RES ACT – great hopes or great loss?

As the government announced, the amendment to the RES Act was to ensure greater support to branches of the power industry which, due to the fuel used, can be planned –meaning biogas plants and plants which generate electricity from biomass. “We want to make the Renewable Energy Sector predictable” says Krzysztof Tchórzewski, Minister of Energy. “That is why we will promote solutions which ensure a greater reliability of power supply than wind and solar energy”.

The amendment was aimed at protecting the domestic market of biomass manufacturers against biomass import from abroad. The protection is supported by provisions regarding the use of local biomass, transported from a distance of not more than 300 km from the combustion location, and certificates of origin.
But, as always, the devil is in the details. Representatives of the sector unanimously claim that the actual consequences of the amendment to the Act could be assessed only once related ordinances become effective. The Ministry of Energy is in charge of preparing them. When will this occur?
“Works on the ordinances are in progress. They will be regularly published” we were informed by the press office of the Ministry of Energy. Also the Energy Regulatory Office is not willing to discuss possible consequences of the amended legal provisions for the market as yet.
“This is still too early” says Justyna Pawlińska from the ERO. “We can discuss the consequences when new ordinances will come into force. So far we have none” she adds.

The situation was bad, now it is getting even worse

For biomass manufacturers, time is of essence. Lots of them, more and more often, face the risk of bankruptcy. The main customer for biomass was the commercial power sector. The biomass used for co-firing used to bring additional income from green certificates. Until recently, the profit balanced higher prices of the biomass energy, and also brought additional income.

The first collapse of prices of green certificates was in 2012-2013, when the price of the certificate dropped from 50-60 EURO by half. At that time no one suspected that this is just the beginning of problems. Today, the amount of 30 EURO per MWh would be pretty desirable for many and the summer this year was the worst in history in terms of quotation of green certificates. As announced by the Polish Power Exchange during the quotation on August 18, the price of green certificates in the PMOZE_A Index dropped to all-time low level of 9 EURO/MWh. A later increase to the level of under 10 EURO in no way turned out to be satisfying. This price still does not encourage the use of the biomass.

“Until 2012, 42 co-firing plants were in operation” emphasizes Marek Kozłowski, Vice President of Woodwaste. “After 2012, 11 of them remained, currently there are no more than two. Decisions about shutdowns made by the commercial power sector are the only rational move from an economic perspective. Even more so, because no one has the obligation to produce energy from RES. The green certificate system ensures that the power company can produce green energy as well as buy a certificate or pay a substitution fee. At the low price of both green certificates and coal which causes that the black energy is cheap, biomass seems to be on the ropes.
“Assuming that currently 10 GJ, corresponding to 1 MWh of energy from coal, costs 24 EURO, then once we add the value of the green certificate, 10 GJ generated from biomass should cost 33 EURO. This is the price at which nobody is able to obtain biomass without making a loss, not to mention earning a profit” says Marek Kozłowski. “And what about those that sell biomass at such price? Those that have some stock left try to avoid bankruptcy.”. According to Mariusz Stachowicz, the owner of the company Quercus, a solution would be to reduce the issue of the oversupply of green certificates on the market. “Currently, it is estimated that the overhang is 20 TWh” he says. “Flattening of the access path to the amount of energy generated from RES in 2020 as required by the EU will make the situation even worse. We should, however, remember that then the EU will not ask about certificates, but about the green energy which was actually generated and sold. And then we can be in trouble.”.

Auctions – for whom?

