48 (143) 2021

Green Transformation

Drive to green energy generation in Poland

By Igor Hanas, adwokat, and Rafał Pytko, attorney-at-law trainee, Energy Practice, Wardyński & Partners
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The climate policy of the EU, through its CO2 emission trading system, is pushing up the price of energy in member states. This is apparent in Poland where around 70% of energy is still being produced from hard coal and lignite. And since 1 January, the obligation to pay a capacity fee was imposed on industrial customers. For them it means an increase in the price of energy of 76.20zł/MWh (around £15/MWh), collected on weekdays between 07:00 and 22:00.

Therefore, purchasing energy is becoming an increasingly significant expense for businesses in Poland, and is causing an increased interest in alternative models of procuring energy. This includes contracting more and more corporate Power Purchase Agreements (cPPAs).

So far, the vast majority of investors in large-scale renewable energy sources (RES), such as onshore wind or large PV farms, have decided to undertake investments that are supported within an auction system. It secures a fixed price for energy for 15 years. Decreases in the cost of RES technology also mean that the amount of support that investors can receive in renewable sources is also decreasing with each passing year. For example, developers investing in onshore wind energy that take part in auctions in 2021 will be able to offer a price not exceeding 230zł/MWh (around £44/MWh). That is less than the average price on the Warsaw Energy Commodity Exchange in March 2021, when buyers paid for electricity as much as 294zł/MWh (£56/MWh), but even less than the average price of energy on the Energy Commodity Exchange throughout all of last year when prices remained very low because of the pandemic. That situation is prompting investors to seek other sources of income to secure investment in renewable energy. The search for other models of guaranteeing financing of projects is also affected by EU legislation whereby new renewable energy sources, such as using technologies that are mature on the market, should no longer benefit from public support. In any event, the auction system itself in Poland in accordance with the current amendment to the RES Act is to be extended (currently, entry into it was only to be possible at the end of 2021).

A long-term approach to RES
The solution to the regulatory uncertainty that results from the end of the system of auction support for new RES installations are long-term cPPA contracts, which are well-known in western Europe, but only just fledgling in Poland. They consist in purchasing energy directly from a producer on the basis of a long-term (usually, at least 10 years) commitment. The price in such a contract can be a specific amount, but it can also be based on any freely formulated parameter such as the indexation of energy prices on the Polish Power Exchange, or the movement between ranges that are specified in a contract. As a result, the owner of a RES power plant selling energy can, from the outset of the investment, precisely estimate a revenue stream over the entire period of operation of an installation (and possibly secure a loan for an investment through such a contract), and a business buying energy has a guarantee of having clearly defined costs throughout the entire term of the contract. Those prices should include all additional components burdening sellers of energy, such as excise duty and the cost of purchasing certificates of origin.

The supply of energy can take the form of actual delivery through use of a dedicated infrastructure, or by using – or bypassing – a distribution network. In the first situation, a producer should situate an installation near to the premises owned or occupied by a recipient to avoid the significant costs of building a direct line and the need to obtain the right to use real estate that separates the place of generating energy from the premises of a recipient.

A solution of a similar type that is becoming increasingly common in Poland is placing photovoltaic installations that belong to developers on the roofs of buildings that belong to recipients. In this situation, the recipient of the energy does not have to pay the cost of investing in its own source of generating energy, and does not have to make the organisational effort in the form of maintaining the RES installation. Because this solution doesn’t use a distribution network, the recipient avoids the distribution fees and additional costs that are calculated in proportion to the energy that’s consumed from a network, such as cogeneration or capacity fees. Note that fees for taking energy from distribution grids are likely to increase significantly over the years to cover the adaptation costs that distribution grids will face due to the rapid development of generation of energy from RES, and because of the poor condition of an ageing grid.

The most cost-effective solution is the ongoing consumer consumption of all the energy that is produced – overproduction raises a number of regulatory difficulties to do with use of distribution grids. That is possible when the source matches a consumption profile (such as air-conditioning through use of photovoltaic panels), or by cooperating with a RES that has an installed battery next to the source, or on the consumer’s premises.

Off-site corporate PPA in Poland
A different solution which does not require direct proximity of an installation to a consumer is a PPA contract, whereby energy is supplied via transmission and distribution networks. This solution requires a recipient to pay a number of additional fees to do with using them, which were mentioned earlier. However, an advantage of this situation is the possibility of using the advantages of a balancing market. By using the services it offers, it is possible to sell all the energy that is produced by a specific source regardless of the production or use profile. As a result, business leaders, especially, those with a high regard for CSR values, today have the opportunity to contract from renewable sources 100% of the energy they consume, which is nowadays increasingly expected by environmentally conscious customers.

Virtual and collective prosumers
Another supportive mechanism that’s already been announced by the government, added to the Polish legal system because of the EU’s Renewable Energy Directive 2, is the definition of a ‘virtual’ and ‘collective prosumer’. These will be entities that will be able to cooperate through use of renewable energy installations that are distant from each other. As a result, it will give access to purchases of energy from RES to much larger groups of persons who live in multi-family buildings and who, despite the very high interest in purchasing green energy, have so far been excluded from access to this dynamically developing market because of the requirement that an installation and a prosumer actually have to be connected.

Stronger entry of RES into the Polish energy mix
The vigorous development of the European Green Deal, a trend also noticeable in Poland, will mean an increase in the price of energy produced from large, high-emission conventional sources on which the Polish power system is based. In Poland, unlike some other EU countries, most of the costs of maintaining the system are passed onto industrial recipients. Therefore, the use of energy that is purchased under a cPPA at a fixed price, especially, from a source situated near a place of business, could soon determine how competitive a business is.

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