Tuesday, July 29, 2014

What Will Happen to Polish Renewable Energy on the Current Course?

Perhaps the best way to view the consequences of  the Polish Government and European Commission actions is to refer to the doctrine of unintended consequences. "The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it." Norton, Library of Economics and Liberty. 

I believe that the Polish Government has been deeply divided on the promotion of renewable energy development. Many of the "hands on" bureaucrats have tried to find a way through the problems (including the former head of UOKiK). The Prime Minister's office took over the legislative process in the summer of 2013 as the earlier draft that was prepared to meet UOKiK and the Commission's concerns  was being finalized with correction coefficients. This draft would have ended support for old hydro and co-firing once approved by the Commission.  It also would have forced the issue in front of the Commission over the failure to notify earlier and the incompatibility of the existing aid with the guidelines and prior decisions of the Commission. Thus, the dire consequences warned of by UOKiK as early as June 2012 could have arisen before the 2015 election. This also would have tolled the statute of limitations (ending the period for which the aid would have to be recovered). [1] 


To try to avert this disaster,  the Prime Minister's office  started the process of delaying the new law and at the same time, delaying notification and the opening of Pandora's Box in Brussels.  By changing the whole approach and continuing the oversupply of certificates, opponents in the sector would be squeezed and the way laid for the huge state-owned companies to emerge after the elections in a position to dominate the new energy sector as they have the old one.


This has been a very complex and high stakes game. Superficially it has worked to delay matters and starve or deter most potential  competitors.  But here we have to look at the doctrine of unintended consequences.


The strategy used by the Polish Government does not change the law or the fundamental problems presented by unnotified, non-levelized aid. In merely pushed them forward into a time frame where all of the bills become due at once.  The plan was to make this mess occur after the elections and after the state enterprises had sucked every zloty out of the support system that they could. 


However, as we often learn, the best laid plans of mice and men are usually about equal.  Blair's Observatio

First, the donnybrook will not occur after the elections, but in the middle of the campaign. At some point in 2015,  the complaints before the Commission will have been pending for two years, time enough to also expect action. However, the notification sent to the Polish Government in early 2014 has been ruled by the European Court of Justice in other cases to be sufficient action to toll the limitation period. See Scott SA v. Commission, Case C-276/03 P,  October 6, 2005. See Marc Hansen, "Recent Developments in EC State Aid Law," IBC Advanced EC Competition Law, London, 29-30 April 2004.

Second, efforts to silence opposition (such as the firing of Margaret Krasnodębska-Tomkiel) and the attempt to bury the incriminating documents only have the consequence of making the Government look more guilty and only increase the credibility of the criticism.


Third, the new law that includes auctions will be drawn into the pending investigation and  be delayed long enough for the  procedures to have little relevance to the renewable energy mix on the ground in Poland in 2020. It is impossible to give the existing sources that produce over 6000 MW of renewable energy the choice of going into the auction or accepting Green Certificates for the balance of their operations without also resolving the issues on the Green Certificates. See The Consequence of Going to Auctions Without Notification. The entire mechanism for setting different reference prices by technology also raises major competition issues that cannot be resolved without Commission involvement and approval. 


Fourth, the most likely early action by the Commission will be the suspension of the incompatible aid. "It is obvious that in certain circumstances there may be a need to adopt interim protective measures when the practice of certain undertakings in competition matters has the effect of injuring the interests of some Member States, causing damage to other undertakings, or of unacceptably jeopardizing the Community’s competition policy". Article 3, Regulation 17/62 as amended. See Uria and Menendez. Given the complexity of the remedial measures that must be undertaken and  the clear violation of the competition provisions of the European Treaty, there will be a great likelihood of some early Commission action in this regard.


This fourth development will mean that the value of Green Certificates will dramatically increase as about 70% of the current supply is withdrawn from the market and the surplus being held is ruled null and void. This will occur before levelized values are agreed to and approved by Brussels.


Fifth, the law requires recovery of the aid from the recipients,[2] as noted by UOKiK in the documents. This will be a massive undertaking supervised by the Commission and will likely involve one or more major lawsuits in Poland. Note that Polish courts will have very little discretion in implementing state aid decisions and cost recovery. Any action to enforce  a ruling on the incompatibility of this aid will toll the limitation period. See above.


