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Piotr Mrowiec

Attorney at law (Poland), Mediator
Associate Partner
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Power Purchase Agreement in Poland

Like in other countries, also in Poland the interest in electricity Power Purchase Agreements concluded directly with renewable power producers (corporate PPA) is constantly growing. The main reasons for the rise in popularity of PPAs include the constantly decreasing costs of renewable energy, the increasing costs of energy generated from conventional sources (which translate into higher electricity prices), consumers' growing environmental awareness (even if this is often attributable to marketing) and the opportunity for a long-term supply of electricity for a price agreed in advance. 

PPA types

Let us have a closer look at the legal framework of such agreements. Polish lawmakers recognise a few types of PPAs, e.g. ‘on-site’ (a producer's RES plant is immediately next to the customer’s plant – a PV system on a factory's roof), ‘near site direct wire’ (a RES plant is located nearby the customer and the power is transmitted over a dedicated direct line, classic ‘off-site’ (energy produced in a RES plant is transmitted to the customer over transmission/distribution lines of the grid operator). ‘Off-site’ PPAs commonly take various forms such as ‘multi seller’ (several RES producers sell power to one customer on the basis of one contract) or ‘multi buyer’ (opposite to the ‘multi seller’ – one producer sells power on the basis of one contract with several customers). At the same time, there are ‘virtual’ PPAs, i.e. contracts for difference signed between the renewable energy producer and the end consumer. The virtual PPA (also sometimes called a ‘synthetic’ PPA) is not a contract for supply to an end consumer but an agreement guaranteeing a fixed and stable power price in a long-term perspective.

Polish laws allow construction of a direct line which the producer will use to supply power to his customer (‘near site direct wire’) by the parties to a Power Purchase Agreement. This allows transmitting electricity without the need to use the ‘public’ grid. A major advantage here is that the parties pay no transmission fees. Please note at this point that a construction of a direct line requires an approval from the President of the Energy Regulatory Office. Practice shows that so far the authority has not been very enthusiastic about the construction of direct lines. The prevailing approach is that production units should be connected to the grid wherever and whenever possible. This practice of the regulatory body steers producers towards typical off-site PPAs.

As mentioned above, off-site PPAs involve the use of operator's grids. The operator is obliged to ensure equal treatment in power distribution for all customers and producers. Moreover, the operator is obliged to make its grid available to the RES producers. The ‘third-party access’ (TPA) rule lets customers buy electricity directly from the chosen producer. In such a case the operators earn a separate fee for the electricity transmission (payable by customers).

Limitations on PPAs with RES producers who enjoy support from the quota system (green certificates) and the auction system

Legal framework conditions for PPAs in Poland are quite liberal compared to legislation in other jurisdictions. However, if electricity to be sold in this model is covered by state aid, you have to take heed of the limitations which differ depending on the support system (quota vs auction). Below you will find an overview of such limitations.

 

 

1. PPAs signed by operators of renewable power plants supported under the green certificate system.

For every 1 MWh of power generated over a term of 15 years – counted from the date electricity is fed into the distribution grid for the first time – investors receive a certificate which they can sell either on the energy exchange or on the basis of bilateral agreements. In addition, they have the option (but no obligation) to sell all of their generated electricity for a price equal to the average sales price for electricity paid on the competitive market in the previous quarter. The producer may sell electricity to a freely chosen business partner for a price agreed with that business partner without losing the right to receive green certificates. A solution where all of the electricity from a RES plant is sold to an ‘obliged seller’ under the green certificates scheme over three quarters of the year, and then directly to the end consumer under a PPA in the last quarter of the year, is perfectly allowable. It is also possible to diversify the customer portfolio, e.g. by selling 70% of electricity from a plant to an ‘obliged seller’ under the green certificates scheme and 30% of electricity from the same plant to an end customer by virtue of a PPA.

