Analysis of the special legislative act for the offshore winds farms in Poland
On 15 January 2020, the Polish Government published the draft Promotion of the Electricity Generation in the Offshore Wind Farms Act (the “Draft Act”). Adoption of legislation dedicated to offshore wind farms is crucial for development of the energy sector in Poland, which is in the process of difficult but essential transformation from the coal-based to RES-based system. The Government expects the energy from the offshore wind farms to play key a role in that transformation.
The Draft Act focuses mainly on regulations for the support scheme for offshore wind farms, with some additional provisions relating to the permitting procedure, grid connection and tax.
Support scheme for the offshore wind farms
- Currently, support for the offshore wind farms is regulated under the Renewable Energy Sources Act dated 20 February 2015 (the “RES Act”). The support scheme under the RES Act is – as a rule – based on the auction system, where the winner of an auction sells energy on market conditions but is entitled to cover the negative balance between the market value of sold electricity and its value arising from the auction bid. The term of the support cannot be longer than 15 years from the date of first sale of power.
- The Draft Act sets new rules for support for the offshore wind farms, which can be granted to:
- winners of the auctions organised under the Draft Act or
- producers who secured individual decisions confirming that the support granted constitutes permissible state aid.
- Same as now, under the draft regulations the support will be provided in form of the right to cover negative balance between the market value of the energy and its value arising from the auction bid or from the individual decision issued by the President of the Energy Regulatory Office (the “Regulator”). Period of support will be 25 years following first power generation (subject to the prior obtainment of the generation licence).
- The Draft Act sets out limitation with regard to the quantity of electricity which may be covered by the support scheme. Such quantity (expressed in MWh) may not exceed a product of (i) 100,000 hours and (ii) installed capacity of the offshore wind farm or its part, as indicated in the generation licence (but no more than capacity laid down in the auction bid or in the decision).
- The following key conditions must be met for the Regulator to issue an individual decision:
- execution of the grid connection agreement;
- obtainment of final environmental decision as well as final and valid seabed permit (location permit)
- preparation of a substantive and financial schedule as well as a local content plan (i.e. plan of the investment’s contribution to the local and national economic growth)
- establishment of the auction bid security (in the amount of PLN 60 per each 1 kW of the installed electrical capacity of the offshore wind farm) – in form of bank/insurance guarantee or deposit paid on the Regulator’s account; an
- the incentive effect confirmation.
The incentive effect confirmation, i.e. a formal confirmation from the Regulator stating that the investment would not be developed without the support, is a must-have under the Draft Act. Without the incentive effect confirmation granted by the Regulator, the investor may not secure the individual decision and the draft regulations remain vague as to the specific elements required in such incentive effect giving the Regulator discretion to make the final call.
The price indicated in the individual decision and which will form basis for calculation of a negative balance will be set out in the by-laws to be made by the Minister in charge of energy. Draft of such by-laws has not been published yet.
Individual decisions may cover up to 4,600 MW and should be issued until the end of 2022. Requests for the issuance of such decisions has to be submitted not later than on 30 September 2022.
- Once the deadline for the issuance of individual decisions has passed, the support of the offshore windfarms, in form of the right to cover the negative balance, will be available only through the auction system. Those denied individual decisions can also participate in the auction.
A certificate admitting the energy producer to participate in the auction (valid for 36 months) is issued after completion of prequalification procedure. Auction admission conditions are similar to those relating to issuance of the individual decision, with two exceptions. First, it is not necessary to have grid connection agreement executed prior to auction, and obtainment of grid connection conditions is sufficient. Second, participation in the auction does not require approving the incentive effect of the support.
Auctions are to be held in:
- 2023, for capacity covering the difference between 4,600 MW and total capacity of the offshore wind farms for which the individual decisions have been issued,
- 2025, for capacity covering 2.5 GW,
- 2027, for capacity covering 2.5 GW,
- 2028, only if capacity of the offshore wind farms for which the auction award is granted in 2027 will be below 2.5 GW – in such case the auction will cover that difference on condition that it is equal to at least 500 MW.
