Grzegorz Filipowicz December 1 2014 Draft Renewable Energy Source Act – additional amendments proposed Norton Rose Fulbright | Energy & Natural Resources - Poland Grzegorz Filipowicz Energy & Natural Resources Additional requirement for grid connection agreementsOther proposed material changesTimetable regarding first auctionsThe draft act establishing a new regime for renewable energy sources (RES) is still being processed by Parliament (for further details please see "Anticipated changes to RES support system"). On July 22 2014 the first reading of the act took place and the draft was passed to the relevant parliamentary committee for further discussion. On September 15 2014 a public hearing on the act was held. On October 9 2014 the Ministry of the Economy submitted to the parliamentary committee a set of additional proposed amendments.Additional requirement for grid connection agreementsOne of the key changes proposed by the ministry concerns the introduction in the Energy Law – a separate bill – of an additional requirement concerning grid connection agreements. A grid connection agreement relating to a renewable energy source would be required to set forth a period following the date of execution of the agreement within which electricity should be fed into the grid. This period could be no longer than 48 months, except for offshore wind farms, in which case the maximum period could not exceed 72 months. Failure to meet this deadline would result in termination of the agreement. In relation to grid connection agreements executed before the date of the act's entry into force, the parties would be obliged to amend the agreement within six months of the act's effective date and set the deadline for the first export of power to the grid. Failure to do so would also result in the termination of the agreement. The respective maximum deadlines of 48 months for all RES installations other than offshore wind and 72 months for offshore wind also apply to the existing agreements.The proposed amendments are intended to allow grid operators to terminate latent connection contracts. Grid operators and the wind energy industry have raised the concern that a large number of wind power projects are not being realised at all or are severely delayed. However, because their connection contracts set either no deadlines for the commissioning of wind power plants or very long deadlines, such projects obstruct access to the grid for other projects which might be realised in a timely manner.However, it appears that this proposal has not been harmonised with other provisions of the proposed act. The act would introduce a support scheme for new RES installations in the form of a feed-in tariff (FiT) (for small installations up to 500 kilowatts (kW)) or a feed-in premium (FiP) (for installations of capacity of 500 kW and above) awarded in auctions.On the other hand, a separate provision of the act states that a RES developer which has won an auction must construct its RES plant and start delivering electricity within 48 months – with two exceptions: 24 months in the case of photovoltaic plants and 72 months in the case of offshore wind farms – from the date of completion of the relevant auction. However, if the additional amendments regarding connection agreements are adopted, the deadline for commissioning the RES installation will be shorter, as it will be driven by the grid connection agreement (which will be executed before the auction and may set deadlines shorter than the respective 48 or 72 months) rather than by the draft act. Although the auction pre-qualification criteria might be satisfied by holding just grid connection conditions issued by the grid operator rather than the final grid connection agreement, developers are not expected to participate in auctions until they hold final grid connection agreements because, if a developer is successful at auction but subsequently fails to deliver the project on time, it would be disqualified from subsequent auctions. Therefore, developers will seek to be certain of their ability to deliver the project before they participate in an auction.Other proposed material changes Changes relating to green certificates systemMandatory purchase of electricity by "obliged suppliers"Projects which will continue to be supported by the green certificates system under the RES Act (ie, those which are commissioned before January 1 2016) will benefit from the obligation imposed on 'obliged suppliers' (ie, electricity providers with the biggest volume of sales within the area serviced by the given local electricity grid operator) to purchase all electricity offered to such a provider by the owner of the RES installation. The mandatory purchase of electricity is carried out at the average wholesale market price from the previous calendar year, calculated and published by the president of the ERO by March 31 of each year. The Ministry of the Economy has proposed that the price would be the average wholesale market price from the previous calendar quarter and would be calculated and published every three months. As a result, the price would better reflect current market trends. This solution has been lobbied for by large power utilities who would perform the role of the 'obliged suppliers'.Green certificates redemption dateThe Ministry of the Economy has also proposed changing the date by which the entities obliged to purchase and redeem green certificates must submit certificates to the president of ERO. The deadline is March 31, both under the current regulations and in the original version of the draft act; it is now proposed that the deadline be extended to June 30 each year.Green certificate quotasThe current version of the draft act provides for a 20% quota in relation to the obligation to redeem green certificates. However, the minister of the economy will have the right to set a lower quota in one regulation for one or several years. The Ministry of the Economy has proposed that the quota for 2015 be equal to 14% and 15% for 2016. These are the same levels as those set for 2015 and 2016 under the applicable RES support scheme.Changes to FiTs and FiPs awarded in auctionsReference prices (maximum bid prices) in auctions for the existing projectsIn relation to the proposed system of FiTs and FiPs awarded in auctions, the Ministry of the Economy has also proposed certain modifications to the calculation formula of 'reference prices' (ie, maximum bid prices) for existing RES installations to be determined annually by the minister of the economy. Reference prices would be set taking into account:the ERO price calculated for the quarter preceding the one in which the reference prices are announced (instead of the ERO price calculated for the previous year); andPLN239.83 per megawatt hour, which according to the proposed amendment to the draft act constitutes the average price of green certificates between 2011 and 2013, both in the case of transactions entered into on commodity exchanges and on the over-the-counter market. The current version of the draft act only mentions that such amount should be equal to the average price of green certificates between 2011 and 2013, both in the case of transactions entered into on commodity exchanges and on the over-the-counter market but does not explicitly specify such amount.Timetable regarding first auctionsThe Ministry of the Economy has proposed that:the first auction would be announced by the president of the ERO within 90 days the date when Chapter 4 (setting forth the new RES support mechanisms) of the act enters into force – January 1 2016.the provisions concerning the pre-qualification procedure should enter into force from July 1 2015. Therefore, from this date entities developing new projects interested in participating in auctions will be allowed to participate the pre-qualification procedure to be conducted by the president of the ERO.In order to become part of the draft act, these proposals must be accepted by the parliamentary committee and recommended to the lower chamber of parliament to be introduced in the revised version of the act.For further information on this topic please contact Grzegorz Filipowicz at Norton Rose Piotr Strawa and Partners LLP by telephone (+48 22 581 4900), fax (+48 22 581 4950) or email ([email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.