BMI View: Poland's reluctance to adopt stringent EU emissions targets for 2030 sends warning signals to potential investors in the country's renewables industry. Poland's wavering support for renewable energy and - by extension - the uncertain regulatory environment has long been a key concern, undermining the long-term growth prospects of the sector. Furthernore , a victory for the opposition Law and Justice party in Poland's October general election would heighten the risks for investors in the Polish power sector and result in a more confrontational approach to EU energy policy. The party's populist policies are likely to extend to the power sector - leading to greater government intervention to support the coal sector and threatening the EU's long-term energy policy objectives.
Considerable uncertainty over repeatedly redrafted renewables energy sources (RES) law has already curbed investment in Poland's renewables sector in recent years, amid opposition to stringent EU-wide renewables targets. While we believe that the final version of the law and the introduction of a new competitive auctions system will at least provide a more predictable regulatory climate for investors, PiS's approach to EU directives does not indicate that the investment climate would be welcoming. The new competitive bidding system for projects will come into force in 2016 and implies that the government intends to lower the costs of subsidising new wind capacity. The ending of the former green certificates system - which awarded cost-calibrated funding post-investment - will impair wind capacity growth, aligning with our long-held view that there will be a slowdown in the wind sector in Poland.
Poland aims to derive 15% of its energy production from renewable sources by 2020, and we expect the wind and biomass segments to drive growth in the renewables industry. However, Poland remains at odds with the European Commission (EC) amid concerns that implementing green energy policies will destroy Poland's coal mining industry and harm the economy. We do not expect the approach to EU energy policy to change under new Prime Minister Ewa Kopacz, who has adopted a similar tone to her predecessor Donald Tusk (now President of the European Council). In fact, in her first speech to parliament on October 1, Kopacz reiterated the strategic importance of coal and stated that she would not condone any policy that risked spiking electricity prices. Clearly, this indicated that Poland would maintain its broad opposition to EU 2030 energy and climate targets when member states met to discuss them at the end of October 2014. As we expected, during the summit Poland was granted major concessions and will continue to receive free carbon trading permits under the European Emissions Trading Scheme (ETS) - enabling the country to continue burning cheap coal to keep electricity prices relatively low.
Furthermor,e a victory for the opposition Law and Justice (PiS) in Poland's October parliamentary elections would pose a threat to investors in the power sector and heighten the risk of confrontation with the EU over energy policy. Although the incumbent Civic Platform (PO) government has had a turbulent relationship with the European Commission (EC) as it has sought to sustain Poland's reliance on coal and support the domestic coal mining industry in the face of more stringent EU green energy policies, the election of more populist PiS would strain relations on such issues even further. PiS has already said, for example, that it wants to negotiate Polish exemptions from EU rules aimed at reducing carbon emissions.
In the event that PiS forms a government, the party's raft of populist policies is likely to extend to the power and renewables sector. According to our forecasts, coal will account for 80% of all electricity generation in Poland in 2015, and we would expect PiS to intervene heavily in the power sector to support employment through support for the domestic coal sector and also to ensure that cheap coal can be utilised in power generation to keep electricity prices low. We currently expect the amount of electricity generated from coal to fall slightly to 73% in 2024, but highlight that a PiS government would create upside to our forecasts for coal-fired generation through to the end of our forecast period in 2024.
Key Trends And Developments:
The introduction of a competitive bidding system will raise the threshold for entry into the wind sector, slowing down wind growth as Poland cuts its incentives for wind. This aligns with our forecast of wind deceleration over the coming decade. The new competitive bidding system for projects will come into force in 2016 and implies that the government intends to lower the costs of subsidising new wind capacity. The ending of the former green certificates system - which awarded cost-calibrated funding post-investment - will impair wind capacity growth, aligning with our long-held view that there will be a slowdown in the wind sector in Poland
Poland's long awaited and repeatedly redrafted Renewable Energy Law remains the best example of the country's stubborn refusal to implement renewable energy policies - and the resultant uncertainty remains the biggest inhibitor to greater interest in a fundamentally attractive renewables market ( see 'Regulatory Uncertainty Prolonging Renewables Hiatus', July 21 2014). Despite Poland's parliament approving the national renewable energy law in April 2014, implementation has still not occurred and it is currently four years overdue - raising questions about whether the law will be implemented in 2015 as anticipated. Until this is done, concerns that the Polish government is not truly committed to implementing the law will remain.
