In September 2013, the Ministry of Economy (ME) has for the first time put forward a scheme aimed at “optimizing” the support mechanisms currently available for energy and biogas producers. The project has given rise to numerous controversies, and is currently the subject of heated debates amongst representatives of the industry. The proposed support would be aimed primarily at “verified and mastered” technologies, ones that are not only stable, but also produce electricity at the lowest possible cost. As set out in proposed changes, the chief form of support would consist of purchase of energy from previously auction-selected renewable sources, at a predetermined price.
It appears that the chief aim of changes proposed by the ME is gaining of control over the total amount of support costs borne, especially since it is not guaranteed by the current support system of green certificates. According to ME, the changes are expected to stabilize investment conditions, and in turn facilitate the reaching of goals set for share of renewables by 2020.
Continuation of the current system for existing installations
The current green certificates subsidy system for existing renewable installations is to remain essentially unchanged (apart from minor modifications). Producers of electricity from renewable sources shall be aware of the plans of introduction of a set substitution fee of 297.4 PLN/MWh, and reduction of the duration of support system to 15 years as counted from the first day of energy generation covered by the certificate system, with the qualification that this period cannot extend beyond the end of 2021. The substitution fee is paid by entities obliged to purchase green certificates if in default of their duties, and in fact determines the maximum market price of green certificates. Furthermore, green certificates will continue to be issued based on the amount of energy produced (i.e. 1 green certificate for 1 MWh), but the support level for multi-fuel plants will be limited. Support will cover only electricity produced to the average level of energy generated in years 2011-2012, and the number of green certificates available for 1 MWh will be reduced to 0.5. Additionally, plants using hydropower in generation having a total installed capacity lower than 1 MW, will be altogether excluded from the certificates scheme.
Furthermore, as means of improving the current support system, ME plans to introduce the obligation to trade in green certificates on the Polish Energy Exchange and limit the extent, to which this obligation could be substituted by payment of abovementioned substitution fee. ME also proposes the introduction of expiry date for green certificates – 24 months since the date of their issue to the electricity producer.
Options to choose from for existing installations
As part of the set of the new solutions for existing plants, entities generating energy from renewable sources will have the possibility of choosing within two years from the introduction of new regulations between the maintenance of existing support scheme and accession to the new auction system. The total duration of support will be up to 15 years as counted from the first day of energy generation covered by the certificate system
The energy producer will have to sell energy generated at the price settled at the auction, regardless of actual market prices. Additionally, bids exceeding the reference price, set based on market price of green certificates (calculated for 24 months preceding the entry into force of the new regulation) and previous year’s energy price on the competitive market, will be rejected.
Auction mechanism for new and modernized installations
Third proposed solution is the introduction of a new auction mechanism, which will be available only for businesses offering new projects, or for modernization of existing plants for purposes of increase in their power capacity. Choice of projects will be made based on factors such as price (per generation of 1MWh of energy or 1 m³ of biogas) and other criteria, such as stability. The volume of electricity or biogas from projects accepted during the auction will be set for 15 years (and for all particular years in this period), with the auction price remaining unchanged within this period. Plants generating energy from biomass with the power exceeding 50 MW as well as multi-fuel plants will be excluded from the auction support mechanism.
Prequalification
It is ME’s intention to introduce a requirement, whereby projects aspiring to take part in the auctions will have to undergo the prequalification procedure. Prequalification criteria will be set out in the relevant secondary legislation to the Renewable Energy Act, and are to cover issues such as obtaining by investors of specific planning documents, conditions of accession to transmission grid, environmental permits and documentation relating to financial and funding capabilities. ME also plans to introduce additional restrictions that would preclude entities submitting unreliable investment projects from taking part in the auction. Examples of such requirements include the obligation to lodge a deposit or the exclusion of entities, which have failed to obtain positive progress verification in carrying out of projects a year after the auction has been concluded.
Reference prices
The auction mechanism entails the introduction of separate reference prices for each kind of renewable technology at a level ensuring that about 80% of projects will be above profitability threshold. The reference prices will be set yearly by the Minister of Economy. Tenders submitted during the auction in excess of the reference price will be rejected.
Special purpose company as the mandatory energy off-taker
ME intends to create a special purpose company of the State Treasury, the Renewable Energy Seller, which will have the task of purchasing energy generated from renewable sources at the price determined in auction. Renewable Energy Seller will then sell such energy on the Polish Power Exchange at market price. A special fee charged to energy consumers will cover the difference between the proceeds of the sale and costs of energy purchase.
Facilitations for prosumer energy
The final proposal submitted by ME as part of the scheme optimization of support mechanisms is introduction of facilitations for small-scale prosumer energy, such as exemption from the obligation to obtain a generation licence, not regarding generation of electricity in micro installations as carrying out business activity, creation of investment support systems or introduction of obligation to purchase surplus electricity at the price of 80% of the average price in a competitive market or facilitations in granting access to the network.
Draft new law
It should be noted, that the draft new law implementing the new system is expected to be published soon. There have been rumours, to some extent already confirmed by the ME officials, that the draft new law will present different approach with regard to a number of specific instruments described above. We will comment on it as soon as it is published.
Co-author: Agnieszka Leszczak
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