Follow by Email

Wednesday, November 25, 2015

European Commission Finally Enters the Polish RES Debate

Ninety-nine percent of the Polish Government has been lying to us or is so uninformed that they do not know the difference. Poland's state support of renewable energy from 2005 to date (old law and new law) are state aid under the European Treaty. No doubts and no qualifications. The only Polish leader who was honest and professional in their opinion on this was Malgorzata Krasnodebska-Tomkiel, head of the Office of Competition and Consumer Protection (UOKiK), for several years.[1] Before the Prime Minister fired her and replaced her with an English teacher, she also was clear that elements of the new law were also state aid. Tomkiel was fired on a Monday that followed the Friday on which the Prime Minister's office received notice of the complaint about the green certificate system from the Commission.

This does not mean that the aid under the old law or new law is wrong,, only that it has to be reviewed for consistency with state aid rules designed to minimize the distortion on competition. The review is exclusively the purview of the European Commission under the treaty. The kind of wild distortion caused by giving certificates to co-firing and old hydro is exactly what the system is intended to prevent. The complex rules in the new law that all seem to favor the big utilities are another issue that will likely arose some negative sentiments in Brussels.

Despite the clear law, the Polish Government has carried out a charade for years that it can ignore the European treaty and relevant guidelines in its renewable energy legislation. The public and the Parliament was often deliberately misled into thinking that the Prime Minister's office that wrote the new law was the final authority on its provisions. There is wide Member State latitude on how support for RES can be structured, but it must comply with the competition rules. Such support also, of course, must meet the RES Directive requirements. This is something that co-firing support for facilities that will not even be operating in 2020 (the target date) obviously ignores altogether. Most of the delay in the new law was caused by the deliberate effort to stall the process both until after the election (since the whole support system since 2005 is unlawful and this would be clear when the Commission acted on the new law) and also - mainly - to keep co-firing support [as well as old hydro support to Energa) going as long as possible and as high as possible.    

Now the Commission will rule on the new law and certainly demand changes in parts of it - clearly the small auction violates all of the competition rules and also unduly restricts competition from small and medium size businesses. On the old law, still the major support mechanism for Polish RES that will count toward 2020 targets, the Commission must rule that it is unlawful. It is state aid and it was never notified.

A retroactive notification is possible (as the French did when they wind tariff was successfully challenged in 2014), but the legal fix must comply with the state aid guidelines in effect from 2005 to 2017. That means levelized support across technologies,[2] as Ms. Tomkiel pointed out to the Ministry of Economic two years ago. The retroactive fix will necessarily have to adjust the certificate values and recipients with huge funds moving from the over-compensated to the under-compensated.

 "Assessing certificate systems and subsidized tariffs, the Commission notes whether it is necessary to ensure the viability of energy production, does not provide overcompensation for the production costs' of energy (proportional size of the planned instruments is relation to actual costs) and does not dissuade producers of energy from increasing competitiveness. In order to demonstrate this, it is necessary to provide the Commission with a detailed justification of the necessity and proportionality of the envisaged measures. In particular, it is necessary to analyze the markets in which the beneficiaries operate for the planned measures, the real costs of energy production incurred by them depending on the type of RES and CHP technology in relation to the achievable rates the sale of the energy and the rate of return on investment for different types of RES and CHP technologies”  OCCP to Min. of Economy, June 5, 2012.

This was the rationale for the correction coefficients in the 2013 draft RES law in Poland. The one that was killed by the PM to keep co-firing and old hydro flush with certificates. All of these actions were illegal and done in bad faith. Their own experts told them it was wrong and they did it anyway.

Now we are on the verge of a lot of litigation and claims against the Polish Government for unfair competition. The poetic justice of the matter is that Law and Justice was running the government when they failed to notify the aid in 2005 and they, of course, have been complicit in the effort to keep state support going to the big guys even when it does not promote renewable energy objectives for 2020.

[1] 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 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).

The DG Competition that handles the state aid issue in Brussels communicated to UOKiK formally on May 31, 2013 requesting the detailed  information to determine if there was market distortion or overcompensation. This is especially relevant to the Green Certificate action by the Commission also still pending, since it asked for information about "levelized cost of production."[2] The compatibility of the aid with the competition rules only arises with the DG Competition if there is actually state aid. From this formal communication and the UOKiK letter to the Ministry is seems clear that there was also likely oral communication with the Commission on the issue as well. and possibly other less formal correspondence. At any rate, UOKiK concluded that the Commission believed the certificates (both co-generation and Green) were state aid. [This should be no surprise, since a nearly identical Romanian system of Green Certificates was determined to be state aid in 2011). No surprise here since the new law in Poland assumes that Green Certificates are state aid in calculating the permitted intensity of aid for each project. Article 39.2, RES Act of April 2015. See blog post.

