March 1, 2013

Renewable energy law could be adopted this month in Poland

Poland’s new renewable energy law is expected to be adopted by the government by the end of March. However, due to the EC notification process, it is not anticipated to enter into force until mid-2014. Meanwhile, mandatory certification for imported biomass has been suggested.

In the coming days, Poland’s Ministry of Economy is scheduled to present a revised bill for renewable energy funding to the Cabinet. Following the adoption of the draft law by the Cabinet – expected by the end of March – it will be sent to Parliament, where only minor changes should be made.

In parallel, a notification will be brought before the European Commission (EC). Since this process could last up to 8 months, it is believed that Poland’s new renewable energy law will not enter into force until mid-2014, however.

The Polish Government has been struggling for months to adopt its new renewable energy law. A major sticking point has been the level of support to be paid to co-firing from solid biomass in coal-firing boilers, which in Poland accounts for almost 50% of all renewable energy, and around 3 million tons of which is imported annually.

According to Christian Schnell, partner at the Warsaw-based legal firm, DMS Legal, the Environment Minister announced last Monday that there should be mandatory certification for imported biomass.

The EC is also said to be working on a policy for the sustainability of biomass, which includes a certification requirement. A first draft is scheduled to be presented in the second quarter of the year, reports the European Biomass Association. This would then settle the controversial co-firing of biomass, says Schnell, if only for lack of available resources.

The stock of solid biomass in the country is only about 5 million tons per year and is also urgently needed for the pure biomass combustion plants. In Polaniec, in south east Poland, GDF Suez has built a 190 MW power plant, which alone already requires half of the country’s consumption of solid biomass at maximum operation.

Co-firing is mainly responsible for the sharp drop in green certificate prices. These co-incineration plants are mostly operated by the major energy companies in Poland, particularly PGE and Tauron, GDF Suez and EDF.

According to the parliamentary subcommittee on energy, certificate prices have been manipulated on the electricity exchange, states Schnell. Furthermore, the big energy companies, in particular, PGE and GDF Suez, are currently putting pressure on the government to increase quotas for coming years, in order to create more space in the support system for co-firing. Simultaneously, with a nod to falling certificate prices, biomass importers are forcing significant discounts.

Currently, around 15 terawatt hours of renewable energy are produced in Poland. Of this, co-firing of solid biomass in coal power plants accounts for at least 6.5 terawatt hours. Around 2 terawatt hours are also generated from older hydro plants.

Since all of these systems received green certificates, there is currently an oversupply, because the state set renewable energy quotas too low and clearly below the guidelines laid out in the National Action Plan, says Schnell.

In addition, since 2011, this oversupply has been reinforced by speculation on rising certificate prices, because the replacement fee rises faster than the inflation rate and these costs can be passed on to consumer prices. As such, it was worth it for power companies to pay the replacement fee instead of to buy green certificates, since increasing certificate prices could be expected the following year.

Of the current oversupply of certificates of around 5 to 6 terawatt hours, more than half account for this price speculation, says energy regulator URE.

Since early 2012, a gradual decline in certificate prices had been seen, but they sharply decreased at the end of November. While the replacement fee is currently sitting at 286.74 Zlotys (around €61.92, or US$91.88), the price has fallen from a level of around 200 Zloty at the end of November to 100 Zloty in mid-February. At the middle of last week, prices increased to around 130 Zloty.

On the power exchange, only 20% of the volume of green certificates is traded, with the remaining amount sold within state corporations, in particular, under special agreements. Here, market prices fluctuate between 100 and 300 Zloty per certificate.

The Ministry of Economy wants to now put a stop to the market manipulation and introduce a requirement for certificate trading on the exchange.

There are various ways to both prevent consumer electricity prices from rising too high and from market manipulation, including either lowering or excluding hydro and co-firing plants from the support system. Currently, the Minister of Economy, with support from the Finance and Environment Ministers, favors a model, whereby old hydro plants should be removed from the law, and the co-firing of biomass receives just 0.3 green certificates per MWh, instead of 1 certificate until 2017.

Since the marginal costs for co-firing of biomass, depending on plant type, account for between 100 and 140 Zloty, means the end of co-firing for biomass, even with a certificate price similar to the compensation fee. This could result in a considerable deficit of green certificates in 2014 when the certificate overhang is reduced to between 5 and 6 terawatt hours.

As such, significant market opportunities could arise for both wind and, in particular, photovoltaic plants. The Secretary of the Treasury is said to be against this solution, however, says Schnell.

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