The Renewable Energy Sources Act entered into force on May 4 2015 (for further details please see "New renewables legislation"). Chapter 4 of the act will become binding on January 1 2016 and introduces a new support system for renewable energy sources (RES). As regards the RES support scheme, full implementation of the act requires a number of executive regulations. This update summarises the key developments in this regard and highlights some ambiguities concerning the act's key provisions.
Chapter 4 of the act introduces new subsidising instruments: guaranteed electricity prices in the form of feed-in tariffs for small-scale installations and feed-in premiums for larger RES installations. Feed-in tariffs and feed-in premiums will be awarded in auctions carried out separately for projects that produce energy before January 1 2016 and have declared their intention to participate in auctions and new projects. In both cases, separate auctions will be carried out for installations with an installed capacity of up to and above 1 megawatt (MW). The auctions will be held by the president of the Energy Regulatory Office at least once a year.
Under the act, the Council of Ministers is obliged to set by October 31 each year the maximum volume and value of electricity that can be auctioned in the next calendar year for existing projects that have declared their intention to participate in auctions and new projects. The council must also separately set the maximum volume of energy to be generated by sources with an energy efficiency of less than 4,000 megawatt-hours (MWh)/MW per year for:
- existing projects which have declared their intention to participate in auctions; and
- new projects.
Separate minimum volumes of electricity available to RES installations with an installed capacity of up to 1 MW must be set by the Ministry of Economy by November 30 annually. This figure cannot be less than 25% of the total volume set by the Council of Ministers.
On June 18 2015 the Council of Ministers passed a regulation on the maximum volume and value of electricity which can be auctioned in 2016 (Item 975, Journal of Laws 2015).
For existing projects that have declared their intention to participate in auctions, including sources with efficiency of less than 4,000 MWh/MW per year, the maximum volume and value of electricity that can be auctioned in 2016 is 4,736,044 MWh and PLN1,804,338,104 respectively.
The regulation sets no quotas for 2016 regarding existing generation units which undergo modernisation after Chapter 4 comes into force on January 1 2016. This means that, at least for 2016, there are no incentives encouraging energy producers to upgrade their existing RES installations.
Regarding new projects which start electricity production after the auction, the maximum volume of electricity that can be auctioned in 2016 is 50,449,950 MWh, which includes the maximum volume and value for sources with efficiency of less than 4,000 MWh/MW per year, equal to 30,907,350 MWh. The maximum value of electricity that can be auctioned in 2016 is PLN18,201,331,716.
As with existing projects, the regulation does not set 2016 quotas for new installations which undergo modernisation after January 1 2016. These quotas will be set in the future.
On August 11 2015 the Ministry of Economy issued a regulation on the volume and value of electricity to be auctioned in 2016 in relation to installations with an installed capacity of up to 1 MW (Item 136, Journal of Laws 2015).
For existing projects which have declared their intention to participate in auctions, the volume and value of electricity which should be auctioned in 2016 are 1,184,011 MWh and PLN451,084,526 respectively.
For new projects which start electricity production after the auction, the volume and value of electricity which should be auctioned in 2016 are 12,612,488 MWh and PLN5,927,933,456 respectively.
In accordance with the act, the minister of economy is obliged to set a maximum bid price (reference price) which bidders cannot exceed when bidding at auction. Reference prices will be announced no later than 60 days before the first auction is to be held in a given calendar year. For auctions conducted in 2016, reference prices are expected to be set and announced by December 31 2015.
