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Tuesday, December 16, 2014

Fireworks in Amsterdam in June 2015

I have been accepted to present a speech at PowerGen 2015 in June in Amsterdam. I will be speaking on the European Commission State Aid Guidelines for Renewable Energy, published in July of this year.

My speech, "The European Commission's Mismanagement of State Aid Rules for Renewable Energy," will present the results of my research from an upcoming article in the European Energy Journal. My thesis is that the new rules have been designed to support the large utilities and actually will reduce competition and hurt distributed energy.

Investment in renewable energy in Europe has dropped by 44% this year, due to changes in the support schemes and added uncertainty among investors. But most Member States are not on target to meet the 2020 mandatory goals. The state aid rules are one of the biggest culprits. By giving auctions for support a huge preference, the Commission has sent the sector into a turmoil of instability. History shows the biggest beneficiaries in these type of schemes have been the largest utilities, whose IRR standard and whose cost of capital are both lower than equity investors. Projects also get "dumbed down" to the cheapest technology with cut corners (future problems). This, of course, assumes that someone bids and someone builds if they win the bid: both of which have been dubious contentions in reality.

I will link the article when it is published and encourage anyone interested to attend in Amsterdam (last year they had over 11,000 visitors). I will be my normal out-spoken self and tell it like it is.

The Evidence Grows that the Polish Government has no Plan to Deal with State Aid Problems

Today, new disclosures show that the Polish Government is still getting enforcement questions from the DG Competition on the co-generation program. Last year, the Commission told UOKiK that the co-generation certificates were state aid. See UOKiK, November 28, 2013. UOKiK also acknowledges in the same correspondence to the Minister of Economy that the Commission maintains that the Green Certificates are state aid as well. The continued assumption of the Polish Government is that changes in the current programs of support which might be exempt from notification under the GBER regulation as to new aid in the future, will somehow how cure unlawful aid in the past. This is totally inaccurate and has positively no legal support.

The Polish Government notified the Commission of the co-generation law in 2013 and did not receive a quick answer that it was "not state aid." The Commission came back with detailed questions aimed at getting the information necessary to determine if the program was compatible with the current state aid guidelines (2008). See S.A. 36518 - certificates of origin for co-generation, May 31, 2013. This is no surprise because since 2001, the European Commission has found that every RES/CHP certificate program had provisions that constituted state aid.[1] The Polish Government has known this for sometime. The head of the Office of Competition and Consumer Protection (UOKiK) communicated this to the Ministry of Economy on November 28, 2013:

     "According to the OCCP, the [Green] certificate system constitutes state aid. Detailed clarification in   regard has been presented in previous correspondence [citing June 5, 2012 and August 10, 2012 correspondence from UKOK to MG]'. Moreover, similar conclusions have been expressed by the European Commission within the framework of the ongoing process notification of the restoration of the certificate system for high-efficiency co-generation.” [referring to the Commission's May 31, 2013 opinion on co-generation certificates in Poland, S.A. 36518](emphasis added).

State aid that has been provided without notification and approval must be recovered.[2] The consequences of illegal aid to Poland are enormous. Unlawful state aid is always recovered. “In cases where Member States do not notify the Commission of its plans to grant or alter aid prior to such aid being put into effect, the aid is unlawful in relation to Community law from the time that it is granted.” Notice From The Commission, “Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid,” (2007/C 272/05), par. 8. See COUNCIL REGULATION (EC) No 659/1999, par. 13. See et al. "State aid: Commission approves German aid scheme for renewable energy (EEG 2012); orders partial recovery," November 25, 2014; "Commission orders Poland to recover incompatible state aid from Gdynia airport," February 13, 2014; "Commission orders recovery of illegal state aid from Italian maritime company Saremar," January 22, 2013; "European Commission Orders Spain to Recover Illegal State Aid," October 14, 2014;"European Commission Orders Recovery Of State-aid From German, Belgian Airports" October 1, 2014; "Commission orders Bulgaria to recover incompatible State aid," May 9, 2014. Recovery of unlawful aid is a requirement enforced by the EU without any significant exceptions.  

