Dear Mr. Minister,
Acting on behalf of the Renewable Energy Association, with reference to the letter of February 15 this year. on public consultations on the draft ordinance of the Minister of Climate and Environment on the maximum price for electricity generated in an offshore wind farm and fed into the grid in PLN per 1 MWh, which is the basis for the settlement of the right to negative balance coverage, below we present the Association’s comments to the draft in question.
At the outset, it should be noted that, in accordance with the Act of 17 December 2020 on the promotion of electricity generation in offshore wind farms (hereinafter: the “Act”), the maximum price specified in the regulation in question is to be set at a level that allows for investment in construction of offshore wind farms with a total installed capacity of 5.9 GW, as part of the first phase of system support.
At the same time, in accordance with the justification submitted to the draft regulation, the methodology developed by the Team for the preparation of the methodology for calculating the maximum price for electricity generated in offshore wind farms and introduced to the grid in PLN per 1 MWh, which is the basis for the settlement of the right to cover the negative balance, was based on averaged technical data obtained, among others, from investors implementing the first offshore wind farm projects in Poland.
Considering the above, the maximum price proposed in the draft regulation may exclude the granting of effective support for offshore wind farm projects, the economic and technical parameters of which differ from the average values. In the opinion of the Association, the adoption of the maximum price at the average level, as a rule, contradicts the assumptions adopted in the Act, creating the risk of not achieving the planned increases in installed capacity as part of the first phase of development of the offshore wind energy sector in Poland.
At the same time, it should be emphasized that the final level of the price constituting the basis for covering the negative balance will be the subject of additional verification both at the stage of the process of individual notification of the support granted by the European Commission and by the Energy Regulatory Office, when issuing the final decision on the granted support, allowing for the elimination of the granting of potential over-support.
Considering that the Polish offshore wind energy market is just taking shape and is an important element of the Polish Energy Policy until 2040, including in terms of meeting the obligations arising from the EU energy and climate policy, improving energy security, as well as creating new economic incentives, We are of the opinion that the maximum price specified in the draft regulation should provide a comfortable framework for the implementation of all offshore wind farm projects qualified for the first phase of support. It should be emphasized that this factor will determine the harmonious development of the new sector of the economy related to offshore wind energy, and the adoption of an overly restrictive financial framework for the development of projects may indirectly have a negative impact and slow down the development of local supply chains.
Bearing in mind the above, as the Association, we propose that the designed maximum price should be determined on the basis of parameters taking into account the characteristics of all projects qualified for support under the first phase of the system. At the same time, we present detailed comments on the methodology adopted as part of the work on determining the designed maximum price.
Chairman of the Board
- The method of calculating the power utilization factor does not reflect the average values of this factor for the current state of technology and conditions in the Baltic Sea. The proposed value of 45.7% is the result of calculations resulting from the assumptions adopted in the Act in the scope of the maximum amount of energy covered by the support (the product of 100,000 hours and the installed capacity of the offshore wind farm for a maximum of 25 years). We are of the opinion that the above approach does not indicate average, and even more so extreme, values of the capacity utilization factor for projects that will be developed in the first phase of support, referring only to units planned in the most favorable locations.
- The methodology presented in the explanatory memorandum to the draft regulation does not include balancing costs that occur in the case of selling electricity from renewable sources. It should be noted that after the changes introduced on the balancing market, only onshore wind farms have experience in settling balancing costs, and these costs are at the level of about 3-5 PLN / MWh. The currently introduced changes in the functioning of the balancing market, in particular the so-called scarcity pricing and price disparity will most likely lead to higher balancing costs.
- At the same time, it is not clear whether the adopted methodology takes into account the risk of limiting energy generation in offshore wind farms. Importantly, when the aforementioned restrictions are based on market mechanisms, e.g. as part of the functioning of the balancing market, the risk remains with the investor. Bearing in mind the above, it is important to take into account the balancing costs in the methodology and the possible occurrence of market conditions conducive to production limitations.
- The prices given in the regulation are fixed prices in PLN2020. We believe that since the regulation is published in 2021, the value of the maximum price should be adjusted and expressed in constant PLN2021 prices.
- It seems that the methodology presented in the explanatory memorandum does not take into account the property tax for the onshore part of the connection infrastructure subject to the property tax at the rate of 2% of the initial value of the structure, which, according to the justification to the Act, will amount to approx. PLN 8,000. PLN / MW / year.
- In the justification submitted to the draft regulation, it was assumed that the EUR / PLN exchange rate would drop to the level of the average for the last five years, i.e. to the level of EUR / PLN 4.31, due to the gradual and progressive limitation of the negative effects caused by the COVID pandemic. 19. However, the above assumptions were not reflected in the projections of inflation levels, which, in order to be consistent with the forecast mentioned above, should be set at a significantly lower level.