Sunday, September 21, 2014
From the interpretation of recent European Court of Justice (now CJEU) in new cases under the Environmental Liability Directive to regulatory changes implementing EU directives, the expert panels will cover the issues that matter to manufacturers in this region. Multiple laws now allow authorities to make waste producers responsible for the final safe disposal or treatment of their waste. Participants will also learn how the major companies reduce their exposure to financial liability and protect their brand names by pro-active programs to monitor their waste vendors.
The meeting is modestly priced and will be held at the Westin Hotel in Warsaw. For details contact: europe (at) chwmeg.org.
Director for Europe, Africa and the Middle East
Tuesday, September 09, 2014
Their memorandum neglects to mention the very important Dutch NOx decision by the European Court of Justice as well as numerous Commission decisions that undermine their premise (that only systems that guaranteed the certificate value with state money are state aid - a fanciful notion that is completely at odds with the case law).
here, on the blog and the references and read the K&L Gates memo and draw their conclusions about the law.
I will simply close with the conclusions of Margaret Anna Krasnodębska-Tomkiel, the former head of the Office of Competition and Consumer Protection (UOKiK in Polish) on June 5, 2012:
"According to the OCCP, the certificate system constitutes state aid. Detailed clarification in this regard has been presented in previous correspondence [citing June 5, 2012 and August 10, 2012 correspondence from UKOK to MG]'. Moreover, similar conclusions have been expressed by the European Commission ...."
 In earlier years, the Commission relied upon the distribution of substitution fees and penalties by the state for failure to have the requisite number of certificates to be selective state aid (whether they were used to guaranteed certificate prices - as in Sweden- or for aid to the industry as in the UK). See references in Note 2. This caused them to consider the entire scheme as state aid to be analyzed for compatibility with the competition rules. Later, after the Dutch NOx case, the Commission stepped upon the analysis to face the very real value of the certificates as a way to defer penalties and fines and to directly provide deferred state revenue to selective businesses. European Commission v Kingdom of the Netherlands (C-279/08 P) September 8, 2011 (NOx). “The tradability of nitrogen oxides emission allowances constitutes an advantage granted by the national legislature to certain undertakings which could entail an additional burden for the public authorities in the form of an exemption from the obligation to pay fines or other pecuniary penalties.” Supra, par. 5. The Commission's decision in State aid SA. 33134 2011/N – Romanian Green Certificates, C (2011) 4938, July 13, 2011, did not hinge on the use of the fees to guarantee the certificate price (as alleged by K&L Gates). “[T]he Commission also observes that by giving green certificates for free to producers of electricity from renewable sources, the State is actually providing them, for free, intangible assets. In fact, the green certificates can be traded on a specific market and by selling them the producers of electricity from renewable resources obtain revenues. The Commission has already found this to constitute aid in the case of emission permits.” Id. p. 13, para. 53 (emphasis added). “Finally, the Commission notes in this context that if the obligated parties do not demonstrate that they have acquired the required number of green certificates, they must pay a penalty.” Id. p. 13, para. 52. Thus, the Commission concluded that “the State provides certain undertakings with an asset, which has a monetary value, and that asset originates with the State which has created it.” Id. p. 13, para. 53
 The UK certificates did not have a guaranteed value and the substitution fees and penalties were used to help other renewable energy private projects. The Commission ruled: “The Commission considers that State resources are involved and also all other criteria of State aid in the meaning of Article 87(1) are fulfilled. The measure would insofar constitute State aid within the meaning of Article 87(1) of the EC Treaty.” Case N 504/2000 — United Kingdom — Renewables Obligation and Capital Grants for Renewable Technologies, p. 13. In the Belgian certificates case, the Commission has considered the fines and substitution fees to be subsequently implemented in Belgium to be state aid. See Hancher, EU STATE AIDS (4th ed.) 2012, p. 860. Nothing is surprising about the Commission's reasoning here. “The constant practice of the Commission is to consider that the proceeds of such levies are state resources .... This practice is line with the Court’s case law, according to which the proceeds of levies imposed by the State, transferred to funds designated by the State and used for the purpose of advantaging certain companies, are deemed to be state resources.” Commission Decision, of 24 April 2007, on the State aid scheme implemented by Slovenia in the framework of its legislation on qualified energy producers — Case No C 7/2005, par 69, (emphasis added) citing Case N 161/04 — Portugal (OJ C 250, 8.10.2005,p. 9); Judgment of July 2,1974 in case C 173/73, Italy v Commission; Judgment of March 22,1997 in case C-78/79, Steinike v Federal Republic of Germany. After the Dutch NOx case, additional factors have been considered to support the Commission's position that certificates are state aid.
