Electricity law and regulation in Poland

1.1.1 The Polish electricity sector is partly privatised. It has legally unbundled companies; the majority of which belong to vertically integrated entities. Vertically integrated state-owned entities have taken some important privatisation steps since 2008, however, the process is not yet finished.

1.1.2 In 2011, legislative changes in Poland were started which aimed at introducing significant changes to the Energy Law in order to implement the Third Energy Package (concerning common rules for the internal market in electricity), and these changes came into force by way of an amendment to the Energy Law on 11 September 2013. This amendment to the Energy Law provides for, amongst others things, the implementation of the Transmission System Operator (TSO)certification and unbundling regime, new regulations concerning microinstallations, new regulations supporting the grid connection of renewable energy sources (RES) and regulations relating to the statistical (i.e. virtual) transfer of energy produced by RES between EU member states.

1.1.3 New Renewable Energy Sources Act (defined in section 3.5.2) came into force, which changed the principles of the RES support system. The green certificates system was replaced for new installations with a new auction-based system.

1.2.1 State-owned entities have been organised into four vertically integrated groups and are partially privatised. These groups are PGE Polska Grupa Energetyczna S.A. (PGE), TAURON Polska Energia S.A. (TAURON), ENEA S.A. (ENEA) and ENERGA S.A. (ENERGA).

1.2.2 All of these companies combine generation, distribution and trading (including supply) activities. However, in pursuit of compliance with the Internal Market in the Second Energy Package unbundling regime, Distribution System Operators (DSO) were legally unbundled on 1 July 2007.

1.2.3 The new provisions of the Energy Law establish ownership unbundling in relation to TSOs and the system requiring the independent certification of TSOs.

1.3.1 PGE, ENEA, ENERGA and TAURON are the key players. The following statistics have been gathered from the Regulator’s National Report 1
Source :

• PGE owns generating stations with a total installed capacity of 12,860MW which generated 57.04TWh of electricity in 2013. PGE also plans to build a nuclear power station. PGE supplies electricity to approximately 5.2m customers. The total length of the distribution grid which belongs to PGE Group is 279,704km;
• TAURON owns generating stations with a total installed capacity of approx. 5,400MW which generated 17.6TWh of electricity in 2013. In 2013 it sold approximately 41.3 TWh of electric energy. TAURON supplies electricity to approximately 5.3m customers. The total length of the distribution grid which belongs to TAURON is 260,900km;
• ENEA owned generating stations with a total installed capacity of 3,177MW in 2013. ENEA supplies electricity to approximately 2.42m customers. The total length of the distribution grid which belongs to ENEA is 112,000km; and
• ENERGA owns generating stations with a total installed capacity of 1,300MW which generated approximately 5TWh of electricity in 2013. ENERGA supplies electricity to approximately 2.9m customers. The total length of the distribution grid which belongs to ENERGA is 191,000km.

1.3.2 Other key companies in the Polish electricity market include ZE PAK S.A. with almost 2,500MW of installed capacity in a coal-fired generating station, EDF, RWE, PGNiG Termika, Dalkia, CEZ and GDF SUEZ.

1.3.3 In 2012 PGE, TAURON and EDF had the largest market share in the generation sector. Cumulatively they generated almost two thirds of all electricity generated in Poland.

1.3.4 For details of the Polish TSO, see section 2.2 below.

1.4.1 The Polish energy sector requires significant investment over the next ten years because existing and often less efficient generating stations must be decommissioned in line with EU regulations regarding CO2 and other environmental restrictions.

1.4.2 Another crucial task is to modernise and develop the transmission and distribution networks, particularly in northern Poland where many new renewable energy projects are located but where there are problems allowing grid connection due to lack of capacity.

1.4.3 The Polish TSO is also investing in new interconnections with neighbouring countries in line with the goal of a single EU energy market. The DSOs, apart from the modernisation and development of the distribution grids, are considering the installation of smart metering devices.

1.4.4 There have also been ongoing discussions regarding the possible introduction of a capacity mechanism into the Polish market.

1.4.5 Due to the pioneering nature of carbon capture and storage (CCS) technology, Poland currently allows CCS demonstration projects to be conducted only for the purposes of assessing the feasibility and environmental impact of CCS projects.

Structure of generation sector

2.1.1 Most of Poland’s electricity generation comes from hard coal or lignite-fired generating stations and gas-fired combined heat and power generating stations (CHPs), which are centrally dispatched or coordinated.

2.1.2 At the end of 2013 the total amount of installed capacity was 38,406MW, of which 29,186MW was generated by coal-fired generating stations, 934MW by gas-fired generating stations and 3,504MW by renewable energy sources. The total gross generation of energy in Poland in 2013 was 162,501GWh (an increase of 1.7% from 2012), whereas the total consumption was 157,980GWh (an increase of 0.6% from 2012). See section 2.4.4. below for details.

