Delay in Final Approval of the RES Law in Poland: Impossible to Conduct Auction in 2016
Increasingly it appears that the new law on renewable energy will not be in effect until substantially later than the latest government prediction. This is no surprise, since the government has been promising a new law within six months for the last two years.
Final approval by both houses of Parliament will go over into 2015, an election year, which will make final consensus difficult. The final figures for renewable energy production and investment for 2014 will reflect the uncertainty and doubts in the market. Perhaps the fact that investors are lined up to invest in Poland in this sector (perhaps as in no other sector) and are only blocked by the government, will leak into the elections themselves. The fact that electricity bills for everyone are higher than legally permitted by the inclusion of subsidies for co-firing and old hydro would seem to be a political liability. Much of this support does nothing to help compliance with the 2020 target, since it is either superfluous or the facilities receiving the support will be closed when the compliance level is measured.
The European Commission is still posed to drop the sword on the whole current system of Green Certificates, which also affect the future support system since they will remain a part of it for grand-fathered facilities. The UOKiK, when it was professionally run, concluded that the system was state aid and the European Commission has informally advised the Polish Government of this fact. Unless the Polish Parliament passes a revised Green Certificate program levelized by technology to retroactively cover the past nine years, all of the aid will have to be recovered. See e.g. previous posts here on UOKiK correspondence. Without the use of certificates, the big coal-fired utilities will be out of compliance and face penalties for that fact in addition to recovery of billions of past support. Even the retroactive legislative fix (as in France) would have to lower the support for co-firing which the Government has admitted on numerous occasions is over-compensated. Aid to old, depreciated hydro will have to be recovered in its entirety. Delays in taking the medicine in this case will clearly not make the disease go away.
Once fixed, the certificate system can be continued as fully compliant with the new state aid guidelines, eliminating the necessity for auctions altogether if the government was so inclined or was so tied in knots that it continued the current impasse. Nothing in the certificate system has to create over-compensation, the bogeyman raised by the government.[1] The only over-compensation now is for co-firing and old hydro!
Elements of the new law are also inconsistent with the competition law of the European community and will be subjected to another complaint to the Commission on this count.
Throw this mix into the elections and is it almost impossible to see how all of the new procedures can be enacted and approved in Brussels in 2015. The default case is that the Green Certificate system will have to be fixed to avoid a crisis that would have immediate severe impacts on the state-owned utilities. This can be done by bringing back the previous version of the law written with the state aid rules in mind and informally running it by the Commission as a fix for the state aid problems. This will have to be the first order of business once the decision is announced that the certificates are unlawful from 2005 until now. Without a certificate fix, their use for compliance is precluded and penalties will start immediately on the state-owned companies for missing the renewable quota. Their accumulation of co-firing certificates will be useless for compliance and they will be short the necessary amount of renewable energy in their mix. The financial markets, even the ineffective and collusive one in Poland, will have to adjust to these facts, which will also likely stop or seriously impede new capitalization and borrowing by the utilities. The specter of massive refunds of the aid received will have to be resolved to stabilize the financial market.
RWE coal-fired plants closing in Western Europe
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[1] Previous posts have pointed out that the examples cited by the Government in other countries involved subsidies of 35-52 Euro cents a kWhr (levels enormously more inflated than anyone's proposal for Poland) and levels which were subsequently adjusted down.
[2] I personally think that it is widely accepted inside the state-owned utilities that their long-term competitiveness requires that they ultimately abandon Polish coal (which cost three times more to mine that the competition's surface-mined coal) moving to imported coal to contain costs and simultaneously shift overtime to non-coal forms of energy. This induced period of confusion in the RES sector primarily serves to deter foreign investors and to attempt to set the stage for the state-owned firms to become the RES leaders in 2016 and beyond. A large number of coal-fired plants from the Soviet-era must be closed due to EU emission rules in the next year. Others will increasingly be uneconomic to run at all, especially on expensive Polish coal.
Note: Photograph of Niagara Falls canoeists: my uncle actually went over Niagara Falls as a stunt man in a movie.
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