Poland - Announcement of PPA regulation

published on 16th May 2022

There has been a growing interest in direct sales contracts for renewable energy to businesses (PPAs) in Poland. The rapid growth of these contracts has prompted the legislator to intervene and introduce more restrictive regulations. The planned changes may significantly alter the situation of renewable energy generators.

Drivers of interest in PPAs in Poland

Last year was a time of unprecedented increases in energy prices, which seems to have had a decisive impact on the growing interest in PPAs. On the one hand, end customers were confronted with jumps in energy expenditure, which prompted them to look for price-stable, long-term contracts. Against this background, the proposal to purchase energy from renewable sources, whose value was not affected by the rising costs of purchasing CO₂ emission allowances, became increasingly attractive. On the other hand, the aforementioned increase in energy prices encouraged producers to take increasingly bolder advantage of business opportunities for renewable energy outside the support systems, which naturally prompted them to conclude PPAs. An important factor in the development of this type of business relationship was also the greater willingness of financing institutions to lend to generators with PPAs.

The key changes

Considering the rapid development of PPAs in Poland, the legislator published a draft amendment to the act on renewable energy sources, the main purpose of which is to regulate these economic relations and adjust the act to the requirements of the EU RED II directive.

An important element of the amendment is the introduction of the PPA – called in the draft "an agreement for the sale of electricity generated from a renewable energy source" as a separate type of energy sale agreement, regulated in the Energy Law. The act also lists a catalogue of provisions that should be included therein. The introduced solution is an attempt to anchor PPAs in the Polish legal system. Until now, PPAs were so-called unnamed agreements, which involved the risk of regulatory changes. From this point of view, the change should be viewed positively as an element which stabilises the legal situation of parties to PPAs. The legislator has noticed that PPAs constitute an increasingly important part of the Polish RES market and this sphere of economic relations requires proper ordering. However, this involves new regulatory obligations. An example of such an obligation is the producer's obligation to inform the President of the Energy Regulatory Office about the conclusion of a PPA within 7 days of its signing. The producer will be obliged to present the parties to this agreement, the amount and price of electricity, the type of renewable energy source and the period for which the agreement was concluded. With respect to PPAs concluded prior to the entry into force of the amendment, the producer will be required to provide the President of the Energy Regulatory Office with this information within 45 days of the entry into force of the Act.

It should be noted that the amendment dispels doubts as to the technical implementation of the PPA and provides two models in this respect. In the first case, electricity may be supplied on the basis of a transmission or distribution service agreement if the parties to the agreement have previously been connected to the national grid. This sanctions the PPA model, which has been the most popular in Poland so far. However, a particularly interesting change is the second variant included in the amendment, which explicitly allows for the possibility of using a direct line in connection with the supply of energy under a PPA. As can be seen, the legislator decided to respond to the RES industry's postulates regarding the introduction of amendments to the law which would allow the execution of PPA contracts of the direct wire type. Such a solution must be evaluated positively. However, it should be stipulated that the full use of the direct line potential for the execution of PPAs will be possible only after the provisions of the "market" directive 2019/944 are implemented into the Polish legal order and the rules of permissibility of direct line construction are liberalised.

Another change worth highlighting is the legislator's regulation of the issue of transferring guarantees of origin between the parties to the PPA. According to the new solutions, a generator who is also an entity that applies for a guarantee of origin will not be able to sell this guarantee to an entity other than the one that is also a party to this agreement.

The last issue which requires attention and which indirectly affects the implementation of PPAs is the amendment concerning the provisions governing grid connection. According to the proposal of the legislator, in the event of refusal to conclude an agreement for connection to the grid of a RES installation due to the lack of technical or economic conditions, the operator will be obliged to indicate to the applicant the nearest alternative locations where grid connection will be possible. The proposed amendment should have a positive impact on the development of renewable energy in Poland. The key factor that currently hinders RES investments is limited grid connection capacity. The introduction of this regulation should facilitate the development of new projects, although it will not, of course, replace the need to increase network infrastructure investments.

Assessment of solutions

The solutions proposed by the amendment are primarily of an orderly nature. In this sense, it should be considered that their introduction is overdue but goes in the right direction. However, the excessive notification obligations imposed on manufacturers should be assessed negatively. Nevertheless, it appears that the amendment should have a positive impact on the development of PPAs, although no sudden changes should be expected in this respect. PPAs are becoming increasingly popular in Poland, which is mainly due to market factors – energy prices and the decreasing profitability of participation in the RES auction support system.

The discussed draft amendment to the Act on Renewable Energy Sources is at the legislative stage. Rödl & Partner experts will provide information on its adoption.