Friday, April 18, 2014

THE PROPOSED LAW CREATES UNECESSARY BARRIERS TO BIOGAS DEVELOPMENT

   The Polish Government continues to talk about biogas development, especially in rural areas at the community level, without regard for the provisions of the law that they have proposed.  There is simply no way the draft as proposed will result in the large number of biogas projects still suggested as the government’s goal. Ironically , the changes necessary to make the law truly pro-biogas are not extensive and will actually have a positive economic impact on consumers and the public. Why these changes cannot be done by amendment still remains a mystery.


 The Polish Government continues to talk about biogas development, especially in rural areas at the community level, without regard for the provisions of the law that they have proposed.  There is simply no way the draft as proposed will result in the large number of biogas projects still suggested as the government’s goal. 


  The first problem is the auction mechanism for biogas projects. There is absolutely no evidence whatsoever that an auction will work for biogas projects. The Polish Biogas Association and the European Biogas Association have detailed how biogas has had a terrible record in auctions in the past. The unpredictability of operating costs and their higher level for biogas anaerobic digestion plants makes doing ten or fifteen year bids nearly impossible. The additional burden of the auction, including complete project development and permits, has also proven to be too great for small and medium sized businesses to compete in the process. These are empirical facts based on studies of many countries.

   The Polish law will require 2 to 3 years of project development to secure the prequalification requirements, such as a building permit, with no information on what the reference price will be in the eventual auction until well after these costs must be incurred. Then one must add on the penalties for bidding, winning and not delivering the project or the required level of electricity. The whole process creates more barriers to RES development, as noted by the URE comments on the draft law.

   In fact, the new EU Guidelines for State Aid for renewable energy indicate that small projects should not be done in auctions. See paragraph 127. The 1 MW cut-off is also arbitrary in both the EU document and the Polish law. Both will be challenged in court.  A level of 2-6 MW would achieve the same objective for pushing big projects into competitive bidding, but would still allow small projects to be feasible with a stable support system.

   Green Certificates weighted by actual costs of production would allow biogas to develop and would not have a serious impact on energy end-users. In fact, the evidence is that biogas (after support) can supply electricity and heat to Polish end-users cheaper than coal plants. This is partially true because biogas electricity can avoid the current high costs of transmission by direct connection to local plants. This is clearly a key type of distributed energy and it is equally obvious the Polish Government has ignored it.

  Continuing biogas development under the “levelized” Green Certificate system would allow for direct electricity sales and lower costs to electricity users.

   The technical constraints on biogas in the law are also totally unnecessary.  Biogas plants should be able to take household food wastes, green cuttings, enzymes to improve performance, and some amount of sewage sludge.  All of these are used as feedstock in Western Europe and there are many advantages. Production of biogas from substrates that are not purchased and do not compete with the development of food is a huge advantage. This requires plants over 1 MW that can afford the pretreatment and additional equipment necessary, but it is quite feasible if the law allowed it. Taking wastes that local communities will otherwise have to spend substantial money to manage is a clear benefit. None of this is possible in Poland, since the biogas policy is being set by the Ministry of Agriculture and is focused only on biogas plants on farms.  The biggest loser is the rural communities that have waste resources that could be used for local energy production and lower waste management cost to their constituents.

   The proposed system will likely not provide for any biogas projects – even assuming that they can successfully bid in auctions – until 2017 or 2018. The legislative delay in Poland will be followed by a long delay in European Commission review, especially since major parts of the proposed law violate EU rules. In this interim, biogas development may be crippled by the inability to keep legal agreements on substrate, land and heat sales in effect for prolonged periods. Biogas that can be used to meet the 2020 target will have to be supported by Green Certificates, which means that the current system needs immediate repairs for Poland to meet its EU obligations.

   Meeting the 2020 target will be based on Green Certificate support. The law needs to go further to repair Green Certificates by levelizing their value and eliminating support for co-firing. These issues will ultimately resolved in Brussels, not Warsaw. But our politicians could go a long way toward respectability if they anticipated EU law in their actions instead of ignoring it.
      

Saturday, March 29, 2014

More Inevitable Delays in the New Renewable Energy Law

   Maybe the Polish policy-makers thought that a renewable energy law had to keep being renewed?

   More delays have emerged in March as the "legal commission" made its changes and now the local government organizations and the environmental committee weigh in. The biggest external source of pressure for changes is undoubtedly the European Commission, on two fronts - the DG Competition that determines what state aid will not distort competition (which has not been an unintended consequence in Poland but part of the design of the law) ad the DG Energy that determines if the law meets the transposition requirements of the Renewable Energy Directive.