After years of uncertainty and alterations to the draft renewable energy sources (RES) law, the latest version (which was published in November 2013 by Poland's Ministry of Economy), was approved by the Polish government in April 2014. It proposes an alteration to the country's previous support scheme, which utilised Green Certificates, and a switch to a competitive bidding system. However, another event marks the regulatory uncertainty surrounding the law's approval. The law, scheduled to become effective from January 1 2015, was required to undergo further amendments as of October 2014. In particular, the Ministry of Economy submitted to parliament a set of changes with respect to grid connection agreements. Approval will now go over 2015, an election year, which will make final consensus difficult.
After a lengthy legislative process, the final draft of the act on renewable energy sources was adopted by the Polish parliament on 20 February 2015.The new support scheme will be based on an auction system, in contrast to the current regulations, which are based on green certificates. The subject of the auction will be the amount of energy generated in renewable energy sources (RES-E), with the President of Energy Regulatory Office (PERO) indicating the required amount of energy and its value in the auction's announcement. The production of RES-E should start within 24 months (solar farms), 72 months (wind farms) or 48 months (other sources) from the day on which the auction's winner is announced. The winner will be chosen on the basis of a procedure consisting of two phases: prequalification and the auction itself. Poland's Ministry of Economy (ME) expects that there will be a large number of auctions, especially in the first years of the new system. It has been estimated that the cost of the previous support system would amount to PLN 8.90bn by 2020, whereas the cost of new support scheme would amount only to PLN4.26bn during the same time period.
It was announced in September 2014 that the European Bank for Reconstruction and Development is considering investing up to EUR600mn annually in Poland, primarily for renewable energy projects. In November 2014 there was further confirmation that the Bank could provide a senior long-term loan up to PLN500mn (USD149mn) for 206MW of wind projects. The proposal has been made by units of local company Polenergia. The company will use the funds to build and operate the 106MW Zielona, the 48MW Mycielin, the 12MW Pieklo and the 40MW Grabowo wind parks. The total construction cost of the plants is estimated at PLN1.56bn (USD460mn).The wind power capacity will be installed in two phases and is scheduled to be commissioned between Q415 and Q116.
It was announced in July 2014 that Alstom secured a contract to supply turbines for the 90MW Lotnisko wind power project in Kopaniewo. In September 2014 it was announced that the French electrical engineering firm had started building the wind farm. The contract is worth about EUR80mn (USD103.5mn) and was Alstom's first wind power project in Poland to be awarded by Polish utility PGE's subsidiary, PGE Energia Odnawialna. The French firm will deliver and install 30 of its ECO 110 3MW turbines and offer operation and maintenance services in the first two years. Construction is scheduled to be completed in Q415.
Vestas Wind Systems secured an order to supply 58MW of wind turbines to EDF Energies Nouvelles for a wind park in Lubuskie Province, Poland. Vestas will supply 29 units of V100-2.0MW turbines. Vestas will also be responsible for the foundation works and servicing of the plant for two years. Turbine deliveries are expected to begin in Q115. The wind project is scheduled to start operating in Q415. The turbine order forms part of a framework agreement between Vestas and EDF, signed in 2011.
Israel-based Enlight Renewable Energy and the China-CEE Fund will spend up to PLN1.3bn (USD406.9mn) to jointly buy 250.5MW of wind facilities in Poland. The potential targets comprise the 214MW Project 2 and the 36MW Wroblew wind parks developed by Poland-based firm GEO Renewables. The two facilities will be bought through a joint venture between Enlight and China-CEE, where Enlight will hold a 50.1% stake. Geo Renewables will hold a minority stake in the two projects. The first stage of the 214MW Project 2 wind farm is expected to go online at end-2015, while the 36MW, PLN200mn (USD62.5mn) project is scheduled to start operating in November.
Swedish renewable energy company OX2 acquired Polish firm Greenfield Wind in June 2014 - with the aim of expanding the company's wind portfolio in Poland. The acquisition includes its 220MW wind project portfolio.
In October 2013, the European Bank for Reconstruction and Development stated it will provide a loan of PLN292mn (USD94mn) to the Polish government to finance the construction of three new wind farms in the country. The facilities - the 41.4MW Gawlowice, 36.8MW Skurpie and 25.3MW Rajgrod wind farms - will have a combined production capacity of 103.5MW. The projects are currently under development.
Polish Energy Partners is undertaking the construction of two new wind power plants with a combined capacity of 66.7MW. The company is developing the power plants in collaboration with German company Siemens.
GDF Suez inaugurated the 205MW Green Unit biomass plant in Polaniec in June 2013. The project is part of the company's 1,780MW thermal power plant and runs on a mixture of agricultural and tree farming by-products .