QUICK GUIDE TO THE POLISH AUCTION SYSTEM FOR RENEWABLES
QUICK GUIDE TO THE POLISH AUCTION SYSTEM FOR RENEWABLES
1. What is the volume and value of wind and solar energy support auctions? ................................................6 2. When will the auctions take place?...............................................................................................................7 3. How does a project qualify for participation in an auction?.........................................................................7 4. How does winning an auction impact grid interconnection?........................................................................7 5. What is the course of an auction and who wins?..........................................................................................8 6. What is the period of support?......................................................................................................................8 7. What is the mechanism of support?..............................................................................................................9 8. What energy producing equipment can be installed?...................................................................................9 9. What are the responsibilities of an investor who won an auction?.............................................................10 10. How is the financing of the auction system secured?...............................................................................11 11. What is the risk of the state evading its responsibilities following an auction?.......................................11 12. Is it possible to transfer the rights and obligations acquired at an auction?..........................................12 13. Reference prices (maximum auction prices) for different categories of renewables.............................12
4 | Quick Guide to the Polish Auction System for Renewables
Wind energy is breaking new ground in Poland. After a few years of stagnation, there is well-grounded optimism for the dynamic development of onshore and offshore RES.
A 1000 MW wind auction is expected in November 2018, with more to come in 2019. Bidders will compete in offering the lowest price over a 15-year period, plus indexation, and the auction winners will receive an estimated 1215 billion PLN, i.e., ca. 4 billion EUR over this period.
The government is working on a separate piece of legislation concerning public support for the first offshore wind farms on the Polish Baltic Sea. However, concessions for offshore wind are already awarded and the industry is gearing up for the construction phrase. Offshore wind will likely feature here sooner rather than later.
Never before experienced growth is also anticipated in the solar market, with an auction for around 750 MW of new capacity in 2018. This exceeds by a few times the capacity of all solar installations existing so far in Poland.
The auctions are bound to bring the country closer to meeting the 15% target of renewables' share in electricity generation. The Polish renewable generation will finally get a much needed boost after the delays experienced on the EU 2020 path.
It is therefore our pleasure to present this quick guide on the auction system for renewables a compendium of knowledge prepared by the Polish Wind Energy Association and one of the association's members K&L Gates law firm.
We hope that you will find the guide interesting.
Janusz Gajowiecki President of the Board Polish Wind Energy Association
Karol Lasocki, MJur Partner K&L Gates
1. WHAT IS THE VOLUME AND VALUE OF WIND AND SOLAR ENERGY SUPPORT AUCTIONS?
The volume and value of electricity that will be contracted by the Polish government in 2018 are substantial. For the onshore wind and solar power technological basket (projects above 1 MW of installed capacity), the government has envisaged a volume of 45,000,000 MWhs for 15 years. The value of support is PLN 15,750,000,000 (almost 4 billion euro). The maximum price (i.e. reference price) that may be submitted in a bid for wind above 1 MW is PLN 350 per 1 MWh (ca. EUR 81), while for
solar it is PLN 400 per 1 MWh (ca. EUR 93). As wind is coupled with solar in one technological basket for projects above 1 MW, this makes wind highly competitive in the auction in the Polish climatic conditions.
The Polish government estimates that the figures should translate into ca. 1000 MW of new onshore wind capacity. Another technological basket, for projects up to 1 MW, is bound to be taken up by new solar installations, with ca. 750 MW contracted this year.
According to the Polish transmission system operator, there are ca. 3,000 MW of onshore wind projects that are ready-to-built and thus can participate in the forthcoming auction.
2018 Auction - Industry Forecast: Effort versus Result (the figures show how much is likely going to be built, taking into account 10% underbidding)
Biomass and communal waste:
400 Photovoltaics: 964 MW
300 Agri biogas: 130 MW Other biogas and biofuels: 172 MW
200 Hydro: 122 MW
Co-firing: 192 MW
Onshore wind: 900 MW
Support / year (mPLN)
6 | Quick Guide to the Polish Auction System for Renewables
2. WHEN WILL THE AUCTIONS TAKE PLACE?
The auctions for wind and solar support will take place until the end of 2018. A big wind auction is due to take place in early November 2018, while a big solar auction is due in the middle of November. More big wind and solar auctions are expected in 2019.