[2] “As stated in point 59, 1st subparagraph, of the environmental guidelines, Member States may compensate for the difference between the production cost of renewable energy and the market price of the form of power concerned. Thus, such compen-sation can relate only to the extra production costs for environmentally friendly electricity production as compared to the production costs for energy based on conventional energy sources.” cited in Commission Decision of 24 April 2007 on the State aid scheme implemented by Slovenia in the framework of its legislation on qualified energy producers Case No C 7/2005, para. 85.  In the case of certificate systems, the Commission has been consistent in requiring proportionality to actual or reasonably expected costs of production across different technologies.  See C(2010)2211, State aid No N 65/2010 - United Kingdom Amendments to the Renewables Obligation Certificates (ROCs) scheme, March 30, 2010  (“…levelised costs matching the midpoint of the predicted revenues… will therefore prevent overcompensation in the aggregate of the different producers”). Romania used a levelized cost calculation to evenly apply the green certificates for different technologies, based upon production costs for each technology. C (2011) 4938, State aid SA. 33134 2011/N– RO, Green certificates for promoting electricity from renewable sources, July 13, 2011 p. 8-9. Various measures in addition to initially levelized costs were used to assure no over-compensation and resultant market distortion. It was critical to the Commission’s approval of the Romanian scheme that it provided a means to address over-compensation:  “ In the light of the above mentioned considerations, including the commitment of the Romanian authorities to adapt the notified measure in time in order to avoid overcompensation, the Commission finds that the notified measure is in line with the condition of absence of overcompen-sation in the aggregate.” Supra at par.70, p. 16.  (emphasis added). The approved system starts with adjusted compensation based on production costs and further allows for adjustment to avoid future over-compensation.     In the case of feed-in tariffs, the same rule on levelization of support based on technologies’ actual cost has been applied. The Commission approved Austrian feed-in tariffs that considered individual technologies and were adjusted to avoid imbalance.  C(2006) 2955, State aid NN 162/A/2003 and State aid N 317/A/2006 – Austria Support of electricity production from renewable sources under the Austrian Green Electricity Act (feed-in tariffs) (the Austrian law provided that “[p]rices shall be set in accordance with the various primary energy sources used, with due regard to technical and economic efficiency….Service life, investment cost,operating cost, adequate return on capital employed and the quantities of electricity produced per year shall be taken into account.”). The critical difference in the approved Austrian scheme and the Polish program is that the Austrian authorities have illustrated that “the support granted under the measure at stake will not exceed the extra production costs of the renewable energy sources supported by the measure.” IdSee also  C(2007) 6875, State aid N 478/07 – The Netherlands, "Stimulating renewable energy, modification and prolongation of the MEP (N 707/02) and MEP stimulating CHP (N 543/05)," December 21, 2007  (“…the various options for sustainable energy were put into distinctive categories, with a different subsidy for each category. The classification was based on the extra operating costs of the various renewable energy options…”).

Thursday, November 12, 2015

No Climate Aid Can Go to Polish Coal - the Inevitable Has Happened

Poland's politicians have kept up a myth that the EU would allow special assistance arising from the climate and emissions trading scheme to go into modernizing Polish coal-fired power. This - as well as a diversion to general revenue - was the model from the last climate deal (whereby Poland abused the EU funding in ways that were not unnoticed in Brussels).

Now the new deal has a big coffer, but the projects must go through the Environmental Investment Bank for approval. Note: EIB gave up on generally supporting coal projects more than a year ago.

Thus, we have the situation - entirely expected - where the EIB will not allow this sizable fund to be used to continue projects that emit more than a small amount of CO2.

"...the EIB does not intend to recommend funding any projects whose emissions are greater than 550gCO2 / kWh, which in practice excludes all coal projects. [An EIB representative] added that the emission limit can only be made more stringent. ..."  CIRE.PL

This takes 100 billion PLN off the plate for modernizing the existing coal-fired infrastructure. Contrary to PiS rants, there was never any other alternative, especially after Poland abused the the first round of financial support to make a transition from coal.

