Energy storage trends - Spotlight on Poland

Introduction

Poland has one of the fastest growing renewable energy markets in Europe. The dynamic expansion of new RES investments is evident in both photovoltaic and wind (including off-shore wind power) projects. Ambitious CO2 emission reduction targets under the EU’s Green Deal significantly affect the regulatory environment of the RES industry in Poland. The Polish legislator has been working on new regulations that will facilitate the implementation of RES projects necessary to achieve the goals of the Fit for 55 package.

As in many other EU jurisdictions, in Poland the exponentially growing number of RES investments is causing disruption to the power grid. One solution to this problem is the large-scale development of energy storage facilities. As experts point out, RES production variability must be balanced by energy storage facilities that are capable of changing their mode of operation quickly. The development of energy storage facilities will undoubtedly allow the share of renewable energy sources in the Polish energy mix to be increased, while maintaining the stability and reliability of power system operation.

Poland has already introduced the first amendments to the Energy Law, which address the topic of electricity storage and are designed to eliminate legal barriers which to date have slowed down investments in RES facilities. These amendments introduced several simplifications in the area of electricity storage, introducing, among other things, a definition of electricity storage and energy storage facilities. The amendments have a stimulating effect on the energy storage market, where we have recently seen intensive development in energy storage technologies, particularly in developing hydrogen and ammonia generation technologies, creating small commercial battery storage facilities, and taking steps to develop strategic investments in pumped storage power plants.

Below is an overview of the key issues that operators interested in investing in the energy storage sector in Poland need to consider.

Energy law and regulation

According to the definitions in the Energy Law, an electricity storage facility is an installation that allows electricity to be stored and fed into the electricity grid. Electricity storage, on the other hand, is 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.

When considering starting an investment as an energy storage facility, it is necessary to apply the Energy Law, which contains regulations for this type of installation. The main regulatory obligations in Poland depend on the total installed capacity of a given storage facility[1].

For storage facilities with a total installed capacity of more than 10MW, it is necessary to obtain a licence for electricity storage, which is issued by the Energy Regulatory Office (ERO) in accordance with the transparent procedures provided in this regard (procedure is equal for all energy storage facilities). The procedure is relatively time-consuming because it requires the investor to complete a significant number of documents related to the investment. The documentation is then examined by the ERO and the procedure culminates in the issuance of a decision on granting the licence.

For storage facilities with a total installed capacity from 50 kW to 10 MW, the procedure is simplified. Such facilities are subject to registration in a dedicated register of energy storage facilities to be maintained by transmission grid operators. The procedure for entry in the registry is straightforward, requiring the submission of an application to the transmission system operator that provides basic data about the energy storage facility. The operator is obliged to make the entry within 14 days.

Regarding the regulatory issues, it should be borne in mind that each energy storage facility must be connected to the power grid, thus it must abide by the rules of the power grid, which are called the Distribution Grid Operation and Maintenance Instructions. As part of connection to the power grid, it is necessary to obtain the grid connection conditions and conclude a grid connection agreement with the local grid operator.

Some characteristic solutions for energy storage and the regulations applicable to them include:

• electricity storage tariff exemption—electricity storage facilities do not have to create and approve tariffs with the regulator, which is a simplification both at the start-up stage and at the operation stage;
• abolition of double billing of network charges—electricity tariffs in billing storage for services provided (transmission or distribution) ensure that costs already incurred can be deducted. The owner of the energy storage will bear the distribution and transmission costs when accepting energy from the grid and, when energy is returned to the grid, will only bear the distribution and transmission costs for the volume of energy, which will be the difference between the energy accepted and returned;
• obligation to obtain a licence/registry entry dependent on the total installed capacity of an electricity storage facility—the installed electrical capacity for AC generating equipment is understood as the manufacturer’s rated active power (rated power, nominal power), expressed in [W] or multiples thereof ([kW], [MW]), achieved at the rated power factor cosϕn. With this obligation, the storage capacity itself, expressed in kWh, is irrelevant;
• exemption from half of the fee for connection of a storage facility to the grid—normally, the connection of a generating unit (such as a PV plant) to the grid requires the construction of a power connection. Such costs are charged entirely to the owner of that plant, but in the case of energy storage, such costs are split 50/50 between the investor and the transmission system operator.

Planned amendments to the Energy Law

It is worth mentioning that, in response to the requirements of EU legislation, the Polish legislator is working on an act amending the Energy Law and the Act on Renewable Energy Sources to implement the provisions of Directive 2019/944 of the European Parliament and of the Council of 5 June 2019 concerning common rules for the internal market in electricity, and amending the rules for the internal market in electricity, and amending Directive 2012/27/EC regarding the possibility to own storage facilities (the Draft). The Draft is currently in the final stage of inter-ministerial arrangements and public consultations.

The main purpose of the proposed amendments is to strengthen the role of energy storage in system balancing and the mobilisation of entities other than electricity system operators to invest in energy storage facilities. As a rule, electricity system operators will not be allowed to be the owners of energy storage facilities, unless specific statutory conditions are met. Additionally, the definition of energy storage has been extended compared to the current definition provided in Energy Law. The Draft distinguishes between ‘energy electricity storage’ and ‘energy storage’, which expands the potential sources and technologies used in the future storage projects.

Furthermore, according to the planned amendments, Distribution System Operators and Transmission System Operators may not own, establish, operate, or manage energy storage facilities, except in the cases described in the Draft, where certain specific conditions are met. The solutions developed in the Draft focus on providing easier access to energy storage facilities for private investors and individuals, and are intended to remove barriers to electricity storage facilities connected to the power system.

