ICIS Power Perspective: Amendments to ‘Distance Act’ may encourage Polish onshore wind development

Source: Heren

2018/06/07

This story has originally been published for ICIS Power Perspective subscribers on 05 June 2018 at 12:09 CET.

The most recent version of the draft Act on investments in wind power plants of 2016 (so-called Distance Act), currently discussed in Parliament, extends the validity of wind farm construction permits issued before mid-2016 until 16 July 2021. This may help onshore wind projects that have halted because of uncertain regulatory environment to see completion.

Background The 2016 Distance Act tightened the regulation for new onshore wind power plants The law established that the distance between onshore wind farms and residential buildings needs to be equal or more than 10 times the height of the wind turbine (around 2 km) It also defined that for real estate tax purposes, the entirety of the wind turbine is to be taken into consideration, which increased the tax base of wind plants and subsequently payable real estate taxes The looming changes resulted in a flood of applications in 2015 for wind farm building permits by investors trying to get a permit under the old rules (link) The building permits have been necessary for onshore wind investors to participate in RES support auctions According to an analysis by the Polish Wind Energy Association (PWEA), projects with valid permits that had been issued before the Distance Act entered into force, will be able to enter the auction planned for 2018, and these power plants can still be built under the previous required distance conditions (link to the PWEA analysis) The 2016 Distance Act, however, closed a window for the validity of the permits issued under the older rules after 16 July 2019 Despite having the permits, in the past years a bulk of onshore wind investors did not proceed with the construction of plants because of the unclear regulatory environment of support for this type of RES generation On one hand, RES installations that were launched before 1 July 2016 could enter the support system of tradable Certificates of Origin (CoOs, “green certificates”), but the CoOs price had been falling since Q1 2014 (see Figure 1 below) The market of CoOs was oversupplied mainly as a result of awarding CoOs to biomass producers that co-fire with coal From the beginning of 2015 until July 2016, when onshore wind producers could still apply to the CoOs scheme, the price fell by 57% from 153.64 (€35.9) to 66.33 PLN (15.5€) The prices of GoOs bounced back slightly from an all-time low of 22.46 PLN (€5.3) on 29 June 2017 to 78.99 (€18.4) on 29 May 2018, but the new installations can no longer enter the scheme On the other hand, Poland started transitioning its RES support system to auctioning since July 2016, but so far no larger onshore wind could enter the auctions (please see the historical RES auctions on the Power Perspective Portal) In 2016 the Polish energy regulator URE concluded three auctions, and in 2017 only two From the five auctions concluded in 2016-2017, two allowed for new wind installations to compete in the same baskets with solar PV and hydro, but only with the capacity below 1 MW There were 11 more auctions planned in 2017, but the government cancelled the rest of them in September 2017  Proposed changes The latest version of the government bill proposes to extend the period of validity of the old building permits until mid-July 2021, instead of 2019 (link in Polish) Moreover, it restores retroactively, from January 1, 2018, the old rules of taxing wind turbines with property tax. This means that the tax will only be charged on the construction part of the project Requirements for distance from residential buildings, however, remain in the draft In addition, in the same legislative package, the government proposes to organise new RES auctions in 2018 with maximum 2.7GW of RES capacity receive support Next steps The whole package passed the second parliament (Sejm) reading on 5 June, Tuesday Local media expects the package of laws to pass the third and last reading before the summer break at the end of July After adoption by Parliament the bill will need to pass the Senate where it can in theory be rejected or sent back to the Sejm The final step in the legislative process is the signature by the President Analysis The extension of the validity period would open the door for those holding building permits to participate in upcoming RES auctions and have time to realise the projects According to an impact assessment by the Polish Energy Ministry, the auctions in 2018 could support a maximum 1.120 GW of new onshore wind capacity (link) Investors who intend to join the auctions undergo a pre-qualification process, under which they are required to submit, among others, legally valid building permits The extension of the validity period gives more time to those investors that may be awarded with support to complete the projects under the “old rules” Newly issued onshore wind building permits would need to comply with the stricter distance requirements The capacity of onshore wind power plants that received permits before the act entered into force is not clear, but is reportedly significant Issuance of the building permits of onshore wind power plants is the responsibility of local authorities Therefore, the Polish Regulator URE only finds out about the issued permits when the project developers are being granted a concession or enter the catalogue of small installations, which is at the final stage of the investment However, PWEA expects auctions to be competitive with a lot of investors seeking support for already planned projects In the past, the governing Law and Justice party (PiS) had a rather unambitious stand on RES expansion, especially on wind The expansion of onshore wind capacity stagnated after the introduction of the Distance Act in 2016 (see Figure 2 below) Between 2015 and 2016 onshore wind capacity increased by 18% to 5.75GW in 2016 However, from 2016 to 2017 only 50 MW were added, according to URE

Poland is lagging behind on its legally-binding 2020 target for 15% renewables in final energy consumption – in 2016 the country achieved only 11.3%, which was 0.4 percentage points (p.p.) lower than the previous year The proposed changes partially restore a more benevolent environment for onshore wind, but, as they still are in the legislative process, it remains unclear whether they would come into force in the current form The new RES auctions, the extension of building permits until July 2021 and retroactive changes to the taxation of onshore wind plants could help the Polish onshore wind sector to overcome the latest stagnation With local elections taking place in late 2018 and onshore wind development being a highly political topic, the drafts might still undergo significant changes while in the legislative process Further changes and amendments could come in the Senate

Florian Rothenberg is Student Analyst in EU Power Markets at ICIS. He can be reached at Florian.Rothenberg@icis.com

Vija Pakalkaite is Analyst in EU Power Markets at ICIS. She can be reached at Vija.Pakalkaite@icis.com

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