Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

The Renewable Energy Sources Act of 20 February 2015 (the RES Act) defines ‘energy from renewable sources’ as as a renewable, non-fossil source of energy including wind, solar, aerothermal, geothermal, hydrothermal, hydro, wave, sea-current, sea-tide, biomass, biogas, agricultural biogas and bio-liquid energy.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

Renewable energy in Poland is mainly regulated by the following legal acts (together with secondary legislation):

  • the Energy Act provides the principles for shaping the energy policy, terms and conditions of energy supply and usage; energy enterprises operation (including the rules for power grid interconnection, appointment of grid operators and their obligations); and for granting concessions. The Energy Act specifies the competent authorities for matters of fuel and energy management (including the competences and tasks of the president of the ERO);
  • the RES Act specifies the terms and conditions of operating in the business of generating energy from renewable sources; mechanisms and instruments supporting generation at RES installations (in particular, certificates of origin, auctions, feed-in tariffs (FIT) and feed-in premium (FIP) tariffs); principles of issuing guarantees of origin for electricity generated from RES; and the principles of international cooperation with regard to RES and joint investment projects; and
  • the Wind Power Investments Act of 20 May 2016 (the Distance Act) sets out the conditions and procedures for locating, building and operating wind farms, as well as the requirements for locating wind farms in the vicinity of existing or planned housing estates. It requires all new onshore wind projects to be located at least 10 times blade tip height (typically about 2 kilometres) away from residential buildings and protected areas.

 

The following Acts apply in respect of developing and constructing renewable energy source projects:

  • the Spatial Planning and Development Act of 27 March 2003;
  • the Disclosure of Information on the Environment and its Protection, Participation of the Public in Environmental Protection and Environmental Impact Assessments Act of 3 October 2008 (Environmental Act); and
  • the Construction Law Act of 7 July 1994.
Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

Certificate-based and auction-based support schemes

The main incentives available to RES installations are regulated in the RES Act. Depending on the date of the installation’s commissioning, it may benefit from one of the following schemes:

Certificate-based scheme

This scheme is for installations commissioned by 1 July 2016, but not hydropower with more than 5MW capacity

In this system, producers receive a certificate of origin for every 1kWh of electricity fed into the grid. ‘Green certificates’ are granted to RES installations. These certificates can be traded on the TGE (including through ‘off-session’ transactions that are processed through the TGE), and therefore represent an additional revenue stream to the price obtained for selling the renewable electricity on the competitive market. Suppliers (who can receive corresponding certificates for renewable electricity procured from producers) are obliged to obtain and submit certificates to the ERO in respect of the relevant calendar year, equal to a certain percentage of their energy sold, or, as an alternative, pay a substitution fee for the missing certificates. The substitution fee operates as a market price cap on the value of the certificates.

Also, pursuant to the RES Act, electricity trading power companies are required by law to purchase electricity generated from RES installations with a total installed capacity of less than 500kW, at the average market price from the previous year as published by ERO.

Auction-based FIT/FIP system

In this system, auction baskets are separated according to three main features: technology, size (with separate auctions for small (less than 1MW capacity) and large (more than 1MW capacity) installations, and whether the installation is new (commissioned after 1 July 2016); or existing (commissioned before 1 July 2016) and intending to shift from the green certificate system to the auction system. Different technologies compete within special baskets with targeted volumes of electricity (MWh) and budget. Depending on the participating installation’s MW capacity, those successful in the auction benefit from support as follows:

  • for installations of less than 0.5MW capacity – a FIT for 15 years under which the installation will enter into a power purchase agreement with an ‘obligated supplier’ who purchases the entire electricity generated for the price agreed within the auction; or
  • for installations of more than 0.5MW capacity – a sliding FIP, under which the electricity produced by the installation is sold on the market (either OTC or on the TGE), and operator of the installation is granted a statutory right to receive payments to equalise the negative balance (being the difference between the market price of the electricity and the guaranteed price granted in the auction) from an SPV owned by the State Treasury.

 

Auctions are held at least yearly, but not always for all baskets. The auctioneer is the ERO. The Minister of Climate publishes a maximum price, or ’reference price’, at which electricity may be purchased in the auctions and determines the maximum volume for electricity to be procured. Only those successful in the action (who offer the lowest price of sale of energy generated in the renewable source) will be supported, as announced by the ERO president.

Installations commissioned before 1 July 2016 may choose to remain in the green certificate system for 15 years after the commencement of electricity production or migrate to FIP through participating in the new auctions organised specifically for existing installations. The total period of support available to the installation under either scheme may not exceed 15 years from first generation.

 

Capacity market support scheme

The capacity market Law of 8 December 2017 (the Capacity Market Act) established a capacity market support scheme to ensure the mid- and long-term security of power supply to final customers in a cost efficient, non-discriminatory and environmentally sustainable way (article 1 (2)). The introduction of the capacity market signalled a change in the architecture of the energy market from an energy-only market to a dual-commodity market, where not only the generated electricity but also the net available capacity (ie, readiness to deliver electricity to the grid) will be subject to buy-sell transactions.

