ICIS Power Perspective: First 2018 Polish RES auctions fail

This story has originally been published for ICIS Power Perspective subscribers on 26 October 2018 at  13:11 CET.

No subsidies were awarded to Polish renewable producers in the first three auctions of this year as too few bids were entered, results published on 23 October show. Polish wholesale power prices have been rising rapidly since the beginning of 2018 mainly driven by rising EUAs prices. This, together with a rise in the price of Certificates of Origin (CoOs), increased the total income for existing RES producers and thus may have motivated them to remain in the CoOs system instead of transitioning to the Contract-for-Difference (CfD) support.

Background

• On 23 October, Polish energy regulator URE published the results from the three auctions, held from 17-19 October, which showed that each had been called off without subsidies being awarded
  • This was because the number of bids entered in each auction had failed to meet the minimum threshold of three
  • A total of over 15bn PLN (€3.7bn) in subsidies was up for grabs for operators of existing renewable installations, but this did not tempt enough bidders for the auctions to go ahead
  • Two more auctions for existing installations were planned on 24 and 25 October – their results may be announced next week
• The auctioning system for Polish RES was originally introduced in mid-2016 and was intended to gradually replace the system based around Certificates of Origin, also known as CoOs or “green certificates”
  • Auctions provide access to support in the form of CfD – if the strike price is above the market price (“negative balance”), the RES generator received the difference, and if the market price rises above – this “positive balance” is settled against future “negative balances”
  • In mid-2017 all remaining auctions for the year were cancelled and not organised until last week. The Polish government revived the system with some revisions this year, but the first auctions held failed to draw interest
  • Media outlets reported on Wednesday that the president of regulator URE, Maciej Bando, said market participants saw the auction system as risky
  • He also reportedly said it was a shame the creators of the auction parameters had not been more forward looking and had instead based maximum prices that would be paid for RES on historical prices

Analysis

• One possible reason for the unwillingness of the existing Polish RES installations to switch to the CfD system may be a rise in the price of CoOs and RES producers seeing the CoOs system as more profitable
  • Under the CoOs system, large energy suppliers and some other companies either have to obtain and redeem the adequate volume of CoOs or make a compensatory payment based on the price of green certificates the previous year
  • RES producers that are in this system receive one CoO per one MWh of electricity they produce – they can sell CoOs on the market and get additional income to the sales of electricity itself
  • CoOs prices have broadly fallen since 2016, but increased towards the end of 2017 and are now rebounding to 2015 levels
  • One possible reason for increased CoOs prices is reportedly a change to the law that made it impossible for energy companies to use compensatory payments under PLN 300/MWh (€69.7/MWh), increasing demand for green certificates when at the same time summer draught decreased hydro energy volumes produced
  • As seen in the graph below, Polish wholesale power prices have been rising rapidly since the beginning of 2018, mainly driven by rising EUAs prices, and this together with the more expensive CoOs increased the total income for existing RES producers
  • ICIS Power Horizon modelling suggests Polish power prices will continue climbing until they peak in 2024 at €64.37/MWh  in line with rising carbon prices 
  • Auctions for new capacity
• We do not consider the failed October auctions to be a precursor for RES auctions planned in November for new RES installations
  • Eight auctions will be conducted for so-called “new installations” for the first time since mid-2017 and the first time wind installations of larger capacity can participate since establishing the auctioning system in Poland in mid-2016
  • Since the creation of the auction system larger wind or solar had no access to state support system
  • November’s auctions are one of the last chances for wind developers to bring online projects that have received building permits before new stricter distance requirements entered into force in 2016

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

Ellie Chambers is Deputy Editor – European Daily Electricity Markets at ICIS. She can be reached at Ellie.Chambers@icis.com

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