Introduction

The government first proposed a reform of the subsidy system for renewables in 2011. On February 20 2015, after a legislative process lasting almost four years, the new Act on Renewable Energy Sources was approved in Parliament and on March 11 2015 the bill was signed into law by the president. The new legislation was published in the official journal on April 8 2014. The law will become effective, in principle, 30 days after publication, although Chapter 4, which sets out the new rules for subsidising mechanisms, will become law on January 1 2016 (with some selected provisions of Chapter 4 coming into force on various dates during 2015, mainly to allow for preparation for the transition to the new auction system).

The new act provides that Poland will maintain the green certificate system for the existing renewable energy source (RES) installations, albeit with some changes to the existing rules. For new RES installations (ie, those that start generating electricity no earlier than January 1 2016), the new act will introduce the following new subsidy instruments:

  • a guaranteed price of electricity in the form of either feed-in tariffs for small-scale installations; or
  • feed-in premiums for larger RES installations, where both feed-in tariffs and feed-in premiums would be awarded in auctions.

Subsidy system for existing projects

RES installations which start generating electricity before January 1 2016 will continue to be eligible for green certificates, but the subsidy period will be restricted to 15 years from the date on which an installation begins to feed electricity for which the installation was awarded green certificates to the grid. For installations which came on line after the green certificate system was first introduced in 2004, this means that the 15-year period will be counted from the date of first production of electricity during the commissioning period. Under the existing RES legislation, eligibility for green certificates is not limited in time, so the RES installation could continue to receive green certificates for the lifetime of the project.

Under the existing RES legislation, so-called 'suppliers of last resort' have an obligation to purchase all electricity which is offered to them by RES installations connected to the grid within the area serviced by a given supplier of last resort. The role of the suppliers of last resort is performed by the incumbent local suppliers of electricity. This mandatory purchase is conducted at the average competitive market price from the previous calendar year, which is calculated and published by the energy regulator, the Energy Regulatory Authority (URE). This price is often referred to as the 'URE price'. The 'competitive market' price is calculated by the URE as the electricity wholesale market price, excluding the balancing market.

Under the new act, the mandatory purchase of electricity from the existing projects will be maintained. The obligation will be imposed on the so-called 'obliged suppliers'. The supplier which had the biggest sales of electricity by volume in the previous calendar year within the area serviced by the given distribution system operator will be appointed for one year by the URE as the obliged supplier. Given the existing market, this means that under the new act, the local incumbent suppliers, which perform the role of the suppliers of last resort under the existing legislation, will become the obliged suppliers. However, there will be two further changes made to the existing legislation:

  • Under the new act, the obligation to purchase electricity from an existing RES installation will last for 15 years from the date on which the installation begins to feed electricity into the system during commissioning (under the existing legislation there is no time limit, so the project could benefit from the mandatory purchase of electricity for the lifetime of the project).
  • The mandatory purchase will be performed at the average competitive market price from the previous calendar quarter (not calendar year, as under the existing legislation). This quarterly price, like the annual price under existing legislation, will be calculated and published by the URE.

Existing hydropower projects with capacity exceeding five megawatts (MW) will not be supported by green certificates or the mandatory purchase of electricity.

The level of support for the co-firing of biomass will be reduced. Until the end of 2020 the co-firing of biomass will receive 50% of a certificate per megawatt hour (MWh) of electricity from co-firing. For the period post 2020, the correction coefficient will be set in secondary legislation. However, the limitation will not apply to 'dedicated biomass co-firing installations' (ie, biomass co-firing installations which meet the criteria defined in the new act and for which a relevant power generation licence was issued before June 30 2014).

In addition to the limitation described above, the annual volume of electricity from co-firing of biomass for which green certificates can be awarded cannot be higher than the average volume of electricity generated by a given installation in the years 2011 to 2013 or, in the case of an installation which started production after 2013, during the first three years of operation.

In accordance with the requirements of the "Guidelines on state aid for environmental protection and energy 2014-2020", there will be a mechanism to discourage RES installations from generating electricity under negative prices. Green certificates will not be awarded for electricity generated during the hours for which average spot trade prices from the power exchange are below PLN0 per MWh, provided that such prices are below PLN0 per MWh for at least six consecutive hours of electricity supply.

Under the existing RES legislation, and in accordance with the new act, entities supplying electricity to end users and certain other types of entity will be obliged to obtain and submit green certificates to the URE, which are then redeemed by the URE or, as an alternative, to pay the substitution fee instead of delivering the green certificates.

