Contributed by CMS
2. OVERVIEW OF THE COUNTRY’S RENEWABLE ENERGY SECTOR
2.1. Legal Framework
In Poland, the most important Acts in the area of renewable energy legislation (related, among others, to the development process, operation of renewable energy source (RES) projects, support schemes, connecting to the gird, power purchase agreements and/or regulatory constraints pertaining to electricity generation) are the Act on Renewable Energy Sources (RES Act), the Energy Law, Construction Law or the Administrative Procedure Code, as well as secondary legislation to these acts. The main general principles resulting from them are discussed below.
Permitting process, environmental impact assessment
Formal milestones of investing in RES projects result from the necessity to obtain the relevant permits. Such a process includes the following major stages: environmental permitting, plan-ning (zoning) arrangements, ancillary permits, construction permit(s), and permit(s) for use.
One of the critical stages in the permitting procedure is obtaining a decision on environmental conditions (ED). Majority of the renewable energy projects require it. It is necessary for any investment that may affect the environment (either always or potentially). The obligation of obtaining ED covers all wind farms. However, regarding photovoltaics, the obligation applies to farms with an area of more than 0.5 hectares in protected areas and more than 1 hectare in other areas. The ED is issued mostly by the mayor of a municipality (Polish: prezydent, burmistrz, wojt) or the Regional Director of Environmental Protection. The administrative body issues the decision based on an analysis of the environmental impact of the installation. The ED may be used for six years, with the possibility of extension to 10 years. Within this period, the investor shall apply for an investment decision (building permit).
Securing legal title to the land
In order to construct and then operate a renewable energy project, the investor shall secure legal title to the land necessary for the development and operation of the relevant project. The most common agreement that is chosen on the market to secure the legal title for the purpos-es of the construction and operation of solar panels or wind turbine generators is the lease agreement (umowa dzierzawy). Under the lease agreement, the lessee may derive benefits from the leased object, and for that, the lessee is obliged to pay the rent to the lessor. The rent is monthly or annual and usually is established as a fixed price, although sometimes the parties decide to base it on the specific formula referring to the amount of electricity generated or to the area of the occupied property. A lease agreement concluded for a definite period of time may be terminated only on the basis of the contractual provisions, meaning on the grounds stipulated in this agreement. A lease relationship concluded for a definite period long-er than 30 years after the lapse of such a 30-year term is considered as concluded for an indefinite period. Consequently, after the lapse of this period, such a lease agreement can be terminated using a statutory notice (or contractual if stipulated in the agreement).
There are also some other possible ways to secure the legal title for the purposes of the PV plant / onshore wind farm. Quite often the parties conclude a usufruct agreement (umowa ustanawiajaca prawo uzytkowania) or a tenancy agreement (umowa najmu).
The RES Act introduces several subsidy schemes. One of them is the support system based on auctions. The auction scheme replaced the previous system of support in the form of green certificates (See Section 7.).
The auction scheme applies to RES installations that started generating electricity on or after July 1, 2016. Auctions for renewable energy are carried out separately within five technology baskets. Solar energy installations are in the same technology basket as onshore wind instal-lations. Auctions are carried out separately for installations with an installed capacity of up to 1 megawatts (small installations) and above 1 megawatts, and separately for electricity gener-ated in (i) RES installations commissioned before 1 July 2016, (ii) modernized RES installa-tions; and (iii) new RES installations, i.e., planned RES installations, which will generate elec-tricity for the first time after the closing of the auction session.
The auction is won by the participants who offered the lowest price for the sale of energy and whose bids together did not exceed 100 % of the value or quantity of energy specified in the auction announcement and 80 % of the quantity of electricity covered by all submitted bids. The winner of an auction is free to sell electricity on the market but has the right to settle the negative balance resulting from the difference between the adjusted bid price and the average market price. The negative/positive balance is settled on a monthly basis upon an application submitted by a RES producer to the Settlement Operator (Zarzadca Rozliczen S.A.).
To be able to connect to the power grid, the investor shall apply to the relevant DSO or TSO for the grid connection conditions, which are to be followed by the grid connection agreement. In general, the Energy Law introduces a rule of priority of renewable energy installations. However, this rule does not apply to a situation in which the grid connection agreement has been already concluded by an investor developing a non-renewable energy installation. The grid connection conditions are valid for 2 years from the date of delivery to the applicant. The grid connection agreement between the energy company and the system operator shall be concluded within this deadline. The grid connection agreement for a renewable energy source installation, in addition to the general prerequisites, should also contain provisions specifying the deadline for the first delivery of electricity generated in the installation to the grid (that shall not be longer than 48 months from the date of the conclusion of the agreement) and that a failure to deliver electricity generated in this installation for the first time within the specified period constitutes the basis for termination of the grid connection agreement.
Distribution services agreement and power purchase agreement
Once the RES installation is connected to the grid and the license to generate electricity has been obtained (please refer to point 4.3 below), it is necessary to conclude an electricity dis-tribution services agreement with the respective distribution system operator (also the DSO). The subject of the agreement is the provision of distribution services by the DSO to the RES installation, i.e., in particular the supply of the electricity from the DSO network to the RES installation, the receipt by the DSO of the electricity produced by the RES installation, as well as maintaining the continuity and reliability of the electricity supply and receipt.
Irrespective of whether the RES installation is participating in the auction scheme, it will be necessary to conclude a power purchase agreement (also as the PPA) with a selected buyer to secure the income from the generated electricity. The PPA provides a route to market for the electricity generated by the RES installation. In Poland, the PPA is a contract pursuant to which a large proportion (if not all) of a RES installation’s revenues are earned, and conse-quently, the PPA underpins the economics of most power generation projects.
Under current Polish law, the storing of electricity requires a license if the total installed ca-pacity of the electricity storage facility exceeds 10 megawatts. The storage of electricity in storage facilities with a lower installed capacity does not require a license. The license is is-sued by the President of the Energy Regulatory Authority (ERA) at the investor’s request and it is granted for a fixed period of time.
