Renewable Energy in Poland Slowed Down by Auction Mechanism

When Poland announced the cut-off of green certificates for new installations and the plans to move to auctions, I predicted that there would be a major gap in development of renewable energy sources. The problem is that the auction has to provide a lengthy window for facilities to actually start producing electricity. Cutting off new certificates along with their market demise meant that there would not be actual new production coming on line in the transition period. This situation has occurred now and new RES is only a trickle into the grid.

This will not be alleviated by the existing system of certificates, since the huge over-supply can be used to meet the RES quotas. So Polish electricity producers can meet the RES requirement by stockpiled certificates without any new actual green electricity production. This is fine for the immediate legal environment, i.e. they can be in compliance with the law. 

But Poland has a national target for RES for 2020 that cannot be meet by stockpiled certificates. The theory was that short-falls in the actual RES production would drive up prices and incentivize more RES production. This worked in theory under the certificate system since developers would receive support without any formal government action other than grid connection approval. But with no incentives and ability to put new installations in operation since they can only receive support from the auctions, the system is broken.

Even greatly accelerated auctions, which may occur or not, will not fill the gap because they will only support facilities that will not come on line before 2020. In the best of worlds, some auctions would have provided more capacity before 2020, but not enough to keep up with the targets. Delays in the auctions, rule changes, and the failure to submit the new system to the EU in a timely manner due partly to constant changes in the Polish law have delayed substantial auctioned support for more than two years.

After 2020, with an eye on 2030, higher RES objectives, Poland will still start with a lag in facility start-ups by the use of the auctions, which must and do allow a substantial delay between the award of support and the actual production of electricity. The EU only counts in the end the actual production of green electricity.

It gets even worse, since the largest amount of Polish green certificate support has gone to existing power generation from co-firing biomass with coal and existing hydro plants. This support got by the European Commission probably only because of Brexit after-shocks and the fact that finding it problematic would have resulted in a massive, multi-billion Euro return of the aid granted. But it still means that the bulk of what consumers have paid for in the cost of supplying the certificates did not result in any new electricity being produced.  Inevitably, as economic growth continues to keep power consumption up, Poland has not produced enough of its own electricity to supply domestic needs. Thus, power imports have soared to the highest level in thirty years.   Ironically, all of Poland's neighbors with much higher RES shares in their electricity mix have cheaper electricity.  

Having squandered the billions in renewable energy support on existing electricity producers, the country now faces a shortage of domestic capacity combined with cheaper-priced competition on its borders. Money spent on new facilities would have produced new electricity capacity as well as counting toward the RES target.

The situation was predictable (I wrote on it excessively in the past years along with others). This "I told you so" doesn't help the current situation much at this point. The solutions are all difficult now and will get more so.

The enumerable delays and changes in the law have not only stopped new facilities going on line, but also have had a huge effect on project development. The number of "shovel ready" projects that could be auctioned in the short-term is probably not close to what would need to happen to play catch-up. 

An innovative new approach that is coordinated with the European Commission to provide certainty of the legality of the state aid involved is necessary. Under any scenario, the 2020 target is out of reach.* But without some thoughtful planning, the 2030 number will also be only an illusion.

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* A decisive move to start auctions and keep them coming at regular intervals is the minimum step that can be done. Perhaps allowing new facilities that did not get awarded in the auction the level of support reflected in the bids if they can be commissioned before the next auction benchmark would satisfy the need to use a "competitive procedure" to set the support level, but alleviate the delays inherent in the current approach. It is worth flying this by the DG Competition to see if it would meet the state aid rules. See Guidelines on State aid for environmental protection and energy 2014-2020, (2014/C 200/01)par. 126.