The Court of Justice of the EU (previously ECJ) has also recently ruled that even the Commission's commencement of an investigation (as in this case) of unnotified aid requires that the Member State courts order the recovery of the aid immediately without further action by the Commission.[4] See Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) November 21, 2013. Any person paying an electricity bill in Poland that includes the pass through of Green Certificate and co-generation charges has standing to demand a refund and to order the cessation of the support. See discussion of the consequences of the French wind ECJ case on claims by electricity users in France.

 In the instance of state aid simply found unlawful due to the notification failure, the remedy can be simply curing the notification problem.…even non-notified aid can – in case for example it has been brought to the attention of the Commission by a complaint – still be authorized ex post, so that aid already paid need not be recovered.[3] This requires a retroactive notification as was done in the case of the French wind state aid dispute. 

But the system that is retroactively notified must meet the 2008 State Aid guidelines (and other previous precedents) and be based on the levelized cost of production. See S.A. 33995 (November 25, 2014) where the Commission decided that German aid to energy-intensive industries was required to meet the then-in-effect guidelines [5] and that some of the support exceeded the reasonable level based on costs and must be recovered. So to avoid recovery of the support (both Green Certificates and co-generation certificates), the support system must be adjusted to retroactively only provide support in relation to the cost of production plus a reasonable profit. See UOKik, November 28, 2013; June 5, 2012. Accord State aid N 437/2009 - Romania Aid scheme for the promotion of co-generation. This could utilize the approach of the 2012 MG draft RES law and the prospective correction coefficients of the IEO report. But for prior years, there would have to be another calculation of the costs of production across technologies. See UOKiK, supra

There is no serious legal dispute on any of these issues. Yet somehow the Polish Government continues bluff with everyone involved, pretending that there is no state aid and that there will be no recovery required. Since the Government's own internal competition expert, Malgorzata Krasnodebska-Tomkiel, long-standing head of UOKiK, advised the government of these facts in 2012-2013, it is hard to attribute the position of the Polish Government to ignorance of the law.

The notion that a prospective support system that fits into the prospective state aid guidelines will cure the current problems is farcical. The only errors that a prospective change can fix are those of "existing aid" which was in effect before Poland joined the EU. The first support for RES was one year later. Every month that passes increases the enormity of the problems and the pain of the transition. The timing of all of this guarantees that it will be an election issue next year and the ruling coalition looks pretty irresponsible at this point.


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[1] C(2001) 3267 Final, State aid No N 504/2000 – United Kingdom Renewables Obligation and Capital Grants for Renewable Technologies, November 28, 2001; State Aid N 550/2000 -Beligan Green Certificates; State Aid N 789/2002 — Sweden — Green certificates; State aid SA. 33134 2011/N – RO, Green certificates for promoting electricity from renewable sources, C (2011) 4938, July 13, 2011.


[2] State aid that is done without notification is unlawful and must be recovered from the recipients. See CELF case (C-199/06) European Court of Justice, February 12, 2008. . “In cases where Member States do not notify the Commission of its plans to grant or alter aid prior to such aid being put into effect, the aid is unlawful in relation to Community law from the time that it is granted.” Notice From The Commission, “Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid,” (2007/C 272/05), par. 8 (emphasis added). The European Court was completely clear in the CELF decision:
"In order to ensure the effectiveness of the Commission’s role in monitoring and reviewing aid in the Community interest, Article 88(3) EC imposes two unequivocal obligations on Member States when they intend to grant a new aid or alter an existing aid: a notification and a so-called ‘standstill’ obligation. The first sentence of Article 88(3) EC requires the Member States to inform the Commission of a planned aid in due time. The last sentence of Article 88(3) EC imposes an additional obligation on the Member States concerned to refrain from implementing the aid until the procedure provided in Article 88 EC has resulted in a final decision by the Commission. Thus, as the Court pointed out in Adria-Wien Pipeline and Wieterdorfer & Peggauer Zementwerke, Article 88 EC ‘imposes on Member States specific obligations to facilitate the Commission’s task and to prevent faits accomplis for that institution.’"  Member States may not grant State aid until the Commission has adopted a final decision stating that the aid in question is compatible with the common market. Failure to comply with those obligations renders the State aid unlawful. [par. 22-23](emphasis added). If anyone doubts that this means exactly what is says, look at the response of the French wind industry and French Government to the European Court of Justice case. See prior post.


