In Western Europe, offshore wind farms have been successfully used for a long time. Meanwhile, no power-generating installation of this type is currently operating on the waters of the Baltic Sea under Polish control.
This does not mean, however, that there are no entities interested in such investments. On the contrary, several offshore projects are being implemented. Currently, it is estimated that generation sources with a total capacity of 6-8 GW can be located in the Polish part of the Baltic Sea. So far, grid connection agreements concluded for the planned offshore wind farms include installations with a total capacity of 2.25 GW. Moreover, Poland’s Deputy Minister of Energy recently stated that the government sees an important place for this type of energy source in the national energy mix, and in November 2017 a working group was established in the Polish Parliament to work on drafting favorable conditions for the development of offshore wind energy in Poland.
Current Legal Conditions That are Key to the Investment Process of Offshore Projects
Although in the last two years significant legal restrictions have been imposed of onshore wind farms, the restrictions do not apply to offshore projects.
Under the current regulations, offshore wind farms may be located in the exclusive Polish economic zone – i.e., at least 12 nautical miles (22,224 meters) from the Polish coastline.
The investment process of an offshore wind farm is lengthy and involves thorough preparation. The location of an offshore project requires a number of permits, the most important of which is the permit to build artificial islands, structures, and installations in Polish maritime areas (a “location permit”), issued generally for a period of up to 35 years, which entitles its holders to use the basin for the planned investment project.
The investor is also required to ensure that the offshore wind farm can connect with the transmission network. To this end, it is necessary to request connection conditions from the Polish Transmission System Operator and conclude a connection agreement thereunder.
The next step is to obtain a decision on the environmental conditions for the implementation of the investment project. The issuance of such a decision is preceded by a prolonged environmental study. Currently, environmental decisions have been issued for two Polish offshore projects, while an environmental study is advanced with respect to a third. A decision is a necessary condition for the subsequent issue of a building permit, on the basis of which the construction of a wind farm can be started.
The last necessary permits are the permit of use and the concession for the production of electricity in the installations of an offshore wind farm. No projects developed so far in Poland have yet reached this stage of development.
The Electricity Generation Support System is Available to Offshore Investors
Polish law provides for the use of the support system for generating electricity from renewable sources for offshore projects. In order to receive support, the investor must win an auction in which it competes with other investors on the basis of price for generating an electricity unit. The maximum price level is determined by the State, which undertakes to purchase in the auction a certain amount of the generated energy.
In order to participate in the auction, a certain level of development has to be proved as part of the pre-qualification procedure, where the investor must present, among other things, the obtained location or building permit.
Investors taking part in auctions are separated into baskets, although at the moment offshore projects do not have a dedicated basket. The winners of the auctions are selected from the entities that submit the best price offers, until the amount of electricity available in a given auction, as specified by the government, is exhausted. After the launch of the offshore wind farms, the winning investors will sell electricity at market prices, but they will receive a guarantee that the State will refund the difference between the market price and the price offered by them at the auction for the next 15 years (the “feed-in-premium” system).
It is worth mentioning that Poland’s Ministry of Energy is preparing changes to the auction system. The draft provides for the creation of an auction basket dedicated to offshore projects, in which they are to compete with geothermal sources and hydropower plants.
By Michal Piekarski, Head of Energy, and Piotr Ciepiela, Associate, Baker McKenzie Warsaw
This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.