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Wednesday, October 22, 2014

Shale Gas Fades, Nuclear Energy Remains Illusive and Coal Remains Problematic in Poland; Government Stays in Denial

As the Government in Poland makes glorious plans for shale gas in the country's long-term energy plan pipe-dream, the actual number of active wells in exploration drops to 13 (a 50% reduction from last year). The Government plan for was 80 wells this year. By contrast, the United States has 27,000 active wells. "Experts say that around 300 test wells are needed to get a proper estimate of Poland's gas reserves." The major international oil companies have generally pulled out of Poland.

The leading political party has long held out to the public that shale gas would be a critical part of 
Poland's energy mix. Now the Ministry of Economy at least concedes that it is uncertain. But the politicians have not taken it out of their election speeches.

The only plan is to remain dependent on coal and lignite with the illusory promise that Poland will somehow make deep-mined coal competitive with surface-mined imports. This premise is essential farcical. The "material and supply costs for underground mines are 50% more than those of surface mining and that labor costs are five times higher. As well as, the capital costs also shows higher costs for underground mines." The relative cost of deep mining is approximately three times higher. 

I think that only in a former communist country or in some authoritarian regime could the government so systematically lie about basic economic facts.  It may, however, be that the government only assumes it can be so disingenuous.See below. 



And somehow coal-fired power plant capacity now closing will be replaced or even expanded.[1] With no major international investment in coal in Poland, and European firms closing newly-built coal plants elsewhere, this seems to be a dubious proposition. The government has pressured its state-owned power companies to build new capacity, but this will be hard-pressed to keep up with closure of Soviet-era plants.

The plans for nuclear plants seem just as uncertain. Originally sold to the public as cheaper energy, it turns out that new nuclear plants are more expensive right now than some renewables. 


This is an ironic contrast to the statements by the Polish Government that renewable energy cost too much. The fact is that only the  government-controlled energy firms are "interested" in doing nuclear plants in Poland. The commercial investment market may have already rendered its verdict.

The bright spot is that the Polish public overwhelmingly supports green energy and the political parties are simply locked in a time warp that has distorted their vision. Attitudes in Poland are changing under the political radar,but will manifest themselves in the near future. 

________________________________________

[1] It seems unlikely that Poland can reverse the European trend for declining prospects in new coal power construction. Here. Investment analysts point out "Poland is one of the biggest primary energy producers in the European Union with the country's energy sector accounting for over 20% of its GDP. The obsolete capacities of the sector, however, are posing a threat to the future stability of the country's energy balance. More than 60% of Poland's electricity generation facilities have been in use for over 30 years now. According to economy ministry estimates, 12% of all generation facilities will have to be taken off the grid and upgraded or replaced between 2014 and 2017.Closing old generation facilities before new ones are built puts Poland's energy supply at risk and may cause blackouts."
- See more at: http://www.securities.com/emis/insight/polands-energy-sector-living-borrowed-time#sthash.oMUYgZBl.dpuf

Monday, October 20, 2014

ANALYZING THE TRUE  COST OF RENEWABLE ENERGY
Randy Mott, Vice president, Polish Biogas Association
     After over three years of debate and discussion and multiple versions of the proposed law and its regulatory impact, the Polish Government has never provided a realistic economic analysis of the impact of support for renewable energy. The simplistic model used by the government simply adds up the support for various types of renewable energy and creates a static total price tag. “Savings” and “optimization” are only viewed as a function of their measurement on the total price tag. There is abundant actual evidence that a reasonable support system on the Polish current model can be effective without having major price impacts.

 The actual economic cost of renewable energy on end-users, which is what the government professes to care about, cannot be viewed as simply the total value of the support. The new capacity created by renewable energy affects supply and demand for electricity (and heat). A fundamental concept of the free market is that increased supply lowers prices. This has been analyzed in depth in the United States under a scenario similar to Poland’s “Residential Portfolio Standard.” A 15% green energy target for the United States (RPS) was projected to only cause a “cumulative electricity and natural gas expenditures increase … [of] 0.3%.” U.S. Energy Information Agency, Impacts of a 15 Percent RPS, Chris Namovicz, July 11, 2007, EESI Briefing. The same effect was noted in a review of state RPS programs in the United States: “A review of state-level RES policies shows that utilities are successfully meeting their annual renewable energy requirements with little or no additional cost to consumers (emphasis added).” How can such a massive undertaking have so small a price impact on consumers? The answer is in several of the details ignored in the Polish Government analysis. For one, the net operating cost of renewables is lower than conventional fossil fuel operating costs.  Local renewable sources also reduce transmission costs. And all new renewable energy capacity increase competition. The net impact on consumers is always lower than the static total amount of support provided. 