2.1.3 The key generating stations are Bełchatów (lignite), Opole (coal), Turów (lignite), Dolna Odra (coal) (all owned by PGE); Kozienice (coal/biomass) (owned by ENEA); Pątnów-Adamów-Konin (lignite) (owned by Mr Zygmunt Solorz-Żak); Połaniec (coal) (owned by GDF SUEZ); Jaworzno (coal), Łaziska (coal), Łagisza (coal/biomass), Siersza (coal), Stalowa Wola (coal) (all owned by TAURON); Rybnik (coal) (owned by EDF); and Ostrołęka (coal/biomass) (owned by ENERGA).

2.1.4 The major CHP plants include: Warszawa (owned by PGNiG Termika); Łódź, Poznań (both owned by Dalkia); Kraków, Wrocław, Wybrzeże (all owned by EDF); and Skawina (owned by CEZ). Smaller generators, in particular smaller co-generation plants connected to a non-centrally coordinated 110kV line, are neither dispatched nor coordinated centrally.

2.1.5 Many old coal-fired generating stations are due to be decommissioned over the coming years. The decommissioned capacity is to be replaced by high efficiency coal-fired generating stations, CHP plants, nuclear power station(s) (still subject to discussion) and RES. In addition, the TSO plans to tender for additional capacity provision as an emergency reserve. This is in order to prevent any threat to the security of supply which may result from the decommissioning of some of the old coal-fired generating stations.

2.1.6 Compliance with the EU’s stringent emission standards will require considerable financial outlays. Since January 2008, emission standards required by EU Directive 2001/80 on the reduction of emissions of certain air pollutants from large combustion plants have applied to the Polish electricity sector. However, Poland was granted transition periods in the Accession Treaty to the EU of 2003 comprising exemptions extending to 2015 (inclusive) for sulphur dioxide emissions, to 2017 (inclusive) for industrial dust and from 1 January 2016 to 31 December 2017 for nitrous oxides, which applied to particular installations. This exemption is subject to a general reservation that was included in the Accession Treaty stipulating that, during the transition period, the total emission of sulphur dioxide and nitrogen oxide emissions from all the power generation combustion facilities may not exceed the levels set out in the Accession Treaty.

2.1.7 Emission standards pursuant to EU Directive 2001/80 will be replaced by emission standards set out in EU Directive 2010/75 of 24 November 2010 on industrial emissions as a rule with effect from 1 January 2016. EU Directive 2010/75 introduces more stringent emission standards, in particular, relating to sulphur dioxide and nitrogen oxides emissions. However, the directive provides for certain exemptions from stringent emission standards in the form of:

• Transitional National Plans, drawn-up and implemented by Member States; and
• the limited life-time derogation.

Furthermore, due to the fact that the provisions of EU Treaties, including the Accession Treaty, prevail over those set forth in EU secondary legislation, such as EU Directive 2001/80 and EU Directive 2010/75, the above-referred exceptions granted to the Polish electricity sector from certain emission standards laid down in EU Directive 2001/80, as set out in the Accession Treaty, will remain valid until 31 December 2017.

Energy mix

2.1.8 Polish electricity generation is predominantly based on high-emission sources of energy. A significant part of the 162TWh of electricity generated in Poland in 2013 was generated from hard coal (52%) and from lignite (35%). The remaining part was generated from natural gas (2%), renewable energy sources (4%) and water (2%).

2.1.9 In 2011, indigenous production as a source for the generation of electricity amounted approximately to:

• 90% for hard coal;
• almost 100% for lignite; and
• 30% for natural gas.

Structure of transmission sector

2.2.1 The transmission grid is 110kV and above and consists of 245 lines with a total length of 13,445km. The sole TSO, Polskie Sieci Elektroenergetyczne S.A. (PSE), is a fully state-owned joint stock company and owner of all the transmission assets. PSE transmission activities are regulated under a licence issued by the president of the Energy Regulatory Authority (ERA President or Regulator).

2.2.2 PSE is responsible for:

• security of supply;
• managing grid traffic on the transmission grid;
• operating, maintaining and repairing the grid;
• ensuring long-term capability of the power system to meet justified needs relating to electricity transmission in domestic and cross-border trading;
• dispatching the capacity of generation units connected to the transmission grid and/or if connected to a coordinated 100kV grid with a capacity of 50MW or more;
• managing the transmission capacity of interconnections with other power systems; and
• balancing the power system and settling the central trade balancing mechanism.

2.2.3 Connection to the transmission grid is regulated by the Act on Energy Law dated 10 April 1997 (Energy Law) and secondary legislation dealing with interconnection. In accordance with the terms of the grid code for the transmission grid, Instruction of Transmission System Operation and Maintenance (IRiESP) (please refer also to sections 3.3.11 – 3.3.12), the TSO must connect all entities, including generators, to its network on a non-discriminatory basis, provided that the connection is technically and economically feasible and the applicant satisfies the requirements for connection. The grid connection procedure consists of two stages. In the first stage the entity applies for the grid connection conditions specifying mostly technical issues determining the obligations of the parties in order to make the grid connection possible and then the parties enter into a detailed grid connection agreement, which specifies all the obligations of the parties, in particular with respect to the payment of the grid connection fee and deadlines for the grid connection.

