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Just before Christmas 2011, the government presented a gift to the Polish energy sector in the form of a longawaited package of proposed new energy legislation, including a new Energy Law, the Gas Law and the Renewable Energy Sources Act. They are to replace the much-amended Energy Law, which currently regulates the energy sector in Poland, namely power generation, district heating, the gas sector, renewable energy sources and the licensing of trading in fuels. If adopted, the sector’s operations will change, notably in the support of renewable energy sources.

The Polish energy sector is highly concentrated and dominated by Treasury-controlled companies. Due to the considerable income it generates, it is treated like the family silver, which must not be sold. This approach and the recent global financial crisis have effectively slowed, reduced or nullified the sector’s plans for privatisation.

As a result, the electricity market is dominated by a small group of companies engaged equally in production, sales and distribution. The gas market is dominated by PGNiG, which, through various group companies, handles extraction, sales and distribution of natural gas. Apart from them, there are a number of other electricity and gas companies operating independently on the market, but they too are 100% controlled by the Treasury. The district heating and renewable energy sources segments have a greater diversity of ownership, with both Polish and foreign investors involved.

The sector is further affected by the EU’s climate change policy, in particular the obligation to reduce greenhouse gas emissions and achieve a 15% gross final share of renewable energy in total energy consumption by 2020. In a country where power is almost 100% based on fossil fuels—mainly coal—the implementation of EU policy is driving changes in the way the sector operates.

The new Energy Law

The new Energy Law tidies up the wording of electricity and heat sector regulations in Poland. The key rules have not been altered, or at least only slightly. The sector continues to be governed by a system of licences, a requirement for approval of tariffs, with supervision by the Energy Regulatory Office (Urz¹d Regulacji Energetyki, URE). However, heating companies which meet efficiency requirements would not have to submit tariffs to the URE.

The bill sets the stage for further increases in the flexibility of the electricity market. Vulnerable customers, on social welfare, would be afforded protection. Energy companies would have to reduce electricity charges to these customers by a set amount specified in the act. Instead of being carried out by an official seller, emergency sales would be carried out by an emergency vendor specified in the general distribution agreement. Also, a metering system operator role would be created. This body would create a database of metering information and administer it.

A computerised metering system would be built using smart meters. Distribution network operators are to install smart meters by 2020 at their own cost. Ultimately, all customers are to be billed for actual consumption rather than based on forecasts.

Only one entity would continue to be allowed to operate the electricity grid in Poland: a company 100% controlled by the Treasury and overseen by the Minister of Economy. The company also has an exclusive right to manage interconnections with the grids of other countries. Changes are made regarding capacity allocations of interconnections with grids of non-EU countries (the same rules on interconnections between EU countries are governed by Regulation (EC) No. 714/2009). An electricity transmission system operator would have to hold a certificate confirming its independence from entities involved in selling electricity. This is a requirement of EU law.

The bill would make life easier for closed distribution system operators, namely eliminating the requirement to prepare development plans and operating and maintenance manuals, submit tariffs for approval, connect new customers, and develop and update standard consumption profiles. This implements the requests of industrial power generators: firms which for historical reasons generate power in their establishments incidental to their core business.

The rules for supporting high-efficiency cogeneration are also to change. Energy trading companies would not be obliged to purchase electricity sourced from cogeneration. The system of certificates of origin for electricity from cogeneration and the obligation to purchase such certificates and present them for redemption are to remain in force. Companies which consume significant amounts of electricity where cogenerated energy accounts for 15% of the cost would obtain rights to independently settle obligations related to certificates of origin for cogenerated electricity. They would also be exempt from the obligation to purchase and present for redemption certificates of origin in respect of purchased and consumed energy in excess of 400 GWh per year.

The Gas Law

The proposed Gas Law regulates transmission, distribution, sale, storage, liquefaction and regasification of natural gas. The biggest advantage of the bill is that it separates out and organises the regulation of the gas sector. The act would apply only to gas supplied through the gas system. It includes arrangements to protect vulnerable customers through price reductions.


The switching of gas suppliers by customers has been properly resolved. An emergency sale option has been introduced in the event that an existing vendor stops selling gas to customers. A protected category of customers has been introduced, namely household consumers and organisations which provide basic public services (such as education and healthcare). Protected customers’ gas supplies would not be restricted, and entities selling to such customers would have to maintain reserves of gas to ensure security of supply. Generally, the system of licensing and tariffs is modified only slightly. The concept of gas trading is abandoned; only the selling of gas would be subject to licensing. Sellers who do not supply gas to households would be able to set gas prices without having
to seek regulatory approval of their tariffs each time. Tariffs could include the costs of investment in the development of renewable energy sources or high-efficiency cogeneration, which demonstrates legislators’ support for the construction of combined heat and power plants run on natural gas (using high-efficiency cogeneration). The requirement to hold a separate licence for importing gas from abroad is to be dropped.

The Gas Law implements the EU’s Gas Directive (2009/73/EC) into Polish law. Certification of independence is introduced for transmission system operators. The gas transmission system operator in Poland would still have to be only one entity: a company 100% controlled by the Treasury. The bill also introduces rules for exempting new infrastructure, including interconnections, from the requirement for approval of tariffs and the need to provide access to third parties.

The Renewable Energy Sources Act

The proposed Renewable Energy Sources Act would introduce a significant change in the support scheme for electricity generated from renewable energy sources. If the act comes into force, enterprises in this sector will have to significantly adjust their business plans. Although the system of certificates of origin of energy from RES (green certificates) is to be maintained, the formula for calculating the substitution fee is to be amended. It would be PLN 470 per MWh less the average sale price of electricity per MWh in the preceding
calendar year. The relentless rise in energy prices would therefore lead to elimination of the substitution fee, and thus reduce prices for green certificates.

In addition, certificates of origin would be issued specifying a correction factor depending on the type of RES facility. These coefficients are to be on the order of about 0.7 for large wind farms and co-combustion facilities to 2.0 for photovoltaic facilities. Coefficients for
micro-facilities would be 0.5 greater. In addition, certificates of origin would be available for only 15 years from the date the facility is put into operation. For systems that went online before 1997, it would be possible to obtain certificates for electricity generated in modernised sections of such plants, but only for 15 years from the opening of the modernised section. This considerably limits the possibility of obtaining certificates of origin for electricity produced in the largest hydroelectric power plants in Poland.

The obligation to purchase electricity generated from RES would be abolished, which means that renewables would have to compete with other electricity offered on the market. Nonetheless, the requirement to purchase electricity generated from RES micro-facilities would remain. Significant simplifications are also planned for entities operating micro-facilities for their own purposes, while selling up to 30% of the power they generate to outside customers. Such activity would not be treated as a business and would not
require registration. At the same time, energy trading companies would be required to purchase electricity produced in such non-commercial micro-facilities for about double the average electricity price. Micro-facilities which, as a business, sell a greater proportion of the electricity they generate to outside customers would have to be entered in the register of micro-facility electricity generators maintained by the president of the URE. Electricity
generation in microinstallations and agricultural biogas production would not be subject to licensing.

Entry into force of the new provisions

The proposals were intended to enter into force on 1 July 2012. Nonetheless, they must first complete the current public consultation phase. Then the final versions of the acts will have to be adopted by the government, passed by the Sejm and Senate, signed by the President and published. Because the essential interests of all energy companies will be affected, comments and discussions can be expected at each stage. This means that the package of laws will probably not take effect before the beginning of 2013.

 

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