An auction may be organised also in following years, if such decision is made by the Government. The maximum (reference) price (PLN/MWh) which may be indicated in the auction bids shall be set out in the regulation of the Minister in charge of energy.
Under the Draft Act, the auction is won by participants:
- who proposed the lowest price (PLN/MWh), if
- total installed electrical capacity indicated in their bids did not exceed (i) 100% of the maximum total capacity of the offshore wind farms determined in the auction announcement and (ii) 90% of total capacity of the offshore wind farms covered by all submitted auction bids.
- The Draft Act generally repeats the four principles from the RES Act, namely that:
- components of the offshore wind farm shall be produced within 72 months before first generation of power from such components;
- electricity shall be generated within seven years following issuance of the individual decision or closing of the auction and provided that the generation licence is obtained (the RES Act refers to the first sale – and not generation – of the electricity within six years from the auction closing);
- if the market energy price is higher than the price indicated in the auction bid or the individual decision, the positive balance must be netted against the future negative balances for subsequent periods (where there is a remaining positive balance after the end of the support period, relevant payment must be made in six equal monthly instalments); and
- price indicated in the auction bid or in the individual decision is decreased by the value of the investment aid granted for development of the investment and is subject to annual indexation (by reference to the consumer price index).
Other relevant provisions
- Under the proposed regulations the first energy off-take set out in the grid connection agreement for an offshore wind farm benefitting from the support may fall only after the seven-year deadline for electricity generation mentioned above. This is consistent with similar rules applicable to installations governed under the RES Act.
- Pursuant to the Draft Act, development of the grid or infrastructure used for the export of the electricity from the offshore wind farm are to be considered transmission network strategic investments under the Preparation and Development of Strategic Investments in respect of Transmission Network Act dated 24 July 2015. It means that real properties located on the territory of the investment designated by the special decision issued by the governor of province (wojewoda) will be expropriated as soon as decision becomes final, subject to compensation (to be paid by the electricity producer).
- The Draft Act anticipates that the administrative procedure regarding permits crucial for the construction of the offshore wind farms will be simplified and accelerated. The above-mentioned permits shall have an immediate effect and shall be (with the exception of the occupancy permits) issued within 90 days. Permit may not be revoked or declared invalid in whole for the reason that particular part of such decision is defective.
- Generation of the electricity in the offshore wind farm will be subject to new tax which is supposed to be a product of: (i) capacity of the offshore wind farm indicated in the licence (expressed in MW) and (ii) amount of PLN 23,000. Tax shall be paid annually, and its amount is subject to the annual indexation (by reference to consumer price index).
- According to the Draft Act, rights and obligations under the seabed permit are transferred by virtue of law in case of merger/division/transformation of the company holding such permit and may be transferred – on the basis of a separate administrative decision - to another entity subject to prior consent of the holder if such entity approves all conditions set out in the permit (unless such transfer constitutes a danger for the environment, national economy interest, security of state, etc.). Moreover, the Draft Act includes rules regarding the amendment of seabed permit which do not exist under currently binding regulations.
- Finally, the Draft Act includes provisions regarding extension of existing seabed permits’ validity period, but they seem to be without much significance since identical solutions were adopted on the basis of the amendment to the Maritime Act dated 21 March 1991, which came into force on 17 September 2019. Pursuant to them, existing seabed permit shall remain valid for 43 years (instead of 35 years) and the building permit may be obtained within 15 years (instead of eight years) following issuance of the seabed permit.
Status of the Draft Act
- The Draft Act was published on the website of the Government Legislation Centre (Rządowe Centrum Legislacji) on 15 January 2020 and it will go under the process of public consultation. Requested entities shall present their remarks within 30 days following that publication date.
- Text of the Draft Act is available here (Polish version only)