   The delays seem to be inevitable, since major interests were locked out of the deliberations and the successive drafts were all prepared in secret and largely ignored the consultation period inputs. Several political miscalculations have also been in play, i.e. the ruling coalition assuming hat green energy is unpopular in Poland and then the embarrassment of seeming - after the Ukraine crisis - to be blocking new domestic energy security measures by their intransigence.

   The latest external factor is the changing state aid rules in Brussels. The Polish Government quickly picked up the parts of the proposal from December 2013 that could be used to support their views in their drafts, assuming that the European Commission would be as oblivious to public consultation inputs as they are. The proposed rules are changing and will likely present new challenges to the Polish legislative draft (especially since the author of these rules has to approved the Polish law before it can be effective).  A major change is developing to exempt small projects from competitive bidding, due to the distortion of competition that has occurred everywhere this has been tried. The threshold will likely be 2-5 MW (the higher level already being used in several countries that use auctions). The popular notion of prosumer energy from local sources was also discounted by the government and their efforts to limit this opportunity apparently run afoul of both local political opinion and EU rules.

     The result, however, is interesting. Even if the Parliament got the law passed by July 2014, the Commission approval process will likely take 12 months or maybe more (Romania and Slovenia required about two years!). Add in the fact that the draft tries to continue support for co-firing (albeit reduced support) in apparent conflict with the pending EC enforcement action against Poland on the same subject and delays seem likely.

   The first auction (originally discussed for 2015) may well not occur until 2017 or even 2018 and then projects that "win" bids will have 18-36 months to be built.This means that the 2020 target for the green energy quota under the mandatory EU Directive will not be met by projects coming out of the auctions in Poland.  So its own delays have totally thwarted the Polish effort to replace certificates will auctions.

   What then of the Green Certificate market in the interim? This may depend on the Commission's action in the enforcement case. About 70% of the Green Certificates awarded are arguably illegal under state aid competition rules. It does not mater if you look at current guidelines or the proposed changes. It seems to defy logic that the Commission will sit on its enforcement action while Poland struggles to pass a new law and obtain approval in Brussels.  All logic and precedent suggests that the Commission will act now on existing problems, especially since correcting those problems will facilitate getting a new law that is compliant with EU rules done more expeditiously.

   A representative of the Prime Minister's Chancery told us at an American Chamber of Commerce meeting that without co-firing, the Green Certificate value would likely be almost the same as the substitution fee (now 300 PLN/MWhr), the fee that must be paid for electricity companies that do not have enough green energy or green certificates. Combined with the fact that renewable energy producers can sell electricity on the retail market under the certificate system, this means a return to profitability in the sector without any new law.

   The collateral effect is also interesting. The Polish Government, in my opinion, has been delaying the new law since the Brussels approval process would inevitably cut support for co-firing and old hydro (largely involving state-owned utilities). The delay in the day of reckoning helped Energa in its IPO, as it has been the biggest beneficiary of hydro Green Certificates (raising money for the state Treasury). It also has benefited the old coal-fired plants whose window for staying in operation under the Large Combustion Source Directive runs out next year.  This has allowed state-owned coal plants to keep running without any serious impact from renewable energy requirements, since some foreign peanut shells and vegetable waste let them claim Green Certificates and green energy production (a twofer). Now however, when this aid is determined to be illegal, they cannot count it and will likely have to return the funding obtained by the ploy.


 So, from my perspective, its seems that everything the Polish Government has attempted to achieve in frustrating renewable energy policy has come back into their face. The continuation of incompatible or illegal aid to state-owned companies has backfired and will present an enormous problem likely to go on for years, especially with unfair competition claims possible against the Government and the recipients. Their delays in getting a new law have effectively stymied the changes that they sought in the support system. All of these factors have mobilized opponents of their plans, plans which now seem wildly out of touch with real energy security issues on the ground right now. Finally they have done all of this going into elections!

   Several fundamental misreadings of EU law and the political situation have produced the opposite of what the ruling coalition has sought. I think it is realistic to look for a rebirth of the renewable energy sector in Poland, even with the delays caused by Polish Government bungling.

 
 

Wednesday, March 19, 2014

Changing the Way Laws Are Made: How the Polish Parliament Gave me an Ulcer

   Mark Twain observed that people who love sausage and respect the law have never seen either being made. A remark which seems to apply with enormous validity to the Polish legislative process.