 Add the write-down of the old coal plants which are falling apart, the pending European Commission crack-down on the illegal use of green certificates, the aversion of most investment funds to investing in coal, and the diminished equity fund raising potential caused by dumping the bankrupt coal mines on the electricity companies, and you wonder where the hell the money with come from for the new government's grand plans. The "dirty" secret is that there will not be enough money for any source to continue the status quo in Polish energy. 

Newly appointed government directors of the electricity companies will be replaced by another set of marginally qualified or unqualified political appointees in the near future. They will be hampered by the unrealistic promises of both the new and old governments. 

The fact is that Polish electricity prices are too low to sustain new investment in the existing coal infrastructure, but they are already higher than German prices. Something is fundamentally wrong here, as evidenced by the fact that the Polish politicians have stubbornly gone the opposite direction of the rest of Europe and the private investment community.  

Monday, October 26, 2015

Polish "Exceptionalism": Retroactive Exemption from European Energy Obligations?

The core message in the current Parliamentary elections for Law and Justice (PiS) on energy issues is to repeal Poland's commitment to participation in the European Emissions Trading Directive and other environmental requirements that limit the unfettered use of coal in Poland. Their argument is that Poland is so dependent on coal that it is unfair to require the same things of Poland that other EU Member States have not only committed to, but are doing.

The assumption of this argument is that, but for the emission charge on CO2, that coal energy would be profitable. This is a fundamental fallacy for several reasons. First, the current system grants free allowances for coal emissions and coal-fired power is still not profitable.[1] The current electricity rates make it difficult for the power companies to invest in new facilities, but simultaneously those rates are higher than Germany next door. The profitability of the coal-fired electricity sector is already very weak without any payment of carbon fees for emissions.

Second, other countries with no carbon fees are still experiencing a decline in coal supplied electricity. In the United States, while shale gas is driving down coal prices and is growing part of the production mix, renewable energy is also growing while coal is declining. The U.S. Energy Information Agency has estimated that the levelized cost of producing electricity from coal is now more expensive than onshore wind energy. In China, with no carbon charges, coal consumption in 2015 is down 40%, while the country has passed the EU in total annual investment in renewable energy. Experts predict that both wind and PV energy will be cheaper than coal in the foreseeable future in China. Virtually anywhere in the world, if you made a decision today to build a coal-fired power plant and opened it in three years (fast assumption), during much of its operational life it would be among the most expensive providers of electricity in your market.  This is the case even where there are no carbon emission fees.

There is, moreover, absolutely no economic justification for the assumption that reducing or suspending fees of carbon emissions will make burning Polish coal profitable in Poland.  Polish coal is more expensive, has higher ash content and more sulfur than the imported coal here. Every year less and less Polish coal is mined and the insolvency of the state-owned mines means that this trend will not be reversed in the future. The Polish politicians' fight to burn coal is increasingly a fight to burn foreign coal.

The economics of burning coal will, of course, get worse if the theoretical changes in the market drive the price of carbon allowances to 15-20 Euro a ton or higher - and if the free allowances ran out. However, free allowances and assistance to energy intensive industries have and will continue to blunt the impact. But if this plan works and carbon prices go up significantly, it will not be the major reason for the economic decline of coal. Nor will the effects on the general economy be as bleak as Polish politicians allege.

The heart of the issue is that Poland is somehow unique because it has a higher dependence on coal for energy. That fact is true (as shown below) but it is only a part of the story.

Germany actually is still using a lot more coal than Poland. Several countries in the EU have dramatically lowered the reliance on coal over recent years. Overall coal use has declined significantly, largely replaced by renewable energy sources.

This has come at a cost to consumers, since renewable energy has been significantly more expensive over this period. Other EU members have been incurring the cost of this transition - a cost that Poland is now trying to avoid by an exemption. The cost of Poland catching up on the shift away from coal is now significantly lower than the costs incurred by our European colleagues. Other Europeans have basically financed the development of the technology and the establishment of a mature market for RES, so that Poland can now replicate the same transition at a much lower cost. See below.

This is particularly ironic since the EU has been providing Poland will very significant financial support to transition away from coal. But much of this past support has often been used for other purposes and often has been employed to simply shore up coal mines and coal-fired power plants. "The vast majority of the estimated 12bn euros of European allowances and transfers intended to tackle climate change and diversify the energy mix between 2013-19 will – instead – be spent on coal,.."[2] The European Commission has limited some of this abuse, but Poland constantly is trying to get under the wire.

