European Commission Readies to Hit Poland Hard on Green Certificates and Market Distortion

The European Commission's Directorate General for Competition is about to announce a decision on the Polish Green Certificate matter, SA.37224 (2013/CP). The complaint to the Commission alleged that the certificates were state aid and had to be notified and approved as such under the European Treaty, Articles 107 and 108. This same viewpoint was internally expressed to the Minister of Economy in 2013 by the head of the Office of Competition and Consumer Protection in Poland. The Commission has apparently told UOKiK that it contends that the certificates are state aid. [An obvious point since every certificate program since 2001 has been classified as state aid by the Commission]. See references in "Why Poland Urgently Needs a New Green Certificate Law," gramwzielone.com [PL]. [English version]. The Commission has the authority to declare state aid unlawful and is required to do so if it is not notified. The failure to notify means that the certificates are null and void since their inception in 2005. The consequences will be devastating without a retroactive legislative fix that is approved by the Commission:

1. All of the state support would have to be returned or recovered. The most logic route would be for the recipients to provide the money to the URE which would refund the customers who have been paying for the green energy premium since 2005. When the French wind tariffs were on the road to being held to be state aid that was also unnotified, claims immediately rose from electricity users in France for the "illegal charges" on their bills.


2. Green certificates can no longer be used for compliance with the green energy quotas in the Polish law. The quotas would still be effective (they are not state aid) but the certificates now used to cover about half of the obligation on utilities would be void for that purpose. PGE and others would immediately have a short-fall in their green portfolio and have to start paying substitution fees or penalties. So they will go from making huge money on RERS via co-firing to losing a lot of money by being short on compliance. 


3. Since the decision by the Commission will rule that the certificates were void from the get go, then there is a good argument that they could never be used for compliance with the quotas from 2005. This would mean retroactive penalties on the utilities for all of the redeemed MWhr covered by green certificates from 2005. 


4. There would be no operating support for renewable energy on any kind in Poland in place. The old law will be held null and void and the new law is being reviewed by the Commission under the same rules. It will have to be approved before it can be effective. The new law has is own problems, including a small auction that violates the competition rules of the Commission.





The only way to repair the situation and avoid most of these consequences is to enact a revised green certificate law retroactively.[1] This, however, will have to be approved by the Commission under the state aid guidelines in effect from 2005 to 2017.


"The only solution is to revive the 2012 draft law with levelized certificates based on costs of production. This is required by the State Aid Guidelines and was recognized as necessary by UOKiK. It will also be necessary to enact the ban of aid to depreciated hydro and anything else fully depreciated now or in the future. Co-firing of any type will have to be justified by its costs of production." Mott's Blog.


In order to be approved under the guidelines in effect for this period, the new law will have to levelize support across technologies based on the cost of producing the energy.[2] The early version of the Polish RES law in 2012 tried to do this and the Institute for Renewable Energy did a report on the correction factors that would have to be applied to levelize support. The Prime Minister's office directly intervened and killed this proposal at the time. Now it must be dig up and should form the basis for an emergency draft law to avoid the consequences described above.


The Polish Biogas Association is leading an effort to get a draft law prepared that meets the Commission's requirements to avoid the impending disaster. Parties interested in this effort should contact PBA. There is a lot of work to do and very little time. No one has any stake is delaying this effort or in making Commission approval problematic.


____________________________________________________________________


[1] …even non-notified aid can – in case for example it has been brought to the attention of the Commission by a complaint – still be authorized ex post, so that aid already paid need not be recovered.” Becker, Buttner and Held, “The Legal Help Desk: Understanding State aid in European law,


[2] This was also pointed out quite clearly the Polish Government by the UOKiK in 2013. UOKiK letter to MG, November 28, 2013:  "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."  See "The Office of Competition Agreed that Notification of Brussels was Required (before the head of the office was fired)."

  

UPDATE: Note that the Commission in May 2015  - SA 37117 - reiterated that the Romanian green certificates were state aid and had to be notified. They also approved modifications on the values of the certificates and support based on technology cost differences. "The Commission clarified that the support granted in the form of tradable "green certificates" involves State aid. The Commission found the modifications to the system, which tighten the criteria as compared to the 2011 scheme, to be in line with EU state aid rules, in particular the applicable 2014 Energy and Environment Aid guidelines." Press Release.  Full decision in English. http://ec.europa.eu/competition/state_aid/cases/257518/257518_1688819_123_2.pdf

Comments

Popular posts from this blog

Hitting Reality: Polish Energy Policy Meets the Facts

Pushing Electric Cars Will Do Little to Fight Air Pollution in Poland

Profitable Niches in Polish Renewable Energy