We are confident that this year’s auctions on the capacity market will be held on the old rules. Can the same be expected by the end of 2019? After the announcement of the outcome of the negotiations, interpretation doubts arose, although they are diluted in favor of, among others, Poland. Except for exceptions, new coal units after entry into force of the Regulation, i.e. in Q2 2019, will not be allowed to participate in capacity mechanisms, they will be excluded by the emission standard of 550 g / KWh. It means that they will not be supported anymore. The existing ones, which will participate in the auctions after 2019, will be able to use the support until 2025. The derogation from these rules will apply to obligations and contracts concluded by the end of 2019 within existing mechanisms in force in several EU countries, including Poland. This sets the direction for the transformation of our electricity market and what is most important sets a specific time frame for the modernization of the sector – says Paweł Wróbel, former director of the office of the Polish Electricity Committee in Brussels in an interview with BiznesAlert.pl.
BiznesAlert.pl: On Wednesday, the trilogue concerning the last element of the so-called Winter Package, and therefore regulations and directives regarding the electricity market in Europe. What was the game about?
Paweł Wróbel, former director of the office of the Polish Electricity Committee in Brussels: After several hours, or perhaps the longest trilogue in the framework of the “Clean Energy for Europe and Europeans” package, negotiations on the directive and regulations concerning the electricity market have been concluded. The most emotions, due to the emission limit of 550g / kWh, were raised by the provisions referring to the capacity mechanisms, ie article 23 of the negotiated regulation. From the point of view of the Polish sector, the most important thing was what the administration and representatives of the sector have emphasized since the beginning of the process. A large threat regarding the emission level of 550g / KWh was pointed out. The vast majority of Polish capacities, due to the nearly 80% share of coal in the generation of electricity, would be excluded from the possibility of using the capacity market. Let’s remember that Poland is just introducing this mechanism. The European Commission positively notified the Polish power market in February 2018. The power market in its current shape has been negotiated as a result of dialogue with the Commission. It also means that the Polish power market is fully in line with EU aid rules. This gave a strong bargaining chip in the field of market design negotiations.
The favorable position of the EU Council, the so-called General Aproach, from December 2017, was also an important element of these negotiations, due to the first time that the need to guarantee rights acquired for capacity mechanisms already approved by the European Commission was recalled. During the last trilogue, the talks concerned mainly the clause of maintaining acquired rights and the transitional period, i.e. its length, and whom it would cover, so what will define the division into new and old units.
Probably the most important point of the trilogue negotiations concerned the so-called clause of grandfathering. What is it?
Grandfathering concerns acquired rights, within the existing power markets, in those countries where such solutions exist, for example in Poland, Great Britain, France, Italy or Spain. Remember that this mechanism has not been introduced everywhere. There are countries where it is being introduced, and at the same time there is a discussion with the Commission regarding the shape of the rules for providing assistance. In this case, it’s about Greece. Thus, the case concerns acquired rights related to commitments made through existing capacity markets, which were introduced on the basis of the previously existing provisions, which this limit EPS 550 (CO2 emission standards. The proposed limit of CO2 emissions per kilowatt hour (kWh)) did not assume.
What does the compromise assume then?
Paragraph 4 of Article 23 makes it clear that the contracts and obligations that will be concluded by the end of 2019 will be excluded from the EPS 550g / kWh emission level regulation. In the situation in Poland, we are sure that the results of the auction in 2018 will not be affected by the new regulations. This applies to all auctions in all EU countries that will be carried out by the end of 2019. Therefore, it applies, to put it in a nutshell, a derogation, that is to exclude 550g from writing.
And the record of the need for commercial energy production when it can take effect?
Here, in fact, some doubts were raised just after the trilogue ended. They concerned the interpretation of the period between the entry into force of the Regulation, i.e. the second quarter of 2019, and the end of 2019. In contrast to the directive, the regulation is directly adapted to the legislation of a member state. It therefore applies automatically. In accordance with points 1 and 2 of article 23 of the Regulation, from then on all auctions and on all capacity markets, there will be a provision stating that new units are those which are to provide energy before the entry into force of the Regulation and will be from the machine covered by EPS 550g. At the same time, point 4 of Article 23 indicates the protection of acquired rights of all obligations and contracts concluded until the end of 2019.
The minister of energy said it would be possible by the end of 2019.
Yes, however, there were voices from Brussels expressing some doubts whether this would actually be the case, considering that this regulation comes into force automatically and this may already happen in the second quarter of 2019. This may be due to differences in interpretation. In addition, the notification decision taken by the European Commission states that Poland, like other countries, must comply with the revised Regulation. It is worth adding, however, that most experts argue that auctions taking place on the old rules will be possible until the end of 2019, as the energy department assures. The official interpretation of the regulations on the part of the Commission would ultimately raise doubts.
The Poles were to strive for derogations from EPS550 to operate until 2030.
In fact, the postulate of the longest possible derogation was raised from the beginning of the negotiations. However, this is a compromise that in the case of one postulate you must give up the fight to the end, so as to push another. From the Polish perspective, the so-called Grandfathering clause. This was the most important record for the Polish delegation, the introduction of which was achieved. This is undoubtedly the success of Polish negotiators representing the government, as well as Polish MEPs participating in trilogs. Installations that win the auctions in 2018 will be able to use the power market, regardless of whether they will be ready to provide energy on a commercial basis before the end of 2019 or not. Auctions have already won new blocks: Nowe Jaworzno, Turów and two new blocks in Opole. These are the largest investments in new capacity, which are currently being finalized in Poland, which is why their share in the capacity market is so important. Therefore, contracts for 2021 will be valid for 15 years until 2036 and will not be covered by the new regulation.
And what about the new block of Ostrołęka Power Plant, whose construction has just begun?
If Elektrownia Ostrołęka C wins this year’s auction, it will be treated under the same conditions, despite the fact that it will not supply energy for next year. In the case of Ostroleka, the key will be that it is to provide power within the possibly winning auction from 2023 for 15 years to 2038. Ostrołęka, in order to receive support within the power market, after winning the auction, it must be built and commissioned by 2023, as this will be the auction obligation. In this case, the regulation will not interfere with these obligations.
We have mentioned who this regulation will not touch. Who, then, can be afraid of its content and from when?
All new generation capacities that will participate in capacity market auctions from 2020 will be covered by the EPS 550g limit. This excludes new coal installations because they will not use the power market. Existing coal capacities, according to the definition, will be able to close contracts only until 2025 and will be able to be financially supported and receive support only until 2025. This very clearly defines the time frame for energy transformation in Poland.
In conclusion, I wanted to ask about legal and interpretation doubts. A few weeks ago, information appeared that the British support model was questioned by the Court of Justice of the European Union. Can doubts about the Polish capacity market and the last trilogy be resolved by the CJEU?
Complaints to the CJEU on the power markets in other EU countries, including Poland, after what happened in the case of Great Britain may appear. This complaint concerns a completely different aspect, i.e. discrimination of the participants of the mechanism (in this case the so-called Demand Side Response, DSR). Fortunately, the Polish power market at the time of its formation was discussed with the European Commission, so as to ensure that it will be fully in line with EU regulations, including aid rules. The effects of this cooperation paid off at the end of the negotiations, which the EC was one of the parties at the table.
Interview conducted by Bartłomiej Sawicki