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The government’s draft amendment to the Polish Renewable Energy Sources Act (“RES-Act”) adopted by the Standing Committee of the Council of Ministers in June is another attempt to make the auction system more flexible and, thus, to increase the share of green energy in the energy mix, which has been dominated by coal-based energy generation. The investor-friendly draft amendment to the RES-Act is at the same time a clear sign that the Polish government is finally trying to meet the challenge posed by the EU, i.e. compliance with the requirement regarding the share of energy from renewable sources in the national energy balance.
Two key factors are forcing the Polish government to focus its attention on renewable energies.
On the one hand, the reason is the continuously rising demand for energy. On 12 June, the demand for electrical power in summer time exceeded 24 GW for the first time in Poland's history. At the time of peak demand, electricity of 19 GW was supplied to end consumers from conventional power plants (in particular coal-fired power plants), 1.6 GW were generated in wind turbines and 0.5 GW in hydro power plants. Additionally, approx. 0.5 GW were supplied from solar power plants. Poland had to import no less than 2 GW of energy capacities from other EU countries (mainly from Germany, Sweden and Lithuania). The extent of the problem is best illustrated by the situation of the Warsaw distribution network operator, which on this day recorded the historically largest energy demand by end consumers during summer time, i.e. 1300.7 MW. This is 55 MW more than the previous record of July 2018.
The other reason is the pressure resulting from the obligation to reach the targets set in the Directive of the European Parliament and of the Council on the promotion of the use of energy from renewable sources. According to forecasts by the Supreme Chamber of Control, Poland would be forced to conduct the statistical transfer of electric energy from renewable sources from Member States with a surplus of renewable power if Poland fails to reach the obligatory minimum share of 15% of renewable power in gross final energy consumption until 2020. The cost of such a transfer could be up to PLN 8 billion. A surge in renewable energy capacities is thus in Poland's best interest. So, it is no surprise that the conditions of the amendment stated in the rationale for the draft amendment focus on making the principles for carrying out investments in the Polish renewable energy sector more secure and predictable in order to bring them in line with the strict requirements of the European Union.
The amendment to the RES-Act enables to conduct renewable energy auctions in 2019. The government’s draft amendment specifies the maximum amounts and values for renewable power that can be sold at auctions in 2019. It assumes a total increase in newly installed capacity of 3,414 MW for different types of renewables, mainly onshore wind farms and photovoltaic power plants. This will allow to reach an annual power generation of 9,176 Twh.
The amendment improves the terms and conditions for auctions. The period within which the plant's operator whose bid won an auction must start selling the power generated in that power plant has been extended. The current regulations provide for the following periods: 18 months for the operators of photovoltaic installations – proposed extension to 24 months; 24 months for the operators of onshore wind farms – proposed extension to 33 months; and 36 months for the operators of other renewable power plants except offshore wind farms (proposed extension to 42 months).
The legislator has allowed for the possibility of updating the winning bid once in an auction. The aforementioned entitlement refers to the planned starting date of the period within which the auction-based funding system and/or the installed renewable power generation capacities will be used , provided that the total updated capacity values of such a plant do not change its original qualifying features applicable to this power plant on the day when the bid was submitted.
The draft amendment provides for an extension of the period for connecting a power plant to the grid in respect of grid connection agreements concluded before 4 November 2015. The operators' practice to date has often been to terminate grid connection agreements with so-called “late power producers” who had difficulties to comply with the grid connection schedule. This was caused by operators’ fear that capacities would be used in virtual projects without any real prospect of success. This inflexible approach of operators, however, had little to do with the realities of the investment process and also limited the number of companies willing to participate in RE auctions. According to the draft amendment, the validity of the aforementioned grid connection agreements will be extended and the basis for termination will be the failure of the first grid feed-in until 30 June 2021.
Also the so-called “Distance Act” will be amended. The Polish Ministry of Energy strives to make the greatest possible use of permits for the construction of wind turbines that had been issued before the disastrous Act on Wind Farm Investments became effective (on 16 July 2016). According to the proposed amendment, the permits for the construction of new wind turbines that had been issued before the above-mentioned Act became effective will remain valid until mid-2024. It's a common fact that the government is pursuing the “all hands on deck” strategy also with regard to wind energy, due to the pressure to reach the targets set for the 2019 auctions to the largest possible extent.
Currently, the vast majority of Polish renewable power plants is being constructed on the basis of outline planning consents. These are issued by the head of the municipality, the mayor or the senior mayor once an investor has fulfilled the conditions set out in the Spatial Planning and Development Act. The investment process practice has shown that meeting these requirements can be problematic. A prime example is the requirement to comply with the “good neighbourhood” principle, which refers to the obligation to ensure uniform and coherent development with the adjacent land plots. To put it very simply, a renewable power plant should be constructed on a land plot adjacent to a land plot that is used for a similar purpose. Thus, it is not possible, e.g., to install a PV plant behind a school or a hospital. Under the current legislation, these restrictions do not apply to railway lines, linear objects and technical infrastructure. What is important is that the government’s draft amendment extends the catalogue of preferred investments to also include renewable energy plants. This amendment will undoubtedly have a positive impact on the dynamics of the implementation of construction projects in the area of renewable power plants. The planned amendment to the planning regulations will also mean simplifications for so-called micro power plants, i.e. renewable power plants with a total installed capacity of up to 50 kW that are connected to a grid with a nominal voltage of less than 110kV, or with a combined heat and power output of up to 150 kW whose total installed capacity does not exceed 50 kW.
The draft amendment extends the definition of the “prosumer of renewable energy”. This will be an end consumer, including an entrepreneur, who produces RE power for self-consumption in a micro power plant and is able to store this energy, or to sell it to an obliged seller and/or another seller. The condition is that the sale of power generated in an own micro power plant (capacity of up to 50 kW) to consumers other than households does not constitute the core business in the meaning of the Act on Public Statistics.
The draft amendment is to be forwarded to the Sejm [lower house of the Polish parliament] for further processing, and after it is adopted and signed by the President of the Republic of Poland, it becomes a binding law. After the amendment is enacted, it will be possible to determine with much greater probability when the next energy auction is going to be organised.
Piotr Mrowiec, LL.M.
Associate Partner
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