   While I have followed some legislation here in the past, I have been buried in the new renewable energy law deliberations, obfuscations, and incoherence for over two years. As part of the renewable energy sector and a lawyer by training, I have been wrapped up in the technical details, the policy scheme, and the impact of it all on our sector. But I also have to comment on the process itself, which is about as dysfunctional as a democracy can be. It is a chilling thought to realize that the people of Poland have entrusted their future and their children's to such a flawed and corrupt process.


   The most striking comparison to what I observed and often participated in while a lawyer in Washington DC for twenty five years, is the secrecy employed here. Taking their lessons from the former Russian and Nazi occupiers, the Polish politicians view each occasion of public exposure of their legislative work product as an abhorrent incident to be minimized and dreaded. Working on the RES bill for three years, they provide "consultation" periods of two weeks or so on complex documents, which have been prepared with enormous gaps, uncertainties and bogus assumptions.

   The "hearings" that are held are perfunctory and mostly spent on the committee members own statements, which display an appalling lack of preparation and knowledge of the most basic facts. The testimony of experts is deemed adequate if it consumes a few hours out of a process that has taken years. The only explanation has to be that learning the facts in order to make a better decision on the design of the law is not a priority of the process. Indeed, members of Parliament in Poland serve only as a means of recording the tally of their party's strength in the last election. Independent judgment or even feedback on the matter at hand seems to be the exception that may be more theoretical than anything else. Maybe they could be replaced by "chits" awarded to the parties and then tossed on the table as votes.

   The preparation of the legislative packages back in the ministries reflects pretty much the same mindset. Despite appearing in probably a hundred public meetings, the officials on the Ministry of Economy have seldom provided answers to any questions that were more than "talking points" issued before they left for the meeting from higher up. I am sure that their definition of a "good meeting" is not a dialogue that advanced mutual understanding of the issues, but something more like a recital where they got away with only reading a set piece. While sometimes called "debates" by the sponsors (including organizations in which I was in a leadership role), I know what a debate is and these exchanges are anything but that.

  So the various iterations of the RES law have come and gone, emerging out of darkness for brief periods in daylight, when they are again consumed by darkness and stealth. If we can draw as analogy, they seem like plastic wind-up toys that get primed and set upon the floor, only to hit a wall and back up for another blind approach to yet another wall.  The walls here being the unexpected reality that they meet when they emerge for their brief periods of trial by error.

   Under all of it is something more forbidding and malicious, however. The most powerful special interests, here the state-owned power companies, get to work in the dark, whether through their owner, the Treasury Ministry, or through the Prime Minister's office itself. So there is an agenda under the public appearance of chaos. The agenda with RES has been to maximize the system to the benefit of state-owned companies. The public mantra is to save consumers money, but the support advocated (for co-firing and old hydro) has the most impact of consumer end prices of anything on the table. People just pay more for the same electricity that was produced anyway. No new capacity is added, even though Poland critically needs all the new capacity it can get. [Studies show that about half (or more) of the money spent in support of new RES capacity comes back in lower costs of energy via competition and other market factors].* In the same vein, elaborate efforts were made to restrict RES producers from selling their electricity directly to consumers.Not to save consumers money, but for the opposite effect, to limit competition with state-owned companies. The auction mechanism is now proposed, but not to save money in lower support costs (which can or cannot happen based  on past experience)**, but to provide the optimum procedure for the huge state-owned companies to compete for RES support and lock out private competition.

   There is an Orwellian twist to this exercise, demonstrating that words do not always have the same meanings. As Lenin observed, a lie told a thousand times becomes the truth. If this sounds harsh, then think of the situation as a big scale case of Stockholm syndrome. The captives (Poles) have taken on the attributes of their enemies ( the Soviets and the Nazis). Leadership grew up in a world where the government could say anything and ignore the facts on the ground. There was no fact checking, no free press, and no way to contradict them. Which all sounds a lot like where we are today.

   The Prime Minister can say offhandedly that Poland cannot afford expensive wind projects (when they are 6000 MW of the RES that his Government submitted to Brussels as their plan for 2020) and when the energy that he likes actually cost more. [ According to a 2013 U.S.Energy Information Agency report, on levelized total life cycle costs, wind is $86/MWhr, conventional coal $100 and advanced coal - advocated by  the Government- $123/MWhr. New nuclear plants go for $108/MWhr.].  No one immediately questions this when he says otherwise (although in the US or UK he would have been forced to issue a "clarification" or retraction within 24 hours).

   All the political parties enjoy the same immunity for fact checking and accountability. So every leader is free to say dumb things on Polish energy and not fear contradiction or embarrassment. A comfortable parity, but hardly one that promotes good public policy.

