Alert: The New Revenue Cap in Poland – Risk for Virtual Power Purchase Agreements

The draft law on extraordinary measures to address high energy prices that we discussed in our previous alert entered into force on 4 November 2022. The revenue cap mechanism proposed in the draft law has not changed in the enacted law (the “Act”) and poses a significant financial risk to renewable energy producers that entered into virtual power purchase agreements (“vPPAs”).

Here is why:

• vPPAs are contracts for difference with no physical supply of energy, in which an energy producer and an offtaker set an energy strike price and agree to settle differences between the strike price and the market energy price. If the market price is greater than the vPPA strike price (i.e., there is a positive balance), the producer pays the difference to the offtaker, and vice versa. The producer is free to actually sell energy elsewhere, e.g., on the market.
• Between 1 December 2022 and 31 December 2023, companies covered by the revenue cap (e.g., companies producing energy from renewable energy sources such as wind and solar) will be required to pay excess revenue from sold energy (the “Fee”) to a designated government agency on a monthly basis.
• The Act does not exempt energy producers that entered into vPPAs from the revenue cap mechanism. Considering the current high energy prices, such producers will be required to pay both the Fee (based on revenues generated from energy sold) and the positive balance due as a settlement under their vPPAs. As a result, they can lose profit or even incur losses.
• Moreover, the Fee is not a fixed percentage or amount. It will be calculated individually for each energy producer based on daily volumes of energy sold, average contractual or balancing market price of energy and a price limit set by the Government in separate regulation. This calculation method raises uncertainty as to the exact amount of the Fee that will be due throughout the year.
• Finally, the duration of the revenue cap mechanism under the Act (i.e., until 31 December 2023) is not in line with the regulation of the Council of the European Union that serves as the basis for the Act. Under the EU Regulation, the mechanism was set to apply only until 30 June 2023.