Despite Poland's bad faith in using the EU money for other purposes, the European Community is still willing to provide hundreds of millions of Euro in the next climate deal, agreed to by the current Polish Government. Major funding from the European Bank for Reconstruction and Development and the European Investment Bank and several other huge private European funds have been and remain willing to finance the shift from coal to other energy sources in Poland.

Poland has also been given extra time in its accession treaty agreement to been the Large Combustion Source Directive, affecting emissions from coal-fired power plants. This time has been used up without a significant and pervasive shift in the energy mix of the major electricity producers in Poland that own these plants. Modest levels of RES - by European standards -  have been added but principally by subsidizing the coal-fired plants use of biomass in small quantities in the fuel mix. This is enormously profitable and has actually been the major source of net profit for many of these old coal-fired plants in Poland. Poland has been given time and resources to make the transition (while our richer neighbors pay their own way). But this opportunity has been largely squandered.

So Poland is asking to be exempt from steps that other EU countries have already been taking - largely at their own expense and at the expense of their consumers, industry and taxpayers. Poland has been and is being offered continual financial help to make this transition which comes from these same countries. This continues to be offered, even though many of the manufacturing jobs from Western Europe from been migrated east into Poland due to lower costs of production.

The circumstances hardly make the equity of the Polish demand for "exemptions" look very persuasive. But more to the point, the attempt to obtain the exemptions comes at a time when the point of doing so has been rendered largely moot. The coal that Poland wants to keep depending upon is increasingly foreign coal (not Polish coal which is dirty, deep and expensive). The cost of new coal-fired plants within the period that they can be constructed and would operate is now higher than the costs of most renewable energy sources. The energy security or independence that is the intellectual rationale for the exemption argument is undermined by not only the increasing role of imported coal in Poland, but by the insecurity and unreliability of the coal model: centralized, huge electricity sources have proven to be quite problematic in terms of system reliability and efficiency.
Energy diversity is now widely understood to be a key to energy security.

All of the above assumes that some form of exemption or retrenchment is legally and politically feasible in Brussels. It is plainly not legally possible or politically feasible as to all of the underlying obligations already made. The Council of Europe has already approved the 2030 package. The European Parliament by an overwhelming majority approved the climate package on October 8, 2015. "[T]the conservative Law and Justice party (PiS) can do little to evade Brussels’ commitment to cut emissions and deploy clean power...." [3] Any further retroactive concessions are likely to be met with a cold shoulder based on Poland's history of acting in bad faith on the deals and decisions already made. Extra time and extra money have always been subverted and used to perpetuate the problem that our European colleagues thought they were helping to eliminate. Where additional funding for the transition is coming, it will be controlled more carefully to focus on its intended purpose.

Politically clumsy and naive nationalistic appeals may well fool a lot of Polish voters, especially the less educated, but they will not go very far in Brussels. As the coal mines - whoever technically holds their shares - start closing due to bankruptcy in 2016-2017, and the coal-fired power plants continue to be unable to produce the necessary electricity on demand this winter and in the future, the Polish public's commitment to keep pursuing coal at any cost will fade into history.


[1] The expansion of the PGE Opole plant is the famous example. It simply makes no economic sense. CO2 fees and pressure from renewable energy sources add to the coal-fired plants problems, but their underlying profitability has been declining in any event. Fitch Ratings (2015).

[2] Greenpeace Energy Desk.  The latest plan in Brussels funnels the Polish investment list through the European Investment Bank to assure that the money is used for "decarbonization" not perpetuation of the dependence on coal.

[3] Alex Pashley, Climate Exchange News. Allowing any new Member State government to renegotiate a deal done by the prior government would obviously open the door for enormous gamesmanship and instability in the European Community. Poles should not expect any breakthrough on this issue under the circumstances. See Bloomberg Business [also noting that the "qualified majority" rule that starts in 2017 will even end the Polish ability to block new initiatives].

UPDATE: October 31, 2015.  The Polish experts point out that the regulatory things that matter on CO2 (the caps and allowances and fee per ton) are controlled by the European Union under a directive (not directly under an international treaty). So Poland's domestic veto of the Doha accord does nothing to undermine the regulatory scheme that is raising the price of carbon emissions. In addition, due to early votes within Europe, the EU itself will be the negotiator for Europe in Paris. The speculation is that the new hard line will, at best, be a way to negotiate other concessions (maybe).