   How would an American lawyer who has been involved in U.S. legislation change things?

   First, there should be an advisory committee of all the stakeholders in RES. They should meet periodically and the government ministry personnel should be forced to sit there, listen and take notes. All draft proposals should be routed through the committee and it should be public in all its meetings. I sat on a similar committee for the United States Congress when it revised the waste regulatory scheme and the waste cleanup program.

   Second, there should be real hearings with real experts testifying to Parliament. Open, public, and announced in advance. About ten times more time than was actually devoted to this legislation would be a minimum. Politicians can take this time out of the time that they now use for speeches (which are almost devoid of factual content by contrast).

   Third, "consultation" should not be a last minute deal given only a few days. Each round of deliberation should be open to public comment, even drafts and partial proposals.

   Fourth, there should be a free and active press. I just threw that one in because it is important in the long-run for a healthy democracy and it is obvious not a tradition in Poland. Obviously no one can orchestrate a more aggressive press. Maybe the very conservative libel laws in Poland should be reevaluated? That is, of course, another topic.

   It has been frustrating to be a participant in this vastly imperfect process to say the least. I have always been harsh of law-makers in general. They are never selected in any country for their ability to make policy or their knowledge and experience. That Poland as a young democracy has more problems than older systems is no surprise. I will undoubtedly grow old here waiting for one of the political parties to get enlightened and actually start trying to give Poles the freedom and democracy that so many Poles fought and died for in the past.

 ________________________________________________    

* See Klein, "Renewable Energy at What Cost," Georgetown University, thesis (2012).
 
** The Dutch experience with a reverse RES auction indicates that it creates more uncertainty for investors and reduces participation, which also can increase prices or require much higher reference prices to induce bidders to participate. See Rabobank, “An Outlook for Renewable Energy in the Netherlands,” June 2012.  




Sunday, March 02, 2014

Polish Government Finally Considers EU State Aid Rules

Almost nine years after starting to provide state support for renewable energy, the Polish Government late last week finally started considering the European Commission's rules on state aid and unfair competition. The committee set to act on the proposed new Renewable Energy Law decided to send the bill back for more work. Apparently the Commission's enforcement action on co-firing and support for old hydro projects got some people to finally talk to lawyers! There is still a public veneer of confidence that everything is fine, but it obviously is not fine. The bill needs to be redone to meet EU legal requirements, ignored until now. See Polish Biogas Association letter to the Office of Competition.

I have advocated doing two bills to address these problems: the first modified the Green Certificate program and levelizes the support to meet all EC requirements. It excludes aid to old hydro and co-firing. The second bill adds whatever aid to co-firing that the Polish Government thinks it can convince Brussels is appropriate and lawful as well as controversial new auction procedures, which the URE itself has described as erecting more barriers to RES than the status quo (the Directive requires lowering barriers). This would allow for quick approval of the Green Certificate modifications and make the program lawful - for the first time since 2005 (since it was never notified to the EC in violation of the EU treaty). The second part will likely never be approved, but if Polish politicians feel compelled to try to make a case, they certainly can do so without jeopardizing the whole RES sector. \

Maybe last week's action was an important beginning?

Monday, February 24, 2014

The Base Price for Green Certificates Goes Up

The Energy Regulatory Office just announced that the 2014 replacement fee (the amount charged if an electrical company does not have either the green energy or the green certificates to fill the gap) will go to 300 PLN/MWhr. This is the base price for green certificates. When combined with the upcoming shortage of certificates when co-firing and old hydro lose their support (70% of current certificates), this will mean that the income to renewable energy producers will go up significantly - even without a new law in effect.

The new law is obligated to provide levelized support for biogas, which has been calculated to be twice the value of the Green Certificate.  I predict a biogas boom in the next 12-18 months. If they make technical changes that we have suggested in the law, it will also contribute to making biogas a more available option for organic waste management.

GOVERNMENT RESISTANCE TO BIOGAS REMAINS A MYSTERY


Randy Mott
Vice President, Polish Biogas Association
                    http://www.reo.pl/powody-oporu-rzadu-przed-biogazem-pozostaja-tajemnica  [PL ver]

