Summary of the changes in the Polish Energy Act 2019

published on 13th February 2020

2019 saw many changes that had a significant impact on the Polish renewable energy sector. The year will certainly be a good one because of the record increase in the installed output of photovoltaic systems by 157.7 percent p. a. remain in memory, the “magic limit” of 1 GW in PV was exceeded. This development was associated with an unprecedented boom in the small systems sector (up to 50 kWp). 62 percent of the installed capacity of photovoltaic systems is accounted for by microsystems. Another groundbreaking event in 2019 was the EE auction, which, according to the report, is expected to be the first of its kind. According to the Polish Energy Regulator, the auction was one of the largest in the world and the largest auction for onshore wind farms in Europe. This article summarizes the legal changes that have contributed to Poland taking a significant step towards the implementation of the EU target (share of renewable energy in gross electricity consumption in Poland of 15 percent).

Amendment of the Act on Renewable Energy in Poland of 29. August 2019

The most important normative change shaping the renewable energy sector in Poland was the amendment of the Polish Energy Act of 29 January 2007. August 2019 introduced an amendment to the Renewable Energy Sources Act. His assumptions focused on improving the situation of producers of electricity from renewable energy sources and on preparing the legal framework for the planned record auctions of renewable energy.

The amendment has changed the terms of the auction obligations to the benefit of the parties. The deadline for the start of electricity sales from the plant was extended, which won an auction. Previously, the regulations in force stipulated that the first sale of electricity from the photovoltaic system must take place within 18 months of the end of the auction. This period has been extended to 24 months. For onshore wind farms, this period has been extended from 24 months to 33 months. For other RES installations, this period is now 42 months instead of 36 months. The period for the first sale of electricity from offshore wind farms (72 months) remains unchanged. It should be noted that the extended deadlines also affect those electricity producers that won the auctions before the amendment came into force. To benefit from the introduced amendment, they must apply to the Director of the Polish Energy Regulatory Authority.

Another interesting solution proposed by the legislator is the possibility to update the winning bid once. The update may concern the planned starting date of the period of support in the auction, subject to the proviso that the period for starting support may not exceed the period for the first sale of electricity. Also, the volumes fed into the grid by the generator may be changed in the individual years in which the obligation under the auction exists. Example: If the producer has undertaken to produce 15,000 MWh within 15 years and to feed 1,000 MWh annually into the grid, he can determine a different distribution of the energy volumes through updating, e. g. 500 MWh in the first year, 1,500 MWh in the next year and 1,000 MW/h each in subsequent years, so that the total amount of electricity it generates remains the same in summary terms. The last modification of the bid permitted by the legislator relates to the change in the installed capacity of the plant. However, it should be noted that this does not lead to a change in the classification of the installation concerned as micro, small or medium-sized plant below or above 1 MW.

The improvement of the pre-classification procedure for the auction, the changes in the auction schedule and the publication of the results of the auction are encouraging. Also to be considered are the changes that affect the granting of licenses for RE installations and make them dependent on the age of the installations that are components of RE installations. The age of the turbines, which enables a successful application for a license, is 24 months for photovoltaic plants, 33 months for onshore wind farms, 72 months for offshore wind farms and 42 months for other generation technologies.

This amendment enabled the implementation of RE auctions, which were an absolute record in terms of the amount of electricity ordered and the budget allocated for this purpose. The total funding earmarked by the government for this purpose amounts to over 69.6 billion PLN and is allocated in 12 auctions. In the auction basket for large plants (with a capacity of over 1 MW) using wind and solar energy, the value of energy that could be awarded for the contracts was over PLN (almost 114 TWh). The second-largest auction was for small plants (with a capacity of up to 1 MW) using wind and solar energy. 4.2 billion for this purpose. PLN, for which approximately 11.4 MWh of the electricity intended for sale in the respective auction.