Contract design and corporate law issues

The energy storage projects we encounter on the Polish market are of great diversity, ranging from battery storage facilities with relatively small total installed capacities, through contracts focusing on the joint development of specific technologies (hydrogen, ammonia) for commercial use, to large energy storage facilities within pumped storage power plants, which represent highly complex energy infrastructure.

Given this, the type of contracts and adoption of corporate solutions for technologically different projects requires an individual approach and appropriate analysis of the needs of a particular project.

Unquestionably though, each energy storage project will require several agreements during the execution stage, e.g. joint venture agreements and relevant corporate structures (SPVs), EPC contracts, project management agreements, lease agreements, loan agreements and insurance policies. The operational stage of a storage project also typically involves a process of support agreements such as O&M contracts, technical consulting, and power distributor agreements.

Environmental and planning law

Projects concerning energy storage, as with other infrastructure projects in Poland, require the necessary administrative permits to be obtained. Firstly, a potential investor should obtain an environmental decision preceded by an environmental impact assessment of the project (required only when the project has a significant impact on the environment). This assessment depends on the scale of the project, the planned technology and its potential impact on the environment. The detailed definition of projects likely to have a significant impact on the environment, for which an assessment is required, is included in a specific regulation[2]. These factors are analysed by the public authority during administrative proceedings concerning the environmental decision.

The issuance of an environmental decision is obligatory to obtain a building permit.

Additionally, before obtaining a building permit, the project needs a zoning decision, unless a local development plan has been enacted for the area. A potential investor should also consider whether the investment requires other administrative decisions, e.g. a water permit, permission to remove trees or change the use of agricultural and forest land to non-agricultural and non-forest purposes. Such decisions will likely require additional financial expenditure.

Once all of the required decisions have been obtained, the investor can apply for a building permit. The commissioning and operation of an energy storage facility requires the prior issuance of an occupancy permit, usually obtained after the construction works have been completed.

In more complex projects comprising the construction of installations whose operation (because of the nature and scale) will probably cause significant pollution of specific natural elements or the whole environment, the potential investor should also obtain an integrated permit (pozwolenie zintegrowane).

Site acquisition

For energy storage projects, there are two potential options for site acquisition in Poland. Firstly, the potential investor may acquire ownership of the property on which the planned project will be sited. Such acquisition may be a direct acquisition (sale purchase agreement requiring the notarial form) or be preceded by a preliminary sale purchase agreement. In the latter case, both agreements (preliminary and final) require the form of notarial deeds.

In some cases, the direct acquisition of the land requires the relevant approvals to be obtained from the competent authorities. If the property has the status of agricultural property, its effective acquisition requires the consent of the National Centre of Agricultural Support (Krajowy Ośrodek Wsparcia Rolnictwa). The lack of such consent leads to the invalidity of the concluded sale agreement. Therefore, in each case proper due diligence of the land is recommended.

Another solution to secure land for energy storage investment is a long-term lease agreement concluded with the land owner. To properly secure title to land under a lease agreement, it is recommended to conclude the agreement with notary certified signatures. This form allows the rights under the lease agreement to be entered in the land and mortgage register. In this case, these rights enjoy protection that provides registration in the LMR (priority before other rights). It is important that the lease of agricultural land also requires the consent of the National Centre of Agricultural Support.

The maximum statutory term for a lease agreement in Poland is 30 years. After that term, the agreement transforms into a contract for an indefinite period, which includes a material risks of its termination. In general, lease agreements should be concluded for a definite period to minimise the risk of its earlier termination.

Public procurement law

When an investor in energy storage projects or a purchaser of services concerning energy storage is a public contracting authority, the implementation of such projects may also require the application of the Polish public procurement act (Prawo Zamówień Publicznych). However, if a potential investor does not fulfil the statutory prerequisites for a public contracting authority (joint-venture projects), the selection of the business partner to it should be carried out under a tender conducted in accordance with the provisions of the Polish civil code.

In Poland, provisions regarding public procurement are based on EU legislation. It should be noted that the application of these provisions is mandatory when, among others, a project is carried out by a contracting authority (or sector procurer) performing a contract to establish networks intended to provide a public service for the production, transport or distribution of electricity, gas or heat, or for the supply of electricity, gas or heat to such networks, or for the operation of such networks.

In addition, the provisions of this act do, as a rule, apply to the award of public contracts and the organisation of tenders whose value is equal to or exceeds PLN 130,000, by a public contracting authority.

For sector procurement (special public entities and categories of services), the public procurement law provides the following thresholds (compliant with EU provisions):

• for supplies and services or to organise design contests by sectoral contracting authorities: EUR 431,000;
• for construction works: EUR 5,382,000;
• for social and other specific services, as referred to in Article 392(1) of the public procurement law awarded by sector procurers: EUR 1,000,000.

A detailed catalogue of public entities that are obliged to apply public procurement provisions is provided in article 3 of the public procurement law.

The public procurement law provides for various awarding process of contracts, depending primarily on the subject of the contract and the needs of the contracting authority. The standard form of procurement is competitive tendering, including different procedural methods of procurement.

In each case, it is recommended to analyse whether specific contracts concerning energy storage projects fall under the provisions of this act.

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[1] Installed electrical capacity for AC generating equipment such as a storage facility is understood as the manufacturer’s rated active power (rated power, nominal power), expressed in [W] or multiples thereof ([kW], [MW]), achieved at the rated power factor cosϕn.. With this obligation, the storage capacity itself, expressed in kWh, is irrelevant in this case.

[2] The Regulation of Council of Ministers of 10 September 2019 on undertakings which may significantly affect the environment.