Mott's Blog

Any day now we expect the European Commission, DG Competition, to announce its decision of the Polish green certificate system as state aid.  Several issues will be addressed and possibly some complex cost recovery issues raised but not entirely answered. The thrust of the complaint in SA 37244 was that support of co-firing was too much and was out of line with the cost of production via that technology. This fact was admitted by the Ministry of Economy and even the former Prime Minister's website. In addition, the support for old hydro plants that were built many years ago was attacked as illegal or incompatible with the rules, since the law precludes providing operating support for projects already fully depreciated.  Much of the law is set out in earlier posts on this blog. Taking the incontrovertible facts about co-firing and old hydro, it appears that co-firing might get a 50% retroactive*  reduction (maybe more?) of aid already provided in line with the adjust...

At this point, there is a real shortage of organizations and people who want to discuss the European Commission enforcement case on green certificates and their review of the new law in Poland. Due to lack of sponsors and reluctance of folks to even agree to discuss the topics, the planned event to publicly explore all this stuff has to be cancelled. I am, however, able to discuss the issues and review what the decision means with individual clients willing to retain me for this purpose.  The consequences of the EC action will be sweeping and complex. I am sure that the professional conference companies will schedule something on these issues in the coming months, but they will likely have speakers without much in-depth knowledge of the subject and/or speakers not willing to honestly discuss the implications and issues.  

It will be necessary to re-write the Polish Renewable Energy Law that was adopted in April 2015 to meet the objections of the European Commission. Major provisions that will have to be changed to meet the Commission's consistent position in approving other certificate schemes include the following: 1. Prevention of Over-Accumulation :  This will require that certificates be used in a fixed time period. This could theoretically wipe out almost all of the accumulated certificates now being held. Note: the old hydro certificates will be null and void in any event under the depreciation rule. The co-firing certificates will otherwise likely be valued at 50% or less, even if they are allowed to accumulate. 2. Correction coefficients : The value of the certificates will have to be adjusted by the cost of production of electricity for each technology. The adjustment must assure that there is no over-compensation of technologies such as co-firing. Arguably, only the technologies in...

Ninety-nine percent of the Polish Government has been lying to us or is so uninformed that they do not know the difference. Poland's state support of renewable energy from 2005 to date (old law and new law) are state aid under the European Treaty. No doubts and no qualifications. The only Polish leader who was honest and professional in their opinion on this was Malgorzata Krasnodebska-Tomkiel, head of the Office of Competition and Consumer Protection (UOKiK), for several years.[1] Before the Prime Minister fired her and replaced her with an English teacher, she also was clear that elements of the new law were also state aid. Tomkiel was fired on a Monday that followed the Friday on which the Prime Minister's office received notice of the complaint about the green certificate system from the Commission. This does not mean that the aid under the old law or new law is wrong,, only that it has to be reviewed for consistency with state aid rules designed to minimize the distort...

While the Commission communicated to the Polish Government in 2013  that it considered the Polish Green Certificates to be state aid, requiring notification of the Commission and approval under the 2008 guidelines, the Polish Government has repeatedly denied this fact. Now in the new law on RES, Article 39.2 requires that certificates and other forms of support be added together to determine if the state aid limits on support for an individual project would be exceeded. This reflects the fact that the Polish Government has known for years that the Green Certificates are state aid. The Commission has decided that green certificates are state aid in every case before it (earlier based on the substitution fees in various Member State laws and later on the certificate as a valuable asset itself). See  DOUBLING DOWN ON A JUNK POKER HAND: THE POLISH GOVERNMENT APPARENTLY INTENDS TO IGNORE ITS TREATY OBLIGATIONS ON STATE AID , Mott's Blog, June 7, 2014 (detailed references and...