Most recent trends on the market in Poland
The interest in and the number of concluded corporate PPAs (especially virtual PPAs) has been increasing in Poland recently, as these contracts allow to limit the costs of electricity and in addition enable achieving goals related to the consumption of “green” energy which is par-ticularly important for larger customers.
Also, growing interest in onsite generation with the use of RES projects is currently observed in Poland. Due to regulatory constraints, the development of such projects has been ham-pered. Please See Section 4.7. for details.
Market participants have closely observed recent legislative work related to amending the 10 H rule (this is also discussed in Sections 3.1. and 3.5.) which had a significant negative im-pact on the possibilities to develop wind farm projects in Poland. According to it, wind farms had to comply with requirements concerning the minimum distance from residential buildings and nature protection areas. The minimum distance equaled 10 times the height of the wind turbine with rotor blades (approximately 1,500 meters). This rule has just been amended and the minimum distance changed to 700 meters which should allow, to a certain extent, the de-velopment of new onshore wind farm projects.
2.2. Domestic Sales and Imports/Exports
In February 2021, the Polish Council of Ministers adopted the Polish Energy Policy 2040 (PEP2040). It is a strategic document, which defines the directions in which the energy sector in Poland should develop. According to PEP2040, more than half of the installed capacity will be zero-emission sources by 2040. A special role is to be played in this process by the im-plementation of offshore wind energy into the Polish electricity system and the launch of a nuclear power plant. These will be two strategic new areas and industries to be built in Poland, representing an opportunity for the development of the domestic industry.
As indicated in the PEP2040, the transformation also requires increasing the use of RES technologies in heat generation and increasing the use of alternative fuels in transport, includ-ing through the development of electromobility and hydrogen mobility. The planned invest-ments and innovations in the energy sector are to include: new energy storage technologies, smart measurement and energy management systems, electromobility, alternative fuels, and hydrogen technologies.
PEP2040 assumes, inter alia, a reduction in the overall share of coal in the energy mix to a maximum of 56% in 2030 and 28% in 2040. The document also envisages that the share of RES in gross final energy consumption will increase to a minimum of 23% in 2030. The total capacity of photovoltaic sources used is expected to increase to about 5-7 gigawatts in 2030 and about 10-16 gigawatts in 2040. For onshore wind power, this will be about 8-10 gigawatts, and offshore wind about 6 gigawatts in 2030. By 2033, the first Polish nuclear power plant unit of 1-1.6 gigawatts will be operational. The construction of five more is envisaged by 2043.
In view of PEP2040, Polish resources potential makes it possible to independently meet the demand for coal and biomass, but most of the demand for natural gas or crude oil must be covered by imports. The demand for hard coal will be covered by own resources, and the import-export ratio will be complementary. The demand for lignite will be covered by domestic resources, a short distance from the place of use. The demand for natural gas and crude oil will be mainly met by imported raw materials. Activities aimed at diversifying the directions and sources of supplies will be implemented. At the same time, domestic deposits (including un-conventional ones) will still be sought to replace the supply from depleted deposits. The de-mand for renewable raw materials (biomass) will be covered in the shortest possible distance from production.
Due to an insufficiently developed grid (as compared to the growing number of RES projects applying for the grid connection), substantial investment into local and international grid ca-pacities will be necessary.
2.3. Foreign Investment and Participation
In principle, no significant specific limitations for investing in RES projects by foreign compa-nies exist in Poland.
If the applicant has a registered office or a place of residence in the territory of a member state of the European Union, the Swiss Confederation, a member state of the European Free Trade Agreement (EFTA) – a party to the agreement on the European Economic Area, or Turkey, the licensed activity in respect of electricity generation in RES installation can be car-ried out directly, i.e., without the need to establish a local presence. In such a situation, the license may be granted to the particular foreign entity directly, in other cases local presence (in particular a Polish SPV or a branch office) has to be established. However, in practice in relation to electricity generation (including in RES), the licenses are typically issued to compa-nies incorporated under Polish law and operating particular electricity generation installations.
Although typically the purchase of plots for the purposes of implementing RES projects is not performed, for the purposes of a broader picture please note that under Polish law, a foreign-er (i.e. a natural person without Polish citizenship, a legal person with its seat abroad or a le-gal person having its seat in Poland, controlled directly or indirectly by those mentioned above) from outside the European Economic Area (this area consists of the countries of the European Union, Iceland, Liechtenstein, and Norway) or Switzerland who intends to purchase real estate in Poland should obtain a prior permit from the Minister of Internal Affairs and Ad-ministration. The conclusion of a lease agreement by a foreigner, though, does not require a prior permit.
Additionally, the acquisition or takeover by a foreigner of shares in a company registered in Poland, which is the owner or perpetual user of real estate located in Poland, requires a per-mit issued by the minister in charge of internal affairs if as a result of such transaction, a company becomes a controlled company. A controlled company is a company in which a foreigner or foreigners directly or indirectly hold more than 50% of the votes at the sharehold-ers’ meeting or the general meeting, or have a dominant position.
2.4. Protection of Investment
The main international treaties that Poland is a party to are the Treaty on the European Union and the Treaty on the Functioning of the European Union. Poland, as a member of the EU, implements its policies and regulation concerning the renewables sector. Among others, Po-land follows the REPowerEU Plan presented in 2022 that aims to transform Europe’s energy system, in order to end the EU’s dependence on Russian fossil fuels and to tackle the climate crisis. The plan provides for significant scaling-up and speeding-up of renewable energy in power generation, industry, buildings, and transport, which surely will accelerate the invest-ments in RES also in Poland.
Another program that provides certainty for long-term investment in RES in Poland is a pack-age of legislative proposals Fit for 55 as part of the European Green Deal, which aims to strengthen the EU’s position as a global climate leader. The package aims to introduce new policy measures to help bring about the transformative changes needed in the economy, so-ciety, and industry to achieve climate neutrality by 2050 and to support it, reduce net emis-sions by at least 55% (compared to 1990) by 2030.
