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Monday, April 20, 2015

Renewable Energy Update from Poland

There are still some issues to be decided on the shape of the new law on renewable energy. The biggest one for us in the biogas sector is the reference prices, since it is widely expected that the under 1 MW small auction for projects with more than 4000 MWhr/MW a year will be under-subscribed. The Deputy Minister of Economy gave a 500-600 PLN/MWhr cost estimate in the Parliamentary debates, but this is lower than the Institute for Renewable Energy estimates of the cost of production in their 2013 report commissioned by the same Ministry. He also predicted that all small projects that pre-qualify and bid within the maximum reference price should receive support.

This would mean a base price of 190 PLN/MWhr plus the factor times 300 PLN. Since the final law only provides for under 1 MW in practice, the figures would be: 200-500 kW = well over 1000 PLN; 500-1000 kW = 970 PLN. These figures are consistent with numerous studies of the costs of production and are much higher than the Deputy Minister's statement.

Clearly the fate of small biogas projects in the 250-350 kW range depends on getting more support than 500-600 PLN. 

If you add the 120 PLN/MWhr for co-generated heat, the gap narrows, but most farm-based plants cannot achieve the necessary high utilization rate to be eligible for co-generation support.

Unfortunately, the reference prices will not be announced until a few months before the auction. So projects that cannot survive on 500-600 PLN/MWhr (the low figure) will be difficult to plan and least for the first auction. The possibility of grants may be useful to bridge some of the gap, but they present coordination issues with the auction timetable and also cannot be expected to cover enough projects to meet the expected total power sought by the Government.

 On that subject, it seems optimistic to expect an auction in 2016. If the natural course of events is assumed, it will be in 2017. This means that it will be even larger and the under 1 MW share will be even more stressed to find bidders in my opinion.

The schedule for transition to the new law seems problematic for most developers. This is especially true since so many small operations have reduced their development efforts in light of the long delay and low Green Certificate prices. 

Every sector of renewable energy has its own issues with the law and the transition period. The net result is the virtual impossibility of Poland meeting the 2020 target. It remains quite possible that there will have to be supplemental legislation to address the problems, which might include extending the certificate program in the interim and conforming it to state aid rules. 

Tuesday, March 31, 2015

Energy Storage and the New EC State Aid Rules: Oops!

The new state aid rules require that electricity over 500 kW be sold to the grid. See 125. This, of course, is designed to frustrate distributed energy, which is emerging as the development that will change the whole utility industry.

But in the fine print, the new Guidelines also seriously impede energy storage. Electricity coming from energy storage that was renewable going into storage is no longer renewable coming out of storage. Definitions 1.3(19)(11). No operating support is possible if the guidelines are followed. This means that the RES producer must own his storage device to get any credit for the energy he produces and stores.

Operators owning storage devices (charged by third-parties) will not have any green support apparently since what they sell coming out of storage does not qualify for support under the guidelines.

But there is another catch, the guidelines also require that the electricity be sold to the grid to receive operating support, except for small sources. So electricity from larger sources will not be able to get support for what they store.

I am still figuring out if there is something devious at work here or whether it was just a screw-up.

Comparative Cost of Producing Energy

Here are some graphics on what it costs to produce electricity by technology. This does not count the cost of distribution, which heavily favors renewable energy that is locally produced and can be used locally without major distribution costs.

EdF is seeking a price for UK nuclear energy at 90 GB/MWhr (500 PLN) which is more than the average RES price projected under the new Polish law. Wind and PV will both be much, much lower by the time the UK opens a nuclear plant (if ever). The UK capex cost is 14 billion GB or 78 billion PLN. Both the energy price and the capex keep going up (these are from EdF in October 2014).

There is no real dispute that RES will be the cheapest energy available (especially with lower distribution costs) in the relatively near term future.

Friday, March 27, 2015

UK Illustrates How Fast RES Can Deploy(without auctions)

The UK just went from 4 percent renewable energy in 2013 to 19% in 2014. This is the pre-auction surge under their old system. But it illustrrates that RES projects can be rapidly developed in a system that is stable (aid to co-firing in the UK is restricted).

