On 28 June 2017, a draft amendment to the Act of 20 February 2015 on renewable energy sources (the RES Act) and the Act of 20 May 2016 on wind energy investments (the Distance Act) was published. The draft amendment (Proposed Amendment) is still at an early stage of legislative work and still needs to go through the intra-departmental and public consultation stage. The Proposed Amendment will be forwarded for further processing by Parliament only after the completion of the consultations.
In a related move, on 12 July 2017 a parliamentary draft amendment to the RES Act was submitted to Parliament with a view to change radically the calculation of the substitution fee in the certificate of origin system (Parliamentary Draft).
New division into baskets in the field of auctions
The Proposed Amendment deals with the so-called “technological baskets”, which are groups of renewable energy installations (RES installations) that compete for the same pool of funds in one auction. All RES installations are to be categorized under six groups, corresponding to the division for reference pricing (there will be a few groups with different reference prices in one basket):
- Power generation from exclusively non-agricultural biogas, as well as RES installations using biomass, bioliquids (incl. installations for dedicated biomass combustion and multi-fuel combustion and hybrid systems)
- Waste-to-energy installations
- Electricity generation from exclusively: (i) hydropower, (ii) geothermal power; (iii) offshore wind energy
- Electricity generation from exclusively: agriculture biogas
- Electricity generation from exclusively: (i) onshore wind energy (ii) solar power
- Hybrid RES installations
As is currently the case, there will be separate auctions for installations with installed power of (i) up to 1 MW and (ii) exceeding 1 MW, as well as for installations that commenced energy generation before 1 July 2016 (Existing Installations) and after 1 July 2016 (New Installations).
Adjusted method of calculating support in the auction
There will be a change to the mechanism of factoring in investment aid granted to producers of RES installations which win auctions. The proposed mechanism will factor in the value of the investment aid to reduce the price offered at auction. Therefore, an auction winning producer of an RES installation with capacity of at least 500 kW will receive compensation for the negative balance to the bid price minus the value of the investment aid (adjusted price). Equally, a producer of an installation up to 500 kW will sell energy at the price set in the offer minus the value of the investment aid (i.e. the adjusted price). Also, the “fixed purchase price” in the feed-in tariff system will be reduced by the amount of the investment aid.
There is no definition of “investment aid” in the Proposed Amendment.
Implementing the changes to the auction system
The Proposed Amendment provides for other modifications to the auction system, including:
- The Council of Ministers will publish a schedule of the purchase and sale of RES electricity, setting the maximum quantity and value of electricity from renewable energy planned for auction for the next three years.
- There will be less bureaucracy to pre-qualify New Installations - i.e. for formal evaluation of projects seeking a certificate of admission to an auction. Investors will have to submit only: the interconnection conditions or interconnection agreement to the grid, a valid building permit, the schedule of works and expenditures for RES installations.
- A higher deposit will be paid by RES installations producers at auction. For Existing Installations, the amount will stay at PLN 30 for every 1 kW of installed capacity (PLN 3,000 for 1 MW). For New Installations, the deposit was increased to PLN 60 per 1 kW of installed capacity (PLN 6,000 per 1 MW).
- The minimum bid price at auction will be the average sale price of electricity on the competitive market in the previous quarter as per the President of Energy Regulatory Office (ERO).
- The RES Act currently rules out RES support for producers using old equipment, setting the age of equipment benchmark at 48 months prior to the generation of energy (72 months for offshore wind farms). The Proposed Amendment has a shorter cut-off point of 36 months, with 18 months for solar installations and 24 months for onshore wind farms.
- A shorter deadline to start electricity generation for New Installations that received support at auction will apply. The new deadline will be 36 months (now 48), with 18 months for solar, 24 months for onshore wind energy, and offshore wind energy remaining unchanged at 72 months.
- Auction-winners and relevant grid operators must adjust their interconnection agreements to include a deadline for generating energy for the first time in the RES installation; the deadline must comply with the timeframe set by the RES Act for a New Installation generating energy for the first time.
- At the request of the producer in an RES installation, the President of the ERO may agree to the transfer of the rights and obligations arising from an auction win to the purchaser of the RES installation. Upon approval, the rights and obligations transfer to the purchaser of the RES installation, but the seller remains jointly and severally liable for any failure to meet obligations within two years of disposal of the RES installation. The obligation of the aforesaid consent obviously does not refer to the sale of shares in a company developing the project which won the auction.
Guaranteed tariff for RES installations up to 1 MW
The Proposed Amendment introduces a new support system similar to existing feed-in tariff systems, which let producers sell energy that was not used for their own needs at fixed prices. This system is only for RES producers with installed capacity of <1 MW producing energy from biogas (irrespective of origin) or hydro. A producer seeking to use the system must obtain a certificate from the President of ERO confirming it can sell unused energy at a fixed price. This is open to RES installations that are already operational or are in the development phase (building permit required). The Council of Ministers will present an annual statement on the maximum power for each type of installation for which the President of the ERO can issue a certificate—hence, as in the auction system, not every RES installation will be allowed to obtain the certificate.
A holder of the above certificate may submit a declaration on joining the feed-in tariff system. Upon joining, producers with a micro or small RES installation (i.e. <500 kW or 900 kW in cogeneration, connected to a network of <110 kV) will be entitled to: sell electricity to the obligated seller at the “fixed purchase price”; or (ii) sell energy to another entity and obtain a negative balance as the difference between the market price of energy and the “fixed purchase price”. Producers in installations with capacity of 500 kW to <1 MW will only be entitled to sell energy to entities other than the obligated seller and receive a negative balance. Support is provided for a period of 15 years from the date of first supply to the network.
