RECAI: Country focus
Auctions win this round. On 17 September the Ministry for the Economy revealed proposals for a revised Renewable Energy Sources (RES) law. This would see the GC system phased out by 2021 in favor of an auction system awarding guaranteed tariffs over 15 years. Price competition is likely to be fierce, with cost confirmed as the most important criterion. Separate auctions will be held for projects above and below 1MW, while biomass projects over 50MW, and all biomass co-firing plants, will be excluded.
Existing projects on 2021 countdown. Facilities operating before the law takes effect will still be entitled to support for 15 years, but will only receive GCs until 2021, after which they may participate in separate auctions for existing projects to bid for electricity sale contracts. There will also be a two-year window from the day the law comes into force for operators to elect to switch to the auction system ahead of 2021.
One size fits all. Though GC support will continue, previous proposals to vary the number of GCs by technology have been scrapped, with existing projects continuing to receive one GC per MWh. This currently represents around €93/MWh (US$125) based on a GC price of €48/MWh (US$64) and an average electricity price of €45/MWh (US$60) in 2013. However, September’s proposals will cut support by 50% for biomass co-firing projects and withdraw it completely for hydro plants over 1MW.
Drilling into the detail. Despite clear signals from Government, the sector seems unconvinced. September’s announcement set out only general proposals, yet even these have triggered some hostile reaction. The Director of the Polish Wind Energy Association described the need for existing projects to compete for support after 2021 as “absolutely unacceptable”, while the President of the Society for Small Hydropower Plants Development complained that a 1MW support threshold for hydro is too low given 5MW is typically considered small across much of Europe.
Fixed-price pressure. The absolute fixing of prices through the auction process, without annual indexation, has also caused a stir. Investors will have to calculate prices that will remain profitable for 15 years, regardless of what’s happening in the electricity market or wider economy – an increased strain on project bankability that could threaten investor appetite.
Technology tensions. Another concern arising from the changes is the future of more expensive technologies. The auction system will inevitably favor large onshore wind projects with relatively low capital costs, which conflicts with the Government’s previous ambitions to boost support for solar and offshore wind to 1.8 and 2.8 GCs per MWh respectively. According to the Polish Offshore Wind Energy Association, such announcements quickly led to the creation of an 8GW offshore wind pipeline, but a switch to an auction mechanism could throw the future of Polish offshore and solar into disarray.
Also in this article:
- All change
- GC stabilization
- Heading in the right direction?
- Danger of delay
- Daily reminder
- Shining light
- The clock is ticking