The new act sets a quota of 20% of the total electricity supply to end users, which has to be covered by either submitting green certificates to the URE or by paying the substitution fee. However, the minister for the economy will have a right to set in secondary legislation the quota for one or several years at a level lower than 20%. Further, the new act sets the quota at a level lower than 20% for the first two years of the new act's applicability (ie, 2015 and 2016) – at 14% and 15% respectively. These are the same percentages as those applicable for 2015 and 2016 under the existing RES legislation.

The substitution fee per MWh will be fixed at PLN300.03. Under the new act there will be no further indexation of the substitution fee (ie, it will remain at PLN300.03 per MWh for the time remaining until the end of the green certificate scheme). Under existing RES legislation the substitution fee is indexed annually by the consumer price index.

Entities obliged to submit green certificates to the URE will not be allowed to pay the substitution fee as an alternative if the average monthly or average annual power exchange price of green certificates announced by the Polish Power Exchange is below 75% of the substitution fee.

In summary, the new act introduces a definition of 'renewable energy installation', which is a "separate set of devices used for generation of electricity connected to the grid at one connection point". Consequently, projects which are developed in stages, but where generation units subsequently added (eg, wind turbines) are connected to the grid at the same point as the previous units will be considered one and the same RES installation. This may influence, among other things, the period for which the generation units are eligible for support.

The new act provides that existing projects (ie, RES installations which started to generate electricity before January 1 2016) will continue to receive green certificates for at least 15 years from the date on which they begin to feed electricity into the grid. The right to sell electricity at a regulated price will remain, although this mandatory purchase price (the new URE price) will be calculated for a different reference period – it will be the average competitive market price from the previous calendar quarter, whereas the URE price is the average competitive market price from the previous calendar year – and will be limited for the same period as the green certificate eligibility period.

Subsidy system for new projects

Projects which do not start electricity production before January 1 2016 will no longer be eligible for green certificates, but depending on their size may apply for a feed-in tariff (for an installation with total installed capacity lower than 500 kilowatts (kW)) or feed-in premium (for an installation with total installed capacity of 500 kW or more) through an auction mechanism. Projects in the green certificate system will be allowed to switch from green certificates to feed-in tariffs or feed-in premiums and participate in auctions, which will be organised separately from the auctions for new projects.

In general, the auction mechanism will be available for new projects which use equipment no older than four years (or six years for off shore wind power plants). One of the provisions of the new act suggests that a new installation may be eligible for auction only if it starts to generate electricity after the close of the auction – this would preclude installations which start generating electricity after December 31 2015 but before an auction in which that installation takes part is closed.

Existing generation units which undergo modernisation after January 1 2016 can take part in an auction.

Existing projects operating before January 1 2016 can take part in an auction provided that the projects' operators submit relevant declarations confirming that they wish to enter into the new subsidising system (ie, participate in auctions) instead of the old green certificate system.

An existing RES installation which elects to participate in auctions will lose the right to obtain green certificates. However, this will happen only if the installation wins an auction and only at the moment when that installation starts to sell electricity for the first time after winning the auction.

Some categories of existing RES installations will not be eligible to take part in auctions. These are:

  • biomass co-firing installations, except dedicated biomass co-firing installations;
  • hydropower installations with a total installed electrical capacity of more than 5MW; and
  • RES installations with a total installed electrical capacity of more than 50MW generating electricity from biomass, bioliquid fuels, biogas or agricultural biogas, except RES installations generating electricity from biomass, bioliquid fuels, biogas or agricultural biogas in high-efficiency cogeneration processes with a maximum thermal output of 150 thermal megawatts (MWth).

Feed-in tariffs and feed-in premiums

If successful in an auction, a RES installation with total installed capacity lower than 500 kW will be entitled to sell its generated electricity, but only up to the volume offered in the auction to the local obliged supplier that will have an obligation to purchase the electricity at the price offered by that RES installation in the auction.

The obliged supplier will be entitled to receive compensation for the difference between the feed-in tariff price payable to the RES installation and the market price (the so-called 'negative balance') from a company wholly owned by the government (ie, an operator of renewable energy settlements (OREO)).

Further, the obliged supplier will cover the balancing costs for the RES installation with total installed capacity lower than 500kW.