Sixth, injured parties have a European cause of action for damages against the Polish Government and a national cause of action against the competitors who used the aid to unfair advantage. This could be a major development, since the normal issue of proving damages is generally obviated by the simple measure of known Green Certificate values:





 It seems impossible with the Commission already on the case, the NGOs complaining, and the Government having completely alienated the RES sector, that 2015 can go by without this issue coming to a major head. Exactly when the Polish Government wanted it buried.


The unintended consequence most note-worthy to me is that the Green Certificate program will undoubtedly continue longer and stronger than the Government intended and at values much closer to even higher than the historical values before the oversupply caused by illegal aid. 


___________________________________


[1] Article 15 of Regulation No 659/1999 provides: "1. The powers of the Commission to recover aid shall be subject to a limitation period of 10 years. 2. The limitation period shall begin on the day on which the unlawful aid is awarded to the beneficiary either as individual aid or as aid under an aid scheme. Any action taken by the Commission or by a Member State, acting at the request of the Commission, with regard to the unlawful aid shall interrupt the limitation period. Each interruption shall start time running afresh. The limitation period shall be suspended for as long as the decision of the Commission is the subject of proceedings pending before the Court of Justice of the European Communities."


[2] 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).  “It is essential for the integrity of the State aid regime that these Commission decisions ordering Member States to recover unlawful State aid (hereafter ‘recovery decisions’) are enforced in an effective and immediate manner.”  Id. par. 3.  Article 14(3) of the Procedural Regulation states, that “recovery shall be effected without delay and in accordance with the procedures under the national law of the Member State concerned, provided that they allow for the immediate an effective execution of the Commission decision.Id. par. 11, citing Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).

The Office of Competition Agreed that Notification of Brussels was Required (before the head of the office was fired)

The Polish Government has made some very misleading statements to the Parliament in the last few months. Pretty much everything that they have stated publicly about state aid for RES and CHP has been 180 degrees from the truth.

Let me first summarize the issue in lay terms.  The European Union  is based on the idea of a single economic market. Aid to enterprises by national governments is restricted by the treaty, since it can adversely affect competition. So all state aid has to be approved in advance by the European Commission to assure that it is fair to competition and  does not distort the market.

Poland never notified Brussels on its renewable energy program. So it is all unlawful until approved. Similar programs for the UK and Romania were ruled to be state aid and the Commission required that different technologies had to receive levelized support, so that competition was not distorted. Poland did two prohibited things: first, old hydro plants that were built long ago got a lot of support (30% of the total to date) which is against the rules since they really did not need support to get built or to operate; second, coal-fired power plants get support at the same level as everyone else when they just add some biomass to the coal and co-fire it. The cost to do this is nominally higher than only burning coal, but not nearly as costly as other RES technologies.The practice got 40-50% of the total support and drove the market for the Green Certificates awarded as support for green energy in Poland into the cellar due to oversupply. See "Why Poland Urgently Needs A New Law on Green Certificates."

Complaints have been filed in Brussels and an investigation/enforcement action is underway.  The Polish Government denies Green Certificates are state aid, denies that there is any distortion of the market, and argues that they do not have to notify Brussels on the new law now being debated. If the state aid is illegal or "incompatible" with the EU rules, the money has to be recovered, which involves billions of Euro at this point. It is also an unfair trade practice under EU law and can create claims for damages.

The new development is some hot documents that show that the head of the Office of Competition and Consumer Rights in Poland agreed with the complainants on these issues and had been advising the Polish Government of these conclusions months before any complaint was made to Brussels. When the complaint was sent to the Polish Government, the Prime Minister simply fired the director and appointed someone who would give him the answers that he wanted to hear. See firing of Malgorzata Krasnodebska-Tomkiel (who was a recognized expert on state aid issues). No one at the time knew that her firing came immediately after the notification of the co-firing investigation from Brussels. Now we also know why the Tusk Government  moved so quickly to clear the deck, because the director had been telling them the same thing and they needed to get someone to stonewall the Commission until after the election.


The documents now show that UOKiK (OCCP) gave the Government advice exactly opposite what the Government has been saying [the translation is not precise and is being professionally done and the original Polish documents will be posted here this week]:

June 5, 2012, letter from UOKiK to MG:

"... the Commission clearly shows that countries using in combined heat RES support instruments constituted state aid, despite the fact that their implementation was required by the RES Directive. 

