After an almost 2-month long wait, the Council of Ministers did not adopt the Promotion of the Electricity Generation in the Offshore Wind Farms Act (the Draft Act), yet again. At the beginning of December the Draft Act will be submitted to the lower chamber of the Parliament (the Sejm). BiznesAlert.pl asked lawyers what they thought about the new bill. A large portion of the Draft Act is still controversial and will have to be clarified by the Parliament.
The Chancellery of the Prime Minister received the latest version of the Draft Act at the end of September 2020. It was version number three. Before that, the document had already appeared twice on the Council of Ministers meeting, but so far it has not been adopted.
The majority of changes pertain to editing and clarifying some phrases. The authors clarified network codes and other EU regulations, where harmonized definitions appeared. The definitions of the set of devices needed for the evacuation of power and of the owner of those devices were added.
In comparison to the previous two versions, the third variant which will go to the Sejm, has two new definitions on the set of devices used for evacuating power from the offshore wind farm to the grid. The draft did not introduce any changes as to splitting the support scheme into two phases. The support period will last 25 years from the moment first energy is generated. By paying the so-called RES fee, the end users will cover the support system’s operating costs.
Support scheme for the first projects
In line with the earlier plans,only projects with a total installed capacity of 5.9 GW will be able to take part in the first phase. The offshore farms will acquire contracts for difference on the basis of a decision made by the President of the Energy Regulatory Office (the Regulator). However, before this happens the support will need to be approved by the European Commission. A project will have to be first submitted to the Regulator by 31 March 2021. Once that happens, the Regulator will have to issue initial decisions by 30 June 2021, and approved projects will move on to the European Commission.
In the following years, the support will be awarded in the formula of competitive auctions – “pay as bid”. The legislator mentions three deadlines: 2025 (2.5 GW), 2027 (2.5 GW) and 2028 (at least 0.5 GW). The final level of support for specific offshore projects will be determined by the Regulator. The subsidy will not exceed the maximum price, which is set in the regulation of the Climate and Environment Minister, neither will it go over the prices set by the European Commission in its decisions for specific projects.
“The applications go to the European Commission, which will, in general, approve the level of support. But this does not end the process. The application goes back to the Regulator and on the basis of its own calculations and an auditor’s opinion, the Regulator will determine the final level of support, which may be lower that the one approved by the EC. This may be controversial, because the final word will belong to the Regulator, not the EC. The Energy Regulatory Office President may lower the level of support. There is some controversy here, and the EC may have reservations about these proposals,” Karol Lasocki, partner at DWF Poland, told BiznesAlert.pl.
Interestingly, the latest version of the draft replaced the requirement to calculate a tax on the basis of a formula with a fee. Companies that will generate power in offshore wind farms will not only pay the standard concession fee, but also an additional payment, which will be equal to the capacity of the farm multiplied by a coefficient, which is not higher than PLN 23 thousand per MW.
The previous idea was that there would be a tax on offshore wind farms, similar to the property tax. However, in the latest version of the Draft Act, the tax was replaced with the concession fee. “The fee will constitute the sum of the previous concession fee and an additional amount calculated per every MW. It will be calculated on the basis of a coefficient that will be published in a regulation. It cannot be higher than PLN 23 thousand per MW. This change results from the special legal status of the special economic zone,” Lasocki explained.
Option to purchase or right of pre-emption
In case of the connections between the wind farms and the grid, i.e. “a set of appliances used to evacuate power from an offshore wind farm”, the “right of pre-emption” that the grid operator had was scrapped. It was replaced with the obligation to inform the operator about the intent to operate the devices used to evacuate power from the farm. This is to be the basis for negotiating a transaction. The draft determines when the grid operator has the “option to purchase” the connection.
“The changes pertain to the right of pre-emption, which replaced the option to purchase. The grid operator will be able to buy the devices, which will be used to evacuate power from the wind farm. The investor builds part of the connection and is able to sell it to the grid operator. The right of pre-emption has a legal definition, which says that the sale needs to be first proposed to the entity that has the right to purchase – in this case that is the grid operator, or the distribution network operator. Whereas the previous choice, i.e. the option to purchase was more flexible, as it could be activated at any time, not just when the current owner decides to sell the devices; additionally it left the issue of price open. The right of pre-emption is more precise when it comes to setting the price (replacement value) and the rules on using this right. So, the revised new law was clarified, which means better predictability for both sides,” Robert Zajdler, PhD., expert on energy and partner at ZEL&C, explained in an interview with BiznesAlert.pl.
The connection requirements were expanded as well. The regulations governing the initial connection requirements were made more precise to remove any doubts on what installation should be connected. “Issues related to the subsidies, which depend on the installed capacity, their form and terms, were also clarified. It was stipulated that wind farms with a total capacity of 5.9 GW will participate in the first support scheme,” Zajdler pointed out.
Moreover, when it comes to the regulations on the connection requirement it is possible to acquire initial connection requirements if the connected load is determined. “If an application to connect is submitted, the operator may refuse due to the lack of capacity. Since the operator can refuse, the new regulations allow it to decide what to do to connect the new farm and expand the connection. In this case, the decisions will be issued even if the available connection capacity is insufficient, but provided that the network will be later expanded. This is a nod to the investor,” Robert Zajdler stated.
The rules on the supply chain and on certification for wind farms were also clarified. “The important thing about the connection requirements from the point of view of the energy law, is the fact that in case the application for connection requirements is rejected, the Regulator has the power to settle the dispute. In practice, in similar situations the Regulator often refused to make the decision and sent the parties to court. Responding to the application took months. In the Draft Act it has been stressed that the Regulator is obliged to handle the dispute within 30 days,” Zajdler said.
Details were also added on the participation of environmental organizations. The majority of this process pertains to administrative law. Environmental decisions are related to a special legislative act. In such a proceeding, environmental organizations are often treated worse when they voice their concerns. In this case their rights were limited a little – the decision is immediately enforced, so one can only appeal against it. Limiting the rights of environmental organizations raises concerns. This issue may still be negotiable, as it may create controversy in the context of the European Green Deal which gives an important role to such organizations.