Instruments supporting the development of renewable energy sources in Poland

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1 ISSN paper version ISSN electronic version Economic and Environmental Studies Vol. 12, No.4 (23/2012), , Dec Instruments supporting the development of renewable energy sources in Poland Alicja GRACZYK Wrocław University of Economics, Poland Abstract: During the last few years a boom in the construction of wind farms in Poland could be observed in particular on locations which were considered as undiscovered or not available until now. The growth rate of installed capacity in wind power was in 2010 about 53% - one of the highest in the world. Investment in wind power plays a key role in the EU sustainable development strategy and can significantly contribute to the achievement of the ambitious energetic and climate policy targets of the UE and Poland. The aim of this article is to assessment of support mechanisms, regulations and financial instruments supporting the development of the renewable energy sources sector, in particular wind energy. Keywords: renewable energy sources, wind energy, instruments supporting renewable energy sources 1. Introduction While the global financial crisis at the end of the first decade of the twenty first century caused an economic downturn in many countries, the Polish economy avoided a recession, and in this setting the wind energy sector expanded. In 2010 the energy generating capacity growth of wind farms in Poland amounted to 382 MW (ranked 7th in Europe), constituting an increase of 52.3% (Wind Energy in Poland, 2011). While this growth seems to be impressive, much effort has to be undertaken in order to achieve the aims of the Directive 2009/28/EC of the European Parliament and of the Council of 23 April Poland has adopted the assumptions of this directive for internal energy policy, the so-called 3 x 20%" objectives concerning 20% reduction of CO 2 emissions (reduction of greenhouse gas emissions, parallel efforts to cut emissions by even 50% by 2050 from 1990 levels), 20% reduction of energy consumption through improved Correspondence Address: Alicja Małgorzata Graczyk, Wrocław of Economics, ul. Komandorska 118/120, Wrocław, Poland. alicja.graczyk@ue.wroc.pl 2012 Opole University

2 Alicja GRACZYK energy efficiency and 20% share of energy from renewable energy sources (RES) in final energy consumption (Directive 2009/28/EC). The key objectives of Poland's energy policy on RES are as follows (Poland s Ministry of Economy, 2009).: Increase the share of renewable energy sources in final energy consumption to 15% by 2020 and 20% by 2030,Achieve a 10% share of biofuels in the transport fuel market by 2020 and maintain this level in the years to follow, Protect forests against excessive exploitation aimed to obtain biomass and promote sustainable use of farmland for RES-related purposes, including biofuels, with a view to preventing competition between energy generation from renewables and agriculture. To meet the targets, Poland needs support mechanisms for developing the RES market. The aim of this paper is provide an assessment of the development of the wind energy in Poland taking into consideration support mechanisms, regulations and financial instruments. In the first part of the article, the current state of development of wind energy in Poland is discussed. In the second part, support mechanisms indicated in the EU are discussed. Afterwards, the most important commonly used support mechanisms their function in Poland is discussed. Besides regularion, financial support for wind energy in Poland is discussed as an important factor in the development or decline of RES 2. Development of wind energy in Poland More new wind power capacity was installed in the EU in 2009 than any other electricitygenerating technology. Approximately 39% of all new capacity installed in 2009 comes from wind power, followed by gas (25%) and solar photovoltaics (17%). Europe decommissioned more coal, fuel oil and nuclear capacity than it installed in Taken together, renewable energy technologies account for 62% of new power generating capacity in 2009 (The European Wind Energy Association, 2010). In 2011, 9,616 MW of wind energy capacity was installed in the EU, making a total of 93,957 MW - enough to supply 6.3% of the EU's electricity. 400

