As predicted in our November newsletter, the first auction for PV will take place on 30 December. On 15 and 16 December, the Energy Regulatory Authority (URE) will hold a workshop for all auction participants which so far received pre-qualification certificates, and will organize a test auction. Many technical details are still under progress, and to calculate the appropriate bid amount, according to penalty rules and the design of the auction system, is a sophisticated matter. However, the fact that the Polish government is moving ahead with RES support is a positive market signal.
According to information published by the Central Statistical Office (GUS), Poland is still in line with the path agreed by the National Action Plan for the 2020 target regarding electricity and heat. Due to a change of statistical method the figures for the previous years have been slightly increased. However, due to a huge gap between production and target regarding transportation for the first time since 2010 Poland is behind its general target, which amounts 11.9 % of final gross consumption in 2015, whereas RES production amounted to 11.77 % - with a visible slow-down of the tendency in 2015. Due to the delay of the implementation of the RES support system, neither 2016 nor 2017 will provide any increase for all three subsectors, i.e. electricity, heat and transportation, so that it is certain that the 2020 target (amounting to 15.8 % according to the National Action Plan) will not be fulfilled. The figures have proven the assumptions made in the report published by Solivan in June this year. Consequently, without showing a clear path on how to achieve the 2020 target a notification of the Auction support system for RES-e becomes difficult, and a further delay provides even less renewables in 2020.
The drafts of the 2017 Auction volume regulation and the regulation on sequence of 2017 Auctions, which was published on 23 November, may not provide required transparency to the market and may distort fair competition.
Baskets with reliable volumes for new installations will be organized for small PV projects, biogas projects, and for installations with a capacity factor exceeding 40%, i.e. 3,504 MWh/MW rated power/year. In the case of small PV offer and demand seems be balanced. The current auction in this basket might face a ratio of 2 to 1 regarding installed capacity, which should provide for healthy competition. For the year 2017, even a remarkable increase of the Auction volume should not provide a different picture, as developers of PV projects started to trust in the political declaration of the Ministry of Energy to have 1 – 2 GW of PV projects in 2020. The situation for all other technologies looks less clear.
Although biogas and biomass are also favored technologies, the lack of transparency regarding the reference price and the introduction of “hybrid” installations into the Auction system provides regulatory risk. For small biogas plants up to 1 MW, a basket for approx. 70 MW has been dedicated, however, a reference price of PLN 550/MWh is too low so that any purchase of substrates pays off. Due to the average size of Polish farms this restriction generally favors installations not exceeding 250 kW. Although 100 projects announced as ready to build might be in truth at medium development stage, as the costs for building design often have not been spend yet due to regulatory uncertainty. Even in case the government increases the reference price to, e.g., PLN 600/MWh, it will take time for developers to react and adapt to the optimal project size.
With larger biomass plants, the legal environment is also not fully transparent. Against the 40%-capacity-factor-plus basket a few most efficient onshore wind farms, a few biomass plants and so-called “hybrid” installations, i.e. less efficient wind farms mixed with, e.g., a biomass plant might compete. Generally, as an “energy cluster” is restricted to installations located in a district connected to medium voltage grid, a “hybrid” installation logically should be even more restricted. However, a “hybrid” installation does not face any restrictions regarding the grid connection point or its localization – although the introduction of the 40% capacity factor Auction baskets has been officially intended to stabilize the grid. Consequently, one larger player may bid for the whole volume. Furthermore, it is still not 100% clear whether installations can start in one or more baskets, e.g. whether hybrid installations (or most effective wind farms) which have a CO2 output of less than 100 kg CO2 per year can start in the basket without CO2 emissions limitation – the size of the Auction basket without CO2 limitation is 20 (!) times higher than the basket with CO2 limitation. In case the time lag between those auctions is relatively short, e.g. a few hours – those auctions will be organized as auction no. 7 (with CO2 limitation) and no. 8 (without CO2 limitation) – it is not allowed for the same installation to start in an additional auction, as long as the result of the previous auction is not announced. Auction no. 8 might be already closed before the results for auction no.7 have been published, and consequently an installation starting in auction no. 7 is blocked for auction no. 8. So, the regulatory environment regarding “hybrid” installations provides regulatory uncertainty for biomass plants, which are urgently required to replace out-of-date coal-fired heat and CHP plants. The legal situation for operating RES generators which shall be enabled to switch the support system – also the largest available basket – is comparable.