3. DEVELOPMENT OF RENEWABLE ENERGY PROJECTS
3.1. Granting of Grid Connection Rights
(1) The fundamental legal act related to the issue of connecting to the grid is the act of April 10, 1997 – Energy Law (Journal of Laws 2022.1385, as amended) (Energy Law). Article 7 is one of the key provisions in terms of providing system users with access to fuel and energy markets.
(2) The Energy Law introduces the so-called public-law obligation to conclude a grid con-nection agreement (it is preceded by obtaining the grid connection conditions which include more technical details) and it is imposed on the designated energy companies (Distribution System Operators and the Transmission System Operator), thereby guaranteeing the right of entities applying for grid connection to obtain such a connec-tion (provided that statutory conditions are met) and, consequently, the possibility of concluding a contract based on which fuel or energy will be supplied or received.
(3) In Poland, there are Distribution System Operators and the Transmission System who decide about connection to the grid which they operate Operator (although connecting directly to the transmission system happens rarely). Potential refusal of connection to the grid may be subject to appeal to the President of the Energy Regulatory Authority (Prezes Urzedu Regulacji Energetyki) who is responsible for regulating the develop-ment of renewable energy sources and granting the relevant decisions.
(4) Given the above, in principle, it is mandatory to conclude a grid connection agreement, and renewable projects themselves have priority. However, these projects still en-counter many barriers to development.
(5) The biggest barrier to the rapid development of RES in Poland is the numerous refus-als to issue conditions for the grid connection of new capacities. The reason for these problems is essentially the lack of technical or economic connection conditions, which is the result of an insufficiently developed grid. As for the northern part of Poland, this also results from the fact that a certain gird capacity has been reserved by the TSO for the purposes of future transportation of the electricity generated in the offshore wind farm projects.
(6) According to data provided by the Ministry of Environment, in 2017/2018 there were 260 refusals, in 2019/20 it was 1200 refusals and in 2021/2022 the number of refusals reached nearly 3,500 (of which 3,415 concerned PV plants). Data from the second half of 2022 indicated that the number of refusals was around 60-80% of all applica-tions submitted.
(7) In addition, the introduction in 2016 of the 10 H rule (this is also discussed in Section 3.5.) had a significant negative impact on the possibility to develop wind farm projects in Poland. According to it, wind farms had to comply with requirements concerning the minimum distance from residential buildings and nature protection areas. The minimum distance equaled 10 times the height of the wind turbine with rotor blades (approxi-mately 1,500 meters). This rule has just been amended and the minimum distance changed to 700 meters which should allow, to a certain extent, the development of new onshore wind farm projects.
3.2. Ownership by Foreign Companies
(1) The Energy Law provides the President of the ERA with the authority to grant licens-es.
(2) To be granted a license, a necessary condition to be fulfilled is that the particular entity is established or is a resident on the territory of a Member State of the European Un-ion, the Swiss Confederation, a Member State of the European Free Trade Agreement (EFTA) – a party to the Agreement on the European Economic Area or Turkey. Such foreign entities may undertake the licensed business activity directly without the need to establish a local presence (although for entities engaged in electricity generation usually local presence in the form of a company under Polish law is established; it is a standard practice that foreign companies operate in the area of electricity generation through Polish entities).
(3) Any business activity concerning the production of energy in renewable energy source plants is subject to licensing, with the exception of micro or small plants and plants producing electricity exclusively from agricultural biogas, including cogenera-tion, and exclusively from bioliquids.
(4) The question of the permissibility of the transfer of a license is contentious and there remains a dispute in the Polish doctrine. In principle, a license is an individual right and it is not possible to transfer or dispose of it. There is a different view according to which the transfer is possible in case of transfer of the enterprise to another company. This is, however, the minority view. In the light of Polish jurisdiction, the transfer or disposal of a license is impossible.
(5) With regard to the issue of transferring the building permit, the zoning decision, condi-tions for grid connection, and the environmental decision, it is possible.
3.3. Stages of the Development Process
(1) The beginning of RES investment from the permitting view is based on the designation of an appropriate location. In accordance with the applicable regulations, the legal act regulating the land use and the location of the investment is the local spatial develop-ment plan (LSDP). The investment intention needs to be in line with it.
(2) In the case of a lack of LSDP, an alternative for the investor is an application to the mayor of the municipality for a decision on development conditions (DDC) (decyzja o warunkach zabudowy).
(3) Photovoltaics are erected based on both LSDP and DDC. Until 2016, it was possible to build wind farms on the basis of both DDC and LDSP. Currently, wind farms are al-lowed to be built only based on LSDP. The biggest barrier to the development of wind farms was the 10 H Rule described in Sections 3.1. (7) and 3.5.
(4) The majority of renewable energy projects require an environmental decision (ED). It is required for any investment that may affect the environment (either always or po-tentially). The obligation of obtaining ED covers all wind farms. However, regarding photovoltaics, the obligation applies to farms with an area of more than 0.5 hectares in protected areas and more than 1 hectare in other areas.
(5) The ED is issued mostly by the mayor of a municipality (prezydent, burmistrz, wojt) or the Regional Director of Environmental Protection. The administrative body issues the decision based on an analysis of the environmental impact of the installation.
(6) The ED may be used for six years, with the possibility of extension to 10 years. Within this period, the investor shall apply for an investment decision (building permit).
(7) The start of the construction process of an investment depends on obtaining a building permit (BP), which is necessary for any RES installation above 50 kilowatts hour. The BP is obtained after obtaining a DDC if the investment is not covered by the LSDP and the ED. BP is issued by the district governor and expires after 3 years from when the decision became final or when construction has been interrupted for more than 3 years.
(8) Prior to the commencement of use, a final permit for use should be obtained (or notifi-cation on completion of construction made). Permit for use is issued by the relevant construction supervision authority (i.e., District Inspector of Building Control).
(9) Moreover, to connect to the electricity grid, RES installation must meet the require-ments of the grid connection agreement and conditions. Please refer to Section 3.1. for more information.