If successful in an auction, a RES installation with a total installed capacity of 500 kW or more will be entitled to receive compensation from the OREO for the negative balance (ie, the difference between the price offered by that RES installation in the auction and the market price for the volume of generated electricity up to the volumes offered in the auction). RES installations of no less than 500 kW will sell all the electricity generated to the market. If that installation produces electricity in excess of the volumes offered in the auction, it will not receive the premium from the OREO for this excess electricity (the income from the excess electricity will be limited to the market price of black power).

Throughout the support period, the guaranteed price awarded in an auction to a RES installation will be indexed annually by the consumer price index.

The market price used to calculate the 'negative balance' is defined as the daily average price, to be calculated as the average of all the hourly weighted average electricity prices from all spot trades (ie, the day ahead market and the two-day-ahead market) executed during the hours when electricity from the RES installation was delivered, published by the commodity exchange operator – the Polish Power Exchange, Towarowa Gielda Energii SA.

In accordance with the requirements of the "Guidelines on state aid for environmental protection and energy 2014-2020", there will be a mechanism to discourage RES installations from generating electricity under negative prices – the calculation of the negative balance will not include the volume of electricity generated during the hours for which the average spot trade prices from the power exchange are below PLN0 per MWh, provided that such prices are below PLN0 per MWh for at least six consecutive hours of electricity delivery.

If the calculation of the difference between the guaranteed price and the market price results in a positive balance instead of a negative balance, this positive balance will be netted against any negative balance which may occur in the subsequent settlement periods. If there is still an outstanding positive balance at the end of the funding period, the operator of the RES installation will be required to repay the amount of the outstanding positive balance in six equal monthly instalments.

The new feed-in tariff or feed-in premium subsidies for an installation which wins an auction will start from the date that the electricity is fed to the grid for the first time and will last for 15 years (for new installations the 15-year period will be counted from the date of first sale of electricity following the decision on the outcome of the auction), but not beyond the end of 2035 (save for offshore wind power plants which will have a separate long stop date – the end of 2040). The new act sets June 30 2021 as the deadline for deciding the outcome of the last auction to be held.

The entity which wins an auction will be obliged to deliver the offered volume of electricity. The settlements of delivered volumes will be performed over three-year periods. Failure to deliver at least 85% of the offered volume will result in a financial penalty of 50% of the awarded guaranteed price per MWh of the undelivered electricity.

Pre-qualification for new installations

Installations set to start producing electricity after January 1 2016 will be admitted to auction only if they undergo a pre-qualification procedure conducted by the URE and obtain a certificate (valid for 12 months). Eligibility criteria for new projects are as follows:

  • Confirmation has been given that the project is allowed under the local zoning plan or – in the absence of a local zoning plan – a planning permit obtained for the project.
  • Grid connection conditions have been issued by or a grid connection agreement has been executed with the relevant grid operator.
  • A final construction permit, if required under construction law, has been issued for the project. In the case of offshore wind power plants – instead of the final construction permit – a final environmental permit will have to be issued for the project.
  • The schedule for implementing the project has been drawn up.

Bid price caps

The minister for the economy will set 'reference prices' – maximum prices that projects can bid in auctions held in the given calendar year. The reference prices will be announced no later than 60 days before the first auction is to be held in the given calendar year. The new act specifically provides that the reference prices for 2016 will be set and announced by December 31 2015.

For RES installations which start producing electricity before January 1 2016, but that decide to participate in auctions despite also being eligible for green certificates, the reference price will be set taking into account:

  • the average competitive market electricity price from the previous calendar quarter published by the URE; and
  • the average green certificate prices in 2011 to 2013 (PLN239.83).

The phrase 'taking into account' suggests that the reference price for the existing projects need not be a simple sum of the values specified in the points above, but can be set below or above that number by the minister for the economy.

For RES installations which start producing electricity no earlier than January 1 2016, the reference prices will be set by the minister for the economy based on the following criteria:

  • technical, material and economic parameters of the RES installation's operation;
  • capital expenditure during the project's development and construction, along with the required technical infrastructure;
  • assumptions concerning technical conditions for the operation of RES installations, including the efficiency of electricity or agricultural biogas generation, capacity utilisation factors and indicators of the use of generated electricity and agricultural biogas for own consumption and for covering losses occurring before the electricity or agricultural gas is fed into the grid;
  • operating costs and additional capital expenditure incurred during the period of RES installation operation in which the installation was eligible for support;
  • predictions regarding the behaviour of prices of biomass, other fuels and carbon dioxide emission allowance units; and
  • the cost of equity of the electricity or agricultural biogas generator.

