PWEA Position Paper: Freezing Electricity Prices No Longer Required, But Entails Collapse of RES Producers

by dbereza

PWEA Position Paper: Freezing Electricity Prices No Longer Required, But Entails Collapse of RES Producers

by dbereza

by dbereza
Further interference with forces shaping the price of electricity will result in substantial disturbance, creating a barrier to RES development. If maximum prices are sustained for the next year, it is certain some investors will not bear the burden. The grounds for such remedies are no longer valid, for today the prices are much lower. Keeping a cap on electricity prices for producers further damages the RES market in Poland, experts call.The market needs normalisation, whereas regulations need stability — otherwise economic growth and investments in green energy will be put at risk.

The last two years on the energy market were marked by a crisis that caused unprecedented rise in energy prices. The extraordinary circumstances required special remedies, in particular freezing energy prices, to limit social and economic effects of the crisis. To limit the drastic effects of the energy crisis, in 2023 electricity prices in Poland were “frozen” for most customers, which resulted in the need to finance the scheme in a manner that undermines fundamental principles of the energy market.

We are referring to contributions or, calling it by name, taxes imposed on energy producers and trading companies. Wind energy industry was one the most affected sectors, for the revenue limit imposed on that sector was specified at only 345 PLN/MWh. In 2023, the situation in the European economy, including in the electricity and gas market, improved substantially.

“To date we were told that the schemes are to apply when market energy prices are high. Now the prices are much lower than at the time the regulations were implemented, with exchange electricity prices reaching several thousand PLN per megawatt-hour. Unfortunately, each interference with forces shaping the price of electricity results in substantial disturbance, creating a barrier to RES development, for it impedes investment decisions. If maximum prices are sustained in 2024, it is certain some investors will not bear the burden,”argued Janusz Gajowiecki, President of the Polish Wind Energy Association.

The prices are much lower

In 2023, electricity prices both in Europe and in Poland decreased substantially, and currently are below the statutory limits (785 PLN/MWh for enterprises). Baseload contracts for 2024 at the German market are quoted at approximately 114 EUR/MWh (approximately 507 PLN/MWh), whereas at Polish Power Exchange — at approximately 552 PLN/MWh.

The values are several times lower than at the peak of the crisis at the end of 2022. At the same time the current prices enable final customers to contract electricity below the statutory limit event after adding costs. Therefore, it is no longer necessary to freeze electricity prices for RES producers.

Commission’s Report on review of the emergency intervention to address high energy prices in line with Council Regulation (EU) 2022/1854 states that prices have stabilised, and price limits introduced by Regulation 2022/1854 should not be continued.

Recession in Europe: decreasing energy prices

Year 2023 brought a slowdown to economic growth along with improved energy security. Economic growth in the EU in the second quarter slowed down to only 0.45% YoY and may change into recession in the next quarters. This results in lower demand for fossil fuels (gas, goal) and emission allowances. All these factors affect the decrease in electricity prices in Poland, with the trend expected to be sustained in 2024.

Moreover, gas storage facilities all over Europe are almost 100% full. This is the highest value for this period of the year, translating into TTF gas prices falling to approximately 47 EUR/MWh (December contracts) and a substantial buffer for the next months and quarters.

Last year the Polish market saw a substantial increase in RES installed capacity, which stabilises electricity prices. Compared to September 2022, wind and PV installed capacity increased by 1 GW and 4.4 GW respectively. Further rapid development of renewable sources will contribute to the pressure on price decrease on the wholesale market, hence to permanent decrease of price risk for customers.

Regulatory stability: the foundation of the energy market

Extraordinary measures resulted in adverse financial effects for electricity producers, in particular from RES. RES investors were forced to renegotiate existing project financing agreements as well as power purchase agreements.

This year, financial institutions introduced additional safeguards from potential further “price freezing” to new project finance agreements, which could result in grave consequences for the RES industry had such scenario became true.

More importantly, the taxes (contributions) applicable in 2023 substantially undermined the investors’ confidence in the foundations of the energy market, including regulatory stability and wholesale market.

Decreased producers’ revenues result in investment cuts and slow energy transition, what translates into zero growth or decrease in market performance of stock of many enterprises from the RES sector.

Such regulations were temporarily implemented in many European countries. However, the problem is that next to limits on electricity sale price, investors in Poland have to face a number of other adverse regulatory changes affecting the RES sector. This caused Poland to join an inglorious group of countries exhibiting very high regulatory risk. Such countries feature increased risk premiums, higher financing costs and, ultimately, higher electricity prices.

 “Poland — one of the economic growth leaders in the EU and a country aspiring to attract as many foreign investments as possible — cannot afford to do so. Long-term economic growth requires even more investment in RES, in particular wind farms. To accelerate installed capacity growth and attract investors building projects with a life cycle of 20–30 years we need regulatory stability and predictability,” said Janusz Gajowiecki, PWEA President.

Potential extension of such a broad market “price freezing”, financed by producers’ contributions, contradicts that stability. This would be a fatal mistake thwarting long-term development potential of Poland.

In the short term this will result in the lack of correct price signals in the market, which in the mid term results (as clearly apparent now) in irrational decisions of final customers, including the lack of price “hedging” for future periods (manifested in expectations as to further “freezing”), causing higher price volatility, and ultimately further price “shocks”.

RES must grow — the more RES, the lower the prices

Today, the price of electricity produced from RES installations such as wind farms is more than two times lower than in case of conventional power plants using coal or gas. This is the best remedy for high electricity bills.

For example, in October renewable energy sources for the first time in history covered almost all demand for electricity from Polish customers (97%). This resulted in negative market prices for a few hours, and Poland noted a record-breaking export to neighbours. Therefore, instead of implementing market-destabilising regulations, Poland should adopt a development and normalisation strategy for green energy sources.

In accordance with the Energy Market Agency, the capacity of renewable energy sources in Poland at the end of August 2023 exceeded 26 GW. This means that RES constitute more than 40 percent of 64 GW of total installed capacity in Poland. More importantly, the sum of capacity of all renewable sources is already higher than the capacity of all coal-fired power plants in Poland (21.5 GW).

The entire Position Paper is available at