2.2.4 Generally, generators are charged the full cost of their connection (excluding the cost of development and modernisation of the grid). Tariffs for use of the network are set by the TSO, but must first be approved by the Regulator.

Cross-border issues

2.2.5 Cross-border transfers of electricity in Poland are carried out by the TSO. The national transmission system is interconnected with the German, Czech and Slovak systems, whose TSOs are part of the European Network of Transmission System Operators for Electricity (ENTSO-E), as well as with Belarus, Sweden, Ukraine and Lithuania.

2.2.6 Belarus: The Polish grid is connected with facilities in Belarus, however, this is currently not operational.

2.2.7 Sweden: Due to increasing trade dynamics on the Polish Power Exchange (POLPX), resulting in increased liquidity since December 2010, the Polish grid also has a cross-border connection with the Scandinavian market. This is done through a market coupling mechanism in implicit auctions. Available capacity on the high voltage (450kV) direct current cable connection between Poland and Sweden (SwePol Link) is equivalent to 600MW.

2.2.8 Ukraine: In September 2011, a capacity allocation mechanism was initiated at the Polish-Ukrainian interconnector. The interconnection is a single-track 220kV line between Zamość and Dobrotvir. The available transmission capacity is allocated among market participants through monthly unilateral (from Ukraine to Poland) explicit auctions.

2.2.9 Lithuania: In October 2007, the Baltic States Transmission System Operators (which comprised, at that time, Estonia, Latvia and Lithuania) and PSE entered into a cooperation arrangement that obliged the TSOs to operate the Baltic Power Systems synchronously with former UCTE countries via the Poland – Lithuania interconnection. The 440kV double-track interconnector between Poland and Lithuania is planned to be commissioned in 2015.

2.2.10 CEE region: The availability and allocation of the transmission capacity is determined by the TSO. Transmission capacity at interconnectors with CEE region countries is made available by PSE under the coordinated explicit auctions organised and managed by the Central Allocation Office GmbH (located in Freising, Germany) (CAO) established by Central and Eastern Europe TSOs in 2008. System users may reserve cross-border interconnection capacity based on yearly, monthly and daily auctions and, thanks to coordinated auctions organised by CAO, it is possible to reserve capacity throughout the CEE region.

2.2.11 The largest amount of transmission capacity was reserved by the market participants at the German and Czech borders. The biggest volume of actual transmission in 2012 was directed from Poland to the Czech Republic and Slovakia, while most of the physical flow came from Germany. Congestion management on the high-voltage direct current link between Poland and Sweden – SwePol Link – is solved through the market coupling mechanism (implicit auctions). The capacity is allocated by the power exchanges (POLPX and Nord Pool Spot AS) on a one day-ahead basis. In 2013, the average hourly capacity allocated for export from Poland amounted to 133MW and 398MW for imports.

2.2.12 Further integration: On 28 January 2013, representatives of the Czech, Slovak, Hungarian, Polish and Romanian regulators and TSOs agreed on structured cooperation to investigate and prepare for the integration of the day-ahead electricity markets of their five countries (market coupling). The TSOs agreed to launch a common project that would assess possible ways forward and identify the most suitable and efficient form of market integration.

2.2.13 The Polish energy policy up to 2030 highlights the need to improve cross-border transmission capacity in order to make market coupling possible and for Poland to take part in the creation of the single European electricity market. The plans include the construction of new interconnectors (e.g. with Germany and Lithuania), upgrading of existing transmission lines and strengthening of the distribution grids.

Structure of distribution sector

2.3.1 The distribution grid comprising lines not exceeding 110kV is owned by distribution companies and operated by the appointed DSOs. The DSOs are companies appointed to this function by the regulator and are responsible for:

• managing grid traffic in the distribution grid;
• operating, maintaining and repairing the distribution grid;
• ensuring the expansion of the distribution grid;
• co-operating with other power system operators and/or energy enterprises to ensure the consistent operation of power systems and co-ordinating their development;
• ensuring reliable and effective functioning of the systems; and
• purchasing electricity to cover losses occurring in the distribution grid during the distribution of electricity.

2.3.2 In 2013, there were 158 DSOs designated by the regulator, including five entities legally unbundled from former distribution companies. Only one legally unbundled DSO is owned by a company whose major shareholders are not related to the State Treasury: RWE STOEN Operator sp. z o.o., the Warsaw distribution company.

2.3.3 The market share of the major DSOs for 2012 was: PGE Dystrybucja S.A. – 29%; TAURON Dystrybucja S.A. – 26%; ENERGA Operator S.A. – 17%; and ENEA Operator sp. z o.o. – 15%. RWE STOEN Operator sp. z o.o. is the grid operator for Warsaw.