[3[ Many of us want investors to come to Poland to put their money into renewable energy. The sooner the Government faces this problem and fixes it - as was done in France earlier this year - the better off investors will be. Leaving the system hanging out there as unlawful aid with a pending Commission enforcement action that has no doubt as to its outcome is not helping clients.
Ironically, all indications are that continuing Green Certificates with direct electricity sales allowed would be the least expensive support mechanism for the public. The irony being that the Polish Government assumes auctions will always net a lower level of support (an erroneous assumption disproved by several countries experiences). The risk are increased to the developer and normally more risks mean higher prices to account for the risks.
The European Commission has estimated that 70% of the Member States have not provided enough support for biogas to be profitable. The prevalent political model has been to support farm biogas plants (normally in the 250-350 kW range). One can quickly see that this is the most expensive way to support biogas development. Pressure on RES support throughout the EU is often trimming support for biogas as well as other renewables (Polish is the exception because we were already so far south!). See red line above. But as this happens, it becomes essential to support biogas from organic wastes and larger sized plants (1-2 M W being the optimum). See HelmutDöhler and Mark Paterson, "Improvement of the technical, economical andecological efficiency of biogas production -future challenges for theagricultural engineering sector ," Club of Bologna (2012); EUAgro-Biogas, European Biogas Initiative to improve the yieldof agricultural biogas plants,"Deliverable 22 (2010).
If Poland wants to get the optimized development of biogas, that cost the least in terms of support and provides the most collateral benefits in waste management and environmental protection, then it should provide for organic waste anaerobic digestion plants from 1 to 2 MW. Allowing these plants to receive Green Certificates and to directly sell electricity to end-users also reduces the price for electricity to consumers as well.
The Polish version of the comments is here. An English version is available on request.
Monday, September 01, 2014
This is ironic in many ways. The Polish Government had a competition specialist heading the Office of Competition and Consumer Protection, who was writing for the last two years on the subject, with apparently no effect except to make the Prime Minister nervous.
Ms. Tomkiel, former head of UOKiK, advised the Ministry of Economy that the certificates were state aid and that they had to be notified and approved in Brussels , which has never happened. She told them that unapproved aid was unlawful and would have to be returned. She advised them that support from certificates would have to be levelized across technologies, which gave rise to the idea of proposed correction coefficients in 2012-2013.
After a year long divorce from reality, some folks are now apparently aware that there is a problem here. No one in government has yet proposed the only possible solution, immediate enactment of a levelized green certificate program as almost was done in 2013, but it is likely that even politicians with no stomach for details will realize the need for this remedy. The plan for delaying all of this until after the Parliamentary elections probably seemed like a plausible idea, assuming that Poland controlled the schedule for the corrective surgery, but that assumption is largely an illusion and one that is now rapidly fading. Without the enactment and notification of a revised green certificate law, the certificates issued since 2005 will be declared unlawful, null and void.
This has sounded far-fetched to the relatively unsophisticated folks who write Polish laws, but their own in-house expert on the subject has told them the same thing. Some MPs are now suggesting that maybe Poland will have no approved support system without urgent action. Soon they will likely realize that it is not just about future support, but everything that has been done since 2005. The work has been done on the legislative fix and only needs to be dusted off and quickly enacted and notified to DG Competition in Brussels. The only issue left is how much blood will be left on the floor by the negligence of the government. State-owned utilities have the most to lose and should be leading the charge to get this fixed, but a rational response has yet to emerge from that quarter.
Friday, August 29, 2014
This growth in US renewable energy largely occurs in state markets that use the residential portfolio system or green electricity quotas. These are implemented by green certificates as used in Poland, Sweden and the UK. The remarkable part about the growth is that it occurs during a period of uncertainly over the federal tax credit as well as in a market with much lower priced traditionally generated electricity than Europe.
