Poland: Renewable Energy Auctions 2021

published on 20th May 2021

This year’s energy auctions already scheduled for the period between 26 May and 11 June 2021 were a pleasant surprise by the government to investors. A total of eight auctions have been planned for solar, wind energy, biogas, hydro and geothermal installations and their outcomes will be published by 30 June 2021. The most popular auction rounds – for wind and solar energy – will take place last: on 8 June 2021 – an auction for wind and solar power plants with a capacity of more than 1 MW and on 11 June 2021 –an auction for small-scale plants with a capacity of 1 MW or less. The government assumes that the budgets reserved for the auctions will allow funding solar power plants with a total capacity of up to 1,800 MW (1,000 power plants of up to 1 MW, 800 power plants of more than 1 MW) and onshore wind energy projects with a capacity of about 600 MW.

Also the draft regulation on reference prices, i.e. the maximum prices that can be offered by renewable power producers in an auction, is already known. The proposed price for wind energy from power plants with a capacity of more than 1 MW has again decreased compared to the previous year and now levels 230 PLN/MWh – compared with 250 PLN/MWh last year and 285 PLN/MWh two years ago. The price for solar power plants of up to 1 MW will drop to 340 PLN/MWh – compared with 385 PLN/MWh two years ago and 360 PLN/MWh last year. On the other hand, solar power plants with a capacity of more than 1 MW should expect a reference price of 320 PLN/MWh – compared with 340 PLN/MWh last year and 365 PLN/MWh two years ago. The strong decline in reference prices for solar power is the result of a rapid increase in the number of photovoltaic projects participating in auctions. It should be noted that due to strong competition, bids are significantly below reference prices. This year, it should be expected that also in respect of power plants of up to 1 MW prices will be below the market price level.

2020 was the best year ever for photovoltaic energy in Poland and it cannot be ruled out that one more energy auction will be organised as of the end of this year.

Reasonable revival in wind energy expansion

One of the reasons for the dynamic growth in the photovoltaic market for large-scale PV power plants in Poland is the lack of competition from the wind energy industry. The „Distance Act” applicable since mid 2016 prohibits the construction of power plants in a distance of less than ten times the overall height of such power plant to any building and, at the same time, requires that wind turbines be erected based on local land use plans which, however, are rarely found in Poland. As a result of the Distance Act many commenced wind energy projects were not continued. In addition, it made the development of new projects practically impossible.

Luckily, a change is within sight. The government has announced plans to amend the provisions on the construction of wind power plants yet this year. The planned reform aims to simplify the investment process regarding onshore wind power in municipalities that declare their willingness to site the wind energy infrastructure. According to the proposed amendments to the „10h regulation”, local governments will be the appropriate bodies for making decisions on future onshore wind energy investments in consultation with the local population. Municipalities will be able to resolve on local land use plans that provide for siting wind energy turbines in a distance less than that stipulated in the "10h regulation" on condition that the statutory minimum distance of 500 meters is complied with.

Turning to the sea

When talking about wind energy also the growing interest in offshore wind farms should be mentioned. The Act on the Promotion of Electricity Production in Offshore Wind Farms entered into force in February this year. It provides for a two-tier system for granting funding to producers of electricity in offshore wind farms. The first phase is dedicated to the most advanced projects with a total installed capacity of 5.9 GW; they are granted funding based on individual administrative decisions issued by the President of the Energy Regulatory Office (URE). The difference between the electricity price of 319.6 PLN/MWh arising from that decision and the price achievable on the competitive market will be paid to producers by the government. In later years, offshore power plants will be funded in the form of competitive renewable energy auctions, just like the technologies mentioned above.

Altogether nine applications for funding were submitted to the Energy Regulatory Office during the first phase. The underlying projects provide for a capacity of 5.9 GW, thus exactly the volume eligible for funding in this phase. For the most advanced projects, siting permits and environmental permits have been issued and grid connection contracts have been concluded. The participating investors have announced the start of selling energy from offshore wind farms for 2026.

Important amendment to the Renewable Energy Sources Act

Another tool for adjusting the Polish provisions to Red II is the draft amendment to the Renewable Energy Sources Act. The government aims to expand the public funding programmes yet existing but expiring on 30 June 2021 for producers of electricity from renewable sources. Thanks to the amendments it will be possible to prolong the auction-based funding system until 31 December 2027 and, thus, have auctions held for a further six years. Another important government proposal is a limitation of the concession requirement. It currently applies to the operators of renewable energy power plants with a capacity of 500 kW and more; according to the expected amendment, the concession obligation will apply only to power plants with a capacity of more than 1 MW whilst other power plants will be subject to the obligation of registration in a register for small-scale power plants.

Limitation of the concession requirement and replacing it with the obligation to register means a significant simplification of the procedure for obtaining a permit for carrying out a business activity in the area of renewable energy power plants. Another important change proposed by the government refers to the settlement for power plants with a capacity of at least 500kw that won a renewable energy auction. According to the current rules, a negative balance, i.e. the difference between the price offered by the producer in an auction and the electricity price achievable on the competitive market, is offset against a so-called positive balance arising in a situation where the price achieved by the producer on the competitive market exceeds the price offered in the auction. According to the current Renewable Energy Sources Act the balances are summed up throughout 15 years and then finally settled. If a positive balance remains after the settlement, the producer is obliged to pay the equivalent value of the positive balance. According to the presented draft amendment the balance is to be settled every three instead of 15 years, also in respect of projects already receiving funding.

This amendment may have a negative impact on the cash flow of some investors whose planning provides for recovering a positive balance not earlier than after the end of the funding period.