Draft Amendment Act from perspective of RES project developers and operators
Parliamentary Group on Renewable Energy
On May 5 2016 a draft act amending the Renewable Energy Sources (RES) Act 2015 was submitted to Parliament. The Draft Amendment Act introduces a number of significant changes to the RES Act, including Chapter 4 which will come into force on July 1 2016.(1)
Key points of draft act for RES project developers and operators
New definition of 'RES installation'
The Draft Amendment Act introduces a new definition of a 'RES installation'. Under the existing definition, a 'RES installation' is a separate set of equipment used for the generation and output of power from a RES connected to the power grid at a single connection point. The Draft Amendment Act removes the criteria of a single connection point and a single type of renewable energy source from the definition.
As a result, under the Draft Amendment Act:
- a RES installation may include different technologies that generate electricity from renewable energy (eg, a wind turbine alongside a biogas plant); and
- a single connection point will not be a defining feature of a RES installation; this means that several RES installations may share a single grid connection point, but also a group of facilities generating electricity from RES connected to the grid at several points may be deemed to be a single RES installation. Other aspects, such as the facilities owned by one or several entities or the description of the facilities in the electricity generation licence, may affect whether a group of facilities are considered to be one or more RES installations.
Reduced support for existing RES installations over 0.5 megawatts
Under the RES Act, existing RES installations (in principle, installations which start generating electricity before July 1 2016) remain eligible for green certificates and may also benefit from the obligation imposed on local electricity suppliers to purchase power from such installations at the price defined in the RES Act (ie, the average wholesale market price from the previous calendar quarter, calculated and published by the energy regulator).
Instead, the Draft Amendment Act proposes that the electricity purchase obligation be limited to electricity generated in RES installations with a total installed capacity of less than 500 kilowatts (kW). Existing RES installations with a total installed capacity of 500 kW or more would be forced to sell electricity on the market only and would no longer be entitled to demand that obliged suppliers purchase their electricity.
Further, because of the correlation and cross-references between the provisions of the RES Act regarding the electricity purchase obligation and eligibility for green certificates, the proposed change to the electricity purchase obligation would also limit eligibility for green certificates for RES installations with a capacity of less than 500 kW. This potential scenario does not appear to have been intentional, but rather a technical oversight of the act that must be fixed nonetheless.
Increased support for existing dedicated biomass co-firing installations
Under the RES Act, the level of support for the co-firing of biomass is reduced. Until the end of 2020, the co-firing of biomass is to receive half a green certificate per megawatt hour (MWh) of electricity produced. After 2020 the correction coefficient will be set through secondary legislation. However, the limitation will not apply to dedicated biomass co-firing installations (ie, biomass co-firing installations that meet the criteria defined in the RES Act and for which a relevant power generation licence was issued before June 30 2014). The Draft Amendment Act proposes that the definition of a 'dedicated biomass co-firing installation' be broadened in scope. Among other changes, the term would no longer refer only to installations that obtained a relevant licence before June 30 2014. Instead, the new definition would be:
"a multi-fuel fired installation, in which the share of electricity or heat produced from biomass, bioliquids, biogas or agricultural biogas is higher than 20% of the total amount of electricity or heat produced at such installation in a given settlement period, provided that:
(a) the installation is equipped with separate process lines for transporting biomass, biofuel, biogas or agricultural biogas to the combustion chamber, or
(b) the installation uses fluidized bed combustion technology designed to incinerate industrial waste together with fossil fuels or fuel arising from their processing and biomass, bioliquids, biogas from agricultural biogas."
Energy clusters
The Draft Amendment Act introduces two new terms:
- 'macro-energy cluster'; and
- 'micro-energy cluster'.
A 'macro-energy cluster' is defined as a civil law agreement between natural persons, corporate bodies, research-and-development units or self-government units regarding the generation of, balancing of demand for and trading in energy from RES or other energy sources in one electricity distribution system and one county or powiat (a mid-level self-government unit in Poland).
A 'micro-energy cluster' is similar to a macro-cluster, except that a micro-cluster would be limited to the territory of one municipality or gmina (the lowest-level self-government unit in Poland). Macro-energy clusters and micro-energy clusters would be assigned separate auction categories.
New structure of auction categories
Under the RES Act, auctions for feed-in tariffs and contracts for difference are to be conducted separately for existing and new projects. There will be separate auctions for installations with a capacity of up to 1 megawatt (MW) and over 1 MW. However, there will be no separate auctions for different technology categories. This would change under the Draft Amendment Act, which proposes the following additional auction categories:
- RES installations with a capacity utilisation rate of more than 3,504 MWh/MW per year;
- RES installations which use the biodegradable portions of industrial and municipal waste to generate electricity, including water treatment waste and sewage treatment waste, in particular the use of sewage sludge in a waste incineration plant;
- RES installations which emit no more than 100 kilograms of carbon dioxide per MWh and have a capacity utilisation rate of greater than 3,504 MWh/MW per year;
- members of macro-energy clusters;
- members of micro-energy clusters; and
- RES installations other than those listed above.
In each of these categories there would be separate auctions for installations:
- operating prior to July 1 2016 with an installed capacity of up to 1 MW;
- operating prior to July 1 2016 with an installed capacity over 1 MW;
- that start operation after an auction is closed with an installed capacity of up to 1 MW; and
- that start operation after an auction is closed with an installed capacity over 1 MW.
By the end of October each year the Council of Ministers will set the maximum volume and value of electricity that can be purchased in each auction. At the request of the minister of energy, the Council of Ministers will set the order of the auctions. This suggests that the auctions would not need to be conducted at the one time.