"[while the Ministry of Economy has denied that the certificates constituted state aid] for the reasons detailed in the above footnotes, the position of the Ministry of Economy is not correct." [She went on to detailed the consequences of failure to notify, including recovery of the aid from the recipients and claims for unfair competition].

"... in subsequent decisions ", the Commission emphasized that the certificate system offers free to certain entities intangible assets having a market value. Certificates not only provide evidence produce a given quantity of energy in the RES or CHP, but also allowing the marketing certificates and setting up of such a trading market (forming on them demand) - the state gives them a specific financial value. In addition, according to the Commission, assets in the form of certificates come from the state where it may sell them, thus obtaining a certain income."

"[With certificates], the state grants for certain entities with the opportunity to acquire certificates in order to avoid payment of fees and penalties. In addition, the consequence of the introduction of the system was to create a certificate - without no consideration to the state - which, because of its negotiable character have an economic value. [The State] could sell these certificates, if system gave a different structure. Meanwhile, the state, giving character certificates transferable non-property assets and distributing them free of charge at the disposal of beneficiaries, rather than to sell them, waives, in fact, public resources." [citing several Commission decisions].

 "Similar instruments were assessed by the Commission, which stated that that the mechanism - guaranteed prices along with bonuses based on RES technology leads to the depletion of public funds (to subsidize energy prices over the market value) and give benefit to the producers of RES who receive additional measures beyond those that they could earn as a result of the sale of energy on the market. This means that the mechanism is state aid must comply with the rules on the admissibility of the aid."

"[On the draft RES bill]...Existing provisions for public support do not provide this kind of assistance exempt from the notification,referred to in art. Paragraph 108. 3 TFEU. For this reason, the draft laws ...should be notified to the Commission to enable it to assess their compliance with the internal market. I therefore propose preparation of the draft notification instruments pursuant to Art. Paragraph 108. 3 TFEU as an aid in accordance with Art. Paragraph 107. 3 TFEU.


 "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 letter to MG, November 28, 2013 

"According to the OCCP, 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 within the framework of the ongoing process notification of the restoration of the certificate system for high-efficiency cogeneration.” [referring to the 
Commission's May 31, 2013 opinion on co-generation certificates in Poland, S.A. 36518].

"On the new auction system, the purchase of electricity at guaranteed prices from an auction “affects competition and EU trade since the energy generation market is competitive and open to trade in the EU dimension, and it should be considered that the establishment of the obligation to purchase renewable energy at a specified price is state aid….”


“Due to the participation of public authorities in the auction system ( the determination by the President of URE of the  reference price which is the maximum price and the refunding the 
seller's undertaking with funds from the RES  fee if there is a negative balance between the purchase price set at the auction and the market price of the sale ) , this system should be considered state aid ..” 

“In this context, I wish to point out that the exemption from excise duty for RES energy in the Directive on the taxation of energy is optional, and hence the establishment of this type of release is not an obligation of a Member State, but the only element implemented by environmental policies. Bearing in mind that this exemption applies to public funds (depletes the proceeds of excise duty) is selective (only specific technologies are affected), is for the benefit of the beneficiaries (reduced costs associated with running business) and due to the competitive nature of the energy market and the EU dimension  affects competition and trade in this market,  it should be considered that it is state aid. “  

“Acceptability of aid in the form of certificates and other instruments is defined in the operational guidelines…. Support of this kind is not covered by the so-called “block exemption". It requires notification to the European Commission under art. 108 paragraph. 3 TFEU, preceded by the procedure expressing opinions by the President of the OCCP referred at art. 12 of the Act of 30 April 2004 on the procedural issues concerning state  aid and expression by the Council of Ministers for approval notification. Until the Commission's positive decision, it is not possible to grant the aid. “               

“In the same paragraph 110 of the Guidelines, the Commission points out that support for renewable energy may not ultimately lead to overcompensation. This means that total support for renewable energy cannot exceed the difference between the cost to generate the energy and the market price of energy. “     


These quotes probably have some translation errors in them, but those errors do not affect the meaning. The Office of Competition and Consumer Rights (UOKiK) repeatedly advised the Ministry of Economy on the need for state aid notification and approval in Brussels of not only the existing system, but the provisions proposed in the new law. They also advised on the need to assure levelized or proportionate support. These statements and recommendations were clearly followed by the Ministry of Economy in the October 2012 draft law. This included providing correction coefficients to levelize the support and to phase out aid to co-firing. Just as clearly the UOKiK poisition and that of the Commission has been ignored since the Prime Minister's office directly took over drafting the new law.[1] The PM simply replaced the UOKiK head to try to delay the inevitable until after the Polish Parliamentary elections.