Source: Union of Concerned Scientists, “How Renewable Electricity Standards
Deliver Economic Benefits,” May 2013 Cambridge, Massachusetts.


     Europeans often forget that the United States has 50 states that each has its own energy policies in this area. See UCS graphic. They are a regulatory workshop and can provide a good deal of experience, especially in this case since they generally use the same type of RPS as Poland.

     “Collectively, the renewable ener­gy requirements established by RES policies apply to more than 50 percent of total U.S. electric demand (Barbose 2012).” Union of Concerned Scientists, May 2013, supra.  Yet this green electricity now totaling over 100,000 MWs has not had a major impact on consumer prices: “The Lawrence Berkeley National Laboratory, having recently evaluated 2009 and 2010 RES compliance-cost data that were available for 14 states, estimated that all but one state experienced cost impacts of about 1.6 percent or less (Barbose 2012).”  UCS, supra, citing Lawrence Berkeley National Laboratory (LBNL) 2013. LBNL RPS compliance data spreadsheet, Berkeley, CA. Online at http://www.dsireusa.org/rpsdata/, accessed April 1, 2013. The support mechanisms used are the same approach as Poland’s system:

“Most states with RPS programs have associated renewable energy certificate trading programs. RECs provide a mechanism by which to track the amount of renewable power being sold and to financially reward eligible power producers. For each unit of power that an eligible producer generates, a certificate or credit is issued. These can then be sold either in conjunction with the underlying power or separately to energy supply companies. A market exists for RECs because energy supply companies are required to redeem certificates equal to their obligation under the RPS program. State specific programs or various applications (e.g., WREGIS, M-RETS, NEPOOL GIS) are used to track REC issuance and ownership.[1]

     The experience and data from past performance in states with RPC programs establishes the fact that a Polish style “quota” system backed by Green Certificates can theoretically work quite well to both achieve the desired mix of renewable energy and to do so with a modest impact on end-user prices.

Applying these lessons to Poland, which uses a similar support system, it is clear that the Green Certificate program here was overly expensive and abused. Co-firing of biomass with coal, which has a nominal cost according to the Polish Institute for Renewable Energy, received the largest amount of support and created no new electricity production capacity. This type of policy will have the maximum impact of consumers in the form of a higher price with little or no mitigation.

     Similarly, Poland provided old hydro plants, some of which were pre-war, with another major share of Green Certificates, although they were depreciated long ago and certainly did not require any investment incentives. About 70% of the Green Certificates have been awarded without creating new electrical capacity. The impact of this policy on end-user prices was nearly a one-to-one price increase. They bought the same electricity from the same places, it just cost more!


