Today, no country can function without electric power industry. This sector of the economy is of strategic importance for any state, hence it is subject to strict regulation, by both domestic and European laws.
This regulation aims to ensure the availability of electricity at reasonable prices, improve operational efficiency and develop the power industry. The introduction of various regulatory mechanisms is to eliminate undesirable operations, including possible disruptions to electricity supply or uncontrolled price hikes that could adversely affect the entire economy.
In Poland, the power market is regulated by the Energy Regulatory Office (URE), which belongs to the central authorities of the government administration. URE regulates the operation of electricity companies in compliance with the Energy Law Act and the assumptions of the state’s energy policy, striving at the same time to balance the interests of each participant of the power market. In 2016, the President of URE decided to uphold the duty to submit tariffs for households for approval, as a result of which trading companies had a limited influence on earned margins in the Sales Segment (tariff G).
On 1 July 2016, the amended Renewable Energy Sources (RES) Act came into force. The aim of the amended act was to remove doubts about interpretation of the provisions of the Renewable Energy Sources Act of 20 February 2015 which had not come into force yet.
In particular, the amendment was intended to regulate the situation of producers of electric power from RES and rules of granting public aid to them. In connection with the above, one of the additions introduced to the act was a definition of prosumer as an end-user who purchases electricity on the basis of a comprehensive agreement, producing electric power only from RES in a micro-installation in order to use it for his or her own needs not connected with the performed business activity.
The regulation also started to be applicable to a wider range of entities, including small and medium-sized enterprises. The support system in the form of fixed tariffs guaranteed for the smallest producers in micro-installations applicable until then was abandoned in favor of the prosumer settling surpluses of electricity produced by the given micro-installation, the so called discounts.
A new support system for electricity producers from RES was also introduced, the so called auction system. Installations established after the amendment came into force may receive support only by submitting a relevant proposal to sell electricity at an auction organized by the President of URE. If the producer wins an auction, they will have support guaranteed in the amount off the offered electricity price for the entire period of receiving support as defined in the relevant regulation. RES installations operating before the amendment entered into force may remain in the previous support system and receive certificates of origin or turn to the auction system.
On 30 December 2016, the first auction of power from RES was held. The order of auctions, permitted auction baskets and maximum volumes and value of power to be purchased were defined in the relevant governmental regulations. A regulation was also issued on calculating the value of public funding for producers of electricity from RES, defining the manner of calculating granted public funding whose amount must be presented in the procedure of submitting an offer to sell energy at an auction.
The Wind Energy Investments Act passed on 20 May 2016 defines rules for locating and building installations of wind power plants. According to the provisions of the act, the minimum distance of a wind power plant from a residential building or a building with the residential function as well as from forms of nature protection and promotional forest complexes; the distance should be also equal to or greater than ten times the total height of the power plant. In the case of power plants existing before the date of entry into force of the above act which do not fulfill the condition of the minimum distance, it will be only possible to do repairs and perform operations necessary to use the plant properly, excluding the possibility of increasing operational parameters of the plant or increasing its impact on the environment. For new wind power plants, locations will be possible only on the basis of the local area development plan. It will be then much more difficult to invest in new installations, not only because of the need to seek appropriate location, satisfying the distance requirement and being in line with the local area development plan.
On 1 October 2016, the Energy Efficiency Act came into force. The new act implements provisions of Directive 2012/27/EU of 25 October 2012 on energy efficiency. Provisions of the act envisage actions to increase energy efficiency by end-users and increase energy savings during its production, transmission and distribution. The market mechanism that is to lead to achieve the aims of the act is a system of energy efficiency certificates (“white” certificates), presented for redemption by energy companies as a proof that they have satisfied the duty to perform projects to improve energy efficiency.
The act abolishes the duty to conduct a tender for the President of URE to select projects serving to improve energy efficiency for which energy efficiency certificates could be awarded. This increases flexibility in selecting efficiency-related investments. In addition, companies will be able to settle the duty in a 3-year period.