3.4. Obligatory State/Public Participation
(1) Apart from issues concerning all investments, as a rule, and subject to the following remarks, the Polish legal order does not provide for public participation in RES bene-fits. The public burden associated with the electricity sold primarily involves the obliga-tion of obtaining and/or settling various certificates of origin and paying various fees such as an interim fee, cogeneration fee, RES fee, and capacity fee. The producer is also responsible for payment of the license fees and distribution (and/or transmission) costs related to the electricity it generates.
(2) In accordance with the latest legislative changes, however, some wind farms will be-come an exception and an example of public participation in benefits from renewable energy sources.
(3) The amended regulations on the construction of wind power plants stipulate that the investor carrying out the investment will allocate at least 10% of the installed capacity of the wind power plant to the residents of the community where the plant is being built.
(4) The resident of the community will be able to enter into an agreement with the investor, based on which such a resident will become a virtual prosumer. The cost of taking up a share of the wind power plant’s installed capacity will be the product of this share, expressed in kW, and the cost of building the wind power plant. After 15 years, the in-vestor’s obligation to allocate 10% of the installed capacity of the wind turbine to the residents of the community will cease.
(5) Attention should be paid to the Act of 27 October 2022 on Emergency Measures to Limit Electricity Prices and Support Certain Consumers in 2023, which requires elec-tricity producers to pay the windfall tax. Their profit above a certain threshold is to be allocated to a special fund. However, this obligation is exceptional and is intended to last until the end of 2023, as it is related to the extraordinary situation due to the ener-gy crisis.
3.5. Risks to be Considered
(1) There are two main risks that should be mentioned regarding the development of RES investments. First of them is related to the problem with connecting to the grid. This issue has been described in Section 3.1. A refusal to connect to the grid typically equals the impossibility of the project implementation.
(2) The second risk is related to spatial development. Since amendments regarding land wind farms in 2016 and the introduction of the 10 H Rule, the development of new pro-jects had become nearly impossible. This rule has just been amended and the mini-mum distance changed to 700 meters which should allow, to a certain extent, the de-velopment of new onshore wind farm projects. Initially, the proposed changes per-tained to the minimum distance of 500 meters which would allow the development of a greater number of projects. In addition, many LSDPs which were adopted recently have been already aligned to an anticipated minimum distance of 500 meters. Since eventually 700 meters threshold has been adopted in the legislation, all such LSDP will have to be adopted again and/or changed, which typically is a time-consuming pro-cess.
(3) In addition, the following risks have to be considered:
a. the possibility of an appeal against the relevant administrative decisions (in particular the ED) by the entitled entities (i.e., a party whose legal interest or obligation is related to administrative proceedings or who requests the actions of an authority due to their legal interest or obligation) – most often by the envi-ronmental organizations and parties with a legal title to real estate located in the area affected by the project which can suspend the enforceability of the deci-sions and hamper the development of the project;
b. a time-consuming and complicated procedure of obtaining all necessary per-mits (as a statutory requirement, in Poland as a general rule a decision should be issued within 1-2 months, however when the environmental impact as-sessment is carried out a term for issuing the ED, it can extend even to 18 months);
c. the discrepancy of relevant decisions with each other and errors contained in them (e.g., in terms of specification of plots, the installed electrical capacity, etc.).
4. RENEWABLE ENERGY CONSTRUCTION AND PRODUCTION
4.1. RTB Status
(1) ED. The obligation of obtaining ED covers all wind farms. However, regarding photo-voltaic projects, the obligation applies to farms with an area of more than 0.5 hectares in protected areas and more than 1 hectare in other areas.
(2) The legal act regulating the land use and the location of the investment is the LSDP. The investment intention needs to be in line with it. In the case of a lack of LSDP, an alternative for the investor is an application to the mayor of the municipality for DDC (decyzja o warunkach zabudowy) or the decision on the location of a public purpose investment (decyzja o lokalizacji inwestycji celu publicznego) (as for the renewable energy projects the latter is practically limited to cable lines and transformer stations).
Additionally, there are plans to amend the Act of 27 March 2003 on Spatial Planning and Development in terms of the location of a PV plant with an installed electrical ca-pacity of more than 1 megawatts, i.e., in view of the potential legislative changes it may be only based on the LSDP. Under the already binding regulation, the location of wind power plants is possible only on the basis of the LSDP.
(3) If the RES project is planned on a location, which is classified as agricultural or forest land in the local land register, prior to applying for a building permit the investor will need to exclude such land from agricultural or forest production, as applicable.
(4) A permit to locate cable under the public road permits to build connections with public roads, and a water permit (if needed).
(5) BP – building permit.
4.2. Construction of Renewable Energy Projects
Please refer to Section 3.13.5.
4.3. Granting of Renewable Energy Production Licenses
According to the provisions of the Energy Law conducting business activity in respect of gen-erating electricity requires obtaining the relevant license to generate electricity (including in a renewable energy source). The license is issued by the President of the ERA.
Proceedings aimed at obtaining the license involve presenting numerous documents and in-formation. These can be divided into three main categories:
a) Documents/information confirming that the applicant fulfills the formal and organiza-tional requirements (this includes the relevant clean criminal record certificates, ex-cerpts from the commercial register(s), a certificate confirming the tax identification number, etc.);
b) Documents/information confirming that the applicant fulfills the given technical re-quirements;
c) Documents/information confirming that the applicant is in possession of financial re-sources adequate to properly perform the licensed activity (this includes financial statements for the last three years, certificates issued by the tax authority and social security authority, an opinion issued by the bank where the principal account of the applicant is maintained, etc.).
If the President of the ERA finds the documents and information provided by the investor in-sufficient, the investor will be summoned to supplement the application for the license. This will result in the extension of the proceedings. Provided that the application is well prepared and all required documents and information are provided to the President of the ERA together with the application (and not supplemented at a later stage) and/or the investor replies to any summons issued by the President of the ERA swiftly, the proceedings should be completed and the license issued within three to five months.