      Support for renewable energy producers which adds new capacity to the supply of electricity operates in a fundamentally different economic way. A substantial body of data from multiple sources in the United States supports the notion that renewable energy supported in the RPS programs does not have a major adverse impact of end user prices.[2] However, it is clearly possible to abuse the support system, especially feed-in tariffs, is a manner that causes over-compensation and higher prices to electricity customers. The support systems in Germany and other countries where the impact on end users is much higher were enormously more bloated than the Polish green certificate system. German solar producers got between 46-57 Euro cents per kilowatt, while the Polish system to date offers about 11.5 Euro cents (if Green Certificates are at 100% value). German biogas plants got between 25 and 40 Euro cents per kilowatt, again compared to 11.5 cents in Poland. Because of the higher feed-in tariffs, much more capacity was built in Germany than predicted when the impact of consumers was initially projected: for example, in 2010, "7,400 MW of solar panels were installed; six times as much as estimated in the reference scenario used by the environment minister." [Daniel Wetzel, Die Wel, October 25, 2012].  Similarly, in Spain, the solar subsidies got adjusted to a level that proved excessive to consumers. "The payment for PV solar was set at 41.4 eurocents per kWh, with the Spanish government anticipating 400 MW of installed PV solar between 2007 and 2010. However, the high rate that was set for PV solar spurred developers to install 344 MW of PV solar in the first nine months of 2007 alone." Environmental and Energy Study Institute (2012). "Due to the Spanish government’s subsidization of electricity, there was a cost to Spanish taxpayers totaling over $1.4 billion. In response, the Spanish government imposed a cap of 500 MW for PV solar in 2009 and reduced the payments to 32-34 eurocents per kWh. " Id. The Czech solar subsidies were also excessively high ($700 MWhr or 55 Euro cents a kilowatt hour) and resulted in a disaster to consumers of electricity: "The result was a more than 24,000 percent increase in Czech solar energy plants, from nine in 2005 to more than 2,230 by January 2010, making the Czech Republic the third-largest solar energy producer in Europe, despite the country's relatively small size." Prague Post, March 24, 2010. The problem has been that subsidies three or four times higher than Polish levels then lead to excessive development of the technology and create an even greater cost multiplier.

     The problem that the Member States with hyper-support schemes have to now to adjust new support to lower the average support provided to a reasonable level. The overly generous levels are generally under long-term commitments and the only corrective adjustment that the governments can make is to seriously lower new support levels. Poland absolutely does not have this issue.

     However, when the Polish politicians try to use the experiences of overcompensation in other countries to cut support here, they are being disingenuous. Those high levels of support have nothing relevant to say about the current or proposed Polish system. As long as the support is only offered to technologies that add capacity and is levelized across technologies to avoid overcompensation, there is no indication that the impact of user prices will be serious. The Polish Institute for Renewable Energy study makes a major effort to define these coefficients and should only be ignored in the new law based on more compelling actual data, not political decisions. 

In the same vein, the price for renewable energy in Poland is often compared to coal-fired electricity. The problem with this comparison is that the coal-fired data reflect historical cost data based on old coal-fired plants built in the 1960s that are being closed due to the infeasibility of their meeting EU emission limits after the grandfathered date of 2015. The true cost of coal-fired energy would reflect compliance with these emission standards for SO2 and NOx and other pollutants. The actual cost in the future will also reflect higher coal prices as Poland imports more foreign coal due to the economics of domestic mining. Finally, the government subsidies to the coal industry are normally overlooked. See Karaczun et al. Poland 2050 at the Carbon Crossroads. [3]

    The comparative cost of providing electricity from different modern sources was just analyzed in the United States in January 2013. The data clearly show that some renewable energy sources are already economically attractive. These figures also contradict the Prime Minister’s erroneous perception of the relative cost of energy. The historical Polish situation with coal  is certainly not representative of the future.


     The fact is that the Polish Government has pushed to keep electricity prices artificially low, such that it is not economically to build even new coal plants. The price of all electricity in the future in Poland will be higher because the price will have to reflect the investment incentive necessary for growth or the electricity will have to be imported from more expensive foreign producers.  This will not cause a vast amount of coal-fired energy to disappear (although 7000 MWs are closing by the end of 2015 due to environmental rules). The choice between coal, renewables or nuclear is a meaningless gesture. Poland will need all of the electricity capacity that it can construct and operate. The issue is not whether renewable energy will replace coal, but whether coal energy can meet the Polish user demand and legal requirements of the EU without renewable energy. The answer is clearly no way.

     Renewable energy is a legal necessity under European law. All of the required objectives can be financially met without undue economic impact, but only as long as the system is repaired to satisfy these objectives and not other interests. Up to this point, the system has been manipulated to reduce the burden of renewable energy obligations on the state-owned power plants. The RES system can effectively meet the EU target and do so in a reasonable way, but it cannot serve other masters.


Published in Polish HERE.



