Despite the promises made by the Minister of State Assets last year, there won’t be a widespread compensation scheme for the growing energy prices. The Ministry of Climate and Environment, which is the new host of the bill, withdrew it from the register of legislative work. Instead it proposed amendments to the Energy Law. The goal is to offer the aid to those who need it the most according to the new definition of energy poverty. The proposed amendments may enter into force within the next six months – writes Bartłomiej Sawicki, editor at BiznesAlert.pl.
In early September in an interview with the RMF FM radio, Deputy Prime Minister and Minister of State Assets Jacek Sasin said that his ministry had prepared a bill that would introduce compensation for the increases in energy prices at the beginning of the year, but that the institution now responsible for the issue was the Ministry of Climate and Environment. “I believe that the compensation, like it was announced, should be paid out, especially today when many households and many Poles are facing decreasing wages,” Sasin said in the interview. According to the original plans drafted by the State Assets Ministry at the beginning of the year, a household, which used, e.g., between 1200 kWh and 2800 kWh in 2020, was supposed to have received PLN 190.86 in compensation. However, it has been recently revealed that this solution would not be implemented.
As early as in May, the new host of the bill – the Ministry of Climate and Environment (MCE) suggested in an answer to BiznesAlert.pl’s questions it was planning to come up with a “more systemic” solution, that would last a few years, rather than be a one-time thing. It would be based on helping households struggling with “energy poverty”. Since then, the MCE has been working on the draft prepared by the Ministry of State Assets (MSA).
No widespread compensation
The plan to hand out widespread compensation announced by the MSA won’t launch. According to the MCE, MSA’s original draft was rejected and a new proposal is now being prepared, but it will cover only the poorest households. It is worth reminding that last February, the Government Legislation Center website published a draft act on compensation for increases in energy prices in 2020 as part of public consultations. “However, both the number and the nature of comments that were submitted for consultations, showed that the solution in the draft bill was not enough and that the challenges the end users are facing due to the increased costs require a wider analysis and a preparation of a more thorough solution,” the MCE, which took over the responsibility for the bill from the MSA in the spring, explained. At that point the draft was again submitted for legal and regulatory analysis. Interestingly, the MCE decided that a systemic solution that would work for years to come, and that would be focused on the needs of the most vulnerable energy consumers was the way to go. “This is why the draft bill on compensation for the increase in energy prices in 2020 was removed from the Council of Minister’s legislative and program works register,” the ministry explained.
So what will be included in the new draft? On the basis of what act the changes in energy prices will be proposed? At this point the MCE is working on amending the Energy Law, so that it is in line with the Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity. In other words, there won’t be any widespread compensation, the only MSA bit that will remain in the new law is the desire to protect the most vulnerable households. The above EU Directive obliges EU member states to introduce new solutions for vulnerable customers and to reduce energy poverty.
The definition of energy poverty will determine the level of aid
According to article 29 of the 2019/944 Directive, the member states are obliged to introduce mechanisms that will make it possible to identify end users who experience energy poverty. This is why it is necessary to introduce the definition of energy poverty into national legislation, and provide criteria for determining whether a household experiences energy poverty. “The definition will be incorporated in the mentioned amendment to the Energy Law. It will be general and universal. This will make room for flexibility when adapting support programs for such users in the future,” the ministry explained in a commentary for BiznesAlert.pl.
It is worth asking about the scale of energy poverty. According to the Institute for Structural Research (IBS), 1.3 million out of the 13.57 m Polish households experienced multidimensional energy poverty in 2017. The decision to incorporate the definition of energy poverty into the Polish law, would be a huge change. Providing such a definition would entail the necessity to put a structure on any social benefits. This is probably why formulating such a concept has been so difficult. Because there is no one set definition of energy poverty, the data on this phenomenon differs a lot. The MCE explained that the number of affected households may be different depending on the applied criteria. In 2017, based on the “Low Income, High Cost” indicator, that figure was about 9.57 percent, and in 2018 – 9.37 percent of households. In 2019 the Central Statistical Office of Poland did not publish any data that would allow to make any estimates about this issue.
The Energy Law
According to the MCE, the bill that will amend the Energy Law, will need to take into consideration the 944/2019 Directive, which means it will have to focus on supporting energy vulnerable consumers, who find it especially difficult to meet their basic energy needs. “Therefore, our priority is to strengthen the position of the vulnerable consumer by supporting them financially (modification of the energy allowance) and by introducing tools for non-financial support,” the ministry stressed.
The updated Energy Law will determine how to to increase the allowance and on what terms it can be granted. “The allowance will support vulnerable energy consumers, especially those who are at the highest risk of energy poverty. The bill is still in the making, so at this point it is impossible to precisely tell how big the allowance will be,” the ministry stressed. At the same time, it also points to the fact that one should take into consideration the size of the support that will be directly linked with the number of people affected by energy poverty and, which will be determined, in line with the mechanisms in the draft bill.