2.3.4 Connections to the distribution grid are regulated by the Energy Law and secondary legislation. The distribution companies are obliged, in accordance with the distribution codes – Instruction of Distribution System Operation and Maintenance (IRiESD) (for further information as to grid codes please refer to section 3.3.11 – 3.3.12) – to connect all entities, including generators, to their network on a non-discriminatory basis, provided that the connection is technically and economically feasible and the applicant satisfies the requirements for connection. The grid connection procedure consists of two stages. First, the applicant applies for the grid connection conditions specifying mostly technical issues to make the grid connection possible and then it enters into a detailed grid connection agreement, which sets out terms relating to payment of the grid connection fee and deadlines for grid connection.

2.3.5 Generally generators are charged the full cost of their connection, determined on the basis of the actual connection expenditures (excluding the cost of development and modernisation of the grid). Tariffs for use of the network are prepared by the DSOs, and approved by the regulator.

Structure of trading market

2.4.1 Poland has a competitive wholesale market and has adopted a regulated Third Party Access regime, i.e. on the basis of equal treatment of all market participants each energy trading company has secure access to the transmission and distribution grid owned by the TSO or DSO. Thus, all eligible customers may enter into supply contracts with any generator or trading company supplying electricity to such customers and network operators have a statutory obligation to provide transmission or distribution services on a non-discriminatory basis.

2.4.2 2011 witnessed a significant reorganisation of the wholesale power market, especially as regards the vertically integrated groups. The obligation on generators to sell no less than 15% of the electricity generated in any year on a power exchange also came into effect on 9 August 2010 under article 49a of the Energy Law. This reorganisation also set up the POLPX as the major electricity trading platform in 2011.

2.4.3 A further requirement applies to electricity generators participating in the state aid programme that compensates those generators for stranded costs from early termination of long-term contracts to sell electricity and capacity. These contracts were terminated in order to make the wholesale energy market more transparent. In accordance with this programme, the respective generators must sell all the remaining electricity generated (exceeding the 15% referred to in section 2.4.2 above) so as to provide public and equal access to such electricity, by open auction, on the market organised by an entity running a regulated market in Poland, and/or through a commodity exchange. Exceptions apply and electricity generators may be exempted from these requirements by the ERA President in relation to the electricity they sell to meet their long-term obligations to repay borrowings for investment in electricity generation or generated for the TSO for the purpose of the proper functioning of the National Power System. No exemption is available where it would disrupt competition in the energy market or disrupt the balance of the grid.

Data on traded volumes

2.4.4 As referred to in section 2.1.2, the volume of the national gross electricity generated in Poland in 2013 amounted to 162,501GWh (an increase of 1.07 from 2012). Domestic electricity consumption amounted to 157,980GWh and was slightly higher than the consumption in 2012 (an increase of circa 0.6% from 2012).

2.4.5 Surplus electricity generated over its domestic consumption was the result of a favourable situation of Polish entities in foreign electricity trade. In 2013, the surplus of exports over imports of energy was 4,521GWh, with the surplus in 2012 being 2,840GWh.

2.4.6 The introduction of the generators’ obligation to sell electricity via a commodity exchange brought significant effects. In previous years, despite the termination of long-term contracts (which used to apply to approximately 65% of the electricity generated in Poland in the 1990s) there was little competition in the electricity market because sales of electricity were largely within vertically integrated groups. In 2011, most transactions were carried out on the POLPX. Electricity sold (directly) to trading companies decreased, to the benefit of POLPX (a decrease of 53.8% and an increase of 54.5% respectively compared with the previous year).

2.4.7 While in 2009 electricity traded on POLPX amounted to only approximately 0.2% of the total volume of electricity sold by the generators, this increased to 4.2% in 2010, 58.7% in 2011 and 61.8% in 2012, making the market more transparent with regard to prices. According to the National Report of the ERA President, in 2012 sales of electricity by generators was structured as follows:

• 61.8 % – commodity exchange;
• 32.9% – trading companies;
• 2.5% – balancing market;
• 1.4% – others;
• 1.3% – end users; and
• 0.1 % – export.

2.4.8 The four largest traders in Poland are PGE (37.8%), TAURON (13.2%), ENEA (7.8%) and ENERGA (2.7%). The remaining 38.5% is divided between the other market participants (Polish and foreign entities).

Price differentials

2.4.9 Energy prices are characterised by significant variations in their respective market segments. This is due to generation technology, the term and volume of supplies, as well as the consumer profile.

2.4.10 The average 2012 prices adopted by generators and trading companies remained similar to the 2011 prices. The average electricity price at which generators sold electricity in 2012 amounted to PLN 203.40 per MWh (an increase of 2.1% compared to 2011). The average price at which trading companies sold electricity in 2012 amounted to PLN 210.08 per MWh (a decrease of 7.6% compared to 2011).

2.4.11 The market monitoring conducted by the regulator and the publication of electricity prices are offered both for informational purposes and used as benchmarks for decisions made by electricity undertakings.

2.4.12 The monitoring of the energy market covers the area of wholesale prices. The regulator collects and analyses market data regarding bilateral contracts concluded on the over the counter (OTC) wholesale market and on POLPX. Based on surveys submitted by generators and trading companies, the regulator calculates and publishes, by 31 March of each year, the average energy price for the preceding calendar year. The average price on the competitive market in 2013 amounted to PLN 181.55 per MWh.