[3] Becker, Buttner and Held, “The Legal Help Desk: Understanding State aid in European law,” http://www.keepontrack.eu/contents/virtualhelpdeskdocuments/understanding-state-aid-in-european-law.pdf


[4] The Commission has directly addressed what rules will apply to the Polish certificate cases. There wil not be resolved by the new guidelines effective 2017, but by the rules in effect at the time. "Aid which has not been notified to the Commission will however be assessed on the basis of the guidelines in force at the moment of granting the aid (i.e. where applicable, the Guidelines on aid for Environmental protection adopted in 2008), with one exception: the new guidelines will apply retroactively for the assessment of reductions in the financing of renewables for energy-intensive users. The possibility for such reductions was not foreseen in the previous guidelines." (emphasis added). Energy and Environmental State aid Guidelines – Frequently asked questions, European Commission - MEMO/14/276 09/04/2014.

[5] "The European Court of Justice decided on 21 November 2013 that EU national courts must assume that a measure qualifies as State aid, if the European Commission has opened an in-depth investigation into that measure. This judgment is relevant to all cases in which the disputed measure was already granted, or is planned to be granted, and the European Commission has opened an in-depth investigation but not yet made a final decision on whether or not the measures qualify as State aid. "The European Court of Justice (ECJ) decided on 21 November 2013 in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) on the obligations placed on national courts in EU Member States that have been asked by a third party to order the recovery of State aid that was granted to a beneficiary without approval by the European Commission. "The ECJ stated that, even though the assessment carried out by the European Commission in its decision to open an in-depth investigation is preliminary in nature, the decision to open an investigation has legal effect and is therefore binding for national courts in that they must find that the measure qualifies as State aid. If the aid was granted without approval by the European Commission, the national court will have to order its recovery." McDermott Will & Emery. (emphasis added).

Wednesday, December 10, 2014

Break through in New Renewable Energy Law?

Changes in the draft Polish Renewable Energy Law are starting to make it look pretty good.

They have apparently agreed to "banding" auctions by technology. This allows biogas to compete more effectively.

The legislators also seemed to have agreed to raise the biogas plant size to 1.5 MW, before it has to compete with cheaper technologies in auctions.

I am waiting for the results on the definition of allowable substrates before the champagne comes out. The bill also has to actually pass the fill committee, the lower house of Parliament, and then be approved by the Polish Senate.

This will open new support prospectively for biogas via auctions. Unfortunately, the auction mechanism will be tough on farm plants and smaller developers. We have fought for a more stable support system - including fixing Green Certificates, which is still possible through action by the European Commission. But the hope that a viable support mechanism for organic waste biogas plants in Poland may actually be accomplished near term is going up.

Wednesday, December 03, 2014

Government Misrepresentation of RES Costs

We are on the final leg of what I call the "Polish Internal Draft RES law," which should be distinguished from the final one that will have to reflect concerns from Brussels.

At this stage, the Polish Government has been all over the map in what they claim about the costs of RES. First, Mr. Tusk told us that the delay of the new RES law was good, because it was saving Polish consumers a lot of money in additional electricity costs.[1]


This is rather an amazing contention, since the rest of the government has repeated told us that the new RES law will save money and lower support paid out! [2]

Which is it? Tusk's explanation for the delay is inaccurate and very misleading. The new Polish draft is an attempt to lower support of most renewable energy technologies. While support for biogas would increase substantially,[3] generally the amount paid for wind and co-firing, the two biggest items would go down. How much co-firing can receive will likely be decided in Brussels, not Warsaw, but that issue is explained thoroughly here in other posts. See "Consequences of Failure to Notify on State Aid"; "Why Poland Urgently Needs a New Green Certificate Law." or in Polish "Dlaczego Polska Potrzebuje Pilnie Nowego PrawaDotyczącego Zielonych Certyfikatów."

