ICIS Power Perspective: Poland makes last-ditch attempt to reach 2020 RES targets

The Polish government has proposed to change the Renewable Energy Law of 2015 (RES Law) and accompanying regulations. The changes, if adopted by Parliament, would pave wave for wind plants over 1MW to participate in RES auctions in 2018. If adopted soon and implemented immediately, this regulatory change may give Poland a chance to reach its 2020 RES target.

Background

• On 20 February the Polish Energy Ministry published the latest draft version to change the Renewable Energy Law (draft law, current law on Power Perspective Portal)
  • Bringing certain changes to the existing RES law is required in order to set up new dates in 2018 for renewable energy auctions in Poland
  • This would pave the way for the first RES auctions to be conducted since 30 June 2017, when all remaining H2 2017 auctions were cancelled by the government
  • This would also enable onshore and offshore wind installations of over 1MW to enter the auctions for the first time
  • More information on the historic Polish auction can be found on the dedicated section on the Power Perspective Portal

• The new draft of the RES bill outlines the maximum volume and amount of money that the government may spend in this year’s auctions, which unlike in the previous years would be written in a law and not in a separate government regulation (current regulation on Power Perspective Portal)
• Should the law be implemented, larger wind power generators could enter the RES support auctioning system as early as in 2018 (please see page 70 of the proposed law)
  • The draft proposes to replace the current set of seven “technology baskets” within which auctions may organised with a new set of five “technology baskets” (see the table below)
  • Basket 2 includes offshore wind installations, together with hydro and geothermal power
  • Basket 4 includes onshore wind installations, together with solar installations
  • The government is planning to buy the highest generation volumes from Basket 4, giving a chance for completion of wind projects above 1MW capacity
  • Based on the draft proposal, new  >1MW installations in Basket 2 could expect up to 5.4TWh, worth €622 million (PLN 2.6 billion), being contracted in this year’s auctions
  • Based on estimates by the Ministry, new installations >1MW in Basket 4 could expect up to 45TWh, worth €3.8 billion (PLN 15.75 billion) being contracted in this year’s auctions. This may equates  to up to 1GW of onshore wind capacity (reference price for >1MW onshore wind is around €84/MWh (PLN 350/MWh))

• The Energy Ministry is forecasting additional new 2018 RES capacity in its impact assessment – we clustered the various technology details in bigger groups
  • Hydro: 150MW
  • Wind: 1,120MW
  • Biomass & biogas: 700MW
  • Solar PV: 750MW
• The Polish Government also proposed to change the 2016 Act on Investments in Wind Power Plants (law summary on Power Perspective Portal)
  • The Government proposes to restore the initial situation before January 2017 as regards the property tax treatments of wind power plants
  • It proposes modifying the wind power plant definition, specifying that only the construction part of the wind power plant constitutes a building structure within the meaning of the Construction Law
  • This reduction of the size of a taxable object under the Construction Law will lead to a reduction of the real estate tax payable for wind farms, as used to be the case before the changes introduced in May 2016
• Next steps of the proposal
  • Once the government accepts the draft, it will be passed to Parliament
  • The energy ministry expects such acceptance to take place by the end of first half of 2018
  • After adoption by Parliament and signature by the President, the new RES auctions should be announced
  • Changes might need to be accepted by the European Commission before new auction dates are published due to the element of state aid included in the draft

Analysis

• The draft is highly likely to be accepted by Parliament and signed into law by the President by the end of the first half of this year
  • The plan to update the RES law and speed up the process of new RES auctions is most likely related to the fact that Poland might miss its 2020 RES target as investments in green energy capacity have slowed down in the past couple of years due to unpredictability surrounding the support mechanism for green energy
  • Once the government passes the draft to Parliament, it is very likely be accepted by the majority of MP’s from the ruling Law and Justice party (PiS)
• The law, if adopted, may move Poland towards nearly reaching the 2020 targets
  • Poland seems to be signalling to investors about its intentions to provide regulatory predictability by writing the values and maximum orders of auctions in a law for 2018 instead of a regulation
  • The maximum value and amount of electricity that the government is supposed to buy in the auctions in 2019 is to be indicated in a regulation by the Government, in the usual way
  • Based on the composition of the new five proposed baskets, it seems that Poland is attempting to make technology neutral auctions within baskets, making offshore wind  compete with hydro and geothermal power, and onshore wind compete with solar PV
• Since the new July 2016 reform of the RES support mechanism by the PiS government, capacity extensions for renewable power generation dropped significantly in Poland (Figure 1) – Q4 2017 figures are not yet available from the government

• 2020 EU targets (Figure 2)
  • Until 2016, Poland was exactly on track to meet its 2020 RES-E target put forward in its NREAP
  • The very low capacity extension as of Q3 2016 set Poland on the wrong track and since then the RES-E share is deviating from the indicative targets

• Additional capacity being auctioned in 2018
  • Based on the fact that Poland did not auction high subsidy volumes in 2017, the current pipeline of projects being build is relatively low
  • The capacity being auctioned in 2018 will need some time to develop, with solar having maximum time 18 months from auction to commissioning, onshore wind 30 months and offshore wind 72 months
  • This means that the auctioned solar and onshore wind capacity will likely be commissioned before the 2020 deadline, especially if plants come online before the maximum deadline
• With 0% demand increase in Poland, the total 2,730MW the Energy Ministry expects from auctions in 2018 would set Poland exactly on its 2020 RES-E target in 2020 (Figure 3)
  • We expect historic load factors for the various technologies
  • With only 50% of the expected capacity coming online (1,365MW) until 2020, the target would be undershot by 2.7 percentage points (p.p.)
  • However, with just 1% increase in power demand, even a 100% commissioning of expected capacity would undershoot the target by roughly 0.7 p.p. (3.3% with 50% commissioned)
  • Figure 3 can be used to model various demand growth rates

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

This story has originally been published for ICIS Power Perspective subscribers on 28 February 2018 18:00 CET.

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