Power Perspective: Polish 2020 RES auction ambition indicates potential move towards subsidy-free wind

Author: ICIS Editorial

2019/11/22

This story has originally been published for ICIS Power Perspective subscribers on 14 November 2019 at 16:42 CET.

Even before conducting the renewable energy auctions planned for 2019, the Poland’s energy ministry issued a draft outlining the 2020 auctions for public consultation, which was closed on 18 October. The distribution of the 2020 baskets shows that the Polish energy ministry expect a part of the renewable energy, especially onshore wind generation, to come from the market, and no longer from auctioning. Our modelling shows that even the onshore wind developers that were awarded support in the 2018 auctions would not receive premium payments until 2030.

Background

Support system

  • In order to receive support, all the new installations larger than 0.5MW in Poland need to participate in auctions organised by the national energy regulator (URE)
  • The type of support is Contract-for-Difference (CfD), and the support for the winners of auctions is paid for 15 years from the date of the first sale of electricity, and not longer than until 31 December 2035
    • When the average monthly power price is below the producer’s agreed strike price, she will receive payments for “negative balance”, equal to the difference between the auction price offered by that project and the market electricity price
    • In the opposite situation, the “positive balance” will be settled against next “negative balance”
    • If at the end of the 15-year support period there remains a “positive balance” that has not been settled, the renewable energy generator will pay it back in six equal instalments
  • The regulator has already announced the dates of the 2019 auctions; the baskets and volumes for which were adopted in RES law changes in summer 2019
    • An auction for new onshore wind and solar farms with capacity above 1 MW is planned for 5 December 2019
    • This will be followed, among others, by auctions for hydropower capacity and offshore wind sources with capacity over 1MW on 12 December
    • In the last auction to be held on 13 December, new biogas plants with capacity over 1MW will bid to receive state support
    • Please see more details on these and other RES auctions planned on the designated page on the ICIS Long-term power analytics portal

Legislative process

  • As in the legislative process that led to the announcement of the 2019 auctions, Polish policy makers need to approve legislation in order to run a new series of auctions in 2020
  • The draft amendment of the RES Act, together with the justification and Impact Assessment, is available on the Government Legislation Centre website
    • The total estimated volume of energy intended for sale during the auction in 2020 in the support period of 15 years is 57.8TWh, including 36.8TWh for new installations and 21TWh for existing installations (only one basket for existing biogas&biomass installations above 1MW)
    • The total estimated by the ministry maximum value of these volumes (constituting the product of the volumes and the reference price for 2019) in the 15-year support period is PLN 25.36 billion (€5.93 billion) including PLN 15.5 billion (€3.61 billion) for new installations and PLN 9,9 billion (€2.3 billion) for existing installations
  • The public consultation was open until 18 October, and as the next step, the draft will be discussed in a government meeting and if approved sent to Parliament (Sejm)
  • If approved in Sejm, it will be sent to the Senate and, after a subsequent approval, to the President to sign
  • The draft may change significantly from the opening of consultations to the final adoption
  • The process may be stalled because of the administrative changes in Poland’s energy policy making
    • After the current ruling party Law and Justice secured a second term in the government last month, the prime minster announced on 7 November 2019 that the current energy ministry will cease to exist in the coming weeks
    • Energy industry policies will instead be discussed by a newly appointed Ministry of Supervision over State Treasury Companies
    • Such change could impact the legislative process of energy laws and policies in the coming months

Baskets

  • If adopted, the 2020 auction will mainly distribute support to new installations, with only one basket devoted to existing installations that are meant to transition from the system of certificates of Origin (CoOs) into Contract-for-Difference payment system
    • Existing installations with a total installed electrical capacity greater than 1 MW
      • Biogas obtained from landfills, biomass combustion installations or hybrid systems; maximum volume to be auctioned will be 21TWh, with a value PLN 9.9 billion (€2.3 billion)
    • New installations with an installed capacity below 1MW
      • Biogas, including obtained from landfills, biomass combustion installations or hybrid systems – 375GWh; value of PLN 166.8 million (€38.9 million)
      • Hydropower; bioliquids; hydroelectric; geothermal installations – 540GWh and value of PLN 270 million (€63 million)
      • Onshore wind and solar installations – 7.3TWh, value of PLN 2.8 billion (€0.65 billion)
    • New installations with an installed electrical capacity above 1 MW
      • Biogas, including obtained from landfills, biomass combustion installations or hybrid systems – 11TWh, value of PLN 5.2 billion (€1.2 billion)
      • Bioliquids, hydropower plants; geothermal installations; offshore wind – 1.1TWh, value is PLN 518.4 million (€121 million)
      • Agricultural biogas 1.1TWh and value of PLN 1.2 billion (€0.28 billion)
      • Basket for solar and onshore wind generation above 1MW is 14.7TWh and its value is PLN 5.4 billion (€1.26 billion)

Analysis

Onshore wind grid parity

  • The distribution of the 2020 baskets shows that the Polish energy ministry expect a part of the renewable energy, especially onshore wind generation, to come from the market, and no longer from auctioning
    • According to the impact assessment by the ministry in 2018, a total of over 56.1 TWh of electricity worth PLN 14.2 billion (€3.31 billion) was purchased in auctions targeted for new installations, which means that the average cost of 1 MWh was PLN 253.17/MWh (€59.00/MWh), which is close to the currently observed market energy prices
    • The ministry writes that taking into account such observations, it can be expected that the development of renewable energy sources based on the auction support system will not generate a significant burden on end-user consumers
    • In the 2018 auctions, the volume weighed average strike price for solar PV was 353.34PLN/MWh (around €0/MWh) and for onshore wind 196.17PLN/MWh (around €46.8/MWh)
    • Below you can see the volume weighted average awarded bid prices for solar PV and onshore wind in 2018 the auctions plotted against the ICIS Power Horizon long-term power price forecast for Poland
      • The auction price every year is indexed by CPI (consumer price index), which we assumed to be 2%

Sources: TGE, URE, Power Horizon
  • Based on our power price forecast, the average strike price for onshore wind awarded in the 2018 auction will remain under the average market price through 2030, whereas solar PV will remain above
    • This means that the onshore wind participants of the support system are likely not to receive payments for “negative balance” until 2030 and purely rely on the market revenue

 The capacity

  • Subsequently, the energy ministry does not estimate any onshore wind coming from the auction baskets above for capacities above 1MW:
    • In the impact assessment, it estimates, that due to 2020 RES auctions up to 1.5GW of solar installations will be added to the grid in the coming years
    • Further, 110MW of capacity from new installations using biogas obtained from landfills, from wastewater treatment plants for electricity generation and dedicated biomass combustion installation.
    • 300MW is to be added from existing dedicated biomass combustion installations
    • In theory, if the whole basket for onshore wind and solar for capacities above 1MW goes to wind in the 2020 auctions, assuming historical wind load factor of 28%, it would only bring around 400MW wind capacity

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

Karolina Zagrodna is Senior Market Reporter at ICIS. She can be reached at Karolina.Zagrodna@icis.com

Our ICIS Power Perspective customers have access to extensive modelling of different options and proposals. Our long-term price forecast now also includes Bulgaria, Greece and Ireland. If you have not yet subscribed to our products, please get in contact with Justin Banrey (Justin.Banrey@icis.com) or Audrius Sveikys (Audrius.Sveikys@icis.com).