3. HOW DOES A PROJECT QUALIFY FOR PARTICIPATION IN AN AUCTION?
Ready-to-build wind or solar projects can participate in an auction if they:
1. hold a certificate of admission to an auction, and
2. pay a deposit of PLN 60 (ca. EUR 14) per 1 kW, or provide an equivalent bank guarantee.
Obtaining a certificate of admission to an auction is preceded by a pre-qualification procedure carried out by the President of the Energy Regulatory Office. Investors need to evidence that they possess readyto-build installations, i.e. that the following criteria are met:
1. interconnection conditions or an agreement is in place,
2. the project has a final and non-appealable building permit,
3. the project has a final and non-appealable environmental permit,
4. the project complies with a local spatial plan (if such plan is enacted locally),
5. an installation scheme is provided,
6. a schedule of works and expenditures for the completion of construction is presented.
The documents submitted must be valid for at least 6 months.
Once the prequalification criteria are fulfilled, a certificate of admission to an auction is issued within 30 days by the President of the Energy Regulatory Office. The certificate remains valid for 12 months from the date of issue.
4. HOW DOES WINNING AN AUCTION IMPACT GRID INTERCONNECTION?
Interconnection conditions or a concluded interconnection agreement is required for participation in an auction. Interconnection conditions are valid for 2 years from the day of their service upon an applicant. In this period they constitute a binding obligation on the part of a grid operator to conclude an interconnection agreement.
An interconnection agreement specifies a period for implementation of an interconnection and contains a deadline for first delivery of electricity produced by a renewables installation. This deadline cannot exceed 4 years from the date of execution of an interconnection agreement. Non-delivery of electricity within the deadline constitutes statutory grounds for termination of an interconnection
agreement by a distribution/transmission system operator.
The Polish RES Law, however, provides for a mechanism to extend the deadline for first delivery of electricity for projects which have won an auction. Grid operators are obliged to adjust the deadline in interconnection agreements for the winning projects to be in line with the deadlines from the auction (for onshore wind 30 months from the auction closure date). Annexes to interconnection agreements will then be concluded so that the agreements do not expire before the deadline for commissioning of a project.
5. WHAT IS THE COURSE OF AN AUCTION AND WHO WINS?
value of electricity specified in an announcement of an auction is fully exhausted. When several bidders offer the same lowest selling price, and the volume of electricity declared to be produced exceeds the volume referred to in the announcement of the auction, the order of submitted bids is decisive. Winning producers' offers may not jointly exceed 100% of the value of electricity specified in the announcement of the auction and 80% of the volume of electricity covered by all bids. This second cap is aimed at guaranteeing sufficiently competitive auctions (20% of bids always lose).
Immediately after an auction closure date, the President of the Energy Regulatory Office publicly announces, on its website, information about:
1. the results of the auction (i.e. the producers who won the auction, the minimum and maximum price at which electricity was sold in the auction, as well as the total volume of electricity sold and its value), or
2. invalidation of an auction, if that happens.
An auction may be invalidated only if all offers have been rejected or if it could not be carried out for technical reasons. If the results of an auction have already been published, the auction is settled and final.
The date of an auction is announced by the President of the Energy Regulatory Office at least 30 days in advance before the auction.
A bidder prospective producer submits a bid which includes the volume of electricity in MWh and the price in PLN per 1 MWh, at which the bidder agrees to sell electricity on the basis of a quasi contract for difference. The support is awarded to the lowest bidders. The auction continues until the volume and
6. WHAT IS THE PERIOD OF SUPPORT?
The period of support for 2018 auctions amounts to 15 years from the date of first sale of electricity within the auction system, however not later than until 31 December 2035.
8 | Quick Guide to the Polish Auction System for Renewables
7. WHAT IS THE MECHANISM OF SUPPORT?
Industrial-size installations (above 0.5 MW) that have won an auction, sell the produced electricity on the electricity market at the market price, to a chosen offtaker, after which they may apply for additional payments to reach their auction price. This is done by way of an application to cover the "negative balance". The monies are paid out by Zarzdca Rozlicze S.A., a state-owned corporation responsible for carrying out the settlements of the "negative balance". Under the Polish RES Law, the "negative balance" is the difference between the net value of the sale of electricity in a given month (as calculated on the basis of a commodities exchange index) and the value of that electricity determined on the basis of the price contained in a producer's offer that won an auction. Please also note that the latter is indexed annually to the inflation rate in Poland.