[1] http://en.wikipedia.org/wiki/Renewable_portfolio_standard#California
[2]  From the Pennsylvania Dept. of Energy fact sheet, supra: (1) A 2010 analysis of House Bill 2405 by the engineering consultancy Black and Veach indicates that “…the net present value of the price suppression benefit over the life of the (bill) could be $3.5 to $6.2 billion …. Notably this savings is much higher than the direct electricity cost impacts … ($1.6 billion increase for AEPS). (2) A 2009 PJM Interconnection study of the impacts of adding wind generation to the market concluded that “…15,000 MW of wind offers wholesale market price reductions of $4.50-6/MWh, translating to reductions in annual market-wide expenditures of $3.55 billion to $4.74 billion versus not having that wind in place.” (3) A 2009 PECO/Exelon study of the market impact of adding 400 MW of capacity to the Pennsylvania Peach Bottom Nuclear facility gives further support to the price suppressive effects of low marginal cost generation: “We estimate conservatively that these benefits would average $137 million per year in Pennsylvania, and more than $425 million per year in all of PJM-East.”  (4) A New York State Energy Research and Development Authority (NYSERDA) analysis of New York’s Renewable Portfolio Standard (RPS) estimates that the reduction in wholesale electricity prices from the addition of renewable energy resources in 2010 is likely to be approximately $2/MWh (0.2 cents/kWh).  (5) A 2009 study by Tudor, Pickering, Holt, & Co., Energy Investment & Merchant Banking, of the impacts of wind generation estimated that “…6,500 mw of wind capacity dispatched into the supply stack significantly impacts prices. Vs. no wind, the marginal price of off- peak power falls by $20/MWh during peak demand (24%), $15 off-peak (25%).

[3] “…a coal-based energy sector will not ensure inexpen­sive energy. Energy infrastructure is slowly becoming degra­ded. Replacement costs for this infrastructure – even for coal-based installations – are estimated at around PLN 200 billion until 202073. In order to repay these investments, energy prices for final consumers will have to increase. Climate poli­cy measures and the necessity to incorporate external costs in energy prices will further increase the cost of coal-based energy.” Poland 2050, supra, p. 18. Polish coal imports have exceeded exports since 2008 and there is no reason to think that the trend will reverse. Id.

Wednesday, October 08, 2014

New Polish RES Law Challenge in Brussels UPDATED

Cavalry Charge Saves the Day!
Once Poland enacts the new renewable energy law, unless it is changed, there should be a challenge in Brussels to compel the Polish Government to make necessary changes due to the state aid rules.

Some of the arguments can be:

1.  The treatment of prosumers ( only 80% of the grid price for electricity sold) is discriminatory and arbitrary. It is anti-competitive and distorts the market in favor of large producers;

2. Forcing projects under 1 MW to go to an auction is unfair, anti-competitive and will promote market concentration by reducing or eliminating small RES facilities;                                                                                                        

3. The auction itself is inconsistent with the GBER exemption to notification and is unfair and anti-competitive. Among other things the 60 days notice of reference prices is not transparent and will distort the market in favor of large utilities;

4. The choice of Green Certificates or the auction is meaningless unless existing plants can opt for levelized Green Certificates that reflect different costs of production and technology diversity. Poland is obligated to provide a level playing field for all technologies included in the National Action Plan.

5. The support for co-firing is not based on the cost of producing electricity from this source. It distorts the market and is unfair competition.

Anyone that has additional arguments based on the state aid rules should contact me and add to the list. Then as many RES developers and owners as possible should join in a complaint to the Commission. The sector should try to do this together. Our goal should be to force fairness in the new law and allow existing facilities built before the first legal auction to opt for Green Certificates that are levelized and fair.

Please contact me with our issues and possible interest in joining a complaint.

randymott (at) envirosolutions.co

UPDATE: Some parts of the challenge will have to go to the Commission's new guidelines, which are quite problematic and reverse their historical positions - without adequate support for the changes.