As long as the current law continues without a new one or the anticipated intervention by Brussels, co-firing and old hydro will continue to receive the vast chunk of RES support now provided and this is actually going up (although a lot of this will be turned off when the old coal plants are legally forced to close after 2015). Most all of this goes to state-owned companies, who are getting a windfall in revenue from it and making several times the profit margin that they make on "black energy." The real game being played is to prolong this level of support for as long as possible and to try to get through the Parliamentary elections without the European Commission blowing wide open the scam involved in the illegal support. Keeping the green support for co-firing coming to make the old coal plants profitable until they have to close at the end of 2015 is also part of the scam.


At the same time, the Polish Government has selected one of the options offered by the European State Aid Guidelines adjusted so that it unduly supports large utilities in public auctions[4] and also discourages smaller firms and projects. I believe it is also intended to scare away potential foreign competitors to the state-owned energy companies.

The reality is that the cases of windfall profits and huge hits to consumers involved levels of support much higher than anything even discussed in Poland. Using a similar certificate system, the United States has achieved 14% RES will virtually no impact on consumer prices. That system, however, encourages competition to the benefit of consumers and the Polish approach discourages competition (putting it politely). The only overcompensation and windfall profits going on in Poland are for the state-owned companies and other coal-fired plants co-firing. Only 75% of the support has been abused, misused and may have to be recovered by EC enforcement action.

In the meantime, the alternative forms of energy the Government has set out as future options (along with miraculously rescuing coal for the the fundamental laws of economics and physics) are increasingly remote and problematic. See "Hitting Reality: Polish Energy Policy Meets the Facts."

The problems all go back to the government's involvement in the energy sector as an owner/operator where privatization would create a more neutral climate where business and technical decisions might more reflect reality.
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[1] "Prime Minister responded to the allegations of the opposition on not passing the RES act - It was good from the point of view of the Polish energy that we do not adopted the Law on Renewable Energy Sources, the rules and the political climate in Europe, as well as a fairly trivial belief in Poland for renewables, causes us to adopt a law, according to which we would have very expensive energy, also from windmills far too much in comparison to the real needs." http://gramwzielone.pl/trendy/9142/premier-oze-szkodzi-polsceThere are so many factual errors in this statement that it is staggering. This guy's government is proposing much more wind energy than there already is in Poland, much (maybe a majority) of the new capacity even in the state-owned companies will be renewable by their own estimates, and renewables in many cases are cheaper than the energy Tusk supports (nuclear and modern coal plants).

[2] Presentation by Ministry of Economy; Premier's own website; explanation offered to the Sejm; press announcement. All of this assumes that auctions work, that they are competitive, that bidders file bids and actually construct the projects for the bid amounts. Virtually none of this ever happens in real life. See ECOFYS, Design features of support schemes for renewable electricity,” January 2014 [a wide ranging discussion of the issues under all forms of support]. They describe auctions as still "experimental." For detailed discussion of the faulty assumptions and real experiences, see Mott, "New State Aid Guidelines For Renewable Energy Only Discourage Competition, Green Energy And Energy Security," publication pending European Energy Journal 2015.

[3] The auction would use an adjusted reference price for costs of production. The Commission will also require the same adjustment for Green Certificates. See UOKiK correspondence to Ministry of Economy, June 5, 2012.

[4] ECOFYS illustrated this in their report, cited in note 2. Similarly, Del Rio et al in a 2013 study of all RES auctions conducted worldwide also concluded: “Unfortunately, these theoretical advantages of auctions come at a cost. Due to the complexity of the bureaucratic procedures, and also to the planning required ahead, auctions have higher transaction costs which, together with uncertainties on the final price and the tendering schedule, deter participation by smaller firms, resulting in a low degree of competition and creating opportunities for market power. In turn, this may eliminate the higher theoretical efficiency of this instrument.” ,” Renewable and Sustainable Energy Reviews 35 (2014).  

