The development of offshore wind farms is one of the key elements of the transformation of the energy market in Poland. The draft of the Polish offshore wind legislation, “The Offshore Wind Act”, was adopted by the upper house of Parliament last week and will enter into force when it is signed by the President. The main purpose of the Act is to set out the framework for a dedicated subsidy scheme for offshore wind projects, but it also addresses other important areas related to the development and operation of offshore windfarms.
The general rule of the Act is that offshore projects will be entitled to a quasi-CfD subsidy for 25 years. The projects will settle the negative balance resulting from the difference between the average market price and the strike price. In the event of a positive balance, it will be also settled and paid back by investors on a yearly basis. The support for the investors will be capped at the product of 100,000 hours and the installed electric capacity of the offshore wind farm.
There are two groups of projects envisaged in the Act. In regard to the first group (the most advanced projects), the support will be granted by way of two individual decisions of the Polish Regulator: first, granting the support in general and setting the maximum price (subject to EC approval) and, then, the second decision with the final strike price.
According to the final version of the Act:
the total installed capacity of the offshore wind farms that may receive support under the Regulator’s decision has been set at 5.9 GW, which is supposed to reflect the actual potential of the most advanced offshore projects;
given EU state aid rules, the deadlines for applications and the Regulator’s decisions have been set at 31 March 2021 and 30 June 2021 respectively;
attachments to the application include a map that shows that the location of the planned offshore wind farm is within the boundaries envisaged for such projects in the final draft Act, (initial) grid connection conditions, supply chain plan, as well as security of PLN 60,000 for 1 MW of installed capacity in the form of a cash, bank or insurance guarantee.
In regard to the second group of projects, the right to settle the negative balance will be awarded in auctions. The draft Act introduces the following rules (among others):
the auctions will be held in 2025 (2.5 GW), 2027 (2.5 GW), 2028 and subsequent years (if the Council of Ministers so decides); the Council of Ministers will be entitled to decrease the auction capacity in 2025 and 2027 if it is necessary to balance electricity supply and demand;
one of the key attachments to the application for the admission to the auction is an environmental decision for the offshore wind farm;
the sole winning criterion in the auction is the bid price.
The Minister of the Climate will determine, in a regulation, the maximum price, given in PLN per 1 MWh. This price may be given either in the Regulator’s individual decisions or in the bids submitted by producers in the auction. The price takes into account:
the investment costs incurred in the period of the project’s preparation, construction and liquidation;
operating costs and additional investment costs incurred in the period of the project’s operation;
the justified return on the capital involved.
The beneficiaries of the support scheme will be obliged to generate electricity (after obtaining a generation licence) and feed it into the grid for the first time within 7 years of the date of the individual decision or closure of the auction, respectively. It is also required that the electricity generation devices be manufactured not earlier that 72 months before the first generation of electricity.
- Grid connection
The draft Act contains a new document: initial conditions of connection to the grid. The initial conditions of connection to the grid are valid for 2 years from their delivery and do not create an obligation for the TSO to conclude the grid connection agreement. However, they automatically transform into the grid connection terms (also valid for 2 years) on the day the right is obtained to settle the negative balance. Such terms already provide the investor with a claim for connection.
Irrespective of the above, the investor will bear the costs of construction of the connection between the wind farm and the onshore grid. The project owner will notify the TSO of its intention and of the terms of the sale of these devices. Within 1 month of the date such information is obtained, the TSO will make a statement on its intention to purchase the set of equipment, which is the basis for the commencement of the negotiations of the sale agreement. However, the price for such devices will be established based on the rules indicated in the Act (replacement value). Irrespective of the above, the draft Act has introduced an option for the TSO to purchase the connection devices even if the project owner has not planned to sell them. The TSO should announce its intention to do this before the transmission services agreement is concluded.
- Local content
When applying for a subsidy, the project owner must submit a supply chain plan (plan of the participation of local devices and services) showing the status of the construction of the offshore wind farm, together with the equipment for feeding power into the grid. The plan shall indicate the local content ratio, i.e. the ratio of the capital expenditures planned to be settled by the project owner (or other members of its capital group) towards Polish-based entities to the entire project CAPEX. There are no specific (e.g. in %) requirements as regards the local content ratio level and no specific negative consequences for not meeting the target. The supply chain plan will also include the results of initial talks with the authorities of the sea ports and terminal operators in Poland, as well as a description of activities planned in Poland for the purpose of human resources development in the area of offshore wind expertise and skills. The plan will be updated in 18 months. After this, the investors will be obliged to submit a report to the Regulator, every 2 years, on the implementation of the plan, for a period of 6 years from the date the electricity generated in the offshore wind farm is fed into the grid for the first time, and after that - every 5 years.
- Location Licences
In accordance with the latest draft Act, the proceedings for the Offshore Location Licences (“OLL”) that were initiated but not completed by the date of entry into force of the Act, will be discontinued if the location of the wind farm is not compliant with the location indicated in Appendix no. 2 to the Act. This means that it will be possible to file new applications in regard to such locations, which will create opportunities for entirely new applicants (that were not parties to the previous proceedings) to apply for the OLLs.
In the context of the above, the Act also envisages secondary legislation defining the detailed criteria for evaluating applications and for calculating the score for each application evaluation criterion for the determination (competitive) proceedings - if more than one application is filed for the same location (which will most probably be the case). The draft regulation is already available and is now subject to consultation.
- Licence fee
An additional licence fee for the offshore wind farms will be calculated at an annual rate of PLN 23,000 per MW of installed electrical capacity (subject to an annual indexation).
- Decisions with immediate effect
In order to accelerate the development process, the Act introduces some amendments to the administrative proceedings. In particular, the key permits (environmental decision, as well as the building, use and water permits) will be immediately enforceable. The same applies to a decision on approval of the design of geological works and a decision on approval of geological documentation. Additionally, the period for issuing the environmental decision, as well as the water and building permits, has been shortened to 90 days, and for the use permit – to 30 days.