Government Misrepresentation of RES Costs

We are on the final leg of what I call the "Polish Internal Draft RES law," which should be distinguished from the final one that will have to reflect concerns from Brussels.

At this stage, the Polish Government has been all over the map in what they claim about the costs of RES. First, Mr. Tusk told us that the delay of the new RES law was good, because it was saving Polish consumers a lot of money in additional electricity costs.[1]

This is rather an amazing contention, since the rest of the government has repeated told us that the new RES law will save money and lower support paid out! [2]

Which is it? Tusk's explanation for the delay is inaccurate and very misleading. The new Polish draft is an attempt to lower support of most renewable energy technologies. While support for biogas would increase substantially,[3] generally the amount paid for wind and co-firing, the two biggest items would go down. How much co-firing can receive will likely be decided in Brussels, not Warsaw, but that issue is explained thoroughly here in other posts. See "Consequences of Failure to Notify on State Aid"; "Why Poland Urgently Needs a New Green Certificate Law." or in Polish "Dlaczego Polska Potrzebuje Pilnie Nowego PrawaDotycz─ůcego Zielonych Certyfikat├│w."

As long as the current law continues without a new one or the anticipated intervention by Brussels, co-firing and old hydro will continue to receive the vast chunk of RES support now provided and this is actually going up (although a lot of this will be turned off when the old coal plants are legally forced to close after 2015). Most all of this goes to state-owned companies, who are getting a windfall in revenue from it and making several times the profit margin that they make on "black energy." The real game being played is to prolong this level of support for as long as possible and to try to get through the Parliamentary elections without the European Commission blowing wide open the scam involved in the illegal support. Keeping the green support for co-firing coming to make the old coal plants profitable until they have to close at the end of 2015 is also part of the scam.

At the same time, the Polish Government has selected one of the options offered by the European State Aid Guidelines adjusted so that it unduly supports large utilities in public auctions[4] and also discourages smaller firms and projects. I believe it is also intended to scare away potential foreign competitors to the state-owned energy companies.

The reality is that the cases of windfall profits and huge hits to consumers involved levels of support much higher than anything even discussed in Poland. Using a similar certificate system, the United States has achieved 14% RES will virtually no impact on consumer prices. That system, however, encourages competition to the benefit of consumers and the Polish approach discourages competition (putting it politely). The only overcompensation and windfall profits going on in Poland are for the state-owned companies and other coal-fired plants co-firing. Only 75% of the support has been abused, misused and may have to be recovered by EC enforcement action.

In the meantime, the alternative forms of energy the Government has set out as future options (along with miraculously rescuing coal for the the fundamental laws of economics and physics) are increasingly remote and problematic. See "Hitting Reality: Polish Energy Policy Meets the Facts."

The problems all go back to the government's involvement in the energy sector as an owner/operator where privatization would create a more neutral climate where business and technical decisions might more reflect reality.

[1] "Prime Minister responded to the allegations of the opposition on not passing the RES act - It was good from the point of view of the Polish energy that we do not adopted the Law on Renewable Energy Sources, the rules and the political climate in Europe, as well as a fairly trivial belief in Poland for renewables, causes us to adopt a law, according to which we would have very expensive energy, also from windmills far too much in comparison to the real needs." are so many factual errors in this statement that it is staggering. This guy's government is proposing much more wind energy than there already is in Poland, much (maybe a majority) of the new capacity even in the state-owned companies will be renewable by their own estimates, and renewables in many cases are cheaper than the energy Tusk supports (nuclear and modern coal plants).

[2] Presentation by Ministry of Economy; Premier's own website; explanation offered to the Sejm; press announcement. All of this assumes that auctions work, that they are competitive, that bidders file bids and actually construct the projects for the bid amounts. Virtually none of this ever happens in real life. See ECOFYS, Design features of support schemes for renewable electricity,” January 2014 [a wide ranging discussion of the issues under all forms of support]. They describe auctions as still "experimental." For detailed discussion of the faulty assumptions and real experiences, see Mott, "New State Aid Guidelines For Renewable Energy Only Discourage Competition, Green Energy And Energy Security," publication pending European Energy Journal 2015.

[3] The auction would use an adjusted reference price for costs of production. The Commission will also require the same adjustment for Green Certificates. See UOKiK correspondence to Ministry of Economy, June 5, 2012.

[4] ECOFYS illustrated this in their report, cited in note 2. Similarly, Del Rio et al in a 2013 study of all RES auctions conducted worldwide also concluded: “Unfortunately, these theoretical advantages of auctions come at a cost. Due to the complexity of the bureaucratic procedures, and also to the planning required ahead, auctions have higher transaction costs which, together with uncertainties on the final price and the tendering schedule, deter participation by smaller firms, resulting in a low degree of competition and creating opportunities for market power. In turn, this may eliminate the higher theoretical efficiency of this instrument.” ,” Renewable and Sustainable Energy Reviews 35 (2014).  


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