On 4 May 2015 the Act of 20 February 2015 on renewable energy sources (the “RES Bill”) enters into force. The RES Bill is a new act aimed at comprehensively regulating the sector of renewable energy sources (“RES”) which also introduces numerous amendments to certain legal acts in effect, including the Act of 10 April 1997 on energy law (“Energy Law”). The provisions coming into force as of 4 May 2015 do not include, however, chapter IV of the RES Bill (with a few exceptions) pertaining to the support for RES installations as the entry into force of these provisions has been postponed until 1 January 2016.
Due to its vagueness and lack of precision in regulating some issues of key importance to the functioning of the RES sector, the RES Bill raises serious doubts among market players. It was promulgated more than two months ago, which is ample time to become utterly familiar with its regulations, however it is still problematic to find satisfactory and unambiguous answers to many questions posed by entities from the RES sector during the legislative work. It should also be emphasized that despite the fact that the most significant part of the RES Bill that has been mostly expected by the market, i.e. the part related to the new support system, becomes effective as late as on 1 January 2016, the Ministry of Economy is already planning to amend the RES Bill. Notwithstanding the obvious defects of the RES Bill, it is a general market expectation that it will give momentum for the further development of the RES sector and help to strengthen Poland’s position as one of the few European states that still create favourable conditions for investments in RES sector.
Please find below information regarding the selected provisions that enter into force on 4 May 2015 or earlier and which in our view may have a significant impact on the energy market.
I. Timeline for connection of RES installations
Pursuant to the newly introduced section 2a of article 7 of the Energy Law, agreements relating to the connection of RES installations to the grid (“Interconnection Agreements”) must include provisions specifying the time limit within which electricity generated from the RES installation must be supplied into the grid for the first time. The deadline may not be later than:
- 48 months for RES installations; with the exception of:
- 72 months for RES installations where offshore wind energy is used for electricity generation
This deadline begins with the execution of the Interconnection Agreement. The Energy Law also imposes an obligation to include in the Interconnection Agreement the right to terminate the agreement if the deadline is not met. In consequence, after the lapse of the time limit, the grid entrepreneur may terminate the Interconnection Agreement. In this case the producer would need to apply for a new grid connection.
It should be noted that the Energy Law only imposes the obligation to introduce the right to terminate the Interconnection Agreement, but does not impose the obligation to exercise such right. Therefore the severity of the consequences for the producer in the event of non-compliance with the time limit set in the Interconnection Agreement will depend on the grid entrepreneur’s approach to the exercise of this right and on the type of circumstances causing a given delay.
The newly established provisions apply to Interconnection Agreements concluded after the RES Bill entered into force.
II. Obligation to revise the connection timeline
According to Articles 191 and 192 of the RES Bill, Interconnection Agreements concluded prior to 4 May 2015 where the connection has not yet been made, need to be revised in line with the new law. These Interconnection Agreements need to be supplemented with a time limit within which electricity generated from the RES installation must be supplied to the grid for the first time, i.e. no longer than 48 months (72 months in the case of offshore wind farms) as of the day of entry into force of the RES Bill, providing that the Interconnection Agreement does not stipulate a shorter time limit. If an Interconnection Agreement is not revised accordingly within 6 months it may be terminated.
Pursuant to Article 192 section 1, within 3 months after the entry into force of the RES Bill, a producer of electricity in a RES installation bound by an Interconnection Agreement that stipulates a time limit for supplying the grid with electricity which is longer than those mentioned above, should submit a revised timeline for connection to the grid entrepreneur. If the producer does not comply with the 3-month deadline, the grid entrepreneur will not be under any obligation to amend the Interconnection Agreement accordingly. In consequence, after the lapse of 6 months, if the timeline for connection is not revised, the grid entrepreneur may terminate the Interconnection Agreement.
Moreover, if the Interconnection Agreement is terminated due to a failure to revise the connection timeline, the party (i.e. the connecting entity) shall reimburse the grid entrepreneur with the costs of construction of the interconnection, including the costs of strengthening the grid connected with the interconnection (which are not usually covered by the connection fee) as well as the costs of the grid entrepreneur’s obligations towards third parties related to the expiration of the Interconnection Agreement.
III. Priority connection for RES installations
The RES Bill introduced a new wording to Article 7 of the Energy Law. In accordance with this provision a grid entrepreneur is under an obligation to conclude an Interconnection Agreement with an entity applying for connection on equal terms and to connect RES installations as priority.
The new provision favours RES installations over conventional sources. However it is difficult to assess how it will be applied in practice. The Energy Law does not provide any detail on how the priority in connection should be applied. Therefore this rule will need to be made more precise in the grid codes issued by each grid entrepreneur. It is also worth emphasizing that the rule might have been already drawn, at least indirectly, from the provisions of the Energy Law in effect prior to 4 May 2015, pursuant to which the energy generated by RES should enjoy priority as regards the distribution and transmission services provided by grid operators.