Structure of supply market

2.5.1 The Polish electricity supply market was fully opened to competition on 1 July 2007 (except that the ERA President’s approval is still needed for the sale of electricity to household customers by default suppliers, referred to below). Eligible customers can buy electricity in Poland directly from generators or from holders of trading licences. Purchases can be effected through bilateral contracts, via POLPX and/or with the use of electronic electricity trading platforms. The biggest share in electricity sales to end users in 2012 was by the ‘incumbent’ suppliers − entities that have remained after unbundling DSOs – as parties to comprehensive agreements (common service agreements combining the terms of sale agreements and distribution services agreements with customers). They act as default suppliers to household customers who did not decide to switch to a new supplier. In 2012, TAURON, acting as a default supplier, had the largest market share in the energy retail market.

2.5.2 Most household customers are still tied to their current suppliers, with only minimal switching taking place. However, despite the relatively small number of customers that decided to switch suppliers, this group in 2012 was five times the number recorded in 2011 and is expected to increase.

Ministry of Economy

3.1.1 The Ministry of Economy is the administrative authority responsible for matters concerning energy policy. It supervises the ERA and the ERA President.

3.1.2 The ERA President is appointed by the prime minister. Generally, the decisions of the ERA President may be appealed to the Court of Consumer and Competition Protection in Warsaw.

3.1.3 The responsibilities of the Ministry of Economy regarding energy policy matters include:

• drafting national energy policy and co-ordinating its implementation;
• determining detailed conditions for planning and operating energy supply systems;
• supervising the security of energy supply and the operation of the domestic power systems;
• cooperating with the regional representatives of the government and local governments in matters concerning the planning and implementation of energy supply systems;
• coordinating cooperation with international governmental organisations; and
• reporting on the achievement of goals with respect to the level of generation of energy from renewable sources and co-generation.

3.1.4 The minister of economy’s powers include adopting secondary legislation pertaining to matters such as the:

• terms and conditions of connection to electricity networks;
• tariff principles;
• electricity system principles;
• level of the mandatory purchase of certificates relating to electricity generated from renewable sources;
• terms and conditions of tenders for sale of energy by the obliged generators;
• level of the mandatory reserves of fuel; and
• requirements with respect to energy efficiency of appliances produced and/or imported.

ERA President

3.1.5 The ERA President is a central government body and a national regulatory entity, appointed for a five year term of office by the prime minister in an open and competitive procedure to regulate energy management and to promote competition in accordance with the Energy Law, secondary legislation issued by the minister of economy pursuant to the Energy Law and the national energy policy adopted by the government.

3.1.6 The ERA President’s responsibilities include:

• issuing, amending and withdrawing licences for generation, transmission, distribution and trading in electricity;
• approving and controlling the application of tariffs in accordance with the principles specified in the Energy Law;
• appointing transmission and distribution systems operators and monitoring the fulfilment of their tasks;
• approving the grid codes and changes to these;
• supervising the quality of retail supply and customer service standards;
• controlling the fulfilment of the obligations levied on the enterprises by the Energy Law;
• resolving disputes concerning refusals by energy enterprises to enter into agreements for the transmission, distribution and/or sale of electricity as well as disputes concerning suspension of energy supplies;
• imposing fines on energy companies for non-compliance with various obligations imposed by the Energy Law;
• co-operating with the competition authorities in counteracting monopolistic practices of energy enterprises;
• collecting information with regard to energy enterprises; and
• issuing green and other certificates.

3.1.7 The ERA President’s activity, in respect of its obligations pursuant to the Energy Law, is supported by the Energy Regulatory Office, which is divided into departments responsible for differing areas of market regulation.

Office of Competition and Consumer Protection

3.1.8 Merger clearance approval is within the scope of competence of the president of the Office of Competition and Consumer Protection (UOKiK) except for concentrations having a community dimension, which are subject to notification to the European Commission. The president of UOKiK acts independently of the ERA President. The president of UOKiK is responsible for the supervision of companies which are natural monopolies e.g. grid companies. This means that three companies are supervised simultaneously by the ERA President and the president of UOKiK on the basis of different law provisions. The president of UOKiK supervises their obligations which are imposed by competition law and, in the case of a breach of a given obligation, imposes a fine. For example, such fines are imposed on the grid operators who prolong proceedings concerning connection to the grid of renewable energy sources (RES). The president of UOKiK also protects the rights of consumers in relation to the energy companies including by reviewing the general terms of contracts offered to consumers by these companies. It should also be noted that the president of UOKiK refused to grant its consent for a merger of ENERGA and PGE in 2011 and, therefore, this transaction was cancelled.

3.2.1 The Energy Law provides the main provisions regulating the operation of the electricity market in Poland.

3.2.2 The Act on Energy Efficiency Law dated 15 April 2011 provides the rules of implementing obligatory energy efficiency in companies.