Wind and PV have development schedules that are quite short compared to other electricity production. Auctions will delay projects, since they cannot be put online as they are prepared. The dilemma of auctions is always that strict penalties deter bids and lower pre-qualificatgion requirements and lower penalties encourage bidders to under-bid and under-build. See EcoFys (2014).

An additional problem that I have suggested (I never saw this mentioned by anyone else) is that projects to be eligible  to bid must have all of the legal means of producing energy tied up in legal agreements and a substantial percent of these will lose the auction or not even be bid in the end. So, using the European Commission suggestion that twice the power should be bid as can be awarded, half of the RES potential at any point in an auction system will not be built when it is ready to proceed. For the 19 Member States not on track to meet the 2020 target, this will prove to be fatal.

Poland has leaned very little from these experiences and is likely to see a big drop off in large projects in 2015-2016.

Wednesday, March 18, 2015

Victories for Biogas in Poland?

Checking out the law in detail to ask questions to URE..... there appear to be some good provisions for biogas in Poland if they are implemented intelligently.

The scope of biogas is changed to include all of the biomass allowed by the EU definition in the RES Directive. A change we (the Polish Biogas Association) urged them to make.

There is a question of how the reference price will be set for this category (other biogas), but they will have to be guided by cost of production under state aid rules. The cost is the same or higher than agricultural plants.

We would like additives like glycerin and enzymes added to the possible feed-stocks allowed by the law with a 2 % volumetric limit. This reflects the same rule the European Commission worked on for the End-of-Waste criteria for biowaste.

The 4000 hour "basket" [a set-aside for projects producing over 4000 MWhr per 1  MW of capacity] should allow biogas plants to win support up to the reference price level. So the big question will be what are those prices going to be? The Institute for Renewable Energy in their 2013 report on the subject set cost of production figures close to what is found in the literature. See i.e. EBA. The Deputy Minister of Economy in the Senate debate mentioned 500-600 PLN/MWhr as the cost of biogas, which is a lower figure.

We will hopefully know soon the direction of this..... so far, so good.

Wednesday, March 11, 2015

United States Renewable Energy Continues to Surge: Using the System that Poland Wants to Abandon

About 30 states in the United States use a "residential portfolio system for renewable energy, a quota system set by the public utility commission in the state which requires a fixed percent renewable electricity. This is sustained by certificates, as in Poland. Unlike Poland, co-firing biomass with coal is not traditionally popular. The United States has reached 14% renewable energy remarkably in a huge market when conventional electricity is much cheaper than in Europe.

The pace of RES growth continues in 2015. The U.S. Energy Information Agency estimates that renewables will contribute to a majority of the electricity production growth in 2015.

Even low natural gas prices have not affected RES growth. The major loser has been coal-fired plants. The lesson of RES growth without a significant impact on consumer prices (Livermore National Laboratory) has been generally lost to Europe, Competition among electricity producers is enhanced by RES development which helps to offset the effect of the subsidies. (see numerous U.S. EIA studies).[1]

Poland (and the European Commission in part)[2] have embraced an alternative model. One that looks to auctions for RES as the principal support scheme. This ill-advised move is unlikely to provide for the development of a strong RES sector at lower long-prices. See Mott, "NEW STATE AID GUIDELINES FOR RENEWABLE ENERGY ONLY DISCOURAGE COMPETITION, GREEN ENERGY AND ENERGY SECURITY, publication pending 2015.][3] Auctions do, however, reward market power and are the good way to perpetuate the dominance in the market of larger players.

Poland has the option to continue the certificate program after it is adjusted to meet competition concerns. This will have to be done retroactively to fix the current system in any event. Those changes could still be used in future support even under the Guidelines from Brussels. This would also be far more easy to implement than what is now planned.

Certificate values can be adjusted by coefficients to avoid over-compensation and provide fair support across technologies. See IEO Report (2013). Their use in the United States demonstrates that moderate levels of support can be used to create a large amount of RES without affecting consumer prices.   

