Energy regulator announces the results of the 2020 renewables auctions
On 14 and 18 December, the president of Poland’s Energy Regulatory Office announced the results of this year’s last auctions for the sale of electricity from renewable energy sources (RES) for new onshore photovoltaic (PV) installations and wind power plants with a total installed capacity of up to 1 MW and over 1 MW, held on 26 November and 3 December 2020 respectively.
Through 2019, support for over two thousand RES installations in Poland was allocated under the auction system. The value of electricity indicated in the bids totalled EUR 8.4 billion. In 2020, a maximum of EUR 6.1 billion was earmarked to support the RES sector, covering a volume of 75.3 TWh. Ultimately, 54.5 TWh of electricity, worth almost EUR 2.9 billion, was contracted as a result of this year’s RES auctions.
Higher prices in this year’s auctions for large installations
The auction for installations above 1 MW was the largest one planned for the current year. Almost 42 TWh of energy was contracted, at a cumulative price of EUR 2.1 billion. The auction was attended by 97 investors, who submitted 127 bids. Ultimately, 96 bids submitted by 70 investors won the auction. EUR 1.5 billion will be allocated to support wind farms and EUR 0.6 billion for large photovoltaic plants, respectively. According to the findings of the president of the Energy Regulatory Office (URE), the average sale prices were about 7.5% higher than last year’s.
This year’s minimum and maximum prices of contracted electricity and their relation to reference prices and last year’s prices are shown in the graph below.
2020: 42 TWh, EUR 1.5 billion (wind), EUR 0.6 billion (PV)
The maximum selling price of electricity was EUR 55.50 per MWh and the minimum was EUR 42.22. This year’s reference prices (i.e. the highest possible prices foreseen in the bids) was EUR 55.55 /MWh for onshore wind farms with an installed capacity higher than 1 MW, and for photovoltaic installations (with a capacity above 1 MW) EUR 75.55/MWh. By comparison, last year the maximum price at which electricity was sold in the same basket was EUR 81.84/MWh and the cheapest was contracted for EUR 36.18/MWh.
Significantly lower prices in auctions for small installations below 1 MW
According to the auction results announced by the president of URE, 1,618 bids were submitted for small installations with a capacity of less than 1 MW, and ultimately 747 bids submitted by 235 producers won. In this auction, 11.74 TWh of electricity was contracted for EUR 0.672 billion.
This year’s minimum and maximum prices of contracted electricity and their relation to reference prices and last year’s prices are shown in the graph below.
2020: 11.74 TWh, EUR 0.672 billion
The maximum selling price of electricity was EUR 59.75/MWh and the minimum was EUR 49.52/MWh. This year’s reference prices (i.e. the highest possible prices foreseen in the bids) was EUR 80/MWh for photovoltaic installations (with a capacity lower than 1 MW). By comparison, last year the maximum price for which electricity was sold in the same basket was EUR 72.70/MWh and the cheapest was contracted for EUR 59.80/MWh.
Over 2,400 MW of new capacity in the next three years
According to the regulator, the foreseeable total connection capacity of the projects to be created as a result of the auction for large installations may exceed 1.7 GW (of which 0.8 GW will come from PV and 0.9 GW from wind farms). In the case of small installations lower than 1 MW of connection capacity, there will be over 0.7 GW coming from PV installations (only producers of solar power entered the auction).
Support for the volume of electricity contracted under the auction is planned for the years 2021–2038.
COVID-19 and the statutory deadline for first sale of electricity
Under Art. 74(1)(1) and (2) of the Renewable Energy Sources Act of 20 February 2015, currently in force, investors are obliged to start selling the contracted energy within 33 months (for wind installations) or 24 months (for photovoltaic installations). The producers who won the auctions are facing an intensive period, while the entire RES market is expected to assume a greater and greater workload in the coming years. As usual, we can expect many M&A transactions in the coming quarters.
The ultimate resolution to the COVID-19 problem and its impact on the financing and commissioning of all installations contracted in the auctions remains an open question.
To protect companies from the RES sector during the COVID-19 pandemic, among other measures, under the Anti-Crisis Act of 31 March 2020 a one-time extension of the deadline for sale of electricity contracted in auctions was introduced.
Pursuant to Art. 70ba of the RES Act (added by Art. 45(2) of the Anti-Crisis Act), an electricity producer winning an auction has the right to apply for a one-off extension of the deadline for starting generation of the contracted electricity, to avoid the effect of forfeiting the collateral provided to the president of URE. A company can expect its request for an extension to be granted if a delay in:
- Delivery of equipment included in the installation of a renewable energy source
- Delivery of components necessary for construction of an RES installation
- Completion of an RES installation and connection to the power grid
- Commissioning and startup of an RES installation, or
- Obtaining a concession or entry in the registers specified in the RES Act
is caused by a state of epidemiological threat or a state of epidemic announced by the minister for health (RES Act Art. 83(3ba)).
In the event of a delay for one of these reasons, the regulator will issue a decision granting a one-time extension of the deadline for commencement of generation of the contracted electricity, for the time indicated by the producer in its application but no longer than 12 months from the existing deadline.
The Distance Act and its impact on the RES market in Poland
According to the president of URE, the auction results indicate a gradual depletion of relatively cheap wind projects, which are being replaced by rapidly growing photovoltaic installations. This is indicated, among other things, by an increase in the average price of the electricity offered by the winning participants in this year’s auction in this basket by 7.5% over the average price in 2019. As stressed by the regulator, the outcome of next year’s auctions envisaged for this basket will depend primarily on the announced plans to liberalise the so-called Distance Act (the law imposing a minimum distance from other structures of 10 times the height of a wind turbine). During the 12th European Economic Congress, Przemysław Hofman, director of the Department of Low-Emissions Economy at the Ministry of Economic Development, announced that an amendment to the Distance Act would enter into force at the beginning of 2021, but the bill is still at the internal drafting stage at the ministry. Therefore, it is likely that a draft of the bill to mitigate the “10H rule” will be released in early 2021.
Government plans for 2021: another 2,400 MW of new capacity in planned auctions
On 10 December 2020, the Minister of Climate and Environment presented the latest draft regulation on the maximum quantity and value of electricity from renewable energy sources that may be auctioned in 2021.
According to the draft, the maximum amount of electricity to be sold by auction in 2021 for new onshore wind farms and photovoltaic plants with a capacity of more than 1 MW and less than 1 MW will be about 53.23 TWh, and the maximum value will be about EUR 4.2 billion.
According to the government’s forecast, next year’s auctions will result in the installation of about:
- 600 MW of wind farm capacity
- 800 MW of capacity from PV plants with a capacity greater than 1 MW, and
- 1,000 MW of capacity from small PV plants with a capacity lower than 1 MW.
Another new feature will be support for agricultural biogas plants, which so far, due to the criterion of cutting off 20% of the most expensive bids, have had problems obtaining support through the auctions. According to the draft, for installations with a capacity higher than 1 MW using exclusively agricultural biogas for generation of electricity, or using exclusively agricultural biogas for producing electricity from high-efficiency cogeneration, the maximum amount of electricity that can be sold by auction is 0.5 TWh, at a value of EUR 74.44 million.
In the case of modernised RES installations, the quantity and value of electricity that can be sold through an auction will be zero.
As announced by the Ministry of Climate and Environment, the regulation should be adopted before the end of 2020. The draft is currently undergoing work in the government’s Legal Commission.
Igor Hanas, adwokat, Energy practice, Wardyński & Partners
Jagna Krotoska, Wardyński & Partners