     There is hardly anything unkind ever said about biogas by the Polish Government. It remains a major part of the national plan for 2020 renewable energy goals. It helps solve many of the environmental issues surrounding organic waste and has been highlighted by the Secretary of State for the Ministry of Environment when the new auction law was introduced in November. Biogas has a flat-line, stable electrical output and can actually be built to match the 24-hour electricity demand curve.
    But somehow none of the biogas industry’s concerns about the new law ever get addressed. We are ignored almost entirely. This treatment is puzzling to say the least, since the Polish Government expects biogas developers to invest billions of PLN in new biogas plants. 
    The fixation of the Government remains the small farm-based biogas plant which has many merits, but is hardly the only biogas approach worth promoting. The facts show that most existing Polish biogas plants and those in planning are over 1 MW in size and do not fit into the niche that the Ministry of Agriculture wants for everyone in the sector.  This is because of the hard economics of biogas that dictate the best financial results in the 1-2 MW size (a size precluded from being built at all by the proposed law which will place these plants into competition with wind farms and co-firing solely on a cost per MWhr basis).  This larger size is also essential to support the additional equipment and procedures for safe environmental and health operations with many wastes.
   Due to the fact that Poland cannot afford to provide the very high support payments that Germany used to develop its farm biogas sector (30-40 Euro cents/kWhr), it is imperative that a more reasonable approach be used to get the biogas output to somewhere near the Government’s target. That requires that Poland allow all of the substrates which the European Commission Joint Research Center determined last year were technically appropriate for biogas, especially the organic waste substrates (which can improve the economics without higher government support). The biogas industry has been making this argument for over two years and no one is listening.  This includes household and restaurant food wastes, green cuttings, enzymes and additives up to 2%, as well as incidental amounts of sewage sludge (which can be safely treated in thermophilic biogas plants as done in other countries). If the Ministry of Agriculture does not want these wastes in farm-based plants, then the law should add a “co-digestion plant” category regulated by the Ministry of Environment to get the job done.  The substrates need to be defined in the law itself and they need to be as broad as technically feasible.

   Instead of a dialogue on these subjects, there is no discussion of the issues at all.  These issues are all accepted by the biogas sector, local government organizations, NGOs and agricultural associations. The only “hold-out” is the national government (for reasons that remain unarticulated). Time is running out and the Polish Biogas Association has submitted a detailed set of amendments to the language of the November draft as well as a fully-referenced justification for the changes. Unless someone in government picks up the issues, the biogas sector will never achieve anything like the government’s targets and will remain acutely under-developed in Poland for years to come. In years to come, when many local residents get higher bills for sewage sludge disposal and organic waste management there will be a readily-identified culprit.  These issues will be featured in the next local elections.    

Polish Green Certificates Will be Fixed and Justice Will Prevail


Randy Michael Mott, Vice President, Polish Biogas Association

    As the news broke that Poland has received notice of a state aid enforcement investigation into its Green Certificate program, particularly support for co-firing biomass with coal, the full implications of where this can lead have not been appreciated here. Several complaints were apparently received by the Commission. Support for co-firing in the current and proposed law is effectively over. There may be a delay in the acceptance of this fact, but it is a fact. Efforts to enact a complex law that still favors the state-owned utilities will also be frustrated by this development. However, things can also get a lot more complicated, especially if the Polish Government continues to bungle this issue.
     As background, the European Treaty prohibits state assistance to industry that will distort competition in the European market. All such state aid must be submitted to the European Commission for prior approval.[1] The rules applied to renewable energy assistance require that there be no overcompensation of a single technology and that support be levelized to provide comparable profit margins across technologies. In the same vein, old projects that have been fully depreciated cannot receive state aid. Such “incompatible aid” must be recovered from the recipient and competitors adversely affected may have unfair competition claims against the government and the aid beneficiaries.
     The Polish problem began in 2005 when the Green Certificate program to support renewable energy started without notification to Brussels. “Green Certificates” and the substitution fees paid in lieu of having the required level of green electricity or certificates have consistently been found to be state aid by the Commission. Beginning as early as 2001, in the case of the UK, the Commission found such programs, including substitution fees, to be state aid, requiring notification.[2] Now there is no doubt that the certificates themselves are also state aid, as the Commission concluded in the case of Romania in 2010: “…the fact remains 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,” C (2011) 4938, p. 13. All of the elements relied upon by the Commission to find state aid in other green certificate cases exist in the Polish case.

     Any effort to dispute that the program is state aid seems to be a waste of time at this point. However, the issues rapidly grow more complex. All aid that is not notified is automatically unlawful under European law. The situation in Poland is so extreme that it is difficult to believe.

