Polish RES Prospects in the Aftermath of Europe’s Largest Auction

01 June 2020

 

Wojciech Sztuba, PhD, Managing partner at TPA Poland

The RES market in Poland seems to be recovering after what have been hard to bear years of slowdown and stagnation. The main two renewable technologies showing the largest expansion potential - namely onshore wind and large scale PV - have been, until recently, discriminated against in the auction support scheme that has been in place since 2016. Yet in 2018 the urgency of catching up with energy generation mix requirements agreed upon with the EU reverted this trend, and the first auction in the joint basket for wind onshore and PV installations of over 1 MW was tendered. 

Onshore Wind Back on Stage

As a result, roughly 930 MW of new onshore wind projects are currently under construction, aiming at a 15-year-generation based on auctioned prices swerving between 158 and 217 PLN/MWh (averaging 196 PLN/MWh). This corresponds with 93% of this basket’s auction budget and practically no PV project could be counted among the winners, as they can still hardly compete with wind if thrown in together.

The 2018 auction results brought hope for the following year’s results, especially since the foreseen budget for December 2019 for the same wind+PV basket was announced at 114 TWh. If tendered fully and if dominated by onshore wind once more as was the case in 2018, a demand of approximately 2,5 GW of new wind farms would need to be constructed – in other words 35% of Poland’s capacity so far built. Ultimate results for 2019 were somewhat below expectations: only 68% of the auction budget was tendered with prices between 163 and 233 PLN/MWh and leading to the construction of approx. 1,7 GW of new capacities.

Winning an Auction is Not Everything

Many doubts and questions are being raised in respect to the actual realization of tendered volumes, as well as further development of the sector. The execution of auctioned projects suffers few challenges resulting from the infamous 10H rule, and rather rigid manners of public support allocation. 

The 10H rule introduced to Poland’s construction law as of early 2016, disables permitting any wind turbine construction if it is located closer to housing areas than the distance corresponding to its 10-times-height. In a densely populated country like Poland this regulation led to an almost entire lockout for wind energy expansion since 2016.

One other repercussion was that any projects that were to win the 2018 and 2019 auctions were forced to use 2015 turbine designs (or older) during their construction phase. Hence, projects with won auctions are typically based on turbines with to-be-installed capacity of 2 MW on average, and rarely higher than 2,3 MW. This is not only suboptimal in terms of productivity, but also poses challenges in the acquisition of turbine models that in many cases are no longer supplied. Even if some re-design potential allowing for gear replacement is theoretically available, not all projects were developed flexibly enough to go for it. For many, in fact, the tight deadlines for starting first power production are. 

Wind investors have 33 months after winning an auction to start selling the energy produced in the new installation, whereas PV operators have 24 months at their disposal. Due to the looming COVID-19 pandemic alert, on March 31st Poland’s parliament adopted the so-called anticrisis-shield containing, among others, a provision on prolonging the deadlines by 12 months. This, however, does not occur automatically, but upon investors’ application. The longer deadlines are certainly good news for businesses, for multiple reasons. Even though coronavirus’ paralyzing effects have not hit the RES market and suppliers have been up to the task, one has to remember that the agenda of steps required to complete wind farm constructions is vast. 

What is crucial is that within the same deadline projects usually also have to change owners after the won auction, as this is when investors are first willing to buy the fully permitted projects. Therefore, except for standard elements related to the construction phase, there is often a parallel action plan surrounding power generation concessions  and other formal steps necessary to be taken by the new owner. Last but not least, another important obstacle in the race with time is the fact that for the given year auctions are tendered only once. It is easy to imagine that when the clock starts ticking at the same time for 1,7 GW of new projects, a bottleneck effect may quickly pop up along the supply chain.  

Looking forward into 2020 and the following years, a few observations stand out. Firstly, we already know the projected budgets for the 2020 auction and they are much lower than in 2019. For the wind+PV basket over 1 MW the forecast is for 14,7 TWh, which comes down to less than 330 MW of new wind installations, provided that only wind will win. According to market data there should still be over 1,000 MW of auction-ready wind projects which means that the 2020 basket should be fully used by wind, unless other factors have an impact on it (e.g. limits in supply of old turbine types). 

Even though the “old” wind projects will soon be gone and the wind sector needs to somehow develop beyond 2020, it will simply not as long as the 10H rule remains in force. Having said that, it is worth mentioning that a serious discussion between decision makers in the Polish government is currently being carried out and it is not unlikely that the said restriction will be tempered still this year. 

Certainly it can be stated that a change in the political approach to wind energy has already been taking place in Poland recently, allowing us to make brighter forecasts. In fact once the 10H rule is abandoned or lowered, the dynamic expansion of the onshore wind sector is already feasible outside the auction scheme.

Good Winds for PV

The same story pretty much the same applies to PV technologies. Whereas large scale installations have so far been discriminated against by being forced to compete with wind in the same auction basket, it seems strikingly obvious that soon after 2020 public support will no longer be necessary for this technology to further spread. 

The PV sector has been dynamically expanding in Poland in recent years. Developers adopted auction model limitations and already offer a large supply of optimized projects under 1 MW. The 2018 and 2019 auctions showed that PV technically beat wind over the entire budgets foreseen for baskets wind+PV below 1MW. This is on the one hand because almost no wind projects are offered in this range. But no less important is the quality and competitiveness of the PV projects. Last December 759 installations won the auction, offering prices from 269 to 327 PLN/MWh – much lower than last year and certainly much higher than the ones we likely expect to be offered next year.

Offshore Closer Than Ever

Last but not least, the Polish offshore wind sector deserves our attention and applause. Despite still being at an early stage of project development, it seems that we shall finally soon welcome dedicated regulatory solutions for this technology. 

In January the draft act on supporting offshore wind energy was made available for public consultation. It is expected to be in force by mid 2020 and if in place it shall fill the legal and administrative gaps which are necessary to permit the installation of energy generation at sea. 

The draft act assumes two phases for granting public support: in the first phase up to 4,9 GW shall be directly contracted by the government with the most advanced projects by 2022. The second phase shall be available for other projects and based on the auction model. Currently, many developers are lobbying for the extension of the first phase to 6,5 GW, and a longer closing time. The European Commission’s approval is necessary in order to adopt the planned provisions, in particular with respect to the first phase that assumes suspension of the competition mechanism.  


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Poland's Energy Industry 2020

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