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The green certificate system, i.e. the quota system, has been for a long time the basic support scheme for incentivising Polish renewable power producers. It was based on the sale of property rights (the so-called green certificates) at the Polish Power Exchange [Polish: Towarowa Giełda Energii, TGE]. The number of the green certificates granted depended on the volume of electricity produced by a given power producer. Due to fluctuations in the price of green certificates and increased demand for green energy in the economy, the renewable energy sector in Poland underwent a major change. On 1 July 2016, the green certificate system was replaced with the auction model; on 14 July 2018, the regulations introducing the guaranteed feed-in tariff system and the feed-in premium system, i.e. the FIT/FIP systems, came into force. The system of guaranteed feed-in tariffs plays only a marginal role in Poland and only complements the prevailing auction system and the green certificate system, which is being phased out.The FIT system can be used by producers of electricity from renewable sources in small plants (between 50 kW and 500 kW) or in micro power plants (up to 50 kW) who sell the unused energy to a mandatory buyer, i.e. a company designated by the President of the Polish Energy Regulatory Office [Polish abbreviation: “URE”]. The FIP system is intended for renewable power producers producing electricity in RE power plants with a total installed capacity of up to 1 MW who sell energy to another selected company instead to a mandatory buyer. The basic difference between those two systems is that in the case of the FIT system the energy is purchased by the state acting through a designated mandatory buyer, whereas the FIP system is based on premiums granted at market prices. The fixed power purchase prices in the FIT/FIP systems amount to 90% (95% for producers in power installations with a capacity below 500 kW) of the reference price for a given year as set out by the Minister of Energy.1 The reference price is the maximum price of energy set by the Regulation of the Minister of Energy for specific renewable energy sources. In accordance with the Polish Renewable Energy Sources Act (hereinafter "RES Act"), the FIT/FIP systems are intended for renewable energy installations using for power production exclusively: 1) agricultural biogas or 2) landfill gas or 3) sewage gas or 4) biogas other than that mentioned in items 1-3, 5) hydropower, 6) biomass. The system of guaranteed feed-in tariffs is therefore designed for renewable energy sources requiring special state support and does not cover the most popular renewable energy sources, i.e. photovoltaics and wind energy. Unlike in the case of RE auctions, an unquestionable advantage of the FIT and FIP systems is the lack of obligation to produce a declared amount of energy. The RES Act provides for penalties only for the failure to produce electricity during the legally prescribed period and for the failure to sell it. However, it does not specify any obligation to produce a certain volume of energy. Thus, the obligations arising from the FIT and FIP systems are already fulfilled as long as any volume of energy is produced and sold. Furthermore, winning an auction is not required in this case; it is sufficient to file a complete and proper declaration to the President of the URE concerning, among other things, the substrates used in the process of electricity generation and the state aid obtained.
The system of guaranteed feed-in tariffs is a niche-based model, which is not very popular given the situation in Poland. As regards installations for which the feed-in tariff system can be applied, it is the green certificate scheme – which is being phased out – that is still the most frequently used.
In the near future, the system of guaranteed feed-in tariffs should be maintained, although we do not expect its scope to be extended to other types of installations.
1 Communication No. 60/2018 of the President of the URE on conditions for the use of new incentive schemes for electricity production from renewable energy sources, i.e. FIT/FIP systems. Legal update as of 13 June 2019.
In Poland, it is possible to use energy generated in private RE plants for self-consumption purposes. The specific legal conditions for the generation of energy for self-consumption largely depend on the size of the installation. Producers generating electricity in small, medium and large installations are subject to concession and connection fees. A power producer producing energy for self-consumption is thus not treated differently from a producer running a commercial activity. The regulations applicable to the model of renewable energy generation by prosumers for self-consumption purposes in micro-installations, i.e. in internal renewable energy installations with a capacity of up to 50 kW, are definitely much more favourable.2 It should be noted here that the latest amendment to the Renewable Energy Sources Act has extended the definition of a prosumer. Currently, also an entrepreneur may be a prosumer provided that energy production does not represent the main object of his business activity. The liberalisation of the prosumer’s definition is not the only simplification that was introduced. According to the amended law, owners of micro installations are not required to apply for the issuance of a decision on grid connection conditions. Registration [of the installation] with the distribution system operator is sufficient. This means, in practice, that the producer is exempt from the grid connection fee. It is also the operator of the distribution network that is responsible for connecting a micro installation [to the grid] and for equipping it with an appropriate meter. The costs of energy balancing are covered by a mandatory buyer appointed by the President of the URE. The excess energy generated in the installations is off-taken by the distribution network operator under the so-called net metering system, i.e. a periodic billing system in the form of a discount added to the final electricity bill. The billing system for prosumers enables the off-take of the generated excess energy transmitted to the grid within a period of up to 365 days after the meter reading, depending on the installed capacity of the given installation based on the following rates: a) installations of up to 10 kW: 0.8 kW (of purchased energy) per 1 kWh of energy produced b) installations of over 10 kW: 0.7 kWh (of purchased energy) per 1 kWh of energy produced.3 The favourable legal changes are also paralleled by favourable business conditions for the development of this type of installations. This refers, in particular, to a significant increase in energy purchase prices on the commercial market and declining costs of constructing PV installations.