3 INSTRUMENTS SUPPORTING THE DEVELOPMENT OF RENEWABLE ENERGY Representing 21.4% of new power capacity, wind energy installations in 2011 were very similar to the previous year's 9,648 MW. The wind industry has had an average annual growth of 15.6% over the last 17 years ( ) (The European Wind Energy Association, 2011). For the last couple of years Poland has been experiencing rising interest in renewable sources of energy. Poland has 1968,305 megawatts (MW) installed power in wind turbines, mainly in proximity to the Baltic coast (Polish Wind Energy Association, 2012). There are also single turbines or groups of a number of small turbines distributed among the whole country. The measurements of wind parameters made by private investors show that favorable conditions exist at the area of 2/3 of Poland s territory (voivodships: pomorskie, zachoniopomorskie, dolnosląskie, warmińsko - mazurskie, podkarpackie, podlaskie). However, installed capacity concerns mainly coastal regions (see Table 1) where winds blow stronger than in other parts of the country (7 m/s) and energy infrastructure is better developed. The growing supply of wind energy and the latest wind speed investigations show that dolnosląskie voivodship has comparable wind seed conditions to coastal regions. An average wind velocity on investment areas ranges from 5 to 7 m/s. Polish wind conditions are comparable to Danish on the sea and German in the mainland. Poland has no detailed wind atlas at its disposal. The only one which is only one accessible for public information and was created by the Institute of Meteorology and Water Management in the period of The average capacity of a wind turbine located in Poland is approximately 1,52 MW. The actual technological potential that can be used in economic terms, shows that Poland's renewable energy resources suffice to meet almost half of the demand for final energy (heat, electricity, transport fuels). It is said that this potential will be growing as RES application technologies keep evolving proportionally to the development of RES technologies. If realised, Poland's potential will allow to meet 48% of the demand for renewable energy by This potential is currently scarcely used, at a level of 17% (Renewable energy in Poland, 2009). In Poland more than 28 big wind farms are located (every farm has more than 1 MW installed capacity) (in Table 1 the most important are presented), 23 more wind farm projects are under construction, e.g., Darłowo with a capacity of 250 MW and Projekt Słowiński with a capacity of 240 MW. On 15 October 2009 the largest wind farm in Poland was officially opened. In Margonin between Wągrowiec and Piła the company Neolica Polska Sp. z o.o., owned by Energias de Portugal, built a 120 MW wind farm - 60 wind turbines with a capacity of 2 MW. 401

4 Alicja GRACZYK They will produce approximately MWh of energy per year (Polish Wind Energy Association, 2012). Wind energy density in Poland is one of the smallest in Europe. Installed capacity per capita is kw, whereas per km 2 of land area the figure amounts to 1.44 kw. In terms of installed power Poland is not visible on the world map yet. The country is far behind Germany (the leading country in wind energy), the USA, Spain, Denmark, Italy and the UK. However, Poland s installed capacity (in total) is much bigger compared to other Central and Eastern European Countries Latvia (31 MW), Lithuania (154 MW), Estonia (149 MW), Ukraine (87 MW), Romania (462 MW), Bulgaria (375 MW), Hungary (295 MW), Slovakia (3 MW), Czech Republic (215 MW) (Wind in power, 2011). Table 1. The installed capacity in Poland on Project Province Capacity [MW] Barzowice zachodniopomorskie 5,1 MW Cisowo zachodniopomorskie 18 MW Zagórze zachodniopomorskie 30 MW Lisewo pomorskie 10,8 MW Tymień zachodniopomorskie 50 MW Puck pomorskie 22 MW Kisielice warmińsko-mazurskie 40,5 MW Kamieńsk łódzkie 30 MW Jagniątkowo zachodniopomorskie 30,6 MW Gnieżdżewo pomorskie 22 MW Karścino zachodniopomorskie 69 MW Łebcz pomorskie 8 MW Suwałki podlaskie 41,4 MW Source: Polish Wind Energy Association,