The volume of the last basket “other technologies above 1 MW (large onshore wind)” is most crucial – this auction basket is the first in the Auction 2017 sequence for new RES generators, whereas the auction basket “other technologies up to 1 MW (small PV)” is the last of 8 baskets for new RES generators. So, a cascade system might be intended, which requires appropriate change of the RES Act. An estimated 2 GW of ready-to-build onshore wind projects should have to achieve operational permit by mid-2019 to avoid almost impossible re-permitting according to the new 10H distance rules. So, only the 2017 auction is feasible to construct and commission a wind farm in time, and with a volume of 115 MW speculative underbidding by one of the larger players taking over the whole basket volume is likely.
Generally, the lack of transparency regarding detailed mid-term targets, preferred technologies (due to “hybrid” RES generators), reference prices, tight publishing of regulations prior to auction, sequence of auctions etc. makes it difficult for independent developers and investors to react.
The Wind Turbine Investment Act, which entered into force on 15 July and faces increasing pressure from the EU Commission, international investors and politicians, a constitutional claim has been recently filed by over 50 MPs, will not be changed for the time being. So, the qualification of technical elements of a wind turbine as a building structure will in most cases from 1 January 2017 provide a broadly criticized and legally questionable real estate tax increase for wind turbines, which according to authors of the WTI Act was not intended. According to our knowledge, only a few municipalities have decided to issue positive tax rulings, so that in those cases no increase of real estate tax will apply. The majority of municipalities has already issued negative tax rulings or will do so in the coming weeks. Recently, many municipalities took part in training courses organized by supervising authorities where a negative standpoint was presented. Moreover, municipalities referred to a non-published interpretation letter issued by the appropriate tax department of the Ministry of Finance. So, although the Ministry of Finance did not officially publish any interpretation which could have been subject to a complaint at the EU Commission, it provided municipalities to issue a negative ruling in some of the cases.
The Ministry of Economic Development has prepared the amendment of the Act of 3 October 2008 on the Provision of Information on the Environment and its Protection, Public Participation in Environmental Protection and Environmental Impact Assessments (“Project”). The draft Act significantly changes environmental procedure. First, it envisages abolishing the General Director for Environmental Protection (Pl/Generalny Dyrektor Ochrony Środowiska), as well as Regional Directors for Environmental Protection (Pl/Regionalni Dyrektorzy Ochrony Środowiska). Instead, a National Board of Environmental Resources (Pl/Krajowy Zarząd Zasobów Środowiska) will be established, and will be governed by its Chairman, along with the help of directors of the local branches (Pl/dyrektorzy oddziałów terenowych). Subsequently, the obligation of conducting an environmental impact assessment will be transferred to the benefit of administrative authorities relevant to issuance of permits allowing realization of investment, e.g. the governor of a district/county (Pl/starosta) in case building permit will be required.
As mentioned the Project introduces the rule of conducting an environmental impact assessment within the proceedings regarding issuance of appropriate permits allowing realization of an investment. However, it also includes the possibility to apply for a separate environmental decision on principles similar to those currently binding. The Project assumes that an environmental impact assessment will be conducted by the relevant administrative authority in one of two ways, according to the choice of an investor, i.e. within:
•main proceedings, i.e. regarding issuance of a permit for realization of investment – environmental conditions will be specified in such decision;
•previous proceedings, i.e. environmental conditions will be specified in an environmental decision.
The first procedure is simpler and allows to obtain all required administrative permits at once. The second is similar to this currently binding and allows to obtain a preliminary and binding environmental decision. Such decision may be necessary for an investor to be able to begin efforts to raise funds, contractors, partners etc. Administrative authorities relevant to issuance of permits allowing realization of investment on the basis of the environmental report and collected information will make its own environmental impact assessment, and will specify elements of the environmental on which the planned undertaking may affect, especially the current status of water, air, protected species and natural habitats.
The Project also provides liability of the authors of environmental reports which contain false information or gross unfair forecasts, and liability of administrative authorities for the consequences of wrongful decisions, i.e. for decisions allowing realization of investments which caused unforeseeable environmental damages. Moreover, the legislator provides a deadline for the issuance of an environmental decision, i.e. 45 and 65 days depending on the case, for exceeding of which the administrative authority of higher instance will impose a financial penalty. Additionally, the Project includes more restricted requirements for ecological organizations intended to participate within the proceedings to avoid its extension caused by participation of unprofessional participants which intend only to delay development of an undertaking.
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