The new electricity market agreed during the trilogue in the European Union could mean a revolution on the Polish market. The change in the entries regarding the investment stage of a given coal-fired power plant project, where it can receive public aid, in the case of Poland’s capacity market, could result in the deprivation of energy companies that have already spent billions of PLNs on new generation capacities. Ultimately, however, at the conclusion of negotiations, the Polish side managed to ensure that all projects in the construction phase that will win power market auctions by the end of 2019 will receive support. For the project of Ostrołęka C Power Plant and other investments that are at an advanced stage of construction it means the possibility of using this mechanism – writes Bartłomiej Sawicki, editor of BiznesAlert.pl.
The end of the trilogue
An agreement within the framework of the EU trilogue, and thus negotiations between the three European institutions: the Council, the Commission and Parliament, was reached on Wednesday morning. The negotiation process as part of the reconciliation process concerning the reform of the electricity market rules has been completed. The reform includes the possibility of supporting solutions, such as the power market, coal-fired power plants by 2025. The investment stages of projects that could participate in the capacity market were to change. Until the entry into force of the new regulation, ie until the second quarter of 2019, a given investment in a new coal-fired energy block, wishing to benefit from public aid, would have to be at the stage of commercial energy production to seek this support. An earlier proposal referred to the requirement of the final investment decision before construction began. This would mean that the Ostrołęka C power plant will be deprived of support from the power market, and the remaining energy blocks for coal will be at risk. Ultimately, however, Poland will be able to use the capacity market mechanism for all coal-fired power units that will win auctions by the end of 2019, regardless of the stage of implementation on which they are located. Auction for 2023, during which the system is to receive power from the Ostrołęka C power plant, is to take place on December 21 this year.
New electricity market project under the so-called the winter package, ie the set of new directives and EU regulations, for the first time imposes a limit on energy subsidies by introducing a CO2 emission standard in the amount of 550 PLN / kWh for all new power plants. The 550g rule is supposed to be the “cornerstone” of the agreement, excluding state aid for coal. The standard will apply to all new plants as soon as the regulation enters into force. Subsidies for operating coal-fired power plants will not be used in Europe after mid-2025.
The previous round of talks was supposed to break down due to Poland’s resistance, which insisted on maintaining support for coal-fired power plants with the highest CO2 emissions. They receive government funding through so-called “generation capacity mechanisms”, which reward power plants for keeping them ready in order to meet the peak demand for electricity. Such “peak generations” are considered important to avoid interruptions in energy supply in winter, when the demand for it is highest, and without state support would be unprofitable. The EurActiv portal states that according to the negotiators, Poland’s determination to continue providing financial aid to coal power plants after 2030 initiated the attempt to review the proposal. Warsaw finally agreed to the 550g rule for existing coal-fired power plants by 1 July 2025. Miguel Arias Cañete, European Commissioner for Climate and Energy, said he was “particularly pleased” by the fact that a “balanced approach” was established to “limit the efficiency mechanisms and reconcile security of supply with our climate goals”. – Support mechanisms will not be used as subsidies for high-emission fossil fuels, because it would be against our climate goals – he assured.
Power market for 15 years
Warsaw was to receive in return a so-called “grandfathering clause” which protects contracts awarded to energy producers under the national system on the current conditions before December 31, 2019, provided that the stage of the investment decision is reached. Just before the end of the negotiations, it was proposed that the investment would require a commercial launch phase. Ultimately, however, this record was not included. Poland strove to obtain such a clause, claiming that it is necessary to protect existing investments and provide investors with legal certainty. This means that contracts concluded under the power market auctions taking place now will last for 15 years, so as many contracts are concluded. Existing units emitting more than 550 g CO2 / kWh will be able to receive payments under the power mechanisms until July 1, 2025. Poland wanted this option to be maintained until 2030. All contracts for coal-fired power plants launched before December 31, 2019, ie before the entry into force of the regulation, are to be fully respected throughout their validity, without the need to adapt them to the new rules.
The new coal blocks will reach the capacity market
As part of the negotiations, however, the stage at which the given project will be able to apply for the power market support has been changed. Previously, it was the final investment decision. The new proposal assumed a change to the stage of production and sale of energy. This would mean that the Ostrołęka C Power Plant could be excluded from the power market – a new 1,000 MW power unit worth 6 billion zlotys, which construction was formally started in October. The remaining coal blocks under construction, such as those in Opole and Turów erected by the Polish Energy Group and in Jaworzno by Tauron, would have problems with achieving the commercial launch phase before the entry into force of the regulation. The date of commissioning of block 5 in Opole was moved in October this year on June 15, 2019. Before that, it was planned to be launched at the end of May. In the case of Unit 6, the deadline was 30 September 2019. The new unit at 450 MW Turów will be ready in the third quarter of 2019. The new block of Jaworzno Power Plant is to be put into use in November next year. Such a schedule could result in exclusion from the capacity market. Ultimately, however, contrary to the first interpretations, a provision was adopted, which says “of the agreements concluded before 31/12/2019”. Currently, the condition is one – the capacity market auction is won. The auction for Ostrołęka C will take place on December 21.
The Minister of Energy Krzysztof Tchórzewski assessed that “we have to look carefully at the final text set on the trilogue, but I can already say that thanks to the enormous effort of the negotiating team, Poland’s main goals have been achieved. A stable regulatory environment is a key element ensuring an efficient and safe transformation of the Polish power industry. ” The changes must still be adopted by the EU Council and the European Parliament, which seems to be a formality.