The Continued Uncertainty in Polish Renewable Energy
Never make predictions, especially about the future.
By now everyone's predictions on the state of the renewable energy support system in Poland are wrong. The new government has gone back to square one and is working on an overhaul of the law passed last April. The European Commission is finalizing a decision on the green certificate program, including support for co-firing and old hydro, and - at the same time - looking into the law passed last April. It is likely that the Commission is discussing the changes in the new law with the Polish Government right now. Adding to the confusion, much of the RES that the new government in Warsaw seems to like is also problematic.
Whether by the controversial law on land use planning - mandating an offset of wind farms from buildings and conservation areas that precludes most locations in Poland from being used for wind energy - or by simply limiting the basket of technology-specific support that will be auctioned under new rules to be announced soon, the Polish Government has successfully blocked wind energy from serious expansion in Poland.
The talk about geothermal energy by the new government seems to be not grounded in any reality that I know of. Our firm looked into geothermal combined heat and power plants in Poland in 2009-2011. The "low enthalpy" geothermal water present in Poland creates a serious inefficiency in the generators used in that sector, i.e. organic Rankin cycle equipment. Higher temperature water may be present, but the network of wells is very sketchy and the expense of going 3000-4000 meters just to check availability and feasibility is prohibitive. The generation equipment is also 30% more expensive in Europe than in the United States (which leads the world in geothermal development).
The co-firing of biomass with coal has been the predominant form of RES in Poland. This is because of its cheap cost, the lack of a need for major facility modification or new equipment, and the large number of coal-fired plants subject to green energy obligations. Co-firing so dominated the sector that it made attainment of the quotas relatively easy but drove the price of the market-based green certificates into the cellar. The EC in case SA 37244 is expected to rule on whether the support for co-firing (which was the same as most expensive technologies) violated the state aid rules. These rules have generally required that state support be correlated to the cost of production of the renewable energy by technology. The new law had proposed co-firing be restricted and receive 50% of the support it historically got. The EC must rule on this issue and any Polish Government plan to increase co-firing will have to be approved before-the-fact. There are good arguments that co-firing is over-compensated even at 50%.
I am, of course, quite happy that the Polish Government has again announced its broad support for biogas. However, I have doubts that they understand enough about the industry to provide the right incentives. The Polish Biogas Association has filed detailed comments on what needs to happen to make the sector healthy and growing. The level of proposed support in the last public document was a maximum auction price of 500 PLN/MWhr, which may be adequate for some projects, but will not support most of the typical Polish projects unless they also receive substantial grants.
It is now 2016 and a typical RES projects requires a good deal of front-end work in the climate of excessive Polish red-tape. A fast track to get a project ready to build is 24 months and a more likely scenario is 36 months. Construction ranges from nine to twelve months. So we are looking at about three to four years for new projects to get approvals, documentation, design, construction and commissioning. With no auction likely this year, this means that unless the green certificate program is extended with EC approval of changes, it is nearly certain that Poland will not meet the 2020 targets.
The problem with co-firing goes well beyond the issue of how much state support it can receive and satisfy the EC. The biggest co-firing plants are also the ones operating on "borrowed time" under various extensions of EU mandates that will close them. A very large amount of capacity is scheduled to close before 2020. Funding for new coal blocks is problematic at this point. Most of the traditional sources of equity and debt are out of the coal business at this point. The announced objective of the EC to get the CO2 fees over 20 Euro per ton simply adds to the abysmal situation for coal in Europe right now. Even at 10 Euro, Polish experts have indicated that it is not economically practical to operate coal plants. Many of the plants that the government assumes will be co-firing will not be built at all.....certainly not before 2020. Those that are built will be in a precarious financial condition that will jeopardize their continued operations. This might even be good news for meeting CO2 reductions, but it will be a disaster if the major RES technology supported by the government is co-firing with coal.
The delays by the former government, intended to allow maximum support for co-firing for as long as possible, have left the new government will little room to maneuver. Instead of tweaking the system to meet their policy preferences, they are looking at fundamental changes in the support system and technology mix. There is unlikely to be enough time for this effort and still remain anywhere near on track for 2020 and even 2030 at this point.
The only alternative that works is to revise the green certificate program adjusted to meet EC requirements. Any auctions for new projects by technology could occur as optional support to developers who want a 15 years guaranteed return. The references prices should reflect the same level of cost of production as the certificate coefficients.
The PBA recommendations on biogas would allow biogas projects to be developed continuously over this period, including both larger waste-related plants and smaller farm plants. There are many good reasons to encourage biogas plants in Poland and not all of them have to do with RES policy.