     All Green Certificates and substitution fees created since 2005 were never subject to notification and never approved as state aid compatible with the treaty. They are all unlawful and will have to be recovered from the recipients unless the notification and approval defect is cured. This means that utilities using these to meet the green quota could now find that they have no alternative to paying the penalties (the substitution fee times 1.3). Past compliance by use of these means might also be invalid and reopen the issue of past penalties. It means that all green certificates being held in the massive current surplus will be useless. It further means that the substitution fees used by the National Fund for grants and loans will have to be recovered from the recipients as unlawful aid. The invalidity of Green Certificates would stop all financing and investment in renewable energy in Poland, without altering the legal obligation to have the requisite quota of green energy. It is difficult to imagine a scenario more destructive to the Polish energy sector.

     We can see a smaller scale version of the same consequences in France today. The European Court of Justice ruled in December that the French wind tariffs were state aid (distinguishing an older case where it held the German tariffs were not state aid). The case is moving back to the French court which will be obligated to implement the ruling that the unnotified aid is void and has to be recovered. Investment in wind is in a state of chaos and thousands of French electricity users have filed claims for refunds on their bills which included extra charges based on the illegal tariffs. These consequences have been occurring in a situation much more contained than the one presented in Poland.

     The French Government, pushed by the wind industry, commenced a new tariff law and notified Brussels during the pendency of the case before the European Court in an effort to prevent the consequences of an adverse ruling. The notification of aid can be post hoc if the aid is compatible with the competition rules. The effect will hopefully be that the approval comes down in Brussels before the national courts are forced to start implementing the ruling of the European court.

     Unlike the French Government in this case, the Polish Government is moving on a complex legislative package that goes well beyond a simple post hoc notification cure. Several parts of the pending new law are also inconsistent with state aid rules. Support for co-firing continues in the new law and the auction procedures - according to URE- raise more obstacles to small RES producers worsening competition in the sector. The obvious solution is to enact a Green Certificate law that meets state aid rules and notify as fast as possible (exactly as the French have done). More complex issues might be better resolved when there is no pressing need for speedy resolution. The current draft is often incomplete as well as unnecessarily confusing.