Statements  by the Government that the system does not involve state aid and  that it need not comply with the rules on proportionality and  overcompensation are inaccurate and disingenuous.[2] Until the director of the office was fired, the UOKiK opinion was quite the opposite of the Government's representations. Most troubling is the fact that the correspondence repeatedly refers to not only Commission written decisions but to other Commission communications supporting the historical view point of the UOKiK [S.A. 36518 on co-generation]. The Government has departed from the earlier position at its own considerably risk. 

________________________________________________


[1] The GBER exemptions were put out for public comment in 2013 and were being circulated prior to the UOKiK letter of November 18, 2013. So the UOKiK opinion, that the exemptions did not cover everything in the proposed new law including auctions, Green Certificates and tax exemptions, considered and rejected the argument  that the exemptions justify no notification on the new law.

[2] The Commission kicked back the Polish notification on co-generation certificates on May 31, 2013, requesting more information, including details on how the costs were levelized by technology.  The Government characterization of this development is also strained to say the least. If you read the Commission opinion in that case, S.A. 36518, it is impossible to ignore the UOKiK legal conclusions made under Malgorzata Krasnodebska-Tomkiel. The current rules on state aid apply for all aid granted  until 2017  and the new rules - while softening the need to levelize support - still preclude overcompensation and require proportionality. Aid to plants that have been fully depreciated(such as old hydro) is still prohibited, for example.



Thursday, July 24, 2014

Cover Up? Missing UOKiK document

On May 30, 2014, the Ministry of Economy was reported to have decided not to notify the European Commission on the new law on renewable energy.  The Ministry released a group of documents from the Competition Bureau which allegedly supported their conclusion that notification of the bill as state aid was not required. See Original article.

I jumped on the documents and downloaded them (a bulky pdf image file of 30 pages). Part of the bundle was a June 5, 2012 letter from the former head of UOKiK to the Ministry of Economy. That letter actually concluded that green certificates were state aid, that they had to be notified, and that they had to be levelized to reflect the actual costs of production across technologies. Following that letter, the Ministry proposed the October 2012 version of the RES laws which implemented those recommendations, including phasing out aid for co-firing and old hydro plants.

We all know that the next thing that happened was the Finance Minister intervened and directed that the bill be changed entirely.

Now that the European Commission is on to this problem and investigating the same issues described in the June 5, 2012 letter, the same letter mysteriously disappeared from the Ministry's website and link. This left blank pages in the faxed sequence included in the pdf document (pages 12-14 out of the thirty-page sequence faxed from UOKiK to MG). If any readers also downloaded the UOKiK letters at the time (June 2014), I would appreciate them contacting me and sending a full pdf file and their download date if available. It will be interesting to see how many copies of the June 5, 2012 letter got retained. For the truly brave, just send an email with the file to the DG Competition, European Commission, Brussels

NOTE: For the truly inquisitive, the June 5, 2012 letter refers to a March 29, 2006 UOKiK letter on the subject of notification. Presumably that also advised that notification of Brussels was necessary, at the same time the rest of the Polish Government ignored the advice.

UPDATE: July 26, 2014 - the Ministry also seems to have removed a November 2013 letter from the web from Margaret Anna Krasnodębska-Tomkiel, then head of UOKiK, that explained the state aid problems in the new law related to auctions. Her biggest point was that Green Certificates would continue and existing facilities could opt to continue them or go into the auction. And since the certificates were clearly state aid according to UOKiK's numerous letters to the MG, the new system had to be notified (the GBER exemption did not cover the system). She also mentioned in this letter that the Commission had told UOKiK that certificates were state aid. UOKiK also had advised the MG on several occasions that aid had to be based on the costs of production across technologies. New article will be forthcoming on these developments!  