Monday, August 25, 2014
The correspondence dated May 23, 2014 discussing Article 177 of the July 2014 version of the law clearly agrees with the earlier assessment that tax exemptions are state aid. This "is state aid within the meaning of Article 107 of the TFEU [Treaty for the Functioning of the European Union]." They also note that the GBER or block exemption rule that the Government is relying upon to avoid notification does not cover the tax exemptions.
OCCP concluded in November 28, 2013:
“In this context, I wish to point out that the exemption from excise duty for RES energy in the Directive on the taxation of energy is optional, and hence the establishment of this type of release is not an obligation of a Member State, but the only element implemented by environmental policies. Bearing in mind that this exemption applies to public funds (depletes the proceeds of excise duty) is selective (only specific technologies are affected), is for the benefit of the beneficiaries (reduced costs associated with running business) and due to the competitive nature of the energy market and the EU dimension affects competition and trade in this market, it should be considered that it is state aid. (emphasis added) “
There is no real doubt about the law on this issue. “State resources are also involved in cases where tax revenues are foregone and where pecuniary advantages are acquired for an undertaking (could include debts deferred), even at no loss to the state. Tax advantages may take many forms including “permanent or temporary exemptions (fiscal holidays), tax credits, reduced tax rates, reduced taxable base, accelerated depreciation, favourable rules allowing loss carry-overs, deferment or rescheduling of fiscal debt, be it unilateral or by virtue of a transaction, other payment facilities, negligence in the collection of taxes, fiscal amnesty and, more generally, the attribution to the tax administration of a discretionary power that goes beyond the simple management of tax revenue by reference to objective criteria.” Cameron May Ltd, The EC State Aid Regime: Distortive Effects of State Aid on Competition Trade, 2006, p.76 See Commission Communication of 22 November 2006 to the Council, the European Parliament and the European Economic and Social Committee: "Towards a more effective use of tax incentives in favour of R&D" [COM(2006) 728 final.
|Saint Bernard's Bluff, Brown & Bigelow|
So besides the Green Certificates that the Commission has already informally indicated to Poland constitute state aid, the draft law now before the Parliamentary committee also includes state aid in the form of tax relief.
The announced decision not to notify the Commission of the new law in violation of the treaty provisions seems increasingly like a bluff. The alternative is too weird to contemplate.
Friday, August 22, 2014
|The Great Polish Train Wreck of 2015?|
The Commission has apparently told UOKiK that it contends that the certificates are state aid. [An obvious point since every certificate program since 2001 has been classified as state aid by the Commission]. See references in "Why Poland Urgently Needs a New Green Certificate Law," gramwzielone.com [PL]. [English version]. The Commission has the authority to declare state aid unlawful and is required to do so if it is not notified. The Commission has at least one complaint on Green Certificates pending which requires a formal decision.
What in the world do Polish officials think will happen?
The only solution is to revive the 2012 draft law with levelized certificates based on costs of production. This is required by the State Aid Guidelines and was recognized as necessary by UOKiK. It will also be necessary to enact the ban of aid to depreciated hydro and anything else fully depreciated now or in the future. Co-firing of any type will have to be justified by its costs of production. After the many times that the Ministry of Economy and even the Prime Minister's office  have indicated that co-firing is overcompensated, this means some sharp reduction or termination of the support altogether. The Institute of Renewable Energy recommends no support based on a wide range of data.
Failure to promptly take up an emergency bill to enact this remedy and to then notify the Commission to repair the system will be one of the most irresponsible actions ever taken by the Polish Government.
 The Commission apparently has already advised the Office of Competition (UOKiK) in Warsaw that the certificates are state aid. See UOKiK correspondence to Ministry of Economy, November 28, 2013: :According to the OCCP, the certificate system constitutes state aid. Detailed clarification in regard has been presented in previous correspondence [citing June 5, 2012 and August 10, 2012 correspondence from UKOK to MG]'. Moreover, similar conclusions have been expressed by the European Commission within the framework of the ongoing process notification of the restoration of the certificate system for high-efficiency co-generation.” (emphasis added).
