to be monitored by the Power Exchange. If the price for 2 subsequent quarters of a calendar year falls below 75 per cent of the substitution fee, the monitoring entity has to report it to the Minister of the Economy. The drafting is currently unclear as to whether it refers to daily prices over a period of 2 quarters or to average quarterly prices.

Once the matter has been referred to him, the Minister of the Economy has the power to take action to support the market for green certificates and he may increase the quota for electricity from renewable sources for the following calendar year.

Feed - in tariffs for micro and small installations

Micro and small installations will benefit from the obligation of the suppliers of last resort to purchase electricity at guaranteed prices for 15 years from the moment the installation goes into operation. The guaranteed prices for the years 2013 and 2014 are to be set in the introductory act to the RES Law (please see the attached Table 2). The prices for the subsequent years will be determined on an annual basis by the Minister of the Economy. The guaranteed price cannot be lower than the sum of (i) the price of electricity at which suppliers of last resort purchase electricity from large scale RES (please see the next point after the table) and (ii) the substitution fee adjusted for the minimum correction coefficient for the given type of RES, applicable in the year in question.

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Opportunities and challenges

Poland has a stable economy and good state support for RES. However, one of the key hurdles that investors in renewable energy projects face is a long waiting period for requisite building permits. These time periods vary between regions. Regions with an older grid network also have significant connection barriers as a result of being designed to transmit electricity from large conventional sources, rather than from a large number of smaller RES.

Investment, especially in wind farms, has also slowed as a result of legal challenges from various environmental organisations. Investors can also face delays or refusals to issue acceptable connection terms by utilities that defend their interests by assuming unfavourable scenarios of the impact of a new source of connection on the wider transmission system. Although utilities are obliged to publish information on entities seeking connection to the grid with a voltage exceeding 1 kV and the volume of available connection capacity with a voltage exceeding 110 kV, this obligation tends to be met by vague and imprecise information being published.

Currently, one of the biggest challenges is the fact that banks are reluctant to provide financing for RES projects. Some banks may provide full recourse financing but non-recourse financing is very difficult to obtain. The reason for that is the ongoing legislative process described above which provides a certain degree of uncertainty with respect to profitability of RES projects. Also lately the prices for green certificates on the power exchange have dropped. This may be due to high supply resulting inter alia from issuance of green certificates to biomass cofiring installations. These problems, however, should be resolved with the entry into of force of the new RES Law. Regardless of the final shape of the Draft Act, it should help to bring back certainty in assessing projects' profitability. The current Draft RES Act also aims to phase out the support for biomass cofiring.

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Conclusion

The market for RES in Poland is fast growing and far from saturated. It is hoped that the new energy legislative package which is currently being debated will provide investors with the additional certainty and transparency, to allow them to make long term investment decisions.

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Appendices

Appendix 1

Example of correction coefficients proposed for the years 2013 - 2017, under the proposal published by the Ministry of the Economy on October 9, 2012.

(a) Solar units from 100 kW to 1 MW:

(b) Solar systems with total installed electric capacity 1MW to 10 MW:

(c) Onshore wind with total installed electric:

Appendix 2

Feed-in tariff rates for small and microinstallations for the years 2013 - 2017, under the proposal published by the Ministry of the Economy on October 9, 2012

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