Tuesday, July 22, 2014

The Consequences of Proceeding to Auctions Without Notification

The Polish Government in its famous double down is still talking about going ahead with a new support system without notification to the European Commission as required by the European Treaty for new state aid measures. This decision, if it sticks, will mark one of the most suicidal moves since Thelma and Louise  drove their car over the cliff.


The rationale for this decision is that the system is either not "state aid" (despite multiple Commission decisions that say the opposite) or that it is exempt under new rules  (which have only been proposed and exclude the type of auction proposed here). The legal explanation for this bold move relies upon a series of UKOK (competition agency) letters which within their context do not even support the decision.

What happens if the Polish Government is wrong, which there is every indication is the case?


For background, the current system of Green Certificates is certainly state aid (as the Commission has ruled in the case of the UK, Romania and Belgium).  The Commission already has an enforcement case on this issue which will inevitably find the state support for co-firing and old hydro projects is incompatible with the European Treaty due to over-compensation, distortion of the market and general unfairness. This will void these certificates retroactively  and prospectively. This means that the aid must be recovered under EU rules and that the utilities using the certificates cannot assume that they were valid under Polish law to satisfy the green quotas in the past.  See Dlaczego Polska Potrzebuje Pilnie Nowego Prawa Dotyczącego Zielonych Certyfikatów, GramwZielone.com [PL version][English version]. 

Green Certificates continue for existing facilities under the new law, at least those built before the new law's effective cut-off (suggested optimistically as January 2016 at this point. Existing facilities can opt to continue this support or go into the auctions. As long as the Green Certificates are under-valued due to over-compensation and distortion from co-firing and old hydro (including an oversupply being held from the past with prospective effect on their value),  the choice under the new law is fundamentally flawed. The incompatible aid will effectively force more companies into the auction and continue the distortion of the market. 

At the same time, the auction is not technologically neutral or transparent as called for by the draft block exemption rules. Separate reference prices by technology, separate rules for existing facilities, 4000 hour limits, and only 60 days of notification of reference prices will make the auctions anything but neutral and transparent. The new auction system will clearly lead to multiple complaints to the European Commission DG Competition.

Prevention of this morass of legal proceedings which will undoubtedly void the results of the auctions is exactly what pre-notification is designed to remedy. It will be impossible to sort out the auction results when bidders and discouraged bidders can complain that system constituted illegal state aid incompatible with the Treaty. 

Instead of using the time over the next 12 to 18 months  to obtain Commission clearance, the Polish Government seems intent on putting the Commission process on the other side of the auction, where it will be the most divisive, costly and disruptive. 

In the likely event that the Commission rules on the green certificates before the first auction,  it seems impossible to keep the Polish Government's avowed schedule, especially if the Commission is next reviewing the auction itself as incompatible aid while Poland struggles to conduct one or more successful auctions. 

The big question is why would the Polish Government want to take these risks and who gains by obfuscation? 

UPDATE: July 24, 2014 - The Commission just approved the new UK auction system yesterday after only seven months of review. My take is that this means it is state aid, because they ruled on its compatibility and that they moved relatively quickly. If everything is fine with the Polish draft law on state aid issues, why not submit it for approval? There is time now to do so. If there is a serious risk (which I believe) that the system is incompatible with competition rules for any reason, it is clearly better to find out earlier than to wait for an auction to be challenged and everything thrown into a messy, protracted legal fight. Such a fight will also involve claims for damages from unfair competition, which can be avoided by notification.

Thursday, July 17, 2014

Energy Storage Economics 101: Finding the Business Case


This is the balancing market in Poland this week, July 15th. The peak two hour period in the middle of the day saw electricity prices at nearly 1000 PLN/MWhr. That is over twice the price of renewable energy in Poland even with subsidies included. 

It does not take a genius to see the potential of storing the energy on each end of this spectrum and selling it in the middle. The system must have the production capacity to meet the peak at any time, even though it is used only two or three hours a day. Shifting peak hours to off-peak electricity that is stored, if ubiquitous enough, would lower the need for additional capacity and save everyone money as well. The major energy storage issue is quantifying the economic benefits and finding the optimum methodology of distributing the cost of storage to the beneficiaries of storage. This is not an easy thing and is exactly why we need an association to work to pull all the pieces together and build a consensus of the results.

