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Friday, March 27, 2015

UK Illustrates How Fast RES Can Deploy(without auctions)

The UK just went from 4 percent renewable energy in 2013 to 19% in 2014. This is the pre-auction surge under their old system. But it illustrrates that RES projects can be rapidly developed in a system that is stable (aid to co-firing in the UK is restricted).

Wind and PV have development schedules that are quite short compared to other electricity production. Auctions will delay projects, since they cannot be put online as they are prepared. The dilemma of auctions is always that strict penalties deter bids and lower pre-qualificatgion requirements and lower penalties encourage bidders to under-bid and under-build. See EcoFys (2014).

An additional problem that I have suggested (I never saw this mentioned by anyone else) is that projects to be eligible  to bid must have all of the legal means of producing energy tied up in legal agreements and a substantial percent of these will lose the auction or not even be bid in the end. So, using the European Commission suggestion that twice the power should be bid as can be awarded, half of the RES potential at any point in an auction system will not be built when it is ready to proceed. For the 19 Member States not on track to meet the 2020 target, this will prove to be fatal.

Poland has leaned very little from these experiences and is likely to see a big drop off in large projects in 2015-2016.

Wednesday, March 18, 2015

Victories for Biogas in Poland?

Checking out the law in detail to ask questions to URE..... there appear to be some good provisions for biogas in Poland if they are implemented intelligently.

The scope of biogas is changed to include all of the biomass allowed by the EU definition in the RES Directive. A change we (the Polish Biogas Association) urged them to make.

There is a question of how the reference price will be set for this category (other biogas), but they will have to be guided by cost of production under state aid rules. The cost is the same or higher than agricultural plants.

We would like additives like glycerin and enzymes added to the possible feed-stocks allowed by the law with a 2 % volumetric limit. This reflects the same rule the European Commission worked on for the End-of-Waste criteria for biowaste.

The 4000 hour "basket" [a set-aside for projects producing over 4000 MWhr per 1  MW of capacity] should allow biogas plants to win support up to the reference price level. So the big question will be what are those prices going to be? The Institute for Renewable Energy in their 2013 report on the subject set cost of production figures close to what is found in the literature. See i.e. EBA. The Deputy Minister of Economy in the Senate debate mentioned 500-600 PLN/MWhr as the cost of biogas, which is a lower figure.

We will hopefully know soon the direction of this..... so far, so good.

Wednesday, March 11, 2015

United States Renewable Energy Continues to Surge: Using the System that Poland Wants to Abandon

About 30 states in the United States use a "residential portfolio system for renewable energy, a quota system set by the public utility commission in the state which requires a fixed percent renewable electricity. This is sustained by certificates, as in Poland. Unlike Poland, co-firing biomass with coal is not traditionally popular. The United States has reached 14% renewable energy remarkably in a huge market when conventional electricity is much cheaper than in Europe.

The pace of RES growth continues in 2015. The U.S. Energy Information Agency estimates that renewables will contribute to a majority of the electricity production growth in 2015.

Even low natural gas prices have not affected RES growth. The major loser has been coal-fired plants. The lesson of RES growth without a significant impact on consumer prices (Livermore National Laboratory) has been generally lost to Europe, Competition among electricity producers is enhanced by RES development which helps to offset the effect of the subsidies. (see numerous U.S. EIA studies).[1]

Poland (and the European Commission in part)[2] have embraced an alternative model. One that looks to auctions for RES as the principal support scheme. This ill-advised move is unlikely to provide for the development of a strong RES sector at lower long-prices. See Mott, "NEW STATE AID GUIDELINES FOR RENEWABLE ENERGY ONLY DISCOURAGE COMPETITION, GREEN ENERGY AND ENERGY SECURITY, publication pending 2015.][3] Auctions do, however, reward market power and are the good way to perpetuate the dominance in the market of larger players.

Poland has the option to continue the certificate program after it is adjusted to meet competition concerns. This will have to be done retroactively to fix the current system in any event. Those changes could still be used in future support even under the Guidelines from Brussels. This would also be far more easy to implement than what is now planned.

Certificate values can be adjusted by coefficients to avoid over-compensation and provide fair support across technologies. See IEO Report (2013). Their use in the United States demonstrates that moderate levels of support can be used to create a large amount of RES without affecting consumer prices.   

Poland remains unwilling to learn from the past and seems unable to break the political cartel supporting the state-owned utility interests. Some RES sectors will still thrive and have niches in the new system, but the broad-based development of RES in Poland will be unnecessarily hampered by the political climate for the foreseeable future. 


[1] When most of the support, as in Poland, goes to existing facilities (old hydro and co-fired coal plants) no new capacity is created and no new supply of electricity is established. There is no positive effect on competition and all of the support must be directly transferred to end users.

[2] A majority of the European Community institutions favor the move toward distributed energy, built on RES technologies. See Report of the European Economic and Social Committee (2014). Lobbying by the large utilities in Europe (Eurelectric) led to the DG Competition favoring auctions in their guidelines (which will be challenged in a number of ways).  

[3] Available now on request.

Monday, March 09, 2015

Ridiculous Rhetoric About State Aid ... from the Experts on Using Illegal Aid

The ongoing discussion about trying to block the prosumer support in the final law due to "state aid" issues is about an hypocritical as it gets.

PO spokesmen raised this earlier and it appears that the President of Poland may not take the bait. A good decision, since the entire Polish support system has been operating illegally for nine years and the Government has known this for at least three years now.

