The Renewable Energy Sources Act

The Renewable Energy Sources Act of 20 February 2015 (RES Act) entered into force on 4 May 2015, but a key part, Chapter 4, introducing a new support system for renewable energy sources, will become binding on 1 January 2016. In terms of the RES support scheme, the full implementation of the RES Act requires a number of executive regulations. We summarise the key developments in implementing the RES Act and highlight some issues of ambiguity concerning some of the key provisions of the RES Act.

Chapter 4 of the RES Act introduces new subsidising instruments: guaranteed electricity prices in the form of either feed-in tariffs (FiT) for small-scale installations or feed-in premiums (FiP) for larger RES installations. Both FiT and FiP would be awarded in auctions which will be carried out separately for projects producing energy before 1 January 2016 and which have declared the intention to participate in auctions and new projects. In both cases, separate auctions will be carried out for installations up to 1 MW and above 1 MW. The auctions will be held by the President of the Energy Regulatory Office (ERO) at least once a year.

Under the RES Act the Council of Ministers is obliged to set annually (by 31 October) the maximum volume and value of electricity which can be auctioned in the next calendar year for existing projects which have declared the intention to participate in auctions as well as new projects. The council must also set the maximum volume of energy to be generated in sources with efficiency of less than 4,000 MWh/MW/year, separately for (i) existing projects which have declared the intention to participate in auctions, and (ii) new projects. Separate minimum volumes of electricity available to RES installations with installed capacity of up to 1 MW must be set by the Ministry of Economy by 30 November each year. This cannot be less than 25% of the total volume set by the Council of Ministers.

On 18 June 2015 the Council of Ministers passed a regulation on the maximum volume and value of electricity which can be auctioned in 2016 (Journal of Laws of 2015, item 975).

In relation to existing projects which have declared the intention to participate in auctions, including sources with efficiency of less than 4,000 MWh/MW/year:

• the maximum volume of electricity which can be auctioned in 2016 is 4,736,044 MWh
• the maximum value of electricity which can be auctioned in 2016 is PLN 1,804,338,104

The regulation does not set any quotas for 2016 in relation to the existing generation units which undergo modernization after Chapter 4 of the RES Act comes into force on 1 January 2016. This means that, at least for 2016, there are no incentives encouraging energy producers to upgrade their existing RES installations.

In relation to new projects which start electricity production after the auction:

• the maximum volume of electricity which can be auctioned in 2016 is 50,449,950 MWh, which includes the maximum volume for sources with efficiency of less than 4,000 MWh/MW/year equal to 30,907,350 MWh;
• the maximum value of electricity which can be auctioned in 2016 is PLN 18,201,331,716

As with existing projects, the regulation does not set 2016 quotas for new installations which undergo modernization after 1 January 2016. These quotas will be set in the future.

On 11 August 2015 the Ministry of Economy issued a regulation on the volume and value of electricity to be auctioned in 2016 in relation to installations with installed capacity of up to 1 MW (Journal of Laws of 2015, item 1396).

In relation to existing projects which have declared the intention to participate in auctions:

• the volume of electricity which should be auctioned in 2016 is 1,184,011 MWh
• the value of electricity which should be auctioned in 2016 is PLN 451,084,526

In relation to new projects which start electricity production after the auction:

• the volume of electricity which should be auctioned in 2016 is 12,612,488 MWh
• the value of electricity which should be auctioned in 2016 is PLN 5,927,933,456.

In accordance with the RES Act, the Minister of Economy is obliged to set a maximum bid price (Reference price) which bidders are not permitted to exceed when bidding at auction. Reference prices will be announced not later than 60 days before the first auction is to be held in the given calendar year. In relation to auctions to be conducted in 2016 the reference prices are expected to be set and announced by 31 December 2015.

