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Proposed new Energy Law with a focus on electricity

At the end of 2011 the Polish utility sector received a present from the government in the form of a long-awaited package of proposed energy legislation. How could it change the rules of the market?

February was the deadline for public comment on a legislative package including the proposed new Energy Law, Gas Law and Renewable Energy Sources Act. These acts are designed to replace the current Energy Law, which has been amended numerous times and now regulates the entire utility sector in Poland, including electricity, heat, gas, renewables, and licensing of trade in fuels. If the package is enacted into law, there will be changes in the rules under which the sector operates, particularly in the system of support for renewable energy sources. We focus now on the changes provided for in the proposed new Energy Law.

Utility sector in Poland

The utility sector in Poland is characterised by significant concentration, with a predominant share of the sector held by companies controlled by the State Treasury. Because the sector generates significant profit, it is treated like the family silver which should not be sold off.

This attitude, along with the global financial crisis of recent years, has effectively slowed down, limited or eliminated plans to privatise companies from this sector.

The power market is effectively dominated by a small group of companies handling generation, sale and distribution of electricity. The gas market is dominated by Polskie Górnictwo Naftowe i Gazownictwo SA, which extracts, sells and distributes natural gas through various companies in the group. Apart from them, there are other electricity and gas companies 100% owned by the State Treasury. In heat and renewables, there is more diversified ownership, with Polish and foreign industry investors present in these segments.

The sector is also shaped by the climate policy adopted by the European Union, and in particular the requirement to cut greenhouse gas emissions and achieve a 15% share of energy from renewable sources in the overall energy consumption mix by 2020. In a country like Poland, where power is generated almost entirely from fossil fuels, particularly coal, implementation of the EU policy will force changes in the operations of the utility sector.

Proposed new Energy Law

The proposed new Energy Law contains separate chapters regulating the power segment and the heating segment in Poland. Most of the text is carried over from the current law unchanged or with only minor revisions. The sector would continue to be regulated through a system of concessions, with rates monitored and approved by the president of the Energy Regulatory Office. However, heat producers who meet efficiency requirements would be released from the obligation of submitting rates to the regulator for approval.

The proposed law lays the groundwork for further deregulation of the electricity market. A mechanism is introduced for protecting “sensitive users,” i.e. individuals receiving welfare benefits. Power companies would be required to cut the fees charged to such users by a fixed statutory rebate. Emergency sales could not be carried out by the seller on its own initiative, but by an emergency seller appointed in a general distribution agreement. The institution of a measurement system operator is introduced, which would establish and manage a collection of measurement data. A computer-based measurement system would be created using smart metres. Distribution system operators would be required to install smart metering at their own cost by 2020. Ultimately, charges for all users would be based on actual consumption, not forecasts.

There would continue to be a requirement that only one entity, wholly owned by the State Treasury and overseen by the Minister of Economy, could operate the electricity transmission system in Poland. This company would have exclusive authority to operate connections with systems of other countries. Rules for allocation of the transmission capacity of connections with systems of countries who are not members of the EU are introduced—analogous to the rules for connections between EU member states set forth in Regulation (EC) No. 714/2009. A transmission system operator would be required to hold a certificate of independence confirming that it is not tied to entities selling electricity. This is a requirement imposed by EU law.

The proposal includes simpler rules for operators of closed distribution systems: release from the obligation to prepare development plans and instructions for network traffic, submit rates for approval, connect new users, and prepare and update standard consumption profiles. These rules reflect the demands of industrial power, i.e. companies historically generating power at their own plants, auxiliary to their main operations.

The rules for support of high-efficiency cogeneration would also change. Trading companies would not be required to purchase electricity from cogeneration. The system of certificates of origin for energy from cogeneration, and the requirement to purchase such certificates and present them for redemption, would remain in force. Enterprises consuming major quantities of electricity, for whom power represents at least 15% of their operating costs, would be authorised to settle on their own their obligations related to certificates of origin of electricity from cogeneration. Such enterprises would also be released from the obligation to purchase certificates of origin and present them for redemption with respect to quantities of electricity exceeding 400 GWh purchased and consumed annually.

In the upcoming weeks, we will discuss the proposed new Gas Law and Renewable Energy Sources Act.

Weronika Pelc, Energy Law practice, Wardyński & Partners