The long-awaited latest version of the draft amendment of the Act of 20 February 2015 on Renewable Energy Sources (“RES Act”), the Act of 20 May 2016 on Investments in Wind Power Plants (“Distance Law”) and the Act of 7 July 1994 – the Building Law (“Building Law”) was finally published on 20 February 2018. The planned amendment (“Planned Amendment”) is to be still approved by the Council of Ministers and will then be sent to the Sejm and Senate for further work.
The Planned Amendment is to a great extent the effect of negotiations with the European Commission on approval of the Polish auction system. Although the Commission approved the auction system back in December 2017, Poland still has to introduce significant changes to the rules by which auctions are conducted. In accordance with the said decision taken in December by the European Commission, state aid worth around PLN 40 billion is to be granted through auctions held by 2021. In addition, under the Planned Amendment the Polish government withdrew from ideas which caused great controversy, including in particular taxation of wind farms with real estate tax as modified in 2016.
Key changes arising out of the Planned Amendment:
The Planned Amendment introduces changes to definitions such as, e.g. small RES installation (installation of more than 50 kW and less than 500 kW); micro installation (installation of not more than 50 kW) and hybrid RES installation by specifying in detail technical aspects of its operation. ‘Modernization’ which is not defined in the present version of the RES Act will gain a definition.
Modification of the manner of calculating state aid
The Planned Amendment modifies the existing mechanism for calculating auction support. The present complicated model is to be replaced by a simplified “adjusted price” mechanism. This means that if the auction is won, a generator in a RES installation with capacity of at least 500 kW receives a compensation for the negative balance up to the offer price less the amount of the investment aid (the adjusted price) and the generator in the installation with capacity of up to 500 kW will sell the energy at the price indicated in the offer less the investment aid value (i.e. at the adjusted price). The purpose of the indicated amendment is to ensure compliance of the RES Act with the EU rules for granting state aid.
Reform of the shape of the auction baskets
In accordance with the Planned Amendment, the present division of the auction baskets is to be changed. The new shape of the baskets will be based on the technology criterion. RES will be divided into 5 independent baskets:
- Basket I – RES installations using only non-agricultural biogas for electricity generation, and RES installations using biomass, bioliquid fuels (including dedicated biomass combustion installations, hybrid systems and dedicated multi-fuel combustion installations);
- Basket II – installations using (i) only hydropower, (ii) only bioliquid fuels, (iii) only geothermal energy, (iv) only offshore wind energy for electricity generation;
- Basket III – installation using only agricultural biogas for electricity generation;
- Basket IV – installations using: (i) only onshore wind energy and (ii) only solar radiation for electricity generation;
- Basket V – RES hybrid installations.
Modification of elements of the auction system
The Planned Amendment introduces a number of changes in the structure of the auction system:
- simplified list of documents for participation in auctions;
- increased deposit to be paid by generators submitting their installations for auctions;
- strengthened provisions on the age of equipment used for construction or modernization of RES installations (reduced age of equipment from 48 to 36 months and shorter deadlines for solar energy installations – 18 months and onshore wind energy – 24 months);
- shorter deadlines for the first sale of electricity in the installation which will be built or upgraded after the auction date (from the current 48 to 36 months) and introduced separate deadlines: for installations using only solar energy – 18 months from the date of the auction closing date; for the installations using only onshore wind power – 30 months from the auction closing date and for the installations using only offshore wind power –72 months from the auction closing date;
- introduced option to transfer the rights and obligations resulting from winning the auction to purchaser of the RES installation, with the consent of the President of the Energy Regulatory Office.
Sale of energy on the exchange
The Planned Amendment introduces a rule that the generator that won the auction may sell the energy it generates exclusively on the exchange, otherwise it may lose the right to obtain aid.
Introduction of a new support mechanism for selected RES installations with capacity less than 1 MW
The Planned Amendment introduces new support mechanisms for smaller installations using biogas (agricultural, landfill or sewage treatment plant or other) or hydro energy.
The first proposed mechanism is based on the feed-in tariff (FiT). It is dedicated to generators in small-scale installations and micro installations. FiT entitles generators to sell electricity which is unused but has been introduced into the power grid at a fixed purchase price, which is 90% of the reference price on the date of submission of the declaration of entry into the feed-in tariff less the value of the received investment aid. The generator wishing to use the system must obtain the certificate from the President of the Energy Regulatory Office confirming the right to sell the unused energy at a fixed price.
The second mechanism is based on the right to cover negative balance (feed-in-premium; FiP). This mechanism is aimed at generators of electricity in RES installations with total installed capacity not less than 500 kW and not more than 1MW. They have the right to sell the unused electricity which has been introduced into the power grid to a selected entity other than the obligated seller.
Volumes in auctions in 2018
The Planned Amendment specifies the maximum amount and value of electricity from renewable sources which may be sold at auction in 2018.
It should be noted that a significant volume of energy was designated for sale in 2018 in basket 4, which covers photovoltaic and wind installations. The Planned Amendment provides that the volume will be 16,065,000 MWh and it will be worth PLN 6,240,300,000. This means that in 2018 wind projects of capacity exceeding 1 GW may receive aid. At the same time, the Planned Amendment confirms that the reference price for PV projects will be PLN 420/MWh (projects of up to 1MW) and PLN 400/MWh (projects with capacity of more than 1MW) and for onshore wind technology the price will be PLN 340/MWh (projects of up to 1MW) and PLN 350/MWh (projects with capacity of more than 1 MW).
The Planned Amendment does not provide for holding any auctions for modernized installations or migration auctions for large wind projects in 2018.
The auction is to be held immediately after the Planned Amendment becomes effective.
The Planned Amendment, in addition to amendments to the RES Act, also provides for significant amendments of the Distance Act and the Building Law. The said changes include primarily:
- modified wind power plant definition, specifying that only the construction part of the wind power plant constitutes a building structure [Polish: budowla] within the meaning of the Building Law. In addition, the definition of the building structure has changed, also covering only construction parts of technical equipment, such as wind power plants. Consequently, in view of the authors of the Planned Amendment, these modifications reinstate the real estate tax rules binding before 1 January 2017. The amendments which lead to a reduction in taxation under the real estate tax are to be enacted retroactively, i.e. as of 1 January 2018;
- adjusted annex to the Building Law by including only construction parts of the wind power plants in category XXIX;
- an obligation to return to the owner ‒ in an unimpaired condition ‒ the property on which the wind farm is located. In addition the provisions of the Building Law concerning collapse will be applied accordingly to wind power plants;
- an indication that wind power plants which do not meet the distance criterion under the Distance Act can only undergo renovation and other activities needed for proper operation, excluding actions which lead to an increase in installed power capacity or its environmental impact;
- new regulations under which building permits for wind power plants issued before the effective date of the Distance Act and permits where the application process started before but completed after the effective date of the Distance Act continue in full force and effect on general principles (i.e. the building works are to commence within 3 years of the permit issue date). This means that the rules introduced under the Distance Law providing that the building permit continues to be valid provided that the occupancy permit is issued within 3 years (i.e. the facility to which the building permit refers is actually built) have been waived.