Energy Renewables 12 June, 2020 10:00 am   

Tarka: future of distributed generation depends on the quality of regulations (INTERVIEW)

Poland’s Renewable Energy Act has not been fully updated to comply with the EU Directive on Renewable Energy, and especially to its second version from December 2018. The deadline for its implementation is June 2021. In theory we do have some time, but that’s just theory. The works on implementation should be ending and not starting – says Michał Tarka, a partner at SMM Legal in an interview with Today distributed energy is part and parcel of the disscussion on Poland’s energy security. Some even foretell that the end of large-scale energy is near. At the same time, others claim that renewables may only assist power generation and cannot be a foundation of the power system. What role will distributed energy play in establishing Poland’s energy security? What form does it perform today?

Michał Tarka: This is a very good question. That role will be huge because the clients’ way of thinking and needs are clearly changing. It is the users of the system who start all kinds of new trends. Clients voice all kinds of needs. It seems that the growing demand for renewable energy sources among businesses and local communities is changing this model of power generation before our very eyes. There is one more argument for cheaper, distributed energy in comparison to power generated with coal. It is cheaper because it is produced on site, i.e. close to where it will be used, so we are talking about smaller losses or the cost of infrastructure, transmission and distribution. This means these two factors suggests distributed energy will play a very important role in the coming years. RES will be aided with gas and maybe nuclear power. This is necessary for the stabilization of renewables, but also in the dispersed model which seems rational. Gas and nuclear power generation support renewable energy sources. Considering the situation on the energy market, EU regulations and the priorities of financial institutions one could say that dispersed energy has been chosen as the direction of development. Large-scale power generation will obviously not die immediately, but will definitely turn to low- or no-emission sources, including gas and in the end, e.g. nuclear energy. This gives us a full picture on the future of energy generation.

There are two ways dispersed energy can be managed – energy clusters and energy cooperatives. Clusters seem more popular than cooperatives. Some believe that the latter mode of operation may be a silent revolution on local markets. What is it about?

We should add to this prosumers in various forms, individual, business and group prosumers. However, our regulations have not been yet fully adjusted to EU regulations with regard to dispersed energy. Currently the users of the system, who are the main driver behind dispersed energy, put pressure on these regulations and in a way adjust the existing law to their needs. This is an important change that would not be possible without those who are currently in charge of drafting the new law, i.e. mainly the Ministrer of Climate and the Minister of Development. A lot has been done, but it’s still not enough. The regulations should significantly elevate the importance of dispersed energy, but they don’t. The Polish Act on RES

Poland’s Renewable Energy Act has not been fully updated to comply with the EU Directive on Renewable Energy, and especially to its second version from December 2018. The deadline for its implementation is June 2021. In theory we do have some time, but that’s just theory. The works on implementation should be ending and not starting. There is a risk that the works to adjust the act to the directive will be prolonged. I am very concerned about this process, but also very hopeful.

Coming back to your question, the existing regulations do not fully support dispersed energy, but for a few small, exceptional attempts at entering this realm, that could be called “a quiet energy revolution,” like for instance the adopted prosumer amendment proposed by Jadwiga Emilewicz, the Minister of Development; or the amendment on energy cooperatives, or the partial regulations on clusters. It is partial because in reality we don’t have a mechanism for supporting clusters yet, which is why they are not working. A support mechanism for energy cooperatives was created in August last year, so they are starting to work just now. We also need to add the Minister of Climate’s draft legislation on balancing sources in an energy cooperative, which will soon enter into force. This document will complete the current legal status making it possible for the cooperatives to develop. These regulations are band new, which means there aren’t enough educational courses on the issues they cover. After the prosumer legislation was introduced it became apparent that the market learned about them after a while because an information campaign was missing. The scale grows only after the potential users learn from users who had already learned about the rules. However, cooperatives are a larger enterprise than a prosumer installation. It will take some time for the first cooperative to kick off. However, we are missing on support for clusters and regulations for prosumers that work as a group at a larger scale and cooperatives in towns. Only after introducing solutions for these three topics, i.e. clusters, groups of prosumers and expanding cooperatives to towns, will it be possible to introduce that which the directive calls energy cooperatives. That’s the moment at which we will be able to talk about completing the regulatory background for dispersed energy based on RES and continue working on its functionalities.

