Commission Finds Polish Certificates are State Aid
There have been communications to the Polish Government that signal the Commission's intentions of finding both the co-generation certificates and the Green Certificates to be state aid. A formal decision will take longer, but there is no doubt as to the outcome at this point. This is completely contrary to the representations of the Government to the Parliament and public.
The DG Competition that handles the state aid issue in Brussels communicated to UOKiK formally on May 31, 2013 requesting the detailed information to determine if there was market distortion or overcompensation. This is especially relevant to the Green Certificate action by the Commission also still pending, since it asked for information about "levelized cost of production."[2] The compatibility of the aid with the competition rules only arises with the DG Competition if there is actually state aid. From this formal communication and the UOKiK letter to the Ministry is seems clear that there was also likely oral communication with the Commission on the issue as well. and possibly other less formal correspondence. At any rate, UOKiK concluded that the Commission believed the certificates (both co-generation and Green) were state aid. [This should be no surprise, since a nearly identical Romanian system of Green Certificates was determined to be state aid in 2011).
Instead of a plan to deal with this fact, the Prime Minister fired Malgorzata Krasnodebska-Tomkiel, the well-respected and long-standing director of UOKiK who had been consistently advising the government of these facts, apparently near the time of the complaint on the Green Certificate program to the Commission. She was replaced by Adam Jasser, who was an English major in university, and close political ally of the Prime Minister as well as the man who actually chaired the Council of Ministers meeting that blocked the earlier version of the RES law which would have levelized support and ended support for co-firing and old hydro plants. The reasoning of the Council, at the urging of the Treasury and Finance Ministers, was solely to keep the revenue coming to the state-owned plants.
The above facts are well-known, but need to be reviewed with an appreciation that the whole time of these developments the UOKiK was telling the Government that the program was state aid, that it had to be levelized as proposed in the earlier versions of the law, and - we can probably infer - that the aid to co-firing and old hydro was illegal and had to stop. Moreover, it appears from at least May 2013 that the European Commission was telling UOKiK that the programs were state aid and had to be "levelized." UOKiK was, in turn, informing the Polish Government of this fact.
All of this information in turn should be considered along with the 2013 leaks that the Polish Government (read PM here) wanted the whole RES mess to be delayed until after the 2015 Polish elections. This also corresponds to the end of operations for 6000 MW of old Polish coal-fired plants, closing due to EU environmental rules - plants that have been co-firing to create Green Certificates. So the plan has always been to run Green Certificates for co-firing and old hydro as long as possible, leaving any consequences until after the Parliamentary elections.
Amazingly the Polish reaction outside of government to all this seems to be confusion and denial. The consequences of billions of illegal aid that must be returned and a Pandora's Box of other complications are just too massive to be real to anyone who has not studied the issue. But the consequences will hit and during the elections, not after.
1. The Green Certificates for co-firing and old hydro will be declared void, including all of them being accumulated and held. This will be ordered by the Commission (which can take the action without going to the European Court) or it can even be ordered by a Polish court compelled to follow the European Treaty rules.
2. The EU requires that all incompatible aid, as Ms. Tomkiel noted, be recovered. Several billion Euro will have to be refunded. My hope is that it goes to a fund to be used to compensate for the unfair competition, i.e. anyone who got a devalued Green Certificate has a claim. Companies whose investments were frustrated by the distortion of the market have claims as well and might be able to prove their damages. Funds remaining after that should be refunded to the consumers who paid for this on their bills. [Note to the Government: you are the principal liable party for unfair competition claims under European law].
Unfair competition claims against the Government under EU law and against the aid recipients under Polish law will be strengthened enormously by the evidence that the chief government agency monitoring competition was telling everyone that it was problematic for years. The only issue will be proving damages and in some cases that should be pretty straight-forward. There will be an effort to deal with the claims in a centralized manner to reduce transaction costs. Interested parties with possible claims can just let me know. randymott at envirosolutions.co
We also may see securities fraud claims, since these publicly-traded companies that received co-firing and old hydro support are often owned by the Treasury and the Treasury had notice of the UOKiK information, including that the Commission agreed with their assessment.
For the last four years, the renewable energy sector has been beaten over the head by the traditional oligopolies and their government allies. The response from most of my colleagues has been unimaginably weak and ineffectual from my standpoint as an American. Operating outside the law, the Polish government has been given a nearly free ride. It is now inevitable that the ride is over and the final accounting will be done soon.
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[1] C(2001) 3267 Final, State aid No N 504/2000 – United Kingdom Renewables Obligation and Capital Grants for Renewable Technologies, November 28, 2001; State Aid N 550/2000 -Beligan Green Certificates; State Aid N 789/2002 — Sweden — Green certificates; State aid SA. 33134 2011/N – RO, Green certificates for promoting electricity from renewable sources, C (2011) 4938, July 13, 2011.
The Polish Government notified the Commission of the co-generation law in 2013 and did not receive a quick answer that it was not state aid. The Commission came back with detailed questions aimed at getting the information necessary to determine if the program was compatible with the current state aid guidelines (2008). See S.A. 36518 - certificates of origin for co-generation, May 31, 2013. This is no surprise because since 2001, the European Commission has found that every RES/CHP certificate program had provisions that constituted state aid.[1]
The head of the Office of Competition and Consumer Protection (UOKiK) communicated this to the Ministry of Economy on November 28, 2013:
"According to the OCCP, the certificate system constitutes state aid. Detailed clarification in 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 co-generation.” [referring to the Commission's May 31, 2013 opinion on co-generation certificates in Poland, S.A. 36518](emphasis added).
