Interruption of equipment supply or limited energy production? Consequences for producers who won RES auctions in the light of the coronavirus COVID-2019 pandemic

Can the interruption of the supply of equipment in a renewable energy installation or limited energy production – due to the coronavirus COVID-2019 pandemic – have negative consequences for producers who have submitted the winning offer in the auction for the sale of energy from renewable energy sources?

Are the mechanisms provided for in the Renewable Energy Sources Act of 20 February 2015 (the “RES Act”) sufficient to avoid negative consequences related to exceeding the deadlines for commencing the sale of energy within the auction system or to selling below the minimum 85% of the amount indicated in the winning offer?

Dominik Strzałkowski and Paweł Michałek answer those questions.

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Executive summary

The interruption of the supply of equipment in a renewable energy installation or limited energy production due to interruption or limitation of operation in part of factories and disruption of global supply chains – due to the coronavirus COVID-2019 pandemic – may bear the risk of exceeding the statutory deadlines for commencing energy sales within the auction system and, consequently, may involve:

the loss of the right to benefit from the auction support system,
possibility to reacquire the right to participate in an auction for the sale of energy with given installation only after the lapse of 3 years, from the date on which the energy sales was to commence at the latest,
the forfeiture of the deposit paid to the ERO President.

On the other hand, in respect of the producers who have already commenced energy sales within auction system, the above circumstances will not cause the risk of not meeting the obligation to sell at least 85% of the amount of energy specified in the winning offer, if energy was not generated due to a manifestation of force majeure.

Recommendations

Due to the lack of premises enabling producers to avoid negative consequences in the event of exceeding the deadline for commencing energy sales and the absolute nature of this obligation, we recommend that the RES Act be amended immediately in order to extend the statutory deadlines – both with respect to producers whose offers won the auctions held in 2018 and 2019, and to producers who will participate in future RES auctions.

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Statutory deadlines for commencing energy sales

Generally, pursuant to the RES Act, producers who have submitted the winning offer in the auction for the sale of energy from renewable energy sources are obliged to commence sales within the auction system for the first time within:

24 months from the date on which the auction session ends – in case of PV farms;
33 months from the date on which the auction session ends – in case of onshore wind farms;
72 months from the date on which the auction session ends – in case of offshore wind farms;
42 months from the date on which the auction session ends – in case of other types of RES installation.

Exceeding the statutory deadlines – consequences

The RES Act contains no exceptions that would allow a producer to avoid sanctions for exceeding the statutory deadline for sale commencement. It is an absolute obligation.

If, for whatever reason, the deadlines for commencing the sale of energy are exceeded, the producer shall be subject to three sanctions in respect of the winning RES installation:

an installation will lose the right to benefit from the auction support system (i.e. the right to be reimbursed for a negative difference – in case of installations having an installed capacity of not less than 500 kW or possibility to sell energy to the obliged seller at an adjusted price – in case of installations having an installed capacity of less than 500 kW),
an installation could reacquire the right to participate in an auction for the sale of energy only after the lapse of 3 years, from the date on which the energy sales was to commence at the latest,
deposit paid to the ERO President will be subject to the forfeiture (PLN 60 for each 1 kW of installed capacity).

Failure to sell adequate volume of energy

The offer submitted by the producer within RES auction shall contain in particular the amount of electricity (expressed in MWh) which the producer plans to sell within the auction system in the following calendar years, starting with the year in which the energy generated by a given installation will be sold for the first time within the auction system, taking into account the maximum deadlines for commencing sales – which, in case of winning the auction, the producer will be obliged to sell.

The settlement of the obligation for producers who won auctions to sell within the auction system occurs after the completion of each full three calendar years during which support was granted and after the expiry of the support period.

As a principle, a financial fine will be imposed on those who, having complied with the obligation to commence energy sales within auction support system within the statutory deadline, sold less than 85% of the energy volume specified in their offer within the auction system during a period of three full calendar years (and after the expiry of the support period).

Fines are calculated using the following formula:

KO = 0,5 x [CS x (EOA – EWA)],

where the particular symbols mean as follows:

KO – level of fine (expressed in PLN),

CS – adjusted price (expressed in PLN/MWh) constituting the energy sales prices, as referred to in art. 92 sec. 1, or the basis for payment of a negative difference, calculated pursuant to art. 93 sec. 1 point 4 or sec. 2 point 3,

EOA – the amount of energy from renewable energy sources (expressed in MWh) which the producer undertook to generate, deliver to the network and sell after the end of the auction, during a settlement period of three full calendar years,

EWA – the amount of energy from renewable energy sources (expressed in MWh) sold at an auction during the settlement period of three full calendar years.

Exclusion of sanctions

A producer will not be fined if the relevant energy was not generated due to:

binding provisions of generally-applicable law;
the need to ensure security of the power grid;
failure in the power grid system;
force majeure, understood as an event or series of events, independent of the producer and which the producer could neither avoid nor overcome, including:
- natural disasters, including natural catastrophe within the meaning of the Natural Disasters Act of 18^th April 2002;
- war, military actions, acts of terrorism, riots, failure of a nuclear power station;
an administrative decision, issued after the producer’s offer was submitted, which restricts the ability to use water at an RES installation which relies on hydro-energy to generate electricity, thereby limiting the amount of energy that the producer could generate;
technical breakdowns at the RES installation, understood as events, independent from the producer, that resulted in sudden and unforeseen damage or destruction to the installation, its buildings or equipment and which adversely affected the installation’s operations;
changes in the hydrological flow exceeding 25% of the average flow over many years, confirmed by hydrological data from the Institute of Meteorology and Water Economy, in at least one calendar year within the relevant settlement period (of full three calendar years) in the water gauge cross-section which adversely affect the flows of water into an RES installation that relies on hydro-energy to generate electricity.

Definition of force majeure

Polish regulations do not define the concept of force majeure, although they often refer to such a concept. Therefore, it will be necessary to use the definition developed by legal doctrine and jurisprudence.

It is generally accepted that force majeure is an external event the effects of which cannot be predicted or prevented, while all those prerequisites are required to occur together. Such a definition corresponds to an objective theory of force majeure, since the distinguishing criterion here is the qualification of the event itself and not the degree of diligence of the person acting. Examples of force majeure are natural disasters (floods, earthquakes – so-called vis naturalis), terrorist attacks, war, but also acts of public authority (so-called vis imperia).

In view of the above, the coronavirus COVID-2019 pandemic can be considered a manifestation of force majeure, as it is an external event which cannot be foreseen and prevented by the energy producer.