The RES auctions are fast approaching – the first one, for existing installations, is due to start on October 17.
The long-awaited RES auctions start tomorrow. This year, the President of the Energy Regulatory Office has divided the auctions into two rounds: 17-25 October for existing installations and 5-20 November for new installations.
The auction system is based on periodically held auctions during which renewable energy producers offer to generate a certain amount of energy for a guaranteed price over the course of 15 years. The Ministry of Energy has determined the amount of energy it intends to contract through the system. The auctions are divided into five “baskets”, with the bidding for each basket to be held on a different date:
- The first basket is for installations burning biogas from a variety of landfills (e.g. waste and biogas from sewage treatment plants)
- The second basket is for hydro energy, geothermal and offshore wind farm installations
- The third basket is for installations utilizing agricultural biogas only
- The fourth basket is for onshore wind farms and photovoltaic power plants
- The fifth basket is for hybrid RES installations
Volumes for This Year
The government intends to earmark the most energy – a staggering 45 million MWh – for the fourth basket auctions. It plans to spend approximately PLN 15.75 billion on it. It is planned to contract 1,000 MW from wind farms. The second most widespread type of RES preferred by the auction system in 2018 is photovoltaics, of which 750 MW is anticipated to be contracted.
As per the auction system, the lowest bids will win. However, bids may not exceed the reference price, which ranges from PLN 570/MWh (for agricultural biogas plants) to PLN 310/MWh for onshore windfarms of up to 1 MW. For wind farms exceeding 1 MW, the reference price is PLN 350/MWh, while for photovoltaic plants exceeding 1 MW – PLN 400/MWh.
What Happens After the Auction?
Having won the auction, the owner will have a certain amount of time to launch its operations: two years for photovoltaics and four years for any other RES installations.
Investors planning to participate in real auctions could enter a mock auction, held in September 2018. Those planning to invest in wind farms placed offers within the PLN 225- 350/MWh range. They were chiefly projects of up to 26 MW, which constituted 60% of the bids placed, the share of larger projects of 26-50 MW was 25%, while that of the biggest projects beyond 51 MW – 15%.
As may be assumed, the idea behind the regulator listing auctions for many installations up to 1 MW in PV was to create a market for small local investors or their local consortia. As the winning projects from 2016 show, planning is one thing, and convincing the other party – local entrepreneurs – to implement such plans is another. This will be discussed below.
Auctions and Projects From 2016 – Constructing or Selling?
After the last RES auction, which took place in 2016, many projects on the market have still not begun the installation of RES and many of them are now for sale. Owners attempted to dispose of them at a discount, while those who could not secure financing for their investment disposed of winning projects to avoid paying penalties. The Energy Regulatory Office emphasizes that, according to the bid placing principles, an offer made during the 2018 auctions is binding on the participant – it may not modify or withdraw from it, while severe penalties will be imposed for failing to complete the project.
Investment Funds Join the Game
The offers of installation sales of the winning auctions have appeared on the market largely due to the entry of investment funds. This is even more interesting since just being admitted to the auction required a complete set of documentation and building permits and the securing of financing of such an investment.
Actually, immediately after providing the results of the auction, investment funds can start the investment process (in relation to the auction from 2016), taking over entities that have installations along with won auctions.
Transferring ownership of a winning installation is possible applying the provisions of the Code of Commercial Companies, through a share deal, because the RES Act does not stipulate the manner in which to transfer the rights and obligations arising from winning a RES auction onto other entities.
The obvious shortcoming of a typical acquisition of a company with a virtual project that won the auction is the necessity to conduct thorough due diligence to consider regulatory, corporate and fiscal risks if such an entity has also had a long history or has operated in other types of industries.
Offshore in Poland
Following rather firm and promising declarations made by the Polish government with respect to the development of offshore wind farms, this dynamic has lost momentum in the recent weeks. According to the Ministry of Energy, the draft bill is to be announced this year, so that it can be legislated and passed in the first six months of 2019.
Yet recently, the Government Plenipotentiary for Strategic Energy Infrastructure has informed that offshore projects will not be included in the support system and should be commercial projects. Given that energy prices in Poland have increased by several dozen percent for the industry (nearly 85% of manufacturing in Poland draws on coal-fired plants), it is unlikely that no support from state on such projects will be an obstacle.
What Can Be Expected?
If, after this year’s auctions, history repeats itself, next year (2019) may see several hundred megawatts worth of projects won through auctions. Many investment funds will build or supplement their portfolios. Large-scale energy will rather appear on the sea and without the financial backing of the state. It is not expected that Poland will be able to fulfill the EU renewable energy generation obligations for 2020.