Significant changes to the Polish Renewable Energy Act (REA)

After more than six months of the notification procedure, the European Commission approved the modified principles for supporting renewable energy sources submitted by Poland. The draft amendment to the Renewable Energy Act (REA) is currently being publicly consulted and further auction rounds for renewable energy will not be conducted until the completion of the legislation procedure and the effective date of the amendment. Therefore, it is advisable to have a look at the major changes already now.

The foundations of the Polish incentive system for renewable energy will remain unchanged. Incentives will be granted based on auctions, except for micro power plants (power plants with maximum size of 40 kWp), which will continue to receive support in the form of net metering if certain conditions are met. In return for energy amounts fed into the grid a certain amount of electricity is given back to the plant operator. The settlement ratio will depend on the size of a plant. For power plants between 10 und 40 kWp the ratio will be 1 to 0.7 (the producer receives 700 kWh per 1000 kWh of electricity fed into the grid), for power plants of up to 10 kWp the ratio will be 1 to 0.8.

Auctions will continue to be the core tenet of the “Polish energy transition”. The form of remuneration to be received by the winner of an auction will depend on the size of an installation. Installations of up to 500 kWp will receive a fixed feed-in tariff (FiT) offered by operators during an auction. Installations with a capacity of 500 kWp and more will be entitled to cover a negative balance between the average electricity price and the price received based on an auction bid – this form strongly resembles contracts for difference (CfD).

The most important change will be the introduction of a mechanism where the price offered in an auction will be reduced by the amount of the granted investment aid. This change lacks a clear definition of the term “investment aid”. But it should be assumed that the definition includes all kinds of support aiming to reduce the capital expenditures (CAPEX), in particular EU funding or subsidies granted under national funding programmes for the construction of renewable energy plants.

The Renewable Energy Act in its current version includes a regulation stating that public aid can be combined with funding granted as part of the auction system. According to the current regulations it is not allowed to benefit from public aid in excess of a level that is established for every bidder as the product of the energy volume (offered by the bidder for sale in the auction) and the highest admissible price, the so-called reference price. The following example might help to better understand the change in the approach to combining incentives from different sources under current law and according to the draft amendment:

Currently, the funding cap greatly depends on the rate of the reference price. In 2017, for small photovoltaic installations this price amounted to PLN 450 per 1 MWh of electricity. Assuming that a 1-MWp photovoltaic installation produces 15,000 MWh of electricity over 15 years the maximum funding amount would be PLN 6 750 000 (450 x 15 x 1 000). If the operator receives, for example, additional incentives in form of an EU grant of PLN 2 million they will have to adjust the offered auction price so as to not exceed the value of PLN 4,750,000. Therefore, the offered maximum auction price may not be higher than PLN 316.66 per 1 MWh (PLN 4 750 000 / 15 / 1,000). This will inevitably make such bids much more competitive. But after the amendment is signed into law any additional investment aid will reduce the price received in an auction regardless of the ratio between the auction price and the reference price.

This change will be of importance not only for projects intended to be part of the next auction but also for installations that already won an auction but apply for an additional CAPEX incentive.

2018 Reference prices for selected technologies

As already mentioned, the next auction rounds will be organised only after the amended provisions become effective. According to cautious statements by the Ministry of Energy this might happen by the end of April; therefore it is also important to know the already published reference prices for 2018.