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by Jakub Plebański
1 June 2020
Poland shows high potential for production and use of biogas for energy purposes. As of 15 May 2020, the register of agricultural biogas producers (the prevailing method of biogas production) maintained by the National Agricultural Support Agency included only 96 entities with a total installed power of 109.69 MW and annual agricultural biogas production capacity of 442,323,552.800 m3.
This is a small figure, especially in comparison with Germany having approximately 9000 biogas plants or the Czech Republic, which had 574 biogas plants with a total installed power of 367 MW on 31 December 2019.
The hitherto locked potential of Polish biogas is particularly surprising in the context of research conducted by scientists at the Poznan University of Life Sciences, who estimated in 2018 the annual biogas production capacity at 13.5 billion m3, including 7.8 billion m3 of biomethane. The Ministry of Energy also noticed the potential of energy production from biogas when they drafted the updated Energy Policy of Poland until 2040. According to that document, the advantage of biogas lies in its ability to be used for regulatory purposes, which seems particularly significant for the flexibility of the National Electric Power System. The data let us conclude that undoubtedly the Polish market is unsaturated and at an early stage of development. In this article we are looking at the dedicated support systems for energy production in biogas plants and trying to answer the question if the current legal situation is conducive to biogas power production in Poland.
The Renewable Energy Sources Act differentiates between biogas and agricultural biogas. Ordinary biogas is defined as gas obtained from biomass, especially in animal and vegetable waste processing plants, sewage treatment plants or landfills. Definition of agricultural biogas is more detailed – it is gas obtained in the process of methane fermentation of agricultural raw materials, agricultural by-products, liquid or solid animal manure, by-products, waste or leftovers of processing of agricultural produce or forest biomass, or vegetable biomass collected from areas other than registered as agricultural or forest areas, excluding biogas obtained from raw materials from landfills as well as sewage treatment plants, including company treatment plants for agricultural and food processing waste in which industrial sewage is not separated from other types of residue and sewage. Plants which produce energy from ordinary biogas as well as agricultural biogas are treated as renewable energy sources by the statute. Interestingly, electricity production in agricultural biogas plants is exempt from licence regardless of the plant size.
The main advantage of both systems is the guaranteed purchase price of electricity. However, the feed-in tariff and feed-in premium systems are limited to producers which are at the same time energy companies. This means that these support systems are not available to prosumers and individuals who produce electricity from agricultural biogas in microplants.
The feed-in tariff system is reserved for producers which run biogas plants with a total installed power of less than 500 kW. In this system, electricity not used by a producer is sold to an ‘obliged seller’ which is usually an energy company which trades in that electricity. An obliged seller is appointed for a given area by the President of the Energy Regulatory Office. That seller is obliged to buy a certain amount of electricity at a pre-agreed guaranteed price. Generally, this limits the producer’s risk connected with finding a buyer for the electricity he offers and with price structuring in the long-term. The price of electricity purchased in the feed-in tariff system depends on the reference price set for each type of plant. The current price for 1 MWh of electricity sold through FiT is 95% of the reference price set in the Climate Minister’s regulation.
The feed-in premium system is dedicated to larger biogas plants, i.e. with a total installed power ranging from no less than 500 kW to no more than 2.5 MW. In contrast to the FiT system, there is no ‘obliged seller’ in the FiP system. This means that a producer has to sell all electricity he produces on arm's length terms. At the same time, lawmakers have designed a kind of a safety buffer for producers in the FiP system. No matter what price they get for the electricity sold on market terms, they are guaranteed to have the negative balance equalised. This right lets producers obtain subsidies in the amount of the difference between the market price of electricity for which the producers sell it and the equivalent of 90% of the reference price set in the Climate Minister’s regulation. The subsidies are paid out by a state-owned enterprise named Zarządca Rozliczeń S.A. Therefore, the FiP system helps producers to gradually become self-reliant. On the one hand, they are protected by the right to have a negative balance equalised, while on the other hand they operate on market terms and the statute does not limit the price for which they sell electricity to their business partners.
In both systems, any previously granted investment aid is deducted from the amount of support. Beyond any doubt, one of the advantages of both systems FiT and FiP is no need to feed any declared electricity into the grid, and consequently no risk of fines for failure to do so. A producer may use the energy he produces for his own needs. In both systems, there is no need to win any auction – the only requirement is to submit a duly filled in declaration. From the investor’s perspective, it is difficult not to appreciate the stability offered by investing in biogas projects operating in the FiT and FiP systems.
Biogas plants may participate in renewable energy auctions in the “pay as bid” formula. Since the size of biogas plants operating in the FiT and FiP systems is limited by power, the auction system is particularly recommended to plants with installed power of 2.5 MW or more. To benefit from the support, producers place bids on auction by declaring a specific amount of electricity which they undertake to sell over 15 years of the support system’s lifetime. Auction bids are evaluated above all in terms of price. Importantly, the value of energy offered is regulated through reference prices which serve as maximum prices of energy offered on renewable energy auctions. The reference prices are published in the Climate Minister’s regulation. If a producer wins a RES auction, he will have the right to have his negative balance equalised, like in the FiP system. The key difference is that the right to equalise the negative balance is counted on the difference between the average price of electricity on the competitive market and the price declared by the producer in his auction bid. In contrast to the FiT and FiP systems, by participating in the auction system producers commit themselves to sell a specified volume of electricity and they face sanctions for failure to fulfil that commitment. Moreover, producers have an obligation to report on, among other things, the project implementation schedule and the date of first sale of electricity from a given plant. This forces producers to keep discipline in the project implementation.
In view of the above factors, biogas plants seem to be an interesting alternative to the most common forms of investing in renewable energy sources in Poland. The support measures described in this article are new as they have been implemented over the last few years to encourage investing in biogas plant development in Poland. Their main advantages include stability and high financial predictability, which is particularly important for sourcing capital for project implementation. Interestingly, development of biogas is closely related to the potential of the Polish agricultural industry, which is one of the most robust in the European Union. In this context, we are expecting an increase in investment dynamics of the biogas industry in Poland in the near future.
Jakub Plebański
Lawyer (Poland)
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