Looming changes to a Polish renewables subsidy law could lead to lower prices on the country’s wholesale electricity market by spurring competition among generators.
The reforms will scrap the guaranteed off-take of renewable energy from green producers. Therefore producers will be forced to compete against other generators in order to sell their output, market sources said.
This means competitive market forces will apply to more of the total volume being sold into Poland’s wholesale electricity market than was the case previously.
The comments, from two traders and one renewable energy analyst, came in light of the upcoming changes to the renewable law which are set to come into force in January 2018.
The reforms were introduced by the energy ministry last year and will bring about an end to the guaranteed purchase of all renewable electricity generated by plants with capacity over 0.5MW that came online before July 2016.
The guaranteed purchase model has been in place since 2005. Under the system, every installation over 0.5MW would get a guaranteed price each year for all electricity produced, paid by the distribution system operator (DSO) in the area of generation.
Those DSO, including some of Poland’s biggest energy companies which also operate a DSO arm, have been obliged to buy all electricity offered to them from renewable producers at prices established by regulator URE.
The price was based on an average of wholesale power prices over the preceding quarter.
This income, on top of green certificates received for every 1MWh of electricity produced, provided green energy producers a guaranteed source of income.
But, according to the latest amendment to the renewable law made in June 2016, installations over 0.5MW that produce renewable energy will no longer receive guaranteed financial payments in exchange for their generation as of January 2018.
Instead, producers will have to turn to the wholesale market, selling on over-the-counter (OTC) brokers as well as power exchange TGE, to sell their electricity.
Two market sources said the extra volume will have to be priced into the market, which could lead to a drop in overall prices.
“In order to make any money, they will need to sell electricity on the day-ahead market and on forward contracts.
“That in turn will lead to a drop in prices for renewable electricity because only that way will they be able to compete on the market. It will result in a lower [day-ahead] index of electricity prices,” one analyst said.
Although the missing DSO volume will also mean suppliers need to buy more, and therefore the impact of the reform on the supply-demand balance is neutral, downward price pressure would come from the increase in generators selling into the market relative to the number of suppliers buying from it, because the number of suppliers would not increase.
Although the law does not specify the total amount of capacity that will be affected by the reform, latest data provided by the International Renewable Energy Agency (IRENA) shows that by the end of 2016 Poland had 7.9GW of installed renewable capacity, 73% of which is wind farms, with hydro and then biomass accounting for most of the remainder. email@example.com