     The problem, however, goes well beyond the lack of notification of the state aid.  The notification triggers a review of the compatibility of the aid with competition rules. The new Commission investigation and enforcement action against Poland is focused on alleged violations of these competition rules by the current Polish system.  The hitch is that approval by the Commission requires compliance with the guidelines on state aid for environmental protection – an impossible hurdle for Polish Green Certificates as they are now structured. The pending new law also does not address these issues adequately and raises additional issues that will be problematic under the Commission rules.
          Two problems exist in the current Green Certificate program as far as state aid rules are concerned. Together they affect about 70% of the certificates awarded and the seriousness of the situation cannot be overstated. First, the support for co-firing coal with biomass at the full value of the support scheme provides disproportionate economic gain to the co-firers and has distorted competition. A single technology cannot receive wildly more favorable treatment under the competition rules. Under the Energy Law, all forms of renewable energy covered by its provisions receive the same support, i.e. one Green Certificate per MWhr. While this is seemingly neutral on its face, the fact is that all other forms of renewable energy, except co-firing, involve construction of electrical production facilities. The Institute for Renewable Energy, which was officially tapped last year to collect cost data for various technologies to provide for adjustments called correction factors, concluded in an unofficial report that co-firing biomass with coal only requires a maximum of 0.13 green certificates per MWhr to be profitable. The IRR for co-firing at 100% certificate value is over 120% or roughly ten times the other technologies.
     Consequently the certificates and substitution fees from co-firing and old hydro plants will inevitably be found illegal if prior decisions are applied to these facts. This aid violates the published guidelines and prior decisions.”… such compensation can relate only to the extra production costs for environmentally friendly electricity production as compared to the production costs for energy based on conventional energy sources.” 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, para. 85. “Where the market mechanisms constitute State aid, they may be authorised by the Commission if Member States can show that support is essential to ensure the viability of the renewable energy sources concerned, does not in the aggregate result in overcompensation and does not dissuade renewable energy producers from becoming more competitive..” COMMUNITY GUIDELINES ON STATE AID FOR ENVIRONMENTAL PROTECTION, 2008/C 82/01, Section 110(b)(emphasis added). The Commission requires that support be “levelized” across technologies so that one technology (like co-firing here) does not receive disproportionate support that distorts the market (like co-firing here).[3]   Similarly, facilities that have been fully depreciated obviously do not need support at that point and the aid to old hydro plants will be deemed incompatible as well.[4]
     This problem means that co-firing aid and support given to old hydro plants cannot be cured by simple notification. It is also clear that incompatible aid is illegal and that the Commission can make this determination at any point in the investigation. They seem to be obviously incompatible aid and will have to be recovered.[5]
     Attempts to continue aid to co-firing at levels of support still vastly greater than its cost of production will doom the new draft law to rejection in Brussels. Co-firing can continue and it can be a renewable energy technology accepted for the purposes of compliance with the EU Directive. The only issue is whether it needs support and the data clearly show it does not. Instytut Energetyki Odnawialnej, “Analiza Dotycząca Możliwości Określenia Niezbędnej Wysokości Wsparcia Dla Poszczególnych Technologii Oze W Kontekście Realizacji „Krajowego Planu Działania W Zakresie Energii Ze Źródeł Odnawialnych,” Pracę wykonano na zamówienie Ministerstwa Gospodarki (lipiec 2013). 
     The cure for the enormous blunder in the Green Certificate program has to be a straightforward new Green Certificate law with levelized cost as well as any major features found to be important by the Commission in their approval of the Romanian Green Certificate program in 2010.[6] The effort should be to provide an approach already accepted by the Commission in other cases to allow for a simple and expeditious approval. This will save everything that has been done earlier that is compatible with the state aid rules. Presumably minor differences in cost that are not historically reflected in certificate vale adjustments or coefficients will not be material. Going forward, however, everything should be done to assure that no distortion is created across technologies.
     This new law can cure the lack of notification for all Green Certificates and substitution fees that do not involve incompatible state aid. If this effort is compromised by including incompatible aid provisions in the new law, while the Polish Government prolongs its fascination with co-firing, or goes into a typical state of denial, then the widespread consequences for everyone in the sector can occur. Lacking any Green Certificates or substitution fees and paying penalties is certainly a worse outcome for the Polish power industry than only losing co-firing certificates. This is really the choice now before the Polish Government. The French began their race against the clock months ago, while our Polish politicians cannot seem to hear the ticking.
     The efforts by politicians to support the state-owned utilities to minimize the impact of RES legislation on their bottom-line have now come to a completely counter-productive end. The state utilities and other co-firers face tremendous potential liability in the billions of zlotys. Their future compliance with RES requirements will be more expensive. Consumers, however, may actually get refunds on their bills that contained illegal charges. New RES support will only go to recipients who add new electricity generation which will impact end-users prices much less.
     The system with co-firing and old hydro support removed will function much more like it was intended. The removal of the incompatible certificates from the market will create a major shortage of Green Certificates and increase the prices to roughly the same as the substitution fee (297 PLN/MWhr). The surplus of certificates will disappear. Investment in green energy that in the long run is less expensive to consumers than nuclear or new coal plants will be greatly encouraged.
     If the Polish Government finally starts acting in the interest of the public instead of the utilities that it owns, the system should rebound and new capacity may be added faster than conventional energy production could achieve. The pending legislation should be split into two parts with the Parliament taking immediate action on the green certificate provisions with levelized support based on actual production costs. If our politicians do not react well and intelligently, an epic disaster in the energy sector is still possible.




[1]     Article 107 of the Treaty on the Functioning of the European Union provides that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”  Article 108(3) provides further that Member States must provide advance notification to the Commission before state aid can be effective:  “The Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter aid. If it considers that any such plan is not compatible with the internal market having regard to Article 107, it shall without delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.”

[2] The early rationale hinged on the substitution fees which were collected and used to assist other industry efforts in renewable energy. “The constant practice of the Commission is to consider that the proceeds of such levies are state resources (2). 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.

[3] See C(2010)2211, State aid No N 65/2010 - United Kingdom Amendments to the Renewables Obligation Certificates (ROCs) scheme, March 30, 2010  (“…levelised costs matching the midpoint of the predicted revenues… will therefore prevent overcompensation in the aggregate of the different producers”). “In order to assess whether there is no overcompensation in the aggregate, the Commission needs to verify that the revenues of the generators do not exceed the costs of production and a reasonable benefit in the aggregate of the scheme i.e. over time and over technologies.” C (2011) 4938 (Romania), par. 64, p. 15. Romania used a levelized cost calculation to evenly apply the green certificates for different technologies, based upon production costs for each technology. C (2011) 4938, State aid SA. 33134 2011/N– RO, Green certificates for promoting electricity from renewable sources, July 13, 2011 p. 8-9. “…such compensation can relate only to the extra production costs for environmentally friendly electricity production as compared to the production costs for energy based on conventional energy sources.” cited in 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, para. 85. The Commission approved Austrian feed-in tariffs that considered individual technologies and were adjusted to avoid imbalance.  C(2006) 2955, State aid NN 162/A/2003 and State aid N 317/A/2006 – Austria Support of electricity production from renewable sources under the Austrian Green Electricity Act (feed-in tariffs) (the Austrian law provided that “[p]rices shall be set in accordance with the various primary energy sources used, with due regard to technical and economic efficiency….Service life, investment cost, operating cost, adequate return on capital employed and the quantities of electricity produced per year shall be taken into account.”).