The “fixed purchase price” will be 80 percent of the reference price as of the date of the declaration of accession to the feed-in tariff system, less the investment aid received (see point 2 above).
Installation commenced without support at auction
The Proposed Amendment also regulates the status of RES installations built between the effective date of the Proposed Amendment and 31 December 2020 without obtaining support at auction. These RES installations, under certain conditions, can take part in auctions on the same conditions as New Installations that have not yet been built. The condition for obtaining this right is to sell all electricity on the stock market or another market organized in Poland. The producer has to declare that it will be selling energy in the way mentioned above at least 14 days before commencing generation in the RES installation.
Submission of a declaration and fulfillment of the mandatory sale of energy on the stock market allow an existing RES installation to seek support at auction, but does not guarantee support itself.
New provisions on modernization of RES installations
The Proposed Amendment introduces a definition of modernization understood as the performance of works consisting in reconstruction of the original plant or change of its utility or technical parameters. Modernization during the support period, including support in the form of obtaining the right to receive certificates of origin, will not result in loss of the right to support or affect its length.
In the case of modernization of RES installations which no longer receive any support (in the form of certificates of origin, from the auction system or feed-in tariffs) it is possible to take part in auctions under certain conditions. These conditions are: (i) reconstruction as a result of modernization of the original RES installation or change due to modernization of the utility or technical parameters, if it results in an increase in installed capacity or an increase in electricity production; (ii) the costs incurred and documented for the modernization of such installations were at least 40 percent of eligible costs for construction of the new reference installation. The list of eligible costs will be set out in a regulation of the Minister of Energy.
Changes applying to the construction process of the wind power plants
The Proposed Amendment also makes changes to the Distance Act, including:
- The wind turbines must still be at least ten times their height away from residential buildings; however, the residential building may be located in the vicinity of the wind turbines at the distance sufficient to meet the noise tolerance requirements established by Polish law.
- The provision which provided for the expiry of all building permits for wind power issued before the effective date of the Distance Law unless a use permit was obtained within three years is repealed. Building permits will expire on general provisions.
- A strict new regime is introduced for the removal of decommissioned wind turbines from the real estate on which they were built. The investor that completed the construction of the wind power plant or was the last operator of the wind farm is obliged to dismantle its visible parts and to perform post-decommissioning groundworks. The wind farm operator is under obligation to return the property to the owner in its original condition. If the investor is not a natural person then the management board of the investor bears liability to the property owner.
Real estate tax
The Proposed Amendment includes proposals for amendments to provisions of the Distance Act and the Act on Building Law, which have been interpreted by administrative courts and some tax authorities to increase the real estate tax (“RET”) on wind farms by including the technical elements of the wind power plants within the scope of RET.
According to the justification for the Proposed Amendment, the proposed changes will result in RET covering only construction elements of the wind power plant. In particular, it provides for:
- A return to the definition of construction under the Building Law prior to the effective date of the Distance Act by reincorporating wind power plants in an exemplary catalog of technical devices, of which only the construction elements are considered as constructions for the purpose of RET
- Modification of the Annex to the Building Act by incorporating only construction elements of the wind power plants in category XXIX
- Change of the definition of a wind power plant in the Distance Act by indicating that only construction elements of a wind power plant are a construction within the meaning of the Building Act
- Removal of a transitional provision (Art. 17 of the Distance Act) on RET on wind power plants, which was interpreted by some tax authorities and administrative courts as a basis for seeking RET on technical elements of wind power plants from 1 January 2017.
The Proposed Amendment does not currently contain any regulations relating to the RET on wind power plants in 2017. On the one hand, the justification for the Proposed Amendment refers to the fact that the purpose of introducing the provisions of the Distance Act referred to above was not to increase RET on wind power plants but on the other, it also stresses that after the entry into force of the Proposed Amendment, the RET on wind power plants should be lower than in 2017. Therefore, at this stage it is difficult to assess the impact of the changes introduced by this law on the ongoing disputes caused by entry into force of the Distance Act.
Change in the substitution fee
There is a proposal to change the substitution fee in the Parliamentary Draft. The unitary substitution fee is currently PLN 300.03 per MWh (for certificates of origin from renewable energy—“Green Certificates”—and for certificates of origin from agricultural biogas—“Blue Certificates”). It is proposed that this fee be set out separately for Green and Blue Certificates as 125 percent of the annual average price announced by the Polish Power Exchange respectively for Green and Blue Certificates, but not more than PLN 300.03. In the case of Green Certificates, the annual average price in 2017 is PLN 73.63, which means a decrease in the Green Certificate substitution fee from PLN 300.03 to PLN 92.04. The fee in 2017 for Blue Certificates will remain unchanged, as 125 percent of the annual average price is over PLN 300.03. If the changes proposed under the Parliamentary Draft are enacted, this will mean a significant decrease of revenue of all wind farms which entered into long-term agreements for sale of the certificates of origin (most frequently as security for repayment of bank loans) which provide for the price of a certificate of origin to be calculated as a percentage of the substitution fee.
The Sejm adopted the Parliamentary Draft on 20 July 2017 and the Senate approved it on 27 July 2017. The Parliamentary Draft is now awaiting the signature of the President. The amendments introduced by the Parliamentary Draft will enter into force 30 days after publication.