3.2.3 The Ordinance of the minister of economy concerning the detailed conditions of operation of the electricity system, dated 4 May 2007, provides detailed rules on the operation of the electricity system including grid connection; energy trade and transmission or distribution services; and balancing and congestion management.

3.2.4 The specific rules that regulate the RES support system are provided for in the Renewable Energy Sources Act dated 20 February 2015 and in the Ordinance of the minister of economy, dated 18 October 2012, which sets out responsibilities to obtain and submit for redemption certificates of origin, pay a substitution fee, purchase electric energy and heat from renewable energy sources and to confirm the data concerning the amount of electricity generated by the renewable energy sources.

3.2.5 The details of the cogeneration support system are specified in the Ordinance of the minister of economy, dated 26 July 2011, which imposes, for example, obligations regarding the calculation of the data provided in the application for a certificate of origin from cogeneration; specifies the detailed scope of the obligation to obtain and submit for redemption of the certificates, pay a substitution fee and the obligation to confirm the data on the amount of electricity generated in high-efficiency cogeneration.

3.2.6 The Ordinance of the minister of economy concerning the detailed rules of preparing and calculating tariffs and settlements in electric energy trading (dated 18 August 2011) provides the detailed rules on preparing tariffs and calculating prices and fees.

3.2.7 The Act on the principles of compensating for generators’ costs arising in connection with the early termination of long-term contracts for the sale of electric energy and capacity (dated 29 June 2007) provides the rules on compensating for generators’ costs arising in connection with the early termination of long-term contracts for the sale of electric energy and capacity.

Licences

3.3.1 The electricity sector is regulated by a licensing regime. Generally a licence is required from the ERA President for generation (which includes an entitlement to sell the electricity), transmission, distribution and trading.

3.3.2 A generation licence is generally needed if the installed capacity is above 50MW. However, all renewable energy generators and all cogeneration generators (except agricultural biogas based generation) require a licence irrespective of the installed capacity.

3.3.3 A licence is needed to trade in electricity unless trading through installations with a voltage below 1kV, owned by the customer or trading on commodity exchanges by brokerage houses.

3.3.4 Licences are issued for between 10 and 50 years unless the applicant applies for a licence to be granted for a shorter period of time. The licensee must be a company having its office in an EU Member State, the Confederation of Switzerland or an EFTA country being a party to European Economic Area agreement. The licensees are obliged to pay annual fees calculated on the basis of the revenues from the licensed activity.

3.3.5 To obtain a licence, an applicant must demonstrate that it has sufficient funds or is capable of documenting its ability to acquire such funds; that it possesses the technical capabilities guaranteeing the proper conduct of activities; that its employees have the proper qualifications (as specified by the Energy Law); and, if applicable, that it has obtained a relevant site development decision with respect to a particular project. The specific documents to be submitted are listed on the official website of the ERA President.

3.3.6 The granting of a licence may be subject to the applicant providing security for third party claims including damage to the environment. Generally, a licence for generation activity is issued when the facility is about to commence operations. Commonly, the promoters apply for a promissory licence issued for a limited period of time (i.e. at least 6 months) before construction commences and for the actual licence at a later stage. Unless the legal or factual data presented in the application for the promissory licence has materially changed, the ERA President is obliged to grant the licence.

3.3.7 The ERA President may amend or withdraw a licence for reasons related, for example, to state security or defence, or in the event of the licensee’s division or merger with another entity. The ERA President has to withdraw a licence if, for example:

• the given enterprise has failed to commence the licensed activity within a specified period, despite being requested to do so, or has permanently discontinued the licensed activity;
• a final decision prohibiting the licensee from engaging in the licensed activity is issued; or
• the licensee grossly violates the terms of the licence.

Permits and consents

3.3.8 Before construction commences, the developer must obtain a land management decision (no title to the site necessary at this stage) and then a construction permit (securing title to the site, e.g. ownership or lease is required beforehand). A land management decision is only needed if there is no local development plan adopted for that area. Both decisions are issued by the relevant local authorities. The construction process usually also requires an environmental impact assessment. Finally, the facility must obtain an operating permit. This involves a number of approvals from the police, fire unit, sanitary inspector, etc.

3.3.9 In addition to the above, permits may be required in respect of emissions such as introducing gases or dusts into the air, the emission of sewage into water or ground and the generation of waste. Furthermore, an integrated permit (IPPC permit) is required to operate installations which may potentially cause significant pollution of the environment. Criteria determining which installations require integrated permits are set out in secondary regulations and apply to combustion plants with a rated thermal input exceeding 50MW/t. An integrated permit covers emission of gases or dusts into the air, emission of sewage into water or the ground, generation of waste and abstraction of water.

3.3.10 There is a restriction which applies specifically to non-European Economic Area entities regarding the acquisition of land in Poland. Obtaining an ownership title to the land (or the right of perpetual usufruct) requires the consent of the minister of the interior. This requirement also applies to acquiring shares in Polish companies owning land in Poland if, as a result of such acquisition, the company would be controlled (directly or indirectly) by a foreign entity.

