The “electricity” law and compensation for the energy-consumption – “power-eaters” face a difficult dilemma

According to the legislator’s initial intention, all customers were supposed to receive the same level of benefit from the “freezing” of prices to the same extent. The “electricity” law was adopted in December last year with the intention of bring benefits to households, local governments and business energy customers, regardless of the size of their operations.

Industry representatives have watchfully followed the turbulent course of the legislative project called the “electricity” law. A few months ago one amendment to the draft regulation, whose practical interpretation – apart from adding a well-functioning calculator – also required a large dose of patience, as well as repeated announcements of its next iteration and arrangements between the government and the European Commission.

At the same time, the industrial sector have long favoured  the introduction of a compensation system in Poland to cover the additional costs resulting from the transfer of emission allowances in energy prices set by the power sector. Some countries, like Germany and the United Kingdom, have been using similar systems for years – Poland is one of the few highly industrialized countries in which this system has yet to be introduced. The aim of the current draft law on the compensation system for energy-intensive sectors and subsectors is to introduce such a support system. However, the legislation forces energy-consuming entities to choose: either to equalize their energy prices for the first half-year or to compensate. In the face of regulatory uncertainty, this choice is not easy.

“Freezing” prices – for how long and for whom?

All in all, in the light of the current wording of the project, households, micro and small enterprises and public institutions will particularly benefit from “frozen” prices throughout 2019. Other end customers will be the beneficiaries of this “freezing” only for the period from 1 January to 30 June of this year.

Co-financing as an additional support instrument

The parliamentary draft amendment to the “electricity” law, which is proceeding rapidly, also provides for the possibility of obtaining de minimis aid to compensate business customers for increases in energy prices in the second half of 2019. The size of the operations run by those recipients is irrelevant, but certain installations that produce products  indentified  by codes entitle them to energy-intensive compensation (discussed in greater detail below).

Companies that will not be entitled to use the mechanism provided for in the draft act on the compensation system for energy-consuming sectors and sub-sectors will be able to apply for the subsidy. Importantly, the list of PKD codes indicated in the draft act is completely different from the list concerning e.g. reliefs in the renewable energy certificate system, renewable energy fee or CHP fee. Despite the undoubted energy consumption, the compensation will not go, e.g. to representatives of the cement, glass and ceramic industries. At the same time, those entities will be entitled to the equalization of energy prices for the first half of the year and de minimis aid due to the price increase in the second half of 2019.

The levels of co-financing – The consequences of recognizing the co-financing for de minimis public aid

The level of co-financing is calculated as the product of the rate, which will be determined by the Minister of Energy in PLN / MWh, and the amount of energy consumed in the aforementioned period. The application for co-financing will concern the calendar quarter – any delays in submitting an application may result in no co-financing being provided.

The co-financing granted will be de minimis public aid, which in turn determines the necessity of applying the rules for granting such aid contained subject to the relevant regulations of the European Commission.

The total amount of de minimis aid granted per Member State to a single undertaking shall not exceed EUR 200,000 over the period of three fiscal years. As a result, to correctly determine the amount of funding for which a given entrepreneur will be able to apply, it will be necessary to calculate the previously obtained aid of this type and, in the case where the amount of co-financing with the previously obtained de minimis aid exceeds this threshold, there will be the need to adjust the amount requested.

Another key principle resulting from the aforementioned EU rules is the “one company” principle, which requires treating related enterprises to be a single beneficiary of de minimis aid specified in those provisions. This principle is aimed at counteracting the hypothetical situation of an artificial division of enterprises to increase the level of support received.

Compensation for the energy-intensive – almost one billion PLN to be distributed

The draft act on the compensation system for energy-consuming sectors and subsectors is at the final stage of the government legislative process and it will probably soon be discussed on the floor of the Parliament.

According to the project, entities that operate installations, manufacture products within the sector specified in the Annex to the draft Act (not necessarily as a part of their prevailing activity), that have implemented a specific energy management system, are not in liquidation or bankruptcy and are not in arrears with public law liabilities will be entitled to receive financial compensation.

The sector-specific qualifications covered entities that produce at least one product from the sector and the energy-intensive sub-sector classified under code PKD 2007/PKWiU 2015. The sectors and subsectors covered by the mechanism are:

  • 42 – aluminium production;
  • 91 – the mining of minerals for the chemical industry and for the production of fertilizers;
  • 13 – the manufacture of other inorganic basic chemicals;
  • 43 – lead, zinc and tin production;
  • 11 – the manufacture of leather clothes;
  • 99 – other manufacturing n.e.c. – specifically only the manufacturing of fire-resistant and protective clothing made of leather;
  • 10 – the manufacture of basic iron and steel and of ferro-alloys;
  • 20.11 – line pipes and profiles of steel, seamless;
  • 12 – the manufacture of paper and cardboard;
  • 15 – the manufacture of fertilizers and nitrogen compounds;
  • ex 38.21 – the treatment and disposal of non-hazardous waste – specifically only the manufacturing of compost associated with the disposal of non-hazardous waste;
  • 44 – copper production ;
  • 19.10 – 19.10 the manufacture of coke oven products – specifically only the manufacturing of pitch and coke;
  • 14 – the manufacture of other organic basic chemicals;
  • 10 – the preparation and spinning of textile fibres;
  • 60 – the manufacture of man-made fibres;
  • 10 – the mining of iron ores;
  • ex 09.90 – support services for other mining and quarrying – specifically only service activities supporting the mining of iron ores;
  • 16.10 – polymers of ethylene, in primary forms;
  • 16.51.0 – polymers of propylene in primary forms;
  • ex 20.16.30.0 – polymers of vinyl chloride in primary forms;
  • ex 20.16.40.0 – polycarbonates, in primary forms;
  • 11.14.0 – mechanical wood pulp; semi-chemical wood pulp; pulps of fibrous cellulosic material other than wood.

According to the project justification, the Ministry of Entrepreneurship and Technology (the author of the draft act) estimates that about 300 entities will be eligible to receive compensation. Compensation will be paid for the first time in 2020 for the year 2019. The budget of the instrument planned for the first year of its operation is almost 1 billion PLN.

The amount of compensation will depend on the method of calculation (the result of a number of variables) but, in all cases, the most important figure is that of the emission allowance. It will be calculated as the arithmetic mean of the daily closing prices of futures contracts traded on ICEX / EEX (with delivery date in December) within the period between 1st January till 31th December of the previous year for which compensation is granted.

The current version of the draft act states that the result of the calculation in the above-mentioned scope will be annually announced by the President of the ERO in relation to the year to which the compensation will apply. For the purposes of legislative work, in relation to 2019 The Ministry of Labour and Social Policy adopted the value of ca. 67 PLN, which enables determining the amount of an individual compensation based on the most basic method at the level of approx. 35 PLN / MW of consumed electricity. Thus it seems a prize worth fighting for.

Difficult choice – whom does it concern?

The total budget for the scheme has been set to almost 900 million PLN. If the amount  of positively verified applications submitted by interested entities reaches that amount , the amount of unitary compensation will be reduced proportionally.

Naturally, due to the recent drastic increase in the prices of emission allowances, it is to be expected that the forward price (that is the factor of the equation determining the amount of unitary compensation) will be high. The exact value that will be relevant when calculating the compensation for 2019, however, will be announced by the President of the ERO in the first month of 2020.

This means that the amount of compensation for 2019 may only be estimated by the stakeholders – with more or less uncertainty.

Here we return to the “electricity” law – the draft act on compensation states that the compensation for 2019 will be granted only to customers who forgo the equalization of prices for the first half of 2019 by submitting an appropriate statement to their energy suppliers. This means that there will be the need to choose between this compensation, the amount of which should be known at the time of making the decision, and the compensation for the entire year of 2019. It is possible that the deadlines for taking the above-mentioned decision will be rationalized at the stage of the parliamentary procedure, but a question arises as to the legitimacy of such a solution.

Could it be simpler?

It may be surprising that customers are faced with the need to choose between price compensation for the first half of 2019 and compensation for the entire 2019. It seems that the slightly more proportional measure was stipulated in the provision requiring the avoidance of aid accumulation, in the light of which the value of compensation obtained under the “electricity” law would be deducted from the amount of compensation that is granted . This solution is definitely more “standard” when it comes to public aid mechanisms.

Similar doubts as to the proportionality of the solutions applied arise from the fact that an entrepreneur who wants to use the mechanism included in the “electricity” law for the first half of the year will have to give up compensation for the entire 2019.

In the above mentioned context, it also seems significant that industrial enterprises in many other EU countries have been using compensation for years. However, according to the Polish law, due to the prolonged work on a legislative project called the “electricity” law and difficulties in defining the relationship between two legislative projects, the original intention to pay compensations for 2018 was abandoned.

Recommendations

From the perspective of the final customers who will be able to use “frozen” energy prices only in relation to the first half of 2019, it may be reasonable for an energy supplier to re-issue an invoice for the electricity that they have used. In the light of the act, such an invoice should be issued within 7 days from the date of the request for its issuance. The consequence of this action should be the adjustment of settlements between the supplier and the interested customer.

Entrepreneurs entitled to compensation should immediately estimate the amount they wish to claim. At this stage, it is impossible to determine how the deadlines for the key selection of the support mechanism will be set in the final version of the compensation provisions. It is worth noting, however, that the list of sectors attached to the draft act will not change – as these stem directly from the relevant EU guidelines.

Other entrepreneurs should, in turn, consider the legitimacy of applying also for de minimis aid. Nevertheless, to ensure compliance of such an action with the law, it will be necessary to verify the amount of this type of support obtained in the last three years. Importantly, a vast number of customers were granted such support. It often applies to marginal amounts, for example, for training or participation in conferences. To determining the amount of  aid for the last three tax years, it may be useful to consult the database of System Udostępniania Danych o Pomocy Publicznej (public aid information sharing system). It is worth mentioning that this database is very often used by administrative bodies, when they are examining applications for another type of support.

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