The Energy Law provides also for several negative circumstances preventing granting of the license, such as bankruptcy or liquidation proceedings conducted against the applicant or conviction by a final court judgment for a crime or for a tax offense related to the business activity conducted. A clean criminal record has to be evidenced in relation to the entity re-questing the license, individuals entitled to represent the company, and the supervisory board members, as well as entities that hold control over the company. Arranging all required clean criminal record certificates (as these might be necessary under various jurisdictions) usually constitutes one of the most cumbersome aspects of applying for the license.
In accordance with the relevant regulation, the license is issued for a definite period of time - from 10 to a maximum of 50 years, unless the applicant requests the license for a period shorter than 10 years. In practice, the President of ERA did not issue licenses for a period extending beyond the timeframe of the binding Polish Energy Policy (currently 2040).
The company which obtained the license is obligated to pay annually the license fee. This fee, paid in the amount ranging from PLN 1,000 to PLN 2.5 million, is calculated as a product of the revenue generated from the licensed activity, achieved in the particular year and the appro-priate coefficient, as specified in a regulation of the Council of Ministers.
The President of the ERA revokes the license in the following cases:
1) when a final court decision prohibiting the performance of licensed business activity has been issued or when the energy company has not commenced the licensed activity within the set time limit despite the President of ERA’s request or has permanently ceased the perfor-mance of this activity,
2) non-fulfillment of any of the conditions required for granting the license.
The President of ERO shall revoke a license or amend its scope in case an energy company:
1) grossly violates the conditions specified in the license or other conditions of performing the licensed business activity specified by law;
2) has not, within the prescribed time limit, remedied the factual or legal situation which is in-consistent with the conditions specified in the license or with the provisions regulating the li-censed economic activity.
One of the latest and significant initiatives aimed at facilitating easy commencement of elec-tricity generation was the exclusion of electricity generation in small installations (installed ca-pacity of more than 50 kilowatts hour and no more than 1 megawatts) from the obligation to obtain a license.
Also, an important aspect to consider is the update of the government document “Energy Policy of Poland until 2040” in terms of RES, e.g., an increase of the share of RES in total elec-tricity generation by up to 50%.
4.4. Renewable Energy Production by Foreign Investors
If the applicant has a registered office or a place of residence in the territory of a member state of the European Union, the Swiss Confederation, a member state of the European Free Trade Agreement (EFTA) – a party to the agreement on the European Economic Area, or Turkey, the licensed activity can be carried out directly, i.e., without the need to establish a local presence. In such a situation, the license may be granted to the particular foreign entity directly, in other cases local presence (in particular a Polish SPV or a branch office) has to be established. However, in practice in relation to electricity generation (including in RES), the licenses are typically issued to companies incorporated under Polish law and operating par-ticular electricity generation installations.
The provisions of Energy Law do not provide for the possibility of transfer of the license. Alt-hough some authors in the legal literature state that it is potentially possible based on other legal provisions, in practice transfer of the licenses between different entities does not occur.
The issue of “takeover” of the license in case of the merger, division, and transformation of companies is regulated by the Polish Commercial Companies Code. According to the provi-sions of this Act, the license is transferred to the legal successor by virtue of law, unless the law or the decision on granting the license provides otherwise. However, the President of ERA has the right to change the scope of the license or to withdraw it if, as a result of the above processes, the entity that obtained the license does observe the conditions necessary to obtain the license.
Typically, the transfer of rights to a generation facility for which the license has already been obtained is implemented by the acquisition of a company holding the particular license.
4.5. Operation and Maintenance of Renewable Energy Projects
Specific regulations on the operation and maintenance of renewable energy projects include in particular:
1) technical and operational requirements for devices, installations, and networks of enti-ties applying for connection to the grid specified in the Energy Law, ensuring the par-ticular safe operation of the electricity system against damage caused by improper operation of connected devices, installations, and networks or securing the connected devices, installations, and networks against damage in the event of a failure or intro-duction of restrictions in the consumption or supply of energy;
2) requirements resulting from the recent amendment to the Act on Investments in Wind Farms. The amendment sets forth rules for the safe operation of technical compo-nents of a wind power plant. The provisions of the amendment provide for, among others, the registration of business entities performing activities and service inspec-tions of technical elements of a wind power plant and certification of these business entities.
4.6. Decommissioning Process
Generally, the legislation does not regulate the decommissioning requirements for renewable energy projects. According to the Construction Law, a demolition permit decision is required for buildings and structures above eight meters. However, for the demolition of buildings and structures below eight meters, as well as buildings and building equipment for the construction of which a construction permit is not required, and for buildings and structures located in closed areas established by a decision of the Minister of Defense, a notification is required.
Only the way of disposing of PV panels is regulated. The European Union (EU) provides a legal framework for extended producer responsibility for photovoltaic modules on a European scale through Directive 2012/19/EU on waste electrical and electronic equipment (WEEE). The WEEE Directive refers to the method of disposing of PV panels, which are classified as electronic devices. This directive introduced a requirement of 85% efficiency in the recovery of recyclable materials.
From a legal perspective, in Poland, waste from photovoltaic panels is treated like electro-waste. According to the provisions of the Law on Waste Electrical and Electronic Equipment, all equipment operation of which depends “on the supply of electric current or on the pres-ence of electromagnetic fields, and equipment that can be used to generate, transmit or measure electric current or electromagnetic fields, which is designed for use at an electric voltage not exceeding 1,000 volts for alternating current and 1,500 volts for direct current,” should be returned to designated electric waste collection centers at the end of its useful life.
4.7. Risks to be Considered
There is a risk that in the case of a dispute between the lessee and the landlord, the lease agreements may be classified as tenancy agreements instead of leases due to the lack of any benefits (natural or civil) derived from the leased object by the lessee, where such bene-fits constitute essential terms of a lease (contrary to tenancy, where the tenant just uses the rented object). Although there are some Polish court judgments confirming that in similar cas-es a lease agreement would not be automatically reclassified into a tenancy agreement, full mitigation of the reclassification risk is not possible under current legislation.
