Development of offshore wind farms is one of the key elements in the transformation of the energy market in Poland. According to the Polish Energy Policy until 2040, the offshore wind sector needs support and a framework regulation that will allow it to efficiently develop these projects. Therefore, in January 2020, the Polish government published the long-awaited draft of the Polish offshore wind legislation – “Offshore Wind Act”. The draft was released for public consultation and after gathering suggestions from the market participants, the Minister of the Climate published a revised version of the draft Act in July 2020. As Zbigniew Gryglas, the government representative for the development of the offshore wind farms, underlined during the recent conference organised by the Polish Wind Energy Associsation at the end of August, the draft Act should be sent to the lower chamber of the Parliament in October and adopted by the end of the year.
The main purpose of the Act is to set the framework for a dedicated subsidy scheme for offshore wind projects. However, it also addresses other relevant issues pertaining to the development and operation of offshore projects. Below please find a summary of the material changes that were introduced in the second version of the draft Act.
The general rule of the Act is that the offshore projects will be entitled to settle the negative balance resulting from the difference between the fixed price and the average market price. The support for the investors will amount to the product of 100,000 hours and the installed electric capacity of the offshore wind farm. The subsidy will be available for 25 years from the first electricity generation and release into the grid. The right to settle the negative balance will be awarded in two different ways, namely by way of an individual decision of the Polish Regulator or through a competitive auction. While the aforementioned rules remained unchanged during the revision process of the draft Act, the Ministry introduced some changes to the specific provisions concerning these two ways of obtaining the support.
With respect to the first group of projects, for which the support will be granted by way of the individual decision of the Polish Regulator, according to the new version of the draft Act:
- the total installed capacity of the offshore wind farms that may obtain the support by means of the Regulator’s decision will be increased up to 5.9 GW. Previously it amounted to 4.6 GW, however the new target is supposed to reflect the actual potential of the most advanced offshore projects;
- the deadlines for applications and the Regulator’s decisions have been shortened (due to the European Union provisions pertaining to the State aid). Previously the applications could be submitted until 30 September 2022, and the Regulator was entitled to issue a decision until 31 December 2022. Currently, for applications submitted no later than 31 March 2021, the decision can be issued until 30 June 2021;
- a final environmental decision will not be required as an attachment to the application to the Regulator – instead it will be sufficient to attach a map that shows that the location of the planned offshore wind farm is within the boundaries envisaged for such projects in the revised draft Act;
- if a material change in the parameters of the development of the offshore wind farm takes place and causes (i) an increase of the internal rate of return of the offshore wind farm investment by at least 1.0 percentage point in relation to the internal rate of return indicated in the decision and (ii) the need to obtain or amend the environmental decision, the producer shall apply to the Regulator to adjust the price indicated in the decision.
With respect to the second group of projects, i.e. where the right to settle the negative balance will be awarded through the auction, the new draft Act introduces, among others, the following changes:
- the Minister decided not to hold the auction in 2023, thus the auctions will be held only in 2025 (2.5 GW), 2027 (2.5 GW), 2028 and subsequent years (if the Council of Ministers so decides);
- the Minister of the Climate shall determine, by way of a regulation, the maximum price, expressed in PLN per 1 MWh, that may be indicated in the bids submitted by producers in the auction, taking into account:
- significant technical and economic parameters of the operation of offshore wind farms;
- investment costs incurred in the period of project preparation, construction and operation;
- ooperating costs;
- justified return on the capital involved.
In addition, the rules for the settlement of the negative balance have been revised. The key change is that in the event of a positive balance, it will be settled on a yearly basis. According to the authors of this regulation, it will be beneficial for the investors as well as financial institutions as they will not have to secure the financial resources for the end of the support system.
Among other changes, the producer will be entitled to financial compensation in the event that a full or partial offtake of electricity from the offshore wind farm to the grid is not possible as a result of a redispatching by the TSO.
Firstly, a more detailed regulation concerning the connection to the grid has been proposed. The new proposal provides a new document – a promise of connection to the grid. The promise of connection to the grid is valid for two years from its delivery and it does not create an obligation of the TSO to conclude the grid connection agreement. However, the promise of connection authomatically transforms into the grid connection terms (valid for two years) on the day of obtaining the right to settle the negative balance and such terms already provide the investor with a claim for connection.
Moreover, the investor shall bear the costs of the construction of the connection between the wind farm and the onshore grid. The revised draft new law provides the TSO with a pre-emptive right to purchase the set of devices needed for the offtake of power from the offshore wind farm. The project owner shall notify the TSO of its intention and the terms of the sale of these devices. Within 1 month from the date of obtaining this information, the TSO shall make a statement on the intent to excersice its pre-emptive right, which is the basis for the commencement of the negotiations of the sale agreement. If the project owner and the TSO do not reach an agreement within 3 months, the project owner may sell the devices to other parties.
Offshore Location Licence
Some of the applications for the Offshore Location Licence (OLL) have been suspended until the adoption of the Maritime Spatial Plan. According to the new proposal, in the case that after adoption of the Plan, the application for the OLL needs to be amended due to the fact that the location of the project is not compatible with the Plan, the authority will call the applicant to change the location of this project to adjust it to the Plan, within 60 days, or the application will be returned.
If the application for the OLL needs to be amended due to the above, the whole competitive procedure may be restarted by the minister competent for the maritime economy. This means that the new applications may be submitted for the said location which will create an opportunity for entirely new applicants (that were not part of the previous proceedings) to apply for the OLL.