The draft act establishing a new regime for renewable energy sources (RES Act) is still being processed by the Polish Parliament. The main features of the draft RES Act were outlined in our previous briefing from April 2014. On 22 July 2014, the first reading of the act took place and the draft was passed to the relevant parliamentary committee for further discussions. On 15 September 2014 a public hearing concerning the RES Act was held. On 9 October 2014, the Ministry of the Economy submitted to the parliamentary committee a set of additional proposed amendments to the draft act.
Additional requirement for grid connection agreements
One of the key changes proposed by the Ministry of the Economy concerns the introduction in the Energy Law (a bill separate from the RES Act itself) of an additional requirement with respect to grid connection agreements. A grid connection agreement relating to a renewable energy source would be required to set forth a period from the date of execution of the agreement within which electricity should start to be fed into the grid. This period could not be longer than 48 months, except for off-shore wind farms in which case the maximum period could not exceed 72 months. Failure to meet this deadline would result in termination of the agreement. In relation to grid connection agreements executed before the date of the RES Act entry into force, the parties would be obliged to amend the agreement within 6 months from the effective date of the RES Act and set the deadline for the first export of power to the grid. Failure to do so would also result in termination of the agreement. The respective maximum deadlines of 48 months for all RES installations other than off-shore wind and 72 months for off-shore wind apply also to the existing agreements.
The intention of the proposed amendments is to allow the grid operators to terminate latent connection contracts. It has been raised for a very long time by both the grid operators and the wind energy industry that there is a large number of wind power projects which are not being realised at all or which are severely delayed but because their connection contracts either do not set any deadlines for commissioning of the wind power plant or set very distant deadlines, such projects obstruct access to the grid for other projects which might be realised in a timely manner.
It appears, however, that the above proposal has not been coordinated with other provisions of the proposed the RES Act. The RES Act would introduce for new RES installations a support scheme in the form of a feed-in-tariff (for small installations up to 500 kW) or a feed in premium (for installations of capacity of 500 kW and above) awarded in auctions (for details please see our previous briefing). The entities developing new projects who would be interested in participating in an auction would need to undergo a pre-qualification procedure conducted by the President of the Energy Regulatory Office (ERO). Pre-qualification eligibility criteria for new projects are to include among others possession of grid connection conditions or an executed grid connection agreement. If the amendments described above are accepted, such a signed grid connection agreement would need to set a deadline for the commissioning of the plant of maximum 48 months for RES installations other than off-shore wind and of maximum 72 months for off-shore wind.
On the other hand, a separate provision of the RES Act says that a RES developer who has won an auction will be obliged to construct its RES plant and start delivering electricity within 48 months (with 2 exceptions: 24 months in the case of photovoltaic plants and 72 months in the case of off-shore wind farms) from the date of completion of the relevant auction. However, if the additional amendments regarding the connection agreements are adopted then the deadline for commissioning of the RES installation will be in fact shorter, as it will be driven by the provisions of the grid connection agreement (which will be executed prior to the auction and may set deadlines shorter than the respective 48 or 72 months) rather than by the mentioned provision of the RES Act. Although the auction pre-qualification criteria might be satisfied by holding just grid connection conditions issued by the grid operator rather than the final grid connection agreement, it may be reasonably expected that the developers will not participate in auctions until they hold final grid connection agreements. This is because if a developer is successful in auction but subsequently fails to deliver the project on time, such a developer would be disqualified from subsequent auctions for some time. Therefore the developers will seek to achieve, before they participate in an auction, maximum level of certainty that they will be able to deliver the project.
Other material changes proposed by the Ministry of the Economy
Changes relating to the green certificates system
Mandatory purchase of electricity by “obliged suppliers”
The projects which under the RES Act will continue to be supported by the green certificates system (i.e. the projects which are commissioned before 1 January 2016) will benefit from the obligation imposed on so – called “obliged suppliers” (i.e. the sellers of electricity with the biggest volume of electricity sales within the area serviced by the given local electricity grid operator) to purchase all electricity offered to such a seller by the owner of the RES installation. Currently such mandatory purchase of electricity is done at the average wholesale market price from the previous calendar year, calculated and published by the President of the Energy Regulatory Office by 31 March of each year (the "ERO price”). The Ministry of the Economy is now proposing that the ERO price would be the average wholesale market price from the previous calendar quarter and would be calculated and published every 3 months. As a result the ERO price would better reflect current market trends. This solution has been lobbied for by the big power utilities who would perform the role of the “obliged suppliers”.
Green certificates redemption date
The Ministry of the Economy is also proposing to change the date by which the entities obliged to purchase and redeem green certificates have to submit certificates to the President of ERO. Both under the current regulations and in the original version of the draft RES Act the deadline is 31 march, now it is proposed that the deadline would be extended to 30 June of each year.
Green certificates quotas
The current version of the draft RES Act provides for a 20% quota in relation to the obligation to redeem green certificates. However, the Minister of the Economy is to have a right to set a lower quota in one regulation for one or several years. The Ministry of the Economy has proposed that the quota for 2015 be equal to 14% and 15% for 2016. These are the same levels as those applicable set for 2015 and 2016 under the currently applicable RES support scheme.
Changes relating to feed-in-tariffs and feed-in-premiums awarded in auctions
Reference prices (maximum bid prices) in auctions for the existing projects
In relation to the proposed system of feed in tariffs and feed in premiums awarded in auctions, the Ministry of the Economy has also proposed certain modifications to the calculation formula of "reference prices" (i.e. maximum bid prices – please refer to our previous briefings on the draft RES Act) for existing RES installations that are to be determined annually by the Minister of the Economy. Reference prices would be set taking into account:
- the ERO price calculated for the quarter preceding the one in which the reference prices are announced (instead of the ERO price calculated for the previous year); and
- PLN 239.83 per MWh, which according to the proposed amendment to the draft RES Act constitutes the average price of green certificates in the years 2011 - 2013, both in the case of transactions entered into on commodity exchanges and on the OTC market (the current version of the draft RES Act only mentions that such amount should be equal to the average price of green certificates in the years 2011 - 2013, both in the case of transactions entered into on commodity exchanges and on the OTC market but it does not explicitly specify such amount).
Timetable regarding first auctions
Finally, the Ministry of the Economy has proposed that:
- the first auction would be announced by the President of the ERO within 90 days from the date when Chapter 4 (setting forth the new RES support mechanisms) of the RES Act enters into force (i.e. 1 January 2016).
- The provisions concerning the pre-qualification procedure should enter into force as from 1 July 2015. Therefore, as from this date entities developing new projects interested in participating in auctions will be allowed to participate the pre-qualification procedure to be conducted by the President of the ERO.
The above proposals, in order to become part of the draft RES Act, would need to be accepted by the parliamentary committee and recommended to the lower chamber of parliament to be introduced in the revised version of the RES Act.