The New RES Act will provide continuing support to most existing installations (i.e. facilities which initiated generation of renewable energy by or before 31 December 2015).
On 11 March 2015 the President signed the new Act on renewable energy sources adopted by the Parliament on 20 February 2015 (“New RES Act”). The New RES Act awaits publication in the Official Journal of Laws (Dziennik Ustaw), with general provisions entering in force in 30 day following the publication, while the new support scheme based on auctions will enter in force on 1 January 2016. No formal notification of state aid to the European Commission is expected as the Government does not consider the extension of the current support system for existing installations based on the green certificates to constitute state aid and it regards the new auction system as exempted from notification.
The New RES Act will provide continuing support to most existing installations (i.e. facilities which initiated generation of renewable energy by or before 31 December 2015). Future investments will compete for support based on a type of contract-for-difference (CfD) granted through auctions organised by the President of the Energy Regulatory Office (ERO). Most existing installations will be eligible to change the support instrument from certificates of origin to the auction based one. A feed-in tariff system for micro installations of up to 10 kW was introduced at the last stage of parliamentary works too.
Key milestones and changes:
- support limited to 15 years from initiating generation (both existing and new installations);
- support limited for part of hydro, biomass and biomass co-firing (both existing and new installations);
- separate auctions for existing and new installations, separate auction pools for installations up to and over 1 MW of installed capacity;
- bidders will compete in auctions up to a budget and volume of electricity offered by the state annually;
- a reference price based on technology and installed capacity will put a cap auction bids;
- first budget and volume for the 2016 auction to be set by 31 May 2015;
- first auction pool for installations up to 1 MW to be set by 30 June 2015;
- first reference prices to be determined by 31 December 2015;
- first auction date to be announced by 30 March 2016.
I. General framework of benefits
For the first time the New RES Act will introduce limitations to the duration and scope of support for RES. Most significantly support will be available for eligible installations for a maximum period of 15 years from the start of generation, however not longer than until 31 December 2035. For existing installations this term is counted from the first generation for which a certificate of origin was issued. While the system of certificates of origin will continue for existing installations, the auction scheme will be available as an alternative for certain existing RES and as the standard support instrument for most new investments. Micro installations of up to 10 kW of installed capacity will benefit from feed-in tariffs. Tariff prices are guaranteed for two groups of installations – up to 3 kW and over 3 kW but not exceeding 10 kW, however only up to 300 MW and 500 MW of total eligible capacity respectively.
II. Existing installations
Most existing installations will continue to receive support through certificates of origin just as they do today. However certain limits will be introduced both on the supply and demand side of the certificate trading.
On the supply side support for hydro-generation will be limited to installations of up to 5 MW of installed power. Support for all biomass co-firing installations will be capped by volume to the equivalent of average biomass generated electricity in the years 2011-2013. Further non-qualified biomass co-firing installations will receive only half the number of certificates per each MWh of eligible renewable electricity. This reduction is set until 31 December 2020 and may change thereafter by the Council of Ministers.
On the demand side the threshold of 14% and 15% of annual electricity consumption will remain in place for 2015 and 2016 respectively. From 2017 the threshold will be set to 20%, however may be reduced by the Minister of Economy for one or more years, based on several conditions related to the development of the RES market. The substitution fee will be set to a constant 300.03 PLN/MWh (currently approx. 72 €/MWh), however only purchasing and redeeming of certificates of origin will be recognized by the President of ERO as long as the average market price of certificates remains below 75% of that substitution fee.
Most of existing installations will have the option to switch the support instrument to the auction awarded CfD. Hydro-generation units over 5 MW, non-qualified biomass co-firing installations and biomass installations exceeding 50 MW of electrical power (or 150 MW of CHP heat power) will be exempt from this alternative. Dedicated auctions will be organised for existing installations, the RES Act does not introduce a direct competition among existing installations and new investments.
Auctions will form the main support instrument applying to installations over 10 kW of installed capacity. In auctions the state will offer support up to a specific volume and value of renewable electricity to be generated within the 15 years support limit. These volume and value based budgets will be published for each auction year by the Council of Ministers. The first budget for the 2016 auction is expected by 30 June 2015.
Separate auction pools will be set for existing and new installations, as well as units of up to 1 MW and those over 1 MW, whereby at least 25% of electricity from new sources supported thought auctions should come from sources of up to 1 MW capacity. Within each auction pool different technologies will directly compete with each other for support.
Bidders will have to offer a total volume of electricity and a price per MWh, whereby the price will have to fall below a statutory reference price. Reference prices will be set separately for specific technologies and will differ based on installed capacity. Eighteen reference groups are differentiated, from (i) offshore wind generation; (ii) onshore wind generation up to 1 MW of installed capacity; (iii) onshore wind generation over 1 MW of installed capacity; (iv) five groups for biogas installations of different parameters; (v) three groups of biomass installations (including CHP), as well as solar, hydro and geothermal and biodegradable waste. First reference prices for the 2016 auction are expected by 31 December 2015.
Offers will by stacked by price per MWh starting with the cheapest one. Support will be granted up to the limit of the annual auction budget. In case successful, new installations will have to be constructed and initiate within 48 months following the auction (24 months for solar installations and 72 months for off-shore wind farms).
Successful installations of over 500 kW installed capacity will sign a CfD with Operator Rozliczeń Energii Odnawialnej S.A. (“OREO” – a special purpose company of the State Treasury dedicated to settlement operations concerning electricity generated by installations under auction system). Under the CfD the balance between the average market price of electricity and the bid price will be settled. Should ever the market price exceed the bid price, the beneficiary would be required to return the difference. Generated electricity will be sold on the market in individual transactions or on the power exchange.
Successful installations of up to 500 kW of installed capacity will sign delivery contracts with obligated buyers (literally “obligated sellers” replacing current suppliers of last resort). Deliveries will be settled directly at the bid price (pay-as-bid). In this case obligated buyers will settle with OREO the balance between the average market price and the price paid to beneficiaries.
Auction participants benefiting from the support scheme will be required to deliver at least 85% of the volume offered in the bid. Three years settlement periods will apply. Failure to meet the delivery target will be subject to a penalty calculated on the basis of the missing volume (up to 100% of the declared quantity) and half of the bid price.
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After more than 3 years of work, the New RES Act is enacted and will come into force by the end of 2015. While the draft has undergone numerous and significant changes, and was often criticized for being either too generous or insufficient, in the end we see comprehensive regulation. It aims to balance expectation of RES developers and interest of State budget and stabilise the system of support for RES projects in the long term with the goal to prevent electricity prices form increasing in an often uncontrolled manner – as we could see in some European countries within last few years. Continued development of RES projects, especially wind, may be expected in Poland as it will be possible to rely on long term support mechanisms.