Power Market Act by the end of this year? | In Principle

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Power Market Act by the end of this year?

On 4 July 2016, a conference entitled “The power market: Consultations on functional solutions” was held at the Polish Ministry of Energy. At the event, the Minister of Energy announced that a Power Market Act would be drafted by the end of 2016. The power market is intended to ensure the energy security of Poland and continuity and reliability of the electricity supply.

The power market is a response to the situation facing the Polish energy sector. Despite investment in new production capabilities, there is currently no guarantee of security in the electricity system.

The market mechanism is intended to encourage investment in new production capacity while supporting producers with unprofitable generating facilities—primarily coal-fuelled electrical plants—in withdrawing them from use. The creation of a power market would maintain loss-making facilities in a state of readiness while stabilising the supply of energy from renewable sources.

The government representative for strategic energy infrastructure, Piotr Naimski, announced that it is now practically unprofitable to construct new coal- or gas-fired units in Europe. He underscored that the generation of energy must be maintained in Poland at the country’s disposal, and a strategy should be adopted of investment in power plants in Poland. He said that a model based on reliance on generation from neighbouring countries, joining an energy club and creating an area for competition with energy from outside Poland, should be rejected.

New production capabilities (coal units) are being constructed by ENEA in Kozienice (1,075 MW). PGE is building two new units in Opole (1,800 MW) and Turów (450 MW), while Tauron is building a unit in Jaworzno (910 MW). Furthermore, units with a capacity of 450 MW and 240 MW will be built at the site of the present Stalowa Wola power plant as a joint investment of Tauron Wytwarzanie and PGNiG Termika. The construction of a nuclear power plant is also planned by 2035, with a capacity of approximately 3,000 MW.

The power market will be designed to follow “technological comity”; that is, equal conditions for competition will be ensured for all technologies for generating electricity. The market will not include entities already benefitting support systems or state aid.

The power market assumes that producers will be rewarded for the availability of power during a given period of supply (at times of threat). A time of threat will be defined as a full hour during which the amount of reserve power available for the transmission system operator in the process of daily coordination planning is less than required to ensure secure operation of the national grid.

Dutch-style auctions will take place within the initial power market. The main auction will be held four years prior to physical supply of electricity. Then an additional auction will be held one year prior to delivery. Trading in power obligations will also be possible on the secondary market (together with reallocation of volumes).

After an auction, bidders will conclude a power contract with the TSO. The contractor will also have to maintain readiness to supply power during a period of threat announced by the TSO. Contracts will be concluded for one year for existing generating units, five years for modernised units, and 15 years for new units.

The Ministry of Energy expects the first auction to be conducted at the end of 2017, with delivery from 2021.

Minister of Energy Krzysztof Tchórzewski said that the ministry expects an additional approximately 10 GW of new and modernised production units to go on line by 2021, including units currently under construction. The cost of introducing the power market mechanism is initially estimated at about PLN 2–3 billion annually.

The introduction of the power market mechanism may have to be reported to the European Commission as a support system. According to the Commission’s instructions on state aid for environmental protection and energy-related purposes in 2014–2020, dated 9 April 2014, aid should constitute compensation solely for the service of availability itself, i.e. for the obligation of readiness to supply electrical power and the compensation due on this basis. Any assistance exceeding this framework is prohibited.

The ministry has also begun consultations on the guidelines for the power market, which will be held through 18 July 2016.

Karol Czuryszkiewicz, Energy Law Practice, Wardyński & Partners