THE NEW LAW MUST REDUCE SUPPORT FOR CO-FIRING TO REFLECT ITS ACTUAL LOW COST OF PRODUCTION



     The July 8, 2014 draft of the new law on renewable energy provides that co-firing would continue to receive support at 50% of its existing level or in the case of the auction up to a reference price which is not disclosed by the draft. Co-firing is unique among the renewable energy technologies in that it does not create any new electricity capacity, only changing a portion of the fuel used in combustion.  The state aid rules and precedent require that co-firing only be supported to the extent that support reflects its actual cost of production.[1]  The current version of the law and the legislative record provide no basis for the 50% support level for existing co-firing and the full support for dedicated co-firing. These decisions are arbitrary and contradicted by the government’s own data. They constitute state aid that is incompatible with the European Treaty and will be rejected by the Commission in Brussels.
     The history of earlier versions of the law demonstrates that the political decision to keep supporting co-firing has no basis in the facts (as the information had been analyzed up to intervention by the Prime Minister’s office). We need only look to the Government’s Regulatory Impact Assessment that accompanied the December 2011 proposed new law. The Ministry of Economy there concluded that support should be levelized and that “[l]ess support…[should be] provided for technologies currently producing approximately 90% of RES electricity (co-firing, wind and old, depreciated hydro).” Id. p. 9. The 2011 proposal was to end support for co-firing and old hydro due to the need to adjust support to the costs of production and to the state aid guidelines. In the year that followed, the market was flooded with certificates from co-firing, destroying their value. In 2013, the Ministry of Economy provided a justification for the new draft RES legislation [enclosed] which stated:
The presence of excess amounts of certificates of origin, was mainly due to the more rapid pace of development of renewable energy sources in Poland than was envisaged in the National Action Plan in the field of renewable energy. Multi-fuel co-firing plants contributed the most to the rapid increase in the volume of electricity production from renewable energy sources which in recent years recorded the highest growth (which is related to low expenditure necessary to run this type of production and high revenues generated by this practice). (emphasis added).
     On July 2, 2014, backing away from ending the support, the Government still criticized the uniform support system noting that technology showing the lowest cost of power generation received unjustified support.POLISH VERSION, p. 21. Despite these statements, the Government draft law provides no basis for arbitrarily using the 50% level of support for existing sources or for providing “dedicated co-firing” competition in auctions with undisclosed maximum prices. See Article 44.8, proposed law, July 8, 2014,  This is proposed at the same time that they continue to rely on co-firing biomass to continue to meet their 2020 obligation. See Table 17, Regulatory Impact Analysis, July 2, 2014 {PL}.  At the point when the head of the Polish Office of Competition and Consumer Protection was a lawyer and was independent of the Government politically,[2] the Polish Government proposed to end co-firing support along witrh old hydro support and to completely levelize the support scheme by adjusting the value of certificates based on technology.[3] See Article 47, (draft version December 2011). By 2013, after political intervention, they backed off of this proposal. See Article 44.8 (draft version 4, November 12, 2013). When this was proposed, they had acknowledged the need to comply with state aid guidelines. See Article 192, supra (2013 draft)(providing the effective dated of support “within 30 days from the date when the European Commission has issued a positive decision on the compliance of public aid, provided for in this Act, with the common market”).

     There is no factual basis asserted to support the re-instatement of aid to co-firing in the newer drafts of the law, including the July 2014 version. The Ministry with competency over energy concluded in 2011-2012 that the support should end due to its lack of relationship to the cost of production. Nothing has changed except the political intervention of the Prime Minister’s office. The law is the same that support must be based on costs of production.


     When the Polish Government still was proposing to notify and to levelize support and end aid to co-firing and old hydro (up until the summer of 2013), the Ministry of Economics retained the Institute for Renewable Energy (IEO) in Warsaw to study what correction coefficients would be necessary to levelize the support scheme.  Their study requested all of the co-firing facilities in Poland to submit their data to justify their costs. No large state-owned facilities or major co-firing plants submitted any data to support their cost of prtoduction. See IEO, “Analiza Dotycząca Możliwości Określenia Niezbędnej Wysokości Wsparcia Dla Poszczególnych Technologii Oze W Kontekście Realizacji „Krajowego Planu Działania W Zakresie Energii Ze Źródeł Odnawialnych, ” lipiec 2013.