In the auction for large wind power and photovoltaic plants (with a capacity of over 1 MW) 77,837,229.723 MWh of the 113,970,000 MWh (68.3 percent) offered by the state were awarded. PLN 16,228,229,935.62 was also paid from the total budget i. H. v. 32,577,000,000 PLN (49. 81 per cent). Of the 164 bids originally submitted, there were 101 winning bids. The prices of the electricity quantities contractually agreed in the auction basket ranged from PLN 162.83 to 233.29 per MWh and were higher than in the previous year – PLN 157.8 to 216.99 per MWh. However, this still means that prices are below the market level (the average sales price for electricity on the competitive market for the third quarter of 2008 was below the market price). In the first quarter of 2019, the price of electricity amounted to PLN 252.65/MWh). Referring to the position of the Director of the Polish Energy Regulatory Authority, the auctions will result in 2.2 GW of newly installed capacity from wind technology. This is a historic record increase in the performance of RE auctions. It should be noted that the majority of the funding at this year's auction was awarded to projects that had been funded before the so-called Distance law, i. e. before the age of 16. July 2016. Taking into account the restrictions introduced by the Act, which have hampered the development of wind energy in Poland, a much smaller increase in output from onshore wind turbines is expected. Besides, – according to the Information from the Polish Energy Regulatory Authority - for the first time so-called large photovoltaic installations (with a capacity of more than 1 MW). Until now, the prevailing opinion has been that large photovoltaic systems cannot compete with wind farm projects in terms of price within a basket. The PV sector, therefore, concentrated on small plants up to 1 MW. However, as the Distance Act has restricted the development of new wind projects, it is expected that the number of large photovoltaic plants that will participate in the upcoming RE auctions will increase and that they will successfully fill the gap left by wind power plants.

The auctions for plants up to 1 MW were dominated by photovoltaic projects. 11,436,779.782 MWh of the 11,445,000 MWh offered (99.93 percent of the volume) and PLN 3,633,317,275.72 from the budget in the amount of 4,213,650,000 PLN (49. 81 percent) were granted. 759 out of 1044 projects received support, with offers ranging from PLN 269 to 327/MWh. The systematic decline in prices for small photovoltaic systems is being observed more and more frequently. In 2016 the maximum price offered at auction (in PLN/MWh) was PLN 408.8, in 2017 it was PLN 398.87 and in 2018 – PLN 364.99. According to this, the maximum price has fallen by PLN 81/MWh over the last three years. The results of the auctions indicate the rapid development of small photovoltaic systems in Poland. In 2018, 717 projects took part in the auction, of which 163 lost. In 2019, over 1,000 projects participated in the auction, which means that over 800 new projects were prepared for the auction in a year. Given the trend observed, strong competition is also expected in 2020.

By amending the Renewable Energy Sources Act, the definition of “prosumer (i. e. producer and consumer of energy at the same time) of renewable energy” has been extended, so that entrepreneurs can also obtain this status. According to the Renewable Energy Sources Act, the prosumer activity can be carried out by entrepreneurs who operate their micro-plants (up to 50 kW), provided that the production of energy will not be the core business. The attainment of prosumer status entitles the holder to invoice the surplus of unused electricity fed into the grid under the inheritance system. Besides, the grid connection process is greatly facilitated and there is no need to obtain a concession or to be entered in the register of small energy producers. The development in the energy produced by prosumers is also due to preferential tax arrangements. Since the 1st. From 1st January 2019, the allowance for thermal renovation can be claimed by deducting from the income tax base investments in photovoltaic installations in the amount of up to 53,000 PLN can be deducted. Besides, the 23rd. November 2019 regulations on the uniform VAT rate of 8 percent on solar panels for residential buildings came into force. Preferential loans offered by the banks, driven by the investor-friendly government projects that have been launched, have contributed to accelerating the development of the microfinance sector.

This boom is leading to a record increase in the installed capacity of photovoltaic systems in Poland. To the 1st of January 2020, the installed capacity of photovoltaic systems in the Polish national energy system amounted to 1299.6 MW, which is 113.9 MW higher than in the previous month. This represents an annual increase of 175.7 percent. In December 2019, the output of photovoltaic systems rose by 9.6 percent. Approximately 62 percent of the installed capacity of the photovoltaic systems is accounted for by the smallest systems, also known as microsystems (with an output of up to 50 kW). Their total output reached almost 800 MW by the end of 2019.

