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Renewable Energy Sources Act Amendments in Poland – Additional Arrivals to Governmental Legislation Center in June, Continued

Things are gaining momentum. In our post of June 7, 2019, we wrote about the major changes to the draft Renewable Energy Sources Act (RES) posted on the government website on June 5. Not long thereafter, a new supplemented version 6 appeared. We believe one new development is worth our attention.

By Way of Introduction, Freezing Energy Prices in Poland in 2019

It is no secret that energy prices presented to entrepreneurs in Poland skyrocketed toward the end of 2018, and Parliament fast-tracked the law, “freezing” the prices for entrepreneurs for 2019. It may go without saying, but artificially affecting the energy sector in a free-market economy is futile for a very simple reason: the future reality check will be all the stronger. Much as applying tariffs to consumer electricity prices by the EU regulations, doing so is irrational and rather prohibited when it comes to entrepreneurs. Yet this does not change the fact that consumer tariffs have also been artificially kept low, and they will have to surge eventually. Ultimately, this has been the picture after arrangements were made between the Ministry of Energy and the European Commission, which was included in a different energy prices act amendment bill filed with the Parliament on June 7, 2019.

In a nutshell, the list of entities entitled to the “frozen” energy price is to feature only households; social services enterprises and facilities; micro and small enterprises (of up to 50 employees or of income up to €10 million over two years); as well as state-funded entities, including hospitals and schools. The government will compensate these entities up to approximately €1 billion.

Small and medium enterprises (SMEs) will not be entitled to such direct compensation. They will be compensated under the de minimis help mechanism. Sadly, it has a cap of €200k, and it may be used within three years. Nonetheless, this is little consolation to the entities that have recently used this help up for different purposes.

It may be expected that as of July 1, SMEs will be subject to new, much higher price lists – and the situation is not bound to change very soon, be it due to raising CO2 emission allowances prices, which, given that 80% of electricity in Poland is generated in coal-firing plants, will be reflected in the final price.

Dragging SMEs to Energy Transformation

Unable to counter the energy price spikes in Poland, the government has come to a reasonable realization that business might try to tackle high energy prices out of their own pockets – and help Poland near the EU RES quota by the way.

Prosumers – Now Also Entrepreneurs With Installations of up to 50kW

The government has decided that the bill will also include entrepreneurs in the prosumer solution schemes. To date, largely, individuals not conducting business operations counted as prosumers. Version 6 of the RES draft amendment, which appeared on June 7, 2019, features the definition of “Renewable Energy Prosumer,” replacing the term “Prosumer.” As per the new wording of the provision, any entity generating RES electricity of up to 50kW for its own purposes is considered an RES prosumer.

 Simplification and Free Energy Generation Settlement

Prosumers using PV installations (which are definitely the most prevalent) may settle production volumes with the distribution system operator (i.e., obliged seller) free of charge. Connecting the installation to the grid and installing a bidirectional meter necessary to settle the generated electricity is also free of charge. In the case of entrepreneurs, the condition is for electricity generation not be their core business.

Distribution Network as Prosumer Energy Repository

In the Polish prosumer model, the entity in possession of an RES installation generates energy and uses it up for its own purposes, with the surplus transferred to the distribution network, which serves as an energy repository. Such surplus is settled by the obliged seller, so that each kWh transferred to the network entitles the prosumer to redeem gratuitously 0.8kWh (for installations of up to 10kW) or 0.7kWh (for installations of more than 10kW). What is beneficial to prosumers is that they have 12 months to redeem the settled energy. Therefore, they are not running the risk of not using the settled energy (which could pose a problem with shorter settlement periods).

Chance for Investors and PV Park Managers

The cost of a PV installation of 50kW in Poland currently oscillates around €70,000 – €90,000. Many entrepreneurs will find the financial burden of this sort impossible to bear. Nonetheless, given the scale (there are approximately 16,000 medium and large enterprises, and 57,000k small enterprises) and the fact that, more often than not, the installations are left to third-party operators to manage, it will certainly be a great opportunity for third-party entities supplying business with comprehensive solutions as to capital, installations and long-term management. As per the Polish regulations, a prosumer may generate energy for its own purposes using a micro installation, yet it is not obligatory for the prosumer to own the installation.

Outcome – 2019 Will Be a PV Year in Poland

If the anticipated changes make it to the final legislation, the next several years may see a PV installation boom in Poland. The government’s initiative in this regard is highly valuable. This way, enterprises will be able to shoulder some of the efforts to limit energy consumption costs, while at the same time, bringing Poland a tad closer to meeting the RES energy generation quota set by the EU for 2020.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Igor G. Hanas International Investment Lawyer Squire Patton Boggs Warsaw
Senior Associate

Igor Hanas’ practice focuses on the energy and industrial construction sectors, and infrastructure projects, including the PPP model. Igor advises foreign and domestic investors, general contractors and service providers on all aspects of turnkey projects, starting from procurement and negotiations, through financing, performance, corporate and contractual issues and cross border technology import to handover of the investment.

Igor advises clients in regulatory matters including license (concession) issues in relation energy, chemical and...

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