The new regulations also assume that the opportunity to make a replacement fee for the failure to satisfy the duty will be gradually withdrawn. An alternative mechanism of improving energy efficiency will be available to companies which use at least 100 GWh per year.
The act imposes a new duty to conduct an energy audit every 4 years. The duty is applicable to enterprises as defined in the Business Activity Freedom Act, except for micro-businesses as well as small and medium-sized enterprises. The group of entities subject to the duty is very wide as it includes any large enterprises, regardless of the industry and the use of electricity, heat or natural gas. The audit is to take into account at least 90% of the energy used. The first audit must be conducted by an obligated enterprise in the period of 12 months of the act’s entry into force.
In the act, rules are defined for the Energy Minister to prepare a national plan of operations for improving energy efficiency every 3 years.
In 2016, the ORM model did not change in the functional area. On the other hand, its parameters changed considerably, which is connected with changing the base to calculate the model. The hourly budget of ORM was increased, from PLN 106.2 to 128.8 thousand, and so was the reference price per hour CRRM – from 37.28 to 41.20 PLN/MWh. The size of the required reserve in an hour increased from 3451.09 to 4155.37 MW/h. The changes to the above parameters did not affect to any considerable extent the prices of electricity on the current market. The average CRR price in 2016 rose by 1.70 PL/MWh, i.e. up to 32.76 PLN/MWh.
Work was done in Poland on a mechanism to form a medium and long-term guarantee of sustaining generation capacities at an appropriate level having regard for the low electricity prices that lead to an inability to take binding investment decisions, thereby possibly generating problems with ensuring the security of energy supply to the National Power System (KSE). At the beginning of July, the Energy Ministry and PSE presented draft functional solutions for a two-commodity market, introducing payments for the readiness to provide supply services or capacity reduction on top of the payment for energy.
After consultations in the industry, on 5 December 2016, a capacity market bill was published. The bill assumes that a capacity market will be created, centralized within KSE, with auctions for capacity supplies or reductions in annual or quarterly periods. Further work on the bill were planned for 2017, and in 2018, the first auction for contracting capacity is to be held; the mechanism itself is to start operating in 2021.
The mechanism is to provide an incentive to build new and to modernize and not withdraw the existing capacities, at the same time creating conditions for development of services of demand reductions – demand-side response (DSR). Costs of the capacity market are to be incurred by end-users through a component of the transmission tariff known as the capacity fee.
On 2 September 2016, an amendment to the Act of 22 July 2016 Amending the Energy Law and Certain Other Acts entered into force. The lawmaker’s objectives are for this law to eliminate the grey market in fuels, strengthen competition on the market and improve the state’s energy security. The amendments introduced by the act primarily concern the market for natural gas and liquid fuels.
The amended act introduced the following changes:
1) An entity importing natural gas is obligated as of 1 October 2017 to maintain mandatory gas reserves. Under current law, the requirement to maintain mandatory gas reserves applies to energy enterprises conducting commercial activity involving import of natural gas from abroad to resell it to customers. Under the amended act, the duty to maintain mandatory gas reserves will apply to energy enterprises conducting foreign trading in natural gas, as well as any other entities importing natural gas.
2) The entities that did not maintain gas reserves will determine the amount of mandatory reserves as the quantity corresponding at least to the 30-day average daily imports of gas in the period from 1 January 2017 to 30 September 2017. The provisions of the Fuel Reserves Act prevailing to date allow for an exemption from the obligation to maintain reserves of natural gas for energy enterprises with fewer than 100 thousand customers and imports of natural gas not exceeding 100 million m3 in a calendar year. This type of exemption has been granted by the Minister of Energy by way of an administrative decision. Under the proposed amendment, the obligation to maintain gas reserves will be absolute, and the possibility of obtaining an exemption will be eliminated. Previously issued exemptions will remain in effect until 30 September 2017.
3) Enterprises conducting foreign trading in natural gas and those importing natural gas will be able to outsource tasks involving storage of mandatory gas reserves – having obtained consent from the President of URE – to another enterprise which conducts business activity involving foreign trading in natural gas, or another entity importing natural gas – such a service is called a “ticket“ agreement.