Friday, October 23, 2015

Black-outs On the Horizon in Poland

Aging coal-fired power plants are, of course, problematic for the reliability of the Polish electricity supply. A single outage in one or two huge coal plants can cause major problems in the grid supply of electricity, as we saw this summer. However, the strategy of building large new coal-fired power blocks is also problematic for many of the same reasons. Poland is the only country in Europe pursuing this strategy and it makes no sense.

A new report from a Polish expert argues that shortages could become critical in three to four years. The aging power plants are closing (many this year due to the end of their exemption period under the EU rules for major combustion plants). Others will simply close because they are falling apart in the next few years.

The only sources of electricity that can fill this void and create a more reliable and diversified electricity supply (critical to continued economic growth and energy security) are renewable energy sources (which could theoretically be built in the same necessary time window). Interconnection improvements with Germany could also supply electricity to Poland in the peak periods and during a domestic crisis (these are under development now). This will ironically boil down to Poland buying wind energy from Germany in many cases.

Assuring that the Polish state-owned firms will lack the financial means to finance a major transition in energy, the Polish Government has demanded that each all adopt at least one bankrupt coal mine. This, along with the end of a slush fund of green certificates from co-firing (which will be ruled illegal by the European Commission after the election) assures that the cash flow of the state-owned electricity producers will be in a squeeze. This happens just when over 1000 billion PLN is necessary to modernize the system.

Unfortunately, the Polish politicians have resisted the public opinion for renewable energy and come up with a nightmarish system that will delay new projects for 18-24 months or more as well as having chased away most serious international investors. Without outside investment, it is difficult to see how the energy sector can re-organize and re-build.

The model for the future is a system combined central plants with distributed energy sources in mini-grids and even in prosumer installations. This would reduce the expensive problem of expanding and upgrading much of the grid and is actually cheaper to end-users than new centralized power plants. It can also be done faster than new transmission lines and new coal-fired plants.

The political power of the mining industry, the lure of thousands of high-paid patronage jobs in state-owned utilities, and the habit of raiding the revenues of these utilities for the general budget will all hit a crisis point very soon. This pending crisis will likely prove to be the only event capable of breaking the spell in Poland.

Excellent Analysis of Inevitable Bankruptcies in the Polish Coal Sector

The politicians cannot face the truth. But every good analyst already knows the outcome of the faltering coal sector in Poland. Less coal needed every year, higher priced domestic coal-fired electricity than our neighbors energy prices, most mining of coal cost more per ton than the market value, massive negative cash flows from the state-owned mines..... the end will not be pretty.

This latest detailed article in "High Voltage" lays out the numbers.

By connecting the electricity utilities owned by the state to the mines going bankrupt the Government has basically used the financial resources of the utilities to achieve a political goal which will have a bigger economic price tag every year, before it hits bottom. The state-owned utilities have already signaled the same inevitable problem with their aging coal blocks as we have seen in Western Europe - a write-down of unprofitable assets. This occurs in the face of the Polish energy sector needing over 100 billion PLN to re-structure, re-build and re-organize.

Throw in the animosity of the Polish parties to international financial investment in the sector and the future seems more than a bit problematic.

Tuesday, October 20, 2015

Poland's Reliable Coal Plants are NOT......

Apparently the problem of getting enough cooling water for the coal-fired power plants in Poland is not going away this winter. The likelihood is that residential users as well as industrial ones will be hit with restrictions on energy usage.

Low water levels which will now freeze up in January will make it impossible to get enough cooling water to the coal-fired plants.

Of course, our neighbors will diversified electricity providers have not reported any problems. They rely on more renewable energy which is not related to the need for massive amounts of cooling water. In fact, the PV solar element is counter-cyclical to low water levels: more sunshine/less water.

Every politician in Poland has been too busy pushing the hopeless coal sector here is see the inevitable problems of 90% dependency on one type of electricity production.

Monday, October 05, 2015

The Hand Writing in on the Wall: Nuclear and Shale Gas in Poland are Going Nowhere

I wrote in a blog post some months ago that Polish energy policy is hitting reality. The plans for a nuclear plant have been naive and overlooked the simple fact that it will cost a lot of money and provide electricity as expensive as any other source. It is also likely to be illegal aid under EU competition rules [see pending European court challenge). The shale gas potential of Poland has been lost on the legal problem of no ownership of mineral rights, excessive government demands for payments, taxes, and red tape.