RES installation to support with the Green certificate system
Technology code
2013[4]
2017[5]

 OSR[6]
 IEO[7]
 OSR
 IEO
agriculture biogas 200-500 kW
T1
       1.50   
       2.89   
       1.41   
       2.98   
agriculture biogas 500-1000 kW
T2
       1.45   
       2.49   
       1.36   
       2.58   
agriculture biogas >1000 kW
T3
       1.40   
       2.19   
       1.32   
       2.26   
landfill biogas > 200 kW
T4
       1.10   
            -     
       1.00   

water treatment plant biogas >200 kW
T5
       0.75   
       1.30   
       0.67   
       1.24   
biomass < 10 MW
T6
       1.30   
       1.71   
       1.22   
       1.78   
biomass - cogeneration < 10 MW
T7
       1.05   
       1.83   
       0.99   
       1.90   
biomass 10 - 50 MW
T8
       0.95   
       0.81   
       0.89   
       0.77   
biomass - cogeneration 10 - 50 MW
T9
       1.70   
       1.04   
       1.60   
       1.02   
biomass > 50 MW
T10
       1.40   
       1.02   
       1.32   
       1.00   
biomass - cogeneration > 50 MW
T11
       1.15   
       1.35   
       1.08   
       1.35   
biomass - cofiring  (multi fuel combustion)
T12
0.30
            -     
      0.15   
            -     
biofuel
T13
       1.15   
       3.30   
       1.08   
       3.48   
wind 100- 500 kW
T14
       1.20   
       1.34   
       1.11   
       1.17   
wind > 500 kW
T15
       0.90   
       0.92   
       0.80   
       0.85   
water < 75 kW
T16

       2.44   

       2.55   
water 75-1000 kW
T17
       1.60   
       1.52   
       1.53   
       1.65   
water 1000-5000 kW
T18
       1.70   
       1.60   
       1.62   
       1.72   
geothermal
T19
       1.20   
       7.91   
       1.20   
       8.12   
photovoltaics - on the building 100-1000 kW
T20
       2.85   
       2.45   
       2.40   
       1.49   
photovoltaics - on the ground 1000-2000 kW
T21
       2.75   
       1.84   
       2.32   
       1.07   
photovoltaics - on the ground 100-1000 kW
T22
       2.45   
       1.72   
       2.07   
       0.97   
offshore wind

       1.80   

       1.80   

hydropower plant 5 MW-20MW

       2.00   

       1.91   

hydropower plant > 20 MW

       2.30   

       1.91   

       The IEO for their study reviewed data from the Ministry of Economy, the International Renewable Energy Agency, a few co-firing plants in Poland, and the UK. IEO concluded that  new co-firing (not mentioning depreciated) could be profitable without any support from renewable energy legislation.
The IEO report was presented to the Ministry at the same time roughly that the Prime Minister’s office intervened and ordered the law to go through a complete rewrite, one that did not provide for any levelization of Green Certificates and continued support for co-firing. Since that point, no one in the Polish Government has supported or proposed levelizing the Green Certificate values, although the certificates will continue to be part of the support scheme for all facilities built before the effective date of the new law that elect to continue in that program in lieu of an auction. See Articles 42.1 and 72. So the Polish Government has abandoned its previous position, supported by the top competition authority in Poland and the top technical support organization in the RES sector. This shift is solely due to political expediency and pressure from the “stakeholders at the Treasury and Finance Ministries” who benefit from revenue from state-owned companies.  
      These admissions by the Polish Government prior to the 2014 draft law, illustrate what is well-known everywhere: that co-firing is significantly cheaper to implement than any other RES technology, arguably so cheap than it needs no support at all. The American Coal Council concluded: “Biomass co-firing has the potential to reduce emissions from coal-fueled generation, without substantially increasing costs or infrastructure investments.” [enclosed] (emphasis added).  A major German study concluded that the funding requirement is well below the amount paid to other renewable-energy production technologies….” Brunner, Pa Consulting Group, Energiewirtschaftliche Tagesfragen - Co-firing solid biomass: the underrated option, July 2012[enclosed]. They show that co-firing is “well below the currently most expansive renewable-energy generation technologies.”  These conclusions are supported by the German Energy Agency report, “Die Mitverbrennung holzartiger Biomasse in Kohlekraftwerken,” August 2011 [enclosed](they note that co-firing biomass may pay off under some scenarios without any support and at that point needed no more than 3.5 ct/KWh).  Supporting the IEO conclusion, Luschen et al. concluded that “cofiring has only minor consequences on the profitability of the power plant.”  FCN Working Paper No. 23/2010, “Economics of Biomass Co-Firing in New Hard Coal Power Plants in Germany,” Andreas Lüschen and Reinhard Madlener, Aachen University, December 2010, Revised July 2012, p 17 [enclosed]. A Dutch report in 2013 concluded that co-firing costs compare very favorably with any other available renewable energy option.” Koppenjan et al. “Global operational status on cofiring biomass and waste with coal Experience with different cofiring concepts and fuels” 2013 [enclosed]. The Austrian study of co-firing concluded that “biomass co-firing using biomass residues as a feedstock represents possibly the lowest cost and lowest risk option …for increased renewable energy production.” Obernberger, Bios Bioenergieysteme GmbH, Graz, Austria, “Co-firing Biomass with Fossil Fuels- Technical and Economic Evaluation Based on the Austrian Experience.” [enclosed].  


