Draft law on Renewable Energy Sources - Update
January 2014
On 3 January 2014 another draft of new law on Renewable Energy Sources (“RES”) was
published by the Polish Ministry of Economy (“MoE”). Additionally, in the second half of
January, the amended version has been published, which subsequently has been adopted
by the Permanent Committee of the Ministers Counsel in February 2014 (the “Draft”). It
means therefore that the Draft can be submitted to the Polish Parliament soon (the MoE
plans to do so in IQ 2014).
Although, there is still a risk that the Draft can be additionally amended before submission
to the Parliament, the recent Draft introduced some significant changes to the previous
proposal published on 3 January 2014 and in November 2013. We would therefore like to
summarise the most significant regulations relating to the planned RES support scheme in
Poland:
I. Existing RES installations (including wind farms) – grandfathering rules: as with the
previous draft RES law, the support system in its current form will be grandfathered, i.e.
existing installations will benefit from both the fixed off-take price (established by the
Regulator on an annual basis as under current law) and green certificates for a period of
15 years from the date of the first energy off-take (with some exceptions and limitations),
however not after 31 December 2035.
The green certificate price will be linked with a fixed substitution fee which the draft new
RES law sets at PLN 297.30 per 1 MWh. No indexation is envisaged.
The MoE abandoned its previous controversial proposals, pursuant to which no green
certificates would be granted if the price of electricity sold from an RES source exceeds
105% of the guaranteed fixed off-take price, as well as from provisions preventing the
combination of the support scheme under the RES law and other public aid. Instead, the
new draft RES law provides that the combined public aid (both under the RES law and
from any other sources) may not exceed the difference between:
(i)
the product of the value of electric energy produced by a RES source and the cap
(reference) price to be published annually ahead of the tendering process by the
MoE; and
(ii)
the product of the value of the electric energy produced by a RES source and the
average price of electric energy published annually by the Regulator.
If exceeded, the public support (including the value of the green certificates) will be
reduced accordingly. The draft new RES law lacks regulation in this respect.
In the current draft RES law, the MoE did not include an obligation on certain market
participants to trade green certificates on commodity exchanges or other regulated
markets.
As in the previous draft, one of the mechanisms aiming at preventing the oversupply of the
green certificates and their subsequent price slump will be the obligation to redeem the
green certificates without the alternative option to pay a substitution fee if the average
certificate price drops below 75% of the substitution fee for (i.e. an obliged entity will not be
entitled to pay the substitution fees). The new proposal changes the relevant period from
one month to three months. However, the drafting of the new RES law fails to provide clear
regulation in this respect.
As with the previous draft, existing RES installations will be entitled to choose, (i) whether
they wish to remain under the current green certificate scheme, or (ii) to switch to a new
tendering scheme (which will be similar to the tendering scheme for new installations).
Existing wind farms will then be able to participate in the tendering scheme, but according
to the new RES law, the overall period of the support cannot be longer than fifteen years
under both the old and new schemes (but no longer than until end of 2035).
II. New RES installations – auction: as envisaged by the Government in September
2013, the new RES law, if enacted, will introduce a complete overhaul of the present
support system based on a green certificate scheme. Newly commissioned wind farms will
no longer follow the green certificate system, which will be replaced by a tendering
mechanism for renewable energy with price caps.
As a general rule, the tenders will be organised by the Regulator once each year for an
annual established volume of RES energy. The new RES law envisages a pre-qualification
procedure to participate in a tender, which amongst other prerequisites, establishes: having
zoning planning/decision; grid connection decisions; final building permits; financial
standing certificates from banks; and the payment of a PLN 30 per 1kW deposit of the
planned generation capacity. Ahead of each annual auction, the MoE will publish the cap
(reference) price below which the tender participants should submit their bids. The lowest
bid will win.
The new scheme will be serviced by so called ‘obliged sellers’ who will be under a duty to
buy the RES energy at the price established in a tender (from RES installation below 1
MW). Any deficit suffered by such entities, will be compensated by the so called ‘RES
charge’ to be imposed on the end users. The obligation to buy the RES energy will apply
for a period of 15 years from the date of the first energy off-take (with some exceptions and
limitations), however not after 31 December 2035 (or 31 December 2040 in the case of offshore wind farms).
III. Feed-in Premium for RES installations with an output > 1 MW
1.
The Government has decided to differentiate its support for RES installations in the
new tendering scheme based on their capacity:
(i)
RES installations with an output lower than or equal to 1 MW will enjoy
the same level of support as mentioned in point II above, such as with the
obligation on certain market players to purchase energy produced for a
fixed price established during the tendering process (Feed-in Tariff);
(ii)
RES installations with an output higher than 1 MW will no longer have
their energy off-take guaranteed. The RES installations are now obliged to
apply to “Operator Rozliczeń Energii Odnawialnej” S.A. (the state agent,
which will further be referred to as “OREO”) to reimburse the negative
difference between the market energy prices (for which the green electricity
was sold) and the energy price established by the winning offer during the
auction (the tender price); (Feed-in Premium).