Losing the ability to sell electricity much of the time to renewables, the coal-based energy sector has come up with a new mantra: capacity markets. This requires that consumers and/or taxpayers pay to have the old fossil fuel plants sit there and "be available" for peak needs. This will cost the German dearly, annually over ten billion more than assumed. Using coal plants as "peakers" to meet the highest part of the demand cycle is very, very inefficient. As costly as energy storage is now according to its skeptics, it is still more cost effective than using fossil-fuel peaker plants! The Edison Electric Power Research Institute reported a benefit to cost ratio over one for nearly every technological scenario.  “ Cost-Effectiveness of Energy Storage in California,”  Application of the EPRI EnergyStorage Valuation Tool to Inform the California Public Utility Commission  Proceeding R. 10-12-007  3002001162  (2014). One has to speculate that the state aid gui...

Increasingly it appears that the new law on renewable energy will not be in effect until substantially later than the latest government prediction. This is no surprise, since the government has been promising a new law within six months for the last two years.  Final approval by both houses of Parliament will go over into 2015, an election year, which will make final consensus difficult. The final figures for renewable energy production and investment for 2014 will reflect the uncertainty and doubts in the market. Perhaps the fact that investors are lined up to invest in Poland in this sector (perhaps as in no other sector) and are only blocked by the government, will leak into the elections themselves. The fact that electricity bills for everyone are higher than legally permitted by the inclusion of subsidies for co-firing and old hydro would seem to be a political liability. Much of this support does nothing to help compliance with the 2020 target, since it is either superfl...

Cavalry Charge Saves the Day! Once Poland enacts the new renewable energy law, unless it is changed, there should be a challenge in Brussels to compel the Polish Government to make necessary changes due to the state aid rules. Some of the arguments can be: 1.  The treatment of prosumers ( only 80% of the grid price for electricity sold) is discriminatory and arbitrary. It is anti-competitive and distorts the market in favor of large producers; 2. Forcing projects under 1 MW to go to an auction is unfair, anti-competitive and will promote market concentration by reducing or eliminating small RES facilities;                                                                                                         3. The...

The Great Polish Train Wreck of 2015? At this point the Polish Government has apparently made a decision to not notify the Commission on the Green Certificate system. Since there is absolutely no doubt that it does constitute state aid and the Commission has informally signaled that to the Government, it is probably a good time to ask what will happen next. This will be such a disaster that the Government will have to back off its current stance. There is simply no alternative. State aid that is done without notification is unlawful and must be recovered from the recipients.  See CELF case (C-199/06) European Court of Justice, February 12, 2008. .   “ In cases where Member States do not notify the Commission of its plans to grant or alter aid prior to such aid being put into effect, the aid is unlawful in relation to Community law from the time that it is granted.”   Notice From The Commission , “Towards an effective implementation of Commission decisions orderin...

August in Poland. The politicians are doing what they do best... taking a break. During this period of inattention, it might be useful to compare what the Polish legislature  is doing on renewable energy compared to the French legislature in the same situation (albeit less severe in France). The French did not notify Brussels of their wind tariff in their renewable energy law.When the preliminary memo came out that the European Court was getting ready to find the wind tariff to be state aid, everyone was quite attentive to the possible consequences. Unnotified and unapproved state aid is illegal in the European Union .  Legal commentators noted that once the case got back to the national, French court, it " essentially has no choice but to cancel the preferential feed-in tariffs to wind power producers agreed to in 2008, likely resulting in massive refunds for consumers. France can expect down-stream lawsuits from wind power producers as a result of government FIT adjus...

   Maybe the Polish policy-makers thought that a renewable energy law had to keep being renewed?    More delays have emerged in March as the "legal commission" made its changes and now the local government organizations and the environmental committee weigh in. The biggest external source of pressure for changes is undoubtedly the European Commission, on two fronts - the DG Competition that determines what state aid will not distort competition (which has not been an unintended consequence in Poland but part of the design of the law) and the DG Energy that determines if the law meets the transposition requirements of the Renewable Energy Directive.    The delays seem to be inevitable, since major interests were locked out of the deliberations and the successive drafts were all prepared in secret and largely ignored the consultation period inputs. Several political miscalculations have also been in play, i.e. the ruling coalition assuming hat green ene...