On 11 August 2021 the lower chamber of the Polish Parliament (the Sejm) passed a law amending the Act on Renewable Energy Sources and certain other laws. Key changes include extending the period of auctions for sale of energy from RES until December 31, 2027 and setting auction volumes for the calendar years 2022 - 2027 in a single regulation of the Council of Ministers. The Bill removes the obligation to obtain an electricity generation license for RES systems where the installed capacity is below 1 MW and provides for modified rules for settling positive balances. The Bill will now go to the Senate, which will have the opportunity to table its own amendments. Upon completion of the parliamentary works, the Bill will be presented for the President’s assent.
1) Extension of support schemes
As the law stands now, auctions for sale of RES energy may be held only until 31 December 2021, with 30 June 2039 being the ultimate deadline for the receipt of operational support (15 years’ price guarantee) by installations that generated electricity for the first time after the closing date of the auction session. The same deadline also applies to feed-in-tariff (FIT) and feed-in-premium (FIP) schemes for RES installations using the indicated types of biogas or hydropower with installed capacity not exceeding 2.5 MW and biomass with installed capacity not exceeding 1 MW.
The amendment to the Act on Renewable Energy Sources provides for the possibility of auctions being held for up to the next 6 years, until 31 December 2027. The end of auction system support for new installations will be 30 June 2047. The same end date also applies to FIT and FIP systems.
2) Auction volumes for 2022 - 2027
One of the most important parameters of each RES auction is the maximum amount and value of sold electricity. Currently, these values are set in a regulation of the Council of Ministers, issued by 31 October each year and they only concern auctions to be held in the next year. Most often auctions are held in late November/ early December (2021 with auctions held in June was an exception to this rule). In previous years the amount and value of sold RES energy were also specified on an ad-hoc basis in subsequent acts amending the RES Act. This state of affairs lead to limited transparency of competitive conditions to be satisfied in particular years by investors looking to participate in auctions.
The new regulations adopted by the Sejm provides that maximum volumes and values of energy for individual years in the period 2022 - 2027 will be determined in a single regulation of the Council of Ministers. Importantly, once issued, the regulation can only be amended, in terms of the amount of energy sold, by increasing this amount. The Council of Ministers will retain the right to modify the values of auction budgets so as to take into account decisions of the minister for energy matters concerning reference prices set for particular auctions (which will still be done annually) and adjust the budget to the possibly increased amount of energy sold at auction.
3) Suspension of application of key amendments until approval by the European Commission
The changes prolonging the support schemes and modifying the rules of determining auction volumes constitute an interference with the aid scheme deemed, under the European Commission’s decision, to be compatible with the internal market of the European Union. Under EU law and in accordance with the Commission’s decision, regulations introducing changes to the aid scheme must also be notified to the European Commission. Such regulations may not enter into force until the Commission issues a decision (standstill clause). The intended extension of the auction system until the end of 2027 and amendments to the rules of setting auction volumes and budgets have been signalled by the government for a long time. The present amendments comply with the increasing demand in Poland for RES energy and the proposals for improved transparency of the auction system. Therefore, in the context of the expected notification of the amendments – we consider them positive.
Accordingly, the amendment to the RES Act will be applicable only after a positive decision of the European Commission has been issued or after the Commission has found that they do not constitute new state aid.
4) Abolition of the obligation to obtain an electricity generation license for RES installations with installed capacity not exceeding 1 MW
As a rule, business activity in the field of electricity generation from sources classified as RES installations is subject to the obligation to obtain a license issued by the ERO President. However, micro and small RES installations are exempt from this obligation. Under current regulations, RES installations with the following parameters are exempt:
Production of electricity in micro installations is not classified as a regulated activity. However, production of electricity in a small RES installation and its operation is a regulated activity and requires an entry in the register of small installation energy producers kept by the ERO President.