Wednesday, November 26, 2014

Revising the RES Law on Biogas: the Necessary Changes



The Government is coming to the realization that the proposed auction system will not provide enough stable support to meet the biogas goals projected in the national plan. See graph below.  See comments of the Polish Biogas Association on the July 2014 draft. The additional biogas energy hoped for 2030 will also be problematic. 


      The initial solution in the July 2014 draft was to use a small auction for projects under 1 MW. The problem is that most agricultural biogas plants in Poland and biogas plants that are necessary to handle organic waste under other EU rules are normally over 1 MW to be economically efficient. The auction itself also poses real problems for biogas projects, which have never been effectively supported by this mechanism. See Del Rio (2013); ECOP FYS (2014).

     The new proposal to have a separate auction for agricultural biogas is an improvement. But this option will face major legal challenge since it discriminates among other forms of biogas without a factual basis. The separate auction should be for forms of biogas with comparable costs of production to meet the EU competition rules.[1]  So AD plants handling organic wastes as well as agricultural biogas plants based on farms should be banded together, since their cost of production is comparable and higher than other forms of biogas (landfills and sewage treatment plants). Small amounts of sewage sludge (up to 20%) can be successfully handled in AD plants (as in Denmark) which remain quite different from sewage treatment plants in costs, market role, and classification.

     However, the whole notion of auctions has proved to be a totally ineffective method to encourage investment in biogas. Where countries have tried to throw biogas into auctions, the results have been universally negative. The Instituto de Investigación Tecnológica in Spain published a detailed review of renewable energy auction experience in every country where it has been attempted. See del Rio and Linares, “Back to the future? Rethinking Auctions for Renewable Electricity Support,” 2013. One of their major points from looking at dozens of different auction systems was as follows:
Unfortunately, these theoretical advantages of auctions come at a cost. Due to the
complexity of the bureaucratic procedures, and also to the planning required ahead,
auctions have higher transaction costs (Finon and Menanteau 2008) which, together
with uncertainties on the final price and the tendering schedule, deter participation by
smaller firms, resulting in a low degree of competition (Butler and Neuhoff, 2008), and
creating opportunities for market power. In turn, this may eliminate the higher
theoretical efficiency of this instrument. Id. at p. 3.


Unfriendly for small projects and actors. A major empirical lesson of tenders is that they are unsuitable for small installations and smaller actors. Competition may thus be affected. It has been argued that some of the aforementioned factors and, namely, information failure and difficult access to finance, have a disproportionately negative impact on small actors and, thus, that the instrument is not suitable for small actors, suggesting that smaller projects should be promoted with a different instrument (Morthorst et al 2005, Mitchell 1995). It is difficult to tell a priori if encouraging large installation or actors instead of small ones is a negative aspect. Although it is explicitly assumed to be so in the specialised literature, size is a double-edged sword. Larger installations facilitate economies of scale in production but a model of distributed generation calls for   smaller plants scattered around the territory.[2] Furthermore, some RE projects are inherently large (offshore wind and concentrated solar power) and tenders may be particularly suitable for these technologies. In contrast, smaller projects may need to be promoted with another instrument.[emphasis added].

    Their conclusion is based on the empirical data, not simply another expert opinion. Auctions may achieve some support “optimization” for large projects, but they kill smaller projects. See See EcoFys, “Design features of support schemes for renewable electricity,” January 2014, p. 66.
 In fact, most auction regimes exempt up to 5 MW projects or even larger. The adverse competitive impact of auctions is especially true of biogas: the ITT study noted that many countries had no biogas projects successfully bid in their auctions.[3] At one point, only 8 % of biogas projects in the Netherlands that won bids were actually built.[4]   If a technology-neutral design is selected, implementing additional measures to stimulate less mature technologies and smaller-scale technologies should be considered.” EcoFys, supra¸page 73. 