Grid Codes

3.3.11 Pursuant to the Energy Law, the transmission and distribution of electricity must be performed in accordance with the technical terms specified in grid codes issued by the TSO and DSOs. Grid codes determine the detailed rules of using the transmission or the distribution network by the system users and the terms and method of operation, maintenance and planning of the development of these networks. In addition, the TSO is also responsible for the Balancing Market Rules, which regulate the balancing of the system and management of the system limitations (the mechanics of the physical performance of electricity sale and purchase agreements). In practice, the grid codes of the DSOs contain a separate part regarding the balancing of the distribution system.

3.3.12 In accordance with the Energy Law, the grid codes, including the Balancing Market Rules, must be approved by the ERA President and be published in the Energy Regulatory Office’s Bulletin on the ERA President’s website as well as on the websites of relevant DSOs and the TSO.

Renewable energy and cogeneration

3.4.1 The Energy Law specifies that a 50% discount on grid connection fees applies for projects not exceeding 5MW. In addition, generation from qualifying renewable sources benefits from a support system of green certificates. Microinstallations do not pay the connection fee if connecting to the distribution grid. Similarly, cogeneration facilities may benefit from yellow, red or purple certificates (which are certificates of origin reflecting the fuel used) and a 50% discount on the grid connection fees (for projects not exceeding 1MW).

3.4.2 Default suppliers must purchase all electricity generated from RES connected to the electricity grid within the area of operations of the relevant default supplier. The statutory price is set at the average price of electricity on the competitive market in Poland in the preceding calendar year announced annually by the Regulator. The price published for 2013 amounts to PLN 181.55MWh, which corresponds to approximately EUR 42 per MWh.

3.4.3 RES developers may also be entitled to certificates of origin (green certificates) for each kWh of energy generated. The Energy Law obliges entities who sell electricity to end customers as well as specific groups of industrial offtakers, to annually redeem such green certificates. This requirement has to be fulfilled for a prescribed portion of the aggregate annual sales to end customers of the relevant supplier (portion of the aggregate annual purchase with respect to industrial offtakers accordingly). The volumes of electricity to be covered by green certificates in each calendar year are set out in secondary regulations implementing the Energy Law (currently it is the Regulation of the Ministry of Economy dated 18 November 2012). According to the secondary legislation, the volumes of electricity to be covered by green certificates will increase from 10.4% of the aggregate volume of electricity sold in 2012 to 20% of such volume in 2021. Similar rules apply to the cogeneration certificates, save that the volumes have been recently set out in an act amending the Energy Law and are as follows: 23.2% of the aggregate volume of electricity sold in each of the years 2014 - 2018 with respect to red certificates, from 3.9% of the aggregate volume of electricity sold in 2014 to 8% of such volume in 2018 with respect to yellow certificates, and from 0.9 % of the aggregate volume of electricity sold in 2013 to 2.3 % of such volume in 2018 with respect to purple certificates.

3.4.4 The green certificates may be traded on the POLPX or in bilateral contracts. Suppliers may also meet their obligation by paying a “substitution fee” for the volume of electricity not covered by green certificates (indexed annually by the Polish inflation rate, from 2008 onwards and announced by the ERA President – with respect to 2014 it amounts to PLN 300.03 per MWh, which is approximately EUR 70 per MWh). There are penalties for non-compliance with the obligation to purchase green certificates or pay the substitution fee. Similar rules apply to the cogeneration certificates save that the substitution fee is calculated annually by the ERA President within the limits specified in the Energy Law. With respect to 2014 it amounts to PLN 11 per MWh, approximately EUR 2.5 per MWh with regard to red certificates, PLN 110 per MWh, approximately EUR 25.5 per MWh with regard to yellow certificates and PLN 63.26 per MWh, approximately EUR 14.7 per MWh with regard to purple certificates.

3.4.5 There are additional incentives aimed at the promotion of RES which include excise tax exemptions; priority of transmission and distribution of energy generated by RES; and preferential lending terms with national institutions. Priority transmission and distribution applies also to energy from cogeneration.

3.4.6 Please also see the comments in section 3.5 on recent changes to the regulatory framework for RES projects.

Emission allowances

3.4.7 In respect of the EU Emissions Trading Scheme (EU ETS), the Polish government submitted an application for a transitional free allocation for electricity generators. On 13 July 2012, the European Commission conditionally accepted the application for a free allocation of CO2 emission allowances but included some reservations that practically deprived many installations (in particular those in the development stage) of the right to be granted free allocations. As a result, the Polish government submitted an amended application in accordance with the European Commission’s guidelines, which was approved by the European Commission on 22 January 2014. The application intends to allot approximately 405m CO2 emission allowances for the modernisation of the electric energy sector (both modernisation of existing installations as well as construction of new ones). The application includes 340 projects to the total value of PLN 119b. On the basis of the approved application, the Council of Ministers issued a regulation comprising of a list of installations covered by the EU ETS with the corresponding amount of CO2 emission allowances received by the installations.

