Modified auction baskets
The RES Amendment Act introduced a modified structure of the technology auction baskets and limited their number from seven to five
- Basket 1: biogas installations and biomass sewage treatment plants
- Basket 2: hydro installations, geothermal installations, bio liquid fuel installations and offshore wind farms
- Basket 3: agricultural biogas installations
- Basket 5: hybrid RES Installations
Each of the above baskets are additionally subdivided into the sub-baskets for (i) the Existing Installations (i.e. operating before July 1, 2016) and the (ii) the New Installations (i.e. operating as a result of the auctions).
The RES Act states that for the above baskets separate auctions will be organised for the RES Installations with the total capacity (i) lower or equal than 1 MW and (ii) higher than 1 MW.
Auction pre-qualification criteria for the new RES Installations
A New Installation can participate in the auction if it first completes the pre-qualification procedure conducted by the President of the ERO which is completed by issuance of a certificate valid for 12 months.
The following documents (valid for at least six months) are required for the pre-qualification procedure
- Grid connection conditions or grid connection agreement.
- Final and non-appealable (prawomocne) building permit (except for the offshore wind farms).Final and non-appealable (prawomocne) environmental decision.Final and non-appealable (prawomocne) permit to build and operate artificial islands (only in the case of the offshore wind farms)3.
- Project implementation timetable.
- Plan for the RES Installation setting out proposed location of this installation, grid connection points and metering system.
Contracts for Difference
As stated above, New Installations are no longer eligible for green certificates. The New Installations with total installed capacity lower than 500 kW using biogas and hydro power to generate electricity may apply for a FiT, and New Installations with total installed capacity of 500 kW or more may apply for FiP (if using biogas and hydro power to generate electricity and if the total installed capacity is lower than 1 MW) or a CfD for large-scale generation. It is therefore important to understand the key terms of the CfD.
New Installations seeking support under a CfD are required to participate in an auction mechanism, which are announced by the President of the ERO at least 30 days in advance. Pursuant to the RES Act, the period of support for the winners of auctions is 15 years from the date of the first sale of electricity, but shall not be later than December 31, 2035 in any event.
The Existing Installations may switch from green certificates to the CfD and participate in auctions. Such auctions are organised separately from the auctions for New Installations and the project operators must submit relevant declarations confirming that they wish to enter into the new subsidy system and participate in auctions. However, an Existing Installation that elects to participate in auction will lose the right to obtain green certificates if and when the Existing Installation wins an auction and first sells electricity following the auction.
If successful in a CfD auction, a RES Installation project with a total installed capacity of 500 kW or more will be entitled to receive the “negative balance”, being monthly payments equivalent to the difference between the auction price offered by that project and the market electricity price, subject to the maximum volume bid in the auction. The negative balance will be paid by Zarządca Rozliczeń S.A., a company wholly-owned by the government, acting as a settlements manager. If however the market price exceeds the auction price, such positive balance shall be settled (set-off) by the owner of the RES Installation to Zarządca Rozliczeń S.A. against the next negative balance. Any positive balance as at the end of 15-year support shall be paid to Zarządca Rozliczeń S.A. in six equal installments. If that installation produces electricity in excess of the volumes bid in the auction, it will not receive the difference payment for this excess electricity (but it will receive the market price applicable). Throughout the support period, the guaranteed auction price awarded to a RES Installation will be indexed annually by the Polish CPI.
By the end of October of each year, the Polish Council of Ministers (Rada Ministrów) will set the maximum volume and value of electricity that can be purchased in each of the above mentioned (separate) auctions, with the exception for auctions organised in 2018 as these data are set out directly in the RES Amendment Act (see below).
In accordance with the RES Act, the relevant minister (currently the Minister of Energy) is obliged to set a maximum bid price (reference price) which bidders cannot exceed when bidding at auction, with the exception for auctions organised in 2018 as these data are set also out directly in the RES Amendment Act.