     Poland has the most ambitious plans for growth in biogas in the European Union. See graph below. To meet any significant part of those plans requires changes in the support system. Auctions among comparable costs of production biogas (farm plants and AD plants doing organic wastes) would be an improvement. But this amendment will not address the fundamental weakness of auctions as a support system for biogas and other small projects. No country has successfully supported biogas combined heat and power facilities by the auction mechanism.


     The new law should exempt projects under 5 MW from the auctions and provide for continued support through Green Certificates for these projects. The Green Certificates must be approved by the European Commission and must be levelized to reflect the cost of biogas production. See Tomkiel- UOKiK letters to Ministry of Economy, June 5, 2015 and November 28, 2013; Institute for Renewable Energy, Correlation Coefficient Study, July 2013.

     This approach will meet all of the current state aid guidelines and the new guidelines as well. See paragraph 136, State Aid Guidelines, July 2014.

     Finally the expansion of the substrates that can be used in Poland while still qualifying for full support should be done in the amendments.  See PBA comments on July 2014 draft law. There is no reason to restrict the feed-stock for biogas in Poland where the EU allows a broader scope and this also makes good economic and environmental sense.



[1] Auction banding should only be done where there are comparable costs of production and exclusion of one type of biogas with comparable costs would be arbitrary and illegal under EU law. This violates EU law by discriminatory treatment of similar cases. The issue must be evaluated in the light of the general principle of equal treatment, of Article 6 of the Treaty on European Union and of Articles 20 and 21 of the Charter of Fundamental Rights of the European Union [(“the Charter”)]. In   Case C-195/12, Industrie du bois de Vielsalm & Cie (IBV) SA v Région wallonne, European Court of Justice, September 26 2013, the European Court established that Member States cannot discriminate between similarly situated technologies by arbitrary distinctions.  Renewable energy support under European law “must observe the principle of equal treatment and non-discrimination laid down in particular in Articles 20 and 21 of the Charter (see, to that effect, Case C‑401/11 Soukupová [2013] ECR I‑0000, paragraph 28).“


[2] Biogas is the perfect example of distributed energy, where local sources of agricultural waste and products provide a local source of energy that should also be allowed to be used locally. See Mott, “Biogazownie jako wzorcowy model rozproszonej energetyki: lokalne odpady lokalnym źródłem Energii,www.reo.pl (2013).   Local, direct sale of the electricity is also imperative to achieve the best results to the economy (decentralizing electricity and lowering its price).

[3]  The Netherlands reverse auction has severely impacted biogas development there. Biogas plants compete in the auction there generally only in a special category of supplying biogas to the natural gas grid (without cross-technology competition).

[1] “The Dutch are having trouble simply getting stuff built. Only eight percent of the biogas projects awarded contracts since 2011 have been completed – and a whopping 98 percent of the PV projects that won auctions last year were apparently not built even though they had to be completed within a few weeks in compliance with auction rules.”  Craig Morris, The Energie Wende Blog, June 25, 2014,

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This article is available in Polish in the form of the letter sent by PBA to the Ministry of Economy and the Parliamentary Committee dealing with the draft law.

Monday, November 24, 2014

Waste Producers Seminar- Update on European Developments

I am happy to invite any companies to one of two events that CHWMEG is hosted on December 1st (Dublin) and then on December 4th (Warsaw). CHWMEG is the largest waste stewardship organization in the world with 250 members and over 600 affiliated companies. We focus of waste producers, i.e. manufacturers in pharmaceuticals, chemicals, petroleum, aircraft, electronics, automotive, etc. 

The seminar focuses on recent changes in European regulations, case studies, enforcement and litigation. All issues directly related to producers of industrial waste.

 These sessions will both be one-day in length and will offer updates on new regulations and legal developments in the EU. The Warsaw seminar will focus on the “newer” Member States in the East.  You will also have an opportunity to ask questions of a first-rate panel of experts, since we have built a good deal of discussion time into the schedules.