[4] “…under the Guidelines operating aid may be granted in order to compensate for the difference between the cost of producing energy from renewable sources, including depreciation of extra investments for environ-mental protection, and the market price of the form of energy concerned and until the plant is depreciated according to the normal accounting rules.” Becker et al. supra, citing  Community Guidelines on State aid for environmental protection 2008, OJ C 82/1, par. 109(a).

[5] “…[the Commission] has systematically ordered Member States to recover any unlawful aid found to be incompatible with the common market, unless it considered that this would be contrary to a principle
of Community law.”  Notice From The Commission, Towards an effective implementation of Commission decisions ordering Member States to recover unlawful and incompatible State aid (2007/C 272/05),  para. 2. “Article 14(1) of the Procedural Regulation …provides that the Member State concerned shall take all necessary measures to recover unlawful aid that is found to be incompatible. Article 14(2) establishes that the aid is to be recovered, including interest from the date on which the unlawful aid was at the disposal of the beneficiary until the date of its effective recovery. The Implementing Regulation elaborates the methods to be used for the calculation of recovery interest. Finally, Article 14(3) of the Procedural Regulation states, that ‘recovery shall be effected without delay and in accordance with the procedures under the national law of the Member State concerned, provided that they allow for the immediate an effective execution of the Commission decision’. Para. 11, citing Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).

[6] See C(2010)2211, State aid No N 65/2010 - United Kingdom Amendments to the Renewables Obligation Certificates (ROCs) scheme, March 30, 2010  (“…levelised costs matching the midpoint of the predicted revenues… will therefore prevent overcompensation in the aggregate of the different producers”). “In order to assess whether there is no overcompensation in the aggregate, the Commission needs to verify that the revenues of the generators do not exceed the costs of production and a reasonable benefit in the aggregate of the scheme i.e. over time and over technologies.” C (2011) 4938 (Romania), par. 64, p. 15. Romania used a levelized cost calculation to evenly apply the green certificates for different technologies, based upon production costs for each technology. C (2011) 4938, State aid SA. 33134 2011/N– RO, Green certificates for promoting electricity from renewable sources, July 13, 2011 p. 8-9. “…such compensation can relate only to the extra production costs for environmentally friendly electricity production as compared to the production costs for energy based on conventional energy sources.” cited in 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, para. 85. The Commission approved Austrian feed-in tariffs that considered individual technologies and were adjusted to avoid imbalance.  C(2006) 2955, State aid NN 162/A/2003 and State aid N 317/A/2006 – Austria Support of electricity production from renewable sources under the Austrian Green Electricity Act (feed-in tariffs) (the Austrian law provided that “[p]rices shall be set in accordance with the various primary energy sources used, with due regard to technical and economic efficiency….Service life, investment cost, operating cost, adequate return on capital employed and the quantities of electricity produced per year shall be taken into account.”).


Friday, November 04, 2011

Green Jobs

I will post more details on this topic soon. But I am in the renewable energy business (biogas from waste to electricity and heat). This business is capital-intensive and often displaces more traditional energy that is labor-intensive. That may mean less jobs are created not more.

There are good reasons to pursue alternative energy sources, but creating jobs is not one of them. Some research is reviewed in a University of Illinois study.


Wednesday, June 30, 2010

The BP Spill and Obama

I have been involved in hazardous material and waste matters for thirty-years. Usually on the side of giving advice to the companies with the problems.

So I will do a very brief synopsis. Obama was told early on that the chances of capping the broken wellhead were not good. Estimates of oil volumes privately provided were also much highly that the public heard in the first weeks.

With that set of facts, the first order of the day should have been mitigation measures. That means destruction of the oil while far at sea (fire booms or maybe even military means to ignite it), sand berms and other containment means, and rounding up all of the equipment possible to remove as much as possible before it hit sensitive areas.

None of that happened. Obama played golf and then lectured us. The federal alphabet agencies did what they do best, used red tape to frustrate people who have to deal with the real world. Democrat politicians ought to demonize the oil industry, at the expense of worsening the economic crisis and aggravating our energy security.

If the health care debacle was the beginning of the end for the "new age of Obama liberalism," then the Gulf oil spill has to be the potentially fatal head shot to the staggering and wounded guy who got promoted by the media to a position about three levels above his competence.