Article 661 of the Civil Code states that a lease relationship concluded for a definite period longer than 10 years after the lapse of 10 years – instead of the 30-year term applicable to tenancy – is considered to have been concluded for an indefinite period. Consequently, after the lapse of the 10-year period, such an agreement can be terminated using a statutory or contractual (if stipulated in the agreement) notice (please note that if a lease agreement is executed between business entities on both sides, the above period is different and is ex-tended to 30 years).
However, this is a common problem in Poland, and we do not consider it to be a material risk.
Assignment of rights and obligations
Under the lease agreements that we have reviewed during multiple due diligence processes, the lessee is entitled to transfer his rights and obligations arising from such agreements to third parties. However, this right is based on a general consent to the assignment (since the lease agreements do not specify to whom exactly the rights and obligations will be trans-ferred) and such general provision could potentially be invalidated. Under the Polish Civil Code, the party, which is willing to transfer its obligations, shall obtain consent from the other party to be able to transfer its obligations to a specific third party (such requirement can be determined contractually by the parties also in relation to rights of the particular party). The risk of the invalidity of such consent could be mitigated by obtaining the landlord’s express consent to such an assignment made to a specific assignee. This is a common situation in Poland. However, our practice shows that this issue usually does not constitute a material risk.
Rent under the lease agreements
There are cases when under the lease agreements the lessee is not obliged to pay any rent to the landlord until commencement of the construction of the wind farm or PV plant. Please note that it may constitute grounds for invalidity of such agreements, as the rent is an essen-tial component of the lease agreement and should be determined therein. Consequently, lack of title to the land resulting from the above could lead to the invalidity of the construction per-mit.
Mortgages on plots where the project is located
In recent years we identified many times that the land and mortgage registers (LMRs) (held for the land properties, which constitute the subject of the lease agreements) list mortgages registered for the benefit of different entities (third parties) listed in the LMRs. If the related receivables are overdue and the creditors enforce payment, it may lead to court enforcement proceedings and then to the sale of the plots in the form of an auction/tender. If as a result of such proceedings the real property is sold in a tender by the bailiff, then the lease agreements (whose term is longer than two years) concluded for such real property are terminable by the buyer. This risk cannot be fully mitigated and is a common risk for wind farms/PV projects in Poland. It cannot be eliminated by making an entry in the LMRs. The entry of these rights only gives a lessee the possibility to be a party to the enforcement proceedings. Although there is currently no way to fully mitigate this risk, usually this issue does not have a material impact on wind farm/PV projects in Poland.
The plots used for the RES projects are usually additionally encumbered with other rights es-tablished for the benefit of third parties (such as transmission easements, personal rights, and usufruct rights). Such rights should rather not interfere with the rights established for the benefit of the investor. However, this issue should be verified on a case-by-case basis and analyzed by the technical advisor who may wish to review these encumbrances (from the technical point of view) to confirm that they do not have any impact on the project.
The possibility of challenging permits
The major problem in the investment process is related to the possibility of challenging the ED and other investment decisions by neighbors living in the vicinity of the project, who may ap-peal and suspend the enforceability of the decisions. Moreover, currently, NGOs have the possibility to appeal not only against ED but also against subsequent investment permits, such as, for example, construction permits. Such actions may stop the project and thus delay the entire planned project for a long-time causing inconvenience. It is very important to con-duct the whole investment process correctly in order to avoid such situations.
Incompatibility between permits
The most common risk in the investment process regarding solar power plants and wind power plants is the discrepancy of relevant decisions with each other and the errors con-tained in them. Obtaining all permits is a time-consuming and complicated procedure. It is ex-tremely important to verify each stage of the investment process in order to avoid possible irregularities and the possibility of questioning the decision, which can result in a high risk to the entire investment.
The 10 H Rule
In addition, the introduction in 2016 of the 10 H Rule (also discussed in Sections 3.1(7) and 3.5.) had a significant negative impact on the possibility to develop wind farm projects in Po-land. According to it, wind farms had to comply with requirements concerning the minimum distance from residential buildings and nature protection areas. The minimum distance equaled 10 times the height of the wind turbine with rotor blades (approximately 1,500 me-ters). This rule has just been amended and the minimum distance changed to 700 meters which should allow, to a certain extent, the development of new onshore wind farm projects.
Available capacity and potential grid enhancement
One of the barriers to the development of RES installations in Poland is also the inefficiency of the transmission and distribution network and its inability to absorb large quantities of energy, which is resulting in increasing refusals to issue grid connection conditions, as compared to previous years.
Onsite or near-site direct line PPA
To date, the model of onsite or near-site direct line PPA, i.e., a situation where the RES instal-lation is located nearby the off-taker facility and there is a dedicated direct line transmitting power (the direct line is connected directly to the consumer’s internal grid, thus, in this model the “public” transmission/distribution grid is not used which allows avoiding grid costs and charges) due to regulatory constraints has not been used in Poland, which has also to some extent hampered the development of RES installations.
The Polish law theoretically allows the construction of a direct line between the electricity pro-ducer and the corporate buyer (onsite or near-site direct line) which means transporting elec-tricity without using the public transmission/distribution grid. However, the construction of a direct line has to be approved by the President of the ERA, and in practice such approval may only be granted where there is no possibility for the customer to be connected to the trans-mission or distribution grid. In practice, the President of the ERA does not grant such approv-als.
Nevertheless, some potential solutions for the implementation of direct delivery of electricity to consumers may be considered, these however have to be assessed with caution in relation to particular sites to minimize the regulatory risks.
Also, on 16 May 2023 the Polish government submitted to the parliament the draft act amend-ing the Energy Law, which includes changes to the regulation on electricity direct lines. The draft has come in the wake of market criticism that current regulations amount to regulatory barriers for the development of on-site electricity generation in Poland.
- The draft amendment, among others, includes the following changes to direct line regulations:
- the definition of the direct line has been aligned with the Electricity Market Directive (EU Directive 2019/944), which means that the electricity line between the power pro-ducer and its own facilities will no longer be considered a direct line;
- the construction and operation of the direct line will require an entry to the direct line register, instead of a decision by the President of ERA. The customer’s lack of access to the public grid will no longer be a pre-condition for obtaining regulatory approval for the direct line;
- there will be a simplified procedure for the entry to the direct line register in the case of customers not connected to public grid or for generating units of aggregate capacity not exceeding 2 MW;
If adopted, the proposed legislation is likely to enable certain on-site generation models. The actual feasibility of these models, however, will largely depend on the level of additional charg-es payable to the public grid operators. The charges will be determined in the grid operators’ tariffs in line with the principles set out in the tariff regulation.