Please consider yourself invited to register and attend any of these sessions!  Please feel free to forward to your colleagues as well, wherever they may be located, as the respective focus area may be of interest or within their realm of responsibility.

Dublin on Mon, 1 Dec 2014:  CHWMEG, ENHESA, and Tad Yancheski of world regard, LLC are conducting a one-day seminar on Update on Issues for Waste Producers in Europe, on Mon, 1 December 2014 at the Hilton Dublin Hotel. Employees of CHWMEG members and their affiliates and special invitees can attend at no cost by registering before 20 Nov 2014 [discounted from the regular registration fee of EUR150./EUR250. (US$225./US$350.).]. This is part of CHWMEGs non-profit mission. Register here

Warsaw on Thur, 4 Dec 2014:  CHWMEG, ENHESA, and Tad Yancheski of world regard, LLC are conducting a one-day seminar on Update on Issues for Waste Producers in Central Europe on Thursday, 4 December 2014 at the Westin Warsaw Hotel. Employees of CHWMEG members and their affiliates and special invitees can attend at no cost by registering before 25 November 2014 or PLN300. (EUR80./US$100.) afterwards. Others can attend by registering before 25 November 2014 for PLN225. (EUR60./US$75.) or PLN450. (EUR120./US$150.) afterwards. The seminar is part of CHWMEG’’s non-profit mission to globally promote responsible waste stewardship. Register here
Please feel free to contact me if you have any questions. 

Randy Mott
Director for Europe, Middle East and Africa

Saturday, November 22, 2014

Delay in Final Approval of the RES Law in Poland: Impossible to Conduct Auction in 2016

Increasingly it appears that the new law on renewable energy will not be in effect until substantially later than the latest government prediction. This is no surprise, since the government has been promising a new law within six months for the last two years. 

Final approval by both houses of Parliament will go over into 2015, an election year, which will make final consensus difficult. The final figures for renewable energy production and investment for 2014 will reflect the uncertainty and doubts in the market. Perhaps the fact that investors are lined up to invest in Poland in this sector (perhaps as in no other sector) and are only blocked by the government, will leak into the elections themselves. The fact that electricity bills for everyone are higher than legally permitted by the inclusion of subsidies for co-firing and old hydro would seem to be a political liability. Much of this support does nothing to help compliance with the 2020 target, since it is either superfluous or the facilities receiving the support will be closed when the compliance level is measured.


The European Commission is still posed to drop the sword on the whole current system of Green Certificates, which also affect the future support system since they will remain a part of it for grand-fathered facilities. The UOKiK, when it was professionally run, concluded that the system was state aid and the European Commission has informally advised the Polish Government of this fact. Unless the Polish Parliament passes a revised Green Certificate program levelized by technology to retroactively cover the past nine years, all of the aid will have to be recovered. See e.g. previous posts here on UOKiK correspondence. Without the use of certificates, the big coal-fired utilities will be out of compliance and face penalties for that fact in addition to recovery of billions of past support. Even the retroactive legislative fix (as in France) would have to lower the support for co-firing which the Government has admitted on numerous occasions is over-compensated. Aid to old, depreciated hydro will have to be recovered in its entirety. Delays in taking the medicine in this case will clearly not make the disease go away.

Once fixed, the certificate system can be continued as fully compliant with the new state aid guidelines, eliminating the necessity for auctions altogether if the government was so inclined or was so tied in knots that it continued the current impasse. Nothing in the certificate system has to create over-compensation, the bogeyman raised by the government.[1] The only over-compensation now is for co-firing and old hydro!

Elements of the new law are also inconsistent with the competition law of the European community and will be subjected to another complaint to the Commission on this count. 