Tuesday, July 15, 2014

THE NEW POLISH RES LAW NEEDS TO PROMOTE ENERGY STORAGE

     Poland has a unique opportunity to avoid some of the problems now confronting Germany, as intermittent renewable energy sources take over the first slot in meeting demand for electricity. It has been widely reported that as intermittent energy sources play a larger role in the grid supply, more pressure is placed on “ramping up” power to meet demand peaks. Coal plants are notoriously poor at ramping up or simply backing up renewable energy sources, since they require a high utilization rate to remain economically viable. In this regard, Poland is more vulnerable to mismatched supply and demand than many other countries. This has been one of the main concerns of the Polish Government is debating the new law on renewable energy. 

     Yet the Government’s various versions of the law have never dealt in any fashion with energy storage. The term does not ever appear in the different versions of the law. Energy storage is viewed as vital to bridge the gaps in energy supply. The European Commission, DG Energy Working Paper onEnergy Storage, last year summarized the importance and role of energy storage:

Energy storage can supply more flexibility and balancing to the grid, providing a
back-up to intermittent renewable energy. Locally, it can improve the management of
distribution networks, reducing costs and improving efficiency. In this way, it can ease the market introduction of renewables, accelerate the decarbonisation of the electricity grid, improve the security and efficiency of electricity transmission and distribution (reduce unplanned loop flows, grid congestion, voltage and frequency variations), stabilise market prices for electricity, while also ensuring a higher security of energy supply.

They provide a graphic illustration of the benefits of energy storage:




     As the July 2014 version of the new RES law is debated and amended, it needs to address energy storage, at least in a preliminary manner. Right now, if intermittent renewable energy producers store electricity either to smooth very short-term fluctuations or to address peak/off-peak concerns, the stored energy is not clearly covered by the support scheme. So a RES facility would have to store electricity when it could be sold at a premium and re-introduce to end-users at a lower price without RES support. This is a totally illogical and unwise situation.[1]

     Clearly, energy stored from RES sources covered by the support system should receive at least the same level of support when it is released for use. Any other approach makes energy storage, which is vital to the future system, impossible at inception. The European Commission makes the point: It is important to ensure that electricity from RES keeps its RES label, even if it has been stored before the final consumption. Possible feed in tariffs should not be affected by intermediate storage.” DG Energy Working Paper. A more logical system would place a premium on off-peak electricity generated and stored to be discharge during peak hours. Besides helping RES producers, this would reduce the aggregate difference between peak and off-peak demand and increase the utilization rate of the traditional fossil-fuel energy plants. 

     A bigger market lesson can also be drawn upon from the emerging energy storage sector. The California Energy Storage Alliance, operating in the most advanced energy storage market in the world, reported earlier this year that a 40% differential between peak and off-peak electricity rates can make energy storage with today’s technologies economically viable. [Janice Lin, California Energy Storage Alliance, Energy Storage- Europe conference, March 24, 2014].  This is, of course, only true if the facility can receive the higher peak rate differential. Under a feed-in tariff as proposed in Poland for winners of the auctions, there is only one rate envisioned and no financial incentive for storage and discharge during peak hours. A means to finance investment in energy storage is essential and failing to utilize the natural market mechanism seems to be extremely short-sighted. 

     Multiple technologies are now available to provide for energy storage on different scales and with different temporal capacities. The appropriate system varies with the application, whether it is to even short-term fluctuations or to reduce peak/off-peak peaks and valleys. The Polish system is typical in that it is very inefficient due to the need to have capacity for peak hours and seasons, which is unused the rest of the time. See chart from URE data:

                       URE website, Load of the Polish Power System from Jan. 2011 to July 2014.  


    Technology exists to reduce this "wild ride" as well as to smooth shorter term variations. These systems include advanced lithium ion and other battery systems, fly wheels, compressed air, traditional pumped hydro, and other innovative solutions. The Edison Electric Power Research Institute reported a benefit to cost ratio over one for nearly every technological scenario.  “Cost-Effectiveness of Energy Storage in California,” Application of the EPRI EnergyStorage Valuation Tool to Inform the California Public Utility CommissionProceeding R. 10-12-007 3002001162  (2014). The recognized need for energy storage occurs at each level of the energy network, as illustrated by DG Energy’s schematic:



       The ability to differentiate between peak and off-peak prices can provide a key incentive to provide energy storage capacity in the integrated electrical system, especially at the pre-grid distribution level. See above graphic.     