Under the Draft Amendment Act, if a successful RES installation with a capacity utilisation rate of more than 3,504 MWh/MW per year fails to meet the minimum rate, the operator of the installation would need to return the state aid awarded by auction.
First auction
The first auction is proposed for August 31 2016.
Guaranteed support period in auction system
Under the RES Act, the duration of support through a feed-in tariff or contract-for-difference tariff awarded at auction is fixed at 15 years. The Draft Amendment Act proposes that the minister of energy set the duration of support in secondary legislation, taking into account:
- the national energy policy;
- the percentage of energy and fuel generated by RES installations as regards overall energy consumption; and
- the security of the power system.
The support period would not exceed 15 years. Until the relevant regulation is published by the minister of energy, the support period would be 15 years. The wording of the Draft Amendment Act contains no provision that forbids the minister of energy from modifying support periods for RES installations that have already won auctions. It is unclear whether this is intended to give the government the right to change the terms of support after an auction; however, the proposed wording is open to interpretation.
RES installations commissioned after June 30 2016 but before auction process
Under the RES Act, RES installations commissioned after Chapter 4 comes into force on July 1 2016, but before an auction has been closed will not participate in the new auction mechanism. As a result, these installations will be excluded from the RES support system. This appears to be the result of a mistake made when drafting the RES Act. The Draft Amendment Act proposes that the operator of a RES installation commissioned after Chapter 4 comes into force be allowed to sell electricity until December 31 2016 and participate in an auction on the following conditions:
- The RES operator sells all electricity produced by the RES installation on the commodity exchange; and
- Fourteen days prior to the commencement of electricity generation the operator submits a written statement to the energy regulator that the electricity produced in the relevant RES installation will be fed into the grid and sold on a commodity exchange.
If such a RES installation wins an auction, the support period will start the day after the results of the auction are announced.
Support for hydropower installations
Under the RES Act, existing hydropower installations with a total installed capacity of over 5 MW are ineligible for the auction system. However, the Draft Amendment Act proposes that hydropower installations with an installed capacity of over 20 MW be excluded from the auction system and it introduces no changes to the eligibility criteria applicable to the existing support system (ie, only existing hydro-energy projects with a capacity of up to 5 MW will be eligible for green certificates and the electricity purchase obligation).
New settlements operator
The Draft Amendment Act proposes that the Renewable Energy Settlements Operator – a state-owned company established to manage the payment of subsidies under the RES Act – be liquidated and its functions be undertaken by the Settlements Manager – another state-owned company established under the Termination of Long-Term Power Purchase Agreements Act of June 29 2007 – as the entity responsible for the payment of funds to cover the stranded costs of power generators that agreed to have their energy purchase agreements terminated.
Parliamentary Group on Renewable Energy
The Parliamentary Group on Renewable Energy held its first discussion of the Draft Amendment Act on May 10 2016. The meeting was attended by members of Parliament and representatives from the Ministry of Energy and other stakeholders – most notably organisations representing small-scale RES installations, consumers and local government representatives. The Ministry of Energy representatives commented on the Draft Amendment Act and outlined their broad plans for the electricity system, which can be summarised thus:
- The proposed auction system more accurately reflects social preferences regarding the technology to be used for electricity production and the government's goal to promote more stable RES installations. Andrzej Piotrowski, the deputy minister for energy, believes that the concept of separate technology categories is flawed as it does not reflect the government's goals regarding electricity production. Nevertheless, the government has not ruled out the possibility of introducing a technology-based auction system in the future.
- Wind energy is perceived to be an unstable energy source that is damaging to the environment and has social costs.
- It is hoped that small hydropower installations will be a valuable source of electricity in the future, in addition to having other social and economic benefits.
- The ministry expects that the Draft Amendment Act will boost electricity generation from waste products and small hydropower installations.
- Photovoltaic and wind technologies are not expected to compete with each other in the same auction categories; photovoltaic installations will mostly compete in auctions for installations with a capacity of no more than 1 MW, whereas most wind projects will take part in auctions for installations with a capacity of more than 1 MW.
- Ministry representatives admitted that the regulation of both macro and micro-energy clusters is limited in order to give them as much flexibility for their establishment and operation as needed. More detailed regulations will follow when the pilot phase of the cluster project has been completed.
- The ministry believes that it is unreasonable to allow the import of biomass into Poland when local resources are available. Secondary legislation setting out the maximum distance from which biomass can be delivered to a RES installation may set various distances for different regions, depending on the volume of local biomass resources.
- The Draft Amendment Act does not explicitly tackle the oversupply of green certificates, but the Ministry of Energy has been discussing internally various options for the future, none of which it believes would be well-received by existing RES installations. In the meantime, the ministry believes that the problem will gradually right itself as more RES installations move to the new support system.
The ministry representatives did not comment on:
- the decision to discard the mandatory purchase of electricity by obliged suppliers for existing RES installations with a capacity of at least 500 kW; and
- controversies regarding the new RES support scheme's compliance with EU regulations, in particular with state aid rules.
When presenting the Draft Amendment Act, Piotrowski stressed that it does not fully reflect the government's long-term goals, but rather addresses problems that need to be fixed before July 1 2016. However, the act indicates a shift from a policy of large electricity projects to different sources of electricity, depending on local resources (as put by Mr Piotrowski – a shift from the economies of scale to the economies of scope).
Further, Ministry of Energy representatives noted that the ministry plans to introduce capacity mechanisms in Poland as well as comprehensive regulations concerning support for high-efficiency co-generation projects.
For further information on this topic please contact Grzegorz Filipowicz or Natalia Jankowska at Norton Rose Piotr Strawa and Partners LLP by telephone (+48 22 581 4900) or email ([email protected] or [email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
Endnotes
(1) For further details please see "New renewables legislation".