The volume of electricity subject to the settlement is determined on the basis of actual indications of measuring devices in a given month. A producer from an installation informs Zarzdca Rozlicze S.A., within 10 days after the end of the month, of:
1. the volumes and prices of electricity sold in the previous month,
2. data on the value of the electricity (prices published by the Polish Power Exchange TGeBase index) and
3. submits an application to cover the negative balance.
In consequence, the "negative balance" is the difference between the value of produced electricity calculated on the basis of the TGeBase index and the
value of such electricity established pursuant to the price from a respective auction bid of an individual producer. Zarzdca Rozlicze S.A. is obliged to verify an application for covering the "negative balance" within 30 days and pay the producer in question the relevant funds, as per the example below.
350,00 Difference -152,87
PLN/MWH (TGeBase-Auction) PLN/MWH
index price (price won in an auction by
an individual producer)
Negative balance (paid out to an individual
Please note that in the example below the balance can also be positive, especially in case of a substantial increase of wholesale electricity prices. In such a scenario, the producer could be obliged to pay back the positive balance to Zarzdca Rozlicze S.A.
350,00 Difference +47,22
PLN/MWH (TGeBase-Auction) PLN/MWH
price (price won in an auction by
an individual producer)
Positive balance (to be paid in to Zarzdca
There is no obligation to sell electricity produced by renewables through a commodities exchange.
8. WHAT ENERGY PRODUCING EQUIPMENT CAN BE INSTALLED?
An investor who won an auction is restricted in terms of generating devices that can be installed. The Polish RES law stipulates that devices used for generating and processing electricity must be new, and produced
within 36 months immediately proceeding the day of first production of electricity. This deadline is shortened for certain categories of installations, and in particular with respect to onshore wind and PV. This is detailed in the table below.
Category of renewable installation Onshore wind
Equipment not older than 24 months
9. WHAT ARE THE RESPONSIBILITIES OF AN INVESTOR WHO WON AN AUCTION?
The first obligation imposed on an investor is to produce electricity for the first time within 36 months from the auction closure date. Failure to timely meet this obligation results in an exclusion from the auction system and loss of the deposit paid. The 36 months' deadline is shortened for certain categories of installations, and in particular for onshore wind and solar. This is detailed in the table below.
Category of renewable installation Onshore wind Photovoltaics Offshore wind
Deadline to produce electricity with a concession in place 30 months from the auction closure date 18 months from the auction closure date 72 months from the auction closure date
The second obligation is to produce the volume of electricity declared in the offer. The volume is settled after the expiry of each three full calendar years in which support was granted, and after the lapse of the entire period of support. If an installation fails to produce at least 85% of the volume specified in a winning offer in a relevant settlement period, the producer is subject to a fine. The fine is calculated as 50% of the product of the auction price and the difference between the electricity that was supposed to have been produced, and the energy actually produced. However, the financial penalty will not
10 | Quick Guide to the Polish Auction System for Renewables
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apply if the required volume of electricity was not produced as a result of:
1. application of the generally binding law;
2. the need to ensure security of the grid;
3. a power system failure;
4. force majeure, e.g., natural disasters, war, acts of terrorism, riots;
5. the technical failure of an installation violent, unpredictable and independent of the producer, damage or destruction of an installation or destruction of buildings or facilities essential for its operation.
distribution system operators ("DSO"). DSOs collect the renewables fee predominantly from final offtakers interconnected directly to their grid, i.e. mainly households. Therefore, financing of the auction system is not influenced by the government budget.
The rules for calculating the renewables fee by DSOs are set forth in the respective statute. DSOs calculate it as a product of the renewables fee rate and the sum of electricity off-taken and consumed from the grid by a user. The renewables fee rate is published in the bulletin of the President of the Energy Regulatory Office until 30 November of each calendar year.
