Offshore wind holds the promise of supporting Poland’s ambitious renewable energy targets as well as mitigating the risk of power shortages at zero emissions in the long run. Recognising this, the Polish Ministry of State Assets, on January 15, 2020, published a draft bill on “Promotion of Electricity Generation in Offshore Wind Farms” to tap the offshore wind potential in the Baltic Sea and promote local supply chain development. This marked the commencement of the legislative process, which included a 30-day public consultation period, for offshore wind power development.
Poland must maintain a mandatory share of at least 15 per cent renewable energy in its gross final power consumption post 2020 to meet the European Union (EU) renewable energy objectives. Poland aims to increase the share of renewable energy in its total energy consumption from 11 per cent in 2017 to 21 per cent by 2030, according to its draft National Energy and Climate Plan 2021-30. This is expected to increase the share of renewables to 27 per cent in net electricity production by 2030.
The support system for renewables under the existing Renewable Energy Act, which was passed in February 2015, is not sufficient to stimulate offshore wind power development. Further, it does not correspond to the legal requirements of offshore wind farms that can be built and operated in the Polish exclusive economic zone in the Baltic Sea. Although permits were issued seven years ago for the construction of artificial islands in areas where offshore wind farms could be built for several GWs of capacity, the government did not announce an assistance programme to support the development of this technology. Despite this, several projects are under progress.
PolskieSieciElektroenergetyczne (PSE), the Polish transmission system operator (TSO), has entered into contracts to link 2.2 GW of offshore wind energy with the grid by 2026, and has also issued “connection conditions” for 4.8 GW of offshore wind farms. Under these arrangements, offshore wind farm investors are responsible for building the transmission infrastructure to connect their offshore wind farms with PSE’s onshore connection points.
The support scheme proposed in the draft legislation is expected to spur progress in these projects and attract investment in new offshore wind assets. The scheme proposes to adopt a model similar to the one currently functioning for the support of renewables, known as contract for difference (CfD). Under the proposed model, qualified offshore wind farm producers would be entitled to cover the difference between the market price and fixed price, enabling producers to cover the offshore energy generation costs. This would be done in two phases. In the first phase (ending December 31, 2022), wind farms aggregating 4.6 GW would receive support through individual decision on a case-by-case basis by the Polish energy regulator, Energy Regulatory Office. The fixed price would be set by the government. To qualify, projects would need to meet specific requirements including the grid connection agreement and final environment permit for offshore wind farms.
In the second phase, support would be granted through competitive auctions whereby the fixed price will be given in the auction bid. To qualify for the auction, projects would need to have grid connection conditions, final environmental decision and offshore location licenses. The maximum aggregate capacity of projects, which may qualify for the grant of rights to cover the negative balance, is specified in auctions. The latter would be conducted by the ERO in the year 2023 (for capacity equal to the difference between 4.6 GW and installed capacity of projects that obtained individual decisions in the first phase, provided that it is at least 500 MW); 2025 (2.5 GW); 2027 (2.5 GW); and 2028 (capacity not mentioned, would be based on previous auctions). The government may also decide on auctions in the subsequent years. Therefore, the draft law proposes to award at least 10 GW of offshore wind capacity by 2027.
Producers who are granted the right to cover a negative balance would be required to generate electricity within seven years of the individual decision or completion of auction. The grant would be available for 25 years from the time it starts generating electricity. If the balance between the fixed price and market price is positive and cannot be settled with the negative balance in future settlement periods, it would be reimbursed to the settlement operator after the end of the subsidy period.
The generation and conversion devices must have been manufactured during the 72 months preceding the first electricity generation, as per the proposed model.
The draft law introduces two new obligations for producers to stimulate the development of the local supply chain. Offshore wind developers, in their applications for the right to cover the negative balance in the first phase or in the pre-qualification for auctions, have to submit a plan for the use of local materials and services in the construction and operation of an offshore wind farm; and to conduct a technical dialogue with interested market participants (potential suppliers and contractors). This would open up the market for over 100 Polish companies, which already have vast experience in the implementation of offshore wind projects abroad, and other new local companies to cater to the domestic demand.
Project developers may enter into agreements with the TSO for the sale of part of the offshore wind farm installation used for transmission of power output. There is no obligation on the TSO to enter into such agreements though. Furthermore, the sale price paid by the TSO would be considered as an investment aid and would be subtracted from the fixed subsidy.
Permits to build and use artificial islands, structures and equipment for offshore wind farms in Polish offshore areas would be enforceable straightaway. The validity of existing offshore location licences could be extended by 8 years to 43 years.
According to PSE’s draft development plan to meet the current and future electricity demand for 2021-30, an estimated investment of over PLN14 billion would be required for the development of the transmission network during this ten-year period under the dynamic development of offshore wind farm scenario. Investments would be made to augment and strengthen the transmission network in the northern and central parts of the country to ensure smooth transmission of power from the Baltic to the central region.
The government is taking steps to create a legal framework to support the overall development of the offshore wind energy sector, including the local supply chain, in the long term. Stakeholders such as the Polish Wind Energy Association have welcomed the move. This would enable focused deliberations on the role of offshore wind in Poland’s energy transformation.