XVIII FEW
PWEA

RES auctions in Europe demonstrated numerous threats that may affect the Polish auction scheme

 

Poland is not the first country in Europe to introduce the auction-based support scheme for RES. Green energy auctions were already held in countries such as the Netherlands, Italy or United Kingdom. Gradually the scheme is being introduced in Germany and other EU countries. Experience from these countries demonstrates that auctions are accompanied by substantial issues that may result in much lower energy production than intended by the administration.

“The authors of provisions concerning auctions for green energy producers in Poland should take into consideration not only the legal framework for auctions in other countries, but also analyse the experience gained in other European states. The regulations introduced in Poland do not eliminate threats such as underbidding”, says Wojciech Cetnarski, President of the Polish Wind Energy Association.

Underbidding occurred, among others, in Italy and the Netherlands. The first auction in Italy was held in 2013, and 2014 saw commissioning of only 107 MW of wind capacity. It is very likely that a similar scheme will apply in Poland. The new RES Act or executive provisions thereto contain no provisions that could prevent underbidding. Moreover, the pre-qualification stage does not prevent submission of unrealistic bids.

Particular anxiety is raised by the Ministry’s of Economy rationale to the assumptions to reference prices for particular RES technologies that will participate in the upcoming auctions. In the statement of reasons to the regulation as well as in the replies to the remarks to the draft regulation Ministry of Economy completely ignored the fact that the cost of capital data assumed for the calculation of reference prices is completely wrong and does not consider the actual situation on the capital market. For example, the assumptions do not consider that Poland is outside the Euro zone, what leads to exchange rate risk, whose costs must be included in the proposed cost of capital. If auction participants use the assumptions similar to the ones suggested by Ministry of Economy, the underbidding will be even deeper. Moreover, such assumptions will drive away long-term investors. Foreign investors will shift their attention to markets outside Poland, while the domestic industry investors, in particular public companies, by accepting the Ministry’s assumptions will decrease the profitability of RES investments to the extent undermining not only their legitimacy, but also legality.

The results of the auction and the construction of new, sustainable RES capacity is furthermore limited by a number of other factors that appeared when auctions were held in other European countries. These include insufficient volume of energy offered for auctions compared to the potential of RES installations and strict allocation to particular technological “baskets” without the possibility to transfer unused volume even if installations of a particular type are incapable of producing the amount of energy requested by the government. The next year’s auction in Poland may replicate the Dutch or Italian experience, where excessive competition in the “basket” including wind energy resulted in very low completion rates among projects that were awarded contracts.

Conclusions from and the history of RES auctions in countries which already have held them were presented during the 18th Wind Energy Forum on 24 November in Warsaw. The event, organised by the Polish Wind Energy Association, was attended by representatives of Italy, the Netherlands, Germany and United Kingdom.

“The auction scheme is not a bad solution, however the devil is in the detail. If we want auctions in Poland to create new, sustainable installations producing green energy, we have to exploit the conclusions from the history and auctions of countries such as the Netherlands or Italy. We also have to closely look at the British and German experience. Therefore we invited experts from the four countries. Their experience demonstrates that division into technological baskets is efficient only in theory, while in practice in only creates additional barriers. Some baskets will face underbidding, wheras other, where the competition is less intense, will exhibit prices close to the reference price, resulting in substantial increase of the support scheme costs”, said Grzegorz Skarżyński,  PWEA Vice-President.

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20.11.2015

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03.11.2015

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The honorary patronage over the 18th Wind Energy Forum was exercised by Deputy Prime Minister, Minister of Economy Janusz Piechocinski.

03.11.2015

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