In the draft Polish Energy Policy to 2040, it is estimated that Polish wind turbines erected in the Baltic Sea will reach an installed capacity of 10 GW by 2040, which is approximately 50 TWh of energy per year. According to the presented conditions, several offshore projects are already being implemented, whose investors include have environmental certificates and permits for the construction of artificial islands. It is therefore not surprising that there has been wild speculation in 2019 as to what shape the planned law on offshore wind energy will take. The speculation was confirmed on 15. This situation finally came to an end on 1 January 2020 when a draft law on the promotion of energy production in offshore wind farms was submitted for public consultation. The legislator expects that offshore wind energy, similar to energy from onshore plants, could become a significant factor in the long term, ensuring stable and low energy prices. The underlying model of support for producers is based on the concept of a contract for difference. Contract for Difference). In the first phase of the support system, planned for the years 2020-2022, the right to cover the negative balance of energy production will be granted to the projects that are most advanced in terms of the investment process (i. e. Projects, for which already e. g. network connection contracts) – this is done employing an administrative decision issued by the Director of the Polish Energy Regulatory Authority after it has been established that the project in question meets the qualification criteria. In the second phase of the funding system, the above-mentioned law through auctions, in which the projects will compete with each other through prices for the energy produced according to principles analogous to those of the current renewable energy support system. The project also provides for improvements in administrative procedures and the introduction of the following obligations: Submission of a plan of participation of local materials and services in the construction process and operation of the offshore wind turbine at the time of application by the producer, and conduct of a technical dialogue with interested market participants. New offshore wind turbines are not subject to real estate tax, therefore they are instead subject to a special tax calculated as the product of the MW amount of the turbine and the amount of PLN 23,000.

As a result of the implementation of the RE auctions planned for 2020, large plants with a total capacity of approx. 1,000 MW (i. e. with a capacity exceeding 1 MW per unit) and smaller units with a total capacity of 500 MW (i. e. with a capacity of up to 1 MW per plant) using solar radiation, large plants with a total capacity of 20 MW and smaller plants with a total capacity of 10 MW using hydropower, and finally large plants with a total capacity of 100 MW produced by burning solid biomass. For biomass, auctions with a volume of 300 MW will be determined for large existing plants. Besides, the government is planning 20 MW for smaller plants that run on agricultural biogas and 10 MW for plants that use landfill and sewage gas. According to the project, the total estimated volume of energy to be sold during this year's auctions is 57.79 TWh over a 15-year support period, including 36.79 TWh for new plants and 21 TWh for existing plants. The maximum total value of the above volumes (product of the volumes and the reference price 2019) should be approximately 25.35 billion PLN. After deducting the forecast market prices for energy, the government intends to reduce the energy purchased at auction to only 11.37 billion PLN in the form of State aid. It should be noted that the draft regulation does not mention auctions of new capacity from onshore wind energy. However, we would like to remind you that the government has already ordered more than 2.2 GW of the output of this technology in the auctions held in December last year.

The expert opinion submitted by the Polish energy regulator shows that the achievement of the set target, i. e. the share of renewable energies in gross electricity consumption in the amount of 15 percent, in 2020 is doubtful for the authority. The authority's skepticism results from the low influence of the results of previous auctions on the share of renewable energies in the consumption structure. The Director of the Energy Regulator claims that this is due to the rules on the obligations of auction winners. According to the Renewable Energy Sources Act, the shortest legal period in which the so-called new plant is to start selling energy 24 months after the end of the auction and concerns plants that use only solar radiation for energy production. This means that the producers of energy from photovoltaic systems that won the auction in December 2019 are entitled to start selling energy even in December 2021.

For the Polish national energy system, the auction system may prove to be delicate for yet another reason. The auction won by the entrepreneur does not guarantee the construction of the plant within the period provided for in the Renewable Energy Sources Act. Also, it may be because of the underbidding (i. e. the submission of bids with prices below the construction costs of the plant by the auction participants), it must be made clear that the winning project will not be implemented at all. It cannot be ruled out that the doubts of the Polish energy regulator regarding the importance of the new auctions for the implementation of the EU targets in the field of renewable energies, which the legislator so emphasized, are also due to this.