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.


Popular posts from this blog

Hitting Reality: Polish Energy Policy Meets the Facts

New Rules on Polish Auctions for Biogas

Renewable Energy in Poland Slowed Down by Auction Mechanism