The construction of installations that generate energy for self-consumption but are not covered by the definition of a micro installation remains a challenge. The business model of energy generation in larger plants for self-consumption purposes is not incentivised by the state. The parameter of installed power of 50 kW is therefore the limit line between a trouble-free use of an installation and the requirement for completing formalities applicable to a typical industrial RE system, such as obtaining terms and conditions for grid connection and payment of an advance on the grid connection fee or a building permit.
It is to be expected that the state will continue to support energy generation for self-consumption. The prosumer system covers ever larger installations (since 2018 installations of up to 50 kW, previously up to 20 kW) and is extended to other legal entities – the latest amendment to the Polish RES Act, which came into force in the Polish legal system, allows companies to make use of the discount schemes, provided that the main object of business activity of such an entity is other than the sale of energy. In addition, it should be noted that the power generated in micro installations is increasing rapidly. In 2018, a total of approx. 28,360 photovoltaic micro installations with a total capacity of 173 MW were installed in Poland, which means doubling the number of micro installations connected to the grid in 2017 when 12,600 micro installations with a total capacity of 82 MW were connected to the national energy system. Although voices warning of an excessive dispersion of the national energy system were heard only recently in the public debate, it seems that the pressure to achieve the objective of diversifying the Polish energy mix and increasing the volume of energy generated in renewable energy plants as part of the national energy system will drive further favourable changes of similar kind.
2 Art. 2 (19) of the Polish Renewable Energy Sources Act dated 20 February 2015 (consolidated version in the Polish Journal of Laws of 2018, No. 2389, as amended)
3 Art. 4 (1) items1-2 of the Polish Renewable Energy Sources Act dated 20 February 2015 (consolidated version in the Polish Journal of Laws of 2018, No. 2389, as amended)
Energy production in Poland is unilaterally dependent on coal. According to the Energy Market Agency’s data, the total share of hard coal and lignite in Poland's energy mix in 2018 was as much as 78.1%, which is one of the highest figures in the entire European Union.4 It should be noted that the profitability of this energy generation model is steadily decreasing. The prices for CO2emissions are currently at the level of 25 EUR/Mg CO2 , while in 2017 they amounted to only 5 EUR/Mg CO2, on average.5 The scale of coal import, which in 2018 amounted to 19.7 million6 tons, is also growing. It is therefore not surprising that energy prices in Poland have risen significantly. In 2017, the average price of energy on the competitive market was still EUR 37.8 /MWh, while in the first half of 2019 it was already at the level of EUR 55.8/MWh.7 In the light of the situation described above, it seems to be a natural mechanism of the free market that entrepreneurs look for other sources of energy supply which are stable in terms of price. Hence, the growing interest in concluding PPAs with producers of electricity from renewable energy sources. Until recently, PPAs were considered in Poland as speculation about the energy market of the future. At present, there is a growing interest in PPAs and they are becoming a competitive business model to the support scheme based on participation in state RE auctions. The legislative environment for PPAs in Poland is based primarily on the principle of freedom of contract and the exemption of renewable energy producers from the duty to trade on the energy exchange. What’s important is the fact that the conclusion of a PPA does not exclude obtaining state incentives for the construction of an installation. Worth mentioning is the advantageous solution allowing power producers to diversify their sales of generated energy – the producer may therefore transfer part of the energy generated in an installation under the PPA and use the green certificate state support scheme for the remaining portion of energy. The PPA models prevailing on the Polish market are the so-called ‘Sleeved PPAs’, using public distribution networks, and ‘Virtual PPAs’, which is a form of Contract for Difference ensuring stable financing against the risk of sharp fluctuations in energy prices. It should be also noted that a renewable energy producer in Poland may simultaneously earn profits from trading in guarantees of origin, which takes place independently of the contract for the purchase of energy.