On September 15 2015 the Ministry of Economy published a draft regulation that set reference prices for 2016 in relation to new projects which start electricity production after auction only (prices are determined separately for 18 categories of RES):
- onshore wind farms with installed capacity:
- of up to 1 MW – PLN415 per MWh; and
- in excess of 1 MW – PLN385 per MWh;
- offshore wind farms – PLN470 per MWh;
- photovoltaic projects with installed capacity:
- of up to 1 MW – PLN465 per MWh; and
- in excess of 1 MW – PLN445 per MWh;
- hydro power projects with installed capacity:
- of up to 1 MW – PLN445 per MWh; and
- in excess of 1MW – PLN 480 per MWh;
- geothermal energy projects – PLN455 per MWh;
- dedicated biomass firing installations or hybrid systems with a total installed electrical capacity of up to 50 MW – PLN415 per MWh; and
- agricultural biogas generation units with installed capacity of:
- of up to 1 MW – PLN450 per MWh; and
- in excess of 1 MW – PLN435 per MWh.
The draft regulation should have set the reference price for existing installations. However, the minister of economy was waiting for the president of the Energy Regulatory Office's publication of the average competitive market electricity price from the second quarter of 2015, which should have been taken into account when determining the reference price. Under the act, the reference price for existing installations which decide to participate in auctions will be set by taking into account the average competitive market electricity price from the previous quarter and PLN239.83, which corresponds to the average price of green certificates between 2011 and 2013.
The wording of the draft regulation suggests that the reference price for existing projects need not be a simple calculation of the values set out above, but may be set below or above that number by the minister of economy.
In accordance with the act, projects which start generating electricity before Chapter 4 comes into force will be eligible for green certificates under the current support system. The support period for existing projects will be restricted to 15 years from the initial date on which an installation awarded a green certificate feeds electricity to the grid. However, existing projects which undergo modernisation after Chapter 4 comes into force will be eligible for green certificates only until June 30 2016, regardless of when the installation commenced electricity production. That is, modernising an existing RES installation will effectively exclude it from the green-certificate support system.
The act's definition of a 'RES installation' is:
"a separate set of equipment used for the generation and output of power that is connected at one grid connection point and at which electricity or heat is generated from a renewable energy source, along with an electricity storage facility (if any) that stores generated electricity and is connected to the relevant set of equipment."
Therefore, when determining how many wind turbines a given project must have to constitute a RES installation, the fundamental criterion is that they have one grid connection point. According to an Energy Regulatory Office representative, it could be argued that a 'connection point' means a transformer station to which a RES installation has been connected. However, the Energy Regulatory Office and the Ministry of Economy are preparing an official statement which clarifies that a 'connection point' should be defined as a single point within a transformer station to which a specific RES installation line is connected. This means that a transformer station may potentially contain several connection points for separate RES installations.
There are several possible interpretations of the degree to which a RES project must be completed prior to January 1 2016 in order for a wind farm to be eligible for certificates of origin for electricity generated after 2015. This issue primarily concerns wind farm projects with turbines that may not be ready to generate electricity by the end of 2015. The president of the Energy Regulatory Office has not officially expressed his position on this issue. However, based on opinions presented by key Energy Regulatory Office representatives during conferences, it is likely that the president will decide that green certificates will be issued only for electricity generated by turbines commissioned prior to January 1 2016, and that the commissioning of any wind turbine after December 31 2015 will be considered modernisation of a wind farm, which will be eligible for a green certificate only until June 30 2016.
In light of this interpretation, the commissioning of any wind turbine after December 31 2015 and its connection to a connection point of a wind farm that started production before December 31 2015 will effectively result in a wind farm that is already operating being deprived of the full 15-year long support period under the green certificate mechanism. This interpretation means that in order to secure the full 15-year entitlement to green certificates, construction of a RES plant should cease on December 31 2015 or that part of a RES project to be commissioned after that date should be separated from the existing RES project in order to be considered a separate RES installation (ie, connected at its own grid connection point).
In accordance with the act, the auction mechanism will be available for:
- existing projects that produce energy before January 1 2016; and
- new installations that start to generate electricity after the auction has closed.
Installations which start generating electricity after December 31 2015, but before an auction in which that installation takes part has closed will be excluded from the green certificate mechanism and will not be eligible for auctions.