The draft act still needs to be adopted by the parliament and then signed by the president.
5. BALANCING OF RENEWABLE ENERGY PROJECTS, STORAGE, SALES
5.1. Balancing of Renewable Energy Projects
A power producer may on its own be the entity responsible for commercial balancing, or it may contractually delegate this responsibility to external balancing entities of its choice. Thereby, it is possible to change the balance responsible party by selecting another entity and concluding an agreement with it requiring the new entity to be responsible for commercial balancing. It should also be recognized that the producer’s securing of a balance responsible party or fulfilling this role on its own is essential for the performance of sales contracts con-cluded, including sales contracts pertaining to electricity generated in RES. This is because only a balancing market participant that acts as a balance-responsible party or has such a third-party balance-responsible entity is authorized to report the sale of electricity under PPA contracts via the central commercial balancing mechanism. At the same time, the contract for the provision of commercial balancing services itself should be considered a service separate from the sale of electricity.
In the event of low demand for power and electricity or other emergency situations in the elec-tric grid, the electricity transmission system operator and/or the distribution system operator may order the reduction of generation in order to balance the system and ensure its safe op-eration. The RES producer is obliged to comply with the grid operator’s orders to reduce power generation.
In the event of non-compliance with the order, the President of ERA has the authority to im-pose penalties on entities that: fail to comply with restrictions on energy supply and consump-tion; fail to comply with the rules and obligations on the security of operation of the power grid, the plans and procedures used in a situation of threat to the security of electricity supply, the grid code of the relevant system operator, as well as the instructions of the relevant operator. The amount of the penalty may not exceed 15% of the fined entrepreneur’s revenue earned in the previous fiscal year. In addition, the President of ERA may impose a penalty on the head of the energy company, in an amount not exceeding 300% of their monthly salary.
Energy Law defines “electricity storage” as the conversion of electricity drawn from the power grid or generated by a generating unit connected to the power grid and cooperating with the grid into another form of energy, the storage of this energy, and its subsequent conversion back into electricity. Storage facilities with an installed capacity of more than 50 kilowatts hour, are subject to registration in a register maintained by the transmission system operator or distribution system operator competent for the area.
With the amendment of the Energy Law in 2021, electricity storage became a separate sub-ject of licensed business activity. An energy company that has been granted a license pays an annual fee to the state budget, charged to the costs of its operations, with the application of similar rules as described in the preceding parts of this guide.
According to the new wording of the Energy Law, for the connection of an energy storage facility, the grid connection fee is determined on the basis of half of the actual expenditure incurred for the implementation of the connection.
The amendment to the Energy Law also introduced the obligation to include information on the planned investments in the energy storage facilities in the development plans for the grid pre-pared by the transmission system operator and the distribution system operators.
The investment process (concerning energy storage facilities) in Poland comprises the following major stages:
(a) securing the legal title to the land for the planned investment,
(b) environmental permitting,
(c) planning (zoning) arrangements,
(d) ancillary permits (if necessary),
(e) obtaining construction permit(s),
(f) obtaining permit(s) for use,
(g) obtaining grid connection conditions and concluding the grid connection agreement,
(h) obtaining the license/making an entry in the register of the energy storage facilities.
As a rule, there are no restrictions concerning the sale of electricity generated by RES instal-lations. Limitations may be related to the grid to which the installation has to be connected. Whether a given generating unit will be connected to the grid depends on the technical capa-bilities (capacity) of the latter. However, as determined by the provisions of the Energy Law, renewable energy installations have priority in connecting to the grid.
Also, sometimes gird connection agreements (and subsequently distribution services agree-ments) determine the possibility of the grid operator to implement limitations in electricity gen-eration and as a result sale of electricity, which go beyond the typical provisions related to safe grid operation and are mainly the result of insufficient capacity available in the local elec-tricity network.
The recently amended regulations on the construction of wind power plants stipulate that the investor carrying out the investment will allocate at least 10% of the installed capacity of the wind power plant to the residents of the community where the plant is built.
The resident of the community will be able to enter into an agreement with the investor, based on which such a resident will become a virtual prosumer. The cost of taking up a share of the wind power plant’s installed capacity will be the product of this share, expressed in kilowatts hour, and the cost of building the wind power plant. After 15 years, the investor’s obligation to allocate 10% of the installed capacity of the wind turbine to the residents of the community will cease.
Attention should be paid to the Act of 27 October 2022 on Emergency Measures to Limit Elec-tricity Prices and Support Certain Consumers in 2023, which requires electricity producers to pay the windfall tax. Their profit above a certain threshold is to be allocated to a special fund. However, this obligation is exceptional and is intended to last until the end of 2023, as it is re-lated to the extraordinary situation related to the energy crisis, mainly resulting from the ag-gression of Russia on Ukraine.
Both bilateral and corporate power purchase agreements (physical and virtual) are allowed in Poland and both are used by market participants in Poland. The interest in and a number of concluded corporate PPAs (especially virtual PPAs) has been increasing in Poland recently, as these contracts allow to limit the costs of electricity and in addition enable achieving goals related to the consumption of “green” energy which is particularly important for larger con-sumers.
As discussed in Section 4.7., certain regulatory limitations exist in relation to onsite or near-site direct line PPAs.
6. ROOFTOP, OFFSHORE, FLOATING, AND AGRICULTURAL RENEWABLE EN-ERGY PROJECTS
6.1. Offshore Wind and Floating Photovoltaic Projects
(1) No offshore wind project is yet operational in Poland. However, there are already farms in the development process. The Act of 17 December 2020 on the promotion of electricity production in offshore wind farms is the act dedicated to offshore wind. Among other things, it sets out an auction-based support system. Electricity genera-tors in offshore wind farms that are admitted to the support scheme will be entitled to cover the negative balance. In practice, this means covering the difference between the market price of energy and the price that allows generators to cover the costs of generating electricity at sea.
