Subsidy-free Polish solar power plant underlines growth potential

LONDON (ICIS)–Renewable energy developer BayWa R.E announced this week its first large-scale subsidy-free solar plant in Poland, the 64.6MW Witnica solar park, due for completion by the end of 2020.

While the plant itself is unlikely to significantly shift the market, the announcement of a subsidy-free solar plant in Poland reflects an increasingly attractive investment framework and may point to faster solar expansion rate over the coming years.

FRESH SOLAR CAPACITY

BayWa R.E. is already in advanced discussions to secure a PPA. The plan is for the electricity generated by the Witnica solar park to be sold to a local industrial client.

The company has also announced its intention to build an additional 50MW solar park in 2021.

OUTLOOK FOR POLISH SOLAR

According to ICIS forecasts based on scheduled tenders, project announcements and the Polish National Energy and Climate Plan (NECP), solar capacity in the country is projected to grow from the current 1.7GW to 3.5GW in 2025.

Thanks mainly to expectations of improvements to regulatory framework for renewable energy tenders, the Polish Institute for Renewable Energy (IEO) announced it expects the country’s solar photovoltaic (PV) capacity to reach 7.8GW in 2025, much higher than the NECP sets out.

Currently the main source of growth for Polish solar capacity has been small-scale projects, due to perceived regulatory uncertainty for larger-scale plants.

The IEO said it expected the share of large solar farms to exceed micro-installations over 2022 and 2023.

INVESTMENT FRAMEWORK

In the latest auction held in Poland for small-scale systems with a generation capacity no larger than 1MW, solar PV projects secured all of the total 750MW available capacity.

The country’s next auctions for renewables will take place in the fourth quarter of 2020, according to the Polish Energy Regulatory Office (URE), and are expected to award contracts to over 2.4GW new capacity.

The Polish government has also announced plans to extend the RES auction system, Deputy Minister Zyska stated in June 2020 that support mechanisms for renewable energy would be extended by five years, from mid-2021 to 2026.

Zyska also announced the provision would be presented to the European Commission in September 2020.

Approval of an extension to the auction system will be conditional on the measure’s compatibility with the internal market and the European Commission recognising that it would not constitute state aid.

SUBSIDY-FREE RENEWABLES

A key point in the maturity of most renewables markets is the achievement of grid parity, or the price at which electricity from renewable sources is competitive with that of fossil fuels.

This is because once grid parity is achieved, companies operating renewable farms can more easily secure long-term contracts for the supply of their electricity directly with end customers, also known as Power Purchase Agreements (PPA).

PPAs offer stable long-term income streams to renewable plant operators which do not depend on government’s political will to maintain subsidies and are therefore known as subsidy-free.

BayWa R.E boasts one of the largest subsidy-free projects in Europe in the 175MW Don Rodrigo solar farm in Spain. The company also has subsidy-free projects in Germany and other European countries.

The fact that a company such as BayWa R.E has selected Poland as a country in which to invest without subsidy reflects the increasingly attractive investment framework for renewables in the country. The news may indicate that further similar projects may be announced over the coming months.

MARKET IMPACT

While the direct market impact of the announcement is unlikely to be significant, in the event of higher-than-expected solar capacity growth over the coming years, this would likely have a bearish price impact on the Polish market.