     We are working now to formalize the Polish Energy Storage Association and to hopefully start a constructive dialogue immediately with the Polish Government on how to provide the preliminary support for this essential sector. It will be necessary to obtain cooperation from all of the interested energy storage technology providers, and other stakeholders to achieve the right solutions. 

Introduction translated by www.photonlab.pl.   Thanks!


[1] For biogas, the storage can be in the form of methane and it can be used to generate additional power during peak hours. This is an unusual characteristic for renewables, but requires that a higher price be charged to finance the additional storage and generation capacity. This can be done under the current Green Certificate system, which allows direct sales, but will be lost under the auction system that requiring one flat rate for grid sales.

Monday, June 30, 2014

Basic Orientation on Energy Storage

This youtube video brings it all together.



https://www.youtube.com/watch?v=h2iyQcXQUSw

I expect to be in this market in Poland in 90-120 days. I hope to form the Polish Energy Storage Association at the same time.  Interested parties should contact me!  randymott (at) envirosolutions.co.

Note: I am still in the biogas business and environmental consulting business.

Friday, June 27, 2014

EU notification or not? Political Repercussions Inevitable

The Ministry for Infrastructure is raising issues about the announced intention of the Polish Government not to notify Brussels on the new law. [They never notified on the existing law and are in an enforcement case with the Commission on the subject]. The Ministry's point is not one of mine and may even be a "stalking horse" for the real arguments which are harder to admit (i.e. the auction is not technologically neutral, the procedure is not transparent, Green Certificates are still used without necessary Commission approval, and the whole exemption relied upon is not even finalized yet).

Failure to notify will lead to a Commission complaint and the review will be done by Brussels whether the Polish Government seeks it or not. The ruling coalition seems to be convinced that it is somehow served by delaying the inevitable smack down. My own educated guess is that the smack down will occur in time to be an issue in the elections next year, so their timing is totally counter-productive. The recovery of 70% of all aid to renewable energy in Poland since 2005 is a big enough issue that even the general media will pick up on it. It is more than the total national deficit for example.

In the interim, we face local elections where I have done whatever is possible to raise the issue of the government's policies hurting local government and small communities. Without changes in the draft law as it pertains to biogas, local small town residents will lose most chances for cheaper biogas heating in the local systems, cheaper processing of sewage sludge and household food wastes, and on the flip-side will see more biogas plants without the most environmental and odor control since the government policies make these expensive add-ons quite difficult to fund. We will be expanding on this theme throughout the local elections in Poland.

All of this should be viewed against the political back drop of the coalition misreading public opinion, which favors green energy more than the government's preferred coal and nuclear projects (70%; 24% and 26%). If even a small percent of the electorate make this an issue in their voting, it can be decisive in a close election. I noted in the past that on a levelized cost basis, new coal plants and nuclear plants are more expensive that some renewables right now and that this trend will continue.

One of the great ironies in Poland is that the new anti-communists seem to act like communists more than they will ever admit. Heavy-handed, ham-fisted policies with very little transparency in government or regard for the public's input may as well be coming from the old communist bosses in Moscow.[1]


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[1] Note to the government: having repeated public hearings with the sole function of announcing the decisions already made behind closed doors is not conductive to building democratic institutions in Poland. See my earlier post on the legislative process compared to the United States. There is virtually no effort to receive opinions from stakeholders before decisions are made. This also helps explain the stop-and-go nature of the RES bill, since its various iterations have been put together without much if any consideration of input from the public and the sector. They publish something dumb and then run back behind closed doors to make another decision in the dark.


UPDATE: If you would like a copy of the advantages of biogas plants to local communities, focusing on the Danish model, please download it here (PL) or please contact me (randymott (at) envirosolutions.co.)(EN version). The paper emphasizes the advantages of adopting the PBA amendments. This is the information that is being provided to local government and NGOs relevant to the local elections. It makes no sense to promote farm-based biogas plants in Poland and not to support community-based biogas plants with higher technology and more benefits to the local residents.