Please note that pursuant to Article 49A of the Energy Act, producers of energy from renewable sources are not covered by the so-called “power exchange obligation”. As there are no special regulations on plants which have been using the green certificates scheme so far, producers who sign PPAs with existing plants do not lose their right to obtain green certificates.

2. PPA is signed by operators of renewable power plants who would like to participate
in auctions

For every 1 MWh of power generated over a term of 15 years – counted from the date electricity is fed into the distribution grid for the first time – investors receive a certificate which they can sell either on the energy exchange or on the basis of bilateral agreements. In addition, they have the option (but no obligation) to sell all of their generated electricity for a price equal to the average sales price for electricity paid on the competitive market in the previous quarter. The producer may sell electricity to a freely chosen business partner for a price agreed with that business partner without losing the right to receive green certificates. A solution where all of the electricity from a RES plant is sold to an ‘obliged seller’ under the green certificates scheme over three quarters of the year, and then directly to the end consumer under a PPA in the last quarter of the year, is perfectly allowable. It is also possible to diversify the customer portfolio, e.g. by selling 70% of electricity from a plant to an ‘obliged seller’ under the green certificates scheme and 30% of electricity from the same plant to an end customer by virtue of a PPA.

Please note that pursuant to Article 49A of the Energy Act, producers of energy from renewable sources are not covered by the so-called “power exchange obligation”. As there are no special regulations on plants which have been using the green certificates scheme so far, producers who sign PPAs with existing plants do not lose their right to obtain green certificates.

3. Public aid and PPAs

It should be noted that some renewable power plants were or are being built using significant support in form of aid granted under EU funding programmes or from state resources. The level of co-financing and the payment conditions usually depended or depend on the type of the operational programme normally advertised by the relevant voivodship. Nonetheless, the signing of PPAs is quite safe for operators of renewable power plants who implemented or want to implement their projects based on the CAPEX investment support in form of EU or national grants. Although the Polish RES Act does include provisions aimed at eliminating the so-called over-funding, the provisions apply to situations where aid is accumulated as part of the auction system and combined with other forms of state funding. It is thus admissible to sell electricity under a PPA in the case of power plants whose construction benefitted from public aid.

New renewable energy projects and PPAs, market analysis and outlook

As already mentioned above, PPAs are particularly suitable for existing larger-scale renewable power plants which receive green certificates and can sell the produced electricity in any way of their choice. But a question arises whether this model can be also attractive to developers of new renewable energy projects. First of all, if you analyse the drastic increase in electricity prices in Poland, this question should be answered affirmatively. 80% of the Polish electricity production is based on coal. Due to the enormous level of their CO2 emissions, coal-fired power plants are required to pay a high price for the CO2 emission permits. The price for the „CO2 certificates“ however increased by 250% over the past 12 months alone: from EUR 5 per ton in August 2017 to over EUR 20 (as of 24/08/2018). In combination with the quite significant increase in coal prices, this has led to an increase in the prices for electricity to be supplied next year, from PLN 163 per MWh to over PLN 250 per MWh. In the summer of 2018, the electricity price in Poland was much higher than that in the neighbouring countries.

Electricity market experts assume that this tendency will not change in the coming years. According to the forecast of the European Commission, Poland‘s average electricity price will reach nearly PLN 340 in 2020 and EUR 373 per MWh in 2025 (see illustration 2). If you compare this price with the maximum auction price for on-shore wind (with a capacity of over 1 MWp), being PLN 350 per MWh, then the question will arise whether the support scheme in form of the auction system makes sense at all in the long term. It should be also considered that because the auction rounds have not been organised yet, projects with a total capacity of 3 GW are waiting for development. PPAs can become an opportunity to indeed develop such projects.

If you would like to discuss this topic in more detail or if you are interested in a legal advice in Poland, Rödl & Partner experts from CracowGdansk, GliwicePoznanWarsaw or Wroclaw will be glad to help.

Piotr Mrowiec

04.01.2019