Poland remains unwilling to learn from the past and seems unable to break the political cartel supporting the state-owned utility interests. Some RES sectors will still thrive and have niches in the new system, but the broad-based development of RES in Poland will be unnecessarily hampered by the political climate for the foreseeable future. 


[1] When most of the support, as in Poland, goes to existing facilities (old hydro and co-fired coal plants) no new capacity is created and no new supply of electricity is established. There is no positive effect on competition and all of the support must be directly transferred to end users.

[2] A majority of the European Community institutions favor the move toward distributed energy, built on RES technologies. See Report of the European Economic and Social Committee (2014). Lobbying by the large utilities in Europe (Eurelectric) led to the DG Competition favoring auctions in their guidelines (which will be challenged in a number of ways).  

[3] Available now on request.

Monday, March 09, 2015

Ridiculous Rhetoric About State Aid ... from the Experts on Using Illegal Aid

The ongoing discussion about trying to block the prosumer support in the final law due to "state aid" issues is about an hypocritical as it gets.

PO spokesmen raised this earlier and it appears that the President of Poland may not take the bait. A good decision, since the entire Polish support system has been operating illegally for nine years and the Government has known this for at least three years now.

Similarly, we have been seeing a big bluff on whether the new law must be notified to Brussels.

Everyone privately knows that it must be notified, reviewed and approved. For several reasons, it does not meet the block grant exemption from notification. Most obviously, it continues support in the form of Green Certificates which the European Commission has advised informally to UOKiK are state aid. Aid up to 2017 must be levelized by technology and certainly all of the technologies including in the Polish National Action Plan for 2020 will have to be included. Other aspects of the new law also raise issues, such as requiring projects up to 1 MW to go to an auction, tax exemptions, continued support for co-firing, and some of the procedures included.[1]

My most guess is that all of these issues as well as the historical Green Certificate problem will be in negotiations with the European Commission this year and will be resolved by next year, but not in time for an auction to be held. The 2012 draft law is a good start as a "fix it" measure, but it will also end up being necessary to extend the date that allows new projects to use the Green Certificate system.  Right now, PO just wants to have "happy vibes" about green energy going into the election and assumes that voters are so ill-informed that the details will not be important.


[1] I personally think that technology-neutral auctions, while in the new guidelines, are anti-competitive at this moment in the European market. Numerous studies draw this conclusion and both the British, French and German auctions have used technology bands. The EC guidelines can certainly be challenged on this grounds.

Friday, March 06, 2015

Polish Government Assures Folks that Electricity Prices Will Not be Affected by Reality

In the discussion after the law to transpose the new deal on European emissions controls and CO2 allowances, the Minister of Environment reassures the public that electricity prices wil not go up after 2020.  His basis for optimism is the free allowances given to Poland as a part of the deal reached with Brussels a few months ago.

I commented at the time that the allowances and funding provided would be way short of what is necessary to provide a soft landing for Poland (as long as the country was clinging to coal as its central energy source). Now it seems clear that the assumptions on the limited impact of the deal on Poland were likely a fantasy.

Much of the aid provided is supposed to go to de-carbonization of the Polish economy, not to preserving reliance on carbon. However, the aid is manipulated by Warsaw will likely not provide more than a fraction of the funds necessary to modernize the Polish energy sector.

The impact of higher prices per ton of CO2 in the emission caps is a big unknown, of course. With Brussels handing out free allowances as bribes to get political approval on the package (then and now) it is no wonder that their value never reached the sustained level explicit in the design of the program. However, every projection being done now shows a likely dramatic increase in CO2 prices in the future. Frontier Economics has a forecast that it pretty typical of the most recent projections:

All projections are a bit unreliable at this point, but it is hard to reconcile the general trends in CO2 price estimates with the cheerful picture presented by the Polish Government. As the energy mix in Poland will continue to feature coal-fired power plants subject to a real shortfall in credits versus their emission caps, it seems unlikely that the optimistic scenario will prevail.