How does Polish legislation define energy cooperatives? What are they? They are new to Poland, but they are already pretty popular in Western Europe. However, there are differences, for instance in Poland a cooperative may have up to 1000 members whereas in Denmark the figure may go up to 60 thousand.

In case of Denmark, it is a number of prosumers who work as a group. These two legal institutions should be thought about separately. While energy cooperatives and group prosumers are two different institutions they do share a number of features. They differ when it comes to the scale and organization method. In Poland, like I have already mentioned, we are missing on regulations for prosumers that work as a group. There have been announcements about implementing these regulations and the directive makes introducing them mandatory. Regulating the work of cooperatives will, in my opinion, be of service to larger users, especially businesses. The definition of a cooperative, or the requirements to set it up included in the act on RES, says that it may produce up to 10 MW. So potentially, it’s a large source of energy. I believe that a cooperative is an institution that could be more likely used by companies, e.g. in economic zones where large companies and big warehouses are located. A cooperative could be dedicated to entities like that, whereas individual users, e.g. home residents should use the possibilities offered by groups of prosumers. This means individual users are more likely to be prosumers, and larger sources dedicated to businesses are energy cooperatives. Cooperatives would be different than in the West where residents are in fact allowed to create cooperatives, but not prosumers who work as a group. In Poland, to give a chance to both groups – businesses that need energy on site, for their own usage, as cheap as possible, without distribution costs and residents, who will have a chance to use energy produced on site, especially in towns, we have a division, which in essence fills the demand for RES in cooperatives.

I believe this is a good regulatory solution. We have two, clear paths for residents and businesses. Businesses cannot be a prosumer above 50 kW. This is a limitation, which stems from the directive, so an energy cooperative is a way out, which seems like a good solution for cooperatives in the two models – on the one hand an energy cooperative and on the other prosumers working as a group, especially in a multi-apartment block.

What benefits does a cooperative offer to its members?

First of all, a cooperative offers a very liberal form of cooperation between members engaged in developing dispersed generation. Because it is based on regulations for cooperatives and a cooperative state, the act and the statute allow for a lot of leeway when it comes to cooperation between members who decide about forms of settling and financing. Let’s say it’s similar to a company contract. The main benefit are significant savings on distribution fees. The main incentive to set up a cooperative is economic. In a word – thanks to cooperatives energy needs to be cheaper and cleaner, as well as more predictable when it comes to energy costs.

Is the three communities demand enough? 

Limiting the capacity to 10 MW means we can only have sources with limited capacity generation, e.g. 10 PV farms with a capacity of 1 MW each. One could consider increasing this cap. During the first period of drafting these regulations nobody has voiced this need so far. Today we are living in a world where large and mid-scale PV projects are being developed, every rural and municipal commune already has some kind of a PV project and other endeavors as well. It seems there are a lot of projects of this kind and that every major company will be interested in purchasing energy from large of mid-scale PV farm. A project within a 3-commune radius will always be available. Of course we could ask if the number of communes allowed to engage in a cooperative is low or high. The point is to make it possible for the distribution system operator to be able to reduce its costs. The further the energy source from the client, the larger the transmission costs for the operator. This is a balancing act between the interests of the distributor and the client. The operator needs to maintan the networks, but it does not get paid. Once the cooperative is up and running it needs to be discovered how this works. It looks like at this point this is enough. Of course, according to the cooperative law, for an energy cooperative to be established at least three companies need to be engaged. So if we want to use an energy cooperative for businesses, we will need at least three founders who will become members. Alternatively it may be just an energy source, i.e. an energy source and two companies or two sources and one company. In reality this criterion is easy to fulfill. When it comes to the 10 MW requirement, then there can be more sources and more than one client. This is quite a liberal requirement.

So a certain paradox emerges. Clusters are not supported in Poland, but we have over a dozen of those, whereas cooperatives do have support, but they don’t function here. Why? Apparently, only one cooperative was set up in 2014.

Yes, it is paradoxical that in Poland there is no cooperative that would completely be in line with the definition from the act. As late as July 2019 the act on RES was amended and the update entered into force in August last year. The update allowed the cooperatives to be set up for an economic reason, i.e. a support mechanism that lowers their costs by eliminating the distributing charge. The paradox is about the fact that a lot of clusters have been established without support mechanisms, whereas cooperatives received the mechanism, but none were established. At one point the clusters were offered support in the form of a competition for certificates. Back then the then Ministry of Energy offered clusters certificates saying they would be first in line to receive funds

Interview by Patrycja Rapacka