The amendment of the RES Act provides for a change in the definition of a small installation, following which the obligation to obtain a license for electricity generation will not apply to generation in RES installations with an installed capacity of up to 1 MW, subject to the other parameters below:
The definition of the installed capacity of a RES installation set out in the RES Act is also relevant to the changes to the rules of licensing production activities. The term will be understood as the total nominal active capacity of (i) a generator, for installations working on biogas or agricultural biogas to generate electricity; and for other installations (ii) a generator, a photovoltaic module or a fuel cell (as indicated on the rating plate). The second option was criticized by electricity producers on many occasions, as it leads to a number of practical problems that reduce the actual productivity of RES installations, in particular photovoltaic installations.Importantly from a practical point of view, the process of obtaining an entry in the said register is far less formal and the ERO President will only have 21 days to make such an entry after receiving a complete application. Failure to make an entry within 28 days will entitle the electricity producer to start operations before the entry is made. For installations requiring a license, production activity may only be commenced after obtaining a license.
Even before the amendment was passed, the installed capacity of a RES installation understood in this way began to be mistakenly identified by some power system operators with the maximum capacity used to determine the connection capacity, which limits efficient utilization of allocated connection capacities and increases, instead of reducing, the impact of temporary fluctuations in the production of electricity in RES installations on power grids. This problem is likely to require a separate, systemic regulation in the future.
5) Modification of the rules of settling a negative and positive balance
The deadline for the submission of applications to settle a negative or positive balance will be slightly extended – from 10 to 15 days. This minor modification of the process of settlements with the Settlement Operator is convenient for investors. It will also facilitate the circulation and processing of measurement information required for the proper submission of an application for the balance settlement.
Another amendment has far greater consequences. A positive balance in the auction system occurs if in a given month the value of electricity included in a producer’s report calculated in accordance with the TGeBase index value for individual days exceeds the auction price. The positive balance is settled with (set-off against) the future negative balance, and if it is still positive and cannot be settled by the end of the support period, it is returned to the Settlement Operator in 6 equal monthly instalments, starting from the end of the last month in which the 15 years’ support period ended.
Once the Act is in effect, the accrued positive balance will also be settled against the future negative balance. However, if it is not completely settled by the end of a given period of full three calendar years (i.e., the settlement period for the offer volume to verify that at least 85% of the contracted energy has been generated), it will be returned to the Settlement Operator within 6 months of the end of the relevant period.
The proposed wording of the regulation may raise certain interpretative doubts, in particular with respect to the manner of settling the balance corresponding to the last part of a given 3-year period (due to the date of submitting applications it is always settled only after the end of a given period of 3 calendar years). This may lead to further works on the precise wording of the regulation in this respect in the Senate. Otherwise, we expect that the Settlement Operator will present relevant clarifications after the amendment is finally passed.
6) Change in the rules for the adjustment of deadlines arising from an agreement for connection to the grid for installations which won a RES auction
An agreement for the connection to the grid must contain a connection schedule. Furthermore, such an agreement concluded with respect to an RES installation must specify the deadline for the first supply of electricity from that installation and the consequences of any failure to meet that deadline. The maximum deadline is 48 months from the day of concluding the agreement. Failure to supply energy by that time provides grounds for termination of the agreement.
An electricity producer participating in the RES energy sale auction must have grid connection conditions or an already concluded grid connection agreement. It is also bound by the deadlines arising from the grid connection agreement. Moreover, after winning the auction, it is obliged to sell energy for the first time within the auction system only by respective deadlines that depend on the technology of the installation:
If the deadline for the first supply of energy arising from the grid connection agreement for the installation that won the auction falls before the producer’s deadline for first sale under the auction system, the producer has a claim against the operator to extend the deadline for first delivery (align the deadline for first supply with the deadline for the first sale). However, legislation remains silent on adjusting other deadlines resulting from the connection schedule to the deadline for the first sale (e.g. deadline for the completion of construction and assembly works related to the installation to be connected, deadline for connection, the deadline for applying voltage), which may sometime lead to disputes with the system operator.
The amendment of the RES Act adopted by the Sejm implements a rule pursuant to which, if the deadline for energy supply falls before the deadline for the first sale, the system operator will also be obliged to update the schedule. The update may only take place at the producer’s request. Possible disputes in this respect will be resolved by the ERO President within 30 days of submission of a request.