“Under the Treaty, the Commission is given the competence to determine whether or not the notified aid measure constitutes State aid in the sense of Article 87(1) of the Treaty, and if it does, whether or not it qualifies for exemption under Article 87(2) or (3) of the Treaty. Member States cannot grant any State aid unless it has been notified and authorised by the Commission. Any aid, which is granted in absence of Commission approval, is automatically classified as “unlawful aid”. DG Competition, Vademecum Community law on State aid , 30 September 2008, p. 13 (emphasis added). UOKiK pointed this out to the Ministry of Economy on June 5, 2012.
Thursday, August 21, 2014
While there are a number of energy storage solutions using batteries to store electricity, or devices to store kinetic energy to produce electricity later, one of the renewable energy sources itself has the potential to provide output matched to the 24-hour demand cycle - biogas,
All biogas plants have biogas storage in some form. The most common is shown below:
biogas vendor explained one of the advantages of gas storage:
"Since the gas-store can hold several hours of gas, the CHP unit can be turned down during off-peak generating times without loss of biogas. The stored biogas can then be burned during high-peak electricity demand hours to maximize revenue efficiency. In addition, the gas store provides a steady supply to the generator during peaks and troughs in methane production, thereby increasing efficiency, reducing wear on the generator, and eliminating waste."
While the European Commission background document on energy storage pushes the idea of storage of hydrogen in the future to be used to balance energy production with demand, the same European Commission ignores the potential for doing this with biogas/methane right now. The costs are much lower since the only requirements are more methane storage capacity and more generation capacity. See below. The new state aid guidelines, however, seem to require that all renewable electricity be sold to the grid , where it gets swept up in one flat rate regardless of the time of production. This seems incredibly short-sighted to me, when the whole Commission document is complaining about demand and supply mismatches.
It is quite possible to store methane over-night and run more generation of electricity during the peak day hours. "The stored methane would subsequently be converted by a generator owner in order to dispatch MW power to the grid to supply high demand prices ($/MWh) on the spot market." Stefan J. Minott, Onpeak Market Dispatchable Energy From Megawatt Scale Fuel Cells And Stored Digester Methane, PhD thesis (Cornell Univeristy 2014). This can be done without purification of the methane or any additional expensive processing. As Minott observed, this is easier to do when the facility can sell directly to the end-user. This is the case now in Poland under the Green Certificate program and as long as that system is used, differential electricity pricing is possible.
A variable peak feed-in tariff is also possible, as it done in Ontario. This would require some additional paperwork at the Polish Energy Regulatory Agency, but would allow the technologies capable of "bending" production to do so. Given the huge problems from intermittent renewable energy production and even conventional peak cycles, this seems to be a solution worth serious consideration. Properly priced, such a solution could also foster additional energy storage technical solutions for intermittent producers like PV and wind.
The added costs for a biogas plant would be additional biogas storage capacity and additional generator capacity (which would not be used during off-peak hours). It is already feasible to produce additional peak hour output with direct sales of the electricity produced. It could be feasible to do so with grid sales if the differential were adequate. The direct sales market mechanism seems preferable since it can adjust itself to changes in the market. This should be the preference for both the European Commission and the Polish Ministry of Economy, who both espouse the need for market-based mechanisms (while not always finding them or recognizing them when they are presented). Using the existing differential in market price between peak and off-peak electricity does not really cost anyone anything more. It simply matches the solutions to the problem.
I am eager to discuss differential temporal electricity production with potential direct users, energy sellers and traders, as well as government officials. Poland has the time now to incorporate some sensible solutions into the new law. Under the current Green Certificate system, we still have some time to add the necessary facilities to ongoing biogas projects to provide differential output for direct users.
 More elaborate processing to purify to natural gas quality could be used to develop a commodity that could be sold on the natural gas spot market (as Minott describes and models). But this seems to be a lot of added expensive with little to gain, if the electricity itself can be sold at a premium in the peak hours.
 From the Ontario Power Authority website: "Is there an incentive for peak production? Yes.
- Technologies that are not intermittent (i.e., dispatchable), such as bioenergy and waterpower, will be encouraged to shift production to peak periods when the electricity is most needed.
- Payments will be 35% higher from 11 a.m. to 7 p.m. on business days, and 10% lower during off-peak hours.
- Projects will earn the posted FIT price multiplied by:
- 0.9 for off-peak periods
- 1.35 for peak periods
- Projects will earn the posted FIT price multiplied by:
- Projects that operate 24 x 7 every day of the year will earn the same total revenue as if they had been paid the posted FIT price.