Unfortunately, the amendment and wording of the new provision in the Draft
is very ambiguous and may raise concerns as to how exactly the new
support scheme for the larger installation will work. For example, the Draft
still contains the previous provisions regarding the procedure to execute the
PPA by the RES installation which won the auction with the obliged seller
(the last resort supplier). This now does not seem to be applicable to the
RES > 1MW.
2.
Additionally in cases of RES installations mentioned in point (ii) above, the new
Draft proposes that if the total value of the energy sold during a given month is
higher than the value of the energy calculated pursuant to the tender price (the
“Positive Balance”), such Positive Balance must be settled during the next periods
as follows:
(i)
it will be set-off towards any future negative balances for the following
periods (thus the RES installation will not be entitled to demand the
Premium for such months);
(ii)
the RES installation will have to pay back to OREO any amount of the
unsettled Positive Balance within six months from the end of the support
period (i.e. 15 years from the first energy off-take).
IV. State aid
1.
The draft RES law provides additional restrictions regarding state aid (which has
been developed in the new Draft). According to the new provisions, the combined
state aid (both under the RES law and from any other sources) may not exceed
during the support period (15 years) the difference between:
(i)
the product of the volume of electricity produced by an RES and the cap
(reference) price to be published annually ahead of the tendering process
by the MoE; and
(ii)
the product of the volume of the electricity produced by an RES and the
average price of electrical energy published annually by the Regulator
(jointly, “State Aid Limit”).
The RES installation which exceeds the State aid Limit will not be entitled to
participate in the auction.
2.
In comparison to the prior draft, the State Aid Limit will only apply to installations
participating in the new tendering scheme. Existing RES installations (i.e. those that
have produced energy before the entry into force of the new RES law), which
choose to remain within the current green certificate scheme, will not be bound by
the State Aid Limit.
3.
Additionally, the Draft states that the state aid within the meaning of the new RES
will also include the following elements (in additional to the above; please note that
the detailed method to calculate the state aid for the purpose of the Draft will be
determined in the secondary regulations):
(iii)
revenues from green certificates, co-generation certificates and energy
efficiency certificates, as well as the value of these certificates which are
owned by the RES source. In order to calculate the value of the certificates,
the average market price between 2011-2013 should be taken in account;
(iv)
revenues from exemptions and credits in taxes and other payments which
are directly related to the production of RES energy (very ambiguous
wording); and
(v)
other revenues directly related to the construction or modernisation of RES
and the production of RES energy (very ambiguous wording).
After the RES law enters into force, MoE shall issue a supplementary regulation
which will provide for a detailed calculation of the state aid value pursuant to the
above premises.
4.
Before an RES installation is allowed to participate in the tendering scheme, a
statement needs to be submitted certifying that the State Aid Limit will not be
exceeded as of the date when the offer is made at an auction. The President of
URE may verify the authenticity of such a statement and is able to deny the RES
installation the right to take part in the auction if it finds that the State Aid Limit will
be exceeded.
5.
Furthermore, together with an offer at the auction, another statement needs to be
submitted under the penalty of perjury with a declaration:
6.
(i)
detailing the combined level of state aid (described in points 3 (iii)-(v)
above), which the RES installation has received in the past, calculated in
PLN/MWh, adjusted for the expected level of energy production as
described in the offer and the 15-year support period; and
(ii)
stating that the purchase price for the energy set in the offer, adjusted for
the state aid described in point (i) above does not exceed the reference
(cap) price applicable upon the submission of an offer.
The President of URE will have the right to verify the accuracy of the above
statement and may rule that some part of the energy produced may not be qualified
as green energy from RES (and thus such energy will be disqualified from the
support, i.e. excluded from calculation of the Negative Balance).
V. Excise tax on renewable energy
According to the Draft, the RES will not be excluded from excise tax on the generated
electricity. Thus, the Draft abandons exemption from excise duty on electricity produced in
RES installation and purchased within the new auction scheme.
VI. Other considerations
While the Government intends for the new law to enter into force by the beginning of 2015,
the provisions regarding the new RES support scheme (chapter 4 of the draft) will only
enter in force 12 months after these are approved by the European Commission.
Additionally, more hydropower plants will be entitled benefit from the support scheme as
the limit has been increased from 1 MW to 5 MW.
Should you have any questions or would like to obtain more information, please contact us
or any of your other contacts at Linklaters.
Linklaters Warsaw Energy Team