IV. Obligation to present an incentive effect
The RES Bill introduced a new section 7 to Article 43 of the Energy Law, imposing the obligation to present a technical–economical description of the planned investment together with a motion for issuance of the promise of a license or the promise of a change in the license for generation of electricity in cogeneration or in a RES installation, in the event that works on the investment starts after the entry into force of the RES Bill.
The technical–economical description of the planned investment is filed on a form prepared by the President of the Energy Regulatory Office (“President of ERO”). Based on this description, the President of ERO concludes in the decision granting the promise of a license or the promise of a change in the license whether the incentive effect exists, i.e. whether the investment would be conducted if the RES installation were not eligible for certificates of origin of energy from cogeneration or certificates of origin of energy from RES (“Green Certificates”).
A producer who does not obtain the above confirmation of a promise of a license may not apply to the President of ERO for issuance of Green Certificates or certificates of origin from cogeneration.
The obligation to present a technical–economical description of the planned investment and to obtain confirmation of the existence of an incentive effect applies only to investments where the works began after the entry into force of the RES Bill. The “start of works” should be interpreted in line with the Guidelines on state aid for environmental protection and energy 2014-2020 issued by the European Commission (2014/C 200/01, published in OJ EU C dated 28 June 2014 – “Commission’s Guidelines”). As indicated above, the provisions of Polish law are meant to implement the Commission’s Guidelines within the scope of the so-called incentive effect. In accordance with the Commission’s Guidelines, the “start of works” means either the start of construction works on the investment or the first firm commitment to order equipment or other commitment that makes the investment irreversible, whichever is the first in time. Buying of land and preparatory works such as obtaining permits and conducting preliminary feasibility studies are not considered as start of works. For take- overs, ‘start of works’ means the moment of acquiring the assets directly linked to the acquired establishment.
With a view to the above-cited definition of the “start of works”, one should assume that there are no more projects in the market that would be aimed at participating in the system of certificates of origin (with the resulting need to generated energy by 31 December 2015) that would not yet start works within the meaning as indicated above. As a consequence, it appears that the pool of entities to which the norm contained in Article 43.7 of the Energy Law is addressed is empty.
V. New legal basis for issuance of Green Certificates
On the day following the announcement of the RES Bill (i.e. 4 April 2015), the legal basis for the issuance of Green Certificates changed. The regulations of the Energy Law, in particular, Article 9a, were replaced by temporary provisions of the RES Bill.
Currently, and until 1 January 2016 the certificates of origin scheme functions to a large degree on the basis of Article 188 of the RES Bill, whereas after 1 January 2016, Green Certificates will be issued in accordance with chapter 4 of the RES Bill.
VI. Corrective ratio for Green Certificates in co-firing
One of the instruments for correcting the Green Certificates market is the introduction of the corrective ratio. In accordance with this solution, co-firing installations shall be eligible for Green Certificates, in the number adjusted by the corrective ratio 0.5. This corrective ratio was introduced in Article 194 of the RES Bill which enters into force on 4 May 2015.
The President of ERO announced that Article 194 of the RES Bill is applicable only to the procedure of issuance of Green Certificates included in that part of the RES Bill which enters into force on 1 January 2016. Therefore in the view of the President of ERO, there is no legal ground to apply this article prior to 1 January 2016.
In consequence, for energy generated by a co-firing installation prior to 1 January 2016, the President of ERO will issue Green Certificates without a corrective ratio.
VII. Pre-qualification procedure for RES installations in the auction system
As mentioned above, chapter IV of the RES Bill pertaining to state aid for RES installations will enter into force in full on 1 January 2016. However selected provisions of this chapter apply from 4 May 2015. These provisions relate to the formal pre-qualification procedure for RES installations eligible to participate in the auction system. In consequence this procedure may be conducted after 4 May 2015.
The provisions apply to producers of electricity in RES installations that commence generation of electricity after 1 January 2016 and who intend to participate in the auction system. Pursuant to Article 75 of the RES Bill, producers of energy who intend to submit to auction are subject to a formal pre-qualification procedure. The procedure is conducted by the President of ERO at the request of the producer in order to issue the certificate of admission to the auction. Based on the certificate of admission the installation is admitted to the auction.
The certificate of admission is valid for 12 months after issuance. In accordance with article 210 of the RES Bill the first auction shall be announced by the President no later than on 31 March 2016, and the first auction may be conducted no earlier than 30 days after the announcement (Article 78 section 1 of RES Bill). Therefore if the certificate of admission is obtained in the near future, it may expire before first auction has commenced.