New law on RES – the RES Act signed by the President

After years of uncertainty, on 11 March 2015 the President signed the Act on Renewable Energy Sources (the ”RES Act”), as adopted by the Parliament on 20 February 2015.

The RES Act constitutes a complex regulation relating to renewable energy sources (the “RES”), including RES support schemes. It introduces a complete overhaul of the present RES support system based on green certificates and supplements it by introducing a new auction scheme.

The main part of the RES Act’s provisions will enter into force 30 days after the Act’s publication in the Polish Journal of Laws. However, the new auction scheme will enter into force on 1 January 2016.

We summarise the most significant objectives of the RES Act in relation to the wholesale market below (comments on the consumers and micro-installations related provisions can be provided upon your request):

1             Auction; Feed-in Premium for RES installations with a capacity > 1 MW

1.1         RES installations commissioned after 1 January 2016 will no longer follow the green certificate system, which will be replaced by a new auction scheme.

1.2         Support for RES installations in the auction system will vary, depending on their capacity:

1.2.1        RES installations with a capacity lower than 500 kW will have to execute the power purchase agreements with the certain market players (the obliged buyers) obliged to purchase entire energy produced by such installations for a fixed price established during the tendering process (Feed-in Tariff). The obligation to buy RES energy from these sources will apply for a period of 15 years from the date of the first energy off-take (with some exceptions and limitations), however not after 31 December 2035;

1.2.2        RES installations with a capacity equal to or higher than 500 kW will sell the electricity on the market, but will be entitled to apply to “Operator Rozliczeń Energii Odnawialnej” S.A. (the state agent - the “OREO”) to reimburse the negative difference between the market energy prices (for which the generated electricity was sold) and the energy price established by the winning offer during the auction (the tender price) (Feed-in Premium). The right to have the negative balance reimbursed will apply for a period of 15 years from the date of the first energy off-take (with some exceptions and limitations), however not after 31 December 2035 (or 31 December 2040 in the case of off-shore wind farms).

1.3         Important: in relation to the RES installations described in point 1.2.2 above, the RES Act provides that if the total value of the energy sold during a given month is higher than the value of the energy calculated pursuant to the tender price (the “Positive Balance”), such Positive Balance must be settled during the subsequent  periods as follows:

(i)            it will be set off towards any future negative balances for the following periods (thus an RES installation will not be entitled to demand reimbursement of the negative balance from OREO for such months);

(ii)           the RES installation will have to pay back to OREO any amount of an unsettled Positive Balance within six months from the end of the support period (i.e. 15 years from the first energy off-take).

1.4         The first auction will be organised in 2016. The auctions are envisaged to be organised until 30 June 2021. Introducing such a deadline is connected with the maximum RES support period defined as 15 years and the deadline of 31 December 2035.

1.5         As a general rule, the auctions for energy will be organised by the Polish Energy Regulatory Office (the “Regulator”) once a year for an annual established volume of RES energy. The auctions will be organised separately for RES installations with a capacity above 1 MW and those with a capacity of not more than 1 MW.

1.6         The new RES law envisages a pre-qualification procedure to participate in a tender, which, among other prerequisites, establishes: having zoning conditions/decision, grid connection conditions, final building permits, financial guarantees from banks (or alternatively a payment of a PLN 30 per 1kW deposit of the planned generation capacity).

1.7         In the auction system, the lowest bids win and the auction ends once the amount of energy which was allocated in the auction is exhausted. However, the prices offered in the bids cannot exceed the “reference price” announced by the Minister of Economy. In the event that multiple participants in the auction offer the same price for energy and their bids exceed the total amount of the energy allocated in the auction, the entity which submitted the first offer will win the auction. The auction offer price is subject to an annual indexation.

1.8         The economic costs of the support rendered to RES will be imposed on the final users, who will be obliged to pay a so-called "RES fee". The RES Act preliminarily sets the RES fee at PLN 2.51.

2             Existing RES installations – continuation of the GC support scheme; grandfathering rules

2.1         The green certificate support scheme remains in force in relation to the existing RES installations (with certain exceptions) commissioned before 1 January 2016 and should last until 2035 (as a general rule).

2.2         The existing RES installations will benefit from both the purchase obligation based on a fixed off-take price (established by the Regulator on an annual basis as under current law) and the green certificates for a period of 15 years from the date of the first energy off-take (fed into the grid) for which the green certificates were issued (with some exceptions and limitations), however not after 31 December 2035. It also means that the period of the technical start-up will be counted if the green certificates were issued for the electricity produced during such period.

2.3         Green certificates issued before the entry into force of the auction system remain valid.

2.4         The support scheme remains linked with the obligation of certain entities to redeem the proper amount of green certificates or – alternatively – to pay the proper substitution fee.

2.5         The RES Act directly determines (not through secondary legislation):

(i)            a basic substitution fee to be fixed at PLN 300.03 per 1 MWh;

(ii)           the redemption obligation at 20 per cent of the energy produced (which, however, can be reduced in the future by the regulation issued by the Ministry of Economy).

2.6         The RES Act introduces a mechanism aiming at preventing the oversupply of the green certificates and their subsequent price slump by eliminating the alternative option to pay a substitution fee if the average certificate price drops below 75% of the basic substitution fee (i.e. an obliged entity will not be entitled to pay the substitution fees).

2.7         Existing RES installation will be entitled to opt into the new auction system. There is no deadline to switch, however, once the switch is made the existing RES installation will not be entitled to go back to the green certificate system.

3             State aid

The RES Act provides for detailed rules regarding the calculation of the state aid threshold which the RES may not exceed in their 15 year support period. Installations which exceed this threshold will not be entitled to participate in an auction. Existing RES installations (i.e. those that have produced energy before the entry into force of the new RES Act), which choose to remain within the current green certificate scheme, will not be bound by these rules.

Should you have any questions or would like to obtain more information, please contact us or any of your other contacts at Linklaters.

Linklaters Warsaw Energy Team