Revising the RES Law on Biogas: the Necessary Changes
The Government is
coming to the realization that the proposed auction system will not provide
enough stable support to meet the biogas goals projected in the national plan. See graph below. See comments
of the Polish Biogas Association on the July 2014 draft.
The initial solution in
the July 2014 draft was to use a small auction for projects under 1 MW. The
problem is that most agricultural biogas plants in Poland and biogas plants
that are necessary to handle organic waste under other EU rules are normally
over 1 MW to be economically efficient. The auction itself also poses real
problems for biogas projects, which have never been effectively supported by
this mechanism. See Del Rio (2013); ECOP FYS (2014).
The new proposal to
have a separate auction for agricultural biogas is an improvement. But this
option will face major legal challenge since it discriminates among other forms
of biogas without a factual basis. The separate auction should be for forms
of biogas with comparable costs of production to meet the EU competition
rules.[1]
So AD plants handling organic wastes as
well as agricultural biogas plants based on farms should be banded together,
since their cost of production is comparable and higher than other forms of
biogas (landfills and sewage treatment plants). Small amounts of sewage sludge
(up to 20%) can be successfully handled in AD plants (as in Denmark) which remain
quite different from sewage treatment plants in costs, market role, and classification.
However, the
whole notion of auctions has proved to be a totally ineffective method to
encourage investment in biogas. Where
countries have tried to throw biogas into auctions, the results have been
universally negative. The Instituto de Investigación Tecnológica in
Spain published a detailed review of renewable energy
auction experience in every country where it has been attempted. See del
Rio and Linares, “Back to the future? Rethinking Auctions for Renewable Electricity
Support,” 2013. One of their major points from
looking at dozens of different auction systems was as follows:
Unfortunately, these theoretical advantages of
auctions come at a cost. Due to the
complexity of the bureaucratic procedures, and also
to the planning required ahead,
auctions have higher transaction costs (Finon and
Menanteau 2008) which, together
with uncertainties on the final price and the
tendering schedule, deter participation by
smaller firms, resulting in a low degree of
competition (Butler and
Neuhoff, 2008), and
creating opportunities for market power. In turn, this may eliminate the higher
theoretical efficiency of this instrument. Id. at p. 3.
Unfriendly
for small projects and actors. A major
empirical lesson of tenders is that they are unsuitable for small
installations and smaller actors. Competition may thus be affected. It has
been argued that some of the aforementioned factors and, namely, information
failure and difficult access to finance, have a disproportionately negative
impact on small actors and, thus, that the instrument is not suitable for
small actors, suggesting that smaller projects should be promoted with a
different instrument (Morthorst et al 2005, Mitchell 1995). It is difficult
to tell a priori if encouraging large installation or actors instead of
small ones is a negative aspect. Although it is explicitly assumed to be so in
the specialised literature, size is a double-edged sword. Larger installations
facilitate economies of scale in production but a model of distributed
generation calls for smaller plants
scattered around the territory.[2]
Furthermore, some RE projects are inherently large (offshore wind and
concentrated solar power) and tenders may be particularly suitable for these
technologies. In contrast, smaller projects may need to be promoted with
another instrument.[emphasis added].
Their conclusion is based on
the empirical data, not simply another expert opinion. Auctions may achieve
some support “optimization” for large projects, but they kill smaller projects. See See
EcoFys, “Design features of support schemes for renewable electricity,” January
2014, p. 66.
In fact, most auction regimes exempt up to 5 MW projects or even larger. The
adverse competitive impact of auctions is especially true of biogas: the ITT
study noted that many countries had no biogas projects successfully bid in
their auctions.[3]
Poland has the
most ambitious plans for growth in biogas in the European Union. See graph below. To meet any
significant part of those plans requires changes in the support system.
Auctions among comparable costs of production biogas (farm plants and AD plants
doing organic wastes) would be an improvement. But this amendment will not
address the fundamental weakness of auctions as a support system for biogas and
other small projects. No country has successfully supported biogas combined
heat and power facilities by the auction mechanism.
Tobias Adamczewski (2014).
The new law
should exempt projects under 5 MW from the auctions and provide for continued
support through Green Certificates for these projects. The Green Certificates
must be approved by the European Commission and must be levelized to reflect
the cost of biogas production. See Tomkiel- UOKiK letters to Ministry of Economy,
June 5, 2015 and November 28, 2013; Institute for Renewable Energy, Correlation
Coefficient Study, July 2013.
This approach
will meet all of the current state aid guidelines and the new guidelines as
well. See paragraph 136, State
Aid Guidelines, July 2014.
Finally the
expansion of the substrates that can be used in Poland while still qualifying
for full support should be done in the amendments. See PBA comments on July 2014 draft law. There is no reason to restrict the feed-stock
for biogas in Poland where the EU allows a broader scope and this also makes
good economic and environmental sense.
[1]
Auction banding should only be done where there are comparable costs of
production and exclusion of one type of biogas with comparable costs would be
arbitrary and illegal under EU law. This violates EU law by discriminatory treatment of
similar cases. The issue must be evaluated in the light of the
general principle of equal treatment, of Article 6 of the Treaty on European
Union and of Articles 20 and 21 of the Charter of Fundamental Rights of the
European Union [(“the Charter”)]. In Case C-195/12, Industrie du bois de
Vielsalm & Cie (IBV) SA v Région wallonne, European Court of
Justice, September 26 2013, the European Court established that Member States
cannot discriminate between similarly situated technologies by arbitrary
distinctions. Renewable energy support
under European law “must observe the principle of equal treatment and
non-discrimination laid down in particular in Articles 20 and 21 of the Charter
(see, to that effect, Case C‑401/11 Soukupová [2013] ECR I‑0000, paragraph 28).“
[2]
Biogas is the perfect example of distributed energy, where local sources of
agricultural waste and products provide a local source of energy that should
also be allowed to be used locally. See Mott, “Biogazownie
jako wzorcowy model rozproszonej energetyki: lokalne odpady lokalnym źródłem
Energii,” www.reo.pl
(2013). Local, direct
sale of the electricity is also imperative to achieve the best results to the
economy (decentralizing electricity and lowering its price).
[3] The Netherlands reverse auction has severely
impacted biogas development there. Biogas plants compete in the auction there
generally only in a special category of supplying biogas to the natural gas
grid (without cross-technology competition).
[1] “The Dutch are having trouble simply getting stuff built. Only eight percent of the biogas projects awarded contracts since 2011 have been completed – and a whopping 98 percent of the PV projects that won auctions last year were apparently not built even though they had to be completed within a few weeks in compliance with auction rules.” Craig Morris, The Energie Wende Blog, June 25, 2014,
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This article is available in Polish in the form of the letter sent by PBA to the Ministry of Economy and the Parliamentary Committee dealing with the draft law.
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