Current producers of electricity from renewable energy sources as well as producers from modernised RES installations are to be offered a choice between maintaining the current support rules (using certificates of origin) and a new auction-based support system. The auction system would be applied with respect to new installations put into operation on or after 1 January 2016. Another major element of the latest proposal for the RES Act is support for “prosumer” generation of electricity at micro RES installations.
For several years, work has been underway in Poland on the draft for a Renewable Energy Sources Act. The original draft, presented in 2011, sparked much debate and controversy. During the social consultation process, more than 2,500 comments were submitted, and some of them were taken to heart. The draft was also discussed in inter-ministerial consultations. As a result of work at the Ministry of Economy, a new version was developed over the past few months which has now been submitted to the Parliament for consideration.
Certificates of origin
The current RES support system is based on trading in property rights to certificates of origin known as “green certificates.” Green certificates confirm the quantity of electricity physically generated at a renewable energy source. The registered certificate has financial value tradable on the market. Energy companies involved in generation of electricity or sale of electricity to end users connected to the national power grid are required to obtain and present for redemption an appropriate number of green certificates or, alternatively, to pay a substitution fee in an amount specified during the given year.
The RES Act would introduce limitations on the use of the current support system. First and foremost, it eliminates indexation of the substitution fee to account for the inflation rate, instead fixing the unit substitution fee at PLN 300.03 per MWh. The bill would also restrict the possibility of paying the substitution fee. If the average weighted price of green certificates on the Polish Power Exchange (Towarowa Giełda Energii S.A.) during a period of 3 months is less than 75% of the substitution fee, it would not be permissible to comply with the obligation to purchase certificates of origin by paying the substitution fee.
The level of the obligation to purchase green certificates would be set at 20%. The Minister of Economy would be empowered to reduce the level of required purchase (by 31 August of the given year), but could not increase it. Hydroelectric installations with a total installed capacity greater than 5 MW would be excluded from the support system, as would multifuel installations until 31 December 2020, up to the value of half of one certificate of origin per MWh produced, except for dedicated installations (after that date an adjustment factor specified in a regulation of the Council of Ministers would be used). In the case of existing power installations, electricity generated from RES would be subject to a purchase obligation on the part of an obligated seller (i.e. the seller of electricity with the highest sales volume in the area of the given distribution network).
Certificates of origin for electricity from RES for current producers and producers from modernised installations would continue to be used for 15 years, but no later than 31 December 2035, with this period being counted from the date of the first production of such electricity confirmed by an issued certificate of origin.
Auction system of support
An auction system of support is provided for new RES installations where electricity is produced for the first time on or after 1 January 2016 and where the equipment included in the installation was produced no later than 48 months (or 72 months in the case of offshore wind installations) before the date of initial generation of power, and also optionally for existing power producers and producers at modernised installations.
The auction mechanism is designed to support installations using renewable energy sources cost-effectively. Thus the funds earmarked for support of generation of electricity from RES would go first to producers who accept the lowest price per unit of electricity, regardless of the installation where the electricity is produced. In auctions conducted by the President of the Energy Regulatory Office at least once per year, the operators would be selected who offer to produce a given quantity of electricity from renewable sources at the lowest price.
Auctions would be conducted separately for facilities with an installed capacity of up to 1 MW and those with an installed capacity of above 1 MW. At least 25% of the quantity of electricity from RES sold through the auction would be expected to be generated at RES installations with a total installed capacity of up to 1 MW.
The rate established as a result of the auction would remain unchanged, but would be subject to annual adjustment based on the consumer price index. The subject of the auction would be the energy quantity specified by the President of the Energy Regulatory Office for a period of no longer than 15 years from the date of initial production of power at an RES installation. A producer of electricity from renewable sources with an installed capacity of up to 500 kW would be required to sell all of its offered output at the established price (up to the quantity of production declared in the auction), even if the market price for electricity is higher. Other producers would be entitled to receive from a newly established energy clearinghouse (Operator Rozliczeń Energii S.A.) the difference between the price they could have obtained by selling power on the Polish Power Exchange (average daily price weighted by volume) and the price at which the producer won the auction.
The auction would be based on a reference price per electricity unit specified taking into account the installed electrical capacity. With respect to new RES, the reference price would be calculated by the Minister of Economy separately for each RES technology and announced 60 days before the first auction in each calendar year. In establishing the reference price, the Minister of Economy would be required to take into consideration the results of economic analyses conducted by advisory or R&D units concerning the average costs for generation of electricity from renewable sources.
For existing and modernised sources, the reference price would be determined with consideration of the average sale price for electricity on the competitive market in the preceding quarter, announced by the President of the Energy Regulatory Office, as well as the average weighted price of property rights under green certificates in 2011–2013 on the Polish Power Exchange (which was PLN 239.83).
Under the RES act, the obliged seller would be required to purchase electricity produced at an RES installation from the producer at the price established in an auction decided no later than 30 June 2021, although the support itself could last through 31 December 2035.
The following would be excluded from the auction mechanism:
- Hydroelectric installations with a total installed capacity above 5 MW
- RES installations with a total installed electrical capacity above 50 MW using biomass, biofuels, biogas or agricultural biogas to generate electricity from renewable sources, except for RES installations using biomass, biofuels, biogas or agricultural biogas to generate electricity fired through high-efficiency cogeneration with a heat capacity of up to 150 MWth
- Installations fired by multifuel combustion, except for dedicated multifuel-fired installations.
Support for small energy producers
The bill also provides for support for prosumer generation, which involves generators using electricity for their own needs and selling the excess onto the power grid. Under the proposal, an obligated seller would be required to buy out the excess electricity.
Prosumers eligible for support would be individuals generating electricity at micro installations (with a total installed capacity no greater than 40 kW connected to the power grid with a rated voltage less than 110 kV or an achievable associated heat capacity no greater than 120 kW).
Under the bill, generators of electricity at a micro installation could sell the excess unused electricity at a price equal to 100% of the average price for electricity on the competitive market from the prior quarter. The quantity of electricity would be settled during a six-month period as the excess of electricity produced at the micro installation of the prosumer or enterprise (in the case of the latter, only for electricity produced at a micro installation for the first time on or after 1 January 2016) and introduced into the grid, over the amount of electricity taken from the grid during the same six months. This mechanism creates one “official” price for all micro installations, combined with a mechanism for calculating the balance of electricity purchased and sold on the grid (i.e. a net metering mechanism).
The bill also provides an exemption for individuals generating electricity at RES micro installations from the obligation to conduct business activity, and also an exemption for all producers of electricity at RES micro installations and small installations from the obligation to obtain a licence (economic activity involving production of energy at small installations would be a regulated activity).
Businesses producing electricity at a micro installation or small installation would also be eligible to use the certificate system (on condition that the electricity was generated for the first time prior to 1 January 2016, or, in the case of micro installations or small installations modernised on or after 1 January 2016, after meeting the conditions set forth in the act) as well as the auction system. Producers of electricity at a micro installation or small installation which produced electricity prior to entry into force of the new act (or which were modernised in accordance with requirements set forth in the act) could also decide on the auction system. In the event of winning the auction, such installations would lose the right to benefit from the certificate system.
According to the bill for the RES Act, the act would enter into force 30 days after publication, except for certain items, including the provisions of Chapter 4 concerning mechanisms and instruments for support of generation of electricity from RES and production of agricultural biogas at RES installations, which would enter into force on 1 January 2016.
Karol Czuryszkiewicz and Marek Dolatowski, Energy Law Practice, Wardyński & Partners