Throw this mix into the elections and is it almost impossible to see how all of the new procedures can be enacted and approved in Brussels in 2015. The default case is that the Green Certificate system will have to be fixed to avoid a crisis that would have immediate severe impacts on the state-owned utilities. This can be done by bringing back the previous version of the law written with the state aid rules in mind and informally running it by the Commission as a fix for the state aid problems. This will have to be the first order of business once the decision is announced that the certificates are unlawful from 2005 until now. Without a certificate fix, their use for compliance is precluded and penalties will start immediately on the state-owned companies for missing the renewable quota. Their accumulation of co-firing certificates will be useless for compliance and they will be short the necessary amount of renewable energy in their mix. The financial markets, even the ineffective and collusive one in Poland, will have to adjust to these facts, which will also likely stop or seriously impede new capitalization and borrowing by the utilities.  The specter of massive refunds of the aid received will have to be resolved to stabilize the financial market.

      RWE coal-fired plants closing in Western Europe
Instead of working on a solution to the real problems (illegal state aid to date and the crisis in renewable energy investment)  the Polish Government is still committed to the fantasy that co-firing can receive disproportionate subsidies and that the transition in electricity generation can be done without a robust climate of free competition and investment .[2] Turmoil in the renewable energy investment climate affects all investment in the electricity sector in Poland. If the Government could solve these problems with their owned state-owned companies alone, we would still be seeing mandatory Russian language courses taught in schools. Only private sector investment with international participation can modernize Polish electricity. The RES system must be fixed as a first priority. The longer the solution is delayed, the more painful the transition.

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[1] Previous posts have pointed out that the examples cited by the Government in other countries involved subsidies of 35-52 Euro cents a kWhr (levels enormously more inflated than anyone's proposal for Poland) and levels which were subsequently adjusted down.

[2] I personally think that it is widely accepted inside the state-owned utilities that their long-term competitiveness requires that they ultimately abandon Polish coal (which cost three times more to mine that the competition's surface-mined coal) moving to imported coal to contain costs and simultaneously shift overtime to non-coal forms of energy.  This induced period of confusion in the RES sector primarily serves to deter foreign investors and to attempt to set the stage for the state-owned firms to become the RES leaders in 2016 and beyond. A large number of coal-fired plants from the Soviet-era must be closed due to EU emission rules in the next year. Others will increasingly be uneconomic to run at all, especially on expensive Polish coal.

Note: Photograph of Niagara Falls canoeists: my uncle actually went over Niagara Falls as a stunt man in a movie

Friday, November 21, 2014

United States-China Deal on Carbon Reduction is a Scam

This is a classic case of political leaders in need of a headline and not a real agreement. The details are discussed in Mr. Krauthammer's excellent article, linked here.


If you believe in the climate alarmism, then this is not a real deal. If you are like me and hope that at least carbon is a good surrogate for really harmful pollutants, then it is still a bad deal.

CHANGES FOR BIOGAS IN NEW POLISH DRAFT LAW

The first really good news for Polish biogas in a while happened yesterday.

The Parliamentary subcommittee has revised the draft law on renewable energy to provide for separate auctions for biogas. This will mean that biogas projects up to 1 MW will only compete with other biogas projects for support. The big issue will be how big the bundle is for biogas in the auctions. The 2030 energy plan is showing a doubling of biogas from the 2020 target to the level in 2030 in Poland. This is very optimistic given the past experience. 


We are working on the 1 MW limit in Brussels. It is quite arbitrary and anti-competitive, although it ironically was suggested by the DG Competition. A practical ceiling based on the market and the objectives of other European legislation (the Landfill Directive, the Revised Waste Framework Directive, etc.) would be 2-5 MW. Above this level would trigger competition with other RES technologies that have lower costs per kWhr. So the cap is the de facto limit on the size of biogas plants that can be supported in the EU.



Member States can submit a rationale to do things differently than the guidelines in this and other cases, but they will be put into line for Commission approval, while open auctions will be "fast tracked" with no individual review (in theory). The Polish Biogas Association has filed comments on this in Brussels and has been a leader in the EU of fixing these problems.

We still have not seen how the new draft treats substrates and other issues raised in the public comments.