On 15 September 2015 the Ministry of Economy published a draft regulation on reference prices for 2016. Please note that this draft regulation sets the reference prices only in relation to new projects which start electricity production after the auction (prices are determined separately for 18 categories of RES). We outline some of the RES reference prices below:

Onshore wind farms

• with installed capacity of up to 1 MW: 415 PLN/MWh
• with installed capacity in excess of 1MW: 385 PLN/MWh

Offshore wind farms

• 470 PLN/MWh

PV projects

• with installed capacity of up to 1 MW: 465 PLN/MWh
• with installed capacity in excess of 1MW: 445 PLN/MWh

Hydro power projects

• with installed capacity of up to 1 MW: 445 PLN/MWh
• with installed capacity in excess of 1MW: 480 PLN/MWh

Geothermal energy projects

• 455 PLN/MWh

Dedicated biomass firing installations or hybrid systems

• with a total installed electrical capacity of up to 50 MW: 415 PLN/MWh

Agricultural biogas generation units

• with installed capacity of up to 1 MW: 450 PLN/MWh
• with installed capacity in excess of 1MW: 435 PLN/MWh.

The draft regulation should also set the reference price for existing installations; however the Minister of Economy was waiting for the publication of the average competitive market electricity price from the second quarter of 2015 by the President of the ERO which should be taken into account when determining the reference price. Under the RES Act, the reference price for existing installations which decide to participate in auctions will be set taking into account the average competitive market electricity price from the previous calendar quarter published by the ERO; and PLN 239.83 (which we understand corresponds to the average green certificate prices in the years 2011 – 2013).

The wording of the draft regulation suggests that the reference price for the existing projects does not need to be a simple sum of the values set out above, but may be set by the Minister of Economy below or above that number.

An analysis of wording of the RES Act raises serious doubts as to how certain mechanisms should work. We highlight some of those concerns below (our comments are based on the views presented by key representatives of the ERO).

Eligibility for green certificates

In accordance with the RES Act, projects which start generating electricity before Chapter 4 of the RES Act comes into force will be eligible for green certificates under the current support system. The support period for the existing projects will be restricted to 15 years from the initial date an installation feeds electricity to the grid for which the installation was awarded green certificates. However existing projects which undergo modernisation after Chapter 4 of the RES Act comes into force will be eligible for green certificates only until 30 June 2016 regardless of when the installation commenced electricity production. In other words, modernising an existing RES installation would effectively exclude it from the green certificates support system.

First, consideration must be given to the definition of “RES installation” in the RES Act. A “RES installation” is defined as:

• a separate set of equipment used for the generation and output of power that is connected at one grid connection point and at which electricity or heat is generated from a renewable energy source, along with an electricity storage facility (if any) that stores generated electricity and is connected to the relevant set of equipment.

Therefore, in determining how many wind turbines comprising a given project constitute a RES installation, the fundamental criterion is that they have one grid connection point. According to one representative of the ERO, it could be argued that a connection point means a transformer station to which a given RES installation has been connected. However, the ERO and the Ministry of Economy are currently preparing an official statement confirming that a connection point should be defined as a single point within the transformer station to which a specific cable line of an RES installation is connected. This means that potentially a transformer station may contain several connection points of separate RES installations.

There are several possible interpretations of the degree to which a RES project must be completed prior to 1 January 2016 in order for a wind farm to be eligible for certificates of origin for electricity generated after 2015. This issue primarily concerns wind farm projects with wind turbines that may not be ready to generate electricity by the end of 2015. The President of the ERO has not officially expressed his position on this issue, however, based on opinions presented by key representatives of the ERO during conferences, it is likely that the President of the ERO may adopt the following interpretation:

• Green certificates will be issued only for electricity generated by turbines actually commissioned prior to 1 January 2016. The commissioning of any wind turbine after 31 December 2015 would be considered a modernisation of the wind farm, which would be eligible for green certificates only until 30 June 2016.

In light of this interpretation, the commissioning of any wind turbine after 31 December 2015 and its connection to the connection point of a wind farm that started production before 31 December 2015 would effectively result in the already operating wind farm being deprived of the full 15-year long support period under the green certificates mechanism. This interpretation means that in order to secure the full 15-year entitlement to green certificates, the construction of a RES plant should not continue after 31 December 2015 or the remaining part of a RES project which is to be commissioned after 31 December 2015 should be technically separated from the existing RES project so as to be considered a separate RES installation (i.e. connected at its own grid connection point).

The auction mechanism

In accordance with the RES Act the auction mechanism will be available for:

• existing projects producing energy before 1 January 2016
• new installations that start to generate electricity after the auction is closed.