3.5.1 The Polish government intended to repeal the existing Energy Law and to substitute it with three new acts related to electricity, renewable energy and gas markets respectively. However, as of 11 September 2013, a significant amendment to the existing Energy Law came into force (which was intended to implement Directive 2009/72/EC into the Polish law system), the new acts (apart from the Act on RES described below, which entered into force on 4 May 2015 2 The Act on RES came into force on 4 May 2015. However, an entirely new support mechanism based on an auction system enters into force on 1 January 2016. ) will most probably not be adopted or will at least be postponed.

3.5.2 After more than three years of works, new rules on the support scheme for renewables provided in the new Act on renewable energy sources (“Act on RES”). are due to come into force after new legislation was published. This law changes the principles of the RES support system. The previous concepts concerning the green certificates system will be abandoned with regard to new installations and an entirely new system based on the sale by auction of energy generated in RES will be in place instead. The existing RES installations (at the time of entry into force of the relevant provisions of the Act on RES implementing new support system) will have a choice of staying in a system substantially the same as the current system, or participating in the proposed auction system.

3.5.3 Existing RES sources which have generated first volumes of energy prior to 1 January 2016 will be eligible to receive green certificates for 15 years following the introduction of first volumes of energy to the grid. In the case of co-firing installations, the volume of energy eligible for green certificates is in principle limited to the 2011 – 2013 volume and the number of green certificates is further reduced by a coefficient of 0.5 (a new coefficient to be introduced following 31 December 2020). Implementation of this provision should decrease the amount of green certificates in the market and, as a result, lead to an increase in the price of the green certificates. If the market price of green certificates falls below 75% of the substitution fee paying the substitution fee instead of redeeming the green certificates is prohibited. The unit substitution fee is set at PLN 300.03 per MWh and is not subject to indexation.

3.5.4 Electric energy generated by those existing RES will be subject to a mandatory purchase by the “obliged supplier” (sprzedawca zobowiązany) indicated annually by the ERA President from among the entities selling the largest volumes of electric energy to end users. The mandatory purchase is applicable to each existing installation for a period of 15 years following the introduction of the first volumes of energy to the grid, no later than the end of 2035.

3.5.5 Auctions will be held separately for existing facilities entitled to the green certificate scheme, which may choose to receive support by auction instead, and pre-qualified installations that will generate electricity for the first time after 1 January 2016.

3.5.6 There are two new support mechanisms for RES projects based on auctions:

1. projects with a capacity below 500 kilowatts (kW) – support will take the form of a Feed in Tariff (FiT) for 15 years. The energy producer will enter into an agreement with the obliged supplier that will purchase the whole auctioned volume of electricity at the price granted in the auction;
2. projects with a capacity of 500 kilowatts (kW) and above – support granted will take the form of a Feed in Premium (FiP) for 15 years. The energy producer will sell the electricity on the market. The difference between the market price of the electricity and the guaranteed price granted in the auction will be transferred to the energy producer by an SPV owned by the State Treasury – Operator Rozliczeń Energii Odnawialnej S.A.

3.5.7 New RES generators intending to participate in auctions will be subject to a pre-approval process conducted by the ERA President in order to evaluate the readiness of the generator to generate energy for auction purposes. Maximum volume and value of such energy is to be determined and published by the minister of economy. Prior to the first auction in the given calendar year, the minister of economy will also publish a maximum price (so-called “reference price”) at which energy may be purchased in the auctions. Price is the sole criteria of the auctions – the lowest price bidders are selected until the maximum volume determined for the given auction is reached. Most co-firing installations, hydro energy installations exceeding 5MW and biogas installations exceeding 50MW (apart from the cogeneration units with the total heat capacity of 150MWt) are excluded from auctions.

3.5.8 The prices given in winning offers will be subject to indexation. Verification of the duty to generate energy by the selected bidder is done in 3-year periods if the offer concerns at least three years, or only once for the entire period if the offer concerns a period shorter than three years; overall an installation may benefit from auction-based purchase for 15 years, no longer however than until the end of 2035.

3.5.9 Obliged suppliers will be eligible for coverage of a “negative balance” that may arise from the purchase of energy under the mandatory purchase or under auctions and the sales of energy. The negative balance is to be covered by a “RES Fee” imposed and calculated in accordance with detailed regulations in the Act on RES (in the end covered by all end users through the transmission or distribution services fee).

The most recent information concerning the Polish energy market is included in the National Report prepared by the regulator at the following web address: www.ure.gov.pl/en/about-us/reports/67,Reports.html

• President of the Energy Regulatory Authority: www.ure.gov.pl
• President of the Office of Competition and Consumer Protection: www.uokik.gov.pl
• Ministry of Environment: www.mos.gov.pl
• Ministry of Economy: www.mg.gov.pl
• The State Treasury: www.msp.gov.pl
• The prime minister / Polish government: www.kprm.gov.pl
• Lower House of Parliament: www.sejm.gov.pl
• Upper House of Parliament: www.senat.gov.pl
• Polish Power Exchange: www.polpx.pl