10. HOW IS THE FINANCING OF THE AUCTION SYSTEM SECURED?
Funds in the auction system are required for the payment of the "negative balance" and the functioning of the entity covering the balance Zarzdca Rozlicze S.A. They are secured via a renewables fee. The renewables fee is collected by
11. WHAT IS THE RISK OF THE STATE EVADING ITS RESPONSIBILITIES FOLLOWING AN AUCTION?
Although no written agreement is entered into between Zarzdca Rozlicze S.A. and the auction winner, the legal relationship between such a producer and the Polish state takes the form of a binding obligation, by statutory law. The elements of this obligation are construed on the basis of the Polish RES Law and documents published by the President of the Energy Regulatory Office published auction results. In consequence, if Zarzdca Rozlicze S.A. fails to pay a due amount of money, a producer can enforce its rights in a common court. A producer can also be protected be bilateral investment treaties or the Energy Charter Treaty, providing for investment arbitration outside Poland, provided that the investment is adequately structured in advance.
12. IS IT POSSIBLE TO TRANSFER THE RIGHTS AND OBLIGATIONS ACQUIRED AT AN AUCTION?
Under the Polish RES Law, it is admissible to either acquire a project which won an auction or acquire shares in a company holding such a project. In the former case, it is necessary to apply to the President of the Energy Regulatory Office for consent. Granting of such consent is dependent on a statement by a buyer, which should include a declaration by the buyer that electricity will be produced purely from renewables, in the installation subject to the auction and that the buyer accepts the rights and obligations of a RES producer.
13. REFERENCE PRICES (MAXIMUM AUCTION PRICES) FOR DIFFERENT CATEGORIES OF RENEWABLES
Type of renewables No. installation
Installations with a capacity below 0.5 MW using only agricultural biogas
Installations with a capacity below 2. 0.5 MW using only biogas obtained
Type of renewables No. installation
Installations with a capacity below 0.5 MW 3. using only biogas obtained from sewage
Installations with a capacity below 0.5 MW 4. using only biogas other than obtained from
landfills or sewage treatment plants
Installations with a capacity below 0.5 MW using only hydropower
Installations with a capacity not below 0.5 6. MW and not exceeding 1 MW using only
Large Installations (above 1 MW) using only agricultural biogas
Installations with a capacity not below 8. 0.5 MW using only biogas obtained from
Installations with a capacity not below 9. 0.5 MW, using only biogas obtained from
wastewater treatment plants
Installations with a capacity not below 0.5 10. MW using only biogas other than obtained
from landfills or sewage treatment plants
Dedicated biomass combustion installations or hybrid systems
Thermal waste treatment installations 12. or dedicated multi-fuel combustion
Installations with a capacity not
exceeding 50 MW, in a dedicated biomass combustion installation or hybrid systems,
in high-efficiency cogeneration
Installations with a capacity higher
than 50 MW, in a dedicated biomass combustion installation or hybrid systems,
in high-efficiency cogeneration
12 | Quick Guide to the Polish Auction System for Renewables
Type of renewables No. installation
15. Installations using only bio-liquids
Installations with a capacity not exceeding 1 MW using only onshore wind energy
Large Installations (capacity higher than 1 MW) using only onshore wind energy
Installations with a capacity of not below 18. 0.5 MW and not exceeding 1 MW using
19. Large Installations using only hydropower
20. Installations using only geothermal energy
Installations with a capacity not exceeding 1 MW using only solar energy
Large Installations (capacity higher than 1 MW) using only solar energy
Installations using only offshore wind energy
24. Small hybrid installations
25. Large hybrid installations
This guide is based on selected publicly available information and does not constitute legal advice.
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Karol Lasocki Partner K&L Gates firstname.lastname@example.org
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14 | Quick Guide to the Polish Auction System for Renewables
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The Polish Wind Energy Association (PWEA) is a non-governmental organisation, established in 1999, to support and promote the development of wind energy in Poland. PWEA is an association of around 100 leading wind energy companies active on the Polish market: investors, developers, turbine and component manufacturers. PWEA groups key industry players from abroad, as well as Polish entrepreneurs investors, producers and service providers across the entire onshore & offshore wind supply chain. Main areas of PWEA activity are:
participation in consultations of legislative regulations, strategies, policies and sectoral programmes and taking action to implement new legal regulations fostering wind energy development in Poland;
direct cooperation with the ministry in charge of economy, the environment as well as other ministries directly or indirectly related to energy and renewable energy sources;
cooperation with European Union institutions; cooperation with Polish and European Parliament MPs; promotion of wind energy and knowledge about the technology; increasing social and political awareness concerning wind energy; participation in national and international industry conferences as an expert
on wind energy in Poland. PWEA is a member of the WindEurope and Polish Committee of World Energy Council. www.psew.pl
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