The DG Competition that handles the state aid issue in Brussels communicated to UOKiK formally on May 31, 2013 requesting the detailed information to determine if there was market distortion or overcompensation. This is especially relevant to the Green Certificate action by the Commission also still pending, since it asked for information about "levelized cost of production."[2] The compatibility of the aid with the competition rules only arises with the DG Competition if there is actually state aid. From this formal communication and the UOKiK letter to the Ministry is seems clear that there was also likely oral communication with the Commission on the issue as well. and possibly other less formal correspondence. At any rate, UOKiK concluded that the Commission believed the certificates (both co-generation and Green) were state aid. [This should be no surprise, since a nearly identical Romanian system of Green Certificates was determined to be state aid in 2011).
Instead of a plan to deal with this fact, the Prime Minister fired Malgorzata Krasnodebska-Tomkiel, the well-respected and long-standing director of UOKiK who had been consistently advising the government of these facts, apparently near the time of the complaint on the Green Certificate program to the Commission. She was replaced by Adam Jasser, who was an English major in university, and close political ally of the Prime Minister as well as the man who actually chaired the Council of Ministers meeting that blocked the earlier version of the RES law which would have levelized support and ended support for co-firing and old hydro plants. The reasoning of the Council, at the urging of the Treasury and Finance Ministers, was solely to keep the revenue coming to the state-owned plants.
The above facts are well-known, but need to be reviewed with an appreciation that the whole time of these developments the UOKiK was telling the Government that the program was state aid, that it had to be levelized as proposed in the earlier versions of the law, and - we can probably infer - that the aid to co-firing and old hydro was illegal and had to stop. Moreover, it appears from at least May 2013 that the European Commission was telling UOKiK that the programs were state aid and had to be "levelized." UOKiK was, in turn, informing the Polish Government of this fact.
All of this information in turn should be considered along with the 2013 leaks that the Polish Government (read PM here) wanted the whole RES mess to be delayed until after the 2015 Polish elections. This also corresponds to the end of operations for 6000 MW of old Polish coal-fired plants, closing due to EU environmental rules - plants that have been co-firing to create Green Certificates. So the plan has always been to run Green Certificates for co-firing and old hydro as long as possible, leaving any consequences until after the Parliamentary elections.
Amazingly the Polish reaction outside of government to all this seems to be confusion and denial. The consequences of billions of illegal aid that must be returned and a Pandora's Box of other complications are just too massive to be real to anyone who has not studied the issue. But the consequences will hit and during the elections, not after.
1. The Green Certificates for co-firing and old hydro will be declared void, including all of them being accumulated and held. This will be ordered by the Commission (which can take the action without going to the European Court) or it can even be ordered by a Polish court compelled to follow the European Treaty rules.
2. The EU requires that all incompatible aid, as Ms. Tomkiel noted, be recovered. Several billion Euro will have to be refunded. My hope is that it goes to a fund to be used to compensate for the unfair competition, i.e. anyone who got a devalued Green Certificate has a claim. Companies whose investments were frustrated by the distortion of the market have claims as well and might be able to prove their damages. Funds remaining after that should be refunded to the consumers who paid for this on their bills. [Note to the Government: you are the principal liable party for unfair competition claims under European law].
3. No new system will be allowed to operate until it is approved by Brussels. Green Certificates will continue and companies have the option of taking them or going into the auction for plants built before the auction [whenever that will be and it pretty clearly will not be in 2016]. So until the Green Certificates are levelized by cost of production, there can be no legal way to compel anyone to make this choice. New facilities could go into auctions, but only if all of the criteria for the GBER exemption were present in the Polish law (and this is not the case]. There will be unfair competition claims made against the Polish procedures as they now stand proposed and this will tie everything up for months in Brussels and end up forcing changes in the system.
Unfair competition claims against the Government under EU law and against the aid recipients under Polish law will be strengthened enormously by the evidence that the chief government agency monitoring competition was telling everyone that it was problematic for years. The only issue will be proving damages and in some cases that should be pretty straight-forward. There will be an effort to deal with the claims in a centralized manner to reduce transaction costs. Interested parties with possible claims can just let me know. randymott at envirosolutions.co
For the last four years, the renewable energy sector has been beaten over the head by the traditional oligopolies and their government allies. The response from most of my colleagues has been unimaginably weak and ineffectual from my standpoint as an American. Operating outside the law, the Polish government has been given a nearly free ride. It is now inevitable that the ride is over and the final accounting will be done soon.
_________________________________________________
[1] C(2001) 3267 Final, State aid No N 504/2000 – United Kingdom Renewables Obligation and Capital Grants for Renewable Technologies, November 28, 2001; State Aid N 550/2000 -Beligan Green Certificates; State Aid N 789/2002 — Sweden — Green certificates; State aid SA. 33134 2011/N – RO, Green certificates for promoting electricity from renewable sources, C (2011) 4938, July 13, 2011.
[2] As pointed out by Ms. Tomkiel, the Commission requires that operating support be proportionate to cost of production across technologies to void overcompensation and distortion of the market [exactly what happened in Poland due to co-firing and old hydro support]. Ref. UOKiK letter of June 5, 2012; State Aid Guidelines for Environmental Protection, 110 (2008); 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.
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