How We Got Here is Not as Important as Where We Are: RES in Poland

We finally, it appears at least, have a new law on renewable energy in Poland. The process has been ugly, ignorant and often deceitful. Like all efforts at government control of economic activity, it will be full of unintended consequences. The day of reckoning in Brussels has been postponed until now, but not canceled. 

The two biggest issues facing the country in RES are first the transition from one support system to another (understanding that many facilities will continue to have Green Certificates, that the quota system remains in place,  and that auctions in 2016 or 2017 may do relatively little to affect the mix of RES in 2020). This issue also has the enormous problem of revolving around unnotified unlawful state aid in the form of the certificates. This year, Poland will likely get the final notice from the Commission that this has to stop, meaning that another piece of legislation trying to retroactively adjust the current system to EU law will be required. This was not done earlier for two reasons: (A) the co-firing support would have to be at least halved and maybe reduced more to meant the applicable state aid rules; (B) Polish officials wanted to make staying on Green Certificates as painful as possible to push as much as they can into the new system. 

This whole strategy may or may not work depending on the actions of the European Commission. Of course, there is also a big risk of litigation in the European Court if the Commission fails to follow its own rules (which would be a unique development for DG Competition which has normally been apolitical). The hope of delaying the issue of illegal state aid and cost recovery beyond the ten year period of limitation is already crushed. The Commission inquiry in February 2014 tolls the limitations period for recovery of the aid. See Scott SA v. Commission, Case C-276/03 P,  October 6, 2005. See Marc Hansen, "Recent Developments in EC State Aid Law," IBC Advanced EC Competition Law, London, 29-30 April 2004. The issue remains looming and the only question now is can the government avoid the gun fight with Brussels until after the 2015 elections.

How will these changes affect the transition to a new system? Could the Polish Government effectively manage two systems at once even without this controversy?

The second issue is the state aid implications of the new law itself. Experts have predicted that it does not satisfy the GBER exemptions from notification. Some have argued, as I have, that the GBER exemption for renewable energy is so amorphous that it is meaningless. It seems inevitable that either a path of consultations, amendments, or formal notification or all of the these will be followed to fix the problem. It also seems quite likely that this will make the 2016 auction target dates problematic. 

Finally, we can at last see some winners in the new law. On-shore wind appears to be one of them. Its cost of production is dropping and it appears to be the major way the big Polish state-owned utilities expect to remain in business, while they make political decisions on coal that continued to have major negative financial effects on their balance sheets. PV seems to be in balance, it a difficult position in the big auction with head-to-head competition with cheaper technologies (onshore wind). This will decrease over time as PV productivity is on an amazing journey to parity. PV in the small auction will be capped, in effect, by the 4000 hour rule (allowing a limit to be placed on how much energy comes from sources that produce less than 4000 hours per MW per year). PV will likely do well in the basket where it can bid in the small auction based on figures we see from auctions elsewhere in Europe.

The other small auction beneficiaries will be biogas and biomass CHP plants., Because they can produce more than 4000 hours a year. The reference prices set by the Government as long as they are somewhat based on costs of production (which is legally mandatory), will be less important than the size of the 4000 hour basket. We also expect that 25% of the support for projects under 1 MW will be hard to pull off. This is especially true for new small projects which have generally been sailing against a gale force wind for at least the last three years. It is hard to imagine where 250-500 MW of small projects will come from each of the next four years.

Lastly, a word on "lobbyists," who are identified as major villains by at least one of the major parties in Poland. Lobbying the government where its actions affects your rights and livelihood is literally as old as the Magna Carta: "The concept of lobbying in Europe originated in 1215 AD, when King John of England gave the barons the right to petition him to protest any violation of their new rights under the Magna Carta. This right “to petition the government for a redress of grievances” is also the current basis of lobbying in the United States, where lobbying became common practice in the 1830’s. Thus, it can be said that lobbying is originally based on the right to be heard."  LINK.  In Poland, numerous historical examples mirrored or even preceded the Magna Carta, like the liberum veto. The basic premise was that when the state tried to restrict your freedom or property, you had a right to be heard.

This right to be heard takes on new meaning in the complexities of modern society. The people with the most knowledge of a sector like renewable energy, are the people who work in that sector. Literally no one else has much of a chance of understanding how things work. Just listen to a Parliamentary debate on this subject to see how little information actually reaches the politicians. Listening to the sector itself through its lobbyists and also involving other stakeholders is part of democracy. It is a principle reason why hundreds of thousands of Poles died in the history of this country to place us in the position that we are in today.

Defects in the new law are generally related to the failure of this process in a system where Polish politicians are still learning how a democratic government is supposed to work. The biggest villains in the drama have sat in meetings that no one could see and where no records were kept, when the state-owned utilities met with the Treasury Ministry - their owner- and privately decided how they can bend the system to their favor. The public interest is the first casualty and the means of democratic governance  are inevitably undermined. 

Note: I guess that I could not avoid talking about how we got here! 



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