5 INSTRUMENTS SUPPORTING THE DEVELOPMENT OF RENEWABLE ENERGY The huge boom for building wind farms led to the situation, that nowadays wind farms being under construction range from 50 to over 100 MW installed capacity. The average annual growth rate in cumulative installation over the last 5 years in Poland was 78% (see Figure 1). The highest rate accounted for (108%) took place during the period of Afterwards, the growth rate declined: (81%), (71%) and (53%) (Polish Wind Energy Association, 2012). As public demand for green energy grows, and as the cost of producing energy from wind continues to decline, it is likely that wind energy will provide a growing portion of the nation's energy supply. According to the European Commission s Baseline business-as-usual scenario, electricity demand will increase by 52% between 2000 and Wind energy has come of age, and now constitutes a mainstream power technology that is well known even in Poland. A single modern wind turbine annually produces 180 times more electricity and at less than half the cost per kwh than its equivalent twenty years ago (European Wind Energy Association, 2010). Figure 1. Wind power capacity installed in Poland by the end of each year (cumulative) Source: Authors own elaboration based on data from European Wind Energy Association, Support systems in the EU According to the EU energy policy, Poland has a binding target to increase the share of renewable energy to 15% in the final energy consumption by the end of To meet this target 403

6 Alicja GRACZYK Poland needs to fasten its progress towards the RES (renewable energy sources). Each European Union member has a different support mechanism for electricity from renewable energy sources. There are 2 types of mechanisms: the fixed price system and the quota system. In the first system the government dictates the electricity prices or premiums paid to the producers and lets the market determine the quantity. In the quota system the government dictates the quantity of renewable electricity and lets the market determine the price. Both systems do not create an open electricity market. In Poland the support mechanism is completely unique among the systems used in the EU. The main source of support for investors is so called green certificates, thus property rights given to certificates of origin which are a confirmation of production of energy from renewable sources (Graczyk, 2010). When clustering the different types of support mechanisms available to electricity from renewable energy sources, a fundamental distinction can be made between direct and indirect policy instruments. The aim of direct policy measures is to stimulate the installation of renewable technologies immediately, whereas indirect instruments focus on improving long-term framework conditions. Further important classification criteria are whether policy instruments address price or quantity, and whether they support investments or generation (Graczyk, 2010). 4. Regulations of the electric energy market The function of regulatory body is being implemented by Urząd Regulacji Energetyki (Energy Regulatory Authority, ERA) with the aim to stimulate the business efficiency in the energy sector. In accordance with The Power Law nomenclature, state interference into the power system takes place through the so-called regulations basis on The Power Law. Tasks in the scope of regulation of the energy and development of competition shall be implemented by the Chairman of the Energy Regulatory Authority - "the Chairman of ERA" - a central government administration organ. The Polish Energy Act was accepted by the Polish Parliament in August 1997 and entered into force in January 1998 (Ustawa, 1997). Since then it has been amended several times. There are several important amendments which help to support renewable energy development. The essence of these amendments lies in separating the electrical power from the ecological quality of 404

7 INSTRUMENTS SUPPORTING THE DEVELOPMENT OF RENEWABLE ENERGY renewable energy. Thus, such electricity becomes a product entering the National Power System on the same terms and conditions as any other type of electrical power. The Chairman of the Energy Regulatory Authority officially dictates the price of green energy. For the year 2011 the price was PLN per 1 MWh (Prezes Urzędu Regulacji Energetyki, 2011). The price of the ecological quality of renewable energy is reflected in the price of proprietary interest attributable to certificate of ownership. The system works in the following way: each producer of green energy is able to sell ecological quality of renewable energy by himself or through the agency of the company to which he his connected, having generated a certain quantity of energy and making a record of the quantity of this ecological energy in a special register run by the Regional Energy Office. The moment the record has been made the ecological quantity recorded will become a proprietary interest attributable to certificate of ownership. The proprietary interest attributable to certificate of ownership can be tradable on the Power Exchange and become an extra source of income. It can be traded until the actual owner applies for amortization thereof, and thus for acknowledging fulfillment of the duty related to the obligatory share 10.4% of renewable energy in the whole volume of energy that has been sold as specified in the proprietary interest attributable to certificate of ownership. According to the energy Act (article 9a) the Ordinance of Ministry of Economy imposes certain obligation on producers, power utilities, and distribution utilities to purchase certificates of origin accounted 10.4% for electricity from renewable sources that has been sold last year or to pay supplementary fee amounting to PLN / MWh (in the year 2011). This percentage will be gradually increased up to 14.4% in If power utility do not meet this target, penalties will be imposed (Projekt Rozporządzenia Ministra Gospodarki, 2011). Another support instrument is based on given priority for entering the grid by renewable energy producers. The company to which a given installation is connected has to introduce this energy in the system and pay for it according to the price dictated by The Chairman of the Energy Regulatory Authority each year. To sum up, the green energy producer can obtain for each generated MWh the amount of money that equals the price of electricity (PLN /MWh) and the proprietary interest attributable to certificate of ownership (PLN /MWh for OZEX_A index on Property Rights Market for RES) (Polish Power Exchange, 2011). It accounted for circa PLN 425 in 2010 (Polish Wind Energy Association, 2010). 405