Coal is...well, coal. It is dying everywhere else and the economics in Poland are especially unfavorable (deep mining, high sulfur content and high ash content). It cost more to mine generally than it can be sold for for the foreseeable future. The power plants that burn it are aging dinosaurs that are inefficient, enormously polluting, and threatened with near-term extinction by the carbon emission penalties.

Now the shale gas wells are clearly an illusion at best. The nuclear plant is problematic and less likely to be built with every passing day. The state-owned utilities are being compelled to write down their coal-fired assets. New coal-fired capacity makes no economic sense and has been pushed by the government to the point of likely threatening the long-term bankruptcy of its owners. By politically compelling the utilities with some significant state-ownership to look at bailing out the bankrupt state-owned coal mines, the government is hastening the day when the whole electricity infrastructure collapses from economic duress.

Slowly the politicians are getting more vocal about renewable energy, because frankly it is about the only thing left on the plate.  Clearly no other energy sector has investors lined up waiting to invest on the day that the government cleans up the rules.

The hand-writing is on the wall - the facts are clear to anyone looking for them. But like anyone in big trouble, Poland still is struggling with the "denial" phase.

Thursday, September 24, 2015

Comments of the Polish Biogas Association on the Ministry's Proposed Biogas Auction Reference Prices

September 2015
     The proposed reference prices released by the Ministry of Economy for the first auctions under the new law significantly understate the support necessary for anaerobic digestion plants. The numbers proposed are as follows:
1) agricultural biogas plants with a capacity of 1 MW - 450 zł / MWh
2) agricultural biogas plants with a capacity exceeding 1 MW - 435 zł / MWh
3) biogas plants using biogas from landfills - 210 zł / MWh
4) biogas plants using biogas from wastewater treatment plants - 400 zł / MWh
5) biogas plants using biogas other than in paragraphs 3 and 4 - 340 zł / MWh


     There is no data from any source that we are aware of to support the price set in the proposal for agricultural biogas under items 1 and 2. Basic biogas costs for agricultural plants of various sizes were set out by the European Biogas Association in 2010. See graphic below.  Recent studies show that these costs have not gone down and are slightly increasing. See below.

     The cost of producing biogas energy is also well-documented in other reports.  The Fraunhofer Institute in Germany reported German prices for all types of biogas to be between 14 and 21 Euro cents/kWhr.  “Levelized Cost of Electricity Renewable Energy Sources,” November 2013.  A Club of Bologna study in 2012 also reported a similar range of prices:

"The electricity generating costs decrease with increasing plant size and amount from about 15 to 25 Ct/kWhel." Id.  This is very consistent with both the EBA and Fraunhofer numbers. Somewhat higher figures were reported in a study for the Oxford University Institute for Energy Studies – 18 to 34 Euro cents/kWhr. Floris van Foreest, “Perspectives for Biogas in Europe ,”  NG 70, December 2012.
      The published proposal is inconsistent with the data and analyses supplied by the Institute for Renewable Energy that studied the subject in detail in 2013.  IEO expressed the cost of production by a coefficient for green certificate values added to the price of electricity.

RES installation to support with "green certificates" system
Technology code

agriculture biogas 200-500 kW
agriculture biogas 500-1000 kW
agriculture biogas >1000 kW
landfill biogas > 200 kW

water treatment plant biogas >200 kW
Source: IEO, “Analiza Dotycząca Możliwości Określenia Niezbędnej Wysokości Wsparcia Dla Poszczególnych Technologii Oze W Kontekście Realizacji „Krajowego Planu Działania W Zakresie Energii Ze Źródeł Odnawialnych,” 2013.

     These figures range from 27 to 21 Euro cents/kWhr for agricultural biogas and are based on Polish data, somewhat higher than the other reported data using 2013 real cases.
     There is also no indication that the cost of biogas energy production is going down as it is with other technologies. Despite the increase in the efficiency of biogas production, rising costs of the manufacturing of plant components and the substrates (biomass) further cost reductions are not expected anymore.” Döhler and Paterson , supra.

“Improvement of the technical, economic and ecological efficiency of biogas production -future challenges for the agricultural engineering sector,” Helmut Döhler and Mark Paterson( 2012).

