On 1 December 2021, the Minister of Infrastructure published a long-awaited regulation on evaluation of applications for licences to erect artificial islands (offshore location licences). Investors who obtain permits will be able to participate in future auctions for offshore wind farms.
Applications for permits will be submitted by investors interested in developing offshore wind farm projects in 11 areas specified in the Offshore Act (Act on Promotion of Energy Generation by Offshore Wind Farms). Permits for erection of artificial islands are the first key permits on the way to participate in auctions and ultimately to construct offshore wind farms (offshore phase II in Poland).
5 GW of new offshore capacity to be won in future auctions
Pursuant to the Offshore Act, the president of the Energy Regulatory Office (URE) will hold auctions for offshore wind farms in 2025 and 2027. During each auction, electricity from wind farms with a total capacity of 2,500 MW may be sold. If necessary, when not all of the contracted electricity is sold at the auctions in 2025 and 2027, the regulator may announce further auctions in 2028 and subsequent years. As a result, at least 5 GW of offshore wind farm capacity will be created by 2040, which, together with the projects currently under construction (5.9 GW by 2030), is expected to reach about 11 GW of installed capacity in offshore wind farms in the Polish region of the Baltic Sea. The total potential of wind farms in the Polish part of the Baltic Sea is estimated at some 20 GW, or 25% of the entire Baltic Sea potential of about 80 GW.
Intense consultations on the wording of the regulation
Drafting of the regulation was accompanied by intense negotiations between the Ministry of Infrastructure, the Ministry of Climate, and Polish and foreign investors. Polish state-owned companies have declared very active involvement in the construction of offshore wind farms. PGE, which will build offshore wind farms in phase II together with Enea and Tauron, declared that it will build an additional 2.5 GW, which, together with the already developed farms with a total capacity of about 3.5 GW, will give 6 GW of offshore capacity. In turn, Poland’s largest fuel company declared that it would apply for all available 11 areas.
Long list of criteria
Meeting the criteria required by the regulation will yield a certain number of points for the applicant. The regulation provides for the following criteria and number of points:
- Positive opinion or no objections to the application—4 points
- Compatibility of the project with the basic or acceptable function, and compatibility of the project with prohibitions and restrictions resulting from the maritime area development plan—4 points
- Demonstration that in the given area it will be possible to run projects other than offshore wind farms—up to 2 points
- Degree of adaptation of the dates of commencement and completion of construction and operation of offshore wind farm to the interests of the national economy, and the duration of the permit—1–5 points
- Presentation of financial security in the form of a bank or insurance guarantee, security deposit or surety securing the fee for the permit to erect artificial islands (in the amount of one-thousandth of the project value)—8 points for a bank guarantee or security deposit, 6 points for an insurance guarantee, or 4 points for surety
- Possibility of building an offshore wind farm using the applicant’s own funds—up to 15 points
- Possibility of building an offshore wind farm with borrowed funds—up to 8 points
- Possibility of building an offshore wind farm with available public funds, including subsidies from the European Union—up to 2 points
- History of building or operating an offshore or onshore wind farm—8 points
- History of building or operating a conventional power plant—up to 8 points
- History of building or operating a high-voltage grid or power evacuation from an offshore wind farm—up to 6 points
- Positive impact of the planned project on energy transformation and reduction of greenhouse gas emissions (depending on the applicant’s emission level—the higher the emission level, the more points for transformation)—up to 7 points
- Qualitative contribution to implementation of specific national sectoral policies—up to 5 points
- Qualitative contribution to EU sectoral policies—up to 3 points
- Having an electricity storage facility—up to 5 points
- Efficiency of use of the sea area of at least 8 MW per km2—up to 5 points
- Experience in implementing hydrogen projects—up to 5 points.
A handful of controversies
In the course of work on the regulation, objections to specific provisions were repeatedly raised, particularly by foreign investors. These objections concerned:
- The fact that an institution not having a rating issued by the three largest rating agencies (S&P, Moody’s and Fitch) was prevented from presenting a guarantee, even though rating agencies also exist in the EU
- Taking into account the development of offshore and onshore farms only in the EU, which discriminates against entities building them in places like Norway or the UK
- Introduction of the criterion of “impact on energy transformation,” which promotes technological backwardness and coal assets, which may be interpreted as favouring Polish energy companies and discriminating against foreign entities that already have significant renewable capacities in their portfolio
- Inability to take into account the experience of more than one entity/group in case of joint venture projects (which is currently the standard in offshore projects in Poland).
European Commission’s expected interest in competitiveness in the European single market
These doubts are shared not only by foreign investors but also by some representatives of the government, who stated in the course of work on the regulation that certain provisions may be found to violate the principle of competitiveness on the single European market. This raises doubts, particularly as the European Commission issued a joint notification decision for both the first and second phases of support for offshore farms. For this reason, violation of the competition rules may threaten the execution of even those projects that are carried out under the first phase of support, not to mention the possible challenge of the legality of the regulation before EU authorities.
Igor Hanas, adwokat, Energy practice, Wardyński & Partners