The RES Installation is required to produce and sell at least 85% of the electricity declared in the auction, which is tested in three year intervals with the first testing date taking place after three full years of the support in the form of the CfD. Failure to meet this threshold is subject to fine for the owner of the RES Installation.
Maximum level of acceptable prices
For the purpose of 2018 auctions the Polish government proposes support in the amount of PLN 15,750,000 (ca. €4 billion) for wind and solar RES Installations with a capacity of at least 1 MW. The maximum bid price (a so-called reference price) which may be proposed by a bidder in an auction in 2018 for such RES Installations amounts to PLN 350 per 1MWh (ca. €80) for wind projects and PLN 400 per 1MWh (ca. €93) for solar projects, in each case, with a capacity at least 1 MW.
The RES Amendment Act has also introduced a requirement that the volume of electricity which may be successful in a given auction cannot exceed 80 per cent. of the total volume offered in that auction. This mechanism is expected to increase competition among the bidders as 20 per cent. of the bids (the most expensive) will not be ccepted.
By law, grid connection agreement authorises distribution transmission system operator or distribution system operator to terminate this agreement if electricity is not delivered to the grid within 48 months from the date of the grid connection agreement. The RES Amendment Act provides however for the extension of the deadline for the delivery of the electricity to the grid for the auction winners by the periods for the construction of the RES Installation and first sale of electricity after winning an auction set out below.
State aid issues
The RES Amendment Act modifies the rules for the inclusion of the state aid in the price proposed in the auction. Currently, the bidders should propose in the auction price for the electricity without taking into account the value of the state aid awarded to the RES Installation (for example awarded by grant or tax incentive). If the operator of a given RES Installation wins an auction it shall reduce the winning price by the amount of awarded state aid. Such approach shall provide equal treatment for the operators of the RES Installations and prevents some operators of the RES Installations awarded with the state aid from proposing lower prices for the electricity.
Deadlines to construct the RES Installation and first sale of electricity after winning an auction
Pursuant to the RES Act, as amended by the RES Amendment Act, the generator that has won the auction can benefit from the support using a CfD based mechanism if the RES Installation has been completed and started sale of electricity within a specified period after the date of the auction, such period being
- 18 months in the case of the solar projects.
- 30 months in the case of the onshore wind projects.
- 72 months in the case of offshore wind projects.
- 36 months in the case of other projects.
Age of generating assets
The RES Amendment Act also limits the age of assets generating electricity that can participate in the auction as RES Installations. As at the date of the first generation of electricity after the date of the auction, assets must not be older than
- 18 months in the case of the solar projects.
- 24 months in the case of the onshore wind projects.
- 36 months in the case of other projects.
Mandatory obligation to sell electricity on the power exchange
Pursuant to article 72a of the RES Act, as amended by the RES Amendment Act, the electricity generator which has generated electricity from the RES Installation which is not a micro-installation or small installation4, shall export the electricity to the grid and sell it on the commodity exchange or the exchange market organised by entity that maintains the regulated market in Poland.
We believe that this provision meant to introduce exchange obligation (obligo giełdowe) only for newly built RES Installations which start generating electricity after the RES Amendment entered into force (i.e. after July 14, 2018), but before the auction and was intended to impose obligation to sell electricity through a power exchange as a condition for participation in the auction. As a general rule, the RES Installation may participate in the auction if it has not sold electricity before the auction. Therefore, the discussed provision allows the RES Installations that started generating electricity in the period between July 14, 2018 and auction (but not later than December 31, 2020) to participate in the auction, but on the condition that such electricity generated before the auction will sold on the power exchange.
Until the interpretation of the President of the ERO published in August 2018 which states that this exchange obligation applies only to the winners of the RES auctions, this provision could have been read as introducing exchange obligation for all generation of electricity from renewable energy sources5.
The RES Act introduces a secondary market for the auction winners, as a winner of the auction may, upon consent of the President of the ERO, transfer its rights and obligations under the said auction to a third party which acquired the said RES Installation. This mechanism does not apply to transactions for the sale of shares in the special purpose vehicle that owns the RES Installation.