Similarly, we have been seeing a big bluff on whether the new law must be notified to Brussels.

Everyone privately knows that it must be notified, reviewed and approved. For several reasons, it does not meet the block grant exemption from notification. Most obviously, it continues support in the form of Green Certificates which the European Commission has advised informally to UOKiK are state aid. Aid up to 2017 must be levelized by technology and certainly all of the technologies including in the Polish National Action Plan for 2020 will have to be included. Other aspects of the new law also raise issues, such as requiring projects up to 1 MW to go to an auction, tax exemptions, continued support for co-firing, and some of the procedures included.[1]

My most guess is that all of these issues as well as the historical Green Certificate problem will be in negotiations with the European Commission this year and will be resolved by next year, but not in time for an auction to be held. The 2012 draft law is a good start as a "fix it" measure, but it will also end up being necessary to extend the date that allows new projects to use the Green Certificate system.  Right now, PO just wants to have "happy vibes" about green energy going into the election and assumes that voters are so ill-informed that the details will not be important.


[1] I personally think that technology-neutral auctions, while in the new guidelines, are anti-competitive at this moment in the European market. Numerous studies draw this conclusion and both the British, French and German auctions have used technology bands. The EC guidelines can certainly be challenged on this grounds.

Friday, March 06, 2015

Polish Government Assures Folks that Electricity Prices Will Not be Affected by Reality

In the discussion after the law to transpose the new deal on European emissions controls and CO2 allowances, the Minister of Environment reassures the public that electricity prices wil not go up after 2020.  His basis for optimism is the free allowances given to Poland as a part of the deal reached with Brussels a few months ago.

I commented at the time that the allowances and funding provided would be way short of what is necessary to provide a soft landing for Poland (as long as the country was clinging to coal as its central energy source). Now it seems clear that the assumptions on the limited impact of the deal on Poland were likely a fantasy.

Much of the aid provided is supposed to go to de-carbonization of the Polish economy, not to preserving reliance on carbon. However, the aid is manipulated by Warsaw will likely not provide more than a fraction of the funds necessary to modernize the Polish energy sector.

The impact of higher prices per ton of CO2 in the emission caps is a big unknown, of course. With Brussels handing out free allowances as bribes to get political approval on the package (then and now) it is no wonder that their value never reached the sustained level explicit in the design of the program. However, every projection being done now shows a likely dramatic increase in CO2 prices in the future. Frontier Economics has a forecast that it pretty typical of the most recent projections:

All projections are a bit unreliable at this point, but it is hard to reconcile the general trends in CO2 price estimates with the cheerful picture presented by the Polish Government. As the energy mix in Poland will continue to feature coal-fired power plants subject to a real shortfall in credits versus their emission caps, it seems unlikely that the optimistic scenario will prevail.

Tuesday, March 03, 2015

Friday, February 27, 2015

What the UK RES auctions Prove and Do Not Prove

The UK Government has started a propaganda effort boasting of the results of its renewable energy auctions. There are some lessons proven here and some issues still not obvious to the casual observer.

1. The UK cut off the auction mechanism at 5 MW. Auctions do not work well for small projects and this has been proven time after time. Poland is attempting auctions for less than 1 MW and the results will surely not be stellar.

2. The UK conducted so-called "banding" where there are separate auctions for each technology. This is a procedure that follows the advice of most experts, including ECOFYS in their detailed report to the European Commission last year. The DG Competition in Brussels authorizes this, but still irrationally prefers technology neutral auctions (which they try to exempt for state aid review in the GBER regulation). Poland will try to conduct generally technology neutral auctions, broken down only by under and over 1 MW with a basket for projects producing more than 4000 MWhr per 1 MW of capacity. The mix of RES in Poland is almost certainly going to be more narrow than most EU Member States. Technologies that may be critical in future years will get ignored.

Polish politicians seem determined to ignore EU state aid rules, even in the new law. Experts have concluded that it requires notification and approval and is not fully covered by the notification exemption in GBER. A train wreck in the future? Or will they notify and blame Brussels for subsequent delays? 

3. The UK published reference prices many months in advance. It takes at least 24 months or longer to develop a project to the point of being eligible to bid and Poland will only publish reference prices (the maximum auction bid allowed) 60 days before the auction. Most of the front-end development cost of a project will be at risk before the project developer knows what his revenue can be. Experience in other countries indicates this rewards dominant market players and discourages independent investment and SMEs.

4. The UK notified Brussels of its scheme and received approval. Poland maintains that it will not notify and is running huge risks of subsequent legal problems.

5. The UK propaganda focuses only on what bids were awarded and their price. It does not actually establish that those projects will be built. The press release talks as if these are already online and producing power. Virtually all auctions for RES have seen a serious depreciation in the actual capacity built - sometimes it has been zero!  If the prices bid were really low, then you can expect project attrition as reality sets in and bidders sober up.* The delay between the bid awards and construction is also a major factor since all the EU Member States must meet 2020 targets. The Polish schedule is such that even a 2016 auction will not likely produce the bulk of the electricity awarded by 2020. A 2017 auction is, of course, even more problematic.

Some things were done right in the UK and Poland will have a different and less desirable result. Other issues remain to be decided in the UK. Let's see what gets built and when,


* Even with penalties, the bids can be done as SPVs and the entity can simply bankrupt itself in lieu of building the projects or actually paying the penalties. The deposits will never be large enough to compel construction and investment in a plant that loses money.