(2) Currently, the Act of 21 March 1991 on maritime areas of the Republic of Poland and maritime administration has the greatest meaning for offshore wind in Poland. This law sets forth rules for the determination of who will have the right to invest in a particular maritime area, mainly it specifies a competitive procedure (deciding procedure) for granting of permit that enables the location of an offshore wind farm in a particular ar-ea. As a rule, the deciding procedures are initiated between applicants. Investors are awarded points in accordance with the Regulation of 27 November 2021 on the assessment of applications in the deciding procedure. The winner is entitled to develop an offshore wind farm in a particular marine area.
(3) Floating photovoltaic is only just developing in Poland and has no dedicated legislation. The main difference with onshore PV is that the developer may have to obtain a water permit. It should be taken into account that the water permit is issued for a maximum of 30 years.
6.2. Rooftop Photovoltaic Projects
(1) Rooftop photovoltaics has no dedicated legislation. It is a very common solution for the prosumers. In the case of large-scale projects, the permitting procedure is generally standard as it was described in Section 3.
(2) The obligation of obtaining the decision on development conditions (DDC) is a matter of discussion. No decisions on development conditions would be necessary if there is no change of land purpose. However, there are voices that large-scale rooftop photo-voltaic changes the purpose of the building and thus (as the building constitutes part of the land) results in the obligation to obtain the DDC.
6.3. Agrivoltaic Projects
(1) The development of renewable energy sources such as wind and photovoltaic farms mainly takes place on agricultural land. The general information contained in the pre-ceding parts of this guide concerning this aspect is therefore applicable in this case.
(2) Significant restrictions on the areas in which development can take place arise from the Act of 11 April 2003 on the formation of the agricultural system. The purpose of this law is to reduce the use of agricultural land for other purposes and to reduce ac-cess to land by non-farmers. In certain cases, transfer of the legal title either by trans-fer of ownership or even by land lease is forbidden.
(3) The Law of 3 February 1995 on the Protection of Agricultural and Forestry Land intro-duces the protection of agricultural land of the best quality. In order to construct a RES installation on agricultural land, it is necessary to exclude the land from agricultural production.
(4) If the photovoltaic project is planned on a location, which is classified as agricultural or forest land in the local land register, prior to applying for a building permit the investor will need to exclude such land from agricultural or forest production, as applicable. Ex-clusion from agricultural or forest production occurs by way of an administrative deci-sion. The person who obtains the above-mentioned decision is obliged to pay a single fee, as well as annual fees for the permanent exclusion of the land from agricultural production. The value of the single payment is specified in the mentioned Act on the Protection of Agricultural and Forestry Land and depends on the quality grades of the soil.
7. TRADING OF GREEN CERTIFICATES/CERTIFICATES OF ORIGIN
Electricity from RES is certified with a certificate of the energy origin (the so-called “green certificate), issued at the request of the generator. The certificate of the energy origin consti-tutes a document confirming that the electricity was generated from sources using the follow-ing energy sources in the energy conversion process: wind energy, geothermal energy, solar radiation, waves, sea currents, and tidal energy, the energy obtained from the fall of rivers and energy obtained from biomass.
A certificate of the energy origin is granted only for electricity generated in a given RES instal-lation for the first time before July 1, 2016, i.e., before the amendment to the RES Act and the introduction of the auction scheme came into force (please refer to Section 2.1.). Conse-quently, newly built RES installations will not be able to become beneficiaries of this system.
The green certificate is issued by the President of the ERA at the request of a generator of electricity from RES. The application for the certificate shall be submitted via the electricity system operator within 45 days from the day the given volume of electricity was generated. Property rights result from green certificates which are transferable and are a stock ex-change commodity (transfer of such property rights results in the transfer of the green certifi-cate itself).
Apart from the green certificates scheme, another instrument that supports the generation of electricity in RES installations and allows to certify of renewable energy is the guarantee of origin. A guarantee of origin constitutes a document confirming to the end user that the elec-tricity injected into the distribution or transmission grid originates from renewable energy sources. Unlike a green certificate, no property rights arise from a guarantee of origin. Guar-antees of origin are issued in electronic form by the President of the ERA at the written re-quest of the generator. The document is valid for a period of 12 months from the date of com-pletion of electricity generation or until handed over to/redeemed for the benefit of the end us-er. Guarantees of origin are mostly used by large business entities and companies that want to increase the share of so-called green energy in their consumption and strengthen their image. Guarantees of origin typically constitute the subject of the corporate PPAs in Poland, i.e., they are transferred to the final customer or redeemed for the benefit of the final customer that collects electricity from the generator in RES installation under the corporate PPA.
Property rights result from green certificates which are transferable and are a stock ex-change commodity. Transfer of such property rights results in the transfer of the green certif-icate itself.
Energy companies generating and/or trading in electricity and selling it to end consumers (connected to the national electricity grid) are obliged under Polish law to obtain and submit for redemption a given number of green certificates or to pay a substitute fee. For this reason, producers of electricity from RES can derive revenue from the sale of green certificates to entities obliged by law to redeem an adequate number of them.
Green certificates (property rights resulting from them) are subject to trade between market participants and their transfer is performed under bilateral contracts (quite often under long-term agreements concluded by energy companies generating electricity in RES in parallel with PPAs or as part of the PPAs) or on the Polish Power Exchange (Towarowa Gielda Energii) (the later however requires either using the services of the commodities brokerage house or becoming a member of the Power Exchange). The price of green certificates is market-driven – through supply and demand. The sale and purchase of green certificates require maintain-ing an account in the green certificates register maintained by the Polish Power Exchange.
Guarantees of origin are traded on the basis of bilateral contracts, however, their transfer and/or redemption for the benefit of a particular entity has to be reflected in the relevant regis-ter maintained by the Polish Power Exchange.