The RES legislative proposal submitted by the government to Parliament in July 2014 required the minister for the economy to take into account the results of economic analysis performed by consultants or research entities (ie, to base the reference prices on external studies) when setting the reference prices. However, this requirement has been left out of the new act.

The reference prices for new installations will be set separately for RES installations:

  • with a total installed electrical capacity of up to 1MW, which use agricultural biogas for the generation of electricity;
  • with a total installed electrical capacity in excess of 1MW, which use agricultural biogas for the generation of electricity;
  • which use landfill gas for the generation of electricity;
  • which use gas from sewage treatment plants for the generation of electricity;
  • which use biogas of a kind other than those listed above for the generation of electricity;
  • with a total installed electrical capacity of up to 50MW, which for the generation of electricity use biomass fired in a dedicated biomass firing installation or in hybrid systems;
  • with a total installed electrical capacity of up to 50MW, which for the generation of electricity use biomass fired in a dedicated biomass firing installation or in hybrid systems in high-efficiency cogeneration;
  • with a total installed electrical capacity in excess of 50MW or a total installed thermal capacity of up to 150MWth, which for the generation of electricity use biomass fired in a dedicated biomass firing installation or in hybrid systems in high-efficiency cogeneration;
  • with a total installed electrical capacity in excess of 50MW or a total installed thermal capacity of up to 150MWth, which for the generation of electricity use the biodegradable part of industrial and municipal waste, including water treatment waste and sewage treatment waste, in particular sewage sludge in a waste incineration plant;
  • which use bioliquids for the generation of electricity;
  • with a total installed electrical capacity of up to 1MW, which use onshore wind energy for the generation of electricity;
  • with a total installed electrical capacity in excess of 1MW, which use onshore wind energy for the generation of electricity;
  • with a total installed electrical capacity of up to 1MW, which use hydro power for the generation of electricity;
  • with a total installed electrical capacity in excess of 1MW, which use hydropower for the generation of electricity;
  • which use geothermal energy for the generation of electricity;
  • with a total installed electrical capacity of up to 1MW, which use solar energy for the generation of electricity;
  • with a total installed electrical capacity in excess of 1MW, which use solar energy for the generation of electricity; and
  • which use offshore wind energy for the generation of electricity.

Electricity volumes put up for sale in auctions

The council of ministers will annually set (by October 31) the maximum volume and value of electricity which can be auctioned in the next calendar year, including the maximum volume of energy to be generated in sources with efficiency of less than 4,000MWh/MW per year separately for:

  • existing projects which have declared the intention to participate in auctions; and
  • new projects.

Further, by November 30 each year the minister for the economy will set the minimum volume of electricity available to installations with installed capacity of up to 1MW (this threshold cannot be less than 25% of the total volume set by the council of ministers). The new act also provides that the volumes for 2016 (ie, the first year of auctions) will be set by the council of ministers by May 31 2015 and the 2016 threshold for installations up to 1MW will be set by the minister for the economy by June 15 2015.

Organisation of auctions

Auctions will be organised as follows:

  • Auctions will be held by the URE at least once a year. If volumes set by the council of ministers are not exhausted in an auction, the URE may (but is not obliged to) hold further auctions in that year.
  • Auction rules will be set by the URE.
  • Auctions will be conducted separately for existing and new projects. In both cases, there will be separate auctions for installations up to 1MW and above 1MW. There will be no separate categories – all technologies will compete in one category (although in the auctions for new installations there will be separate bid price caps for the 18 technology categories).
  • Auctions will be announced by the URE at least 30 days before they are held. The announcement will also specify the maximum volume and value of electricity to be auctioned.
  • Auctions will be held in electronic form using an electronic auction platform.
  • An auction will be held in one session.
  • An auction will be held if at least three valid offers meeting the requirements set out in the new act are submitted.
  • Generators may submit one offer only per installation.
  • Generators will be required to provide a bank guarantee or cash deposit in an amount equal to PLN30 per kW of installed electrical capacity (refundable to the winner of the auction within 60 days of the date of the first generation of electricity and to generators who lose the auction within 14 days of the closing of the auction).
  • An offer must include the following information:
    • the type and installed electrical capacity of the RES installation at which electricity will be generated by the participant;
    • the volume offered (in MWh) and price in PLN per MWh (stated with accuracy to the nearest grosz) for which the participant agrees to sell such electricity; and
    • the volume of RES electricity in MWh that the participant plans to generate at the RES installation in subsequent consecutive calendar years, including the volume of electricity in MWh planned to be generated at an RES installation with an installed electrical capacity utilisation rate lower than 4000 MWh/MW per year.
  • The guarantee of price will be awarded for the lowest bids.

