More Inevitable Delays in the New Renewable Energy Law

   Maybe the Polish policy-makers thought that a renewable energy law had to keep being renewed?

   More delays have emerged in March as the "legal commission" made its changes and now the local government organizations and the environmental committee weigh in. The biggest external source of pressure for changes is undoubtedly the European Commission, on two fronts - the DG Competition that determines what state aid will not distort competition (which has not been an unintended consequence in Poland but part of the design of the law) and the DG Energy that determines if the law meets the transposition requirements of the Renewable Energy Directive.

   The delays seem to be inevitable, since major interests were locked out of the deliberations and the successive drafts were all prepared in secret and largely ignored the consultation period inputs. Several political miscalculations have also been in play, i.e. the ruling coalition assuming hat green energy is unpopular in Poland and then the embarrassment of seeming - after the Ukraine crisis - to be blocking new domestic energy security measures by their intransigence.

   The latest external factor is the changing state aid rules in Brussels. The Polish Government quickly picked up the parts of the proposal from December 2013 that could be used to support their views in their drafts, assuming that the European Commission would be as oblivious to public consultation inputs as they are. The proposed rules are changing and will likely present new challenges to the Polish legislative draft (especially since the author of these rules has to approved the Polish law before it can be effective).  A major change is developing to exempt small projects from competitive bidding, due to the distortion of competition that has occurred everywhere this has been tried. The threshold will likely be 2-5 MW (the higher level already being used in several countries that use auctions). The popular notion of prosumer energy from local sources was also discounted by the government and their efforts to limit this opportunity apparently run afoul of both local political opinion and EU rules.

     The result, however, is interesting. Even if the Parliament got the law passed by July 2014, the Commission approval process will likely take 12 months or maybe more (Romania and Slovenia required about two years!). Add in the fact that the draft tries to continue support for co-firing (albeit reduced support) in apparent conflict with the pending EC enforcement action against Poland on the same subject and delays seem likely.

   The first auction (originally discussed for 2015) may well not occur until 2017 or even 2018 and then projects that "win" bids will have 18-36 months to be built.This means that the 2020 target for the green energy quota under the mandatory EU Directive will not be met by projects coming out of the auctions in Poland.  So its own delays have totally thwarted the Polish effort to replace certificates will auctions.

   What then of the Green Certificate market in the interim? This may depend on the Commission's action in the enforcement case. About 70% of the Green Certificates awarded are arguably illegal under state aid competition rules. It does not mater if you look at current guidelines or the proposed changes. It seems to defy logic that the Commission will sit on its enforcement action while Poland struggles to pass a new law and obtain approval in Brussels.  All logic and precedent suggests that the Commission will act now on existing problems, especially since correcting those problems will facilitate getting a new law that is compliant with EU rules done more expeditiously.

   A representative of the Prime Minister's Chancery told us at an American Chamber of Commerce meeting that without co-firing, the Green Certificate value would likely be almost the same as the substitution fee (now 300 PLN/MWhr), the fee that must be paid for electricity companies that do not have enough green energy or green certificates. Combined with the fact that renewable energy producers can sell electricity on the retail market under the certificate system, this means a return to profitability in the sector without any new law.

   The collateral effect is also interesting. The Polish Government, in my opinion, has been delaying the new law since the Brussels approval process would inevitably cut support for co-firing and old hydro (largely involving state-owned utilities). The delay in the day of reckoning helped Energa in its IPO, as it has been the biggest beneficiary of hydro Green Certificates (raising money for the state Treasury). It also has benefited the old coal-fired plants whose window for staying in operation under the Large Combustion Source Directive runs out next year.  This has allowed state-owned coal plants to keep running without any serious impact from renewable energy requirements, since some foreign peanut shells and vegetable waste let them claim Green Certificates and green energy production (a twofer). Now however, when this aid is determined to be illegal, they cannot count it and will likely have to return the funding obtained by the ploy.


 So, from my perspective, its seems that everything the Polish Government has attempted to achieve in frustrating renewable energy policy has come back into their face. The continuation of incompatible or illegal aid to state-owned companies has backfired and will present an enormous problem likely to go on for years, especially with unfair competition claims possible against the Government and the recipients. Their delays in getting a new law have effectively stymied the changes that they sought in the support system. All of these factors have mobilized opponents of their plans, plans which now seem wildly out of touch with real energy security issues on the ground right now. Finally they have done all of this going into elections!

   Several fundamental misreadings of EU law and the political situation have produced the opposite of what the ruling coalition has sought. I think it is realistic to look for a rebirth of the renewable energy sector in Poland, even with the delays caused by Polish Government bungling.

 
 

Comments

Randy Mott said…
Now it appears that it is likely that substantial parts of the law passed in April 2015 will have to be re-written. This is due to the gap between the phase-out of projects under the old system of certificates and the period when new projects could begin construction under the new system. The auction itself will be delayed by normal red tape issues in the Polish Government and could also be affected by the European Commission looking at the state aid issues involved.

The only good thing will be that the changes will be beneficial to the RES sector for those that have the patience to wait out the process.

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