Retroactive change shock as Poland confirms 2.5GW tender

Capping green certificates and power price could make 70% of current wind farms unviable, claims industry source

The Polish government shocked its wind industry with plans for a retroactive cap on revenue for operating wind farms, prompting warnings the move would make 70% of existing projects unviable and damage confidence over future investments.

The energy ministry in Warsaw set out the plans in a draft amendment of the Polish renewables act that also contains plans to tender off 2.5GW in onshore wind capacity this year. The tendering volume confirms an earlier report by Recharge last month.

Poland’s wind industry said the tender is overshadowed by the suggested introduction of an 312 zloty ($82) per megawatt hour ceiling for the combined electricity and green certificate price level for already-operating wind arrays.

The monthly base price on the Polish day-ahead market in February averaged PLN213, while green certificates cost PLN118 (up from PLN62 a year earlier), meaning that the combined power plus certificate price currently already exceeds the PLN312 level.

The green certificate system was designed to offer an incentive per MWh of Polish wind power produced, making earlier onshore projects an attractive investment under the support system in place before the shift to competitive tendering that's now underway. But rises in the value of both the certificates and Polish electricity prices have apparently alarmed officials over the total cost, prompting plans for the cap.

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“This would make the situation for investors completely unstable and put revenues under huge pressure,” a Polish wind industry official told Recharge under the condition of anonymity.

“We are also worried about offshore wind projects. No one will invest in such a situation.”

The planned cap on overall remuneration for onshore wind arrays would push some 70% of operating wind farms below profitability levels, the official added.

Almost all of Poland's 5.9GW in operating wind capacity were built counting on support from the green certificate system.

The draft amendment, published on a government website, doesn’t contain a schedule for the tenders. That still needs to be set by Poland’s energy regulator following approval of the proposal by parliament, expected within a month.

Erratic energy policy

Polish energy policy in recent years has been a rollercoaster for renewables. The populist government from the Law and Justice Party (PiS) in 2016 enacted a so-called 10H rule, which stipulates that no turbines can be erected within a distance equal to ten times its blade-tip height from a neighbouring property.

The distance restriction pushed Polish wind additions down from 1.23GW in 2016, to a mere 41MW in 2017 and 15.7MW last year.

But the government surprised the sector when it held a first about 1GW onshore wind tender last November that produced low average prices of PLN196 ($51.61) per megawatt hour.

The 2018 onshore tender was carried out for wind projects that already had construction permits in hand before the distance rule kicked in. The same rule is planned for this year's auction, which would in effect absorb almost all already-granted permits.

The government in a draft of its energy strategy through 2040 had also suggested the installation of 10GW in offshore wind capacity off Poland's Baltic Sea coast by that date, but the wind industry is worried that the frequent changes to legislation may put foreign investors off spending money off Polish offshore projects.

Polish utility Polenergia on the publication of 2018 earnings today said it "does not rule out" the participation of 199MW of onshore wind projects in the upcoming tender this year, but did not mention the planned cuts to the green certificate system for existing projects.

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The utility did, however, stress that an increase in green certificate prices last year, coupled with rising electricity prices, has helped the entire renewables market in Poland and contributed to a 68% jump in the company's shares in 2018.

Polenergia also said the start date for the construction of its Baltyk 1, 2 and 3 offshore wind projects depends on a yet-to-be-passed regulatory system for offshore to enter into force.

Norwegian energy company Equinor last year bought half of Baltyk 2 and 3 from Polenergia, which combined have a capacity of 1.2GW, and state-owned utility PGE is also searching for a foreign partner for its own offshore wind projects.

Unsettling investor confidence through changes to the onshore support regime may keep other foreign players from entering Polish offshore, which already has to battle with possible vessel shortages and nature protection challenges.

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