An important challenge for the development of PPAs in Poland is the possibility of building direct lines connecting the generation unit with the end customer without involving the distribution system operator or the transmission system operator. At present, regulations enabling the construction of direct lines are impracticable and the state aims to connect all installations to the public grid. This leads to an increase in energy prices as additional charges payable to the distribution and transmission system operators are imposed. In investment practice, this has a significant impact on the possibility of concluding onsite PPAs. Another important problem is the persistent uncertainty surrounding the legislation on PPAs in Poland. In this context, attention should be drawn to the frequently changing provisions of the RES Act which have excluded power producers operating under PPAs from participation in the state support schemes for renewable energy installations.
The Polish PPA market is in its infancy. This is evidenced by the fact that the only example of a successful PPA in Poland is the PPA on the supply of energy to the Mercedes-Benz’s engine factories in Jawor. From the business perspective, we should expect a rapid increase in the number of PPAs concluded in Poland. This is due to rising electricity prices and the restrictions arising from the previous state support schemes for renewable energy systems. Against this background, PPAs will fill a significant gap that has emerged in the market. The only real threat to the development of PPAs is legislation.
4 Report: Transformacja energetyczna w Polsce [Energy transformation in Poland] Issue 2019, Rafał Macuk, Forum Energii [Energy Forum], 2019.
5 Prices for CO2 emission permits: https://handel-emisjami-co2.cire.pl/st,34,514,me,0,0,0,0,0,ceny-uprawnien-do-emisji-co2.html?startDay=1&startMonth=07&startYear=2016&koniecDay=9&koniecMonth=09&koniecYear=2019&button=poka%BF
6 https://www.cire.pl/item,177425,1,0,0,0,0,0,me-w-latach-2019-20-import-wegla-do-polski-spadnie-a-krajowa-produkcja-wzrosnie.html
7 Communication of the President of the URE
A power producer – as defined in the Renewable Energy Sources Act – does not necessarily have to be also the owner of the installation. Although the application for a concession for the generation of electricity from renewable sources stipulates that the producer must prove that he has adequate technical resources enabling the proper conduct of the activity covered by that concession,8 this requirement is not the same as the obligation of holding and proving the title of ownership of the installation. The leasing of RE systems is therefore legally permitted in Poland, although it is not a common business model. The above-mentioned leasing of installations takes 3 different forms: operating lease, finance lease or a lease loan. Those few companies leasing renewable energy systems focus primarily on photovoltaic systems. The depreciation rate for photovoltaic installations is 10%.
The appropriate structuring of lease contracts and tax law related aspects are the major challenges as regards the leasing of RE systems. This applies in particular to advance tax rulings concerning depreciation rates for RE installations.
The model discussed herein represents an alternative financing option and, therefore, its prospective development depends directly on the preferred investment activity as part of the basic models.
8 Art. 35 (1) item 5 of the Polish Energy Act dated 10 April 1997 (consolidated version in the Polish Journal of Laws of 2019, No. 755, as amended).
This model is not widespread in Poland. However, it is another variant of the PPA and as such it is permitted by law. An energy cooperative is an institution similar to the direct marketing model discussed above, but introduced into the Polish legal system. According to the legal definition, the object of activity of an energy cooperative involves generation of electricity for self-consumption in renewable energy plants connected to a power distribution network with a minimum voltage of 110 kW. Energy cooperatives are entitled to use discount systems that were previously intended only for prosumers, i.e. producers of energy in micro-installations up to 50 kW. The number of members of a cooperative may not exceed 1,000 and the total installed power capacity of all renewable energy installations of the energy cooperative may not be higher than 10 MW; it must allow to cover at least 70% of the annual energy needs of the cooperative and its members. A cooperative’s activity consisting of energy generation in RE plants is not considered a commercial activity. Thus, the excess energy does not constitute revenue in the meaning of the provisions of the Polish Corporate Income Tax Act. Cooperatives are exempt from a number of fees, including energy billing, distribution service fee, RES fee, performance fee and CHP fee. Furthermore, the energy produced by the energy cooperative and used by its members is regarded as electricity consumption by the entity concerned in the meaning of the Polish Excise Duty Act. Excess electricity produced in the cooperatives is netted by a mandatory buyer designated by the President of the URE against the amount of energy drawn from the grid for the cooperative's own needs and those of its members, adjusted by the quantitative coefficient of 1 to 0.6.
Energy cooperatives are a new institution in the Polish legal system. It seems that despite the legal incentives for establishing cooperatives, their popularity will depend on achieving grid parity. With the introduction of energy cooperatives, the Polish government hopes to achieve the 15% share of renewable energy sources in the Polish energy mix as required by the European Union. The low popularity of cooperatives as a form of business activity in Poland should be taken into account.
The introduction of "direct marketing" will be commercially ineffective as long as grid parity is not achieved in Poland. In the longer term, however, this solution may prove attractive due to the increasing popularity of apartment rentals.
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Tobias Kohler
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