RES auctions in Poland | Results and trends
The RES auction marathon is behind us and we finally know the final result. Twelve auctions for various technological baskets, for new and existing installations, were held during three weeks. The contracted 90.3 TWh of new, green electricity for 15 years is worth PLN 20.2 billion. As much as 86% of this volume will be purchased at prices lower than those currently prevailing on the wholesale electricity market. This is another proof that renewable energy sources can compete with conventional units without additional support.
This year's series of RES auctions, held from 25 November to 13 December, was to be the largest so far in Poland. For onshore wind, it proved to be even the largest in Europe. In total, the government expected to order up to 185 TWh for 15 years, 78% of which was to come from new projects. The total budget, including the so-called migration auctions 1, was close to 70 billion PLN. In the end, only 49% of the ordered volume was contracted and 30% of the planned budget was used.
The results are a source of several interesting conclusions about the near future of our RES sector:
- The auctions will result in the development of about 3.1 GW of new capacities. The biggest winners are onshore wind (approx. 2.2 GW and 86% of electricity) and photovoltaics (approx. 900 MW). This is not surprising. This is complemented by one biomass installation with a capacity close to 20 MW.
- Onshore wind again proved to be the cheapest RES technology. The lowest auction price was 162.8 PLN/MWh and the maximum was 233.3 PLN/MWh. This is a continuation of the trend observed for many years - the costs of this technology are systematically falling. Already last year's RES auctions resulted in record low prices between 157.8 and 216.99 PLN/MWh, much lower than those on the Polish Power Exchange. In such situation the auction winners no longer require additional financial support. On the contrary, if wholesale prices remain at this level over the next years, RES producers will have to return part of their revenues (under the so-called contract for difference 2).
- The photovoltaic market is enjoying a boom in Poland, which is also confirmed by the auction results. About 800 MW have been contracted for projects no larger than 1 MW, with prices ranging from 269 to 327 PLN/MWh, while exhausting the entire volume planned by the government 3. Additionally, large-scale photovoltaic farms with a capacity above 1 MW have also appeared for the first time. These will be about 40 MW at a price close to 233 PLN/MWh.
- The auction system is not attractive for biogas, biomass and hydropower generators. As in 2018, the total volume of new capacity contracted in this year's auction was marginal compared to wind and solar sources (less than 20 MW). The parallel support system in the form of feed-in-premium is more favoured by small hydropower plants and biogas plants. This mechanism has recently been extended for projects with an installed capacity of up to 2.5 MW (not less than 0.5 MW) and is now awaiting the approval of the European Commission.
- Poland is becoming a real construction site. As a result of auctions held last year and this year, 4.8 GW of additional RES capacity will be created in the coming years. Another 1.6 GW of capacity is initially planned for the auction in 2020, but the final version of a regulation is still being worked on.
- The system of green certificates is still considered to be beneficial by many owners of RES installations. Despite offering a record high budget in migration auctions (PLN 25 billion), it has been used only to a small extent (1.25%). This can be explained by the recent stabilisation of certificate prices and greater flexibility for generators compared to the auction system. In the case of hydropower as well as non-agricultural biomass and biogas sources, there was a shortage of applicants and the auctions remained unresolved.
Source: prepared on the basis of Communications of the President of the ERO of 19 and 20 December 2020.
What next with RES auctions in Poland?
- The government intended that the auctions would help to achieve our 2020 target of 15% RES, the implementation of which is seriously threatened. However, the vast majority of these installations will not be built before the end of 2020. Nevertheless, they will be an important argument in discussions with the European Commission. According to the "Clean Energy for All Europeans" package, Poland will have an additional twelve months to take effective measures if the target is not met.
- The onshore wind energy market has been largely "cleaned" from projects with the necessary permits to start construction. The 10H rule in principle makes it impossible to prepare new projects and to modernise those which in a few years' time will end the support system. This limitation makes it impossible for Poland to use newer generation wind turbines. They are much more efficient and their level of capacity utilisation may be more than 40%. Larger turbines would also mean cheaper electricity and less space required to build wind farms.
- If the government's attitude towards onshore wind energy does not change, the industry will remain stagnant. Both the PEP 2040 project and the draft auction regulation for 2020 predict that the installed capacity of wind power will remain at around 9.5 GW over the next two decades. So about as much as we will have in 2022 after the completion of the projects that won last year's and this year's auctions. This is far below its potential.
- The RES Act provides for the possibility of conducting RES auctions until June 2021. The discussion on the principles of RES development after that date should start now. The growing financial attractiveness of wind and solar projects means that future auctions for large installations may already have a different character. Their main objective would no longer be to provide direct financial support, but to provide them with guarantees enabling them to obtain financing from other sources. At the same time, other technologies will require further assistance, but the current support system does not seem attractive to them.
Polish energy sector is more and more open to renewable sources and, as this year's auctions confirm, it is less and less connected with the need to subsidise them. In the case of large solar and wind projects, financial support is no longer even necessary. As a result, these two technologies will be the largest source of new power in our system in the coming decades. In addition to the 4.8 GW of winning projects from auctions, we will see further growth in the market for prosumer PV installations in the coming years and the start of construction of the first offshore wind farms. This dynamic development of RES will take place within the discussion on the European Green Deal, which will further emphasize the need for transition of our energy sector.
Author: Marcin Ścigan, head of RES project in Forum Energii
Date of publication: 23 December 2019
- Auctions for existing installations to move away from the support scheme based on green certificates.
- Under a contract for difference (CfD) the producer always receives a negotiated rate per MWh. When the electricity price on the power exchange is lower, the producer receives appropriate compensation from the government. If it is higher, the producer is obliged to return the difference.
- This was the only auction where the entire planned volume was exhausted.