Installations which start generating electricity after 31 December 2015 but before an auction in which that installation would take part is closed will be excluded from the green certificates mechanism and will not be eligible for auctions.

Commercial balancing costs

Under the RES Act the mandatory purchase of electricity from existing projects will be maintained. The obligation will be imposed on the so-called “obliged suppliers”. The supplier which had the biggest sales of electricity by volume in the previous calendar year within the area serviced by the given Distribution System Operator (DSO) will be appointed as the “obliged supplier” by the ERO for one year. The obligation to purchase electricity from an existing RES installation will last for 15 years from the time the installation fed electricity into the system for the first time during the commissioning. The mandatory purchase will be performed at the average competitive market price from the previous calendar quarter (calculated and published by the President of the ERO).

In accordance with the RES Act, the purchase price for electricity generated in existing RES projects with total installed capacity lower than 500 kW does not include fees for commercial balancing. The wording of that provision raises doubts as to who is actually obliged to cover the costs of commercial balancing in relation to existing RES projects. The President of the ERO has not officially expressed his position on this issue. However, taking into account opinions presented by key representatives of the ERO during conferences, the most likely approach seems to be that in relation to the existing RES projects with total installed capacity lower than 500 kW the obliged supplier will be required not only to purchase all electricity offered by the RES operator but also cover the costs of commercial balancing. This means that in larger RES plants (with total installed capacity exceeding 500 kW) the costs of commercial balancing should be borne by the RES operators. That approach is also in line with EU Commission Regulation No 651/2014 of 17 June 2014, which declares certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty, which provide that state aid should be granted to installations with an installed capacity of less than 500 kW for the production of energy from all renewable sources.

The situation is clear in the case of RES plants eligible to participate in auctions. The RES Act explicitly states that the costs of commercial balancing for RES plants with total installed capacity lower than 500 kW will be covered by the obliged suppliers.

Eligibility to take part in auctions

Installations which start producing electricity after 1 January 2016 will be admitted to auctions only if they undergo a pre-qualification procedure conducted by the President of the ERO and obtain a certificate (valid for 12 months). Eligibility criteria for new projects are as follows:

1. confirmation that the project is allowed under the local zoning plan or, if no local zoning plan exists, a planning permit obtained for the project (or, in the case of off-shore wind farms, a fully legally binding (Polish: prawomocne) permit to construct and operate off-shore installations)
2. grid connection conditions have been issued by, or a grid connection agreement has been executed with, the relevant grid operator
3. a fully legally binding (Polish: prawomocne) construction permit, if required under construction law, has been issued for the project
4. in the case of off-shore wind farms, a fully legally binding (Polish: prawomocna) environmental decision will have to be issued for the project; and
5. the schedule for implementing the project is provided.

With respect to the validity of certain categories of decisions (permits to construct and operate off-shore installations, construction permits and environmental decisions), the RES Act requirements refer to the term “prawomocne” (Polish for “fully legally binding”), which is not used by the Code of Administrative Procedure, but is known in civil court and criminal procedures. As explained by the representatives of the ERO on several occasions, they interpret the relevant provision of the RES Act in such a way that the permits concerned should not only be final from the perspective of regular administrative proceedings (i.e. decisions cannot be further challenged before an administrative authority) but they should also be precluded from ordinary challenge in administrative courts (i.e. no appeal may be filed with voivodeship administrative courts or the supreme administrative court). As a result, the above-mentioned decisions will become eligible for the pre-qualification procedure only after both the time limit for filing the appeal with the second instance administrative authority and also a further period for filing an appeal with the administrative court have expired. An appeal may be filed with the voivodeship administrative court for up to 30 days from the delivery of a decision issued by the second instance authority.

As mentioned above, one of the prerequisites necessary to complete the pre-qualification procedure is the confirmation that the project is allowed under the local zoning plan. Representatives of the ERO stress that the local zoning plan should explicitly provide for the location of a RES installation (it does not need to specify the technology) or at least the location of electricity generation plants. According to representatives of the ERO, the broad wording of a local zoning plan (e.g. if the plan gives permission for the location of “technical infrastructure”) means that the President of the ERO might not accept that local zoning plan and could refuse to issue a pre-qualification certificate.