Andrzej Kaszczyński, owner of the Biomasa Partner company, believes that the RES energy auctions planned for next year bring significant hopes. The auctions would obligatorily cover new plants, but the Act also specifies that the entities which previously took advantage of the support in the form of green certificates could join the auction as well. The Ministry of Energy prepared an ordinance specifying the price of energy from individual renewable sources.
“Reference prices are already known and the amounts are very encouraging” emphasizes Andrzej Kaszczyński. However, the question regarding quantities and price at which the auction will end is still open.
In accordance with the ordinance of the Minister of Energy, the reference price for existing plants using RES is a sum of the average price of MWh on the competitive market in the previous quarter (announced by the President of the ERO) increased by 56 EURO. In accordance with the announcement of the ERO of 30 September in the 2nd quarter of 2016, the average energy price on the competitive market amounted to 40 EURO. It is easy to calculate that the reference price of energy from the existing plants using RES would be 96 EURO. During the auction this price would naturally drop. But according to Andrzej Kaszczyński, there is wide leeway.
“Everybody would breathe a sigh of relief already at the price of 65-70 EURO per MWh” he says. “Remember that the power companies which previously used biomass are state-owned companies. The government may decide to give them a head start, planning auctions for adequately large quantities of energy from the biomass. Nothing is yet decided, but if such a scenario proves right, the biomass market could revive.”. Dariusz Zych, President of the Polish Biomass Association, is much more cautious while making forecasts.
“Today we really know nothing” he says. “Strong support for biomass, which is discussed so often, is currently, in my opinion, just a press fact. Not many pay attention to the fact that the support for biomass on the retail market is not discussed at all. This market, although at a much lesser extent than the commercial power sector, is the biomass sales market. For years biomass producers have been requesting solutions that would encourage individual consumer to choose this and not another fuel.
“We suggested reduction of VAT on boilers using biomass and on the product itself” Mr. Zych reminds. “There was no response to such proposals. He also points out that all provisions which could again encourage the commercial power sector to use biomass are still not followed by secondary legislation. Without such legislation, no significant change will happen on the market.
“Some provisions of this amendment look good on paper, in particular for laymen, but in practice they are of no importance” says Dariusz Zych. “Reduction of the mandatory contents of biomass from 20 to 15 percent will not, in fact, cause that more plants will be able to meet this requirement and use biomass.

Without the state support green energy will never be able to compete with energy from conventional sources

Focus on kilometres

The amended RES Act provision that was particularly aimed at protecting Polish entrepreneurs was the provision related to local biomass.
The Act specifies that biomass to be classified as a source of green energy has to be incinerated within a specified distance from the place where it was acquired. The distance shall be determined by the secondary legislation. The Act specifies the maximum distance – 300 km.
This regulation, probably against the expectations of the legislator, has not really satisfied producers.
“It is not really certain that this provision will manage to protect our market” says Sebastian Florek, owner of the company Heser. “In my opinion the provision can be widely interpreted and it may turn out that waste such as coconut shells will continue to be received in Poland in large quantities. And we cannot compete with its price.”.
Also according to Mariusz Stachowicz from Quercus, precise definitions are key to the success of protection provided for by statutory provisions.
“Currently they do not clearly specify what the place of acquiring biomass means” he says. “If a port is considered to be such a place, then the whole concept of protection of the national market can be shelved. We have also to remember that the new regulations define biomass differently. So far it was divided into agricultural and forest biomass, currently there is no such division, and local biomass also covers biodegradable waste from a wastewater treatment plant. Will this change bring any result? We will find out when we know all the ordinances.
Is the amendment to the RES Act a sign of a new beginning for the biomass sector? Its representatives agree that it provides for tools which, when used well by the government, may open new prospects. Whether this will happen, we will know not earlier than in several months according to the majority.

MONIKA KACZYŃSKA

THE MARKET WILL CHANGE IRRETRIEVABLY
Kamil Górniak, owner of the company Arbor

An artificially created branch of the market such as RES power sector requires artificial regulations. Without the state support green energy will never be able to compete with energy from conventional sources. Therefore, the state must find a way to intervene in the market. We should stop lying to ourselves – the market of green certificates does not work. Therefore, we need either clear intervention on the market, so that the production of energy using biomass becomes profitable for the commercial power sector again, or the introduction of other solutions. We still do not know how RES will be subsidized. Biomass in the pure market competition with coal has no chance to succeed and we have to say it clearly.
This does not change the fact that the present situation, which obviously did not occur yesterday, will change the biomass market for good. Even though the producers, if the hopes attached to new regulations come true, will be able to stay on the market, there is no place on the market for trade companies. We all hope as well that new regulations regarding local biomass, when they come into force, will make the market tighter. I mean mainly biomass coming from our eastern border, the prices of which often suggest that this business cannot be fair.