     All the international studies and references support the need to limit support for co-firing.


      Nothing in the legislative record on the new law provides any basis whatsoever for the proposed treatment of co-firing in the July 2014 draft. When given an opportunity to document their actual costs of production with IEO, the major co-firing plants declined to do so. There is simply no valid reason, and certainly no transparent one, to continue high levels of support for co-firing that no other European country provides, which violate the European Commission guidelines and past precedents on state aid.[8]
     All of the certificates should be adjusted by correction coefficients established by the IEO report. The support for co-firing should be limited to avoid continued distortion of the market for other technologies.  Co-firing should not be in any auction competing with any other technology, since to do so would be unfair competition. Other technologies construct new electricity production facilities and co-firing is just a partial fuel switch. Any support that can be justified based on the cost of production should only be used as a reference price in a separate technology auction for co-firing restricted to a percent of the market and a level defined by the National Action Plan.
     As long as the Commission allows co-firing of biomass with coal to be considered a renewable energy technology that can be used to comply with the 2020 mandate, it can continue to be used in Poland. But the support that it receives must not distort competition and should be carefully calculated to only reflect the actual cost of production. Any other approach will not be approved by the European Commission or the European Court of Justice (CJEU).

Note: Polish version was published at GramwZielone.


[1]     The UOKiK previously noted the requirement that Green Certificate support be levelized across technologies:  "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”  UOKiK to Min. of Economy, June 5, 2012.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 compensation 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. After January 2017, the new guidelines apply but they still ultimately require that the support system not distort the market by overcompensating technologies well beyond their cost of production.

[2] The appointment of a non-lawyer and political ally of the Prime Minister caused UOKiK (OCCP) to reverse their position. The same man who chaired the meetings in the PM’s office that lead to dropping the levelized support and the phase out all co-firing support. Nothing changed but the political motivations.

[3]  From the Ministry of Economy’s Regulatory Impact Assessment on the December 20111 proposed law: “To optimise the existing support scheme it was assumed that it is necessary to modify the certificates of origin mechanism in a way such that different minimum guaranteed financial aid level is specified for each technology. Such optimisation will ensure more balanced development of sources based on all RES technologies and will allow for allocating the aid for these technologies that need it most. Ministry of Economy proposes to optimise the support scheme on the basis of differentiation of its level depending on the technology used by a particular source.” Draft RIA dated 20 December 2011 – version 1a.4 of the Act, p. 8 [enclosed].
[4] The first year the correction factor was published in Regulations implementing the Act - Energy Law, the Law - Law  Gas and the Law on Renewable Energy Sources version 0.11 (9.10.2012).

[5] The last year the correction factor was published in Regulations implementing the Act - Energy Law, the Law - Law  Gas and the Law on Renewable Energy Sources version 0.11 (9.10.2012).

[6] Ministry of Economy, Regulatory Impact Assessment - document issued with the RES act project.

[7] Institute for Renewable Energy - prepared report ordered by Ministry of Economy, July 2013.

[8]  There is an extremely flimsy position that the law does not provide for state aid, which is contradicted by the UOKiK (now on tax preferences and earlier on certificates as well). Most importantly, the Commission communicated to UOKiK that the support scheme being continued in the draft law was state aid in their opinion. November 28, 2013 UOKiK letter to MG: "According to the UOKiK, the certificate system constitutes state aid. Detailed clarification in this 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….(emphasis added).