8 Alicja GRACZYK 5. Financial support It is highly believed that wind energy is subsidized in Poland. The fact is that there are not that many sources of co-financing wind power in Poland. Producers of energy from wind farms can apply for support for realization of investments of wind parks construction from the National Environment Protection and Water Management Fund and its regional branches. Rules of granting and amortizing loans and granting guarantees, credits and donations from the Fund s resources are not especially favorable for wind energy. During , the Fund signed only two contracts on co-financing Tymien and Kamieńsk projects for the total amount of PLN thousand (Narodowy Fundusz, 2010). Various financing mechanisms are available in the context of The Environmental Protection Bank and Raiffeisen Bank which provides soft loans. Other support could be obtained from EcoFund in the period , called fast path, which was only accessible for solar projects. Before that time EcoFund provided non-repayable grants (since 1992) and low interest loans (since 2002), and through the Act on Support for Thermo-Modernisation Projects (1998) investments in the modernisation of thermal installations were facilitated as well (Raport z oceny, 2010). Wind energy is excluded from the resources from the Norwegian Financial Mechanism and the EOG Financial Mechanism. 6. Concluding remarks Analyzing Polish support mechanisms several types of mechanisms can be identified: direct mechanisms: fixed green energy price, purchase obligation, tradable green certificate system, low interest, soft loans; indirect mechanisms: lower taxes, simplification of authorization procedures, lower grid connection charges. Polish energy policy instruments address both price and quantity. The main instruments of the system are: fixed green energy price, purchase obligation and the tradable green certificate 406

9 INSTRUMENTS SUPPORTING THE DEVELOPMENT OF RENEWABLE ENERGY system. Tradable certificates of origin were launched on the market in the April 2005, and the obligation for power purchase from renewable sources was introduced in 2000 (amended in 2003, 2004, 2005, 2006 and 2008). Each amended obligation involves a requirement on energy suppliers to provide a certain minimum share of RES energy - for instance in 2005 and 2008 the amendments of the Ordinance of Ministry of Economy were as follows: (the share of: 3.1% in 2005, 3.6% in 2006, 4.8% in 2007 and 7.5% in 2010) (the share of: 7% in 2008, 8.7% in 2009, 10.4% in , 10.9% in 2013,11.4% in 2014, 11.9% in 2015, 12.4% in 2016 and finally 12.9% in 2017) (Ministerstwo Gospodarki, 2008). Both mechanisms as well as the support instrument that obligates power utility to connect renewable energy sources to the common grid as a top priority, are still very helpful and crucial in the rapid development of RES. However, they were not sufficiently enforced. As long as a support mechanisms function, wind investors success will not depend on goodwill of local power utility. In Poland in the period the installed cumulative capacity increased by an average of 78% annually. This growth rate in wind energy is impressive. Power growth in the period exceeded 1800 MW, i.e. approximately 450 MW of new installed power per year. Polish energy policy aimed at ambitious quantitative targets for the share of wind energy in the energy mix. Polish government plans for the year 2010 were 2000 MW of installed capacity, and a 2.3% share of wind generation in domestic energy consumption. However, currently wind generation covers only 0.69% (1029 GWh/ 148.7TWh) of domestic consumption of electric energy and generates only 1029 GWh. With the current growth rate in wind energy and the new legal obligations in 2012, Poland has a bigger chance to meet the EU targets. For meeting the EU policy targets by 2020, Poland needs to enhance the support mechanisms and introduce complex ecological policy solutions. Literature Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009, Dz. Urz. UE L 140/16, , European Wind Energy Association (2011). Available at: Accessed 6 September Graczyk, A.M. (2010). Instrumenty wsparcia produkcji energii elektrycznej z odnawialnych źródeł energii w Polsce. In: Famielec, J.; Kożuch, M. (eds.). Rozwój polityki ekologicznej w Unii Europejskiej i w Polsce: Kraków: Uniwersytet Ekonomiczny w Krakowie. 407