A new installation which wins an auction will be required to start the generation of electricity within 48 months of the closing of the auction, except for photovoltaics installations, for which the applicable period will be 24 months, and offshore wind power plants, for which the applicable period will be 72 months.

Limit on total funding obtained by RES installation

The total value of state aid granted over the 15 years of entitlement to feed-in tariffs or feed-in premiums may not exceed the difference between:

  • the value of the electricity generated over that period, calculated at the reference price (bid price cap) applicable on the date that the project submits its bid in the auction; and
  • the value of the same volume of electricity calculated at the average competitive market price from the previous calendar year, as calculated and published by the URE, applicable on the date that the bid is made in the auction.

The total value of aid will be calculated as the aggregate of:

  • the difference between the value of generated electricity calculated at the guaranteed price awarded in the auction and the value of the same volume of electricity calculated at the average competitive market price from the previous calendar quarter, as calculated and published by the URE;
  • revenue from the sold green certificates, cogeneration certificates and energy efficiency certificates and/or the value of certificates held by the RES power generator and not sold;
  • revenue from the tax credits and exemptions related directly to the generation of electricity from RES; and
  • any other operational aid related to the construction or reconstruction of the RES installation and generation of electricity from RES.

The detailed methodology of calculating the total value of state aid is to be specified in secondary legislation issued by the minister for the economy.

A RES installation which does not fulfil this condition will lose the right to support through feed-in tariffs or feed-in premiums.

An OREO will manage the financing and payment of compensation for negative balance. The compensation will be mainly financed by a RES levy which will be collected through regulated transmission and distribution tariffs of the transmission and distribution grid operators. An OREO will be required to pay the compensation on a monthly basis, irrespective of the RES levy collections. An OREO will have a right to raise financing in order to meet its obligations to suppliers and RES installation operators.

Guaranteed tariffs for small installations

Small installations of specified technologies with installed capacity of up to 3kW and between 3kW and 10kW will enjoy preferential guaranteed tariffs of PLN0.45 to 0.75 depending on the type and size of installation. The tariffs will be granted on a first come, first served basis. The guaranteed prices apply for the first 300MW of total capacity for installations of up to 3kW and for the first 500MW for installations of 3kW to 10kW or until the guaranteed prices are changed in secondary legislation.

Reviews of support mechanisms

Under the new act, the government will be required to conduct a review of subsidy mechanisms and report on them, potentially together with proposals for required changes to Parliament at least every three years. The first review will be due by December 31 2017.

Changes to grid connection agreements

The new act will require that the grid connection agreements for RES installations specify deadlines for the first delivery of electricity from the RES installation to the grid. The deadlines cannot fall more than 48 months from the moment that the agreement is signed, with the exception of offshore wind projects, for which this period cannot exceed 72 months. Existing connection contracts will need to be adapted to the new rules and will need to specify time limits not exceeding respectively 48 or 72 months from the date of entry into force of the new act.

Entry into force of new regulations

The new act will come into effect 30 days after its publication in the official journal, save for Chapter 4.

Chapter 4 of the act will – in principle – enter into force on January 1 2016. However, some provisions will come into effect earlier, in order to allow for preparations to enable the auction system to start from early 2016, in particular:

  • provisions concerning the purchase by the URE of an internet platform which will be used for holding auctions, provisions on pre-qualification of new installations and provisions obliging the URE to set auction rules will enter into force on May 1 2015;
  • provisions concerning the incorporation of an OREO will enter into force on October 1 2015; and
  • according to the new act, the URE will announce the first auction in the first quarter of 2016.

There is much controversy as to when the provision on the reduction to 50% of the green certificate per MWh of the level of funding for biomass co-firing will come into effect. Most lawyers are of the opinion that it will become effective 30 days after announcement of the new act in the official journal (ie, on May 3). However, the energy regulator issued a communication stating that it will come into force on January 1 2016.

Rafal Hajduk

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