Ministry to modify the draft RES Act

by dbereza

Ministry to modify the draft RES Act

by dbereza

by dbereza

Ministry of Energy accepted the proposals of entities participating in public consultations of the draft Renewable Energy Sources Act.

The key change introduced by the Ministry at this stage of the procedure is the deletion of provisions concerning the different substitution fee calculation method. The substitution fee indirectly affects the price of green certificates, which – next to electricity – constitute one of the fundamental sources of revenue for renewable energy sources (RES) built by mid-2016.

Therefore, the Ministry accepted the recommendations of both the RES industry and international chambers of commerce, banks and representatives of the conventional energy sectors, who alarmed about the detrimental effects of the provisions for existing RES installations.

We are happy that Minister for Energy accepted the arguments presented during public consultations by many organisations. He demonstrated that he promotes both the achievement of the Poland’s 2020 RES target as well as clean and inexpensive electricity for Polish citizens, stated Janusz Gajowiecki, President of the Polish Wind Energy Association (PWEA) following the consensus conference held in Ministry of Energy on 26 March.

Only the development of renewable energy sources, including onshore wind farms which today produce the least expensive electricity, may permanently drive down wholesale electricity prices. Without inexpensive electricity our industry will not be competitive, and there will be no economic growth,” Gajowiecki added.

The essence of changing art. 56 sec. 1 of the RES Act – linking the electricity price and substitution fee
Before changes:
  • OZ = upper price limit for green certificates = 130 PLN / MWh (theoretically 300.03 PLN / MWh)
  • revenues from the sale of unlimited electricity
  1. total unlimited income
  2. expectation of an increase in revenues from the sale of electricity el. (met in 2018)
After changes:
  1. limited income: PLN 312.08 / MWh
  2. no possibility to increase revenues in the future
Public consultations of the draft RES Act were participated by several dozen entities.
More than 300 remarks were filed in total.

The majority of remarks pertained to wind energy, including the new substitution fee calculation formula, which indirectly affects the price of green certificates. Next to electricity, the certificates are a fundamental source of revenue for entrepreneurs producing electricity in installations built by mid-2016.

Let us remind that the draft amendment to the RES Act published by Ministry of Energy at the end of February proposed to introduce a scheme for pushing the green certificate price down by binding the substitution fee to electricity prices.

Reducing the substitution fee in a way that limits revenues to PLN 312 / MWh will result in: 
  1. incurring significant losses by special purpose vehicles;
  2. most entities will face bankruptcy;
  3. the bad situation of farms will also hit the balance sheets of banking institutions.

The new formula would be extremely adverse for RES installations already operating in Poland. Had the changes been adopted, the revenue of installations would be limited to a maximum of 312 PLN/MWh, total on the sale of electricity and green certificates. Business plans of the majority of existing wind farms assumed revenue of 400-450 PLN/MWh. This was stressed in their respective Position Papers by both Polish Wind Energy Association and the Polish Bank Association.

Furthermore, the Polish-Portugese Chamber of Commerce as well as the Lewiatan Confederation’s RES Council stressed that this would constitute yet another interference with the RES support scheme made within the past few years. As noted the Economic Society Polish Power Plants (ESPP), an association of the largest entities holding baseload generation assets, even the September 2017 amendment to the RES Act (the so-called Lex Energa), which decreased the substitution fee, was less of a threat, for it created an outlook for the increase in the substitution fee, hence certificate prices, which promoted trade and revived the market.

“Assuming that electricity prices on the competitive market will increase to 240 PLN/MWh in 2019, in 2020 the substitution fee would decrease to 70 PLN/MWh. Such a scheme constitutes a complete abandonment of the green certificates scheme principles applicable to date,” the ESPP Position Paper reads.

In the Society’s opinion this will make scheduling the operation of biomass-fired units difficult, hurting the Polish producers. Therefore, a gap in the achievement of the 2020 RES target would appear.

“If the provision remains unchanged, expectations as to the production of 5-6 TWh/year from biomass are illegitimate. The actual production may be much lower. In such circumstances one shall not assume RES share in national energy consumption at the level of 19.1%,” stated Elektrociepłownia Białystok in the Position Paper of Enea Ciepło.

Representatives of Ministry of Energy promised they will look into the liberalisation of this provision within the subsequent amendment to the RES Act.

Furthermore, many entities also stressed the need to include the issues related to the abandonment of location constraints in the draft RES Act. The preservation of the 10 h principle, introduced by the Wind Energy Investments Act, results in a halt to the development of the RES sector, which was driven in the previous years by the increase in wind farm installed capacity.

“It should be considered to allow locating wind turbines at a distance less than 10 h, for instance 5 h, where an unambiguous positive opinion of the local community, expressed during public consultations carried out in line with the public consultation principles applicable in the municipalities among persons permanently residing the potential wind farm impact zone is obtained. Taking account of local determinants will prove the autonomy of local authorities and the ability to make decisions at the local community and local government level,” the Association of Renewable Energy-Friendly Communes advises in its Position Paper.