It is worth stressing that the MCE is working on improving the efficiency and effectiveness of the energy allowance for vulnerable energy consumers. “The goal of the new solution is to make sure the energy allowance will be available to as many people as possible in households, which are really affected by the difficulties in meeting their basic energy needs and are impacted by energy poverty,” the Climate Ministry argues. The bill that is now being drafted will also make it possible to increase the allowance and adapt the right limits of usage by determining which energy users are most affected by energy poverty. The ministry is also working on new, more efficient ways to pay out the allowance.
When will the new law be introduced?
The MCE told BiznesAlert.pl that it will soon apply for adding the bill to the register of legislative and program works of the Council of Ministers. After that public consultations on the bill will start. The ministry expects that the act will enter into force in mid 2021. Originally the MSA expected the compensation would cost about PLN 2.4 bn, and it was supposed to have been covered from the money earned on selling CO2 allowances as part of the EU ETS. The 2019 compensation was covered with funds from that source. The new solution that the MCE is working on doesn’t have a financing source yet. “The bill on updating the Energy Law is still in the making, so at this point it is impossible to determine the total cost of implementing the regulations,” the Climate ministry stressed.
An alternative solution
It is worth reminding that in May I proposed an alternative solution in my article about energy prices. According to the IBS, 9.8 percent of households are affected by energy poverty. This means the problem affects 3.35 million out of the 38 million Polish residents. This is the group that should receive social benefits in the form of an energy allowance and compensation. Whereas, according to the draft bill on compensation, the financial aid will supposedly be granted to all G11 tariff consumers, i.e. every household. This begs the question about the efficiency of a tool that will be given to everybody, i.e. about 15 million households, instead of supporting only the 1.3 million that actually need the allowance. This year the government is planning to spend PLN 2.4 bn and that money should be given only to those at risk of energy poverty, which would also significantly increase the energy allowance itself. The number of households that were granted the allowance may be only estimated on the basis of the range between the minimum and maximum rate of the allowance. So, in 2017 between 68,356 and 113,913 families received the allowance, in 2018 – 60,946 a 101,787 and in 2019 – 59,031 and 98,425. The ministry estimated that in 2018 only 26 percent of eligible households, i.e. those that had the right to a housing allowance, received the energy allowance. As part of this mechanism, the following sums were paid out: PLN 15.68 m in 2017, PLN 14,09 m in 2018, and PLN 13,70 m in 2019.
On the basis of the above data a few solutions could be proposed. The Ministry of Climate and Environment could give up on the bill on widespread compensation and instead focus on targeted energy allowances that would be higher. The scheme could be bankrolled, as before, with the money from selling CO2 emission allowances. However, it should be borne in mind such a solution would not be permanent. A permanent and stable source of financing should be found in the budget act. The sale of allowances depends on the current volume and price. The number of awarded allowances will be dropping due to the tightening climate policy. The new solution would require changes in earning thresholds, qualification and, finally, a definition of energy poverty included in the Energy Law. Introducing a higher energy allowance would require changes in the Energy Law, as well as designing a mechanism of distribution.
Either way, energy prices will go up by 11-13 percent
As of the 1st of January 2021 Enea, PGE Obrót and Tauron will start using new, higher tariffs for households. The Energy Regulatory Office has determined what tariffs the companies could use for households that use the so-called “official energy sellers”. This is why energy prices will go up by 3.5 percent, which is about PLN 18 annually. The Office has not decided yet what tariffs could be used by the fourth major company – Energa.
So, it is worth taking a closer look at the items on one’s energy bill. An average household uses 2 MWh a year. The average cost is PLN 1.056, including the distribution fee. This is about PLN 88 per month. As of the 1st of January 2021 a new item will appear on the electricity bill – the capacity fee, which stems from a support mechanism called the capacity market. At the beginning of December the Energy Regulatory Office revealed the rates for the capacity fee, which will be introduced next year. For a household that uses between 1.2 and 2.8 MW of power, that rate will be PLN 7.47 a month. The RES fee, which until now was 0, will be increased to PLN 2.2/MWh. Whereas the cogeneration fee will drop to zero in 2021. In 2020 it was PLN 1.39 per MWh, which meant an average household had to pay an additional PLN 3.48 a year.
To sum up, the Energy Regulatory Office’s new 2021 tariffs, the capacity fee and the RES fee will increase the average electricity bill by 12-13 percent. The rates for all of the charges included on the electricity bill have not been revealed yet. The tariff for energy distributors for 2021 is still being determined. Once it is adopted, the rate of the distribution fee will be revealed.
What’s next for energy prices?
What changes will the Ministry of Climate and Environment propose in the end? We will find out once the draft amendment to the Energy Law is submitted to the legislative work register this or next year.