POLAND Trends and Developments Contributed by: Tomasz Młodawski, Krzysztof Cichocki, Łukasz Wyszomirski and Krzysztof Fasula, Sołtysiński Kawecki & Szlęzak
ly known as corporate power purchase agreements, allow a business to secure a fixed or predictable price for electricity over many years. For the renewable energy producer, a contract provides a stable revenue stream, leveraging external financing for projects; for the buyer, it protects against rising electricity prices and helps to meet sustainability commitments. Poland is one of the most active markets for these contracts in Central and Eastern Europe. The key commercial issues to resolve in any such agreement include: • structure (financially or physically settled, direct or sleeved delivery); • determination of volume and imbalance risk allocation (pay-as-produced or pay-as-nominated models); • allocation of the non-market redispatching risk; and • addressing the risks of negative spot market prices, as well as changes in the regulatory envi- ronment. As more deals are done, market practice is developing and documentation is becoming more standardised. Battery storage: services, stability and arbitrage Battery storage projects are designed not only to shift generation output from hours with peak genera- tion (low price) to hours with scarce generation (peak prices) but also to provide ancillary services, including frequency and voltage control, inertia and availability for black start. Ancillary services may play an impor- tant role within the storage project’s revenue stack, alongside arbitrage and capacity market revenues. Since power trading (and hence also arbitrage pur- sued with the battery storage) requires a power trad- ing licence under Polish law, battery storage operators are typically not directly involved in power trading. On the contrary, the commercialisation of battery storage projects is effected through so-called storage servic- es (optimisation) agreements, under which the bat- tery storage operator renders storage services to the power trader in exchange for the following payments:
• fixed amounts adjusted according to the availabil- ity and degradation of the storage project, among other factors; • floating fees based on the merchant profit share model; or • a mix of the above, combining the profit share model with minimum (floor) payments conditional Behind the headline topics of wind, solar and nuclear, a series of practical regulatory changes are reshap- ing how energy projects get built and connected in Poland. These changes have a direct impact on devel- opers and investors. For on-grid connections, the rules have tightened in several ways: • developers must now pay higher upfront deposits on availability and degradation. New rules for grid connection when applying for a grid connection, making it more expensive to reserve capacity without genu- ine development plans; • projects must meet specific permitting milestones – eg, obtain planning permission within set time- frames or lose their connection entitlement; and • in areas where the grid is already congested, devel- opers can connect on a flexible basis, accepting that their output may be reduced at times rather than waiting for a firm connection guarantee. Poland’s regulatory framework also allows for the increased use of so-called “deep connection charg- es”. When connection of a new project depends on a grid upgrade and the operator is authorised to refuse the connection right, the developer may decide to contribute to the grid upgrade costs and, in this way, obtain the grid connection right at a higher cost. This is a significant shift as the previous approach was based on the assumption that the costs of grid upgrade are recovered from tariffs payable by end customers, while the generation side pays only for the establishment of the connection itself. The new approach puts more of the cost on the projects that trigger the need for grid investments. This changes the economics for developers but also allows for grid upgrades where such upgrades are triggered by new
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