2016 was another year when the European Parliament continued to work on a reform of the Emission Trading Scheme. The key issues discussed during the works include the so called compensation mechanisms that could be used by, among others, Poland in 2021-2030. These are rules for free allocation of the rights to CO2 emissions for the power industry and for using cash from the Modernization Fund dedicated to investments in the power industry. During the European Union’s climate summit in October 2014, the European Council decided, among other things, that the target reduction of carbon emissions for 2030 is 40% against 1990, while within the installations covered by the EU ETS system the reduction is to be 43% against 2005. Under the agreements adopted then, it was resolved that free allowances for Poland, among others, will not expire and their maximum pool in 2021-2030 should not exceed 40% of all the rights assigned to a given member state.
In 2016, pursuant to the Act of 12 June 2015 on Greenhouse Gas Emission’s Allowances Trading System, actions were taken to launch a national auction platform through which CO2 emission allowances would be sold within the EU ETS scheme. The Financial Supervision Authority gave consent to running such a platform by the Polish Power Exchange (TGE). The power exchange, however, must first win the tender organized by Poland for the operator of the national auction platform.
At present, Poland, as one of three states (the other two being Germany and the UK), in accordance with the Auctioning Regulation (European Commission Regulation No. 1031/2010 of 12 November 2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances), used the possibility of opting out from the joint procurement of the common auction platform and until the target platform is launched, sells allowances through the EEX exchange. Now only two auction platforms make sales of allowances by auctioning – the European Power Exchange EEX, based in Leipzig, organizes community auctions (for 24 EU states and Poland) and German auctions, while the ICE/ECX exchange, based in London, runs auctions for the United Kingdom.
The Ministry of the Environment informed that in 2017 a tender will be announced for running auctions of emission allowances through a national platform. It is estimated that in 2017-2020, Poland will have about 314 million CO2 emission allowances to sell. Considering the above reservation, the division of the pool of emission allowances for sale in particular years is as follows: in 2017 – 71 million allowances, in 2018 – 78 million allowances, in 2019 – 67 million allowances and in 2020 – 98 million allowances.
On 30 November 2016, the EC presented a number of proposals for introducing new directives and regulations and amending selected ones to improve the changes to the EU’s energy policy in the direction of a model concentrated on the customer and clean energy. The whole set of proposals was called the “Winter Package” and has been the largest single change of EU’s energy regulations since 2011, when the Third Energy Package came into force.
The main official assumptions of the present package include: further integration and development of RES, strengthening competitiveness and the role of customer as well as increasing harmonization and integration of wholesale energy markets in the EU. In addition, the Commission counts on an increase in energy efficiency, security of supplies and standardization of rules for managing the energy union.
In practice, the proposal of the “Winter Package”, under the guise of market liberalization, restricts to a significant extent powers of members states in favor of the European Commission and transnational institutions. From the perspective of Poland, the most important provisions concern strengthening of the role of the Agency for the Cooperation of Energy Regulators (ACER), establishment of regional operational centers (ROC) for transmission system operators, establishment of a European organization for distribution system operators (EU-DSO) and introduction of a number of restrictions for member states that would like to introduce a capacity market. In accordance with the proposed regulations, for a country to introduce a capacity market mechanism, it must first agree the rules with neighboring countries, show that inter-system connections cannot eliminate potential shortage of capacity and open the mechanism being introduced to suppliers from the areas of other operators. Furthermore, in the draft document, there is a provision that has never been consulted anywhere that sources emitting more than 550 g CO2/kWh will not be allowed to participate in capacity markets, which in practice will totally torpedo the Polish plans for revitalization of power plants producing electricity based on domestic coal deposits.
The presented proposals, in spite of the declared equal treatment, provide for the possibility of maintaining access priority to the grid for RES or exemption from the balancing duty where it is already in force. At the same time, it is assumed that limitations will be introduced for electric power from biomass (units bigger than 20 MW) in achieving RES targets. On the other hand, the member states whose achievement of RES targets is insufficient would pay funds for the special EU platform. The funds would come, for example, from the sale of emission allowances granted to these states.