The long-awaited bill on offshore wind farms was published on 15 January 2020. The bill is to establish mechanisms and instruments for supporting the generation of electricity by offshore wind farms, and, to a certain extent, conditions for the preparation and construction of such projects.
Right to negative balance subsidy
The basic support mechanism for offshore wind farm electricity generation, defined as renewable energy source installations consisting of offshore wind turbines, is to involve the option of applying for a right to negative balance subsidy, namely the negative difference between the price that was established in a specific procedure that ensured the completed project’s profitability and the price on the market. It will be possible to secure this support in two ways: through an individual decision of the President of the Energy Regulatory Office (Urząd Regulacji Energetyki, URE), or through taking part in an auction. The final introduction of the support system will depend on the European Commission’s approval of the proposed support mechanism.
According to the bill’s assumptions, generators will enjoy the right to negative balance subsidy for a period of 25 years, counting from the date of the generation and supply to the grid of electricity produced from the offshore wind farm under an electricity generation concession. In addition, support will be restricted to a limit computed as the product of 100,000 hours and the installed electric capacity of the offshore wind farm.
Individual decision of the President of the URE
The right to negative balance subsidy based on a decision of the President of the URE will be granted within a set limit of 4,600 MW of the total installed capacity of offshore wind farms. The order in which this right will be granted within this limit will depend on the order in which complete applications are submitted. Decisions are to be issued only to up to the end of 2022 (for applications submitted by 30 September 2022).
An application for the right to negative balance subsidy should state, among others, the installed electric capacity of the offshore wind farm (which, in certain circumstances, may be downwardly adjustable later at the project construction stage), its location and grid connection point (in accordance with the connection agreement). Additionally, the investor must undertake to generate and supply electricity to the grid within 7 years from the date of obtaining the decision. This deadline may be extended only in exceptional cases that are not attributable to the investor. The application must be accompanied by an agreement on connection to the transmission or distribution grid, a final environmental terms decision, valid permits for the construction and use of artificial islands, structures and devices in Polish maritime areas, a material and financial schedule for the completion of the project, as well as a plan for the involvement of local materials and services.
The price of electricity (in PLN per MWh) generated by an offshore wind farm and supplied to the grid, which is the basis for the settlement of the right to negative balance subsidy granted on the basis of the President of the URE’s decision, will be specified in a regulation of the minister responsible for energy matters. The price will be set separately for generators who have received the right to negative balance subsidy in each calendar year until 2022 and will bind them for the whole period of the support.
The application for a right to negative balance subsidy will be submissible only by entities that have previously obtained a confirmation of incentive effect from the President of the URE, namely a confirmation, issued as a certificate, that the planned investment project would not be able to arise, unless the right to negative balance subsidy for electricity generated by the offshore wind farm was granted under the rules set out in the bill. The certificate is issued at the request of the investor which must be submitted before obtaining the promise of a concession on the basis of the investor’s technical and economic description of the planned investment project.
In practice, only those investors whose projects are already significantly advanced and who have obtained most of the required permits for constructing their projects will be able to apply for support on the basis of a decision of the President of the URE. Other investors will be able to apply for similar support granted through auctions for offshore wind farm electricity generators. Participation in an auction will include pre-qualification proceedings, which should end with the President of the URE issuing a certificate of admission to the auction. In order for a certificate to be issued, the investor must provide the President of the URE with the same information and documents as those described above and submitted together with an application for a decision confirming the right to negative balance subsidy, although, instead of a grid connection agreement, it will be possible to attach only the terms for connection.
For the purposes of the auction, the minister responsible for energy matters will determine the maximum price in PLN per MWh that generators participating in the auction may state in their offers. The auctions themselves will be announced, organised and conducted by the President of the URE. Initially, auctions have been planned for 2023, 2025, 2027 and 2028. The auctions will be subject to certain limits. At the first auction, the right to negative balance subsidy is to be granted in relation to the unused part of the limit for investments that may apply for this right based on individual decisions of the President of the URE (provided that this is at least 500 MW). Two subsequent auctions are to be organised within the 2.5 GW limit, and the last planned auction is optional, in the event that the earlier limit remains unused (provided that it will be at least 500 MW). Moreover, the bill allows additional auctions to be organised based on a decision of the Council of Ministers.
The winners of the auctions will be the generators who offer the lowest price for electricity generated by an offshore wind farm and whose bids do not exceed 100% of the total maximum installed capacity specified in the auction’s announcement and 90% of the total capacity covered by all of the bids.
Apart from the system of support for offshore wind farm electricity generators, the draft bill contains also a number of provisions concerning just the implementation of these types of projects, which in the bill’s authors’ intention would increase their security and legal reliability. The bill restricts the possibility of terminating project grid connection agreements. Moreover, administrative decisions issued in connection with the implementation of offshore wind farms are to be issued within 90 days from the date of submission of the application, and are also to be immediately enforceable.
The bill is to introduce also a new tax on offshore wind farms. The tax would apply to carrying on business in the generation of electricity by offshore wind farms. The taxable base is to be the installed capacity of the offshore wind farm, as specified in the concession for electricity generation, and the amount of the tax is to be computed as the product of this capacity in MW and the amount of PLN 23,000 (subject to annual adjustment).
The presented draft bill is at an early stage of legislative work. However, bearing in mind the deadlines that it contains for providing support for offshore wind farm investments, as well as the burning need to increase the amount of electricity obtained from renewable sources in the Polish energy mix, it may be expected that the legislative process will proceed at a faster pace.
Radosław Wasiak, adwokat, M&A and Corporate practice, and Energy practice, Wardyński & Partners