The capacity market is open to all types of providers of generation capacity (technologies) – namely, demand side response (DSR) entities, domestic suppliers of existing and new capacity, storage, demand-response and foreign generation capacity from Poland’s direct neighbouring countries. The system of remuneration for generation or demand reduction capacity is based on power auctions organised centrally by the TSO-PSE; capacity is contracted primarily at ‘main auctions’ covering subsequent calendar years, starting from 2021. Successful capacity suppliers in an auction enter into a capacity agreement between the TSO and the settlement operator (the State Treasury), under which the capacity supplier receives a fixed payment (in złoty/kW per year) in return for guaranteeing readiness to provide capacity to the system within a delivery period (a calendar year for main auctions or calendar quarters for subsequent auctions), and, following an eight-hour advance announcement from the TSO, deliver capacity during emergency periods in which there is a risk of an imbalance in supply. The capacity being delivered will be through either physical generation in the case of generating units and storage; or reduction of electrical consumption from DSR units), dependent on the technology type of capacity market unit contracted. New build capacity market units can bid for 15-year contracts, and those whose emissions fall below 450g CO2/kWh receive a two-year extension bonus (ie, a total of 17 years). Existing units can bid for one-year contracts.

The EU Commission has found the Polish capacity market to be compatible with the internal market in accordance with article 107(3)(c) of the Treaty on the Functioning of the European Union.

 

Preferential treatment of electricity from renewable energy sources

Preferential treatment of electricity from renewable energy sources is provided in the following manner:

  • the Energy Act, article 7(8)) provides that for smaller installations (less than 5MW), grid connection fees are calculated based on 50 per cent decrease to the cost of connection; and
  • pursuant to the Energy Act, renewable energy installations have priority access to the distribution and transmission grid.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Generally speaking, Polish energy policy is primarily determined by EU directives and requirements, particularly around building a common EU energy market and on climate change. Renewable energy incentives are established at governmental level and are Poland’s contribution to the EU-wide renewable energy sources target in final energy consumption: the EU first set binding targets for sustainable power in its member states with its Renewable Energy Directive of 2009. The new Renewable Energy Directive 2018/2001/EU (RED II) specifies that at least 32 per cent of the EU’s energy consumption would come from renewable energy by 2030. In addition, Poland participates in the EU system of reducing greenhouse gas emissions.

The Polish government provides support schemes for RES installations. It also continues to support coal-fired power plants, by means of the capacity market. The Draft Energy Policy of Poland until 2040 seeks to align with EU policies regarding climate change.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

On 15 January 2020, the Ministry of State Assets published a draft Offshore Wind Act providing for a 25-year bilateral CFD support mechanism with a fixed price set by the government for offshore wind farms. The CFDs are to be awarded to more than 9GW by 2028 in two phases:

  • The first phase (planned for 2020–2022) plans to award CFDs by way of an administrative decision, to projects at the most advanced stage of the investment process (ie, those that, among other criteria, have a connection decision with PSE). The first phase targets awarding CFDs to offshore windfarms for a cumulative capacity of 4.6GW.
  • In the second phase, CFDs for a further 5GW capacity (which can be increased by any capacity that has not been awarded from the first phase) will be competitively auctioned across at least three auctions between 2023 and 2028.

 

The CFD support in the Offshore Wind Act is intended to cover the ’negative balance’ being the difference between the market value of the electricity and its value arising from the individual decision issued by the Regulator (and, from 2023, from the auction bid). The draft Offshore Wind Act provides a limitation for the MWh quantity of electricity covered by the support scheme, which may not exceed a product of 100,000 hours; and installed capacity of the offshore wind farm or its part with reference to its generation licence (but not exceeding the capacity laid down in the auction bid or in the decision).

Currently, support for the offshore wind farm sector is regulated under the RES Act.

Poland’s Baltic Sea has the capacity to generate 9–12GW of energy and the combined output of onshore and offshore wind turbines could provide as much as 27 per cent of Poland’s energy by 2050.

There are ongoing political discussions to relax the distance limitations set out in the Distance Act and amend the RES Act to enable auctions to take place after 2021 (currently, the last auctions are expected to be held by 30 June 2021).

In addition, the Polish government has recently proposed new law with the aim to protect certain Polish companies, including those operating in the energy sector, against takeover by a non-EU buyers.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The president of the ERO settles disputes, inter alia, pertaining to:

  • refusal to conclude a grid connection agreement (including regarding increasing the connection capacity);
  • refusal to conclude electricity sale agreements;
  • transfer and distribution services agreements;
  • cases of unreasonably withholding power supplies;
  • refusal to give priority to connecting a RES installation; and
  • refusal to amend a RES installation connection agreement with regard to amending deadlines (for the RES Installation) to provide first supply to the power grid.

 

In the above matters, the president of the ERO may issue, on the request of one of the parties, a decision in which it will set forth the conditions for commencing or continuing electricity supplies until the final dispute resolution. Any decision of the president of the ERO may be appealed to the Competition and Consumer Protection Court.

Disputes between market participants resulting from their contracts are resolved by the competent common courts or, if the parties have so elected, by arbitration.