     None of the published data supports the 450 PLN/MWhr figure (only 10.7 Euro cents/kWhr).

     The methodology used by the Ministry seems to be fatally flawed in several ways. The operating costs are inordinately low and are inconsistent with IEO and every other study we have seen. See table below.  The assumption that projects will always to able to sell heat is inconsistent with the experience on farm-based plants, which are at the heart of the policy of the Council of Ministers.  The IEO, OSR and UPEBI results are comparable to the published data cited above, while the Ministry’s proposed reference price is seriously at odds with all published reports.

    Source: UPEBI (September 2015).

     PBA also questions the use of a 5% return, especially since Poland agreed to a 15% return[1] in evaluating Joint Implementation projects under the Kyoto Protocol. See CDM Methodology for Additionality. No one is compelled to make these investments and the equity markets move funding to the areas of highest return.  The history of biogas in Poland is instructive, from 2005 to 2011, with electricity and Green Certificates, biogas plants could receive about the same 450 PLN/MWhr as proposed now. Only a small number have been built and those have largely relied upon government grants for a substantial part of their capital costs.[2]  History has proven that more support than this level is necessary to drive investment in this sector.[3] The uncertainty of the auction also makes the incentives worse.

     The final category of “other biogas” – item 5 – includes anaerobic digestion of substrates within the definition of biogas in the new law, including some material not listed in “agricultural biogas.” There is no basis for setting “other biogas” lower than agricultural biogas, because this category also involves having to construct anaerobic digesters to produce methane. The material handling issues for these more complex plants are larger and more costly than farm plants. These AD plants use organic wastes and biodegradable material from a broader range of sources. However, the cost of these AD plants is higher than “agricultural plants” since they must normally provide pre-treatment of substrates, operate at higher temperatures, and provide a higher degree of environmental protection and odor control. Their reference price should be at least the same as “agricultural plants.”[4]    

     Biogas plays a vital role in the plans to meet the 2020 target in Poland. The current National Action plan approved by the European Commission calls for 980 MW of biogas by 2020. The draft Energy Plan for 2050 lowers that number, but calls for 1800 MW of biogas by 2050 in Poland.  These are ambitious goals given the very low level of market development of biogas in Poland in 2015.
     The statutory criteria require that the differences in support be based on objective factors, principally the cost of production. Biogas has the further advantage under these criteria providing more reliable and stable electricity than most other sources as well as meeting other important policy objectives.
     There appears to be no objective and factual basis for the low reference price levels proposed for biogas. There is also no hope whatsoever of achieving the policy goals for biogas at this level of support.
     PBA urges the Ministry to review the actual cost of production and to re-formulate biogas reference prices based on actual data.[1] We have provided numerous European sources on the subject as attachments to these comments.

Respectfully submitted,

Polish Biogas Association
Randy M. Mott, Vice president                                         September  2015

[1]  The availability of co-generation support (now uncertain) as well as grants obviously may provide more support in some cases. But neither of these support mechanisms is assured or adequate to provide for the level of biogas development in the approved government policies on biogas.

[1]  The IRR used is a pro forma figure, which often makes assumptions that do not turn out as beneficial in reality. But without an attractive estimate of the return at the beginning of the investment assessment, there will be no funding.
[2]  There will never be enough government grant funding to create a significant part of the 1800 MW of biogas described in the Government’s draft Energy Plan for 2050. Nor will grants constitute a significant fraction of the 980 MW target for biogas in 2020 (or the lower 2020 figure in the 2050 document). If grants are used, a project will automatically have a lower reference price under the state aid intensity test in any event.
[3]  German biogas development, often cited as the model by Polish officials, provided much higher levels of support than now proposed in Poland. See Spath,”The Success Factors Of The Development Of Biogas Within Germany - A Case Study,”  University of Twente, 2013 (thesis). German CAPEX and OPEX during this period actually slightly lower than what we face today. See Döhler and  Paterson, supra, graphic above.
[4]  PBA also has requested that “other biogas” plants be allowed to take 20% sewage sludge by volume and not be classified “sewage treatment plants.”  This is the rule applied in Denmark and it provides many benefits to local communities. The only rationale for a lower reference price is lower cost of production of energy. This occurs at sewage treatment plants where methane collection is simply added to existing, required waste water treatment structures. AD plants using small volumes of sewage sludge have the same or higher costs than farm plants and cannot be fairly classify in this other distinct category.