10 Alicja GRACZYK Instytut na Rzecz Ekorozwoju (2010). Raport z oceny programu ekokonwersji realizowanego przez Fundację Ekofundusz. Warszawa: Ernst&Young. Ministerstwo Gospodarki (2008). Rozporządzenie Ministra Gospodarki z dnia 14 sierpnia 2008 r. w sprawie szczegółowego zakresu obowiązków uzyskania i przedstawienia do umorzenia świadectw pochodzenia, uiszczenia opłaty zastępczej, zakupu energii elektrycznej i ciepła wytworzonych w odnawialnych źródłach energii oraz obowiązku potwierdzania danych dotyczących ilości energii wytworzonych w odnawialnym źródle energii. Dz. U nr 156 poz. 969, z późn. zm. Narodowy Fundusz Ochrony Środowiska i Gospodarki Wodnej. Available at: Accessed 12 May Poland s Ministry of Economy (2009). Poland's energy policy till Warsaw: Ministry of Economy. Polish Power Exchange (2011)., OZEX_A index on Property Rights Market for RES. Available at: Accessed 14 December Polish Wind Energy Association (2010). Opening of the largest wind farm in Poland. Available at: Accessed 1 May Polish Wind Energy Association. Wind energy in Poland. Available at: Accessed 7 July Prezes Urzędu Regulacji Energetyki (2011). Informacja (nr 8/2011) w sprawie średniej ceny sprzedaży energii elektrycznej na rynku konkurencyjnym za rok 2010, Warszawa. Projekt Rozporządzenia Ministra Gospodarki w sprawie szczegółowych warunków funkcjonowania systemu elektroenergetycznego (2011). Available at: pdf. Accessed 14 December Renewable energy in Poland (2009). APAX Consulting Group. Invest in Poland, Warsaw 30 th November The European Wind Energy Association (2010). Wind in Power European statistics. February The European Wind Energy Association (2011). Wind in Power European statistics. February Ustawa z dnia 10 kwietnia 1997 r. Prawo energetyczne, Dz. U nr 54 poz. 348 z późn. zm. Wind Energy in Poland (2011). Horwath, Invest in Poland, Warsaw, November Instrument wspierające rozwój odnawialnych źródeł energii w Polsce Streszczenie W ciągu ostatnich kilku lat można zaobserwować w Polsce boom pod względem budowy elektrowni wiatrowych, w szczególności na tych obszarach, które dotąd uważano za nieodpowiednie. Wskaźnik wzrostu potencjału elektrowni wiatrowych wyniósł w 2010 roku około 53% i był jednym z najwyższych na świecie. Inwestycje w pozyskiwanie energii wiatru odgrywają kluczową rolę w strategii zrównoważonego rozwoju UE, a co więcej mogą istotnie przyczynić się do osiągnięcia ambitnych celów polityki energetycznej oraz dotyczącej zmian klimatycznych, zarówno w UE, jak i w Polsce. Celem niniejszego artykułu jest ocena mechanizmów wsparcia, regulacji oraz instrumentów finansowych wspomagających rozwój sektora odnawialnych źródeł energii, a w szczególności energii wiatrowej. Słowa kluczowa: odnawialne źródła energii, energia wiatrowa, instrumenty wspierające odnawialne źródła energii. 408