Under the act, the mandatory purchase of electricity from existing projects will be maintained. The obligation will be imposed on 'obliged suppliers'. The supplier with the largest sales of electricity by volume in the previous calendar year within the area serviced by the given distribution system operator will be appointed as the obliged supplier by the Energy Regulatory Office for one year. The obligation to purchase electricity from an existing RES installation will last for 15 years from the date on which the installation fed electricity into the system for the first time. The mandatory purchase will be performed at the average competitive market price from the previous calendar quarter (calculated and published by the president of the Energy Regulatory Office).
In accordance with the act, the purchase price for electricity generated in existing RES projects with total installed capacity lower than 500 kilowatts (kW) does not include fees for commercial balancing. The wording of that provision raises doubts regarding which party is obliged to cover the costs of commercial balancing regarding existing RES projects. The president of the Energy Regulatory Office has not officially expressed his position on this issue. However, taking into account opinions presented by key Energy Regulatory Office representatives during conferences, the most likely approach seems to be that for existing RES projects with a total installed capacity lower than 500 kW, the obliged supplier will be required to purchase all electricity offered by the RES operator and to cover the costs of commercial balancing. This means that in larger RES plants (with a total installed capacity exceeding 500 kW), the costs of commercial balancing should be borne by the RES operators. This approach is also in line with EU Regulation 651/2014, which declares certain categories of aid to be compatible with the internal market in the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union, which provide that state aid should be granted to installations with an installed capacity of less than 500 kW for the production of energy from all renewable sources.
For RES plants that are eligible to participate in auctions, the act explicitly states that the costs of commercial balancing for RES plants with a total installed capacity lower than 500 kW must be covered by the obliged suppliers.
Installations which start producing electricity after January 1 2016 will be admitted to auction only if they undergo a pre-qualification procedure conducted by the president of the Energy Regulatory Office and obtain a certificate (valid for 12 months). The eligibility criteria for new projects include the following:
- Confirmation must be received that the project is permitted under the local zoning plan or, if none exists, a planning permit must be obtained for the project. In the case of offshore wind farms, a legally binding permit to construct and operate offshore installations must be obtained.
- Grid connection conditions must have been issued by (or a grid connection agreement executed with) the relevant grid operator.
- If required under construction law, a legally binding construction permit must have been issued for the project.
- For offshore wind farms, a legally binding environmental decision must have been issued for the project.
- The schedule for implementing the project must be provided.
Regarding the validity of certain categories of decision (eg, permits to construct and operate offshore installations, construction permits and environmental decisions), the requirements of the act refer to the Polish term 'prawomocne' (ie, 'legally binding'), which is not used in the Code of Administrative Procedure, but rather in civil court and criminal procedures. Energy Regulatory Office representatives interpret the act to mean that the permits concerned should not only be final from the perspective of regular administrative proceedings (ie, they cannot be further challenged before an administrative authority), but should also be precluded from challenge in administrative courts (ie, no appeal may be filed with regional administrative courts or the Supreme Administrative Court). As a result, the abovementioned decisions will become eligible for the pre-qualification procedure only after the deadline for filing an appeal with the second-instance administrative authority and a further period for filing an appeal with the administrative courts have expired. An appeal may be filed with the regional administrative court within 30 days of the second-instance authority issuing a decision.
One of the prerequisites to complete the pre-qualification procedure is the confirmation that the project is permitted under the local zoning plan. Energy Regulatory Office representatives stress that the local zoning plan should explicitly provide for the location of a RES installation (it need not specify the technology), or at least the location of the generation plant. According to Energy Regulatory Office representatives, the broad wording of a local zoning plan (eg, if the plan gives permission for technical infrastructure) means that the president of the Energy Regulatory Office might not accept its terms and could refuse to issue a pre-qualification certificate.
For further information on this topic please contact Grzegorz Filipowicz at Norton Rose Piotr Strawa and Partners LLP by telephone (+48 22 581 4900) or email ([email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
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