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RES Act to be amended again

A proposal for amendment of the Renewable Energy Sources Act has been published. It is intended to enable production of new RES while keeping energy prices as low as possible for users.

The new act envisages further changes to the substitution fee calculation mechanism. The fee would be linked to market energy prices and would be the difference between 85% of the average reference price for all technologies applicable in 2018, weighted according to the installed capacity of those technologies (as at 30 June 2016), and the average annual electricity sale price on the competitive market in the previous year, announced by the President of the Energy Regulatory Office and applicable at the time of performance of the obligation to redeem certificates or pay the substitution fee. This mechanism is designed to prevent possible overfunding of RES in cases in which certificate prices rise along with energy prices. When calculated in this way, the RES fee for 2019 would be PLN 117.37. This new method of calculating the substitution fee is to take effect from 1 January of the year following the year in which it is approved by the European Commission.

Although the intention behind the amendment is sound, this is yet another amendment to the “old” funding system. It was not possible to reflect this amendment in any way in business plans of existing RES, or plans of banks providing their financing. The architects of the projects also do not seem to have realised that for many years RES projects generated revenue at a level much lower than expected, while renegotiation of financing frequently meant deferment of repayment of credit facilities in the hope that better times would come.

In addition to that, the proposal entails changes to the auction system, such as:

  • Extension of the funding system until 30 June 2039. This does not only mean extension by several years. Considering that construction of new onshore wind farms has been stopped due to the “Anti-Wind Farm Act”, it also means that other types of RES, such as photovoltaic projects, have an opportunity to win future auctions,
  • Extension of the period in which electricity has to be sold for the first time to 42 months from the moment of winning an auction. In practice, this applies mainly to biomass and biogas projects, because there is no change to special regulations concerning this period for photovoltaics (18 months) onshore wind farms (30 months) and offshore wind farms (42 months),
  • The obligation for distribution system operators to extend interconnection agreements for projects that win auctions at least until the end of the period in which electricity has to be sold for the first time after winning an auction,
  • Abolishing the obligation for existing RES producers who wish to enter an auction to sell energy on the exchange,
  • Repealing the requirement to submit an environmental decision to be admitted to an auction,
  • The obligation to specify planned (but not definitive) dates on which the producer will begin to make use of the funding system, and the amount of electricity to be sold under the funding system (while the penalty for not producing a minimum of 85% of energy is still provided for in the act),
  • The possibility of one review to update the bid selected in the auction, with respect to the installed capacity (except in cases in which the capacity would fall below or increase to above 1 MW) and allocation of energy for sale within the system to particular years,
  • The possibility of settling a negative balance using an electronic form,
  • The principle that any possible refund of a positive balance by a producer cannot exceed the received negative balance. This also means that a positive balance would not have to be returned if no negative balance had occurred earlier (for example when the project began). This should have a positive effect on cash flow forecast for new projects.

In addition, a rule is envisaged for all producers that entered into interconnection agreements prior to 4 May 2015 and plan to enter an auction in 2019, that the deadline for supply of energy for the first time provided for in the agreement cannot be earlier than 1 January and later than 31 January 2020. The permitted age of equipment fitted in installations entering auctions has also been increased for new installations, from 36 to 48 months. Although in practice this means that construction can proceed of designs that are ready and for which a construction permit has been issued, which were saved from the “Anti-Wind Farm Act”, these designs will be based on older types of turbine. These turbines are less efficient than modern models available on the market. This is not a sensible policy for the long term, especially as it is less helpful in achieving the government’s objectives, being stable energy price supplies at a low price for users.

The proposal also specifies the “green” and “blue” obligations for 2020 as 19.5% (green) and 0.5% (blue) as well as the budget for auctions in 2019.

In the case of migration auctions (for existing installations), funds are envisaged for biogas, agricultural biogas, hydropower, geothermal power, biofluids, and offshore wind farms (up to 1 MW and above 1 MW). In auctions for new installations, funds are envisaged for:

  • Hydropower, geothermal power, biofluids, offshore wind farms, agricultural biogas, photovoltaics, and onshore wind farms (up to 1 MW),
  • Biogas, agricultural biogas, hydropower, geothermal power, biofluids, offshore wind farms, photovoltaics, and onshore wind farms (above 1 MW).

The envisaged auction amounts are definitely dominated by funding for onshore wind farms and photovoltaics.

Provisions on origin guarantee will also be made more precise.

Marek Dolatowski, adwokat, Energy practice, Wardyński & Partners